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As filed with the Securities and Exchange Commission on May __, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICAN KIOSK CORPORATION
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(Name of Small Business Issuer in its charter)
Delaware 59-3452641
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4400 PGA Boulevard, Suite 500 Palm Beach Gardens, FL 33410
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 561/627-9002 (telecopier 561/627-0248)
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Securities to be registered under Section 12(b) of the Act: None
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Securities to be registered under Section 12(g) of
the Act: Common Stock, $.0001 par value
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AMERICAN KIOSK CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART I.........................................................................1
ITEM 1 - DESCRIPTION OF BUSINESS...............................................1
(a) Business Development .................................................1
(b) Business of the Issuer................................................1
(c) Reports to Shareholders...............................................8
ITEM 2 - ISSUER'S PLAN OF OPERATION............................................8
ITEM 3 - DESCRIPTION OF PROPERTY...............................................9
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........9
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL.................11
ITEM 6 - EXECUTIVE COMPENSATION...............................................12
(a) Summary Compensation Table...........................................12
(b) Options/SAR Grants...................................................13
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value.13
(d) Long-Term Incentive Plans............................................13
(e) Compensation of Directors............................................13
(f) Employment Contracts and Termination of Employment and
Change in Control Arrangements.......................................14
(g) Report on Repricing of Options/SARS..................................15
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................16
ITEM 8 - DESCRIPTION OF SECURITIES............................................17
PART II.......................................................................21
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.....................................................21
(a) Market Information...................................................21
(b) Holders..............................................................21
(c) Dividends............................................................21
ITEM 2 - LEGAL PROCEEDINGS....................................................21
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS.........................22
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES..............................22
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS............................25
FINANCIAL STATEMENTS..........................................................26
PART III......................................................................27
ITEM 1 - INDEX TO EXHIBITS....................................................27
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) Business Development:
The Company was incorporated in Delaware in May 1997 to develop and implement a
national brand franchise system of kiosk-style and stand alone, drive-thru
retail outlets to deliver popular food products to consumers. The Company
initially is focusing on brick oven pizza. The Company had revenues in 1998 from
sales of products through means of distribution other than kiosk style and
drive-thru outlets. The Company is no longer pursuing those lines of
distribution. The Company's first drive-thru retail outlet opened in March, 1999
in Orlando, Florida. This unit is owned and operated by the Company.
(b) Business of the Issuer:
(b)(1) Principal products and services and their markets:
The Company is engaged in sale of fast food pizza products, and franchises to
operate fast food pizza outlets from stand alone drive-thru retail units and
kiosk style units. The Company's outlets sell a proprietary "brick oven pizza."
Fast-Food Pizza Industry and the Company's Concept.
Fast-food pizza is one of the nation's largest food segments. Management
believes that brick oven pizzas represent one of the fastest growing segments in
the industry. The fast-food industry accounted for over $100 billion in gross
sales in 1996, with the fast-food pizza segment accounting for approximately 35%
of the total(1). The fast-food pizza segment has grown at an aggregate 12% rate
over the last 20 years. Over 92% of all Americans eat pizza and the annual
consumption of pizza by each individual American exceeds 50 slices per year.
Over 28% of all national chain and independent pizzeria pizza sales are
carry-out sales. Historically, lunchtime sales in national and independent
pizzerias represent only 25-30% of total store sales. This reflects the
consumer's inability to wait for a pizza requiring the traditional baking time
of 10-15 minutes during the lunch hour. In response to these market dynamics,
the Company is marketing franchises that will offer brick oven pizza that can be
baked in less that 3 minutes in 14' x 40' drive-thru and/or mobile units. The
units will be provided to franchisees as a turnkey operation complete with all
the necessary equipment for storage, baking, and sales. The drive-thru units
utilize minimum space and require minimal electrical construction, while
conforming to all applicable regulations. The design is easily adaptable to
kiosk locations other than drive-thru sites, including shopping malls and other
similar high-volume sites.
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(1) Industry data has been obtained from trade and government sources which the
Company believes reliable, but Management has not independently verified such
information.
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Franchise Program.
The Company began commercial offering of franchises in January 1998. The first
franchise was sold in March 1999 to two shareholders of the Company. On May 3,
1999, the Company acquired the kiosk unit operated by that franchisee and the
unit is now operated directly by the Company. The Company's franchises are
marketed, and the units will be operated, under the name "Pizza Place." The
Company has applied for federal trademark registration for the Pizza Place logo.
The Company's franchise package is based upon retail sales through drive-thru
units. This requires simple and compact equipment. It also calls for minimal
on-site storage and preparation space. The Company's drive-thru units are
capable of volume operations in minimal space. Each turnkey operation will be
housed in a 14' x 40' custom-design unit, featuring attractive styling and
functionality. The initial unit was designed specifically for drive-thru
operations. These drive-thru units will be custom manufactured by Company
approved contractors and will be delivered directly to the franchisee's site.
The basic design of the unit can be adapted to special site requirements. Kiosks
configured for shopping malls will be made available in addition to a variety of
specialized outlets for the leisure/special event industry (stadiums, arenas,
airports, universities, hotels, and other venues).
The Company's franchisees will be permitted to sell only proprietary food
products authorized by the Company. The primary product is brick oven pizza.
Individual and family sized pizzas in a wide variety of toppings will provide
the bulk of the sales. In addition, related high-quality food products such as
pizza pockets, breakfast entrees, beverages and snacks will be offered for sale.
The Company intends to develop corporate beverage contracts with major beverage
marketers. The Company has an arrangement with a local Pepsi-Cola bottler under
which the Pepsi Cola bottler has assisted the Company with advertising and
promotions, in return for the Company's promise to use Pepsi products in its
retail outlets. This arrangement is not yet contained in a written agreement.
Philip Arvidson, a director of the Company, is an affiliate of the Pepsi-Cola
bottler. The franchisees also will offer additional beverages such as juices,
teas, milk and coffee.
All products will come to the franchisee completely prepared and individually
packaged. This will enable the operator to produce finished products with
exceptional speed and consistency, virtually no waste, and little labor.
The Company will provide franchisees easy to follow operational procedures,
training both at the Company's headquarters and at individual sites, assistance
in site selection, setup assistance and startup training.
The facility costs of the Company's turnkey franchises are expected to be low,
relative to competing franchise opportunities. The turnkey cost for a typical
franchisee (including initial franchise fee) is approximately $90,000, including
site selection, consulting, complete finished drive-thru unit, equipment and
menu boards.
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Toppers Brick Oven Pizza.
All of the Company's units will use a patented brick pizza oven developed by
Topper's Brick Oven Pizza, Incorporated ("Toppers"). All pizza products sold by
the Company's units will be proprietary pizza products developed by Toppers.
Pursuant to its license agreement with Toppers (the "Toppers Contract"), the
Company has the exclusive right to market Toppers products through drive-thru
units and kiosk-style retail outlets in the United States, and to use all
trademarks associated with Toppers' equipment, food products and technologies in
the drive-thru/kiosk-style retail market segments in the United States. The
Toppers contract prohibits the Company from selling or promoting other pizza
ovens or fast food pizza products. Toppers' products include its patented pizza
brick oven and its fast-food pizza products.
The current term of the Toppers agreement is 25 years, ending in 2022. The
Agreement requires the Company to pay aggregate annual licensing fees of
$220,000 in 1999, $250,000 in 2000, $300,000 in 2001 through 2003 and $350,000
in 2004 and thereafter. Under the Toppers Contract, the Company will pay
Toppers' cost plus 8% for the food products and the lesser of Toppers' cost plus
8% or $650 for ovens.
Toppers' Brick Oven. Toppers' patented brick oven cooks a crispy,
fully-baked pizza in just 2 1/2 minutes. The patented brick oven is a refractory
brick oven which maintains an internal temperature of 550% Fahrenheit. The
Company believes that the quality of the pizza prepared in Toppers' brick oven
is comparable to full-size pizzeria, brick oven pizza, and exceeds that of the
products currently offered at many national pizza chains. Toppers' brick oven is
extremely compact, measuring only 23" x 9" x 17" and weighing less than 60
pounds. It uses a 110V outlet making it suitable for kiosk and drive-thru unit
operations. Several ovens can fit into one drive-thru unit providing increased
baking capacity during peak hours. The brick oven also is easy to use. The
operator simply opens the door, slides the pizza onto the refractory brick,
pushes the start button and waits 2 1/2 minutes until the timer sounds
indicating that the pizza is ready to serve. The brick oven is included in the
start-up cost of a franchise.
Fast-Food Pizza Products. Toppers supplies products specially made for use
with the Toppers brick oven. The primary product is a single-serve individual
pizza 7" in diameter and is available in several popular varieties. All pizzas
come individually wrapped and are fresh frozen. Frozen shelf life is 4 to 6
months. Pizzas are thawed the night before anticipated use and have a shelf life
of 3 to 4 days after thawing. No preparation of pizzas by on-site staff is
necessary.
Each pizza has a thick and crispy crust with a topping of fresh ingredients.
California tomatoes, choice meats, 100% genuine cheeses and other fresh
ingredients ensure premium quality. In 1997, the New York Restaurant and Food
Service Show awarded the Toppers brick oven first place in the best overall new
product category. Shortly thereafter, Toppers was selected as the official pizza
supplier to the 1997 Indianapolis 500 and the 1997 Brickyard 400.
Brick oven pizza varieties include: cheese, pepperoni, supreme and tex-mex. The
Company also intends to add several specialty pizzas and related food products
such as: 8" x 14" family size pizza, breakfast sausage pizza (egg, cheese and
sausage), breakfast bacon pizza (egg, cheese and bacon), dessert pizza (apples
and cherries), gourmet style pizza (various) and hand-eat foods (pockets,
breadsticks, stuffed focaccia, baked pretzels, etc.)
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(b)(2) Distribution Methods:
Marketing Goals.
The Company's goal is to obtain revenues primarily from franchises. The current
operating unit is owned by the Company and the Company may own and operate other
units itself if it has sufficient financing. In the case of Company owned units,
the Company's revenue will come from retail profits. The Company's goal is to
sell 800 new franchise units over the next three years of operations. The
Company does not expect that all units sold will immediately come on-line,
because a substantial number of franchise sales are expected to involve
multi-unit packages. For example, if a franchisee were to purchase a 5-unit
package, 3 units might be opened in the first year with additional units opened
in each of the next 2 years. The franchisee would pay for each of the
operational units as they are activated. The future units would require only a
non-refundable deposit to hold the rights to such units. The Company has sold
only one franchise unit to date, to a company controlled by shareholders of the
Company. In April, 1999, after that unit began operating, the Company assumed
the ownership and operation of the unit.
In December, 1998, the Company entered into an Area Representative Agreement
with DTS Marketing, Inc. of Atlanta, Georgia. Under the Area Representative
Agreement, DTS will have the exclusive right to sell franchises in Georgia,
North Carolina and South Carolina, and the right of first refusal to sell
franchises upon availability in Texas. The agreement is for a ten-year term, but
the Company has the ability to cancel the agreement if ten (10) units are not
completed within the territory in any year. Under this agreement, DTS is
required to purchase a completed franchise unit from the Company to operate and
use as a demonstration unit. DTS paid the Company a deposit of $39,950 upon
signing the agreement and is required to pay an additional $39,950 upon delivery
of the completed unit. The Company expects the completed unit to be delivered by
the end of July 1999.
In connection with signing this agreement, the Company granted DTS an option for
50,000 shares of common stock at $1.59 per share. The option vests as to 25,000
shares when DTS has paid the entire $79,900 for the demonstration unit and vests
as to an additional 25,000 shares when the Company has received deposits for at
least ten franchises in DTS area, The options expire December 31, 2002.
In November, 1998, the Company entered into an Area Representative Agreement
with Michael M. Morgan, Sr. and Arthur G. Scott, two individuals who are
shareholders of the Company. At the time, the Area Representative Agreement was
signed Mr. Morgan was a director of the Company and its Franchise Sales Manager
and Mr. Scott was the Director of Operations for the Company. Mr. Morgan and Mr.
Scott subsequently assigned the agreement to USA Foods, Inc., a corporation
controlled by them. Under the Agreement, USA Foods has the exclusive right to
sell franchises in the State of Florida (except for Dade, Broward and Palm Beach
counties), Alabama, Mississippi, Louisiana, Arkansas and Tennessee. The
agreement is for a ten-year term, but the Company has the ability to cancel the
agreement if a certain number of units are not sold in each year beginning with
1999. The number of units required to be sold in each year begins with fifteen
units in 1999. The number of units required to be sold increases each year until
2004, in which USA Foods is required to sell fifty (50) units. The number of
units required decreases in 2007 and 2008 to forty (40) units.
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The agreement required USA Foods to purchase two (2) franchises at a price of
$65,000 each. The Company delivered one (1) of these units in March, 1999. The
$65,000 purchase price represented the Company's cost for the unit. The Company
loaned Mr. Morgan and Mr. Scott the required funds. On May 3, 1999, the Company
reacquired the unit and cancelled the franchise as well as the obligation to
repay the amounts loaned by the Company for the purchase of the unit. The
Company also loaned Mr. Morgan and Mr. Scott $50,000 for operating capital,
which obligation is still outstanding. See "Certain Transactions". The Company
does not anticipate delivering a second franchise unit under the USA Foods Area
Representative Agreement, but USA Foods continues to seek independent franchises
in its area.
Under the Area Representative Agreements, Area Representatives are required to
assume certain of the Company's responsibility to franchisees in their area,
such as support and assistance for franchisees.
Sales of future franchises might come with territorial commitments by the
Company and the franchisee. Thus, the Company might agree not to sell new
franchise units in a given area based upon a multi-unit package purchase. The
deposit would cover the Company's opportunity cost for the area where the
Company's expansion has been restricted.
Projected Revenue Streams.
The Company anticipates revenues primarily from franchise fees for new units, a
5% royalty fee on gross sales by franchisees, and commissary profits on food
sales to franchisees. The Company's current initial turnkey franchise fee is
approximately $90,000. This fee includes a complete kiosk, equipment and
start-up supplies, and the Company retains approximately $18,000 after the cost
of these items and before any sales commissions payable for the sale of the
franchise.
For internal planning purposes, the Company has projected that each franchisee
will produce $300,000 in gross sales with a food cost of $125,000. Franchisees
will be required to purchase proprietary pizza and related food products from
the Company's approved distributors in addition to other materials containing
Toppers' and the Company's trademarks, such as pizza boxes, napkins, cups, etc.
The value of all proprietary food and related products purchased by franchisees
from the Company or its assigned distributors can be treated as essentially
commissionable sales to the Company with commissions of approximately 10% of
gross purchases. However, there can be no assurance that the franchisees will
meet the foregoing projections or that the Company will be able to obtain that
percentage of profits, and the Company's profits on franchisees therefore cannot
be accurately predicted.
While the Company's franchise program begins operating, the Company expects that
income from franchise fees will represent the greatest portion of operating
revenues. Over time, royalty and commissary profits are expected to overtake
franchise fees as the principal revenue producer.
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Distribution.
The Company has a distribution arrangement with Cheney Brothers, Inc., a leading
regional distributor of food products. Under this arrangement, Cheney will act
as the Company's primary, but not exclusive, distributor of food service
products.
Marketing Strategy.
The Company principally intends to use trade show participation, trade
advertising, direct marketing and media advertising to produce franchise sales.
The Company intends to employ its own personnel as well as Franchise Area
Representatives for franchise marketing. Company employed sales representatives
and Franchise Area Representatives will be responsible for qualifying interested
parties in a process that will include researching an applicant's individual
and/or business capabilities, financial history, employment history and
references.
(b)(3) New Products or Services:
The Company has not announced any new products or services.
(b)(4) Competition:
The market for fast-food franchises and the market for the products sold by the
franchises, is intensely competitive. Many fast food restaurants with which the
Company will be in direct competition have universal name recognition and
significantly greater financial and marketing resources than the Company, e.g.,
Domino's Pizza, Pizza Hut, McDonald's, Burger King, Wendy's, Little Ceasar's,
Taco Bell, etc. These companies compete both for retail sales and for
franchisees.
While the Company believes that the low start-up costs and low labor and space
requirements of its franchisees and the high quality of its products provide a
competitive advantage to the Company, there can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures faced by the Company will not materially affect its
business, operating results and financial condition.
(b)(5) Sources of Supply:
All of the pizza ovens and pizza products sold by the Company or supplied to its
franchisees are obtained, and are required to be obtained, from Toppers or
Toppers authorized manufacturers and distributors. Beverages may be obtained
from several sources although the Company currently has an arrangement with a
Florida-based Pepsi-Cola bottler which provides for all soft drinks to be
delivered to operating units within the bottler's geographic area. Ancillary
products such as boxes, napkins, etc. are obtained from Cheney Brothers and
other independent distributors.
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(b)(6) Major Customers:
Currently, the Company has only one operating unit which is Company-owned. In
addition, under the Company's agreement with DTS, its Area Representative for
Georgia, North Carolina and South Carolina, DTS is purchasing one unit.
Therefore, the Company has no major customers at this time. It is anticipated
that the Company may grant large area franchises to franchisees who would become
significant customers of the Company.
(b)(7) Patents, Trademarks, Licenses, etc.
The Company has applied for federal trademark registration of the "Pizza Place"
logo. It also has the exclusive right to use Toppers' trademarks (including
"Toppers Brick Oven Pizza,(TM)" "Toppers Express" and "Toppers Kitchen") in
connection with unit operations in the United States. The Company is also the
exclusive licensee of the Toppers' patented brick ovens for use in drive-thru
units and kiosks.
(b)(8) and (9) Governmental Approvals and Regulations:
The Company and its franchisees are required to comply with federal, state and
local government regulations applicable to consumer food service businesses
generally, as well as zoning and construction regulations relating to the
construction of the drive-thru units and kiosks.
The Company's franchising operations are subject to regulation by the Federal
Trade Commission in compliance with the FTC's rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures." The FTC rules require, among other things, that the Company prepare
and update periodically the comprehensive disclosure document known as the
Uniform Franchise Offering Circular, for delivery to prospective franchisees. In
addition, some states require a franchisor to register its franchise with the
state before it may offer the franchise. The Company is currently registered to
sell its franchises in 35 states.
In addition, the Company is also subject to a number of state laws that regulate
substantive aspects of a franchise or franchisee relationship. These laws
generally govern the termination and/or non-renewal of the franchise agreement,
and by and large require the franchisor to have good cause, reasonable cause or
just cause in order to terminate the franchise agreement or not renew the
franchise agreement, regardless of the terms of the agreement. In addition, some
of these laws may provide a franchisee longer periods to cure a default than are
provided for in the Company's franchise agreement.
Violation by the Company of franchising laws and/or state laws and regulations
regulating substantive aspects of doing business in a particular state could
require the Company to offer rescission to franchisees, and subject the Company
to monetary damages and penalties. However, the Company believes that the state
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laws and regulations concerning termination and non-renewal of franchises will
not have a material impact on the Company's operations.
(b)(10) Research and Development:
The Company has spent approximately $113,000 in research and development since
its inception, primarily in developing the drive-thru and kiosk concept and
designing and building prototypes of free standing, pre-manufactured units to be
used for retail sales by the Company and franchisees.
(b)(11) Environmental Compliance:
The Company does not anticipate any significant costs to comply with
environmental laws and requirements.
(b)(12) Employees: As of April 1, 1999, the Company had 14 employees of which 9
are full-time employees. Of these 6 employees are employed in the corporate
offices, and 8 are employed in the Company's operating unit.
(c) Reports to Shareholders:
At the time of filing of this Registration Statement, the Company is not subject
to the informational and reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Following the effective date of this
Registration Statement, the Company will be subject to Exchange Act reporting
requirements and, in accordance therewith, will file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed with
the Commission by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports,
proxy statements and other information may also be obtained from the web site
that the Commission maintains at http://www.sec.gov. Copies of these materials
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at its principal offices in Washington, D.C., as set forth above.
ITEM 2 - ISSUER'S PLAN OF OPERATION
The Company did not have revenues from operations in 1997. A majority of its
revenues from operations in 1998 were derived from a means of distribution other
than kiosk and drive-thru units, which the Company has subsequently
discontinued. The Company did receive one $25,000 deposit from a Texas
franchisee in 1998. The franchisee subsequently defaulted on the agreement and
the Company retained the deposit. The retained deposit is categorized as a
franchise fee on the Company's Statement of Operations for 1998. Therefore, the
Company was still in the development stage at the end of 1998. Management
believes that the Company's cash on hand at April 1, 1999 is sufficient to
sustain continued development of the Company's business through January, 2000.
To satisfy its cash requirements for the 6 months following February 1, 2000,
the Company will have to raise additional financing unless the Company is able
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to obtain sufficient cash from operations. The Company does not anticipate
generating sufficient cash from operations to fund its ongoing business before
April 1, 2000. There is no assurance that the Company will be able to obtain the
additional financing it requires. .
The Company's primary activities and cash requirements for the next twelve
months will be in marketing franchises. The Company believes it will spend
approximately $100,000 in sales and marketing expenses in the twelve months
ending April 1, 2000. The Company's other principal cash requirements will
include:
Fees Due Under Toppers Contract approximately $320,000
General and Administrative Expenses approximately $400,000
Purchase of Equipment and Property approximately $100,000
The Company does not anticipate any significant research and development
expenditures during the next twelve months. The number of employees will only be
increased as justified by an increase in the Company's operations.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's executive and administrative offices occupy approximately 2,547
square feet of office space at 4400 PGA Boulevard, Palm Beach Gardens, Florida.
The Company leases this space from an unaffiliated party at an annual cost of
approximately $55,000 plus common area maintenance charges under a lease which
expires on November 30, 2002.
The Company rents 1,280 sq. feet of warehouse space in West Palm Beach under a
three year lease terminating October 31, 2001 at a base rent of $6,684 per
annum.
In March 1999, the Company entered into a lease for the land on which it has
built its first free-standing drive through unit. The lease requires minimum
monthly payments of $2,083 plus common area maintenance. The lease expires on
January 31, 2004.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of April 1, 1999, with respect to
the beneficial ownership of the Company's securities by officers and directors,
individually and as a group. To the Company's knowledge on April 1, 1999, there
were no holders of more than 5% of the Company's Common Stock other than Mr.
Michael and Mr. Hightower. Unless otherwise indicated, all shares are
beneficially owned and sole investment and voting power is held by the
beneficial owners indicated. On April 1, 1999, there were 4,202,300 shares of
Common Stock outstanding, and no shares of any other class of capital stock were
outstanding.
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Percentage of
Number of Shares of Outstanding
Common Stock Common Stock
Names and Addresses Beneficially Beneficially
of Beneficial Owner Owned(1) Owned
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Richard J. Michael(2)(3) 1,200,000 27.26%
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James Hightower 1,000,000 23.80%
602 N.W. Avens Street
Port S. Lucie, FL 34983
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Larry E. Graybill(2)(4) 157,750 3.64%
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Randall S. Appel(5) 84,300 1.98%
445 Broad Hollow Road
Suite 425
Melville, NY 11747
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Ronald L. McDonald(6) 150,000 3.49%
4302 Middle Lake
Tampa, FL 33624
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Philip L. Arvidson(7) 68,000 1.60%
4 Tarrington Cr.
Palm Beach Gardens, FL 33418
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All Officers and Directors as a 1,660,050 35.12%
Group (5 persons)
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(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership, voting and
investment rights.
(2) The address of these stockholders is 4400 PGA Boulevard, Suite 500, Palm
Beach Gardens, FL 33410.
(3) Includes options to purchase 150,000 shares at $1.10 and 50,000 shares at
$1.17.
(4) Includes options to purchase 75,000 shares of common stock at $1.00 per
share and 50,000 shares at $1.06 per share.
(5) Includes 34,300 shares of common stock and an option to purchase 50,000
shares of common stock at $1.06 per share, all held by Marand Holding, LLC,
a company wholly-owned by Mr. Appel.
(6) Includes 50,000 shares of common stock issued pursuant to Mr. McDonald's
employment with the Company and a 3-year option to purchase 100,000 shares
of common stock at $1.50 per share.
(7) Includes an option to purchase 50,000 shares of common stock at $1.06 per
share.
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ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
The Company's executive officers and directors are as follows:
Name Age Position
--- --------
Richard J. Michael 62 President, Chief Executive Officer
and Director
Larry E. Graybill 56 Vice President, CFO, Treasurer, Secretary
and Director
Randall S. Appel 53 Director
Philip L. Arvidson 61 Director
Ronald L. McDonald 52 Vice President of Business and
Product Development and Director
The principal occupation, title and business experience of the Company's
executive officers and directors during the last five years including the names
and locations of employers is indicated below:
Richard J. Michael, President and a Director of the Company, has served as
President of the Company since its formation. From December 1995 to May 1997, he
was Director of Distributor Operations for Toppers Brick Oven Pizza, Inc. in
Willow Grove, Pennsylvania. From May 1994 to May 1995, Mr. Michael was an
Account Representative for Corporate Relations Group, a registered securities
broker-dealer, in Orlando, Florida. From January 1992 to April 1994, Mr. Michael
was Director of Marketing for Adelaide Holdings, Inc. of Miami, Florida, a
manufacturer and distributor of food vending products.
Larry E. Graybill has served as Vice President and Chief Financial Officer,
Treasurer and Secretary of the Company since June 1998 and a director of the
Company since November 1998. From July 1990 until June 1998, Mr. Graybill served
as Chief Financial Officer of Austin's International, Inc., a public company
engaged in the restaurant business whose operating subsidiary filed for
bankruptcy protection under Chapter 11 in July 1997. Mr. Graybill received his
diploma from The Southwestern Graduate School of Banking at Southern Methodist
University in 1974.
11
<PAGE>
Randall S. Appel has served as a director of the Company since November 1998.
Mr. Appel has over 14 years of financial planning and broker-dealer experience.
Since March 1987, Mr. Appel has been the President of Appel Financial Planning,
Ltd., an investment services firm. Since August 1994, he has also been the sole
officer, director, shareholder, and compliance officer of Strategic Assets Inc.,
a NASD registered broker-dealer which has served as the placement agent in the
Company's offering of Convertible Notes. From July 1990 to May 1995, Mr. Appel
was a principal and registered representative of Ameriprop, Inc., a NASD
registered broker-dealer firm.
Philip L. Arvidson was appointed to the Board of Directors or December 30, 1998.
Mr. Arvidson has served in various positions with the Pepsi-Cola Bottling
Company since January 1981 including serving as its President since 1995 until
his retirement in June 1998. Mr. Arvidson will continue to serve as President
Emeritus to gain and promote Pepsi business. Prior to joining Pepsi-Cola Mr.
Arvidson was with the General Cinema Corporation.
Ronald L. McDonald has been Vice President of Business and Product Development
of the Company since October, 1998. He was appointed to the Board of Directors
on December 30, 1998. Mr. McDonald has owned and operated a number of restaurant
operations and chains over the past 30 years and since January, 1984 has been
serving as a consultant to the food industry. He is the author of a number of
food industry materials, including The Complete Hamburger, the Ronald McDonald
McBarbecue Book and Ronald McDonald's Franchise Buyer and Supply Guide. Since
1987 he has also been a real estate broker, mortgage broker and a certified
general contractor through wholly-owned companies.
There can be no assurance that these persons will remain affiliated with the
Company indefinitely or for any time, or that the scope of their involvement
will not change.
Directors are elected for a period of one year and thereafter serve until the
next annual meeting at which their successors are duly elected by the
stockholders. Officers and other employees serve at the will of the Board of
Directors.
ITEM 6 - EXECUTIVE COMPENSATION
(a) Summary Compensation Table:
The following table sets forth information concerning compensation for services
rendered in all capacities awarded to, earned by or paid to Richard J. Michael,
the Company's President and Chief Executive Officer, in the years ended December
31, 1997 and 1998. No executive officer of the Company received compensation of
$100,000 or more in 1997 or 1998.
12
<PAGE>
- --------------------------------------------------------------------------------
Summary Compensation Table
- --------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------
Awards Payouts
- --------------------------------------------------------------------------------
All
Other Restricted Securities Other
Name and Annual Stock Underlying LTIP Compen-
Principal Salary Bonus Compensation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARS(#) ($) ($)
- --------------------------------------------------------------------------------
Richard J. 1997 41,667 10,000
Michael
President
and CEO
- --------------------------------------------------------------------------------
1998 60,000 10,000 150,000
- --------------------------------------------------------------------------------
The $10,000 "Other Annual Compensation" represents the approximate amount of
lease payments paid by the Company for a vehicle provided to Mr. Michael.
(b) Options/SAR Grants:
- --------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
- --------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise of
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- --------------------------------------------------------------------------------
Richard J.
Michael, 150,000 26.55% $1.10 September 15, 2001
President & CEO
- --------------------------------------------------------------------------------
(C) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value:
No options were exercised in 1998. The Company has never issued an SAR.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in 1998 Last Fiscal Year and
Option/SAR Values at 12/31/98
- ------------------------------------------------------------------------------------------
Shares
Acquired Number of Securities Underlying Value of Unexercised
on Value Unexercised Options/SARs at In-The-Money Options/SARs
Exercise Realized Fiscal Year-End (#)(1) at December 31, 1998 ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard 0 0 150,000 0 13,125 0
J. Michael
- ------------------------------------------------------------------------------------------
</TABLE>
(d) Long-Term Incentive Plans: None.
(e) Compensation of Directors:
During the fiscal years ended December 31, 1997 and 1998, no director of the
Company received any compensation for any services provided in such capacity.
Directors of the Company are reimbursed for expenses incurred by them in
connection with their activities on behalf of the Company.
13
<PAGE>
(f) Employment Contracts and Termination of Employment, and Change in
Control Arrangements:
On October 1, 1998, the Company entered into an employment agreement with
Richard Michael, to be effective as of July 1, 1998 and expiring on June 30,
1999. Under such agreement, Richard Michael serves as President and Chief
Executive Officer of the Company and provides the Company with all of his
business and professional services. Under the agreement, the Company pays Mr.
Michael a base salary of $120,000 per annum. Mr. Michael is eligible to receive
an incentive bonus based upon the profitability of the Company, as determined by
the Board of Directors. Mr. Michael was also granted options for 150,000 shares
of the Company's common stock under his employment agreement. See "Supplementary
Information on Stock Options" below.
On October 1, 1998, the Company entered into an employment agreement with Larry
E. Graybill, to be effective as of June 21, 1998 and expiring on June 30, 1999.
Under such agreement, Mr. Graybill serves as Vice President and Chief Financial
Officer of the Company and will provide the Company with all of his business and
professional services. Under the agreement, the Company pays Mr. Graybill a base
salary of $75,000 per annum. Mr. Graybill is eligible to receive an incentive
bonus based upon the profitability of the Company, as determined by the Board of
Directors. Mr. Graybill was also granted options for 75,000 shares under his
employment agreement. See "Supplementary Information on Stock Options" below.
Mr. Graybill received 32,750 shares of the Company's Common Stock in lieu of
cash compensation for his services from June 21, 1998 through September 21,
1998.
On October 1, 1998, the Company entered into an agreement with Ronald McDonald.
This agreement expires September 30, 1999. Under this agreement, Mr. McDonald
serves as the Company's Vice President of Business and Product Development. Mr.
McDonald receives a base monthly fee of $4,000. In addition, Mr. McDonald
received 50,000 shares of the Company restricted common stock as of October 1,
1998, pursuant to the Employment Agreement. Mr. McDonald also received options
to purchase 100,000 shares of the Company's common stock at $1.50 per share. See
"Supplementary Information on Stock Options" below.
The Company entered into an Employment Agreement with Herbert Michael, the
brother of Richard Michael, on October 1, 1998. The term of the agreement
expires on September 30, 1999. Under the agreement, Mr. Michael is paid a base
salary of $27,500 per year and received a one-time grant of 10,000 shares of the
Company's restricted common stock as of October 1, 1998. Mr. Michael also
received options to purchase 10,000 shares at $1.00 per share in connection with
the Employment Agreement.
All of the above-referenced Employment Agreements provide that the employee will
receive a cash payment equal to the aggregate amount of compensation remaining
to be paid under the agreement if the Company terminates the contract in a way
that constitutes a breach of the agreement or if the employee terminates the
agreement because his duties or responsibilities have been materially reduced.
14
<PAGE>
With respect to Richard Michael and Mr. Graybill, the agreements provide that
their duties and responsibilities will not be deemed to be materially reduced by
virtue of the fact that the Company is sold or combines with another entity
provided that the individual continues to report directly to the Board of
Directors of the surviving entity. Therefore, a change in control of the Company
through a merger could result in Mr. Graybill or Richard Michael receiving
accelerated payments under their Employment Agreements if the new Board of
Directors does not maintain their current reporting status. In addition, each of
these Employment Agreements provides that if any of the cash payments paid upon
breach by the Company, or termination due to reduction in duties or
responsibilities is deemed an "Excess Parachute Payment" under the Internal
Revenue Code, the employee will be entitled to certain additional payments.
Each of these Employment Agreements provides that upon the employee's death or
disability, the employee or his estate will be entitled to receive a cash
payment equal to his base salary for the remaining term of the agreement and all
incentive bonuses which have been granted before his death or disability.
Each Employment Agreement contains an agreement of the employee not to directly
start up or own any entity engaged in a business substantially similar to that
of the Company or in direct competition with the Company for two years after
termination of his employment with the Company. The Employment Agreements,
however, do not prevent the employees from becoming employed by another company
already in business.
Under the option for 75,000 shares outstanding to Mr. Graybill, one-half the
shares vest on September 15, 1999. However, the option becomes immediately
exercisable in full upon any merger or consolidation of the Company, the
acquisition of a majority of the Company's outstanding common stock by a
shareholder or group who did not previously own twenty (20%) percent or more of
the common stock, or the transfer of all or substantially all of the assets of
the Company.
(g) Report on Repricing of Options/SARS: Not Applicable.
(h) Supplementary Information on Stock Options.
The Company issued the following stock options to management and key personnel.
Such issuances were not subject to any written plan.
On September 15, 1998, Mr. Richard Michael, was issued a 3-year option to
purchase 150,000 shares of common stock at $1.10 per share. On February 24,
1999, Mr. Michael was issued a 3-year option to purchase 50,000 shares at $1.17
per share. All of these options have vested.
15
<PAGE>
Mr. Graybill was issued a 3-year option to purchase 75,000 shares of common
stock at $1.00 per share on September 15, 1998. Options to purchase 37,500
shares have vested with the remaining shares vesting on September 15, 1999. Mr.
Graybill was issued a 3-year option to purchase 50,000 shares at $1.06 per share
on February 24, 1999. These options are vested.
During 1998, Arthur Scott and Michael Morgan were each issued a 3-year option to
purchase 100,000 shares of common stock at $1.00 per share. Each option vests as
to the first 50,000 shares when one drive-thru unit has been sold by USA Foods,
Inc., an Area Representative of the Company owned by Mr. Morgan and Mr. Scott.
The options vest as to the remaining shares when five drive-thru units have been
sold by USA Foods. At the time of issuance of these options, Mr. Scott was the
Company's Director of Operations and Mr. Morgan was a Director of the Company
and its Franchise Sales Manager. Mr. Scott and Mr. Morgan are no longer employed
with the Company. As of the date hereof, no drive-thru units have been sold.
Mr. McDonald was issued a 3-year option to purchase 100,000 shares of common
stock at $1.50 per share, all of which options are fully vested.
On September 15, 1998, the Company issued to Herbert Michael a 3-year option to
purchase 10,000 shares of Common Stock at $1.00 per share. This option is fully
vested. Herbert Michael is an employee of the Company and the brother of Richard
Michael.
On February 24, 1999, the Company issued each of Mr. Arvidson and Mr. Appel a
3-year option to purchase 50,000 shares at $1.06 per share. These options
are fully vested.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has licensed the right to use and market a proprietary brick oven
pizza from Toppers Brick Oven Pizza, Inc. See Item 1. Victor G. Boddy, a
principal shareholder of Toppers, is also a shareholder of the company. Mr.
Boddy acquired 175,000 shares of the Company's Common Stock in October, 1997,
for $.05 per share.
The Company believes that the terms of the transaction with Toppers were as
favorable to the Company as would have been obtained by the Company through
arms-length negotiation with non-affiliated entities.
In March, 1999, the Company sold a franchise to USA Foods, Inc., a corporation
owned by Michael Morgan and Arthur Scott. At the time of the sale, Michael
Morgan was the Company's Franchise Sales Manager and a Director of the Company.
Also, at that time, Mr. Scott was the Company's Director of Operations. USA
Foods began operating the unit in March, 1999. In November, 1998 USA Foods
entered into an Area Representative Agreement with the Company giving USA Foods
exclusive rights to sell franchises in Alabama, Mississippi, Louisiana,
Arkansas, Tennessee, and portions of Florida. The terms of the Area
Representative Agreement required USA Foods to pay $65,000 for the initial
franchise unit. The Company loaned USA Foods the $65,000. On May 3, 1999, the
Company acquired the unit from USA Foods for $18,677 in cash and the assumption
of approximately $14,000 of liabilities. In addition, the Company forgave all
other amounts owed by USA Foods for the purchase price of the initial unit, and
cancelled the franchise for that unit. Under the Area Representative Agreement,
USA Foods was to have purchased a second franchise unit. The Company and USA
Foods do not intend to consummate this purchase. The Company has not cancelled
the Area Representative Agreement, however, and USA Foods continues to market
franchises to prospective franchisees in their geographic area.
16
<PAGE>
In addition to the loan of funds for the acquisition of the unit, the Company
loaned Mr. Morgan and Mr. Scott an aggregate of $50,000 for start up operating
costs. The obligation to repay this loan is evidenced by Secured Promissory
Notes dated January 21, 1999 and March 24, 1999, each in the principal sum of
$25,000. The Notes bear interest at eight percent (8%) per annum, with the
principal and accrued but unpaid interest due and payable on July 21, 2000.
Following the sale of three of the Company's franchises by USA Foods, Inc., Mr.
Scott and Mr. Morgan are required to make prepayments on the Notes in the amount
of twenty percent (20%) of all commissions earned by USA Foods, Inc. The Company
may withhold such prepayment amounts from the commissions payable to USA Foods,
Inc. Mr. Scott and Mr. Morgan have no obligation to make a prepayment on the
Promissory Note dated March 24, 1999 until they have paid in full the amount due
under the Promissory Note dated January 21, 1999. Pursuant to a Stock Pledge
Agreement, Mr. Scott and Mr. Morgan pledged 100,000 shares of the Company's
common stock as security for payment of the Notes.
The Company has an arrangement with a Florida based Pepsi Cola bottler under
which the Pepsi Cola bottler will provide advertising and promotional assistance
in return for the Company's agreement to use Pepsi Cola products in its
operating units. This agreement has not been reduced to writing. Philip
Arvidson, an officer and shareholder of the Pepsi Cola bottler is a director of
the Company. To date, the Company has received advertising and promotional
support from this organization, but, as the Company has no operating units in
that organization's geographic area, the Company and the Company's franchisees
have not provided any revenue to the Pepsi Cola bottler.
ITEM 8 - DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 shares of Common
Stock, $.0001 par value per share, of which 4,202,300 shares are outstanding as
of April 1, 1999, and 10,000,000 shares of Preferred Stock as to which the Board
has the power to designate the rights, terms, preferences, etc. As of April 1,
1999 the Board had not designated or issued any Preferred Stock.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. As of
April 1, 1999, 4,202,300 shares were issued and outstanding. Holders of Common
Stock are entitled to one vote for each share of Common Stock owned of record on
all matters to be voted on by stockholders, including the election of directors.
The holders of Common Stock are entitled to receive such dividends, if any, as
may be declared from time to time by the Board of Directors, in its discretion,
from funds legally available therefor.
The Common Stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption provisions. All outstanding shares of Common
Stock are validly issued, fully paid, and nonassessable.
17
<PAGE>
Undesignated Preferred Stock
The Company's Board of Directors presently has the authority by resolution to
issue up to 10,000,000 shares of preferred stock in one or more series and fix
the number of shares constituting any such series, the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations, or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the stockholders. For example, the Board of Directors is authorized to
issue a series of preferred stock that would have the right to vote, separately
or with any other series of preferred stock, on any proposed amendment to the
Company's Certificate of Incorporation or any other proposed corporate action,
including business combinations and other transactions.
Outstanding Options
On April 1, 1999, the Company had outstanding options exercisable for 1,045,000
shares of the Company's common stock, at exercise prices per share ranging from
$1.00 to $4.00. For information regarding options as of December 31, 1998, see
Note 12 to the Company's financial statements appearing in this Registration
Statement. In addition to the options described above in Item 6(h), the Company
has issued the following options:
Convertible Notes
In September and November, 1998, the Company issued twelve units of 12%
Convertible Notes and shares of Common Stock. Each unit contained a $25,000 face
value Convertible Note and 1,500 shares of common stock, for an aggregate
$300,000 in Convertible Notes and 18,000 shares. These convertible notes are
collateralized by the equipment and accounts receivable of the Company, and bear
interest at 12% per annum. Each Convertible Note may be converted at any time
into shares of the Company's common stock at a per share conversion price equal
to 115% of the closing bid price of the Company's common stock on the date of
conversion. These Convertible Notes mature in September and November, 1999. The
shares of common stock issued in the units and which may be issued upon
conversion of the Convertible Notes have "piggy back" registration rights with
respect to any public offering of the Company's common stock.
11% Secured Notes
On November 17, 1998, the Company began offering its 11% Secured Notes in units
of $50,000 face amount of Promissory Notes and 2,000 shares of common stock.
These Notes are secured by all of the assets of the Company. The shares issued
in the units have piggy-back registration rights. As of May 3, 1999, the Company
had issued units containing a face amount of $1,429,500 of these notes and
59,700 shares of common stock.
18
<PAGE>
Transfer Agent
The Company's transfer agent is Stock Trans, Inc., 7 East Lancaster Avenue,
Ardmore, PA 19003 (telephone 610/649-7300; telecopier 610/649-7302).
Anti-Takeover Provisions
Although the Board of Directors is not presently aware of any takeover attempts,
the Certificate of Incorporation and Bylaws of the Company and the Delaware
General Corporation law contain certain provisions which may be deemed to be
"anti-takeover" in nature in that such provisions may deter, discourage or make
more difficult the assumption of control of the Company by another corporation
or person through a tender offer, merger, proxy contest or similar transaction
or series of transactions.
Section 203 of the Delaware General Corporation Law: Following this offering,
the Company will be subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which, in general, prohibits a publicly held Delaware corporation
from engaging in various "business combination" transactions with any
"interested stockholder" for a period of three years after the date for the
transaction in which the person became an "interested stockholder", unless (i)
the transaction is approved by the Board of Directors of the corporation prior
to the date the interested stockholder obtained such status, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting sock of the corporation outstanding at the time the
transaction commenced, excluding for the purposes of determining the number of
shares outstanding, those shares owned , by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 22-2/3 of the outstanding voting
stock which is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to a stockholder. An "interested stockholder' is a person who, together
with affiliates and associates, owns (or, within three years, did own) 15% or
more of the corporation's voting stock. The statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
Authorized but Unissued Shares: The authorized capital stock of the Company
includes 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. These shares of capital stock were authorized for the purpose of
providing the Board of Directors of the Company with as much flexibility as
possible to issue additional shares for proper corporate purposes, including
equity financing, acquisitions, stock dividends, stock splits, employee stock
option plans, and other similar purposes which could include public offerings or
private placements. Shares of Preferred Stock could be issued quickly with terms
calculated to delay or prevent a change in control of the Company without any
further action by the stockholders.
19
<PAGE>
No Cumulative Voting: Neither the Company's Certificate of Incorporation nor its
Bylaws contain provisions for cumulative voting. Cumulative voting entitles each
stockholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. With cumulative voting, a
stockholder may cast all these votes for one candidate or distribute them among
any two or more candidates. Thus, cumulative voting for the election of
directors allows a stockholder or group of stockholders who hold less than 50%
of the outstanding shares voting to elect one or more members of a board of
directors. Without cumulative voting for the election of directors, the vote of
holders of a plurality of the shares voting is required to elect any member of a
board of directors and would be sufficient to elect all the members of the board
being elected.
20
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information
The Company's Common Stock is traded over-the-counter on the electronic bulletin
board operated by the National Association of Securities Dealers under the
symbol "AKIS". The following table sets forth the high and low bid prices quoted
for the Company's Common Stock since July, 1998, when trading commenced:
1998 High Low
---- ---- ---
Third Quarter (beginning 7/31/98 $2.0625 $.875
Fourth Quarter $2.125 $.875
1999
----
First Quarter $1.625 $.875
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Holders
As of April 1, 1998, there were approximately 150 record holders of the
Company's Common Stock and, based upon information supplied by brokerage firms,
banks and other holders of record, the number of beneficial owners of Common
Stock exceeded 300 holders.
(c) Dividends
The Company has never declared or paid any cash dividends on its Common Stock.
The Company currently anticipates that all future earnings will be retained by
the Company to support its growth strategy. Accordingly, the Company does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to its knowledge,
threatened against the Company
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable
21
<PAGE>
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following securities in transactions not registered
under the Securities Act of 1933:
(a) Upon its organization, the Company issued 4,100,000 share of Common
Stock to its founders, for nominal consideration, as follows:
- ---------------------------------------------------------------------
Name No. Shares Price
- ---------------------------------------------------------------------
Richard Michael 2,000,000 $200
- ---------------------------------------------------------------------
James Hightower 2,000,000 $200
- ---------------------------------------------------------------------
Elisia Filancia 100,000 $10
- ---------------------------------------------------------------------
Mr. Michael and Mr. Hightower subsequently each contributed 1,000,000 shares
back to the Company for no consideration. These shares were issued in reliance
upon Section 4(2) of the Securities Act of 1933. These shares are restricted
securities as that term is defined in Rule 144 promulgated under the Securities
Act of 1933. The Company relied upon Section 4(2) as the individuals receiving
the shares were involved in the organization of the Company and acquired the
shares with investment intent, and no public solicitation was employed.
(b) In October 1997 the Company sold 800,000 shares of Common Stock to a
total of six investors at a price of $.05 per share, as follows:
---------------------------------------
Name No. Shares
---------------------------------------
Len Aronoff 150,000
---------------------------------------
Marcia Martin 150,000
---------------------------------------
Richard Cona 50,000
---------------------------------------
Victor Boddy 175,000
---------------------------------------
Gail DeBernardo 175,000
---------------------------------------
Elisa Filancia 100,000
---------------------------------------
These shares were issued in reliance upon Rule 504, Regulation D. Under Rule 504
in effect on the date of these issuances, these shares are not restricted
securities, as that term is defined in Rule 144. The Company did not impose any
restrictions upon the resale of those shares by any stockholder who was not an
affiliate of the Company.
(c) Between October 1997, and December, 1998, the Company issued a total of
983,250 shares of Common Stock pursuant to Rule 504. 743,650 shares were sold to
76 cash purchasers, at $1.00 per share, raising a total of $743,650 in cash.
239,600 shares were issued to an aggregate of eleven individuals and one
corporation for services. The Company valued the shares issued for services at
$.50 per share. These shares were issued in reliance upon Rule 504, Regulation
D. The following persons/entitles received shares for services:
22
<PAGE>
---------------------------------------
Name No. Shares
---------------------------------------
Alan R. Knopf 10,800
---------------------------------------
Richard T. Salter 10,800
---------------------------------------
Mark S. Fisch 33,000
---------------------------------------
Michael M. Morgan, Sr. 15,000
---------------------------------------
Arthur G. Scott 15,000
---------------------------------------
Larry E. Graybill 10,000
---------------------------------------
Steven Molinari 42,000
---------------------------------------
Rachelle Glass 500
---------------------------------------
Garth Zaffino 2,500
---------------------------------------
GFC Communications 50,000
Corp.
---------------------------------------
Ronald L. McDonald 50,000
---------------------------------------
The Company relied on Rule 504 as, at the time of each sale or issuance, the
Company had not issued shares with an aggregate offering price of more than
$1,000,000 in the preceding twelve (12) months. Pursuant to Rule 504 as in
effect at the time of the issuance of the securities, these shares were not
restricted securities, as that term is defined in Rule 144. The Company did not
impose any restrictions upon the resale of those securities by any stock holder
who is not an affiliate of the Company.
(d) In September through December of 1998, the Company issued units of
Convertible Notes and shares of common stock, aggregating a face amount of
$300,000 of notes and 18,000 shares of common stock for the aggregate purchase
price of $300,000. The notes are convertible into shares of the Company's common
stock at a conversion price equal to 115% of the closing bid price of the
Company's common stock on the date of conversion. Strategic Assets Inc. acted as
Placement Agent for the Company in these transactions. The following
persons/entities were purchasers of these units.
-----------------------------------------------------------
Name Note Amount No. Shares
-----------------------------------------------------------
Frederick J. Brizek $25,000 1,500
Testamentary Trust
-----------------------------------------------------------
David P. and Mary E. $25,000 1,500
Maier
-----------------------------------------------------------
Robert J. Blackwell $25,000 1,500
-----------------------------------------------------------
Arthur Gottesman, DDS, $25,000 1,500
PC Money Purchase
Target Benefit Plan
-----------------------------------------------------------
Paul Eisen $25,000 1,500
-----------------------------------------------------------
Susan Weiner $25,000 1,500
-----------------------------------------------------------
Community National $25,000 1,500
Bank Cust. FBO Sandra
M. Misjak, IRA #866032
-----------------------------------------------------------
Kenneth Weiss $25,000 1,500
-----------------------------------------------------------
Independent Trust Corp. $25,000 1,500
Cust FBO David Scharf
PSP #1205682
-----------------------------------------------------------
Thomas E. Shown $25,000 1,500
-----------------------------------------------------------
Daniel L. Kramer $25,000 1,500
-----------------------------------------------------------
Independent Trust Corp. $25,000 1,500
TTEE FBO Alexander C.
Politis Tr #1405370
-----------------------------------------------------------
23
<PAGE>
The Notes and the shares were issued on the reliance on the exemption
provided by Rule 506 of Regulation D. The Company relied on 506 as the investors
were all "accredited investors" as defined in Regulation D, no public
solicitation was employed, the purchasers bought the securities with investment
intent and the shares are restricted securities as that term is defined in Rule
144. For these reasons, the shares to be issued upon conversion of the Notes
will also be issued pursuant to Rule 506.
(e) From November 1998 through May 3, 1999, the Company issued units of
Secured Notes and shares of common stock aggregating the face value of
$1,492,500 of Notes and 59,700 shares of common stock, for the aggregate
purchase price of $1,492,500 to 52 "accredited" investors. Strategic Assets Inc.
acted as Placement Agent for the Company.
The Company issued these Notes and shares in reliance upon the
exemption provided by Rule 506 of Regulation D. The Company relied on Rule 506
as the investors were all "accredited investors" as defined in Regulation D, no
public solicitation was employed, the purchasers bought the securities with
investment intent and the securities were restricted securities as that term is
defined in Rule 144.
(f) During the year ended December 31, 1998, the Company issued options
exercisable for 845,000 shares of its common stock. These options were issued
without cash consideration. Of these, options for 565,000 shares were issued to
key management personnel, options for 230,000 shares were issued to consultants,
and options for 50,000 shares were issued to franchisees. In February, 1999, the
Company issued options for 200,000 shares to four of its directors. Options for
150,00 of these shares are exercisable at $1.06 per share, and the remainder are
exercisable at $1.17 per share.
The issuance of these options to management personnel and directors was made in
reliance upon the exemptions provided by Rule 701 under the Securities Act of
1933 and Section 4(2) of the Securities Act of 1933. The issuance of the options
to consultants was exempt from registration pursuant to Rule 701 under the
Securities Act of 1933 and the issuance to franchisees was exempt pursuant to
Section 4(2) of the Securities Act of 1933.
(g) On July 7, 1998, the Company issued 50,000 shares of Common Stock to
GFC Communications Corp., a consultant which at that time provided shareholder
and financial communications services to the Company. These shares were issued
as partial consideration for GFC's services under a written agreement with the
Company. These shares were issued in reliance upon the exemption provided by
24
<PAGE>
Rule 506 of Regulation D. The Company relied on Rule 506 as no public
solicitation was employed, GFC acquired the shares with investment intent and
GFC was provided with the material information require by Rule 506. These shares
are in addition to other shares issued to GFC under Rule 504, included paragraph
(c), above. Those shares were also issued pursuant to the contract between GFC
and the Company.
(h) Between June 21, 1998 and September 1, 1998, the Company issued 157,750
shares of its restricted Common Stock to five employees without cash
consideration in connection with their employment. These employees were Mr.
Graybill, Mr. Herbert Michael, Mr. Scott, Mr. Morgan, and John Mautner. These
shares were issued in reliance upon Rule 701 under the Securities Act and
Section 4(2) of the Securities Act.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision permitted by the
DGCL which eliminates the personal liability of the Company's directors for
monetary damages for breach of their fiduciary duty of care which arises under
state law. Although this does not change the directors' duty of care, it limits
legal remedies which are available for breach of that duty to equitable
remedies, such as an injunction or rescission. The provision of the Company's
Certificate of Incorporation has no effect on directors' liability for: (1)
breach of the directors' duty of loyalty; (2) acts or omissions not in good
faith or involving intentional misconduct or known violations of law; and (3)
approval of any transactions from which the directors derive an improper
personal benefit.
The DGCL empowers the Company to indemnify officers, directors, employees and
others from liability in certain circumstances such as where the person
successfully defended himself on the merits or acted in good faith in a manner
reasonably believed to be in the best interests of the corporation. The
Company's Bylaws require indemnification, to the fullest extent permitted by the
DGCL, of any person who is or was involved in any manner in any investigation,
claim or other proceeding by reason of the fact that such person is or was a
director or officer of the Company, or of another corporation serving at the
request of the Company, against all expenses and liability actually and
reasonably incurred by such person in connection with the investigation, claim
or other proceeding.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
25
<PAGE>
PART F/S
--------
The financial statements required by Part F/S follow the Signature page
of this Registration Statement. The Table of Contents for the financial
statements is on page F-1.
26
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3(i) Certificate of Incorporation, as Amended
3(ii) Bylaws
4(i) Form of 12% Senior Secured Notes
4(ii) Form of 11% Secured Promissory Notes
10.1 License Agreement dated 8/11/97 with Toppers Brick Oven
Pizza Inc.
10.2 Amendment to License Agreement with Toppers Brick Oven
Pizza dated 4/15/99
10.3 Form of Franchise Agreement
10.4 Employment Agreement between the Company and Richard Michael
10.5 Employment Agreement between the Company and Larry Graybill
10.6 Employment Agreement between the Company and Ronald L.
McDonald
10.7 Area Representative Agreement with USA Foods, Inc.
10.8 Promissory Notes and Stock Pledge Agreement relating to
$50,000 loans from the Company to Michael Morgan and Arthur
Scott.
27 Financial Data Schedule
SIGNATURES
In accordance with Section 12(g) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 14th day of May, 1999.
