<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 5, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-21097
EINSTEIN/NOAH BAGEL CORP.
(Exact name of registrant as specified in its charter)
Delaware 84-1294908
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14123 Denver West Parkway
Golden, CO 80401
(Address of principal executive offices, including zip code)
(303) 215-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Number of shares of common stock, $.01 par value per share, outstanding as of
October 31, 1997: 33,228,068.
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of December 29, 1996 and
October 5, 1997................................................ 3
Consolidated Statements of Operations for the quarter and three
quarters ended October 6, 1996 and October 5, 1997............. 4
Consolidated Statements of Cash Flows for the three quarters
ended October 6, 1996 and October 5, 1997...................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities...................................... 15
Item 6. Exhibits and Reports on Form 8-K........................... 15
Signature Page...................................................... 16
Exhibit Index....................................................... Exhibit -1
</TABLE>
2
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 29, October 5,
1996 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents.................................. $ 50,741 $ 30,522
Accounts receivable........................................ 5,589 14,910
Prepaid expenses and other current assets.................. 579 237
Deferred income taxes...................................... - 300
------------------ -----------------
Total current assets...................................... 56,909 45,969
Property and Equipment, net................................. 28,213 29,028
Notes Receivable:
Area developers............................................ 140,754 300,744
Others..................................................... 5,333 3,437
Goodwill, net............................................... 68,921 65,263
Trademarks, net............................................. 22,239 22,064
Recipes, net................................................ 4,758 7,370
Other Assets, net........................................... 5,291 14,172
------------------ -----------------
Total assets.............................................. $ 332,418 $ 488,047
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable........................................... $ 3,873 $ 3,483
Accrued expenses........................................... 3,615 8,045
Deferred franchise revenue................................. 3,000 2,000
------------------ -----------------
Total current liabilities................................. 10,488 13,528
Convertible Subordinated Debentures......................... - 125,000
Deferred Franchise Revenue.................................. 6,105 6,076
Other Noncurrent Liabilities................................ 308 296
Commitments and Contingencies
Stockholders' Equity:
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; issued and outstanding:
32,299,756 in December and 33,293,468
in October................................................ 323 333
Additional paid-in capital................................. 353,203 365,167
Accumulated deficit........................................ (38,009) (22,353)
----------------- ---------------
Total stockholders' equity............................... 315,517 343,147
----------------- ---------------
Total liabilities and stockholders' equity.............. $ 332,418 $ 488,047
================= ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
------------------------------ ------------------------------
October 6, October 5, October 6, October 5,
1996 1997 1996 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Royalties and franchise-related fees.......... $ 5,996 $ 7,578 $13,755 $24,904
Interest income............................... 1,940 6,304 3,277 16,878
Company-operated stores....................... 2,321 - 33,810 2,103
------------ -------------- -------------- -------------
Total revenue............................... 10,257 13,882 50,842 43,885
Costs and Expenses:
Cost of products sold......................... 793 - 10,871 704
Salaries and benefits......................... 1,842 1,390 16,286 6,158
General and administrative.................... 3,387 3,225 18,417 12,382
------------ -------------- -------------- -------------
Total costs and expenses.................... 6,022 4,615 45,574 19,244
------------ -------------- -------------- -------------
Income from Operations.......................... 4,235 9,267 5,268 24,641
Other Income (Expense):
Interest expense, net......................... (282) (1,493) (6,266) (2,066)
Other income, net............................. - - 1,929 -
----------- -------------- -------------- -------------
Total other expense......................... (282) (1,493) (4,337) (2,066)
----------- -------------- -------------- -------------
Income Before Income Taxes...................... 3,953 7,774 931 22,575
Income Taxes.................................... - 2,410 - 6,919
----------- -------------- -------------- -------------
Net Income...................................... $ 3,953 $ 5,364 $ 931 $15,656
=========== ============== ============== =============
Net Income Per Common and
Equivalent Share.............................. $ 0.13 $ 0.16 $ 0.04 $ 0.45
=========== ============== ============== =============
Weighted Average Number of Common
and Equivalent Shares Outstanding............. 30,377 34,578 19,225 34,776
=========== ============== ============== =============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
----------------------------
October 6, October 5,
1996 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 931 $ 15,656
Adjustments to reconcile net income to net cash
from (used in) operating activities:
Depreciation and amortization........................... 4,205 4,646
Gain on sale of marketable equity securities............ (1,824) -
Deferred income taxes................................... - (300)
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable................................... (3,065) (10,021)
Accounts payable and accrued expenses................. (8,497) 8,341
Deferred franchise revenue............................ 7,745 (1,030)
Other assets and liabilities.......................... (6,268) (107)
--------------- ---------------
Net cash provided by (used in) operating activities. (6,773) 17,185
--------------- ---------------
Cash Flows from Investing Activities:
Purchase of property and equipment........................ (33,951) (6,588)
Proceeds from sale of assets.............................. 54,198 3,600
Purchase of other assets.................................. (5,672) (9,827)
Acquisition of Noah's New York Bagels, Inc., net of cash
acquired.................................................. (100,902) -
Issuance of notes receivable.............................. (150,012) (299,808)
Repayment of notes receivable............................. 51,266 139,869
Purchase of marketable equity securities.................. (66,778) -
Proceeds from sales of marketable equity securities....... 68,602 -
--------------- ---------------
Net cash used in investing activities................... (183,249) (172,754)
--------------- ---------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................... 103,691 10,350
Proceeds from issuance of convertible subordinated
debentures................................................ - 125,000
Borrowings under credit facilities........................ 312,572 62,200
Repayments under credit facilities........................ (231,372) (62,200)
--------------- ---------------
Net cash provided by financing activities............... 184,891 135,350
--------------- ---------------
Net Decrease in Cash and Cash Equivalents................... (5,131) (20,219)
Cash and Cash Equivalents, beginning of period.............. 5,368 50,741
--------------- ---------------
Cash and Cash Equivalents, end of period.................... $ 237 $ 30,522
=============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
5
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements have been prepared by Einstein/Noah
Bagel Corp. (the "Company") and are unaudited except for the consolidated
balance sheet at December 29, 1996 and notes related thereto. The financial
statements have been prepared in accordance with the instructions for Form 10-Q
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 consolidated 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 year-end audit
adjustment. A description of the Company's accounting policies and other
financial information are included in the audited consolidated financial
statements as filed with the Securities and Exchange Commission in the Company's
Form 10-K/A for the year ended December 29, 1996. The consolidated results of
operations for the quarter and three quarters ended October 5, 1997 are not
necessarily indicative of the results expected for the full year.
2. Area Developer Financing
The Company currently offers partial financing to its area developers for
use in expansion of their operations in the form of convertible secured loans.
The maximum loan amount is established to give the Company majority ownership of
the area developer upon conversion (or option exercise, as described further
below) provided the Company exercises its right to participate in any
intervening financing by the area developer. Area developer financing requires
the developer to expend at least 75% of its contributed capital toward
developing stores prior to drawing on the revolving loan facility provided by
the Company, with draws permitted during a three-year draw period in a
predetermined maximum amount generally equal to four times the amount of the
area developer's contributed capital. Upon expiration of the draw period, the
loan converts to an amortizing term loan payable over five years in periodic
installments, with a final balloon payment. The Company may extend the draw and
repayment periods in connection with the area developer purchasing additional
development rights, contributing additional capital or other amendments to the
loan agreement. Interest is set at the applicable reference rate of Bank of
America National Trust and Savings Association (8.50% at October 5, 1997, an
average rate of 8.50% for the quarter ended October 5, 1997 and an average rate
of 8.42% for the three quarters ended October 5, 1997) plus 1%, and is payable
each four-week period. The loan is secured by a pledge of substantially all of
the assets of the area developer. The Company has announced a proposal by the
Company's management to convert its loans into a majority equity interest in
each of its area developers. See Note 8 -- Subsequent Events.
(a) Loan Conversion Option
All or any portion of the loan amount may be converted, at the Company's
election at any time after the expiration of a specified moratorium period
(generally two years) and after the area developer has completed not less than
80% of its area development commitment or in the event of certain defaults, into
equity in the area developer at the conversion price set forth in such loan
agreement, which is at a premium over the per unit price paid by the investors
in the area developer for their equity investment made concurrently with the
execution of the loan agreement. Default provisions contained in the area
developer loans typically include default in payment of principal and interest,
breach of a representation or warranty or of any covenant contained in the loan
agreement or security instruments, bankruptcy or bankruptcy-related act of the
borrower, resignation or termination of key management personnel, default under
the area development agreement, termination of three or more franchise
agreements, dissolution or liquidation, material adverse change in financial
condition, default of other indebtedness, sublease or any real estate lease, a
judgment in excess of $100,000 (not satisfied, vacated or covered by insurance)
and the invalidity or termination of any security instrument. The conversion
price as set forth in the loan agreements was negotiated at arms' length with
each area developer and is set at a premium over the per unit price paid by the
investors in the area developer for their equity investment made concurrently
with the execution of the loan agreement or subsequent amendments thereto. Upon
conversion, the Company would own, on average, approximately 77% of the
outstanding equity interest in each of its area developers. To the extent such
loan is not fully drawn or has been drawn and repaid, the Company has a
corresponding option to acquire at the loan conversion price the amount of
additional equity it could have acquired by conversion of the loan had it been
fully drawn. See Note 8 -- Subsequent Events.
6
<PAGE>
(b) Commitments to Extend Area Developer Financing
The following table summarizes credit commitments for area developer
financing (in thousands of dollars, except number of area developers):
<TABLE>
<CAPTION>
December 29, October 5,
1996 1997
------------ ----------
<S> <C> <C>
Number of area developers receiving financing..... 11 5
Loan commitments.................................. $ 283,200 $359,900
Unused loans...................................... (142,446) (59,156)
------------ ----------
Loans outstanding................................. $ 140,754 $300,744
============ ==========
Contributed capital............................... $ 75,765 $109,126
============ ==========
</TABLE>
During the first three quarters of 1997, one area developer was formed and
several area developers merged, reducing the number of area developers receiving
financing from eleven to five.
The following table summarizes area developer financing activity (in
thousands of dollars):
<TABLE>
<CAPTION>
Three Quarters Ended
October 6, October 5,
1996 1997
------------ ----------
<S> <C> <C>
Area developer loan balances, beginning of year... $ 3,538 $ 140,754
Loan advances..................................... 147,668 299,808
Loan repayments................................... (50,476) (139,818)
------------ ----------
Area developer loan balances, end of quarter...... $100,730 $ 300,744
============ ==========
</TABLE>
The majority of the loan advance and repayment activity reflects the
revolving nature of the loans; that is, amounts are drawn and repaid on a
regular basis to optimize cash management.
(c) Credit Risk and Allowance for Loan Losses
The Company's five area developers accounted for approximately 26%, 24%,
20%, 16% and 14% of the area developers' notes receivable balance at October 5,
1997.
The allowance for area developer loan losses is maintained at a level that
in management's judgment is adequate to provide for estimated possible loan
losses. The amount of the allowance is based on management's review of each area
developer's use of loan proceeds, stage of development, adherence to its store
development schedule, store performance trends, type and amount of collateral
securing the loan, prevailing economic conditions and other factors which
management deems relevant at the time. Based upon this review and analysis, no
allowance for loan losses was required as of December 29, 1996 or October 5,
1997.
7
<PAGE>
The following table sets forth certain combined audited financial
information, as of the dates indicated, provided annually by all the Company's
area developers. During 1995, two area developers were formed, and their data
has been included in the table for 1995 from their respective dates of
formation. During 1996, ten area developers were formed, and their data has been
included in the table for 1996 from their respective dates of formation. In
addition, two area developers with geographically contiguous territories
combined in 1996.
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
(in thousands, except number of area
developers and store data)
<S> <C> <C>
Total number of area developers.......................... 2 11
Total number of area developer stores open............... 13 301
Balance sheet data:
Total gross assets..................................... $ 9,262 $ 221,156
Total debt:
To the Company....................................... 3,538 140,754
To third parties..................................... - -
Total other liabilities (including trade payables)..... 3,011 37,033
Total partner/member equity............................ 2,676 33,847
<CAPTION>
Fiscal Period Ended
---------------------------------
December 31, December 29,
1995 1996
------------ ------------
(in thousands)
Statement of operations data:
Gross revenue.......................................... $ 768 $ 109,940
Loss from continuing operations........................ (1,324) (40,592)
Statement of cash flows data:
Cash flows from (used in) operating activities......... $ 1,616 $ (16,382)
Cash flows used in investing activities................ (8,064) (187,955)
Cash flows from financing activities................... 7,038 205,756
------------ ------------
Net change in cash................................... $ 590 $ 1,419
============ ============
</TABLE>
3. Convertible Subordinated Debentures
On May 29, 1997, the Company issued $125.0 million aggregate principal
amount of 7-1/4% convertible subordinated debentures due June 1, 2004. Interest
is payable semi-annually on June 1 and December 1 of each year beginning
December 1, 1997. The debentures are convertible at any time prior to maturity
into shares of the Company's common stock at a conversion rate of $21.25 per
share, subject to adjustments under certain conditions. The debentures may be
redeemed at the option of the Company beginning June 1, 2000, initially at
104.14% of their principal amount and at declining prices thereafter, plus
accrued interest. In addition, the Company is required, as of 40 business days
after the occurrence of a Change of Control (as defined in the indenture
relating to the debentures) to purchase all or any part of any debenture at the
option of the debenture holder.
8
<PAGE>
4. Royalties and Franchise-Related Fees
The following table sets forth the components of royalties and franchise-
related fees (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
---------------------------- ----------------------------
October 6, October 5, October 6, October 5,
1996 1997 1996 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Royalties......................................... $ 1,994 $ 4,386 $ 3,669 $ 12,559
Initial franchise and area developer fees......... 3,480 2,440 9,140 9,880
Real estate fees and lease income................. 364 585 364 2,076
Other............................................. 158 167 582 389
----------- ----------- ----------- -----------
$ 5,996 $ 7,578 $ 13,755 $ 24,904
=========== =========== =========== ===========
</TABLE>
5. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires disclosure of basic and diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the reporting period. Diluted earnings
per share reflects potential dilution if derivative securities or other
contracts to issue common stock were exercised or converted into common stock.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. The pro forma earnings per share, calculated in
accordance with the requirements of SFAS No. 128, are as follows:
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
----------------------------- ------------------------------
October 6, October 5, October 6, October 5,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share............ $0.14 $0.16 $0.05 $0.48
Diluted earnings per share.......... 0.13 0.16 0.04 0.45
</TABLE>
6. Commitments
As of October 5, 1997, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested approximately $89.5 million in the common equity of the
Company's area developers. The Company is the manager of Bagel Funding but owns
no equity interest in Bagel Funding. Bagel Funding has the right to require each
area developer to redeem Bagel Funding's equity interest in an area developer at
a pre-determined formula price based on the store level cash flow of the area
developer in the event that (i) the Company acquires a majority equity interest
in the area developer pursuant to the exercise of its conversion or option
rights under the area developer's secured loan agreement; (ii) the Company does
not consent to the area developer's request to undertake a firm commitment
underwritten public offering after the Company's conversion and option rights
have expired unexercised; or (iii) the Company does not consent to the area
developer's request to terminate the area developer's area development and
franchise agreements with the Company after the Company's conversion and option
rights have expired unexercised. In the event the area developer does not redeem
Bagel Funding's equity interest when required to do so, the Company will be
obligated to purchase from Bagel Funding its equity interest in the area
developer at the same price applicable to the area developer. See Note 8 -
Subsequent Events.
7. Contingencies
The Company, certain of its executive officers and directors and the
underwriters in the Company's initial public offering are defendants in a class
action lawsuit filed in the United States District Court for the District of
Colorado. The lawsuit is comprised of separate actions that have been
consolidated into one action for pre-trial purposes. In addition, an action was
filed in state court in Jefferson County, Colorado, against the Company and the
other defendants. The complaints in such actions allege, among other things,
that the Company and the other defendants violated Sections 11, 12(2) and 15 of
the Securities Act of 1933, as amended, and Section 10(b) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, as well
as certain similar provisions of Colorado state law. In each case, the
plaintiffs are seeking, among other things, (i) to certify their complaint as a
class action on behalf of all persons who purchased the Company's common stock
during the purported class period, (ii) an
9
<PAGE>
award of unspecified compensatory damages, interest and costs to all members of
the purported class, and (iii) equitable relief permitted by law, equity or
federal or state statutes. The Company believes the complaints are without merit
and intends to vigorously defend against the allegations made in the complaints.
The Company is also subject to various lawsuits, claims and other legal
matters in the course of conducting its business, including its business as a
franchisor. The Company believes that the outcome of such other lawsuits, claims
and legal matters will not have a material impact on the Company's financial
position or results of operations.
8. Subsequent Events
On October 29, 1997, the Company announced that its board of directors
recommended that the Company seek to acquire a majority interest in its five
area developers and appointed a special committee in connection with such
proposed transaction. Among other things, the special committee will consider a
proposal by the Company's management to convert the secured loans made by the
Company to the area developers into majority ownership of each area developer
and then to merge the area developers into a single entity. The proposed loan
conversions and area developer merger would result in the Company owning
approximately 77% of the outstanding equity interest in the surviving area
developer with the remaining equity interest continuing to be owned by area
developer management and Bagel Funding. In connection with such proposed
transactions, the Company would request modification of Bagel Funding's right to
require the area developers to purchase Bagel Funding's interest in the area
developers in certain circumstances. See Note 6 -- Commitments. If required
approvals are obtained, including approval of the special committee and the
Company's board of directors, and approval of the equity owners of the Fund and
the area developers, the Company expects that the conversion of its loans to,
and the merger of, the area developers would be completed by the end of 1997.
Also on October 29, 1997, the Company signed a commitment letter with
respect to new credit facilities consisting of a $30 million secured term loan
facility and a $40 million secured revolving credit facility (the "New Credit
Facilities") with Bank of America National Trust and Savings Association,
LaSalle National Bank and General Electric Capital Corporation. The New Credit
Facilities will replace the Company's current secured revolving credit facility,
which had no balance outstanding as of October 5, 1997. The closing of the New
Credit Facilities is subject to the negotiation of definitive documentation and
certain other customary terms and conditions.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of Einstein/Noah Bagel Corp. (the "Company"), its
area developers, and Einstein Bros.(R) Bagels and Noah's New York Bagels(R)
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; area developers' adherence to
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, Inc. ("Boston Chicken"), the
Company's majority stockholder; 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 regulations; regional weather conditions; and other
factors referenced in this Form 10-Q. The success of the Company is dependent on
its area developers and the manner in which they operate and develop Einstein
Bros. Bagels and Noah's New York Bagels stores. 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 "believes", "belief", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. All cautionary
statements made herein should be read as being applicable to all forward-looking
statements wherever they appear.
All forward-looking statements relating to the Company's proposed
conversion of its loans into a majority equity interest in its area developers
and the merger of the area developers into a single entity are subject to, among
other things, various board, special committee and other approvals and
conditions, and negotiation of definitive agreements on acceptable terms. There
can be no assurance that such transactions will be consummated.
General
On October 29, 1997, the Company announced that its board of directors had
recommended that the Company seek to acquire a majority equity interest in its
five area developers and had appointed a special committee (the "Special
Committee") in connection with such proposed transaction. Among other things,
the Special Committee of independent directors will consider a proposal by the
Company's management to convert the secured loans made by the Company to the
area developers into majority ownership of each area developer (the "Loan
Conversions") and then to merge the area developers into a single entity (the
"Area Developer Merger"). The proposed Loan Conversions and Area Developer
Merger would result in the Company owning approximately 77% of the outstanding
equity interest in the surviving area developer with the remaining equity
interest continuing to be owned by area developer management and Bagel Store
Development Funding, L.L.C.
The board of directors' recommendation that the Company seek to acquire a
majority equity interest in its area developers was based primarily on the
board's determination that such a transaction would promote a number of business
objectives, including (i) enhancing the Company's focus on store operations,
(ii) unifying store operations to strengthen the Company's brands and offer its
customers a more consistent experience, (iii) enhancing performance incentives
of area developer personnel, (iv) reducing systemwide overhead, (v) facilitating
debt financing and (vi) improving systemwide tax efficiency. See "Special Note
Regarding Forward-Looking Statements" above.
The proposed Loan Conversions will significantly impact the Company's
results of operations and financial position. As a result of the board of
directors' actions, the Company will no longer recognize the initial franchise
and area developer fees for new stores opened by its area developers unless the
Company determines not to acquire a majority equity interest in the area
developers. If the Loan Conversions are completed, the Company would become
11
<PAGE>
the majority equity owner of each area developer, and the Company would
consolidate the area developers' operations in its financial statements.
Consequently, the franchise and related fees earned by the Company (including
interest, royalties, real estate-related fees and software fees) from the area
developers would be eliminated from the Company's financial statements in
consolidation. The operating results of the area developers (primarily store
revenue, less expenses) would be included in the Company's financial results.
Such results would be adjusted for the remaining minority interest in the
surviving area developer after completion of the Area Developer Merger. If the
proposed transactions are completed, the Company would expect to report positive
consolidated earnings before interest, taxes, depreciation and amortization
expenses ("EBITDA") in 1998; however, due primarily to significant depreciation
charges associated with the acquisition of a Company-store base and significant
goodwill amortization charges resulting from the transactions, the Company would
expect to report a net loss in 1998.
Consolidated EBITDA is dependent upon a number of factors, including the
number of stores in operation systemwide, the net weekly per store average
revenue and cash flow of such stores, and systemwide overhead expenses. The
Company's financed area developers have incurred net losses to date, including
$1.3 million in 1995 and $40.6 million in 1996. Such amounts include (a)
approximately $13.9 million in royalties, interest and related fees charged by
the Company to its area developers, and (b) approximately $10.5 million in
depreciation and amortization charges. Although royalties, interest and related
fees are eliminated in consolidation and the Company and its area developers
have recently taken steps to reduce systemwide overhead, there can be no
assurance that the Company will achieve positive consolidated EBITDA.
If approved by the board of directors, the consummation of the Loan
Conversions and the Area Developer Merger will be subject to various approvals
and other conditions and negotiation of definitive agreements on acceptable
terms. If such approvals are obtained and such conditions satisfied, the Company
expects that the Loan Conversions and the Area Developer Merger would be
completed by the end of 1997. There can be no assurance, however, that such
transactions will be consummated. See "Special Note Regarding Forward-Looking
Statements" on page 11.
Results of Operations
Revenue. Royalty and franchise-related fees increased to $7.6 million for
the quarter ended October 5, 1997 from $6.0 million for the prior comparable
quarter. Royalty and franchise-related fees increased to $24.9 million for the
three quarters ended October 5, 1997 from $13.8 million for the prior comparable
period. The increases were primarily due to an increase in royalties, real
estate fees and lease income attributable to the larger base of franchise stores
operating systemwide. The number of franchise stores increased to an average of
510 stores for the third quarter of 1997 from an average of 200 stores for the
prior comparable quarter, and increased to an average of 428 stores for the
first three quarters of 1997 from an average of 106 stores for the prior
comparable period.
Interest income from loans to area developers increased to $6.3 million for
the quarter ended October 5, 1997 from $1.9 million for the prior comparable
quarter. Interest income from loans to area developers increased to $16.9
million for the three quarters ended October 5, 1997 from $3.3 million for the
prior comparable period. These increases were due to higher outstanding loan
balances associated with the increase in stores opened by the Company's area
developers.
Revenue from Company-operated stores decreased from $2.3 million for the
quarter ended October 6, 1996 to $-0- for the quarter ended October 5, 1997 and
decreased from $33.8 million for the three quarters ended October 6, 1996 to
$2.1 million for the three quarters ended October 5, 1997. The decreases were
due to the sale of Company-operated stores to the Company's area developers.
There was an average of 48 Company-operated stores for the three quarters ended
October 6, 1996 compared to an average of five Company-operated stores for the
three quarters ended October 5, 1997.
Total systemwide net revenue increased to $77.0 million for the third
quarter of 1997 compared to $37.1 million for the prior comparable quarter and
increased to $223.4 million for the three quarters ended October 5, 1997
compared to $95.8 million for the prior comparable period. The increase in
systemwide net revenue was primarily due to an increase in the number of stores
in operation systemwide.
Cost of Products Sold. Because there were no Company-operated stores during
the quarter ended October 5, 1997, there was no cost of products sold. Cost of
products sold was $793,000 for the prior comparable quarter. Cost of products
sold decreased to $704,000 for the three quarters ended October 5, 1997 from
$10.9 million for the prior comparable period. The decrease for the three
quarters ended October 5, 1997 was primarily due to the decrease in the number
of Company-operated stores. Cost of products sold as a percent of store revenue
increased to 33.5% for the
12
<PAGE>
three quarters ended October 5, 1997 from 32.2% for the prior comparable period.
The increase was primarily due to changing product mix.
Salaries and Benefits. Salaries and benefits decreased to $1.4 million for
the quarter ended October 5, 1997 from $1.8 million for the prior comparable
quarter and decreased to $6.2 million for the three quarters ended October 5,
1997 from $16.3 million for the prior comparable period. The decreases were
primarily due to the sale of Company-operated stores to area developers in 1997.
General and Administrative. General and administrative expenses decreased
to $3.2 million for the quarter ended October 5, 1997 from $3.4 million for the
prior comparable quarter and decreased to $12.4 million for the three quarters
ended October 5, 1997 from $18.4 million for the prior comparable period. The
decreases were primarily due to the sale of Company-operated stores to its area
developers in 1997.
Other Income (Expense). Other Income (Expense) consists primarily of
interest expense, net of interest income. Net interest expense was $1.5 million
for the quarter ended October 5, 1997 compared to $282,000 for the prior
comparable quarter. Net interest expense was $2.1 million for the three quarters
ended October 5, 1997 compared to $6.3 million for the prior comparable period.
The increase in the quarter was due to the interest on the Company's convertible
subordinated debentures. The decrease for the three quarters was due to lower
levels of outstanding debt, on average, in 1997 compared to 1996. Net interest
expense was offset in 1996 by other income from gains on the sale of marketable
equity securities.
Income Taxes. The provision for income taxes for the three quarters ended
October 5, 1997 reflects the Company's expected effective tax rate.
Liquidity and Capital Resources
Liquidity. The Company's primary sources of capital in 1997 have been from
issuances of debt securities and internally generated cash from operations. For
the three quarters ended October 5, 1997, the Company completed the issuance of
$125.0 million of 7 1/4% convertible subordinated debentures due 2004. Cash
generated from operations totaled $17.2 million for the three quarters ended
October 5, 1997.
The Company's primary use of capital reflects its goal of establishing
brand awareness and market leadership by providing partial financing to its area
developers for their use in store development and to finance their working
capital needs. As of October 5, 1997, the Company had secured loan commitments
to its area developers aggregating $359.9 million, of which $300.7 million had
been advanced. Net loan advances to area developers were $160.0 million for the
three quarters ended October 5, 1997.
In addition to providing funding to its area developers, the Company's
capital requirements have consisted of development of its corporate
infrastructure, which supports systemwide expansion, and investments in food
production facilities. During the first three quarters of 1997, the Company
expended $6.6 million related to its corporate infrastructure and investments in
food production facilities.
On October 29, 1997 the Company signed a commitment letter with respect to
new credit facilities consisting of a $30 million secured term loan facility
(the "Secured Term Loan Facility") and a $40 million secured revolving credit
facility (the "Revolving Credit Facility" and together with the Secured Term
Loan Facility, the "New Credit Facilities") with Bank of America National Trust
and Savings Association ("Bank of America"), LaSalle National Bank and General
Electric Capital Corporation, maturing October 31, 2000. The New Credit
Facilities will replace the Company's existing secured revolving credit facility
with Bank of America, as agent, which had no balance outstanding as of October
5, 1997. Availability of the New Credit Facilities will be subject to certain
financial covenants. The closing of the New Credit Facilities is subject to the
negotiation of definitive documentation and certain other customary terms and
conditions. The New Credit Facilities and the Company's cash from operations are
expected to finance development of between 150-200 new stores in 1998. There can
be no assurance that the Company will be able to negotiate definitive loan
documents with respect to the New Credit Facilities on satisfactory
13
<PAGE>
terms or that the New Credit Facilities will be consummated on terms consistent
with the commitment letter. See "Special Note Regarding Forward-Looking
Statements" on page 11.
In addition, Boston Chicken has made available to the Company a non-
convertible loan facility of up to $50.0 million, none of which was outstanding
as of October 5, 1997. However, there can be no assurance that funding under
such facility will be available to the Company if and when requested.
The timing of the Company's capital requirements will be affected by the
number of stores opened and the operational results of the ENBC system. If the
Company is unable to consummate the New Credit Facilities, it will need
additional capital from other sources for working capital needs and to
accomplish its expansion goals. There can be no assurance that additional
capital would be available on satisfactory terms. If the New Credit Facilities
are not obtained, consummation of the Loan Conversions would result in a default
under the Company's existing credit facility unless appropriate waivers are
obtained from the Company's lenders. Additionally, although management believes
that cash from operations and the New Credit Facilities will be sufficient to
fund the Company's expansion goals for 1998, there can be no assurance that the
Company will not need additional capital to carry out its expansion plans. In
the event such capital is required, there can be no assurance that the Company
or its area developers will be able to raise such capital on satisfactory terms,
if at all, when needed. See "Special Note Regarding Forward-Looking Statements"
on page 11.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth under Note 7 of the Company's Notes to
Consolidated Financial Statements contained in Part I of this Form
10-Q is incorporated herein by reference thereto.
Item 2. Changes in Securities.
(c) During the third quarter of 1997, the Company issued 19,685 shares of
the Company's common stock upon the exercise of certain warrants for
an aggregate purchase price of $127,362. All of such shares were
issued and sold without registration under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits: See Exhibit Index appearing elsewhere herein, which is
incorporated herein by reference.
B. Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended October 5, 1997.
15
<PAGE>
SIGNATURES
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 thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP.
Date: November 18, 1997
/s/ Mark R. Goldston
------------------------------------
Mark R. Goldston
Chief Executive Officer
Date: November 18, 1997
/s/ Jeffrey L. Butler
------------------------------------
Jeffrey L. Butler
President
Date: November 18, 1997
/s/ W. Eric Carlborg
------------------------------------
W. Eric Carlborg
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
Number Exhibits*
- ------ --------
10.1 Fourth Amendment dated August 11, 1997 to Secured Credit Agreement by
and among the Company, the Lenders referenced therein and Bank of
America National Trust and Savings Association ("Bank of America"), as
Agent (incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 13, 1997).
10.2 Fifth Amendment dated October 3, 1997 to Secured Credit Agreement by
and among the Company, the Lenders referenced therein and Bank of
America, as Agent (incorporated by reference to Exhibit 10.7 to Boston
Chicken, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
October 5, 1997).
10.3** Amended and Restated Project and Approved Supplier Agreement dated
August 15, 1997 among the Company, Harlan Bagel Supply Company,
L.L.C., ("Harlan") Harlan Bakeries, Inc., Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan.
10.4 Amended and Restated Option Agreement dated August 15, 1997 among the
Company, Harlan, Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan.
10.5 1997 Stock Option Plan of the Company.
11 Statement re: Computation of Earnings (Loss) Per Share.
27 Financial Data Schedule.
99 Uniform Franchise Offering Circular dated March 27, 1997, as amended
August 20, 1997.
* In the case of incorporation by reference to documents filed by Boston
Chicken, Inc. under the Securities Exchange Act of 1934, as amended, Boston
Chicken, Inc.'s file number under that Act is 0-22802.
** Confidential treatment requested.
Exhibit - 1
<PAGE>
Exhibit 10.3
AMENDED AND RESTATED
PROJECT AND
APPROVED SUPPLIER AGREEMENT
August 15, 1997
among
EINSTEIN/NOAH BAGEL CORP.,
HARLAN BAGEL SUPPLY COMPANY, LLC,
HARLAN BAKERIES, INC.,
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
AMENDED AND RESTATED
PROJECT AND
APPROVED SUPPLIER AGREEMENT
This amended and restated agreement (the "Agreement") is made and entered
into as of this 15th day of August, 1997 by and among Einstein/Noah Bagel Corp.,
a Delaware corporation ("ENBC"), Harlan Bagel Supply Company, LLC, an Indiana
limited liability company (the "Supplier"), Harlan Bakeries, Inc., an Indiana
corporation ("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan. The
Supplier and Harlan are herein sometimes collectively referred to as the "Harlan
Companies", and Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan are herein
sometimes collectively referred to as the "Harlans."
Recitals
--------
ENBC, directly and through its wholly-owned subsidiaries, owns and operates
retail bagel stores, and ENBC has also granted franchise rights to own and
operate retail bagel stores under trademarks owned by ENBC and its subsidiaries
and using ENBC's system. The Supplier previously entered into a Project and
Approved Supplier Agreement with ENBC dated as of May 24, 1996 (the "Prior
Project Agreement") pursuant to which ENBC designated Supplier as an approved
supplier of ENBC to supply frozen bagel dough products to ENBC and its
subsidiaries and franchisees. Concurrent with the closing of the transactions
contemplated by the Prior Project Agreement, (i) the Supplier entered into a
lease agreement with Harlan, pursuant to which the Supplier agreed to lease from
Harlan a production facility constructed by Harlan adjacent to Harlan's existing
production facility in Avon, Indiana, (ii) ENBC purchased from Harlan and the
Supplier certain production equipment, and contract rights to acquire certain
production equipment, owned by them, which production equipment comprises the
bagel line currently operated by the Supplier; and (iii) ENBC and the Supplier
entered into a lease agreement pursuant to which ENBC leased the production
equipment comprising the bagel line to the Supplier. The Supplier and ENBC
desire: (x) ENBC to purchase from the Supplier and Harlan certain additional
production equipment used by the Supplier in the operation of the bagel line and
lease same to the Supplier, (y) the Supplier to install in the Production
Facility an additional bagel line for the production of raw, frozen bagel dough
products for the dedicated use by ENBC, ENBC Subsidiaries and ENBC Franchisees,
and (z) ENBC to lease to the Supplier the production equipment for the
additional bagel line. In order to facilitate the installation and leasing of
the additional bagel line and to amend, restate, replace and substitute in full
the obligations under the Prior Project Agreement, the parties desire to enter
into this Agreement.
Covenants
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
2
<PAGE>
Article 1.0 Definitions
1.1 As used herein the following terms shall have the meanings given them
below:
"Accounting Period" shall mean one of twelve (12) periods of four or five
consecutive weeks in each fiscal year of the Supplier during the Term that is
designated by the Supplier as an accounting period.
"Additional Original Bagel Line Equipment" shall have the same meaning
ascribed to it in Section 2.1.1.
"Additional Original Bagel Line Equipment Financing" shall mean the
purchase by ENBC of the Additional Original Bagel Line Equipment for the
Additional Original Bagel Line Equipment Purchase Price.
"Additional Original Bagel Line Equipment Purchase Price" shall mean
$1,000,000.
"Authorized Recipients" shall have the meaning ascribed to it in Section
6.3.
"Bagel Equipment" shall mean all of the equipment included in the Bagel
Lines and all other equipment required for the operation of the Bagel Lines.
"Bagel Lines" shall mean the Original Bagel Line and the Second Bagel Line.
"Closing" shall have the meaning ascribed to it in Section 2.1.
"ENBC Allocated Charges" shall mean those costs of ENBC charged to the
Supplier as described in Section 7.7.
"ENBC Franchisee" shall mean a franchisee of ENBC.
"ENBC Subsidiary" shall mean a subsidiary of ENBC.
"Encumbrances" shall mean liens, mortgages, pledges, charges, encumbrances,
assessments, restrictions, covenants, easements or title defects of any nature
whatsoever.
"Equipment Financing" shall mean the lease of up to $13,446,000 of Bagel
Equipment comprising the Bagel Lines by ENBC to the Supplier pursuant to the
Equipment Lease (which Equipment Lease shall result in all of the costs and
expenses, including all financing costs, incurred by ENBC in connection with the
lease of the Bagel Equipment being passed through to the Supplier).
"Equipment Financing Cost" shall mean operating lease rentals and/or
interest and principal amortization from all equipment financing.
3
<PAGE>
"Equipment Lease" shall mean that certain Lease Agreement dated August 27,
1996 between the Supplier and ENBC.
"Equipment Financing Documents" shall mean the Equipment Lease, together
with all other agreements, instruments and documents contemplated by such
agreement.
"Financing Documents" shall mean the Equipment Financing Documents and the
Working Capital Financing Documents.
"Formulations" shall have the meaning ascribed to it in Section 6.5.
"Lease" shall mean that certain Lease Agreement dated August 27, 1996
between Harlan and the Supplier.
"Leasehold Premises" shall have the meaning ascribed to it in Section 3.6.
"Materials Cost" shall mean the Supplier's cost of ingredients and
packaging used in manufacturing the Products during each Quarterly Period,
determined in the manner set forth in Exhibit A hereto. For this purpose,
ingredients shall include corn meal used in manufacturing the Products.
"Mortgage" shall mean the existing mortgage loan on the land and buildings
owned by Harlan, consisting of the Production Facility and the facility adjacent
thereto, made by the Mortgage Holders.
"Mortgage Holders" shall mean LaSalle National Bank and KeyBank National
Association.
"Occupancy Cost" shall mean building rental expense, real estate taxes,
utilities, maintenance and repair and property casualty insurance.
"Option Agreement" shall mean that certain Option Agreement dated August
27, 1996 among ENBC, the Supplier and the Harlans.
"Original Bagel Line" shall mean the operating Winkler bagel line owned by
ENBC and leased to and operated by the Supplier, together with the other
components of the bagel production line installed in the Production Facility,
including without limitation mixers, bagel cooking unit, proofer, retarder,
blast freezer and packaging equipment.
"Original Bagel Line Equipment" shall mean the production and other
equipment comprising the Original Bagel Line, including the Additional Original
Bagel Line Equipment.
"Procedures" shall have the meaning ascribed to it in Section 6.5.
4
<PAGE>
"Production Facility" shall mean Harlan's 75,000 square foot production
facility in Avon, Indiana as described in the Lease.
"Products" shall mean frozen bagel dough products.
"Proprietary Information" shall have the meaning ascribed to it in Article
12.0.
"Quarterly Period" shall mean the first three Accounting Periods of the
Supplier during each fiscal year of the Supplier during the Term and each
subsequent period of three Accounting Periods thereafter during said fiscal
year.
"Second Bagel Line" shall mean the Winkler bagel line that is being
purchased by the Supplier (or by ENBC pursuant to Section 8.1 hereof), together
with the other components of the bagel production line that is to be installed
by the Supplier in the Production Facility, including without limitation mixers,
bagel cooking unit, components for the proofer, components for the retarder,
modifications to the blast freezer and packaging equipment.
"Second Bagel Line Capital Budget" shall mean the capital budget attached
hereto as Exhibit F.
"Specifications" shall have the meaning ascribed to it in Section 6.5.
"Term" shall mean the period commencing on the date hereof and continuing
until the date this Agreement expires or is terminated pursuant to Article 13.0
hereof.
"Title Policy" shall mean that certain Leasehold Loan Policy dated August
30, 1996 issued by Chicago Title Insurance Company (Policy No. 15-0140-109-
0000001).
"Working Capital Financing" shall mean the loan by the Working Capital
Lenders to the Supplier.
"Working Capital Financing Documents" shall mean the revolving credit
agreement between the Working Capital Lenders and the Supplier, together with
all other agreements, instruments and documents contemplated by such agreement.
"Working Capital Lenders" shall mean LaSalle National Bank and KeyBank
National Association.
Article 2.0 The Closing; Conditions to Closing; Covenants Pending Closing;
Termination Prior to Closing
2.1 On the terms and subject to the conditions set forth in this
Agreement, the parties agree to close the transactions contemplated by this
Agreement, including the Additional Original Bagel Line Equipment Financing, at
the offices of ENBC, within three business days
5
<PAGE>
after the satisfaction of the conditions set forth in Sections 2.2 and 2.3
hereof (the "Closing"). At the Closing:
2.1.1 The Supplier and Harlan shall execute and deliver to ENBC an
Assignment and Bill of Sale, in the form of Exhibit B hereto, pursuant to which
ENBC shall acquire from the Supplier and Harlan all production and other
equipment that has been purchased by the Supplier or Harlan for use in the
Original Bagel Line that has not previously been purchased by ENBC and leased to
the Supplier pursuant to the Equipment Lease (the "Additional Original Bagel
Line Equipment").
2.1.2 ENBC and the Supplier shall execute and deliver a closing
statement evidencing the payment of certain amounts owed by the Supplier to ENBC
and certain amounts owed by ENBC to the Supplier, including the Additional
Original Bagel Line Equipment Purchase Price, certain receivables owed between
the parties, and the Equipment Lease payment due to ENBC on or about July 14,
1997. ENBC or the Supplier, as applicable, shall remit to the other the net
amount owed, all as evidenced by the closing statement.
2.1.3 ENBC shall execute and deliver to the Supplier, and the
Supplier shall execute and deliver to ENBC, (a) amended and restated Schedule
No. 1 to the Equipment Lease in the form set forth as Exhibit C hereto, pursuant
to which ENBC shall lease to the Supplier the Original Bagel Line Equipment for
a term expiring on April 16, 2005, and (b) the amendment to lease agreement in
the form set forth as Exhibit G hereto.
2.1.4 ENBC shall execute and deliver to the Supplier, and the
Supplier shall execute and deliver to ENBC, the Amended and Restated Option
Agreement in the form set forth as Exhibit D hereto.
2.1.5 The Working Capital Lenders and the Mortgage Holders shall
deliver a consent to the transactions contemplated by this Agreement, which
consent shall reaffirm all of the rights and obligations of the parties under
each of the agreements and other documents previously executed and/or delivered
in connection with the closing of the transactions contemplated by the Prior
Project Agreement in August 1996.
2.1.6 The Harlan Companies shall deliver a copy of the Lease to ENBC,
together with a written certification of an authorized officer or member of each
of the Harlan Companies certifying that (a) said copy is true, correct and
complete, and (b) no default has occurred thereunder.
2.1.7 The Supplier shall deliver to ENBC (a) a certificate of
existence of the Supplier from the State of Indiana, certified as of a date no
earlier than 10 days prior to the Closing by the Secretary of State of Indiana,
and (b) resolutions of the board of managers of the Supplier approving the
execution and delivery by the Supplier of this Agreement, and the other
agreements contemplated hereby, and the performance of the other transactions
contemplated hereby, certified by the secretary of the Supplier.
6
<PAGE>
2.1.8 Harlan shall deliver to ENBC (a) a certificate of existence
from the State of Indiana, certified as of a date no earlier than 10 days prior
to the Closing by the Secretary of State of Indiana, and (b) resolutions of the
board of directors of Harlan approving the execution and delivery by Harlan of
this Agreement and the other agreements contemplated hereby, and the performance
of the other transactions contemplated hereby, certified as of the date of the
Closing by the secretary of Harlan.
2.1.9 Henderson, Daily, Withrow and DeVoe shall deliver to ENBC its
legal opinion in a form substantially similar to the opinion delivered in
connection with the closing of the Prior Project Agreement in August, 1996.
2.1.10 The Harlan Companies shall deliver to ENBC certificates of
insurance that satisfy the requirements of Section 11.5 hereof.
2.1.11 ENBC shall deliver to the Harlan Companies (a) a good standing
certificate from the State of Delaware, certified as of the date of the Closing
by the Secretary of State of Delaware, and (b) a resolution of the board of
directors of ENBC approving the execution and delivery by ENBC of this Agreement
and the performance of the other transactions contemplated hereby, certified as
of the date of the Closing by the secretary or assistant secretary of ENBC.
2.2 The obligation of ENBC to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver at or prior to the Closing
of each of the following conditions:
2.2.1 The representations and warranties of the Harlan Companies
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing with the same force and effect as
though made at and as of that time. The Harlan Companies and the Harlans shall
have performed and complied with all of their obligations required by this
Agreement to be performed or complied with at or prior to the Closing. The
Harlan Companies and the Harlans shall have delivered to ENBC a certificate,
dated as of the date of the Closing and signed by each of them, certifying that
such representations and warranties are thus true and correct and that all such
obligations have been thus performed and complied with.
2.2.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than ENBC shall have been executed and delivered.
2.2.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
7
<PAGE>
2.3 The obligations of the Harlans and the Harlan Companies to consummate
the transactions contemplated hereby shall be subject to the fulfillment or
waiver at or prior to the Closing of each of the following conditions:
2.3.1 The representations and warranties of ENBC contained in this
Agreement shall have been true and correct in all material respects at and as of
the date hereof, and they shall be true and correct in all material respects at
and as of the Closing with the same force and effect as though made at and as of
that time. ENBC shall have performed and complied with all of its obligations
required by this Agreement to be performed or complied with at or prior to the
Closing. ENBC shall have delivered to the Harlans and the Harlan Companies a
certificate, dated as of the date of the Closing and signed by an officer of
ENBC, certifying that such representations and warranties are thus true and
correct and that all such obligations have been thus performed and complied
with.
2.3.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than the Harlans and the Harlan Companies shall have been executed and
delivered.
2.3.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
2.4 Each of the parties hereto agrees to use reasonable best efforts to
cause to be satisfied as soon as practicable all of the conditions to the
Closing set forth in Sections 2.2 and 2.3 hereof that are in the control of such
party.
Article 3.0 Representations and Warranties of the Harlan Companies
In order to induce ENBC to enter into this Agreement and to perform its
obligations hereunder, the Harlan Companies jointly and severally represent and
warrant to ENBC that:
3.1 Each of the Harlan Companies is duly organized and validly existing
under the laws of the jurisdiction of its incorporation, with full corporate
power and authority to enter into this Agreement and to carry out the
transactions and agreements contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of each of the Harlan Companies.
3.2 This Agreement has been duly executed and delivered by each of the
Harlan Companies and is a valid and binding obligation of each of them,
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement by the Harlan Companies nor the consummation of the transactions
contemplated hereby will: (a) conflict with or violate any provision of its
organizational documents, or of any law, ordinance or regulation or any decree
or order of any court or administrative or other governmental body which is
either applicable to, binding upon or enforceable against either of the Harlan
Companies or (b) result in a breach of,
8
<PAGE>
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture, will, trust or other
instrument which is either binding upon or enforceable against either of the
Harlan Companies or the assets and properties of either of them, except pursuant
to the Working Capital Financing Documents and the Mortgage. No permit, consent,
approval or authorization of, or declaration to or filing with, any regulatory
or other governmental authority is required in connection with the execution and
delivery of this Agreement by the Harlan Companies and the consummation by them
of the transactions contemplated hereby, except for such of the foregoing as are
identified in Schedule 3.8 hereto, all of which have been obtained, and except
for documents the Harlan Companies have executed and which are to be recorded
pursuant to the Financing Documents.
3.3 Schedule 3.3 hereto accurately and completely sets forth, with respect
to each of the Harlan Companies: (a) the number of shares of each class of its
capital stock or other units of equity interest which are issued and outstanding
and (b) the name and address of, and the number of shares of each class of
capital stock or other units of equity interest owned by, each of its
shareholders or other equity owners. All voting rights in each of the Harlan
Companies are vested exclusively in its shares of capital stock, in the case of
Harlan, and in units of equity interest, in the case of the Supplier, and other
than shareholder agreements or operating agreements which have been provided to
ENBC (the "Shareholder Agreements"), there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the capital
stock or other units of equity interest of either of the Harlan Companies.
Except pursuant to the Shareholder Agreements and the right of first refusal
granted to ENBC pursuant to that certain Right of First Refusal Agreement dated
as of August 27, 1996 among ENBC and the Harlans, there are no outstanding
warrants, options or rights of any kind to acquire from either of the Harlan
Companies, or from the shareholders or other equity owners of either of the
Harlan Companies, any shares of capital stock or other units of equity interest
of either of the Harlan Companies, and neither of the Harlan Companies has any
obligation to acquire any of its issued and outstanding shares of capital stock
or other units of equity interest from any holder thereof.
3.4 Set forth in Schedule 3.4 are the following financial statements of
the Harlan Companies:
3.4.1 balance sheets of (a) Harlan at December 31, 1995 and December
31, 1996; and (b) the Supplier at December 31, 1996; and
3.4.2 statements of operations and cash flow of (a) Harlan for the
years ended December 31, 1995 and December 31, 1996; and (b) the Supplier
for the partial year ended December 31, 1996.
Such financial statements present fairly in all material respects the financial
position of each of the Harlan Companies covered thereby at said balance sheet
dates and the results of operations and cash flows of each of the Harlan
Companies for each of the said periods covered, and they have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis. The balance sheet of Harlan at December 31, 1996 is herein sometimes
referred
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to as the "Harlan Balance Sheet," and the balance sheet of the Supplier at
December 31, 1996 is herein sometimes referred to as the "Supplier Balance
Sheet."
3.5 Neither of the Harlan Companies has any liabilities or obligations,
accrued, absolute, contingent or otherwise, except: (a) to the extent reflected
or taken into account in determining net worth in the Harlan Balance Sheet or
the Supplier Balance Sheet and not heretofore paid or discharged; (b)
contractual obligations of the Harlan Companies incurred in the ordinary course
of business; (c) liabilities of the Harlan Companies incurred in the ordinary
course of business since the date of the Harlan Balance Sheet and the Supplier
Balance Sheet; (d) obligations of the Harlan Companies under this Agreement and
the other documents now or hereafter executed in connection therewith, and (e)
obligations of the Harlan Companies under contracts identified in Schedule 3.9.
3.6 The premises covered by the Lease (the "Leasehold Premises"): (a)
have direct access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
reasonably anticipated transportation requirements of the Supplier's business to
be conducted at the Leasehold Premises; and (b) are served by all utilities,
including but not limited to water, electricity, natural gas, sewer and
telephone, in such quantity and quality as are sufficient to satisfy the
reasonably anticipated production levels and business activities of the
Supplier's business to be conducted at the Leasehold Premises. Neither of the
Harlan Companies has received notice of: (a) any condemnation proceeding with
respect to any portion of the Leasehold Premises, and, to the best of their
knowledge, no proceeding is contemplated by any governmental authority; or (b)
any special assessment which may affect the Leasehold Premises and to the best
of their knowledge, no such special assessment is contemplated by any
governmental authority.
3.7 The Supplier has good and marketable title to all of its assets and
properties, free and clear of all Encumbrances, except as set forth in the
Financing Documents or the Title Policy or on Schedule 3.7 hereto. The
Additional Original Bagel Line Equipment constitutes all of the equipment owned
by the Harlan Companies and used by the Supplier in operating the Original Bagel
Line which is not presently owned by ENBC, and that, upon full execution of the
Assignment and Bill of Sale by the Harlan Companies with respect to the
Additional Original Bagel Line Equipment, ENBC shall own all of the equipment
comprising or otherwise used in the operation of the Original Bagel Line.
3.8 The Harlan Companies possess all licenses and other required
governmental or official approvals, permits or authorizations, the failure to
possess which would have a material adverse effect on the business, financial
condition or results of operations of either of the Harlan Companies. All such
licenses, approvals, permits and authorizations are in full force and effect,
the Harlan Companies are in material compliance with their requirements, and no
proceeding is pending or to the best of the knowledge of the Harlan Companies,
threatened to revoke or amend any of them. Schedule 3.8 hereto contains an
accurate and complete list of all such licenses, approvals, permits and
authorizations. None of such licenses, approvals, permits and authorizations
are or will be impaired or in any way affected by the execution and delivery of
this
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Agreement or the Schedule to the Equipment Lease or the consummation of the
transactions contemplated hereby.
3.9 Schedule 3.9 hereto accurately and completely lists each contract to
which either of the Harlan Companies is a party related to the construction of
the Production Facility, and each contract to which either of the Harlan
Companies is a party related to the acquisition of equipment for use in the
Production Facility. None of such contracts has been further amended or
modified and each of them is in full force and effect. Neither of the Harlan
Companies is in breach of or default under any of such contracts, and no event
has occurred which with the passage of time or the giving of notice or both
would cause a material breach of or default under any such contract. Neither of
the Harlan Companies is aware of any breach of or default under any such
contract by the other party thereto.
3.10 Except as set forth on Schedule 3.10 hereto, there are no actions,
suits, claims, governmental investigations or arbitration proceedings
("Actions") pending or, to the best of the knowledge of the Harlan Companies,
threatened against or affecting either of the Harlan Companies or any of their
assets or properties and, to the best of the knowledge of the Harlan Companies,
there is no basis for any of the foregoing. Except for Harlan's settlement
agreement with the West Central Conservancy District, there are no outstanding
orders, decrees or stipulations issued by any federal, state, local or foreign
judicial or administrative authority in any proceeding to which either of the
Harlan Companies is or was a party.
3.11 Each of the Harlan Companies is in material compliance with all laws,
regulations and orders applicable to it, its assets, properties and business.
Neither of the Harlan Companies has received notification of any asserted past
or present failure to comply with any laws, and to the best of their knowledge,
no proceeding with respect to any such violation is contemplated.
3.12
3.12.1 Neither of the Harlan Companies has transported, stored,
treated or disposed, nor has either of them allowed or arranged for any
third parties to transport, store, treat or dispose of Hazardous Substances
or other waste to or at any location other than a site lawfully permitted
to receive such Hazardous Substances or other waste for such purposes, nor
has either of them performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in
contravention of any laws or regulations. Neither of the Harlan Companies
has disposed, or allowed or arranged for any third parties to dispose, of
Hazardous Substances or other waste upon the Leasehold Premises, except as
permitted by law. For purposes of this Section 3.12.1, the term "Hazardous
Substances" shall have the meaning given it in the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Sections
9601, et seq.), as amended, and the regulations promulgated pursuant
thereto ("CERCLA"), or any similar state law.
3.12.2 Since the acquisition of the Leasehold Premises, Harlan has
not permitted to occur, nor is there presently occurring, a Release of any
Hazardous Substance on, into
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or beneath the surface of the Leasehold Premises, except that the parties
acknowledge that Harlan discharges wastewater into the sewage treatment
plant of the West Central Conservancy District. For purposes of this
Section 3.12.2, the term "Release" shall mean releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping.
3.12.3 Neither of the Harlan Companies has transported or disposed,
nor has it allowed or arranged for any third parties to transport or
dispose, any Hazardous Substance or other waste to or at a site which,
pursuant to CERCLA or any similar state law: (a) has been placed on the
National Priorities List or its state equivalent, or (b) the Environmental
Protection Agency or the relevant state agency has proposed or is proposing
to place on the National Priorities List or its state equivalent. Neither
of the Harlan Companies has received notice, or has any knowledge of any
facts which could give rise to any notice, that either of the Harlan
Companies is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA or any
other applicable law or regulation. Neither of the Harlan Companies has
submitted nor was either of them required to submit any notice pursuant to
Section 103(c) of CERCLA with respect to the real estate that is covered by
the Lease. Neither of the Harlan Companies has received any written or oral
request for information in connection with any federal or state
environmental cleanup site. Neither of the Harlan Companies has undertaken
(or been requested to undertake) any response or remedial actions or clean-
up action of any kind at the request of any federal, state or local
governmental entity, or at the request of any other person or entity.
3.12.4 Neither of the Harlan Companies uses, or has used, any
Underground Storage Tanks, and, except as set forth in Schedule 3.12
hereto, the Harlan Companies are not aware of any Underground Storage Tanks
previously or currently on or under the Leasehold Premises. For purposes of
this Section 3.12.4, the term "Underground Storage Tanks" shall have the
meaning given it in the Resource Conservation and Recovery Act (42 U.S.C.
Sections 6901 et seq.).
3.12.5 Schedule 3.12 hereto identifies (a) all environmental audits,
assessments or occupational health studies relating to the assets,
properties or business of either of the Harlan Companies undertaken by
governmental agencies or either of the Harlan Companies or their agents;
(b) the results of any ground, water, soil, air or asbestos monitoring
undertaken with respect to the Leasehold Premises, except for tests of
sewage discharge, which are summarized in Schedule 3.12; (c) all written
communications between either of the Harlan Companies and any environmental
agencies within the past three years; and (d) all citations issued to
either of the Harlan Companies within the past three years under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
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Article 4.0 Representations and Warranties of ENBC
In order to induce the Harlan Companies to enter into this Agreement and to
perform their obligations hereunder, ENBC represents and warrants to the Harlan
Companies that:
4.1 ENBC is duly organized and legally existing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and to carry out the transactions and agreements contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action of ENBC.
4.2 This Agreement has been duly executed and delivered by ENBC and is a
valid and binding obligation of ENBC, enforceable in accordance with its terms.
Neither the execution and delivery of this Agreement by ENBC nor the
consummation of the transactions contemplated hereby will: (a) conflict with or
violate any provision of the certificate of incorporation of bylaws of ENBC or
of any decree or order of any court or administrative or other governmental body
which is either applicable to, binding upon or enforceable against ENBC; or (b)
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel, or
require any notice under, any mortgage, contract, agreement, indenture or other
instrument which is either binding upon or enforceable against ENBC. No permit,
consent, approval or authorization of, or declaration to or filing with, any
regulatory or other government authority is required in connection with the
execution and delivery of this Agreement by ENBC and the consummation of the
transactions contemplated hereby.
4.3 There are no Actions pending or, to the best of the knowledge of ENBC,
threatened against or affecting ENBC or any of its assets or properties which
Actions are related to this Agreement or ENBC's obligations hereunder and, to
the best of the knowledge of ENBC, there is no basis for any of the foregoing.
There are no outstanding orders, decrees or stipulations issued by any federal,
state, local or foreign judicial or administrative authority in any proceeding
to which ENBC is or was a party related to this Agreement or ENBC's obligations
under this Agreement.
4.4 ENBC is in material compliance with all laws, regulations and orders
applicable to its performance under this Agreement. ENBC has received no
notification of any asserted past or present failure to comply with any such
laws, and to the best of its knowledge, no proceeding with respect to any such
violation is contemplated.
Article 5.0 Certain Covenants of the Harlan Companies
5.1 The Supplier will complete the acquisition of the Bagel Equipment and
the installation of the Second Bagel Line, as further provided in this Article
5.0 and Article 8.0 hereof, and subject to the approval of ENBC, with such
changes therein as may be reasonably requested by ENBC. The Supplier agrees to
consult with such representatives and consultants as
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ENBC may engage, to the extent requested by ENBC during the installation of the
Second Bagel Line.
5.2 The Supplier will cause the Second Bagel Line to be installed and
ready for testing on or about January 7, 1998 and operational by January 24,
1998, subject to events beyond the reasonable control of the Supplier.
5.3 The Harlan Companies agree that the use of any portion of the
Production Facility or the Bagel Lines for production of any products for
persons other than ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized
Recipients shall be subject to ENBC's prior written approval, which shall not be
unreasonably withheld; provided that ENBC hereby consents to the Harlan
Companies' use of the Production Facility in the manner identified on Schedule
5.3 hereto. The parties agree that it shall not be unreasonable for ENBC's
approval to be subject to (i) ENBC being satisfied that Proprietary Information
of ENBC will not be subject to a risk of unauthorized use or disclosure by
reason of such use of the Production Facility, (ii) ENBC being satisfied that
such use of the Production Facility will not interfere with or otherwise
adversely effect the use of the Production Facility to produce Products under
this Agreement, (iii) adjustment of the Toll Charge on terms mutually acceptable
to ENBC and Harlan, to permit sharing of the benefits of leveraging Occupancy
Cost, and (iv) adjustment of the manner in which the Shortfall Amount and the
Excess Amount are calculated pursuant to Section 7.5 hereof, on mutually
acceptable terms.
5.4 Commencing on the date hereof, and continuing until the later of any
exercise of the option by ENBC pursuant to the Option Agreement or the
termination or expiration of this Agreement, the Harlan Companies agree to
deliver to ENBC the financial statements required to be provided to the Mortgage
Holders and Working Capital Lenders under their respective credit agreements
with said Mortgage Holders and Working Capital Lenders as in effect on the date
hereof (whether or not such credit agreements hereafter remain in effect or are
amended or modified), together with any copies of any amendments or
modifications to such credit agreements promptly upon their becoming effective.
Article 6.0 Designation of the Supplier as an Approved Supplier; Purchase and
Sale of the Products
6.1 ENBC hereby designates the Supplier as an approved supplier of
Products to ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized Recipients
(as hereinafter defined). On the terms and subject to the conditions set forth
herein, and during the Term hereof, the Supplier agrees to sell to ENBC, ENBC
Subsidiaries, ENBC Franchisees and Authorized Recipients Products produced by
the Supplier at the Production Facility.
6.2 The Harlan Companies jointly and severally agree that during the Term,
and for a period of one year thereafter, none of the Harlan Companies or any
Affiliate of the Harlan Companies shall, without the prior written consent of
ENBC, produce any bagels or bagel dough for sale or distribution to any
specialty bagel retail establishment (which shall be defined for this purpose as
any retail establishment (including any retail delicatessen and any doughnut
shop or
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other specialty bakery store but excluding delicatessens located in
supermarkets, convenience stores or grocery stores that do not use a brand name
of a specialty bagel retailer) that derives a significant amount of its revenue
from the sale of bagels and bagel-related products). In addition, the Harlan
Companies jointly and severally agree that during the Term, none of the Harlan
Companies or any Affiliate of the Harlan Companies shall enter into any
agreement to produce pre-proofed raw frozen bagels for Maplehurst Bakeries, Inc.
("Maplehurst") or any Affiliate of Maplehurst unless Maplehurst has agreed in
writing that the restrictions set forth in Section 3.1 of the supply agreement
dated as of August 2, 1994 between Harlan and Maplehurst do not apply to the
supply of Products by the Harlan Companies under this Agreement or the Short-
Term Supply Agreement. For purposes of this Section 6.2, an "Affiliate" shall
mean any person or entity that controls or is controlled by, or is under common
control with, such person, and the term "control" (including the terms
"controlling," "controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.
6.3 Notwithstanding any other provision of this Agreement to the contrary,
ENBC may at any time arrange upon reasonable notice to the Supplier for the
Products to be sold to ENBC, ENBC Subsidiaries and ENBC Franchisees through one
or more subsidiaries, affiliates, joint ventures, area developers, franchisees,
vendors, processors or other persons ("Authorized Recipients") or for the
Products otherwise to be sold directly to such other Authorized Recipients,
subject to the Supplier's right to be reasonably satisfied as to the
creditworthiness of any Authorized Recipients. In such event (a) orders may be
placed with the Supplier by such Authorized Recipients, rather than by ENBC,
ENBC Subsidiaries or ENBC Franchisees, and the obligation to pay for the
Products delivered to any Authorized Recipient shall be solely that of the
Authorized Recipient and not the obligation of ENBC or any ENBC Subsidiary or
ENBC Franchisee, (b) the provisions of this Article governing the purchase and
sale of the Products shall continue to govern the purchase and sale of such
Products, (c) the provisions of Article 7.0 shall govern the pricing of the
Products to Authorized Recipient, and (d) the product warranties in Article 9.0,
the covenants in Sections 10.1 and 10.2, and the indemnification and insurance
provisions in Article 11.0 shall be made for the benefit of ENBC or the ENBC
Subsidiary or ENBC Franchisee that ultimately purchases the Products, as well as
for the benefit of the Authorized Recipient. The Supplier may cease the supply
of Products to ENBC or any ENBC Subsidiary, ENBC Franchisee or Authorized
Recipient, as the case may be, if any balance owed to the Supplier by such
entity is not paid within 30 days after it has become due. ENBC will cooperate
with Supplier to resolve any disputes with ENBC Subsidiaries, ENBC Franchisees
or Authorized Recipients.
6.4 ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized Recipients
shall notify the Supplier from time to time of the quantity of Products they
wish to purchase from the Supplier by placing purchase orders with the Supplier.
Each order shall be filled by the Supplier within seven days after the
Supplier's receipt of the order. During the term hereof, the Supplier shall
sell to ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized Recipients the
Products ordered by them, up to a maximum aggregate of (a) 2,630,880 dozen
bagels per Accounting Period which consists of four weeks, and (b) 3,288,600
dozen bagels per Accounting
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Period which consists of five weeks. ENBC agrees to use reasonable best efforts
to provide the Supplier, at the beginning of each Accounting Period, with
rolling good faith estimates of the volume of Products it expects to be ordered
from the Supplier under this Section 6.4 in such Accounting Period and the two
succeeding Accounting Periods, but such estimates shall be used for planning
purposes only and shall not be deemed orders or otherwise create any commitment
whatsoever on the part of ENBC.
6.5 The Products shall be produced (a) using such formulations as ENBC
shall specify from time to time in writing (the "Formulations"), (b) in
accordance with such size, weight and other specifications as ENBC shall
establish from time to time in writing (the "Specifications"), and (c) in
accordance with such manufacturing procedures as ENBC shall specify from time to
time in writing (the "Procedures"), including the Formulations, Specifications
and Procedures set forth in the Schedule of Formulations, Specifications and
Procedures delivered concurrently with the execution and delivery of this
Agreement. The Formulations, Specifications and Procedures that are not
specified in writing as of the date hereof shall be committed to writing by ENBC
as soon as reasonably practicable and shall be in such form as ENBC deems
appropriate to minimize disclosure of Proprietary Information (as defined in
Section 12.1), and the Supplier agrees that it shall not analyze or reverse
engineer any such Formulations, Specifications and Procedures or any ingredients
supplied for use therein. All Formulations, Specifications and Procedures are
subject to change upon reasonable written notice from ENBC to the Supplier at
any time, except that (x) the Supplier shall have such time as may be reasonably
necessary for the Supplier to implement such changed Formulations,
Specifications and Procedures in its production of the Products, and (y) certain
changes in Formulations, Specifications and Procedures may result in an
adjustment to the Toll Charge, as provided in Section 7.4. All Formulations,
Specifications and Procedures shall be owned exclusively by ENBC but the
Supplier shall have a royalty-free nonexclusive license, without the right to
grant sublicenses, to use such Formulations, Specifications and Procedures
solely to produce Products for sale to ENBC, ENBC Subsidiaries, ENBC Franchisees
and Authorized Recipients under this Agreement.
6.6 ENBC shall have the right to have one or more of its employees or
representatives who are engaged in ENBC's product development present at the
Production Facility at any time that the Supplier is producing the Products and
all such individuals will comply with the Supplier's established policies and
procedures applicable to similarly situated employees and will be bound by the
confidentiality provisions of Article 12.0 hereof.
6.7 The Products shall be packaged using such packaging materials and
labeling as shall be determined by ENBC. The Supplier agrees to maintain an
inventory of such packaging materials and labels which shall be consistent with
the quantity of Products estimated in the rolling good faith estimates made by
ENBC pursuant to Section 6.4 above or as otherwise reasonably directed by ENBC.
All trademarks, trade names and trade dress appearing on or in packaging and
labeling shall be the exclusive property of ENBC but the Supplier shall have a
royalty-free nonexclusive license, without the right to grant sublicenses, to
use such trademarks and trade dress solely to package and label the Products
manufactured in accordance with the
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provisions of this Agreement for sale to ENBC, ENBC Subsidiaries, ENBC
Franchisees and Authorized Recipients under this Agreement.
6.8 ENBC shall be responsible for arranging for the procurement of
ingredients and raw materials used to produce the Products on standard vendor
terms and, at ENBC's option, ENBC may supply any ingredients or raw materials
directly to the Supplier (with ENBC, at its option, owning such ingredients or
raw materials).
6.9 Products supplied hereunder shall be shipped F.O.B. the Production
Facility, and ownership and risk of loss with respect to the Products supplied
hereunder shall pass to ENBC or the ENBC Subsidiary, ENBC Franchisee or
Authorized Recipient when delivered to a carrier at the F.O.B. point.
6.10 Payment terms shall be (a) net 15 days, together with interest at a
rate of 12% per annum from the date any amounts are past due or (b) such other
terms as are mutually agreed by the Supplier, on the one hand, and any of the
ENBC Subsidiaries or ENBC Franchisees or Authorized Recipients that purchase
Products from the Supplier, on the other hand. In no event shall ENBC be
construed as a guarantor of payment (or any other obligation) of any ENBC
Franchisee or Authorized Recipient, but ENBC will be responsible for any
obligation of any ENBC Subsidiaries.
Article 7.0 Pricing
7.1 The Products shall be sold to ENBC, ENBC Subsidiaries, ENBC
Franchisees and Authorized Recipients at the Materials Cost plus the Loss
Factor, plus a toll charge per bagel (the "Toll Charge"). The Toll Charge will
be [ ]* per bagel from the date hereof through June 30, 1998 and [ ]* per
bagel from July 1, 1998 through the balance of the Term hereof. The Toll Charge
shall be subject to adjustment as provided in Sections 7.3, 7.4, 7.5 and 7.7
hereof. The Loss Factor will be equal to [ ]* multiplied by the Materials
Cost.
7.2 The Materials Cost shall be determined based upon a Statement of
Materials Cost for each Accounting Period which shall be prepared by the
Supplier in accordance with the provisions of Exhibit A. The Materials Cost
shall be redetermined as of the end of each Accounting Period during the Term as
set forth in Section 7.2 hereof and the prices based upon such redetermination
shall take effect beginning with products shipped on or after the first business
day of the Accounting Period following the redetermination. Each Statement of
Materials Cost shall be delivered to ENBC within ten business days after the end
of the Accounting Period to which it relates and shall include the information
required by Exhibit A. Within 90 days after the end of each calendar year during
the Term, the Supplier shall cause to be delivered the Statement of Materials
Cost for the last Accounting Period in each of the Quarterly Periods during
which this Agreement was in effect during such calendar year, accompanied by a
report of Ernst & Young, or such other independent accountants as the Supplier
may select from time to time to do the regular annual review of its financial
statements and who may be approved by ENBC (such approval not to be unreasonably
withheld), in the form set forth in Exhibit E. The fees and expenses of such
independent accountants shall be borne by the Supplier. The
*Confidential Treatment Requested.
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Supplier acknowledges that a copy of each Statement of Materials Cost (and each
report of independent accountants thereon) may be provided by ENBC to any ENBC
Franchisee.
7.3 The Toll Charge shall be adjusted, effective as of the first day of
the third Quarterly Period of each fiscal year during the Term hereof, beginning
in fiscal year 1999. The amount of the adjustment shall equal the Toll Charge
in effect immediately before such adjustment minus the Fixed Costs, and then
multiplying such result by the percentage increase in the Consumer Price Index
for the urban area including Indianapolis, Indiana, published by the Department
of Labor for the 12 month period ending on March 31 of the year in which the
Toll Charge adjustment is to take place. For this purpose, "Fixed Costs" shall
mean the sum of the building rental expense and Equipment Financing Cost for the
12 previous Accounting Periods ending on the last day of the third Accounting
Period of the fiscal year divided by 342,720,000. In the event the Consumer
Price Index ceases to be published for any reason, the parties shall select
another index designed to approximate as closely as practicable the Consumer
Price Index.
7.4 In the event that changes in Formulations, Specifications or
Procedures result in additional costs or savings to Harlan or the Supplier that
are not reflected in Materials Cost, the parties shall make appropriate
adjustments in the Toll Charge and/or the Loss Factor to reflect such costs or
savings. In addition, the parties agree that ENBC shall bear as part of its
research and development, the cost of Product losses and production related
costs that arise from the development of Products or test runs of the Products.
The Supplier shall invoice ENBC for each such cost in a timely manner, and in
any event no later than sixty (60) days from the date on which such cost first
arose. Costs associated with such research and development shall be reimbursed
within 30 days of invoice.
7.5 In the event that orders are shipped under Section 6.4 for more or
less than the following minimum amounts during the periods provided below, then
the Toll Charge shall be adjusted as provided in this Section 7.5:
(a) 3,295,385 dozen bagels, during any consecutive twelve-week period
commencing after the date hereof and ending on December 31, 1997;
(b) 4,559,450 dozen bagels, during the first Quarterly Period of 1998;
(c) 6,391,725 dozen bagels during the second Quarterly Period of 1998; or
(d) 7,140,000 dozen bagels during each subsequent Quarterly Period during
the remainder of the Term hereof.
In the event orders are shipped under Section 6.4 for fewer than the minimum
amounts stated herein in any applicable Quarterly Period commencing with the
first Quarterly Period of 1998 or twelve week period prior thereto (the
"Shortfall Measuring Period"), then the Toll Charge applicable during the last
two Accounting Periods of the ensuing Quarterly Period and the first Accounting
Period of the Quarterly Period thereafter or such shorter period remaining
during the Term hereof (the "Recovery Period") shall be increased by an amount
sufficient to result in the
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recovery over the Recovery Period, in equal amounts during each Accounting
Period in the Recovery Period, and assuming the minimum number of bagels set
forth above are shipped during said Recovery Period, of the difference between
the minimum amounts stated herein and the amounts actually shipped during the
Shortfall Measuring Period multiplied by [ ]* per bagel (such amount being
herein sometimes referred to as the "Shortfall Amount").
In the event orders are shipped under Section 6.4 for greater than the minimum
amounts stated in subsection (d) above in any Quarterly Period during the Term
hereof and commencing on or after July 1, 1998 (the "Excess Measuring Period"),
then the Toll Charge applicable during the last two Accounting Periods of the
ensuing Quarterly Period and the first Accounting Period of the Quarterly Period
thereafter or such shorter period remaining during the Term hereof (the "Excess
Recovery Period") shall be decreased by an amount sufficient to result in the
recovery over the Excess Recovery Period, in equal amounts during each
Accounting Period in the Excess Recovery Period, and assuming the minimum number
of bagels set forth above are shipped during said Excess Recovery Period, of the
difference between the minimum amount stated therein and the amount actually
shipped during the Excess Measuring Period multiplied by [ ]* per bagel (such
amount being herein sometimes referred to as the "Excess Amount").
The parties acknowledge that in recovering the Shortfall Amount and the Excess
Amount, more or less than said amount may be recovered as a result of the actual
shipments of bagels during the Recovery Period. The parties agree to
appropriately adjust the Toll Charge in subsequent Recovery Periods to account
for this event.
In the event the Second Bagel Line is not fully operational by February 1, 1998,
the parties agree to negotiate, in good faith, modifications to subsections (b),
(c) and (d) above.
7.6 The Supplier shall provide to ENBC and the accountants referred to in
Section 7.2 all information requested by them in order to permit (a) the
preparation of each report referred to in Section 7.2 and the determination of
the Materials Cost therefrom, and (b) each adjustment to the Toll Charge
provided for herein. The Supplier shall also permit ENBC (and its
representatives) and such accountants to have access to its books and records,
and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours. The Supplier shall also permit
accountants selected by ENBC to have access to its books and records, and to
meet with members of the Supplier's management, at any time upon reasonable
notice during normal business hours, provided, however, that (a) the fees and
expenses of such accountants shall be borne by ENBC, and (b) it shall be a
condition to the covenant of the Supplier in this Section 7.6 to give such
accountants access to the Supplier's books and records that such accountants
shall agree in writing to be bound by the confidentiality provisions of Article
12.0 hereof.
7.7 ENBC may charge the Supplier for various costs incurred by ENBC in
connection with research and development, product development, procurement or
other costs related to the development, production, distribution and sale of the
Products, and such costs shall result in an addition to the purchase price for
the Products over a period comparable to the length of a Recovery Period.
*Confidential Treatment Requested.
19
<PAGE>
Article 8.0 Acquisition, Installation and Leasing of Second Bagel Line
8.1 The Supplier and ENBC acknowledge and agree that the Supplier will
arrange for the acquisition and installation of each component piece of
equipment comprising the Second Bagel Line. The Supplier represents and
warrants that the total cost for the Second Bagel Line will not exceed
$4,950,000 (the "Budgeted Amount"), as set forth on the Second Bagel Line
Equipment Capital Budget. The parties anticipate that ENBC will purchase
directly most of the Second Bagel Line Equipment upon notice from the Supplier.
Notwithstanding the foregoing, the parties also anticipate that the Supplier
will purchase directly certain components of the Second Bagel Line Equipment and
that ENBC will reimburse the Supplier for its actual cost of any part of the
Second Bagel Line Equipment so purchased by the Supplier. In the event the
Supplier seeks reimbursement for any such component of the Second Bagel Line
Equipment, the Supplier will deliver to ENBC such receipts, invoices, and other
documentation as ENBC reasonably requests with respect thereto. ENBC will
reimburse the Supplier for such costs within a reasonable time and in accordance
with the parties' prior practices. In the event the total cost of the Second
Bagel Line is greater than the Budgeted Amount, the Supplier will be
responsible, and shall reimburse ENBC, if necessary, for any amount in excess of
the Budgeted Amount. The Supplier further agrees that it will, from time to
time, execute an Assignment and Bill of Sale in the form of Exhibit B hereto
with respect to each component of the Second Bagel Line Equipment purchased by
the Supplier, but not including any component of the Second Bagel Line Equipment
for which ENBC does not reimburse the Supplier as a result of the cost of the
Second Bagel Line Equipment exceeding the Budgeted Amount (such event is
referred to as a "Budget Overrun"). In the event of a Budget Overrun, ENBC
shall, in its sole discretion, determine which components of the Second Bagel
Line Equipment it shall purchase and own and the parties will transfer title to
such components upon notice from ENBC.
8.2 The Supplier and ENBC agree that they will execute an additional
Schedule to the Equipment Lease on or before February 1, 1998, pursuant to which
the Supplier will lease from ENBC the Second Bagel Line. The Schedule with
respect to the Second Bagel Line Equipment will provide for a term expiring on
April 16, 2005, and will be on the same economic terms as Schedule No. 1 to the
Equipment Lease.
Article 9.0 Product Warranties
9.1 The Supplier warrants to ENBC and all ENBC Subsidiaries and ENBC
Franchisees that purchase Products from the Supplier that:
9.1.1 each shipment of Products supplied hereunder shall be
manufactured in accordance with the provisions of Section 6.5 hereof, shall be
of good and merchantable quality and shall be fit for the purposes for which
they are intended to be used, except to the extent any lack of merchantability
or lack of fitness for the intended purposes is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications;
20
<PAGE>
9.1.2 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of the Federal Food Drug and Cosmetics Act, as
amended, except to the extent misbranding is attributable to the use of the
Formulations, Procedures or Specifications, and none of the Products will be an
article which may not be introduced into interstate commerce under the
provisions of Section 404, 409 or 706 of that Act; and
9.1.3 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of any applicable provision of any state or
municipal law, which provision is similar to any provision of the Federal Food,
Drug and Cosmetics Act, as amended, except to the extent misbranding is
attributable to the use of the Formulations, Procedures or Specifications.
The foregoing warranties shall survive inspection and acceptance of any of the
Products, and payment therefor, by ENBC, ENBC Subsidiaries and ENBC Franchisees.
Article 10.0 Other Covenants of the Parties
10.1 Each party agrees to comply with all governmental laws, regulations
and orders applicable to its operations under this Agreement, and to bear any
and all taxes, fees or other governmental charges applicable to its operations.
Harlan and the Supplier agree to comply with the Lease.
10.2 The Supplier agrees to permit representatives of ENBC to inspect the
Leasehold Premises at any time to assure compliance with the terms of this
Agreement and all such individuals will comply with the Supplier's established
policies and procedures applicable to similarly situated employees and will be
bound by the confidentiality provisions of Article 12.0 hereof.
10.3 Harlan and the Supplier agree that they shall not, without the prior
written consent of ENBC, amend or modify the Lease or the assignment and
assumption agreement between Harlan and the Supplier. The Supplier also agrees
that it shall not, without the prior written consent of ENBC, agree to amend or
modify the Subordination and Nondisturbance Agreement.
10.4 Except as may be contemplated by the Option Agreement, each of ENBC,
on the one hand, and the Supplier and Harlan, on the other hand, agrees that
they will not, directly or indirectly, at any time prior to the first
anniversary of the expiration of the Lease, solicit or hire any employee of any
other party, unless such employee has been terminated by the other party, or
unless such employee terminated his or her employment with the other party at
least one year prior to the date of the first such solicitation or hiring.
10.5 Harlan agrees to devote to Supplier such of its resources as may be
necessary to assist Supplier in timely and completely performing all of the
Supplier's obligations under this Agreement.
21
<PAGE>
Article 11.0 Indemnification and Insurance
11.1 The Supplier agrees to indemnify ENBC and all ENBC Subsidiaries and
ENBC Franchisees for, and hold ENBC and all ENBC Subsidiaries and ENBC
Franchisees that purchase Products harmless from and against, all expenses,
losses, costs, deficiencies, liabilities and damages (including related counsel
fees) incurred or suffered by them resulting from: (a) any breach of any
representation or warranty made by the Supplier in or pursuant to this
Agreement; (b) any default in the performance of any of the covenants or
agreements made by the Supplier in this Agreement; (c) any claim or action by
any consumer or any other third party arising out of the production or sale of
the Products by the Supplier (including any claims or actions for personal
injury and any products liability claims or action), provided, however, that the
Supplier shall have no obligation to indemnify ENBC or any ENBC Subsidiary or
ENBC Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to ENBC or any ENBC Subsidiary or ENBC Franchisee
or is attributable to the use by the Supplier of the Formulations, Procedures
and Specifications; or (d) any claim or action brought by any federal, state,
local or foreign governmental agency in connection with the production or sale
of the Products by the Supplier (including without limitation any claim or
action under any law or regulation relating to public health, the sale of food
and drugs, and the safe conduct of business), provided, however, that the
Supplier shall have no obligation to indemnify ENBC or any ENBC Subsidiary or
ENBC Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to ENBC or any ENBC Subsidiary or ENBC Franchisee
or is attributable to the use by the Supplier of the Formulations, Procedures
and Specifications.
11.2 ENBC agrees to indemnify the Supplier for, and to hold the Supplier
harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
the Supplier resulting from: (a) any breach of any representation or warranty
made by ENBC in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by ENBC in this
Agreement; (c) any claim or action by any consumer, governmental agency or any
other third party, including any claim of infringement or violation of, or
conflict with, any patent or trade secret of any third party, to the extent such
claim or action is attributable to the use by the Supplier of the Formulations,
Procedures and Specifications or is attributable to the alteration, handling or
misbranding of Products after they have been delivered to ENBC, or any ENBC
Subsidiary, ENBC Franchisee or Authorized Recipient; or (d) any claim or action
by any third party alleging infringement or violation of, or conflict with, any
trademarks, trade names or trade dress, to the extent such claim or action is
attributable to the use of trademarks, trade names or trade dress used in
accordance with ENBC's instructions pursuant to Section 6.7.
11.3 The parties agree that each party shall have the exclusive right to
control the defense (and the right to establish the terms of any settlement) of
any claim or action by any third party that could result in such party having an
indemnification obligation under Section 11.1 or Section 11.2 with counsel of
such party's selection, that each party will promptly give the other party
written notice of any claim or action of which it becomes aware that could
result in such
22
<PAGE>
other party having an indemnification obligation under Section 11.1 or Section
11.2, and that each party will fully cooperate with the other party in the
defense of any claim or action by the other party hereunder.
11.4 ENBC and the Supplier acknowledge and agree that ENBC, ENBC
Subsidiaries and ENBC Franchisees, on the one hand, and the Supplier, on the
other hand, may be required to enter into indemnity agreements with Authorized
Recipients. ENBC and the Supplier agree that (a) in the event ENBC or any ENBC
Subsidiary or ENBC Franchisee is obligated to make indemnity payments under any
such agreement resulting from any of the matters described in clauses (a)
through (d), inclusive, of Section 11.1 hereof, the Supplier shall indemnify
ENBC or such ENBC Subsidiary or ENBC Franchisee for, and hold ENBC and such ENBC
Subsidiary or ENBC Franchisee harmless from and against, such payment in
accordance with Section 11.1 hereof, and (b) in the event the Supplier is
obligated to make indemnity payments under any such agreement resulting from any
of the matters described in clauses (a) through (d), inclusive, of Section 11.2
hereof, ENBC shall indemnify the Supplier, and hold the Supplier harmless from
and against, such payment in accordance with Section 11.2 hereof.
11.5 The Supplier represents and warrants that it carries: (a) policies of
worker's compensation and employer's liability insurance that comply with all
state and federal laws, and (b) policies of comprehensive general liability
insurance covering the Supplier's premises and operations, including premises
and operations coverage, owner's and contractor's protective coverage, products
and completed operations coverage, full blanket contractual coverage and broad
form property damage coverage, with a combined single limit of $9,000,000 naming
ENBC as an additional insured and containing endorsements (i) providing that the
Supplier's comprehensive general liability coverage (including products
liability) (the "Supplier CGL Coverage") is primary relative to ENBC or any ENBC
Subsidiary or ENBC Franchisee, and that any other insurance maintained by ENBC
or any ENBC Subsidiary or ENBC Franchisee with respect to the risks covered by
the Supplier CGL Coverage is excess and non-contributing, and (ii) waiving any
and all rights of subrogation against ENBC, ENBC Subsidiaries and ENBC
Franchisees with respect to the Supplier CGL Coverage, and (iii) providing for a
continuation of the Supplier CGL Coverage beyond the expiration or termination
of this Agreement for claims made following such expiration or termination that
are attributable to the manufacture of Products by the Supplier during the Term.
The Supplier also represents and warrants that all premiums which have become
due on such policies have been paid, that such policies are in full force and
effect, and that such policies may not be canceled, changed or allowed to lapse
through non-renewal, failure to pay premiums or otherwise except upon not less
than 60 days' prior written notice to the Supplier and ENBC, except that such
notice period need not exceed 10 days in the case of failure to pay premiums.
The Supplier has previously delivered to ENBC evidence of the foregoing
insurance coverages by providing to ENBC a satisfactory Accord Certificate of
Coverage of ENBC as an additional insured, and will hereafter provide ENBC with
a satisfactory Accord Certificate of Coverage upon the issuance of any renewal
or replacement policies. The Supplier agrees to maintain such policies in full
force and effect, in the amount set forth above, throughout the term of this
Agreement, and to maintain ENBC as an additional insured under such policies.
23
<PAGE>
Article 12.0 Confidentiality
12.1 As used in this Agreement, the term "Proprietary Information" shall
mean any knowledge or information, written or oral, which relates in any manner
to the respective businesses of the Supplier and ENBC which is confidential and
proprietary information of the disclosing party, whether or not disclosed prior
to, on or after the date hereof, including, without limitation, the business
concepts, recipes, food preparation methods, equipment, operating techniques,
marketing methods, financial information, demographic and trade area
information, prospective site locations, market penetration techniques, plans,
or schedules, customer profiles, preferences, or statistics, menu breakdowns,
itemized costs, franchisee composition, territories, and development plans,
products, production techniques and all related trade secrets or confidential or
proprietary information treated as such by the disclosing party, whether by
course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary. As used in this Article 12.0, the term "disclosing
party" shall mean the party to this Agreement which discloses or makes available
Proprietary Information to the receiving party, and the term "receiving party"
shall mean the party to this Agreement to whom Proprietary Information is
disclosed or made available by the disclosing party.
12.2 Without limiting the generality of Section 12.1 hereof, the parties
acknowledge and agree that the Formulations, Specifications and Procedures are
the Proprietary Information of ENBC and will be treated as Proprietary
Information that does not become stale with the passage of time for purposes of
the last sentence of Section 12.3 hereof.
12.3 The receiving party shall hold all Proprietary Information in strict
confidence, shall use such Proprietary Information only for the benefit of the
disclosing party and shall disclose such Proprietary Information only to the
receiving party's employees and agents who have a need to know such Proprietary
Information in order to assist the receiving party in performing its obligations
under this Agreement provided such employees and agents each have individually
entered into a confidentiality agreement in form satisfactory to the disclosing
party or are otherwise obligated by a written agreement with the receiving party
to maintain the confidence of the Proprietary Information, which agreement the
parties hereby agree may be directly enforced by the disclosing party. The
receiving party shall not disclose Proprietary Information to any other person
or entity. The obligations hereunder to maintain the confidentiality of
Proprietary Information shall continue: (a) for five years from the date of
disclosure of the Proprietary Information, in the case of Proprietary
Information that by its nature becomes stale with the passage of time (e.g.,
financial information, development plans) and (b) indefinitely, in the case of
the Proprietary Information that by its nature does not become stale with the
passage of time (e.g. trade secrets, production techniques, recipes).
12.4 The obligations of the parties specified in Section 12.3 shall not
apply to any Proprietary Information which (a) is disclosed in a printed
publication available to the public prior to the date of this Agreement, or
becomes known to the public through no act of the receiving party or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the receiving party, provided, however, that a
24
<PAGE>
combination of ingredients or processes that has not been disclosed to, or
become known by, the public shall remain subject to Section 12.3 notwithstanding
the fact that the identity of such ingredients or processes may be known, (b) is
approved for release by written authorization of an officer of the disclosing
party, (c) can be established by the receiving party by documentary evidence to
have been in the legitimate and lawful possession of the receiving party at the
time revealed by the disclosing party to the receiving party, (d) is lawfully
received by the receiving party without restriction from a third party
subsequent to this Agreement, which third party did not obtain the Proprietary
Information through improper means or disclose the Proprietary Information
without authorization, or (e) is required to be disclosed by law or regulation
or by proper order of a court of applicable jurisdiction after adequate notice
to the disclosing party, sufficient to permit the disclosing party to seek a
protective order therefor, the imposition of which protective order the
receiving party agrees to approve and support. In addition, after consultation
with the disclosing party, the receiving party may disclose only that
Proprietary Information that the receiving party believes in good faith it is
required to disclose (x) in connection with any filing that is made or
disclosure document that is prepared for the purpose of complying with federal
or state securities or franchise laws, rules or regulations or (y) to comply
with the rules of any stock exchange or quotation system or any other regulatory
requirements; provided, however, that in any event trade secrets, production
techniques, recipes and similar Proprietary Information of a disclosing party
will not be disclosed by the receiving party without the written consent of the
disclosing party.
12.5 The receiving party (and each employee, agent, or other person or
entity which has received such Proprietary Information from or through the
receiving party) shall, upon the request of the disclosing party, return all
documents and other tangible manifestations of Proprietary Information received
from the disclosing party, including all copies and reproductions thereof. The
receiving party will thereafter certify in writing to the disclosing party that
all Proprietary Information has either been returned to the disclosing party or
destroyed.
Article 13.0 Term
13.1 The initial term of this Agreement shall commence on the date hereof
and continue until April 16, 2005, except that this Agreement shall terminate
upon the exercise by ENBC of its option under the Option Agreement.
13.2 The provisions of Articles 9.0, 10.0, 11.0 and 12.0 and any other
provisions hereof requiring performance by a party following termination shall
survive the expiration or any termination of this Agreement.
13.3 Upon expiration or termination of this Agreement for any reason, ENBC
shall purchase from the Supplier all finished Products in inventory, all
packaging materials and labeling in inventory purchased by the Supplier pursuant
to Section 6.7 hereof, and the ingredients and raw materials in the Supplier's
inventory, at the Supplier's cost, F.O.B. the Production Facility, and (a) ENBC
shall pay to the Supplier any Shortfall Amount that has not previously been
recovered under Section 7.5 and any amounts charged to, but not previously
25
<PAGE>
recovered by, the Supplier under Section 7.7, and (b) the Supplier shall pay to
ENBC any Excess Amount that has not previously been recovered under Section 7.5.
Article 14.0 Miscellaneous
14.1 ENBC and the Supplier may amend, modify and supplement this Agreement
in such manner as may be agreed upon by them in writing.
14.2 Each party to this Agreement shall pay all of the expenses incurred
by it in connection with this Agreement, including without limitation its legal
and accounting fees and expenses, and the commission, fees and expenses of any
person employed or retained by it to bring about, or to represent it in, the
transactions contemplated hereby.
14.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Supplier may not assign its rights or delegate its duties hereunder without the
prior written consent of ENBC.
14.4 This instrument and the exhibits attached hereto contain the entire
agreement of the parties hereto with respect to the purchase and sale of the
Products from the Supplier and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto. In the event of any
inconsistency between this Agreement and any purchase order, confirmation or
similar document or instrument of ENBC, any ENBC Subsidiary or ENBC Franchisee
or the Supplier, this Agreement shall govern.
14.5 Except as expressly set forth in this Agreement or hereafter agreed
in writing by the Supplier and ENBC, (a) ENBC is not promising, committing to or
guaranteeing that any business relationship with the Supplier or the Supplier's
status as an approved supplier will continue for any specified time period, and
(b) ENBC is not agreeing to reimburse the Supplier for any costs, expenses,
investments or other amounts incurred or expended by the Supplier (and no such
amounts have been or will be incurred or expended in reliance on continued
business from ENBC or ENBC Subsidiaries or ENBC Franchisees).
14.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
14.7 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.8 Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or the document
shall be deemed duly given three business days after it is sent by registered or
certified mail, postage prepaid, to the intended recipient, addressed as
follows:
26
<PAGE>
If to the Supplier or Harlan, addressed to such party at the following
address:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P. O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to ENBC, addressed as follows:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, Colorado 80401
Attention: Senior Vice President - Supply Chain
with a copy to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice , request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
14.9 This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts made and to be
performed wholly therein.
27
<PAGE>
14.10 In the event of a breach or threatened breach of any of the
provisions of Section 6.2 or Article 12.0 of this Agreement, the parties
acknowledge and agree that the non-breaching party will not have an adequate
remedy at law and therefore will be entitled to enforce any such provision by
temporary or permanent injunctive or mandatory relief as a remedy for any such
breach, and that such remedy shall not be deemed to be the exclusive remedy for
any such breach but shall be in addition to all other remedies, subject,
however, to the provisions of Section 14.11 hereof.
14.11 In no event shall either party hereto seek, or be liable to the
other party hereto for, speculative, exemplary or punitive damages.
14.12 No press release or other public or trade announcement or statement
related to this Agreement or the transactions contemplated hereby (or the
existence of any discussions or negotiations between the parties regarding any
other possible transactions) will be issued, and no disclosure of this Agreement
or the terms hereof will made, by either of the Harlan Companies without the
prior approval of ENBC. ENBC agrees to use reasonable best efforts to consult
with the Harlan Companies prior to issuing any press release or public or trade
announcement or statement relating to this Agreement or the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Mark Shepherd, Senior Vice President
----------------------------------------
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Doug H. Harlan, Vice President
----------------------------------------
HARLAN BAKERIES, INC.
By /s/ Hugh P. Harlan, President
----------------------------------------
/s/ Hal P. Harlan
-------------------------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
-------------------------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
-------------------------------------------
Doug H. Harlan
28
<PAGE>
Exhibits
--------
Exhibit A Determination of Materials Cost
Exhibit B Form of Assignment and Bill of Sale
Exhibit C Amended and Restated Schedule No.1 to Equipment Lease
Exhibit D Amended and Restated Option Agreement
Exhibit E Form of Statement of Independent Accountants
Exhibit F Second Bagel Line Capital Budget
Exhibit G Amendment to Lease Agreement
<PAGE>
Schedules
---------
Schedule 3.3 Ownership of the Harlan Companies
Schedule 3.4 Financial Statements of the Harlan Companies
Schedule 3.7 Exceptions to Title
Schedule 3.8 Licenses and Permits of the Harlan Companies
Schedule 3.9 Production Facility and Equipment Contracts
Schedule 3.10 Actions
Schedule 3.12 Environmental Matters
Schedule 5.3 Permitted Production Facility Uses
<PAGE>
Exhibit A
---------
Determination of
Materials Cost
--------------
<PAGE>
EXHIBIT A
---------
Exhibit A-1
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Material Costs
(Ingredient and Packaging)
By Bagel Flavor (4.0 oz)
<TABLE>
<CAPTION>
-----------------------------------------------------------
Total costs
- ------------------------------------------------------------------------------------------------------------------------------------
Ingredient Packaging
Costs per Costs per Per Case
Bagel Flavor Bagel Bagel Per Bagel Per Dozen (90 Bagels)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- ------------------------------------------------------------------------------------------------------------------------------------
Average Cost
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit A-2
Harlan Bagel Supply Company, LLC
Summary of Ingredient costs
By Bagel Flavor
Einstein Bros. Bagels, Inc. - 4.0 Ounce
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Current Costs Total Costs of
Ingredient % of Ingredient Ingredient
Flavor Ingredients Quantity of Total Flour per Unit (lbs) Used
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
Total Mix Weight Total Cost -
----------------------------------------------------------------------------------------------------------------
Ingredient Cost per Dozen (______ Dozen Yield) -
Ingredient Loss Factor/Dozen* -
Total cost per Dozen
Total cost per Bagel (4.0 Ounce)
Total cost per Case (90-4.0 Ounce)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As determined pursuant to Section 7.1 of the Agreement
<PAGE>
Exhibit A-3
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Packaging Costs
(Based on 90 bagels per case)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
# Reg. Per Cost Per Cost Per Cost Per Cost Per
Item Case Item Case Dozen Bagel
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Box 1 - - -
Tape 50" - -
Bag Liner 3 - - -
Label 1 - - -
Shrink Wrap 1 - - -
Tie 3 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Cost - - - -
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit A-4
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Current Ingredient Costs
- ------------------------------------------------------------------------------------------------------------------------------------
Total Date of Last Invoice Amount
lbs. on Last ---------------------------------- Cost per
Ingredient Current Vendor Order Invoice Ingredient Freight Total Pound
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Gluten Flour - #DIV/01
Bagel Eze-5 - #DIV/01
Sugar - #DIV/01
Yeast - #DIV/01
Calcium Proplonate - #DIV/01
Water - #DIV/01
Cinnamon - #DIV/01
Nudget Raisin - #DIV/01
White Pepper - #DIV/01
Poppy Seeds - #DIV/01
Dry Onions - Toasted - #DIV/01
Onion Powder - #DIV/01
Liquid Whole Eggs - #DIV/01
Double Spice - #DIV/01
Blueberry Gumbits - #DIV/01
Frozen Blueberries - #DIV/01
Blueberry Flavoring - #DIV/01
Caraway Seeds - #DIV/01
Heart of Rye - #DIV/01
Caramel Color - #DIV/01
Sesame White Hulled Seeds - #DIV/01
Dehydrated Apple Bits - #DIV/01
Ground Nutmeg - #DIV/01
Spice Apple (Liquid) - #DIV/01
Apple Gumbits - #DIV/01
Sweet n' Neat - #DIV/01
Cornmeal - #DIV/01
- - - #DIV/01
- - - #DIV/01
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit B
---------
Form of Assignment and Bill of Sale
-----------------------------------
<PAGE>
ASSIGNMENT AND BILL OF SALE
This assignment and bill of sale, (the "Assignment") is delivered by Harlan
Bagel Supply Company, LLC (the "Seller") to Einstein/Noah Bagel Corp. ("ENBC"),
a Delaware corporation, as of the ____ day of August, 1997.
KNOW ALL BY THESE PRESENTS, that for good and valuable consideration the
Seller does hereby sell, convey, transfer, assign, and deliver to ENBC the
Equipment specified in Exhibit A hereto (the "Purchased Equipment").
The Seller represents, warrants, and covenants to ENBC, its successors, and
assigns, that the Seller is the lawful owner of the Purchased Equipment and has
the right and authority to make the herein described transfer free and clear of
all liens, mortgages, pledges, encumbrances, claims, and charges of every kind.
The Seller further agrees to execute such additional documents from time to
time at the request of ENBC as may be reasonably necessary to accomplish the
transfer made herein.
IN WITNESS WHEREOF, the Seller has executed this assignment and bill of
sale as of the day and year first written above.
HARLAN BAGEL SUPPLY COMPANY, LLC
By
-----------------------------
<PAGE>
ASSIGNMENT AND BILL OF SALE
This assignment and bill of sale, (the "Assignment") is delivered by Harlan
Bakeries, Inc. (the "Seller") to Einstein/Noah Bagel Corp. ("ENBC"), a Delaware
corporation, as of the ____ day of August, 1997.
KNOW ALL BY THESE PRESENTS, that for good and valuable consideration the
Seller does hereby sell, convey, transfer, assign, and deliver to ENBC the
Equipment specified in Exhibit A hereto (the "Purchased Equipment").
The Seller represents, warrants, and covenants to ENBC, its successors, and
assigns, that the Seller is the lawful owner of the Purchased Equipment and has
the right and authority to make the herein described transfer free and clear of
all liens, mortgages, pledges, encumbrances, claims, and charges of every kind.
The Seller further agrees to execute such additional documents from time to
time at the request of ENBC as may be reasonably necessary to accomplish the
transfer made herein.
IN WITNESS WHEREOF, the Seller has executed this assignment and bill of
sale as of the day and year first written above.
HARLAN BAKERIES, INC.
By
-----------------------------
<PAGE>
Exhibit C
---------
Amended and Restated Schedule No. I to Equipment Lease
------------------------------------------------------
<PAGE>
EXHIBIT C
EQUIPMENT SCHEDULE
AMENDED AND RESTATED SCHEDULE NO. SERIES I
DATED THIS ____ DAY OF AUGUST, 1997
TO LEASE AGREEMENT DATED AS OF AUGUST 27, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
EINSTEIN/NOAH BAGEL CORP. HARLAN BAGEL SUPPLY COMPANY
14123 Denver West Parkway 7597 E. U.S. Highway 36
Golden, Colorado 80401 Avon, Indiana 46168-7971
This Amended and Restated Equipment Schedule is executed pursuant to, and
incorporates by reference the terms and conditions of, and capitalized terms not
defined herein shall have the meanings assigned to them in, the Lease Agreement
identified above ("Agreement;" said Agreement and this Schedule being
collectively referred to as "Lease"). This Amended and Restated Equipment
Schedule, incorporating by reference the Agreement, constitutes a separate
instrument of lease. This Amended and Restated Equipment Schedule is designated
as a Series A Schedule. This Amended and Restated Equipment Schedule amends,
restates, replaces, and substitutes in full the obligations under that certain
Equipment Schedule previously entered into by Lessor and Lessee and dated as of
the 27th day of August, 1996.
A. Equipment.
Pursuant to the terms of the Lease, Lessor agrees to Lease to Lessee the
Equipment listed on Annex A attached hereto and made a part hereof.
B. Financial Terms.
(1) Capitalized Lessor's Cost as of July 11, 1997: $8,007,681.
(2) Term: Effective as of July 14, 1997 through April 16, 2005.
(3) Lease Commencement Date: July 14, 1997
(4) Equipment Location: 7597 E. U.S. Highway 36, Avon, Indiana
(5) Lessee Federal Tax ID No.: Applied for.
(6) Suppliers: Various.
(7) Last Delivery Date: N/A
(8) Stipulated Loss Values: See Annex B.
The parties agree to adjust Capitalized Lessor's Cost and the principal
amortization and stipulated loss value schedules attached hereto to reflect
adjustments in the final purchase price of the Equipment.
<PAGE>
C. Term and Rent.
Commencing on October 3, 1997 and on the last Business Day of each fiscal
quarter of Lessor thereafter through the first fiscal quarter of 2005 (each, a
"Rent Payment Date"), Lessee shall pay as rent quarterly installments of
principal and interest, in arrears, each installment in the principal amount
specified on the attached Amortization Schedule together with interest on the
Unamortized Principal Balance as of the immediately preceding Rent Payment Date
(after application of the Rent paid on such date) at the Interest Rate for the
Interest Period following such immediately preceding Rent Payment Date, except
that interest payable on the first Rent Payment date shall be determined based
on Capitalized Lessor's Cost. Interest shall be calculated on the basis of a 360
day year for the actual number of days elapsed. Said Rent consists of principal
and interest components, such principal components being as provided in the
Amortization Schedule attached hereto.
As used herein, the following terms shall have the following meanings:
"Interest Period" shall mean the period beginning on the Lease Commencement
Date and ending on the next Rent Payment Date, and each subsequent quarterly
period.
"Interest Rate" shall mean that percentage per annum calculated as the sum
of (a) the LIBOR Rate redetermined quarterly, plus (b) four hundred twenty five
(425) basis points (or five hundred ninety five (595) basis points during the
continuance of any Material Indebtedness Default).
"LIBOR Rate" shall mean, with respect to any Interest Period occurring
during the term of the Lease, an interest rate per annum equal at all times
during such Interest Period to the quotient of (1) the rate per annum as
determined by Lessor at which deposits of U.S. Dollars in immediately available
and freely transferable funds are offered at 11:00 a.m. (London, England time)
two (2) Business Days before the commencement of such Interest Period to major
banks in the London interbank market for a period of three (3) months and in an
amount equal or comparable to the Unamortized Principal Balance, divided by (2)
a number equal to 1.00 minus the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of the LIBOR Reserve Requirements current on
the date three (3) Business Days prior to the first day of the Interest Period.
"LIBOR Reserve Requirements" shall mean the daily average for the
applicable Interest Period of the maximum rate applicable to Lessor at which
reserves (including, without limitation, any supplemental, marginal and
emergency reserves) are imposed during such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) on "Eurocurrency
liabilities", as defined in such Board's Regulation D (or in respect of any
other category of liabilities that include deposits by reference to which the
interest rates on Eurodollar loans is determined or any category of extensions
of credit or other assets that include loans by non-United States offices of any
lender to United States residents), having a term equal to such Interest Period,
subject to any amendments of such reserve requirement by such Board or its
successor, taking into account any transitional adjustments thereto.
2
<PAGE>
If at any time Lessor determines that either adequate and reasonable means
do not exist for ascertaining the LIBOR Rate, or Lessor reasonably determines
that, as a result of changes to applicable law after the date of execution of
the Agreement, or the adoption or making after such date of any interpretations,
directives or regulations (whether or not having the force of law) by any court,
governmental authority or reserve bank charged with the interpretation or
administration thereof, it shall be or become unlawful or impossible to make,
maintain, or fund the transaction hereunder at the LIBOR Rate, then Lessor
promptly shall give notice to Lessee of such determination, and Lessor and
Lessee shall negotiate in good faith a mutually acceptable alternative method of
calculating the Interest Rate and shall execute and deliver such documents as
reasonably may be required to incorporate such alternative method of calculating
the Interest Rate in this Schedule, within thirty (30) days after the date of
Lessor's notice to Lessee.
(3) If any Rent Payment Date is not a Business Day, the Rent otherwise due
on such date shall be payable on the immediately preceding Business Day. As used
herein, "Business Day" shall mean any day other than Saturday, Sunday, and any
day on which banking institutions located in the State of Colorado are
authorized by law or other governmental action to close.
D. Insurance.
(1) Public Liability: Combined single limit of $9,000,000.
(2) Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the Equipment.
This Amended and Restated Equipment Schedule is not binding or effective
with respect to the Agreement or Equipment until executed on behalf of Lessor
and Lessee by authorized representatives of Lessor and Lessee, respectively.
3
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amended and Restated
Equipment Schedule to be executed by their duly authorized representatives as of
the date first above written.
Lessor: Lessee:
EINSTEIN/NOAH BAGEL CORP. HARLAN BAGEL SUPPLY COMPANY, LLC
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
4
<PAGE>
ANNEX A
TO
AMENDED AND RESTATED SCHEDULE NO. SERIES I
DATED THIS ____ DAY OF AUGUST, 1997
TO LEASE AGREEMENT DATED AS OF AUGUST 27, 1996
DESCRIPTION OF EQUIPMENT
[See attached Fixed Asset Register]
Initials:
------------ ------------ ------------
Lessor Lessee
<PAGE>
ANNEX B
TO
AMENDED AND RESTATED SCHEDULE NO. SERIES I
DATED THIS ____ DAY OF AUGUST, 1997
TO LEASE AGREEMENT DATED AS OF AUGUST __, 1997
STIPULATED LOSS VALUE TABLE*
<TABLE>
<CAPTION>
RENT PAYMENT DATE STIPULATED LOSS VALUE
- ----------------- ---------------------
<S> <C>
</TABLE>
[See attached table of Stipulated Loss Values]
Initials:
------------ ------------ ------------
Lessor Lessee
- ---------------
. The Stipulated Loss Value for any unit of Equipment shall be equal to the
Capitalized Lessor's Cost of such unit multiplied by the appropriate
percentage derived from the above table. In the event that the Lease is for
any reason extended, then the last percentage figure shown above shall control
throughout any such extended term.
<PAGE>
ANNEX C
TO
AMENDED AND RESTATED SCHEDULE NO. SERIES I
DATED THIS ____ DAY OF AUGUST, 1997
TO LEASE AGREEMENT DATED AS OF AUGUST 27, 1997
PRINCIPAL AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
RENT PAYMENT DATE PRINCIPAL UNAMORTIZED PRINCIPAL BALANCE
- ----------------- --------- -----------------------------
<S> <C> <C>
</TABLE>
[See attached principal
amortization schedule]
Initials:
------------ ------------ ------------
Lessor Lessee
<PAGE>
ANNEX D
TO
AMENDED AND RESTATED SCHEDULE NO. SERIES I
DATED THIS ____ DAY OF AUGUST, 1997
TO LEASE AGREEMENT DATED AS OF AUGUST 27, 1996
RETURN PROVISIONS: In addition to the provisions provided for in Section X of
this Lease, and provided that Lessee has elected not to exercise its purchase
option pursuant to Section XVIII(a) of the Lease, Lessee shall, at its expense:
(A) At least one hundred twenty (120) days and not more than two hundred
forty (240) days prior to expiration or earlier termination of the Lease,
provide to Lessor a detailed inventory of all components of the Equipment. The
inventory should include, but not be limited to, a listing of model, serial
numbers and size description (length, width, height, diameter) for all
components comprising the Equipment.
(B) At least one hundred twenty (120) days prior to expiration or earlier
termination of the Lease, upon receiving reasonable notice from Lessor, provide
or cause the vendor(s) or manufacturer(s) to provide to Lessor the following
documents: (1) one set of service manuals, blue prints, process flow diagrams
and operating manuals including replacements and/or additions thereto, such that
all documentation is completely up-to-date; and (2) one set of documents,
detailing equipment configuration, operating requirements, maintenance records,
and other technical data concerning the set-up and operation of the Equipment,
including replacements and/or additions thereto, such that all documentation is
completely up-to-date.
(C) At least one hundred twenty (120) days prior to expiration or earlier
termination of the Lease, upon receiving reasonable notice from Lessor, make the
Equipment available for on-site operational inspections by potential purchasers,
under power, and provide personnel, power and other requirements necessary to
demonstrate electrical, mechanical and functionality of each item of the
Equipment,
(D) At least forty-five (45) days prior to expiration or earlier
termination of the Lease, cause the manufacturer's representative(s) or
qualified equipment maintenance provider(s), acceptable to Lessor, to perform a
comprehensive physical inspection, including testing all material and
workmanship of the Equipment. The authorized inspector should ensure the
Equipment is clean and cosmetically acceptable, and in such condition so that it
may be immediately installed and placed into use in a similar environment. There
shall be no missing screws, bolts, fasteners, etc. There shall be no evidence of
extreme use or overloading. If during such inspection, examination and test, the
authorized inspector finds any of the material or workmanship to be defective or
the Equipment not operating within manufacturer's specifications, then Lessee
shall repair or replace such defective material and, after corrective
<PAGE>
measures are completed, Lessee will provide for a follow-up inspection of the
Equipment by the authorized inspector as outlined in the preceding clause.
(E) Have each item of Equipment returned with an in-depth field service
report detailing said inspection as outlined in Section D of this Annex D. The
report shall certify that the Equipment has been properly inspected, examined
and tested and is operating within the manufacturer's specifications.
(F) Properly remove all Lessee installed markings which are not necessary
for the operation, maintenance or repair of the Equipment.
(G) Ensure all Equipment and equipment operations conform to all applicable
local, state, and federal laws, health and safety guidelines.
(H) The Equipment shall be redelivered with all component parts in good
operating condition, ordinary wear and tear excepted. All components must meet
or exceed the manufacturer's minimum recommended specifications unless otherwise
specified.
(I) Provide for the deinstallation, packing, transporting, and certifying
of the Equipment to include, but not be limited to, the following: (1) the
manufacturer's representative or a mutually acceptable third party shall de-
install all Equipment (including all wire, cable and mounting hardware) in
accordance with the specifications of the manufacturer; (2) each item of the
Equipment will be returned with a certificate supplied by the manufacturer's
representative or a mutually acceptable third party certifying the Equipment to
be in good condition and (where applicable) to be eligible for the
manufacturer's maintenance plan; the certificate of eligibility shall be
transferable to another operator of the Equipment; (3) the Equipment shall be
packed properly and in accordance with the manufacturer's recommendations; and
(4) Lessee shall transport the Equipment in a manner consistent with the
manufacturer's recommendations and practices.
(J) Upon sale of the Equipment to a third party, provide transportation to
any locations anywhere in the continental United States selected by Lessor.
(K) Obtain and pay for a policy of transit insurance for the redelivery
period in an amount equal to the replacement value of the Equipment and Lessor
shall be named as the loss payee on all such policies of insurance.
Initials:
------------ ------------ ------------
Lessor Lessee
<PAGE>
Exhibit D
---------
Amended and Restated Option Agreement
-------------------------------------
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
OPTION AGREEMENT
dated August 15, 1997
among
EINSTEIN/NOAH BAGEL CORP.
HARLAN BAGEL SUPPLY COMPANY, LLC
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1.0 The Option............................................................... 1
1.1 The Option.................................................................. 1
1.2 Exercise of the Option...................................................... 2
1.3 Regulatory Compliance....................................................... 3
1.4 Purchase Price upon Exercise of the Option.................................. 3
1.5 Allocation of Purchase Price Among Option Assets............................ 3
1.6 Valuation of ENBC Stock or BCI Stock........................................ 4
1.7 Closing of Option Exercise.................................................. 4
1.8 Procedure at each Closing................................................... 4
Article 2.0 Representations and Warranties of Supplier and the Members............... 5
2.1 Organization, Power and Authority of Supplier............................... 5
2.2 Due Authorization; Binding Agreement of Supplier............................ 5
2.3 Ownership Interests in Supplier............................................. 5
2.4 Ownership of Interests by the Members....................................... 6
2.5 Title to Supplier's Assets.................................................. 6
2.6 Accuracy of Information Furnished by Supplier and the Members............... 6
2.7 Investment Banker's and Broker's Fees....................................... 7
Article 3.0 Representations and Warranties of ENBC................................... 7
3.1 Organization, Power and Authority of ENBC................................... 7
3.2 Due Authorization; Binding Agreement of ENBC................................ 7
3.3 Investment Bankers' and Brokers' Fees....................................... 7
Article 4.0 Additional Covenants of Supplier and the Prior to the Termination........ 8
4.1 Reasonable Best Efforts..................................................... 8
4.2 Conduct of Business......................................................... 8
4.3 Access to Supplier's Properties and Records................................. 9
4.4 Notice of Material Developments............................................. 9
4.5 No Disclosure............................................................... 9
4.6 No Other Discussions; Retention of Shares................................... 9
Article 5.0 Conditions to the Closing of the Option Exercise by ENBC................. 10
5.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 10
5.2 HSR Act Waiting Period...................................................... 10
5.3 Receipt of Necessary Consents............................................... 10
5.4 No Adverse Litigation....................................................... 10
5.5 No Material Adverse Change.................................................. 10
5.6 Delivery of Information..................................................... 10
Article 6.0 Certain Additional Covenants............................................. 11
6.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 10
6.2 HSR Act Waiting Period...................................................... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Receipt of Necessary Consents............................ 10
6.4 No Adverse Litigation.................................... 10
Article 7.0 Indemnification....................................... 10
7.1 Execution of Further Documents.......................... 10
7.2 Cooperation of Supplier and the Members................. 10
7.3 Subsequent Audited Financial Statements................. 11
7.4 Confidential Information................................ 11
7.5 Remedies; Waiver........................................ 12
7.6 Employment by ENBC of Supplier's Employees.............. 12
7.7 No Obligation of ENBC to Employ......................... 13
Article 8.0 Indemnification....................................... 13
8.1 Agreement by Supplier and the Members to Indemnify....... 13
8.2 Agreement by ENBC to Indemnify........................... 14
8.3 Tax Effect of Damages and Indemnity Payments............. 14
8.4 Legal Proceedings........................................ 14
Article 9.0 Miscellaneous
9.1 Amendment and Modification............................... 15
9.2 Payment of Expenses...................................... 15
9.3 Binding Effect........................................... 15
9.4 Entire Agreement......................................... 15
9.5 Headings................................................. 15
9.6 Execution in Counterpart................................. 15
9.7 Notices.................................................. 15
9.8 Governing Law............................................ 16
9.9 Publicity................................................ 16
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED OPTION AGREEMENT
This amended and restated option agreement (the "Agreement") is made and
entered into this ________ day of August, 1997 by and among Einstein/Noah Bagel
Corp. a Delaware corporation ("ENBC"), Harlan Bagel Supply Company, LLC, an
Indiana limited liability company ("Supplier"), and Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (collectively, the "Members").
Recitals
--------
ENBC, the Supplier, and Harlan Bakeries, Inc. and the Members previously
entered into a project and approved supplier agreement dated as of May 24, 1996
(the "Prior Approved Supplier Agreement"). As contemplated by the Prior
Approved Supplier Agreement, ENBC obtained an option to acquire all of the
assets of Supplier, pursuant to that certain Option Agreement among ENBC,
Supplier, and the Members dated August 27, 1996, (the "Prior Option Agreement").
The Supplier and ENBC have entered into an Amended and Restated Projected
Approved Supplier Agreement (the "Approved Supplier Agreement") to amend and
restate certain of the terms and conditions of the Prior Approved Supplier
Agreement and desire to amend and restate certain of the terms and conditions of
the Prior Option Agreement. In order to reflect the parties' understanding with
respect to the option, and to amend, restate, replace and substitute in full the
obligations under the Prior Option Agreement, the parties desire to enter into
this Agreement.
Covenants
---------
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained herein and in the Approved
Supplier Agreement, the parties hereto agree as follows:
Article 1.0 The Option
1.1 The Option. Upon the terms and subject to the conditions hereof,
Supplier hereby grants to ENBC an irrevocable option (the "Option") to purchase,
at the purchase price provided for in Section 1.4 hereof, all of the assets of
Supplier (the assets subject to the option being herein sometimes referred to as
the "Option Assets"). Without limiting the generality of the foregoing, the
Option Assets shall include:
1.1.1 all of Supplier's machinery, equipment, tools, supplies,
leasehold improvements, construction in progress, furniture and fixtures,
and other fixed assets ("Fixed Assets");
1.1.2 all inventories and raw materials of Supplier;
1.1.3 all receivables of Supplier including without limitation any
receivables under Sections 7.5 and 7.7 of the Approved Supplier Agreement;
<PAGE>
1.1.4 all real estate owned by Supplier, if any, and all of the
interest of, and the rights and benefits accruing to, Supplier as lessee
under all leases of real property and all improvements thereto and
buildings thereon, and all leases or rental agreements covering machinery,
equipment, tools, supplies, vehicles, furniture and fixtures and other
fixed assets or personal property;
1.1.5 all of the rights and benefits accruing to Supplier under the
Approved Supplier Agreement and under all sales orders, sales contracts,
supply contracts, purchase orders and purchase commitments made by Supplier
in the ordinary course of business, all other agreements to which Supplier
is a party or by which it is bound and all other choices in action, causes
of action and other rights of every kind, but excluding contracts relating
solely to the production or the sale of products other than the Products
(as defined in the Approved Supplier Agreement) ("Excluded Contracts");
1.1.6 all operating data and records of Supplier, including, without
limitation, customer lists, financial, accounting and credit records,
correspondence, budgets and other similar documents and records (although
Supplier may retain copies thereof at its own expense for its tax or other
legitimate business purposes);
1.1.7 all of the proprietary rights of Supplier, including, without
limitation, all trademarks, trade names (but expressly excluding the name
"Harlan" or any name including the name "Harlan"), patents, patent
applications, licenses, trade secrets, technology, know-how, formula,
designs and drawings, computer software, slogans, copyrights, processes,
operating rights, other licenses and permits, and other similar intangible
property and rights, if any; and
1.1.8 all cash and investments, and all prepaid and deferred items of
the Supplier, including, without limitation, prepaid rentals, insurance,
taxes and unbilled charges and deposits.
The Option shall be exercisable at any time from and after the date hereof and
on or before the later of (a) the expiration or termination date of that
certain Lease Agreement dated August 27, 1996 between ENBC and Supplier
("Equipment Lease"), or (b) the expiration or termination date of the Approved
Supplier Agreement ("Termination Date"), but only in the event Supplier: (x)
fails to make any payment required to be made to ENBC under the Equipment Lease
and does not correct such failure within thirty (30) days of the payment due
date; or (y) is in default under any of the Working Capital Financing Documents
(as defined in the Approved Supplier Agreement) or any other third party
indebtedness and such default is not cured within (i) thirty (30) days after
notice of default or (ii) the applicable grace period specified in a notice of
default. The Option will be exercisable for ninety (90) days from the date on
which it first arises. The Option will be exercisable with respect to any and
every default meeting the requirements of this paragraph. For purposes hereof,
the term "other third party indebtedness" shall not include indebtedness owed to
Hal P. Harlan or trade payables of the Supplier incurred in the ordinary course
of business.
2
<PAGE>
1.2 Exercise of the Option. In the event that ENBC elects to exercise
the Option it shall give written notice of such exercise to Supplier in the
manner provided herein for the giving of notice, which notice shall specify the
consideration which ENBC elects to deliver upon the Closing (as hereinafter
defined), which may consist of the Promissory Note (hereinafter defined), shares
of common stock of ENBC ("ENBC Stock"), shares of common stock ("BCI Stock") of
Boston Chicken, Inc. ("BCI"), cash, or any combination of the foregoing, having
an aggregate value equal to the Supplier Value (as defined in Section 1.4),
provided, however, that such consideration may consist of ENBC Stock or BCI
Stock (the issuer of such stock being referred to herein as the "Issuer") only
if (a) the average closing sales price per share of such stock of the Issuer as
quoted on the NASDAQ National Market, as quoted on such other market or exchange
on which such shares are traded, for the ten consecutive trading days ending on
the second business day prior to the Closing Date (as hereinafter defined) (the
"Share Price") is at least $10, and (b) the value of the Issuer (defined as the
product of the Share Price and the total number of outstanding shares of such
stock of the Issuer) is at least $300 million. In the event ENBC elects to
deliver upon the Closing shares of ENBC Stock or shares of BCI Stock, such
shares shall be registered under the Securities Act of 1933, as amended, and
shall be accompanied by a written undertaking of ENBC to pay to the Supplier in
cash the excess, if any, of the value of the shares so delivered , determined in
the manner provided in Section 1.6 hereof, over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by the Supplier to its members to the extent any such shares are
assigned to such members.
1.3 Regulatory Compliance. Upon the exercise of the Option each of the
parties shall promptly prepare and file with the Federal Trade Commission
("FTC") and the United States Department of Justice ("Justice Department") any
notification required to be filed with respect to the transactions contemplated
hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
amended, or any rules or regulations thereunder (the "HSR Act"). Each party
represents and warrants to the other parties hereto that any such filing made by
it shall be true and accurate in all material respects and shall conform to the
requirements of the HSR Act. Each party shall promptly complete and file any
required responses to requests by the FTC or the Justice Department for
additional data and information. Each party shall also make available to the
other parties hereto such information relative to its business, assets and
property as may be required for the preparation of such notifications and
reports.
1.4 Purchase Price upon Exercise of the Option. The purchase price
payable by ENBC upon the exercise of the Option shall consist of: (i) (a) ENBC
Stock, BCI Stock, cash or any combination of the foregoing (determined in
accordance with Section 1.2) having an aggregate value equal to the Supplier
Value as of the Closing Date (as hereinafter defined) or (b) the Promissory Note
and (ii) the assumption by ENBC of Supplier's accounts payable, accrued
expenses, outstanding indebtedness for money borrowed and contractual
obligations, except that ENBC shall not be obligated to assume any liability or
obligation under the Excluded Contracts or any liability or obligation the
existence of which constitutes a breach of any representation and warranty made
by Supplier or the Members in this Agreement or incurred in violation of any
covenants or agreements of Supplier made in this Agreement (such liabilities to
be assumed by ENBC being herein referred
3
<PAGE>
to as the "Assumed Liabilities"). For this purpose, the "Supplier Value" as of
the Closing Date shall be determined in the manner set forth in Exhibit A.
1.5 Allocation of Purchase Price Among Option Assets. The purchase price
for the Option Assets shall be allocated among each item or class of the Option
Assets as determined by the parties. Supplier and ENBC agree that they will
prepare and file their federal and any state or local income tax returns based
on such allocation of the purchase price. Supplier and ENBC agree that they
will prepare and file any notices or other filings required pursuant to Section
1060 of the Internal Revenue Code of 1986, as amended, and that any such notices
of filings will be prepared based on such agreed allocation of the purchase
price.
1.6 Valuation of ENBC Stock or BCI Stock. ENBC Stock or BCI Stock
delivered upon the Closing (as hereinafter defined) shall be deemed to have a
value equal to the average closing sales price per share of such stock as quoted
on the NASDAQ National Market, as reported in the Wall Street Journal (Western
Edition), or as quoted on such other market or exchange on which such shares are
traded, for the ten consecutive trading days ending on the second business day
prior to the Closing Date (as hereinafter defined).
1.7 Closing of Option Exercise. The closing of the exercise of the
Option shall take place at the offices of ENBC at 9:00 A.M., local time, on the
fifth business day after the date of the notice of such exercise referred to in
Section 1.2, or, if later, the second business day after the satisfaction or
waiver of all other conditions to the exercise of the Option provided for in
Articles 5.0 and 6.0 hereof. Throughout this Agreement, such event is referred
to as "Closing" and such date and time are referred to as "Closing Date".
1.8 Procedure at the Closing. At the Closing: (i) Supplier shall
execute and deliver to ENBC instruments of assignment in form and substance
satisfactory to ENBC sufficient to convey to ENBC all right, title and interest
of Supplier in and to the Option Assets, all necessary consents or approvals of
third parties (including any governmental entities) to the transactions
contemplated hereby, subscription agreements of Supplier and the Members
satisfactory in form and substance to ENBC, in the event ENBC has elected to
deliver ENBC Stock or BCI Stock at the Closing, and an opinion of Henderson,
Daily, Withrow & DeVoe, or other counsel reasonably acceptable to ENBC, dated
as of the Closing Date and in a form reasonably acceptable to ENBC, to the
effect that: (A) Supplier is a limited liability company duly organized and
validly existing under the laws of the State of Indiana with full power and
authority to own or lease its properties, to carry on its business as it is
being conducted and to convey the Option Assets to ENBC pursuant to this
Agreement, (B) the sale of the Option Assets has been duly authorized by all
necessary action of Supplier under Indiana law, its articles of incorporation
and bylaws, (C) the sale of the Option Assets will not conflict with or violate
any provision of the articles of organization or operating agreement of
Supplier, conflict with or violate any order, judgment or decree known to such
counsel applicable to Supplier or the Members or by which any of Supplier's
properties are affected, or result in a breach of, or constitute a default (or
any event which with notice or lapse of time would become a default) under, or
give to others any rights of first refusal, termination, amendment, acceleration
or cancellation of, or result in the creation of any lien or encumbrance on any
of the Option Assets pursuant to, any notice, bond, mortgage, indenture
contract, agreement, lease or other instrument or
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obligation known to such counsel by which Supplier or any of the Members is
bound or by which any of the Supplier's properties are affected, (D) the sale of
the Option Assets will not, require any consent, approval, exemption,
authorization or permit of, filing with or notification, or other action by, any
court, administrative agency or governmental or regulatory authority, under any
provision of Indiana or Federal law, except for such consents and approvals as
shall have been obtained and filings which shall have been made, and (E) to such
counsel's knowledge, there are no actions, suits, proceedings or governmental
inquiries pending or threatened against Supplier or any of the Members seeking
to prevent the consummation of the transactions contemplated by this Agreement
or which could reasonably be expected to have a material adverse effect on the
Option Assets or the ability of Supplier and the Members to perform their
obligations under this Agreement, and (ii) in the event ENBC has not elected to
pay the purchase price by delivering cash, ENBC Stock or BCI Stock, ENBC shall
deliver to Supplier a promissory note, in the form of Exhibit B attached hereto,
in the principal amount of the purchase price (the "Promissory Note"), and (iii)
ENBC shall deliver to Supplier an instrument of assumption in form and substance
satisfactory to Supplier, assuming the Assumed Liabilities, and releases of any
guarantees made by the Members in connection with the Assumed Liabilities, to
the extent such releases may be obtained through ENBC's reasonable efforts
(which the parties agree shall not require ENBC to expend money or provide
security to the holder of any of the Assumed Liabilities). ENBC acknowledges
that the legal opinion referred to above will be subject to review by Henderson,
Daily's opinion committee prior to the time of issuance of such opinion so that
such opinion is consistent with prevailing opinion letter practice at such time.
The Promissory Note shall provide that the purchase price shall be payable to
the Supplier on the six (6) month anniversary of the Closing Date unless the
purchase price exceeds $1,000,000, in which event $1,000,000 will be payable to
the Supplier on the six (6) month anniversary of the Closing Date with the
balance of the purchase price payable in equal installments of principal, with
interest, on each of the twelve (12), eighteen (18), and twenty-four (24) month
anniversaries of the Closing Date. Interest shall be payable on the purchase
price from and after the Closing Date.
Article 2.0 Representations and Warranties of Supplier and the Members
In order to induce ENBC to enter into this Agreement and to consummate the
transactions contemplated hereunder, Supplier and the Members jointly and
severally make the following representations and warranties:
2.1 Organization, Power and Authority of Supplier. Supplier is a
limited liability company duly organized and validly existing under the laws of
Indiana, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby. Supplier is legally qualified to transact business, and is
in good standing, in any jurisdictions in which its business or property is such
as to require that it be thus qualified, except where the failure to be so
qualified would not have a material adverse effect on its business, properties
or financial condition.
2.2 Due Authorization; Binding Agreement of Supplier and Members. The
execution, delivery and performance of this Agreement and the consummation of
the transactions
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contemplated hereby have been duly authorized by all necessary action of
Supplier, including the approval of the Members of Supplier. This Agreement has
been duly executed and delivered by Supplier and the Members and is a valid and
binding obligation of Supplier and the Members, enforceable in accordance with
its terms. Neither the execution and delivery of this Agreement by Supplier or
the Members nor the consummation of the transactions contemplated hereby will:
(i) conflict with or violate any provision of the articles of organization or
operating agreement of Supplier or of any decree or order of any court or
administrative or other governmental body which is either applicable to, binding
upon or enforceable against Supplier or the Members or the assets and properties
of Supplier or the Members; or (ii) result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
mortgage, contract, agreement, indenture or other instrument which is either
binding upon or enforceable against Supplier or the Members or the assets and
properties of Supplier or the Members. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Supplier or the Members and the consummation by it of the
transactions contemplated hereby, except pursuant to the HSR Act.
