<PAGE>
As filed with the Securities and Exchange Commission on June ___, 1998
Registration No. _______
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TUMBLEWEED, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 5812 61-1327945
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification
or Organization) Code Number) Number)
1900 MELLWOOD AVENUE
LOUISVILLE, KENTUCKY 40206
(502) 893-0323
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
GREGORY A. COMPTON
VICE PRESIDENT, SECRETARY & GENERAL COUNSEL
TUMBLEWEED, INC.
1900 MELLWOOD AVENUE
LOUISVILLE, KENTUCKY 40206
(502) 893-0323
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
______________
Copies To:
William G. Strench, Esq.
Alan K. MacDonald, Esq.
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202
(502) 589-5400
______________
<PAGE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective. On a delayed
basis after the Registration Statement becomes effective with respect to the
Common Stock offered by the Selling Stockholders.
_______________
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
_______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01
par value(2)................ 1,200,000 $10.00 $12,000,000 $ 3,540
- -----------------------------------------------------------------------------------------------
Common Stock, $.01
par value(3)................ 5,145,000 $10.00 $51,450,000 $15,178
- -----------------------------------------------------------------------------------------------
Total 6,345,000 $10.00 $63,450,000 $18,718
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee.
(2) Represents Common Stock to be sold by the Company.
(3) Represents Common Stock to be sold by existing stockholders.
_______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE __, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[TUMBLEWEED LOGO]
PROSPECTUS
1,200,000 SHARES
COMMON STOCK
The 1,200,000 shares of Common Stock offered hereby are being sold by
Tumbleweed, Inc. (the "Company"). Prior to this offering, there has been no
public market for the Common Stock. It is anticipated that the initial public
offering price will be $10.00 per share. See "Plan of Distribution."
There are no underwriters involved in this offering. The Common Stock will
be sold by the Company on a "best efforts" basis through one or more officers
and directors of the Company who will not receive compensation in connection
with any offers or sales of the Common Stock. The Company may also retain
agents ("Agents") to sell the Common Stock on a "best efforts" basis. See"Plan
of Distribution."
THE COMPANY IS PRESENTLY SOLICITING NON-BINDING INDICATIONS OF INTEREST TO
PURCHASE SHARES OF COMMON STOCK, BUT WILL NOT ACCEPT BINDING SUBSCRIPTIONS OR
ACCEPT PAYMENT FOR ANY SHARES UNTIL AFTER THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS IS A PART HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND
EXCHANGE COMMISSION. After such Registration Statement has been declared
effective, the Company will provide a Subscription Agreement and a copy of the
final Prospectus relating to this offering to each prospective investor.
Subject to availability and the Company's right to reject subscriptions, in
whole or in part, for any reason, shares of Common Stock may then be subscribed
for by completing and returning the Subscription Agreement, together with
payment for all shares subscribed for, to an independent escrow agent in the
manner described under "Plan of Distribution" herein. See "Plan of
Distribution" for additional information regarding the offering and the
procedures for subscribing for shares of Common Stock offered hereby.
This offering will continue until the earlier of the date that all of the
1,200,000 shares offered hereby have been sold or December 31, 1998, unless
terminated sooner. The offering may be extended at the discretion of the
Company for up to an additional 90 days to no later than March 31, 1999.
Subscription payments will be deposited with an independent escrow agent until
such time the Company has accepted subscriptions for at least 700,000 shares.
If the Company does not accept subscriptions for at least 700,000 shares on or
before December 31, 1998 (or March 31, 1999, if the offering is extended), or
the offering is terminated for any other reason other than the sale of at least
700,000 shares, all subscription proceeds will be promptly returned to
subscribers, with interest. See "Risk Factors" and "Plan of Distribution."
This Prospectus will also be used in connection with any sales of any of
the 5,145,000 shares of Common Stock to be issued to the members of Tumbleweed,
LLC when the merger of Tumbleweed, LLC into Tumbleweed, Inc. (the
"Reorganization") becomes effective upon the completion of this offering by the
Company. See "History and Pending Reorganization." The members of Tumbleweed,
LLC have agreed not to sell 4,373,250 shares of Common Stock (or 85% of the
shares they will receive in the Reorganization) for a period of nine months
following the effectiveness of the Reorganization without the prior consent of
the Company. See "Selling Stockholders" and "Shares Eligible for Future
Resale."
SEE "RISK FACTORS" ON PAGES 11 THROUGH 16 FOR A DISCUSSION OF CERTAIN
FACTORS THAT PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK, AND THERE CAN
BE NO ASSURANCE THAT AN ACTIVE PUBLIC MARKET FOR THE COMMON STOCK WILL DEVELOP
FOLLOWING COMPLETION OF THE OFFERING.
<PAGE>
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
AGENT'S PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share $10.00 $.80 $9.20
- -----------------------------------------------------------------------------------------------------------
Minimum Total $7,000,000 $120,000 $6,880,000
- -----------------------------------------------------------------------------------------------------------
Maximum Total $12,000,000 $200,000 $11,800,000
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(SEE ACCOMPANYING FOOTNOTES ON NEXT PAGE)
___________
The date of this Prospectus is __________, 1998
<PAGE>
[INSIDE FRONT COVER]
STEAK YOUR
CLAIM
[photograph of exterior of Tumbleweed restaurant]
[photograph of interior bar area]
Imagine a return to the days of the Great Southwest, filled with the aroma
of fresh cut steaks grillin' over a real Mesquite campfire.
Where the herbs and spices of the Cowboys and Hombres were blended to
perfection...combining the best each had to offer to create a taste unlike any
other.
Where the flavor was honest. Where the portions were big. And where even
the heartiest of appetites were satisfied by meal's end.
Tumbleweed Southwest Mesquite Grill and Bar combines two distinctly popular
concepts into a single, theme oriented package.
It's gourmet-worthy Mesquite Grilling...right along side a full section of
Mexican favorites...with a big, bold one-of-a-kind flavor you just can't find
anywhere else.
[TUMBLEWEED LOGO]
<PAGE>
[FRONT COVER FOLD OUT PANEL 1]
BEST OF THE WEST
[photograph of Sirloin Strip Steak on Mesquite Grill]
Step through the tavern doors and you get a sense of the Great
Southwest...complete with Indian artifacts, cowboy memorabilia, wildlife
replicas, rough-hewn timber, creek stone, and more.
It's the look, the feel of those far-away times...but with all the
necessary, up-to-date comfort. Friendly and relaxed, Tumbleweed provides the
perfect atmosphere for some of the best-tasting Southwestern fare this side of
the "lone prairie."
And what Southwest eatery would be complete without an authentic saloon?
We serve a variety of mixed drinks, plus domestic and imported beer. Our
specialty is the Tumbleweed Margarita. It's one-of-a-kind, and we serve it up
in a size sure to please.
Once seated, dine-in patrons (both lunch and dinner) are greeted with
complementary tortilla chips and salsa. Our Chile con Queso is a habit-forming
blend of cheese, chilies and spices...and is a legendary favorite for regulars
and newcomers alike. Among our other appetizers are Quesadillas, a Buffalo
Platter, White Chili and Nachos Supreme.
Mesquite Grilling is a time-honored American tradition, dating back to the
1800's, and is recognized as a premier cooking fuel by leading chefs all around
the world. It gives a rich, smokey flavor to meats, chicken and fish. . .while
sealing in all the natural juices. From 16 oz. T-Bon steaks to grilled-tuna
sandwiches, Tumbleweed cooks over real Mesquite logs on a specially designed
grill.
<PAGE>
[FRONT COVER FOLD OUT PANEL 2]
[3 photographs: beef and chicken fajita dinner
restaurant interior
tortilla chips, salsa, Chile con Quesa and mug of
beer]
Our south-of-the-border specialities add a hearty combination of Tex-Mex spices
to conventional Mexican fare, such as burritos, enchiladas, fajitas, tacos and
more. Tasty toppings (for even more flavor!) include our tangy enchilada sauce,
savory green sauce, and our signature Chile con Queso.
<PAGE>
(FOOTNOTES FROM FRONT COVER PAGE)
(1) Assumes that approximately 20% of the Minimum Total and the Maximum Total
is sold by Agents at a selling commission of 8% of the gross offering
proceeds attributable to Common Stock sold by such Agents. The Agent's
Commissions will vary according to the number of shares sold by Agents and
the actual rates of commissions paid, which will not exceed 8%. See "Plan
of Distribution".
(2) Before deducting offering expenses payable by the Company estimated at
$800,000.
The shares of Common Stock offered hereby are being offered by the Company
on a "best efforts" basis, on the terms and subject to the conditions described
herein. The Company reserves the right to withdraw, cancel or modify the
offering made hereby and to reject subscriptions, in whole or in part, for any
reason. See "Plan of Distribution."
This Prospectus includes service marks and registered trademarks of the
Company.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Shares offered hereby, of which this Prospectus forms a
part. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, please refer to
the Registration Statement and such exhibits and schedules. Statements contained
in this Prospectus as to the contents of any contract or other documents
referred to are not necessarily complete and, in each instance, if such contract
or document is filed as an exhibit to the Registration Statement, reference is
made to the copy of such contract or document filed as an exhibit, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. Copies may also be
obtained through the Internet from the Commission's site on the World Wide Web
at the following address: http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports, which
will include consolidated financial statements audited by its independent
certified public accountants, and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
- 3 -
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. TUMBLEWEED, LLC, WHICH
CURRENTLY OWNS AND CONDUCTS THE TUMBLEWEED BUSINESS, WILL BE MERGED INTO
TUMBLEWEED, INC. (THE "REORGANIZATION") AS DESCRIBED UNDER THE CAPTION "HISTORY
AND PENDING REORGANIZATION," EFFECTIVE AT THE TIME THAT SUBSCRIPTION PROCEEDS
FOR AT LEAST 700,000 SHARES HAVE BEEN RECEIVED IN ESCROW AND AN INITIAL CLOSING
ON THE ESCROWED PROCEEDS OCCURS. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL
REFERENCES TO THE COMPANY AT TIMES BEFORE THE TIME THE REORGANIZATION TAKES
EFFECT INCLUDE TUMBLEWEED, LLC , AND ALL INFORMATION IN THIS PROSPECTUS ASSUMES
CONSUMMATION OF THE REORGANIZATION; THE CONVERSION OF THE OWNERSHIP INTERESTS OF
THE MEMBERS OF TUMBLEWEED, LLC INTO A TOTAL 5,145,000 SHARES OF COMMON STOCK AS
OF THE TIME THE REORGANIZATION TAKES EFFECT; AND PAYMENT OF AN ADDITIONAL
$747,500 AS OF THE EFFECTIVE TIME OF THE REORGANIZATION BY THE CLASS B MEMBERS
OF TUMBLEWEED, LLC TO EXERCISE THEIR RIGHT UNDER THE TUMBLEWEED, LLC OPERATING
AGREEMENT TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS, WHICH ENTITLES THE CLASS B
MEMBERS TO RECEIVE 5% OF THE COMMON STOCK OUTSTANDING UPON CONSUMMATION OF THE
REORGANIZATION, PRIOR TO THE SALE OF COMMON STOCK IN THIS OFFERING.
THE COMPANY
Tumbleweed, Inc. (the "Company") owns, franchises or licenses 37
Tumbleweed-Registered Trademark- Southwest Mesquite Grill & Bar
("Tumbleweed") restaurants. The Company owns and operates 22 Tumbleweed
restaurants in Kentucky, Indiana and Ohio. The Company also franchises 13
Tumbleweed restaurants in Indiana, Illinois, Tennessee and Wisconsin and
licenses two restaurants outside the United States. The Company and its
franchisees currently expect to open an additional 5 Company-owned, 3
franchised, and 2 licensed restaurants by the end of 1998. The 37 Tumbleweed
restaurants are all open seven days a week for lunch and dinner and generally
offer a full service bar. See "Business."
Tumbleweed restaurants feature sophisticated Tex-Mex and mesquite
grilled food served in a casual dining atmosphere evoking the American
Southwest. Unlike competing Mexican and casual dining concepts, the
Tumbleweed menu offers both distinctively seasoned, spicier versions of
popular Tex-Mex dishes, as well as an assortment of grilled steaks, ribs,
pork chops, chicken and seafood selections. The Tumbleweed concept is
designed to appeal to a broad range of customers by offering a wide selection
of distinctive items at a broad range of price points while, in management's
view, providing a consistent level of food quality and friendly and efficient
service comparable or superior to that of other casual dining restaurants.
Use of a centralized commissary system enhances Tumbleweed's ability to
maintain consistently high food quality, minimizes restaurant kitchen space
and equipment, reduces the need for skilled cooking personnel, and simplifies
restaurant operations. For 1997 and the first three months of 1998, the
average check at a full-service Tumbleweed restaurant, including beverages,
was approximately $9.10. See "Business--Concept and Strategy."
The Company's strategy for growth during the next several years will focus
on the further development of new and existing markets by both the Company and
franchisees. Since acquiring the Tumbleweed concept in 1995, the Company has
added 15 new Company-owned and 8 new franchised and licensed restaurants, while
developing the infrastructure necessary to support a more aggressive growth
strategy. This approach has given management an opportunity to validate the
Tumbleweed concept, refine operating systems, design and develop prototype
restaurant buildings of different sizes and build a team of
- 4 -
<PAGE>
experienced corporate managers needed to support future internal and franchise
growth. See "Business--Expansion Strategy."
The Company targets mid-sized metropolitan markets for development,
initially concentrating in the Midwest, Mid-Atlantic and Southeast regions,
where income levels and other factors indicate a significant base of potential
customers exists. In selecting potential restaurant sites within target
markets, management analyzes such factors as local market demographics, site
visibility, competition in the vicinity, and accessibility and proximity of
major retail centers, hotels, universities, and sports and entertainment
facilities. Whenever possible, management considers the feasibility of opening
multiple restaurants in a target market to achieve greater operating and
advertising efficiencies. See "Business--Expansion Strategy."
When developing a new Tumbleweed restaurant, the Company generally uses
one of three prototype designs, which accommodate approximately 130, 225, and
265 guests, and can achieve potential annual sales of $1,250,000, $2,000,000 and
$2,500,000, respectively. Management believes that the building cost per square
foot of a prototype Tumbleweed restaurant is generally lower than the building
cost of the prototype designs of other casual dining restaurants. The use of
multiple prototypes and lower investment costs, in management's view, permits
the Company to more closely match the investment in a restaurant site with the
site's estimated revenue potential, thereby allowing for more efficient
utilization of financial resources by the Company and its franchisees.
Management believes the Company has been able to attract franchisees with
significant experience in the restaurant industry due to the attractiveness of
the Tumbleweed concept and the favorable potential return on investment
resulting from a lower investment compared to some other casual dining concepts.
See "Business--Properties."
Tumbleweed, Inc. was incorporated by the Company on December 17, 1997
and capitalized in June 1998. Tumbleweed, LLC will merge into Tumbleweed,
Inc.(the "Reorganization"), subject to the sale of at least 700,000 shares of
Common Stock in this offering. The Reorganization will take effect as of the
time the Company has accepted subscriptions for at least 700,000 shares of
Common Stock offered hereby and elects to consummate the sale of those shares
at an initial closing. When the Reorganization takes effect, the interests
of the current Class A, Class B, Class C and Common Members of Tumbleweed,
LLC will be converted into a total of 5,145,000 shares of Common Stock. The
interests of the Class B Members, which were issued in connection with the
initial organization of Tumbleweed, LLC in September 1994, are convertible
into five percent of the total number of shares of Common Stock to be issued
in the Reorganization only if the Class B Members make additional capital
contributions totaling $747,500 no later than the time the Reorganization
takes effect. The Class B Members have deposited the capital contributions
into escrow, subject to the effectiveness of the Reorganization. In
connection with the Reorganization, Tumbleweed, LLC expects to distribute
approximately $600,000 to its members, which amount equals the estimated
income taxes payable on Tumbleweed, LLC's earnings, plus interest owed by
Class A members on bank indebtedness recorded as redeemable members' equity,
through the date the Reorganization takes effect. The Company also expects
to establish a deferred tax liability of approximately $442,000 in connection
with the Company's conversion from a limited liability company to a C
corporation in the Reorganization. See "History and Pending Reorganization,"
"Capitalization" and "Certain Transactions."
The Company's executive offices are located at 1900 Mellwood Avenue,
Louisville, Kentucky 40206, and its telephone number is (502) 893-0323.
- 5 -
<PAGE>
THE OFFERING
Securities Offered Common Stock of Tumbleweed, Inc.
Offering Price $10.00 per share
Number of Shares Offered Maximum of 1,200,000 shares
Minimum of 700,000 shares (1)
Common Stock to be
Outstanding after the
Offering 6,345,000 shares if 1,200,000 shares are sold
in this offering 5,845,000 shares if 700,000
shares are sold in this offering(2)
Use of Proceeds Offering proceeds will be used first to repay
approximately $7 million of bank indebtedness
which is an obligation of the Class A Members
of Tumbleweed, LLC as of the date of this
Prospectus, and is accounted for as redeemable
members' equity. The redeemable members'
equity was contributed to fund a portion of
the initial capitalization of the Company and
was used to purchase the Tumbleweed business
and assets in January 1995. The balance of the
offering proceeds, if any, will be used to
finance the development of additional
restaurants, to fund working capital needs,
and for general corporate purposes. The
Company may also use offering proceeds to
expand its commissary operations to support
additional growth and to buy out certain
restaurant leases, if cost-effective. See "Use
of Proceeds" and "Certain Transactions -- Leases
With Affiliates."
The Offering Period The offering will terminate on the earlier of
the date that all of the 1,200,000 shares
offered hereby are sold or 5:00 p.m. Eastern
Time, on December 31, 1998, unless terminated
sooner (the "Termination Date"). The
Termination Date may be extended at the
discretion of the Company for up to an
additional 90 days to no later than March 31,
1999. The offering will be terminated, and no
Shares will be issued and no subscription
proceeds will be released from escrow to the
Company, unless on or before the Termination
Date the Company has received and accepted
subscriptions for an aggregate of at least
700,000 Shares ($7,000,000) and good funds
therefor have been deposited in escrow. If the
Company receives and accepts subscriptions for
fewer than 700,000 shares on or before the
Termination Date, or the offering is terminated
for any other reason other than the sale of at
least 700,000 shares, all subscription proceeds
will be promptly returned to subscribers, with
interest and without deduction.
- 6 -
<PAGE>
Proposed Nasdaq National TUWD
Market Symbol(3)
- -----------
(1) The offering is contingent upon the receipt and acceptance of subscriptions
for a minimum of 700,000 shares ($7,000,000) before the Termination Date. See
"Risk Factors" and "Plan of Distribution."
(2) Assumes 5,145,000 shares are issued to current members of Tumbleweed, LLC
in the Reorganization. See "History and Pending Reorganization." Excludes
approximately 400,000 shares of Common Stock issuable to employees and
nonemployee directors upon the exercise of stock options to be granted under the
Company's stock incentive plan concurrently with the closing of the offering.
See "Management -- Stock Incentive Plan" and " -- Director Compensation."
(3) The Company intends to apply for listing on the Nasdaq National Market upon
the sale of the Common Stock in this offering. Whether the Company can meet the
requirements for listing on either the Nasdaq National Market or the Nasdaq
Small-Cap Market will depend on the outcome of this offering. See "Risk
Factors -- Effects of Failure to Obtain or Maintain Listing on the Nasdaq
National Market." In addition, the symbol "TUWD" may not be available when the
Company applies to list the Common Stock on the Nasdaq Stock Market.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Total revenues $19,547 $25,732 $29,826 $7,110 $8,908
Income from operations 949 705 2,143 340 484
Net income as reported 683 501 1,714 230 342
PRO FORMA DATA
Net income as reported $1,714 $ 230 $ 342
Pro forma income tax expense(2) (617) (83) (123)
------ ------ ------
Pro forma net income $1,097 $ 147 $ 219
------ ------ ------
------ ------ ------
Pro forma net income per
share- basic and diluted $ 0.21 $ 0.03 $ 0.04
Weighted average shares
outstanding (3) 5,145 5,145 5,145
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
ACTUAL PRO FORMA(4) (MINIMUM)(5) (MAXIMUM)(6)
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . . . . . . $27,781 $27,781 $27,781 $32,311
Long-term debt and capital lease
obligations, including current
maturities . . . . . . . . . . . . . . . . . . . 10,195 10,195 10,585 10,195
Total liabilities . . . . . . . . . . . . . . . . . 12,346 12,788 13,178 12,788
Redeemable members' equity. . . . . . . . . . . . . 24,062 7,218 -- --
Members' equity . . . . . . . . . . . . . . . . . . 7 -- -- --
Retained earnings (deficit) . . . . . . . . . . . . (8,635) -- -- --
Pro forma stockholders' equity. . . . . . . . . . . -- 7,774 14,602 19,522
</TABLE>
- ----------
(1) Historical data of the Company prior to the Reorganization.
(2) Prior to the Reorganization, the Company operated as a limited liability
company and was not subject to corporate income taxes. Pro forma
adjustment has been made to net income to give effect to federal and state
income taxes as though the Company had been subject to corporate income
taxes for the periods presented with an effective tax rate of 36%.
(3) Shares outstanding gives effect to the Reorganization as if it had occurred
as of January 1, 1997. See "History and Pending Reorganization."
(4) Reflects the establishment of a deferred tax liability of $442,000 assuming
the termination of the Company's limited liability company status on March
31, 1998, and the conversion of members' interests into 5,145,000 shares of
Common Stock. See "History and Pending Reorganization."
(5) Adjusted to reflect the capital contribution of $747,500 by certain Class B
Members as of the effective time of the Reorganization, the net proceeds of
the sale by the Company of 700,000 shares of Common Stock at an assumed
initial public offering price of $10.00 per share, and the use of the net
proceeds plus borrowing of $390,000 to repay indebtedness recorded as
redeemable members' equity as of the date of this Prospectus. See "Use of
Proceeds" and "History and Pending Reorganization."
(6) Adjusted to reflect the capital contribution of $747,500 by certain Class B
Members as of the effective time of the Reorganization, the net proceeds of
the sale by the Company of 1,200,000 shares of Common Stock at an assumed
initial public offering price of $10.00 per share, and the use of the net
proceeds to repay indebtedness recorded as redeemable members' equity as of
the date of this Prospectus and for other corporate purposes. See "Use of
Proceeds" and "History and Pending Reorganization."
- 8 -
<PAGE>
SUMMARY RESTAURANT DATA
<TABLE>
<CAPTION>
QUARTER TWO MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED ENDED
-------------------------------- MARCH 31, MAY 31,
COMPANY RESTAURANTS 1995 1996 1997 1998 1998
------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
In operation, beginning of period 7 10 15 17 21
Newly opened 2 5 2 4 1
Purchased from Franchisee 1 0 0 0 0
-- -- -- -- --
In operation, end of period 10 15 17 21 22
-- -- -- -- --
<CAPTION>
FRANCHISED AND
LICENSED RESTAURANTS
--------------------
In operation, beginning of period 7 9 9 12 13
Newly opened 3 0 3 1 2
Restaurants sold to Company (1) 0 0 0 0
-- -- -- -- --
In operation, end of period 9 9 12 13 15
-- -- -- -- --
System total 19 24 29 34 37
-- -- -- -- --
-- -- -- -- --
</TABLE>
- 9 -
<PAGE>
HISTORY AND PENDING REORGANIZATION
The first Tumbleweed Southwest Mesquite Grill & Bar ("Tumbleweed")
restaurant opened in 1975 in New Albany, Indiana. By January 1995, the
Tumbleweed system included 14 full-service restaurants in Kentucky, Indiana,
Ohio and Wisconsin, seven of which were franchised.