AMERICAN KIOSK CORPORATION
By: /s/ Richard J. Michael
-----------------------------
Richard J. Michael, President
By: /s/ Larry E. Graybill
-----------------------------
Larry E. Graybill
Vice President, Chief
Financial Officer
and Principal Accounting
Officer
27
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
TABLE OF CONTENTS
December 31, 1998
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheet F-3
Statements of Operations F-4
Statements of Change in Stockholders' Deficit F-5
Statements of Cash Flows F-6 - F-7
Notes to Financial Statements F-8 - F-18
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Kiosk Corporation
Palm Beach Gardens, Florida
We have audited the accompanying balance sheet of American Kiosk Corporation (A
Development Stage Company), as of December 31, 1998 and the related statements
of operations, changes in stockholders' deficit and cash flows for the year
ended December 31, 1998 and the periods from April 26, 1997 (inception) to
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Kiosk Corporation, as
of December 31, 1998 and the results of its operations and its cash flows for
the year ended December 31, 1998 and the period April 26, 1997 (inception) to
December 31, 1997 and 1998, in conformity with generally accepted accounting
principles.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
February 18, 1999, except for Note 17,
and the last paragraph of Note 15,
as to which the date is April 15, 1999
F-2
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 335,136
Restricted Cash 15,000
Accounts Receivable, Net 7,674
Other Receivables 3,149
Inventory 80,925
Deposits on Inventory 27,441
Deferred Loan Costs, Net 37,431
-----------
Total Current Assets 506,756
-----------
PROPERTY AND EQUIPMENT, Net 38,559
-----------
OTHER ASSETS
Toppers License Agreement, Net 96,000
Franchise Development Costs 19,846
Deferred Loan Costs 37,250
Other Deposits 28,799
-----------
181,895
-----------
$ 727,210
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Convertible Notes Payable, Net of Discount $ 293,125
Accounts Payable and Accrued Expenses 119,293
Deferred Franchise Fee Revenue 39,950
-----------
Total Current Liabilities 452,368
-----------
NOTES PAYABLE, Net of Discount 365,050
-----------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Preferred Stock, Par Value $.0001 Per Share;
Authorized 10,000,000 Shares; Issued 0 Shares
Common Stock, Par Value $.0001 Per Share;
Authorized 50,000,000 Shares; Issued 4,149,900 Shares 415
Additional Paid-in Capital 1,108,484
Unearned Compensation (48,600)
Deficit Accumulated During the Development Stage (1,150,507)
-----------
(90,208)
-----------
$ 727,210
===========
The Accompanying Notes are an
Integral Part of These Financial Statements
F-3
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Franchise Fees $ 25,000 $ $ 25,000
Merchandise Sales 40,491 40,491
----------- ----------- -----------
Total Revenue 65,491 65,491
COST OF GOODS SOLD 22,659 22,659
----------- ----------- -----------
Gross Profit 42,832 42,832
----------- ----------- -----------
EXPENSES
Selling Expenses 114,477 114,477
General and
Administrative Expenses 956,089 102,639 1,058,728
----------- ----------- -----------
1,070,566 102,639 1,173,205
----------- ----------- -----------
(Loss) from
Operations (1,027,734) (102,639) (1,130,373)
----------- ----------- -----------
OTHER EXPENSES
Interest Expense (10,625) (10,625)
Depreciation (5,509) (5,509)
Amortization of
Toppers License Agreement (4,000) (4,000)
----------- ----------- -----------
Total Other Expenses (20,134) (20,134)
Net (Loss) $(1,047,868) $ (102,639) $(1,150,507)
=========== =========== ===========
Basic and Diluted Net (Loss)
Per Share $ (.29) $ (.04) $ (.34)
=========== =========== ===========
Weighted Average
Shares Outstanding 3,633,949 2,901,696 3,336,283
=========== =========== ===========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-4
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
----------------------- Paid-In Unearned Development
Share Amount Capital Compensation Stage
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Initial Capitalization on
April 26, 1997 2,800,000 $ 280 $ 40,120 $ $
Issuance for:
Cash, Net of Offering Costs
of $12,044 in December 1997 212,000 21 199,935
Compensation to Employees 41,667
Franchise Development Costs 100,000 10 4,990
Net (Loss) (102,639)
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1997 3,112,000 311 286,712 (102,639)
Issuance for:
Cash, Net of Offering Costs
of $2,499 from February to
September 1998 531,650 53 529,098
Compensation to Employees 217,750 22 108,853 (25,000)
Services 255,600 26 127,774
Issuance in conjunction with:
Convertible Notes Payable 18,000 2 8,998
Notes Payable 14,900 1 7,449
Valuation of Stock Options
Issued for Services 39,600 (23,600)
Net (Loss) (1,047,868)
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1998 4,149,900 $ 415 $1,108,484 $ (48,600) $(1,150,507)
========== ========== ========== ========== ===========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-5
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (Loss) $(1,047,868) $ (102,639) $(1,150,507)
Adjustments to Reconcile Net (Loss)
to Net Cash Used in Operating
Activities:
Depreciation 5,509 5,509
Amortization 15,694 15,694
Issuance of Shares for Compensation,
Services and Franchise
Development Costs 198,675 41,667 240,342
Valuation of Stock Options
for Services 16,000 16,000
Reduction of Officer Loan Receivable 40,000 40,000
Change in Assets and Liabilities
(Increase) in:
Restricted Cash (15,000) (15,000)
Accounts Receivable (7,674) (7,674)
Other Receivables (2,049) (2,049)
Inventory (80,925) (80,925)
Deposits on Inventory (27,441) (27,441)
Increase in:
Accounts Payable and
Accrued Expenses 102,934 16,359 119,293
Deferred Franchise Fee Revenue 39,950 39,950
----------- ----------- -----------
Net Cash Used in
Operating Activities (762,195) (44,613) (806,808)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in Franchise
Development Costs (14,856) (14,856)
Increase in Toppers Agreement (75,000) (25,000) (100,000)
Increase in Deferred Loan Costs (71,250) (71,250)
Decrease in Deposit on Prototype Kiosk 27,472 (27,472)
Increase in Deposits - Other (803) (27,996) (28,799)
Increase in Officer Loan Receivable (15,600) (25,500) (41,100)
Acquisition of Property and Equipment (38,351) (5,717) (44,068)
Net Cash Used in Investing
Activities (173,532) (126,541) (300,073)
----------- ----------- -----------
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-6
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
---------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the Issuance of
Common Stock $ 545,601 $ 240,366 $ 785,967
Proceeds from the Issuance of
Notes Payable 656,050 656,050
---------- ---------- ----------
Net Cash Provided by
Financing Activities 1,201,651 240,366 1,442,017
---------- ---------- ----------
Increase in Cash 265,924 69,212 335,136
Cash:
Beginning 69,212
---------- ---------- ----------
Ending $ 335,136 $ 69,212 $ 335,136
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments for Interest $ 8,500 $ 8,500
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Shares for:
Compensation, Services and
Franchise Developmen Costs $ 38,000 $ 4,990 $ 42,990
========== ========== ==========
Toppers License Agreement $ 75,000
==========
Valuation of Stock Options
Issued for Services $ 39,600 $ 39,600
========== ==========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-7
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
American Kiosk Corp. (The "Company") was incorporated in Delaware on May 2,
1997. The Company was established to engage in the development and
implementation of a national brand franchise system of kiosk and kiosk-style
retail outlets to deliver popular food products to consumers. Currently, the
Company is focusing on brick oven pizzas. As of December 31, 1998, the
Company was in the development stage, planned operations have not commenced
and its activities were limited to developing the franchise system and kiosk
units and market testing.
The Company's current cash and available credit is not sufficient to support its
proposed activities for the next year. Accordingly, management will need to seek
equity financing or other financing. These financial statements have been
prepared on the basis that adequate financing will be obtained (Note 15).
Reclassification of Prior Period
- --------------------------------
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current year presentation.
Net (Loss) Per Share
- --------------------
Basic net (loss) per share is computed by dividing net (loss) by the weighted
average number of shares outstanding. Fully diluted earning per share for all
periods presented are the same as basic earnings per share because in a period
of net loss all exercisable or convertible securities are anti-dilutive (Notes 9
and 12).
Stock Based Compensation
- ------------------------
As permitted under Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock Based Compensation, the Company has elected not to adopt
the fair value based method of accounting for its stock based compensation plan
but to account for such compensation using the intrinsic value method under the
provisions of Accounting Principles Board (APB) Opinion No. 25 (Note 12).
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Franchise Development Costs
- ---------------------------
The Company follows the policy of capitalizing certain costs related to the
development of its franchise program. These costs are to be amortized on a
straight-line basis over three years beginning with the opening of the first
franchised Kiosk or Kiosk-style restaurant.
Toppers License Agreement
- -------------------------
The cost of the license agreement is being amortized over the 25 year term of
the agreement.
Deferred Loan Costs
- -------------------
Costs directly attributable to the obtaining of loans are deferred, and are
amortized on a straight-line basis over the term of the associated loans.
Revenue Recognition
- -------------------
Revenue from sales of individual and area franchises is recognized when
substantially all significant initial services to be provided to the franchisee
have been performed.
Revenue related to the sale of equipment other than that provided with a
franchise, food products and supplies, is recognized when the items are shipped.
Inventory
- ---------
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
- ----------------------
Property and equipment is recorded at cost and is being depreciated over the
estimated useful lives of the related assets using the straight-line method.
Fair Value of Financial Instruments
- -----------------------------------
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1998, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet.
F-9
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The new statement
requires all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. The statement is
effective for years beginning after June 15, 1999. The Company is assessing the
impact this statement will have on the financial statements.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 provides guidance on
accounting for the various types of costs incurred for computer software
developed or obtained for internal use. Also, in June 1998, the AICPA issued SOP
98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires costs of
start-up activities and organizational costs, as defined, to be expensed as
incurred. The Company will adopt these SOP's on January 1, 1999, and they will
not materially impact the Company's financial statements.
NOTE 2: CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits and
places its temporary cash investments with high credit quality financial
institutions. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral from them. Reserves for
credit losses are maintained at levels considered adequate by management.
NOTE 3: TRANSACTIONS WITH RELATED PARTIES
Officer's net advances at December 31, 1998 amounted to $1,100. These advances
are unsecured and provide no set repayment terms and are included in other
receivables.
F-10
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4: RESTRICTED CASH
Restricted cash consists of a certificate of deposit pledged as collateral for
the Company's credit card limit.
NOTE 5: ACCOUNTS RECEIVABLE
Accounts receivable is presented net of an allowance for doubtful accounts of
$2,995. Bad debt expense aggregated $2,995, $0 and $2,995 for the year ended
December 31, 1998 and the periods from April 26, 1997 to December 31, 1997 and
1998, respectively.
NOTE 6: INVENTORY
Inventory consists of the following:
Food $ 1,515
Supplies 951
Equipment and Displays 48,459
Kiosks 30,000
-------
$80,925
=======
NOTE 7: DEFERRED LOAN COSTS
Deferred costs attributable to obtaining loans aggregated $84,250, $0, and
$84,250 for the year ended December 31, 1998, and the periods from April 26,
1997 to December 31, 1997 and 1998, respectively. The costs are being amortized
over periods of twelve or thirty months. Amortization aggregated $9,569, $0, and
$9,569 for the year ended December 31, 1998, and the periods from April 26, 1997
to December 31, 1997 and 1998, respectively.
NOTE 8: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
Lives
(Years)
-------
Furniture and Equipment $29,568 5
Mobil Unit 14,500 5
-------
44,068
Less: Accumulated Depreciation (5,509)
-------
$38,559
=======
F-11
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9: NOTES PAYABLE
12% Convertible Secured Notes
- -----------------------------
The Company, in September and November 1998, issued twelve units ("Bridge Loan
Units") consisting of convertible secured notes (`Bridge Loan Notes")
aggregating $300,000 and common stock aggregating 18,000 shares. Each Bridge
Loan Unit consists of a $25,000 promissory note and 1,500 shares of common
stock. The Bridge Loan Notes are collateralized by the equipment and accounts
receivable of the Company, and bear interest at 12%. Each Bridge loan may be
converted at any time into shares of the Company's common stock at a per share
conversion price equal to 115% of the closing bid price of the Company's common
stock on the date of the conversion. The Bridge Loan Notes mature one year from
the date of issuance. The shares of common stock have "piggyback" registration
rights with any public offering of the Company's common stock, otherwise the
shares are restricted as to sale for a period of two years. The Bridge Loan
Notes have been recorded at a discount of $9,000, reflecting a per share value
of $0.50, discounted for restrictions. The discount increases the effective
interest rate to 15%. At December 31, 1998, no Bridge Loan Notes had been
converted into common stock.
11% Secured Notes
- -----------------
The Company began offering November 17, 1998, in a private placement, units
("Placement Units") consisting of secured notes ("Placement Notes") and common
stock. The minimum offering is ten units, aggregating $500,000 in Placement
Notes and 20,000 shares of common stock, and the maximum offering is forty units
aggregating $2,000,000 in Placement Notes and 80,000 shares of common stock.
Each Placement Unit consists of a $50,000 promissory note and 2,000 shares of
common stock. Fractional units may be offered. The offering terminates upon the
earlier of the placement of all units or April 30, 1999. The Placement Notes are
secured by all of the assets of the Company, and bear interest at 11% per annum.
The Placement Notes mature thirty months from the date of issuance. The shares
of common stock have "piggyback" registration rights with any public offering of
the Company's common stock, otherwise the shares are restricted as to sale for a
period of two years. These Bridge Loan Notes have been recorded at a discount of
$7,450, reflecting a per share value of $0.50, discounted for restrictions. The
discount increases the effective interest rate to 11.8%. The Placement Units
have been offered on an "all or nothing" basis. The Company is required to place
at least the minimum offering on or before April 30, 1999, or return all amounts
subscribed. At December 31, 1998, the Company has placed 7.45 units consisting
of an aggregate $372,500 of Placement Notes and 14,900 shares of common stock.
In January 1999, the Company exceeded the minimum offering and cleared escrow
(Note 15).
F-12
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS
Operating Leases
- ----------------
The Company has entered into leases for office space and warehouse facilities.
The lease for office space provides for a monthly base rent of $4,563 plus the
Company's proportionate share of certain common expenses. The lease requires
annual increases in the base rent of $106 per month, and expires on November 30,
2002. The lease for warehouse facilities provides for a monthly base rent of
$557 plus assessments for common area maintenance. The base rent is subject to
annual increases of the greater of the annual increase in the Consumer Price
Index or 5%. The warehouse facilities lease expires on October 31, 2001, and may
be extended for an additional three year term.
Minimum future obligations over the primary terms of the Company's long-term
leases at December 31, 1998 are as follows:
Year Ended December 31, Amount
----------------------- ------
1999 $ 61,497
2000 63,106
2001 63,445
2002 58,581
--------
$246,629
========
In addition, the Company periodically leases temporary housing and other
facilities on a short-term basis.
Rent expense aggregated $70,017, $10,153 and $80,170 for the year ended December
31, 1998 and the periods from April 26, 1997 to December 31, 1997 and 1998,
respectively.
Agreement with Toppers
- ----------------------
Toppers Brick Oven Pizza, Inc. ("Toppers") has given the Company exclusive
rights to market Toppers products to a network of corporate owned and franchised
kiosks and/or kiosk-style retail outlets in the United States. Under the terms
of the agreement, Toppers will be the Company's sole supplier of pizza, ovens
and related products. The agreement expires in 2022, unless terminated prior to
expiration. As part of the agreement, the Company has targeted annual sales
quantities and kiosk outlet requirements, which if not met could result in the
termination of the agreement. The Company paid Toppers an aggregate $100,000 for
the agreement.
F-13
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS (CONTINUED)
In addition, the Company was required to pay Toppers $200,000 on May 1, 1998, as
prepayment on future purchases. The Company did not achieve the targeted annual
sales quantities or Kiosk Outlet requirements, nor did the Company make the
required payment. The Company and Toppers are in negotiations to amend this
agreement (Note 17).
Manufacturing Agreements
- ------------------------
The Company has entered into agreements with certain companies for the
construction and manufacture of kiosks, carts and other merchandising materials
at fixed prices. Under the terms of the agreements, the Company is required to
make deposits when placing purchase orders. At December 31, 1998, deposits on
kiosks, carts and other merchandise aggregated $27,441.
Employment Agreements
- ---------------------
The Company has entered into employment agreements with four key management
personnel. The agreements provide for base minimum annual salaries ranging from
$27,500 to $120,000 each. The agreements have terms of one year, and are
renewable at will. The contracts provide for annual cash bonuses and other
fringe benefits. The contracts also include severance agreements and noncompete
convenants. As compensation for services rendered prior to the execution of the
employment agreements, the contracts provide for the management personnel to
receive an aggregate 92,750 shares of the Company's common stock. Simultaneously
with the execution of the employment agreements, the management personnel
entered into option agreements with the Company (Note 12).
NOTE 11: CAPITAL STOCK
Preferred Stock
- ---------------
The Company has 10,000,000 shares of preferred stock (par value $.0001)
authorized. The Board has authority to issue the shares in one or more series
and to fix the designation preferences, powers and other rights as it deems
appropriate. No shares of preferred stock have been issued.
Common Stock
- ------------
The Company has 50,000,000 shares of common stock (par value $.0001) authorized.
Common stock has one vote per share for the election of directors and all other
matters submitted to a vote
F-14
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11: CAPITAL STOCK (CONTINUED)
of stockholders. Shares of common stock do not have cumulative voting,
preemptive redemption or conversion rights. During the year ended December 31,
1998 and the period from April 26, 1997 through December 31, 1998, the Company
directly issued 531,650 and 3,643,650 shares for cash of $531,650 and $784,060,
respectively.
During the year ended December 31, 1998, the Company issued 32,900 shares to the
subscribers of certain secured notes (Note 9). The Company valued the shares at
$.50 per share in accordance with the terms of the subscription agreements. The
Company recorded the $16,450 aggregate valuation as an original issue discount
and accounted for the excess of the valuation over the par value of the shares
as additional paid-in capital. Additionally, the Company issued to the placement
agent 26,000 shares valued at $.50 per share as partial compensation for
facilitating a placement.
Since the Company's inception in April, 1997, common stock has been issued at
$.0001 to $.05 per share through October 31, 1997, and $1.00 per share
subsequently. In October, 1997, 100,000 shares were issued at $.0001 per share
for services rendered. The Company recognized the difference, $4,990, between
the market value at the time of issuance ($.05) and the actual stock price paid
($.0001) as franchise development costs.
During the year ended December 31, 1998, the Company issued 447,350 shares as
compensation for services rendered by various employees, consultants and
professionals. The Company in recording the compensation valued the shares at
$.50 per share, reflecting a discount of $.50 per share for restrictions on the
sale and transfer of the shares. The excess of the valuation over the par value
has been recorded as an increase in additional paid in capital.
Other services provided to the Company affecting stockholders' equity during the
period April 26, 1997 through December 1, 1998, include the following:
attorneys' fees in the amount of $14,543 directly related to the offering of
common stock are accounted for as a reduction of the proceeds from the sale (a
reduction of additional paid-in capital) and compensation expense recognized for
services provided by an officer of the Company and foregone, in the amount of
$41,667 and accounted for as an increase in additional paid in capital.
The Company, at December 31, 1998, has reserved 845,000 shares of common stock
for issuance relating to unexpired options.
NOTE 12: STOCK OPTIONS
During the year ended December 31, 1998, the Company entered into option
agreements with key management personnel, consultants and franchisees. The
options granted aggregate 845,000 shares of common stock. The options on 365,000
shares vest and are exercisable at various dates
F-15
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12: STOCK OPTIONS (CONTINUED)
from September 1, 1998 to November 9, 2000. Options on 200,000 shares vest on
the later of various dates from January 1, 1999 to March 20, 1999, or the
achievement of certain sales goals. The options are exercisable from three to
four years from the date of grant, and are contingent upon each individual's
continuing association with the Company at the date of exercise.
Options on 180,000 shares, granted to a consulting company, vest on various
dates from February 24, 1999 to November 24, 1999 as services are rendered.
Options may be exercised at various prices ranging from $1.00 to $4.00
per share.
Options on 50,000 shares were granted to a marketing and communications company.
The options are exercisable at $1.50 per share, are fully vested and expire May
31, 2000.
Options on 50,000 shares were granted to an area representative as part of their
agreement. The options are exercisable at $1.59 per share. The options expire on
December 31, 2002. The options vest as follows:
1. 25,000 shares upon payment of $79,900 ($39,950 paid at
December 31, 1999).
2. 25,000 shares when the Company has received from the area
representative deposits for ten franchises.
No options have been exercised.
The Company applied APB 25 and related interpretations in accounting for the
options issued to employees. Accordingly, no compensation cost has been
recognized in the results of operations. Had the Company recorded a charge for
the fair value of options granted consistent with SFAS No. 123, the net loss for
the year ended December 31, 1998 and the period from April 26, 1997 to December
31, 1998, would have been increased by approximately $128,000. The impact of
this charge on the basic net loss per weighted common share would have been $.04
for the year ended December 31, 1998 and the period from April 26, 1997 to
December 31, 1998.
The fair value of each option grant is estimated on the date of the grant using
the Black - Scholes option pricing model, with the following weighted average
assumptions:
Risk-Free Interest Rate 5.7%
Expected Option Lives 1 to 4 Years
Expected Volatility 29%
Expected Dividend Yields 0%
F-16
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12: STOCK OPTIONS (CONTINUED)
The following summarizes information about stock options outstanding at December
31, 1998:
Options Outstanding
-------------------------------
Number Weighted Average
Exercise Price Outstanding Remaining Life Options Exercisable
- -------------- ----------- -------------- -------------------
$1.00 285,000 2.7 47,500
1.10 150,000 2.7 150,000
1.25 60,000 .9
1.50 150,000 2.3 150,000
1.59 50,000 4.0
2.00 70,000 2.2 10,000
3.00 40,000 .9
4.00 40,000 .9
------- ---- -------
845,000 2.4 357,500
======= ==== =======
The weighted average exercise prices of outstanding and exercisable options are
$1.48 and $1.28, respectively.
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both future and present projects are
charged to operations as incurred. The Company recognized $113,135, $0 and
$113,135 of research and development costs for the year ended December 31, 1998,
and the periods from April 26, 1997 to December 31, 1997 and 1998, respectively.
NOTE 14: INCOME TAXES
The deficit accumulated during the development stage (inception through December
31, 1998) of approximately $1,151,000 will be capitalized for income tax
purposes as accumulated start-up costs, and is to be amortized over a sixty
month period beginning upon commencement of operations. The Company has recorded
a valuation allowance of approximately $386,000 with respect to any future tax
benefits arising from the amortization of the development costs due to the
uncertainty of their ultimate realization. The net increase in the valuation
allowance was $360,000 for 1998.
F-17
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15: GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,150,507 during the period from April 26, 1997 (inception) to December
31, 1998, and as of that date, the Company's total liabilities exceeded its
total assets by $90,208. Those factors create an uncertainty about the Company's
ability to continue as a going concern. Management of the Company is developing
a plan to obtain financing through issuance of debt and additional stock. The
ability of the Company to continue as a going concern is dependent on their
ability to continue to obtain financing. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Subsequent to December 31, 1998, the Company placed an additional 18.1 Placement
Units (Note 9), comprised of $905,000 of Placement Notes and 36,200 shares of
common stock. The subsequent placement resulted in a total of 25.55 Placement
Units sold since inception to April 5, 1999, aggregating $1,277,500 of Placement
Notes and 51,100 shares of common stock.
NOTE 16: SUBSEQUENT EVENT
Operating Lease
- ---------------
In January 1999, the Company entered into a non-cancelable lease for land on
which to place a free standing drive-thru unit. The lease requires minimum
monthly payments of $2,083 plus common area maintenance. The lease expires on
January 31, 2004 and allows for an additional five-year term. Minimum future
obligations over the primary terms of the lease are as follows:
Year Ended December 31, Amount
----------------------- ---------
1999 $ 24,375
2000 25,000
2001 25,000
2002 25,000
2003 25,000
Thereafter 2,083
--------
$126,458
========
NOTE 17: TOPPERS AGREEMENT
On April 15, 1999, the Company revised and amended its agreement with Toppers
(Note 10). In the revised agreement, Toppers waived the quota and pre-purchase
requirements under the original agreement. The Company and Toppers, under the
revised agreement, agreed to licensing fees of $220,000 in 1999; $250,000 in
2000; $300,000 in each year 2001-2003; and $350,000 in 2004 and each year
thereafter for the remaining term of the agreement.
F-18
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/02/1997
971144660 - 2740459
CERTIFICATE OF INCORPORATION
OF
AMERICAN KIOSKS CORP.
ARTICLE ONE
NAME
The name of the Corporation is American Kiosks Corp.
ARTICLE TWO
DURATION
The Corporation shall have perpetual existence.
ARTICLE THREE
PURPOSE
The purpose for which this Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE FOUR
SHARES
The total number of shares of stock which the Corporation shall have
authority to issue is 60,000,000 shares outstanding consisting of 50,000,000
shares of Common Stock having a par value of $.0001 per share and 10,000,000
shares of Preferred Stock having a par value of $.0001 per share.
<PAGE>
The Board of Directors is authorized to provide for the issuance of the
shares of Preferred Stock in series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
A. The number of shares constituting that series and the distinctive
designation of that series:
B. The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on share of that series;
C. Whether that series shall have voting rights. In addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as of Board of Directors shall deem;
E. Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
F. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
G. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
H. Any other relative rights, preferences and limitations of that series.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation is authorized to commence business as soon as its
certificate of incorporation has been filed.
2
<PAGE>
ARTICLE SIX
PRINCIPAL OFFICE AND REGISTERED AGENT
The post office address of the initial registered office of the Corporation
and the name of its initial registered agent and its business address is:
The Prentice-Hall Corporation System. Inc.
1013 Centre Road
Wilmington, Delaware 19805 (County of New Castle)
The initial registered agent is a resident of the State of Delaware.
ARTICLE SEVEN
INCORPORATOR
Lee W. Cassidy, 1504 R Street, N.W., Washington, D.C. 20009.
ARTICLE EIGHT
PRE-EMPTIVE RIGHTS
No Shareholder or other person shall have any pre-emptive rights whatsoever.
ARTICLE NINE
BY-LAWS
The initial by-laws shall be adopted by the Shareholders or the Board of
Directors. The power to alter, amend, or repeal by-laws or adopt new by-laws is
vested in the Board of Directors, subject to repeal or change by action of the
Shareholders.
ARTICLE TEN
NUMBER OF VOTES
Each share of Common Stock has one vote on each matter on which the shares
is entitled to vote.
3
<PAGE>
ARTICLE ELEVEN
MAJORITY VOTES
A majority vote of a quorum of Shareholders (consisting of holders of a
majority of the shares entitled to vote, represented in person or by proxy) is
sufficient for any action which requires the vote or concurrence of
Shareholders, unless otherwise required or permitted by law or the by-laws of
the Corporation.
ARTICLE TWELVE
NON-CUMULATIVE VOTING
Directors shall be elected by majority vote. Cumulative voting shall not be
permitted.
ARTICLE THIRTEEN
INTERESTED DIRECTORS, OFFICERS AND SECURITYHOLDERS
A. VALIDITY. If paragraph (B) is satisfied, no contract or other
transaction between the Corporation and any of its directors, officers or
securityholders, or any corporation or firm in which any of them are directly or
indirectly interested, shall be invalid solely because of this relationship or
because of the presence of the director, officer or securityholder at the
meeting of the Board of Directors or committee authorize the contract or
transaction, or his participation or vote in the meeting or authorization.
B. DISCLOSURE, APPROVAL, FAIRNESS. Paragraph (A) shall apply only if:
(1) The material facts of the relationship or interest of each such
director, officer or securityholder are known or disclosed:
(a) to the Board of Directors or the committee and it
nevertheless authorizes or ratifies the contract or transaction by a majority of
the directors present, each such interested director to be counted in
determining whether a quorum is present but not in calculating the majority
necessary to carry the vote; or
(b) to the Shareholders and they nevertheless authorize or ratify
the contract or transaction by a majority of the shares present, each such
interested person to be counted for quorum and voting purposes; or
(2) the contract or transaction is fair to the Corporation as
of the time it is authorized or ratified by the Board of Directors, the
committee or the Shareholders.
4
<PAGE>
ARTICLE FOURTEEN
INDEMNIFICATION AND INSURANCE
A. PERSONS. The Corporation shall indemnify, to the extent provided in
Paragraphs (B), (D) or (F) and to the extent permitted from time to time by law:
(1) any person who is or was director, officer, agent or employee of
the Corporation, and
(2) any person who serves or served at the Corporation's request as a
director, officer, agent, employee, partner or trustee of another corporation or
of a partnership, joint venture, trust or other enterprise.
B. EXTENT-DERIVATIVE SUITS. In the case of a suit by or in the right o the
Corporation against a person named in Paragraph (A) by reason of his holding a
position named in Paragraph (A), the Corporation shall indemnify him, if he
satisfied the standard in Paragraph (C), for expenses (including attorney's fees
but excluding amounts paid in settlement) actually and reasonably incurred by
him in connection with the defense or settlement of the suit.
C. STANDARD-DERIVATIVE SUITS. In case of a suit by or in the right of the
Corporation, a person named in Paragraph (A) shall be indemnified only if:
(1) he is successful on the merits or otherwise, or
(2) he acted in good faith in the transaction which is the subject of
the suit, and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation. However, he shall not be indemnified in
respect of any claim, issue or matter as to which he has been adjudged liable
for negligence or misconduct in the performance of his duty to the Corporation
unless (and only to the extent that) the court in which the suit was brought
shall determine, upon application, that despite the adjudication but in view of
all the circumstances, he is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
D. EXTENT-NONDERIVATIVE SUITS. In case of a suit, action or proceeding
(whether civil, criminal, administrative or investigative), other than a suit by
or in the right of the Corporation against a person named in Paragraph (A) by
reason of his holding a position named in Paragraph (A), the Corporation shall
indemnify him, if he satisfies the standard in Paragraph (E), for amounts
actually and reasonably incurred by him in connection with the defense or
settlement of the suit as
(1) expenses (including attorneys' fees)
(2) amounts paid in settlement
(3) judgments, and
(4) fines.
5
<PAGE>
E. STANDARD-NONDERIVATIVE SUITS. In case of a nonderivative suit, a person
named in Paragraph (A) shall be indemnified only if:
(1) he is successful on the merits or otherwise, or
(2) he acted in good faith in the transaction which is the subject of
the nonderivative suit, and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation and, with respect to any
criminal action or proceeding, he had no reason to believe his conduct was
unlawful. The termination of a nonderivative suit be judgment, order,
settlement, conviction, or upon a pea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person failed to satisfy this
Paragraph (E)(2).
F. DETERMINATION THAT STANDARD HAS BEEN MET. A determination that the
standard of Paragraph (C) or (E) has been satisfied may be made by a court of
law or equity or the determination may be made by:
(1) a majority of the directors of the Corporation (whether or not a
quorum) who were not parties to the action, suit or proceeding, or
(2) independent legal counsel (appointed by a majority of the
directors of the Corporation, whether or not a quorum, or elected by the
Shareholders of the Corporation) in a written opinion, or
(3) the Shareholders of the Corporation.
G. PRORATION. Anyone making a determination under Paragraph (F) may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. ADVANCE PAYMENT. The Corporation may pay in advance any expenses
(including attorney's fees) which may become subject to indemnification under
paragraphs (A)-(G) if:
(1) the Board of Directors authorizes the specific payment and
(2) the person receiving the payment undertaken in writing to repay
unless it is ultimately determined that he is entitled to indemnification by the
Corporation under Paragraphs (A)-(G).
I. NONEXCLUSIVE. The indemnification provided by Paragraphs (A) - (G) shall
not be exclusive of any other rights to which a person may be entitled by law or
by by-law, agreement, vote of Shareholders or disinterested directors, or
otherwise.
J. CONTINUATION. The indemnification and advance payment provided by
Paragraphs (A) - (H) shall continue as to a person who has ceased to hold a
position named in paragraph (A) and shall inure to his heirs, executors and
administrators.
6
<PAGE>
K. INSURANCE. The Corporation may purchase and maintain insurance on behalf
of any person who holds or who has held any position named in Paragraph (A)
against any liability incurred by him in any such positions or arising out of
this status as such, whether or not the Corporation would have power to
indemnify him against such liability under Paragraphs (A) - (H).
L. REPORTS. Indemnification payments, advance payments, and insurance
purchases and payments made under Paragraph (A)-(K) shall be reported in writing
to the Shareholders of the Corporation with the next notice of annual meeting,
or within six months, whichever is sooner.
M. AMENDMENT OF ARTICLE. Any changes in the General Corporation Law of
Delaware increasing, decreasing, amending, changing or otherwise effecting the
indemnification of directors, officers, agents, or employees of the Corporation
shall be incorporated by reference in this Article as of the ate of such changes
without further action by the Corporation, its Board of Directors, of
Shareholders, it being the intention of this article that directors, officers,
agents and employees of the Corporation shall be indemnified to the maximum
degree allowed by the General Corporation Law of the State of Delaware at all
times.
ARTICLE FIFTEEN
LIMITATION ON DIRECTOR LIABILITY
A. SCOPE OF LIMITATION. No person, by virtue of being or having been a
director of the Corporation, shall have any personal liability for monetary
damages to the Corporation or any of its Shareholders for any breach of
fiduciary duty except as to the extent provided in Paragraph (B).
B. EXTENT OF LIMITATION. The limitation provided for in this Article shall
not eliminate or limit the liability of a director to the Corporation of its
Shareholders (i) for any breach of the director's duty of loyalty to the
Corporation or its Shareholders (ii) for any acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law (iii) for
any unlawful payment of dividends or unlawful stock purchases or redemptions in
violation of Section 174 of the General Corporation Law of Delaware or (iv) for
any transaction for which the director derived an improper personal benefit.
IN WITNESS WHEREOF, the incorporator hereunto has executed this certificate
of incorporation on this 26th day of April, 1997.
----------------------------
Lee W. Cassidy, Incorporator
7
<PAGE>
FIRST AMENDMENT
TO
CERTIFICATE OF INCORPORATION OF
AMERICAN KIOSKS CORP.
1. The name of the corporation is American Kiosks Corp. (the "Corporation")
and was incorporated under document number 2740459.
2. ARTICLE ONE of the Articles of Incorporation is amended to read:
The name of the Corporation is American Kiosk Corporation.
3. The foregoing amendment was unanimously adopted by the Directors and
Shareholders pursuant to the written consent of the Corporation on February 3,
1998.
IN WITNESS WHEREOF, the undersigned President of the Corporation has
executed this First Amendment to the Certificate of Incorporation this 3rd day
of February 1998.
American Kiosk Corporation
a Delaware corporation
By:
-----------------------------
Richard J. Michael, President
8
<PAGE>
STATE OF FLORIDA
COUNTY OF PALM BEACH
This instrument was acknowledged before me this 3rd day of February, 1998,
by Richard J. Michael as President American Kiosk Corporation, a Delaware
corporation, on behalf of the corporation. He personally appeared before me at
the time of notarization.
NOTARY PUBLIC - STATE OF FLORIDA:
sign
-------------------------------------
print
-------------------------------------
Personally known X OR Produced Identification ___
---
Type of Identification Produced:
--------------------------
My Commission Expires:
AMERICAN KIOSKS CORP.
By-Laws
Article I
The Stockholders
Section 1.1. Annual Meeting. The annual meeting of the stockholders of
American Kiosks Corp. (the "Corporation") shall be held on the third Thursday in
May of each year at 10:30 a.m. local time, or at such other date or time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, for the election of directors and for the transaction
of such other business as may come before the meeting.
Section 1.2. Special Meetings. A special meeting of the stockholders may be
called at any time by the written resolution or request of two-thirds or more of
the members of the Board of Directors, the president, or any executive vice
president and shall be called upon the written request of the holders of
two-thirds or more in amount, of each class or series of the capital stock of
the Corporation entitled to vote at such meeting on the matters(s) that are the
subject of the proposed meeting, such written request in each case to specify
the purpose or purposes for which such meeting shall be called, and with respect
to stockholder proposals, shall further comply with the requirements of this
Article.
Section 1.3. Notice of Meetings. Written notice of each meeting of
stockholders, whether annual or special, stating the date, hour and place where
it is to be held, shall be served either personally or by mail, not less than
fifteen nor more than sixty days before the meeting, upon each stockholder of
record entitled to vote at such meeting, and to any other stockholder to whom
the giving of notice may be required by law. Notice of a special meeting shall
also state the purpose or purposes for which the meeting is called and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle stockholders to receive payment for their stock,
the notice of such meeting shall include a statement of that purpose and to that
effect. If mailed, notice shall be deemed to be delivered when deposited in the
United States mail or with any private express mail service, postage or delivery
fee prepaid, and shall be directed to each such stockholder at his address, as
it appears on the records of the stockholders of the Corporation, unless he
shall have previously filed with the secretary of the Corporation a written
request that notices intended for him be mailed to some other address, in which
case, it shall be mailed to the address designated in such request.
Section 1.4. Fixing Date of Record. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders
<PAGE>
AMERICAN KIOSKS CORP.. BYLAWS Page Number 2
- --------------------------------------------------------------------------------
of record entitled to notice of, or to vote at, a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting (to the
extent that such action by written consent is permitted by law, the Certificate
of Incorporation and these By-Laws), the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in its state of incorporation, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 1.5. Inspectors. At each meeting of the stockholders, the polls
shall be opened and closed and the proxies and ballots shall be received and be
taken in charge. All questions touching on the qualification of voters and the
validity of proxies and the acceptance or rejection of votes, shall be decided
by one or more inspectors. Such inspectors shall be appointed by the Board of
Directors before or at the meeting, or, if no such appointment shall have been
made, then by the presiding officer at the meeting. If for any reason any of the
inspectors previously appointed shall fail to attend or refuse or be unable to
serve, inspectors in place of any so failing to attend or refusing or unable to
serve shall be appointed in like manner.
Section 1.6. Quorum. At any meeting of the stockholders the holders of such
number of all of the outstanding shares of the capital stock of the Corporation
taken together as a single class as represents one-third of all votes that may
be made at such meeting, present in person or represented by proxy, shall
constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number shall be required by law, and, in that case,
the representation of the number so required shall constitute a quorum.
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If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy at the time and place fixed in
accordance with these By-Laws for an annual or special meeting, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
holders of the amount of stock requisite to constitute a quorum shall attend. At
any such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
notified.
Section 1.7. Business. The chairman of the Board, if any, the president, or
in his absence the vice-chairman, if any, or an executive vice president, in the
order named, shall call meetings of the stockholders to order, and shall act as
chairman of such meeting; provided, however, that the Board of Directors or
executive committee may appoint any stockholder to act as chairman of any
meeting in the absence of the chairman of the Board. The secretary of the
Corporation shall act as secretary at all meetings of the stockholders, but in
the absence of the secretary at any meeting of the stockholders, the presiding
officer may appoint any person to act as secretary of the meeting.
Section 1.8. Stockholder Proposals. No proposal by a stockholder shall be
presented for vote at a special or annual meeting of stockholders unless such
stockholder shall, not later than the close of business on the fifth day
following the date on which notice of the meeting is first given to
stockholders, provide the Board of Directors or the secretary of the Corporation
with written notice of intention to present a proposal for action at the
forthcoming meeting of stockholders, which notice shall include the name and
address of such stockholder, the number of voting securities that he holds of
record and that he holds beneficially, the text of the proposal to be presented
to the meeting and a statement in support of the proposal.
Any stockholder who was a stockholder of record on the applicable record
date may make any other proposal at an annual meeting or special meeting of
stockholders and the same may be discussed and considered, but unless stated in
writing and filed with the Board of Directors or the secretary prior to the date
set forth hereinabove, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place sixty
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees, but in connection with such reports, no new business proposed by
a stockholder, qua stockholder, shall be acted upon at such annual meeting
unless stated and filed as herein provided.
Notwithstanding any other provision of these By-Laws, the Corporation shall
be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 or 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder; nor shall the Corporation be required to include any stockholder
proposal not required to be included in its proxy materials to stockholders in
accordance with any such section, rule or regulation.
Section 1.9. Proxies. At all meetings of stockholders, a stockholder
entitled to vote may vote either in person or by proxy executed in writing by
the stockholder or by his duly authorized
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attorney-in-fact. Such proxy shall be filed with the secretary before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
Section 1.10. Voting by Ballot. The votes for directors, and upon the
demand of any stockholder or when required by law, the votes upon any question
before the meeting, shall be by ballot.
Section 1.11. Voting Lists. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares of stock registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present.
Section 1.12. Place of Meeting. The Board of Directors may designate any
place, either within or without the state of incorporation, as the place of
meeting for any annual meeting or any special meeting called by the Board of
Directors. If no designation is made or if a special meeting is otherwise
called, the place of meeting shall be the principal office of the Corporation.
Section 1.13. Voting of Stock of Certain Holders. Shares of capital stock
of the Corporation standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the by-laws of such
corporation may prescribe, or in the absence of such provision, as the board of
directors of such corporation may determine.
Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor ward or an incompetent person may be voted by his
administrator, executor, court-appointed guardian or conservator, either in
person or by proxy, without a transfer of such stock into the name of such
administrator, executor, court-appointed guardian or conservator. Shares of
capital stock of the Corporation standing in the name of a trustee may be voted
by him, either in person or by proxy.
Shares of capital stock of the Corporation standing in the name of a
receiver may be voted, either in person or by proxy, by such receiver, and stock
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority to do so is contained in any
appropriate order of the court by which such receiver was appointed.
A stockholder whose stock is pledged shall be entitled to vote such stock,
either in person or by proxy, until the stock has been transferred into the name
of the pledgee, and thereafter the pledgee shall be entitled to vote, either in
person or by proxy, the stock so transferred.
Shares of its own capital stock belonging to this Corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding
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stock at any given time, but shares of its own stock held by it in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding stock at any given time.
Article II
Board of Directors
Section 2. 1. General Powers. The business, affairs, and the property of
the Corporation shall be managed and controlled by the Board of Directors (the
"Board"), and, except as otherwise expressly provided by law, the Certificate of
Incorporation or these Bylaws, all of the powers of the Corporation shall be
vested in the Board.
Section 2.2. Number of Directors. The number of directors which shall
constitute the whole Board shall be not fewer than one nor more than five.
Within the limits above specified, the number of directors shall be determined
by the Board of Directors pursuant to a resolution adopted by a majority of the
directors then in office.
Section 2.3. Election, Term and Removal. Directors shall be elected at the
annual meeting of stockholders to succeed those directors whose terms have
expired. Each director shall hold office for the term for which elected and
until his or her successor shall be elected and qualified. Directors need not be
stockholders. A director may be removed from office at a meeting expressly for
that purpose by the vote of stockholders holding not less than two-thirds of the
shares entitled to vote at an election of directors.
Section 2.4. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the affirmative vote of a majority of the remaining directors then in office,
though less than a quorum; except that vacancies resulting from removal from
office by a vote of the stockholders may be filled by the stockholders at the
same meeting at which such removal occurs provided that the holders of not less
than two-thirds of the outstanding capital stock of the Corporation (assessed
upon the basis of votes and not on the basis of number of shares) entitled to
vote for the election of directors, voting together as a single class, shall
vote for each replacement director. All directors elected to fill vacancies
shall hold office for a term expiring at the time of the next annual meeting of
stockholders and upon election and qualification of his successor. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of an incumbent director.
Section 2.5. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the president or to the secretary of the
Corporation. The resignation of any director shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 2.6. Place of Meetings, etc. The Board of Directors may hold its
meetings, and may have an office and keep the books of the Corporation (except
as otherwise may be provided for by law), in such place or places in or outside
the state of incorporation as the Board from time to time may determine.
Section 2.7. Regular Meetings. Regular meetings of the Board of Directors
shall be held
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as soon as practicable after adjournment of the annual meeting of stockholders
at such time and place as the Board of Directors may fix. No notice shall be
required for any such regular meeting of the Board.
Section 2.8. Special Meetings. Special meetings of the Board of Directors
shall be held at places and times fixed by resolution of the Board of Directors,
or upon call of the chairman of the Board, if any, or vice-chairman of the
Board, if any, the president, an executive vice president or two-thirds of the
directors then in office.
The secretary or officer performing the secretary's duties shall give not
less than twenty-four hours notice by letter, telegraph or telephone (or in
person) of all special meetings of the Board of Directors, provided that notice
need not given of the annual meeting or of regular meetings held at times and
places fixed by resolution of the Board. Meetings may be held at any time
without notice if all of the directors are present, or if those not present
waive notice in writing either before or after the meeting. The notice of
meetings of the Board need not state the purpose of the meeting.
Section 2.9. Participation by Conference Telephone. Members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
regular or special or any other meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
Section 2.10. Action by Written Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if prior or subsequent to such action
all the members of the Board or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
Section 2.11. Quorum. A majority of the total number of directors then in
office shall constitute a quorum for the transaction of business; but if at any
meeting of the Board there be less than a quorum present, a majority of those
present may adjourn the meeting from time to time.
Section 2.12. Business. Business shall be transacted at meetings of the
Board of Directors in such order as the Board may determine. At all meetings of
the Board of Directors, the chairman of the Board, if any, the president, or in
his absence the vice-chairman, if any, or an executive vice president, in the
order named, shall preside.
Section 2.13. Interest of Directors in Contracts. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of the Corporation's
directors or officers, are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as
to the
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contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by
vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the
Board of Directors, a committee of the Board of Directors or
the stockholders.
(b) Interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Section 2.14. Compensation of Directors. Each director of the Corporation
who is not a salaried officer or employee of the Corporation, or of a subsidiary
of the Corporation, shall receive such allowances for serving as a director and
such fees for attendance at meetings of the Board of Directors or the executive
committee or any other committee appointed by the Board as the Board may from
time to time determine.
Section 2.15. Loans to Officers or Employees. The Board of Directors may
lend money to, guarantee any obligation of, or otherwise assist, any officer or
other employee of the Corporation or of any subsidiary, whether or not such
officer or employee is also a director of the Corporation, whenever, in the
judgment of the directors, such loan, guarantee, or assistance may reasonably be
expected to benefit the Corporation; provided, however, that any such loan,
guarantee, or other assistance given to an officer or employee who is also a
director of the Corporation must be authorized by a majority of the entire Board
of Directors. Any such loan, guarantee, or other assistance may be made with or
without interest and may be unsecured or secured in such manner as the Board of
Directors shall approve, including, but not limited to, a pledge of shares of
the Corporation, and may be made upon such other terms and conditions as the
Board of Directors may determine.
Section 2.16. Nomination. Subject to the rights of holders of any class or
series of stock having a preference over the common stock as to dividends or
upon liquidation, nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of stockholders, the close of business on the last day of the eighth month after
the immediately preceding annual meeting of stockholders, and (ii) with respect
to an election to be
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held at a special meeting of stockholders for the election of directors, the
close of business on the fifth day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors, and; (e) the consent of
each nominee to serve as a director of the Corporation if so elected. The
presiding officer at the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
Article III
Committees
Section 3.1. Committees. The Board of Directors, by resolution adopted by a
majority of the number of directors then fixed by these By-Laws or resolution
thereto, may establish such standing or special committees of the Board as it
may deem advisable, and the members, terms, and authority of such committees
shall be set forth in the resolutions establishing such committee.
Section 3.2. Executive Committee Number and Term of Office. The Board of
Directors may, at any meeting, by majority vote of the Board of Directors, elect
from the directors an executive committee. The executive committee shall consist
of such number of members as may be fixed from time to time by resolution of the
Board of Directors. The Board of Directors may designate a chairman of the
committee who shall preside at all meetings thereof, and the committee shall
designate a member thereof to preside in the absence of the chairman.
Section 3.3. Executive Committee Powers. The executive committee may, while
the Board of Directors is not in session, exercise all or any of the powers of
the Board of Directors in all cases in which specific directions shall not have
been given by the Board of Directors; except that the executive committee shall
not have the power or authority of the Board of Directors to (i) amend the
Certificate of Incorporation or the By-Laws of the Corporation, (ii) fill
vacancies on the Board of Directors, (iii) adopt an agreement or certification
of ownership, merger or consolidation, iv) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, or a dissolution of the Corporation or a revocation of a
dissolution, (v) declare a dividend, or (vi) authorize the issuance of stock.
Section 3.4. Executive Committee Meetings. Regular and special meetings of
the executive committee may be called and held subject to the same requirements
with respect to time, place and notice as are specified in these By-Laws for
regular and special meetings of the Board of Directors. Special meetings of the
executive committee may be called by any member thereof. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
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special or regular meeting of the executive meeting if a quorum is present. At
any meeting at which every member of the executive committee shall be present,
in person or by telephone, even though without any notice, any business may be
transacted. All action by the executive committee shall be reported to the Board
of Directors at its meeting next succeeding such action.
The executive committee shall fix its own rules of procedure, and shall
meet where and as provided by such rules or by resolution of the Board of
Directors, but in every case the presence of a majority of the total number of
members of the executive committee shall be necessary to constitute a quorum. In
every case, the affirmative vote of a quorum shall be necessary for the adoption
of any resolution.
Section 3.5. Executive Committee Vacancies. The Board of Directors, by
majority vote of the Board of Directors then in office, shall fill vacancies in
the executive committee by election from the directors.
Article IV
The Officers
Section 4. 1. Number and Term of Office. The officers of the Corporation
shall consist of, as the Board of Directors may determine and appoint from time
to time, a chief executive officer, a president, one or more executive
vice-presidents, a secretary, a treasurer, a controller, and/or such other
officers as may from time to time be elected or appointed by the Board of
Directors, including such additional vice-presidents with such designations, if
any, as may be determined by the Board of Directors and such assistant
secretaries and assistant treasurers. In addition, the Board of Directors may
elect a chairman of the Board and may also elect a vice-chairman as officers of
the Corporation. Any two or more offices may be held by the same person. In its
discretion, the Board of Directors may leave unfilled any office except as may
be required by law.
The officers of the Corporation shall be elected or appointed from time to
time by the Board of Directors. Each officer shall hold office until his
successor shall have been duly elected or appointed or until his death or until
he shall resign or shall have been removed by the Board of Directors.
Each of the salaried officers of the Corporation shall devote his entire
time, skill and energy to the business of the Corporation, unless the contrary
is expressly consented to by the Board of Directors or the executive committee.
Section 4.2. Removal. Any officer may be removed by the Board of Directors
whenever, in its judgment, the best interests of the Corporation would be served
thereby.
Section 4.3. The Chairman of the Board. The chairman of the Board, if any,
shall preside at all meetings of stockholders and of the Board of Directors and
shall have such other authority and perform such other duties as are prescribed
by law, by these By-Laws and by the Board of Directors. The Board of Directors
may designate the chairman of the Board as chief
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executive officer, in which case he shall have such authority and perform such
duties as are prescribed by these By-Laws and the Board of Directors for the
chief executive officer.
Section 4.4. The Vice-Chairman. The vice-chairman, if any, shall have such
authority and perform such other duties as are prescribed by these By-Laws and
by the Board of Directors. In the absence or inability to act of the chairman of
the Board and the president, he shall preside at the meetings of the
stockholders and of the Board of Directors and shall have and exercise all of
the powers and duties of the chairman of the Board. The Board of Directors may
designate the vice-chairman as chief executive officer, in which case he shall
have such authority and perform such duties as are prescribed by these By-Laws
and the Board of Directors for the chief executive officer.
Section 4.5. The President. The president shall have such authority and
perform such duties as are prescribed by law, by these By-Laws, by the Board of
Directors and by the chief executive officer (if the president is not the chief
executive officer). The president, if there is no chairman of the Board, or in
the absence or the inability to act of the chairman of the Board, shall preside
at all meetings of stockholders and of the Board of Directors. Unless the Board
of Directors designates the chairman of the Board or the vice-chairman as chief
executive officer, the president shall be the chief executive officer, in which
case he shall have such authority and perform such duties as are prescribed by
these By-Laws and the Board of Directors for the chief executive officer.
Section 4.6. The Chief Executive Officer. Unless the Board of Directors
designates the chairman of the Board or the vice-chairman as chief executive
officer, the president shall be the chief executive officer. The chief executive
officer of the Corporation shall have, subject to the supervision and direction
of the Board of Directors, general supervision of the business, property and
affairs of the Corporation, including the power to appoint and discharge agents
and employees, and the powers vested in him by the Board of Directors, by law or
by these By-Laws or which usually attach or pertain to such office.
Section 4.7. The Executive Vice-Presidents. In the absence of the chairman
of the Board, if any, the president and the vice-chairman, if any, or in the
event of their inability or refusal to act, the executive vice-president (or in
the event there is more than one executive vice-president, the executive
vice-presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the chairman of
the Board, of the president and of the vice-chairman, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chairman
of the Board, the president and the vice-chairman. Any executive vice-president
may sign, with the secretary or an authorized assistant secretary, certificates
for stock of the Corporation and shall perform such other duties as from time to
time may be assigned to him by the chairman of the Board, the president, the
vice- chairman, the Board of Directors or these By-Laws.
Section 4.8. The Vice-Presidents. The vice-presidents, if any, shall
perform such duties as may be assigned to them from time to time by the chairman
of the Board, the president, the vice-chairman, the Board of Directors, or these
By-Laws.
Section 4.9. The Treasurer. Subject to the direction of chief executive
officer and the
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Board of Directors, the treasurer shall have charge and custody of all the funds
and securities of the Corporation; when necessary or proper he shall endorse for
collection, or cause to be endorsed, on behalf of the Corporation, checks, notes
and other obligations, and shall cause the deposit of the same to the credit of
the Corporation in such bank or banks or depositary as the Board of Directors
may designate or as the Board of Directors by resolution may authorize; he shall
sign all receipts and vouchers for payments made to the Corporation other than
routine receipts and vouchers, the signing of which he may delegate; he shall
sign all checks made by the Corporation (provided, however, that the Board of
Directors may authorize and prescribe by resolution the manner in which checks
drawn on banks or depositaries shall be signed, including the use of facsimile
signatures, and the manner in which officers, agents or employees shall be
authorized to sign); unless otherwise provided by resolution of the Board of
Directors, he shall sign with an officer-director all bills of exchange and
promissory notes of the Corporation; whenever required by the Board of
Directors, he shall render a statement of his cash account; he shall enter
regularly full and accurate account of the Corporation in books of the
Corporation to be kept by him for that purpose; he shall, at all reasonable
times, exhibit his books and accounts to any director of the Corporation upon
application at his office during business hours; and he shall perform all acts
incident to the position of treasurer. If required by the Board of Directors,
the treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such sure ties as the Board of Directors may require.
Section 4.10. The Secretary. The secretary shall keep the minutes of all
meetings of the Board of Directors, the minutes of all meetings of the
stockholders and (unless otherwise directed by the Board of Directors) the
minutes of all committees, in books provided for that purpose; he shall attend
to the giving and serving of all notices of the Corporation; he may sign with an
officer-director or any other duly authorized person, in the name of the
Corporation, all contracts authorized by the Board of Directors or by the
executive committee, and, when so ordered by the Board of Directors or the
executive committee, he shall affix the seal of the Corporation thereto; he may
sign with the president or an executive vice-president all certificates of
shares of the capital stock; he shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors or the executive committee may direct, all of which shall, at all
reasonable times, be open to the examination of any director, upon application
at the secretary's office during business hours; and he shall in general perform
all the duties incident to the office of the secretary, subject to the control
of the chief executive officer and the Board of Directors.
Section 4.11. The Controller. The controller shall be the chief accounting
officer of the Corporation. Subject to the supervision of the Board of
Directors, the chief executive officer and the treasurer, the controller shall
provide for and maintain adequate records of all assets, liabilities and
transactions of the Corporation, shall see that accurate audits of the
Corporation's affairs are currently and adequately made and shall perform such
other duties as from time to time may be assigned to him.
Section 4.12. The Assistant Treasurers and Assistant Secretaries. The
assistant treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors may determine. The assistant secretaries as
thereunto authorized by the Board of Directors may sign with the chairman of the
Board, the president, the vice-chairman or an executive vice-president,
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certificates for stock of the Corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The assistant treasurers
and assistant secretaries, in general, shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or chief
executive officer, the Board of Directors, or these By-Laws.
Section 4.13. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
Section 4.14. Voting upon stocks. Unless otherwise ordered by the Board of
Directors or by the executive committee, any officer, director or any person or
persons appointed in writing by any of them, shall have full power and authority
in behalf of the Corporation to attend and to act and to vote at any meetings of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise any and all the rights and
powers incident to the ownership of such stock, and which, as the owner thereof,
the Corporation might have possessed and exercised if present. The Board of
Directors may confer like powers upon any other person or persons.
Article V
Contracts and Loans
Section 5.1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 5.2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Article VI
Certificates for Stock and Their Transfer
Section 6.1. Certificates for Stock. Certificates representing stock of the
Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the chairman of the Board, the
president, the vice-chairman or an executive vice-president and/or by the
secretary or an authorized assistant secretary and shall be sealed with the seal
of the Corporation. The seal may be a facsimile. If a stock certificate is
countersigned (i) by a transfer agent other than the Corporation or its
employee, or (ii) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be a facsimile. In the event that any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. All certificates for stock shall be
<PAGE>
AMERICAN KIOSKS CORP.. BYLAWS Page Number 13
- --------------------------------------------------------------------------------
consecutively numbered or otherwise identified. The name of the person to whom
the shares of stock represented thereby are issued, with the number of shares of
stock and date of issue, shall be entered on the books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificates shall be issued until the former certificate for a like
number of shares of stock shall have been surrendered and canceled, except that,
in the event of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 6.2. Transfers of Stock. Transfers of stock of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the Corporation, and on
surrender for cancellation of the certificate for such stock. The person in
whose name stock stands on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
Article VII
Fiscal Year
Section 7. 1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January in each year and end on the last day of December in
each year.
Article VIII
Seal
Section 8.1. Seal. The Board of Directors shall approve a corporate seal
which shall be in the form of a circle and shall have inscribed thereon the name
of the Corporation.