2.3 Ownership Interests in Supplier. All voting rights in Supplier are
vested exclusively in its membership interests (the "Interests"), and there are
no voting trusts, proxies or other agreements or understandings with respect to
the voting of the Interests of Supplier, except for the operating agreement
among the Supplier and the Members (the "Operating Agreement"). Supplier has
previously furnished to ENBC copies of Supplier's articles of organization and
the Operating Agreement, and such copies are correct and complete in all
respects. There are no outstanding warrants, options or rights of any kind to
acquire from Supplier any interests or securities of any kind, and there are no
pre-emptive rights with respect to the issuance or sale of interests of
Supplier. Supplier has no obligation to acquire any of its issued and
outstanding interests or any other security issued by it from any holder
thereof, except pursuant to the Operating Agreement.
2.4 Ownership of Interests by the Members. The Members are the lawful
owners of all of the outstanding Interests of Supplier and have valid marketable
title thereto, free and clear of all liens, pledges, encumbrances, security
interests, restrictions on transfer, claims and equities of every kind, other
than restrictions under federal and state securities laws. There are no
outstanding warrants, options or rights of any kind to acquire from the Members
any of the Interests.
2.5 Title to Supplier's Assets. Supplier has good and marketable title
to all of its assets and properties, free and clear of all liens, mortgages,
pledges, encumbrances or charges of every kind, nature, and description
whatsoever, and upon the Closing ENBC will acquire good and marketable title to
the Option Assets, free and clear of all liens, mortgages, pledges, encumbrances
or charges of every kind, nature and description whatsoever, except for (i)
security interests securing any indebtedness for money borrowed or other
contractual obligations but only if such indebtedness or obligations are assumed
by ENBC or (ii) such liens, mortgages, pledges, encumbrances or charges as shall
have been approved by ENBC in writing.
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2.6 Accuracy of Information Furnished by Supplier and the Members. No
representation, statement or information made or furnished by Supplier or the
Members to ENBC, including without limitation those contained in this Agreement
and the various schedules attached hereto, when taken as a whole, contains or
shall contain any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained therein not
misleading.
2.7 Investment Bankers' and Brokers' Fees. Neither the Members nor
Supplier have any obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement.
Article 3.0 Representations and Warranties of ENBC
In order to induce Supplier and the Members to enter into this Agreement
and to consummate the transactions contemplated hereunder, ENBC makes the
following representations and warranties:
3.1 Organization, Power and Authority of ENBC. ENBC is a corporation
duly organized and validly existing under the laws of the State of Delaware, and
has full corporate power and authority to own or lease its properties and to
carry on its business as it is now being conducted and to enter into this
Agreement and to carry out the transactions and agreements contemplated hereby.
3.2 Due Authorization; Binding Agreement of ENBC. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of ENBC This Agreement has been duly executed and delivered by
ENBC and is a valid and binding obligation of ENBC, enforceable in accordance
with its terms. Neither the execution and delivery of this Agreement by ENBC
nor the consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the certificate of incorporation or bylaws of
ENBC or of any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or enforceable
against ENBC, or its assets and properties; or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture or other instrument which is
either binding upon or enforceable against ENBC, or its assets and properties.
No permit, consent, approval of authorization of, or declaration to or filing
with, any regulatory or other government authority is required in connection
with the execution and delivery of this Agreement by ENBC and the consummation
by it of the transactions contemplated hereby.
3.3 Investment Bankers' and Brokers' Fees. ENBC has no obligation to
pay any fees or commissions to any investment banker, broker, finder or agent
with respect to the transactions contemplated by this Agreement.
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Article 4.0 Additional Covenants of Supplier and the Members Prior to the
Termination Date
4.1 Reasonable Best Efforts. Supplier and the Members will use
reasonable best efforts to cause to be satisfied as soon as practicable and
prior to the Closing Date all of the conditions set forth in Articles 5.0 and
6.0. Without limiting the generality of the foregoing Supplier and the Members
will not, without ENBC's written consent, take any action that would result in a
requirement that any third party consent or approval be obtained in connection
with exercise of the Option.
4.2 Conduct of Business. From and after the execution and delivery of
this Agreement and until the earlier of the Closing Date or the Termination
Date, except as otherwise provided by the prior written consent of ENBC:
4.2.1 Supplier will use reasonable best efforts to (i) preserve its
business organization intact, (ii) keep available the services of its
officers, employees, and agents, and (iii) preserve its relationships with
suppliers and others having dealings with Supplier;
4.2.2 Supplier will maintain all of its properties in customary
repair, order and condition, reasonable wear and use and damage by
unavoidable casualty excepted; and
4.2.3 Supplier will not (a) sell, lease, transfer or otherwise
dispose of assets other than in the ordinary course of business, (b)
redeem, purchase or otherwise acquire from any of its Members all or any
part of their equity interest in the Supplier or pay any dividends or make
any other distributions or payments to such Members, or persons or entities
related to them, except for (i) distributions to the members to permit
payment by them of income taxes on income of Supplier allocated to them,
which shall be based on a tax rate equal to the highest effective combined
statutory rate of federal and state income tax (giving effect to the
deductibility of state income taxes for federal income tax purposes)
imposed on taxable income of an individual residing in the State of
Indiana, and (ii) other cash distributions and compensation payments that
are permitted to be made by the Financing Documents (as defined in the
Approved Supplier Agreement), (c) incur indebtedness other than the
indebtedness provided for in the Financing Documents (as defined in the
Approved Supplier Agreement), (d) incur any material obligations or
liabilities (other than its obligations under this Agreement and the
Approved Supplier Agreement), or enter into any material transaction (other
than transactions contemplated by this Agreement or the Approved Supplier
Agreement) other than in the ordinary course of business, (e) merge or
consolidate with any other entity, effect any change in its capital
structure, make any investment in any other entity, liquidate or dissolve,
(f) amend its articles of organization or the Operating Agreement, (g)
enter into any transaction with any affiliate except on terms at least as
favorable as those that could be obtained from an unrelated third party or
(h) agree to do any of the foregoing.
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4.3 Access to Supplier's Properties and Records. From and after the
execution and delivery of this Agreement and until the earlier of the Closing
Date or the Termination Date, Supplier will afford to the representatives of
ENBC access, during normal business hours and upon reasonable notice, to
Supplier's premises and books and records sufficient to enable ENBC to inspect
the assets and properties of Supplier and to determine the Supplier Value (as
defined in Exhibit A hereof), and Supplier will furnish to such representatives
during such period all such information relating to the foregoing investigation
as ENBC may reasonably request; provided, however, that any furnishing of such
information to ENBC and any investigation by ENBC shall not affect the right of
ENBC to rely on the representations and warranties made by Supplier and the
Members in or pursuant to this Agreement, and provided further, that ENBC shall
maintain the confidentiality of any information so furnished to it in accordance
with the provisions of Article 12.0 of the Approved Supplier Agreement. Without
limiting the generality of the foregoing, Supplier shall furnish to ENBC within
five (5) business days after the Option is first exercisable, a statement
setting forth the Supplier Value (as defined in Exhibit A hereof) determined as
of the applicable date under Exhibit A, which statement shall be prepared in
accordance with Exhibit A and shall set forth with specificity the calculation
of Supplier Value.
4.4 Notice of Material Developments. From and after the execution and
delivery of this Agreement and until the earlier of the Closing Date or the
Termination Date, Supplier will give prompt written notice to ENBC of any
material development affecting the assets, properties, business, business
prospects, financial condition or results of operations of Supplier, including
without limitation any development which results in the inaccuracy of any of the
representations and warranties of Supplier and the Members made herein.
4.5 No Disclosure. Without the prior written consent of ENBC, neither
Supplier nor any of the Members will, prior to the earlier of the Closing Date
or the Termination Date, disclose the existence of or any term or condition of
this Agreement to any person or entity except that such disclosure may be made
(i) to any lender or financing source of Supplier or any person in a business
relationship with Supplier to whom such disclosure is necessary in order to
satisfy any of the conditions or obligations which are set forth in this
Agreement, and (ii) to the extent Supplier believes in good faith that such
disclosure is required by law (in which case Supplier will consult with ENBC
prior to making such disclosure).
4.6 No Other Discussions; Retention of Interests. Neither the Members
nor Supplier will, prior to the earlier of the Closing Date or the Termination
Date, enter into discussions or negotiate with or entertain or accept the
unsolicited offer of any other party concerning the potential sale or exchange
of all or any part of the assets of or interests in Supplier to, or the merger
or consolidation of Supplier with, any person other than ENBC The Members will
not, prior to the earlier of the Closing Date or the Termination Date, sell,
assign, transfer, pledge, encumber or otherwise dispose of any of the Interests
owned by them, except for Exempt Transactions permitted by the Operating
Agreement.
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Article 5.0 Conditions to ENBC' Obligation to Close the Option Exercise.
The obligation of ENBC to purchase the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by ENBC at or prior
to the Closing Date of each of the following conditions:
5.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of Supplier and the Members
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. Supplier and the Members shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Members
shall have delivered to ENBC a certificate, dated as of the Closing Date and
signed by each of the Members, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
5.2 HSR Act Waiting Period. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
5.3 Receipt of Necessary Consents. All necessary consents or approvals
of third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to ENBC.
5.4 No Adverse Litigation. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the purchase of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
5.5 No Material Adverse Change. Since the date of the exercise of the
Option, there shall have been no changes in the business or properties of
Supplier, or in its financial condition, other than changes which in the
aggregate shall not have had a material adverse effect.
5.6 Delivery of Information. Supplier shall have delivered to ENBC any
information required to have been delivered to ENBC pursuant to Section 4.3
hereof.
Article 6.0 Conditions to the Supplier's Obligation to Close the Option
Exercise
The obligation of Supplier to sell the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by Supplier at or
prior to the Closing Date of each of the following conditions:
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of ENBC contained in this
Agreement shall have been true and correct in all material respects at and as of
the date hereof, and they shall be true and correct in all
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material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. ENBC shall have performed and complied
with all of its obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. ENBC shall have delivered to
Supplier a certificate, dated as of the Closing Date and signed by ENBC,
certifying that such representations and warranties are thus true and correct in
all material respects and that all such obligations have been thus performed and
complied with.
6.2 HSR Act Waiting Period. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
6.3 Receipt of Necessary Consents. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Supplier.
6.4 No Adverse Litigation. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the sale of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
Article 7.0 Certain Additional Covenants
7.1 Execution of Further Documents. From and after the Closing, upon
the reasonable request of ENBC, Supplier and the Members shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to convey and
transfer to and vest in ENBC the Option Assets and as may be appropriate
otherwise to carry out the transactions contemplated by this Agreement.
7.2 Cooperation of Supplier and the Members. Each of the Members
acknowledges and agrees that ENBC may have need of information concerning
Supplier and the Members in order to comply with applicable securities laws and
regulations in connection with future public and private debt and equity
offerings by ENBC ("Offerings"). The Members jointly and severally agree that
they will cooperate with ENBC in connection with any Offerings and that they
will, at ENBC's expense: (i) furnish ENBC with such information concerning
Supplier and the Members as ENBC may reasonably require to comply with
applicable securities laws and regulations (the "Company Information"); (ii) use
diligent efforts to review, comment on, and otherwise assist ENBC as reasonably
necessary for the preparation of, descriptions concerning Supplier and the
Members to be used in connection with Offerings; and (iii) represent and warrant
to ENBC in connection with any Offerings that Company Information will not
contain any untrue statement of a material fact or omit any material fact
necessary to make the information contained therein not misleading.
7.3 Subsequent Audited Financial Statements. Each of the Members
covenants and agrees with ENBC that if ENBC shall determine that audited
financial statements of ENBC or Supplier for the periods prior to the Closing
are necessary or advisable in connection with an initial public offering,
another transaction or offering, or otherwise, each shall cooperate fully with
ENBC's accountants in the preparation of such audited financial statements, at
ENBC's expense,
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and each shall make such reasonable representations and warranties to the
applicable certified public accountants as are customary in connection with the
preparation of audited financial statements.
7.4 Confidential Information.
7.4.1 The Members may possess certain confidential and proprietary
information and trade secrets including, but not limited to, information,
methods, techniques, procedures and knowledge developed by or for Supplier
respecting the business of Supplier (the "Confidential Information"). Each
of the Members acknowledges and agrees that neither such Shareholder nor
any other person or entity has acquired by or through such Members any
interest in or right to use the Confidential Information other than the
right to utilize it in the operation of the businesses of Supplier and
ENBC, and that the use or duplication of the Confidential Information in
any other business would constitute an unfair method of competition with
Supplier and ENBC. Notwithstanding the foregoing, however, ENBC
acknowledges that the Members are actively involved as Members, officers
and directors of Harlan Bakeries, Inc. and that certain Confidential
Information may be shared with Harlan Bakeries, Inc. The foregoing is not
intended to prevent Harlan Bakeries from using such Confidential
Information in its business generally, but Confidential Information
relating specifically to ENBC or its Formulations, Specifications and
Procedures (as defined in the Approved Supplier Agreement) may not be used
by Harlan Bakeries except to the extent such use is solely for the benefit
of ENBC.
7.4.2 Subject to Section 7.4.1 hereof, each of the Members
acknowledges and agrees that the Confidential Information is confidential
to and a valuable asset of Supplier, is proprietary, and includes trade
secrets of Supplier and that such Member: (i) will not use the
Confidential Information in any other business or capacity; (ii) will
maintain the absolute secrecy and confidentiality of the Confidential
Information; and (iii) will not make unauthorized copies of any portion of
the Confidential Information disclosed in written or other tangible form.
7.4.3 Notwithstanding the foregoing, the obligations of the Members
specified above shall not apply to any Confidential Information which (i)
is disclosed in a printed publication available to the public, or is
otherwise in the public domain through no act of any of the Members, their
agents or any person or entity which has received such Confidential
Information from or through any of the Members, (ii) is approved for
release by written authorization of an officer of ENBC, (iii) is required
to be disclosed by proper order of a court of applicable jurisdiction after
adequate notice to ENBC to seek a protective order therefor, the imposition
of which protective order the Members agree to approve and support, or (iv)
in the written opinion of the disclosing Member's counsel, is necessary to
be made by such Member in order that the Member not violate any law, rule
or regulation applicable to him.
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7.5 Remedies; Waiver.
7.5.1 Each of the Members agrees that the provisions and restrictions
set forth above in Section 7.4 are necessary to protect ENBC and its
successors and assigns in the protection of the Option Assets ENBC is
entitled to acquire pursuant to this Agreement. Each of the Members agrees
that damages cannot compensate ENBC in the event of a violation of the
covenants contained in Section 7.4 hereof, and that injunctive relief
shall be essential for the protection of ENBC and its successors and
assigns. Accordingly, each of the Members agrees and consents that, in the
event he shall violate or breach any of said covenants ENBC shall be
entitled to obtain (and he hereby consents to) such injunctive relief
against such Shareholder, without bond, in addition to such further or
other relief as may appertain at equity or law. The exercise or
enforcement by ENBC of any right or remedy hereunder shall not preclude the
exercise or enforcement by ENBC of any other right or remedy hereunder or
which ENBC has the right to enforce under applicable law.
7.5.2 Failure by any party to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver
of such term, covenant or condition, nor shall any waiver or relinquishment
of any right or remedy hereunder at any one or more times be deemed a
waiver or relinquishment of such right or remedy at any other time or
times.
7.6 Employment by ENBC of Supplier's Employees. Supplier shall use its
reasonable best efforts to aid ENBC in engaging such of its employees as are
employed on the Closing Date, if any, whom ENBC desires to engage after the
Closing Date, and except with the written consent of ENBC, neither Supplier nor
any Affiliate (as hereinafter defined) of Supplier shall employ, for a period of
one year after the Closing Date, any person employed by Supplier at or at any
time within six months prior to the Closing Date unless such person was either
not offered employment by ENBC or was terminated by ENBC. As used in this
Agreement, the term "Affiliate" means, with respect to a specified person, any
other person which directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified, and the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.
7.7 No Obligation of ENBC to Employ. ENBC shall have no obligation to
employ any of the persons employed by Supplier at the time of the Closing, if
any, or to continue, or institute any replacement or substitution for, any
vacation, severance, incentive, bonus, profit sharing, pension or other employee
benefit plan or program of Supplier.
Article 8.0 Indemnification
8.1 Agreement by Supplier and the Members to Indemnify. Subject to the
qualifications and limitations set forth in this Section 8.1, Supplier and the
Members jointly and severally agree that from and after the Closing, if any,
they will indemnify and hold ENBC harmless in respect of the
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aggregate of all ENBC Indemnifiable Damages (as hereinafter defined). For this
purpose, ENBC Indemnifiable Damages shall mean the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including related counsel
fees and expenses) incurred or suffered by ENBC (or any successor to all or any
part of the assets or business of Supplier) (i) resulting from any inaccurate
representation or warranty made by Supplier and the Members in or pursuant to
this Agreement, (ii) resulting from any default in the performance of any of the
covenants or agreements made by Supplier or the Members in this Agreement, or
(iii) resulting from the failure of Supplier to pay, discharge or perform any
liability or obligation that is not required to be assumed by ENBC hereunder
("Excluded Liabilities"). Without limiting the generality of the foregoing,
with respect to the measurement of ENBC Indemnifiable Damages, ENBC shall have
the right to be put in the same financial position as it would have been in had
each of the representations and warranties of Supplier and the Members been true
and correct, had each of the covenants and agreements of Supplier and the
Members been performed in full and had each of the Excluded Liabilities been
paid or performed in full. The foregoing obligation to indemnify ENBC shall be
subject to each of the following principles or qualifications:
8.1.1 Each of the representations and warranties made by the Supplier
and the Members in this Agreement or pursuant hereto, shall survive for a
period of eighteen (18) months after the exercise of the Option and
thereafter all such representations and warranties shall be extinguished,
provided, however, that the representations and warranties made in Sections
2.1, 2.2, 2.3, 2.4 and 2.7 hereof shall in each case survive forever. No
claim for the recovery of ENBC Indemnifiable Damages based upon the
inaccuracy of such representations and warranties may be asserted by ENBC
after such representations and warranties shall be thus extinguished;
provided, however, that claims first asserted in writing within the
applicable period (whether or not the amount of any such claim has become
ascertainable within such period) shall not thereafter be barred.
8.1.2 The Supplier and the Members shall be liable for any claim for
ENBC Indemnifiable Damages arising out of any inaccuracy of any
representation or warranty only to the extent the aggregate amount of all
such ENBC Indemnifiable Damages do exceed $25,000.
8.1.3 The liability of the Supplier and the Members for claims for
all ENBC Indemnifiable Damages arising out of inaccuracies of
representations and warranties of the Supplier and the Members shall in no
event exceed the amount of the purchase price payable under Section 1.4.
8.2 Agreement by ENBC to Indemnify. ENBC agrees that from and after the
Closing, if any, it will indemnify and hold Supplier and the Members harmless in
respect of the aggregate of all Supplier Indemnifiable Damages (as hereinafter
defined). For this purpose, Supplier Indemnifiable Damages shall mean the
aggregate of all expenses, losses, costs, deficiencies, liabilities and damages
(including related counsel fees and expenses) incurred or suffered by Supplier
or the Members (i) resulting from any inaccurate representation or warranty made
by ENBC in or pursuant to this Agreement, (ii) resulting from any default in the
performance of any of the covenants or agreements made by ENBC in this
Agreement, (iii) resulting from the failure of
14
<PAGE>
ENBC to discharge any Assumed Liabilities (including any Assumed Liabilities
that may have been guaranteed by one or more of the Members) after Closing or
(iv) resulting from the operation of the business utilizing the Option Assets by
ENBC after Closing (except to the extent arising from any inaccurate
representation or warranty made by the Supplier and the Members herein). Without
limiting the generality of the foregoing, with respect to the measurement of
Supplier Indemnifiable Damages, Supplier and the Members shall each have the
right to be put in the same financial position as they would have been in had
each of the representations and warranties of ENBC been true and correct, had
each of the covenants and agreements of ENBC been performed in full and had each
of the Assumed Liabilities been paid or performed in full.
8.3 Tax Effect of Damages and Indemnity Payments. In determining the
amount of ENBC Indemnifiable Damages payable under Section 8.1 and Supplier
Indemnifiable Damages payable under Section 8.2, there shall be taken into
account both tax benefits, if any, arising from the incurrence of damages and
tax detriments, if any, arising from the receipt of payments hereunder.
8.4 Legal Proceedings. In the event Supplier, the Members or ENBC become
involved in any legal, governmental or administrative proceeding which may
result in indemnification claims hereunder, such party shall promptly notify the
other parties in writing of such proceeding. The other parties may, at their
option and expense, defend any such proceeding if the proceeding could give rise
to an indemnification obligation hereunder. If any party elects to defend any
proceeding, such party shall have full control over the conduct of such
proceeding, although the party being indemnified shall have the right to retain
legal counsel at its own expense and shall have the right to approve any
settlement of any dispute giving rise to such proceeding, such approval not to
be withheld unreasonably by the party being indemnified; provided, that, in the
event the indemnifying party shall fail to initiate a defense of a claim within
twenty days of the notice to the indemnified party of a claim, the indemnified
party shall have the option to conduct the defense of such claim as it may in
its discretion deem proper. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
Article 9.0 Miscellaneous
9.1 Amendment and Modification. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by them in
writing.
9.2 Payment of Expenses. Each party to this Agreement shall pay all of
the expenses incurred by it in connection with this Agreement, including without
limitation its legal and accounting fees and expenses.
9.3 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs and legal representatives.
9.4 Entire Agreement. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the option to
purchase the Option Assets and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto.
15
<PAGE>
9.5 Headings. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
9.6 Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
9.7 Notices. Any notice, request, information or other document to be
given hereunder shall be in writing. Any notice, request, information or other
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Supplier addressed as follows:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
with a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to ENBC, addressed as follows:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401
Attention: Senior Vice President-Supply Chain
16
<PAGE>
with a copy to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
P. O. Box 4086
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice, request, information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed wholly therein.
9.9 Publicity. No press release or other public announcement related to
this Agreement or the transactions contemplated hereby (or the existence of any
discussions or negotiations among the parties regarding any other possible
transactions) will be issued, and no disclosure of this Agreement or the terms
hereof will be made, by Supplier or any of the Members without the prior
approval of ENBC. ENBC agrees to use reasonable best efforts to consult with
Supplier prior to issuing any press release or public or trade announcement or
statement relating to this Agreement or the transactions contemplated hereby.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Mike Shepherd
---------------------------
Senior Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Hugh P. Harlan, President
-----------------------------
/s/ Hal P. Harlan
-----------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
-----------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
-----------------------------
Doug H. Harlan
18
<PAGE>
Exhibits
--------
Exhibit A Determination of Supplier Value
Exhibit B Promissory Note
<PAGE>
EXHIBIT A
---------
SUPPLIER VALUE
--------------
"Supplier Value" as of the Closing Date shall be the net asset value of the
Supplier determined in accordance with generally accepted accounting principles.
"Net asset value" shall mean the net book value of the Supplier's assets.
<PAGE>
EXHIBIT B TO THE OPTION AGREEMENT
<PAGE>
THIS PROMISSORY NOTE IS NON-NEGOTIABLE, NON-ASSIGNABLE
AND NON-TRANSFERABLE
PROMISSORY NOTE
$______________ __________, _______
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), promises to pay to Harlan Bagel Supply Company, LLC ("HBSC"), at
such place as HBSC may from time to time designate in writing,
________________________________ DOLLARS ($______________); and to pay interest
on the unpaid principal balance hereof from time to time outstanding, at the per
annum rate equal to the Interest Rate until the indebtedness evidenced hereby is
paid in full, and at the Interest Rate plus two percent (2%) in respect of any
principal amount not paid when due, for the period from the date such principal
is due until such unpaid amount has been paid in full (whether before or after
judgment). The term "Interest Rate" shall mean 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. The Interest Rate shall be adjusted from time-to-time on the same day
on which the Bank adjusts its reference rate.
Principal and interest on this Note shall be payable as follows: Principal
of $___________ shall be payable on _________________ (being the Six Month
Anniversary Date). One-third (1/3) of the remaining outstanding principal amount
of this Note together with all accrued but unpaid interest thereon shall be due
and payable on each of _______________ (being the twelve month anniversary of
the date hereof), ____________________ (being the eighteen month anniversary of
the date hereof), and __________ (being the twenty-four month anniversary of the
date hereof).
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
All or any part of the principal amount of this Note and any accrued
interest due on any of the respective payment dates or otherwise may be paid at
the Company's option in lawful money of the United States of America in
immediately available funds, shares of common stock of the Company (the "ENBC
Stock"), shares of common stock of Boston Chicken, Inc. ("BCI Stock") (the
issuer of ENBC Stock or BCI Stock being referred to herein as the "Issuer") or
any combination of the foregoing, provided that with respect to ENBC Stock and
BCI Stock, same shall be valued at the average of the closing sales prices per
share of the Common Stock quoted on the Nasdaq National Market, as reported in
the Wall Street Journal (Western Edition), for the five (5) trading days
immediately prior to the second business day before the respective date of
payment (the "Average Price"). The Company may make a payment hereunder with
ENBC Stock or BCI Stock only if (a) the Average Price per share of such stock of
the Issuer as quoted on the NASDAQ National Market, as quoted on such other
market or exchange on which such shares are traded is at least $10, and (b) the
value of the Issuer (defined as the product of the Share Price and the total
number of outstanding shares of such stock of the Issuer) is at least $300
million. In the event ENBC elects to deliver shares of ENBC Stock or shares of
BCI Stock, such shares shall be registered under the Securities Act of 1933, as
amended, and shall be
<PAGE>
accompanied by a written undertaking of ENBC to pay to HBSC in cash the excess,
if any, of the value of the shares so delivered over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by HBSC to its members to the extent any such shares are assigned
to such members.
This Note may be prepaid at any time without premium or penalty. 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 Company and any endorser or
guarantor.
If the Company fails to make any payment hereunder when due and such
failure continues for a period of ten (10) days, then this Note shall become
immediately due and payable, without notice, at HBSC's option. If this Note is
not paid at maturity, whether by acceleration or otherwise, HBSC shall have all
of the rights and remedies provided by law or in equity.
If this Note is placed in the hands of an attorney for collection, or is
collected through any court, including any bankruptcy court, the Company
promises to pay to HBSC, HBSC's reasonable attorneys' fees and court costs
incurred in collecting or attempting to collect this Note.
THIS NOTE 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.
Any provision herein 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,
HBSC shall in no event be entitled to receive or collect, nor shall any amounts
received hereunder be credited, so that HBSC 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 any and all other papers, agreements, or
commitments, indicate a different right given to HBSC 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 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 HBSC 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 Company. 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
Company and HBSC shall, to the maximum extent permitted under
<PAGE>
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 Company has caused this Note to be executed in its
corporate name by the undersigned officer, thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP., a
Delaware corporation
By:___________________________
Its:__________________________
<PAGE>
Exhibit E
---------
Form of Statement
of
Independent Accountants
-----------------------
Board of Directors
Einstein/Noah Bagel Corp.
Ladies and Gentlemen:
At your request, we have performed certain agreed upon procedures, as
enumerated below, with respect to the Statements of Materials Cost of Harlan
Bagel Supply Company, LLC, for each of the Quarterly Periods in the year ended
December 31, 19__. These procedures, which were specified by the Board of
Directors of Einstein/Noah Bagel Corp., and the Board of Managers of Harlan
Bagel Supply Company, LLC were performed solely to meet the requirements of the
Project and Approved Supplier Agreement among Einstein/Noah Bagel Corp., Harlan
Bagel Supply Company, LLC, and Harlan Bakeries, Inc., Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (the "Approved Supplier Agreement"). It is
understood that this report is solely for your information and should not be
used by those who did not participate in determining the procedures.
a. We have compared the costs as reported in the Statements of Materials
Cost to the costs and expenses as reflected in the general ledger of
Harlan Bagel Supply Company, LLC, and reconciled any material
differences.
b. We have compared the Statements of Materials Cost to the listing of
costs as per Exhibit A of the referenced Approved Supplier Agreement
and noted any material addition of cost categories.
c. We have compared the total reported number of bagels produced with the
Production Log and reconciled any material differences.
d. We have tested the Statements of Materials Cost for mathematical
accuracy.
Because the procedures described above do not constitute an examination of
financial statements in accordance with the Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants, we do not express an opinion on whether the financial
statement is presented in conformity with AICPA guidelines.
In connection with the procedures referred to above, no matters came to our
attention that caused us to believe that the Statements of Materials Cost were
not reflective of the general ledger, that cost categories were included that
were not reflected in Exhibit A of the Approved Supplier Agreement, that the
number of bagels reported was materially different than those
<PAGE>
shown on the Production Log or that any of the Statements of Materials Cost is
mathematically inaccurate. Had we performed additional procedures or had we
made an examination in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants, matters might have come to our attention that would have been
reported to you. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
36
<PAGE>
Exhibit F
---------
Second Bagel Line Capital Budget
--------------------------------
<PAGE>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE
July 9, 1997
<TABLE>
<CAPTION> DEL OF
EQUIPMENT INSTALLATION $$$ AMOUNT EQUIP.
SUPPLIER LEAD TIME TIME EQUIPMENT QTY.
<S> <C> <C> <C> <C> <C>
A) DRY INGREDIENT WAREHOUSE
A1) Metal room to seal Trash Compactor to building SNODGRASS 3 WEEKS 2 DAYS $2,225.00 1
A2) Pour curbs in compactor room SQUEEKE 2 WEEKS 2 DAYS $ 450.00 1
SUB TOTAL 2
B) LAB
B1) Storage Cabinet - To retain flour samples. ASSOCIATED 6 WEEKS 1 DAY $ 474.85 1
B2) Upright Freezer ZOLL BROTHERS 4 WEEKS 1 DAY $1,450.00 1
SUB TOTAL 2
C) PRE-MIX ROOM
C1) Ingredient containers (6) ZOLL/ZESCO 4 WEEKS N/A $ 144.00 6
C2) Scoops for Ingredient Containers (7) ZOLL/ZESCO 4 WEEKS N/A $ 6.25 7
C3) Racks for dry pre-mix containers (3)
(66" w x 24"x d 78" h) ZOLL/ZESCO 4 WEEKS N/A $ 378.00 3
C4) Pre-Mix Containers with Lids (100) ZOLL/ZESCO 4 WEEKS N/A $ 25.00 100
C5) Scale INDPLS SCALE CO. 4 WEEKS N/A $1,595.00 1
C6) 24 volt battery (for lift to load mixer platform) ASSOCIATED 6 WEEKS N/A $1,670.00 1
C7) Rollers to change 24 volt battery CONCEPT 6 WEEKS N/A $ 460.00 1
C8) Multi-Purpose Respirators (2) GRAINGER 1 WEEK N/A $ 25.00 2
SUB TOTAL 121
D) FLOUR SYSTEM
D1) Scale Hoppers, indicator panel, PLC modifications CAMCO 12 WEEKS 3 WEEKS $36,810.00 1
D2) Aeration on flour bin (1) (Test one silo) CAMCO 12 WEEKS 3 WEEKS $10,930.00 1
D3) Aeration on 4 flour bins CAMCO 12 WEEKS 3 WEEKS $ 5,000.00 4
D4) Flour Sock for mixer vent and hoppers FABRICRAFT 1 WEEK 1 DAY $ 12.00 10
D5) Mechanical installation TERENST 2 WEEKS 8 DAYS $ 0.00 1
D6) Air Exhaust/Supply Fans CALL EDWARDS 2 WEEKS 8 DAYS $ 8,000.00 1
SUB TOTAL 18
</TABLE>
<TABLE>
<CAPTION>
$$$ AMOUNT TOTAL
INSTALLATION FREIGHT $$$ PROVISIONS TOTAL $$$
<S> <C> <C> <C> <C>
A) DRY INGREDIENT WAREHOUSE
A1) Metal room to seal Trash Compactor to building $ 838.00 $ 0.00 $ 2,863.00
A2) Pour curbs in compactor room $ 00 $ 0.00 $ 450.00
SUB TOTAL $ 838.00 $ 0.00 $ 0.00 $ 3,313.00
B) LAB
B1) Storage Cabinet - To retain flour samples. $ 0.00 $ 0.00 $ 474.85
B2) Upright Freezer $ 0.00 $ 0.00 $ 1,450.00
SUB TOTAL $ 0.00 $ 0.00 $ 0.00 $ 1,924.85
C) PRE-MIX ROOM
C1) Ingredient containers (6) $ 0.00 $ 15.00 $ 879.00
C2) Scoops for Ingredient Containers (7) $ 0.00 $ 5.00 $ 48.75
C3) Racks for dry pre-mix containers (3)
(66" w x 24" d x 78" h) $ 0.00 $ 40.00 $ 1,174.00
C4) Pre-Mix Containers with Lids (100) $ 0.00 $ 15.00 $ 2,515.00
C5) Scale $ 0.00 $ 15.00 $ 1,610.00
C6) 24 volt battery (for lift to load mixer platform) $ 0.00 $ 225.00 $ 1,895.00
C7) Rollers to change 24 volt battery $ 0.00 $ 50.00 $ 510.00
C8) Multi-Purpose Respirators (2) $ 0.00 $ 8.00 $ 58.00
SUB TOTAL $ 0.00 $ 373.00 $ 0.00 $ 8,689.75
D) FLOUR SYSTEM
D1) Scale Hoppers, indicator panel, PLC modifications $ 0.00 $ 750.00 $ 37,560.00
D2) Aeration on flour bin (1) (Test one silo) $ 0.00 $ 0.00 $ 10,930.00
D3) Aeration on 4 flour bins $ 0.00 $ 0.00 $15,000.00 $ 35,000.00
D4) Flour Sock for mixer vent and hoppers $ 0.00 $ 0.00 $ 120.00
D5) Mechanical installation $15,000.00 $ 0.00 $ 15,000.00
D6) Air Exhaust/Supply Fans $ 0.00 $ 0.00 $ 8,000.00
SUB TOTAL $15,000.00 $ 750.00 $15,000.00 $106,610.00
</TABLE>
Equipment needed for 2nd line -- Page 1 of 5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE DEL. OF EQUIPMENT INSTALLATION $$$ AMOUNT EQUIP.
July 9, 1997 SUPPLIER LEAD TIME TIME EQUIPMENT QTY.
<S> <C> <C> <C> <C> <C>
E) DOUGH ROOM
E1) Temporary wall to divide Dough Room HARLAN 2 DAYS 2 DAYS $1,864.00 1
E2) Mixer Platform SNODGRASS 3 WEEKS 1 DAY $15,114.00 1
E3) Infeed chute on back of mixer SNODGRASS 3 WEEKS 1 DAY $2,514.00 1
E4) Water Meter WR FREW 6 WEEKS 3 DAYS $2,250.00 1
E5) Brackets for water/sugar/flour meters SNODGRASS 6 WEEKS 2 DAYS $550.00 1
E6) Ports on mixer for liquid sugar infeed
(existing mixers) (2) ETMW/SNODGRASS 1 DAY 1 DAY $825.00 2
E7) ETMW Mixers (2) ETMW IN STORAGE 2 DAYS $161,000.00 2
E8) Riggers to set equipment (Mixers, Trough
lifts) UNDERWOOD 2 WEEKS 3 DAYS $1,630.00 1
E9) ETMW - Sugar ports ETMW 2 WEEKS 1 DAY $325.00 2
E10) Epoxy coating on floor in front of mixers
over to Trough lifters ENG. FLOORING, INC. 3 WEEKS 3 DAYS $4,320.00 1
E11) Glycol lines for mixer jackets (6)
(Flex pipe only) DUNHAM RUBBER 3 WEEKS 1 DAY $333.33 6
E12) ETMW Dough Troughs (2) ETMW 16-20 WEEKS N/A $3,150.00 2
E13) Oil system for Dough Troughs (Additional
piping and sprayer nozzles) HARLAN 3 WEEKS 2 DAYS $207.00 1
E14) ETMW Dough Trough Lifts (2) ETMW 16-20 WEEKS 2 DAYS $31,500.00 2
E15) Winkler System WINKLER 14 WEEKS 2 WEEKS $1,243,064.00 1
E16) Pour concrete pad for Winkler control
panel SQUEEKE 2 WEEKS 2 DAYS $550.00 1
E17) Thompson Bagel Former (8) THOMPSON IN STORAGE 2 DAYS $239,000.00 1
E18) Thompson Bagel Formers (Spare Parts) THOMPSON 2 WEEKS N/A $7,754.00 1
E19) Walk over to cross conveyor going into
spiral proofer SNODGRASS 4 WEEKS 1 DAY $3,119.00 1
E20) Pipe Ballard to protect yeast cooler wall CAP. DRILLING/SQUEEK 2 WEEKS 2 DAYS $350.00 1
E21) Hand sink by mixers EDWARDS 4 WEEKS 2 DAYS $520.00 1
E22) Rubbermaid Containers
1) 32 Gallon (white) (24) ZOLL/ZESCO 4 WEEKS N/A $48.00 24
2) 32 Gallon (red) (12) ZOLL/ZESCO 4 WEEKS N/A $48.00 12
3) 32 Gallon (yellow) (4) ZOLL/ZESCO 4 WEEKS N/A $48.00 4
E23) Temperature probes for Dough temperature GEORGE BOOTH 3 WEEKS 1 DAY $850.00 1
E24) Scale divider to check weights (Weigh
Tronix) - tie into computer INDPLS. SCALE CO. 4 WEEKS N/A $1,095.00 1
E25) Stainless steel table for scale
(30" x 60") ZOLL/ZESCO 6 WEEKS N/A $107.00 1
E26) Tables/Carts to clean divider parts (4)
(Rubbermaid) ZOLL/ZESCO 6 WEEKS N/A $562.00 4
E27) Electrical Installation ETS 2 WEEKS 3 WEEKS $0.00 1
E28) Mechanical Installation GREINER 2 WEEKS 3 WEEKS $0.00 1
E29) Laptop Computer / Allen-Bradley
Controller & S/W COMP USA / ALLEN-BRAD 2 WEEKS 1 DAY $2,500.00 1
E30) Locking device to secure Trough to
Mixers (4) ETMW 6 WEEKS 2 DAYS $500.00 4
SUB TOTAL 85
F) SPIRAL FINAL PROOFER
F1) Platform between proofer/cooler SNODGRASS 5 WEEKS 3 DAYS $8,737.00 1
F2) Add ladder to access back side SNODGRASS 4 WEEKS 2 HOURS $1,250.00 1
F3) Belt ASHWORTH/NORTHFIELD 10 WEEKS 2 DAYS $69,650.00 1
F4) Install belt washer and dryer NORTHFIELD 2 DAYS 1 DAY $0.00 1
F5) Install steam unit EDWARDS 2 DAYS 3 DAYS $0.00 1
F6) Take up motor for slack loop NORTHFIELD 2 WEEKS 1 DAY $500.00 1
F7) Transfer belt from proofer to cooler NORTHFIELD 4 WEEKS 1 WEEK $42,000.00 1
F8) Automatic belt oil system NORTHFIELD 4 WEEKS 2 HOURS $500.00 1
F9) Electrical Installation ETS 2 WEEKS 2 WEEKS $0.00 1
F10) Proofer Exhaust Fan Guard SNODGRASS 2 WEEKS 1 DAY $348.00 1
SUB TOTAL 10
</TABLE>
<TABLE>
<CAPTION>
$$$ AMOUNT TOTAL TOTAL
SUPPLIER INSTALLATION FREIGHT $$$ PROVISIONS $$$
<S> <C> <C> <C> <C> <C>
E) DOUGH ROOM
E1) Temporary wall to divide Dough Room HARLAN $0.00 $0.00 $1,864.00
E2) Mixer Platform SNODGRASS $986.00 $0.00 $16,100.00
E3) Infeed chute on back of mixer SNODGRASS $344.00 $0.00 $2,858.00
E4) Water Meter WR FREW $0.00 $25.00 $2,275.00
E5) Brackets for water/sugar/flour meters SNODGRASS $0.00 $0.00 $550.00
E6) Ports on mixer for liquid sugar infeed
(existing mixers) (2) ETMW/SNODGRASS $0.00 $0.00 $1,650.00
E7) ETMW Mixers (2) ETMW $0.00 $4,000.00 $326,000.00
E8) Riggers to set equipment (Mixers, Trough
lifts) UNDERWOOD $0.00 $0.00 $1,630.00
E9) ETMW - Sugar ports ETMW $0.00 $0.00 $650.00
E10) Epoxy coating on floor in front of mixers
over to Trough lifters ENG. FLOORING, INC. $0.00 $0.00 $4,320.00
E11) Glycol lines for mixer jackets (6)
(Flex pipe only) DUNHAM RUBBER $0.00 $10.00 $2,010.00
E12) ETMW Dough Troughs (2) ETMW $0.00 $0.00 $6,300.00
E13) Oil system for Dough Troughs (Additional
piping and sprayer nozzles) HARLAN $400.00 $18.00 $625.00
E14) ETMW Dough Trough Lifts (2) ETMW $6,000.00 $1,150.00 $70,150.00
E15) Winkler System WINKLER $91,600.00 $7,000.00 $1,341,664.00
E16) Pour concrete pad for Winkler control
panel SQUEEKE $0.00 $0.00 $550.00
E17) Thompson Bagel Former (8) THOMPSON $2,800.00 $3,200.00 $245,000.00
E18) Thompson Bagel Formers (Spare Parts) THOMPSON $0.00 $375.00 $8,129.00
E19) Walk over to cross conveyor going into
spiral proofer SNODGRASS $626.00 $0.00 $3,745.00
E20) Pipe Ballard to protect yeast cooler wall CAP. DRILLING/SQUEEK $0.00 $0.00 $350.00
E21) Hand sink by mixers EDWARDS $0.00 $0.00 $520.00
E22) Rubbermaid Containers
1) 32 Gallon (white) (24) ZOLL/ZESCO $0.00 $5.00 $1,157.00
2) 32 Gallon (red) (12) ZOLL/ZESCO $0.00 $5.00 $581.00
3) 32 Gallon (yellow) (4) ZOLL/ZESCO $0.00 $5.00 $197.00
E23) Temperature probes for Dough temperature GEORGE BOOTH $0.00 $10.00 $860.00
E24) Scale divider to check weights (Weigh
Tronix) - tie into computer INDPLS. SCALE CO. $0.00 $20.00 $1,115.00
E25) Stainless steel table for scale
(30" x 60") ZOLL/ZESCO $0.00 $15.00 $122.00
E26) Tables/Carts to clean divider parts (4)
(Rubbermaid) ZOLL/ZESCO $0.00 $15.00 $2,263.00
E27) Electrical Installation ETS $130,000.00 $0.00 NOT TO $130,000.00
E28) Mechanical Installation GREINER $3,895.00 $0.00 EXCEED $$ $5,895.00
E29) Laptop Computer / Allen-Bradley AMOUNT
Controller & S/W COMP USA / ALLEN-BRAD $0.00 $0.00 $2,000.00 $2,500.00
E30) Locking device to secure Trough to
Mixers (4) ETMW $0.00 $0.00 $2,000.00
SUB TOTAL $236,651.00 $15,853.00 $2,000.00 $2,183,630.00
F) SPIRAL FINAL PROOFER
F1) Platform between proofer/cooler SNODGRASS $2,530.00 $0.00 $11,267.00
F2) Add ladder to access back side SNODGRASS $325.00 $0.00 $1,575.00
F3) Belt ASHWORTH/NORTHFIELD $1,100.00 $750.00 $71,500.00
F4) Install belt washer and dryer NORTHFIELD $660.00 $0.00 $660.00
F5) Install steam unit EDWARDS $3,600.00 $0.00 $3,600.00
F6) Take up motor for slack loop NORTHFIELD $0.00 $0.00 $500.00
F7) Transfer belt from proofer to cooler NORTHFIELD $0.00 $450.00 NOT TO $42,450.00
F8) Automatic belt oil system NORTHFIELD $0.00 $0.00 EXCEED $$ $500.00
F9) Electrical Installation ETS $800.00 $0.00 AMOUNT $800.00
F10) Proofer Exhaust Fan Guard SNODGRASS $132.00 $0.00 $480.00
SUB TOTAL $9,147.00 $1,200.00 $0.00 $133,332.00
</TABLE>
EQUIPMENT NEEDED FOR 2ND LINE Page 2 of 5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE DEL. OF EQUIPMENT INSTALLATION
July 9, 1997 SUPPLIER LEAD TIME TIME
<S> <C> <C> <C>
G) SPIRAL COOLER
G1) Belt ASHWORTH/NORTHFIELD 10 WEEKS 2 DAYS
G2) Install belt washer NORTHFIELD 2 DAYS 1 DAY
G3) Add ladder to access back side SNODGRASS 4 WEEKS 2 HOURS
G4) Take up motor for slack loop NORTHFIELD 2 WEEKS 1 DAY
G5) Automatic belt oil system NORTHFIELD 4 WEEKS 2 HOURS
G6) Eletrical installation ETS 2 WEEKS 2 WEEKS
G7) High Pressure pump belt washer NORTHFIELD 8 WEEKS N/A
SUB TOTAL
H) BAGEL COOKER (STEIN)
H1) Epoxy floors to prevent excess wear on concrete ENG. FLOORING, INC. 2 WEEKS 3 DAYS
H2) Bagel Cooker with take away conveyor and filter HEAT & CONTROL 16-20 WEEKS 3 WEEKS
H3) Infeed/Discharge Conveyors HEAT & CONTROL 16-20 WEEKS 1 WEEK
H4) Filter for Bagel Cooker HEAT & CONTROL 16-20 WEEKS 1 WEEK
H5) Exhaust Fans, Duct work and piping filter to Cooker HEAT & CONTROL 2 WEEKS 2 DAYS
H6) S.S. Stack for Exhaust Fan to Roof SNODGRASS 4 WEEKS 2 DAYS
H7) Flash roof penetrations SMITHERS ROOFING 2 WEEKS 2 DAYS
H8) Walk over to cross both conveyors SNODGRASS 5 WEEKS 1 DAY
H9) Rubbermaid Containers 1) 32 Gallon (White) ZOLL/ZESCO 4 WEEKS N/A
2) 32 Gallon (Red) ZOLL/ZESCO 4 WEEKS N/A
H10) Vinegar System to control pH (pump, meter, probe) HVC 6 WEEKS 2 DAYS
H11) Drum spill skid GRAINGER 1 WEEK N/A
H12) Temporary wall HARLAN 1 WEEK 2 DAYS
H13) Electrical installation ETS 2 WEEKS 3 WEEKS
H14) Mechanical installation GREINER 2 WEEKS 3 WEEKS
H15) Riggers to set equipment (cooker) UNDERWOOD 2 WEEKS 2 DAYS
SUB TOTAL
I) BLAST FREEZER
I1) Northfield Modifications/Coils NORTHFIELD 12 WEEKS 4 WEEKS
I2) Temporary Wall HARLAN 2 WEEKS 2 DAYS
I3) Concrete/floor work SQUEEK 2 WEEKS 2 WEEKS
I4) Blower and PVC pipes for floor B & J PLASTIC PIPE 1 WEEK 1 DAY
I5) Pro-Tech epoxy floor PRO-TECH. 3 WEEKS 3 DAYS
I6) Freezer Panels ELLIOTT WILLIAMS 6 WEEKS 4 DAYS
I7) Install Belt Washer GREINER 1 DAY 1 DAY
I8) Drive Cap Bar NORTHFIELD 2 WEEKS 2 DAYS
I9) Electrical Installation ETS 2 WEEKS 4 WEEKS
I10) Mechanical Installation AIR 3 WEEKS 8 WEEKS
SUB TOTAL
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE $$$ AMOUNT EQUIP. $$$ AMOUNT
July 9, 1997 EQUIPMENT QTY. INSTALLATION
<S> <C> <C> <C>
G) SPIRAL COOLER
G1) Belt $69,650.00 1 $1,100.00
G2) Install belt washer $0.00 1 $460.00
G3) Add ladder to access back side $1,250.00 1 $325.00
G4) Take up motor for slack loop $500.00 1 $0.00
G5) Automatic belt oil system $500.00 1 $0.00
G6) Eletrical installation $0.00 1 $2,800.00
G7) High Pressure pump belt washer $10,200.00 1 $0.00
SUB TOTAL 7 $4,685.00
H) BAGEL COOKER (STEIN)
H1) Epoxy floors to prevent excess wear on concrete $6,880.00 1 $0.00
H2) Bagel Cooker with take away conveyor and filter $217,927.00 1 $4,000.00
H3) Infeed/Discharge Conveyors $17,050.00 1 $0.00
H4) Filter for Bagel Cooker $43,560.00 1 $0.00
H5) Exhaust Fans, Duct work and piping filter to Cooker $6,320.00 1 $0.00
H6) S.S. Stack for Exhaust Fan to Roof $5,171.00 1 $2,308.00
H7) Flash roof penetrations $0.00 1 $1,166.00
H8) Walk over to cross both conveyors $7,777.00 1 $864.00
H9) Rubbermaid Containers 1) 32 Gallon (White) $48.00 4 $0.00
2) 32 Gallon (Red) $48.00 2 $0.00
H10) Vinegar System to control pH (pump, meter, probe) $3,500.00 1 $0.00
H11) Drum spill skid $262.00 1 $0.00
H12) Temporary wall $1,398.00 1 $0.00
H13) Electrical installation 1 $24,000.00
H14) Mechanical installation $0.00 1 $12,200.00
H15) Riggers to set equipment (cooker) $0.00 1 $1,160.00
SUB TOTAL 20 $45,698.00
I) BLAST FREEZER
I1) Northfield Modifications/Coils $389,400.00 1 $0.00
I2) Temporary Wall $1,165.00 1 $0.00
I3) Concrete/floor work $21,000.00 1 $0.00
I4) Blower and PVC pipes for floor $2,200.00 1 $0.00
I5) Pro-Tech epoxy floor $11,000.00 1 $0.00
I6) Freezer Panels $29,982.00 1 $0.00
I7) Install Belt Washer IN STORAGE 1 $400.00
I8) Drive Cap Bar $9,150.00 1 $800.00
I9) Electrical Installation $38,000.00 1 $0.00
I10) Mechanical Installation $0.00 1 $220,000.00
SUB TOTAL 10 $221,200.00
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE TOTAL TOTAL
July 9, 1997 FREIGHT $$$ PROVISIONS $$$
<S> <C> <C> <C>
G) SPIRAL COOLER
G1) Belt $750.00 $71,500.00
G2) Install belt washer $0.00 $460.00
G3) Add ladder to access back side $0.00 $1,575.00
G4) Take up motor for slack loop $0.00 $500.00
G5) Automatic belt oil system $0.00 $500.00
G6) Eletrical installation $0.00 $2,800.00
G7) High Pressure pump belt washer $0.00 $10,200.00
SUB TOTAL $750.00 $0.00 $87,535.00
H) BAGEL COOKER (STEIN)
H1) Epoxy floors to prevent excess wear on concrete $0.00 $6,880.00
H2) Bagel Cooker with take away conveyor and filter $3,200.00 $225,127.00
H3) Infeed/Discharge Conveyors $0.00 $17,050.00
H4) Filter for Bagel Cooker $0.00 $43,560.00
H5) Exhaust Fans, Duct work and piping filter to Cooker $0.00 $6,320.00
H6) S.S. Stack for Exhaust Fan to Roof $0.00 $7,479.00
H7) Flash roof penetrations $0.00 $1,166.00
H8) Walk over to cross both conveyors $0.00 $8,641.00
H9) Rubbermaid Containers 1) 32 Gallon (White) $5.00 $197.00
2) 32 Gallon (Red) $5.00 $101.00
H10) Vinegar System to control pH (pump, meter, probe) $0.00 $3,500.00
H11) Drum spill skid $15.00 $277.00
H12) Temporary wall $0.00 $1,398.00
H13) Electrical installation $0.00 NOT TO EXCEED $$ AMOUNT $24,000.00
H14) Mechanical installation $0.00 $12,200.00
H15) Riggers to set equipment (cooker) $0.00 $1,160.00
SUB TOTAL $3,225.00 $0.00 $359,056.00
I) BLAST FREEZER
I1) Northfield Modifications/Coils $0.00 NOT TO EXCEED $$ AMOUNT $389,400.00
I2) Temporary Wall $0.00 $1,165.00
I3) Concrete/floor work $0.00 WILL EXCEED $$ AMOUNT $21,000.00
I4) Blower and PVC pipes for floor $0.00 $2,200.00
I5) Pro-Tech epoxy floor $0.00 $11,000.00
I6) Freezer Panels $0.00 $5,000.00 $34,982.00
I7) Install Belt Washer $0.00 $400.00
I8) Drive Cap Bar $100.00 $10,050.00
I9) Electrical Installation $0.00 NOT TO EXCEED $$ AMOUNT $38,000.00
I10) Mechanical Installation $0.00 $16,000.00 $236,000.00
SUB TOTAL $100.00 $21,000.00 $744,197.00
</TABLE>
Equipment needed for 2nd line--Page 3 of 5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE DEL. OF EQUIPMENT INSTALLATION
July 9, 1997 SUPPLIER LEAD TIME TIME
<C> <S> <C> <C> <C>
J) PACKAGING AREA
J1) Controls for Packaging Area SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J2) Check Weighers (2) SYSTEM TECHNOLOGY 12 WEEKS 5 WEEKS
J3) Conveyors SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J4) Conveyors (7 feet to replace Metal Detector) SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J5) Counters (2) WEIGH-RITE 16-18 WEEKS 5 WEEKS
J6) Platforms for Counters SNODGRASS 6 WEEKS 1 DAY
J7) Baggers (2) SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J8) Hytrol Conveyor for cases SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J9) Metal Detector to detect product in bags (1) SYSTEM TECHNOLOGY 16-18 WEEKS 5 WEEKS
J10) Install walk through door from packaging into palletizing room ELLIOTT WILLIAMS 6 WEEKS 2 DAYS
J11) Ink Jet Machine MARCRAFT 2 WEEKS 5 WEEKS
J12) Label Machine with spare print engine MARCRAFT 10 WEEKS 5 WEEKS
J13) Case Taper SYSTEM TECHNOLOGY 8-10 WEEKS 5 WEEKS
J14) Walk over to cross hytroll conveyors SNODGRASS 6 WEEKS 1 DAY
J15) Program changes to Robot FANUC 3 WEEKS 2 DAYS
J16) Air Dryer for Fanuc Robot BREHOB 3 WEEKS 1 DAY
J17) Temperature probes to check core temperatures GEORGE BOOTH 3 WEEKS 2 HOURS
J18) Stainless steel table ZOLL/ZESCO 4 WEEKS N/A
J19) Storage Cabinet for labels, tape, etc. ASSOCIATED 8-10 WEEKS 1 DAY
J20) Pallet Jack OKI 1 WEEK N/A
J21) Rubbermaid Containers 1) 32 Gallon (White) (8) ZOLL/ZESCO 4 WEEKS N/A
2) 32 Gallon (Red) (8) ZOLL/ZESCO 4 WEEKS N/A
J22) Temporary Wall HARLAN 2 WEEKS 2 DAYS
J23) Electrical Installation ETS 3 WEEKS 4 WEEKS
J24) Mechanical Installation - Air lines GREINER 2 WEEKS 2 WEEKS
SUB TOTAL
K) FREEZER WAREHOUSE
K1) System to change out batteries on forklifts ASSOCIATED 2 WEEKS 1 DAY
K2) Crown sit down forklift (1) OKI 8 WEEKS N/A
K3) Batteries (2) OKI 8 WEEKS N/A
K4) Watering kit for batteries OKI 2 WEEKS 1 DAY
K5) Charger (1) OKI 8 WEEKS 2 DAYS
K6) Pallet racking - 2 deep x 3 high x 9 sections = 54 positions ASSOCIATED 8-10 WEEKS 1 WEEK
K7) One dock plate with door seals and dock light RDC 6 WEEKS 2 DAYS
SUB TOTAL
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE $$$ AMOUNT EQUIP. $$$ AMOUNT TOTAL
July 9, 1997 EQUIPMENT QTY. INSTALLATION FREIGHT $$$
<C> <S> <C> <C> <C> <C>
J) PACKAGING AREA
J1) Controls for Packaging Area $38,000.00 1 $14,000.00 $325.00
J2) Check Weighers (2) $18,000.00 2 $0.00 $250.00
J3) Conveyors $180,000.00 1 $24,000.00 $600.00
J4) Conveyors (7 feet to replace Metal Detector) $300.00 7 $0.00 $0.00
J5) Counters (2) $90,000.00 2 $0.00 $425.00
J6) Platforms for Counters $14,000.00 1 $0.00 $0.00
J7) Baggers (2) $100,000.00 2 $0.00 $1,250.00
J8) Hytrol Conveyor for cases $38,500.00 1 $0.00 $425.00
J9) Metal Detector to detect product in bags (1) $35,000.00 1 $0.00 $350.00
J10) Install walk through door from packaging into palletizing room $400.00 1 $0.00 $0.00
J11) Ink Jet Machine $1,200.00 2 $0.00 $0.00
J12) Label Machine with spare print engine $20,754.00 1 $0.00 $0.00
J13) Case Taper $12,000.00 1 $0.00 $225.00
J14) Walk over to cross hytroll conveyors $2,568.00 1 $532.00 $0.00
J15) Program changes to Robot $3,800.00 1 $0.00 $0.00
J16) Air Dryer for Fanuc Robot $2,000.00 1 $0.00 $0.00
J17) Temperature probes to check core temperatures $860.00 1 $0.00 $10.00
J18) Stainless steel table $615.00 1 $0.00 $15.00
J19) Storage Cabinet for labels, tape, etc. $474.85 1 $0.00 $0.00
J20) Pallet Jack $430.00 1 $0.00 $0.00
J21) Rubbermaid Containers 1) 32 Gallon (White) (8) $48.00 8 $0.00 $5.00
2) 32 Gallon (Red) (8) $48.00 6 $0.00 $5.00
J22) Temporary Wall $2,796.00 1 $0.00 $0.00
J23) Electrical Installation $0.00 1 $100,000.00 $0.00
J24) Mechanical Installation - Air lines $0.00 1 $1,140.00 $0.00
SUB TOTAL 47 $139,672.00 $3,885.00
K) FREEZER WAREHOUSE
K1) System to change out batteries on forklifts $5,955.00 1 $0.00 $200.00
K2) Crown sit down forklift (1) $19,344.00 1 $0.00 $162.50
K3) Batteries (2) $3,068.00 2 $0.00 $0.00
K4) Watering kit for batteries $347.36 1 $65.52 $0.00
K5) Charger (1) $2,808.00 1 $0.00 $0.00
K6) Pallet racking - 2 deep x 3 high x 9 sections= 54 positions $4,800.00 1 $4,000.00 $1,000.00
K7) One dock plate with door seals and dock light $1,570.00 1 $550.00 $0.00
SUB TOTAL 8 $4,615.52 $1,362.50
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A
EQUIPMENT NEEDED FOR 2ND LINE PROVISIONS TOTAL
July 9, 1997 $$$
<C> <S> <C> <C>
J) PACKAGING AREA
J1) Controls for Packaging Area $52,325.00
J2) Check Weighers (2) $36,250.00
J3) Conveyors $204,600.00
J4) Conveyors (7 feet to replace Metal Detector) $1,500.00 $3,600.00
J5) Counters (2) $180,425.00
J6) Platforms for Counters $14,000.00
J7) Baggers (2) $201,250.00
J8) Hytrol Conveyor for cases $38,925.00
J9) Metal Detector to detect product in bags (1) $35,350.00
J10) Install walk through door from packaging into palletizing room $400.00
J11) Ink Jet Machine $2,400.00
J12) Label Machine with spare print engine $20,754.00
J13) Case Taper $12,225.00
J14) Walk over to cross hytroll conveyors $3,100.00
J15) Program changes to Robot $3,800.00
J16) Air Dryer for Fanuc Robot $2,000.00
J17) Temperature probes to check core temperatures $870.00
J18) Stainless steel table $630.00
J19) Storage Cabinet for labels, tape, etc. $474.85
J20) Pallet Jack $430.00
J21) Rubbermaid Containers 1) 32 Gallon (White) (8) $389.00
2) 32 Gallon (Red) (8) $293.00
J22) Temporary Wall $2,796.00
J23) Electrical Installation NOT TO EXCEED $$ AMOUNT $100,000.00
J24) Mechanical Installation - Air lines $3,000.00 $4,140.00
SUB TOTAL $4,500.00 $921,426.85
K) FREEZER WAREHOUSE
K1) System to change out batteries on forklifts $6,155.00
K2) Crown sit down forklift (1) $19,506.50
K3) Batteries (2) $6,136.00
K4) Watering kit for batteries $412.88
K5) Charger (1) $2,808.00
K6) Pallet racking - 2 deep x 3 high x 9 sections= 54 positions $9,800.00
K7) One dock plate with door seals and dock light $2,120.00
SUB TOTAL $0.00 $46,938.38
</TABLE>
Equipment needed for 2nd Line -- page 4 of 5
<PAGE>
<TABLE>
<CAPTION>
DEL OF
SCHEDULE A EQUIPMENT INSTALLATION $$$ AMOUNT EQUIP
EQUIPMENT NEEDED FOR 2ND LINE SUPPLIER LEAD TIME TIME EQUIPMENT QTY.
July 9, 1997
<S> <C> <C> <C> <C> <C>
L) SANITATION ROOM
L1) Pressure Washers (1) ACTION EQUIPMENT 4 WEEKS N/A $5,350.00 1
L2) Foamer (1) (16 gallon) ACTION EQUIPMENT 4 WEEKS N/A $1,625.00 1
L3) Washer & Dryer to clean intermediate proofer cups H.H. GREGG 1 WEEK 1 DAY $ 929.00 1
L4) 50 feet air hoses with reels (8) 3/4" GRAINGER 2 WEEKS 4 DAYS $ 280.00 8
L5) High temp water hoses (2 at 100 ft. 2 at 50 ft.) DUNHAM RUBBER 2 WEEKS N/A $ 380.00 2
L6) Crimper for Water Hoses DUNHAM RUBBER 1 WEEK 1 DAY $ 50.00 1
L7) Door Bump Rolls for Sanitation Doors SNODGRASS 2 WEEKS 1 DAY $ 478.00 1
L8) Ladders (4) A-Frame 12 ft. HOME DEPOT 1 WEEK N/A $ 150.00 4
SUB TOTAL 19
</TABLE>
<TABLE>
<CAPTION>
$$$ AMOUNT TOTAL PROVISIONS TOTAL
INSTALLATION FREIGHT $$$
<S> <C> <C> <C> <C>
L) SANITATION ROOM
L1) Pressure Washers (1) $ 0.00 $100.00 $ 5,450.00
L2) Foamer (1) (16 gallon) $ 0.00 $ 40.00 $ 1,665.00
L3) Washer & Dryer to clean intermediate proofer cups $ 0.00 $ 34.95 $ 963.95
L4) 50 feet air hoses with reels (8) 3/4" $ 0.00 $ 18.00 $ 2,258.00
L5) High temp water hoses (2 at 100 ft. 2 at 50 ft.) $ 0.00 $ 10.00 $ 770.00
L6) Crimper for Water Hoses $ 0.00 $ 6.00 $ 56.00
L7) Door Bump Rails for Sanitation Doors $ 324.00 $ 0.00 $ 802.00
L8) Ladders (4) A-Frame 12 ft. $ 0.00 $ 0.00 $ 600.00
SUB TOTAL $ 324.00 $208.95 $0.00 $12,564.95
M) GENERAL PLANT EQ./SUPPLIES/SERVICES ETC.
M1) 2nd Water Heater for/to pre-piped system EDWARDS 2 WEEKS 2 DAYS $ 9,670.00 1
M2) Platform man lift ASSOCIATED 6 WEEKS N/A $24,000.00 1
M3) Harlan Construction Laborers N/A 1 WEEK 12 WEEKS $ 0.00 1
M4) Dennis Group DENNIS
M5) Rental of 1 forklift during equipment installation period OKI 2 DAYS N/A $ 4,500.00 1
M6) Additional lockers KING EQUIPMENT 4 WEEKS 2 DAYS $ 88.00 48
M7) 40 yard dumpster for waste and trash removal RAYS TRASH SERVICE 1 DAY N/A $ 560.00 15
M8) Rubbermaid 55 gallon gray garbage cans with lids and dollies ZOLL/ZESCO 4 WEEKS N/A $ 78.00 8
M9) Indiana Oxygen (Welding gas) INDIANA OXYGEN 1 DAY N/A $ 68.00 6
M10) Painting - Paul Zwiefel (paint, materials, labor) PAUL ZWIEFEL 2 WEEKS 6 WEEKS $ 3,000.00 1
M11) Misc. Tool Rental for Installation DEANS 1 DAY 3 DAYS $ 2,800.00 1
M12) Special Dispatch - courier service SPECIAL DISPATCH 1 DAY 1 DAY $ 30.00 30
M13) Belt Washer (for conveyors other than spirals) SNODGRASS 4 WEEKS 1 DAY $ 2,000.00 1
M14) SCBA(Self Contained Breathing Apparatus) (2) GRAINGER 1 WEEK N/A $ 3,088.00 2
M15) Level A SCBA suits (2) NEW PIG 4 WEEKS N/A $ 569.00 2
M16) Safety cabinet for SCBA's with breakaway locks ASSOCIATED 4 WEEKS N/A $ 960.00 1
M17) Gardner Denver Air Compressor BREHOB 8 WEEKS 2 DAYS $25,200.00 1
M18) Air Dryer BREHOB 6 WEEKS 2 DAYS $ 8,600.00 1
M19) Provisions N/A $ 0.00 0
SUB TOTAL 121
GRAND TOTAL EQUIPMENT NEEDED FOR 2ND LINE 470
GRAND TOTAL (INCLUDING WISH LIST AND COMPUTER SYSTEM) 525
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A $$$ AMOUNT TOTAL PROVISIONS TOTAL
EQUIPMENT NEEDED FOR 2ND LINE INSTALLATION FREIGHT $$$ $$$
July 9, 1997
<S> <C> <C> <C> <C>
M) GENERAL PLANT EQ./SUPPLIES/SERVICES ETC.
M1) 2nd Water Heater for/to pre-piped system $ 0.00 $ 0.00 $ 9,670.00
M2) Platform man lift $ 0.00 $ 0.00 $ 24,000.00
M3) Harlan Construction Laborers $ 36,000.00 $ 0.00 $ 36,000.00
M4) Dennis Group $ 115,000.00
M5) Rental of 1 forklift during equipment installation period $ 0.00 $ 0.00 $ 4,500.00
M6) Additional lockers $ 0.00 $ 0.00 $ 4,224.00
M7) 40 yard dumpster for waste and trash removal $ 0.00 $ 0.00 $ 8,400.00
M8) Rubbermaid 55 gallon gray garbage cans with lids and dollies $ 0.00 $ 40.00 $ 664.00
M9) Indiana Oxygen (Welding gas) $ 0.00 $ 0.00 $ 408.00
M10) Painting - Paul Zwiefel (paint, materials, labor $ 0.00 $ 0.00 $ 3,000.00
M11) Misc. Tool Rental for Installation $ 0.00 $ 0.00 $ 2,800.00
M12) Special Dispatch - courier service $ 0.00 $ 0.00 $ 900.00
M13) Belt Washer (for conveyors other than spirals) $ 0.00 $ 0.00 $ 2,000.00
M14) SCBA(Self Contained Breathing Apparatus) (2) $ 0.00 $ 0.00 $ 6,176.00
M15) Level A SCBA suits (2) $ 0.00 $ 12.00 $ 1,150.00
M16) Safety cabinet for SCBA's with breakaway locks $ 0.00 $ 0.00 $ 960.00
M17) Gardner Denver Air Compressor $ 3,500.00 $ 250.00 $ 28,950.00
M18) Air Dryer $ 800.00 $ 0.00 $ 9,400.00
M19) Provisions $ 68,193.05 $ 0.00 $14,387.17 $ 82,580.22
SUB TOTAL $108,493.05 $ 302.00 $14,387.17 $ 340,782.22
$786,123.57 $28,009.45 $56,887.17 $4,950,000.00
-------------
$802,981.09 $30,451.95 $5,272,604.15
</TABLE>
EQUIPMENT NEEDED FOR 2ND LINE--PAGE 5 OF 5
<PAGE>
Exhibit G
---------
Amendment to Lease Agreement
----------------------------
<PAGE>
AMENDMENT TO LEASE AGREEMENT EXHIBIT G
---------------------------- ---------
This Amendment (the "Amendment") is dated as of August __, 1997 and is
entered into by and between Einstein/Noah Bagel Corp. ("ENBC" or "Lessor") and
Harlan Bagel Supply Company, LLC (the "Company" or "Lessee") and amends that
certain Lease Agreement dated as of August 27, 1996 between the parties (the
"Lease" or "Agreement"). Capitalized terms not defined herein shall have the
same meaning ascribed to such terms in the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Article XVIII of the Lease is hereby amended and restated in its
entirety as follows:
XVIII. END OF LEASE PURCHASE OPTION:
(a) So long as Lessee is not then in Default under this Lease, Lessee
shall have the option commencing on August 27, 2003 and continuing until the
expiration of the term of each Schedule, to purchase all (but not less than all)
of the Equipment described on all Schedules of a particular series executed
hereunder upon the following terms and conditions: If Lessee desires to exercise
this option with respect to the Equipment, Lessee shall pay to Lessor on the
closing date of the purchase of the Equipment, in addition to the scheduled Rent
(if any) then due on such date and all other sums then due hereunder, in cash
the purchase price for the Equipment so purchased, determined as hereinafter
provided. If the closing date falls on a date on which scheduled Rent is not
due, Lessee will pay the appropriate pro rata share of the next scheduled Rent
payment. The purchase price of the Equipment shall be an amount equal to the
Fair Market Value of such Equipment, plus all taxes and charges upon sale. Upon
satisfaction of the conditions specified in this Paragraph 9(a), and upon
receipt from Lessee of documentation acceptable to Lessor, Lessor will transfer,
on an AS IS BASIS, all of Lessor's interest in and to such Equipment. Lessor
shall not be required to make and may specifically disclaim any representation
or warranty as to the condition of such Equipment and other matters (except that
Lessor shall warrant that it has conveyed whatever interest it received in such
Equipment free and clear of any lien or encumbrance created by, through or under
Lessor). Lessor shall execute and deliver to Lessee such Uniform Commercial
Code Statements of Termination, bills of sale and other documents as reasonably
may be required in order to terminate any interest of Lessor in and to such
Equipment.
(b) For purposes of this Section XVIII, the Fair Market Value of any
Equipment shall be agreed to be the fair market value of the Equipment as agreed
by Lessor and Lessee or as otherwise determined hereunder. If Lessor and Lessee
are unable to agree within thirty (30) days after Lessee gives written notice to
Lessor of its exercise of the foregoing option, then each of Lessor and Lessee
shall within ten (10) days after the expiration of such thirty (30) day period
appoint an independent appraiser, knowledgeable in the appraisal of assets such
as the Equipment, to determine the fair market value of the Equipment. If the
two appraisers so selected are unable to agree on the fair market value of the
Equipment within forty-five (45) days after appointment, then they shall appoint
a third independent appraiser, knowledgeable in the appraisal of assets such as
the Equipment, who shall determine the fair market value of the Equipment within
thirty (30)
<PAGE>
days after appointment. Closing shall take place promptly after Fair Market
Value is finally determined; provided, however, that closing shall not take
place earlier than one hundred twenty (120) days after Lessee has given Lessor
notice of its election to purchase as provided in Paragraph (c) of this Section,
unless the parties otherwise agree. Lessor and Lessee agree that they shall be
bound by the determination of fair market value pursuant to this Section XVIII,
and that such determination shall be enforceable by a court of competent
jurisdiction. Lessor shall bear the fees and expenses of its appraiser, Lessee
shall bear the fees and expenses of its appraiser, and Lessor and Lessee shall
bear equally the fees and expenses of the third appraiser, if any.
(c) Lessee shall give Lessor written notice of its election of the
purchase options specified in paragraph (a) of this Section at any time after
April 30, 2003 and in any event not less than one hundred twenty (120) days
before the expiration of the Term of the first Schedule of a series to be
executed under this Lease. Such election shall be effective with respect to all
Equipment described on all Schedules of that particular series executed
hereunder. If Lessee fails timely to provide such notice, without further action
Lessee automatically shall be deemed to have not elected to purchase the
Equipment pursuant to Paragraph (a) of this Section.
2. The parties agree that the Lease will terminate upon the exercise by
ENBC of its option to purchase the assets of the Company pursuant to that
certain Amended and Restated Option Agreement dated of even date herewith and
entered into by and among ENBC, the Company, Hal P. Harlan, Hugh P. Harlan and
Doug H. Harlan.
3. Except as amended hereby, the Lease remains in full force and effect.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
EINSTEIN/NOAH BAGEL CORP. HARLAN BAGEL SUPPLY COMPANY,
LLC
By: By:
---------------------------- -------------------------------
Printed: Printed:
------------------------ ---------------------------
Title: Title:
-------------------------- -----------------------------
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
OPTION AGREEMENT
dated August 15, 1997
among
EINSTEIN/NOAH BAGEL CORP.
HARLAN BAGEL SUPPLY COMPANY, LLC
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1.0 The Option............................................................... 1
1.1 The Option.................................................................. 1
1.2 Exercise of the Option...................................................... 2
1.3 Regulatory Compliance....................................................... 3
1.4 Purchase Price upon Exercise of the Option.................................. 3
1.5 Allocation of Purchase Price Among Option Assets............................ 3
1.6 Valuation of ENBC Stock or BCI Stock........................................ 4
1.7 Closing of Option Exercise.................................................. 4
1.8 Procedure at each Closing................................................... 4
Article 2.0 Representations and Warranties of Supplier and the Members............... 5
2.1 Organization, Power and Authority of Supplier............................... 5
2.2 Due Authorization; Binding Agreement of Supplier............................ 5
2.3 Ownership Interests in Supplier............................................. 5
2.4 Ownership of Interests by the Members....................................... 6
2.5 Title to Supplier's Assets.................................................. 6
2.6 Accuracy of Information Furnished by Supplier and the Members............... 6
2.7 Investment Banker's and Broker's Fees....................................... 7
Article 3.0 Representations and Warranties of ENBC................................... 7
3.1 Organization, Power and Authority of ENBC................................... 7
3.2 Due Authorization; Binding Agreement of ENBC................................ 7
3.3 Investment Bankers' and Brokers' Fees....................................... 7
Article 4.0 Additional Covenants of Supplier and the Prior to the Termination........ 8
4.1 Reasonable Best Efforts..................................................... 8
4.2 Conduct of Business......................................................... 8
4.3 Access to Supplier's Properties and Records................................. 9
4.4 Notice of Material Developments............................................. 9
4.5 No Disclosure............................................................... 9
4.6 No Other Discussions; Retention of Shares................................... 9
Article 5.0 Conditions to the Closing of the Option Exercise by ENBC................. 10
5.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 10
5.2 HSR Act Waiting Period...................................................... 10
5.3 Receipt of Necessary Consents............................................... 10
5.4 No Adverse Litigation....................................................... 10
5.5 No Material Adverse Change.................................................. 10
5.6 Delivery of Information..................................................... 10
Article 6.0 Certain Additional Covenants............................................. 11
6.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 10
6.2 HSR Act Waiting Period...................................................... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Receipt of Necessary Consents............................ 10
6.4 No Adverse Litigation.................................... 10
Article 7.0 Indemnification....................................... 10
7.1 Execution of Further Documents.......................... 10
7.2 Cooperation of Supplier and the Members................. 10
7.3 Subsequent Audited Financial Statements................. 11
7.4 Confidential Information................................ 11
7.5 Remedies; Waiver........................................ 12
7.6 Employment by ENBC of Supplier's Employees.............. 12
7.7 No Obligation of ENBC to Employ......................... 13
Article 8.0 Indemnification....................................... 13
8.1 Agreement by Supplier and the Members to Indemnify....... 13
8.2 Agreement by ENBC to Indemnify........................... 14
8.3 Tax Effect of Damages and Indemnity Payments............. 14
8.4 Legal Proceedings........................................ 14
Article 9.0 Miscellaneous
9.1 Amendment and Modification............................... 15
9.2 Payment of Expenses...................................... 15
9.3 Binding Effect........................................... 15
9.4 Entire Agreement......................................... 15
9.5 Headings................................................. 15
9.6 Execution in Counterpart................................. 15
9.7 Notices.................................................. 15
9.8 Governing Law............................................ 16
9.9 Publicity................................................ 16
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED OPTION AGREEMENT
This amended and restated option agreement (the "Agreement") is made and
entered into this ________ day of August, 1997 by and among Einstein/Noah Bagel
Corp. a Delaware corporation ("ENBC"), Harlan Bagel Supply Company, LLC, an
Indiana limited liability company ("Supplier"), and Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (collectively, the "Members").
Recitals
--------
ENBC, the Supplier, and Harlan Bakeries, Inc. and the Members previously
entered into a project and approved supplier agreement dated as of May 24, 1996
(the "Prior Approved Supplier Agreement"). As contemplated by the Prior
Approved Supplier Agreement, ENBC obtained an option to acquire all of the
assets of Supplier, pursuant to that certain Option Agreement among ENBC,
Supplier, and the Members dated August 27, 1996, (the "Prior Option Agreement").
The Supplier and ENBC have entered into an Amended and Restated Projected
Approved Supplier Agreement (the "Approved Supplier Agreement") to amend and
restate certain of the terms and conditions of the Prior Approved Supplier
Agreement and desire to amend and restate certain of the terms and conditions of
the Prior Option Agreement. In order to reflect the parties' understanding with
respect to the option, and to amend, restate, replace and substitute in full the
obligations under the Prior Option Agreement, the parties desire to enter into
this Agreement.
Covenants
---------
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained herein and in the Approved
Supplier Agreement, the parties hereto agree as follows:
Article 1.0 The Option
1.1 The Option. Upon the terms and subject to the conditions hereof,
Supplier hereby grants to ENBC an irrevocable option (the "Option") to purchase,
at the purchase price provided for in Section 1.4 hereof, all of the assets of
Supplier (the assets subject to the option being herein sometimes referred to as
the "Option Assets"). Without limiting the generality of the foregoing, the
Option Assets shall include:
1.1.1 all of Supplier's machinery, equipment, tools, supplies,
leasehold improvements, construction in progress, furniture and fixtures,
and other fixed assets ("Fixed Assets");
1.1.2 all inventories and raw materials of Supplier;
1.1.3 all receivables of Supplier including without limitation any
receivables under Sections 7.5 and 7.7 of the Approved Supplier Agreement;
<PAGE>
1.1.4 all real estate owned by Supplier, if any, and all of the
interest of, and the rights and benefits accruing to, Supplier as lessee
under all leases of real property and all improvements thereto and
buildings thereon, and all leases or rental agreements covering machinery,
equipment, tools, supplies, vehicles, furniture and fixtures and other
fixed assets or personal property;
1.1.5 all of the rights and benefits accruing to Supplier under the
Approved Supplier Agreement and under all sales orders, sales contracts,
supply contracts, purchase orders and purchase commitments made by Supplier
in the ordinary course of business, all other agreements to which Supplier
is a party or by which it is bound and all other choices in action, causes
of action and other rights of every kind, but excluding contracts relating
solely to the production or the sale of products other than the Products
(as defined in the Approved Supplier Agreement) ("Excluded Contracts");
1.1.6 all operating data and records of Supplier, including, without
limitation, customer lists, financial, accounting and credit records,
correspondence, budgets and other similar documents and records (although
Supplier may retain copies thereof at its own expense for its tax or other
legitimate business purposes);
1.1.7 all of the proprietary rights of Supplier, including, without
limitation, all trademarks, trade names (but expressly excluding the name
"Harlan" or any name including the name "Harlan"), patents, patent
applications, licenses, trade secrets, technology, know-how, formula,
designs and drawings, computer software, slogans, copyrights, processes,
operating rights, other licenses and permits, and other similar intangible
property and rights, if any; and
1.1.8 all cash and investments, and all prepaid and deferred items of
the Supplier, including, without limitation, prepaid rentals, insurance,
taxes and unbilled charges and deposits.
The Option shall be exercisable at any time from and after the date hereof and
on or before the later of (a) the expiration or termination date of that
certain Lease Agreement dated August 27, 1996 between ENBC and Supplier
("Equipment Lease"), or (b) the expiration or termination date of the Approved
Supplier Agreement ("Termination Date"), but only in the event Supplier: (x)
fails to make any payment required to be made to ENBC under the Equipment Lease
and does not correct such failure within thirty (30) days of the payment due
date; or (y) is in default under any of the Working Capital Financing Documents
(as defined in the Approved Supplier Agreement) or any other third party
indebtedness and such default is not cured within (i) thirty (30) days after
notice of default or (ii) the applicable grace period specified in a notice of
default. The Option will be exercisable for ninety (90) days from the date on
which it first arises. The Option will be exercisable with respect to any and
every default meeting the requirements of this paragraph. For purposes hereof,
the term "other third party indebtedness" shall not include indebtedness owed to
Hal P. Harlan or trade payables of the Supplier incurred in the ordinary course
of business.
2
<PAGE>
1.2 Exercise of the Option. In the event that ENBC elects to exercise
the Option it shall give written notice of such exercise to Supplier in the
manner provided herein for the giving of notice, which notice shall specify the
consideration which ENBC elects to deliver upon the Closing (as hereinafter
defined), which may consist of the Promissory Note (hereinafter defined), shares
of common stock of ENBC ("ENBC Stock"), shares of common stock ("BCI Stock") of
Boston Chicken, Inc. ("BCI"), cash, or any combination of the foregoing, having
an aggregate value equal to the Supplier Value (as defined in Section 1.4),
provided, however, that such consideration may consist of ENBC Stock or BCI
Stock (the issuer of such stock being referred to herein as the "Issuer") only
if (a) the average closing sales price per share of such stock of the Issuer as
quoted on the NASDAQ National Market, as quoted on such other market or exchange
on which such shares are traded, for the ten consecutive trading days ending on
the second business day prior to the Closing Date (as hereinafter defined) (the
"Share Price") is at least $10, and (b) the value of the Issuer (defined as the
product of the Share Price and the total number of outstanding shares of such
stock of the Issuer) is at least $300 million. In the event ENBC elects to
deliver upon the Closing shares of ENBC Stock or shares of BCI Stock, such
shares shall be registered under the Securities Act of 1933, as amended, and
shall be accompanied by a written undertaking of ENBC to pay to the Supplier in
cash the excess, if any, of the value of the shares so delivered , determined in
the manner provided in Section 1.6 hereof, over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by the Supplier to its members to the extent any such shares are
assigned to such members.
1.3 Regulatory Compliance. Upon the exercise of the Option each of the
parties shall promptly prepare and file with the Federal Trade Commission
("FTC") and the United States Department of Justice ("Justice Department") any
notification required to be filed with respect to the transactions contemplated
hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
amended, or any rules or regulations thereunder (the "HSR Act"). Each party
represents and warrants to the other parties hereto that any such filing made by
it shall be true and accurate in all material respects and shall conform to the
requirements of the HSR Act. Each party shall promptly complete and file any
required responses to requests by the FTC or the Justice Department for
additional data and information. Each party shall also make available to the
other parties hereto such information relative to its business, assets and
property as may be required for the preparation of such notifications and
reports.
1.4 Purchase Price upon Exercise of the Option. The purchase price
payable by ENBC upon the exercise of the Option shall consist of: (i) (a) ENBC
Stock, BCI Stock, cash or any combination of the foregoing (determined in
accordance with Section 1.2) having an aggregate value equal to the Supplier
Value as of the Closing Date (as hereinafter defined) or (b) the Promissory Note
and (ii) the assumption by ENBC of Supplier's accounts payable, accrued
expenses, outstanding indebtedness for money borrowed and contractual
obligations, except that ENBC shall not be obligated to assume any liability or
obligation under the Excluded Contracts or any liability or obligation the
existence of which constitutes a breach of any representation and warranty made
by Supplier or the Members in this Agreement or incurred in violation of any
covenants or agreements of Supplier made in this Agreement (such liabilities to
be assumed by ENBC being herein referred
3
<PAGE>
to as the "Assumed Liabilities"). For this purpose, the "Supplier Value" as of
the Closing Date shall be determined in the manner set forth in Exhibit A.
1.5 Allocation of Purchase Price Among Option Assets. The purchase price
for the Option Assets shall be allocated among each item or class of the Option
Assets as determined by the parties. Supplier and ENBC agree that they will
prepare and file their federal and any state or local income tax returns based
on such allocation of the purchase price. Supplier and ENBC agree that they
will prepare and file any notices or other filings required pursuant to Section
1060 of the Internal Revenue Code of 1986, as amended, and that any such notices
of filings will be prepared based on such agreed allocation of the purchase
price.
1.6 Valuation of ENBC Stock or BCI Stock. ENBC Stock or BCI Stock
delivered upon the Closing (as hereinafter defined) shall be deemed to have a
value equal to the average closing sales price per share of such stock as quoted
on the NASDAQ National Market, as reported in the Wall Street Journal (Western
Edition), or as quoted on such other market or exchange on which such shares are
traded, for the ten consecutive trading days ending on the second business day
prior to the Closing Date (as hereinafter defined).
1.7 Closing of Option Exercise. The closing of the exercise of the
Option shall take place at the offices of ENBC at 9:00 A.M., local time, on the
fifth business day after the date of the notice of such exercise referred to in
Section 1.2, or, if later, the second business day after the satisfaction or
waiver of all other conditions to the exercise of the Option provided for in
Articles 5.0 and 6.0 hereof. Throughout this Agreement, such event is referred
to as "Closing" and such date and time are referred to as "Closing Date".
1.8 Procedure at the Closing. At the Closing: (i) Supplier shall
execute and deliver to ENBC instruments of assignment in form and substance
satisfactory to ENBC sufficient to convey to ENBC all right, title and interest
of Supplier in and to the Option Assets, all necessary consents or approvals of
third parties (including any governmental entities) to the transactions
contemplated hereby, subscription agreements of Supplier and the Members
satisfactory in form and substance to ENBC, in the event ENBC has elected to
deliver ENBC Stock or BCI Stock at the Closing, and an opinion of Henderson,
Daily, Withrow & DeVoe, or other counsel reasonably acceptable to ENBC, dated
as of the Closing Date and in a form reasonably acceptable to ENBC, to the
effect that: (A) Supplier is a limited liability company duly organized and
validly existing under the laws of the State of Indiana with full power and
authority to own or lease its properties, to carry on its business as it is
being conducted and to convey the Option Assets to ENBC pursuant to this
Agreement, (B) the sale of the Option Assets has been duly authorized by all
necessary action of Supplier under Indiana law, its articles of incorporation
and bylaws, (C) the sale of the Option Assets will not conflict with or violate
any provision of the articles of organization or operating agreement of
Supplier, conflict with or violate any order, judgment or decree known to such
counsel applicable to Supplier or the Members or by which any of Supplier's
properties are affected, or result in a breach of, or constitute a default (or
any event which with notice or lapse of time would become a default) under, or
give to others any rights of first refusal, termination, amendment, acceleration
or cancellation of, or result in the creation of any lien or encumbrance on any
of the Option Assets pursuant to, any notice, bond, mortgage, indenture
contract, agreement, lease or other instrument or
4
<PAGE>
obligation known to such counsel by which Supplier or any of the Members is
bound or by which any of the Supplier's properties are affected, (D) the sale of
the Option Assets will not, require any consent, approval, exemption,
authorization or permit of, filing with or notification, or other action by, any
court, administrative agency or governmental or regulatory authority, under any
provision of Indiana or Federal law, except for such consents and approvals as
shall have been obtained and filings which shall have been made, and (E) to such
counsel's knowledge, there are no actions, suits, proceedings or governmental
inquiries pending or threatened against Supplier or any of the Members seeking
to prevent the consummation of the transactions contemplated by this Agreement
or which could reasonably be expected to have a material adverse effect on the
Option Assets or the ability of Supplier and the Members to perform their
obligations under this Agreement, and (ii) in the event ENBC has not elected to
pay the purchase price by delivering cash, ENBC Stock or BCI Stock, ENBC shall
deliver to Supplier a promissory note, in the form of Exhibit B attached hereto,
in the principal amount of the purchase price (the "Promissory Note"), and (iii)
ENBC shall deliver to Supplier an instrument of assumption in form and substance
satisfactory to Supplier, assuming the Assumed Liabilities, and releases of any
guarantees made by the Members in connection with the Assumed Liabilities, to
the extent such releases may be obtained through ENBC's reasonable efforts
(which the parties agree shall not require ENBC to expend money or provide
security to the holder of any of the Assumed Liabilities). ENBC acknowledges
that the legal opinion referred to above will be subject to review by Henderson,
Daily's opinion committee prior to the time of issuance of such opinion so that
such opinion is consistent with prevailing opinion letter practice at such time.
The Promissory Note shall provide that the purchase price shall be payable to
the Supplier on the six (6) month anniversary of the Closing Date unless the
purchase price exceeds $1,000,000, in which event $1,000,000 will be payable to
the Supplier on the six (6) month anniversary of the Closing Date with the
balance of the purchase price payable in equal installments of principal, with
interest, on each of the twelve (12), eighteen (18), and twenty-four (24) month
anniversaries of the Closing Date. Interest shall be payable on the purchase
price from and after the Closing Date.
Article 2.0 Representations and Warranties of Supplier and the Members
In order to induce ENBC to enter into this Agreement and to consummate the
transactions contemplated hereunder, Supplier and the Members jointly and
severally make the following representations and warranties:
2.1 Organization, Power and Authority of Supplier. Supplier is a
limited liability company duly organized and validly existing under the laws of
Indiana, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby. Supplier is legally qualified to transact business, and is
in good standing, in any jurisdictions in which its business or property is such
as to require that it be thus qualified, except where the failure to be so
qualified would not have a material adverse effect on its business, properties
or financial condition.
2.2 Due Authorization; Binding Agreement of Supplier and Members. The
execution, delivery and performance of this Agreement and the consummation of
the transactions
5
<PAGE>
contemplated hereby have been duly authorized by all necessary action of
Supplier, including the approval of the Members of Supplier. This Agreement has
been duly executed and delivered by Supplier and the Members and is a valid and
binding obligation of Supplier and the Members, enforceable in accordance with
its terms. Neither the execution and delivery of this Agreement by Supplier or
the Members nor the consummation of the transactions contemplated hereby will:
(i) conflict with or violate any provision of the articles of organization or
operating agreement of Supplier or of any decree or order of any court or
administrative or other governmental body which is either applicable to, binding
upon or enforceable against Supplier or the Members or the assets and properties
of Supplier or the Members; or (ii) result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
mortgage, contract, agreement, indenture or other instrument which is either
binding upon or enforceable against Supplier or the Members or the assets and
properties of Supplier or the Members. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Supplier or the Members and the consummation by it of the
transactions contemplated hereby, except pursuant to the HSR Act.
2.3 Ownership Interests in Supplier. All voting rights in Supplier are
vested exclusively in its membership interests (the "Interests"), and there are
no voting trusts, proxies or other agreements or understandings with respect to
the voting of the Interests of Supplier, except for the operating agreement
among the Supplier and the Members (the "Operating Agreement"). Supplier has
previously furnished to ENBC copies of Supplier's articles of organization and
the Operating Agreement, and such copies are correct and complete in all
respects. There are no outstanding warrants, options or rights of any kind to
acquire from Supplier any interests or securities of any kind, and there are no
pre-emptive rights with respect to the issuance or sale of interests of
Supplier. Supplier has no obligation to acquire any of its issued and
outstanding interests or any other security issued by it from any holder
thereof, except pursuant to the Operating Agreement.
2.4 Ownership of Interests by the Members. The Members are the lawful
owners of all of the outstanding Interests of Supplier and have valid marketable
title thereto, free and clear of all liens, pledges, encumbrances, security
interests, restrictions on transfer, claims and equities of every kind, other
than restrictions under federal and state securities laws. There are no
outstanding warrants, options or rights of any kind to acquire from the Members
any of the Interests.
2.5 Title to Supplier's Assets. Supplier has good and marketable title
to all of its assets and properties, free and clear of all liens, mortgages,
pledges, encumbrances or charges of every kind, nature, and description
whatsoever, and upon the Closing ENBC will acquire good and marketable title to
the Option Assets, free and clear of all liens, mortgages, pledges, encumbrances
or charges of every kind, nature and description whatsoever, except for (i)
security interests securing any indebtedness for money borrowed or other
contractual obligations but only if such indebtedness or obligations are assumed
by ENBC or (ii) such liens, mortgages, pledges, encumbrances or charges as shall
have been approved by ENBC in writing.
6
<PAGE>
2.6 Accuracy of Information Furnished by Supplier and the Members. No
representation, statement or information made or furnished by Supplier or the
Members to ENBC, including without limitation those contained in this Agreement
and the various schedules attached hereto, when taken as a whole, contains or
shall contain any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained therein not
misleading.
2.7 Investment Bankers' and Brokers' Fees. Neither the Members nor
Supplier have any obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement.
Article 3.0 Representations and Warranties of ENBC
In order to induce Supplier and the Members to enter into this Agreement
and to consummate the transactions contemplated hereunder, ENBC makes the
following representations and warranties:
3.1 Organization, Power and Authority of ENBC. ENBC is a corporation
duly organized and validly existing under the laws of the State of Delaware, and
has full corporate power and authority to own or lease its properties and to
carry on its business as it is now being conducted and to enter into this
Agreement and to carry out the transactions and agreements contemplated hereby.
3.2 Due Authorization; Binding Agreement of ENBC. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of ENBC This Agreement has been duly executed and delivered by
ENBC and is a valid and binding obligation of ENBC, enforceable in accordance
with its terms. Neither the execution and delivery of this Agreement by ENBC
nor the consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the certificate of incorporation or bylaws of
ENBC or of any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or enforceable
against ENBC, or its assets and properties; or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture or other instrument which is
either binding upon or enforceable against ENBC, or its assets and properties.
No permit, consent, approval of authorization of, or declaration to or filing
with, any regulatory or other government authority is required in connection
with the execution and delivery of this Agreement by ENBC and the consummation
by it of the transactions contemplated hereby.
3.3 Investment Bankers' and Brokers' Fees. ENBC has no obligation to
pay any fees or commissions to any investment banker, broker, finder or agent
with respect to the transactions contemplated by this Agreement.
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Article 4.0 Additional Covenants of Supplier and the Members Prior to the
Termination Date
4.1 Reasonable Best Efforts. Supplier and the Members will use
reasonable best efforts to cause to be satisfied as soon as practicable and
prior to the Closing Date all of the conditions set forth in Articles 5.0 and
6.0. Without limiting the generality of the foregoing Supplier and the Members
will not, without ENBC's written consent, take any action that would result in a
requirement that any third party consent or approval be obtained in connection
with exercise of the Option.
4.2 Conduct of Business. From and after the execution and delivery of
this Agreement and until the earlier of the Closing Date or the Termination
Date, except as otherwise provided by the prior written consent of ENBC:
4.2.1 Supplier will use reasonable best efforts to (i) preserve its
business organization intact, (ii) keep available the services of its
officers, employees, and agents, and (iii) preserve its relationships with
suppliers and others having dealings with Supplier;
4.2.2 Supplier will maintain all of its properties in customary
repair, order and condition, reasonable wear and use and damage by
unavoidable casualty excepted; and
4.2.3 Supplier will not (a) sell, lease, transfer or otherwise
dispose of assets other than in the ordinary course of business, (b)
redeem, purchase or otherwise acquire from any of its Members all or any
part of their equity interest in the Supplier or pay any dividends or make
any other distributions or payments to such Members, or persons or entities
related to them, except for (i) distributions to the members to permit
payment by them of income taxes on income of Supplier allocated to them,
which shall be based on a tax rate equal to the highest effective combined
statutory rate of federal and state income tax (giving effect to the
deductibility of state income taxes for federal income tax purposes)
imposed on taxable income of an individual residing in the State of
Indiana, and (ii) other cash distributions and compensation payments that
are permitted to be made by the Financing Documents (as defined in the
Approved Supplier Agreement), (c) incur indebtedness other than the
indebtedness provided for in the Financing Documents (as defined in the
Approved Supplier Agreement), (d) incur any material obligations or
liabilities (other than its obligations under this Agreement and the
Approved Supplier Agreement), or enter into any material transaction (other
than transactions contemplated by this Agreement or the Approved Supplier
Agreement) other than in the ordinary course of business, (e) merge or
consolidate with any other entity, effect any change in its capital
structure, make any investment in any other entity, liquidate or dissolve,
(f) amend its articles of organization or the Operating Agreement, (g)
enter into any transaction with any affiliate except on terms at least as
favorable as those that could be obtained from an unrelated third party or
(h) agree to do any of the foregoing.
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4.3 Access to Supplier's Properties and Records. From and after the
execution and delivery of this Agreement and until the earlier of the Closing
Date or the Termination Date, Supplier will afford to the representatives of
ENBC access, during normal business hours and upon reasonable notice, to
Supplier's premises and books and records sufficient to enable ENBC to inspect
the assets and properties of Supplier and to determine the Supplier Value (as
defined in Exhibit A hereof), and Supplier will furnish to such representatives
during such period all such information relating to the foregoing investigation
as ENBC may reasonably request; provided, however, that any furnishing of such
information to ENBC and any investigation by ENBC shall not affect the right of
ENBC to rely on the representations and warranties made by Supplier and the
Members in or pursuant to this Agreement, and provided further, that ENBC shall
maintain the confidentiality of any information so furnished to it in accordance
with the provisions of Article 12.0 of the Approved Supplier Agreement. Without
limiting the generality of the foregoing, Supplier shall furnish to ENBC within
five (5) business days after the Option is first exercisable, a statement
setting forth the Supplier Value (as defined in Exhibit A hereof) determined as
of the applicable date under Exhibit A, which statement shall be prepared in
accordance with Exhibit A and shall set forth with specificity the calculation
of Supplier Value.
4.4 Notice of Material Developments. From and after the execution and
delivery of this Agreement and until the earlier of the Closing Date or the
Termination Date, Supplier will give prompt written notice to ENBC of any
material development affecting the assets, properties, business, business
prospects, financial condition or results of operations of Supplier, including
without limitation any development which results in the inaccuracy of any of the
representations and warranties of Supplier and the Members made herein.
4.5 No Disclosure. Without the prior written consent of ENBC, neither
Supplier nor any of the Members will, prior to the earlier of the Closing Date
or the Termination Date, disclose the existence of or any term or condition of
this Agreement to any person or entity except that such disclosure may be made
(i) to any lender or financing source of Supplier or any person in a business
relationship with Supplier to whom such disclosure is necessary in order to
satisfy any of the conditions or obligations which are set forth in this
Agreement, and (ii) to the extent Supplier believes in good faith that such
disclosure is required by law (in which case Supplier will consult with ENBC
prior to making such disclosure).
4.6 No Other Discussions; Retention of Interests. Neither the Members
nor Supplier will, prior to the earlier of the Closing Date or the Termination
Date, enter into discussions or negotiate with or entertain or accept the
unsolicited offer of any other party concerning the potential sale or exchange
of all or any part of the assets of or interests in Supplier to, or the merger
or consolidation of Supplier with, any person other than ENBC The Members will
not, prior to the earlier of the Closing Date or the Termination Date, sell,
assign, transfer, pledge, encumber or otherwise dispose of any of the Interests
owned by them, except for Exempt Transactions permitted by the Operating
Agreement.
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Article 5.0 Conditions to ENBC' Obligation to Close the Option Exercise.
The obligation of ENBC to purchase the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by ENBC at or prior
to the Closing Date of each of the following conditions:
5.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of Supplier and the Members
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. Supplier and the Members shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Members
shall have delivered to ENBC a certificate, dated as of the Closing Date and
signed by each of the Members, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
5.2 HSR Act Waiting Period. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
5.3 Receipt of Necessary Consents. All necessary consents or approvals
of third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to ENBC.
5.4 No Adverse Litigation. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the purchase of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
5.5 No Material Adverse Change. Since the date of the exercise of the
Option, there shall have been no changes in the business or properties of
Supplier, or in its financial condition, other than changes which in the
aggregate shall not have had a material adverse effect.
5.6 Delivery of Information. Supplier shall have delivered to ENBC any
information required to have been delivered to ENBC pursuant to Section 4.3
hereof.
Article 6.0 Conditions to the Supplier's Obligation to Close the Option
Exercise
The obligation of Supplier to sell the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by Supplier at or
prior to the Closing Date of each of the following conditions:
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of ENBC contained in this
Agreement shall have been true and correct in all material respects at and as of
the date hereof, and they shall be true and correct in all
10
<PAGE>
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. ENBC shall have performed and complied
with all of its obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. ENBC shall have delivered to
Supplier a certificate, dated as of the Closing Date and signed by ENBC,
certifying that such representations and warranties are thus true and correct in
all material respects and that all such obligations have been thus performed and
complied with.
6.2 HSR Act Waiting Period. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
6.3 Receipt of Necessary Consents. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Supplier.
6.4 No Adverse Litigation. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the sale of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
Article 7.0 Certain Additional Covenants
7.1 Execution of Further Documents. From and after the Closing, upon
the reasonable request of ENBC, Supplier and the Members shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to convey and
transfer to and vest in ENBC the Option Assets and as may be appropriate
otherwise to carry out the transactions contemplated by this Agreement.
7.2 Cooperation of Supplier and the Members. Each of the Members
acknowledges and agrees that ENBC may have need of information concerning
Supplier and the Members in order to comply with applicable securities laws and
regulations in connection with future public and private debt and equity
offerings by ENBC ("Offerings"). The Members jointly and severally agree that
they will cooperate with ENBC in connection with any Offerings and that they
will, at ENBC's expense: (i) furnish ENBC with such information concerning
Supplier and the Members as ENBC may reasonably require to comply with
applicable securities laws and regulations (the "Company Information"); (ii) use
diligent efforts to review, comment on, and otherwise assist ENBC as reasonably
necessary for the preparation of, descriptions concerning Supplier and the
Members to be used in connection with Offerings; and (iii) represent and warrant
to ENBC in connection with any Offerings that Company Information will not
contain any untrue statement of a material fact or omit any material fact
necessary to make the information contained therein not misleading.
7.3 Subsequent Audited Financial Statements. Each of the Members
covenants and agrees with ENBC that if ENBC shall determine that audited
financial statements of ENBC or Supplier for the periods prior to the Closing
are necessary or advisable in connection with an initial public offering,
another transaction or offering, or otherwise, each shall cooperate fully with
ENBC's accountants in the preparation of such audited financial statements, at
ENBC's expense,
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and each shall make such reasonable representations and warranties to the
applicable certified public accountants as are customary in connection with the
preparation of audited financial statements.
7.4 Confidential Information.
7.4.1 The Members may possess certain confidential and proprietary
information and trade secrets including, but not limited to, information,
methods, techniques, procedures and knowledge developed by or for Supplier
respecting the business of Supplier (the "Confidential Information"). Each
of the Members acknowledges and agrees that neither such Shareholder nor
any other person or entity has acquired by or through such Members any
interest in or right to use the Confidential Information other than the
right to utilize it in the operation of the businesses of Supplier and
ENBC, and that the use or duplication of the Confidential Information in
any other business would constitute an unfair method of competition with
Supplier and ENBC. Notwithstanding the foregoing, however, ENBC
acknowledges that the Members are actively involved as Members, officers
and directors of Harlan Bakeries, Inc. and that certain Confidential
Information may be shared with Harlan Bakeries, Inc. The foregoing is not
intended to prevent Harlan Bakeries from using such Confidential
Information in its business generally, but Confidential Information
relating specifically to ENBC or its Formulations, Specifications and
Procedures (as defined in the Approved Supplier Agreement) may not be used
by Harlan Bakeries except to the extent such use is solely for the benefit
of ENBC.
7.4.2 Subject to Section 7.4.1 hereof, each of the Members
acknowledges and agrees that the Confidential Information is confidential
to and a valuable asset of Supplier, is proprietary, and includes trade
secrets of Supplier and that such Member: (i) will not use the
Confidential Information in any other business or capacity; (ii) will
maintain the absolute secrecy and confidentiality of the Confidential
Information; and (iii) will not make unauthorized copies of any portion of
the Confidential Information disclosed in written or other tangible form.
7.4.3 Notwithstanding the foregoing, the obligations of the Members
specified above shall not apply to any Confidential Information which (i)
is disclosed in a printed publication available to the public, or is
otherwise in the public domain through no act of any of the Members, their
agents or any person or entity which has received such Confidential
Information from or through any of the Members, (ii) is approved for
release by written authorization of an officer of ENBC, (iii) is required
to be disclosed by proper order of a court of applicable jurisdiction after
adequate notice to ENBC to seek a protective order therefor, the imposition
of which protective order the Members agree to approve and support, or (iv)
in the written opinion of the disclosing Member's counsel, is necessary to
be made by such Member in order that the Member not violate any law, rule
or regulation applicable to him.
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7.5 Remedies; Waiver.
7.5.1 Each of the Members agrees that the provisions and restrictions
set forth above in Section 7.4 are necessary to protect ENBC and its
successors and assigns in the protection of the Option Assets ENBC is
entitled to acquire pursuant to this Agreement. Each of the Members agrees
that damages cannot compensate ENBC in the event of a violation of the
covenants contained in Section 7.4 hereof, and that injunctive relief
shall be essential for the protection of ENBC and its successors and
assigns. Accordingly, each of the Members agrees and consents that, in the
event he shall violate or breach any of said covenants ENBC shall be
entitled to obtain (and he hereby consents to) such injunctive relief
against such Shareholder, without bond, in addition to such further or
other relief as may appertain at equity or law. The exercise or
enforcement by ENBC of any right or remedy hereunder shall not preclude the
exercise or enforcement by ENBC of any other right or remedy hereunder or
which ENBC has the right to enforce under applicable law.
7.5.2 Failure by any party to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver
of such term, covenant or condition, nor shall any waiver or relinquishment
of any right or remedy hereunder at any one or more times be deemed a
waiver or relinquishment of such right or remedy at any other time or
times.
7.6 Employment by ENBC of Supplier's Employees. Supplier shall use its
reasonable best efforts to aid ENBC in engaging such of its employees as are
employed on the Closing Date, if any, whom ENBC desires to engage after the
Closing Date, and except with the written consent of ENBC, neither Supplier nor
any Affiliate (as hereinafter defined) of Supplier shall employ, for a period of
one year after the Closing Date, any person employed by Supplier at or at any
time within six months prior to the Closing Date unless such person was either
not offered employment by ENBC or was terminated by ENBC. As used in this
Agreement, the term "Affiliate" means, with respect to a specified person, any
other person which directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified, and the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.
7.7 No Obligation of ENBC to Employ. ENBC shall have no obligation to
employ any of the persons employed by Supplier at the time of the Closing, if
any, or to continue, or institute any replacement or substitution for, any
vacation, severance, incentive, bonus, profit sharing, pension or other employee
benefit plan or program of Supplier.
Article 8.0 Indemnification
8.1 Agreement by Supplier and the Members to Indemnify. Subject to the
qualifications and limitations set forth in this Section 8.1, Supplier and the
Members jointly and severally agree that from and after the Closing, if any,
they will indemnify and hold ENBC harmless in respect of the
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<PAGE>
aggregate of all ENBC Indemnifiable Damages (as hereinafter defined). For this
purpose, ENBC Indemnifiable Damages shall mean the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including related counsel
fees and expenses) incurred or suffered by ENBC (or any successor to all or any
part of the assets or business of Supplier) (i) resulting from any inaccurate
representation or warranty made by Supplier and the Members in or pursuant to
this Agreement, (ii) resulting from any default in the performance of any of the
covenants or agreements made by Supplier or the Members in this Agreement, or
(iii) resulting from the failure of Supplier to pay, discharge or perform any
liability or obligation that is not required to be assumed by ENBC hereunder
("Excluded Liabilities"). Without limiting the generality of the foregoing,
with respect to the measurement of ENBC Indemnifiable Damages, ENBC shall have
the right to be put in the same financial position as it would have been in had
each of the representations and warranties of Supplier and the Members been true
and correct, had each of the covenants and agreements of Supplier and the
Members been performed in full and had each of the Excluded Liabilities been
paid or performed in full. The foregoing obligation to indemnify ENBC shall be
subject to each of the following principles or qualifications:
8.1.1 Each of the representations and warranties made by the Supplier
and the Members in this Agreement or pursuant hereto, shall survive for a
period of eighteen (18) months after the exercise of the Option and
thereafter all such representations and warranties shall be extinguished,
provided, however, that the representations and warranties made in Sections
2.1, 2.2, 2.3, 2.4 and 2.7 hereof shall in each case survive forever. No
claim for the recovery of ENBC Indemnifiable Damages based upon the
inaccuracy of such representations and warranties may be asserted by ENBC
after such representations and warranties shall be thus extinguished;
provided, however, that claims first asserted in writing within the
applicable period (whether or not the amount of any such claim has become
ascertainable within such period) shall not thereafter be barred.
8.1.2 The Supplier and the Members shall be liable for any claim for
ENBC Indemnifiable Damages arising out of any inaccuracy of any
representation or warranty only to the extent the aggregate amount of all
such ENBC Indemnifiable Damages do exceed $25,000.
8.1.3 The liability of the Supplier and the Members for claims for
all ENBC Indemnifiable Damages arising out of inaccuracies of
representations and warranties of the Supplier and the Members shall in no
event exceed the amount of the purchase price payable under Section 1.4.
8.2 Agreement by ENBC to Indemnify. ENBC agrees that from and after the
Closing, if any, it will indemnify and hold Supplier and the Members harmless in
respect of the aggregate of all Supplier Indemnifiable Damages (as hereinafter
defined). For this purpose, Supplier Indemnifiable Damages shall mean the
aggregate of all expenses, losses, costs, deficiencies, liabilities and damages
(including related counsel fees and expenses) incurred or suffered by Supplier
or the Members (i) resulting from any inaccurate representation or warranty made
by ENBC in or pursuant to this Agreement, (ii) resulting from any default in the
performance of any of the covenants or agreements made by ENBC in this
Agreement, (iii) resulting from the failure of
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ENBC to discharge any Assumed Liabilities (including any Assumed Liabilities
that may have been guaranteed by one or more of the Members) after Closing or
(iv) resulting from the operation of the business utilizing the Option Assets by
ENBC after Closing (except to the extent arising from any inaccurate
representation or warranty made by the Supplier and the Members herein). Without
limiting the generality of the foregoing, with respect to the measurement of
Supplier Indemnifiable Damages, Supplier and the Members shall each have the
right to be put in the same financial position as they would have been in had
each of the representations and warranties of ENBC been true and correct, had
each of the covenants and agreements of ENBC been performed in full and had each
of the Assumed Liabilities been paid or performed in full.
8.3 Tax Effect of Damages and Indemnity Payments. In determining the
amount of ENBC Indemnifiable Damages payable under Section 8.1 and Supplier
Indemnifiable Damages payable under Section 8.2, there shall be taken into
account both tax benefits, if any, arising from the incurrence of damages and
tax detriments, if any, arising from the receipt of payments hereunder.
8.4 Legal Proceedings. In the event Supplier, the Members or ENBC become
involved in any legal, governmental or administrative proceeding which may
result in indemnification claims hereunder, such party shall promptly notify the
other parties in writing of such proceeding. The other parties may, at their
option and expense, defend any such proceeding if the proceeding could give rise
to an indemnification obligation hereunder. If any party elects to defend any
proceeding, such party shall have full control over the conduct of such
proceeding, although the party being indemnified shall have the right to retain
legal counsel at its own expense and shall have the right to approve any
settlement of any dispute giving rise to such proceeding, such approval not to
be withheld unreasonably by the party being indemnified; provided, that, in the
event the indemnifying party shall fail to initiate a defense of a claim within
twenty days of the notice to the indemnified party of a claim, the indemnified
party shall have the option to conduct the defense of such claim as it may in
its discretion deem proper. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
Article 9.0 Miscellaneous
9.1 Amendment and Modification. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by them in
writing.
9.2 Payment of Expenses. Each party to this Agreement shall pay all of
the expenses incurred by it in connection with this Agreement, including without
limitation its legal and accounting fees and expenses.
9.3 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs and legal representatives.
9.4 Entire Agreement. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the option to
purchase the Option Assets and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto.
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9.5 Headings. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
9.6 Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
9.7 Notices. Any notice, request, information or other document to be
given hereunder shall be in writing. Any notice, request, information or other
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Supplier addressed as follows:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
with a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to ENBC, addressed as follows:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401
Attention: Senior Vice President-Supply Chain
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with a copy to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
P. O. Box 4086
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice, request, information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed wholly therein.
9.9 Publicity. No press release or other public announcement related to
this Agreement or the transactions contemplated hereby (or the existence of any
discussions or negotiations among the parties regarding any other possible
transactions) will be issued, and no disclosure of this Agreement or the terms
hereof will be made, by Supplier or any of the Members without the prior
approval of ENBC. ENBC agrees to use reasonable best efforts to consult with
Supplier prior to issuing any press release or public or trade announcement or
statement relating to this Agreement or the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Mike Shepherd
---------------------------
Senior Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Hugh P. Harlan, President
-----------------------------
/s/ Hal P. Harlan
-----------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
-----------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
-----------------------------
Doug H. Harlan
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Exhibits
--------
Exhibit A Determination of Supplier Value
Exhibit B Promissory Note
<PAGE>
EXHIBIT A
---------
SUPPLIER VALUE
--------------
"Supplier Value" as of the Closing Date shall be the net asset value of the
Supplier determined in accordance with generally accepted accounting principles.
"Net asset value" shall mean the net book value of the Supplier's assets.
<PAGE>
EXHIBIT B TO THE OPTION AGREEMENT
<PAGE>
THIS PROMISSORY NOTE IS NON-NEGOTIABLE, NON-ASSIGNABLE
AND NON-TRANSFERABLE
PROMISSORY NOTE
$______________ __________, _______
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), promises to pay to Harlan Bagel Supply Company, LLC ("HBSC"), at
such place as HBSC may from time to time designate in writing,
________________________________ DOLLARS ($______________); and to pay interest
on the unpaid principal balance hereof from time to time outstanding, at the per
annum rate equal to the Interest Rate until the indebtedness evidenced hereby is
paid in full, and at the Interest Rate plus two percent (2%) in respect of any
principal amount not paid when due, for the period from the date such principal
is due until such unpaid amount has been paid in full (whether before or after
judgment). The term "Interest Rate" shall mean 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. The Interest Rate shall be adjusted from time-to-time on the same day
on which the Bank adjusts its reference rate.
Principal and interest on this Note shall be payable as follows: Principal
of $___________ shall be payable on _________________ (being the Six Month
Anniversary Date). One-third (1/3) of the remaining outstanding principal amount
of this Note together with all accrued but unpaid interest thereon shall be due
and payable on each of _______________ (being the twelve month anniversary of
the date hereof), ____________________ (being the eighteen month anniversary of
the date hereof), and __________ (being the twenty-four month anniversary of the
date hereof).
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
All or any part of the principal amount of this Note and any accrued
interest due on any of the respective payment dates or otherwise may be paid at
the Company's option in lawful money of the United States of America in
immediately available funds, shares of common stock of the Company (the "ENBC
Stock"), shares of common stock of Boston Chicken, Inc. ("BCI Stock") (the
issuer of ENBC Stock or BCI Stock being referred to herein as the "Issuer") or
any combination of the foregoing, provided that with respect to ENBC Stock and
BCI Stock, same shall be valued at the average of the closing sales prices per
share of the Common Stock quoted on the Nasdaq National Market, as reported in
the Wall Street Journal (Western Edition), for the five (5) trading days
immediately prior to the second business day before the respective date of
payment (the "Average Price"). The Company may make a payment hereunder with
ENBC Stock or BCI Stock only if (a) the Average Price per share of such stock of
the Issuer as quoted on the NASDAQ National Market, as quoted on such other
market or exchange on which such shares are traded is at least $10, and (b) the
value of the Issuer (defined as the product of the Share Price and the total
number of outstanding shares of such stock of the Issuer) is at least $300
million. In the event ENBC elects to deliver shares of ENBC Stock or shares of
BCI Stock, such shares shall be registered under the Securities Act of 1933, as
amended, and shall be
<PAGE>
accompanied by a written undertaking of ENBC to pay to HBSC in cash the excess,
if any, of the value of the shares so delivered over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by HBSC to its members to the extent any such shares are assigned
to such members.
This Note may be prepaid at any time without premium or penalty. 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 Company and any endorser or
guarantor.
If the Company fails to make any payment hereunder when due and such
failure continues for a period of ten (10) days, then this Note shall become
immediately due and payable, without notice, at HBSC's option. If this Note is
not paid at maturity, whether by acceleration or otherwise, HBSC shall have all
of the rights and remedies provided by law or in equity.
If this Note is placed in the hands of an attorney for collection, or is
collected through any court, including any bankruptcy court, the Company
promises to pay to HBSC, HBSC's reasonable attorneys' fees and court costs
incurred in collecting or attempting to collect this Note.
THIS NOTE 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.
Any provision herein 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,
HBSC shall in no event be entitled to receive or collect, nor shall any amounts
received hereunder be credited, so that HBSC 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 any and all other papers, agreements, or
commitments, indicate a different right given to HBSC 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 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 HBSC 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 Company. 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
Company and HBSC shall, to the maximum extent permitted under
<PAGE>
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 Company has caused this Note to be executed in its
corporate name by the undersigned officer, thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP., a
Delaware corporation
By:___________________________
Its:__________________________
<PAGE>
Exhibit 10.5
EINSTEIN/NOAH BAGEL CORP.
1997 STOCK OPTION PLAN
----------------------
1. Statement of Purpose. The purpose of this 1997 Stock Option Plan (the
"Plan") is to benefit Einstein/Noah Bagel Corp. (the "Company") by offering
certain present and future employees and officers of, and consultants to, the
Company and its subsidiaries and affiliated companies a favorable opportunity to
become holders of the common stock of the Company ("Common Stock") over a period
of years, thereby giving them a long-term stake in the growth and prosperity of
the Company and encouraging the continuance of their involvement with the
Company.
2. Administration. The Plan shall be administered (i) with respect to
individuals who receive options under the Plan and who are or become subject to
the reporting requirements and short-swing liability provisions of Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") ("Reporting
Persons"), by a committee consisting of at least two members of the Board of
Directors of the Company (the "Board"), each of whom is a "non-employee
director" (as such term is defined under Rule 16b-3 of the Exchange Act) (the
"Reporting Persons Committee") and (ii) with respect to all individuals who
receive options under the Plan and who are not Reporting Persons, by a committee
which shall consists of at least two members of the Board (the "Stock Option
Committee"). For purposes of this Plan, references to the "Committee" shall mean
the Reporting Persons Committee, the Stock Option Committee, or both, as the
context may require.
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its absolute discretion, (a) to determine the persons to be
granted options under the Plan, (b) to determine the number of shares subject to
each option, (c) to determine the time or times at which options will be
granted, (d) to determine the option price of the shares subject to each option,
(e) to determine the time or times when each option becomes exercisable and the
duration of the exercise period, (f) to prescribe the form or forms of the
agreements or other instruments evidencing any options granted under the Plan,
(g) to adopt, amend and rescind such rules and regulations as, in the
Committee's opinion, may be advisable in the administration of the Plan, and (h)
to construe and interpret the Plan, the rules and regulations and the agreements
evidencing options granted under the Plan and to make all other determinations
deemed necessary or advisable for the administration of the Plan. Any decision
made or action taken in good faith by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations shall, to the extent permitted by law, be conclusive and binding
upon all optionees under the Plan and upon any person claiming under or through
such an optionee, and no director of the Company shall be liable for any such
decision made or action taken by the Committee. The Committee may obtain such
advice or assistance as it deems appropriate from persons not serving on the
Committee.
<PAGE>
3. Eligibility. Options may be granted to employees of the Company and
its subsidiaries and affiliated companies who are employed on a full time basis,
and to officers of, and consultants to, the Company and its subsidiaries and
affiliated companies ("Eligible Persons"). The Committee may grant options to
Eligible Persons selected from time to time by the Committee. Eligible Persons
may be selected individually or by groups or categories, as determined by the
Committee in its discretion. No non-employee director of the Company shall
receive an award under the Plan.
4. Granting of Options. Subject to Section 10 hereof, the maximum number
of shares of Common Stock which may be issued upon exercise of options granted
under the Plan shall be 2,500,000. No option shall be granted under the Plan
subsequent to October 2, 2007. Options granted under the Plan are intended not
to be treated as incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company, or interfere in any way with the right of the Company to terminate
his or her employment at any time.
5. Option Price. The options shall be granted at an exercise price
determined by the Committee at the date of grant.
6. Duration of Options, Increments, and Extensions. Subject to the
provisions of Section 8, each option shall be for such term of not more than ten
years as shall be determined by the Committee at the date of the grant. Each
option shall become exercisable in such installments, at such time or times, and
may be subject to such conditions, including conditions based upon the
performance of the Company, as the Committee may in its discretion determine at
the date of grant.
The Committee may in its discretion (i) accelerate the exercisability of
any option or (ii) at any time before the expiration or termination of an option
previously granted, extend the term of such option (including options held by
officers) for such additional period as the Committee, in its discretion, shall
determine, except that the aggregate option period with respect to any option,
including the original term of the option and any extensions thereof, shall
never exceed ten years.
7. Exercise of Option. As a condition to the exercise of any option, the
fair market value of the Common Stock on the date of exercise must equal or
exceed the option price of such option. An option may be exercised by giving
written notice to the Company, attention of the Secretary or such other person
or persons as the Company may from time to time designate for this purpose by
notice to the holders of outstanding options under the Plan, specifying the
number of shares to be purchased, accompanied by the full purchase price for the
shares to be
2
<PAGE>
purchased either in cash, by check, by a promissory note in a form specified by
the Committee and payable to the Company no later than 15 business days after
the date of exercise of the option, or, if so approved by the Committee, by
shares of the Common Stock of the Company, or by a combination of these methods
of payment. For this purpose, the per share value of Common Stock of the Company
shall be the fair market value on the date of exercise. The Committee may in its
discretion permit an optionee to deliver a promissory note in a form specified
by the Committee and payable to the Company no later than the fifteenth day of
April in the year following the year of exercise of any option in payment of any
withholding tax requirements of the Company with respect to such exercise.
8. Termination of Relationship -- Exercise Thereafter.
(a) In the event the employment relationship of an optionee with the
Company or any of its subsidiaries or affiliated companies is terminated
for any reason other than death, permanent disability, or retirement, such
optionee's option shall expire and all rights to purchase shares pursuant
thereto shall terminate on the date of termination of employment, except
that, to the extent the option is exercisable on the date of termination,
such option may be exercised for a period of fifteen days after termination
of employment (or until the scheduled termination of the option, if
earlier); provided, however, that with respect to all or any portion of any
option held by such optionee, the Committee may, in its sole discretion,
accelerate exercisability, permit vesting to continue in accordance with
the vesting schedule applicable to such option, or (subject to Section 6)
permit such option to remain exercisable for a term after the fifteen-day
period specified above, subject to such terms and conditions, if any, as
may be determined by the Committee in its sole discretion. Temporary
absence from employment because of illness, vacation, approved leaves of
absence or transfer among the Company and/or any of its subsidiaries or
affiliated companies shall not be considered to terminate employment or to
interrupt continuous employment.
(b) In the event of termination of said employment relationship
because of death or permanent disability (as that term is defined in
Section 22(e)(3) of the Code, as now in effect or as subsequently amended),
the option may be exercised in full (to the extent not previously
exercised) without regard to the vesting schedule applicable to such
option, by the optionee or, if he or she is not living, by his or her
heirs, legatees, or legal representative, as the case may be, during its
specified term prior to two years after the date of death or permanent
disability. In the event of termination of employment because of early,
normal or deferred retirement under an approved retirement program of the
Company or any of its subsidiaries or affiliated companies (or such other
plan or arrangement as may be approved by the Committee, in its discretion,
for this purpose), the option may be exercised by the optionee (or, if he
or she dies after such retirement, by his or her heirs, legatees, or legal
representative, as the case may be), to the extent that any portion thereof
would be exercisable on the date of such retirement (or with respect to
such greater portion as determined by the Committee), at any time during
its specified term prior to one year after the date of such retirement.
3
<PAGE>
(c) Except as otherwise determined by the Committee, upon the
termination of the relationship between the Company or one of its
subsidiaries or affiliated companies and an optionee who is a consultant
thereto, such optionee's options shall expire and all rights to purchase
shares pursuant thereto shall terminate.
(d) Notwithstanding the foregoing provisions of this Section 8, the
Committee may in the grant of any option make other and different
provisions with respect to its exercise after the optionee's termination of
relationship with the Company or any of its subsidiaries or affiliated
companies (as applicable).
9. Non-Transferability of Options. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules or regulations
thereunder. In addition, the Committee, in its discretion, may permit the
assignment or transfer of an option on such other terms and subject to such
other conditions as the Committee may deem necessary or appropriate or as
otherwise may be required by applicable law or regulation.
10. Adjustment. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company are changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted thereunder shall be proportionately adjusted;
(b) in the event of any merger or consolidation of the Company with any other
corporation or corporations or any reorganization, liquidation or dissolution of
the Company, there shall be substituted, on an equitable basis as determined by
the Committee, for each share of Common Stock then subject to the Plan, whether
or not at the time subject to outstanding options, the number and kind of shares
of stock or other securities or property to which the holders of shares of
Common Stock of the Company will be entitled pursuant to the transaction; and
(c) in the event of any other relevant change in the capitalization of the
Company, the Board shall provide for an equitable adjustment in the number of
shares of Common Stock then subject to the Plan, whether or not then subject to
outstanding options. In the event of any such adjustment the purchase price per
share payable upon exercise of outstanding options shall be proportionately
adjusted.
11. Amendment of Plan. The Board or any authorized committee thereof may
at any time and from time to time terminate or modify or amend the Plan in any
respect. The termination or modification or amendment of the Plan shall not,
without the consent of the optionee, impair any option previously granted.
12. Exchange Act Compliance. The intent of this Plan is for transactions
hereunder involving Reporting Persons to qualify for the exemption from the
short-swing profit rules under (S)16(b) of the Exchange Act for transactions
approved by a committee of non-employee directors under Rule 16b-3(d)(1) under
the Exchange Act. To that end, (i) any ambiguities or inconsistencies in the
construction of the Plan shall be interpreted to give effect to such intention,
4
<PAGE>
(ii) if any provision of the Plan is found not to be in compliance with such
rules, such provision shall be deemed null and void to the extent required to
permit the Plan and transactions thereunder to comply with such rules, and (iii)
if any provision of this Plan does not comply with the requirements of such
rules, or in the event that such rules are revised or replaced, the
Reporting Persons Committee may modify this Plan in any respect necessary to
satisfy the requirements of such exemption.
13. Effective Date. The Plan was adopted by the Board to be effective on
October 2, 1997.
14. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to be
granted an option under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly situated.
(b) No participant or other person shall have any right with respect to
the Plan, the Common Stock reserved for issuance under the Plan or any option,
contingent or otherwise, until all the terms, conditions and provisions of the
Plan and the option applicable to such recipient (and each person claiming under
or through him) have been met.
(c) No shares of Common Stock shall be issued hereunder with respect to
any option unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
(d) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock, other securities or property,
or other forms of payment, or any combination thereof, upon exercise, settlement
or payment of any option under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue Common Stock,
other securities or property, or other forms of payment, or any combination
thereof. Notwithstanding anything in the Plan to the contrary, the Committee
may, in its discretion, permit an eligible participant (or any beneficiary or
person entitled to act) to elect to pay a portion or all of the amount requested
by the Company for such taxes with respect to such option, at such time and in
such manner as the Committee shall deem to be appropriate (including, but not
limited to, by authorizing the Company to withhold, or agreeing to surrender to
the Company on or about the date such tax liability is determinable, Common
Stock, other securities or property, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such option to such person, having a fair market value equal to
the amount of such taxes).
5
<PAGE>
(e) The expenses of administering the Plan shall be borne by the Company.
(f) By accepting any option or other benefit under the Plan, each
participant and each person claiming under or through such person shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Committee.
6
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
--------------------------------- ---------------------------------
October 6, October 5, October 6, October 5,
1996 1997 1996 1997
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares outstanding..... 27,742 33,266 17,068 32,928
Incremental shares pursuant to Staff Accounting
Bulletin No. 83.................................. 2,635 - 2,157 -
Dilutive effect of common stock options and
warrants.......................................... - 1,312 - 1,848
Adjusted primary weighted average number of ---------------- --------------- ---------------- ---------------
common and equivalent shares outstanding......... 30,377 34,578 19,225 34,776
================ =============== ================ ===============
Fully diluted earnings per share:
Weighted average number of shares outstanding..... 27,742 33,266 17,068 32,928
Incremental shares pursuant to Staff Accounting
Bulletin No. 83.................................. 2,863 - 2,225 -
Dilutive effect of common stock options and
warrants.......................................... - 1,312 - 1,848
---------------- --------------- ---------------- ---------------
Adjusted fully diluted weighted average number
of common and equivalent shares outstanding...... 30,605 34,578 19,293 34,776
================ =============== ================ ===============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> OCT-05-1997
<CASH> 30,522
<SECURITIES> 0
<RECEIVABLES> 14,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,969
<PP&E> 29,028
<DEPRECIATION> 0
<TOTAL-ASSETS> 488,047
<CURRENT-LIABILITIES> 13,528
<BONDS> 125,000
0
0
<COMMON> 333
<OTHER-SE> 343,147
<TOTAL-LIABILITY-AND-EQUITY> 488,047
<SALES> 2,103
<TOTAL-REVENUES> 43,885
<CGS> 704
<TOTAL-COSTS> 704
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,066
<INCOME-PRETAX> 22,575
<INCOME-TAX> 6,919
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,656
<EPS-PRIMARY> .45
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Ex-99
EINSTEIN/NOAH BAGEL CORP.