In January 1995, Tumbleweed, LLC, a limited liability company owned by an
investor group led by the Company's current management, acquired the rights to
the Tumbleweed business and the other assets and liabilities of two corporations
("Predecessor") controlled by Tumbleweed's founders. The acquired assets
included seven full-service Tumbleweed restaurants, two limited service, "food
court" units and an interest in a third food court unit. In 1996 management
elected to focus on the development of full-service restaurants, and Tumbleweed,
LLC sold its interests in food court units to a new venture controlled by
certain directors of the Company, in which the Company also holds an interest.
See "Certain Transactions."
Since January 1995, the Tumbleweed system has grown to 37 full-service
restaurants consisting of 22 Company-owned and 13 franchised restaurants in five
states, and one restaurant each in Saudi Arabia and Germany under a licensing
agreement with a restaurant operator based in Brussels, Belgium. See "Business
- -- International Licensing Agreement" and "Certain Transactions."
Tumbleweed, Inc. was incorporated on December 17, 1997 and capitalized in
June 1998. In the Reorganization, which is subject to the sale of at least
700,000 shares of Common Stock in this offering, Tumbleweed, LLC will merge into
Tumbleweed, Inc. The Reorganization will take effect as of the time the Company
has accepted subscriptions for at least 700,000 shares of Common Stock offered
hereby and elects to consummate the sale of those shares at an initial closing.
When the Reorganization takes effect, the interests of the current Class A,
Class B, Class C and Common Members of Tumbleweed, LLC will be converted into a
total of 5,145,000 shares of Common Stock. The interests of the Class B
Members, which were issued in connection with the initial organization of
Tumbleweed, LLC in September 1994, are convertible into five percent of the
total number of shares of Common Stock to be issued in the Reorganization only
if the Class B Members make additional capital contributions totaling $747,500
no later than the time the Reorganization takes effect. The Class B Members
have deposited the capital contributions into escrow, subject to the
effectiveness of the Reorganization. Class B interests are owned by nine record
members, and beneficial owners of those interests include Minx M. Auerbach and
David M. Roth, who are directors of the Company. In connection with the
Reorganization, Tumbleweed, LLC expects to distribute approximately $600,000 to
its members, which amount equals the estimated income taxes payable on
Tumbleweed, LLC's earnings, plus interest owed by Class A members on bank
indebtedness constituting redeemable members' equity, through the date the
Reorganization takes effect. The Company also expects to establish a deferred
tax liability of approximately $442,000 in connection with the Company's
conversion from a limited liability company to a C corporation in the
Reorganization.
- 10 -
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY. THIS DISCUSSION ALSO IDENTIFIES IMPORTANT CAUTIONARY
FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY MADE BY, OR ON
BEHALF OF, THE COMPANY. IN PARTICULAR, THE COMPANY'S FORWARD-LOOKING
STATEMENTS, INCLUDING THOSE REGARDING THE OPENING OF ADDITIONAL RESTAURANTS, THE
ADEQUACY OF THE COMPANY'S CAPITAL RESOURCES, THE SUPPLY AND COST OF PRODUCE AND
BEEF AND OTHER STATEMENTS REGARDING TRENDS RELATING TO VARIOUS REVENUE AND
EXPENSE ITEMS, COULD BE AFFECTED BY A NUMBER OF RISKS AND UNCERTAINTIES
INCLUDING THOSE DESCRIBED BELOW. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - PRELIMINARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS."
EXPANSION RISKS; NEED FOR ADDITIONAL FINANCING. Since 1995, the Company
has grown while developing the operational systems, internal controls, and
management personnel that management believed was necessary to support its plans
for continued expansion. The Company and its franchisees currently expect to
open an additional five Company-owned and five franchised and licensed
restaurants by the end of 1998, including two restaurants outside the United
States. In the course of expanding its business, the Company will enter new
geographic regions in which it has had no previous operating experience. There
can be no assurance that the Tumbleweed concept will be viable in new geographic
regions or particular local markets. In addition, when feasible, the Company
intends to open multiple restaurants in a target market to achieve operating and
advertising efficiencies. Although such "clustering" of restaurants in a market
may adversely affect same store sales in the short term, management believes
clustering can enhance long-term performance.
The continued growth of the Company's business will depend upon its ability
to open and operate additional restaurants profitably, which in turn will depend
upon several factors, many of which are beyond the control of the Company.
These factors include, among other things, the selection and availability of
suitable locations, negotiation of acceptable lease, purchase and/or financing
terms, the timely construction of restaurants, the securing of required
governmental permits and approvals, the employment and training of qualified
personnel, and general economic and business conditions. The Company's ability
to expand into new geographic regions is also dependent upon the Company's
ability to expand its existing commissary facilities or open and successfully
operate additional commissaries, as may be necessary to support additional
restaurants. Although the Company has been developing its organizational
capabilities and management team to support increased growth, its expansion
strategy could require further enhancement of operational and financial systems
and additional managerial and financial resources. Failure to enhance these
systems and add these resources in a logical and timely fashion could have a
material adverse effect on the Company's results of operations and financial
condition. There can be no assurance that the Company will be successful in
achieving its growth plans or managing its expanding operations effectively, nor
can there by any assurance that new restaurants opened by the Company will be
operated profitably.
USE OF PROCEEDS. The Company plans to use the net proceeds of the offering
first to repay approximately $7 million of bank indebtedness, which is an
obligation of its Class A Members as of the date of this Prospectus and is
accounted for as redeemable members' equity. The redeemable members' equity was
contributed to fund a portion of the initial capitalization of the Company and
was used to purchase the
- 11 -
<PAGE>
Tumbleweed business and assets and fund initial working capital needs. The
Company expects to use any remaining net proceeds, which would total
approximately $4 million if all 1,200,000 shares of Common Stock are sold in
this offering, together with cash from operations and borrowings, to finance the
development of additional restaurants and for general corporate purposes. The
Company may also use a portion of the net proceeds to expand its commissary
operations to support additional growth and to buy out certain restaurant
leases, should management conclude that such a buy-out would be an appropriate
use of the Company's financial resources. To the extent the Company sells fewer
than 1,200,000 shares in the offering, fewer net proceeds will be available to
fund these intended uses. The Company's management will have broad discretion
to determine how the offering proceeds will be used. See "Use of Proceeds,"
"The Company--Properties" and "Certain Transactions."
BEST EFFORTS OFFERING; MINIMUM NUMBER OF SHARES TO BE SOLD. The Company is
offering its Common Stock on a "best efforts" basis. There can be no assurance
that all of the 1,200,000 shares of Common Stock offered hereby will be sold and
that the estimated net proceeds generated from such a sale of all such Common
Stock will actually be received by the Company. If the Company is unable to
sell at least 700,000 shares of the Common Stock offered hereby, the Company
will cancel this offering and return all monies collected from subscribers and
held in escrow. Furthermore, if all of the 1,200,000 shares of Common Stock
offered hereby are not sold, then the Company will be unable to fund all the
intended uses described herein for the net proceeds anticipated from this
offering without obtaining funds from alternative sources or using working
capital generated by the Company. Alternative sources of funds may not be
available to the Company at a reasonable cost, and the working capital generated
by the Company may not be sufficient to fund any uses not financed by offering
proceeds. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and "Plan of Distribution."
LIMITED RESTAURANT BASE. The Company currently operates 22 Tumbleweed
restaurants, seven of which have been open for less than one year.
Consequently, the sales and earnings achieved to date by these Tumbleweed
restaurants may not be indicative of future operating results. Moreover,
because of the small number of restaurants currently operated by the Company,
poor operating results at a small number of restaurants could negatively affect
the profitability of the entire Company. An unsuccessful new restaurant or
unexpected difficulties encountered during expansion could have a greater
adverse effect on the Company's results of operations than would be the case in
a restaurant company with more restaurants. In addition, the Company leases 12
of its restaurants. Each lease agreement provides that the lessor may terminate
the lease for a number of reasons, including if the Company defaults in payment
of any rent or taxes or breaches any covenants or agreements contained in the
lease. Termination of any of the Company's leases pursuant to such terms could
adversely affect the Company's results of operations.
CHANGES IN FOOD AND OTHER COSTS; SUPPLY RISKS. The profitability of the
Company is significantly dependent on its ability to anticipate and react to
changes in food, labor, employee benefits and similar costs over which the
Company has no control. Specifically, the Company is dependent on frequent
deliveries of produce and fresh beef, pork, chicken and seafood. As a result,
the Company is subject to the risk of possible shortages or interruptions in
supply caused by adverse weather or other conditions which could adversely
affect the availability, quality and cost of such items. While in the past
management has been able to anticipate and react to changing costs through its
purchasing practices or menu price adjustments without a material adverse
- 12 -
<PAGE>
effect on profitability, there can be no assurance that it will be able to do so
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
INDUSTRY RISKS. The restaurant business is affected by changes in consumer
tastes, national, regional and local economic conditions, demographic trends,
traffic patterns and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor, energy and employee
benefit costs, fluctuating insurance rates, national, regional and local
regulations, regional weather conditions, and the availability of experienced
management and hourly employees also may adversely affect the restaurant
industry in general and the Company's restaurants in particular.
COMPETITION. The restaurant industry is intensely competitive with respect
to price, service, location and food quality. The Company will compete with a
variety of other casual full-service dine-in restaurants, fast food restaurants,
take-out food service companies, delicatessens, cafeteria-style buffets, and
other food service establishments. The number of value-oriented, casual dining
restaurants has increased in the past few years, and competitors include
national and regional chains, franchisees of other restaurant chains, and local
owner-operated restaurants. Many competitors have been in existence longer,
have a more established market presence, and substantially greater financial,
marketing, and other resources than the Company. A significant change in
pricing or other business strategies by one or more of the Company's
competitors, including an increase in the number of restaurants in the Company's
territories, could have a materially adverse impact on the Company's sales,
earnings and growth.
DEPENDENCE ON KEY PERSONNEL. The Company's success is dependent to a
significant degree upon the service of John A. Butorac, Jr., President and Chief
Executive Officer of the Company, and James M. Mulrooney, Executive Vice
President and Chief Financial Officer of the Company. The Company maintains key
man life insurance on the life of both Mr. Butorac and Mr. Mulrooney, each in
the principal amount of $2 million. The loss of the service of either of these
persons could have a materially adverse effect upon the Company's business,
operating results and financial condition. See "Management - Directors and
Executive Officers."
GOVERNMENT REGULATION. The restaurant business is subject to extensive
national, state, and local laws and regulations relating to the development and
operation of restaurants, including those regarding the sale of alcoholic
beverages, building and zoning requirements, the preparation and sale of food
and employer-employee relationships, such as minimum wage requirements,
overtime, working and safety requirements, and citizenship requirements. In
addition, the Company is subject to regulation by the Federal Trade Commission
and must comply with certain state laws that govern the offer, sale, and
termination of franchises, the refusal to renew franchises, and the scope of
noncompetition provisions. The failure to obtain or retain food or beverage
licenses or approvals to sell franchises, or an increase in the minimum wage
rate, employee benefits costs (including costs associated with mandated health
insurance coverage), or other costs associated with employees, could adversely
affect the Company.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. Assuming the sale of
700,000 and 1,200,000 shares of Common Stock in the offering, the shares of
Common Stock owned beneficially by Messrs. Butorac and Mulrooney would represent
approximately 38.2% and 35.2%, respectively, of the shares of Common Stock
outstanding upon completion of this offering. The shares of Common Stock owned
beneficially by directors
- 13 -
<PAGE>
and executive officers of the Company would represent approximately 57.4% and
52.9%, respectively, of the outstanding Common Stock, based on the same
assumptions. See "Principal Stockholders." Accordingly, these persons will
have substantial influence over the affairs of the Company, including the
ability collectively to elect directors and approve other matters requiring
stockholder approval.
RELATED PARTY TRANSACTIONS. The Company has entered into transactions with
entities in which members of its board of directors have significant interests,
and may enter into similar transactions with such related parties in the future.
Although all of the past transactions with related parties necessarily involve
conflicts of interest, management of the Company believes that all of the
transactions were entered into on terms comparable to those obtainable from
unrelated third parties, based on a comparison of terms and conditions available
from third parties. The Company's Board of Directors has adopted a policy that
all future transactions between the Company and parties related to its officers,
directors, principal shareholders and affiliates will be approved by the audit
committee of the Board of Directors and generally must be on terms no less
favorable to the Company than those obtainable from unrelated third parties.
See "Certain Transactions."
DILUTION. The purchasers of the Common Stock will experience immediate and
significant dilution in the net tangible book value of their shares. See
"Dilution."
RELATIONSHIP OF OFFERING PRICE TO MARKET PRICE. The initial public offering
price of the Common Stock has been arbitrarily determined by the Company and may
not be indicative of the market price for shares of Common Stock after this
offering. In determining the offering price, the Board of Directors considered,
among other things, the Company's earnings, their view of the Company's
prospects, the earnings of comparable publicly traded casual dining restaurant
companies, and the trading price of the stock of those companies. See "Plan of
Distribution." Prices for the shares of Common Stock after this offering will
be determined in the market and may be influenced by many factors, including the
depth and liquidity of the market for the Common Stock, investor perception of
the Company, the restaurant industry as a whole, and general economic and market
conditions. There can be no assurance that an active trading market for the
Common Stock will develop or be sustained after this Offering.
POSSIBLE VOLATILITY OF STOCK PRICE. The trading price of the Common Stock
could be subject to significant fluctuations in response to factors such as,
among others, variations in the Company's anticipated or actual results of
operations, and announcements of new products by the Company or its competitors.
In addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies in general, and small capitalization and
emerging growth companies in particular, and are often unrelated to their
operating performance. These broad market fluctuations may adversely affect the
market price of the Common Stock.
NO PRIOR MARKET; VOLATILITY OF STOCK MARKET PRICING. Before this offering,
there has been no public market for the Company's Common Stock. The price to
the public has been arbitrarily determined by the Company and may not be
indicative of the market price for the Common Stock after this offering. In
determining the offering price, the Board of Directors considered, among other
things, the Company's earnings, their view of the Company's prospects, the
earnings of comparable publicly traded casual dining restaurant companies, and
the trading price of the stock of those companies. See "Plan of
Distribution--Determination
- 14 -
<PAGE>
of Offering Price." The Company makes no representations as to any objectively
determinable value of the Common Stock. There can be no assurance that an
active trading market for the Common Stock will develop or be sustained after
this offering. The market price of the Common Stock could be subject to
significant fluctuations in response to variations in anticipated or actual
operating results and other events or factors such as food and labor costs and
weather conditions. In addition, the market prices of the stock of small
capitalization companies have experienced significant price fluctuations in
recent years. These fluctuations often have been unrelated to the operating
performance of the specific companies whose stocks are traded. Broad market
fluctuations, as well as general economic conditions, in the United States or
internationally, may adversely affect the market price of the Company's Common
Stock. There can be no assurance that the market price of the Common Stock will
not decline below the initial public offering price. See "Plan of Distribution"
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition."
EFFECTS OF FAILURE TO OBTAIN OR MAINTAIN LISTING ON THE NASDAQ NATIONAL
MARKET. As of the date of this Prospectus, the Company's Common Stock does not
qualify for listing on either the Nasdaq National Market or the Nasdaq SmallCap
Market. The Company earned pre-tax income of more than $1 million in 1997, and
its ability to meet the remaining requirements necessary to qualify the Common
Stock for listing on the Nasdaq National Market will depend on the outcome of
this offering. The requirements for listing on the Nasdaq National Market
include, among other things, that (i) generally, the Company must have pre-tax
income of at least $1 million, (ii) at least 1.1 million shares of Common Stock
must be in the public market float and must have a value of at least $8 million,
(iii) the bid price must be at least $5 per share, (iv) the Company must have
tangible net assets of at least $6 million, (v) generally, Common Stock must be
held by at least 400 shareholders who hold 100 shares or more, and (vi) there
must be at least three authorized Nasdaq market makers for the Common Stock.
Continued inclusion on the Nasdaq National Market requires, among other things,
that (i) at least 750,000 shares of Common Stock must be in the public market
float and must have a value of at least $5 million, (ii) the Company must
maintain tangible net assets of at least $4 million, (iii) generally, the Common
Stock must be held by at least 400 shareholders who hold 100 or more shares,
(iv) the minimum bid price of the Common Stock must be $1 per share and (v)
there must be at least two authorized Nasdaq market makers for the Common Stock.
The requirements for listing on the Nasdaq SmallCap Market are less
stringent than the requirements for listing on the Nasdaq National Market. The
Nasdaq SmallCap Market listing requirements include, among other things, that
(i) the Company have net tangible assets of at least $4 million or net income of
$750,000, (ii) at least 1 million shares of Common Stock must be in the public
market float and must have a value of at least $5 million, (iii) the bid price
must be at least $4 per share, (iv) the Common Stock must be held by at least
300 shareholders holding 100 shares or more, and (v) there must be at least
three authorized Nasdaq market makers for the Common Stock. Continued inclusion
on the Nasdaq SmallCap Market requires, among other things, that (i) the Company
must maintain net tangible assets of at least $2 million or net income of
$500,000, (ii) at least 500,000 shares of the Company's Common Stock must be in
the public float and must have a value of at least $1 million, (iii) generally,
the bid price must be at least $1 per share, (iv) the Common Stock must be held
by at least 300 shareholders holding 100 shares or more, and (v) there must be
at least two authorized Nasdaq market makers for the Common Stock.
There can be no assurance that the Company will be able to satisfy all of
the requirements to obtain a listing of the Common Stock on the Nasdaq National
Market or the Nasdaq SmallCap Market, or once the
- 15 -
<PAGE>
Common Stock is listed on the Nasdaq National Market or the Nasdaq SmallCap
Market that the Company will be able to maintain such a listing. If the Company
is unable to maintain the listing of the Common Stock on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Common Stock may not trade on any
exchange and trading, if any, may be conducted in the over-the-counter markets
on the National Association of Securities Dealers, Inc.'s electronic bulletin
board or on the "pink sheets." In such an event, the liquidity of the Common
Stock could be impaired, not only in the number of shares of Common Stock which
could be bought and sold, but also through possible delays in the timing of the
transactions, reductions in security analysts' and the news media's coverage, if
any, of the Company, and lower prices for the Common Stock than might otherwise
prevail. See "Plan of Distribution."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, there is
expected to be a minimum of 5,845,000 shares and a maximum of 6,345,000 shares
of Common Stock outstanding, depending upon the number of shares of Common Stock
sold in this offering. The Company also intends to grant options to purchase
approximately 400,000 shares of Common Stock to employees and nonemployee
directors, effective upon the completion of this offering. All of the
outstanding shares will be freely tradeable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), may generally be sold only in compliance with the
limitations of Rule 144. The current members of Tumbleweed, LLC, who will
receive a total of 5,145,000 shares of Common Stock upon consummation of the
Reorganization simultaneously with the Initial Closing, have agreed to
contractual restrictions on the resale of 4,373,250 or 85% of their shares
during the nine-month period following the initial closing of the offering. The
possibility that substantial amounts of Common Stock may be sold in the public
market would likely have a material adverse effect on the prevailing market
price of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale."
- 16 -
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,200,000 and 700,000
shares of Common Stock offered by the Company at an initial public offering
price of $10.00 per share are estimated to be $11,000,000 and $6,080,000,
respectively, after deducting the estimated offering expenses payable by the
Company and payment of estimated commissions to Agents.
The Company plans to use the offering proceeds first to repay
approximately $7 million of bank indebtedness, which is an obligation of its
Class A Members as of the date of this Prospectus and is accounted for as
redeemable members' equity. The redeemable members' equity was contributed
to fund a portion of the initial capitalization of the Company and was used
to purchase the Tumbleweed business and assets in January 1995. The
indebtedness bears interest at an annual rate equal to 0.25% above the
lender's "index rate." The current interest rate is 8.75% per year, and the
indebtedness matures on August 3, 1998, which the Company expects will be
extended by several months. The Company expects to use the remaining net
proceeds, estimated to be approximately $4,000,000 if 1,200,000 shares are
sold, together with cash from operations and borrowings, to finance the
development of additional restaurants and for general corporate purposes.
The Company may also use a portion of the net proceeds to expand its
commissary operations to support additional growth and to buy out certain
restaurant leases, should management conclude that such a buy-out would be a
cost-effective use of the Company's financial resources. See "Certain
Transactions -- Leases With Affiliates." Pending such uses, the proceeds will
be invested in short-term, investment-grade, interest-bearing securities.
The Common Stock offered hereby is being sold on a "best efforts" basis.
Therefore, there can be no assurance that the Company will receive the
estimated $11,000,000 in net proceeds anticipated from this offering. If
more than 700,000 but fewer than 1,200,000 shares of Common Stock offered
hereby are sold, the Company will be unable to fund all the intended uses
described herein from the net proceeds anticipated from this offering without
obtaining funds from alternative sources or by using working capital
generated by the Company. Alternative sources of funds may not be available
to the Company at a cost management believes is reasonable, and the amount of
working capital generated internally by the Company may not be sufficient to
finance any intended uses not funded by offering proceeds. To the extent
that the Company receives less than the $11,000,000 in net proceeds after the
payment of all expenses related to the offering hereby, the Company will
first use any net proceeds to repay the bank indebtedness currently recorded
as redeemable members' equity of its Class A Members. The remaining portion
of the net offering proceeds, if any, will be used for such of the other
purposes described above as the Company's management, in its discretion,
deems appropriate.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future earnings
to finance the development of additional restaurants and the growth of its
business generally. The ability of the Company to pay dividends in the future
will depend upon earnings levels, capital needs, applicable covenants in the
Company's loan agreements, general business conditions, and other factors deemed
relevant from time to time by the Company's Board of Directors.
- 17 -
<PAGE>
Before this offering, Tumbleweed, LLC has made periodic distributions to
its members in accordance with their respective ownership interests in
Tumbleweed, LLC under its operating agreement in amounts sufficient to pay
income taxes payable on earnings of Tumbleweed, LLC and interest payable by
Class A members on bank debt constituting redeemable members' equity. In 1997,
Tumbleweed, LLC distributed approximately $576,000 to its members. During the
first quarter of 1998, Tumbleweed, LLC distributed approximately $445,000 to its
members. Tumbleweed, LLC expects to distribute approximately $600,000 to its
members for taxes and interest payable through the date the Reorganization takes
effect. All distributions to members have been and will be funded by cash
provided from operations.
DILUTION
The net tangible book value of the Company at March 31, 1998, was
$5,606,000 or $1.09 per share of Common Stock, on a pro forma basis as if the
Reorganization had occurred on that date, including payment of capital
contributions totaling $747,500 by certain Class B Members as of the time the
Reorganization becomes effective. Net tangible book value per share is equal to
the Company's total tangible assets (total assets less intangible assets) less
total liabilities and redeemable members' equity, divided by the number of
shares of Common Stock outstanding.
After giving effect to the sale by the Company of the minimum of 700,000
shares offered hereby at an assumed initial offering price of $10.00 per share,
and after deducting the estimated offering expenses payable by the Company, the
net tangible book value of the Company at March 31, 1998 would have been
$11,686,000, or $2.00 per share of Common Stock. This represents an immediate
increase in net tangible book value of $0.91 per share to the existing
stockholders, and an immediate dilution of $8.00 per share to new investors.
