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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 28, 1997
[ ] 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 0-21205
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NEW YORK BAGEL ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
KANSAS 73-1369185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 I.M.A. PLAZA
250 NORTH WATER STREET
WICHITA, KANSAS 67202-1213
316-267-7373
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $0.01 per share
(Title of class)
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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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K. ( X )
As of March 1, 1998, the aggregate market value of the voting stock held
by non-affiliates of the registrant (based upon the last reported sale price
of the Common Stock of the registrant as quoted on the Nasdaq National Market
of The Nasdaq Stock Market, Inc.) was $4,465,603. (For purposes of
calculating the preceding amount only, all directors, executive officers and
stockholders holding 5% or greater of the registrant's Common Stock are
assumed to be affiliates). The number of shares of Common Stock of the
registrant outstanding as of March 1, 1998 was 4,661,500.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Proxy Statement for its annual
meeting of stockholders to be held on May 20, 1998 are incorporated by
reference into Items 10, 11, 12 and 13 of Part III. The registrant intends to
file such Proxy Statement no later than 120 days after the end of the fiscal
year covered by this Form 10-K.
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NEW YORK BAGEL ENTERPRISES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
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PART I PAGE
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Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Risk Factors 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in Disagreements with Accountants on Accounting and
Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
SIGNATURES 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
INDEX TO EXHIBITS E-1
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS FORM 10-K INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS
OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS FORM 10-K REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS FORM 10-K ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY
ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY
PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED IN
THE "RISK FACTORS" SECTION OF THIS FORM 10-K ANNUAL REPORT, WHICH INCLUDE,
WITHOUT LIMITATION, THE COMPANY'S ABILITY TO DEVELOP, CONSTRUCT, ACQUIRE OR
FRANCHISE ADDITIONAL RESTAURANTS IN ACCORDANCE WITH THE COMPANY'S DEVELOPMENT
SCHEDULE, CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY AND
TERMS OF CAPITAL, ACCEPTANCE OF NEW PRODUCT OFFERINGS, COMPETITION,
MANAGEMENT OF QUARTER TO QUARTER EARNINGS, INCREASES IN OPERATING COSTS AND
CHANGES IN GOVERNMENT REGULATION. ALL SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS.
ITEM 1. BUSINESS
GENERAL
As of March 1, 1998, New York Bagel Enterprises, Inc. (the "Company")
owned and franchised 62 quick-service New York Bagel restaurants and seven
Lots A' Bagels restaurants in 15 states that serve generous portions of
fresh, high quality food with fast, friendly service at an attractive
price-value relationship. Historically, the Company has grown by developing
Company-owned restaurants, making acquisitions and by selectively adding
franchisees. As of March 1, 1998, there were 46 Company-owned restaurants
located in Oklahoma, Kansas, Tennessee, Texas, Colorado, Missouri, Alabama
and Kentucky and 23 franchised restaurants located in 11 states operated by
14 franchisees.
The Company believes that consumption of bagels has increased in recent
years, as consumers have discovered that bagels are a healthier, lower fat
alternative to other quick-service foods and are a suitable substitute for
sandwich breads. Management believes that the market for retail bagel
restaurants is fragmented and underserved, and that the Company can
capitalize on the demand for fresh bagels.
The Company opened its first restaurant in 1986, and has developed, as
of March 1, 1998, 34 of its 46 Company-owned restaurants in Oklahoma, Kansas,
Tennessee, Texas, Alabama, Kentucky and Missouri. In addition to developing
new restaurants, as of March 1, 1998 the Company has acquired one bagel
restaurant in Tennessee, seven Lots A' Bagels restaurants and a bagel
commissary in Colorado, and four franchised New York Bagel restaurants in
Texas and Kansas. See Note 11 of the Notes to Consolidated Financial
Statements.
The Company's business was previously operated through six separate
entities, each of which was owned by one or more stockholders that existed
prior to the Company's initial public offering (collectively, the "Prior
Entities"). The Company was incorporated in December 1995 under the laws of
Kansas, and on December 31, 1995, the Prior Entities were merged into the
Company (the "Reorganization"). The financial statements and all
supplementary financial data for 1995 and prior periods herein include the
results of operations of the Prior Entities on a combined basis. See Note 1
of the Notes to Consolidated Financial Statements.
The Company completed its initial public offering of its Common Stock on
August 27, 1996. Reference to "New York Bagel" restaurants include the
Company's Lots A' Bagels restaurants unless otherwise indicated.
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THE NEW YORK BAGEL CONCEPT
PREPARE FRESH, HIGH QUALITY PRODUCTS. New York Bagel restaurants serve
up to 20 varieties of bagels that are made from scratch, boiled and baked
throughout the day in the traditional "New York style." The Company believes
its five-ounce bagel is larger than those served by many of its competitors.
Menu items are prepared in accordance with the Company's specifications using
high quality ingredients such as Philadelphia-Registered Trademark- Brand
cream cheese, Kraft-Registered Trademark- cheeses and premium deli meats.
Generous portions of cream cheese are applied on its breakfast bagel and four
ounces of meat are served on each of its deli sandwiches. The Company
believes that the quality and portion size of its menu items generally equals
or exceeds those of its competitors. Because its menu pricing is competitive,
the Company believes that it offers customers an attractive price-value
relationship.
MAXIMIZE TRAFFIC THROUGHOUT THE DAY. Management has recognized the
versatility of the bagel and has developed a menu to attract customers
throughout the day. The breakfast menu at New York Bagel restaurants includes
a variety of bagels and custom-blended cream cheeses, breakfast sandwiches on
bagels, gourmet coffees, muffins and croissants. Lunch and dinner items
include a wide range of delicatessen sandwiches made on bagels or other
breads, salads, cookies and soft drinks. The Company also has been able to
successfully operate drive-through windows at certain New York Bagel
restaurants.
COMMITMENT TO TIMELY SERVICE. The Company believes that timely service
is essential in the quick-service restaurant business. Service time is
minimized through the division of employee functions, efficient store layout
and design and queuing mechanisms.
FOCUS ON TRAINING. The Company believes that comprehensive training is
essential to the efficiency and consistency of its operations. The Company
conducts a 28-day training program for its restaurant managers and
franchisees that places an emphasis on these areas while maintaining the
operational systems of an actual New York Bagel restaurant. In addition, the
Company provides on-site assistance during the initial ten days of operation
at each Company-owned restaurant and at a franchisee's initial franchised
restaurant.
COMPANY STRATEGY
FOCUS ON OPERATIONS; LIMITED DEVELOPMENT. The Company completed its
initial public offering in August 1996 in which it raised $14.7 million that
enabled the Company to grow and expand. From August 1996 through February
1998, the Company utilized such proceeds to develop 15 new restaurants and to
acquire eleven additional restaurants. Consequently, Company-owned
restaurants have increased from 20 restaurants just prior to the initial
public offering to 46 Company-owned restaurants as of March 1, 1998. During
1998, the Company anticipates shifting its strategy from that of aggressive
growth to that of limited growth with an enhanced focus on operations. The
strategy includes new product initiatives that are anticipated to stimulate
sales growth from existing restaurants. It also includes a focus on cost
controls, primarily cost of sales and restaurant operating expenses. The
Company anticipates that its limited development and enhanced focus on
operations will position the Company to renew restaurant development and
growth.
EMPHASIZE MID-SIZED AND SMALLER METROPOLITAN MARKETS. Historically, the
Company has targeted its expansion efforts in mid-sized and smaller
metropolitan markets. Management believes that these markets are attractive
because they typically have fewer competing bagel restaurants and more
favorable lease and labor environments than larger metropolitan markets.
ESTABLISH STRONG MARKET PRESENCE. Since the bagel industry is highly
fragmented and increasingly competitive, the Company seeks to establish a
strong market presence in its targeted markets. To develop a strong market
presence rapidly and efficiently, the Company employs a multiple store
strategy involving a bakery restaurant which produces bagels for itself and
one or more nearby satellite restaurants. By entering underserved markets and
opening multiple restaurants, the Company seeks to maximize market share and
establish brand awareness. The Company and its franchisees have implemented
this bakery/satellite restaurant combination 25 times.
FOCUS ON UNIT AND MARKET ECONOMICS. Consistent with its market share
objective, the Company focuses not only on generating attractive unit level
economics, but also on the economic returns of a particular target market.
The Company believes that bakery restaurants can be opened for an initial
investment, including leasehold improvements, furniture, fixtures,
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equipment, initial working capital and pre-opening expenses, excluding real
estate, of approximately $275,000, with satellite restaurants requiring
approximately $175,000. By averaging these initial investment amounts within
markets, the Company hopes to achieve attractive returns on investment.
MAKE SELECTIVE ACQUISITIONS. During 1997, the Company acquired a total
of three franchised restaurants in Austin, Texas, and San Antonio, Texas.
The Company intends to pursue other acquisitions of local and regional bagel
operations with an established market presence.
CURRENT YEAR DEVELOPMENT/COMPANY-OWNED RESTAURANTS
During 1997 and through March 1, 1998, the Company developed 15 new
restaurants located in Oklahoma (2), Kansas (3), Texas (5), Alabama (2),
Kentucky (1), Missouri (1) and New Mexico (1). Additionally, the Company
acquired three franchised restaurants in Texas. The Company also initiated
restaurant closures for the first time with a total of five restaurants
located in Texas (2), Tennessee (1) and New Mexico (2) being closed. As a
result of the above activity, Company-owned restaurants have increased from
33 as of the beginning of fiscal 1997 to 46 as of March 1, 1998. There are
currently two New York Bagel restaurants under development in Alabama and
one Lots A' Bagels restaurant under development in Colorado.
ACQUISITIONS
On December 6, 1996 the Company acquired substantially all of the
operating assets, business operations and facilities of Lots A' Bagels, Inc.
("Lots A' Bagels"), including seven restaurants and a bagel commissary
located in Colorado Springs and Monument, Colorado for cash payments of
$2,615,000 and the assumption of certain liabilities of Lots A' Bagels.
Also in 1997, the Company acquired two franchised restaurants located in
Austin, Texas and one franchised restaurant located in San Antonio, Texas.
Total cash purchase price for the three franchised restaurants was $738,000.
The Company's source of cash for the above acquisitions was a portion of
the net proceeds from the Company's initial public offering of Common Stock
completed in August 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RESTAURANT DESIGN AND SITE SELECTION
The Company's prototypical New York Bagel restaurant is decorated in
rich colors and dark woods and contains a mixture of booth, table and
barstool seating and, where available, outdoor seating. Exposed ceilings with
drop lighting and a combination of tile and carpeted flooring are used to
enhance its comfortable ambiance. Walls are covered with black and white
photographs depicting classic New York scenes. The Company's restaurants are
configured to facilitate a smooth flow of dine-in and carry-out traffic while
retaining a casual, cafe atmosphere. Bagels and other baked products are
displayed prominently behind a glass counter while other items such as
salads, packaged cream cheese for take-out and specialty sodas and drinks are
located in an open, self-serve refrigerated area next to the cash register.
Restaurant staff prepare sandwich and other menu items behind the counter for
dine-in and take-out customers. Dine-in customers' food is delivered directly
to the table. The restaurants serve cappuccino and espresso, and a fountain
drink and gourmet coffee station are placed in the dining area for customer
convenience. Retail merchandise, including logo clothing, coffee mugs and
gift items, are displayed throughout the restaurant.
The Company believes that the layout and design of each restaurant
contributes to the success of its operations. The Company continually reviews
the restaurant design package for its restaurants and remodels as required.
Pursuant to the franchise agreement, franchised restaurants' decor must be
updated every five years or upon renewal of each particular franchise
agreement. Remodeling typically requires closing the restaurant for one to
four weeks. Although restaurants may vary in size, layout and design are
generally consistent.
The Company considers the location of a restaurant to be important, and,
therefore, devotes significant resources to the investigation and evaluation
of potential sites. The site selection process focuses on area demographics,
including population density, traffic patterns, income levels and competitive
factors. The Company generally targets locations that possess a
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population density of at least 50,000 residents within a three mile radius
and are situated on the morning side of commuter traffic. The Company's
restaurants are typically located in strip shopping centers or free-standing
buildings that provide visibility, curb appeal and accessibility. Certain
limited hour satellite restaurants are located in office buildings and are
open during business hours Monday through Friday. The Company's restaurant
design may be configured to fit a wide variety of building shapes and sizes,
thereby increasing the number of suitable sites for new locations.
UNIT ECONOMICS
In targeted markets, the Company employs a multiple store strategy
involving a bakery restaurant which produces bagels for itself and one or
more nearby satellite restaurants. The Company's approach to opening new
restaurants has been to minimize its required investment by leasing
substantially all of its locations. The Company believes that bakery
restaurants can be opened for an initial investment, including leasehold
improvements, furniture, fixtures, equipment, initial working capital and
pre-opening expenses, excluding real estate, of approximately $275,000, with
satellite restaurants requiring approximately $175,000. By averaging these
initial investment amounts within a particular market, the Company believes
it achieves attractive returns on investment within markets.
OPERATIONS
RESTAURANT PERSONNEL. A typical New York Bagel restaurant employs a
restaurant manager, an assistant manager and approximately 25 to 30 hourly
employees for a bakery restaurant and 15 to 20 hourly employees for a
satellite restaurant, most of whom work part-time. The restaurant manager is
responsible for the day-to-day operation of the restaurant and for compliance
with Company-established operating standards. The Company also employs eleven
area managers, each of whom has responsibility for overseeing two to seven
Company-owned restaurants. The Company seeks to hire experienced restaurant
managers and staff, and to motivate and retain them by providing
opportunities for advancement and performance-based, financial incentives.
Training and compensation programs are intended to instill restaurant
managers and area managers with a sense of ownership in their restaurants.
The Company believes the issuance of stock awards under the New York Bagel
Enterprises, Inc. 1996 Incentive Plan and the restaurant management bonus
program will enhance its ability to attract and retain restaurant and area
managers.
REPORTING. The Company's restaurant managers prepare daily and weekly
reports of sales, cash deposits and operating costs. Physical inventories of
all food and beverage items are taken biweekly. The Company conducts monthly
meetings with area managers to discuss restaurant sales, profitability and
operations, personnel needs and product quality.
HOURS OF OPERATIONS. The restaurants are generally open Monday through
Saturday from 6:30 a.m. to 8:00 p.m. and on Sunday from 8:00 a.m. to 5:00
p.m. Although the majority of restaurants are open seven days a week, certain
satellite restaurants are located in downtown business districts and are open
during business hours Monday through Friday.
TRAINING
The Company believes that comprehensive training is essential to the
efficiency and consistency of its restaurants. The Company conducts a 28-day
training program for its restaurant managers and franchisees that places an
emphasis on these areas while maintaining the operational systems of an
actual New York Bagel restaurant. In addition, the Company provides on-site
assistant during the initial ten days of operation at each Company-owned
restaurant and at a franchisee's initial franchised restaurant.
PURCHASING AND DISTRIBUTION
The Company establishes quality standards and specifications for food
products and equipment used in New York Bagel restaurants and designates
primary and secondary suppliers for all food items and restaurant supplies.
In order to ensure product quality and consistency, franchisees purchase
certain products from the Company's approved distributors. To obtain
competitive prices, the Company contracts centrally for certain food products
and supplies and negotiates volume discounts for the benefit of Company-owned
and franchised restaurants. Most Company-owned and franchised restaurants
purchase the majority of their
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food and non-food items from a nationally recognized distributor. The Company
believes that the loss of this distributor would not materially affect the
Company's results of operations.
MARKETING AND ADVERTISING
The Company and its franchisees advertise primarily through newspapers,
direct mail and radio. All advertising materials must be produced or
pre-approved by the Company. The Company provides restaurants with
pre-opening, grand opening and ongoing advertising and in-store promotional
material. In April 1996, the Company and its franchisees commenced payments
of 0.5% of gross sales to the Company's advertising fund. However, the
advertising fund was discontinued in October 1997. In 1998, the remaining
balance of the advertising fund will be allocated back to the Company and
franchisees in proportion to amounts originally paid. Franchisees maintain
sole discretion over the placement of advertisements in their market.
FRANCHISE PROGRAM
The Company commenced franchising its restaurant concept in 1993 and, as
of March 1, 1998, has 14 franchisees operating 23 New York Bagel restaurants
in eleven states. During 1997 and through March 1, 1998, activity within the
franchise program included the following: seven new restaurants were
developed in Colorado (1), Alabama (1), Texas (1), Arkansas (2), California
(1) and Florida (1); three franchised restaurants in Texas were acquired by
the Company; and 13 restaurants were closed and/or disenfranchised in
Nebraska (1), Texas (4), Arkansas (3), Arizona (2), Florida (1), North Dakota
(1) and Colorado (1). As a result, the total number of franchised restaurants
has decreased from 32 as of March 1, 1997 to 23 as of March 1, 1998. There
are currently two franchised restaurants under development, one located in
Tennessee and one located in Florida.
The Company primarily seeks franchisees that have restaurant experience
and that will enter into development agreements for multiple restaurants.
Franchisees are approved on the basis of operational experience and financial
resources. If the franchisee is not an owner-operator, the Company encourages
the franchisee to provide the full-time operator an equity interest in the
franchise operation.
DEVELOPMENT AGREEMENT. The Company enters into a development agreement
with each franchisee (a "Development Agreement") for the exclusive
development of a predetermined number of New York Bagel restaurants within a
designated market area (the "Area of Exclusivity"). The Area of Exclusivity
is negotiated prior to the signing of a Development Agreement and varies by
agreement as to size, number of New York Bagel restaurants required and the
schedule for restaurant development and opening. A Development Agreement
generally requires a franchisee to develop the first restaurant within 12
months of signing the Development Agreement and the second restaurant within
18 months. Subsequent restaurants are generally required to be opened in
six-month intervals thereafter. Development schedules vary based upon the
size of the territory and the number of restaurants to be developed.
Development Agreements contain cross-default provisions, and failure to
develop the restaurants on schedule may result in a loss of exclusivity
within the Area of Exclusivity. Under the Company's Development Agreement,
the franchisee is required to pay, at the time of signing, a non-refundable
fee equal to one-third of the initial franchise fee per restaurant covered by
the Development Agreement. The amount is credited against the Company's
standard franchisee fee, the remainder of which is payable to the Company
upon signing the franchise agreement for a specific location.
FRANCHISE AGREEMENT. After signing a Development Agreement, the Company
enters into a franchise agreement (a "Franchise Agreement") generally when a
franchisee secures a location. The Franchise Agreement provides for a term of
ten years with one ten-year renewal option and contains cross-default
provisions. The Company has the right to terminate any Franchise Agreement
under certain specified circumstances, including a franchisee's failure to
make payments when due or failure to adhere to the Company's standards or
procedures. Many state franchise laws limit the ability of a franchisor to
terminate or refuse to renew a franchise. The current Franchise Agreement
contains a right of first refusal for the Company to purchase an interest in
the franchise and the franchisee. The current Franchise Agreement provides
for an initial franchise fee of $21,000 for each bakery restaurant and
$12,000 for each satellite restaurant. During 1995, the initial franchise
fees for a bakery restaurant and a satellite restaurant were $18,000 and
$9,000, respectively. Under the current Franchise Agreement, the franchisee
pays the Company a monthly royalty fee of 4% of gross sales. Upon renewal of
the Franchise Agreement, the
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monthly royalty fee cannot be increased to an amount greater than the monthly
royalty fee then in effect for new franchisees. See "Business-Government
Regulation."
SERVICES. The Company assists each franchisee in the site selection and
development of restaurants and provides the physical specifications and plans
for each franchised location. Each franchisee is responsible for recommending
the location for its restaurants, but must obtain Company approval of each
restaurant design and each location based on Company requirements. Company
personnel also visit each site in connection with the site approval process.
The Company provides standard design plans and equipment layout and
specifications for most franchisees. In addition, Company personnel provide
telephone support with respect to operations issues, as well as ongoing
assistance with advertising and promotion.
QUALITY CONTROL. All franchisees are required to operate their New York
Bagel restaurants in compliance with the Company's policies, standards and
specifications, including matters such as menu items, ingredients, materials,
supplies, fixtures, furnishings, decor and signage. Each franchisee has full
discretion, however, to determine the prices to charge its customers. The
Company collects sales and other operating information from its franchisees
on a monthly, quarterly and annual basis. The Company monitors each
franchisee's operations through periodic field visits and review of
information provided by the franchisees. These overview mechanisms allow the
Company to quickly identify potential problems and provide operational,
marketing or accounting assistance.
FRANCHISE TRAINING AND SUPPORT. Each franchisee is required to have a
restaurant manager, approved by the Company, who satisfactorily completes the
Company's training program and who devotes his or her full business time and
efforts to the operation of the franchisee's restaurant. In addition to this
program, the Company also provides an on-site training crew for ten days
during the opening of the franchisee's initial restaurant and ongoing
supervision thereafter. Multi-unit franchisees are encouraged to hire a
full-time training coordinator to train new employees for their restaurants.
The Company regularly communicates with its franchisees, and encourages
active communication among its franchisees, through telephone communications
and periodic meetings.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws
affecting its business. Each of the Company's restaurants is subject to
licensing and regulation by a number of governmental authorities, which
include health, safety, sanitation, building and fire agencies in the state
or municipality in which the restaurant is located. Difficulties in obtaining
or failures to obtain required licenses or approvals could delay or prevent
the opening of a new restaurant in a particular area.
The Company is subject to Federal Trade Commission ("FTC") regulation
and various state laws which regulate the offer and sale of franchises.
Several state laws also regulate substantive aspects of the
franchisor-franchisee relationship. The FTC requires the Company to furnish
to prospective franchisees a franchise offering circular containing
prescribed information. The Company is currently required to register as a
franchisor in three states. A number of states in which the Company may
consider franchising also regulate the sale of franchises and require
registration of the franchise offering circular with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship
presently exist in many states, and bills have been introduced in Congress
from time-to-time which would provide for Federal registration of the
franchisor-franchisee relationship in certain respects. The state laws often
limit, among other things, the duration and scope of non-competition
provisions and the ability of a franchisor to terminate or refuse to renew a
franchise.
The Company's operations are also subject to federal and state laws
governing such matters as wages, working conditions, citizenship requirements
and overtime. The Company is also subject to the Americans with Disabilities
Act of 1990, which, among other things, could require certain renovations to
its restaurants to meet federal mandates. If such renovations are required,
the Company believes the cost thereof will not materially affect the
Company's results of operations. The Company believes it is in substantial
compliance with all material laws.
COMPETITION
The quick-service restaurant industry is intensely competitive and
generally characterized by low barriers to entry. There are a growing number
of significant national, regional and local bagel restaurant chains,
operating both owned and
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franchised bagel restaurants including Einstein/Noah Bagel Corp., Brueggers
Bagel Bakery, Manhattan Bagel Company, Inc. and BAB Holdings, Inc., many of
which have greater financial resources than the Company. New York Bagel
restaurants also compete with other well established quick-service
restaurants that have greater product and name recognition, larger financial
and other resources than the Company and longer operating histories, as well
as numerous local food establishments, supermarkets and convenience stores
that offer similar products. The Company believes that New York Bagel
restaurants compete favorably in terms of taste, food quality, portions,
service, convenience and value, which the Company believes are important
factors to its targeted customers.
The Company competes for qualified franchisees with a wide variety of
investment opportunities both in the restaurant business and in other
industries. The Company's continued success is dependent to a substantial
extent on its reputation for providing high quality and value with respect to
its service, products and franchises, and this reputation may be affected not
only by the performance of Company-owned restaurants, but also by the
performance of its franchised restaurants over which the Company has limited
operational control.
TRADEMARKS AND SERVICE MARKS
The Company operates and franchises bagel restaurants under the names
"New York Bagel Shop & Delicatessen," "New York Bagel Shop & Deli," "NY Bagel
Cafe," "New York Bagel Cafe & Deli," "NYB New York Bagel" and "the New York
Bagel Shop." The Company's trademark "New York Bagel Shop & Delicatessen" and
service mark "Like Bread With An Attitude" are registered under applicable
federal trademark law. Under federal trademark law, the Company is required
to renew these marks every 20 years. The Company's trademark "Lots A' Bagels,
Inc." is registered in the State of Colorado. The Company claims common-law
rights to the marks "New York Bagel Shop & Delicatessen," "NYB," "The City's
Best Bagel," and "Where Yeast Meets West," but there have been no judicial
determinations of the existence, validity, or extent of the Company's rights.
Certain of the marks are licensed by the Company to franchisees pursuant to
franchise agreements.
The Company is aware of the use by other persons and entities in certain
geographic areas of names and marks which are the same or similar to the
Company's marks. Some of these persons or entities may have prior rights to
those names or marks in their respective localities. Therefore, there is no
assurance that the "New York Bagel Shop & Delicatessen" mark or any other
marks are available in all locations.
EMPLOYEES
As of March 1, 1998, the Company employed 592 persons, 386 of which are
employed part-time. None of the Company's employees is subject to any
collective bargaining agreements, and management considers its relations with
its employees to be good.
ITEM 2. PROPERTIES
The average New York Bagel bakery restaurant contains approximately
2,750 square feet, and the average satellite restaurant contains
approximately 2,000 square feet. Approximately 1,200 square feet of a bakery
restaurant is used for dough production, baking and food preparation while
approximately 500 square feet of a satellite restaurant is used for food
preparation. The Lots A' Bagel restaurants are approximately 2,000 square
feet, 500 square feet of which is used for food preparation. The restaurants
have an average seating capacity of approximately 60 persons. As of March 1,
1998, the Company leases approximately 1,200 to 4,000 square feet of space
for 45 of its Company-owned restaurant sites. The Company also leases a
19,479 square foot bagel commissary located at 4325 Northpark Drive, Colorado
Springs, Colorado 80915 that provides all of the dough production, baking and
food preparation for the seven Lots A' Bagels restaurants and a 5,800 square
foot bagel commissary located at 238 Cleveland, Wichita, Kansas 67214 that
provides all the dough production and bakery preparation for the five New
York Bagel restaurants in Wichita. Such leases expire during June 2004 and
April 2000, respectively. Through March 1, 1998, the Company has also
entered into agreements whereby the Company sold and leased back five
restaurant facilities (land and buildings) to an entity owned by an officer
of the Company and a significant stockholder, both of whom are members of the
Board of Directors of the Company. The Company believes the terms and
conditions of both the real estate sales and the related leasebacks are fair
and reasonable and were on terms at least as favorable as would be available
from non-affiliated parties. The Company owns two restaurant sites that are
currently under development
9
<PAGE>
and one restaurant building located on leased real estate. Although the
terms of its leases for Company-owned restaurants vary, the Company typically
seeks to obtain an initial five-year term lease with two or three five-year
option terms. The following table sets forth certain information as of March
1, 1998 with respect to Company-owned and franchised restaurants currently in
operation, under development or closed during 1997. Restaurants under
development include locations for which leases have been signed, a real
estate purchase agreement has been executed, or construction has commenced,
but are not currently in operation.
COMPANY-OWNED RESTAURANTS
<TABLE>
DATE TYPE OF
LOCATION OPENED/ACQUIRED RESTAURANT
-------- --------------- -----------
<S> <C> <C>
NEW YORK BAGEL RESTAURANTS
Stillwater, OK Elm Street January 1986 Bakery
Stillwater, OK Downtown August 1986 Satellite
Oklahoma City, OK Casady Square August 1988 Bakery
Oklahoma City, OK Leadership Square October 1989 Satellite
Tulsa, OK Yale and 71st Street January 1990 Bakery
Edmond, OK Broadway Extension September 1991 Satellite
Wichita, KS East Central Avenue July 1992 Bakery
Wichita, KS Downtown April 1993 Satellite
Oklahoma City, OK Brixton Square July 1993 Satellite
Tulsa, OK Cherry Street January 1994 Satellite
Norman, OK Lindsey Avenue August 1994 Bakery
Norman, OK Campus September 1994 Satellite
Tulsa, OK Peoria Avenue September 1995 Bakery
Nashville, TN West End Avenue December 1995 Bakery
Wichita, KS Rock Road December 1995 Satellite
Nashville, TN Hillsboro Village March 1996 Satellite
Tulsa, OK Downtown March 1996 Satellite
Waco, TX West Waco Drive April 1996 Bakery
Nashville, TN White Bridge Road April 1996 Satellite
Springfield, MO Campbell Avenue August 1996 Bakery
Stillwater, OK Perkins Road September 1996 Satellite
Lubbock, TX Quaker Avenue November 1996 Bakery
Tulsa, OK 51st Street December 1996 Satellite
Oklahoma City, OK Walnut Square December 1996 Bakery
Austin, TX Research Boulevard February 1997 Bakery
Austin, TX Research Boulevard February 1997 Satellite
San Antonio, TX Embassy Oaks May 1997 Bakery
Wichita, KS 21st Street and Rock Road June 1997 Satellite
Wichita, KS 21st Street and Tyler Road July 1997 Satellite
Tulsa, OK East 61st Street August 1997 Satellite
Springfield, MO Sunshine Avenue August 1997 Satellite
Midland, TX Desta Drive October 1997 Bakery
Mobile, AL Azaela Road October 1997 Bakery
Tuscaloosa, AL McFarland Road October 1997 Bakery
Louisville, KY Shelbyville Road November 1997 Bakery
Temple, TX General Bruce Drive November 1997 Bakery
Manhattan, KS Belmont Avenue November 1997 Bakery
San Antonio, TX East Basse Road January 1998 Satellite
Oklahoma City, OK A. May Avenue February 1998 Satellite
Montgomery, AL Carmichael Road Under Development Bakery
Mobile, AL Hillcrest Road Under Development Satellite
10
<PAGE>
DATE TYPE OF
LOCATION OPENED/ACQUIRED RESTAURANT
-------- --------------- -----------
LOTS A' BAGELS RESTAURANTS
Colorado Springs, CO East Cheyenne Mountain Blvd. December 1996 Satellite
Colorado Springs, CO North Academy December 1996 Satellite
Colorado Springs, CO West Colorado Avenue December 1996 Satellite
Colorado Springs, CO Austin Bluff Parkway December 1996 Satellite
Colorado Springs, CO Centennial Boulevard December 1996 Satellite
Colorado Springs, CO North Academy December 1996 Satellite
Monument, CO Highway 105 December 1996 Satellite
Pueblo, CO Highway 50 Under Development Satellite
TYPE OF
LOCATION DATE CLOSED RESTAURANT
-------- --------------- -----------
CLOSED COMPANY RESTAURANTS
Nashville, TN L&C Tower November 1997 Satellite
Santa Fe, NM St. Michaels Boulevard November 1997 Bakery
Santa Fe, NM Montezuma Street November 1997 Satellite
Waco, TX South 5th Street November 1997 Satellite
Austin, TX Jefferson Street January 1998 Satellite
FRANCHISED RESTAURANTS
DATE TYPE OF
LOCATION OPENED/ACQUIRED RESTAURANT
-------- --------------- -----------
Omaha, NE South 106th December 1993 Bakery
Knoxville, TN Kingston Pike March 1994 Bakery
Little Rock, AR Markham Avenue November 1994 Bakery
Omaha, NE Farnam Street February 1995 Satellite
Littleton, CO West Bowles Avenue April 1995 Bakery
Plano, TX Legacy Drive April 1995 Bakery
Knoxville, TN Gay Street July 1995 Satellite
Longview, WA Ocean Beach Highway July 1995 Bakery
Columbia, SC Harden Street September 1995 Bakery
Omaha, NE Pacific Street January 1996 Satellite
Irving, TX North MacArthur Boulevard March 1996 Satellite
New Orleans, LA Veteran's Boulevard March 1996 Bakery
Englewood, CO Holly Street June 1996 Bakery
Birmingham, AL 20th Street South June 1996 Bakery
Littleton, CO Wadsworth Avenue September 1996 Satellite
El Paso, TX North Mesa Avenue October 1996 Bakery
Columbia, SC Palmetto Plaza October 1996 Satellite
Little Rock, AR Fairway Avenue December 1996 Satellite
Tyler, TX Loop 323 February 1997 Bakery
Aurora, CO Parker Road July 1997 Satellite
San Carlos, CA Redwood Shores Parkway November 1997 Bakery
Ft. Myers, FL Tamiami Trail December 1997 Bakery
Birmingham, AL Acton Road January 1998 Satellite
Clarksville, TN Madison Road Under Development Bakery
Ft. Myers, FL Topaz Court Under Development Satellite
11
<PAGE>
TYPE OF
LOCATION DATE CLOSED RESTAURANT
-------- --------------- -----------
Closed Franchised Restaurants
San Antonio, TX Broadway Avenue May 1997 Satellite
Aurora, CO East Mississippi Street July 1997 Satellite
Little Rock, AR Center Street July 1997 Satellite
Tampa, FL North Dal Mabry Highway September 1997 Bakery
Bismarck, ND East Bismark Expressway September 1997 Bakery
Tucson, AZ North Oracle Avenue September 1997 Satellite
Springdale, AR West Sunset October 1997 Bakery
Fayetteville, AR Mission Boulevard October 1997 Satellite
Lincoln, NE 13th Street October 1997 Satellite
Amarillo, TX West Georgia Street November 1997 Satellite
Amarillo, TX Soncy Road November 1997 Bakery
Dallas, TX Lemmon Avenue December 1997 Bakery
Tucson, AZ East Broadway December 1997 Bakery
</TABLE>
The Company's principal executive offices are located at 300 I.M.A.
Plaza, 250 North Water Street, Wichita, Kansas 67202-1213, where the Company
subleases approximately 2,158 square feet of office space pursuant to a
sublease agreement with Murfin Drilling Company, Inc., a wholly owned
subsidiary of Murfin, Inc., on a month to month basis. The Company has the
option to terminate such sublease upon 30 days' notice. David L. Murfin, a
Director of the Company, is a 7.1% stockholder of Murfin, Inc. The Company
believes that alternative office space is available at comparable rates from
third parties. The Company's operational offices are located at 115 East 8th,
Stillwater, Oklahoma 74074, where the Company leases approximately 2,200
square feet of office space, 600 square feet of which the Company subleases
to an unaffiliated third party on a monthly basis, and 1,000 square feet of
storage space pursuant to a lease agreement that expires during December
1999. The Company conducts its management and franchisee training at its
Casady Square, Oklahoma City, Oklahoma facility in an approximately 3,400
square foot space contiguous to the restaurant. Such facility is subject to a
lease that expires during July 2003. The Company believes that its current
executive offices, operational offices and training facilities are adequate
for the near future and does not anticipate the need for significant
expansion of these facilities in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time-to-time in various legal proceedings
and claims incident to the normal conduct of its business. The Company
believes that such legal proceedings and claims, individually and in the
aggregate, are not likely to have a material adverse effect on its financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
RISK FACTORS
THIS FORM 10-K INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS
OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS FORM 10-K REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS FORM 10-K ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY
ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY
PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED
HEREIN, WHICH INCLUDE, WITHOUT
12
<PAGE>
LIMITATION, THE COMPANY'S ABILITY TO DEVELOP, CONSTRUCT, ACQUIRE OR FRANCHISE
ADDITIONAL RESTAURANTS IN ACCORDANCE WITH THE COMPANY'S DEVELOPMENT SCHEDULE,
CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY AND TERMS OF
CAPITAL, ACCEPTANCE OF NEW PRODUCT OFFERINGS, COMPETITION, MANAGEMENT OF
QUARTER TO QUARTER EARNINGS, INCREASES IN OPERATING COSTS AND CHANGES IN
GOVERNMENT REGULATION. ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS.
RESTAURANT DEVELOPMENT. As of March 1, 1998, there were 69 restaurants
in operation, consisting of 39 New York Bagel Company-owned and 23 franchised
restaurants and seven Lots A' Bagels restaurants. In addition, there were
three Company-owned restaurants and two franchised restaurants in various
stages of development. The Company expects to have approximately 45 to 55
Company-owned and 20 to 25 franchised restaurants in operation by the end of
1998. The Company has used substantially all of the net proceeds of its
initial public offering to develop and acquire Company-owned restaurants.
There can be no assurance that the Company will be able to open all of its
planned restaurants or that, if opened, such restaurants can operate
profitably. The opening and success of New York Bagel restaurants will depend
on various factors, not all of which are within the control of the Company,
including customer acceptance of the Company's concept in new markets, the
availability of suitable sites, the negotiation of acceptable lease or
purchase terms for new locations, the ability to introduce new products,
permit and regulatory compliance, the ability to meet construction schedules,
the financial and other capabilities of the Company and its franchisees, the
ability of the Company to successfully manage this anticipated development
and to hire and train personnel, and general economic and business
conditions. Furthermore, because of the Company's relatively small restaurant
base, an unsuccessful restaurant could have a more significant adverse effect
on the Company's results of operations than would be the case for a company
with a larger restaurant base. There can be no assurance that the Company
will be able to manage its expanding operations effectively. The Company
experienced growth in revenues in 1997. There can be no assurance that the
Company will continue to experience growth in, or maintain its present level
of, revenues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business-Company Strategy."
DEPENDENCE ON FRANCHISEES. The Company realizes a portion of its
revenues from initial franchise fees and continuing royalty payments from its
franchisees. If the Company's franchisees encounter business or operational
difficulties, the Company's revenues from royalties will be adversely
affected. Such difficulties may also negatively impact the Company's ability
to sell new franchises. Consequently, the Company's financial prospects are
significantly related to the success of its franchised restaurants, over
which the Company has limited direct operational control. There can be no
assurance that the Company will be able to successfully attract new
franchisees or that the Company's franchisees will be able to successfully
operate existing or develop and operate additional New York Bagel
restaurants. Through March 1, 1998, 13 franchised restaurants have been
closed or disenfranchised.
COMPETITION. The quick-service restaurant industry is intensely
competitive and characterized by relatively low barriers to entry. New York
Bagel restaurants compete against many well established, quick-service
restaurants, local food establishments, supermarkets and convenience stores,
many of which have greater product and name recognition and larger financial
and other resources than the Company. An increase in the number of
competitors, particularly bagel restaurants or delicatessens, in the
Company's territories could have an adverse impact on the Company's results
of operations and expansion plans. See "Business-Competition."
TERMS OF CREDIT FACILITY; AVAILABILITY OF CAPITAL. The Company has
entered into a loan agreement with revolving line of credit and term loan
facilities, which has a maximum aggregate commitment of $10.0 million (the
"Credit Facility") with NationsBank, N.A. (the "Bank"). The Credit Facility
provides for a $10.0 million revolving line of credit commitment, subject to
availability under a borrowing base calculated by reference to the level of
eligible equipment, inventory and accounts receivable, and includes a $2.0
million sublimit for new construction, remodeling and acquisition of
restaurant locations. The Credit Facility also contains a "mini-perm"
facility financing for new construction, remodeling and acquisition of
restaurant locations with a ten year amortization and a balloon payment
within five years. The terms and conditions of the Credit Facility impose
restrictions that affect, among other things, the ability of the Company to
incur debt, make capital expenditures, redeem equity interests, loan funds to
any of the Company's officers, directors and employees and their respective
affiliates, merge, sell assets, make distributions, pay dividends, create or
incur liens, waste assets, change the senior management, change the name and
change the location of the assets. Availability of the Credit Facility is
also subject to certain financial covenants. The ability of the Company to
comply with such covenants can be affected by events beyond the control of
the Company and there can be no assurance that the Company will achieve
operating results that comply with such provisions. A breach of any
13
<PAGE>
of these covenants could result in a default under the Credit Facility. In
the event of a default, the Bank could elect to declare the outstanding
principal amount of the Credit Facility, all interest thereon and all other
amounts payable under the Credit Facility to be immediately due and payable.
If the Company were unable to repay such amounts, the Bank could proceed
against the collateral securing the Credit Facility, substantially all of the
Company's assets, to repay the indebtedness and other obligations due and
payable.
The Company's ability to satisfy its debt obligations will depend upon
its future operating performance, which will be affected by prevailing
economic, financial and business conditions and other factors, some of which
are beyond the control of the Company. The Company anticipates that
borrowings from the Credit Facility or the refinancing of such Credit
Facility, proceeds from the sale-leaseback transactions discussed below and
cash provided by operating activities, will provide sufficient funds to
finance anticipated development plans, meet its operating expenses and
service its debt requirements as they become due. However, in the event that
the Company requires additional capital, there can be no assurance that it
will be able to raise such capital when needed or on satisfactory terms, if
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
RESTAURANT INDUSTRY. The Company and the restaurant industry are
significantly affected by factors such as changes in local, regional or
national economic conditions, changes in consumer tastes and concerns about
the nutritional quality of quick-service foods. Multi-unit food service
chains such as the Company can also be substantially adversely affected by
publicity resulting from food quality, illness, injury or other health
concerns or operating issues stemming from one restaurant or a limited number
of restaurants. In addition, factors such as increases in food, labor and
energy costs, the availability and cost of suitable restaurant sites,
fluctuating insurance rates, state and local regulations and the availability
of an adequate number of hourly-paid employees can also adversely affect the
restaurant industry.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will be
highly dependent on the continued efforts of senior management. The Company
does not have employment agreements with any of its senior management. The
loss of the services of one or more of such key personnel could have a
material adverse effect upon the Company's results of operations. The
Company's success is also dependent upon its ability to attract and retain
skilled restaurant managers and employees and the ability of its key
personnel to manage the Company's growth and integrate its operations. There
can be no assurance that the Company will be successful in attracting and
retaining such personnel.
INCREASES IN OPERATING COSTS; INTERRUPTIONS IN SUPPLIES. An increase in
operating costs could adversely affect the profitability of the Company.
Factors such as inflation, increased food and labor costs, including the
additional and any future increase in the minimum hourly wage requirement,
and employee benefit costs and the availability of qualified management and
other personnel may adversely affect the profitability of the Company. The
cost and availability of many restaurant commodities are subject to
fluctuations due to seasonality, weather, demand and other factors. The
Company's restaurants are dependent on frequent deliveries of food supplies
and any shortages or interruptions could have a material adverse effect on
the Company. See "Business-Purchasing and Distribution."
GEOGRAPHIC CONCENTRATION. All but five of the Company-owned restaurants
are located in Oklahoma, Kansas, Tennessee, Texas and Colorado. As a result,
the Company's results of operations may be materially affected by adverse
business, economic or weather conditions in these states. Although the
Company plans to open additional restaurants in new geographic areas, there
can be no assurance that the current geographic concentration of the
Company's business will not have an adverse effect on its results of
operations or financial condition in the future.
FLUCTUATIONS IN QUARTERLY RESULTS. The timing of restaurant openings,
closing, remodelings or acquisitions, impairments, recognition of franchise
fee income and seasonal factors may result in fluctuations in quarterly
operating results of the Company. In accordance with generally accepted
accounting principles, franchise and development fees and the corresponding
deferred charges with respect to each franchise or development agreement are
not recognized as income or expense until a restaurant commences operations.
There can be no assurance that quarterly fluctuations will not continue and,
accordingly, the Company's financial results for a particular quarter may not
be indicative of results for an entire year.
CONTROL OF COMPANY. As of March 1, 1998 the directors and officers of
the Company beneficially owned approximately 45.3% of the outstanding Common
Stock of the Company. In addition, the stockholders that existed prior to the
14
<PAGE>
Company's initial public offering and the Company are parties to a certain
stockholders' agreement (the "Stockholders' Agreement"), which, among other
things, sets forth certain agreements regarding the designation and election
of directors of the Company. As of March 1, 1998 these stockholders owned
approximately 53.2% of the outstanding Common Stock. Due to their ownership
position and the Stockholders' Agreement, such stockholders will retain the
power to direct the Company's business and affairs through their ability to
control the outcome of elections of the Company's Board of Directors and to
take other actions that require the vote or approval of the stockholders of
the Company. Such stockholders' control may increase as a percentage of
outstanding Common Stock of the Company due to open market purchases of the
Common Stock by the Company pursuant to the terms of the Stock Repurchase
Program discussed below.
GOVERNMENT REGULATION. The Company is subject to numerous federal,
state and local government regulations, including those relating to the
preparation and sale of food, the sale of alcoholic beverages, public health
and building and zoning requirements. Also, the Company and its franchisees
are subject to laws governing their relationship with employees, including
minimum wage requirements, overtime, working conditions and citizenship
requirements. The Company is also subject to federal regulation and certain
state laws which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or
non-renewal of a franchise. Some states require that certain franchise
offering materials be registered before franchises can be offered or sold in
that state. The failure to obtain or retain food licenses, alcoholic beverage
licenses or approvals to sell franchises could adversely affect the Company's
and its franchisees' results of operations. The future enactment, adoption or
amendment of laws or regulations, such as establishing basic franchisee
rights, increasing the minimum wage or other costs associated with employees,
could adversely affect the Company's results of operations. See
"Business-Franchise Program" and "Business-Government Regulation."
TRADEMARKS AND SERVICE MARKS. The Company is aware of the use by other
persons and entities in certain geographic areas of names and marks that are
the same as or similar to the Company's marks. Some of these persons or
entities may have prior rights to those names or marks in their respective
localities. Negative publicity surrounding such businesses may adversely
affect the Company's operations in those markets. In addition, the Company's
marks contain common descriptive words and thus may be subject to challenge
by users of these words, alone or in combination with other words, which
describe other services or products. Accordingly, there is no assurance that
the Company's marks will be available in all locations or that a challenge to
the Company's use of such marks will not result in adverse consequences,
including a judgment that would entail damages and/or the discontinuation of
the Company's use of its marks. It is the Company's policy to utilize other
compatible marks in areas where there are preexisting competing marks. See
"Business-Trademarks and Service Marks."
CLASSIFIED BOARD OF DIRECTORS. The Company's Restated and Amended
Articles of Incorporation and Restated and Amended Bylaws provide for a
classified Board of Directors. The terms of each class expire in consecutive
years so that only one class is elected in any given year. Such provisions
could delay, deter or prevent a merger, consolidation, tender offer, or other
business combination or change of control involving the Company that some or
a majority of the Company's stockholders might consider to be in their best
interests, including offers or attempted takeovers that might otherwise
result in such stockholders receiving a premium over the market price for the
Common Stock.
PREFERRED STOCK. The Company's Restated and Amended Articles of
Incorporation and Restated and Amended Bylaws authorize shares of Preferred
Stock with respect to which the Board of Directors of the Company have the
power to fix the rights, preferences, privileges and restrictions without any
further vote or action by the stockholders. Depending upon the rights of such
Preferred Stock, the issuance of Preferred Stock could have an adverse effect
on holders of Common Stock by delaying or preventing a change in control of
the Company, diluting the voting rights of holders of Common Stock, making
removal of the present management of the Company more difficult or reducing
or restricting the payment of dividends and other distributions to the
holders of Common Stock, including, without limitation, any liquidation
preferences which may relate to such Preferred Stock. Such provisions could
delay, deter or prevent a merger, consolidation, tender offer, or other
business combination or change of control involving the Company that some or
a majority of the Company's stockholders might consider to be in their best
interests, including offers or attempted takeovers that might otherwise
result in such stockholders receiving a premium over the market price for the
Common Stock.
15
<PAGE>
SUPERMAJORITY STOCKHOLDER VOTES. The Company's Restated and Amended
Articles of Incorporation and Restated and Amended Bylaws require the
affirmative vote of the holders of at least two-thirds of the outstanding
capital stock in order to remove directors for cause, amend the Bylaws and
approve certain business combinations with respect to a "related person."
Such provisions could delay, deter or prevent a merger, consolidation, tender
offer, or other business combination or change of control involving the
Company that some or a majority of the Company's stockholders might consider
to be in their best interests, including offers or attempted takeovers that
might otherwise result in such stockholders receiving a premium over the
market price for the Common Stock.
ABSENCE OF ACTIVE MARKET; VOLATILITY OF STOCK PRICE. There can be no
assurance that an active market for the Company's Common Stock will exist;
therefore, a purchaser of the Common Stock may not be able to readily
liquidate its investment in the Common Stock. Market prices for the Common
Stock may be influenced by a number of factors, including the Company's
operating results and other factors affecting the Company specifically and
the restaurant industry and the financial markets generally, as well as the
liquidity of the market for the Common Stock. The Company believes that the
market price of its Common Stock reflects expectations that the Company will
be able to operate its restaurants profitably and to develop new restaurants
and operate them profitably. If the Company is unable to operate its
restaurants as profitably and develop restaurants at a pace that reflects the
expectations of the market, investors could sell shares of the Common Stock
at or after the time that it becomes apparent that such expectations may not
be realized, resulting in a decrease in the market price of the Common Stock.
In recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
SHARES ELIGIBLE FOR FUTURE SALE. Shares of Common Stock outstanding
prior to completion of the Company's initial public offering are "restricted
securities" as that term is defined in Rule 144 ("Rule 144") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). These
"restricted securities," and any shares purchased by affiliates of the
Company in such offering or thereafter may be publicly sold only if
registered under the Securities Act or if sold in accordance with an
available exemption from registration, such as those provided by Rule 144. No
prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sales, will have on the market price
of the Common Stock. The sale of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "NYBS." For the period commencing on August 27, 1996 (the date of
the Company's initial public offering), through December 28, 1997, high and
low closing sale prices for the Common Stock as reported by the Nasdaq
National Market were $11.13 and $1.88, respectively.
The table sets forth, for the periods indicated, the reported high and
low close sale prices of the Company's Common Stock, as reported on the
Nasdaq National Market:
<TABLE>
1996
-----------------------
HIGH BID LOW BID
-------- -------
<S> <C> <C>
Third Quarter . . . . . . . . . . . . . . . . $11.13 $9.00
Fourth Quarter . . . . . . . . . . . . . . . $9.25 $5.50
1997
-----------------------
HIGH BID LOW BID
-------- -------
First Quarter . . . . . . . . . . . . . . . . $7.63 $3.94
Second Quarter . . . . . . . . . . . . . . . $5.31 $4.00
Third Quarter . . . . . . . . . . . . . . . . $4.31 $3.25
Fourth Quarter . . . . . . . . . . . . . . . $4.00 $1.88
</TABLE>
16
<PAGE>
STOCKHOLDERS
According to the records of the Company's transfer agent, the Company
had 121 holders of record of the Common Stock as of March 1, 1998. The
Company believes that a substantially larger number of beneficial owners hold
such shares in depository or nominee form.
DIVIDENDS AND DISTRIBUTIONS
S CORPORATION DISTRIBUTIONS. From January 1, 1994 until August 25, 1996
(the "Termination Date"), the Company and certain of the Prior Entities were
treated for federal and state income tax purposes as S corporations under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code").
During such period, the Company's earnings were taxed for federal and most
state income tax purposes directly to the Company's stockholders, rather than
to the Company. The Company is responsible for the payment of all federal and
state income taxes on earnings subsequent to the Termination Date and
continuing thereafter.
Certain Prior Entities paid cash distributions to their stockholders in
the aggregate amounts of approximately $2.5 million during 1995. The
distributions made in 1995 were in excess of the earnings of such Prior
Entities and were partially funded by borrowings of such Prior Entities which
were assumed by the Company in connection with the Reorganization. The
Company repaid all of its bank borrowings with a portion of the net proceeds
of its initial public offering. The Company used a portion of the net
proceeds of its initial public offering to fund a distribution on March 4,
1997 of $156,000 to the stockholders that existed prior to the Company's
initial public offering in connection with their estimated federal and state
income tax obligations attributable to the Company's 1996 earnings through
the Termination Date. Under federal tax laws, if the Company failed to
distribute its undistributed S corporation earnings within a limited period
of time following the Termination Date, a later distribution could be taxed
as a dividend to the stockholders. No S corporation distributions have been
or are anticipated to be made to the stockholders in connection with the
Company's earnings for any period after the Termination Date.
DIVIDEND POLICY. The Company currently intends to retain all earnings
to provide funds for its operations and expansion, and therefore does not
anticipate paying cash dividends or making any other distributions on its
shares of Common Stock in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors based on various
factors, including the Company's results of operations, financial condition,
business opportunities, capital requirements, credit restrictions and such
other factors as the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the Company at the dates and for the periods indicated. The selected
consolidated financial data at December 28, 1997 and December 29, 1996,
December 31, 1995 and 1994, and for the fifty-two weeks ended December 28,
1997 and December 29, 1996 and for each of the years in the three-year period
ended December 31, 1995, have been derived from the audited Consolidated
Financial Statements of the Company. The selected consolidated financial data
at December 31, 1993 has been prepared on the same basis as the audited
financial statements, have been derived from the unaudited financial
statements of the Company for such period and includes, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for the fair presentation of the financial position for such
periods. Selected financial data should be read in conjunction with, and is
qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and the Notes thereto appearing herein.
17
<PAGE>
<TABLE>
FIFTY-TWO WEEKS ENDED
------------------------------- YEAR ENDED DECEMBER 31,
DECEMBER 28, DECEMBER 29, -----------------------------
1997(3) 1996(1)(2) 1995(1) 1994 1993
------------ ------------ ------- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales from Company-owned restaurants . . . . . . . . $18,571 $10,865 $6,875 $5,653 $3,539
Franchise revenues . . . . . . . . . . . . . . . . . 417 672 484 169 22
------- ------- ------ ------ ------
Total revenues . . . . . . . . . . . . . . . . . 18,988 11,537 7,359 5,822 3,561
Costs and expenses:
Cost of Sales . . . . . . . . . . . . . . . . . . . . 6,190 3,750 2,612 2,280 1,527
Restaurant operating expenses . . . . . . . . . . . . 10,273 5,185 3,084 2,326 1,386
General and administrative expenses . . . . . . . . . 1,818 964 838 452 469
Depreciation and amortization . . . . . . . . . . . . 930 552 159 117 80
Provision for impairments and closures . . . . . . . 3,774 - - - -
------- ------- ------ ------ ------
Total costs and expenses . . . . . . . . . . . . 22,985 10,451 6,693 5,175 3,462
Operating income (loss) . . . . . . . . . . . . (3,997) 1,086 666 647 99
Interest expense (income), net . . . . . . . . . . . . . . (73) 86 40 53 14
------- ------- ------ ------ ------
Earnings (loss) before income taxes . . . . . . . . . (3,924) 1,000 626 594 85
Income tax expense (benefit) . . . . . . . . . . . . . . . (144) 270 7 (3) 9
------- ------- ------ ------ ------
Earnings (loss) before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . (3,780) 730 619 597 76
Cumulative effect of accounting change(3) . . . . . . . . (129) - - - -
------- ------- ------ ------ ------
Net earnings (loss) . . . . . . . . . . . . . $(3,909) $ 730 $ 619 $ 597 $ 76
------- ------- ------ ------ ------
------- ------- ------ ------ ------
Pro forma to reflect income taxes(4):
Net earnings (loss) . . . . . . . . . . . . . $610 $380
Earnings (loss) per share-basic and diluted(5):
Earnings (loss) before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . $ (0.81) $0.17 $0.13
Cumulative effect of accounting change . . . . . . . $ (0.03) - -
Net earnings (loss) . . . . . . . . . . . . . $ (0.84) $ 0.17 $0.13
Weighted average shares outstanding(5) . . . . . . . . . . 4,667 3,585 3,019
DECEMBER 31,
DECEMBER 28, DECEMBER 29, -------------------------
1997 1996 1995 1994 1993
------------ ------------ ---- ---- ----
BALANCE SHEET DATA:
Working capital (deficit) . . . . . . . . . . . . . . . . . . . . . . $(1,831) $5,297 $(368) $(120) $(171)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,100 15,713 2,295 872 819
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,520 86 3,365 359 560
Stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . 9,766 13,675 (1,578) 159 126
</TABLE>
- ---------------
(1) The Company acquired seven restaurants in December 1996, a restaurant in
September 1996 and two restaurants in December 1995. If such
transactions had occurred on January 1, 1996 and January 1, 1995,
respectively, "Total revenues," "Net earnings" and "Net earnings per
share" would have been approximately $15,315,000, $605,000 and $0.17,
respectively, for the fifty-two weeks ended December 29, 1996 and
$12,104,000, $222,000 and $0.07, respectively, for the year ended
December 31, 1995, on a pro forma basis. The pro forma results do not
necessarily reflect what would have occurred if the acquisitions had
been made at the beginning of the respective periods or the results
that may occur in the future. See Note 11 of the Notes to Consolidated
Financial Statements.
(2) Effective January 1, 1996, the Company elected to change its fiscal year
end from a calendar year end to a 52/53-week fiscal year, ending on the
last Sunday of the year, which consists of four 13-week periods.
(3) Effective September 28, 1997 and applied retroactively to the beginning
of fiscal 1997, the Company changed its accounting for restaurant
preopening costs. The effect of adopting the accounting change on
earnings (loss) before cumulative effect of accounting change, net
earnings (loss), and net earnings (loss) per share for 1997 is to
decrease such amounts $40,000, $169,000 and $0.04, respectively.
See Note 2(j) of the Notes to Consolidated Financial Statements.
(4) Reflects a pro forma adjustment assuming the Company had been treated
as a C corporation rather than as an S corporation for income tax
purposes for the periods presented. See "Market for Registrant's Common
Equity and Related Stockholder Matters-Dividends and Distributions-S
Corporation Distributions" and Note 2(h) of the Notes to Consolidated
Financial Statements.
(5) Net earnings (loss) per share for all periods presented has been restated
for SFAS No. 128, EARNINGS PER SHARE. See Notes 2(k) and 13 of the Notes
to Consolidated Financial Statements.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
THIS FORM 10-K INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS
OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS FORM 10-K REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS FORM 10-K ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY
ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY
PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED IN
THE "RISK FACTORS" SECTION OF THIS FORM 10-K ANNUAL REPORT, WHICH INCLUDE,
WITHOUT LIMITATION, THE COMPANY'S ABILITY TO DEVELOP, CONSTRUCT, ACQUIRE OR
FRANCHISE ADDITIONAL RESTAURANTS IN ACCORDANCE WITH THE COMPANY'S DEVELOPMENT
SCHEDULE, CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY AND
TERMS OF CAPITAL, ACCEPTANCE OF NEW PRODUCT OFFERINGS, COMPETITION,
MANAGEMENT OF QUARTER TO QUARTER EARNINGS, INCREASES IN OPERATING COSTS AND
CHANGES IN GOVERNMENT REGULATION. ALL SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS.
The Company opened its first restaurant in 1986, and has developed, as
of March 1, 1998, 34 of its 46 Company-owned restaurants in Oklahoma, Kansas,
Tennessee, Texas, Alabama, Kentucky and Missouri. In addition to developing
new restaurants, as of March 1, 1998 the Company has acquired one bagel
restaurant in Tennessee, seven Lots A' Bagels restaurants in Colorado and
four franchised New York Bagel restaurants in Kansas and Texas. The Company
commenced franchising the New York Bagel concept in 1993 and has 14
franchisees operating 23 restaurants.
The Company's business was previously operated through the Prior
Entities. The Company was incorporated in December 1995 under the laws of
Kansas, and on December 31, 1995, the Prior Entities were merged into the
Company (the "Reorganization"). The financial statements and supplementary
financial information for 1995 and prior periods herein include the results
of operations of the Prior Entities on a combined basis. See Note 1 of the
Notes to Consolidated Financial Statements.
The Company's revenues are derived from sales from Company-owned
restaurants and franchise revenues, which consist of royalties from
franchised restaurant sales as well as franchise and development fees.
Franchise and development fees are initially recorded as deferred revenue
until each franchised restaurant opens, at which time these fees are recorded
as revenue.
Cost of sales includes food, paper and beverage costs associated with
Company-owned restaurants. Restaurant operating expenses consist primarily of
labor costs, rent, advertising, utilities, maintenance and insurance
associated with Company-owned restaurants. General and administrative
expenses include corporate and administrative salaries, accounting, legal and
direct costs associated with franchise operations.
The Company completed its initial public offering in August 1996 in
which it raised $14.7 million that enabled the Company to grow and expand.
From August 1996 through February 1998, the Company utilized such proceeds to
develop 15 new restaurants and to acquire eleven additional restaurants.
Consequently, Company-owned restaurants have increased from 20 restaurants
just prior to the initial public offering to 46 Company-owned restaurants as
of March 1, 1998. During 1998, the Company anticipates shifting its strategy
from that of aggressive growth to that of limited growth with an enhanced
focus on operations. The strategy includes new product initiatives that are
anticipated to stimulate sales growth from existing restaurants. It also
includes a focus on cost controls, primarily cost of sales and restaurant
operating expenses. The Company anticipates that its limited development and
enhanced focus on operations will position the Company to renew restaurant
development and growth.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
operating statement data to total revenues, except as otherwise indicated:
<TABLE>
FIFTY-TWO WEEKS ENDED
--------------------------- YEAR ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants . . . 97.8% 94.2% 93.4%
Franchise revenues . . . . . . . . . . . . 2.2 5.8 6.6
----- ----- -----
Total revenues . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales(1) . . . . . . . . . . . . . 33.3% 34.5% 38.0%
Restaurant operating expenses(1) . . . . . 55.3 47.7 44.9
General and administrative expenses. . . . 9.6 8.4 11.4
Depreciation and amortization. . . . . . . 4.9 4.8 2.2
Provision for impairments and closures . . 19.9 - -
Operating income (loss) . . . . . . . . . . (21.0) 9.4 9.0
Interest expense (income), net . . . . . . (0.4) 0.7 0.5
Cumulative effect of accounting change, net
of tax benefit . . . . . . . . . . . . . . (0.7) - -
Net earnings (loss). . . . . . . . . . . . (20.6) 6.3 8.4
</TABLE>
- -------------------
(1) As a percentage of sales from Company-owned restaurants.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Total revenues increased by $7.5 million, or 64.6%, to $19.0 million for
1997 compared to $11.5 million for 1996, primarily due to an increase in the
number of Company-owned restaurants open.
Sales from Company-owned restaurants increased $7.7 million, or 70.9%,
to $18.6 million for 1997 compared to $10.9 million for 1996. This is
primarily the result of opening 13 additional Company-owned restaurants ($1.5
million 1997 sales) throughout 1997, acquiring seven Lots A' Bagels
restaurants ($3.2 million 1997 sales) in December 1996 and acquiring three
franchised New York Bagel restaurants ($912,000 1997 sales) in the first half
of 1997. In addition, the Company experienced a 3.1% decrease in same
restaurant sales (sales from restaurants that were open during the entire
period indicated and the entire corresponding prior period) during 1997
primarily as a result of additional restaurant development within existing
markets. At December 28, 1997, the Company had 45 Company-owned restaurants
compared to 33 restaurants at December 29, 1996.
Franchise revenues decreased by $255,000, or 37.9%, to $417,000 for 1997
compared to $672,000 for 1996. This decrease is primarily due to the decrease
in new store development within the franchise program as well as the closing
or disenfranchising of 13 franchise restaurants during 1997. There were 25
franchised restaurants at the end of 1997 as compared to 33 franchised
restaurants at the end of 1996. Consequently, franchise and development fees
decreased $81,000, or 35.5%, to $148,000 for 1997 compared to $229,000 for
1996 and franchise royalty revenue decreased by $174,000, or 39.2%, to
$270,000 for 1997 compared to $443,000 for 1996. Franchise royalty revenue
has also decreased due to the discontinuance of royalty revenue recognition
on certain franchise restaurants due to collectibility concerns. Due to the
aforementioned activity within the franchise program, management expects
franchise revenues to continue to decline.
Cost of sales increased by $2.4 million, or 65.0%, to $6.2 million for
1997 compared to $3.7 million for 1996. This increase is primarily
attributable to the increase in sales from Company-owned restaurants. As a
percentage of sales from Company-owned restaurants, cost of sales decreased
to 33.3% in 1997 from 34.5% in 1996 primarily as a result of the full year
favorable impact of the Lots A' Bagels restaurants. The seven Lots A' Bagels
restaurants have historically experienced a lower cost of sales percentage
than New York Bagel restaurants. In 1997, Lots A' Bagels cost of sales as a
percentage of sales was
20
<PAGE>
24.3%. New York Bagel restaurants experienced a 0.6% increase in cost of
sales percentage to 35.2% for 1997 as compared to 34.6% for 1996. The
overall increase of 0.6% is primarily due to the development of frozen-dough
bagels and pre-packaged cream cheeses offset to a certain extent by
purchasing efficiencies and portioning refinements. Prices of the Company's
commodities (meat and cheese, flour and other bakery ingredients) have
generally remained stable during the comparable periods.
Restaurant operating expenses increased by $5.1 million, or 98.1%, to
$10.3 million for 1997 compared to $5.2 million for 1996. This increase is
primarily due to the increase in sales from Company-owned restaurants
discussed above. As a percentage of sales from Company-owned restaurants,
restaurant operating expenses increased to 55.3% for 1997 from 47.7% for
1996. This increase is primarily the result of the following: (i) direct
labor costs increased from 27.5% in 1996 to 29.0% in 1997; (ii) the change
in accounting for restaurant preopening costs (see below discussion)
increased restaurant operating expenses 1.9% in 1997; (iii) a full year of
Lots A' Bagels restaurant operations in 1997 which restaurants experience
higher restaurant operating expenses (as a percentage of Company-owned
restaurant sales); and (iv) utilities and rent expenses for New York Bagel
restaurants increased from 8.1% in 1996 to 9.9% in 1997. Items (i) and (iv)
can be primarily attributed to a certain portion of the Company's new
restaurant development in which sales levels have not matured.