MARCH 27, 1997, AS AMENDED AUGUST 20, 1997
INFORMATION FOR PROSPECTIVE FRANCHISE OWNERS
REQUIRED BY FEDERAL TRADE COMMISSION
* * * * * *
TO PROTECT YOU, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS
INFORMATION. WE HAVEN'T CHECKED IT, AND DON'T KNOW IF IT'S CORRECT. IT SHOULD
-----------------------------------------------------
HELP YOU MAKE UP YOUR MIND. STUDY IT CAREFULLY. WHILE IT INCLUDES SOME
INFORMATION ABOUT YOUR CONTRACT, DON'T RELY ON IT ALONE TO UNDERSTAND YOUR
CONTRACT. READ ALL OF YOUR CONTRACT CAREFULLY. BUYING A FRANCHISE IS A
COMPLICATED INVESTMENT. TAKE YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR
CONTRACT AND THIS INFORMATION TO AN ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT. IF
YOU FIND ANYTHING YOU THINK MAY BE WRONG OR ANYTHING IMPORTANT THAT'S BEEN LEFT
OUT, YOU SHOULD LET US KNOW ABOUT IT. IT MAY BE AGAINST THE LAW.
THERE MAY ALSO BE LAWS ON FRANCHISING IN YOUR STATE. ASK YOUR STATE
AGENCIES ABOUT THEM.
FEDERAL TRADE COMMISSION
------------------------
WASHINGTON, D.C. 20580
----------------------
<PAGE>
[LETTERHEAD]
FRANCHISE OFFERING CIRCULAR
EINSTEIN/NOAH BAGEL CORP.
A DELAWARE CORPORATION
14123 DENVER WEST PARKWAY
P.O. BOX 4086 GOLDEN, CO 80401
(303) 215-9300
The franchise offered is to operate food service businesses which sell
bagels, bagel-related products, beverages, and other items and food products
ENBC approves or requires for sale ("Units") and to develop and operate a
specified number of Units at approved locations within defined geographic areas
according to a specified development schedule.
Initial payments you must make under the Franchise Agreement and
Development Agreement are described in this paragraph. The initial franchise
fee is $35,000 under the Franchise Agreement for a Unit, and the development fee
under the Development Agreement is $5,000 for each Unit to be developed under
the Development Agreement. Under the Development Agreement, a real estate
services fee equal to $5,000 for each Unit to be developed will be due to ENBC.
Under both the Development and the Franchise Agreement, you will purchase the
computer system ENBC designates that will cost $15,000 to $40,000, and you will
pay software license fees of $16,000 ($15,000 of which will be payable to Boston
Chicken, Inc.). Other fees payable before a Unit opens are a Market Plan Fee of
$75.00 per trade area within the geographic territory covered by the plan
(payable under the Development Agreement only and currently payable to Boston
Chicken, Inc.). In addition, before each Unit opens, you will make the first
payment of the monthly $400 software support fee. The estimated initial
investment for a Unit ranges from $239,700 to $622,700. The estimated initial
investment to operate as a developer ranges from $68,825 to $127,575.
RISK FACTORS:
1. THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT PERMIT THE
FRANCHISEE AND DEVELOPER, RESPECTIVELY, TO SUE ONLY IN COLORADO. OUT
OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE
SETTLEMENT FOR DISPUTES. IT
<PAGE>
MAY ALSO COST MORE TO SUE THE FRANCHISOR IN COLORADO THAN IN YOUR HOME
STATE.
2. EACH OF THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT STATES THAT
COLORADO LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE
SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE
THESE LAWS. SOME STATE FRANCHISE LAWS PROVIDE THAT CHOICE OF LAW
PROVISIONS ARE VOID OR SUPERSEDED. YOU MAY WANT TO INVESTIGATE
WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE LAW. YOU SHOULD REVIEW
ANY ADDENDA OR RIDERS ATTACHED TO THIS OFFERING CIRCULAR FOR
DISCLOSURES REGARDING STATE FRANCHISE LAWS.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators
listed in Exhibit A or your public library for sources of information.
---------
REGISTRATION OF THIS FRANCHISE BY A STATE DOES NOT MEAN THAT THE STATE
RECOMMENDS IT OR HAS VERIFIED THE INFORMATION IN THIS OFFERING CIRCULAR. If you
learn that anything in the offering circular is untrue, contact the Federal
Trade Commission and the state authority listed in Exhibit A.
---------
Effective Date: March 27, 1997, as amended August 20, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.................... 1
2 BUSINESS EXPERIENCE................................................ 8
3 LITIGATION......................................................... 15
4 BANKRUPTCY......................................................... 19
5 INITIAL FRANCHISE FEE.............................................. 20
6 OTHER FEES......................................................... 23
7 INITIAL INVESTMENT................................................. 30
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES................... 35
9 FRANCHISEE'S OBLIGATIONS........................................... 46
10 FINANCING.......................................................... 49
11 FRANCHISOR'S OBLIGATIONS........................................... 53
12 TERRITORY.......................................................... 70
13 TRADEMARKS......................................................... 79
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.................... 84
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS................................................. 87
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL....................... 91
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION.............. 91
18 PUBLIC FIGURES..................................................... 96
19 EARNINGS CLAIMS.................................................... 96
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
20 LIST OF OUTLETS.................................................... 96
21 FINANCIAL STATEMENTS............................................... 106
22 CONTRACTS.......................................................... 107
23 RECEIPTS................................................ (Last 2 pages)
</TABLE>
EXHIBITS
--------
EXHIBIT A - STATE AGENCIES/AGENTS FOR SERVICE OF PROCESS
EXHIBIT B - EINSTEIN/NOAH BAGEL CORP. DEVELOPMENT AGREEMENT
EXHIBIT C - EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
EXHIBIT D - FORM IN-LINE STORE LEASE
EXHIBIT E - ADDENDUM TO LEASE
EXHIBIT F - STANDARD FORM OF SUBLEASE
EXHIBIT G - EINSTEIN/NOAH BAGEL CORP. FINANCIAL STATEMENTS
EXHIBIT H - FORM OF AREA DEVELOPER SECURED LOAN AGREEMENT
EXHIBIT I - LIST OF FRANCHISEES
EXHIBIT J - OPERATIONS MANUAL TABLE OF CONTENTS
APPLICABLE STATE LAW MAY REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE
INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES,
IF ANY, APPEAR IN AN ADDENDUM.
ii
<PAGE>
ITEM 1
------
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
ENBC PREDECESSORS, AFFILIATES AND THE ENBC SYSTEM
- -------------------------------------------------
The franchisor is Einstein/Noah Bagel Corp. The franchisor will be referred
to in this offering circular as "ENBC." A person who buys a franchise from ENBC
will be referred in this offering circular as "you." If you are a privately held
corporation, limited liability company, partnership or other legal entity,
certain provisions of ENBC's franchise agreement, development agreement, and
related agreements also will apply to your owners.
ENBC is a Delaware corporation incorporated on February 2, 1995 and
currently maintains its principal office at 14123 Denver West Parkway, Golden,
Colorado 80401. ENBC's agents for service of process are disclosed in Exhibit A
---------
to this offering circular. ENBC has no predecessors. ENBC was formerly known as
Progressive Bagel Concepts, Inc. until it changed its corporate name in December
1995 to Einstein Bros. Bagels, Inc. and again in May 1996 to Einstein/Noah Bagel
Corp.
ENBC's business began when it acquired and consolidated three regional
bagel chains in March 1995. On March 24, 1995, ENBC acquired the stock of
Brackman Brothers, Inc., a corporation which owned and operated stores under the
name "Brackman Brothers" in and around Salt Lake City, Utah. Brackman Brothers,
Inc. maintained its office at 3541 S. 300 West, Salt Lake City, Utah 84115.
Brackman Brothers, Inc. began operating bagel shops in April 1989 and has
operated them continuously since then. Brackman Brothers has not offered
franchises for bagel shops or for any other lines of business. Brackman
Brothers, Inc. remains a wholly owned subsidiary of ENBC, and its principal
office address is the same as ENBC's.
Also on March 24, 1995, ENBC acquired the assets of Bagel & Bagel, Inc., a
corporation which owned and operated stores under the name "Bagel & Bagel" in
and around Kansas City, Kansas and maintained its offices at 8595 College
Boulevard #150, Overland Park, Kansas 66210. Bagel & Bagel, Inc. began
operating bagel shops in 1988 and operated them continuously until ENBC acquired
the company's assets. Bagel & Bagel did not offer franchises for bagel shops or
for any other lines of business. It did grant certain development rights in
Dallas, Texas to a joint venture, Bagel & Bagel Development Corp., that built
two stores in Dallas. The joint venture was later dissolved, and its rights
were cancelled.
On March 31, 1995, ENBC acquired the assets of Offerdahl's Bagel Gourmet,
Inc., a corporation which owned and operated stores under the "Offerdahl's Bagel
Gourmet" name in and around Miami and Fort Lauderdale, Florida and maintained
its offices at 929 Shotgun Road, Sunrise, Florida 33326. Offerdahl's Bagel
Gourmet, Inc. began operating bagel shops in October 1990 and operated them
continuously until March 31, 1995, when ENBC acquired the
<PAGE>
company's assets. Offerdahl's did not offer franchises for bagel shops or for
any other lines of business.
On August 4, 1995, ENBC acquired the assets of nine franchised "Bagel Stop"
bagel stores in the Denver, Colorado area from the franchisees who owned and
operated them. The franchisor consented to those sales. The franchisor and
franchisee by mutual consent terminated the franchise agreement applicable to
each of those stores concurrently with the sale of the store assets to ENBC.
On August 10, 1995, San Diego-based Baltimore Bagel Co., formerly located
at 7007 Carroll Road, San Diego, California 92121 was merged into Baltimore
Bagel Co., a Delaware corporation and a wholly-owned subsidiary of ENBC
("Baltimore Bagel"). At the time of the merger, Baltimore Bagel Co. owned and
operated bagel stores in San Diego and Orange County, California, under the name
"Baltimore Bagel Co." Baltimore Bagels began operating bagel shops in April
1980 and operated them continuously until the date of the merger. Baltimore
Bagel Co. did not offer franchises for bagel shops or any other lines of
business. Baltimore Bagel remains a wholly owned subsidiary of ENBC, and its
principal office address is 14123 Denver West Parkway, Golden, Colorado 80401.
On January 31, 1996, Noah's New York Bagels, Inc., formerly located at
14054 Catalina St., San Leandro, California 94577 was merged with NNYB
Acquisition Corp., ENBC's wholly owned subsidiary. At the time of the merger,
Noah's New York Bagels, Inc. owned and operated 38 bagel stores in California
and Washington under the name "Noah's New York Bagels." In this offering
circular, ENBC refers to Noah's New York Bagels Units as "Noah's Units." Noah's
New York Bagels, Inc. began operating bagel shops in June 1989 and operated them
continuously until the date of the merger. It did not grant franchises before
the merger for bagel shops or any other lines of business. Noah's New York
Bagels, Inc. remains a wholly owned subsidiary of ENBC, and its principal office
address is the same as ENBC's.
On February 24, 1997, one of ENBC's Developers (defined below) acquired the
assets of 16 bagel stores operating under the name "Bagel Boulevard Cafe" in
Texas, Georgia and Florida. On that date ENBC also acquired from the same
Developer all of the Developer's rights to the "Bagel Boulevard Cafe" trademark.
The prior owners of acquired stores did not grant franchises for bagel stores or
any other lines of business.
ENBC franchises and operates food service businesses, referred to in this
offering circular as "Units," which sell, among other things, bagels, bagel-
related products, cream cheese and/or other spreads, sandwiches, soups, salads,
baked goods, breakfast items, and an assortment of hot and cold beverages, teas
(leaves, bags or dry mixes), coffee (whole beans, ground and prepared) and other
food and beverage products that ENBC approves or requires to be sold at Units
("Products"). Units offer Products for on-premises and carry-out dining.
2
<PAGE>
Units operate at locations which feature distinctive food service formats
and "trade dress" and use one or more of ENBC's trademarks, service marks and
associated logos, including "Einstein Bros.(TM)," "Noah's New York Bagels(R),"
"Melvyn and Elmo(TM)," "Bagel Boulevard Cafe(TM)," Bagel & Bagel(R),"
"Offerdahl's Bagel Gourmet(R)," "Baltimore Bagel(R)," and/or other trademarks,
service marks and associated logos which ENBC is continuing to develop and
refine and may adopt (collectively, the "Marks"). "Trade dress" means the total
image or overall impression which ENBC's stores, products and packaging create,
including the individual elements which make up that image or impression. Units
use ENBC's distinctive formats, specifications, employee selection and training
programs, signs, equipment, layouts, systems, menu, recipes, methods,
procedures, designs and marketing and advertising standards and formats, all of
which ENBC may modify periodically in its sole discretion, and all of which may
have one or more variations which ENBC may approve or specify (the "System").
As described in Item 12, the Unit you operate or develop will be a distinct
business concept identified by certain Marks ("Principal Marks") and using
elements of the System that ENBC develops for Units using the Principal Marks.
The Units ENBC develops using Principal Marks and the other Marks and the System
associated with the Principal Marks will be referred to in this Offering
Circular as "Stores;" a Store you operate will be referred to in this offering
circular as the "Store." For example, if ENBC grants you rights to operate the
Store under the "Einstein Bros. Bagels" Mark, you will use the concept and
elements of the System that ENBC has established, and must operate under the
standards and specifications ENBC designates, for Einstein Bros. Bagels Stores
as described in manuals developed for those Units. ENBC may, in its discretion,
offer you the opportunity to offer Delivery Service (described below and defined
in Item 12), Catering Service (described below and defined in Item 12) and/or
operate special distribution arrangements (defined below). ENBC may
periodically in the future engage in, or license others to engage in, selling
the Products using distribution methods other than sales through branded retail
food service outlets, including wholesaling to other retail stores and sales
through other distribution channels (e.g., airports, toll plazas, kiosks and
other food service channels). While ENBC has not yet determined what other
means of distribution it will utilize, it reserves the right to use any other
means not expressly included in the exclusive rights of its franchisees.
Throughout the United States, the food service industry is highly
competitive, with constantly changing market conditions, and is characterized by
a profusion of operators, including well-financed and highly sophisticated
national and regional chains. Stores will compete with restaurants, fast food
outlets and other bagel shops operated by national and regional chains and
independent operators and, to some extent, with grocery and convenient stores
that sell various prepared food products. Units will compete with these
competitors for market share and access to desirable locations and to recruit
food service personnel. Units will offer Products primarily to individual
consumers for on-site or off-site consumption. The market for the Products is
developed in some areas and developing in other areas, depending on the number
of restaurants and stores operating in the particular area.
3
<PAGE>
As of December 29, 1996, ENBC, through its Baltimore Bagel Co. subsidiary,
owned and operated 14 bagel stores under the name "Baltimore Bagels." As of
December 29, 1996, ENBC's franchisees operated 301 bagel stores under the names
"Einstein Bros.", "Bagel & Bagel", "Offerdahl's" and "Noah's New York Bagels."
(See Item 20) ENBC engages in no business activities other than those described
in this Item. ENBC began operating Stores in March 1995 and began offering
franchises for Stores in November 1995. ENBC has not offered franchises in other
lines of business.
At the time ENBC was formed in March 1995, Boston Chicken, Inc. ("BCI")
made a secured loan to ENBC for $40,000,000 which was subsequently increased to
$120,000,000. The loan was convertible into shares of common stock of ENBC. In
June 1996, BCI converted the loan into 15,307,421 shares of ENBC's common stock.
In August 1996, ENBC completed (a) an underwritten initial public offering
of 3,105,000 shares of its common stock to the public, (b) a concurrent non-
underwritten public offering of 425,000 shares of its common stock to certain
individuals and entities and (c) a concurrent private placement of 2,000,000
shares of its common stock to BCI, raising aggregate net proceeds of
approximately $86,000,000.
In December 1996 ENBC completed (a) an underwritten offering of 2,640,000
shares of its common stock to the public, and (b) a non-underwritten concurrent
public offering of 500,000 shares of its common stock to BCI, raising aggregate
net proceeds of approximately $89,000,000 million. ENBC's common stock is traded
on the NASDAQ National Market System.
BCI currently holds shares of common stock of ENBC representing
approximately 54% of ENBC's issued and outstanding common stock. Since March
1989, BCI has operated, and offered and sold development rights for multiple
franchises and single-unit franchises for the operation of, food service
businesses that sell rotisserie chicken, ham, turkey, sandwiches and other food
products under the mark "Boston Market" for on-premises and carry-out dining.
BCI does not offer or sell franchises in any lines of business other than as
described in this Item.
DEVELOPMENT AND FRANCHISE RIGHTS OFFERED.
- ----------------------------------------
You must execute ENBC's then-current standard franchise agreement and any
riders, exhibits, guarantees and other agreements ENBC uses for the Stores you
develop under the Development Agreement. The following paragraphs describe the
rights and obligations you will have under the Development Agreement and/or the
Franchise Agreement.
(a) DEVELOPMENT RIGHTS. ENBC will offer and sell to certain qualified
------------------
persons or entities ("Developers") the right to acquire franchises to develop,
own and operate a specified number of Stores (the "Developer Stores") at
approved location(s) ("Approved Sites") within a defined geographic area (the
"Development Area") under the terms of ENBC's development agreement (the
"Development Agreement"), a copy of which is attached to this offering circular
4
<PAGE>
as Exhibit B. The Development Area may be composed of a number of smaller areas
---------
referred to as "Sub-Areas." If you are a Developer, the total number of Stores
which you must develop under the Development Agreement (the "Development
Obligations") and the development schedule (the "Development Schedule")
specifying the number of Stores you open and operate in each Sub-Area and the
required opening dates for each of them will be inserted in the Development
Agreement before it is executed. The material terms and conditions of the then-
current standard franchise agreement may vary substantially from the terms and
conditions of the Franchise Agreement (defined below) described in this offering
circular. However, under the Development Agreement, the initial franchise fee
under each standard franchise agreement you sign will not exceed $35,000, and
the royalty fee under each standard franchise agreement you sign will not exceed
8% of each Developer Store's Royalty Base Revenue (as defined in Item 6). (See
Items 5 and 6) ENBC may in some instances require or permit developers of
Stores that previously entered into development agreements with ENBC to enter
into the form of franchise agreement attached to their development agreement
rather than the Franchise Agreement described in this offering circular.
Under the Development Agreement, ENBC may require you to establish and
operate one or more food preparation facilities to prepare and distribute the
Products to Developer Stores in your Development Area ("Commissaries").
Commissaries will not serve Products or any service to the general public, and
they will operate according to ENBC's standards and specifications.
In order to meet ENBC's standards and specifications for products sold
through the Developer Stores and to maintain quality controls, it may be
necessary to establish one or more Commissaries in the Development Area. You
agree in the Development Agreement to establish in the Development Area the
number of Commissaries ENBC reasonably determines to be necessary for the stores
in the Development Area and to operate the commissaries according to ENBC's
standards and specifications.
(b) FRANCHISE RIGHTS. ENBC will offer and sell to certain qualified
----------------
persons ("Franchisees") a franchise (the "Franchise") to establish and operate
the Store using the elements of the System associated with the Principal Marks
and other Marks associated with the Principal Marks and offering Products (the
"Franchise") under the terms of ENBC's franchise agreement (the "Franchise
Agreement") attached to this offering circular as Exhibit C. ENBC anticipates
---------
that Developers will own and operate most or all Stores. Each Store will
operate at a site ENBC has approved (a "Site") within a certain designated
geographic area (a "Territory"). Under the Franchise Agreement, ENBC may offer
you the opportunity to sign an agreement to sell Products at a facility or
location such as a convenience store or airport (a "Special Distribution
Agreement"). ENBC may also offer you the opportunity to or require you to sign
a rider to the Franchise Agreement that allows you to deliver Products to
consumers inside or outside of your Territory (a "Delivery Rider") and/or may
offer you the opportunity to or require you to sign a rider to the Franchise
Agreement that allows you to cater Products to
5
<PAGE>
consumers within a designated area (a "Catering Rider"). Copies of the Delivery
Rider and the Catering Rider are attached to the Franchise Agreement (see
Exhibit C to this offering circular).
- ---------
VARIATIONS IN THE OPERATING SYSTEM
- ----------------------------------
Some aspects of ENBC's franchise program and its retail store brands are
still in the development stage. As a result, ENBC expects that there may be
significant variations in the System, both among its Developers and over time.
These variations may be for an initial or transitional period, or they may be
permanent, depending on whether ENBC in its sole discretion ultimately
determines that it can best capture those advantages by developing and operating
only Einstein Bros. Stores, Noah's Stores or stores using all or some of the
components of the other brands it acquires or develops. ENBC may, for instance,
allow certain Developers to use one recipe for bagels, cream cheeses or other
items while allowing other Developers to use different recipes. ENBC may also
allow variations between Developers in the areas of trademarks, trade dress,
operational items or other aspects of Units. However, you must acknowledge and
agree that only ENBC may determine what variations are allowable and that you
will in any event conform strictly to the standards and specifications which
ENBC establishes for the Store.
ENBC intends to allow these variations for at least two reasons: (a) as
part of ongoing research and development for Units generally; and (b) to test
whether regional variations in Units may be advantageous. It is ENBC's
expectation that over time during the term of your Development Agreement and
Franchise Agreements ENBC will continue to develop and refine various aspects of
the ENBC program based, in part, on the experiences of Developers and
Franchisees with any different recipes and other variations in Units it may
allow. ENBC expects, and you should expect, that as new products, new operating
procedures, new trade dress and other refinements occur, ENBC may, in its sole
discretion, cease to allow some or all of the variations and may require local
or regional variations or national uniformity among Stores in aspects for which
it had previously allowed variations. This may mean that you may be required,
for example, to change one or more of: (a) the recipes you use for bagels,
cream cheese or other items; (b) the trademarks and/or service marks you use;
(c) the trade dress or operational procedures you use; or (d) other aspects of
the Store. Some or all of these changes may require you to make substantial
additional capital expenditures or other expenses to conform your operations to
ENBC's revised local, regional and/or national requirements for particular
aspects of your business. By signing a Development Agreement and Franchise
Agreements, you acknowledge and agree that if ENBC decides to do so, it may
discontinue any of the variations which ENBC had allowed previously and that you
will conform to all required local, regional and/or national standards and
specifications and other requirements which ENBC may establish periodically as
part of the development and refinement of ENBC's retail store concept, even if
it means substantial additional expense for you. Furthermore, you acknowledge
and agree that you will provide to ENBC the data it requires concerning your
operations to allow ENBC to assess the success of various variations in its
retail store concept.
6
<PAGE>
In addition to those considerations, you should also be aware that ENBC may
continue to operate and/or to allow you and other Developers and Franchisees in
certain regions to operate Stores under trademarks and service marks including
"Einstein Bros." "Noah's New York Bagels" and "Melvyn and Elmo." Thus, you may
have franchise rights to the Einstein Bros. Bagels concept in a market, while
you or another party may have franchise rights for the Noah's New York Bagels
concept in the same market. ENBC currently anticipates that it eventually will
convert all Company-operated and franchised Units currently operating under
other names to operate under one of the "Einstein Bros. Bagels" Mark, the
"Melvyn and Elmo" Mark or the "Noah's New York Bagels" Mark. However, ENBC may
allow the use of other marks (such as "Bagel & Bagel," "Offerdahl's Bagel
Gourmet", "Baltimore Bagels" and "Bagel Boulevard Cafe") temporarily in the
regions where stores are currently operating under those names, pending
conversion of those stores to Einstein Bros., Melvyn and Elmo or Noah's New York
Bagels Stores. By signing a Development Agreement and Franchise Agreements, you
acknowledge and agree that such trademark variations may exist and that, if they
do, ENBC's franchise program may not be for a nationwide chain of stores all
operating under a single mark, but rather a multiple-branded program using the
Einstein Bros., Melvyn and Elmo, and Noah's New York Bagels Marks. Thus, you
should be aware that ENBC uses the term "Units" throughout this offering
circular for convenience to refer to the various bagel stores for which ENBC may
offer franchises, and that other Developers and Franchisees may do business
under more than one brand.
As described in Item 12 of the offering circular, the Store(s) you operate
and, if applicable, the Developer Stores you develop will be under a particular
branded concept and will operate using the Principal Marks and the elements of
the System that ENBC designates for that variety of Units. ENBC reserves rights
to develop and distribute Products under other marks and through channels of
distribution other than retail stores. (See Item 12)
STORE OPERATOR INCENTIVE PROGRAM
- --------------------------------
ENBC and its existing Developers are currently developing a store operator
incentive program, under which each operator of a Store would receive, in
addition to fixed base compensation, periodic bonus compensation based on Store
performance.
GENERAL COMMENTS
- ----------------
This offering circular describes information about (a) the development
rights ENBC offers for Stores; (b) the Franchise; (c) Delivery Service, Catering
Service, Commissaries and Special Distribution Arrangements (as described in
Item 12); (d) the terms and conditions of the current Development Agreement,
Franchise Agreement, Delivery Rider, Catering Rider and Special Distribution
Arrangements Rider; and (e) certain financing arrangements which may be
available to you.
7
<PAGE>
There may be instances when ENBC will vary the terms and conditions of the
agreements and riders, depending on the circumstances of a particular
transaction. ENBC intends only to enter into multi-unit development transactions
with sophisticated investors who are experienced food service operators, or who
employ management personnel with food service expertise.
You must comply with all local, state and federal laws and regulations that
apply to food service operations, including health and sanitation laws and
regulations, when you develop and operate Stores and, if applicable, when you
offer Delivery Service or Catering Service or operate Commissaries or Special
Distribution Arrangements.
DEFINITIONS
- -----------
As used in the Franchise Agreement, Development Agreement and this offering
circular, the following terms will have the following meanings:
(a) "Owner" means all persons or entities that hold direct or indirect,
record or beneficial Ownership Interests (defined below) in you as specified in
the applicable agreement. The term Owner also refers to any person who has any
other direct or indirect property rights in you, the Franchise Agreement, the
Development Agreement, the Franchise or a Store;
(b) "Ownership Interest" means in relation to a: (i) corporation, the
record or beneficial ownership of shares in the corporation; (ii) limited
liability company, the record or beneficial ownership of membership interests in
the company; (iii) partnership, the record or beneficial ownership of a general
or limited partnership interest; or (iv) trust, the ownership of beneficial
interest of that trust;
(c) "Principal Owner" means each Owner which (1) is a general partner in
the Developer; or (2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a) you or (b)
any Store or (c) any developer and/or franchise owner of Stores other than you;
provided, however, that a reduction in a Principal Owner's equity interest below
10% will not affect his/her/its status as a Principal Owner unless such
reduction is the result of the transfer of all his/her/its equity interests in
DEVELOPER, an a Store or a developer and/or franchise owner of a Store; and
(d) "Immediate Family" means: (1) a person's spouse; and (2) a person's
natural and adoptive parents and natural and adopted children and siblings and
their spouses; and (3) the natural and adoptive parents and natural and adopted
children and siblings of a person's spouse; and (4) any other member of the
person's household; so long as, in the case of children, siblings and their
spouses and the parents, children and siblings of the spouses, that these people
received or had access to Confidential Information including as your employee,
supplier, officer, director, stockholder or agent.
8
<PAGE>
ITEM 2
------
BUSINESS EXPERIENCE
CHAIRMAN OF THE BOARD: SCOTT A. BECK
- -------------------------------------
Scott A. Beck has been Chairman of the Board since June 1996. He
previously served as Chairman and Chief Executive Officer of ENBC from April
1995 to June 1995. He became a Director of ENBC in March 1995. He has been Chief
Executive Officer and a Director of BCI since June 1992. Mr. Beck has served as
Chairman of BCI since January 1997, a position he held from June 1992 until
December 1995. He was Co-Chairman of BCI from December 1995 until January 1997.
He was Vice Chairman of the Board of Blockbuster Entertainment Corporation in
Fort Lauderdale, Florida from September 1989 until January 1992.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR: MARK R. GOLDSTON
- ------------------------------------------------------------------
Mr. Goldston became ENBC's President and CEO in April 1996. From July
1994 to April 1996, he was Chairman and CEO of The Goldston Group, an advisory
firm in Los Angeles, California. From October 1991 through June 1994, Mr.
Goldston was employed by L.A. Gear, Inc. in Santa Monica, California, most
recently as President and Chief Operating Officer. Since December 1995 Mr.
Goldston has been a Director of Bohbot Entertainment and Media, Inc. in New
York, New York. Since January 1996, Mr. Goldston has been employed by BCI to
undertake various special projects for BCI. In August 1996, Mr. Goldston was
elected to the Board of Directors of BCI and became Vice Chairman of BCI.
PRESIDENT, EINSTEIN BROS. CONCEPT: JEFFREY L. BUTLER
- -----------------------------------------------------
Mr. Butler became President of the Einstein Bros. Bagels concept in
May 1996. From January 1996 until May 1996, Mr. Butler served as ENBC's Chief
Operating Officer. Before this, Mr. Butler was a partner in BC Great Lakes, the
franchisee of BCI headquartered in Chicago, Illinois, from June 1995 until
February 1996. Mr. Butler served in Madison Heights, Michigan, as President and
CEO of BC Detroit, the Detroit area franchise of Boston Chicken, Inc., from June
1993 to June 1995 (BC Detroit was later merged into BC Great Lakes). From
January 1992 to June 1993, he served as Vice President - Human Resources for BCI
in Naperville, Illinois.
9
<PAGE>
CHIEF MARKETING OFFICER: TERRY D. DAVENPORT
- --------------------------------------------
Mr. Davenport became Chief Marketing Officer of ENBC in February 1997.
From August 1993 through January 1997 Mr. Davenport was Senior Vice President,
Brand Management and Concept Development, of Triarc Restaurant Group (franchisor
of Arby's), in Miami, Florida. From September 1991 through August 1993, Mr.
Davenport was Vice President, Marketing of Taco Bell, Inc.
DIRECTOR AND CHIEF DEVELOPMENT OFFICER: DAVID G. STANCHAK
- ----------------------------------------------------------
Mr. Stanchak has been a member of ENBC's Board of Directors, ENBC's
Chief Development Officer since ENBC formed in February 1995. From June 1992
until February 1995, he served as the Senior Vice President of BCI, and from
August 1989 until June 1992, Mr. Stanchak was the National Director of Real
Estate and Real Estate Legal Counsel for Blockbuster Entertainment Corporation.
SENIOR VICE PRESIDENT - FINANCE: W. ERIC CARLBORG
- --------------------------------------------------
Mr. Carlborg was appointed to his current position in July 1996. From
October 1995 to June 1996, he served as Vice President of Alignment and Planning
for BCI. From January 1994 to October 1995, he was a Vice President - Corporate
Finance with Merrill Lynch & Co. in Chicago. He served as an Associate of
Merrill Lynch & Co. from August 1989 through December 1993.
SENIOR VICE PRESIDENT - FINANCE: MARK C. SHEPHERD
- --------------------------------------------------
Mr. Shepherd became Chief Marketing Officer of ENBC in February 1997.
Prior to that time he had served as Chief Financial Officer of Noah's Pacific,
L.L.C., a Developer of ENBC from June 1996 to February 1997. From March 1992 to
June 1996 Mr. Shepherd was Chief Financial Officer of Galoob Toys, Inc.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL: PAUL A. STRASEN
- -----------------------------------------------------------
Mr. Strasen became a Senior Vice President of ENBC in February 1997,
and he has been General Counsel of ENBC since April 1995. From April 1995 to
February 1997 he was a Vice President of ENBC. Before this, he was a partner at
the Chicago law firm of Bell, Boyd and Lloyd from 1988 to April 1995.
SENIOR VICE PRESIDENT AND SECRETARY: JOEL M. ALAM
- --------------------------------------------------
Mr. Alam became a Senior Vice President of ENBC in February 1997, and
he has been Secretary of ENBC since April 1995. From April 1995 to February 1997
he was a Vice
10
<PAGE>
President of ENBC. From January 1994 until May 1995, he was Vice President,
Associate General Counsel and Assistant Secretary of BCI. From May 1993 until
January 1994, Mr. Alam was Assistant General Counsel of BCI. Before that, he was
an associate in the corporate department of the Chicago law firm Bell, Boyd &
Lloyd for more than five years.
SENIOR VICE PRESIDENT - OPERATIONS: LAWRENCE W. HAY
- ---------------------------------------------------
Mr. Hay became Senior Vice President - Operations of ENBC in March
1997. Before that, he was Chief Operating Officer of Mayfair Bagels, L.L.C., an
area developer of ENBC, from October 1996 through March 1997. From October 1990
through October 1996 he was Senior Director of Operations for Taco Bell Corp. in
Irvine, California.
VICE PRESIDENT - DEVELOPMENT: P. DANIEL BOOHER
- -----------------------------------------------
Mr. Booher became the Vice President - Development of ENBC in May
1995. From March 1985 to April 1995, he served as Vice President of Development
for Wal-Mart Stores, Inc. in Bentonville, Arkansas.
VICE PRESIDENT - OPERATIONS: MICHAEL E. BRAU
- ---------------------------------------------
In April 1980, Mr. Brau founded Baltimore Bagel Co. in San Diego,
California, where he served as President until ENBC acquired that company in
August 1995. He served as ENBC's acting Zone President for the Western Zone from
August 1995 until May 1996, when he became a Vice President of ENBC. He is based
in San Diego, California.
VICE PRESIDENT - STORE DESIGN: JAMES S. CARY
- ---------------------------------------------
Mr. Cary became Vice President of Store Design of ENBC in October
1996. From April 1995 to September 1966, he was a marketing consultant for ENBC.
From 1988 to March 1995, he was President of Peaberry Coffee, Ltd. of Denver,
Colorado, an 8 store specialty coffee chain which he founded.
VICE PRESIDENT - OPERATIONS FINANCIAL: SUSAN E. DAGGETT
- --------------------------------------------------------
Ms. Daggett became Vice President - Operations Financial of ENBC in
February 1997. Prior to that time, she was Director of Operations Finance of
ENBC from October 1995 to February 1997. She was Director of Financial Planning
and Analysis for Arby's, Inc. in Fort Lauderdale, Florida from February 1994 to
September 1995. She was Director of Financial Planning and Analysis of Burger
King Corp. in Miami, Florida from July 1992 to February 1994, prior to which
time she was Manger of Lease Accounting and Third Party Reporting for Burger
King Corp.
11
<PAGE>
VICE PRESIDENT - PEOPLE DEVELOPMENT: JANICE M. ELLIS
- -----------------------------------------------------
Ms. Ellis joined ENBC in September 1995. Before that, she had been an
Executive Vice President of Nathan's Famous, Inc. in Westbury, New York since
March 1994. From February 1993 to March 1994, Ms. Ellis was Senior Vice
President - Restaurant Services with Long John Silver's, Inc. in Lexington,
Kentucky. She worked with KFC Corp. in Louisville, Kentucky, from August 1990 to
February 1991 as the Director of Operations Services and Training, from February
1991 to March 1992 as Vice President New Work Processes and from March 1992 to
February 1993 as Vice President Restaurant Support Services.
VICE PRESIDENT - CONSTRUCTION: H. ANDREW FOX
- ---------------------------------------------
Mr. Fox became Vice President - Construction of ENBC in January 1997.
Before that, Mr. Fox was Chief Development Officer for Liberty Foods, L.L.C., in
Stamford, Connecticut a Developer of ENBC, from February 1996 to January 1997.
From May 1992 to January 1996, Mr. Fox was Director of Atlantic Foods, L.P., in
Stamford, Connecticut which was an area developer of BCI. From May 1989 to May
1992, Mr. Fox was Director of Real Estate and Construction for New England Video
in Stamford, Connecticut.
VICE PRESIDENT - COMMUNICATIONS: GARY M. GERDEMANN
- ---------------------------------------------------
Mr. Gerdemann became Vice President - Communications in October 1996,
after serving as Director of Corporate Communications for ENBC from October 1995
through October 1996. Before that, Mr. Gerdemann served as Director of Public
Affairs for BCI from June 1994 through October 1996. Prior to his employment by
BCI, Mr. Gerdemann was director of Worldwide Public Affairs for KFC Corp., a
wholly owned subsidiary of PepsiCo, Inc., from September 1992 Mr. Gerdemann was
Manager of Public Relations for PepsiCo's Pepsi-Cola unit.
VICE PRESIDENT - REAL ESTATE: JEFFREY R. HARPSTER
- -------------------------------------------------
Mr. Harpster became a Vice President of ENBC in March 1996. Before
that, he was Vice President-Development for Blockbuster Entertainment
Corporation in Fort Lauderdale, Florida from February 1992 to March 1996.
VICE PRESIDENT - CONTROLLER: THEODORE P. HEININGER
- ---------------------------------------------------
Mr. Heininger joined ENBC in April 1995 and served as its Controller
until January 1996, when he was appointed a Vice President of ENBC. From June
1993 to March 1995, Mr. Heininger was employed as Vice President and Chief
Financial Officer with Meyercord Co., a subsidiary of the Berwind Group in Carol
Stream, Illinois. He served as Vice President and Chief Financial Officer of GPS
Healthcare, also a subsidiary of the Berwind Group, in Pottsville, Pennsylvania,
from October 1990 to May 1993.
12
<PAGE>
VICE PRESIDENT - PROCUREMENT: TIMOTHY A. JORDAN
- -----------------------------------------------
Mr. Jordan became Vice President-Procurement of ENBC in November 1996.
Before that, Mr. Jordan was Director of Purchasing of BCI from October 1992 to
October 1996. Before his employment by BCI, Mr. Jordan was Director of
Purchasing for Pizza Hut, Inc. from February 1976 to October 1992.
DIRECTOR, VICE PRESIDENT: GAIL A. LOZOFF
- -----------------------------------------
Ms. Lozoff began serving as a Director and a Vice President of ENBC in
April 1995, after working with Bagel & Bagel, Inc. in Prairie Village, Kansas
from June 1988. She also served as President and Chief Executive Officer of
Bagel & Bagel from May 1992 to April 1995. Ms. Lozoff has also served as a
Director of Three Dog Bakery in Kansas City, Missouri since September 1994.
VICE PRESIDENT - MARKET RESEARCH: DAVID D. MINTER
- --------------------------------------------------
Mr. Minter became Vice President - Market Research of ENBC in March
1997. Before that, he was Director of Research for ENBC from June 1995 through
March 1997. From April 1991 through June 1995 he was Corporate Director,
Research & Database Marketing of Blockbuster Entertainment Corp. in Fort
Lauderdale, Florida.
VICE PRESIDENT - OWNER OPERATOR/HUMAN RESOURCES: JAMES M. NEWBERRY
- ------------------------------------------------------------------
Mr. Newberry became Vice President-Owner Operator of ENBC in February
1997. Before that, from May 1990 to February 1997, he held several positions
with ShowBiz Pizza Time, Inc. (d/b/a Chuck E. Cheese's Pizza) including Vice
President of Training, Recruitment, Entertainment, New Concepts and Product
Licensing.
VICE PRESIDENT - OPERATIONS SERVICES: W. BENJAMIN NOVAK
- --------------------------------------------------------
Mr. Novak joined ENBC in July 1995 as Director of Financial Systems
and Process Planning, after serving in the same capacity with BCI from March
1994 to July 1995. He became ENBC's Vice President of Operations Services in
January 1996. From September 1989 to March 1994, Mr. Novak served as Director
of Finance for Blockbuster Entertainment Corporation in Ft. Lauderdale, Florida.
VICE PRESIDENT - MARKETING AND ADVERTISING: GARY T. NAIFEH
- -----------------------------------------------------------
Mr. Naifeh became ENBC's Vice President -- Marketing and Advertising
in August 1995. He was employed from September 1994 to August 1995 as BCI's Vice
President, National Marketing. From June 1994 to September 1994 he was the
Senior Vice President of Operations for Baskin Robbins, Inc. in Glendale, CA.
From June 1994 to March 1993,
13
<PAGE>
Mr. Naifeh was the Vice President of Marketing for Pizza Hut, Inc. in Wichita,
Kansas, and he was Zone Vice President of Operations for Taco Bell Corp. in
Irvine, California from June 1990 to March 1993.
VICE PRESIDENT - HUMAN RESOURCES: JOHN R. PUTERBAUGH
- ----------------------------------------------------
Mr. Puterbaugh became Vice President-Human Resources of ENBC in
February 1997. Before that, Mr. Puterbaugh was a Human Resources Director of
NIKE Inc. in Hilversum, The Netherlands, with responsibility for NIKE's European
groups, from January 1995 to March 1997 and a Director of Employment for NIKE,
in Beaverton, Oregon, from January 1993 through January 1995. He was a Sales
Representative with Wilson Sporting Goods Inc. in West Palm Beach, Florida from
August 1991 to January 1993.
VICE PRESIDENT - FINANCE: RODNEY S. RICE
- ----------------------------------------
Mr. Rice became Vice President-Finance of ENBC in October 1996. Before
that, he served as Director-Finance of ENBC from August 1995 to August 1996,
after serving as a Financial Analyst at BCI from February 1995 until August
1995. From June 1993 to July 1994, he served as a Financial Analyst-Equity
Capital Markets at Merrill Lynch & Co. and from June 1991 to June 1993 he served
as a Financial Analyst-Corporate Finance at Merrill Lynch.
VICE PRESIDENT - PRODUCT DEVELOPMENT AND QUALITY ASSURANCE: RONALD SAVELLI
- ---------------------------------------------------------------------------
Mr. Savelli joined ENBC in September 1995 as Vice President - Product
and Production. In July 1996, he became ENBC's Vice President - Product
Development and Quality Assurance. From September 1989 to September 1995, he was
Product Manager of Caravan Products, Inc. in Totowa, New Jersey.
DIRECTOR: KYLE T. CRAIG
- ------------------------
Mr. Craig has been one of ENBC's Directors since February 1995. He
served as ENBC's Vice President from the date the company was formed in February
1995 until his appointment as Chairman of the Board in June 1995, a position he
held until June 1996. Mr. Craig also served as the Chief Concept Officer of BCI
from April 1994 through June 1995. From November 1993 until April 1994, he was
President of KFC-Brand Development, a unit of KFC Corp. in Louisville, Kentucky,
and from April 1990 until November 1993, he was President of KFC-USA, also a
unit of KFC Corp. in Louisville, Kentucky. KFC Corp. is a wholly owned
subsidiary of PepsiCo, Inc.
14
<PAGE>
DIRECTOR: M. LAIRD KOLDYKE
- ---------------------------
Mr. Koldyke has been a member of ENBC's Board of Directors since
February 1995. Mr. Koldyke has served as the General Partner of the Frontenac
Company in Chicago, Illinois since 1989.
DIRECTOR: JOHN H. MUEHLSTEIN, JR.
- ----------------------------------
Mr. Muehlstein has been a member of ENBC's Board of Directors since
ENBC was formed in February 1995. He has also been an attorney at the Chicago
law firm of Pedersen & Houpt since June 1980.
DIRECTOR: JOHN A. OFFERDAHL
- -----------------------------
Mr. Offerdahl was a founder of Offerdahl's Bagel Gourmet, Inc., which
ENBC acquired in March 1995. When ENBC acquired that company, Mr. Offerdahl was
appointed as a Director and the Vice President - Operations, Southeast Zone. He
ceased acting as a Vice President in January 1996, but remains a Director of
ENBC. Mr. Offerdahl served as the Chairman and President of Offerdahl's Bagel
Gourmet in Fort Lauderdale, Florida from December 1989 until March 1995. From
May 1986 until September 1994, Mr. Offerdahl played professional football for
the Miami Dolphins in the National Football League.
DIRECTOR: LLOYD D. RUTH
- ------------------------
Mr. Ruth became a member of ENBC's Board of Directors when it formed
in February 1995. Since January 1987 he has been a General Partner at Marquette
Management Partners in Deerfield, Illinois.
ITEM 3
------
LITIGATION
Dr. Frederick Sklar, Ray Schondak, Irving Smith, Ron Woodall,
-------------------------------------------------------------
Atteberry Children's Trust, Stan Fernald, Michael Boyd, and David Hickman v.
- ----------------------------------------------------------------------------
Scott A. Beck, Video Superstore Management, Inc., Pace Financial Management,
- ----------------------------------------------------------------------------
Inc., Pace Affiliated, Inc., Blockbuster Entertainment Corporation, Chuck Rice,
- -------------------------------------------------------------------------------
Kevin Shepherd, and Jerry Reeves, (District Court, Dallas County, Texas, Cause
- --------------------------------
No. 91-10192). On October 10, 1991, Plaintiffs (who are not related to ENBC)
began an action against Defendants by filing a complaint in the District Court
for Dallas County, Texas. In the Complaint, plaintiffs have asserted various
causes of action including breach of fiduciary duty, fraud, civil conspiracy,
violation of the Texas Securities Act, breach of contract and negligence from
Blockbuster's purchase of the general partnership interest of Video Superstore
Management, Inc. ("VSMI") in VSMI/Blockbuster Ltd. II. On
15
<PAGE>
December 20, 1991, Blockbuster filed an Answer denying liability. On October 18,
1993, Plaintiffs agreed to drop all of their claims and settle this lawsuit, and
Defendants agreed to pay $50,000 to Plaintiffs.
Kathleen Pessin v. H. Wayne Huizenga, A. Clinton Allen, John J. Melk,
---------------------------------------------------------------------
Scott A. Beck, Donald J. Flynn, Steven R. Berrard, John W. Croghan, Blockbuster
- -------------------------------------------------------------------------------
Entertainment Corporation and Viacom Inc., (Court of Chancery, New Castle
- -----------------------------------------
County, Delaware (Civil Action No. 13456)). This is a suit, filed on April 8,
1994, was brought by a shareholder of Blockbuster Entertainment Corporation
("Blockbuster") (who is not related to ENBC), against, among others, certain
directors of Blockbuster, including Mr. Scott Beck, ENBC's Chairman of the
Board. The first count, a shareholder's derivative action, alleged a breach of
fiduciary duty, waste of corporate assets and usurpation of corporate
opportunity on the part of the directors. Plaintiff's claims arise out of
various franchise transactions with certain directors of Blockbuster or members
of their immediate families or entities they control, including allegations that
franchised stores these persons owned were sold to Blockbuster at inflated
prices and also that the grants of these franchises were made on favorable
terms. None of the specific transactions recited was with Mr. Beck or any member
of his immediate family or any entity he controls. The second count of the
complaint was filed individually and as a class action for all stockholders of
Blockbuster against Viacom, Inc. and the directors of Blockbuster and alleged
that as a result of the alleged self-dealing described above, the proposed
merger of Blockbuster and Viacom, Inc. resulted in an artificially low purchase
price and was unfair and a breach of fiduciary duty. Plaintiff sought an order
for an accounting with respect to the transactions described in the first count
and, with respect to the second count, sought to be certified as a class, a
declaration that Defendants breached their fiduciary and other duties, an order
enjoining them from proceeding with the Blockbuster/Viacom merger or rescinding
the merger if it was completed and an unspecified amount of damages, costs and
attorneys' and accountants' fees. Mr. Beck is no longer on the Blockbuster Board
of Directors and was not on the Board at the time of the approval of the
proposed merger. In January 1995, Plaintiff and Defendants signed a proposed
settlement agreement which provided that all claims would be dismissed with
prejudice and that Defendants would pay Plaintiff's attorneys' fees and costs.
On April 5, 1995, the court determined that the proposed settlement was fair,
reasonable, adequate and in the best interest of Plaintiff and the lawsuit was
dismissed.
Charles D. Howell, in his Capacity as the Trustee of the Doug Howell
--------------------------------------------------------------------
Family Trust, and Charles D. Howell, Individually, Plaintiffs, v. Blockbuster
- -----------------------------------------------------------------------------
Entertainment Corporation, Scott A. Beck, Video Superstores Master Limited
- --------------------------------------------------------------------------
Partnership, Video Superstores Management, Inc., VSMI Limited Partnership,
- --------------------------------------------------------------------------
Blockbuster Midwest Limited Partnership, and SAB Acquisition Company, Inc.,
- ---------------------------------------------------------------------------
Defendants, (District Court, Dallas County, Texas, Cause No. 91-10193-M, removed
- ----------
to U.S. District Court, Northern District of Texas, Case No. 91 CV 1901-G and
then remanded to the Texas State District Court). Charles D. Howell individually
and in his capacity as trustee of the Doug Howell Family Trust (the "Trust")
began this action on August 23, 1991 by filing a Complaint in the District Court
for Dallas County, Texas against Defendants. Plaintiffs (who are not related to
BCI) asserted causes of action for breach of fiduciary duty,
16
<PAGE>
fraud, conspiracy, breach of contract and intentional interference with contract
arising out of Blockbuster's acquisition in August 1989 of the business
operations of Video Superstores Master Limited Partnership ("VSMLP") and VSMI
Limited Partnership ("VSMILP") and the failure at that time to have included in
that acquisition the limited partners' interest in VSMI/Blockbuster Ltd. I, in
which plaintiffs were an 18.75% limited partner. Plaintiffs sought actual
damages, exemplary damages, attorneys' fees and interest. The parties entered
into a settlement agreement in December 1995. Under the settlement agreement,
the parties exchanged mutual releases and Scott Beck and Viacom, Inc., as
successor to the other defendants, agreed to pay to the plaintiffs $30,750,000.
Karen Murphy, as Temporary Administrator of the Estate of Doris
---------------------------------------------------------------
Berglund Brock, and B. Coleman Renick, Jr. v. Blockbuster Entertainment
- -----------------------------------------------------------------------
Corporation, Scott A. Beck, Video Superstores Master Limited Partnership f/k/a
- ------------------------------------------------------------------------------
Blockbuster Midwest Limited Partnership, VSMI Limited Partnership, SAB
- ----------------------------------------------------------------------
Acquisition Company, Inc. and Zenith Capital, Inc. f/k/a Pace Financial
- -----------------------------------------------------------------------
Management, Inc., (District Court of Dallas County, Texas, Case No. 94-10051M).
- ----------------
Karen Murphy, in her capacity as trustee of the Estate of Doris Berglund Brock
and B. Coleman Renick, Jr. began this action on September 27, 1994 by filing a
Complaint in the District Court for Dallas County, Texas against Defendants.
Plaintiffs (who are not related to ENBC) asserted causes of action identical to
those Plaintiff Howell asserted in the case described above, which causes of
action allegedly arise out of the facts described above in the Howell case.
------
Plaintiffs claim to be similarly situated to Plaintiff Howell. Plaintiffs seek
actual damages in the amount of at least $6.0 million, all profits which
defendants Mr. Beck, Video Superstores Master Limited Partnership, VSMI Limited
Partnership and SAB Acquisition Company, Inc. derived in an amount of at least
$118 million and all profits defendant Blockbuster made in an additional amount
of at least $117 million, $350,000 in returned or forfeited compensation paid to
one of Defendants, exemplary damages in the amount of at least $1 billion,
attorneys' fees, costs, expenses, interest and other and further relief as the
court may determine. In October 1996, the court dismissed with prejudice all of
the plaintiffs' claims except their claims for breach of fiduciary duty and
conspiracy to commit same. As of the date of this offering circular, discovery
is in process and trial has been scheduled for May 1997. The defendants deny
the material allegations asserted in the Complaint and intend to vigorously
defend against the Complaint.
Robert L. Lambert, Robert F. Lambert and American Maritime Officers,
--------------------------------------------------------------------
f/k/a District 2 Marine Engineers Beneficial Association -- Associated Maritime
- -------------------------------------------------------------------------------
Officers, AFL-CIO v. Viacom, Inc., H. Wayne Huizenga, Scott A. Beck, Steven R.
- ------------------------------------------------------------------------------
Berrard, Joseph J. Burke, B&L Holding Corp., Blockbuster Holding Corp., and FLC
- -------------------------------------------------------------------------------
Holding Corp., Inc., (Circuit Court, Broward County, Florida Case No. 95-08900).
- -------------------
On June 27, 1995, Robert F. and Robert L. Lambert (the "Lamberts"), founders of
Florida Princess Cruise Lines, Inc., Standard Cruise Lines, Inc. and Fort
Lauderdale Charter Corp. (the "Lambert Companies"), and the American Maritime
Officers, f/k/a District 2 Marine Engineers Beneficial Association -- Associated
Maritime Officers AFL-CIO (the "Union"), a New York corporation and an American
maritime union, brought this action against the defendants. Scott A. Beck is
included as a defendant, although
17
<PAGE>
the complaint in the lawsuit does not make any specific allegations concerning
Mr. Beck. The plaintiffs' claims arise from a business enterprise in which
Blockbuster Entertainment Corporation ("Blockbuster Entertainment") (which was
subsequently merged into Viacom, Inc.) and certain of its affiliates entered
into transactions with the Lamberts and companies they controlled to purchase
60% of the stock in B&L Holding Corp. ("B&L Holding"), which controlled the
Lamberts' luxury cruise line operations, and to develop a cruise business. On
July 16, 1990, Blockbuster Holding Corp. ("Blockbuster Holding"), a wholly-owned
subsidiary of Blockbuster Entertainment, paid the Lamberts $31,000 in cash and
issued a promissory note for $569,000 (the "Blockbuster Note") as consideration
for the 60% interest in B&L Holding. The Lamberts retained a 40% interest in B&L
Holding. The Lamberts allege that, through a stock redemption agreement dated
December 14, 1990, Blockbuster Entertainment caused B&L Holding to redeem the
Blockbuster Note and coerced Florida Princess Cruise Lines to issue a
promissory note (the "Princess Note") to Blockbuster Entertainment in the amount
of $600,000. The Lamberts allege that the inability of Florida Princess Cruise
Lines to pay the Princess Note and the defendants' failure to provide financing
to B&L Holding caused the Lambert Companies to fail. They further allege that
this allowed defendant FLC Holding Corp. to acquire a cruise ship from the
Lambert Companies on favorable terms.
Specifically, the Lamberts allege that the defendants: (1)
fraudulently misrepresented that they would adequately promote the cruise line
business of B&L Holding and adequately finance B&L Holding so that it could pay
the Princess Note and its other debts; (2) interfered with the Lamberts'
business opportunities and relationships by causing the Lambert Companies to
fail; (3) individually and as directors and officers of Blockbuster
Entertainment and Blockbuster Holding breached their fiduciary duty to the
Lamberts as minority shareholders of B&L Holding by causing B&L Holding to incur
debt which B&L Holding could not repay; and (4) conspired to defraud the
Lamberts out of their businesses. The Lamberts claim compensatory damages of
more than $25,000,000 and exemplary damages of more than $250,000,000 in each
count of the complaint.
The American Maritime Officers union (the "Union") claims that the
defendants: (1) interfered with the Union's business relationships and
opportunity to generate union dues and economic benefits for its members who
would have served as crew members on the vessels the cruise lines operated if
the cruise lines had not failed; and (2) caused Blockbuster Holding and B&L
Holding to breach the Memorandum of Understanding with the Union under which the
Union was to provide crew members for the cruise ships. The Union claims more
than $500,000 in compensatory damages and more than $250,000,000 in exemplary
damages.
The defendants have filed a motion for summary judgment and a motion
to dismiss stating that the claims the Lamberts asserted were all previously
decided against the plaintiffs and in favor of the defendants in earlier
litigation among the parties which occurred in 1991. The court denied the
motion for summary judgment and granted the motion to dismiss the Union's breach
of contract claim. The case is currently in the discovery and court-ordered
mediation phase and is scheduled for trial in April 1997. The defendants intend
to vigorously defend against the plaintiffs' claims.
Leslie Gene Cone v. Boston Chicken, Inc., Scott A. Beck and Mark W.
-------------------------------------------------------------------
Stephens, (United States District Court for the District of Colorado, Case No.
- --------
97-WM-1308). Plaintiff is a shareholder of BCI who filed this lawsuit on June
23, 1997. Plaintiff alleges that the defendants disseminated or approved press
releases and financial reports which contained misrepresentations and material
omissions and also concealed materially adverse financial
18
<PAGE>
information. Plaintiff claims that BCI's area developers should not be treated
as separate legal entities and that the financial results of the area developers
should have been consolidated with those of BCI. Plaintiff alleges that the
failure to consolidate the financial results made financial reports issued by
BCI untrue and misleading. The complaint alleges that these actions violated
Section 10(b) of the Securities Exchange Act (the "Exchange Act") and Rule 10-b5
promulgated thereunder and violated the Colorado Securities Act. In addition,
the complaint alleges violations of Section 20(a) of the Exchange Act against
defendants Becks and Stephens on the grounds that these individuals acted as
controlling persons of BCI within the meaning of Section 20(a) of the Exchange
Act. Plaintiff alleges that by reason of their positions as directors and/or
officers of BCI, these individuals had the power and authority to cause BCI to
engage in the wrongful conduct alleged in the complaint. Plaintiff seeks the
following relief: (a) certification of the complaint as a class action on behalf
of all persons who purchased the common stock of BCI between August 13, 1996 and
May 30, 1997; (b) an award of compensatory damages to all members of the
purported class; and (c) equitable relief available under federal and state law.
Jeff Lanier v. Boston Chicken, Inc., Scott A. Beck and Mark W.
--------------------------------------------------------------
Stephens, (United States District Court for the District of Colorado, Case No.
- --------
97-WM-1446). This complaint, filed on July 3, 1997, is substantially the same
as the complaint described above in the Cone case.
----
George Genna v. Boston Chicken, Inc., Scott A. Beck, Mark W. Stephens,
----------------------------------------------------------------------
Saad Nadhir, Alex. Brown & Sons, Inc., Merrill Lynch & Co. and Morgan Stanley &
- -------------------------------------------------------------------------------
Co., Inc. (United States District Court for the District of Colorado, Case No.
- ---------
97-WM-1435). Plaintiff is a shareholder of BCI who filed this lawsuit on July
2, 1997 and brings this case on behalf of all persons who purchased the
publicly-traded equity and debt securities of BCI between February 6, 1995 and
May 28, 1997. The allegations of the complaint are substantially similar to
those described above in the Cone case. The complaint alleges violations of
----
federal securities laws particularly against BCI under Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder. In addition, the complaint
alleges violations of Section 20(a) of the Exchange Act against defendants Beck,
Stephens, and Nadhir on the grounds that these individuals acted as controlling
persons of BCI within the meaning of Section 20(a) of the Exchange Act.
Plaintiff alleges that by reason of their positions as directors and/or officers
of BCI, these individuals had the power and authority to cause BCI to engage in
the wrongful conduct alleged in the complaint. Plaintiff seeks the following
relief: (a) certification of the complaint as a class action on behalf of all
persons who purchased the publicly-traded equity and debt securities of BCI
between February 6, 1995 and May 28, 1997; (b) an award of compensatory damages,
interest and costs to all members of the purported class; and (c) equitable
relief available under federal and state law.
Leonard Hoffman v. Boston Chicken, Inc., Scott A. Beck, Mark W.
---------------------------------------------------------------
Stephens, Saad Nadhir, Alex Brown & Sons, Inc., Merrill Lynch & Co. and Morgan
- ------------------------------------------------------------------------------
Stanley & Co. (United States District Court for the District of Colorado, Case
- -------------
No. 97-WM-1619). Plaintiff is a purchaser of publicly traded equity and debt
securities of BCI who filed this lawsuit on July 28, 1997. Plaintiff alleges
that the defendants disseminated or approved press releases and financial
reports which contained misrepresentations and material omissions and also
concealed materially adverse financial information. Plaintiff claims that BCI's
area developers should not be treated as separate legal entities and that the
financial results of area developers should have been consolidated with those of
BCI. Plaintiff alleges that the failure to consolidate the financial results
made financial reports issued by BCI untrue and misleading. The complaint
alleges that these actions violated Section 11 of the Securities Act of 1933
(the "Securities Act") in that the alleged violations occurred in the context of
BCI's initial public offering of Boston Chicken
18-A
<PAGE>
Liquid Yield Option Notes. The complaint also alleges violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder against all defendants. Additional claims are asserted
against defendants Beck, Stephens, Nadhir (the "Individual Defendants") and BCI
on the grounds that they acted either as controlling persons of BCI, or that BCI
controlled the Individual Defendants, within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act. Plaintiff alleges that by
reason of their positions as directors and/or officers of BCI, the Individual
Defendants had the power and authority to cause BCI to engage in the wrongful
conduct alleged in the complaint. Plaintiff seeks the following relief: (a)
certification of the complaint as a class action on behalf of all persons who
purchased or otherwise acquired the publicly traded equity and debt securities
of BCI between February 6, 1995 and May 28, 1997; (b) an award of compensatory
damages, interest and costs of all members of the class; and (c) equitable
relief available under federal law.
In addition to the Cone, Lanier, Genna, and Hoffman cases described
---- ------ ----- -------
above, eight other complaints have been filed in the United States District
Court for the District of Colorado between July 15, 1997 and August 6, 1997.
Each of these complaints alleges substantially the same claims and causes of
action arising under federal and/or Colorado state securities laws as one or
more of the above-described lawsuits. The cases are as follows:
Charles Scheffold v. Boston Chicken, Inc., Scott A. Beck and Mark W. Stephens
- -----------------------------------------------------------------------------
(United States District Court for the District of Colorado, Case No. 97-WM-
1514). Filed: July 15, 1997.
Andrew McKinley and Allen Heffler v. Boston Chicken, Inc., Scott A. Beck, Mark
- ------------------------------------------------------------------------------
W. Stephens, Saad Nadhir, Alex. Brown & Sons, Inc., Merrill Lynch & Co. and
- ---------------------------------------------------------------------------
Morgan Stanley & Co., Inc., (United States District Court for the District of
- --------------------------
Colorado, Case No. 97-WM-1562). Filed: July 21, 1997.
Coniglio & Towers, Inc. v. Boston Chicken, Inc., Scott A. Beck and Mark W.
- --------------------------------------------------------------------------
Stephens
- --------
(United States District Court for the District of Colorado, Case No. 97-WM-
1574). Filed: July 22, 1997.
Roy Jenks v. Boston Chicken, Inc., Scott A. Beck and Mark W. Stephens (United
- ---------------------------------------------------------------------
States District Court for the District of Colorado, Case No. 97-WM-1609).
Filed: July 25, 1997.
Robert Taman v. Boston Chicken, Inc., Scott A. Beck and Mark W. Stephens (United
- ------------------------------------------------------------------------
States District Court for the District of Colorado, Case No. 97-WM-1610).
Filed: July 25, 1997.
David Joselson v. Boston Chicken, Inc., Scott A. Beck and Mark W. Stephens
- --------------------------------------------------------------------------
(United States District Court for the District of Colorado, Case N. 97-WM-1644).
Filed: July 31, 1997.
Louise N. Levine v. Boston Chicken, Inc., Scott A. Beck and Mark W. Stephens
- ----------------------------------------------------------------------------
(United States District Court for the District of Colorado, Case No. 97-WM-
1680). Filed: August 6, 1997.
Lavard R. Mace and Betty J. Mace v. Boston Chicken, Inc., Scott A. Beck and Mark
- --------------------------------------------------------------------------------
W. Stephens (United States District Court for the District of Colorado, Case No.
- -----------
97-WM-1701). Filed: August 7, 1997.
The parties to these actions have agreed to consolidate all twelve cases, as
well as any later filed cases, into a single Consolidated Complaint to be filed
by the plaintiffs and their counsel. The
18-B
<PAGE>
defendants deny the allegations of all of these complaints and intend to
vigorously defend against the lawsuits. The cases are in the pre-trial stage.
Tom Krzesinki v. Boston Chicken, Inc., Scott A. Beck and Mark W.
----------------------------------------------------------------
Stephens (District Court for the County of Jefferson, Colorado, Case No. 97-CV-
- --------
2295). Plaintiff is a purchaser of 7 3/4% Convertible Debentures Due 2004
issued by BCI (the "Convertible Debentures") who filed this lawsuit in Colorado
State Court on July 28, 1997. Plaintiff alleges that the defendants disseminated
or approved press releases and financial reports which contained
misrepresentations and material omissions and also concealed materially adverse
financial information. Plaintiff claims that BCI's area developers should not be
treated as separate legal entities and that the financial results of the area
developers should have been consolidated with those of BCI. Plaintiff alleges
that the failure to consolidate the financial results made financial reports
issued by BCI untrue and misleading. The complaint alleges that these actions
violated the Colorado Securities Act and Sections 11 and 12(2) of the Securities
Act of 1933 (the "Securities Act") in that the alleged violations occurred in
the context of BCI's initial public offering of the Convertible Debentures.
Additional claims are asserted against defendants Beck and Stephens on the
grounds that they acted as controlling persons of BCI within the meaning of
Section 15 of the Securities Act and the Colorado Securities Act. Plaintiff
alleges that by reason of their positions as directors and/or officers of BCI,
Beck and Stephens had the power and authority to cause BCI to engage in the
wrongful conduct alleged in the complaint. Plaintiff seeks the following relief:
(a) certification of the complaint as a class action of behalf of all persons
who purchased or otherwise acquired the Convertible Debentures between April 22,
1997 and July 2, 1997; (b) an award of compensatory damages, interest and costs
of all members of the class; and (c) equitable relief available under federal
law. The defendants deny the allegations of the complaint and intend to
vigorously defend against the lawsuits. The case is in the pre-trial stage.
Ron Benit, Simi Weiss and Thomas Grier v. Einstein Noah Bagel Corp.,
--------------------------------------------------------------------
Mark R. Goldston, Eric Carlborg and Scott A. Beck, (United States District Court
- -------------------------------------------------
for the District of Colorado, Case No. 97-N-1614). Plaintiffs are shareholders
of ENBC who filed this lawsuit on July 25, 1997. Plaintiffs allege that the
defendants disseminated or approved press releases and financial reports which
contained misrepresentations and material omissions and also concealed
materially adverse financial information. Plaintiffs claim that ENBC's area
developers should not be treated as separate legal entities and that the
financial results of the area developers should have been consolidated with
those of ENBC. Plaintiffs allege that the failure to consolidate the financial
results made financial reports issued by ENBC untrue and misleading. The
complaint alleges that these actions violated Sections 11 and 12(2) of the
Securities Act of 1933 in that the alleged violations occurred in the context of
ENBC's initial public offering. An additional claim is asserted against
defendants Goldston, Carlborg and Beck on the grounds that these individuals
acted as controlling persons of ENBC within the meaning of Section 15 of the
Securities Act. Plaintiffs allege that by reason of their positions as directors
and/or officers of ENBC, these individuals had the power and authority to cause
ENBC to engage in the wrongful conduct alleged in the complaint. In addition,
the complaint alleges violations of Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated thereunder, as well as claims arising under
the Colorado Securities Act against all defendants. Plaintiffs seek the
following relief: (a) certification of the complaint as a class action on behalf
of all persons who purchased or otherwise acquired the common stock of ENBC
between August 2, 1996 and July 15, 1997; (b) an award of compensatory damages,
interest and costs to all members of the class; and (c) equitable relief
available under federal and state law.
18-C
<PAGE>
In addition to the Benit case described above, two other cases were
-----
filed in the United States District Court for the District of Colorado on August
8, 1997. Each of the complaints alleges substantially the same claims and
causes of action arising under federal and/or Colorado state securities laws as
the Benit case. The cases are as follows:
-----
Jerry Meduri v. Einstein Noah Bagel Corp., Mark R. Goldston, Eric Carlborg and
- ------------------------------------------------------------------------------
Scott A. Beck, (United States District Court for the District of Colorado, Case
- -------------
No. 97-N-1712).
Gary Drake v. Einstein Noah Bagel Corp., Mark R. Goldston, Eric Carlborg and
- ----------------------------------------------------------------------------
Scott A. Beck (United States District Court for the District of Colorado, Case
- -------------
No. 97-N-1713).
The parties to these actions anticipate that all three cases, as well
as any similar later cases, will be consolidated into a Consolidated Complaint
to be filed by the plaintiffs and their counsel. The defendants deny the
allegations of all of these complaints and intend to vigorously defend the
lawsuits. The cases are in the pre-trial stage.
Other than the 21 actions described in this Item 3, no litigation is
required to be disclosed in this offering circular.
18-D
<PAGE>
ITEM 4
------
BANKRUPTCY
On August 14, 1989, Gail Lozoff filed for bankruptcy under Chapter 7
of the U.S. Bankruptcy Code under her maiden name (Pasternak) (U.S. Bankruptcy
Court for the Western District of Missouri Case 89-41819-FWK). The case was
discharged on February 9, 1990.
Other than this one action, no person previously identified in Item 1,
and no officer identified in Item 2 of this offering circular has been involved
as a debtor in proceedings under the U.S. Bankruptcy Code required to be
disclosed in this Item.
ITEM 5
------
INITIAL FRANCHISE FEE
DEVELOPMENT AGREEMENT
- ---------------------
DEVELOPMENT FEE.
---------------
You must pay ENBC a non-refundable development fee (the "Development
Fee") in a lump sum when you sign the Development Agreement. The Development
Fee will be an amount equal to $5,000 multiplied by the number of Stores you
will develop under the Development Agreement. The Development Fee is uniform
for all Developers and is deemed fully earned upon payment.
REAL ESTATE SERVICES FEE.
------------------------
When you sign the Development Agreement you will pay ENBC a non-
refundable, lump sum real estate services fee (the "Real Estate Services Fee")
in an amount equal to $5,000 multiplied by the number of Stores you will develop
under the Development Agreement. The Real Estate Services Fee compensates ENBC
for the real estate services it will provide you, including advisory services,
analyses and studies of trade areas, and maintenance of lease files. The Real
Estate Services Fee is uniform for all Developers.
19
<PAGE>
MARKET PLAN FEE.
---------------
When you sign the Development Agreement and annually during the
Development Term, you must purchase market plans on the demographics of each
Sub-Area (the "Market Plans") in which you retain the right to develop Developer
Stores. These Market Plans are currently sold by BCI, which currently charges
for the Market Plans $75 per trade area within the geographic territory covered
by the plan, which fee is payable in a lump sum and is non-refundable.
COMMUNICATION AND INFORMATION SYSTEMS.
-------------------------------------
You must install and use the computer system ENBC designates (the
"Computer System") in your office before you begin operating as a Developer as
described in Item 11. The Computer System currently costs $15,000 to $40,000
which is payable in a non-refundable lump sum and is uniform for all Developers.
You must also use the computer programs ENBC designates as described in Item 8.
You must pay a $16,000 software license fee (the "Software License Fee") at the
time of installation of the Computer System at your office; $15,000 of this fee
is payable to BCI, the balance is paid to Compris Technologies, Inc. You must
pay a periodic payment of $400 as a software support service fee (the "Software
Support Fee"); $77 of which is paid to ENBC and $323 of which is paid to BCI.
The first payment of the Software Support Fee will be due before each Store
opens. The Software License Fee and the Software Support Fee are uniform for
all Franchisees, and are not refundable.
If you do not purchase the Computer System from the vendor designated
by ENBC or its designee (currently NCR), you must pay ENBC or its designee
(currently BCI) a reasonable fee for installation and testing of computer
programs. BCI's current fee for this service is $5,000. The installation and
testing fee is uniform for all Developers who do not purchase the Computer
System from ENBC's designated vendor, and it is not refundable.
FRANCHISE AGREEMENT
- -------------------
INITIAL FRANCHISE FEE.
---------------------
You must pay ENBC's current initial franchise fee (the "Initial
Franchise Fee") of $35,000 in a lump sum when you sign the Franchise Agreement.
The Initial Franchise Fee is non-refundable and deemed earned upon payment. The
Initial Franchise Fee is uniform for all Franchisees that execute a Franchise
Agreement with ENBC.
COMMUNICATION AND INFORMATION SYSTEMS.
-------------------------------------
You must install and use the Computer System at the Store as described
in Item 11. The Computer System currently costs $15,000 to $40,000 which is
payable in a non-refundable lump
20
<PAGE>
sum and is uniform for all Franchisees. In addition, you must use the computer
programs ENBC designates as described in Item 8. You will pay a $16,000
software license fee (the "Software License Fee"), $15,000 of which is payable
to BCI, at the time of installation of the Computer System at your office. You
must also pay to ENBC a periodic payment of $400 as a software support service
fee (the "Software Support Fee"); $77 of which is paid to ENBC and $323 of which
is paid to BCI. The first payment of the Software Support Fee will be due
before the Store opens. The Software License Fee and the Software Support Fee
are uniform for all Franchisees, and are not refundable.
If you do not purchase the Computer System from the vendor designated
by ENBC or its designee (currently NCR), you must pay ENBC or its designee
(currently BCI) a lump sum fee for installation and testing of computer
programs. BCI's current fee for this service is $5,000. The installation and
testing fee is uniform for all Franchisees who do not purchase the Computer
System from ENBC's designated vendor, and it is not refundable.
SUB-LEASES.
----------
ENBC may in certain instances sublet sites to Franchisees under a
standard form sublease (the "Sublease," attached as EXHIBIT F) which provides
---------
for pass-through payments by the Franchisees through ENBC to the landlord. (See
Item 6) If applicable, your first rent payment and the security deposit (if
required) under the Sublease, which will vary widely depending on many factors
including the local real estate market, as described in Item 7, must be made
before the Store opens in a non-refundable lump sum.
21
<PAGE>
ITEM 6
------
OTHER FEES
<TABLE>
<CAPTION>
=================================================================================================================
DEVELOPMENT AGREEMENT/(1)/
- -----------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software Support $400 per 8th day before each ENBC may increase fee with written
Fee Accounting Accounting Period notice to you. You must submit a
Period/(3)/ portion of this fee (currently $323)
to BCI.
- -----------------------------------------------------------------------------------------------------------------
Market Plan BCI's then current Each year, and As further described in Items 8 and
charge (current otherwise upon 11.
charge -- $75 per your request
site)
- -----------------------------------------------------------------------------------------------------------------
Initial Management Will vary with the As incurred See footnote (4) and Item 11.
Training circumstances
- -----------------------------------------------------------------------------------------------------------------
Training Materials Will vary with the As incurred See footnote (4) and Item 11.
circumstances
- -----------------------------------------------------------------------------------------------------------------
Accounting See footnote (5) By the 20th day If you participate in the Financed
Services Fee/(5)/ following each Area Developer Program (see
Accounting Period Item 10), you must use accounting
services under the Accounting and
Administration Services Agreement
you will sign with BCI, which is
attached to the Secured Loan
Agreement and pay a fee to BCI
(see footnote (5)).
- -----------------------------------------------------------------------------------------------------------------
Indemnification Will vary with the As incurred You must reimburse ENBC for, and
circumstances defend ENBC against, claims against
ENBC and taxes imposed on ENBC
due to your activities related to the
Development Agreement.
- -----------------------------------------------------------------------------------------------------------------
Legal Fees and Will vary with the As incurred Payable if you fail to comply with
Costs circumstances Development Agreement.
- -----------------------------------------------------------------------------------------------------------------
Transfer Fee $10,000 plus out- Before beginning You may only transfer subject to
of-pocket expenses transfer transaction certain conditions and with ENBC's
consent. (See Item 17)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
DEVELOPMENT AGREEMENT/(1)/
- -----------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Offering Expenses Will vary with the As incurred You must reimburse ENBC for its
circumstances reasonable expenses (including
attorneys' fees) it incurs if you, a
Franchise Owner, or an entity
having an interest in you, a
Franchise Owner or the
Development Agreement offers
securities.
- -----------------------------------------------------------------------------------------------------------------
Local Ad Fund Will vary with the As specified in See footnote (6).
Contribution/(6)/ circumstances Franchise
Agreement
- -----------------------------------------------------------------------------------------------------------------
Sublease of Will vary with the As specified in Rent and other costs will be payable
Approved Sites circumstances sublease to ENBC. If ENBC chooses, you
will have to lease Sites you own to
ENBC and then ENBC will sublease
the Sites back to you or under other
circumstances when ENBC subleases
to you. (See Items 8 and 11)
- -----------------------------------------------------------------------------------------------------------------
Target Site Fee $10,000 as a Site Within 10 days See Item 12 for information about
Location Fee or after ENBC your acquisition of Target Sites.
$20,000 as a Site delivers a lease or
Location and purchase agreement
Negotiation Fee for a Target Site to
you.
- -----------------------------------------------------------------------------------------------------------------
Conversion Site ENBC's purchase Upon your See Item 12 for information about
Costs price, plus costs purchase of the your acquisition of Conversion Sites.
and liabilities Conversion Site.
associated with
ENBC's acquisition
and other expenses,
plus interest
=================================================================================================================
</TABLE>
________________________
(1) You will also be responsible for other fees and payments as required under
the Franchise Agreements you sign under the Development Agreement, which
are described below .
23
<PAGE>
(2) Except as noted, ENBC imposes all fees, which are non-refundable and
payable to ENBC.
(3) An "Accounting Period" is one of 13 periods of four consecutive weeks in
each fiscal year, as ENBC designates.
(4) We will train your training director at no charge to you. At your request,
additional personnel and replacement personnel will be trained at the then-
current charges which you will pay to ENBC or the Developer who provides
the training. If ENBC or its designee provides you with training materials
and refresher/updated materials, you will pay ENBC the then-current
standard charges.
(5) You will pay a fee for the accounting and administration services BCI
provides you under the Accounting and Administration Services Agreement
which is attached as part of EXHIBIT H of this offering circular. Each
---------
Accounting Period, you will pay BCI a base fee of $4,500. You will also
pay BCI a per-Store fee for each Store you have open and operating during
all or any portion of an Accounting Period. This fee will depend on the
number of Stores you own and operate under the Development Agreement. Under
the Accounting and Administrative Services Agreement, BCI has the right to
increase the base fee and the unit fees described below if it provides
written notice to you, but BCI will not increase the base fee and the unit
fee by more than 10% cumulatively per fiscal year. Store fees you will
owe will be equal to:
(a) $850 per Accounting Period for each Store open and operating
during any portion of an Accounting Period, until you open and
operate up to 11 Stores;
(b) $750 per Accounting Period after you open your 12th Store and
before you open your 30th Store;
(c) $650 per Accounting Period after you open your 30th Store and
before you open your 50th Store;
(d) $550 per Accounting Period after you open your 50th Store and
before you open your 100th Store;
(e) $450 per Accounting Period after you open your 100th Store and
before you open your 200th Store; and
(f) $350 per Accounting Period after you open your 200th Store and
for all Stores you open after that time.
24
<PAGE>
If you and the Developer Stores meet certain reporting requirements,
administrative procedure compliance requirements, and timeliness deadlines
that BCI establishes and announces periodically, the unit fees described
above may be reduced at BCI's discretion.
You must also pay BCI for all non-ordinary, out-of-pocket expenses BCI
(or its affiliates) or its designee incurs to provide the services they
render under the Accounting and Administrative Services Agreement including
travel expenses, legal fees, fees of experts, audit fees, tax fees, and
payroll service fees. However, you must approve all non-ordinary, out-of-
pocket expenses before those expenses are incurred.
(6) Unless ENBC waives the requirement that you do so, you must contribute to
the Local Ad Fund the standard amount required periodically under the
Franchise Agreement or, if it is greater, an amount which, when aggregated
with the Local Ad Fund contributions of your Stores, will be sufficient to
enable you, through the Local Ad Fund, to begin, within one year of opening
your first Store, television advertising in the Designated Market Area
("DMA") where the applicable Sub-Areas or Development Areas are located.
<TABLE>
<CAPTION>
=================================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royalty 8% of Royalty Base 20th day following See footnote (5).
Revenue/(2)(3)/ each Accounting
Period/(4)/
- -----------------------------------------------------------------------------------------------------------------
Marketing Fund 2% of Royalty Base 20th day following ENBC has the right to increase your
Contribution Revenue each Accounting contribution up to 0.25% per year.
Period ENBC has the right to change the
timing of your payment, but will not
require payment more than twice in
each Accounting Period. (See
Item 11)
- -----------------------------------------------------------------------------------------------------------------
Local Advertising 4% of Royalty Base 20th day following See footnote (6) and Item 11.
Fund Contribution Revenue each Accounting
Period
- -----------------------------------------------------------------------------------------------------------------
Software Support $400 per 8th day before Subject to increase upon written
Fee Accounting Period Accounting Period notice. You must submit a portion
of this fee (currently $323) to BCI.
(See Items 7 and 11)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Training Materials Will vary with the As incurred See footnote (7) and Item 11.
circumstances
- -----------------------------------------------------------------------------------------------------------------
Special Assistance Will vary with the As incurred See footnote (7) and Item 11.
circumstances
- -----------------------------------------------------------------------------------------------------------------
Interest on Late Lesser of 18% per Upon payment of After the date they are due, all
Payments year or highest past due amounts payments that you owe to ENBC or
legal rate owed to ENBC or its affiliates will bear interest.
its affiliates
- -----------------------------------------------------------------------------------------------------------------
Cleaning, Repair, Will vary with the 5th day after Payable if you do not maintain the
Remodeling, circumstances receipt of bill condition and appearance of the
Upgrading Store and ENBC arranges to do so.
- -----------------------------------------------------------------------------------------------------------------
Required Purchases Will vary with the As incurred You must buy goods and obtain
circumstances services according to ENBC's
standards and specifications and
from suppliers ENBC designates or
approves, which may include ENBC
and its affiliates. (See Item 8)
- -----------------------------------------------------------------------------------------------------------------
Product Evaluation Cost of evaluation, As incurred You must pay ENBC's costs to test
Costs inspection, and new products, goods and supplies or
supervision of inspect new suppliers you propose.
distributor/supplier (See Item 8)
- -----------------------------------------------------------------------------------------------------------------
Reimbursement of Will vary with the As incurred Payable if you fail to obtain required
Insurance Costs circumstances insurance and ENBC obtains
coverage on your behalf.
- -----------------------------------------------------------------------------------------------------------------
Reimbursement of Will vary with the As incurred See footnote (8).
Inspection Costs circumstances
- -----------------------------------------------------------------------------------------------------------------
Reimbursement of Will vary with the As incurred See footnote (9).
Audit Costs circumstances
- -----------------------------------------------------------------------------------------------------------------
Transfer Fee $5,000 plus out-of- Before beginning You may only transfer subject to
pocket expenses transfer transaction certain conditions and with ENBC's
consent. (See Item 17)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Offering Expenses Will vary with the As incurred You must reimburse ENBC for
circumstances reasonable expenses (including
attorneys' fees) incurred if you or an
entity having an interest in you or
the Franchise Agreement offers
securities.
- -----------------------------------------------------------------------------------------------------------------
Successor 33 1/3% of then- When you sign See footnote (10).
Franchise Fee current Initial successor Franchise
Franchise Fee Agreement
- -----------------------------------------------------------------------------------------------------------------
Indemnification Will vary with the As incurred You must reimburse ENBC for, and
circumstances defend ENBC against, claims against
ENBC and taxes imposed on ENBC
arising out of your activities related
to the Franchise Agreement
- -----------------------------------------------------------------------------------------------------------------
Legal Fees and Will vary with the As incurred Payable upon your failure to comply
Costs circumstances with the Franchise Agreement
- -----------------------------------------------------------------------------------------------------------------
Demographic BCI's then-current As incurred See footnote (11).
Reports charge
=================================================================================================================
</TABLE>
(1) Except as noted, ENBC imposes all fees, which are non-refundable and
payable to ENBC.
(2) The term "Royalty Base Revenue" means and includes the gross revenue from
all sales of Products and all other products and services you or your Store
sells, performs or arranges to be sold or performed in, upon, from, or away
from the Store, or through or by means of the business conducted under the
Franchise Agreement, whether for cash or credit, including any assumed
gross revenue calculated for the purpose of an insurance claim for lost
profits to the extent an insurer pays a claim, but excluding: (1) all
sales or service taxes collected from customers and paid or payable to the
appropriate taxing authority; (2) all customer refunds, valid discounts and
coupons, and credits the Store makes (exclusions will 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
you do not charge the employee; and (4) revenue, if any, you derive from
the sale of Products or other materials and supplies from a Commissary you
operate to Stores for resale to the public.
27
<PAGE>
(3) Depending on certain factors, ENBC may negotiate with you for the amount of
Royalty payable under your Franchise Agreement. Those factors will include
whether you purchase ENBC-owned Stores that are operating in your Territory
when you sign a Development Agreement, the size of your Territory and the
size of your Total Development Quota (as defined in Item 12). However, the
Royalty will not be greater than 8% or less than 5% of Royalty Base
Revenue. If your Territory is within markets where ENBC purchased existing
bagel chains (including metropolitan Kansas City, Salt Lake City, the
Miami/Fort Lauderdale/Boca Raton metropolitan area, the Los Angeles, San
Francisco and San Diego metropolitan areas and the states of Oregon and
Washington) (the "Founder Company Markets"), your Royalty will not be less
than 6% of Royalty Base Revenue for all Stores you develop, regardless of
whether they are in a Founder Company Market, in recognition of the
established customer base and goodwill in the Founder Company Markets.
(4) An "Accounting Period" is one of 13 periods of four consecutive weeks in
each fiscal year, as ENBC designates.
(5) ENBC has the right to change the timing of your payment, but will not
require payment more than twice in each Accounting Period. Your Royalty
payments must be accompanied by report forms that ENBC designates.
(6) ENBC may periodically require you to increase your Local Ad Fund
contributions up to 0.25% per year. If you are not a member of a Local
Advertising Fund, you must spend these amounts on local advertising on your
own, rather than contribute them to a Local Advertising Fund.
(7) You and/or your management personnel may have to attend additional or
refresher training programs and may charge you the costs of training
materials that ENBC provides at those sessions. If you request special
training and ENBC agrees that the training is necessary, you will pay
ENBC's then current charge (currently $1,500 per employee trained) plus
expenses of training personnel for training that takes place at your Store.
(8) ENBC may conduct quality, service, cleanliness and other inspections of the
Store including designating an independent evaluation service to conduct a
customer satisfaction quality control and evaluation program. You must
participate in these programs and pay for the costs of these evaluation
services.
(9) If ENBC inspects or audits your financial records and other information
because you have failed to submit reports, records or other information on
a timely basis, or if an audit reveals that you have understated revenue by
more than 2%, you must reimburse ENBC for the cost of the audit or
inspection.
28
<PAGE>
(10) If ENBC is not then offering franchises, the Successor Franchise Fee will
be 33 1/3% of the higher of (a) the most recent standard Initial Franchise
Fee ENBC charged under its franchise program or (b) the Initial Franchise
Fee under the franchise agreement which is expiring.
(11) You may purchase demographic reports at your option. The demographic
reports are currently available for purchase from BCI, and the current
charge for each are as follows: (a) Trade Area-Report - $50.00; (b) Grid
Map - $150.00; (c) Radius - Report -$25.00; and (d) Traffic Map - $25.00
ITEM 7
------
INITIAL INVESTMENT
DEVELOPMENT AGREEMENT
---------------------
There is no initial investment required upon execution of the Development
Agreement except for: (1) the payment of the Development Fee ($5,000 per Store
to be developed); (2) the Real Estate Service Fee ($5,000 per Store to be
developed); (3) the acquisition of the Computer System (including fees for
Licensed Program and the Specified Software (defined in Item 8 below)), which is
described in Item 8 of this offering circular ($31,000 to $56,000); (4) the
purchase of insurance; (5) the cost of the Market Plans ($75 per trade area);
(6) the Accounting Services Fee ($12,750 to $16,500); and (7) certain
miscellaneous costs and additional funds averaging $15,000 to $45,000 (which
vary greatly depending on the location of the Development Area and the number of
Stores to be developed in the Development Area). The estimated initial
investment, which covers the first 3 months you operate as a Developer, ranges
from $68,825 to $127,575. An initial investment will be required for each Store
developed. ENBC's estimate of this investment follows.
29
<PAGE>
YOUR ESTIMATED INITIAL INVESTMENT
UNDER THE FRANCHISE AGREEMENT
<TABLE>
<CAPTION>
====================================================================================================================================
ITEM ESTIMATED AMOUNT/ METHOD OF WHEN DUE WHETHER TO WHOM
LOW-HIGH RANGE PAYMENT REFUNDABLE PAID
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Initial Franchise Fee(1) $35,000 Lump sum Upon execution of No ENBC
Franchise Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Brokerage Fees(2) $0 to $18,000 As incurred Upon satisfaction of lease No Real estate
contingencies brokers
- ------------------------------------------------------------------------------------------------------------------------------------
Professional Fees and Due $5,000 to $10,000 As incurred Before execution No Attorneys and
Diligence(3) consultants
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Deposits(4) $0 to $10,000 Lump sum Upon execution of lease See note 4 Lessor
- ------------------------------------------------------------------------------------------------------------------------------------
Leasehold Improvements(5) $15,000 to $175,000 As incurred Before construction or No Architects,
renovation engineers and
contractors
- ------------------------------------------------------------------------------------------------------------------------------------
Furniture, Fixtures, Smallwares and $80,000 to $135,000 Lump sum Before opening No Suppliers
Equipment (including Signage)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Opening Inventory and Supplies(7) $2,500 to $7,500 Lump sum Before opening No ENBC and
suppliers
- ------------------------------------------------------------------------------------------------------------------------------------
Architectural or Engineering Fees $15,000 to $35,000 As incurred Before construction or No Architects or
and Permit and Impact Fees(8) renovation engineers;
governmental
agencies
- ------------------------------------------------------------------------------------------------------------------------------------
Grand Opening Advertising and $10,000 As incurred As incurred No Suppliers
Promotion(9)
- ------------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Opening Costs(10) $10,000 to $20,000 As incurred Before opening and See note 10 Suppliers,
shortly after opening Employees,
and other
Creditors
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ITEM ESTIMATED AMOUNT/ METHOD OF WHEN DUE WHETHER TO WHOM
LOW-HIGH RANGE PAYMENT REFUNDABLE PAID
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Software License Fee(11) $16,000 Lump sum When Licensed Program No ENBC or its
is installed designee
(currently BCI)
- ------------------------------------------------------------------------------------------------------------------------------------
Computer System (including $16,200 to $41,200 As incurred Before opening No ENBC and/or
Specified Software and related Suppliers
fees)(12)
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Funds -- 3 Months(13) $35,000 to $110,000 As incurred As incurred See note 13 ENBC,
Suppliers,
Employees and
other Creditors
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED INITIAL $239,700 to $622,700
INVESTMENT(14)
(FOOTNOTES FOLLOW CHART)
====================================================================================================================================
</TABLE>
31
<PAGE>
EXPLANATORY NOTES TO ESTIMATED INITIAL INVESTMENT - FRANCHISE AGREEMENT
- -----------------------------------------------------------------------
(1) INITIAL FRANCHISE FEE. The Initial Franchise Fee is $35,000. As
---------------------
described in Item 6, if you elect to accept ENBC's offer to operate the Store at
a Target Site, you must pay a Site Location Fee or a Site Location and
Negotiation Fee to ENBC.
(2) REAL ESTATE BROKERAGE FEES. These fees represent commissions you may
--------------------------
pay to real estate brokers to secure a Site for the Store by lease.
(3) PROFESSIONAL FEES. This amount represents fees you may pay to
-----------------
professional advisors (attorneys and accountants) to evaluate the franchise and
real estate contracts, as well as the cost of any negotiations.
(4) LEASE DEPOSITS. This amount represents an estimate of up 6 months'
--------------
security deposit under the lease for the premises of the Store where rent is
$20,000 to $80,000 annually. Lease deposits vary widely from location to
location, and generally are refundable.
ENBC estimates that the typical Store location will have approximately
2,200 square feet with rentals that vary greatly depending on geographic
location, but broadly range from $10-$40 per square foot or more per year. ENBC
estimates an average rental rate of $15 to $25 per square foot per year. As
described in Item 11, if you own an Approved Site, you may have to lease the
Approved Site to ENBC and ENBC will sublease the Approved Site back to you. If
ENBC leases the Approved Site, it may sublease to you under the Form of Sublease
attached as EXHIBIT F.
---------
ENBC expects that nearly all Store locations will be leased rather than
purchased. However, if you purchase the Site for the Store, the initial
investment could be significantly higher, approximately $200,000 to $750,000 or
more in incremental cost depending on the location and costs of development of
the Site and construction of improvements. Purchase contracts generally require
earnest money deposits of 5% to 25% or more of the purchase price; earnest money
deposits may or may not be refundable.
(5) LEASEHOLD IMPROVEMENTS. ENBC assumes the Store will require
----------------------
approximately 2,200 square feet with frontage of typically 20 feet. Leasehold
improvement costs are expected to range from approximately $6 - $80.00 or more
per square foot. The costs of leasehold improvements may increase if a
particular Site has unusual dimensions or seating requirements. Variations in
leasehold improvements also are attributable to size and condition of the
premises, construction, labor and installation costs, geographic location and
compliance with state and municipal building and zoning laws and regulations.
The interior and exterior of the Store must be renovated to conform to ENBC's
store design specifications. The total cost of leasehold improvements may vary
significantly depending on factors including the amount of heating,
32
<PAGE>
ventilation and air conditioning, an adequate electrical system and adequate
access to water, sewer, natural gas, among other items.
(6) FURNITURE, FIXTURES, SMALLWARES AND EQUIPMENT. Furniture, fixtures,
---------------------------------------------
smallwares and equipment includes interior and exterior signs, serving-line
equipment, refrigeration, cooking and heating equipment, cash registers
(including capacity for computerized financial information collection) decor,
furniture, and smallwares.
(7) OPENING INVENTORY AND SUPPLIES. This item includes all initial food
------------------------------
products, inventory and paper supplies inventory. (See Item 8)
(8) ARCHITECTURAL OR ENGINEERING FEES AND PERMIT AND IMPACT FEES. Charges
------------------------------------------------------------
for architects or engineers vary widely depending on the quality, reputation and
experience of the professionals engaged, the geographic area and the nature and
extent of the work to be performed. At a minimum, you will have to incur costs
to prepare initial schematic drawings (approximately $750) as well as the final
site construction plan (estimated to range from $7,000 to $9,000 or more).
Permit and impact fees vary widely depending on the geographic area but range
from $1,000 to $10,000 or more.
(9) GRAND OPENING ADVERTISING. You must spend no less than $10,000 for
-------------------------
the Store's grand opening advertising and promotion program during the period 30
days before, and 90 days after, the opening of the Store. You can anticipate
engaging in a variety of promotions including the use of print media, direct
mail, and/or radio or television. The costs can vary widely depending on the
quality, reputation and experience of the advertising agencies engaged, the
geographic area and the nature and extent of advertising and promotions which
will take place.
(10) MISCELLANEOUS OPENING COSTS. This is an estimate of the funds you
---------------------------
will need to cover pre-opening expenses including: initial employee wages;
utility deposits; insurance premiums; architectural fee for preparation of the
Store's initial schematic drawing; the fee for ENBC's Market Plans used for site
selection; license and permit costs; uniforms; recruitment and in-store training
expenses as well as additional operating capital for other variable costs (e.g.,
electricity, telephone or heating costs). These amounts may be refundable,
depending on the arrangements you make with third parties.
(11) SOFTWARE LICENSE FEE. You will pay this amount to use the proprietary
--------------------
software programs that ENBC specifies, including the Licensed Program. (See
Items 8 and 11) $15,000 of this fee is payable to BCI.
(12) COMPUTER SYSTEM (INCLUDING SPECIFIED SOFTWARE AND RELATED FEES).
---------------------------------------------------------------
Please see the footnote under "Computer System" in the chart for the Development
Agreement above in this Item 7.
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(13) ADDITIONAL FUNDS. This amount represents an estimate of all payments,
----------------
costs, and expenses necessary to operate the Store during the first 3 months of
operation. It includes amounts required for inventory, employee compensation
and benefits, recruitment and training expenses, utilities, supplies, telephone
and mail charges, security system, music, repair and maintenance, uniforms and
laundry, bank charges, financing payments, royalties, advertising contributions,
and rental and all other related charges. This amount includes the fee for
initial training (which is payable to the existing Franchisee who conducts the
training, as described in Item 11) for 5 to 10 of your employees. The amount
will vary, depending in part upon the Store's revenues during the first 3 months
of operation. You should set aside an additional amount for living expenses
during the Store's start-up period as this amount has not been included in these
figures since they vary widely with each individual. The amounts you spend as
additional funds may be refundable, depending on the arrangements you make with
third parties.
(14) TOTAL ESTIMATED INITIAL INVESTMENT. The amounts shown are ENBC's
----------------------------------
reasonable estimates of the amounts that you will typically spend for the
purpose indicated. However, the actual costs incurred may be higher or lower
for any given Store based upon the particular circumstances applicable to that
Store, including factors like its location, size, number and experience of
personnel, and whether you own and operate Commissaries during the initial
period. In exceptional cases, where particular sites have appeared to offer
superior potential, franchisees have incurred initial costs in excess of the
range indicated here. In such cases, the incremental costs are most often in
the categories of higher rentals, key money, leasehold acquisition fees, or
leasehold improvements; furniture, fixtures, smallwares, equipment and signage;
and computer hardware. However, ENBC does not believe that such higher costs
are representative of the costs franchisees will normally incur.
ENBC relied on the experience in the food service business of certain of
its officers to compile the estimates shown above. (See Item 2) You should
review these figures carefully with a business advisor before making any
decision to purchase the Franchise.
ENBC does not offer, either directly or indirectly, financing to you for
any of the above items other than under its Financed Area Developer Program.
(See Item 10) The availability and terms of financing from independent third
parties will depend on factors including the availability of financing
generally, your creditworthiness and the collateral you make available to secure
any financing. Pledges of assets are subject to the transfer provisions of the
Development Agreement and Franchise Agreement. (See Item 17) The terms of the
financing arrangement that may be available to you, including amounts available,
applicable interest rate and down payment requirements, if any, are described in
Item 10.
34
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ITEM 8
------
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
If you sign a Development Agreement and/or a Franchise Agreement, you
must purchase, lease and conduct your operations according to ENBC's
specifications. You must obtain goods and services from designated or approved
suppliers (which may include ENBC or its affiliates). As described in Items 1
and 12, you must comply with the standards, specifications and System that ENBC
designates for the Mark under which you are authorized to operate your Store.
Collectively, the purchases, leases and services you obtain according to ENBC's
specifications or from approved or designated suppliers represent virtually 100%
of your total purchases and leases to establish, and virtually 100% of your
total purchases and leases to operate as a Developer. The purchases and leases
that you must make according to ENBC's specifications or from ENBC or its
affiliates are described below. ENBC may negotiate purchase arrangements
(including price terms) for the benefit of Developers and Franchisees, and those
arrangements are described below in this Item.
DEVELOPMENT AGREEMENT
- ---------------------
FINANCED AREA DEVELOPER PROGRAM.
-------------------------------
ENBC generally requires all Developers to participate in the Financed
Area Developer program described in Item 10.
COMPUTER SYSTEM.
---------------
Under the Development Agreement, you must purchase, install and use
the Computer System, including all programs and software that ENBC requires
during the term of the Development Agreement, as further described in Item 11.
The "Computer System" includes those brands, types, makes, and/or models of
communications and computer systems and hardware which ENBC specifies or
requires you to use in the operation of your Store and to communicate with other
Stores and with ENBC. The "Specified Software" means the software, programming,
and services other than the Licensed Program, which ENBC specifies during the
term of the Franchise Agreement for use with the Computer System. You must use
the Licensed Program under the Development Agreement. The Licensed Program
consists of the retail store-level computer software programs BCI develops (or
has developed) and licenses to ENBC. The Licensed Program may include ENBC's
point-of-sale, bookkeeping, inventory, training, marketing, employee selection,
operations and financial information, collection and retrieval systems
(including ENBC's general ledger system using the standard chart of accounts
ENBC requires) for use in the operation of Stores, including any updates,
supplements, modifications or enhancements ENBC may make or prescribe, all
related documentation, the tangible media upon which programs are recorded, and
the database file structure. The Licensed Program does
35
<PAGE>
not include any data or databases ENBC or its affiliates own or compile for use
with the Licensed Program or otherwise or any data ENBC or its affiliates
generate by using the Licensed Program. You must purchase the hardware from
MCR/AT&T GIS and the software for the point of sale devices that ENBC licenses
to you is the property of Compris Technologies, Inc. (See Item 11) The cost of
your computer equipment is expected to range from $15,000 to $40,000. (See Item
7)
ENBC attempts to negotiate its contracts with computer hardware and
software vendors to make discounted pricing available to you. In some instances
this may involve remarketing arrangements, and if it does, ENBC would derive
revenue from sales to you. ENBC estimates that the costs of the Computer
System, Licensed Program and Support/Control Programs will represent
approximately 30%-35% of the purchases and leases of goods and services you will
make or enter into in the establishment your business and will represent
approximately 30%-35% of the purchases and leases that you will make or enter
into in the ongoing operation of your business if you do not operate a
Commissary and 1%-10% if you do operate a Commissary.
MARKET PLANS AND DEMOGRAPHIC DETAIL REPORTS.
-------------------------------------------
At the beginning of the Development Term, and on an annual basis
during the Development Term, you may purchase Market Plans from BCI for those
Sub-Areas where you retain development rights, as noted in Items 5 and 6 of this
offering circular. ENBC will derive revenue from providing Market Plans to you.
BCI cannot estimate what percentage the cost of Market Plans will represent of
your initial and ongoing purchases and leases of goods and services because the
cost will vary with the number of sites included in each report. BCI derived
between $125,000 and $150,000 from the sale of Market Plans and other
demographic reports to ENBC area developers in 1996, which represented less than
1% of BCI's total 1996 revenue.
SITE REVIEW AND APPROVAL.
------------------------
You must comply with ENBC's standards and specifications when you
select the site for a Store or a Commissary. ENBC will evaluate your site
according to a required site approval procedure that is described in Item 11.
You must use forms that ENBC directs to request a site, and ENBC will evaluate
the site you propose according to its criteria. When you refurbish your Site or
construct the Store, you may have to engage contractors and real estate
developers and brokers which ENBC has approved. (See Item 11)
LEASE AGREEMENT TERMS.
---------------------
If you rent an in-line location as your Site, you must present the
lessor of your Site with a lease in the form that ENBC prescribes. The form of
lease currently prescribed by ENBC for in-line leased locations (the "Form In-
Line Store Lease") is attached as Exhibit D. If the lessor
---------
36
<PAGE>
does not use the approved form, you may only sign a lease that ENBC has approved
and which has certain terms that ENBC may specify. These terms and the
procedure to seek ENBC's approval of the lease are described in Item 11.
INSURANCE.
---------
In addition to the insurance required for the development and
operation of a Store under a Franchise Agreement, during the Agreement Term you
must maintain insurance policies with insurers rated "A-" or better by Alfred
M. Best & Company, Inc. that ENBC approves. The policies must include: (1)
insurance necessary to comply with all legal requirements concerning insurance
coverage (including workers' compensation requirements) for persons attending
ENBC training programs; and (2) general and motor vehicle (whether or not you
own the vehicles) liability insurance against claims for bodily and personal
injury, death and property damage caused by or occurring in the conduct of your
business under the Development Agreement, under one or more insurance policies
containing minimum liability coverage ENBC periodically requires. Each
insurance policy must name ENBC as an additional named insured, must contain a
waiver of all subrogation rights against ENBC, its affiliates, and their
successors and assigns, and must provide for 30 days' prior written notice to
ENBC of any material modification, cancellation, or expiration of any policy.
Upon execution of the Development Agreement, you must provide ENBC with evidence
of such insurance and you must furnish to ENBC annually and upon the replacement
of any policy providing coverage under the Development Agreement, a copy of the
certificate of insurance or other evidence ENBC requests that such insurance
coverage is in force. The maintenance of sufficient insurance coverage will be
your responsibility. You must purchase insurance for each Store you open as
described below under the heading "Franchise Agreement" in this Item 8.
If you operate one or more a Commissaries, you must maintain insurance
policies for each Commissary that meet ENBC's requirements for insurance
coverage for Stores under the Franchise Agreement, as discussed below in this
Item.
COMMISSARY DEVELOPMENT.
----------------------
If ENBC chooses, you will have to develop and operate one or more
Commissaries under the Development Agreement on terms substantially similar to
the terms for developing and operating Stores described below in this Item 8.
SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
The operation of your development business in strict compliance with
ENBC's high standards is important to ENBC and Stores, and you must maintain
those high standards under the Development Agreement. You must comply strictly
with all of ENBC's mandatory specifications, standards and operating and
inspection procedures regarding your business, and
37
<PAGE>
the operation of the Developer Stores. ENBC formulates its specifications and
standards for Developers based on factors including its business judgment and
local, regional and national experience and market trends. ENBC may modify its
specifications, standards and procedures at any time with notice to you.
ENBC will periodically provide you with its mandatory specifications,
standards and operating and inspection procedures in the Development Manual or
otherwise communicate them to you in writing. These specifications, standards
and procedures will constitute binding obligations on your part as if fully set
forth in the Development Agreement, and if you fail to adhere to the mandatory
specifications, standards and operating and inspection procedures, ENBC may
terminate the Development Agreement. (See Item 17)
OTHER OBLIGATIONS.
-----------------
You must maintain the number and level of management personnel for
adequate management and supervision of all Developer Stores. (See Item 15)
FRANCHISE AGREEMENT
- -------------------
COMPUTER SYSTEM.
---------------
You must purchase and install the Computer System, including all
programs and software that ENBC requires during the term of the Franchise
Agreement. This obligation is the same as under the Development Agreement, as
described above in this Item 8.
ENBC attempts to negotiate its contracts with computer hardware and
software vendors to make discounted pricing available to you. In some instances
this may involve remarketing arrangements, in which event ENBC would derive
revenue from sales to you. ENBC estimates that the costs of the Computer System
and Specified Software will represent approximately 8% of the purchases and
leases of goods and services you will make or enter into in the establishment of
the Store and will represent approximately 1% to 2% of the purchases and leases
that you will make or enter into in the ongoing operation of the Store.
PRODUCT PURCHASES.
-----------------
ENBC may develop certain proprietary food products which ENBC
prepares, or which third party contractors prepare for ENBC, according to ENBC's
proprietary recipes and formulae and certain private label food products,
materials and supplies ("Proprietary Items"). As described below, ENBC has
designated cream cheese and other spreads and bagel dough as Proprietary Items
as of the date of this offering circular. ENBC intends to develop Proprietary
Items in the future, which you must purchase. ENBC will require you to purchase
the
38
<PAGE>
Proprietary Items only from ENBC or its designees whom ENBC licenses to
manufacture, prepare, distribute and/or sell particular products. ENBC will
designate in the Manuals (defined in Item 11 below) which Products constitute
Proprietary Items, and which of the Proprietary Items must be purchased from
ENBC or its designated suppliers and/or which are to be prepared at the Store.
ENBC may derive revenue in the future from designated suppliers' sales of
Proprietary Items and other products or supplies to you.
You must purchase ENBC's proprietary bagel products only from the
supplier or suppliers ENBC designates. ENBC has entered into a supply agreement
with Harlan Bagel Supply Company, L.L.C., ("Harlan") which is not an affiliate
of ENBC, and ENBC intends to enter into a supply agreement with Noah's Pacific,
L.L.C., an area developer of ENBC ("Noah's Pacific"). Currently, Harlan and
Noah's Pacific are the only suppliers ENBC has approved to provide its
proprietary bagel dough for sale to Units. ENBC will not derive revenue from
these suppliers' sales of proprietary bagel dough to Franchisees.
You must also purchase proprietary cream cheese and other spreads only
from the supplier or suppliers ENBC designates. Currently, Doc's Cheese
Company, L.L.C. ("Doc's"), Raskas Foods, Inc. ("Raskas") and Noah's Pacific are
the only suppliers ENBC has approved to provide its proprietary cream cheese and
other spreads for sale to Units. ENBC will derive no revenue from Doc's or
Noah's Pacific's sales to Franchisees. ENBC anticipates that it may derive
revenue in the form of certain royalties for the license of proprietary
technology, know-how and recipes to Raskas.
SITE SELECTION AND LEASE.
------------------------
Before signing the Franchise Agreement, you must have obtained ENBC's
approval of, and the legal right of possession of, the Site according to the
terms of the Development Agreement. If the Franchise Agreement is not signed
under a Development Agreement, then you must comply with the site and lease
review and approval provisions specified in the form of Development Agreement
included in ENBC's most recent offering circular delivered to you for the state
in which the Site will be located. Other than as described in this Item and in
Items 5 and 11, ENBC will not derive revenue as a result of your selection of
the Site and execution of a lease for the Site according to ENBC's standards and
specifications.
STORE DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.
--------------------------------------------------
ENBC will furnish to you prototype specifications of ENBC's
requirements for design, decoration, layout, equipment, furnishings, seating for
on-premises dining, fixtures and signs for the Store (the "Design
Specifications"). The Design Specifications are an integral part of the System
and include ENBC's trade dress which ENBC has specified for the Store and,
therefore, the Store must be designed and constructed according to the Design
Specifications. You must cause to be prepared the preliminary layout for the
Store (if not already submitted to ENBC) and detailed construction plans and
specifications and space plans for the Store (the
39
<PAGE>
"Construction Plans") that comply with the Design Specifications and all
applicable ordinances, building codes, permit requirements, and lease
requirements and restrictions. Other than as described elsewhere in this
offering circular, ENBC will not derive revenue as a result of your development
of the Store according to ENBC's standards and specifications.
DEVELOPMENT OF THE STORE.
------------------------
Within 120 days after signing the Franchise Agreement, you must, at
your expense, do or cause to be done the following: (1) secure all financing
required to fully develop the Store; (2) if you have not done so previously,
submit the Construction Plans to ENBC for approval; (3) obtain all required
zoning changes, planning consents, building, utility, sign, health, sanitation
and business permits, licenses and approvals and any other required permits and
licenses; (4) construct all required improvements in compliance with
Construction Plans ENBC approves; (5) decorate and lay out the Store in
compliance with Design Specifications and plans and specifications ENBC
approves; (6) purchase, lease or license the Computer System, the Licensed
Program Support/Control Program and the Specified Software; (7) purchase or
lease and install all required equipment, vehicles, furnishings, fixtures and
signs and the Computer System; (8) purchase an adequate opening inventory of
Products, materials and supplies; (9) obtain all customary contractors' sworn
statements and partial and final waivers of lien for construction, remodeling,
decorating and installation services and (10) open the Store for business and
operate the Store on a regular and continuing basis.
STORE MENU AND SERVICES.
-----------------------
The Store will (1) offer for sale all Products (and no other products)
and (2) provide only the following services (and no other services): (a) the
carry-out service that ENBC authorizes and requires, (b) the Delivery Service
that ENBC, in its discretion, may authorize for the Store under a Delivery Rider
and (c) the Catering Service that ENBC in its discretion may authorize you to
provide from the Store (or a Catering Facility) under a Catering Rider. The
Store may not offer for sale or sell any products or services at or from the
Store which ENBC has not approved in writing. You may not use the Site or Store
for any purpose other than the operation of a Store. You must meet ENBC's
specifications, standards and procedures for carry-out service, on-premises
dining services, if applicable, Delivery Service and Catering Service, which
ENBC periodically requires in the Manuals or otherwise in writing. The Store
may not provide any services at, from or away from the Site until ENBC, in its
discretion, has approved the Store (or a Catering Facility) in writing for the
conduct of these services and ENBC and you have executed the applicable Rider to
the Franchise Agreement.
You may not sell any Products that have not been packaged according to
ENBC's specifications, standards and procedures required in the Manuals or
otherwise in writing. If ENBC requires your Store and other Units in the
Marketing Area (or, in ENBC's discretion, the trade area of your Store) to offer
new or substitute products or services not currently offered at Units in the
Marketing Area (or trade area), you must offer required services and/or products
40
<PAGE>
in compliance with ENBC's specifications, standards and procedures required in
the Manuals or otherwise in writing and diligently pursue obtaining any permits
and take actions (including constructing improvements and acquiring fixtures,
furnishings, equipment, supplies and materials) required to offer the products
and/or services. Modifications to the services and/or products the Store offers
may require you to incur additional costs and expenses to operate the Store,
including the purchase and/or lease of additional or substitute furnishings,
furniture, fixtures, vehicles or equipment for Catering Service and/or Delivery
Service. You must incur those costs and expenses. The "Marketing Area" is the
geographic area in which the Store is located, the size and shape of which ENBC
determines periodically in its discretion, and which is typically a metropolitan
area. The "trade area" is typically the geographic area from which a Store
draws its customers. In determining the Marketing Area, ENBC may take into
consideration a number of factors, as described in the Franchise Agreement.
QUALITY CONTROL PROGRAM.
-----------------------
ENBC may conduct quality, service, cleanliness, and other inspections
of Stores periodically to determine compliance with applicable contract
provisions and the standards and specifications ENBC applies periodically. ENBC
requires that your performance in the inspections is satisfactory. ENBC may
designate an independent evaluation service to conduct a "customer satisfaction"
quality control and evaluation program, as may be more fully described in the
Manuals or in writing, with respect to ENBC-owned and franchised Units. You
must participate in the mystery shopper program. ENBC-owned and other
franchised Units also will participate in the program to the extent ENBC has the
right to require participation. (See Item 6)
APPROVED EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS.
---------------------------------------------------
You must use in the development and operation of a Unit only those
brands, types and/or models of equipment, vehicles, signs displaying the Marks,
fixtures and furnishings which meet ENBC's specifications. You may purchase
approved brands, types and/or models of equipment, fixtures and signs which meet
ENBC's specifications only from suppliers designated or approved by ENBC, which
may include ENBC or its affiliates. ENBC will periodically supply you with a
list of suppliers who sell items which meet ENBC's specifications, at your
request. ENBC and/or its affiliates will derive revenue as a result of your
purchase of such items from ENBC or an affiliate, if any, but did not derive
revenue from these items in 1996.
ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
--------------------------------------------
You must install and use at the Store the Computer System in the form
ENBC specifies during the term of the Franchise Agreement, and transmit to, or
permit the electronic collection of information by, ENBC through use of the
Computer System. You, at your own expense, must establish and maintain at the
Store, (i) a telephone modem and dedicated line (or other
41
<PAGE>
mechanisms for data transmission ENBC may periodically require) that ENBC may
use to access the Computer System, (ii) full, complete and accurate records and
reports and, (iii) if ENBC requires, computer diskettes and databases in the
form ENBC specifies pertaining to the operation of the Store, including site
reports on the Store which you must prepare and submit to ENBC, the Site
Agreement (defined in the Development Agreement), supervisory reports on
operations, bookkeeping, accounting, recordkeeping and records retention system
conforming to ENBC's requirements (including requirements for a general ledger
system which uses a standard chart of accounts ENBC requires periodically, and
for timely entry of information into data bases of the Computer System and
periodic printouts of reports generated from the Computer System), information
on employee turnover and any other records, reports and information ENBC
periodically requires.
APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS.
---------------------------------------------
ENBC has developed and may continue to develop standards and
specifications for bagels, Products, other food products, ingredients,
seasonings, spices, mixes, beverages, materials and supplies you will
incorporate in or use to prepare, cook, serve, package, cater and deliver the
prepared food products ENBC authorizes for sale at or from Stores and for
advertising those items. ENBC has approved and will review and continue to
approve suppliers and distributors of the products, supplies and materials that
meet its standards and requirements. ENBC's criteria for evaluating, approving
or disapproving suppliers and distributors are based on its standards and
requirements for quality, quantity and portions, prices, volume capability,
frequency of delivery, distribution methods and locations, standards of service,
including prompt attention to complaints, consistency, reliability, financial
capability, labor and customer relations and other criteria. The evaluation
criteria will be available to you at your request. You must purchase only from
distributors and suppliers ENBC approves or requires all goods, food products,
ingredients, spices, seasonings, mixes and beverages. ENBC will also approve
certain suppliers for materials and supplies used to prepare, freeze, bake,
cook, serve, package and deliver the Products, for providing Catering Service
and for your equipment, menus, forms, paper and plastic products, packaging or
other materials (collectively, "Supplies and Materials"), and all advertising
media placement services you purchase for local store marketing. ENBC does not
provide material benefits to you based on your use of designated or approved
sources.
ENBC may modify the list of approved or required suppliers and
distributors during the term of the Franchise Agreement, and may designate
itself or an affiliate as a required manufacturer, supplier and/or distributor
of certain equipment, products, materials, supplies or other items. You may
not, after you receive written notice from ENBC of a modification, reorder any
product from any supplier or distributor that is no longer approved. ENBC may
approve or require a single distributor or supplier for any products, materials
or supplies and may approve or require a distributor or supplier only as to
certain products, materials and supplies, and approval may be temporary pending
ENBC's more comprehensive evaluation of a distributor or supplier. ENBC may
concentrate purchases with one or more distributors or suppliers to obtain lower
prices and/or advertising support and/or services for the benefit of the
42
<PAGE>
System and/or Units. ENBC may establish company or affiliate-owned and operated
food commissaries and distribution facilities which ENBC may designate as an
approved or required distributor or supplier. You must at all times maintain an
adequate inventory of approved food and paper products, beverages, ingredients
and other products of sufficient quality and variety to realize the full
potential of the Store.
ENBC will derive revenue as a result of your purchase of approved
products and supplies from ENBC and may, in its discretion, collect and retain
all allowances, benefits, credits, monies, payments or rebates (collectively
"Promotional Allowances"), whether for promotional, advertising or other
purposes, which manufacturers, suppliers and distributors offer to you or ENBC
or its affiliates based upon your purchases of Non-Proprietary Products,
Proprietary Items and Supplies and Materials. You must assign to ENBC or its
designee all of your right, title and interest in and to any and all Promotional
Allowances and authorize ENBC or its designee to collect any Promotional
Allowances to remit to the Marketing Fund to the extent based on your purchase
of Products which are not Proprietary Items (the "Non-Proprietary Products") and
Supplies and Materials. However, ENBC may also retain in its general operating
funds the Promotional Allowances it receives from your purchases of Proprietary
Items from any source and the Promotional Allowances it receives from your
purchases from ENBC or its affiliates of Non-Proprietary Products and Supplies
and Materials. ENBC is not obligated to contribute to the Marketing Fund any
revenue it or its affiliates make or collect from sales to you or from your
purchases of any goods or services. On occasion, ENBC negotiates purchase
arrangements with various suppliers who operate on a large volume basis. As a
result of these negotiated purchase arrangements, you may be able to purchase
some products at reduced rates. During the fiscal year ending December 29,
1996, the Units earned various marketing allowances from some suppliers, which
were paid to the Marketing Fund. The amounts earned from the various suppliers
ranged from 2% to 10% of the total purchase price paid for applicable products
by all Units from those suppliers.
You must notify ENBC and submit to ENBC any information,
specifications and samples as ENBC requests if you propose to purchase any
goods, food products, ingredients, seasonings, spices, mixes, beverages, menus,
equipment, forms, paper or plastic products, packaging or other materials or
utensils from a distributor or supplier whom ENBC has disapproved or not
previously approved. ENBC will use its reasonable best efforts to notify you
within 120 days after receipt of all requested information and materials whether
you are authorized to purchase products from a certain distributor or supplier.
If you fail to receive a notice of disapproval within the 120 day period, you
may purchase the products from the distributor or supplier until ENBC otherwise
notifies you. ENBC's failure to give its approval or disapproval will not be
deemed to constitute ENBC's approval of that distributor or supplier. If ENBC
chooses, you will have to reimburse ENBC for its reasonable costs incurred in
evaluating, inspecting and supervising a distributor or supplier. (See Item 6)
All approved suppliers will be evaluated continuously for things like
ability to deliver products or services, quality of products and services,
timeliness of delivery and cost. ENBC
43
<PAGE>
may revoke its approval of any supplier who ENBC, in its reasonable judgment,
believes is falling short in any category. ENBC may remove a supplier from the
list of approved suppliers at any time but with notice.
SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
Your obligations under the Franchise Agreement to operate according to
ENBC's specifications, standards and procedures are the same as those under the
Development Agreement, as described above in this Item 8.
INSURANCE.
---------
During the term of the Franchise Agreement, you must maintain in
force, insurance policies with insurers rated "A-" or better by Alfred M. Best &
Company, Inc. that ENBC approves: (1) commercial general liability insurance
(including coverage for motor vehicles used in the operation of the Store,
whether or not you own the vehicles), against claims for bodily and personal
injury, death and property damage caused by or occurring in the operation of the
Store or otherwise in your conduct of business under the Franchise Agreement,
under one or more insurance policies containing minimum liability coverage ENBC
requires periodically; and (2) all risk property and casualty insurance for the
replacement value of the Store and its contents (including leasehold
improvements, furnishings, fixtures, equipment, signs, inventory, supplies, and
materials). You must also maintain the insurance necessary to comply with all
legal requirements concerning insurance coverage (including worker's
compensation requirements), including coverage for persons attending ENBC
training programs on your behalf. ENBC may periodically increase the amounts of
coverage required under insurance policies and require different or additional
kinds of insurance at any time, including excess liability insurance, to reflect
inflation, identification of new risks, changes in law or standards of
liability, higher damage awards, or other relevant changes in circumstances.
The Franchise Agreement contains additional requirements, such as those
concerning waiver of subrogation and notice of modification, that are similar to
those in the Development Agreement described above in this Item 8. The
maintenance of sufficient insurance coverage will be your responsibility. You
will be responsible for maintaining sufficient insurance coverage.
As of the date of this offering circular, ENBC's requirements for
insurance coverage are the following: (1) employers' liability insurance of at
least $1,000,000 per accident and $1,000,000 per disease with a $1,000,000
policy limit on disease; (2) business automobile liability insurance of at least
$20,000,000 with combined single limit per occurrence for bodily injury and
property damage; (3) commercial general liability insurance on an occurrence
basis of $20,000,000 combined single limit for claims against bodily injury,
property damage liability and personal injury; (4) "all risk" property and
boiler and machinery insurance in an amount at least equal to the full
replacement cost of your Store and its contents.
44
<PAGE>
CREDIT CARDS AND OTHER METHODS OF PAYMENT.
-----------------------------------------
You must at all times have arrangements with a full range of credit
and debit card issuers or sponsors, check verification services and electronic
fund transfer systems as ENBC periodically designates in its discretion during
the term of the Franchise Agreement in order that the Store may accept
customers' credit and debit cards, checks and other methods of payment. You may
use only the payment methods that ENBC authorizes or approves.
ADVERTISING.
-----------
You must advertise and conduct promotions only according to ENBC's
standards and specifications, as described in Item 11.
DELIVERY SERVICE.
----------------
If you sign a Delivery Rider, you must take actions (including
constructing improvements and acquiring fixtures, equipment, delivery vehicles,
and other materials and supplies) at your own expense and obtain the required
permits to begin Delivery Service within the time period specified in the
Delivery Rider. You must maintain the condition and appearance of, and perform
maintenance with respect to, the delivery vehicles, facilities, fixtures and
equipment used to provide Delivery Service according to ENBC's standards,
specifications and procedures, and consistent with the image of Stores as first
class, clean, sanitary, attractive and efficiently operated food service
businesses.
CATERING SERVICE.
----------------
If you sign a Catering Rider, you must take actions (including
constructing improvements and acquiring fixtures, equipment, vehicles, and other
materials and supplies) at your own expenses and obtain the required permits to
begin Catering Service from the Catering Facility (defined below) within the
time period specified in the Catering Rider. You must maintain the condition
and appearance of, and perform maintenance with respect to, the Catering
Facility, catering vehicles, furniture, fixtures and equipment used in the
provision of Catering Service according to ENBC's standards, specifications and
procedures, and consistent with the image of Stores and related facilities as
first class, clean, sanitary, attractive and efficiently operated food service
businesses.
FRANCHISOR'S AND AFFILIATE'S REVENUE.
------------------------------------
In fiscal year 1996, ENBC and BCI derived revenue from Developers' and
Franchisees' required purchases. BCI received $3,075,000 and $1,158,900,
respectively from Software License Fees and Accounting Services Fees paid by
Developers and Franchisees in 1996. BCI received $410,856 and ENBC received
$97,944 from Software Support Fees paid by Developers
<PAGE>
and Franchisees in 1996. The amount ENBC received from Software Support Fees
constituted less than 1% of ENBC's total revenue in 1996.
ITEM 9
------
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND
OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
<TABLE>
<CAPTION>
===================================================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Site selection and Section 4.A of Franchise Agreement/ 6, 8, 10 and 11
acquisition/lease Sections 6.A and 6.B of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Pre-opening purchases/leases Sections 4.B, 4.C, 4.D., 4.E and 8
4.G of Franchise Agreement/Sections 6.B., 10 and 12.J of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Site development and Sections 4.C, 4.G and 4.I of 5, 6, 7 and 11
other pre-opening Franchise Agreement/Sections 5.B,
requirements 6.C and 6.D of Development
Agreement
----------------------------------------------------------------------------------------------------------------------------------
(d) Initial and ongoing Sections 5.A and 5.B of Franchise 6 and 11
training Agreement/Sections 5.C, 13.D and
13.F of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(e) Opening Section 4.F of Franchise 11
Agreement/Section 5.B. of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(f) Fees Sections 4.E, 8.B and 8.D, 11.A- 5 and 6
11.F, 13.A-13.C of Franchise
Agreement/Sections 3.E, 6.D., 6.E,
7.A to 7.C, 10.B to 10.D and 12.J
of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(g) Compliance with Sections 4.B, 4.C, 4.D, 5.B, 5.C, 11, 13 and 14
standards and policies/l 6.A, 6.B, 7.B, 12.A-12.H, 13 and
Operations Manua 15 of Franchise Agreement/
Sections 5.D., 6.A, 6.B, 8, 10.A,
10.B, 11.B, 13.J and 13.K of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(h) Trademarks and Sections 4.E., 6.A-6.D, 7.A-7.D, 13 and 14
proprietary information 9.A, 9.B, 19.B, and 19.C of
Franchise Agreement/Sections 8,
10.A-10.E, 11.A-11.D and 13.J of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(i) Restrictions on products/services offered Sections 12.B-12.D, 12.H of 16
Franchise Agreement/ 5.A. of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(j) Warranty and customer None
service requirements
- -----------------------------------------------------------------------------------------------------------------------------------
(k) Territorial development Sections 2.B-2.D and 3.A-3.C of 12
and sales quotas Franchise Agreement/Sections 3.B-
3.F and 4.A-4.C of Development
Agreement; Exhibit B to
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(l) Ongoing product/service Sections 12.B-12.D of Franchise 8
purchases Agreement/Section 5.E.(7) of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(m) Maintenance, appearance Section 12.A of Franchise 9
and remodeling Agreement/ Section 5.E (3) and (8)
requirements of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(n) Insurance Section 12.G of Franchise 6 and 8
Agreement/Sections 5.F and 12.H of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(o) Advertising Sections 13.A-13.C of Franchise 6 and 11
Agreement/Section 6.E of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(p) Indemnification Section 8.D of Franchise 6
Agreement/Sections 8.E and 16 of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(q) Owner's participation/management/staffing Section 12.F of Franchise 11 and 15
Agreement/Sections 5.C., 13.A-13.F
of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(r) Records/reports Section 14 of Franchise Agreement/ 8
Section 13.I of Development
Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(s) Inspections/audits Sections 15.A and 15.B of Franchise 6 and 11
Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(t) Transfer Sections 16.A-16.J of Franchise 6 and 17
Agreement/Sections 5.G., 14.A-14.I
of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(u) Renewal Sections 17.A-17.C of Franchise 6 and 17
Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(v) Post-termination Sections 19.A-19.F of Franchise 17
obligations Agreement/Sections 5.I., 16.A-16.E
of Development Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(w) Non-competition Sections 9.B, 15.C (6) and 19.D of 17
covenants Franchise Agreement/Sections 9,
14.D (6) and 15.D of Development
Agreement
- -----------------------------------------------------------------------------------------------------------------------------------
(x) Dispute resolution Sections 20.C, 20.E, and 20.F-20.J 17
of Franchise Agreement/18.C, 18.E-
18.J. of Development Agreement
================================================================================================================================
</TABLE>
48
<PAGE>
ITEM 10
-------
FINANCING
Neither ENBC nor any agent or affiliate of ENBC offers, directly or
indirectly, any financing arrangements to you, except as described below. A copy
of the Loan Agreement described below is attached to this offering circular as
Exhibit H.
- ---------
FINANCED AREA DEVELOPER PROGRAM.
-------------------------------
ENBC offers financing under its "Financed Area Developer Program," as
described below, and expects to require all developers to participate in this
program. The Financed Area Developer Program provides developers with a
substantial portion of the funds necessary to develop Stores. Because of
restrictions on when drawdowns of financing may occur, it is generally not
available to be used for the payment of the Development Fee or the Real Estate
Services Fee. The amount of financing available to you, if you are a qualified
Developer, will depend upon various factors such as the location of your
Development Area, the number of Stores you intend to develop, and the amount of
equity capital you raised for initial and ongoing operations. The maximum
amount of financing offered is typically four times the amount of your equity
capital.
Under the Financed Area Developer Program, you and ENBC will execute a
secured loan agreement (the "Loan Agreement"), which provides, among other
things, that you must spend at least 75% of your equity capital toward
developing Stores before drawing on the agreed loan amount. Draws will be
permitted during a pre-determined draw period, which will typically be two to
three years. Upon expiration of the draw period, the loan converts to an
amortizing term loan payable in 65 substantially equal periodic installments of
principal (the amount of which periodic installments of principal is determined
at the end of the draw period based on a schedule amortizing the outstanding
principal balance as of that date in 130 substantially equal periodic
installments of principal) plus accrued interest, with a final payment of the
remaining principal balance of the loan and all accrued but unpaid interest on
the principal balance due approximately five years after the expiration of the
draw period. The maximum loan amount available must be an amount at least equal
to the amount which, if converted into equity in you, would give ENBC control of
you under applicable state law, and will typically be in an amount that if
converted, would give ENBC approximately 75% ownership of you. For example, if
the total capital paid in for your equity interests is $6 million, the maximum
amount of your loan would be $24 million. With equity capital of $6 million,
you could begin drawing on the loan amount once you had spent $4.5 million of
your equity capital to develop Stores, and you could continue drawing on the
loan for at least 2 years. If you have borrowed the entire $24 million at the
end of the two-year draw period, you will begin repayment in installments of 65
payments of approximately $184,615 each ($24 million divided by 130) plus
accrued interest. Five years after your draw period expires, you must make a
final payment of the remaining principal and all accrued interest on the
outstanding principal.