Section 9. 1. Waiver of Notice. Whenever any notice is required to be given
under the provisions of these By-Laws or under the provisions of the Certificate
of Incorporation or under the provisions of the corporation law of the state of
incorporation, waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Attendance of any person at a
meeting for which any notice is required to be given under the provisions of
these By-Laws, the Certificate of Incorporation or the corporation law of the
state of incorporation shall constitute a waiver of notice of such meeting
except when the person attends for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
<PAGE>
AMERICAN KIOSKS CORP.. BYLAWS Page Number 14
- --------------------------------------------------------------------------------
Article IX
Waiver of Notice
Article X
Amendments
Section 10.1. Amendments. These By-Laws may be altered, amended or repealed
and new By-Laws may be adopted at any meeting of the Board of Directors of the
Corporation by the affirmative vote of a two-thirds or more of the members of
the Board, or by the affirmative vote of the holders of 75 percent or more of
the outstanding capital stock of the Corporation (assessed upon the basis of
votes and not on the basis of number of shares) entitled to vote generally in
the election of directors, voting together as a single class, cast at a meeting
of the stockholders called for that purpose.
Article XI
Indemnification
Section 11. 1. Indemnification. The Corporation shall indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware, as amended from time to time.
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE ASSIGNED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE TRANSACTION RELATING THERETO
COMPLIES WITH OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
SUCH LAWS AND THE COMPANY IS PROVIDED AN OPINION OF COUNSEL TO THAT EFFECT WHICH
IS SATISFACTORY TO IT.
AMERICAN KIOSK CORPORATION
12.00% Senior Secured Promissory Note
For value received, the undersigned, American Kiosk Corporation ("Borrower"
or the "Company"), promises to pay to the order of ________________________(the
"Holder") the principal sum of ________________________($_______) DOLLARS, with
interest at a rate of 12.00% per annum (computed on the basis of a 365-day year
and 12 equal calendar months). Principal shall be paid 12 months from the date
of issuance. Accrued interest shall be paid monthly in arrears commencing on the
first day of the month following the issuance of this Note. All payments shall
be made at the Holder's address set forth below, or such other place as may be
designated in writing by Holder and in U.S. funds. Any capitalized terms not
defined herein shall have the meanings ascribed them in that certain Loan and
Security Agreement, dated as of September 25, 1998.
Notwithstanding any provision contained herein to the contrary, the total
amount which may be due and payable pursuant hereto, including late charges,
shall not exceed the maximum amount of such interest permitted by law to be
charged, collected or received, and if any payments include interest in excess
of such a maximum amount, the Company shall apply the excess to the reduction of
the unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded by the Holder.
The Note Holder may from time to time, at his sole discretion, convert the
indebtedness evidenced by this Note into shares of the Company's common stock at
a conversion price equal to 115% of the closing bid price of the Company's
common stock on the date of conversion. In addition, the Borrower may, in its
sole discretion, prepay this Note, in whole or in part, without penalty.
This Note is one of a series of 12.00% Notes issued by the Company to be in
the aggregate principal amount of up to $300,000.
Events of Default; No Waiver; Notice.
a) The following events shall constitute events of default (any of which is
referred to
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<PAGE>
as an "Event of Default") under this Note:
(i) A default in the payment of any amount under this Note, when and
as the same shall become due and payable.
(ii) A default in the performance, or a breach of any of the covenants
of the Company contained in this Note or the Loan and Security Agreement and
continuance of such default or breach for a period of 30 days after receipt of
notice from the Holder as to such breach or after the Company had or should have
had knowledge of such breach.
(iii) A default or event of default which remains uncured following
any applicable cure period shall have occurred with respect to any Senior Debt
or Junior Debt, as defined in the Loan and Security Agreement.
(iv) Any representation, warranty or certification made by the Company
pursuant to this Note or the Loan and Security Agreement shall prove to have
been false or misleading as of the date made or thereafter in any material
respect.
(v) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company or any Subsidiary and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof shall not
be procured, within 60 days from the date of entry thereof and the Company or
such Subsidiary shall not, within such 60-day period, or such longer period
during which execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.
(vi) The entry of a decree or order by a court having jurisdiction
adjudging the Company or any Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary, under federal bankruptcy law, as now
or hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, and the continuance of any such decree or order
unstayed and in effect for a period of 60 days; or the commencement by the
Company or any Subsidiary of a voluntary case under federal bankruptcy law, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency, or other similar law, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief under
federal bankruptcy law or any other applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or any Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or any Subsidiary in furtherance
of any such action.
(vii) If Richard J. Michael shall cease serving as President and Chief
Executive
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<PAGE>
Officer of the Company or if a majority of the Company's board of directors no
longer consists of individuals currently serving on the board.
(b) Upon the occurrence of an Event of Default referred to in Section
(a)(i), (vi), or (vii), this Note shall become and be due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company. Upon the occurrence of
an Event of Default other than one referred to in Sections (a)(i), (vi), or
(vii), the Agent or the Holders of not less than 50% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare, by written notice to the Company,
all amounts due under the Notes to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company.
(c) No failure or delay on the part of the Holder in the exercise of any
power or right in this Note shall operate as a waiver thereof, and no exercise
or waiver of any single power or right, or the partial exercise thereof, shall
affect the Holder's rights with respect to any and all other rights and powers.
(d) The Company shall give prompt written notice to the Agent (as
hereinafter defined) upon the occurrence of any Event of Default and shall
provide regular reports to the Agent as to the timely payment of any amounts due
hereunder.
Prohibited Liens.
The Company will not, without the prior written consent of the Placement
Agent, mortgage, pledge, assign, grant a security interest in, cause a lien or
encumbrance to attach to any property owned by it except: (a) the lien and
security interest to the Holders; (b) liens in the ordinary course of business;
(c) taxes and assessments not yet delinquent; (d) additional indebtedness to be
raised by the Placement Agent, (e) Senior Debt outstanding on the date hereof or
created hereafter with the express written consent of the Placement Agent, (iv)
Capital Lease Obligations, if any, (v) purchase money Indebtedness, and (vi)
Junior Indebtedness. Upon the failure of the Company to remove any such
prohibited lien within thirty (30) days of the Company's receipt of notice of
its existence, all amounts owing hereunder shall, at the Holder's option, become
due and payable.
Miscellaneous.
(a) The Company waives presentation and demand for payment, notice of
dishonor, protest and notice of protest of this Note.
(b) The Company shall furnish to the agent appointed by the Company to act
on behalf of the Holders (the "Agent"), and to any Holder upon request during
the continuance of an Event
-3-
<PAGE>
of Default, a list of the names and addresses of, and principal amount of Notes
held by, the Holders.
(c) The provisions of this Note shall inure to the benefit of and extend to
the Holder or any holder hereof or any assigns of the Holder and be binding upon
any successors of the Company.
(d) Any notice given pursuant to this Note shall be in writing and shall be
deemed to have been given when delivered by hand or deposited for certified mail
delivery in the United States mail with postage prepaid and addressed to the
party for whom it is intended at the address for such party set forth above or
at such other address as to which the parties may from time to time notify each
other in like manner.
(e) This Note shall be governed by and construed under the laws of the
State of Connecticut, without reference to and regardless of the application of
any of its principles of conflicts of laws.
(f) In the event of default and if this Note is placed in the hands of an
attorney for the collection hereof, the Company agrees to pay all reasonable
costs of collection, including reasonable attorney's fees.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
25th day of September, 1998.
AMERICAN KIOSK CORPORATION
By:
--------------------------------------
Richard J. Michael, President
Attest:
- --------------------------------
Art Scott, Secretary
Holder's Name and Address:
-4-
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE ASSIGNED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS THE TRANSACTION RELATING THERETO
COMPLIES WITH OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
SUCH LAWS AND THE COMPANY IS PROVIDED AN OPINION OF COUNSEL TO THAT EFFECT WHICH
IS SATISFACTORY TO IT.
AMERICAN KIOSK CORPORATION
11.00% Senior Secured Promissory Note
For value received, the undersigned, American Kiosk Corporation ("Borrower"
or the "Company"), promises to pay to the order of (the "Holder")
the principal sum of ($ ) DOLLARS, with interest at a rate
of 11.00% per annum (computed on the basis of a 365-day year and 12 equal
calendar months). Principal and all accrued but unpaid interest shall be paid 30
months from the date of issuance. Accrued interest shall be paid monthly in
arrears commencing on the first day of the month following the issuance of this
Note. All payments shall be made at the Holder's address set forth below, or
such other place as may be designated in writing by Holder and in U.S. funds.
Any capitalized terms not defined herein shall have the meanings ascribed them
in that certain Loan and Security Agreement, dated as of September 25, 1998.
Notwithstanding any provision contained herein to the contrary, the total
amount which may be due and payable pursuant hereto, including late charges,
shall not exceed the maximum amount of such interest permitted by law to be
charged, collected or received, and if any payments include interest in excess
of such a maximum amount, the Company shall apply the excess to the reduction of
the unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded by the Holder.
This Note is one of a series of 11.00% Notes issued by the Company to be in
the aggregate principal amount of up to $2,000,000.
Events of Default; No Waiver; Notice.
a) The following events shall constitute events of default (any of which is
referred to as an "Event of Default") under this Note:
(i) A default in the payment of any amount under this Note, when and
as the same shall become due and payable.
(ii) A default in the performance, or a breach of any of the covenants
of the Company contained in this Note or the Loan and Security Agreement and
continuance of such
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<PAGE>
default or breach for a period of 30 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach.
(iii) A default or event of default which remains uncured following
any applicable cure period shall have occurred with respect to any Senior Debt
or Junior Debt, as defined in the Loan and Security Agreement.
(iv) Any representation, warranty or certification made by the Company
pursuant to this Note or the Loan and Security Agreement shall prove to have
been false or misleading as of the date made or thereafter in any material
respect.
(v) A final judgment or judgments for the payment of money in excess
of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company or any Subsidiary and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof shall not
be procured, within 60 days from the date of entry thereof and the Company or
such Subsidiary shall not, within such 60-day period, or such longer period
during which execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.
(vi) The entry of a decree or order by a court having jurisdiction
adjudging the Company or any Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary, under federal bankruptcy law, as now
or hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, and the continuance of any such decree or order
unstayed and in effect for a period of 60 days; or the commencement by the
Company or any Subsidiary of a voluntary case under federal bankruptcy law, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency, or other similar law, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief under
federal bankruptcy law or any other applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or any Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or any Subsidiary in furtherance
of any such action.
(vii) If Richard J. Michael shall cease serving as President and Chief
Executive Officer of the Company or if a majority of the Company's board of
directors no longer consists of individuals currently serving on the board.
(viii) If the Company fails to enter into an insurance trust for the
benefit of the Lenders as contemplated in the Company's Private Placement
Memorandum, dated November 17, 1998, as supplemented, by March 24, 1999, which
date may be extended at the Agent's sole discretion.
-2-
<PAGE>
(b) Upon the occurrence of an Event of Default referred to in Section
(a)(i), (vi), or (vii), this Note shall become and be due and payable
immediately, without presentation, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company. Upon the occurrence of
an Event of Default other than one referred to in Sections (a)(i), (vi), or
(vii), the Agent or the Holders of not less than 50% in principal amount of then
outstanding Notes (excluding any Notes held by or for the account of the Company
or any affiliate of the Company) may declare, by written notice to the Company,
all amounts due under the Notes to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company.
(c) No failure or delay on the part of the Holder in the exercise of any
power or right in this Note shall operate as a waiver thereof, and no exercise
or waiver of any single power or right, or the partial exercise thereof, shall
affect the Holder's rights with respect to any and all other rights and powers.
(d) The Company shall give prompt written notice to the Agent (as
hereinafter defined) upon the occurrence of any Event of Default and shall
provide regular reports to the Agent as to the timely payment of any amounts due
hereunder.
Prohibited Liens.
The Company will not, without the prior written consent of the Placement
Agent, mortgage, pledge, assign, grant a security interest in, cause a lien or
encumbrance to attach to any property owned by it except: (a) the lien and
security interest to the Holders; (b) liens in the ordinary course of business;
(c) taxes and assessments not yet delinquent; (d) additional indebtedness to be
raised by the Placement Agent, (e) Senior Debt outstanding on the date hereof or
created hereafter with the express written consent of the Placement Agent, (iv)
Capital Lease Obligations, if any, (v) purchase money Indebtedness, and (vi)
Junior Indebtedness. Upon the failure of the Company to remove any such
prohibited lien within thirty (30) days of the Company's receipt of notice of
its existence, all amounts owing hereunder shall, at the Holder's option, become
due and payable.
Miscellaneous.
(a) The Company waives presentation and demand for payment, notice of
dishonor, protest and notice of protest of this Note.
(b) The Company shall furnish to the agent appointed by the Company to act
on behalf of the Holders (the "Agent"), and to any Holder upon request during
the continuance of an Event of Default, a list of the names and addresses of,
and principal amount of Notes held by, the Holders.
-3-
<PAGE>
(c) The provisions of this Note shall inure to the benefit of and extend to
the Holder or any holder hereof or any assigns of the Holder and be binding upon
any successors of the Company.
(d) Any notice given pursuant to this Note shall be in writing and shall be
deemed to have been given when delivered by hand or deposited for certified mail
delivery in the United States mail with postage prepaid and addressed to the
party for whom it is intended at the address for such party set forth above or
at such other address as to which the parties may from time to time notify each
other in like manner.
(e) This Note shall be governed by and construed under the laws of the
State of Connecticut, without reference to and regardless of the application of
any of its principles of conflicts of laws.
(f) In the event of default and if this Note is placed in the hands of an
attorney for the collection hereof, the Company agrees to pay all reasonable
costs of collection, including reasonable attorney's fees.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
25th day of September, 1998.
AMERICAN KIOSK CORPORATION
By:
------------------------------------
Richard J. Michael, President
Attest:
- --------------------------------
Larry E. Graybill, Secretary
Holder's Name and Address:
-4-
AGREEMENT
BETWEEN
AMERICAN KIOSK INC.
AND
TOPPERS BRICK OVEN PIZZA
AGREEMENT, made as of the___1st___ day of __August______, 1997, between TOPPERS
BRICK OVEN PIZZA, INCORPORATED, a corporation organized under the laws of the
State of Delaware with offices located at 2845 Terwood Road, Willow Grove, PA
19090 ("TOPPERS") and AMERICAN KIOSK CORPORATION, a Corporation organized under
the laws of Delaware with offices at 4400 P.G.A. Boulevard, Suite 700, Palm
Beach Florida 33410 ("A.K.C.").
WHEREAS, Toppers has developed certain distinctive fast-food pizza products
described on Exhibit 1 attached hereto whose unique characteristics include
preparation using secret formula recipes and baking in a brick oven ( the
"Products").
WHEREAS, Toppers has the exclusive right to distribute and sell or lease a
compact pizza brick oven (the "Oven") for use in connection with the baking of
the fast food products bearing the Trademarks ( as defined ).
WHEREAS, Toppers owns, or has the rights to use in connection with the Products
and Oven, trade names, trademarks, service marks, copyrights, slogans, designs,
insignia, emblems, symbols, package design, logos, and other proprietary
identifying characteristics and information and materials, including those
designated on Exhibit 2 attached hereto (collectively, the "Trademarks").
WHEREAS, Toppers desires to have its Products sold for consumption in kiosks and
kiosk-style retail environments. ( "Kiosks" ).
WHEREAS, American Kiosk Corp. desires to sell Toppers "Products" through a
network of Corporate and Franchised Kiosk and/or kiosk-style retail outlets for
ultimate consumption in the U.S.A.
WHEREAS, Toppers is willing to give the exclusive right to AKC to market Toppers
"Products " to a network of Corporate and Franchised Kiosks and/or Kiosk-style
retail outlets in the U.S.A.
NOW THEREFORE, the parties hereto, in consideration of the mutual covenants
herein contained and promises herein expressed for other good and valuable
consideration, receipt whereof is hereby acknowledged, do hereby agree as
follows:
<PAGE>
ARTICLE 1
DEFINITIONS
When used herein, whether in the singular or plural, the following terms have
the respective meanings set forth below:
1.1 "Confidential Information"- Any business and technical information of or
relating to Toppers, the Products including but not limited to, training
materials, financial information, trade secrets, know-how methods of operation,
research and development, pricing, surveys, drawings, patent data, sketches,
models, copyrightable data and the like; provided however, that such term shall
exclude (i) information developed independently by AKC or lawfully received from
another source without breach of this agreement as documented in the dated or
written records of AKC; (ii) information within the public domain; (iii)
information known to AKC prior to the execution of this agreement (iv)
information rightfully received by AKC after the execution of this agreement
from a third party who learned of it or developed it independently from Toppers;
and (v) information disclosed pursuant to law, judicial order or governmental
regulation; provided that Toppers shall have been given the opportunity to seek
a protective order or other action to prevent or limit such disclosure.
1.2 "Copyrights"- Any copyrightable works created, owned controlled or used by
Toppers and/or AKC in connection with the Products.
1.3 "Kiosks"- A retail-style outlet either free-standing, or as an addition to
an existing retail-style outlet including fixed outlets, drive-thru outlets,
mobile outlets, or any variation thereof marketed either Corporately or through
a network of Franchisees by AKC.
1.4 "Financial Statements"- for any entity shall mean a balance sheet as at a
specified date and statements operations, retained earnings(deficit) and
cashflow, prepared in accordance with GAAP or such other accounting method which
is reasonably acceptable to both Toppers and AKC.
1.5 "GAAP"- for all purposes of this agreement, generally accepted accounting
principles set forth in the opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and/or in Statements of the
Financial Accounting Standards Board, which principals were (or should have
been) used in the preparation of the Financial Statements referred to in
Sections 3.5 and 4. 1.2.
1.6 "Oven"- shall mean the patented compact brick oven, or any future
generations of the oven Toppers develops and manufactures or has manufactured
including but not limited to future variations, capabilities, changes etc.
<PAGE>
1.7 "Food Products"- the fast food pizza and related products currently
manufactured by or for, and sold by Toppers and/or AKC in connection with their
respective businesses including but not limited to line extensions, new
products, revisions to existing products etc. as described in Exhibit I hereto.
1.8 "Retail Outlets"- Shall mean retail environments at which goods are sold to
consumers.
1.9 "Trademarks"- all trademarks of Toppers and/or AKC used in connection with
the "Products" in their respective businesses, including without limitation,
trade names which either party owns, controls, or has the right to use now or in
the future, including the Trademarks specified on Exhibit 2.
<PAGE>
ARTICLE 2
APPOINTMENT
2.1 Subject to Section 2.2.1 hereof, Toppers appoints AKC, and AKC accepts such
appointment as Toppers exclusive seller and marketer of Products through
"Kiosks" for ultimate consumption in the USA. In connection with such
appointment AKC shall (i) purchase the "Products" from Toppers in accordance
with the terms hereof, (ii) sell the "Products" to Corporate and/or Franchised
Kiosk operators in the USA in the minimum quantities during each of the years
during the initial term as set forth in Exhibit 3 hereto and thereafter in
accordance with the applicable purchasing quotas if any ( as defined in Section
4.1.10 hereof).
2.2 Anything herein to the contrary not withstanding, Toppers, has the right for
itself and/or any of its subsidiaries at Toppers sole discretion to:
2.2.1 sell and or lease the "Products" to: Any person, Distributor, Route
Operator, or End-user provided the same is restricted to application not
competing with AKC's exclusive right to market and sell "Kiosk" opportunities.
2.2.2 promote and advertise, at its expense, Products in the USA, including
presentations and promotions to customers in the USA, provided such
presentations or promotions do not infringe on the exclusive appointment of AKC
to market and/or sell "Products" to "Kiosk" customers.
2.2.3 change (a) from time to time the "Products" and the features,
specifications, packaging and pricing, upon not less than 90 days written notice
to AKC, (b) any policies relating to the promotion, advertising, and sale of the
"Products" including but without limitation, maintenance and/or warranties on
the "Products" upon not less than 90 days written notice to AKC, provided that
all or any of the above shall not materially affect AKC's cost of doing business
in the USA and/or affect its ability to fulfill its obligations to Toppers
during the term of the agreement.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AKC
AKC represents, warrants, and covenants as follows:
3.1 AKC is a Corporation, duly organized and in good standing under the laws of
Delaware, and that the execution, delivery and performance of this agreement has
been duly authorized by all necessary legal action;
3.2 the execution, delivery and performance of this agreement by AKC is not
subject to any requirement of prior license or approval of the Government of the
USA;
3.3 the execution, delivery and performance of the agreement by AKC will not
constitute a breach of or default under another agreement or instrument to which
AKC is a party or by which AKC or its properties are bound;
3.4 the terms and conditions of this agreement, and the performance of AKC
contemplated hereunder, conform to, and are consistent with the laws and
regulations in effect in the USA.
3.5 AKC is in material compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, and local governments (and all agencies
thereof);
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TOPPERS
Toppers represents, warrants, and covenants as follows:
4.1 Toppers is a Corporation duly organized and in good standing under the laws
of Delaware and that the execution, delivery and performance of this agreement
has been duly authorized by all necessary legal action;
4.2 the execution, delivery and performance of this agreement by Toppers is not
subject to any requirement of prior license or approval of the Government of the
USA;
4.3 the execution, delivery and performance of the agreement by Toppers will not
constitute a breach of or default under any other agreement or instrument to
which Toppers is a party or by which Toppers or its properties are bound;
4.4 the terms and conditions of this agreement, and the performance of Toppers
contemplated hereunder, conform to, and are consistent with the laws and
regulations in effect in the USA;
4.5 Toppers is in material compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, and local governments(and all agencies
thereof);
<PAGE>
ARTICLE 5
DUTIES OF AKC
5.1 During the term of this agreement, AKC shall:
5.1.1 use its best efforts to maximize the consumption of the "Products"
throughout the USA and to that end: maintain a qualified staff, experienced and
skilled in the distribution of goods corresponding in quality to the "Products";
develop, monitor, maintain and support a network of Corporate and/or Franchised
"Kiosk" outlets in the USA; engage in capital investments, leases,, and/or
acquisition of services or equipment necessary to carry out the maximum
distribution of the "Products" at AKC's sole discretion. Diligently promote and
make every reasonable effort to increase sales of the "Products".
5.1.2 maintain an adequate inventory of the "Products" as is deemed
necessary and prudent by AKC to maximize sales.
5.1.3 adhere to the handling requirements of the "Products" as set forth by
Toppers, and destroy (at AKC's expense) including the cost of the "Products",
any inventory unsold at its expiration date thereof-,
5.1.4 use its best efforts to ensure that all Products sold to consumers in
the USA are prepared in accordance with Toppers policies, procedures, and
standards, provided these are consistent with the "kiosk" unit.
5.1.5 ensure that all Ovens are stored and maintained in accordance with
Toppers policies, procedures, and standards and that all ovens in Kiosk units
are in proper working order and comply with all applicable health and safety
rules and regulations provided that the Ovens are delivered to AKC already
meeting such rules and regulations.
5.1.6 notify Toppers forthwith, in writing, of problems encountered in the
promotion, advertising, sale, and/or distribution of the Products.
5.1.7 maintain standard account by account records for each Kiosk including
purchasing records, service records etc.
5.1.8 implement a system of tracking all products, and a recall system
consistent with Toppers tracking and recall systems.
<PAGE>
5.1.9 keep confidential all Confidential Information and use such solely for
the purposes of AKC's performance under this agreement. AKC acknowledges that
such information is valuable to Toppers and any breach of this covenant could
cause harm to Toppers for which damages may result.
5.1.10 maintain in full force adequate insurance as provided by law and
adequate liability insurance. All policies shall be issued by companies having
not less than Best's Triple A rating and shall name Toppers as an additional
insured, for the mutual and joint protection and benefit of each of the parties
hereto.
5.1.11 notify Toppers forthwith of any actual or potential material adverse
change in AKC's financial condition.
5.1.12 During the term of this agreement, and upon adequate notice, provide
Toppers access to AKC's facilities for the purposes of examining and inspecting
any perishable products, and non-perishable ovens to ensure that the criteria
set forth as to quality assurance is being adhered to. In the event that such
inspection indicates a deficiency or unsatisfactory conditions, AKC will have a
reasonable time to correct and repair such conditions. In the event of failure
of AKC to correct and/or repair these conditions, Toppers will have the right at
AKC's expense to remedy the situation to its sole satisfaction.
5.1.13 not engage, directly or indirectly through a third person with whom
or in which it has any interest, in the distribution, promotion, advertising,
sale or lease or solicitation of purchases or leasing of any goods similar to
Toppers "Products".
5.1.14 not use any of the Trademarks as part of any Corporate name or trade
name or with any suffix, or other modifying works, terms, designs, etc. or with
the sale or lease of any goods or services not expressly authorized by Toppers
in writing.
5.2 Prior to commencing operation hereunder, AKC shall;
5.2.1 obtain all necessary licenses, approvals, permits or any other
certifications required by public authority for the lawful operation of it
business and to keep the same in good standing for the term of this agreement.
5.3 AKC shall commence the performance of its duties hereunder, including but
not limited to, the sale of Products for use in the Kiosks in accordance with
the terms hereof no later than December 1,1997.
<PAGE>
5.4 In connection with the appointment of each Kiosk Operator, AKC shall:
5.4.1 use its best efforts to not permit activities by any Kiosk operator or
AKC subsidiary, which conflict with or are inconsistent with the terms set forth
herein.
5.4.2 use its best efforts to not permit any Kiosk operator from using any
of the Trademarks except as expressly authorized by AKC with the prior approval
in writing from Toppers.
5.4.3 use its best efforts to monitor, and promptly take corrective action
if necessary, the conduct of the Kiosk operator to ensure he/she maintains
ethical business practices: AKC shall promptly investigate any and all
irregularities in business standards that Toppers teams of and will respond in
writings to Toppers all actions taken by AKC.
<PAGE>
ARTICLE 6
DUTIES OF TOPPERS
6.1 During the term of this agreement, Toppers shall:
6.1.1 provide AKC with all the necessary technical knowledge and information
regarding the "Products" required to carry on the business and maximize the
distribution of the Products in the USA.
6.1.2 provide AKC with details on new "Product" developments included but
not limited to new Oven generations, added features etc., new Food Product
development, included but not limited to line extensions, new category
development etc. in a timely fashion so as to enable AKC to prepare for and
maximize the distribution of these "Products" as it deems fit.
6.1.3 use its best efforts to respond to requests from AKC on new "product"
development as it relates to either equipment(oven) and/or Food products.
6.1.4 execute manufacturing contracts such that there is adequate
manufacturing capabilities available to satisfy the purchasing requirements of
both Toppers and AKC for the term of this agreement. In the event that Toppers
is unable to fulfill written purchase orders from AKC in a manner which will do
irreparable harm to AKC, Toppers agrees to grant AKC the right to purchase
"Products" from outside sources until such time as Toppers is able to deliver to
AKC.
6.1.5 keep confidential all Confidential Information on AKC and use such
solely for the purposes of increasing the sales and distribution of the Products
in the USA. Toppers acknowledges that such information is valuable to AKC and
any breach of this covenant could cause harm to AKC for which damages may
result.
<PAGE>
ARTICLE 7
ORDERS
7.1 "Products" may be ordered by AKC only pursuant to written purchase orders on
the forms approved by Toppers. No purchase order may contain any terms or
conditions inconsistent with the terms and conditions set forth herein.
7.2 Toppers agrees to fulfill every purchase order AKC issues, FOB plant, as per
the terms and conditions set forth herein within 28 days of receipt of said
purchase order.
ARTICLE 8
PAYMENT TERMS
8.1 Unless Toppers should otherwise agree in writing, payment for the "Products"
purchased by AKC hereunder shall be in United States Dollars payable to Toppers
via check or electronic funds transfer.
8.2 The prices of the "Products" are those quoted by Toppers. All pricing is
guaranteed for 180 days with Toppers advising AKC of any price changes 90 days
in advance of the changes. As of the date of the execution of this agreement,
the prices of the Products are as set forth in Exhibit 1. It is further agreed
that price increases passed on to AKC will not exceed actual price increases
percentage passed on by Toppers manufacturers.
<PAGE>
ARTICLE 9
DELIVERY TERMS
9.1 Unless Toppers should otherwise agree in writing , Products shall be
available for shipping FOB Toppers, or its manufacturing facilities. Toppers
assumes no liability for the carrier shipping the goods. AKC is responsible for
all shipping costs from Toppers and/or its manufacturers warehouses to its
distribution system or Kiosk units.
9.2 In the event Toppers is unable to ship the purchase order in its entirety,
Toppers will advise AKC in writing as to the time frame the balance of the order
will be shipped. In the event such a delay would cause irreparable damage to
AKC, AKC will be granted the remedies as set forth in Section 6.1.
ARTICLE 10
PRODUCT WARRANTY
10.1 Toppers warrants that the "Products" shall, when tendered for delivery to
AKC's carrier, comply with all legal requirements applicable to goods
corresponding to Products as the case may be, sold in the USA. Should any
Products fail to conform to the foregoing warranty, Toppers obligations will be
to replace the non-conforming Products in a timely fashion. In the event that
Toppers is unable to replace the Product in a timely fashion, and such delay
causes AKC irreparable harm, Toppers agrees to grant AKC the rights of
replacement as set out in Section 6.1.4.
10.2 Toppers has the right to modify any product warranty with 90 days notice to
AKC so long as it does not materially affect AKC's business or ability to
perform its obligations under the terms of this agreement. All modifications to
warranties will be applied prospectively.
<PAGE>
ARTICLE 11
TRADEMARKS AND COPYRIGHTS
11.1 During the term of this agreement, and any renewals hereof, AKC shall
diligently promote and make every reasonable effort to increase the sales of the
Products.
11.2 AKC acknowledges that it has no right or interest in Trademarks or
Copyrights (except as expressly permitted under Section 11.2 hereof) and that
use by AKC of same shall inure solely to the benefit of Toppers. AKC may use
Trademarks or Copyrights only in strict accordance with policies and
instructions of Toppers, and Toppers reserves the right, from time to time to
modify such policies so long as they do not materially affect AKC's business or
its ability to perform its obligations in this agreement.
11.3 Any use by AKC of Trademarks or Copyrights shall be solely for the
promotion and advertising of the Products and/or AKC's business within the USA.
AKC further agrees that any use of the Trademarks and Copyrights to be used in
any printed materials, signage, POS materials, packaging, etc. must be approved
by Toppers in writing prior to its use.
11.4 AKC shall not at any time:
11.4.1challenge the validity of or do anything which might result in the
impairment of the value of the Trademarks.
11.5 At Toppers request, and with reasonable notice, AKC will furnish Toppers
with copies of promotional, advertising, and packaging materials bearing the
Trademarks or Copyrights(whether alone or in combination with AKC corporate
name, or other AKC Corporate sponsors). AKC shall act prudently and in
conformity with all laws, regulations, ordinances or other requirements which
may affect the utilization of the Trademarks in a manner which will not
jeopardize, diminish, or damage such Trademarks or Copyrights. AKC further
agrees that if such damage does occur, AKC will indemnify and save harmless
Toppers for any damages or expenses occasioned by AKC's improper use.
<PAGE>
11.6 AKC shall notify Toppers and Toppers shall notify AKC of any unauthorized
use of the Trademarks by others, infringement, unfair competition, passing off,
misappropriation, or unfair trade practice in connection with the Trademark
which comes to either party's attention. Toppers agrees to defend its Trademarks
and Copyrights aggressively and AKC commits to cooperate with Toppers in any
manner the parties agree is required. Any damages awarded to Toppers which
affected the Trademark and/or Copyright use by AKC shall be shared equally
between Toppers and AKC. Any damages awarded to Toppers which did not affect AKC
shall be solely for Toppers regardless if AKC was instrumental in any pursuit or
defense of any action. Should Toppers request AKC's participation in any action,
Toppers will reimburse AKC for any costs associated with any pursuit or defense
which benefits Toppers solely.
11.7 After this agreement expires or is terminated, AKC may not make any use of
any Trademark or Copyrights, including without limitation, the use of the same
in connection with its trade, corporate, or business name, or its use in
connection with all promotional material in any medium, provided Toppers has
performed all its obligations under this agreement. Furthermore, AKC agrees to
take such actions as may be required to cancel all fictitious or assumed names
or equivalent registrations relating to any Trademarks and hereby authorizes
Toppers, its directors and/or solicitors to cancel same in the event AKC is
unable or unwilling to execute the cancellations.
ARTICLE 12
TERM
12.1 This agreement shall become effective as of the date first above written,
and unless earlier terminated in accordance with Sections 12.2 thru 12.4,0 shall
continue in effect until December 31,1998. AKC can renew this Agreement for
another 25 years with a 1 year notice submitted to Toppers in writing in
accordance with Sections 12.2 thru 12.4.
12.2 Either party may terminate this agreement by notice if the other party
fails to cure or fails to attempt to cure the breach of any material provision
of this agreement, including without limitation, breach of any representation,
warranty, duties or any other covenant within 90 days after. receipt of a
written notice setting forth in detail the nature of the other party's breach
hereunder.
<PAGE>
12.3 Toppers may terminate this agreement forthwith upon written notice if:
12.3.1 In the event that AKC files or has filed against it a petition for
Chapter 7 bankruptcy protection, and if such petition and such filing is not
dismissed by the Bankruptcy Court within 180 days.
12.3.2 AKC fails to purchase from Toppers the targeted annual sales
quantities of the Products and sell the targeted number of Kiosk outlets each
year as set forth in Exhibit 3.
12.4 In the event of the expiration or earlier termination of this agreement for
any reason, AKC shall forthwith (i) comply with the instruction of Toppers to
furnish a current and complete list of AKC Kiosk outlets, operators, sales
history, purchasing history etc. (ii) cease and desist from the use of the
Trademarks, and deliver to Toppers all advertising and marketing materials,
forms and other materials containing Trademarks (iii) pay any and all
outstanding moneys owing to Toppers (iv) return all Confidential Information in
its possession and (v) take such actions as may be required under Section 11.7
hereof.
12.5 The expiration or earlier termination of this agreement for any reason
shall not operate to release either party from any liability, whenever arising,
attributable to an act or omission occurring prior to expiration or termination.
12.6 Neither party shall be liable to the other in the event of the expiration
or earlier termination of this agreement, for any compensation or damages of any
type or nature, whether general, special, indirect or consequential, for injury
or loss suffered or incurred by the other party, including without limitation,
loss of anticipated profits or goodwill, damage to business reputation or
investments, capital and related expenditures or any other cost and expenses
made or incurred in anticipation of the continuation of this agreement or as a
result of or in connection with the past relationship of the parties.
<PAGE>
12.7 AKC may terminate this agreement forthwith upon written notice if:
12.7.1 Toppers unreasonably withholds approval for use of its Trademarks
and Copyrights effectively damaging AKC's ability to meet its obligations under
the terms of this agreement.
ARTICLE 13
TRANSFER OF INTEREST
13.1 This Agreement shall inure to the benefit of the successors and assigns of
both Toppers and AKC.
<PAGE>
ARTICLE 14
MISCELLANEOUS
14.1 Neither party shall be liable to the other party for any failure or delay
of performance or other consequences which is due to:
14.1.1 any act of god, act of Government, war, civil disturbance, or other
cause beyond the affected party's reasonable control and power to remedy.
14.2 The waiver by either party of any right hereunder must be reduced to a
writing executed by the duly authorized representative of the party against
which enforcement of the alleged waiver is sought and shall not constitute a
waiver of the subsequent exercise of such right or a waiver of any other right.
Failure of either party to exercise promptly any right granted by this
agreement, or to require strict performance of any obligation undertaken by the
other party herein, shall not be deemed to be a waiver of such right or of the
right to demand subsequent performance of any and all such obligations.
14.3 Except as expressly permitted herein, no amendment of this agreement or
Exhibits hereto shall be effective unless reduced to writing executed by the
duly authorized representatives of both parties, which need not be supported by
additional consideration.
14.4 Except as otherwise expressly provided herein, AKC may neither assign its
rights nor delegate its obligations hereunder directly or indirectly without the
prior consent of the other party. Any such purported assignment or delegation,
in the absence of such consent, shall be void and without effect. Such consent
will not be unreasonably withheld.
14.5 Any provision of this agreement which is finally determined by a competent
court or governmental agency to be unenforceable in any jurisdiction shall, as
to such provision and jurisdiction only, be deemed severed to the extent of such
enforceability and, subject to such severance, this agreement shall continue in
effect in accordance with its other terms and conditions.
<PAGE>
14.6 All notices, consents, and/or other communications permitted or
contemplated by this agreement shall be in writing and shall be valid and
sufficient only if dispatched by certified mail, return receipt requested, in
accordance with postal requirements of the USA, as the case may be, or by
delivery through any recognized courier (such as DHL, or Federal Express),
addressed as follows:
a) if to Toppers:
2845 Terwood Road
Willow Grove, Pennsylvania, 19090
--------------------------------------
Attn: Paul Esposito
b) if to AKC:
4400 PGA BLVD Suite 700
Palm Beach Gardens, Florida, 33410
--------------------------------------
Attn: Richard Michael
Notices, consents and other communications shall be deemed to have been
received 7 days after the date of dispatch thereof in the manner set forth
above.
14.6.1 if any of the above parties change their address, the party who has
changed their address is responsible for notifying the other party of the
address change.
<PAGE>
14.7 THIS AGREEMENT AND THE PERFORMANCE OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF PENNSYLVANIA, USA (without reference to its
principles of conflict of laws).
14.8 Toppers and AKC agree that any suit, action or proceeding with respect to
this agreement and the performance of the parties hereunder shall only be
brought in Montgomery or Philadelphia County, PA. Accordingly, Toppers and AKC
acknowledge that, anything contained in a treaty or convention to the contrary
notwithstanding, service of process in any such suit, action or proceeding may
be effected in any manner then permitted by the Federal or Florida Rules of
Civil Procedure.
14.9 The parties are acting hereunder in their capacities as independent
contractors. Nothing herein contained shall be construed as constituting either
party the employee, agent, partner, or coventurer of the other party, and
neither party shall have any authority to act in the name of, or to enter into
any contractual commitment or other obligation binding on, the other party. In
all dealings with their respective business and public representatives, neither
party shall identify themselves as an agent for the other. Neither party has
authorized the other to employ each's name or any affiliate name in signing any
contract, lease, mortgage, purchase agreement negotiable instrument or other
legal obligation or in a manner that may result in liability to either party or
affiliate of either party except to the extent specifically permitted herein.
14.10 Taxes imposed in connection with the performance of the parties hereunder
shall be borne by the party required to do so by applicable law.
14.11 This agreement and the Exhibits hereto supersedes all prior oral and
written communications between the parties concerned, and constitute their sole
and exclusive understanding with respect to, the subject matter hereof
14.12 Toppers and AKC agree to protect, indemnify, as save each other, their
affiliates, subsidiaries, partners, stockholders, directors, officers, suppliers
and employees harmless from any and all loss, damage, liability, expenses,
attomey's fees, and costs incurred by any of them because of any action, matter,
thing, or conduct relating to either party's conduct with respect to their own
businesses, its agents, servants, employees, customers, in, or connected with
the performance of each party's obligations hereunder including in connection
with the preparation, baking, construction of ovens, sale of the Products and
the servicing of the Products, and any claims of infringement relating to use of
trademarks, copyrighted materials, inventions or other proprietary materials not
supplied by either party.
<PAGE>
ARTICLE 15
FEE
15.1 AKC shall pay to Toppers in cash the amount of $100,000.00. These funds
shall be paid to Toppers as follows; $ 25,000.00 on December 5,1997, $25,000 on
January 15, 1998 and $ 50,000 on February 15,1998. These funds will represent
the consideration Toppers and AKC have agreed to for the exclusive rights to
sell and market Kiosks and Kiosk-style retail operations as defined herein using
Toppers "Products", Trademarks, and Copyrights in the USA.
15.2 AKC shall pay the amount of $200,000.00 on May 1st, 1998. These funds are
considered prepayment on future purchase orders in 1998 and should be applied as
such to the full payment of each purchase order until the prepayment is
exhausted. Any purchases prior to May 1, 1998 shall be paid for as per the terms
of payment set out herein.
IN WITNESS WHEREOF, Toppers and AKC have caused this agreement to be executed by
their duly authorized representatives as of the date first above written.
TOPPPERS BRICK OVEN PIZZA INC.
BY: _______________________________________
NAME ______________________________________
TITLE _____________________________________
AMERICAN KIOSK CORPORATION
BY: _______________________________________
NAME ______________________________________
TITLE _____________________________________
<PAGE>
EXHIBIT 1
PRODUCTS AND PRICING
OVENS
Price for the patented 23 x 17 x 9 110v brick pizza oven is $950.00 FOB TOPPERS
or its manufacturing plants.
FOOD PRODUCTS
Pricing for the current line of 7" Individual Pizza in 4 Varieties packed 36 per
case and 24 per case (depending on supplier) are as follows, FOB Toppers or its
manufacturers:
CHEESE: $1.20 ea.
PEPPERONI: $1.20 ea.
SUPREME: $1.20 ea.
TEX-MEX: $1.20 ea.
Products in development include Breakfast Pizza, Family size pizza, Breadsticks,
encrusted products, and stuffed bread/dough products.
Equipment in development include a more cost effective electronic panel for the
oven, new multiple heating cycle capabilities, electronic door and brick (hands
free).
<PAGE>
EXHIBIT 2
TRADEMARKS
<PAGE>
EXHIBIT 3
MINIMUM SALES VOLUMES
Notwithstanding AKC's obligation to maximize the distribution and sales of the
Products in the USA, during the term of this agreement, the targeted annual
purchases by AKC from Toppers, and the minimum number of Kiosk units to be sold
annually have been agreed to by both parties and set forth below for the first
three years of the agreement:
Year Min. # Kiosk Minimum $ volume of product purchases
by AKC from Toppers
1998 50 $500,000.00
1999 100 $1,000,000.00
2000 150 $1,500,000.00
Minimum volume of Products AKC is committed to purchase from Toppers on an
annual basis after the third year shall be $2.5 million.
ADDENDUM TO AGREEMENT BETWEEN AMERICAN KIOSK
AND TOPPERS BRICK OVEN PIZZA
THIS AGREEMENT made this 15th day of April, 1999, by and between AMERICAN
KIOSK CORPORATION (AKC) AND TOPPERS BRICK OVEN PIZZA, INC. (TOPPERS) IS AN
ADDENDUM TO THE AGREEMENT BETWEEN AMERICAN KIOSK AND TOPPERS BRICK OVEN PIZZA,
INC. (AGREEMENT) dated August 1, 1997.
1. In consideration of the payment of licensing fee in accordance with the
payment schedule contained herein, Toppers Brick Oven Pizza, Inc., agrees to
waive the quota requirements and all pre-purchase requirements as described in
EXHIBIT 3 of THE AGREEMENT BETWEEN AMERICAN KIOSK AND TOPPERS BRICK OVEN PIZZA
dated the 1st day of August, 1997.
2. In consideration of the payment of licensing fee in accordance with the
payment schedule contained herein TOPPERS BRICK OVEN PIZZA, INC. AND AMERICAN
KIOSK CORPORATION agree to price adjustment on food products and ovens as
contained herein.
3. If any payment is not made by AMERICAN KIOSK in accordance with the
payment schedule in this addendum, TOPPERS at its sole discretion, may declare
this agreement and the AGREEMENT BETWEEN AMERICAN KIOSK AND TOPPERS BRICK OVEN
PIZZA, INC. dated August 1st, 1997 in immediate default. AKC, after receipt of
notice from TOPPERS, shall have fourteen (14) business days to cure the default
to keep its good standing under the terms and conditions of this addendum.
4. If Toppers Brick Oven Pizza, Inc. or assigns should be unable, for any
reason to meet the pizza and oven requirements of AKC, then Toppers shall make
arrangements for AKC to obtain products directly from Toppers manufacturers
until such time as Toppers or Toppers assigns can meet the requirements. This
addendum and original agreement shall remain in force except that 8% markup will
not be due to Toppers until such time as Toppers or assigns can meet the
requirements.
<PAGE>
PAYMENT SCHEDULE OF LICENSING FEE
1999 ($220,000)
April 15, 1999 $70,000
May 15, 1999 40,000
June 15, 1999 30,000
July 15, 1999 30,000
August 15, 1999 30,000
September 15, 1999 20,000
2000 ($250,000)
January 15, 2000 50,000
February 15, 2000 25,000
March 15, 2000 25,000
April 15, 2000 25,000
May 15, 2000 25,000
June 15, 2000 25,000
July 15, 2000 25,000
August 15, 2000 25,000
September 15, 2000 25,000
2001 ($300,000)
2002 ($300,000)
2003 ($300,000)
Payment schedule for years 2001, 2002, 2003
January 15, 2001,02,03 $75,000
April 15, 2001,02,03 75,000
July 15, 2001,02,03 75,000
October 15, 2001,02,03 75,000
2004 and each year thereafter for remaining term of the AGREEMENT BETWEEN
AMERICAN KIOSK AND TOPPERS BRICK OVEN PIZZA payment shall be $350,000.
Payment schedule for 2004 and each year thereafter
January 15, $87,500
April 15, 87,500
July 15, 87,500
Oct. 15, 87,500
<PAGE>
The cost of food products for American Kiosk Corporation shall not exceed cost
(as defined herein) plus 8% markup.
Cost is defined cost of goods from manufacturer plus all costs associated with
delivery of product to an American Kiosk controlled drive through outlet. Cost
will include freight charges from manufacturer to Toppers warehouse facility,
border and inspection fees, storage, freight to distributor or remote Toppers
warehouse facility, delivery to American Kiosk location. Cost will vary,
dependent upon location of American Kiosk outlet, charges associated with the
distributor being used, variable freight costs, etc. Cost will not include food
broker fees where such services are not necessary for the delivery of food
products and ovens. In those cases where the distribution of such products and
events require the services of a food broker, Cost will be a discounted
percentage of such fees, as determined by Toppers and AKC.
Oven pricing
Ovens shall be the lesser of Toppers cost plus 8% or $650.00.
FURTHER AGREEMENTS AND CONSENTS
AKC and TOPPERS each agree that no press release regarding this contract shall
be made without prior written notification to, and consent obtained from the
other party. Both parties understand that a press release regarding this
agreement may be necessary to comply with applicable regulations and/or
customary procedures.
Should AKC require distribution areas that are not available, TOPPERS, upon
request from AKC, shall use its best efforts to establish distribution capacity
in the area on a priority basis. AKC shall be responsible for out of pocket
costs associated with these efforts including travel and lodging expense.
IN WITNESS WHEREOF, the parties have executed this Addendum this 15th day of
April, 1999.
TOPPERS BRICK OVEN PIZA, INC. AMERICAN KIOSK CORPORATION
By: By:
---------------------------- ----------------------------
PAUL ESPOSITO, PRESIDENT RICHARD MICHAEL, President
[Pizza Place logo]
-----------------------------------------------------------------
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PIZZA PLACE FRANCHISE AGREEMENT
between
AMERICAN KIOSK CORPORATION
a Delaware corporation
and
---------------------------
Dated: ____________, 199_
Location:
or
Reserved Area:
----------------------------
----------------------------
----------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(c) 1999 Kanouse & Walker, P.A.
Peninsula Executive Center, Suite 270
2385 Executive Center Drive
Boca Raton, Florida 33431
<PAGE>
PIZZA PLACE FRANCHISE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1
<S> <C> <C>
Section 1.1 Grant of Franchise......................................... 2
Section 1.2 Location of Your Pizza Place Franchise..................... 2
Section 1.3 Protected Territory........................................ 2
Section 1.4 Relocation of Your Pizza Place Franchise................... 3
ARTICLE 2
Section 2.1 Site Selection Assistance.................................. 4
Section 2.2 Lease Assistance........................................... 4
Section 2.3 Clothing................................................... 4
Section 2.4 Business Planning Assistance............................... 4
Section 2.5 P.O.S. System.............................................. 5
Section 2.6 Lists, Forms and Schedules................................. 5
Section 2.7 Employee Information and Assistance........................ 5
Section 2.8 Basic Management Training.................................. 6
Section 2.9 Loan of the Manuals........................................ 6
Section 2.10 Pre-Opening Inspection..................................... 6
Section 2.11 Pre-Opening On-Site Training; Opening Supervisor........... 7
Section 2.12 Grand Opening Assistance................................... 7
Section 2.13 Continued Assistance and Support........................... 7
Section 2.14 License of Proprietary Marks............................... 8
Section 2.15 Our Temporary Operation of Your Unit....................... 8
Section 2.16 Duties Solely to You....................................... 9
Section 2.17 Our Right to Delegate Duties............................... 9
ARTICLE 3
Section 3.1 Types of Fees.............................................. 10
Section 3.2 Payment Schedule........................................... 10
Section 3.3 Payment System............................................. 11
Section 3.4 Interest on Late Payments; Late Charge..................... 12
Section 3.5 Application of Payments.................................... 12
Section 3.6 Security Interest.......................................... 12
Section 3.7 No Withholding............................................. 13
ARTICLE 4
Section 4.1 Acquisition of the Site.................................... 13
Section 4.2 Use of the Kiosk........................................... 13
Section 4.3 Maintenance and Repairs.................................... 14
</TABLE>
FOC Exhibit C - i
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 4.4 Operational Requirements................................... 14
Section 4.5 P.O.S. System; E-Mail...................................... 15
Section 4.6 Hiring, Training and Appearance of Employees............... 16
Section 4.7 Management of Your Pizza Place Franchise................... 17
Section 4.8 Approved Specifications and Sources of Supply.............. 17
Section 4.9 Secret Recipe Products..................................... 18
Section 4.10 Credit Cards and Other Methods of Payment.................. 18
Section 4.11 Compliance with Laws, Rules and Regulations................ 19
Section 4.12 Tax Payments; Contested Assessments........................ 19
Section 4.13 Customer Surveys; Customer List............................ 19
Section 4.14 Inspections................................................ 20
Section 4.15 Notices to Us.............................................. 20
(a).................................................... 20
(i)................................................ 20
(ii)............................................... 20
(iii).............................................. 20
(b).................................................... 20
Section 4.16 Operational Suggestions.................................... 20
Section 4.17 Renovation and Upgrading................................... 21
ARTICLE 5
Section 5.1 Our Representations as to the Proprietary Marks............ 21
(a).................................................... 21
(c).................................................... 21
Section 5.2 Your Use of the Proprietary Property....................... 22
(a).................................................... 22
(c).................................................... 22
(d).................................................... 22
(e).................................................... 22
(f).................................................... 22
(g).................................................... 22
(h).................................................... 22
(i).................................................... 23
Section 5.3 Infringement by You........................................ 23
Section 5.4 Claims Against the Proprietary Property.................... 23
Section 5.5 Your Indemnification....................................... 23
Section 5.6 Our Right to Modify the Proprietary Marks.................. 24
Section 5.7 Our Reservation of Rights.................................. 24
Section 5.8 Ownership; Inurement Solely to Us.......................... 25
ARTICLE 6
Section 6.1 In General................................................. 25
Section 6.2 Confidential Use........................................... 25
Section 6.3 Periodic Revisions......................................... 26
</TABLE>
FOC Exhibit C - ii
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
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ARTICLE 7
<S> <C> <C>
Section 7.1 Local Advertising.......................................... 27
(a).................................................... 27
(c).................................................... 27
Section 7.2 Grand Opening Advertising Program.......................... 27
Section 7.3 Regional Cooperative Advertising........................... 28
(a).................................................... 28
(i)................................................ 28
(ii)............................................... 28
(iii).............................................. 28
(iv)............................................... 28
(v)................................................ 28
(vi)............................................... 29
(vii).............................................. 29
(b).................................................... 29
Section 7.4 Special Advertising Expenditures........................... 29
Section 7.5 Marketing Fund............................................. 29
(a).................................................... 29
(c).................................................... 30
Section 7.6 Content and Concepts....................................... 30
Section 7.7 Termination of Expenditures................................ 31
Section 7.8 Advertising Contributions by Us............................ 31
ARTICLE 8
Section 8.1 Records.................................................... 31
Section 8.2 Reports and Statements; Confidentiality.................... 32
Section 8.3 Review and Audit........................................... 33
Section 8.4 Your Name, Home Address and Telephone Number............... 33
ARTICLE 9
Section 9.1 Types and Amounts of Coverage.............................. 34
Section 9.2 Evidence of Insurance...................................... 34
Section 9.3 Our Right to Participate in Claims Procedure............... 34
Section 9.4 Waiver of Subrogation...................................... 35
Section 9.5 Effect of Our Insurance.................................... 35
Section 9.6 Failure to Maintain Insurance.............................. 35
Section 9.7 Group Insurance............................................ 35
ARTICLE 10
Section 10.1 Your Right to Join the Independent Association............. 36
Section 10.2 Our Dealings with the Franchisee Association............... 36
Section 10.3 Annual Convention.......................................... 36
</TABLE>
FOC Exhibit C - iii
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
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ARTICLE 11
<S> <C> <C>
Section 11.1 Transfer by Us............................................. 37
Section 11.2 Transfer by You............................................ 37
(a) Personal Rights.................................... 37
(d).................................................... 38
(e) "For Sale" Restrictions............................ 38
(f) Permitted Transfer................................. 38
(i)................................................ 38
(ii)............................................... 38
(iii).............................................. 38
(iv)............................................... 38
(v)................................................ 38
(vi)............................................... 39
Section 11.3 Transfer Upon Divorce or Partnership Dissolution........... 39
Section 11.4 Transfer Upon Death or Disability.......................... 40
(a).................................................... 40
(b).................................................... 40
Section 11.5 Our Right of First Purchase................................ 41
(a).................................................... 41
(b).................................................... 41
(c).................................................... 41
(d).................................................... 41
(e).................................................... 41
(g).................................................... 42
(h).................................................... 42
(i).................................................... 42
ARTICLE 12
Section 12.1 Termination by You......................................... 43
Section 12.2 Termination by Us - Without Notice......................... 43
Section 12.3 Termination by Us - After Notice........................... 44
(a).................................................... 44
(b).................................................... 44
(c).................................................... 44
(d).................................................... 44
(e).................................................... 44
(f).................................................... 44
(g).................................................... 45
(h).................................................... 45
(i).................................................... 45
(j).................................................... 45
Section 12.4 Termination by Us - After Notice and Right to Cure......... 45
ARTICLE 13
Section 13.1 Cease Operations........................................... 46
</TABLE>
FOC Exhibit C - iv
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 13.2 Payment of Outstanding Amounts............................. 46
Section 13.3 Discontinuance of Use of Trade Name........................ 46
Section 13.4 Our Option to Purchase Your Pizza Place Franchise.......... 47
Section 13.5 Distinguishing Operations.................................. 48
(a).................................................... 48
(b).................................................... 48
(c).................................................... 48
(d).................................................... 49
Section 13.6 Unfair Competition......................................... 49
Section 13.7 Return of Materials........................................ 49
Section 13.8 Our Purchase Rights of Items Bearing Proprietary Marks..... 50
Section 13.9 Liquidated Damages for Premature Termination............... 50
ARTICLE 14
Section 14.1 Diversion of Business; Competition and Interference........ 51
(i)................................................ 51
(ii)............................................... 51
(iii).............................................. 51
(b).................................................... 51
(i)................................................ 51
(ii)............................................... 51
(iii).............................................. 52
(c).................................................... 52
(d).................................................... 52
Section 14.2 Independent Covenants; Third Party Beneficiaries........... 52
ARTICLE 15
Section 15.1 Independent Status......................................... 53
Section 15.2 Indemnification............................................ 53
ARTICLE 16
Section 16.1 Our Representations........................................ 54
(a) Organization....................................... 54
(b) Authorization...................................... 54
(c) No Violation....................................... 54
Section 16.2 Your Representations....................................... 54
(a) Organization....................................... 54
(b) Authorization...................................... 54
(c) No Violation....................................... 55
(d) No Speculative Intent.............................. 55
Section 16.3 Receipt of FOC............................................. 55
Section 16.4 Receipt of Completed Franchise Agreement................... 55
Section 16.5 Acknowledgement of Risk.................................... 55
(a).................................................... 56
</TABLE>
FOC Exhibit C - v
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
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<S> <C> <C>
(b).................................................... 56
(c).................................................... 56
ARTICLE 17
Section 17.1 Mediation.................................................. 57
Section 17.2 Arbitration................................................ 57
(a).................................................... 57
(b).................................................... 57
(h).................................................... 58
(i).................................................... 58
(j).................................................... 58
Section 17.3 Exceptions to Mediation and Arbitration; Equitable Relief.. 59
(a).................................................... 59
(b).................................................... 59
ARTICLE 18
Section 18.1 Term....................................................... 59
Section 18.2 Option to Obtain Successor Pizza Place Franchise Agreement. 59
(a).................................................... 60
(i)................................................ 60
(iii).............................................. 60
(v)................................................ 60
(vi)............................................... 60
(b).................................................... 60
Section 18.3 Reinstatements and Extensions.............................. 61
ARTICLE 19
Section 19.1 Definitions................................................ 61
Section 19.2 Other Definitional Provisions.............................. 66
(a).................................................... 66
(b).................................................... 66
ARTICLE 20
Section 20.1 Amendments................................................. 66
Section 20.2 MODIFICATION OF THE SYSTEM................................. 66
Section 20.3 Binding Effect............................................. 66
Section 20.4 Notices.................................................... 67
Section 20.5 Headings................................................... 67
Section 20.6 Severability............................................... 67
(a).................................................... 67
(b).................................................... 68
Section 20.7 Waivers.................................................... 68
Section 20.8 Enforcement Costs.......................................... 68
</TABLE>
FOC Exhibit C - vi
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
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<S> <C> <C>
Section 20.9 Jurisdiction and Venue..................................... 69
Section 20.10 Remedies Cumulative........................................ 69
Section 20.11 Effectiveness; Counterparts................................ 70
Section 20.12 Reasonableness............................................. 70
Section 20.13 Duty of Good Faith and Fair Dealing........................ 70
Section 20.14 Governing Law.............................................. 70
Section 20.15 Survival................................................... 70
Section 20.16 Force Majeure.............................................. 71
Section 20.17 Third Parties.............................................. 71
Section 20.18 Entire Agreement........................................... 71
Exhibit A to Pizza Place Franchise Agreement............................... 74
Exhibit B to Pizza Place Franchise Agreement............................... 75
Exhibit C to Pizza Place Franchise Agreement............................... 76
Exhibit D to Pizza Place Franchise Agreement............................... 77
Exhibit E to Pizza Place Franchise Agreement............................... 79
</TABLE>
FOC Exhibit C - vii
<PAGE>
PIZZA PLACE FRANCHISE AGREEMENT
THIS PIZZA PLACE FRANCHISE AGREEMENT is signed on _______________, 1999,
between American Kiosk Corporation, a Delaware corporation and
_____________________________.
This Agreement is written in an informal style to make it easy to read and
to help you become thoroughly familiar with all of the important rights and
obligations that this Agreement covers before you sign it. In this Agreement, we
refer to American Kiosk Corporation as "we," "us" or "our." We refer to you as
"you" or "your."