The following table illustrates this dilution:
<TABLE>
<CAPTION>
MINIMUM OF 700,000 SHARES SOLD:
<S> <C> <C>
Public offering price per share . . . . . . . . . . . . . . $10.00
Net tangible book value per share before the
offering . . . . . . . . . . . . . . . . . . . . . . . $1.09
Increase per share attributable to new
investors . . . . . . . . . . . . . . . . . . . . . . 0.91
------
Net tangible book value per share after the offering . . . 2.00
------
Dilution per share . . . . . . . . . . . . . . . . . . . . $8.00
------
------
</TABLE>
After giving effect to the sale by the Company of all of the 1,200,000
shares offered hereby at an assumed initial offering price of $10.00 per share,
and after deducting the estimated offering expenses payable by the Company, the
net tangible book value of the Company at March 31, 1998 would have been
$16,606,000, or $2.62 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.53 per share to the existing
stockholders, and an immediate dilution of $7.38 per share to new investors.
The following table illustrates this dilution:
MAXIMUM OF 1,200,000 SHARES SOLD:
- 18 -
<PAGE>
<TABLE>
<S> <C> <C>
Public offering price per share . . . . . . . . . . . . . . . . . . $10.00
Net tangible book value per share before the offering . . . . $1.09
Increase per share attributable to new investors . . . . . . . . . 1.53
----------
Net tangible book value per share after the offering . . . . . . . 2.62
----------
Dilution per share . . . . . . . . . . . . . . . . . . . . . . . . $7.38
----------
----------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid by
existing stockholders and to be paid by investors in this offering based on an
assumed initial offering price of $10.00 per share and before offering expenses
payable by the Company. The first table reflects the sale by the Company of the
minimum of 700,000 shares of the 1,200,000 shares of Common Stock offered hereby
and the second table reflects the sale by the Company of all of the 1,200,000
shares of Common Stock offered hereby.
MINIMUM OF 700,000 SHARES SOLD:
<TABLE>
<CAPTION>
SHARES OWNED TOTAL CONSIDERATION AVERAGE
------------------------ ----------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Current stockholders . . . . . . . . . 5,145,000 88% $ 7,790,000(1) 53% $ 1.51
New investors . . . . . . . . . . . . . 700,000 12 7,000,000 47 10.00
--------- ---- ----------- ----
Total . . . . . . . . . . . . . . 5,845,000 100% $14,790,000 100% $ 2.53
--------- ---- ----------- ----
--------- ---- ----------- ----
<CAPTION>
MAXIMUM OF 1,200,000 SHARES SOLD:
SHARES OWNED TOTAL CONSIDERATION AVERAGE
------------------------ ----------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ----------
Current stockholders . . . . . . . . . 5,145,000 81% $ 7,790,000(1) 39% $ 1.51
New investors . . . . . . . . . . . . . 1,200,000 19 12,000,000 61 10.00
--------- ---- ----------- ----
Total . . . . . . . . . . . . . . 6,345,000 100% $ 19,790,000 100% $ 3.12
--------- ---- ----------- ----
--------- ---- ----------- ----
</TABLE>
- -----------------------
(1) Represents the initial capital contributions by Class A, Class B, Class C
and Common Members, plus the capital contribution of $747,500 by the Class
B Members as of the time the Reorganization becomes effective.
- 19 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on a pro forma basis as if the Reorganization had occurred on
that date, (ii) as adjusted to reflect the sale by the Company of a minimum of
700,000 and a maximum of 1,200,000 shares at an assumed initial offering price
of $10.00 per share, and the application of the estimated net proceeds therefrom
after deducting estimated commissions payable to agents of $120,000 and
$200,000, respectively, and estimated offering expenses payable by the Company,
and the capital contribution of $747,500 by certain Class B Members as of the
time the Reorganization takes effect. See "History and Pending Reorganization,"
and "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------------
AS AS
PRO ADJUSTED ADJUSTED
ACTUAL FORMA(1) (MINIMUM) (2) (MAXIMUM)(3)
------ -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt and capital lease obligations (including
current maturities) . . . . . . . . . . . . . . . . . . . . . $10,195 $10,195 $10,585 $10,195
Redeemable members' equity . . . . . . . . . . . . . . . . . . . 24,062 7,218 - -
Members' equity . . . . . . . . . . . . . . . . . . . . . . . . . 7 - - -
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . (8,635) - - -
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding . . . . . . . . - - - -
Common Stock, $0.01 par value, 30,000,000 shares
authorized; 5,145,000 shares outstanding, pro forma;
5,845,000 shares outstanding, as adjusted (minimum) and
6,345,000 shares outstanding, as adjusted (maximum)(4) . . . - 51 58 63
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . - 7,723 14,544 19,459
------- ------- ------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . - 7,774 14,602 19,522
------- ------- ------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $25,629 $25,187 $25,187 $29,717
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- -----------------------
(1) Gives effect to (i) the conversion of redeemable members' equity and
members' equity to stockholders' equity, including the elimination of
$11,836,000 of accretion in redeemable members' equity related to Class A
Member put options, upon the conversion of the Company's members' interests
into 5,145,000 shares of Common Stock, and (ii) establishment of a
deferred tax liability of $442,000 in connection with the termination of
the Company's limited liability company status.
(2) Reflects the net proceeds of the sale of 700,000 shares of Common Stock
($6,080,000), the capital contribution of $747,500 by certain Class B
Members and borrowings of $390,000, all used to repay indebtedness
currently recorded as redeemable members' equity. See "Use of Proceeds."
(3) Reflects the net proceeds of the sale of 1,200,000 shares of Common Stock
($11,000,000), the capital contribution of $747,500 by certain Class B
Members, used principally to repay indebtedness currently recorded as
redeemable members' equity. See "Use of Proceeds."
(4) Excludes approximately 400,000 shares of Common Stock issuable to employees
and nonemployee directors upon the exercise of stock options to be granted
under the Company's stock incentive plan effective upon completion of this
offering. See "Management -- Stock Incentive Plan" and " -- Directors
Compensation."
- 20 -
<PAGE>
SELECTED FINANCIAL DATA
In the following table, the income statement and balance sheet data of: (i)
the Predecessor for the years ended December 31, 1993 and 1994 have been derived
from the financial statements of the Predecessor which were audited by
Predecessor's independent auditors; (ii) Tumbleweed, LLC for the years ended
December 31, 1995, 1996 and 1997 have been derived from the financial statements
of Tumbleweed, LLC which have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is included elsewhere in this Prospectus; and
(iii) Tumbleweed, LLC for the quarters ended March 31, 1997 and 1998, which are
unaudited but in the opinion of management were prepared on the same basis as
the audited financial statements included herein and reflect all adjustments
(consisting of normal and recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial information set
forth therein. The information set forth below should be read in conjunction
with, and are qualified in their entirety by, the financial statements (and the
notes thereto), and other financial information appearing elsewhere in this
Prospectus and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------- THREE MONTHS
PREDECESSOR TUMBLEWEED, LLC ENDED MARCH 31,
-------------------------- ----------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (1)
Revenues:
Restaurant sales $12,381,146 $14,147,124 $17,254,058 $23,284,007 $27,891,128 $6,538,745 $8,409,122
Commissary sales 1,195,829 1,500,732 1,574,847 1,795,529 1,007,011 372,391 250,866
Franchise fees and
royalties 373,088 442,122 540,157 474,870 563,056 115,356 185,187
Other revenues 81,422 108,000 177,960 177,317 365,054 83,451 62,702
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues 14,031,485 16,197,978 19,547,022 25,731,723 29,826,249 7,109,943 8,907,877
Operating expenses:
Restaurant cost of sales 3,927,955 4,280,691 5,132,549 7,103,357 8,191,928 1,905,202 2,388,418
Commissary cost of sales 939,950 1,297,045 1,424,077 1,649,502 887,793 333,679 210,891
Operating expenses 6,095,002 7,133,174 8,896,704 12,386,119 14,035,693 3,459,311 4,487,175
Selling, general and
administrative 1,391,500 1,682,395 1,962,036 2,250,827 3,051,740 675,592 939,872
Depreciation and
amortization 450,943 563,195 1,033,349 1,231,290 971,863 224,055 300,562
Preopening amortization 225,569 175,405 149,138 405,502 544,723 172,131 96,950
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 13,030,919 15,131,905 18,597,853 25,026,597 27,683,740 6,769,970 8,423,868
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations 1,000,566 1,066,073 949,169 705,126 2,142,509 339,973 484,009
Interest expense, net (177,237) (270,258) (266,530) (203,810) (428,598) (110,451) (141,862)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 823,329 $ 795,815 $ 682,639 $ 501,316 $1,713,911 $ 229,522 $ 342,147
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
- 21 -
<PAGE>
Historical net income $1,713,911 $229,522 $342,147
Pro forma income taxes(2) (617,008) (82,628) (123,173)
---------- ---------- ----------
Pro forma net income $1,096,903 $146,894 $218,974
---------- ---------- ----------
---------- ---------- ----------
Pro forma net income per
share - basic and diluted $0.21 $0.03 $0.04
Weighted average shares 5,145,000 5,145,000 5,145,000
outstanding(3)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
ACTUAL PRO FORMA(4) (MINIMUM)(5) (MAXIMUM)(6)
BALANCE SHEET DATA: ----- ------------ -------------- (IN THOUSANDS)
--------------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . $27,781 $27,781 $27,781 $32,311
Long-term debt and capital lease
obligations, including current
maturities . . . . . . . . . . . . . . 10,195 10,195 10,585 10,195
Total liabilities . . . . . . . . . . . . 12,346 12,788 13,178 12,788
Redeemable members' equity . . . . . . . 24,062 7,218 -- --
Members' equity . . . . . . . . . . . . . 7 -- -- --
Retained earnings (deficit) . . . . . . . (8,635) -- -- --
Pro forma stockholders' equity . . . . . -- 7,774 14,602 19,522
</TABLE>
- -----------
(1) Historical data of the Company prior to the Reorganization.
(2) Prior to the Reorganization, the Company operated as a limited liability
company and was not subject to corporate income taxes. Pro forma
adjustment has been made to net income to give effect to federal and state
income taxes as though the Company had been subject to corporate income
taxes for the periods presented with an effective tax rate of 36%.
(3) Shares outstanding gives effect to the Reorganization as if it had occurred
as of January 1, 1997. See "History and Pending Reorganization."
(4) Reflects the establishment of a deferred tax liability of $442,000 assuming
the termination of the Company's limited liability company status on March
31, 1998 and the conversion of the Company's members' interests into
5,145,000 shares of Company Common Stock. See "History and Pending
Reorganization."
(5) Adjusted to reflect the capital contribution of $747,500 by certain Class B
Members as of the effective time of the Reorganization, the net proceeds of
the sale by the Company of 700,000 shares of Common Stock at an assumed
initial public offering price of $10.00 per share, and the use of the net
proceeds and the borrowing of $390,000 to repay indebtedness currently
recorded as redeemable members' equity. See "Use of Proceeds" and
"History and Pending Reorganization."
(6) Adjusted to reflect the capital contribution of $747,500 by certain Class B
Members and the net proceeds of the sale by the Company of 1,200,000 shares
of Common Stock at an assumed initial public offering price of $10.00 per
share, and the use of the net proceeds to repay indebtedness currently
recorded as redeemable members' equity and for other corporate purposes.
See "Use of Proceeds" and "History and Pending Reorganization."
- 22 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below and in "Risk Factors," "Use
of Proceeds" and "Business" includes forward-looking statements about the
Company and its business. Factors that realistically could cause results to
differ materially from those projected in the forward-looking statements are set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" below and in "Risk Factors."
GENERAL
Of the 37 Tumbleweed restaurants as of May 31, 1998, the Company currently
owns and operates 22 restaurants in Kentucky, Indiana and Ohio, franchises 13
restaurants in Indiana, Illinois, Tennessee and Wisconsin, and licenses one
restaurant in each of Germany and Saudi Arabia. The Company anticipates opening
five additional Company-owned restaurants and three additional franchised
restaurants in the United States, and two additional licensed restaurants
outside of the United States by the end of 1998. The Company acquired the
Tumbleweed business and other assets effective on January 1, 1995. See "History
and Pending Reorganization."
Immediately before the offering, Tumbleweed, LLC will convert from a
limited liability company into a C corporation by merging with Tumbleweed, Inc.,
a Delaware corporation formed on December 17, 1997. See "History and Pending
Reorganization." As a limited liability company, the Company has been treated
as a partnership for income tax purposes and, accordingly, has incurred no
federal or state income tax liability. The discussion of financial condition and
results of operations included in the paragraphs that follow reflect a pro forma
adjustment for federal and state income taxes that would have been recorded
during these periods if the Company had been subject to corporate income taxes
for the periods presented.
The following section should be read in conjunction with "Summary Financial
Data," "Summary Restaurant Data" and "Selected Financial Data" included
elsewhere herein and the Company's financial statements and the related notes
thereto included elsewhere in this Prospectus. See "Index to Financial
Statements."
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues of certain income statement data, except where noted, for the periods
indicated.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales 88.2% 90.5% 93.5% 92.0% 94.4%
Commissary sales 8.1 7.0 3.4 5.2 2.8
Franchise fees and royalties 2.8 1.8 1.9 1.6 2.1
Other revenues 0.9 0.7 1.2 1.2 0.7
----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Restaurant cost of sales(1) 29.7 30.5 29.4 29.1 28.4
Commissary cost of sales(2) 90.4 91.9 88.2 89.6 84.1
Operating expenses(1) 51.6 53.2 50.3 52.9 53.4
Selling, general and
administrative 10.0 8.7 10.2 9.5 10.5
Depreciation and amortization 5.3 4.8 3.3 3.2 3.4
Preopening amortization 0.8 1.6 1.8 2.4 1.1
----- ----- ----- ----- -----
Total operating expenses 95.1 97.3 92.8 95.2 94.6
----- ----- ----- ----- -----
Income from operations 4.9 2.7 7.2 4.8 5.4
Interest expense, net 1.4 0.8 1.4 1.6 1.6
----- ----- ----- ----- -----
Net income 3.5% 1.9% 5.8% 3.2% 3.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Historical net income 5.8% 3.2% 3.8%
Unaudited pro forma income taxes(3) 2.1 1.2 1.4
----- ----- -----
Unaudited pro forma net income 3.7% 2.0% 2.4%
----- ----- -----
----- ----- -----
</TABLE>
- ---------------------
(1) As percentage of restaurant sales.
(2) As percentage of commissary sales.
(3) The unaudited pro forma income taxes reflect the effect of Reorganization
on the historical net income assuming the Company was taxed as a C
corporation for income tax purposes with an assumed combined federal and
state effective tax rate of 36%.
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
Total revenues increased by $1,797,934 to $8,907,877 or 25.3% for the three
months ended March 31, 1998 compared to $7,109,943 in the three months ended
March 31, 1997. The increase in total revenues reflects the opening of six
additional Company-owned restaurants since March 31, 1997. Restaurant sales at
Company-owned restaurants increased $1,870,377 to $8,409,122 or 28.6% for the
three months ended March 31, 1998 compared to $6,538,745 for the same period in
1997. Company-owned same store sales increased by 1.8% for the three months
ended March 31, 1998 compared to the same period in 1997.
Commissary sales to franchised restaurants decreased by $121,525 to
$250,866 or 32.6% for the three months ended March 31, 1998, compared to
$372,391 for the three months ended March 31, 1997. This was primarily due to
the decision to discontinue commissary sales of products not manufactured by the
commissary.
-24 -
<PAGE>
Franchise fees and royalties increased by $69,831 to $185,187 or 60.5% for
the three months ended March 31, 1998, compared to $115,356 for the three months
ended March 31, 1997. The increase was due primarily to a $35,000 franchise fee
received upon the opening of one new franchised restaurant and additional
royalties from three franchised restaurants opened since March 31, 1997.
Other revenues decreased by $20,749 to $62,702 or 24.9% for the three
months ended March 31, 1998 compared to $83,451 for the three months ended March
31, 1997. In 1997, the Company received proceeds of $69,000 from its business
interruption insurance as a result of flooding at a Company-owned restaurant.
Vendor rebates increased during the first three months of 1998, which reduced
the difference in other revenues from 1997.
Cost of restaurant sales at Company-owned restaurants increased by $483,216
to $2,388,418 or 25.4% for the three months ended March 31, 1998, compared to
$1,905,202 for the three months ended March 31, 1997. The increase was
principally due to the opening of six additional Company-owned restaurants and
the increase in Company-owned same store sales. Cost of restaurant sales
decreased as a percentage of restaurant sales by 0.7% to 28.4% for Company-owned
restaurants for the three months ended March 31, 1998 compared to 29.1% for the
same period in 1997. This decrease primarily resulted from improved operating
efficiencies in the commissary and increased rebates, which effectively lowered
costs at store level.
Commissary cost of sales decreased $122,788 to $210,891 or 36.8% for the
three months ended March 31, 1998 compared to $333,679 for the three months
ended March 31, 1997. The decrease was primarily due to the decision to
discontinue commissary sales of products not manufactured by the commissary.
Operating expenses at Company-owned restaurants increased by $1,027,864 to
$4,487,175 or 29.7% in the three months ended March 31, 1998 compared to
$3,459,311 for the same period in 1997. The increase reflects the addition of
six Company-owned restaurants and the increase in Company-owned same store
sales. Operating expenses increased as a percentage of restaurant sales to 53.4%
for the three months ended March 31, 1998 compared to 52.9% for same period in
1997 primarily due to a 1.2% increase in freight and a 0.7% increase in
store-level promotional costs. These costs were offset in part by a 1.0%
decrease in labor costs and a 0.4% decrease in utility costs.
Selling, general and administrative expenses increased by $264,280 to
$939,872 or 39.1% for the three months ended March 31, 1998 compared to $675,592
for the three months ended March 31, 1997. The increase was due in part to the
addition of management and staff personnel in accounting, training, information
systems and operations during the first quarter of 1998 to support the growing
restaurant base. Because of the Company's expansion plans and the increase in
restaurant sales expected to result therefrom, management expects selling,
general and administrative expenses to continue to increase during 1998 in
absolute dollars. For a discussion of factors affecting the Company's plans to
open additional restaurants, see "Liquidity and Capital Resources."
Preopening amortization decreased $75,181 to $96,950 or 43.7% for the three
months ended March 31, 1998 compared to $172,131 for the three months ended
March 31, 1997. Pre-opening expenses were being amortized for two fewer
restaurants in the first three months of 1998 than in the first three months of
1997.
-25 -
<PAGE>
Depreciation and amortization expense increased $76,507 to $300,562 or
34.1% in the three months ended March 31, 1998 compared to $224,055 for the
three months ended March 31, 1997 due primarily to the addition of six
restaurants.
Net interest expense increased $31,411 to $141,862 or 28.4% for the three
months ended March 31, 1998 compared to $110,451 for the three months ended
March 31, 1997. The increase primarily resulted from increased borrowing to
fund growth in the number of restaurants in operation and the incremental costs
associated with such growth.
The pro forma adjustment provides for statutory federal and state tax rates
then in effect as though the Company had been subject to corporate income taxes
for the periods presented. The combined effective tax rate is 36% for the three
months ended March 31, 1998 and 1997.
As a result of the factors discussed above, pro forma net income in the
three months ended March 31, 1998 increased $72,080 or 49.1% to $218,974 or 2.4%
of revenues from $146,894 or 2.0% of revenues in the three months ended March
31, 1997. Pro forma net income per share increased $.01 or 33% in the first
three months of 1998 to $.04 from $.03 in the first three months of 1997.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Total revenues increased by $4,094,526 to $29,826,249 or 15.9% in 1997
compared to $25,731,723 in 1996, primarily due to an increase in the number of
Company-owned restaurants. Restaurant sales at Company-owned restaurants
increased $4,607,121 to $27,891,128 or 19.8% in 1997 compared to $23,284,007 in
1996. This increase was largely the result of the opening of two Company-owned
restaurants in 1997 and three Company-owned restaurants late in 1996.
Company-owned same store sales increased 4.4% in 1997 compared to 1996.
Commissary sales to franchised restaurants decreased by $788,518 to
$1,007,011 or 43.9% in 1997 compared to $1,795,529 in 1996. The decrease was
primarily due to the decision to discontinue selling products not manufactured
by the commissary.
Franchise fees and royalties increased $88,186 to $563,056 or 18.6% in 1997
compared to $474,870 in 1996. The increase was due to an approximate $70,000
increase in franchise fees for two additional franchised restaurants opened in
1997 and an additional $18,000 in royalties.
Other revenues increased $187,737 to $365,054 or 105.9% in 1997 compared to
$177,317 in 1996. In 1997, the Company received proceeds of $175,500 from
business interruption insurance as a result of flooding at a Company-owned
restaurant and an increase in rebate income from suppliers of approximately
$80,000 in 1997. These increases were offset in part by the gain on the sale of
the Company's food court operations of $71,300 in 1996.
Cost of restaurant sales at Company-owned restaurants increased by
$1,088,571 to $8,191,928 or 15.3% in 1997 compared to $7,103,357 in 1996. The
increase reflects the opening of two additional Company-owned restaurants in
1997 and three Company-owned restaurants late in 1996 and an increase in
Company-
- 26 -
<PAGE>
owned same store sales. Cost of restaurant sales decreased as a percentage of
restaurant sales by 1.1% to 29.4% in 1997 compared to 30.5% in 1996. This
decrease was due primarily to lower cheese, beef and produce prices.
Commissary cost of sales decreased $761,709 to $887,793 or 46.2% in 1997
compared to $1,649,502 in 1996. The decrease reflects the decision to
discontinue commissary sales of products not manufactured by the commissary.
Operating expenses at Company-owned restaurants increased $1,649,574 to
$14,035,693 or 13.3% in 1997 compared to $12,386,119 in 1996, principally due to
the addition of Company-owned restaurants and an increase in Company-owned same
store sales. Operating expenses decreased as a percentage of restaurant sales to
50.3% in 1997 compared to 53.2% in 1996, primarily the result of a 1.2% decrease
in restaurant labor costs and a 1.5% decrease in restaurant-level promotional
expenses.
Selling, general and administrative expenses increased by $800,913 to
$3,051,740 or 35.6% in 1997 compared to $2,250,827 in 1996. The increase
reflects growth in the Company's management and staff personnel in accounting,
operations, training and purchasing during 1997 to support the growing
restaurant base. The percentage to revenue was 1.5% higher at 10.2% in 1997
compared to 8.7% in 1996. The increase was due to additional staffing required
for new restaurant openings planned for the first quarter of 1998.
Depreciation and amortization expense decreased $259,427 to $971,863 or
21.1% in 1997 compared to $1,231,290 in 1996. Amortization expense related to
noncompetition agreements decreased by $500,000 in 1997, but was offset in part
by increased depreciation resulting from additional Company-owned restaurants.
Preopening amortization increased $139,221 to $544,723 or 34.3% in 1997
compared to $405,502 in 1996. Preopening expenses for more Company-owned
restaurants were amortized in 1997 than in 1996.
Net interest expense increased $224,788 to $428,598 or 110.3% in 1997
compared to $203,810 in 1996, primarily the result of growth in the number of
restaurants in operation and the incremental costs associated with such growth.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenues increased by $6,184,701 to $25,731,723 or 31.6% in 1996
compared to $19,547,022 in 1995, primarily due to the increased number of
Company-owned restaurants. Restaurant sales at Company-owned restaurants
increased $6,029,949 to $23,284,007 or 34.9% in 1996 compared to $17,254,058 in
1995. This increase was largely the result of the opening of five additional
Company-owned restaurants. Company-owned same store sales increased 4.0% in 1996
compared to 1995.