General and administrative expenses increased by $854,000, or 88.6%, to
$1.8 million for 1997 compared to $964,000 for 1996. This increase is
primarily attributable to the increase in the number of Company-owned
restaurants and a full year operating as a public company. As a percentage of
total revenues, general and administrative expenses increased to 9.6% in 1997
from 8.4% in 1996 primarily due to writeoff of uncollectible receivables
attributable to certain franchisees that began experiencing financial
difficulties and increased legal and accounting costs, and other general and
administrative costs due to the growth of the Company.
Depreciation and amortization increased by $378,000 or 68.4%, to
$930,000 for 1997 compared to $552,000 for 1996. As a percentage of total
revenues, depreciation and amortization increased to 4.9% for 1997 from 4.8%
in 1996. This increase is attributable to the significant addition of capital
expenditures to develop and acquire additional Company-owned restaurants.
Newly developed restaurants with increased property and equipment costs incur
higher depreciation and amortization as compared to older restaurants that
were not as expensive to develop. The increase from new restaurant
development has been offset, to a certain extent, by the following: (i) 1997
does not reflect amortization of restaurant preopening costs (due to the
Company's change in accounting for such costs as discussed below) whereas
1996 incurred amortization of such costs of $175,000, or 1.5%; and (ii)
during the third fiscal quarter of 1997, the Company impaired seven
restaurants in four operating markets and approved for closure four
restaurants in three operating markets whereby depreciation and amortization
was completely or significantly reduced for such restaurants during the
fourth fiscal quarter of 1997.
A provision for impairment and restaurant closures of $3.8 million was
recorded in 1997. Based on management's review of Company-owned operating
markets, four markets were determined to be impaired primarily due to current
and historical operating losses. The impairment charge, which amounted to
$2.4 million, represents a reduction of the carrying value of long-lived
assets (property, equipment and goodwill) to estimated fair value. In
addition, the Company closed or approved for closure five under-performing
restaurants in 1997. Accordingly, restaurant closure costs of $1.4 million
were recorded in 1997. Such costs included the write down of the carrying
amount of assets to estimated fair value of $1.1 million and the present
value of remaining noncancelable lease payments after the closure date, net
of estimated sublease income, of $317,000.
Net interest income increased by $159,000 to $73,000 for 1997 compared
to net interest expense of $86,000 for 1996. The increase in net interest
income is due to the interest income earned from the remaining proceeds of
the Company's initial public offering that was completed in August 1996 and a
significant reduction in interest expense. Interest expense decreased from
$238,000 in 1996 to $37,000 in 1997 due to the retirement of significantly
all of the Company's debt in August 1996 with proceeds from the public
offering. The Company expects that it will continue to incur interest
expense in the foreseeable future as the proceeds from the public offering
have been fully utilized, the Company has $1.5 million outstanding under its
Credit Facility as of March 1, 1998 and remaining restaurant development is
anticipated to be funded primarily through additional debt borrowings.
Income tax benefit increased by $414,000 to $144,000 in 1997 as compared
to income tax expense of $270,000 for 1996. As a result of the Company's
operating loss for 1997, the Company was able to recognize a tax benefit for
income taxes paid in 1996. However, the 1997 tax benefit is net of a
valuation allowance of $1.2 million that was recorded in 1997. Based
21
<PAGE>
on the cumulative net loss over the past three years, management believes
that the valuation allowance is appropriate due to the uncertainty regarding
the realization of the Company's net deferred tax assets.
During 1997, the Company changed its accounting policy concerning
restaurant preopening costs. In prior periods, the Company initially
capitalized and then amortized preopening costs over the initial 12-months of
a restaurant's operation. Under the new method, the Company expenses
restaurant preopening costs as incurred. As a result, restaurant preopening
costs, net of the cumulative effect of the accounting change discussed below,
are included in restaurant operating expenses in 1997 as compared to a
component of depreciation and amortization in 1996. Management believes the
change is preferable to obtain a better matching of expenses with revenues.
The change is considered a cumulative effect-type accounting change and,
accordingly, the cumulative effect as of the beginning of fiscal 1997 of
$129,000, net of tax benefit of $81,000, has been reported in 1997.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Total revenues increased by $4.2 million, or 56.8%, to $11.6 million for
1996 compared to $7.4 million for 1995, primarily due to an increase in the
number of Company-owned and franchised restaurants open.
Sales from Company-owned restaurants increased $4.0 million, or 58.0%,
to $10.9 million for 1996 compared to $6.9 million for 1995. This is
primarily the result of opening nine restaurants throughout 1996, acquiring
seven restaurants in December 1996 and acquiring one restaurant in September
1996. In addition, the Company experienced a 4.4% increase in same restaurant
sales (sales from restaurants that were open during the entire period
indicated and the entire corresponding prior period) during 1996. At December
29, 1996, the Company had 33 Company-owned restaurants compared to 15
restaurants at December 31, 1995.
Franchise revenues increased by $188,000, or 38.8%, to $672,000 for 1996
compared to $484,000 for 1995. This increase is primarily due to the full
year of royalty revenues from franchise restaurants opened in 1995 and the
new franchise restaurants opened in 1996. There were 33 franchised
restaurants at the end of 1996 and 25 franchised restaurants at the end of
1995, which impacted both initial franchise fees and royalty revenue. Initial
franchise and development fees decreased $22,000, or 8.8%, to $229,000 for
1996 compared to $251,000 for 1995, due to a decrease in the number of
franchise restaurants opened in 1996 as compared to 1995. Franchise royalty
revenue increased by $210,000, or 89.7%, to $444,000 for 1996 compared to
$234,000 for 1995.
Cost of sales increased by $1.1 million, or 43.5%, to $3.7 million for
1996 compared to $2.6 million for 1995. This increase is primarily
attributable to the increase in sales from Company-owned restaurants. As a
percentage of sales from Company-owned restaurants, cost of sales decreased
to 34.5% in 1996 from 38.0% in 1995 as a result of purchasing and operating
efficiencies, portioning refinements and, to a lesser extent, modest price
increases in 1996. Prices of the Company's commodities (meat and cheese,
flour and other bakery ingredients) have generally remained stable during the
comparable periods.
Restaurant operating expenses increased by $2.1 million, or 68.1%, to
$5.2 million for 1996 compared to $3.1 million for 1995. This increase is
primarily due to the increase in sales from Company-owned restaurants
discussed above. As a percentage of sales from Company-owned restaurants,
restaurant operating expenses increased to 47.7% for 1996 from 44.9% for
1995. This increase is primarily the result of remodeling five Company-owned
restaurants for an aggregate of 16 weeks in 1996. The increase is also
attributable to increased labor costs as a result of an increase in the
minimum wage rate. Finally, labor and occupancy rates associated with the
Nashville market, a market developed in 1996 with the acquisition of a bagel
restaurant in December 1995 and the opening of three additional New York
Bagel restaurants in 1996, are higher than rates historically experienced by
Company-owned restaurants.
General and administrative expenses increased by $126,000, or 15.0% to
$964,000 for 1996 compared to $838,000 for 1995. This increase is primarily
attributable to the continued growth of the Company. As a percentage of total
revenues, general and administrative expenses decreased to 8.4% in 1996 from
11.4% in 1995, primarily as a result of increased economies of scale in
management infrastructure as it relates to new Company-owned and franchised
restaurant activities.
22
<PAGE>
Depreciation and amortization increased by $393,000, or 247.4%, to
$552,000 for 1996 compared to $159,000 for 1995. As a percentage of total
revenues, depreciation and amortization increased to 4.8% for 1996 from 2.2%
in 1995. This increase is primarily attributable to the significant addition
of capital expenditures to develop and acquire the additional Company-owned
restaurants discussed above.
Interest expense increased by $198,000 to $238,000 for 1996 compared to
$40,000 for 1995 as a result of increased bank borrowings during the first
seven months of 1996.
Interest income was $152,000 in 1996 compared to $0 for 1995 as a result
of investing proceeds from the initial public offering in interest-bearing,
short-term, investment grade securities until such proceeds were used to fund
Company growth.
Income tax expense increased by $263,000 to $270,000 for 1996 compared
to $7,000 for 1995 as a result of the Company changing from an S corporation
to a C corporation concurrent with the Company's initial public offering of
its Common Stock. See Note 8 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants, possible acquisitions and the remodeling of existing
Company-owned restaurants. Capital expenditures totaled $475,000, $4.7
million and $7.3 million for 1995, 1996 and 1997, respectively. Acquisition
expenditures totaled $656,000, $2.5 million and $1.4 million for 1995,1996
and 1997, respectively. The Company has funded its capital expenditures with
proceeds from its initial public offering, proceeds from bank borrowings, and
cash flows from operating activities. Net cash provided by operating
activities was $777,000, $1.3 million and $672,000 for 1995, 1996 and 1997,
respectively. The decrease in cash flow from operations from 1996 to 1997 is
due primarily to the development of certain new operating markets in which
sales have not matured as well as the additional overhead incurred by the
Company due to its growth and its first full year of expenses related to
being a public company.
The Company distributed $156,000 on March 4, 1997 to the stockholders
existing prior to its initial public offering in connection with their
estimated federal and state income tax obligations attributable to the
Company's 1996 earnings prior to the Termination Date. No other dividends
were declared or paid in 1997 and it is currently the Company's intention to
utilize all cash flows from operations to fund operations and expansion.
Thus, the Company does not anticipate paying cash dividends in the
foreseeable future.
Based on its contemplated expansion plans of new Company-owned
restaurants, the Company estimates that its total capital expenditures will
be approximately $1.0 million in 1998. The Company expects that borrowings
from the Credit Facility discussed below, or the refinancing of borrowings
from such Credit Facility, proceeds from the sale-leaseback
program discussed below and cash provided by operating activities will
provide sufficient funds to finance such capital expenditures.
CREDIT FACILITY. On September 5, 1997, the Company entered into a loan
agreement with revolving line of credit and term loan facilities, which has a
maximum aggregate commitment of $10.0 million (the "Credit Facility") with
NationsBank, N.A. (the "Bank"). The Credit Facility provides for a $10.0
million revolving line of credit commitment, subject to availability under a
borrowing base calculated by reference to the level of eligible equipment,
inventory and accounts receivable, and includes a $2.0 million sublimit for
new construction, remodeling and acquisition of restaurant locations. The
Credit Facility also contains a "mini-perm" facility financing for new
construction, remodeling and acquisition of restaurant locations with a ten
year amortization and a balloon payment within five years. Interest on
borrowings outstanding under the revolving line of credit facility is payable
at an annual rate set forth in each note. All such notes currently
outstanding are at the Bank's prime rate. The Credit Facility is secured by
substantially all of the Company's assets and matures on September 30, 1998.
The proceeds from the Credit Facility (which are classified as a current
liability at December 28, 1997) were primarily used for acquisition of
long-lived assets such as property and equipment. To the extent such notes
are not otherwise repaid in the normal course of business prior to maturity,
the Company anticipates that it will refinance the outstanding balance of
such notes payable although the Company does not currently have a commitment
from the Bank to refinance such notes payable. As of March 1, 1998, the
Company has approximately $1.5 million in outstanding borrowings pursuant to
the Credit Facility as
23
<PAGE>
approximately $1.0 million of the outstanding borrowings as of December 28,
1997 has been repaid from proceeds of the February 1998 sale-leaseback
transaction discussed below. The Company has approximately $1.0 million
available under the Credit Facility as of March 1, 1998.
SALE-LEASEBACK TRANSACTIONS. During October 1997 and February 1998, the
Company entered into agreements to sell and lease back five restaurant sites
with an entity owned by an officer of the Company and a significant
stockholder, both of whom are Directors. The sale-leaseback transactions
include five owned restaurant locations in which the Company sold such
properties to such entity for approximately $2.0 million and leased back
over a 15-year period. The Company believes that the terms and conditions of
both the real estate sale and the related lease back were fair and reasonable
and were on terms at least as favorable as would be available from
non-affiliated parties. The Company utilized the proceeds to fund new
restaurant development and to reduce borrowings under the Credit Facility.
The Company intends to enter into similar sale-leaseback transactions in the
future.
STOCK REPURCHASE PROGRAM. In January 1998, the Company's Board of
Directors approved a plan to repurchase up to 1.0 million shares of the
Company's Common Stock (the "Stock Repurchase Program"). Purchases pursuant
to the Stock Repurchase Program are to be made from time to time in the open
market or directly from stockholders at prevailing market prices. The Stock
Repurchase Program is anticipated to be funded with internally generated cash
and borrowings under the Credit Facility or the refinancing of such Credit
Facility. As of March 1, 1998, the Company had purchased 6,000 shares of
Common Stock for $10,000.
FINANCIAL CONDITION. Total assets at December 28, 1997 are $14.1
million as compared to $15.2 million at December 29, 1996. Cash and cash
equivalents and investment securities available for sale have significantly
decreased due to the Company's significant capital investments in developing
and acquiring Company-owned restaurants. This is the primary reason for the
$4.4 million overall decrease in current assets. Deferred costs have been
almost eliminated due to the change in accounting for restaurant preopening
costs as previously discussed and the limited new franchise development.
Goodwill has increased due to three acquisitions completed since 1996. The
income tax receivable has significantly increased as a result of the
operating loss incurred in 1997 and the ability to recover income taxes paid
in 1996. Current liabilities have increased $2.8 million primarily as a
result of the bank borrowings initiated in 1997. Other long term liabilities
reflect the accrual for future noncancelable lease obligations on closed
restaurants. Stockholders' equity has decreased from $13.7 million in 1996
to $9.8 million in 1997 primarily due to the $3.8 million charge for
impairments and restaurant closures incurred in 1997. The charge is primarily
reflected as a reduction in the carrying value of property and equipment.
YEAR 2000 COMPLIANCE
The Company is currently taking actions to provide that its computer
systems are capable of processing the Year 2000. The gross costs associated
with this are not expected to be material and are being expensed as incurred.
INFLATION
The Company believes that the relatively moderate rates of inflation
over the past few years have not had a significant impact on its results of
operations or total revenues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Company for this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements referred to
in the Index on page F-1 setting forth the consolidated financial statements
of New York Bagel Enterprises, Inc. and Subsidiary, together with the report
of KPMG Peat Marwick LLP dated February 6, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 is incorporated herein by reference
to "Directors and Executive Officers of the Company" in the Company's Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated herein by reference
to "Executive Compensation - Compensation Committee Interlocks and Insider
Participation, -Summary Compensation Table, -Stock Option Grant Table,
- -Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table, -Employment Arrangements, and -Incentive Plan" and "Directors
and Executive Officers of the Company-Compensation of Directors" in the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is incorporated herein by reference
to "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is incorporated herein by reference
to "Certain Relationships and Related Transactions" in the Company's Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. Reference is made to the Index to
Consolidated Financial Statements on page F-1 for a list of all
financial statements filed as part of this Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES. None.
(a)(3) EXHIBITS. Reference is made to the Index to Exhibits on page E-1
for a list of all exhibits filed as part of this Report.
(b) REPORTS ON FORM 8-K. None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized this
27th day of March, 1998.
NEW YORK BAGEL ENTERPRISES, INC.
By: /s/ Robert J. Geresi
-------------------------------------
Robert J. Geresi
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert J. Geresi Chairman of the Board, Chief March 27, 1998
- --------------------------------Executive Officer and
Robert J. Geresi President (Principal Executive
Officer)
/s/ Jon H. Cramer Chief Financial Officer, March 27, 1998
- --------------------------------Secretary and Treasurer
Jon H. Cramer (Principal Financial and
Accounting Officer)
/s/ Paul T. Sorrentino Vice President-New Store March 27, 1998
- --------------------------------Development and Director
Paul T. Sorrentino
/s/ Paul R. Hoover Vice President-Strategic March 27, 1998
- --------------------------------Planning and Director
Paul R. Hoover
/s/ Stanley K, Clark Director March 27, 1998
- --------------------------------
Stanley K. Clark
/s/ David L. Murfin Director March 27, 1998
- --------------------------------
David L. Murfin
/s/ William J. Walsh, Jr. Director March 27, 1998
- --------------------------------
William J. Walsh, Jr.
26
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C>
New York Bagel Enterprises, Inc.:
Independent Auditors' Report
Consolidated Balance Sheets at December 28, 1997 and December 29, 1996 F-2
Consolidated Statements of Operations for the Fifty-Two Weeks Ended
December 28, 1997 and December 29, 1996 and the Year Ended
December 31, 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
Fifty-Two Weeks Ended December 28, 1997 and December 29, 1996 and
the Year Ended December 31, 1995 F-6
Consolidated Statements of Cash Flows for the Fifty-Two Weeks Ended
December 28, 1997 and December 29, 1996 and the Year Ended
December 31, 1995 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New York Bagel Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of New York
Bagel Enterprises, Inc. as of December 28, 1997 and December 29, 1996, and
the consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the fifty-two weeks ended December 28, 1997 and December
29, 1996 and for the year ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New York Bagel Enterprises, Inc. as of December 28, 1997 and December 29,
1996, and the results of its operations and its cash flows for the fifty-two
weeks ended December 28, 1997 and December 29, 1996 and for the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 2 of notes to consolidated financial statements, the
Company changed its method of accounting for restaurant preopening costs in
1997.
KPMG Peat Marwick LLP
Wichita, Kansas
February 6, 1998
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Balance Sheets
December 28, 1997 and December 29, 1996
<TABLE>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 872,949 1,305,130
Investment securities available for sale - 4,265,862
Accounts receivable 171,068 315,293
Inventories 349,937 272,261
Deferred costs 4,993 239,269
Income tax receivable 484,957 87,783
Property and equipment available for sale 193,256 -
Prepaid expenses and other current assets 164,163 120,145
------------ ----------
Total current assets 2,241,323 6,605,743
Property and equipment, net 10,281,696 7,616,344
Other assets, net of accumulated amortization of
$47,412 in 1997 and $20,581 in 1996 357,001 145,118
Goodwill, net of accumulated amortization of
$75,524 in 1997 and $26,341 in 1996 1,220,441 806,016
------------ ----------
$ 14,100,461 15,173,221
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Balance Sheets (Continued)
December 28, 1997 and December 29, 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 2,490,858 28,750
Accounts payable 715,453 515,206
Accrued payroll and benefits 292,321 220,182
Accrued liabilities 539,143 262,113
Current portion of deferred franchise fees 35,000 61,000
Deferred income taxes - 56,808
Distributions payable - 164,194
------------ ----------
Total current liabilities 4,072,775 1,308,253
Long-term debt, less current installments 28,750 57,500
Deferred franchise fees - 34,000
Deferred rents payable 99,201 72,035
Deferred income taxes - 26,600
Other liabilities 133,724 -
------------ ----------
Total liabilities 4,334,450 1,498,388
------------ ----------
Stockholders' equity:
Class A common stock, $.01 par value. Authorized
30,000,000 shares; issued and outstanding
4,667,500 shares 46,675 46,675
Additional paid-in capital 13,390,769 13,390,769
Retained earnings (accumulated deficit) (3,671,433) 237,389
------------ ----------
Total stockholders' equity 9,766,011 13,674,833
Commitments
------------ ----------
$ 14,100,461 15,173,221
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Statements of Operations
For the Fifty-Two Weeks Ended December 28, 1997 and
December 29, 1996 and the Year Ended December 31, 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants $ 18,570,822 10,864,863 6,875,146
Franchise revenues 417,030 671,987 484,300
------------ ---------- ---------
Total revenues 18,987,852 11,536,850 7,359,446
------------ ---------- ---------
Costs and expenses:
Cost of sales 6,189,510 3,749,471 2,612,772
Restaurant operating expenses 10,273,538 5,185,362 3,083,902
General and administrative expenses 1,818,099 963,927 838,190
Depreciation and amortization 930,177 552,419 158,996
Provision for impairments and closures 3,773,580 - -
------------ ---------- ---------
Total costs and expenses 22,984,904 10,451,179 6,693,860
------------ ---------- ---------
Operating income (loss) (3,997,052) 1,085,671 665,586
Other income (expense):
Interest income 109,588 152,167 -
Interest expense (36,734) (237,858) (39,800)
------------ ---------- ---------
Total other income (expense) 72,854 (85,691) (39,800)
------------ ---------- ---------
Earnings (loss) before income taxes (3,924,198) 999,980 625,786
Income tax expense (benefit) (144,417) 269,714 6,689
------------ ---------- ---------
Earnings (loss) before cumulative
effect of accounting change (3,779,781) 730,266 619,097
Cumulative effect of accounting change, net of
income tax benefit of $80,782 (129,041) - -
------------ ---------- ---------
Net earnings (loss) $ (3,908,822) 730,266 619,097
------------ ---------- ---------
------------ ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Statements of Operations, Continued
For the Fifty-Two Weeks Ended December 28, 1997 and
December 29, 1996 and the Year Ended December 31, 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pro forma earnings to reflect income taxes:
Income tax expense $389,505 245,628
-------- -------
-------- -------
Net earnings (loss) $610,475 380,158
-------- -------
-------- -------
Earnings (loss) per share (basic and diluted):
Earnings (loss) before cumulative effect
of accounting change $ (.81) .17 .13
Cumulative effect of accounting change (.03) - -
----------- -------- -------
Net earnings (loss) $ (.84) .17 .13
----------- -------- -------
----------- -------- -------
Pro forma amounts assuming the new method of
accounting for restaurant preopening costs is
applied retroactively:
Net earnings (loss) $(3,779,781) 518,608 342,984
----------- -------- -------
----------- -------- -------
Net earnings (loss) per share - basic and
diluted $ (.81) .15 .11
----------- -------- -------
----------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
For the Fifty-Two Weeks Ended December 28, 1997 and
December 29, 1996 and the Year Ended December 31, 1995
<TABLE>
Retained
Common Stock Additional Earnings
----------------------- Paid-In (Accumulated
Class A Class B Capital Deficit) Total
------- ------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $14,170 13,687 151,293 (20,182) 158,968
Net earnings - - - 619,097 619,097
Stock compensation - - 6,500 - 6,500
Distributions to stockholders - - - (2,363,030) (2,363,030)
------- ------- ---------- --------- ---------
Balance, December 31, 1995 14,170 13,687 157,793 (1,764,115) (1,578,465)
Net earnings - - - 730,266 730,266
Issuance of 14,308 shares of common stock - 143 (143) - -
Issuance of 1,867,500 shares of common
stock pursuant to initial public offering 18,675 - 14,660,357 - 14,679,032
Reclassification of accumulated deficit
pursuant to termination of S corporation
status at August 27, 1996 - - (1,427,238) 1,427,238 -
Conversion of 1,383,012 shares of Class B
common stock to Class A common stock
on a one-for-one basis pursuant to the
initial public offering 13,830 (13,830) - - -
Distributions to stockholders - - - (156,000) (156,000)
------- ------- ---------- --------- ---------
Balance, December 29, 1996 46,675 - 13,390,769 237,389 13,674,833
Net loss - - - (3,908,822) (3,908,822)
------- ------- ---------- --------- ---------
Balance, December 28, 1997 $46,675 - 13,390,769 (3,671,433) 9,766,011
------- ------- ---------- --------- ---------
------- ------- ---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Statements of Cash Flows
For the Fifty-Two Weeks Ended December 28, 1997 and
December 29, 1996 and the Year Ended December 31, 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(3,908,822) 730,266 619,097
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 930,177 552,419 158,996
(Gain) loss on sale of equipment 18,957 (21,286) -
Provision for impairments and closures 3,773,580 - -
Cumulative effect of accounting change, net
of income tax benefit 129,041 - -
Noncash stock compensation expense - - 6,500
Increase (decrease) in cash resulting from
changes in listed items, net of effects from
acquisitions:
Deferred income taxes (2,626) 83,408 1,302
Inventory (60,780) (96,654) (178,209)
Income taxes receivable (397,174) (71,036) 1,300
Property and equipment available for sale (193,256) - -
Prepaid expenses and other current assets (119,660) (90,312) (1,588)
Accounts receivable 145,425 (123,545) (23,361)
Deferred costs 24,453 (337,492) (70,672)
Other assets (121) - (2,403)
Accounts payable 200,247 352,034 140,253
Accrued liabilities, accrued payroll and
benefits, and deferred rents payable 192,341 399,213 78,509
Deferred franchise fees (60,000) (72,000) 47,500
----------- ----------- ----------
Net cash provided by operating activities 671,782 1,305,015 777,224
----------- ----------- ----------
Cash flows from investing activities:
Additions to property and equipment (7,304,032) (4,716,867) (474,674)
Acquisitions, net of cash acquired (1,373,456) (2,468,092) (656,174)
Proceeds from sales of property and equipment including
proceeds from sale-leaseback transactions 1,238,632 21,722 -
Purchase of investment securities available for sale (7,244,550) (7,265,862) -
Proceeds from sales and maturities of investment
securities available for sale 11,510,412 3,000,000 -
Purchase of other assets (186,154) (72,468) -
----------- ----------- ----------
Net cash used in investing activities (3,359,148) (11,501,567) (1,130,848)
----------- ----------- ----------
(Continued)
</TABLE>
F-7
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Consolidated Statements of Cash Flows, Continued
For the Fifty-Two Weeks Ended December 28, 1997 and
December 29, 1996 and the Year Ended December 31, 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt $2,500,000 1,398,700 3,049,210
Principal payments on long-term debt (66,642) (4,677,450) (90,852)
Proceeds from initial public offering of common
stock - 14,679,032 -
Decrease in due to stockholders - - (26,330)
Decrease in distributions payable (164,194) (40,499) (8,807)
Debt issuance costs (13,979) - (13,916)
Deferred offering costs - 8,474 (8,474)
Distributions to stockholders - - (2,459,982)
---------- ---------- ----------
Net cash provided by financing
activities 2,255,185 11,368,257 440,849
---------- ---------- ----------
Net increase (decrease) in cash (432,181) 1,171,705 87,225
Cash and cash equivalents at beginning of year 1,305,130 133,425 46,200
---------- ---------- ----------
Cash and cash equivalents at end of year $ 872,949 1,305,130 133,425
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements
(1) OPERATIONS AND REORGANIZATION
OPERATIONS
The Company owns and franchises New York Bagel and Lots A' Bagels
restaurants that provide a wide variety of bagels that are made from
scratch, boiled and baked in the traditional "New York style". Breakfast
menu items include a wide variety of bagels and custom-blended cream
cheeses, gourmet coffees, muffins and croissants. Lunch and dinner items
include an assortment of bagel delicatessen sandwiches, prepared salads,
cookies and soft drinks. As of December 28, 1997, the Company has 45
Company-owned restaurants (33 at December 29, 1996) primarily located in
Oklahoma, Kansas, Colorado, Texas and Tennessee and 25 franchised
restaurants (33 at December 29, 1996) located throughout the United States.
Effective August 27, 1996, the Company completed an initial public offering
(IPO) in which it sold 1,867,500 shares of its Class A common stock and
realized net proceeds, net of offering costs of $951,943, of $14,679,032.
REORGANIZATION
The Company was formed as a result of a merger (the Merger) between New
York Bagel Enterprises, Inc., which became the surviving corporation, and
New York Bagel Shop, Inc.; New York Bagel Shop & Delicatessen, Inc.; Bagels
of Norman, Inc.; Bagel Boss, Inc.; and VPR Incorporated (the five
restaurant entities). The Merger was effective on December 31, 1995. The
term Company as used herein refers to New York Bagel Enterprises, Inc.
including the five restaurant entities. Since the primary stockholders of
each of the five restaurant entities prior to the Merger were also the
primary stockholders of the Company subsequent to the Merger, the Merger
essentially represents a transfer to New York Bagel Enterprises, Inc. of
nonmonetary assets in exchange for stock and has been accounted for at
historical cost. The accompanying financial statements for periods prior
to the effective date of the Merger are presented on a combined basis since
this is the most meaningful presentation of the business and due to
substantial commonality of ownership and management of the prior entities
throughout such prior periods.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of New
York Bagel Enterprises, Inc. and its wholly-owned subsidiary. All
material intercompany activity has been eliminated.
F-9
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(b) FRANCHISE REVENUES
Franchise agreements are executed for each franchise restaurant and
provide the terms of the franchise arrangement between the Company and
the franchisee. The franchise agreement requires the franchisee to pay
an initial, non-refundable franchise fee plus continuing royalties based
upon a percentage of restaurant sales. Additionally, the Company
executes development agreements with certain franchisees which
stipulates the area, the number of restaurants, and the timeframe for
development in exchange for an initial, non-refundable development fee
based on a standard price per type of restaurant.
Initial franchise fees are recognized as revenue when the Company
performs substantially all initial services required by the franchise
agreement, which generally occurs shortly after restaurant opening.
Continuing royalties are recognized as earned with an appropriate
provision for estimated uncollectible amounts. Initial franchise fees
received applicable to restaurants for which substantially all initial
services required by the franchise agreement have not been performed are
recorded as deferred franchise fees in the accompanying balance sheets.
Development fees are received upon signing the agreement and are
initially recorded as deferred franchise fees. Such fees are applied to
reduce the initial franchise fees paid for each restaurant opened and
are accounted for as a component of the initial franchise fees.
Deferred initial and development fees that are expected to be
recognized within twelve months of the balance sheet date are classified
as current portion of deferred franchise fees in the accompanying
balance sheets.
(c) INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities at December 29, 1996 consist of highly liquid
debt securities with maturities of less than six months. The Company
classifies its debt securities as available for sale which are recorded
at fair value. Unrealized holding gains and losses, net of related tax
effect, on available for sale securities are excluded from earnings and
are reported as a separate component of stockholders' equity until
realized. Realized gains and losses from sales and maturities of
available for sale securities are determined on a specific
identification basis. Gross unrealized holding gains and gross
unrealized holding losses were immaterial as of December 29, 1996.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
F-10
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) DEFERRED FRANCHISE COSTS
Direct, incremental costs incurred to secure franchise agreements
are charged to expense in the same period the related initial franchise
fees are recognized as revenue. Costs applicable to initial franchise
fees not yet recognized as revenue are recorded as deferred franchise
costs.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except for assets that
have been impaired in which the carrying amount is reduced to estimated
fair value. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements
are amortized on a straight-line basis over the lesser of the remaining
lease term, including renewal periods when the Company intends to
exercise renewal options, or the estimated useful life of the asset.
Estimated useful lives are as follows:
Buildings 30 years
Restaurant and bakery equipment 5 - 10 years
Leasehold improvements 7 - 15 years
Delivery vehicles, office furniture and equipment 5 - 10 years
(g) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over
primarily 20 years. The Company periodically assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is
measured based on projected future operating cash flows discounted at a
rate commensurate with the risks involved. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(h) INCOME TAXES
Effective January 1, 1994, New York Bagel Enterprises, Inc. and
certain of the restaurant entities elected and received approval to
become S corporations. During the periods the entities operated as S
corporations, income tax expense or benefit was not recorded in the
accompanying financial statements as the entities' results of operations
were reported to the entities' stockholders for inclusion in their
individual income tax returns.
F-11
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(h) INCOME TAXES, CONTINUED
Concurrent with the IPO, the Company terminated its S corporation
status. Accordingly, income taxes subsequent to the effective date of
the IPO are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Any effect on
deferred tax assets and liabilities due to a change in tax rates is
recognized in income in the period that includes the enactment date.
Pro forma income tax expense, as set forth in the accompanying 1996
and 1995 consolidated statements of operations, reflects what the income
tax expense of the Company would have been for the fifty-two weeks ended
December 29, 1996 and the year ended December 31, 1995 if none of the
entities included in the financial statements had operated as S
corporations during such periods.
(i) STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the
Company considers cash and cash equivalents to include currency on hand,
demand deposits and money market funds.
Noncash investing and financing activities during 1997, 1996 and
1995 included:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Noncash distributions to stockholders:
Distributions payable $ - 156,000 15,500
Net asset (liability) distributions - - (112,452)
------- ------- --------
Total noncash distributions $ - 156,000 (96,952)
------- ------- --------
------- ------- --------
Property and equipment sale proceeds included
in accounts receivable and other assets $26,282 53,895 -
------- ------- --------
------- ------- --------
Long-term debt issued to seller in connection with
acquisition $ - - 115,000
------- ------- --------
------- ------- --------
</TABLE>
F-12
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(i) STATEMENTS OF CASH FLOWS, CONTINUED
Cash paid during the years for interest and taxes is as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest $ 12,511 238,181 36,676
Taxes, net 255,383 257,342 -
</TABLE>
(j) CHANGE IN ACCOUNTING PRINCIPLE
Effective September 28, 1997, the Company changed its accounting
policy on restaurant preopening costs. In prior periods, the Company
initially capitalized and then amortized preopening costs over the
initial 12-months of a restaurant's operation. Under the new method,
the Company expenses such restaurant preopening costs as incurred.
Management believes the change is preferable to obtain a better matching
of expenses with revenues. The effect of adopting the accounting change
on earnings (loss) before cumulative effect of accounting change, net
earnings (loss), and net earnings (loss) per share for 1997 is to
decrease such amounts $40,388, $169,429 and $.04, respectively. The
change is considered a cumulative effect-type accounting change and,
accordingly, the cumulative effect as of January 1, 1997 has been
reported in the accompanying consolidated 1997 financial statements.
Financial statements for fiscal 1996 and prior periods have not been
restated but net earnings and earnings per share computed on a pro forma
basis have been disclosed in the accompanying consolidated financial
statements for all periods presented as if the accounting change had
been applied consistently during all periods affected.
(k) NET EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE (Statement 128) which replaces the prior
accounting standard regarding computation and presentation of earnings
per share. Statement 128 requires a dual presentation of basic earnings
per share (based on the weighted average number of common shares
outstanding) and diluted earnings per share which reflects the potential
dilution that could occur if contracts to issue securities (such as
stock options) were exercised. The Company has adopted Statement 128 as
of December 28, 1997 and, accordingly, earnings per share data for all
periods presented has been computed in accordance with Statement 128.
See note 13.
F-13
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(l) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management of the Company to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from these estimates.
(m) STOCK AWARDS
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As such, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. In addition, SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, requires that pro forma net
earnings and pro forma earnings per share disclosures be provided for
employee stock option grants made in 1996 and subsequent years as if the
fair-value-based cost measurement method defined in SFAS No. 123 had
been applied.
(n) FISCAL PERIODS
Prior to 1996, the Company's financial reporting was done on a
calendar basis. Effective January 1, 1996, the Company changed to a
52/53-week fiscal year comprised of four thirteen-week periods.
(o) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used (including associated goodwill) is
measured by a comparison of the carrying amount of an asset to estimated
future net cash flows (undiscounted and without interest charges)
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
For purposes of determining impairment, the Company groups long-lived
assets at a market level due to the bakery-satellite relationship which,
in management's estimation, results in the market-level as the lowest
level for which there are cash flows that are largely independent of the
cash flows of other groups of assets.
F-14
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(o) IMPAIRMENT OF LONG-LIVED ASSETS, CONTINUED
The impairment charge, which amounted to $2,342,766 for the
fifty-two weeks ended December 28, 1997, represents a reduction of the
carrying value of the impaired assets to estimated fair value. Such
impairment charge relates to long-lived restaurant assets and
associated goodwill. The primary indicators of impairment are continued
operating losses or sufficient negative trends that management
determines impairment is probable. Estimated fair values were
determined by using a combination of discounted estimated future cash
flows and valuation multiples recently used by the Company in actual
acquisitions. Management judgment is inherent in the estimated fair
value determinations and, accordingly, actual results could vary from
such estimates.
(p) STORE CLOSURE COSTS
Store closure costs are recognized when a decision is made to close
a restaurant within the next twelve months. Store closure costs, which
amounted to $1,430,814 for the fifty-two weeks ended December 28, 1997
include the costs of writing down the carrying amount of a restaurant's
assets to estimated fair value less costs of disposal aggregating
$1,113,800, and the net present value of any remaining noncancelable
lease payments after the expected closure date net of estimated sublease
income considered by management to be probable aggregating $317,014.
Included in other liabilities and accrued liabilities is $133,724 and
$169,186, respectively, for expected future lease costs related to store
closures. Net revenues from restaurants approved for closure are not
considered material.
(q) YEAR 2000
The Company is currently taking actions to provide that its
computer systems are capable of processing for the Year 2000. The gross
costs associated with this remediation effort are not expected to be
material and will be expensed as incurred.
(3) FRANCHISE REVENUES
Franchise revenues for the fifty-two weeks ended December 28, 1997 and
December 29, 1996 and the year ended December 31, 1995 consist of the
following:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Initial franchise and development fees $147,500 228,500 250,500
Royalty revenue 269,530 443,487 233,800
-------- ------- -------
Total $417,030 671,987 484,300
-------- ------- -------
-------- ------- -------
</TABLE>
F-15
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(3) FRANCHISE REVENUES, CONTINUED
The associated franchise receivables included within accounts receivable in
the accompanying consolidated balance sheets at December 28, 1997 and
December 29, 1996 are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Initial and development fee receivables $ 26,000 41,000
Royalty receivables 54,266 116,528
Less allowance for doubtful accounts (20,000) (28,200)
--------- -------
$ 60,266 129,328
--------- -------
--------- -------
</TABLE>
(4) DEFERRED COSTS
Deferred costs as of December 28, 1997 and December 29, 1996 include the
following:
<TABLE>
1997 1996
---- -----
<S> <C> <C>
Preopening costs $ - 209,823
Deferred franchise costs 4,993 29,446
------ -------
Total deferred costs $4,993 239,269
------ -------
------ -------
</TABLE>
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment and accumulated depreciation as of
December 28, 1997 and December 29, 1996 is as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Land and buildings $ 1,841,773 1,045,724
Restaurant and bakery equipment 4,066,611 3,856,681
Leasehold improvements 5,536,480 3,469,730
Delivery vehicles, office furniture and equipment 232,908 136,289
----------- ---------
11,677,772 8,508,424
Less accumulated depreciation (1,396,076) (892,080)
----------- ---------
Net property and equipment $10,281,696 7,616,344
----------- ---------
----------- ---------
</TABLE>
F-16
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(6) LEASES
The Company leases several restaurant facilities under noncanelable
operating leases. These leases generally contain renewal options for
periods ranging from 3 to 15 years and require the Company to pay executory
costs such as maintenance and insurance. Rent expense for operating leases
aggregated $1,363,563, $631,021 and $296,950 for the fifty-two weeks ended
December 28, 1997 and December 29, 1996 and the year ended December 31,
1995, respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of December 28,
1997 are:
<TABLE>
<S> <C>
1998 $ 1,667,523
1999 1,666,123
2000 1,499,683
2001 1,238,191
2002 1,035,972
Thereafter 4,555,894
-----------
Total minimum lease payments $11,663,386
-----------
-----------
</TABLE>
The Company is party to certain operating leases with companies that are
owned by certain stockholders of the Company. Rent expense paid to these
related companies pursuant to lease agreements aggregated $101,863, $60,177
and $63,249 in 1997, 1996 and 1995, respectively.
Deferred rents payable in the accompanying balance sheets represent
accruals for escalating rental payments on operating leases.
SALE-LEASEBACK TRANSACTIONS
During October 1997, the Company entered into an agreement to sell and
leaseback three restaurant facilities (land and buildings) to an entity
owned by an officer of the Company and a significant stockholder, both of
whom are members of the Board of Directors of the Company. The proceeds
from the sale-leaseback transactions amounted to approximately $1.2 million
and the primary leaseback term is 15 years. As a result of the sale-
leaseback transactions, the Company incurred a loss of $379,752 which has
been deferred for financial reporting purposes and is included within
leasehold improvements and is being amortized over the term of the related
leases. The Company believes that the terms and conditions of both the
real estate sale and the related leaseback are fair and reasonable and were
on terms at least as favorable as would be available from non-affiliated
parties. The Company will utilize the proceeds to fund the Company's
continued restaurant development.
F-17
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(7) LONG-TERM DEBT
Long-term debt at December 28, 1997 and December 29, 1996 consists of the
following:
<TABLE>
1997 1996
---- -----
<S> <C> <C>
Prime rate (8.5% at December 28, 1997) notes
payable to bank pursuant to credit facility
described below $2,462,108 -
4% subordinated debenture payable in annual
installments of $28,750 plus interest through
December 1999. The debenture is subordinate to
all other liabilities of the Company 57,500 86,250
---------- ------
Total long-term debt 2,519,608 86,250
Less current installments of long-term debt 2,490,858 28,750
---------- ------
Long-term debt, less current installments $ 28,750 57,500
---------- ------
---------- ------
</TABLE>
In September 1997, the Company entered into a loan agreement for a
revolving line of credit and term loan facilities with a bank. The loan
agreement provides for a maximum commitment of $10 million subject to
availability under a borrowing base calculated based on the level of
eligible equipment, inventory and accounts receivable. The Company had
$93,055 available under the loan agreement at December 28, 1997. Each
borrowing under the loan agreement is represented by a promissory note that
provides specific terms. Notes issued pursuant to the loan agreement are
secured by substantially all of the Company's assets and mature through
October 2000. The loan agreement contains customary restrictive covenants
including a restriction on the payment of dividends in excess of $1,000,000
annually.
The aggregate maturities of long-term debt for each of the years subsequent
to December 28, 1997 are as follows: 1998 - $2,490,858 and 1999 - $28,750.
The proceeds from the notes payable to bank (such notes payable are
classified as a current liability at December 28, 1997) were primarily used
for acquisition of long-lived assets such as property and equipment. To
the extent such notes are not otherwise repaid in the normal course of
business prior to maturity on September 30, 1998, the Company anticipates
that it will refinance the outstanding balance of such notes payable
although the Company does not currently have a commitment from the lender
to refinance such notes payable.
The 4% subordinated debenture issued in 1995 included a conversion feature
whereby the debenture holder had the right to convert all or a portion of
the debenture principal into shares of the Company's common stock. The
conversion feature expired unexercised June 13, 1997.
F-18
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(8) INCOME TAXES
Income tax expense (benefit) for the fifty-two weeks ended December 28,
1997 and December 29, 1996 and the year ended December 31, 1995 consists of
the following:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ (141,791) 186,306 9,805
Deferred (2,626) 83,408 (3,116)
---------- ------- -------
Total $ (144,417) 269,714 6,689
---------- ------- -------
---------- ------- -------
</TABLE>
Certain entities included in the consolidated financial statements were S
corporations during 1995 and part of 1996, and as a result did not pay
corporate income taxes. Concurrent with the IPO, the Company terminated
its S corporation status and, consequently, incurred a one-time charge of
$74,000 to deferred tax expense to properly record deferred tax assets and
liabilities that existed as of the effective date of the IPO.
Actual income tax expense (benefit) differs from the "expected" tax expense
computed by applying the U.S. Federal corporate tax rate of 34% to earnings
(loss) before income taxes for the fifty-two weeks ended December 28, 1997
and December 29, 1996 and the year ended December 31, 1995 as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed expected tax expense (benefit) $ (1,334,227) 339,993 212,767
S corporation earnings allocated to stockholders - (167,578) (195,515)
S corporation termination deferred tax charge - 74,000 -
State taxes, net of federal income tax benefit (141,516) 19,503 -
Nondeductible goodwill impairment and
amortization 139,988 2,462 -
Change in valuation allowance 1,189,251 - (9,736)
Other 2,087 1,334 (827)
------------ -------- --------
$ (144,417) 269,714 6,689
------------ -------- --------
------------ -------- --------
</TABLE>
F-19
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(8) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 28, 1997 and December 29,
1996 are presented below:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful
accounts $ - 10,716
Accrued and other liabilities, due to accrual for financial
reporting purposes 159,472 30,252
Property and equipment, due to provision for impairments
and closures for financial reporting purposes, net of
accelerated depreciation for tax reporting purposes 976,460 -
Net operating loss carryforward 198,624 -
Other - 8,337
----------- -------
Total deferred tax assets 1,334,556 49,305
Valuation allowance (1,189,251) -
----------- -------
Net deferred tax assets 145,305 49,305
----------- -------
Deferred tax liabilities:
Deferred loss on sale-leaseback transactions
recognized for tax reporting purposes 144,306 -
Capitalized preopening costs expensed for tax
reporting purposes - 79,209
Property and equipment, due to accelerated depreciation
for tax reporting purposes - 53,504
Other 999 -
----------- -------
Total deferred tax liabilities 145,305 132,713
----------- -------
Net deferred tax liability $ - 83,408
----------- -------
----------- -------
</TABLE>
The net change in the total valuation allowance for the fifty-two weeks
ended December 28, 1997 was an increase of $1,189,251. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. Based on the cumulative net loss over the past three
fiscal years, management believes the valuation allowance is appropriate
due to the uncertainty regarding the realization of the deferred tax
assets.
F-20
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(8) INCOME TAXES, CONTINUED
At December 28, 1997, the Company has net operating loss carryforwards for
federal and state income tax purposes of $462,168 and $830,119,
respectively, which are available to offset future taxable income through
2012.
(9) STOCKHOLDERS' EQUITY
In 1996, as a result of the Company's termination of its S corporation
status immediately prior to the effective date of the IPO, the Company
declared a distribution to the then current stockholders in an amount
commensurate with their federal and state income tax obligations arising
from the Company's 1996 results of operations while an S corporation which
are reported to the stockholders for inclusion in their individual income
tax returns. The distribution is included in distributions payable at
December 29, 1996.
The Company is authorized to issue 5,000,000 shares of preferred stock with
no par value. There were no shares issued or outstanding at December 28,
1997 or December 29, 1996.
(10) FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION
The carrying value of the Company's long-term debt approximates its fair
value based on current interest rates of similar instruments. The carrying
values of the Company's other financial instruments at December 28, 1997
and December 29, 1996, including cash and cash equivalents, investment
securities, accounts receivable, other current assets, and accounts payable
approximate their fair values because of their short maturity.
(11) ACQUISITIONS
Effective February 28, 1997, the Company purchased substantially all of the
operating assets and business operations of Bagel Buds, Inc. for $415,000.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the operations of Bagel Buds, Inc. have been included in
the accompanying statements of operations subsequent to February 28, 1997.
The initial purchase price has been allocated to the assets acquired based
on their estimated fair values at date of acquisition. Goodwill arising
from the acquisition amounted to $248,240.
Effective May 9, 1997, the Company purchased substantially all of the
operating assets and business operations of M.Y. Bagel Shop, Inc. for
$323,000. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the operations of M.Y. Bagel Shop, Inc. have
been included in the accompanying statements of operations subsequent to
May 9, 1997. The initial purchase price has been allocated to the assets
acquired based on their estimated fair values at date of acquisition.
Goodwill arising from the acquisition amounted to $148,975.
F-21
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(11) ACQUISITIONS, CONTINUED
The aggregate pro forma effect of the aforementioned 1997 acquired
operations on revenues, net earnings (loss) and earnings (loss) per share
for the fifty-two weeks ended December 28, 1997 and December 29, 1996 is
not material and, accordingly, no related pro forma information is
provided.
Effective December 6, 1996, the Company purchased substantially all of the
operating assets and business operations and assumed certain liabilities of
Lots A' Bagels, Inc. for an initial cash payment of $2,100,000. In
addition, certain contingent consideration was to be paid as additional
purchase price based on Lots A' Bagels, Inc.'s earnings (as defined in the
purchase agreement) for the period July 1, 1996 through March 30, 1997. On
July 17, 1997, the Company paid $515,000 as full payment of the contingent
consideration, which was recorded as additional goodwill at that time.
Total acquisition expenses amounted to $139,761. The acquisition has been
accounted for by the purchase method of accounting and, accordingly, the
operations of Lots A' Bagels, Inc. have been included in the accompanying
statements of operations subsequent to December 6, 1996. The purchase
price has been allocated to the assets acquired and liabilities assumed
based on their estimated fair values at date of acquisition. Goodwill as
of December 28, 1997 and December 29, 1996 arising from the acquisition
amounted to $852,116 and $279,124, respectively.
Effective September 27, 1996, the Company purchased certain assets of Jeff
Eateries Limited Partnership for $245,000. The acquisition has been
accounted for by the purchase method of accounting. The purchase price has
been allocated to the assets acquired based on their estimated fair values
at date of acquisition. Goodwill arising from the acquisition amounted to
$94,182.
Effective December 14, 1995, the Company purchased all the outstanding
common stock of Nashville Bagel Co., Inc. for $565,000. Acquisition
expenses amounted to $23,338. The acquisition has been accounted for by
the purchase method of accounting and, accordingly, the operations of
Nashville Bagel Co., Inc. have been included in the accompanying statements
of operations subsequent to December 14, 1995. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at date of acquisition. Goodwill arising from the
acquisition amounted to $434,451.
Effective December 31, 1995, the Company purchased certain assets of
Central & Ridge Yogurt, Inc. by assuming liabilities amounting to $225,000.
The acquisition has been accounted for by the purchase method of
accounting. The purchase price has been allocated to the net assets
acquired based on their estimated fair values at date of acquisition.
Goodwill arising from the acquisition amounted to $24,600. A Company
officer was also an officer and stockholder of Central & Ridge Yogurt, Inc.
F-22
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(11) ACQUISITIONS, CONTINUED
The following table summarizes the pro forma results of operations for the
fifty-two weeks ended December 29, 1996 and the year ended December 31,
1995 as if the acquisitions consummated in 1996 had been consummated at the
beginning of 1996 and 1995, respectively, and the acquisitions consummated
in 1995 had been consummated at the beginning of 1995. In presenting the
pro forma information, depreciation, amortization and interest expense have
been adjusted to reflect the purchase accounting recorded in the
acquisitions and income taxes have been recognized as if none of the
entities included in the pro forma results had operated as an S
corporation. For purposes of determining pro forma results of operations,
the acquisition cost of Lots A' Bagels, Inc. includes the contingent
consideration paid in 1997. The pro forma results do not necessarily
reflect what would have occurred if the acquisitions had been made at the
beginning of the respective periods or the results that may occur in the
future.
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 15,314,832 12,103,662
Net earnings $ 604,741 222,121
Net earnings per share - basic and diluted $ .17 .07
</TABLE>
(12) STOCK AWARDS
In 1996, the Company adopted the 1996 Incentive Plan (the Plan) pursuant to
which the Company may grant incentive stock options, nonqualified stock
options or restricted stock to officers, directors, employees, consultants
and advisors. The Plan, as amended, authorizes grants of up to 500,000
shares of authorized but unissued common stock. In addition to the stock
options granted under the Plan, the Company entered into nonqualified stock
option agreements with four of its non-employee directors to purchase a
total of 70,000 shares of authorized but unissued common stock. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant except for options granted to employees and
directors that are also greater than 10% stockholders of the Company in
which case such options are granted with an exercise price equal to 110% of
the stock's fair market value at the date of grant. Stock options granted
have terms of either ten years or five years. The majority of options
granted vest (i) 20% exercisable six months after date of grant and, (ii)
20% exercisable on each of the first four anniversaries of the date of
grant. Certain options granted in 1997, however, were immediately vested
as of the grant date.
F-23
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(12) STOCK AWARDS, CONTINUED
In October 1997, the Company modified the terms of 276,000 options that
were originally granted in 1996 and 8,500 options that were originally
granted in January 1997. The modification consisted of reducing the
original exercise price of such options which ranged from $6.13 to $9.90 to
$5.50 for 207,000 options and $6.05 for 77,500 options. Vesting periods
were not modified and are calculated from the original grant date. The
exercise prices for the modified options were greater than the market price
of the stock on the modification date. The weighted average exercise price
for the modified options is $5.65 and the weighted average fair value of
the modified options is $1.13. The modified options are reflected in the
table of stock option activity below as 1997 granted options and 1997
canceled options. The incremental value as a result of the modified terms
is included in the pro forma compensation cost disclosed below.
At December 28, 1997, there were 144,500 additional shares available for
grant under the Plan. The per share weighted average fair value of stock
options granted during 1997 and 1996 was $1.32 and $3.70 on the date of
grant using the Black Scholes option-pricing model with the following
weighted average assumptions for 1997 and 1996, respectively: expected
dividend yield of 0% for both years, expected volatility of 40.35% and
38.5%, risk-free interest rate of 5.93% and 6.58%, and an expected life of
5 years for both years.
The Company applies APB Opinion No. 25 in accounting for its stock options
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's 1997 and 1996 net earnings (loss)
and earnings (loss) per share (for 1996, on a pro forma basis) would have
been the amounts indicated below.
<TABLE>
1997 1996
---- ----
<S> <C> <C> <C>
Net earnings (loss) As reported $ (3,908,822) 610,475
Pro forma for SFAS No. 123 $ (4,277,606) 496,251
Earnings (loss) per share - As reported $ (.84) .17
basic and diluted Pro forma for SFAS No. 123 $ (.92) .14
</TABLE>
F-24
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(12) STOCK AWARDS, CONTINUED
Stock option activity during 1997 and 1996 is as follows:
<TABLE>
Number of Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Balance at December 31, 1995 - $ -
Granted 331,000 8.77
Exercised - -
Forfeited (34,500) 9.00
-------- ------
Balance at December 29, 1996 296,500 8.74
Granted 441,000 5.14
Exercised - -
Forfeited (27,500) 8.23
Canceled (284,500) 8.65
-------- ------
Balance at December 28, 1997 425,500 $ 5.10
-------- ------
-------- ------
</TABLE>
At December 28, 1997 and December 29, 1996, the number of options
exercisable was 206,900 and 47,300 and the weighted average exercise price
of those options was $4.84 and $9.29, respectively.
At December 28, 1997, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $3.69 - $6.05 and
7.51 years, respectively.
F-25
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(13) EARNINGS PER SHARE
The following is a reconciliation of the net earnings (loss) and
outstanding shares utilized in the computation of earnings (loss) per
share.
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) before cumulative effect of
accounting change - basic $ (3,779,781) 730,266 619,097
Pro forma adjustment to income tax expense - (119,791) (238,939)
------------ --------- ---------
Pro forma net earnings (loss) - basic (3,779,781) 610,475 380,158
Debenture interest adjustment, net of income
tax effect - 2,852 -
------------ --------- ---------
Adjusted net earnings (loss) for diluted
calculation $ (3,779,781) 613,327 380,158
------------ --------- ---------
------------ --------- ---------
Outstanding shares:
Weighted average shares outstanding -
basic 4,667,500 3,565,464 3,018,538
Effect of dilutive convertible debenture - 19,121 -
------------ --------- ---------
As adjusted for diluted calculation 4,667,500 3,584,585 3,018,538
------------ --------- ---------
------------ --------- ---------
</TABLE>
Options to purchase common stock were not included in the computation of
diluted earnings (loss) per share because the options' exercise price was
greater than the average market price of the common shares during such
period so the effect would not be dilutive. As of December 28, 1997, there
are 425,500 options outstanding at a weighted average exercise price of
$5.10 which may become dilutive in the future.
The weighted average shares outstanding for 1996 and 1995 include pro forma
shares of 145,292 and 218,538, respectively, based on the assumed number of
shares whose proceeds would be sufficient (based upon the net initial
public offering price) to replace the excess of distributions to
stockholders over net earnings for the year ended December 31, 1995.
F-26
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
1997:
Total revenues $ 4,474 4,819 4,815 4,880
Gross profit (a) 2,925 3,208 3,161 3,087
Provision for impairments and closures - - 3,558 216
Operating income (loss) (d) 411 255 (3,928) (735)
Earnings (loss) before cumulative effect of
accounting change (c) (d) 289 179 (2,596) (1,652)
Cumulative effect of accounting change (d) (129) - - -
Net earnings (loss) (c) (d) 160 179 (2,596) (1,652)
Net earnings (loss) per share - basic and
diluted (d) .03 .04 (.56) (.35)
1996:
Total revenues $ 2,389 2,801 2,891 3,456
Gross profit (a) 1,406 1,711 1,774 2,224
Operating income 338 338 244 166
Net earnings 260 252 59 159
Pro forma net earnings (b) 156 155 133 166
Pro forma net earnings per share - basic
and diluted (b) .05 .05 .04 .04
</TABLE>
(a) Gross profit is sales from Company-owned restaurants less cost of
sales.
(b) Pro forma net earnings and net earnings per share is based on
reported earnings before income taxes less pro forma income
tax expense.
F-27
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Consolidated Financial Statements, Continued
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED), CONTINUED
(c) Includes effect of establishing a valuation allowance for deferred tax
assets of $1,189,251. See note 8.
(d) Amounts for the first and second quarter of 1997 have been restated
to reflect adoption of the accounting change for restaurant preopening
cost discussed in note 2(j). The effect of the restatement was to
increase (decrease) the amounts originally reported in the Company's
quarterly reports for such quarters as follows:
<TABLE>
First Second
Quarter Quarter
------- -------
<S> <C> <C>
Operating income (loss) $ 49 (52)
Earnings (loss) before cumulative effect of
accounting change 30 (32)
Cumulative effect of accounting change (129) -
Net earnings (loss) (99) (32)
Net earnings (loss) per share - basic and diluted (.02) (.01)
</TABLE>
F-28
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
2.1 Plan and Agreement of Merger dated December 27, 1995, by and between
New York Bagel Enterprises, Inc., a Kansas corporation, and New York
Bagel Enterprises, Inc., an Oklahoma corporation (filed as Exhibit 2.1
to the Registration Statement on Form S-1, File No. 333-05785),
incorporated herein by reference.
2.2 Plan and Agreement of Merger dated December 27, 1995, by and among
New York Bagel Enterprises, Inc., VPR Incorporated, New York Bagel
Shop, Inc., Bagel Boss, Inc., Bagels of Norman, Inc., New York Bagel
Shop & Delicatessen, Inc. (filed as Exhibit 2.2 to the Registration
Statement on Form S-1, File No. 333-05785), incorporated herein by
reference.
2.3 Certificate of Ownership and Merger (Articles of Merger) Merging
Nashville Bagel Co. (a Tennessee corporation) into New York Bagel
Enterprises, Inc. (an Oklahoma corporation) (filed as Exhibit 2.3 to
the Registration Statement on Form S-1, File No. 333-05785),
incorporated herein by reference.
2.4 Asset Sale and Purchase Agreement dated December 27, 1995, by and
among New York Bagel Enterprises, Inc., Central & Ridge Yogurt, Inc.
and Paul R. Hoover (filed as Exhibit 2.4 to the Registration Statement
on Form S-1, File No. 333-05785), incorporated herein by reference.
2.5 Asset Purchase Agreement dated November 25, 1996 by and among LAB
Acquisition Corporation, New York Bagel Enterprises, Inc., Lots A'
Bagels, Inc., and Stephen K. Goldstone and Linda F. Goldstone (filed
as Exhibit 2 to Form 8-K, Date of Event: December 6, 1996),
incorporated herein by reference.
2.6 Post Closing Purchase Price Modification Agreement dated July 17, 1997
by and Among Lots A' Bagels, Inc., New York Bagel Enterprises, Inc.,
JBA Enterprises, Inc. and Stephen K. Goldstone and Linda F. Goldstone.
2.7 Asset Sale and Purchase Agreement dated September 26, 1997, by and
Between New York Bagel Enterprises, Inc. and Il Vicino International,
L.L.C.
3.1 Restated and Amended Articles of Incorporation of the Registrant
(filed as Exhibit 3.3 to the Registration Statement on Form S-1,
File No. 333-05785), incorporated herein by reference.
3.2 Restated and Amended Bylaws of the Registrant (filed as Exhibit 3.4 to
the Registration Statement on Form S-1, File No. 333-05785),
incorporated herein by reference.
4.1 Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the
Registration Statement on Form S-1, File No. 333-05785), incorporated
herein by reference.
4.2 Form of New York Bagel Enterprises, Inc. Grant of Incentive Stock
Option (filed as Exhibit 4.2 to the Registration Statement on Form
S-1, File No. 333-05785), incorporated herein by reference.
E-1
<PAGE>
4.3 Form of New York Bagel Enterprises, Inc. Grant of Nonqualified Stock
Option (filed as Exhibit 4.3 to the Registration Statement on
Form S-1, File No. 333-05785), incorporated herein by reference.
4.4 Form of New York Bagel Enterprises, Inc. Non-qualified Option
Agreement (filed as Exhibit 10.1 to Form 10-Q for the quarter period
ended September 28, 1997), incorporated herein by reference.
4.5 New York Bagel Enterprises, Inc. 4% Convertible and Subordinated
Debenture due December 14, 1999 (filed as Exhibit 4.4 to the
Registration Statement on Form S-1, File No. 333-05785), incorporated
herein by reference.
4.6 New York Bagel Enterprises, Inc. Warrant to Purchase Common Stock
(filed as Exhibit 4 to Form 8-K, Date of Event: December 6, 1996),
incorporated herein by reference.
4.7 Schedule of Employees Receiving Stock Option Grants.
4.8 Schedule of Non-employees Receiving Stock Option Grants.
9.1 Contract for Sale of Stock dated June 21, 1994, by and between Robert
Geresi, Paul Sorrentino and Vince Vrana and David L. Murfin and Paul
R. Hoover (filed as Exhibit 9.1 to the Registration Statement on Form
S-1, File No. 333-05785), incorporated herein by reference.
9.2 Stockholders' Agreement dated January 1, 1996, by and among Robert J.
Geresi, Vincent J. Vrana, Paul T. Sorrentino, Paul R. Hoover, David
L. Murfin, Nancy Murfin Moxley, Mark A. Moxley, Barbara Murfin Murphy,
V. Richard Hoover, Philip Faubert, Rodney Joe Trizza, Brent Durham,
John R. Geresi, Chad E. Watkins, Markus K. Scholler and New York Bagel
Enterprises, Inc., a Kansas corporation (filed as Exhibit 9.2 to the
Registration Statement on Form S-1, File No. 333-05785), incorporated
herein by reference.
10.1 New York Bagel Enterprises, Inc. 1996 Incentive Plan (filed as Exhibit
10.1 to the Registration Statement on Form S-1, File No. 333-05785),
incorporated herein by reference.
10.2 First Amendment to New York Bagel Enterprises, Inc. 1996 Incentive
Plan dated May 21, 1997.
10.3 Representative Uniform Franchise Offering Circular dated March 27,
1997, including form of Franchise Agreement and form of Development
Agreement.
10.4 Lease Agreement dated June 1, 1994, by and between Bagel Land, Inc.
and Bagels of Norman, Inc. (filed as Exhibit 10.11 to the
Registration Statement on Form S-1, File No. 333-05785), incorporated
herein by reference.
10.5 Lease Agreement dated December 1, 1993, by and between Cherry Street
Land and Bagel Boss, Inc. (filed as Exhibit 10.12 to the Registration
Statement on Form S-1, File No. 333-05785), incorporated herein
by reference.
10.6 Sublease dated April 1, 1996, by and between Murfin Drilling Company
and New York Bagel Enterprises, Inc. (filed as Exhibit 10.13 to the
Registration Statement on Form S-1, File No. 333-05785), incorporated
herein by reference.
10.7 Real Estate Purchase Agreement dated October 10, 1996 by and between
New York Bagel Enterprises, Inc. and Bagel Land, Inc. (filed as
Exhibit 10.6 to Form 10-K for the annual period ended December 29,
1996), incorporated herein by reference.
E-2
<PAGE>
10.8 Loan Agreement dated September 5, 1997, by and Among New York Bagel
Enterprises, Inc., Lots A' Bagels, Inc. and NationsBank, N.A. (filed
as Exhibit 10.2 to Form 10-Q for the quarter period ended September
28, 1997), incorporated herein by reference.
10.9 Form of Agreement of Purchase and Sale by and Between New York Bagel
Enterprises, Inc. and Commercial Equity, Inc.
10.9.1 Schedule of Agreements of Purchase and Sale by and Between New York
Bagel Enterprises, Inc. and Commercial Equity, Inc.
10.10 Form of Lease Between Commercial Equity, Inc., as Lessor, and New York
Bagel Enterprises, Inc., as Lessee (filed as Exhibit 10.4 to Form 10-Q
for the quarter period ended September 28, 1997), incorporated herein
by reference.
10.10.1 Schedule of Leases by and Between New York Bagel Enterprises, Inc.
and Commercial Equity, Inc.
10.11 Form of Promissory Note of New York Bagel Enterprises, Inc. and
Lots A' Bagels, Inc. payable to the order of NationsBank, N.A.
10.11.1 Schedule of Promissory Notes of New York Bagel Enterprises, Inc. and
Lots A' Bagels, Inc. payable to the order of NationsBank, N.A.
10.12 Lease Between L.P.V. Properties, L.L.C. and New York Bagel
Enterprises, Inc. dated November 1, 1997.