This Franchise Agreement is intended to comply with the Fair Franchising
Standards of the American Association of Franchisees and Dealers ("AAFD"). We
are seeking provisional accreditation and the "Fair Franchising Seal" from the
AAFD.
All capitalized terms are defined in ARTICLE 19.
BACKGROUND
A. We intend to develop a national brand franchise system of kiosk and
kiosk-style retail outlets called Retail-Style Kiosks, Mini-Store Kiosks and
Mobile Kiosks to deliver popular food products to consumers initially focusing
on brick oven pizza.
B. We have entered into a License Agreement with Toppers Brick Oven Pizza,
Incorporated, a Delaware corporation ("TBOP") which grants us the exclusive
rights to sell or lease TBOP's patented compact pizza brick oven and parbaked
pizza and related products through kiosks and/or kiosk-style retail outlets in
the United States.
C. The distinguishing characteristics of the System include: exclusive use
of TBOP's patented compact pizza brick oven for kiosks and/or kiosk-style retail
outlets; Secret Recipe Products; uniform standards and procedures for business
operations; special graphics package; training in the operation, management and
promotion of the Pizza Place Franchise; promotional programs; customer
development and service techniques; and other technical assistance.
D. You recognize the benefits from receiving a Pizza Place Franchise and
desire to enter into this Agreement subject to the terms of this Agreement and
to receive the benefits provided by us under this Agreement.
E. We have reviewed your application and have decided to award a Pizza
Place Franchise to you evidenced by this Agreement.
FOC Exhibit C - 1
<PAGE>
The parties agree as follows:
ARTICLE 1
APPOINTMENT
Section 1.1 Grant of Franchise.
We grant to you, subject to the terms of this Agreement, the right and you
undertake the obligation, to operate 1 Pizza Place Franchise under the System as
checked below only at the location described in Section 1.2.
/x/ Retail-Style Kiosk
/ / Mini-Store Kiosk
/ / Mobile Kiosk
If you purchase a Mini-Store Kiosk and/or a Mobile Kiosk, you must sign not only
this Franchise Agreement but also the applicable Mini-Store Kiosk Rider and/or
Mobile Kiosk Rider attached as Exhibits A and B, respectively.
Section 1.2 Location of Your Pizza Place Franchise.
You agree that you will operate your Pizza Place Franchise only at the
location described in Exhibit C; or, if none is stated, the location will be
designated and Exhibit C completed after you select a site in accordance with
Section 4.1. The location cannot be changed without our written consent and
compliance with our relocation procedures. You will not solicit business outside
your ADI through the use of an 800 number, catalog, direct mail or other
advertising or solicitation method without our consent. We will be responsible
for implementing and coordinating these types of solicitation methods to maximum
sales for the System and to afford you the right to sell to customers located
within your Protected Territory.
Section 1.3 Protected Territory.
During the Term, if you are not in default, we agree not to open or
franchise another Pizza Place Franchise within your Protected Territory.
However, we reserve for ourselves the rights stated in Section 5.7, that are
superior to your rights under this Agreement.
Section 1.4 Relocation of Your Pizza Place Franchise.
(a) Loss of Lease. If the location is leased by you and the lease or
sublease expires
FOC Exhibit C - 2
<PAGE>
or is terminated (provided termination is not due to your default) before the
expiration or termination of this Agreement, you then have 90 days to secure a
new location within your Protected Territory but not within the protected
territory of a Company Unit or another Franchise Unit of the System. The new
location must be approved in writing by us. The minimum Royalty Fee an9d minimum
Advertising Contributions during the period when your Pizza Place Franchise is
not in operation will abate. You have 90 days from the date of the new lease or
new sublease is signed to open and begin full operation of the new Pizza Place
Franchise in compliance with this Agreement unless we otherwise agree in
writing. The failure to secure a new location and begin operation within the
specified times is an Event of Default on your part.
(b) Site Relocation Fee. If you must relocate your Pizza Place Franchise,
you will pay a site relocation fee to us sufficient to cover our reasonable and
necessary direct costs associated with approving the relocation; for example,
site location and/or lease negotiation assistance, legal and accounting fees,
travel expenses and other out-of-pocket costs.
ARTICLE 2
OUR DUTIES
We will provide you with the following assistance and services:
FOC Exhibit C - 3
<PAGE>
Section 2.1 Site Selection Assistance.
We must approve the proposed site in writing before beginning operation. We
will supply to you our site selection criteria which is contained in the Manual.
We will also provide an on-site evaluation in response to your request for site
selection assistance and approval. However, we will not provide on-site
evaluation for any proposed site before receipt of the materials required in the
Manuals. We will not unreasonably withhold approval of any site that meets our
standards for demographic characteristics, traffic patterns, parking, the
predominant character of the neighborhood, competition from other businesses
providing similar services within the area, the proximity to other businesses,
the nature of other businesses in proximity to the site and other commercial
characteristics, the size, appearance and other physical characteristics of the
site, and any other factors that we consider relevant in approving or
disapproving a site. We will review site approval submissions on a first-in
basis. If we do not approve the selected site, you have 30 days to submit a new
site within the Reserved Area for our written approval. WE DO NOT REPRESENT THAT
WE HAVE ANY SPECIAL EXPERTISE IN SELECTING SITES. OUR APPROVAL OF A SITE IS NOT
A REPRESENTATION OR WARRANTY THAT THE PIZZA PLACE FRANCHISE WILL BE PROFITABLE
OR THAT YOUR SALES WILL ATTAIN ANY PREDETERMINED LEVELS. APPROVAL IS INTENDED
ONLY TO INDICATE THAT THE PROPOSED SITE MEETS OUR MINIMUM CRITERIA FOR
IDENTIFYING SITES. YOU AGREE THAT OUR APPROVAL OR DISAPPROVAL OF A PROPOSED SITE
DOES NOT IMPOSE ANY LIABILITY ON US.
Section 2.2 Lease Assistance.
If you intend to lease your location from a third party, we will refer you
to a real estate broker at no cost to you to assist you in your lease
negotiations. Any lease must provide that it is subject to our written approval.
Section 2.3 Clothing.
The Manual contains specifications for Pizza Place clothing (T-shirt, hat
and apron) for your employees to be purchased directly from our approved
suppliers.
Section 2.4 Business Planning Assistance.
After this Agreement is signed by the parties, we will review and comment
on any business plan and pro forma financial projections you prepare and will
also give you leads for securing a working capital line of credit, term loan
and/or equipment lease financing.
FOC Exhibit C - 4
<PAGE>
Section 2.5 P.O.S. System.
We will provide a P.O.S. System as part of the Turnkey Package.
Section 2.6 Lists, Forms and Schedules.
We will loan to you:
(a) An initial set of forms, including the standard brochure and various
operational forms, standardized periodic reporting forms for reporting
accounting information, cost analysis and purchase order forms; and
(b) A schedule of recommended equipment and supplies that can be purchased
from third-party suppliers.
Section 2.7 Employee Information and Assistance.
We will give to you employee hiring information including pay scale
guidelines and a standardized interviewing/selection system. You are solely
responsible for the hiring, disciplining, supervising, promoting and firing of
your employees and the establishment of their salaries.
Section 2.8 Basic Management Training.
(a) Basic Management Training. We will provide 3 Business Days of Basic
Management Training for up to 2 Trainees at our training facilities in Palm
Beach Gardens, Florida or Altamonte Springs, Florida, or at any other location
closer to your Pizza Place Franchise as we specify in writing. Unless otherwise
agreed in writing, at least 1 Trainee must be the Franchise Owner. You may
designate another person who will be active in the day-to-day activities of your
Pizza Place Franchise to be another Trainee. All Trainees must be acceptable to
us. In addition to a written test, Basic Management Training includes
instruction in marketing, promotion and advertising, sales techniques and
computer applications. Training programs may differ for Franchise Owners or
employees depending upon their responsibilities at the Pizza Place Franchise.
Basic Management Training will be provided approximately 30 days before the
Opening Date at a time we schedule. We will provide, at our expense,
instructors, facilities, training materials and technical training tools for
Basic Management Training. You are responsible for all expenses of the Trainees
in attending Basic Management Training including all travel, lodging and meal
expenses. You will pay all expenses incurred to have your additional employees
or agents attend Basic Management Training, including reasonable training fees.
(b) Failure to Complete Basic Management Training. If any Trainee fails to
complete satisfactorily Basic Management Training, as reasonably determined by
us, we may: (i)
FOC Exhibit C - 5
<PAGE>
at your expense, retrain the Trainee or allow you to hire
another Trainee; or (ii) elect to terminate this Agreement and refund the
Initial Franchise Fee and other fees collected under this Agreement to you
without interest, less our out-of-pocket costs and our standard fees for
training (currently $500 per person).
Section 2.9 Loan of the Manuals.
We will loan to you 1 registered copy of each volume of the Manuals (with
revisions as required). Our practice is to deliver the Manuals to you at or
shortly before Basic Management Training.
Section 2.10 Pre-Opening Inspection.
We will provide periodic on-site assistance and inspection of the
installation of the kiosk and equipment and will generally inspect the location.
We will provide you with advice as we deem appropriate to insure that you
conform to applicable standards before the Opening Date.
Section 2.11 Pre-Opening On-Site Training; Opening Supervisor.
We will make available to you pre-opening, on-site training of a minimum of
2 Business Days, in most instances to be conducted at your Pizza Place Franchise
shortly before the Opening Date and during the first 2 days of operation, as we
deem appropriate. The on-site training program will cover material aspects of
the operation of the Pizza Place Franchise including financial control,
marketing techniques, maintenance of quality standards, employee hiring and
motivation, inventory control, security standards, merchandising techniques,
promotional techniques, operations, purchasing and sales. We will also provide
an opening supervisor to assist in the grand opening of your Pizza Place
Franchise and in the on-site training of your employees. Our opening supervisor
will begin assistance on a day we and you mutually agree upon and will remain at
your Pizza Place Franchise for a time (not to exceed 4 consecutive Business
Days) we, in our sole discretion, deem necessary. We will pay the expenses of
the opening supervisor.
Section 2.12 Grand Opening Assistance.
In addition to the on-site training before the Opening Date in Section
2.11, we will provide Grand Opening Assistance.
FOC Exhibit C - 6
<PAGE>
Section 2.13 Continued Assistance and Support.
Upon the opening of your Pizza Place Franchise, we will or may provide
to you the following:
(a) Field Visits. We will provide assistance to you in the development and
operation of your Pizza Place Franchise by means of periodic visits by one of
our field representatives.
(b) Telephone Hotline. We will maintain a telephone "hotline" for
informational assistance.
(c) Advertising and Public Relations Campaigns. We will generally promote
our franchisees through advertising and public relations campaigns.
(d) Local Advertising. We will provide you advice on Local Advertising.
(e) Promotional Methods and Materials. We will provide you with promotional
methods and materials that we develop.
(f) Periodic Assistance. We may provide advisory assistance in the
operation and promotion of the Pizza Place Franchise as we deem advisable.
Advisory assistance may include additional training and assistance,
communication of new developments, improvements in equipment and supplies, and
new techniques in advertising, service and management relevant to the operation
of the Pizza Place Franchise.
(g) Refresher or Additional Training. We may provide refresher training
programs, seminars or advanced management training for you and your employees at
our principal training facility (or any other location we designate provided the
other location is closer to your Pizza Place Franchise), that may be required at
our option. Training is not required more often than once a year. However, if
you receive an unsatisfactory inspection report from us and fail to promptly
remedy the deficiencies, we may require your Manager and designated employees to
attend refresher training as soon as reasonably possible. You are solely
responsible for all expenses associated with these programs including the then
prevailing standard training fee we charge for these programs and all travel,
meals and lodging costs of your attendees.
(h) Special Assistance. If you request, we will furnish non-routine
guidance and assistance to address your unusual or unique operating problems at
reasonable per diem fees, charges and out-of-pocket expenses we establish.
(i) Research and Development. We will continue to research and develop new
products and services, introductions and techniques as we deem appropriate in
our sole discretion. We may conduct market research and testing to determine
consumer trends and the
FOC Exhibit C - 7
<PAGE>
salability of new products and services. If you are chosen by us, and if you
agree, you will participate in our market research programs, in test marketing
new products and services in the Pizza Place Franchise and by providing us with
timely reports and other relevant information regarding that market research. If
you participate in any test marketing, you agree to purchase a reasonable
quantity of the products or services being tested and to effectively promote and
make a good faith effort to sell them.
Section 2.14 License of Proprietary Marks. Subject to this Agreement, we
license to you the right to use the "Pizza Place" trade name.
Section 2.15 Our Temporary Operation of Your Unit.
At our option, if:
(a) you fail to keep your Pizza Place Franchise open for business during
normal business hours;
(b) you are absent from your Pizza Place Franchise more than 5 days or
abandon the Kiosk;
(c) you or the Franchise Owner dies or becomes permanently incapacitated
and the franchise or the ownership interest in the Franchisee is not assigned
promptly under Section 11.4;
(d) you materially breach any of our standards and specifications for the
operation of your Pizza Place Franchise; or
(e) your Pizza Place Franchise is terminated and we elect to purchase your
business assets as provided in Section 11.5;
then, we are entitled (but have no obligation) to enter your location and to
operate and manage your Pizza Place Franchise for your (or your estate's)
account until the Pizza Place Franchise is terminated, transferred to a party
under Subsection 11.2(f), purchased by us, or until you resume control over your
Pizza Place Franchise and operate it in accordance with this Agreement. Our
operation and management will not continue for more than 90 days without your
written consent or the consent of the representatives of your estate. If we
operate your Pizza Place Franchise, we will account to you or your estate for
all net income from the operation less our reasonable expenses incurred in, and
a reasonable management fee for, our operation of your Pizza Place Franchise.
FOC Exhibit C - 8
<PAGE>
Section 2.16 Duties Solely to You.
All of our obligations under this Agreement are only to you. No other party
is entitled to rely on, enforce, or obtain relief for breach of the obligations
either directly or by subrogation.
Section 2.17 Our Right to Delegate Duties.
You agree to our right to delegate our duties under this Agreement to a
Designee. You must discharge your duties with the Designee to the extent we
request, as you must do with us. We remain responsible for our obligations under
this Agreement even if delegated to the Designee.
ARTICLE 3
FEES AND PAYMENTS
Section 3.1 Types of Fees.
In consideration of our signing this Agreement, you must pay to us the
following fees, in addition to any others required under this Agreement, all
payable in United States currency at our principal office:
(a) Turnkey Package Fee. You must pay us a Turnkey Package Fee for the
single unit Retail-Style Kiosk of $89,900 for the purchase of the Kiosk, Brick
Oven and related equipment and accessories (the "Turnkey Package"), as more
particularly described in Exhibit D.
(b) Royalty Fee. You will pay a continuing weekly non-refundable Royalty
Fee during the Term equal to 5% of weekly Gross Revenues.
(c) Advertising Contributions. Once there are a total of at least 100
Franchise Units and Company-Owned Units that are operational, we will create and
operate the Marketing Fund described in Section 7.5. Once the Marketing Fund is
created, you must pay a continuing weekly Advertising Contribution to the
Marketing Fund during the Term in an amount equal to 1% of weekly Gross
Revenues. We have the sole right to enforce your obligations and all other
franchisees who make Advertising Contributions. Neither you, nor any other
franchisee obligated to make Advertising Contributions, is a third party
beneficiary of the funds or has any right to enforce any obligation to
contribute the funds. We reserve the right to increase the Advertising
Contributions paid by you provided: (i) the increase is reasonably necessary to
provide greater advertising and promotional assistance to the Chain; (ii) that
we and a majority of the Franchise Units agree to the increase; (iii) that all
other Franchise Units and Company Units are subject to the same relative
percentage increase in the Advertising Contributions; (iv) the increase is
approved by a majority of the franchisees; and (v) the Advertising Contributions
do
FOC Exhibit C - 9
<PAGE>
not exceed 5% of monthly Gross Revenues.
Section 3.2 Payment Schedule.
The Royalty Fee and Advertising Contribution must be paid to us, together
with any required weekly reports, by Wednesday of each week during the Term for
the previous week. All other amounts due to us from you will be paid as
specified in this Agreement. If no time is specified, these amounts are due upon
receipt of an invoice from us. Any payment or report not actually received by us
on or before the due date is overdue.
Section 3.3 Payment System.
(a) All payments by you to us will be effectuated by a Payment System by
the use of pre-authorized transfers from your operating account through the use
of special checks or electronic fund transfers, that we will process at the time
any payment is due or through the use of any other payment system we designate.
You will cooperate with us to implement the Payment System within 15 days before
the Opening Date. You agree to cooperate with us in maintaining the efficient
operation of the Payment System, including depositing all Gross Revenues you
receive in your operating account accessed by the Payment System within 1
Business Day of receipt.
(b) You will give your financial institution instructions in a form we
provide or approve and will obtain the financial institution's agreement to
follow these instructions. You will provide us with copies of these instructions
and agreement. The financial institution's agreement may not be withdrawn or
modified without our written approval and approval is within our sole
discretion. You will also sign all other forms for funds transfer as we or the
financial institution may request.
(c) We may require your financial institution to send a monthly statement
of all activity in the designated account to us at the same time as it sends
these statements to you, and any other reports of the activity in the operating
account as we reasonably determine and request.
(d) If you maintain any other bank accounts for your Pizza Place Franchise,
you must identify these accounts to us and provide to us copies of the monthly
statements for all these accounts and the details of all deposits and
withdrawals to them.
(e) You will pay all charges imposed by your financial institution. We will
pay the charges imposed by our financial institution for the Payment System.
(f) You agree that your obligations to make payments under this Agreement
and any other agreement entered into with us for your Pizza Place Franchise, and
our rights to receive these payments, are absolute and unconditional, and are
not subject to any abatement, reduction,
FOC Exhibit C - 10
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setoff, defense, counterclaim or recoupment due or alleged to be due to, or by
reason of, any past, present or future claims that you have or may have against
us, any of our Designees, or against any other person for any reason.
Section 3.4 Interest on Late Payments; Late Charge.
Although each failure to pay monies when due is an Event of Default, to
encourage prompt payment and to cover the costs involved in processing late
payments, if any payment under this Agreement or any other agreement between us
or our Affiliates and you for your Pizza Place Franchise is overdue for any
reason, you must pay to us, on demand, in addition to the overdue amount,
interest on the overdue amount from the date it was due until paid equal to the
lesser of: (i) 18% per annum; or (ii) the maximum rate of interest permitted by
law. You must also pay a late charge of $100 for each payment that is overdue.
If we owe you money, we will pay the same interest and late charge, if we pay
you late.
Section 3.5 Application of Payments.
We have sole discretion to apply any payments you make to your past due
indebtedness including the Royalty Fee, Advertising Contributions, purchases
from us, interest or any other indebtedness of you to us in any manner we choose
regardless of your designation.
Section 3.6 Security Interest.
As security for your monetary and other obligations to us, you grant to
us a first priority security interest in all your business assets, including all
furniture, fixtures, machinery, equipment, inventory and all other property,
(tangible or intangible), you now own or later acquire used in your Pizza Place
Franchise and wherever located, and all your contractual and related rights
under this Agreement and all other agreements between the parties. You will sign
all financing statements, continuation statements, notices of lien, assignments,
or other documents as required to perfect and maintain our security interest,
including a UCC-1 Financing Statement in substantially the same form attached as
Exhibit E. We agree to subordinate our security interest to: (i) the landlord's
lien; (ii) the security interest of a reputable institutional lender for a loan
to you for working capital purposes; (iii) the purchase money security interest
of an approved equipment vendor for any equipment you purchase or lease and use
in the operation of your Pizza Place Franchise; or (iv) the purchase money
security interest of a supplier of approved products sold at your Pizza Place
Franchise. You pay all filing fees and costs for perfecting our security
interest.
FOC Exhibit C - 11
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Section 3.7 No Withholding.
You agree that under no circumstances will you withhold or suspend payment
of, or reduce the amount of the Royalty Fee or Advertising Contributions payable
under this Agreement. Notwithstanding the foregoing, if you dispute in good
faith the amount of an individual payment due under this Agreement, you may pay
only the amount you believe is due, provided that you give us prompt notice of
the reasons you dispute the amount of the payment and proceed to make good faith
efforts to resolve the dispute.
ARTICLE 4
YOUR DUTIES
Section 4.1 Acquisition of the Site.
(a) Site Approval. You are solely responsible for selecting the site. If a
site for your Pizza Place Franchise has not been selected on the Agreement Date,
you must complete the acquisition or lease arrangements for your location
located in the Reserved Area, at your expense within 3 months of the Agreement
Date, after obtaining our written approval under Section 2.1. If a site has not
been approved within 3 months of the Agreement Date, we may terminate this
Agreement and refund the Turnkey Package Fee to you without interest, less our
out-of-pocket costs and our standard fees and expenses for any training and
other assistance provided under this Agreement (including site location and
lease negotiation assistance).
(b) Lease of the Site. Any lease or sublease of the location must be
approved by us. You must deliver a copy of the proposed lease or sublease to us
at least 15 days before it is signed by you.
Section 4.2 Use of the Kiosk.
You must use your Kiosk only for the operation of your Pizza Place
Franchise. You must keep your Pizza Place Franchise open for business and in
normal operation for the minimum hours and days as we reasonably require in the
Manuals or otherwise in writing except as may be limited by local law or the
landlord's rules and regulations.
FOC Exhibit C - 12
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Section 4.3 Maintenance and Repairs.
You must maintain your Pizza Place Franchise in the highest and most
uniform degree of sanitation, repair, appearance, condition and security as
stated in the Manuals and as a modern, clean, and efficiently operated Pizza
Place Franchise providing high quality products and services with efficient,
courteous and friendly customer service as we require. You must make all
additions, alterations, repairs and replacements to your Pizza Place Franchise
(but no others without our written consent) as reasonably required for that
purpose, including all periodic repainting, changes in appearance, repairs to
impaired equipment and replacement of obsolete signs as we direct subject to
Capital Expenditure Limitation stated in Section 4.17. You must meet and
maintain the highest safety standards and ratings applicable to the operation of
your Pizza Place Franchise as we reasonably require, including the maintenance
of the highest sanitation rating.
Section 4.4 Operational Requirements.
You agree to operate your Pizza Place Franchise in conformity with all
uniform methods, standards and specifications required in the Manuals or
otherwise, to ensure that the highest degree of quality and service is uniformly
maintained. You agree to:
(a) Record all Gross Revenues on the P.O.S. System;
(b) Comply with the procedures and systems we reasonably institute on a
System-wide basis both now and in the future, including those on sales, good
business practices, advertising and other obligations and restrictions;
(c) Maintain in sufficient supply (as we may reasonably prescribe in the
Manuals or otherwise in writing) and use at all times, only inventory,
equipment, materials, advertising methods and formats, and supplies that conform
with our standards and specifications, if any, at all times sufficient to meet
the anticipated volume of business, and to refrain from deviating from these
requirements without our written consent;
(d) Use menu boards and menus that comply with our specifications for
materials, finish, style, pattern and design;
(e) Adhere to the highest standards of honesty, integrity, fair dealing and
ethical conduct in all dealings with customers, suppliers, employees,
independent contractors, us and the public;
(f) Sell or offer for sale only the products, services, and menu items that
meet our reasonable uniform standards of quality and quantity; have been
expressly approved for sale in the Manuals or otherwise in writing by us at
retail to consumers only from your Pizza Place
FOC Exhibit C - 13
<PAGE>
Franchise; not sell any items for redistribution or resale; sell or offer
for sale all approved products and services; refrain from any deviation from our
standards and specifications for providing or selling the products and services
without our written consent; and discontinue selling and offering for sale any
products and services that we reasonably disapprove on a System-wide basis in
writing at any time;
(g) Purchase and install, at your expense, all fixtures, furnishings, signs
and equipment we reasonably specify. The equipment must be maintained in a
condition that meets the operational standards specified in the Manuals. As
equipment becomes obsolete or inoperable, you will replace the equipment with
the equipment that is then approved for use in the Pizza Place Franchise. If we
determine that additional or replacement equipment is needed on a System-wide
basis because of a change in menu items or method of preparation and service, a
change in technology, customer concerns or health or safety considerations, you
will install the additional equipment or replacement equipment within the time
we specify, subject to the Capital Expenditure Limitation in Section 4.17.
(h) Refrain from selling, or offering for sale, any alcoholic beverages
without our written approval, that approval may be conditioned upon all
requirements as we deem necessary for the protection of the Proprietary Marks
and the System, including the requirement that you comply with all laws and
regulations applicable to the sale of alcoholic beverages and obtain appropriate
insurance coverage for your benefit and our benefit.
Section 4.5 P.O.S. System; E-Mail.
(a) Before the Opening Date you must procure and install at your Pizza
Place Franchise the P.O.S. System we specify in the Manuals or otherwise. You
will provide any assistance we require to bring the P.O.S. System "on-line" with
our computer. You agree that we have the right to retrieve all data and
information from your P.O.S. System as we, in our sole discretion, deem
necessary, with the telephonic cost of retrieval to be paid by you. All of the
items specified to be installed or purchased, or activities specified to be
accomplished by you, and the delivery of all hardware and software, are at your
sole expense.
(b) You must install and maintain, at your own expense, an E-mail link with
us and all other Pizza Place Franchisees. Reasonable minimum hardware and
software standards for these connections will be set by us and may be
periodically revised, and you will have reasonable time to upgrade when
standards change. Standards will include current uniform communications software
in use by the System; word processing and spreadsheet software that is either
the same as that in use at our office or capable of reading and converting files
created by our office; and a computer capable of running the software and
containing reasonable minimums for memory and data storage and a modem connected
via network links to our System. You will be responsible for all normal
communications charges from the networks making connection to our System, for
example, phone bills or bills from an on-line service. Information important to
the Chain will be
FOC Exhibit C - 14
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sent to your computer address electronically. In order to stay informed on
developments affecting the System and your Pizza Place Franchise, you agree to
check your electronic mailbox for system communications on a regular basis.
(c) You agree that computer systems are designed to accommodate a certain
maximum amount of data and terminals, and that, as limits are achieved, and/or
as technology and/or software is developed in the future, we in our sole
discretion may require you to add memory, ports and other accessories and/or
peripheral equipment and/or additional, new or substitute software to the
original P.O.S. System you purchased. You agree that at a certain point in time
it may become necessary for you to replace or upgrade the entire P.O.S. System
with a larger system capable of assuming and discharging all of those
computer-related tasks and functions as we specify. You agree that computer
designs and functions change periodically and that we may be required to make
substantial modifications to our computer specifications, or to require
installation of entirely different systems, during the Term. To ensure full
operational efficiency and communication capability between our computers and
your computers, you will keep the P.O.S. System in good maintenance and repair
and to install all additions, changes, modifications, substitutions and/or
replacements to your computer hardware, software, telephone and power lines and
other computer-related facilities as we direct on those dates and within those
times we specify, in our sole discretion, in the Manuals or otherwise on a
System-wide basis subject to the Capital Expenditure Limitation in Section 4.17.
Upon termination or expiration of this Agreement, all software, disks, tapes and
other magnetic storage media provided to you by us must be returned to us in
good condition (reasonable wear and tear excepted). You will delete all software
and applications from all memory and storage.
Section 4.6 Hiring, Training and Appearance of Employees.
You will maintain a competent, conscientious staff and employ the minimum
number of employees necessary to meet the anticipated volume of business and to
achieve the goals of the System. You will take all steps necessary to ensure
that your employees meet the employment criteria and keep a neat appearance and
comply with any dress code we require, subject to the requirements of landlords.
You are solely responsible for the terms of their employment and compensation
and, except for training required under this Agreement, for the proper training
of the employees in the operation of your Pizza Place Franchise. You are solely
responsible for all employment decisions and functions, including hiring,
firing, establishing wage and hour requirements, disciplining, supervising and
record keeping. You will not recruit or hire any employee of a Pizza Place
Franchise operated by us or another franchisee within the System without
obtaining the employer's written permission.
FOC Exhibit C - 15
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Section 4.7 Management of Your Pizza Place Franchise.
(a) The Manager must devote his or her best full-time efforts to the
management and operation of your Pizza Place Franchise. You agree that your
Pizza Place Franchise requires the day-to-day supervision of the Manager at all
times your Pizza Place Franchise is open for business. The Manager, and all
successive Managers, if any, are required to complete Basic Management Training
before managing your Pizza Place Franchise, unless we otherwise agree in
writing.
(b) If we have permitted the Manager to be an individual other than the
Franchise Owner, and the Manager fails to satisfy his or her obligations
provided in Subsection 4.7(a) due to death, disability, termination of
employment or for any other reason, the Franchise Owner will satisfy these
obligations until you designate a new Manager of your Pizza Place Franchise
acceptable to us who has successfully completed Basic Management Training. You
are solely responsible for the expenses associated with Basic Management
Training, including the then-prevailing standard training fee we charge
(currently $500).
Section 4.8 Approved Specifications and Sources of Supply.
(a) Purchases from Us or Our Affiliates. You must purchase from us the
Turnkey Package, and parbaked pizza and related products and other items that we
require if implemented on a System-wide basis. As to ongoing purchases of
inventory and supplies, you will be charged the same price then being charged to
all franchisees and Company Units equal to our cost plus 10%.
(b) Authorized Specifications and Suppliers. You must purchase or lease
equipment, supplies, inventory, advertising materials, construction services and
other products and services used for the operation of your Pizza Place Franchise
solely from authorized manufacturers, contractors and other suppliers who
demonstrate, to our continuing reasonable satisfaction: (i) the ability to meet
our standards and specifications for these items; (ii) possess adequate quality
controls and capacity to supply your needs promptly and reliably; and (iii) have
been approved in writing by us and not later disapproved. We will use our best
reasonable efforts to negotiate agreements with suppliers that, in our good
faith belief, are in the best interest of all Pizza Place franchisees. We may
approve a single supplier for any brand and may approve a supplier only as to a
certain brand or brands. In approving suppliers for the System, we may take into
consideration factors like the price and quality of the products or services and
the supplier's reliability. We may concentrate purchases with 1 or more
suppliers to obtain the lowest prices and/or the best advertising support and/or
services for any group of Franchise Units or Company Units within the Chain.
Approval of a supplier may be conditioned on requirements on the frequency of
delivery, standards of service, warranty policies including prompt attention to
complaints, and concentration of purchases, as stated above, and may be
temporary, pending our additional evaluation of the supplier.
FOC Exhibit C - 16
<PAGE>
(c) Approval of New Specifications and Suppliers. If you propose to
purchase or lease any equipment, supplies, inventory, advertising materials,
construction services or other products or services from an unapproved supplier,
you must submit to us a written request for approval, or request the supplier to
do so. We will have the right to require, as a condition of our approval, that
our representatives be permitted to inspect the supplier's facilities, and that
samples from the supplier be delivered, at our option, either to us or to an
independent, certified laboratory designated by us for testing. We are not
liable for damage to any sample that results from the testing process. You will
pay a charge not to exceed the reasonable cost of the inspection and the actual
cost of the testing. We reserve the right, at our option, to reinspect the
facilities and products of any approved supplier and continue to sample the
products at the supplier's expense and to revoke approval upon the supplier's
failure to continue to meet our standards and specifications. We may also
require as a condition to our approval, that the supplier present satisfactory
evidence of insurance, for example, product liability insurance, protecting us
and our franchisees against all claims from the use of the item within the
System.
Section 4.9 Secret Recipe Products.
You agree that we have already developed the Secret Recipe Products and may
continue to develop for use in the System certain additional products that are
all highly confidential, secret recipes and are our trade secrets. Due to the
importance of quality control and uniformity of these products and the
significance of the proprietary products to the System, it is to the mutual
benefit of the parties that we closely control the production and distribution
of the Secret Recipe Products. Accordingly, you will use the Secret Recipe
Products and will purchase from us or from an approved source we designate and
license, all of your supplies of the Secret Recipe Products, all in accordance
with our requirements then in effect. All Secret Recipe Products sold by or
through us to you will be sold in accordance with the terms we or the
manufacturer expressly states.
Section 4.10 Credit Cards and Other Methods of Payment.
You will maintain credit card relationships with VISA, MasterCard, American
Express, Diners Club, Discover and all other credit and debit card issuers or
sponsors, check verification services, financial center services, and electronic
fund transfer systems as we designate in order that you may accept customers'
credit and debit cards, checks, and other methods of payment. We reserve the
right to require the addition or deletion of credit card relationships and other
methods of payment is implemented on a System-wide basis.
FOC Exhibit C - 17
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Section 4.11 Compliance with Laws, Rules and Regulations.
You will comply with all federal, state, and local laws, rules and
regulations, and will timely obtain, maintain and renew when required all
permits, certificates, licenses or franchises necessary for the proper conduct
of your Pizza Place Franchise under this Agreement, including qualification to
do business, fictitious, trade or assumed name registration, building and
construction permits, occupational licenses, sales tax permits, health and
sanitation permits and ratings, fire clearances and environmental permits. You
will provide copies of all inspection reports, warnings, certificates and
ratings, issued by any governmental entity during the Term on the conduct of
your Pizza Place Franchise that indicates your material non-compliance with any
applicable law, rule or regulation, to us within 2 days of your receipt of these
items.
Section 4.12 Tax Payments; Contested Assessments.
You will promptly pay when due all taxes required by any federal, state or
local tax authority including unemployment taxes, withholding taxes, sales
taxes, use taxes, income taxes, tangible commercial personal property taxes,
real estate taxes, intangible taxes and all other indebtedness you incur in the
conduct of your Pizza Place Franchise. You will pay to us an amount equal to any
sales tax, goods and services taxes, gross receipts tax, or similar tax imposed
on us for any payments to us required under this Agreement, unless the tax is
measured by or involves the net income or our corporate status in a state. If we
pay any tax for you, you will promptly reimburse us the amount paid. If there is
any bona fide dispute as to liability for taxes assessed or other indebtedness,
you may contest the validity or the amount of the tax or indebtedness in
accordance with procedures of the taxing authority or applicable law. However,
you will not permit a tax sale or seizure by levy or execution or similar writ
or warrant, or attachment by a creditor, to occur against the location or any
assets used in your Pizza Place Franchise.
Section 4.13 Customer Surveys; Customer List.
You will present to customers any evaluation forms we require and will
participate and/or request your customers to participate in any marketing
surveys performed by or for us. You will maintain a current customer list
containing each customer's name, address, telephone number and zip code (9
digits) and supply a copy of the list to us on a quarterly basis. You must
participate in any process we develop to record all customer information. You
retain ownership of your customer lists. We will not use your customer list for
any profit or in any activity adverse to, or in competition with, you.
FOC Exhibit C - 18
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Section 4.14 Inspections.
You will permit us and/or our representatives to enter your location or
office at any time during normal business hours upon reasonable notice, for
purposes of conducting inspections. You will cooperate fully with us and/or our
representatives in inspections by rendering assistance as they may reasonably
request and by permitting them, at their option, to observe how you are selling
the products and rendering the services, to monitor sales volume, to conduct a
physical inventory, to confer with your employees and customers and to remove
samples of any products, supplies and materials in amounts reasonably necessary
to return to our office for inspection and record-keeping. A portion of a sample
we take will be given to you for safe-keeping in a tamper-proof container. The
inspections will be performed in a manner that minimizes interference with the
operation of your Pizza Place Franchise. We and/or you may videotape the
inspections. Upon notice from us, and without limiting our other rights under
this Agreement, you will take all steps necessary to correct immediately any
deficiencies detected during inspections, including immediately stopping use of
any equipment, advertising, materials, products, supplies or other items that do
not conform to our then-current requirements. If you fail or refuse to correct
any deficiency, we have the right, without any claim to the contrary by you, to
enter your location or office without being guilty of trespass or any other
tort, for the purposes of making or causing to be made all corrections as
required, at your expense, payable by you upon demand.
Section 4.15 Notices to Us.
(a) You must notify us in writing within 5 days of any of the following
events:
(i) The start of, any action, suit, implemented or other proceeding
against you or any of your employees that may have a material adverse
effect on the Franchise Unit or the System;
(ii) You or any of your employees receive any notice of noncompliance
with any law, rule or regulation that may have a material adverse effect on
the Franchise Unit or the System; or
(iii) The issuance of any order, writ, injunction, award or decree of
any court, agency or other governmental instrumentality against you or any
of your employees that may have a material adverse effect on the Franchise
Unit or the System.
(b) You will provide us with any information we request, within 5 days of
request, about the progress and outcome of events.
Section 4.16 Operational Suggestions.
You are encouraged to submit suggestions in writing to us for improving
elements of the
FOC Exhibit C - 19
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system, including products, services, equipment, service format,
advertising and any other relevant matters, that we consider adopting or
modifying standards, specifications and procedures for the System. You agree
that any suggestions you make are our exclusive property. We have no obligation
to use any suggestions. If any suggestion is implemented by us, we will
negotiate with you on a reasonable fee for your suggestions based on its value
to the System. You may not use any suggestions inconsistent with your
obligations under this Agreement without our written consent.
Section 4.17 Renovation and Upgrading.
You will abide by our requirements for alterations, remodeling, upgrading
or other any improvements to your Pizza Place Franchise to achieve the strategic
marketing goals of the System. Generally, the standards to comply satisfactorily
will not exceed those applicable to new Franchise Units and new Company Units.
These requirements will not impose an undue economic burden or occur more
frequently than every 5 years. You will bear the entire cost of changes or
additions, for any changes in, or additions of, equipment, furnishings,
fixtures, lighting, carpeting, painting or the taking of other actions we
specify to satisfy our then-current standards for image, positioning, marketing
strategy, cleanliness or appearance but not to exceed total capital expenditures
of $25,000 every 5 years (the "Capital Expenditure Limitation").
ARTICLE 5
PROPRIETARY PROPERTY
Section 5.1 Our Representations as to the Proprietary Marks.
We represent to you that:
(a) We are the sole owner of the "Pizza Place" Proprietary Marks;
(b) We have not sublicensed the Proprietary Marks to any others except
other Pizza Place Franchisees;
(c) We will take all steps necessary to preserve and protect the ownership
and validity of the Proprietary Marks; and
(d) We will take no action that causes a dilution in the value of the
Proprietary Marks.
FOC Exhibit C - 20
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Section 5.2 Your Use of the Proprietary Property.
You may use the Proprietary Property only in accordance with standards and
specifications we reasonably determine and implement on a System-wide basis. You
agree that:
(a) You will use the Proprietary Property only for the operation of your
Pizza Place Franchise at the Kiosk;
(b) You agree not to employ any of the Proprietary Marks in signing any
contract, check, purchase agreement, negotiable instrument or legal obligation,
application for any license or permit, or in a manner that may result in
liability to us for any indebtedness or obligation of yours;
(c) You have no right to pre-package or sell pre-packaged food products or
beverages using the Proprietary Marks unless approved in writing by us;
(d) You will use the Proprietary Marks as the sole service mark
identifications for your Pizza Place Franchise and will display prominently the
Proprietary Marks on and/or with all materials we designate and authorize, and
in the manner we require;
(e) You will not use the Proprietary Property as security for any
obligation or indebtedness;
(f) You will comply with our instructions in filing and maintaining any
required fictitious, trade or assumed name registrations for the "Pizza Place"
trade name, and will sign all documents we or our counsel deem reasonably
necessary to obtain protection for the Proprietary Property and our interest in
the Proprietary Property, for example, John Jones d/b/a "Pizza Place" or ABC,
Inc. d/b/a "Pizza Place;"
(g) You will maintain a suitable sign or graphics package at, or near the
front of the Kiosk only as "Pizza Place." The signage must conform in all
respects to our requirements except to the extent prohibited by local
governmental restrictions or landlord regulations;
(h) All materials including menus, matchbook covers, plastic or paper
products and other supplies and packaging materials used in the System will bear
our Proprietary Marks, as required by us; and
(i) You will exercise caution when using the Proprietary Property to ensure
that the Proprietary Property is not jeopardized in any manner.
Section 5.3 Infringement by You.
FOC Exhibit C - 21
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You acknowledge that the use of the Proprietary Property outside the scope
of this Agreement, without our written consent, is an infringement of our rights
in the Proprietary Property. You agree that during the Term, and after the
expiration or termination of this Agreement, you will not, directly or
indirectly, commit an act of infringement or contest or aid in contesting the
validity of, or our right to, the Proprietary Property, or take any other action
in derogation of our rights.
Section 5.4 Claims Against the Proprietary Property.
If there is any claim of infringement, unfair competition or other
challenge to your right to use any Proprietary Property, or if you become aware
of any use of, or claims to, any Proprietary Property by persons other than us
or our franchisees, you will promptly (within 7 days) notify us in writing. You
will not communicate with anyone except us and our counsel on any infringement,
challenge or claim except under judicial process. We have sole discretion as to
whether we take any action on any infringement, challenge or claim, and the sole
right to control any litigation or other proceeding arising out of any
infringement of, challenge or claim to any Proprietary Property. You must sign
all documents, render all assistance, and do all acts that our attorneys deem
necessary or advisable in order to protect and maintain our interest in any
litigation or proceeding involving the Proprietary Property or otherwise to
protect and maintain our interests in the Proprietary Property.
Section 5.5 Your Indemnification.
We indemnify you against and will reimburse you for all damages you are
held liable in any proceeding from your use of any Proprietary Property in
accordance with this Agreement, but only if you: (a) have timely notified us of
the claim or proceeding in accordance with Section 5.4; (b) have otherwise
complied with this Agreement; and (c) allow us sole control of the defense and
settlement of the action in accordance with Section 5.4.
Section 5.6 Our Right to Modify the Proprietary Marks.
(a) If we deem it advisable to modify or discontinue the use of any of the
Proprietary Marks and/or use 1 or more additional or substitute names or marks,
including due to the rejection of any pending registration or revocation of any
existing registration of any of the Proprietary Marks, due to the rights of
senior users, due to our negligence or due to a radical change in direction of
the System unilaterally caused or mandated by us, you are obligated to do so at
your expense within 30 days of our request. We will only be liable to reimburse
you for your reasonable direct printing and signage expenses in modifying or
discontinuing the use of the Proprietary Marks and substituting different
Proprietary Marks (these expenses will not include any expenditures made by you
to promote the modified or substitute Proprietary Marks).
(b) If the modification or discontinuation of the use of any of the
Proprietary Marks is
FOC Exhibit C - 22
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due to a continuing need to modernize the System, you will
be liable for all expenses in substituting the modified or new Proprietary Marks
in your Pizza Place Franchise.
Section 5.7 Our Reservation of Rights.
(a) You agree that the license of the Proprietary Marks granted to you has
limited exclusivity and that, in addition to our right to use and grant others
the right to use the Proprietary Marks outside the Protected Territory, all
rights not expressly granted in this Agreement to you concerning the Proprietary
Marks or other matters are expressly reserved for us, including the right to
sell any similar Pizza Place products and services authorized for the Pizza
Place Franchise using the Proprietary Marks through dissimilar channels of
distribution including sales through supermarkets, convenience stores and other
retail centers, and under any terms that we deem appropriate within or outside
the Protected Territory without offering or providing you the right to
participate. We will not sell or otherwise distribute any product or service
bearing any of the Proprietary Marks without first determining through
appropriate market research that the sale or distribution of the product or
service, as offered under the proposed marketing plan, is not likely to have a
material negative effect on Gross Revenues for Franchisees generally. We will
fairly compensate you for any sales made within the Protected Territory.
(b) If we acquire a Competitive Business and units of the Competitive
Business encroach upon your Protected Territory, we will have 1 year from the
date of acquisition of the Competitive Business to sell the encroaching units
without being in default under this Agreement.
Section 5.8 Ownership; Inurement Solely to Us.
You agree that: (a) you have no ownership or other rights in the
Proprietary Property, except as expressly granted in this Agreement; and (b) we
are the owner or authorized licensor of the Proprietary Property. You agree that
all good will associated with the Pizza Place Franchise inures directly and
exclusively to our benefit and is our sole and exclusive property except through
profit received from the operation or possible permitted sale of your Pizza
Place Franchise during the Term. You will not in any manner prohibit, or do
anything that would restrict, us or any existing or future franchisee of a
business either similar or dissimilar to the Franchise Unit from using the names
or the Proprietary Marks or from filing any trade name, assumed name or
fictitious name registration with respect to any business to be conducted
outside the Protected Territory or any business within the Protected Territory
that is permitted by this Agreement. If you secure in any jurisdiction any
rights to any of the Proprietary Marks (or any other Proprietary Property) not
expressly granted under this Agreement, you will immediately notify us and
immediately assign to us all of your right, title and interest to the
Proprietary Marks (or any other Proprietary Property).
FOC Exhibit C - 23
<PAGE>
ARTICLE 6
THE MANUALS AND OTHER
CONFIDENTIAL INFORMATION
Section 6.1 In General.
To protect our reputation and good will and to maintain uniform standards
of operation under the Proprietary Marks, you will conduct your Pizza Place
Franchise in accordance with the Manuals. The Manuals are deemed an integral
part of this Agreement with the same effect as if fully stated in this
Agreement.
Section 6.2 Confidential Use.
(a) You will treat and maintain the Confidential Information as our
confidential trade secrets. The Manuals will be kept in a secure area within the
Kiosk. You will strictly limit access to the Confidential Information to your
employees, to the extent they have a "need to know" in order to perform their
jobs. You will report the theft, loss or destruction of the Manuals immediately
to us. Upon the theft, loss or destruction of the Manuals, we will loan to you a
replacement copy at a fee of $200 for each Manual. A partial loss or failure to
update any Manual is considered a complete loss.
(b) You agree that, during and after the Term, you, your owners and
employees will:
(i) Not use the Confidential Information in any other business or
capacity, including any derivative or spin-off of the Pizza Place concept;
(ii) Maintain the absolute secrecy and confidentiality of the
Confidential Information during and after the Term;
(iii) Not make unauthorized copies of any portion of the Confidential
Information disclosed or recorded in written or other tangible form; and
(iv) Adopt and implement all procedures that we prescribe to prevent
unauthorized use or disclosure of, or access to, the Confidential
Information.
(c) All persons whom you permit to have access to the Manuals or any other
Confidential Information, must first be required by you to sign our form of
confidentiality agreement.
Section 6.3 Periodic Revisions.
FOC Exhibit C - 24
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We may change the contents of the Manuals. You will comply with each new or
changed provision beginning on the 30th day (or any longer time as we specify)
after our written notice. Revisions to the Manuals will be based on what we, in
our sole discretion, deem is in the best interests of the System, our interest
and the interest of our Franchisees, including to promote quality, enhance good
will, increase efficiency, decrease administrative burdens, or improve
profitability subject to the Capital Expenditure Limitation stated in Section
4.17. You agree that because complete and detailed uniformity under many varying
conditions may not be possible or practical, we reserve the right, in our sole
discretion and as we may deem in the best interests of all concerned in any
specific instance, to vary standards for any franchisee due to the peculiarities
of the particular site or circumstances, density of population, business
potential, population of trade area, existing business practices or any
condition that we deem important to the successful operation of that
franchisee's Pizza Place Franchise. You are not entitled to require us to grant
to you a similar variation under this Agreement. You will ensure that your copy
of the Manuals contains all updates you receive from us. In any dispute as to
the contents of the Manuals, the terms contained in our master copy of each of
the Manuals we maintain at our home office is controlling.
ARTICLE 7
ADVERTISING
Recognizing the value of advertising, and the importance of the
standardization of advertising programs to the good will and public image of the
System, the parties agree:
Section 7.1 Local Advertising.
(a) You must spend during each month during the Term, beginning on the
Opening Date, at least 2% of monthly Gross Revenues for Local Advertising.
(b) You must submit to us for our approval, all materials to be used for
Local Advertising, unless they have been approved before or they consist only of
materials we provide. All materials containing the Proprietary Marks must
include the applicable designation - service mark _, trademark (TM), registered
(R) or copyright (C), or any other designation we specify. If you have not
received the written or oral disapproval of materials submitted within 10 days
from the date we received the materials, the materials are deemed approved. We
may require you to withdraw and/or discontinue the use of any promotional
materials or advertising, even if previously approved, if in our judgment, the
materials or advertising may injure or be harmful to the System. This
requirement must be made in writing by us, and you have 5 days after receipt of
notice to withdraw and discontinue use of the materials or advertising, unless
otherwise agreed in writing. The submission of advertising to us for our
approval does not affect your right to determine the prices you sell your
products or services.
FOC Exhibit C - 25
<PAGE>
(c) Subject to any legal restrictions, you must include a sign (supplied by
us) in a conspicuous place within the Kiosk as well as on all menus,
substantially the following statement: "Pizza Place Franchise Opportunities
Available." All responses must be immediately referred to us at (800) 496-4250
or any other number we designate and include our corporate address. You have no
authority to act for us in franchise sales.
Section 7.2 Grand Opening Advertising Program.
We will implement a grand opening advertising and promotional program for
your Pizza Place Franchise sometime during the first 60 days after the opening
of your Pizza Place Franchise using a portion of the Turnkey Package Fee that
will contain our standard opening activities and publicity, and advice and
guidance with regard to staffing, decoration, and operation of your Pizza Place
Franchise during the grand opening period.
Section 7.3 Regional Cooperative Advertising.
You agree that we have the right, in our discretion, to establish a
regional advertising cooperative in any ADI. You will immediately upon our
request become a member of the Cooperative for the ADI where some or all of the
Protected Territory is located. Your Pizza Place Franchise is not required to be
a member of more than 1 Cooperative. The Cooperative will be governed in the
manner required by us. The Cooperative has the right to require each of its
members to make contributions to the Cooperative, not to exceed 2% of that
member's monthly Gross Revenues. The following provisions apply to each
Cooperative:
(a) The Cooperative will be organized and governed in a form and manner,
and will begin operation on a date, approved in advance by us in writing;
(i) The Cooperative will be organized for the exclusive purpose of
administering advertising programs and developing, subject to our approval,
standardized promotional materials for use by the members in Local
Advertising in the Cooperative's ADI;
(ii) The Cooperative may adopt its own rules and procedures, but the
rules or procedures must be approved by us and will not restrict nor expand
your rights or obligations under this Agreement. Except as otherwise
provided in this Agreement, and subject to our approval, any lawful action
of the Cooperative at a meeting attended by _ of the members, including
assessments for Local Advertising, is binding upon you if approved by _ of
the members present, with each Pizza Place Franchise anCompany Unit having
1 vote; however no franchisee (or controlled group of franchisees) has more
than 25% of the vote in the Cooperative regardless of the number of Pizza
Place Franchises you own;
FOC Exhibit C - 26
<PAGE>
(iii) No advertising or promotional plans or materials may be used by
the Cooperative or furnished to its members without our written approval.
All plans and materials must be submitted to us in accordance with the
procedure stated in Section 7.1;
(iv) The Cooperative has the right to require its members to make a
contribution to the Cooperative in any amount the Cooperative determines.
This amount will be credited against your obligation for Local Advertising
as provided by Section 7.1; but you are not required to contribute to the
Cooperative in excess of 2% of your monthly Gross Revenues;
(v) Each member will submit to the Cooperative, no later than the 10th
day of each month, for the preceding calendar month, his or her
contribution as provided in Subsection 7.3(a)(iv), together with all other
statements or reports required by us or by the Cooperative with our written
approval;
(vi) If an impasse occurs owing to the inability or failure of the
Cooperative members to resolve within 45 days any issue affecting the
establishment or effective functioning of the Cooperative, the issue will,
upon request of a member of the Cooperative, be submitted to the Advisory
Council (or us, if the Advisory Council does not exist) for consideration
and its resolution of the issue will be final and binding on all members of
the Cooperative; and
(vii) The Cooperative will render quarterly reports to us of its
advertising expenditures.
(b) We, in our sole discretion, may grant to any franchisee an exemption
for any length of time from the requirement of membership in the Cooperative,
upon written request of the franchisee stating reasons supporting the exemption.
Our decision concerning the request for exemption is final. If an exemption is
granted to a franchisee, that franchisee must expend on Local Advertising the
full amount provided in Section 7.1.
Section 7.4 Special Advertising Expenditures.
If you fail to meet your requirements for Local Advertising during any
period specified in this Agreement, upon our request and in addition to our
rights and remedies for failure of you to make the proper expenditures, you will
contribute the amount that you failed to spend on Local Advertising directly to
the Marketing Fund.
FOC Exhibit C - 27
<PAGE>
Section 7.5 Marketing Fund.
(a) We will create a special fund called the "Pizza Place Marketing Fund"
(the "Marketing Fund") for the benefit of all Franchise Units and Company Units
who contribute to the Marketing Fund once there are at least 100 Franchise Units
and Company Units that are operational.
(b) The Marketing Fund will be administered by the Marketing Fund
Committee. The Franchisees will elect or appoint 2 members and we will appoint 2
members to the Marketing Fund Committee to serve for a one-year term
corresponding to the calendar year. The 4-member committee will by a majority
vote determine the selection and placement of national and regional advertising.
Each committee member has one vote. If the Marketing Fund Committee is
deadlocked, our President will decide. The Marketing Fund where Advertising
Contributions will be deposited is maintained and operated by the Marketing Fund
Committee as a fiduciary to you and used to meet the costs of conducting
regional and/or national advertising and promotional activities on a regional or
national scale (including the cost of advertising campaigns, test marketing,
marketing surveys, public relations activities and marketing materials) we deem
beneficial to the System. We are authorized to charge the Marketing Fund fees at
reasonable market rates for advertising, marketing or promotional services
actually provided by us, in lieu of engaging third party agencies to provide
these services. No funds will be used by us to offer to sell, or sell, Pizza
Place Franchises to prospective franchisees.
(c) All expenditures are at the sole discretion of the Marketing Fund
Committee. They may spend in any calendar year more or less than the total
Advertising Contributions to the Marketing Fund in that year. The Marketing Fund
may borrow from us or other lenders to cover deficits of the Marketing Fund or
cause the Marketing Fund to invest any surplus for future use by the Marketing
Fund. You authorize us to act as your sole agent to enter into contracts with
parties offering promotion, discount or other programs whereby you would receive
rebates or marketing allowances ("Rebates") from handling items offered for sale
by the parties. All Rebates will be paid to us and we will contribute them to
the Marketing Fund. By signing this Agreement, you assign all of your right,
title and interest in all Rebates to us, and authorize us to furnish any proof
of purchase evidence as may be required in accordance with the contracts. All
Rebates received by us from our Company-Units will also be contributed to the
Marketing Fund.