Commissary sales to franchised restaurants increased by $220,682 to
$1,795,529 or 14.0% in 1996 compared to $1,574,847 in 1995, primarily due to the
addition of two franchised restaurants for the full year of 1996.
- 27 -
<PAGE>
Franchise fees and royalties decreased $65,287 to $474,870 or 12.1% in 1996
compared to $540,157 in 1995. Franchise fees decreased by $105,000 in 1996, the
result of opening three franchise restaurants in 1995 compared to none in 1996,
offset in part by a $48,000 increase in royalties for 1996.
Other revenues decreased $643 to $177,317 or 0.4% in 1996 compared to
$177,960 in 1995. The gain on the sale of the food court operations in 1996
totaled $71,300, which offset the higher vendor rebates received in 1995.
Cost of restaurant sales at Company-owned restaurants increased by
$1,970,808 to $7,103,357 or 38.4% in 1996 compared to $5,132,549 in 1995. The
increase reflects the opening of five additional Company-owned restaurants and
an increase in Company-owned same store sales of 4.0%. Cost of restaurant sales
increased as a percentage of restaurant sales by 0.8% to 30.5% in 1996 compared
to 29.7% in 1995. A change in the American food sales mix (29.2% of food sales
in 1996 versus 20.8% in 1995) resulted in an 0.8% increase in food cost. This
increase in American food sales, with a higher food cost than Mexican food
sales, occurred primarily in the Company's newer markets.
Commissary cost of sales increased $225,425 to $1,649,502 or 15.8% in 1996
compared to $1,424,077 in 1995, reflecting the two additional franchised
restaurants open for the full year in 1996.
Operating expenses at Company-owned restaurants increased $3,489,415 to
$12,386,119 or 39.2% in 1996 compared to $8,896,704 in 1995. The increase
reflects the opening of five additional Company-owned restaurants in 1996 and an
increase in Company-owned same store sales. Operating expenses increased as a
percentage of restaurant sales to 53.2% in 1996 compared to 51.6% in 1995,
primarily the result of 1.1% higher occupancy costs (land and building leases
1.0%; real estate 0.1%) and 0.4% higher freight costs. Land and building leases
and real estate taxes are generally fixed and do not vary proportionately with
sales. With the addition of three lower-volume restaurants in late 1995 and
early 1996, the percentage of operating expenses to restaurant sales increased.
Selling, general and administrative expenses increased by $288,791 to
$2,250,827 or 14.7% in 1996 compared to $1,962,036 in 1995. The increase
reflects the addition of management and staff personnel in operations, training
and purchasing during 1996 to support the Company's growing restaurant base.
Although these expenses increased significantly in absolute dollars over 1995,
the percentage to revenue was 1.3% lower at 8.7% in 1996 compared to 10.0% in
1995.
Depreciation and amortization expense increased $197,941 to $1,231,290 or
19.2% in 1996 compared to $1,033,349 in 1995, due to the addition of five
restaurants in 1996.
Preopening amortization increased $256,364 to $405,502 or 171.9% in 1996
compared to $149,138 in 1995. The preopening costs of five additional
Company-owned restaurants were amortized in 1996.
Net interest expense decreased $62,720 to $203,810 or 23.5% in 1996
compared to $266,530 in 1995. This was due in part to higher capitalized
interest allocated to construction projects offset in part by additional expense
incurred due to increased borrowings resulting from more restaurants in
operation and the incremental cost associated with the increase.
- 28 -
<PAGE>
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could affect the Company's operations. A majority of the
Company's employees are paid hourly rates related to federal and state minimum
wage laws. In addition, most of the Company's leases require the Company to pay
taxes, insurance, maintenance, repairs and utility costs, and these costs are
subject to inflationary pressures. Most of the leases also provide for increases
in rent based on increases in the consumer price index when the leases are
renewed. The Company may attempt to offset the effect of inflation through
periodic menu price increases, economies of scale in purchasing and cost
controls and efficiencies at existing restaurants. Management believes that
inflation has had no significant impact on costs during the last two years,
primarily because the largest single item of expense, food costs, has remained
relatively stable during this period.
QUARTERLY FINANCIAL AND RESTAURANT OPERATING DATA
The following is a summary of certain unaudited quarterly results of
operations for each of the last two fiscal years and as of and for the three
months ended March 31, 1998:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Total
------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C>
CALENDAR YEAR 1996
Restaurant sales $ 5,157,484 $ 5,676,354 $ 6,206,517 $ 6,243,652 $ 23,284,007
Total revenues 5,674,062 6,243,360 6,905,255 6,909,046 25,731,723
Net income 62,312 35,564 106,970 296,470 501,316
Company-owned restaurants in
operation at end of quarter 12 12 13 15 15
CALENDAR YEAR 1997
Restaurant sales $ 6,538,745 $ 6,682,908 $ 7,300,641 $ 7,368,834 $ 27,891,128
Total revenues 7,109,943 7,126,990 7,721,716 7,867,600 29,826,249
Income before taxes 229,522 519,997 532,005 432,387 1,713,911
Pro forma net income 146,894 332,798 340,483 276,728 1,096,903
Company-owned restaurants in
operation at end of quarter 15 15 16 17 17
CALENDAR YEAR 1998
Restaurant sales $ 8,409,122 $ 8,409,122
Total revenues 8,907,877 8,907,877
Income before taxes 342,147 342,147
Pro forma net income 218,974 218,974
Company-owned restaurants in
operation at end of quarter 21
</TABLE>
- 29 -
<PAGE>
IMPACT OF YEAR 2000
The Company has scheduled the replacement of certain of its older computer
systems with hardware and software that has been certified to be Year 2000
compliant. The Company has also completed an assessment of its other computer
systems and will modify or replace portions of its software so that its computer
systems will function properly with respect to dates in or after the year 2000.
The total Year 2000 project cost is estimated at approximately $150,000, which
includes $120,000 for the purchase of new hardware and software that will be
capitalized and $30,000 that will be expensed as incurred. To date, the Company
has not incurred any expense relating to the Year 2000 project.
The project is estimated to be completed not later than June 1999, which is
prior to any anticipated impact on its operating systems. The Company believes
that as a result of the installation of new hardware, the modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed timely,
inability of its computer systems to function accurately could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were based on numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
CHANGE IN ACCOUNTING PRINCIPLE
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position,
"REPORTING ON THE COSTS OF START-UP ACTIVITIES" (the "SOP"), which requires
adoption no later than the beginning of 1999. The Company's initial application
of the SOP will require the write-off of deferred preopening costs ($267,100 at
January 1, 1998) as of the date of adoption, which will be reported, on a net of
tax basis, as the cumulative effect of a change in accounting principle. The
Company is evaluating whether it will adopt this new standard in 1998 or 1999.
After adoption, the Company will be required to expense preopening costs as
incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to expand the number of its restaurants will depend
on a number of factors, including the selection and availability of quality
restaurant sites, the negotiation of acceptable lease or purchase terms, the
securing of required governmental permits and approvals, the adequate
supervision of construction, the hiring, training and retaining of skilled
management and other personnel, the availability of adequate financing and other
factors, many of which are beyond the control of the Company. The hiring and
retention of management and other personnel may be difficult given the low
unemployment rates in the areas in which the Company intends to operate. There
can be no assurance that the Company will be successful in
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<PAGE>
opening the number of restaurants anticipated in a timely manner. Furthermore,
there can be no assurance that the Company's new restaurants will generate sales
revenue or profit margins consistent with those of the Company's existing
restaurants, or that these new restaurants will be operated profitably.
The Company's principal capital needs arise from the development of new
restaurants, and to a lesser extent, maintenance and improvement of its existing
facilities. Prior to this offering, the principal sources of capital to fund
these expenditures were members' contributions, internally generated cash flow,
bank borrowings and lease financing. The following table provides certain
information regarding the Company's sources and uses of capital for the periods
presented:
<TABLE>
<CAPTION>
YEARS THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- -------------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operations $1,408,259 $1,069,979 $3,034,342 $357,602 $ 214,805
Purchase of business, net of cash
acquired 9,963,544 - - - -
Purchases of property and equipment 2,915,957 4,712,962 4,098,595 872,673 2,176,037
Proceeds from sale of property and
equipment 1,526,000 1,635,815 - - -
Net proceeds (distributions) of
members' equity 12,896,188 (45,715) (525,002) (150,000) (251,447)
Net borrowings (repayments) on long-
term debt and capital lease (869,829) 905,201 1,797,898 398,870 1,443,169
obligations
</TABLE>
Since the acquisition of the Tumbleweed business, the Company's single
largest use of funds has been for capital expenditures consisting of land,
building and equipment associated with its restaurant expansion program. The
substantial growth of the Company over the period has not required significant
additional working capital. Sales are predominantly cash and the business does
not require the maintenance of significant receivables or inventories. In
addition, it is common within the restaurant industry to receive trade credit on
the purchase of food, beverage and supplies, thereby reducing the need for
incremental working capital to support sales increases.
The Company both owns and leases its restaurant facilities. Management
determines whether to acquire or lease a restaurant facility based on its
evaluation of the financing alternatives available for a particular site. The
following table summarizes the estimated development costs for each prototype
Tumbleweed restaurant:
- 31 -
<PAGE>
<TABLE>
<CAPTION>
Maxi Midi Mini
---- ---- ----
<S> <C> <C> <C>
Land acquisition $ 650,000 $ 500,000 $ 250,000
Construction 900,000 750,000 450,000
Equipment 300,000 275,000 200,000
Other 50,000 40,000 25,000
--------- --------- ---------
Subtotal 1,900,000 1,565,000 925,000
Preopening 140,000 140,000 84,000
--------- --------- ---------
Total $ 2,040,000 $ 1,705,000 $ 1,009,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
Land acquisition costs, excluding site preparation, are the most variable
development costs and average approximately $500,000. The cost of development
for a new restaurant will not include land acquisition costs if the property is
leased rather than purchased. The Company plans to open five Company-owned
Tumbleweed restaurants during the remainder of 1998, depending on the
availability of quality sites, the hiring and training of sufficiently skilled
management and other personnel, and other factors.
Capital expenditures and preopening costs for the remainder of 1998 are
estimated to range from $7 million to $8 million for the development of five new
restaurants. In addition, the Company plans to spend approximately $200,000
during the remainder of 1998 to renovate and replace equipment in existing
restaurants.
The Company has a $5.0 million revolving credit facility with National City
Bank (the "Credit Facility"). As of March 31, 1998, the Company had outstanding
borrowings under the Credit Facility of approximately $4,070,000. The Credit
Facility imposes restrictions on the Company with respect to the maintenance of
certain financial ratios, the incurrence of indebtedness, the sale of assets,
mergers, capital expenditures and the payment of dividends.
Management believes that the net proceeds of this offering assuming that at
least the minimum number of shares are sold, together with available cash
reserves, cash provided from operations and borrowing capacity, will be
sufficient to fund the Company's expansion plans through 1998. Should the
Company's actual results of operations fall short of, or its rate of expansion
significantly exceed its plans, or should its costs or capital expenditures
exceed expectations, the Company may need to seek additional financing in the
future. In negotiating such financing, there can be no assurance that the
Company will be able to raise additional capital on terms satisfactory to the
Company.
In order to provide any additional funds necessary to pursue the Company's
growth strategy, the Company may incur, from time to time, additional short and
long-term bank indebtedness and may issue, in public or private transactions,
its equity and debt securities, the availability and terms of which will depend
upon market and other conditions. There can be no assurance that such additional
financing will be available on terms acceptable to the Company.
- 32 -
<PAGE>
BUSINESS
GENERAL
Tumbleweed-Registered Trademark- Southwest Mesquite Grill & Bar restaurants
feature sophisticated Tex-Mex and mesquite grilled food served in a casual
dining atmosphere evoking the American Southwest. Tumbleweed restaurants are
open seven days a week for lunch and dinner and generally offer a full service
bar.
The Tumbleweed system currently consists of 37 full-service restaurants.
The Company currently owns and operates 22 restaurants in Kentucky, Indiana and
Ohio, and franchises an additional 13 restaurants in Indiana, Illinois,
Tennessee and Wisconsin. The Company also licenses one restaurant in each of
Germany and Saudi Arabia. The Company and its franchisees currently expect to
open an additional five Company-owned, three franchised, and two licensed
restaurants by the end of 1998. The Company-owned and franchised restaurants
are planned for the United States, and the licensed restaurants are planned for
Egypt and Jordan.
The Company uses three different sized restaurant designs to better match
the investment by the Company or a franchisee in a restaurant site to the site's
revenue potential. The following table sets forth by restaurant size certain
sales and other information for the 15 Company-owned Tumbleweed restaurants
opened for all of 1997:
<TABLE>
<CAPTION>
Number Average Sales
Size Seating of Stores per Store
---- ------- --------- -------------
<S> <C> <C> <C>
Mini 128-194 4 $1,317,000
Midi 210-244 3 $1,850,000
Maxi 252-384 8 $2,062,000
</TABLE>
CONCEPT AND STRATEGY
The Tumbleweed concept is designed to appeal to a broad range of customers
by offering a variety of sophisticated Mexican and mesquite grilled selections,
emphasizing consistent, high quality food and drinks at moderate prices, and
providing efficient and friendly service in a casual dining setting. The key
elements of the Tumbleweed concept include the following:
ONE CONCEPT OFFERING TWO DISTINCTIVE MENUS. The Tumbleweed menu is
intended to distinguish Tumbleweed from competing Mexican and casual dining
concepts by offering both distinctively seasoned, spicier versions of burritos,
enchiladas, tacos, salads, and other popular Tex-Mex dishes, as well as an
assortment of grilled steaks, ribs, pork chops, chicken and seafood selections.
Management believes this approach appeals to a broader segment of the population
and encourages customers to visit the restaurants more often.
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<PAGE>
MAINTAINING A FAVORABLE PRICE-TO-VALUE RELATIONSHIP. Tumbleweed's pricing
strategy is intended to appeal to value-driven customers as well as traditional
casual dining customers. Tumbleweed offers a wide selection of distinctive
items at a broad range of price points while, in management's view, providing a
level of food quality and service comparable or superior to that of other casual
dining restaurants. For 1997 and the first three months of 1998, the average
check at a full-service Tumbleweed restaurant, including beverages, was
approximately $9.10. Management believes that this pricing approach, together
with Tumbleweed's emphasis on variety and quality, creates a favorable
price-to-value perception that can increase customer volume and generate more
frequent repeat visits.
CUSTOMER SATISFACTION. The Company is committed to providing prompt,
friendly and attentive service and consistent food quality to its customers.
Tumbleweed employs a quality control supervisor independent of its Operations
division who evaluates the operations of the Company-owned and franchised
restaurants on a regular basis to ensure that each restaurant is following the
specified operations procedures. The Company also uses a "mystery shopper"
program to compare actual performance of restaurants to Tumbleweed standards and
solicits comment cards from customers to monitor and modify restaurant
operations.
MATCHING INVESTMENT TO SALES POTENTIAL. When developing a new Tumbleweed
restaurant, the Company generally uses one of three prototype designs management
believes is best suited to a particular site. The Company's Mini, Midi and Maxi
prototype restaurants accommodate approximately 130, 225, and 265 guests,
respectively. Each size restaurant offers full service casual dining and the
same menu containing a wide assortment of Mexican and mesquite grilled
selections. Management believes that the Tumbleweed prototype restaurants
generally have a lower building cost per square foot than the prototype designs
of other casual dining restaurant companies, and that the use of multiple
prototypes permits the Company to more closely match the investment in a
restaurant site with the site's estimated sales potential. These factors allow
for more efficient utilization of financial resources by the Company and its
franchisees.
COMMITMENT TO ATTRACTING AND RETAINING QUALITY EMPLOYEES. By providing
extensive training and attractive compensation, and by emphasizing clearly
defined organizational values, the Company fosters a strong corporate culture
and encourages a sense of personal commitment from its employees. The Company
has a monthly cash bonus program based on attaining sales growth and related
performance goals on a restaurant-by-restaurant basis for each restaurant's
management team. Management believes Tumbleweed restaurant managers typically
earn bonuses ranging from 20% to 30% of their base cash compensation.
CENTRALIZED COMMISSARY. Use of a centralized commissary system enhances
Tumbleweed's ability to maintain consistently high food quality, minimizes the
kitchen space and equipment needed at each restaurant, reduces the need for
highly skilled cooking personnel, and simplifies restaurant operations.
Managers and kitchen staff at each restaurant focus on the final preparation of
menu items to Tumbleweed standards. The Company operates its commissary
principally to enhance food quality and operational efficiency of Company-owned
and franchised restaurants and not as a separate source of profits for the
Company. Management believes this approach increases Tumbleweed's ability to
offer its customers a consistently high level of food quality at a moderate
price.
- 34 -
<PAGE>
ATMOSPHERE. Tumbleweed restaurants offer relaxed and comfortable
surroundings where guests can enjoy a quality dining experience. Decorative
features such as American Indian artifacts, cowboy memorabilia, wildlife
replicas, rough-hewn timber and a creek stone fireplace evoke the feeling of the
Great Southwest.
EXPANSION STRATEGY
Since acquiring the Tumbleweed concept in 1995, the Company has added new
Company-owned and franchised restaurants, while developing the infrastructure
necessary to support a more aggressive growth strategy. This approach has given
management an opportunity to validate the Tumbleweed concept, refine operating
systems, design and develop prototype restaurant buildings of different sizes
and build a team of experienced corporate managers needed to support future
internal and franchise growth. The Company plans to add five Company-owned and
five franchised and licensed restaurants by the end of 1998 and expects to use a
portion of the proceeds of the offering as a source of funding for those new
restaurants. Management also anticipates that a portion of the offering
proceeds could be used to expand the Company's commissary operations to support
the growth of the restaurant base.
The following are key elements of the Company's expansion strategy:
OPENING RESTAURANTS IN TARGET MARKETS. The Company targets mid-sized
metropolitan markets, initially concentrating in the Midwest, Mid-Atlantic and
Southeast regions, where income levels and the presence of shopping and
entertainment centers, offices and colleges and universities indicate that a
significant base of potential customers exists. Management considers the
feasibility of opening multiple restaurants in a target market, which offers
greater operating and advertising efficiency. As the Company adds additional
restaurants in a target market, there may be short-term decreases in same store
sales. However, management believes this clustering strategy can enhance
long-term performance. Management also views smaller markets with fewer
competing casual dining restaurants as presenting growth opportunities for the
Company. Management believes that its target markets are less competitive than
major metropolitan markets in terms of both site acquisition and number of
casual dining restaurant options.
SELECTING AND DEVELOPING HIGH QUALITY RESTAURANT SITES. In selecting
potential restaurant sites, management analyzes a variety of factors, including,
but not limited to, local market demographics, site visibility, competition in
the vicinity, and accessibility and proximity of significant generators of
potential customers such as major retail centers, hotels, universities, and
sports and entertainment facilities. The acquisition of sites may involve
leases, purchases, and joint venture arrangements, and will require either the
construction of new buildings or the conversion of existing buildings. The site
selection process is conducted by Company management and other employees, as
well as with the assistance of consultants when deemed advisable. The Company
believes that its site selection strategy and procedures, together with its menu
and pricing strategies, its commitment to quality food products and excellent
service, and its advertising, marketing and promotional efforts, will enhance
its ability to generate its anticipated customer volumes.
USING PROTOTYPE RESTAURANT DESIGNS. Tumbleweed full service restaurants
have historically proven successful in several different formats and sizes. It
is anticipated that new units will be full service restaurants employing one of
three basic prototype designs. Management believes using multiple prototype
designs allows greater flexibility to match the investment by the Company or its
franchisees with the revenue potential of a
-35 -
<PAGE>
particular restaurant site. Each prototype contains a full-service bar and
utilizes the distinctive "Old West" logo and motif that has characterized
Tumbleweed restaurants for several years.
The Company's prototype Maxi restaurant is intended for use primarily on
sites that management believes have a customer base capable of generating annual
sales of $2,500,000. The Maxi contains approximately 7,000 square feet and
seats approximately 265. The prototype Midi restaurant contains approximately
5,400 square feet, seats approximately 225, and is intended for sites with a
customer base capable of generating annual sales of $2,000,000. The prototype
Mini restaurant is suited for sites with a smaller customer base, such as in
smaller markets or in "filler" locations that enhance market penetration in
metropolitan areas. The Mini contains approximately 3,500 square feet, seats
approximately 130, and is capable of generating annual sales of $1,250,000.
Management anticipates that the Company's expansion strategy will continue to
focus on developing sites best suited to use of the "Midi" and "Mini"
prototypes.
Management believes the Company's prototype designs can be adapted for
developing Tumbleweed restaurants in existing structures. This capability may
give the Company access to quality sites not otherwise available and may reduce
the time or expense of development in certain circumstances.
FRANCHISING. The Company expects that growth during the next several years
will come from the further development of new and existing markets by both the
Company and franchisees. The Company has identified several markets it intends
to develop primarily through franchised restaurants. In addition, the Company
may acquire restaurants from its franchisees from time to time. The Company has
been able to attract franchisees with significant experience in the restaurant
industry due, in management's view, to the attractiveness of the Tumbleweed
concept and the favorable potential return on investment resulting from a
relatively low investment compared to some other casual dining concepts. With
the development of prototype restaurant designs and additions to the Company's
management team since 1995, the Company has increased its efforts to identify
and attract qualified individuals and organizations as Tumbleweed franchisees.
See "Business--Franchising Program."
MENU
After the proliferation of restaurant chains featuring fast food tacos and
"Americanized" Mexican food, the Company believes that consumer tastes have
evolved and a growing market for a more sophisticated Mexican cuisine has
developed. The Tumbleweed restaurant menu is designed to satisfy this growing
consumer preference.
The Tumbleweed menu features distinctively seasoned versions of popular
Tex-Mex dishes and mesquite grilled selections. Customers receive complementary
chips and salsa, and can choose from a selection of appetizers including such
Tumbleweed specialties as chile con queso and white chili, as well as guacamole,
nachos, quesadillas, buffalo chicken strips and stuffed potato skins. The
Tex-Mex menu offers burritos, enchiladas, tacos, tamales, chimichangas and other
items served both individually and in various combination dinners accompanied by
Mexican rice and refried, baked or black beans. Customers may also choose from
an assortment of fajitas, ribs, chicken, steak, pork chops, and seafood prepared
over an open gas-fired mesquite grill and served with Texas Toast, salad, and a
choice of baked potato, southwest or ranch fries, Mexican rice, and refried,
baked or black beans. Mesquite grilled items are available as sandwiches as
well as entrees. A
- 36 -
<PAGE>
variety of specialty stuffed potatoes and salads featuring refried beans,
seasoned beef, shredded or fried strips of chicken, mesquite grilled chicken or
seafood, and other traditional ingredients rounds out the menu. The Company
periodically introduces new items that complement its present menu selections.
Tumbleweed restaurants contain full-service bars offering a wide assortment
of mixed drinks, wines, domestic and imported beers and featuring the Tumbleweed
margarita. Margaritas are served in a variety of sizes from a Shot'arita,
served in a shot glass for $.25 to a Tex'arita, a 45-ounce margarita sold for
$7.95 and designed to be shared. Alcoholic beverages accounted for
approximately 13.1% of net restaurant sales during 1997 and for
approximately12.5% of net restaurant sales during the three months ended March
31, 1998.