18 Letter of KPMG Peat Marwick LLP dated November 11, 1997 regarding
change in accounting principle concerning restaurant preopening costs
(filed as Exhibit 18 to Form 10-Q for the quarter period ended
September 28, 1997), incorporated herein by reference.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
E-3
<PAGE>
EXHIBIT 2.6
POST CLOSING PURCHASE PRICE MODIFICATION AGREEMENT
THIS POST CLOSING PURCHASE PRICE MODIFICATION AGREEMENT (this "Modification
Agreement") is made and entered into as of the 17th day of July, 1997, by and
among LOTS A' BAGELS, INC., formerly known as LAB Acquisition Corporation, a
Kansas corporation ("Buyer"), NEW YORK BAGEL ENTERPRISES, INC., a Kansas
corporation and the parent corporation of Buyer ("NYBE"), JBA ENTERPRISES, INC.,
formerly known as Lots A' Bagels, Inc., a Colorado corporation ("Seller"), and
STEPHEN K. GOLDSTONE AND LINDA F. GOLDSTONE, who are owners of all of the issued
and outstanding capital stock of Seller (collectively, "Stockholders").
W I T N E S S E T H:
WHEREAS, The parties entered into a certain Asset Purchase Agreement dated
November 25, 1996 (the "Agreement");
WHEREAS, Article IV of the Agreement provides for certain Purchase Price
consideration at Closing, including the Initial Cash, the assumption of the
Assumed Liabilities and the Initial Promissory Note, which is subject to offset,
all of which the parties acknowledge as paid, assumed and delivered by Buyer and
received by Seller;
WHEREAS, Article IV of the Agreement also provides for certain contingent
Purchase Price consideration to be rendered after Closing pursuant to the
calculation of the Final Statement of Operations which determines the Final
Purchase Value, including the potential offset to the Initial Promissory Note,
the potential issuance of the Final Promissory Note, the potential issuance of
the Warrant and the potential additional cash portion of the Adjustment; and
WHEREAS, The parties desire to modify the Purchase Price to be rendered
after Closing as set forth herein, all in accordance with the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. DEFINED TERMS; RECITALS. Unless otherwise defined herein, the
capitalized terms utilized herein shall have the meanings set forth in the
Agreement. The above recitals are incorporated herein as if originally set
forth herein.
2. MODIFICATION OF TERMS OF AGREEMENT. Notwithstanding the terms of the
Agreement or the determination of the Final Statement of Operations and the
related Final Purchase Value, the parties agree that Buyer will pay on the date
of this Agreement by means of federal funds wire transfer pursuant to Seller's
instructions Five Hundred Fifteen Thousand Dollars ($515,000.00) to Seller (the
"Post Closing Payment"). The parties acknowledge and agree that upon Buyer's
payment of the Post Closing Payment the same will be considered payment in full
by Buyer of all Purchase Price obligations, whether as of the Closing Date or
thereafter, including, without limitation, the potential adjustment to the
Initial Promissory Note, the issuance of the Final Promissory Note, the issuance
of the Warrant and the cash portion of the Adjustment.
1
<PAGE>
3. CANCELLATION OF THE INITIAL PROMISSORY NOTE. Upon Buyer's payment of
the Post Closing Payment, Seller shall cancel the Initial Promissory Note by
marking it "Canceled-July 17, 1997," executing the same and delivering it to
Buyer by facsimile and by overnight delivery.
4. SURVIVAL OF AGREEMENT. Except as set forth herein, no other
provisions of the Agreement are modified and all provisions of the Agreement and
any agreement, certificate or other document delivered or given pursuant to the
Agreement shall survive the completion of the transactions contemplated by this
Modification Agreement, including, without limitation, all terms, covenants,
representations, warranties, indemnifications, agreements and other provisions
of the Agreement and such related documents.
5. ALLOCATION OF POST CLOSING PAYMENT. Buyer, Seller and Stockholders
covenant and agree with each other that the Post Closing Payment shall be
allocated to goodwill for purposes of purchase price allocation. Buyer and
Seller covenant to file all tax returns on the basis consistent with such
allocation. Seller, if necessary, and Buyer will each file a supplemental
Internal Revenue Service Form 8594 reflecting the final agreed upon Purchase
Price allocation with their respective 1997 federal income tax returns.
6. AMENDMENT. This Modification Agreement may be amended or modified
in whole or in part only by an agreement in writing executed in the same manner
as this Modification Agreement and making specific reference thereto.
7. COUNTERPARTS; FACSIMILE SIGNATURES. This Modification Agreement may
be executed in one or more counterparts, all of which taken together shall
constitute one instrument. Facsimile signatures of the parties hereto shall be
binding.
8. BINDING ON SUCCESSORS AND ASSIGNS. This Modification Agreement shall
be binding upon, inure to the benefit of, and be enforceable by and against, the
parties hereto and their respective heirs, personal representatives, successors
and permitted assigns; provided, however, that nothing contained in this
Modification Agreement shall confer upon any other person not a party to this
Modification Agreement any rights or remedies hereunder. This is not a third
party beneficiary contract. In particular, without limitation, it is not the
intention of the parties that this Modification Agreement be a contract of which
any governmental entity is a third party beneficiary. No one shall be entitled
to enforce any provision of this Modification Agreement except the parties
hereto, their successors and permitted assigns.
9. HEADINGS AND DEFINITIONS. The headings in the paragraphs of this
Modification Agreement are inserted for convenience only and in no way alter,
amend, modify, limit or restrict the contractual obligation of the parties.
10. EXHIBITS. The Exhibits hereto form an integral part of this
Modification Agreement and are incorporated herein by reference and expressly
made a part hereof.
11. PUBLIC ANNOUNCEMENTS. The parties agree that all statements and/or
public announcements, including those to the media, concerning this transaction
shall be subject to Buyer's and NYBE's prior written approval. Buyer and NYBE
may make any statement and/or public announcement concerning this transaction in
their sole discretion.
12. ENTIRE AGREEMENT; LAW GOVERNING. All prior negotiations and
agreements between the parties hereto are superseded by this Modification
Agreement, and there are no understandings or agreements other than those
expressly set forth herein or in any Exhibit delivered pursuant hereto, except
as modified in writing concurrently
2
<PAGE>
herewith or subsequent hereto. This Modification Agreement shall be governed
by and construed and interpreted according to the laws of the State of Kansas.
IN WITNESS WHEREOF, this Modification Agreement has been duly executed by
Buyer, NYBE, Seller and Stockholders as of and on the date first above written.
LOTS A' BAGELS, INC.
By /s/ ROBERT J. GERESI /s/ STEPHEN K. GOLDSTONE
---------------------------------- --------------------------------
Robert J. Geresi, President STEPHEN K. GOLDSTONE
"Buyer"
NEW YORK BAGEL ENTERPRISES, INC. /s/ LINDA F. GOLDSTONE
--------------------------------
LINDA F. GOLDSTONE
By /s/ ROBERT J. GERESI "Stockholders"
-----------------------------------------
Robert J. Geresi, Chief Executive Officer
"NYBE"
JBA ENTERPRISES, INC.
By /s/ STEPHEN K. GOLDSTONE
---------------------------------------------
Stephen K. Goldstone, Chief Executive Officer
"Seller"
3
<PAGE>
EXHIBIT 2.7
ASSET SALE AND PURCHASE AGREEMENT
THIS ASSET SALE AND PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of this 26th day of September, 1997,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as
"SELLER"
AND IL VICINO INTERNATIONAL, L.L.C.,
a Kansas limited liability company,
hereinafter referred to as
"BUYER"
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. PURPOSE. The purpose of this Agreement is to set forth the terms of a
sale and purchase of all of the assets of Seller relating to Seller's equipment,
leasehold improvements and real property lease that Seller recently acquired but
has never operated or utilized located at 45 North Central Avenue, Clayton,
Missouri (the "Premises"), which Premises are more particularly described in
that certain Lease dated April 18, 1995, as amended November 27, 1995, by and
between Franco, Inc., (the "Landlord"), and Expresso Real Estate Corporation
d/b/a Tuscany Premium Coffees (the "Lease"), a copy of such Lease, as amended,
is attached hereto as Exhibit "A."
2. ASSETS. Subject to the terms and conditions set forth herein, Seller
agrees to sell, and Buyer agrees to purchase, the certain equipment and
leasehold improvements as specifically set forth in Exhibit "B" attached hereto,
and Seller shall obtain and deliver to Buyer a Landlord Estoppel
Certificate/Consent to Assignment of Lease in the form of Exhibit "C" attached
hereto, at Seller's cost, related to Seller's assignment of the Lease to Buyer
and Buyer's assumption of Seller's obligations pursuant to the Lease
(collectively, the "Assets").
3. PURCHASE PRICE. The consideration which Seller agrees to accept, and
Buyer agrees to pay, for the Assets shall be (I) the delivery of a promissory
note in the principal amount of One Hundred Thirty-five Thousand Dollars
($135,000), the form of which promissory note is attached hereto as Exhibit "D"
(the "Promissory Note"), plus (II) the assumption by Buyer of the Assumed
Liabilities set forth in Paragraph 4 herein. All the above described
consideration is hereinafter referred to as the "Purchase Price."
4. ASSUMED LIABILITIES. At Closing, Buyer shall assume the certain
debts, liabilities and obligations of Seller, if any, as described in Exhibit
"E" attached hereto and made a part hereof and only those certain debts,
<PAGE>
liabilities and obligations to the extent and only in the amount the same shall
be outstanding at Closing and listed in Exhibit "E" hereto. All of the debts,
liabilities and obligations set forth in Exhibit "E" are hereinafter referred to
collectively as the "Assumed Liabilities."
5. PURCHASE PRICE ALLOCATION. The Purchase Price shall be allocated as
set forth in Exhibit "F" hereto. The Assumed Liabilities, if any, shall be
allocated by Seller and Buyer based upon the individual debt, liability or
obligation as determined upon the date of Closing. Seller and Buyer acknowledge
that Exhibit "F" hereto is a proper allocation of the Purchase Price and of the
Assumed Liabilities and that Seller and Buyer each agree that they will not take
any position inconsistent with this allocation in preparing financial
statements, tax returns, reports to stockholders, reports to members or
governmental authorities or otherwise which relate to the transactions evidenced
by this Agreement. Seller and Buyer shall agree to the allocations required
under Section 1060 of the Internal Revenue Code of 1986, as amended, and Seller
and Buyer will each file Internal Revenue Service Form 8594 reflecting the final
agreed upon Purchase Price allocation.
6. BILLS OF SALE/ASSIGNMENTS. At the Closing, Seller and Buyer shall
execute an Assignment and Assumption Agreement relating to the Assets and the
Assumed Liabilities, the form of which is attached hereto as Exhibit "G."
7. REPRESENTATIONS AND WARRANTIES OF SELLER. As the basis upon which
this Agreement is made, Buyer hereby relies upon, and Seller hereby represents
and warrants to Buyer as of the date of this Agreement and as of the date of
Closing, as follows:
(a) ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas.
(b) AUTHORIZATION. Prior to the Closing, Seller shall have duly approved
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. The execution and delivery of this
Agreement, the consummation of the transactions described herein, and
the fulfillment of and compliance with the terms and provisions hereof
have been duly authorized by Seller.
(c) TITLE TO PROPERTY. Seller has, or will have as of the date of
Closing, good and marketable title to the equipment and leasehold
improvements portion of the Assets, free and clear of all liens,
claims and encumbrances. SELLER MAKES NO WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO THE CONDITION OF THE ASSETS, AND SUCH ASSETS
ARE TRANSFERRED AND SOLD TO BUYER HEREBY AS IS, WHERE IS.
8. REPRESENTATIONS AND WARRANTIES OF BUYER. As the basis upon which this
Agreement is made, Seller hereby relies upon, and Buyer hereby represents and
warrants to Seller as of the date of this Agreement and as of the date of
Closing, as follows:
(a) ORGANIZATION. Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Kansas and is licensed to do business in the State of Missouri.
(b) AUTHORIZATION. Prior to the Closing, Buyer shall have duly approved
the execution, delivery and performance of this Agreement, the
Promissory Note and the transactions contemplated hereby. The
execution and delivery of this Agreement and the Promissory Note, the
consummation of the transactions described herein, and the fulfillment
of and compliance with the terms and provisions hereof have been duly
authorized by Buyer.
2
<PAGE>
9. INDEMNIFICATION. Each party (the "Indemnitor") shall indemnify the
other party (the "Indemnitee"), and shall hold it harmless from and against any
and all losses, claims, damages, liabilities, costs and other expenses
(including reasonable attorneys' fees) arising out of or connected with any
misrepresentation or breach or failure of any warranty of the Indemnitor
contained in this Agreement, or the nonfulfillment of any covenant, agreement or
obligation of the Indemnitor contained in this Agreement.
10. PRORATION OF TAXES. All taxes and assessments relating to the Assets
and Assumed Liabilities for 1996 and prior years shall be paid by Seller, and
the taxes and assessments relating to the Assets and Assumed Liabilities for
1997 shall be prorated as of the date of the Closing, the said proration to be
based on the 1996 taxes levied or assessments imposed. Buyer shall be
responsible for all taxes and assessments or installments thereof coming due
after the Closing and relating to the period after the Closing. Except as
otherwise provided herein, Seller shall pay and discharge all other taxes
relating to the Assets and Assumed Liabilities which accrue on or prior to the
Closing or which otherwise relate to Seller's business.
11. FEES AND EXPENSES. Seller and Buyer agree to bear their own expenses
for any and all attorneys' fees and other costs involved in the preparation or
negotiation of this Agreement and any other documents relating to the
implementation and consummation of this transaction.
12. CLOSING/POSSESSION. Seller and Buyer acknowledge and agree that time
is of the essence of this Agreement. As a result, the closing of this Agreement
shall take place at 10:00 a.m. on September 26, 1997, at the offices of New York
Bagel Enterprises, Inc., 300 I.M.A. Plaza, 250 North Water Street, Wichita,
Kansas, or at such other time, date and place as shall be mutually satisfactory
to the parties hereto. Such closing date and time is referred to in this
Agreement as the "Closing." Buyer shall be given possession of the Assets as of
the Closing, the Purchase Price shall be delivered to Seller and risk of loss
shall pass to Buyer as of the Closing.
13. CONDITIONS TO BUYER'S RIGHT TO RESCIND. Buyer shall have the right to
rescind this Agreement and the related transactions and agreements in the event
that the following conditions have not occurred by October 31, 1997:
(a) Buyer shall have received all necessary building/occupancy permits to
operate the Premises as an Il Vicino restaurant;
(b) Buyer shall have received a license to serve alcoholic beverages at
the Premises;
(c) Buyer shall have received all necessary signage permits concerning the
Premises;
(d) Seller, Buyer and the Landlord shall have executed and delivered to
Buyer a Landlord Estoppel Certificate/Consent to Assignment of Lease
in the form of Exhibit "C" attached hereto;
(e) Seller and Buyer shall have executed and delivered the Assignment and
Assumption Agreement in the form of Exhibit "G" attached hereto; and
(f) Seller and Buyer shall have executed and delivered the Assignment of
Lease and Assumption Agreement in the form of Exhibit "H" attached
hereto.
14. CONDITIONS TO SELLER'S RIGHT TO RESCIND. Seller shall have the right
to rescind this Agreement and the related transactions and agreements in the
event that the following conditions have not occurred by October 31, 1997:
3
<PAGE>
(a) Seller, Buyer and the Landlord shall have executed and delivered to
Buyer a Landlord Estoppel Certificate/Consent to Assignment of Lease
in the form of Exhibit "C" attached hereto;
(b) Buyer shall have executed and delivered to Seller the Promissory Note
in the form of Exhibit "D" attached hereto;
(c) Seller and Buyer shall have executed and delivered the Assignment and
Assumption Agreement in the form of Exhibit "G" attached hereto; and
(d) Seller and Buyer shall have executed and delivered the Assignment of
Lease and Assumption Agreement in the form of Exhibit "H" attached
hereto.
15. AMENDMENT AND MODIFICATIONS. This Agreement may only be amended or
modified in writing signed by the parties at any time prior to or upon the date
of Closing with respect to any of the terms contained herein.
16. WAIVER. At any time prior to the Closing, the parties hereto may by
mutual agreement (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and/or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by both parties hereto.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.
18. COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be executed
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Facsimile signatures of the parties hereto shall be binding.
19. HEADINGS. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas. Any legal action brought to
enforce or construe this Agreement shall be brought in the courts located in
Sedgwick County, Kansas, and Seller and Buyer hereby agree to the jurisdiction
of such courts and agree that they will not invoke the doctrine of FORUM NON
CONVENIENS or other similar defenses.
21. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither Buyer nor Seller are permitted to assign this Agreement.
22. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS. The
obligations, covenants, agreements, representations, warranties and
indemnifications included or provided for herein or in any exhibit, certificate
or other document delivered pursuant to this Agreement shall survive the date of
Closing.
23. SALES TAXES. Buyer shall pay any and all local, city, county, state
and federal sales taxes due to or as a result of the transactions contemplated
herein.
4
<PAGE>
24. NOTICES. All notices hereunder shall be deemed if in writing and
delivered personally or sent by registered mail or certified mail, return
receipt requested, to the parties at the following addresses, or at such other
addresses as shall be specified by like notice:
If to Buyer: Il Vicino International, L.L.C.
David L. Murfin, Manager
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Facsimile: 316-267-6004
with a copy to: William R. Wood, II, Esq.
Foulston & Siefkin L.L.P.
700 NationsBank Financial Center
100 North Broadway
Wichita, Kansas 67202-2295
Facsimile: 316-267-6345
If to Seller: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
ATTN: Paul R. Hoover
Vice President-Strategic Planning
Facsimile: 316-267-8154
with a copy to: Gregory B. Klenda, Esq.
Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, Kansas 67202-4888
Facsimile: 316-267-0333
Any notice given by mail shall be effective two days after deposit in the United
States mail. Any notice given by facsimile or overnight delivery shall be
effective upon the day after transmission or deposit.
25. PUBLIC ANNOUNCEMENTS. The parties agree that all statements and/or
public announcements, including those to the media, concerning this transaction
shall be subject to the parties' prior written approval, which approval may be
withheld in either party's sole discretion.
26. EXHIBITS. The Exhibits hereto form an integral part of this Agreement
and are incorporated herein by reference and expressly made a part hereof.
27. TERMS AND WORDS. All terms and words used in this Agreement,
regardless of numbers and genders in which they are used, shall be deemed to
include singular or plural and all genders as the context or sense of this
Agreement or any paragraph or clause herein may require.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
IL VICINO INTERNATIONAL, L.L.C.
By /s/ THOMAS D. WHITE
-----------------------------------------
Thomas D. White, Manager
"BUYER"
NEW YORK BAGEL ENTERPRISES, INC.
ATTEST: By /s/ ROBERT J. GERESI
-----------------------------------------
Robert J. Geresi, Chief Executive Officer
By /s/ JON H. CRAMER
---------------------------
Jon H. Cramer, Secretary
"SELLER"
6
<PAGE>
EXHIBIT 4.7
SCHEDULE OF EMPLOYEES RECEIVING STOCK OPTION GRANTS
NEW YORK BAGEL ENTERPRISES, INC.
1997 GRANTS
<TABLE>
INCENTIVE STOCK OPTIONS
Date Shares Strike 1997 1997
Granted Director/Employee Granted Price (Forfeits) (Cancels)
------- ----------------- ------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 January 1, 1997 Mathias Anderson 1,000 $6.125 (1000)
2 January 1, 1997 Jeri Journeycake 500 $6.125 (500)
3 January 1, 1997 Kenny Dove 1,000 $6.125 (1000)
4 January 1, 1997 Libby Demers 1,000 $6.125 (1000)
5 January 1, 1997 Bill Kraphol 1,000 $6.125 (1000)
6 January 1, 1997 Aaron Wedel 1,000 $6.125 (1000)
7 January 1, 1997 Jody Kaase 1,000 $6.125 (1000)
8 January 1, 1997 Kely Popko 1,000 $6.125 (1000)
9 January 1, 1997 Theresa Morgan 1,000 $6.125 (1000)
10 January 1, 1997 Jim Crownover 1,000 $6.125 (1000)
11 January 1, 1997 Larry Massingill 1,000 $6.125 (1000)
12 January 1, 1997 Melissa Cole 1,000 $6.125 (1000)
13 January 1, 1997 Jeff Thorton 1,000 $6.125 (1000)
14 January 1, 1997 Paul Deshaine 1,000 $6.125 (1000)
15 January 1, 1997 Tracy Percifield 1,000 $6.125 (1000)
16 January 1, 1997 Barbara Hamill 1,000 $6.125 (1000)
-------- ---------------------
15,500 (7,000) (8,500)
-------- ---------------------
17 March 3, 1997 Paul Murphy 6,000 $4.310
18 March 3, 1997 Chris Cohea 6,000 $4.310
19 March 3, 1997 Andrew Lee 6,000 $4.310
20 March 3, 1997 Kyle Shipley 6,000 $4.310
--------
24,000
--------
21 July 1, 1997 Derrick Brummett 1,000 $4.190
22 July 1, 1997 Stephanie Baker 1,000 $4.190
23 July 1, 1997 Barbara Spillane 1,000 $4.190
24 July 1, 1997 Donna Padgham 1,000 $4.190
25 July 1, 1997 Mona Borland 1,000 $4.190
26 July 1, 1997 Jason Young 1,000 $4.190
27 July 1, 1997 Todd Bacon 2,500 $4.190
28 July 1, 1997 Erin Welenka 1,000 $4.190
29 July 1, 1997 Brian Bush 2,500 $4.190
30 July 1, 1997 Jon Phelps 1,000 $4.190
31 July 1, 1997 Justin Fransung 1,000 $4.190
32 July 1, 1997 Dave Hedrick 1,000 $4.190
33 July 1, 1997 Katherine Cook 1,000 $4.190
34 July 1, 1997 Billy Seamster 500 $4.190
35 July 1, 1997 Micah Forque 500 $4.190
36 July 1, 1997 Laura Hilderbrand 1,000 $4.190
<PAGE>
EXHIBIT 4.7
SCHEDULE OF EMPLOYEES RECEIVING STOCK OPTION GRANTS
NEW YORK BAGEL ENTERPRISES, INC.
1997 GRANTS
INCENTIVE STOCK OPTIONS
37 July 1, 1997 Emily Anderson 1,000 $4.190
38 July 1, 1997 Celeste Ramirez 500 $4.190
39 July 1, 1997 Will Griggs 1,000 $4.190
40 July 1, 1997 Lisa Page 1,500 $4.190
41 July 1, 1997 Mike Shields 2,000 $4.190
42 July 1, 1997 Oberlin Fonsecca 1,000 $4.190
43 July 1, 1997 Alan Bounds 1,000 $4.190
44 July 1, 1997 Stephanie Barnes 1,000 $4.190
--------
27,000
--------
45 October 6, 1997 Robert Geresi 20,000 $6.050*
46 October 6, 1997 Paul Hoover 20,000 $5.500*
47 October 6, 1997 Paul Sorrentino 20,000 $6.050*
48 October 6, 1997 Vince Vrana 20,000 $6.050*
49 October 6, 1997 Joe Trizza 20,000 $5.500*
50 October 6, 1997 Bob Young 12,500 $5.500*
51 October 6, 1997 Mark Scholler 10,000 $5.500*
52 October 6, 1997 Scott White 5,000 $5.500*
53 October 6, 1997 Chris Moorman 5,000 $5.500*
54 October 6, 1997 John Wallace 5,000 $5.500*
55 October 6, 1997 Suzi Lindsey 5,000 $5.500*
56 October 6, 1997 Dave McLenand 2,500 $5.500*
57 October 6, 1997 Ray Yarrol 2,500 $5.500*
58 October 6, 1997 Celeste Little 2,500 $5.500*
59 October 6, 1997 Michael Longacre 2,500 $5.500*
60 October 6, 1997 Mark Tuller 2,500 $5.500*
61 October 6, 1997 Andy Stafford 2,500 $5.500*
62 October 6, 1997 Cindy Unruh 2,500 $5.500*
63 October 6, 1997 Brain Bush 2,500 $5.500*
64 October 6, 1997 Pat Laughlin 2,500 $5.500*
65 October 6, 1997 Kenny Adams 2,500 $5.500*
66 October 6, 1997 Craig Wallace 1,000 $5.500*
67 October 6, 1997 Kamicha Darby 1,000 $5.500*
68 October 6, 1997 Tracy Lusher 1,000 $5.500*
69 October 6, 1997 Mark Little 1,000 $5.500*
70 October 6, 1997 Robert Maldanado 1,000 $5.500*
71 October 6, 1997 Rhonda Edwards 1,000 $5.500*
72 October 6, 1997 Mark White 1,000 $5.500*
73 October 6, 1997 Ethel Ruggles 1,000 $5.500*
74 October 6, 1997 Michael Harmon 1,000 $5.500*
75 October 6, 1997 Nina Tunnison 1,000 $5.500*
76 October 6, 1997 Victor Gates 500 $5.500*
77 October 6, 1997 Jay Gates 500 $5.500*
78 October 6, 1997 Lisa Page 500 $5.500*
<PAGE>
EXHIBIT 4.7
SCHEDULE OF EMPLOYEES RECEIVING STOCK OPTION GRANTS
NEW YORK BAGEL ENTERPRISES, INC.
1997 GRANTS
INCENTIVE STOCK OPTIONS
79 October 6, 1997 Steve Frazier 2,500 $5.500*
80 October 6, 1997 Jon Cramer 20,000 $5.500*
81 October 6, 1997 Jeri Journeycake 500 $5.500*
82 October 6, 1997 Kenny Dove 1,000 $5.500*
83 October 6, 1997 Bill Kraphol 1,000 $5.500*
84 October 6, 1997 Kely Popko 1,000 $5.500*
85 October 6, 1997 Theresa Morgan 1,000 $5.500*
86 October 6, 1997 Melissa Cole 1,000 $5.500*
87 October 6, 1997 Paul Deshaine 1,000 $5.500*
88 October 6, 1997 Tracy Percifield 1,000 $5.500*
89 October 6, 1997 Barbara Hamill 1,000 $5.500*
90 October 6, 1997 Brent Durham 1,000 $5.500*
91 October 6, 1997 Keith Durham 1,000 $5.500*
92 October 6, 1997 Casey Williamson 500 $5.500*
93 October 6, 1997 Kathryn Elliott 500 $5.500*
94 October 6, 1997 Dana Brown 500 $5.500*
95 October 6, 1997 Julie Fulginite 500 $5.500*
96 October 6, 1997 Alan Cops 200 $5.500*
97 October 6, 1997 Patty Hageman 200 $5.500*
98 October 6, 1997 Sara Carmen 100 $5.500*
--------
214,500
--------
99 October 6, 1997 Robert Geresi 20,000 $4.060
100 October 6, 1997 Paul Hoover 10,000 $3.690
101 October 6, 1997 Jon Cramer 10,000 $3.690
102 October 6, 1997 Paul Sorrentino 10,000 $4.060
103 October 6, 1997 Mark Scholler 10,000 $3.690
104 October 6, 1997 Vince Vrana 10,000 $4.060
105 October 6, 1997 Steve Frazier 10,000 $3.690
106 October 6, 1997 Joe Trizza 10,000 $3.690
--------
90,000
--------
---------------------
GRAND TOTALS 371,000 (7,000) (8,500)
-------- ---------------------
</TABLE>
* These issuances are a result of the Board of Directors meeting dated
October 6, 1997 in which the Board repriced outstanding options by
canceling and re-issuing on a one-for-one basis at an excercise price
of $5.50 per share which is greater than 100% of the quoted close price
of the stock of the corporation in The Wall Street Journal. In
addition, such re-priced options are to vest as originally granted such
that the new vesting periods shall be modified to give credit for the
prior holding periods.
<PAGE>
EXHIBIT 4.8
SCHEDULE OF NON-EMPLOYEES RECEIVING STOCK OPTION GRANTS
NEW YORK BAGEL ENTERPRISES, INC.
1997 GRANTS
<TABLE>
NONQAULIFIED STOCK OPTIONS
Date Shares Strike Exercised
Granted Director Granted Price (Cancelled)
------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
1 October 6, 1997 Bill Atherton a 17,500 $5.500* -
2 October 6, 1997 David Murfin a 17,500 $6.050* -
3 October 6, 1997 Bill Walsh a 17,500 $5.500* -
4 October 6, 1997 Stan Clark a 17,500 $5.500* -
------- --------
70,000 -
------- --------
-------
</TABLE>
a Nonqualified Stock Options have been issued outside of the New York Bagel
Enterprises, Inc. Incentive Stock Plan to the above named Board of
Directors.
* These issuances are a result of the Board of Directors meeting dated
October 6, 1997 in which the Board repriced outstanding options by
canceling and re-issuing on a one-for-one basis at an excercise price of
$5.50 per share which is greater than 100% of the quoted close price of
the stock of the corporation in The Wall Street Journal. In addition, such
re-priced options are to vest as originally granted such that the new
vesting periods shall be modified to give credit for the prior holding
periods.
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO NEW YORK BAGEL ENTERPRISES, INC.
1996 INCENTIVE PLAN
THIS FIRST AMENDMENT TO NEW YORK BAGEL ENTERPRISES, INC. 1996 INCENTIVE
PLAN ("Agreement") is made and entered into as of this 21st day of May, 1997, by
New York Bagel Enterprises, Inc., a Kansas corporation, and its subsidiaries
(the "Company").
W I T N E S S E T H:
WHEREAS, the Company executed and implemented the New York Bagel
Enterprises, Inc. 1996 Incentive Plan dated as of January 16, 1996 (the "1996
Incentive Plan");
WHEREAS, the Company desires to amend certain provisions of the 1996
Incentive Plan;
WHEREAS, on March 13, 1997, the Board of Directors of the Company adopted a
resolution authorizing the amendment of the 1996 Incentive Plan subject to the
approval of the stockholders; and
WHEREAS, on the date hereof, the stockholders of the Company approved the
amendment of the 1996 Incentive Plan by allocating an additional one hundred
thousand (100,000) common shares to the 1996 Incentive Plan.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, intending to be
legally bound, hereby agrees as follows.
1. PARAGRAPH 4 "STOCK SUBJECT TO PLAN." In Paragraph 4, the amount of
"four hundred thousand (400,000) shares" shall be deleted and in its stead the
amount of "five hundred thousand shares (500,000) shares" shall be inserted.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Company as
of and on the date first above written.
NEW YORK BAGEL ENTERPRISES, INC.
ATTEST: By /s/ ROBERT J. GERESI
-------------------------------------
Robert J. Geresi, Chief Executive Officer
By /s/ JON H. CRAMER
------------------------------
Jon H. Cramer, Secretary
<PAGE>
[LOGO]
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
UNIFORM FRANCHISE OFFERING CIRCULAR
FOR PROSPECTIVE FRANCHISEES
Information for Prospective Franchisees 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>
[LOGO]
FRANCHISE OFFERING CIRCULAR
New York Bagel Enterprises, Inc.
A Kansas Corporation
250 N. Water
Wichita, Kansas 67202
(316) 267-7373
The franchisee will operate a delicatessen type restaurant featuring
freshly baked bagels and certain other food products and beverages.
The initial franchise fee to operate a restaurant with a bakery (a "Bakery
Restaurant") is $21,000 and to operate a restaurant without a bakery (a
"Satellite Restaurant") is $12,000. The estimated initial investment for a
Bakery Restaurant ranges from $195,000 to $293,500 and for a Satellite
Restaurant ranges from $104,500 to $175,000. These ranges exclude real estate
costs. The initial development fee will generally be the sum of $7,000 times
the number of Bakery Restaurants and $4,000 times the number of Satellite
Restaurants to be developed. If we grant a franchise under a Development
Agreement, you will pay an additional development fee of $14,000 for each Bakery
Restaurant and $8,000 for each Satellite Restaurant in lieu of the entire
initial franchise fee described above.
Risk Factors:
1. THE FRANCHISE AGREEMENT AND THE DEVELOPMENT AGREEMENT PERMIT THE FRANCHISEE
OR DEVELOPER TO SUE OR ARBITRATE WITH US ONLY IN THE STATE OF KANSAS. OUT
OF STATE LITIGATION OR ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE
SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO SUE OR ARBITRATE
WITH US IN KANSAS THAN IN YOUR HOME STATE.
2. THE FRANCHISE AGREEMENT AND THE DEVELOPMENT AGREEMENT STATE THAT KANSAS 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.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available at your public library.
If you learn that anything in the Offering Circular is untrue, contact
the Federal Trade Commission.
Effective Date: March 27, 1997
<PAGE>
TABLE OF CONTENTS
ITEM HEADING PAGE
- ---- ------- ----
1 The Franchisor, its Predecessors and Affiliates. . . . . . . . . . 1
2 Business Experience. . . . . . . . . . . . . . . . . . . . . . . . 2
3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5 Initial Franchise Fee. . . . . . . . . . . . . . . . . . . . . . . 6
6 Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7 Initial Investment . . . . . . . . . . . . . . . . . . . . . . . . 11
8 Restrictions on Sources of Products and Services . . . . . . . . . 14
9 Franchisee's Obligations . . . . . . . . . . . . . . . . . . . . . 15
10 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11 Franchisor's Obligations . . . . . . . . . . . . . . . . . . . . . 18
12 Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13 Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14 Patents, Copyrights and Proprietary Information. . . . . . . . . . 32
15 Obligation to Participate in the Actual Operation of the
Franchise Business. . . . . . . . . . . . . . . . . . . . . . . . 33
16 Restrictions on What the Franchisee May Sell . . . . . . . . . . . 34
17 Renewal, Termination, Transfer and Dispute Resolution. . . . . . . 35
18 Public Figures . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-i-
<PAGE>
19 Earnings Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 41
20 List of Outlets. . . . . . . . . . . . . . . . . . . . . . . . . . 42
21 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 49
22 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
23 Receipt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXHIBITS
A. Development Agreement
B. Franchise Agreement
C. Guaranty (of Franchise Agreement)
D. Guaranty (of Development Agreement)
E. Covenant Agreement
F. Confidentiality Agreement
G. Addendum to Lease Agreement
H. Financial Statements
-ii-
<PAGE>
ITEM 1
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
To simplify the language in this Offering Circular "we", "us", and "NYBE"
mean New York Bagel Enterprises, Inc., the franchisor, but do not include the
corporation's officers, directors, or shareholders. "You" means the person that
buys the franchise, and if you are a corporation, partnership, or limited
liability company, certain provisions of the Franchise Agreement and the
Development Agreement will include your owners. NYBE is a Kansas corporation
which was incorporated on December 27, 1995. NYBE is the successor by merger to
New York Bagel Enterprises, Inc., an Oklahoma corporation which was
incorporated on May 24, 1990 ("NYBE-Oklahoma"). NYBE does not currently do
business under another name. NYBE's (and NYBE-Oklahoma's) principal business
address is 250 N. Water, Wichita, Kansas 67202.
We franchise the right to operate a quick service bakery and delicatessen
type restaurant featuring freshly made bagels and deli-style sandwiches, under
the name "NEW YORK BAGEL CAFE & DELI." These restaurants operate under a unique
system developed by us for the efficient management and operation of clean,
attractive, and distinctive restaurants and for the production and sale of high
quality food products at these restaurants under a uniform method of operation.
Our system includes special recipes and menu items; distinctive design, decor,
color scheme, and furnishings; standards, specifications, and procedures for
operations; procedures for quality control; training and assistance; and
advertising and promotional programs (the "System"). The System is identified
by means of certain trade names, service marks, and trademarks, including the
marks "NEW YORK BAGEL CAFE & DELI" and "NYB", and any other trade names, service
marks, and trademarks as we may designate for System identification (the
"Marks").
We offer a development agreement (the "Development Agreement") in the form
attached as Exhibit A. The Development Agreement grants the right and
obligation to establish and operate a certain number of New York Bagel Cafe and
Delicatessen restaurants (collectively, the "Restaurants"; individually, a
"Restaurant") in a specified area (the "Assigned Area") at specific locations to
be designated in separate franchise agreements. You will establish each
Restaurant under the development schedule in the Development Agreement. The
Development Agreement provides exclusivity and a right of first refusal to you
for additional Restaurants within the Assigned Area. As a condition to
exercising the development right for each Restaurant, you must secure a location
approved by us. After we approve the location for the Restaurant, you must sign
a franchise agreement (the "Franchise Agreement") in the form attached as
Exhibit B for each right to develop a Restaurant exercised under the Development
Agreement. The Franchise Agreement governs the construction and operation of
the Restaurant at the approved location and provides an area of exclusivity
within a radius of the approved location (the "Assigned Territory"). In certain
areas, we may offer individual Franchise Agreements for the
-1-
<PAGE>
establishment and operation of one Restaurant at a specified location. You
will pay separate fees for the Development Agreement and the Franchise
Agreement. The franchise offered is for the establishment and operation of a
Restaurant under the Franchise Agreement.
Typically, franchisees open a Bakery Restaurant first. Later, franchisees
may operate Satellite Restaurants located within a short distance from the
Bakery Restaurant under separate Franchise Agreements for each Satellite
Restaurant entered into under the Development Agreement. The initial franchise
fee and the total initial investment for a Satellite Restaurant is significantly
lower than that of a Bakery Restaurant. A Satellite Restaurant sells bagels and
bakery items prepared at a Bakery Restaurant and does not have the substantial
investment in ovens and other equipment. We are not obligated to grant a
franchise for a Satellite Restaurant, except under the terms of the Development
Agreement.
Customers of NEW YORK BAGEL CAFE & DELI Restaurants are typically consumers
in need of quick service meals for breakfast or lunch. Competitors include
major fast food chains who serve both breakfast and lunch, doughnut shops,
delicatessens, and sandwich shops.
There are no regulations specific to the quick food service industry,
although you must comply with all local, state, and federal health and
sanitation laws in the operation of your Restaurant. Other laws may be
applicable to your business and we urge you to make inquiries about these laws.
The first NEW YORK BAGEL CAFE & DELI was opened in Stillwater, Oklahoma
in 1986 by New York Bagel Shop, Inc., an Oklahoma corporation. In 1990,
NYBE-Oklahoma was formed to begin franchising NEW YORK BAGEL CAFE & DELI
restaurants and it acquired the rights to trade names, service marks, and
trade secrets from New York Bagel Shop, Inc. NYBE-Oklahoma began offering
franchises for Restaurants in January, 1993. NYBE-Oklahoma was merged into
NYBE on December 28, 1995. New York Bagel Shop, Inc., has not offered
franchises for restaurants or any other type of business, nor has NYBE nor
NYBE-Oklahoma offered franchises for any other type of business.
ITEM 2
BUSINESS EXPERIENCE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER/DIRECTOR: ROBERT J. GERESI
Mr. Geresi was employed as either president or vice-president of New York
Bagel Shop, Inc. (1985), New York Bagel Shop & Delicatessen, Inc. (1992), VPR,
Incorporated (1988),
-2-
<PAGE>
Bagel Boss, Inc. (1990), and Bagels of Norman, Inc. (1994) from the bracketed
dates. Each of these corporations was based in Stillwater, Oklahoma, except
for New York Bagel Shop & Delicatessen, Inc., which was based in Wichita,
Kansas. Each of these corporations merged into NYBE-Oklahoma on December 28,
1995. Mr. Geresi's chief duties for each of these corporations included
financial management, quality control, and inventory management. Mr. Geresi
was also a director of and employed by NYBE-Oklahoma since May 24, 1990,
where his duties included financial management, franchise marketing,
training, and service. Mr. Geresi's duties at NYBE include financial
management, franchise marketing, training, and service.
VICE PRESIDENT/DIRECTOR: PAUL T. SORRENTINO
Since 1986, Mr. Sorrentino has been employed as either president or
vice-president of New York Bagel Shop, Inc. (1985), New York Bagel Shop &
Delicatessen, Inc. (1992), VPR, Incorporated (1988), Bagel Boss, Inc. (1990),
and Bagels of Norman, Inc. (1994) from the bracketed dates. Each of these
corporations was based in Stillwater, Oklahoma, except for New York Bagel Shop &
Delicatessen, Inc., which was based in Wichita, Kansas. Each of these
corporations merged into NYBE-Oklahoma on December 28, 1995. Mr. Sorrentino's
chief duties for each of these corporations included marketing, lease
negotiations, and expansion plans. Mr. Sorrentino was also a director of and
was employed by NYBE-Oklahoma since May 24, 1990, where his duties included
franchise marketing, training, and service. Mr. Sorrentino's duties at NYBE
include franchise marketing, training, and service.
VICE PRESIDENT/DIRECTOR: VINCENT VRANA
In 1986, Mr. Vrana was employed as the manager of the first New York Bagel
Shop & Delicatessen in Stillwater, Oklahoma, which was and is owned by New York
Bagel Shop, Inc. (1985). Mr. Vrana's duties included supervision of employees,
inventory management, and bookkeeping. Since 1988, Mr. Vrana has been employed
as president or vice-president of VPR, Incorporated (1988), Bagel Boss, Inc.
(1990), New York Bagel Shop & Delicatessen, Inc. (1992), and Bagels of Norman,
Inc. (1994) from the bracketed dates. Each of these corporations was based in
Stillwater, Oklahoma, except for New York Bagel Shop & Delicatessen, Inc., which
was based in Wichita, Kansas. Each of these corporations merged into
NYBE-Oklahoma on December 28, 1995. Mr. Vrana's chief duties for each of these
corporations included purchasing, baking production, and employee relations.
Mr. Vrana was a director of and was employed by NYBE-Oklahoma since May 24,
1990, where his chief duty was operations management. Mr. Vrana's chief duty
at NYBE is operations management.
-3-
<PAGE>
VICE PRESIDENT/DIRECTOR: PAUL R. HOOVER
Mr. Hoover purchased a franchise to operate a New York Bagel & Delicatessen
satellite restaurant in March of 1994. Mr. Hoover joined NYBE-Oklahoma and NYBE
as a Director and Vice President effective as of July 1, 1994. His principal
duties at NYBE-Oklahoma and NYBE include franchise marketing and administration.
Since 1984, Mr. Hoover has been a director and stockholder of West-Kan Foods,
Inc., a Wendy's franchisee. Since 1990, Mr. Hoover has also been the owner of
Paul R. Hoover Real Estate Company.
DIRECTOR: DAVID L. MURFIN
Mr. Murfin joined NYBE-Oklahoma as a Director effective as of July 1, 1994.
Since January, 1990, Mr. Murfin has been president of Murfin Drilling Company,
Wichita, Kansas.
DIRECTOR: WILLIAM S. ATHERTON
Mr. Atherton joined NYBE as a Director in January of 1996. Since 1986, Mr.
Atherton has been a partner of Atherton & Murphy Investment Company, an
investment partnership located in Tulsa, Oklahoma.
DIRECTOR: WILLIAM J. WALSH, JR.
Mr. Walsh joined NYBE as a Director in December of 1996. Since 1978, Mr.
Walsh has served as President and Chief Operating Officer of Daland Corporation,
a multi-unit, multi-state Pizza Hut franchisee based in Wichita, Kansas.
DIRECTOR: STANLEY K. CLARK.
Mr. Clark Joined NYBE as a Director in December of 1996. Since 1975, Mr.
Clark has served as the Chief Executive Officer of Stan Clark Companies, a
restaurant company based in Stillwater, Oklahoma.
CHIEF FINANCIAL OFFICER, SECRETARY, AND TREASURER: JON H. CRAMER.
Mr. Cramer joined NYBE in December, 1996 as Chief Financial Officer,
Secretary, and Treasurer. From July, 1988 to December, 1996, Mr. Cramer was
employed by KPMG Peat Marwick LLP, most recently as a Senior Audit Manager, in
its Wichita, Kansas offices.
-4-
<PAGE>
DIRECTOR OF FRANCHISE DEVELOPMENT: MARKUS K. SCHOLLER
Mr. Scholler joined NYBE-Oklahoma in October, 1994. His principal duties
include providing operational support, training, and development for
franchisees. From November 5, 1990 to October 2, 1994, Mr. Scholler was
training general manager for J.S. Ventures, Inc., a franchisee of Applebees
Neighborhood Grill & Bar, Wichita, Kansas. From September, 1986 to September,
1990, Mr. Scholler was manager/managing partner of Midco Foods, Inc., a
franchisee of T.J. Cinnamons Bakery, Wichita, Kansas.
FRANCHISE BROKER: DOUGLAS W. BURFORD.
Mr. Burford became a franchise broker for NYBE for a portion of the State
of Florida in December of 1996. Since 1985, Mr. Burford has been President of
Burford Enterprises, Inc., a real estate/investment/development company, of Ft.
Myers, Florida.
FRANCHISE BROKER: DIRK ATHERTON.
Mr. Atherton became a franchise broker for NYBE for a portion of the State
of Florida in December of 1996. Since 1990, Mr. Atherton has owned and operated
Iguana Mia, a restaurant in Cape Coral, Florida.
ITEM 3
LITIGATION
MICHAEL VARENHORST AND DEBORAH A. VARENHORST V. PAUL R. HOOVER, CHERI M.
HOOVER, MIDWEST PEST CONTROL, WILLIAM P. VEATCH, SR. D/B/A QUALITY BUILDING
INSPECTION SERVICE, BECK ROOFING & CONSTRUCTION, LAWRENCE BECK, J.P. WEIGAND &
SONS, INC., SALLY VOLBRECHT, AND DONNA BEARD D/B/A DONNA BEARD REAL ESTATE (Case
No. 95 C 2540 in the Eighteenth Judicial District, Sedgwick County, Kansas) was
filed on November 22, 1995. The plaintiffs contracted to purchase a house from
Mr. Hoover and his wife in October 1993. Plaintiffs now allege that the
property had termite or carpenter ant damage, a roof problem, a breakdown in
some heating and cooling equipment and related defects. Plaintiffs allege that
(i) Hoovers negligently or intentionally failed to disclose the alleged defects
in the property, (ii) the real estate agent and broker who represented
plaintiffs in the purchase breached their fiduciary duties by negligently or
intentionally failing to discover or disclose the alleged defects, (iii) the
real estate broker who listed the property for Hoovers negligently failed to
disclose or fraudulently concealed the alleged defects, (iv) the pest inspector
hired by plaintiffs negligently or intentionally failed to
-5-
<PAGE>
discover and disclose insect damage, (v) the building inspector hired by
plaintiffs breached his contract to competently inspect the property and
negligently failed to discover and disclose the alleged defects, and (vi) the
roofer misrepresented to plaintiffs that the roof he had installed on the
property during Hoovers' ownership was "first class" and a "twenty-year
roof". Plaintiffs seek to recover money damages allegedly in excess of
$50,000. Hoovers have denied all material allegations of the plaintiffs'
petition and are vigorously defending the action.
Except for this action, no litigation is required to be disclosed in this
Offering Circular.
ITEM 4
BANKRUPTCY
No person previously identified in Items 1 or 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
We offer a Development Agreement to establish more than one Restaurant
under a development schedule. We also offer in certain geographical areas a
Franchise Agreement to establish one Restaurant.
Under the Development Agreement, you must pay us an initial fee of $7,000
per Bakery Restaurant and $4,000 per Satellite Restaurant required to be
developed in the Assigned Area. The number of Restaurants is determined by
agreement between you and us before the Development Agreement is signed. In
addition to establishing the number of Restaurants you must develop in the
Assigned Area, the development schedule in the Development Agreement will also
specify when each of the Restaurants must be constructed and opened. You must
pay the entire amount of the initial development fee in a lump sum to us at the
time the Development Agreement is signed. The development fee is nonrefundable.
You must pay an initial franchise fee of $21,000 for a Bakery Restaurant or
$12,000 for a Satellite Restaurant when you sign a Franchise Agreement for the
Restaurant. You must operate each Restaurant under a separate Franchise
Agreement, and this fee must be paid in a lump sum to us when each Franchise
Agreement is signed. The initial franchise fee is nonrefundable. However, if
you sign a Franchise Agreement under a Development Agreement, you will pay an
additional development fee of $14,000 for a Bakery Restaurant or $8,000 for
-6-
<PAGE>
a Satellite Restaurant in lieu of the entire initial franchise fee described
above. Consequently, if you are developing a single Restaurant, you will pay
a single initial franchise fee per Restaurant, and if you are signing a
Development Agreement, you will pay an initial development fee of $7,000
multiplied by the number of Bakery Restaurants to be developed and $4,000
multiplied by the number of Satellite Restaurants to be developed when you
sign the Development Agreement, plus an additional development fee of $14,000
per Bakery Restaurant ($21,000 less $7,000) or $8,000 per Satellite
Restaurant ($12,000 less $4,000) when you sign the Franchise Agreement for
each Restaurant.
ITEM 6
OTHER FEES
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
NAME OF FEE(1) AMOUNT DUE DATE REMARKS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royalty 4% of Gross Receipts Payable monthly Gross Receipts means all gross revenue during each
on the 15th day month of every kind or nature related to the NYBE
of the next months Restaurant, including all restaurant revenue posted
whether it is collected or remains uncollected, all
charges for other products, services, and facilities
and vending machine receipts, but excluding sales
taxes or other taxes collected by you from customers
for transmittal to appropriate taxing authorities.
See also Item 9.
- --------------------------------------------------------------------------------------------------------------------------------
Marketing and Maximum - 2% of monthly Upon establish- We can establish and administer a Marketing and
Advertising Fund(2) Gross Receipts ment of a Marketing Advertising Fund which would be used to pay for the
and Advertising Fund, costs of developing and preparing advertising
payable monthly on materials for use within the System. See also Items
the 15th day of the 8, 9, and 11.
next month
- --------------------------------------------------------------------------------------------------------------------------------
Cooperative Maximum - 2% of Upon establish- We can designate geographic areas for purposes of
Advertising(3) monthly Gross ment of an establishing local or regional advertising
Receipts Advertising cooperatives for the System. See also Items 8, 9,
Cooperative, and 11.
payable monthly
on the 15th day
of the next month
- --------------------------------------------------------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
NAME OF FEE(1) AMOUNT DUE DATE REMARKS
- --------------------------------------------------------------------------------------------------------------------------------
Additional Daily Training Fee Upon demand We will provide initial training at no cost to you
Training at NYBE's although you must pay your employees' travel,
standard rate, lodging, and food expenses. You must reimburse us for
which is currently training replacement personnel and other required or
$75 per day, plus optional training we may provide your employees. See
out of pocket also Items 9 and 11.
expenses.
- --------------------------------------------------------------------------------------------------------------------------------
New Product/ Costs of inspection Upon demand We may inspect and test samples of items you desire
Service Testing and testing to purchase or lease from a source not previously
approved by us in writing. You or the proposed source
must pay the reasonable expenses of the testing or
inspection. See also Item 8.
- --------------------------------------------------------------------------------------------------------------------------------
Additional Daily Training Fee Upon demand We will provide initial on-site assistance for the
Assistance at NYBE's standard opening of your first Restaurant at no cost to you.
rate, which is currently You must pay a reasonable daily assistance fee and
$75 per day, plus out of expenses for travel, lodging, and meals for each
pocket expenses. member of NYBE personnel providing any other
assistance to you. See also Items 9 and 11.
- --------------------------------------------------------------------------------------------------------------------------------
Audit Expenses Costs of audit, Upon demand Payable if audit shows an under-statement of at
including travel, least 2% of reported Gross Receipts for any month.
lodging, and fees or Also payable if you fail to file required financial
wages of personnel of reports. See also Item 9.
NYBE or third parties
required to conduct
the audit.
- --------------------------------------------------------------------------------------------------------------------------------
Transfer $2,500 Before Payable when you transfer an interest in the
consummation of Franchise Agreement or the Development Agreement or
transfer when a controlling interest in you is transferred if
transfer satisfies other conditions specified in the
Development Agreement and the Franchise Agreement. No
transfer fee is payable if you transfer the interest
to us or to an entity you formed for convenience of
ownership and not involving a change of beneficial
ownership if the transfer satisfies other conditions
specified in the Franchise Agreement. See also
Item 9.
- --------------------------------------------------------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
NAME OF FEE(1) AMOUNT DUE DATE REMARKS
- --------------------------------------------------------------------------------------------------------------------------------
Public Offering $20,000 As incurred If our costs and expenses exceed $20,000, you must
Fee pay us an additional amount to fully reimburse us for
our reasonable costs and expenses associated with
reviewing the proposed offering, including legal and
accounting fees. See also Item 9.
- -----------------------------------------------------------------------------------------------------------------------------
Renewal Fee Amount equal to Upon signing of The renewal fee for a Bakery Restaurant is $10,500
one-half of initial new Franchise and for a Satellite Restaurant is $6,000. See
franchise fee. Agreement befor also Item 9.
expiration of
initial term of
Francise Agreement.
- -----------------------------------------------------------------------------------------------------------------------------
Interest 1.5% per month or as Upon demand Payable on overdue amounts owed to us. Interest
allowed by law begins from the date of the underpayment. See also
Item 9.
- -----------------------------------------------------------------------------------------------------------------------------
Costs and Will vary under the As incurred Payable if incurred by us in obtaining injunctive or
Attorneys Fees circumstances other relief for the enforcement of any term in the
Development Agreement or Franchise Agreement. See
also Item 9.
- -----------------------------------------------------------------------------------------------------------------------------
Indemnification Will vary under the As incurred You must reimburse us for claims arising from your
circumstances Restaurant's operations or any occurrence at your
Restaurant. See also Item 9.
- -----------------------------------------------------------------------------------------------------------------------------
Termination Fee(4) Will vary under the Upon termination Amount due equals the sum of all franchise fees,
circumstances of the Franchise royalty fees, and marketing and advertising fees for
Agreement when the 18 calendar months of operation at the Restaurant
we terminate after preceding your default. See also Item 9.
your default
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Except for Cooperative Advertising, all fees and charges are imposed
by and are payable to us. All fees are nonrefundable. At our option, you must
give us authorization to debit your bank operating account for the amount due.
(2) As of the date of the Offering Circular, the required Marketing and
Advertising Fund payment is one-half of one percent of Gross Receipts per month
and we reserve the right to increase the Marketing Fund payment to a maximum of
two percent per month. You must spend a minimum of 4% of Gross Receipts per
year for media advertising and promotional materials. We consider your
contributions to a Marketing and Advertising Fund a portion of the minimum
required advertising expenditure.
-9-
<PAGE>
(3) We and our affiliates will participate in any cooperative
established for geographic regions that include Restaurants owned by us or
our affiliates. No advertising cooperatives have yet been established.
Whether our or our affiliates' Restaurants will have controlling voting power
in any advertising cooperative will depend on the geographic region included
in the cooperative. We own 26 Restaurants in Kansas, Missouri, New Mexico,
Oklahoma, Tennessee and Texas. You must spend a minimum of 4% of Gross
Receipts per year for media advertising and promotional materials. We
consider your contributions to local or regional advertising cooperatives a
portion of the minimum required advertising expenditure.
(4) If your Restaurant has been in operation for less than 18 months,
the termination fee will be based on the period your Restaurant has been in
operation and projected on an 18 calendar month basis.
-10-
<PAGE>
ITEM 7
INITIAL INVESTMENT
YOUR ESTIMATED INITIAL INVESTMENT
<TABLE>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Amount
-------------------------
Bakery Satellite
Description Restaurant Restaurant Method of Payment
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Franchise Fee (1) $21,000 $12,000 Lump sum with portion paid
in advance under
Development Agreement, if
applicable.
- ---------------------------------------------------------------------------------------
Site Evaluation Expenses $1,000 to $1,000 to As incurred
$2,500 $2,500
- ---------------------------------------------------------------------------------------
Travel and Living $2,500 to $500 to As incurred
Expenses While Training $5,000 $2,500
- ---------------------------------------------------------------------------------------
Leasehold $25,000 to $15,000 to Lump sum
Improvements (2) $85,000 $50,000
- ---------------------------------------------------------------------------------------
Real Estate (2) (Note 2) (Note 2) (Note 2)
- ---------------------------------------------------------------------------------------
Equipment and $85,000 to $35,000 to Lump sum
Furniture (3) $110,000 $65,000
- ---------------------------------------------------------------------------------------
Signs $2,000 to $2,000 to Lump sum
$5,000 $5,000
- ---------------------------------------------------------------------------------------
Miscellaneous Opening $10,000 $10,000 As incurred
Costs (4)
- ---------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Whether To Whom Payment
Description When Due Refundable is to be Made
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Franchise Fee (1) On signing Franchise No NYBE
Agreement or, partially on
signing Development
Agreement.
- ---------------------------------------------------------------------------------------
Site Evaluation Expenses Before opening No Airlines, hotels,
restaurants
- ---------------------------------------------------------------------------------------
Travel and Living During training No Airlines, hotels,
Expenses While Training restaurants
- ---------------------------------------------------------------------------------------
Leasehold Before opening No Vendors
Improvements (2)
- ---------------------------------------------------------------------------------------
Real Estate (2) (Note 2) (Note 2) (Note 2)
- ---------------------------------------------------------------------------------------
Equipment and Before opening No Vendors
Furniture (3)
- ---------------------------------------------------------------------------------------
Signs Before opening No Vendors
- ---------------------------------------------------------------------------------------
Miscellaneous Opening As incurred No Suppliers, utilities,
Costs (4) etc.
- ---------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Amount
-------------------------
Bakery Satellite
Description Restaurant Restaurant Method of Payment
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Opening Inventory (5) $6,000 to $3,000 Lump sum
$10,000
- ---------------------------------------------------------------------------------------------------------
Advertising - $2,500 to $2,500 to As incurred
3 months (6) $5,000 $5,000
- ---------------------------------------------------------------------------------------------------------
Additional Funds - $40,000 $20,000 As incurred
3 months (7)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED $195,000 to $104,500 to
INITIAL INVESTMENT $293,500 (8) $175,000 (8) (THESE TOTALS DO NOT INCLUDE REAL ESTATE COSTS)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Whether To Whom Payment
Description When Due Refundable is to be Made
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Opening Inventory (5) Before opening No Vendors
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Advertising - As incurred No Radio stations,
3 months (6) newspapers
- -------------------------------------------------------------------------------------------
Additional Funds - As incurred No Employees,
3 months (7) suppliers, utilities
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) FRANCHISE FEE/DEVELOPMENT FEE. If we grant the franchise under a
Development Agreement, you must pay a development fee equal to one-third of
the initial franchise fee upon your signing the Development Agreement. We do
not finance any portion of the fee.
(2) REAL ESTATE AND IMPROVEMENTS. Your land acquisition costs will vary
depending upon a multitude of factors including whether the property is
purchased or leased, the size and location of the property, and the
availability of financing on commercially reasonable terms. The typical
Bakery Restaurant has 2,200 to 3,000 square feet. The typical Satellite
Restaurant has 1,500 to 2,500 square feet. The Restaurant location will most
likely be one accessible to vehicular traffic. In addition, site improvement
costs may vary based upon soil and environmental conditions, availability of
utilities to the site, the topography of the site, the size of the parcel,
local zoning, and other building requirements. If you elect to purchase the
site, we anticipate that the range of cost of the property plus the site
improvements would be between $200,000 and $600,000 depending upon location
and whether the Restaurant is a Bakery Restaurant or a Satellite Restaurant.
Acquisition costs may exceed this range in certain cases or localities. Most
franchisees lease retail space for their Restaurant in strip shopping
centers, malls, or in downtown areas. Rent varies widely from location to
location, but we estimate the rent to range from $25,000 to $60,000 per year
depending upon the size, condition, and location of the leased premises. A
one month security deposit is also generally required. The cost of
remodeling the leased premises to meet our design specifications for
leasehold improvements depends upon the condition and configuration of the
existing retail space.
(3) EQUIPMENT AND FURNITURE. The dining area of the typical Restaurant
has a seating capacity for approximately 40 to 70 persons. Cost of furniture
will vary based upon seating capacity. Equipment cost includes all equipment
necessary to operate the Restaurant including standard fixtures and equipment
(including ovens, mixers, and other baking
-12-
<PAGE>
equipment if a Bakery Restaurant), refrigerators, serving line equipment,
cash registers, point of sale computer systems, decor, and furniture
(including retail equipment like beverage dispensers, coffee makers, cup
dispensers, product display cases, etc.).
(4) MISCELLANEOUS OPENING COSTS. Includes security deposits for items
other than real estate, utility costs, business permits, and prepaid expenses.
(5) OPENING INVENTORY. This amount represents the cost of baking
ingredients (if a Bakery Restaurant), baked goods, deli-style meats and
cheeses, chips, beverages, other assorted food products, paper products, and
promotional items necessary to operate for approximately one week.
(6) ADVERTISING. You must conduct a grand opening advertising and
promotional program for the Restaurant during the period commencing 7 days
before and ending 90 days after its opening and to expend at least $2,500.
You will be able to utilize the marketing and public relations and media
materials we have developed or approved. The cost of initial grand opening
advertising is between $2,500 and $5,000 and depends greatly upon the market,
media buying power, and the number of Restaurants in the existing market.
This amount includes the estimated cost of newspaper and radio advertising,
circulars, and coupons for the grand opening and the first three months of
business. It does not include the Marketing and Advertising Fund
contribution of up to 2% of your monthly Gross Receipts which you must pay at
our discretion, or contributions to any applicable advertising cooperatives
of up to 2% of your monthly Gross Receipts.
(7) ADDITIONAL FUNDS. This amount represents an estimate of the funds
needed to cover pre-opening expenses, initial employee wages, utility
deposits, insurance premiums, licenses, permit costs, uniforms, recruitment,
in-store training expense, various kitchen small wares, and additional
opening capital for other variable costs (e.g., electricity, telephone, heat,
etc.), paper, cleaning, and other supplies. These figures are estimates and
we cannot guarantee that you will not have additional expenses starting the
business. Your costs will depend on various factors, including: how carefully
you follow our methods and procedures for food preparation and operation;
your management skill, experience, and business acumen; local economic
conditions; your location; the local market for bagels; competition; the
prevailing wage rate; and the sales level reached during the initial period.
(8) TOTAL ESTIMATED INITIAL INVESTMENT. This total estimated initial
investment does not include any real estate costs. We relied on our nine
years of experience in the bakery and delicatessen business to compile these
estimates. You should review these figures carefully with a business advisor
before purchasing the franchise. We do not offer direct or indirect
financing to franchisees for any items. The availability and terms of
financing will depend on several factors including the availability of
financing generally, your creditworthiness, your available collateral, and
lending policies of financial institutions. The estimate does not include
any finance charge, interest, or debt service obligation.
-13-
<PAGE>
ITEM 8
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
We do not currently offer, for purchase or lease, any goods, services,
supplies, fixtures, equipment, inventory, computer hardware or software, or real
estate to franchisees. You must purchase particular brands of deli-style meats
and cheeses only from a designated supplier to assure the quality of food
products and the health and safety of customers. You must purchase a particular
brand of flour but we do not require you to make that purchase from a specific
supplier. You must purchase particular types of equipment but we do not require
you to purchase a particular brand or purchase from a designated supplier. You
must purchase only the types and/or brands of other food products, beverages,
ingredients, flavoring, garnishes, cartons, bags, boxes, napkins, containers,
and packaging supplies approved by us. We do not require you to purchase these
items from a designated source.
Mandatory specifications and quality standards are contained in the NYBE
Confidential Operating Manual (the "NYBE Manual") or in policy and procedure
statements otherwise communicated to franchisees in writing. We may modify
these specifications and standards and you must comply with all of our
modifications.
If you would like to sell any food products or beverage or use any
ingredients, flavorings, garnishes, containers, or packaging supplies of a type
not previously approved by us, you must notify us in writing and submit to us
whatever information, specifications, or samples that we request. Within a
reasonable time (our goal is 30 days), we will notify you if the item meets our
specifications and quality standards. You or the proposed supplier must
reimburse us for our reasonable expenses for inspection and testing. We will
also base our decision upon review of the suppliers's business reputation,
delivery performance, credit rating, and liability insurance coverage. For food
products, the quality of the product is of paramount importance to our decision
to approve a product.
All items used in the operation of your Restaurant which require our
approval or which must meet our specifications which you will purchase or lease
from independent third party vendors. The goods, equipment, supplies, and
ingredients which you must purchase from approved suppliers or under our
specifications represent 90% of your total purchases for the establishment of
your Restaurant. Our criteria for supplier approval is generally not available
to our franchisees. You do not receive any material benefits like renewal or
granting of additional franchises based upon your use of designated or approved
sources.
Neither we nor our affiliates derive any revenue, rebates, or other
material consideration as a result of any purchases we require you to make. We,
our affiliates, and you do, however, benefit from discounts from certain food
product suppliers as a result of our group purchasing
-14-
<PAGE>
power. These discounts are the same for us, our affiliates, and our
franchisees. At this time, there are no organized purchasing or distribution
cooperatives although local or regional advertising cooperatives may be
formed in the future. Item 11 of this Offering Circular describes
advertising cooperatives in more detail. We have negotiated national chain
account purchase agreements with Pepsi and Frito Lay, which have agreed to
make products available for purchase by franchisees at national chain account
pricing.
All your marketing and promotion in any manner or medium must be factual,
ethical, and in good taste in our judgment and must conform to our specified
standards and requirements. You must submit to us (by mail, return receipt
requested), for our prior written approval (except for prices to be charged),
samples of all advertising or promotional plans and materials that you desire to
use and that have not been prepared or previously approved by us. If you do not
receive written disapproval within 15 days from our receipt of your plans and
materials, we will be deemed to have approved. You may not use any marketing or
promotional materials that we have not prepared or approved. See Item 11 of
this Offering Circular for more information concerning advertising and
promotional requirements.