FOC Exhibit C - 28
<PAGE>
Section 7.6 Content and Concepts.
(a) The Marketing Fund Committee retains sole discretion over all
advertising, marketing and public relations programs and activities financed by
the Marketing Fund, including the creative concepts, materials and endorsements
used and the geographic market, media placement and allocation. You agree that
the Marketing Fund may be used to pay the costs of preparing and producing
associated materials and programs as we determine, including video, audio and
written advertising materials employing advertising agencies; sponsorship of
sporting, charitable or similar events, administering regional and
multi-regional advertising programs including purchasing direct mail and other
media advertising, and employing advertising agencies to assist with marketing
efforts; and supporting public relations, market research and other advertising,
promotional and marketing activities.
(b) You grant us the right to freely use, without your consent, any
pictures, financial information, or biographical material relating to you or
your Pizza Place Franchise for use in promotional literature or in any other way
beneficial to the Pizza Place organization as a whole. You will cooperate in
securing photographs, including obtaining consents from any persons appearing in
photographs. If we publish anything you feel reflects unfairly or inaccurately
on your Pizza Place Franchise or yourself, we will take all reasonable steps in
our power to retract the material.
(c) You acknowledge that the Advertising Contributions are intended to
maximize general public recognition of and the acceptance of the Proprietary
Marks for the benefit of the System as a whole. The Marketing Fund Committee
undertakes no obligation, in administering the Marketing Fund, to make
expenditures for you that are equivalent or proportionate to your contribution,
or to insure that any particular franchisee or Company Unit benefits directly or
pro rata from advertising or promotion conducted with the Advertising
Contributions.
Section 7.7 Termination of Expenditures.
We maintain the right to terminate the collection and disbursement of the
Advertising Contributions and the Marketing Fund. Upon termination, the
remaining funds will be disbursed by us for the purposes authorized under this
Agreement.
Section 7.8 Advertising Contributions by Us.
Company Units are required to contribute to the Marketing Fund and any
Cooperative on the same basis as you are required to contribute.
FOC Exhibit C - 29
<PAGE>
ARTICLE 8
ACCOUNTING AND RECORDS
Section 8.1 Records.
You will maintain complete and accurate records for the operations of your
Pizza Place Franchise. Records must be segregated from all other not concerning
your Pizza Place Franchise. You must preserve the records for at least 6 years
from the dates of their preparation (including after the termination, transfer
or expiration of this Agreement).
Section 8.2 Reports and Statements; Confidentiality.
(a) Weekly Reports. You must submit to us by Wednesday of each week during
the Term, accurate records reflecting all Gross Revenues of the previous week.
(b) Monthly Reports. You will submit to us by the 10th day of each month
during the Term, in the form we require, accurate records reflecting all Gross
Revenues of the previous month and all other information we require. If you must
collect and remit sales taxes, you must also supply to us copies of your sales
tax returns.
(c) Annual Financial Statements. You must also submit, an annual balance
sheet and income statement, within 90 days of the end of your fiscal year
prepared in accordance with Generally Accepted Accounting Principles. Each
annual statement must be accompanied by an unqualified review report from an
independent certified public accountant acceptable to us, and must be signed by
you or by your treasurer or chief financial officer attesting that the financial
statements are true and correct and fairly present your financial position at
and for the times indicated. You will also supply to us copies of your federal
and state income tax returns at the time these returns are filed with the
appropriate tax authorities. The financial statements and/or other periodic
reports described above must be prepared to segregate the income and related
expenses of your Pizza Place Franchise from those of any other business that you
may conduct.
(d) Confidentiality. We agree to maintain the confidentiality of all
financial information we obtain about your operations, and will not disclose
this financial information to any third party who is not bound to maintain the
confidentiality of the information; provided however, that: (i) we may use the
information in preparing any earnings claims or other information required by
federal or state franchise law; and (ii) we may prepare a composite list of
financial performances by our franchisees for dissemination among the
franchisees, identifying your Gross Revenues and advertising expenditures.
FOC Exhibit C - 30
<PAGE>
Section 8.3 Review and Audit.
We and our representatives have the right at all reasonable times to
examine and copy, at our expense, your records and inspect all cash control
devices and systems and conduct a physical inventory. We have the right to
access your P.O.S. System to determine, among other things, sales activity and
Gross Revenues. We also have the right, at any time, to have an independent
audit made of your records but no more frequently than 2 times a year. If an
inspection reveals that any financial information reported to us (including
Gross Revenues or payments owed to us) has been understated in any report to us,
you must immediately pay to us, upon demand, the amount understated in addition
to interest at the maximum rate permitted by law beginning from the time the
required payment was due. If any inspection discloses an intentional
understatement of 2% or more of Gross Revenues you must, in addition, reimburse
us for the expenses for the inspection (including reasonable accounting and
attorneys' fees and costs). In addition, we reserve the right to require that
all your future year-end financial statements be audited by an independent
certified public accountant reasonably acceptable to us at your expense. These
remedies are in addition to any other remedies we have under this Agreement or
under applicable law. If the audit discloses an overpayment in any amount you
paid to us, we will promptly pay you the amount of the overpayment or offset the
overpayment against any amounts owed to us.
Section 8.4 Your Name, Home Address and Telephone Number.
You agree that, under federal and state franchise laws and other applicable
laws, we may be required to disclose your name, home address and telephone
number and you agree to the disclosure of your name, home address and telephone
number. You must notify us of any change in your name, home address and
telephone number within 10 days of the change. You release us and our officers,
directors, stockholders, agents and legal successors and assigns from all causes
of action, suits, debts, covenants, agreements, damages, judgments, claims and
demands, in law or in equity, that you ever had, now have, or that you later may
have, from our disclosure of your name, home address and telephone number.
FOC Exhibit C - 31
<PAGE>
ARTICLE 9
INSURANCE
Section 9.1 Types and Amounts of Coverage.
You must obtain and maintain the insurance, at your expense, as we require,
in addition to any other insurance that may be required by applicable law, your
landlord, lender or otherwise. All policies must be written by an insurance
company reasonably satisfactory to us with a Best rating of "B" or better and
include the types and amounts of insurance as stated in the Manuals. We may
periodically adjust the amounts of coverage required under the insurance
policies and require different or additional kinds of insurance at any time,
including excess liability insurance, to reflect inflation, identification of
new risks, changes in law or standards of liability, higher damage awards, or
other relevant changes in circumstances, if the changes are required throughout
the System including any Company Units.
Section 9.2 Evidence of Insurance.
You must furnish to us a certificate of insurance issued by an approved
insurance company showing compliance with these requirements and a paid receipt
showing the certificate number. The certificate of insurance must include a
statement by the insurer that the policy will not be canceled, subject to
nonrenewal or materially altered without at least 30 days' written notice to us.
Copies of all insurance policies and proof of payment will be submitted promptly
to us upon our request. You will send to us current certificates of insurance
and copies of all insurance policies on an annual basis.
Section 9.3 Our Right to Participate in Claims Procedure.
We, or our insurer, has the right to participate in discussions with your
insurance company or any claimant (with your insurance company) regarding any
claim. You agree to adopt our reasonable recommendations to your insurance
carrier regarding the settlement of any claims.
Section 9.4 Waiver of Subrogation.
Insofar as and to the extent that this Section may be effective without
invalidating it or making it impossible to secure insurance coverage obtainable
from responsible insurance companies doing business in the state where your
Pizza Place Franchise is located (even though an extra premium may result), the
parties agree that, for any loss that is covered by insurance then being carried
by them, their respective insurance companies have no right of subrogation
against the other.
FOC Exhibit C - 32
<PAGE>
Section 9.5 Effect of Our Insurance.
Your obligation to maintain the policies in the amounts required is not
limited by reason of any insurance we maintain, nor will our performance of your
obligations relieve you of liability under the indemnity provisions in this
Agreement.
Section 9.6 Failure to Maintain Insurance.
If either party fails to maintain the insurance required by this Agreement,
the other party has the right and authority (without any obligation to do so)
immediately to procure the insurance and to charge the cost of the insurance to
the party obligated to maintain the insurance, plus interest at the maximum rate
permitted by law, these charges, together with a reasonable fee for the party's
expenses in so acting, the other party agrees to pay immediately upon notice.
Section 9.7 Group Insurance.
If we make available to you insurance coverage through group or master
policies we arrange including property and casualty, workers' compensation,
liability and health, life and disability insurance, you may participate, at
your expense, in this group insurance program.
ARTICLE 10
INDEPENDENT ASSOCIATION OF PIZZA PLACE FRANCHISEES
Section 10.1 Your Right to Join the Independent Association of Pizza Place
Franchisees
We recognize your right and the other franchisees' right to freely
associate. You and the other franchisees have the right to create an independent
franchise association to be known as the "Independent Association of Pizza Place
Franchisees" (the "Franchisee Association"). The decision to join the Franchisee
Association is solely your decision.
Section 10.2 Our Dealings with the Franchisee Association.
Once at least 51 franchisees, representing at least 51% of the total
franchisees within the System, are members of the Franchisee Association, we
will recognize the Franchisee Association as the official body representing the
franchisees as a group. Any renewal to this Agreement must be collectively
negotiated with the Franchisee Association with both parties agreeing to
negotiate in good faith.
FOC Exhibit C - 33
<PAGE>
Section 10.3 Annual Convention.
We and the Franchisee Association, if any, will coordinate and conduct an
annual convention of the Pizza Place System when we and the Franchisee
Association deem it appropriate the cost of which will be shared as agreed to by
us and the Franchisee Association. Each Franchisee will pay their own travel,
lodging and meal costs to the extent not paid for by us, the Franchisee
Association or sponsors. Representatives of the Franchisor and the Franchisee
Association will coordinate in the planning and agenda of each annual
convention.
ARTICLE 11
TRANSFER OF INTEREST
Section 11.1 Transfer by Us.
We have the right to assign this Agreement to any person without your
consent provided the transfer is part of a merger or sale of the entire System
and the transferee has sufficient business experience, aptitude and financial
resources to competently assume our obligations under this Agreement.
Section 11.2 Transfer by You.
(a) Personal Rights. You agree that, unless otherwise expressly permitted
by this Agreement, you will not sell, assign, transfer, convey or give
voluntarily, involuntarily, directly or indirectly, by operation of law or
otherwise (collectively "transfer") any direct or indirect interest in this
Agreement, in the Franchise or in you without our written consent. However, our
written consent is not required for: (i) a transfer of less than a 5% interest
in a publicly-held corporation; or (ii) a transfer of all or any part of any
interest in you to one of your other original shareholders or partners. A
transfer of 50% or more of the voting or ownership interests in your
corporation, partnership or limited liability company, individually or in the
aggregate, directly or indirectly, is, for all purposes of this Agreement,
considered a transfer of an interest in this Agreement by you. Any purported
transfer by you, by operation of law or otherwise in violation of this
Agreement, is void and is an Event of Default on your part.
(b) Transfer to Your Corporation. This Agreement may be assigned to a
corporation where you own a majority of the issued and outstanding capital stock
if:
(i) You or a Manager approved by us actively manages the corporation
and continues to devote his or her best efforts and full and exclusive time
to the day-to-day operation of your Pizza Place Franchise. You must advise
us of the name of the Manager and the Manager must meet our standards
including training;
FOC Exhibit C - 34
<PAGE>
(ii) The corporation cannot use the trade name "Pizza Place" in any
derivative or form in the corporate name;
(iii) An authorized officer of the corporation signs a document in a
form we approve, agreeing to become a party bound by all the provisions of
this Agreement; and
(iv) All stock certificates representing shares bear a legend that
they are subject to this Agreement.
(c) No Subfranchising Rights. You have no right to grant a subfranchise.
(d) No Encumbrance. You agree that your rights under this Agreement and any
voting or ownership interest of more than 50% in you (or any Franchise Owner)
may not be pledged, mortgaged, hypothecated, given as security for an obligation
or in any manner encumbered. Any attempted encumbrance is void and is an Event
of Default on your part.
(e) "For Sale" Restrictions. You will not permit to be placed upon the
Kiosk a "Business For Sale" or "For Sale" sign, or any sign of a similar nature
or purpose, nor in any manner use the Proprietary Marks to advertise the sale of
your Pizza Place Franchise or the sale or lease of the Kiosk. These prohibitions
apply to any activities under a listing agreement that you may enter into with a
real estate or business broker.
(f) Permitted Transfer. We will consent to a transfer of this Agreement if
the following requirements are satisfied or waived by us in our sole discretion:
(i) We have not exercised our right of first purchase as provided in
Section 11.5;
(ii) You are not in default of any term of this Agreement or any other
agreement between you and us;
(iii) The transferee interviews at our principal office without
expense to us and demonstrates to our reasonable satisfaction that the
transferee has the business and personal skills, reputation and financial
capacity we require;
(iv) The transferee satisfactorily completes our application
procedures for new franchisees;
(v) The transferee demonstrates to our reasonable satisfaction that he
or she has properly assumed your obligations under this Agreement and will
be able to comply with all of his or her obligations to the Pizza Place
Franchise, including an assumption of
FOC Exhibit C - 35
<PAGE>
the lease, if the location is leased. You will remain liable for all
obligations to us under this Agreement before the effective date of the
transfer and will sign all instruments we reasonably request to evidence
these liabilities;
(vi) At the transferee's expense, the transferee or transferee's
Manager completes Basic Management Training then in effect for new
franchisees upon all terms as we reasonably require; and
(vii) You will pay us a transfer fee of $5,000 to reimburse us for our
direct out-of-pocket costs in approving the transfer and in training the
transferee. If the transferee is a wholly-owned corporation, spouse or
child of the transferor, or another Franchisee within the System, no
transfer fee will be charged.
No disapproval of the transferee for failure to satisfy the transfer
conditions described in this Subsection, or of any other condition to transfer
stated in this Agreement causes any liability of us to the transferee.
Our consent to a transfer is not a waiver of any claims we may have against
you, nor is it a waiver of our right to demand the transferee's exact compliance
with this Agreement. No transfer (even if we approve) relieves you of liability
for your conduct before the transfer, including conduct in breach of this
Agreement.
Section 11.3 Transfer Upon Divorce or Partnership Dissolution.
If this Agreement is in the name of two persons who are husband and wife or
two or more persons who are partners as franchisees, this Section describes the
policies to be applied upon divorce or dissolution of the partnership. During
the period when a divorce or partnership dissolution action is pending, you must
adopt one of the following methods of operation:
(a) If one of the parties is willing to relinquish his or her right and
interest in the Franchise, thereby leaving his or her spouse or partner(s) to
carry on the Franchise Unit, he or she may do so by assigning the interest to
the spouse or to his or her partner(s) provided the remaining spouse or partner
has successfully completed Basic Management Training.
(b) If the parties to a divorce or dissolution action agree that, despite
their difficulties, they can continue to operate the Franchise Unit jointly on a
"business-as-usual" basis during the proceeding, they may do so.
(c) If the parties in a divorce action or in a partnership dissolution are
not agreeable to operate under alternates (a) or (b) then they must make
arrangements to have their Franchise Unit operated by a third party as a Manager
until the divorce or dissolution has been completed. The Manager must be
approved by us and have satisfactorily completed Basic Management Training.
FOC Exhibit C - 36
<PAGE>
(d) Divorcing parties may, after a final order or judgment, continue to
operate their Franchise Unit in the form of a partnership or other business
entity even though they are no longer husband and wife. In such a case, however,
they must enter a formal agreement which defines their respective rights and
obligations, file a signed copy with us, assign this Agreement to the new
entity, and comply with all other requirements for establishing the Franchise
Unit as a partnership or other business entity.
Section 11.4 Transfer Upon Death or Disability.
(a) If any Franchise Owner becomes disabled from any cause and is unable to
perform his or her obligations under this Agreement for a continuous period in
excess of 3 consecutive months, or on the death of the Franchise Owner, you (or
your legal representative) will within 30 days after the 3 months of disability
or death, provide and maintain a replacement satisfactory to us to perform the
obligations. If a replacement is not provided or maintained as required, we may
hire and maintain your replacement. You will compensate the replacement for his
or her services at the rate we establish in our reasonable discretion. For all
purposes of this Agreement, any period of disability that is interrupted by a
return to active work and proper performance of duties under this Agreement for
14 days or more is deemed continuous.
(b) If: (i) any individual who holds a 50% or greater voting or ownership
interest in the Franchisee (or in any Franchise Owner); or (ii) you die during
the Term, your interests in the Franchisee (or in any Franchise Owner) or in
this Agreement are required to be transferred within 12 months of the death to
an approved transferee in accordance with the terms of this ARTICLE.
Section 11.5 Our Right of First Purchase.
(a) If during the Term you or any person who owns at least a 50%
ownership or voting interest in a corporation or other entity that owns your
Pizza Place Franchise (or in any entity with an ownership interest in a
corporation or other entity that owns your Pizza Place Franchise) desire to sell
your Pizza Place Franchise, (whether as a sale of assets or a sale of stock or
other equity interests), you must first approach us with a specific price and
terms and offer us the opportunity to purchase your Pizza Place Franchise. We
have 30 days to accept or reject your offer at the designated price. If we
reject your offer and you and we cannot otherwise reach agreement within the
30-day period, you then have the right to list the Pizza Place Franchise and
offer it for sale to third parties (either in or outside the System) at or above
the designated price and on terms no less favorable than offered to us, for a
period of 120 days, with a closing to take place within 60 days after the date
of the purchase agreement. If a third party purchases your Pizza Place Franchise
at a price or terms equal or more favorable (higher) to you than offered to and
rejected by us; the sale can proceed, provided you and the third party comply
with the terms of Subsection 11.2(f).
FOC Exhibit C - 37
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(b) If you decide within the 120-day period to offer your Pizza Place
Franchise or accept an offer from a third party (the "Offeror") at a lower price
and/or terms less favorable to you (the "Offer") than offered to and rejected by
us, you must then give us a right of first refusal.
(c) If we give notice of acceptance of the Offer, then you will sell the
Pizza Place Franchise to us and we will purchase the Pizza Place Franchise for
the consideration and upon the terms stated in the Offer. Our creditworthiness
is deemed at least equal to the creditworthiness of any proposed purchaser. If
we are a public company at that time having shares traded on a national
securities exchange, the Offeror must accept a quantity of stock at our
then-current value or our registered shares in lieu of cash or Unique
Consideration.
(d) If an independent third party's written Offer (and the Offeror's
corresponding offer to us) provides for the purchaser's payment of a Unique
Consideration that is of a nature that cannot reasonably be duplicated by us, we
may, in our notice of exercise, in lieu of the Unique Consideration, substitute
cash or stock (if a public company with registered shares) consideration
determined by mutual agreement of you and us within 45 days after the Offer is
made or, failing agreement, by an independent appraiser selected by us.
(e) If the proposed sale includes assets of the Offeror that are not part
of the operation of the Pizza Place Franchise, we may, at our option, elect to
purchase only the assets that are part of the operation of the Pizza Place
Franchise and an equitable purchase price will be determined in our reasonable
discretion and allocated to each asset included in the sale.
(f) We will purchase your Pizza Place Franchise subject to all customary
warranties given by a seller of the assets of a business or voting stock of a
corporation, as applicable, including warranties as to ownership, condition and
title to the shares and/or assets, liens and encumbrances on the shares and/or
assets, validity of contracts and liabilities of the corporation whose stock is
purchased and affecting the assets, contingent or otherwise.
(g) Unless otherwise agreed by you and us, the closing of the purchase of
your Pizza Place Franchise will be held at our then principal office or other
location designated by us, no later than the 60th day after the Offer is
delivered to us. The closing of any purchase where a cash or stock consideration
is determined in accordance with Subsection 11.5(d) will be held on the 15th day
after the cash or stock consideration is finally determined. At any closing, the
Offeror must deliver to us an assignment and other documents reasonably
requested by us representing a transfer of ownership of your Pizza Place
Franchise free and clear of all liens, claims, pledges, options, restrictions,
charges and encumbrances, in proper form for transfer and with evidence of
payment by the Offeror of all applicable transfer taxes. We will simultaneously
make payment of any cash consideration for your Pizza Place Franchise by a
cashier's check drawn on a bank or thrift doing business in the county of our
principal place of business or payment by the issuance of our registered shares,
after set off against the amount due to the
FOC Exhibit C - 38
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Offeror for all amounts you owe us, if any. The remaining terms of the
purchase and sale will be stated in the Offer.
(h) If we do not accept the Offer, you are free, for 90 days after we have
elected not to exercise our option, to sell your Pizza Place Franchise to the
prospective purchaser for the consideration and upon the terms stated in the
prospective purchaser written Offer, subject to full compliance with all terms
of transfer required under this Agreement, including those in Section 11.2.
Before any sale of the shares to a prospective purchaser, there must be
delivered by the prospective purchaser an acknowledgment that the shares
purchased by the prospective purchaser is subject to the terms of this Agreement
and that the prospective purchaser agrees to be bound to the terms of this
Section on transferring the shares, in the same manner as the Offeror. If you do
not sell the your Pizza Place Franchise within the 90-day period, then any
transfer by you of your Pizza Place Franchise is again subject to the
restrictions stated in this Agreement.
(i) If a proposed transferee is your corporation or the spouse or child of
the Offeror, we will not have any right of first purchase.
(j) All transferees are subject to all of the restrictions on transfer of
ownership imposed on you under this Agreement.
ARTICLE 12
DEFAULT AND TERMINATION
Section 12.1 Termination by You.
If you have substantially complied with this Agreement and we materially
breach this Agreement, you have the right to terminate this Agreement if we do
not cure the breach within 30 days after we receive a written notice of default
from you. However, if the breach cannot reasonably be cured within 30 days, you
have the right to terminate this Agreement if, after our receipt of a written
notice of default from you, we do not within 30 days undertake and continue
efforts to cure the breach until completion. You may also terminate this
Agreement upon the mutual written agreement with us. Any termination of this
Agreement by you other than as stated above, is a wrongful termination by you.
FOC Exhibit C - 39
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Section 12.2 Termination by Us - Without Notice.
(a) Subject to applicable law, this Agreement automatically terminates
without notice to you or your having an opportunity to cure on the date of the
occurrence of any of the following Events of Default: if you damage the Pizza
Place System through violation of federal, state or local environmental laws; if
you make a general assignment for the benefit of creditors; a petition in
bankruptcy is filed by you or a petition is filed against or consented to by you
and the petition is not dismissed within 45 days; you are adjudicated as
bankrupt; a bill in equity or other proceeding for the appointment of your
receiver or other custodian for your business or assets is filed and consented
to you; a receiver or other custodian (permanent or temporary) of your business
or assets is appointed by any court of competent jurisdiction; proceedings for a
composition with creditors under federal or any state law is begun by or against
you; a final judgment in excess of $25,000 remains unsatisfied or of record for
30 days or longer (unless a supersedeas bond is filed); execution is levied
against your operation or property, or suit to foreclose any lien or mortgage
against the Kiosk or your assets is begun against you and not dismissed within
45 days; or a substantial portion of your real or personal property used in your
Pizza Place Franchise is sold after levy by any sheriff, marshal or constable.
(b) You will notify us within 3 days of the occurrence of any of the events
described in Subsection 12.2(a).
Section 12.3 Termination by Us - After Notice.
You are in default and we may, at our option, terminate all rights granted
to you under this Agreement, without affording you any opportunity to cure the
default, effective immediately upon notice to you, upon the occurrence of any of
the following Events of Default:
(a) If you cease to do business at the Kiosk for more than 14 days in any
calendar year or for more than 7 consecutive days, or lose the right to
possession of the location after the expiration of all redemption periods and
have not satisfied the provisions of Section 1.4, if applicable, or otherwise
forfeit the right to do or transact business in the jurisdiction where your
Pizza Place Franchise is located;
(b) If a serious or imminent threat or danger to public health or safety
results from the construction, maintenance or operation of your Pizza Place
Franchise and the threat or danger remains uncorrected for 5 days after your
receipt of written notice from us or a governmental authority. If a cure cannot
be reasonably completed in this time, then all reasonable steps to cure must
begin within this time, but a cure must be completed promptly within 30 days
after receipt of written notice;
(c) If you fail or refuse to comply with any mandatory specification,
standard or operating procedure required by us in this Agreement, in the Manuals
or otherwise in writing, on
FOC Exhibit C - 40
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the cleanliness or sanitation of your Pizza Place Franchise or violates any
health, safety, or sanitation law, ordinance, or regulation and does not correct
the failure or refusal within 3 days after written notice from us or a
governmental authority. If a cure cannot be reasonably completed in this time,
then all reasonable steps to cure must begin within this time, but a cure must
be completed within 30 days after receipt of written notice;
(d) If you, or your officer, director, owner or managerial employee are
convicted of a felony, a crime of moral turpitude or any other crime or offense
that we reasonably believe is likely to have a material adverse effect on the
System, the Proprietary Property, the good will associated with the Proprietary
Property, or our interest in any of the Proprietary Property, unless you
immediately and legally terminate the individual as your officer, director,
owner and employee;
(e) If you deny us the right to inspect your Pizza Place Franchise or to
audit your records;
(f) If you engage in conduct that is deleterious to or reflects unfavorably
on you or the System in that the conduct exhibits a reckless disregard for the
physical or mental well being of employees, customers, our representatives or
the public at large, including battery, assault, sexual harassment or
discrimination, racial harassment or discrimination, alcohol or drug abuse or
other forms of threatening, outrageous or unacceptable behavior as determined in
our sole discretion;
(g) If you, contrary to this Agreement, purport to encumber or transfer any
rights or obligations under this Agreement (including transfers of any interest
in a corporation or other entity which owns your Pizza Place Franchise), without
our written consent;
(h) If any breach occurs under Sections 6.2 or 14.1 concerning
confidentiality and non-competition covenants;
(i) If you knowingly maintain false records, or knowingly submit any false
reports to us; or
(j) If you misuse or make any unauthorized use of the Proprietary Property
or otherwise materially impairs the good will associated with the Proprietary
Property or our rights in the Proprietary Property.
FOC Exhibit C - 41
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Section 12.4 Termination by Us - After Notice and Right to Cure.
Except as otherwise provided above, you have 30 days after delivery from us
of a written Notice of Default specifying the nature of the default to remedy
any default and provide evidence of cure satisfactory to us. If any default is
not cured within that time, or any longer time as applicable law may require, an
Event of Default has occurred by you and all your rights under this Agreement
terminate without additional notice to you effective immediately upon the
expiration of the 30 days or any longer time as applicable law may require. In
addition to the Events of Default specified in Sections 12.2 and 12.3, an Event
of Default by you occurs if you fail to comply with any of the requirements
imposed by this Agreement, as it may be revised or supplemented by the Manuals,
or to carry out this Agreement in good faith. You have the burden of proving
that you properly and timely cured any default, to the extent a cure is
permitted under this Agreement.
ARTICLE 13
YOUR OBLIGATIONS
UPON TERMINATION DUE TO YOUR DEFAULT OR ON NONRENEWAL
Upon the termination of this Agreement due to your default or upon
expiration and nonrenewal of the Agreement, the Sections of this ARTICLE apply
to the rights and obligations of the parties.
Section 13.1 Cease Operations.
You will immediately cease to operate your Pizza Place Franchise. You will
not, directly or indirectly, use any of the Proprietary Property nor represent
yourself as a present or former franchisee of us or in any other way affiliate
yourself with the System. You will immediately cease using all stationery,
signage and other materials containing the Proprietary Marks. You will also
immediately cease using all telephone numbers for the Pizza Place Franchise used
at any time before termination or expiration, and empower us to take whatever
actions are necessary to comply with this Section.
Section 13.2 Payment of Outstanding Amounts.
We may retain all fees paid under this Agreement except for refunds
expressly required in this Agreement. In addition, within 10 days after the
effective date of the termination or any later dates as we determine that
amounts are due to us, you must pay to us all Royalty Fees, Advertising
Contributions, amounts owed for products or services you purchased from us and
all other amounts owed to us and your other creditors that are then unpaid.
FOC Exhibit C - 42
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Section 13.3 Discontinuance of Use of Trade Name.
You will cancel any fictitious, trade or assumed name registration that
contains our trademark, trade name or service mark or colorable imitation of our
trademark, trade name or service mark. You will furnish us with evidence of
compliance with this obligation to cancel the registration within 30 days after
termination or expiration of this Agreement. If you fail to cancel, you appoint
us as your attorney-in-fact to do so.
Section 13.4 Our Option to Purchase Your Pizza Place Franchise.
(a) We have the option, exercisable by giving written notice within 30 days
from the date of termination, to purchase from you all the assets used in your
Pizza Place Franchise. As used in this Section, "assets" means leasehold
improvements, equipment, vehicles, furnishings, fixtures, signs, inventory
(non-perishable products, materials and supplies) and the lease or sublease for
the location. We have the unrestricted right to assign this option to purchase.
We or our assignee are entitled to all customary warranties given by a seller of
a business, including: (i) ownership, condition and title to the assets; (ii)
the absence of liens and encumbrances on the assets; and (iii) validity of
contracts and liabilities, inuring to us or affecting the assets, contingent or
otherwise. The purchase price for the assets of your Pizza Place Franchise is
their fair market value, determined as of the effective date of purchase in a
manner consistent with reasonable depreciation of your leasehold improvements
and the equipment, vehicles, furnishings, fixtures, signs and inventory of your
Pizza Place Franchise. The purchase price will take into account the termination
of the Pizza Place Franchise granted under this Agreement and will not contain
any factor or increment for any trademark, service mark or other commercial
symbol used in the operation of your Pizza Place Franchise.
(b) If the parties cannot agree on the fair market value of the assets
within 30 days after your receipt of our notice exercising our option, the fair
market value will be determined by an independent appraiser the parties
selected. If they are unable to agree on an independent appraiser within 10 days
after expiration of the 30-day period, the parties will each select one
independent appraiser, who will select a third independent appraiser (the "Third
Appraiser"), and the fair market value will be the value determined by the Third
Appraiser. If either party to select an appraiser and give notice to the other
of the identity of the appraiser within the 10-day period, the appraiser
selected by the other party will select the Third Appraiser. The Third Appraiser
will be given full access to your Pizza Place Franchise, the Kiosk and your
records during customary business hours to conduct the appraisal and must value
the leasehold improvements, equipment, furnishings, fixtures, signs and
inventory in accordance with the standards of this Section. The Third
Appraiser's costs will be paid equally by the parties.
(c) The purchase price will be paid in cash equivalent, or our marketable
securities or the marketable securities of an Affiliate of equivalent value at
the closing of the purchase, which will take place no later than 90 days after
your receipt of notice of exercise of the option to
FOC Exhibit C - 43
<PAGE>
purchase. At the closing, you will deliver instruments transferring to us
or our assignee: (i) good and merchantable title to the assets purchased, free
and clear of all liens and encumbrances (other than liens and security interests
acceptable to us or our assignee), with all your sales and other transfer taxes
paid; (ii) all licenses and permits of your Pizza Place Franchise that may be
assigned or transferred; and (iii) the lease or sublease for the location. If
you cannot deliver clear title to all of the purchased assets, or if there are
other unresolved issues, the closing of the sale will be accomplished through an
escrow. The parties will comply with all applicable legal requirements,
including the bulk sales provisions of the Uniform Commercial Code of the state
where your Pizza Place Franchise is located and the bulk sales provisions of any
applicable tax laws and regulations. You will, before or simultaneously with the
closing of the purchase, pay all tax liabilities incurred in the operation of
your Pizza Place Franchise. We have the right to set off against and reduce the
purchase price by all amounts you owe to us, and the amount of any encumbrances
or liens against the assets or any obligations we assume.
(d) If we or our assignee exercise the option to purchase, pending the
closing of the purchase, we have the right to appoint a manager to maintain the
operation of your Pizza Place Franchise under Section 2.15. Alternatively, we
may require you to close your Pizza Place Franchise during this time period
without removing any assets. You will maintain in force all insurance policies
required in this Agreement until the date of closing. We agree to use reasonable
efforts to effect a termination of the existing lease for the location and enter
into a new lease on reasonable terms with the landlord. If we are unable to
enter into a new lease and your rights under the existing lease are assigned to
us or we sublease the location from you, we indemnify you from any ongoing
liability under the lease occurring after the date we assume possession of the
Kiosk.
Section 13.5 Distinguishing Operations.
(a) If we do not exercise our option under Section 13.4 and you desire to
remain in possession of the Kiosk and operate a noncompetitive business, you
must make all modifications or alterations to the Kiosk immediately upon
termination of this Agreement as necessary to distinguish the appearance of the
Kiosk from that of other Pizza Place Franchisees operating under the System. You
will make all specific additional changes to the Kiosk as we reasonably request
for that purpose including a change of use of the Kiosk. You agree to refrain
from taking any action to reduce the good will of your customers or potential
customers toward us, our franchisees or any other aspect of the System.
(b) You must remove immediately all identifying architectural
superstructure and signage on or about the Kiosk bearing the name or logos of
Pizza Place (or any name or logo similar to Pizza Place), in the manner we
specify. All property belonging to us will be held by you for delivery to us, at
our expense, upon request. Any signage that you are unable to remove within 1
Business Day of the termination of this Agreement must be completely covered by
you until the time of its removal. If you fail or refuse to comply with this
obligation, we have the
FOC Exhibit C - 44
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right to enter upon the Kiosk, without being guilty of trespass or any
other tort for the purpose of removing the signage and storing it at another
location, at a reasonable expense (for signage not owned by us) payable by you
on demand.
(c) Until all modifications and alterations required by this Section are
completed, you must: (i) maintain a conspicuous sign at the Kiosk in a form
specified by us stating that your business is no longer associated with our
System; and (ii) advise all customers or prospective customers telephoning your
business that the business is no longer associated with our System.
(d) If you fail or refuse to comply with the requirements of this Section,
we have the right to enter upon the Kiosk for the purpose of making or causing
to be made, all changes as may be required, at a reasonable expense (this
expense you must pay upon demand) and at your sole risk and expense, without
responsibility for any actual or consequential damages to your property or
others, and without liability for trespass or other tort or criminal act. You
agree that your failure to make these alterations will cause irreparable injury
to us.
Section 13.6 Unfair Competition.
You agree, if you continue to operate or later begin to operate any other
business, not to use any reproduction or colorable imitation of the Proprietary
Marks, methods of operation or undertake any other conduct either in any other
business or the promotion of any other business, that is likely to cause
confusion, mistake or deception, or that is likely to dilute our rights in and
to the Proprietary Marks. In addition, you agree not to utilize any designation
of origin or description or representation that falsely suggests or represents
an association or connection with us, or any of our Affiliates. This Section
does not relieve, directly or indirectly, your obligations under ARTICLE 14.
Section 13.7 Return of Materials.
You will immediately deliver to us all tangible Proprietary Property in
your possession or control, and all copies and any other forms of reproductions
of these materials. You agree that all these materials are our exclusive
property.
FOC Exhibit C - 45
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Section 13.8 Our Purchase Rights of Items Bearing Proprietary Marks.
Even if we do not exercise our option under Section 13.4, we have the
option (but not the obligation) to exercise by notice of intent to do so within
30 days after termination to purchase any items bearing the Proprietary Marks
owned by you including signs, advertising materials, supplies, inventory or
other items at a price equal to the lesser of your cost or fair market value. If
the parties cannot agree on fair market value within a reasonable time, we will
designate an independent appraiser whose cost will be paid equally by the
parties, and the appraiser's determination will be binding. The fair market
value of tangible assets will be determined without reference to good will,
going concern value, or other intangible assets. If we elect to exercise our
option to purchase, we will have the right to set off all amounts due from you
under this Agreement, and 1/2 the cost of the appraisal, if any, against any
payment to you. If you fail to sign and deliver the necessary documents to
transfer good title to your assets to us or our nominee, we are entitled to
apply to any court of competent jurisdiction for a mandatory injunction to
compel you to comply with the rights granted in this Agreement. All expenses,
including our reasonable attorneys' fees, you will pay to us and may be credited
by us to the agreed purchase price.
Section 13.9 Liquidated Damages for Premature Termination.
If termination is the result of your default, you will pay to us a lump sum
payment (as liquidated damages for causing the premature termination of this
Agreement and not as a penalty) equal to the total of all Royalty Fees for: (i)
the 36 calendar months of operation of your Pizza Place Franchise preceding your
default; (ii) the period of time your Pizza Place Franchise has been in
operation preceding the notice, if less than 36 calendar months, projected on a
36-calendar month basis; or (iii) any shorter period as equals the unexpired
Term at the time of termination. The parties agree that a precise calculation of
the full extent of the damages that we will incur on termination of this
Agreement as a result of your default is difficult and the parties desire
certainty in this matter in the extreme, and agree that the lump sum payment
provided under this Section is reasonable in light of the damages for premature
termination that we will incur in this event. This payment is not exclusive of
any other remedies that we have including attorney's fees and costs.
FOC Exhibit C - 46
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ARTICLE 14
YOUR INDEPENDENT COVENANTS
Section 14.1 Diversion of Business; Competition and Interference With Us.
You agree that we would be unable to protect the Confidential Information
against unauthorized use or disclosure and would be unable to encourage a free
exchange of ideas and information among the franchisees within the System if
franchisees were permitted to hold interests in any Competitive Business.
(a) In-Term. You covenant that during the Term, except as we otherwise
approve in writing, you will not:
(i) Directly or indirectly, solicit or otherwise attempt to induce, by
combining or conspiring with, or attempting to do so, or in any other
manner influence any Business Associate to terminate or modify his, her or
its business relationship with us or to compete against us;
(ii) Directly or indirectly, as owner, officer, director, employee,
agent, lender, broker, consultant, franchisee or in any other capacity be
connected with the ownership, management, operation, control or conduct of
a Competitive Business (this restriction will not apply to a 5% or less
beneficial interest in a publicly-held corporation); or
(iii) Interfere with, disturb, disrupt, decrease or otherwise
jeopardize our business or the business of any of our franchisees.
(b) Post-Term. You also covenant that, for 24 months after the termination
of this Agreement due to your default or for 24 months after you transfer your
Pizza Place Franchise, except as we otherwise approve in writing, you will not:
(i) Directly or indirectly, solicit or otherwise attempt to induce, by
combining or conspiring with, or attempting to do so, or in any other
manner influence any Business Associate to terminate or modify his, her or
its business relationship with us or to compete against us;
(ii) Directly or indirectly, as owner, officer, director, employee,
agent, lender, broker, consultant, franchisee or in any other capacity be
connected with the ownership, management, operation, control or conduct of
a Competitive Business within 5 miles of the location or within 5 miles of
any Pizza Place Franchise or Company-
FOC Exhibit C - 47
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Owned Unit then in operation or under construction (this restriction will
not apply to a 5% or less beneficial interest in a publicly-held
corporation); or
(iii) Interfere with, disturb, disrupt, decrease or otherwise
jeopardize our business or the business of any of our franchisees.
If you violate this Subsection and compete with us, we have the right to
require that all sales made by the Competitive Business be reported to us. You
will also pay to us, on demand, a weekly fee of $1,000 without being deemed to
revive or modify this Agreement. These payments are liquidated damages to
compensate us for our damages from your violation of the covenant not to compete
and are not a penalty.
(c) You agree that the length of the term and geographical restrictions
contained in this Section are fair and reasonable and not the result of
overreaching, duress or coercion of any kind. You agree that your full,
uninhibited and faithful observance of each of the covenants in this Section
will not cause any undue hardship, financial or otherwise, and that enforcement
of each of the covenants in this Section will not impair your ability to obtain
employment commensurate with your abilities and on terms fully acceptable to you
or otherwise to obtain income required for the comfortable support of yourself
and your family, and the satisfaction of your creditors. You agree that your
special knowledge of the business of a Pizza Place Franchise (and anyone
acquiring this knowledge through you) would cause us and our franchisees serious
injury and loss if you (or anyone acquiring this knowledge through you) were to
use this knowledge to the benefit of a competitor or were to compete with us or
any of our other franchisees.
(d) If any court finally holds that the time or territory or any other
provision in this Section is an unreasonable restriction upon you, you agree
that the provisions of this Agreement are not rendered void, but apply as to
time and territory or to any other extent as the court may judicially determine
or indicate is a reasonable restriction under the circumstances involved.
Section 14.2 Independent Covenants; Third Party Beneficiaries.
(a) The parties agree that the covenants in this ARTICLE are independent of
any other provision of this Agreement. You agree that the existence of any claim
you may have against us, regardless of whether the claim is brought under this
Agreement, is not a defense to our enforcement of these covenants.
(b) The parties agree that all other franchisees are third party
beneficiaries of the terms of Section 14.1 and have the right to separately
enforce these covenants, if we are unwilling or unable to enforce these
covenants.
FOC Exhibit C - 48
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ARTICLE 15
INDEPENDENT CONTRACTOR AND INDEMNIFICATION
Section 15.1 Independent Status.
You are an independent contractor and unless expressly provided to the
contrary, nothing in this Agreement is intended to designate either party an
agent, legal representative, subsidiary, joint venturer, partner, employee,
affiliate or servant of the other party for any purpose. The parties agree that
nothing in this Agreement authorizes either party to make any agreement,
warranty or representation for the other party, nor to incur any debt or other
obligation in the other party's name. You will take all affirmative action as we
request to indicate that you are an independent contractor, including placing
and maintaining a plaque in a conspicuous place within the Kiosk and a notice on
all stationery, business cards, sales literature, contracts and similar
documents that states that your Pizza Place Franchise is independently owned and
operated by you. The content of any plaque and notice is subject to our written
approval.
Section 15.2 Indemnification.
You are responsible for all losses or damages from contractual liabilities
to third persons from the possession, ownership and operation of your Pizza
Place Franchise and for all claims and demands for damages to property or for
injury, illness or death of persons directly or indirectly resulting from your
actions. You indemnify us from all costs, losses and damages (including
reasonable attorneys' fees and costs, even if incident to appellate,
post-judgment or bankruptcy proceedings) from claims brought by third parties
involving the ownership or operation by you of your Pizza Place Franchise unless
caused by our negligence or intentional misconduct. This indemnity obligation
continues in full effect even after the expiration, transfer or termination of
this Agreement. We will notify you of any claims and you will be given the
opportunity to assume the defense of the matter. If you fail to assume the
defense, we may defend the action in the manner we deem appropriate and you will
pay to us all costs, including attorneys' fees, that we incur in effecting the
defense, in addition to any sum that we may pay by reason of any settlement or
judgment against us. Our right to indemnity under this Agreement arises and is
valid regardless of any joint or concurrent liability that may be imposed on us
by statute, ordinance, regulation or other law.
FOC Exhibit C - 49
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ARTICLE 16
REPRESENTATIONS AND WARRANTIES
Section 16.1 Our Representations.
We make the following representations and warranties to you that are true
and correct upon the signing of this Agreement:
(a) Organization. We are a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and qualified to do
business in the State of Florida.
(b) Authorization. We have the corporate power to sign, deliver, and carry
out the terms of this Agreement. We have taken all necessary action for proper
authorization. This Agreement has been duly authorized, signed and delivered by
us and is our valid, legal and binding agreement and obligation in accordance
with this Agreement, except as may be limited by applicable bankruptcy,
insolvency, reorganization and other laws and equitable principles affecting
creditors' rights generally.
(c) No Violation. Our performance of our obligations under this Agreement
will not result in: (i) the breach of any term of any contract or agreement that
we are a party to or bound by, or be an event that, with notice, lapse of time
or both, would result in a breach or event of default; nor (ii) result in the
violation by us of any statute, rule, regulation, ordinance, code, judgment,
order, injunction or decree.
Section 16.2 Your Representations.
You make the following representations and warranties to us, that are true
and correct upon signing this Agreement and throughout the Term:
(a) Organization. If you are a corporation, limited liability company or a
general or limited partnership, you are duly organized, validly existing and in
good standing under the laws of its state of organization.
(b) Authorization. You have the power to sign, deliver, and carry out this
Agreement. You have taken all necessary action for proper authorization. This
Agreement has been duly authorized, signed and delivered by you and is your
valid, legal and binding agreement and obligation in accordance with this
Agreement, except as may be limited by applicable bankruptcy, insolvency,
reorganization and other laws and equitable principles affecting creditors'
rights generally.
FOC Exhibit C - 50
<PAGE>
(c) No Violation. The performance by you of your obligations under this
Agreement will not result in: (i) the breach of any term of, or be a default
under, any term of any contract, agreement or other commitment that you are a
party to or are bound by, or be an event that, with notice, lapse of time or
both, would result in a breach or event of default; nor (ii) result in the
violation by you of any statute, rule, regulation, ordinance, code, judgment,
order, injunction or decree.
(d) No Speculative Intent. You are not obtaining this Pizza Place Franchise
for speculative or investment purposes and have no present intention to sell or
transfer or attempt to sell or transfer any part of this Agreement or the Pizza
Place Franchise.
(e) True Copies. Copies of all documents you are required to furnish to us
are correct copies of the documents, including all amendments or modifications,
and contain no misleading or incorrect statements or material omissions.
Section 16.3 Receipt of FOC.
You agree that you received from us a FOC for the state where your Pizza
Place Franchise will be located and your state of residence, with all exhibits
and supplements to the FOC, on or before the first personal meeting with our
representatives and at least 10 Business Days before: (a) signing this Agreement
and any other agreement imposing a binding obligation on you; and (b) any
payment by you of any consideration for the sale or proposed sale, of a
franchise.
Section 16.4 Receipt of Completed Franchise Agreement.
You agree that you received from us a completed copy of this Agreement and
all related agreements, containing all material terms, (except for the date,
signatures and any minor matters not material to the agreements), with all
blanks filled in, at least 5 Business Days before signing this Agreement.
Section 16.5 Acknowledgement of Risk.
You agree to the following:
(a) YOUR SUCCESS IN OWNING AND OPERATING YOUR PIZZA PLACE FRANCHISE IS
SPECULATIVE AND DEPENDS ON MANY FACTORS INCLUDING, TO A LARGE EXTENT, YOUR
INDEPENDENT BUSINESS ABILITY. NO REPRESENTATIONS OR PROMISES, EXPRESS OR
IMPLIED, HAVE BEEN MADE BY US OR ANY OF OUR EMPLOYEES, BROKERS OR
REPRESENTATIVES, TO INDUCE YOU TO ENTER INTO THIS AGREEMENT EXCEPT AS INCLUDED
IN
FOC Exhibit C - 51
<PAGE>
THIS AGREEMENT. NO OFFICER, DIRECTOR, EMPLOYEE, OFFICER, DIRECTOR, BROKER OR
REPRESENTATIVE IS AUTHORIZED TO DO OTHERWISE.
(b) YOU AGREE THAT IN ALL OF YOUR DEALINGS WITH US, OUR OFFICERS,
DIRECTORS, EMPLOYEES, BROKERS (IF ANY) AND OTHER REPRESENTATIVES ACT ONLY IN A
REPRESENTATIVE CAPACITY AND NOT IN AN INDIVIDUAL CAPACITY. YOU AGREE THAT THIS
AGREEMENT AND ALL BUSINESS DEALINGS BETWEEN YOU AND ANY INDIVIDUALS AS A RESULT
OF THIS AGREEMENT, ARE ONLY BETWEEN YOU AND US.
(c) IN ADDITION, WE MAKE NO WARRANTY AS TO YOUR ABILITY TO OPERATE THE
PIZZA PLACE FRANCHISE IN THE JURISDICTION WHERE YOUR PIZZA PLACE FRANCHISE IS TO
BE OPERATED. IT IS YOUR OBLIGATION TO SEEK OR OBTAIN ADVICE OF COUNSEL
SPECIFICALLY ON THIS ISSUE. IF LEGISLATION ENACTED BY, OR REGULATION OF, ANY
GOVERNMENTAL BODY PREVENTS YOU FROM OPERATING YOUR PIZZA PLACE FRANCHISE, WE ARE
NOT LIABLE FOR DAMAGES NOR REQUIRED TO INDEMNIFY YOU OR TO RETURN ANY MONIES
RECEIVED FROM YOU.
ARTICLE 17
MEDIATION AND ARBITRATION; EQUITABLE RELIEF
Section 17.1 Mediation.
For any dispute involving this Agreement, before any arbitration proceeding
takes place, either party may, at his, her or its option, submit the controversy
or claim to non-binding mediation before the Center for Public Resources --
National Franchise Mediation Program, FAM, the American Arbitration Association,
or another mutually agreeable mediator. Both parties will sign a confidentiality
agreement reasonably satisfactory to us. Upon submission, the obligation to
attend mediation in the county and state where your principal place of business
is then located is binding on both parties. Each party will bear his, her or its
own costs for the mediation, except the mediation fee and the fee for the
mediator will be split equally.
FOC Exhibit C - 52
<PAGE>
Section 17.2 Arbitration.
(a) Except as specifically modified by this ARTICLE and excepting matters
involving remedies in Section 17.3, any controversy or claim under this
Agreement, including any claim that this Agreement, or any part of this
Agreement, is invalid, illegal or otherwise voidable or void, including any
claim of fraud in the inducement or any antitrust claim, must be submitted to
arbitration before and in accordance with the arbitration rules of FAM, or if
FAM is unable to conduct the arbitration for any reason or if both parties
agree, before the American Arbitration Association in accordance with its
commercial arbitration rules, or any other mutually agreeable arbitration
association.
(b) The terms of this Section are independent of any other term of this
Agreement. If a court of competent jurisdiction determines that any term is
unlawful in any way, that court will modify or interpret the terms to the
minimum extent necessary to have it comply with the law. All issues of the
arbitrability or the enforcement of the agreement to arbitrate contained in this
Agreement are governed by the United States Arbitration Act (9 U.S.C. ss.1
et seq.) and the federal common law of arbitration.
(c) All claimants with substantially similar claims may join the
proceedings.
(d) All parties who may be legally responsible agree to participate in the
arbitration and all potential legal claims can be joined in the arbitration
forum.
(e) Limited discovery will be allowed, consistent with Rule 10 of the
Commercial Rules of the American Arbitration Association and pursuant to a
discovery plan approved by the arbitrators.
(f) The actual hearing on the merits must occur within 6 months of the date
of filing of the arbitration proceeding.
(g) A reasoned written opinion of the merits must be issued by the
arbitrators within 30 days of the completion of the hearings on the merits.
(h) Judgment on an arbitration award may be entered in any court having
competent jurisdiction and is binding, final and non-appealable. If any party to
arbitration wishes to appeal any final award (there will be no appeal of interim
awards or other interim relief), the party may appeal, within 30 days of the
final award, to a 3-arbitrator panel appointed by the same organization that
conducted the arbitration. The issues on appeal will be limited to the proper
application of the law to the facts found at the arbitration hearing and will
not include any trial de novo or other fact-finding function. The party
requesting the appeal must pay all expense charged by the arbitration appeal
panel and/or arbitration organization in the appeal and must post any bond
deemed appropriate by the arbitration organization or arbitration appeal panel.
In
FOC Exhibit C - 53
<PAGE>
addition, a party requesting appeal that does not prevail on the appeal will
pay the other party's (or parties') attorneys' fees and other costs of
responding to the appeal.
(i) Before any arbitration proceeding takes place, either party may elect
to have the arbitrator conduct, in a separate proceeding before the actual
arbitration, a preliminary hearing, at this hearing testimony and other evidence
may be presented and briefs may be submitted, including a brief stating the then
applicable statutory or common law methods of measuring damages in respect of
the controversy or claim being arbitrated.
(j) This arbitration provision is self-executing and remains in full effect
after the expiration, transfer or termination of this Agreement. If either party
fails to appear at any properly noticed arbitration proceeding, an award may be
entered against that party by default or otherwise.
Section 17.3 Exceptions to Mediation and Arbitration; Equitable Relief.
(a) The obligation to mediate or arbitrate is not binding on either party
for claims involving the Proprietary Property; claims involving any lease or
sublease of real property between the parties or their related entities; your
obligations upon the termination, transfer or expiration of this Agreement; any
encumbrances or transfers restricted under this Agreement concerning interests
in the Franchisee, your Pizza Place Franchise and this Agreement; matters
involving actions that may impair the good will associated with the Proprietary
Marks; matters involving claims of danger, health or safety involving you, the
employees, customers or the public; or requests for restraining orders,
injunctions or other procedures in a court of competent jurisdiction to obtain
specific performance when deemed necessary by any court to preserve the status
quo or prevent irreparable injury pending resolution by mediation or arbitration
of the actual dispute between the parties.
(b) You recognize that your Pizza Place Franchise is intended to be one of
a large number of businesses identified by the Proprietary Marks in selling to
the public the products and services associated with the Proprietary Marks, and
that the failure on the part of a single franchisee to comply with the terms of
his or her franchise agreement is likely to cause irreparable damage to us and
damages at law would be an inadequate remedy. You agree that upon your breach or
threatened breach of any of the terms of this Agreement concerning any matters
referenced in Subsection 17.3(a), we are entitled to seek an injunction
restraining the breach and/or to a decree of specific performance, without
showing or proving any actual damage, together with recovery of reasonable
attorneys' fees and costs incurred in obtaining equitable relief. This equitable
remedy is in addition to all remedies that we have by virtue of your breach of
this Agreement. We are entitled to seek this relief without the posting of any
bond or security or, if a bond is nevertheless required by a court of competent
jurisdiction, the parties agree that the sum of $1,000 is a sufficient bond.
FOC Exhibit C - 54
<PAGE>
ARTICLE 18
TERM
Section 18.1 Term.
The Term of this Agreement is 10 years from the Agreement Date, unless
sooner terminated under ARTICLE 12. The conditions to obtain a Successor Pizza
Place Franchise Agreement at the expiration of this Agreement are those stated
in Section 18.2.
Section 18.2 Option to Obtain Successor Pizza Place Franchise Agreement.
(a) You are granted unlimited options to obtain a Successor Pizza Place
Franchise Agreement for terms of 10 years each provided the following conditions
are met at the time the option is exercised and immediately before the beginning
of the Succeeding Term, unless another time is specified below:
(i) You must give us written notice of your intention to exercise the
option by submitting your application at least 6 months but not more than
12 months before the end of the Term;
(ii) You cannot be in default of any provision of this Agreement or
any other agreement between you and us;
(iii) You, within 10 days before the end of the Term, must sign and
deliver to us a Successor Pizza Place Franchise Agreement, that agreement
will not vary the material business terms reflected in this Agreement.
However, you agree to sign our Successor Pizza Place Franchise Agreement,
even if materially different from this Agreement, if the new Agreement was
collectively negotiated and approved by 50% of the Franchisees in the
System;
(iv) You must pay to us a renewal fee of $1,000 in lieu of the initial
franchise fee contained in the Successor Pizza Place Franchise Agreement;
(v) You must comply with all other requirements imposed by us under
the Successor Pizza Place Franchise Agreement upon signing, except that
there will be no Initial Franchise Fee; and
(vi) You are entitled to continue to occupy the location for the
entire Succeeding Term including, if you are then leasing the location from
us or a third party, you are entitled to renew the lease or obtain our
approval of a new location for the Pizza
FOC Exhibit C - 55
<PAGE>
Place Franchise within the Protected Territory, but not within the
protected territory of a Company Unit or Franchise Unit, in accordance with
our relocation procedures.
(b) If you have not met all of the conditions stated in Subsection 18.2(a),
we may elect not to enter into a Successor Pizza Place Franchise Agreement. At
your written request within 5 days of notice from us that you have elected not
to enter into a Successor Pizza Place Franchise Agreement, for a 180-day period
following this notice (this notice will extend the Term, as necessary, to the
end of the 180-day period, unless we have grounds to otherwise terminate the
Term), we will permit you to sell your Pizza Place Franchise to a purchaser
subject to our right of first refusal. This transfer must be in compliance with
the provisions of Subsection 11.2(f) and all the other applicable terms of this
Agreement. During this period, you must continue to operate your Pizza Place
Franchise.
Section 18.3 Reinstatements and Extensions.
If any termination or expiration of the Term would violate any applicable
law, we may reinstate or extend the Term for the purpose of complying with the
law, for the duration provided by us in a written notice to you, without waiving
any of our rights under this Agreement or otherwise modifying this Agreement.
ARTICLE 19
DEFINITIONS
Section 19.1 Definitions.
As used in this Agreement, the Exhibits attached to this Agreement and any
other document signed incidental to this Agreement and any exhibits to those
documents, the following terms have the following meanings:
"ADI" means an Area of Dominant Influence, and is a geographic survey area
created and defined by Arbitron based on measurable patterns of television
viewing.
"Advertising Contributions" means the payments described in Subsection
3.1(c).