49
<PAGE>
Any amounts loaned to you will accrue interest daily on the aggregate
outstanding principal balance of the loan at a yearly rate equal to the rate the
Bank of America, Illinois (the "Bank") periodically designates and announces as
its "reference rate" in effect at its principal office in Chicago, Illinois,
plus 1%. The interest rate will be adjusted, periodically, on the same day on
which the Bank adjusts its reference rate. The annual percentage rate under the
Financed Area Developer Program as of March 3, 1997 was 9.25%. Interest on the
outstanding principal balance of the loan will be payable on the first day of
each of ENBC's four-week accounting periods during the draw period. The
interest that you will pay will be the amount that accrued during the four-week
accounting period immediately before the date the interest payment is due. Upon
expiration of the draw period and conversion of the loan to a term loan, the
principal amount of the loan and interest on the principal balance will be
payable to ENBC in substantially equal periodic installments of principal over
the balance of the term, plus accrued interest as described above. (Sections
3.1 - 3.6 of Loan Agreement). At the time you sign the Loan Agreement, you must
also sign a promissory note (the "Note") for the maximum loan amount.
Although there is no prepayment penalty, the Note may not be prepaid at any
time without ENBC's consent. You expressly waive demand, delivery of the note
for payment, protest, diligence, notice of dishonor, and any other formality
under the Loan Agreement. (Page 2 of the Note).
ENBC may, at any time after the earlier of (1) any acceleration of the
loan or (2) both the second anniversary of the execution of the Loan Agreement
and your completion of at least 80% of the Development Schedule, and up to the
later of the date on which you have properly repaid the outstanding principal
balance of the loan in full or a specified date which ENBC and you will
negotiate, convert the outstanding principal balance of the Note or any portion
of the outstanding principal balance (but not interest) into shares of your
common stock (or corresponding equity interests if you are not a corporation)
under the terms of the Loan Agreement at a premium to the original issue price
of equity interests in you ENBC will negotiate the amount of this premium with
you at the time you enter into the Development Agreement and the Loan Agreement.
Conversion of any portion of the principal balance of the loan will not relieve
you of your obligation to pay any accrued but unpaid interest on the portion of
the principal balance of the loan so converted. (Section 3.8(a) of Loan
Agreement, Article 1 of the Note).
ENBC also may, at any time after the earlier of (1) the acceleration
of the loan or (2) both the second anniversary of the execution of the Loan
Agreement and your completion of at least 80% of the Development Schedule, and
up to the later of the date on which you have properly repaid the outstanding
principal balance of the loan and all accrued interest thereon in full or a
specified date which you and ENBC will negotiate, purchase up to that number of
shares of common stock at the price determined by applying the formula set out
in the Loan Agreement so that the shares obtained by option and by conversion
equal the maximum number of shares which could have been obtained by conversion
if the loan were fully drawn and no portion repaid. (Section 3.9 of Loan
Agreement).
50
<PAGE>
To secure payment and performance of your obligations under the Loan
Agreement and all of your other obligations to ENBC, you must grant ENBC a
continuing security interest in and to substantially all of your property and
interest in property, whenever you acquire the property and wherever it is
located, consisting of the following: (a) all of your real estate, accounts,
equipment (including furniture, fixtures, tools, vehicles, and other tangible
property), inventory, leasehold improvements, contract rights (including your
rights as lessee under all leases of real property), general intangibles,
deposit accounts, tax refunds, chattel paper, instruments, notes, letters of
credit, documents, and documents of title (collectively, the "Collateral"); (b)
all insurance proceeds of or relating to any of the Collateral; (c) all of your
books, records, and computer programs and data relating to any of the
Collateral; and (d) all accessories and additions to, substitutions for, and
replacements, products and proceeds of, any of the Collateral. Section 4.1 of
Loan Agreement).
In addition to the security interest in the Collateral, your
obligations under the Loan Agreement and all of your other obligations to ENBC
must be secured by a pledge of all outstanding shares or other equity interests
in you. The stockholders generally do not need to personally guarantee payment
of the loan. (Section 4.2 of Loan Agreement).
Under the Loan Agreement, ENBC also has a right of first negotiation, a
right of first refusal and preemptive equity rights regarding any future
financing you may prepare to arrange. ENBC will subordinate its loan to your
other debts incurred later if you meet certain conditions contained in the Loan
Agreement. In addition, the Loan Agreement provides that you may have an
employee equity option plan which provides for grants of options aggregating up
to an agreed upon portion of your fully-diluted equity, with a four-year (10%,
20%, 30%, 40%) vesting schedule for option grants. (Sections 7.9 and 8.3 of
Loan Agreement). Applicable federal and state law may require you to register
or qualify your stock option plan as a security.
Upon a default under the Loan Agreement, ENBC may: (1) terminate its
obligations under the Loan Agreement, cease to make advances and declare the
Note due and payable in full, without demand, presentment or notice of any kind;
(2) exercise its rights as a secured party under applicable law; (3) exercise
its rights under the various security documents; (4) convert any portion of the
outstanding principal balance of the loan into shares of common stock or other
equity interests in you; and (5) exercise all or a portion of its option right
(described above). Among other things, your default under the Development
Agreement or termination of the lesser of (1) 50% or (2) three of the Franchise
Agreements to which you or your affiliates and ENBC are parties constitutes a
default under the Loan Agreement. (Sections 10.1 and 10.2 of Loan Agreement).
You must also pay all reasonable attorneys' fees and any costs and charges
relating to or arising out of ENBC's enforcement of its rights to collect any
portion of the Loan (Section 11.3 of the Loan Agreement).
The Loan Agreement requires you to acknowledge that ENBC may not have cash,
cash equivalents or credit resources sufficient to permit ENBC to make all
requested advances and to agree that if ENBC fails to fund the loan as required
under the Loan Agreement (and if the
51
<PAGE>
failure constitutes a breach of the Loan Agreement), the failure will not (a)
constitute fraud, or (b) give rise to any liability of any person or entity
(other than ENBC, its successors and assigns) for any other tort and, that you
will be limited to your remedies in contract and in a non-fraud tort action
against ENBC. (Section 3.11 of Loan Agreement).
Under the Loan Agreement, the parties agree that they will not be liable
for consequential, indirect, incidental, special, speculative or punitive
damages. The parties also agree to waive their right, if any, to a jury trial,
subject to any limitations under applicable state law. (Section 11.14 of Loan
Agreement).
Under the Financed Area Developer Program, you must use ENBC's
accounting services under an Accounting Services Agreement, a copy of which is
attached to the Financed Area Developer Loan Program Agreement, which is
attached to this offering circular as Exhibit H. The fees you will pay ENBC
---------
under the Accounting Services Agreement are described in Item 6.
The terms of the financing described above in this Item 10 may vary
depending on the particular circumstances. ENBC does not place financing with
anyone, and, therefore, it does not receive any payment for the placement of
financing.
Except for a qualified Developer's participation in the Financed Area
Developer Program, ENBC is unable to estimate whether you can to obtain
financing for any part or all of your investment or the terms of any of the
financing, which will depend on general credit conditions and your
creditworthiness. The terms on which financing is offered under the Financed
Area Developer Program are limited by ENBC's credit arrangement with its
lenders.
Under the terms of the Franchise Agreement, a pledge of the Franchise
Agreement or the lease for a Store made to secure financing constitutes a
transfer requiring ENBC's approval, and ENBC's policy is not to approve pledges
of leasehold improvements or franchise rights or other liens, royalty deferrals
or subordination provisions which the SBA or bank lenders request. Pledges of
equipment for equipment financing in the ordinary course of business are
generally outside the scope of this restriction.
ENBC does not have any past or present practice or intention to sell,
assign or discount to any third party any note, contract or other instrument you
execute, except that ENBC's rights to security interests in you and in shares of
common stock or other equity interests in you may be pledged to any secured
lender of ENBC.
52
<PAGE>
ITEM 11
-------
FRANCHISOR'S OBLIGATIONS
DEVELOPMENT AGREEMENT
- ---------------------
Except as listed below, ENBC need not provide any assistance to you under
the Development Agreement.
Before you begin operations under the Development Agreement, ENBC will:
(1) LOAN YOU A DEVELOPMENT MANUAL. ENBC will loan to you for your sole use
-----------------------------
during the Agreement Term one copy of a confidential manual relating to the
development and operation of Stores, which may be one or more volumes,
handbooks, manuals, written materials, video or audio cassette tapes, or
computer diskettes, and other materials and intangibles, as ENBC may
periodically modify, add to, replace or supplement in its discretion, whether by
supplements, replacement pages, bulletins or other official pronouncements or
means (collectively the "Development Manual").
ENBC also will loan to you for your use during the term of each Franchise
Agreement one copy of the Manuals (defined below) for each Developer Store you
develop and open under the Development Agreement (the Manuals for the first
Store to be developed under the Development Agreement will be made available to
you promptly after you execute the Development Agreement) and one copy of the
commissary manual (the "Commissary Manual") for each Commissary you operate
under the Development Agreement. The Commissary Manual will be comparable to the
Manuals (as defined below in this Item), as applicable, and will relate to the
comparable aspects of the development and operation of a Commissary. The
Development Manual will contain specifications, standards, policies and
procedures ENBC periodically requires for developers of Stores and information
relative to other of your obligations and the operation of Stores. The
Development Manual and Commissary Manual, in whole or in part, will be specific
to the brand of Stores for which ENBC grants you rights to develop. (See Items 1
and 12) The Development Manual and Commissary Manual may be periodically
modified in ENBC's discretion to reflect changes in the System or
specifications, standards, policies and procedures for Stores or other changes
or additions as ENBC deems necessary. You must keep your copy of the Development
Manual current by immediately inserting all modified pages or materials ENBC
furnishes. If a dispute about the contents of the Development Manual arises, the
master copies ENBC maintains at its principal office will be controlling. The
Development Manual is proprietary and confidential. Accordingly, you may not, at
any time, disclose, copy or distribute any part of the Development Manual.
Copies of the ENBC manuals that are in effect as of the date of this offering
circular, including the Development Manual, the Commissary Manual and the
Manuals, will be available for you to review before you sign the Development
Agreement. (Sections 5.D and 12.J of Development Agreement)
53
<PAGE>
(2) REVIEW YOUR DEVELOPMENT PLAN. ENBC will review and may amend and
----------------------------
approve a real estate development plan for developing Stores in the Development
Area that you prepare and submit to ENBC for consideration. In addition, if you
are in full compliance with all of the terms and conditions of the Development
Agreement and you are in full compliance with all obligations under all
Franchise Agreements executed under the Development Agreement, ENBC will grant
to you during the Development Term and according to the Development Agreement,
the right to develop and operate Developer Stores in the Development Area.
(Sections 3.A and 6.A of Development Agreement).
(3) REVIEW YOUR PERSONNEL. ENBC will review and determine whether
---------------------
your proposed Chief Operating Officer, Development Director, Training Director
and Marketing Director, as defined in this Item and Item 15, are acceptable to
ENBC. (See Item 15) (Sections 13.B-13.E of Development Agreement).
(4) PROVIDE TRAINING. ENBC will train your training director (the
----------------
"Training Director") in the relevant aspects of the operations of Stores and, if
applicable, Commissaries. See below in this Item. (Sections 5.C and 13.D of
Development Agreement).
During your operation under the Development Agreement, ENBC will:
(1) IDENTIFY TARGET SITES. If during the Sub-Area Term of a
---------------------
particular Sub-Area ENBC locates a site suitable for a Store within the Sub-Area
(a "Target Site"), ENBC will notify you in writing of a Target Site if ENBC
intends that a certain Target Site be developed and operated as a Store. If
ENBC has fully negotiated a lease or purchase agreement for the Target Site,
ENBC will fully cooperate with you in obtaining the landlord's consent to
execute the lease or the seller's consent to execute the purchase agreement or
assignment of purchase agreement. If ENBC has not fully negotiated a lease or
purchase agreement for the Target Site, then you will have 30 days in which to
negotiate and deliver to ENBC for review a lease or purchase agreement for the
Target Site in form for execution. Your right to develop a Store at the Target
Site, conditions to your exercise of the right and the consequences of not
exercising this right are further described in Item 12 of this offering circular
and the Development Agreement. (Section 3.E of Development Agreement).
(2) OFFER YOU CONVERSION SITES. If, during the applicable Sub-Area
--------------------------
Term for a particular Sub-Area, ENBC acquires the shares or assets (which may
include furniture, fixtures, equipment, leasehold improvements and/or leasehold
interests) of any business operating at one or more sites located within the
Sub-Area which meet ENBC's specifications and standards as in effect
periodically for conversion to Stores (the "Conversion Sites"), and ENBC
determines in its discretion to convert a Conversion Site to a Store, ENBC
agrees to offer to sell the Conversion Sites to you for the price ENBC paid plus
any other direct or indirect costs and liabilities that ENBC incurs due to the
acquisition. Additional information concerning your right to purchase
Conversion Sites and the consequences of not exercising this right are described
54
<PAGE>
elsewhere in this offering circular and in the Development Agreement (Section
3.F of Development Agreement).
(3) PROVIDE YOU MARKET PLANS AND DEMOGRAPHIC SERVICES. Annually throughout
-------------------------------------------------
the Development Term, ENBC or its designee (currently BCI) will sell to you
Market Plans on the demographics of each Sub-Area in which you retain the right
to develop Stores for a fee, as described in Items 5 and 6. At your request,
ENBC or its designee may provide other demographic services at such provider's
then-current charges, which will vary with the type of service requested, as
described in Item 6. At your request, ENBC or its designee will provide to you,
at such provider's then-current charges, a report and grid map containing
certain demographic information concerning a proposed site and surrounding area.
ENBC, its designee or an independent demographic statistics service, may prepare
the report and grid map at ENBC's discretion. (Section 6.A of Development
Agreement).
(4) PROVIDE SITE EVALUATION. ENBC will provide you with the site selection
-----------------------
criteria it periodically establishes in its discretion. ENBC will approve or
disapprove a site by delivering written notice to you. ENBC will exert its
reasonable best efforts to deliver the notification to you within 30 days after
ENBC receives a complete site approval request package and location feasibility
analysis on ENBC's specified forms (containing the demographic, commercial, and
other information and photographs as ENBC may periodically require) for each
site at which you propose and intend in good faith to establish and operate a
Store and which you believe to conform to ENBC's minimum site selection
criteria. (Section 6.A of the Development Agreement).
(5) FURNISH FORM LEASE. ENBC will furnish you with a copy of its current
------------------
standard requirements for your lease, including forms or addenda that you must
use. ENBC's current form of Form In-Line Store Lease is attached as Exhibit D
---------
and ENBC's current form of Addendum to Lease is attached as Exhibit E. ENBC may
---------
periodically modify its standards for leases in its discretion. After receiving
a copy of a proposed Site Agreement for an Approved Site, ENBC will have the
right, in its discretion, to approve, approve with modification or disapprove
the Site Agreement. ENBC will exert its best efforts to deliver notification to
you within 20 days after ENBC receives the proposed Site Agreement. See below in
this Item. (Section 6.B of Development Agreement).
(6) OFFER YOU FRANCHISES. If (1) you are in full compliance with all
--------------------
of the terms and conditions of the Development Agreement, (2) you are in full
compliance with all Franchise Agreements you have entered into, and (3) you have
obtained legal possession of an Approved Site, ENBC will offer to you a
Franchise to operate a Store at the Approved Site by delivering a Franchise
Agreement to you in a form for you and your Principal Owners to sign. (Section
6.C of Development Agreement).
55
<PAGE>
(7) PROVIDE COMMISSARY ASSISTANCE. If you operate a Commissary, ENBC
-----------------------------
will furnish you with its standards, specifications and procedures for
Commissaries. (Development Agreement - Section 5).
(8) DISCLOSE CONFIDENTIAL INFORMATION. ENBC will disclose parts of
---------------------------------
the Confidential Information (defined in Item 14 below) as ENBC periodically
deems necessary or advisable in its discretion for the development of Stores to
you in providing training, and in guidance and assistance furnished to you under
the Development Agreement and you may learn or otherwise obtain additional
Confidential Information from ENBC during the Agreement Term. (See Item 14)
(Section 11 of Development Agreement).
(9) REVIEW YOUR FUNDING PLAN. ENBC will review the written plans for
------------------------
your funding which you must periodically submit to ENBC, which plans must be
reasonably acceptable to ENBC and which must include details of the sources and
terms of funding and any other information or documents ENBC requires. (Section
13.G of Development Agreement).
(10) CONDUCT INSPECTIONS AND AUDITS. To determine whether you are
------------------------------
complying with the Development Agreement, ENBC or its agents will have the
right, at any reasonable time, to inspect, audit and copy any books, records,
reports, computer data bases and documents pertaining to your obligations under
the Development Agreement. (Section 13.I. of Development Agreement).
(11) IDENTIFY COMPUTER SYSTEM AND REQUIRED SOFTWARE. ENBC will
----------------------------------------------
periodically identify those brands, types, makes, and/or models of
communications and computer systems or hardware which ENBC specifies or requires
for the Computer System, Specified Software and the Licensed Program. (Section
10 of Development Agreement).
(12) REVIEW PROPOSED TRANSFERS. ENBC will review and consider for
-------------------------
approval proposed transfers as described in Item 17. You must deliver to ENBC
written notice of your intent to transfer ownership interests in you 30 days
before the transfer is to occur, and ENBC will have 30 days to evaluate the
proposed transfer.(Development Agreement - Sections 15.B. and 15.D).
ENBC has the right to periodically delegate the performance of any
portion or all of its obligations and duties under the Development Agreement to
designees, whether they are agents or affiliates of ENBC or independent
contractors with which ENBC has contracted to provide services. (Section 14.I
of Development Agreement).
FRANCHISE AGREEMENT
- -------------------
Before you open your Store, ENBC will:
56
<PAGE>
(1) REVIEW YOUR FUNDING PLAN. Before beginning development of the
------------------------
Store, you must obtain ENBC's consent to your plan for funding the development
and initial operation of the Store. You must submit a written plan for
financing the Store's development, which must include the sources and terms of
financing and other information ENBC may require. ENBC will review the funding
plan and may approve or disapprove it in its discretion. (Section 4.I of the
Franchise Agreement).
(2) EVALUATE YOUR SITE SELECTION AND LEASE. ENBC will evaluate your
--------------------------------------
proposed site and lease terms, if necessary, according to the procedures under
the Development Agreement and as described below in this Item. (Section 4.A of
the Franchise Agreement).
(3) PROVIDE YOU WITH STORE SPECIFICATIONS. ENBC will furnish you with
-------------------------------------
mandatory and suggested plans and specifications for the Store as described in
Item 8 (Section 4.B of the Franchise Agreement).
(4) PROVIDE YOU WITH THE MANUALS. ENBC will loan to you, for your
----------------------------
sole use, one copy of a set of ENBC's confidential manuals on the development
and operation of Stores, which may be one or more volumes, handbooks, manuals,
written materials, video or audio cassette tapes, computer diskettes or any
other materials or intangibles, as ENBC may periodically modify, add, replace or
supplement in its discretion, whether by supplements, replacement pages,
bulletins, or other official pronouncements or means (collectively the
"Manuals"). The Manuals will contain specifications, standards, policies and
procedures ENBC periodically requires for Stores and information relative to
your other obligations and the operation of a Store. The Manuals, in whole or
in part, will be specific to the brand of Store for which ENBC grants you rights
to operate. (See Items 1 and 12) The Manuals may be periodically modified at
ENBC's discretion to reflect changes in the System or specifications, standards,
policies and procedures for Stores, to specify brands, types and/or models of
equipment which you must you to operate the Store, and to specify changes in the
decor, format, image, products, services and operations of the Store ENBC
requires or other changes or additions as ENBC deems necessary or advisable.
Copies of the Manuals in effect as of the date of this offering circular will be
available for you to review before you sign the Franchise Agreement. (Section
5.C of the Franchise Agreement).
(5) IDENTIFY THE COMPUTER SYSTEM AND REQUIRED SOFTWARE. Both before
--------------------------------------------------
you open and during operation of your Store, ENBC will identify the Computer
System and required software that you must use as described below in this Item
and in Item 8. (Section 4.E of the Franchise Agreement).
During the operation of the Store, ENBC will:
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<PAGE>
(1) PROVIDE SYSTEM STANDARDS. As described in Item 8, ENBC will
------------------------
prescribe mandatory specifications, standards and procedures for the operation
the Store. (Section 12.D of the Franchise Agreement)
(2) FURNISH GUIDANCE AND ASSISTANCE. ENBC may, in its discretion,
-------------------------------
furnish guidance to you with respect to: (1) recipes, methods, specifications,
standards and operating procedures used in Stores along with any modifications;
and (2) purchasing approved equipment, fixtures, furnishings, signs, products,
and materials and supplies; and (3) development and implementation of local
advertising and promotional programs; and (4) general operating and management
procedures of Stores; and (5) establishing and conducting employee training
programs at the Store; (6) opening the Store; and (7) maintenance of a Store
design database as created by ENBC's store design department. Any guidance
will, in the discretion of ENBC, be furnished in the form of ENBC's Manuals,
bulletins, video or audio cassette tapes, computer diskettes, written materials,
reports and recommendations, other materials and intangibles, refresher training
programs and/or telephonic consultations or consultations at the offices of ENBC
or at the Store. (Section 5.B of the Franchise Agreement)
OPENING OF THE STORE.
--------------------
ENBC estimates there will be an interval of approximately 120 days
between the execution of the Franchise Agreement and the opening of a Store, but
the interval may vary based upon factors including weather, the location and
condition of the Site and the construction schedule for the Store. You may not
open the Store for business until: (1) ENBC notifies you in writing that all of
your development obligations have been fulfilled; (2) pre-opening training of
personnel has been completed to ENBC's satisfaction; (3) all amounts then due to
ENBC have been paid; (4) ENBC has been furnished with copies of all insurance
policies required under the Franchise Agreement, or other evidence of insurance
coverage and payment of premiums that ENBC requests. You must comply with these
conditions and be prepared to open the Store for business within 120 days after
the date of the Franchise Agreement. You must open the Store for business and
begin conduct of business at the Store under the Franchise Agreement within 5
days after ENBC gives notice to you stating that the Store is ready for opening.
(Section 4.F of the Franchise Agreement)
ADVERTISING PROGRAMS.
--------------------
ENBC's advertising program consists of print, out-of-home, radio and
television advertising and merchandising activities. The advertising is local,
regional and national in scope. ENBC's national advertising agency produces or
will produce most of ENBC's advertising, although ENBC's in-house marketing
personnel may produce a portion of the advertising. ENBC may designate an
outside advertising agency for media placement.
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<PAGE>
Before you use advertising and promotions which ENBC has not prepared
or previously approved, you must submit samples of the advertising and
promotional materials you propose to use to ENBC for approval, in the form and
manner ENBC periodically requires. If ENBC does not grant you written approval
within 15 days from the date after it receives the submitted materials, ENBC
will be deemed to have disapproved the submitted materials. You may not use any
advertising or promotional materials that ENBC has not approved, has disapproved
or that do not include the copyright registration notices and trademark
registration notices ENBC designates. In its discretion, ENBC may disapprove on
a prospective basis materials which ENBC had previously approved. ENBC does not
use an advertising council composed of Franchisees.
LOCAL AD FUNDS. All Franchisees in a particular Marketing Area are
--------------
generally required to participate in a local advertising fund (a "Local Ad
Fund") for that Marketing Area. Local Ad Funds will operate in substantially
the same manner as the Marketing Fund (described below). You must contribute to
the appropriate Local Ad Fund up to 4% (as ENBC determines periodically) of your
Store's Royalty Base Revenue for each Accounting Period in which you participate
in the Local Ad Fund. ENBC has the right to periodically require you to
increase your contributions to the Local Ad Fund above 4% by up to 0.25% each
year. All Franchisees in a Marketing Area must contribute to the Local Ad Fund
at the same rate. Stores that ENBC or its affiliates own (to the extent ENBC
has the right to require its affiliates to do so) will contribute to the Local
Ad Fund on the same basis as Franchisees. If you are a Developer, under the
Development Agreement you must cause each Store you own to contribute to the
Local Ad Fund an amount equal to the greater of: (1) the standard Local Ad Fund
contribution required under the applicable Franchise Agreement or (2) an amount
which, when aggregated with the Local Ad Fund contributions of the other Stores
in the Marketing Area will be sufficient for you, through the Local Ad Fund, to
begin Required Television Advertising within one year of the opening of the
first Store and to continue Required Television Advertising throughout the full
term of the Development Agreement. "Required Television Advertising" means
television advertising in the DMA, as the A.C. Nielsen Co. periodically
determines, in which the Development Area is located at a minimum level of 200
gross ratings points for a minimum of 36 weeks per calendar year. A gross
ratings point is a unit of measure used in the advertising industry to measure
the number of households watching a particular television program at a
particular time. ENBC may, in its discretion, periodically use a market
designation comparable to, but different from, the DMA for purposes of this
definition.
ENBC administers the Local Ad Funds, which are not governed by written
documents, other than the terms of the Development Agreement and Franchise
Agreements. Under the Franchise Agreement, ENBC is obliged to prepare annual,
unaudited summary financial statements for each Local Ad Fund and to make them
available to participants in that fund upon their written request. ENBC may
require Local Ad Funds to be formed, changed, dissolved or merged. Noah's
Stores will not contribute to Local Ad Funds in which Stores participate, but
Noah's Stores may form and contribute to their own local advertising funds.
Local Ad Funds to which Stores contribute will not be used to promote Noah's
Stores.
59
<PAGE>
MARKETING FUND. Under the Franchise Agreement, you will generally be
--------------
required to contribute to ENBC's national marketing fund (the "Marketing Fund").
There is no provision under the Development Agreement that requires you in the
capacity of a Developer to contribute to the Marketing Fund. The Stores that
ENBC or its affiliates own (to the extent ENBC has the right to require its
affiliates to do so) will contribute to the Marketing Fund on the same basis as
Franchisees do.
You must contribute to the Marketing Fund 2% of the Royalty Base
Revenue of your Store at the same time and in the same manner as the Royalty
Fees payable under the Franchise Agreement. (See Item 6) All Franchisees must
contribute to the Marketing Fund at the same rate, except that ENBC did not
require Marketing Fund contributions to be made in 1996 by Franchisees operating
Noah's Stores. ENBC may periodically increase your Marketing Fund contributions
up to 0.25% per year.
ENBC will direct all advertising, media placement, marketing and
public relations programs and activities the Marketing Fund finances, with
discretion over the strategic direction, creative concepts, materials and
endorsements used, and the geographic, market, and media placement and
allocation. The Marketing Fund may be used to pay various costs and expenses,
including preparing and producing video, audio and written advertising
materials; interest on borrowed funds; sponsorship of sporting, charitable or
similar events; reasonable salaries and expenses of employees of ENBC or its
affiliates working for or on behalf of the Marketing Fund or on advertising,
marketing, public relations materials, programs or activities or promotions for
the benefit of the Marketing Fund and administrative costs and overhead of ENBC
or its affiliates incurred in activities reasonably related to the
administration and activities of the Marketing Fund; administering advertising
programs, including, purchasing direct mail and other media advertising and
employing advertising agencies to assist with administration; and supporting
public relations, market research and other advertising, promotional and
marketing activities, including testing and test marketing programs, fulfillment
charges, and development, implementation, and testing of trade dress and design
prototypes. You must participate in all advertising, marketing, promotions,
research and public relations programs the Marketing Fund institutes. The
Marketing Fund will furnish you with reasonable quantities of marketing,
advertising and promotional formats and sample materials at cost.
The Marketing Fund will be accounted for separately, but will not be
required to be segregated, from the other funds of ENBC and will not be used to
defray any of ENBC's general operating expenses, except for the reasonable
salaries, administrative costs and overhead as ENBC may incur in activities
reasonably related to the administration and activities of the Marketing Fund
and creation or conduct of its marketing programs including conducting market
research, preparing advertising and marketing materials and collecting and
accounting for contributions to the Marketing Fund. ENBC may spend in a fiscal
year an amount greater or less than the aggregate contribution of all Stores to
the Marketing Fund in that year. The Marketing Fund may borrow from ENBC or
other lenders at standard commercial interest rates to cover deficits of the
Marketing Fund or invest any surplus for its future use. All interest
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<PAGE>
earned on monies contributed to the Marketing Fund will be used to pay costs of
the Marketing Fund before other assets of the Marketing Fund are expended.
Although the Marketing Fund contributions ENBC collects are covered by ENBC's
annual audit, separate audited financial statements are not prepared for the
Marketing Fund. ENBC will prepare a summary statement of monies collected and
costs the Marketing Fund incurs each year for ENBC's immediately preceding
fiscal year and will make it available to you upon your written request. The
Marketing Fund may be incorporated or operated through an entity separate from
ENBC at any time as ENBC deems appropriate, and that successor entity will have
all rights and duties of ENBC as described in this offering circular.
Any Promotional Allowances ENBC collects to remit to the Marketing
Fund based on your purchases of Products and Supplies and Materials from vendors
other than ENBC or its affiliates will not be credited toward your required
contribution to the Marketing Fund. (See Item 8) Under no circumstances will
ENBC or its affiliates be required to contribute to the Marketing Fund any
profits ENBC or its affiliates make or collect from your sales to or purchases
of any goods or services.
ENBC may, in its discretion, suspend contributions to and operations
of the Marketing Fund for periods that it determines to be appropriate and
terminate the Marketing Fund upon written notice to you. All unspent monies on
the date of termination will be distributed to ENBC and Franchisees in
proportion to their respective contributions to the Marketing Fund during the
preceding 12 month period. ENBC may reinstate the Marketing Fund upon the same
terms and conditions described above upon 30 days' prior written notice to
Franchise.
MARKETING FUND AND LOCAL AD FUND PURPOSES. The Marketing Fund and the
-----------------------------------------
Local Ad Fund are intended to maximize recognition of the Marks and patronage of
Stores generally, with respect to the Marketing Fund, and in the Marketing Area,
with respect to the Local Ad Fund. Although ENBC will endeavor to use the
Marketing Fund and the Local Ad Fund to develop advertising and marketing
materials and programs and to place advertising in order to benefit all Stores
whose franchise owners contribute to those funds, ENBC undertakes no obligation
to ensure that any Store will benefit directly or indirectly or in proportion to
its contribution to the Marketing Fund or the Local Ad Fund from the development
of advertising and marketing materials or the placement of advertising by the
funds. Your failure to derive any benefit in this manner will not serve as a
basis for a reduction or elimination of your obligation to contribute to the
funds.
Furthermore, the moneys you contribute to the Marketing Fund will be
combined with contributions which other franchisees of ENBC make to the
Marketing Fund, even though those other franchisees may operate their Stores
under different brand names and/or with other variations of the type described
in Item 1 of this offering circular. Thus, it is likely that some of the moneys
you contribute to the Marketing Fund will sometimes be used to promote brands
other than the brands used at your Stores. Similarly, some of the moneys
contributed by franchisees of ENBC operating under different brands will
sometimes be used to promote the
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<PAGE>
brand which you use in the operation of your Stores. Except as expressly
described above, ENBC assumes no direct or indirect liability or obligation to
you with respect to the maintenance, direction, or administration of the
Marketing Fund or the Local Ad Fund.
Marketing Fund monies were spent in the following manner in 1996:
<TABLE>
<S> <C>
Ad Production 42.8%
Media Placement & Promotion 27.8%
Administration 16.1%
Other:
Market Research & Product Testing 12.1%
Public Relations 0.7%
Customer Service 0.9%
Interest (Income) Expense (0.4%)
TOTAL 100.0%
</TABLE>
As noted above, ENBC receives payment for providing services to the
Marketing Fund in that the salaries of certain ENBC employees who work in the
marketing area are paid out of the Marketing Fund. No monies from the Marketing
Fund are used for advertising that is principally a solicitation for the sale of
franchises. If all monies in the Marketing Fund are not spent in the fiscal
year in which they accrue, ENBC will retain those monies in the Marketing Fund
and carry them over to be used for expenditures in the following fiscal year.
COMPUTER SYSTEM AND REQUIRED SOFTWARE.
-------------------------------------
As described in Item 8, you must purchase, install and use the Computer
System including specified software that ENBC requires. Developers and
Franchisees currently must obtain and use the same hardware and software
described in this Item, except that Developers are required to use
"Support/Control Programs" as described below. Current specifications for the
Computer System and Specified Software are available from ENBC on request.
You must purchase computer equipment that falls into two general categories
- -- "front of the house" and "back office".
For the front of the house, you must purchase point of sale devices, the
number of which may vary depending on factors including sales volume of the
Store, the presence of a drive-through window. Each of these point of sale
devices is itself a computer, which incorporates a touch-screen entry panel, a
central processing unit and software designed to provide cash register-like
functionality. Peripheral equipment is also associated with the point of sale
devices, including cash drawers and receipt printers. ENBC requires you to
purchase Specified Software for "front of the house" functions. (See Item 7)
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In the back office, a computer is required to facilitate the performance of
Store management functions, including activities like production scheduling,
inventory management and cash reconciliation. Included with the back office
computer system is a printer for the generation of paper reports, a disk drive
that is used to make backup copies of computer data and a modem or other
communications device that is used to transfer data and programs between the
Store and other locations (for example, ENBC's office). ENBC requires you to
purchase the Licensed Program for "back of the house" functions. (See Items 6
and 7)
In addition, if you are a Developer, you will use Support/Control Programs
that perform real estate tracking functions and operate to assist you to track,
support, supervise and communicate with Developer Stores.
Miscellaneous computer-related equipment that you must purchase includes
cables and equipment to connect all of the point of sale devices to the back
office computer system, various power cables, an uninterruptible power supply,
etc.
The following identifies each hardware component and software program by
brand, type and principal functions.
<TABLE>
<CAPTION>
======================================================================================
COMPONENT BRAND TYPE PRINCIPAL FUNCTIONS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Point of sale device NCR 7450 Point of sale/cash register
- --------------------------------------------------------------------------------------
Back office computer NCR 3349 Computer-assisted store
management
- --------------------------------------------------------------------------------------
Printer Hewlett-Packard LaserJet Printing of reports
- --------------------------------------------------------------------------------------
Modem USRobotics 33600 Data communications
Sportster
- --------------------------------------------------------------------------------------
Point of sale software Compris V2.10 Cash register-like
functionality for point of
sale devices
- --------------------------------------------------------------------------------------
Back office software IntelliStore(TM) V1.0 Software to facilitate store
management activities
======================================================================================
</TABLE>
No organization has the contractual right or obligation to provide
maintenance for any of the hardware components, although ENBC may seek to
negotiate the terms of a hardware maintenance contract for the ENBC System. The
approximate annual cost for an optional maintenance contract on all of the
hardware components with the vendor is $2,315.00
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ENBC is responsible for providing ongoing maintenance, upgrades and updates
for the Licensed Program. In addition to an initial one-time software license
fee of $16,000 per Store; the ongoing annual cost for this support service is
$4,800. ENBC or its designee (currently BCI) will test and install the Licensed
Program, and if you purchase your Computer System from a supplier other than
ENBC and you must pay to ENBC, a fee of $5,000 for this service. (See Item 6)
ENBC is not responsible for providing maintenance, upgrades or updates for
software that is not part of the Licensed Program.
NCR is the only supplier of the approved hardware components. NCR sells
the entire collection of hardware as a complete package. ENBC has been using
the hardware components since approximately February, 1995. NCR's address is:
NCR / AT&T GIS
2000 S. Colorado Blvd.,
Denver, CO 80222
(303) 758-3334
The Compris software is the only approved software for the point of sale
devices. This software is licensed through ENBC, from:
Compris Technologies Inc.
1800 Parkway Place, Suite 400
Marietta, GA 30067
(404) 423-8330
The other software components are the proprietary property of ENBC or its
licensors.
Compatible equivalent hardware components exist only for the back office
computer system (virtually any IBM-compatible Intel Pentium-based computer
system may be compatible). Except for these hardware components, no components,
other than those components described in the chart above in this Item 11 have
been approved for use as part of the back office computer system.
You may be required to upgrade or update any of the hardware components or
software programs described above. There are no contractual limitations on the
frequency or costs associated with this obligation. ENBC may modify its
specifications and the components of the Computer System, Support/Control
Programs or Specified Software at any time. ENBC's development and/or
modification of specifications for the components of the Computer System,
Support/Control Programs or Specified Software may require you to incur costs to
purchase, lease and/or license new or modified computer and communications
hardware and/or software and to obtain service and support for the Computer
System during the term of the Franchise Agreement. ENBC cannot estimate the
costs of future additions, enhancements and modifications to the Computer System
and Specified Software beyond those estimated for its
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<PAGE>
current configuration and may add additional elements, components, and software
to the Licensed Program and the cost to you of obtaining the additions,
enhancements and modifications to the Computer System, Specified Software, and
Licensed Program may not be fully amortizable over the remaining term of the
Franchise Agreement. Nonetheless, you must incur those costs in obtaining the
Computer System, Specified Software, and Licensed Program (or additions or
modifications), if the Computer System which ENBC directs you to use is the same
Computer System which ENBC is then currently specifying for use in ENBC-owned
Stores. As described in Item 6, you must to pay to ENBC or its designee a
periodic Software Support Fee of $400 for modifications and enhancements made to
the Licensed Program and other maintenance and support services related to
operating the Licensed Program and the Specified Software on the Computer
System. If you request additional, special assistance with the Computer System,
ENBC (or its designee) may charge you an hourly fee for this assistance, as
described in Item 6.
The point of sale hardware and software will be used to track individual
sales transactions that take place at the Store. This equipment is also used
for the tracking of employees' hours of work (i.e., employees punch in and punch
out using the point of sale equipment). Detailed records regarding every in-
Store sales transaction and every employee punch-in and punch-out are
maintained.
The back office computer system is used to generate and/or maintain
production schedules, vendor orders, inventory lists, food cost analyses,
employee records and other collections of data related to the day-to-day
operation of the store. All of this data is stored on the back office computer
system. ENBC has independent access to all of this information and data. There
are no contractual limitations on ENBC's right to access this information and
data.
SITE SELECTION.
--------------
You must comply with ENBC's specifications and requirements regarding site
selection, development and construction, including those concerning relations
with and use of approved general contractors, subcontractors, real estate
developers and lessors and, if ENBC requests, real estate broker(s). ENBC will
provide you with a complete site approval request package (the "Site Package"),
which includes, among other items, a location feasibility analysis form. ENBC
will also furnish to you ENBC's current form of lease. The current Form of In-
Line Store Lease is attached as Exhibit D. ENBC may periodically modify this
---------
form in its discretion. You must submit to ENBC on ENBC's specified forms or
other media ENBC periodically designates a complete Site Package (containing
demographic, commercial, and other information and photographs as ENBC may
periodically require) for each site at which you propose and intend in good
faith to establish and operate a Store and which you reasonably believe to
conform to certain minimum site selection criteria ENBC establishes periodically
in its discretion.
When ENBC evaluates proposed sites, it will consider factors it considers
relevant, including factors like demographic characteristics, traffic patterns,
parking, visibility, allowed
65
<PAGE>
signage, the predominant character of the neighborhood, competition from other
businesses providing similar services within the area (including other Stores),
the proximity to other businesses, the exclusivity granted to other franchise
owners or developers of Stores, the nature of other businesses in proximity to
the site, and other commercial characteristics (including the purchase price or
rental obligations and other lease terms for the proposed site) and the size,
appearance, and other physical characteristics of the proposed site. ENBC may
periodically alter the criteria or impose additional criteria for acceptable
sites for Stores at any time in its discretion. You must abide by ENBC's site
criteria and comply with your development obligations imposed under the
Development Agreement. You will not receive extensions or changes in the
required opening date of any Store based on changes in ENBC's site criteria
ENBC will approve or disapprove sites by delivering written notice to you.
ENBC will use its reasonable best efforts to deliver the notification to you
within 30 days after ENBC receives a complete Site Package and other materials
it periodically requests that contain all information ENBC requires. ENBC may
approve or disapprove a site and will have no liability as a result of its
approval or disapproval. Regardless of any other provision of the Development
Agreement, ENBC's failure to provide you with notice of its approval or
disapproval of one or more proposed sites will not constitute a waiver of ENBC's
right to approve or disapprove the sites or alter the required opening date of
Stores scheduled for development under the applicable Development Agreement. A
proposed site which ENBC approves as meeting its minimum criteria for the
development and operation of a Store is referred to in the Development Agreement
and this offering circular as an "Approved Site."
ENBC's approval of a Site for the Store does not constitute ENBC's
assurance, representation or warranty of any kind, express or implied, as to the
suitability of any Site for a Store or the successful operation of a Store at
the Site. ENBC's approval of a Site only indicates that the Site falls within
acceptable minimum criteria ENBC establishes solely for ENBC's purposes at the
time of the approval of a particular Site. ENBC will not be responsible for the
failure of any Site ENBC approves to meet your expectations as to revenue or
operational criteria.
Under the Development Agreement, ENBC will evaluate the site that you
propose for your Commissary using the same criteria and procedures as it uses to
evaluate sites for Stores. (Development Agreement - Section 5.B).
LEASE OF APPROVED SITES. You must present ENBC's current form of lease to
-----------------------
the lessor or seller of an Approved Site, as applicable, and use your best
efforts to cause the lessor to sign such form of lease as the lease, sublease,
or assignment of lease (referred to in the Development Agreement as the "Site
Agreement"), as applicable, for the Approved Site. If you fail to obtain the
lessor's or seller's agreement to use such form of lease as the Site Agreement,
you must cause the lessor to include in the Site Agreement the standard terms
which ENBC requires at that time in its discretion, and any other terms as ENBC
may require or as it may specifically approve in writing. Certain of ENBC's
current standard lease terms are included in the form
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<PAGE>
of Addendum to Lease attached to this offering circular as Exhibit E. ENBC may
---------
modify this addendum in its discretion.
After receiving a copy of a proposed Site Agreement in form for signature,
ENBC may approve, approve with modification or disapprove the proposed Site
Agreement. ENBC will use its best efforts to notify you of its response within
20 days after ENBC's receipt of the proposed Site Agreement. You may not sign a
Site Agreement without ENBC's written approval, and any Site Agreement must
contain the express requirement of ENBC's prior written approval of the Site
Agreement. You must deliver to ENBC a copy of the fully signed Site Agreement
as previously approved within 15 days after all the parties sign it. You may
not agree to any modification of the Site Agreement without the prior written
approval of ENBC.
If you fail to obtain lawful possession of an Approved Site (through
acquisition, lease, sublease or assignment) within 60 days after delivery of
ENBC's approval of the Approved Site, ENBC may, in its discretion, withdraw
approval of the Site. ENBC may withdraw its offer to grant a Franchise for a
Store at an Approved Site and withdraw its approval of a Site at any time before
ENBC's receipt of all applicable payments and ENBC's execution of the Franchise
Agreement for the Store.
At ENBC's request, if you own an Approved Site, you must enter into a lease
with ENBC or an affiliate of ENBC under ENBC's then-current form of lease for a
term equal to the term of the Franchise and for a rental equal to the Approved
Site's fair market rental value, and will sublease the Approved Site from ENBC
on the same terms as the prime lease. If you and ENBC cannot agree on the fair
market rental value, then an independent appraiser you and ENBC select will
determine the rental value you and ENBC select. If you and ENBC are unable to
agree on an independent appraiser, you and ENBC will each select an independent
appraiser, who will select a third independent appraiser, and the fair market
rental value will be deemed to be the average of the 3 independent appraisals
those appraisers make. In addition, ENBC may sublease to you sites that it
owns. The form of Sublease is attached as EXHIBIT F. Except as described above
---------
and in Item 6, ENBC will not derive revenue as a result of your lease of Sites
according to with ENBC's standards and specifications.
TRAINING PROGRAMS.
-----------------
DEVELOPMENT AGREEMENT. Under the Development Agreement, ENBC will train
---------------------
your Training Director under the store-level management training program that it
conducts for Franchisees and is described below. ENBC does not charge for this
training, but you will be responsible for all expenses, including travel, room
and board that the trainee incurs. The Training Director must complete the
training program to ENBC's satisfaction and become certified to train and
supervise personnel at Stores and Commissaries. The Training Director must be
re-certified if and when ENBC requires re-certification. So long as your
Training Director is currently certified, he or she will be responsible for
training the employees of each
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<PAGE>
Store and each Commissary you have developed at your training facility that we
have approved. If you replace the Training Director, or if he or she does not
complete training to ENBC's satisfaction, you will designate a replacement
Training Director who ENBC approves, and you will pay ENBC its then-current
daily rate to train the replacement Training Director. Training for Training
Directors will be held on an as-needed basis.
ENBC may periodically require your Training Director to attend refresher
or additional training programs during the term of the Development Agreement.
You will be responsible for expenses, including travel, room and board that the
Training Director incurs during additional or refresher training. There is no
schedule for additional or refresher training; ENBC may provide programs as it
thinks is appropriate.
If you operate a Commissary, your Commissary must employ and maintain one
full time manager (a "Commissary Manager") and a full-time additional employee
who will perform functions at the Commissary that ENBC requires (an "Additional
Commissary Manager"), and both must successfully complete ENBC's store level
training program which your Training Director will provide as described below.
FRANCHISE AGREEMENT. Under the Franchise Agreement, before you begin
-------------------
operating your Store, you must appoint the manager of the Store (the "Store
Manager") and one other management level employee (the "Additional Manager").
The Store Manager and the Additional Manager must attend and complete to ENBC's
satisfaction a ENBC accredited and certified complete management training
program in the operation of a Store. Additional employees may attend training
at your option. This training program may include classroom training,
instruction at designated facilities and hands-on training in an operating
Store. If you are a Developer, your Training Director will provide the field-
based elements of the training program at your training facilities according to
ENBC's requirements. If ENBC or its designee provides the training program, it
will be provided at the time (subject to space availability in ENBC's or its
designee's regularly scheduled classes) as ENBC may designate at a training
facility and/or at a ENBC-owned or franchised Store in the Denver, Colorado,
area or other location which ENBC designates and will last for approximately 1
to 12 weeks. You will pay a $1,000 training fee for each person who attends the
initial management training program; we currently designate an existing
Franchisee as the trainer for new Franchisees' employees, and the training fee
is payable directly to the Franchisee who trains you. (See Item 7) At your
request, ENBC or its designee may provide the training program to additional
personnel at ENBC's then-current standard charges, including applicable travel
and lodging expenses, subject to space availability in ENBC's or its designee's
regularly scheduled training classes and/or availability of ENBC's or its
designee's training personnel. In addition, whether you, or ENBC's designee is
providing this training, ENBC may, in its discretion as it deems necessary,
require the Store Manager and/or the Additional Manager to work full-time
without pay from ENBC or its designee but at your expense for up to 12 weeks at
a Store ENBC selects.
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If a certified Store Manager and/or Additional Manager ceases to hold his
or her position at the Store, you will have 30 days in which to appoint a
substitute or replacement Store Manager and/or Additional Manager, who must
attend and complete to ENBC's satisfaction the initial management training
program as specified above promptly after appointment. If ENBC in its
discretion determines that the Store Manager or Additional Manager or any Store
Manager or Additional Manager appointed at a later date has failed to
satisfactorily complete the initial management training program or any
additional or refresher training program, you must immediately hire a substitute
Store Manager or Additional Manager and promptly arrange for that person to
complete the initial management training program to ENBC's satisfaction.
As of the date of this offering circular, the structure and content of the
training programs are still being developed and formalized. ENBC is reviewing
and evaluating several formats in an effort to provide a program which will
provide efficient training of your personnel while recognizing and taking
advantage of the resources already available in your current organization.
ENBC's Vice President - People Development, Janice Ellis, will direct the
training personnel who will conduct the training program and other on-going
training.
ENBC's training program, at a minimum, provides a combination of classroom
and on-the-job training for each position within a Store, with training
materials created specifically for that position. The position - specific
training program includes at least the following:
STORE LEVEL TRAINING
<TABLE>
<CAPTION>
========================================================================================================
HOURS OF HOURS OF
CLASSROOM ON-THE-JOB
SUBJECT INSTRUCTION MATERIALS TRAINING TRAINING INSTRUCTOR
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pre-employment Pre-employment 2 0 Store Manager,
Training Module and certified trainer and/or
other training materials National Training
Director
- --------------------------------------------------------------------------------------------------------
Orientation Orientation Training 2.5 0 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- --------------------------------------------------------------------------------------------------------
Safety and Sanitation Safety and Sanitation 2.5 0 Store Manager,
Training Module and certified trainer and/or
other training Materials National Training
Director
- --------------------------------------------------------------------------------------------------------
Counter Counter Training 0 4 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- --------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
HOURS OF HOURS OF
CLASSROOM ON-THE-JOB
SUBJECT INSTRUCTION MATERIALS TRAINING TRAINING INSTRUCTOR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fronter Fronter Training 0 3 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ---------------------------------------------------------------------------------------------------------
Register Register Training 0 3 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ---------------------------------------------------------------------------------------------------------
Linebacker Souper Training 0 3.5 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ---------------------------------------------------------------------------------------------------------
Baker Baker Training Module 0 40 Store Manager,
and other training certified trainer and/or
National Training
Director
- ---------------------------------------------------------------------------------------------------------
Shift Leader Shift Leader Training 0 160 Store Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ---------------------------------------------------------------------------------------------------------
Assistant Manager Assistant Manager 0 200 Store Manager,
Training Module and certified trainer and/or
other training materials National Training
Director
=========================================================================================================
</TABLE>
ENBC or its designee may periodically offer additional or refresher
training programs to any Store Manager or Additional Manager appointed at a
later date and the Store's assistant managers at daily charges ENBC periodically
establishes and at the times as ENBC may designate to you. ENBC may, in its
discretion as it deems necessary, require the Store Manager, Additional Manager
or assistant managers of the Store or you to attend or to participate in, at
ENBC's daily charges and at your expense, including travel and lodging expenses
of training personnel for training other than at the trainers' principal
offices, additional or refresher training programs at locations ENBC designates
during the term of the Franchise Agreement. There is no schedule for additional
or refresher training; ENBC may provide programs as it thinks is appropriate.
ENBC is developing a management development program which will encompass
all of the above items in addition to training in managing store personnel and
overall operation at the store level. While the management development program
is still being developed as of the date
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of this offering circular, ENBC expects that it will require Developers'
Training Directors to conduct the training course for Store Managers and
Additional Managers every 2-to-3 weeks, and that the program will encompass 12
weeks or more of classroom and on-the-job training.
ITEM 12
-------
TERRITORY
DEVELOPMENT AGREEMENT
- ---------------------
TERRITORIAL RIGHTS.
------------------
The Development Agreement grants you during the Development Term, the right
to develop and operate Developer Stores in the Development Area, which consists
of one or more Sub-Areas. Except as otherwise expressly provided in the
Development Agreement, and if you are in full compliance with the Development
Agreement and you are in full compliance with all Franchise Agreements, ENBC and
its affiliates will not during the Sub-Area Term for each of the Sub-Areas
operate or grant franchises for the operation of Developer Stores within the
Sub-Area. Your rights under the Development Agreement and within the Sub-Areas
are limited to the development of Stores under the Principal Marks and the other
Marks and elements of the System covered by your Development Agreement and do
not include rights to develop Units under other Marks or other elements of the
System. (See Item 1) In addition, your rights are limited to the development
of retail stores and do not include the right to develop businesses that
distribute Products or other products or services in other channels of
distribution. Your rights under the Development Agreement are also limited to
the applicable number of Developer Stores and the schedule and timing of the
opening of Developer Stores in the respective Sub-Areas during the respective
Sub-Area Terms and you are not granted any rights to develop or operate, and you
may not develop or operate, Stores outside the respective Sub-Areas, except
under rights granted to you under other agreements entered into with ENBC, and
you will also not offer Catering Service or Delivery Service or operate Special
Distribution Arrangements within the Development Area, except as provided in the
Development Agreement.
The continuation of your right to develop Developer Stores within each of
the Sub-Areas is dependent upon your satisfaction of the development obligations
set forth in the Development Agreement for the Sub-Area and of all of your other
obligations and the obligations of your Owners under the Development Agreement.
Upon termination or expiration of the Agreement Term, the Development Term or
the Sub-Area Term for a particular Sub-Area, and as expressly provided in the
Development Agreement during the Agreement Term, ENBC and its affiliates will
have the right to develop and operate, and to grant to others development rights
and franchises to develop and operate, Stores within the Sub-Area, subject only
to the territorial rights, if any, under the Franchise Agreements you enter into
for Stores in the Sub-Area. The Development Area and the Sub-Areas may not be
altered except by the mutual written agreement
71
<PAGE>
of you and ENBC or by termination of some or all of your rights as a result of
your breach of the Development Agreement. The number of Stores that you are
required to have open and operating in each Sub-Area (the "Sub-Area Quota") and
in the Development Area overall (the "Total Development Quota) is determined
when you sign the Development Agreement and is found in the Development
Schedule, which is attached to the Development Agreement (Exhibit B to this
---------
offering circular).
You must prepare a Market Real Estate Development Plan for development of
Developer Stores and must open and have in operation in each Sub-Area the number
of Developer Stores set forth in the Development Schedule attached as an exhibit
to the Development Agreement by the opening dates specified in the Development
Schedule. You may develop in the Sub-Area only the number of Developer Stores
set forth on the Development Schedule. A Developer Store that is closed for
more than 5 days (not counting ENBC-approved holidays) during any period of 12
months will not be counted as open and in operation for purposes of the
Development Quota (as defined in Item 12) as of the next Developer Store's
opening date after the closing for purposes of determining your compliance with
the Development Schedule for the Sub-Area in which the Developer Store is
located.
ENBC'S RESERVATION OF RIGHTS.
----------------------------
Except as expressly limited in the Development Agreement, ENBC (for itself,
its affiliates and its designees) retains all rights with respect to Units and
Stores, the Marks, the Copyrighted Works (defined in Item 14 below), and the
sale of Products and any other products and services, anywhere in the world,
including: (1) the right to operate or grant others the right to operate food
service businesses, including Units and/or Stores, at locations within and/or
outside the Development Area and each Sub-Area and on the terms and conditions
as ENBC, in its discretion, deems appropriate both during and upon expiration or
termination of the Development Term; and (2) the right, and the right to grant
others the right, to develop, manufacture, market, distribute and/or sell
Products and/or any other product or service within and/or outside the
Development Area and each Sub-Area through any channel of distribution, whether
wholesale, retail or otherwise, including through Special Distribution
Arrangements, Delivery Service, Catering Service and/or through Boston Market
outlets, under or in association with the Marks or any other trademarks and/or
to own or operate any other business under the Marks or any other trademarks;
(3) the right to operate or grant others the right to operate Stores in the
Development Area and each Sub-Area under marks and systems that are different
from the Marks and System ENBC authorizes you to use in operating Developer
Stores; and (4) subject to your options to develop Target Sites and purchase
Conversion Sites under the Development Agreement, the right to acquire and
operate any business, including a business operating one or more food service
businesses located or operating within and/or outside of the Development Area
and any Sub-Area.
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YOUR OPTION TO DEVELOP TARGET SITES.
-----------------------------------
If during the Sub-Area Term of a particular Sub-Area ENBC locates a site
suitable for a Store within the Sub-Area (a "Target Site"), ENBC will notify you
in writing of a Target Site if ENBC intends that the Target Site be developed
and operated as a Store. Within 10 days after your receipt of ENBC's notice
regarding the Target Site (including any relevant site-related materials in
ENBC's possession), you must notify ENBC if you desire to develop and operate a
Store at the Target Site.
If you timely notify ENBC in writing that you wish to develop and operate a
Store at the Target Site and ENBC has fully negotiated a lease or purchase
agreement for the Target Site, then you must (1) obtain the consent of the
landlord to execute a lease, if applicable, or (2) execute a purchase agreement
or an assignment of purchase agreement, if applicable, and (3) execute ENBC's
then current form of standard franchise agreement (containing ENBC's then
current fee and expenditure requirements) and any ancillary documents (including
guarantees) ENBC then customarily uses in the grant of franchises for Stores
(collectively, "Franchise Documents") as modified for use along with a Target
Site, as necessary, and (4) pay ENBC the Site Location and Negotiation Fee, plus
ENBC's reasonable out-of-pocket expenses incurred in securing the Target Site,
within 10 business days after ENBC delivers to you the lease or purchase
agreement, as the case may be, and the Franchise Documents. ENBC will fully
cooperate with you to obtain the landlord's consent to execute the lease or the
seller's consent to execute a purchase agreement or assignment of purchase
agreement.
If you timely notify ENBC in writing that you desire to develop and operate
a Store at the Target Site and ENBC has not fully negotiated a lease or purchase
agreement for the Target Site, then you will have 30 days in which to negotiate
and deliver to ENBC a lease or purchase agreement for the Target Site in form
for execution. If ENBC disapproves the lease or purchase agreement for failure
to meet ENBC's requirements, you will have 10 days within which to negotiate and
deliver to ENBC a revised lease or purchase agreement for the Target Site in
form for execution. If the revised lease or purchase agreement fails to meet
ENBC's requirements, or if you fail to negotiate and deliver to ENBC a lease or
purchase agreement within the aforementioned 30 day period, then ENBC or its
designee may develop and operate a Store at the Target Site. If ENBC approves
the lease or the purchase agreement for the Target Site, then you will (1)
execute a lease or purchase agreement, as applicable, (2) execute the Franchise
Documents, and (3) pay the Site Location Fee, plus ENBC's reasonable out-of-
pocket expenses incurred in securing the Target Site, all within 10 business
days after ENBC's delivery of the Franchise Documents to you.
If you decline the option to develop a Target Site, fail to timely notify
ENBC of your election to develop a Target Site or fail to timely execute the
lease or purchase agreement and Franchise Documents for a Target Site and pay
the Target Site Fee, then ENBC or its designee may develop and operate a Store
at the Target Site.
73
<PAGE>
Any Target Site for which you execute Franchise Documents and develop and
open a Store will count toward the Sub-Area Quota (as defined in Item 12) for
the Sub-Area in which the Target Site is located. ENBC is not required to give
notice to you or offer to you a franchise to develop a Store with regard to any
suitable Target Site or Conversion Site (defined below) in a Sub-Area that ENBC
desires to develop and operate as a Store after the total number of Sites for
which you have executed a Franchise Agreement and accepted as Target Sites or
Conversion Sites equals the cumulative number of Stores required to be open and
operating on or before the last opening date for the last Store required to be
opened in the Sub-Area. As an alternative to terminating the Development
Agreement, ENBC has the right to terminate your option to develop Target Sites.
YOUR OPTION TO PURCHASE CONVERSION SITES.
----------------------------------------
If during the applicable Sub-Area Term for a particular Sub-Area ENBC
acquires the shares or assets (including furniture, fixtures, equipment,
leasehold improvements and/or leasehold interests) of any business operating at
one or more sites located within the Sub-Area which meet ENBC's specifications
and standards as in effect periodically for conversion to Stores (the
"Conversion Sites"), and ENBC determines in its discretion to convert the
Conversion Sites to Stores, ENBC will offer to sell the Conversion Sites to you
for the price ENBC paid, if: (1) the sale will not conflict with any existing
legal obligation of ENBC or the business being acquired; and (2) the sale will
not preclude the completion of the acquisition on the terms ENBC agreed to; and
(3) the sale will not interfere with any other legal agreement, arrangement or
combination or result in adverse federal or state income tax consequences for
any party; and (4) you agree to execute concurrently with your purchase, the
Franchise Documents, as modified for use along with a Conversion Site, as
necessary, for each and every Conversion Site and convert each Conversion Site
to a Store as soon as practicable according to ENBC's standards and
specifications. The sale may also be contingent upon your agreement to acquire
and close certain stores ENBC acquired with the Conversion Sites but which are
not suitable for conversion. You will have 30 days after receipt of ENBC's
offer in which to accept or reject the offer by written notice to ENBC.
Any Conversion Site for which Developer executes the Franchise Documents
and develops and opens a Store will count toward the Sub-Area Quota (as defined
in Item 12) for the Sub-Area in which the Conversion Site is located. If you
reject or fail to timely accept ENBC's offer to sell the Conversion Sites or
ENBC is unable to extend the offer for any of the reasons noted above, and if
you are in full compliance with the Development Agreement and all Franchise
Agreements to which you are a party, ENBC will not use the Principal Marks at
the Conversion Sites (whether ENBC owns or franchises the Conversion Sites) for
one year following ENBC's acquisition of the Conversion Sites. ENBC may,
however, operate, alter, modify, refurbish, remodel, promote and market any of
the Conversion Sites during the one year period. As an alternative to
terminating the Development Agreement, ENBC has the right to terminate your
option to develop Conversion Sites.
74
<PAGE>
DEFINITIONS. As described below, ENBC may, in its discretion, (a) require
-----------
you or offer you the opportunity to offer Delivery Service and/or Catering
Service and/or (b) approve you to offer Special Distribution Arrangements.
(1) DELIVERY SERVICE. "Delivery Service" is the delivery of Products
----------------
prepared at a Store or a separate delivery facility ENBC approves (referred
to in this document as a "Delivery Facility") to customers in a Delivery
Area (defined below) according to ENBC's standards and specifications for
the provision of delivery service and ENBC's prototype plans and layout for
a delivery staging area within a Store or in a separate facility, if any,
ENBC approves, where (1) the Products are intended to serve fewer than 15
persons, and (2) the service involves the provision of no services other
than the delivery to a customer at a particular location within the
Delivery Area. A "Delivery Area" is the geographic area in which ENBC, in
its discretion may authorize you to provide Delivery Service under a
Delivery Rider. Your Delivery Area, if any, may be the same as, smaller
than, larger than or different from the prescribed territory of your Store
(the "Territory"). The Territory is more fully described in Item 12. ENBC
uses the Delivery Rider to authorize or require you, in its discretion, to
offer Delivery Service within a Delivery Area. A copy of ENBC's current
form of Delivery Rider is attached to the Franchise Agreement, which is
attached to this offering circular as Exhibit C. ENBC may, at any time and
---------
in its discretion, require that you provide Delivery Service from one or
more Stores. If you fail to provide Delivery Service, you will forfeit to
ENBC or its designees the right to provide Delivery Service. The terms and
conditions for Delivery Service are more fully described below.
(2) CATERING SERVICE. "Catering Service" is the delivery of Products
----------------
prepared at a Store or a separate facility ENBC approves (an approved
facility is referred to as a "Catering Facility") to customers in the
Catering Area (defined below) under the ENBC's standards and specifications
for the provision of that service and ENBC's prototype plans and layout for
a catering staging facility, where (1) the Products are intended to serve
15 or more persons, or (2) in addition to the delivery of Products,
ancillary services are provided to a customer at a location within the
Catering Area, including, for example, the setting up for serving or
distribution of Products. The "Catering Area" is the geographic area in
which ENBC, in its discretion, may authorize you to provide Catering
Service under a Catering Rider . Your Catering Area, if any, may be the
same as, smaller than, larger than or different from the Territory of a
Store. ENBC uses the Catering Rider to authorize or require you, in its
discretion, to offer Catering Service within a Catering Area. A copy of
ENBC's current form of Catering Rider is attached to the Franchise
Agreement attached to this offering circular as Exhibit C. If you fail to
---------
provide Catering Service, you will forfeit to ENBC or its designees the
right to provide Catering Service. The terms and conditions for Catering
Service are more fully described below.
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(3) SPECIAL DISTRIBUTION ARRANGEMENTS. A "Special Distribution
---------------------------------
Arrangement" is the sale of Products at or from a Special Distribution
Location (defined below), whether or not by or through on-premises food
service facilities or concessions, according to ENBC's standards and
specifications for these sales. A "Special Distribution Location" is a
facility or location, including a school, hospital, office, work site,
military facility, grocery store, convenience store, supermarket,
entertainment or sporting facility or event, bus or train station, park,
toll road or limited access highway facility, shopping mall or other
similar facility, at or from which ENBC, in its discretion, authorizes a
Special Distribution Arrangement under a Special Distribution Agreement
(defined below). A Special Distribution Location may be located within or
outside the Territory. A "Special Distribution Agreement" is a separate
agreement in which ENBC authorizes you to operate a Special Distribution
Arrangement at a Special Distribution Location ENBC designates. ENBC will
propose the terms of a Special Distribution Agreement at the time, if any,
as it proposes a Special Distribution Arrangement to you. Special
Distribution Arrangements are more fully described below. ENBC is not
generally obligated to offer Special Distribution Arrangements to you and
may operate or grant others the right to operate Special Distribution
Arrangements in the Territory of a Store or the Development Area or a Sub-
Area.
SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
You are not granted any rights to operate Special Distribution Arrangements
within or outside the Development Area under the Development Agreement. The
right to operate or grant to others the right to operate Special Distribution
Arrangements is expressly reserved to ENBC, although the Development Agreement
currently provides for certain rights of first refusal with respect to Special
Distribution Arrangements. Except as set forth in ENBC's Development Agreement
with you, ENBC has no obligation to offer to you the right to operate Special
Distribution Arrangements, and ENBC or its designees may instead operate or
grant to others the right to operate Special Distribution Arrangements within
and/or outside the Development Area. However, if ENBC, at any time and in its
discretion, determines to offer Developer the right to operate a Special
Distribution Arrangement at a Special Distribution Location ENBC designates,
ENBC will notify you by delivering to you a Special Distribution Agreement
authorizing you to conduct a Special Distribution Arrangement at a Special
Distribution Location. You will have 15 days to execute and return to ENBC the
Special Distribution Agreement after your receipt of the Special Distribution
Agreement. The Special Distribution Agreement will provide that you commence
the Special Distribution Arrangement from the designated Special Distribution
Location(s) within the time period ENBC specifies in the Special Distribution
Agreement. If you fail to execute and return to ENBC the Special Distribution
Agreement within a 15 day period or commence the Special Distribution
Arrangement within the specified period, then you will have no right to operate
the Special Distribution Arrangement after that period ends. If you have
executed a Special Distribution Agreement, ENBC may, at any time and in its
discretion with or without cause and regardless of the investment you make to
establish or operate the Special Distribution Arrangement or the length of time
the Special
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Distribution Arrangement has been in effect, suspend or terminate your right to
operate the Special Distribution Arrangement.
DELIVERY SERVICE.
----------------
You are not granted any rights within or outside the Development Area or
the Sub-Areas to offer Delivery Service from any of the Developer Stores under
the Development Agreement and ENBC has no obligation to offer to you the right
to provide Delivery Service. However, if ENBC, at any time and in its
discretion, determines to offer Delivery Service in a designated Delivery Area
in which a Developer Store is located, ENBC will offer you the right to offer
Delivery Service by delivering to you a Delivery Rider to the applicable
Franchise Agreement for the Store authorizing the offer of Delivery Service
within the designated Delivery Area. You will have 15 days to execute and
return to ENBC the Delivery Rider after your receipt of the Delivery Rider. The
Delivery Rider will provide that you will commence Delivery Service from the
Store or, in ENBC's discretion, from a Delivery Facility within the time period
ENBC specifies in the Delivery Rider. If you fail to execute and return to ENBC
the Delivery Rider within a 15 day period or commence Delivery Service within
the specified period, then you will have no right to provide Delivery Service at
any Store after that period, and ENBC or its designee will have the right to
offer Delivery Service within the designated Delivery Area. However, if ENBC
determines in its discretion that all franchise owners of Stores in the trade
area where the Store is located will offer Delivery Service, you must offer
Delivery Service, and ENBC will notify you and will deliver to you a Delivery
Rider to the applicable Franchise Agreement which you must execute and return to
ENBC within 15 days of its receipt. ENBC will determine, in its discretion, the
trade area, which will not exceed the Marketing Area.
CATERING SERVICE.
----------------
You are not granted any rights within or outside the Development Area or
the Sub-Areas to offer Catering Service from the Developer Stores or from other
locations under the Development Agreement and ENBC has no obligation to offer to
you the right to provide Catering Service. However, if ENBC, at any time and in
its discretion, determines to offer Catering Service in a designated Catering
Area in which a Developer Store is located, ENBC will offer you the right to
offer Catering Service by delivering to you a Catering Rider to the applicable
Franchise Agreement for the Store authorizing the offer of Catering Service
within the designated Catering Area. You will have 15 days to execute and
return to ENBC the Catering Rider after your receipt of the Catering Rider. The
Catering Rider will provide that you will commence Catering Service from one or
more Stores or one or more Catering Facilities, as ENBC may determine in its
discretion, within the time period ENBC specifies in the Catering Rider. If you
fail to execute and return to ENBC the Catering Rider within a 15 day period or
commence Catering Service within the specified period, then you will have no
right to provide Catering Service within the designated Catering Area after that
time period, and ENBC or its designee will have the right to offer Catering
Service within the designated Catering Area. However, if ENBC determines in its
discretion that all franchise owners of Stores in the
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<PAGE>
trade area where the Store is located will offer Catering Service, you must
offer Catering Service, and ENBC will notify you and will deliver to you a
Catering Rider to the applicable Franchise Agreement which you must execute and
return to ENBC within 15 days of its receipt. ENBC will determine, in its
discretion, the trade area, which will not exceed the Marketing Area.
FRANCHISE AGREEMENT.
- -------------------
TERRITORIAL RIGHTS.
------------------
The Franchise is granted for a specified location, the Site within the
Territory, identified in an exhibit to the Franchise Agreement. Typically, your
Territory will be the area within a circle having a radius of at least one-
quarter mile and the Site at the center. Except as otherwise provided in the
Franchise Agreement and conditioned upon you being in full compliance with the
Franchise Agreement, ENBC and its affiliates will not during the term of the
Franchise Agreement operate or grant franchises for the operation of Stores
under the Marks and System ENBC covered by your Development Agreement, within
the Territory. Your rights under the Franchise Agreement and within the
Territory are limited to operation of the Store under the Principal Marks and
the other Marks and elements of the System associated with the Principal Marks,
and does not include rights to develop a Unit under any other mark. (See Item
1) Your rights are also limited to the operation of retail stores and do not
include the right to offer the Products in any other channel of distribution.
You may not conduct the business of the Store from any location other than the
Site, except as otherwise provided under the Franchise Agreement, and may not
conduct Catering Service, Delivery Service or Special Distribution Arrangements
within or outside the Territory, except as expressly provided in the Franchise
Agreement.
Your rights in the Territory do not depend on certain sales volume or
market penetration. The Territory may not be altered except by the mutual
written agreement of you and ENBC or termination of the Franchise Agreement.
ENBC'S RESERVATION OF RIGHTS.
----------------------------
Except as expressly limited in the Franchise Agreement, ENBC (for itself,
its affiliates and its designees) retains all rights with respect to Stores, the
Marks, the Copyrighted Works and the sale of Products and any other products and
services, anywhere in the world, including: (1) the right to operate or grant
others the right to operate food service businesses, including Units and/or
Bagel Stores using the Principal Marks, any of the other Marks or marks and
using the System or any other system, at locations within and/or outside the
Territory and on the terms and conditions as ENBC, in its discretion, deems
appropriate both during and upon expiration and termination of the Agreement
Term; (2) the right, and the right to grant others the right, to develop,
manufacture, market, distribute and/or sell Products and/or any other product or
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service within and/or outside the Territory through any channel of distribution,
whether wholesale, retail or otherwise, including, through Special Distribution
Arrangements, Delivery Service, Catering Service and/or through Boston Market
outlets, under or in association with the Marks or any other trademark and/or to
own or operate any other business under the Marks or any other trademarks; (3)
the right to operate or grant others the right to operate Units in the Territory
under Marks and the elements of the System that are different from the Marks and
the elements of the System ENBC authorizes you to use in operating the Store;
and (4) subject to your option to purchase conversion sites as described below,
the right to acquire and operate any business, including a business operating
one or more food service businesses located or operating within and/or outside
the Territory.
YOUR OPTION TO PURCHASE CONVERSION SITES.
----------------------------------------
See the preceding part of this Item 12 under "Developer's Option to
Purchase Conversion Sites." The applicable terms of the Franchise Agreement are
comparable to those in the Development Agreement, except that the terms of the
Franchise Agreement apply solely to the Territory, and if you fail to timely
accept or reject ENBC's offer to sell the Conversion Sites or ENBC is unable to
extend the offer for any reason, ENBC will not use the Marks at that Conversion
Site for one year following ENBC's acquisition of the Conversion Site, if you
are in full compliance with the Franchise Agreement. ENBC may, however,
operate, alter, modify, refurbish, remodel, promote or market that Conversion
Site during the one year period.
SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
See the preceding part of this Item 12 concerning Special Distribution
Arrangements under the Development Agreement. The applicable terms for Special
Distribution Arrangements under the Franchise Agreement are comparable to those
in the Development Agreement.
DELIVERY SERVICE.
----------------
See the preceding part of this Item 12 concerning the Development
Agreement. The applicable terms of the Franchise Agreement concerning Delivery
Service are comparable to those in the Development Agreement.
CATERING SERVICE.
----------------
See the preceding part of this Item 12 concerning the Development
Agreement. The applicable terms of the Franchise Agreement concerning Catering
Service are comparable to those in the Development Agreement.
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RELOCATION OF THE STORE.
-----------------------
If your lease or sublease for the Site of the Store expires or terminates
without your fault, if the Site is damaged, condemned or otherwise rendered
unusable as a Store according to the Franchise Agreement, or if, in ENBC's and
your judgment, there is a change in the character of the location of the Site
sufficiently detrimental to its business potential to warrant its relocation,
ENBC will not unreasonably withhold permission for relocation of the Store to a
site within the Territory which meets ENBC's then-current site criteria, subject
to the rights of existing Franchisees under their franchise agreements with
ENBC. Any relocation will be at your sole expense. The Store is required to
re-open at the replacement Site as soon as reasonably practicable but under any
circumstance no more than 90 days after the closing of the original location
closed.
ITEM 13
-------
TRADEMARKS
ENBC owns registrations of certain Marks with the U.S. Patent and Trademark
Office on the Principal Register, including the following:
<TABLE>
<CAPTION>
==========================================================================================
REGISTRATION REGISTRATION
NAME OR MARK NUMBER CLASS DATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bagel & Bagel and Design 1918543 USA 9/12/95
42
- ------------------------------------------------------------------------------------------
Bagel & Bagel and Design 1918541 USA 7/5/94
42
- ------------------------------------------------------------------------------------------
Baltimore Bagel 1799531 USA 10/19/93
30
- ------------------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet 1675585 USA 2/11/92
42
- ------------------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet 1684164 USA 1/18/90
30
- ------------------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet and Design 1896387 USA 5/30/95
30 & 42
==========================================================================================
</TABLE>
Noah's New York Bagels, Inc., a subsidiary of ENBC, owns registrations of
certain Marks with the U.S. Patent and Trademark Office on the Principal
Register, including the following:
80
<PAGE>
<TABLE>
<CAPTION>
====================================================================================
REGISTRATION REGISTRATION
NAME OR MARK NUMBER CLASS DATE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noah's Bagels 1838799 USA 6/7/94
46
- ------------------------------------------------------------------------------------
Noah's Bagels 1841045 USA 6/21/94
100
- ------------------------------------------------------------------------------------
Noah's Bagels a Taste of Old New York 1,893,247 USA 46 5/9/95
and design
- ------------------------------------------------------------------------------------
Noah's New York Bagels 1,961,823 USA 3/12/96
100
101
====================================================================================
</TABLE>
ENBC has also applied for the registration of certain Marks with the U.S.
Patent and Trademark Office on the Principal Register, including the following:
<TABLE>
<CAPTION>
====================================================================================
APPLICATION APPLICATION
NAME OR MARK NUMBER CLASS DATE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Einstein Bros. 74/732659 USA 9/21/95
30
- -------------------------------------------------------------------------------------
Einstein Bros. 74/732658 USA 9/21/95
29
- -------------------------------------------------------------------------------------
Einstein Bros. 74/732660 USA 9/21/95
42
- -------------------------------------------------------------------------------------
Melvyn and Elmo 75/176893; USA 10/4/96
75/178874 42, 30
- -------------------------------------------------------------------------------------
Bagel & Bagel 74/547132 USA 7/8/94
29, 30
- -------------------------------------------------------------------------------------
Bagel & Bagel 74/545735 USA 7/5/94
42
- -------------------------------------------------------------------------------------
Bagel Boulevard Cafe and Design 74/607865 USA 12/7/94
100
101
=====================================================================================
</TABLE>
81
<PAGE>
Noah's New York Bagels, Inc., a subsidiary of ENBC, has applied for
registrations of the following Marks with the U.S. Patent and Trademark Office
on the Principal Register, including the following:
<TABLE>
<CAPTION>
================================================================================
NAME OR MARK APPLICATION APPLICATION
NUMBER CLASS(ES) DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Noah's 75/179841; USA 10/10/96;
75/192,749 46, 100 11/4/96
101
- --------------------------------------------------------------------------------
Noah's New York Bagels 75/134282 USA 7/15/96
46
- --------------------------------------------------------------------------------
Noah's Bagels a Taste of Old New York 75/167041 USA 9/13/96
and design 100
101
================================================================================
</TABLE>
By not having a Principal Register federal registration for the above
marks, ENBC does not have certain presumptive legal rights granted by a
registration.
ENBC is in the process of filing an application for registration for the
mark Einstein Bros. in Utah.
By signing the Franchise Agreement, you agree that ENBC owns the Marks and
that if you use the Marks in an unauthorized manner, that use will constitute an
infringement of ENBC's rights in and to the Marks, and that all your use of the
Marks and any goodwill you establish by your use will only benefit ENBC. You
also agree to operate your Store in strict compliance with ENBC's high standards
and in an safe and sanitary condition and to comply strictly with all of ENBC's
mandatory specifications, standards and operating procedures that relate to
Stores, as ENBC may change periodically. Finally, you agree that before you use
them, you will submit to ENBC for its approval samples of all advertising an
promotional materials that ENBC has not prepared or previously approved. (See
Item 11)
After ENBC filed an application for the service mark Einstein's for
restaurant services in May 1995, Peach State Restaurants, Inc. ("Peach State"),
which owns a restaurant in Atlanta that uses the name Einstein's, filed a
federal trademark application for the name Einstein's for restaurant services
and filed an opposition to ENBC's application for Einstein's. In July 1996,
ENBC entered into an agreement with Peach State in which Peach State agreed to
withdraw such application, to abandon such opposition and to not object to, or
interfere with, any of ENBC's trademark and service mark applications that
include the name Einstein's. Peach State has also agreed not to use any mark
incorporating the name Einstein's for restaurant services outside of
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<PAGE>
the Atlanta metropolitan area, and ENBC has agreed not to use any mark
incorporating the name Einstein's for restaurant services in the State of
Georgia (except for permitted national advertising and promotion and other
agreed uses). After ENBC obtains registration of those Marks that incorporate
the Einstein name, Peach State may, at its option, require ENBC to amend its
registration to include a concurrent use restriction excluding the State of
Georgia from the scope of registration.
In or about February 1995, prior to its acquisition by ENBC, Noah's New
York Bagels, Inc. became aware of use by Noah's Bagels, Inc. ("NBI") of the mark
Noah's Bagels in connection with two bagel shops in Chatham and New Providence,
New Jersey. Noah's New York Bagels, Inc. advised NBI that it had superior
rights to the mark Noah's Bagels based on its federal trademark registration(s)
for that mark and demanded that NBI cease and desist from using the mark. NBI
rejected that demand and continued to use the mark Noah's Bagels in those two
locations in New Jersey. Because Noah's New York Bagels, Inc. had not yet begun
commercial use of the mark Noah's Bagels in or near NBI's trading area, under
governing case law it lacked standing to bring court action to enjoin NBI's use
of the mark at that time. However, ENBC has placed NBI on notice of its
continuing objection to its use of the mark, and has warned NBI that NBI risks
legal action should NBI continue to use the mark or similar marks.
If litigation were brought over the right to use the Mark Noah's Bagels,
and if a court were to hold that NBI's use of Noah's Bagels is not infringding,
ENBC might be unable to use that mark or similar marks in NBI's trading area.
Separately, ENBC has taken action in response to NBI's attempts to
register, on an intent-to-use basis, certain Noah-related marks. On October 28,
1996, ENBC filed with the Trademark Trial and Appeal Board a notice of
opposition to registration of NBI's trademark depicting what appears to be a
"Biblical Noah" figure (the "Biblical Noah Design"). On December 31, 1996, NBI
answered the notice of opposition, and the matter is in the early stages of
discovery. This proceeding will only determine whether NBI has a right to
register the Biblical Noah Design mark, but will not decide any party's rights
to use any particular marks. In addition, on May 30, 1996 ENBC filed with the
U.S. Patent and Trademark Office a Letter of Protest against NBI's application
to register the mark The Bagel Ark, although that mark has not been approved for
publication by the U.S. Patent and Trademark Office.
There are no currently effective material determinations of the U.S. Patent
and Trademark Office, the Trademark Trial and Appeal Board, the trademark
administrator of any state, or any court, nor any pending infringement,
opposition, or cancellation proceeding, or any pending material litigation,
involving the Marks other than as described in this Item.
Except as described in this Item, there are no agreements currently in
effect which significantly limit ENBC's rights to use or license the use of the
Marks in any manner material to you.
83
<PAGE>
You must immediately notify ENBC of any apparent infringement of or
challenge to your use of any Mark, or any person's claim of any rights in any
Mark. You may not communicate with anyone except ENBC and its counsel with
respect to any infringement, challenge or claim. ENBC will have discretion to
take action as it deems appropriate along with any infringement, challenge or
claim, and the sole right to control exclusively any litigation or other
proceeding arising out of any infringement, challenge or claim under any Mark.
You must execute any and all instruments and documents, render the assistance,
and do acts and things that may, in the opinion of ENBC's counsel, be necessary
or advisable in order to protect and maintain ENBC's interests in any litigation
or proceeding or otherwise to protect and maintain ENBC's interests in the
Marks. ENBC will reimburse you for the reasonable out-of-pocket expenses you
incur and pay in complying with these requirements except to the extent ENBC
recovers money on your behalf in the action. Neither the Franchise Agreement
nor the Development Agreement require ENBC to take affirmative action in
response to any apparent infringement of or challenge to your use of any Mark,
or any person's claim of any rights in any Mark.
If it becomes advisable at any time in ENBC's sole judgment for you to
modify or discontinue the use of any Mark and/or for the Store to use one or
more additional or substitute trade or service marks, you must immediately
comply with ENBC's directions to modify or otherwise discontinue the use of the
Mark, and/or to use one or more additional or substitute trademarks, service
marks, logos or commercial symbols or substitute trade dress after ENBC's notice
to you. Neither ENBC nor its affiliates will have any obligation to reimburse
you for any expenditures you make because of any discontinuance or modification.
There are no infringing uses actually known to ENBC that could materially
affect Developer's or Franchise Owner's use of the Marks.
ITEM 14
-------
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
PATENTS.
-------
ENBC has no patents that are material to the Franchise, although ENBC has
applied for a patent on its bagel production process.
COPYRIGHTS.
----------
ENBC claims copyright protection covering various materials used in its
business and the operation of Stores ("Copyrighted Works"). Under the
applicable agreement, ENBC may authorize you to use certain Copyrighted Works,
which are the valuable property of ENBC or its affiliates and of which ENBC or
its affiliate is the owner if you comply with the terms of the applicable
agreement. ENBC owns or is the licensee of the owner of the Copyrighted Works
84
<PAGE>
and may create, acquire or obtain licenses for certain copyrights in various
works of authorship used for the operation of Stores, including the Development
Manual, the Manuals, advertisements, promotional materials, labels, menus,
coupons, gift certificates, posters and signs, and may include all or part of
the Marks, Licensed Program, Trade Dress and other portions of the System.
You must immediately notify ENBC of any actual or apparent infringement of
or challenge to any of the Copyrighted Works, or any person's claim of any
rights in the Copyrighted Works, and you may not communicate with any person
other than ENBC and its counsel about any infringement, challenge or claim.
ENBC will have the discretion to take actions it thinks are appropriate in
response to infringement, and the right to control exclusively any settlement,
litigation, arbitration or administrative proceeding arising out of any alleged
infringement, challenge or claim or otherwise under the Copyrighted Works. ENBC
is under no obligation to participate in your defense and/or indemnify you for
damages or expenses you incur if you are a party to any administrative or
judicial proceeding involving the Copyrighted Work.
If it becomes advisable at any time in ENBC's sole judgment for you to
modify or discontinue use of any of the Copyrighted Works and/or for you to use
one or more additional or substitute copyrighted or copyrightable items, you
must immediately comply with ENBC's directions to modify or otherwise
discontinue the use of the copyrighted materials and/or to use one or more
substitute materials.
There are currently no effective determinations of the United States
Copyright Office or any court regarding any Copyrighted Works of ENBC, nor are
any proceedings pending, nor are there any currently effective agreements
between ENBC and third parties pertaining to ENBC's Copyrighted Works that will
or may significantly limit your use of ENBC's Copyrighted Works. ENBC is not
obligated under the Development Agreement or the Franchise Agreement or
otherwise to protect or defend its copyrights. ENBC knows of no infringements
of the Copyrighted Works that could materially affect your use of the
Copyrighted Works. ENBC has not registered any of the Copyrighted Works.
THE LICENSED PROGRAM AND SUPPORT/CONTROL PROGRAMS.
- -------------------------------------------------
The proprietary nature and ENBC's and your rights and obligations relating
to the Licensed Program and required software are described in Item 8.
CONFIDENTIAL INFORMATION.
- ------------------------
ENBC possesses and will further develop and acquire certain confidential
and proprietary information and trade secrets including the following categories
of information, methods, techniques, procedures and knowledge developed or that
ENBC or its affiliates or their consultants, contractors, or designees and/or
franchise owners and developers will develop (the
85
<PAGE>
"Confidential Information") including: (1) methods, techniques, equipment,
specifications, standards, policies, procedures, information, concepts and
systems on and knowledge of and experience in the development, operation and
franchising of Stores; and (2) marketing and promotional programs for Stores;
and (3) knowledge concerning computer software programs which ENBC authorizes
for use along with the operation of Stores (including the Licensed Program), and
all additions, modifications and enhancements made to those programs, and all
data generated from use of the programs, including the logic, structure and
operation of database file structures containing data and all additions,
modifications and enhancements made to those items; and (4) sales data and
information concerning consumer preferences and inventory requirements for
Products, materials and supplies, and specifications for and suppliers of
certain materials, equipment and fixtures for Stores; and (5) ingredients,
formulas, mixes, spices, seasonings, recipes for and methods of preparation,
cooking, baking, serving, packaging, catering and delivery of, Products sold at
Stores; and (6) information concerning Product sales, operating results,
financial performance and other financial data of Stores; and (7) the
Development Manual and the Manuals; and (8) customer lists and Product sales of
the Stores; and (9) employee selection procedures, training and staffing levels.
Under the Development Agreement, ENBC will disclose parts of the
Confidential Information to you as ENBC periodically deems necessary or
advisable for the development of Stores during training and in guidance and
assistance furnished to you under the Development Agreement and you may learn or
otherwise obtain from ENBC additional Confidential Information during the
Agreement Term. Under the Franchise Agreement, ENBC will also disclose parts of
the Confidential Information as ENBC periodically deems necessary or advisable
for the operation of a Store to you during training and in guidance and
assistance furnished to you during the term of the Franchise Agreement, and you
may learn or otherwise obtain from ENBC additional Confidential Information of
ENBC during the term of the Franchise Agreement. You must agree to disclose the
Confidential Information to your Owners and employees only to the extent
reasonably necessary and if those individuals have agreed to maintain the
information in confidence in an agreement ENBC can enforce.
The Confidential Information is confidential to and a valuable asset of
ENBC, is proprietary, includes trade secrets of ENBC and is disclosed to you on
the condition that you, and your Owners and employees who have access to the
Confidential Information agree that during and after the term of the applicable
agreement they: (1) will not use the Confidential Information in any other
business or capacity; (2) will maintain the absolute confidentiality of the
Confidential Information; (3) will not make unauthorized copies of any portion
of the Confidential Information disclosed in written or other tangible form; and
(4) will adopt and implement all reasonable procedures ENBC periodically
requires to prevent unauthorized use or disclosure of the Confidential
Information including requiring employees and Owners who have access to the
Confidential Information to execute non-competition and confidentiality
agreements in the forms attached to the Development Agreement and Franchise
Agreement or as ENBC otherwise requires periodically, and provide ENBC, at its
request, with signed copies of each of those agreements. Nothing contained in
the Development Agreement or Franchise Agreement
86
<PAGE>
will be construed to prohibit you from using the Confidential Information in the
operation of other Stores, under the a Franchise Agreement or Development
Agreement with ENBC.
The restrictions on the disclosure and use of the Confidential Information
will not apply to the following: (a) information, methods, procedures,
techniques and knowledge which are or become generally known in the food service
business within the Development Area or Territory, other than through disclosure
you make (whether deliberate or inadvertent); and (b) the disclosure of the
Confidential Information in judicial or administrative proceedings to the extent
that you are legally compelled to disclose the information, if you have notified
ENBC before disclosure and used your best efforts, and afforded ENBC the
opportunity to obtain an appropriate protective order or other assurance
satisfactory to ENBC of confidential treatment for the information required to
be so disclosed.
You must disclose to ENBC all ideas, concepts, methods, techniques and
products concerning the development and operation of Stores you or your
employees conceive or develop or during the term of the applicable agreement.
You must grant to ENBC and agree to procure from your affiliates, owners or
employees a perpetual, non-exclusive and worldwide right to use same in all food
service businesses ENBC operates, its affiliates and its franchise owners. ENBC
will have no obligation to you to make any lump sum or on-going payments to you
with respect to any idea, concept, method, technique or product. You must agree
that you will not use nor will you allow any other person or entity to use any
concept, method, technique or product without obtaining ENBC's prior written
approval.
ITEM 15
-------
OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISE BUSINESS
DEVELOPMENT AGREEMENT
- ---------------------
FULL TIME SUPERVISION.
---------------------
You (or your designated Principal Owner(s) ENBC approves) and the Chief
Operating Officer (defined below) must exert full-time efforts to fulfill your
obligations under the Development Agreement and may not engage in any other
business or other activity, directly or indirectly, that requires any
significant management responsibility or time commitments, or that may otherwise
conflict with your obligations under the Development Agreement.
CHIEF OPERATING OFFICER.
-----------------------
Concurrently with the execution of the Development Agreement, you must
designate a person (other than the persons serving as the Development Director
(defined below), the
87
<PAGE>
Training Director and the Marketing Director (defined below)) acceptable to ENBC
to act as the chief operating officer of the business you conduct under the
Development Agreement (the "Chief Operating Officer"). The Chief Operating
Officer must have appropriate multi-store food service experience and be an
Owner holding a significant, direct equity interest in you at all times during
the Agreement Term. If your relationship with the Chief Operating Officer
terminates or if the proposed Chief Operating Officer is unable to
satisfactorily complete ENBC's management training program, you must promptly
designate a replacement Chief Operating Officer acceptable to ENBC, who will
satisfactorily complete the management training program at your expense and
subject to ENBC's then-current training charges.
DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.
---------------------------------------------
Upon ENBC's written request, you must designate a person (other than the
persons serving as the Chief Operating Officer, the Training Director and the
Marketing Director) acceptable to ENBC to act as your Development Director (the
"Development Director") during the Development Term. If your relationship with
the Development Director terminates, you must promptly designate a replacement
Development Director acceptable to ENBC. The Development Director's duties will
include: (1) preparing and implementing a development plan for the Development
Area in form satisfactory to ENBC; and (2) consulting with ENBC concerning the
adaptation of ENBC's existing site criteria and lease requirements for the
Development Area; and (3) directing and coordinating your site evaluation
efforts; and (4) negotiating leases for proposed Developer Store sites; and (5)
developing Stores in the Development Area. You are also obliged to hire and
maintain the number of real estate managers meeting ENBC's qualifications as
ENBC specifies.
TRAINING DIRECTOR.
-----------------
You must designate a person (other than the persons serving as the Chief
Operating Officer, the Development Director or the Marketing Director)
acceptable to ENBC to act as your Training Director (the "Training Director")
who must satisfactorily complete ENBC's store-level management training program.
If the proposed Training Director completes the management training program to
ENBC's satisfaction, ENBC will certify him to fulfill the duties of the Training
Director. After the Training Director is certified, he or she will provide
training to the Store that you develop. If ENBC chooses, your Training
Director will have to become re-certified periodically. If the Training
Director ceases to be an employee of yours or if the proposed Training Director
is unable to satisfactorily complete the management training program or any
later training program, you must promptly designate a replacement Training
Director acceptable to ENBC, who must, at your expense and subject to ENBC's
then-current standard charges, satisfactorily complete ENBC's management
training program receive ENBC's certification as described above. ENBC may, in
its discretion as it thinks is necessary, require the Training Director to
attend or to participate in, at your expense, additional or refresher training
programs at locations ENBC designates during the term of the Development
Agreement. The Training Director's duties will include: (1) training and
supervision of Developer Store
88
<PAGE>
personnel; and (2) furnishing on-site assistance to the personnel of Developer
Stores according to the opening of Stores; and (3) ongoing consultation with
ENBC and management personnel of Developer Stores concerning training matters;
and (4) periodic reporting to ENBC concerning your training programs you
establish and operate.
If ENBC authorizes and requires, in its discretion, you must develop,
operate and maintain a training program for employees other than management
personnel and, to the extent ENBC authorizes and approves in writing
periodically, train management personnel of the Developer Stores in the use of
the System throughout the Agreement Term according to specifications ENBC
periodically requires.
MARKETING DIRECTOR.
------------------
Upon ENBC's written request, you must designate a person (other than the
persons serving as the Chief Operating Officer, the Development Director and the
Training Director) acceptable to ENBC to act as your Marketing Director (the
"Marketing Director"). If your relationship with the Marketing Director
terminates, you agree to promptly designate a replacement Marketing Director
acceptable to ENBC. The Marketing Director's duties will include: (1)
consulting with ENBC concerning the adaptation of ENBC's existing marketing
programs and materials for the Development Area; and (2) preparing and
implementing marketing plans for the grand opening of the Developer Stores; and
(3) preparing and implementing local marketing plans and marketing budgets for
the Stores and the Development Area; and (4) coordinating the direction and
administration of any local marketing efforts of the Stores; and (5) reporting
periodically to ENBC concerning your local marketing programs in the Development
Area.
MANAGEMENT PERSONNEL AND TRAINING.
---------------------------------
In addition to hiring, training and maintaining the personnel specified
above, you must hire, train and maintain the number and level of management
personnel required for the conduct of business under the Development Agreement
which will depend on the number of Stores to be developed and the qualifications
of the personnel you select. You also must ensure that a full-time Store
Manager and Additional Manager is hired and maintained at each Store, as well as
maintain adequate management and supervision of all Stores according to
guidelines ENBC periodically establishes. You must keep ENBC advised of the
identities of those personnel. You are responsible for ensuring that those
personnel are properly trained to perform their duties using only training
programs ENBC develops or approves. ENBC, at its option and in its discretion,
may require your Training Director to provide initial management training
program to the Store Manager and Additional Manager of each Store at a training
facility ENBC certifies and accredits according to its requirements; this will
apply only if the Training Director currently is certified to provide the
training. As described in Item 14 above, ENBC requires you to obtain
confidentiality agreements from certain of your employees.
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<PAGE>
COMMISSARY MANAGEMENT.
---------------------
You must employ a Commissary Manager and an Additional Commissary Manager
to supervise the day-to-day operations of each Commissary you operate, both of
whom must complete a ENBC accredited and certified initial management program on
the operations of a Commissary. Item 11. You will hire all Commissary
employees and require them to sign ENBC's standard form of confidentiality
agreement for store personnel.
GUARANTY.
--------
The Development Agreement requires that the Principal Owners of the
Developer and their spouses must sign the Guaranty and Assumption of Developer's
Obligations attached to the Development Agreement, although ENBC may accept
other assurances of performance ENBC in some cases. For purposes of the
Development Agreement, a "Principal Owner" is an owner which: (1) is a general
partner in the Developer; or (2) has a direct or indirect equity interest: (a)
in the Developer of 5% or more (regardless of whether the owner is entitled to
vote that interest); or (b) in any Store other than the Stores developed under
the Development Agreement, or any developer or franchise owner of Stores other
than the Developer; or (3) is otherwise designated as a Principal Owner in the
Development Agreement. However, a reduction in a Principal Owner's equity
interest in the Developer below 5% will not affect his/her/its status as a
Principal Owner unless ENBC expressly agrees.
FRANCHISE AGREEMENT
- -------------------
MANAGEMENT AND PERSONNEL OF THE STORE.
-------------------------------------
You (or your supervising Principal Owner(s)) must supervise and oversee the
operation of the Store. You also must employ and maintain at all times during
the term of the Franchise Agreement at least one Store Manager and one
Additional Manager at the Store. The Store Manager will be the full-time
manager of the Store and the Additional Manager will perform on a full-time
basis other operations for you as ENBC may reasonably and periodically specify,
and both must successfully complete to ENBC's satisfaction a ENBC certified
initial management training program for the operation of the Store. You also
must employ the number of assistant managers required for adequate staffing of
the Store, and must at all times keep ENBC advised of the identities of the
Store Manager, Additional Manager and assistant managers. ENBC may 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 must be under the direct, on-site supervision of
the Store Manager, Additional Manager or an assistant manager who has completed
a training program ENBC or you conduct (if applicable and if your Training
Director is certified under the terms of the Development Agreement). If ENBC
chooses, your then-current Store Manager will have to have an equity interest in
the Store during the term of the Franchise Agreement. You must hire all
employees of the Store and are
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<PAGE>
exclusively responsible for the terms of their employment and compensation and
for the proper training of those employees in the operation of the Store. As
described in Item 14 above, ENBC requires you to obtain confidentiality
agreements from some of your employees.
GUARANTY.
--------
The Franchise Agreement requires that the Principal Owners of the Franchise
Owner and their spouses sign the Guaranty and Assumption of Franchise Owner's
Obligations attached to the Franchise Agreement, although ENBC may in some cases
accept other assurances of performance. A Principal Owner for purposes of the
Franchise Agreement is an owner which: (1) is a general partner in the
Franchisee; or (2) has a direct or indirect equity interest: (a) in the
Franchisee of 5% or more (regardless of whether the owner is entitled to vote
that interest); or (b) in any Store other than the Stores developed under the
Franchise Agreement, or any developer or franchise owner of Stores other than
the Developer; or (3) is otherwise designated as a Principal Owner in the
Franchise Agreement. However, a reduction in a Principal Owner's equity
interest in the Franchisee below 5% will not affect his/her/its status as a
Principal Owner unless ENBC expressly agrees. Certain provisions of the
Franchise Agreement and Development Agreement and the guaranties restrict the
Franchise Owner, Developer and/or their Principal Owners from participating in a
competing business. (See Item 17)
ITEM 16
-------
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
DEVELOPMENT AGREEMENT.
---------------------
Under the Development Agreement, you may not offer or provide Products,
supplies or services from your Commissary to the general public. Your
Commissary is restricted to furnishing your Stores in your Development Area with
Products and other goods and services that ENBC may require. Other than the
terms by which you must operate the Commissary, there is no provision in the
Development Agreement authorizing or restricting the goods or services you offer
or provide. However, you will be bound by the noncompete provisions of the
Development Agreement as well as the provisions of the Franchise Agreements
executed under the Development Agreement with respect to restrictions on goods
and services that Developer Stores offer.
FRANCHISE AGREEMENT.
-------------------
Under the Franchise Agreement, you must offer all the Products that ENBC
periodically authorizes for the Store and must provide all services that ENBC
periodically requires for Stores. ENBC has the right, in its discretion, to
change those of Products and services, including to implement local or regional
variations, national uniformity and/or innovations or
91
<PAGE>
other changes in ENBC's franchise program and business strategy, and there is no
limit on this right. You are prohibited from offering at the Store or any other
location or otherwise according to the Marks any other products or services
which have not been approved for Stores. The Franchise Agreement contains no
restrictions on the customers to whom you may sell the goods and services the
Store offers, except that you only may deliver or cater under an effective
Delivery Rider or Catering Rider and then only within the Territory required in
the applicable Rider, all as described in Item 12 above.
ITEM 17
-------
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
The table below lists certain important provisions of the franchise and
related agreements. You should read these provisions in the agreements attached
to this offering circular.
<TABLE>
<CAPTION>
====================================================================================================================================
SECTIONS IN FRANCHISE
AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Term of franchise and Section 2.A of Franchise Agreement/Sections 3.A 15 years under Franchise Agreement, although ENBC
development rights and 3.C and 16.E of Development Agreement may grant franchises having a 20-year term.
Development Agreement, 2-5 years for development
rights only, until expiration of last Franchise
Agreement for all other rights and obligations,
including the operation of the Commissary.
- ------------------------------------------------------------------------------------------------------------------------------------
(b) Renewal or extension Sections 17.A-17.C of Franchise Agreement If you are and have been in good standing, you can
of the term acquire successor franchise on ENBC's then-current
terms for 5 years. No renewal of Development
Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Requirements for you Sections 17.A-17.C of Franchise Agreement Give proper notice, maintain possession of
to renew or extend premises or secure substitute premises, remodel
and/or expand, sign new agreement and pay fee,
sign release.
- ------------------------------------------------------------------------------------------------------------------------------------
(d) Termination by you Section 18.A of Franchise Agreement/Section If ENBC breaches Agreement and does not cure or
15.A of Development Agreement begin to cure within stated periods.
- ------------------------------------------------------------------------------------------------------------------------------------
(e) Termination by ENBC Section 5.G. of Development Agreement ENBC may at anytime require you to cease operating
without cause your Commissary.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SECTIONS IN FRANCHISE
AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(f) Termination by ENBC Sections 18.B and 18.C of Franchise ENBC can terminate if you commit a violation
with cause Agreement/Sections 15.B and 15.C of Development specified in the agreement
Agreement (See (g) below)
- ------------------------------------------------------------------------------------------------------------------------------------
(g) "Cause" defined -- Section 18.B of Franchise Agreement/Section 10 days to begin required Catering Service,
defaults which can be 15.B of Development Agreement Delivery Service or Special Distribution
cured Arrangements; 10 days to correct failure to make
payments due to ENBC or its affiliates for
Royalty, Software and Advertising/Marketing fees
and purchases from ENBC or its affiliates; 10 days
to correct failure to operate Commissary at the
time and location ENBC requires; 30 days to cure
or begin to cure standard/specification violations
or other violations; 24 hours to 5 days to cure
health, safety or sanitation problems; 10 days to
cure failure to adhere to the required financing
plan (Development Agreement only).
- ------------------------------------------------------------------------------------------------------------------------------------
(h) "Cause" defined -- Section 18.B of Franchise Agreement/Section Franchise Agreement: failure to commence operation
-------------------
defaults which cannot be 15.B of Development Agreement on time; abandonment or a transfer without ENBC's
cured approval; misrepresentation or omission in
application for the Franchise or for approval of a
transfer; conviction or guilty plea relating to a
felony or other serious crimes; misuse of or
challenge to ENBC's intellectual property rights;
loss of right to possess the Site; insolvency;
violation by you or your Owners of confidentiality
or noncompete agreements; uncured default under
lease for Site; 3 or more defaults in a 24-month
period; 2 or more defaults in a 12-month period; 3
or more (or 50% or more) of the franchise
agreements under the applicable Development
Agreement are terminated; you or your affiliates
terminate a franchise agreement with ENBC without
cause.
Development Agreement: failure to develop the
---------------------
required number of Stores; ENBC delivers to you
notice of termination of a franchise agreement;
you terminate a franchise agreement without cause;
other defaults similar to the non-curable defaults
under the franchise agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SECTIONS IN FRANCHISE
AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) Your obligations on Sections 19.A-19.F of Franchise Pay money owed, complete deidentification, return
termination/non-renewal Agreement/Sections 5.I and 16.A-16.E of confidential information (also, see (o) and (r)
Development Agreement below); the expiration of the Agreement Term or
the Development Term does not affect your
operation of the Commissary, which continues until
terminated or until the last Developer Store has
expired or been terminated, whichever occurs first.
- ------------------------------------------------------------------------------------------------------------------------------------
(j) Assignment of Sections 16.A and 16.J of Franchise No restrictions on ENBC's right to assign. ENBC
contract by ENBC Agreement/Section 14.A of Development Agreement has the right to delegate the performance of any
or all of its obligations or duties.
- ------------------------------------------------------------------------------------------------------------------------------------
(k) "Transfer" by you -- Section 16.B of Franchise Agreement/Sections Includes transfer or pledge of Agreement, lease or
definition 5.G and 14.B of Development Agreement assets, mortgage, lien or security interest
ownership change, sale of voting interests or
securities, delegation of management functions, or
transfer by means of divorce, insolvency,
dissolution, will, intestate succession or
declaration of or transfer in trust.
- ------------------------------------------------------------------------------------------------------------------------------------
(l) ENBC's approval of Sections 16.B and 16.C of Franchise ENBC has the right to approve transfers.
transfer by franchisee Agreement/Sections 5.G., 14.B and 14.C of
Development Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
(m) Conditions for ENBC's Section 16.D of Franchise Agreement/Section Franchise Agreement: ENBC will evaluate proposed
approval of transfer 14.D of Development Agreement transfers based on factors such as whether your
Owner reimburses ENBC for costs of evaluating the
transfer, transfer fee is paid, financing you may
provide is subordinate to the transferee's
obligations to ENBC, transferee signs then-current
undertakings ENBC requires, you, the transferring
Owner and the transferee (if applicable) sign
then-current releases ENBC requires, the
transferring Owner signs a noncompetition
agreement, you, your Owners and the transferee pay
fees due and unpaid, transferee's staff completes
training ENBC requires, transferee agrees to be
bound by the Franchise Agreement or ENBC's
then-current franchise agreement, the transferee
and your Owner agree (and sign a consent agreeing)
that ENBC's approval of the transfer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SECTIONS IN FRANCHISE
AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(m) Conditions for ENBC's is not a guaranty, the transfer is in compliance
approval of transfer with applicable laws, the sale of the Store, lease
(continued) or assets only occurs at transfer, and the
transferee signs a guaranty and assumption of
obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
Development Agreement: ENBC will evaluate proposed
---------------------
transfers based on factors such as whether
transferee meets ENBC's standards, the price and
terms of the transfer, your reimbursement for
ENBC's evaluation, payment of transfer fee,
financing you provide is subordinate to the
transferee's obligations to ENBC, transferee signs
then-current undertakings ENBC requires, you, the
transferring Owner and the transferee (if
applicable) sign then-current releases ENBC
requires and the transferring Owner signs a
noncompetition agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
(n) ENBC's right of first Section 16.H of Franchise Agreement/Section ENBC can match any offer for your business, assets
refusal to acquire your 14.G of Development Agreement or an ownership interest.
business
- ------------------------------------------------------------------------------------------------------------------------------------
(o) ENBC's option to Section 19.F of Franchise Agreement ENBC has the option to buy the Store after
purchase your business termination or expiration of the Franchise
Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
(p) Your death or Section 16.E of Franchise Agreement/Section Franchise or ownership interest must be assigned
disability 14.C of Development Agreement to an approved buyer within 9 months.
- ------------------------------------------------------------------------------------------------------------------------------------
(q) Non-competition Section 10 of Franchise Agreement/Section 12 of No direct or indirect involvement in a competing
covenants during the Development Agreement business anywhere; no solicitation of employees of
term of the franchise ENBC or its Franchisees; no diversion or attempts
to divert business or customers to a competing
business.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SECTIONS IN FRANCHISE
AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(r) Non-competition Section 19.D of Franchise Agreement/Section Franchise Agreement: No direct or indirect
-------------------
covenants after the 16.D of Development Agreement involvement with (including owning interests in or
franchise is terminated providing services for) a competing business at
or expires the Site, within five miles from your Store or any
other Store or in the Marketing Area; no diversion
of business of a Store or of employees of a Store
or of ENBC or its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Development Agreement: For two years, no direct or
---------------------
indirect involvement with (including owning
interests in or providing services for) a
competing business within five miles from any
Store, within the Development Area or within the
states where the Development Area is located; no
diversion of business of a Store or of employees
of a Store or of ENBC or its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
(s) Modification of the Sections 5.C and 21.K of Franchise Modifications in writing only. Operations Manuals
agreement Agreement/Sections 13.J and 18.K of Development may change.
Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
(t) Integration/merger Section 21.L of Franchise Agreement/Section Only the terms of the Agreement are binding.
clause 18.L of Development Agreement Other promises may not be enforceable.
- ------------------------------------------------------------------------------------------------------------------------------------
(u) Dispute resolution by None
arbitration or mediation
- ------------------------------------------------------------------------------------------------------------------------------------
(v) Choice of forum Section 21.G of Franchise Litigation must be in Jefferson County,
Agreement/Section 18.G of Colorado state court or federal district of
Development Agreement Colorado
- ------------------------------------------------------------------------------------------------------------------------------------
(w) Choice of law Section 21.F of Franchise Colorado law applies
18.F of Development Agreement
==================================================================================================================================
</TABLE>
96
<PAGE>
These states have statutes which may supersede the franchise agreement in
your relationship with the franchisor including the areas of termination and
renewal of your franchise: ARKANSAS [Stat. Section 72-204], CALIFORNIA
[Sections 20021, 20025, 20026, 20030], CONNECTICUT [Gen. Stat. Section 42-133f],
DELAWARE [Code Sections 2551-2556], HAWAII [Rev. Stat. Section 482E-6], ILLINOIS
[815 ILCS 705/19, 705/20], INDIANA [Stat. Sections 1 (7) and (8); and 23-2-2.7],
IOWA [Code Sections 523H.7; 523H.8], MICHIGAN [Stat. Section 445.1527(c)-(d)],
MINNESOTA [Stat. Section 80C.14], MISSISSIPPI [Code Section 75-24-53], MISSOURI
[Stat. Section 407.405], NEBRASKA [Rev. Stat. Section 87-404], NEW JERSEY [Stat.
Section 56:10-5], SOUTH DAKOTA [Codified Laws Section 37-5A-51], VIRGINIA [Code
13.1-557-574-13.1-564], WASHINGTON [Code Section 19.100.180(i)-(j)], WISCONSIN
[Stat. Sections 135.03; 135.04]. These and other states may have court
decisions which may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination and renewal of your franchise.
Bankruptcy laws may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination of your franchise.
ITEM 18
-------
PUBLIC FIGURES
ENBC does not use any public figure to promote its franchise.
ITEM 19
-------
EARNINGS CLAIMS
ENBC does not furnish or authorize its salespersons to furnish any oral or
written information concerning the actual or potential sales, costs, income or
profits of a Store. Actual results vary from Store to Store and ENBC cannot
estimate the results of any particular franchise.
ITEM 20
-------
LIST OF OUTLETS
As of December 29, 1996, ENBC, through a subsidiary, owned and operated 14
bagel stores, all of which were operated as Baltimore Bagel stores. (See Item
1) No franchisees have failed to communicate with ENBC within 10 weeks before
the date of this offering circular.
97
<PAGE>
FRANCHISED
STORE STATUS SUMMARY
FOR YEARS 1996/1995/1994*
<TABLE>
<CAPTION>
==================================================================================================================
FRANCHISES
CANCELLED REACQUIRED LEFT THE TOTAL OPERATING
OR NOT BY SYSTEM FROM LEFT AT YEAR
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS END
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 8/0/0
- ------------------------------------------------------------------------------------------------------------------
California 46/0/0 1/0/0 0/0/0 0/0/0 0/0/0 47/0/0 77/0/0
- ------------------------------------------------------------------------------------------------------------------
Colorado 4/3/0 0/0/0 0/0/0 0/0/0 0/0/0 4/3/0 14/3/0
- ------------------------------------------------------------------------------------------------------------------
Connecticut 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0
- ------------------------------------------------------------------------------------------------------------------
Delaware 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0
- ------------------------------------------------------------------------------------------------------------------
District of Columbia 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0
- ------------------------------------------------------------------------------------------------------------------
Florida 20/0/0 0/0/0 0/0/0 0/0/0 0/0/0 20/0/0 34/0/0
- ------------------------------------------------------------------------------------------------------------------
Illinois 28/0/0 0/0/0 0/0/0 0/0/0 0/0/0 28/0/0 21/0/0
- ------------------------------------------------------------------------------------------------------------------
Indiana 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/0/0
- ------------------------------------------------------------------------------------------------------------------
Kansas 6/0/0 0/0/0 0/0/0 0/0/0 0/0/0 6/0/0 11/0/0
- ------------------------------------------------------------------------------------------------------------------
Maryland 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 4/0/0
- ------------------------------------------------------------------------------------------------------------------
Massachusetts 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0
- ------------------------------------------------------------------------------------------------------------------
Michigan 7/0/0 0/0/0 0/0/0 0/0/0 0/0/0 7/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
FRANCHISES
CANCELLED REACQUIRED LEFT THE TOTAL OPERATING
OR NOT BY SYSTEM FROM LEFT AT YEAR
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS END
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minnesota 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
Missouri 4/0/0 0/0/0 0/0/0 0/0/0 0/0/0 4/0/0 11/0/0
- ------------------------------------------------------------------------------------------------------------------
Nevada 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/0/0
- ------------------------------------------------------------------------------------------------------------------
New Hampshire 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0
- ------------------------------------------------------------------------------------------------------------------
New Jersey 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
New Mexico 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0
- ------------------------------------------------------------------------------------------------------------------
New York 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
Ohio 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
Oregon 3/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/0/0 5/0/0
- ------------------------------------------------------------------------------------------------------------------
Pennsylvania 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 14/0/0
- ------------------------------------------------------------------------------------------------------------------
Texas 6/0/0 0/0/0 0/0/0 0/0/0 0/0/0 6/0/0 6/0/0
- ------------------------------------------------------------------------------------------------------------------
Utah 0/10/0 0/0/0 0/0/0 0/0/0 0/0/0 0/10/0 21/10/0
- ------------------------------------------------------------------------------------------------------------------
Virginia 4/0/0 0/0/0 0/0/0 0/0/0 0/0/0 4/0/0 7/0/0
- ------------------------------------------------------------------------------------------------------------------
Washington 5/0/0 0/0/0 0/0/0 0/0/0 0/0/0 5/0/0 8/0/0
- ------------------------------------------------------------------------------------------------------------------
Wisconsin 6/0/0 0/0/0 0/0/0 0/0/0 0/0/0 6/0/0 9/0/0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
FRANCHISES
CANCELLED REACQUIRED LEFT THE TOTAL OPERATING
OR NOT BY SYSTEM FROM LEFT AT YEAR
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS END
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTALS 142/1//13/2//0 1/0/0 0/0/0 0/0/0 0/0/0 143/13/0 301/13/0
=======================================================================================================================
</TABLE>
* Note: All numbers are as of each fiscal year-end (i.e., December 25, 1994,
December 31, 1995, and December 29, 1996).
________________
/1// This number represents 113 ENBC to Developer transfers and 29
Developer to Developer transfers.
/2// This number represents 13 Company to Developer transfers.
100
<PAGE>
AREA DEVELOPER
STATUS SUMMARY
FOR YEARS 1996/1995/1994*
<TABLE>
<CAPTION>
========================================================================================================
CANCELLED REACQUIRED LEFT THE TOTAL DEVELOPERS
OR NOT BY SYSTEM FROM LEFT OPERATING
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS AT YEAR END
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
California 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- ---------------------------------------------------------------------------------------------------------
Colorado 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
Connecticut 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Delaware 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
District of 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
Columbia
- ---------------------------------------------------------------------------------------------------------
Florida 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Idaho 0/1/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
Illinois 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- ---------------------------------------------------------------------------------------------------------
Indiana 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Kansas 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Maryland 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
CANCELLED REACQUIRED LEFT THE TOTAL DEVELOPERS
OR NOT BY SYSTEM FROM LEFT OPERATING
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS AT YEAR END
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Massachusetts 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Michigan 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- ---------------------------------------------------------------------------------------------------------
Minnesota 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Mississippi 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0
- ---------------------------------------------------------------------------------------------------------
Missouri 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Montana 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
Nebraska 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
Nevada 2/1/0 1/0/0 0/0/0 0/0/0 0/0/0 3/1/0 2/1/0
- ---------------------------------------------------------------------------------------------------------
New Hampshire 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
New Jersey 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- ---------------------------------------------------------------------------------------------------------
New Mexico 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- ---------------------------------------------------------------------------------------------------------
New York 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- ---------------------------------------------------------------------------------------------------------
Ohio 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Oregon 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- ---------------------------------------------------------------------------------------------------------
Pennsylvania 4/0/0 0/0/0 0/0/0 0/0/0 0/0/0 4/0/0 4/0/0
- ---------------------------------------------------------------------------------------------------------
Rhode Island 1/0/0 0/0/0 0/0/0 1/0/0 0/0/0 2/0/0 0/0/0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
CANCELLED REACQUIRED LEFT THE TOTAL DEVELOPERS
OR NOT BY SYSTEM FROM LEFT OPERATING
STATE TRANSFERS TERMINATED RENEWED FRANCHISOR OTHER COLUMNS AT YEAR END
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Texas 2/1/0 1/0/0 0/0/0 1/0/0 0/0/0 4/1/0 1/1/0
- --------------------------------------------------------------------------------------------------------------
Utah 0/1/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/0 1/1/0
- --------------------------------------------------------------------------------------------------------------
Vermont 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- --------------------------------------------------------------------------------------------------------------
Virginia 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- --------------------------------------------------------------------------------------------------------------
Washington 1/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0 1/0/0
- --------------------------------------------------------------------------------------------------------------
West Virginia 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- --------------------------------------------------------------------------------------------------------------
Wisconsin 2/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/0/0 2/0/0
- --------------------------------------------------------------------------------------------------------------
Wyoming 1/1/0 1/0/0 0/0/0 0/0/0 0/0/0 2/1/0 1/1/0
- --------------------------------------------------------------------------------------------------------------
TOTALS 45/10/0 8/(1)//0/0 0/0/0 0/0/0 0/0/0 N/A 11/2/0/(2)/
==============================================================================================================
</TABLE>
* Note: All numbers are as of each fiscal year-end (i.e., December 25, 1994,
December 31, 1995, and December 29, 1996).
_________________________
1/ This number reflects the merger of 2 Developers where the Developer-entity
- -
that did not survive the merger had development rights in 8 states.
2/ These numbers reflect the total number of ENBC Developers operating at year
- -
end. Nearly all Developers have the right to develop Units in more than one
state, and in many instances, several Developers have rights to develop
Units in different portions of the same state. Therefore, the "Total" in
this column is not the sum of the preceding numbers (which reflect the
number of Developers with development rights in specific states) but rather
reflects the actual number of Developers of Units.
103
<PAGE>
<TABLE>
<CAPTION>
============================================================================
STATUS OF COMPANY-OWNED BUSINESSES
FOR YEARS 1996/1995/1994/1/
============================================================================
BUSINESSES BUSINESSES TOTAL BUSINESSES
CLOSED DURING OPENED DURING OPERATING AT
STATE YEAR YEAR YEAR-END
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
California 1/0/0 0/15/0 14/15/0
- ----------------------------------------------------------------------------
Colorado 6/1/0 0/7/0 0/6/0
- ----------------------------------------------------------------------------
Florida 0/0/0 0/10/0 0/10/0
- ----------------------------------------------------------------------------
Illinois 1/0/0 0/5/0 0/5/0
- ----------------------------------------------------------------------------
Kansas 0/0/0 0/6/0 0/6/0
- ----------------------------------------------------------------------------
Michigan 0/0/0 0/1/0 0/1/0
- ----------------------------------------------------------------------------
Missouri 0/0/0 0/4/0 0/4/0
- ----------------------------------------------------------------------------
Virginia 0/0/0 4/0/0 0/0/0
- ----------------------------------------------------------------------------
TOTAL 8/1/0 4/48/0 14/47/0
============================================================================
</TABLE>
1/ These numbers do not include Bagel Stores that ENBC acquired, opened or
- -
operated for a transitional period and then transferred to Franchisees in
1995 and 1996.
104
<PAGE>
<TABLE>
<CAPTION>
===================================================================
PROJECTED STORE OPENINGS AS OF DECEMBER 29, 1996
- -------------------------------------------------------------------
FRANCHISE PROJECTED PROJECTED
AGREEMENTS FRANCHISED COMPANY
SIGNED BUT NEW OWNED
BUSINESS BUSINESSES OPENINGS IN
STATE NOT OPEN IN 1997 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 1 13 0
- -------------------------------------------------------------------
California 1 48 0
- -------------------------------------------------------------------
Colorado 0 11 2
- -------------------------------------------------------------------
District of 0 10 0
Columbia
- -------------------------------------------------------------------
Florida 1 25 0
- -------------------------------------------------------------------
Georgia 0 18 0
- -------------------------------------------------------------------
Illinois 2 13 0
- -------------------------------------------------------------------
Indiana 1 12 0
- -------------------------------------------------------------------
Kansas 0 5 0
- -------------------------------------------------------------------
Maryland 3 4 0
- -------------------------------------------------------------------
Massachusetts 2 17 0
- -------------------------------------------------------------------
Michigan 0 11 0
- -------------------------------------------------------------------
Minnesota 0 3 0
- -------------------------------------------------------------------
Missouri 0 16 0
- -------------------------------------------------------------------
Nevada 0 5 0
- -------------------------------------------------------------------
New Hampshire 1 0 0
- -------------------------------------------------------------------
New Jersey 4 0 0
- -------------------------------------------------------------------
New Mexico 0 3 0
- -------------------------------------------------------------------
New York 3 10 0
- -------------------------------------------------------------------
North Carolina 0 3 0
- -------------------------------------------------------------------
Ohio 0 10 0
- -------------------------------------------------------------------
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
===================================================================
PROJECTED STORE OPENINGS AS OF DECEMBER 29, 1996
- -------------------------------------------------------------------
FRANCHISE PROJECTED PROJECTED
AGREEMENTS FRANCHISED COMPANY
SIGNED BUT NEW OWNED
BUSINESS BUSINESSES OPENINGS IN
STATE NOT OPEN IN 1997 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Oregon 1 5 0
- -------------------------------------------------------------------
Pennsylvania 1 30 0
- -------------------------------------------------------------------
Tennessee 0 8 0
- -------------------------------------------------------------------
Texas 4 22 0
- -------------------------------------------------------------------
Utah 1 4 0
- -------------------------------------------------------------------
Virginia 1 7 0
- -------------------------------------------------------------------
Washington 0 5 0
- -------------------------------------------------------------------
Wisconsin 0 7 0
- -------------------------------------------------------------------
TOTAL 27 325 2
===================================================================
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
=======================================================================
PROJECTED AREA DEVELOPMENT BUSINESS OPENINGS AS OF
DECEMBER 29, 1996
- -----------------------------------------------------------------------
DEVELOPMENT PROJECTED PROJECTED
AGREEMENTS NEW COMPANY
SIGNED BUT DEVELOPMENT OWNED
BUSINESS AGREEMENTS DEVELOPMENT
STATE NOT OPERATING IN 1997 AREAS IN 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Alabama 1 0 0
- -----------------------------------------------------------------------
California 0 1 0
- -----------------------------------------------------------------------
Idaho 1 0 0
- -----------------------------------------------------------------------
Montana 1 0 0
- -----------------------------------------------------------------------
Nebraska 1 0 0
- -----------------------------------------------------------------------
North Carolina 1 0 0
- -----------------------------------------------------------------------
South Carolina 1 0 0
- -----------------------------------------------------------------------
Vermont 1 0 0
- -----------------------------------------------------------------------
West Virginia 1 0 0
- -----------------------------------------------------------------------
Wyoming 1 0 0
- -----------------------------------------------------------------------
TOTAL 9/1/ 1 0
=======================================================================
</TABLE>
1/ This number reflects states where Developers have territorial rights as
- -
described in this offering circular to develop Stores but have not yet
established Stores there. One Developer may have such rights in several
states and several Developers may have such rights to different portions of
the same state.
ITEM 21
-------
FINANCIAL STATEMENTS
Attached as Exhibit G are ENBC's audited financial statements (balance
---------
sheets, statements of operations, stockholders' equity and cash flows and
supplemental schedules) for the fiscal years ending December 29, 1996 and
December 31, 1995.
107
<PAGE>
ITEM 22
-------
CONTRACTS
Attached to this offering circular are the following standard forms of
agreements that ENBC currently uses:
EXHIBITS
- --------
Exhibit B Einstein/Noah Bagel Corp. Development Agreement
Exhibit C Einstein/Noah Bagel Corp. Franchise Agreement
Exhibit D Form In-Line Store Lease
Exhibit E Addendum to Lease
Exhibit F Standard Form of Sublease
Exhibit H Form of Area Developer Secured Loan Agreement
108
<PAGE>
EXHIBIT A
EINSTEIN/NOAH BAGEL CORP.
STATE AGENCIES/AGENTS FOR SERVICE OF PROCESS
--------------------------------------------
1
<PAGE>
LIST OF STATE AGENCIES/AGENTS
FOR SERVICE OF PROCESS
----------------------
Listed here are the names, addresses and telephone numbers of the state
agencies having responsibility for franchising disclosure/registration laws. We
may not yet be registered to sell franchises in any or all of these states.
CALIFORNIA
Department of Corporations:
Los Angeles
Suite 600
3700 Wilshire Boulevard
Los Angeles, California 90010
(213) 736-2741
Sacramento
1115 Eleventh Street
Sacramento, California 95814
(916) 445-7205
San Diego
1350 Front Street
San Diego, California 92101
(619) 525-4044
San Francisco
1390 Market Street
San Francisco, California 94102
(415) 557-3787
HAWAII
Director, Department of Commerce
and Consumer Affairs
Business Registration Division
1010 Richards Street
Honolulu, Hawaii 96813
(808) 548-2021
ILLINOIS
Illinois Attorney General
500 South Second Street
Springfield, Illinois 62706
(217) 782-4465
INDIANA
(for service of process)
Indiana Secretary of State
201 State House
200 West Washington Street
Indianapolis, Indiana 46204
(317) 232-6531
(state agency)
Indiana Secretary of State
Securities Division
Room E-111
302 West Washington Street
Indianapolis, IN 46204
(317)232-6681
MARYLAND
(state agency)
Office of the Attorney General-
Securities Division
20th Floor
200 St. Paul Place
Baltimore, Maryland 21202-2021
(410) 576-6360
2
<PAGE>
(for service of process)
Maryland Securities Commissioner
at the Office of Attorney General-
Securities Division
20th Floor
200 St. Paul Place
Baltimore, Maryland 21202-2021
(410) 576-6360
MICHIGAN
Consumer Protection Division
Antitrust and Franchise Unit
Michigan Department of Attorney General
670 Law Building
Lansing, Michigan 48913
(517) 373-7177
MINNESOTA
Minnesota Department of Commerce
133 East Seventh Street
St. Paul, Minnesota 55101
(612) 296-6328
NEW YORK
(for service of process)
Secretary of the State of New York
162 Washington Street
Albany, New York 11231
(518) 474-4750
(for other matters)
New York State Department of Law
Investor Protection and Securities Bureau
120 Broadway
New York, New York 10271-0332
(212) 416-8000
NORTH DAKOTA
Office of Securities Commissioner
Fifth Floor
600 East Boulevard
Bismarck, North Dakota 58505
(701) 224-4712
OREGON
Department of Insurance and Finance
Corporate Securities Section
Labor and Industries Building
Salem, Oregon 97310
(503) 378-4387
RHODE ISLAND
Division of Securities
Suite 232
233 Richmond Street
Providence, Rhode Island 02903
(401) 277-3048
SOUTH DAKOTA
South Dakota Department of Commerce
Division of Securities
118 West Capitol
Pierre, South Dakota 57501-2017
(605) 773-4013
3
<PAGE>
VIRGINIA
(for service of process)
Clerk, State Corporation Commission
1300 East Main Street
Richmond, Virginia 23219
(804) 371-9672
(for other matters)
State Corporation Commission
Division of Securities and Retail Franchising
1300 East Main Street
Ninth Floor
Richmond, Virginia 23219
(804) 371-9051
WASHINGTON
(for service of process)
Director Department of Financial Institutions
Securities Division
General Admin. Bldg. 3rd Floor
210-11th Avenue S.W.
Olympia, Washington 98504
(for other matters)
Department of Financial Institutions
Securities Division
P. O. Box 9033
Olympia, Washington 98507-9033
(360) 902-8760
WISCONSIN
Commissioner of Securities
345 West Washington Avenue, 4th Floor
Madison, Wisconsin 53703
(608) 266-3431
4
<PAGE>
EXHIBIT B
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
B-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
______________________________
DEVELOPER
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
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 FRANCHISES AND ADVERTISING REQUIREMENT....................... 24
A. SITE REVIEW AND APPROVAL......................................... 24
B. LEASE OF APPROVED SITES.......................................... 25
C. EXECUTION OF FRANCHISE AGREEMENTS................................ 26
D. INITIAL FRANCHISE AND ROYALTY FEES............................... 26
E. ADVERTISING EXPENDITURES......................................... 27
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
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
C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.................... 42
D. TRAINING DIRECTOR................................................ 42
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
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
F. CONTINUING OBLIGATIONS........................................... 65
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION............................... 65
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
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>
EXHIBITS AND ATTACHMENTS
- ------------------------
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - DEVELOPMENT FEE
EXHIBIT D - DEVELOPMENT AREA(S)
EXHIBIT E - DEVELOPMENT SCHEDULE
EXHIBIT F - FORM FRANCHISE AGREEMENT
EXHIBIT G - PRINCIPAL OWNERS, OTHER OWNERS, KEY
MANAGERS, PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
EXHIBIT H - DEVELOPER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT I - GUARANTY AND ASSUMPTION OF DEVELOPER'S
OBLIGATIONS
EXHIBIT J - CONFIDENTIALITY AND NONCOMPETE AGREEMENT
EXHIBIT K - PRINCIPAL MARKS TO BE USED BY DEVELOPER
iv
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT is made and entered into this _____ day of ________________,
19____ (the "EFFECTIVE DATE"), by and between EINSTEIN/NOAH BAGEL CORP., a
Delaware corporation ("COMPANY"), and DEVELOPER (defined below).
"DEVELOPER": ____________________________________________________________
____________________________________________________________
a __________________________________________________________
Principal Address: ____________________________________________________________
____________________________________________________________
____________________________________________________________
1. PREAMBLES.
---------
COMPANY and its Affiliates (as defined below) have developed and are
continuing to develop and refine methods of operating 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 a franchise 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 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
Franchise Agreements (defined below) which grant the right to develop UNITS
which use the branded concept, the Principal Marks, the other
<PAGE>
Marks associated with the Principal Marks and those elements of the System
associated with the 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.