You must construct or remodel your Restaurant in accordance with our
specifications. You must also purchase or lease and use only the fixtures,
equipment, furniture, and signs as we may specify in the NYBE Manual or
otherwise approve. We must approve in writing any alterations to our
specifications you propose to make before any work is begun on the proposed
alteration.
You must furnish us copies of certain insurance policies required by the
Franchise Agreement and other evidence of insurance coverage and payment of
premiums as we may request.
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>
- -----------------------------------------------------------------------------------------------------------------
ITEM IN OFFERING
OBLIGATION(1) SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
a. Site selection and acquisition/ Sections 2.2, 5.1, and 5.2 of Franchise Items 5, 6, 7, and 11
lease Agreement and Sections I and III of
Development Agreement
- -----------------------------------------------------------------------------------------------------------------
-15-
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
ITEM IN OFFERING
OBLIGATION(1) SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------
b. Pre-opening purchases/leases Section 5.5 of Franchise Agreement and Items 7 and 8
Section III of Development Agreement
- --------------------------------------------------------------------------------------------------------------
c. Site development and other Sections 5.2, 5.6, 5.7, and 7.1 of Items 6, 7, and 11
pre-opening requirements Franchise Agreement and Section III of
Development Agreement
- --------------------------------------------------------------------------------------------------------------
d. Initial and ongoing training Sections 5.7 and 7.2 of Franchise Agreement Items 6, 7, 11,
and 15
- --------------------------------------------------------------------------------------------------------------
e. Opening Section 5.7 of Franchise Agreement Items 7 and 11
- --------------------------------------------------------------------------------------------------------------
f. Fees Sections 4.1, 4.2, 4.3, 6.5, 9.3, 9.4, 10.3, Items 5, 6, 7, and 11
13.3, 13.7, and 15.11 of Franchise Agreement
and Sections II and VII of Development
Agreement
- --------------------------------------------------------------------------------------------------------------
g. Compliance with standards and Sections 5.5, 7.3, 7.5, 8.1 and 8.3 of Items 8, 11, and 16
policies/Operating manual Franchise Agreement
- --------------------------------------------------------------------------------------------------------------
h. Trademarks and proprietary Sections 2.6, 11.1, 11.2, 11.3, 11.4, 11.6, Items 13 and 14
information(2) 15.2, and 15.7 of Franchise Agreement;
Section V of Development Agreement; Sections
1 and 2 of Confidentiality Agreement; and
Section 2 of Covenant Agreement(3)
- --------------------------------------------------------------------------------------------------------------
i. Restrictions on products/ Sections 7.4, 8.1, and 8.2 of Franchise Item 16
services offered Agreement
- --------------------------------------------------------------------------------------------------------------
j. Warranty and customer service None
requirements
- --------------------------------------------------------------------------------------------------------------
k. Territorial development and Sections III and IV of Development Agreement Items 1 and 12
sales quota
- --------------------------------------------------------------------------------------------------------------
l. Ongoing product/service Section 8.1 of Franchise Agreement Item 8
purchases
- --------------------------------------------------------------------------------------------------------------
m. Maintenance, appearance, and Section 7.6 of Franchise Agreement Items 8 and 11
remodeling requirements
- --------------------------------------------------------------------------------------------------------------
n. Insurance Sections 12.1, 12.2, and 12.3 of Franchise Items 6, 8, and 11
Agreement
- --------------------------------------------------------------------------------------------------------------
o. Advertising Sections 5.7, 8.6, 9.1, 9.2, 9.3, 9.4, Items 6, 7, 8, and 11
and 15.5 of Franchise Agreement
- --------------------------------------------------------------------------------------------------------------
p. Indemnification Section 12.4 of Franchise Agreement and Item 6
Section X of Development Agreement
- --------------------------------------------------------------------------------------------------------------
-16-
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
ITEM IN OFFERING
OBLIGATION(1) SECTION IN AGREEMENT CIRCULAR
- -----------------------------------------------------------------------------------------------------------------
q. Owner's participation/ Sections 7.2, 11.9, and 16.1 of Franchise Items 11 and 15
management/staffing Agreement
- --------------------------------------------------------------------------------------------------------------
r. Records/reports Sections 7.7, 10.1, 10.2, and 15.12 of Items 6 and 11
Franchise Agreement
- --------------------------------------------------------------------------------------------------------------
s. Inspections/audits Sections 8.4 and 10.3 of Franchise Items 6 and 11
Agreement
- --------------------------------------------------------------------------------------------------------------
t. Transfer(4) Sections 13.1, 13.2, 13.3, 13.5, 13.6, 13.7, Items 6, 15, and 17
and 13.8 of Franchise Agreement and Section
VII of Development Agreement
- --------------------------------------------------------------------------------------------------------------
u. Renewal Section 3.2 of Franchise Agreement Items 6 and 17
- --------------------------------------------------------------------------------------------------------------
v. Post-termination obligations(2) Sections 11.2, 11.4, 15.1, 15.2, 15.3, 15.4, Items 6, 11, 14, and 17
15.5, 15.6, 15.7, 15.8, 15.9, 15.10, 15.11,
and 15.12 of Franchise Agreement; Section VI
of Development Agreement; and Section 2 of
Covenant Agreement(3)
- --------------------------------------------------------------------------------------------------------------
w. Non-competition covenants(2) Sections 11.5, 11.6, 11.7, 11.8, 11.9, and Item 17
11.10 of Franchise Agreement; Section VIII
of Development Agreement; and Section 2 of
Covenant Agreement(3)
- --------------------------------------------------------------------------------------------------------------
x. Dispute resolution(5) Sections 12.5, 19.1, 19.2, 19.3, 21.11, and Item 17
21.12 of Franchise Agreement and Section XV
of Development Agreement
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Your owners must guarantee all of your obligations in the Franchise
Agreement and the Development Agreement.
(2) All of your partners, owners, officers, directors, managers, and
members must honor all of your obligations in Article 11 of the Franchise
Agreement.
(3) Upon our request, you must have your officers, directors, partners,
members, managers, and owners sign a Covenant Agreement in the form attached to
this Offering Circular as Exhibit E.
(4) These obligations are also imposed on your owners.
(5) The obligations to engage in mediation and arbitration are also
imposed on your officers, directors, partners, members, managers, and owners.
-17-
<PAGE>
ITEM 10
FINANCING
NYBE does not offer direct or indirect financing. NYBE does not guarantee
your note, lease, or obligation.
ITEM 11
FRANCHISOR'S OBLIGATIONS
Except as listed below, we need not provide any assistance to you. Before
you open your business, we will:
1. Grant you rights to establish a specific number of Restaurants within an
Assigned Area. (Development Agreement - Section I.A)
2. Loan you a Development Manual containing site selection guidelines,
prototype plans, and specifications (not for construction) for a Bakery
Restaurant and a Satellite Restaurant (Development Agreement - Section
V.A), or provide a set of then-current prototype plans and specifications
(not for construction) for a typical Restaurant. (Franchise Agreement -
Section 6.2) Provide you with site layout plans and specifications which
adapt our prototype plans to your Restaurant site. (Franchise Agreement -
Section 6.3) You may have to have "as-built" plans or blueprints prepared
at your expense depending upon the location and local ordinances.
3. Provide on-site evaluation of your site if we deem it necessary after we
receive your market feasibility study for the site. (Development Agreement
- Section V.A)
4. Approve or disapprove the site for the Restaurant and determine your
Assigned Territory for the Restaurant. (Development Agreement - Section
III.B and Franchise Agreement - Sections 2.2, 2.4, and 5.1) A discussion
of the selection of your site for the Restaurant appears later in this Item
11 under the caption "SITE SELECTION".
5. Not unreasonably withhold our approval of the lease terms or purchase
contract for the site of the Restaurant. (Development Agreement - Section
III.B and Franchise Agreement - Sections 5.2 and 5.3)
6. Approve your evidence of insurance naming us as an additional insured and
approve your evidence that all necessary permits, licenses, and
certifications for the construction and
-18-
<PAGE>
operation of the Restaurant have been obtained. (Franchise Agreement -
Sections 5.2 and 5.3)
7. Loan you one copy of the NYBE Manual. (Franchise Agreement - Section 6.6)
As of the effective date of this Offering Circular, the NYBE Manual has 126
pages and its table of contents is as follows:
TABLE OF CONTENTS
I. INTRODUCTION PAGE
------------ ----
Use of this Manual . . . . . . . . . . . . . . . . . . . . . I, 1
Material confidentiality . . . . . . . . . . . . . . . . . . I, 1
Manual revisions . . . . . . . . . . . . . . . . . . . . . . I, 1
History of New York Bagel Cafe & Deli. . . . . . . . . . . . I, 2
Your responsibilities as franchisee. . . . . . . . . . . . . I, 3
How New York Bagel is different among our competitors. . . . I, 4
Front-of-House defined . . . . . . . . . . . . . . . . . . . I, 5
Back-of-House defined. . . . . . . . . . . . . . . . . . . . I, 5
Executive and Support Staff. . . . . . . . . . . . . . . . . I, 6
II. STANDARDS
Consistency among operations . . . . . . . . . . . . . . . .II, 1
NYB Visitation Report. . . . . . . . . . . . . . . . . . . .II, 2
NYB Restaurant Opening Inspection (NYBROI) . . . . . . . . .II, 4
Customer Service . . . . . . . . . . . . . . . . . . . . . .II, 6
III. SUPPORT (SUMMARY OF CONTENT)
* OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . III, 1
* EMPLOYEE POLICIES. . . . . . . . . . . . . . . . . . . . III, 2
* RECIPES. . . . . . . . . . . . . . . . . . . . . . . . . III, 3
* ITEM PREP & PRESENTATION . . . . . . . . . . . . . . . . III, 4
* KITCHEN ADMINISTRATION . . . . . . . . . . . . . . . . . III, 5
* NYBROI DESCRIPTOR. . . . . . . . . . . . . . . . . . . . III, 6
* FRANCHISE OPENING CHECKLIST. . . . . . . . . . . . . . . III, 7
* TRAINING GUIDELINES. . . . . . . . . . . . . . . . . . . III, 8
* QUIZZES/QUIZ KEY . . . . . . . . . . . . . . . . . . . . III, 9
* NYB MARKETING/MERCHANDISING. . . . . . . . . . . . . . . III, 10
* REAL ESTATE DATA PACKAGE . . . . . . . . . . . . . . . . III, 11
* UNIT S.O.P. (Standard Operating Procedures). . . . . . . III, 12
-19-
<PAGE>
IV. OPERATIONS/PERSONNEL FORMS
Personnel Forms:
* NYB Application. . . . . . . . . . . . . . . . . . . . . IV, 1
* Reference check. . . . . . . . . . . . . . . . . . . . . IV, 2
* Employment Eligibility Verification (I-9). . . . . . . . IV, 3
* Employee Status Report w/ W-4. . . . . . . . . . . . . . IV, 4
* Orientation checklist. . . . . . . . . . . . . . . . . . IV, 5
* Uniform agreement. . . . . . . . . . . . . . . . . . . . IV, 6
* Schedule of Availability/Request . . . . . . . . . . . . IV, 7
* File Maintenance Sheet . . . . . . . . . . . . . . . . . IV, 8
* Job Description. . . . . . . . . . . . . . . . . . . . . IV, 9
* Attendance Controller. . . . . . . . . . . . . . . . . . IV, 10
* Employee Warning Notice. . . . . . . . . . . . . . . . . IV, 11
* Positive Performance Report. . . . . . . . . . . . . . . IV, 12
* Employment Review & Performance Evaluation . . . . . . . IV, 13
* Exit Interview . . . . . . . . . . . . . . . . . . . . . IV, 14
Operation & Financial Forms:
* Daily Sales Worksheet. . . . . . . . . . . . . . . . . . IV, 15
* Daily Prep List. . . . . . . . . . . . . . . . . . . . . IV, 16
* Weekly Sales Recap . . . . . . . . . . . . . . . . . . . IV, 17
* Inventory Worksheet. . . . . . . . . . . . . . . . . . . IV, 18
* Waste Control. . . . . . . . . . . . . . . . . . . . . . IV, 19
* Purchase Recap . . . . . . . . . . . . . . . . . . . . . IV, 20
* Inter-Unit Transfer. . . . . . . . . . . . . . . . . . . IV, 21
* P & L Worksheet. . . . . . . . . . . . . . . . . . . . . IV, 23
* Sales Comparison . . . . . . . . . . . . . . . . . . . . IV, 24
* Incident Report. . . . . . . . . . . . . . . . . . . . . IV, 25
* Personnel Tracking . . . . . . . . . . . . . . . . . . . IV, 26
* Purveyor Phone List. . . . . . . . . . . . . . . . . . . IV, 27
* Coupon Tracking. . . . . . . . . . . . . . . . . . . . . IV, 28
V. APPROVED VENDORS & LABELS
Bakery ingredients . . . . . . . . . . . . . . . . . . . . . V, 1
Beverages. . . . . . . . . . . . . . . . . . . . . . . . . . V, 3
Breads & Bakery other. . . . . . . . . . . . . . . . . . . . V, 4
Cream Cheese . . . . . . . . . . . . . . . . . . . . . . . . V, 5
Dairy. . . . . . . . . . . . . . . . . . . . . . . . . . . . V, 6
Food other . . . . . . . . . . . . . . . . . . . . . . . . . V, 7
Produce. . . . . . . . . . . . . . . . . . . . . . . . . . . V, 9
Uniforms . . . . . . . . . . . . . . . . . . . . . . . . . . V, 10
-20-
<PAGE>
Clothing novelty . . . . . . . . . . . . . . . . . . . . . . V, 11
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . V, 12
VI. ROLE DEFINITIONS
Duties and responsibilities. . . . . . . . . . . . . . . . . VI, 1
Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . VI, 4
Management practices . . . . . . . . . . . . . . . . . . . . VI, 6
Management - Leading by example. . . . . . . . . . . . . . . VI, 8
VII. SITUATION GUIDELINES
Guest relations. . . . . . . . . . . . . . . . . . . . . . VII, 1
Handling complaints. . . . . . . . . . . . . . . . . . . . VII, 3
Employee confrontations. . . . . . . . . . . . . . . . . . VII, 5
Vendors. . . . . . . . . . . . . . . . . . . . . . . . . . VII, 8
Intruders. . . . . . . . . . . . . . . . . . . . . . . . . VII, 9
VIII. EMPLOYEE RELATIONS
Hiring . . . . . . . . . . . . . . . . . . . . . . . . . . VIII, 1
Orientation. . . . . . . . . . . . . . . . . . . . . . . . VIII, 3
Training . . . . . . . . . . . . . . . . . . . . . . . . . VIII, 5
Listening techniques . . . . . . . . . . . . . . . . . . . VIII, 8
Motivation . . . . . . . . . . . . . . . . . . . . . . . . VIII, 10
Monthly staff meetings . . . . . . . . . . . . . . . . . . VIII, 12
Counseling
a. Praise Sessions . . . . . . . . . . . . . . . . . . . VIII, 13
b. Conducting evaluations. . . . . . . . . . . . . . . . VIII, 14
c. Discipline sessions . . . . . . . . . . . . . . . . . VIII, 16
d. Documentation . . . . . . . . . . . . . . . . . . . . VIII, 17
e. Executing reprimand . . . . . . . . . . . . . . . . . VIII, 18
f. Terminations. . . . . . . . . . . . . . . . . . . . . VIII, 19
8. Provide you with specifications and/or names of suppliers for all required
equipment, inventory, and supplies. We do not deliver or install any of
these items. (Franchise Agreement - Section 8.1)
9. Provide a pre-opening training program for you or your general manager and
other personnel designated in the NYBE Manual, unless you already operate a
Restaurant and we conclude pre-opening training is not required.
(Franchise Agreement - Section 6.4)
-21-
<PAGE>
A description of our training program appears later in this Item 11 under
the caption "TRAINING PROGRAMS".
10. Provide initial on-site assistance before opening of your Restaurant if it
is your first Restaurant. (Franchise Agreement - Sections 6.1 and 6.5)
11. Perform an on-site inspection and investigation as we deem appropriate to
become satisfied that you have complied with all requirements necessary for
opening the Restaurant. (Franchise Agreement - Section 5.7)
During the operation of the franchised business, we will:
1. Provide initial on-site assistance after the opening of your Restaurant, if
this is your first Restaurant. Our initial on-site assistance before and
after the opening of your first Restaurant is limited in the aggregate to
approximately ten days. (Franchise Agreement - Section 6.5)
2. Provide additional assistance to you after the opening of your Restaurant
upon your reasonable request and subject to the availability of our
personnel for your payment of a daily assistance fee and related expenses.
See Item 6. (Franchise Agreement - Section 6.5)
3. Modify and add to the NYBE Manual as we deem appropriate to reflect changes
in the business, authorized products or services, or specifications for
authorized products and services, equipment requirements, quality
standards, and operating procedures. (Franchise Agreement - Section 6.6)
4. Provide additional optional or required training programs or seminars as we
deem appropriate in consideration of your payment of an additional training
fee as described in Item 6. (Franchise Agreement - Sections 6.4 and 7.2)
A description of our additional training appears later in this Item 11
under the caption "TRAINING PROGRAMS".
5. Maintain and administer a marketing and advertising fund to pay for
developing and preparing advertising materials, if we decide, in our sole
discretion, to establish a marketing and advertising fund. (Franchise
Agreement - Section 9.3) A discussion of the marketing and advertising
fund appears later in this Item 11 under the caption "MARKETING AND
ADVERTISING FUND".
6. Approve or disapprove all advertising and promotional plans and other
materials displaying our Marks which you desire to use which we have not
prepared or previously approved. (Franchise Agreement - Section 9.1)
Additional advertising information appears later in this Item 11 under the
caption "OTHER ADVERTISING INFORMATION".
-22-
<PAGE>
7. Designate geographic areas for advertising cooperatives if we decide, in
our sole discretion, to establish local or regional advertising
cooperatives. (Franchise Agreement - Section 9.4) A discussion of
advertising cooperatives appears later in this Item 11 under the caption
"LOCAL AND REGIONAL ADVERTISING COOPERATIVES".
8. Suggest prices for goods and services you offer. Our suggested prices are
recommendations only and are not mandatory. (Franchise Agreement - Section
8.8)
9. Provide you with written notice of your right to purchase from us any
restaurants we have acquired in your Assigned Territory under the Franchise
Agreement or your Assigned Area under the Development Agreement which
operate under proprietary marks other than those used for the System.
(Development Agreement - Section I.C and Franchise Agreement - Section 2.5)
10. Not unreasonably withhold our approval of the relocation of your Restaurant
within your Assigned Territory. (Franchise Agreement - Section 2.3)
MARKETING AND ADVERTISING FUND. The Marketing and Advertising Fund (the
"Marketing Fund"), is accounted for separately from our other funds. We will
not use the Marketing Fund to defray any of our general operating expenses,
except for reasonable salaries, administrative costs, travel expenses, and
overhead as we may incur in activities related to the administration of the
Marketing Fund and all costs of development and preparing national, regional,
point of sale, and local advertising materials for use within the System. We
determine, in our sole discretion, the nature, theme, and timing of advertising
and the kind and quality of advertising materials to be provided to you through
the Marketing Fund. The advertising may be disseminated via radio, television,
newspaper, or magazines. You are currently required to contribute one-half of
one percent of your Gross Receipts to the Marketing Fund. Your maximum monthly
contribution to the Marketing Fund may not exceed 2% of your Gross Receipts.
The franchisees of franchises which we sold before January 1, 1995 and our
affiliates must contribute only a maximum of 1.5% of their Gross Receipts to the
Marketing Fund. We contribute to the Marketing Fund at the same percentage of
Gross Receipts required of franchisees within the System. We will direct
through an in-house advertising department, or our designee, a national or
regional advertising agency, will direct, all advertising and promotional
programs and activities, with sole discretion over the concepts, materials, and
media used in these programs and activities and their placement and allocation.
We may spend, on behalf of the Marketing Fund, in any fiscal year an amount
greater or less than the aggregate contribution of all Restaurants to the
Marketing Fund in that year, and the Marketing Fund may borrow from us or others
to cover deficits or invest any surplus for future use. We will use all
interest earned on monies contributed to the Marketing Fund to pay advertising
costs before we expend other assets of the Advertising Fund. Marketing Fund
contributions will not be principally used to sell additional franchises. We
will prepare an annual unaudited statement of
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<PAGE>
monies collected and costs incurred by the Marketing Fund and furnish it to
you upon written request. (Franchise Agreement - Section 9.3)
Expenditures by the Marketing Fund may not be proportionate or equivalent
to contributions to the Marketing Fund by Restaurants operating in that
geographic area. You or your Restaurant may not benefit directly or in
proportion to your contribution to the Marketing Fund. Neither we nor the
Marketing Fund shall be liable to you for the maintenance, direction, or
administration of the Marketing Fund, including for contributions, expenditures,
investments, or borrowings, except for acts constituting willful misconduct.
The funds collected by the Marketing Fund, and any earnings thereon, are not and
shall not be an asset of us or any franchisee. (Franchise Agreement - Section
9.3)
LOCAL AND REGIONAL ADVERTISING COOPERATIVES. We can designate geographical
areas to establish local or regional advertising cooperatives ("Cooperatives")
for the System. Each Cooperative shall be organized for the exclusive purpose
of administering local and regional advertising programs and developing, subject
to our approval, promotional materials for use by members in local advertising.
No Cooperatives have yet been established. Each Cooperative will be organized
and governed in a form and manner as we shall approve. Cooperatives will
operate under written governing documents which will be available for review by
any member of the Cooperative. These governing documents may not be modified
without our prior consent. The party responsible for administration of the
Cooperatives may vary from Cooperative to Cooperative, and may be NYBE. NYBE
has the power to require Cooperatives to be formed, changed, dissolved, and
merged. Cooperatives will prepare an annual unaudited statement of monies
collected and costs incurred by the Cooperative and will furnish it to its
members upon request. You must contribute to any Cooperative of which you are a
member the amounts determined by the membership of the Cooperative, up to 2% of
your Gross Receipts. We will, for each of our company-owned Restaurants, make
contributions to any applicable Cooperative at the same percentage of Gross
Receipts as is required of franchisees within the Cooperative. (Franchise
Agreement - Section 9.4)
OTHER ADVERTISING INFORMATION. In addition to the Marketing Fund and
Cooperatives, you must do certain local advertising which includes grand opening
advertising in a minimum amount of $2,500 and spend a minimum of 4% of Gross
Receipts per year for media advertising and promotional materials, including
contributions to the Marketing Fund and Cooperatives. You must submit to us for
approval all advertising materials that we have not prepared or approved. You
must at all times comply with our instructions regarding the use of advertising
materials, including modifying or ceasing to use these materials, whether or not
we previously prepared or approved the materials. You must also submit periodic
reports verifying your local marketing expenditures as requested by us. No
advertising council has yet been established. (Franchise Agreement - Section
9.1) See also Items 6, 8, and 9.
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<PAGE>
CASH REGISTERS/COMPUTER SYSTEMS. You must keep books and business records
according to our formats. (Franchise Agreement - Section 10.1) In addition,
you must buy or use a Panasonic 5000 (or equivalent) point of sale system, which
is available from third party vendors. (Franchise Agreement - Section 10.1)
The Panasonic 5000 point of sale system features a continuous sealed tape with
non-resettable totals, management report capability, security controls, and
preset pricing capability.
SITE SELECTION. The Development Agreement grants you an Assigned Area
within which to establish and operate Restaurants at specific locations, each to
be designated in a separate Franchise Agreement. You must timely complete the
development schedule in the Development Agreement, but otherwise there is no
specified time limit in which you must locate your site for the Restaurant.
Before the acquisition by lease or purchase of any site for a Restaurant, you
must submit to us, in the form we specify, a description of the site, a market
feasibility study for the site, and other information and materials as we may
reasonably require, together with evidence satisfactory to us which confirms
your favorable prospects for obtaining a site. We will have 15 days after the
receipt of this information from you to approve or disapprove, in our sole
discretion, the site as the location for the Restaurant. If we do not
disapprove the site within the 15 days, the site will be deemed approved by us.
Within 45 days after site approval by us, you must (i) sign a lease (if the
premises are to be leased) after our prior written approval of the lease terms,
which approval will not be unreasonably withheld, or a binding agreement to
purchase the site, and (ii) sign a Franchise Agreement for the approved site.
(Development Agreement - Section III.B) Our approval of the site (and the lease
or purchase agreement for the site) does not in any way guarantee that the site
will become a profitable Restaurant.
If the site is disapproved or is otherwise not feasible, you may elect to
submit a second site proposal within 90 days after the receipt of our
disapproval of the site on the same terms and conditions as the first site
approval request. If you fail to submit a site proposal which we find to be
feasible, we will not refund any amounts paid to us. The factors we consider in
approving or disapproving a proposed site will include, without limitation, the
general location and neighborhood, visibility and access from major traffic
arteries, available parking, physical characteristics of existing buildings,
competing businesses, lease terms, and proximity to shopping centers and other
commercial activities.
TIME FROM AGREEMENT TO FIRST OPENING. You must request and receive our
approval of the proposed site and layout before commencing construction on the
Restaurant. You must construct and open the Restaurant under the time sequence
specified in the Franchise Agreement. (Franchise Agreement - Sections 5.1, 5.2,
5.3, 5.6, and 5.7) During the past fiscal year, the approximate length of time
required for site approval was 45 to 90 days. You must diligently pursue the
completion of the Restaurant premises in accordance with the plans and
specifications in order for the Restaurant to be ready to open for business
within 90 days after you receive possession of the Restaurant site.
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<PAGE>
After signing the Franchise Agreement, you must complete construction,
order and install furniture, furnishings, and interior decor, hire and train
personnel, and have a general manager complete our training program. We
estimate that the length of time from the signing a Franchise Agreement to the
opening of the Restaurant will generally be 120 days to 210 days. These
estimated time schedules will not be uniform for all franchisees. The time in
which these steps are to be accomplished may vary based on the location of the
Restaurant, negotiations between us concerning the schedule to be established,
and other matters, including the ability to obtain a lease, financing, or
building permits, zoning and local ordinances, weather conditions, shortages, or
delayed delivery or installation of equipment, fixtures, and signs.
TRAINING PROGRAMS. We will provide a pre-opening training program for your
general manager and the other personnel employed by you in positions designated
in the NYBE Manual. The instructional material used in the pre-opening training
program is the NYBE Manual. Our pre-opening training program is described in
the following table and explanatory notes.
<TABLE>
- -------------------------------------------------------------------------------------------------
Hours of
Classroom Hours of On The
Subject(1) Time Begun(2) Training(3) Job Training(2) Instructor(4)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Introduction Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Food Preparation and Note 2 None 120 Restaurant Manager
Baking
- -------------------------------------------------------------------------------------------------
Purchasing Note 2 None 16 Restaurant Manager
- -------------------------------------------------------------------------------------------------
Inventory Management Note 2 None 24 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Cost Management Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Equipment Operation and Note 2 None 100 Restaurant Manager
Maintenance
- -------------------------------------------------------------------------------------------------
Staffing and Scheduling Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Human Resources Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Accounting and Reporting Note 2 None 24 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Sanitation Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Safety Note 2 None 16 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
Basic Management Note 2 None 24 Franchisee Trainer
Techniques
- -------------------------------------------------------------------------------------------------
-26-
<PAGE>
- -------------------------------------------------------------------------------------------------
Hours of
Classroom Hours of On The
Subject(1) Time Begun(2) Training(3) Job Training(2) Instructor(4)
- -------------------------------------------------------------------------------------------------
Review Note 2 None 40 Franchisee Trainer
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) We may elect not to provide initial training to some or all of your
personnel if you already operate a Restaurant and we conclude that the training
is not required. (Franchise Agreement - Section 6.4) For approximately 60 full
business days, your personnel will receive instruction in the operation of a
Restaurant at one of our Restaurants in Kansas or Oklahoma as specified by us.
(Franchise Agreement - Section 7.2)
(2) It is the nature of the restaurant business that all aspects of
training are integrated, that is, there are no definitive starting and
stopping times. The amount of time spent in each area will also depend upon
the background and abilities of your personnel.
(3) Our program does not include any classroom training.
(4) The instructors will be the manager of the Restaurant in which your
manager and other personnel are training and our franchisee trainer, Markus
K. Scholler. Mr. Scholler's experience is set forth in Item 2 of this
Offering Circular.
We do not charge for this training or service, but you must pay the travel
and living expenses for your manager and other personnel. (Franchise Agreement
- - Section 7.1) Confidentiality agreements may be required as a condition of
attending our training. The training program must be completed to our
satisfaction before opening your Restaurant but there is no specified time by
which you must complete your training. If your general manager or other
employees, in our reasonable determination, do not meet our standard for
knowledge and performance, or do not pursue or complete our training program to
our satisfaction, we reserve the right to request that the general manager or
employee(s) be retrained, or that another person be trained and perform the
functions of the category of employee for which the training was offered. We
plan to be flexible in scheduling training to accommodate our personnel, you,
and your personnel. There currently are no fixed training schedules.
We will also provide on-site pre-opening assistance and training. We will
provide the on-site training immediately before the opening of the Restaurant
and after the start of Restaurant operations for an aggregate total of
approximately three to seven days. We will provide the initial on-site training
program to you free of charge.
We may, but are not obligated to, provide training programs for your other
employees. We also may make available other required or optional training
courses, programs, conferences, seminars, and materials. If we require
additional training, you must require your employees to successfully complete
the training. Any additional courses, programs, conferences, and seminars
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<PAGE>
may be conducted in Wichita, Kansas, Stillwater, Oklahoma, or another
location as we may designate. We may contract with other persons or firms to
provide your training.
We will provide and pay for instructors and facilities for initial
training. You must pay for travel, lodging, and meals for any person attending
training and any wages due your employees during time spent in training. We may
charge a daily training fee at our standard rate, which currently is $75 per
day, for instruction and course materials for training programs other than
initial training. We may require confidentiality agreements from your employees
as a condition of attending our training.
ITEM 12
TERRITORY
The Development Agreement grants you an Assigned Area within which we will
not establish, nor franchise anyone other than you to establish, any Restaurants
before the expiration of the development schedule if you comply with all the
terms and conditions of the Development Agreement. We will generally identify
the Assigned Area by one or more Designated Market Areas on the current Nielsen
Wall Map published by the A.C. Nielsen Company, or as a state, city, county, or
other political subdivision. The description of the territory will vary from
area to area depending upon population densities, demographic trends, and other
factors affecting a specific franchise area. Before signing the Development
Agreement, we will describe the Assigned Area by attaching a description of the
area as an exhibit to the Development Agreement.
The territorial exclusivity we grant to you does not depend upon the
achievement of a certain sales volume, market penetration, or any other
contingency, except as stated in the next paragraph. The next paragraph
describes the only circumstances under which the Assigned Area granted to you
may be altered before the expiration or termination of the Development
Agreement.
Upon any default by you under the Development Agreement, at our option, we
(in addition to other remedies) may reduce the number of options for Restaurants
granted to you, reduce the size of the Assigned Area, or terminate the
territorial exclusivity granted to you.
The Franchise Agreement will grant an Assigned Territory where we will not
establish another franchised or company-owned Restaurant under the System. The
Assigned Territory will generally be identified by a radius from a specific
location (typically two and one-half miles), a particular standard metropolitan
statistical area, or a city, county, or other political subdivision. The radius
or other description of the territory may vary from Restaurant to Restaurant
depending upon population densities, business districts, demographic trends, and
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other factors affecting a specific franchise location. Before signing the
Franchise Agreement, we will describe the Assigned Territory by inserting a
description of the approved franchise location and exclusive area in the
Franchise Agreement. Relocation of a Restaurant requires our consent.
You must use the Restaurant premises solely for the operation of a NEW YORK
BAGEL CAFE & DELI Restaurant. We condition your territorial exclusivity upon
maintaining in effect the Franchise Agreement by complying with its terms and
not committing a default, but it does not depend upon achievement of a certain
sales volume, market penetration, or other contingency.
You do not receive the right to acquire additional franchises within your
Assigned Territory or otherwise. You may, however, apply to purchase an
additional franchise within your Assigned Territory to operate another
Restaurant. You can solicit customers and accept orders from outside your
Assigned Territory. Likewise, we, our affiliates, and other franchisees can
solicit customers and accept orders within your Assigned Territory. However,
you may only make over-the-counter sales at retail to the ultimate consumer of
the products you offer for sale at your Restaurant.
We have not established or franchised another to establish restaurants in
your Assigned Area or your Assigned Territory, nor do we have the right under
the Development Agreement or Franchise Agreement to establish restaurants or
franchise another to establish restaurants within your Assigned Area or your
Assigned Territory. While we have no current plans to do so, neither the
Franchise Agreement nor the Development Agreement restrict our ability to
establish another channel of distribution for the products sold at your
Restaurant, which may be sold using the Marks or any other trademark.
We have no present plans to do so, but the Development Agreement and
Franchise Agreement contemplate the possibility that we may acquire (by
purchase, merger, or otherwise) the stock or assets of a business enterprise
which, directly or through franchisees, operates restaurants under proprietary
marks other than those used in the System selling the same, similar, or
different products and services with your Assigned Area or your Assigned
Territory (whether one or more, "Non-System Restaurants"). These acquisitions
are permitted, and the Development Agreement and Franchise Agreement provide
that we may own and operate acquired Non-System Restaurants within your Assigned
Area or your Assigned Territory, subject to certain rights of first refusal in
your favor for Non-System Restaurants over which we acquire actual ownership and
the right to sell under applicable law.
You shall have the right and option, exercisable within 30 days after
receipt of written notification, to provide written notice to us that you desire
to purchase all of the Non-System Restaurants in your Assigned Area or your
Assigned Territory and to convert the Non-System Restaurants to Restaurants
under the Systems. If you elect to purchase and convert the Non-System
Restaurants, you must complete the purchase and sign our then-current form of
Franchise
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<PAGE>
Agreement (which shall require payment of the then-current initial franchise
fee) within 60 days from the date of notice to us or your election to
purchase and convert. Your purchase price for the Non-System Restaurants
shall be the cash equivalent of our cost for each of the Non-System
Restaurants, as we determine in our sole discretion.
If you do not elect to purchase and convert the Non-System Restaurants as
described above, we may sell the Non-System Restaurants to a third party and/or
continue to operate the Non-System Restaurants under proprietary marks other
than those used in the System. When the Development Agreement expires, we may
convert the Non-System Restaurants to Restaurants under the System, subject to
any contrary provisions contained in any applicable Franchise Agreement between
you and us. Under the Franchise Agreement, if you do not elect to purchase and
convert the Non-System Restaurants as described above, we may sell the
restaurants to a third party and/or continue to operate the Non-System
Restaurants under proprietary marks other than those used in the System.
ITEM 13
TRADEMARKS
NYBE grants you the right to operate a restaurant under the name "NEW YORK
BAGEL CAFE & DELI". You may also use our other current or future trademarks to
identify your Restaurant and the services and products related to the System.
By "trademark", we mean trade names, trademarks, advertising, or other
commercial symbols, service marks, and logos used to identify your Restaurant.
Our principal trademarks are:
"LIKE BREAD, WITH AN -Registered Trademark- [LOGO]
ATTITUDE"
"Registered Mark" "NYB Mark"
The Registered Mark and the NYB Mark are collectively referred to as the
"Principal Marks." Only the Registered Mark is currently registered with the
United States Patent and Trademark Office. By not having a Principal Register
federal registration for any of our trademarks other than the Registered Mark,
we do not have certain presumptive legal rights granted by a registration. We
filed an application to register a similar prior version of the NYB Mark in
1995, and an Office Action of the United States Patent and Trademark Office
issued in response to our prior application would have required us to disclaim
any exclusive right to use "NYB,"
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"New York," and "Bagel Shop & Delicatessen" apart from the mark as shown as a
condition to registration of the prior mark on the Principal Register of the
United States Patent and Trademark Office. Because we decided to make changes
to the prior mark, we abandoned the prior registration. We do not plan to
register the NYB Mark at this time, because we anticipate that in response to
an application for registration of the NYB Mark, we would receive a similar
Office Action which would require us to disclaim any exclusive right to use
"NYB," "New York," and "Bagel Shop & Cafe" apart from the mark as shown as a
condition to registration of the NYB Mark on the Principal Register of the
United States Patent and Trademark Office. Unless and until the NYB Mark is
filed and registered with the United States Patent and Trademark Office,
others are permitted to establish rights to use the NYB Mark. This will not
be in areas where our franchises are operating or advertising under the
trademark prior to the establishment of any rights by filing. If others
establish rights to use the NYB Mark, we may not be able to expand into these
areas using the NYB Mark.
The Registered Mark was placed on the Principal Register of the United
States Patent and Trademark Office on April 23, 1996, Reg. No. 1,969,972. We
have filed all required affidavits.
There are no other currently effective material determinations of the
Patent and Trademark Office, the Trademark Trial and Appeal Board, the trademark
administrator of any state or any court, nor is there any pending material
litigation involving our Principal Marks.
We claim common-law rights to the service marks "New York Bagel Cafe &
Deli", "New York Bagel Shop & Delicatessen," "NYB", "The City's Best Bagel",
"Where Yeast Meets West," and "Like Bread, With An Attitude," but there have not
been judicial determinations of the existence, validity, or extent of our
rights. We claim and intend to rely on common-law trade secret and unfair
competition protection of materials and information you are granted the right to
use under the Franchise Agreement. However, there are and will be many
restaurants and other businesses nationwide that use the words "New York",
"Bagel Shop", "Cafe", "Delicatessen" and/or other similar words and phrases.
Given this, legal challenges could be made to your use of the "New York Bagel
Cafe & Deli" name, and if successful, these challenges could render you liable
for damages and require that you stop using the name. You might also be unable
to prevent use of the name by others.
There are no agreements currently in effect that significantly limit our
rights to use or license the use of the Principal Marks in any manner material
to the franchise. You must follow our rules when you use our trademarks. You
cannot use our name or trademarks as part of a corporate name or with modifying
words, designs, or symbols. You may not use our trademarks for the sale of an
unauthorized product or service or in a manner not authorized in writing by us.
We intend to take reasonable steps to preserve and protect our ownership of
the Registered Marks and its validity. We are not obligated to protect any
rights granted to you to
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use the trademarks or to protect you against claims of infringement or unfair
competition regarding the trademarks. Nevertheless, it may be in our best
interest to do so.
You must notify us immediately when you learn about an infringement of or
challenge to your use of the trademarks. NYBE will take the action we think is
appropriate. You must cooperate fully in prosecuting, defending, or settling
any litigation involving the trademarks, including being named as a party in the
action at our request. We will undertake the defense of the litigation and will
bear the costs of the litigation, except for the costs of any legal counsel
separately retained by you.
We do not know of any infringing uses that could materially affect your use
of our Principal Marks. You must modify or discontinue the use of a trademark
if we modify or discontinue the use of a trademark as a result of a proceeding
or settlement. You also must not directly or indirectly contest our right to
our trademarks, trade secrets, or business techniques that are part of our
business. You must maintain the confidentiality of the NYBE Manual and any
other manuals created for or approved for use in the operation of the
Restaurant, and the information contained in the manuals.
ITEM 14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
There are no patents that are material to the franchise. We claim
copyright protection of our NYBE Manual, and advertisement and promotional
materials although these materials have not been registered with the United
States Registrar of Copyrights. These materials contain secret recipes, methods
of preparation and service of our food products, and other information relevant
to the operation of a Restaurant. We consider this information proprietary and
confidential and we consider it to be our property and you may use it only as
provided in the Franchise Agreement. You must implement our procedures to
prevent the unauthorized use and disclosure of our proprietary information and
to notify us immediately if there is any unauthorized use or disclosure of our
proprietary information.
There currently are no effective determinations of the Copyright Office
(Library of Congress) or any court regarding any of the copyrighted materials.
There are no agreements in effect which significantly limit our right to use or
license the copyrighted materials. Finally, there are no infringing uses
actually known to us which could materially affect your use of the copyrighted
materials in any state. We are not required by any agreement to protect or
defend copyrights.
We will disclose to you confidential or proprietary information and trade
secrets. You must sign a Confidentiality Agreement attached to this Offering
Circular as Exhibit F (the
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"Confidentiality Agreement") before your review of our confidential and
proprietary information to evaluate whether to purchase a franchise. Except
as necessary for operation of the Restaurant and as we approve, neither you
nor your officers, directors, partners, members, managers, or owners may,
during the term or at any time after the expiration or termination of the
Franchise Agreement, regardless of the cause of termination, directly or
indirectly, use for your own benefit or communicate or divulge to, or use for
the benefit of any other person or entity, any trade secrets, confidential
information, knowledge or know-how concerning the recipes, food products,
advertising, marketing, designs, plans, or methods of operation of the
Restaurant or the System. Upon our request, you must have your officers,
directors, partners, members, managers, or owners sign a Covenant Agreement
attached to this Offering Circular as Exhibit E (the "Covenant Agreement").
You may disclose to your employees only the confidential, proprietary, or
trade secret information necessary to operate the business and then only
while the Franchise Agreement is in effect. All information and knowledge,
including drawings, materials, equipment, marketing, recipes, and other data,
which we designate as secret or confidential will be deemed secret and
confidential under the Franchise Agreement and the Covenant Agreement.
ITEM 15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION
OF THE FRANCHISE BUSINESS
We will grant the Franchise Agreement to you in reliance on your and your
principals' personal and collective business skills and financial capacity, and
your rights and obligations may not be transferred without our written consent.
You must remain ultimately responsible for the operation of the Restaurant in
compliance with the Franchise Agreement and should exercise oversight and be
informed about the operations of the franchise, but you (or your chief operating
officer, managing partner, or principal manager) are not required to take any
specific role in day-to-day operations or to participate personally in direct
operations on the premises, if you designate a general manager, who may be your
employee, who shall devote full time and attention to the management and
operation of the Restaurant. The general manager may be any qualified
individual who attends and successfully completes our initial training program.
The individual need not be one of your owners if you are a corporation,
partnership, or limited liability company. If, at any time for any reason, the
general manager or managing owner no longer qualifies, you must promptly
designate another general manager or managing owner subject to the same
qualifications listed above and notify us.
Management responsibility includes, without limitation, presence of a
manager during all business hours; maintaining the highest standards of product
quality and consistency; maintaining the Restaurant in the highest condition of
sanitation, cleanliness, and appearance; and supervising employees to ensure
that the highest standard of service is provided and to
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insure that your employees deal with customers, suppliers, us, and all other
persons in a courteous and polite manner.
If you are a corporation, partnership, or limited liability company, your
owners must personally guarantee your obligations under the Franchise Agreement
and Development Agreement. In addition, your partners, owners, officers,
directors, managers, and members must also agree to be personally bound by, and
personally liable for the confidentiality and non-competition provisions of the
Franchise Agreement and/or Development Agreement and sign the Covenant
Agreement, all as described in Item 14 and Item 17. Your owners must also agree
to certain restrictions on the transfer of their ownership interests.
ITEM 16
RESTRICTIONS ON WHAT
THE FRANCHISEE MAY SELL
You must operate the Restaurant in conformance with our standard
specifications and techniques as contained in the NYBE Manual, as amended by us
in our sole discretion from time to time. As described in Items 8, 9, and 12,
in order to promote substantial uniformity of quality and shared identity at all
Restaurants, you must not offer for sale any product or service or purchase,
lease, install, or use any equipment, fixtures, furnishings, concept, supply,
vending machine, building design or layout, color schemes or other item or
service unless approved in writing by us as being in compliance with our
standards and specifications and the franchise System. You must offer all of
the food products and services that we designate as required for all
franchisees. We can change the types of authorized food items and services that
you must offer for sale. There are no limits on our right to do so. You must
use the premises of the Restaurant solely for the purpose of operating a NEW
YORK BAGEL CAFE & DELI Restaurant and to refrain from using the premises for any
other purpose or activity. Restrictions on goods and services offered may also
arise from Franchise Agreement requirements that you comply with our high
standards of quality and service, to refrain from deviating from our standards,
or to otherwise operate in any manner adversely affecting the System, the Marks,
and the goodwill associated with the System and the Marks, and to comply with
the highest health standards and ratings applicable to the franchise restaurant.
You are not restricted regarding the customers you may solicit, but you may only
make sales over-the-counter at retail to the ultimate consumers of the products
to be offered for sale by your Restaurant.
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ITEM 17
RENEWAL, TERMINATION, TRANSFER
AND DISPUTE RESOLUTION
THIS TABLE LISTS IMPORTANT PROVISIONS OF THE FRANCHISE AGREEMENT. YOU SHOULD
READ THESE PROVISIONS IN THE FRANCHISE AGREEMENT ATTACHED TO THIS OFFERING
CIRCULAR.
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
a. Term of the franchise Section 3.1 Term is equal to 10 years.
- --------------------------------------------------------------------------------------------------------------
b. Renewal or extension Section 3.2 Ten-year renewal if you meet certain requirements.
of the term
- --------------------------------------------------------------------------------------------------------------
c. Requirements for you Section 3.2 Give notice, remodel, not be in default, have paid all
to renew or extend amounts owed us in timely manner, sign new Franchise
Agreement, pay fee, sign release, and comply with
training requirements.
- --------------------------------------------------------------------------------------------------------------
d. Termination by you Section 14.1.F Upon 90 days' written notice if, you are a person and
die or become mentally incompetent and are unable or
elect not to transfer your interest in the franchise, if you
are the general manager and become disabled and elect
not to employ a new general manager, or you are unable
to operate the Restaurant at a profit after using
reasonable and diligent efforts.
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e. Termination by NYBE None
without cause
- --------------------------------------------------------------------------------------------------------------
f. Termination by NYBE Sections 14.1.C, We can terminate only if you default.
with cause 14.1.D, and
14.1.E
- --------------------------------------------------------------------------------------------------------------
g. "Cause" defined - Sections 14.1.D You generally have 30 days to cure: nonpayment of
which defaults which and 14.1.E fees; failure to submit reports, provide information, or
can be cured maintain our standards; or any other default not
specified in Section 14.1.C.
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</TABLE>
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
h. "Cause" defined - Section 14.1.C Non-curable defaults: failure to timely open the
defaults which cannot Restaurant, cease operating or abandon the Restaurant,
be cured forfeit the right to do business where the Restaurant is
located, conviction of felony, unapproved transfers,
improper use or disclosure of confidential information,
false reporting or submissions to us, under-reporting
Gross Revenue, repeated defaults even if cured, entry of
judgment against you which remains unsatisfied for 30
days, levy against your business or property, action
brought to foreclose lien or mortgage against the
Restaurant premises or equipment which is not
dismissed in 30 days, or you become insolvent, a
receiver is appointed to take possession of your business
or property, or you make a general assignment for the
benefit of your creditors.
- --------------------------------------------------------------------------------------------------------------
i. Your obligations on Sections 15.1, Cease operating the Restaurant, discontinue use of the
termination/non- 15.2, 15.3, 15.4, Marks and advertising, complete deidentification as our
renewal 15.5, 15.6, 15.7, franchisee, transfer telephone numbers and listing to us,
15.8, 15.9, deliver all materials and documents for the Restaurant to
15.10, 15.11, us, modification and alteration of Restaurant, cease
and 15.12 using the System and NYBE Manual, sell to us at your
cost all your usable materials bearing the marks, sell
your office equipment, furniture, fixtures, and movable
signs to us at their fair market value, promptly pay all
amounts due us including the liquidated damages set
forth in Section 15.11, and maintain and preserve your
financial and other records and make them available for
our inspection.
- --------------------------------------------------------------------------------------------------------------
j. Assignment of Section 13.1 No restriction on our right to assign.
contract
by NYBE
- --------------------------------------------------------------------------------------------------------------
k. "Transfer" by you - Section 13.2 Includes transfer of any interest in contract or assets,
definition or any ownership change.
- --------------------------------------------------------------------------------------------------------------
l. NYBE's approval of Sections 13.2 and We have the right to approve all transfers, except that if
transfer by 13.8 you are a corporation, partnership, or limited liability
franchisee company, you may transfer an aggregate up to 25% of
your outstanding voting ownership interests to your
employees who are actively engaged in the operations of
the Restaurant without our approval if the proposed
transfer alone or together with other transfers will not
have the effect of transferring a controlling ownership
interest in you.
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</TABLE>
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
m. Conditions for NYBE Section 13.3 You have paid all amounts owed to us and others, you
approval of are not in default under the Franchise Agreement or any
other agreement with us, you have signed a release, you
and the new franchisee enter into a satisfactory
assignment and assumption agreement providing that the
new franchisee will honor all of your obligations under
the agreement, the new franchisee qualifies, the new
franchisee signs our then-current form of Franchise
Agreement, you remain liable for all your obligations,
the new franchisee completes our training program, and
we receive payment of the $2,500 transfer fee.
- --------------------------------------------------------------------------------------------------------------
n. NYBE's right of first Section 13.2 We can match any offer for any interest in your
refusal to acquire Franchise Agreement, the Restaurant, or you.
your
business
- --------------------------------------------------------------------------------------------------------------
o. NYBE's option to Section 15.8 Upon termination of the Franchise Agreement for any
purchase your reason, we have the option for 60 days following the
business termination to purchase at your cost all your usable
materials bearing the Marks and/or to purchase your
office equipment, furniture, fixtures, and moveable
signs at their fair market value.
- --------------------------------------------------------------------------------------------------------------
p. Your death or Section 13.6 Upon the death or mental incompetency of any person
disability with an interest in the franchise or in you, if you are a
corporation, partnership, or limited liability company,
the person's personal representative must transfer the
interest within six months after the death or mental
incompetency. We must approve all transfers, including
transfers by will or inheritance (also see m above). If
the person's heirs or beneficiaries are unable to satisfy
the conditions of the agreement, the personal
representative will have a reasonable time to dispose of
the interest. If the interest is not disposed of in a
reasonable time, we may terminate the Franchise
Agreement and purchase certain of your assets (also see
o above).
- --------------------------------------------------------------------------------------------------------------
q. Non-competition Section 11.5 No involvement in competing business anywhere.
covenants during the
term of the
franchise(2)
- --------------------------------------------------------------------------------------------------------------
r. Non-competition Section 11.5 No competing business for 2 years after assignment or
covenants after the termination within your Assigned Territory, the then-
franchise is current Designated Market Area or Areas (DMA) in
terminated which your Assigned Territory is located, or the DMA
or expires(2) of any other NYBE Restaurant then existing.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
s. Modification of the Article 20 No modifications generally unless in writing signed by
agreement you and one of our officers but NYBE Manual subject
to change.
- --------------------------------------------------------------------------------------------------------------
t. Integration/merger Article 20, Only the terms of the Franchise Agreement are binding
clause Sections 21.1 and (subject to state law). Any other promises may not be
22.2 enforceable.
- --------------------------------------------------------------------------------------------------------------
u. Dispute resolution by Sections 19.1, All disputes must be mediated and then arbitrated in
arbitration or 19.2, and 19.3 Wichita, Kansas. The mediation and arbitration
mediation(3) proceedings are governed by rules of the American
Arbitration Association.
- --------------------------------------------------------------------------------------------------------------
v. Choice of forum Section 21.11 Litigation in Sedgwick County, Kansas.
- --------------------------------------------------------------------------------------------------------------
w. Choice of law Section 21.2 Kansas law applies.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Your owners must guarantee all of your obligations in the Franchise
Agreement and the Development Agreement.
(2) All of your partners, owners, officers, directors, managers, and
members must also honor all of your obligations in Article 11 of the
Franchise Agreement. Upon our request, you must have your officers,
directors, partners, members, managers, and owners sign a Covenant Agreement
which includes similar non-competition covenants.
(3) We also impose the obligations to engage in mediation and arbitration
on your officers, directors, partners, members, managers, and owners.
THIS TABLE LISTS IMPORTANT PROVISIONS OF THE DEVELOPMENT AGREEMENT. YOU
SHOULD READ THESE PROVISIONS IN THE AGREEMENT ATTACHED TO THIS OFFERING
CIRCULAR.
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
a. Term of the franchise Section IV.A The date of our signing a franchise agreement for the
last Restaurant to be established under your development
schedule.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b. Renewal or extension Section IV.B If we determine that it would be desirable to establish
of the term additional Restaurants in your Assigned Area, you will
have a right of first refusal to purchase options to
establish these new Restaurants.
- --------------------------------------------------------------------------------------------------------------
c. Requirements for you Section IV.B Successful completion of your development schedule,
to renew or extend current compliance with all your franchise agreements,
sign and return a new development agreement containing
our then-current terms and conditions within 60 days of
your receipt of the agreement from us, and pay
development fee.
- --------------------------------------------------------------------------------------------------------------
d. Termination by you None
- --------------------------------------------------------------------------------------------------------------
e. Termination by NYBE None
without cause
- --------------------------------------------------------------------------------------------------------------
f. Termination by NYBE Section VI We can terminate only if you commit one of several
with cause listed violations.
- --------------------------------------------------------------------------------------------------------------
g. "Cause" defined - None
which defaults which
can be cured
- --------------------------------------------------------------------------------------------------------------
h. "Cause" defined - Section VI Failure to comply with development schedule, any
defaults which cannot franchise agreement, or any other agreement between
be cured us, or make an improper transfer. You are adjudicated a
bankrupt or become insolvent, a receiver is appointed
and takes over your substantially all of your property,
you make a general assignment for the benefit of
creditors, or you are the subject of a bankruptcy petition
which is not dismissed within 90 days.
- --------------------------------------------------------------------------------------------------------------
i. Your obligations on Section VI.D No continued right to develop Restaurants in your
termination/non- Assigned Area. Continued compliance with franchise
renewal agreements for existing Restaurants.
- --------------------------------------------------------------------------------------------------------------
j. Assignment of Section VII.A No restriction on our right to assign.
contract
by NYBE
- --------------------------------------------------------------------------------------------------------------
k. "Transfer" by you - Section VII.B Governed by same terms as Franchise Agreement.
definition
- --------------------------------------------------------------------------------------------------------------
l. NYBE's approval of Section VII.B Governed by same terms as Franchise Agreement.
transfer by
franchisee
- --------------------------------------------------------------------------------------------------------------
m. Conditions for NYBE Section VII.B Governed by same terms as Franchise Agreement.
approval of
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Section in
Franchise
Provision(1) Agreement Summary
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
n. NYBE's right of first Section VII.B Governed by same terms as Franchise Agreement.
refusal to acquire
your
business
- --------------------------------------------------------------------------------------------------------------
o. NYBE's option to None
purchase your
business
- --------------------------------------------------------------------------------------------------------------
p. Your death or Section VII.B Governed by same terms as Franchise Agreement.
disability
- --------------------------------------------------------------------------------------------------------------
q. Non-competition Section VIII No involvement in competing business anywhere.
covenants during the
term of the
franchise(2)
- --------------------------------------------------------------------------------------------------------------
r. Non-competition Section VIII No competing business for 2 years after any transfer or
covenants after the termination of the Development Agreement within your
franchise is Assigned Area, the then-current Designated Market
terminated Area or Areas (DMA) in which your Assigned Area is
or expires(2) located, or the DMA of any other NYBE Restaurant
then existing.
- --------------------------------------------------------------------------------------------------------------
s. Modification of the Section XIV No modifications unless in writing signed by you and
agreement one of our authorized officers.
- --------------------------------------------------------------------------------------------------------------
t. Integration/merger Section XIV Only the terms of the Development Agreement are
clause binding (subject to state law). Any other promises may
not be enforceable.
- --------------------------------------------------------------------------------------------------------------
u. Dispute resolution by Section XV All disputes must be mediated and then arbitrated in
arbitration or Wichita, Kansas. The mediation and arbitration
mediation(3) proceedings are governed by rules of the American
Arbitration Association.
- --------------------------------------------------------------------------------------------------------------
v. Choice of forum Section XV Litigation in Sedgwick County, Kansas.
- --------------------------------------------------------------------------------------------------------------
w. Choice of law Section XV Kansas law applies.
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Your owners must guarantee all of your obligations in the Franchise
Agreement and the Development Agreement.
(2) All of your partners, owners, officers, directors, managers, and
members must also honor all of your obligations in Article 11 of the
Franchise Agreement. Upon our request, you must have your officers,
directors, partners, members, managers, and owners sign a Covenant Agreement
which includes similar non-competition covenants.
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<PAGE>
(3) The obligations to engage in mediation and arbitration are also
imposed on your officers, directors, partners, members, managers, and owners.
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 70-807], CALIFORNIA
[Bus. & Prof. Code Sections 20000-20043], CONNECTICUT [Gen. Stat. Section
42-133e et seq.], DELAWARE [Code, tit.], HAWAII [Rev. Stat. Section 482E-1],
ILLINOIS [Rev. Stat. Chapter 121 1/2 PARA 1719-1720], INDIANA [Stat. Section
23-2-2.7],IOWA [Code Sections 523H.1-523H.17], MICHIGAN [Stat. Section
19.854(27)], MINNESOTA [Stat. Section 80C.14], MISSISSIPPI [Code Section
75-24-51],MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section
87-401], NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws
Section 37-5A-51],VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code
Section 19.100.180],WISCONSIN [Stat. Section 135.03]. 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.
ITEM 18
PUBLIC FIGURES
NYBE does not use any public figure to promote its franchise.
ITEM 19
REPRESENTATIONS REGARDING EARNINGS CAPABILITY
WE DO NOT FURNISH OR AUTHORIZE OUR SALESPERSONS TO FURNISH ANY ORAL OR
WRITTEN INFORMATION CONCERNING THE ACTUAL OR POTENTIAL SALES, COSTS, INCOME,
OR PROFITS OF A NYBE RESTAURANT. ACTUAL RESULTS VARY FROM RESTAURANT TO
RESTAURANT AND WE CANNOT ESTIMATE THE RESULTS OF ANY PARTICULAR FRANCHISE.
-41-
<PAGE>
ITEM 20
LIST OF OUTLETS
FRANCHISED RESTAURANT STATUS SUMMARY
FOR YEARS 1994/1995/1996(1)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Franchises
Canceled or Reacquired By Left the System Total From Left Operating At
STATE Transfers Terminated Not Renewed NYBE Other Columns(2) Year End
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/1
- ------------------------------------------------------------------------------------------------------------------------------
Arizona 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/2
- ------------------------------------------------------------------------------------------------------------------------------
Arkansas 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/1/3
- ------------------------------------------------------------------------------------------------------------------------------
Colorado 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/4
- ------------------------------------------------------------------------------------------------------------------------------
Florida 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/1
- ------------------------------------------------------------------------------------------------------------------------------
Kansas 0/0/0 0/0/1 0/0/0 0/1/0 0/0/0 0/1/1 2/1/0
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/1
- ------------------------------------------------------------------------------------------------------------------------------
Missouri 0/0/0 0/0/1 0/0/0 0/0/0 0/0/0 0/0/1 1/1/0
- ------------------------------------------------------------------------------------------------------------------------------
Nebraska 0/1/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/1 1/2/4
- ------------------------------------------------------------------------------------------------------------------------------
New Mexico 0/0/0 0/0/0 0/0/0 0/0/1 0/0/0 0/0/1 0/1/0
- ------------------------------------------------------------------------------------------------------------------------------
North Dakota 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/1
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma 0/0/0 0/0/0 0/0/0 0/0/0 0/1/0 0/1/0 1/0/0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-42-
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Franchises
Canceled or Reacquired By Left the System Total From Left Operating At
STATE Transfers Terminated Not Renewed NYBE Other Columns(2) Year End
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Carolina 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/2
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/2/2
- ------------------------------------------------------------------------------------------------------------------------------
Texas 0/0/1 0/0/3 0/0/0 0/0/0 0/0/0 0/0/4 2/11/11
- ------------------------------------------------------------------------------------------------------------------------------
Washington 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/1
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTALS 0/1/1 0/0/5 0/0/0 0/1/1 0/1/0 0/0/8 9/25/33
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) All numbers are as of December 31 for each year.
(2) The numbers in the "Total" column may exceed the numbers for Restaurants
affected because several events may have affected the same Restaurant. For
example, the same Restaurant may have had multiple owners.
-43-
<PAGE>
STATUS OF COMPANY OWNED RESTAURANTS
FOR YEARS 1994/1995/1996(1)
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Restaurants
Restaurants Closed Restaurants Opened Operating at Year End
State During Year During Year
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Kansas 0/0/0 0/0/0 2/3/3
- --------------------------------------------------------------------------------
Missouri 0/0/0 0/0/1 0/0/1
- --------------------------------------------------------------------------------
New Mexico 0/0/0 0/0/0 0/0/1
- --------------------------------------------------------------------------------
Oklahoma 0/0/0 2/2/4 10/11/15
- --------------------------------------------------------------------------------
Tennessee 0/0/0 0/0/3 0/1/4
- --------------------------------------------------------------------------------
Texas 0/0/0 0/0/2 0/0/2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTALS 0/0/0 2/2/10 12/15/26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) All numbers are as of December 31 for each year. Prior to December 28,
1995, all of the Company owned Restaurants were owned by affiliates of
NYBE which were merged into NYBE on December 28, 1995.
-44-
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISED RESTAURANTS
AS OF 12/31/96
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
State Franchisee Our Unit Nos. Address Telephone No. Number of Units
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alabama Brian Kelleher 134 801 20th Street South, Birmingham, (205) 326-6927 1
Jennifer Bouille Alabama 35205
- -----------------------------------------------------------------------------------------------------------------------------------
Arizona Andy and Marilyn Camarata 110 6165 E. Broadway Blvd. (520) 748-1408 1
Tucson, Arizona 85711
- -----------------------------------------------------------------------------------------------------------------------------------
Arizona Andy and Marilyn Camarata 131 7090 N. Oracle, Suite 148 (520) 797-9700 1
Tucson, Arizona 85704
- -----------------------------------------------------------------------------------------------------------------------------------
Arkansas Jay Ramsey 109 9101 W. Markham #28 (501) 954-8000 1
Little Rock, Arkansas 72205
- -----------------------------------------------------------------------------------------------------------------------------------
Arkansas Bill Eichorn 136 523 Center (501) 375-6969 1
Little Rock, Arkansas 72205
- -----------------------------------------------------------------------------------------------------------------------------------
Arkansas Brian Colton 141 4507 Fairway Avenue (501) 791-2484 1
Little Rock, Arkansas 72116
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado Danny Cowan 113 8055 W. Bowles Ave., 2A-1 (303) 932-2435 1
Joey Gentry Littleton, Colorado 80123
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado Danny Cowan 138 2764 S. Wadsworth Blvd. (303) 793-8860 1
Joey Gentry Denver, Colorado 80227
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado Bill Manning 135 14004 E. Mississippi Avenue (303) 751-9909 1
Aurora, Colorado 80112
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-45-
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
State Franchisee Our Unit Nos. Address Telephone No. Number of Units
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colorado Bill Manning 133 5996 S. Holly Street (303) 804-0706 1
Englewood, Colorado 80111
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Brian Sanders 121 14394 N. Dale Mabry Hwy. (813) 962-5957 1
Tampa, Florida 33616
- -----------------------------------------------------------------------------------------------------------------------------------
Louisiana Jason Edwards 129 4201 Veteran's Blvd., Suite C (504) 454-7517 1
John Bouilette Metairie, Louisiana 70006
- -----------------------------------------------------------------------------------------------------------------------------------
Nebraska Larry Heinrich 102 2925 S. 108th (402) 397-1010 1
Omaha, Nebraska 68114
- -----------------------------------------------------------------------------------------------------------------------------------
Nebraska Larry Heinrich 111 1650 Farnam, #110 (402) 342-2700 1
Omaha, Nebraska 68102
- -----------------------------------------------------------------------------------------------------------------------------------
Nebraska Larry Heinrich 128 10393 Pacific Street (402) 392-1060 1
Omaha, Nebraska 67114
- -----------------------------------------------------------------------------------------------------------------------------------
Nebraska Larry Heinrich 137 245 N. 13th Street (402) 438-0088 1
Lincoln, Nebraska 68508
- -----------------------------------------------------------------------------------------------------------------------------------
North Dakota Jerry Bunk 123 505 E. Bismarck Expressway (701) 222-4222 1
Bismarck, North Dakota 58504
- -----------------------------------------------------------------------------------------------------------------------------------
South Carolina Brian Vrana 120 817 Harden Street (803) 252-6969 1
John Overbeck Columbia, South Carolina 29205
- -----------------------------------------------------------------------------------------------------------------------------------
South Carolina John Overbeck 140 1473 Sumter St. (803) 252-5195 1
Columbia, South Carolina 29201
- -----------------------------------------------------------------------------------------------------------------------------------
Tennessee Steve Bethel 103 4622 Kingston Pike (423) 588-1364 1
David Wann Knoxville, Tennessee 37919
- -----------------------------------------------------------------------------------------------------------------------------------
Tennessee Marc Crosler 117 710 S. Gay Street (423) 546-7777 1
Knoxville, Tennessee 37902
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Amarillo Bagel, Inc. 116 2802 Soncy Road (806) 355-6299 1
Amarillo, Texas 79121
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-46-
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
State Franchisee Our Unit Nos. Address Telephone No. Number of Units
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Texas Amarillo Bagel, Inc. 127 2646 W. 34th (806) 355-1588 1
Amarillo, Texas 79016
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Quinpar, Inc. 106 4304 Lemmon Avenue (214) 521-8141 1
Dallas, Texas 75219
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Quinpar, Inc. 115 101 Preston Royal (214) 368-3354 1
Dallas, Texas 75230
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Steve and Andrea Gass 114 3020 Legacy Drive (214) 491-0342 1
Plano, Texas 75023
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Steve and Andrea Gass 130 7750 N. MacArthur, #115 (214) 409-9977 1
Irving, Texas 75063
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Bart and Sandra Younger 124 606 Embassy Oaks #400 (210) 495-5548 1
Mike and Jan Moslenor San Antonio, Texas 78216
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Bart and Sandra Younger 132 5146 Broadway (210) 824-6927 1
Mike and Jan Moslenor San Antonio, Texas 78209
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Kyle Shipley 108 9070 Research Blvd., Suite 303 (512) 467-1700 1
Austin, Texas 78758
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Paul Murphy 125 13450 Research Blvd. (512) 258-6969 1
Andrew Lee Austin, Texas 78750
- -----------------------------------------------------------------------------------------------------------------------------------
Texas Steve Rubin 139 3800 N. Mesa, C2 (915) 532-7070 1
Norman Pulver El Paso, Texas 79902
- -----------------------------------------------------------------------------------------------------------------------------------
Washington Wayne Gresseth 118 1304 Ocean Beach Hwy. (360) 414-4100 1
Troy Gresseth Longview, Washington 98832
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 33
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE>
PROJECTED OPENINGS
AS OF DECEMBER 31, 1996
<TABLE>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Franchise Agreements Projected Franchised Projected Company
Signed but Restaurant New Restaurants in the Openings in the Next
State Not Open(1) Next Fiscal Year Fiscal Year
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama 0 1 7
- ----------------------------------------------------------------------------------------
Arizona 0 0 0
- ----------------------------------------------------------------------------------------
Arkansas 2 3 0
- ----------------------------------------------------------------------------------------
Colorado 0 2 0
- ----------------------------------------------------------------------------------------
Florida 1 2 0
- ----------------------------------------------------------------------------------------
Georgia 0 0 4
- ----------------------------------------------------------------------------------------
Kansas 0 0 3
- ----------------------------------------------------------------------------------------
Kentucky 0 0 0
- ----------------------------------------------------------------------------------------
Louisiana 0 0 0
- ----------------------------------------------------------------------------------------
Missouri 0 1 1
- ----------------------------------------------------------------------------------------
Nebraska 0 0 0
- ----------------------------------------------------------------------------------------
Oklahoma 0 0 3
- ----------------------------------------------------------------------------------------
New Mexico 0 0 1
- ----------------------------------------------------------------------------------------
North Dakota 0 0 0
- ----------------------------------------------------------------------------------------
South Carolina 0 0 0
- ----------------------------------------------------------------------------------------
Tennessee 0 4 1
- ----------------------------------------------------------------------------------------
Texas 1 2 6
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TOTALS 4 15 26
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) As of December 31, 1996.