"Affiliate" means a company related to us as a parent corporation,
brother/sister corporation or subsidiary corporation.
"Agreement" means this Pizza Place Franchise Agreement, as it may be
amended, supplemented or otherwise modified by an agreement in writing signed by
you and us under Section 20.1.
FOC Exhibit C - 56
<PAGE>
"Agreement Date" means the date of signing this Agreement.
"Basic Management Training" means the training described in Subsection
2.8(a).
"Business Associate" means any of our employees, officers, directors,
agents, consultants, representatives, contractors, suppliers, distributors,
franchisees or other business contacts.
"Business Day" means a day other than Saturday, Sunday or a U.S. national
holiday. Any time period ending on a Saturday, Sunday or U.S. national holiday
will be extended until 5:00 p.m. on the next Business Day.
"Chain" means the group of Company Units and Franchise Units each operating
a Pizza Place Kiosk.
"Company Unit" means a Pizza Place Kiosk operated under the System and
owned by us or any Affiliate.
"Competitive Business" means a business that is engaged, wholly or
partially, directly or indirectly, in the sale of pizza through kiosks or mobile
units.
"Confidential Information" means all information, knowledge, know-how and
technologies that we designate as confidential, proprietary or trade secrets.
Confidential Information includes the Manuals.
"Cooperative" means the regional advertising cooperative described in
Section 7.3.
"Designee" means 1 or more of our representatives who are independent
contractors and are appointed by us to perform certain of our duties under this
Agreement as described in ARTICLE 2.
"Enforcement Costs" means the costs described in Section 20.8.
"Event of Default" means a breach of this Agreement including those
situations described in Sections 1.4(a), 3.4, 11.2(a), 11.2(d), 12.2, 12.3 and
12.4, assuming any requirement for the giving of notice, the lapse of time, or
both, or any other condition is satisfied.
"FAM" means Franchise Arbitration and Mediation, Inc.
"FOC" means our current Franchise Offering Circular and all its exhibits
and supplements.
FOC Exhibit C - 57
<PAGE>
"Franchise" means the rights granted to you under this Agreement.
"Franchise Owner" means: (i) if you are an individual, it means you; (ii)
if you are a privately held corporation, the individual who owns a majority of
the voting and ownership interests in the corporation; (iii) if you are a
partnership, the individual who is, or owns a majority of the voting and
ownership interests in an entity that is a general partner of the partnership;
and (iv) if you are a limited liability company, the individual who owns the
majority of the membership interests in the
company.
"Franchise Unit" means a Pizza Place Kiosk owned and operated under the
System by a franchisee.
"Franchisee Association" means the Independent Association of Pizza Place
Franchisees described in Section 10.1.
"Generally Accepted Accounting Principles" means those standards,
conventions and rules accountants follow in recording and summarizing
transactions, and in the preparation of financial statements. Generally accepted
accounting principals derive, in order of importance, from: (i) issuances from
an authoritative body designated by the American Institute of Certified Public
Accountants ("AICPA") Council; other AICPA issuances including AICPA Industry
Guides; (iii) industry practice; and (iv) accounting literature in the form of
books and articles.
"Grand Opening Assistance" means the grand opening services described in
the Manual.
"Gross Revenues" means the entire amount of all of your revenues from the
ownership or operation of your Pizza Place Franchise or any business at or about
the Kiosk including the proceeds of any business interruption insurance and any
revenues received from the lease or sublease of a portion of the location,
whether the revenues are evidenced by cash, credit, checks, gift certificates,
scrip, food stamps, coupons and premiums (unless exempted by us) services,
property or other means of exchange, excepting only the amount of any sales
taxes that are collected and paid to the taxing authority (based on the cash
method of accounting). Cash refunded and credit given to customers and
receivables uncollectible from customers will be deducted in computing Gross
Revenues to the extent that the cash, credit or receivables represent amounts
previously included in Gross Revenues where Royalty Fees and Advertising
Contributions were paid. Gross Revenues are deemed received by you at the time
the goods, products, merchandise or services from which they derive are
delivered or rendered or at the time the relevant sale takes place, whichever
occurs first. Gross Revenues consisting of property or services (for example,
"bartering" or "trade outs") are valued at the prices applicable, at the time
the Gross Revenues are received, to the products or services exchanged for the
Gross Revenues.
"Kiosk" means either a Retail-Style Kiosk, a Mini-Store Kiosk or a Mobile
Kiosk.
FOC Exhibit C - 58
<PAGE>
"Local Advertising" means advertising and promotion you undertake in media
directed primarily in your local market area including television, radio,
newspapers, magazines, billboards, posters, handbills, direct mail, yellow
pages, sports program booklet advertising, church bulletins, collateral
promotional and novelty items (for example, matchbooks, pens and pencils, bumper
stickers, calendars) that prominently display the Proprietary Marks, advertising
on public vehicles including cabs and buses, the cost of producing materials
necessary to participate in these media and agency commissions on the production
of the advertising and amounts paid to an approved regional advertising
cooperative or to a merchant's association for advertising where you are a
member. Local Advertising does not include payments to the Marketing Fund nor
payments for permanent on-premises signs, lighting, purchasing or maintaining
vehicles even though the vehicles display in some manner the Proprietary Marks
(except the cost of the materials displayed are included), contributions,
sponsorships (unless the Proprietary Marks are prominently displayed by the
group or activity receiving the contribution or sponsorship), premium or similar
offers including discounts, price reductions, special offers, free offers and
sweepstake offers (except that the media costs associated with promoting the
premium offers are included), employee incentive programs and other similar
payments that we may determine in our sole discretion should not be included in
determining whether you have met your obligation for Local Advertising.
"Manager" means the Franchise Owner, unless we otherwise agree in writing.
"Manuals" means all manuals produced by, or for the benefit of, us and
loaned to you and any revisions prepared for the internal use of the Pizza Place
Franchise.
"Marketing Fund" means the fund described in Section 7.5 that
Advertising Contributions will be deposited for use in regional and national
marketing activities to promote the System.
"Mini-Store Kiosk" means n/a.
"Mobile Kiosk" means n/a.
"Notice of Default" means the notices described in Section 12.4.
"Opening Date" means the date your Pizza Place Franchise is first opened
for business to the general public.
"Payment System" means the system created by you to make payments to us as
described in Section 3.3.
"Pizza Place Franchise" means the Kiosk you are authorized to establish and
operate
FOC Exhibit C - 59
<PAGE>
under this Agreement.
"P.O.S. System" means the computerized cash registers, printer and modem or
other computer hardware you are required to purchase in accordance with our
specifications contained in the Manuals.
"Proprietary Marks" means the service mark and logo "Pizza Place" and all
other trademarks, service marks, trade names, logos and commercial symbols
authorized by us as part of the System.
"Proprietary Property" means the Proprietary Marks, Confidential
Information and copyrighted information of us or our Affiliates that you are
entitled to use under this Agreement.
"Protected Territory" means ____________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
"Reserved Area" means the area where you will undertake your site selection
process to submit proposed sites for our approval in accordance with our site
approval process. The Reserved Area will be____________________________ but
excluding any protected territory of a Company Unit or another Franchise Unit
within the Chain who already has a Pizza Place Franchise in operation or to be
operated in the Reserved Area.
"Retail-Style Kiosk" means a 10' x 28' custom designed unit designed
specifically for drive-thru operations.
"Royalty Fee" means the fee described in Subsection 3.1(b).
"Succeeding Term" means the term of the Successor Pizza Place Franchise
Agreement.
"Successor Pizza Place Franchise Agreement" means the form of franchise
agreement for new Pizza Place franchisees at the time you elect to enter into an
agreement in accordance with Section 18.2.
"System" means our business system for operating a Pizza Place Kiosk.
The System includes specific standards and procedures and Proprietary Property,
that may be changed.
"Term" means the term of the Agreement described in Section 18.1.
"Trainees" means the persons approved by us who attend Basic Management
Training.
FOC Exhibit C - 60
<PAGE>
"Transfer Fee" means the fee described in Subsection 11.2(f)(vii).
"Turnkey Package Fee" means the fee described in Subsection 3.1(a).
"Unique Consideration" means the consideration described in Subsection
11.5(d).
"Unit" means either a Company Unit or a Franchise Unit.
Section 19.2 Other Definitional Provisions.
(a) All of the terms defined in this Agreement have these defined meanings
when used in other documents issued under or delivered under this Agreement
unless the context otherwise requires or unless specifically otherwise defined
in the other document; and
(b) The term "person" includes any corporation, limited liability company,
partnership, estate, trust, association, branch, bureau, subdivision, venture,
associated group, individual, government, institution, instrumentality and other
entity, enterprise, association or endeavor of every kind.
ARTICLE 20
GENERAL PROVISIONS
Section 20.1 Amendments.
Except as stated in this Agreement, the provisions of this Agreement cannot
be amended, supplemented, waived or changed orally, except by a written document
signed by the party against whom enforcement of any amendment, supplement,
waiver or modification is sought and making specific reference to this
Agreement. Only our President has the authority to sign an amendment for us.
This Section is expressly limited by the terms of Sections 20.2 and 20.6.
Section 20.2 MODIFICATION OF THE SYSTEM.
YOU AGREE THAT AFTER THE AGREEMENT DATE WE MAY MODIFY THE SYSTEM. YOU AGREE
TO ACCEPT AND BE BOUND BY ANY MODIFICATIONS IN THE SYSTEM AS IF THEY WERE PART
OF THIS AGREEMENT AT THE TIME OF SIGNING OF THIS AGREEMENT. YOU WILL MAKE ALL
EXPENDITURES AND MODIFICATIONS OF THE SYSTEM AS WE REQUIRE SUBJECT TO THE
CAPITAL EXPENDITURE LIMITATION CONTAINED IN SECTION 4.17.
Section 20.3 Binding Effect.
FOC Exhibit C - 61
<PAGE>
The terms of this Agreement are binding upon, benefit and are enforceable
by the parties and their respective personal representatives, legal
representatives, heirs, successors and permitted assigns.
Section 20.4 Notices.
All notices, requests, consents and other communications required or
permitted under this Agreement must be in writing (including telex, telecopied
and telegraphic communication) and must be (as elected by the person giving the
notice) hand delivered by messenger or courier service, telecopied,
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
If to us: With a copy to:
American Kiosk Corporation Keith J. Kanouse, Esquire
4400 PGA Boulevard, Suite 500 Kanouse & Walker, P.A.
Palm Beach Gardens, FL 33410 Peninsula Executive Center
Attn: Richard J. Michael, President 2385 Executive Center Drive, Suite 270
Boca Raton, FL 33431
If to you: With a copy to:
- ------------------------------------- ----------------------------------------
- ------------------------------------- ----------------------------------------
- ------------------------------------- ----------------------------------------
Attn: ___________________ ________________________________________
or to any other address any party designates by notice complying with the
terms of this Section. Each notice is deemed delivered: (a) on the date
delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by telex, telefax or other telegraphic method; and (c)
on the date the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable if mailed.
Section 20.5 Headings.
The headings and subheadings in this Agreement are for convenience of
reference only, are not to be considered a part of this Agreement and will not
limit or otherwise affect in any way the meaning or interpretation of this
Agreement.
FOC Exhibit C - 62
<PAGE>
Section 20.6 Severability.
(a) If any term of this Agreement or any other agreement entered into under
this Agreement is contrary to, prohibited by or invalid under applicable law or
regulation, that term only will be inapplicable and omitted to the extent so
contrary, prohibited or invalid, but the remainder of this Agreement will not be
invalidated and will be given full effect so far as possible. If any term of
this Agreement may be construed in two or more ways, one that would render the
term invalid or otherwise voidable or unenforceable and another that would
render the term valid and enforceable, that term has the meaning that renders it
valid and enforceable.
(b) If any applicable law of any jurisdiction requires a greater notice of
the termination of or non-renewal of this Agreement (if permitted) than is
required under this Agreement, or the taking of some other action not required
under this Agreement, or if under any applicable law of any jurisdiction, any
term of this Agreement or any of our requirements is invalid or unenforceable,
the notice and/or other action required by that law will be substituted for the
comparable provisions of this Agreement. We have the right, in our sole
discretion, to modify any invalid or unenforceable requirement to the extent
required to be valid and enforceable. Any modification to this Agreement will be
effective only in that jurisdiction, unless we elect to give the modification
greater applicability, and this Agreement will be enforced as originally made
and entered into in all other jurisdictions.
Section 20.7 Waivers.
The failure or delay of any party at any time to require performance by
another party of any term of this Agreement, even if known, will not affect the
right of that party to require performance of that provision or to exercise any
right or remedy under this Agreement. Any waiver by any party of any breach of
any term of this Agreement is not a waiver of any continuing or later breach of
that term, a waiver of the term itself, or a waiver of any right or remedy under
this Agreement. No notice to or demand on any party in any case, of itself,
entitles that party to any other notice or demand in similar or other
circumstances.
Section 20.8 Enforcement Costs.
If any arbitration, legal action or other proceeding is begun for the
enforcement of this Agreement, or for an alleged dispute, breach, default or
misrepresentation under any term of this Agreement, the prevailing party is
entitled to recover reasonable pre-institution and post-institution attorneys'
fees, court costs and all expenses even if not taxable as court costs (including
all fees and expenses incident to arbitration, appellate, bankruptcy and
post-judgment proceedings), incurred in the action or proceeding, in addition to
any other relief that the party is entitled. Attorneys' fees include paralegal
fees, administrative costs, investigative costs, costs of expert witnesses,
court reporter fees, sales and use taxes, if any, and all other charges billed
by the attorneys to the prevailing party. If we engage a collection agency or
legal counsel for your
FOC Exhibit C - 63
<PAGE>
failure to pay when due any monies owed under this Agreement or submit when
due any reports, information or supporting records, or for any failure otherwise
to comply with this Agreement, you must reimburse us on demand for all of the
above-listed expenses we incur. Each party will bear his, her or its own costs
in any mediation.
Section 20.9 Jurisdiction and Venue.
(a) The parties irrevocably and unconditionally: (i) agree that any
mediation, arbitration or suit, action or legal proceeding involving your Pizza
Place Franchise or this Agreement and involving just you and us (and no other
franchisees) will be conducted where the Franchise Unit is located or may be
brought in the District Court of the United States, in the district where the
Franchise Unit is located or, if this court lacks jurisdiction, the courts of
record of the state and county where our principal place of business is then
located; (ii) consent to the jurisdiction of each court in any suit, action or
proceeding; (iii) waive any objection that he, she or it may have to the laying
of venue of any suit, action or proceeding in any of these courts; and (iv)
agree that service of any court paper may be effected on the party by mail at
the last known address, as provided in this Agreement, or in any other manner as
may be provided under applicable laws or court rules in the state where the
Franchise Unit is located.
(b) The parties irrevocably and unconditionally: (i) agree that any
mediation, arbitration or suit, action or legal proceeding involving your Pizza
Place Franchise or this Agreement and involving you and one or more other
franchisees and us, will be conducted in the county where our principal place of
business is then located or may be brought in the District Court of the United
States, in the district where our principal place of business is then located
or, if this court lacks jurisdiction, the courts of record of the state and
county where our principal place of business is then located; (ii) consent to
the jurisdiction of each court in any suit, action or proceeding; (iii) waive
any objection that he, she or it may have to the laying of venue of any suit,
action or proceeding in any of these courts; and (iv) agree that service of any
court paper may be effected on the party by mail at the last known address, as
provided in this Agreement, or in any other manner as may be provided under
applicable laws or court rules in the state where our principal place of
business is then located.
Section 20.10 Remedies Cumulative.
Except as otherwise stated in this Agreement, no remedy in this Agreement
for any party is intended to be exclusive of any other remedy. Each remedy is
cumulative and is in addition to every other remedy given under this Agreement,
now or later existing, at law, in equity, by statute or otherwise. No single or
partial exercise by any party of any right or remedy under this Agreement
precludes any other exercise of any other right or remedy.
FOC Exhibit C - 64
<PAGE>
Section 20.11 Effectiveness; Counterparts.
This Agreement is not effective or binding and enforceable against us until
it is accepted by us at our home office in Palm Beach Gardens, Florida and
signed by our President. You are advised not to incur any expenses for opening
your Pizza Place Franchise until you have received a final signed copy of this
Agreement from our home office. This Agreement may be signed in counterparts,
each is deemed an original, but all together are the same instrument.
Confirmation of signing by telex, telecopy, or telefax of a facsimile signature
page is binding upon any party to the confirmation.
Section 20.12 Reasonableness.
We both agree to act reasonably in all dealings with each other pursuant to
this Agreement. Whenever the consent or approval of either party is required or
contemplated under this Agreement, the party whose consent is required agrees
not to unreasonably withhold or delay the consent.
Section 20.13 Duty of Good Faith and Fair Dealing.
This Agreement imposes upon both parties a duty of good faith and fair
dealing in performance of this Agreement. "Good faith and fair dealing" means
honesty in fact and the observance of reasonable standards of fair dealing in
the restaurant industry.
Section 20.14 Governing Law.
Except to the extent governed by the United States Trademark Act of 1946
(Lanham Act, 15 U.S.C. ss.ss. 1051 et seq. or the United States Arbitration
Act, 9 U.S.C. ss.ss. 1 et seq.), this Agreement and any other agreement
between the parties and all transactions contemplated by this Agreement and all
disputes between the parties are governed by the laws of the State of Florida
without regard to principles of conflicts of laws. If there exists state
franchise laws in the state where the Franchise Unit is located that provide you
with greater protection than the laws of the state above, then that state's
franchise laws will also govern and apply in the event of conflict.
Section 20.15 Survival.
All of the parties' obligations that expressly or by their nature survive
the expiration or termination of this Agreement continue in full force after the
transfer, expiration or termination of this Agreement until they are satisfied
or by their nature expire.
FOC Exhibit C - 65
<PAGE>
Section 20.16 Force Majeure.
Neither party is liable for loss or damage or is in breach of this
Agreement if the failure to perform the obligations results solely from the
following causes beyond his, her or its reasonable control, specifically: (a)
transportation shortages, inadequate supply of equipment, merchandise, supplies,
labor, material, or energy; (b) compliance with any applicable law; or (c) war,
strikes, natural disaster or acts of God. Any delay resulting from any of these
causes extends performance accordingly or excuses performance as may be
reasonable, except that these causes do not excuse payments of amounts owed to
us for any reason.
Section 20.17 Third Parties.
Except as provided in this Agreement to the contrary for any Affiliates or
other Pizza Place franchisees, nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under this Agreement on
any persons (including other Pizza Place franchisees) other than the parties and
their respective personal representatives, other legal representatives, heirs,
successors and permitted assigns. Except as provided in this Agreement to the
contrary for any Designee of us, nothing in this Agreement is intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor will any provision give any third persons any right
of subrogation or action over or against any party to this Agreement.
Section 20.18 Entire Agreement.
This Agreement, its Exhibits and all other written agreements involving
this Agreement and expressly referenced in this Agreement, represent the entire
understanding and agreement between the parties on the subject matter of this
Agreement and supersede all other negotiations, understandings and
representations, if any, made between the parties. No representations,
inducements, promises or agreements, oral or otherwise, if any, not embodied in
this Agreement, its Exhibits and all other written agreements concerning this
Agreement and expressly referenced in this Agreement are of any effect.
IN WITNESS WHEREOF, the parties have duly signed this Agreement.
YOU or YOUR:
--------------------------------------
FOC Exhibit C - 66
<PAGE>
WE, US, OUR:
AMERICAN KIOSK CORPORATION
By:
----------------------------------
Richard J. Michael, President
STATE OF _________________
COUNTY OF ________________
This instrument was acknowledged before me on ____________, 1999, by
________________________, who personally appeared before me at the time of
notarization.
NOTARY PUBLIC - STATE OF ______________
My Commission Expires:
sign ________________________________
print _______________________________
Personally Known ____ OR Produced Identification ____
Type of Identification Produced:
---------------------------------------
STATE OF FLORIDA
COUNTY OF PALM BEACH
This instrument was acknowledged before me on __________, 1999, by Richard
J. Michael, as President of American Kiosk Corporation, a Delaware corporation,
for the corporation. He personally appeared before me at the time of
notarization.
NOTARY PUBLIC - STATE OF FLORIDA:
sign ________________________________
print _______________________________
Personally Known _____ OR Produced Identification _____
Type of Identification Produced:
--------------------------------
FOC Exhibit C - 67
<PAGE>
My Commission Expires: ______________________________________
FOC Exhibit C - 68
<PAGE>
Exhibit A to Pizza Place Franchise Agreement
MINI-STORE KIOSK RIDER
N/A
FOC Exhibit C - 69
<PAGE>
Exhibit B to Pizza Place Franchise Agreement
MOBILE KIOSK RIDER
N/A
FOC Exhibit C - 70
<PAGE>
Exhibit C to Pizza Place Franchise Agreement
LOCATION OF THE KIOSK
FOC Exhibit C - 71
<PAGE>
Exhibit D - to Pizza Place Franchise Agreement
TURNKEY PACKAGES
RETAIL-STYLE KIOSK
10' x 28' Retail-Style Kiosk
Architectural Plans
Sign and Menu Board
Restaurant Equipment including Brick Oven
Uniforms
Initial Supply of Paper goods
Small wares
Initial Inventory of Pizzas and Beverages
Grand Opening Assistance
TURNKEY PACKAGE (MINI-STORE KIOSK)
N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TURNKEY PACKAGE (MOBILE KIOSK)
N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOC Exhibit C - 72
<PAGE>
- --------------------------------------------------------------------------------
FOC Exhibit C - 73
<PAGE>
Exhibit E to Pizza Place Franchise Agreement
UCC-1 FINANCING STATEMENT AND RIDER
FOC Exhibit C - 74
<PAGE>
RIDER TO UCC-1 FINANCING STATEMENT
The Debtor (Franchisee) grants to the Secured Party (Franchisor) a security
interest in the following described property:
A. All of the Debtor's right, title and interest as Franchisee under the
Pizza Place Franchise Agreement with the Secured Party of even date herewith and
all related documents;
B. All of the Debtor's Inventory, of whatever type or description, wherever
located now owned or later acquired;
C. All of the Debtor's Accounts, including all notes receivable, accounts
receivable, contract rights and all other forms of customer obligations now
existing and that may at any time come into existence;
D. All of the Debtor's equipment, machinery, furniture, fixtures and other
items of personal property, including the Kiosk, whether now or later acquired;
E. All of the Debtor's permits, licenses and other governmental approvals;
F. The Debtor's business on an ongoing basis, together with all good will
of the business, and all of the Debtor's contract rights, customer lists, price
lists, patents, trademarks, service marks, trade names, trade secrets and other
proprietary information;
G. All of the Debtor's cash, certificates of deposit, securities,
instruments and general intangibles, including all cash in the Debtor's
operating accounts;
H. The right to all insurance proceeds of all insurance covering the
Collateral; and
I. All proceeds, products, replacements, additions, substitutions and
accessions of and to all the foregoing.
The Debtor's personal assets including consumer goods are not subject to
this security interest.
FOC Exhibit C - 75
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 1st day of October, 1998 by and between AMERICAN
KIOSK CORPORATION, a Delaware corporation (the "Company"), and RICHARD J.
MICHAEL ("Executive").
In consideration of the mutual covenants and agreements herein contained, the
monies to be paid hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Term of Employment. The Company hereby employs Executive and Executive hereby
accepts employment with the Company for a period beginning as of July 1, 1998
and terminating, unless sooner terminated as provided herein, on June 30, 1999.
2. Duties of Executive. Executive is hereby hired and employed by the Company to
perform the duties and accept the responsibilities as herein set forth. During
the term hereof, Executive shall be President and Chief Executive Officer of the
Company and shall devote his efforts to rendering services to the Company in
such capacities. In such capacities, Executive shall be subject only to the
supervision and control of the Company's Board of Directors (the "Board").
Executive's powers and authority shall be superior to those of any officer or
employee of the Company. Executive shall not be required without his consent to
undertake responsibilities not commensurate with his position.
The Company agrees to nominate Executive for election to the Board of the
Company at each annual meeting of shareholders during his employment hereunder.
Executive agrees to serve on the Board once so elected.
3. Exclusivity. During the term hereof, Executive shall devote all of his
productive time, ability and attention to the business of the Company, except
that Executive may, undertake or continue to conduct other business, civic or
charitable activities during the term hereof if such activities do not
interfere, directly or indirectly, with the duties of Executive hereunder. The
Company agrees that Executive may, at Executive's option, hold outside
directorships subject to approval by the Board during the term of this
Agreement.
4. Compensation of Executive.
(a) Base Salary. As compensation for services rendered under this
Agreement, beginning July 1, 1998, Executive shall be entitled to
receive from the Company a base salary ("Base Salary") of one hundred
twenty thousand dollars ($120,000) per year payable in accordance with
the normal payroll practices of the Company.
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<PAGE>
(b) Incentive Bonuses. In addition to his Base Salary, the Company shall
pay Executive an annual incentive cash bonus based upon the Company's
performance, in such amount as may be deemed appropriate by the Board.
Each Incentive Bonus shall be payable to Executive thirty (30) days
following the date the Company's audited consolidated statement of
income for the applicable fiscal year becomes available.
(c) Stock Option. As additional compensation, the Company and Executive
shall simultaneously herewith enter into a Stock Option Agreement in
the form attached hereto.
5. Executive Expenses. Executive shall be entitled to receive all benefits
generally made available to executives of the Company, including Company-paid
health, dental and disability insurance. The Company intends to adopt a
Qualified Stock Option Plan at the next Annual Meeting of Shareholders pursuant
to which the Board of Directors shall authorize annual grants of stock options
to all executive officers of the Company. The Compensation Committee of the
Board of Directors shall be charged with the task of determining recipients,
amounts, vesting schedules and other provisions relevant to the grants. The
Company shall furnish at its expense a current model year automobile to
Executive for his use during his employment.
6. Vacation. Executive shall be entitled to four (4) weeks off for vacation at
full pay during the twelve (12) month period of the initial term hereof.
7. Reimbursement of Executive Expenses. Executive shall be expected to incur
various business expenses customarily incurred by persons holding like
positions, including, but not limited to, traveling, entertainment and similar
expenses, for the benefit of the Company. Subject to the Company's policy
regarding the reimbursement of such expenses, the Company shall reimburse
Executive for such expenses from time to time, at Executive's request, and
Executive shall account to the Company for such expenses.
8. Termination by the Company.
(a) The Company shall have the right to terminate this Agreement under the
following circumstances:
(i) Upon the death of Executive;
(ii) Upon notice from the Company to Executive in the event of an
illness or other disability which has incapacitated him from
performing his duties for two (2) consecutive months as
determined in good faith by the Board; or
(iii) For "good cause" upon notice from the Company. Termination
by the Company of Executive's employment for "good cause"
shall be limited to the following circumstances:
2
<PAGE>
(A) Executive is convicted of, pleads guilty to or pleads nolo
contendere to a felony crime involving moral turpitude;
(B) Executive is found guilty of or pleads no contest to fraud,
conversion, embezzlement, falsifying records or reports or a
similar crime involving the Company's property;
(C) Executive willfully fails to perform his duties and
responsibilities hereunder (in the discretion of the Company's
Board of Directors) or otherwise breaches this Agreement; or
(D) The voluntary resignation by Executive as an employee of the
Company.
(b) If this Agreement is terminated pursuant to Section 8(a) above,
Executive's rights and the Company's obligations hereunder shall
forthwith terminate except as expressly provided in this Agreement.
(c) If this Agreement is terminated pursuant to Section 8(a)(i) or (ii)
hereof, Executive or his estate shall be entitled to receive:
(i) A cash payment equal to Executive's Base Salary hereunder
for the remainder of the term hereof, payable within thirty
(30) days of the date of such termination; and
(ii) All incentive bonuses granted to him by the Board pursuant
to Section 4 (b) above.
The Company may purchase insurance to cover all or any part of its obligations
set forth in this Section 8(c), and Executive agrees to take a physical
examination to facilitate the obtaining of such insurance. However, death and
disability benefits are not conditioned upon the Executive's insurability or the
Company's obtaining insurance.
(d) Whenever compensation is payable to Executive hereunder during a time
when he is partially or totally disabled and such disability (except
for the provisions hereof) would entitle him to disability income or
to salary continuation payments from the Company according to the
terms of any plan now or hereafter provided by the Company or
according to any Company policy in effect at the time of such
disability, the compensation payable to him hereunder shall be
inclusive of any disability income or salary continuation and shall
not be in addition thereto. If disability income is payable directly
to Executive by an insurance company under an insurance policy paid
for by the Company, the amounts paid to him by said insurance company
shall be considered to be part of the payments to be
3
<PAGE>
made by the Company to him pursuant to this Section, and shall not be
in addition thereto.
9. Termination by Executive. Executive shall have the right to terminate his
employment under this Agreement upon thirty (30) days' notice to the
Company given sixty (60) days following the occurrence of any of the
following events:
(a) Executive is not elected or retained as President and Chief
Executive Officer and a director of the Company; or
(b) The Company materially reduces Executive's duties and
responsibilities hereunder. Executive's duties and
responsibilities shall not be deemed materially reduced for
purposes hereof solely by virtue of the fact that the Company is
(or substantially all of its assets are) sold to, or is combined
with, another entity provided that Executive shall report
directly to the Board of Directors of the entity that acquires
the Company or its assets.
10. Consequences of Breach by the Company.
(a) If this Agreement is terminated pursuant to Section 9 hereof, or
if the Company shall terminate Executive's employment under this
Agreement in any other way that is a breach of this Agreement by
the Company, the following shall apply:
(i) Executive shall receive a cash payment equal to the
Executive's Base Salary hereunder for the remainder of the
term hereof, payable within thirty (30) days of the date of
such termination; and
(ii) Executive shall be entitled to all incentive bonuses granted
to him by the Board pursuant to Section 4(b) above.
(b) If any benefit under the preceding subsection is finally
determined by the Internal Revenue Service to be an "Excess
Parachute Payment" under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall pay
Executive and additional amount such that (x) the excess of all
Excess Parachute Payments (including payments under this
sentence) over the sum of excise tax thereon under Section 4999
of the Code and income tax thereon under Subtitle A of the Code
and under applicable state law is equal to (y) the excess of all
Excess Parachute Payments (excluding payments under this
sentence) over income tax thereon under Subtitle A of the Code
and under applicable state law.
11. Remedies. The Company recognizes that because of Executive's special talents
and stature, in the event of termination by the Company hereunder (except under
Section 8(a)), or in the event of termination by Executive under Section 9,
before the end of the agreed term, the Company acknowledges and agrees that the
provisions of this
4
<PAGE>
Agreement regarding further payments of Base Salary and incentive bonuses
constitute fair and reasonable provisions for the consequences of such
termination, do not constitute a penalty, and such payments and benefits shall
not be limited to or reduced by amounts Executive might earn or be able to earn
from any other employment or ventures during the remainder of the agreed term of
this Agreement.
12. Notices and Demands. Any notice or demand which, by any provision of this
Agreement or any agreement, document or instrument executed pursuant hereto,
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served for all purposes if sent by
certified or registered mail, postage and charges prepaid, to the following
addresses: if to the Company, Attention: Richard J. Michael, 4400 PGA Boulevard
#500, Palm Beach Gardens, FL 33410, or at any other address designated by the
Company to Executive in writing
13. Severability. In case any covenant, condition, term or provision contained
in this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, in whole or in part, by judgment, order or decree of any court or other
judicial tribunal of competent jurisdiction, from which judgment, order or
decree no further appeal or petition for review is available, the validity of
the remaining convenants, conditions, terms and provisions contained in the
Agreement, and the validity of the remaining part, of any term or provision held
to be partially invalid, illegal or unenforceable, shall in no way be affected,
prejudiced or disturbed thereby.
14. Waiver or Modification. No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith. Furthermore, no
evidence of any waiver or modification shall be offered or received in evidence
in any proceeding, arbitration or litigation between the parties arising out of
or affecting this Agreement, or the rights or obligations of any party
hereunder, unless such waiver or modification is in writing and duly executed as
aforesaid. The provisions of this Section may not be waived except as herein set
forth.
15. Complete Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter of this Agreement and
supersedes any an all previous agreements between the parties, whether written
or oral, with respect to such subject matter.
16. Applicable Law, Binding Effect and Venue. This Agreement shall be construed
and regulated under and by the laws of the State of Florida, and shall inure to
the benefit of and be binding upon the parties hereto and their heirs, personal
representatives, successors and assigns. Venue for any action related to or
arising out of this Agreement shall lie in Palm Beach County, Florida.
17. Covenant Not To Compete; Disclosure of Information. Executive agrees to
receive confidential and proprietary information of the Company in confidence,
and not to disclose such information to others except as authorized by the
Company. Confidential
5
<PAGE>
and proprietary information shall mean information not generally known to the
public that is created by or disclosed to Executive as a consequence of his
employment by the Company, whether or not pursuant to this Agreement. During the
term hereof and for two (2) years after the termination of Executive's
employment hereunder, Executive shall not directly start up or own any entity
directly engaged in a business substantially similar to that of the Company or
in direct competition with the Company.
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as
of the date first written above with the intent to be legally bound.
AMERICAN KIOSK CORPORATION
By:
-----------------------------------------
Larry E. Graybill, Vice President
By:
-----------------------------------------
RICHARD J. MICHAEL
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 1st day of October, 1998 by and between AMERICAN
KIOSK CORPORATION, a Delaware corporation (the "Company"), and LARRY E. GRAYBILL
("Executive").
In consideration of the mutual covenants and agreements herein contained, the
monies to be paid hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Term of Employment. The Company hereby employs Executive and Executive hereby
accepts employment with the Company for a period beginning as of June 21, 1998
and terminating, unless sooner terminated as provided herein, on June 30, 1999.
2. Duties of Executive. Executive is hereby hired and employed by the Company to
Perform the duties and accept the responsibilities as herein set forth. During
the term hereof, Executive shall be Vice President and Chief Financial Officer
of the Company and shall devote his efforts to rendering services to the Company
in such capacities. In such capacities, Executive shall be the principal
financial officer of the Company, subject only to the supervision and control of
the Company's President and its Board of Directors (the "Board"). Executive
shall report only to the President. Executive's powers and authority shall be
superior to those of any officer or employee of the Company other than the
President. Executive shall not be required without his consent to undertake
responsibilities not commensurate with his position.
The Company agrees to nominate Executive for election to the Board of the
Company at each annual meeting of shareholders during his employment hereunder.
Executive agrees to serve on the Board once so elected.
3. Exclusivity. During the term hereof, Executive shall devote all of his
productive time, ability and attention to the business of the Company, except
that Executive may, undertake or continue to conduct other business, civic or
charitable activities during the term hereof if such activities do not
interfere, directly or indirectly, with the duties of Executive hereunder. The
Company agrees that Executive may, at Executive's option, hold outside
directorships subject to approval by the Board during the term of this
Agreement.
4. Compensation of Executive.
(a) Base Salary. As compensation for services rendered under this
Agreement, beginning September 21, 1998, Executive shall be entitled
to receive from the Company a base salary ("Base Salary") of seventy
five thousand dollars ($75,000) per year payable in accordance with
the normal payroll practices of the Company. As compensation for
services rendered under this Agreement for the period running from
June 21, 1998 through September 20, 1998, Executive shall
1
<PAGE>
be issued ten thousand (10,000) shares of the Company's common stock in
accordance with the Company's securities offering under Rule 504 of
Regulation D, the beneficial ownership of which vested in Executive on
August 12, 1998, and twenty two thousand seven hundred fifty (22,750)
shares of the Company's restricted common stock, the beneficial ownership
of which vested in Executive on June 21, 1998.
(b) Incentive Bonuses. In addition to his Base Salary, the Company shall
pay Executive an annual incentive cash bonus based upon the Company's
performance, in such amount as may be deemed appropriate by the Board.
Each Incentive Bonus shall be payable to Executive thirty (30) days
following the date the Company's audited consolidated statement of
income for the applicable fiscal year becomes available.
(c) Stock Option. As additional compensation, the Company and Executive
shall simultaneously herewith enter into a Stock Option Agreement in
the form attached hereto.
5. Executive Expenses. Executive shall be entitled to receive all benefits
generally made available to executives of the Company, including Company-paid
health, dental and disability insurance. The Company intends to adopt a
Qualified Stock Option Plan at the next Annual Meeting of Shareholders pursuant
to which the Board of Directors shall authorize annual grants of stock options
to all executive officers of the Company. The Compensation Committee of the
Board of Directors shall be charged with the task of determining recipients,
amounts, vesting schedules and other provisions relevant to the grants.
6. Vacation. Executive shall be entitled to three (3) weeks off for vacation at
full pay during the twelve (12) month period of the initial term hereof.
7. Reimbursement of Executive Expenses. Executive shall be expected to incur
various business expenses customarily incurred by persons holding like
positions, including, but not limited to, traveling, entertainment and similar
expenses, for the benefit of the Company. Subject to the Company's policy
regarding the reimbursement of such expenses, the Company shall reimburse
Executive for such expenses from time to time, at Executive's request, and
Executive shall account to the Company for such expenses.
2
<PAGE>
8. Termination by the Company.
(a) The Company shall have the right to terminate this Agreement under the
following circumstances:
(i) Upon the death of Executive;
(ii) Upon notice from the Company to Executive in the event of an
illness or other disability which has incapacitated him from
performing his duties for two (2) consecutive months as
determined in good faith by the Board; or
(iii) For "good cause" upon notice from the Company. Termination by
the Company of Executive's employment for "good cause" shall
be limited to the following circumstances:
(A) Executive is convicted of, pleads guilty to or pleads
nolo contendere to a felony crime involving moral
turpitude;
(B) Executive is found guilty of or pleads no contest to
fraud, conversion, embezzlement, falsifying records or
reports or a similar crime involving the Company's
property;
(C) Executive willfully fails to perform his duties and
responsibilities hereunder (in the discretion of the
Company's Board of Directors) or otherwise breaches
this Agreement; or
(D) The voluntary resignation by Executive as an employee
of the Company.
(b) If this Agreement is terminated pursuant to Section 8(a) above,
Executive's rights and the Company's obligations hereunder shall
forthwith terminate except as expressly provided in this Agreement.
(c) If this Agreement is terminated pursuant to Section 8(a)(i) or (ii)
hereof, Executive or his estate shall be entitled to receive:
(i) A cash payment equal to Executive's Base Salary hereunder
for the remainder of the term hereof, payable within thirty
(30) days of the date of such termination; and
(ii) All incentive bonuses granted to him by the Board pursuant
to Section 4(b) above.
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<PAGE>
The Company may purchase insurance to cover all or any part of its
obligations set forth in this Section 8(c), and Executive agrees to
take a physical examination to facilitate the obtaining of such insurance.
However, death and disability benefits are not conditioned upon the
Executive's insurability or the Company's obtaining insurance.
(d) Whenever compensation is payable to Executive hereunder during a time
when he is partially or totally disabled and such disability (except
for the provisions hereof) would entitle him to disability income or
to salary continuation payments from the Company according to the
terms of any plan now or hereafter provided by the Company or
according to any Company policy in effect at the time of such
disability, the compensation payable to him hereunder shall be
inclusive of any disability income or salary continuation and shall
not be in addition thereto. If disability income is payable directly
to Executive by an insurance company under an insurance policy paid
for by the Company, the amounts paid to him by said insurance company
shall be considered to be part of the payments to be made by the
Company to him pursuant to this Section, and shall not be in addition
thereto.
9. Termination by Executive. Executive shall have the right to terminate his
employment under this Agreement upon thirty (30) days' notice to the
Company given sixty (60) days following the occurrence of any of the
following events:
(a) Executive is not elected or retained as Vice President and Chief
Financial Officer and a director of the Company; or
(b) The Company materially reduces Executive's duties and responsibilities
hereunder. Executive's duties and responsibilities shall not be deemed
materially reduced for purposes hereof solely by virtue of the fact
that the Company is (or substantially all of its assets are) sold to,
or is combined with, another entity provided that Executive shall
report directly to the Board of Directors of the entity that acquires
the Company or its assets.
10. Consequences of Breach by the Company.
(a) If this Agreement is terminated pursuant to Section 9 hereof, or if
the Company shall terminate Executive's employment under this
Agreement in any other way that is a breach of this Agreement by the
Company, the following shall apply:
(i) Executive shall receive a cash payment equal to the Executive's
Base Salary hereunder for the remainder of the term hereof,
payable within thirty (30) days of the date of such termination;
and
4
<PAGE>
(ii) Executive shall be entitled to all incentive bonuses granted to
him by the Board pursuant to Section 4(b) above.
(b) If any benefit under the preceding subsection is finally determined by
the Internal Revenue Service to be an "Excess Parachute Payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay Executive and additional amount such
that (x) the excess of all Excess Parachute Payments (including
payments under this sentence) over the sum of excise tax thereon under
Section 4999 of the Code and income tax thereon under Subtitle A of
the Code and under applicable state law is equal to (y) the excess of
all Excess Parachute Payments (excluding payments under this sentence)
over income tax thereon under Subtitle A of the Code and under
applicable state law.
11. Remedies. The Company recognizes that because of Executive's special talents
and stature, in the event of termination by the Company hereunder (except under
Section 8(a)), or in the event of termination by Executive under Section 9,
before the end of the agreed term, the Company acknowledges and agrees that the
provisions of this Agreement regarding further payments of Base Salary and
incentive bonuses constitute fair and reasonable provisions for the consequences
of such termination, do not constitute a penalty, and such payments and benefits
shall not be limited to or reduced by amounts Executive might earn or be able to
earn from any other employment or ventures during the remainder of the agreed
term of this Agreement.
12. Notices and Demands. Any notice or demand which, by any provision of this
Agreement or any agreement, document or instrument executed pursuant hereto,
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served for all purposes if sent by
certified or registered mail, postage and charges prepaid, to the following
addresses: if to the Company, Attention: Richard J. Michael, 4400 PGA Boulevard
#500, Palm Beach Gardens, FL 33410, or at any other address designated by the
Company to Executive in writing
13. Severability. In case any covenant, condition, term or provision contained
in this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, in whole or in part, by judgment, order or decree of any court or other
judicial tribunal of competent jurisdiction, from which judgment, order or
decree no further appeal or petition for review is available, the validity of
the remaining convenants, conditions, terms and provisions contained in the
Agreement, and the validity of the remaining part, of any term or provision held
to be partially invalid, illegal or unenforceable, shall in no way be affected,
prejudiced or disturbed thereby.
14. Waiver or Modification. No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith. Furthermore, no
evidence of any waiver or modification shall be offered or received in evidence
in any proceeding, arbitration or litigation between the parties arising out of
or affecting this Agreement, or
5
<PAGE>
the rights or obligations of any party hereunder, unless such waiver or
modification is in writing and duly executed as aforesaid. The provisions of
this Section may not be waived except as herein set forth.
15. Complete Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter of this Agreement and
supersedes any an all previous agreements between the parties, whether written
or oral, with respect to such subject matter.
16. Applicable Law, Binding Effect and Venue. This Agreement shall be construed
and regulated under and by the laws of the State of Florida, and shall inure to
the benefit of and be binding upon the parties hereto and their heirs, personal
representatives, successors and assigns. Venue for any action related to or
arising out of this Agreement shall lie in Palm Beach County, Florida.
17. Covenant Not To Compete; Disclosure of Information. Executive agrees to
receive confidential and proprietary information of the Company in confidence,
and not to disclose such information to others except as authorized by the
Company. Confidential and proprietary information shall mean information not
generally known to the public that is created by or disclosed to Executive as a
consequence of his employment by the Company, whether or not pursuant to this
Agreement. During the term hereof and for two (2) years after the termination of
Executive's employment hereunder, Executive shall not directly start up or own
any entity directly engaged in a business substantially similar to that of the
Company or in direct competition with the Company.
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as
of the date first written above with the intent to be legally bound.
AMERICAN KIOSK CORPORATION
By:
---------------------------------
Richard J. Michael, President
By:
---------------------------------
LARRY E. GRAYBILL
6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 1st day of Oct, 1998 by and between AMERICAN
KIOSK CORPORATION, a Delaware corporation (the "Company"), and Ronald McDonald.
("Executive").
In consideration of the mutual covenants and agreements herein contained, the
monies to be paid hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Term of Employment. The Company hereby employs Executive and Executive hereby
accepts employment with the Company for a period beginning as of Oct 1, 1998 and
terminating, unless sooner terminated as provided herein, on Sept 30, 1999.
2. Duties of Executive. Executive is hereby hired and employed by the Company to
perform the duties and accept the responsibilities as herein set forth. During
the term hereof, Executive shall be a Director and VP Business and Product
Development for the Company and shall devote approximately 1 week each month to
rendering services to the Company in such capacity.
3. Compensation of Executive.
(a) Base Fee. As compensation for services rendered under this Agreement,
beginning 10/1/98. Executive shall be entitled to receive from the
Company a monthly fee of $4,000. As additional compensation for
services rendered, Executive shall be issued fifty thousand shares
(50,000) of the Company's restricted common stock, the beneficial
ownership of which is vested in Executive Oct 1, 1998.
(b) Stock Option. As additional compensation, the Company and Executive
shall simultaneously herewith enter into a Stock Option Agreement in
the form attached hereto.
4. Reimbursement of Executive Expenses. Executive shall be expected to incur
various business expenses customarily incurred by persons holding like
positions, including, but not limited to, traveling, entertainment and similar
expenses, for the benefit of the Company. Subject to the Company's policy
regarding the reimbursement of such expenses, the Company shall reimburse
Executive for such expenses from time to time, at Executive's request, and
Executive shall account to the Company for such expenses
-1-
<PAGE>
5. Termination by the Company.
(a) The Company shall have the right to terminate this Agreement under the
following circumstances:
(i) Upon the death of Executive;
(ii) Upon notice from the Company to Executive in the event of an
illness or other disability which has incapacitated him from
performing his duties for two (2) consecutive months as
determined in good faith by the Board; or
(iii) For "good cause" upon notice from the Company. Termination by
the Company of Executive's employment for "good cause" shall
be limited to the following circumstances:
(A) Executive is convicted of, pleads guilty to or pleads
nolo contendere to a felony crime involving moral
turpitude;
(B) Executive is found guilty of or pleads no contest to
fraud, conversion, embezzlement, falsifying records or
reports or a similar crime involving the Company's
property;
(C) Executive willfully fails to perform his duties and
responsibilities hereunder (in the discretion of the
Company's Board of Directors) or otherwise breaches
this Agreement; or
(D) The voluntary resignation by Executive as an employee of
the Company.
(b) If this Agreement is terminated pursuant to Section 5(a) above,
Executive's rights and the Company's obligations hereunder shall
forthwith terminate except as expressly provided in this Agreement.
(c) If this Agreement is terminated pursuant to Section 5(a)(i) or (ii)
hereof, Executive or his estate shall be entitled to receive:
(i) A cash payment equal to Executive's Base Salary hereunder
for the remainder of the term hereof, payable within thirty
(30) days of the date of such termination.
-2-
<PAGE>
The Company may purchase insurance to cover all or any part
of its obligations set forth in this Section 5(c), and
Executive agrees to take a physical examination to
facilitate the obtaining of such insurance. However, death
and disability benefits are not conditioned upon the
Executive's insurability or the Company's obtaining
insurance.
(d) Whenever compensation is payable to Executive hereunder during a time
when he is partially or totally disabled and such disability (except
for the provisions hereof) would entitle him to disability income or
to salary continuation payments from the Company according to any
Company policy in effect at the time of such disability, the
compensation payable to him hereunder shall be inclusive of any
disability income or salary continuation and shall not be in addition
thereto. If disability income is payable directly to Executive by an
insurance company under an insurance policy paid for by the Company,
the amounts paid to him by said insurance company shall be considered
to be part of the payments to be made by the Company to him pursuant
to this Section, and shall not be in addition thereto.
6. Termination by Executive. Executive shall have the right to terminate his
employment under this Agreement upon thirty (30) days' notice to the Company in
the event the Company materially reduces Executive's duties and responsibilities
hereunder. Executive's duties and responsibilities shall not be deemed
materially reduced for purposes hereof solely by virtue of the fact that the
Company is (or substantially all of its assets are) sold to, or is combined
with, another entity.
7. Consequences of Breach by the Company.
(a) If this Agreement is terminated pursuant to Section 6 hereof, or if
the Company shall terminate Executive's employment under this
Agreement in any other way that is a breach of this Agreement by the
Company, the following shall apply:
(i) Executive shall receive a cash payment equal to the
Executive's Base Salary hereunder for the remainder of the
term hereof, payable within thirty (30) days of the date of
such termination; and
(b) If any benefit under the preceding subsection is finally determined by
the Internal Revenue Service to be an "Excess Parachute Payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay Executive and additional amount such
that (x) the excess of all Excess Parachute Payments (including
payments under this sentence) over the sum of excise tax thereon
(c) under Section 4999 of the Code and income tax thereon under Subtitle A
of the Code and under applicable state law is equal to (y) the excess
of all Excess Parachute Payments (excluding payments under this
sentence) over income tax thereon under Subtitle A of the Code and
under applicable state law.
-3-
<PAGE>
8. Remedies. The Company recognizes that because of Executive's special talents
and Stature, in the event of termination by the Company hereunder (except under
Section 5(a)), or in the event of termination by Executive under Section 6,
before the end of the agreed term, the Company acknowledges and agrees that the
provisions of this Agreement regarding further payments of Base Salary and
incentive bonuses constitute fair and reasonable provisions for the consequences
of such termination, do not constitute a penalty, and such payments and benefits
shall not be limited to or reduced by amounts Executive might earn or be able to
earn from any other employment or ventures during the remainder of the agreed
term of this Agreement.
9. Notices and Demands. Any notice or demand which, by any provision of this
Agreement or any agreement, document or instrument executed pursuant hereto,
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served for all purposed if sent by
certified or registered mail, postage and charges prepaid, to the following
addresses: if to the Company, Attention: Richard J. Michael, 4400 PGA Boulevard
#500, Palm Beach Gardens, FL 33410, or at any other address designated by the
Company to Executive in writing, and if to Executive,___________________________
________________________________________________________________________________
10. Severability. In case any covenant, condition, term or provision contained
in this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, in whole or in part, by judgment, order or decree of any court or other
judicial tribunal of competent jurisdiction, from which judgment, order or
decree no further appeal or petition for review is available, the validity of
the remaining covenants, conditions, terms and provisions contained in this
Agreement, and the validity of the remaining part of any term or provision held
to be partially invalid, illegal or unenforceable, shall in no way be affected,
prejudiced or disturbed thereby.
11. Waiver or Modification. No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith. Furthermore, no
evidence of any waiver or modification shall be offered or received in evidence
in any proceeding, arbitration or litigation between the parties arising out of
or affecting this Agreement, or the rights or obligations of any party
hereunder, unless such waiver or modification is in writing and duly executed as
aforesaid. The provisions of this Section may not be waived except as herein set
forth.
-4-
<PAGE>
12. Complete Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter of this Agreement and
supersedes any an all previous agreements between the parties, whether written
or oral, with respect to such subject matter.
13. Applicable Law, Binding Effect and Venue. This Agreement shall be construed
and regulated under and by the laws of the State of Florida, and shall inure to
the benefit of and be binding upon the parties hereto and their heirs, personal
representatives, successors and assigns. Venue for any action related to or
arising out of this Agreement shall lie in Palm Beach County, Florida.
14. Covenant Not To Compete; Disclosure of Information. Executive agrees to
receive confidential and proprietary information of the Company in confidence,
and not to disclose such information to others except as authorized by the
Company. Confidential and proprietary information shall mean information not
generally known to the public that is created by or disclosed to Executive as a
consequence of his employment by the Company, whether or not pursuant to this
Agreement. During the term hereof and for two (2) years after the termination of
Executive's employment hereunder, Executive shall not directly start up or own
any entity directly engaged in a business substantially similar to that of the
Company or in direct competition with the Company.
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as
of the date first written above with the intent to be legally bound.
AMERICAN KIOSK CORPORATION
By:
---------------------------------------
Richard J. Michael, President
By:
---------------------------------------
-5-
PIZZA PLACE AREA REPRESENTATIVE AGREEMENT
Between
AMERICAN KIOSK CORPORATION
a Delaware corporation
(Franchisor)
and
Michael M. Morgan Sr., Arthur G. Scott, and/or Assigns
(Representative)
Dated: November 10, 1998
Service Area:
Louisiana, Mississippi, Arkansas, Tennessee,
Alabama, Florida,(except Dade, Broward, and Palm Beach Counties)
Keith J. Kanouse, Esquire
Keith J. Kanouse, P.A.
2424 North Federal Highway, Suite 353
Boca Raton, Florida 33431
<PAGE>
PIZZA PLACE AREA REPRESENTATIVE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BACKGROUND................................................................................................1
ARTICLE 1
Section 1.1 Grant.....................................................................................
Section 1.2 Area of Responsibility....................................................................
Section 1.3 Territorial Protection....................................................................
ARTICLE 2
Section 2.1 Training..................................................................................
Section 2.2 Loan of the Pizza Place Manuals...........................................................
Section 2.3 Continued Assistance and Support..........................................................
Section 2.4 License of the Proprietary Marks..........................................................
Section 2.5 Duties Solely to the Representative.......................................................
Section 2.6 The Franchisor's Right to Delegate Duties.................................................
ARTICLE 3
Section 3.1 Franchise Brokerage Services..............................................................
Section 3.2 Pre-Opening Assistance to Franchisees.....................................................
Section 3.3 Continued Assistance and Support of Franchisees...........................................
Section 3.4 Other Obligations and Requirements........................................................
Section 3.5 Insurance.................................................................................
Section 3.6 Confidentiality...........................................................................
ARTICLE 4
Section 4.1 Representative Fee........................................................................
Section 4.2 Compensation of the Representative........................................................
ARTICLE 5
Section 5.1 The Franchisor's Representations As to the Proprietary Marks..............................
Section 5.2 Restrictions on the Representative's Use of the Proprietary Marks.........................
Section 5.3 The Representative's Lack of Ownership....................................................
Section 5.4 Infringement by the Representative........................................................
Section 5.5 Indemnification of the Representative.....................................................
Section 5.6 Claims Against the Proprietary Marks......................................................
ARTICLE 6
Section 6.1 Confidential Use..........................................................................
Section 6.2 Sole Property of the Franchisor...........................................................
Section 6.3 Periodic Revisions........................................................................
Section 6.4 Prior Information.........................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 7
Section 7.1 Transfer by the Franchisor...............................................................
Section 7.2 Transfer by the Representative...........................................................
ARTICLE 8
Section 8.1 Termination by the Representative........................................................
Section 8.2 Termination by the Franchisor - Without Notice...........................................
Section 8.3 Termination by the Franchisor - After Notice.............................................
Section 8.4 Termination by the Franchisor - After Notice and Right to Cure...........................
ARTICLE 9
Section 9.1 Payment of Outstanding Amounts...........................................................
Section 9.2 Discontinue Legal Use of Name............................................................
Section 9.3 Return of Materials......................................................................
Section 9.4 Loss of Exclusivity; Cessation of Sales; Cessation of Services...........................
ARTICLE 10
Section 10.1 Devotion to the Sale and Servicing of Franchises.........................................
Section 10.2 Diversion of Business; Competition With the Franchisor; and Interference.................
(i)....................................................................................24
(ii) ..................................................................................24
(iii) .................................................................................24
Section 10.4 Independent Covenants....................................................................
ARTICLE 11
Section 11.1 Independent Status.......................................................................
Section 11.2 Indemnification..........................................................................
ARTICLE 12
Section 12.1 No Reliance..............................................................................
Section 12.2 Representations of the Franchisor........................................................
Section 12.3 Representations of the Representative....................................................
ARTICLE 13
Section 13.1 Mediation and Arbitration................................................................
Section 13.2 Injunctive Relief; Specific Performance..................................................
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 14
Section 14.1 Term.....................................................................................
Section 14.2 Option to Obtain Successor Pizza Place Area..............................................
ARTICLE 15
Section 15.1 Definitions..............................................................................
Section 15.2 Other Definitional Provisions............................................................
ARTICLE 16
Section 16.1 SUCCESS OF THE REPRESENTATIVE'S BUSINESS.................................................
Section 16.2 Amendments...............................................................................
Section 16.3 Binding Effect...........................................................................
Section 16.4 Notices..................................................................................
Section 16.5 Headings.................................................................................
Section 16.6 Severability.............................................................................
Section 16.7 Waivers..................................................................................
Section 16.8 Enforcement Costs........................................................................
Section 16.9 Jurisdiction and Venue...................................................................