2. CERTAIN DEFINITIONS.
-------------------
For purposes of this Agreement, the terms listed below have the meanings
that follow them. Other terms used in this Agreement are defined in the context
in which they occur.
"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive weeks in
-----------------
each fiscal year of COMPANY that is designated by COMPANY as an accounting
period of COMPANY.
"AFFILIATE" - Any person or legal entity that directly or indirectly owns
---------
or controls COMPANY, that is directly or indirectly owned or controlled by
COMPANY, or that is under common control with COMPANY. For purposes of this
definition, "CONTROL" means the power to direct or cause the direction of the
management and policies of an entity. Neither Boston Chicken, Inc. ("BCI") nor
any of its affiliates shall be considered Affiliates of COMPANY until such time
as BCI owns a direct Ownership Interest in COMPANY and otherwise meets the
foregoing criteria.
"AGREEMENT TERM" - The period commencing upon the Effective Date and ending
--------------
upon the expiration or termination of the last to expire or terminate of the
Franchises (defined below) and successor Franchises granted to DEVELOPER
pursuant to this Agreement, unless terminated sooner in accordance with the
provisions of this Agreement.
"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=MC/2/), (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.
2
<PAGE>
"CATERING AREA" - The geographic area in which COMPANY, in its sole
-------------
discretion, authorizes the owner of a Franchise (a "FRANCHISE OWNER") to provide
Catering Service pursuant to a Catering Rider, which area may be the same as,
smaller than, larger than or different from the Territory (defined in the
Franchise Agreement) of a UNIT.
"CATERING RIDER" - The form of rider to this Agreement or to a Franchise
--------------
Agreement used by COMPANY from time to time to authorize in its sole discretion
a Franchise Owner to offer Catering Service (defined below) within the
applicable Catering Area. The current form of COMPANY's Catering Rider is
attached hereto as Exhibit A.
---------
"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a
----------------
separate facility approved by COMPANY in writing (such approved facility is
referred to herein as a "CATERING FACILITY") to customers in the Catering Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fifteen (15) or more persons,
or
(2) in addition to the delivery of Products, DEVELOPER provides
ancillary services to a customer at such location within the Catering Area,
including, by way of example and without limitation, the setting up for
serving or distribution of Products.
"COMMISSARY" - A food preparation facility operated by DEVELOPER pursuant
----------
to this Agreement that:
(1) procures and receives those Products, ingredients and materials
used in the preparation and packaging of Products, and other materials and
supplies used in the operation of 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;
3
<PAGE>
(c) delivery service;
(d) catering service; or
(e) other distribution channels similar to those used by COMPANY; or
(2) grants or has granted franchises or licenses or establishes or
has established joint ventures, for the development and/or operation of one
or more businesses or enterprises described in the foregoing clause (1);
provided, however, that the term "Competitive Business" shall not include:
(a) any Boston Market restaurant operated pursuant to a valid
franchise or license agreement with Boston Chicken, Inc. or its
successors; or
(b) any business or enterprise that derives less than 10% of its
revenue from the sale of (i) bagels and/or bagel related products
(including but not limited to cream cheese and other spreads,
bagel sandwiches and bagel chips) or (ii) any other product which
accounts for 15% or more of the revenue of any UNIT owned or
operated by COMPANY or a franchisee of COMPANY.
"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
4
<PAGE>
determination of the outcome on any issue and (b) shall prevent any other
person, group, combination, or entity from blocking voting control on any
issue or exercising any veto power;
(3) limited partnership, general partnership interest, such percentage
of limited partnership interests or such other rights as shall permit the
replacement or removal of any general partner; and
(4) limited liability company, such percentage of the membership
interests of DEVELOPER or such other rights as (a) shall permit voting
control of DEVELOPER on any issue, and (b) shall prevent any other person,
group, combination, or entity from blocking voting control on any issue or
exercising any veto power.
"DELIVERY AREA" - The geographic area in which COMPANY, in its sole
-------------
discretion, authorizes a franchise owner to provide Delivery Service (defined
below) pursuant to a Delivery Rider (defined below), which area may be the same
as, smaller than, larger than or different from the Territory of a UNIT.
"DELIVERY RIDER" - The form of rider to this Agreement or to a Franchise
--------------
Agreement used by COMPANY from time to time to authorize or require in its sole
discretion a franchise owner of a 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 Franchise 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.
- ---------
5
<PAGE>
"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 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 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" - The right to operate a UNIT at a particular location and to
---------
use one or more of the Marks and the System in the operation thereof.
"FRANCHISE AGREEMENT" - at COMPANY's option, either:
-------------------
(1) the form of franchise agreement (including exhibits, riders,
addenda and attachments thereto) attached hereto as Exhibit F; or
(2) the form of franchise agreement (including all exhibits, riders,
guarantees and other agreements used in connection therewith) used by
COMPANY from time to time in the offering and granting of Franchises in the
United States of America,
in either instance revised by COMPANY in good faith to the extent necessary to
have the Franchise Agreement reflect the substantive changes contained in
Addendum No. 1 to the Franchise Agreement attached hereto as part of Exhibit F.
"IMMEDIATE FAMILY" - (1) The spouse of a person; and (2) the natural and
----------------
adoptive parents and natural and adopted children and siblings of such person
and their spouses; and (3) the natural and adoptive parents and natural and
adopted children and siblings of the spouse of such person; and (4) any other
member of the household of such person; provided, in the case of natural and
adopted children and siblings and their spouses and the parents, children and
6
<PAGE>
siblings of spouses, that such person received or had access to Confidential
Information, including as an employee, supplier, officer, director, stockholder
or agent of DEVELOPER or any other operator of a UNIT.
"LICENSED PROGRAM" - The retail store-level computer software programs
----------------
(other than the Support/Control Program, as defined below) developed by or for
COMPANY and designated by COMPANY from time to time as specified or required in
connection with utilization of the Computer System, which may include, without
limitation, COMPANY's required point-of-sale, bookkeeping, inventory, training,
marketing, employee selection, operations and financial information, collection
and retrieval systems (including COMPANY's general ledger system utilizing the
standard chart of accounts prescribed by COMPANY from time to time) for use in
connection with the operation of UNITS or franchise owners' and developers'
businesses, including any updates, supplements, modifications or enhancements
thereto made from time to time, all related documentation, the tangible media
upon which such programs are recorded, and the database file structure thereof,
but excluding any data or databases owned or compiled by COMPANY or its
Affiliates or their licensors for use with the Licensed Program or otherwise or
any data generated by the use of the Licensed Program. The Licensed Program
includes, but is not limited to, programs utilized by UNITS for point-of-sale
and cash management, customer feedback kiosks, inventory management, order
processing, employee feedback, production scheduling, labor scheduling, ideal
food costs, store operations and smart form reporting.
"MARKS" - The trademarks, service marks, logos and other commercial symbols
-----
which COMPANY uses and authorizes developers and franchise owners to use to
identify, the services and/or products offered by Stores, and the "TRADE DRESS"
(defined in the Franchise Agreement); provided that such trademarks, service
marks, logos, other commercial symbols, and the Trade Dress are subject to
modification and discontinuance at COMPANY's sole discretion and may include
additional or substitute trademarks, service marks, logos, commercial symbols
and trade dress as provided in this Agreement. 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, provided that if such
business is a franchised or licensed business of a franchisor which,
7
<PAGE>
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 to operate a Special Distribution Arrangement
(defined below) at a Special Distribution Location (as defined below) designated
by COMPANY.
"SPECIAL DISTRIBUTION ARRANGEMENT" - The sale of all or some of the
--------------------------------
Products, as designated by COMPANY, at or from a Special Distribution Location
(defined below), whether or not by or through on-premises food service
facilities or concessions, pursuant to
8
<PAGE>
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 Franchise Agreement has been executed and
delivered is equal to the Sub-Area Quota (as set forth in Exhibit E ) for that
----------
Sub-Area.
"SUPPORT/CONTROL PROGRAMS" - The computer software programs developed by or
------------------------
for COMPANY and designated from time to time as specified or required in
connection with real estate services and other functions performed by COMPANY
pursuant to this Agreement or in connection with support, supervision, reporting
or control of UNITS and in connection with analysis, tracking, maintenance,
feedback and communication functions related thereto or to the employees
thereof, including but not limited to, Notes Databases, structured reporting and
related software.
"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
9
<PAGE>
Franchise owner of such business to offer Catering Service pursuant to a
Catering Rider or to operate Special Distribution Arrangements pursuant to
a Special Distribution Agreement (defined below); and
(2) operates using the System and the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant to a
valid franchise from COMPANY.
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 Franchise Agreements executed
pursuant hereto, COMPANY will grant to DEVELOPER during the Development Term and
in accordance with Section 6 hereof, the right to develop and operate the number
of Stores in each Sub-Area of the Development Area as specified on Exhibit D to
---------
this Agreement. DEVELOPER acknowledges and agrees that DEVELOPER's rights under
this Agreement are limited to the designated number of Stores for each Sub-Area
and the schedule and timing of the opening of Stores in each Sub-Area during the
respective Sub-Area Terms as set forth on Exhibit D to this Agreement.
---------
DEVELOPER is not granted any rights to develop or operate, and 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
10
<PAGE>
of this Agreement shall constitute notice to DEVELOPER of non-renewal for
purposes of fulfilling the requirements of any applicable state or federal law
governing the non-renewal of franchise or development rights.
DEVELOPER shall cause all Principal Owners and their spouses as of the
Effective Date to execute and deliver to COMPANY concurrently with the execution
of this Agreement and all persons or entities that become Principal Owners after
the Effective Date and their spouses to promptly thereafter execute and deliver
to COMPANY, the form of Guaranty and Assumption of Developer's Obligations
("GUARANTY") attached hereto as Exhibit I.
---------
Notwithstanding the foregoing:
(a) DEVELOPER shall not be required to cause the execution and
delivery of the Guaranties referred to in this Section if, and for such
period of time as, DEVELOPER does not pay dividends, distributions or
unreasonable compensation to any Owner at any time that the Owners' equity
in DEVELOPER is either less than $5,000,000 or would be reduced to below
that amount by reason of such payment; and
(b) spouses of guarantors shall not be required to execute any
Guaranties referred to in this Section unless, under applicable law
(including, without limitation, the law of the state in which such
guarantors and/or their spouses reside), their failure to execute would
render the Guaranties null and void.
3.B. TERRITORIAL RIGHTS.
------------------
Except as otherwise provided in this Agreement (including, without
limitation, Section 4 and Sections 3.E. and 3.F.), and provided that DEVELOPER
is in full compliance with this Agreement and with all Franchise Agreements,
COMPANY and its Affiliates will not during the Sub-Area Term for each Sub-Area
operate or grant franchises for the operation of Stores within such Sub-Area.
3.C. DEVELOPMENT OBLIGATIONS.
-----------------------
DEVELOPER agrees that during the Development Term, it will continuously
exert its best efforts to promote and enhance the development of 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. 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
11
<PAGE>
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 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
12
<PAGE>
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 Franchise
Agreement and such ancillary documents as are then customarily used by COMPANY
in the grant of franchises for Stores (collectively, the "Franchise Documents")
as modified for use in connection with the Target Site, as necessary, and (4)
pay COMPANY a site location and negotiation fee (the "SITE LOCATION AND
NEGOTIATION FEE") equal to Twenty Thousand Dollars ($20,000.00) plus COMPANY's
reasonable out-of-pocket expenses incurred in locating such Target Site and
negotiating the lease or purchase agreement, all within ten (10) business days
after COMPANY's delivery to DEVELOPER of the lease or purchase agreement, as the
case may be, and the Franchise Documents. The Site Location and Negotiation Fee
is paid to compensate COMPANY for the internal costs of the site location
services it provides. COMPANY shall fully cooperate with DEVELOPER in obtaining
the landlord's consent to DEVELOPER's execution of such lease or the seller's
consent to DEVELOPER's execution of such purchase agreement or assignment of
purchase agreement as the case may be.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires to
develop and operate a 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 Franchise Documents to DEVELOPER.
If DEVELOPER (a) declines the option to develop a Target Site, (b) fails to
timely notify COMPANY of its election to develop a Target Site or (c) fails to
timely execute the approved
13
<PAGE>
lease or purchase agreement and Franchise Documents for a Target Site and pay
the applicable fee as provided herein, then COMPANY or its designee may develop
and operate a Store at such Target Site.
Any Target Site for which DEVELOPER executes the Franchise Documents and
develops and opens a UNIT will count toward the Sub-Area Quota for the Sub-Area
in which such Target Site is located. COMPANY will not be required to give
notice to DEVELOPER or offer to DEVELOPER a franchise to develop a 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 Franchise Agreement and
accepted as Target Sites or Conversion Sites for that Sub-Area equals the Sub-
Area Quota.
3.F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES.
-----------------------------------------------
If, during the applicable Sub-Area Term for a particular Sub-Area, COMPANY
acquires the shares or assets (which may include, by way of illustration and not
by way of limitation, furniture, fixtures, equipment, leasehold improvements
and/or leasehold interests) of any business operating a Bagel Store at one or
more sites located within such Sub-Area which meet COMPANY's specifications and
standards as in effect from time to time for conversion to UNITS (the
"CONVERSION SITES"), and COMPANY determines in its sole discretion to convert
such Conversion Sites to 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 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
14
<PAGE>
conversion to UNITS and which may have to be closed or sold to a third
party subsequent to DEVELOPER's acquisition; and
(5) DEVELOPER agrees to (a) execute, concurrently with DEVELOPER's
purchase, the Franchise Documents, as modified for use in connection with a
Conversion Site as necessary, for each and every such Conversion Site, (b)
convert each such Conversion Site to 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 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 may operate, alter, modify, refurbish, remodel,
promote and market any such Conversion Sites and use the Licensed Program and
Computer System in the operation thereof during such one (1) year period. For
purposes of this Section 3.F., all references to COMPANY shall be deemed to
include its Affiliates.
Any Conversion Site for which DEVELOPER executes the Franchise Documents
and develops and opens a 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
15
<PAGE>
expiration of the Development Term for such Sub-Area, the party desiring to
conduct such development shall provide the other with notice thereof
("Development Plan Notice"). Such notice shall contain any demographic,
competitive or market analysis on which the notifying party based its
determination and the development plan and schedule proposed for such
additional development.
(2) The parties shall, as soon as practicable following issuance and
receipt of a Development Plan Notice and for a period of 45 days
thereafter, engage in good faith negotiations for the execution of a new
development agreement (the "Post-Development Agreement") in the form of
development agreement then being used by COMPANY, which may contain
different terms and/or higher fees than the Agreement, for the right to
develop and acquire the franchise to operate the agreed-upon number of
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.
(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, and Franchise Agreement or
any other agreement with COMPANY and which, if curable, has not been
cured within any applicable cure period; or
16
<PAGE>
(f) the Post-Development Period expires without either party
issuing a Development Plan Notice.
4. OTHER DISTRIBUTION METHODS.
--------------------------
4.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights to operate Special
Distribution Arrangements within or outside the Development Area or the Sub-
Areas pursuant to this Agreement; and (2) the right to operate or grant to
others the right to operate Special Distribution Arrangements is specifically
reserved to COMPANY or its designees. If COMPANY, at any time and in its sole
discretion, determines to offer DEVELOPER the right to operate a Special
Distribution Arrangement at a Special Distribution Location designated by
COMPANY, COMPANY will so notify DEVELOPER by delivering to DEVELOPER a form of
Special Distribution Agreement. DEVELOPER will have fifteen (15) days after its
receipt thereof to execute and deliver to COMPANY such executed Special
Distribution Agreement. If DEVELOPER fails to execute and deliver to COMPANY
the executed Special Distribution Agreement within such fifteen (15) day period
or commence such Special Distribution Arrangement within the period specified
therein, then DEVELOPER shall have no right to operate such Special Distribution
Arrangement thereafter. COMPANY reserves the right under the Special
Distribution Agreement, at any time and in its sole discretion with or without
cause and regardless of the investment made by DEVELOPER in establishing or
operating the Special Distribution Arrangement or the length of time the Special
Distribution Arrangement has been in effect, to suspend or terminate DEVELOPER's
right to operate the Special Distribution Arrangement, effective ninety (90)
days after COMPANY's written notice to DEVELOPER. Notwithstanding the
foregoing, COMPANY agrees that, if during the Development Term it intends to
engage in a Special Distribution Arrangement at or from (a) a military facility,
(b) an entertainment or sporting facility or event, (c) an airport, bus or train
station, (d) a toll road or limited access highway facility, or (e) any
specialty kiosk located in or adjacent to any similar facilities, located within
the Development Area, COMPANY will offer DEVELOPER a Special Distribution
Agreement, the execution of which shall be governed by this Section 4.A.
4.B. DELIVERY SERVICE.
----------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights within or outside
the Development Area or the Sub-Areas to offer Delivery Service from any of the
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). DEVELOPER will have fifteen (15) days after its receipt
thereof to execute and deliver to COMPANY such executed Delivery Rider. A
Delivery Facility
17
<PAGE>
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 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 Franchise Agreement), shall offer
Delivery Service, COMPANY will notify DEVELOPER and will deliver to DEVELOPER a
Delivery Rider to this Agreement (or to the applicable Franchise Agreement)
which DEVELOPER shall execute and return to COMPANY within fifteen (15) days
after its receipt.
COMPANY reserves the right under the Delivery Rider, at any time and in its
sole discretion, with or without cause and regardless of the investment made by
DEVELOPER in establishing and conducting Delivery Service or the length of time
DEVELOPER has offered Delivery Service: (1) to reduce, modify or expand the
Delivery Area, effective upon COMPANY's written notice to DEVELOPER, provided,
however, that if a reduction or modification of the Delivery Area amounts to a
termination of substantially all of DEVELOPER's rights to provide such services
(except in the case of the exercise by COMPANY of its remedies under Section
15.C of this Agreement), such reduction or modification shall not be effective
until 90 days after COMPANY's written notice to DEVELOPER; or (2) to suspend or
terminate DEVELOPER's right to offer Delivery Service, effective ninety (90)
days after COMPANY's written notice to DEVELOPER; and COMPANY may otherwise
terminate DEVELOPER's right to offer Delivery Service on the terms of the
Delivery Rider. In the event that COMPANY suspends or terminates DEVELOPER's
right to offer Delivery Service, COMPANY reserves the right to require DEVELOPER
to reinstate Delivery Service upon fifteen (15) days' prior written notice to
DEVELOPER.
4.C. CATERING SERVICE.
----------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights within or outside
the Development Area or the Sub-Areas to offer Catering Service from any of the
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). 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
18
<PAGE>
period or commence Catering Service within the specified period, then DEVELOPER
shall have no right to provide Catering Service within the designated Catering
Area thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
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 Franchise Agreement), shall offer
Catering Service, COMPANY will notify DEVELOPER and will deliver to DEVELOPER a
Catering Rider to this Agreement (or to the applicable Franchise Agreement)
which DEVELOPER shall execute and return to COMPANY within fifteen (15) days
after its receipt.
COMPANY reserves the right under the Catering Rider, at any time and in its
sole discretion, with or without cause and regardless of the investment made by
DEVELOPER in establishing and conducting Catering Service or the length of time
DEVELOPER has offered Catering Service: (1) to reduce, modify or expand the
Catering Area, effective upon COMPANY's written notice to DEVELOPER, provided,
however, that if a reduction or modification of the Catering Area amounts to a
termination of substantially all of DEVELOPER's rights to provide such services
(except in the case of the exercise by COMPANY of its remedies under Section
15.C of this Agreement), such reduction or modification shall not be effective
until 90 days after COMPANY's written notice to DEVELOPER; or (2) to suspend or
terminate DEVELOPER's right to offer Catering Service, effective ninety (90)
days after COMPANY's written notice to DEVELOPER (in which case, DEVELOPER will
not fill any orders for Catering Service after the expiration of such ninety
(90) day period); and COMPANY may otherwise terminate DEVELOPER's right to offer
Catering Service pursuant to the terms of the Catering Rider. In the event that
COMPANY terminates or suspends DEVELOPER's right to offer Catering Service,
COMPANY reserves the right to require DEVELOPER to reinstate Catering Service
upon fifteen (15) days' prior written notice to DEVELOPER.
5. DEVELOPMENT AND OPERATION OF COMMISSARIES.
-----------------------------------------
5.A. OBLIGATION TO OPERATE COMMISSARIES.
----------------------------------
DEVELOPER acknowledges and agrees that in order to meet COMPANY's standards
and specifications for Products (including, without limitation, the preparation
and packaging of Products) and to maintain appropriate quality controls as
required by this Agreement and the Franchise Agreements entered into by
DEVELOPER, it will be necessary for DEVELOPER to establish one or more
Commissaries in the Development Area. DEVELOPER agrees that, subject to this
Agreement and such Franchise Agreements, it will establish and operate the
number of Commissaries reasonably determined by COMPANY from time to time to be
sufficient to supply the DEVELOPER Stores. [CONFIRM]
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
19
<PAGE>
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.
5.B. DEVELOPMENT AND OPENING OF COMMISSARIES.
---------------------------------------
The location of any Commissary established by DEVELOPER pursuant to this
Agreement shall be subject to COMPANY's approval in the manner described in
Section 6.A. of this Agreement, and Section 6.B. of this Agreement shall apply
to the lease for the Commissary. Each Commissary shall be developed,
constructed and equipped in the manner described in Sections 4.B., 4.C. and 4.D
of the Franchise Agreement. Section 4.F. of the Franchise Agreement shall apply
to the opening and commencement of operation of the Commissary and Sections 4.H.
and 4.I. of the Franchise Agreement shall apply to the relocation and financing
of the Commissary, respectively. Notwithstanding the foregoing, DEVELOPER shall
not be required to utilize the Trade Dress at a Commissary and DEVELOPER shall
not be obligated to commence operation of a Commissary until 180 days after
receipt of written notice that COMPANY requires DEVELOPER to develop a
Commissary to supply the 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,
FRANCHISE OWNER 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
20
<PAGE>
Additional Commissary Manager or any subsequently appointed Manager or
Additional Commissary Manager has failed to satisfactorily complete the initial
management training program or any additional or refresher training program,
FRANCHISE OWNER shall immediately hire a substitute Commissary Manager or
Additional Commissary Manager and promptly arrange for such person to complete
the initial management training program to the satisfaction of COMPANY.
5.D. COMMISSARY MANUALS.
------------------
COMPANY shall loan to DEVELOPER, for its sole use, one (1) copy of a set of
COMPANY's confidential manuals relating to the development and operation of
Commissaries (collectively the "Commissary Manuals"). The Commissary Manuals
shall be furnished in the same manner and on the same terms as set out in
Section 5.C. of the Franchise Agreement with respect to the Store Manuals.
5.E. OPERATION OF THE COMMISSARY.
---------------------------
DEVELOPER shall operate each Commissary in accordance with the standards,
specifications and procedures which the COMPANY prescribes, and which COMPANY
may change, in its sole discretion, from time to time, as set forth in the
Commissary Manuals or otherwise in writing. Such standards, specifications and
procedures may include, without limitation, requirements for: (1) Product
preparation; (2) delivery drivers and delivery vehicles (whether or not owned by
DEVELOPER); (3) management of the Commissary; (4) training of Commissary
personnel involved in Product preparation and delivery; (5) Commissary design,
layout, equipment, fixtures and signage; (6) Product packaging; and (7)
materials and supplies used in the operation of the Commissary.
Without limiting the foregoing, DEVELOPER agrees to:
(1) require all Commissary delivery drivers to strictly comply with
all regulations, laws and ordinances applicable to the operation of motor
vehicles and to use due care, taking into consideration road conditions,
when operating motor vehicles in connection with Commissary operations;
(2) require all Commissary delivery drivers to maintain adequate motor
vehicle liability insurance that complies with all applicable laws and
regulations and that extends to the operation of a motor vehicle used for
commercial delivery;
(3) maintain all Commissary motor vehicles in good and safe operating
condition in full compliance with all applicable laws and regulations;
(4) conduct initial and periodic (at least once every six (6) months)
driving records checks on all Commissary delivery drivers;
21
<PAGE>
(5) require all Commissary delivery drivers to possess and maintain a
valid driver's license;
(6) suspend or, where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any Commissary delivery
driver who does not conform to COMPANY's applicable standards and
specifications for Commissary operations;
(7) ensure that each Commissary is adequately stocked at all times
with food and beverage products, ingredients and other items necessary to
prepare and supply to the Stores serviced by the Commissary sufficient
Products and other materials and supplies to ensure the optimum performance
of those Stores;
(8) ensure that each Commissary and its facilities are kept clean and
are operated in a first class, sanitary, attractive and efficient manner
and in accordance with COMPANY's standards and specifications;
(9) ensure that the food preparation personnel at each Commissary are
properly trained in the preparation of Products and that they prepare
Products at all times in accordance with COMPANY's standards and
specifications; and
(10) use the Commissary, the premises of the Commissary and the motor
vehicles used in the operation of the Commissary solely for the purposes
contemplated by this Agreement.
DEVELOPER agrees that COMPANY may conduct quality, service, cleanliness and
other inspections of any Commissary from time to time and without notice in
order to determine compliance with this Agreement and with the standards and
specifications applied by COMPANY from time to time.
COMPANY and DEVELOPER acknowledge and agree that the term "Royalty Base
Revenue" (as defined in the Franchise Agreement) shall not include revenue, if
any, derived from DEVELOPER's or a Commissary's sale of products or other
materials and supplies to Stores for resale to the public at such Stores.
[CHECK]
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 Agreement.
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
22
<PAGE>
may be transferred without the prior written consent of COMPANY. Any purported
transfer in violation of this Section shall constitute a breach of this
Agreement and shall convey to the transferee no rights or interests in the
foregoing.
As used in this Section, the term "transfer" shall have the meaning
ascribed to it in the Franchise Agreement. In addition to the foregoing, a
transfer will require the prior written consent of COMPANY where such transfer
occurs by reason of: (a) divorce; (b) insolvency; (c) dissolution of a
corporation, partnership or limited liability company; (d) will; (e) intestate
succession; or (f) declaration of or transfer in trust.
No transfer restricted by this Section may be effected unless a transfer of
the 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 Franchise Agreement. Furthermore, any proposed
transfer under this Section shall be subject to a right of first refusal of
COMPANY on the terms set forth in Section 16.H. of the Franchise Agreement.
5.H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS.
---------------------------------------------------
COMPANY may require DEVELOPER to cease operation of a Commissary in the
event that DEVELOPER does not comply with this Agreement with respect to such
Commissary. Unless earlier terminated as provided herein, DEVELOPER's right and
obligation to operate a Commissary shall expire when the Franchise Agreement for
the last Store serviced by the Commissary has been terminated or has expired
without renewal. Furthermore, DEVELOPER agrees that, notwithstanding any other
provision of this Agreement to the contrary, COMPANY may, at any time and in its
sole discretion with or without cause and regardless of the investment made by
DEVELOPER in establishing a Commissary or the length of time DEVELOPER has
operated the Commissary, require DEVELOPER to cease operation of the Commissary,
effective upon 90 days written notice from COMPANY (except in the case of the
exercise by COMPANY of its remedies under Section 15.C of this Agreement, in
which case, the obligation to cease such operations shall be effective
immediately upon written notice from COMPANY).
5.I. RIGHTS AND OBLIGATIONS OF COMPANY
---------------------------------
AND DEVELOPER UPON TERMINATION OR
---------------------------------
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY.
-------------------------------------------
Upon the expiration or termination of DEVELOPER's right to operate a
Commissary, DEVELOPER shall immediately remove the Marks from all vehicles used
in the operation of the Commissary and shall return to COMPANY all copies of the
Commissary Manuals.
23
<PAGE>
Furthermore, COMPANY shall have the right to purchase the assets of the
Commissary on the same terms as set forth in Section 19.F. of the Franchise
Agreement, including the ancillary rights set forth in Section 19.F.
6. GRANT OF FRANCHISES AND ADVERTISING REQUIREMENT.
-----------------------------------------------
6.A. SITE REVIEW AND APPROVAL.
------------------------
Annually throughout the Development Term, DEVELOPER shall purchase from
COMPANY 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 matters
as it deems material from time to time, which factors may (but are not required
to) include, without limitation, the type of UNIT proposed, demographic
characteristics, traffic patterns, parking, visibility, allowed signage, the
predominant character of the neighborhood, competition from other businesses
providing similar services within the area (including other UNITS), the
proximity to other businesses, the exclusivity granted to other franchise owners
or developers of UNITS, the nature of other businesses in proximity to the site,
and other commercial characteristics (including the purchase price or rental
obligations and other lease terms for the proposed site) and the size,
appearance, and other physical characteristics of the proposed site. DEVELOPER
acknowledges and agrees that COMPANY may alter the criteria or impose additional
criteria for acceptable sites for UNITS at any time or from time to time in its
sole discretion, that DEVELOPER shall abide by such site criteria as they exist
from time to time
24
<PAGE>
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 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, 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
25
<PAGE>
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 FRANCHISE AGREEMENTS.
---------------------------------
Provided that (1) DEVELOPER is then in full compliance with all of the
terms and conditions of this Agreement, (2) DEVELOPER is in full compliance with
all Franchise Agreements it has entered into, and (3) DEVELOPER has obtained
legal possession of an Approved Site, COMPANY agrees to offer to DEVELOPER a
Franchise to operate a Store at such Approved Site by delivering to DEVELOPER a
Franchise Agreement in form for execution by DEVELOPER and its Principal Owners.
Such Franchise Agreement shall be executed and returned to COMPANY at the
earlier of fifteen (15) days after COMPANY's delivery thereof, or prior to the
opening of the Store, together with the fees required to be paid upon execution
thereof. COMPANY may withdraw its offer to grant a Franchise 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
Franchise 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 FRANCHISE AND ROYALTY FEES.
----------------------------------
For each Franchise granted pursuant to this Agreement during the
Development Term or the applicable Sub-Area Term, the fees shall be as provided
in the then-current form of Franchise Agreement, except that the Initial
Franchise Fee (defined in the Franchise Agreement) shall be Thirty-Five Thousand
Dollars ($35,000.00), and the Royalty Fee (as defined in the Franchise
Agreement) shall be an amount equal to eight percent (8%) of the Store's Royalty
Base Revenue (as defined in the Franchise Agreement).
26
<PAGE>
6.E. ADVERTISING EXPENDITURES.
------------------------
DEVELOPER shall cause each DEVELOPER Store to contribute to the Local Ad
Fund (as defined in the Franchise Agreement) for such DEVELOPER Store an amount
equal to the standard Local Ad Fund contribution required pursuant to the
applicable Franchise Agreement; provided, however, that, on notice from COMPANY,
DEVELOPER shall also cause each such 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 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
27
<PAGE>
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 by COMPANY), for use by and licensed
to DEVELOPER by COMPANY.
8.B. LIMITATIONS ON DEVELOPER'S USE OF MARKS.
---------------------------------------
DEVELOPER shall not use any Mark as part of any corporate name or other
name of DEVELOPER or with any prefix, suffix, or other modifying words, terms,
designs, or symbols, or in any modified form, nor may DEVELOPER use any Mark in
connection with the performance or sale of any unauthorized services or products
or in any other manner not expressly authorized in writing by COMPANY.
DEVELOPER agrees to clearly identify itself as an independent operator/developer
and licensee of COMPANY and to display the Marks prominently in the manner
prescribed by COMPANY. DEVELOPER agrees to give such notices of trademark and
service mark registrations as COMPANY specifies and to obtain such business name
registrations as may be required under applicable law.
8.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
DEVELOPER shall immediately notify COMPANY of any apparent infringement of
or challenge to DEVELOPER's use of any Mark, or claim by any person of any
rights in any Mark. DEVELOPER shall not communicate with any person other than
COMPANY and its counsel 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
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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 trademarks,
service marks, logos or commercial symbols or additional or substitute trade
dress after notice thereof by COMPANY. Neither COMPANY nor its Affiliates shall
have any obligation to reimburse DEVELOPER for any expenditures made by
DEVELOPER to modify or discontinue the use of a Mark or to adopt additional or
substitute marks for discontinued Marks, including, without limitation, any
expenditures relating to advertising or promotional materials or to compensate
DEVELOPER for any goodwill related to the discontinued Mark.
8.E. INDEMNIFICATION OF DEVELOPER.
----------------------------
COMPANY agrees to indemnity DEVELOPER against and to reimburse DEVELOPER
for all damages for which DEVELOPER is held liable in any claim, action or
proceeding brought by any person or entity claiming to have trademark or other
rights to any of the Marks 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.
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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 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 Franchise Agreement), Licensed Program and other
portions of the System. DEVELOPER acknowledges that this Agreement does not
confer any interest in the Copyrighted Works upon DEVELOPER, other than the
right to use them in connection with the development of the Stores in compliance
with this Agreement. If COMPANY authorizes DEVELOPER to prepare any adaptation,
translation or work derived from the Copyrighted Works, or if DEVELOPER prepares
any Copyrighted Works such as menus, advertisements, posters or promotional
materials, DEVELOPER hereby agrees that such adaptation, translation, derivative
work or Copyrighted Work shall be the property of COMPANY and DEVELOPER hereby
assigns all its right, title and interest therein to COMPANY (or such other
person identified by COMPANY). DEVELOPER agrees to execute any documents, in
recordable form, which COMPANY determines are necessary to reflect such
ownership. DEVELOPER shall submit all such adaptations, translations,
derivative works and Copyrighted Works to COMPANY for approval prior to use.
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9.B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS.
--------------------------------------------------
DEVELOPER acknowledges that DEVELOPER's right to use the Copyrighted Works,
as described in this Agreement, is derived solely from this Agreement and is
limited solely to uses directly connected with the development of Stores by
DEVELOPER during the Development Term pursuant to and in compliance with this
Agreement and all applicable standards, specifications, and operating procedures
prescribed by COMPANY from time to time. DEVELOPER shall ensure that all
Copyrighted Works used hereunder shall bear an appropriate copyright notice
under the Universal Copyright Convention or other copyright laws prescribed by
COMPANY specifying that COMPANY or an Affiliate of COMPANY is the owner of the
copyright therein. Any unauthorized use, adaptation, publication, reproduction,
preparation of derivative works, distribution of copies (whether by sale or
other transfer of ownership, or by rental, lease or lending), or attempts to
recreate all or a portion of such Copyrighted Works shall constitute a breach of
this Agreement and an infringement of the rights of COMPANY in and to the
Copyrighted Works.
9.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
DEVELOPER shall immediately notify COMPANY of any actual or apparent
infringement of or challenge to any of the Copyrighted Works, or claim by any
person of any rights in the Copyrighted Works. DEVELOPER shall not communicate
with any person other than COMPANY and its counsel in connection with any such
infringement, challenge or claims. COMPANY shall have the sole discretion to
take such action as it deems appropriate in connection with the foregoing, and
the right to control exclusively any settlement, litigation, arbitration or
administrative proceeding arising out of any such alleged infringement,
challenge or claim or otherwise relating to the Copyrighted Works. DEVELOPER
agrees to execute any and all instruments and documents, render such assistance,
and do such acts and things as may, in the opinion of COMPANY's counsel, be
necessary or advisable to protect and maintain the interests of COMPANY in any
litigation or other proceeding or to otherwise protect and 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
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made by DEVELOPER to modify or discontinue the use of any Copyrighted Work or to
adopt additional or substitute copyrighted or copyrightable items.
10. COMPUTER SYSTEM AND SOFTWARE.
----------------------------
10.A. GRANT OF LICENSE.
----------------
COMPANY hereby grants to DEVELOPER a nonexclusive, nontransferable,
nonassignable license to use the Licensed Program and Support/Control Programs,
subject to the following terms and conditions:
(1) The Licensed Program and Support/Control Programs shall be installed
and tested on the Computer System at DEVELOPER's principal office by
COMPANY or its designee. If DEVELOPER does not purchase the Computer
System from COMPANY, DEVELOPER must pay COMPANY 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 Franchise
Agreements executed pursuant to this Agreement will not exceed $5,000
[INCREASE?].
(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
Programs
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<PAGE>
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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<PAGE>
(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 Pro gram 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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<PAGE>
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 Franchise Agreement.
For the software support service relating to the Support/Control Programs
provided to DEVELOPER by COMPANY, no additional fee will be charged. In the
event DEVELOPER requests, and COMPANY, in its sole discretion, determines to
perform, other support services (e.g., software training, hardware maintenance)
----
not provided for in this Agreement, COMPANY will charge DEVELOPER an additional
fee at COMPANY's then-current hourly rate, plus expenses for such support
services. DEVELOPER acknowledges that COMPANY's current rate for such services
is $75 per hour and agrees that such rate is reasonable.
10.E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE.
-------------------------------
DEVELOPER acknowledges that COMPANY may, during the term of this Agreement,
require DEVELOPER to modify, enhance and/or replace all or any part of the
Computer System, the Licensed Program, the Support/Control Programs and/or the
Specified Software at DEVELOPER's expense, and agrees, within sixty (60) days of
receipt of notice from COMPANY, to acquire, or acquire the right to use for the
remainder of the term of this Agreement and implement, the modified, enhanced or
replacement version of the Computer System, the Licensed Program, the
Support/Control Programs and/or Specified Software as specified by COMPANY and
to take any and all other actions as may be necessary to enable them to operate
as specified by COMPANY. Any such modifications, enhancements, and replacements
may require DEVELOPER to incur additional costs to purchase, lease and/or
license new or modified computer hardware and/or software or other equipment and
to obtain different and/or additional service and support services during the
term of this Agreement. DEVELOPER acknowledges that COMPANY cannot estimate the
costs of future enhancements, modifications, and replacements to the Computer
System, the Licensed Program, the Support/Control Programs and/or Specified
Software, and that the cost to DEVELOPER of obtaining such enhancements,
modifications, and replacements, may not be fully amortizable over the remainder
of the Development Term or the Agreement Term. Nonetheless, DEVELOPER agrees to
incur such costs in connection therewith, provided that the COMPANY is then
currently specifying the same enhancements, modifications, and replacements for
use in COMPANY-operated Stores.
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<PAGE>
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, copy right 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 (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
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<PAGE>
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 and developers (the "CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications, as defined in the Franchise Agreement), standards,
policies, procedures, information, concepts and systems relating to and
knowledge of and experience in the development, operation and franchising
of UNITS and the development and operation of Commissaries; and
(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
37
<PAGE>
(4) sales data and information concerning consumer preferences and
inventory requirements for Products, materials and supplies, and
specifications for and suppliers of certain materials, equipment and
fixtures for UNITS (including, without limitation, the Stores) and for
Commissaries; and
(5) ingredients, formulas, mixes, spices, seasonings, recipes for and
methods of preparation, baking, cooking, freezing, serving, packaging,
catering and delivery of, Products and other items sold at UNITS; and
(6) information concerning Product sales, operating results, financial
performance and other financial data of UNITS (including, without
limitation, the Stores); and
(7) the Development Manual (defined in Section 13.J. of this
Agreement), the Commissary Manuals (defined in Section 5.D of this
Agreement) and the Store Manuals (defined in the Franchise Agreement); and
(8) customer lists and Product sales of the 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 Agreement, and that the use or
duplication of the Confidential Information in any other business would
constitute an unfair method of competition with COMPANY and with other UNIT
developers and franchise owners. DEVELOPER agrees to disclose the Confidential
Information to Owners and to its employees only to the extent reasonably
necessary for the development of 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:
38
<PAGE>
(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 or pursuant to another
development agreement between COMPANY and DEVELOPER.
Notwithstanding anything to the contrary contained in this Agreement and
provided DEVELOPER shall have obtained COMPANY's prior written consent, the
restrictions on DEVELOPER's disclosure and use of the Confidential Information
shall not apply to the following:
(i) information, methods, procedures, techniques and knowledge which
are or become generally known in the food service business within the
Development Area, other than through disclosure (whether deliberate or
inadvertent) by DEVELOPER or any other party having an obligation of
confidentiality to COMPANY; and
(ii) the disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that DEVELOPER is legally
compelled to disclose such information, provided DEVELOPER has notified
COMPANY prior to disclosure and shall have used its best efforts to obtain,
and shall have afforded COMPANY the 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:
39
<PAGE>
(A) arose prior to DEVELOPER's execution of this Agreement; and
(B) DEVELOPER disclosed to COMPANY in writing prior to the Effective
Date.
DEVELOPER hereby assigns to COMPANY and agrees to procure from its Owners,
affiliates and employees assignment of any such ideas, concepts, methods,
techniques and products which DEVELOPER is required to disclose to COMPANY
hereunder. COMPANY shall have no obligation to make any lump sum or on-going
payments to DEVELOPER or its Owners, affiliates or employees with respect to any
such idea, concept, method, technique or product. DEVELOPER agrees that
DEVELOPER will not use nor will it allow any other person or entity to use any
such concept, method, technique or product without obtaining COMPANY's prior
written approval.
12. EXCLUSIVE RELATIONSHIP.
----------------------
DEVELOPER acknowledges and agrees that COMPANY would be unable to protect
the Confidential Information against unauthorized use or disclosure and would be
unable to encourage a free exchange of ideas and information among franchise
owners and developers of UNITS, if developers, franchise owners and their
Principal Owners (and members of their Immediate Families) were permitted to
engage in, hold interests in or perform services for Competitive Businesses.
DEVELOPER further acknowledges and agrees that the restrictions contained in
this Section will not hinder its activities or the activities of its Principal
Owners (or members of their Immediate Families) under this Agreement or in
general. COMPANY has entered into this Agreement with DEVELOPER on the express
condition that, with respect to the development and operation of food service
businesses that sell Products, DEVELOPER and its Principal Owners and members of
their respective Immediate Families will deal exclusively with COMPANY.
DEVELOPER therefore agrees that, during the Agreement Term, neither DEVELOPER
nor any Principal Owner of DEVELOPER, nor any member of the Immediate Family of
DEVELOPER or of a Principal Owner of DEVELOPER, shall directly or indirectly:
(a) have any interest as a record or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market and quoted by a national inter-dealer
quotation system that represent less than three percent (3%) of the number
of shares of that class of securities issued and outstanding); or
(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
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or a Principal Owner of DEVELOPER shall directly or indirectly employ or seek to
employ any person who is employed by COMPANY, its Affiliates or by any other
developer or franchise owner of UNITS, nor induce nor attempt to induce any such
person to leave said employment without the prior written consent of such
person's employer.
Furthermore, if DEVELOPER is a corporation, limited liability company or
partnership, it will not engage in any business or other activity, directly or
indirectly, other than the development and operation of 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 or franchise agreements
for the development or operation of UNITS, or any entity owning, controlling or
operating UNITS, or from providing services to any such UNITS pursuant to other
agreements with COMPANY. Furthermore, the restrictions of this Section shall
not prohibit DEVELOPER, any Principal Owner or any member of the Immediate
Family of DEVELOPER or a Principal Owner (to the extent such person is an
individual) from performing services for or having an Ownership Interest in a
Permitted Competitive Business, or from conducting customary promotion and
advertising of a Permitted Competitive Business. Such person(s) and
business(es), if any, are identified on Exhibit G attached hereto.
---------
13. OBLIGATIONS OF DEVELOPER.
------------------------
13.A. FULL-TIME SUPERVISION.
---------------------
DEVELOPER (or the Principal Owner(s) designated in Exhibit G of this
---------
Agreement and approved by COMPANY) and the Chief Operating Officer (as defined
below) shall exert full-time efforts to fulfill the obligations of DEVELOPER
under this Agreement and shall not engage in any other business or other
activity, directly or indirectly, that requires any significant management
responsibility or time commitments, or that may otherwise conflict with
DEVELOPER's obligations under this Agreement.
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
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terminates or if he is unable to satisfactorily complete COMPANY's management
training program, DEVELOPER agrees to promptly designate a replacement Chief
Operating Officer acceptable to COMPANY, in its sole discretion, who shall at
DEVELOPER's expense and subject to COMPANY's then-current training charges,
satisfactorily complete the management training program.
13.C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.
---------------------------------------------
Upon COMPANY's written request, DEVELOPER shall designate a person (other
than the persons serving as the Chief Operating Officer, the Training Director
and the Marketing Director ) acceptable to COMPANY to act as the Development
Director of DEVELOPER (the "DEVELOPMENT DIRECTOR") during the Development Term.
If the relationship of the Development Director with DEVELOPER terminates,
DEVELOPER agrees to promptly designate a replacement Development Director
acceptable to COMPANY.
The Development Director's duties will include, without limitation:
(1) preparing and implementing a development plan for the Development
Area in form satisfactory to COMPANY; and
(2) consulting with COMPANY concerning the adaptation of COMPANY's
existing site criteria and lease (or purchase) requirements for the
Development Area; and
(3) directing and coordinating the site evaluation efforts of
DEVELOPER; and
(4) negotiating leases or purchase agreements for proposed 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
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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 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
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(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
(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.
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13.G. BUDGETS AND FINANCING PLANS.
---------------------------
DEVELOPER shall maintain sufficient financial resources to fulfill its
obligations under this Agreement and under Franchise Agreements executed
pursuant to this Agreement. Within 30 days after the execution of this
Agreement, DEVELOPER shall submit to COMPANY for its approval, in a format
specified by COMPANY, a written plan for the funding of the development of
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
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DEVELOPER determines are appropriate for its particular circumstance shall be
the responsibility of DEVELOPER.
Upon execution of this Agreement, DEVELOPER shall provide COMPANY with
evidence of such insurance. Thereafter, prior to the expiration of each
insurance policy, DEVELOPER shall furnish to COMPANY a copy of each renewal or
replacement insurance policy to be maintained by DEVELOPER for the immediately
following term and evidence of the payment of the premium therefor.
DEVELOPER's obligation to maintain insurance coverage as herein described
shall not be affected in any manner by reason of any separate insurance
maintained by COMPANY, nor shall the maintenance of such insurance relieve
DEVELOPER of any indemnification obligations under this Agreement.
13.I. RECORDS AND REPORTS.
-------------------
DEVELOPER shall maintain and use at its principal office the Computer
System, in such form as is specified by COMPANY from time to time, and shall
transmit information to, or allow the electronic collection of information by,
COMPANY therefrom. DEVELOPER agrees, at its expense, to maintain and preserve
at its principal office, full, complete and accurate records and reports and, if
required by COMPANY, computer diskettes and databases in the form specified by
COMPANY from time to time pertaining to the development and operation of
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):
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(1) weekly reports of sales and Royalty Base Revenue for DEVELOPER
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, franchise bulletins, or other official pronouncements or
means (collectively the "DEVELOPMENT MANUAL"). The Development Manual may be
modified from time to time in COMPANY's sole discretion to reflect changes in
the System or specifications, standards, policies and procedures for 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
withhold ing and payment of all taxes. All advertising by DEVELOPER shall be
approved by COMPANY and be completely factual, in good taste in the judgment of
COMPANY, and conform to high standards of ethical advertising. DEVELOPER shall
in all dealings with its customers, suppliers, COMPANY and public officials
adhere to high standards of honesty,
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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
(3) advertising and promotional programs; and
(4) layout, decor and color scheme of the Store; and
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(5) recruitment, selection, training, appearance and dress of
employees, including, without limitation, use of COMPANY's employee
selection and training materials; and
(6) safety, maintenance, appearance, cleanliness, sanitation,
standards of service and operation of Stores; and
(7) submission of requests for approval of brands of food and
packaging products, supplies and suppliers; and
(8) use and illumination of signs, posters, displays, standard
formats and similar items; and
(9) identification of DEVELOPER (and/or the entity executing
Franchise Agreements for Stores pursuant to the Development Agreement) as
the owner of 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.
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.
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All references herein to this Agreement shall include all such mandatory
specifications, standards, and operating procedures.
14. TRANSFER.
--------
14.A. BY COMPANY.
----------
This Agreement is fully transferable by COMPANY and shall inure to the
benefit of any assignee or other legal successor to the interests of COMPANY
herein.
14.B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER.
-----------------------------------------------
DEVELOPER understands, acknowledges and agrees (and hereby represents and
warrants that its Owners understand and agree) that the rights and duties
created by this Agreement are personal to DEVELOPER and its Owners and that a
material cause for COMPANY's agreeing to enter into this Agreement is its
reliance on the individual and collective character, skill, aptitude, business
ability, and financial capacity of DEVELOPER and its Owners. Therefore, except
as provided in Section 14.C. below, no Ownership Interest in DEVELOPER, no
obligations of DEVELOPER under this Agreement, and no interest in this Agreement
may be transferred. Any purported transfer in violation of this Section shall
constitute a breach of this Agreement and shall convey to the transferee no
obligations under, rights to or interest in the foregoing.
As used in this Agreement, a "transfer" shall include, without limitation,
the following, whether voluntary, involuntary, direct or indirect, or
conditional:
(1) an assignment, sale, gift or pledge;
(2) the grant of a mortgage, lien or security interest, including,
without limitation, the grant of a collateral assignment;
(3) a merger, consolidation, share exchange or issuance of additional
Ownership Interests or securities representing or potentially representing
Ownership Interests or redemption of Ownership Interests;
(4) a sale or exchange of voting interests or securities convertible
to voting interests, or an agreement granting the right to exercise or
control the exercise of voting rights of any holder of Ownership Interests
or to control the operations or affairs of DEVELOPER; and
(5) except where specifically approved by COMPANY, a management
agreement whereby DEVELOPER delegates (i) any of its obligations under this
Agreement; or (ii) any or all of the management functions with respect to a
DEVELOPER Store or the business to be conducted by DEVELOPER pursuant to
this Agreement.
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In addition to the foregoing, a transfer (as defined above) will require the
prior written consent of COMPANY where such transfer occurs by virtue of (a)
divorce; (b) insolvency; (c) dissolution of a corporation, partnership or
limited liability company; (d) will; (e) intestate succession; or (f)
declaration of or transfer in trust.
14.C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.
--------------------------------
Subject to (1) COMPANY's rights of first refusal under Section 14.G and (2)
COMPANY's right to approve the proposed purchaser under Section 14.D., Ownership
Interests (including stock options or other options to acquire Ownership
Interests) may be transferred if:
(1) the proposed transfer is by an Owner who is not a Principal Owner;
and
(2) the proposed transfer does not by itself or in conjunction with
other transfers, result in the transfer of a Controlling Interest in
DEVELOPER or of a change in the composition of the group holding a
Controlling Interest in DEVELOPER; and
(3) the proposed transfer is not to a Competitive Business or to a
direct or indirect owner of interests in a Competitive Business; and
(4) DEVELOPER and its Owners are in full compliance with this
Agreement.
In addition, an Owner's Ownership Interests in DEVELOPER shall be
transferred to a transferee approved by COMPANY pursuant to Section 14.D within
a reasonable time, not to exceed nine (9) months, after the death, permanent
incapacity or liquidation of the Owner.
14.D. COMPANY'S RIGHT TO APPROVE TRANSFERS.
------------------------------------
COMPANY reserves the right to approve the proposed purchaser and transfer
of any Ownership Interests in DEVELOPER which are permitted or mandated under
Section 14.C. to be transferred. If any Owner intends to transfer Ownership
Interests, DEVELOPER shall deliver to COMPANY written notice of such proposed
transfer at least thirty (30) days prior to its intended effective date. Such
notice shall describe in detail the proposed transfer (including, without
limitation, the nature of the transfer, the nature and amount of the interests
being transferred, the reason for the transfer, the price and terms of the
transfer and effective date) and identify and provide information regarding the
proposed purchaser. COMPANY shall have thirty (30) days from delivery of such
notice within which to evaluate the proposed transaction and to notify DEVELOPER
of its approval or disapproval (with reasons) of the proposed transfer. If
approved, the transfer must take place as described in the notice (as modified
by any conditions imposed by COMPANY in granting its approval) and within thirty
(30) days of the delivery of notice of COMPANY's approval. In evaluating
whether to grant its approval, COMPANY may evaluate any and all reasonable
factors including, without limitation:
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(1) whether the proposed transferee and, if applicable, its owners are
(a) of good moral character, (b) otherwise meet COMPANY's then applicable
standards for developers of UNITS and (c) are in full compliance with any
other franchise agreements or development agreements between COMPANY and
them; and
(2) whether the price and terms of the proposed transfer are not so
burdensome as to adversely affect or have a potentially adverse 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 or franchise owners of
Stores;
(5) that DEVELOPER, the transferring Owner and the purchaser (if the
purchaser is then the owner of interests in another developer or franchise
owner of UNITS) execute a general release and consent agreement, in form
satisfactory to COMPANY, of any and all claims against COMPANY, its
Affiliates, and their respective shareholders, officers, directors,
employees and agents for matters arising on or before the effective date of
the transfer; and
(6) that the transferring Owner execute a noncompetition agreement in
favor of COMPANY and the transferee, providing that the transferring Owner
shall not directly or indirectly (through a member of the Immediate Family
of the transferring Owner of DEVELOPER, or otherwise), for a period of two
(2) years commencing on the effective date of such transfer:
(a) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
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(i) within a five (5) mile radius of any UNIT in operation
or under development in the Development Area on the effective
date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
(iv) within the state(s) where the Development Area is
located;
or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive
Business located or operating:
(i) within a five (5) mile radius of any UNIT in operation
or under development in the Development Area on the effective
date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
(iv) within the state(s) where the Development Area is
located; or
(c) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business;
or
(d) employ or seek to employ any person who is employed by
COMPANY, its Affiliates or by any other developer or franchise owner
of COMPANY, nor induce nor attempt to induce any such person to leave
said employment without the prior written consent of such person's
employer.
The rights of Owners to transfer interests in DEVELOPER may be exercised
only by the Owners and shall not be exercisable by a receiver, trustee,
liquidator or other person acting in a comparable capacity with respect thereto.
The restrictions of subparagraph (6)(a) of this Section 14.D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-
54
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counter market and quoted by a national inter-dealer quotation system that
represent less than three percent (3%) of the number of shares of that class of
securities issued and outstanding nor shall they be construed to prohibit
DEVELOPER, any Principal Owner of Developer or any member of the Immediate
Family of DEVELOPER or any Principal Owner from having a direct or indirect
Ownership Interest in any UNIT, development agreements or franchise agreements
for the development or operation of UNITS, or any entity owning, controlling or
operating UNITS, or from providing services to UNITS pursuant to other
agreements with COMPANY. Furthermore, the restrictions of this Section 14.D
shall not prohibit DEVELOPER, any Owner of DEVELOPER, or (to the extent of such
person is an individual) any member of the Immediate Family of an Owner of
DEVELOPER from performing services for or having an Ownership Interest in a
Permitted Competitive Business, or from conducting customary promotion and
advertising of a Permitted Competitive Business.
14.E. PUBLIC OR PRIVATE OFFERINGS.
---------------------------
DEVELOPER acknowledges and agrees that it is the intent of COMPANY and
DEVELOPER that DEVELOPER not be or become a public company or "reporting
company" (as defined in Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended, or otherwise) including by way of an initial
public offering or a transfer to or merger with an existing public company.
Accordingly, DEVELOPER agrees that securities of DEVELOPER or an entity owning a
direct or indirect equity interest in DEVELOPER or this Agreement, or any Store
or Franchise Agreement may not be offered pursuant to a public offering.
DEVELOPER further agrees that such securities will not be offered pursuant to a
private placement without COMPANY's prior written consent. COMPANY hereby
grants its consent to a private placement of securities by DEVELOPER provided
that DEVELOPER ensures that:
(1) such private placement complies with all applicable federal, state
and local laws governing offerings of securities and all applicable
agreements between DEVELOPER and COMPANY or its Affiliates;
(2) such private placement complies with each of the relevant transfer
procedures, requirements and limitations contained herein;
(3) such private placement does not result in any change in operating
control of DEVELOPER or any 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;
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(5) a draft of any offering memorandum or information proposed to be
used in connection with any such private placement is submitted to COMPANY
for review and comment within a reasonable time prior to its use, that the
reasonable comments and suggestions of COMPANY thereto are given due
consideration and that a final version of such memorandum or information be
provided to COMPANY at least five (5) days prior to its distribution to
prospective investors;
(6) any offering memorandum or information used in connection with
any such private placement shall clearly state that it is not an offering
by COMPANY and that COMPANY has not participated in its preparation and has
not supplied any financial information projections, budgets, cost estimates
or similar information contained therein (all of which shall be the
responsibility of DEVELOPER);
(7) each recipient of information relating to such private placement
agrees to maintain it in confidence;
(8) the structure, timing, allocation and nature of such private
placement is reasonably acceptable to COMPANY;
(9) DEVELOPER does not as a result of the private placement, become a
"Reporting Company" under Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(10) each person who or entity which becomes an Owner or Principal
Owner as a result of such private placement agrees and undertakes to become
bound by any provisions of this Agreement pertaining to Owners or Principal
Owners, as applicable.
DEVELOPER agrees to indemnify COMPANY for and hold COMPANY harmless against
any and all costs, expenses, claims, actions, judgments and liabilities
(including, but not limited to, costs and expenses related to legal defense)
arising from or relating to any private placement approved by COMPANY pursuant
to this Section. DEVELOPER also agrees to reimburse COMPANY for its reasonable
expenses incurred in connection with any such private placement (including
attorney's fees) and to comply with all requirements of COMPANY in connection
with such offering, including, without limitation, adding appropriate
disclaimers to the offering documents and execution of appropriate
indemnification agreements.
14.F. EFFECT OF CONSENT TO TRANSFER.
-----------------------------
COMPANY's consent to a transfer of this Agreement or any interest subject
to the restrictions of this Section shall not constitute a waiver of any claims
it may have against DEVELOPER (or its Owners), nor shall it be deemed a waiver
of COMPANY's right to demand full compliance with any of the terms or conditions
of this Agreement by the transferee. COMPANY's consent to any such transfer
shall not, unless expressly provided in such consent, effect a release of
DEVELOPER (or its Owners, as the case may be) post-transfer.
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14.G. COMPANY'S RIGHT OF FIRST REFUSAL.
--------------------------------
If DEVELOPER or any of its Owner(s) desire to make a transfer of an
interest that is permitted under this Agreement, DEVELOPER or its Owner(s) shall
obtain a bona fide, arms length executed purchase agreement (and any proposed
ancillary agreements) in complete and definitive form and not subject to any
financing or other material, substantive contingency and an earnest money
deposit (in the amount of ten percent (10%) or more of the purchase price) from
a qualified, responsible, bona fide and fully disclosed purchaser. A true and
complete copy of such purchase agreement (conditioned on COMPANY's first refusal
rights) and any proposed ancillary agreements shall immediately be submitted to
COMPANY by DEVELOPER, such Owner(s), or both. The purchase agreement must apply
only to an interest which is permitted to be transferred under this Agreement,
may not include the purchase of any other property or rights of DEVELOPER (or
such Owner(s)) and the price and terms of purchase offered to DEVELOPER (or such
Owner(s)) in the purchase agreement for the aforementioned interests will
reflect the bona fide price offered therefor and shall not reflect any value for
any other property or rights. If the proposed purchaser proposes to buy any
other property or rights from DEVELOPER (or such Owner(s)) under a separate,
contemporaneous purchase agreement, DEVELOPER shall submit to COMPANY a true and
complete copy of a bona fide, arms length executed purchase agreement (and any
proposed ancillary agreements) in complete and definitive form and not subject
to any financing or other material, substantive contingency. COMPANY shall have
the right, exercisable by written notice delivered to DEVELOPER (or such
Owner(s)) within thirty (30) days from the date of receipt by COMPANY of an
exact copy of such purchase agreement, together with payment of any applicable
transfer fee, and a completed executed application for COMPANY's consent to the
transfer, to purchase such interest for the price and on the terms and
conditions contained in such purchase agreement, provided that COMPANY may
substitute cash, a cash equivalent, or marketable securities of equivalent value
for any form of payment proposed in such purchase agreement, COMPANY's credit
shall be deemed equal to the credit of any proposed purchaser, and COMPANY shall
have not less than sixty (60) days to prepare for closing. Regardless of
whether included in the purchase agreement, COMPANY shall be entitled to all
customary representations and warranties given by the seller of a business,
including, without limitation, representations and warranties as to: (i)
ownership, condition and title to the Ownership Interests and/or assets being
purchased; (ii) absence of liens and encumbrances relating to such Ownership
Interests or assets; (iii) validity of contracts of any legal entity whose
Ownership Interests are purchased and (iv) liabilities, contingent or otherwise,
of any legal entity whose Ownership Interests are purchased. If COMPANY does
not exercise its right of first refusal, DEVELOPER (or such Owner(s)) may
complete the sale to such purchaser pursuant to and on the exact terms of the
purchase agreement, subject to COMPANY's approval of the transfer, as provided
for in this Agreement, provided that if the sale to such purchaser is not
completed within one hundred twenty (120) days after receipt of such purchase
agreement by COMPANY, or there is a change in the terms of the sale, COMPANY
shall again have an additional right of first refusal for thirty (30) days as
set forth in this Agreement on the modified or initial terms and conditions of
sale.
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14.H. OWNERSHIP STRUCTURE.
-------------------
DEVELOPER represents and warrants that its Owners are as set forth on
Exhibit G and covenants that DEVELOPER will not permit the identity of such
- ---------
Owners, or their respective interests in DEVELOPER, to change without complying
with this Agreement.
14.I. DELEGATION BY COMPANY.
---------------------
DEVELOPER agrees that COMPANY shall have the right, from time to time, to
delegate the performance of any portion or all of its obligations and duties
under this Agreement to designees, whether the same are agents of COMPANY or
independent contractors with which COMPANY has contracted to provide such
services.
14.J. PERMITTED TRANSFERS.
-------------------
Notwithstanding anything to the contrary contained in this Agreement and
provided (a) DEVELOPER reimburses any costs incurred by COMPANY in connection
therewith, (b) DEVELOPER, its Owners and the transferees comply with the
provisions of the HSR Act, if applicable, prior to such a transfer, (c)
DEVELOPER, its Owners and the transferees comply with all other restrictions of
this Agreement applicable to Owners and ownership interests (including, without
limitation, those restricting an Owner's ownership of interests in a Competitive
Business), and (d) the transfer does not, by itself or in conjunction with other
transfers, result in the transfer of a Controlling Interest in DEVELOPER or of a
change in the composition of the group holding a Controlling Interest in
DEVELOPER, the provisions of this Section 14 (including, without limitation, the
requirement of the payment of transfer fees under Section 14.D(2) and the right
of first refusal granted to COMPANY in Section 14.G) shall not restrict or apply
to any assignment, sale, transfer of an Ownership Interest which:
(1) is pursuant and according to the terms of a written stock or other
equity interest option or stock or other equity interest bonus plan which
benefits employees of DEVELOPER and/or of the Boston Chicken, Inc.
franchise owner which provides management services to DEVELOPER pursuant to
a support services agreement, and has been approved by COMPANY; or
(2) is made for bona fide estate planning purposes (a) to a
corporation, trust, partnership, or other entity controlled by the
transferring Owner or (b) pursuant to an inter vivos or testamentary
document or the laws of descent and distribution.
15. TERMINATION OF AGREEMENT.
------------------------
15.A. BY DEVELOPER.
------------
If DEVELOPER is in full compliance with this Agreement and with all
Franchise Agreements and COMPANY materially breaches this Agreement, DEVELOPER
may terminate this Agreement effective thirty (30) days after COMPANY's receipt
of written notice of
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termination if DEVELOPER gives written notice of such breach to COMPANY and
COMPANY does not:
(1) correct such breach within thirty (30) days after COMPANY's
receipt of such notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30) days
after COMPANY's receipt of such notice, undertake within thirty (30) days
after COMPANY's receipt of such notice, and continue until completion,
reasonable efforts to cure such breach.
Any attempt to terminate this Agreement by DEVELOPER other than as provided in
this Section 15.A. shall be a breach by DEVELOPER of this Agreement.
15.B. BY COMPANY.
----------
COMPANY may terminate this Agreement, effective upon delivery of notice of
termination to DEVELOPER or, where expressly applicable, upon failure to cure to
COMPANY's satisfaction any breach of this Agreement before the expiration of any
period of time within which such breach may be cured in accordance with the
provisions set forth below, if:
(1) DEVELOPER fails to satisfy the development obligations for the
Development Area or any Sub-Area pursuant to this Agreement; or
(2) any person or entity makes an assignment or transfer in violation
of this Agreement; or
(3) DEVELOPER or any Principal Owner of DEVELOPER has made any
material misrepresentation or omission in its application or acquisition of
this Agreement or in connection with any transfer hereunder; or
(4) DEVELOPER or any Owner of DEVELOPER is convicted by a trial court
of, or pleads guilty or no contest to, a felony, or to any other crime or
offense that may adversely affect the reputation of UNITS or 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
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COMPANY, its business concept, its business operations, the business of any
UNIT, any Mark, the Confidential Information, the Development Manual, or
the Copyrighted Works, and DEVELOPER ceases and desists any such prohibited
act promptly upon notice and reimburses COMPANY for all damages, losses,
costs, and expenses incurred by COMPANY in connection with such prohibited
acts); or
(6) DEVELOPER, its Principal Owners, or members of their Immediate
Families (whether or not bound by individual noncompetition undertakings)
or other persons who have executed such individual undertakings violate the
restrictions on the operation of Competitive Businesses during the
Agreement Term set forth in Section 11 of this Agreement or Owners who
have access to the Confidential Information violate the covenants
concerning competition and confidentiality contained in the form of
Confidentiality and Non-Competition Agreement attached hereto as Exhibit J
---------
(regardless of whether any such party has executed this Agreement or a
Confidentiality and Non-Competition Agreement); or
(7) DEVELOPER fails to deliver or adhere to 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
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(10) DEVELOPER fails to operate a Commissary at the time specified by
COMPANY and at the location approved by COMPANY in accordance with
COMPANY's standards, specifications and procedures and does not correct
such failure within 10 days after DEVELOPER's receipt of COMPANY's written
notice of such failure to comply; or, if such failure cannot reasonably be
corrected within the aforesaid 10-day period but can be corrected within a
reasonably short time (not to exceed an additional 30 days), undertake
within 10 days after DEVELOPER's receipt of COMPANY's written notice, and
continue until completion, best efforts to correct such failure within such
reasonably short time (not to exceed an additional 30 days) and furnish
proof acceptable to COMPANY, upon its request, of such efforts and the date
full compliance will be achieved; or
(11) DEVELOPER or any of its Owners fail: (a) to comply with any
other provision of this Agreement, and does not correct such failure within
thirty (30) days after DEVELOPER's receipt of COMPANY's written notice of
such failure to comply; or (b) if such failure cannot reasonably be
corrected within the aforesaid thirty (30) day period but can be corrected
within a reasonably short time (not to exceed an additional thirty (30)
days), undertake within ten (10) days after DEVELOPER's receipt of
COMPANY's written notice, and continue until completion, best efforts to
correct such failure within such reasonably short time (not to exceed an
additional thirty (30) days) and furnish proof acceptable to COMPANY, upon
its request, of such efforts and the date full compliance will be achieved;
or
(12) DEVELOPER or any of its Principal Owners fails on three or more
separate occasions within any period of 18 consecutive months to comply
with this Agreement in any material respect; or
(13) COMPANY has delivered a notice of termination of a Franchise
Agreement executed pursuant to this Agreement in accordance with its terms
and conditions or DEVELOPER has attempted to terminate a Franchise
Agreement with COMPANY in breach thereof; or
(14) DEVELOPER becomes insolvent in the sense that it is unable to pay
its bills as they become due; or
(15) DEVELOPER has attempted to terminate this Agreement without
complying with Section 15.A. of this Agreement.
15.C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.
------------------------------------
In the event COMPANY is entitled to terminate this Agreement in accordance
with Paragraph B. of this Section, COMPANY, in its sole discretion, shall have
the option to terminate any one or more of the following instead of terminating
this Agreement:
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(1) DEVELOPER's right to develop Stores for which no Franchise
Agreement has been executed under Section 3.A.; and
(2) DEVELOPER's territorial rights granted pursuant to Section 3.A. in
some or all of the Sub-Areas; and
(3) DEVELOPER's option to develop 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 it has entered into
pursuant to this Agreement which are then in effect.
16.C. CONFIDENTIAL INFORMATION.
------------------------
DEVELOPER agrees that upon termination of this Agreement or expiration of
the Agreement Term:
(1) it, and all of its affiliates, Owners, employees, agents or other
representatives, will immediately cease to use and will maintain the
absolute confidentiality of any Confidential Information of COMPANY
disclosed to or otherwise learned or acquired by DEVELOPER and will refrain
from using such Confidential Information in any business or otherwise; and
(2) it will return to COMPANY all copies of the Development Manual and
any other confidential materials which have been loaned or made available
to it by COMPANY pursuant to this Agreement.
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16.D. COVENANT NOT TO COMPETE.
-----------------------
Upon expiration of the Agreement Term or termination of this Agreement by
COMPANY or by DEVELOPER, other than pursuant to Section 15.A., neither DEVELOPER
nor any of its Principal Owners shall directly or indirectly (through a member
of the Immediate Family of DEVELOPER or a Principal Owner of DEVELOPER, or
otherwise) for a period of two (2) years commencing on the effective date of
such termination or expiration or the date on which DEVELOPER ceases to conduct
its activities hereunder, whichever is later:
(1) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
(a) within a five (5) mile radius of any UNIT in operation or
under development in the Development Area on the effective date of
termination or expiration of this Agreement; or
(b) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
(c) within the Development Area; or
(d) within the state(s) where the Development Area is located; or
(2) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive Business
located or operating:
(a) within a five (5) mile radius of any UNIT in operation or
under development in the Development Area on the effective date of
termination or expiration of this Agreement; or
(b) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
(c) within the Development Area; or
(d) within the state(s) where the Development Area is located; or
(3) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business; or
(4) employ or seek to employ any person who is employed by COMPANY,
its Affiliates or by any other developer or franchise owner of COMPANY, nor
induce
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nor attempt to induce any such person to leave said employment without the
prior written consent of such person's employer.
The restrictions of Subparagraph (1) of this Paragraph D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market and quoted by a national
inter-dealer quotation system that represent less than three percent (3%) of the
number of shares of that class of securities issued and outstanding nor shall
they be construed to prohibit DEVELOPER, any Principal Owner of Developer or any
member of the Immediate Family of DEVELOPER or any Principal Owner from having a
direct or indirect Ownership Interest in any UNIT, development agreements or
franchise agreements for the development or operation of UNITS, or any entity
owning, controlling or operating UNITS, or from providing services to UNITS
pursuant to other agreements with COMPANY. Furthermore, the restrictions of
this Paragraph D. shall not prohibit DEVELOPER, any Principal Owner of
DEVELOPER, or (to the extent of such person is an individual) any member of the
Immediate Family of DEVELOPER or a Principal Owner of DEVELOPER from performing
services for or having an Ownership Interest in a Permitted Competitive
Business, or from conducting customary promotion and advertising of a Permitted
Competitive Business.
16.E. EFFECT ON COMMISSARIES.
----------------------
It is understood and agreed that the termination or expiration of the
Development Term or the Agreement Term shall not affect the operation of the
Commissaries which shall continue on the terms of this Agreement. DEVELOPER's
right and obligation to operate a Commissary pursuant to this Agreement shall
expire or terminate solely as set out in Section 5 of this Agreement.
16.F. CONTINUING OBLIGATIONS.
----------------------
All obligations of COMPANY and DEVELOPER under this Agreement which
expressly or by their nature survive or are intended to survive the termination
of this Agreement or expiration of the Agreement Term shall continue in full
force and effect subsequent to and not withstanding its expiration or
termination and until they are satisfied in full or by their nature expire.
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION.
---------------------------------------
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, that COMPANY and DEVELOPER are
and shall be independent contractors, and that nothing in this Agreement is
intended to make either party a general or special agent, joint venturer,
partner, or employee of the other for any purpose. DEVELOPER shall
conspicuously identify itself in all dealings with customers, suppliers,
vendors, public officials, DEVELOPER personnel, and others as a developer of
UNITS licensed by COMPANY and shall conspicuously and prominently place such
other notices of independent ownership on such forms, business cards,
stationery, advertising, and such other materials as COMPANY may require from
time to time.
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DEVELOPER agrees to defend and hold COMPANY, its Affiliates and their
respective shareholders, directors, officers, employees, agents, successors and
assignees harmless against and to reimburse them for:
(a) all claims, losses, obligations, damages and taxes described in
this Section;
(b) any and all claims, losses, damages and liabilities of customers
and others directly or indirectly arising out of this Agreement, the
development or operation of any 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 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.
66
<PAGE>
All other provisions of this Agreement are severable and this Agreement
shall be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions shall be enforced to the extent valid and enforceable. To the extent
the post-transfer restrictive covenants or post-termination/post-expiration
restrictive covenants contained herein are deemed unenforceable by virtue of
their scope in terms of geographic area, business activity prohibited, or length
of time, but may be made enforceable by reductions or alterations of either or
any thereof, DEVELOPER and COMPANY agree that same shall be enforced to the
fullest extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought. If any applicable and binding law
or rule of any jurisdiction requires a greater prior notice of the termination
of this Agreement than is required hereunder, or the taking of some other action
not required hereunder, or if under any applicable and binding law or rule of
any jurisdiction, any provision of this Agreement or any specification, standard
or operating procedure prescribed by COMPANY is invalid or unenforceable, the
prior notice and/or other action required by such law or rule shall be
substituted for the comparable provisions hereof, and COMPANY shall have the
right, in its sole discretion, to modify such invalid or unenforceable
provision, specification, standard or operating procedure to the extent required
to be valid and enforceable. Such modifications to this Agreement shall be
effective only in such jurisdiction and shall be enforced as originally made and
entered into in all other jurisdictions.
18.B. WAIVER OF OBLIGATIONS.
---------------------
COMPANY and DEVELOPER may by written instrument unilaterally waive or
reduce any obligation of or restriction upon the other under this Agreement,
effective upon delivery of written notice thereof to the other or such other
effective date stated in the notice of waiver. Whenever this Agreement requires
COMPANY's prior approval or consent, DEVELOPER shall make a timely written
request therefor and such approval shall be obtained in writing.
With respect to this Agreement, the Franchise Agreements, the relationship
of the parties, the 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:
67
<PAGE>
(i) custom or practice of the parties at variance with the terms
hereof; or
(ii) any failure, refusal, or neglect of COMPANY or DEVELOPER to
exercise any right under this Agreement or to insist upon full compliance
by the other with its obligations hereunder, including, without limitation,
any mandatory specification, standard or operating procedure; or
(iii) any waiver, forbearance, delay, failure, or omission by COMPANY
to exercise any right, power, or option, whether of the same, similar or
different nature, with respect to any UNIT or any development or franchise
agreement therefor; or
(iv) any grant of a Franchise Agreement to DEVELOPER; or
(v) the acceptance by COMPANY of any payments from DEVELOPER after
any breach of this Agreement.
Neither COMPANY nor DEVELOPER shall be liable for loss or damage or deemed
to be in breach of this Agreement if its failure to perform its obligations
results from any of the following and is not caused by the non-performing party:
(vi) acts of God; or
(vii) acts of war or insurrection; or
(viii) strikes, lockouts, boycotts, fire and other casualties.
Any delay resulting from any of said causes shall extend the time allowed for
performance accordingly or excuse performance, in whole or in part, as may be
reasonable for the Store(s) directly affected thereby, except that such causes
shall not excuse payment of amounts owed at the time of such occurrence or
payment of any fees thereafter nor otherwise affect the Development Schedule or
the development of other UNITS to be developed under this Agreement, and as soon
as performance is possible the non-performing party shall immediately resume
performance and, in no event, shall non-performance be excused for more than six
(6) months.
18.C. INJUNCTIVE RELIEF.
-----------------
Nothing in this Agreement shall bar COMPANY's right to seek specific
performance of the provisions of this Agreement and injunctive relief against
threatened conduct that will cause it loss or damages under customary equity
rules, including applicable rules for obtaining restraining orders and
preliminary injunctions. DEVELOPER agrees that COMPANY may obtain such
injunctive relief in addition to such further or other relief as may be
available at law or in equity. DEVELOPER agrees that COMPANY will not be
required to post a bond to obtain
68
<PAGE>
any injunctive relief and that DEVELOPER's only remedy if an injunction is
entered against DEVELOPER will be the dissolution of that injunction, if
warranted, upon due hearing (all claims for damages by reason of the wrongful
issuance of such injunction being expressly waived hereby). Any such action
shall be brought as provided in Paragraph G of this Section.
18.D. RIGHTS OF PARTIES ARE CUMULATIVE.
--------------------------------
The rights of COMPANY and DEVELOPER hereunder are cumulative and no
exercise or enforcement by COMPANY or DEVELOPER of any right or remedy hereunder
shall preclude the exercise or enforcement by COMPANY or DEVELOPER of any other
right or remedy hereunder or to which COMPANY or DEVELOPER is entitled by law.
18.E. COSTS AND LEGAL FEES.
--------------------
If COMPANY engages legal counsel in connection with any failure by
DEVELOPER to comply with this Agreement, DEVELOPER shall reimburse COMPANY for
costs and expenses incurred by COMPANY, including, without limitation,
reasonable accountants', attorneys', attorneys assistants', arbitrators' and
expert witness fees, cost of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for, in contemplation of or in connection with the filing of
any judicial or arbitration proceeding to enforce this Agreement.
18.F. GOVERNING LAW.
-------------
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. (S)(S) 1051 ET SEQ.), THIS AGREEMENT AND THE RELATIONSHIP
------
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF COLORADO EXCEPT THAT SUCH STATE'S CHOICE OF
LAW AND CONFLICT OF LAW RULES SHALL NOT APPLY AND ANY FRANCHISE REGISTRATION,
DISCLOSURE, RELATIONSHIP OR SIMILAR STATUTE WHICH MAY BE ADOPTED BY THE STATE OF
COLORADO SHALL NOT APPLY UNLESS ITS JURISDICTIONAL REQUIREMENTS ARE MET
INDEPENDENTLY WITHOUT REFERENCE TO THIS PARAGRAPH.
18.G. CONSENT TO JURISDICTION/CHOICE OF FORUM.
---------------------------------------
DEVELOPER AGREES THAT DEVELOPER SHALL, AND COMPANY MAY, AT ITS OPTION,
INSTITUTE ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY STATE
COURT OF GENERAL JURISDICTION IN JEFFERSON COUNTY, COLORADO OR THE UNITED STATES
FEDERAL DISTRICT COURT FOR THE DISTRICT OF COLORADO, OR THE STATE COURT OF
GENERAL JURISDICTION OR UNITED STATES FEDERAL DISTRICT COURT NEAREST TO
COMPANY'S EXECUTIVE OFFICE AT THE TIME SUCH ACTION IS FILED. DEVELOPER
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH
69
<PAGE>
COURT AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION OR VENUE
OF ANY SUCH COURT.
18.H. LIMITATIONS OF CLAIMS.
---------------------
EXCEPT FOR CLAIMS BROUGHT BY COMPANY WITH REGARD TO DEVELOPER'S OBLIGATIONS
TO MAKE PAYMENTS TO COMPANY PURSUANT TO THIS AGREEMENT OR TO INDEMNIFY COMPANY
PURSUANT TO SECTION 17, ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RELATIONSHIP OF DEVELOPER AND COMPANY PURSUANT HERETO SHALL BE
BARRED UNLESS AN ACTION IS COMMENCED WITHIN: (1) TWO (2) YEARS FROM THE DATE ON
WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR (2) ONE (1) YEAR
FROM THE DATE ON WHICH DEVELOPER OR COMPANY KNEW OR SHOULD HAVE KNOWN, IN THE
EXER CISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS,
WHICHEVER OCCURS FIRST.
18.I. WAIVER OF PUNITIVE DAMAGES.
--------------------------
COMPANY AND DEVELOPER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY RIGHT OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR SPECULATIVE
DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT OF A DISPUTE BETWEEN THEM,
EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE LIMITED TO THE RECOVERY OF
ACTUAL DAMAGES SUSTAINED BY IT.
18.J. WAIVER OF JURY TRIAL.
--------------------
COMPANY AND DEVELOPER IRREVOCABLY WAIVE TRIAL BY JURY ON ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF
THEM.
18.K. BINDING EFFECT.
--------------
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and shall
not be modified except by written agreement signed by both DEVELOPER and
COMPANY.
18.L. CONSTRUCTION.
------------
The preambles and exhibits are a part of this Agreement, this Agreement
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agree ments 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
70
<PAGE>
headings of the several sections and paragraphs hereof are for convenience only
and do not define, limit, or construe the contents of such sections or
paragraphs. The term "DEVELOPER" as used in this Agreement is applicable to one
or more persons or entities as the case may be, and the singular usage includes
the plural and the masculine and neuter usages include each other and the
feminine.
If two or more persons are at any time DEVELOPER hereunder, whether or not
as partners or joint venturers, their obligations and liabilities to COMPANY
shall be joint and several. This Agreement shall be executed in multiple
copies, each of which shall be deemed an original.
18.M. REASONABLENESS; APPROVALS.
-------------------------
COMPANY and DEVELOPER agree to act reasonably in all dealings with each
other pursuant to this Agreement. Whenever the consent or approval of either
party is required or contemplated hereunder, the party whose consent or approval
is required agrees not to unreasonably withhold the same, unless expressly
subject to such party's sole discretion pursuant to the terms of this Agreement.
19. NOTICES AND PAYMENTS.
--------------------
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Development Manual shall be deemed so
delivered at the time delivered by hand, one (1) business day after transmission
by facsimile with proof of receipt, one (1) business day after being placed in
the hands of a commercial courier service for overnight delivery, or three (3)
business days after placement in the United States Mail by Registered or
Certified Mail, Return Receipt Requested, postage prepaid and properly
addressed. Unless otherwise notified in writing, all notices, reports and/or
payments to COMPANY shall be sent to COMPANY at 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 noti fied. 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.
71
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in multiple originals on the day and year first above written and
COMPANY has accepted this Agreement in Jefferson County, Colorado.
EINSTEIN/NOAH BAGEL CORP. ___________________________________
DEVELOPER
By:________________________________ By:________________________________
Title:__________________________ Title:__________________________
72
<PAGE>
EXHIBIT A
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
CATERING RIDER
--------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE CATERING RIDER AS EXHIBIT A.]
<PAGE>
EXHIBIT B
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
DELIVERY RIDER
--------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE DELIVERY RIDER AS EXHIBIT B.]
<PAGE>
EXHIBIT C
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ___________________________________________
DATED _____________________________
DEVELOPMENT FEE
---------------
<PAGE>
DEVELOPMENT FEE
---------------
1. DEVELOPMENT FEE. The Development Fee referred to in Section 7.A. of
---------------
this Agreement shall be _________________________ Thousand Dollars ($_________).
EINSTEIN/NOAH BAGEL CORP. ___________________________________
DEVELOPER
By:________________________________ By:________________________________
Title:__________________________ Title:__________________________
C-1
<PAGE>
EXHIBIT D
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
DEVELOPMENT AREA(S)
-------------------
<PAGE>
DEVELOPMENT AREA(S)
-------------------
The Development Area referred to in Section 2 of this Agreement shall
consist of the aggregate of the Sub-Areas described as follows:
SUB-AREA NO. 1
--------------
SUB-AREA NO. 2
--------------
D-1
<PAGE>
SUB-AREA NO. 3
--------------
EINSTEIN/NOAH BAGEL CORP. ___________________________________
DEVELOPER
By:________________________________ By:________________________________
Title:__________________________ Title:__________________________
D-2
<PAGE>
EXHIBIT E
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________
DATED _________________________
DEVELOPMENT SCHEDULE
--------------------
<PAGE>
DEVELOPMENT SCHEDULE
--------------------
1. STORE DEVELOPMENT. DEVELOPER agrees to develop a total of
-----------------
________________________ (_____) Stores in accordance with the terms of this
Agreement.
2. DEVELOPMENT OBLIGATIONS. DEVELOPER agrees to have each Store
-----------------------
specified below open on or before the specified "OPENING DATE" shown below and
to have open and in operation in each Sub-Area indicated, on or before the
Opening Dates specified below, the cumulative numbers of Stores shown below:
SUB-AREA NO. 1
--------------
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------ ---- ----------------------
E-1
<PAGE>
SUB-AREA NO. 2
--------------
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------ ---- ----------------------
SUB-AREA NO. 3
--------------
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------ ---- ----------------------
E-2
<PAGE>
TOTAL DEVELOPMENT QUOTA FOR THE
DEVELOPMENT AREA (THE "TOTAL
DEVELOPMENT QUOTA"):
-------------------
_____________
EINSTEIN/NOAH BAGEL CORP. ___________________________________
DEVELOPER
By:________________________________ By:________________________________
Title:__________________________ Title:__________________________
E-3
<PAGE>
EXHIBIT F
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
______________________________________________________
DATED ________________
FORM FRANCHISE AGREEMENT
------------------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR.]
<PAGE>
EXHIBIT G
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
________________________________________________________
DATED __________________
PRINCIPAL OWNERS, OTHER OWNERS, KEY MANAGERS,
PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
--------------------------
<PAGE>
PRINCIPAL OWNERS, OTHER OWNERS, KEY MANAGERS,
PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
--------------------------
1. PRINCIPAL OWNERS: Listed below is the full name and mailing address
----------------
of each person or entity who is a Principal Owner of DEVELOPER, and a
description of the nature and amount of such Principal Owner's direct or
indirect equity or voting interest in DEVELOPER:
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
G-1
<PAGE>
2. DESIGNATED PRINCIPAL OWNERS: The following individuals above are
---------------------------
designated as Principal Owners based upon their business experience, financial
capacity or other personal attributes:
Name:_____________________________ Name:_____________________________________
Name:_____________________________ Name:_____________________________________
3. OTHER OWNERS. Listed below is the full name and mailing address of
------------
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity or voting interest in DEVELOPER and a description of
the nature of the interest (attach additional sheet if required):
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
Name:______________________________ Number of Interests Owned:______________
Address:___________________________ % of Total Interests:___________________
___________________________________ Number of Interests Owner is Entitled to
___________________________________ Vote:___________________________________
___________________________________ Other Interest (Describe):______________
___________________________________ ________________________________________
4. MANAGEMENT: As required pursuant to Sections 13.A. and 13.B. of
----------
this Agreement, the following Principal Owners and the Chief Operating Officer
shall exert full-time efforts to fulfill the obligations of DEVELOPER under this
Agreement:
Name:______________________________ Name:___________________________________
(Principal Owner) (Chief Operating Officer)
Name:______________________________
(Principal Owner)
G-2
<PAGE>
5. OWNERS OF PERMITTED COMPETITIVE BUSINESSES: Listed below are the
------------------------------------------
Permitted Competitive Businesses and the Owners who are permitted hereunder to
engage in those businesses.
NAME OF OWNER: NAME OF OWNER:
__________________________________ ________________________________________
Name of Competitive Business: Name of Competitive Business:
__________________________________ ________________________________________
Address of Competitive Business: Address of Competitive Business:
__________________________________ ________________________________________
__________________________________ ________________________________________
NAME OF OWNER: NAME OF OWNER:
__________________________________ ________________________________________
Name of Competitive Business: Name of Competitive Business:
__________________________________ ________________________________________
Address of Competitive Business: Address of Competitive Business:
__________________________________ ________________________________________
__________________________________ ________________________________________
DEVELOPER and its Owners represent and warrant that they have previously
provided to COMPANY a true, correct, complete and detailed description of all
Competitive Businesses in which they own, directly or indirectly, interests and
that all such Competitive Businesses are
G-3
<PAGE>
disclosed in this Exhibit G. DEVELOPER and its Owners acknowledge that COMPANY
---------
has relied on the aforementioned description of such Competitive Businesses in
entering into this Agreement with DEVELOPER.
6. INITIAL CAPITALIZATION. DEVELOPER: (a) represents and warrants
----------------------
that it has developed and previously provided to COMPANY a description of its
initial capital structure (the "Initial Capital Structure") which is a true,
correct, complete and detailed description of DEVELOPER's capital structure; (b)
covenants that it will not deviate from the Initial Capital Structure without
COMPANY's prior written consent; and (c) acknowledges that COMPANY has relied on
the Initial Capital Structure in entering into this Agreement.
EINSTEIN/NOAH BAGEL CORP. ________________________________________
DEVELOPER
By:_______________________________ By:_____________________________________
Title:___________________________ Title:________________________________
G-4
<PAGE>
EXHIBIT H
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_____________________________________________________________
DATED ______________________
DEVELOPER ACKNOWLEDGMENTS AND REPRESENTATIONS STATEMENT
-------------------------------------------------------
<PAGE>
ACKNOWLEDGMENTS AND REPRESENTATIONS STATEMENT
---------------------------------------------
1. DEVELOPER acknowledges that it has read the Development Agreement (the
"AGREEMENT") between Einstein/Noah Bagel Corp. ("COMPANY") and DEVELOPER dated
as of the date hereof and COMPANY's Franchise Offering Circular in their
entirety and that it understands and accepts the terms, conditions and covenants
contained in the Agreement as being reasonably necessary to maintain COMPANY's
high standards of quality and service and the uniformity of those standards at
all 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.) DEVELOPER
acknowledges that: (a) COMPANY delivered and DEVELOPER received a copy of
COMPANY's Franchise Offering Circular at the earlier of (i) DEVELOPER's first
personal meeting with COMPANY or (ii) ten business days prior to the execution
of the Agreement or the payment of any consideration by DEVELOPER in connection
with the transaction contemplated in the Agreement; and (b) COMPANY delivered
and DEVELOPER received the Agreement in form for execution at least five (5)
business days prior to the execution of the Agreement.
2. Attached to COMPANY's Franchise Offering Circular is a copy of the
current form of Franchise Agreement. DEVELOPER acknowledges that the Franchise
Agreement attached to COMPANY's Franchise Offering Circular is the current form
of Franchise Agreement and that COMPANY, at its sole discretion, may from time
to time modify or amend in any respect the standard form of Franchise Agreement
used by COMPANY in offering or granting a UNIT franchise.
3. DEVELOPER acknowledges that the food service business is a highly
competitive industry, with constantly changing market conditions. DEVELOPER
acknowledges that it has conducted an independent investigation of the business
contemplated by the Agreement and recognizes that, like any other business, the
nature of the business conducted by 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.
H-1
<PAGE>
5. DEVELOPER acknowledges and agrees that some aspects of COMPANY's
franchise program and the System are still under development and that COMPANY
expects that there will be some significant variations in the System in
different regional markets which may exist for an initial or transitional
period, or on a permanent basis. COMPANY may, for example, allow DEVELOPER to
use one recipe for bagels, cream cheeses or other items while allowing other
developers and franchise owners to use different recipes. COMPANY may also allow
variations between developers and franchise owners in the areas of trademarks,
trade dress, operational items or other aspects of 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 and/or franchise 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 and franchising a national chain of bagel
stores operating under a single trademark or service mark, determine in its sole
discretion to operate and franchise a network of bagel shops operating under
different names 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
H-2
<PAGE>
respect to any UNITS or the business contemplated by the Agreement. Neither
COMPANY's sales personnel nor any employee, officer, director, agent,
representative or affiliate of COMPANY is authorized to make any claims or
statements as to the sales, profits, earnings, cash flow, costs or prospects or
chances of success that any developer or franchisee can expect or that present
or past developers or franchisees have had. COMPANY specifically instructs its
sales personnel, employees, officers, directors, agents, representatives and
affiliates that they are not permitted to make such claims or statements as to
the sales, profits, earnings, cash flow, costs or the prospects or chances of
success, nor are they authorized to represent or estimate amounts of sales,
profits, earnings, cash flow, costs or other measures as to any aspect of the
operation of UNITS. COMPANY recommends that applicants for development rights
make their own investigations and determine whether or not the business
contemplated by this Agreement is profitable. COMPANY will not be bound by any
unauthorized representations as to DEVELOPER's sales, profits, earnings, cash
flow, costs or prospects or chances of success. COMPANY recommends that each
applicant for development rights consult with an attorney of its choosing and
further be represented by legal counsel at the time of its closing. DEVELOPER
acknowledges that it has had ample opportunity to consult with legal counsel and
other professional advisors. DEVELOPER acknowledges that it has not received or
relied on any representations about the development rights granted in the
Agreement by COMPANY, or its officers, directors, employees or agents, that are
contrary to the statements made in COMPANY's Franchise Offering Circular.
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 franchise 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
H-3
<PAGE>
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.
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.
12. DEVELOPER further represents and warrants that all Owners of DEVELOPER
and their interests therein are completely and accurately listed in Exhibit G to
---------
the Agreement and covenants that DEVELOPER will make, execute and deliver to
COMPANY such revisions thereto as may be necessary during the term of the
Agreement to reflect any changes in the information contained therein.
H-4
<PAGE>
13. DEVELOPER represents and warrants that its domicile is as set forth
below:
_____________________________________________________________________
Address
_____________________________________________________________________
City and State
Dated:____________________________
__________________________________
DEVELOPER
By:_______________________________
Title:____________________________
H-5
<PAGE>
EXHIBIT I
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ______________________________________
DATED ____________________
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
--------------------------------------------------
<PAGE>
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
--------------------------------------------------
THIS GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS is given this
___________ day of ________________________, 19__ , by the undersigned.
DEVELOPER:____________________________
(NAME)
DATE OF DEVELOPMENT AGREEMENT:___________________
In consideration of, and as an inducement to, the execution of the above-
mentioned Einstein/Noah Bagel Corp. Development Agreement (the "AGREEMENT") by
EINSTEIN/NOAH BAGEL CORP. ("COMPANY"), each of the undersigned and any other
parties who sign counterparts of this guaranty (referred to herein individually
as a "GUARANTOR" and collectively as "GUARANTORS") hereby personally and
unconditionally: (a) guarantees to COMPANY, and its successors and assigns, for
the term of the Agreement and thereafter as provided in the Agreement, that
DEVELOPER shall punctually pay and perform each and every undertaking, agreement
and covenant set forth in the Agreement; and (b) agrees to be personally bound
by, and personally liable for the breach of, each and every provision in the
Agreement, both monetary obligations and other obligations, including without
limitation, the obligation to pay costs and legal fees as provided in the
Agreement and the obligation to take or refrain from taking specific actions or
to engage or refrain from engaging in specific activities, including without
limitation the provisions of the Agreement relating to competitive activities.
Each Guarantor waives:
1. acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
2. notice of demand for payment of any indebtedness or
nonperformance of any obligations hereby guaranteed; and
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
4. any right he may have to require that an action be brought
against DEVELOPER or any other person as a condition of liability; and
I-1
<PAGE>
5. all rights to payments and claims for reimbursement or
subrogation which he may have against DEVELOPER arising as a result of his
execution of and performance under this guaranty by the undersigned
(including by way of counterparts); and
6. any and all other notices and legal or equitable defenses to
which he may be entitled.
Each Guarantor consents and agrees that:
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with DEVELOPER, but also among the Guarantors;
and
(B) he shall render any payment or performance required under the
Agreement upon demand if DEVELOPER fails or refuses punctually to do so;
and
(C) such liability shall not be contingent or conditioned upon
pursuit by COMPANY of any remedies against DEVELOPER or any other person;
and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Agreement or by any
extension of time, credit or other indulgence which COMPANY may from time
to time grant to DEVELOPER or to any other person, including, without
limitation, the acceptance of any partial payment or performance, or the
compromise or release of any claims, none of which shall in any way modify
or amend this guaranty, which shall be continuing and irrevocable through
out the Agreement Term of the Agreement and for so long thereafter as there
are any monies or obligations owing by DEVELOPER to COMPANY under the
Agreement; and
(E) the written acknowledgment of DEVELOPER, accepted in writing by
COMPANY, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from DEVELOPER shall be conclusive
and binding on the undersigned as guarantors.
If COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
If COMPANY is required to engage legal counsel in connection with any failure by
the undersigned to comply with this Guaranty, the Guarantors shall reimburse
COMPANY for any of the above-listed costs and expenses incurred by it.
I-2
<PAGE>
Each of the undersigned Guarantors represents and warrants that, if no
signature appears below for such Guarantor's spouse, such guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of the Guarantor's marital
estate.
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Agreement was executed.
GUARANTOR(S)
- ------------
___________________________________ SPOUSE:_________________________________
NAME: NAME:
___________________________________ SPOUSE:_________________________________
NAME: NAME:
___________________________________ SPOUSE:_________________________________
NAME: NAME:
___________________________________ SPOUSE:_________________________________
___________________________________ SPOUSE:_________________________________
___________________________________ SPOUSE:_________________________________
I-3
<PAGE>
EXHIBIT J
TO THE EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND _______________________________
DATED _________________________________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE CONFIDENTIALITY AND NON-COMPETE AGREEMENT AS
EXHIBIT H.]
<PAGE>
EXHIBIT K
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________
DATED _________________________
PRINCIPAL MARKS TO BE USED BY DEVELOPER
The 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:
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>
EXHIBIT C
---------
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
C-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
______________________________
FRANCHISE OWNER
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. INTRODUCTION AND CERTAIN DEFINITIONS............................... 1
A. INTRODUCTION.................................................. 1
B. DEFINITIONS................................................... 2
2. GRANT OF FRANCHISE................................................. 9
A. GRANT OF FRANCHISE; TERM; PRINCIPAL OWNERS'
GUARANTY...................................................... 9
B. TERRITORIAL RIGHTS............................................ 10
C. RIGHTS RETAINED BY COMPANY.................................... 10
D. FRANCHISE OWNER'S OPTION TO PURCHASE CONVERSION
SITES......................................................... 10
3. OTHER DISTRIBUTION METHODS......................................... 12
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................. 12
B. DELIVERY SERVICE.............................................. 13
C. CATERING SERVICE.............................................. 14
4. DEVELOPMENT AND OPENING OF THE STORE............................... 15
A. SITE SELECTION AND LEASE...................................... 15
B. STORE DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS............ 15
C. DEVELOPMENT OF THE STORE...................................... 15
D. EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS.................... 16
E. COMPUTER SYSTEM............................................... 16
F. STORE OPENING................................................. 16
G. GRAND OPENING PROGRAM......................................... 17
H. RELOCATION OF THE STORE....................................... 18
I. FINANCING PLAN................................................ 18
5. TRAINING AND GUIDANCE.............................................. 18
A. TRAINING...................................................... 18
B. GUIDANCE AND ASSISTANCE....................................... 19
C. STORE MANUALS................................................. 20
6. MARKS.............................................................. 21
A. GOODWILL AND RIGHTS TO USE THE MARKS.......................... 21
B. LIMITATIONS ON FRANCHISE OWNER'S USE OF MARKS................. 21
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................... 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
D. DISCONTINUANCE OF USE OF MARKS................................ 22
E. INDEMNIFICATION OF FRANCHISE OWNER............................ 22
F. NON-DENIGRATION............................................... 23
G. MARKING REQUIREMENTS.......................................... 23
7. COPYRIGHTS......................................................... 23
A. OWNERSHIP OF COPYRIGHTED WORKS................................ 23
B. LIMITATION ON FRANCHISE OWNER'S USE OF
COPYRIGHTED WORKS............................................. 24
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................... 24
D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS.................... 25
8. LICENSED PROGRAM AND COMPUTER SYSTEM............................... 25
A. GRANT OF LICENSE.............................................. 25
B. SOFTWARE LICENSE FEE.......................................... 27
C. SOFTWARE SUPPORT SERVICE...................................... 27
D. SOFTWARE SUPPORT SERVICE FEE.................................. 28
E. MODIFICATION, ENHANCEMENT,
AND REPLACEMENT OF COMPUTER SYSTEM,
LICENSED PROGRAM AND SPECIFIED SOFTWARE....................... 28
F. WARRANTIES AND LIMITATION OF LIABILITY........................ 28
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES................ 29
9. CONFIDENTIAL INFORMATION........................................... 30
10. EXCLUSIVE RELATIONSHIP............................................. 32
11. FEES............................................................... 34
A. INITIAL FRANCHISE FEE......................................... 34
B. ROYALTY FEE................................................... 34
C. DEFINITION OF "ROYALTY BASE REVENUE".......................... 34
D. INTEREST ON LATE PAYMENTS..................................... 35
E. APPLICATION OF PAYMENTS....................................... 35
F. ELECTRONIC FUNDS TRANSFER..................................... 35
12. STORE IMAGE AND OPERATION.......................................... 36
A. CONDITION AND APPEARANCE OF THE STORE......................... 36
B. STORE MENU AND SERVICES....................................... 37
C. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS................. 38
D. SPECIFICATIONS, STANDARDS AND PROCEDURES...................... 40
E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.............. 42
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
F. MANAGEMENT AND PERSONNEL OF THE STORE......................... 42
G. INSURANCE..................................................... 43
H. CREDIT CARDS AND OTHER METHODS OF PAYMENT..................... 44
13. ADVERTISING........................................................ 44
A. MARKETING FUND................................................ 44
B. LOCAL ADVERTISING FUND........................................ 47
C. ADVERTISING BY FRANCHISE OWNER................................ 49
14. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS....................... 49
15. INSPECTIONS AND AUDITS............................................. 51
A. COMPANY'S RIGHT TO INSPECT THE STORE.......................... 51
B. COMPANY'S RIGHT TO AUDIT...................................... 52
16. TRANSFER........................................................... 52
A. BY COMPANY.................................................... 52
B. NONTRANSFERABILITY OF CERTAIN RIGHTS.......................... 52
C. COMPANY'S RIGHT TO APPROVE TRANSFERS.......................... 53
D. CONDITIONS FOR APPROVAL OF TRANSFERS.......................... 54
E. DEATH OR INCAPACITY OF FRANCHISE OWNER........................ 58
F. PUBLIC OR PRIVATE OFFERING.................................... 58
G. EFFECT OF CONSENT TO TRANSFER................................. 59
H. COMPANY'S RIGHT OF FIRST REFUSAL.............................. 60
I. OWNERSHIP STRUCTURE........................................... 61
J. DELEGATION BY COMPANY......................................... 61
K. PERMITTED TRANSFERS........................................... 61
17. GRANT OF SUCCESSOR FRANCHISES...................................... 62
A. FRANCHISE OWNER'S RIGHT TO A SUCCESSOR FRANCHISE.............. 62
B. NOTICES....................................................... 62
C. SUCCESSOR FRANCHISE AGREEMENT/RELEASES........................ 63
18. TERMINATION OF THE FRANCHISE....................................... 63
A. BY FRANCHISE OWNER............................................ 63
B. BY COMPANY.................................................... 64
C. TERMINATION OF CERTAIN RIGHTS OF FRANCHISE OWNER.............. 67
19. RIGHTS AND OBLIGATIONS OF COMPANY AND FRANCHISE
OWNER UPON TERMINATION OR EXPIRATION OF THE AGREEMENT.............. 67
A. PAYMENT OF AMOUNTS OWED TO COMPANY............................ 67
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
B. MARKS, TRADE DRESS, AND COPYRIGHTED WORKS..................... 68
C. CONFIDENTIAL INFORMATION...................................... 69
D. COVENANT NOT TO COMPETE....................................... 70
E. CONTINUING OBLIGATIONS........................................ 71
F. COMPANY'S RIGHT TO PURCHASE ASSETS OF THE STORE............... 71
20. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION........................ 72
A. INDEPENDENT CONTRACTORS....................................... 72
B. NO LIABILITY FOR ACTS OF OTHER PARTY.......................... 73
C. TAXES......................................................... 73
D. INDEMNIFICATION............................................... 73
21. ENFORCEMENT........................................................ 74
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............. 74
B. WAIVER OF OBLIGATIONS......................................... 75
C. INJUNCTIVE RELIEF............................................. 76
D. RIGHTS OF PARTIES ARE CUMULATIVE.............................. 76
E. COSTS AND LEGAL FEES.......................................... 76
F. GOVERNING LAW................................................. 77
G. CONSENT TO JURISDICTION/CHOICE OF FORUM....................... 77
H. LIMITATIONS OF CLAIMS......................................... 77
I. WAIVER OF PUNITIVE DAMAGES.................................... 77
J. WAIVER OF JURY TRIAL.......................................... 78
K. BINDING EFFECT................................................ 78
L. CONSTRUCTION.................................................. 78
M. REASONABLENESS; APPROVALS..................................... 78
22. NOTICES AND PAYMENTS............................................... 78
</TABLE>
iv
<PAGE>
EXHIBITS AND ATTACHMENTS
- ------------------------
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - FRANCHISE OWNER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT D - PERMITTED COMPETITIVE BUSINESSES, FORM
DEVELOPMENT AGREEMENT (FOR SINGLE-STORE
FRANCHISES) AND IDENTITY OF DEVELOPER AND DATE
OF DEVELOPMENT AGREEMENT
EXHIBIT E - PRINCIPAL OWNERS, OTHER OWNERS, DESIGNATED
PRINCIPAL OWNERS, STORE MANAGER, SUPERVISING
OWNERS AND INITIAL CAPITALIZATION
EXHIBIT F - SITE AND TERRITORY
EXHIBIT G - GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S
OBLIGATIONS
EXHIBIT H - CONFIDENTIALITY AND NON-COMPETE AGREEMENT
EXHIBIT I - AUTHORIZATION AGREEMENT FOR PREARRANGED
PAYMENTS (DIRECT DEBITS)
EXHIBIT J - COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS
AND LISTINGS
EXHIBIT K - PRINCIPAL MARKS TO BE USED BY FRANCHISE OWNER
v
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
THIS AGREEMENT is made and entered into this ____ day of _________, 199__
(the "EFFECTIVE DATE"), by and between EINSTEIN/NOAH BAGEL CORP., a Delaware
corporation ("COMPANY"), and FRANCHISE OWNER (as defined below).
"FRANCHISE OWNER": ________________________________________________,
a________________________________________________
Principal Address: _________________________________________________
_________________________________________________
_________________________________________________
1. INTRODUCTION AND CERTAIN DEFINITIONS.
------------------------------------
1.A. INTRODUCTION.
------------
COMPANY and its Affiliates (as defined below) have developed and may
continue to develop methods of operating 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
FRANCHISE 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. Each UNIT utilizes the Marks (defined below)
and operates at a location that features distinctive food service formats and
Trade Dress (defined below) 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 may modify from time
to time in its sole discretion (the "SYSTEM"). COMPANY operates, and grants
franchises 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.
FRANCHISE OWNER has requested that COMPANY grant it a franchise to own and
operate a UNIT at the Site (defined below) using the branded concept, the
Principal Mark, the other Marks associated with the Principal Marks and those
elements of the System associated with the Principal Marks (a "STORE").
FRANCHISE OWNER's request and the Site have been approved by COMPANY in reliance
upon all of the representations made in FRANCHISE OWNER'S application, in
FRANCHISE OWNER's Site Approval Package (as defined in the Development
Agreement), during the application process and in the Franchise Owner
Acknowledgments and Representations Statement, a copy of which is attached
hereto as Exhibit A, which shall be executed by FRANCHISE OWNER concurrently
---------
with this Agreement.
<PAGE>
Pursuant to the terms of the Development Agreement (defined below) COMPANY
has granted to FRANCHISE OWNER (referred to in the Development Agreement as
"DEVELOPER") the right to acquire the franchise to own and operate one (1) or
more Stores.
1.B. DEFINITIONS.
-----------
For purposes of this Agreement, the terms listed below have the meanings
that follow them. Other terms used in this Agreement are defined in the context
in which they occur.
"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive weeks in
-----------------
each fiscal year of COMPANY that is designated by COMPANY as an accounting
period of COMPANY.
"AFFILIATE" - Any person or legal entity that directly or indirectly owns
---------
or controls COMPANY, that is directly or indirectly owned or controlled by
COMPANY, or that is under common control with COMPANY. For purposes of this
definition, "CONTROL" means the power to direct or cause the direction of the
management, policies and operation of an entity. Neither Boston Chicken, Inc.
("BCI") nor any of its affiliates shall be considered Affiliates of COMPANY
until such time as BCI owns a direct Ownership Interest in COMPANY and otherwise
meets the foregoing definition of "Affiliates".
"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 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=MC/2/), (iii) scientific and mathematical theories (e.g., the theory
----
of relativity), and (iv) drawings or symbols of the atom or atomic particles.
"BAGEL STORE" - A food service business, including a UNIT, which derives a
-----------
significant portion of its revenue from the sale of bagels and/or bagel-related
products or from any other product or service which is or hereafter becomes a
source of a significant portion of the revenue of any UNIT.
"CATERING AREA" - The geographic area in which COMPANY, in its sole
-------------
discretion, authorizes FRANCHISE OWNER to provide Catering Service pursuant to a
Catering Rider, which area may be the same as, smaller than, larger than or
different from the Territory (defined below).
"CATERING RIDER" - The form of rider to a Franchise Agreement (as defined
--------------
in the Development Agreement) used by COMPANY from time to time to authorize in
its sole discretion a franchise owner of a UNIT to offer Catering Service
(defined below) within the applicable Catering Area. The current form of
COMPANY's Catering Rider is attached hereto as Exhibit A.
2
<PAGE>
"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a
----------------
separate facility approved by COMPANY in writing (such approved facility is
referred to herein as a "CATERING FACILITY") to customers in the Catering Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fifteen (15) or more persons,
or
(2) in addition to the delivery of Products, FRANCHISE OWNER provides
ancillary services to a customer at a location within the Catering Area,
including, by way of example and without limitation, the setting up for
serving or distribution of Products.
"COMMISSARY" - A food preparation facility operated by DEVELOPER pursuant
----------
to this Agreement that:
(1) procures and receives Products, ingredients and materials used in
the preparation and packaging of Products, and other materials and supplies
used in the operation of UNITS;
(2) prepares and packages Products in accordance with recipes,
methods, procedures, standards and specifications established by COMPANY,
in its sole discretion, from time to time; and
(3) distributes to UNITS Products and other materials and supplies
used in the operation of UNITS.
"COMPETITIVE BUSINESS" - A business or enterprise, other than a UNIT or
--------------------
Commissary, that:
(1) offers food and/or beverage products at wholesale or retail,
which are the same as or similar to the Products through:
(a) on-premises dining;
(b) carry-out;
(c) delivery service;
(d) catering service; or
(e) other distribution channels; similar to those used by
COMPANY; or
(2) grants or has granted franchises or licenses or establishes or
has established joint ventures, for the development and/or operation of
one or more businesses or enterprises described in the foregoing clause
(1); provided, however, that the term "Competitive Business" shall not
include:
3
<PAGE>
(a) any Boston Market restaurant operated pursuant to a valid
franchise or license agreement with Boston Chicken, Inc. or
its successors; or
(b) any business or enterprise that derives less than 10% of its
revenue from the sale of (i) bagels and/or bagel related
products (including but not limited to cream cheese and
other spreads, bagel sandwiches and bagel chips) or (ii) any
other product which accounts for 15% or more of the revenue
of any UNIT owned or operated by COMPANY or a franchisee of
COMPANY.
"COMPUTER SYSTEM" - Those brands, types, makes, and/or models of
---------------
communications and computer systems and hardware specified or required by
COMPANY for use by, between, or among UNITS, including, but not limited to:
(1) back office and point of sale systems, data, audio, video, and
voice storage, retrieval, and transmission systems for use at the Store,
between or among UNITS, and between and among the Store and COMPANY and/or
FRANCHISE OWNER;
(2) security systems;
(3) printers; and
(4) archival and back-up systems.
"CONTROLLING INTEREST" - If FRANCHISE OWNER is a:
--------------------
(1) corporation, such number of the voting shares of FRANCHISE OWNER
or such other rights as (a) shall permit voting control of FRANCHISE OWNER
on any issue and (b) shall prevent any other person, group, combination, or
entity from blocking voting control on any issue or exercising any veto
power; and
(2) general partnership, a managing partnership interest, such
percentage of the general partnership interests in FRANCHISE OWNER or such
other rights as (a) shall permit determination of the outcome on any issue
and (b) shall prevent any other person, group, combination, or entity from
blocking voting control on any issue or exercising any veto power;
(3) limited partnership, general partnership interest, such
percentage of limited partnership interests or such other rights as shall
permit the replacement or removal of any general partner; and
(4) limited liability company, such percentage of the membership
interests of FRANCHISE OWNER or such other rights as (a) shall permit
voting control of
4
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FRANCHISE OWNER on any issue and (b) shall prevent any other person, group,
combination or entity from blocking voting control on any issue or
exercising any veto power.
"DELIVERY AREA" - The geographic area in which COMPANY, in its sole
-------------
discretion, authorizes FRANCHISE OWNER to provide Delivery Service (defined
below) pursuant to a Delivery Rider (defined below), which area may be the same
as, smaller than, larger than or different from the Territory (defined below).
"DELIVERY RIDER" - The form of rider to a Franchise Agreement used by
--------------
COMPANY from time to time to authorize or require in its sole discretion a
franchise owner of a UNIT to
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. Development
---------------------
Agreement executed by COMPANY and DEVELOPER, if any, dated as of the date stated
in Exhibit D attached hereto, pursuant to which DEVELOPER was granted the right
---------
to develop one (1) or more UNITS in a geographic area in which the Store is
located.
"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; sporting goods, golf bags, flying discs and balls.
"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
5
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siblings of spouses, that such person received or had access to Confidential
Information, including as an employee, supplier, officer, director, stockholder
or agent of FRANCHISE OWNER or any other operator of a UNIT.
"LICENSED PROGRAM" - The computer software programs developed by or for
----------------
COMPANY and/or designated by COMPANY from time to time as specified or required
in connection with utilization of the Computer System, which may include,
without limitation, COMPANY's point-of-sale, bookkeeping, inventory, training,
marketing, employee selection, operations and financial information, collection
and retrieval systems (including COMPANY's general ledger system utilizing the
standard chart of accounts prescribed by COMPANY from time to time) for use in
connection with the operation of UNITS or franchise owners' and developers'
businesses, including any updates, supplements, modifications or enhancements
thereto made from time to time, all related documentation, the tangible media
upon which such programs are recorded, and the database file structure thereof,
but excluding any data or databases owned or compiled by COMPANY or its
Affiliates or their licensors for use with the Licensed Program or otherwise or
any data generated by the use of the Licensed Program.
"MARKETING AREA" - The geographic area in which the Store and other UNITS
--------------
(regardless of the principal Mark under which the UNITS operate) are located
which COMPANY designates from time to time in its sole discretion as a distinct
area for marketing purposes. In making such determination, COMPANY may take
into consideration:
(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 owners to use to
identify the services and/or products offered by UNITS of the type which is the
subject of this Agreement, 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 FRANCHISE OWNER is authorized to use in
the operation of the Store.
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"OWNERSHIP INTERESTS" - In relation to a: (i) corporation, the record or
-------------------
beneficial ownership of one or more shares in the corporation; (ii) partnership,
the record or beneficial ownership of a general or limited partnership interest;
(iii) limited liability company, the record or beneficial ownership of a
membership interest in the limited liability company; or (iv) trust, the
ownership of a beneficial interest of such trust.
"OWNER" - Each person or entity holding direct or indirect, record or
-----
beneficial Ownership Interests in FRANCHISE OWNER and each person who has other
direct or indirect property rights in FRANCHISE OWNER, this Agreement, the
Franchise or the Store.
"PERMITTED COMPETITIVE BUSINESS" - A business which constitutes a
------------------------------
Competitive Business and is disclosed in Exhibit D to this Agreement, provided
---------
that such business (1) was not on the date of the Development Agreement and does
not at any time thereafter become a Bagel Store, and (2) does not offer bagels
or bagel-related products on its menu, provided that if such business is a
franchised or licensed business of a franchisor which, pursuant to an agreement
which is executed prior to the date of the Development Agreement and under
which, after the date of the Development Agreement, the franchisor or licensor
specifies that such business offer bagels or bagel-related products as a
required menu item, it shall be deemed a Permitted Competitive Business so long
as it does not become a Bagel Store.
"PRINCIPAL MARKS" - The Marks COMPANY authorizes FRANCHISE 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 in FRANCHISE OWNER; or
(2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a)
FRANCHISE OWNER or (b) any UNIT or (c) any developer and/or franchise owner
of UNITS other than FRANCHISE OWNER; provided, however, that a reduction in
a Principal Owner's equity interest below 10% shall not affect his/her/its
status as a Principal Owner unless such reduction is the result of the
transfer of all his/her/its equity interests in FRANCHISE OWNER, a UNIT or
such developer and/or franchise owner of a UNIT; or
(3) is designated as a Principal Owner in Section 2 of Exhibit G to
---------
this Agreement;
"PRODUCTS" - Products approved or required by COMPANY from time to time in
--------
its sole discretion for sale at or from UNITS, including, without limitation,
bagels, bagel-related products, cream cheese and other spreads, sandwiches,
soups, salads, baked goods, breakfast items, an assortment of hot and cold
beverages, teas (leaves, bags, dry mixes and related forms), coffees (beans,
ground and related forms) and other food products and merchandise, provided that
the foregoing products are subject to modification or discontinuance in
COMPANY's sole discretion from time to time and may include additional or
substitute products.
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"SITE" - The location identified in Exhibit F of this Agreement. As used
---- ---------
herein, the term "SITE" also refers to the interior and exterior of the
structure housing the Store.
"SPECIAL DISTRIBUTION AGREEMENT" - A separate agreement whereby COMPANY
------------------------------
authorizes a franchise owner of a UNIT to operate a Special Distribution
Arrangement (defined below) at a Special Distribution Location (defined below)
designated by COMPANY.
"SPECIAL DISTRIBUTION ARRANGEMENT" - The sale of all or some of the
--------------------------------
Products, as designated by COMPANY, at or from a Special Distribution Location
(defined below), whether or not by or through on-premises food service
facilities or concessions, pursuant to COMPANY's standards and specifications
for such sales, which COMPANY may change from time to time in its sole
discretion.
"SPECIAL DISTRIBUTION LOCATION" - A facility or location, including by
-----------------------------
way of example and without limitation, a grocery store, convenience store,
supermarket, a school, hospital, office, work site, military facility,
entertainment or sporting facility or event, airport, bus or train station,
park, toll road or limited access highway facility or other similar facility, at
or from which COMPANY, in its sole discretion, authorizes the operation of a
Special Distribution Arrangement pursuant to a Special Distribution Agreement,
which facility may be located within or outside the Territory.
"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.
"STORES" - UNITS that operate using 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.
"THE STORE" - The UNIT which FRANCHISE OWNER is franchised to operate at
---------
the Site pursuant to this Agreement that operates using 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.
"TERRITORY" - The geographic area described in Exhibit F of this Agreement.
--------- ---------
"TRADE DRESS" - The unit design, decor and image which COMPANY authorizes
-----------
and requires for use in connection with the operation of the Store, as it may be
revised and further developed by COMPANY or its Affiliates from time to time and
as further described in the Manuals (defined below).
"UNIT" - A 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
8
<PAGE>
approve the Franchise owner of such business to offer Catering Service
pursuant to a Catering Rider or to operate Special Distribution
Arrangements pursuant to a Special Distribution Agreement (defined below);
and
(2) operates using the System and the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant to a
valid franchise from COMPANY.
2. GRANT OF FRANCHISE.
------------------
2.A. GRANT OF FRANCHISE; TERM; PRINCIPAL OWNERS' GUARANTY.
----------------------------------------------------
Subject to the provisions of this Agreement, COMPANY hereby grants to
FRANCHISE OWNER a franchise (the "FRANCHISE") to operate the Store at the Site,
and to use the Principal Marks, the other Marks associated with the Principal
Marks and those elements of the System associated with the Principal Marks in
the operation thereof, for a term of fifteen (15) years commencing on the date
of this Agreement. Termination or expiration of this Agreement shall constitute
a termination or expiration of the Franchise and any and all licenses granted
herein. FRANCHISE OWNER agrees that it will at all times faithfully, honestly
and diligently perform its obligations hereunder, and that it will continuously
exert its best efforts to promote and enhance the business of the Store and the
goodwill of the Principal Marks and the other Marks associated with the
Principal Marks. FRANCHISE OWNER shall not conduct the business of the Store
from any location other than the Site, except as otherwise provided under this
Agreement, and will not offer Catering Service, Delivery Service or Special
Distribution Arrangements within or outside the Territory, except as provided in
Section 3 of this Agreement. FRANCHISE OWNER shall cause all persons or
entities who are Principal Owners as of the Effective Date, and their spouses,
to execute and deliver to COMPANY concurrently with this Agreement, and all
persons or entities which become Principal Owners thereafter, and their spouses,
to execute and deliver to COMPANY promptly thereafter, the form of Guaranty and
Assumption of Franchise Owner's Obligations ("GUARANTY") attached hereto as
Exhibit G.
- ---------
Notwithstanding the foregoing:
(a) FRANCHISE OWNER shall not be required to cause the execution
and delivery of the Guaranties referred to in this Section
if, and for such period of time as, FRANCHISE OWNER does not
pay dividends or unreasonable compensation to any Owner at
any time that members' equity is either less than $5,000,000
or would be reduced to below that amount by reason of such
payment; and
(b) spouses of guarantors shall not be required to execute any
Guaranties referred to in this Section unless, under
applicable law (including, without limitation, the law of
the state in which such guarantors and/or their spouses
reside), their failure to execute would render the
Guaranties null and void.
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<PAGE>
2.B. TERRITORIAL RIGHTS.
------------------
Except as otherwise provided in this Agreement (including, without
limitation, Section 2.D. and Section 3) and provided that FRANCHISE OWNER is in
full compliance with this Agreement, COMPANY and its Affiliates will not during
the term of this Agreement, operate or grant franchises for the operation of
Stores within the Territory other than the Franchise granted to FRANCHISE OWNER
pursuant to this Agreement.
2.C. RIGHTS RETAINED BY COMPANY.
--------------------------
COMPANY (on behalf of itself, its Affiliates and its designees) retains all
rights with respect to UNITS, the Marks, Copyrighted Works (defined below), and
the sale of Products and any other products and services, anywhere in the world,
including, without limitation:
(1) the right to operate or grant others (including any person or
entity related in any manner whatsoever to COMPANY) the right to operate
food service businesses, including, without limitation, UNITS and/or Bagel
Stores, 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 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 FRANCHISE OWNER in Section 2.B. of this
Agreement); and
(2) subject to any rights of FRANCHISE OWNER under Section 3 of this
Agreement, the right, and the right to grant others (including any person
or entity related in any manner whatsoever to COMPANY) the right, to
develop, manufacture, market, distribute and/or sell Products and/or any
other product or service within and/or outside the Territory through any
channel of distribution whatsoever, whether wholesale, retail or otherwise,
including, without limitation, through Special Distribution Arrangements
(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 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 Territory.
2.D. FRANCHISE OWNER'S OPTION TO PURCHASE CONVERSION SITES.
-----------------------------------------------------
If, during the term of this Agreement, COMPANY acquires the shares or
assets (which may include, by way of illustration and not by way of limitation,
furniture, fixtures, equipment, leasehold improvements and/or leasehold
interests) of any business operating a Bagel Store at one or more sites located
within the Territory which meet COMPANY's specifications and standards as in
effect from time to time for conversion to UNITS (the "CONVERSION SITES"), and
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<PAGE>
COMPANY determines to convert such Conversion Sites to Stores, COMPANY agrees to
offer to sell such Conversion Sites to FRANCHISE OWNER for the price paid
therefor by COMPANY. Such price will include that portion of the direct and
indirect costs and liabilities incurred or assumed by COMPANY in making such
acquisition and allocated to such Conversion Sites whether paid or owed to the
seller of such Conversion Sites, an Affiliate or any other party, and other
expenses allocated or otherwise related to such Conversion Sites (including
losses, whether from continuing operations or closing acquired locations) plus
interest at COMPANY's cost of money on the balance of such amounts from time to
time, provided that:
(1) such sale will not in COMPANY's judgment conflict with any
existing legal obligation of COMPANY or the business being acquired; and
(2) such sale will not in COMPANY's judgment preclude the completion
of the acquisition on the terms agreed to by COMPANY; and
(3) such sale will not, in COMPANY's judgment, interfere with any
other legal agreement, arrangement or combination or affect federal or
state income tax consequences arising from the acquisition in a manner
adverse to any of the parties thereto; and
(4) such sale may, at COMPANY's discretion, include (at a price
determined on the same basis as for Conversion Sites) certain acquired
stores which fall within the Territory but which do not meet COMPANY's
criteria for conversion to UNITS and which may have to be closed or sold to
a third party subsequent to FRANCHISE OWNER's acquisition; and
(5) FRANCHISE OWNER agrees to (a) execute, concurrently with
FRANCHISE OWNER's purchase, COMPANY's then current form of standard
franchise agreement containing COMPANY's then current fees and expense
requirements and such ancillary documents (including guarantees) as are
then customarily used by COMPANY in the grant of franchises for UNITS, as
modified for use in connection with a Conversion Site as necessary, for
each and every such Conversion Site, (b) convert each such Conversion Site
to 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.
FRANCHISE OWNER shall have thirty (30) days after receipt of COMPANY's offer in
which to accept or reject such offer by written notice to COMPANY. If accepted,
FRANCHISE OWNER shall have 30 days from the date of acceptance within which to
complete the acquisition.
In the event FRANCHISE OWNER rejects or fails to timely accept COMPANY's
offer to sell such Conversion Sites or COMPANY is unable to extend such offer
for any of the aforementioned reasons, COMPANY agrees that, provided that
FRANCHISE OWNER is in full compliance with this Agreement, it will not utilize
or license the use of the Principal Marks at
11
<PAGE>
such Conversion Sites for a period of one (1) year following COMPANY's
acquisition thereof; provided, however, that COMPANY may operate, alter, modify,
refurbish, remodel, promote or market any such Conversion Sites and use the
Licensed Program and Computer System in the operation thereof during such one
(1) year period. For purposes of this Section, all references to COMPANY shall
be deemed to include its Affiliates.
COMPANY agrees to use reasonable efforts to obtain input (including market
and competitive information) from FRANCHISE OWNER in connection with the due
diligence process undertaken by COMPANY in any potential acquisition of
Conversion Sites in a particular Sub-Area during the applicable Sub-Area Term.
3. OTHER DISTRIBUTION METHODS.
--------------------------
3.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
to operate Special Distribution Arrangements within or outside the Territory
pursuant to this Agreement; and (2) the right to operate or grant to others the
right to operate Special Distribution Arrangements is specifically reserved to
COMPANY or its designees. If COMPANY, at any time and in its sole discretion,
determines to offer FRANCHISE OWNER the right to operate a Special Distribution
Arrangement at a Special Distribution Location designated by COMPANY, COMPANY
will so notify FRANCHISE OWNER by delivering to FRANCHISE OWNER a form of
Special Distribution Agreement. FRANCHISE OWNER will have fifteen (15) days
after its receipt thereof to execute and deliver to COMPANY such executed
Special Distribution Agreement. If FRANCHISE OWNER fails to execute and deliver
to COMPANY the executed Special Distribution Agreement within such fifteen (15)
day period or commence such Special Distribution Arrangement within the period
specified therein, then FRANCHISE OWNER shall have no right to operate such
Special Distribution Arrangement thereafter. COMPANY reserves the right under
the Special Distribution Agreement, at any time and in its sole discretion with
or without cause and regardless of the investment made by FRANCHISE OWNER in
establishing or operating the Special Distribution Arrangement or the length of
time the Special Distribution Arrangement has been in effect, to suspend or
terminate FRANCHISE OWNER's right to operate the Special Distribution
Arrangement, effective ninety (90) days after COMPANY's written notice to
FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY agrees that, if during the Development
Term it intends to engage in a Special Distribution Arrangement at or from (a) a
military facility, (b) an entertainment or sporting facility or event, (c) an
airport, bus or train station, (d) a toll road or limited access highway
facility or (e) any specialty kiosk located in or adjacent to any similar
facilities, located within the Territory, COMPANY will offer FRANCHISE OWNER a
Special Distribution Agreement, the execution of which shall be governed by this
Section 3.A.
12
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3.B. DELIVERY SERVICE.
----------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
within or outside the Territory to offer Delivery Service from the Store or
otherwise pursuant to this Agreement; and (2) the right to provide Delivery
Service is specifically reserved to COMPANY or its designees. If COMPANY, at
any time and in its sole discretion, determines to offer Delivery Service in a
designated Delivery Area in which the Store is located, COMPANY will offer to
FRANCHISE OWNER, or to DEVELOPER pursuant to the Development Agreement, the
right to offer Delivery Service by delivering to FRANCHISE OWNER (or DEVELOPER)
a form of Delivery Rider to this Agreement (or a Delivery Rider to the
Development Agreement). FRANCHISE OWNER (or DEVELOPER) will have fifteen (15)
days after its (or DEVELOPER's) receipt thereof to execute and deliver to
COMPANY such executed Delivery Rider. If FRANCHISE OWNER (or DEVELOPER) fails
to execute and deliver such executed Delivery Rider to COMPANY within such
fifteen (15) day period or to commence Delivery Service within the specified
period, then FRANCHISE OWNER (or DEVELOPER) shall have no right to provide
Delivery Service at the Store thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where the Store is located (as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area) shall offer Delivery Service, COMPANY will notify FRANCHISE
OWNER (or DEVELOPER) and will deliver to FRANCHISE OWNER (or DEVELOPER) a
Delivery Rider to this Agreement (or the Development Agreement) which FRANCHISE
OWNER (or DEVELOPER) shall execute and deliver to COMPANY within fifteen (15)
days after its receipt.
COMPANY reserves the right under the Delivery Service Rider, at any time
and in its sole discretion, with or without cause and regardless of the
investment made by FRANCHISE OWNER (or DEVELOPER) in establishing and conducting
Delivery Service or the length of time FRANCHISE OWNER (or DEVELOPER) has
offered Delivery Service: (1) to reduce, modify or expand the Delivery Area,
effective upon COMPANY's written notice to FRANCHISE OWNER, provided, however,
that if a reduction or modification of the Delivery Area amounts to a
termination of substantially all of FRANCHISE OWNER's rights to provide such
services (except in the case of the exercise by COMPANY of its remedies under
Section 18.C of this Agreement), such reduction or modification shall not be
effective until 90 days after COMPANY's written notice to FRANCHISE OWNER; or
(2) to suspend or terminate FRANCHISE OWNER's (or DEVELOPER's) right to offer
Delivery Service, effective ninety (90) days after COMPANY's written notice to
FRANCHISE OWNER (or DEVELOPER); and COMPANY may otherwise terminate FRANCHISE
OWNER's (or DEVELOPER's) right to offer Delivery Service pursuant to the terms
of the Delivery Rider. In the event that COMPANY suspends or terminates
FRANCHISE OWNER's (or DEVELOPER's) right to offer Delivery Service, COMPANY
reserves the right to require FRANCHISE OWNER (or DEVELOPER) to reinstate
Delivery Service upon fifteen (15) days' prior written notice to FRANCHISE OWNER
(or DEVELOPER).