We expect to enter into five Development Agreements in fiscal year 1997
which will cover territories in the following states: Florida, Tennessee,
Georgia, and Missouri.
-48-
<PAGE>
One franchised Restaurant located in Hurst, Texas was voluntarily closed
in 1996 by its owner, Randa Warren. Ms. Warren's home address and telephone
number are 2158 E. 27th Street, Tulsa, Oklahoma 74114, 918-625-7003. Two
franchised Restaurants, one located in Olathe, Kansas and one in Kansas City,
Missouri were voluntarily closed in 1996 by their owner Alex Meitzner. Alex
Meitzner's address and phone number are 120 S. Market, Wichita, Kansas 67202,
316-262-4955. Two franchised Restaurants located in Houston, Texas, were
voluntarily closed in 1996 by their owner, Rick McElhaney. Mr. McElhaney's
address and phone number are 7458 Rivergarden Drive, Houston, Texas 77065,
713-463-9901. One franchised Restaurant located in Dallas, Texas was
voluntarily closed in March, 1997 by Jim Quinlan, its owner, who still
operates a franchised Restaurant in Dallas, Texas. Mr. Quinlan's address and
telephone number are 4304 Lemmon Avenue #106, Dallas, Texas 75219,
214-521-8141. Except for these Restaurants, no NYBE franchisees have had any
outlets terminated, canceled, not renewed, or otherwise voluntarily ceased to
do business during our most recently completed fiscal year (January 1, 1996 -
December 31, 1996), or have not communicated with us within ten weeks of the
date of this Offering Circular.
ITEM 21
FINANCIAL STATEMENTS
This Offering Circular includes our audited financial statements for the
periods ended December 29, 1996, December 31, 1995, and December 31, 1994.
ITEM 22
CONTRACTS
The following agreements are attached to this Offering Circular:
Exhibit A - Development Agreement
Exhibit B - Franchise Agreement
Exhibit C - Guaranty (of Franchise Agreement)
Exhibit D - Guaranty (of Development Agreement)
Exhibit E - Covenant Agreement
Exhibit F - Confidentiality Agreement
Exhibit G - Addendum to Lease Agreement
Exhibit H - Financial Statements
-49-
<PAGE>
ITEM 23
RECEIPT
This Offering Circular summarizes provisions of the Franchise Agreement and
other information in plain language. Read this Offering Circular and all
agreements carefully.
If New York Bagel Enterprises, Inc. ("NYBE") offers you a franchise, NYBE
must provide this Offering Circular to you by the earliest of:
(1) The first personal meeting to discuss our franchise; or
(2) Ten business days before the signing of a binding agreement; or
(3) Ten business days before a payment to NYBE.
You must also receive a Franchise Agreement containing all material terms at
least five business days before you sign a Franchise Agreement.
If NYBE 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.
I have received a Uniform Franchise Offering Circular dated March 27, 1997.
We have not engaged a franchise broker to offer the franchise in your state.
This offering circular included the following Exhibits:
A. Development Agreement E. Covenant Agreement
B. Franchise Agreement F. Confidentiality Agreement
C. Guaranty (of Franchise Agreement) G. Addendum to Lease Agreement
D. Guaranty (of Development Agreement) H. Financial Statements
- -------------------- ---------------------------------------
Date Franchisee
A DETACHABLE COPY OF THIS RECEIPT FOLLOWS THE EXHIBITS TO THIS OFFERING
CIRCULAR. PLEASE ACKNOWLEDGE YOUR RECEIPT OF THIS OFFERING CIRCULAR BY
SIGNING THE COPY OF THE RECEIPT AND RETURNING IT TO US.
-50-
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
DEVELOPMENT AGREEMENT
Exhibit A
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
SECTION PAGE
- ------- ----
<S> <C> <C>
I. Grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II. Development Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
III. Development Schedule and Manner of Exercising Options. . . . . . . . . . .3
IV. Term and Right of First Refusal. . . . . . . . . . . . . . . . . . . . . .5
V. Duties of the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . .5
VI. Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
VII. Transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
VIII. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
IX. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
X. Independent Contractor and Indemnification . . . . . . . . . . . . . . . 10
XI. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XII. Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XIII. Severability and Construction. . . . . . . . . . . . . . . . . . . . . . 11
XIV. Entire Agreement - Applicable Law. . . . . . . . . . . . . . . . . . . . 12
XV. Remedies and Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . 12
XVI. Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
Attachment "A" (Development Schedule)
Attachment "B" (Franchise Agreement)
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
DEVELOPMENT AGREEMENT
This Development Agreement, by and between New York Bagel Enterprises,
Inc., a Kansas corporation having its chief executive offices at 250 North
Water, Wichita, Kansas 67202 (hereinafter referred to as "Franchisor"), and ____
_________________________________________________________________ (hereinafter
referred to as "Developer"), is entered into, on the date of execution by
Franchisor, as indicated below.
W I T N E S S E T H: That;
WHEREAS, Franchisor, as a result of the expenditure of time, skill, effort,
and money has developed and owns a unique and distinctive system (hereinafter
"System") relating to the design, establishment, and operation of restaurants
under the name "New York Bagel Cafe & Deli-TM-" (such name and such other trade
names, service marks, trademarks, logos, emblems, and other indicia of origin as
are now designated or may in the future be designated by Franchisor in writing
as part of the System, hereinafter "Proprietary Marks"), which feature bagels
made fresh daily, sandwiches, salads, soups, beverages, and dessert products;
and
WHEREAS, Developer wishes to obtain certain options for the development of
New York Bagel Cafe & Deli restaurants in the area described in this Development
Agreement.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth herein, mutually agree a
follows:
SECTION I.
GRANT
A. Franchisor hereby grants to Developer, pursuant to the terms and
conditions of this Agreement, options to obtain franchises to establish and
operate _______ New York Bagel Cafe & Deli restaurants with bakeries ("Bakery
Restaurants") and _____ New York Bagel Cafe & Deli restaurants without bakeries
("Satellite Restaurants," and together with the Bakery
-1-
<PAGE>
Restaurants, collectively "Restaurants") within the area described in
Attachment "C" to this Agreement (hereinafter "Assigned Area").
B. Except as otherwise provided in this Agreement or in any applicable
Franchise Agreement, Franchisor shall not establish, nor franchise another to
establish, a Restaurant under the System in the Assigned Area prior to the
expiration of the development schedule set forth in Attachment "A" hereto (the
"Development Schedule"). Prior to the expiration of the Development Schedule,
subject to Developer's right of first refusal described in Section I.C.,
Franchisor retains the right to acquire restaurants and/or to acquire a
franchisor with franchisees which operate restaurants (but not to establish
restaurants or to franchise another to establish restaurants) at any location
within the Assigned Area, which operate under proprietary marks other than those
used in connection with the System for the sale of the same, similar, or
different products and services, on any terms and conditions Franchisor may deem
advisable.
C. Franchisor shall provide written notice to Developer within a
reasonable time upon Franchisor's acquisition prior to the expiration of the
Development Schedule of any restaurants which operate under proprietary marks
other than those used in connection with the System for the sale of the same,
similar, or different products and services which are located in the Assigned
Area (hereinafter, whether one or more, "Non-System Restaurants"). Such notice
shall provide Developer with a right of first refusal to acquire such Non-System
Restaurants from Franchisor on the terms provided below if the sale by
Franchisor of such restaurants to Developer is allowed by applicable law.
Subject to the foregoing, Developer shall have the right and option, exercisable
within 30 days after receipt of such written notification, to provide written
notice to Franchisor that Developer desires to purchase the Non-System
Restaurants and to convert all of such restaurants to Restaurants under the
System. In the event Developer elects to purchase and convert the Non-System
Restaurants, Developer must close on such purchase and execute a Franchise
Agreement in the form attached hereto as Attachment "B" (which shall require
payment of the initial franchise fee) within 60 days from the date of notice to
Franchisor of Developer's election to purchase and convert. The purchase price
to be paid by Developer for the Non-System Restaurants shall be the cash
equivalent of Franchisor's cost for each of the Non-System Restaurants, as
determined by Franchisor in Franchisor's sole discretion. In the event
Developer does not elect to purchase and convert the Non-System Restaurants as
provided in this Section I.C., Developer shall have no further right or option
to acquire such Non-System Restaurants, and Franchisor may sell such restaurants
to a third party and/or continue to operate the Non-System Restaurants under
proprietary marks other than those used in connection with the System. Upon the
expiration of the Development Schedule, Franchisor may convert the Non-System
Restaurants to Restaurants under the System, subject to any contrary provisions
contained in any applicable Franchise Agreement between Developer and
Franchisor.
-2-
<PAGE>
SECTION II.
DEVELOPMENT FEE
In consideration of the development rights granted herein, Developer shall
pay to Franchisor upon execution of this Agreement a Development Fee of
$________________, plus an additional $14,000 to be paid for each Bakery
Restaurant opening and $8,000 to be paid for each Satellite Restaurant opening
at the time the Franchise Agreement is executed for each Restaurant (as
described in Section III.B. below), which fees shall be fully earned by
Franchisor upon execution of this Agreement, for administrative and other
expenses incurred by Franchisor and for the development opportunities lost or
deferred as a result of Franchisor's entering into this Agreement with
Developer. Upon payment of the additional $14,000 for a Bakery Restaurant or
$8,000 for a Satellite Restaurant by Developer the initial franchise fee for the
Restaurant set forth in Section 4.1.A of the Franchise Agreement shall be deemed
paid in full.
SECTION III.
DEVELOPMENT SCHEDULE AND MANNER OF EXERCISING OPTIONS
A. Developer shall exercise each development option granted hereunder by
entering into a Franchise Agreement, in the form attached hereto as Attachment
"B", with Franchisor for the construction and establishment of a Restaurant at a
location approved by Franchisor. Recognizing that time is of the essence,
Developer agrees to exercise its options in accordance with the Development
Schedule set forth in Attachment "A" hereto. Failure by Developer to have
exercised its options within the time specified in the Development Schedule
shall constitute a default under this Agreement.
B. Prior to the acquisition by lease or purchase of any site for a
Restaurant in the Assigned Area, Developer shall submit to Franchisor in the
form specified by Franchisor a description of the site, a market feasibility
study for the site, and such other information or materials as Franchisor may
reasonably require, together with a letter of intent or other evidence
satisfactory to Franchisor which confirms Developer's favorable prospects for
obtaining the site. Franchisor shall have 15 days after receipt of such
information and materials from Developer to approve or disapprove, in its sole
discretion, the site as the location for the Restaurant. In the event
Franchisor does not disapprove the site by written notice to Developer within
the 15 days, such site shall be deemed approved by Franchisor. Within 45 days
of site approval by
-3-
<PAGE>
Franchisor (or within such additional period as may be agreed upon between
the parties hereto in the event that, after diligent good faith efforts,
Developer is unable to complete the requirements of this Section on a timely
basis due to events beyond Developer's reasonable control), Developer shall
execute a lease (if the premises are to be leased) after obtaining
Franchisor's prior written approval of the lease terms, which approval shall
not be unreasonably withheld, or a binding agreement to purchase the site,
and a franchise agreement relating to the approved site. No extension to
such 45 day requirement shall extend the time periods specified in the
Development Schedule for the exercise of options by Developer. The lease, if
any, must contain the following conditions in order to be approved by
Franchisor:
1. That Franchisor shall have the right to enter the premises during
reasonable business hours to make any modification necessary to protect
Franchisor's Proprietary Marks;
2. That in the event a notice of default or termination is delivered
to Developer with respect to the lease, a copy of such notice shall be
delivered concurrently to Franchisor; and
3. That Franchisor shall have the right, but not the duty, to assume
the lease if Developer is in default under the terms and provisions of the
lease or the lease is terminated and/or the franchise agreement expires or
is terminated; and
4. That the term shall be at least ten years including option
periods in favor of Developer.
Developer acknowledges that Franchisor's approval of the site (and the lease or
purchase agreement for the site) does not in any way guarantee that the site
will become a profitable Restaurant. Developer expressly acknowledges that
Franchisor's approval of the site (and the lease or purchase agreement of the
site) shall not be deemed to be or construed as a warranty or guarantee, express
or implied, as to the potential volume, profits, or success of the Restaurant to
be located on the site.
-4-
<PAGE>
SECTION IV.
TERM AND RIGHT OF FIRST REFUSAL
A. Unless sooner terminated in accordance with the terms of this
Agreement, the term of this Agreement and all rights granted hereunder (except
for the right of first refusal provided in Section IV.B below) shall expire on
the date of Franchisor's acceptance and execution of a Franchise Agreement for
the last of the Restaurants to be established pursuant to the Development
Schedule.
B. If at any time following Developer's successful completion of the
Development Schedule, Franchisor determines that it is desirable to establish
additional Restaurants under the System in the Assigned Area, and Developer is
then in compliance with all terms and conditions of all Franchise Agreements
between Developer and Franchisor, Developer shall have a right of first refusal
to purchase the options to establish such additional Restaurants upon
Franchisor's then-current terms and conditions. In that event, Franchisor shall
submit to Developer a development agreement offering such options, which
agreement shall supersede in all respects this Agreement, and Developer shall
have 60 days after receipt to execute and return the agreement to Franchisor.
In the event that Developer does not exercise this right of first refusal,
Franchisor may thereafter elect to establish additional Restaurants itself or
grant options to others to do so in the assigned area.
SECTION V.
DUTIES OF THE PARTIES
A. Franchisor shall furnish to Developer the following:
1. A Development Manual, on loan, setting forth site selection
guidelines, and containing a set of prototype plans and specifications (not
for construction) for a Bakery Restaurant and a Satellite Restaurant.
2. On-site evaluation as Franchisor deems advisable in response to
Developer's request for site approval; provided, however, the Franchisor
shall not provide on-site evaluation for any proposed site prior to its
receipt from Developer of a market feasibility study for such site prepared
by Developer pursuant to Section III.B. hereof.
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<PAGE>
B. Developer accepts the following obligations:
1. Developer shall comply with all terms and conditions set forth in
this Agreement.
2. Developer shall at all times preserve in confidence the
Development Manual and any and all materials and information furnished or
disclosed to Developer by Franchisor and designated by Franchisor as
confidential, and Developer shall disclose such information or materials
only to such of its employees or agents who must have access to it in
connection with their employment. Developer shall not at any time, without
Franchisor's prior written consent, copy, duplicate, record, or otherwise
reproduce the Development Manual or other materials or information, in
whole or in part, nor otherwise make the same available to any unauthorized
person.
3. Developer shall comply with all requirements of federal, state,
and local laws, rules, and regulations.
SECTION VI.
DEFAULT
A. The options and territorial rights granted to Developer in this
Agreement have been granted in reliance on Developer's representations and
assurances, among others, that the schedule of development set forth in
Attachment "A" to this Development Agreement will be met by Developer in a
timely manner.
B. Developer shall be deemed in default under this Agreement, and all
rights granted herein shall automatically terminate without notice, if Developer
is adjudicated a bankrupt, becomes insolvent, suffers temporary or permanent
count-appointed receivership of substantially all of Developer's property, makes
a general assignment for the benefit of creditors or suffers the filing of a
voluntary or involuntary bankruptcy petition which is not dismissed within 90
days after filing.
C. If Developer fails to comply with the Development Schedule, fails to
comply with any other terms and conditions of any individual Franchise
Agreement, Development Agreement, or any other agreement between Developer and
Franchisor, or makes or attempts to make a
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<PAGE>
transfer or assignment in violation of Section VII.B. hereof, such action
shall constitute a default under this Development Agreement. Upon such
default, Franchisor, in its discretion, may, without giving Developer prior
notice or the right to cure any such default, do any one or more of the
following:
1. Terminate this Agreement and all rights granted hereunder without
affording Developer any opportunity to cure the default, effective
immediately upon Developer's receipt of written notice from Franchisor;
2. Reduce the number of options granted Developer in Section I.A. of
this Agreement;
3. Reduce the territory described in Section I.A. of this Agreement;
4. Terminate the territorial exclusivity granted Developer in
Section I.B. of this Agreement.
D. Upon termination of this Agreement by Developer's default, all
remaining options shall be null and void. Developer shall have no right to
establish or operate any Restaurant for which a Franchise Agreement has not been
executed by Franchisor. No default under this Development Agreement shall
constitute a default under any Franchise Agreement between the parties hereto.
E. No right or remedy herein conferred upon or reserved to Franchisor is
exclusive of any other right or remedy provided or permitted by law or equity.
SECTION VII.
TRANSFERABILITY
A. Franchisor shall have the right to transfer all or any part of its
rights or obligations herein to any person or legal entity.
B. Developer understands and acknowledges that the rights and duties set
forth in this Development Agreement are personal to Developer and are granted in
reliance upon the personal qualifications of Developer. Developer has
represented to Franchisor that Developer is entering
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<PAGE>
into this Development Agreement with the intention of complying with its
terms and conditions and not for the purpose of resale of the developmental
rights hereunder. Neither Developer nor any partner, member, or shareholder
thereof shall, without Franchisor's prior written consent, directly or
indirectly, sell, assign, transfer, convey, give away, pledge, mortgage, or
otherwise encumber any interest in this Development Agreement or in
Developer. Any such proposed assignment occurring by operation of law or
otherwise, including any assignment by the trustee in bankruptcy, without
Franchisor's prior written consent shall be a material default of this
Agreement. Franchisor's consent to a transfer of any interest in this
Development Agreement or in Developer shall be subject to the terms and
conditions set forth in Article 13 of the Franchise Agreement (Attachment "B"
hereto), including, without limitation, the right of first refusal provisions
in favor of Franchisor contained therein; provided, however, if a proposed
transfer hereunder would trigger the requirements of Section 13.3 of the
Franchise Agreement, the transferee, in lieu of complying with subsections F
through I of Section 13.3 of the Franchise Agreement, shall execute this
Agreement and any ancillary agreements and pay to Franchisor a transfer fee
of $2,500. Notwithstanding any provision to the contrary contained in this
Section VII, Developer may transfer not more than an aggregate of 25% of the
outstanding voting shares or ownership interest of a Developer operating as a
corporation, partnership, or limited liability company to employees of
Developer who are actively engaged in Developer's Restaurant operations, if
such transfers, alone or together with other previous, simultaneous, or
proposed transfers, do not have the effect of transferring a controlling
interest (as reasonably determined by Franchisor) in the Developer. The
ownership of such shares or ownership interest by such employees will be
subject to all of the terms and conditions set forth in this Agreement and
the Franchise Agreement, including, without limitation, Articles 11 and 13 of
the Franchise Agreement. Developer shall provide Franchisor with written
notice of any such proposed transfer and all pertinent information regarding
the same not later than thirty (30) days prior to the proposed date of
transfer.
SECTION VIII.
COVENANTS
Developer covenants that, except as otherwise approved in writing by
Franchisor, Developer shall not do or engage in any act prohibited by Article 11
of the Franchise Agreement (Attachment "B"). Developer further covenants that
during the term hereof Developer shall not compete, or be associated, directly
or indirectly as an owner, officer, director, employee, consultant, or
otherwise, in any business in competition with the System, and, for a period of
two years after any transfer or termination of this Agreement for any reason,
Developer shall not compete, or be associated, directly or indirectly as an
owner, officer, director, employee, consultant, or otherwise, in any business in
competition with the System which is located within
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(i) the Assigned Area, (ii) the Designated Market Area or Areas identified by
the then-current Nielson Wall Map published by the A.C. Nielson Company
("DMA"), in which the Assigned Area is located, or (iii) the DMA of any other
System Restaurant then existing; provided, however, that passive ownership of
less than five percent (5%) of the outstanding voting securities of a
publicly held corporation (which for purposes of this Agreement means a
corporation registered under the Securities Exchange Act of 1934) shall not
be deemed a violation of this Section. In the event the A.C. Nielson Company
discontinues the publication of Nielson Wall Maps for any reason, Franchisor
shall have the right to designate an alternate generally recognized market
identification resource for use in connection with this Section. Unless the
context otherwise requires, the term "developer" as used in this Section
shall include, individually and collectively, all partners, officers,
directors, and holders, directly or indirectly (and any partners, officers or
directors of any such holder), of any beneficial interest in the development
rights granted hereunder, and any immediate family members of any of such
persons.
SECTION IX.
NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered or mailed by certified mail, return
receipt requested, to the respective parties at the following addresses unless
and until a different address has been designated by written notice to the other
party:
Notices to Franchisor: New York Bagel Enterprises, Inc.
250 N. Water
Wichita, Kansas 67202
Attn: Franchise Department
Notices to Developer:
------------------------------------
------------------------------------
------------------------------------
Attn:
-------------------------------
Any notice by certified mail shall be deemed to have been given at the date
and time of mailing.
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<PAGE>
SECTION X.
INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that nothing
in this Development Agreement is intended to constitute either party an
agent, legal representative, subsidiary, joint venturer, partner, employee,
or servant of the other for any purpose whatsoever. Each party to this
Agreement is an independent contractor, and neither shall be responsible for
the debts or liabilities incurred by the other.
B. Developer shall hold itself out to the public to be an independent
contractor operating pursuant to this Agreement. Developer agrees to take
such reasonable actions as shall be necessary to that end.
C. Developer understands and agrees that nothing in this Development
Agreement authorizes Developer to make any contract, agreement, warranty or
representation on Franchisor's behalf, or to incur any debt or other
obligation in Franchisor's name; and that Franchisor assumes no liability
for, nor shall be deemed liable by reason of, any act or omission of
Developer in Developer's conduct under this Development Agreement, or any
claim or judgment arising therefrom. Developer shall indemnify and hold
Franchisor harmless against any and all such claims directly or indirectly
from, as a result of, or in connection with Developer's operations hereunder,
as well as the costs, including attorneys' fees, of defending against them.
SECTION XI.
APPROVALS
A. Whenever this Development Agreement requires the prior approval or
consent of Franchisor, Developer shall make a timely written request to
Franchisor therefor; and, except as otherwise provided herein, any approval
or consent granted shall be in writing.
B. Franchisor makes no warranties or guarantees upon which Developer
may rely and assumes no liability or obligation to Developer or any third
party to which it would not
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<PAGE>
otherwise be subject, by providing any waiver, approval, advice, consent, or
services to Developer in connection with this Development Agreement, or by
reason of any neglect, delay, or denial of any request therefor.
SECTION XII.
NON-WAIVER
No failure of Franchisor to exercise any power reserved to it in this
Agreement or to insist upon compliance by Developer with any obligation or
condition in this Development Agreement, and no custom or practice of the
parties at variance with the terms hereof, shall constitute a waiver of
Franchisor's rights to demand exact compliance with the terms of this
Agreement. Waiver by Franchisor of any particular default shall not affect or
impair Franchisor's right in respect to any subsequent default of the same or
of a different nature, nor shall any delay, forbearance, or omission of
Franchisor to exercise any power or right arising out of any breach or
default by Developer of any of the terms, provisions, or covenants of this
Agreement, affect or impair Franchisor's rights, not shall such constitute a
waiver by Franchisor of any rights hereunder or rights to declare any
subsequent breach or default.
SECTION XIII.
SEVERABILITY AND CONSTRUCTION
A. The provisions of this Agreement shall be deemed severable.
B. Nothing in this Agreement shall confer upon any person or legal
entity other than Franchisor or Developer and such of their respective
successors and assigns as may be contemplated by Section VII. hereof, any
rights or remedies under or by reason of this Agreement.
C. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof. Time is of the essence of this
Agreement in all respects.
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D. All references herein to gender and number shall be construed to
include such other gender and number as the context may require, and all
acknowledgments, promises, covenants, agreements and obligations herein made
or undertaken by Developer shall be deemed jointly and severally undertaken
by all those executing this Agreement on behalf of Developer.
E. This Agreement may be executed in several parts, and each copy so
executed shall be deemed an original.
SECTION XIV.
ENTIRE AGREEMENT - APPLICABLE LAW
This Agreement, the documents referred to herein, and the Attachments
attached hereto constitute the entire, full, and complete agreement between
Franchisor and Developer concerning the subject matter hereof and supersede
any and all prior agreements. No amendment, change, or variance from this
Agreement shall be binding on either party unless executed in writing. This
Agreement shall be governed by the laws of the State of Kansas.
SECTION XV.
REMEDIES AND DISPUTES
A. Developer and Franchisor agree to submit, prior to arbitration, all
unsettled claims, disputes, controversies, and other matters in question
between them arising out of or relating to this Agreement (including but not
limited to any claim that the Agreement or any of its provisions is invalid,
illegal, or otherwise voidable or void), the dealings or relationship between
Developer and Franchisor, or Developer's development of any Restaurant
("Disputes") to mediation in Wichita, Kansas and in accordance with the
Commercial Mediation Rules of the American Arbitration Association currently
in effect. Demand for mediation shall be made within a reasonable time after
cessation of negotiations.
1. Mediation shall be private, voluntary, and nonbinding. Any party
may withdraw from the mediation at any time before signing a settlement
agreement upon written notice to each other party and to the mediator. The
mediator shall be neutral and impartial. The mediator's fees shall be
shared equally by the parties. The mediator shall
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be disqualified as a witness, consultant, expert, or counsel for either
party with respect to the matters in Dispute and any related matters.
2. Unless the parties agree otherwise, the entire mediation process
shall be confidential and without prejudice. The parties and the mediator
shall not disclose any information, documents, statements, positions, or
terms of settlement. Nothing said or done or provided by the parties in
the course of mediation shall be reported or recorded or, except as ordered
by a court of competent jurisdiction, placed in any legal proceeding or
construed for any purpose as an admission against interest. Nevertheless,
evidence otherwise discoverable or admissible is not excluded from
discovery or admission as a result of its use in mediation.
If a Dispute cannot be resolved through mediation, the parties agree to
submit the Dispute to arbitration, subject to the terms and conditions of
this Section XV.
B. Subject to subsection A above, all Disputes between Developer and
Franchisor will be submitted for binding arbitration to the American
Arbitration Association on demand of either party. Such arbitration
proceeding will be conducted in Wichita, Kansas and, except as otherwise
provided in this Agreement, will be heard by one arbitrator in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then in effect. All matters relating to arbitration will be governed by the
federal Arbitration Act (9 U.S.C. Sections 1 ET.SEQ.) and not by any state
arbitration law.
1. The arbitrator will have the right to award or include in his
award any relief which he deems proper under the circumstances, including,
without limitation, money damages (with interest on unpaid amounts from the
date due), specific performance, injunctive relief, and attorneys' fees and
costs, provided that the arbitrator will not have the right to declare any
of Franchisor's proprietary marks generic or otherwise invalid or to award
exemplary or punitive damages. The award and decision of the arbitrator
will be conclusive and binding upon all parties hereto, and judgment upon
the award may be entered in any court of competent jurisdiction.
2. Developer and Franchisor agree to be bound by the provisions of
any limitation on the period of time in which claims must be brought under
applicable law. Developer and Franchisor further agree that, in connection
with any such arbitration proceeding, each must submit or file any claim
which would constitute a compulsory counterclaim (as defined by Rule 13 of
the Federal Rules of Civil Procedure) within the same proceeding as the
claim to which it relates. Any such claim which is not submitted or filed
as described above will be forever barred.
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<PAGE>
3. Developer and Franchisor agree that arbitration will be conducted
on an individual, not a class-wide, basis, and that an arbitration
proceeding between Developer and Franchisor may not be consolidated with
any other arbitration proceeding involving Developer or Franchisor and
another party.
C. Notwithstanding anything to the contrary contained in this Section
XV, Developer and Franchisor each have the right in a proper case to obtain
temporary restraining orders and temporary or preliminary injunctive relief
from a court of competent jurisdiction; provided, however, that Developer and
Franchisor must contemporaneously submit the Dispute for non-binding
mediation under subsection A above and then for arbitration under subsection
B above on the merits as provided herein if such Dispute cannot be resolved
through mediation. Developer acknowledges that a proper case to obtain
temporary restraining orders and temporary or permanent injunctive relief
from a court of competent jurisdiction contemporaneously with submitting the
Dispute to mediation and then to arbitration shall include, but not be
limited to, the following:
1. Any Dispute involving actual or threatened disclosure or misuse
of the contents of the Development Manual or any other confidential
information or trade secrets of Franchisor;
2. Any Dispute involving the ownership, validity, use of, or right
to use or license Franchisor's marks;
3. Any action by Franchisor to enforce the covenants set forth in
Section VII and Section VIII of the Agreement; and
4. Any action by Franchisor to stop or prevent any threat or danger
to public health or safety resulting from the construction of a Restaurant.
The provisions of subsections A and B above are intended to benefit and bind
certain third party non-signatories and will continue in full force and
effect subsequent to and notwithstanding the expiration or termination of
this Agreement.
D. In the event that Developer commences any action against Franchisor
with respect to any Dispute, such action shall be brought only in a federal
or state court sitting within Sedgwick County, Kansas. Developer consents to
the exercise of jurisdiction by courts within Sedgwick County, Kansas over
any claims or counterclaims against Developer.
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E. In the event Franchisor incurs legal fees or costs or other
expenses to enforce any obligation of Developer hereunder, or to defend
against any claim, demand, action or proceeding by reason of Developer's
failure to perform or observe any obligation imposed upon Developer by this
Agreement, then Franchisor shall be entitled to recover from Developer the
amount of all legal fees, costs and expenses, including reasonable attorneys'
fees, whether incurred prior to, or in preparation for or contemplation of
the filing of any claim, demand, action, or proceeding to enforce any
obligation of Developer hereunder or thereafter or otherwise.
F. Nothing contained in this Section XV shall bar Franchisor's right
to obtain injunctive relief against threatened conduct that will cause it
loss or damage, under the usual equity rules, including the applicable rules
for obtaining restraining orders and preliminary injunctions
SECTION XVI.
DISCLAIMER
A. Developer acknowledges that the success of the business venture
contemplated by this Agreement involves substantial business risks and will
be largely dependent upon the ability of Developer as an independent
businessman. Franchisor expressly disclaims the making of, and Developer
acknowledges Developer has not received, any warranty or guarantee, express
or implied, as to the potential volume, profits, or success of the business
venture contemplated by this Agreement.
B. Developer acknowledges that Developer received a copy of the New
York Bagel Enterprises, Inc. Development Agreement, the attachments thereto,
if any, and agreements relating thereto, if any at least five business days
prior to the date this Agreement was executed; and that Franchisor has
accorded Developer ample time and opportunity to consult with advisors of
Developer's own choosing about the potential benefits and risks of entering
into this Agreement. Developer further acknowledged that Developer has
received a copy of Franchisor's Uniform Franchise Offering Circular at least
ten business days prior to the date this Agreement was executed.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have fully executed, sealed, and
delivered this Agreement to be effective on the date and year executed by
Franchisor below.
ATTEST: NEW YORK BAGEL ENTERPRISES, INC.
By
- -------------------------------- -------------------------------------
Witness Title:
---------------------------------
Date:
----------------------------------
"Franchisor"
ATTEST:
---------------------------------------
By
- -------------------------------- -------------------------------------
Witness Title:
---------------------------------
Date:
----------------------------------
"Developer"
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<PAGE>
GUARANTY
As an inducement to New York Bagel Enterprises, Inc. to enter into the
foregoing Development Agreement, which it is unwilling to do but for this
Guaranty, the undersigned individually and, if more than one Guarantor,
jointly and severally guarantee the payment and performance of all
obligations of the Developer under the Agreement. This shall be an
unconditional, irrevocable, and continuing guaranty for the entire term of
this Agreement, including any renewal terms.
The undersigned agree that they are willing to remain fully bound by
this Guaranty notwithstanding any action or inaction of the Franchisor and
Developer in connection with the Agreement, and that their obligation shall
not be modified, waived, or released by any modification, amendment, or
departure from the terms of the Agreement, or by any forbearance, extension
of time, waiver, or release granted by Franchisor to Developer or any
Guarantor or with respect to any security held by Franchisor. The
undersigned expressly waive any notice of all such matters and agree to pay
and perform the obligations of Developer without notice or demand from the
Franchisor and without any requirement that Franchisor first proceed against
Developer or any other Guarantor.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
as of the date of the Development Agreement.
-------------------------------------
ATTEST:
- -----------------------------------
-------------------------------------
ATTEST: "Guarantor"
- -----------------------------------
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<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
DEVELOPMENT AGREEMENT
DEVELOPMENT SCHEDULE
Number of Bakery Restaurants Number of Satellite Restaurants
Date To Be Established and in Operation To Be Established and in Operation
- ---- ---------------------------------- ----------------------------------
- ------- ------------------------------ ------------------------------
- ------- ------------------------------ ------------------------------
- ------- ------------------------------ ------------------------------
Attachment "A"
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
DEVELOPMENT AGREEMENT
FRANCHISE AGREEMENT
The form of Franchise Agreement currently offered by Franchisor is
attached.
(Refer to Section III.A. Development Agreement.)
Attachment "B"
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISE AGREEMENT
Exhibit B
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISE AGREEMENT
TABLE OF CONTENTS
Page No.
Article 1 Acknowledgments and Representations. . . . . . . . . . . . . . 2
Article 2 Grant of Franchise . . . . . . . . . . . . . . . . . . . . . . 3
Article 3 Term and Renewal . . . . . . . . . . . . . . . . . . . . . . . 5
Article 4 Fees and Royalties . . . . . . . . . . . . . . . . . . . . . . 6
Article 5 Restaurant Construction and Opening. . . . . . . . . . . . . . 7
Article 6 Duties of NYBE . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 7 Duties of Franchisee . . . . . . . . . . . . . . . . . . . . . 12
Article 8 Quality Control and Supervision. . . . . . . . . . . . . . . . 16
Article 9 Advertising. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article 10 Financial Reporting. . . . . . . . . . . . . . . . . . . . . . 21
Article 11 Proprietary Marks and Trade Secrets; Competition . . . . . . . 23
Article 12 Insurance and Indemnity. . . . . . . . . . . . . . . . . . . . 27
Article 13 Transfer of Interest . . . . . . . . . . . . . . . . . . . . . 29
Article 14 Default and Termination. . . . . . . . . . . . . . . . . . . . 34
Article 15 Obligations upon Termination . . . . . . . . . . . . . . . . . 36
Article 16 Additional Covenants . . . . . . . . . . . . . . . . . . . . . 39
Article 17 Approvals and Waivers. . . . . . . . . . . . . . . . . . . . . 40
Article 18 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Article 19 Alternative Dispute Resolution . . . . . . . . . . . . . . . . 41
Article 20 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 43
Article 21 Construction and Modification. . . . . . . . . . . . . . . . . 44
Article 22 Execution of Agreement . . . . . . . . . . . . . . . . . . . . 46
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Exhibit A (Owners of Franchisee)
Exhibit B (Covenant Agreement)
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (the "Agreement") made and entered into at
Wichita, Kansas this _____ day of _____________________, 19__, by and between
NEW YORK BAGEL ENTERPRISES, INC. ("NYBE" or "Franchisor"), a Kansas
corporation, having its chief executive offices at 250 N. Water, Wichita,
Kansas 67202, and ________________________________________________________
(hereinafter referred to as "Franchisee"), whose principal business address
is ____________________________________.
RECITALS
A. NYBE has developed and owns a distinctive system (hereinafter
"System") for the design, establishment, and operation of restaurants under
the name "New York Bagel Cafe & Deli" (such name, the service mark "Like
Bread, With An Attitude", and any other trade names, service marks,
trademarks, logos, emblems, or other indication of origin as are now or
hereafter designated by NYBE as part of the system are hereinafter referred
to as "Proprietary Marks") utilizing certain Trade Secrets (as hereinafter
defined) in connection with the retail sale of bagels made fresh daily,
sandwiches, salads, soups, beverages, and dessert products.
B. The System has been developed as a uniform method and philosophy of
operation, customer service, marketing, advertising, promotion, publicity,
and technical knowledge relative to the bakery and delicatessen business.
Franchisee recognizes the benefits to be derived from being identified with
and licensed to use the System and understands that it is necessary to
prescribe and maintain the conditions of operation of the franchise so that
the public will come to expect a high measure of excellence and uniform
quality from each franchise for the benefit of NYBE and its franchisees.
C. Franchisee desires a franchise to establish and operate a NEW YORK
BAGEL CAFE & DELI Restaurant ("NYB Restaurant") and NYBE is willing to grant
such a franchise on the terms and conditions hereafter stated.
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<PAGE>
ARTICLE 1. ACKNOWLEDGMENTS AND REPRESENTATIONS.
Franchisee acknowledges and represents to NYBE, in order to induce NYBE
to enter this Agreement, as follows:
A. NYBE makes no representations or warranties and hereby disclaims
any warranties with regard to whether any of the Proprietary Marks are
protectable or registerable and with regard to whether any of the
Proprietary Marks infringe upon the rights of others;
B. Franchisee has read this Agreement and NYBE's Franchise
Disclosure Document and understands and accepts the terms, conditions, and
covenants contained in this Agreement as being reasonably necessary to
maintain NYBE's standards of quality and service and the uniformity of
those standards at each NYB Restaurant in order to protect and preserve the
goodwill of the Proprietary Marks;
C. Franchisee has conducted an independent investigation of the
business contemplated by this Agreement. Franchisee recognizes that the
nature of the business conducted by NYBE may evolve and change over time;
that an investment in a NYB Restaurant involves business risks; and that
the success of the venture depends primarily upon Franchisee's business
ability and efforts;
D. Franchisee has not received or relied upon any guarantee,
expressed or implied, about the revenues, profits, or success of the
business venture contemplated by this Agreement;
E. No representations have been made by NYBE, or by its officers,
directors, shareholders, employees, or agents, that are contrary to the
statements made in the Franchise Disclosure Document heretofore received by
Franchisee or to the terms contained in this Agreement;
F. In all of their dealings with Franchisee, the officers,
directors, employees, and agents of NYBE act only in a representative
capacity, not in an individual capacity, and that this Agreement and all
business dealings between Franchisee and such individuals as a result of
this Agreement are solely between Franchisee and NYBE; and
G. The application made by Franchisee to NYBE is true and correct.
Franchisee has made no incorrect statement in the application or failed to
make
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<PAGE>
any statement that would be necessary to make the statements in the
application not misleading.
ARTICLE 2. GRANT OF FRANCHISE.
2.1. Subject to the terms and conditions hereof, and to the continuous
compliance by Franchisee therewith, NYBE hereby grants to Franchisee the
right to operate [check the following as applicable]:
____ an NYB Restaurant with a bagel bakery (a "Bakery Restaurant"); or
____ an NYB Restaurant without a bagel bakery (a "Satellite Restaurant");
and to use the System and the Proprietary Marks in connection therewith. The
Bakery Restaurant or the Satellite Restaurant shall be referred to herein as
the "NYB Restaurant" or "franchised business."
2.2. Franchisee shall operate the NYB Restaurant at, and only at, the
following location: ____________________________________________ (hereinafter
the "Approved Location").
2.3. Franchisee shall not relocate the NYB Restaurant without the prior
written approval of NYBE which approval shall not be unreasonably withheld
provided:
A. The relocation is within the Assigned Territory (as defined in
Section 2.4 hereof) and does not infringe upon the territory of another NYB
Restaurant;
B. Franchisee's lease, if any, for the new location complies with
NYBE's then-current requirements; and
C. Franchisee complies with NYBE's then-current requirements for
furnishing the NYB Restaurant at the new location.
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Franchisee agrees that the Assigned Territory shall not be modified as a
result of any relocation of the NYB Restaurant.
2.4. Except as otherwise provided in this Agreement, during the term
hereof, NYBE shall not establish, nor franchise another to establish, a NYB
Restaurant within a radius of ___ miles of the Approved Location (hereinafter
the "Assigned Territory"). However, subject to Franchisee's right of first
refusal described in Section 2.5 hereof, NYBE retains the right to acquire
restaurants and/or to acquire a franchisor with franchisees which operate
restaurants (but not to establish restaurants or to franchise another to
establish restaurants) at any location within the Assigned Territory which
operate under proprietary marks other than those used in connection with the
System for the sale of the same, similar, or different products and services,
on any terms and conditions NYBE may deem advisable.
2.5. NYBE shall provide written notice to Franchisee within a reasonable
time upon NYBE's acquisition during the term hereof of any restaurants which
operate under proprietary marks other than those used in connection with the
System for the sale of the same, similar, or different products and services
and which are located in the Assigned Territory (hereinafter, whether one or
more, "Non-System Restaurants"). Such notice shall provide Franchisee with a
right of first refusal to acquire such Non-System Restaurants from NYBE on
the terms provided below if the sale by NYBE of such restaurants to
Franchisee is allowed by applicable law. Subject to the foregoing,
Franchisee shall have the right and option, exercisable within 30 days after
receipt of such written notification, to provide written notice to NYBE that
Franchisee desires to purchase all of the Non-System Restaurants and to
convert such restaurants to NYB Restaurants under the System. In the event
Franchisee elects to purchase and convert the Non-System Restaurants,
Franchisee must close on such purchase and execute NYBE's then-current form
of NYBE Franchise Agreement (which shall require payment of the then-current
initial franchise fee) within 60 days from the date of notice to NYBE of
Franchisee's election to purchase and convert. The purchase price to be paid
by Franchisee for the Non-System Restaurants shall be the cash equivalent of
NYBE's restaurant cost for each Non-System Restaurants, as determined by NYBE
in NYBE's sole discretion. In the event Franchisee does not elect to
purchase and convert the Non-System Restaurants as provided in this Section,
Franchisee shall have no further right or option to acquire such Non-System
Restaurants, and NYBE may sell such Non-System Restaurants to a third party
and/or NYBE may continue to operate the Non-System Restaurants under
proprietary marks other than those used in connection with the System.
2.6. The license granted hereby to use the Proprietary Marks is
nonexclusive, and Franchisee acknowledges and agrees that such Proprietary
Marks are and shall remain the
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property of NYBE and shall not be contested as to ownership or validity by
Franchisee, and that NYBE makes no representations or warranties and hereby
disclaims any warranties with regard to whether any of the Proprietary Marks
are protectable or registerable and with regard to whether any of the
Proprietary Marks infringe upon the rights of others. Franchisee understands
and agrees that the license to use the marks is conditioned upon Franchisee's
agreement that: (i) the Proprietary Marks shall be used only in connection
with the franchised business and only in the manner authorized by NYBE; (ii)
Franchisee will not use the Proprietary Marks as part of its corporate or
other legal name, will identify itself as a franchisee, and will comply with
all fictitious name and other statutes in connection with its use of the
Proprietary Marks; (iii) Franchisee will cooperate with NYBE in protecting
and defending the Proprietary Marks; and (iv) Franchisee will comply with
NYBE's designations of additions, deletions, and changes in the Proprietary
Marks.
ARTICLE 3. TERM AND RENEWAL.
3.1. Unless sooner terminated or modified as hereinafter provided, the
term of this Franchise shall be ten years from the date of this Agreement.
3.2. Franchisee is granted the option to renew this Agreement for one
additional consecutive term of ten years, provided Franchisee complies with
the following conditions prior to renewal:
A. Franchisee shall give NYBE written notice of its election to
renew not less than 12 months nor more than 18 months prior to the end of
the initial term;
B. NYBE may inspect the franchised premises at least six months
prior to expiration of the initial term and Franchisee shall complete to
NYBE's satisfaction all maintenance, refurnishing, renovating, and
remodeling of the premises as NYBE shall reasonably require no later than
60 days prior to the end of the initial term;
C. Franchisee shall not be in default of any provision of this
Agreement, any amendment hereof, or successor hereto, or any other
agreement between Franchisee and NYBE or any subsidiary or affiliate of
NYBE, and shall have substantially complied with all of the terms and
conditions of such agreements during the terms thereof;
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D. Franchisee shall have satisfied all monetary obligations owed by
Franchisee to NYBE and its subsidiaries and affiliates and shall have
timely met those obligations throughout the term of this Agreement;
E. Franchisee shall execute, for the renewal term, NYBE's
then-current form of renewal franchise agreement, which agreement shall
supersede this Agreement in all respects, and the terms of which may differ
from the terms of this Agreement, including, without limitation, higher
rates for continuing fees; provided, however, that Franchisee shall pay, in
lieu of an initial franchise fee, a renewal fee equal to one-half of the
initial franchise fee set forth in Section 4.1;
F. Franchisee shall execute a general release, in a form prescribed
by NYBE, of any and all claims against NYBE, its subsidiaries and
affiliates, and the officers, directors, agents, and employees of NYBE and
each of its subsidiaries and affiliates; provided, however, that all rights
enjoyed by the Franchisee and any causes of action arising in its favor
from the provisions of any applicable franchise laws and regulations shall
remain in force; it being the intent of this proviso that any non-waiver
provisions of such laws be satisfied; and
G. Franchisee's managers and other employees shall comply with
NYBE's then-current qualification and training requirements.
ARTICLE 4. FEES AND ROYALTIES.
4.1. In consideration of the rights and franchise granted herein,
Franchisee shall pay NYBE the following:
A. If the NYB Restaurant is a Bakery Restaurant, as defined in
Section 2.1, a franchise fee of $21,000, and if the NYB Restaurant is a
Satellite Restaurant, as defined in Section 2.1, a franchise fee of
$12,000. Franchisee acknowledges and agrees that such fee has been fully
earned and is nonrefundable in consideration of expenses incurred, rights
granted, services rendered, and other valuable consideration, the receipt
and sufficiency of which is acknowledged by Franchisee.
B. A monthly royalty fee continuing throughout the initial term of
this Agreement in an amount equal to four percent of the Franchisee's gross
receipts.
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C. In the event that NYBE later decides to establish a marketing and
advertising fund for the System, and upon Franchisee's receipt of 30 days'
written notice from NYBE announcing such decision, Franchisee shall
thereafter pay to NYBE monthly fees continuing throughout the initial term
of this Agreement in an amount specified by NYBE from time to time, not to
exceed two percent (2%) of Franchisee's monthly gross receipts for use by
the NYBE for advertising and marketing purposes, as set forth in Section
9.3 of this Agreement.
4.2. All monthly payments required by Sections 4.1.B and 4.1.C shall be
due to NYBE by the 15th day after the end of the month in which such gross
receipts were received by Franchisee, and shall be submitted to NYBE together
with any report required under Article 10 hereof. Any payment or report not
actually received by NYBE on or before such date shall be deemed overdue
unless postmarked at least five days prior to the date it was due. If any
payment is overdue, Franchisee shall pay to NYBE immediately upon demand the
overdue amount together with interest on such amount from the date it was due
until paid, at the lesser of one and one-half percent (1.5%) per month, or
the maximum rate permitted by law. Franchisee acknowledges that nothing
contained in this Section shall constitute an agreement by NYBE to accept
such payments after the same are due or a commitment by NYBE to extend credit
to, or otherwise finance Franchisee's operation of, the NYB Restaurant.
Franchisee acknowledges that Franchisee's failure to pay all such amounts
when due shall constitute grounds for termination of this Agreement, as
provided in Article 14 of this Agreement, notwithstanding the provisions of
this Section. The foregoing shall be in addition to any other remedies NYBE
may have.
4.3. As used in this Agreement, "gross receipts" shall mean all gross
revenue during each month of every kind or nature related to the NYB
Restaurant, including without limitation all restaurant revenue posted
whether it is collected or remains uncollected, all charges for other
products, services, and facilities and vending machine receipts, but
excluding sales taxes or other taxes collected by Franchisee from customers
for transmittal to appropriate taxing authorities. "Gross receipts" shall be
determined in accordance with the accounting procedures set forth in the
Confidential NYBE Manual (the "NYBE Manual").
ARTICLE 5. RESTAURANT CONSTRUCTION AND OPENING.
5.1. Prior to commencing construction of the NYB Restaurant under this
Agreement, Franchisee shall have (i) requested and received written approval
of NYBE of the proposed site for the NYB Restaurant, (ii) provided Franchisor
with blueprints for the proposed
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site adequate for use by Franchisor in preparing site layout plans, and (iii)
received the site layout plans and specifications from Franchisor described
in Section 6.3 hereof.
5.2. At least 30 days prior to commencing construction of tenant
improvements for the NYB Restaurant (or, where applicable, the building for
the NYB Restaurant) under this Agreement, Franchisee shall have requested and
received approval of NYBE of each of the following:
A. The lease or purchase agreement for the proposed site, which must
not contain any provision that is inconsistent with or interferes with the
performance of any provision of this Agreement (which in the case of leases
will require provisions in the lease or addendum to lease in form and
substance acceptable to NYBE (i) authorizing NYBE to enter the premises and
make any modifications necessary to protect the proprietary marks, (ii)
granting to NYBE the right (but not the duty) to assume the lease if
Franchisee is in default under the terms and provisions of the lease and/or
if this Agreement expires or is terminated, (iii) requiring concurrent
notice from lessor to NYBE of any lease default or termination, and (iv)
providing for a term of at least 10 years including option periods in favor
of Franchisee);
B. Plans and specifications adapted to the proposed site;
C. Satisfactory evidence that all permits, licenses, and
certifications required for the lawful construction and operation of the
proposed NYB Restaurant, including, without limitation, all applicable
building permits, zoning access, sign and fire requirements, have been
obtained;
D. Evidence of insurance naming NYBE as additional insured subject
to the provisions of Section 12.1 of this Agreement; and
E. Such other information as NYBE may reasonably request.
5.3. Within 30 days of the submission of the foregoing items, the NYBE
will approve or disapprove and provide written notice of such action, to the
Franchisee.
5.4. NYBE's provision of site layout plans and specifications and its
exercise of its rights to inspect construction of the NYB Restaurant shall be
solely for the purpose of assuring compliance with the terms and conditions
of this Agreement, and NYBE shall have no
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liability or obligation to Franchisee or any other person with respect to
construction of the NYB Restaurant.
5.5. Franchisee shall order, purchase and/or lease and install all
fixtures, equipment, furnishing, furniture, signs, supplies and other items
necessary for completion and opening of the NYB Restaurant as specified in
the NYBE Manual.
5.6. Franchisee shall diligently and continuously pursue the completion
of the NYB Restaurant premises in accordance with the plans and
specifications in order for the NYB Restaurant to be ready to open for
business not later than 90 days after Franchisee receives possession of the
NYB Restaurant site.
5.7. The NYB Restaurant shall be opened for business immediately upon
satisfaction of the following requirements:
A. All furnishings, furniture, equipment, signs, supplies and other
items required for the opening of the NYB Restaurant in accordance with the
Agreement and the standards of NYBE shall have been installed, and
Franchisee shall have submitted to NYBE a certificate of occupancy or
equivalent certificate from appropriate regulatory authorities;
B. Franchisee (or a qualified general manager employed by
Franchisee) has completed to NYBE's satisfaction a training program
conducted by NYBE, and Franchisee has employed qualified personnel
sufficient to operate the NYB Restaurant;
C. Franchisee has paid all sums due NYBE, its parent, subsidiaries,
or affiliated companies;
D. Franchisee is not in default under any existing franchise
agreement or other agreement with NYBE;
E. Franchisee has certified in writing to NYBE that all terms and
conditions relating to the opening of the NYB Restaurant have been
satisfied and the NYB Restaurant is ready to open for business as a NYB
Restaurant;
F. NYBE shall be satisfied as to Franchisee's compliance with
requirements necessary for opening the NYB Restaurant by such on-site
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inspection and investigation as NYBE deems appropriate, which shall be made
and completed within 15 days of receipt of the certificate of Franchisee
pursuant to subsection (E) of this Section; and
G. Franchisee shall conduct a grand opening advertising and
promotional program in accordance with the grand opening advertising and
promotional guidelines set forth in the NYBE Manual during the period
commencing seven days before and ending 90 days after the opening of the
NYB Restaurant and to expend not less than $2,500 on such program.
ARTICLE 6. DUTIES OF NYBE.
In addition to the other obligations and duties set forth in this
Agreement, NYBE agrees as follows:
6.1. NYBE shall provide initial on-site assistance by a NYBE
representative immediately prior to opening and after the commencement of
operations, as set forth in Section 6.5, for an aggregate total of
approximately ten days.
6.2. NYBE shall provide a set of then-current prototype plans and
specifications (not for construction) for a typical NYB Restaurant.
6.3. Within 30 days following the later of (i) NYBE's approval of the
proposed site in accordance with Article 5 hereof, or (ii) the delivery by
Franchisee to NYBE of blueprints for the unfinished leased premises for the
Restaurant which are adequate for use in preparing site layout plans, NYBE
will furnish to Franchisee site layout plans and specifications which adapt
NYBE's prototype plans and specifications to Franchisee's specific location
based upon the blueprints furnished by Franchisee (Franchisor will not make
any field visits to the proposed Restaurant to verify the information
contained in such blueprints). Franchisee shall be responsible for the
preparation of any necessary "as-built" site plans.
6.4. NYBE shall provide an initial training program for Franchisee or
Franchisee's general manager and the other personnel designated in the NYBE
Manual; provided, however, if Franchisee currently operates one or more
franchised NYB Restaurants in addition to the NYB Restaurant franchised
hereunder, NYBE may elect not to provide initial
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training to some or all of Franchisee's personnel if, in NYBE's judgment,
such training is not required. NYBE shall make available such other training
programs or seminars as NYBE deems appropriate. All training provided by
NYBE shall be subject to the terms and conditions set forth in Section 7.2 of
this Agreement.
6.5. If the NYB Restaurant franchised hereunder is the first NYB
Restaurant operated by Franchisee under the System, NYBE shall provide
Franchisee initial on-site assistance prior to opening and after the
commencement of NYB Restaurant operations for an aggregate total of
approximately ten days. Thereafter, NYBE shall provide assistance,
consultation, and counseling to Franchisee upon Franchisee's reasonable
request and subject to (as to timing) the availability of personnel. In
connection with on-site assistance or consultation other than initial on-site
assistance and other than NYBE-initiated inspections, NYBE may charge for
each of NYBE's personnel involved therewith, a reasonable daily assistance
fee and reasonable expenses for travel and room and board.
6.6. NYBE shall provide Franchisee on loan one copy of the NYBE Manual
setting forth standards of operation for Franchisee's System and standards of
quality, cleanliness, and service for the NYB Restaurant. NYBE shall have
the right to add to and otherwise modify the NYBE Manual from time to time to
reflect changes in the business, authorized products or services (or
specifications therefor), equipment requirements, quality standards, and
operating procedures of the NYB Restaurant as determined by NYBE from time to
time.
6.7. Franchisee acknowledges and agrees that NYBE may establish,
maintain and administer a Marketing and Advertising Fund for the System
subject to the provisions of Article 9 of this Agreement. NYBE shall review
all other advertising materials which Franchisee proposes to use in
accordance with the procedures prescribed in Section 9.1 hereof.
6.8. NYBE will seek to maintain the high standards of quality,
cleanliness, appearance, and service of the System, and to that end shall
conduct, as it deems advisable, inspections of the NYB Restaurant and
evaluations of the services rendered therein, and interviews of Franchisee's
employees, agents, and customers.
6.9. Franchisee acknowledges and agrees that any duty or obligation
imposed on NYBE by this Agreement may be performed by a designee, employee,
or agent of NYBE, as NYBE may direct.
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ARTICLE 7. DUTIES OF FRANCHISEE.
In addition to the other obligations and duties set forth in this
Agreement, Franchisee agrees as follows:
7.1. Franchisee covenants and agrees to commence, diligently pursue, and
complete construction of the NYB Restaurant and open for business in
accordance with Article 5 hereof.
7.2. Franchisee shall serve as general manager or shall employ a
qualified general manager whose responsibilities shall include those
prescribed in the NYBE Manual and the Franchisee shall also employ such other
personnel as NYBE may reasonably specify from time to time in the NYBE
Manual. Franchisee or Franchisee's general manager and the other personnel
employed by Franchisee in the positions designated in the NYBE Manual shall,
prior to assuming their positions, attend and complete to NYBE's reasonable
satisfaction the initial training program conducted by NYBE at such time and
place and for such duration as NYBE may prescribe. NYBE shall provide, with
respect to the initial training of those personnel, training instructors,
facilities, and training materials. All other expenses, including, without
limitation, the expenses of Franchisee's employees for travel, room, board,
and wages, shall be borne by Franchisee. Each person subsequently employed by
Franchisee to fill a position for which initial training is required by NYBE
must also satisfactorily complete an adequate training program satisfactory
to NYBE prior to assuming that position; provided that, if a new general
manager is hired in an emergency situation without having an opportunity to
complete the training course, NYBE may give written permission for such
person to attend a training course within 60 days of employment with the
Franchisee. Franchisee shall pay to NYBE a training fee at the then-current
rate imposed by NYBE for the initial training of any replacement personnel
and for such other training programs as NYBE may require or offer as optional
training for Franchisee's employees, which fee shall be in addition to any
other training costs to be borne by Franchisee as provided herein.
7.3. Franchisee expressly acknowledges that adherence to each and every
provision of the System is reasonable, necessary, and essential to maintain
the uniform image and favorable reputation of each NYB Restaurant and the
success of NYBE's franchise program. Accordingly, Franchisee expressly
agrees to comply with each and every requirement of the System during the
term hereof, as the same may be modified or changed from time to time by NYBE
in its sole discretion. Franchisee shall operate the franchised business
strictly in conformity with such standards, techniques, and procedures as
NYBE may from time to time
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prescribe in the NYBE Manual or otherwise in writing, and shall refrain from
deviating therefrom without NYBE's prior written consent. Franchisee shall
not operate the franchised business in any manner which reflects adversely on
the System, the Proprietary Marks, the goodwill associated therewith or
NYBE's rights therein.
7.4. If the NYB Restaurant is a Satellite Restaurant, Franchisee shall
not bake bagels of any kind at the NYB Restaurant. Franchisee shall use the
NYB Restaurant premises solely for the operation of the franchised business
and shall not use or allow the use of the premises for any other purpose or
activity at any time without the prior written consent of NYBE, which may be
granted or withheld in NYBE's sole discretion.
7.5. The NYB Restaurant and everything located on the NYB Restaurant
premises shall be maintained in first class condition and repair and shall be
kept neat, clean, and sanitary in accordance with NYBE's standards as
specified in the NYBE Manual, and consistent with the image of a NYB
Restaurant as a clean, sanitary, attractive, and efficiently operated store
offering high quality food and beverages and courteous service. The NYB
Restaurant shall be constructed, maintained, and operated in compliance with
all applicable fire, safety, health, and sanitation laws, ordinances, and
regulations. Franchisee shall place or display at the NYB Restaurant
(interior or exterior) only such signs, emblems, lettering, logos and display
only such advertising that materials are from time to time approved in
writing by NYBE. Franchisee shall not install or have installed any vending
machines, video games or similar devices without the prior written approval
of NYBE.
7.6. Franchisee shall perform such maintenance of the NYB Restaurant and
the Approved Location as is required by NYBE 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 NYB Restaurant;
B. Interior and exterior repair of the NYB Restaurant;
C. Maintenance of equipment at peak performance;
D. Replacement of worn out or obsolete improvements, fixtures,
furnishings, equipment and signs with approved improvements, fixtures,
furnishings, equipment and signs; and
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E. Periodic painting and decorating.
At NYBE's request, which shall not be more often than once every five
years, Franchisee shall upgrade the NYB Restaurant at Franchisee's expense to
conform to the building decor and trade dress consistent with NYBE's
then-current public image, including, without limitation, such structural
changes, remodeling, and redecoration and such modifications to existing
improvements as may be deemed necessary by NYBE. Except as described above,
Franchisee shall make no additions, alterations, or replacements to the NYB
Restaurant or anything located on the NYB Restaurant premises without the
prior written consent of NYBE.
7.7. Franchisee shall acquire and maintain at its cost a computerized
cash register meeting NYBE's specifications. If requested by NYBE,
Franchisee will acquire and maintain at its cost computer equipment and
software meeting NYBE's specifications which may be connected with NYBE's
computer equipment via normal telephone lines, and which may be used to
transmit data and other information electronically between NYBE or its
designee and Franchisee.
7.8. Franchisee shall, at Franchisee's expense, comply with all federal,
state, and local laws, rules, and regulations, and shall timely obtain, and
keep in force as required throughout the term of this Agreement, any and all
permits, certificates, licenses, and approvals necessary for the full and
proper conduct of the business franchised hereunder.
7.9. Franchisee shall notify NYBE in writing within five days of the
commencement of any action, suit, or proceeding, and of the issuance of any
inquiry, subpoena, order, writ, injunction, award, or decree of any court,
agency, or other governmental instrumentality, arising out of, concerning, or
which may affect the operation or financial condition of the franchised
business, including, without limitation, any criminal action or proceeding
brought by Franchisee against employees, customers, or other persons.
7.10. Franchisee shall pay when due all taxes levied or assessed in
connection with the possession, ownership, or operation of the NYB Restaurant
and all taxes payable on royalties and other payments made to NYBE or to any
of its affiliates (excluding income taxes payable by NYBE). In the event of
any BONA FIDE dispute respecting any tax assessed against Franchisee, the NYB
Restaurant, any personal property located therein, or any payments due to
NYBE, Franchisee may contest the validity or amount of the tax in accordance
with procedures of the taxing authority; provided, however, that Franchisee
shall act with all due
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diligence and shall in no event permit a tax sale or seizure against the NYB
Restaurant or any equipment, goods, or property located therein, or any
impoundment of payments due to NYBE.
7.11. If the Franchisee is at any time a corporation, limited
liability company, or partnership, Franchisee agrees and represents that:
A. Franchisee has the authority to execute and deliver this
Agreement and to perform its obligations thereunder and is duly organized
or formed and validly existing in good standing under the laws of the state
of its formation or organization;
B. Franchisee's organizational documents or partnership agreement
will recite that the issuance and transfer of the ownership interests of
Franchisee are restricted by the terms and conditions of this Agreement,
and all certificates and other documents representing an ownership interest
in Franchisee will bear a legend referring to the restrictions of this
Agreement;
C. Exhibit A to this Agreement will completely and accurately
describe all of the owners of Franchisee and their interests in Franchisee;
and
D. Each of the owners of Franchisee at any time during the term of
this Agreement will sign an agreement in the form that NYBE prescribes
undertaking to be bound jointly and severally by all provisions of this
Agreement and any ancillary agreements between NYBE or its affiliates and
Franchisee, and a material breach of such agreement shall be deemed a
material breach of this Agreement. Franchisee and its owners agree to sign
and deliver to NYBE such revised Exhibits A as may be necessary to reflect
any changes in the information contained therein and to furnish such other
information about Franchisee's organization or formation as NYBE may
request.