Section 16.10 Remedies Cumulative......................................................................38
Section 16.11 Effectiveness; Counterparts..............................................................39
Section 16.12 Consents, Approvals and Satisfaction.....................................................39
Section 16.13 Governing Law............................................................................39
Section 16.14 Interpretation...........................................................................39
Section 16.15 Entire Agreement.........................................................................40
Section 16.16 Survival.................................................................................40
Section 16.17 Force Majeure............................................................................40
Section 16.18 Third Parties............................................................................40
Exhibit A to Pizza Place Area Representative Agreement...................................................44
Exhibit B to Pizza Place Area Representative Agreement...................................................45
</TABLE>
iii
<PAGE>
PIZZA PLACE AREA REPRESENTATIVE AGREEMENT
THIS PIZZA PLACE AREA REPRESENTATIVE AGREEMENT is signed on _____________,
199___, between American Kiosk Corporation, a Delaware corporation (the
"Franchisor") and Michael M. Morgan, Sr., Arthur G. Scott, and/or Assigns (the
"Representative").
BACKGROUND
A. The Franchisor intends to develop a national brand franchise system of
kiosk and kiosk-style retail outlets called Retail-Style Kiosks, to deliver
popular food products to consumers initially focusing on brick oven pizza under
the Proprietary Marks (the "Franchise").
<PAGE>
A. The Franchisor designates selected area representatives who meet special
criteria to solicit prospective franchisees ("Franchisees") to purchase
Franchises to be operated in a designated area, under a Franchise Agreement
between the Franchisor and the Franchisee, and to perform certain duties for
these Franchises, many of which are duties of the Franchisor under the Franchise
Agreement and are delegated under this Agreement to the Representative.
B. As compensation for the Representative's services under this Agreement,
the Franchisor desires to pay the Representative a portion of the Turnkey
Package Fees, and Royalties paid by Franchisees, also the Representative shall
be issued shares of American Kiosk Corporation
C. The Franchisor desires to provide the Representative with special
training to assist the Representative in soliciting and servicing Franchisees
under this Agreement.
D. The Representative desires to receive this special training and be
engaged by the Franchisor on the terms in this Agreement.
E. The Representative has had sufficient opportunity to be advised
thoroughly of the terms of this Agreement by advisors of the Representative's
own choosing and by receipt and review of a current FOC (Single-Unit) and has
made an independent investigation of the Franchisor's operations, and the
Representative and the Franchisor have concluded an agreement that they reduce
to this written document, which is intended to fully state all of the parties'
understandings and agreements, representations and warranties pertaining to
their relationship and which terms are acknowledged by the parties to be
material and reasonable.
The parties agree as follows:
1
<PAGE>
ARTICLE 1
APPOINTMENT
Section 1.1 Grant.
The Franchisor grants to the Representative, subject to the terms in this
Agreement, the right to act as the Franchisor's exclusive sales agent of, and
service provider to, Franchises within the Area described in Section 1.2 and the
Representative agrees to accept this engagement. This Agreement is not a
franchise. This Agreement does not grant to the Representative any right to own
or operate a Pizza Place Franchise. However, nothing in this Agreement will
prohibit the Representative from proposing any entity in which the
Representative has an interest, or the Representative himself or herself, as a
prospective Franchisee for a System franchise to be located in the Area. If the
Franchise is granted under the approval procedures in this Agreement and
compliance with the FTC Franchise Rule and applicable state franchise laws, the
Representative will be entitled to compensation as provided in Section 4.2. The
Representative must also purchase two (2) Pizza Place Franchises (Turn Key
Packages) at Sixty-Five Thousand dollars($65,000.00) each. These two units will
be paid for through a secured 36 month note for $130,000 bearing 8% interest,
with a balloon payment of $65,000 due at the end of the loan term. The first
payment will be due on April 1, 1999. These units will also be used as the
Representative's showcase unit, sales office and training facility. The
Representative will receive a separate FOC (Single-Unit) in accordance with
federal and state franchise law requirements.
Section 1.2 Area of Responsibility.
The Representative's area of responsibility (the "Area") is: The States of
:Florida, except Dade, Broward, and Palm Beach Counties, Alabama, Mississippi
Louisiana Arkansas and Tennessee. The Franchisor agrees to provide the
Representative, the additional states of Georgia, South Carolina , and North
Carolina if the current potential Representative does not come to terms with
American Kiosk Corporation. If these additional states are provided the Area
Representative Performance Schedule will be adjusted accordingly. This Area can
reasonably absorb at least Three Hundred Sixty(360) Franchises. The
Representative will only deal with prospective Franchisees who are residents
within the Area and whose Franchise is to be located within the Area without the
written approval of the Franchisor to avoid an inadvertent offer to sell a
franchise to a resident of a state where the Franchisor is not currently
registered. The Representative will not have a first personal meeting with any
prospective Franchisee until notified in writing by the Franchisor that the
Franchisor has complied with any applicable state franchise registration
requirements and the Franchisor has delivered to the Representative its current
form of FOC for delivery to prospective Franchisees. Franchisor agrees to
immediately file the necessary documents to do business in the above mentioned
area.
2
<PAGE>
Section 1.3 Territorial Protection.
During the Term, if the Representative is not in default under this
Agreement, the Franchisor will not grant any other person the right to offer
Franchises to be operated in the Area, nor grant any Franchise or a
Company-Owned Unit to be operated in the Area without the Franchise being
subject to the terms of this Agreement and the written consent of the
Representative.
ARTICLE 2
DUTIES OF THE FRANCHISOR
The Franchisor will provide the Representative with the following
assistance and services if the Representative is not in default under this
Agreement:
Section 2.1 Training.
(a) Initial Training
(b) Failure to Complete Initial Training.
(c) Content.
(d) Attend Franchisee's Basic Management Training.
THE FRANCHISOR HEREBY AGREES THAT BECAUSE OF THE REPRESENTATIVES PREVIOUS
INVOLVEMENT WITH THE FRANCHISOR THE ABOVE SECTIONS a,b,c, and d ARE WAIVED AND
ARE NOT PART OF THIS AGREEMENT.
(e) Refresher or Additional Training. The Franchisor may provide refresher
training programs, seminars or advanced management training for the
Representative at the principal training facility of the Franchisor, which may
be required, at the option of the Franchisor. Training will not be required more
often than once a year. The Representative is solely responsible for all
expenses associated with these programs, including the then prevailing standard
rates charged by the Franchisor for these programs and all travel, meals and
lodging costs for the Representative's attendees.
(f) Approval of Prospective Franchisees. The Franchisor will promptly
process all applications by prospective Franchisees forwarded by the
Representative and will not unreasonably withhold its approval of any
prospective Franchisee, provided the prospect meets the educational,
professional, managerial, business, financial, and other qualifications as the
Franchisor may require for new franchisees.
3
<PAGE>
Section 2.2 Loan of the Pizza Place Manuals.
The Franchisor will loan to the Representative one registered copy of the
Pizza Place Manuals (with peraodic revisions as required). The Franchisor's
practice is to deliver to the Representative Pizza Place Manuals at or shortly
before the time of Initial Training.
Section 2.3 Continued Assistance and Support.
(a) Collection of Fees and Royalties. The Franchisor will provide for the
collection of fees and royalties from the Franchisees and payment to the
Representative as provided in Section 4.2.
(b) Telephone Hotline. The Franchisor will maintain a telephone "hotline"
for informational assistance for the Representative and the Franchisees.
(c) Advertising and Public Relations Campaigns. The Franchisor will
generally promote the Franchised Business through advertising and public
relation campaigns.
(d) Periodic Assistance. The Franchisor may provide to the Representative
continuing advisory assistance in the operation and promotion of the Franchises
as the Franchisor deems advisable, which may include communication of new
developments, improvements in equipment and supplies, and new techniques in
advertising, service and management that are relevant to the operation of the
Franchised Business.
(e) Research and Development. The Franchisor will continue to research and
develop new products and services, introductions and techniques as deemed
appropriate by the Franchisor in its sole and absolute discretion.
(f) Referral of Leads. The Franchisor will refer all leads to the
Representative for possible Franchises in the Area.
Section 2.4 License of the Proprietary Marks.
Subject to the terms of this Agreement, the Franchisor licenses the right
to use the "Pizza Place" trade name.
Section 2.5 Duties Solely to the Representative.
All of the obligations of the Franchisor under this Agreement are solely to
the Representative. No other party is entitled to rely on, enforce, or obtain
relief for breach of these obligations either directly or by subrogation.
4
<PAGE>
Section 2.6 The Franchisor's Right to Delegate Duties.
The Representative agrees to the Franchisor's right to delegate any of the
duties of the Franchisor under this Agreement to a Designee. The Representative
must discharge his or her duties in all respects with the Designee to the extent
requested by the Franchisor in the same manner with which the Representative is
otherwise required to do so with the Franchisor.
ARTICLE 3
DUTIES OF THE REPRESENTATIVE
The Representative will perform the following duties on an exclusive,
full-time, best efforts basis for the Franchisor:
Section 3.1 Franchise Brokerage Services.
(a) The Representative will develop and implement a franchise marketing
plan, to attract qualified franchisee candidates within the Area. The
Representative must diligently check to ensure that the Pizza Place System is
feasible within the Area. The Representative will solicit and screen prospective
Franchisees for the Franchisor to purchase Pizza Place Franchises to be located
in the Area under separate Franchise Agreements with the Franchisor that the
Franchisor may specify. The Representative agrees that the Franchisor has sole
discretion to accept or reject a prospective Franchisee. The final terms of the
Franchise Agreement entered into with each Franchisee including all fees and
royalties is also determined in the sole discretion of the Franchisor. The
Franchisor reserves the right to increase the fees and royalties charged to
franchisees upon 60 days' written notice to the Representative. The
Representative is without authority to sign any agreement for the Franchisor
including any Franchise Agreement.
(b) The Representative's responsibilities in this regard include
advertising for prospective Franchisees, screening of prospective Franchisees
pursuant to standards required by the Franchisor, obtaining completed franchisee
applications that are submitted to the Franchisor's home office for processing
and review, and delivering timely the Franchisor's FOC. The Representative will
make no representations inconsistent with any Authorized Materials delivered by
the Representative to prospective Franchisees, including the FOC (including all
exhibits), that the Representative warrants he or she has read, and with which
he or she is familiar.
(c) The Representative will comply with all applicable federal and state
laws and regulations in the sale of Franchises. The Representative must provide
each prospective Franchisee with the then current form of Pizza Place FOC
required to be delivered to the prospective Franchisee. The FOC must be
delivered by the Representative, at the earlier of: (i) at least 10 Business
Days before signing the Franchise Agreement and payment of any
5
<PAGE>
consideration in the sale or proposed sale of a Franchise to the prospective
Franchisee; or (ii) on or before the first personal meeting between the
prospective Franchisee and the Representative for the purpose of discussing the
sale or possible sale of a Franchise. In addition, the Representative must
provide each prospective Franchisee with the Franchise Agreement, and all other
agreements to be signed by the prospective Franchisee, with all blanks and terms
completed, at least 5 Business Days before signing the Franchise Agreement and
payment of any consideration in the sale or proposed sale of a Franchise to the
prospective Franchisee.
(d) The Representative will number each FOC and maintain a detailed log as
to each prospective Franchisee including all letters, telephone contacts,
personal meetings, obtaining the signed Acknowledgement of Receipt of the FOC
and other information required by the Franchisor. The Representative will make
no oral or written statement, promise, guarantee, representation, understanding
or other agreement that is outside of, or inconsistent with, the terms of the
FOC. The Representative will not use any marketing or advertising materials that
have not been previously supplied by the Franchisor or previously approved, in
writing, by the Franchisor.
(e) The Representative will spend a reasonable sum per calendar year on
advertising the solicitation of Franchisees and agrees to provide the Franchisor
with satisfactory proof of these expenditures, upon the Franchisor's request.
The Representative will refrain from using any false or misleading advertising
in the solicitation of prospective Franchisees. All advertising must receive the
written approval of the Franchisor before its use and the Representative will
comply with all laws regulating the content and use of advertising including
registration with, and approval by, applicable state franchise regulators.
(f) The Representative will actively participate in franchise and business
opportunity shows, within the Area. The Representative will purchase an
appropriate franchise display booth.
(g) The Representative will establish and maintain sources of supplies and
services for the Franchisees within the Area, including sources for leasing and
financing assistance to the Franchisees approved by the Franchisor.
Section 3.2 Pre-Opening Assistance to Franchisees.
(a) In a Franchisee's selection of a site for the establishment and
operation of a Franchised Business, the Representative must:
(i) develop and provide standards and criteria for the threshold
consideration of possible sites;
(ii) develop meaningful information concerning possible site selection
and present this information to a Franchisee;
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(iii) upon request of a Franchisee, consult with the Franchisee
regarding site selection and the negotiation of real estate leases; and
(iv) consider and evaluate applications presented by the Franchisees
for site approval and forward all materials to the Franchisor along with
the Representative's analysis and recommendation for the Franchisee's final
approval or disapproval for the purpose of approving or disapproving sites
so presented.
(b) The Representative will provide the Franchisee with Basic Management
Training as stated in Section 2.8 of the Franchise Agreement at its training
facility, pre-opening inspections as stated in Section 2.10 of the Franchise
Agreement, pre-opening on-site training and an opening supervisor as stated in
Section 2.11 of the Franchise Agreement and grand opening assistance stated
Section 2.12 of the Franchise Agreement. The Representative will assist the
franchisee to help ensure that the Franchisee's Franchised Business opens within
120 days from the signing of the Franchise Agreement.
Section 3.3 Continued Assistance and Support of Franchisees.
(a) Refresher Training. The Representative may be required to provide
refresher training programs or seminars for the Franchisees at his or her
training facility and for the time and content as may be required by the
Franchisor.100% of the training fees referred to in the Franchise Agreement
shall be paid to the Representative.
(b) Field Visits. The Representative must provide assistance to the
Franchisees in the development and operation of their respective Franchises by
means of periodic visits by the Representative no less frequently than once per
month. The Representative will make himself or herself available to the
Franchisees and sales agents for consultation on matters such as operations,
advertising and promotion, installation and business methods.
(c) Advice on Local Advertising. The Representative must provide
suggestions and comments to Franchisees regarding regional and local
advertising, and direction regarding the proper usage of the Franchisor's
Proprietary Marks.
(d) Reports to Franchisor. The Representative must report promptly to the
Franchisor regarding any complaints or suggestions made by the Franchisees.
(e) Periodic Franchisee Meetings. The Representative will conduct periodic
meetings of all Franchisees in the Area including meetings of any Regional
Advertising Cooperative for purposes as, and no less frequently than, the
Franchisor may require in writing. If requested by the Franchisor, the
Representative will develop specific marketing programs for the Area using
material provided or approved by the Franchisor.
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(f) Other Responsibilities. The Representative will undertake other
responsibilities as requested by the Franchisor, provided these responsibilities
are deemed reasonably necessary by the Franchisor as a result of being required
to be performed by the Franchisor or its Designee under the then current form of
Franchise Agreement.
Section 3.4 Other Obligations and Requirements.
(a) Informational Requests; Monthly Forecasts. The Representative will
promptly comply with all informational requests of the Franchisor and cooperate
fully with the Franchisor to administer the franchise program contemplated under
this Agreement. The Representative will provide monthly forecasts of sales of
Franchises.
(b) Licenses. The Representative is responsible for complying with all
licensing requirements and other applicable laws concerning the performance of
the Representative's duties, for which the Franchisor makes no representations
and warranties.
(c) Telephones. The Representative will at all times: (i) maintain
continuously the number of operating telephone lines and telephone numbers to be
used exclusively by the Representative for the operation of his or her business
required by the Franchisor, with sufficient staff to handle telephone calls in
an efficient and courteous manner at all times during business hours; and (ii)
maintain an answering service after normal business hours.
(d) Compliance with Laws. The Representative will comply with all federal,
state, and local laws, rules and regulations, and will timely obtain, maintain
and renew when required all permits, certificates or franchises necessary for
the full and proper conduct of his or her business under this Agreement,
including qualification to do business, fictitious, trade or assumed name
registration, occupational licenses and franchise salesmen regulations. Copies
of all inspection reports, warnings, certificates and ratings, issued by any
governmental entity during the Term in the conduct of his or her business that
indicate material non-compliance by the Representative with any applicable law,
rule or regulation, will be forwarded to the Franchisor by the Representative
within 2 days of the Representative's receipt of these items.
(e) Tax Payments; Contested Assessments. The Representative will promptly
pay when due all taxes levied or assessed by any federal, state or local tax
authority, including unemployment taxes, withholding taxes, sales taxes, income
taxes, tangible commercial personal property taxes, real estate taxes,
intangible taxes and all other indebtedness incurred by the Representative in
the conduct of his or her business. The Representative will pay to the
Franchisor or the Franchisor will withhold an amount equal to any sales tax,
goods and services taxes, gross receipts tax, or similar tax imposed on the
Franchisor for any payments to the Representative required under this Agreement,
unless the tax is measured by or related to the net income of the Franchisor or
to its corporate status in a state. If any tax is paid by the Franchisor,
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the Representative will promptly reimburse the Franchisor the amount paid. Upon
any bona fide dispute as to liability for taxes assessed or other indebtedness,
the Representative may contest the validity or the amount of the tax or
indebtedness in accordance with procedures of the taxing authority or applicable
law; however, the Representative will not permit a tax sale or seizure by levy
of execution or similar writ or warrant, or attachment by a creditor, to occur
against any assets used in his or her business.
(f) Inspections. The Representative will permit the Franchisor and/or its
representatives to enter the office of the Representative and his or her
training facility at any time during normal business hours, for purposes of
conducting inspections including a review of the Representative's books and
records. The Representative will cooperate fully with the Franchisor and/or its
agents in the inspections by rendering assistance as they may reasonably request
and by permitting them, at their option, to observe the methods used by the
Representative in selling franchises and rendering his or her services for the
Franchisor. The inspections may be conducted without notice at any time when the
Representative or one of his or her employees is at his or her business. The
inspections will be performed in a manner that minimizes interference with the
operation of the Representative's business.
(g) Minimum Annual Performance Requirement. The Representative agrees that
his or her performance under this Agreement will be measured, in part, by the
number of Franchisees who enter into Franchise Agreements during the Term as a
result of the Representative's efforts in accordance with the Performance
Schedule stated in Exhibit A. To the extent the Representative exceeds the
Minimum Annual Performance Requirement in any Annual Period, the number of
Franchisees by which the Representative exceeds the Minimum Annual Performance
Requirement will be credited in later Annual Periods to meet the Minimum Annual
Performance Requirement for the Annual Periods. If the Term expires before the
expiration of the then current Annual Period, the Minimum Annual Performance
Requirement is prorated for that Annual Period.
(h) Notices to the Franchisor. The Representative will notify the
Franchisor in writing within 5 days of each of the following events:
(i) The actual filing of any action, suit or proceeding against the
Representative or any of his or her employees;
(ii) The issuance of any order, writ, injunction, award or decree of
any court, agency or other governmental instrumentality, that may adversely
affect the operation, financial condition or good will of the
Representative or the Franchisor; or
(iii) Notice to the Representative of a violation of any law,
ordinance or regulation by his or her business.
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If any action or proceeding is brought against the Representative regarding his
or her business, the Representative will immediately provide the Franchisor with
copies of all pleadings, papers and material correspondence regarding the action
or proceeding. The Representative will keep the Franchisor informed about the
progress and outcome of the action or proceeding.
(i) Assist in Enforcement Efforts; Temporary Management. Upon request, the
Representative will assist the Franchisor in its enforcement efforts including
the collection of delinquent accounts of Franchisees in the Area. At the request
of the Franchisor, the Representative will assume managerial control over any
abandoned or terminated Franchise in the Area until the Representative or the
Franchisor can find a successor Franchisee. The Representative will receive a
reasonable management fee equal to 5% of gross sales for these management
services.
(j) Operational Suggestions. The Representative is encouraged to submit
suggestions in writing to the Franchisor for improving elements of the System,
such as products, services, equipment, service format, advertising and any other
relevant matters, that will be considered by the Franchisor when adopting or
modifying standards, specifications and procedures for the System. The
Representative agrees that any suggestions made by the Representative under this
Agreement are the exclusive property of the Franchisor. The Franchisor has no
obligation to use these suggestions and no obligation to provide compensation
for any suggestion. The Representative may not use any suggestions inconsistent
with his or her obligations under this Agreement without the written consent of
the Franchisor.
Section 3.5 Insurance.
(a) The Representative will procure and maintain in full force and effect
during the Term, at his or her sole expense, an insurance policy or policies, as
the Franchisor may reasonably require, protecting the Representative and the
Franchisor, and their officers, directors, partners and employees, against any
loss, liability, personal injury, death, or property damage or expense arising
from the Representative's obligations under this Agreement. All liability
policies will name the Franchisor as the additional named insured and will
provide that the Franchisor will receive notice of the Representative's default
in payment of any premium and 30 days' prior written notice of termination,
cancellation, expiration or alteration to provide less coverage. The insurance
afforded by any liability policy will not be limited in any way by reason of any
insurance maintained by the Franchisor.
(b) The policy or policies procured by the Representative will be written
by a licensed insurance company and will include, at a minimum, commercial
general casualty insurance and general liability insurance, including products
liability, property damage, owned and non-owned motor vehicle coverage, and
personal injury coverage with a combined single limit of at least $1,000,000,
unless otherwise agreed in writing by the Franchisor, an "Errors and Omissions"
policy with at least $1,000,000 coverage, as well as all other insurance as may
be required by
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statute or rule of the state in which the Area is located including workers'
compensation insurance. The Franchisor may require that additional coverages be
procured or that minimum limits be increased as necessary for the
Representative's and the Franchisor's protection.
(c) Before beginning operation of the Representative's obligations under
this Agreement, the Representative will submit to the Franchisor one or more
certificates showing that the Representative has procured the required
insurance. The Representative will submit evidence annually of the renewal or
extension of these policies.
(d) If the Representative fails to procure and maintain any required
insurance coverage or furnish satisfactory evidence of insurance, the
Franchisor, in addition to its other remedies, may, but need not, procure
insurance coverage for the Representative, who will pay the Franchisor on demand
the amount of any premiums and expenses incurred by the Franchisor in obtaining
the insurance.
Section 3.6 Confidentiality.
During the Term and at all later times, the Representative will not in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person or firm, except to or for the Franchisor's benefit, any information of
any kind concerning any matters affecting the business of the Franchisor or its
affiliates, that he or she may have acquired in the course of or incident to his
or her engagement by the Franchisor, including the terms of this Agreement, the
terms of any other agreement between the Franchisor and its employees or its
Franchisees, or any Franchisee lists, compilations or profiles or the name of
any Franchisee, without regard to whether the information would be deemed
confidential or material, the Representative agreeing that the information
affects the successful and effective conduct of the Franchisor's business and
its good will, and that any breach of the terms of this Section is a material
breach of this Agreement. All of the records, files and materials created or
used by the Representative in performing his or her duties under this Agreement
are the Franchisor's sole and exclusive property and any items in the
Representative's possession will be returned immediately to the Franchisor upon
its request, and upon termination of this Agreement.
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ARTICLE 4
REPRESENTATIVE FEE AND COMPENSATION
Section 4.1 Representative Fee.
The Representative will pay to the Franchisor an initial fee of $0.00 (the
"Representative Fee") payable simultaneously with the signing of this Agreement.
The Representative Fee is fully earned by the Franchisor and is non-refundable
upon signing this Agreement in consideration for the administrative and other
costs incurred by the Franchisor and opportunities lost or deferred as a result
of the rights granted to the Representative in this Agreement.
Section 4.2 Compensation of the Representative.
(a) During the Term, the Representative is entitled to receive, as his or
her sole and exclusive compensation under this Agreement: (i) Sixteen (16)% of
the Turnkey Package Fee paid to the Franchisor by a Franchisee under a Franchise
Agreement; (ii) Fifty-five (55)% of the Royalty Fee paid to the Franchisor by a
Franchisee under a Franchise Agreement (the "Royalty Payment") and (iii) Three
thousand two hundred dollars ($3,200.00) for every deposit received under a
Development Agreement , all as and when received and earned by the Franchisor
from each Franchisee who the Representative has solicited to enter into a Pizza
Place Franchise Agreement and/or Development Agreement with the Franchisor
during the Term to operate a Franchise in the Area and who the Representative
has serviced and is servicing as provided in this Agreement.
(b) The Franchisor will pay the Turnkey Package Fee Payment to the
Representative within 15 days after the actual receipt by the Franchisor of the
Turnkey Package Fee; The Franchisor will pay the Royalty Payment to the
Representative within 30 days of actual receipt of Royalty Fees paid by
Franchisees.
(c) The Representative's right under this Agreement to receive compensation
after the expiration of the Term is limited exclusively to receiving 50% of the
Renewal Fee, if any, paid by any Franchisee who signed a Franchise Agreement
during the Term and 55% of the Royalty Fee received by the Franchisor for 2
years after expiration of the Term from any Franchisee who signed a Franchise
Agreement during the Term (the "Continuing Payments").
(d) Unless otherwise expressly provided to the contrary in this Agreement,
all expenses incurred by the Representative in soliciting prospective
Franchisees and servicing the Franchisees as required pursuant to ARTICLE 3 are
the sole expense and obligation of the Representative.
(e) The Representative agrees that he or she is not an employee of the
Franchisor and that the compensation expressly required to be paid to the
Representative under this Agreement is
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the sole and exclusive compensation of the Representative for the performance of
his or her duties under this Agreement. The Representative has no rights to
receive any employee benefits provided at any time by the Franchisor or its
affiliates including pension, life insurance, hospital and medical, disability,
profit sharing, vacation or retirement benefits to any of his or her employees.
The Representative agrees that the Franchisor is not obligated to make, and that
it is the sole responsibility of the Representative to make, on the income
earned by the Representative from the Franchisor, all periodic filings and
payments required to be made for withholding taxes, FICA taxes, SECA payments,
federal Unemployment Taxes (FUTA) and all other federal or state taxes, payments
or filings required to be paid, made or maintained other than federal or state
tax forms that under applicable laws are the responsibility of the payor.
ARTICLE 5
PROPRIETARY MARKS
Section 5.1 The Franchisor's Representations As to the Proprietary Marks.
The Franchisor represents to the Representative that:
(a) The Franchisor is the owner of all right, title, and interest in and to
the Proprietary Marks subject to the rights of senior users, if any; and
(b) The Franchisor will take all steps reasonably necessary to preserve and
protect the ownership and validity of the Proprietary Marks.
Section 5.2 Restrictions on the Representative's Use of the Proprietary
Marks.
The Franchisor will use and permit the Representative to use the
Proprietary Marks only in accordance with this Agreement. The Representative
agrees that:
(a) The Representative will use only the Proprietary Marks as designated by
the Franchisor and will use them only in the manner required or authorized and
permitted by the Franchisor;
(b) The Representative's right to use the Proprietary Marks is limited to
the uses expressly authorized under this Agreement, and any unauthorized use of
the Proprietary Marks is an infringement of the Franchisor's rights;
(c) The Representative will not use the Proprietary Marks as security for
any obligation or indebtedness;
(d) The Representative will not use the Proprietary Marks as part of his or
her
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corporate, partnership or other legal name but may use the Pizza Place trade
name as a fictitious, trade or assumed name that is properly registered, if
required by law; and
(e) The Representative will exercise precaution when utilizing the
Franchisor's Proprietary Marks to ensure that the Proprietary Marks are not
jeopardized in any manner and the Representative indemnifies and holds the
Franchisor harmless for any damage or expense occasioned by the Representative's
improper use of the Proprietary Marks.
Section 5.3 The Representative's Lack of Ownership.
The Representative agrees to the Franchisor's rights in and to the
Proprietary Marks, and agrees not to represent in any manner that the
Representative has any ownership in the Franchisor's Proprietary Marks. The
Representative agrees that his or her use of the Proprietary Marks will not
create in his or her favor any right, title or interest in or to the
Franchisor's Proprietary Marks except as the right to use same is expressly
stated in this Agreement, but that all of this use will benefit the Franchisor.
Section 5.4 Infringement by the Representative.
The Representative agrees that the use of the Proprietary Marks outside the
scope of this Agreement, without the Franchisor's written consent, is an
infringement of the Franchisor's rights in and to the Proprietary Marks, and
expressly agrees that during the Term, and after the expiration or termination
of this Agreement, the Representative will not, directly or indirectly, commit
an act of infringement or contest or aid in contesting the validity or right of
the Franchisor to the Proprietary Marks, or take any other action in derogation
of these rights.
Section 5.5 Indemnification of the Representative.
The Franchisor indemnifies the Representative against and will reimburse
the Representative for all damages for which he or she is held liable in any
proceeding involving his or her use of any Proprietary Mark, but only pursuant
to and in compliance with this Agreement, and for all costs reasonably incurred
by the Representative in the defense of any claim brought against him or her or
in any proceeding in which he or she is named as a party, if the Representative:
(i) has timely notified the Franchisor of the claim or proceeding in accordance
with Subsection 5.6(a); (ii) has otherwise complied with this Agreement; and
(iii) allows the Franchisor sole control of the defense and settlement of the
action in accordance with Subsection 5.6(b).
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Section 5.6 Claims Against the Proprietary Marks.
(a) Upon any claim of infringement, unfair competition or other challenge
to the Representative's right to use any Proprietary Mark, or if the
Representative becomes aware of any use of or claims to, any mark, name, logo or
any other commercial symbol identical to or confusingly similar to any
Proprietary Mark, the Representative will promptly notify the Franchisor in
writing within 10 days;
(b) The Representative will not communicate with anyone except the
Franchisor and its counsel about any infringement, challenge or claim except
under judicial process. The Franchisor has sole discretion to take action as it
deems appropriate in any infringement, challenge or claim, and the sole right to
control exclusively any litigation or other proceeding involving any
infringement, challenge or claim involving any Proprietary Mark. The
Representative must sign all instruments and documents, render all assistance,
and do all acts that the Franchisor's attorneys deem necessary or advisable in
order to protect and maintain the Franchisor's interest in any litigation or
proceeding involving the Proprietary Marks or otherwise to protect and maintain
the Franchisor's interests in the Proprietary Marks; provided the Franchisor
will reimburse the Representative for the reasonable out-of-pocket expenses
incurred and paid by the Representative in complying with these requirements;
and
(c) If the Franchisor deems it advisable in the sole and absolute
discretion of the Franchisor, to modify or discontinue the use of any
Proprietary Mark and/or use one or more additional or substitute names or marks,
including due to the rejection of any pending registration or revocation of any
existing registration of any of the Franchisor's Proprietary Marks, the
Representative is obligated to do so at his or her sole cost and expense within
30 days of the Franchisor's request.
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ARTICLE 6
PIZZA PLACE MANUALS AND OTHER
CONFIDENTIAL INFORMATION
Section 6.1 Confidential Use.
The Representative will at all times treat the Pizza Place Manuals and any
other Confidential Information as confidential, and will use his or her best
efforts to maintain the Confidential Information as confidential. The Pizza
Place Manuals will, at all times, be kept in a secure area at the
Representative's offices. The Representative will report the theft, loss or
destruction of the Pizza Place Manuals, or any portion of the Manuals,
immediately to the Franchisor. Upon the theft, loss or destruction of the Pizza
Place Manuals, a replacement set must be purchased by the Representative from
the Franchisor at a cost of $200. Moreover, the Representative agrees that
designated portions of the Pizza Place Manuals are "trade secrets" held and
treated as "trade secrets" by the Franchisor. The Representative will strictly
limit access to the Pizza Place Manuals to his or her employees, to the extent
they have a "need to know" in order to perform their jobs. The Representative
will not at any time, without the Franchisor's written consent, copy, record or
otherwise reproduce any part of the Pizza Place Manuals, nor otherwise make the
Pizza Place Manuals available to any unauthorized person except as may be
required by law, regulation or court order. All current and future principals,
employees and agents of the Representative involved in any manner with his or
her Business and having access to the Pizza Place Manuals or any other
Confidential Information, are required to sign before Initial Representative
Training or upon employment, a nondisclosure and noninterference agreement.
Section 6.2 Sole Property of the Franchisor.
The Pizza Place Manuals and other Confidential Information at all times is
and remains the sole property of the Franchisor. The Representative acquires no
right, title or interest to this property under this Agreement except to possess
and use the Pizza Place Manuals or other Confidential Information during the
Term of, and subject to the restrictions contained in, this Agreement.
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Section 6.3 Periodic Revisions.
The Franchisor may revise and change the contents of the Pizza Place
Manuals and the Representative expressly agrees to comply with each new or
changed provision. A new or changed provision is effective on the 30th day (or
any longer time as specified by the Franchisor) after written notice from the
Franchisor. Revisions to the Pizza Place Manuals are based on what the
Franchisor, in its sole discretion, deems is in the best interests of the
System, including to promote quality, enhance good will, increase efficiency,
decrease administrative burdens, or improve profitability of the Franchisor or
its franchisees. The Representative will at all times ensure his or her or its
copy of the Pizza Place Manuals contains all updates received by the
Representative from the Franchisor. Upon any dispute as to the contents of the
Pizza Place Manuals, the terms contained in the Master Copy of each of the Pizza
Place Manuals maintained by the Franchisor at the Franchisor's home office is
controlling.
Section 6.4 Prior Information.
The Representative acknowledges that all Confidential Information received
before the Agreement Date was unknown to him or her before the negotiation and
signing of this Agreement and that the marketing practices and operating
procedures developed by the Franchisor and loaned to the Representative by the
Franchisor are unique to the Franchisor. To the extent the Representative
receives any Confidential Information after the Agreement Date, and the
Representative does not object in writing to the Franchisor within 30 days after
receipt that any of the information comprising the Confidential Information
should not be considered Confidential Information, then the Representative
agrees that he or she is deemed to have irrevocably waived his or her right to
make any objection. The Representative agrees that this provision is a material
inducement for the Franchisor to enter into this Agreement, and any breach of
this provision is a material breach of this Agreement. The Representative will
take all other steps necessary, at his or her own expense, to protect the
Confidential Information and will not divulge Confidential Information either
during, or upon the expiration or termination of, this Agreement without the
written consent of the Franchisor.
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ARTICLE 7
TRANSFER OF INTEREST
Section 7.1 Transfer by the Franchisor.
The Franchisor has the absolute right to transfer, assign or delegate all
or any part of its rights or obligations under this Agreement to any person
without the consent or approval of the Representative. If the Franchisor's
transferee assumes the Franchisor's obligations under this Agreement and sends
to the Representative written notice of the assignment and assumption, the
Representative agrees within 7 days of a request to sign a release of the
Franchisor except for known claims against the Franchisor by the Representative
and except for any liabilities from which the Franchisor may not be released
under any applicable state law. The Franchisor can also transfer its stock,
engage in public and private securities offerings, merge, consolidate, acquire
other businesses including Competitive Businesses, sell all or substantially all
of its assets, borrow money (secured or unsecured), deal in its assets or
otherwise operate its business without the consent or approval of the
Representative.
Section 7.2 Transfer by the Representative.
Personal Rights. The rights and duties in this Agreement are personal to
the Representative. The Franchisor has granted this Agreement in reliance on the
Representative's business and personal skills, reputation, aptitudes and
financial capacity. Accordingly, the Representative agrees that neither the
Representative, nor any person with greater than a 10% interest (direct or
indirect) in the Representative, may sell, assign, transfer, convey or give
(collectively "transfer") any direct or indirect interest in the Representative
or in this Agreement without the written consent of the Franchisor (which shall
not be unreasonably with held); provided, however, that the Franchisor's written
consent is not required for: (i) a transfer of this Agreement by an individual
Representative to a corporation, the majority interest of which is and remains
owned by the individual Representative; (ii) a transfer of less than a 5%
interest in a publicly-held corporation; or (iii) a transfer of any part of any
interest in the Representative to another of the original shareholders or
partners of the Representative. Any purported transfer by the Representative, by
operation of law or otherwise in violation of this Agreement, is null and void
and is a material breach of this Agreement, for which the Franchisor may then
terminate without opportunity to cure.
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ARTICLE 8
DEFAULT AND TERMINATION
Section 8.1 Termination by the Representative.
If the Representative has substantially complied with this Agreement and
the Franchisor materially breaches this Agreement, the Representative has the
right to terminate this Agreement effective 10 days after delivery of written
notice of termination, if the Franchisor does not cure the breach in 30 days
after the Franchisor receives a written notice of default from the
Representative, unless the breach cannot reasonably be cured in 30 days, in
which case the Representative has the right to terminate this Agreement if,
after the Franchisor's receipt of a written notice of default from the
Representative, the Franchisor does not in 10 days undertake and continue
efforts to cure the breach and continue until completion. Any termination of
this Agreement by the Representative other than as provided above, is a wrongful
termination by the Representative.
Section 8.2 Termination by the Franchisor - Without Notice.
Subject to applicable law, this Agreement automatically terminates without
notice or opportunity to cure on the date of the occurrence of any of the
following events, which are defaults under this Agreement by the Representative.
In addition, the Representative will notify the Franchisor in writing within 3
days of each of the following events: the Representative becomes insolvent or
makes a general assignment for the benefit of creditors; a petition in
bankruptcy is filed by the Representative or a petition is filed against or
consented to by the Representative and the petition is not dismissed within 45
days; the Representative is adjudicated as bankrupt; a bill in equity or other
proceeding for the appointment of a receiver of the Representative or other
custodian for the Representative's business or assets is filed and consented to
by the Representative; a receiver or other custodian (permanent or temporary) of
the Representative's business or assets is appointed by any court of competent
jurisdiction; proceedings for a composition with creditors under federal or any
state law is instituted by or against the Representative; a final judgment in
excess of $5,000 remains unsatisfied or of record for 30 days or longer (unless
a supersedeas bond is filed); execution is levied against the Representative's
operation or property, or suit to foreclose any lien or mortgage against the
Premises or assets of the Representative is instituted against the
Representative and not dismissed within 45 days; or a substantial portion of
real or personal property of the Representative used in the Representative's
business, is sold after levy by any sheriff, marshal or constable.
Section 8.3 Termination by the Franchisor - After Notice.
The Representative is in default and the Franchisor may, at its option,
terminate this Agreement and all rights granted to the Representative under this
Agreement, without affording
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the Representative any opportunity to cure the default, effective immediately
upon notice to the Representative, upon the occurrence of any of the following
events:
(a) If the Representative commits any act involving personal dishonesty,
bad faith, misfeasance, malfeasance, willful misconduct, or willful violation of
any law, rule or regulation (other than a law, rule or regulation involving a
traffic violation or similar offense);
(b) If the Representative, or any of his or her officers, directors, owners
or employees is convicted of a felony, a crime of moral turpitude or any other
crime or offense that the Franchisor reasonably believes is likely to have an
adverse effect on the System, the Proprietary Marks, the good will associated
with the System or Proprietary Marks, or the Franchisor's interest in the System
or Proprietary Marks unless the Representative immediately and legally
terminates that individual as an officer, director, owner or employee of the
Representative;
(c) If the Representative denies the Franchisor the right to inspect his or
her business or to audit the sales and accounting records of his or her
business;
(d) If the Representative engages in conduct that is deleterious to or
reflects unfavorably on the Representative or the System in that the conduct
exhibits reckless disregard for the physical and mental well being of employees,
customers, the Franchisor's representatives or the public at large, including
battery, assault, sexual discrimination or harassment, racial discrimination or
harassment, alcohol or drug abuse or other forms of threatening, outrageous or
unacceptable behavior;
(e) If the Representative, contrary to this Agreement, purports to transfer
any rights or obligations under this Agreement, or any interest in a corporate
or partnership Representative, to any third party without the Franchisor's
written consent as required under this Agreement;
(f) If the Representative, or any of his or her directors, officers or
owners, discloses or divulges in any material respect the contents of the Pizza
Place Manuals or other trade secret or Confidential Information provided to the
Representative by the Franchisor or its affiliates, in violation of this
Agreement;
(g) If the Representative knowingly maintains false books or records, or
knowingly submits any false reports to the Franchisor;
(h) The Franchisor has received repeated complaints from Franchisees under
the Representative's responsibility that in the sole discretion of the
Franchisor are justified and are adversely affecting the System;
(i) The Representative has failed to meet the Minimum Annual Performance
Requirement in Subsection 3.4(g) and Exhibit A; or
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(j) If the Representative has received from the Franchisor 3 or more
Notices of Default for the same, similar or different defaults during any 12
consecutive-month period, even if the defaults were cured.
Section 8.4 Termination by the Franchisor - After Notice and Right to Cure.
Except as otherwise provided in Sections 8.2 and 8.3, the Representative
has 30 days after delivery from the Franchisor of a written Notice of Default
specifying the nature of the default within which to remedy any default other
than as stated in Sections 8.2 and 8.3 and provide evidence of cure satisfactory
to the Franchisor. If any default is not cured within that time, or any longer
period as applicable law may require, all the rights of the Representative under
this Agreement terminate without additional notice to the Representative
effective immediately upon the expiration of the 30-day period or any longer
period as applicable law may require. In addition to the events specified in
Sections 8.2 and 8.3, the Representative is in default under this Section for
any failure to comply with any of the requirements imposed by this Agreement, as
it may reasonably be revised or supplemented by the Pizza Place Manuals, or to
carry out the terms of this Agreement in good faith. The Representative has the
burden of proving he or she properly and timely cured any default, to the extent
a cure is permitted under this Agreement.
ARTICLE 9
OBLIGATIONS UPON TERMINATION BY THE FRANCHISOR
Upon termination by the Franchisor or expiration of this Agreement, this
Agreement and all rights granted under this Agreement to the Representative
terminate, and the Sections of this ARTICLE will apply to the rights and
obligations of the parties.
Section 9.1 Payment of Outstanding Amounts.
The Franchisor may retain all fees paid under this Agreement. In addition,
within 10 days after the effective date of the termination or expiration of this
Agreement, or any later dates as it is determined that amounts are due to the
Franchisor, the Representative will pay to the Franchisor all amounts owed to
the Franchisor or its affiliates that are then unpaid. Any fees due and owing
the Representative are paid by the Franchisor after offset of any amounts due
the Franchisor by the Representative.
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Section 9.2 Discontinue Legal Use of Name.
The Representative will take all action as may be necessary to cancel any
fictitious, trade or assumed name registration, or equivalent registration that
contains the name "Pizza Place" or any other trademark, trade name or service
mark of the Franchisor or colorable imitation of any trademark, trade name or
service mark of the Franchisor. The Representative will furnish the Franchisor
with evidence of compliance with this obligation to cancel the registration
within 30 days after termination or expiration of this Agreement. If the
Representative fails to do so, the Representative appoints the Franchisor as the
Representative's attorney-in-fact to do so for the Representative.
Section 9.3 Return of Materials.
The Representative will immediately turn over to the Franchisor in an
organized manner all materials, including the Pizza Place Manuals, records,
files, instructions, correspondence, all materials related to operating a Pizza
Place Franchise, including all Authorized Materials and other materials on the
solicitation of prospective Franchisees, and all other materials about the
operation of a Franchised Business in the Representative's possession or
control, and all copies and any other forms of reproductions of any of these
materials (all of which are acknowledged to be the sole and exclusive property
of the Franchisor), and will retain no copy or record of any of these materials,
excepting only the Representative's copy of this Agreement and related
agreements and of correspondence between the parties, copies of all Franchise
Agreements with the Franchisees in the Area entered into during the Term, and
copies of any other documents that the Representative reasonably needs for
compliance with any law. The Franchisor will reimburse the Representative for
the reasonable cost of shipping the materials to the Franchisor promptly after
receipt of invoices or other reasonable evidence of these costs.
Section 9.4 Loss of Exclusivity; Cessation of Sales; Cessation of Services.
(a) Upon the expiration of this Agreement, the Representative will: (i)
cease selling Franchises for the Franchisor; (ii) cease using all advertising
materials, forms and other materials bearing the Franchisor's Proprietary Marks;
(iii) cease holding himself or herself out as a representative of the
Franchisor; and (iv) take all steps necessary to disassociate himself or herself
from the Franchisor. As to all existing Franchises under Franchise Agreements,
the Representative will continue to service the Franchises as required in this
Agreement for 2 years after termination and will receive the Continuing Payments
as stated in Subsection 4.2(c). The Franchisor is free to sell new Franchises,
enter into new area representative agreements or other arrangements in the Area
without additional obligation to the Representative.
(b) Upon the early termination of this Agreement due to the
Representative's default, the Representative will: (i) cease selling Franchises
for the Franchisor; (ii) cease using all advertising materials, forms and other
materials bearing the Franchisor's Proprietary Marks;
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(iii) cease holding himself or herself out as a representative of the
Franchisor; and (iv) take all steps necessary to disassociate himself or herself
from the Franchisor. At the option of the Franchisor, the Representative will
cease providing services to Franchises. In this event the Representative is not
entitled to any Continuing Payments. The Franchisor is free to sell new
Franchises, renew existing Franchises, enter into area representative agreements
or other arrangements within the Area without additional obligation to the
Representative.
ARTICLE 10
INDEPENDENT COVENANTS OF THE REPRESENTATIVE
Section 10.1 Devotion to the Sale and Servicing of Franchises.
The Representative agrees that during the Term, except as otherwise
approved in writing by the Franchisor, the Representative will faithfully,
honestly and diligently devote all necessary time, energy and best efforts to
the sale and servicing of Franchises and the business of the Franchisor and
refrain from engaging in any business or other activity that will conflict with
his or her obligations under this Agreement, whether or not the activity is
pursued for gain, profit, or other pecuniary advantage; provided, however, that
this will not be construed as preventing the Representative from investing his
or her personal assets in businesses that do not compete with the Franchisor
where the form or manner of the investment will or will not require services on
the part of the Representative in the operation of the business in which the
investments are made.
Section 10.2 Diversion of Business; Competition With the Franchisor; and
Interference.
The Representative agrees that the Franchisor would be unable to protect
the Confidential Information against unauthorized use or disclosure and would be
unable to encourage a free exchange of ideas and information among the
representatives and Franchisees within the System if representatives were
permitted to hold interests in any Competitive Business.
(a) In-Term. The Representative agrees that during the Term except as
otherwise approved in writing by the Franchisor, the Representative will not:
(i) directly or indirectly, solicit or otherwise attempt to induce, by
combining or conspiring with, or attempting to do so, or in any other
manner influence any Business Affiliate of the Franchisor to terminate or
modify his, her or its position as an employee, officer, director, agent,
consultant, representative, contractor, supplier, distributor, franchisee
or business contact with the Franchisor or to compete against the
Franchisor;
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(ii) directly, as owner, officer, director, employee, agent, lender,
franchisee or in any other capacity be connected in any manner with the
ownership, management, operation or control of or conduct a Competitive
Business (this restriction does not apply to a 5% or less beneficial
interest in a publicly-held corporation); and
(iii) in addition to, and not in limitation of the other provisions of
this Section, the Representative will not in any manner interfere with,
disturb, disrupt, decrease or otherwise jeopardize the business of the
Franchisor or any of its representatives or franchisees.
(b) Post-Term. The Representative also agrees that for a 24-month period
after the termination or expiration of this Agreement, except as otherwise
approved in writing by the Franchisor, that the Representative will not:
(i) directly, solicit or otherwise attempt to induce, by combining or
conspiring with, or attempting to do so, or in any other manner influence
any Business Affiliate of the Franchisor to terminate or modify his, her or
its business relationship with the Franchisor or to compete against the
Franchisor;
(ii) directly, as owner, officer, director, employee, agent, lender,
franchisee or in any other similar capacity be connected in any manner with
the ownership, management, operation or control, or conduct of a
Competitive Business within 5 miles of any Franchised Business then in
operation or under construction (this restriction does not apply to a 5% or
less beneficial interest in a publicly-held corporation); and
(iii) in any manner interfere with, disturb, disrupt, decrease or
otherwise jeopardize the business of the Franchisor or any of its other
franchisees.
(c) The Representative agrees that the length of the term and geographical
restrictions contained in this Agreement are fair and reasonable and not the
result of overreaching, duress or coercion of any kind. The Representative
agrees that his or her full, uninhibited and faithful observance of each of the
covenants in this Section will not cause any undue hardship, financial or
otherwise, and that enforcement of each of the covenants contained in this
Section will not impair his or her ability to obtain employment commensurate
with his or her abilities and on terms fully acceptable to him or her or
otherwise to obtain income required for the comfortable support of him or her
and his or her family, and the satisfaction of the needs of his or her
creditors.
(d) The Representative agrees that to disregard the provisions of this
ARTICLE 10 would effectively foreclose the Franchisor from selling another
franchise in the Area and other areas and the Representative could ride freely
and unfairly on the laurels of good will of and training from the Franchisor.
Moreover, the franchisees and Company-Owned Units within the
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System could be severely disadvantaged if the Representative competes, without
authorization, against them using the Proprietary Marks and other Confidential
Information of the System. Therefore, it is the manifest intent of the
Representative and the Franchisor that, if any court finally holds that the time
or territory or any other provision in this Section is an unreasonable
restriction upon the Representative, the Representative agrees that the
provisions of this Agreement will not be rendered void, but will apply as to
time and territory or to any other extent as the court may judicially determine
or indicate is a reasonable restriction under the circumstances involved.
(e) The Representative agrees that the restrictions on activities in this
Agreement are required for the Franchisor's reasonable protection. The
Representative agrees that upon the violation by him or her of any of the
provisions of this Agreement, the Franchisor is entitled, if it so elects, to
institute and prosecute proceedings at law or in equity to obtain damages for
the violation or to enforce the specific performance of this Agreement by the
Representative or to enjoin the Representative from engaging in any activity in
violation of this Agreement.
Section 10.3 Independent Covenants.
The parties agree that the covenants in this ARTICLE will be construed as
independent of any other covenant or provision of this Agreement. The
Representative agrees that the existence of any claim he or she may have against
the Franchisor, whether or not under this Agreement, is not a defense to the
enforcement of the these covenants by the Franchisor.
ARTICLE 11
INDEPENDENT CONTRACTOR AND INDEMNIFICATION
Section 11.1 Independent Status.
The parties agree that this Agreement does not create a fiduciary
relationship between them. The Representative is an independent contractor, and
nothing in this Agreement is intended to constitute either party a legal
representative, subsidiary, joint venturer, partner, employee, affiliate or
servant of the other party for any purpose. The parties agree that nothing in
this Agreement authorizes either party to make any contract, agreement, warranty
or representation on the other party's behalf, or to incur any debt or other
obligation in the other party's name. Neither party will assume liability for,
or be liable under this Agreement as a result of, any action, or by reason of
any act or omission of the other party or any claim or judgment from any act or
omission of the other party. The Franchisor has no control over the terms of
employment of the Representative's employees or of their activities or control
over the
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day-to-day operations of his or her business. Neither the Representative nor his
or her employees are bound by any rules, regulation or policies applicable to
the Franchisor's employees. The Representative is free to exercise his or her
own independent business judgment in determining the methods to be used in
performing his or her duties under this Agreement, including those related to
the hours of operation, the location of the Representative's office, and the
type of advertising to be used in soliciting prospective Franchisees.
Section 11.2 Indemnification.
(f) The Franchisor will defend fully, protect, indemnify and hold harmless
the Representative from every claim, demand or cause of action and all
liability, cost or expense (including reasonable attorneys' fees, costs and
expenses incurred in the defense of the Representative, even if incident to
appellate, post-judgment and bankruptcy proceedings), that may be asserted by a
Franchisee or a prospective Franchisee from a violation of federal and state
franchise laws due to the alleged failure of the Franchisor to comply with the
requirements of franchise registration and disclosure, where failure is not due
to the Representative's sales activities such as failure to deliver timely the
FOC or alleged representations or misrepresentations by the Representative.
(g) The Representative will defend fully, protect, indemnify and hold
harmless the Franchisor from every claim, demand or cause of action and all
liability, cost or expense (including reasonable attorneys' fees, costs and
expenses incurred in defense of the Franchisor, even if incident to appellate,
post-judgment or bankruptcy proceedings) that may be made or asserted by a
Franchisee, a prospective Franchisee or any third party and the performance by
the Representative under this Agreement. Also, the Representative will indemnify
and hold harmless the Franchisor from all fines, suits, proceedings, claims,
demands or actions of any nature, or from anyone whomsoever involving the
Representative's operation of a Pizza Place business. At the election of the
Franchisor, the Representative will contest and defend the Franchisor against
any claims of liability against the Franchisor. The Franchisor will have the
right, through counsel of its choice, to control the defense or response to any
claim to the extent it could affect the Franchisor financially. The Franchisor
has the right to defend any claim against it in any manner as the Franchisor
deems appropriate or desirable in its sole discretion. This indemnity obligation
continues in effect after the expiration or termination of this Agreement.
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ARTICLE 12
REPRESENTATIONS AND WARRANTIES
Section 12.1 No Reliance.
Except as expressly provided to the contrary in this Agreement, the
Franchisor makes no representations, warranties or guarantees upon which the
Representative may rely, and assumes no liability or obligation to the
Representative, by providing any waiver, approval, consent or suggestion to the
Representative in this Agreement, or by reason of any neglect, delay or denial
of any request therefor unless the conduct would otherwise be a breach of an
express obligation of the Franchisor under this Agreement.
Section 12.2 Representations of the Franchisor.
The Franchisor makes the following representations and warrants to the
Representative, which will be true and correct upon the Agreement Date and
throughout the Term:
(a) Organization. The Franchisor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
qualified to do business in the State of Florida.
(b) Authorization. The Franchisor has the corporate power to sign, deliver,
and carry out the terms of this Agreement. The Franchisor has taken all
necessary action to obtain the power to sign, deliver and carry out the terms of
this Agreement. This Agreement has been duly authorized, signed and delivered by
the Franchisor and is a valid, legal and binding agreement and obligation under
the terms of this Agreement, except as may be limited by applicable bankruptcy,
insolvency, reorganization and other laws and equitable principles affecting
creditors' rights.
(c) No Violation. Performance by the Franchisor of its obligations under
the Agreement will not result in: (i) the breach of any term of, or be a default
under any contract or agreement to which the Franchisor is a party or by which
it is bound, or be an event that, with notice, lapse of time or both, would
result in a breach or event of default; nor (ii) result in the violation by the
Franchisor of any statute, rule, regulation, ordinance, code, judgment, order,
injunction or decree.
Section 12.3 Representations of the Representative.
The Representative makes the following representations and warranties to
the Franchisor, which will be true and correct upon the Agreement Date and
throughout the Term:
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(a) Authorization. The Representative has the power to sign, deliver, and
carry out the terms of this Agreement. The Representative has taken all
necessary action to obtain the power to sign, deliver and carry out the terms of
this Agreement. This Agreement has been duly authorized, signed and delivered by
the Representative and is a valid, legal and binding agreement and obligation
under the terms of this Agreement, except as may be limited by applicable
bankruptcy, insolvency, reorganization and other laws and equitable principles
affecting creditors' rights.
(b) No Violation. Performance by the Representative of his or her
obligations under this Agreement will not result in: (i) the breach of, or be a
default under, any contract, agreement or other commitment to which the
Representative is a party or by which he or she is bound, or be an event that,
with notice, lapse of time or both, would result in a breach or event of
default; nor (ii) result in the violation by the Representative of any statute,
rule, regulation, ordinance, code, judgment, order, injunction or decree.
(c) True Copies. Copies of all documents required to be furnished by the
Representative to the Franchisor will be true and correct copies of the
documents, including all amendments or modifications to the documents and all
written representations made by the Representative, in any application,
financial statement or other document submitted to the Franchisor to obtain this
Agreement or otherwise contain no misleading or incorrect statement or material
omissions.
(d) Affidavit. The Affidavit attached as Exhibit B is true and correct in
all respects. The Representative agrees that this affidavit will be relied upon
by the Franchisor and its franchise counsel to complete its FOC and for state
franchise registration purposes.
ARTICLE 13
MEDIATION AND ARBITRATION; INJUNCTIVE RELIEF
Section 13.1 Mediation and Arbitration.
(a) In any dispute under this Agreement, before any arbitration proceeding
taking place, either party may, at its option, submit the controversy or claim
to non-binding mediation before Franchise Arbitration and Mediation, Inc.
("FAM"), or other mutually agreeable mediator and both parties will sign a
suitable confidentiality agreement. Upon submission, the obligation to attend
mediation in accordance with FAM is binding on both parties.
(b) Except as specifically modified by this Section and excepting matters
involving provisional remedies in Section 13.2, any controversy or claim arising
out of this Agreement, or any breach of this Agreement, including any claim that
this Agreement, or any part of this
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Agreement, is invalid, illegal or otherwise voidable or void, will be submitted
to arbitration: (i) before and in accordance with the arbitration rules of FAM;
or (ii) if FAM is unable to conduct the arbitration for any reason or if both
parties agree, the claim will be submitted before the American Arbitration
Association in accordance with its commercial arbitration rules, or any other
mutually agreeable arbitration association.