13
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3.C. CATERING SERVICE.
----------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
within or outside the Territory to offer Catering Service from the Store or
otherwise pursuant to this Agreement; and (2) the right to provide Catering
Service is specifically reserved to COMPANY or its designees. If COMPANY, at
any time and in its sole discretion, determines to offer Catering Service in a
designated Catering Area in which the Store is located, COMPANY will offer
FRANCHISE OWNER, or to DEVELOPER pursuant to the Development Agreement the right
to offer Catering Service by delivering to FRANCHISE OWNER (or DEVELOPER) a form
of Catering Rider to this Agreement (or to the Development Agreement).
FRANCHISE OWNER (or DEVELOPER) will have fifteen (15) days after its (or
DEVELOPER's) receipt thereof to execute and deliver to COMPANY the executed
Catering Rider. If FRANCHISE OWNER (or DEVELOPER) fails to execute and deliver
such executed Catering Rider to COMPANY within such fifteen (15) day period or
commence Catering Service within the specified period, then FRANCHISE OWNER (or
DEVELOPER) shall have no right to provide Catering Service within the designated
Catering Area thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where a Store is located (as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area), shall offer Catering Service, COMPANY will notify FRANCHISE
OWNER (or DEVELOPER) and will deliver to FRANCHISE OWNER (or DEVELOPER) a
Catering Rider to this Agreement (or to the Development Agreement) which
FRANCHISE OWNER (or DEVELOPER) shall execute and return to COMPANY within
fifteen (15) days after its receipt. COMPANY reserves the right under the
Catering Rider, at any time and in its sole discretion, with or without cause
and regardless of the investment made by FRANCHISE OWNER (or DEVELOPER) in
establishing and conducting Catering Service or the length of time FRANCHISE
OWNER (or DEVELOPER) has offered Catering Service: (1) to reduce, modify or
expand the Catering Area, effective upon COMPANY's written notice to FRANCHISE
OWNER, provided, however, that if a reduction or modification of the Catering
Area amounts to a termination of substantially all of FRANCHISE OWNER's rights
to provide such services (except in the case of the exercise by COMPANY of its
remedies under Section 18.C of this Agreement), such reduction or modification
shall not be effective until 90 days after COMPANY's written notice to FRANCHISE
OWNER; or (2) to suspend or terminate FRANCHISE OWNER's (or DEVELOPER's) right
to offer Catering Service, effective ninety (90) days after COMPANY's written
notice to FRANCHISE OWNER (or DEVELOPER) (in which case FRANCHISE OWNER (or
DEVELOPER) will not fill any orders for Catering Service after the expiration of
such ninety (90) day period); and COMPANY may otherwise terminate FRANCHISE
OWNER's (or DEVELOPER's) right to offer Catering Service pursuant to the terms
of the Catering Rider. In the event that COMPANY terminates or suspends
FRANCHISE OWNER's (or DEVELOPER's) right to offer Catering Service, COMPANY
reserves the right to require FRANCHISE OWNER (or DEVELOPER) to reinstate
Catering Service upon fifteen (15) days' prior written notice to FRANCHISE
OWNER (or DEVELOPER).
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4. DEVELOPMENT AND OPENING OF THE STORE.
------------------------------------
4.A. SITE SELECTION AND LEASE.
------------------------
Prior to execution of this Agreement, FRANCHISE OWNER shall have obtained
COMPANY's approval of and the legal right of possession of the Site in
accordance with the terms of the Development Agreement.
4.B. STORE DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.
--------------------------------------------------
COMPANY will furnish to FRANCHISE OWNER specifications of COMPANY's
requirements for design, decoration, layout, equipment, furnishings, fixtures
and signs for the Store and the Trade Dress and operating procedures associated
therewith (the "DESIGN SPECIFICATIONS"). FRANCHISE OWNER acknowledges and
agrees that the Design Specifications, which include Trade Dress, are an
integral part of the System and that the Store will be designed and constructed
in accordance with the Design Specifications. FRANCHISE OWNER will cause to be
prepared and submitted to COMPANY for approval the preliminary layout for the
Store (if not already submitted to and approved by COMPANY) and detailed
construction plans and specifications and space plans for the Store (the
"CONSTRUCTION PLANS") that comply with the Design Specifications and all
applicable ordinances, building codes, permit requirements, and lease
requirements and restrictions.
4.C. DEVELOPMENT OF THE STORE.
------------------------
Within one hundred twenty (120) days after the date of execution of this
Agreement, FRANCHISE OWNER agrees at its expense to do or cause to be done the
following:
(1) secure all financing required to fully develop the Store in
accordance with this Section; and
(2) submit the Construction Plans and preliminary layout to COMPANY
for approval; and
(3) obtain all required zoning changes, planning consents, building,
utility, sign, health, sanitation and business permits, licenses and
approvals and any other required permits and licenses; and
(4) construct all required improvements in compliance with
Construction Plans approved by COMPANY; and
(5) decorate and lay out the Store in compliance with Design
Specifications and plans and specifications approved by COMPANY; and
(6) (a) acquire the Computer System for the Store and acquire the
right to use, for the remainder of the term of the Franchise Agreement
applicable to the Store, the Specified Software in the manner specified by
COMPANY; (b) obtain any and all
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peripheral equipment and accessories and arrange for any and all support
services that may be necessary to enable the Computer System, the Licensed
Program, and the Specified Software to operate as specified by COMPANY, and
(c) take all other actions (including but not limited to installation of
electrical wiring and cabling, and temperature and humidity controls) that
may be necessary to prepare the Store to enable the Computer System, the
Licensed Program, and the Specified Software to operate as specified by
COMPANY; and
(7) purchase or lease and install all required equipment, vehicles,
furnishings, fixtures and signs; and
(8) purchase an adequate opening inventory of Products, and Supplies
and Materials (defined below); and
(9) obtain all customary contractors' sworn statements and partial
and final waivers of lien for construction, remodelling, decorating and
installation services; and
(10) open the Store for business and thereafter operate the Store on a
regular and continuing basis for the term hereof.
4.D. EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS.
------------------------------------------
FRANCHISE OWNER agrees to use in the development and operation of the Store
only those brands, types and/or models of equipment, vehicles, signs displaying
the Marks, fixtures and furnishings which meet COMPANY's specifications.
FRANCHISE OWNER may purchase approved brands, types and/or models of equipment,
fixtures and signs which meet the COMPANY's specifications only from suppliers
designated or approved by COMPANY, which may include COMPANY. At FRANCHISE
OWNER's request, COMPANY will from time to time supply FRANCHISE OWNER with a
list of suppliers who sell items which meet COMPANY's specifications.
4.E. COMPUTER SYSTEM.
---------------
FRANCHISE OWNER agrees to use in the development and operation of the Store
only those brands, types, makes, and/or models of communications and computer
systems or hardware which COMPANY has from time to time specified or required
for the Computer System. FRANCHISE OWNER also agrees to use in the development
and operation of the Store only the Specified Software and the Licensed Program,
as comprised from time to time in accordance with the specifications and
requirements of COMPANY.
4.F. STORE OPENING.
-------------
FRANCHISE OWNER agrees not to open the Store for business until:
16
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(1) COMPANY notifies FRANCHISE OWNER in writing that all of FRANCHISE
OWNER's obligations pursuant to Paragraphs A, B, C and D of this Section 4
have been fulfilled; and
(2) preopening training of Store personnel has been completed to
COMPANY's satisfaction; and
(3) all amounts then due to COMPANY and its Affiliates have been paid
and all required Guaranties are executed and delivered to COMPANY; and
(4) COMPANY has been furnished with copies of all insurance policies
required pursuant to this Agreement, or such other evidence of insurance
coverage and payment of premiums as COMPANY requests.
FRANCHISE OWNER agrees to comply with these conditions and to be prepared to
open the Store for business within one hundred twenty (120) days after the date
of this Agreement. COMPANY's determination that FRANCHISE OWNER has met all of
COMPANY's pre-opening requirements shall not constitute a waiver of non-
compliance by FRANCHISE OWNER or of COMPANY's right to demand full compliance
with such requirements. FRANCHISE OWNER further agrees to open the Store for
business and commence conduct of business at the Store pursuant to this
Agreement within five (5) days after COMPANY gives notice to FRANCHISE OWNER
stating that the Store is ready for opening.
4.G. GRAND OPENING PROGRAM.
---------------------
FRANCHISE OWNER agrees to conduct a grand opening advertising and
promotional program for the Store during the period commencing thirty (30) days
prior to, and ending ninety (90) days after, the opening of the Store and to
expend no less than Ten Thousand Dollars ($10,000.00) on such advertising and
promotion during such period. Such advertising and promotional program shall:
(1) be in addition to advertising and promotion conducted pursuant to
Section 13 of this Agreement; and
(2) utilize marketing and public relations programs and media and
advertising materials approved by COMPANY; and
(3) be conducted in accordance with COMPANY's specifications and
standards and pursuant to a grand opening plan which FRANCHISE OWNER shall
prepare and submit to COMPANY for approval at least forty-five (45) days
prior to the opening date of the Store. If FRANCHISE OWNER does not
prepare a grand opening program and obtain COMPANY's approval of such plan,
COMPANY may prepare the grand opening plan for the Store.
COMPANY may, in its discretion, reduce the amount of required spending for the
grand opening program, reduce the time period during which the grand opening
program shall be
17
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conducted, and/or direct that a portion of such funds be re-directed to a Local
Ad Fund established pursuant to Section 13.B of this Agreement; provided that
(a) COMPANY reasonably determines that the Marketing Area in which the Store is
opened has been sufficiently covered by the opening of other UNITS, and (b)
COMPANY is acting comparably with respect to its own UNITS in similar
situations.
4.H. RELOCATION OF THE STORE.
-----------------------
If FRANCHISE OWNER's lease or sublease for the Site of the Store expires or
terminates without fault of FRANCHISE OWNER, if the Site is destroyed, condemned
or other wise rendered unusable as a UNIT in accordance with this Agreement, or
if, in the judgment of COMPANY and FRANCHISE OWNER, there is a change in the
character of the location of the Site sufficiently detrimental to its business
potential to warrant its relocation, COMPANY will not unreasonably withhold
permission for relocation of the Store to a site within the Territory which
meets COMPANY's then-current site criteria, subject to the rights of existing
Franchisees under their franchise agreements with COMPANY. Any such relocation
shall be at FRANCHISE OWNER's sole expense. FRANCHISE OWNER shall seek and
obtain COMPANY's approval of the replacement site pursuant to COMPANY's then
current site approval process, and the Store shall re-open at the replacement
Site as soon as reasonably practicable but in no event more than ninety (90)
days after the closing of the original location.
4.I. FINANCING PLAN.
--------------
Within ten (10) days after the execution of this Agreement, FRANCHISE OWNER
must submit a written plan for FRANCHISE OWNER's funding of the development and
operation of the Store, which plan shall be reasonably acceptable to COMPANY and
which shall include details of the sources and terms of such funding and such
other information or documents required by COMPANY from time to time. FRANCHISE
OWNER may not begin development of the Store until COMPANY has given its
approval of such plan, which approval COMPANY may give or withhold in its sole
discretion. Among other factors, COMPANY may consider FRANCHISE OWNER's
debt/equity ratio and amount of indebtedness in reviewing such plan. Once a
plan is approved by COMPANY, FRANCHISE OWNER must execute and adhere to the
plan. Any proposed material deviation from or modifications to the originally
approved plan must be submitted to COMPANY for prior approval.
5. TRAINING AND GUIDANCE.
---------------------
5.A. TRAINING.
--------
Prior to the commencement of the operation of the Store, the manager of the
Store (the "STORE MANAGER") and one (1) other management level employee (the
"ADDITIONAL MANAGER"), appointed by FRANCHISE OWNER in accordance with this
Agreement and identified in Section 4 of Exhibit E, must attend and complete to
---------
COMPANY's satisfaction a COMPANY accredited and certified initial management
training program in the operation of a UNIT. Such training program may include
classroom training, instruction at designated facilities and hands-on training
in an operating UNIT. DEVELOPER's Training Director shall provide such training
18
<PAGE>
program at DEVELOPER's training facilities in accordance with COMPANY's
requirements therefor, provided that DEVELOPER's Training Director is currently
certified to provide such training program under the terms of the Development
Agreement. In addition, whether DEVELOPER or COMPANY is providing such
training, COMPANY may, in its sole discretion as it deems necessary, require the
Store Manager and/or the Additional Manager to work full-time without
compensation by COMPANY and at FRANCHISE OWNER's expense for up to ten (10)
weeks at a UNIT selected by COMPANY.
COMPANY may, in its sole discretion as it deems necessary, require the
Store Manager, Additional Manager or assistant managers of the Store or
FRANCHISE OWNER to attend or to participate in updated, additional or refresher
training programs during the term of this Agreement. COMPANY also may charge
for updated, additional or refresher training materials supplied to FRANCHISE
OWNER or its personnel.
In the event the certified Store Manager and/or the certified Additional
Manager ceases to hold such position at the Store, FRANCHISE OWNER shall have
thirty (30) days in which to appoint a substitute or replacement Store Manager
and/or Additional Manager, who must attend and complete to COMPANY's
satisfaction the initial management training program as specified above promptly
after appointment. If COMPANY in its sole discretion determines that the Store
Manager or Additional Manager or any subsequently appointed Store Manager or
Additional Manager has failed to satisfactorily complete the initial management
training program or any additional or refresher training program, FRANCHISE
OWNER shall immediately hire a substitute Store Manager or Additional Manager
and promptly arrange for such person to complete the initial management training
program to the satisfaction of COMPANY.
FRANCHISE OWNER shall be responsible for the travel, living and other
expenses (including, without limitation, local transportation expenses) and
compensation of FRANCHISE OWNER, the Store Manager, the Additional Manager,
assistant managers, and any other agents or employees of FRANCHISE OWNER
incurred in connection with attendance at training programs or work at UNITS
that is part of their training.
5.B. GUIDANCE AND ASSISTANCE.
-----------------------
COMPANY shall, in its sole discretion, furnish guidance to FRANCHISE OWNER
with respect to:
(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
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<PAGE>
(5) establishing and conducting employee training programs at the
Store; and
(6) opening the Store.
Such guidance shall, in the discretion of COMPANY, be furnished in the form of
COMPANY's Manuals (defined below in this Section), bulletins, video or audio
cassette tapes, computer diskettes, written materials, reports and
recommendations, other materials and intangibles, refresher training programs
and/or telephonic consultations or consultations at the offices of COMPANY or at
the Store. If special training of Store personnel or other assistance in
operating the Store is requested by FRANCHISE OWNER and COMPANY determines in
its sole discretion that such training or assistance or assistance should take
place at the Store, all expenses for such training or assistance shall be paid
by FRANCHISE OWNER, including, without limitation, COMPANY's per diem charges
and travel and living expenses for COMPANY personnel.
5.C. STORE MANUALS.
-------------
COMPANY shall loan to FRANCHISE OWNER, for its sole use, one (1) copy of a
set of COMPANY's confidential manuals relating to the development and operation
of 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 FRANCHISE OWNER with respect to the type of UNIT
developed pursuant to this Agreement), whether by way of supplements,
replacement pages, franchise bulletins, or other official pronouncements or
means (collectively the "STORE MANU ALS"). The Store Manuals may be modified
from time to time at COMPANY's sole discretion to reflect changes in the System
or specifications, standards, policies and procedures for UNITS, to specify
brands, types and/or models of equipment which must be used by FRANCHISE OWNER
in the operation of the Store, and to specify changes in the decor, format,
image, Products, services and operations of Stores prescribed by COMPANY or such
other changes or additions as COMPANY deems necessary or advisable. FRANCHISE
OWNER shall keep its copy of the Store Manuals current by immediately inserting
all modified pages or materials furnished by COMPANY. In the event of a dispute
about the contents of the Store Manuals, the master copies maintained by COMPANY
at its principal office shall be controlling. FRANCHISE OWNER acknowledges that
the Store Manuals are part of the Confidential Information and will be used and
protected accordingly. FRANCHISE OWNER acknowledges and agrees that the content
of the Store Manuals, as modified from time to time, is incorporated herein by
reference and that FRANCHISE OWNER will comply with all procedures, standards,
specifications and requirements specified therein as though each such item were
set forth in detail in this Agreement.
20
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6. MARKS.
-----
6.A. GOODWILL AND RIGHTS TO USE THE MARKS.
------------------------------------
FRANCHISE OWNER acknowledges that FRANCHISE OWNER's right to use the Marks,
as described in this Agreement, is derived solely from this Agreement and is
limited to the development and operation of the Store by FRANCHISE OWNER
pursuant to and in compliance with this Agreement and all applicable standards,
specifications, and operating procedures prescribed by COMPANY from time to
time during the term of the Franchise. FRANCHISE OWNER 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 FRANCHISE OWNER 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
licensor(s). FRANCHISE OWNER acknowledges and agrees that all usage of the
Marks by FRANCHISE OWNER and any goodwill established thereby shall inure to the
exclusive benefit of COMPANY or its licensor(s) as applicable, and that this
Agreement does not confer any goodwill or other interests in the Marks upon
FRANCHISE OWNER, other than the right to use the Principal Marks and the other
Marks associated with the Principal Marks in the operation of the Store in
compliance with this Agreement. All provisions of this Agreement applicable to
the Marks shall apply to any other trademarks, service marks, commercial symbols
and trade dress hereafter authorized, in writing (including by inclusion in any
trademark usage or similar guide or manual issued to franchise owners by
COMPANY), for use by and licensed to FRANCHISE OWNER by COMPANY.
6.B. LIMITATIONS ON FRANCHISE OWNER'S USE OF MARKS.
---------------------------------------------
FRANCHISE OWNER agrees to use the Principal Marks and the other Marks
associated with the Principal Marks as the sole trade identification of the
Store and the Products, provided that FRANCHISE OWNER shall identify itself as
the independent owner and licensee of the Store in the manner prescribed by
COMPANY. FRANCHISE OWNER shall not use any Mark as part of any corporate name
or other name of FRANCHISE OWNER or with any prefix, suffix, or other modifying
words, terms, designs, or symbols, or in any modified form, nor may FRANCHISE
OWNER use any Mark in connection with the performance or sale of any
unauthorized services or products or in any other manner not expressly
authorized in writing by COMPANY. FRANCHISE OWNER agrees to display the Marks
licensed hereunder prominently in the manner prescribed by COMPANY at the Store
and in connection with advertising and marketing materials. FRANCHISE OWNER
agrees to give such notices of trademark and service mark registrations as
COMPANY specifies and to obtain such business name registrations as may be
required under applicable law.
6.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
FRANCHISE OWNER shall immediately notify COMPANY of any apparent
infringement of or challenge to FRANCHISE OWNER's use of any Mark, or claim by
any person of any rights in any Mark. FRANCHISE OWNER shall not communicate
with any
21
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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(s), 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 U.S.
Patent and Trademark Office or other proceeding arising out of any such alleged
infringement, challenge or claim or otherwise relating to any Mark. FRANCHISE
OWNER agrees to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of COMPANY's
counsel, be necessary or advisable to protect and maintain the interests of
COMPANY in any litigation or other proceeding or to otherwise protect and
maintain the interests of COMPANY in the Marks. COMPANY will reimburse
FRANCHISE OWNER for the reasonable out-of-pocket expenses incurred and paid by
FRANCHISE OWNER in complying with the requirements imposed by this Section;
provided, however, that if any action taken by COMPANY results in any monetary
recovery for FRANCHISE OWNER (by way of counterclaim or otherwise) which exceeds
FRANCHISE OWNER's costs, then FRANCHISE OWNER must pay its own costs and share
pro rata in COMPANY's costs therefor up to the amount of FRANCHISE OWNER's share
of such recovery.
6.D. DISCONTINUANCE OF USE OF MARKS.
------------------------------
If it becomes advisable at any time in COMPANY's sole judgment, or pursuant
to any agreement between COMPANY and a licensor of any of the Marks, for the
Store to modify or discontinue use of any Mark and/or for the Store to use one
or more additional or substitute trademarks or service marks or an additional or
substitute type of trade dress, FRANCHISE OWNER agrees to immediately comply
with COMPANY's directions to modify or otherwise discontinue the use of such
Mark, and/or to use one or more additional or substitute trademarks, service
marks, logos or commercial symbols or additional or substitute trade dress after
notice thereof by COMPANY. Neither COMPANY nor its Affiliates shall have any
obligation to reimburse FRANCHISE OWNER for any expenditures made by FRANCHISE
OWNER to modify or discontinue the use of a Mark or to adopt additional or
substitute marks for discontinued Marks, including, without limitation, any
expenditures relating to advertising or promotional materials or to compensate
FRANCHISE OWNER for any goodwill related to the discontinued Mark.
6.E. INDEMNIFICATION OF FRANCHISE OWNER
----------------------------------
COMPANY agrees to indemnify FRANCHISE OWNER against and to reimburse
FRANCHISE OWNER for all damages for which FRANCHISE OWNER is held liable in any
claim, action or proceeding brought by any person or entity claiming to have
trademark or other rights to any of the Marks licensed hereunder or any name or
trademark similar thereto arising out of FRANCHISE OWNER's authorized use of the
Marks, pursuant to and in compliance with this Agreement, and for all costs
reasonably incurred by FRANCHISE OWNER in the defense of any such claim brought
against FRANCHISE OWNER or in any proceeding in which FRANCHISE OWNER is named
as a party, provided that FRANCHISE OWNER has timely notified COMPANY of such
claim or proceeding, has given COMPANY sole control of the defense and
settlement of any such claim, has otherwise complied with the requirements of
this
22
<PAGE>
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.
6.F. NON-DENIGRATION.
---------------
If COMPANY authorizes FRANCHISE OWNER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, FRANCHISE
OWNER 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.
6.G. MARKING REQUIREMENTS.
--------------------
If COMPANY authorizes FRANCHISE OWNER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, FRANCHISE
OWNER 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 FRANCHISE OWNER uses the Albert Einstein Indicia, the word EINSTEIN
Alone or the Albert Einstein Publicity Symbols hereunder in connection with a
television or radio advertisement, FRANCHISE OWNER shall cause such legend or
words to appear on the leader.
7. COPYRIGHTS.
----------
7.A. OWNERSHIP OF COPYRIGHTED WORKS.
------------------------------
FRANCHISE OWNER and COMPANY acknowledge and agree (1) that COMPANY may
authorize FRANCHISE OWNER to use certain copyrighted or copyrightable works (the
"COPYRIGHTED WORKS"), (2) that the Copyrighted Works are the valuable property
of COMPANY or its Affiliates or, as applicable, their licensors and (3) that the
FRANCHISE OWNER's rights to use the Copyrighted Works are granted to FRANCHISE
OWNER solely on the condition that FRANCHISE OWNER complies with the terms of
this Section. FRANCHISE OWNER acknowledges and agrees that COMPANY owns or is
the licensee of the owner of the Copyrighted Works and may further create,
acquire or obtain licenses for certain copyrights in various works of authorship
used in connection with the operation of UNITS, including, but not limited to,
all categories of works eligible for protection under the United States
copyright law, all of which shall be deemed to be Copyrighted Works under this
Agreement. Such Copyrighted Works include, but are not limited to, the Store
Manuals, advertisements, promotional materials, labels, menus, posters, coupons,
gift certificates, signs and store designs, plans and specifications and may
include all or part of the Marks, Licensed
23
<PAGE>
Program, Trade Dress and other portions of the System. FRANCHISE OWNER
acknowledges that this Agreement does not confer any interest in the Copyrighted
Works upon FRANCHISE OWNER, other than the right to use them in the operation of
the Store in compliance with this Agreement. If COMPANY authorizes FRANCHISE
OWNER to prepare any adaptation, translation or work derived from the
Copyrighted Works, or if FRANCHISE OWNER prepares any Copyrighted Works such as
menus, advertisements, posters or promotional material, FRANCHISE OWNER hereby
agrees that such adaptation, translation, derivative work or Copyrighted Work
shall be the property of COMPANY, and FRANCHISE OWNER hereby assigns all its
right, title and interest therein to COMPANY (or such other person identified by
COMPANY). FRANCHISE OWNER agrees to execute any documents, in recordable form,
which COMPANY determines are necessary to reflect such ownership. FRANCHISE
OWNER shall submit all such adaptations, translations, derivative works and
Copyrighted Works to COMPANY for approval prior to use.
7.B. LIMITATION ON FRANCHISE OWNER'S USE OF COPYRIGHTED WORKS.
--------------------------------------------------------
FRANCHISE OWNER acknowledges that FRANCHISE OWNER's right to use the
Copyrighted Works, as described in this Agreement, is derived solely from this
Agreement and is limited to the use of such Copyrighted Works pursuant to and in
compliance with this Agreement and all applicable standards, specifications, and
operating procedures prescribed by COMPANY from time to time during the term of
this Agreement. FRANCHISE OWNER shall ensure that all Copyrighted Works used
hereunder shall bear an appropriate copyright notice under the Universal
Copyright Convention or other copyright laws prescribed by COMPANY specifying
that COMPANY or an Affiliate of COMPANY is the owner of the copyrights therein.
Any unauthorized use, adaptation, publication, reproduction, preparation of
derivative works, distribution of copies (whether by sale or other transfer of
ownership, or by rental, lease or lending), or attempts to recreate all or a
portion of such Copyrighted Works shall constitute a breach of this Agreement
and an infringement of the rights of COMPANY in and to the Copyrighted Works.
7.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
FRANCHISE OWNER shall immediately notify COMPANY of any actual or apparent
infringement of or challenge to any of the Copyrighted Works, or claim by any
person of any rights in the Copyrighted Works. FRANCHISE OWNER shall not
communicate with any person other than COMPANY and its counsel in connection
with any such infringement, challenge or claims. COMPANY shall have the sole
discretion to take such action as it deems appropriate in connection with the
foregoing, and the right to control exclusively any settlement, litigation,
arbitration or administrative proceeding arising out of any such alleged
infringement, challenge or claim or otherwise relating to the Copyrighted Works.
FRANCHISE OWNER agrees to execute any and all instruments and documents, render
such assistance, and do such acts and things as may, in the opinion of COMPANY's
counsel, be necessary or advisable to protect and maintain the interests of
COMPANY in any litigation or other proceeding or to otherwise protect and
maintain the interests of COMPANY in the Copyrighted Works. COMPANY will
reimburse FRANCHISE OWNER for the reasonable out-of-pocket expenses
24
<PAGE>
incurred and paid by FRANCHISE OWNER in complying with the requirements imposed
by this Paragraph provided, however, that if any action taken by COMPANY results
in any monetary recovery for FRANCHISE OWNER (by way of counterclaim or
otherwise) which exceeds FRANCHISE OWNER's costs, then FRANCHISE OWNER must pay
its own costs and share pro rata in COMPANY's costs therefor up to the amount of
FRANCHISE OWNER's share of such recovery.
7.D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS.
------------------------------------------
If it becomes advisable at any time in COMPANY's sole judgment for
FRANCHISE OWNER to modify or discontinue use of any of the Copyrighted Works
and/or for FRANCHISE OWNER to use one or more additional or substitute
copyrighted or copyrightable items, FRANCHISE OWNER agrees to immediately comply
with COMPANY's directions to modify or otherwise discontinue the use of the
Copyrighted Works and/or to use any substitute materials specified by COMPANY.
Neither COMPANY nor its Affiliates shall have any obligation to reimburse
FRANCHISE OWNER for any expenditures made by FRANCHISE OWNER to modify or
discontinue the use of any Copyrighted Work or to adopt additional or substitute
copyrighted or copyrightable items.
8. LICENSED PROGRAM AND COMPUTER SYSTEM.
------------------------------------
8.A. GRANT OF LICENSE.
----------------
COMPANY hereby grants to FRANCHISE OWNER a nonexclusive, nontransferable,
nonassignable license to use the Licensed Program, subject to the following
terms and conditions:
(1) The Licensed Program shall be installed and tested on the Computer
System by COMPANY or its designee. If FRANCHISE OWNER does not
purchase the Computer System from COMPANY, FRANCHISE OWNER must pay
COMPANY 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.
FRANCHISE OWNER acknowledges and agrees that COMPANY's current
installation and testing fee of $3,500.00 is reasonable. COMPANY
agrees that the installation and testing fee applicable pursuant to
this Agreement will not exceed $3,500.
(2) Except with the prior written consent of COMPANY, the Licensed Program
(a) shall not be operated by persons other than FRANCHISE OWNER and
employees of FRANCHISE OWNER, (b) shall not be operated on equipment
other than the Computer System, (c) shall be used only in conjunction
with the Specified Software and not with any other computer
applications program, and (d) shall not be operated at locations other
than the Store and the FRANCHISE OWNER's principal office; provided,
however, that with prior notice to COMPANY, FRANCHISE OWNER may
operate the Licensed Program on equipment other than the Computer
System and at a location other than the Store
25
<PAGE>
and the FRANCHISE OWNER's principal office to the extent required due
to malfunction of the Computer System or other cause beyond the
reasonable control of FRANCHISE OWNER, but not for any period longer
than seven (7) consecutive days unless otherwise agreed in writing by
COMPANY.
(3) The Licensed Program shall be used in FRANCHISE OWNER's operation of
the Store and shall not be used for any other purpose.
(4) Without limiting the foregoing, FRANCHISE OWNER shall not, and shall
not allow its employees or agents to: (a) sell, assign, lease,
sublicense, pledge, grant a security interest with respect to, market
or commercially exploit, in any way, the Licensed Program or any
component thereof, or any data generated by the use of the Licensed
Program or any component of the Licensed Program; (b) disclose or
grant access to the Licensed Program, or any data generated by the use
of the Licensed Program or any component of the Licensed Program, to
any third party other than one to whom COMPANY has consented in
writing and who has agreed in writing with COMPANY to keep the
Licensed Program confidential; (c) copy or reproduce the Licensed
Program, or any data generated by the use of the Licensed Program or
any component of the Licensed Program, in any manner, except to the
extent necessary for normal back-up and operating thereof; or (d)
alter, modify or adapt the Licensed Program, any documentation
relating thereto or any component of the Licensed Program, including,
but not limited to, by translating, decompiling, reverse engineering
or disassembling the Licensed Program.
(5) FRANCHISE OWNER acknowledges and agrees that the Licensed Program and
any data generated by the use of the Licensed Program is the valuable,
proprietary property and trade secret of COMPANY or, as applicable,
COMPANY's licensor and FRANCHISE OWNER agrees to use the utmost care
to safeguard the Licensed Program and any data generated by the use of
the Licensed Program and to maintain the copyright protection and the
secrecy and confidentiality thereof. FRANCHISE OWNER shall not
undertake to patent, copyright or otherwise assert proprietary rights
to the Licensed Program and any data generated by the use of the
Licensed Program or any portion thereof. FRANCHISE OWNER recognizes
that all or part of the Licensed Program and any data generated by the
use of the Licensed Program may be copyrighted and agrees that this
shall not be construed as causing the copyrighted material to be
public information. FRANCHISE OWNER will ensure that all copies of
the Licensed Program and any data generated by the use of the Licensed
Program or any components of the Licensed Program in its possession
contain an appropriate copyright notice under the Universal Copyright
Convention or other notice of proprietary rights specified by COMPANY.
(6) FRANCHISE OWNER shall promptly disclose to COMPANY all ideas and
suggestions for modifications or enhancements of the Licensed Program
conceived or developed by or for FRANCHISE OWNER, and COMPANY and its
Affiliates
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shall have the right to use and license such ideas and suggestions.
All modifications and enhancements made to the Licensed Program
together with the copyright therein shall be the property of COMPANY,
without regard to the source of the modification or enhancement, and
FRANCHISE OWNER hereby assigns all of its right, title, and interest
in any ideas, modifications, and enhancements to COMPANY. FRANCHISE
OWNER agrees to execute any document, in recordable form, which
COMPANY determines is necessary to reflect such ownership.
(7) COMPANY 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 FRANCHISE OWNER for the Licensed Program.
(8) COMPANY or its designee shall provide to FRANCHISE OWNER all upgrades,
modifications, improvements, enhancements, extensions and other
changes to the Licensed Program approved by COMPANY for use in
connection with the operation of Stores and FRANCHISE OWNER shall
promptly implement their use.
(9) Upon expiration or termination of this Agreement, FRANCHISE 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.
--------------------
FRANCHISE OWNER agrees to pay to COMPANY or its designee(s) upon
installation of the Licensed Program on FRANCHISE OWNER'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(s) upon installation of the Licensed Program on the
Computer System and is non-refundable in whole or in part.
8.C. SOFTWARE SUPPORT SERVICE.
------------------------
During the term of this Agreement and, provided that FRANCHISE OWNER is in
compliance with the terms of this Agreement, COMPANY or its designee shall
provide to FRANCHISE OWNER such support services as COMPANY deems reasonably
necessary to cause the Licensed Program to perform on the Computer System in
accordance with the standards for the Licensed Program as specified from time to
time by COMPANY, provided, however, that in no event will such support services
be less than COMPANY or its designee
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provides to COMPANY-operated UNITS. Such support services shall not extend to
error corrections, operational support and assistance resulting from FRANCHISE
OWNER's use or operation of software which is not authorized by this Agreement
for use on the Computer System, (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.
8.D. SOFTWARE SUPPORT SERVICE FEE.
----------------------------
For the software support service provided to FRANCHISE OWNER, as described
above, FRANCHISE OWNER agrees to pay to COMPANY 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 FRANCHISE OWNER.
8.E. MODIFICATION, ENHANCEMENT,
AND REPLACEMENT OF COMPUTER SYSTEM,
LICENSED PROGRAM AND SPECIFIED SOFTWARE.
---------------------------------------
FRANCHISE OWNER acknowledges that COMPANY may, during the term of this
Agreement, require FRANCHISE OWNER to modify, enhance and/or replace all or any
part of the Computer System, the Licensed Program and/or the Specified Software
at FRANCHISE OWNER's expense, and agrees, within sixty (60) days of receipt of
notice from COMPANY, to acquire, or acquire the right to use for the remainder
of the term of this Agreement and implement, the modified, enhanced or
replacement version of the Computer System, the Licensed Program and/or the
Specified Software specified by COMPANY and to take any and all other actions as
may be necessary to enable them, as modified, enhanced or replaced, to operate
as specified by COMPANY. Any such modifications, enhancements, and replacements
may require FRANCHISE OWNER to incur costs to purchase, lease and/or license new
or modified computer hardware and/or software or other equipment and to obtain
different and/or additional service and support services during the term of this
Agreement. FRANCHISE OWNER acknowledges that COMPANY cannot estimate the costs
of such future enhancements, modifications, and replacements and that such costs
may not be fully amortizable over the remaining term of the Franchise Agreement.
Nonetheless, FRANCHISE OWNER agrees to incur such costs, where directed by
COMPANY to do so, provided that the COMPANY is then currently specifying the
same enhancements, modifications, and replacements for use in COMPANY-operated
Stores.
8.F. WARRANTIES AND LIMITATION OF LIABILITY.
--------------------------------------
COMPANY represents and warrants to FRANCHISE OWNER that: (1) COMPANY has
the right to license the Licensed Program to FRANCHISE OWNER, as set forth in
this Agreement; and (2) to the best of COMPANY's knowledge the Licensed Program
does not, and as a result of any enhancements, improvements or modifications
provided by COMPANY, will
28
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not, to the best of COMPANY's knowledge, infringe upon any United States patent,
copyright or other proprietary right of any third party. In the event FRANCHISE
OWNER's use of the Licensed Program as required by COMPANY is enjoined as a
result of a claim by a third party of patent or copyright infringement or
violation of proprietary rights, COMPANY shall, in its sole discretion, either
(i) procure for FRANCHISE OWNER the right to continue use of the Licensed
Program as contemplated hereunder, or (ii) replace the Licensed Program or
modify it such that there is no infringement of the third party's rights. Such
action by COMPANY shall be FRANCHISE OWNER's sole and exclusive remedy against
COMPANY in such event.
Neither COMPANY nor its designee represents or warrants to FRANCHISE OWNER,
and expressly disclaims any warranty, that the Licensed Program is error-free or
that the operation and use of the Licensed Program by FRANCHISE OWNER will be
uninterrupted or error-free. Neither COMPANY nor its designee shall have any
obligation or liability for any expense or loss incurred by FRANCHISE OWNER
arising from use of the Licensed Program in conjunction with any other computer
program not authorized by COMPANY.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, COMPANY 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.
----------------------------------------------
FRANCHISE OWNER acknowledges that the Licensed Program contains third-party
components and subcomponents which COMPANY has the authority to license to
FRANCHISE OWNER as part of the Licensed Program pursuant to and in accordance
with software license agreements with third-party vendors (collectively, the
"Component Licenses"). In addition, FRANCHISE OWNER acknowledges that
acquisitions by FRANCHISE OWNER of all or portions of the Computer System and
the Specified Software from or through the COMPANY are governed by license or
other agreements by and between third-party vendors and COMPANY, which
agreements specifically permit COMPANY to sell and/or sublicense all or portions
of the Computer System and the Specified Software to FRANCHISE OWNER or
specifically require FRANCHISE OWNER to agree to be bound by the terms thereof
(either type of license hereinafter referred to as the "Third Party Licenses").
FRANCHISE OWNER therefore hereby agrees to be bound by the terms of each
Component License and each relevant Third Party License, in each case as if
FRANCHISE OWNER was a party thereto, and agrees that the vendors and licensors
of all or portions of the Specified Software and the Computer System and the
licensors of all or portions of the Licensed Program (collectively, the
"Vendors") are third-party beneficiaries of this Agreement with full rights to
enforce their respective rights under this Section 8 of this Agreement.
FRANCHISE OWNER further agrees to indemnify and hold harmless COMPANY and each
of the Vendors from and against all costs, expenses, and damages arising out of
or based upon any breach or claim of a breach of this Agreement, the
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Third Party Licenses or Component Licenses by FRANCHISE OWNER, its directors,
officers, employees, agents and owners.
9. CONFIDENTIAL INFORMATION
------------------------
COMPANY or its licensors, as applicable, possess and may further develop
and acquire certain confidential and proprietary information and trade secrets
including, but not limited to, the following categories of information, methods,
techniques, procedures and knowledge developed or to be developed by COMPANY,
its consultants or contractors, its Affiliates or its designees, and/or
franchise owners and developers (the "CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications), standards, policies, procedures, information, concepts and
systems relating to and knowledge of and experience in the development,
operation and franchising of UNITS; and
(2) marketing and promotional programs for UNITS; and
(3) knowledge concerning the logic, structure and operation of
computer software programs which COMPANY authorizes for use in connection
with the operation of UNITS (including, without limitation, the Licensed
Program) and all additions, modifications and enhancements thereof, and all
data generated from use of such programs and the logic, structure and
operation of the data base file structures containing such data and all
additions, modifications and enhancements thereof; and
(4) sales data and information concerning consumer preferences and
inventory requirements for Products, materials and supplies, and
specifications for and knowledge of suppliers of certain materials,
equipment and fixtures for UNITS; and
(5) ingredients, formulas, mixes, spices, seasonings, recipes for, and
methods of preparation, baking, cooking, freezing, serving, packaging,
catering and delivery of, Products and other items sold at UNITS; and
(6) information concerning customers, customer lists, Product sales,
operating results, financial performance and other financial data of UNITS;
and
(7) the Store Manuals and the Development Manual (defined in the
Development Agreement); and
(8) employee selection procedures, training and staffing levels.
COMPANY will disclose to FRANCHISE OWNER such parts of the Confidential
Information as COMPANY deems necessary or advisable from time to time in its
sole discretion for the operation of a Store during training, and in guidance
and assistance furnished to FRANCHISE OWNER during the term of the Franchise,
and FRANCHISE OWNER may learn or otherwise obtain from COMPANY and its
Affiliates and other licensors of components or
30
<PAGE>
elements of the System, other developers and other franchise owners additional
Confidential Information of COMPANY during the term of the Franchise. FRANCHISE
OWNER acknowledges and agrees that neither FRANCHISE OWNER nor any other person
or entity will acquire by or through FRANCHISE OWNER any interest in or right to
use the Confidential Information other than the FRANCHISE OWNER's right to
utilize it in the operation of the Store pursuant to this Agreement, and that
the use or duplication of the Confidential Information in any other business
would constitute an unfair method of competition with COMPANY and other UNIT
developers and franchise owners. FRANCHISE OWNER agrees to disclose the
Confidential Information to its Owners and to employees of the Store only to the
extent reasonably necessary for the operation of the Store and only if such
individuals have agreed to maintain such information in confidence in an
agreement enforceable by COMPANY.
FRANCHISE OWNER acknowledges and agrees that the Confidential Information
is confidential to and a valuable asset of COMPANY or its licensors, if
applicable, is proprietary, includes trade secrets of COMPANY, and is disclosed
to FRANCHISE OWNER solely on the condition that FRANCHISE OWNER, its Owners and
its employees who have access to the Confidential Information agree, and
FRANCHISE OWNER does hereby agree, that, during and after the term of this
Agreement, FRANCHISE OWNER, its Owners and such employees:
(a) will not use the Confidential Information in any other business or
capacity (unless in the case of the Licensed Program, separately licensed
by the owner thereof); and
(b) will maintain the absolute secrecy and confidentiality of the
Confidential Information; and
(c) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written or other tangible form; and
(d) will adopt and implement all reasonable procedures prescribed from
time to time by COMPANY to prevent unauthorized use or disclosure of or
access to the Confidential Information, including, without limitation,
requiring employees and Owners who will have access to such information to
execute non-competition and confidentiality agreements in the form attached
hereto as Exhibit H (the "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT").
---------
FRANCHISE OWNER shall provide COMPANY, at its request, executed originals
of each such Confidentiality and Non-Competition Agreement.
Notwithstanding the foregoing and any other provision of this Agreement,
FRANCHISE OWNER may use the Confidential Information in connection with the
operation of other UNITS (in addition to the Store) pursuant to other franchise
agreements with COMPANY.
Notwithstanding anything to the contrary contained in this Agreement and
provided FRANCHISE OWNER shall have obtained COMPANY's prior written consent,
the restrictions on FRANCHISE OWNER's disclosure and use of the Confidential
Information shall not apply to the following:
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(i) information, methods, procedures, techniques and knowledge which
are or become generally known in the food service business in the
Territory, other than through disclosure (whether deliberate or
inadvertent) by FRANCHISE OWNER or any other party having an obligation of
confidentiality to COMPANY; and
(ii) the disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that FRANCHISE OWNER is legally
compelled to disclose such information, provided FRANCHISE OWNER has
notified COMPANY prior to disclosure and shall have used its best efforts
to obtain, and shall have afforded COMPANY the opportunity to obtain, an
appropriate protective order or other assurance satisfactory to COMPANY of
confidential treatment for the information required to be so disclosed.
FRANCHISE OWNER agrees to disclose to COMPANY all ideas, concepts, methods,
techniques and products conceived or developed by FRANCHISE OWNER, its
affiliates, Owners or employees during the term of this Agreement relating to
the development and operation of UNITS, provided that FRANCHISE OWNER will not
be obligated to make such disclosures if doing so would violate any contractual
obligations of FRANCHISE OWNER (or DEVELOPER, if applicable) which:
(A) arose prior to DEVELOPER's execution of the Development Agreement
(or, if there is no Development Agreement, then which arose prior to
FRANCHISE OWNER's execution of this Agreement); and
(B) DEVELOPER disclosed to COMPANY in writing prior to or upon
execution of the Development Agreement.
FRANCHISE OWNER hereby grants to COMPANY and agrees to procure from its
Affiliates, Owners or employees a perpetual, non-exclusive, and worldwide right
to use any such ideas, concepts, methods, techniques and products in all food
service businesses operated by COMPANY or its Affiliates, franchisees and
designees. COMPANY shall have no obligation to make any lump sum or on-going
payments to FRANCHISE OWNER with respect to any such ideas, concepts, methods,
techniques or products. FRANCHISE OWNER agrees that FRANCHISE OWNER will not
use nor will it allow any other person or entity to use any such concept,
method, technique or product without obtaining COMPANY's prior written approval.
10. EXCLUSIVE RELATIONSHIP.
----------------------
FRANCHISE OWNER acknowledges and agrees that COMPANY would be unable to
protect the Confidential Information against unauthorized use or disclosure and
would be unable to encourage a free exchange of ideas and information among
franchise owners and developers of UNITS if franchise owners, developers and
their Principal Owners (and members of their Immediate Families) were permitted
to engage in, hold interests in or perform services for Competitive Businesses.
FRANCHISE OWNER further acknowledges and agrees that the restrictions contained
in this Section 10 will not hinder its activities or the activities of its
Principal Owners (or member of their Immediate Families) under this Agreement or
in general.
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COMPANY has entered into this Agreement with FRANCHISE OWNER on the express
condition that, with respect to the operation of food service businesses that
sell Products, FRANCHISE OWNER and its Principal Owners and members of their
respective Immediate Families will deal exclusively with COMPANY. FRANCHISE
OWNER therefore agrees that during the term of this Agreement, neither FRANCHISE
OWNER nor any Principal Owner of FRANCHISE OWNER, nor any member of the
Immediate Family of FRANCHISE OWNER or of any Principal Owner, shall directly or
indirectly:
(a) have any interest as a record or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market and quoted on a national inter-dealer
quotation system that represent less than three percent (3%) of the number
of shares of that class of securities issued and outstanding);
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business.
FRANCHISE OWNER also agrees that, during the term of this Agreement, neither
FRANCHISE OWNER nor any Principal Owner of FRANCHISE OWNER, nor any member of
the Immediate Family of FRANCHISE OWNER or a Principal Owner shall directly or
indirectly employ or seek to employ any person who is employed by COMPANY, its
Affiliates or by any other developer or franchise owner of UNITS, nor induce any
such person to leave said employment without the prior written consent of such
person's employer.
Furthermore, if FRANCHISE OWNER is a corporation, limited liability company
or partnership, it will not engage in any business or other activity, directly
or indirectly, other than the development and operation of the Store and other
UNITS developed and operated pursuant to other agreements with COMPANY.
FRANCHISE OWNER acknowledges and agrees that the failure of any person or
entity restricted pursuant to this Section 10 to comply with the restrictions of
this Section 10 (regardless of whether that person or entity actually has
executed this Agreement or a Confidentiality and Non-Competition Agreement)
shall constitute a breach of this Agreement.
The restrictions of this Section 10 shall not be construed to prohibit
FRANCHISE OWNER, any Principal Owner of FRANCHISE OWNER, or any member of the
Immediate Family of FRANCHISE OWNER or its Principal Owners from having a direct
or indirect ownership interest in any UNIT, development agreements or franchise
agreements for the development or operation of UNITS, or any entity owning,
controlling or operating UNITS, or from providing services to any such UNITS
pursuant to other agreements with COMPANY. Furthermore, the restrictions of
this Section 10 shall not prohibit FRANCHISE OWNER, any Principal Owner, or any
member of the Immediate Family of FRANCHISE OWNER or a Principal Owner (to the
extent any such person is an individual) from performing services for
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or having an ownership interest in a Permitted Competitive Business, or from
conducting customary promotion and advertising of a Permitted Competitive
Business. Such person(s) and business(es), if any, are identified in Exhibit D
---------
attached to this Agreement.
11. FEES.
----
11.A. INITIAL FRANCHISE FEE.
---------------------
FRANCHISE OWNER agrees to pay to COMPANY upon execution of this Agreement
an initial franchise fee (the "INITIAL FRANCHISE FEE") in the amount of Thirty-
Five Thousand Dollars ($35,000.00). The Initial Franchise Fee (and any deposits
applicable thereto under the Development Agreement) shall be fully earned by
COMPANY upon the earlier of payment thereof or execution of this Agreement. The
Initial Franchise Fee is non-refundable in whole or in part and is paid to
compensate COMPANY for various services provided to FRANCHISE OWNER prior to the
opening of the Store, including but not limited to providing initial training,
furnishing standard store equipment lists, furnishing standard plans and
specifications for the Store and inspecting the Store prior to opening. The
Initial Franchise Fee is not compensation for the use of the Marks or the
Copyrighted Works.
11.B. ROYALTY FEE.
-----------
FRANCHISE OWNER agrees to pay to COMPANY a continuing royalty fee (the
"ROYALTY FEE") in an amount equal to eight percent (8%) of the Store's Royalty
Base Revenue (as defined in Paragraph C of this Section). The Royalty Fee shall
be payable to COMPANY on or before the twentieth (20th) day of each Accounting
Period based on the Store's Royalty Base Revenue for the immediately preceding
Accounting Period. The Royalty Fee is paid, in part, to compensate COMPANY for
various services provided to FRANCHISE OWNER after the Store opens, including,
but not limited to, maintenance of and access to COMPANY's store design database
developed by COMPANY's store design department, and quality, service, and
cleanliness inspections. COMPANY, upon written notice to FRANCHISE OWNER shall
have the right to change the timing of FRANCHISE OWNER's payments of Royalty
Fees and Marketing Contributions (as defined below) due under this Agreement,
provided that COMPANY shall make such payments due no more frequently than twice
each Accounting Period. FRANCHISE OWNER shall not subordinate to any other
obligation its obligation to pay the Royalty Fee or any other fee or charge
hereunder. Each payment of Royalty Fees shall be accompanied by a report, in a
form approved by COMPANY, reflecting the calculation of the amount of the
Royalty Fee remitted, the amount of Local Expenditures (defined below) for the
period covered as well as such other information as COMPANY requires from time
to time (a "Royalty Reporting Form").
11.C. DEFINITION OF "ROYALTY BASE REVENUE".
-----------------------------------
As used in this Agreement, the term "ROYALTY BASE REVENUE" shall mean and
include the gross revenue from all sales of Products and all other products and
services sold or performed by or for FRANCHISE OWNER or the Store in, at, from,
or away from the Store, or through or by means of the business conducted
pursuant to this Agreement, whether for cash
34
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or credit, including any assumed gross revenue calculated for the purpose of an
insurance claim for lost profits to the extent such claim is paid by the
insurer, but excluding: (1) all sales or service taxes collected from customers
and paid or payable to the appropriate taxing authority; (2) all customer
refunds, valid discounts and coupons, and credits made by the Store (such
exclusions shall not include any reductions for credit card user fees, returned
checks or reserves for bad credit or doubtful accounts); (3) any portion of
employee meals for which FRANCHISE OWNER does not charge the employee; and (4)
any monies received by the Store from other UNITS as a result of and directly
attributable to any approved Commissary operated out of the Store.
11.D. INTEREST ON LATE PAYMENTS.
-------------------------
All fees and other amounts which FRANCHISE OWNER owes to COMPANY or its
Affiliates, shall bear interest after due date for the number of days which such
payment is overdue at a rate equal to the lesser of: (1) eighteen percent (18%)
per annum; or (2) the highest legal rate permitted by applicable law. FRANCHISE
OWNER acknowledges that this Paragraph shall not constitute COMPANY's agreement
to accept such payments after same are due or a commitment by COMPANY to extend
credit to, or otherwise finance FRANCHISE OWNER's operation of the Store.
Further, FRANCHISE OWNER acknowledges that failure to pay all such amounts when
due shall, notwithstanding the provisions of this Paragraph, constitute grounds
for termination of this Agreement, as provided in this Agreement.
11.E. APPLICATION OF PAYMENTS.
-----------------------
Notwithstanding any designation by FRANCHISE OWNER, COMPANY shall have sole
discretion to apply any payments received from FRANCHISE OWNER or any
indebtedness of COMPANY to FRANCHISE OWNER, to any past due indebtedness, of
whatever nature, of FRANCHISE OWNER to COMPANY or its Affiliates.
11.F. ELECTRONIC FUNDS TRANSFER.
-------------------------
COMPANY reserves the right to require FRANCHISE OWNER to remit fees and
other amounts due to COMPANY hereunder via electronic funds transfer or other
similar means utilizing the Computer System or otherwise. If COMPANY notifies
FRANCHISE OWNER to use such payment method, FRANCHISE OWNER agrees to comply
with procedures specified by COMPANY and/or perform such acts and deliver and
execute such documents, including authorization (in the form attached hereto as
Exhibit I or such other form as COMPANY shall accept) for direct debits from
- ---------
FRANCHISE OWNER's business bank operating account, as may be necessary to assist
in or accomplish payment by such method. Under this procedure FRANCHISE OWNER
shall authorize COMPANY to initiate debit entries and/or credit correction
entries to a designated checking or savings account for payments of fees and
other amounts payable to COMPANY and its Affiliates and any interest charges due
thereon. FRANCHISE OWNER shall make the funds available to COMPANY for
withdrawal by electronic transfer no later than the due date for payment
therefor. If FRANCHISE OWNER has not timely reported the Store's Royalty Base
Revenue to COMPANY for any reporting period, then COMPANY shall be authorized,
at COMPANY's option, to debit FRANCHISE
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OWNER's account in an amount equal to (a) the fees transferred from FRANCHISE
OWNER's account for the last reporting period for which a report of the Store's
Royalty Base Revenue was provided to COMPANY as required hereunder or (b) the
amount due based on information retrieved from the Computer System.
12. STORE IMAGE AND OPERATION.
-------------------------
12.A. CONDITION AND APPEARANCE OF THE STORE.
-------------------------------------
FRANCHISE OWNER agrees that:
(1) neither the Store nor the Site will be used for any purpose other
than the operation of a UNIT in full compliance with this Agreement; and
(2) FRANCHISE OWNER will maintain the condition and appearance of the
Store, its equipment, furnishings, fixtures, signs and vehicles in
accordance with the specifications and standards of COMPANY and consistent
with the image of a Store as a first-class, clean, sanitary, attractive and
efficiently operated food service business; and
(3) FRANCHISE OWNER will perform such maintenance (including, without
limitation, maintenance procedures and routines which COMPANY prescribes
from time to time) with respect to the decor, equipment, fixtures,
furnishings, vehicles, and signs of the Store and the Site, as may be
required or directed by COMPANY from time to time to maintain such
condition, appearance, and efficient operation, including, without
limitation:
(a) continuous and thorough cleaning and sanitation of the
interior and exterior of the Store; and
(b) thorough repainting and redecorating of the interior and
exterior of the Store and/or the Site at reasonable intervals; and
(c) interior and exterior repair of the Store and/or the Site; and
(d) repair or replacement of damaged, worn out or obsolete
furnishings, equipment, vehicles, fixtures and signs; and
(4) FRANCHISE OWNER will not make any material alterations to the
Site, or to the appearance of the Store as originally developed, without
the prior approval of COMPANY; and
(5) subject to approval by COMPANY of plans, layouts and designs,
FRANCHISE OWNER will remodel, expand, redecorate, re-equip and refurnish
the Site and the Store at reasonable intervals determined by COMPANY to
reflect changes in the appearance and operation of Stores prescribed by
COMPANY and required of new franchise owners, provided that:
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<PAGE>
(a) COMPANY has initiated a program to begin such changes with
respect to other Stores operated within the Marketing Area, to the
extent COMPANY has the contractual right to require any such Stores to
do so; and
(b) FRANCHISE OWNER shall have a reasonable time period remaining
in the term of this Agreement (not less than five (5) years) to
amortize the costs of such improvements, or equipment (excluding the
Computer System, Licensed Program and/or Specified Software),
vehicles, fixtures and furnishings;
it being understood and agreed by FRANCHISE OWNER that the provision of
Delivery Service from the Store and/or Catering Service from a Catering
Facility, if authorized or required by COMPANY, may require FRANCHISE OWNER
to incur additional costs to obtain equipment, vehicles, fixtures,
furnishings and furniture and improve the Store to provide such services in
accordance with COMPANY's standards and specifications therefor; and
(6) FRANCHISE OWNER will place or display at the Store (interior and
exterior) only such signs, emblems, lettering, logos, and display and
advertising materials that are from time to time approved by COMPANY.
In addition to any other remedies available to COMPANY, if FRANCHISE OWNER
does not maintain the condition and appearance of the Store as herein required,
COMPANY may, upon not less than ten (10) days' written notice (or, in cases of
health or sanitation hazards or other public endangerment, as determined by
COMPANY, in its sole discretion, immediately on oral or written notice) to
FRANCHISE OWNER:
(i) arrange for the necessary cleaning or sanitation, repair,
remodeling, upgrading, painting or decorating; or
(ii) replace, as necessary, fixtures, furnishings, equipment,
vehicles, or signs.
FRANCHISE OWNER shall pay the entire cost thereof on or before the fifth (5th)
day following the receipt of a bill for such work from COMPANY.
12.B. STORE MENU AND SERVICES.
-----------------------
FRANCHISE OWNER agrees that the Store shall (1) offer for sale all Products
and all promotional and related items (for example, T-shirts, cups, mugs, caps,
hats and similar items) as may be directed by COMPANY from time to time (and no
other products) and (2) provide only the following services (and no other
services): (a) the carry-out service and on-premises dining that COMPANY
authorizes and requires, (b) the Delivery Service that COMPANY, in its sole
discretion, may authorize and/or require from time to time for the Store
pursuant to a Delivery Rider and (c) the Catering Service that COMPANY in its
sole discretion may authorize and/or require from time to time to provide from
the Store (or a Catering Facility) pursuant to a Catering Rider, all in
accordance with COMPANY's specifications, standards and procedures. FRANCHISE
OWNER agrees that the Store shall not under any circumstances offer for sale or
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sell any products or services at or from the Store which have not been approved
by COMPANY prior to such offer or sale. FRANCHISE OWNER also acknowledges and
agrees that the preparation and packaging of Products for purposes of carry-out
service, on-premises dining, Delivery Service and Catering Service is important
to the image of the System, and that, therefore, FRANCHISE OWNER shall not sell
any Products that have not been prepared and packaged in accordance with
COMPANY's specifications, standards and procedures prescribed in the Store
Manuals or otherwise in writing. FRANCHISE OWNER also acknowledges and agrees
that if COMPANY requires the Store to offer new or substitute products or
services not currently offered at Stores, FRANCHISE OWNER agrees to offer such
services and/or products in compliance with COMPANY's specifications, standards
and procedures and to diligently pursue obtaining any permits and take such
actions (including, without limitation, constructing improvements and acquiring
fixtures, furnishings, equipment, supplies and materials) required to offer such
products and/or services. FRANCHISE OWNER acknowledges and understands that
such modifications to the services and/or products to be offered by the Store
may require FRANCHISE OWNER to incur additional costs and expenses to operate
the Store, including, without limitation, the purchase and/or lease of
additional or substitute furnishings, furniture, fixtures, vehicles or equipment
for Catering Service and/or Delivery Service, and FRANCHISE OWNER agrees to
incur such expenses in connection therewith.
FRANCHISE OWNER acknowledges that COMPANY may conduct quality, service,
cleanliness, and other inspections of the Store from time to time without notice
to FRANCHISE OWNER to determine compliance with this Agreement and the standards
and specifications applied by COMPANY from time to time and that performance
meeting COMPANY's standards in such inspections is required hereunder. COMPANY
also may designate an independent evaluation service to conduct a "mystery
shopper" quality control and evaluation program with respect to COMPANY-owned
and/or franchised Stores. FRANCHISE OWNER agrees that the Store will
participate in such mystery shopper program, as prescribed and required by
COMPANY, provided that COMPANY-owned and franchised Stores also will participate
in such program to the extent COMPANY has the right to require such
participation. FRANCHISE OWNER agrees to timely pay the then-current charges
imposed by such evaluation service for the Store's participation in such
program.
12.C. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS.
---------------------------------------------
The reputation and goodwill of all UNITS are based upon, and can only be
maintained by, the sale of distinctive, high-quality Products, and the
presentation, packaging and service of Products in an efficient and appealing
manner. COMPANY has developed and shall continue to develop certain proprietary
food products which will be prepared by or for COMPANY according to COMPANY's
proprietary recipes and formulas. COMPANY also has developed and may continue
to develop standards and specifications for bagels and other food products,
ingredients, spreads, seasonings, spices, mixes, teas, coffees and other
beverages, materials and supplies incorporated in or used in the preparation,
freezing, baking, cooking, serving, packaging, catering and delivery of prepared
food products authorized for sale at or from UNITS.
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COMPANY has approved and shall review and continue to approve suppliers and
distributors of the foregoing products, supplies and materials that meet its
standards and requirements including, without limitation, standards and
requirements relating to quality, quantity and portions, prices, volume
capability, frequency of delivery, distribution methods and locations, standards
of service, including prompt attention to complaints, consistency, reliability,
financial capability, labor and customer relations and other criteria.
FRANCHISE OWNER agrees that the Store shall:
(1) purchase those Products which are COMPANY's private label food
products, materials, supplies and proprietary food products developed by or
for COMPANY or its Affiliates whether or not pursuant to a special recipe
or formula or bearing the Marks (collectively "PROPRIETARY ITEMS") only
from COMPANY or designees required and licensed by COMPANY to manufacture,
prepare, distribute and/or sell such products;
(2) purchase only from distributors and suppliers approved or required
by COMPANY all other goods and items authorized to be sold in the Store,
and other materials and supplies used in the preparation, freezing, baking,
cooking, serving, packaging, delivery and catering of Products and
equipment, menus, forms, paper and plastic products, packaging or other
materials (collectively "SUPPLIES AND MATERIALS"); and
(3) purchase only from distributors and suppliers approved or required
by COMPANY all Products other than Proprietary Items ("NON-PROPRIETARY
PRODUCTS").
COMPANY may, in its sole discretion, designate which Products constitute
Proprietary Items, and which of such Proprietary Items: (a) are required to be
purchased from COMPANY or its designated suppliers; or (b) may be produced
and/or prepared at the Store. COMPANY may from time to time modify the list of
approved or required suppliers and distributors, and may designate itself or an
Affiliate as a required manufacturer, supplier and/or distributor of certain
equipment, products, materials, supplies or other items. FRANCHISE OWNER shall
not, after receipt in writing of such modification, reorder any product from any
supplier or distributor that is no longer approved. COMPANY may approve or
require a single distributor or supplier for any products, materials or supplies
and may approve or require a distributor or supplier only as to certain
products, materials and supplies, and such approval may be temporary pending a
further evaluation of such distributor or supplier by COMPANY. COMPANY may
concentrate purchases with one or more distributors or suppliers to obtain lower
prices and/or advertising support and/or services for the benefit of the System
and/or UNITS. COMPANY may establish COMPANY or Affiliate-owned and operated food
commissaries and distribution facilities which COMPANY may designate as an
approved or required distributor or supplier.
FRANCHISE OWNER shall notify COMPANY and submit to COMPANY such informa
tion, specifications and samples as COMPANY requests if the FRANCHISE OWNER
proposes to purchase any Products or Supplies and Materials from a distributor
or supplier whom COMPANY has disapproved or not previously approved. COMPANY
shall use its reasonable best efforts to notify FRANCHISE OWNER within one
hundred twenty (120) days after receipt
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of all requested information and materials whether FRANCHISE OWNER is authorized
to purchase such products from such distributor or supplier. If FRANCHISE OWNER
fails to receive a notice of approval or disapproval within such one hundred
twenty (120) day period, FRANCHISE OWNER may not purchase such products from
such distributor or supplier. COMPANY may require FRANCHISE OWNER to reimburse
COMPANY for its reasonable costs incurred in connection with the evaluation,
inspection and supervision of such distributor or supplier.
FRANCHISE OWNER shall at all times maintain an adequate inventory of
approved food and paper products, beverages, ingredients and other products
sufficient in quality and variety to realize the full potential of the Store.
FRANCHISE OWNER acknowledges and agrees that COMPANY may, in its sole
discretion, collect and retain all allowances, benefits, credits, monies,
payments or rebates (collectively "PROMOTIONAL ALLOWANCES") offered to FRANCHISE
OWNER or COMPANY or its Affiliates by manufacturers, suppliers and distributors
for promotional or advertising purposes based upon FRANCHISE OWNER's purchases
of Proprietary Items, Supplies and Materials and Non-Proprietary Products.
FRANCHISE OWNER assigns to COMPANY or its designee all of FRANCHISE OWNER's
right, title and interest in and to any and all such Promotional Allowances and
authorizes COMPANY or its designee to collect any such Promotional Allowances
for remission to: (a) the Marketing Fund (defined below) to the extent based on
FRANCHISE OWNER's purchase of Non-Proprietary Products and Supplies and
Materials, except as provided in clause (b) following; and (b) the general
operating funds of COMPANY to the extent based on FRANCHISE OWNER's purchases of
Proprietary Items, regardless of where purchased, as well as Non-Proprietary
Products and Supplies and Materials purchased from COMPANY or its Affiliates.
FRANCHISE OWNER acknowledges and agrees that under no circumstances will COMPANY
or its Affiliates be required to contribute to the Marketing Fund any revenue
made or collected by COMPANY or its Affiliates from sales to or purchases by
FRANCHISE OWNER of any goods or services.
12.D. SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
FRANCHISE OWNER acknowledges that the operation of the Store in strict
compliance with COMPANY's high standards is important to COMPANY and other UNITS
and FRANCHISE OWNER agrees to maintain such high standards in the operation of
the Store. The Store and all Products used and offered for sale at the Store
shall at all times be maintained in a safe and sanitary condition. FRANCHISE
OWNER agrees to comply strictly with all of COMPANY's mandatory specifications,
standards and operating procedures relating to the appearance, function,
cleanliness, days and hours of operation (days and hours of operation may vary
somewhat among UNITS based on COMPANY's reasonable judgment of the requirements
of the Store's trade area and whether COMPANY has approved any special services
to be offered at or from a site), and operation of the Store, 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
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(2) sales and marketing procedures and customer service; and
(3) advertising and promotional programs; and
(4) layout, decor and color scheme of the Store; and
(5) recruitment, selection, training, appearance and dress of
employees, including, without limitation, use of COMPANY's employee
selection and training materials; and
(6) safety, maintenance, appearance, cleanliness, sanitation,
standards of service and operation of the Store; and
(7) submission of requests for approval of brands of food and
packaging products, supplies and suppliers; and
(8) use and illumination of signs, posters, displays, standard
formats and similar items; and
(9) identification of FRANCHISE OWNER as the owner of the Store; and
(10) types of and use of fixtures, furnishings, equipment, computer
hardware and software, vehicles, and signs; and
(11) carry-out, on-premises dining and (if authorized by COMPANY and
agreed to by FRANCHISE OWNER) Delivery Service, Catering Service and
Special Distribution Arrangements; and
(12) required and approved menu items; and
(13) general staffing levels for the Store and number, type and
qualifications of Store personnel; and
(14) participation in market research and test programs required or
approved by COMPANY concerning various aspects of the System, including,
without limitation, procedures, systems, techniques, furnishings, fixtures,
equipment, ingredients, signs, labels, trade dress, logos, packaging,
supplies, marketing materials and strategies, merchandising and new menu
items and services. FRANCHISE OWNER agrees, if requested by COMPANY, to
participate in COMPANY's customer surveys and market research programs.
FRANCHISE OWNER acknowledges and agrees that all mandatory specifications,
standards and operating and inspection procedures prescribed from time to time
by COMPANY in the Store Manuals or otherwise communicated to FRANCHISE OWNER in
writing, shall constitute binding obligations on the part of FRANCHISE OWNER as
if fully set forth herein, and any failure by FRANCHISE OWNER to adhere to such
mandatory specifications, standards and
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operating and inspection procedures or to pass COMPANY's periodic quality
control inspections shall constitute grounds for termination of this Agreement
by COMPANY, as provided for herein. All references herein to this Agreement
shall include all such mandatory specifications, standards, and operating
procedures.
12.E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.
------------------------------------------------
FRANCHISE OWNER shall secure and maintain in force in its name all required
licenses, permits, and certificates relating to the conduct of its business
pursuant to this Agreement. FRANCHISE OWNER shall comply with all applicable
laws, ordinances and regulations, including, without limitation, laws and
governmental regulations relating to the preparation, purchase and handling of
food products, Delivery Service, Catering Service and Special Distribution
Arrangements (if applicable), occupational hazards, health, safety and
sanitation, worker's compensation insurance, unemployment insurance, and
withholding and payment of all taxes. All advertising by FRANCHISE OWNER shall
be approved by COMPANY and be completely factual, in good taste in the judgment
of COMPANY, and shall conform to high standards of ethical advertising.
FRANCHISE OWNER shall in all dealings with its customers, suppliers, COMPANY,
and public officials adhere to high standards of honesty, integrity, fair
dealing and ethical conduct. FRANCHISE OWNER agrees to refrain from any
business or advertising practice which may be injurious to the business of
COMPANY and the goodwill associated with the Marks and other UNITS. FRANCHISE
OWNER shall notify COMPANY in writing:
(1) within three (3) days after the commencement of any action, suit,
proceeding or issuance of any order, writ, injunction, award, or decree of
any court, agency, or other governmental instrumentality, which may
adversely affect the operation or financial condition of FRANCHISE OWNER or
the Store; or
(2) immediately upon the receipt of any notice of violation of any
law, ordinance or regulation relating to health, sanitation or the
operation of the Store.
12.F. MANAGEMENT AND PERSONNEL OF THE STORE.
-------------------------------------
FRANCHISE OWNER (or the persons identified as supervising Owners in Exhibit
-------
E hereto) shall supervise and oversee the operation of the Store. FRANCHISE
- -
OWNER shall employ and maintain at all times during the term of this Agreement
at least one (1) Store Manager and one (1) Additional Manager at the Store. The
Store Manager shall be the full-time manager of the Store and the Additional
Manager shall perform on a full-time basis such other operations for FRANCHISE
OWNER as COMPANY may reasonably specify from time to time and both must
successfully complete to COMPANY's satisfaction a COMPANY certified initial
management training program for the operation of the Store. FRANCHISE OWNER
also shall employ the number of assistant managers and other personnel required
for adequate staffing of the Store, and shall at all times keep COMPANY advised
of the identities of the Store Manager, Additional Manager and assistant
managers. COMPANY shall have the right to deal with the Store Manager,
Additional Manager and assistant managers on matters pertaining to day-to-day
operations of, and reporting requirements for, the Store. The Store at all
times shall be under
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the direct, on-site supervision of the Store Manager, Additional Manager or an
assistant manager who has completed a training program conducted by COMPANY or
DEVELOPER (if applicable) and who has been certified under the terms of the
Development Agreement. FRANCHISE OWNER shall provide the Store Manager with a
compensation program reasonably acceptable to COMPANY designed to provide an
incentive to the Store Manager to use diligent efforts to cause the Store to be
operated in a profitable manner.
FRANCHISE OWNER shall hire all employees of the Store and shall be
exclusively responsible for the terms of their employment and compensation and
for the proper training of such employees in the operation of the Store.
12.G. INSURANCE.
---------
During the term of this Agreement, FRANCHISE OWNER shall maintain in force,
under policies of insurance issued by insurers rated "A-" or better by Alfred M.
Best & Company, Inc. and approved by COMPANY:
(1) such insurance as is necessary to comply with all legal
requirements concerning insurance coverage (including, without limitation,
workers' compensation requirements), and insurance coverage for persons
attending COMPANY training programs on behalf of FRANCHISE OWNER;
(2) commercial general liability insurance (including, but not limited
to, coverage for motor vehicles used in the development and operation of
the Store, whether or not owned by FRANCHISE OWNER), against claims for
bodily and personal injury, death and property damage caused by or
occurring in conjunction with the operation of the Store or otherwise in
conjunction with the conduct of business by FRANCHISE OWNER pursuant to
this Agreement, under one or more policies of insurance containing minimum
liability coverage prescribed by COMPANY from time to time; and
(3) all risk property and casualty insurance for the replacement value
of the Store and its contents (including leasehold improvements,
furnishings, fixtures, equipment, the Computer System, signs, inventory,
supplies, and materials).
COMPANY may periodically increase the amounts of coverage required under
such insurance policies and require different or additional kinds of insurance
at any time, including excess liability insurance, to reflect inflation,
identification of new risks, changes in law or standards of liability, higher
damage awards, or other relevant changes in circumstances. Each insurance
policy shall name COMPANY as an additional named insured, shall contain a waiver
of all subrogation rights against COMPANY, its Affiliates, and their successors
and assigns, and shall provide for thirty (30) days' prior written notice to
COMPANY of any material modification, cancellation, or expiration of such
policy. The maintenance of insurance coverage that meets the minimum
requirements described in this Section and such additional coverages which
FRANCHISE OWNER determines are appropriate for its particular circumstances
shall be the responsibility of FRANCHISE OWNER.
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Upon execution of this Agreement, FRANCHISE OWNER shall provide COMPANY
with evidence of the insurance required under this Agreement. Thereafter, prior
to the expiration of the term of each insurance policy, FRANCHISE OWNER shall
furnish COMPANY with a copy of each renewal or replacement insurance policy to
be maintained by FRANCHISE OWNER for the immediately following term and evidence
of the payment of the premium therefor. If FRANCHISE OWNER fails or refuses to
maintain required insurance coverage, or to furnish satisfactory evidence
thereof and the payment of the premiums therefor, COMPANY, at its option and in
addition to its other rights and remedies under this Agreement, may obtain such
insurance coverage on behalf of FRANCHISE OWNER and FRANCHISE OWNER shall fully
cooperate with COMPANY in its effort to obtain such insurance policies, promptly
execute all forms or instruments required to obtain or maintain any such
insurance, allow any inspections of the Store or vehicles which are required to
obtain or maintain such insurance, and pay to COMPANY, on demand, any costs and
premiums incurred by COMPANY.
FRANCHISE OWNER's obligations to maintain insurance coverage as herein
described shall not be affected in any manner by reason of any separate
insurance maintained by COMPANY, nor shall the maintenance of such insurance
relieve FRANCHISE OWNER of any indemnification obligations under this Agreement.
12.H. CREDIT CARDS AND OTHER METHODS OF PAYMENT.
-----------------------------------------
FRANCHISE OWNER shall at all times have arrangements in existence with a
full range of credit and debit card issuers or sponsors, check verification
services and electronic fund transfer systems as COMPANY designates in its sole
discretion from time to time in order that the Store may accept customers'
credit and debit cards, checks and other methods of payment. FRANCHISE OWNER
shall use only such methods of payment which COMPANY authorizes or approves.
13. ADVERTISING.
-----------
13.A. MARKETING FUND.
--------------
Recognizing the value of advertising and marketing to the goodwill and
public image of UNITS, COMPANY has instituted and FRANCHISE OWNER agrees that
COMPANY or its designee shall maintain and administer a marketing fund (the
"MARKETING FUND") for such advertising, media placement, marketing and public
relations programs, research and related activities as COMPANY, in its sole
discretion, may deem necessary or appropriate to generally promote UNITS and/or
the System. FRANCHISE OWNER shall contribute to the Marketing Fund two percent
(2%) of the Store's Royalty Base Revenue (without credit for any Promotional
Allowances collected by COMPANY and contributed pursuant to Section 12.C.),
payable to COMPANY by separate check or transfer at the same time and in the
same manner as the Royalty Fees due hereunder. UNITS which are owned by COMPANY
or its Affiliates, to the extent COMPANY has the right to require such
Affiliates to do so, shall contribute to the Marketing Fund on the same basis as
FRANCHISE OWNER. COMPANY shall have the right
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to require FRANCHISE OWNER from time to time to increase FRANCHISE OWNER'S
Marketing Fund contributions up to one fourth of one percent (0.25%) per year.
COMPANY shall direct all advertising, media placement, marketing and public
relations programs and activities financed by the Marketing Fund, with sole
discretion over the strategic direction, creative concepts, materials and
endorsements used therein, and the geographic, market, and media placement and
allocation thereof. FRANCHISE OWNER agrees that the Marketing Fund may be used
to pay various costs and expenses, including, by way of example and without
limitation: preparing and producing video, audio and written advertising
materials; interest on borrowed funds; sponsorship of sporting, charitable or
similar events; reasonable salaries and expenses of employees of COMPANY or its
Affiliates working for or on behalf of the Marketing Fund or on advertising,
marketing, public relations materials, programs, or activities or promotions for
the benefit of the Marketing Fund and administrative costs and overhead of
COMPANY or its Affiliates incurred in activities reasonably related to the
administration of the Marketing Fund; administering advertising programs,
including, without limitation, purchasing direct mail and other media
advertising and employing advertising agencies to assist therewith; and
supporting public relations, market and consumer research and other advertising,
promotional and marketing activities, including testing and test marketing
programs, fulfillment charges, and development, implementation and testing of
Trade Dress and design prototypes. FRANCHISE OWNER agrees to participate in all
advertising, marketing, promotions, research and public relations programs
instituted by the Marketing Fund. The Marketing Fund shall furnish FRANCHISE
OWNER with reasonable quantities of marketing, advertising and promotional
formats and sample materials at cost.
The Marketing Fund shall be accounted for separately, but shall not be
required to be segregated, from the other funds of COMPANY and shall not be used
to defray any of COMPANY's general operating expenses, except for such
reasonable salaries, administrative costs and overhead as COMPANY may incur in
activities reasonably related to the administration and activities of the
Marketing Fund and creation or conduct of its marketing programs including,
without limitation, conducting market research, preparing advertising and
marketing materials and collecting and accounting for contributions to the
Marketing Fund. COMPANY may spend in a fiscal year an amount greater or less
than the aggregate contributions of all UNITS to the Marketing Fund in that
year. The Marketing Fund may borrow from COMPANY or other lenders at standard
commercial interest rates to cover deficits of the Marketing Fund or cause the
Marketing Fund to invest any surplus for future use by the Marketing Fund. All
interest earned on monies contributed to the Marketing Fund will be used to pay
costs of the Marketing Fund before other assets of the Marketing Fund are
expended. A summary statement of monies collected and costs incurred by the
Marketing Fund for COMPANY's immediately preceding fiscal year shall be made
available to FRANCHISE OWNER upon FRANCHISE OWNER's written request. COMPANY
will have the right to cause the Marketing Fund to be incorporated or operated
through an entity separate from COMPANY at such time as COMPANY deems
appropriate, and such successor entity shall have all rights and duties of
COMPANY pursuant to this Paragraph A.
Notwithstanding anything in this Agreement to the contrary, under no
circumstances will COMPANY or its Affiliates be required to contribute to the
Marketing Fund any revenue or
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profits (or an portion thereof) made or collected by COMPANY or its Affiliates
from sales to or purchases by FRANCHISE OWNER of any goods or services.
FRANCHISE OWNER understands and acknowledges that the Marketing Fund is
intended to maximize recognition of the Marks, the System and UNITS generally.
Although COMPANY will endeavor to utilize the Marketing Fund to develop
advertising and marketing materials and programs, and to place advertising in
order to benefit all UNITS, COMPANY undertakes no obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to the contributions to the Marketing Fund by UNITS
operating in that geographic area or that any UNIT will benefit directly or in
proportion to its contribution to the Marketing Fund from the development of
advertising and marketing materials or the placement of advertising. COMPANY
may use the Marketing Fund to promote any type of UNIT in the System. FRANCHISE
OWNER acknowledges that its failure to derive any such benefit will not serve as
a basis for a reduction or elimination of its obligation to contribute to the
Marketing Fund. FRANCHISE OWNER further acknowledges and agrees that the
failure (whether with or without COMPANY's permission) of any other franchise
owner to make the appropriate amount of contributions to the Marketing Fund
shall not in any way release FRANCHISE OWNER from or reduce FRANCHISE OWNER's
obligations under this Paragraph A., such obligations being separate and
independent obligations of FRANCHISE OWNER under this Agreement. Except as
expressly provided in this Paragraph A., COMPANY assumes no direct or indirect
liability or obligation to FRANCHISE OWNER with respect to the maintenance,
direction, or administration of the Marketing Fund.
FRANCHISE OWNER understands and acknowledges that the monies it contributes
to the Marketing Fund shall be combined with contributions of other franchise
owners of UNITS, including those franchise owners in the System that may operate
their UNITS under different brand names, Principal Marks or Marks, or with trade
dress and operations that differ from FRANCHISE OWNER'S. Contributions to the
Marketing Fund made by FRANCHISE OWNER may be used to promote UNITS and brands
that differ from the type of UNIT FRANCHISE OWNER operates and the brands
FRANCHISE OWNER uses, and contributions to the Marketing Fund made by franchise
owners who use brands and operate UNITS that differ from FRANCHISE OWNER'S
brands and UNIT may be used to promote the type of UNIT which FRANCHISE OWNER
operates. COMPANY undertakes no obligation to insure that Marketing Fund monies
will be spent to promote Stores in proportion to the Marketing Fund
contributions made by the franchise owners of Stores.
COMPANY reserves the right, in its sole discretion, to suspend
contributions to and operations of the Marketing Fund for such periods that it
determines to be appropriate and to terminate the Marketing Fund upon written
notice to FRANCHISE OWNER. All unspent monies on the date of termination shall
be distributed to COMPANY and franchise owners in proportion to their respective
contributions to the Marketing Fund during the preceding twelve (12) month
period. COMPANY has the right to reinstate the Marketing Fund upon the same
terms and conditions set forth herein upon thirty (30) days' prior written
notice to FRANCHISE OWNER.
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13.B. LOCAL ADVERTISING FUND.
----------------------
FRANCHISE OWNER agrees that, unless otherwise notified by COMPANY, in its
sole discretion, FRANCHISE OWNER shall participate in a local advertising fund
(a "LOCAL AD FUND") comprised of the UNITS (including those owned by COMPANY or
its Affiliates, or other franchise owners, to the extent COMPANY has the right
to require any such Affiliate or franchise owner to do so) located in the same
Marketing Area (subject to the rights of other franchise owners under their
franchise agreements with COMPANY); provided however, that at COMPANY's sole
discretion, the franchisees of one or more types of UNITS in the System may not
be required to contribute to the Local Ad Fund. COMPANY shall establish,
maintain and administer the Local Ad Fund for such advertising, media placement,
marketing and public relations programs and related activities as COMPANY, in
its sole discretion, may deem necessary or appropriate to promote UNITS in the
Marketing Area. FRANCHISE OWNER shall contribute to such Local Ad Fund up to
four percent (4%) of the Store's Royalty Base Revenue as determined by COMPANY
from time to time for each Accounting Period in which it participates in the
Local Ad Fund.
COMPANY shall have the right to require FRANCHISE OWNER from time to time
to increase FRANCHISE OWNER's Local Ad Fund contributions above four percent
(4%) up to one fourth of one percent (0.25%) each year. Amounts paid to such
Local Ad Fund by FRANCHISE OWNER shall be payable to COMPANY by separate check
or transfer at the same time and in the same manner as the Royalty Fees and
Marketing Fund Contributions due under this Agreement. UNITS located in the
same Marketing Area which are owned by COMPANY or its Affiliates, to the extent
COMPANY has the right to require such Affiliates to do so, shall contribute to
such Local Ad Fund on the same basis as franchise owners who are members of such
Local Ad Fund. Notwithstanding the foregoing, FRANCHISE OWNER acknowledges and
agrees that it may be required from time to time to contribute to the Local Ad
Fund an amount greater than that provided for herein to enable the commencement
and combination of "REQUIRED TELEVISION ADVERTISING" (as defined in the
Development Agreement) as required pursuant to the Development Agreement.
COMPANY or its designee shall direct all advertising, media placement,
marketing and public relations programs and activities of the Local Ad Fund,
with sole discretion over the strategic direction, creative concepts, materials
and endorsements used therein, and the geographic, market, and media placement
and allocation thereof within the Marketing Area. FRANCHISE OWNER may consult
with and advise COMPANY concerning activities of the Local Ad Fund. FRANCHISE
OWNER agrees that the Local Ad Fund may be used to pay the costs of: preparing,
adapting and producing video, audio and written advertising materials; interest
on borrowed funds; sponsorship of sporting, charitable or similar events;
reasonable salaries and expenses of employees of COMPANY or its Affiliates
working for or on behalf of the Local Ad Fund or on advertising, marketing,
public relations materials, programs, or activities or promotions for the
benefit of the Local Ad Fund and administrative costs and overhead of COMPANY or
its Affiliates incurred in activities reasonably related to the administration
or activities of the Local Ad Fund; administering advertising programs,
including, without limitation, purchasing direct mail and other media
advertising and employing advertising agencies to assist therewith; and
supporting public relations, market research and other
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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. FRANCHISE OWNER agrees to participate in all
advertising, promotional events and public relations programs instituted by the
Local Ad Fund.
The Local Ad Fund shall be accounted for separately, but shall not be
required to be segregated, from the other funds of COMPANY and shall not be used
to defray any of COMPANY's general operating expenses, except for such
reasonable salaries, administrative costs and overhead as COMPANY may incur in
activities reasonably related to the administration or activities of the Local
Ad Fund and creation or conduct of its marketing programs (including, without
limitation, conducting marketing research, preparing advertising and marketing
materials and collecting and accounting for contributions to the Local Ad Fund).
COMPANY may spend in any fiscal year an amount greater or less than the
aggregate contributions of all UNITS to the Local Ad Fund in that year. The
Local Ad Fund may borrow from COMPANY or other lenders at standard commercial
interest rates to cover deficits of the Local Ad Fund or cause the Local Ad Fund
to invest any surplus for its future use. All interest earned on monies
contributed to the Local Ad Fund will be used to pay costs of the Local Ad Fund
before other assets are expended. A summary statement of monies collected and
costs incurred by the Local Ad Fund for COMPANY's immediately preceding fiscal
year shall be made available to FRANCHISE OWNER upon FRANCHISE OWNER's written
request. COMPANY will have the right to cause the Local Ad Fund to be
incorporated or operated through an entity separate from COMPANY at such time as
COMPANY deems appropriate, and such successor entity shall have all rights and
duties of COMPANY pursuant to this Paragraph B.
FRANCHISE OWNER understands and acknowledges that the Local Ad Fund is
intended to maximize recognition of the Marks and patronage of UNITS in the
Marketing Area. Although COMPANY will endeavor to utilize the Local Ad Fund to
develop advertising and marketing materials and programs, and to place
advertising in order to benefit all UNITS in the Marketing Area, COMPANY
undertakes no obligation to ensure that any UNIT in the Marketing Area will
benefit directly or in proportion to its contribution to the Local Ad Fund from
the development of advertising and marketing materials or the placement of
advertising by the Local Ad Fund. The COMPANY may use the Local Ad Fund to
promote any type of UNIT in the System. FRANCHISE OWNER acknowledges that its
failure to derive any such benefit will not serve as a basis for a reduction or
elimination of its obligation to contribute to the Local Ad Fund. FRANCHISE
OWNER further acknowledges and agrees that the failure (whether with or without
COMPANY's permission) of any other franchise owner to make the appropriate
amount of contributions to the Local Ad Fund shall not in any way release
FRANCHISE OWNER from or reduce FRANCHISE OWNER's obligations under this
Paragraph B., such obligations being separate and independent obligations of
FRANCHISE OWNER under this Agreement. Except as expressly provided in this
Paragraph B., COMPANY assumes no direct or indirect liability or obligation to
FRANCHISE OWNER with respect to the maintenance, direction, or administration of
the Local Ad Fund.
COMPANY reserves the right, in its sole discretion, to suspend
contributions to and operations of the Local Ad Fund for such periods that it
determines to be appropriate and to terminate the Local Ad Fund upon written
notice to FRANCHISE OWNER. All unspent monies
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on the date of termination shall be distributed to COMPANY and franchise owners
in proportion to their respective contributions to the Local Ad Fund during the
preceding twelve (12) month period. COMPANY has the right to reinstate the
Local Ad Fund upon the same terms and conditions set forth herein upon thirty
(30) days' prior written notice to FRANCHISE OWNER. In the event that COMPANY
terminates or suspends operation of the Local Ad Fund, FRANCHISE OWNER shall
spend as Local Expenditures (defined below) at least such percentage of the
Royalty Base Revenue of the Store as shall be equal to the percentage which
could have been required to be paid to the Local Ad Fund under this Paragraph B.
13.C. ADVERTISING BY FRANCHISE OWNER.
------------------------------
During each Accounting Period during the term of this Agreement in which
the Store does not participate in a Local Ad Fund during such Accounting Period,
FRANCHISE OWNER shall conduct local advertising and promotion for the Store.
Expenditures for such required advertising and promotion are referred to herein
as "LOCAL EXPENDITURES". FRANCHISE OWNER shall make Local Expenditures during
each Accounting Period during which the Store does not participate in the Local
Ad Fund of at least such percentage of the Store's Royalty Base Revenue as shall
be equal to the percentage which could have been required to be paid to the
Local Ad Fund under Paragraph B of this Section for such Accounting Period. The
following shall not count as Local Expenditures: (1) moneys spent on classified
telephone directory listings and advertisements, advertising and promotional
expenses required under the lease for the Store and discounts and the redemption
of coupons; and (2) the cost of goods or services supplied without charge.
Amounts spent for local advertising and promotion of the Store shall not be
credited toward FRANCHISE OWNER's Local Expenditures under this Agreement to the
extent that FRANCHISE OWNER is reimbursed for such expenditures by, or such
expenditures are made by, a supplier of the Store.
Prior to their use by FRANCHISE OWNER, samples of all advertising and
promotional materials not prepared or previously approved by COMPANY shall be
submitted to COMPANY for approval, in the form and manner prescribed by COMPANY
from time to time. If approval is not granted by COMPANY within fifteen (15)
days from the date of receipt by COMPANY of such materials, COMPANY shall be
deemed to have disapproved the submitted materials. FRANCHISE OWNER shall not
use any advertising or promotional materials that COMPANY has not approved, has
disapproved or that do not include the copyright registration notices and
trademark registration notices designated by COMPANY. COMPANY, in its sole
discretion, may disapprove on a prospective basis materials that it had
previously approved.
In order to promote efficiency and coordination of advertising of UNITS,
FRANCHISE OWNER shall only utilize advertising agencies designated by COMPANY
for the placement of local advertising with the various media.
14. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
--------------------------------------------
FRANCHISE OWNER shall install and use at the Store the Computer System in
such form as is specified by COMPANY from time to time and transmit to or permit
the electronic collection of information by COMPANY through use of the Computer
System. FRANCHISE
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OWNER, at its own expense, shall establish and maintain at the Store, (i) a
telephone modem and dedicated line or other data transmission medium specified
by COMPANY from time to time that COMPANY may use to access the Computer System,
(ii) full, complete and accurate records and reports and, (iii) if required by
COMPANY, computer diskettes and databases in the form specified by COMPANY
pertaining to the operation of the Store, including, but not limited to, site
reports on the Store prepared by FRANCHISE OWNER and submitted to COMPANY, the
Site Agreement, supervisory reports relating to Store operations, a
bookkeeping, accounting, recordkeeping and records retention system conforming
to the requirements prescribed by COMPANY from time to time (including, without
limitation, requirements for a general ledger system which utilizes the standard
chart of accounts prescribed by COMPANY from time to time and for timely entry
of information into data bases of the Computer System and periodic printouts of
reports generated from the Computer System) and information relating to employee
turnover. Each transaction of the Store shall be processed on the Computer
System in the manner prescribed by COMPANY from time to time. COMPANY shall
have, at all times, the right to access and retrieve information from and data
processed on the Computer System with respect to the Store, and FRANCHISE OWNER
shall take such action as may be necessary to provide such access to COMPANY.
With respect to the operation and financial condition of the Store,
FRANCHISE OWNER shall adopt, until otherwise specified by COMPANY, a fiscal year
consisting of thirteen (13) four-week accounting periods which coincides with
COMPANY's then current fiscal year, as specified by COMPANY and furnish to
COMPANY 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 by means of telephonic, facsimile
or other transmission system);
(4) within thirty (30) days after the end of each quarter of FRANCHISE
OWNER's fiscal year, FRANCHISE OWNER shall submit reports of those income
and expense items of the Store which COMPANY specifies from time to time
for use in any revenue, earnings, and/or cost summary it chooses to furnish
to prospective franchise owners, provided that COMPANY will not identify to
prospective franchise owners any specific financial results of the Store;
and
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(5) within sixty (60) days after the end of FRANCHISE OWNER's fiscal
year, a fiscal year-end balance sheet, an income statement of the Store for
such fiscal year reflecting all year-end adjustments, and a statement of
changes in cash flow of FRANCHISE OWNER, prepared in accordance with
generally accepted accounting principles consistently applied and in the
format prescribed by COMPANY from time to time.
Each report and financial statement submitted by FRANCHISE OWNER to COMPANY or
its designee shall be signed by FRANCHISE OWNER and verified as correct in the
manner prescribed by COMPANY.
FRANCHISE OWNER agrees to maintain and to furnish to COMPANY 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 FRANCHISE OWNER reflecting activities of the Store.
FRANCHISE 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 Franchise Owner under this Agreement,
or the goodwill associated with the Marks and UNITS.
15. INSPECTIONS AND AUDITS.
----------------------
15.A. COMPANY'S RIGHT TO INSPECT THE STORE.
------------------------------------
To determine whether FRANCHISE OWNER and the Store are complying with this
Agreement and with specifications, standards and operating procedures prescribed
by COMPANY for the operation of Stores, 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.
FRANCHISE OWNER agrees to cooperate fully with COMPANY in connection with any
such inspections, observations, photographing and video taping, product removal
and interviews. FRANCHISE OWNER shall present to its customers such evaluation
forms as are periodically prescribed by COMPANY and shall participate and/or
request its customers to participate in any surveys performed by or on behalf of
COMPANY. FRANCHISE OWNER agrees that COMPANY may inspect and monitor
electronically information concerning FRANCHISE OWNER's sales and the Store's
Royalty Base Revenue, and such other information as may be contained or stored
in the Computer System. COMPANY shall have telephone access to FRANCHISE
OWNER's Computer System as provided herein at such times and in such manner as
COMPANY shall from time to time specify.
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15.B. COMPANY'S RIGHT TO AUDIT.
------------------------
COMPANY shall have the right at any time during business hours, and with
reasonable notice to FRANCHISE OWNER, to inspect and audit, or cause to be
inspected and audited, the business records, bookkeeping and accounting records,
computer data bases, value added, sales, use, service, payroll, employee
withholding, worker's compensation, and income tax records and returns, and
other records of the Store and FRANCHISE OWNER and the books and records of
FRANCHISE OWNER if a corporation or partnership. FRANCHISE OWNER shall fully
cooperate with representatives of COMPANY and independent accountants hired by
COMPANY to conduct any such inspection or audit. COMPANY's right to audit shall
also include COMPANY's right to access the Computer System by telephone as
provided in this Agreement. In the event any such inspection or audit shall
disclose an understatement of the Store's Royalty Base Revenue or an
underpayment of any fees due under this Agreement, COMPANY shall be authorized
to initiate immediately a debit to FRANCHISE OWNER's account for in the amount
due plus interest via electronic funds transfer, as described in Section 11.F.
Alternatively, at COMPANY's option, FRANCHISE OWNER shall pay to COMPANY, within
fifteen (15) days after receipt of the inspection or audit report, the fees due
on the amount of such understatement, plus interest (at the rate and on the
terms provided for herein) from the date originally due until the date of
payment. Further, in the event such inspection or audit is made necessary by
the failure of FRANCHISE OWNER to furnish reports, supporting records, other
information or financial statements, as herein required, or to furnish such
reports, records, information or financial statements on a timely basis, or if
an understatement of Royalty Base Revenue for the period of any audit is
determined by any such audit or inspection to be greater than two percent (2%),
FRANCHISE OWNER shall reimburse COMPANY for the cost of such inspection or
audit, including, without limitation, legal fees and accountants' fees, and the
travel expenses, room and board and applicable per diem charges for employees of
COMPANY. The foregoing remedies shall be in addition to all other remedies and
rights of COMPANY hereunder or under applicable law.
16. TRANSFER.
--------
16.A. BY COMPANY.
----------
This Agreement is fully transferable by COMPANY and shall inure to the
benefit of any transferee or other legal successor to the interests of COMPANY
herein.
16.B. NONTRANSFERABILITY OF CERTAIN RIGHTS.
------------------------------------
FRANCHISE OWNER understands, acknowledges and agrees (and hereby represents
and warrants that its Owners understand and agree) that the rights and duties
created by this Agreement are personal to FRANCHISE OWNER and its Owners and
that a material cause for COMPANY's willingness to enter into this Agreement is
its reliance upon the individual or collective character, skill, aptitude,
business ability and financial capacity of FRANCHISE OWNER and its Owners.
Therefore, FRANCHISE OWNER agrees that:
(1) no Ownership Interest in FRANCHISE OWNER; and
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(2) no obligations, rights or interest of FRANCHISE OWNER in (a)
this Agreement, (b) the lease for the premises of the Store, (c) the
Franchise, (d) the Store or (e) the assets of the Store
may be transferred without the prior written consent of COMPANY. This
restriction shall not apply to the sale of inventory in the ordinary course of
business. Any purported transfer in violation of this Section shall constitute
a breach of this Agreement and shall convey to the transferee no rights or
interests in the foregoing.
As used in this Agreement, the term "transfer" shall include, without
limitation, the following, whether voluntary or involuntary, conditional, direct
or indirect:
(1) an assignment, sale, gift or pledge; and
(2) the grant of a mortgage, charge, lien or security interest,
including, without limitation, the grant of a collateral assignment; and
(3) a merger, consolidation, share exchange, issuance of additional
Ownership Interests or securities representing or potentially representing
Ownership Interests, or redemption of Ownership Interests; and
(4) a sale or exchange of voting interests or securities convertible
to voting interests, or an agreement granting the right to exercise or
control the exercise of the voting rights of any holder of Ownership
Interests or to control the operations or affairs of FRANCHISE OWNER; and
(5) except where specifically approved by COMPANY, a management
agreement whereby FRANCHISE OWNER delegates (i) any of its obligations
under this Agreement; or (ii) any or all of the management functions with
respect to a Store or the business to be conducted by FRANCHISE OWNER
pursuant to this Agreement.
In addition to the foregoing, a transfer (as defined above) will require
the prior written consent of COMPANY where such transfer occurs by virtue of (a)
divorce; (b) insolvency; (c) dissolution of a corporation, partnership or
limited liability company; (d) will; (e) intestate succession; or (f)
declaration of or transfer in trust.
16.C. COMPANY'S RIGHT TO APPROVE TRANSFERS.
------------------------------------
If FRANCHISE OWNER or any Owner intends to make a transfer of any interests
which, under Paragraph B of this Section, requires COMPANY's prior written
consent, FRANCHISE OWNER shall deliver to COMPANY written notice of such
proposed transfer at least thirty (30) days prior to its intended effective
date. Such notice shall describe in detail the proposed transfer (including,
without limitation, the nature of the transfer, the nature and amount of the
interests being transferred, the reason for the transfer, the consideration to
be paid and the terms of payment of such consideration and the effective date)
and shall identify and provide all pertinent background information regarding
the proposed purchaser. COMPANY shall have
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30 days from delivery of such notice within which to evaluate the proposed
transactions and to notify FRANCHISE OWNER of its approval or disapproval (with
reasons) of the proposed transfer. If approved, the transfer must take place as
described in the notice (as modified by any conditions imposed by COMPANY in
granting its approval) and within 30 days of the delivery of notice of COMPANY's
approval.
FRANCHISE OWNER agrees that it would be reasonable for COMPANY to
disapprove any proposed transfer based on any and all reasonable factors
including, without limitation, in the event that:
(1) the proposed transfer is a transfer by a Principal Owner;
(2) the proposed transfer, by itself or in conjunction with other
transfers, would result in the transfer of a Controlling Interest in
FRANCHISE OWNER or of a change in the composition of the group holding a
Controlling Interest in FRANCHISE OWNER;
(3) the proposed transfer is to a Competitive Business or to a
direct or indirect owner of interests in a Competitive Business;
(4) FRANCHISE OWNER and its Owners are not in full compliance with
this Agreement;
(5) the proposed transferee and, if applicable, any of its owners
(a) are not of good moral character, (b) otherwise fail to meet COMPANY's
then applicable standards for franchise owners or owners of franchise
owners or (c) are not in full compliance with any other franchise
agreements or development agreements between COMPANY and them; or
(6) the price and terms of the proposed transfer are so burdensome
as to adversely affect or have a potentially adverse affect on COMPANY's
rights and interests under this Agreement.
16.D. CONDITIONS FOR APPROVAL OF TRANSFERS.
------------------------------------
In granting its approval of a proposed transfer, COMPANY may also impose
certain reasonable conditions, including, without limitation, one or more of the
following:
(1) that FRANCHISE OWNER reimburse COMPANY for any costs and
expenses incurred by COMPANY in evaluating the proposed transfer;
(2) that FRANCHISE OWNER, the transferring Owner or the proposed
purchaser pay a transfer fee in the amount of $5,000;
(3) that, if any part of the sale price is financed by the
transferor, it agrees, in a manner satisfactory to COMPANY, that all
obligations of the purchaser under or
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pursuant to any promissory notes, agreements or security interests reserved
by the transferor be subordinate to any obligations of the purchaser to pay
amounts then or thereafter due COMPANY and its Affiliates;
(4) that the purchaser and its owners execute any undertakings then
being required by COMPANY of other franchise owners or owners of franchise
owners of UNITS;
(5) that FRANCHISE OWNER, the transferring Owner and the purchaser
(if the purchaser is then the owner of interests in another developer or
franchise owner of UNITS) execute a general release and consent agreement,
in form satisfactory to COMPANY, of any and all claims against COMPANY and
its Affiliates and their respective shareholders, officers, directors,
employees and agents, for matters arising on or before the effective date
of the transfer;
(6) that the FRANCHISE OWNER or, if applicable, the transferring
Owner execute a noncompetition undertaking in favor of COMPANY and the
transferee, providing that the transferor shall not directly or indirectly
(through a member of the Immediate Family of the transferor or otherwise),
for a period of two years commencing on the effective date of such
transfer:
(a) have any direct or indirect interest as a disclosed or
beneficial owner in any Competitive Business located or operating:
(i) at the Site; or
(ii) within a five (5) mile radius of the Site; or
(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
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(iv) within the Marketing Area; or
(c) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business; or
(d) employ or seek to employ, any person who is employed by
COMPANY, its Affiliates or any developer or franchise owner of
COMPANY, nor induce nor attempt to induce any such person to leave
said employment without the prior written consent of such person's
employer;
(7) FRANCHISE OWNER, the transferor and the transferee (if it is then
a developer or franchise owner of COMPANY) must pay such Royalty Fees,
Software License Fees, Software Support Fees, Marketing Contributions,
amounts owed for purchases by FRANCHISE OWNER or such transferee from
COMPANY and its Affiliates, and all other amounts owed to COMPANY or its
Affiliates, which are then due and unpaid; and
(8) the transferee must agree to cause its designated Store Manager
and Additional Manager to complete to COMPANY's satisfaction COMPANY's
initial management training program in the operation of a Store prior to
the transfer at the time specified by COMPANY and the transferee must have
paid COMPANY's then current standard training charges; and
(9) in the event of a transfer of the Agreement, the transferee and
its owners, at COMPANY's option, must agree, in a manner satisfactory to
COMPANY, to be bound by all terms and conditions of this Agreement for the
remainder of its term or execute COMPANY's then-current form of standard
franchise agreement and such ancillary documents (including guarantees) as
are then customarily used by COMPANY in the grant of franchises for Stores,
modified as necessary to provide for the same Royalty Fees, Software
License Fees, Software Support Fees, and Marketing Contributions required
hereunder and a term equal to the remaining term of this Agreement;
(10) the transferee and its owners must execute COMPANY's then-current
form of secured loan agreement and accounting services agreement and such
ancillary documents as are then customarily used by COMPANY in the grant of
area development rights or franchises for Stores containing such terms as
are then customarily used by COMPANY in the grant of area development
rights or franchises for Stores; and
(11) that the transferee and FRANCHISE OWNER acknowledge and agree
that COMPANY's approval of the proposed transfer indicates only that the
transferee meets or that COMPANY has waived the criteria established by
COMPANY for franchise owners as of the time of such transfer and that
COMPANY's approval thereof does not constitute a warranty or guaranty by
COMPANY, express or implied, of the suitability of the terms of sale or of
the successful operation or profitability of the Store by the transferee;
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(12) that the transfer be made in compliance with all applicable laws;
(13) that the transfer of the Store, the lease or the assets of the
Store (other than in connection with the financing of authorized equipment
for the Store, the sale of inventory or otherwise in the ordinary course of
business), be made only in conjunction with a transfer of this Agreement;
(14) that the FRANCHISE OWNER, the transferor and the transferee
execute a consent agreement, in form satisfactory to COMPANY, providing
for, among other things, an acknowledgment from the parties that COMPANY's
approval of the transfer does not constitute a warranty or guaranty by
COMPANY, express or implied, of the suitability of the terms of sale or of
the successful operation or profitability of the Store by the transferee.
A transfer of an Owner's interest shall not be required to meet the
conditions set forth in Subparagraphs (2), (6) or (9) if the Owner is not a
Principal Owner and the transfer does not itself, or together with prior or
concurrent transfers involve the transfer of a Controlling Interest in FRANCHISE
OWNER and COMPANY determines in its sole discretion that such transfer does not
result in the transfer or elimination of a Controlling Interest or a change in
the composition of any group of Owners who previously together possessed a
Controlling Interest. Subparagraph (2) above, shall not apply to transfers by
gift, bequest, or inheritance. FRANCHISE OWNER acknowledges and agrees that the
failure of any person or entity restricted pursuant to Subparagraph (6) to
comply with this Section 16, including, without limitation, the restrictions of
Subparagraph (6), shall constitute a breach of this Agreement. The restrictions
of Subparagraph (6)(a) shall not be applicable to the ownership of shares of a
class of securities listed on a stock exchange or traded on the over-the-counter
market and quoted by a national inter-dealer quotation system that represent
less than three percent (3%) of the number of shares of that class of securities
issued and outstanding nor shall they be construed to prohibit FRANCHISE OWNER,
any Principal Owner of FRANCHISE OWNER, or any member of the Immediate Family of
FRANCHISE OWNER or any Principal Owner from having a direct or indirect
ownership interest in any UNIT, development agreement or franchise agreement for
the development or operation of any UNIT, or any entity owning, controlling or
operating a UNIT, or from providing services to a UNIT. Furthermore, the
restrictions of Subparagraph (6) shall not prohibit FRANCHISE OWNER, any
Principal Owner of FRANCHISE OWNER, or any member of the Immediate Family of
FRANCHISE OWNER or a Principal Owner of FRANCHISE OWNER (to the extent any such
person is an individual) from performing services for or having an ownership
interest in a Permitted Competitive Business, or from conducting customary
promotion and advertising of a Permitted Competitive Business.
The rights of FRANCHISE OWNER and its Owners to seek COMPANY's approval of
a transfer of interests, as provided in this Agreement, may be exercised only by
the FRANCHISE OWNER or its Owners and not by a receiver, trustee, liquidator or
other person acting in a comparable capacity with respect to the assets or
ownership of FRANCHISE OWNER.
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16.E. DEATH OR INCAPACITY OF FRANCHISE OWNER.
--------------------------------------
Upon the death of FRANCHISE OWNER or the permanent incapacity of FRANCHISE
OWNER to conduct business affairs or, if FRANCHISE OWNER is a corporation,
limited liability company or partnership, upon the death or permanent incapacity
of a Principal Owner of FRANCHISE OWNER, all of such person's interest in this
Agreement, or such interest in FRANCHISE OWNER shall be transferred to a
transferee approved by COMPANY. Such disposition of this Agreement or such
interest in FRANCHISE OWNER (including, without limitation, transfer by bequest
or inheritance), shall be completed within a reasonable time, not to exceed nine
(9) months from the date of death or permanent disability and shall be subject
to all the terms and conditions applicable to transfers contained in this
Section. Failure to so transfer the interest in this Agreement or such interest
in FRANCHISE OWNER, within said period of time shall constitute a breach of this
Agreement.
16.F. PUBLIC OR PRIVATE OFFERING.
--------------------------
FRANCHISE OWNER acknowledges and agrees that it is the intent of both
COMPANY and FRANCHISE OWNER that FRANCHISE OWNER not be or become a public
company or "reporting company" (as defined in Sections 12(b), 12(g) or 15(d) of
the Securities Exchange Act of 1934, as amended, or otherwise) including,
without limitation, by way of an initial public offering or transfer to or
merger with an existing public company. Accordingly, FRANCHISE OWNER agrees
that securities of FRANCHISE OWNER or an entity owning a direct or indirect
equity interest in FRANCHISE OWNER, this Agreement, the Franchise or the Store
may not be offered pursuant to a public offering. FRANCHISE OWNER further
agrees that such securities will not be offered pursuant to a private placement
without the prior written consent of COMPANY. COMPANY hereby grants its consent
to a private placement of securities by FRANCHISE OWNER provided that FRANCHISE
OWNER ensures that:
(1) such private placement complies with all applicable federal,
state and local laws governing offerings of securities and all applicable
agreements between FRANCHISE OWNER and COMPANY or its Affiliates;
(2) such private placement complies with each of the relevant
transfer procedures, requirements, and limitations contained herein;
(3) such private placement does not result in any change in
operating control of FRANCHISE OWNER or the Store or in the parties owning
a Controlling Interest in FRANCHISE OWNER or any Store or in the individual
or individuals controlling the management, policies or decision-making
power of FRANCHISE OWNER; and
(4) each such entity or individual receiving securities in such
private placement shall be an accredited investor, as defined by applicable
law, and shall have been identified and be reasonably acceptable to
COMPANY; provided, however, that FRANCHISE OWNER may allow unaccredited
investors to receive securities if FRANCHISE OWNER has complied with
applicable law with respect thereto;
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(5) a draft of any offering memorandum or other information used in
connection with any such private placement is submitted to COMPANY for
review and comment a reasonable time prior to its use, that the reasonable
comments and suggestions of COMPANY thereon are given due consideration and
that a final version of such memorandum or information be provided to
COMPANY at least five (5) days prior to its distribution to prospective
investors;
(6) any offering memorandum or information used in connection with
any such private placement shall clearly identify that it is not an
offering by COMPANY and that COMPANY has not participated in its
preparation and has not supplied any financial information, projections,
budgets, cost estimates, or similar information contained therein, all of
which shall be the sole responsibility of FRANCHISE OWNER;
(7) each recipient of information relating to such private
placement shall agree to maintain it in confidence;
(8) the structure, timing, allocation and nature of such private
placement shall be reasonably acceptable to COMPANY;
(9) FRANCHISE OWNER shall not become a "Reporting Company" by
virtue of Sections 12(b), 12(g) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(10) each person who or entity which becomes an Owner or Principal
Owner as a result of such private placement agrees to become bound by any
provision of this Agreement pertaining to Owners or Principal Owners, as
applicable.
FRANCHISE OWNER agrees to indemnify COMPANY and its Affiliates and their
respective officers, directors, agents and employees, for and hold them harmless
against any and all costs, expenses, claims, actions, judgments and liabilities
(including, but not limited to, costs and expenses related to legal defense)
arising from or relating to any private placement approved by COMPANY pursuant
to this Section. FRANCHISE OWNER also agrees to reimburse COMPANY for its
reasonable expenses incurred in connection with any such private placement
(including attorney's fees) and to comply with all requirements of COMPANY in
connection with such offering, including, without limitation, adding appropriate
disclaimers to the offering documents and execution of appropriate
indemnification agreements.
16.G. EFFECT OF CONSENT TO TRANSFER.
-----------------------------
COMPANY's consent to a transfer under this Section 16 shall not constitute
a waiver of any claims it may have against FRANCHISE OWNER (or its Owners), nor
shall it be deemed a waiver of COMPANY's right to demand full compliance with
any of the terms or conditions of this Agreement by FRANCHISE OWNER or the
transferee. COMPANY's consent to any such transfer shall not, unless expressly
provided in such consent, effect a release of FRANCHISE OWNER (or its Owners, as
the case may be) post-transfer.
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16.H. COMPANY'S RIGHT OF FIRST REFUSAL.
--------------------------------
If FRANCHISE OWNER or any of its Owners shall at any time determine to sell
an interest in this Agreement, the Franchise, the Store, some or all of the
assets of the Store (other than in the ordinary course of business) or an
ownership interest in FRANCHISE OWNER, FRANCHISE OWNER or its Owner(s) shall
obtain a bona fide, arms length, executed purchase agreement (and any ancillary
agreements) in complete and definitive form and not subject to any financing
contingency or other material, substantive contingency and an earnest money
deposit (in the amount of ten percent (10%) or more of the purchase price) from
a qualified, responsible, bona fide and fully disclosed purchaser. A true and
complete copy of such purchase agreement (conditioned on COMPANY's right of
first refusal) and any proposed ancillary agreements shall immediately be
submitted to COMPANY by FRANCHISE OWNER, such Owner(s) or both. The purchase
agreement must apply only to an interest which is permitted to be transferred
under this Agreement and may not include the purchase of any other property or
rights of FRANCHISE OWNER (or such Owner(s)) and the price and terms of purchase
offered to FRANCHISE OWNER (or such Owner(s)) in the purchase agreement for the
aforementioned interests shall reflect the bona fide price offered therefor and
shall not reflect any value for any other property or rights. If the purchaser
proposes to buy any other property or rights from FRANCHISE OWNER (or such
Owner(s)) under a separate, contemporaneous purchase agreement, FRANCHISE OWNER
shall submit a true and complete copy of a bona fide, arms length executed
purchase agreement (and any proposed ancillary agreements) in complete and
definitive form and not subject to any financing or other material, substantive
contingency. COMPANY shall have the right, exercisable by written notice
delivered to FRANCHISE OWNER or such Owner(s) within thirty (30) days from the
date of receipt by COMPANY of an exact copy of such purchase agreement, together
with payment of any applicable transfer fee and a completed and executed
application for COMPANY's consent to transfer such interest for the price and on
the terms and conditions contained in such purchase agreement, provided that
COMPANY may substitute cash, a cash equivalent, or marketable securities of
equivalent value for any form of payment proposed in such purchase agreement,
COMPANY's credit shall be deemed equal to the credit of any proposed purchaser,
and COMPANY shall have not less than sixty (60) days to prepare for closing.
Regardless of whether included in the purchase agreement, COMPANY shall be
entitled to all customary representations and warranties given by the seller of
a business, including, without limitation, representations and warranties as to:
(1) ownership, condition and title to the Ownership Interests and/or assets
being purchased; (2) liens and encumbrances relating to such Ownership Interests
and/or assets; and (3) validity of contracts and liabilities, contingent or
otherwise, of any legal entity whose Ownership Interests are purchased. If
COMPANY does not exercise its right of first refusal, FRANCHISE OWNER or such
Owner(s) may complete the sale to such purchaser pursuant to and on the exact
terms of such purchase agreement, subject to COMPANY's approval of the transfer,
as provided for in this Agreement, provided that if the sale to such purchaser
is not completed within one hundred twenty (120) days after receipt of such
purchase agreement by COMPANY, or if there is a change in the terms of the sale,
COMPANY shall have an additional right of first refusal for thirty (30) days as
set forth herein on the modified or initial terms and conditions of sale.
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16.I. OWNERSHIP STRUCTURE.
-------------------
FRANCHISE OWNER represents and warrants that its Owners are as set forth on
Exhibit E attached to this Agreement and covenants that it will not permit the
- ---------
identity of such Owners, or their respective interests in FRANCHISE OWNER, to
change without complying with this Agreement.
16.J. DELEGATION BY COMPANY.
---------------------
FRANCHISE OWNER agrees that COMPANY shall have the right, from time to
time, to delegate the performance of any portion or all of its obligations and
duties under this Agreement to designees, whether the same are agents of COMPANY
or independent contractors with which COMPANY has contracted to provide such
services.
16.K. PERMITTED TRANSFERS.
-------------------
Notwithstanding anything to the contrary contained in this Agreement and
provided (a) FRANCHISE OWNER reimburses any costs incurred by COMPANY in
connection therewith, (b) FRANCHISE OWNER, its Owners and the transferees comply
with the provisions of the HSR Act, if applicable, prior to such a transfer, (c)
FRANCHISE OWNER, its Owners and the transferees comply with all other
restrictions of this Agreement applicable to Owners and Ownership interests
(including, without limitation those restricting an Owner's ownership of
interests in a Competitive Business), and (d) the transfer does not, by itself
or in conjunction with other transfers, result in the transfer of a Controlling
Interest in FRANCHISE OWNER or of a change in the composition of the group
holding a Controlling Interest in FRANCHISE OWNER, the provisions of this
Section 16 (including, without limitation, the requirement of the payment of
transfer fees under Section 16.D(2) and the right of first refusal granted to
COMPANY in Section 16.H) shall not restrict or apply to any assignment, sale,
transfer of an Ownership Interest which:
(1) is pursuant and according to the terms of a written stock or
other equity interest option or stock or other equity interest
bonus plan which benefits employees of FRANCHISE OWNER and/or
of the Boston Chicken, Inc. franchise owner which provides
management services to FRANCHISE OWNER pursuant to a support
services agreement and has been approved by COMPANY; or
(2) is made for bona fide estate planning purposes (a) to a
corporation, trust, partnership, or other entity controlled by
the transferring Owner or (b) pursuant to an inter vivos or
testamentary document or the laws of descent and distribution.
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17. GRANT OF SUCCESSOR FRANCHISES.
-----------------------------
17.A. FRANCHISE OWNER'S RIGHT TO A SUCCESSOR FRANCHISE.
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Subject to the provisions of Paragraphs B and C of this Section, upon
expiration of the initial term of this Agreement, if:
(1) FRANCHISE OWNER and its Owners have complied with this
Agreement during the initial term of this Agreement in all material
respects; and
(2) FRANCHISE OWNER and its Owners are then in full compliance with
this Agreement; and
(3) (a) FRANCHISE OWNER maintains possession of the Site and
agrees to remodel and/or expand the Store, add or replace equipment,
furnishings, fixtures, and signs and otherwise modify the Store to
bring it into compliance with specifications and standards then
applicable under new or successor franchises for Stores; or
(b) if FRANCHISE OWNER is unable to maintain possession of the
Site, or if, in the judgment of COMPANY, the Store should be
relocated within the Territory, FRANCHISE OWNER secures a substitute
site within the Territory approved by COMPANY and agrees to develop
expeditiously such substitute site in compliance with specifications
and standards then applicable under new or successor franchises for
Stores;
then FRANCHISE OWNER shall have the right to obtain a successor franchise to
operate a UNIT at the Site (a "SUCCESSOR FRANCHISE") for a term of five (5)
years. In consideration of the grant of the Successor Franchise, FRANCHISE
OWNER shall pay to COMPANY a fee in an amount equal to thirty-three and one-
third percent (33-1/3%) of the then-current initial franchise fee charged by
COMPANY in connection with the grant of franchises for individual Stores. If
COMPANY is not, at that time, actively engaged in the sale of franchises for
Stores, the fee shall be equal to 33-1/3% of the higher of (a) the Initial
Franchise Fee due under this Agreement or (b) the standard Initial Franchise Fee
charged franchises for individual Stores as set forth in the latest offering
version of COMPANY's Uniform Franchise Offering Circular. As additional
consideration for the grant of a Successor Franchise, FRANCHISE OWNER agrees to
execute a general release in form prescribed by COMPANY in accordance with this
Section. FRANCHISE OWNER shall have the right to obtain a second Successor
Franchise on the same terms and subject to the same conditions as the initial
Successor Franchise.
17.B. NOTICES.
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FRANCHISE OWNER shall give COMPANY written notice of its election to obtain
a Successor Franchise not more than twenty-four (24) months, and not less than
twelve (12) months, prior to the expiration of this Agreement. COMPANY agrees
to give FRANCHISE OWNER written notice, not more than ninety (90) days after
receipt of FRANCHISE OWNER's
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notice, of (a) COMPANY's determination whether or not it will grant FRANCHISE
OWNER a Successor Franchise pursuant to this Section and/or (b) any deficiencies
in FRANCHISE OWNER's operation of the Store (or any other failure to comply with
the terms of this Agreement) which could cause COMPANY to refuse to grant a
Successor Franchise. Such notice shall state what actions FRANCHISE OWNER must
take to correct the deficiencies and shall specify the time period in which such
deficiencies must be corrected. COMPANY shall give FRANCHISE OWNER written
notice of a decision not to grant a Successor Franchise based upon FRANCHISE
OWNER's failure to cure deficiencies not less than ninety (90) days prior to the
expiration of the initial term of this Agreement. Such notice shall state the
reasons for COMPANY's refusal to grant a Successor Franchise. In the event
COMPANY fails to give FRANCHISE OWNER (a) notice of deficiencies in the Store,
or in FRANCHISE OWNER's operation of the Store, within ninety (90) days after
receipt of FRANCHISE OWNER's timely election to obtain a Successor Franchise, or
(b) notice of COMPANY's decision not to grant a Successor Franchise at least
ninety (90) days prior to the expiration of the term of this Agreement, COMPANY
may extend the term of this Agreement for such period of time as is necessary in
order to provide FRANCHISE OWNER reasonable time to cure deficiencies or to
provide ninety (90) days' notice of COMPANY's determination not to grant a
Successor Franchise. The grant of a Successor Franchise shall be conditioned
upon FRANCHISE OWNER's continued compliance with all the terms and conditions of
this Agreement up to the date of expiration.
17.C. SUCCESSOR FRANCHISE AGREEMENT/RELEASES.
--------------------------------------
To obtain a Successor Franchise, COMPANY, FRANCHISE OWNER and its Owners
shall execute the form of franchise agreement and any ancillary agreements then
customarily used by COMPANY in the grant of franchises for the operation of
UNITS (with appropriate modifications to the term, the successor franchise
provisions, and other appropriate provisions to reflect the fact that the
agreement relates to a Successor Franchise) which may provide for higher or
additional Royalty Fees and other fees, and FRANCHISE OWNER and its Owners shall
execute general releases, in form satisfactory to COMPANY, of any and all claims
against COMPANY and its Affiliates and their respective shareholders, officers,
directors, employees, agents, successors and assigns. The franchise agreement
for a Successor Franchise will not include any right to any further renewal,
extension, or successor franchise rights. Failure by FRANCHISE OWNER and its
Owners to sign and deliver to COMPANY, such agreements and releases within
fifteen (15) days after delivery thereof to FRANCHISE OWNER shall be deemed an
election by FRANCHISE OWNER not to obtain a Successor Franchise.
18. TERMINATION OF THE FRANCHISE.
----------------------------
18.A. BY FRANCHISE OWNER.
------------------
If FRANCHISE OWNER is in full compliance with this Agreement and COMPANY
materially breaches this Agreement, FRANCHISE OWNER may terminate this Agreement
effective thirty (30) days after COMPANY's receipt of written notice of
termination if FRANCHISE OWNER gives written notice of such breach to COMPANY
and COMPANY does not:
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(1) correct such failure within thirty (30) days after COMPANY's
receipt of such notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30)
days after COMPANY's receipt of such notice, undertake within thirty (30)
days after COMPANY'S receipt of such notice, and continue until completion,
reasonable efforts to cure such breach.
Any attempt to terminate this Agreement by FRANCHISE OWNER other than as
provided in this Paragraph A shall be a breach of this Agreement.
18.B. BY COMPANY.
----------
COMPANY may terminate this Agreement, effective upon delivery of notice of
termination to FRANCHISE OWNER, or, where expressly applicable, upon failure to
cure to COMPANY's satisfaction any breach by the expiration of any period of
time within which such breach may be cured in accordance with the provisions set
forth below, if:
(1) FRANCHISE OWNER fails to develop the Store in accordance with
this Agreement and commence operation of business within the time provided
in this Agreement; or
(2) FRANCHISE OWNER fails to operate, abandons, surrenders or
transfers control of the operation of the Store without prior written
approval of COMPANY; or
(3) FRANCHISE OWNER or any of its Principal Owners has made any
material misrepresentation or omission in the application for or
acquisition of the Franchise or in materials submitted relating to a
transfer; or
(4) FRANCHISE OWNER or any of its Owners is convicted by a trial
court of, or pleads guilty or no contest to, a felony, or to another crime
or offense that may adversely affect the reputation of FRANCHISE OWNER,
UNITS 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
Store or the goodwill associated with the Marks; or
(5) FRANCHISE OWNER or any of its Owners makes an assignment or
transfer in violation of this Agreement; or
(6) FRANCHISE OWNER (or any of its Owners or employees) makes any
unauthorized use or disclosure of or duplicates any copy of any
Confidential Information or of any of the Store Manuals, makes any
unauthorized use of the Marks or Copyrighted Works, or challenges or seeks
to challenge the validity of COMPANY's or its Affiliates' rights in and to
the Marks, the Copyrighted Works or the Confidential Information (unless
the foregoing prohibited act is inadvertent and does not have, or threaten
to have, an adverse effect upon COMPANY, its business concept, its business
operations, the
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business of any UNIT, any Mark, the Confidential Information, any Store
Manuals, or the Copyrighted Works, and FRANCHISE OWNER ceases and desists
any such prohibited act promptly upon notice and reimburses COMPANY for all
damages, losses, costs, and expenses incurred by COMPANY in connection with
such prohibited acts); or
(7) FRANCHISE OWNER loses the right to possession of the Site and
does not relocate the Store to another site in accordance with this
Agreement; or
(8) FRANCHISE OWNER fails to timely commence or provide:
(a) Delivery Service pursuant to a Delivery Rider executed by
COMPANY and FRANCHISE OWNER; or
(b) Catering Service pursuant to a Catering Rider executed by
COMPANY and FRANCHISE OWNER; or
(c) Special Distribution Arrangements if required pursuant to a
Special Distribution Agreement executed by COMPANY and FRANCHISE
OWNER,
in accordance with COMPANY's standards, specifications and procedures, and
does not correct such failure within 10 days after FRANCHISE OWNER's
receipt of COMPANY's written notice of such failure to comply; or, if such
failure cannot reasonably be corrected within the aforesaid 10-day period
but can be corrected within a reasonably short time (not to exceed an
additional 30 days), undertake within 10 days after FRANCHISE OWNER's
receipt of COMPANY's written notice, and continue until completion, best
efforts to correct such failure within such reasonably short time (not to
exceed an additional 30 days), and furnish proof acceptable to COMPANY,
upon its request, of such efforts and the date full compliance will be
achieved; or
(9) FRANCHISE OWNER fails to operate a Commissary to service the
Store, at the time specified by COMPANY and at the location approved by
COMPANY, in accordance with COMPANY's standards, specifications and
procedures and does not correct such failure within ten (10) days after
written notice of such failure is delivered to FRANCHISE OWNER.
(10) FRANCHISE OWNER becomes insolvent in the sense that it is
unable to pay its bills as they become due; or
(11) FRANCHISE OWNER, its Principal Owners or members of their
Immediate Families (whether or not bound by individual noncompetition
undertakings) or other persons who have executed such individual
undertakings violate the restrictions in this Agreement with respect to
Competitive Businesses or Owners who have had access to the Confidential
Information violate the covenants concerning competition and
confidentiality contained in the form of Confidentiality and Non-
Competition Agreement
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attached hereto as Exhibit H (regardless of whether any such party has
---------
executed this Agreement or a Confidentiality and Non-Competition
Agreement); or
(12) FRANCHISE OWNER fails to report accurately the Store's Royalty
Base Revenue or fails to make payments of any amounts due COMPANY for
Royalty Fees, Software Fees, Marketing Contributions, purchases from
COMPANY or its Affiliates, or any other amounts due to COMPANY or its
Affiliates, and does not correct such failure within ten (10) days after
written notice of such failure is delivered to FRANCHISE OWNER; or
(13) FRANCHISE OWNER causes or permits to exist a default under the
lease or sublease for the Site and fails to cure such default within the
applicable cure period set forth in the lease or sublease; or
(14) FRANCHISE OWNER or any of its Principal Owners fails on three
or more separate occasions within any period of 12 consecutive months to
comply with this Agreement in any material respect, whether or not such
failures to comply are corrected after notice of default is given, or fail
on two (2) or more separate occasions within any period of nine (9)
consecutive months to comply with the same requirement under this
Agreement, whether or not such failures to comply are corrected after
notice of default is given; or
(15) FRANCHISE OWNER or any of its Owners fail to comply with any
other provision of this Agreement or any mandatory specification, standard,
or operating or inspection procedure prescribed by COMPANY or to pass
COMPANY's quality control inspection and does not: (a) correct such
failure within thirty (30) days after FRANCHISE OWNER's receipt of
COMPANY's written notice of such failure to comply; or (b) if such failure
cannot reasonably be corrected within the aforesaid thirty (30) day period,
but can be corrected within a reasonably short time (not to exceed an
additional thirty (30) days), undertake within ten (10) days after
FRANCHISE OWNER's receipt of COMPANY's written notice, and continue until
completion within such reasonably short time (not to exceed an additional
thirty (30) days), best efforts to bring the Store into full compliance,
and furnish proof acceptable to COMPANY upon its request of such efforts
and the date full compliance will be achieved; or
(16) FRANCHISE OWNER or any of its Owners fail or refuse to follow
or comply with any mandatory specification, standard or operating procedure
prescribed by COMPANY relating to the cleanliness or sanitation of the
Store or receives a notice of violation from a governmental authority or
violates any health, safety or sanitation law, ordinance or regulation and
does not: (a) correct such failure or refusal within twenty-four (24) hours
after written notice thereof is delivered to FRANCHISE OWNER; or (b) if
such failure can be corrected within five (5) days but cannot reasonably be
corrected within twenty-four (24) hours after such written notice is
received by FRANCHISE OWNER, undertake corrective action within twenty-four
(24) hours and achieve full compliance within five (5) days after written
notice thereof; or
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(17) The lesser of (a) three (3) or more, or (b) fifty percent (50%)
or more, of the Franchise Agreements granted to FRANCHISE OWNER and
DEVELOPER in accordance with the terms of the Development Agreement are
terminated by COMPANY in accordance with their terms, excluding the
permanent closing of any UNITS with the prior written approval of COMPANY;
or
(18) FRANCHISE OWNER has attempted to terminate a Franchise
Agreement with COMPANY without complying with Section 18.A. of this
Agreement.
18.C. TERMINATION OF CERTAIN RIGHTS OF FRANCHISE OWNER.