E. Franchisee shall furnish NYBE with its articles or certificate of
incorporation, bylaws, and partnership or limited liability documentation
or similar organization documents, and any other documents NYBE may
reasonably request, and any amendments thereto.
F. Franchisee shall confine its activities, and shall at all times
provide that its activities are confined, exclusively to operating the
franchised business.
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ARTICLE 8. QUALITY CONTROL AND SUPERVISION.
8.1. Franchisee agrees that substantial uniformity of quality at all NYB
Restaurants is necessary and desirable for purposes of establishing and
protecting the shared identity, reputation, and goodwill associated
therewith. In order to better accomplish these objectives, Franchisee agrees
that:
A. The NYB Restaurant shall offer for sale only the products and
services, and shall only purchase, lease, install, and use the types
and/or brands of food products, beverages, ingredients, flavorings, and
garnishes used to prepare food products, cartons, bags, boxes, napkins,
other containers, paper and plastic goods, packaging supplies, equipment,
fixtures, furnishings, concept, supply, building design or layout, color
schemes, concepts, and other items or services specified in this Agreement
and the NYBE Manual, or approved in writing by NYBE as being consistent
with NYBE's standards and specifications and with the System.
B. NYBE may from time to time designate approved suppliers of
products and services, which may include NYBE. If Franchisee (i) desires
to purchase or lease products or services from sources not previously
approved in writing by NYBE for such items, or (ii) proposes to sell any
food product or beverage or use any ingredients, flavorings, garnishes, or
containers, cartons, bags, boxes, paper or plastic goods, packaging
supplies or other materials, of a type not previously approved by NYBE,
Franchisee shall submit to NYBE a written request for approval and provide
to NYBE such information and specifications as NYBE requests. NYBE may
require, as a condition of its approval, that samples of the item be
submitted to NYBE for inspection and testing, and Franchisee or the
proposed source shall pay the reasonable expenses of such inspection and
testing. NYBE may also require submission of evidence that the proposed
source carries insurance sufficient to reasonably protect NYBE and
Franchisee from liability arising out of the use or sale of the product or
service. Provided that the foregoing conditions are satisfied, and the
products or services meet NYBE's standards and specifications and are
consistent with the System, NYBE's approval will not be unreasonably
withheld.
C. Franchisee agrees that it shall purchase and offer for sale all
products which NYBE may uniformly designate for all System franchisees to
purchase and offer for sale in accordance with the NYBE Manual.
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8.2. Franchisee shall only make sales over-the-counter at retail to the
ultimate consumer of the products to be offered for sale by the NYB
Restaurant.
8.3. The franchised business shall be conducted in accordance with the
NYBE Manual, as updated, supplemented, and modified from time to time,
receipt of one current copy of which is hereby acknowledged. Franchisee
further acknowledges that establishing, maintaining, and protecting the good
will, reputation, and uniformity of the System requires strict adherence to
this Agreement and the NYBE Manual in all respects, it being agreed that
every detail is significant and material.
8.4. Franchisee hereby grants to NYBE and its agents the right to enter
upon the premises of the NYB Restaurant at any reasonable time for the
purpose of conducting inspections. Franchisee agrees to take such steps as
may be reasonably necessary to correct any deficiencies detected during such
an inspection, upon the written request of NYBE or its agents, within such
reasonable time as may be specified therein.
8.5. If Franchisee develops any products, services, procedures, or
inventions deemed by NYBE to be appropriate for use in other System NYB
Restaurants, it is understood and agreed that NYBE may use such products,
services, procedures, or inventions in other System NYB Restaurants without
obligation to compensate Franchisee, it being understood and agreed that the
benefit to the Franchisee from the overall enhancement of the System is
sufficient consideration for granting this right to NYBE.
8.6. All marketing and promotion by Franchisee shall be factual,
ethical, and in good taste in the judgment of NYBE and shall be subject to
NYBE's approval as provided in Section 9.1. Franchisee shall in all dealings
with its customers, suppliers, NYBE, and the public adhere to the highest
standards of honesty, integrity, fair dealing, and ethical conduct.
Franchisee agrees to refrain from any business or advertising practice which,
in the subjective opinion of NYBE, may be injurious to the business of NYBE
and the goodwill associated with the Proprietary Marks and other NYB
Restaurants.
8.7. Within seven days of the receipt by Franchisee of any report from
any health department or other comparable agency, Franchisee shall mail a
complete copy of such report to NYBE. Franchisee shall notify NYBE in
writing within five days of 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
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may adversely affect the operation or financial condition of Franchisee or
the NYB Restaurant or of any notice of violation of any law, ordinance, or
regulation relating to health or sanitation.
8.8. NYBE may from time to time suggest prices for the goods and
services offered by Franchisee. NYBE and Franchisee agree that the prices
suggested by NYBE are recommendations only and are not mandatory. Nothing
contained in this Agreement shall be deemed a representation or warranty by
NYBE that the use of NYBE's suggested prices shall produce, increase, or
optimize profits.
ARTICLE 9. ADVERTISING.
Franchisee and NYBE recognize the value of advertising and the
importance of the standardization of advertising programs to the furtherance
of the goodwill and public image of the System. In order to better
accomplish these objectives, the parties agree as follows:
9.1. Franchisee agrees to spend a minimum of four percent (4%) of gross
receipts per year for media advertising and promotional materials,
contributions to a Marketing Fund pursuant to Section 9.3, and contributions
to local or regional advertising cooperatives pursuant to Section 9.4. All
advertising by Franchisee in any medium shall be conducted in such manner,
and shall conform to such standards and requirements, as NYBE may specify.
Franchisee shall submit to NYBE (by mail, return receipt requested), for its
prior written approval (except with respect to prices to be charged), samples
of all advertising and promotional plans and materials and all other
materials displaying the Proprietary Marks that Franchisee desires to use
which have not been prepared or previously approved by NYBE. If written
disapproval thereof is not received by Franchisee within 15 days from the
date of receipt by NYBE of such plans and materials, NYBE shall be deemed to
have given the required approval.
9.2. Franchisee shall obtain listings at Franchisee's expense in the
yellow and white pages of local telephone directories. Franchisee shall also
pay its share of the cost of any multiple-NYB Restaurant local telephone book
advertising, to be apportioned equally among all NYB Restaurants listed in
such advertising. All expenditures made by Franchisee pursuant to this
paragraph shall be considered a portion of the minimum required advertising
expenditure set forth in Section 9.1.
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9.3. NYBE may later decide to establish and administer a Marketing and
Advertising Fund ("Marketing Fund"), which, if established, would be used by
NYBE to meet any and all costs of developing and preparing national,
regional, point of sale, and local advertising materials for use within the
System, including, without limitation, costs associated with developing,
preparing, directing, administering, maintaining, and disseminating
advertising, marketing, promotional, and public relations materials;
conducting marketing research; maintaining a sales and marketing staff and
related expenses; and preparing, producing, broadcasting, and disseminating
advertising and promotions, including, without limitation, radio, television,
newspaper, and magazine advertising, market surveys, public relations
activities, and employment of advertising agencies. If the Marketing Fund is
established, NYBE shall choose and determine, in its sole discretion, the
nature, theme, and timing of advertising and the kind and quality of
advertising materials to be provided to franchisees through the Marketing
Fund. All payments, plus income earned therefrom, would be used exclusively
for the above-stated purposes, would be maintained in an account separate
from NYBE's other funds, and would not be used to defray any of NYBE's other
expenses. If the Marketing Fund is established, NYBE shall, for each of its
company-owned NYB Restaurants, make contributions to the Marketing Fund at
the same percentage of gross receipts required of franchisees within the
System. If the Marketing Fund is established, NYBE or its designee would
direct all advertising and promotional programs and activities, with sole
discretion over the concepts, materials, and media used in such programs and
activities and the placement and allocation thereof. Franchisee acknowledges
that the intent of the Marketing Fund, if established, would be to maximize
general public recognition and acceptance of the Proprietary Marks for the
benefit of the System, and NYBE or its designee would have no obligation, in
administering the Marketing Fund, to make expenditures for Franchisee which
are equivalent or proportionate to any payments by Franchisee or to ensure
that any particular franchisee or any particular franchised location benefits
directly or PRO RATA from advertising or promotion conducted under the
Marketing Fund.
9.4. NYBE shall have the right, in its sole discretion, to designate
geographic areas for purposes of establishing local or regional advertising
cooperatives ("Cooperatives"). If the NYB Restaurant is within the territory
of an existing Cooperative at the time the NYB Restaurant opens for business,
Franchisee shall immediately become a member of the Cooperative. If a
Cooperative applicable to the NYB Restaurant is established during the term
of this Agreement, Franchisee shall become a member no later than 30 days
after the date approved by NYBE for the Cooperative to commence operation.
NYBE or its affiliates shall participate in any Cooperatives established for
geographic regions that include NYB Restaurants owned by NYBE or its
affiliates. The following provisions shall apply to each Cooperative:
A. Each Cooperative shall be organized and governed in a form and
manner, and shall commence operations on a date, approved in advance by
NYBE
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in writing. No changes in the bylaws or other governing documents of a
Cooperative shall be made without NYBE's prior written consent.
B. Each Cooperative shall be organized for the exclusive purpose of
administering local and regional advertising programs and developing,
subject to NYBE's approval, promotional materials for use by the members in
local advertising.
C. No advertising or promotional plans or materials may be used by a
Cooperative or furnished to its members without prior approval of NYBE
pursuant to Section 9.4.E below.
D. Franchisee and each member of the Cooperative shall contribute to
the Cooperative, commencing on the 15th day of the first month after the
Cooperative commences operations, the amount determined by the membership.
Said amount shall not exceed two percent (2%) of Franchisee's gross
receipts. Franchisee's obligation to make local advertising expenditures
under Section 9.1 above shall be reduced by the amount of Franchisee's
contributions to the Cooperative. Each required contribution shall be
based on gross receipts for the immediately preceding month, and shall be
submitted together with such statements or reports as may be required by
NYBE, or by the Cooperative with NYBE's prior written approval.
E. All advertising and promotion by Cooperatives shall be in such
media and of such type and format as NYBE may approve and shall conform to
such standards and requirements as NYBE may specify. The Cooperative shall
submit to NYBE (by mail, return receipt requested), for its prior written
approval (except with respect to prices to be charged), samples of all
advertising and promotional plans and materials and all other materials
displaying the Proprietary Marks that the Cooperative desires to use which
have not been prepared or previously approved by NYBE. If written
disapproval thereof is not received by the Cooperative within 15 days from
the date of receipt by NYBE of such plans and materials, NYBE shall be
deemed to have given the required approval.
F. Upon the designation of geographic areas for Cooperatives, NYBE
shall have the right, in its sole discretion, to require the prospective
members of any Cooperative to take all necessary action to form the
Cooperative. NYBE shall also have the right, in its sole discretion, to
require the members of any Cooperative to cause any Cooperative to: (i)
change the bylaws or other governing documents of the Cooperative; (ii) to
dissolve the Cooperative; and (iii) merge with another Cooperative. NYBE
shall also have the right to redesignate
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geographic areas for any Cooperatives and in connection with such
redesignation to require the members of any Cooperative to cause the
Cooperative to take any of the actions set forth above in this Section
9.4.F.
ARTICLE 10. FINANCIAL REPORTING.
10.1. Franchisee shall keep complete records of the franchised
business and the sale of all goods and services therein at the NYB
Restaurant. Franchisee shall record all sales at the NYB Restaurant in a cash
register meeting NYBE's specifications. Franchisee shall retain at the NYB
Restaurant for a period of at least 24 months, all sales and purchase records
(including daily cash register tapes and vendor invoices), books of account,
business and payroll records and vendor financial information relating to the
franchised business, any corporation, partnership or other business
association owning the franchise.
10.2. On a weekly basis during the term hereof, Franchisee shall
supply NYBE, at NYBE's request, with a telephonic report of all sales of
goods and services at the NYB Restaurant during the preceding calendar week
and, if available, information respecting the comparable period during the
preceding year. On or before the 15th day of each month, Franchisee shall
furnish NYBE with a written sales report and statement of Gross Revenues in
the format prescribed by NYBE for all sales made and services provided during
the preceding month. Franchisee shall also submit to NYBE (i) within 30
days following the month for which such statement is compiled, a monthly
profit and loss statement and a cumulative profit and loss statement from the
beginning of Franchisee's fiscal year to the end of such month, together with
such other financial, operating, marketing, and other information as NYBE may
require, and (ii) within 30 days after each fiscal quarter of Franchisee, an
unaudited quarterly balance sheet. On or before March 31 of each calendar
year, Franchisee shall submit to NYBE a profit and loss statement, a balance
sheet, and a statement of Gross Revenues reflecting Gross Revenues and the
results of operations for the preceding calendar year. All such profit and
loss statements and balance sheets shall comply with any format prescribed by
NYBE, shall be prepared in accordance with generally accepted accounting
principles consistently applied and shall be signed and verified as true and
correct by Franchisee or, if Franchisee is a corporation, partnership, or
other business association, by its duly authorized chief financial officer.
In addition, at NYBE's request, Franchisee shall submit to NYBE true copies
of all state sales tax returns relating to sales made at the NYB Restaurant
licensed herein at the same time the returns are filed with state
authorities, and such other records as NYBE may reasonably request from time
to time, including, without limitation, state and federal income tax returns
of Franchisee.
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10.3. NYBE or its representatives, at NYBE's expense, shall at all
reasonable times have the right to inspect or audit the books, accounts,
records and returns of Franchisee or of any corporation, partnership or other
business association which owns the Franchise. The foregoing records may
include, but are not limited to, state and federal income tax returns, credit
card or any other third party charge account statements, and any bank,
savings and loan, or financial checking money market, or savings account used
for the franchised business. Franchisee shall fully cooperate with NYBE and
its representatives or agents conducting such inspections or audits and, upon
request, Franchisee shall submit a written response to any issues raised in
connection with said audits. In the event a discrepancy between reported
Gross Revenues and actual Gross Revenues is uncovered in any audit conducted
pursuant to this Section for any reporting period (weekly, monthly or
annual), Franchisee shall promptly pay the amount determined to be owing and,
if the discrepancy exceeds two percent (2%) of reported Gross Revenues,
Franchisee shall reimburse NYBE for all costs of the audit, including travel,
lodging, and wages of personnel of NYBE or third parties required to conduct
such audit. Franchisee shall also promptly reimburse NYBE for the cost of
any audit (including salaries, travel, and living expenses) necessitated by
Franchisee's failure to file any financial report due hereunder and any
deficiency in royalties or advertising contributions disclosed by such audit.
At NYBE's option, Franchisee shall also immediately pay to NYBE interest on
the understated amount due from the date such amount was due until paid at
the lesser of one and one-half percent (1-1/2%) per month or the maximum rate
permitted by applicable law. In addition, NYBE shall have the right to
require Franchisee to provide for each subsequent fiscal year, within 120
days after the end of each year, audited financial statements certified by
independent certified public accountants selected by Franchisee and approved
by NYBE. The foregoing remedies shall be in addition to any other remedies
NYBE may have. Submission by Franchisee of more than two written statements
of Gross Revenues which under-report Gross Revenues for any reporting period
by two percent (2%) or more (regardless of any subsequent cure) shall
constitute a material breach of this Agreement entitling NYBE, at its option,
the right to terminate this Agreement pursuant to Section 14.1.C.
10.4. Franchisee hereby authorizes all banks and/or other financial
institutions with which Franchisee does business to disclose to NYBE any
requested financial information in their possession relating to the NYB
Restaurant licensed herein, and hereby authorizes NYBE to release to
Franchisee's lenders or prospective lenders, financial and operational
information relating to the NYB Restaurant licensed herein. Franchisee
further authorizes NYBE to disclose such information to prospective
Franchisees and state regulatory agencies, provided that such information is
not identified as relating to Franchisee's NYB Restaurant unless required by
law or regulation and then only if NYBE requests that such identification be
held in confidence.
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ARTICLE 11. PROPRIETARY MARKS AND TRADE SECRETS; COMPETITION.
11.1. Franchisee acknowledges that ownership of all right, title,
and interest in the System, the Proprietary Marks, and in the design, decor,
and image of all NYB Restaurant restaurants is and shall remain vested solely
in NYBE. Franchisee expressly disclaims any right, title, or interest
therein or in any goodwill derived therefrom. Franchisee's license to use
the Proprietary Marks is personal to Franchisee, and Franchisee shall not
license, sublicense, or allow the Proprietary Marks to be used by any other
person, firm, or business association without NYBE's prior written approval.
All uses of the Proprietary Marks by Franchisee inure to the benefit of NYBE.
11.2. Franchisee shall not, directly or indirectly, at any time
during the term of this Agreement or thereafter, do, cause or suffer to be
done any act or thing disputing, attacking or in any way impairing or tending
to impair the right, title, or interest of NYBE in the Proprietary Marks or
the System. Franchisee shall immediately notify NYBE in writing of all
infringements or imitations of the Proprietary Marks, and NYBE shall exercise
absolute discretion in deciding what action, if any, should be taken.
Franchisee shall fully cooperate with NYBE in the prosecution of any action
to prevent the infringement, imitation, or illegal use of the Proprietary
Marks and agrees to be named as a party in any such action at NYBE's request.
NYBE shall bear any and all legal expenses incident to Franchisee's
participation, at NYBE's request, in any action to prevent the infringement
or illegal use of the Proprietary Marks, except for the cost of any legal
counsel separately retained by Franchisee. Except as expressed in this
Section, NYBE shall not be liable to Franchisee for any damages, costs,
expenses, loss of profits or business opportunities, or incidental or
consequential damages of any kind or nature whatsoever relating to any action
involving the Proprietary Marks.
11.3. Franchisee shall use the Proprietary Marks as the sole
identification of the NYB Restaurant; provided, however, that in all public
records and in his relationship with other persons, on stationery, business
forms, checks, or as otherwise required by NYBE, Franchisee shall indicate
Franchisee's independent ownership of the NYB Restaurant. In no event shall
Franchisee use the Proprietary Marks in connection with the sale of any
product or service not authorized for sale at the NYB Restaurant. The
Franchisee shall not license, sublicense, or allow the Proprietary Marks to
be used by any other person or business entity without NYBE's prior written
approval. In adopting any corporate, proprietorship, or partnership name,
Franchisee shall not use the Proprietary Marks or any variation or
abbreviation thereof, or any words confusingly similar thereto. Franchisee
has no right to register any of the Proprietary Marks. If it becomes
advisable at any time in NYBE's sole discretion for NYBE and/or Franchisee to
modify or discontinue use of the Proprietary Marks, and/or use one or more
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additional or substitute trade or service Proprietary Marks, Franchisee
agrees to comply therewith within a reasonable time after written notice
thereof by NYBE.
11.4. Franchisee further acknowledges and agrees as follows:
A. NYBE possesses certain confidential information consisting of
secret recipes, methods of preparation, and service of food products sold
at NYB Restaurants, knowledge of sales and profit performance at any one or
more NYB Restaurants, knowledge of test programs, concepts or results
relating to new menu items, and advertising and promotional programs,
sources of food products and suppliers of equipment, advertising, promotion
and marketing techniques, the selection and training of store managers and,
in general, methods, techniques, formulas, formats, specifications,
procedures, information systems and knowledge, in the operation and
franchising of NYB Restaurants. All of the foregoing are hereinafter
referred to as the "Trade Secrets".
B. NYBE will disclose the Trade Secrets to Franchisee in furnishing
Franchisee with standard plans for the NYB Restaurant, in the NYBE Manual
and any temporary operating manuals, by providing training to Franchisee
hereunder, and in the performance of the NYBE's other obligations and the
exercise of its other rights under this Agreement. Franchisee hereby
agrees that all materials lent or otherwise made available to Franchisee by
NYBE and all disclosures made to Franchisee hereunder including, without
limitation, the NYBE Manual and other confidential commercial information
identified as such by NYBE are trade secrets of NYBE and shall be kept
confidential and used by Franchisee only in the operation of the NYB
Restaurant. Franchisee will not, nor permit anyone else to, reproduce,
copy, or exhibit any portion of the NYBE Manual or any other confidential
or proprietary information received from NYBE. Franchisee shall not
divulge any such Trade Secrets to any person other than Franchisee's
employees and then only to the extent necessary for the operation of the
NYB Restaurant.
C. Franchisee shall acquire no interest in the Trade Secrets, other
than the right to utilize them in the development and operation of the NYB
Restaurant during the term of this Agreement. The use or duplication of
the Trade Secrets in any other business will constitute an unfair method of
competition. The Trade Secrets are proprietary and are disclosed to
Franchisee in confidence and solely on the condition that Franchisee
agrees, and Franchisee hereby agrees that Franchisee (i) will not use the
Trade Secrets in any other business or capacity; (ii) will maintain the
absolute confidentiality of the Trade Secrets during and after
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the term of this Agreement; (iii) will not make unauthorized copies of any
portions of the Trade Secrets disclosed in written form, including, without
limitation, any plans, the NYBE Manual, bulletins or supplements and
additions thereto; and (iv) will operate and implement all reasonable
procedures prescribed from time to time by NYBE to prevent the unauthorized
use and disclosure of the Trade Secrets. Franchisee shall immediately
notify NYBE of any unauthorized use of disclosure of the NYBE Manual or any
of the Trade Secrets or if the NYBE Manual or any other manuals or
materials containing any Trade Secrets are lost or stolen.
D. The foregoing restrictions on Franchisee's disclosure and use of
Trade Secrets shall not apply to information, processes, or techniques that
are or become generally known and used by other similar restaurants, other
than through disclosure (whether deliberate or inadvertent) by Franchisee,
and disclosure of Trade Secrets in judicial or administrative proceedings
to the extent that Franchisee is legally compelled to disclose such
information, provided, Franchisee shall have used his best efforts, and
shall have afforded NYBE the opportunity, to obtain an appropriate
protective order or other assurance satisfactory to NYBE of confidential
treatment for the information required to be so disclosed.
11.5. During the term hereof Franchisee shall not compete, or be
associated, directly or indirectly as an owner, officer, director, employee,
consultant, or otherwise, in any business in competition with the System,
and, for a period of two years after any transfer or termination of this
Agreement for any reason, Franchisee shall not compete, or be associated,
directly or indirectly as an owner, officer, director, employee, consultant,
or otherwise, in any business in competition with the System which is located
within (i) the Assigned Territory, (ii) the Designated Market Area or Areas
identified by the then-current Nielsen Wall Map published by the A.C. Nielson
Company ("DMA"), in which the Assigned Territory is located, or (iii) the DMA
of any other NYB Restaurant then existing; provided, however, that passive
ownership of less than five percent (5%) of the outstanding voting securities
of a publicly held corporation (which for purposes of this Agreement means a
corporation registered under the Securities Exchange Act of 1934) shall not
be deemed a violation of this Section. In the event the A.C. Nielson Company
discontinues the publication of Nielson Wall Maps for any reason, NYBE shall
have the right to designate an alternate generally recognized market
identification resource for use in connection with this Section.
11.6. Unless the context otherwise requires, the term "Franchisee"
as used in this Article shall include, individually and collectively, all
partners, officers, directors,
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managers, members, and holders, directly or indirectly (and any partners,
officers, or directors of any such holder), of any beneficial interest in the
franchise granted hereunder, and any immediate family members of any of such
persons.
11.7. At NYBE's request, Franchisee shall require and obtain execution
of a covenant agreement in the form substantially similar to that attached
hereto as Exhibit B, except for reasonable changes as may be necessary to comply
with applicable law, from time to time (including a covenant agreement
applicable upon the termination of a person's relationship with Franchisee) from
any or all of the following persons: (i) all officers, directors, and holders
of a beneficial interest of five percent (5%) or more of the securities of
Franchisee, and of any corporation directly or indirectly controlling
Franchisee, if Franchisee is a corporation; (ii) the general partners and any
limited partners (including any corporation or other entity, and the officers,
directors, and holders of a beneficial interest of five percent (5%) or more of
the securities of any corporation or other entity which controls, directly or
indirectly, any general or limited partner), if Franchisee is a partnership; and
(iii) the managers and members (including any corporation or other entity, and
the officers, directors, and holders of a beneficial interest of five percent
(5%) or more of the securities of any corporation or other entity which
controls, directly or indirectly, any member or manager), if Franchisee is a
limited liability company. Failure by Franchisee to obtain execution of the
covenant agreement required by this Section, or to deliver such covenant
agreement to NYBE, shall constitute a material breach of this Agreement.
11.8. Franchisee shall require every person employed as general manager
of the NYB Restaurant to devote full time to such employment and to agree to be
bound by the restrictions set forth in this Article 11. Franchisee shall also
take all reasonable steps to require other employees to be bound by the
confidentiality provisions of this Article 11, and, if requested by NYBE, to be
bound by the noncompetition provisions hereof. Upon NYBE's request, Franchisee
shall promptly provide copies of all such agreements to NYBE.
11.9. Franchisee shall not employ or seek to employ any person who is
or was within the immediate past six months employed by NYBE or any other System
franchisee or induce or seek to induce any such person to leave his or her
employment without the consent of such employee's current employer. NYBE shall
not employ or seek to employ any person who is or was within the immediate past
six months employed by Franchisee or induce or seek to induce any such person to
leave his or her employment. Any party violating the provisions of this Section
shall pay to the former employer as liquidated damages (which the parties agree
are difficult of ascertainment) an amount equal to two times the annual salary
of the employee involved, plus all costs and attorneys fees incurred by the
former employer in connection with
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such default. The parties hereto agree that each current and future franchisee
in the System shall be a third party beneficiary of the provisions of this
Section, and shall be entitled to enforce the provisions hereof. NYBE shall
have no obligation to enforce the provisions of this Section for the benefit of
any current or future franchisee in the System.
11.10. In the event any provision of this Article 11 is deemed by a
court of competent jurisdiction to be more restrictive than permissible at law
or equity, then Franchisee agrees that the provisions hereof may be reformed and
modified and enforced by such court to the maximum extent permissible under
applicable law and principles of equity. Franchisee agrees that specific
performance and injunctive relief are necessary and appropriate remedies for
violations of this Article and agrees to the enforcement of such remedies, but
without prejudice to the right of NYBE to recover money damages, which are in no
event a full and adequate remedy for such violations.
ARTICLE 12. INSURANCE AND INDEMNITY.
12.1. Franchisee shall procure, prior to the commencement of any
operations under this Agreement, and maintain in full force and effect during
the term of this Agreement, at Franchisee's expense, in form and with insurers
having a Best's rating of "A" or better, and in compliance with the terms of any
mortgage or lease covering the NYB Restaurant premises:
A. Fire, vandalism, and extended coverage insurance for the full
replacement value of the NYB Restaurant, all improvements on the NYB
Restaurant premises, and all furniture, furnishings, fixtures, and
equipment.
B. Comprehensive general liability insurance, including product
liability, completed operations, and independent contractors coverage, and
comprehensive automobile liability coverage for both owned and non-owned
vehicles, and hired automobiles in the amount of $1,000,000, and naming
NYBE, its officers, directors, and employees (collectively, "Indemnitees")
as additional insureds in each such policy or policies.
C. Workers' compensation and employer's liability insurance, as well
as such other insurance as may be required by statute or rule of the state
in which the franchised business is located.
D. During any significant construction at the NYB Restaurant,
Franchisee will maintain or cause the general contractor to maintain with a
reputable insurer comprehensive general liability insurance (with
comprehensive automobile liability coverage for both owned and nonowned
vehicles, builder's risk, product liability, completed operations, and
independent contractors coverage) in at least the amount of $1,000,000 with
Indemnitees named as additional insureds, and workers' compensation and
employer's liability insurance and any other insurance as may be required
by law.
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12.2. The insurance policies required by subparts (b) and (d) of
Section 12.1 hereof shall (i) be endorsed to be primary to and non-contributory
with any insurance maintained by Indemnitees, (ii) contain a waiver of any
rights of subrogation against Indemnitees, and (iii) contain a severability of
interest provision in favor of Indemnitees. Upon obtaining the insurance
required by this Agreement and on each policy renewal date thereafter,
Franchisee shall promptly submit evidence of satisfactory insurance and proof of
payment therefor to NYBE, and, if requested by NYBE, copies of all policies and
policy amendments. The evidence of insurance shall include a statement by the
insurer that the policy or policies will not be canceled or materially altered
without at least 30 days prior written notice to NYBE. NYBE may increase the
minimum protection or coverage requirements of any policy required under Section
12.1, as of its renewal date, and may require different or additional kinds of
insurance at any time to reflect inflation, identification of special risks,
changes in law or standards of liability, higher damage awards or other relevant
changes in circumstances.
12.3. If Franchisee does not obtain and maintain the insurance coverage
required by this Agreement, as revised from time to time by the NYBE Manual or
otherwise in writing, NYBE may, but shall not be obligated to, procure such
insurance, and the cost or expense thereof, together with a reasonable fee for
NYBE's expenses in so acting, shall be payable by Franchisee immediately upon
demand.
12.4. Franchisee shall indemnify and hold NYBE harmless from and
against any and all actual or threatened claims, penalties, assessments,
regulatory proceedings, and litigation, including, without limitation all costs
and expenses and reasonable attorneys' fees incurred by NYBE in connection
therewith, arising from or out of the operation of the NYB Restaurant or any
occurrence at the NYB Restaurant premises, including, without limitation,
claims, penalties, assessments, regulatory proceedings, and litigation arising
in whole or in part out of the negligence of NYBE or its agents, employees,
directors, officers, or representatives (collectively, the "Claims"). NYBE
shall have the option, at its sole discretion, to request Franchisee to
undertake, in NYBE's name, the defense of any action relating to such Claims
wherein NYBE is named as a defendant or otherwise made a party or to assume such
defense with counsel satisfactory to NYBE. In either case, Franchisee shall
remain responsible for
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paying NYBE's costs of defense and of any judgment or settlement in any such
action. Franchisee's obligations to indemnify and hold NYBE harmless shall
not be limited in any way by reason of any insurance which may be maintained
by NYBE, nor shall Franchisee's performance of the obligation to maintain
insurance relieve Franchisee of liability under this indemnity provision or
be construed to be a limitation on the amount of Franchisee's indemnity
obligations. NYBE's right to indemnity under this Agreement shall arise
notwithstanding that joint or concurrent liability may be imposed on NYBE by
statute, ordinance, regulation, or other law. Notwithstanding any provisions
of this Section to the contrary, NYBE shall have no right to indemnification
for Claims arising solely out of NYBE's gross negligence.
12.5. Franchisee shall notify NYBE in writing within five days of
receipt of notice or knowledge of any claim, dispute, loss or damage, real or
alleged, arising from Franchisee's activities in, at or around the NYB
Restaurant, whether or not such claim names NYBE. Franchisee has no authority
to, and shall not, accept any service of process on behalf of NYBE or its
affiliates.
ARTICLE 13. TRANSFER OF INTEREST.
13.1. NYBE shall have the right to transfer or assign all or any part
of its rights or obligations herein to any person or legal entity.
13.2. Before any interest in this franchise or the Franchisee may be
sold to a third party, it must first be offered for sale to the NYBE by written
notice delivered to NYBE in accordance with this Agreement by Franchisee, such
notice to specify the price and terms of any such sale. At any time within 30
days after the service of such notice, NYBE may elect to purchase such interest
on similar terms and conditions by notifying Franchisee in writing of its
election to purchase the same. If NYBE does not elect to purchase such interest
in the foregoing manner, Franchisee may, subject to Franchisee's compliance with
the provisions of this Article 13 and the other provisions of the Agreement,
sell such interest to a third-party at a price that is not less than the price
specified in said written notice and upon terms not substantially different from
the terms specified in said written notice. If such sale is not effected within
six months following the expiration of the 30-day option period set out above,
the such interest in this franchise or the Franchisee may not be sold to any
third-party at any price without again complying with the aforesaid procedure,
in the same manner as if such interest had never before been offered for sale to
the NYBE. The provisions of this Section shall not apply to a transfer to a
corporation, partnership, or limited liability company formed by the Franchisee
for the convenience of ownership and not involving a change of beneficial
ownership, which transfer
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meets the conditions set forth in Section 13.5, and transfers to Franchisee's
employees which meet the conditions set forth in Section 13.8.
13.3. The rights and duties set forth in this Agreement are personal to
Franchisee and are granted in reliance on the individual and collective business
skill, financial capacity, and personal character of Franchisee and its
principals. Accordingly, neither Franchisee nor any immediate or remote
successor to any part of Franchisee's interest in this franchise, nor any
individual, partnership, corporation, or other legal entity which directly or
indirectly owns any interest in such entity, in the franchise or in the
Franchisee, shall sell, assign, transfer, convey, give away, pledge, mortgage,
or otherwise encumber any interest in this franchise or in Franchisee without
the prior written consent of NYBE, which consent NYBE may grant or withhold in
its sole discretion based solely upon what NYBE deems is in its best interests.
Any purported assignment or transfer, by operation of law or otherwise, not
having the written consent of NYBE required by this Section shall be null and
void and shall constitute a material breach of this Agreement, for which NYBE
may then terminate in accordance with Section 14.1.C without opportunity to
cure. If a transfer, alone or together with other previous, simultaneous, or
proposed transfers, would have the effect of transferring a controlling interest
(as reasonably determined by NYBE) in this franchise or in Franchisee, NYBE, in
its sole discretion, may require any or all of the following as conditions of
its approval:
A. All of Franchisee's accrued monetary obligations to NYBE and its
subsidiaries and affiliates and all other outstanding obligations related
to the franchised business shall have been satisfied;
B. Franchisee shall not be in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and NYBE, or its subsidiaries and affiliates;
C. The transferor shall have executed a general release, in a form
prescribed by NYBE, of any and all claims against NYBE and its officers,
directors, shareholders, and employees, in their corporate and individual
capacities, including, without limitation, claims arising under federal,
state and local laws, rules, and ordinances; provided, however, that all
rights enjoyed by the Franchisee and any causes of action arising in its
favor from the provisions of any applicable franchise laws and regulations
shall remain in force; it being the intent of this proviso that any non-
waiver provisions of such laws be satisfied;
D. The transferee (and, if transferee is other than an individual,
such owners of a beneficial interest in the transferee as NYBE may request)
shall enter into a written assignment and assumption agreement, in a form
satisfactory to
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NYBE, assuming and agreeing to discharge all of Franchisee's obligations
under this Agreement;
E. The transferee (or, if transferee is other than an individual,
all owners of any beneficial interest in transferee) shall demonstrate to
NYBE's satisfaction that transferee meets NYBE's educational, managerial,
and business standards; possesses a good moral character, business
reputation, financial capacity, and credit rating; has the aptitude and
ability to conduct the business franchised herein (as may be evidenced by
prior related business experience or otherwise); and has adequate financial
resources and capital to operate the business;
F. The transferee (and, if transferee is other than an individual,
such owners of a beneficial interest in the transferee as NYBE may request)
shall execute, for a term ending on the expiration date of this Agreement
and with such renewal term as may be provided by this Agreement, the
standard form franchise agreement then being offered to new System
franchisees and such other ancillary agreements as NYBE may require for the
franchised business, which agreements shall supersede this Agreement in all
respects, and the terms of which may differ from the terms of this
Agreement; provided, however, that the transferee shall not be required to
pay any initial franchise fee, the royalties and advertising fees payable
pursuant to Section 4.1 of this Agreement shall remain the same, and the
Assigned Territory provided for in this Agreement shall remain the same;
G. Franchisee shall remain liable for all of the obligations to NYBE
in connection with the franchised business prior to the effective date of
the transfer and shall execute any and all instruments reasonably requested
by NYBE to evidence such liability;
H. At the transferee's expense, the transferee or, if requested by
Franchisee and consented to by NYBE, the transferee's manager shall
complete any training program then in effect for franchisees upon such
terms and conditions as NYBE may reasonably require; and
I. Except in the case of (i) a transfer to a corporation,
partnership, or limited liability company formed by the Franchisee for the
convenience of ownership and not involving a change of beneficial
ownership, which transfer meets the conditions set forth in Section 13.5
hereof, or (ii) a transfer to NYBE pursuant to Section 13.2, Franchisee
shall pay to NYBE a transfer fee in an amount equal to $2,500, to cover
NYBE's administrative and other expenses in connection with the transfer.
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13.4. Franchisee shall grant no security interest in the franchised
business or in any of its assets unless the secured party agrees that in the
event of any default by Franchisee under any documents related to the security
interest, NYBE shall have the option, but shall not be obligated, to be
substituted as obligor to the secured party and to cure any default of
Franchisee.
13.5. In the event that the Franchisee proposes, subsequent to the
execution of this Agreement, to transfer this franchise to a corporation,
partnership, or limited liability company formed by Franchisee, NYBE's consent
to such transfer shall be conditioned upon satisfaction of and compliance with
Section 7.11 of this Agreement and to the following additional requirements:
A. Franchisee shall be the owner of all of the voting stock,
interests, or units of the corporation, partnership, or limited liability
company; and, if Franchisee is more than one individual, each individual
shall have the same proportionate ownership interest in the corporation or
limited liability company as he had in Franchisee prior to the transfer.
B. All transferors shall execute a written agreement personally
guaranteeing the full payment and performance of Franchisee's obligations
to NYBE from the date of transfer and agreeing to be bound by all the terms
and conditions of this Agreement.
C. Transferee shall comply with all of the terms and conditions set
forth in Sections 13.3.A through 13.3.I hereof.
13.6. Upon the death or mental incompetency of any person with an
interest in this franchise or in Franchisee, the executor, administrator, or
personal representative of such person shall transfer his interest within six
months after such death or mental incompetency to a third party approved by
NYBE. Such transfers, including, without limitation, transfers by devise or
inheritance, shall be subject to the same conditions as any INTER VIVOS
transfer. However, in the case of transfer by devise or inheritance, if the
heirs or beneficiaries of any such person are unable to meet the conditions in
this Agreement, the personal representative of the deceased Franchisee shall
have a reasonable time to dispose of the deceased's interest in the franchise or
in Franchisee, which disposition shall be subject to all the terms and
conditions for transfers contained in this Agreement. If the interest is not
disposed of within a reasonable time, NYBE may terminate this Agreement.
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13.7. Securities, units, or other ownership interests in Franchisee may
be offered by public or private offering, or otherwise, only with the prior
written consent of NYBE (whether or not NYBE's consent is required under Section
13.3 hereof), which consent NYBE may grant or withhold in its sole discretion
based solely upon what NYBE deems is in its best interests. All materials
required for such offering by federal or state law shall be submitted to NYBE
for review prior to their being filed with any governmental agency; and any
materials to be used in any exempt offering shall be submitted to NYBE for
review prior to their use. No Franchisee offering shall imply (by use of the
Proprietary Marks or otherwise) that NYBE is participating in an underwriting,
issuance, or offering of Franchisee or NYBE securities, and NYBE's review of any
offering shall be limited solely to the subject of the relationship between
Franchisee and NYBE. Franchisee and the other participants in the offering must
fully indemnify NYBE in connection with the offering. For each proposed public
offering, Franchisee shall pay to NYBE a nonrefundable fee of Twenty Thousand
Dollars ($20,000), or such greater amount as is necessary to reimburse NYBE for
its reasonable costs and expenses associated with reviewing the proposed
offering, including, without limitation, legal and accounting fees. For each
private offering of securities, Franchisee shall pay to NYBE a fee in a
reasonable amount determined by NYBE to reimburse NYBE for time and expense
associated with reviewing and approving or disapproving the proposed private
offering. Franchisee shall give NYBE written notice at least 90 days prior to
the date of commencement of any offering or other transaction covered by this
Section. Fees required by this Section are in addition to transfer fees
otherwise required by this Article 13.
13.8. Notwithstanding any provision to the contrary contained in this
Article 13, Franchisee may transfer not more than an aggregate of 25% of the
outstanding voting shares, units, or ownership interests of a Franchisee
operating as a corporation, partnership, or limited liability company to
employees of Franchisee who are actively engaged in the NYB Restaurant
operations, if such transfers, alone or together with other previous,
simultaneous, or proposed transfers, do not have the effect of transferring a
controlling interest (as reasonably determined by NYBE) in the Franchisee. The
ownership of such shares, units, or ownership interests by such employees will
be subject to all of the terms and conditions of this Agreement, including,
without limitation, Articles 11 and 13 hereof. Franchisee shall provide NYBE
with written notice of any such proposed transfer and all pertinent information
regarding the same not later than 30 days prior to the proposed date of
transfer.
13.9. NYBE's consent to a transfer of any interest in the franchise
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of NYBE's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
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ARTICLE 14. DEFAULT AND TERMINATION.
This Agreement may not be terminated except as provided in this Agreement.
Termination of this Agreement shall not relieve Franchisee of any unfulfilled
obligations to NYBE created hereunder unless it is so agreed by NYBE in writing.
14.1. This Agreement may be terminated as follows:
A. Upon the expiration of its term.
B. Upon the mutual agreement of the parties in writing to a
termination.
C. At NYBE's option, effective immediately upon the giving of
written notice to Franchisee, if Franchisee (i) fails to open the
franchised NYB Restaurant and commence operations within the time schedule
established under Article 5 hereof; (ii) ceases to operate the NYB
Restaurant or otherwise abandons the business, or forfeits the legal right
to do business in the jurisdiction where the NYB Restaurant is located;
(iii) is convicted of a felony or other crime involving moral turpitude,
consumer fraud, or crime or offense the NYBE believes is likely to have an
adverse effect on the Franchisee's ability to carry out the duties imposed
by this Agreement or to have an adverse effect on the System and the
goodwill associated therewith; (iv) transfers (including transfers
following death or incompetency) of any rights or obligations in violation
of the terms of Article 13 hereof; (v) misuses or discloses confidential
information in violation of Article 11 hereof, (vi) knowingly makes any
false statements in any report or document submitted to NYBE; (vii) submits
more than two written statements of Gross Revenues which under-report Gross
Revenues for any reporting period by two percent (2%) or more; (viii)
suffers a final judgment to remain unsatisfied or of record for 30 days or
longer (unless supersedeas bond is filed), or has execution levied against
Franchisee's business or property, or any suit is filed to foreclose any
lien or mortgage against the premises or equipment and not dismissed within
30 days; or (ix) becomes insolvent or has a receiver appointed to take
possession of Franchisee's business or property or any part thereof or
makes a general assignment for benefit of creditors.
D. At NYBE's option, without notice, in the event Franchisee shall
become bankrupt or become subject to a proceeding under any chapter of the
United States Bankruptcy Code, unless Franchisee shall: (i) timely
undertake to
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reaffirm the obligations under the Agreement, (ii) timely comply with
all conditions as legally may be imposed by NYBE upon such an
undertaking to reaffirm the Agreement, and (iii) timely comply with such
other conditions and provide such assurance as may be legally required
in or under relevant provisions of the United States Bankruptcy Code;
provided, however, that the parties acknowledge that this Agreement
constitutes a personal services contract made in reliance on the
qualifications and personal characteristics of Franchisee and its
directors, officers, or shareholders, as the case may be, and in the
expectation of a material degree of personal involvement in the
management and operation of the franchised business, and consequently,
the parties agree that any attempt by any other party, including a
trustee in bankruptcy or any other third party, to assume or accept a
transfer or assignment of this Agreement shall be void, and that in no
event shall this Agreement or any rights or duties of Franchisee
hereunder, be transferred to any individual or entity who does not
comply with all requirements for transfer specified in this Agreement.
E. At the election of NYBE, effective upon the expiration of 30 days
after giving of written notice, in the event franchisee defaults, and does
not cure to NYBE's reasonable satisfaction within the 30-day notice period,
in the performance of any other covenant or provision of this Agreement,
including without limitation, the obligation to pay when due any financial
obligation to NYBE, the obligation to make reports and provide information
when due hereunder, or failure to maintain any of the standards or
procedures prescribed for the franchised business in this Agreement, the
NYBE manual, or otherwise; provided, however, that Franchisee shall be
entitled to notice and opportunity to cure any such default only once in
any six-month period, and any subsequent occurrence of the same or
substantially similar default within such six-month period shall entitle
NYBE, at its option, to terminate this Agreement effective immediately upon
the giving of notice and without opportunity to cure.
F. At the election of Franchisee, effective upon the expiration of
90 days after written notice, if: (i) Franchisee dies or becomes mentally
incompetent and is unable or elects not to transfer its interest in the
franchise as permitted by Section 13.6 of this Agreement; (ii) Franchisee
has personally served as general manager and becomes disabled by illness or
injury from continuing to perform such duties and elects not to employ a
qualified general manager to perform such duties; or (iii) Franchisee,
acting in good faith and after reasonable and diligent efforts, is unable
to operate the franchised NYB Restaurant at a profit.
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14.2. No forbearance of the NYBE from asserting any default or giving
any permitted notice of termination shall constitute a waiver of such default or
right to terminate or an estoppel against such right as to any continuing
default or subsequent occurrence of a default, whether similar or dissimilar in
nature to the prior default. The rights of NYBE to terminate this Agreement are
in addition to, and not in lieu of, other remedies available at law or equity
for defaults by Franchisee in the payment and performance of its obligations
hereunder.
ARTICLE 15. OBLIGATIONS UPON TERMINATION.
Upon the termination of this Agreement for any reason, all rights granted
hereunder to Franchisee shall terminate; and
15.1. Franchisee shall immediately and permanently cease to operate the
franchised business, and shall not thereafter, directly or indirectly, represent
itself to the public or hold itself out as a franchisee of NYBE.
15.2. Franchisee shall immediately and permanently discontinue the use
of all Proprietary Marks, all similar names and marks, or any other designation
or mark indicating or tending to indicate that Franchisee is or was a
Franchisee. Franchisee shall promptly amend or terminate any filings or
registrations with any governmental authorities containing or pertaining to the
use of NYBE's name and Proprietary Marks. Franchisee shall not promote or
advertise the fact that it was formerly a franchisee of NYBE.
15.3. Franchisee shall surrender and transfer to NYBE or its designee
any and all rights to use the telephone numbers and other business listings used
by Franchisee for the franchised business. Franchisee agrees to cooperate and
execute any and all documents required to effect transfer of the telephone
numbers and other business listings from Franchisee to NYBE or its designee.
15.4. Franchisee shall immediately turn over to NYBE all materials,
including, without limitation, all manuals and all customer lists, marketing
materials, instructions, and brochures, and any and all other materials relating
to the operation of the franchised business in Franchisee's possession, custody,
or control, and all copies thereof (all of which are acknowledged to be NYBE's
property), and shall retain no copy or record of the foregoing, excepting only
Franchisee's copy of this Agreement and of any correspondence between the
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parties, and any other documents which Franchisee reasonably needs for
compliance with any provision of law.
15.5. Franchisee shall immediately and permanently discontinue all
advertising as a franchisee, including but not limited to removal of all signs
and other identifying marks and colors, and shall destroy or surrender to NYBE
any letterheads, forms, printed matter, and advertising containing NYBE's
Proprietary Marks and any similar or related names marks or designations tending
to indicate that Franchisee is or was an authorized Franchisee of NYBE.
15.6. Franchisee shall, at its expense, immediately make such
modifications or alterations as may be necessary to distinguish the NYB
Restaurant so clearly from its former appearance and from other NYB Restaurants
operated under the System as to prevent any possibility of confusion therewith
by the public, and to prevent the operation of any business at the location of
the NYB Restaurant by Franchisee or others in derogation of this Section
(including, without limitation, removal of all distinctive physical and
structural features identifying NYB Restaurant in the System and removal of all
signs and emblems, and changing of telephone numbers and other directory
listings). Franchisee shall, at Franchisee's expense, make such specific
additional changes as NYBE may reasonably request for this purpose. If
Franchisee fails to initiate immediately and complete such alterations when
required by hereunder, Franchisee agrees that NYBE or its designated agents may
enter the NYB Restaurant and adjacent areas, and hereby grants NYBE an
irrevocable license and permit to go upon the NYB Restaurant premises for such
purposes, at any time to make such alterations, at Franchisee's sole risk and
expense, without responsibility for any actual or consequential damages to the
property of Franchisee or others. Franchisee acknowledges that such actions by
NYBE are authorized and permitted and shall not be deemed a violation of any
civil or criminal law or any basis for an action under such laws by Franchisee
or others. Franchisee expressly acknowledges that its failure to make such
alterations will cause irreparable injury to NYBE, and consents to entry, at
Franchisee's expense, of an ex parte order by any court of competent
jurisdiction authorizing NYBE or its agents to take such action, if NYBE seeks
such an order.
15.7. Franchisee shall immediately and permanently cease using NYBE's
System, including, but not limited to the NYBE Manual, any other operating or
training manuals or aids, advertising and promotional materials, and all
confidential material delivered to Franchisee pursuant to this Agreement.
15.8. NYBE shall have the right, at its sole option, for a period of 60
days following termination, to purchase at Franchisee's cost all usable
materials owned by Franchisee
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bearing the Proprietary Marks, and/or to purchase Franchisee's office
equipment, furniture, fixtures and moveable signs used in the NYB Restaurant
or at the Approved Location at their fair market value. Franchisee shall not
during such 60 day period remove from the NYB Restaurant or the Approved
Location, transfer, assign, hypothecate, pledge, or otherwise encumber such
office equipment, furniture, fixtures, and moveable signs.
15.9. Franchisee shall promptly pay all sums owing to NYBE and its
subsidiaries and affiliates. In the event of termination for any default of
Franchisee, such sums shall include payment of all damages, costs, and expenses,
including reasonable attorneys' fees, incurred by NYBE as a result of the
default, which obligation shall give rise to and remain, until paid in full, a
lien in favor of NYBE against any and all of the personal property (including,
without limitation, signs, equipment, furnishings, furniture, and supplies)
owned and used by Franchisee in connection with the NYB Restaurant at the time
of default.
15.10. Franchisee shall pay to NYBE all damages, costs, and expenses,
including reasonable attorneys' fees, incurred by NYBE in connection with
obtaining injunctive or other relief for the enforcement of any provisions of
this Article 15.
15.11. Except upon the expiration of the term of this Agreement pursuant
to Article 3 or termination by Franchisee pursuant to Section 14.1.F.,
Franchisee shall pay to NYBE a lump sum payment (as liquidated damages and not
as a penalty or in lieu of any other payments required under this Agreement)
equal to the total of all amounts required under Article 4 (franchise fees,
royalty fees, and marketing and advertising fees) for (i) the 18 calendar months
of operation of the NYB Restaurant preceding Franchisee's default, or (ii) the
period of time the NYB Restaurant has been in operation preceding the notice, if
less than 18 calendar months, projected on an 18 calendar month basis.
15.12. Termination of this Agreement shall not relieve Franchisee of the
obligations under Article 10 hereof to maintain and preserve financial and other
records and to make them available for inspection and audit by NYBE.
15.13. All covenants, obligations, and agreements of Franchisee which by
their terms or by reasonable implication are to be performed, in whole or in
part, after the termination or expiration of the term of this Agreement, shall
survive such termination or expiration.
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ARTICLE 16. ADDITIONAL COVENANTS.
16.1. Franchisee agrees and acknowledges that, prior to executing this
Agreement, Franchisee has made such investigation of the System as Franchisee
deems necessary, that Franchisee understands that the results of operations of
the franchised NYB Restaurant are dependent upon the efforts and management of
Franchisee, and Franchisee hereby assumes full responsibility for such
operations. Franchisee shall retain and exercise management and control over
the NYB Restaurant and its operations and shall require its general manager to
devote full time and attention to the operations and business of the NYB
Restaurant.
16.2. It is understood and agreed by all parties hereto that this
Agreement does not create a fiduciary relationship between them; that Franchisee
shall be an independent contractor; and, that nothing in this Agreement is
intended to constitute either party an agent, legal representative, subsidiary,
joint venturer, partner, employee, or servant of the other for the purpose
whatsoever. Nothing in this Agreement authorizes Franchisee to make any
contract, agreement, warranty, or representation on NYBE's behalf, or to incur
any debt or other obligation in NYBE's name or on NYBE's behalf; and that NYBE
shall in no event assume liability for, or be deemed liable hereunder as a
result of, any such action, or by reason of any act or omission of Franchisee in
its conduct of the franchised business, or any claim or judgment arising
therefrom against NYBE. Franchisee shall hold itself out to the public as an
independent contractor operating the business pursuant to a franchise from NYBE.
Franchisee agrees to take such affirmative action as may be necessary to do so,
including, without limitation, exhibiting a notice of that fact in a conspicuous
place on the premises of the franchised business, and, as directed by NYBE, in
Franchisee's advertising and on Franchisee's agreements, forms, stationery, and
promotional materials.
16.3. All payments to NYBE hereunder shall be made payable to New York
Bagel Enterprises, Inc. and, except as provided in the next sentence, shall be
tendered to NYBE in person at the address set forth in Article 18 below, or by
making such payment by mail, postage prepaid, to that address. At NYBE's
option, Franchisee shall give NYBE authorization in the form designated by NYBE,
to initiate debit entries and/or credit correction entries from and to the NYB
Restaurant bank operating account (the "Account") for payment of all sums due
NYBE under any of the provisions of this Agreement, including without limitation
royalties, advertising fund payments, purchases, and any interest charges due
thereon. Franchisee agrees to make funds available in the account for
withdrawal by electronic transfer no later than the date immediately preceding
the due date therefor. All payments received by NYBE from Franchisee shall be
applied to the oldest obligation, regardless of any contrary designation by
Franchisee. Franchisee agrees that Franchisee will not, on grounds of the
alleged non-
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performance by NYBE of any of its obligations hereunder, withhold payment of
any royalties, advertising contributions, amounts due to NYBE for purchases
by Franchisee, or any other amounts due NYBE.
ARTICLE 17. APPROVALS AND WAIVERS.
17.1. Whenever this Agreement requires the prior approval or consent of
NYBE, Franchisee shall make a timely written request to NYBE therefor, and such
approval or consent shall be obtained in writing. Except as otherwise expressly
provided herein, NYBE may withhold any consent or approval herein at its
discretion.
17.2. NYBE shall have no liability for withholding any consent or
approval or for any delay or inaction in connection therewith, and the granting
of any approval or consent shall not imply or constitute any representation,
warranty, guaranty, or endorsement of the matter approved or consented to or an
assumption of any liability in connection therewith.
17.3. No delay, waiver, omission, or forbearance on the part of NYBE to
exercise any right, option, duty, or power arising out of any breach or default
by Franchisee, or any other franchisee, of any of the terms, provisions,
covenants, or conditions hereof shall constitute a waiver by NYBE to enforce any
such right, option, duty, or power as against Franchisee, or as to subsequent
breach or default by Franchisee. Subsequent acceptance by NYBE of any
obligations due to it hereunder shall not be deemed to be a waiver by NYBE of
any preceding breach by Franchisee of any terms, provisions, covenants, or
conditions of this Agreement.
ARTICLE 18. NOTICES.
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered, mailed by certified or registered
mail, postage prepaid, return receipt requested, or sent via a nationally
recognized overnight delivery service, to the respective parties at the
following addresses unless and until a different address has been designated by
written notice to the other party:
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Notices to NYBE: New York Bagel Enterprises, Inc.
250 N. Water
Wichita, Kansas 67202
ATTN: Franchise Department
Notices to Franchisee:
----------------------------------
----------------------------------
----------------------------------
ATTN:
-----------------------------
Any notice by certified or registered mail or recognized overnight delivery
service shall be deemed to have been given at the date and time of mailing.
ARTICLE 19. ALTERNATIVE DISPUTE RESOLUTION.
19.1. Franchisee and Franchisor agree to submit, prior to arbitration,
all unsettled claims, disputes, controversies, and other matters in question
between them arising out of or relating to this Agreement (including but not
limited to any claim that the Agreement or any of its provisions is invalid,
illegal, or otherwise voidable or void), the dealings or relationship between
Franchisee and Franchisor, or Franchisee's operation of the Restaurant
("Disputes") to mediation in Wichita, Kansas and in accordance with the
Commercial Mediation Rules of the American Arbitration Association currently in
effect. Demand for mediation shall be made within a reasonable time after
cessation of negotiations.
A. Mediation shall be private, voluntary, and nonbinding. Any party
may withdraw from the mediation at any time before signing a settlement
agreement upon written notice to each other party and to the mediator. The
mediator shall be neutral and impartial. The mediator's fees shall be
shared equally by the parties. The mediator shall be disqualified as a
witness, consultant, expert, or counsel for either party with respect to
the matters in Dispute and any related matters.
B. Unless the parties agree otherwise, the entire mediation process
shall be confidential and without prejudice. The parties and the mediator
shall not disclose any information, documents, statements, positions, or
terms of settlement. Nothing said or done or provided by the parties in
the course of mediation shall be reported or recorded or, except as ordered
by a court of
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competent jurisdiction, placed in any legal proceeding or construed for any
purpose as an admission against interest. Nevertheless, evidence otherwise
discoverable or admissible is not excluded from discovery or admission as a
result of its use in mediation.
If a Dispute cannot be resolved through mediation, the parties agree to submit
the Dispute to arbitration, subject to the terms and conditions of this Section
XV.
19.2. Subject to Section 19.1, all Disputes between Franchisee and
Franchisor will be submitted for binding arbitration to the American Arbitration
Association on demand of either party. Such arbitration proceeding will be
conducted in Wichita, Kansas and, except as otherwise provided in this
Agreement, will be heard by one arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect. All
matters relating to arbitration will be governed by the federal Arbitration Act
(9 U.S.C. Sections 1 ET.SEQ.) and not by any state arbitration law.
A. The arbitrator will have the right to award or include in his
award any relief which he deems proper under the circumstances, including,
without limitation, money damages (with interest on unpaid amounts from the
date due), specific performance, injunctive relief, and attorneys' fees and
costs, provided that the arbitrator will not have the right to declare any
Proprietary Marks generic or otherwise invalid or to award exemplary or
punitive damages. The award and decision of the arbitrator will be
conclusive and binding upon all parties hereto, and judgment upon the award
may be entered in any court of competent jurisdiction.
B. Franchisee and Franchisor agree to be bound by the provisions of
any limitation on the period of time in which claims must be brought under
applicable law. Franchisee and Franchisor further agree that, in
connection with any such arbitration proceeding, each must submit or file
any claim which would constitute a compulsory counterclaim (as defined by
Rule 13 of the Federal Rules of Civil Procedure) within the same proceeding
as the claim to which it relates. Any such claim which is not submitted or
filed as described above will be forever barred.
C. Franchisee and Franchisor agree that arbitration will be
conducted on an individual, not a class-wide, basis, and that an
arbitration proceeding between Franchisee and Franchisor may not be
consolidated with any other arbitration proceeding involving Franchisee or
Franchisor and another party.
-42-
<PAGE>
19.3. Notwithstanding anything to the contrary contained in this
Section XV, Franchisee and Franchisor each have the right in a proper case to
obtain temporary restraining orders and temporary or preliminary injunctive
relief from a court of competent jurisdiction; provided, however, that
Franchisee and Franchisor must contemporaneously submit the Dispute for
non-binding mediation under Section 19.1 and then for arbitration under
Section 19.2 on the merits as provided herein if such Dispute cannot be
resolved through mediation. Franchisee acknowledges that a proper case to
obtain temporary restraining orders and temporary or permanent injunctive
relief from a court of competent jurisdiction contemporaneously with
submitting the Dispute to mediation and then to arbitration shall include,
but not be limited to, the following:
A. Any Dispute involving actual or threatened disclosure or misuse
of the contents of the NYBE Manual or any other confidential information or
Trade Secrets of Franchisor;
B. Any Dispute involving the ownership, validity, use of, or right
to use or license the Proprietary Marks;
C. Any action by Franchisor to enforce the covenants set forth in
Article 11 and Article 13 of this Agreement; and
D. Any action by Franchisor to stop or prevent any threat or danger
to public health or safety resulting from the construction, maintenance, or
operation of the Restaurant.
The provisions of this Article 19 are intended to benefit and bind certain third
party non-signatories and will continue in full force and effect subsequent to
and notwithstanding the expiration or termination of this Agreement.
ARTICLE 20. ENTIRE AGREEMENT.
This Agreement, the documents referred to herein, and the attachments
hereto, if any, constitute the entire, full, and complete Agreement between NYBE
and Franchisee concerning the subject matter hereof, and supersede all prior
agreements. No amendments, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed by
their authorized officers or agents in writing.
-43-
<PAGE>
ARTICLE 21. CONSTRUCTION AND MODIFICATION.
21.1. This Agreement contains the complete expression of the agreement
between the parties. There are no promises, representations, inducements, or
agreements between them of any nature that are not contained herein. Franchisee
acknowledges and agrees that it received ample time and opportunity to review
the Agreement and seek legal counsel with respect to the terms of this Agreement
and the franchise granted hereby and is making this Agreement based solely on
its terms and not on any collateral representation or promise, including,
without limitation, any projections of profits to be obtained by making this
Agreement, which Franchisee acknowledges have not been made, represented, or
warranted to Franchisee.
21.2. This Agreement is governed by and shall be construed in
accordance with the laws of the State of Kansas.
21.3. Should any one or more parts of this agreement be declared
invalid for any reason by a court of competent jurisdiction, such decision shall
not affect the validity of any remaining portions of the Agreement, which shall
remain in full force and effect as if the Agreement had been executed without
such invalid parts, except to the extent the absence of the provisions
invalidated would frustrate or make it impossible to achieve the purposes for
which the Agreement was made. Should the requirements of any applicable law or
regulation change or modify the terms of this agreement or conflict with its
provisions, such change or modification shall not be applicable to this
agreement unless such change is lawfully mandated by the authority making the
same, in which case only the provisions affected by such law or regulation shall
be affected, and the agreement shall otherwise remain in full force and effect,
as modified to be consistent with such law or regulation.
21.4. This Agreement is made solely for the benefit of the parties
hereto and their respective successors and permitted assigns, and nothing herein
shall create any right to rely upon the terms hereof in favor of any third party
nor confer any right or remedy upon any third party, except as specifically
provided in Section 11.9 hereof.
21.5. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provisions hereof.
-44-
<PAGE>
21.6. All terms and words used in this Agreement, regardless of numbers
and genders in which they are used, shall be deemed to include singular or
plural and all genders as the context or sense of this Agreement or any
paragraph or clause herein may require.
21.7. All acknowledgments, promises, covenants, agreements, and
obligations herein made or undertaken by Franchisee shall be deemed jointly and
severally undertaken by all those executing this Agreement on behalf of
Franchisee.
21.8. Time is of the essence of this Agreement and all provisions
hereof shall be so interpreted. Any provision of this Agreement which imposes
an obligation after termination or expiration of this Agreement shall survive
such termination or expiration.
21.9. No right or remedy conferred upon or reserved to NYBE or
Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive
of any other right or remedy herein or by law or equity provided or permitted,
but each shall be cumulative of every other right or remedy.
21.10. Nothing herein contained shall bar NYBE's right to obtain
injunctive relief against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
21.11. In the event that Franchisee commences any action against NYBE
with respect to any Dispute, such action shall be brought only in a federal or
state court sitting within Sedgwick County, Kansas. Franchisee consents to the
exercise of jurisdiction by courts within Sedgwick County, Kansas over any
claims or counterclaims against Franchisee.
21.12. In the event NYBE incurs legal fees or costs or other expenses to
enforce any obligation of Franchisee hereunder, or to defend against any claim,
demand, action or proceeding by reason of Franchisee's failure to perform or
observe any obligation imposed upon Franchisee by this Agreement, then NYBE
shall be entitled to recover from Franchisee the amount of all legal fees, costs
and expenses, including reasonable attorneys' fees, whether incurred prior to,
or in preparation for or contemplation of the filing of any claim, demand,
action, or proceeding to enforce any obligation of Franchisee hereunder or
thereafter or otherwise.
-45-
<PAGE>
ARTICLE 22. EXECUTION OF AGREEMENT.
22.1. This Agreement may be executed in counterparts, which together
shall constitute one agreement of the parties.
22.2. By signing this Agreement, Franchisee acknowledges that it has
received a complete copy of this Agreement, with any Exhibits referred to herein
attached, at least five business days prior to the date on which this Agreement
was executed, and further acknowledges that it has received the NYBE's Uniform
Franchise Offering Circular at least ten business days prior to the date on
which this Agreement was executed. Franchisee further acknowledges that no
agent or employee of NYBE is authorized to make any representation or warranty
inconsistent with or in addition to the terms of this Agreement or the Franchise
Offering Circular. By signing this Agreement, Franchisee represents and
warrants to NYBE that no such representation or warranty, including specifically
any representation as to the potential success or profitability of the
franchised business, has been made or relied upon.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement as of the day and year first above written.
NEW YORK BAGEL ENTERPRISES, INC.
a Kansas corporation
DATED: By:
----------------------- ----------------------------
"NYBE" or "Franchisor"
-------------------------------
DATED: By
----------------------- ----------------------------
"Franchisee"
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<PAGE>
GUARANTY
As an inducement to New York Bagel Enterprises, Inc. to enter into the
foregoing Franchise Agreement, which it is unwilling to do but for this
Guaranty, the undersigned individually and, if more than one Guarantor, jointly
and severally guarantee the payment and performance of all obligations of the
Franchisee under the Agreement. This shall be an unconditional, irrevocable,
and continuing guaranty for the entire term of this Agreement, including any
renewal terms.