(c) The provisions of this Section are construed as independent of any
other provision of this Agreement; however, if a court of competent jurisdiction
determines that any provisions are unlawful in any way, the court will modify or
interpret the provisions to the minimum extent necessary to have them comply
with the law. All issues of arbitrability or the enforcement of the agreement to
arbitrate contained in this Agreement are governed by the United States
Arbitration Act (9 U.S.C. ss. 1 et seq.) and the federal common law of
arbitration, rather than under any other governing law.
(d) Judgment upon an arbitration award may be entered in any court having
competent jurisdiction and is binding, final and non-appealable. The Franchisor
and the Representative (and their respective owners) waive to the fullest extent
permitted by law, any right to or claim for any punitive or exemplary damages
against the other and agree that upon a dispute between them each is limited to
the recovery of any actual damages sustained by him, her or it.
(e) Before any arbitration proceeding taking place, the Franchisor or the
Representative may, at its, his or her respective option, elect to have the
arbitrator conduct, in a separate proceeding before the actual arbitration, a
preliminary hearing, at which hearing testimony and other evidence may be
presented and briefs may be submitted, including a brief stating the then
applicable statutory or common law methods of measuring damages for the
controversy or claim being arbitrated.
(f) This arbitration provision is self-executing and remains in full force
and effect after the expiration or termination of this Agreement. If either
party fails to appear at any properly noticed arbitration proceeding, an award
may be entered against that party by default or otherwise.
(g) Mediation and/or arbitration will take place in the county and state
where the Franchisor's principal place of business is then located.
(h) The Franchisor and the Representative agree that no action (whether for
arbitration, damages, injunctive, equitable or other relief, including
rescission) will be maintained by any party to enforce any liability or
obligation of the other party, whether from this Agreement or otherwise, unless
brought before the expiration of the earlier of one year from the occurrence of
the facts creating the claims or within 90 days from either the actual discovery
of the facts creating the claims or from the date on which the party should
have, in the exercise of
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reasonable diligence, discovered the facts.
(i) The obligation to mediate or arbitrate is not binding upon either party
for claims on the Franchisor's trademarks, service marks, other Proprietary
Marks, patents, or copyrights; claims related to any lease or sublease of real
property between the parties or their related entities; requests for temporary
restraining orders, preliminary injunctions or other procedures in a court of
competent jurisdiction to obtain interim relief when deemed necessary to
preserve the status quo or prevent irreparable injury pending resolution by
arbitration of the actual dispute between the parties.
(j) The prevailing party is entitled to receive from the non-prevailing
party its, his or her costs for the arbitration proceeding, including
arbitrator's fees, attorneys' fees and costs, witness fees, transcription fees,
etc. and sales and use taxes on the above, if any.
(k) The Representative agrees that arbitration between the Franchisor and
the Representative will be of the Franchisor's and the Representative's
individual claims, and that none of the Representative's claims will be
arbitrated on a class-wide basis.
Section 13.2 Injunctive Relief; Specific Performance.
(a) The Representative agrees that upon a breach or threatened breach of
any of the terms of this Agreement by the Representative, the Franchisor is
entitled to an injunction restraining the breach and/or to a decree of specific
performance, without showing or proving any actual damage, together with
recovery of reasonable attorneys' fees and costs incurred in obtaining equitable
relief until a final and binding determination is made by the court. This
equitable remedy is in addition to, and not in lieu of, all remedies or rights
that the Franchisor may otherwise have by virtue of any breach of this Agreement
by the Representative.
(b) The Franchisor is entitled to seek injunctive relief without the
posting of any bond or security to obtain the entry of temporary and permanent
injunctions and orders of specific performance enforcing the provisions of this
Agreement on the Representative's use of the Proprietary Marks, the obligations
of the Representative upon termination or expiration of this Agreement, any
transfers restricted under this Agreement concerning interests in the
Representative, its business and this Agreement, the assignment or proposed
assignment of its business, this Agreement or any ownership interest in the
Representative (and if a bond is nevertheless required by a court of competent
jurisdiction, the parties agree that the sum of $100 is a sufficient bond).
(c) The Representative agrees that the Franchisor may, in addition to any
other available remedies, obtain an injunction to terminate or prevent the
continuance of any existing default or violation, and/or to prevent the
occurrence of any threatened default by the Representative of this Agreement.
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ARTICLE 14
TERM
Section 14.1 Term.
The Term of this Agreement runs for 10 years from the Agreement Date,
unless sooner terminated under ARTICLE 10. The conditions under which the
Representative will have the opportunity of obtaining a Successor Pizza Place
Area Representative Agreement at the expiration of this Agreement are stated in
Section 14.2.
Section 14.2 Option to Obtain Successor Pizza Place Area Representative
Agreement.
(a) The Representative is granted options to obtain Successor Pizza Place
Area Representative Agreements in 10-year term increments on the following
conditions which must be met at the time the option is exercised and immediately
before the beginning of the Succeeding Term, unless another time is specified,
in order to obtain a Successor Pizza Place Area Representative Agreement:
(i) The Representative gives the Franchisor written notice of his or
her intention to exercise his or her option to obtain a Successor Pizza
Place Area Representative Agreement by submitting his or her application
for a Successor Pizza Place Area Representative Agreement between 9 months
and 12 months before the end of the Term;
(ii) The Representative is not in default of any provision of this
Agreement, or any other agreement between the Representative and the
Franchisor or its affiliates;
(iii) The Representative, within 30 days before the expiration of the
Term, signs and delivers to the Franchisor the Franchisor's then current
form of Pizza Place Area Representative Agreement. There will be NO FEE
charged for successive terms. Upon signing and delivery by the Franchisor
and the expiration of the Initial Term, the Successor Pizza Place Area
Representative Agreement supersedes in all respects this Agreement, and the
terms of which may differ from the terms of this Agreement; and
(iv) The Representative has complied with the Franchisor's then
current qualification and training requirements.
(b) If the Representative has not met all of the conditions in Subsection
14.2 (a), the
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Franchisor may elect not to enter into a Successor Pizza Place Area
Representative Agreement if it provides the Representative with written notice
of its intention not to enter before the expiration of this Agreement.
ARTICLE 15
DEFINITIONS
Section 15.1 Definitions
As used in this Agreement, the Exhibits attached and any other document
signed incidental to this Agreement and any exhibits to these documents, the
following terms have the following meanings:
"Agreement" means this Pizza Place Area Representative Agreement, as
amended, supplemented or otherwise modified by an agreement in writing signed by
the Representative and the Franchisor under Section 16.2.
"Agreement Date" means the signing date of this Agreement.
"Area" means the Representative's area of responsibility where he or she
may sell Franchises as stated in Section 1.2.
"Authorized Materials" means: (i) those written or recorded materials
provided by the Franchisor to the Representative for purposes of soliciting
prospective Franchisees, including the FOC, Franchise Agreement and exhibits,
brochures and applications; (ii) written or recorded materials prepared by the
Representative upon the specific written request of, or that have previously
been approved in writing by the Franchisor; and (iii) general written
correspondence prepared by the Representative that is based upon, and not
inconsistent with (i) or (ii) above, nor inconsistent with policies and
procedures of the Franchisor stated in this Agreement and otherwise in writing
by the Franchisor. No materials are considered Authorized Materials if the
Franchisor has notified the Representative (or the Representative is otherwise
aware) that the materials are no longer Authorized Materials; the materials are
not current or are misleading and the Franchisor has notified the Representative
(or the Representative is otherwise aware) that the materials are no longer
correct or are misleading; or the materials later become inconsistent with
facts, policies or procedures the Franchisor states in writing to the
Representative. The Representative will make no representations that would not,
if written, be Authorized Materials.
"Business" means the Pizza Place Franchise a Franchisee is authorized to
establish and
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operate under the Franchise Agreement.
"Business Affiliate" means any employee, officer, director, agent,
consultant, representative, contractor, supplier, distributor, franchisee or
other business contact of the Franchisor.
"Business Day" means a day other than Saturday, Sunday or a U.S. national
holiday.
"Competitive Business" means a business in competition with the Franchisor
or any of its franchisees, that is engaged, wholly or partially, directly or
indirectly, in the sale of pizza through kiosk or mobile unit.
"Confidential Information" means all information, knowledge, know-how and
technologies that the Franchisor designates as confidential, proprietary or
trade secrets including the Pizza Place Manuals, financial information,
marketing strategies and marketing programs.
"Continuing Payments" means the payments to the Representative stated in
Subsection 4.2(c).
"Designee" means one or more representatives of the Franchisor who are
independent contractors and are appointed by the Franchisor to perform certain
of the Franchisor's duties under this Agreement or as stated in ARTICLE 4 of the
Franchise Agreement.
"Enforcement Costs" means the costs stated in Section 16.8.
"FAM" means Franchise Arbitration and Mediation, Inc.
"FOC" means the Franchisor's current Franchise Offering Circular
(Single-Unit) and all exhibits and supplements.
"Franchise" means the rights granted to a Franchisee under Pizza Place
Franchise Agreement.
"Franchise Agreement" means the Pizza Place Franchise Agreement signed
between the Franchisor and a Franchisee.
"Initial Training" means the training stated in Section 2.1.
"Notice of Default" means the notices stated in Section 8.4.
"Option Fee" means the fee stated in Subsection 14.2(a)(iii).
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<PAGE>
"Pizza Place Manuals" means all manuals produced by, or for the benefit of,
the Franchisor and loaned to the Representative, now existing or later produced,
and any revisions to these manuals prepared for the internal use of the
Franchised Business.
"Proprietary Marks" means the trade name and logo "Pizza Place" and all
other trademarks, service marks, trade names, logos and commercial symbols
presently owned by the Franchisor or its affiliates or later acquired or adopted
by the Franchisor as part of the System.
"Representative Fee" means the fee stated in Section 4.1.
"Royalty Fee" means the fee stated in Subsection 3.1(b) of the Franchise
Agreement.
"Royalty Payment" means the payment to the Representative stated in
Subsection 4.2(b).
"System" means the Franchisor's system for operating a Pizza Place Kiosk.
The System includes specific standards and procedures and Proprietary Property
that may be changed.
"Term" means the term of the Agreement stated in Section 14.1.
"Turnkey Package Fee" means the fee stated in Subsection 3.1(a) of the
Franchise Agreement.
"Turnkey Package Fee Payment" means the fee stated in Subsection 4.2(a).
Section 15.2 Other Definitional Provisions.
(c) All of the terms defined in this Agreement have these defined meanings
when used in other documents issued under, or delivered under this Agreement
unless the context otherwise requires or unless specifically otherwise defined
in the other document; and
(d) The term "person" includes any corporation, partnership, estate, trust,
association, branch, bureau, subdivision, venture, associated group, individual,
government, institution, instrumentality and other entity, enterprise,
association or endeavor of every nature and kind.
34
<PAGE>
ARTICLE 16
GENERAL PROVISIONS
Section 16.1 SUCCESS OF THE REPRESENTATIVE'S BUSINESS.
THE REPRESENTATIVE AGREES THAT THE SUCCESS OF THE BUSINESS VENTURE
CONTEMPLATED BY THIS AGREEMENT DEPENDS PRIMARILY UPON THE ABILITY OF THE
REPRESENTATIVE AS AN INDEPENDENT BUSINESS OWNER. THE REPRESENTATIVE AGREES THAT
NEITHER THE FRANCHISOR NOR ANY OTHER PERSON HAS GUARANTEED OR WARRANTED THAT THE
REPRESENTATIVE WILL SUCCEED IN THE OPERATION OF HIS OR HER BUSINESS OR HAS
PROVIDED ANY SALES OR INCOME PROJECTIONS OF ANY KIND TO THE REPRESENTATIVE. THE
REPRESENTATIVE AGREES THAT THERE HAVE BEEN NO REPRESENTATIONS, PROMISES,
GUARANTEES OR WARRANTIES OF ANY KIND MADE BY THE FRANCHISOR TO INDUCE THE
REPRESENTATIVE TO SIGN THIS AGREEMENT. THE REPRESENTATIVE AGREES THAT THE
REPRESENTATIVE HAS REVIEWED THE FOC AND HAS RECEIVED ALL INFORMATION THAT, IN
THE OPINION OF THE REPRESENTATIVE, IS NECESSARY FOR THE REPRESENTATIVE TO DECIDE
WHETHER TO ENTER INTO THIS AGREEMENT.
Section 16.2 Amendments.
Except as specifically provided in this Agreement, the provisions of this
Agreement may not be amended, supplemented, waived or changed orally, but only
by a written document signed by the party as to whom enforcement of any
amendment, supplement, waiver or modification is sought and making specific
reference to this Agreement. The President of the Franchisor has the authority
to sign any amendment for the Franchisor. No other officer, employee or agent of
the Franchisor has authority to sign any amendment. This Section is expressly
subject to Section 16.5.
Section 16.3 Binding Effect.
All of the terms of this Agreement, whether so expressed or not, are
binding upon, benefit of, and are enforceable by the parties and their
respective personal representatives, legal representatives, heirs, successors
and permitted assigns.
35
<PAGE>
Section 16.4 Notices.
All notices, requests, consents and other communications required or
permitted under this Agreement will be in writing (including telex, telecopied
and telegraphic communication) and will be (as elected by the person giving
notice) hand delivered by messenger or courier service, telecopied,
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
If to the Franchisor: With a copy to:
American Kiosk Corporation Keith J. Kanouse, Esq.
4400 PGA Boulevard, Suite 500 Keith J. Kanouse, P.A.
Palm Beach Gardens, FL 33410 2424 North Federal Highway, Suite 353
Attn: Richard J. Michael, President Boca Raton, FL 33431
If to the Representative:
Michael M. Morgan Sr., or Arthur G. Scott
498 Palm Springs Drive Suite 100
Altamonte Springs, Florida 32701
or to any other address as any party may designate by notice complying with the
terms of this Section. Each notice is deemed delivered: (a) on the date
delivered if by personal delivery; (b) on the date telecommunicated if by
telecopy or telegraph; (c) on the date of transmission with confirmed answer
back if by telex, telefax or other telegraphic method; and (d) on the date upon
which the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, if mailed.
Section 16.5 Headings.
The headings and subheadings in this Agreement are for convenience of
reference only, are not to be considered a part of this Agreement and do not
limit or otherwise affect in any way the meaning or interpretation of this
Agreement.
36
<PAGE>
Section 16.6 Severability.
(a) If any provision of this Agreement or any other agreement entered into
this Agreement is contrary to, prohibited by or deemed invalid under applicable
law or regulation, that provision will be inapplicable and omitted to the extent
so contrary, prohibited or invalid, but the remainder of this Agreement will not
be invalidated and will be given full force and effect so far as possible. If
any provision of this Agreement may be construed in two or more ways, one of
which would render the provision invalid or otherwise voidable or unenforceable
and another of which would render the provision valid and enforceable, the
provision has the meaning that renders it valid and enforceable.
(b) If any applicable and binding law or rule of any jurisdiction requires
a greater notice of the termination or non-renewal of this Agreement than is
required under this Agreement, or the taking of some other action not required
under this Agreement, or if under any applicable and binding law or rule of any
jurisdiction, any provision of this Agreement or any specification, standard or
operating procedure required by the Franchisor is invalid or unenforceable, the
notice and/or other action required by the law or rule is substituted for the
comparable provisions of this Agreement. The Franchisor has the right, in its
sole discretion, to modify the invalid or unenforceable provision,
specification, standard or operating procedure to the extent required to be
valid and enforceable.
Section 16.7 Waivers.
The failure or delay of any party at any time to require performance by
another party of any provision of this Agreement, even if known, does not affect
the right of that party to require performance of that provision or to exercise
any right, power or remedy under this Agreement. Any waiver by any party of any
breach of any provision of this Agreement should not be construed as a waiver of
any continuing or succeeding breach of that provision, a waiver of the provision
itself, or a waiver of any right, power or remedy under this Agreement. No
notice to or demand on any party in any case will, of itself, entitle that party
to any other or additional notice or demand in similar or other circumstances.
37
<PAGE>
Section 16.8 Enforcement Costs.
If any legal action or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in any provisions of this Agreement, the successful or
prevailing party is entitled to recover reasonable attorneys' fees, court costs
and all expenses even if not taxable as court costs (including all fees, costs
and expenses incident to arbitration, appellate, bankruptcy and post-judgment
proceedings), incurred in that action or proceeding, in addition to any other
relief to which the party may be entitled. Attorneys' fees include paralegal
fees, administrative costs, investigative costs, costs of expert witnesses,
court reporter fees, sales and use taxes, if any, and all other charges billed
by the attorneys to the prevailing party. If the Franchisor engages legal
counsel for any failure by the Representative to pay when due any monies owed
under this Agreement or submit when due any reports, information or supporting
records, or for any failure otherwise to comply with this Agreement, the
Representative must reimburse the Franchisor for any of the above-listed
expenses incurred by it.
Section 16.9 Jurisdiction and Venue.
Each of the parties irrevocably and unconditionally (a) agrees that any
suit, action or legal proceeding arising from this Agreement must be brought in
the District Court of the United States, in the district where the principal
place of business of the Franchisor is then located or, if this court lacks
jurisdiction, the courts of record of the state and county where the principal
place of business of the Franchisor is then located; (b) consents to the
jurisdiction of each court in any suit, action or proceeding; (c) waives any
objection that it, he or she may have to the laying of venue of any suit, action
or proceeding in any of these courts; and (d) agrees that service of any court
paper may be effected on the party by mail at the last known address, as
provided in this Agreement, or in any other manner as may be provided under
applicable laws or court rules in the state in which the principal place of
business of the Franchisor is then located.
Section 16.10 Remedies Cumulative.
Except as otherwise expressly provided in this Agreement, no remedy in this
Agreement conferred upon any party is intended to be exclusive of any other
remedy. Every remedy is cumulative and is in addition to every other remedy
given under this Agreement or now or later existing at law or in equity or by
statute or otherwise. No single or partial exercise by any party of any right or
remedy under this Agreement precludes any other or additional exercise of any
right or remedy.
38
<PAGE>
Section 16.11 Effectiveness; Counterparts.
This Agreement is not effective or binding and enforceable against the
Franchisor until it is accepted by the Franchisor at its home office in Palm
Beach Gardens, Florida and signed by the President of the Franchisor. No other
officer, employee or agent of the Franchisor has authority to accept and/or sign
this Agreement for the Franchisor and the Representative is advised not to incur
any expenses under this Agreement until the Representative has received a final
signed copy of this Agreement from the Franchisor's home office signed by its
President. This Agreement may be signed in one or more counterparts, each of
which is deemed an original, but all of which together are one and the same
instrument. Confirmation of signing by telex or by telecopy or telefax of a
facsimile signature page is binding upon any party to the confirmation.
Section 16.12 Consents, Approvals and Satisfaction.
All consents or approvals required of the Franchisor are not binding upon
the Franchisor unless the consent or approval is in writing and signed by the
President of the Franchisor. No other officer, employee or agent of the
Franchisor has authority to sign any consent or approval for the Franchisor. The
Franchisor's consent or approval, whenever required, may be withheld if any
default by the Representative exists under this Agreement, or unless the
Agreement expressly states otherwise, for any other reason in the sole
discretion of the Franchisor. If the satisfaction of the Franchisor is required
in this Agreement, unless the Agreement expressly states otherwise, the
satisfaction is determined in the sole discretion of the Franchisor.
Section 16.13 Governing Law.
Except to the extent governed by the United States Trademark Act of 1946
(Lanham Act, 15 U.S.C. ss.ss.1051 et seq., or the United States Arbitration
Act, 9 U.S.C. ss.ss.1 et seq.), this Agreement and any other agreement between
the parties and all transactions contemplated by this Agreement are governed by,
and construed and enforced in accordance with, the internal laws of the State of
Florida without regard to principles of conflicts of laws.
Section 16.14 Interpretation.
Each of the parties agree that it, he or she has have been or has had the
opportunity to have been represented by its, his or her own counsel throughout
the negotiations and at the signing of this Agreement and all of the other
documents signed incidental to this Agreement and, therefore, it, he or she will
not, while this Agreement is effective or after its termination, claim or assert
that any provisions of this Agreement or any of the other documents should be
construed against the drafter of this Agreement or any of the other documents.
39
<PAGE>
Section 16.15 Entire Agreement.
This Agreement, its Exhibits and all other written agreements related to
this Agreement and expressly referenced in this Agreement, represent the entire
understanding and agreement between the parties on the subject matter of this
Agreement, and supersede all other negotiations, understandings and
representations, if any, made between the parties. No representations,
inducements, promises or agreements, oral or otherwise, if any, not embodied in
this Agreement are of any effect.
Section 16.16 Survival.
All obligations of the Franchisor and the Representative that expressly or
by their nature survive the expiration or termination of this Agreement,
continue in full force and effect after its expiration or termination and until
they are satisfied or by their nature expire.
Section 16.17 Force Majeure.
Neither the Franchisor nor the Representative is liable for loss or damage
or deemed to be in breach of this Agreement if its, his or her failure to
perform its, his or her obligations results solely from the following causes
beyond its, his or her reasonable control, specifically: (a) transportation
shortages, inadequate supply of equipment, merchandise, supplies, labor,
material, or energy, or voluntarily waiving the right to acquire or use any of
these causes in order to accommodate or comply with the orders, requests,
regulations, recommendations, or instructions of any federal, state, or
municipal government or any department or agency of any federal, state or
municipal government; (b) compliance with any law, ruling, order, regulation,
requirement, or instruction of any federal, state, or municipal government or
any department or agency of any federal, state or municipal government; or (c)
war, strikes, natural disaster or acts of God. Any delay resulting from any of
these causes extend performance accordingly or excuse performance, as may be
reasonable.
Section 16.18 Third Parties.
Except as provided in this Agreement to the contrary for any affiliates of
the Franchisor, nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties and their respective personal
representatives, other legal representatives, heirs, successors and permitted
assigns. Except as provided in this Agreement to the contrary for any Designee
of the Franchisor, nothing in this Agreement is intended to relieve or discharge
the obligation or liability of any third persons to any party to this Agreement,
nor does any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
IN WITNESS WHEREOF, the parties have signed and delivered this Agreement on
the Agreement Date.
40
<PAGE>
Witnesses: REPRESENTATIVE:
- -------------------------------- ---------------------------------
Michael M. Morgan, Sr.
- -------------------------------- ---------------------------------
Arthur G. Scott
FRANCHISOR:
AMERICAN KIOSK CORPORATION
By:
- -------------------------------- -------------------------------
Richard J. Michael, President
- --------------------------------
41
<PAGE>
STATE OF FLORIDA
COUNTY OF
This instrument was signed before me on ______________, 199____, by
____________________, who personally appeared before me at the time of
notarization.
NOTARY PUBLIC - STATE OF FLORIDA
sign
-------------------------------
print
-------------------------------
Personally Known ____ OR Produced Identification ____
Type of Identification Produced:
---------------------------------------------
My Commission Expires:
STATE OF FLORIDA
COUNTY OF
This instrument was signed before me on ______________, 199____, by
_________________________, who personally appeared before me at the time of
notarization.
NOTARY PUBLIC - STATE OF FLORIDA
sign
-------------------------------
print
-------------------------------
Personally Known ____ OR Produced Identification ____
Type of Identification Produced:
---------------------------------------------
My Commission Expires:
42
<PAGE>
STATE OF FLORIDA
COUNTY OF PALM BEACH
This instrument was signed before me on ______________, 19___, by Richard
J. Michael, as President of American Kiosk Corporation, a Delaware corporation,
for the corporation. He personally appeared before me at the time of
notarization.
NOTARY PUBLIC - STATE OF FLORIDA:
sign
-------------------------------
print
-------------------------------
Personally Known _____ OR Produced Identification _____
Type of Identification Produced:
------------------------------------------
My Commission Expires:
43
<PAGE>
Exhibit A to Pizza Place Area Representative Agreement
PERFORMANCE SCHEDULE
Number of Units
Year to be sold in Each Year Total Units
---- ----------------------- -----------
, 1998 _____0 _____0
, 1999 ____15 ____15
, 2000 ____20 ____35
, 2001 ____25 ____60
, 2002 ____30 ____90
, 2003 ____40 ___130
, 2004 ____50 ___180
, 2005 ____50 ___230
, 2006 ____50 ___280
, 2007 ____40 ___320
, 2008 ____40 ___360
44
<PAGE>
Exhibit B to Pizza Place Area Representative Agreement
AREA REPRESENTATIVE'S AFFIDAVIT
RE: FRANCHISE OFFERING CIRCULAR
STATE OF _____________ )
) ss.
COUNTY OF ____________ )
BEFORE ME, the undersigned personally appeared, who being first duly
sworn on oath, deposes and says:
1. My full name is: __________________________________________________.
2. My business address and telephone number are:
_______________________________
_______________________________
_______________________________
( ) _____ - ____________
3. My home address and telephone number are:
_______________________________
_______________________________
( ) _____ - ____________
4. My present employer is: ___________________________________________.
5. My present title is: ______________________________________________.
6. My social security number is: ________ - ________ - ______________.
7. My birth date is: ________ / _________ / __________
8. The attached Employment History fully and accurately discloses my
principal occupations, titles and the names and locations of prior employers,
and the beginning and ending dates of each employment, including month and year,
during the 5 years before the date of this Affidavit.
9. There are no administrative, criminal, arbitration or civil actions
(or a material
45
<PAGE>
action irrespective of allegations) pending against me alleging a violation of
any franchise, antitrust or securities law, fraud, unfair or deceptive
practices, or comparable allegations.
10. During the 10-year period immediately before the date of this
Affidavit, I have not been convicted of a felony or pleaded nolo contendere to a
felony charge or been held liable in a civil action by final judgment or been
the subject of a material complaint or other legal proceeding if the felony,
civil action, complaint, or other legal proceeding involved violation of any
franchise, antitrust or securities law, fraud, unfair or deceptive practices or
comparable allegations.
11. I am not subject to any currently effective injunctive or
restrictive order or decree involving any franchise or under any federal, state
or Canadian franchise, securities, antitrust, trade regulation or trade practice
law as a result of a concluded or pending action or proceeding brought by a
public agency.
12. I have not been subject to any order of any national securities
association or national securities exchange (as defined in the Securities and
Exchange Act of 1934) suspending or expelling me from membership in the
association or exchange.
13. I am a licensed real estate and/or business broker or a license is
not necessary to sell franchises in the jurisdictions in which I will be selling
Pizza Place Franchises.
14. I understand that American Kiosk Corporation and the law firm of
Keith J. Kanouse, P.A. are relying on the contents of this Affidavit for the
preparation of American Kiosk Corporation's Franchise Offering Circular ("FOC").
I have read a copy of the FOC and have found it to be accurate and complete, to
the best of my knowledge.
15. I will immediately notify American Kiosk Corporation of any change
in facts that would make any representations in this Affidavit false or
misleading.
16. This Affidavit is given for purposes of compliance with federal and
state franchise laws, and I understand that material penalties may be imposed on
me and American Kiosk Corporation for any violation of these laws.
Further Affiant sayeth not.
------------------------------------
46
<PAGE>
STATE OF ______________
COUNTY OF _____________
This instrument was signed on _____________, 199__, by _________________,
who personally appeared before me at the time of notarization.
NOTARY PUBLIC - STATE OF __________________
sign
-------------------------------
print
-------------------------------
Personally Known ____ or Produced Identification ____
Type of Identification Produced:
---------------------------------------------
My Commission Expires:
47
<PAGE>
EMPLOYMENT HISTORY
By: ____________________________________
Name: ____________________________________
- --------------------------------------------------------------------------------
Instructions for completion: For the five years before the date of the
Affidavit, list principal occupations, titles, and the names and locations of
all prior employers, and the beginning and ending dates of each employment.
Example: From January 1987 to January 1990, I worked for ABC Company
as Vice President of Sales, in charge of the sales program
for the company's widget product line. From January 1985 to
December 1986, I worked for XYZ Company as a sales
representative, selling its gidget product line in the State
of Ohio.
48
AMENDMENT TO PLEDGE AGREEMENT
THIS AMENDMENT TO PLEDGE AGREEMENT (this "Agreement"), dated as of March
24, 1999, by and among ARTHUR SCOTT AND MICHAEL MORGAN (each a "Pledgor" and
collectively, "Pledgors"), on the one hand and, on the other hand, AMERICAN
KIOSK CORP., a Delaware corporation, ("Secured Party"), with reference to the
following:
WHEREAS, Pledgors and Secured Party entered into a Pledge Agreement dated
January ___, 1999, whereby Pledgors pledged certain shares of stock as
collateral for the payment of a Promissory Note dated January 21, 1999 in the
amount of Twenty Five Thousand Dollars ($25,000);
WHEREAS, Secured Party has agreed to loan an additional Twenty Five
Thousand Dollars ($25,000) to Pledgors to be evidenced by a Promissory Note (the
"Promissory Note"), of even date herewith;
WHEREAS, to induce Secured Party to make the financial accommodations
provided to Borrower pursuant to the Promissory Note, each Pledgor desires to
amend the Pledge Agreement, as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1 The definition of "Secured Obligation" set forth in Section 1(a) of the
Pledge Agreement is hereby amended to read in its entirety as follows:
"Secured Obligations" shall mean all liabilities, obligations, or
undertakings owing by Pledgor to Secured Party of any kind or description
arising out of or outstanding under, advanced or issued pursuant to, or
evidenced by the Promissory Note dated January 21, 1999, the Promissory Note
dated March 24, 1999, or this Agreement, irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, due or to become
due, voluntary or involuntary, whether now existing or hereafter arising, and
including all interest (including interest that accrues after the filing of a
case under the Bankruptcy Code) and any and all costs, fees (including attorneys
fees), and expenses which Pledgor is required to pay pursuant to any of the
foregoing, by law, or otherwise.
2. In all other respects, the Pledge Agreement remains unchanged and is in
full force and effect.
1
<PAGE>
IN WITNESS WHEREOF, each Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
PLEDGORS:
_________________________________
ARTHUR SCOTT
_________________________________
MICHAEL MORGAN
94467
SECURED PARTY:
AMERICAN KIOSK CORP.
By:________________________________
Print Name:________________________
Title:_____________________________
2
<PAGE>
PROMISSORY NOTE
U.S. $25,000.00 Palm Beach Gardens, Florida
January 21, 1999
FOR VALUE RECEIVED, the undersigned, Arthur Scott and Michael Morgan
(hereinafter referred to as the "Maker"), promises to pay to the order of
AMERICAN KIOSK CORPORATION, a Delaware corporation (hereinafter referred to as
the "Holder"), the principal sum of Twenty Five Thousand Dollars ($25,000.00),
together with interest thereon at the rate of eight percent (8.00%) per annum,
as follows:
On July 21, 2000, the entire outstanding principal balance, and all accrued
but unpaid interest thereon, shall be due and payable. Additionally, Maker shall
make payments on this Promissory Note as follows:
Following the sale by Maker or an affiliate of Maker of three
Pizza Place drive-thru kiosk units, Maker shall pay Holder
twenty percent (20%) of all commissions paid to Maker or an
affiliate of Maker by Holder, whether such commissions are
paid for sales of units or for deposits on future units or
otherwise. Holder shall be permitted to withhold such amounts
from the commissions payable to Maker or Maker's affiliate.
All such prepayments shall be applied first to the payment of
all accrued but unpaid interest, and second to the outstanding
principal balance.
Maker may prepay the principal amount outstanding in whole or in part at
any time without penalty. All such prepayments shall be applied first to the
payment of all accrued but unpaid interest, and second to the outstanding
principal balance. Neither a partial prepayment of principal, nor an offset
against the principal balance as described herein, shall reduce the amount of
the payments due hereunder.
Maker shall make all of its payments to Holder at 4400 PGA Boulevard, Suite
500, Palm Beach Gardens, Florida, 33410, or at such other place as Holder may
designate to Maker.
This Note shall be in default when any payment required to be made
hereunder shall not have been made on the due date. While in default, the
outstanding principal balance shall bear interest at the maximum rate permitted
by law. If Maker is in default by failing to make any payment of principal and
interest on its due date, and Maker fails to make such payment within ten (10)
days after the date of Holder's mailing written notice of such default to Maker
or if Maker is otherwise in default as provided for herein, then the entire
outstanding principal balance, and all accrued but unpaid interest thereon,
shall immediately become due and payable at the option of the Holder without
notice to or demand upon Maker. Holder may exercise this option to accelerate in
accordance with the terms of this Note notwithstanding any prior forbearance. If
suit is brought to collect this Note, the Holder shall be entitled to collect
from Maker all costs and expenses of such suit, including, but not limited to,
reasonable attorney's fees through trial and appellate levels.
Maker and all endorsers and guarantors jointly and severally waive
presentment for payment, demand, notice of nonpayment, protest, and notice of
protest, and consent to the terms hereof and to any extension or postponement of
the time for payment or any other indulgence and shall remain fully liable
hereunder in the event of any such extension, postponement or other indulgence.
It is the intention of the Maker and the Holder that the interest charged
hereunder shall in no event ever exceed the maximum rate permitted by law, and
any interest or payments in the nature of interest which would render this Note
usurious shall, at the option of the Holder, be either refunded to the Maker or
credited against the outstanding principal balance.
3
<PAGE>
This Note shall be governed by and construed in accordance with the laws of
the State of Florida.
This Note is secured by a Stock Pledge Agreement executed by Maker in favor
of Holder of even date herewith. A default by Maker under any of the terms and
conditions of the Stock Pledge Agreement shall constitute a default by Maker
under this Note.
____________________________________
ARTHUR SCOTT
____________________________________
MICHAEL MORGAN
STATE OF _________________ )
ss:
COUNTY OF ________________ )
The foregoing Promissory Note was executed and acknowledged before me by
Arthur Scott, who is personally known to me or who has produced ______________
as identification, this ______ day of January ____, 1999.
WITNESS my hand and official seal.
____________________________________
Notary Public
My commission expires: Commission No.:_____________________
STATE OF _________________ )
ss:
COUNTY OF ________________ )
The foregoing Promissory Note was executed and acknowledged before me by
Michael Morgan, who is personally known to me or who has produced ______________
as identification, this ______ day of January ____, 1999.
WITNESS my hand and official seal.
____________________________________
Notary Public
My commission expires: Commission No.:_____________________
94463
4
<PAGE>
PROMISSORY NOTE
U.S. $25,000.00 Palm Beach Gardens, Florida
March 24, 1999
FOR VALUE RECEIVED, the undersigned, Arthur Scott and Michael Morgan
(hereinafter referred to as the "Maker"), promises to pay to the order of
AMERICAN KIOSK CORPORATION, a Delaware corporation (hereinafter referred to as
the "Holder"), the principal sum of Twenty Five Thousand Dollars ($25,000.00),
together with interest thereon at the rate of eight percent (8.00%) per annum,
as follows:
On July 21, 2000, the entire outstanding principal balance, and all accrued
but unpaid interest thereon, shall be due and payable. Additionally, after Maker
has paid in full the Promissory Note from Maker to Holder in the amount of
Twenty Five Thousand Dollars ($25,000) dated January 21, 1999 in full, Maker
shall make payments on this Promissory Note as follows:
Following the sale by Maker or an affiliate of Maker of three
Pizza Place drive-thru kiosk units, Maker shall pay Holder
twenty percent (20%) of all commissions paid to Maker or an
affiliate of Maker by Holder, whether such commissions are
paid for sales of units or for deposits on future units or
otherwise. Holder shall be permitted to withhold such amounts
from the commissions payable to Maker or Maker's affiliate.
All such prepayments shall be applied first to the payment of
all accrued but unpaid interest, and second to the outstanding
principal balance.
Maker may prepay the principal amount outstanding in whole or in part at
any time without penalty. All such prepayments shall be applied first to the
payment of all accrued but unpaid interest, and second to the outstanding
principal balance. Neither a partial prepayment of principal, nor an offset
against the principal balance as described herein, shall reduce the amount of
the payments due hereunder.
Maker shall make all of its payments to Holder at 4400 PGA Boulevard, Suite
500, Palm Beach Gardens, Florida, 33410, or at such other place as Holder may
designate to Maker.
This Note shall be in default when any payment required to be made
hereunder shall not have been made on the due date. While in default, the
outstanding principal balance shall bear interest at the maximum rate permitted
by law. If Maker is in default by failing to make any payment of principal and
interest on its due date, and Maker fails to make such payment within ten (10)
days after the date of Holder's mailing written notice of such default to Maker
or if Maker is otherwise in default as provided for herein, then the entire
outstanding principal balance, and all accrued but unpaid interest thereon,
shall immediately become due and payable at the option of the Holder without
notice to or demand upon Maker. Holder may exercise this option to accelerate in
accordance with the terms of this Note notwithstanding any prior forbearance. If
suit is brought to collect this Note, the Holder shall be entitled to collect
from Maker all costs and expenses of such suit, including, but not limited to,
reasonable attorney's fees through trial and appellate levels.
Maker and all endorsers and guarantors jointly and severally waive
presentment for payment, demand, notice of nonpayment, protest, and notice of
protest, and consent to the terms hereof and to any extension or postponement of
the time for payment or any other indulgence and shall remain fully liable
hereunder in the event of any such extension, postponement or other indulgence.
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<PAGE>
It is the intention of the Maker and the Holder that the interest charged
hereunder shall in no event ever exceed the maximum rate permitted by law, and
any interest or payments in the nature of interest which would render this Note
usurious shall, at the option of the Holder, be either refunded to the Maker or
credited against the outstanding principal balance.
This Note shall be governed by and construed in accordance with the laws of
the State of Florida.
This Note is secured by a Stock Pledge Agreement executed by Maker in favor
of Holder of even date herewith. A default by Maker under any of the terms and
conditions of the Stock Pledge Agreement shall constitute a default by Maker
under this Note.
____________________________________
ARTHUR SCOTT
____________________________________
MICHAEL MORGAN
STATE OF _________________ )
ss:
COUNTY OF ________________ )
The foregoing Promissory Note was executed and acknowledged before me by
Arthur Scott, who is personally known to me or who has produced ______________
as identification, this ______ day of January ____, 1999.
WITNESS my hand and official seal.
____________________________________
Notary Public
My commission expires: Commission No.:_____________________
STATE OF _________________ )
ss:
COUNTY OF ________________ )
The foregoing Promissory Note was executed and acknowledged before me by
Michael Morgan, who is personally known to me or who has produced ______________
as identification, this ______ day of January ____, 1999.
WITNESS my hand and official seal.
____________________________________
Notary Public
My commission expires: Commission No.:_____________________
94464
6
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of January ___, 1999, by
and among ARTHUR SCOTT AND MICHAEL MORGAN (each a "Pledgor" and collectively,
"Pledgors"), on the one hand and, on the other hand, AMERICAN KIOSK CORP., a
Delaware corporation, ("Secured Party"), with reference to the following:
WHEREAS, each Pledgor beneficially owns the specified number of shares
identified as Pledged Shares in the Persons identified as Issuers on Schedule A
attached hereto (or any addendum thereto);
WHEREAS, Pledgors and Secured Party are parties to that certain Promissory
Note (the "Promissory Note"), of even date herewith, pursuant to which Secured
Party has agreed to make certain financial accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial accommodations
provided to Borrower pursuant to the Promissory Note, each Pledgor desires to
pledge, grant, transfer, and assign to Secured Party a security interest in the
Pledged Shares to secure the Secured Obligations (as hereinafter defined), as
provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1 Definitions and Construction.
(a) Definitions. All initially capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed thereto in the
Promissory Note. As used in this Agreement:
"Agreement" shall mean this Pledge Agreement.
"Borrower" shall mean the Pledgors, individually and
collectively, and jointly and severally.
"Code" shall mean the Uniform Commercial Code as adopted by the
State of Florida.
"Collateral" shall mean the Pledged Shares, the Future Rights,
and the Proceeds, collectively.
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"Future Rights" shall mean: (a) all shares of stock or member
interests (other than Pledged Shares) of the Issuers, and all
securities convertible or exchangeable into, and all warrants,
options, or other rights to purchase, shares of stock of, or member
interests in, the Issuers; (b) to the extent of any Pledgor's interest
therein, all shares of stock of or member interests in, all securities
convertible or exchangeable into, and all warrants, options, or other
rights to purchase shares of stock of or member interests in, any
Person in which such Pledgor, after the date of this Agreement,
acquires a direct equity interest, irrespective of whether such Person
is or becomes a Subsidiary of such Pledgor; and (c) the certificates
or instruments representing such additional shares or member
interests, convertible or exchangeable securities, warrants, and other
rights and all dividends, cash, options, warrants, rights,
instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in
exchange for any or all of such shares or member interests.
"Holder" and "Holders" shall have the meanings ascribed thereto
in Section 3 of this Agreement.
"Issuers" shall mean each of the Persons identified as an Issuer
on Schedule A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"Lien" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money),
security interest, charge, or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, or any agreement to give any security interest).
"Pledged Shares" shall mean all of the shares identified as
Pledged Shares on Schedule A attached hereto (or any addendum
thereto).
"Pledgor" shall have the meaning ascribed thereto in the preamble
to this Agreement.
"Proceeds" shall mean all proceeds (including proceeds of
proceeds) of the Pledged Shares and Future Rights including all: (a)
rights, benefits, distributions, premiums, profits, dividends,
interest, cash, instruments, documents of title, accounts, contract
rights, inventory, equipment, general intangibles, deposit accounts,
chattel paper, and other property from time to time received,
receivable, or otherwise distributed in respect of or in exchange for,
or as a replacement of or a substitution for, any of the Pledged
Shares, Future Rights, or proceeds thereof (including any cash, stock,
member interests, or other securities or instruments issued after any
recapitalization, readjustment, reclassification, merger or
consolidation with respect to the Issuers and any claims against
financial intermediaries under Article 8 of the Code and Article 9 of
the Code or otherwise); (b) "proceeds," as such term is used in
ss.9-306 of the Code; (c) proceeds of any insurance, indemnity,
warranty, or guaranty (including guaranties of delivery) payable from
8
<PAGE>
time to time with respect to any of the Pledged Shares, Future Rights,
or proceeds thereof; (d) payments (in any form whatsoever) made or due
and payable to any Pledgor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Pledged Shares, Future Rights, or proceeds thereof;
and (e) other amounts from time to time paid or payable under or in
connection with any of the Pledged Shares, Future Rights, or proceeds
thereof.
"Promissory Note" shall have the meaning ascribed thereto in the
recitals to this Agreement.
"Secured Obligations" shall mean all liabilities, obligations, or
undertakings owing by Pledgor to Secured Party of any kind or
description arising out of or outstanding under, advanced or issued
pursuant to, or evidenced by the Promissory Note or this Agreement,
irrespective of whether for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, voluntary or
involuntary, whether now existing or hereafter arising, and including
all interest (including interest that accrues after the filing of a
case under the Bankruptcy Code) and any and all costs, fees (including
attorneys fees), and expenses which Pledgor is required to pay
pursuant to any of the foregoing, by law, or otherwise.
"Secured Party" shall have the meaning ascribed thereto in the
preamble to this Agreement, together with its successors or assigns.
"Securities Act" shall have the meaning ascribed thereto in
Section 9(c) of this Agreement.
(b) Construction.
(i) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term
"including" is not limiting, and the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and
other similar terms in this Agreement refer to this Agreement as a
whole and not exclusively to any particular provision of this
Agreement. Article, section, subsection, exhibit, and schedule
references are to this Agreement unless otherwise specified. All of
the exhibits or schedules attached to this Agreement shall be deemed
incorporated herein by reference. Any reference to any of the
following documents includes any and all alterations, amendments,
restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: this Agreement or the Promissory
Note.
(ii) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Secured Party or
Pledgors, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties hereto and
their respective counsel and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties hereto.
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<PAGE>
2 Pledge.
(a As security for the prompt payment and performance of the Secured
Obligations in full by Pledgor when due, whether at stated maturity, by
acceleration or otherwise (including amounts that would become due but for
the operation of the provisions of the Bankruptcy Code), each Pledgor
hereby pledges, grants, transfers, and assigns to Secured Party a security
interest in all of such Pledgor's right, title, and interest in and to the
Collateral.
3. Delivery and Registration of Collateral.
(a All certificates or instruments representing or evidencing the
Collateral shall be promptly delivered by each Pledgor to Secured Party or
Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Secured Party.
(b After the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right, at any time in its discretion
and without notice to the Pledgors, to transfer to or to register on the
books of the Issuers (or of any other Person maintaining records with
respect to the Collateral) in the name of Secured Party or any of its
nominees any or all of the Collateral. In addition, Secured Party shall
have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of
smaller or larger denominations.
4. Voting Rights and Dividends.
(a So long as no Event of Default shall have occurred and be
continuing, each Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral or any part
thereof for any purpose and shall be entitled to receive and retain any
cash dividends or distributions paid in respect of the Collateral.
(b Upon the occurrence and during the continuance of an Event of
Default, all rights of each Pledgor to exercise the voting and other
consensual rights or receive and retain cash dividends or distributions
that it would otherwise be entitled to exercise or receive and retain, as
applicable pursuant to Section 4(a), shall cease, and all such rights shall
thereupon become vested in Secured Party, who shall thereupon have the sole
right to exercise such voting or other consensual rights and to receive and
retain such cash dividends and distributions. Each Pledgor shall execute
and deliver (or cause to be executed and delivered) to Secured Party all
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<PAGE>
such proxies and other instruments as Secured Party may reasonably request
for the purpose of enabling Secured Party to exercise the voting and other
rights which it is entitled to exercise and to receive the dividends and
distributions that it is entitled to receive and retain pursuant to the
preceding sentence.
5. Representations and Warranties. Each Pledgor represents, warrants, and
covenants as follows:
(a Such Pledgor has taken all steps it deems necessary or appropriate
to be informed on a continuing basis of changes or potential changes
affecting the Collateral (including rights of conversion and exchange,
rights to subscribe, payment of dividends, reorganizations or
recapitalization, tender offers and voting rights), and such Pledgor agrees
that Secured Party shall have no responsibility or liability for informing
such Pledgor of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereto;
(b All information herein or hereafter supplied to Secured Party by or
on behalf of such Pledgor in writing with respect to the Collateral is, or
in the case of information hereafter supplied will be, accurate and
complete in all material respects;
(c With regard to the Collateral owned by such Pledgor, such Pledgor
is and will be the sole legal and beneficial owner of the Collateral
(including the Pledged Shares and all other Collateral acquired by such
Pledgor after the date hereof) free and clear of any adverse claim, Lien,
or other right, title, or interest of any party in favor of Secured Party;
(d This Agreement, and the delivery to Secured Party, or its designee,
of the Pledged Shares representing Collateral (or the delivery to all
Holders of the Pledged Shares representing Collateral of the
notification/instruction referred to in Section 3 of this Agreement),
creates a valid, perfected, and first priority security interest in one
hundred percent (100%) of the Pledged Shares in favor of Secured Party
securing payment of the Secured Obligations, and all actions necessary to
achieve such perfection have been duly taken;
(e With respect to such Pledgor, Schedule A to this Agreement is true
and correct and complete in all material respects; without limiting the
generality of the foregoing: (i) all the Pledged Shares are in certificated
form, and, except to the extent registered in the name of Secured Party or
its nominee pursuant to the provisions of this Agreement, are registered in
the name of such Pledgor; and (ii) the Pledged Shares as to each of the
Issuers of Pledged Shares constitute at least the percentage of all the
fully diluted issued and outstanding shares of stock of such Issuer as set
forth in Schedule A to this Agreement;
(f There are no presently existing Future Rights or Proceeds owned by
such Pledgor;
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<PAGE>
(g The Pledged Shares have been duly authorized and validly issued and
are fully paid and nonassessable; and
(h Neither the pledge of the Collateral pursuant to this Agreement nor
the extensions of credit represented by the Secured Obligations violates
Regulation T, U or X of the Board of Governors of the Federal Reserve
System.
6. Further Assurances.
(a Each Pledgor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of such Pledgor
where permitted by law. A carbon, photographic, or other reproduction of
this Agreement or any financing statement covering the Collateral or any
part thereof shall be sufficient as a financing statement where permitted
by law.
7. Covenants of Pledgors. Each Pledgor shall perform each and every
covenant in the Promissory Note applicable to such Pledgor.
8. Secured Party as Pledgors' Attorney-in-Fact.
(a Each Pledgor hereby irrevocably appoints Secured Party as such
Pledgor's attorney-in-fact, with full authority in the place and stead of
such Pledgor and in the name of such Pledgor, Secured Party or otherwise,
from time to time at Secured Party's discretion, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including: (i)
after the occurrence and during the continuance of an Event of Default, to
receive, endorse, and collect all instruments made payable to such Pledgor
representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof to the extent permitted
hereunder and to give full discharge for the same and to execute and file
governmental notifications and reporting forms; (ii) to issue any
notifications/instructions Secured Party deems necessary pursuant to
Section 3 of this Agreement; or (iii) to arrange for the transfer of the
Collateral on the books of any of the Issuers or any other Person to the
name of Secured Party or to the name of Secured Party's nominee.
(b In addition to the designation of Secured Party as such Pledgor's
attorney-in-fact in subsection (a), each Pledgor hereby irrevocably
appoints Secured Party as such Pledgor's agent and attorney-in-fact to
make, execute and deliver any and all documents and writings which may be
necessary or appropriate for approval of, or be required by, any regulatory
authority located in any city, county, state or country where such Pledgor
or any of the Issuers engage in business, in order to transfer or to more
effectively transfer any of the Pledged Shares, or otherwise enforce
Secured Party's rights hereunder.
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<PAGE>
9. Remedies upon Default. Upon the occurrence and during the continuance of
an Event of Default:
(a Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Secured Party may also without notice (except as
specified below) sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at
any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon
such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Collateral. To the maximum extent permitted by applicable law, Secured
Party may be the purchaser of any or all of the Collateral at any such sale
and shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply all or any part of the Secured
Obligations as a credit on account of the purchase price of any Collateral
payable at such sale. If Secured Party purchases all or any portion of the
Collateral, Secured Party shall be entitled to retire such portion and make
such Collateral treasury stock of Secured Party. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right
on the part of Pledgors, and each Pledgor hereby waives (to the extent
permitted by law) all rights of redemption, stay, or appraisal that it now
has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Each Pledgor agrees that, to the extent
notice of sale shall be required by law, at least ten (10) calendar days
notice to such Pledgor of the time and place of any public sale or the time
after which a private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party
may adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. To the
maximum extent permitted by law, each Pledgor hereby waives any claims
against Secured Party arising because the price at which any Collateral may
have been sold at such a private sale was less than the price that might
have been obtained at a public sale, even if Secured Party accepts the
first offer received and does not offer such Collateral to more than one
offeree.
(b Each Pledgor hereby agrees that any sale or other disposition of
the Collateral conducted in conformity with reasonable commercial practices
of banks, insurance companies, or other financial institutions in the State
of Florida in disposing of property similar to the Collateral shall be
deemed to be commercially reasonable.
(c Each Pledgor hereby acknowledges that the sale by Secured Party of
any Collateral pursuant to the terms hereof in compliance with the
Securities Act of 1933 as now in effect or as hereafter amended, or any
similar statute hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state
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<PAGE>
securities laws may require strict limitations as to the manner in which
Secured Party or any subsequent transferee of the Collateral may dispose
thereof. Each Pledgor acknowledges and agrees that in order to protect
Secured Party's interest it may be necessary to sell the Collateral at a
price less than the maximum price attainable if a sale were delayed or were
made in another manner, such as a public offering under the Securities Act.
Each Pledgor has no objection to sale in such a manner and agrees that
Secured Party shall have no obligation to obtain the maximum possible price
for the Collateral. Without limiting the generality of the foregoing, each
Pledgor agrees that, upon the occurrence and during the continuation of an
Event of Default, Secured Party may, subject to applicable law, from time
to time attempt to sell all or any part of the Collateral by a private
placement, restricting the bidders and prospective purchasers to those who
will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, Secured Party may solicit offers to buy
the Collateral or any part thereof for cash, from a limited number of
investors deemed by Secured Party, in its reasonable judgment, to be
institutional investors or other responsible parties who might be
interested in purchasing the Collateral. If Secured Party shall solicit
such offers, then the acceptance by Secured Party of one of the offers
shall be deemed to be a commercially reasonable method of disposition of
the Collateral.
(d EACH PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY
LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO
THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS
PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL
THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW
OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH
IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash held by Secured Party as Collateral
and all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
pursuant to the exercise by Secured Party of its remedies as a secured creditor
as provided in Section 9 shall be applied from time to time by Secured Party as
provided in the Promissory Note.
11. Duties of Secured Party. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose on it any duty to exercise such powers. Except as provided in Section
9-207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. Choice of Law and Venue. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
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<PAGE>
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF FLORIDA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE CIRCUIT COURT IN AND FOR PALM BEACH COUNTY, FLORIDA, OR,
AT THE SOLE OPTION OF SECURED PARTY, IN ANY OTHER JURISDICTION IN WHICH THE
COLLATERAL IS LOCATED IN CONNECTION WITH THE EXERCISE OF SECURED PARTY'S RIGHTS
AND REMEDIES AS A SECURED CREDITOR WITH RESPECT TO SUCH COLLATERAL. EACH PLEDGOR
AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
12.
13. Amendments; Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgors herefrom shall in any event
be effective unless the same shall be in writing and signed by Secured Party,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure on the part of Secured
Party to exercise, and no delay in exercising any right under this Agreement,
the Promissory Note, or otherwise with respect to any of the Secured
Obligations, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Agreement or otherwise with respect to any of
the Secured Obligations preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided for in this Agreement or
otherwise with respect to any of the Secured Obligations are cumulative and not
exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in writing
and shall be delivered in the manner set forth in the Promissory Note.
15. Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral and shall: (i) remain in full force and
effect until the indefeasible payment in full of the Secured Obligations,
including the cash collateralization, expiration, or cancellation of all Secured
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Promissory Note; (ii) be binding upon each Pledgor and its successors and
assigns; and (iii) inure to the benefit of Secured Party and its successors,
transferees, and assigns. Upon the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Promissory Note, the security interests granted herein
shall automatically terminate and all rights to the Collateral shall revert to
the applicable Pledgor. Upon any such termination, Secured Party will, at the
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<PAGE>
applicable Pledgor's expense, execute and deliver to such Pledgor such documents
as such Pledgor shall reasonably request to evidence such termination. Such
documents shall be prepared by such Pledgor and shall be in form and substance
reasonably satisfactory to Secured Party.
16. Security Interest Absolute. To the maximum extent permitted by law, all
rights of Secured Party, all security interests hereunder, and all obligations
of Pledgors hereunder, shall be absolute and unconditional irrespective of:
(a any lack of validity or enforceability of any of the Secured
Obligations or any other agreement or instrument relating thereto;
(b any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Promissory
Note, or any other agreement or instrument relating thereto;
(c any exchange, release, or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty for all or any of the Secured Obligations; or
(d any other circumstances that might otherwise constitute a defense
available to, or a discharge of, any Pledgor.
To the maximum extent permitted by law, each Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
such Pledgor; or (B) pursue any other remedy in Secured Party's power
whatsoever.
17. Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally effective as
delivery of an executed original counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by facsimile also shall
deliver an original executed counterpart but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement. This Agreement shall become effective as to each
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<PAGE>
Pledgor upon the execution and delivery of a counterpart hereof by such Pledgor
(whether or not a counterpart hereof shall have been executed and delivered by
any other Pledgor).
20. Waiver of Marshaling. Each Pledgor and Secured Party acknowledges and
agrees that in exercising any rights under or with respect to the Collateral:
(i) Secured Party is under no obligation to marshal any Collateral; (ii) may, in
its absolute discretion, realize upon the Collateral in any order and in any
manner it so elects; and (iii) may, in its absolute discretion, apply the
proceeds of any or all of the Collateral to the Secured Obligations in any order
and in any manner it so elects. Each Pledgor and Secured Party waive any right
to require the marshaling of any of the Collateral.
21. Waiver of Jury Trial. EACH PLEDGOR AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PLEDGOR AND SECURED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
IN WITNESS WHEREOF, each Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
PLEDGORS:
_________________________________
ARTHUR SCOTT
_________________________________
MICHAEL MORGAN
94465
SECURED PARTY:
AMERICAN KIOSK CORP.
By:________________________________
Print Name:________________________
Title:_____________________________
17
<PAGE>
SCHEDULE A
TO
PLEDGE AGREEMENT
18
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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0
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</TABLE>