------------------------------------------------
If COMPANY is entitled to terminate this Agreement in accordance with
Paragraph B. of this Section, COMPANY shall have the option to terminate any one
or more of the following instead of terminating this Agreement:
(1) FRANCHISE OWNER's option to purchase and develop Stores at
Conversion Sites under Section 2.D. of this Agreement; and
(2) any Delivery Rider in effect between COMPANY and FRANCHISE
OWNER; and
(3) any Catering Rider in effect between COMPANY and FRANCHISE
OWNER; and
(4) any Special Distribution Agreement in effect between COMPANY
and FRANCHISE OWNER; and
(5) any exclusivity for the Territory granted under Section 2.B. of
this Agreement,
effective ten (10) days after delivery of written notice thereof to FRANCHISE
OWNER. If any of such rights, options or arrangements are terminated in
accordance with this Paragraph C., such termination shall be without prejudice
to COMPANY's right to terminate this Agreement in accordance with Section 18.B
or to terminate any other rights, options or arrangements under this Agreement
at any time thereafter for the same default or as a result of any additional
defaults of the terms of this Agreement.
19. RIGHTS AND OBLIGATIONS OF COMPANY AND FRANCHISE
OWNER UPON TERMINATION OR EXPIRATION OF THE AGREEMENT.
-----------------------------------------------------
19.A. PAYMENT OF AMOUNTS OWED TO COMPANY.
----------------------------------
FRANCHISE OWNER shall immediately pay to COMPANY upon termination or
expiration of this Agreement such Royalty Fees, Software License Fees, Marketing
Contributions and amounts owed for purchases by FRANCHISE OWNER from COMPANY or
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its Affiliates, interest due on any of the foregoing, and all other amounts owed
to COMPANY or its Affiliates which are then unpaid, whether or not attributable
to the Store.
19.B. MARKS, TRADE DRESS, AND COPYRIGHTED WORKS.
-----------------------------------------
Upon the termination or expiration of this Agreement, FRANCHISE OWNER
shall:
(1) immediately cease use of all the Marks and not thereafter
directly or indirectly at any time or in any manner identify itself or any
business as a current or former UNIT, or as a current or former franchise
owner of or as otherwise associated with COMPANY and/or its licensor(s), or
use any Mark, any colorable imitation thereof or any mark substantially
identical to or deceptively similar to any Mark in any manner or for any
purpose, or utilize for any purpose any trade name, trademark or service
mark, or other commercial symbol or trade dress that suggests or indicates
a connection or association with COMPANY; and
(2) immediately remove from the Site all signs containing any Mark,
remove the Marks from all vehicles, fixtures, furnishings, decor items and
other objects displaying any Mark at the Site and return to COMPANY or
destroy all packaging materials and forms, advertising and promotional
materials, catalogs, invoices and other materials containing any Mark or
otherwise identifying or relating to a UNIT; and
(3) immediately take such action as may be required to cancel or,
at COMPANY's option, to transfer to COMPANY or its designee, all fictitious
or assumed name or equivalent registrations relating to its use of any
Mark; and
(4) immediately cease use of all Copyrighted Works which were
furnished and/or licensed to FRANCHISE OWNER by COMPANY pursuant to this
Agreement and return to COMPANY or destroy, at COMPANY's option, all forms,
advertising and promotional materials or other materials containing such
Copyrighted Works; and
(5) immediately take all such actions as may be necessary to
transfer any tele phone number and any telephone directory listings
associated with the Marks to COMPANY. FRANCHISE OWNER acknowledges that, as
between COMPANY and FRANCHISE OWNER, COMPANY has the sole right to and
interest in all telephone numbers and directory listings associated with
the Marks. FRANCHISE OWNER concurrently with the execution of this
Agreement shall execute COMPANY's form of collateral assignment of
telephone numbers and listings (the "TELEPHONE NUMBER ASSIGNMENT"),
attached to this Agreement as Exhibit J. FRANCHISE OWNER acknowledges and
---------
agrees that the telephone company and all listing agencies may accept the
Telephone Number Assignment as conclusive evidence of the exclusive right
of the COMPANY in such telephone numbers and directory listings and its
authority to direct their transfer; and
(6) if COMPANY does not purchase the Store as provided in Section
19.F., at FRANCHISE OWNER's expense, immediately make such modifications
and
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alterations, including removal of all distinctive physical and structural
features associated with the Trade Dress of UNITS, as may be necessary to
distinguish the Site and the Store so clearly from its former appearance
and from other UNITS as to prevent any possibility that the public will
associate the Site with UNITS and to prevent confusion created by such
association. Such modifications and alterations shall include, but not be
limited to, removing all awnings and removing or covering the distinctive
decor and color scheme on all walls, signage, counters, displays,
equipment, vehicles, fixtures and furnishings, as well as the exterior of
the Store. If FRANCHISE OWNER fails to initiate immediately or complete
such modifications, alterations and/or removals within such time as COMPANY
deems appropriate, FRANCHISE OWNER agrees that COMPANY or its designated
agents may enter the Store and adjacent areas without prior notice to make
such modifications, alterations and/or removals, at FRANCHISE OWNER's
expense, without liability for trespass or damages. FRANCHISE OWNER
expressly acknowledges that its failure to make such alterations will cause
irreparable injury to COMPANY and consents to entry, at FRANCHISE OWNER's
expense, of an ex-parte order by any court of competent jurisdiction
authorizing COMPANY or its agents to take such action, if COMPANY seeks
such an order.
FRANCHISE OWNER shall furnish to COMPANY (i) within thirty (30) days after the
effective date of termination or expiration, evidence satisfactory to COMPANY of
FRANCHISE OWNER's compliance with Subparagraphs (1), (3) and (4) of the
foregoing obligations, and (ii) within thirty (30) days after the later of
expiration of COMPANY's option to purchase the Store, as provided in this
Section, or receipt of notice that COMPANY elects not to purchase the Store
pursuant to this Section, evidence satisfactory to COMPANY of FRANCHISE OWNER's
compliance with all of the foregoing obligations. If COMPANY exercises its
option to purchase the Store under this Section, COMPANY, in its sole
discretion, shall direct FRANCHISE OWNER regarding which, if any, of the above
requirements FRANCHISE OWNER shall observe.
19.C. CONFIDENTIAL INFORMATION.
------------------------
FRANCHISE OWNER agrees that upon termination or expiration of the Franchise
(without grant of a Successor Franchise):
(1) it, and all of its affiliates, Owners, employees, agents or
other representatives, will immediately cease to use and will maintain the
absolute confidentiality of any Confidential Information of COMPANY
disclosed to or otherwise learned or acquired by FRANCHISE OWNER and will
refrain from using such Confidential Information in any business or
otherwise; and
(2) it will return to COMPANY all copies of the Store Manuals and
any other confidential materials which have been loaned or made available
to it by COMPANY.
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19.D. COVENANT NOT TO COMPETE.
-----------------------
Upon expiration or termination of this Agreement by COMPANY or by FRANCHISE
OWNER, other than pursuant to Section 18.A., neither FRANCHISE OWNER nor any of
its Principal Owners shall directly or indirectly (through a member of the
Immediate Family of FRANCHISE OWNER or a Principal Owner or otherwise) for a
period of two (2) years commencing on the effective date of such termination or
expiration, or the date on which FRANCHISE OWNER ceases to operate the Store,
whichever is later:
(1) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
(a) at the Site; or
(b) within a five (5) mile radius of the Site; or
(c) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of termination
or expiration of this Agreement; or
(d) within the Marketing Area; or
(2) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive Business
located or operating:
(a) at the Site; or
(b) within a five (5) mile radius of the Site; or
(c) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of termination or
expiration of this Agreement; or
(d) within the Marketing Area; or
(3) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business; or
(4) employ or seek to employ, any person who is employed by
COMPANY, its Affiliates or any developer or franchise owner of COMPANY, nor
induce nor attempt to induce any such person to leave said employment
without the prior written consent of such person's employer.
The restrictions of Subparagraph (1) of this Paragraph D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market and quoted on a national
inter-dealer quotation system that represent less
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than three percent (3%) of the number of shares of that class of securities
issued and outstanding nor shall they be construed to prohibit FRANCHISE OWNER,
any Principal Owner of FRANCHISE OWNER, or any member of the Immediate Family of
FRANCHISE OWNER or any Principal Owner from having a direct or indirect
ownership interest in any UNIT, development agreement or franchise agreement for
the development or operation of any UNIT, or any entity owning, controlling or
operating a UNIT, or from providing services to a UNIT. Furthermore, the
restrictions of this Paragraph D. shall not prohibit FRANCHISE OWNER, any
Principal Owner of FRANCHISE OWNER, or (to the extent any such person is an
individual) any member of the Immediate Family of FRANCHISE OWNER or a Principal
Owner of FRANCHISE OWNER from performing services for or having an ownership
interest in a Permitted Competitive Business, or from conducting customary
promotion and advertising of a Permitted Competitive Business.
19.E. CONTINUING OBLIGATIONS.
----------------------
All obligations of COMPANY and FRANCHISE OWNER which expressly or by their
nature survive or are intended to survive the expiration or termination of this
Agreement shall continue in full force and effect subsequent to and
notwithstanding its expiration or termination and until they are satisfied in
full or by their nature expire.
19.F. COMPANY'S RIGHT TO PURCHASE ASSETS OF THE STORE.
-----------------------------------------------
Upon termination of this Agreement by COMPANY in accordance with its terms
and conditions, upon termination of this Agreement by FRANCHISE OWNER without
complying with this Agreement, or upon expiration of this Agreement (without the
grant of a Successor Franchise), COMPANY or its assignee shall have the option,
exercisable by giving written notice thereof within sixty (60) days from the
date of such expiration or termination, to purchase from FRANCHISE OWNER all the
assets used in the Store. As used in this Paragraph, "ASSETS" shall mean and
include, without limitation, leasehold improvements, equipment, computer
hardware, vehicles, furnishings, fixtures, signs, inventory (non-perishable
products, materials and supplies) and the lease or sublease for the Site.
COMPANY shall have the unrestricted right to assign this option to purchase.
COMPANY or its assignee shall be entitled to all customary warranties and
representations given by the seller of a business including, without limitation,
representations and warranties as to: (1) ownership, condition and title to
assets; (2) liens and encumbrances relating to the assets; and (3) validity of
contracts and liabilities, inuring to COMPANY or affecting the assets,
contingent or otherwise.
The purchase price for the assets of the Store shall be the tangible book
value, determined as of the date of termination or expiration of this Agreement
in a manner consistent with reasonable depreciation of leasehold improvements
owned by FRANCHISE OWNER and the equipment, computer hardware, vehicles,
furnishings, fixtures, signs and inventory of the Store, provided that the
purchase price shall take into account the termination or expiration of the
Franchise granted hereunder and this Agreement and shall not contain any factor
or increment for any trademark, service mark or other commercial symbol used in
connection with the operation of the Store or any goodwill or "going concern"
value for the Store and further provided that COMPANY may exclude from the
assets purchased hereunder any equipment,
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computer hardware, vehicles, furnishings, fixtures, signs and inventory that are
not approved as meeting then-current quality standards for UNITS. The length
of the remaining term of the lease or sublease for the Site of the Store shall
also be considered in determining the fair market value hereunder.
The purchase price shall be paid in cash, a cash equivalent, or marketable
securities of equivalent value at the closing of the purchase, which shall take
place no later than ninety (90) days after receipt by FRANCHISE OWNER of notice
of exercise of this option to purchase, at which time FRANCHISE OWNER shall
deliver instruments transferring to COMPANY or its assignee: (i) good and
merchantable title to the assets purchased, free and clear of all liens and
encumbrances (other than liens and security interests acceptable to COMPANY or
its assignee), with all sales and other transfer taxes paid by FRANCHISE OWNER;
(ii) all licenses and permits of the Store which may be assigned or transferred;
and (iii) the lease or sublease for the Site. In the event that FRANCHISE OWNER
cannot deliver clear title to all of the purchased assets as aforesaid, or in
the event there shall be other unresolved issues, the closing of the sale shall
be accomplished through an escrow. Further, FRANCHISE OWNER and COMPANY shall,
prior to closing, comply with all applicable legal requirements, including the
bulk sales provisions of the Uniform Commercial Code of the state in which the
Store is located and the bulk sales provisions of any applicable tax laws and
regulations. FRANCHISE OWNER shall, prior to or simultaneously with the closing
of the purchase, pay all tax liabilities incurred in connection with the
operation of the Store. COMPANY shall have the right to set off against and
reduce the purchase price by any and all amounts owed by FRANCHISE OWNER to
COMPANY, and the amount of any encumbrances or liens against the assets or any
obligations assumed by COMPANY.
If COMPANY or its assignee exercises this option to purchase, pending the
closing of such purchase as hereinabove provided, COMPANY shall have the right
to appoint a manager to maintain the operation of the Store, in which case
FRANCHISE OWNER shall continue to operate the Store on the terms of this
Agreement until the closing of the purchase. Alternatively, COMPANY may
require FRANCHISE OWNER to close the Store during such time period without
removing any assets from the Store. FRANCHISE OWNER shall maintain in force all
insurance policies required pursuant to this Agreement, through the date of
closing. If the Site is leased, COMPANY agrees to use reasonable efforts to
effect a termination of the existing lease for the Site and enter into a new
lease on reasonable terms with the landlord. In the event COMPANY is unable to
enter into a new lease and FRANCHISE OWNER's rights under the lease for the Site
are assigned to COMPANY or COMPANY subleases the Site from FRANCHISE OWNER,
COMPANY will indemnify and hold harmless FRANCHISE OWNER from any ongoing
liability under the lease from the date COMPANY assumes possession of the Site.
20. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.
-------------------------------------------
20.A. INDEPENDENT CONTRACTORS.
-----------------------
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, that COMPANY and FRANCHISE
OWNER are and shall
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be independent contractors, and that nothing in this Agreement is intended to
make either party a general or special agent, joint venturer, partner, or
employee of the other for any purpose. FRANCHISE OWNER shall conspicuously
identify itself in all dealings with customers, suppliers, vendors, public
officials, FRANCHISE OWNER personnel, and others as the owner of the Store under
a franchise granted by COMPANY and shall conspicuously and prominently place
such other notices of independent ownership on the Site and on such forms,
business cards, stationery, advertising, and such other materials as COMPANY may
require from time to time.
20.B. NO LIABILITY FOR ACTS OF OTHER PARTY.
------------------------------------
FRANCHISE OWNER shall not employ any of the Marks in signing any contract,
application for any license or permit, or in a manner that may result in
liability of COMPANY or its Affiliates for any indebtedness or obligation of
FRANCHISE OWNER, nor will FRANCHISE OWNER use the Marks in any way not expressly
authorized herein. Except as expressly authorized in writing, neither COMPANY
nor FRANCHISE OWNER shall make any express or implied agreements, warranties,
guarantees or representations, or incur any debt in the name of or on behalf of
the other, or represent that their relationship is other than franchisor and
franchise owner, and neither COMPANY nor FRANCHISE OWNER shall be obligated by
or have any liability under any agreements or representations made by the other
that are not expressly authorized in writing, nor shall COMPANY be obligated for
any damages to any person or property directly or indirectly arising out of the
operation of the Store or FRANCHISE OWNER's business authorized by or conducted
pursuant to this Agreement.
20.C. TAXES.
-----
COMPANY shall have no liability for any sales, value added, use, service,
occupation, excise, gross receipts, income, property, payroll, employee
withholding or other taxes, whether levied upon this Agreement, FRANCHISE OWNER,
the Store or FRANCHISE OWNER's property, or upon COMPANY, in connection with the
sales made or business conducted by FRANCHISE OWNER, except any taxes COMPANY is
required by law to collect from FRANCHISE OWNER with respect to purchases from
COMPANY. Payment of all such taxes shall be the responsibility of FRANCHISE
OWNER.
20.D. INDEMNIFICATION.
---------------
FRANCHISE OWNER agrees to indemnify, defend and hold COMPANY, its
Affiliates, and their respective shareholders, directors, officers, employees,
agents, successors and assignees harmless against and to reimburse them for:
(1) any and all taxes described in Paragraph C of this Section; (2) any and all
claims against, and losses, obligations, damages and expenses incurred, by
COMPANY in connection with any and all claims, losses, damages and expenses of
customers and others directly or indirectly arising out of this Agreement, the
development or operation of the Store (including, without limitation, breach or
violation of any agreement, contract or commitment by FRANCHISE OWNER resulting
from FRANCHISE OWNER's execution and delivery of this Agreement or performance
of any of its obligations hereunder or liabilities asserted by owners or
employees, agents or other representatives of FRANCHISE OWNER arising in
connection with training provided by COMPANY or its
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Affiliates or designees or otherwise), (3) the conduct of Catering Service or
Delivery Service, (4) the operation of Special Distribution Arrangements, (5)
unauthorized activities conducted in association with the Marks, or (6) the
transfer of any interest in this Agreement, the Franchise, the Store, some or
all of the assets of the Store (other than sales in the ordinary course of
business) or FRANCHISE OWNER, in any manner not in accordance with this
Agreement to the extent that such claims, obligations, damages, taxes, losses or
liabilities do not arise solely from the gross negligence or wrongful conduct of
COMPANY. For purposes of this indemnification, "CLAIMS" shall mean and include
all obligations, actual, consequential, special, and punitive damages, and costs
incurred in the defense or settlement of any claim, including, with out
limitation, reasonable accountants', attorneys', attorney assistants',
arbitrators' and expert witness fees, costs of investigation and proof of facts,
court costs, other litigation expenses, and travel and living expenses. COMPANY
shall have the right to defend any such indemnified claim against it in such
manner as COMPANY deems appropriate or desirable in its sole discretion. This
indemnity shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement.
21. ENFORCEMENT.
-----------
21.A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.
-------------------------------------------------
If any provision of this Agreement relating to the in-term exclusive
dealing covenants is declared or made invalid or unenforceable by judicial
action, legislation or other government action, COMPANY may, if it believes in
its sole discretion that the continuation of this Agreement would not be in its
best interests, terminate this Agreement effective upon sixty (60) days' written
notice to FRANCHISE OWNER.
All other provisions of this Agreement are severable and this Agreement
shall be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions shall be enforced to the extent valid and enforceable. To the extent
the post-transfer restrictive covenants or post-termination/post-expiration
restrictive covenants contained herein are deemed unenforceable by virtue of
their scope in terms of geographic area, business activity prohibited and/or
length of time, but may be made enforceable by reductions or alterations of
either or any thereof, FRANCHISE OWNER and COMPANY agree that the same shall be
enforced to the fullest extent permissible under the laws and public policies
applied in the jurisdiction in which enforcement is sought. If any applicable
and binding law or rule of any jurisdiction requires a greater prior notice of
the termination of this Agreement or refusal to grant a Successor Franchise than
is required hereunder, or the taking of some other action not required
hereunder, or if under any applicable and binding law or rule of any
jurisdiction, any provision of this Agreement or any specification, standard or
operating procedure prescribed by COMPANY is invalid or unenforceable, the prior
notice and/or other action required by such law or rule shall be substituted
for the comparable provisions hereof, and COMPANY shall have the right, in its
sole discretion, to modify such invalid or unenforceable provision,
specification, standard, or operating procedure to the extent required to be
valid and enforceable. Such modifications to this Agreement shall be effective
only in such jurisdiction and this Agreement shall be enforced as originally
made and entered into in all other jurisdictions.
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21.B. WAIVER OF OBLIGATIONS.
---------------------
COMPANY and FRANCHISE OWNER may by written instrument unilaterally waive or
reduce any obligation of or restriction upon the other under this Agreement,
effective upon delivery of written notice thereof to the other or such other
effective date stated in the notice of waiver. Whenever this Agreement requires
COMPANY's prior approval or consent, FRANCHISE OWNER shall make a timely written
request therefor and such approval shall be obtained in writing.
With respect to this Agreement, the relationship of the parties, the Store,
Catering Service, Delivery Service, Special Distribution Arrangements,
Commissaries or any other matter, COMPANY makes no representations, warranties
or guaranties upon which FRANCHISE OWNER may rely, and assumes no liability or
obligation to FRANCHISE OWNER, by granting any waiver, approval, or consent to
FRANCHISE OWNER or by reason of any neglect, delay, or denial of any request
therefor. Any waiver granted by COMPANY (1) shall be without prejudice to any
other rights COMPANY may have, (2) will be subject to continuing review by
COMPANY, and (3) as to continuing waivers, may be revoked prospectively, in
COMPANY's sole discretion, at any time and for any reason, effective upon
delivery to FRANCHISE OWNER of ten (10) days' prior written notice.
COMPANY and FRANCHISE OWNER shall not be deemed to have waived or impaired
any right, power, or option reserved by this Agreement (including, without
limitation, the right to demand full compliance with every term, condition, and
covenant in this Agreement, or to declare any breach thereof to be a default and
to terminate this Agreement prior to the expiration of its term), by virtue of
any:
(i) custom or practice of the parties at variance with the terms
hereof; or
(ii) any failure, refusal, or neglect of COMPANY or FRANCHISE OWNER
to exercise any right under this Agreement or to insist upon full
compliance by the other with its obligations hereunder, including, without
limitation, any mandatory specification, standard or operating procedure;
or
(iii) any waiver, forebearance, delay, failure, or omission by
COMPANY to exercise any right, power, or option, whether of the same,
similar or different nature, with respect to any other UNIT or any
development or franchise agreement therefor; or
(iv) the acceptance by COMPANY of any payments from FRANCHISE OWNER
after any breach by FRANCHISE OWNER of this Agreement.
Neither COMPANY nor FRANCHISE OWNER shall be liable for loss or damage or
deemed to be in breach of this Agreement if its failure to perform its
obligations results from any of the following and is not caused by the non-
performing party:
(v) acts of God; or
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(vi) acts of war or insurrection; or
(viii) strikes, lockouts, boycotts, fires and other casualties.
Any delay resulting from any of said causes shall extend the time allowed for
performance or excuse performance, in whole or in part, as may be reasonable,
except that said causes shall not excuse payments of amounts owed at the time of
such occurrence or payment of Royalty Fees, Software License Fees, Marketing
Contributions or other fees thereafter and as soon as performance is possible
the non-performing party shall immediately resume performance and, in no event,
shall non-performance be excused for more than six (6) months.
21.C. INJUNCTIVE RELIEF.
-----------------
COMPANY shall have the right to seek specific performance of the provisions
of this Agreement and injunctive relief against threatened conduct that will
cause it loss or damages under customary equity rules, including applicable
rules for obtaining restraining orders and preliminary injunctions. FRANCHISE
OWNER agrees that COMPANY may obtain such injunctive relief in addition to such
further or other relief as may be available at law or in equity. FRANCHISE
OWNER agrees that COMPANY will not be required to post a bond to obtain any
injunctive relief and that FRANCHISE OWNER's only remedy if an injunction is
entered against FRANCHISE OWNER will be the dissolution of that injunction, if
warranted, upon due hearing (all claims for damages by reason of the wrongful
issuance of such injunction being expressly waived hereby). Any such action
shall be brought as provided in Paragraph G. of this Section.
21.D. RIGHTS OF PARTIES ARE CUMULATIVE.
--------------------------------
The rights of COMPANY and FRANCHISE OWNER hereunder are cumulative and no
exercise or enforcement by COMPANY or FRANCHISE OWNER of any right or remedy
hereunder shall preclude the exercise or enforcement by COMPANY or FRANCHISE
OWNER of any other right or remedy hereunder or to which COMPANY or FRANCHISE
OWNER is entitled by law.
21.E. COSTS AND LEGAL FEES.
--------------------
If COMPANY engages legal counsel in connection with any failure by
FRANCHISE OWNER to comply with this Agreement, FRANCHISE OWNER shall reimburse
COMPANY for costs and expenses incurred by COMPANY, including, without
limitation, reasonable accountants, attorneys', attorneys assistants',
arbitrators' and expert witness fees, cost of investigation and proof of facts,
court costs, other litigation expenses and travel and living expenses, whether
incurred prior to, in preparation for, in contemplation of or in connection with
the filing of any judicial or arbitration proceeding to enforce this Agreement.
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21.F. GOVERNING LAW.
-------------
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. (S)(S) 1051 ET SEQ.), THIS AGREEMENT AND THE RELATIONSHIP
------
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF COLORADO, EXCEPT THAT SUCH STATE'S CHOICE OF
LAW AND CONFLICTS OF LAW RULES SHALL NOT APPLY AND ANY FRANCHISE REGISTRATION,
DISCLOSURE, RELATIONSHIP OR SIMILAR STATUTE WHICH MAY BE ADOPTED BY THE STATE OF
COLORADO SHALL NOT APPLY UNLESS ITS JURISDICTIONAL REQUIREMENTS ARE MET
INDEPENDENTLY WITHOUT REFERENCE TO THIS PARAGRAPH.
21.G. CONSENT TO JURISDICTION/CHOICE OF FORUM.
---------------------------------------
FRANCHISE OWNER AGREES THAT FRANCHISE OWNER SHALL, AND COMPANY MAY, AT ITS
OPTION, INSTITUTE ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY
STATE COURT OF GENERAL JURISDICTION IN JEFFERSON COUNTY, COLORADO OR THE UNITED
STATES FEDERAL DISTRICT COURT FOR THE DISTRICT OF COLORADO, OR THE STATE COURT
OF GENERAL JURISDICTION OR UNITED STATES FEDERAL DISTRICT COURT NEAREST TO
COMPANY'S EXECUTIVE OFFICE AT THE TIME SUCH ACTION IS FILED. FRANCHISE OWNER
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND WAIVES ANY
OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION OR VENUE OF ANY SUCH COURT.
21.H. LIMITATIONS OF CLAIMS.
---------------------
EXCEPT FOR CLAIMS BROUGHT BY COMPANY WITH REGARD TO FRANCHISE OWNER'S
OBLIGATIONS TO MAKE PAYMENTS TO COMPANY PURSUANT TO THIS AGREEMENT AND TO
INDEMNIFY COMPANY PURSUANT TO SECTION 20.D., ANY AND ALL CLAIMS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF FRANCHISE OWNER AND COMPANY
PURSUANT TO THIS AGREEMENT SHALL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN:
(1) TWO (2) YEARS FROM THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE
CLAIM OCCURRED OR (2) ONE (1) YEAR FROM THE DATE ON WHICH FRANCHISE OWNER OR
COMPANY KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF
THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
21.I. WAIVER OF PUNITIVE DAMAGES.
--------------------------
COMPANY AND FRANCHISE OWNER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR
SPECULATIVE DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT OF A DISPUTE
BETWEEN THEM,
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EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE LIMITED TO THE RECOVERY OF
ACTUAL DAMAGES SUSTAINED BY IT.
21.J. WAIVER OF JURY TRIAL.
--------------------
COMPANY AND FRANCHISE OWNER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY ON ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER OF THEM.
21.K. BINDING EFFECT.
--------------
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and shall
not be modified, except by written agreement signed by both FRANCHISE OWNER and
COMPANY.
21.L. CONSTRUCTION.
------------
The preambles and exhibits are a part of this Agreement, this Agreement
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between COMPANY and FRANCHISE OWNER
relating to the subject matter of this Agreement. Except as otherwise provided
herein, nothing in this Agreement is intended, nor shall be deemed, to confer
any rights or remedies upon any person or legal entity not a party hereto. The
headings of the several sections and paragraphs hereof are for convenience only
and do not define, limit, or construe the contents of such sections or
paragraphs. The term "FRANCHISE OWNER" as used in this Agreement is applicable
to one or more persons or entities as the case may be, and the singular usage
includes the plural and the masculine and neuter usages include each other and
the feminine.
If two or more persons are at any time FRANCHISE OWNER hereunder, whether
or not as partners or joint venturers, their obligations and liabilities to
COMPANY shall be joint and several. This Agreement shall be executed in
multiple copies, each of which shall be deemed an original.
21.M. REASONABLENESS; APPROVALS.
-------------------------
COMPANY and FRANCHISE OWNER agree to act reasonably in all dealings with
each other pursuant to this Agreement. Whenever the consent or approval of
either party is required or contemplated hereunder, such approval shall be in
writing, and the party whose consent or 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
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(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 80401-4086, to the attention of the Vice
President, Franchise Development, with a copy to the Vice President and General
Counsel or at its most current principal business address of which FRANCHISE
OWNER has been notified. Notices to FRANCHISE OWNER shall be sent to FRANCHISE
OWNER at the address shown on the first page of this Agreement or to FRANCHISE
OWNER's most current principal business address of which COMPANY has been
notified, as applicable. All payments and reports required by this Agreement
shall be directed to COMPANY at the above address, or to such other persons and
places as COMPANY may direct from time to time. Any required payment or report
not actually received by COMPANY during regular business hours on the date due
(or postmarked by postal authorities at least two (2) days prior thereto) shall
be deemed delinquent.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in multiple originals on the day and year first above written and
COMPANY has accepted this Agreement in Jefferson County, Colorado.
EINSTEIN/NOAH BAGEL CORP. _________________________________
FRANCHISE OWNER
By:__________________________ By:______________________________
Title:_____________________ Title:_________________________
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EXHIBIT A
TO THE EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND __________________________
DATED _________________
CATERING RIDER
--------------
<PAGE>
CATERING RIDER
--------------
THIS RIDER is made as of this ____________ day of _________, 19____ by and
between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation ("COMPANY"),
and_____________________________________________, a
__________________________________ ("FRANCHISE OWNER"), and is attached to and
incorporated into the Einstein/Noah Bagel Corp. Franchise Agreement by and
between COMPANY and FRANCHISE OWNER (the "Agreement") dated as of
____________________________. All capitalized terms not defined in this Rider
shall have the respective meanings set forth in the Agreement. To the extent
that the terms of this Rider are inconsistent with any of the terms of the
Agreement, the terms of this Rider shall supersede and govern.
1. CATERING SERVICE. FRANCHISE OWNER agrees that, within _______________
----------------
(_____) days after the execution date of this Rider and thereafter during the
remainder of the term of the Agreement, subject to earlier termination by
COMPANY as provided below in this Rider, FRANCHISE OWNER will offer and provide
Catering Service (defined below) from the Stores or, if required by COMPANY in
its sole discretion, from a catering facility ("CATERING FACILITY") to customers
located within the geographic area described in Schedule A attached hereto
----------
("CATERING AREA"). As used herein, "Catering Service" shall mean the delivery of
Products prepared at the Stores or a Catering Facility to customers in the
Catering Area, where (a) such Products are intended to serve fifteen (15) or
more persons, or (b) in addition to the delivery of Products, FRANCHISE OWNER
provides ancillary services to a customer at a location within the Catering
Area, including, by way of example and without limitation, setting up for
serving or other distribution of Products. The Stores or the Catering Facility,
whichever is used for the conduct of Catering Service by FRANCHISE OWNER, shall
be referred to herein as the "CATERING LOCATION" and shall be identified in
Schedule A attached hereto immediately after COMPANY approves such Catering
- ----------
Facility in writing pursuant to the requirements of Paragraph 2 below. FRANCHISE
OWNER acknowledges and agrees that Catering Service shall not include Delivery
Service, as defined in the Agreement. FRANCHISE OWNER, at its sole expense,
shall take such actions (including, without limitation, constructing such
improvements and acquiring fixtures, equipment, vehicles, and other materials
and supplies) and obtain such permits as are required to commence Catering
Service from the Catering Location within the (___) day period specified above.
2. CATERING SERVICE STANDARDS. FRANCHISE OWNER agrees to provide Catering
--------------------------
Service in accordance with the standards, specifications and procedures for
Catering Service which COMPANY prescribes, and may change from time to time in
its sole discretion, in the Manuals or otherwise in writing, including, without
limitation, requirements for catering vehicles (owned and non-owned), training
and conduct of personnel involved in Catering Service, design, layout,
equipment, fixtures, furniture, signage, product packaging, materials and
supplies, and COMPANY's prototype plans and layout for a Catering Location.
In particular, and without limiting the foregoing, FRANCHISE OWNER shall:
A-1
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a. require all catering drivers to strictly comply with all
regulations, laws and ordinances applicable to the operation of motor
vehicles and use due care, taking into consideration road conditions, when
performing catering services;
b. require all catering drivers to maintain adequate motor vehicle
liability insurance that complies with all applicable laws and regulations
and that extends to the operation of a motor vehicle for use for commercial
delivery;
c. maintain or cause drivers to maintain all catering vehicles in
good and safe operating condition in full compliance with all applicable
laws and regulations;
d. conduct initial and periodic (at least once every six months)
driving record checks on all catering drivers;
e. require all catering drivers to possess and maintain valid
drivers licenses and driving records free of disqualifying violations;
f. suspend, or where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any catering driver who
does not conform to COMPANY's standards and specifications for Catering
Service; and
g. obtain and maintain all licenses, permits and other governmental
approvals necessary or advisable for the provision of Catering Services,
and the conduct of such Catering Service in a manner which complies with
all sanitary, safety and food preparation and holding period standards.
FRANCHISE OWNER shall maintain the condition and appearance of, and perform
maintenance with respect to, the Catering Location, catering vehicles,
furniture, fixtures and equipment used in connection with the provision of
Catering Service in accordance with COMPANY's standards, specifications and
procedures, and consistent with the image of UNITS and related facilities as
first class, clean, sanitary, attractive and efficiently operated food service
businesses.
3. COMPANY'S REVIEW AND APPROVAL OF THE CATERING FACILITY. FRANCHISE
------------------------------------------------------
OWNER shall comply with COMPANY's specifications and requirements regarding site
selection (if applicable), development and construction of the Catering
Facility. FRANCHISE OWNER shall promptly submit to COMPANY after the execution
date of this Rider a complete site evaluation report and feasibility analysis
(the "CATERING FACILITY SITE PACKAGE") on COMPANY's specified form (containing
such commercial and other information and photographs as COMPANY may require
from time to time) for the site at which FRANCHISE OWNER proposes and intends in
good faith to establish and operate the Catering Facility and which FRANCHISE
OWNER reasonably believes to conform to certain minimum site criteria for
catering facilities established by COMPANY from time to time in its sole
discretion. In approving or disapproving any proposed site for the Catering
Facility, COMPANY will consider such matters as it deems material, including,
without limitation, the effect Catering Service will have on the carry-out and
on-premises dining services and Delivery Service (if any) conducted
A-2
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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 FRANCHISE OWNER. COMPANY agrees to
exert its best efforts to deliver such notification to FRANCHISE OWNER within
twenty (20) days after receipt by COMPANY of a complete Catering Facility Site
Package and such other materials requested by COMPANY from time to time,
containing all information required by COMPANY. COMPANY shall have the right in
its sole discretion to approve or disapprove a proposed site for the Catering
Facility, and FRANCHISE OWNER acknowledges and agrees that COMPANY shall have no
liability therefor. Notwithstanding any other provision of this Rider,
COMPANY's failure to provide FRANCHISE OWNER with notice of its approval or
disapproval of one or more proposed sites shall in no event constitute a waiver
of COMPANY's right to approve or disapprove the site for the Catering Facility.
4. COMPANY'S RIGHT TO TERMINATE THE AGREEMENT OR CATERING SERVICE. If
--------------------------------------------------------------
FRANCHISE OWNER fails to provide Catering Service as required pursuant to this
Rider, FRANCHISE OWNER acknowledges and agrees COMPANY shall have the right to
(a) terminate the Agreement pursuant to and in accordance with the terms
specified in Section 3.C. of the Agreement, or (b) FRANCHISE OWNER's right to
provide Catering Service, among other rights, pursuant to and in accordance with
the terms specified in Section 18.B(8)(b) of the Agreement. If COMPANY
terminates FRANCHISE OWNER's right to perform Catering Service pursuant to this
Paragraph 4, COMPANY or its designee will have the right to offer Catering
Service within the Territory of the STORE from and after COMPANY's delivery of
written notice of such termination to FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY reserves the right, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by FRANCHISE OWNER in establishing and conducting Catering Service or the
length of time FRANCHISE OWNER has offered Catering Service: (1) to reduce,
modify or expand the Catering Area, effective upon COMPANY's written notice to
FRANCHISE OWNER, provided, however, that if a reduction or modification of the
Catering Area amounts to a termination of substantially all of FRANCHISE OWNER's
rights to provide such services (except in the case of the exercise by COMPANY
of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to FRANCHISE OWNER; or (2) to suspend or terminate FRANCHISE OWNER's right to
offer Catering Service, effective one hundred eighty (180) days after COMPANY's
written notice to FRANCHISE OWNER (in which case, FRANCHISE OWNER will not file
any orders for Catering Service after the expiration of such one hundred eighty
(180) day period). In the event of such suspension or termination, COMPANY
reserves the right to require FRANCHISE OWNER to reinstate Catering Service upon
fifteen (15) days' prior written notice to FRANCHISE OWNER.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Rider in multiple originals as of the date of the Agreement.
EINSTEIN/NOAH BAGEL CORP. _________________________________
FRANCHISE OWNER
By:______________________ ___________________________
Its:___________________ ___________________________
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<PAGE>
SCHEDULE A
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ______________________
DATED _____________ TO THE CATERING RIDER
CATERING AREA AND CATERING FACILITY
-----------------------------------
1. CATERING AREA. The Catering Area will be as follows:
-------------
, provided that COMPANY may, at any time and in its sole discretion, with or
without cause and regardless of the investment made by FRANCHISE OWNER in
establishing and conducting Catering Service or the length of time FRANCHISE
OWNER has offered Catering Service, reduce, modify or expand the Catering Area.
2. CATERING FACILITY. The Catering Facility will be located at the
-----------------
following address:
_______________________________________________________________
_______________________________________________________________
EINSTEIN BROS. BAGELS, INC. ________________________________
FRANCHISE OWNER
By:___________________________ By:_____________________________
Its:________________________ Its:__________________________
A-1
<PAGE>
EXHIBIT B
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ______________________
DATED _____________
DELIVERY RIDER
--------------
<PAGE>
DELIVERY RIDER
--------------
THIS RIDER is made as of this _________________ day of _____________, 19___
by and between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation ("COMPANY"),
and _________________________________________________, a
_____________________________________ ("FRANCHISE OWNER"), and is attached to
and incorporated into the Einstein/Noah Bagel Corp. Franchise Agreement by and
between COMPANY and FRANCHISE OWNER (the "AGREEMENT") dated as of
_________________. All capitalized terms not defined in this Rider shall have
the respective meanings set forth in the Agreement. To the extent that the terms
of this Rider are inconsistent with any of the terms of the Agreement, the terms
of this Rider shall supersede and govern.
1. DELIVERY SERVICE. FRANCHISE OWNER agrees that, within _____________
-----------------
(_____) days after the execution date of this Rider and thereafter during the
remainder of the term of the Agreement, subject to earlier termination by
COMPANY as provided below in this Rider, FRANCHISE OWNER will offer and provide
Delivery Service (defined below) from the Stores or, if required by COMPANY its
sole discretion, from a separate delivery facility approved by COMPANY in
writing ("DELIVERY FACILITY"), to customers located within the geographic area
described in Schedule A attached hereto ("DELIVERY AREA"). As used herein,
----------
"DELIVERY SERVICE" shall mean the delivery of Products prepared at the 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. FRANCHISE OWNER acknowledges
and agrees that Delivery Service shall not include Catering Service, as defined
in the Agreement. FRANCHISE OWNER, at its sole expense, shall take such actions
(including, without limitation, constructing such improvements and acquiring
fixtures, equipment, delivery vehicles, and other materials and supplies) and
obtain such permits as required to commence Delivery Service within the
__________________ (______) day period specified above.
2. DELIVERY SERVICE STANDARDS. FRANCHISE OWNER agrees to provide
--------------------------
Delivery Service in accordance with the standards, specifications and procedures
for Delivery Service which COMPANY prescribes, and which COMPANY may change from
time to time in its sole discretion, in the Manuals or otherwise in writing,
including, without limitation, requirements for delivery drivers, delivery
vehicles (owned and non-owned), delivery response time, training of personnel
involved in Delivery Service, design, layout, equipment, fixtures, signage,
product packaging, materials and supplies, and COMPANY's prototype plans and
layout for a delivery staging area within a UNIT or for a Delivery Facility, if
any, approved by COMPANY.
In particular, and without limiting the foregoing, FRANCHISE OWNER shall:
a. require all delivery drivers to strictly comply with all
regulations, laws and ordinances applicable to the operation of motor
vehicles and use due care, taking into consideration road conditions, when
performing delivery services;
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<PAGE>
b. require all delivery drivers to maintain adequate motor vehicle
liability insurance that complies with all applicable laws and regulations
and that extends to the operation of a motor vehicle for use for commercial
delivery;
c. maintain or cause drivers to maintain all delivery vehicles in
good and safe operating condition in full compliance with all applicable
laws and regulations;
d. conduct initial and periodic (at least once every six months)
driving record checks on all delivery drivers;
e. not guarantee to customers delivery within any specified time or
advertise or promote refunds or discounts for FRANCHISE OWNER's failure to
deliver within any specified time;
f. require all delivery drivers to possess and maintain valid
drivers licenses and driving records free of disqualifying violations; and
g. suspend, or where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any delivery driver who
does not conform to COMPANY's standards and specifications for Delivery
Service.
FRANCHISE OWNER shall maintain the condition and appearance of, and perform
maintenance with respect to the delivery vehicles, facilities, fixtures and
equipment used in connection with the provision of Delivery Service in
accordance with COMPANY's standards, specifications and procedures, and
consistent with the image of UNITS as first class, clean, sanitary, attractive
and efficiently operated food service businesses.
3. COMPANY'S RIGHT TO TERMINATE THE AGREEMENT OR DELIVERY SERVICE. If
--------------------------------------------------------------
FRANCHISE OWNER fails to provide Delivery Service as required pursuant to this
Rider, FRANCHISE OWNER acknowledges and agrees COMPANY shall have the right to
terminate (a) the Agreement pursuant to and in accordance with Section
18.B(8)(a) of the Agreement, or (b) FRANCHISE OWNER's right to provide Delivery
Service, among other rights, pursuant to and in accordance with Section 3.B of
the Agreement. If COMPANY terminates FRANCHISE OWNER's right to perform Delivery
Service pursuant to this Paragraph 3, COMPANY or its designee will have the
right to offer Delivery Service within the Development Area from and after
COMPANY's delivery of written notice of such termination to FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY reserves the right, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by FRANCHISE OWNER in establishing and conducting Delivery Service or the
length of time FRANCHISE OWNER has offered Delivery Service: (a) to reduce,
modify or expend the Delivery Area, effective upon COMPANY's written notice to
FRANCHISE OWNER, provided, however, that if a reduction or modification of the
Delivery Area amounts to a termination of substantially all of FRANCHISE OWNER's
rights to provide such services (except in the case of the exercise by COMPANY
of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to
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<PAGE>
FRANCHISE OWNER; or (b) to suspend or terminate FRANCHISE OWNER's right to offer
Delivery Service, effective one hundred eighty (180) days after COMPANY's
written notice to FRANCHISE OWNER. In the event of such suspension or
termination, COMPANY reserves the right to require FRANCHISE OWNER to reinstate
Delivery Service upon fifteen (15) days' prior written notice to FRANCHISE
OWNER.
4. DISPLAY OF MARKS. FRANCHISE OWNER is hereby granted a special,
----------------
limited license to display on delivery vehicles used in the performance of
delivery service pursuant to this Rider the Marks and logos in the form and
manner specified by COMPANY in the Manuals or otherwise. This license shall
expire automatically and without notice upon the expiration or termination of
FRANCHISE OWNER's right to provide delivery services pursuant to this Rider.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Rider in multiple originals as of the date of the Agreement.
EINSTEIN/NOAH BAGEL CORP. _______________________________
(FRANCHISE OWNER)
By:_________________________ _______________________________
Its:______________________ _______________________________
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<PAGE>
SCHEDULE A
TO THE DELIVERY RIDER
TO THE EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND _______________________
DATED _______________
DELIVERY AREA
-------------
1. DELIVERY AREA. The Delivery Area of the Store will be as
-------------
follows:
, provided that COMPANY may, and FRANCHISE OWNER acknowledges and agrees that
COMPANY may, at any time and in its sole discretion with or without cause and
regardless of the investment made by FRANCHISE OWNER in establishing and
conducting Delivery Service or the length of time FRANCHISE OWNER has offered
Delivery Service, reduce, modify or expand the Delivery Area.
EINSTEIN BROS. BAGELS, INC. _________________________________
FRANCHISE OWNER
BY:__________________________ By:______________________________
Its:_______________________ Its:___________________________
B-1
<PAGE>
EXHIBIT C
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND _______________________
DATED ________________
FRANCHISE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
-----------------------------
<PAGE>
FRANCHISE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
-----------------------------
1. FRANCHISE OWNER acknowledges that it has read the Franchise Agreement
(the "AGREEMENT") between Einstein/Noah Bagel Corp. ("COMPANY") and FRANCHISE
OWNER dated as of the same date hereof and COMPANY's Franchise Offering Circular
in their entirety and that it understands and accepts the terms, conditions, and
covenants contained in the Agreement as being reasonably necessary to maintain
COMPANY's high standards of quality and service and the uniformity of those
standards at all UNITS and to protect and preserve the goodwill of the 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.) FRANCHISE OWNER
acknowledges that: (1) COMPANY delivered and FRANCHISE OWNER received a copy of
COMPANY's Franchise Offering Circular at the earlier of (a) FRANCHISE OWNER's
first personal meeting with COMPANY or (b) ten business days prior to the
execution of the Agreement or the payment of any consideration by FRANCHISE
OWNER in connection with the transaction contemplated in the Agreement; and (2)
COMPANY delivered and FRANCHISE OWNER received the Agreement in form for
execution at least five (5) business days prior to the execution of the
Agreement.
2. FRANCHISE OWNER acknowledges that the food service business is a
highly competitive industry, with constantly changing market conditions.
FRANCHISE OWNER acknowledges that it has conducted an independent investigation
of the business venture contemplated by the Agreement and recognizes that, like
any other business, the nature of the business conducted by 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 FRANCHISE OWNER.
3. FRANCHISE 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. FRANCHISE 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 Principal Marks. Further,
FRANCHISE 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 FRANCHISE OWNER's Territory under marks other than
the Principal Marks; or (2) operate and/or grant others the right to offer
Products in FRANCHISE OWNER'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.
4. FRANCHISE OWNER acknowledges and agrees that some aspects of
COMPANY's franchise program and the System are still under development and that
COMPANY expects that there will be some significant variations in the System in
different regional markets which may exist for an initial or transitional
period, or on a permanent basis. COMPANY may, for example, allow FRANCHISE
OWNER to use one recipe for bagels,
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<PAGE>
cream cheeses or other items while allowing other developers and franchise
owners to use different recipes. COMPANY may also allow variations between
developers and franchise owners in the areas of trademarks, trade dress,
operational items or other aspects of Stores. FRANCHISE OWNER acknowledges and
agrees that only COMPANY may determine what variations FRANCHISE OWNER may use
and that FRANCHISE OWNER will in any event conform strictly to the standards and
specifications which COMPANY establishes for FRANCHISE OWNER's 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. FRANCHISE OWNER understands
and accepts that, over time during the term of the Agreement COMPANY will
continue to develop and refine various aspects of the System and that as new
products, new operating procedures, new trade dress and other refinements are
introduced, COMPANY may, in its sole discretion, cease to allow some or all of
the variations and may require local or regional variations or national
uniformity among UNITS as to aspects for which COMPANY had previously allowed
variations. FRANCHISE OWNER acknowledges and agrees that this may mean that
FRANCHISE OWNER may be required, for example, to change one or more of (a) the
recipes FRANCHISE OWNER uses for bagels, cream cheese or other items; (b) the
trademarks and/or service marks FRANCHISE OWNER uses; (c) the trade dress or
operational procedures FRANCHISE OWNER uses; or (d) other aspects of your UNITS.
Some or all of these changes may require FRANCHISE OWNER to make substantial
additional capital expenditures. FRANCHISE OWNER acknowledges and agrees that
COMPANY may discontinue any of the variations which it had previously allowed
FRANCHISE OWNER to utilize and that FRANCHISE OWNER will conform to all required
local, regional and/or national standards and specifications and other
requirements which COMPANY may establish from time to time even if it means
substantial additional expense for FRANCHISE OWNER Further, COMPANY acknowledges
and agrees that it shall provide to COMPANY the data COMPANY requires concerning
FRANCHISE OWNER'S operations in order to allow COMPANY to assess the success of
different variations in its retail store concept.
Furthermore, FRANCHISE OWNER acknowledges and agrees that COMPANY may
continue to operate and/or franchise others to operate UNITS in certain areas
under 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. FRANCHISE OWNER further understands
and agrees that COMPANY may, rather than operating and franchising a national
chain of bagel stores operating under a single trademark or service mark,
determine in its sole discretion to operate and franchise a network of bagel
shops operating under different names in different geographic areas.
5. FRANCHISE OWNER acknowledges that neither COMPANY nor any officer,
director, employee, agent, representative or Affiliate thereof has made any
representations or statements of actual, average, projected or forecasted sales,
profits, earnings, cash flow or costs with respect to any UNITS. Neither
COMPANY's sales personnel nor any employee, officer, director, agent,
representative or affiliate of the COMPANY is authorized to make any claims or
statements as to the sales, profits, earnings, cash flow, costs or prospects or
chances of
C-2
<PAGE>
success that any developer or franchise owner can expect or that present or past
franchise owners have had. COMPANY specifically instructs its sales personnel,
employees, officers, directors, agents, representatives and affiliates that they
are not permitted to make such claims or statements as to the sales, profits,
earnings, cash flow, costs or the prospects or chances of success, nor are they
authorized to represent or estimate amounts of sales, profits, earnings, cash
flow, costs or other measures as to any aspect of the operation of UNITS.
COMPANY recommends that applicants for UNIT franchises make their own
investigations and determine whether or not a UNIT is profitable. COMPANY will
not be bound by any unauthorized representations as to FRANCHISE OWNER's sales,
profits, earnings, cash flow, costs or prospects or chances of success. COMPANY
recommends that each applicant for a UNIT franchise consult with an attorney of
its choosing and further be represented by legal counsel at the time of its
closing. FRANCHISE OWNER acknowledges that it has had ample opportunity to
consult with legal counsel and other professional advisors. FRANCHISE OWNER
acknowledges that it has not received or relied on any representations about the
Franchise by COMPANY, or its sales personnel, employees, officers, directors,
agents, representatives or affiliates that are contrary to the statements made
in COMPANY's Franchise Offering Circular or to the terms of the Agreement.
6. FRANCHISE OWNER hereby acknowledges and agrees that COMPANY's approval
of the Site and Site Agreement for the Store does not constitute an assurance,
representation or warranty of any kind, express or implied, as to the
suitability of the Site or Site Agreement for a 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 FRANCHISE OWNER and
COMPANY acknowledge that application of criteria that have been effective with
respect to other sites may not be predictive of potential for all sites and
that, subsequent to COMPANY's approval of the Site, demographic and/or economic
factors, such as competition from other similar businesses, included in or
excluded from COMPANY's criteria could change, thereby altering the potential of
the Site. Such factors are unpredictable and are beyond COMPANY's control.
COMPANY shall not be responsible for the failure of the Site approved by COMPANY
to meet FRANCHISE OWNER's expectations as to revenue or operational criteria.
FRANCHISE OWNER further acknowledges and agrees that its acceptance of a
Franchise for the operation of a Store at the Site is based on its own
independent investigation of the suitability of the Site.
7. FRANCHISE OWNER acknowledges that COMPANY's approval of a financing
plan for operation of the Store under the Agreement does not constitute any
assurance that such financing plan is adequate, favorable or not unduly
burdensome, or that the Store will be successful if the financing plan is
implemented by FRANCHISE OWNER. COMPANY's approval of the financing plan
indicates only that such financing plan meets or that COMPANY has waived
COMPANY's then-current minimum standards established by COMPANY solely for its
own purposes at the time of approval thereof.
8. FRANCHISE OWNER acknowledges that in all of COMPANY's dealings with
FRANCHISE OWNER, the officers, directors, employees, and agents of COMPANY act
only
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<PAGE>
in a representative capacity and not in an individual capacity. FRANCHISE OWNER
further acknowledges that the Agreement, and all business dealings between
FRANCHISE OWNER and such individuals as a result of the Agreement, are solely
between FRANCHISE OWNER and COMPANY. Furthermore, FRANCHISE OWNER represents to
COMPANY, as an inducement to its entry into the Agreement, that neither
FRANCHISE OWNER nor its Owners have made any misrepresentations in obtaining the
Franchise.
9. If FRANCHISE OWNER is a legal entity,
FRANCHISE OWNER:
(A) represents that it is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization, is
qualified to do business in all jurisdictions in which its business
activities or the nature of properties owned by FRANCHISE OWNER requires
such qualification, and has the authority to execute and deliver the
Agreement and perform all FRANCHISE OWNER's obligations under the
Agreement; and
(B) agrees that all certificates representing Ownership Interests in
FRANCHISE OWNER now outstanding or hereafter issued will be endorsed with a
legend in form approved by COMPANY reciting that the transfer of Ownership
Interests in FRANCHISE OWNER is subject to restrictions contained in this
Agreement.
10. FRANCHISE OWNER, whether or not a legal entity, represents and
warrants that FRANCHISE OWNER is not subject to any restriction, agreement,
contract, commitment, law, judgment or decree which would prohibit or be
breached or violated by FRANCHISE OWNER's execution and delivery of the
Agreement or performance of its obligations thereunder. At COMPANY's request,
FRANCHISE OWNER shall furnish an opinion of counsel to COMPANY in form and
substance satisfactory to COMPANY, to the effect that the Agreement is a valid
and binding agreement of FRANCHISE OWNER, enforceable against FRANCHISE OWNER in
accordance with its terms, and that FRANCHISE OWNER is not subject to any
restriction, agreement, law, judgment or decree which would prohibit or be
violated by FRANCHISE OWNER's execution and delivery of the Agreement and
performance of its obligations thereunder.
11. FRANCHISE OWNER further represents and warrants that all Owners of
FRANCHISE OWNER and their interests therein are completely and accurately listed
in Exhibit E to the Agreement and covenants that FRANCHISE OWNER will make,
---------
execute and deliver to COMPANY such revisions thereto as may be necessary during
the term of the Franchise to reflect any changes in the information contained
therein.
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<PAGE>
12. FRANCHISE OWNER represents and warrants that its domicile is as set
forth below:
_____________________________________
Address
_____________________________________
City and State
___________________________________
FRANCHISE OWNER
By:________________________________
Title:___________________________
Date:______________________________
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<PAGE>
EXHIBIT D
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
___________________________________________ ("FRANCHISE OWNER")
DATED _________________
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
-------------------------------------------------------
<PAGE>
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
-------------------------------------------------------
1. APPLICABILITY. If this Agreement is not executed pursuant to a
-------------
Development Agreement, Section 2 of this Exhibit shall be completed by the
parties and Sections 2 and 3 of this Exhibit shall be incorporated into this
Agreement. If this Agreement is executed pursuant to a Development Agreement,
Section 4 of this Exhibit shall be completed by the parties and incorporated
into this Agreement.
2. OWNERS IN PERMITTED COMPETITIVE BUSINESSES. If applicable
------------------------------------------
pursuant to Section 1 of this Exhibit and as specified in Section 10 of this
Agreement, the following Owners currently perform services for or have an
ownership interest in a Permitted Competitive Business as of the date of this
Agreement.
NAME OF OWNER: NAME OF OWNER:
________________________________ ________________________________
Name of Competitive Business: Name of Competitive Business:
________________________________ ________________________________
Address of Competitive Business: Address of Competitive Business:
________________________________ ________________________________
________________________________ ________________________________
NAME OF OWNER: NAME OF OWNER:
________________________________ ________________________________
Name of Competitive Business: Name of Competitive Business:
________________________________ ________________________________
Address of Competitive Business: Address of Competitive Business:
________________________________ ________________________________
________________________________ ________________________________
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<PAGE>
FRANCHISE OWNER and its Owners represent and warrant that they have
previously provided to COMPANY a true, correct, complete and detailed
description of all Competitive Businesses in which they own, directly or
indirectly, interests and that all such Competitive Businesses are disclosed in
this Exhibit D. FRANCHISE OWNER and its Owners acknowledge that COMPANY has
relied on the aforementioned description of such Competitive Businesses in
entering into this Agreement with DEVELOPER.
3. DEVELOPMENT AGREEMENT. If applicable pursuant to Section 1 of
---------------------
this Exhibit, FRANCHISE OWNER acknowledges that it has received, and it has
reviewed and understands, the form of Development Agreement contained in
COMPANY's Uniform Franchise Offering Circular in effect as of the date of this
Agreement.
4. DATE OF DEVELOPMENT AGREEMENT AND IDENTITY OF DEVELOPER. If
-------------------------------------------------------
applicable pursuant to Section 1 of this Exhibit, the date of the Development
Agreement and the identity of DEVELOPER under the Development Agreement is as
follows:
_________________________________
DEVELOPER
_________________________________
DATE
EINSTEIN/NOAH BAGEL CORP. ___________________________________
FRANCHISE OWNER
By:_____________________________ By:________________________________
Title:_________________________ Title:____________________________
D-2
<PAGE>
EXHIBIT E
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________ ("FRANCHISE OWNER")
DATED ___________________________
PRINCIPAL OWNERS, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
STORE MANAGER AND ADDITIONAL MANAGER,
SUPERVISING OWNERS AND INITIAL CAPITALIZATION
---------------------------------------------
<PAGE>
PRINCIPAL OWNERS, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
STORE MANAGER AND ADDITIONAL MANAGER,
SUPERVISING OWNERS AND INITIAL CAPITALIZATION
---------------------------------------------
1. PRINCIPAL OWNERS: Listed below is the full name and mailing
----------------
address of each person or entity who is a Principal Owner of FRANCHISE OWNER and
a description of the nature and amount of such Principal Owner's direct or
indirect equity or voting interest in FRANCHISE OWNER:
______________ (INITIAL HERE IF THE FOLLOWING STATEMENT IS APPLICABLE AND DO
NOT COMPLETE THE REST OF THIS SECTION 1.) The Principal Owners of FRANCHISE
OWNER and their respective equity and voting interests in FRANCHISE OWNER are
the same as indicated in the Development Agreement with respect to the Principal
Owners and their interests in DEVELOPER.
Name:_____________________ Number of Interests Owned:___________________
Address:__________________ % of Total Interests:________________________
__________________________ Number of Interests Owner is Entitled
__________________________ to Vote:_____________________________________
__________________________ Other Interest (Describe):___________________
Name:_____________________ Number of Interests Owned:___________________
Address:__________________ % of Total Interests:________________________
__________________________ Number of Interests Owner is Entitled
__________________________ to Vote:_____________________________________
__________________________ Other Interest (Describe):___________________
Name:_____________________ Number of Interests Owned:___________________
Address:__________________ % of Total Interests:________________________
__________________________ Number of Interests Owner is Entitled
__________________________ to Vote:_____________________________________
__________________________ Other Interest (Describe):___________________
Name:_____________________ Number of Interests Owned:___________________
Address:__________________ % of Total Interests:________________________
__________________________ Number of Interests Owner is Entitled
__________________________ to Vote:_____________________________________
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<PAGE>
__________________________ Other Interest (Describe):___________________
_____________________________________________
2. DESIGNATED PRINCIPAL OWNERS. The following individuals are
---------------------------
designated as Principal Owners based upon their business experience, financial
capacity or other personal attributes:
________________________________ __________________________________________
Name Name
________________________________ __________________________________________
Name Name
3. OTHER OWNERS. Listed below is the full name and mailing address
------------
of each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity voting interest in FRANCHISE OWNER and a description
of the nature and amount of the interest (attach additional sheets if
necessary):
______________ (INITIAL HERE IF THE FOLLOWING STATEMENT IS APPLICABLE AND DO
NOT COMPLETE THE REST OF THIS SECTION 3.) The Owners of FRANCHISE OWNER and
their respective equity and voting interests in FRANCHISE OWNER are the same as
indicated in the Development Agreement with respect to the Owners and their
interests in DEVELOPER.
Name:____________________ Number of Interests Owned:__________________
Address:_________________ % of Total Interests________________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:____________________________________
_________________________ Other Interest (Describe):__________________
____________________________________________
Name:____________________ Number of Interests Owned:__________________
Address:_________________ % of Total Interests:_______________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:____________________________________
_________________________ Other Interest (Describe):__________________
____________________________________________
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<PAGE>
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:
Name:_________________________ Name:_________________________________
(Store Manager) (Additional Manager)
5. SUPERVISING OWNERS: As required pursuant to this Agreement, the
------------------
following Principal Owners shall supervise the operation of the Store:
Name:_________________________ Name:_________________________________
Name:_________________________ Name:_________________________________
6. INITIAL CAPITALIZATION. FRANCHISE OWNER: (a) represents and
----------------------
warrants that it has developed and previously provided to COMPANY a description
of its initial capital structure (the "INITIAL CAPITAL STRUCTURE") which is a
true, correct, complete and detailed description of FRANCHISE OWNER's capital
structure; (b) covenants that it will not deviate from the Initial Capital
Structure without COMPANY's prior written consent; and (c) acknowledges that
COMPANY has relied on the Initial Capital Structure in entering into this
Agreement.
EINSTEIN/NOAH BAGEL CORP. ______________________________________
FRANCHISE OWNER
By:_________________________ By:___________________________________
Title:_____________________ Title:______________________________
E-3
<PAGE>
EXHIBIT F
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
____________________________________ ("FRANCHISE OWNER")
DATED ________________________
SITE AND TERRITORY
------------------
<PAGE>
SITE AND TERRITORY
------------------
1. SITE. The Site of the Store will be as follows:
----
2. TERRITORY. The Territory shall be as follows:
---------
EINSTEIN/NOAH BAGEL CORP. _____________________________________
FRANCHISE OWNER
By:________________________ By:__________________________________
Title:____________________ Title:______________________________
F-1
<PAGE>
EXHIBIT G
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
______________________________________________ ("FRANCHISE
OWNER")
DATED ___________________
GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS
--------------------------------------------------------
<PAGE>
GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS
--------------------------------------------------------
THIS GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS is given this
_______ day of _______________, 19__, by the undersigned.
FRANCHISE OWNER:_____________________________
DATE OF FRANCHISE AGREEMENT:_________________
In consideration of, and as an inducement to, the execution of the above
mentioned Einstein/Noah Bagel Corp. Franchise Agreement (the "FRANCHISE
AGREEMENT") by EINSTEIN/NOAH BAGEL CORP. ("COMPANY"), each of the undersigned
and any other parties who sign counterparts of this guaranty (referred to herein
individually as a "GUARANTOR" and collectively as "GUARANTORS") hereby
personally and unconditionally: (a) guarantees to COMPANY, and its successors
and assigns, for the term of the Franchise Agreement and thereafter as provided
in the Franchise Agreement, that FRANCHISE OWNER shall punctually pay and
perform each and every undertaking, agreement and covenant set forth in the
Franchise Agreement; and (b) agrees to be personally bound by, and personally
liable for the breach of, each and every provision in the Franchise Agreement,
both monetary obligations and other obligations, including, without limitation,
the obligation to pay costs and legal fees as provided in the Franchise
Agreement and the obligation to take or refrain from taking specific actions or
to engage or refrain from engaging in specific activities, including, without
limitation, the provisions of the Franchise Agreement relating to competitive
activities.
Each Guarantor waives:
(1) acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
(2) notice of demand for payment of any indebtedness or nonperformance
of any obligations hereby guaranteed; and
(3) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
(4) any right he may have to require that an action be brought against
FRANCHISE OWNER or any other person as a condition of liability; and
G-1
<PAGE>
(5) all rights to payments and claims for reimbursement or subrogation
which he may have against FRANCHISE OWNER arising as a result of his
execution and performance under this guaranty (including by way of
counterpart); and
(6) any and all other notices and legal or equitable defenses to which
he may be entitled.
Each Guarantor consents and agrees that:
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with FRANCHISE OWNER, but also among the
Guarantors; and
(B) he shall render any payment or performance required under the
Franchise Agreement upon demand if FRANCHISE OWNER fails or refuses
punctually to do so; and
(C) such liability shall not be contingent or conditioned upon pursuit
by COMPANY of any remedies against FRANCHISE OWNER or any other person; and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Franchise Agreement or
by any extension of time, credit or other indulgence which COMPANY may from
time to time grant to FRANCHISE OWNER or to any other person, including,
without limitation, the acceptance of any partial payment or performance,
or the compromise or release of any claims, none of which shall in any way
modify or amend this guaranty, which shall be continuing and irrevocable
throughout the term of the Franchise Agreement and for so long thereafter
as there are any monies or obligations owing by FRANCHISE OWNER to COMPANY
under the Franchise Agreement; and
(E) the written acknowledgment of FRANCHISE OWNER, accepted in writing
by COMPANY, or the judgement of any court or arbitration panel of competent
jurisdiction establishing the amount due from FRANCHISE OWNER shall be
conclusive and binding on the undersigned as guarantors.
If COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
If COMPANY is required to engage legal counsel in connection with any failure by
the undersigned to comply with this guaranty, the Guarantors shall reimburse
COMPANY for any of the above-listed costs and expenses incurred by it.
G-2
<PAGE>
Each of the undersigned Guarantors represents and warrants that, if no
signature appears below for such Guarantor's spouse, such Guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of the Guarantor's marital
estate.
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Franchise Agreement was executed.
GUARANTOR(S):
- ------------
DEVELOPER (if any):
___________________________
Name of DEVELOPER
ATTEST:
___________________________
State of Organization
By:________________________ ______________________________
Signature Name:_________________________
Title:_______________________
___________________________
Name and Title
PRINCIPAL OWNERS OF DEVELOPER:
- -----------------------------
____________________________ Spouse:_______________________
Name: Name:______________________
____________________________ Spouse:_______________________
Name: Name:______________________
____________________________ Spouse:_______________________
Name: Name:______________________
PRINCIPAL OWNERS OF FRANCHISE OWNER:
- -----------------------------------
____________________________ Spouse:_______________________
Name: Name:
G-3
<PAGE>
____________________________ Spouse:_______________________
Name: Name:
____________________________ Spouse:_______________________
Name: Name:
G-4
<PAGE>
EXHIBIT H
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
-----------------------------------
DATED ________________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
<PAGE>
EXHIBIT H
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
H-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
CONFIDENTIALITY AND NONCOMPETE AGREEMENT
----------------------------------------
WHEREAS, the undersigned (the "Undersigned") is a current or
prospective employee ("Employee"), owner ("Owner") of an interest in, or
supplier, agent, researcher, consultant, service provider, or vendor ("Vendor")
of, Einstein/Noah Bagel Corp. ("Company") and/or one or more of its affiliates,
subsidiaries, area developers, franchisees, or joint venturers (each a "Related
Party");
WHEREAS, the Undersigned has been or may be given access to certain
confidential and proprietary information of Company and/or its Related Parties
previously not available to the Undersigned.
WHEREAS, the Company and/or the Related Party signatory hereto, as the
case may be, is only willing to commence or continue its relationship with
Undersigned in the event Undersigned enters into this Agreement; and
WHEREAS, the Company and/or the Related Party signatory hereto has
entered into this Agreement with the Undersigned in order to ensure the
confidentiality of Proprietary Information in accordance with the terms of this
Agreement, to ensure that the Undersigned does not utilize such information to
compete with the Company or unfairly disadvantage the Company, and/or to protect
the investment made by the Company and/or the Related Party signatory hereto in
the training and instruction of its Employees and/or in negotiation with and
education of Owners and Vendors, as the case may be.
NOW, THEREFORE, the Undersigned hereby agrees as follows:
1. RECITALS. The recitals set forth above are incorporated herein by
--------
this reference and shall be part of this Agreement.
2. PROPRIETARY INFORMATION. As used in this Agreement, the term
-----------------------
"Proprietary Information" shall mean the business concepts, recipes, food
preparation methods, equipment, operating techniques, marketing methods,
financial information, demographic and trade area information, prospective site
locations, market penetration techniques, plans, or schedules, customer
profiles, preferences, or statistics, menu breakdowns, itemized costs,
franchisee composition, territories, and development plans, and all related
trade secrets or confidential or proprietary information treated as such by the
Company and/or the Related Party signatory hereto, as the case may be, whether
by course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary, by any communication to such effect made prior to
or at the time any such Proprietary Information is disclosed to the Undersigned,
or otherwise.
H-2
<PAGE>
3. USE AND DISCLOSURE OF PROPRIETARY INFORMATION. The Undersigned
---------------------------------------------
shall hold all Proprietary Information in strict confidence, shall use such
Proprietary Information only for the benefit of the Company and/or the Related
Party and shall disclose such Proprietary Information only to the Undersigned's
employees and agents who have a need to know such Proprietary Information in
order to assist the Undersigned, provided such employees and agents each have
individually entered into this Agreement or a Confidentiality and Noncompete
Agreement substantially identical hereto or are otherwise obligated by a written
agreement with the Undersigned to maintain the confidence of the Proprietary
Information, which agreement the Undersigned hereby agrees may be directly
enforced by Company and/or the Related Party signatory hereto, as the case may
be. The Undersigned shall not disclose Proprietary Information to any other
person or entity. The obligations hereunder to maintain the confidentiality of
Proprietary Information shall not expire.
4. LIMITATIONS ON OBLIGATIONS. The obligations of the Undersigned
--------------------------
specified in Section 3 shall not apply to any Proprietary Information which is
received from the Company and/or the Related Party signatory hereto, as the case
may be, which (a) is disclosed in a printed publication available to the public,
or is otherwise in the public domain through no act of the Undersigned or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the Undersigned, (b) is approved for release by
written authorization of an officer of the Company and/or the Related Party
signatory hereto, as the case may be, or (c) is required to be disclosed by
proper order of a court of applicable jurisdiction after adequate notice to the
Company and/or the Related Party signatory hereto, as the case may be,
sufficient to permit them to seek a protective order therefor, the imposition of
which protective order the Undersigned agrees to approve and support.
5. RETURN OF DOCUMENTS. The Undersigned (and each employee, agent,
-------------------
or other person or entity which has received such Proprietary Information from
or through the Undersigned) shall, upon the request of the Company and/or the
Related Party signatory hereto, as the case may be, return all documents and
other tangible manifestations of Proprietary Information received form the
Company and/or the Related Party signatory hereto, as the case may be, including
all copies and reproductions thereof.
6. NONCOMPETE. During the Applicable Term (as defined in Section 10
----------
hereof) and for two years after the later of (i) the end of the Applicable Term
or (ii) the date on which Undersigned returns any Proprietary Information
pursuant to Section 5 hereof, Undersigned (x) agrees (1) if Undersigned is an
Employee or Vendor, not to compete against the Company and/or the Related Party
signatory hereto, as the case may be, by directly or indirectly owning,
managing, operating, controlling, being employed by, participating in, or being
connected in any manner with the ownership, management, operation, or control of
(A) any food service establishment that prepares, serves, or sells and derives
more than 5% of its revenues from, bagels and/or bagel related products
(including but not limited to cream cheese and other spreads, bagel sandwiches
and bagel chips), or (B) any food service establishment, at least 15% of the
revenue of which is derived from coffee or any other product which accounts for
at least 15% of the revenue of any food service establishment owned or operated
by the Company and/or the Related Party signatory hereto, as the case may be, at
the time Undersigned commences or significantly increases its ownership,
management, or other participation therein, which food
H-3
<PAGE>
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 as if Owner were
Franchise Owner, in each case within the geographic area therein specified, and
(y) agrees not to solicit employees from the Company and/or the Related Party
signatory hereto, as the case may be, it being understood that this Section 6
shall not prevent the Undersigned from participating as an investor, officer, or
director in any restaurant venture not covered by the foregoing applicable
restrictions, and does not prevent the Undersigned from investing so as to hold
less than 2% of the outstanding shares of any company which is a "reporting
company" under the Securities Exchange Act of 1934, as amended. It is the
intention of the parties that this Section 6 be interpreted so as to be valid
under applicable law and, if required for validity, any court or applicable
tribunal may reduce or alter the geographic scope and duration of this Section
6, by substitution of words or otherwise, so as to create the broadest
permissible protection to the Company and/or the Related Party signatory hereto,
as the case may be.
7. NO WAIVER. No delays or omissions by the Company and/or the
---------
Related Party signatory hereto, as the case may be, in exercising any right
under this Agreement will operate as a waiver of that or any other right. A
waiver or consent given by the Company and/or the Related Party signatory
hereto, as the case may be, on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on any
other occasion.
8. NOTICES. Any notice, request, information, or other document to
-------
be given hereunder to any of the parties by any other party shall be in writing
and delivered personally, sent by facsimile transmission or registered or
certified mail, postage prepaid, or overnight delivery service, as follows:
If to the Company, addressed to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Facsimile: (303) 216-3490
If to the Related Party signatory hereto, addressed to:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
H-4
<PAGE>
If to the Undersigned, address to:
_________________________ (Name)
_________________________ (Address)
_________________________ (City, State, Zip)
_________________________ (Attention)
_________________________ (Phone Number)
_________________________ (Facsimile)
Any party hereto may change the place at which notices are to be
received by it by the giving of notice of such change in the manner set forth
above.
9. EQUITABLE RELIEF. Undersigned acknowledges that Company and/or
----------------
the Related Party signatory hereto, as the case may be, will be irreparably
harmed by any breach hereof, that monetary damages would be inadequate and that
Company and/or the Related Party signatory hereto, as the case may be, shall
have the right to have an injunction or other equitable remedies imposed in
relief of, or to prevent or restrain, such breach. The Undersigned agrees that
Company and/or the Related Party signatory hereto, as the case may be, shall
also be entitled to any and all other relief available under law or equity for
such breach.
10. APPLICABLE TERM. The Applicable Term of Section 6 of this
---------------
Agreement shall be (i) the term of employment in the event Undersigned is an
Employee, it being understood and acknowledged that Employee is employed at will
and may be terminated at any time by Company and/or the Related Party signatory
hereto, as the case may be, (ii) the term of the applicable Area Development
Agreement or Franchise Agreement in the event Undersigned is an Owner, or (iii)
three years in the event the Undersigned is a Vendor, provided that in the case
of this clause (iii), the Applicable Term shall automatically be extended one
year on each anniversary of the date of execution hereof, unless either party
has given written notice to the other not more than 90 days prior thereto
stating that such extensions shall not occur.
11. MISCELLANEOUS.
-------------
a. This Agreement shall not be construed to grant to the
Undersigned any patents, licenses, or similar rights to Proprietary
Information disclosed to the Undersigned hereunder, all of which
rights and interests shall be deemed to reside or be vested in the
Company.
b. This Agreement, does not supersede, but rather is in
addition to and cumulative with, all prior agreements, written or
oral, between the parties relating to the subject matter of this
Agreement. This Agreement may not be modified, changed or discharged,
in whole or in part, except by an agreement in writing signed by the
parties.
c. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns.
H-5
<PAGE>
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.
EXECUTED as of the ______ day of ____________________, 199____.
EINSTEIN/NOAH BAGEL CORP. UNDERSIGNED
_____________________________________________
(Entity Name, if any)
By:________________________
Title:____________________ By:_________________________________
Print Name:_________________________
Print Title:________________________
RELATED PARTY
___________________________
(Name)
By:________________________
Title:____________________
H-6
<PAGE>
EXHIBIT I
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_________________________________________ ("FRANCHISE
OWNER")
DATED _________________________
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
-------------
<PAGE>
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
-------------
Name of DEPOSITOR:__________________________________________________________
DEPOSITOR Identification Number:____________________________________________
The undersigned depositor ("DEPOSITOR") hereby authorizes Einstein/Noah Bagel
Corp. ("COMPANY") to initiate debit entries and/or credit correction entries to
the undersigned's checking and/or savings account(s) indicated below and the
depository designated below ("DEPOSITORY") to debit such account pursuant to
COMPANY's instructions.
______________________________ _________________________________
DEPOSITORY Branch
______________________________ _________________________________
Address City, State and Zip Code
______________________________ _________________________________
Bank Transit/ABA Number Account Number
This authority is to remain in full and force and effect until DEPOSITORY has
received joint written notification from COMPANY and DEPOSITOR of the
DEPOSITOR's termination of such authority in such time and in such manner as to
afford DEPOSITORY a reasonable opportunity to act on it. If an erroneous debit
entry is initiated to DEPOSITOR's account, DEPOSITOR shall have the right to
have the amount of such entry credited to such account by DEPOSITORY, if (a)
within fifteen (15) calendar days following the date on which DEPOSITORY sent to
DEPOSITOR a statement of account or a written notice pertaining to such entry or
(b) forty-five (45) days after posting, whichever occurs first, DEPOSITOR shall
have sent to DEPOSITORY a written notice identifying such entry, stating that
such entry was in error and requesting DEPOSITORY to credit the amount thereof
to such account. These rights are in addition to any rights DEPOSITOR may have
under federal and state banking laws.
______________________________ ________________________________
DEPOSITOR DEPOSITORY
By:___________________________ By:_____________________________
Title:_______________________ Title:_________________________
Date:_________________________ Date:___________________________
I-I
<PAGE>
EXHIBIT J
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
____________________________________________ ("FRANCHISE OWNER")
DATED___________________________
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
-------------------------------------------------------
<PAGE>
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
-------------------------------------------------------
THIS ASSIGNMENT is entered into this ___ day of _____________, 19__, in
accordance with the terms of that certain Einstein/Noah Bagel Corp. Franchise
Agreement (the "FRANCHISE AGREEMENT") between _______________________________
("FRANCHISE OWNER") and Einstein/Noah Bagel Corp., a Delaware corporation
("COMPANY"), executed concurrently with this Assignment, under which COMPANY
granted FRANCHISE OWNER the right to own and operate a UNIT located at _________
___________________________________ (the "STORE").
FOR VALUE RECEIVED, FRANCHISE OWNER hereby assigns to COMPANY, all of
FRANCHISE OWNER's right, title and interest in and to those certain telephone
numbers and regular, classified or other telephone directory listings
(collectively, the "TELEPHONE NUMBERS AND LISTINGS") associated with COMPANY's
trade and service marks and used from time to time in connection with the
operation of the Store at the address provided above. This Assignment is for
collateral purposes only and, except as specified herein, COMPANY shall have no
liability or obligation of any kind whatsoever arising from or in connection
with this Assignment, unless COMPANY shall notify the telephone company and/or
the listing agencies with which FRANCHISE OWNER has placed telephone directory
listings (all such entities are collectively referred to herein as the
"TELEPHONE COMPANY") to effectuate the assignment pursuant to the terms hereof.
Upon termination or expiration of the Franchise Agreement (without renewal
or extension), COMPANY shall have the right and is hereby empowered to
effectuate the assignment of the Telephone Numbers and Listings, and, in such
event, FRANCHISE OWNER shall have no further right, title or interest in the
Telephone Numbers and Listings and shall remain liable to the Telephone Company
for all past due fees owing to the Telephone Company on or before the effective
date of the assignment hereunder.
FRANCHISE OWNER agrees and acknowledges that as between COMPANY and
FRANCHISE OWNER, upon termination or expiration of the Franchise Agreement,
COMPANY shall have the sole right to and interest in the Telephone Numbers and
Listings, and FRANCHISEE appoints COMPANY as FRANCHISE OWNER's true and lawful
attorney-in-fact to direct the Telephone Company to assign same to COMPANY, and
execute such documents and take such actions as may be necessary to effectuate
the assignment. Upon such event, FRANCHISE OWNER shall immediately notify the
Telephone Company to assign the Telephone Numbers and Listings to COMPANY. If
FRANCHISE OWNER fails to promptly direct the Telephone Company to assign the
Telephone Numbers and Listings to COMPANY, COMPANY shall direct the Telephone
Company to effectuate the assignment contemplated hereunder to COMPANY. The
parties agree that the Telephone Company may accept COMPANY's written direction,
the Franchise Agreement or this Assignment as conclusive proof of COMPANY's
exclusive rights in and to the Telephone Numbers and Listings upon such
termination or expiration and that such assignment shall be made automatically
and effective immediately upon Telephone Company's receipt of such notice from
COMPANY or FRANCHISE OWNER. The parties further agree that if the Telephone
Company requires that the parties execute the
J-1
<PAGE>
Telephone Company's assignment forms or other documentation at the time of
termination or expiration of the Franchise Agreement, COMPANY's execution of
such forms or documentation on behalf of FRANCHISE OWNER shall effectuate
FRANCHISE OWNER's consent and agree ment to the assignment. The parties agree
that at any time after the date hereof, they will perform such acts and execute
and deliver such documents as may be necessary to assist in or accomplish the
assignment described herein upon termination or expiration of the Franchise
Agreement.
ASSIGNEE: ASSIGNOR:
- -------- --------
EINSTEIN/NOAH BAGEL CORP. _________________________________
(FRANCHISE OWNER)
By:__________________________ By:____________________
Its:________________________ Its:__________________
ACCEPTED AND AGREED TO BY:
_____________________________
(Telephone Company Authorized
Representative)
_____________________________
(Name of Telephone Company)
J-2
<PAGE>
EXHIBIT K
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________ ("FRANCHISE OWNER")
DATED___________________________
PRINCIPAL MARKS TO BE USED BY FRANCHISE OWNER
---------------------------------------------
The 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 FRANCHISE 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>
EXHIBIT D
EINSTEIN/NOAH BAGEL CORP.
FORM IN-LINE STORE LEASE
------------------------
<PAGE>
EBBI SHOPPING CENTER IN-LINE LEASE
----------------------------------
INDEX
-----
Article 1 Description of Leased Premises
Article 2 Term
Article 3 Extensions
Article 4 Annual Rent
Article 5 Tenant's Use; Exclusive Use
Article 6 Rights of Other Tenants
Article 7 Inspections
Article 8 Licenses, Permits and Approvals
Article 9 Construction of Leased Premises; Allowance
Article 10 Utilities
Article 11 Maintenance; Payment
Article 12 Major Tenants
Article 13 Shopping Center Use
Article 14 Non-Disturbance and Attornment; Memorandum of Lease
Article 15 Real Estate Taxes
Article 16 Sidewalk
Article 17 Insurance
Article 18 Landlord's Title and Quiet Enjoyment
Article 19 Improvements and Alterations
Article 20 Damage or Destruction
Article 21 Liens
Article 22 Waiver of Landlord's Lien
Article 23 Default
Article 24 Condemnation
Article 25 Assignment of Transfer
Article 26 Tenant Parking
Article 27 Notices
Article 28 Representations and Warranties
Article 29 Estoppel Certificate
Article 30 Right of First Lease
Article 31 Indemnification
Article 32 Miscellaneous
Signature Page
Exhibit A; Site Plan and Legal Description of the Shopping Center
Exhibit B; Lease Plan of the Leased Premises
Exhibit C; Landlord Work
i
<PAGE>
IN-LINE SHOPPING CENTER LOCATION: __________________
STORE NO.:__________________
LEASE
-----
THIS LEASE (this "Lease"), dated ____________, 19____, is made by and
-----
between _____________________, a ____________________corporation ("Landlord")
--------
and _______________________, a ________________ corporation ("Tenant"),
------
effective as of the date of mutual execution of this Lease (the "Effective
---------
Date").
1. DESCRIPTION OF LEASED PREMISES. Landlord hereby leases to Tenant and
------------------------------
Tenant hereby leases from Landlord certain premises known as Store Space No.
_______ and containing approximately __________ square feet (the "Leased
------
Premises") on the land owned by Landlord, which land is legally described on
- --------
EXHIBIT A attached hereto and incorporated herein by reference (the "Shopping
- --------- --------
Center"). The Leased Premises is shown on EXHIBIT B attached hereto and
- ------ ---------
incorporated herein by reference. In addition to the Leased Premises, Landlord
hereby leases and grants to Tenant, on a non-exclusive basis and in common with
other tenants of the Shopping Center, as an appurtenance to the Leased Premises
(a) all rights, easements and appurtenances, if any, belonging or appertaining
to the Shopping Center, (b) all right, title and interest of Landlord in and to
any and all roads, streets, alleys and ways, if any, bounding the Shopping
Center, (c) all common ways and areas within the Shopping Center, (d) a
nonexclusive easement for vehicular parking and vehicular and pedestrian ingress
and egress to and from the Leased Premises over, upon and across the parking
areas, driveways, exits and entrances of the Shopping Center, and (e) all such
areas of the Shopping Center which Tenant requires for (i) installation,
maintenance and operation of sewer, water, gas, power and other utility lines
and for heating, ventilation and air conditioning equipment, (ii) adequate trash
receptacle, trash compactor and delivery areas adjacent to the Leased Premises,
and (iii) loading and unloading its supplies. The parking areas, driveways,
exits and entrances of the Shopping Center which are crosshatched on EXHIBIT B
---------
may not be modified, reduced and/or relocated without the consent of Tenant.
2. TERM. The term (the "Term") of this Lease is five (5) Lease Years.
---- ----
The term "Lease Year" is defined as that 12 month period during the Term or any
----------
Extension (hereafter defined) commencing on the Commencement Date (hereafter
defined) or the annual anniversary thereof, as may be applicable; provided, that
if the Commencement Date is a day other than the first day of a calendar month,
then the first Lease Year shall include that period of time from the
Commencement Date up to the first day of the next calendar month and the
following twelve months and any subsequent Lease Year shall be the twelve-month
period beginning on the anniversary of the first day of the next calendar month
following the Commencement Date. Except as otherwise provided herein, the Term
shall commence on the date (the
<PAGE>
"Commencement Date") which is one hundred twenty (120) days after the date on
-----------------
which Tenant obtains all Permits (hereafter defined). Landlord hereby agrees to
deliver possession of the Leased Premises to Tenant free, clear and unencumbered
of all tenancies and parties in possession.
3. EXTENSIONS. Tenant shall have the option of extending the Term for
----------
four (4) additional periods of five (5) years each (individually, an "Extension"
---------
and collectively, the "Extensions"), commencing at midnight on the date on which
----------
the Term or any Extension expires. Each Extension shall be automatic and the
parties shall be bound by this Lease for such Extension unless Tenant gives
Landlord notice, not later than ninety (90) days prior to the expiration of the
Term or preceding the Extension, that Tenant does not intend to extend the
Lease.
4. ANNUAL RENT.
------------
(a) Annual Rent - Initial Term. During the Term, Tenant agrees to pay
--------------------------
Landlord annual rent (the "Rent") in the amount of ____________________ Dollars
----
($_________) per square foot of floor area contained in the Leased Premises
which measurement (i) may be certified by Tenant's architect and (ii) shall
exclude all mechanical systems, exist stairwells, service corridors and similar
uses which do not exclusively serve the Leased Premises (the "Leased Premises
---------------
Floor Area"). The Rent shall be payable in equal monthly installments in
- ----------
advance on the first day of each and every calendar month during the Term. The
first Rent payment shall be due no later than the thirtieth (30th) day
subsequent to the Commencement Date. In the event that the Commencement Date
falls on a day other than the first day of a calendar month, the Rent for the
first and last months of this Lease shall be prorated.
(b) Annual Rent - Extension(s). The Rent for each Extension, subject
--------------------------
to any adjustment pursuant to subparagraph (a) above, is as follows:
<TABLE>
<CAPTION>
ANNUAL RENT TOTAL ANNUAL
PER SQ. FT. RENT MONTHLY RENT
----------- ------------ ------------
<S> <C> <C> <C>
LEASE YEAR
- ----------
06-10 $__________ $__________ $__________
11-15 $__________ $__________ $__________
16-20 $__________ $__________ $__________
21-25 $__________ $__________ $__________
</TABLE>
2
<PAGE>
5. TENANT'S USE; EXCLUSIVE USE. Tenant may use the Leased Premises and
---------------------------
the Shopping Center for (i) the operation of a bagel restaurant ("Tenant Use")
----------
or (ii) any other lawful use, provided Tenant receives the consent of Landlord
which consent shall not be unreasonably withheld, conditioned or delayed.
Landlord acknowledges that Tenant's Use shall include, but not be limited to,
the preparation and sale of bagels, cream cheese, jellies, jams and preserves,
baked goods, dessert items, drip and gourmet coffee, whole bean coffee, espresso
based drinks, teas, soft drinks, bagel sandwiches, bagel melts, pizza bagels,
deli-type sandwiches, soups and salads, vegetable juice drinks, frozen drinks,
fruit drinks and fruit smoothies, and other yogurt, sherbet, or similar based
fruit drinks, wraps, pretzels and other side-order items, all for in-store
consumption, take-out or delivery, and for catering services provided for off-
premises preparation or consumption. If permitted by local ordinance, Tenant
may, at its discretion, operate a drive-through from the Leased Premises, and
Landlord shall cooperate with Tenant's application for any permits required in
connection therewith, and shall make available any portion of the common areas
that will facilitate such use. Landlord agrees that during the Term and any
Extension, Tenant shall have the exclusive right to sell bagels and bagel-
related products and gourmet coffee for on or off-premises consumption at the
Shopping Center. Landlord agrees to enforce this covenant against other tenants
in the Shopping Center using all reasonable legal means. Landlord acknowledges
that odors and smoke are emitted during the operation of Tenant's Use and shall
not be deemed noxious or offensive.
6. RIGHTS OF OTHER TENANTS. Landlord represents and warrants that there
-----------------------
are no tenants or any other parties in the Shopping Center who have leases or
agreements which prohibit, restrict or interfere with Tenant's Use.
7. INSPECTIONS. Landlord shall provide to Tenant plans and
-----------
specifications of the Leased Premises including, but not limited to, the floor
plan and the floor bearing capacity of the Leased Premises within five (5) days
after the Effective Date. Also within such five (5) day period, Landlord shall
deliver to Tenant an existing title policy on the Shopping Center and all
appurtenant easements, including legible copies of all documents affecting the
Shopping Center. At any time after the Effective Date, Tenant may review title
to the Shopping Center and Landlord shall permit Tenant to enter upon the
Shopping Center to determine the location of utilities, perform engineering
studies and/or environmental audits ("Inspections") to determine the Leased
-----------
Premises' suitability for Tenant's Use. Landlord agrees to remove, at its sole
cost and expense, any asbestos or asbestos-containing materials located on the
Leased Premises. Tenant shall be permitted to make adequate openings in walls,
floors and ceilings during Inspections. If the Inspections indicate any title
matters not acceptable to Tenant, or other conditions not satisfactory to Tenant
for Tenant's Use, Tenant may terminate this Lease and the parties shall be
released from further liability. If Tenant shall terminate this Lease pursuant
to this Section, it shall as soon as reasonably possible, at its sole cost and
expense, repair any openings in the walls, floors or ceilings it made during
Inspections. Tenant shall indemnify and hold Landlord harmless from and against
any and all liability arising out of any negligence in the performance of the
Inspections.
3
<PAGE>
8. LICENSES, PERMITS AND APPROVALS. This Lease is contingent on Tenant's
-------------------------------
ability to secure all required licenses, permits and approvals from applicable
governmental authorities necessary for it to operate its business ("Permits"),
-------
including, without limitation, Tenant obtaining all licenses, permits and
approvals necessary for Tenant to conduct table-seated dining on the Leased
Premises; otherwise, Tenant may elect to terminate this Lease immediately upon
written notice to Landlord.
9. CONSTRUCTION OF LEASED PREMISES; ALLOWANCE.
------------------------------------------
(a) On or before ________, 19_____, Landlord agrees, at Landlord's
expense, to perform all work with respect to the Leased Premises as required by
Tenant in accordance with the terms of EXHIBIT C attached hereto and made a part
---------
hereof. Within ninety (90) days from the substantial completion of Landlord's
work and delivery of possession of the Leased Premises to Tenant, Tenant shall
commence and complete all work on the Leased Premises other than those "punch
list" items remaining to be performed by Landlord. Each party's respective work
obligations shall be commenced and completed in a good, workmanlike and lien
free manner, in accordance with all applicable laws, including the Americans
with Disabilities Act of 1990, as amended (the "ADA") within the time periods
---
provided herein.
(b) Landlord agrees to provide Tenant with cash allowance (the
"Allowance") of $______ for the purpose of Tenant constructing its leasehold
- ----------
improvements. Landlord agrees that the Allowance shall be due and payable
within ten (10) days following (i) receipt of a copy of Tenant's certificate of
occupancy, (ii) Tenant's opening or business, and (iii) Tenant's furnishing
Landlord with all properly executed lien waiver forms). Landlord hereby agrees
that Tenant shall have the right to repay the Allowance to Landlord at any time
and any such repayment shall equitably reduce the Rent payable hereunder in
accordance with the formula and schedules attached hereto as EXHIBIT "__".
10. UTILITIES. Landlord shall furnish to the Leased Premises at all times
---------
sufficient (i) sewer, gas, water and electric service lines in sufficient
capacity as is required by Tenant and (ii) sufficient heat, hot and cold water
and air conditioning as required from time to time by Tenant for all purposes,
except during the making of necessary repairs, which repairs shall be completed
as promptly as possible without disruption to Tenant's business. Such heat, hot
water and air conditioning shall also conform to temperature requirements as
established from time to time by Tenant or by local, municipal or public
governmental authorities. Tenant shall pay when due all charges for gas,
electricity and other utilities it uses at the Leased Premises. Landlord hereby
represents and warrants to Tenant that all utilities and any HVAC system
servicing the Leased Premises are in good working order, condition and repair as
of the Effective Date.
11. MAINTENANCE; PAYMENT. Landlord covenants and agrees to maintain in
--------------------
good condition and repair the Shopping Center (including structural elements and
excluding the non-
4
<PAGE>
structural portion of the Leased Premises), the common areas, parking areas,
walkways, access drives, driveways, utility lines and foundations within the
Shopping Center, throughout the Term and any Extensions. In the event Landlord
fails to promptly perform such necessary maintenance and/or repairs, Tenant may
perform such maintenance and/or repairs and any costs expended by Tenant shall
be deducted from the Rent. Landlord covenants and agrees that all portions of
the Shopping Center, other than as shown to be buildings or other improvements,
shall be paved and maintained as a parking area and Landlord shall paint stripes
thereon indicating car parking spaces and construct driveways, including curbs
and sidewalks. Landlord shall periodically resurface the lot with a good
quality surfacing material. Landlord shall keep the parking area free of all
ice, snow, debris and refuse so as to keep the Shopping Center in a neat, clean
and orderly condition. Landlord shall also maintain adequate lighting for the
parking area and driveways during Tenant's hours of operation.
Tenant shall, within thirty (30) days after receipt from Landlord of a
report certified by an authorized officer of Landlord, of the actual and
reasonable common area maintenance expenses incurred for the Shopping Center for
the previous calendar year ("CAM Charges"), reimburse Landlord for payment of
-----------
Tenant's Proportionate Share (hereafter defined) of such CAM Charges. In no
event shall CAM Charges include any of the following: (a) expenses not fully
chargeable as a current expense in the year the expenditure is incurred; (b)
structural and mechanical equipment repairs; (c) loan payments of any type; (d)
depreciation or amortization of any improvements; (e) Shopping Center leasing
costs; (f) costs for investigating, monitoring or remediating Hazardous
Substances; (g) costs for any special services not provided to all tenants of
the Shopping Center generally; (h) costs recoverable under any of Landlord's
insurance policies; (i) any costs incurred as a result of Landlord's negligence
or Landlord's default under this Lease; or (j) legal fees to settle disputes
with other tenants. In addition, costs for management, supervision and
administration shall not exceed fifteen percent (15%) of CAM Charges (exclusive
of real estate taxes and insurance).
Tenant shall have the right to audit and inspect the books and records of
Landlord or request and obtain copies of invoices from Landlord with respect to
any cost or item included in the CAM Charges upon ten (10) days written notice
by Tenant to Landlord. If the results of the audit show an overcharge to Tenant
of more than two percent (2%) of the actual amount owed by Tenant, Landlord
shall pay the reasonable cost of such audit and Landlord shall credit or refund
to Tenant any overcharge of such items as discovered by the audit within thirty
(30) days of the completion of such audit. In the event such audit discloses an
undercharge of such items as billed to Tenant, Tenant shall pay to Landlord the
amount of such undercharge within thirty (30) days of the completion of such
audit. Tenant's proportionate share ("Proportionate Share") shall be a
-------------------
fraction, the numerator of which shall be the Leased Premises Floor Area and the
denominator of which shall be the gross leasable floor area in the Shopping
Center (whether or not constructed, rented or occupied). Notwithstanding
anything else contained herein, increases in Tenant's Proportionate Share of CAM
Charges shall be limited to five percent (5%) annually, Landlord shall use its
best efforts to minimize CAM Charges in a manner consistent with good business
practices, and there shall be no duplication in charges to Tenant.
5
<PAGE>
12. MAJOR TENANTS. If one or more of the following tenants cease to
-------------
operate a business under its present trade name within the Shopping Center for a
period in excess of 90 days, and another tenant of substantially the same size,
quality and reputation in the business community shall not have commenced
operation within such time, then Tenant reserves the right to terminate this
Lease or to reduce its Rent and other charges payable by Tenant in proportion to
the reduction in value of the Leased Premises, as reasonably determined by
Tenant: __________________________________________.
13. SHOPPING CENTER USE. Tenant has entered into this Lease in reliance
-------------------
upon representations by Landlord that no part of the Shopping Center shall be
used as a massage parlor or spa, blood bank, abortion clinic, or an adult book
or adult video tape store (which are defined as stores in which any portion of
the inventory is not available for sale or rental to children under 18 years old
because such inventory explicitly deals with or depicts human sexuality).
14. NON-DISTURBANCE AND ATTORNMENT; MEMORANDUM OF LEASE. Landlord, within
---------------------------------------------------
thirty (30) days after the Effective Date, but in any event, prior to the
Commencement Date, will obtain from every senior landlord, mortgagee and holder
of a deed of trust upon the Shopping Center (collectively, the "Senior Interest
---------------
Holders"), an agreement in recordable form acceptable to Tenant wherein the
- -------
Senior Interest Holders agree not to disturb Tenant's possession of the Leased
Premises or deprive Tenant of any rights or increase any of its obligations
under this Lease, provided Tenant is not in default of its obligations under
this Lease (the "Non-Disturbance and Attornment Agreement"), otherwise Tenant
----------------------------------------
may terminate this Lease. Landlord agrees to execute and deliver to Tenant a
memorandum of this Lease in recordable form acceptable to Tenant.
15. REAL ESTATE TAXES. Landlord shall pay before they become delinquent
-----------------
all real estate taxes imposed upon or against the Shopping Center during the
Term and any Extensions ("Real Estate Taxes"). Landlord shall be solely
-----------------
responsible for payment of any and all penalties imposed for any late payment.
Tenant shall, within thirty (30) days upon receipt from Landlord of a copy of
the paid tax bill and an invoice, reimburse Landlord for payment of Tenant's
Proportionate Share of Real Estate Taxes.
Real Estate Taxes for the year in which the Term shall begin and the year
in which the Lease shall terminate shall be prorated so that Tenant shall pay
only those portions thereof which correspond with the portion of said years as
are within the Term or the current Extension. Nothing herein contained shall
require Tenant to pay (a) corporation, franchise, income, estate, gift and
inheritance taxes or charges imposed on rent or other similar taxes, charges or
impositions which may be levied or assessed against Landlord, the fee owner, or
their successor in title or (b) Real Estate Taxes on easement parcels.
6
<PAGE>
16. SIDEWALKS. Tenant shall be permitted to use the sidewalks, and/or
---------
courtyards adjacent to the Leased Premises as an outdoor cafe free of any
additional charge. Landlord shall not cause or permit the street, sidewalks or
courtyards adjacent to the Leased Premises to be obstructed or blocked.
17. INSURANCE.
---------
(a) Landlord. From the Effective Date and continuing throughout the
--------
Term and any Extensions, Landlord shall maintain the following insurance on the
Shopping Center, including the common areas, parking areas, walkways, and
driveways, naming Tenant as an additional insured: (i) commercial general
liability and property damage insurance in the amount of not less than
$1,000,000.00 for property damage or bodily injury or death of any one person
and $1,000,000.00 for any one occurrence, (ii) fire and extended coverage
insurance in an amount equal to the full replacement cost of any improvements
located on the Shopping Center (excluding the improvements to the Leased
Premises made by Tenant) established by agreed amount endorsement by Tenant,
Landlord and the insurer, (iii) workers' compensation insurance in statutory
amounts, and (iv) contractual liability insurance. Upon notice from Tenant,
Landlord, its agents and contractors shall deliver to Tenant a certificate from
its insurer declaring such insurance to be in full force and effect.
(b) Tenant. From the Effective Date and continuing throughout the
------
Term and any Extensions, Tenant shall maintain the following insurance on the
Leased Premises, naming Landlord as an additional insured: (i) commercial
general liability insurance and property damage insurance in the amount of not
less than $1,000,000.00 for property damage or bodily injury or death of any one
person and $1,000,000.00 for any one occurrence and (ii) fire and extended
coverage insurance in an amount equal to the full replacement cost of any
improvements constructed by Tenant in the Leased Premises. Upon notice from
Landlord, Tenant shall deliver to Landlord a certificate from its insurer
declaring such insurance to be in full force and effect.
(c) Waiver of Subrogation. Landlord and Tenant and all parties
---------------------
claiming by or through them mutually release and discharge each other from all
claims and liability arising from or caused by any casualty or hazard, covered
or required hereunder to be covered in whole or in part by insurance on the
Shopping Center or in connection with property on or activities conducted on the
Shopping Center, and waive any right of subrogation which might otherwise exist
in or accrue to any person on account hereof.
18. LANDLORD'S TITLE AND QUIET ENJOYMENT. Landlord represents and
------------------------------------
warrants that Landlord is seized in fee simple title to the Shopping Center,
free, clear and unencumbered except as otherwise disclosed herein. Landlord
covenants that so long as Tenant fulfills the conditions and covenants required
of it to be performed, Tenant will have peaceful and quiet
7
<PAGE>
possession thereof. Landlord further represents and warrants that it has good
right, full power and lawful authority to enter into the Lease for the Term and
any Extensions.
19. IMPROVEMENTS AND ALTERATIONS. Tenant shall have the right to (i)
----------------------------
alter, renovate, add, remodel, modify and/or change the Leased Premises and/or
other improvements upon the Leased Premises as Tenant may deem desirable, and
(ii) install pylon signage on any Shopping Center pylon or may install a
freestanding pylon or affix fascia signs, canopies, awnings and/or flags on the
exterior walls of the Leased Premises if permitted by local ordinance. Landlord
hereby grants to Tenant and its agents and contractors, at Tenant's sole cost
and expense, the right to install, maintain and operate a mast mounted satellite
dish antenna (the "Dish") and related equipment, including cables from the
----
exterior of the roof directly above the Leased Premises to equipment inside the
Leased Premises, necessary to the operation of the Dish, as part of Tenant's
integrated satellite business network, provided Tenant does not penetrate the
roof membrane of the Shopping Center in connection with the installation of the
Dish. Subject to the foregoing, Tenant may locate the Dish at or relocate the
Dish to some other location on or about the roof of the Shopping Center for
purposes of adequate reception, subject to appropriate law, codes and
regulations. Any improvements constructed upon the Shopping Center by Tenant
shall be and remain the property of Tenant during the Term and any Extensions.
Tenant shall not be required to remove the improvements upon the Shopping Center
and Tenant's failure to do so after the expiration of such period shall be
deemed to be an abandonment thereof, whereby title shall become vested in the
Landlord.
20. DAMAGE OR DESTRUCTION. If the Leased Premises and/or the Shopping
---------------------
Center shall be damaged or destroyed by fire or other casualty, Landlord shall,
within thirty (30) days of the occurrence of such casualty, commence, in good
faith and with reasonable diligence, to repair or rebuild the Leased Premises
and/or the Shopping Center to their condition immediately prior to such damage
or destruction and shall complete same within a reasonable time thereafter. In
the event Landlord has not timely commenced to so repair or rebuild the Leased
Premises and/or the Shopping Center, Tenant may at any time thereafter either
(i) without further notice to Landlord commence to repair or rebuild the Leased
Premises, or (ii) Tenant may terminate the Lease, in which event the parties
shall be released from further liability. In the event Tenant elects to repair
or rebuild the Leased Premises, Landlord shall make available to Tenant all
insurance proceeds or such portion thereof necessary for this purpose. In the
event the insurance proceeds are insufficient to cover the costs of the repairs
or rebuilding, the excess costs shall be borne by Landlord, which costs shall be
deducted from the Rent. In the event the repair or rebuilding of the Leased
Premises has not been completed by Landlord within a period of ninety (90) days
from the date of the damage or destruction, or if the casualty occurs within the
last year of the Term or any Extension regardless of the time necessary to
complete the repair or rebuilding, Tenant may, at its option, terminate the
Lease and the parties shall be released from further liability. In such event,
Tenant shall be entitled to all proceeds of insurance and rights of recovery
against insurers on policies covering such damage or destruction for any
improvements constructed upon the Shopping Center by Tenant. During any period
that the
8
<PAGE>
damage or destruction is such as to render the use of the Leased Premises
impractical or impossible, as determined by Tenant, the Rent and other charges
payable by Tenant shall abate.
21. LIENS. Except for any mortgage, deed of trust or similar instrument
-----
executed by Landlord, Landlord and Tenant covenant each with the other not to
permit any judgment, attachment and/or lien of any nature (an "Encumbrance") to
-----------
be filed against the Leased Premises. Should an Encumbrance be filed against
the Leased Premises, the party from whose fault or alleged debt such Encumbrance
arises shall within (30) days cause such Encumbrance to be removed by
substitution of collateral or otherwise.
22. WAIVER OF LANDLORD'S LIEN. In the event Tenant, its subtenants or
-------------------------
assigns acquires and/or leases personal property to be installed and used upon
the Leased Premises subject to a conditional sales contract, chattel mortgage or
other security agreement or lease, Landlord hereby waives any claim arising by
way of any landlord's lien (whether created by statute, contract or otherwise)
with respect to such personal property and agrees to execute and deliver to any
such secured creditor and/or lessor a waiver of any lien Landlord may have upon
such personal property. Such waiver will be on a form provided by Tenant
authorizing the secured creditor and/or lessor to enter upon the Leased
Premises, in accordance with the terms of this Lease and remove such personal
property in the event of default under the terms of the conditional sales
contract, chattel mortgage, security agreement and/or lease.
23. DEFAULT. In the event Tenant shall fail to pay the Rent when due or
-------
shall fail to perform any of its other obligations under the Lease, after notice
of such default shall have been given as provided below, Landlord may as its
sole and exclusive remedy elect to either: (a) re-enter the Leased Premises by
summary or similar proceedings and re-let the Leased Premises, using reasonable
efforts therefor, and receiving the Rent therefrom, applying the same first to
the payment of Rent accruing hereunder, the balance, if any, to be paid to
Tenant; but, Tenant shall remain liable for the equivalent of the amount of all
Rent reserved herein less the receipts of reletting, if any, and such amount
shall be due and payable to Landlord as damages or rent, as the case may be, on
the successive Rent days provided above, and Landlord may recover such amount
periodically on such successive days; or (b) terminate the Lease and to resume
possession of the Leased Premises, Tenant being wholly discharged from the
Lease.
Such election shall be made by written notice to Tenant at any time on or
before the doing of any act or the commencement of any proceedings to recover
possession of the Leased Premises and shall be final. If Landlord shall elect
to terminate the Lease, all rights and obligations of Tenant relating to the
unexpired portion of the Lease shall cease. Within ten (10) days after receipt
by Tenant of notice of election by Landlord to terminate the Lease, the parties
shall by an instrument in writing in recordable form, terminate the Lease and
Tenant shall surrender and deliver to Landlord the Leased Premises, except that
Tenant may remove its trade fixtures, signs, equipment and other personal
property from and de-identify the Leased Premises.
9
<PAGE>
Neither bankruptcy, insolvency, nor the appointment of a receiver or
trustee shall affect the Lease so long as the obligations of Tenant are
performed by Tenant, its successors or assigns.
No default hereunder shall be deemed to have occurred on the part of
Tenant until ten (10) days after written notice of any monetary default and
thirty (30) days after written notice of any non-monetary default shall have
been given to Tenant, and Tenant within such time shall have failed to remedy
such default. If any default by Tenant, except payment of the rent, cannot
reasonably be cured within thirty (30) days after notice then Tenant shall have
additional time as may be reasonably necessary to cure such default.
24. CONDEMNATION. If any portion of or interest in the Leased Premises or
------------
Shopping Center shall be permanently or temporarily taken under any right of
eminent domain or any transfer in lieu thereof, and such taking renders the
Leased Premises unsuitable in the reasonable judgment of Tenant for Tenant's
Use, Tenant may terminate this Lease by notice to Landlord within thirty (30)
days after such taking deprives Tenant of possession of any portion of the
Leased Premises or of any other rights of Tenant under this Lease. Nothing
contained herein shall prevent Landlord and Tenant from prosecuting claims in
any condemnation proceedings for the values of their respective interest and
Tenant shall have the exclusive right to claim any proceeds for the taking of
Tenant's trade fixtures, equipment or personal property and for relocation
expenses. Landlord acknowledges and agrees that any remediation of Hazardous
Substances (hereinafter defined) that interferes with Tenant's Use shall be
deemed to be a taking for purposes of this Section.
Landlord represents and warrants that, at the Effective Date, it has no
actual or constructive knowledge of any proposed condemnation or road or access
changes or impairment to the visibility of the Shopping Center including, but
not limited to, turn restrictions, barriers or medians, overpasses, underpasses
or bypasses, that would affect the Shopping Center or Tenant's Use of any part
of the Shopping Center. In the event that, prior to the Commencement Date, any
of the foregoing actions are proposed by any governmental or private authority,
Tenant shall be under no obligation to commence or continue construction of its
work on the Leased Premises, and Tenant shall have the option to (i) recover all
rights, damages and awards pursuant to the appropriate provisions of this
Section, or (ii) terminate this Lease with a reservation of its rights and
remedies hereunder.
25. ASSIGNMENT OF TRANSFER.
----------------------
(a) Landlord. No assignment or transfer of the Lease by Landlord
--------
shall be binding on Tenant unless the assignee or transferee shall assume and
agree to be bound by the terms of the Lease.
(b) Tenant. Tenant shall have the unrestricted right to assign,
------
sublet, license or transfer (hereinafter collectively ("Transfer") any or all of
--------
its rights and privileges under the
10
<PAGE>
Lease, provided that no such Transfer shall operate to relieve Tenant of its
obligations under the Lease, including the payment of Rent and other charges.
(c) Collateral Assignment of Lease. Landlord hereby consents to the
-------------------------------
Master Collateral Assignment of Lease attached hereto as EXHIBIT ____, by and
between Tenant and Einstein Bros. Bagels, Inc., a Delaware corporation ("EBBI")
----
and agrees to notify EBBI and provide a reasonable opportunity to cure any
default by Tenant. [DELETE PREVIOUS SENTENCE IF EBBI IS THE TENANT]. Tenant
shall also have the unrestricted right to execute and deliver a mortgage, deed
of trust, pledge and/or collateral assignment of the Lease in any form
whatsoever to other lenders to Tenant as security for any indebtedness of
Tenant. Landlord hereby consents to such transaction and agrees to execute any
document required by Tenant's lender to effect such transaction, which such
documentation will provide that Landlord shall notify such lender and provide a
reasonable opportunity to cure any default by Tenant. In no event shall Tenant
be released from any liability as a result of any mortgage, deed of trust,
pledge and/or collateral assignment of Lease.
26. TENANT PARKING. Tenant's customers shall have the exclusive right to
--------------
park on the portion of the parking area as cross-hatched on EXHIBIT A during
---------
Tenant's regular business hours. Tenant shall have the right to place signs
reading "Reserved Parking-Tenant's Customers Only from 6 am to 7 pm" on such
parking spaces if and when Tenant, exercising reasonable judgment, shall
determine that other tenant's customers or employees are utilizing such spaces
to the detriment of Tenant's business. Tenant shall have the right to enforce
its exclusive parking rights under this paragraph by the ticketing and towing of
cars.
27. NOTICES. All notices, demands, or other communications of any type to
-------
the parties herein ("Notices") shall be void and of no effect unless given in
-------
accordance with the provisions of this Lease. All Notices shall be legible and
in writing and shall be delivered to the person to whom the Notice is directed,
either in person with a receipt requested therefor or sent by a recognized
overnight courier service of next day delivery or by United States certified
mail, return receipt requested, postage prepaid and addressed to the parties at
their respective addresses set forth below, and the same shall be effective (a)
upon receipt or refusal if delivered personally, (b) one (1) business day after
depositing with such an overnight courier service, or (c) three (3) business
days after deposit in the mail if mailed, addressed to Landlord or Tenant.
Either party hereto may change the address for Notice specified above by giving
the other party ten (10) days advance written Notice of such change of address.
Initially, all Notices to Landlord shall be sent to Landlord at
___________________________. Initially, all Notices to Tenant shall be sent to
Tenant at its business offices at 1526 Cole Boulevard, Suite 200, Golden,
Colorado 80401. Attention: Real Estate Department, with a copy to
______________________________.
Landlord's F.E.I.N. or Social Security No. is ____________________________.
11
<PAGE>
28. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) Hazardous Substances. Landlord represents and warrants that the
--------------------
Shopping Center does not presently contain and is free from all hazardous
substances and/or wastes, toxic and nontoxic pollutants and contaminants
including, but notlimited to, petroleum products and asbestos (collectively,
"Hazardous Substances"), and that Landlord has not received any notification
---------------------
from any federal, state, county or city agency or authority relating to
Hazardous Substances, in or near the Shopping Center. Neither party shall cause
or permit any Hazardous Substances to be brought upon, kept or used in or about
the Shopping Center by such party, its agents, employees, contractors, invitees,
tenants, subtenants or licensees without the prior written consent of the other
party. Neither party shall unreasonably withhold its consent thereto as long as
such party demonstrates to the other party's reasonable satisfaction that each
such Hazardous Substance is necessary or useful to its business or to the
business of its agents, employees, contractors, invitees, tenants, subtenants or
licensees, and will be used, kept and stored in a manner that complies with all
applicable federal, state and local environmental laws. If consented to, the
requesting party shall promptly deliver to the other party true and complete
copies of all notices received by such party from any governmental authority
with respect to the generation, storage or disposal of such Hazardous
Substances.
(b) Litigation. Landlord represents and warrants that there are no
----------
claims, causes of action or other litigation or proceedings pending or, to the
best of Landlord's knowledge, threatened with respect to the ownership,
operation or environmental condition of the Shopping Center or any part thereof,
except for claims which are fully insured and as to which the insurer has
accepted defense without reservation.
(c) Violation. Landlord represents and warrants that there are no
---------
violations of any health, safety, pollution, zoning or other laws, ordinances,
rules or regulations including, without limitation, the ADA with respect to any
portion of the Shopping Center which have not been heretofore entirely
corrected. In the event Landlord has knowledge of any such violations, Landlord
shall cure such violations prior to the Effective Date.
(d) Zoning. Landlord represents and warrants that the Shopping Center
------
is currently zoned to allow the use of the Leased Premises for Tenant's Use.
(e) Authority. Landlord represents and warrants that Landlord has
---------
full capacity, right, power and authority to execute, deliver and perform this
Lease and all documents to be executed by Landlord pursuant, and all required
action and approvals therefor have been duly taken and obtained. The individual
signing this Lease and all other documents executed pursuant hereto on behalf of
Landlord is duly authorized. This Lease and all documents to be executed
pursuant hereto by Landlord are binding upon and enforceable against Landlord in
accordance with their respective terms, and the transaction contemplated hereby
will not result in a breach of, or constitute a default under, any indenture,
mortgage, deed of trust,
12
<PAGE>
loan agreement, or other agreement to which Landlord or the Leased Premises is
subject or by which Landlord or the Leased Premises is bound.
29. ESTOPPEL CERTIFICATE. Tenant and Landlord agree at any time and from
--------------------
time to time, upon not less than ten (10) business days' prior written request
from the other party, to execute, acknowledge and deliver to the requesting
party a statement in writing, in form and content reasonably acceptable to the
requesting party, an estoppel certificate. In the event either party fails to
execute and deliver any such instrument within the foregoing time period, the
delinquent party shall be deemed to have acknowledged and agreed with and to the
matters set forth in such certificate.
30. RIGHT OF FIRST LEASE. If Landlord desires to accept a bona fide offer
--------------------
("Lease Offer") to lease the Leased Premises or any portion thereof for a term
-----------
commencing on or after the expiration of this Lease or to lease any portion of
the premises adjacent to the Leased Premises, Landlord shall notify Tenant and
Tenant shall have a right to first lease to lease the Leased Premises and/or the
adjacent premises upon the terms and conditions of the Lease Offer.
31. INDEMNIFICATION.
----------------
(a) Landlord hereby indemnifies and holds Tenant, Tenant's nominees,
officers, directors, agents, employees, successors and assigns harmless from and
against any and all claims, demands, liabilities, and expenses, including
attorneys' fees and litigation expenses, arising from (i) the negligence or
wilful acts of Landlord or its agents, employees, or contractors occurring on
the Shopping Center or (ii) the presence of Hazardous Substances or materials on
the Shopping Center, except to the extent caused by Tenant's negligence or
wilful misconduct. In the event any action or proceeding shall be brought
against Tenant by reason of any such claim, Landlord shall defend the same at
Landlord's expense by counsel selected by Tenant.
(b) Tenant hereby indemnifies and holds Landlord, Landlord's nominees,
officers, directors, agents, employees, successors and assigns harmless from and
against any and all claims, demands, liabilities, and expenses, including
attorneys' fees and litigation expenses, arising from the negligence or wilful
acts of Tenant or its agents, employees, or contractors occurring on the
Shopping Center, except to the extent caused by Landlord's negligence or wilful
misconduct. In the event any action or proceeding shall be brought against
Landlord by reason of any such claim, Tenant shall defend the same at Tenant's
expense by counsel selected by Landlord.
32. MISCELLANEOUS.
-------------
(a) If either party is delayed or prevented from performing any of its
obligations under this Lease by reason of strike, lockouts, labor troubles,
failure of power, riots, insurrection, war, acts of God or any other cause
beyond such party's control, the period of such
13
<PAGE>
event or such prevention shall be deemed added to the time period herein
provided for the performance of any such obligation by the applicable party.
(b) This Lease contains the entire agreement between the parties. No
modification, alteration or amendment of the Lease shall be binding unless in
writing and executed by the parties.
(c) The representations, warranties and indemnities contained in this
Lease shall survive the termination or expiration of this Lease.
(d) Landlord acknowledges that any plans or specifications of Tenant
and Tenant's trademarks and service marks, including, without limitation
"Einstein's", and "Einstein's Bros. Bagels" are the sole property of Tenant, and
Landlord shall not have any rights to same.
(e) Each party hereto has reviewed and revised (or requested revisions
of) this Lease, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Lease or any Exhibits
hereto.
(f) Time is of the essence of this Lease and each provision; provided,
however, if the final (but not any interim) date of any period set forth herein
falls on a Saturday, Sunday or legal holiday under the laws of the United States
of America, the final date of such period shall be extended to the next business
day.
(g) Landlord agrees to pay all commissions due in connection with the
execution of this Lease.
(h) This Lease is governed by and construed and interpreted in
accordance with the laws of the state in which the Shopping Center is located.
(i) This Lease is contingent upon Tenant obtaining the requisite
senior management and Board of Director approval of this Lease and the Leased
Premises for Tenant's Use.
(j) Except for any disclosure to Landlord's accountants, attorneys,
lenders or any potential purchaser of the Shopping Center, Landlord and its
agents, representatives, employees, partners, officers and directors will not
disclose the subject matter or terms of the transaction contemplated by this
Lease unless prior written consent to such disclosure is obtained from Tenant,
which consent may be withheld at Tenant's sole discretion.
(k) Landlord agrees that upon its execution of this Lease, neither it
nor its agents or employees shall (i) initiate, encourage the initiation by
others of discussions or
14
<PAGE>
negotiations with third parties relating to the Leased Premises or any part
thereof, (ii) fail to immediately notify Tenant if any third party attempts to
initiate any such solicitation, discussion, or negotiation with Landlord and
(iii) enter into any agreement with any third party with respect to the Leased
Premises or any part thereof.
IN WITNESS WHEREOF, Landlord has caused the Lease to be executed and sealed
this _____ day of ____________________, 199___.
WITNESSES: LANDLORD
___________________________ __________________________________
a _____________________corporation
____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
IN WITNESS WHEREOF, Tenant has caused the Lease to be executed and sealed
this _____ day of ____________________, 199___.
WITNESSES: TENANT
___________________________ __________________________________
a _____________________corporation
____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
15
<PAGE>
EXHIBIT A
---------
SITE PLAN AND LEGAL DESCRIPTION OF THE SHOPPING CENTER
------------------------------------------------------
A-1
<PAGE>
EXHIBIT B
---------
LEASE PLAN OF THE LEASED PREMISES
---------------------------------
B-1
<PAGE>
EXHIBIT C
---------
LANDLORD WORK
-------------
Landlord shall, at its sole cost and expense, deliver the Leased Premises
in standard "vanilla shell" condition and shall complete the following in a
workmanlike manner, conforming with Tenant's plans and specifications and all
local, state, national codes and UL and NFPA requirements, where applicable:
ELECTRICAL SERVICE - 120/208 volts, 3-Phase, 4 wire; 400 amp service
installed at location as specified by Tenant.
WATER SERVICE - 1" domestic water line from local main to Leased Premises;
meter and backflow device located as specified by Tenant.
GAS SERVICE - install adequate gas line and meter at rear of building
supplying not less than 700 CFH; meter location as specified by Tenant @ 7"
wc.
BUILDING SANITARY SEWER - 4" sanitary sewer line from the Leased Premises
to the authorized main sewer; sewer stub at location specified by Tenant.
FIRE SPRINKLER - provide and install NFPA, UL and code approved fire
protection system.
TELEPHONE CONDUIT - provide and install 2" telephone conduit, stubbed at
Tenant's specified location.
HVAC SYSTEM - provide and install a minimum of 1 ton per 200 s.f. or
provide allowance of $1500 per ton for same.
DRYWALL AND CEILING SYSTEM - provide and install standard 2' x 4' exposed
ceiling grid with lay-in ceiling tile per Tenant specification standards.
Provide and install standard 5/8" drywall at demising walls and water
resistant drywall in service and kitchen area.
RESTROOMS - provide functional handicap bathrooms as required by local
codes and ADA requirements; include janitor's closet or mop sink.
C-1
<PAGE>
EXHIBIT E
EINSTEIN/NOAH BAGEL CORP.
ADDENDUM TO LEASE
-----------------
<PAGE>
LOCATION:________________________
________________________
STORE NO.:_______________________
ADDENDUM TO LEASE/1//
THIS ADDENDUM TO LEASE (this "Addendum"), is to the Lease (the "Lease"),
dated as of ________________, 19__, by and between _____________________, a
___________________________ ("Landlord") and EINSTEIN/NOAH BAGEL CORP., a
--------
Delaware corporation ("Tenant") as of the date of final execution of the Lease
------
and this Addendum (the "Effective Date").
--------------
The following shall amend and be incorporated into the Lease. In the event
of any conflict, inconsistency or ambiguity between the terms of the Lease and
the terms of this Addendum, then the terms of this Addendum shall control. Any
terms that are capitalized in this Addendum but not defined in the Addendum that
are capitalized and defined in the Lease shall have the respective meanings set
forth in the Lease.
1. Description of Leased Premises. In addition to the Leased Premises,
------------------------------
Landlord hereby leases and grants to Tenant, as an appurtenance to the Leased
Premises (a) all rights, easements and appurtenances belonging or appertaining
to the Leased Premises [OR THE SHOPPING CENTER], (b) all right, title and
interest of Landlord in and to any and all roads, streets, alleys and ways
bounding the Leased Premises [OR THE SHOPPING CENTER], [(C) ALL COMMON WAYS AND
AREAS WITHIN THE SHOPPING CENTER, (D) A NONEXCLUSIVE EASEMENT FOR VEHICULAR
PARKING AND VEHICULAR AND PEDESTRIAN INGRESS AND EGRESS TO AND FROM THE LEASED
PREMISES OVER, UPON AND ACROSS THE PARKING AREAS, DRIVEWAYS, EXITS AND ENTRANCES
OF THE SHOPPING CENTER, AND (E) ALL SUCH AREAS OF THE SHOPPING CENTER WHICH
TENANT REQUIRES FOR (I) INSTALLATION, MAINTENANCE AND OPERATION OF SEWER, WATER,
GAS, POWER AND OTHER UTILITY LINES AND FOR HEATING, VENTILATION AND AIR
CONDITION EQUIPMENT, (II) ADEQUATE TRASH RECEPTACLE, TRASH COMPACTOR AND
DELIVERY AREAS ADJACENT TO THE LEASED PREMISES, AND (III) LOADING AND UNLOADING
ITS SUPPLIES. THE LEASED PREMISES AND THE SHOPPING CENTER MAY HEREINAFTER
__________________
/1// TO BE USED IN EVENT LANDLORD INSISTS ON USING ITS FORM LEASE. CAN BE USED
FOR IN-LINE AND FREESTANDING SITES. SHOULD NOT BE USED FOR GROUND LEASE SITES.
MAKE SURE DEFINITIONS ARE CONSISTENT WITH DEFINITIONS USED IN LANDLORD'S FORM
LEASE. BOLDED AREAS SHOULD BE REVISED AND/OR DELETED AS APPROPRIATE, DEPENDING
UPON WHETHER LEASED PREMISES ARE PART OF A SHOPPING CENTER. PROVISIONS MAY BE
DELETED IN THEIR ENTIRETY IN THE EVENT THEY ARE MATERIALLY CONSISTENT WITH THE
TERMS CONTAINED IN THE LANDLORD'S LEASE.
<PAGE>
COLLECTIVELY REFERRED TO ALTERNATIVELY AS THE "PROPERTY" OR THE "SHOPPING
-------- --------
CENTER". THE PARKING AREAS, DRIVEWAYS, EXITS AND ENTRANCES OF THE SHOPPING
CENTER WHICH ARE CROSSHATCHED ON EXHIBIT __ MAY NOT BE MODIFIED, REDUCED AND/OR
RELOCATED WITHOUT THE CONSENT OF TENANT.]
2. Percentage Rent.
---------------
(a) Tenant shall also pay to Landlord, at the time and in the manner
set forth herein, a sum (the "Percentage Rent") equivalent to the amount, if
---------------
any, of ______ percent [3%, but never to exceed 6%] of Gross Sales (hereafter
defined) in excess of Base Gross Sales (hereafter defined) for each of Tenant's
Fiscal Years (hereafter defined) during the Term of this Lease. The term "Gross
-----
Sales" as used in this Lease shall mean the entire gross receipts of every kind
- -----
and nature from rental or sales of merchandise and services made in, upon, or
from the Leased Premises, and all other receipts of business conducted in or
from the Leased Premises and all mail or telephone orders received at the Leased
Premises, whether for credit or cash, in every department operating in the
Leased Premises, whether operated by the Tenant or by any subtenant,
concessionaire or licensee or any other person, excepting: (1) the selling
price of all merchandise returned by customers and accepted for full credit or
the amount of discounts and allowances made thereon; (2) goods returned to
sources, or produced on the Leased Premises and transferred to another store or
warehouse owned by or affiliated with Tenant for sale or storage at such store
or warehouse; (3) sums and credits received in the settlement of claims for loss
of or damage to merchandise, to the extent previously reported as Gross Sales;
(4) the price allowed on all merchandise traded in by customers for credit or
the amount of credit for discounts and allowances made in lieu of acceptance
thereof; (5) cash refunds made to customers in the ordinary course of business,
but this exclusion shall not include any amount paid or payable for what are
commonly referred to as trading stamps; (6) receipts from public telephones,
stamp machines, public toilet locks, or vending machines installed solely for
the use of Tenant's employees; and (7) sales taxes, luxury taxes, consumer's
excise taxes, gross receipts taxes, and other similar taxes now or hereafter
imposed upon the sale of merchandise or services. The term "Base Gross Sales"
----------------
as used in this Lease shall mean the amount determined by dividing the total
annual Rent for the Fiscal Year in question by __________ percent [3%, but never
to exceed 6%].
(b) Within ninety (90) days after the end of each of Tenant's four (4)
13-week fiscal periods (a "Fiscal Year"), Tenant shall furnish to Landlord a
-----------
written report ("Annual Gross Sales Report"), certified by Tenant to be correct,
-------------------------
setting forth the Gross Sales made in, upon or from the Leased Premises during
the preceding Fiscal Year. Each annual Gross Sales Report shall be accompanied
by a payment of all Percentage Rent owed to Landlord under the terms of this
Lease.
(c) Tenant shall keep accurate accounts of its Gross Sales. Landlord
shall have the right, upon prior written notice and during Tenant's regular
business hours, to examine and inspect any of Tenant's sales tax reports for the
Leased Premises for the purpose of
2
<PAGE>
investigating and verifying the accuracy of the Annual Gross Sales Report. If,
subsequent to Landlord's inspection, the Annual Gross Sales Report shall be
found to have understated Tenant's Gross Sales by three percent (3%) or more,
then Tenant shall pay to Landlord, on demand, the amount equal to such
understatement, together with interest thereon at the Prime Rate (hereafter
defined). Tenant shall maintain all records related to the calculation of Gross
Sales for a period of three (3) years after the expiration of any Fiscal Year.
3. Other Agreements. Landlord agrees upon request of Tenant to
----------------
execute, and record in recordable form, a written (a) memorandum of lease, (b)
term commencement agreement, and (c) each Non-Disturbance and Attornment
Agreement required in Section __ hereof. Tenant shall bear the cost of any such
recording.
4. Tenant's Use; [EXCLUSIVE USE]. Tenant may use the Leased Premises
-----------------------------
[AND THE PROPERTY] for (i) the operation of a bagel restaurant ("Tenant's Use")
------------
or (ii) any other lawful use, provided Tenant receives the consent of Landlord
which consent shall not be unreasonably withheld, conditioned or delayed.
Landlord acknowledges that Tenant's Use shall include, but not be limited to,
the preparation and sale of bagels, cream cheese, jellies, jams and preserves,
baked goods, dessert items, drip and gourmet coffee, whole bean coffee, espresso
based drinks, teas, soft drinks, bagel sandwiches, bagel melts, pizza bagels,
deli-type sandwiches, soups and salads, vegetable juice drinks, frozen drinks,
fruit drinks and fruit smoothies, and other yogurt, sherbet, or similar based
fruit drinks, wraps, pretzels and other side-order items, all for in-store
consumption, take-out or delivery, and for catering services provided for off-
premises preparation or consumption. If permitted by local ordinance, Tenant
may, at its discretion, operate a drive-through from the Leased Premises, and
Landlord shall cooperate with Tenant's application for any permits required in
connection therewith, and shall make available any portion of the common areas
that will facilitate such use. [LANDLORD AGREES THAT DURING THE TERM AND ANY
EXTENSION, TENANT SHALL HAVE THE EXCLUSIVE RIGHT TO SELL BAGELS AND BAGEL-
RELATED PRODUCTS AND GOURMET COFFEE FOR ON OR OFF-PREMISES CONSUMPTION AT THE
SHOPPING CENTER. LANDLORD AGREES TO ENFORCE THIS COVENANT AGAINST OTHER TENANTS
IN THE SHOPPING CENTER USING ALL REASONABLE LEGAL MEANS.] Landlord acknowledges
that odors and smoke are emitted during the operation of Tenant's Use and shall
not be deemed noxious or offensive.