Tumbleweed's menu pricing is designed to create a strong perception of
value by consumers. Prices for Mexican dishes range from $1.55 for a single
corn-shell taco to $10.95 for the Tumbleweed sampler dinner. Mesquite grilled
items range from $5.50 for a hamburger to $15.95 for an 18 oz. USDA-choice
porterhouse steak dinner. Tumbleweed also offers several daily lunch specials
for less than $5.00. Seasonal promotions are also used to increase business
during otherwise traditionally slow periods. During 1997 and the first three
months of 1998, the average check for full service restaurants, including
beverages, was approximately $9.10. The average lunch check was approximately
$7.75 and the average dinner check was approximately $9.90 during this period.
RESTAURANT OPERATIONS
MANAGEMENT AND EMPLOYEES. Tumbleweed's organizational philosophy is based
on seven core values and a commitment to Total Guest Satisfaction ("TGS"). The
Company's training procedures are intended to instill in all managers and
employees an appreciation of the core values and encourage a shared commitment
to TGS.
The Company employs four area directors who are responsible for supervising
the operations of Tumbleweed restaurants and the continuing development of each
restaurant's managers and employees. Through regular visits to the restaurants,
the area directors ensure that the Tumbleweed concept, strategies, core values
and standards of quality are being observed in all aspects of restaurant
operations. Area directors are chiefly responsible for the implementation of
the TGS program.
Each of the Company's restaurants has one general manager, one kitchen
manager and from one to three assistant managers, based on restaurant volume.
The general manager of each restaurant has primary responsibility for the
day-to-day operations of the entire restaurant, including sales, physical plant,
financial controls and training, and is responsible for maintaining the
standards of quality and performance established by the Company. In selecting
managers, the Company generally seeks persons who have significant prior
experience in the restaurant industry as well as employees who have demonstrated
managerial potential and a commitment to the Tumbleweed concept and philosophy.
The Company seeks to attract and retain high caliber managers and hourly
employees by providing them with competitive salaries, monthly bonuses and a
casual, entertaining and challenging working environment.
TRAINING AND DEVELOPMENT. The Company has developed a comprehensive
training program for managers and hourly employees. Managers are required to
complete an eight-week initial training course and
-37 -
<PAGE>
regular training programs. The course emphasizes the Company's culture,
commitment to TGS, operating procedures and standards, and internal controls.
The general managers and the area directors are responsible for selecting
and training hourly employees at each restaurant. The Company employs training
coordinators to assist with training and development of employees. Before the
opening of each new restaurant, one of the Company's training managers leads a
team of experienced employees to train and educate the new employees. The
training period for new employees includes two weeks of general training prior
to opening and one week of on-the-job supervision at the new Tumbleweed
restaurant. Ongoing employee training remains the responsibility of the general
manager and training coordinator of each restaurant under the supervision of the
area director.
FOOD PREPARATION. The Company is committed to offering distinctive Tex-Mex
and mesquite grilled foods to customers at reasonable prices through the use of
a commissary-based system. Although some restaurant concepts use in-store food
preparation as a marketing tool with some success, management believes that the
use of a central commissary provides a significant strategic and competitive
advantage to the Company by enhancing the Company's ability to maintain
consistently high food quality, minimizing restaurant kitchen space and
equipment, and reducing the number of skilled cooking positions. The system
also enables restaurant managers and kitchen staff to focus on the final
preparation of menu items to Tumbleweed standards.
Whenever feasible, the cooked ingredients used in Tumbleweed menu
selections, such as ground beef, chile con queso, and Mexican beans, are
prepared in advance at the commissary according to procedures designed to extend
shelf life without the addition of preservatives. The kitchen staff at each
restaurant uses commissary-supplied and other fresh ingredients for the final
preparation of individual orders. Management believes this system enhances the
Company's ability to maintain rigorous operational and food preparation
procedures and stringent product shelf life standards. The commissary operates
according to stringent quality control standards and is subject to a daily
inspection by a USDA inspector on the premises. The Company maintains a
contingency plan under which centralized food preparation could be quickly
resumed at another company's installation should the commissary be rendered
inoperative by weather or other disaster.
The commissary system operates principally to enhance food quality and
operational efficiency of Tumbleweed restaurants and not as an independent
profit center for the Company. The commissary charges an amount approximately
equal to its cost for the items it supplies to Company-owned and franchised
restaurants. The Company plans to limit the commissary's profit to 5% per year.
ADVERTISING AND MARKETING. The Company uses radio, print, billboard, and
direct mail advertising in its various markets, as well as television
advertising in certain larger markets. The Company plans to spend 2.0% of its
monthly sales to fund marketing activities. The Company also engages in a
variety of other promotional activities, such as contributing goods, time and
money to charitable, civic and cultural programs, in order to increase public
awareness of the Company's restaurants. The cost associated with these
promotional activities equals approximately 1.9% of sales.
RESTAURANT REPORTING. The Company closely monitors sales, costs of food and
beverages, and labor at each of its restaurants. Management analyzes daily and
weekly restaurant operating results to identify trends at each location, and
acts promptly to remedy negative trends where possible. The Company uses an
- 38 -
<PAGE>
accounting and management information system that operates at the restaurant
level to insure the maintenance of financial controls and operations.
Administrative staff prepare daily reports of sales, labor and customer counts.
Cost of sales and condensed profit and loss statements compiled bi-monthly by
store-level personnel and monthly by the Company's accounting department are
provided to management for analysis and comparison to past performance and
budgets. The Company uses a specialized software system to measure theoretical
food costs against actual costs. To improve its performance analysis
capabilities, the Company is upgrading the system to measure theoretical labor
cost against actual costs.
PROPERTIES
The Company currently owns and operates 22 restaurants. The Company
currently anticipates opening five additional Company-owned and five additional
franchised and licensed restaurants by the end of 1998. The following table
sets forth certain information with respect to Company-owned Tumbleweed
restaurants currently in operation or under construction.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE OWNED
OPENING SEATING RESTAURANT OR
DATE LOCATION CAPACITY* SIZE (SQ.FT.) LEASED
------- -------- --------- ------------- ------
<S> <C> <C> <C> <C>
03/78 1900 Mellwood Avenue 384 10,000 Owned
Louisville, Kentucky
05/81 3985 Dutchmans Lane 128 3,500 Owned
Louisville, Kentucky
08/84 4255 Outer Loop 240 6,800 Owned
Louisville, Kentucky
07/86 5109 Dixie Highway 318 9,800 Leased
Louisville, Kentucky
04/90 105 Brighton Park 156 4,500 Leased
Frankfort, Kentucky
04/93 10000 Linn Station Road 316 8,500 Owned
Louisville, Kentucky
07/93 7484 Turfway Road 252 6,800 Owned
Saratoga Square
Florence, Kentucky
01/95 9956 Escort Drive 256 7,200 Leased
Mason, Ohio
07/95 1780 Scottsville Road 194 4,800 Leased
Bowling Green, Kentucky
</TABLE>
- 39 -
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE OWNED
OPENING SEATING RESTAURANT OR
DATE LOCATION CAPACITY* SIZE (SQ.FT.) LEASED
------- -------- --------- ------------- ------
<S> <C> <C> <C> <C>
11/95 11305 Princeton Pike 264 7,200 Leased
Springdale, Ohio
02/96 4600 University Drive/ 254 7,500 Leased
University Shopping Center
Evansville, Indiana
03/96 3625 Fishinger Boulevard 176 5,200 Owned
Columbus, Ohio
09/96 2433 South Third Street 225 5,400 Owned
Terre Haute, Indiana
11/96 1555 West Main Street 225 5,400 Leased
Hamilton, Ohio
11/96 899 Hebron Road 225 5,400 Leased
Heath, Ohio
9/97 5257 Frederica Street 225 5,400 Owned
Owensboro, Kentucky
11/97 3602 Bardstown Road 225 5,400 Leased
Louisville, Kentucky
1/98 9701 Dixie Highway 122 3,400 Leased
Louisville, Kentucky
2/98 4147 Burbank Road 144 3,700 Owned
Wooster, Ohio
3/98 1707 North Dixie Avenue 225 5,400 Leased
Elizabethtown, Kentucky
3/98 746 Monroe Street 268 6,700 Owned
Zanesville, Ohio
4/98 3780 W. Broad Street 204 5,300 Leased
Columbus, Ohio
**9/98 1150 North Bridge Street 225 5,400 Leased
Chillicothe, Ohio
**9/98 6959 East Broad Street 225 5,400 Leased
Columbus, Ohio
</TABLE>
- 40 -
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE OWNED
OPENING SEATING RESTAURANT OR
DATE LOCATION CAPACITY* SIZE (SQ.FT.) LEASED
------- -------- --------- ------------- ------
<S> <C> <C> <C> <C>
**9/98 1865 West First Street 268 6,700 Owned
Springfield, Ohio
</TABLE>
- ------------------------------
* Includes seats in bar but not seasonal patio seating.
** Anticipated date of opening.
Management believes that the building cost per square foot of a prototype
Tumbleweed restaurant is generally lower than the building cost of the prototype
designs of other casual dining restaurants. The following table summarizes the
Company's estimated development costs for each prototype Tumbleweed restaurant:
<TABLE>
<CAPTION>
Maxi Midi Mini
---- ---- ----
<S> <C> <C> <C>
Land acquisition $ 650,000 $ 500,000 $ 250,000
Construction 900,000 750,000 450,000
Equipment 300,000 275,000 200,000
Other 50,000 40,000 25,000
---------- ---------- ----------
Total $1,900,000 $1,565,000 $ 925,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Land acquisition costs, excluding site preparation, are the most variable
development costs and in the case of a particular property may be greater or
less than the estimates in the tables. The cost of development for a new
restaurant will not include land acquisition costs if the property is leased
rather than purchased. The Company plans to develop Tumbleweed restaurants on
both purchased and leased properties that management believes have significant
potential to generate revenue.
In addition to the development costs set forth in the table above, the
Company incurs preopening costs for each Company-owned restaurant estimated at
$140,000 for the Maxi and Midi prototypes and $84,000 for the Mini prototype.
Preopening costs consist of expenses for travel, lodging, salary, benefits and
other costs associated with selecting and training the management staff and
employees for a new restaurant. See "Business--Restaurant Operations--Training
and Development" and Note 2 of Notes to Financial Statements. Preopening
training is generally included in the services provided to franchisees and
covered by the franchise fee.
The Company's executive offices occupy approximately 7,000 square feet of
space in three buildings owned by the Company in Louisville, Kentucky. The
Company also leases 3,000 square feet of office space in a nearby commercial
building. Management believes the Company's restaurant facilities and offices
are adequately covered by insurance.
- 41 -
<PAGE>
FRANCHISING PROGRAM
The Company intends to pursue an active franchising program with current
and new franchisees under strictly controlled guidelines. The Company offers
franchisees both rights to develop individual restaurants as well as area
development rights for the establishment of more than one new restaurant over a
defined period of time and in a defined geographic area. The specific locations
of the restaurants are subsequently designated by the Company and the franchisee
in separate franchise agreements. Under the standard area development
agreement, a franchisee is required to pay at the time the agreement is signed a
non-refundable fee of $5,000 per potential restaurant in the defined geographic
area, to be applied against the initial franchise fee payable for each
restaurant. The Company's current area development agreement also provides for
a franchise fee of $35,000 for each restaurant, due when the franchise agreement
with respect to a restaurant is executed. Each franchise agreement generally
provides for royalties of three to five percent of sales based upon restaurant
sales, minimum marketing expenditures of 2.0% of gross sales, and a twenty-year
term. Under its criteria for selecting new franchisees, Tumbleweed requires
that potential franchisees have adequate capital, extensive experience in the
restaurant industry, and access to locations suitable for development. The
Company generally requires that a franchisee have a principal operator with at
least a ten percent ownership interest who must devote full time to the
supervision and conduct of the franchise.
INTERNATIONAL LICENSING AGREEMENT
The Company has entered into a license agreement (the "International
Agreement") with Tumbleweed International, LLC ("International"), a restaurant
developer based in Brussels, Belgium, to develop Tumbleweed restaurants outside
of the Western Hemisphere. International currently operates 19 restaurants in
Europe, Asia and Africa. As of March 31, 1998, International was operating its
restaurants in Erlanger, Germany and Jeddah, Saudi Arabia as Tumbleweed
restaurants. International expects to open one restaurant in each of Frankfurt,
Germany and Feurth, Germany as Tumbleweed restaurants by the end of 1998. It is
anticipated that most of 17 other restaurants operated by International will be
converted to Tumbleweed restaurants on the terms of the International Agreement.
Certain directors of the Company hold interests in three corporations that own
all of the membership interests of International. See "Certain Transactions --
Tumbleweed International LLC."
The International Agreement grants to International the exclusive right and
license to use the Tumbleweed system and service and trademarks outside the
Western Hemisphere, including the right to grant sublicenses and franchises. In
consideration for the grant of those rights, the Company will receive 15% of any
initial license or territory fee plus 15% of the continuing royalty fees payable
to International, provided that the initial license or territory fee payable to
International will not be less than $25,000 per restaurant and the continuing
royalty will not be less than 3% of gross receipts from the sale of licensed or
franchised products. If the amount payable to the Company in any contract year
is $300,000 or more, then the license fee percentage payable to the Company will
be reduced by 2% per year for the next five years, subject to a minimum payment
of $300,000 in fees to the Company per contract year. International is entitled
to a credit against royalties payable to the Company equal to the actual cost of
converting International's 17 existing restaurants to Tumbleweed restaurants, up
to a maximum credit of $60,000 per restaurant, subject to certain exceptions.
- 42 -
<PAGE>
The International Agreement provides that International must construct and
open or convert a minimum of four Tumbleweed restaurants per contract year,
beginning with the contract year commencing August 29, 1998. If six months
after the end of a contract year, International has opened fewer Tumbleweed
restaurants than the cumulative number of restaurants required to be open by the
end of that contract year, the Company will have the right to terminate the
International Agreement, and International will have the right to preclude such
termination by paying to the Company an amount approximating the balance of the
fees to which the Company would have been entitled if the required number of
restaurants had been open at the end of the contract year. Termination of the
International Agreement would terminate International's sublicensing and
franchise rights thereunder, but the International Agreement would continue in
effect with respect to restaurants open or under construction or conversion by
International or its franchisees at the time of termination.
The International Agreement also contains certain provisions relating to
quality control, restrictions on ownership of and participation in competing
businesses by International and its principals. The International Agreement
grants the Company a right of first refusal if International proposes to sell or
assign its rights under the Agreement, or to sell equity interests in
International.
COMPETITION
Casual dining in general, and value-oriented casual dining in particular,
are currently among the fastest growing segments of the food service industry.
Management believes that the Tumbleweed concept is well-established in its
current markets and that the Company's organization can support expansion into
markets with limited competition from other casual dining concepts and good
potential for market development.
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The Company and its franchisees compete
with a variety of other casual full-service restaurants, fast food and take-out
restaurants, delicatessens, cafeteria-style buffets, and other food service
establishments. The number of casual dining and grilled food restaurants has
increased in the past few years, and competitors include national and regional
chains, franchisees of other restaurant chains, and local owner-operated
restaurants. Many competitors have been in existence longer, have a more
established market presence, and substantially greater financial, marketing and
other resources than the Company and its franchisees. A significant change in
pricing or other business strategies by one or more of the Company's
competitors, including an increase in the number of restaurants in the Company's
territories, could have a materially adverse impact on the Company's sales,
earnings and growth. The Company's market research indicates that customers
perceive Tumbleweed's principal competitors as value-oriented casual dining
restaurant chains such as Applebee's, O' Charley's, T.G.I. Friday's and Chili's.
The Company and the restaurant industry are significantly affected by
factors such as changes in local, regional or national economic conditions,
demographic trends, traffic patterns, changes in consumer tastes, consumer
concerns about the nutritional quality of food, and the type, number, and
location of competing restaurants. Multi-unit food service chains such as the
Company can also be substantially adversely affected by publicity resulting from
food quality, illness, injury, or other health concerns or operating issues
stemming from one store or a limited number of stores. Furthermore, factors
such as inflation, increased food, labor, energy, and employee benefits costs,
fluctuating insurance rates, national, regional and local regulations, regional
weather conditions, and the unavailability of experienced management and hourly
employees may also
- 43 -
<PAGE>
adversely affect the restaurant industry in general and the Company in
particular. In addition, dependence on frequent deliveries of fresh produce
also subjects food service businesses such as the Company to the risk that
shortages or interruptions in supply caused by adverse weather or other
conditions could adversely affect the availability, quality and cost of
ingredients.
EMPLOYEES
As of May 1, 1998, the Company had approximately 2,100 employees, of whom
35 are executive and administrative personnel, 86 are restaurant management
personnel, and the remainder are hourly restaurant and commissary personnel.
Many of the Company's hourly restaurant employees work part-time. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its employee relations to be good.
SERVICE MARKS AND TRADEMARKS
The Company owns various service marks and trademarks that are registered
on the Principal Register of the United States Patent and Trademark Office. The
Company regards its service marks and trademarks as having significant value and
being an important factor in the development of the Tumbleweed concept. The
Company's policy is to pursue and maintain registration of its service marks and
trademarks whenever possible and to oppose vigorously any infringement or
dilution of its service marks and trademarks.
GOVERNMENT REGULATION
The Company is subject to a variety of federal, state and local laws. Each
of the Company's restaurants is subject to permitting, licensing and regulation
by a number of government authorities, including alcoholic beverage control,
health, safety, sanitation, building and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
Approximately 12.5% of the Company's net restaurant sales were attributable
to the sale of alcoholic beverages for the three months ended March 31, 1998.
Alcoholic beverage control regulations require each of the Company's restaurants
to apply to a state authority and, in certain locations, county or municipal
authorities for a license or permit to sell alcoholic beverages on the premises.
Typically, licenses must be renewed annually and may be revoked or suspended for
cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of restaurant operations, including minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages.
The failure of a restaurant to obtain or retain liquor or food service
licences would have a material adverse effect on the restaurant's operations.
To reduce this risk, each Company restaurant is operated in accordance with
procedures intended to assure compliance with applicable codes and regulations.
The Company will be required to make filings with certain liquor licensing
authorities in connection with the Reorganization, which it expects to make
promptly following the Reorganization.
- 44 -
<PAGE>
The Company is subject in certain states to "dram shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of
its existing $1,000,000 comprehensive general liability insurance, as well as
excess liability coverage of $5,000,000 per occurrence, with no deductible. The
Company has never been named as a defendant in a lawsuit involving "dram shop"
liability.
The Company's restaurant operations are also subject to federal and state
laws governing such matters as the minimum hourly wage, unemployment tax rates,
sales tax and similar matters, over which the Company has no control.
Significant numbers of the Company's service, food preparation and other
personnel are paid at rates related to the federal minimum wage, and increases
in the minimum wage could increase the Company's labor costs.
The development and construction of additional restaurants are also subject
to compliance with applicable zoning, land use and environmental laws and
regulations.
LITIGATION
The Company is not currently involved in any litigation nor, to
management's knowledge, is any litigation threatened against the Company, except
for routine litigation arising in the ordinary course of business. In the
judgment of the executive officers of the Company, no material adverse effect on
the Company's financial position or results of operations would result if any
such litigation were not resolved in the Company's favor.
MANAGEMENT
The following table lists the executive officers, key employees, and
directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John A. Butorac, Jr. ........ 50 President, Chief Executive Officer,
and Director
James M. Mulrooney........... 46 Executive Vice President, Chief
Financial Officer, and Director
John Brewer.................. 45 Vice President of Operations
Wayne P. Jones............... 55 Vice President of Marketing and
Development
Gary Snyder.................. 43 Vice President - Company Operations
Glennon F. Mattingly......... 46 Vice President - Controller
Gregory A. Compton........... 37 Vice President, Secretary and
General Counsel
</TABLE>
- 45 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
David M. Roth................ 47 Director
Minx Auerbach(1)............. 75 Director
Lewis Bass (2)............... 76 Director
Roger Drury(1)(2)............ 51 Director
George Keller(1)(2).......... 47 Director
Terrance A. Smith............ 52 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
John A. Butorac, Jr. has served as President, Chief Executive Officer,
and one of the two Managers of Tumbleweed, LLC since it was formed in
November 1994. From October 1991 to January 1995, Mr. Butorac served in
various capacities with Tumbleweed Mexican Restaurants Group, including as
Director of Operations and Director of Corporate Development. During his
association with Tumbleweed, Mr. Butorac has been responsible for developing
Tumbleweed's business and expansion plans and for implementing various
operational systems needed to support growth. Since beginning his career in
the restaurant industry in 1971, Mr. Butorac has served at various times as a
senior operations executive, consultant, and restaurant owner and operator
for such restaurants as KFC, Zapata/Zantigo Mexican Restaurants, Fuddrucker,
Inc., Chi-Chi's, Inc., Rib Tavern, Inc. and Two Peso Mexican Cafes. Mr.
Butorac has 27 years of restaurant management experience.
James M. Mulrooney has served as Executive Vice President, Chief Financial
Officer and one of the two Managers of Tumbleweed, LLC since it was formed in
November 1994. From November 1988 to August 1994, Mr. Mulrooney was Senior Vice
President of Finance, Vice President and Treasurer of NTS Corporation, a
regional real estate development firm headquartered in Louisville, Kentucky.
From May 1982 to June 1988, Mr. Mulrooney held various positions with Chi-Chi's,
Inc., including four years as Vice President and Treasurer, where he was
responsible for developing the company's accounting systems, public financings,
and acquisitions. Before beginning his career in the restaurant industry in
1978, Mr. Mulrooney served for four years with the public accounting firm of
Alexander Grant & Company. Mr. Mulrooney has 16 years of restaurant management
experience.
John Brewer has served as Vice President of Operations for Tumbleweed, LLC
since April 1996. From 1993 to 1996, Mr. Brewer was the President and Chief
Executive Officer of East Side Restaurants, LLC, which operates nine restaurants
in Phoenix, Arizona. Mr. Brewer previously served for 15 years with Bob Evans
Farms, Inc., where he served as Vice President and Regional Director of
Restaurant Operations with responsibility for developing new markets and
increasing sales and profit in existing markets in a six-state region, as well
as in other capacities. Mr. Brewer has 22 years of restaurant management
experience.
- 46 -
<PAGE>
Wayne P. Jones joined Tumbleweed, LLC as Vice President of Marketing and
Development in August 1997 after concluding four years as Executive Director
and Chief Executive Officer of the Pizza Hut Franchise Association, comprising
3,300 Pizza Hut restaurants. Mr. Jones began his career in the restaurant
industry in 1969. At various times, he has served as President of Marcus
Restaurants, Senior Vice President of Marketing and Development at Chi-Chi's,
Inc., President of General Mills' Casa Gallardo Mexican Restaurant division, and
Vice President of Marketing for Kentucky Fried Chicken. Mr. Jones has also held
positions as Adjunct Professor of Marketing and Entrepreneurship at Indiana
University-Southeast and the Barton School of Business at Wichita State
University. Mr. Jones has 29 years of restaurant management experience.
Gary Snyder joined Tumbleweed, LLC as Director of Training and Human
Resources in June 1996 and was appointed Vice President of Company Operations in
April 1998. Mr. Snyder previously served for 17 years with Bob Evans Farms,
Inc. where he was responsible for restaurant operations and human resources.
Mr. Snyder has 19 years of restaurant management experience.
Glennon F. Mattingly joined Tumbleweed, LLC as Controller in March 1995 and
was named Vice President-Controller in April 1998. Before coming to Tumbleweed,
Mr. Mattingly held various positions with Chi-Chi's, Inc. including six years as
Director of Budgeting and Financial Analysis. Before beginning his career in
the restaurant industry in 1984, Mr. Mattingly served with the public accounting
firm Deloitte, Haskins and Sells for two years and taught accounting at Trinity
High School in Louisville, Kentucky for seven years. Mr. Mattingly has 14 years
of restaurant management experience.