The undersigned agree that they are willing to remain fully bound by this
Guaranty notwithstanding any action or inaction of the Franchisor and Franchisee
in connection with the Agreement, and that their obligation shall not be
modified, waived, or released by any modification, amendment, or departure from
the terms of the Agreement, or by any forbearance, extension of time, waiver, or
release granted by Franchisor to Franchisee or any Guarantor or with respect to
any security held by Franchisor. The undersigned expressly waive any notice of
all such matters and agree to pay and perform the obligations of Franchisee
without notice or demand from the Franchisor and without any requirement that
Franchisor first proceed against Franchisee or any other Guarantor.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty as
of the date of the Franchise Agreement.
---------------------------------
ATTEST:
- -----------------------------------
---------------------------------
ATTEST:
"Guarantor"
- -----------------------------------
-47-
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISE AGREEMENT
OWNERS OF FRANCHISEE
Interest in
NAME OF OWNER FRANCHISEE
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TOTAL 100%
Exhibit "A"
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
FRANCHISE AGREEMENT
COVENANT AGREEMENT
The form of Covenant Agreement currently offered by Franchisor is attached.
(Refer to Section 11.7 of Franchise Agreement.)
Exhibit "B"
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
COVENANT AGREEMENT
THIS COVENANT AGREEMENT is entered into as of the ___ day of ________,
19__, by and among New York Bagel Enterprises, Inc. ("Franchisor") and
_______________________ (whether one or more "Covenantors").
W I T N E S S E T H: That;
WHEREAS, Covenantors have agreed to enter into this Agreement to induce
Franchisor to enter into that certain Franchise Agreement dated __________, 19__
between Franchisor and ___________________ ("Franchisee").
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the Covenantors covenant and agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
same meaning as defined in the Franchise Agreement.
2. During the term of the Franchise Agreement and thereafter, except as
otherwise approved in writing by Franchisor, the Covenantors shall not, either
directly or indirectly, individually, or through or on behalf of, or in
conjunction with any person, persons, or entity:
a. Copy or disclose to any person other than Franchisee's employees
(and then only to employees who have a need to know) (i) any knowledge,
information, or know-how concerning the System, or (ii) all or any portion
of the NYBE Manual or any other confidential materials, including without
limitation, plans, specifications, site layouts, marketing and advertising
materials, data, financial information, or other materials deemed
confidential by Franchisor. Covenantors shall at all times treat the NYBE
Manual and the information contained therein as confidential, and shall use
all reasonable efforts to maintain such information as secret and
confidential and shall use the same only in the operation of the
Restaurant. The NYBE Manual shall at all times remain the sole property of
Franchisor, and shall be returned to Franchisor immediately upon expiration
or termination of this Agreement. Any and all information, knowledge,
know-how, and other data, which Franchisor designates as confidential shall
be deemed confidential for purposes of this Agreement, except information
which Covenantors can
<PAGE>
demonstrate came to their attention prior to disclosure thereof by
Franchisor; or which, at or after the time of disclosure by Franchisor
to Covenantors, had become a part of the public domain, through publication
or communication by others.
b. During the term of the Franchise Agreement, Covenantors shall not
compete, or be associated, directly or indirectly as an owner, officer,
director, employee, consultant, or otherwise, in any business in
competition with the System, and, for a period of two years after any
transfer or termination of the Franchise Agreement for any reason,
Covenantors shall not compete, or be associated, directly or indirectly as
an owner, officer, director, employee, consultant, or otherwise, in any
business in competition with the System which is located within (i) the
Assigned Territory, (ii) the Designated Market Area or Areas identified by
the then-current Nielson Wall Map published by the A.C. Nielson Company
("DMA"), in which the Assigned Territory is located, or (iii) the DMA of
any other System Restaurant then existing; provided, however, that passive
ownership of less than five percent (5%) of the outstanding voting
securities of a publicly held corporation (which for purposes of this
Agreement means a corporation registered under the Securities Exchange Act
of 1934) shall not be deemed a violation of this Section. In the event the
A.C. Nielson Company discontinues the publication of Nielson Wall Maps for
any reason, Franchisor shall have the right to designate an alternate
generally recognized market identification resource for use in connection
with this Section.
c. Covenantors shall not employ or seek to employ any person who is
or was within the immediate past six (6) months employed by Franchisor or
any other System franchisee or induce or seek to induce any such person to
leave his or her employment without the consent of such employee's current
employer. Franchisor shall not employ or seek to employ any person who is
or was within the immediate past six (6) months employed by Franchisee or
induce or seek to induce any such person to leave his or her employment.
Any party violating the provisions of this Section 2.c shall pay to the
former employer as liquidated damages (which the parties agree are
difficult of ascertainment) an amount equal to two times the annual salary
of the employee involved, plus all costs and attorneys fees incurred by the
former employer in connection with such default. The parties hereto agree
that each current and future franchisee in the System shall be a third
party beneficiary of the provisions of this Section 2.c, and shall be
entitled to enforce the provisions hereof. Franchisor shall have no
obligation to enforce the provisions of this Section 2.c for the benefit of
any current or future franchisee in the System.
d. In the event any provision of this Agreement is deemed by a court
of competent jurisdiction to be more restrictive than permissible at law or
equity, the Covenantors agree that the provisions hereof may be reformed
and modified and enforced by such court to the maximum extent permissible
under applicable law and principles of
-2-
<PAGE>
equity. Covenantors agree that specific performance and injunctive relief
are necessary and appropriate remedies for violations of this Agreement
and agree to enforcement of such remedies, but without prejudice to the
right of Franchisor to recover money damages, which are in no event a full
and adequate remedy for such violations.
3. The Covenantors agree that the existence of any claim that any of them
may have against Franchisor shall not constitute a defense to the enforcement by
Franchisor of this Agreement or the covenants contained in Article 11 of the
Franchise Agreement.
4. This Agreement and the documents provided for herein contain the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior negotiations, agreements, and understandings with respect
thereto. This Agreement may only be amended by a written document duly executed
by all parties hereto. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas. This Agreement shall inure to
the benefit of and shall be binding upon the respective successors, heirs,
administrators, executors, personal representatives, trustees, and assigns of
the parties hereto. This Agreement may be executed in multiple counterparts,
each considered an original, but all of which shall constitute but one
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
NEW YORK BAGEL ENTERPRISES, INC.
By
-------------------------------------
"Franchisor"
---------------------------------------
---------------------------------------
---------------------------------------
"Covenantors"
-3-
<PAGE>
GUARANTY
As an inducement to New York Bagel Enterprises, Inc. to enter into the
foregoing Development Agreement, which it is unwilling to do but for this
Guaranty, the undersigned individually and, if more than one Guarantor,
jointly and severally guarantee the payment and performance of all
obligations of the Developer under the Agreement. This shall be an
unconditional, irrevocable, and continuing guaranty for the entire term of
this Agreement, including any renewal terms.
The undersigned agree that they are willing to remain fully bound by
this Guaranty notwithstanding any action or inaction of the Franchisor and
Franchisee in connection with the Agreement, and that their obligation shall
not be modified, waived, or released by any modification, amendment, or
departure from the terms of the Agreement, or by any forbearance, extension
of time, waiver, or release granted by Franchisor to Developer or any
Guarantor or with respect to any security held by Franchisor. The
undersigned expressly waive any notice of all such matters and agree to pay
and perform the obligations of Developer without notice or demand from the
Franchisor and without any requirement that Franchisor first proceed against
Developer or any other Guarantor.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
as of the date of the Franchise Agreement.
---------------------------------
ATTEST:
- -------------------------------------
---------------------------------
ATTEST:
"Guarantor"
- -------------------------------------
Exhibit C
<PAGE>
GUARANTY
As an inducement to New York Bagel Enterprises, Inc. to enter into the
foregoing Development Agreement, which it is unwilling to do but for this
Guaranty, the undersigned individually and, if more than one Guarantor,
jointly and severally guarantee the payment and performance of all obligations
of the Developer under the Agreement. This shall be an unconditional,
irrevocable, and continuing guaranty for the entire term of this Agreement,
including any renewal terms.
The undersigned agree that they are willing to remain fully bound by this
Guaranty notwithstanding any action or inaction of the Franchisor and
Developer in connection with the Agreement, and that their obligation shall
not be modified, waived, or released by any modification, amendment, or
departure from the terms of the Agreement, or by any forbearance, extension of
time, waiver, or release granted by Franchisor to Developer or any Guarantor
or with respect to any security held by Franchisor. The undersigned expressly
waive any notice of all such matters and agree to pay and perform the
obligations of Developer without notice or demand from the Franchisor and
without any requirement that Franchisor first proceed against Developer or any
other Guarantor.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
as of the date of the Franchise Agreement.
---------------------------------
ATTEST:
- -------------------------------------
---------------------------------
ATTEST:
"Guarantor"
- -------------------------------------
Exhibit D
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is made and entered into as of the _____
day of _______________________ , 19__, by and between _______________________
_________________________ ("Recipient"), and New York Bagel Enterprises, Inc.,
a Kansas corporation ("NYBE").
W I T N E S S E T H: That,
WHEREAS, Recipient desires to review certain confidential and proprietary
information regarding New York Bagel Enterprises, Inc., its affiliates, or
franchisees (the "Proprietary Information"), for the purpose of evaluating
whether to directly or indirectly enter into a business relationship with NYBE;
and
WHEREAS, NYBE desires to disclose certain proprietary information to
Recipient, but only pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the covenants and premises herein
contained, and for other good and valuable consideration received, it is hereby
agreed as follows:
1. Recipient acknowledges and agrees that all Proprietary Information it
receives from NYBE, its affiliates, or franchisees is confidential and
proprietary information in which NYBE has a proprietary interest. For purposes
of this Agreement, Proprietary Information may include, by way of example, but
without limitation, data, know-how, processes, designs, sketches, photographs,
plans, drawings, specifications, reports, financial information, customer lists,
pricing information, studies, findings, inventions, and ideas. Recipient agrees
that any information received from NYBE, its subsidiaries, affiliates, or
franchisees (i) shall only be used for purposes of evaluating whether Recipient
desires to directly or indirectly enter into a business relationship with NYBE,
and (ii) shall not be disclosed to any third party without the prior written
consent of NYBE. Recipient agrees to use reasonable care to prevent the
disclosure of the Proprietary Information to any third party, and further agrees
to limit the dissemination of the Proprietary Information within its own
organization to individuals whose duties justify the need to know such
information, and then only provided that there is a clear understanding by
Exhibit F
<PAGE>
such individuals of their obligation to maintain the confidential status of
the Proprietary Information and to restrict its use solely to the purposes
specified herein.
2. Recipient acknowledges that no other right or license to use the
Proprietary Information is granted by this Agreement, and agrees that the amount
of the Proprietary Information to be disclosed to Recipient is completely within
the discretion of NYBE. Upon completion of its review of the Proprietary
Information (or sooner upon request), Recipient agrees to return all written
materials received from NYBE, its affiliates, subsidiaries, or franchisees.
3. Recipient shall be under no obligation under this Agreement with
respect to any information (i) which is, at the time of the disclosure,
available to the general public; (ii) which becomes at a later date available to
the general public through no fault of the Recipient and then only after said
date; or (iii) which Recipient can demonstrate was in its possession before
receipt.
4. This Agreement constitutes the entire agreement and understanding among
the parties hereto, and shall not be amended except pursuant to a written
agreement executed by each of the parties hereto. This agreement shall be
binding upon the parties hereto and their respective heirs, administrators,
successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
day, month, and year first above written.
___________________________________ NEW YORK BAGEL ENTERPRISES, INC.
By By
--------------------------------- -------------------------------------
Name: Name:
------------------------------ ----------------------------------
Title: Title:
----------------------------- ---------------------------------
"Recipient"
-2-
<PAGE>
ADDENDUM TO LEASE AGREEMENT
THIS ADDENDUM TO LEASE (the "Addendum") is made as of the _____ day of
__________, 19__, by and between ___________________________________________
______________________________________________, as Lessor or Landlord
("Landlord"), and _____________________________________________________,
__________________________________________ as Lessee or Tenant ("Tenant").
RECITALS
The parties hereto acknowledge and agree that Tenant is a party to a
Franchise Agreement with New York Bagel Enterprises, Inc., a Kansas
corporation (the "Franchise Agreement"). Pursuant to the Franchise
Agreement, Tenant agreed to cause the provisions contained in this Addendum
to be made a part of the lease agreement between Tenant and Landlord, a copy
of which is attached hereto and incorporated herein by reference (the "Lease
Agreement").
In order to induce Tenant to enter into the Lease Agreement, and for good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree to the following additional
terms and provisions to the Lease Agreement, and further agree that, to the
extent that the terms and conditions of the Lease Agreement conflict with the
terms and provisions of this Addendum, the terms and provisions of this
Addendum shall control:
1. NOTICE OF DEFAULT. Upon the occurrence of any default by Tenant
under the terms and provisions of the Lease Agreement, Landlord shall
concurrently give written notice of such default to Tenant at the address
specified in the Lease Agreement and to New York Bagel Enterprises, Inc., a
Kansas corporation, and its successors and assigns ("NYBE"), at 250 North
Water, Wichita, Kansas 67202, or such other address as may be designated in
writing by NYBE.
2. FRANCHISOR'S RIGHT TO ENTER LEASED PREMISES. Upon the occurrence
of any default by Tenant under the terms and provisions of the Lease
Agreement and/or the Franchise Agreement, NYBE shall have the right (but not
the duty) to enter the leased premises to remove signage and to otherwise
make such modifications or alterations to the leased premises which
EXHIBIT G
-1-
<PAGE>
NYBE deems reasonably necessary to protect its proprietary marks and
distinguishing characteristics of NYBE locations.
3. ASSUMPTION OF LEASE. Upon the occurrence of any default by the
Tenant under the terms and provisions of the Lease Agreement or the Franchise
Agreement, or upon the expiration or termination of the Franchise Agreement,
NYBE shall have the right (but not the duty) to assume Tenant's rights and
obligations under the Lease Agreement, but NYBE must exercise such right not
more than 15 business days after the later of (i) the expiration of any cure
period under the Lease Agreement or the Franchise Agreement without cure by
the Tenant, or (ii) the receipt of written notice of such default under the
Lease Agreement by NYBE.
4. THIRD-PARTY BENEFICIARY. The parties hereto acknowledge and agree
that NYBE is intended to be a third-party beneficiary under the Lease
Agreement and this Addendum.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
the date first above written.
-----------------------------------
"Landlord"
-----------------------------------
"Tenant"
-2-
<PAGE>
EXHIBIT 10.9
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of the
___________ day of ____________, ______,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as
"SELLER"
AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereinafter referred to as
"BUYER"
W I T N E S S E T H :
WHEREAS, Seller is the current owner of certain real property located in
the city of ____________, ___________, and more particular described in
Exhibit "A" ("________ Land"), and all buildings, structures, facilities,
improvements and fixtures located thereon, including, without limitation, an
approximately ________ square foot facility currently used as a New York
Bagel Cafe restaurant ("________ Improvements"). The _________ Land and the
_________ Improvements are hereinafter collectively referred to as the
"__________ Facility";
WHEREAS, Seller is the current owner of certain real property located in
the city of ___________, __________,, and more particular described in
Exhibit "B" ("________ Land"), and all buildings, structures, facilities,
improvements and fixtures located thereon, including, without limitation, an
approximately________ square foot facility currently used as a New York Bagel
Cafe restaurant ("_________ Improvements"). The __________ Land and the
_________ Improvements are hereinafter collectively referred to as the
"__________ Facility"; and
WHEREAS, Seller desires to sell all of its right, title and interest in
and to the __________ Facility, and the _____________ Facility (hereinafter
collectively referred to as the "Properties") to Buyer, and Buyer desires to
purchase all of Seller's right, title and interest in and to all the
Properties from Seller, all on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
1. PURCHASE AND SALE. Seller agrees to sell all of its right, title
and interest in and to all the Properties to Buyer, and Buyer agrees to
purchase all of Seller's right, title and interest in and to all the
Properties from Seller, on the terms and conditions hereinafter set forth in
this Agreement.
1
<PAGE>
2. PURCHASE PRICE.
2.1 The aggregate purchase price ("Purchase Price") for all the
Properties shall be ___________________ Dollars ($__________); which
Purchase Price is comprised of: (a) ___________________ Dollars
($_________) for the _________ Facility ("_______ Purchase Price"); and
(b) ______________ Dollars ($________) for the ___________ Facility
("_________ Purchase Price").
2.2 The Purchase Price shall be paid at the Closing (as hereinafter
defined) by delivering the ________ Purchase Price, and the ______________
Purchase Price, respectively, to Seller by wire transfer of immediately
available federal funds.
3. CONDITION OF TITLE TO PROPERTIES.
3.1 At Closing, Seller shall assign to Buyer all of its right, title
and interest to each of the Properties free and clear of all liens, except
for (i) liens securing real property taxes and assessments, which
constitute liens not yet due and payable; and (ii) such other exceptions
and reservations (other than liens) shown on those certain Preliminary
Title Reports ("Preliminary Reports") issued by the title companies set
forth in Exhibit "C" ("Title Companies") for each of the Properties which
are approved in writing by Buyer. All exceptions to title permitted
pursuant to this Paragraph 3.1 are referred to in this Agreement as
"Permitted Exceptions." Seller shall provide Buyer with a copy of the
Preliminary Reports and copies of all exceptions described therein as soon
as possible. Buyer shall have ten (10) business days after the date of
Buyer's receipt thereof within which to notify Seller in writing of Buyer's
disapproval of any exceptions set forth in the Preliminary Reports. In the
event of Buyer's disapproval of any exception in any of the Preliminary
Reports, this Agreement shall thereupon terminate.
3.2 At the Closing, Buyer's right, title and interest in and to the
Properties shall be evidenced by the commitment of the title company to
issue an ALTA Owner's Form B-1970 policy of title insurance with all
endorsements required by Buyer, with liability in the amount of the
_____________ Purchase Price, and the _____________ Purchase Price,
respectively, showing fee simple interest in the Properties vested in
Buyer, subject only to the Permitted Exceptions (collective, the "Title
Policies") and the standard printed exceptions (except that the exceptions
relating to mechanic's liens and survey matters shall be deleted from the
final title insurance policy).
4. BUYER'S CONTINGENCIES. Buyer's obligation to purchase any of the
Properties is subject to satisfaction of the following contingencies
described in Subparagraphs (a) through (g) in this Paragraph 4
("Contingencies") prior to the Closing Date (as hereinafter defined) or
earlier date set forth below. Each and all of the following Contingencies
are for the sole benefit of Buyer and may be waived or deemed satisfied by
Buyer in Buyer's sole and absolute discretion:
(a) Buyer shall have approved and both Buyer and Seller shall
have executed those certain leases ("Leases") between Buyer, as the
lessor, and Seller, as the lessee, relating to each of the Properties,
upon terms and conditions mutually satisfactory to the parties, each
of which Lease shall by its terms have the Closing Date as the
"Commencement Date" thereunder.
(b) Buyer shall have reviewed and approved each of the
Preliminary Reports and all recorded exceptions to title thereon, as
and when provided under Paragraph 3 hereof, and Title Companies shall
be committed to issue all Title Policies as required hereunder without
expense to Buyer.
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(c) Seller shall have delivered to Buyer no later than five (5)
days prior to the date scheduled for Closing, and Buyer shall have
reviewed and approved, an ALTA land title survey for each of the
Properties, each prepared by a professional land surveyor entirely
satisfactory to Buyer, showing all improvements located thereon,
plotting all record easements, covenants and other encumbrances
located thereon, with the record legal description of appearing on the
face thereof.
(d) Seller shall have delivered to Buyer, and Buyer shall have
reviewed and approved, a tax lien search as to each of the Properties,
each updated as of not earlier than thirty (30) days prior to the
Closing Date.
(e) Seller shall have delivered to Buyer, and Buyer shall have
reviewed and approved, a Phase I Environmental Site Assessment as to
each of the Properties dated within three hundred and sixty (360) days
of the Closing Date.
(f) Buyer shall have approved its inspection and examination of
the physical condition of the Properties. Buyer shall have access to
all the Properties at reasonable times and shall have the right to
conduct, at Buyer's expense, soil tests, engineering feasibility
studies, environmental investigations and such other studies with
respect to the physical condition of all the Properties as Buyer may
desire. Buyer shall hold and save Seller harmless from and against
any and all loss, cost, damage, liability, entry or expense, arising
out of or in any way related to damage to property, injury to or death
of persons, or the assertion of lien claims caused by such entry,
inspection and implementation of soil tests, environmental
investigations and other studies with respect to the physical
condition of the Properties; provided, however, that notwithstanding
any contrary provision contained herein, Buyer shall have no liability
to Seller for any diminution in value of the Properties directly or
indirectly resulting from or related to any information pertaining to
the Properties discovered by Buyer and reported to Seller or its
agents pursuant to the terms of this Agreement. If Buyer elects to
terminate this Agreement by reason of failure of the Contingencies set
forth in this Paragraph 4(f), Buyer shall promptly upon such election
deliver to Seller all written reports, studies and information
prepared by third parties for Buyer which pertain to the physical
condition of the Properties.
(g) Seller shall have delivered to Buyer and Title Companies all
corporate resolutions, certificates and other documentation as may be
reasonably required by Buyer and/or Title Companies.
(h) Buyer's obligation to purchase the Properties is conditioned
on Buyer obtaining on or before the Closing financing of the Purchase
Price on terms and conditions acceptable to Buyer in Buyer's sole
discretion. In the event this contingency is not met by the Closing
Date, this Agreement shall, at Buyer's option, terminate without any
remaining liability of any party.
If Buyer disapproves any Contingency prior to the Closing or earlier
date set forth above, Buyer's sole remedy shall be to terminate this
Agreement and Seller shall have no obligation to remedy any Contingency which
Buyer disapproves.
5. REPRESENTATIONS AND WARRANTIES BY SELLER.
5.1 Seller makes the representations and warranties in this Paragraph
5, each and all of which shall survive any and all inquiries and
investigations made by Buyer and shall survive the Closing:
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(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kansas which has the
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. Seller, and the specific,
individual parties signing this Agreement on behalf of Seller,
represent and warrant that the parties signing this Agreement on
behalf of Seller have the full legal power, authority and right to
execute and deliver this Agreement.
(b) Neither the entering into this Agreement nor the performance
of any of Seller's obligations under this Agreement will violate the
terms of any contract, agreement or instrument to which Seller is a
party.
(c) Each of the Properties is zoned to permit the operation of a
restaurant thereon, and all improvements on each of the Properties
conform to all existing building, zoning, environmental or other laws
and ordinances, and are in good operating condition and repair as of
the Closing Date. Seller has not received any notice of any presently
uncured violation of any law, ordinance, rule or regulation
(including, without limitation, those relating to zoning, building,
fire, health and safety) of any governmental, quasi-governmental
authority bearing on the construction, operation, ownership or use of
any of the Properties.
(d) Seller has not received any notice of any pending widening,
modification or realignment of any street or highway contiguous to
either property or any existing or proposed eminent domain proceeding
which would result in a taking of all or any part of any of the
Properties.
(e) None of the easements, covenants, conditions, restrictions
or agreements to which any of the Properties is subject interferes
with or is breached by the use or operation of the Properties as
presently used and operated as a restaurant.
(f) Seller has not been served with any litigation, and no
arbitration proceedings have been commenced, which do or will affect
any aspect of any of the Properties or Seller's ability to perform its
obligations under this Agreement. In addition, Seller has not been
threatened in writing with any litigation (or arbitration) by a third
party which would affect any aspect of any of the Properties or
Seller's ability to perform its obligations under this Agreement.
(g) Adequate gas, telephone, electricity, water and sewer
facilities are available to all the Properties, and all such
facilities serving the Properties have been paid for such that Buyer
will not be subject to charges or assessments for capital or hookup
costs relating to such facilities.
(h) There are not any written commitments to, or written
agreements with, any governmental or quasi-governmental authority or
agency materially affecting any of the Properties which have not been
heretofore disclosed by Seller to Buyer in writing.
(i) All expenses in connection with the construction of all the
improvements on all the Properties have been fully paid, such that
there is no possibility of any mechanics' or materialmens' liens being
asserted or filed in the future against any of the Properties in
respect of any initial construction activities undertaken prior to the
Closing.
(j) Seller has not been served or notified by any governmental
or quasi-governmental authority that (i) any of the Properties, or any
adjoining property, contains or may contain any "Hazardous Materials"
in violation of any "Environmental Regulations" (as those terms are
defined in Paragraph 5.1(k) below); or (ii) Hazardous Materials have
heretofore been stored, used or
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maintained on, in or under any of the Properties in violation of any
Environmental Regulations. In addition, to the best of Seller's
knowledge, but without any specific investigation therefore, there are
no Hazardous Materials located in, on or under all or any portion of
any of the Properties or the area surrounding any of the Properties.
(k) As used in this Agreement, the terms "Environmental
Regulations" and "Hazardous Materials" shall have the following
meanings:
(i) "ENVIRONMENTAL REGULATIONS" shall mean all applicable
statutes, regulations, rules, ordinances, codes, license,
permits, orders, approvals, plans, authorizations, and similar
items, of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial
and administrative and regulatory decrees, judgments and orders
relating to the protection of human health or the environment,
including, without limitation: (1) all requirements, including,
without limitation, those pertaining to reporting, licensing,
permitting, investigation and remediation of emissions,
discharges, releases or threatened releases of Hazardous
Materials, whether solid, liquid or gaseous in nature, into the
air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, whether
solid, liquid or gaseous in nature; and (2) all requirements
pertaining to the protection of the health and safety of
employees or the public.
(ii) "HAZARDOUS MATERIALS" shall mean (1) any flammables,
explosive or radioactive materials, hazardous waste, toxic
substances or related materials including, without limitation,
substances defined as "hazardous substances," "hazardous
materials," "toxic substances" or "solid waste" in the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
ET SEQ.; the Toxic Substances Control Act, 15 U.S.C., Section
2601 ET SEQ.; the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 ET SEQ.; Occupational Safety and Health
Act, 29 U.S.C. Section 651, ET SEQ.; and any and all similar
state and local laws and ordinances, and the regulations now or
hereafter adopted, published and/or promulgated pursuant thereto;
(2) those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and amendments thereto)
or by the Environmental Protection Agency (or any successor
agency) as hazardous substances (40 C.F.R. Part 302 and
amendments thereto); (3) those substances defined as "hazardous
wastes," "hazardous substances" or "toxic substances" in any
similar federal, state or local laws or in the regulations
adopted and publications promulgated pursuant to any of the
foregoing laws or which otherwise are regulated by any
governmental authority, agency, department, commission, board or
instrumentality of the United States of America, the States of
_____________ or __________, or any political subdivision
thereof; (4) any pollutant or contaminant or hazardous, dangerous
or toxic chemicals, materials, or substances within the meaning
of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and
administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, all as amended; (5) petroleum or
any by-products thereof; (6) any radioactive material, including
any source, special nuclear or by-product material as defined at
42 U.S.C. Sections 2011 ET SEQ., as amended, and in the
regulations adopted and publications promulgated pursuant to said
law; (7) asbestos in any form or condition; and (8)
polychlorinated biphenyls.
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(l) There are no other written agreements for the use, occupancy
or possession of any of the Properties, or any portion thereof. There
are no oral agreements for the use, occupancy or possession of any of
the Properties or any portion thereof.
(m) Until the Closing, each of the Properties will continue to
be operated in substantially the same manner as operated as of the
date of this Agreement. Seller will not do or cause anything to be
done that would change, alter or modify the operation of each of the
Properties in the manner in which it is operated as of the date of
this Agreement, without the prior written consent of Buyer.
(n) Seller has neither engaged nor dealt with any broker or
finder in connection with the sale contemplated by this Agreement and
Seller shall indemnify, defend and hold Buyer harmless from and
against, any commission or finder's fee payable to any party who
represents or claims to represent Seller.
(o) Seller will not alter the physical condition of any of the
Properties from and after the date of this Agreement through, and
including, the Closing Date, reasonable wear and tear excepted.
Subject to Paragraphs 10 and 11 hereof, if, through no fault of
Seller, the physical condition of any of the Properties is different
as of the Closing from that as of the date of this Agreement, the
terms and conditions of Paragraph 5.2, below shall apply.
5.2 Each and all of the representations and warranties set forth in
Paragraph 5.1 above shall be true and correct as of the Closing; provided
that, if, prior to the Closing, new events have occurred which were beyond
the control of Seller (other than pursuant to Paragraphs 10 and 11 hereof)
and which render any previously true representation or warranty untrue,
Seller shall immediately disclose those matters by written notice to Buyer.
Buyer shall have ten (10) business days after the earlier of (i) such
disclosure; or (ii) Buyer's independent discovery that such representation
or warranty has become untrue, to elect, in its sole and absolute
discretion, and as its sole remedy, by written notice to Seller within said
ten (10) business day period, whether (i) to purchase the Properties or
(ii) terminate this Agreement. If Buyer fails to notify Seller of its
election to terminate this Agreement within said ten (10) business day
period provided above, Buyer shall be deemed to have accepted the modified
representations and warranties and elected to purchase the Properties.
6. REPRESENTATIONS AND WARRANTIES BY BUYER.
Buyer makes the following representations and warranties in this
Paragraph 6, each and all of which shall survive any and all inquiries and
investigations made by Seller and shall survive the Closing and recordation
of the Warranty Deeds:
6.1 Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas which has the power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. Buyer, and the specific, individual parties signing
this Agreement on behalf of Buyer represent and warrant that the parties
signing this Agreement on behalf of Buyer have the full legal power,
authority and right to execute and deliver this Agreement.
6.2 Buyer has neither engaged nor dealt with any broker or finder in
connection with the sale contemplated by this Agreement and Buyer shall
indemnify, defend and hold Seller harmless from and against, any commission
or finder's fee payable to any party who represents or claims to represent
Buyer.
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7. INDEMNIFICATION.
7.1 Subject to any other provisions of this Agreement to the
contrary, each party agrees to indemnify ("Indemnitor") and hold the other
party ("Indemnitee") harmless from and against any claim, loss, damage or
expense, including any reasonable attorneys' fees (including attorneys'
fees on appeal), asserted against or suffered by the Indemnitee resulting
from:
(a) Any breach by the Indemnitor of this Agreement; or
(b) The inaccuracy or breach of any of the representations,
warranties or covenants made by the Indemnitor in this Agreement.
7.2 The Indemnitee shall submit any claim for indemnification under
this Agreement to the Indemnitor in writing within a reasonable time after
Indemnitee determines that an event has occurred which has given rise to a
right of indemnification under this Paragraph 7 and shall give Indemnitor a
reasonable opportunity to investigate and cure any default of Indemnitor
under this Agreement and eliminate or remove any claim by a third party.
Notwithstanding the foregoing, if the nature of Indemnitor's default or the
third party claim is such that it would be impracticable or unreasonable to
give Indemnitor an opportunity to investigate and cure such default and
remove such claim, Indemnitee need not give Indemnitor such opportunity.
7.3 If such claim for indemnification relates to a claim or demand
presented in writing by a third party against Indemnitee, Indemnitor shall
have the right to employ counsel reasonably acceptable to Indemnitee to
defend any such claim or demand, and Indemnitee shall make available to
Indemnitor, or its representatives, all records and other materials in its
possession or under its control reasonably required by Indemnitor for its
use in contesting such liability. If Indemnitor does not elect to defend
any such claim or demand, Indemnitee may do so at its option, but shall not
have any obligation to do so.
8. CLOSING.
8.1 Provided that all Contingencies set forth in Paragraph 4 have
been satisfied or waived, as provided therein, the parties shall close the
transactions ("Closing") on _____________, _______ or earlier date agreed
upon by the parties ("Closing Date"). Upon the Closing, Seller shall
deliver exclusive right of possession of each of the Properties to Buyer
subject only to the permitted exceptions.
8.2 At the Closing, Buyer shall deliver to Seller the following funds
and documents:
(a) The Purchase Price (in the aggregate amount specified in
Paragraph 2), as adjusted pursuant to this Agreement; and
(b) Duly executed Leases between Buyer, as lessor, and Seller,
as lessee, relating to each of the Properties.
8.3 Upon the Closing, Seller shall pay all closing costs and expenses
incurred by both Seller and Buyer in connection with this transaction,
including, without limitation, (a) the entire cost of the Title Policies;
(b) the cost of any and all documentary transfer tax or stamps or other
sales tax; (c) all recording fees; and (d) all of Buyer's costs and
expenses as defined below. "Buyer's costs and expenses" shall mean all
costs and expenses incurred by Buyer, including, without limitation,
Buyer's attorneys' fees and expenses not
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to exceed Five Thousand Dollars ($5,000) in connection with the
negotiation, drafting, due diligence review and investigation, and the
closing of the transactions contemplated herein. Buyer is to incur no
direct cost or expense in connection with the Closing of the transactions
contemplated herein.
8.4 If the Closing fails to occur as provided hereunder as a result
of the default of this Agreement by a party, the defaulting party shall pay
all title charges; provided, however, that nothing in this Paragraph 8
shall be deemed to limit, and the provisions of this Paragraph 8 shall be
in addition to, all other rights and remedies of the nondefaulting party.
9. PRORATIONS. There shall be no prorations of any costs or expenses
related to any of the Properties owing to the fact that the Leases are
so-called triple-net leases and all costs and expenses which would otherwise
be prorated shall be paid by Seller pursuant to the Leases.
10. DAMAGE OR DESTRUCTION PRIOR TO CLOSING. If any of the Properties,
or any portion thereof, is damaged or destroyed prior to the Closing from any
cause whatsoever, whether insured risk or not, including, without limitation,
fire, flood, accident or other casualty which, according to Buyer's and
Seller's best estimate, would cost more than Ten Thousand Dollars ($10,000)
to repair, Buyer shall have the option, upon written notice to Seller, to
either (i) terminate this Agreement, or (ii) purchase all the Properties. If
Buyer elects to purchase the Properties, Seller shall promptly repair such
Property. In the event that Buyer's and Seller's best estimate of the cost
of repair is Ten Thousand Dollars ($10,000) or less, Buyer shall purchase the
Properties and Seller shall promptly repair such Property. Should any damage
or destruction occur prior to the Closing, the date scheduled for the Closing
shall be extended for a period of time not to extend thirty (30) days, for
the purpose of allowing Buyer and Seller sufficient time to estimate the cost
of repair. If Buyer fails to notify Seller of its election under this
Paragraph 10, Buyer shall be deemed to have elected to purchase the
Properties.
11. EMINENT DOMAIN.
11.1 The words "condemnation" or "condemned" as used in this Paragraph
11 shall mean the exercise of, or intent to exercise, the power of eminent
domain expressed in writing, as well as the filing of any action or
proceeding for such purpose, by any person, entity, body, agency or
authority having the right or power of eminent domain (the "condemning
authority").
11.2 If Seller receives written notice from a condemning authority
advising of a condemnation of all or any portion of the Properties
("Condemnation Notice"), Seller shall immediately advise Buyer of same in
writing and deliver therewith a copy of the Condemnation Notice. Within
three (3) days after Buyer's receipt of the Condemnation Notice, Buyer
shall notify Seller of its election to either (i) terminate this Agreement
or (ii) purchase the Properties. If Buyer elects to purchase the
Properties, Seller shall transfer to Buyer at the Closing all proceeds from
condemnation or Seller's right to receive all such proceeds. If Buyer
fails to notify Seller of its election under this Paragraph 11, Buyer shall
be deemed to have elected to purchase the Properties.
12. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants, conditions, agreements and obligations contained in or relating to
this Agreement shall survive the Closing and the recordation of the Warranty
Deeds.
13. NOTICES. All notices to be given pursuant to this Agreement shall
be either (i) personally delivered; (ii) sent via certified or registered
mail, postage prepaid; or (iii) overnight courier. If sent via personal
delivery, receipt shall be deemed effective on the day of delivery. If sent
via certified or registered mail, receipt shall be
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deemed effective the second business day after being deposited in the United
States mail. If sent via overnight courier, receipt shall be deemed
effective the next business day after the sending thereof. All notices to be
given pursuant to this Agreement shall be given to the parties at the
following respective address:
To Buyer: Commercial Equity, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: David L. Murfin, President
Telecopier No.: 316-267-6004
with a copy to: Foulston & Siefkin L.L.P.
700 NationsBank Financial Center
Wichita, Kansas 67202
Attention: William R. Wood II
Telecopier No.: 316-267-6345
To Seller: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: Paul R. Hoover
Vice President - Strategic Planning
Telecopier No.: (316) 267-8154
with a copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, Kansas 67202-4888
Attention: Gregory B. Klenda
Telecopier No.: (316) 267-0333
14. ENTIRE AGREEMENT. This Agreement, and the exhibits attached
hereto, represent the entire Agreement between the parties in connection with
the transactions contemplated hereby and the subject matter hereof and this
Agreement supersedes and replaces any and all prior and contemporaneous
agreements, understandings and communications between the parties, whether
oral or written, with regard to the subject matter hereof. There are no oral
or written agreements, representations or inducements of any kind existing
between the parties relating to this transaction which are not expressly set
forth herein. This Agreement may not be modified except by a written
agreement signed by both Buyer and Seller.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective heirs, legal
representatives, administrators, successors in interest and assigns.
16. WAIVER. No waiver by any party at any time of any breach of any
provision of this Agreement shall be deemed a waiver or a breach of any other
provision herein or a consent to any subsequent breach of the same or another
provision. If any action by any party shall require the consent or approval
of another party, such consent or approval of such action on any one occasion
shall not be deemed a consent to or approval of such action on any subsequent
occasion or a consent to or approval of any other action.
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17. CAPTIONS AND HEADINGS. The captions and paragraph numbers
appearing in this Agreement are inserted only as a matter of convenience and
do not define, limit, construe, or describe the scope or intent of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be considered an original and all of which taken together
shall constitute one and the same instrument.
19. GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in, and shall be construed in accordance with, the laws of the State
of Kansas.
20. ATTORNEYS' FEES. If either party named herein brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action (or proceeding), on trial or appeal,
shall be entitled to its reasonable attorneys' fees to be paid by the losing
party as fixed by the Court (or if applicable, the arbitrator).
21. TIME OF ESSENCE. Time is of the essence with respect to all
matters contained in this Agreement.
22. DATE OF AGREEMENT. All references in this Agreement to "the date
of this Agreement" or "the date hereof" shall be deemed to refer to the date
set forth in the first paragraph of this Agreement.
23. INVALIDITY OF ANY PROVISION. If any provision (or any portion of
any provision) of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Agreement, the legality, validity, and enforceability of the remaining
provisions (or the balance of such provision) shall not be affected thereby.
24. DRAFTING OF AGREEMENT. Buyer and Seller acknowledge that this
Agreement has been negotiated at arm's length, that each party has been
represented by independent counsel and that this Agreement has been drafted
by both parties and no one party shall be construed as the draftsperson.
25. NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is entered into
for the sole benefit of Buyer and Seller and no other parties are intended to
be direct or incidental beneficiaries of this Agreement and no third party
shall have any right in, under or to this Agreement.
26. INCORPORATION OF EXHIBITS. Each and all of the exhibits to this
Agreement are incorporated herein as if set forth in full in this Agreement.
27. PUBLIC ANNOUNCEMENTS. The parties agree that all statements and/or
public announcements, including those to the media, concerning this
transaction shall be subject to the parties' collective approval, which
approval shall not be unreasonably or untimely withheld.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph of this Agreement.
NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
"SELLER"
COMMERCIAL EQUITY, INC.,
a Kansas corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
"BUYER"
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EXHIBIT 10.9.1
SCHEDULE OF AGREEMENTS OF PURCHASE AND SALE BY AND BETWEEN NEW
YORK BAGEL ENTERPRISES, INC. AND COMMERCIAL EQUITY, INC.
AGREEMENT DATE
1. October 21, 1997
2. January 26, 1998
REAL PROPERTY LOCATION
1. A. Stillwater, Oklahoma
B. Springfield, Missouri
C. Lubbock, Texas
2. A. Temple, Texas
B. Midland, Texas
PURCHASE PRICE
1. A. $346,125
B. $425,000
C. $400,000
2. A. $400,000
B. $400,000
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EXHIBIT 10.10.1
SCHEDULE OF NEW YORK BAGEL ENTERPRISES, INC. SALE/LEASEBACK REAL PROPERTY LEASES
PURCHASER/LESSOR
1. Commercial Equity, Inc.
2. Commercial Equity, Inc.
3. Commercial Equity, Inc.
4. Commercial Equity, Inc.
5. Commercial Equity, Inc.
RESTAURANT LOCATION
1. 7239 Quaker Avenue, Lubbock, Texas
2. 414 North Perkins Road, Stillwater, Oklahoma
3. 2456 East Sunshine, Springfield, Missouri
4. 3801 General Bruce Drive, Temple, Texas
5. 500 W. Wadley, Midland, Texas
LEASE DATE
1. November 1, 1997
2. November 1, 1997
3. November 1, 1997
4. February 1, 1998
5. February 1, 1998
"STATE" - DEFINED TERM
1. Texas
2. Oklahoma
3. Missouri
4. Texas
5. Texas
MINIMUM ANNUAL RENT DURING INITIAL TERM
1. Years 1-5 $49,800.00
6-10 $54,780.00
11-15 $60,258.00
2. Years 1-5 $43,200.00
6-10 $47,520.00
11-15 $52,272.00
3. Years 1-5 $52,800.00
6-10 $58,080.00
11-15 $63,888.00
4. Years 1-5 $49,800.00
6-10 $54,780.00
11-15 $60,258.00
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5. Years 1-5 $49,800.00
6-10 $54,780.00
11-15 $60,258.00
REPLACEMENT COST
1. $333,667.00
2. $300,000.00
3. $300,000.00
4. $250,000.00
5. $350,000.00
MINIMUM ANNUAL RENT DURING EXTENDED TERMS
1. Years 16-20 $66,283.80
21-25 $72,912.24
2. Years 16-20 $57,499.20
21-25 $63,249.12
3. Years 16-20 $70,276.80
21-25 $77,304.48
4. Years 16-20 $66,283.80
21-25 $72,912.24
5. Years 16-20 $66,283.80
21-25 $72,912.24
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EXHIBIT 10.11
NATIONSBANK, N.A. Promissory Note No. ____________
P.O. Box 4
Wichita, Kansas 67201-0004
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Borrower: New York Bagel Enterprises, Inc.
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Address: 250 North Water, Suite 300 Maturity Date:
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City: Wichita State: Kansas Zip: 67202-1213
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Promissory Note
$_____________________________ _________________, 19____
FOR VALUE RECEIVED, the undersigned ("Borrower") unconditionally (and jointly
and severally, if more than one) promise(s) to pay to the order of
NationsBank, N.A. ("Bank"), at its principal offices in _____________________
the principal sum of __________________ DOLLARS ($______________________), or
such lesser principal sum as may have been advanced hereunder, in lawful
money of the United States of America, together with interest from the date
hereof on the unpaid principal balance hereunder, computed daily, at the RATE
per annum indicated below and in accordance with the particular PAYMENT
SCHEDULE indicated below.
The RATE shall be:
/ / ______________________ Prime Rate ________%; / / A fixed rate of ________%
/ / (Other)____________________________________________________________________
After default the RATE shall be ________% per annum.
A RATE based on the Prime Rate of the Bank will change / / if this box is
checked, each time and as of the date that the Prime Rate of the Bank changes,
without prior notice to Borrower or / / if this box is checked, as
follows:________________________________________________________________________
____________________________________________________________________________ The
_______________ Prime Rate of the Bank means the fluctuating rate of interest
established by the Bank from time to time and quoted or described by the Bank as
such rate of interest, whether or not such rate shall be otherwise published.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. The PAYMENT SCHEDULE shall be as follows:
Single Payment-Principal and Interest
/ / Principal and interest shall be paid in a single payment / / on DEMAND
but in no event later than on __________, 19___, or / / on __________,
19___.
Single Payment of Principal-Interest Payment Periodically
/ / Principal shall be paid in a single payment / / ON DEMAND but in no
event later than on __________, 19___, or / / on __________, 19___;
interest shall be paid / / monthly or / / quarterly or / / semi-annually
commencing on __________, 19___, and continuing on the same day of each
successive ____________ thereafter with a final payment of all Interest
at the time of payment of the principal.
Installment-Principal plus Interest
/ / Principal shall be paid in __________________________________
(__________) equal / / monthly or / / quarterly or / / semi-annual
installments of ($______________________________________________________)
________________________________________________________________ Dollars
each, commencing on _____________, 19___, and continuing on the same day
of each successive _____________ thereafter with a final payment of all
principal due on __________, 19___; interest shall be paid on each
principal payment date.
Installment-Principal and Interest
/ / Principal and interest shall be paid in
____________________________________ (__________) equal / / monthly
or / / quarterly or / / semi-annual installments of
($__________________________________________________)
________________________________________________________________ Dollars
each, commencing on _____________, 19___, and continuing on the same day
of each successive ___________ thereafter with a final payment of all
principal due on _____________, 19___.
/ / (Other) __________________________________________________________ If any
payment is not paid within ________ days after the date when due,
Borrower shall pay to Bank a late charge, for the purpose of defraying
Bank's expenses in handling such late payment, in an amount equal to / /
the lesser of $50.00 or 1/2 of 1% of the principal amount outstanding
hereunder or / / ________ of scheduled payment.
Collateral: Borrower hereby grants to the Bank a security interest in all
deposit accounts of Borrower now or hereafter at the Bank.
/X/ In addition, if this box is checked, this Note is secured by and is
entitled to the benefits from the following collateral documents and any
other collateral documents now or hereafter held by the Bank:
/X/ Security Agreement(s) dated any date, including, without limitation;
SEPTEMBER 5, 1997
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/ / Pledge Agreement(s) dated any date, including, without limitation;
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/X/ Real Estate Mortgage(s) dated any date, including, without limitation;
SEPTEMBER 11, 1997
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/ / Deposit Account Assignment(s) dated any date, including, without
limitation;
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/ / Oil and Gas Mortgage and Security Agreement(s) dated any date, including,
without limitation;
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/X/ Other (describe); ASSIGNMENT OF PERMITS, LICENSES AND AGREEMENTS DATED
SEPTEMBER 5, 1997; AND LOAN AGREEMENT DATED SEPTEMBER 5, 1997.
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THE ADDITIONAL TERMS AND CONDITIONS SET FORTH ON
THE REVERSE SIDE OF THIS NOTE ARE A PART OF THIS NOTE.
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<PAGE>
Borrower's Initials:______
ADDITIONAL TERMS AND CONDITIONS
1. Borrower and any co-maker and endorser hereof and any other party hereto
and any guarantor hereof (collectively "Obligors") and each of them: (i)
waive(s) presentment, demand, notice of demand, protest, notice of protest
and notice of nonpayment and any other notice required to be given under
the law to any of Obligors, in connection with the delivery, acceptance,
performance, default or enforcement of this Note, or any endorsement or
guaranty of this Note or of any document or instrument evidencing any
security for payment of this Note; and (ii) consent(s) to any and all
delays, extensions, renewals or other modifications of this Note or waivers
of any term hereof or release or discharge by Bank of any of Obligors or
release, substitution or exchange of any security for the payment hereof or
the failure to act on the part of Bank or any indulgence shown by Bank,
from time to time and in one or more instances (without notice to or
further assent from any of Obligors) and agree(s) that no such action,
failure to act, or failure to exercise any right or remedy on the part of
the Bank shall in any way affect or impair the obligations of any Obligor
or be construed as a waiver by Bank of, or otherwise affect, any of Bank's
rights under this Note, under any endorsement or guaranty of this Note, or
under any document or instrument evidencing any security for payment of
this Note.
2. Upon the occurrence of any of the following events of default, this Note
and any other obligation or liability of Borrower to the Bank shall, at the
option of the Bank, become immediately due and payable: (1) default in the
performance of any liability or obligation of Borrower or of any co-maker,
endorser, guarantor or surety of any liability of Borrower to the Bank,
including default in the payment of any part of the principal of or
interest upon this Note as the same becomes due; (2) failure of Borrower
promptly to furnish additional security when requested by the Bank to do
so; (3) Depreciation in value of the collateral or any additions thereto or
substitutions therefor, or any part thereof, to the extent that this Note
is not regarded by the Bank as properly secured; (4) determination by an
officer of the Bank that the collateral has become unsatisfactory to the
Bank; (5) determination by an officer of the Bank that a material adverse
change has occurred in the financial condition of Borrower or of any
co-maker, endorser, guarantor or surety thereof; (6) any other event which
causes the Bank, in good faith, to deem itself insecure; (7) the events of
default as set forth in the Loan Agreement dated September 5, 1997 by and
among Borrower and Bank.
3. If any one or more provisions of this Note shall for any reason be held to
be invalid, illegal or unenforceable, in whole or in part or in any
respect, or if any one or more of the provisions of this Note operate or
would prospectively operate to invalidate this Note, then and in either of
those events, such provision or provisions only shall be deemed null and
void and shall not affect any other provision of this Note and the
remaining provisions shall in no way be affected, prejudiced or disturbed
hereby.
4. The Bank shall, to the extent allowable by law, be entitled to recover
reasonable attorneys' fees incurred in the collection of this Note.
5. No provision of this Note shall require the payment or permit the
collecting of interest in excess of the maximum rate permitted by
applicable law; and, if any sum is collected in access of the applicable
maximum rate it shall be construed as a mutual mistake of Borrower and Bank
and such excess sum shall be credited to principal or, if this Note has
been repaid in full, refunded to Borrower.
6. This Note is delivered in and shall be construed under the laws of the
State of Kansas
7. Other Terms, if any:
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"Borrower" "Borrower"
New York Bagel Enterprises, Inc. Lots A' Bagels, Inc.
By: By:
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Robert J. Geresi, Chairman and Robert J. Geresi, President
Chief Executive Officer
<PAGE>
EXHIBIT 10.11.1
SCHEDULE OF PROMISSORY NOTES OF NEW YORK BAGEL ENTERPRISES, INC.
AND LOTS A' BAGELS, INC. PAYABLE TO THE ORDER OF NATIONSBANK, N.A.
PROMISSORY NOTE DATE
1. September 11, 1997
2. September 11, 1997
3. October 14, 1997
4. October 14, 1997
5. November 18, 1997
6. December 23, 1997
PRINCIPAL AMOUNT
1. $400,000.00
2. $300,000.00
3. $560,000.00
4. $140,000.00
5. $600,000.00
6. $500,000.00
INTEREST RATE
1. NationsBank Prime Rate; Variable
2. NationsBank Prime Rate; Variable
3. NationsBank Prime Rate; Variable
4. NationsBank Prime Rate; Variable
5. NationsBank Prime Rate; Variable
6. NationsBank Prime Rate; Variable
REPAYMENT TERMS
1. 36 equal monthly payments of $12,627.01, commencing October 11, 1997, and a
final payment of all unpaid principal and interest due on September 10,
2000
2. Principal matures September 30, 1998; interest payments quarterly,
beginning December 31, 1997
3. Principal matures September 30, 1998; interest payments quarterly,
beginning December 31, 1997
4. 36 equal monthly payments of $4,419.46, commencing November 14, 1997, and a
final payment of all unpaid principal and interest due on October 14, 2000
5. Principal and interest matures on February 18, 1998
6. Principal and interest matures on January 22, 1998
1
<PAGE>
EXHIBIT 10.12
LEASE
BETWEEN
L.P.V. PROPERTIES, L.L.C., as Lessor
and
NEW YORK BAGEL ENTERPRISES, INC., as Lessee
November 1, 1997
1
<PAGE>
TABLE OF CONTENTS
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Leased Property. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Improvements by Tenant to Leased Premises; Payment . . . . 2
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Minimum Rent . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Initial Term. . . . . . . . . . . . . . . . . . . . . 6
(b) Extended Terms. . . . . . . . . . . . . . . . . . . . 6
3.2 Additional Charges . . . . . . . . . . . . . . . . . . . . 6
3.3 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Late Charge. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . 7
4.2 Notice of Impositions. . . . . . . . . . . . . . . . . . . 9
4.3 Utility Charges. . . . . . . . . . . . . . . . . . . . . . 9
4.4 Insurance Premiums . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 No Termination, Abatement, etc . . . . . . . . . . . . . . 9
5.2 Abatement Procedures . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Ownership of the Leased Property . . . . . . . . . . . . . 10
6.2 Lessee's Personal Property . . . . . . . . . . . . . . . . 10
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . 10
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Compliance with Legal and Insurance
Requirements, Instruments, etc. . . . . . . . . . . . . . 11
8.2 Legal Requirement Covenants. . . . . . . . . . . . . . . . 11
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . 11
9.2 Encroachments, Restrictions, etc.. . . . . . . . . . . . . 12
i
<PAGE>
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Environmental. . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Definition of Hazardous Materials. . . . . . . . . . . . . 13
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Permitted Contests . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 General Insurance Requirements . . . . . . . . . . . . . . 14
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . 15
13.3 Additional Insurance . . . . . . . . . . . . . . . . . . . 15
13.4 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . 15
13.5 Form Satisfactory, etc.. . . . . . . . . . . . . . . . . . 16
13.6 Increase in Limits . . . . . . . . . . . . . . . . . . . . 16
13.7 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . 16
13.8 No Separate Insurance. . . . . . . . . . . . . . . . . . . 16
13.9 Continuous Coverage. . . . . . . . . . . . . . . . . . . . 17
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . 17
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance Proceeds. . . . . . . . . 17
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance . . . . . . . . . . . 18
14.4 Lessee's Property. . . . . . . . . . . . . . . . . . . . . 18
14.5 Restoration of Lessee's Property . . . . . . . . . . . . . 18
14.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . . 18
14.7 Termination of Option to Extend. . . . . . . . . . . . . . 19
14.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 19
15.2 Parties' Rights and Obligations. . . . . . . . . . . . . . 19
15.3 Total Condemnation . . . . . . . . . . . . . . . . . . . . 19
15.4 Allocation of Portion of Award . . . . . . . . . . . . . . 20
15.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . 20
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.1 Events of Default. . . . . . . . . . . . . . . . . . . . . 21
16.2 Certain Remedies . . . . . . . . . . . . . . . . . . . . . 22
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ii
<PAGE>
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . 24
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
17. Lessor's Right to Cure Lessee's Default. . . . . . . . . . 24
ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
18.1 Options to Extend. . . . . . . . . . . . . . . . . . . . . 25
18.2 Minimum Rent During Extended Terms . . . . . . . . . . . . 25
ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
19. Holding Over . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
20. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
21. Indemnification. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
22.1 Subletting and Assignment. . . . . . . . . . . . . . . . . 27
22.2 Attornment . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XXIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
23. Officers' Certificates . . . . . . . . . . . . . . . . . . 27
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
24. Lessor's Right to Inspect. . . . . . . . . . . . . . . . . 28
ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
25. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
26. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . 28
ARTICLE XXVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27. Acceptance of Surrender. . . . . . . . . . . . . . . . . . 28
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
28. No Merger of Title . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
29. Conveyance by Lessor . . . . . . . . . . . . . . . . . . . 29
ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . 29
iii
<PAGE>
ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
31. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XXXII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
32.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . 30
32.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . 31
32.3 Breach by Lessor . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
33.1 Survival of Obligations. . . . . . . . . . . . . . . . . . 31
33.2 Late Charges; Interest . . . . . . . . . . . . . . . . . . 31
33.3 Limits of Lessor's Liability . . . . . . . . . . . . . . . 31
33.4 Addendum, Amendments and Exhibits. . . . . . . . . . . . . 32
33.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 32
33.6 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
33.7 Days . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
33.8 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
33.9 Applicable Law . . . . . . . . . . . . . . . . . . . . . . 32
33.10 Successors and Assigns . . . . . . . . . . . . . . . . . . 32
33.11 Recordation. . . . . . . . . . . . . . . . . . . . . . . . 32
33.12 Prior and Future Agreements. . . . . . . . . . . . . . . . 32
33.13 Partial Invalidity . . . . . . . . . . . . . . . . . . . . 32
33.14 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . 33
33.15 Authority of Lessor and Lessee . . . . . . . . . . . . . . 33
33.16 Relationship of the Parties. . . . . . . . . . . . . . . . 33
33.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 33
33.18 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . 33
33.19 Computer Disc. . . . . . . . . . . . . . . . . . . . . . . 33
iv
<PAGE>
LEASE
THIS LEASE (this "Lease") is made as of this 1st day of November, 1997, by
and between L.P.V. PROPERTIES, L.L.C., an Oklahoma limited liability company,
herein called "Lessor," and NEW YORK BAGEL ENTERPRISES, INC., a Kansas
corporation, herein called "Lessee," subject to the terms, conditions and
contingencies set forth below.
ARTICLE I
1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee, and Lessee rents and hires from
Lessor all of the following (collectively, the "Leased Property"):
(i) The real property described in Exhibit "A" attached hereto
(the "Land");
(ii) All buildings, structures, Fixtures (as hereinafter
defined) and other improvements of every kind including, without limitation,
alleyways and connecting tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land and to be
constructed upon the Land by Lessee in accordance with this Lease
(collectively, the "Leased Improvements");
(iii) All easements, rights and appurtenances relating to the
Land and the Leased Improvements; and
(iv) All current and future permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal property, including
all components thereof, permanently affixed to or incorporated into the Leased
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which to the greatest extent permitted by the law,
are hereby deemed by the parties hereto to constitute real estate, together with
all replacements, modifications, alterations and additions thereto
(collectively, the "Fixtures").
1.2 TERM. The initial term of this Lease (the "Initial Term") shall
be the period commencing on the earlier of _____ days after the execution of
this Lease by Lessee and Lessor, or completion of Tenant's improvements (the
"Commencement Date") and expiring ten (10) years after the Commencement Date.
Lessee has the right to extend the term of this Lease, at Lessee's option, as
provided in Article XVIII, below. (The Initial Term plus all validly exercised
options to extend, if any, shall be referred to herein as the "Term").
<PAGE>
1.3 IMPROVEMENTS BY TENANT TO LEASED PREMISES; PAYMENT.
1.3.1 Lessor shall cause and supervise improvements to be
made to the Leased Property, said improvements shall be made and completed in
accordance with Exhibit B attached to and incorporated herein. All such
improvements must include, as a part of cost and completion, compliance with all
applicable laws and codes under federal, state and city statutes, codes and
regulations, including, but not limited to, compliance with the Americans with
Disabilities Act. All such construction and improvement plans must, prior to
their implementation, be preapproved by both Lessor and Lessee, which approval
shall be promptly given and not be unreasonably withheld. The contractor
performing the work shall have in place prior to initiation of construction, and
provide Lessee with evidence of same, a 100% Performance Bond and Labor and
Material Bond, and Builder's Risk and Workmen's Compensation Insurance carried
by competent insurers and sureties. It shall be Lessor's duty and
responsibility to supervise the general contractor and see that all work is
completed to Lessee's specifications, on time and in a workmanlike manner.
Lessor shall obtain from the general contractor a list of any subcontractors
performing work on the Land and prior to final payment, a release of suppliers
and materialman's liens shall be obtained by Lessor or contractor from said
subcontractors.
1.3.2 Lessor shall purchase, at Lessor's cost, the Land.
Lessor shall further pay $135,000 toward the costs of the improvements made to
the Leased Property. After Lessor has incurred the $135,000 of costs, Lessor
shall invoice Lessee for any expenditures incurred over the $135,000 amount and
Lessee shall timely remit to Lessor such amounts.
ARTICLE II
2. DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided, (i) the terms defined in this Article II have the meanings
assigned to them in this Article II and include the plural as well as the
singular; (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles at the time applicable; and (iii) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Article, Paragraph or other subdivision:
ADDITIONAL CHARGES. As defined in Paragraph 3.2.
ADDITIONAL RENT. As defined in Paragraph 3.1.
AFFILIATE. When used with respect to any corporation, the term
"Affiliate" shall mean any person or entity (including any trust) which,
directly or indirectly, controls or is controlled by or is under common control
with such corporation. For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through the ownership
of voting securities, partnership interests or other equity interests. For the
purposes of this definition, "person" shall mean any natural person, trust,
partnership, corporation, joint venture or other legal entity.
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BUILDING. That certain building to be constructed upon the Land by
Tenant and operated as a New York Bagel Cafe restaurant which will become a part
of the Leased Property, as defined in Article I, above.
BUILDING MORTGAGE. As defined in Article XIII.
BUILDING MORTGAGEE. As defined in Article XIII.
BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday, and Friday,
which is not a day on which national banks in the State of Oklahoma are
authorized or obligated, by law or executive order, to close.
CALENDAR YEAR. The period from January 1 through and including
December 31 in the same calendar year.
CODE. The Internal Revenue Code of 1986, as amended.
ENCUMBRANCE. As defined in Article XXXII.
EVENT OF DEFAULT. As defined in Article XVI.
EXTENDED TERM. As defined in Article XVIII.
FIXTURES. As defined in Article I.
IMPOSITIONS. Collectively, all taxes (including, without limitation,
all ad valorem, sales and use or any other taxes as the same relate to or are
imposed upon Lessee or Lessor or the business conducted upon the Leased
Property), assessments (including, without limitation, all assessments for
public improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term), water,
sewer or other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property, Lessor, or the business conducted thereon by
Lessee (including all interest and penalties thereon due to any failure in
payment by Lessee), and all increases in all the above from any cause
whatsoever, including reassessment, which at any time prior to, during or in
respect of the Term may be assessed or imposed on or in respect of or be a lien
upon (a) Lessor's interest in the Leased Property or any part thereof; (b) the
Leased Property or any part thereof; or (c) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Leased Property or the leasing or use of the Leased Property or any part
thereof by Lessee. Without limiting the foregoing, the term "Imposition" shall
include any sales tax paid under this Lease, depreciation recapture, any other
taxes (except for the specific exclusions stated below), fees or charges imposed
by the State and any potential subdivision thereof relating to the Leased
Property, or this Lease, whether relating to any period prior to or after the
Commencement Date.
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Nothing contained in this Lease shall be construed to require Lessee to pay
(1) the following taxes and fees to the extent they relate to Lessor's
business generally (as opposed to relating specifically to Lessor's ownership
of the Leased Property, lease thereof to Lessee or income therefrom): any
federal, state or local income tax of Lessor, taxes based on outstanding
corporate shares of Lessor or Lessor's equity or capitalization, regardless
of whether denominated as an income tax, franchise tax, capital tax or
otherwise; (2) any income or capital gain tax imposed with respect to the
sale, exchange or other disposition, or operation, by Lessor of any Leased
Property or the proceeds thereof; or (3) estate, inheritance, gift taxes or
documentary transfer taxes.
INSURANCE REQUIREMENTS. All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
LAND. As defined in Article I.
LEASE. As defined in the Preamble.
LEASE YEAR. The twelve (12) month period from January 1 to December
31 in each calendar year. In the case of the beginning of the Initial Term, the
provision "Lease Year" shall mean the period from the Commencement Date (defined
in Paragraph 1.2, above) to December 31, 1997; in the case of the end of the
Term, the provision "Lease Year" shall mean the period from the last January 1
to occur in the Term to the date of expiration of the Lease. The Lease Year
1997 shall mean the Commencement Date through December 31, 1997; the Lease Year
1998 shall mean January 1, 1998 through December 31, 1998, and so on.
LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in Article I.
LEGAL REQUIREMENTS. All federal, state, county, municipal, and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees, and injunctions affecting either the Leased Property or the
construction, use or alteration thereof whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; or (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
thereto, and all covenants, agreements, restrictions, and encumbrances contained
in any instruments, either of record or known to Lessee, at any time in force
affecting the Leased Property.
LESSEE. New York Bagel Enterprises, Inc., a Kansas corporation (and
any assignee permitted subject to the terms and conditions in this Lease).
LESSEE'S PERSONAL PROPERTY. All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers, or movable trade fixtures
or other personal property, and consumable inventory and supplies, owned by
Lessee and used or useful in Lessee's business on the Leased Property,
including, without limitation, all items of furniture, furnishings, equipment,
supplies and inventory, except items acquired by Lessor pursuant to the Purchase
Agreement.
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LESSOR. L.P.V. Properties, L.L.C., an Oklahoma limited liability
company, and its successors and assigns. Unless Lessee is notified by Lessor
otherwise, Lessor's address is: L.P.V. Properties, L.L.C., 845 Glenlake Drive,
Edmond, Oklahoma 73013, Attention: Lee Cohlmia, Manager.
MINIMUM RENT. As defined in Paragraph 3.1.
NOTICE. A notice given pursuant to Article XXXI hereof.
OFFICERS' CERTIFICATE. A certificate of Lessee signed by (i) the
Chairman of the Board of Directors, Chief Executive Officer or the President or
any authorized Vice President; and (ii) the Secretary, or another officer
authorized by appropriate resolution to so sign by the Board of Directors. Any
signature required above may be substituted with a signature of another person
whose power and authority to act has been authorized by an appropriate corporate
resolution.