5. RIGHTS OF OTHER TENANTS. LANDLORD REPRESENTS AND WARRANTS THAT
-----------------------
THERE ARE NO TENANTS OR ANY OTHER PARTIES IN THE SHOPPING CENTER WHO HAVE LEASES
OR AGREEMENTS WHICH PROHIBIT, RESTRICT OR INTERFERE WITH TENANT'S USE.]
6. Inspections. Landlord shall provide to Tenant plans and
-----------
specifications of the Leased Premises including, but not limited to, the floor
plan and the floor bearing capacity of the Leased Premises within five (5) days
after the Effective Date. Also within such five (5) day period, Landlord shall
deliver to Tenant an existing title policy on the [SHOPPING CENTER OR] Leased
Premises and all appurtenant easements, including legible copies of all
documents affecting the [PROPERTY OR] Leased Premises. At any time after the
Effective Date, Landlord
3
<PAGE>
shall permit Tenant to enter upon the [PROPERTY OR] Leased Premises to make a
topographic and boundary survey, determine the location of utilities, perform
engineering studies and/or environmental audits ("Inspections") to determine the
-----------
Leased Premises' suitability for Tenant's Use. Landlord agrees to remove, at
its sole cost and expense, any asbestos or asbestos-containing materials located
on the Leased Premises. Tenant shall be permitted to make adequate openings in
walls, floors and ceilings during Inspections. If the Inspections indicate
conditions not satisfactory to Tenant for Tenant's Use, Tenant may terminate
this Lease and the parties shall be released from further liability. If Tenant
shall terminate this Lease pursuant to this Section, it shall as soon as
reasonably possible repair any openings in the walls, floors or ceilings it made
during Inspections. Tenant shall indemnify and hold Landlord harmless from and
against any and all liability arising out of any negligence in the performance
of the Inspections.
7. Construction of Leased Premises; Allowance.
------------------------------------------
(a) This Lease is contingent on Tenant's ability to secure all
required licenses, permits and approvals from applicable governmental
authorities necessary for it to operate its business, including, without
limitation, Tenant obtaining all licenses, permits and approvals necessary for
Tenant to conduct table-seated dining on the Leased Premises; otherwise, Tenant
may elect to terminate this Lease immediately upon written notice to Landlord.
On or before __________, 19__, Landlord agrees, at Landlord's expense, to
perform all work with respect to the Leased Premises as required by Tenant in
accordance with the terms of Exhibit __ attached hereto and made a part hereof.
----------
Within sixty (60) days from the substantial completion of Landlord's work and
delivery of possession of the Leased Premises to Tenant, Tenant shall commence
and complete all work on the Leased Premises other than those "punch list" items
remaining to be performed by Landlord. Each party's respective work obligations
shall be commenced and completed in a good, workmanlike and lien free manner, in
accordance with all applicable laws, including the Americans with Disabilities
Act of 1990, as amended (the "ADA") within the time periods provided herein and
---
in such work letter.
(b) Landlord agrees to provide Tenant with a cash allowance (the
"Allowance") of $______ per square foot (or $_______ in total) for the purpose
- ----------
of Tenant constructing its leasehold improvements. Landlord agrees that the
Allowance shall be due and payable within ten (10) days following (i) receipt of
a copy of Tenant's certificate of occupancy, (ii) Tenant's opening for business,
and (iii) Tenant's furnishing Landlord with all properly executed lien waiver
forms. Landlord and Tenant hereby agree that the Allowance shall be amortized
over a period of ten (10) years and shall bear interest at the Prime Rate
(hereafter defined). For purposes of this Lease, the term "Prime Rate" shall
----------
mean the rate per annum from time to term determined by ___________ as its Prime
Rate of interest, as reflected in the Bank's Prime Rate history book maintained
at its principal office in __________, as the Prime Rate may change from time to
time. Landlord hereby agrees that Tenant shall have the right to repay the
Allowance to Landlord at any time and any such repayment shall reduce the Rent
payable hereunder.
4
<PAGE>
8. Utilities. Landlord shall furnish to the Leased Premises at all
---------
times sufficient (i) sewer, gas, water and electric service lines in sufficient
capacity as is required by Tenant and (ii) sufficient heat, hot and cold water
and air conditioning as required from time to time by Tenant for all purposes,
except during the making of necessary repairs which repairs shall be completed
as promptly as possible without disruption to Tenant's business. Landlord
hereby represents and warrants to Tenant that all utilities and any HVAC system
servicing the Leased Premises are in good working order, condition and repair as
of the Effective Date.
9. [IN-LINE: MAINTENANCE; PAYMENT. LANDLORD COVENANTS AND AGREES TO
--------------------
MAINTAIN IN GOOD CONDITION AND REPAIR THE PROPERTY (INCLUDING STRUCTURAL
ELEMENTS), THE COMMON AREAS, PARKING AREAS, WALKWAYS, ACCESS DRIVES, DRIVEWAYS,
UTILITY LINES AND FOUNDATIONS WITHIN THE PROPERTY, THROUGHOUT THE TERM AND ANY
EXTENSIONS. IN THE EVENT LANDLORD FAILS TO PROMPTLY PERFORM SUCH NECESSARY
MAINTENANCE AND/OR REPAIRS, TENANT MAY PERFORM SUCH MAINTENANCE AND/OR REPAIRS
AND ANY COSTS EXPENDED BY TENANT SHALL BE DEDUCTED THE RENT. LANDLORD SHALL
KEEP THE PARKING AREA FREE OF ALL ICE, SNOW, DEBRIS AND REFUSE SO AS TO KEEP THE
SHOPPING CENTER IN A NEAT, CLEAN AND ORDERLY CONDITION. LANDLORD SHALL ALSO
MAINTAIN ADEQUATE LIGHTING FOR THE PARKING AREA AND DRIVEWAYS.
TENANT SHALL, WITHIN THIRTY (30) DAYS UPON RECEIPT FROM LANDLORD OF A
REPORT CERTIFIED BY AN AUTHORIZED OFFICER OF LANDLORD, OF THE ACTUAL AND
REASONABLE COMMON AREA MAINTENANCE EXPENSES INCURRED FOR THE PROPERTY FOR THE
PREVIOUS CALENDAR YEAR, REIMBURSE LANDLORD FOR PAYMENT OF TENANT'S PROPORTIONATE
SHARE OF SUCH EXPENSES. TENANT SHALL HAVE THE RIGHT TO AUDIT AND INSPECT THE
BOOKS AND RECORDS OF LANDLORD WITH RESPECT TO ANY COSTS OR ITEM WHICH IS PASSED
THROUGH TO TENANT UPON TEN (10) DAYS WRITTEN NOTICE BY TENANT TO LANDLORD. IF
THE RESULTS OF THE AUDIT SHOW AN OVERCHARGE TO TENANT OF MORE THAN TWO PERCENT
(2%) OF THE ACTUAL AMOUNT OWED BY TENANT, LANDLORD SHALL PAY THE REASONABLE COST
OF SUCH AUDIT AND LANDLORD SHALL CREDIT OR REFUND TO TENANT ANY OVERCHARGE OF
SUCH ITEM AS DISCOVERED BY THE AUDIT WITHIN THIRTY (30) DAYS OF THE COMPLETION
OF SUCH AUDIT. IN THE EVENT SUCH AUDIT DISCLOSES AN UNDERCHARGE OF SUCH ITEMS
AS BILLED TO TENANT, TENANT SHALL PAY TO LANDLORD THE AMOUNT OF SUCH UNDERCHARGE
WITHIN THIRTY (30) DAYS OF COMPLETION OF SUCH AUDIT. TENANT'S PROPORTIONATE
SHARE ("PROPORTIONATE SHARE") SHALL BE A FRACTION, THE NUMERATOR OF WHICH SHALL
-------------------
BE THE LEASED PREMISES FLOOR AREA AND THE DENOMINATOR OF WHICH SHALL BE THE
GROSS LEASABLE FLOOR AREA IN THE PROPERTY (WHETHER OR NOT CONSTRUCTED, RENTED OR
OCCUPIED). NOTWITHSTANDING ANYTHING TO THE CONTRARY PROVIDED HEREIN, TENANT
SHALL NOT BE REQUIRED TO PAY ANY EXPENSES WHICH, IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, ARE NOT FULLY CHARGEABLE AS A CURRENT EXPENSE IN
THE YEAR THE EXPENDITURE IS INCURRED.]
Freestanding: Maintenance; Payment. Tenant covenants and agrees, at
--------------------
its expense, to maintain in good condition and repair the Leased Premises
(including structural elements), the common areas, parking areas, walkways,
access drives, driveways, utility lines and foundations within the Leased
Premises, throughout the Term and any Extensions. In the event Tenant fails to
promptly perform such necessary maintenance and/or repairs, Landlord may perform
such
5
<PAGE>
maintenance and/or repairs and any costs expended by Landlord shall be added to
the Rent. Tenant shall keep the parking area free of all ice, snow, debris and
refuse so as to keep the Leased Premises in a neat, clean and orderly condition.
Tenant shall also maintain adequate lighting for the parking area and driveways.
10. MAJOR TENANTS. IF ONE OR MORE OF THE FOLLOWING TENANTS CEASE TO
-------------
OPERATE A BUSINESS UNDER ITS PRESENT TRADE NAME WITHIN THE SHOPPING CENTER FOR A
PERIOD IN EXCESS OF 90 DAYS, AND ANOTHER TENANT OF SUBSTANTIALLY THE SAME SIZE,
QUALITY AND REPUTATION IN THE BUSINESS COMMUNITY, SHALL NOT HAVE COMMENCED
OPERATION WITHIN SUCH TIME, THEN TENANT RESERVES THE RIGHT TO TERMINATE THIS
LEASE OR TO REDUCE ITS RENT AND OTHER CHARGES PAYABLE BY TENANT IN PROPORTION TO
THE REDUCTION IN VALUE OF THE LEASED PREMISES, AS REASONABLY DETERMINED BY
TENANT: _______________________________________.]
11. PROPERTY USE. TENANT HAS ENTERED INTO THIS LEASE IN RELIANCE
------------
UPON REPRESENTATIONS BY LANDLORD THAT NO PART OF THE SHOPPING CENTER SHALL BE
USED AS A MASSAGE PARLOR OR SPA, BLOOD BANK, ABORTION CLINIC, OR AN ADULT BOOK
OR ADULT VIDEO TAPE STORE (WHICH ARE DEFINED AS STORES IN WHICH ANY PORTION OF
THE INVENTORY IS NOT AVAILABLE FOR SALE OR RENTAL TO CHILDREN UNDER 18 YEARS OLD
BECAUSE SUCH INVENTORY EXPLICITLY DEALS WITH OR DEPICTS HUMAN SEXUALITY).]
12. Non-Disturbance and Attornment. Landlord, within thirty (30)
------------------------------
days after Effective Date, but in any event, prior to the Commencement Date,
will obtain from every senior landlord, mortgagee and holder of a deed of trust
upon the [PROPERTY OR] Leased Premises (collectively, the "Senior Interest
Holders"), an agreement in recordable form acceptable to Tenant wherein the
Senior Interest Holders agree not to disturb Tenant's possession of the Leased
Premises or deprive Tenant of any rights or increase any of its obligations
under this Lease (the "Non-Disturbance and Attornment Agreement").
----------------------------------------
13. Option to Terminate. Tenant shall have the right to terminate
-------------------
the Lease at any time after the second anniversary of the Commencement Date by
giving Landlord three (3) months written notice of its intention to do so. In
the event Tenant shall exercise this right of termination, Tenant shall pay as
consideration to Landlord on the date of termination a sum equal to three (3)
months' Rent.
14. IN-LINE: REAL ESTATE TAXES. LANDLORD SHALL PAY BEFORE THEY
-----------------
BECOME DELINQUENT REAL ESTATE TAXES IMPOSED DURING THE TERM AND ANY EXTENSIONS
UPON OR AGAINST THE PROPERTY ("REAL ESTATE TAXES"). LANDLORD SHALL BE SOLELY
-----------------
RESPONSIBLE FOR PAYMENT OF ANY AND ALL PENALTIES IMPOSED FOR ANY LATE PAYMENT.
TENANT SHALL, WITHIN THIRTY (30) DAYS UPON RECEIPT FROM LANDLORD OF A COPY OF
THE PAID TAX BILL AND AN INVOICE, REIMBURSE LANDLORD FOR PAYMENT OF TENANT'S
PROPORTIONATE SHARE OF REAL ESTATE TAXES.
REAL ESTATE TAXES FOR THE YEAR IN WHICH THE TERM SHALL BEGIN AND THE
YEAR IN WHICH THE LEASE SHALL TERMINATE SHALL BE PRORATED SO THAT TENANT SHALL
PAY ONLY THOSE PORTIONS
6
<PAGE>
THEREOF WHICH CORRESPOND WITH THE PORTION OF SAID YEARS AS ARE WITHIN THE TERM
OR THE CURRENT EXTENSION. NOTHING HEREIN CONTAINED SHALL REQUIRE TENANT TO PAY
(A) CORPORATION, FRANCHISE, INCOME, ESTATE, GIFT AND INHERITANCE TAXES OR
CHARGES IMPOSED ON RENT OR OTHER SIMILAR TAXES, CHARGES OR IMPOSITIONS WHICH MAY
BE LEVIED OR ASSESSED AGAINST LANDLORD, FEE OWNER, OR THEIR SUCCESSOR IN TITLE
OR (B) REAL ESTATE TAXES ON EASEMENT PARCELS.]
15. Freestanding: Real Estate Taxes. Tenant shall pay before they
-----------------
become delinquent real estate taxes imposed during the Term and any Extensions
upon or against the Leased Premises ("Real Estate Taxes"). Real Estate Taxes
-----------------
for the year in which the Term shall begin and the year in which the Lease shall
terminate shall be prorated so that Tenant shall pay only those portions thereof
which correspond with the portion of said years as are within the Term or the
current Extension. Nothing herein contained shall require Tenant to pay (a)
corporation, franchise, income, estate, gift and inheritance taxes or charges
imposed on Rent or other similar taxes, charges or impositions which may be
levied or assessed against Landlord, fee owner, or their successor in title or
(b) Real Estate Taxes on easement parcels.
16. SIDEWALKS. TENANT SHALL BE PERMITTED TO USE THE SIDEWALKS AND/OR
---------
COURTYARDS ADJACENT TO THE LEASED PREMISES AS AN OUTDOOR CAFE FREE OF ANY
ADDITIONAL CHARGE. LANDLORD SHALL NOT CAUSE OR PERMIT THE STREET, SIDEWALKS OR
COURTYARDS ADJACENT TO THE LEASED PREMISES TO BE OBSTRUCTED OR BLOCKED.]
[17. IN-LINE: INSURANCE.
---------
(A) LANDLORD. FROM THE EFFECTIVE DATE AND CONTINUING
--------
THROUGHOUT THE TERM AND ANY EXTENSIONS, TENANT SHALL MAINTAIN THE FOLLOWING
INSURANCE NAMING LANDLORD AS AN ADDITIONAL INSURED: (I) COMMERCIAL GENERAL
LIABILITY AND PROPERTY DAMAGE INSURANCE IN THE AMOUNT OF NOT LESS THAN
$1,000,000.00 FOR BODILY INJURY OR DEATH OR PROPERTY DAMAGE OF ANY ONE PERSON
AND $1,000,000.00 FOR ANY ONE OCCURRENCE, AND (II) FIRE AND EXTENDED COVERAGE
INSURANCE IN AN AMOUNT EQUAL TO THE FULL REPLACEMENT COST OF ANY IMPROVEMENTS
LOCATED ON THE LEASED PREMISES, ESTABLISHED BY AGREED AMOUNT ENDORSEMENT BY
TENANT, LANDLORD AND THE INSURER. UPON NOTICE FROM LANDLORD, TENANT SHALL
DELIVER TO LANDLORD A CERTIFICATE FROM ITS INSURER DECLARING SUCH INSURANCE TO
BE IN FULL FORCE AND EFFECT.
(B) TENANT. FROM THE EFFECTIVE DATE AND CONTINUING THROUGHOUT
------
THE TERM AND ANY EXTENSIONS, TENANT SHALL MAINTAIN COMMERCIAL GENERAL LIABILITY
INSURANCE NAMING LANDLORD AS AN ADDITIONAL INSURED IN THE AMOUNT OF NOT LESS
THAN $1,000,000.00 FOR BODILY INJURY OR DEATH OR PROPERTY DAMAGE OF ANY ONE
PERSON AND $1,000,000.00 FOR ANY ONE OCCURRENCE. UPON NOTICE FROM LANDLORD,
TENANT SHALL DELIVER TO LANDLORD A CERTIFICATE FROM ITS INSURER DECLARING SUCH
INSURANCE TO BE IN FULL FORCE AND EFFECT.
(C) WAIVER OF SUBROGATION. LANDLORD AND TENANT AND ALL PARTIES
---------------------
CLAIMING BY OR THROUGH THEM MUTUALLY RELEASE AND DISCHARGE EACH OTHER FROM ALL
CLAIMS AND LIABILITIES ARISING FROM OR CAUSED BY ANY CASUALTY OR HAZARD, COVERED
OR REQUIRED HEREUNDER TO BE
7
<PAGE>
COVERED IN WHOLE OR IN PART BY INSURANCE ON THE LEASED PREMISES OR IN CONNECTION
WITH PROPERTY ON OR ACTIVITIES CONDUCTED ON THE LEASED PREMISES, AND WAIVE ANY
RIGHT OF SUBROGATION WHICH MIGHT OTHERWISE EXIST IN OR ACCRUE TO ANY PERSON ON
ACCOUNT THEREOF.]
18. Freestanding: Insurance.
---------
(a) Landlord. From the Effective Date and continuing
--------
throughout the Term and any Extensions, Tenant shall maintain the following
insurance naming Tenant as an additional insured: (i) commercial general
liability and property damage insurance in the amount of not less than
$500,000.00 for bodily injury or death or property damage of any one person and
$1,000,000.00 for any one occurrence, (ii) fire and extended coverage insurance
in an amount equal to the full replacement cost of any improvements located on
the Leased Premises, established by agreed amount endorsement by Tenant,
Landlord and the insurer, (iii) workers' compensation insurance in statutory
amounts, and (iv) contractual liability insurance. Upon notice from Tenant,
Landlord, its agents and contractors shall deliver to Tenant a certificate from
its insurer declaring such insurance to be in full force and effect.
(b) Waiver of Subrogation. Landlord and Tenant and all parties
---------------------
claiming by or through them mutually release and discharge each other from all
claims and liabilities arising from or caused by any casualty or hazard, covered
or required hereunder to be covered in whole or in part by insurance on the
Property or in connection with property on or activities conducted on the
Property, and waive any right of subrogation which might otherwise exist in or
accrue to any person on account thereof.
19. Landlord's Title and Quiet Enjoyment. Landlord represents and
------------------------------------
warrants that Landlord is seized in fee simple title to the [PROPERTY OR] Leased
Premises, free, clear and unencumbered except as otherwise disclosed herein.
Landlord covenants that so long as Tenant fulfills the conditions and covenants
required of it to be performed, Tenant will have peaceful and quiet possession
thereof. Landlord further represents and warrants that it has good right, full
power and lawful authority to enter into the Lease for the Term and any
Extensions.
20. Improvements and Alterations. Tenant shall have the right to (i)
----------------------------
alter, renovate, add, remodel, modify, and/or change the Leased Premises and/or
other improvements upon the Leased Premises as Tenant may deem desirable, and
(ii) install pylon signage on any [SHOPPING CENTER] pylon [ON THE LEASED
PREMISES] or may install a freestanding pylon or affix fascia signs, canopies,
awnings and/or flags on the exterior walls of the Leased Premises if permitted
by local ordinance. Landlord hereby grants to Tenant and its agents and
contractors, at Tenant's sole cost and expense, the right to install, maintain
and operate a mast mounted satellite dish antenna (the "Dish") and related
----
equipment, including cables from the exterior of the roof directly above the
Leased Premises to equipment inside the Leased Premises, necessary to the
operation of the Dish, as part of Tenant's integrated satellite business
network. Tenant may locate the Dish at or relocate the Dish to some other
location on or about the roof of the
8
<PAGE>
[SHOPPING CENTER OR] Leased Premises for purposes of adequate reception, subject
to appropriate law, codes and regulations. Any improvements constructed upon
the [Property or Leased Premises by Tenant shall be and remain the property of
Tenant during the Term and any Extensions. Tenant shall not be required to
remove the improvements upon the [PROPERTY OR] Leased Premises and Tenant's
failure to do so after the expiration of such period shall be deemed to be an
abandonment thereof, whereby title shall become vested in the Landlord.
21. IN-LINE: DAMAGE OR DESTRUCTION. IF THE LEASED PREMISES AND/OR
---------------------
THE PROPERTY SHALL BE DAMAGED OR DESTROYED BY FIRE OR OTHER CASUALTY, LANDLORD
SHALL COMMENCE TO REPAIR OR REBUILD THE LEASED PREMISES AND/OR THE PROPERTY TO
THEIR CONDITION IMMEDIATELY PRIOR TO SUCH DAMAGE OR DESTRUCTION AND SHALL
COMPLETE SAME WITHIN A REASONABLE TIME THEREAFTER. IN THE EVENT LANDLORD HAS
NOT COMMENCED TO SO REPAIR OR REBUILD THE LEASED PREMISES AND/OR THE PROPERTY,
TENANT MAY AT ANY TIME THEREAFTER AND WITHOUT FURTHER NOTICE TO LANDLORD
COMMENCE TO REPAIR OR REBUILD THE LEASED PREMISES, OR TENANT MAY TERMINATE THE
LEASE AND THE PARTIES SHALL BE RELEASED FROM FURTHER LIABILITY. IN THE EVENT
TENANT ELECTS TO REPAIR OR REBUILD THE LEASED PREMISES, LANDLORD SHALL MAKE
AVAILABLE TO TENANT ALL INSURANCE PROCEEDS OR SUCH PORTION THEREOF NECESSARY FOR
THIS PURPOSE. IN THE EVENT THE INSURANCE PROCEEDS ARE INSUFFICIENT TO COVER THE
COSTS OF THE REPAIRS OR REBUILDING, THE EXCESS COSTS SHALL BE BORNE BY LANDLORD,
WHICH COSTS SHALL BE DEDUCTED FROM THE RENT. IN THE EVENT THE REPAIR OR
REBUILDING OF THE LEASED PREMISES HAS NOT BEEN COMPLETED WITHIN A PERIOD OF
NINETY (90) DAYS FROM THE DATE OF THE DAMAGE OR DESTRUCTION, OR IF THE CASUALTY
OCCURS WITHIN THE LAST YEAR OF THE TERM OR ANY EXTENSION REGARDLESS OF THE TIME
NECESSARY TO COMPLETE THE REPAIR OR REBUILDING, TENANT MAY, AT ITS OPTION,
TERMINATE THE LEASE AND THE PARTIES SHALL BE RELEASED FROM FURTHER LIABILITY.
IN SUCH EVENT, TENANT SHALL BE ENTITLED TO ALL PROCEEDS OF INSURANCE AND RIGHTS
OF RECOVERY AGAINST INSURERS ON POLICIES COVERING SUCH DAMAGE OR DESTRUCTION FOR
ANY IMPROVEMENTS CONSTRUCTED UPON THE PROPERTY BY TENANT. DURING ANY PERIOD
THAT THE DAMAGE OR DESTRUCTION IS SUCH AS TO RENDER THE USE OF THE LEASED
PREMISES IMPRACTICAL OR IMPOSSIBLE, AS DETERMINED BY TENANT, THE RENT AND OTHER
CHARGES PAYABLE BY TENANT SHALL ABATE.]
22. Freestanding: Damage or Destruction. If the Leased Premises
---------------------
shall be damaged or destroyed by fire or other casualty, Tenant may, at its
option, (i) commence to repair or rebuild the Leased Premises to its condition
immediately prior to such damage or destruction and shall complete same within a
reasonable time thereafter, or (ii) terminate the Lease and the parties shall be
released from further liability. In the event Tenant elects to repair or
rebuild the Leased Premises, Landlord shall make available to Tenant all
insurance proceeds or such portion thereof necessary for this purpose. If the
casualty occurs within the last year of the Term or any Extension regardless of
the time necessary to complete the repair or rebuilding, Tenant may, at its
option, terminate the Lease and the parties shall be released from further
liability. In such event, Tenant shall be entitled to all proceeds of insurance
and rights of recovery against insurers on policies covering such damage or
destruction for any improvements constructed upon the Leased Premises by Tenant.
During any period that the damage or
9
<PAGE>
destruction is such as to render the use of the Leased Premises impractical or
impossible, as determined by Tenant, the Rent and other charges payable by
Tenant shall abate.]
23. Liens. Landlord and Tenant covenant each with the other not to
-----
permit any judgment, attachment and/or lien (an "Encumbrance") to be filed
-----------
against the Leased Premises. Should any judgment, attachment and/or lien of any
nature be filed against the Leased Premises, the party from whose fault or
alleged debt such lien arises shall within thirty (30) days cause such
Encumbrance to be removed by substitution of collateral or otherwise.
24. Waiver of Landlord's Lien. In the event Tenant, its subtenants
-------------------------
or assigns acquires and/or leases personal property to be installed and used
upon the Leased Premises subject to a conditional sales contract, chattel
mortgage or other security agreement or lease, Landlord agrees to execute and
deliver to any such secured creditor and/or lessor a waiver of any lien Landlord
may have upon such personal property. Such waiver will be on a form provided by
Tenant authorizing the secured creditor and/or lessor to enter upon the Leased
Premises and remove such personal property in the event of default under the
terms of the conditional sales contract, chattel mortgage, security agreement
and/or lease. This Section shall not be interpreted as creating a lien in favor
of Landlord.
25. Default. In the event Tenant shall fail to pay the Rent when due
-------
or shall fail to perform any of its other obligations under the Lease, after
notice of such default shall have been given as provided below, Landlord may as
its sole and exclusive remedy elect either: (a) to re-enter the Leased Premises
by summary or similar proceedings and re-let the Leased Premises, using
reasonable efforts therefor, and receiving the Rent therefrom, applying the same
first to the payment of Rent accruing hereunder, the balance, if any, to be paid
to Tenant; but, Tenant shall remain liable for the equivalent of the amount of
all Rent reserved herein less the receipts of re-letting, if any, and such
amount shall be due and payable to Landlord as damages or rent, as the case may
be, on the successive Rent days provided above, and Landlord may recover such
amount periodically on such successive days; or (b) to terminate the Lease and
to resume possession of the Leased Premises wholly discharged from the Lease.
Such election shall be made by written notice to Tenant at any time on
or before the doing of any act or the commencement of any proceedings to recover
possession of the Leased Premises and shall be final. If Landlord shall elect
to terminate the Lease, all rights and obligations of Tenant relating to the
unexpired portion of the Lease shall cease. Within ten (10) days after receipt
by Tenant of notice of election by Landlord to terminate the Lease, the parties
shall by an instrument in writing in recordable form, terminate the Lease and
Tenant shall surrender and deliver to Landlord the Leased Premises, except that
Tenant may remove its trade fixtures, signs, equipment and other personal
property from and de-identify the Leased Premises.
Neither bankruptcy, insolvency, nor the appointment of a receiver or
trustee shall affect the Lease so long as the obligations of Tenant are
performed by Tenant, its successors or assigns.
10
<PAGE>
No default hereunder shall be deemed to have occurred on the part of
Tenant until ten (10) days after written notice of any monetary default and
thirty (30) days after written notice of any non-monetary default shall have
been given to Tenant, and Tenant within such time shall have failed to remedy
such default. If any default by Tenant, except payment of the rent, cannot
reasonably be cured within thirty (30) days after notice then Tenant shall have
additional time as may be reasonably necessary to cure such default.
26. Condemnation. If any portion of or interest in the [PROPERTY OR]
------------
Leased Premises shall be permanently or temporarily taken under any right of
eminent domain or any transfer in lieu thereof, and such taking renders the
Leased Premises [OR THE PROPERTY] unsuitable in the reasonable judgment of
Tenant for Tenant's Use, Tenant may terminate this Lease by notice to Landlord
within thirty (30) days after such taking deprives Tenant of possession of any
portion of the Leased Premises or of any other rights of Tenant under this
Lease. Nothing contained herein shall prevent Landlord and Tenant from
prosecuting claims in any condemnation proceedings for the values of their
respective interests. Tenant shall have the exclusive right to claim any
proceeds for the taking of Tenant's trade fixtures, equipment or personal
property and for relocation expenses. Landlord acknowledges and agrees that any
remediation of Hazardous Substances (hereinafter defined) that interferes with
Tenant's Use shall be deemed to be a taking for purposes of this Section.
Landlord represents and warrants that, at the Effective Date, it has
no actual or constructive knowledge of any proposed condemnation or road or
access changes or impairment to the visibility of the [PROPERTY OR] Leased
Premises including, but not limited to, turn restrictions, barriers or medians,
overpasses, underpasses or bypasses, that would affect the [PROPERTY OR] Leased
Premises or Tenant's Use of any part of the [PROPERTY OR] Leased Premises. In
the event that, prior to the Commencement Date, any of the foregoing actions is
proposed by any governmental or private authority, Tenant shall be under no
obligation to commence or continue construction of its work on the Leased
Premises, and Tenant shall have the option to (i) recover all rights, damages
and awards pursuant to the appropriate provisions of this Section, or (ii)
terminate this Lease with a reservation of its rights and remedies hereunder.
27. Assignment or Transfer.
----------------------
(a) Landlord. No assignment or transfer of the Lease by
--------
Landlord shall be binding on Tenant unless the assignee or transferee shall
assume and agree to be bound by the terms of the Lease.
(b) Tenant. Tenant shall have the (i) right to assign, sublet,
------
license or transfer any or all of its rights and privileges under the Lease
provided that no such assignment, sublease, license or transfer shall operate to
relieve Tenant of its obligations under the Lease, including the payment of Rent
and other charges and (ii) unrestricted right to execute and
11
<PAGE>
deliver a mortgage, deed of trust, pledge and/or collateral assignment of the
Lease as security for any indebtedness in any form whatsoever. Landlord hereby
consents to such collateral assignment and agrees to execute any document
required by Tenant's mortgagee to effect such transaction.
28. TENANT PARKING. TENANT'S CUSTOMERS SHALL HAVE THE EXCLUSIVE
--------------
RIGHT TO PARK ON THE PORTION OF THE PARKING AREA AS CROSSHATCHED ON EXHIBIT A
---------
DURING TENANT'S REGULAR BUSINESS HOURS. TENANT SHALL HAVE THE RIGHT TO PLACE
SIGNS READING "RESERVED PARKING-TENANT'S CUSTOMERS ONLY FROM 6:00 A.M. TO 7:00
P.M." ON SUCH PARKING SPACES IF AND WHEN TENANT, EXERCISING REASONABLE JUDGMENT,
SHALL DETERMINE THAT OTHER TENANT'S CUSTOMERS OR EMPLOYEES ARE UTILIZING SUCH
SPACES TO THE DETRIMENT OF TENANT'S BUSINESS. TENANT SHALL HAVE THE RIGHT TO
ENFORCE ITS EXCLUSIVE PARKING RIGHTS UNDER THIS PARAGRAPH BY THE TICKETING AND
TOWING OF CARS.]
29. Representations And Warranties. Landlord represents and
------------------------------
warrants:
(a) Hazardous Substances. The [PROPERTY OR] Leased Premises
--------------------
does not presently contain and is free from all hazardous substances and/or
wastes, toxic and nontoxic pollutants and contaminants including, but not
limited to, petroleum products and asbestos (collectively, "Hazardous
----------
Substances"). Landlord has not received any notification from any federal,
- ----------
state, county or city agency or authority relating to Hazardous Substances, in
or near the [PROPERTY OR] Leased Premises. Neither party shall cause or permit
any Hazardous Substances to be brought upon, kept or used in or about the
[PROPERTY OR] Leased Premises by such party, its agents, employees, contractors,
invitees, tenants, subtenants or licensees without the prior written consent of
the other party. Neither party shall unreasonably withhold its consent thereto
as long as such party demonstrates to the other party's reasonable satisfaction
that each such Hazardous Substance is necessary or useful to its business or to
the business of its agents, employees, contractors, invitees, tenants,
subtenants or licensees, and will be used, kept and stored in a manner that
complies with all applicable federal, state and local environmental laws. If
consented to, the requesting party shall promptly deliver to the other party
true and complete copies of all notices received by such party from any
governmental authority with respect to the generation, storage or disposal of
such Hazardous Substances.
(b) Litigation. There are no claims, causes of action or other
----------
litigation or proceedings pending or, to the best of Landlord's knowledge,
threatened in respect to the owner ship, operation or environmental condition of
the [PROPERTY OR] Leased Premises or any part thereof, except for claims which
are fully insured and as to which the insurer has accepted defense without
reservation.
(c) Violation. There are no violations of any health, safety,
---------
pollution, zoning or other laws, ordinances, rules or regulations with respect
to any portion of the [SHOPPING CENTER OR] Leased Premises which have not been
heretofore entirely corrected. In the event
12
<PAGE>
Landlord has knowledge of any such violations, Landlord shall cure such
violations prior to the Effective Date.
(d) Zoning. The Shopping Center is currently zoned to allow the
------
use of the Leased Premises for Tenant's Use.
30. Freestanding: Right of First Lease; Right of First Refusal.
--------------------------------------------
(a) If Landlord desires to accept a bona fide offer ("Lease
Offer") to lease the Leased Premises or any portion thereof for a term
commencing on or after the expiration of this Lease or to lease any portion of
the premises adjacent to the Leased Premises, Landlord shall notify Tenant and
Tenant shall have a right of first lease to lease the Leased Premises and/or the
adjacent premises upon the terms and conditions of the Lease Offer.
(b) Tenant shall have the right to purchase the Leased Premises
on the same terms and conditions as those of any bona fide offer received by and
acceptable to Landlord. Prior to making any sale or any agreement to sale,
Landlord shall notify Tenant in writing of the terms and conditions of such
offer and Tenant, within 30 days after receipt of such notice, may exercise this
right by written notice to Landlord.
[31. IN-LINE: RIGHT OF FIRST LEASE. IF LANDLORD DESIRES TO ACCEPT A
--------------------
BONA FIDE OFFER ("LEASE OFFER") TO LEASE THE LEASED PREMISES OR ANY PORTION
-----------
THEREOF FOR A TERM COMMENCING ON OR AFTER THE EXPIRATION OF THIS LEASE OR TO
LEASE ANY PORTION OF THE PREMISES ADJACENT TO THE LEASED PREMISES, LANDLORD
SHALL NOTIFY TENANT AND TENANT SHALL HAVE A RIGHT OF FIRST LEASE TO LEASE THE
LEASED PREMISES AND/OR THE ADJACENT PREMISES UPON THE TERMS AND CONDITIONS OF
THE LEASE OFFER.]
32. Indemnification.
---------------
(a) Landlord hereby indemnifies and holds Tenant, Tenant's
nominees, officers, directors, agents, employees, successors and assigns
harmless from and against any and all claims, demands, liabilities, and
expenses, including attorneys' fees and litigation expenses, arising from (i)
the negligence or wilful acts of Landlord or its agents, employees, or
contractors occurring on [THE LEASED PREMISES OR] the Property or (ii) the
presence of hazardous substances or materials on [THE LEASED PREMISES OR] the
Property, except to the extent caused by Tenant's negligence or wilful
misconduct. In the event any action or proceeding shall be brought against
Tenant by reason of any such claim, Landlord shall defend the same at Landlord's
expense by counsel selected by Tenant.
(b) Tenant hereby indemnifies and holds Landlord, Landlord's
nominees, officers, directors, agents, employees, successors and assigns
harmless from and against any and all claims, demands, liabilities, and
expenses, including attorneys' fees and litigation expenses, arising from the
negligence or wilful acts of Tenant or its agents, employees, or contractors
13
<PAGE>
occurring on [THE LEASED PREMISES OR] the Property, except to the extent caused
by Landlord's negligence or wilful misconduct. In the event any action or
proceeding shall be brought against Landlord by reason of any such claim, Tenant
shall defend the same at Tenant's expense by counsel selected by Landlord.
33. Miscellaneous.
-------------
(a) If either party is delayed or prevented from performing any
of its obligations under this Lease by reason of strike, lockouts, labor
troubles, failure of power, riots, insurrection, war, acts of God or any other
cause beyond such party's control, the period of such event or such prevention
shall be deemed added to the time period herein provided for the performance of
any such obligation by the applicable party.
(b) This Lease contains the entire agreement between the parties.
No modification, alteration or amendment of the Lease shall be binding unless in
writing and executed by the parties.
(c) The representations, warranties and indemnities contained in
this Lease shall survive the termination or expiration of this Lease.
(d) Landlord acknowledges that any plans or specifications of
Tenant and Tenant's trademarks and service marks, including, without limitation
are the sole property of Tenant, and Landlord shall not have any rights to same.
(e) Each party hereto has reviewed and revised (or requested
revisions of) this Lease, and therefore any usual rules of construction
requiring that ambiguities are to be resolved against a particular party shall
not be applicable in the construction and interpretation of this Lease or any
Exhibits hereto.
(f) Time is of the essence of this Lease and each provision;
provided, however, if the final (but not any interim) date of any period set
forth herein falls on a Saturday, Sunday or legal holiday under the laws of the
United States of America, the final date of such period shall be extended to the
next business day.
(g) Landlord agrees to pay all commissions due in connection with
the execution of this Lease.
(h) his Lease shall be governed by and construed and interpreted
in accordance with the laws of the state in which the Shopping Center is
located.
(i) This Lease is contingent upon Tenant obtaining the requisite
senior management and Board of Director approval of this Lease and the Leased
Premises for Tenant's Use.
14
<PAGE>
(j) Landlord and its agents, representatives, employees,
partners, officers and directors will not disclose the subject matter or terms
of the transaction contemplated by this Lease unless prior written consent to
such disclosure is obtained from Tenant, which consent may be withheld at
Tenant's sole discretion.
(k) Landlord agrees that upon its execution of this Lease,
neither it nor its agents or employees shall (i) initiate, encourage the
initiation by others of discussions or negotiations with third parties or
respond to solicitation by third parties relating to the Leased Premises or any
part thereof, (ii) fail to immediately notify Tenant if any third party attempts
to initiate any such solicitation, discussion, or negotiation with Landlord and
(iii) enter into any agreement with any third party with respect to the Leased
Premises or any part thereof.
(l) The offer to lease set forth in this Lease must be accepted
by Landlord by the delivery of fully executed duplicate originals of this Lease
to Tenant by no later than ________, __.m., on ____________, ____, 19__;
otherwise, this offer may, at Tenant's sole option, be terminated and be of no
further force or effect.
IN WITNESS WHEREOF, Landlord has caused this Addendum to Lease to be
executed and sealed this ___ day of ____________________, 199_.
WITNESSES: LANDLORD
______________________________ ______________________________
______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
15
<PAGE>
IN WITNESS WHEREOF, Tenant has caused this Addendum to Lease to be
executed and sealed this ____ day of _______________________, 199_.
WITNESSES: TENANT
EINSTEIN/NOAH BAGEL CORP., A DELAWARE
CORPORATION
______________________________
______________________________ By:_________________________________
Name:_______________________________
Title:______________________________
16
<PAGE>
EXHIBIT A
---------
SITE PLAN AND LEGAL DESCRIPTION OF THE
LEASED PREMISES [OR SHOPPING CENTER]
------------------------------------
A-1
<PAGE>
EXHIBIT B
---------
LEASE PLAN OF THE LEASED PREMISES
---------------------------------
B-1
<PAGE>
EXHIBIT C
---------
LANDLORD WORK
-------------
This document outlines the responsibilities of both tenant and landlord with
respect to the demised premises.
The Landlord shall, at its sole cost and expense, complete the following in a
workmanlike manner, to a standard "vanilla shell", conforming with the Tenant's
plans and specifications and all local, state and national codes and UL and NFPA
requirements, where applicable. Any permits, fees, licenses,
architectural/engineering services required to execute the preceding work shall
be provided by the Landlord at it's sole expense and discretion. All Landlord
work shall be completed prior to Tenant accepting possession of aforementioned
premises.
1. ELECTRICAL SERVICE - 120/208 volts, 3-phase, ww 4 wire; 400 amp service
installed at location as specified by Tenant. Panels shall consist of two
200AMP, 42 space panels including breakers fed from disconnect switches. Ceiling
mounted exit signs as required by code.
2. WATER SERVICE - 1-1/2" domestic water line (minimum) from local main to
demised premises; meter and backflow device located as specified by Tenant.
3. GAS SERVICE - Install adequate gas line and meter at rear of building
supplying not less than 700 CFH; meter location as specified by Tenant @ 7" wc
(absolute minimum - non-negotiable). Piping to roof shall be adequately sized
to accomodate the HVAC units and taps for interior gas fired equipment.
4. BUILDING SANITARY SEWER - 4" sanitary sewer line from the demised premises
to the authorized main sewer or a governmentally approved septic system; sewer
stub at location specified by Tenant. Service shall also include a grease trap,
if required by local_code.
5. FIRE SPRINKLER - Provide and install NFPA, UL and code approved fire
protection system, only if required by Fire Department or other governing
agency.
6. TELEPHONE CONDUIT - Provide and install 2" telephone conduit, stubbed at
Tenant's specified location.
7. HVAC SYSTEM - Provide and install a minimum of 1 ton per 125 SF of energy
efficient HVAC equipment or provide allowance of $1500 per ton for same (17.5
tons). Roof penetrations for bagel oven exhaust and other vented equipment to be
coordinated with Landlord's roofing contractor and shall not void roof waranty.
RTU's shall be wired to panels, including interlocked smoke detectors, gas
connections and thermostat located in the space. Work shall also include
C-1
<PAGE>
diffusers, grills, insulation, controls and other equipment necessary for a
complete operating system.
8. DRYWALL & CEILING SYSTEM - Einstein's first preference is an "open ceiling"
format. If mutually practical, the Landlord shall deliver the ceiling space
appropriate for this type of finish to include, but not limited to the
following: sprinkler system, appropriately installed, electrical system run
neatly at right angles properly supported, HVAC ductwork run neatly with no flex
duct and all other utilities or structures prepared neatly for an open ceiling
use. If appropriate for the trade area, and it is economical to do so, Tenant
may elect to utilize an open ceiling format, for which Landlord shall provide an
appropriate credit for this work if it is not practical for Landlord to provide
the items identified in the preceding paragraph Provide and install standard
5/8" framing drywall at demising walls and water resistant drywall in service
and kitchen area. (If not installed, landlord shall provide a comparable credit
for said facilities.) If an open ceiling format is not practical then the
following shall apply. Provide and install standard 2'x 4' exposed ceiling grid
with lay-in ceiling tile per einstein's specification standards.
9. RESTROOMS - Provide complete, functional handicap bathrooms as required by
local codes and ADA requirements; include janitors closet or mop sink. (If not
installed, landlord shall provide a comparable credit for said facilities.)
10. FLOORS - Provide exposed concrete (or hardwood) floors, patched as
necessary, to a smooth, uniform and consistent texture ready for Tenant's
finishes.
11. STORE FRONT - Complete and operable store front, including all glazing to
meet local codes. Door opening to be located per Tenant's plans.
12. TRASH REMOVAL - Interior of Demised Premises, including all storage areas
and basements, shall be free of all personal property and/or debris. Premises
shall be delivered in a "broom-clean" condition.
13. DUMPSTER AREA - Suitable dumpster location sufficient to adequately service
the store under normal operations, which shall meet the standards of the local
health agency.
14. EXTERIOR AND STRUCTURAL CONDITIONS - With the exception of the Tenant's
trade dress, Landlord is responsible for all exterior and structural conditions,
which will be delivered in a condition acceptable to tenant, including but not
limited to the roof, building facade, sidewalks, parking lot, landscaping,
irrigation common areas. . .
C-2
<PAGE>
EXHIBIT F
EINSTEIN/NOAH BAGEL CORP.
STANDARD FORM OF SUBLEASE
-------------------------
<PAGE>
Location: [-]
---------
Store No: [-]
---------
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT ("SUBLEASE") is made and entered into as of
______________________, 1996, by and between EINSTEIN/NOAH BAGEL CORP., f/k/a
Einstein Bros. Bagels, Inc., a Delaware corporation, having as its principal
office address, 14123 Denver West Parkway, Golden, Colorado, Attn. Real Estate
Services ("SUBLESSOR") and [-], a [-], having as its principal office address at
[-] ("SUBLESSEE"), collectively, the "PARTIES" and, individually, a "PARTY".
R E C I T A L S
A. Pursuant to the terms of that certain lease ("PRIME LEASE"), a copy of
which is attached hereto and incorporated herein by reference as Exhibit A
---------
and dated as of [-] by and between Sublessor, as tenant, and [-], as
landlord ("PRIME LESSOR"), Sublessor is the lessee of those certain
premises commonly known as [-], and more particularly described therein
("PREMISES"). All initially capitalized terms used herein and not
otherwise defined herein shall have the same meaning given such term in the
Prime Lease.
B. The parties have or are about to enter into that certain Einstein Bros.
Franchise Agreement ("FRANCHISE AGREEMENT") with respect to the operation
by Sublessee of certain retail bagel restaurants as more specifically
described therein.
C. Pursuant to the Franchise Agreement, Sublessor and Sublessee desire to
enter into this Sublease with respect to the Premises.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00), the promises and
conditions herein contained and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1. INCORPORATION OF RECITALS. The foregoing Recitals are incorporated
-------------------------
herein by this reference.
2. SUBLEASE OF PREMISES. In consideration of the rent and other sums to
--------------------
be paid by Sublessee, and of the other terms, covenants and conditions contained
herein, Sublessor hereby subleases to Sublessee, and Sublessee hereby takes and
subleases from Sublessor the Premises.
3. TERM OF SUBLEASE. The primary term of this Sublease will commence upon
----------------
final execution of this Sublease ("COMMENCEMENT DATE") and shall expire on the
earlier of: (i) one
<PAGE>
day prior to expiration of the term of the Prime Lease, or (ii) upon the
expiration or earlier termination of the Franchise Agreement ("PRIMARY TERM").
The Primary Term may be extended as set forth in and subject to the Prime Lease
for additional periods of years, commencing at midnight on the date on which the
Primary Term expires, provided the Franchise Agreement is in full force and
effect and provided that Sublessee has given Sublessor notice of its exercise of
the applicable option thirty (30) days prior to the date that Sublessor is
required to deliver such a notice to the Prime Lessor pursuant to the Prime
Lease. Upon Sublessor's receipt of such notice from Sublessee, Sublessor shall
timely deliver notice to Prime Lessor of Sublessor's exercise of its applicable
option under the Prime Lease. The Primary Term together with any extension(s)
are referred to herein collectively as the "TERM." Notwithstanding anything
herein to the contrary, in no event shall the Term of this Sublease extend
beyond the term (as same may be extended) or earlier expiration or termination
of the Prime Lease.
4. CONDITION OF PREMISES. Except as otherwise provided herein, the
---------------------
Premises are sublet "AS IS", with no representation or warranty, express or
implied of Sublessor, and, without limiting the generality of the foregoing, are
sublet subject to: (a) the existing state of title to the Premises as of the
date hereof; (b) any state of facts which an accurate survey and physical
inspections of the Premises might show; and (c) all zoning and building
regulations, restrictions and other laws, ordinances, statutes, codes and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction over the Premises. The buildings, structures and other
improvements comprising a part of the Premises, if any, are subleased subject to
their conditions as of the date hereof, and Sublessor does not make any
representation or warranty, either express or implied, as to the condition of
the Premises or Prime Lease or as to the adequacy or suitability of the Premises
for the purposes or needs of Sublessee.
Sublessor represents and warrants that (a) Sublessor has full right, power
and authority to make this Sublease, subject to the rights of the Prime Lessor,
condition of title, the terms of the Prime Lease, the condition of the Premises
and the terms of this Sublease, and (b) Sublessor shall use good faith efforts
to obtain the consent of the Prime Lessor to this Sublease, and shall deliver a
notice to the Prime Lessor, as the case may be, as may be required by the Prime
Lease. Sublessee, subject to the forgoing, upon the payment of the rent and
other charges and performance of the covenants hereunder and under the Prime
Lease, shall and may peaceably and quietly have, hold and enjoy the Premises
during the Term.
5. USE OF PREMISES. Subject to any limitations imposed upon Sublessor by
---------------
the Prime Lease, the Premises shall be used and occupied solely for the sale of
retail prepared foods permitted or required to be prepared and sold by Sublessee
from time to time under the Franchise Agreement, and for no other purpose.
Sublessee shall operate a Einstein Bros. Unit as that term is defined in the
Franchise Agreement from the entire Premises continuously at all times during
the Term in accordance with the uses permitted herein. Sublessee shall operate
the Premises in a first class manner in strict conformity with the requirements
of the Franchise Agreement, Prime Lease and any other agreements affecting the
Premises.
2
<PAGE>
6. RENT. Sublessee agrees to pay and Sublessor agrees to accept, in equal
----
monthly installments, in advance, on the first day of each and every calendar
month during the Term, or at such other time and date as directed by the terms
of the Prime Lease, all rentals, charges, fees and expenses provided in the
Prime Lease, including without limitation minimum base rental and percentage
rental, if any, equal in all respects to the sums specified in the Prime Lease
plus all additional rents, taxes, dues, fees and charges set forth in the Prime
Lease due from Sublessor, as lessee, to Prime Lessor, in accordance with the
terms of the Prime Lease (collectively "RENT"). All such Rent payments shall be
made at the offices of Sublessor herein specified or at such other place as
Sublessor may from time to time designate in writing. Sublessee shall fully and
completely comply with all percentage rent provisions in the Prime Lease, if
any, including all reporting, bookkeeping, record keeping and payment
requirements.
Rent payments due from Sublessee under this Sublease, shall be
appropriately prorated on the basis of the number of days under this Sublease,
if less than a whole month, during which Sublessee subleases the Premises from
and after the Commencement Date.
[IF APPLICABLE]
7. SECURITY DEPOSIT. Sublessee has deposited with Sublessor the sum of
----------------
[-] as a security deposit ("SECURITY DEPOSIT") The Security Deposit may be
applied by Sublessor for the purposes of curing any default or defaults of
Sublessee under this Sublease. If said sum or any part thereof is used, applied
or retained in curing any default, Sublessee shall, upon demand, immediately
deposit with Sublessor an amount in cash equal to the amount so used, applied or
retained. If Sublessee has not defaulted hereunder, and if Sublessor has not
applied said sum to a default, then the Security Deposit or any portion thereof
not so applied by Sublessor shall be paid in cash to Sublessee at the
termination of this Sublease. No interest shall be paid thereon.
8. INSURANCE REQUIREMENTS. During the Term, Sublessee shall maintain the
----------------------
following minimum insurance coverages:
(a) commercial general liability insurance naming Sublessor and Prime
Lessor as additional insureds with a combined single limit of not less
than One Million Dollars ($1,000,000.00) per occurrence (or such
higher limits which Sublessor may reasonably require) insuring against
claims from personal injury, bodily injury, death or property damage
including, without limitation, that occurring on, in or about the
Premises and the adjoining streets, sidewalks, parking lots and
passageways, which insurance shall include products liability coverage
and contractual liability coverage with respect to the indemnities set
forth herein;
(b) "all risk" physical damage insurance, including fire, sprinkler
leakage, malicious mischief, vandalism including all "extended
coverage" endorsements, insuring against physical damage to the
buildings and improvements on the Premises for
3
<PAGE>
the full replacement cost thereof with no deduction for depreciation,
naming Sublessor and Prime Lessor as additional insureds;
(c) business interruption and rent loss insurance in such amounts as shall
be sufficient to pay all Rent due under this Sublease and business
losses for a period of not less than twelve (12) months naming
Sublessor and Prime Lessor, if applicable, as additional insureds;
(d) such other insurance that Sublessee is required to maintain under the
Franchise Agreement and Prime Lease; and
(e) to fully comply with all insurance provisions provided for in the
Prime Lease.
Prior to the Commencement Date, Sublessee shall provide Sublessor and Prime
Lessor certificates of insurance evidencing that the insurance required to be
maintained by Sublessee under this section is in full force and effect. Prior
to the expiration of any insurance coverage, Sublessee shall provide Sublessor
and Prime Lessor with new certificates of insurance providing evidence of the
renewal of the expiring insurance coverage. The insurance certificates
furnished to Sublessor and Prime Lessor shall include a provision which requires
that thirty (30) days prior written notice to Sublessor and Prime Lessor be
given by the insurance company prior to cancellation, non-renewal, termination
or change in such insurance. The insurance coverage required to be maintained
by Sublessee under this Section shall be issued by insurance companies which are
satisfactory to Sublessor and Prime Lessor. No insurance required to be
maintained by Sublessee under this Sublease shall be made on a "claims made"
basis without the prior written consent of Sublessor. Any aggregate limit under
Sublessee's liability insurance policy shall by endorsement apply to the
Premises separately.
9. INDEMNITY. Sublessee hereby indemnifies Sublessor and shall hold
---------
Sublessor and its officers, directors, shareholders, employees, representatives,
agents and consultants harmless from and against any and all claims, demands,
liabilities, liens, causes of action, judgments and expenses, including
reasonable attorneys' fees and costs, arising in any manner (i) from this
Sublease or the Prime Lease, (ii) from any accident, injury, death, loss or
damage to or of any person(s) or property occurring in, on or about the
Premises, (iii) out of the negligence or willful misconduct of Sublessee or it
agents, employees, directors, officers, invitees, customers, or contractors, or
(iv) from any breach or default by Sublessee of this Sublease, or the Prime
Lease, except to the extent caused by Prime Lessor's or Sublessor's negligence
or willful misconduct. In the event any action or proceeding shall be brought
against Sublessor by reason of any such claim, Sublessee shall defend Sublessor
against such claim at Sublessee's sole cost and expense by counsel reasonably
satisfactory to Sublessor. Sublessor hereby indemnifies Sublessee and shall
hold Sublessee and its officers, directors, members, managers, shareholders,
employees, representatives, agents and consultants harmless from and against any
and all claims, demands, liability, liens, causes of actions, judgments and
expenses, including reasonable attorneys' fees and costs, arising in any manner
from a breach or default by Sublessor of its
4
<PAGE>
obligations set forth in the Prime Lease, except to the extent that Sublessor's
breach or default was caused by Sublessee's breach of its obligations set forth
herein.
10. COMPLIANCE WITH PRIME LEASE. This Sublease is subject and subordinate
---------------------------
to the terms and conditions of the Prime Lease and any mortgages as provided
therein. Sublessee at its sole cost and expense shall at all times fully comply
with all of the covenants, terms, conditions and agreements of the Prime Lease
as if the Prime Lease is a direct lease between Sublessee as tenant and Prime
Lessor as landlord. Sublessee shall be primarily responsible for all duties and
obligations of Sublessor under the Prime Lease, except for the payment of Rent
and other monetary obligations to Prime Lessor, which payment Sublessor shall
make directly to Prime Lessor in a timely manner in compliance with the Prime
Lease. On Sublessee's own initiative without notice or demand from Sublessor,
Sublessee shall perform all such duties and obligations without being asked to
do so in each particular instance. Sublessee shall not do or allow to be done
any act or omission, on its part or on the part of any of its officers,
directors, customers, invitees, agents, servants, employees, contractors or
third parties, which would adversely affect Sublessor's rights, privileges,
powers and immunities under the Prime Lease or which would be contrary to the
requirements of the Prime Lease. In the event the obligations and restrictions
imposed upon Sublessee in this Sublease conflict with the obligations and
restrictions imposed upon Sublessor, as lessee under the Prime Lease, then the
more burdensome of such restrictions and obligations shall be binding upon
Sublessee. Sublessor and Sublessee agree that the Sublease is intended to be
"triple net" and Sublessee shall be responsible for the performance of all
duties and obligations under the Prime Lease and the payment of all Rent and
monetary obligations arising under the Prime Lease.
[IF APPLICABLE]
11. SUBORDINATION TO AND COMPLIANCE WITH COLLATERAL ASSIGNMENT OF LEASE.
-------------------------------------------------------------------
Both Parties acknowledge that the Prime Lease is subject to a collateral
assignment between Sublessor and Bank of America Illinois, as agent, attached
hereto as Exhibit B (the "Collateral Assignment"). Sublessor acknowledges that
its rights under this Sublease are subordinate in all respects to the rights of
the Lenders under the Collateral Assignment and it agrees, upon request of the
Sublessor or the Lenders, to execute and deliver such other documents and take
such actions as may be necessary or appropriate to confirm such subordination.
12. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign, sublease,
-------------------------
transfer, mortgage, encumber or otherwise hypothecate this Sublease (a
"TRANSFER") without Sublessor's prior written consent, which consent may be
withheld by Sublessor at its sole and absolute discretion; provided, however,
Sublessor's consent shall not be required for any Transfer approved by Sublessor
pursuant to the Franchise Agreement. Sublessee shall promptly notify Sublessor
of any Transfer which did not require, and was made without, the prior written
consent of Sublessor. For purposes of this Sublease, Transfer shall be
considered to include a change in the majority ownership or control of Sublessee
if Sublessee is a corporation or a partnership. Any attempt to Transfer this
Sublease or any interest therein without the prior
5
<PAGE>
written consent of Sublessor (if such consent is required under this section)
shall be automatically deemed null and void. The consent by Sublessor to any
Transfer or use of the Premises by others shall not constitute a waiver of
Sublessor's right to withhold its consent to any other or further Transfer or
use of the Premises by others. Without the prior written consent of Sublessor,
this Sublease and the interest of Sublessee in the Premises shall not pass by
operation of law or otherwise (except as provided in this section), and shall
not be subject to garnishment or sale under execution in any suit or proceeding
which may be brought by or against Sublessee or any assignee of Sublessee. The
absolute and unconditional prohibitions contained in this section and
Sublessee's agreement thereto are material inducements to Sublessor entering
into this Sublease and if violated constitute a material default under this
Sublease permitting Sublessor to exercise all remedies provided for in this
Sublease or by law or in equity including, without limitation, injunctive
relief. In no event shall any Transfer to which Sublessor may consent, release
or relieve Sublessee from its obligations to fully observe or perform all of the
terms, covenants and conditions of this Sublease on its part to be observed or
performed.
13. SERVICES TO PREMISES. Sublessor shall provide Sublessee with any and
--------------------
all services made available to Sublessor by Prime Lessor under the Prime Lease,
insofar as the same are applicable to the Premises. Sublessor shall exert
reasonable efforts to obtain all services which Prime Lessor is required to
provide under the Prime Lease, but Sublessor shall not be liable for the failure
of Prime Lessor to provide such services, unless such failure is due to the
willful act or negligence of Sublessor under the Prime Lease. In addition,
Sublessor shall have no obligation to render any services to Sublessee or to
spend any money for the repair or preservation of the Premises. If services to
the Premises are stopped or interrupted in such a manner as to substantially
interfere with the normal operation of Sublessee's business on the Premises,
Sublessor, upon the written request and at the expense of Sublessee, will exert
reasonable efforts to enforce and pursue the rights which Sublessor may have
pursuant to the Prime Lease to rectify such service stoppage or failure.
Sublessor covenants to comply with its duties and obligations under the Prime
Lease so as to keep the same free from default and in full force and effect.
Except as provided to the contrary herein, all of the benefits to which
Sublessor is entitled under the Prime Lease shall inure to the benefit of
Sublessee; provided, however, Sublessee shall have no power or authority to
enforce any of such rights against Prime Lessor under the Prime Lease. If
Sublessee reasonably believes that the Prime Lessor is in default of its
obligations set forth in the Prime Lease, Sublessee shall notify Sublessor of
such fact and give specific details of Prime Lessor's default. Sublessor shall
have five (5) business days from receipt of such Sublessee's notice in which to
independently determine if Prime Lessor is in default of its obligations set
forth in the Prime Lease. If Sublessor reasonably believes that Landlord is in
default of its obligations under the Prime Lease, Sublessor shall act diligently
and use its reasonable best efforts to cause Prime Lessor to comply therewith.
If Sublessor does not reasonably believe that Landlord is in default of its
obligations under the Prime Lease, Sublessor shall have no obligation to
exercise any of its remedies set forth in the Prime Lease, provided, however,
Sublessee shall have all rights and remedies against Sublessor provided under
this Sublease.
6
<PAGE>
14. ENTRY BY SUBLESSOR. Sublessor, its agents, consultants and employees
------------------
may enter the Premises upon reasonable notice to Sublessee, which may be oral,
for the purpose of inspecting the Premises or for the purpose of exercising
Sublessor's rights and remedies under this Sublease, the Franchise Agreement or
under law or equity. Any access to the Premises by Sublessor shall be during
normal business hours (except in the case of an emergency) and Sublessor shall
use its best efforts not to interfere with Sublessee's business.
15. DEFAULT. Sublessee shall be in default of this Sublease if at any time
-------
there shall occur a default as defined in the Prime Lease or in the Franchise
Agreement. In the event of any such default, Sublessor shall be entitled to all
the remedies available to Prime Lessor under the Prime Lease and all remedies to
which Sublessor is entitled pursuant to the Franchise Agreement, as well as all
available remedies at law or equity.
16. NOTICE OF DEFAULTS UNDER PRIME LEASE. Sublessee shall, within five (5)
------------------------------------
business days after its receipt of any notice of default from the Prime Lessor
under the Prime Lease, provide the Sublessor with a copy thereof.
17. SURRENDER OF PREMISES. Upon the expiration or earlier termination of
---------------------
this Sublease, the Franchise Agreement or the Prime Lease, at any time and for
any reason, Sublessee promptly and peaceably shall surrender to Sublessor the
Premises as set forth in the Prime Lease.
18. RELATIONSHIP WITH FRANCHISE AGREEMENT. This Sublease, the Franchise
-------------------------------------
Agreement and the Prime Lease are all related documents. If Sublessee defaults
beyond any applicable cure periods under the terms of the Franchise Agreement,
or any other agreement with Sublessor, its subsidiaries, parents and affiliates,
or under the terms of the Prime Lease such default shall automatically
constitute a default under this Sublease for which Sublessor may exercise any
remedy available to it under this Sublease or the Franchise Agreement.
19. CONFLICT WITH FRANCHISE AGREEMENT. In the event of any conflict
---------------------------------
between this Sublease and the Franchise Agreement, the Franchise Agreement shall
govern, prevail and control.
20. NOTICES. Every notice, approval, consent or other communication
-------
authorized or required by this Sublease shall be effective if given in writing
and either hand delivered, sent by recognized overnight delivery courier
service, or sent by United States Certified Mail, Return Receipt Requested, with
postage prepaid, and addressed to the Sublessor at its principal office address
at 14123 Denver West Parkway, Golden, Colorado, Attention: Real Estate Legal
Services and to Sublessee at its principal office address at [-], with a copy to
[-] , or at such other address as either Party shall from time to time designate
to the other in writing, or by facsimile transmission if followed by one of the
other foregoing methods. Every notice shall be deemed to be effective upon
delivery, if delivered, the next business day, if sent by overnight courier
service, or on the second business day after mailing, if mailed.
7
<PAGE>
21. MISCELLANEOUS
-------------
(a) Governing Law; Consent to Jurisdiction and Venue. This Sublease shall
------------------------------------------------
be governed by the laws of the state in which the Premises is located.
Sublessee acknowledges and agrees that proper venue for all legal and
equitable actions which may be brought by Sublessor or Sublessee
under, arising out of or in connection with this Sublease is the
United States District Court for the District of Colorado or the
District Court of Jefferson County, Colorado and that Sublessee is
subject to the jurisdiction of said courts.
(b) Investigations and Reliance. Sublessee makes this Sublease in
---------------------------
reliance upon its independent investigations, the provisions of this
Sublease and the Prime Lease, including any amendments, supplements
and extensions, and not in reliance upon any alleged assurances,
representations, negotiations, and warranties made by Sublessor, its
officers, consultants, directors, agents, or employees.
(c) Severability. In the event that any of the provisions of this
------------
Sublease shall by court order be held invalid or in contravention of
any of the laws of the United States or of any state having
jurisdiction over the subject matter or of any dispute arising under
it, such invalidation shall not serve to affect the remaining portion
of this Sublease.
(d) Successors and Assigns. This Sublease shall be binding upon and inure
----------------------
to the benefit of the parties hereto, their heirs, executors,
administrators, successors in interest and assigns.
(e) Recordation. If permitted by the Prime Lease, a short form memorandum
-----------
of this Sublease may be recorded by either Party in the Public Records
of the County in which the Premises are located.
(f) Counterparts. This Sublease may be executed in as many counterparts
------------
as necessary which taken as a whole constitute a single binding
agreement.
[IF APPLICABLE]
22. CONSENT OF PRIME LESSOR. If the consent of the Prime Lessor is
-----------------------
required for this Sublease and Prime Lessor's refusal to give such consent would
create a default under the Prime Lease, then this Sublease shall automatically
be null and void ab initio and of no effect.
8
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Sublease as of the day
and year first above written.
"SUBLESSOR"
EINSTEIN/NOAH BAGEL CORP.,
a Delaware corporation
By:_____________________________
Its:____________________________
"SUBLESSEE"
[-]
a [-]
By: [-], Inc.,
a [-] corporation,
its [-]
By:_____________________________
Its:____________________________
9
<PAGE>
EXHIBIT A
---------
COPY OF PRIME LEASE
-------------------
<PAGE>
EXHIBIT B
---------
COPY OF COLLATERAL ASSIGNMENT
-----------------------------
<PAGE>
EXHIBIT G
EINSTEIN/NOAH BAGEL CORP.
EINSTEIN/NOAH BAGEL CORP. FINANCIAL STATEMENTS
----------------------------------------------
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.......................................................... 2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and December 29, 1996....................... 3
Consolidated Statements of Operations for the period from March 24, 1995 (inception)
through December 31, 1995 and the fiscal year ended December 29, 1996........................ 4
Consolidated Statements of Stockholders' Equity (Deficit) for the period from March 24,
1995 (inception) through December 31, 1995, and the fiscal year ended December 29, 1996...... 5
Consolidated Statements of Cash Flows for the period from March 24, 1995 (inception)
through December 31, 1995 and the fiscal year ended December 29, 1996........................ 6
Notes to Audited Consolidated Financial Statements........................................... 7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Einstein/Noah Bagel Corp.:
We have audited the accompanying consolidated balance sheets of
Einstein/Noah Bagel Corp. (a Delaware corporation) and subsidiaries as of
December 31, 1995 and December 29, 1996, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the period from
March 24, 1995 (inception) through December 31, 1995, and for the fiscal year
ended 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 audits.
We conducted our audits 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 audits provide 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 Einstein/Noah Bagel Corp.
and subsidiaries as of December 31, 1995 and December 29, 1996, and the results
of their operations and their cash flows for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal year ended December 29,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 24, 1997
2
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents...................................... $ 5,368 $ 50,741
Accounts receivable, net....................................... 1,327 5,589
Prepaid expenses and other current assets...................... 2,592 579
-------------- ------------
Total current assets........................................ 9,287 56,909
Property and Equipment, net...................................... 19,410 28,213
Notes Receivable................................................. 7,267 146,087
Goodwill, net.................................................... 13,715 68,921
Trademarks, net.................................................. - 22,239
Recipes, net..................................................... - 4,758
Other Assets, net................................................ 620 5,291
-------------- ------------
Total assets................................................ $ 50,299 $332,418
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------
Current Liabilities:
Accounts payable............................................... $ 5,633 $ 3,873
Accrued expenses............................................... 2,968 3,615
Deferred franchise revenue..................................... 645 3,000
-------------- ------------
Total current liabilities................................... 9,246 10,488
Convertible Debt................................................. 40,000 -
Deferred Franchise Revenue....................................... 265 6,105
Other Noncurrent Liabilities..................................... 2,907 308
Repurchase Common Stock Shares - 1,721,250 issued and 11,062 -
outstanding in 1995.............................................
Series A Preferred Stock - 6,250 issued and outstanding in 1995.. 7,813 -
Commitments and Contingencies....................................
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; 3,848,607 shares issued and outstanding in 1995
and 32,299,756 issued and outstanding in 1996................. 38 323
Additional paid-in capital..................................... 22,684 353,203
Accumulated deficit............................................ (43,716 (38,009)
-------------- ------------
Total stockholders' equity (deficit)........................... (20,994 315,517
-------------- ------------
Total liabilities and stockholders' equity (deficit)........ $ 50,299 $332,418
============== ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
March 24, 1995 Fiscal
(inception) Year
through Ended
December 31, December 29,
1995 1996
---------------- ------------
<S> <C> <C>
Revenue:
Company stores.......................................... $ 25,685 $35,803
Royalties and franchise-related Fees.................... 671 19,918
Interest income......................................... 67 5,986
---------------- ------------
Total revenue........................................... 26,423 61,707
Costs and Expenses:
Cost of products sold................................... 8,239 11,546
Salaries and benefits................................... 13,531 18,302
General and administrative.............................. 47,805 21,820
---------------- ------------
Total costs and expenses................................ 69,575 51,668
---------------- ------------
Income (Loss) from Operations............................ (43,152 10,039
Other Income (Expense):
Interest expense, net................................... (1,281 (6,261)
Other income, net....................................... 717 1,929
---------------- ------------
Total other income (expense)............................. (564 (4,332)
---------------- ------------
Income (Loss) Before Income Taxes........................ (43,716 5,707
Income Taxes............................................. - -
---------------- ------------
Net Income (Loss)........................................ $(43,716 $ 5,707
================ ============
Net Income (Loss) Per Common and Equivalent Share........ (4.54 0.25
================ ============
Weighted Average Number of Common and Equivalent Shares
Outstanding............................................. 9,659 22,344
================ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24
1995 FISCAL
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 29
1995 1996
------------- -------------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period.............................. $ - $ 38
Conversion of preferred stock, repurchase common stock,
and debt.................................................... - 175
Issuance of common stock.................................... 38 96
Exercise of stock options and warrants...................... - 14
------------- -------------
Balance at end of year...................................... $ 38 $ 323
============= =============
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.............................. $ - $ 22,684
Conversion of preferred stock, repurchase common stock and
debt........................................................ - 140,270
Issuance of common stock, net of offering costs of $500 in
1995 and $10,343 in 1996.................................... 22,051 182,491
Exercise of stock options and warrants...................... - 9,227
Dividends on Series A preferred stock and accretion of
dividends on repurchase common stock........................ (1,077) (1,708)
Issuance of options and warrants............................ 1,710 239
------------- -------------
Balance at end of year...................................... $ 22,684 $353,203
============= =============
ACCUMULATED DEFICIT
Balance at beginning of period.............................. $ - $(43,716)
Net income (loss)........................................... (43,716) 5,707
------------- -------------
Balance at end of year...................................... $(43,716) $(38,009)
============= =============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
5
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995 FISCAL
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 29,
1995 1996
----------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).................................................. $(43,716) $ 5,707
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization...................................... 1,657 5,431
Warrant and option expense......................................... 1,710 239
Write-off of intangible assets..................................... 26,575 -
Gain on the sale of marketable equity securities................... (719) (1,824)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable........................................... (680) (3,966)
Accounts payable and accrued expenses......................... 1,778 (292)
Deferred franchise revenue.................................... 910 8,180
Other assets and liabilities.................................. 173 (7,003)
----------------- ------------
Net cash provided by (used in) operating activities........ (12,312) 6,472
----------------- ------------
Cash Flows from Operating Activities:
Purchase of property and equipment................................. (18,109) (38,198)
Proceeds from sale of net assets................................... 5,519 49,943
Acquisition of Noah's New York Bagels, Inc., net of cash - (100,902)
acquired..........................................................
Purchase of marketable equity securities, net of proceeds from (22,682) 1,824
sales.............................................................
Purchase of other assets........................................... (621) (6,552)
Issuance of notes receivable....................................... (10,569) (209,514)
Repayment of notes receivable...................................... 3,831 70,694
----------------- ------------
Net cash used in investing activities........................... (42,631) (232,705)
----------------- ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock............................. 20,311 191,606
Proceeds from convertible debt..................................... 91,060 352,272
Repayment of convertible debt...................................... (51,060) (272,272)
----------------- ------------
Net cash provided by financing activities....................... 60,311 271,606
----------------- ------------
Net Increase in Cash and Cash Equivalents............................... 5,368 45,373
Cash and Cash Equivalents, beginning of period.......................... - 5,368
----------------- ------------
Cash and Cash Equivalents, end of year.................................. $ 5,368 $ 50,741
================= ============
Supplemental Cash Flow Information:
Interest Paid...................................................... $ 1,107 $ 7,232
================= ============
Supplemental Schedule of Non-Cash Activities:
Conversion of debt to common stock................................. $ - $ 120,000
================= ============
Conversion of preferred stock, repurchase common stock and
accrued dividends on preferred stock.............................. $ - $ 20,445
================= ============
Exchange of preferred stock, repurchase common stock,
common stock and marketable equity securities for net assets
acquired.......................................................... $ 42,742 $ -
================= ============
Issuance of common stock for note receivable....................... $ 437 $ -
================= ============
Accretion of dividends on repurchase common stock.................. $ 933 $ 1,486
================= ============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
7
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Einstein/Noah Bagel Corp. and its subsidiaries (the "Company") franchise
and operate specialty retail stores in the United States that feature fresh-
baked bagels, cream cheeses, specialty coffees and teas, and creative soups,
salads and sandwiches. At December 31, 1995, there were 60 stores in operation
systemwide, consisting of 47 Company stores and 13 franchise stores. In 1995,
the Company sold 13 Company stores to area developers of the Company. At
December 29, 1996, there were 315 stores in operation systemwide, consisting of
301 franchise stores and 14 Company stores. In 1996, the Company sold 105
Company stores to area developers of the Company. Subject to the provisions of
the applicable franchise agreements, the Company is obligated to allow
franchisees to utilize the Company's trademarks, copyrights, recipes, operating
procedures and other elements of its systems in the operation of franchise
stores.
2. Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Einstein/Noah Bagel Corp. and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year. The Company's fiscal year is the 52/53 week period ending on
the last Sunday in December, and normally consist of 13 four-week periods. The
first quarter consists of four periods and each of the remaining three quarters
consist of three periods. Fiscal period 1995 was the period from March 24, 1995
(inception) through December 31, 1995. Fiscal 1996 contained 13 four-week
periods.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on
hand and on deposit and highly liquid instruments purchased with maturities of
three months or less.
Inventories. Inventories, which are classified in prepaid expenses and
other current assets, are stated at the lower of cost (first-in, first-out) or
market and consist of food, paper products and supplies.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method with buildings
and improvements being depreciated over 15 to 30 years, leasehold improvements
being amortized over the lesser of their useful lives or their lease terms,
including option periods, furniture, fixtures and equipment being depreciated
over 5 to 8 years, and pre-opening costs being depreciated over one year.
Property and equipment additions include acquisitions of buildings and
equipment, costs incurred in the development and construction of new stores and
major improvements to existing stores. Expenditures for maintenance and repairs
are charged to expense as incurred. Pre-opening costs consist primarily of
salaries and other direct expenses incurred in connection with the set-up,
initial stocking of stores, initial training of employees and general store
management activities incurred prior to the opening of new stores.
Long-Lived Assets. The Company evaluates whether events and circumstances
have occurred that indicate revision to the remaining useful lives or the
remaining balances of long-lived assets may be appropriate. Such events and
circumstances include, but are not limited to, a change in business strategy or
a change in current and long-term projected operating performance. When factors
indicate that the carrying amount of an asset may not be recoverable, the
Company estimates the future cash flows expected to result from the use of such
asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, the Company will recognize an impairment loss equal to the
excess of the carrying amount over the fair value of the asset.
7
<PAGE>
Revenue Recognition. Revenue from Company stores is recognized in the
period during which related food and beverage products are sold. Royalties are
recognized in the same period that related franchise store revenue is generated.
Revenue derived from initial franchise fees and area development fees is
recognized when the franchise store opens. Real estate fees are recognized as
earned, and lease income is recognized over the life of the lease on a straight-
line basis. Interest income is recognized as earned. The components of
royalties and franchise-related fees are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL PERIOD OR YEAR
ENDED
----------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- ------------
<S> <C> <C>
Initial franchise and area development fees...... $ 520 $12,140
Royalties........................................ 35 6,086
Real estate fees and lease income................ - 1,564
Other............................................ 116 128
-------------- ------------
Total royalties and franchise related fees.. $ 671 $19,918
============== ============
</TABLE>
Per Share Data. Net income (loss) per common share is computed by dividing
net income (loss), adjusted for dividends on Series A preferred stock, by the
weighted average number of common shares and dilutive common stock equivalents
outstanding during the period. Common and equivalent shares include any common
stock, options and warrants issued within one year prior to the effective date
of the Company's initial public offering, with a price below the initial public
offering price. These have been included as common stock equivalents
outstanding, reduced by the number of shares of common stock which could be
purchased with the proceeds from the assumed exercise of the options and
warrants, including tax benefits assumed to be realized.
Advertising Costs. Advertising costs are expensed in the period incurred.
Employee Stock Options. The Company accounts for its employee stock options
in accordance with the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. Required pro forma disclosures of compensation
expense determined under the fair value method of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
No. 123") are presented in Note 12.
Employee Benefit Plan. The Company has a 401(k) plan to which the Company
makes no contributions.
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.
Reclassifications. Certain reclassifications have been made to the 1995
amounts to conform with the 1996 presentation.
8
<PAGE>
3. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA
Accounts receivable are net of an allowance for doubtful accounts of
$81,000 at December 31, 1995. There was no allowance at December 29, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER
1995 29, 1996
-------------- ----------
<S> <C> <C>
Property and equipment consists of (in thousands of dollars):
Land $ 123 $ 118
Buildings and improvements 366 384
Development in progress 1,212 1,449
Leasehold improvements 10,505 9,763
Furniture, fixtures and equipment 7,544 17,962
Pre-opening expenses 401 -
-------------- ----------
20,151 29,676
Less: Accumulated depreciation and amortization (741 (1,463)
-------------- ----------
Total property and equipment, net $19,410 $28,213
============= ==========
</TABLE>
Included in furniture, fixtures and equipment are $14.9 million (net of
accumulated depreciation of approximately $860,000) of assets leased to
others at December 29, 1996.
Goodwill, trademarks, and recipes are reported net of accumulated
amortization of $2.2 million, $584,000, and $484,000, respectively, as of
December 29, 1996. Goodwill is net of accumulated amortization of $269,000
as of December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER
1995 29, 1996
-------------- ----------
<S> <C> <C>
Accrued expenses consist of (in thousands of dollars):
Accrued payroll and fringe benefits $ 876 $ 871
Accrued interest 325 17
Accrued other 1,767 2,727
-------------- ----------
Total accrued expenses $ 2,968 $ 3,615
============== ===========
FISCAL PERIOD OR YEAR ENDED
----------------------------------
DECEMBER 31, DECEMBER
1995 9, 1996
-------------- ------------
Interest expense, net consists of (in thousands of dollars):
Interest expense $(1,432) $(6,950)
Interest income 151 689
-------------- ------------
Total interest expense, net $(1,281) $(6,261)
============== ============
</TABLE>
4. ACQUISITIONS
In 1995, the Company acquired four regional bagel companies. In March
1995, the acquisitions included Brackman Brothers, Inc., for which the Company
issued 573,750 shares of common stock valued at $5.88 per share and other
marketable equity securities with a value of $8.3 million, Bagel & Bagel, Inc.,
for which the Company issued 573,750 shares of common stock valued at $5.88 per
share and other marketable equity securities with a value of $5.5 million, and
Offerdahl's Bagel Gourmet, Inc., for which the Company issued 811,625 shares of
common stock valued at $5.88 per share and other marketable equity securities
with a value of $5.6 million. In August 1995, the Company acquired Baltimore
Bagel Co. ("Baltimore Bagel"), for which the Company issued 6,250
9
<PAGE>
shares of Series A preferred stock with a value of $7.8 million and other
marketable equity securities with a value of $4.0 million. Pursuant to the
acquisitions, the Company agreed to repurchase up to 1,721,250 shares of the
common stock under certain circumstances (see Note 12). The acquisitions have
been accounted for as purchases, and, accordingly, the purchase prices were
allocated to assets (both tangible and intangible) and liabilities based upon
their fair values at the dates of the acquisitions. The total purchase price
for these four companies, including assumption of liabilities, was $51.1
million, of which $21.2 million was allocated to trademarks (amortized over a
35-year life), $5.4 million was allocated to recipes (amortized over a 10-year
life) and $14.0 million was allocated to goodwill (amortized over a 35-year
life). Such assets were identified by management based upon its evaluation of
the businesses acquired. The allocation of the purchase price to trademarks and
recipes was based upon a royalty savings methodology which determines the
present value of the stream of royalties which the Company believes an
independent third party would be willing to pay to obtain the use of such
trademarks and recipes. The estimated useful life for these assets was based
upon various factors which existed at the time of the acquisitions, including
the anticipated periods of benefit to be derived from the utilization of such
assets in connection with executing a regional brand business strategy,
increasing consumer demand for bagel products, the lack of a competitor with
national brand awareness, the lack of regulatory limitations on the potential
useful lives of such assets, the absence of any inherent or technological
obsolescence for such assets, and in the case of trademarks, the long-lived
nature of a primary brand name in the consumer marketplace. Subsequent to these
acquisitions, management launched a project which resulted in the development of
the Einstein Bros. Bagels brand and store, at which time management determined
it would discontinue the use of the acquired trademarks and recipes.
Consequently, this change in business strategy resulted in an impairment of
these intangible assets, and, accordingly, the assets were written down to their
fair market values, resulting in a write-off of $26.6 million in 1995.
In February 1996, the Company acquired all of the outstanding capital stock
of Noah's New York Bagels, Inc. for approximately $100.9 million. The
acquisition has been accounted for as a purchase, and, accordingly, the purchase
price was allocated to assets (both tangible and intangible) and liabilities
based upon an evaluation of their fair values at the date of the acquisition. Of
the total purchase price, $22.1 million was allocated to trademarks (amortized
over a 35-year life), $5.2 million was allocated to recipes (amortized over a
10-year life) and $56.3 million was allocated to goodwill (amortized over a 35-
year life). Such assets were identified by management based upon its evaluation
of the business acquired. The allocation of the purchase price to trademarks and
recipes was based upon the royalty savings methodology described in the
preceding paragraph.
The financial statements include the results of operations for the acquired
entities from their dates of acquisition. The following represents the unaudited
pro forma results of operations as if all of the purchase transactions described
above had occurred at the beginning of the periods presented (in thousands of
dollars, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- ---------------
<S> <C> <C>
Revenue.............................. $ 70,388 $65,011
Net income (loss).................... (56,236) 3,825
Net income (loss) per share.......... (5.82) 0.16
</TABLE>
The pro forma information given above does not purport to be
indicative of the results that actually would have been reported if the
transactions had occurred at the beginning of the periods presented and is not
intended to be a projection of future results or trends.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents. The carrying value approximates fair value due
to the length of maturity of the investments.
10
<PAGE>
Notes Receivable. The estimated fair value of notes receivable (Notes
6 and 11), including the conversion option is based on the discounted value of
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings.
Convertible Debt. The estimated fair value of convertible debt,
including the conversion option, is based on the discounted value of future
payments using the current rate at which similar loans would be made to
companies with similar credit ratings.
Repurchase Common Stock Shares. The estimated fair value of common stock
subject to repurchase by the Company is based on the price of other common stock
transactions near December 31, 1995.
Series A Preferred Stock. The estimated fair value of Series A
preferred stock is based on the discounted value of future cash flows using
interest rates which would be applicable to similar instruments held in
companies with similar credit ratings.
The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 29, 1996
--------------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................................ $ 5,368 $ 5,368 $ 50,741 $ 50,741
Notes receivable..................................................... 7,267 7,267 146,087 146,087
Convertible debt..................................................... 40,000 40,000 - -
Repurchase common stock shares....................................... 11,062 11,142 - -
Series A preferred stock............................................. 7,813 7,813 - -
</TABLE>
6. NOTES RECEIVABLE
The following table summarizes the primary components of notes receivable
(in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 1995 29, 1996
-------------- ---------
<S> <C> <C>
Due from area developers (Note 11) $ 3,538 $140,754
Notes receivable from stockholder 1,888 3,437
Term loans 1,108 1,496
Other 733 400
-------------- ---------
$ 7,267 $146,087
============== =========
</TABLE>
Notes receivable from stockholder bear interest at the applicable reference rate
of Bank of America Illinois ("Reference Rate") plus 1%. Principal and interest
are due April 2001. The notes are collateralized by various assets.
Term loans bear interest at the Reference Rate plus 1%. Principal is due in
annual installments with balloon payments required on various dates through
2001. The loans are collateralized by various assets.
7. DEBT
The Company has a secured revolving credit facility providing for
borrowings of up to $45.0 million through April 30, 1998. Borrowings under the
facility may be either floating rate loans with interest at the Reference Rate
plus applicable margin or, eurodollar rate loans with interest at the eurodollar
rate plus applicable margin. In addition, a commitment fee of .5% of the average
daily unused portion of the loan is required. The facility contains
11
<PAGE>
covenants that, among other things, restrict other borrowings, prohibit cash
dividends, and require maintenance of specified cash flow ratios, store-level
sales, and minimum capital levels. The facility is collateralized by
substantially all of the assets of the Company. As of December 29, 1996, no
balance was outstanding under the facility.
The Company also has an unsecured non-convertible revolving credit facility
from Boston Chicken, Inc. ("Boston Chicken") providing for borrowings of up to
$50.0 million through June 15, 2003. The facility bears interest at the
Reference Rate plus applicable margin. As of December 29, 1996, there was no
balance outstanding under the facility.
8. INCOME TAXES
As of December 29, 1996, the Company had cumulative federal and state
tax operating loss carryforwards available to reduce future taxable income of
approximately $17.0 million which begin to expire in 2010.
The primary components that comprise deferred tax assets and liabilities
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER
1995 29, 1996
--------------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued expenses $ 218 $ 199
Deferred franchise revenue 355 3,551
Other noncurrent liabilities 220 226
Write-off of intangible assets that are amortizable for tax 2,017 1,582
Net operating loss carryforwards 4,104 6,648
Other 1,380 63
-------------- ---------
Total deferred tax assets 8,294 12,269
Deferred tax liabilities:
Property and equipment (489) (1,335)
Other assets (116) (652)
-------------- ---------
Total deferred tax liabilities (605) (1,987)
-------------- ---------
Net deferred tax assets 7,689 10,282
Valuation allowance (7,689) (10,282)
-------------- ---------
Net deferred tax assets $ - $ -
============== =========
</TABLE>
The increase in the valuation allowance of $2,593,000 from December 31,
1995 to December 29, 1996 is due to uncertainty regarding the realization of the
related tax benefits. The difference between the Company's actual tax provision
and the tax provision that would result from applying the statutory federal
income tax rate to income before income taxes is attributable to the following
(in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 29, 1996
-------------------
<S> <C>
Income tax expense at statutory rate.................... $ 1,997
State taxes, net of federal benefit..................... 228
Permanent difference related to goodwill................ 1,138
Change of valuation allowance........................... (3,363)
-------------------
Provision for income taxes.............................. $ -
===================
</TABLE>
9. NATIONAL AND LOCAL ADVERTISING FUNDS
12
<PAGE>
The Company administers a National Advertising Fund (the "Fund") to which
stores make contributions based on individual franchise agreements (2% of base
revenue). Collected amounts are spent primarily on developing marketing and
advertising materials for use systemwide. In addition, the Company maintains
Local Advertising Funds ("LAFs") that provide comprehensive advertising and
sales promotion support for stores in particular markets. Contributions are
made by all stores (a minimum of 4% of net revenue). The Company disburses
funds and accounts for all transactions related to the Fund and LAFs. Such
amounts are not segregated from the cash resources of the Company; however,
consistent with Statement of Financial Accounting Standards No. 45 "Accounting
for Franchise Fee Revenue", such funds are accounted for separately and are not
included in the financial statements of the Company because the Company acts
only as an agent for its franchisees in placing orders for advertising and
paying related invoices out of such accounts.
13
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases sites for its stores, commissaries, and office space.
Lease terms are generally five years with two or three five-year renewal
options. The Company also subleases sites to its area developers. The sublease
terms to area developers are negotiated at arm's length on commercially
reasonable terms. The Company is contingently liable for all lease costs
including common area maintenance charges. 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 noncancellable
lease terms in excess of one year, sublease proceeds, and rental receipts due
under leases on equipment owned by the Company as of December 29, 1996 (in
thousands of dollars):
<TABLE>
<CAPTION>
MINIMUM
RENTAL RECEIPTS
ON
MINIMUM SUBLEASE NET MINIMUM EQUIPMENT
OWNED
RENTAL PAYMENTS PROCEEDS RENTAL PAYMENTS BY THE COMPANY
----------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
1997......................................... $14,085 $13,139 $ 946 $1,279
1998......................................... 13,436 12,686 750 1,278
1999......................................... 12,892 12,232 660 1,276
2000......................................... 11,952 11,395 557 1,284
2001......................................... 9,130 8,627 503 1,273
Thereafter................................... 36,573 30,704 5,869 2,076
------------ ------- -------------- ---------------
$98,068 $88,783 $9,285 $8,466
============ ======= ============== ===============
</TABLE>
Rental expense, net of sublease income, under operating leases was
approximately $1,909,000 and $1,601,000 for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal year ended December 29,
1996, respectively.
As of December 29, 1996, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested a total of $70.2 million in the common equity of the
Company's area developers. At December 29, 1996, the Company was the manager of
Bagel Funding. Bagel Funding has the right to require each area developer to
redeem Bagel Funding's equity interest in an area developer at a pre-determined
formula price based on the store level cash flow of the area developer in the
event that (i) the Company acquires a majority equity interest in the area
developer pursuant to the exercise of its conversion or option rights under the
area developer's secured loan agreement; (ii) the Company does not consent to
the area developer's request to undertake a firm commitment underwritten public
offering after the Company's conversion and option rights under its loan
agreement with the area developer have expired unexercised; or (iii) the Company
does not consent to the area developer's request to terminate the area
developer's area development and franchise agreements with the Company after the
Company's conversion and option rights under its loan agreement with the area
developer have expired unexercised. In the event the area developer does not
redeem Bagel Funding's equity interest when required to do so, the Company will
be obligated to purchase from Bagel Funding its equity interest in the area
developer at the same price applicable to the area developer.
The Company has entered into a supply agreement relating to the purchase of
certain minimum levels of cream cheese, which expires in October 2000, or
earlier in certain circumstances. The agreement requires the Company, its
subsidiaries, area developers and other authorized purchasers to purchase the
lesser of 160,000 pounds of cream cheese per week or 60% of their requirements
for cream cheese (excluding certain requirements that may be satisfied through
other commitments and certain requirements of acquired companies). The price per
pound is determined over the term of the contract based upon production costs.
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. The Company believes that the
outcome of such lawsuits, claims and other legal matters will not have a
material impact on the Company's financial position or results of operations.
14
<PAGE>
11. AREA DEVELOPER FINANCING
The Company currently offers partial financing to its area developers for
use in expansion of their operations. The maximum loan amount is established to
give the Company majority ownership of the area developer upon conversion (or
option exercise, as described further below) provided the Company exercises its
right to participate in any intervening financing of the area developer. Area
developer financing requires the developer to expend at least 75% of its
contributed capital toward developing stores prior to drawing on the revolving
loan facility provided by the Company, with draws permitted during a three-year
draw period in a predetermined maximum amount generally equal to four times the
amount of the area developer's equity capital. Upon expiration of the draw
period, the loan converts to an amortizing term loan payable over five years in
periodic installments, with a final balloon payment. The Company may extend the
draw and repayment periods, subject to the area developer purchasing additional
development rights, contributing additional capital, or in connection with other
amendments to the loan agreement. Interest is set at the Reference Rate from
time to time (8.25% at December 29, 1996 and an average rate of 8.27% for 1996)
plus 1%, and is payable each four-week period. The loan is secured by a pledge
of substantially all of the assets of the area developer.
(a) Loan Conversion Option
All or any portion of the loan amount may be converted at the
Company's election at any time after the expiration of a specified moratorium
period (generally two years) and after the area developer has completed not less
than 80% of its area development commitment or in the event of certain defaults
into equity in the area developer at the conversion price set forth in such loan
agreement, which is at a premium over the per unit price paid by the investors
in the area developer for their equity investment made concurrently with the
execution of the loan agreement. To the extent such loan is not fully drawn or
has been drawn and repaid, the Company has a corresponding option to acquire at
the loan conversion price the amount of additional equity it could have acquired
by conversion of the loan had it been fully drawn.
There can be no assurance the Company will convert any loan amount or
exercise its option at such time as it may be permitted to do so and, if it does
convert or exercise its option, that such conversion or option exercise will
result in a majority interest in such area developer.
(b) Commitments to Extend Area Developer Financing
The following table summarizes credit commitments for area developer
financing (in thousands of dollars, except number of area developers):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
<S> <C> <C>
Number of area developers receiving financing..... 2 11
Loan commitments.................................. $ 16,000 $ 283,200
Unused loans...................................... (12,462) (142,446)
-------- ---------
Loans outstanding (included in Notes Receivable).. $ 3,538 $ 140,754
======== =========
</TABLE>
15
<PAGE>
The following table summarizes area developer financing activity of the
Company during 1995 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Area developer loan balances,
beginning of period................................................... $ - $ 3,538
Loan advances.......................................................... 7,369 206,762
Loan repayments........................................................ (3,831) (69,546)
-------- ---------
Area developer loan balances,
end of year........................................................... $ 3,538 $ 140,754
======== =========
</TABLE>
The principal maturities on the aforementioned notes receivable are as
follows (in thousands of dollars):
<TABLE>
<S> <C>
1998........................................................................... $ 375
1999........................................................................... 9,582
2000........................................................................... 14,075
2001........................................................................... 14,075
Thereafter..................................................................... 102,647
----------
$ 140,754
==========
</TABLE>
(c) Credit Risk and Allowance for Loan Losses
Five of the Company's area developers accounted for 21%, 17%, 15%, 10% and
10% of the area developers' notes receivable balance at December 29, 1996, and
no other area developer of the Company individually accounted for 10% or more of
such notes receivable balance as of such date.
The allowance for credit losses is maintained at a level that in
management's judgment is adequate to provide for estimated possible loan losses.
The amount of the allowance is based on management's review of each area
developer's use of loan proceeds, stage of development, adherence to its store
development schedule, store performance trends, type and amount of collateral
securing the loan, prevailing economic conditions, and other factors which
management deems relevant at the time. Based upon this review and analysis, no
allowance was required as of December 31, 1995 or December 29, 1996.
The following table sets forth certain aggregate financial information, as
of the dates indicated, provided by financed area developers (in thousands,
except number of area developers and store data):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------- ----------
<S> <C> <C>
Total number of area developers......... 2 11
Total number of area developer
stores open....................... 13 301
Total gross assets...................... $9,262 $220,015
Total debt:
To the Company.................... 3,538 140,754
To third parties.................. - -
Total partner/member equity............. 2,676 33,847
</TABLE>
16
<PAGE>
12. STOCKHOLDERS' EQUITY
Common Stock. On July 8, 1996, the Company effected a 225-for-one split of
the Company's common stock in the form of a stock dividend. Per share amounts,
the number of common shares and capital accounts have been restated to give
retroactive effect to the stock split.
The Company issued 3,536,361 shares of common stock at the time of its
formation, which provided net proceeds of approximately $20.8 million.
In June 1996, Boston Chicken converted its $120.0 million loan to the
Company into 15,307,421 shares of common stock.
In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its common stock to the public, a concurrent non-
underwritten public offering of 425,000 shares of its common stock and a
concurrent private placement of 2,000,000 shares of its common stock to Boston
Chicken raising aggregate net proceeds of approximately $86.0 million.
In December 1996, the Company completed an additional underwritten offering
of 2,640,000 shares of its common stock to the public and a concurrent non-
underwritten public offering of 500,000 shares to Boston Chicken. The aggregate
net proceeds of these offerings were approximately $88.6 million.
Preferred Stock. In connection with the acquisition of the net assets of
Baltimore Bagel, the Company issued 6,250 shares of Series A preferred stock.
The Series A preferred stock had a liquidation preference of $1,000 per share,
paid annual dividends of $60 per share, and was automatically convertible into
common stock of the Company upon closing of its initial public offering, with
the number of shares of common stock received being equal to $1,000 plus accrued
and unpaid dividends divided by 80% of the gross offering price per share to the
public. The total number of shares of common stock issued on conversion was
465,829.
Repurchase Common Stock Shares. Pursuant to the purchase agreements (see
Note 4), the Company had agreed that, in the event it had not completed an
initial public offering of its common stock resulting in gross proceeds of at
least $15.0 million by specified dates or if Boston Chicken's ownership of, or
right to acquire an ownership interest in, the Company's common stock fell below
25%, the holders of common stock subject to repurchase by the Company could
require the Company to redeem such shares of common stock at their fair market
value, but not less than a specific floor price per share. In 1996, as a result
of the completion of an initial public offering of common stock, the repurchase
obligation was eliminated, resulting in such shares being reclassified to
stockholders' equity.
Warrants. The Company sold warrants to purchase 1,012,500 shares of common
stock of the Company to Bagel Funding. The warrants have an exercise price of
$6.47 per share and expire in 2000. In 1996, the Company also sold or issued
warrants to purchase an aggregate of 1,252,425 shares of common stock of the
Company to other third parties at exercise prices ranging from $6.47 to $11.58
per share. The warrants expire at various dates through 2001.
Stock Option Plans. The Company has a stock option plan (the "Plan") under
which options to purchase up to 5,500,000 shares of common stock may be granted
to certain employees and officers of, and consultants to, the Company. The
option price is equal to the fair market value of the stock on the date of the
grant and each option has a term of ten years. Options granted under the Plan
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 vesting at the end of the fourth year from the date of the
grant.
The Company also has a non-employee directors stock option plan (the
"Directors Plan"), under which options to purchase up to 100,000 shares of the
common stock of the Company may be granted to directors of the Company who are
not officers or employees of the Company. Under the terms of the Directors Plan,
the Company automatically grants to each such director, upon election or re-
election as a director of the Company, options to purchase shares having a fair
market value of $50,000 at the date of the grant, except that initial grants
under the Directors Plan were made on the date the Directors Plan was adopted by
the Company's board of directors. Options are granted at a price equal to the
fair
17
<PAGE>
market value of the stock on the date of grant, become exercisable after the end
of one year from the date of grant and have a term of ten years from the date of
grant. The options are subject to termination should the optionee's service as
a director of the Company terminate. At December 29, 1996, 12,954 shares had
been granted under the Directors Plan, at an exercise price of $11.58 per share.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no employee compensation expense has been recognized for the
Company's stock option plans. Had employee compensation expense for the
Company's plans been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per common and equivalent share would have
been reduced to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996
----------- ------
<S> <C> <C>
Net income (loss) - as reported............................... $(43,716) $5,707
Net income (loss) - pro forma................................. (44,395) 3,188
Net income (loss) per common and equivalent share -
as reported................................................ (4.54) 0.25
Net income (loss) per common and equivalent
share - pro forma.......................................... (4.97) 0.14
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996
-------------- ---------
<S> <C> <C>
Expected volatility....................................................... 38.0% 37.1%
Risk-free interest rate................................................... 6.8% 6.3%
Expected lives............................................................ 5 years 5 years
Dividend yield............................................................ 0 0
Activity under the option plans through December 29, 1996 was as follows:
<CAPTION>
WEIGHTED
AVERAGE
OPTION
NUMBER OF PRICE
SHARES PER SHARE
------------- ----------
<S> <C> <C>
Granted................................................................. 2,090,248 $5.93
Canceled................................................................ (16,778) 5.88
------------- ----------
Outstanding as of December 31, 1995..................................... 2,073,470 5.93
Granted.............................................................. 1,959,165 7.94
Exercised............................................................ (353,096) 6.03
Canceled............................................................. (201,464) 7.27
------------- ----------
Outstanding as of December 29, 1996..................................... 3,478,075 $6.87
============= ==========
Exercisable as of December 29, 1996..................................... 275,824 $5.93
============= ==========
</TABLE>
18
<PAGE>
Information on options outstanding at December 29, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED OPTIONS EXERCISABLE
------------------------------
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICE OF OPTIONS LIFE (YEARS) EXERCISE PRICE OF OPTIONS EXERCISE PRICE
- ------------------- ----------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$5.88 1,616,739 8.46 $ 5.88 257,700 $5.88
6.01 - 9.00 1,433,755 9.04 6.58 18,124 6.54
9.01 - 12.00 417,411 9.41 11.36 - -
12.01 - 15.00 8,109 9.58 15.00 - -
27.01 - 30.00 685 9.70 29.13 - -
30.01 - 33.00 1,376 9.76 32.63 - -
---------- ----------- -------------- ---------- --------------
Total 3,478,075 8.81 $ 6.87 275,824 $5.93
========== =========== ============== =========== ==============
</TABLE>
Boston Chicken Option. The Company has granted to Boston Chicken an option
(the "BCI Option") to purchase such number of shares of the Company's common
stock as will permit Boston Chicken to maintain ownership of shares of common
stock having up to 52% of the voting power of all of the outstanding shares of
the capital stock of the Company having the power generally to vote in the
election of directors. The terms of the BCI Option provide that certain shares
of the Company's common stock owned by Boston Chicken are excluded in
determining the percentage ownership of the voting stock of the Company owned by
Boston Chicken for purposes of BCI Option. As of December 29, 1996, Boston
Chicken had the right under the BCI Option to purchase 416,407 shares of the
Company's common stock at a weighted average price of $28.61.
As of December 29, 1996, the Company had 6,878,449 shares of common stock
reserved for issuance upon exercise of options and warrants.
13. RELATED PARTY TRANSACTIONS
Boston Chicken is the majority shareholder of the Company. For the
Company's 1995 fiscal year, the Company paid to Boston Chicken approximately
$1.2 million for the purchase of furniture, equipment and other miscellaneous
assets, and the Company paid to Boston Chicken amounts aggregating approximately
$3.0 million and $10.2 million in fiscal 1995 and 1996, respectively, for
software license, software maintenance, real estate, financial advisory and
accounting fees, and interest.
Certain officers and directors of the Company and Boston Chicken are
investors in Bagel Funding and had invested an aggregate of $15.2 million in
Bagel Funding at December 29, 1996. The Company is the manager of Bagel Funding
but has no equity interest in Bagel Funding. Bagel Funding paid $500,000 to the
Company in its capacity as manager during 1996.
Certain directors and officers and members of their families have a direct
or indirect equity interest in the Company's area developers. The Company
received fees and other payments from these entities aggregating approximately
$2.3 million and $33.0 million in fiscal 1995 and 1996, respectively, for area
development, real estate, software maintenance, franchise, royalty,
miscellaneous fees, interest and deposits. The Company has also sold to these
entities, stores, inventory, equipment and other miscellaneous net assets for
which it received approximately $5.5 million and $49.9 million in fiscal 1995
and 1996, respectively.
During fiscal 1995 and 1996, the Company paid approximately $86,000 and
$98,000, respectively, to Bowana Aviation, Inc. ("Bowana") for the Company's use
of aircraft owned by Bowana. A director and a member of his family (both
stockholders of the Company) own Bowana. The Company believes that the amounts
charged by Bowana are at rates at least comparable to those charged by
unaffiliated third parties.
19
<PAGE>
14. SUBSEQUENT EVENT
On March 24, 1997, the Company sold the 16 remaining Company stores and
related assets to Sunbelt Bagels, L.L.C., a newly-formed area developer for
approximately $3.3 million. No material gain or loss resulted from this sale.
20
<PAGE>
EXHIBIT H
EINSTEIN/NOAH BAGEL CORP.
FORM OF AREA DEVELOPER SECURED LOAN AGREEMENT
---------------------------------------------
<PAGE>
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.
<PAGE>
1.2 Purposes of the Loan. Proceeds of the Loan shall be used by DEVELOPER
--------------------
to pay fees and make payments to the Company, to fund Store operating costs, to
fund general corporate overhead, to 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
2
<PAGE>
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
3
<PAGE>
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.
1.10 Option.
------
4
<PAGE>
(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
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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.
12
<PAGE>
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:
13
<PAGE>
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 here under.
(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.
14
<PAGE>
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.
15
<PAGE>
(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
16
<PAGE>
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
17
<PAGE>
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.
18
<PAGE>
(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):
<PAGE>
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 obli gations 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
20
<PAGE>
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
21
<PAGE>
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.
22
<PAGE>
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;
23
<PAGE>
(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.
24
<PAGE>
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
25
<PAGE>
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;
26
<PAGE>
(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;
27
<PAGE>
(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
28
<PAGE>
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 compli ance 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 representa tions 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.
29
<PAGE>
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
30
<PAGE>
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.
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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>
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
1
<PAGE>
EXHIBIT A
CONVERTIBLE SECURED NOTE
1
<PAGE>
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).
1
<PAGE>
Except as otherwise provided in the Loan Agreement, unless accelerated, the
outstanding principal amount of the Loan shall be payable to the Company in 65
substantially equal periodic installments of principal (the amount of which
periodic installments of principal shall be determined at the close of business
on the Draw Loan Termination Date based on a schedule amortizing such
outstanding principal balance of the Loan as of such date in 130 substantially
equal periodic installments of principal), plus accrued but unpaid interest, on
the first day of each Retail Period, commencing on the first day of the 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.
2
<PAGE>
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.
3
<PAGE>
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;
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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
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EXHIBIT B
BORROWING CERTIFICATE
1
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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
1
<PAGE>
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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"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.
2
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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
3
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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
4
<PAGE>
(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.
5
<PAGE>
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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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)
7
<PAGE>
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
8
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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.
9
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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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Schedule A
To
Pledge Agreement
----------------
Pledged Units at _____ __, 199_
No. of Units Issued To
------------ ---------
1
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EXHIBIT D
SUBSIDIARY SECURITY AGREEMENT
1
<PAGE>
SUBSIDIARY SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of __________, 199_ (this "Security
Agreement"), is made by __________________, a ___________ corporation (the
"Subsidiary"), in favor of Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company").
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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(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.
2
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(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
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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: _________________________________
7
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE TO ACCOMPANY ADVANCES
1
<PAGE>
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_
_______________________________________
1
<PAGE>
EXHIBIT F
FORM OF OPINION OF COUNSEL
1
<PAGE>
[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]
1
<PAGE>
(ii) A certificate of the Secretary of the Company certifying as to
(A) the certificate of formation and LLC Agreement of the Company and (B)
evidence of authorization of the transactions contemplated by the
Documents;
(iii) Copies of those indentures, loan or credit agreements, leases,
guarantees, mortgages, security agreements, bonds, notes and other
agreements or instruments, and orders, writs, judgments, awards,
injunctions and decrees, which have been certified by the Secretary of the
Company as those documents which affect or purport to affect the Company's
right to borrow money under, or right to undertake and perform its
obligations under, the Documents (collectively, the "Other Agreements and
Court Orders"), a copy of which certificate is attached hereto as Exhibit
-------
A; and
-
(iv) A certificate of the Secretary of State of the State of
Delaware, dated ________________, attesting to the continued existence and
good standing of the Company in that state.
We have also examined such other documents and records, and other
certificates, opinions and instruments and have conducted such investigation as
we have deemed necessary as a basis for the opinions expressed below. As to
factual matters relevant to our opinions expressed below, we have, without
independent investigation, relied upon all of the foregoing, upon the factual
representations made by the Company in Article VI of the Agreement, upon
certificates of the officers of the Company and of public officials, and upon
public records.
Based upon and subject to the matters stated herein and upon such
investigation as we have deemed necessary, we are of the opinion that:
1. The Company is a limited liability company duly organized, validly
existing, and in good standing under the laws of the state of its
formation, with corporate power and authority to enter into the Agreement
and to issue the Note and incur the indebtedness to be evidenced thereby.
[2. The Subsidiary is a corporation duly organized, validly existing,
and in good standing under the laws of the state of its incorporation, with
corporate power and authority to enter into the Documents to which it is a
party.]
3. Each of the Documents to which the Company is a party has been
duly authorized by all required action on the part of the Company, and each
of them has been duly executed and delivered by the Company, and
constitutes the legal, valid, and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
2
<PAGE>
[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
3
<PAGE>
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
Collat eral 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.
4
<PAGE>
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;
5
<PAGE>
(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
6
<PAGE>
(D) Section 364 of the Bankruptcy Code provides that the
extension of secured credit after the commencement of a case under the
Bankruptcy Code requires court approval.
(ii) We express no opinion as to:
(A) the creation or perfection of any security interest in any
fixtures or property excluded from the provisions of the UCC pursuant to 9-
104; and
(B) the perfection of any security interest in accounts that
are an obligation of the Federal government or any agency or political
subdivision thereof to the extent that any applicable laws require any
actions in addition to filing of the Financing Statements.
(iii) We have assumed with your permission that:
(A) the Company has right, title, and interest in and to the
collateral pledged by it;
(B) all items of collateral (including, without limitation,
money, Units, or additional instruments) pledged under the Pledge
Agreement, of which possession must be obtained and retained by a secured
party in order to perfect its security interest pursuant to Section 9-103
and 9-304 of the UCC, are in your actual or constructive possession and not
in the possession of the Company or any of its subsidiaries, affiliates, or
agents;
(C) all items of collateral constitute items which are mobile
in nature and, if installed on any property, do not constitute fixtures;
and
(D) none of the collateral consists of consumer goods, farm
products, crops, timber, minerals, or the like (including oil and gas), or
accounts resulting from the sale thereof, receivables due from any
government or agency or department thereof, beneficial interests in a trust
or a decedent's estate, letters of credit, inventory which is subject of
any negotiable documents of title, such as a negotiable bill of lading or
warehouse receipt held by anyone other than you or on your behalf, or items
which are subject to a requirement of any jurisdiction, including the
State, which provides for a registration or certificate of title or a
filing other than under the UCC.
Whenever our opinion with respect to the existence or absence of facts
is indicated to be based on our knowledge or awareness, we are referring solely
to the actual knowledge of the 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
7
<PAGE>
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,
8
<PAGE>
Annex 1
UCC-1 Financing Statement filings to perfect a security interest in collateral
not constituting fixtures:
State Filing Office Reporting Publication
- ----- ------------- ---------------------
9
<PAGE>
Exhibit A
---------
CERTIFICATE
-----------
The undersigned hereby certifies that he is the duly elected Secretary of
__________________, a Delaware limited liability company (the "Company"), and
further certifies that the following documents are the only documents to which
the Company is a party that affect or purport to affect the Company's right to
borrow money under, or the Company's right to undertake and perform its
obligations under, the Documents (as defined in the Secured Loan Agreement,
dated as of _____ __, 199_, between the Company and Einstein/Noah Bagel Corp.)
Date: __________________
_________________________
Secretary
1
<PAGE>
EXHIBIT G
ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT
1
<PAGE>
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);
1
<PAGE>
(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;
2
<PAGE>
(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;
3
<PAGE>
(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
4
<PAGE>
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.
5
<PAGE>
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:
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
EXHIBIT H
INVESTOR REPRESENTATION LETTER
1
<PAGE>
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,
1
<PAGE>
EXHIBIT I
---------
EINSTEIN/NOAH BAGEL CORP.
-------------------------
LIST OF FRANCHISEES
-------------------
<PAGE>
CALIFORNIA
- ----------
Noah's Bay Area Bagels, L.L.C.
1250 Marina Village Pkwy
Alameda, CA 94501
(510) 749-1700
Noah's Pacific, L.L.C.
1250 Marina Village Pkwy
Alameda, CA 94501
(510) 749-1700
COLORADO
- --------
BCE West Bagels, L.L.C.
9034 East Easter Place, Suite 204
Englewood, CO 80112
(303) 220-0804
CONNECTICUT
- -----------
Liberty Foods, L.L.C.
860 Canal Street
Stamford, CT 06902
(203) 328-2100
FLORIDA
- -------
Gulfstream Bagels
1801 Clint Moore Rd., Suite 215
Boca Raton, FL 33487
(561) 995-2223
ILLINOIS
- --------
Great Lakes Bagels, L.L.C.
770 Pasquinelli Drive, Suite 400
Westmont, IL 60559
(630) 887-7733
KANSAS
- ------
Finest Bagels, L.L.C.
8717 W. 110th St., Suite 600
Overland Park, KS 66210
(913) 344-1600
MARYLAND
- --------
Mayfair Bagels, L.L.C.
5454 Wisconsin Ave., Suite 810
Chevy Chase, MD 20815
(301) 215-9054
MASSACHUSETTS
- -------------
Colonial Bagels, L.P.
100 Cummings Park
Woburn, MA 01801
(617) 939-6200
PENNSYLVANIA
- ------------
Philly Rose, L.P.
3 Terry Drive, Suite 103
Newtown, PA 18940
(215) 504-6300
TEXAS
- -----
Alamo Bagels, L.P.
4407 Beltwood Pkwy, Suite 112
Farmer's Branch, TX 75244
(972) 661-9442
<PAGE>
EXHIBIT J
---------
EINSTEIN/NOAH BAGEL CORP.
-------------------------
OPERATIONS MANUAL
-----------------
<PAGE>
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
SHOP BASICS BOOK
<TABLE>
<CAPTION>
<S> <C>
1 SHOP CULTURE & ATMOSPHERE
WOW! Service..................................................1.1.1
Shop Atmosphere...............................................1.2.2
Commonly Asked Questions......................................1.3.1
Community Calendar............................................1.4.1
Community Bulletin Board......................................1.5.1
Newspaper Racks...............................................1.6.1
Sampling......................................................1.7.1
Advance Order Process.........................................1.8.1
2 GETTING FEEDBACK
Mystery Shopper Program.......................................2.1.1
Customer Feedback & The 800 Line..............................2.2.1
Employee Feedback (Verifone)..................................2.3.1
3 SHIFT MANAGEMENT
Role of the General Manager...................................3.1.1
Role of the Manager...........................................3.2.1
Role of the Shift Manager.....................................3.3.1
Getting to Know Your Employees................................3.4.1
Getting to Know Your Customers................................3.5.1
MBWA-Management By Walking Around.............................3.6.1
Reassigning Employee Positions................................3.7.1
Line Layout...................................................3.8.1
4 OPENING YOUR SHOP
Opening Your Shop.............................................4.1.1
Fire Up Schedule..............................................4.2.1
Start of Day Function.........................................4.3.1
5 RUSHES
Rush 101......................................................5.1.1
Preparing for a Rush..........................................5.2.1
During a Rush.................................................5.3.1
</TABLE>
- --------------------------------------------------------------------------------
SHOP OPS . TABLE OF CONTENTS 3/96 TABLE OF CONTENTS
(C) 1996 EINSTEIN BROS. BAGELS, INC. CONFIDENTIAL 1.1.1
<PAGE>
<TABLE>
<S> <C>
Post Rush................................................... 5.4.1
6 CLOSING YOUR SHOP
Starting Pre-Close.......................................... 6.1.1
Closing Up Shop............................................. 6.2.1
Closing Responsibilities.................................... 6.3.1
End of Day Function......................................... 6.4.1
End of Day Report........................................... 6.5.1
End of Day Accounting....................................... 6.6.1
Checking Out a Close........................................ 6.7.1
Double Checking Close....................................... 6.8.1
Security Issues at Closing.................................. 6.9.1
PRODUCT BOOK
0 NUTRITIONAL INFORMATION
Bagels...................................................... 0.1.1
Schmears.................................................... 0.1.2
Sandwich Stuff.............................................. 0.1.3
Beverages................................................... 0.1.4
Coffee & Tea................................................ 0.1.5
Salads...................................................... 0.1.6
Soups....................................................... 0.1.7
Miscellaneous............................................... 0.1.8
1 FOOD SAFETY
Food Safety & Sanitation Standards.......................... 1.1.1
Handwashing................................................. 1.2.1
Calibrating Probe Thermometers.............................. 1.3.1
Taking Temperatures......................................... 1.4.1
Jefco Sanitation Program.................................... 1.5.1
Sanitizer Bucket Program.................................... 1.6.1
Food Safety Tools........................................... 1.7.1
Food Borne Illness Prevention - Staphylococcal Intoxication. 1.8.1
Food Borne Illness Prevention - E. Coli..................... 1.9.1
Food Borne Illness Prevention - Hepatitis A................. 1.10.1
Food Borne Illness Prevention - Clostridium Perfringens..... 1.11.1
</TABLE>
________________________________________________________________________________
CONFIDENTIAL
<PAGE>
<TABLE>
<S> <C>
2. PRODUCT QUALITY
Soup................................................... 2.1.1
Sandwich Line.......................................... 2.2.1
Coffee Program......................................... 2.3.1
Coffee Bar............................................. 2.4.1
Retail Items........................................... 2.5.1
Portioning............................................. 2.6.1
Schpiels............................................... 2.7.1
3. SHOP RECIPES
Bubbler Iced Tea....................................... 3.1.1
Bubbler Lemonade....................................... 3.2.1
Southwestern Tabouli Salad............................. 3.3.1
Pasta Salad............................................ 3.4.1
4. COMMISSARY RECIPES
Broccoli Ziti.......................................... 4.1.1
Carrot Hummus.......................................... 4.2.1
Chicken Salad.......................................... 4.3.1
Chicken and Tuna Sauce................................. 4.4.1
Fusilli with Black Olives and Roasted Peppers.......... 4.5.1
Greek Pasta Salad...................................... 4.6.1
Sesame Noodle Salad.................................... 4.7.1
Southwestern Tabouli Salad............................. 4.8.1
Tuna Salad............................................. 4.9.1
BAKERY BOOK
Managing the Bakery.................................... 1.1.1
Bakery Production Sheet................................ 1.2.1
CASH HANDLING BOOK
1 MANAGING CASHIERS
Cashier Operating Functions............................ 1.1.1
Managing Cashiers at POS............................... 1.2.1
Managing Cashiers at AMWS.............................. 1.3.1
Assigning a Swipe Card................................. 1.4.1
Assigning a Swipe Card at POS.......................... 1.5.1
</TABLE>
________________________________________________________________________________
CONFIDENTIAL
<PAGE>
<TABLE>
<S> <C>
2 POS: MANAGER FUNCTIONS
Manager Transactions................................... 2.1.1
Performing Manager Voids............................... 2.2.1
Performing Paid Outs................................... 2.3.1
Discount/Tax Exempt Functions.......................... 2.4.1
Toggle................................................. 2.5.1
POS Transaction Log.................................... 2.6.1
POS Manager Reports.................................... 2.7.1
3. CASH HANDLING
Change Fund............................................ 3.1.1
Deposits............................................... 3.2.1
4. ON ACCOUNT
Establishing House Accounts............................ 4.1.1
On Account Tender...................................... 4.2.1
Credit Card Processing (On Account).................... 4.3.1
Forced Credit Card Transactions........................ 4.4.1
Credit Card Processing/End of Day...................... 4.5.1
Credit Card Terminal support........................... 4.6.1
COGS BOOK
1. INVENTORY
Counting Your Physical Inventory....................... 1.1.1
Printing Inventory Count Sheet......................... 1.2.1
Entering Inventory Counts.............................. 1.3.1
Printing Inventory Reports............................. 1.4.1
2. MANAGING COGS
Managing COGS.......................................... 2.1.1
COGS $ Detail Report................................... 2.2.1
COGS $ Summary Report.................................. 2.3.1
COGS $ Item Usage Report............................... 2.4.1
COGS Daily Sales Report................................ 2.5.1
COGS Weekly Sales Report............................... 2.6.1
Troubleshooting COGS................................... 2.7.1
Daily Menu Mix Report.................................. 2.8.1
</TABLE>
________________________________________________________________________________
CONFIDENTIAL
<PAGE>
<TABLE>
<S> <C>
Weekly Menu Mix Report................................. 2.9.1
Daily Key Stat Report.................................. 2.10.1
Menu Item Price Report................................. 2.11.1
ORDERING & RECEIVING BOOK
1 VENDORS
Vendors................................................ 1.1.1
Adistra................................................ 1.2.1
Cleaning Supplies...................................... 1.3.1
Coffee................................................. 1.4.1
Commissary............................................. 1.5.1
Decotis................................................ 1.6.1
Vendors Inquiries...................................... 1.7.1
Vendors Disputes Over Payment.......................... 1.8.1
Adding a New Vendor.................................... 1.9.1
2 ORDERING
Ordering Product....................................... 2.1.1
Par Levels............................................. 2.2.1
On-Hand Counts......................................... 2.3.1
Printing an Ordering Worksheets........................ 2.4.1
Create/Modify Order.................................... 2.5.1
Delete Order........................................... 2.6.1
Create/Print the Purchase Order........................ 2.7.1
Delete a P.O........................................... 2.8.1
Print Order Summary.................................... 2.9.1
3 RECEIVING
Rotation, Storage and Organization..................... 3.1.1
Receiving.............................................. 3.2.1
Verifying Deliveries................................... 3.3.1
Receiving/Add Invoice With a P.O....................... 3.4.1
Receiving/Add Invoice Without a P.O.................... 3.5.1
Receiving Non-Inventory Item or Service................ 3.6.1
Receive a Paid Out Into Inventory...................... 3.7.1
Receiving a Credit..................................... 3.8.1
Modify an Invoice...................................... 3.9.1
Delete an Invoice...................................... 3.10.1
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CONFIDENTIAL
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Purchase Summary....................................... 3.11.1
Invoice Returned By Accounts Payable................... 3.12.1
RISK MANAGEMENT BOOK
1 HANDLING A RISK
Reacting to an Accident or Injury...................... 1.1.1
Completing an Incident Report.......................... 1.2.1
Customer Reporting of Food Borne Illness............... 1.3.1
2 SAFETY, SECURITY & CRISIS
Safety................................................. 2.1.1
Safety Requirements.................................... 2.2.1
Safety Risks........................................... 2.3.1
Safety Inspection...................................... 2.4.1
Preventive Approach.................................... 2.5.1
Security Requirements.................................. 2.6.1
Security Risks......................................... 2.7.1
Alarm System........................................... 2.8.1
Crisis Management...................................... 2.9.1
3 DEALING WITH THE MEDIA
Dealing with the Media................................. 3.1.1
4 SUPPORT CENTER CRISIS TEAM
Support Center Crisis Team............................. 4.1.1
EQUIPMENT BOOK
1 INTRODUCTION TO THE EQUIPMENT MANUAL
Introduction to the Equipment Manual................... 1.1.1
2 EQUIPMENT LIST
Equipment List......................................... 2.1.1
3 OPERATION, MAINTENANCE & TROUBLESHOOTING
Oven................................................... 3.1.1
Reach-In Cooler (Merchandiser)......................... 3.2.1
Coffee Brewing System.................................. 3.3.1
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CONFIDENTIAL
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Acorto Espresso Machine........................................ 3.4.1
Ice Cappuccino Machine (Cool Cat).............................. 3.5.1
Bubbler Beverage Dispenser..................................... 3.6.1
Soup Kettles................................................... 3.7.1
Sandwich Unit.................................................. 3.8.1
Bagel Slicer................................................... 3.9.1
Bagel Toaster.................................................. 3.10.1
Soup Warmer.................................................... 3.11.1
Microwave...................................................... 3.12.1
Revent Proof Box............................................... 3.13.1
Ice Cube Machine............................................... 3.14.1
Under-Counter Refrigerator..................................... 3.15.1
Pepsi Machine.................................................. 3.16.1
Alarm System................................................... 3.17.1
Music System................................................... 3.18.1
Office Safe.................................................... 3.19.1
Phone System................................................... 3.20.1
LABOR BOOK
1 EMPLOYEE MANAGEMENT
Entering New Employee Information.............................. 1.1.1
Modifying Employee Information................................. 1.2.1
Printing Employee Information.................................. 1.3.1
Updating Employee Availability................................. 1.4.1
Changing Employee Availability................................. 1.5.1
Timing In and Out.............................................. 1.6.1
Documenting Breaks............................................. 1.7.1
Employee Review of Hours Worked................................ 1.8.1
Approving Overtime............................................. 1.9.1
2 SCHEDULING
Forecasting Sales.............................................. 2.1.1
Using a Model Schedule......................................... 2.2.1
Creating a Schedule............................................ 2.3.1
Duplicating a Schedule......................................... 2.4.1
Printing a Schedule............................................ 2.5.1
Posting a Schedule............................................. 2.6.1
Weekly Payroll Close........................................... 2.7.1
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The Payback Schpiel............................................ 2.8.1
3 MODEL SCHEDULES
Model Schedules 1-16
4 LABOR REPORTS
Employee Inquiry Report........................................ 4.1.1
Employee Time Report........................................... 4.2.1
Open Punch Report.............................................. 4.3.1
Employee Sign-Off Report....................................... 4.4.1
Time Entry Audit Report........................................ 4.5.1
Approaching Overtime Report.................................... 4.6.1
Schedule Violations Report..................................... 4.7.1
Schedule to Actual Variance.................................... 4.8.1
Labor Cost Summary Report...................................... 4.9.1
Employee Trail Balance Report.................................. 4.10.1
Troubleshooting Labor.......................................... 4.11.1
5 SHOP PAYROLL PROCESSING PROCEDURES
(REMACS)
Shop Payroll Processing Procedure (ReMACS)..................... 5.1.1
6 SHOP PAYROLL PROCESSING PROCEDURES
(NON-REMACS)
Shop Payroll Processing Procedures (Non-ReMACS)................ 6.1.1
EMPLOYEES BOOK
1 SELECTION SYSTEM
Selection Tools................................................ 1.1.1
The Application................................................ 1.2.1
Interview Process.............................................. 1.3.1
The Employees Test............................................. 1.4.1
Generating Applicant Flow...................................... 1.5.1
2 COACHING
Talk-to-Me..................................................... 2.1.1
C.O.A.C.H. Model............................................... 2.2.1
Lead by Example................................................ 2.3.1
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Praising..................................................... 2.4.1
Delegating................................................... 2.5.1
Identifying Performance Discrepancies........................ 2.6.1
Discussing Performance Issues................................ 2.7.1
Reprimanding................................................. 2.8.1
Consistent Coaching.......................................... 2.9.1
Coaching High Performance.................................... 2.10.1
Developing an Action Plan.................................... 2.11.1
3 POSITIVE DISCIPLINE
Progression Steps of Positive Discipline..................... 3.1.1
Termination.................................................. 3.2.1
Reasons for Intermediate Termination......................... 3.3.1
Harassment/Sexual Harassment................................. 3.4.1
Handling Harassment Complaints............................... 3.5.1
4 TRAINING YOUR TEAM
Training Your Team........................................... 4.1.1
Motivation................................................... 4.2.1
How to Train................................................. 4.3.1
Training Tools............................................... 4.4.1
5 EMPLOYEE FILES
Employee Records............................................. 5.1.1
TOOLS BOOK
1 SHOP TOOLS
Shop Tools................................................... 1.1.1
2 REDBOOK
Manager's Redbook............................................ 2.1.1
3 SYSTEM USE
Computer Lingo............................................... 3.1.1
Navigation................................................... 3.2.1
Login and Logout............................................. 3.3.1
Adding a User to the Log In Screen........................... 3.4.1
Changing Your Log In Password................................ 3.5.1
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Deleting a User From the Computer................................3.6.1
Start of Day.....................................................3.7.1
End of Day.......................................................3.8.1
4 MANAGING THE OFFICE
Managing Manuals, Materials, and Change..........................4.1.1
5 REPORTING REQUIREMENTS
Period Reports...................................................5.1.1
BisCo Reporting Schedule.........................................5.2.1
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ITEM 23
-------
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF ENBC OFFERS YOU A FRANCHISE, IT MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
A. THE FIRST PERSONAL MEETING TO DISCUSS ENBC's FRANCHISE; OR
B. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
C. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ENBC.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF ENBC DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A
FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED
ON EXHIBIT A.
---------
ENBC authorizes the respective state agencies identified on Exhibit A to receive
---------
service of process for Einstein/Noah Bagel Corp. in the particular state.
I have received a Uniform Franchise Offering Circular dated March 27, 1997, as
amended August 20, 1997. This offering circular included the following
Exhibits:
A. State Agencies/Agents for Service of Process
B. Einstein/Noah Bagel Corp. Development Agreement
C. Einstein/Noah Bagel Corp. Franchise Agreement
D. Form In-Line Store Lease
E. Addendum to Lease
F. Standard Form of Sublease
G. Einstein/Noah Bagel Corp. Financial Statements
H. Form of Area Developer Secured Loan Agreement
I. List of Franchisees
J. Operations Manual Table of Contents
________________________________ __________________________________
Date Franchisee
1
<PAGE>
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF ENBC OFFERS YOU A FRANCHISE, IT MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
A. THE FIRST PERSONAL MEETING TO DISCUSS ENBC's FRANCHISE; OR
B. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
C. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ENBC.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF ENBC DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A
FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED
ON EXHIBIT A.
---------
ENBC authorizes the respective state agencies identified on Exhibit A to receive
---------
service of process for Einstein/Noah Bagel Corp. in the particular state.
I have received a Uniform Franchise Offering Circular dated March 27, 1997, as
amended August 20, 1997. This offering circular included the following
Exhibits:
A. State Agencies/Agents for Service of Process
B. Einstein/Noah Bagel Corp. Development Agreement
C. Einstein/Noah Bagel Corp. Franchise Agreement
D. Form In-Line Store Lease
E. Addendum to Lease
F. Standard Form of Sublease
G. Einstein/Noah Bagel Corp. Financial Statements
H. Form of Area Developer Secured Loan Agreement
I. List of Franchisees
J. Operations Manual Table of Contents
________________________________ __________________________________
Date Franchisee