Gregory A. Compton joined Tumbleweed, LLC in June 1998 as Vice President,
Secretary and General Counsel. From March 1992 to June 1998, Mr. Compton served
as Senior Vice President, Secretary and General Counsel of NTS Corporation, a
regional real estate development firm headquartered in Louisville, Kentucky.
Prior to his employment with NTS Corporation, Mr. Compton practiced as an
attorney in the Real Estate and Corporate Finance department of Greenebaum, Doll
& McDonald, a Louisville, Kentucky law firm, which represents a number of
restaurant companies. Mr. Compton has represented and been a principal of a
restaurant franchisee unrelated to the Company for the last four years.
David M. Roth is a founding member of Tumbleweed, LLC and has served on its
Board of Advisors since its inception in 1994. Mr. Roth is also an investor and
member of the governing boards of two Tumbleweed franchisees and one Tumbleweed
licensee--TW-Tennessee, LLC, TW-Indiana, LLC, an Tumbleweed International, LLC.
In addition, Mr. Roth is a founding member or shareholder of several companies
involved in other restaurant concepts, including (i) the company which created
The Oldenberg Grill (which recently merged into the Oldenberg Brewing Company, a
publicly held company of which Mr. Roth is a director), (ii) several companies
which are Texas Roadhouse franchisees, (iii) two companies which are Dooley's
Bagelcatessen franchisees, (iv) T.M. Riders, LLC, which owns and operates a
Mexican and grilled food delivery concept as well as several Tumbleweed food
court units, (v) a company which is a developer of Joe's "Older Than Dirt"
restaurants, and (vi) two companies involved in the development and franchising
of the Boston-based Pizzaria Regina concept or a casual dining Italian
restaurant incorporating such pizza concept. Mr. Roth is currently a principal
in the Louisville, Kentucky law firm of Roth Foley Bryant & Cooper, PLLC, the
successor-in-interest to a law firm established by him in January 1993. From
March 1992 to December 1993, Mr. Roth served as the General Counsel, Vice
President and Secretary of Analytical Risk Management, Ltd., a company of which
he was a founding partner, and its successor-in-interest, ARM
- 47 -
<PAGE>
Financial Group, Inc., a Louisville-based life insurance holding company which
recently became listed on the New York Stock Exchange. From September 1979 to
January 1993, Mr. Roth was engaged in the private practice of law with the firm
of Greenebaum Doll & McDonald in Louisville, and prior to that time, from 1975
to 1979, Mr. Roth was an attorney with the Chief Counsel's Office of the
Internal Revenue Service, Interpretative Division, in Washington, D.C.
Minx Auerbach has served as a member of the Board of Advisors of
Tumbleweed, LLC since January 1995. From 1975 to 1979, Ms. Auerbach was the
Director of Consumer Affairs for the City of Louisville, Kentucky. From 1979 to
1984, she served the Executive Assistant to the County Judge Executive of
Jefferson County, Kentucky. Ms. Auerbach has been a member of the Board of
Trustees of the University of Louisville since 1991, serving as Chair from 1996
to 1997. She has also served as Chair and a member of the Louisville and
Jefferson County Planning Commission and as Chair of the Louisville Science
Center.
Lewis Bass has served as a member of the Board of Advisors of Tumbleweed,
LLC since January 1995. Mr. Bass is currently retired. From 1952 to 1980, Mr.
Bass was President of Bass and Weisberg Realtors where his specialties were
commercial real estate, property management and marketing. Prior to that, he
was Marketing Director and partner for Associated Theatres from 1983 until 1987.
Mr. Bass was an original stockholder of Humana Inc.
Roger Drury has served as a member of the Board of Advisors of Tumbleweed,
LLC since January 1995. Mr. Drury was Chief Financial Officer of Humana Inc.
from 1992 until 1996 and Senior Vice President of Finance from 1988 to 1992. He
joined Humana, Inc. in 1979 and became Vice President-Comptroller in 1983. Mr.
Drury served as a certified public accountant with Coopers & Lybrand in New York
and Louisville from 1971 until 1979. He currently serves on the boards of
directors of Bellarmine College, Management Technology Services, The DentalCo,
and PM Squared, Inc.
George Keller was founder of Tumbleweed and has served on the Board of
Advisors of Tumbleweed, LLC since 1995. From 1975 to January 1995, Mr. Keller
served as Chief Executive Officer of Tumbleweed Mexican Food, Inc. and
Tumbleweed Concepts, Inc. Mr. Keller currently serves as the Managing Member of
First Blue Rock Grill LLC in New Albany, Indiana and serves on the Board of
Stockyards Bank, Inc. Mr. Keller has 22 years of restaurant management
experience.
Terrance A. Smith was elected as a director of the Company in June 1998.
Mr. Smith is currently the President of Tumbleweed International LLC. See
"Business -- International Licensing Agreement." From 1988 to 1997, Mr. Smith
was the President and CEO of Chi-Chi's International Operations, Inc. Mr. Smith
currently serves on the Board of Boston Restaurant Associates, Inc., a publicly
traded company which owns and operates Italian dinner houses and limited service
pizzerias. Mr. Smith has 28 years of restaurant management experience.
CLASSIFICATION OF DIRECTORS
Each director of the Company will serve until the first annual meeting of
the Company's stockholders, which is expected to be held in 1998, or until his
successor is elected and qualified. The Board of Directors is divided into
three classes. Directors in each class must be as nearly equal as possible.
The term of the first
- 48 -
<PAGE>
class of directors expires at the 1999 annual meeting of stockholders, the term
of the second class of directors expires in 2000 and the term of the third class
of directors expires in 2001, provided that the directors in each class will
hold office until their successors are duly elected and qualified. At each
annual meeting of stockholders, one class of directors will be elected to a
three-year term.
COMMITTEES OF THE BOARD
The Audit Committee and Compensation Committee of the Board of Directors
each consists of three directors, none of whom can be an officer or employee of
the Company. The duties of the Audit Committee are to recommend to the whole
Board of Directors the selection of independent auditors to audit annually the
books and records of the Company, to review the activities and report of the
independent auditors, and to report the results of such review to the whole
Board of Directors. The Audit Committee also monitors the internal audit
controls of the Company. The duties of the Compensation Committee are to review
the performance of the executive officers of the Company and to recommend annual
salary and bonus amounts for executive officers of the Company. In addition, the
Compensation Committee reviews the Company's compensation policies and practices
and benefit plans to ensure that they meet corporate objectives.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation earned for the last
fiscal year by the Company's chief executive officer and its executive officers
whose total salary and bonus exceeded $100,000 during 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------------- ------------
OTHER ANNUAL STOCK
YEAR SALARY BONUS COMPENSATION OPTIONS#
---- ------ ----- ------------ --------
<S> <C> <C> <C> <C> <C>
John A. Butorac, Jr. 1997 $159,134 $41,116 $11,231(1) 0
President and Chief Executive
Officer
James M. Mulrooney 1997 132,611 34,264 11,148(1) 0
Executive Vice President and
Chief Financial Officer
John Brewer 1997 105,940 28,504 (1) 0
Vice President of Operations
</TABLE>
- ---------
(1) Does not include perquisites and other personal benefits paid to the named
executive officer, which totaled less than 10% of the total of salary and
bonus reported for the year.
- 49 -
<PAGE>
INCENTIVE COMPENSATION PLAN
To ensure that an important portion of compensation is based on
performance, the annual bonus payable to the executive officers of the Company
is based upon the attainment of targeted performance measurements by the
Company. All other salaried employees of the Company other than store-level
managers participate in the same bonus plan. Each executive earns incentive
compensation if the Company achieves a stated quarterly net income goal. At the
beginning of each fiscal year, the Compensation Committee establishes a bonus
amount expressed as a percentage of salary for each participant. For 1998, the
Compensation Committee approved a bonus percentage of salary of up to 55% for
Mr. Butorac and Mr. Mulrooney. The Compensation Committee also establishes a net
income goal for each quarter. The amount of the bonus earned by a participating
executive is based upon the extent to which the Company attains or exceeds
attainment of a specified percentage of the net income goal. The stated net
income goals per quarter will be revised to account for the impact of selling
stock. The Company reserves the right to change or modify the program at any
time.
For executive officers other than Mr. Butorac and Mr. Mulrooney, payments
are determined and made to participants on a quarterly basis. Mr. Butorac's and
Mr. Mulrooney's bonus compensation will be calculated on a quarterly basis in a
similar manner, however, the incentive compensation payments will not be made
for the year until after the fourth quarter is determined. In addition, the
Company must reach at least 70% of the net income goal for the entire year in
order for Mr. Butorac and Mr. Mulrooney to receive any bonus payment.
Therefore, even if the Company achieves its goal in any individual quarter or
quarters but fails to achieve the 70% net income goal for the entire year, Mr.
Butorac and Mr. Mulrooney will receive no bonus for the year. Amounts accrued
for executive bonuses earned for Tumbleweed, LLC's 1998 fiscal year will be paid
upon the earlier of the date the Reorganization takes effect or December 31,
1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with John A. Butorac,
Jr. and James M. Mulrooney, which entitles Mr. Butorac and Mr. Mulrooney to
receive a base salary of $200,000 and $175,000, respectively, and bonus
compensation based upon the Incentive Compensation Plan formula. See
"Management--Incentive Compensation Plan." The agreements have an initial term
of five years and extend automatically each year for one additional year unless
both parties agree to termination prior to the end of any term. If the Company
terminates the employment agreement without cause, the executive would be
entitled to receive continued salary and benefits for a twelve month period. If
the employment agreement is terminated by the Company for cause, the executive
is not entitled to any compensation following the date of such termination other
than the pro rata amount of his then current base salary and bonuses earned
through such date. Upon any termination of employment, the terminated executive
is prohibited from competing with the Company for two years. Under the terms of
the employment agreements, both Mr. Butorac and Mr. Mulrooney report directly to
the Board of Directors with Mr. Butorac having primary responsibility for
operational, marketing, training, franchising, purchasing and commissary matters
and Mr. Mulrooney having primary responsibility for financial, banking,
accounting, legal and construction matters.
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<PAGE>
STOCK INCENTIVE PLAN
The Tumbleweed, Inc. 1998 Stock Option and Incentive Compensation Plan (the
"Plan") provides for the granting of any of the following awards to eligible
employees or directors of the Company and its subsidiaries: (i) employee stock
options, including both "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code ("ISOs") and options that do not qualify as
ISOs; (ii) automatic grants of options to nonemployee directors; (iii) stock
appreciation rights; and (iv) restricted stock and performance stock awards.
The Plan is intended to provide incentives and rewards for employees and
directors to support the implementation of the Company's business plan and to
align the interests of employees and directors with those of the Company's
stockholders.
The Plan will be administered by the Compensation Committee. The Committee
is comprised of two or more independent directors, who cannot be current or
former employees of the Company and who do not receive any remuneration from the
Company in any capacity other than as a director. The Committee is authorized,
among other things, to determine employees to whom grants of awards will be made
and take such action as it deems necessary or advisable for the administration
of the Plan. The Committee may also construe, interpret and correct defects,
omissions and inconsistencies in the Plan. The Committee has no discretion with
respect to the terms and conditions of the options granted automatically to
nonemployee directors under the Plan. See "Management--Director Compensation."
The Common Stock subject to the Plan will be authorized but unissued shares
or previously acquired shares. The number of shares of Common Stock available
for grant of awards under the Plan equals the greater of 635,000 shares, or 10%
of the number of shares of Common Stock outstanding from time to time, including
100,000 shares reserved for options automatically granted to nonemployee
directors under the Plan.
As of the date of this Prospectus, the Company intends to grant options for
a total of approximately 340,000 shares to eligible employees and 60,000 shares
to nonemployee directors, effective upon completion of this offering. None of
the initial grants of options will be awarded to Mr. Butorac or Mr. Mulrooney.
The exercise price of the options will be equal to the initial public offering
price. The exercise price of future and subsequent grants will be equal to the
market price as of the date of such grant. Stock options granted under the Plan
will be exercisable for a term of not more than ten years, as determined by the
Committee. The option grants that will become effective upon completion of the
offering will become exercisable for 33% of the number of shares subject to the
option on each of the first, second and third anniversaries of the date of
grant.
DIRECTOR COMPENSATION
Nonemployee directors receive a fee of $1,000 for each Board of Directors
meeting attended and receive $1,000 per committee meeting attended unless such
committee meeting is on the same day as the Board of Directors meeting.
Committee chairmen receive an additional $1,000 for each committee meeting. In
addition, nonemployee directors will receive annual grants of options to
purchase shares of Common Stock under the Plan. Each nonemployee director will
receive options to purchase 10,000 shares on the date of the closing of this
offering. Thereafter, each new nonemployee director will be granted options to
purchase 10,000 shares of Common Stock on the date of his or her first election.
Beginning on the first day of the calendar year
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<PAGE>
following the closing of this offering, each of the Company's nonemployee
directors will automatically be granted options to purchase 1,000 shares of
Common Stock each year the director continues to serve on the Board. Initial
grants of options to purchase Common Stock will have an exercise price of $10.00
per share. Thereafter, all options will be granted at the fair market value of
the Common Stock on the date of grant. A total of 100,000 shares are reserved
for issuance to directors under the Plan. All options granted to directors will
become exercisable in three equal annual installments, beginning on the first
anniversary of the date of grant.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions.
In addition, the Certificate of Incorporation provides that the Company is
required to indemnify its officers and directors under certain circumstances,
including those circumstances in which indemnification would otherwise be
discretionary, and the Company is required to advance expenses to its officers
and directors as incurred in connection with proceedings against them for which
they may be indemnified. At present, the Company is not aware of any pending or
threatened litigation or proceeding involving a director, officer, employee or
agent of the Company in which indemnification would be required or permitted.
The Company believes that its charter provisions are necessary to attract and
retain qualified persons as directors and officers.
CERTAIN TRANSACTIONS
Although all of the transactions described below necessarily involve
conflicts of interest, management believes that all of the transactions were
entered into on terms comparable to those obtainable from unrelated third
parties, based on a comparison of terms and conditions available from third
parties. The Company's Board of Directors has adopted a policy that all future
transactions between the Company and its officers, directors, principal
shareholders and affiliates must be approved by the audit committee of the Board
of Directors, and generally must be on terms no less favorable to the Company
than those obtainable from unrelated third parties.
LEASES WITH RELATED PARTIES
WEST BROAD DEVELOPMENT, LLC. The Company leases the facilities and related
real property for its Columbus, Ohio restaurant from West Broad Development,
LLC, a limited liability company in which David M. Roth, a director of the
Company, owns a substantial interest. The restaurant opened in April1998.
Under the terms of the lease, the Company was obligated to renovate restaurant
facilities as specified in approved plans, and the lessor was obligated to
reimburse the Company for construction expenses not to exceed $400,000. The
lease provides for annual base rent equal to the interest on funds borrowed by
the lessor plus 1% until the restaurant commences operations and $10,000 per
month thereafter plus 5% of gross sales to the extent such percentage rent
exceeds the base rent. The lease is for a twenty-year term with options to
renew for two additional five-year terms. The Company was reimbursed for
construction expenses totaling $400,000 under the lease and paid rent totaling
$17,553 for the first four months of 1998. David H. Cooper and Gary L.
McCartin, stockholders of the Company, are also members of West Broad
Development, LLC.
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<PAGE>
KELLER LLC. The Company leases the facilities and related real property
for its Springdale, Ohio restaurant from Keller LLC, a limited liability company
in which George Keller, a director of the Company, owns a substantial interest.
In April 1995, Tumbleweed, LLC assigned all of its rights and obligations with
respect to the site for the Springdale restaurant, to Keller LLC in exchange for
Keller LLC agreeing to construct a restaurant facility to be leased to the
Company. The restaurant opened in November 1995. The lease required Keller LLC
to invest $1,625,000, and the Company to pay annual base rent of $186,689 for an
initial term of eleven years through 2006. In addition, the Company pays an
amount equal to 5% of the excess, if any, of the Company's gross sales during
such year, over $2,100,000. The lease is for an eleven-year term with options
to renew for four additional five-year terms. The Company paid rent totaling
$186,689 during 1997 and $62,230 for the first four months of 1998.
DOUGLASS VENTURES. The Company subleases the facilities and related real
property for its Bowling Green, Kentucky restaurant from Blue Door - Bowling
Green Joint Venture ("Blue Door") on terms substantially similar to the terms on
which Blue Door leases the facilities and related real property from two
co-lessors. The co-lessors are Douglass Ventures, a Kentucky general
partnership and stockholder of the Company in which David M. Roth, a director of
the Company, is a general partner, and an unrelated third party. The lease was
in effect at the time the Company acquired the Tumbleweed assets in January 1995
and the restaurant opened in July 1995. Under the terms of the lease, the
Company pays annual base rent of $104,000 for ten years which will be adjusted
in years eleven and sixteen for cost of living increases. The lease also
provides for additional rent equal to the amount, if any, by which 6% of the
Company's gross sales exceeds the annual base rent payable. The lease is for a
twenty-year term with options to renew by written agreement. The Company paid
rent totaling $52,000 during 1997 and $17,333 for the first four months of 1998.
Blue Door and Roth-Tumbleweed Trust, a stockholder of the Company, are held
under common control.
TW-DIXIEBASH, LLC. The Company leases the facilities and related real
property for its Bardstown Road and Valley Station restaurants from
TW-DixieBash, LLC, a limited liability company in which David M. Roth and James
M. Mulrooney, directors of the Company, own substantial interests. The
Bardstown Road and Valley Station restaurants opened in November 1997 and
January 1998, respectively. Under the terms of the Bardstown Road and Valley
Station subleases, the Company has built the restaurant facilities as specified
in approved plans, and the Lessor was obligated to reimburse the Company for
construction expenses not to exceed $700,000 and $500,000, respectively. The
Bardstown Road sublease provides for the assumption of all rent under the ground
lease agreement with Bashford Manor Mall, Joint Venture. The sublease also
provides for interest to be paid during the construction period based on
TW-DixieBash's investment until the restaurant commences operations and $7,000
per month thereafter plus 30% of the restaurant's positive net cash flow. The
lease is for a 20-year term with no option to renew. The Company was reimbursed
for construction expenses totaling $700,000 under the Bardstown Road lease and
paid interest and rent totaling $15,053 during 1997 and $70,962 for the first
four months of 1998. The Valley Station sublease provides for the assumption of
all rent under the Holiday Station Associates Limited Lease. The sublease also
provides for interest to be paid during the construction period based on
TW-DixieBash's investment until the restaurant commences operations and $5,000
per month thereafter , plus 30% of the restaurant's positive net cash flow. The
sublease is for a 20 year term with options to renew for three additional
five-year terms. The Company was reimbursed for construction expenses totaling
$354,973 in 1997 and $145,027 for the first four months of 1998 under the Valley
Station sublease. The Company paid no interest in 1997; rent and interest
payments
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<PAGE>
totaled $21,973 for the first four months of 1998. David H. Cooper, a
stockholder of the Company, is also a member of TW-DixieBash, LLC.
TUMBLEWEED INTERNATIONAL, LLC
In August 1997, the Company entered into the International Agreement with
Tumbleweed International LLC, a restaurant developer based in Brussels, Belgium.
The International Agreement grants certain licensing and franchising rights to
International for the development of Tumbleweed restaurants outside of the
Western Hemisphere. See "Business--International Licensing Agreement."
International is a limited liability company owned by three corporations
controlled by a group of stockholders including Terrance A. Smith, David M.
Roth, Minx Auerbach and George Keller, who are directors of the Company, and
David H. Cooper and Douglas H. Morris II, who are stockholders of the Company.
In 1997, International paid $15,750 in fees to the Company under the
International Agreement.
T.M. RIDERS, LLC
In February 1997, the Company acquired a 9.5% interest of the common
membership units of T.M. Riders, LLC ("TM Riders"), which operates limited
service food court restaurants in shopping malls in the Louisville, Lexington
and Cincinnati metropolitan areas and delivery units featuring takeout and home
delivery of Mexican, Tex-Mex and grilled foods. The Company paid a nominal
purchase price for the interest. The Managing Directors of TM Riders include
John A. Butorac, Jr., James M. Mulrooney, David M. Roth and George R. Keller,
all of whom are directors of the Company, and David H. Cooper, a stockholder of
the Company. Minx Auerbach, a director of the Company, and Messrs Roth, Keller
and Cooper also own membership interests in TM Riders. The following
stockholders of the Company also own membership interests in TM Riders: Donald
W. Bennett, James Lavelle, Jr., Sharon Levine, Gerald Mansbach, Charles A.
Osborn, Jr., Alan I. Roth, CSJ Ventures, LLC and KORY's Investment Group.
In October 1996, the Company sold to TM Riders all of the Company's
interest in six Tumbleweed food court units in the Louisville, Lexington and
Cincinnati metropolitan areas, including one unit operated by a franchisee. The
purchase price was $600,000, comprised of an initial cash payment of $100,000
and a promissory note providing for annual payments of $100,000 of principal
plus interest at the rate of 8% per year. At the same time, the Company entered
into a licensing and distribution agreement with TM Riders granting TM Riders
the right to operate food court units in the Louisville and Lexington markets
under the Tumbleweed name and certain rights to use intellectual property of
Tumbleweed for the development of the TM Riders food court and delivery
operations. The Company receives a nominal monthly royalty on sales by the food
court restaurants acquired by TM Riders. The Company is also entitled to
receive a $5,000 fee upon the opening of each delivery unit and a 1.5% royalty
based on system-wide sales by TM Riders, both beginning when TM Riders has ten
delivery units open. If TM Riders conducts an underwritten initial public
offering of its securities, TM Riders has the option to terminate its fee and
royalty obligations by issuing the Company an additional equity interest
representing 20% of the total equity interests in TM Riders then outstanding.
In 1997, the Company received payment of principal and interest from TM
Riders totaling $139,334 in royalties and $28,934 in fees for accounting and
administrative services. For the first four months of 1998, the Company
received interest totaling $10,666 and $11,625 in royalties and fees for
accounting and
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<PAGE>
administrative services. As of the date of this Prospectus, TM Riders had
not opened the minimum number of delivery units required to initiate the
Company's right to fee payments upon the opening of delivery units or
royalties on system-wide sales of TM Riders.
TW-TENNESSEE, LLC
In February 1997, the Company invested a nominal amount to acquire a 9.5%
common member interest in TW-Tennessee, LLC ("TW-Tennessee"), which was
organized to develop and operate Tumbleweed full service restaurants as a
franchisee of the Company. David M. Roth, a director of the Company, also owns
a membership interest in TW-Tennessee. Douglas H. Morris II, Gary McCartin and
David H. Cooper, all of whom are stockholders of the Company, also own
membership interests in TW-Tennessee.
The TW-Tennessee operating agreement provides that, upon unanimous
agreement of all common members, the common members can be required to make
additional capital contributions in the form of cash or assumption of
liabilities of TW-Tennessee in proportion to their ownership interests. During
1997, TW-Tennessee established a $1,000,000 line of credit with a commercial
bank at the bank's prime rate (8.5% at December 31, 1997), which expires on
October 31, 1998, but may be extended by mutual agreement. At December 31,
1997, TW-Tennessee had drawn down $1,000,000 under this line of credit. In
March 1998, the principal amount of the line of credit was increased to
$2,000,000. The Company has agreed to guarantee up to $1,250,000 of the
principal balance of the line of credit, and other members have agreed each to
guarantee up to $750,000 of the principal balance. As of April 30, 1998,
TW-Tennessee had drawn down $1,174,000 under the line of credit.