OVERDUE RATE. On any date, a rate equal to the Prime Rate (defined
below), plus five percent (5%); provided, however, that it is the intent of
Lessor and Lessee that the Overdue Rate (and all other interest rates provided
for hereunder) be in strict compliance with applicable usury laws of the State
of Kansas, and that in the event the Overdue Rate (or other interest rate
provided for hereunder) shall be deemed to exceed that permitted to be charged
by the laws of the State of Kansas, any and all excess sums collected by Lessor
shall be credited against the Rent payable under this Lease or if there is no
Rent due, promptly refunded to Lessee.
PAYMENT DATE. Any due date for the payment of the installments of
Minimum Rent or any other payments required under this Lease.
PRIMARY INTENDED USE. As defined in Paragraph 7.1.2.
PRIME RATE. On any date, a rate equal to the annual rate on such date
announced by NationsBank, N.A. to be its prime rate for 90-day unsecured loans
to its corporate borrowers of the highest credit standing or, if not available,
such other rate as may be published by THE WALL STREET JOURNAL as the prime rate
in its listing of "MONEY RATES."
RENT. Any and all monetary obligations of Lessee owing under this
Lease.
STATE. As defined in Schedule 1 attached hereto and incorporated
herein.
SUBSIDIARIES. Corporations, of which either Lessee or Lessor owns,
directly or indirectly, more than 50% of the voting stock (individually, a
"Subsidiary").
TERM. Collectively, the Initial Term plus any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.
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UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of condition of the
Building such that by reason of damage or destruction, or a partial taking by
Condemnation, in the good faith judgment of Lessor, reasonably exercised, the
Building cannot be operated on a commercially practicable basis for its Primary
Intended Use taking into account.
UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder;
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds available to Lessor results from
Lessee's failure to perform any of its obligations under this Lease.
The above does not include all the definitions to be used in this
Lease. Various definitions of other terms are included in the other Articles of
this Lease.
ARTICLE III
3.1 MINIMUM RENT. Lessee will pay to Lessor in lawful money of the
United States of America which shall be legal tender for the payment of public
and private debts, at Lessor's address set forth above or at such other place or
to such other person, firms or corporations as Lessor from time-to-time may
designate in a Notice, Minimum Rent (as defined below), during the Term, as
follows:
(a) INITIAL TERM. The "Minimum Rent" shall be the annual sums
as stated in Schedule 1 attached hereto and incorporated herein. The Minimum
Rent shall be paid in advance in equal, consecutive monthly installments on the
first day of each calendar month of the Term. Minimum Rent shall be prorated
for any partial month at the beginning or end of the Term.
(b) EXTENDED TERMS. The Minimum Rent during the Extended Terms
shall be as stated in Article XVIII, below.
3.2 ADDITIONAL CHARGES. In addition to the Minimum Rent, (1) Lessee
will also pay and discharge as and when due and payable all other amounts,
liabilities, obligations and Impositions which Lessee assumes or agrees to pay
under this Lease, and (2) in the event of any failure on the part of Lessee to
pay any of those items referred to in the immediately preceding clause (1)
above, Lessee will also promptly pay and discharge every fine, penalty, interest
and cost which may be added for non-payment or late payment of such items (the
items referred to in clauses (1) and (2) above being referred to herein
collectively as the "Additional Charges"), and Lessor shall have all legal,
equitable and contractual rights, powers and remedies provided either in this
Lease or by statute or otherwise in the case of non-payment of the Additional
Charges. If any elements of Additional Charges shall not be paid within seven
(7) Business Days after its due date and Lessor pays any such amount (which
Lessor shall have the right, but not the obligation, to do), then, in addition
to Lessor's other rights and remedies, Lessee will pay Lessor on demand, as
Additional Charges, interest on such unpaid Additional Charges computed at the
Overdue Rate from the due date of such installment to the date of Lessee's
payment thereof.
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3.3 NET LEASE. Subject to the provisions of Article V, below,
without limiting any provision of this Lease, the Rent shall be paid absolutely
net to Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Minimum Rent throughout the Term, all as more fully set forth in
Articles IV, VIII, IX and XIII, and other provisions of this Lease, so that,
accordingly, Lessee shall pay all Additional Charges and any other expenses of
any kind associated with this Lease and the Leased Property to insure that
Lessor receives the Minimum Rent, net of all expenses. Further, because Lessee,
prior to the date of this Lease, is the owner of fee simple title to the Leased
Property, Lessee shall be responsible for all Additional Charges and all other
amounts due under this Lease for any period prior to and during the Term.
3.4 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY
LESSEE TO LESSOR OF RENT (INCLUDING, WITHOUT LIMITATION MINIMUM RENT AND
ADDITIONAL CHARGES) WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS
LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH
COSTS INCLUDE, WITHOUT LIMITATION, PROCESSING AND ACCOUNTING CHARGES.
ACCORDINGLY, IF ANY INSTALLMENT OF MINIMUM RENT OR ANY OTHER SUM DUE FROM LESSEE
SHALL NOT BE RECEIVED BY LESSOR WITHIN FIVE (5) BUSINESS DAYS AFTER SUCH AMOUNT
SHALL BE DUE, THEN WITHOUT ANY REQUIREMENT FOR NOTICE TO LESSEE, LESSEE SHALL
PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH OVERDUE AMOUNT.
THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE
ESTIMATE OF THE COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE.
ACCEPTANCE OF SUCH LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE A WAIVER
OF LESSEE'S DEFAULT OR BREACH WITH RESPECT TO ANY UNPAID OVERDUE AMOUNTS, NOR
PREVENT LESSOR FROM EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES GRANTED
UNDER THIS LEASE WITH RESPECT TO ANY SUCH UNPAID OVERDUE AMOUNTS.
ARTICLE IV
4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions coming
due prior to or during the Term, or which relate to any period within the Term
or prior to the Term, before any fine, penalty, interest or cost may be added
for non-payment (or earlier if required by any taxing authority), such payments
to be made directly to the taxing authorities where feasible, and will promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be
deemed absolutely fixed upon the date such Impositions become a lien upon the
Leased Property or any part thereof. If any Imposition may, at the option of
the taxpayer, lawfully (without penalty) be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessee, at its expense, shall, to the extent required or permitted by
Legal Requirements, prepare and file all tax returns and reports in respect of
any Imposition as may be required by governmental authorities. If any refund
shall be due from any taxing authority in respect of any Imposition, the same
shall
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be paid over to or retained by Lessee if no Event of Default shall have
occurred hereunder and be continuing, but if such Event of Default has
occurred and is continuing (i.e., it has not been cured), such refund shall
be paid to Lessor and utilized to cure any such continuing Event of Default.
After fully curing such Event of Default, any excess funds from such refund
shall be paid by Lessor to Lessee. Any such funds retained by Lessor, as
provided above, shall be applied as provided in Article XVI. Lessor and
Lessee shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property
as may be necessary to prepare any required returns and reports. In the
event governmental authorities classify any property covered by this Lease as
personal property, Lessee shall file all personal property tax returns in
such jurisdictions where it must legally so file. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessee will provide to Lessor copies of assessment notices
indicating a value in excess of the reported value in sufficient time for
Lessor to file a protest. Lessee may, upon notice to Lessor, at Lessee's
option and at Lessee's sole cost and expense, protest, appeal or institute
such proceedings as Lessee may deem appropriate to effect a reduction of real
estate or personal property assessments and Lessor, at Lessee's sole cost and
expense as aforesaid, shall fully cooperate with Lessee in such protest,
appeal, or other action, provided that Lessee may not withhold payments
pending such challenges except under the conditions set forth in Article XII.
Lessor shall have the right to require that Lessee pay to Lessor 1/12th of
the annual Impositions each month concurrently with the payment of Minimum
Rent, effective (a) upon the occurrence of any Event of Default relating to
the payment or nonpayment of Impositions (and irrespective of whether such
Event of Default is continuing or has been cured); (b) as to any Event of
Default not covered in the preceding subparagraph (a), upon the occurrence of
the second Event of Default under this Lease (and irrespective of whether any
such Events of Default are continuing or have been cured); and (c) once any
Event of Default has occurred hereunder that has not been cured within sixty
(60) days. Unless Lessee is notified by Lessor otherwise, Lessee shall pay
all Impositions directly to the appropriate taxing or other authorities to
which payments are due, and Lessee shall provide Lessor written evidence and
notice that all such payments have been made. Without limiting any of the
other indemnities set forth in this Lease, Lessee hereby agrees to defend,
indemnify, protect and hold harmless Lessor in connection with any
Impositions that relate to any time prior to or during the Term, and Lessee
acknowledges and agrees that it will not make claims against, or otherwise
look to, Lessor to reimburse Lessee for payments made relating to any period
prior to the Commencement Date.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt Notice to Lessee
for all Impositions payable by Lessee hereunder of which Lessor has knowledge,
but Lessor's failure to give any such Notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions, but such failure shall obviate
any default hereunder for a reasonable time after Lessee receives notice (from
any source) of any Imposition which it is obligated to pay. However,
notwithstanding the foregoing, it shall be Lessee's sole duty to inquire and
determine all of the Impositions for which it is liable as provided herein and
shall promptly pay such Impositions when due, and Lessor shall have no duty of
inquiry concerning Impositions.
4.3 UTILITY CHARGES. Lessee will pay or cause to be paid all charges
for electricity, power, gas, oil, water, sewer connection and all other
utilities used in or for the Leased Property during the Term.
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4.4 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Article XIII during the Term.
ARTICLE V
5.1 NO TERMINATION, ABATEMENT, ETC. Subject to the provisions of
Paragraph 5.2, Lessee shall not be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent, nor shall the
respective obligations of Lessor and Lessee be otherwise affected by reasons
of (a) any damage to, or destruction of, any Leased Property or any portion
thereof; (b) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, the interference
with such use by any person, corporation, partnership or other entity, or by
reason of eviction by paramount title; (c) any claim which Lessee has or
might have against Lessor or by reason of any default or breach of any
warranty by Lessor under this Lease or any other agreement between Lessor and
Lessee, or to which Lessor and Lessee are parties; (d) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other proceedings affecting Lessor or any assignee
or transferee of Lessor; or (e) for any other cause whether similar or
dissimilar to any of the foregoing other than a discharge of Lessee from any
such obligations as a matter of law. Lessee hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (i) modify, surrender or terminate this Lease or
quit or surrender the Leased Property or any portion thereof; or (ii) entitle
Lessee to any abatement, reduction, suspension or deferment of the Rent
payable under this Lease. The obligations of Lessor and Lessee hereunder
shall be separate and independent covenants and agreements and the Rent due
under this Lease shall continue to be payable in all events, irrespective of
Lessor's performance or non-performance under this Lease, unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason
of an Event of Default.
5.2 ABATEMENT PROCEDURES. In the event Lessee is entitled to an
abatement of Minimum Rent under Article XV (by reason of any Condemnation as
provided thereunder), the Lease shall not terminate (except as provided in
Article XV) but the Minimum Rent shall be abated in proportion to the reduced
capacity of the Leased Property for the use made of the same by Lessee at
the time of the Condemnation. If Lessor and Lessee are unable to agree upon
the amount of such abatement within thirty (30) days after any partial taking
as provided under Article XV, the matter shall be submitted by either party
to a court of competent jurisdiction for resolution, but Lessee during such
resolution shall continue to perform its obligations hereunder, including,
without limitation, payment of that portion of the Minimum Rent which is not
then in dispute.
ARTICLE VI
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges and
agrees that the Leased Property is the property of Lessor and that Lessee has
only the right to the exclusive possession and use of the Leased Property
upon the terms and conditions of this Lease.
6.2 LESSEE'S PERSONAL PROPERTY. Lessee may (and shall as provided
hereinbelow), at its expense, install, assemble or place on any parcels of
the Land or in any of the Leased Improvements, any items
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of Lessee's Personal Property, and Lessee may, subject to the conditions set
forth below, remove the same upon the expiration or any prior termination of
the Term. All of Lessee's Personal Property not removed by Lessee within
twenty (20) days following the expiration or earlier termination of this
Lease shall be considered abandoned by Lessee and may be used, appropriated,
sold, destroyed, or otherwise disposed of by Lessor without first giving
notice thereof to Lessee and without any payment to Lessee and without any
obligation to account therefor. Lessee shall, within twenty (20) days
following the expiration or earlier termination of this Lease, at its sole
cost and expense, repair any damage to the Land or the Leased Improvements
occasioned by the installation, maintenance or removal of Lessee's Personal
Property, and restore the Land or Leased Improvements to its condition
immediately prior to any such installation. To the extent allowed by law,
Lessor and Lessee agree that the provisions of this Paragraph 6.2 shall be in
substitution of any statutory obligations Lessor may have to give Lessee
notice of demand for removal of Lessee's Personal Property and notice of sale
of Lessee's Personal Property. Lessor and Lessee agree that Lessor shall not
be required to sell Lessee's Personal Property or account to Lessee therefor.
ARTICLE VII
7.1 USE OF THE LEASED PROPERTY.
7.1.1 Lessee covenants that it will obtain and, at all
times during the Term, maintain all approvals needed to use and operate the
Leased Property under applicable federal, state and local law.
7.1.2 After the Commencement Date and during the entire
Term, Lessee shall use or cause to be used the Leased Property as a New York
Bagel Cafe restaurant or other restaurant (the particular such use to which
the Leased Property is put at any particular time is herein referred to as
the "Primary Intended Use"). Lessee shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of
Lessor, which consent shall not be unreasonably withheld or delayed.
7.1.3 Lessee shall not commit or suffer to be committed
any waste on the Leased Property, or in the Building nor shall Lessee cause
or permit any nuisance thereon.
7.1.4 Lessee shall neither suffer nor permit the Leased
Property to be used in such a manner as (i) might reasonably tend to impair
Lessor's title thereto or to any portion thereof; or (ii) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the
public, as such, or of implied dedication of the Leased Property or any
portion thereof.
ARTICLE VIII
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, INSTRUMENTS,
ETC. Subject to Article XII relating to permitted contests, Lessee, at its
sole cost and expense, will promptly comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair, and restoration of the Leased Property, whether or not
compliance therewith shall require structural changes in any of the Leased
Improvements or interfere with the use and enjoyment of the Leased Property.
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8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and agrees that
the Leased Property and Lessee's Personal Property shall not be used for any
unlawful purpose. Lessee further warrants and represents that Lessee has
obtained all necessary approvals and has given all necessary notices to allow
Lessee to operate the Leased Property for its Primary Intended Use.
ARTICLE IX
9.1 MAINTENANCE AND REPAIR.
9.1.1 Lessee, at its sole cost and expense, will keep the
Leased Property and all sidewalks and curbs appurtenant thereto and which are
under Lessee's control in good order and repair (whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements
or the age of the Leased Property, or any portion thereof), and, except as
otherwise provided in Article XIV, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, whether
interior or exterior, structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the Commencement Date (concealed or otherwise). All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work. Lessee will not take or omit to take any action
the taking or omission of which may materially or adversely impair the value
or the usefulness of the Leased Property or any part thereof for its Primary
Intended Use. Any repair work performed by Lessee shall be paid for so that
no lien (i.e., mechanics', materialmen's or other liens) shall attach to the
Leased Property, subject to the provisions of Article XII.
9.1.2 Lessor shall not under any circumstances be required
in connection with this Lease to build or rebuild any improvements on the
Leased Property, or to make any repairs, replacements, alterations,
restorations, or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any expenditure whatsoever with respect
thereto, or to maintain the Leased Property in any way. Lessee hereby
waives, to the extent permitted by law, the right to make repairs at the
expense of Lessor pursuant to any law in effect at the time of the execution
of this Lease or hereafter enacted. Lessor shall have the right to give,
record and post, as appropriate, notices of non-responsibility (or similar
notices) under any mechanics' or materialmen's lien laws now or hereafter
existing.
9.1.3 Except as otherwise permitted herein, Lessee shall
not make any modifications, alterations or improvements to the Leased
Improvements or any portion thereof, whether by addition or deletion, without
Lessor's prior written consent, which consent shall not be unreasonably
withheld or delayed.
9.1.4 Lessee will, upon the expiration or prior
termination of the Term, vacate and surrender the Leased Property in the
condition in which the Leased Property was originally received from Lessor,
except as repaired, rebuilt, restored, altered or added to as permitted or
required under this Lease and except for ordinary wear and tear (subject to
the obligation of Lessee to maintain the Leased Property in good order and
repair during the entire Term).
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9.2 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements
or conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the
rights of others under any easement or right-of-way to which the Leased
Property is subject, then promptly upon the request of Lessor at the behest
of any person affected by any such encroachment, violation or impairment,
Lessee shall, at its sole cost and expense, (and after Lessor's prior
approval) subject to Lessee's right to sue Lessor's predecessors in title
with respect thereto or to contest the existence of any such encroachment,
violation or impairment and, in such case, in the event of an adverse final
determination, either (i) obtain valid and effective waivers or settlements
of all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or the Leased
Property; or (ii) make such changes in the Leased Improvements, and take such
other actions, as Lessee in the good faith exercise of its judgment deems
reasonably practicable, to remove such encroachment, and to end such
violation or impairment, including, if necessary, the alteration of any of
the Leased Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use substantially in the manner and to
the extent the Leased Improvements were operated prior to the assertion of
such violation, impairment or encroachment. Lessee's obligations under this
Paragraph 9.2 shall be in addition to and shall in no way discharge or
diminish any obligation of any insurer under any policy of title or other
insurance.
ARTICLE X
10.1 ENVIRONMENTAL. Lessor agrees to indemnify, defend and hold
harmless Tenant and Tenant's respective agents, employees, officers and
directors from and against any and all claims, damages, actions, awards,
fines, cleanup costs, expenses, attorneys' fees and court costs which may
arise as a result of any claim or finding that Hazardous Materials are
present within, upon or beneath the Leased Property, and Lessor will at
Lessor's sole cost, subject to the hereinafter limitations, properly
remediate, remove and abate such Hazardous Materials in accordance with all
applicable laws, rules, regulations and ordinances, except in each case to
the extent such Hazardous Materials are present as a result of the acts of
Tenant or Tenant's respective agents, employees, contractors and assigns, in
which event Tenant hereby indemnifies Lessor for and against all claims,
damages, actions, awards, fines, cleanup costs, expenses, attorneys' fees and
court costs associated with the same and Tenant will at Tenant's sole cost
properly remediate, remove and abate such Hazardous Materials in accordance
with all applicable laws, rules, regulations and ordinances.
10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes of this
Lease, "Hazardous Materials" shall include, without limitation, any
substance, material, waste, pollutant or contaminant, now or hereafter
defined, listed or regulated by the "Environmental Laws" (defined below) or
any other federal state or local law, regulation or order or by common law
decision. "Environmental Laws" means and includes any law, ordinance,
regulation or requirement now or hereinafter in effect relating to land use,
air, soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), human health and safety or any other
environmental matter, including, without limitation, the following laws as
the same may be amended from time to time: Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601, et
seq.; Federal Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901, et
seq.; Clean Water Act, 33 U.S.C. Sec. 1251, et seq.; Toxic Substances Control
Act, 15 U.S.C. Sec. 2601,
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et seq.; Refuse Act, 33 U.S.C. Sec. 407; Occupational Safety and Health Act,
29 U.S.C. Sec. 651, et seq.; Clean Air Act, 42 U.S.C. Sec. 7401, et seq.; and
any and all similar state and local laws and ordinances and the regulations
now or hereafter adopted, published and/or promulgated pursuant thereto.
ARTICLE XI
11. NO LIENS. Subject to the provisions of Article XII relating to
permitted contests, Lessee will not directly or indirectly, voluntarily or by
operation of law, create or allow to remain and will promptly discharge at
its expense any lien, mortgage, encumbrance, attachment, title retention
agreement, or claim upon the Leased Property or any attachment, levy, claim,
or encumbrance in respect of the Rent.
ARTICLE XII
12. PERMITTED CONTESTS. Lessee shall have the right to contest the
amount or validity of any Imposition or any Legal Requirement or Insurance
Requirement or any lien, attachment, levy, encumbrance, charge or claim
("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence, and to delay payment if
legally permitted; provided this shall not be deemed or construed in any way
as relieving, modifying or extending Lessee's covenants to pay or its
covenants to cause to be paid any such charges at the time and in the manner
as in this Lease provided and further provided that, such legal proceedings
(and delay in payment) shall not cause the sale of the Leased Property, or
any part thereof, to satisfy the same or cause Lessor or Lessee to be in
default under any mortgage or deed of trust encumbering the Leased Property
or any interest therein or otherwise threaten to cause loss or damage to
Lessor or the Leased Property. Upon the reasonable request of Lessor, Lessee
shall provide to Lessor reasonable security satisfactory to Lessor to assure
the payment of all Claims which may be assessed against the Leased Property,
together with interest and penalties, if any, thereon. Lessor agrees to join
in any such proceedings if the same be required to legally prosecute such
contest of the validity of such Claims; provided, however, that Lessor shall
not thereby be subjected to any liability for the payment of any costs or
expenses in connection with any proceedings brought by Lessee; and Lessee
covenants to indemnify and save harmless Lessor from any such costs or
expenses. In the event that Lessee fails to pay any Claims when due or, upon
Lessor's request, to provide the security therefor as provided in this
Article XII and to diligently prosecute any contest of the same or in the
event the same threatens to cause loss or damage to Lessor or the Leased
Property, Lessor may, upon thirty (30) days advance written Notice to Lessee,
pay such charges together with any interest and penalties and the same shall
be repayable by Lessee to Lessor at the next Payment Date provided for in
this Lease. Provided, however, that should Lessor reasonably determine that
the giving of such Notice would risk loss to the Leased Property or otherwise
threaten to cause loss or damage to Lessor, then Lessor shall give such
written Notice as is practical under the circumstances. Lessee shall be
entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for
which Lessor has been fully reimbursed.
ARTICLE XIII
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the provisions of
Paragraph 13.8, during the Term, Lessee shall at all times keep the Leased
Property, and all property located in or on the Leased
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Property, insured with the kinds and amounts of insurance described below.
This insurance shall be written by companies authorized to do insurance
business in the state in which the Leased Property is located. The policies
must name Lessor as loss payee and additional named insured, shall contain a
provision that such insurance may not be canceled or amended without at least
thirty (30) days' notice to Lessor and shall be payable to Lessor as provided
in Article XIV. In addition, upon Lessor's written request, the policies
shall name as mortgagee, loss payee and additional insured the holder
("Building Mortgagee") of any mortgage, deed of trust or other security
agreement and any other Encumbrance placed on the Leased Property in
accordance with the provisions of Article XXXII, as well as any other entity
interested in the Leased Property ("Building Mortgage") by way of a standard
form of mortgagee's loss payable endorsement. Evidence of insurance shall be
deposited with Lessor and, if requested, with any Building Mortgagee(s). The
policies on the Leased Property, including the Leased Improvements, Fixtures
and Lessee's Personal Property, shall insure against the following risks:
13.1.1 Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as "All Risk," and all
physical loss perils normally included in such All Risk insurance, including,
without limitation, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as defined below in
Paragraph 13.2);
13.1.2 Claims for personal injury or property damage under
a policy of comprehensive general public liability insurance with amounts not
less than One Million Dollars ($1,000,000.00) per occurrence, and with an
annual aggregate of Three Million Dollars ($3,000,000.00);
13.1.3 Flood (if the Leased Property is located in whole or
in part within a flood plain area, as designated by any governmental or other
responsible agency and if such insurance is available pursuant to applicable
law) and such other hazards and in such amounts as may be customary for
comparable properties in the area; and
13.1.4 Any other kinds of insurance, and in such amounts,
as Lessor may reasonably require from time to time to the extent available in
the state where the Leased Property is located.
13.2 REPLACEMENT COST. The term "full replacement cost" as used
herein, shall mean the full actual replacement cost of the Leased Property as
determined from time-to-time upon the request of Lessor or Lessee (but not
more frequently than once in every 24 months), including an increased cost of
construction endorsement, less exclusions provided in the standard form of
fire insurance policy in the state where the Leased Property is located.
Lessor and Lessee agree that as of the Commencement Date the full replacement
cost shall be deemed to be that amount set forth in Schedule 1 attached
hereto and incorporated herein.
13.3 ADDITIONAL INSURANCE. In addition to the insurance described
above, Lessee shall maintain such additional insurance as may be reasonably
required from time-to-time by Lessor or any Building Mortgagee (to the extent
available in the state where the Leased Property is located) and shall
further at all times maintain adequate worker's compensation insurance
coverage for all persons employed by Lessee on the Leased Property. Such
worker's compensation insurance shall be in accordance with the requirements
of applicable federal, state and local law.
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13.4 WAIVER OF SUBROGATION. All insurance policies carried by
either party covering the Leased Property, the Fixtures, the Building, or
Lessee's Personal Property including, without limitation, contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the
part of the insurer against the other party. The parties hereto agree that
their policies will include such waiver clause or endorsement so long as the
same are obtainable without extra cost, and in the event of such an extra
charge the other party, at its election, may pay the same, but shall not be
obligated to do so. Upon written request, each party shall provide the other
party with a copy of each insurance policy with the waiver clause or
endorsement attached.
13.5 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in this Article XIII shall be written in a form reasonably
satisfactory to Lessor and by insurance companies reasonably satisfactory to
Lessor. Subject to the foregoing, Lessor agrees that it will not
unreasonably withhold its approval as to the form of the policies of
insurance or as to the insurance companies selected by Lessee. Lessee shall
pay all of the premiums therefor, and deliver such policies or certificates
thereof to Lessor prior to their effective date (and, with respect to any
renewal policy, prior to the expiration of the existing policy), and in the
event of the failure of Lessee either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessor at the times required, Lessor shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, which premiums shall be repayable by Lessee to Lessor upon
written demand therefor, and failure to repay the same shall constitute an
Event of Default within the meaning of Paragraph 16.1(b). Each insurer
mentioned in this Article XIII shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that
will give to Lessor (and to any Building Mortgagee, if required by the same)
thirty (30) days written notice before the policy or policies in questions
shall be altered, allowed to expire or cancel.
13.6 INCREASE IN LIMITS. In the event that Lessor or a Building
Mortgagee shall at any reasonable time deem the limits of the personal injury
or property damage public liability insurance then carried to be
insufficient, Lessee shall thereafter carry the insurance with increased
limits until further change pursuant to the provisions of this Paragraph;
provided that if Lessor desires to increase the limits of insurance, and such
is not pursuant to the request of a Building Mortgagee, then Lessor may not
demand an increase in limits above the limits generally consistent with the
requirements of owners of restaurant facilities in the State.
13.7 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article XIII, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessee; provided,
however, that the coverage afforded Lessor will not be reduced or diminished
or otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of
this Article XIII are otherwise satisfied.
13.8 NO SEPARATE INSURANCE. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party take
out separate insurance concurrent in form or contributing in the event of
loss with that required in this Article, to be furnished or which may
reasonably be required to be furnished, by Lessee or increase the amount of
any then existing insurance by securing any additional policy or additional
policies, unless all parties having an insurable interest in the subject
matter of the insurance,
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including in all cases Lessor and all Building Mortgagees, are included
therein as additional insureds, and the loss is payable under said insurance
in the same manner as losses are payable under the Lease. Lessee shall
immediately notify Lessor of the taking out of any such separate insurance or
of the increasing of any of the amount of the then existing insurance.
13.9 CONTINUOUS COVERAGE. Lessee was the owner of the Leased
Property prior to the date of this Lease. Therefore, Lessee already has in
place insurance with respect to the Leased Property. Lessee shall assure
that there is no gap in the insurance coverage provided in connection with
the Building at or after the Commencement Date, and therefore, the insurance
provided by Lessee shall be continuous, with the types and amounts of
coverage, described herein to be applicable on the Commencement Date. To the
extent there is not full, complete and continuous coverage for all issues, no
matter when arising, claimed or occurring, Lessee shall, at its sole cost,
obtain such insurance.
ARTICLE XIV
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any
loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by Article XIII of this Lease,
where the total proceeds paid by the insurer are less than $150,000.00, shall
be paid to Lessee and applied to the reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, or any
portion thereof. All proceeds payable by reason of any loss of or damage to
the Leased Property, or any portion thereof, which is insured under any
policy of insurance required by Article XIII of this Lease where the total
proceeds paid by the insurer are equal to or in excess of $150,000.00 shall
be paid to Lessor and held by Lessor in trust (subject to the provisions of
Paragraph 14.7) and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or
any portion thereof, and shall be paid out by Lessor from time-to-time for
the reasonable costs of such reconstruction or repair. Any excess proceeds
of insurance remaining after the completion of the restoration or
reconstruction of the Leased Property shall go to Lessee, provided this Lease
is in force and there exists no uncured Event of Default; otherwise such
excess shall be paid to Lessor for application as set forth in Article XVI
hereof. In the event Lessee elects to terminate this Lease as described in
Paragraph 14.2.1, all such insurance proceeds shall be retained by Lessor.
All salvage resulting from any risk covered by insurance shall belong to
Lessor except that any salvage relating to Lessee's Personal Property shall
belong to Lessee.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED
BY INSURANCE PROCEEDS.
14.2.1 If during the Term, the Leased Property is totally
or partially destroyed by a risk covered by the insurance described in
Article XIII and whether or not the Building thereby is rendered Unsuitable
for its Primary Intended Use, Lessee shall restore the Leased Property to
substantially the same condition as existed immediately before the damage or
destruction; provided, however, if the Leased Property is damaged or
destroyed as to become partially or totally untenantable, and if the
unexpired portion of the then current term of this Lease shall be six (6)
months or less on the date of such damage or destruction, then Lessee may
elect to terminate this Lease by giving written notice to Lessor of its
election to do so within thirty (30) days after such occurrence. If Lessee
exercises its right to terminate this Lease, then this Lease shall
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terminate effective as of the date of such damage or destruction, and all
rent or charges payable by Lessee shall be prorated to such date of
termination.
14.2.2 If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessee or Lessor from the insurance required
under Article XIII, Lessee shall be obligated to restore the Leased Property
and pay the extra cost therefor, provided that, prior to commencing the
repair and restoration, Lessee shall either (i) contribute any excess amount
needed to restore the Leased Property, or (ii) provide Lessor with
satisfactory evidence that such funds are, and throughout the entire period
of reconstruction will be, available. If Lessee contributes such excess in
cash, such excess shall be paid by Lessee to Lessor to be held in trust,
together with any insurance proceeds, for application to the cost of repair
and restoration.
14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT
COVERED BY INSURANCE. If during the Term, the Leased Property is damaged or
destroyed irrespective of the extent of the damage from a risk not covered by
the insurance described in Article XIII, whether or not such damage or
renders the Building Unsuitable for its Primary Intended Use, Lessee shall
restore the Leased Property to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease.
14.4 LESSEE'S PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Lessee's Personal Property shall be paid
to Lessee, and Lessee shall hold such insurance proceeds in trust to pay the
cost of repairing or replacing damaged Lessee's Personal Property. Any
proceeds in excess of the cost of repairing or replacing any such Lessee's
Personal Property shall belong to Lessee.
14.5 RESTORATION OF LESSEE'S PROPERTY. Without limiting Lessee's
obligation to restore the Leased Property as provided in Paragraphs 14.2 and
14.3, Lessee shall also pay the cost to restore all Alterations and other
improvements made by Lessee which Lessee elects to restore, including
Lessee's Personal Property to the extent that Lessee's Personal Property is
necessary to the operation of the Leased Property for its Primary Intended
Use in accordance with applicable Legal Requirements.
14.6 NO ABATEMENT OF RENT. This Lease shall remain in full force
and effect and Lessee's obligation to make rental payments and to pay all
other charges required by this Lease shall remain unabated during any period
required for repair and restoration.
14.7 TERMINATION OF OPTION TO EXTEND. Any termination of this
Lease by reason of damage to or destruction of the Leased Property shall
cause any options to extend the Lease under Article XVIII to be terminated
and without further force or effect.
14.8 WAIVER. Lessee hereby waives any statutory rights of
termination which may arise by reason of any damage to or destruction of the
Leased Property which Lessor is obligated to restore or may restore under any
of the provisions of this Lease.
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ARTICLE XV
15.1 DEFINITIONS.
15.1.1 "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a
Condemnor; or (b) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of Condemnation or while legal proceedings for
Condemnation are pending.
15.1.2 "Date of Taking" means the date the Condemnor has
the right to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.
15.1.4 "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is
any taking of all or any part of the Leased Property or any interest in this
Lease by Condemnation, the rights and obligations of the parties shall be
determined by this Article XV.
15.3 TOTAL CONDEMNATION. If title to the fee of the whole of the
Leased Property shall be taken or condemned by any Condemnor, this Lease
shall cease and terminate as of the Date of Condemnation by said Condemnor.
If title to the fee of less than the whole of the Leased Property shall be so
taken or condemned, which nevertheless renders the Leased Property Unsuitable
for Its Primary Intended Use, as reasonably determined by Lessor and Lessee,
Lessee and Lessor shall each have the option by written Notice to the other,
at any time at or prior to the taking of possession by, or the date of
vesting of title in, such Condemnor, whichever first occurs, to terminate
this Lease as of the date of the occurrence of such first event. If such
Notice has timely been given, this Lease shall thereupon cease and terminate.
Upon the termination of the Lease, all Minimum Rent, and Additional Charges
paid or payable by Lessee hereunder shall be apportioned as of the date the
Lease terminates.
15.4 ALLOCATION OF PORTION OF AWARD. The total Award made with
respect to all or any portion of the Leased Property or for loss of rent, or
for loss of business, whether or not beyond the Term of this Lease, or for
the loss of value of the leasehold shall be solely the property of and
payable to Lessor and Lessee hereby assigns to Lessor any and all rights in
such Award; provided, however, that Lessee shall be entitled to (i) receive
out of the Award the actual costs incurred by Lessee in constructing the
Leased Improvements, (ii) to make a separate claim for the taking of Lessee's
Personal Property and relocation expense, or (iii) for any other loss that
can be awarded to Lessee separately from Lessor's claim and which will not in
any respect whatsoever diminish or threaten to diminish the total amounts to
be awarded to Lessor, as set forth above or otherwise. In any Condemnation
proceedings, each of the Lessor and Lessee shall seek its own claim in
conformity herewith, at its own expense.
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15.5 PARTIAL TAKING. If title to the fee of less than the whole of
the Leased Property shall be so taken or condemned, and the Leased Property
is still suitable for its Primary Intended Use, as reasonably determined by
Lessor and Lessee, or if Lessee or Lessor shall not elect to terminate this
Lease as provided in Paragraph 15.3 hereof, this Lease shall not terminate.
In such case, the Rent shall be equitably and fairly reduced for the
remainder of the Term in proportion to the amount of the Leased Property
taken as compared to the whole, and Lessor shall be entitled to the entire
Award for the taking of the portion condemned.
15.6 TEMPORARY TAKING. Lessee agrees that if, at any time after
the date hereof, the whole or any part of the Leased Property or of Lessee's
interest under this Lease, shall be Condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, the full amounts of Minimum Rent and Additional Charges. Except
only to the extent that Lessee may be prevented from doing so pursuant to the
terms of the order of the Condemnor, Lessee shall also continue to perform
and observe all of the other terms, covenants, conditions and obligations
hereof, on the part of the Lessee to be performed and observed, as though
such Condemnation had not occurred. In the event of any such Condemnation as
in this Paragraph 15.6 described, the entire amount of any such Award made
for such temporary use, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee to the extent attributable to any period within the
Initial Term (as extended by any already exercised options to extend) and
except as otherwise provided hereunder. Notwithstanding the foregoing, in the
event that any temporary use or occupancy covered under this Paragraph 15.6
renders any portion of the Leased Property Unsuitable for its Primary
Intended Use for a period in excess of twelve (12) calendar months, Lessee
shall have the right to elect a reduction in Minimum Rent as set forth in
Paragraph 5.2 commencing on the twelve (12) month anniversary of any such use
or occupancy and continuing so long as such temporary use or occupancy
continues, in which event any Award made for such temporary use or occupancy
shall be paid to Lessor to the extent attributable to the period that Minimum
Rent is so abated. Lessee covenants that upon the termination of any such
period of temporary use or occupancy as set forth in this Paragraph 15.6, it
will, at its sole cost and expense, restore the Leased Property as nearly as
may be reasonably possible, to the condition in which the same was
immediately prior to the Condemnation, unless such period of temporary use or
occupancy shall extend beyond the expiration of the Term, in which case
Lessee shall not be required to make such restoration, and in such case,
Lessee shall contribute to the cost of such restoration that portion of its
entire Award which is specifically allocated to such restoration in the
judgment or order of the court, if any.
ARTICLE XVI
16.1 EVENTS OF DEFAULT. Any one or more of the following events
shall be an "Event of Default":
(a) if Lessee fails to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such
failure is not cured by Lessee within a period of five (5) Business Days; or
(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after Notice thereof from
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Lessor, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case such failure shall not be deemed an
Event of Default if Lessee proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof within ninety (90)
days; or
(c) if Lessee does any of the following:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency law;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself
or of the whole or any substantial part of its property; or
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof; or
(d) if Lessee, on a petition in bankruptcy filed against it,
is adjudicated a bankrupt or an order for relief thereunder is entered
against it or a court of competent jurisdiction shall enter an order or
decree appointing, without the consent of Lessee, a receiver for Lessee or of
the whole or substantially all of its property or the Building, or approving
a petition filed against Lessee seeking reorganization or arrangement of
Lessee under the Federal bankruptcy laws or other applicable law or statute
of the United States of America or any state thereof, and such judgment,
order or decree shall not be vacated or set aside within one hundred twenty
(120) days from the date of the entry thereof; or
(e) if Lessee shall be liquidated or dissolved, or shall
begin proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all of its assets; or
(f) subject to the provisions of Article XII hereof, if the
estate or interest of Lessee in the Leased Property or any part thereof be
levied upon or attached in a proceeding and the same shall not be vacated or
discharged within the later of ninety (90) days after commencement thereof or
thirty (30) days after Notice thereof from Lessor, or a mechanic's or similar
lien is filed with respect to the Leased Property and is not released or
bonded around for a period exceeding sixty (60) days after Lessee first has
knowledge of the same; or
(g) if Lessee voluntarily ceases operations on the Leased
Property for a period in excess of two (2) days other than for required
remodeling or if required by law; or
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(h) if any of Lessee's representations or warranties
expressly set forth in this Lease (or financial statements provided to
Lessor) proves to be untrue when made in any material respect which
materially and adversely affects Lessor; or
(i) if Lessee attempts to assign or sublease, in violation of
the provisions of this Lease; or
(j) subject to the provisions of Article XII hereof, if
Lessee ceases to maintain in effect any license, permit, certificate or
approval necessary or otherwise required to operate the Building in
accordance with its Primary Intended Use.
Upon the occurrence of an Event of Default, in addition to all of
Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) Business Days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.
In the event litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation shall
receive, in addition to its damages incurred, such sum as the court shall
determine as its reasonable attorneys' fees, and all costs and expenses
incurred in connection therewith, including reasonable attorneys' fees and
costs incurred on appeal.
16.2 CERTAIN REMEDIES. Lessor shall have all remedies and rights
provided under this Lease and/or otherwise available at law and in equity as
a result of an Event of Default or Lessee's other breach under this Lease,
including, to the extent permitted by the laws of the State, the right to
appoint a receiver as a matter of strict right without regard to the solvency
of Lessee, for the purpose of procuring the Leased Property, preventing
waste, protecting and otherwise enforcing the provisions of this Lease and
for any and all other purposes for which a receiver is allowed under the laws
of the State. Without limiting the foregoing, if an Event of Default occurs
(and the event giving rise to such Event of Default has not been cured within
the curative period, if any, relating thereto as set forth in this Lease)
whether or not this Lease has been terminated pursuant to Paragraph 16.1,
Lessee shall, to the extent permitted by law, and if required by Lessor to so
do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of Paragraph 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property, in person, by agent or by a court-appointed
receiver, by reasonable force, summary proceedings, ejectment or otherwise,
and may remove Lessee and all other persons and any and all personal property
from the Leased Property subject to any requirements of law. Without
limiting all other rights and remedies of Lessor under this Lease and under
law, Lessor shall have the right to accelerate all Rent (including Minimum
Rent) and therefore, upon Lessee's default, at Lessor's option, all such Rent
shall become immediately due and payable in accordance with Paragraph 16.3,
below. Further, without limiting all other rights and remedies of Lessor
under this Lease and under law, Lessor shall be entitled to recover from
Lessee, and Lessee shall therefore be liable for, all costs of recovering
possession (including without limitation all costs associated with any
receiver) and renovating the Leased Property for a new lessee and all other
costs of re-leasing, including, but not limited to, broker's commissions and
attorneys' fees, except as limited by Paragraph 16.3 below.
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16.3 DAMAGES. Neither (i) the termination of this Lease pursuant
to Section 16.1; (ii) the repossession of the Leased Property; (iii) the
failure of Lessor, notwithstanding reasonable good faith efforts, to relet
the Leased Property; nor (iv) the reletting of all or any portion thereof,
shall relieve Lessee of its liability and obligations hereunder, all of which
shall survive any such termination, repossession or reletting (except for
proceeds received on subletting). In the event of any such termination,
Lessee shall forthwith pay to Lessor all Rent due and payable with respect to
the Leased Property to and including the date of such termination.
(a) Lessor shall not be deemed to have terminated this Lease
unless Lessor delivers written Notice to Lessee of such election. If Lessee
voluntarily elects to terminate this Lease upon an Event of Default, then in
addition to all remedies available to Lessor, Lessor may recover the sum of:
(i) the worth at the time of award of the unpaid Rent
which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Lessee proves
could have been reasonably avoided;
(iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided; and
(iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom.
The "worth at the time of award" of the amounts referred
to in subparagraphs (i) and (ii) above is computed by allowing interest at
the Overdue Rate. The worth at the time of award of the amount referred to
in subparagraph (iii) is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of Kansas City at the time of award plus one
percent (1%).
(b) Without limiting Lessor's other remedies provided herein
and provided by law, Lessor may continue the Lease in effect after Lessee's
breach and abandonment and recover Rent as it becomes due, provided that, in
such event, Lessee has the right to sublet or assign subject only to
reasonable conditions imposed by Lessor. Accordingly, without termination of
Lessee's right to possession of the Leased Property, Lessor may demand and
recover each installment of Minimum Rent and other sums payable by Lessee to
Lessor under the Lease as the same becomes due and payable, which Minimum
Rent and other sums shall bear interest at the maximum interest rate
permitted in accordance with the laws of the State (or the Overdue Rate,
whichever is lower), from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
If Lessor elects to recover each installment of Rent as it becomes due, then
Lessor may file any number of lawsuits for the recovery of the amounts due
hereunder.
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16.4 WAIVER. If this Lease is terminated pursuant to Paragraph
16.1, Lessee waives, to the extent permitted by applicable law, the benefit
of any laws now or hereafter in force exempting property from liability for
rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments received by Lessor under
any of the provisions of this Lease during the existence or continuance of
any Event of Default shall be applied to Lessee's obligations in the order
which Lessor may determine or as may be prescribed by the laws of the State.
ARTICLE XVII
17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease, and to cure the same within the relevant time periods, if any,
provided under this Lease, Lessor, after fifteen (15) days' Notice to and
demand upon Lessee, and without waiving or releasing any obligation of Lessee
or default, may (but shall be under no obligation to) at any time thereafter
make such payment or perform such act for the account and at the expense of
Lessee, and may, to the extent permitted by law, enter upon the Leased
Property, in person, by agent or by court-appointed receiver, for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property, or cause damage to Lessor, then Lessor shall give such
written Notice as is practical under the circumstances. No such entry shall
be deemed an eviction of Lessee. In exercising any remedy under this Article
XVII, Lessor shall use its good faith efforts not to violate any rights of
residents of the Building. All sums so paid by Lessor and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case) so incurred, together with a late charge thereon (to
the extent permitted by law) at the Overdue Rate from the date on which sums
or expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor
on demand. The obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
18.1 OPTIONS TO EXTEND. Provided there exists no uncured Event of
Default under this Lease at the time Lessee exercises any option to extend
(in accordance with this Article XVIII), Lessee will have the right to extend
this Lease for two (2) periods of five (5) years each (each such additional
term shall be referred to herein as an "Extended Term"), commencing
immediately following the end of the Initial Term or the immediately
preceding Extended Term, as the case may be. The Lease during any Extended
Term shall be on the same terms and conditions as during the Initial Term,
except that the Minimum Rent shall be determined as set forth in Paragraph
18.2 below. In the event Lessee desires to exercise any option to extend
granted in this Article XVIII, Lessee shall give Landlord written notice
("Notice to Extend") not less than one hundred eighty (180) days prior to the
expiration of the Initial Term or the immediately preceding Extended Term, as
the case may be. If Lessee fails to give Landlord any such notice, then such
option to extend and all future options to extend granted in this Article
XVIII shall be null and void and of no further force or effect.
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18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent at the
commencement of each Extended Term shall be the annual sums as stated in
Schedule 1 attached hereto and incorporated herein.
ARTICLE XIX
19. HOLDING OVER. If Lessee shall for any reason remain in possession
of the Leased Property after the expiration of the Term or earlier
termination of the Term hereof, such possession shall be as a month-to-month
tenant during which time Lessee shall pay as rental each month, one and
one-half times the aggregate of (i) one-twelfth of the aggregate Minimum Rent
payable with respect to the last Lease Year of the Term; (ii) all Additional
Rent accruing or otherwise payable during the month; (iii) all Additional
Charges accruing during the month; and (iv) all other sums payable by Lessee
pursuant to the provisions of this Lease. During such period of
month-to-month tenancy, Lessee shall be obligated to perform and observe all
of the terms, covenants and conditions of this Lease, but shall have no
rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or
earlier termination of this Lease.
ARTICLE XX
20. RISK OF LOSS. During the Term of this Lease, the risk of loss or
of decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures (to the extent caused by or through Lessee), attachments, levies
or executions (other than those caused by or through Lessor) is assumed by
Lessee, and Lessor shall in no event be answerable or accountable therefor,
nor shall any of the events mentioned in this Paragraph entitle Lessee to any
abatement of Rent except as specifically provided in this Lease, or any right
to terminate this Lease, except as provided in Articles XIV or XV, above.
Without limiting the foregoing, Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Leased Property, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning, or lighting
fixtures, or from any other cause, whether the said injury or damage results
from conditions arising upon the Leased Property, or upon other portions of
the Land, or any part thereof, or from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of Lessee, or any other party named
above. Lessor shall, however, remain liable for any damages arising from
Lessor's own gross negligence or willful misconduct.
ARTICLE XXI
21. INDEMNIFICATION. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, hold harmless and defend
Lessor from and against all liabilities, obligations, claims, demands,
damages, penalties, causes of action, costs, and expenses (including, without
limitation, actual reasonable attorneys' fees and expenses), to
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the extent permitted by law, imposed upon or incurred by or asserted against
Lessor by reason of any of the following: (a) any accident, injury to or
death of persons or loss of or damage to property occurring on or about the
Leased Property or adjoining sidewalks, whether occurring prior to or after
the Commencement Date provided however, that if any such liability,
obligation, demand, claim or cause of action is covered by liability
insurance pursuant to Article XIII, and if the insurance carrier is providing
a defense acceptable to Lessor in the reasonable exercise of Lessor's
discretion, or has otherwise acknowledged coverage for same, then Lessee
shall not be obligated to duplicate the defense, investigation, adjustment,
or other steps being taken by the insurer; (b) any occupancy, use, misuse,
non-use, condition, maintenance, or repair by Lessee of the Leased Property;
(c) any Impositions (which are the obligations of Lessee to pay pursuant to
the applicable provisions of this Lease, which include any Impositions
arising prior to the Commencement Date); (d) any failure on the part of
Lessee to perform or comply with any of the terms of this Lease; (e) the
non-performance of any of the terms and provisions of any and all existing
and future subleases of the Leased Property to be performed by the landlord
(Lessee) thereunder; and (f) any and all other matters pertaining to the
Leased Property or the operation of the Building after the date of this Lease
or otherwise during the Term. Any amounts which became payable by Lessee
under this Paragraph shall be paid within ten (10) days of the date the same
becomes due and if not timely paid, shall bear a late charge (to the extent
permitted by law) at the Overdue Rate from the date of such determination to
the date of payment. Lessee, at its expense, shall contest, resist and
defend any such claim, action or proceeding asserted or instituted against
Lessor or may compromise or otherwise dispose of the same as Lessee sees fit,
at Lessee's sole cost, but after consultation with and approval by Lessor.
Nothing herein shall be construed as indemnifying Lessor against its own
gross negligence or willful misconduct. Lessee's liability for a breach of
the provisions of this article arising during the Term hereof shall survive
any termination of this Lease.
ARTICLE XXII
22.1 SUBLETTING AND ASSIGNMENT. Lessee may not assign, sublease or
sublet, encumber, appropriate, pledge or otherwise transfer, the Lease or the
leasehold or other interest in the Leased Property without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or
delayed. Upon Lessor's consent, in the case of any assignment, any such
assignee shall assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and performed and shall
be, and become, jointly and severally liable with Lessee for the performance
thereof. In the case of either an assignment or a subletting, (i) an
original counterpart of each sublease and assignment and assumption, duly
executed by Lessee and such sublessee or assignee, as the case may be, in
form and substance satisfactory to Lessor, shall be delivered promptly to
Lessor, and (ii) Lessee shall remain primarily liable, as principal rather
than as surety, for the prompt payment of the Rent and for the performance
and observance of all of the covenants and conditions to be performed by
Lessee hereunder.
22.2 ATTORNMENT. Lessee shall insert in each sublease permitted
under Paragraph 22 provisions to that effect that (i) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and
the rights of Lessor hereunder; (ii) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Lessor's option, attorn to Lessor and waive any right the sublessee may have
to terminate the sublease or to surrender possession thereunder, as a result
of the termination of this Lease; and (iii) in the event the sublessee
receives a written Notice from Lessor or Lessor's
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assignees, if any, stating that Lessee is in default under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under
said sublease directly to the party giving such Notice, or as such party may
direct. All rents received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against amounts
owing by Lessee under this Lease.
ARTICLE XXIII
23. OFFICERS' CERTIFICATES. At any time from time-to-time upon not
less than twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an
Officers' Certificate certifying that this Lease unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid
and such other information concerning this Lease as may be reasonably
requested by Lessor. Any such certificate furnished pursuant to this
Paragraph may be relied upon by Lessor and any prospective purchaser or
lender of the Leased Property.
ARTICLE XXIV
24. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property on at least one
Business Day's prior notice during usual business hours subject to any
security, health, safety, or confidentiality requirements of Lessee or any
governmental agency or insurance requirement relating to the Leased Property,
or imposed by law or applicable regulations.
ARTICLE XXV
25. NO WAIVER. The waiver by Lessor or Lessee of any term, covenant or
condition in this Lease shall not be deemed to be a waiver of any other term,
covenant or condition or any subsequent waiver of the same or any other term,
covenant or condition contained in this Lease. The subsequent acceptance of
rent hereunder by Lessor or any payment by Lessee shall not be deemed to be a
waiver of any preceding default of any term, covenant or condition of this
Lease, other than the failure to pay the particular amount so received and
accepted, regardless of the knowledge of any preceding default at the time of
the receipt or acceptance.
ARTICLE XXVI
26. REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of each party now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right,
power and remedy and the exercise or beginning of the exercise by each party
of any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by such party of any or all of such other
rights, powers and remedies.
ARTICLE XXVII
27. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing
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by Lessor and no act by Lessor or any representative or agent of Lessor,
other than such a written acceptance by Lessor, shall constitute an
acceptance of any such surrender.
ARTICLE XXVIII
28. NO MERGER OF TITLE. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same
person, firm, corporation, or other entity may acquire, own or hold, directly
or indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate; and (b) the fee estate in
the Leased Property.
ARTICLE XXIX
29. CONVEYANCE BY LESSOR. If Lessor or any successor owner of the
Leased Property shall transfer or assign Lessor's title or interest in the
Leased Property or this Lease other than as security for a debt, then,
subject to the provisions of this Article XXIX and provided the new owner has
agreed in writing for the benefit of Lessee to recognize this Lease and be
bound by all of the terms and conditions hereof, Lessor shall thereupon be
released from all future liabilities and obligations of Lessor under this
Lease arising or accruing from and after the date of such transfer or
assignment and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXX
30. QUIET ENJOYMENT. So long as Lessee shall pay all Rent as the same
becomes due and shall comply with all of the terms of this Lease and perform
its obligations hereunder, and except for any claims, actions, liens or
encumbrances arising from the acts or omissions of Lessee or otherwise from
events occurring prior to the Commencement Date here under, Lessee shall
peaceably and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances of record
as of the date hereof or hereafter consented to by Lessee. Except as
otherwise provided in this Lease, no failure by Lessor to comply with the
foregoing covenant or any covenant of this Lease shall give Lessee any right
to cancel or terminate this Lease or abate, reduce or made a deduction from
or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXI
31. NOTICES. All notices, demands, requests, consents, approvals, and
other communications ("Notice" or "Notices") hereunder shall be in writing
and personally served upon an Executive Officer of the party being served or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), overnight delivery service addressed to the respective parties, as
follows:
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If to Lessee: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: Mr. Paul R. Hoover
Vice President - Strategic Planning
with a copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, Kansas 67202-4888
Attention: Mr. Gregory B. Klenda
If to Lessor: L.P.V. Properties, L.L.C.
845 Glenlake Dr.
Edmond, Oklahoma 73013
Attention: Lee Cohlmia, Manager
with a copy to:
---------------------------
---------------------------
---------------------------
Attention:
-----------------
or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices
sent by overnight delivery service) shall be effective upon receipt, and
Notice given by mail shall be completed three (3) Business Days after the
time of deposit in the U.S. Mail system. For the purposes hereof, the term
"Executive Officer" shall mean the Chairman of the Board of Directors, the
Chief Executive Officers, the President, any Vice President, or the Secretary
of the corporation upon which service is to be made.
ARTICLE XXXII
32.1 LESSOR MAY GRANT LIENS. Lessor may, subject to the terms and
conditions set forth below in this Paragraph 32.1, from time-to-time,
directly or indirectly, create or otherwise cause to exist any lien or
encumbrance or any other change of title ("Encumbrance") upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance
shall contain the right to prepay (whether or not subject to a prepayment
penalty) and shall provide that it is subject to the rights of Lessee under
this Lease, provided that any holder of an Encumbrance shall (a) give Lessee
the same notice, if any, given to Lessor of any default or acceleration of
any obligation underlying any such mortgage or any sale in foreclosure under
such mortgage; (b) permit Lessee to cure any such default on Lessor's behalf
within any applicable cure period, and Lessee shall be reimbursed by Lessor
or shall be entitled to offset against Minimum Rent payments next accruing or
coming due for any and all costs incurred in effecting such cure, including,
without limitation, out-of-pocket costs incurred to effect any such
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cure (including reasonable attorneys' fees); (c) permit Lessee to appear and
to bid at any sale in foreclosure made with respect to, and/or any sale by
virtue of the exercise of the power of sale contained in, any such mortgage,
and (d) provide that in the event of foreclosure or other possession of the
Leased Property by the Mortgagee, that the Mortgagee (or other purchaser)
shall be bound by the terms and provisions of this Lease. Upon the
reasonable request of Lessor, Lessee shall execute an agreement to the effect
that this Lease shall be subject and subordinate to the lien of a new
mortgage on the Leased Property, and that in the event of any default or
foreclosure under such mortgage, Lessee shall attorn to the new mortgagee,
and as otherwise requested by Lessor on the condition that the mortgagee
execute a non-disturbance agreement recognizing this Lease and agreeing, for
itself and its successor and assigns, to comply with the provisions of this
Article XXXII.
32.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of
Paragraph 32.3, if Lessor breaches any covenant to be performed by it under
this Lease, Lessee, after Notice to and demand upon Lessor, without waiving
or releasing any obligation hereunder, and in addition to any other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at
the expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon from the date on which such sums or expenses
are paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand,
but may not be offset by Lessee against payments of Rent hereunder.
32.3 BREACH BY LESSOR. It shall be a breach of this Lease if
Lessor fails to observe or perform any term, covenant or condition of this
Lease on its part to be performed, and such failure shall continue for a
period of thirty (30) days after Notice thereof from Lessee unless such
failure cannot with due diligence be cured within a period of thirty (30)
days, in which case such failure shall not be deemed to continue if Lessor,
within said thirty (30) day period, proceeds promptly, continuously and with
due diligence to cure the failure and diligently completes the curing
thereof. The time within which Lessor shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of
any Unavoidable Delay.
ARTICLE XXXIII
33.1 SURVIVAL OF OBLIGATIONS. Anything contained in this Lease to
the contrary notwithstanding, all claims against, and liabilities of, Lessee
or Lessor arising prior to, or in connection with any event occurring prior
to, the date of any expiration or termination of this Lease or the date of
Lessee's surrender of possession, whichever is later, shall survive such
termination or surrender of possession.
33.2 LATE CHARGES; INTEREST. If any interest rate provided for in
any provision of this Lease is based upon a rate in excess of the maximum
rate permitted by applicable law, the parties agree that such charges shall
be fixed at the maximum permissible rate.
33.3 LIMITS OF LESSOR'S LIABILITY. Lessee specifically agrees to
look solely to the assets of Lessor for recovery of any judgment against
Lessor, it being specifically agreed that no constituent shareholder, officer
or director of Lessor shall ever be personally liable for any such judgment
or the payment of any monetary obligation to Lessee. The provision contained
in the foregoing sentence is not intended to, and shall
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not, limit any right that Lessee might otherwise have to obtain injunctive
relief against Lessor or Lessor's successors in interest, or any action not
involving the personal liability of Lessor (original or successor).
Additionally, Lessor shall be exonerated from any further liability under
this Lease upon Lessor's transfer or other divestiture of its ownership of
the Leased Property, provided that the assignee or grantee shall expressly
assume in writing the obligations of Lessor hereunder. Furthermore, in no
event shall Lessor (original or successor) ever be liable to Lessee for any
indirect or consequential damages suffered by Lessee from whatever cause.
33.4 ADDENDUM, AMENDMENTS AND EXHIBITS. Any addendum, amendments
and exhibits attached to this Lease are hereby incorporated in this Lease and
made a part of this Lease.
33.5 HEADINGS. The headings and paragraph titles in this Lease
are not a part of this Lease and shall have no effect upon the construction
or interpretation of any part of this Lease.
33.6 TIME. Time is of the essence of this Lease and each and all
of its provisions.
33.7 DAYS. Unless otherwise expressly indicated herein, any
reference to "days" in this Lease shall be deemed to refer to calendar days.
33.8 RENT. Each and every monetary obligation under this Lease
shall be deemed to be "Rent" under this Lease and for all other purposes
under law.
33.9 APPLICABLE LAW. This Lease shall be governed by and
construed in accordance with the laws of the State, but not including its
conflicts of laws rules; thus the law that will apply is the law applicable
to a transaction solely within the State, including parties solely domiciled
in the State.
33.10 SUCCESSORS AND ASSIGNS. The covenants and conditions
contained in this Lease shall, subject to the provisions regarding assignment
(Article XXII), apply to and bind the heirs, successors, executors,
administrators, and assigns of Lessor and Lessee.
33.11 RECORDATION. Lessor and Lessee shall execute with
appropriate acknowledgments and record in the Official Records of the
applicable county, that certain Short Form Lease in the form and content of
Exhibit "C" attached hereto. Lessor and Lessee shall equally share the cost
of recording the Memorandum of Lease.
33.12 PRIOR AND FUTURE AGREEMENTS. This Lease contains all of the
agreements of Lessor and Lessee with respect to any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining
to any such matters shall be effective for any purpose. No provision of this
Lease may be amended or supplemented except by an agreement in writing signed
by both Lessor and Lessee or their respective successors in interest. This
Lease shall not be effective or binding on any party until fully executed by
both Lessor and Lessee.
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33.13 PARTIAL INVALIDITY. Any provision of this Lease which shall
be held by a court of competent jurisdiction to be invalid, void or illegal
shall in no way affect, impair or invalidate any other provision or term of
this Lease, and such other provision or terms shall remain in full force and
effect.
33.14 ATTORNEYS' FEES. In the event of any action or proceeding
brought by one party against the other under this Lease, the prevailing party
shall be entitled to recover its attorneys' fees in such action or proceeding
from the other party, including all attorneys' fees incurred in connection
with any appeals, and any post-judgment attorneys' fees incurred in efforts
to collect on any judgment.
33.15 AUTHORITY OF LESSOR AND LESSEE. Lessor and Lessee each
hereby represent and warrant that the individuals signing on its behalf are
duly authorized to execute and deliver this Lease on behalf of the
corporation, in accordance with the bylaws of the corporation, and that this
Lease is binding upon the corporation.
33.16 RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease
shall be deemed or construed by Lessor or Lessee, nor by any third party, as
creating the relationship of principal and agent or a partnership, or a joint
venture by Lessor or Lessee, it being understood and agreed that no provision
contained in this Lease nor any acts of Lessor and Lessee shall be deemed to
create any relationship other than the relationship of landlord and tenant.
33.17 COUNTERPARTS. This Lease may be executed in one or more
separate counterparts, each of which, once they are executed, shall be deemed
to be an original. Such counterparts shall be and constitute one and the
same instrument.
33.18 BROKERS. Lessor and Lessee each warrants that it has had no
dealings with any real estate broker or agent in connection with the
negotiation of this Lease and it knows of no real estate broker or agent who
is entitled to a commission in connection with this Lease. Lessor and Lessee
hereby agree to indemnify the other and to hold the other harmless from and
against any and all costs, expenses, claims, damages, suits, including
attorneys' fees, in any way resulting from claims or demands for commissions
or other compensation from any real estate brokers claiming through such
party with respect to this Lease.
33.19 COMPUTER DISC. In order to facilitate the electronic filing
of this document with the United States Securities Exchange Commission and
other governmental agencies, Lessor shall provide or cause to be provided to
Lessee a computer disc containing all exhibits, schedules and ancillary
documents related to this Lease, formatted in WordPerfect 5.1 Times New Roman
Font 12, upon Lessee's one-time request for same.
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WHEREFORE, each of the parties has accepted and agreed by affixing their
respective authorized signatures below as of the date first above written.
"LESSEE" NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation
By: /s/ PAUL R. HOOVER
-------------------------------------
Paul R. Hoover, Vice President
"LESSOR" L.P.V. PROPERTIES, L.L.C.,
an Oklahoma limited liability company
By: /s/ LEE COHLMIA
-------------------------------------
Lee Cohlmia, Manager
32
<PAGE>
SCHEDULE 1
Lessor: L.P.V. Properties, L.L.C.
Lessee: New York Bagel Enterprises, Inc.
Date of Lease: November 1, 1997
Location: 13144 N. May, Oklahoma City, Oklahoma
2. STATE. For purposes of the Lease, the term "State" shall mean the State of
Oklahoma.
3.1 MINIMUM RENT DURING INITIAL TERM. The Minimum Rent during the Initial Term
shall be at the following annual rates and times:
Years 1-3 $43,380 ($3,615/month)
Years 4-6 $45,300 ($3,775/month)
Years 7-9 $47,316 ($3,943/month)
Year 10 $49,416 ($4,118/month)
13.2 REPLACEMENT COST. $250,000
18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent during each of the
following Extended Terms shall be at the following annual rates:
Years 11-12 $51,636 ($4,303/month)
Years 13-15 $53,964 ($4,497/month)
Years 16-18 $56,400 ($4,700/month)
Years 19-20 $58,932 ($4,911/month)
33
<PAGE>
EXHIBIT 21
NEW YORK BAGEL ENTERPRISES, INC.
SUBSIDIARIES OF THE COMPANY
Lots A' Bagels, Inc.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, AND THE STATEMENT OF OPERATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 872,949
<SECURITIES> 0
<RECEIVABLES> 191,608
<ALLOWANCES> (20,000)
<INVENTORY> 349,937
<CURRENT-ASSETS> 2,241,323
<PP&E> 11,677,772
<DEPRECIATION> (1,396,076)
<TOTAL-ASSETS> 14,100,461
<CURRENT-LIABILITIES> 4,072,775
<BONDS> 28,750
0
0
<COMMON> 46,675
<OTHER-SE> 9,719,336
<TOTAL-LIABILITY-AND-EQUITY> 14,100,461
<SALES> 18,570,822
<TOTAL-REVENUES> 18,987,852
<CGS> 6,189,510
<TOTAL-COSTS> 19,011,324
<OTHER-EXPENSES> 3,773,580
<LOSS-PROVISION> 200,000
<INTEREST-EXPENSE> (72,854)
<INCOME-PRETAX> (3,924,198)
<INCOME-TAX> (144,417)
<INCOME-CONTINUING> (3,779,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 129,000
<NET-INCOME> (3,908,822)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>