During 1997, TW-Tennessee entered into a $14,800,000 lease financing
arrangement with an unrelated third party for the acquisition, conversion,
remodeling and equipping of up to twelve existing restaurants as Tumbleweed
restaurants, and the acquisition, construction and equipping of two prototype
Tumbleweed restaurants. The Company and certain members of TW-Tennessee have
jointly and severally guaranteed 50% of TW-Tennessee's obligations under the
arrangement to the extent of 100% of any amounts due under the building lease
for each restaurant until the restaurant opens and to the extent of 25% of such
amounts thereafter. At December 31, 1997 and April 30, 1998, the amounts
expended by TW-Tennessee under the financing arrangement totaled $6.4 million
and $7.5 million, respectively. As of those dates, TW-Tennessee also had
equipment leases with a bank totaling approximately $100,000 and $300,000,
respectively, which are jointly and severally guaranteed by the common members
of TW-Tennessee.
In 1997 and the four months of 1998, TW-Tennessee paid royalties and
franchise fees of $77,186 and $65,252, respectively, and other fees of $30,445
and $25,601, respectively, to the Company under the franchise agreement.
TW-INDIANA, LLC
David M. Roth, a director of the Company, is a member in TW-Indiana,
LLC, which in April 1998 acquired the franchise rights to five full-service
Tumbleweed restaurants in Indiana and Kentucky from a third party. David H.
Cooper, a stockholder of the Company, is also a member of TW-Indiana, LLC.
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<PAGE>
OTHER TRANSACTIONS
At the time the Reorganization takes effect, the interests of the current
Class A, Class B, Class C and Common Members of Tumbleweed, LLC will be
converted into a total of 5,145,000 shares of Common Stock. The interests of
the Class B Members, which were issued in connection with the initial
organization of Tumbleweed, LLC in September 1994, are convertible into five
percent of the total number of shares of Common Stock to be issued in the
Reorganization, or 257,250 shares, only if the Class B Members make additional
capital contributions totaling $747,500 no later than the time the
Reorganization takes effect. The Class B Members have deposited the capital
contributions into escrow, subject to the effectiveness of the Reorganization.
Class B interests are owned by nine record members, and beneficial owners of
those interests include Minx M. Auerbach and David M. Roth, who are directors of
the Corporation.
David M. Roth and David H. Cooper are principals in the law firm Roth Foley
Bryant & Cooper, PLLC, which provided legal services to the Company during 1997
and may be expected to render such services to the Company in the future. The
Company paid $71,859 in fees for legal services rendered by Roth Foley Bryant &
Cooper, PLLC in 1997 and $10,151 for the first four months of 1998.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock upon consummation of the Reorganization by (i)
each person known by the Company to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the executive officers named in the Summary Compensation Table above and
(iv) all executive officers and directors of the Company as a group. The table
assumes the sale of (a) 700,000 shares of Common Stock and (b) 1,200,000 shares
of Common Stock, respectively, in this offering, and that none of the listed
persons or the members of the group purchases shares of Common Stock in the
offering.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Amount and Nature of Beneficial Ownership
---------------- -----------------------------------------
Percentage of Class
-------------------
Number 700,000 1,200,000
of Shares(1) shares sold shares sold
--------- ----------- -----------
<S> <C> <C> <C>
John A. Butorac, Jr.(2) 1,335,367 22.8% 21.1%
1900 Mellwood Avenue
Louisville, KY 40206
James M. Mulrooney 895,494 15.3 14.1
1900 Mellwood Avenue
Louisville, KY 40206
George Keller 514,500 8.8 8.1
4201 Paoli Pike
Floyd Knobs, IN 47119
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<PAGE>
David M. Roth(3) 384,415 6.6 6.1
1230 Liberty Bank Lane
Suite 200
Louisville, KY 40222-5763
Minx M. Auerbach(4) 151,384 2.6 2.4
Lewis Bass 53,426 0.9 0.8
W. Roger Drury 21,370 0.4 0.3
Terrance Smith -- -- --
John Brewer -- -- --
All current directors and 3,355,956 57.4% 52.9%
executive officers as a group
(9 persons)
</TABLE>
- ----------------
* Indicates less than 1%.
(1) Under the rules of the Commission, a person is deemed to beneficially own
shares over which the person has or shares voting or investment power or
has the right to acquire beneficial ownership within 60 days. Except as
otherwise noted, each person or entity named in the table has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned.
(2) Includes 934,553 shares held jointly by Mr. Butorac and his wife and
400,524 shares held by Mr. Butorac's wife as trustee for their children.
(3) Includes 89,052 shares held by Douglass Ventures, for which Mr. Roth is
general partner, and 134,325 shares held by Valley Vista Ventures, LLC, for
which Mr. Roth is manager.
(4) Ms. Auerbach holds all of these shares as trustee for a family trust.
SELLING STOCKHOLDERS
An aggregate of 5,145,000 shares of Common Stock will be issued to the
members of Tumbleweed, LLC in the Reorganization, which will take effect as of
the time the Company has accepted subscriptions for at least 700,000 shares of
Common Stock offered hereby and elects to consummate the sale of those shares at
an initial closing. The 5,145,000 shares to be issued in the Reorganization
would represent from 81.1% to 88.0% of the shares of Common Stock outstanding
upon completion of this offering, depending on the number of shares sold in this
offering, which could range from a maximum of 1,200,000 shares to a minimum of
700,000 shares.
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<PAGE>
The 5,145,000 shares of Common Stock to be issued in the Reorganization
have been registered under the Securities Act and may be offered by the members
of Tumbleweed, LLC (the "Selling Stockholders"). Selling Stockholders may not
sell their Common Stock until the earlier of (i) the sale of all 1,200,000
shares of Common Stock offered by the Company in this offering, or (ii) the
termination of this offering by the Company after the sale of a minimum of
700,000 shares of Common Stock and the effective time of the Reorganization. Of
the 5,145,000 shares eligible for sale by Selling Stockholders, 771,750 shares
(15%) may be sold by Selling Stockholders beginning upon the completion of this
offering by the Company, and 4,373,250 shares (85%) will be subject to
agreements by the Selling Stockholders not to sell or otherwise transfer 85% of
the shares issued in the Reorganization without the prior written consent of the
Company for a period of nine months following the date of the completion of this
offering by the Company.
The following table sets forth certain information with respect to the
Selling Stockholders. The Company will not receive any of the proceeds from the
sale of such shares. There are no material relationships between any of the
Selling Stockholders and the Company or any of its predecessors, nor have any
such material relationships existed within the past three years, except for the
transactions relating to the issuance of such shares and except as set forth
under "Certain Transactions." Because the Selling Stockholders may sell all or
a portion of their shares of Common Stock at any time and from time to time
after the date of completion of this offering by the Company, no estimate can be
made of the number of shares of Common Stock that each Selling Stockholder may
retain upon completion of the offering by Selling Stockholders. Based on
information provided by the Selling Stockholders, no Selling Stockholder owns 1%
or more of the Company's outstanding common stock prior to this Offering, except
as indicated below.
Beneficial Ownership of Common Stock(1)(2)
------------------------------------------
Selling Stockholder Number of Shares Percentage
- ------------------- ---------------- ----------
[Selling Stockholder information to be added by amendment]
- -----------
(1) Assumes the listed person buys none of the 1,200,000 shares offered by the
Company in this offering.
(2) Of these shares, 85% may not be sold for a period of nine months from the
date the Company completes this offering of 1,200,000 shares without the
prior written consent of the Company.
Selling Stockholders may sell their shares from time to time in
transactions in the over-the-counter market or in negotiated transactions, a
combination of such methods of sale, or otherwise. The shares may be sold by
one or more of the following: (a) a block trade in which the broker or dealer so
engaged will attempt to sell the shares as agent; and (b) ordinary brokerage
transactions in which the broker solicits purchasers. In addition, any
securities covered by the Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
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<PAGE>
Selling Stockholders may sell their shares directly to purchasers, through
broker-dealers, or to broker-dealers who may purchase shares as principals and
thereafter sell the shares from time to time in the over-the-counter market, in
negotiated transactions, or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions, or commissions from Selling
Stockholders and/or the purchasers for whom such broker-dealers may act as
agents or to whom they may sell as principals or both (which compensation as to
a particular broker-dealer may be in excess of customary commissions.
Selling Shareholders and broker-dealers, if any, acting in connection with
such sale might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of such shares might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of the
shares is made by or on behalf of Selling Shareholders, to the extent required,
a supplement to this Prospectus will be distributed, which will set forth the
number of shares being offered and the terms of the offering, including the name
or names of any underwriters, dealers, or agents, the purchase price paid by any
underwriter and any discounts, commissions, or concessions allowed or reallowed
or paid to dealers, and the proposed selling price to the public.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, each Selling Stockholder' will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which may limit the
timing of purchases and sales of shares of Common Stock by the Selling
Stockholders.
The Company will pay all reasonable and necessary expenses in connection
with the preparation of the Registration Statement and this Prospectus,
including, without limitation, any and all legal, accounting and filing fees,
but not including fees and disbursements of experts and counsel retained by the
Selling Stockholders or underwriting discounts and commission to be paid by the
Selling Stockholders.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities in connection with the Registration Statement, of which this
Prospectus is a part, including certain liabilities under the Securities Act.
DESCRIPTION OF SECURITIES
GENERAL
The Company's Certificate of Incorporation provides that the authorized
capital stock of the Company consists of 30,000,000 shares of Common Stock, par
value $0.01 per share, and 5,000,000 shares of preferred stock ("Preferred
Stock"), par value $0.01 per share. Upon completion of this offering, it is
anticipated that a minimum of 5,845,000 shares and a maximum of 6,345,000 shares
of Common Stock will be issued and outstanding and no shares of Preferred Stock
will be issued or outstanding.
COMMON STOCK
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<PAGE>
The holders of Common Stock are entitled to one vote per share owned of
record on all matters voted upon by stockholders. Subject to requirements, if
any, regarding the setting aside of sums as sinking funds or redemption or
purchase accounts, and subject further to the requirements (including any
preferential rights) of the Preferred Stock outstanding, holders of Common Stock
are entitled to receive dividends if, as and when declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all liabilities of the Company
and the liquidation preferences of any outstanding Preferred Stock.
National City Bank, Cleveland, Ohio, will act as the transfer agent and
registrar for the Common Stock.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized shares of
Preferred Stock in one or more series and to fix the designations, powers,
privileges and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitations and
restrictions, including, without limitation, the number of shares constituting
each such series, dividend rates, redemption and sinking fund provisions,
liquidation and preferences, conversion rights, and voting rights, without any
further vote or action by the stockholders. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Common Stock. The issuance of Preferred Stock
also could have the effect of delaying, deterring or preventing a change in
control of the Company without further action by the stockholders.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Board of Directors currently consists of eight directors.
The Company's Certificate of Incorporation and the By-laws provide that: (i)
the number of directors of the Company will be fixed by resolution of the Board
of Directors, but in no event will be less than five nor more than 11 directors;
(ii) the directors of the Company in office from time to time will fill any
vacancy or newly created directorship on the Board of Directors; (iii) directors
of the Company may be removed only for cause by the holders of at least a
majority of the Company's voting stock; (iv) stockholder action can be taken
only at an annual or special meeting of stockholders and not by written consent
in lieu of a meeting; and (v) except as described below, special meetings of
stockholders may be called only by the Chairman of the Board, the President of
the Company or by a majority of the total number of directors of the Company,
and the business permitted to be conducted at any such meeting is limited to
that stated in the notice of the special meeting. The By-laws also require that
stockholders desiring to bring any business before an annual meeting of
stockholders deliver written notice thereof to the Secretary of the Company not
fewer than 60 days nor more than 90 days in advance of the annual meeting of
stockholders; provided, however, if the date of the meeting is not furnished to
stockholders in a notice, or is not publicly disclosed by the Company, more than
70 days prior to the meeting, notice by the stockholder, to be timely, must be
delivered to the President or Secretary of the Company not later than the close
of business on the tenth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made.
- 60 -
<PAGE>
The By-laws also provide that stockholders desiring to nominate persons for
election as directors must make their nominations in writing to the President of
the Company not fewer than 60 days nor more than 90 days prior to the scheduled
date for the annual meeting; provided, however, if fewer than 70 days notice or
prior public disclosure of the scheduled date for the annual meeting is given or
made, notice to the stockholders, to be timely, must be delivered to the
President or Secretary of the Company not later than the close of business on
the tenth day following the day on which such notice of the date of the meeting
was mailed or such public disclosure was made.
Under applicable provisions of the Delaware General Corporation Law, the
approval of a Delaware corporation's board of directors, in addition to
stockholder approval, is required to adopt any amendment to the corporation's
certificate of incorporation, but a corporation's by-laws may be amended either
by action of its stockholders or, if the corporation's certificate of
incorporation so provides, its board of directors. The Certificate of
Incorporation and By-laws provide that the provisions summarized above may not
be amended by the stockholders, nor may any provision inconsistent herewith be
adopted by the stockholders, without the affirmative vote of the holders of at
least 85% of the Company's voting stock, voting together as a single class.
The foregoing provisions of the Certificate of Incorporation and By-laws
may discourage or make more difficult the acquisition of control of the Company
by means of a tender offer, open market purchase, proxy contest or otherwise.
These provisions may have the effect of discouraging certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of the Company first to negotiate with the Company. The
Company's management believes that the foregoing measures provide benefits to
the Company and its stockholders by enhancing the Company's ability to negotiate
with the proponent of any unfriendly or unsolicited proposal to take over or
restructure the Company and that these benefits outweigh the disadvantages of
discouraging such proposals because, among other things, negotiations relating
to takeover or restructuring proposals could result in an improvement of their
terms.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date the person became an interested stockholder unless: (i)
before the person became an interested stockholder, the board of directors of
the corporation approved either the transaction in which the interested
stockholder became an interested person or the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time such transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which the person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the public announcement or notification (as required by
Section 203) of a transaction that is one of certain extraordinary transactions
involving the corporation, is with or by a person who either has not been an
interested stockholder
- 61 -
<PAGE>
during the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors, and is approved or not
opposed by a majority of the board of directors then in office. Mr. Butorac and
Mr. Mulrooney, each of whom may own more than 15% of the Common Stock upon
completion of this offering, are excluded from status as an "interested person"
for purposes of Section 203.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance given as to the effect, if any, that the
sale or availability for sale of shares of Common Stock will have on the market
price. Sales of substantial amounts of Common Stock in the public market, or
the perception that sales in substantial amounts might occur, could adversely
effect the market price of the Common Stock and impair the Company's ability to
raise equity capital in the future.
Upon completion of this offering, there will be a minimum of 5,845,000
shares and a maximum of 6,345,000 shares of Common Stock outstanding, depending
on the number of shares sold in this offering. All of the outstanding stores
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act ("Affiliates"), may
generally be sold only in compliance with the limitations of Rule 144 described
below.
In connection with this offering, the current members of Tumbleweed, LLC
(who will own a total of approximately 5,145,000 shares of Common Stock) have
entered into agreements (the "Lock-Up Agreements") with the Company that,
subject to certain exceptions, they will not sell or otherwise transfer
4,373,250 or 85% of their shares of Common Stock for a period of nine months
from the effective time of the Reorganization without the prior written consent
of the Company. Upon the expiration of the Lock-Up Agreements all of these
shares will become immediately available for resale.
In general, under Rule 144, as currently in effect, any Affiliate of the
Company who has beneficially owned restricted securities for at least one year,
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the Company's
Common Stock (a minimum of 58,450 and a maximum of 63,450 shares immediately
after the offering) or (ii) the average weekly trading volume of the Company's
Common Stock on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association such as the
Nasdaq National Market during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales pursuant
to Rule 144 are also subject to certain requirements relating to manner of sale,
notice and availability of current public information about the Company.
OPTIONS
Options to purchase approximately 400,000 shares of Common Stock will be
granted to employees and nonemployee directors under the Plan, effective upon
the completion of this offering. Approximately 235,000 additional shares of
Common Stock are available for future option grants under the Plan. See
"Management -- Incentive Stock Plan."
- 62 -
<PAGE>
PLAN OF DISTRIBUTION
GENERAL
The Company is offering to sell up to 1,200,000 shares of its Common Stock.
The Common Stock will be sold by the Company on a "best efforts" basis. None of
the officers and directors of the Company will receive any compensation in
connection with any offers or sales of Common Stock in this offering. The
Company may also retain Agents to sell the Common Stock on a "best efforts"
basis. There are no underwriters involved in this offering. If the Company
retains Agents to sell the Common Stock offered hereby, the Company will pay
such Agents a selling commission of up to 8% of the gross offering proceeds
attributable to Common Stock sold by such Agents. The Company and the Agents,
if any, will, in all likelihood, agree to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933.
The Common Stock will be sold at the price of $10.00 per share. The
minimum number of shares a subscriber is required to purchase in order to
subscribe to the offering hereby will be 100 shares and shares must be purchased
in increments of 100 shares. The Company reserves the right to withdraw, cancel
or modify the offering hereby and to reject subscriptions, in whole or in part,
for any reason.
DETERMINATION OF OFFERING PRICE
Prior to the offering hereby, there has been no public market for the
Company's Common Stock. The price to the public has been arbitrarily determined
by the Company and may not be indicative of the market price for the Common
Stock after this offering. In determining the offering price, the Board of
Directors considered, among other things, the Company's earnings, their view of
its prospects, the earnings of comparable publicly-traded casual dining
restaurant companies, and the trading price of the stock of those companies.
The Company makes no representations as to any objectively determinable value of
the Common Stock.
SUBSCRIPTION PROCEDURES
The Company is presently soliciting non-binding indications of interest to
purchase shares of Common Stock, and will not accept binding subscriptions or
accept payment for any shares until after the Registration Statement of which
this Prospectus in a part has been declared effective by Securities and Exchange
Commission. After such Registration Statement has been declared effective, the
Company will provide to each prospective investor an agreement to purchase
shares of the Common Stock (the "Subscription Agreement") and a copy of the
final Prospectus relating to this offering. The Company's acceptance of a
subscription shall be evidenced solely by the delivery to the subscriber of a
written confirmation of sale. Receipt by the Company of a Subscription
Agreement and/or deposit by the Escrow Agent of payment for the subscribed
shares as described below shall not constitute acceptance of a subscription.
All subscription payments and executed Subscription Agreements will be delivered
to the National City Bank (the "Escrow Agent"), Louisville, Kentucky. The
subscription payments will be deposited into an escrow account at National City
Bank, subject to a closing (the "Initial Closing") on such escrowed funds once
the Company has accepted subscriptions for at least 700,000 shares and, if all
shares of Common Stock offered hereby are not sold as of the date of the Initial
Closing, to subsequent closings on such escrowed funds from time to time as
determined by the Company.
- 63 -
<PAGE>
Stock certificates will not be issued to subscribers until such time as the
funds related to the purchase of Common Stock by such subscribers are released
from the escrow account to the Company by the Escrow Agent. Until such time as
stock certificates are issued to the subscribers, the subscribers will not be
considered shareholders of the Company.
Subscribers will have no right to a return of their subscription payment
held in the escrow account and all interest earned on the escrowed proceeds will
belong to the Company. However, if the Company cancels this offering of the
Common Stock, interest earned on an escrowed subscription payment will be paid
to the subscriber.
TERMINATION OF OFFERING
This offering begins on the date of this Prospectus and will continue until
the earlier of (i) the date upon which the Escrow Agent receives the proceeds
for all 1,200,000 shares of Common Stock offered hereby in the specified escrow
account; (ii) December 31, 1998 (subject to the right of the Company to extend
the offering for an additional 90 days to March 31, 1999); or (iii) the date
upon which the Company terminates this offering for any reason other than the
sale of at least 700,000 shares of Common Stock. The Company has the right to
terminate the offering and purchase the shares held in escrow at any time after
the Escrow Agent has received the subscription proceeds for 700,000 shares. The
Company may terminate this offering at any time until all 1,200,000 shares of
Common Stock offered hereby have been sold. If the Company terminates this
offering before the subscription proceeds for 700,000 shares have been received
by the Escrow Agent, all subscription proceeds will be promptly returned to
subscribers, with interest.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Brown, Todd & Heyburn PLLC, Louisville, Kentucky.
EXPERTS
The financial statements of Tumbleweed, Inc. as of June 23, 1998, and of
Tumbleweed, LLC as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
- 64 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Tumbleweed, Inc.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
Financial Statements
Balance Sheet as of June 23, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . .F-2
Notes to Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Tumbleweed, LLC
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4
Financial Statements
Statements of Income for the years ended December 31, 1995, 1996
and 1997 and for the quarters ended March 31, 1997 and
1998 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-5
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited). . . . .F-6
Statements of Redeemable Members' Equity, Members' Equity and Retained
Earnings (Deficit) for the years ended December 31, 1995, 1996 and
1997 and for the quarter ended March 31, 1998 (unaudited) . . . . . . . . . . . . .F-8
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the quarters ended March 31, 1997 and 1998 (unaudited) . . . . . . . .F-9
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
</TABLE>
- 65 -
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Tumbleweed, Inc.
We have audited the accompanying balance sheet of Tumbleweed, Inc. as of June
23, 1998. This balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Tumbleweed, Inc. as of June 23,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 23, 1998
F-1
<PAGE>
Tumbleweed, Inc.
Balance Sheet
June 23, 1998
<TABLE>
<S> <C>
ASSETS
Cash $ 130
-----------
Total assets $ 130
-----------
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding $ -
Common stock, $.01 par value, 30,000,000
shares authorized; 13 shares issued and outstanding 1
Paid-in capital $ 129
-----------
Total stockholders' equity $ 130
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Tumbleweed, Inc.
Notes to Balance Sheet
June 23, 1998
1. DESCRIPTION OF BUSINESS
Tumbleweed, Inc. (the Company) was legally formed in December 1997 and
capitalized on June 23, 1998 with the issuance of 13 shares of Company common
stock at $10 per share. The Company has entered into an agreement with
Tumbleweed, LLC (Tumbleweed) in which Tumbleweed will be merged with and into
the Company subject to the sale in an initial public offering (IPO) of at least
700,000 shares of the Company's common stock. Tumbleweed owns and operates 22
restaurants in Kentucky, Indiana and Ohio, and franchises an additional 13
restaurants in Indiana, Illinois, Tennessee and Wisconsin. Tumbleweed also
licenses one restaurant in each of Germany and Saudi Arabia.
2. BASIS OF PRESENTATION
The Company's assets at June 23, 1998 consist solely of cash received in
connection with the capitalization of the Company. The Company has not conducted
any operations and all activities to date have related to the IPO and the
anticipated merger with Tumbleweed. All expenditures related to the IPO have
been funded and recorded by Tumbleweed. Accordingly, statements of operations,
changes in stockholders' equity and cash flows would not provide meaningful
information and have been omitted.
F-3
<PAGE>
Report of Independent Auditors
The Members
Tumbleweed, LLC
We have audited the accompanying balance sheets of Tumbleweed, LLC as of
December 31, 1996 and 1997, and the related statements of income, redeemable
members' equity, members' equity and retained earnings (deficit) and cash
flows for each of three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tumbleweed, LLC at December
31, 1996 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 31, 1998
F-4
<PAGE>
Tumbleweed, LLC
Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 QUARTERS ENDED MARCH 31
1995 1996 1997 1997 1998
------------------------------------------- --------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 17,254,058 $ 23,284,007 $ 27,891,128 $ 6,538,745 $ 8,409,122
Commissary sales 1,574,847 1,795,529 1,007,011 372,391 250,866
Franchise fees and royalties 540,157 474,870 563,056 115,356 185,187
Other revenues 177,960 177,317 365,054 83,451 62,702
------------------------------------------- --------------------------
Total revenues 19,547,022 25,731,723 29,826,249 7,109,943 8,907,877
Operating expenses:
Restaurant cost of sales 5,132,549 7,103,357 8,191,928 1,905,202 2,388,418
Commissary cost of sales 1,424,077 1,649,502 887,793 333,679 210,891
Operating expenses 8,896,704 12,386,119 14,035,693 3,459,311 4,487,175
Selling, general and administrative expenses 1,962,036 2,250,827 3,051,740 675,592 939,872
Preopening amortization 149,138 405,502 544,723 172,131 96,950
Depreciation and amortization 1,033,349 1,231,290 971,863 224,055 300,562
------------------------------------------- --------------------------
Total operating expenses 18,597,853 25,026,597 27,683,740 6,769,970 8,423,868
------------------------------------------- --------------------------
Income from operations 949,169 705,126 2,142,509 339,973 484,009
Other income (expense):
Interest income 23,911 18,313 62,120 14,276 12,843
Interest expense (290,441) (222,123) (490,718) (124,727) (154,705)
------------------------------------------- --------------------------
Total other expense (266,530) (203,810) (428,598) (110,451) (141,862)
------------------------------------------- --------------------------
Net income $ 682,639 $ 501,316 $ 1,713,911 $ 229,522 $ 342,147
------------------------------------------- --------------------------
------------------------------------------- --------------------------
Pro forma income data (unaudited):
Net income as reported $ 1,713,911 $ 229,522 $ 342,147
Pro forma income taxes (617,008) (82,628) (123,173)
------------- --------------------------
Pro forma net income $ 1,096,903 $ 146,894 $ 218,974
------------- --------------------------
------------- --------------------------
Pro forma net income per share-basic and diluted $ 0.21 $ 0.03 $ 0.04
------------- --------------------------
------------- --------------------------
Shares used in computing pro forma net income per share 5,145,000 5,145,000 5,145,000
------------- --------------------------
------------- --------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Tumbleweed, LLC
Balance Sheets
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31 MARCH 31 MARCH 31
1996 1997 1998 1998
---------------------------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,031,709 $ 1,228,867 $ 443,139 $ 443,139
Accounts receivable 296,609 346,700 269,087 269,087
Note receivable from affiliate 100,000 100,000 100,000 100,000
Inventories 698,456 825,029 927,240 927,240
Deferred preopening expenses 495,002 267,100 582,316 582,316
Prepaid expenses 248,475 282,590 280,368 280,368
--------------------------- -------------------------
Total current assets 2,870,251 3,050,286 2,602,150 2,602,150
Property and equipment, net 14,617,858 19,330,132 21,452,594 21,452,594
Note receivable from affiliate 400,000 300,000 300,000 300,000
Goodwill, net of accumulated amortization of
$218,642 in 1996, $329,442 in 1997 and
$357,142 as of March 31, 1998 3,055,304 2,944,504 2,916,804 2,916,804
Other assets 319,022 443,559 509,047 509,047
--------------------------- -------------------------
$ 21,262,435 $ 26,068,481 $27,780,595 $27,780,595
--------------------------- -------------------------
--------------------------- -------------------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31 MARCH 31 MARCH 31
1996 1997 1998 1998
---------------------------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES, REDEEMABLE MEMBERS' EQUITY,
MEMBERS' EQUITY, RETAINED EARNINGS (DEFICIT)
AND PRO FORMA STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 660,303 $ 1,174,645 $ 898,225 $ 898,225
Accrued liabilities 631,471 890,255 1,133,188 1,133,188
Deferred income taxes - - - 416,091
Current maturities on long-term
debt and capital leases 271,908 509,779 557,317 557,317
--------------------------- -------------------------
Total current liabilities 1,563,682 2,574,679 2,588,730 3,004,821
Long-term debt, less current maturities 3,955,235 5,750,841 7,231,440 7,231,440
Capital lease obligations, less current maturities 1,549,014 2,280,964 2,405,977 2,405,977
Deferred income taxes - - - 25,461
Other liabilities 40,000 118,584 120,335 120,335
--------------------------- -------------------------
Total long-term liabilities 5,544,249 8,150,389 9,757,752 9,783,213
--------------------------- -------------------------
Total liabilities 7,107,931 10,725,068 12,346,482 12,788,034
Redeemable members' equity 20,232,519 23,419,738 24,061,878 7,218,087
Members' equity 6,959 6,959 6,959 -
Retained earnings (deficit) (6,084,974) (8,083,284) (8,634,724) -
Pro forma stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued
and outstanding - - - -
Common stock, $.01 par value,
30,000,000 shares authorized; 5,145,000
shares issued and outstanding - - - 51,450
Paid-in capital - - - 7,723,024
--------------------------- -------------------------
Total pro forma stockholders' equity - - - 7,774,474
--------------------------- -------------------------
$ 21,262,435 $ 26,068,481 $27,780,595 $27,780,595
--------------------------- -------------------------
--------------------------- -------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
TUMBLEWEED, LLC
<TABLE>
<CAPTION>
STATEMENTS OF REDEEMABLE MEMBERS' EQUITY, MEMBERS' EQUITY AND RETAINED EARNINGS (DEFICIT)
REDEEMABLE MEMBERS' EQUITY
MEMBERS ----------------------------------------------- RETAINED
EQUITY-CLASS A COMMON CLASS B CLASS C EARNINGS
MEMBERS MEMBERS MEMBERS MEMBERS TOTAL (DEFICIT)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ - $6,000 $ 152,500 $ 500 $ 159,000 $ (38,924)
Issuance of members' equity 13,425,172 - - - - -
Distributions of members' equity (376,943) - (152,041) - (152,041) -
Net income - - - - - 682,639
Accretion of redeemable members' equity 3,364,968 - - - - (3,364,968)
---------------------------------------------------------------------------
Balance at December 31, 1995 16,413,197 6,000 459 500 6,959 (2,721,253)
Issuance of members' equity 582,962 - - - - -
Distributions of members' equity (628,677) - - - - -
Net income - - - - - 501,316
Accretion of redeemable members' equity 3,865,037 - - - - (3,865,037)
---------------------------------------------------------------------------
Balance at December 31, 1996 20,232,519 6,000 459 500 6,959 (6,084,974)
Issuance of members' equity 50,958 - - - - -
Distributions of members' equity (575,960) - - - - -
Net income - - - - - 1,713,911
Accretion of redeemable members' equity 3,712,221 - - - - (3,712,221)
---------------------------------------------------------------------------
Balance at December 31, 1997 23,419,738 6,000 459 500 6,959 (8,083,284)
Issuance of members' equity (unaudited) 193,368 - - - - -
Distributions of members' equity (unaudited) (444,815) - - - - -
Net income (unaudited) - - - - - 342,147
Accretion of redeemable members' equity (unaudited) 893,587 - - - - (893,587)
---------------------------------------------------------------------------
Balance at March 31, 1998 (unaudited) $ 24,061,878 $6,000 $459 $500 $6,959 $(8,634,724)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
<TABLE>
<CAPTION>
Tumbleweed, LLC
Statements of Cash Flows
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
1995 1996 1997 1997 1998
--------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES: (UNAUDITED)
Net income $ 682,639 $ 501,316 $ 1,713,911 $ 229,522 $ 342,147
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 422,383 604,534 822,756 190,688 262,717
Amortization 610,966 626,756 142,613 33,367 37,845
Preopening amortization 149,138 405,502 544,724 172,131 96,950
Gain on sale of food courts - (71,298) - - -
Loss (gain) on disposition of property and equipment (7,500) 2,732 13,498 1,586 839
Changes in operating assets and liabilities:
Accounts receivable (34,453) 87,382 (50,091) (58,95) 77,613
Inventories (86,750) (307,900) (126,573) 33,864 (102,211)
Deferred preopening expenses (323,041) (726,601) (316,822) (24,738) (412,166)
Prepaid expenses (101,572) (62,063) 19,062 (22,230) 1,007
Other assets 167,857 (207,125) (98,042) 40,271 (58,200)
Accounts payable (108,908) 124,097 31,938 (156,629) (276,420)
Accrued liabilities 37,500 92,647 258,784 (81,278) 242,933
Other liabilities - - 78,584 - 1,751
---------------------------------- -----------------------
Net cash provided by operating activities 1,408,259 1,069,979 3,034,342 357,602 214,805
INVESTING ACTIVITIES:
Purchase of business, net of cash acquired (9,963,544) - - - -
Purchases of property and equipment (2,915,957) (4,712,962) (4,098,595) (872,673) (2,176,037)
Proceeds from sale of property and equipment 1,526,000 1,635,815 - - -
Proceeds from sale of food courts, net of
cash relinquished - 96,100 100,000 - -
---------------------------------- -----------------------
Net cash used in investing activities (11,353,501) (2,981,047) (3,998,595) (872,673) (2,176,037)
FINANCING ACTIVITIES:
Proceeds from issuance of members' equity 13,425,172 582,962 50,958 - 193,368
Distribution of members' equity (528,984) (628,677) (575,960) (150,000) (444,815)
Proceeds from issuance of long-term debt 876,000 5,437,311 3,452,361 550,000 1,671,069
Payments on long-term debt and capital lease
obligations (1,745,829) (4,532,110) (1,654,463) (151,130) (227,900)
Payment of public offering costs - - (111,485) - (16,218)
---------------------------------- -----------------------
Net cash provided by financing activities 12,026,359 859,486 1,161,411 248,870 1,175,504
---------------------------------- -----------------------
Net increase (decrease) in cash and cash equivalents 2,081,117 (1,051,582) 197,158 (266,201) (785,728)
Cash and cash equivalents at beginning of period 2,174 2,083,291 1,031,709 1,031,709 1,228,867
---------------------------------- -----------------------
Cash and cash equivalents at end of period $2,083,291 $1,031,709 $ 1,228,867 $ 765,508 $ 443,139
---------------------------------- -----------------------
---------------------------------- -----------------------
Supplemental cash flow information:
Cash paid for interest, net of amount capitalized $ 290,441 $ 222,123 $ 473,055 $ 124,727 $ 154,705
---------------------------------- -----------------------
---------------------------------- -----------------------
Noncash investing and financing activities:
Property and equipment acquired by seller
financing and capital lease obligations $ - $1,793,991 $ 967,529 $ - $ 209,981
---------------------------------- -----------------------
---------------------------------- -----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-9
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements
March 31, 1998 (Unaudited) and December 31, 1997
UNAUDITED INTERIM FINANCIAL INFORMATION
The balance sheet as of March 31, 1998 and statements of income, cash flows and
related footnote information herein for the quarters ended March 31, 1997 and
1998, and statements of redeemable members' equity, members' equity and
retained earnings (deficit) for the quarter ended March 31, 1998 (the "1997 and
1998 interim financial information") are unaudited and have been prepared by
Tumbleweed, LLC (the "Company") on the same basis as the audited financial
statements herein. In the opinion of the Company, the 1997 and 1998 interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation of the
information.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the 1997 and 1998 interim financial
information. The 1997 and 1998 interim financial information should be read in
conjunction with the Company's December 31, 1995, 1996 and 1997 audited
financial statements appearing herein. Operating results for the quarter ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
1. ORGANIZATIONAL MATTERS
The Company operates and franchises Tumbleweed Southwest Mesquite Grill and Bar
full service restaurants. Following is a summary of the number of restaurants
open at the end of each period:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996 1997 1997 1998
---------------------- -----------------
<S> <C> <C> <C> <C> <C>
Company owned 10 15 17 15 17
Franchised and licensed 9 9 12 9 13
</TABLE>
The restaurant facilities are located in Kentucky, Indiana, Ohio, Illinois,
Wisconsin, Tennessee and one overseas restaurant is located in Erlangen,
Germany.
F-10
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
1. ORGANIZATIONAL MATTERS (CONTINUED)
The Company and its owners (Members) operate pursuant to an Operating Agreement
dated September 19, 1994. Members of the Company are comprised of Common
Members, Class A Members, Class B Members and a Class C Member. Certain Common
Members act as the Managers of the Company and, acting unanimously, would
generally have voting control of the Company. The Company is to dissolve no
later than December 13, 2044.
Certain Members of the Company have provided financing which has been accounted
for as redeemable members' equity (see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and deposits at financial
institutions with maturities of less than three months when purchased.
INVENTORIES
Inventories, which consist of smallwares, food, beverages and supplies are
stated at the lower of average cost or market.
DEFERRED PREOPENING COSTS
Deferred preopening costs include the direct costs typically associated with
opening a new restaurant. These costs consist primarily of costs incurred to
develop the new restaurant management team, marketing and training. These costs
are amortized on a straight-line method over twelve months from the restaurant
opening date.
F-11
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1998, the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position, "REPORTING ON THE
COSTS OF START-UP ACTIVITIES" (the "SOP") which, requires adoption no later
than the beginning of 1999. The Company's initial application of the SOP will
require the write-off of deferred preopening costs ($267,100 at January 1,
1998) as of the date of adoption, and such write-off will be reported, on a net
of tax basis, as the cumulative effect of a change in accounting principle. The
Company is evaluating whether it will adopt this new standard in 1998 or 1999.
After adopting the SOP, the Company will be required to expense preopening
costs as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on the straight-line
method. Buildings and leasehold improvements are amortized over the lesser of
the life of the lease, including renewal options, or the estimated useful lives
of the assets, which range from ten to thirty years. Equipment is depreciated
over the estimated useful lives of the assets, which range from five to ten
years. Maintenance and repairs which do not enhance the value of or increase
the life of the assets are charged to costs and expenses as incurred.
CONSTRUCTION IN PROGRESS
The Company capitalizes all direct costs incurred in the construction of new
restaurants. Upon opening, these costs are depreciated or amortized and charged
to expense based upon their property classification.
GOODWILL
Goodwill is amortized on the straight-line method over thirty years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments approximate their fair value.
F-12
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Initial franchise fees are recognized when all material services have been
substantially performed by the Company and the restaurant has opened for
business. Fees received pursuant to development agreements which grant the
right to develop franchised restaurants in future periods in specific
geographic areas are deferred and recognized on a pro rata basis as the
franchised restaurants subject to the development agreements begin operations.
Franchise royalties, which are based on a percentage of monthly sales, are
recognized as income when earned. Costs associated with franchise operations
are expensed as incurred.
ADVERTISING COSTS
Advertising costs include Company-owned restaurant contributions to the
Tumbleweed Marketing Fund, Inc. ("the Marketing Fund") and developing and
conducting advertising activities, including the placement of electronic and
print materials developed by the Marketing Fund. All such advertising and
related costs are expensed as incurred. Contributions by Company-owned and
franchised restaurants to the Marketing Fund are based on an established
percentage of monthly restaurant revenues. The Marketing Fund is responsible
for the development of marketing and advertising materials for use throughout
the Company's system. The Marketing Fund is accounted for separately and is not
included in the financial statements of the Company. Advertising expense, which
includes local store promotions, for the years ended December 31, 1995, 1996
and 1997 was $991,291 $1,258,296 and $1,166,399, respectively, and $375,661 and
$570,691 for the quarters ended March 31, 1997 and 1998, respectively.
INCOME TAXES
The Company is currently a limited liability company which is taxed as a
partnership for federal and state income tax purposes. Accordingly, any tax
liability related to income would be reported by the Members of the Company.
The Company currently anticipates completing an initial public offering of its
common stock in 1998 (the "IPO"), which will result in the Company becoming a
taxable entity as a result of the reorganization (see Note 11).
F-13
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is required to be adopted for 1998
year-end financial reporting. This statement does not have any impact on the
financial results or financial condition of the Company, but may result in
certain changes in required disclosures of segment information.
3. ACQUISITION
Effective January 1, 1995, the Company acquired substantially all of the assets
of Tumbleweed Mexican Food, Inc. and Tumbleweed Concepts, Inc. The funds
necessary to complete the acquisition were raised by the Company through an
equity offering that generated $7,034,375 from Class A Members and a line of
credit assumed directly by the Class A Members on a pro rata basis. The
purchase price was $9,630,000, plus a $1,000,000 non-compete payment. The
acquisition was recorded under the purchase method of accounting. The excess of
the purchase price over the fair value of the assets acquired and liabilities
assumed is being amortized over thirty years using the straight-line method.
The non-compete agreement was amortized on a straight-line method over a two-
year period ($500,000 amortization expense in 1995 and 1996).
F-14
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997 1998
--------------------------- ------------
<S> <C> <C> <C>
Land and land improvements $ 4,370,852 $ 4,926,744 $ 4,912,207
Buildings and improvements 5,460,216 6,427,063 6,476,554
Leasehold improvements 1,590,346 1,831,734 1,831,937
Equipment 2,178,413 2,953,802 2,994,078
Building and equipment under capital leases 1,809,518 2,664,838 2,876,396
Construction in progress 157,135 2,297,135 4,395,105
--------------------------- ------------
15,566,480 21,101,316 23,486,277
Less accumulated depreciation and amortization (948,622) (1,771,184) (2,033,683)
--------------------------- ------------
$ 14,617,858 $ 19,330,132 $ 21,452,594
--------------------------- ------------
--------------------------- ------------
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997 1998
--------------------------- ------------
<S> <C> <C> <C>
Accrued payroll and related taxes $ 295,472 $ 416,066 $ 754,031
Accrued insurance and fees 50,297 104,475 89,818
Accrued taxes, other than income and payroll 125,292 157,693 226,154
Gift certificate liability 95,356 127,922 46,678
Other 65,054 84,099 16,507
--------------------------- ------------
$ 631,471 $ 890,255 $ 1,133,188
--------------------------- ------------
--------------------------- ------------
</TABLE>
F-15
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
6. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997 1998
---------- ----------- ------------
<S> <C> <C> <C>
Secured $5,000,000 mortgage revolving line of credit
note, bearing interest at prime rate plus .25% (8.75%
at December 31, 1997 and March 31, 1998), due
December 31, 2000 $2,863,391 $3,260,391 $4,070,391
Secured mortgage note payable, bearing interest at
9.75%, payable in monthly installments through
November 27, 2016 746,875 709,375 700,000
Secured mortgage note payable, bearing interest at
commercial paper rate plus 3% (8.8% at
December 31, 1997 and 8.5% at March 31, 1998),
due January 1, 2005 - 1,200,000 1,173,333
Secured mortgage note payable, bearing interest at
prime rate plus 1% (9.5% at December 31, 1997 and
March 31, 1998), payable in monthly installments
through October 1, 2017 - 133,937 905,005
Other installment notes payable 461,848 733,280 687,642
---------- ---------- -----------
4,072,114 6,036,983 7,536,371
Less current maturities 116,879 286,142 304,931
---------- ---------- -----------
Long-term debt $3,955,235 $5,750,841 $7,231,440
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Property and equipment with a net book value of approximately $11,500,000 at
December 31, 1997 collateralize the Company's long-term debt.
F-16
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
The aggregate annual maturities of long-term debt for the years subsequent to
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 286,142
1999 280,130
2000 3,513,041
2001 260,136
2002 209,719
Thereafter 1,487,815
------------
Total $ 6,036,983
------------
------------
</TABLE>
The terms of certain loan agreements include various provisions which require
the Company to (i) maintain defined net worth and coverage ratios, (ii) limit
the incurrence of certain liens or encumbrances in excess of defined amounts
and (iii) maintain defined leverage ratios. Management does not believe that
compliance with the credit terms will adversely impact the Company's future
operations.
Interest costs capitalized during the construction period of restaurants were
$40,715 in 1995, $157,286 in 1996 and $103,488 in 1997. For the quarters ended
March 31, 1997 and 1998 these costs were $5,620 and $57,523, respectively.
F-17
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
7. LEASES
The Company leases certain building and equipment under capital lease
agreements with related and third parties. The equipment leases have five to
seven year terms. The building leases expire in 2016 and 2017. Future minimum
lease payments under the capital leases and the net present value of the future
minimum lease payments at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER
LEASES LEASE TOTAL
------------------------------------------
<S> <C> <C> <C>
1998 $ 84,000 $ 371,712 $ 455,712
1999 84,000 371,712 455,712
2000 84,000 371,712 455,712
2001 84,000 371,712 455,712
2002 84,000 256,256 340,256
Thereafter 1,245,932 1,281,352 2,527,284
------------------------------------------
Total minimum lease payments $1,665,932 $3,024,456 4,690,388
----------------------------
----------------------------
Less amount representing interest
at 7.9% to 12.0% (2,185,787)
-----------
Net present value of lease payments 2,504,601
Less current maturities 223,637
-----------
Long-term portion of capital leases $2,280,964
-----------
-----------
</TABLE>
F-18
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
7. LEASES (CONTINUED)
The Company leases certain restaurants and equipment under operating leases
having terms expiring between 1998 and 2017. Most of the restaurant facility
leases have renewal clauses of five to twenty years exercisable at the option
of the Company and some of the leases are with related parties. Certain leases
require the payment of contingent rentals based on a percentage of gross
revenues. Future minimum lease payments on operating leases at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER
LEASES LEASES TOTAL
----------------------------------------
<S> <C> <C> <C>
1998 $ 238,689 $ 736,464 $ 975,153
1999 238,689 685,150 923,839
2000 238,689 548,785 787,474
2001 238,689 547,865 786,554
2002 238,689 545,111 783,800
Thereafter 1,346,532 3,752,061 5,098,593
----------------------------------------
$2,539,977 $6,815,436 $9,355,413
----------------------------------------
----------------------------------------
</TABLE>
Total rental expense was approximately $430,300 in 1995, $801,800 in 1996 and
$975,300 in 1997 and included contingent rent of approximately $3,000 in 1995,
$16,800 in 1996 and $30,700 in 1997. For the quarters ended March 31, 1997 and
1998, rental expense was approximately $250,000 and $300,800, respectively, and
included contingent rent of approximately $1,700 and $32,600, respectively.
Rental expense for the related party leases was approximately $52,300 in 1995,
$237,700 in 1996 and $282,000 in 1997. For the quarters ended March 31, 1997
and 1998, rental expense for these leases was approximately $59,600 and
$121,700, respectively.
Subsequent to December 31, 1997, the Company entered into a ground operating
lease agreement and a related party building operating lease agreement for a
restaurant which opened in January 1998. Total future minimum lease payments
relative to these leases are $960,000 and $1,200,000, respectively,
(approximately $48,000 and $60,000, respectively, annually).
F-19
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
8. REDEEMABLE CLASS A MEMBER UNITS AND LINE OF CREDIT
In January 1995, the Company established a $7,034,375 line of credit with a
local bank for borrowing at the bank's prime rate plus 1/4% (8.75% at December
31, 1997). Under a related assumption agreement, the Class A Members directly
assumed the total liability on a pro rata basis through January 2000. Until
then, the Company is secondarily liable for amounts borrowed. The Company had
drawn down $6,973,759, $7,024,717 and $7,218,087 at December 31, 1996, December
31, 1997 and March 31, 1998, respectively, under this line of credit which
expires on August 3, 1998. Since amounts borrowed under the line of credit are
primarily obligations of the Class A Members, such amounts are accounted for as
redeemable members' equity and any interest and other related costs on the debt
funded by the Company are accounted for as distributions to the Class A
Members.
Amounts borrowed under the line of credit must be repaid prior to or as a
result of an IPO by the Company. At any time after the fifth anniversary of the
date that a Class A Member is admitted to the Company (generally 2000), if an
IPO has not occurred, any Class A Member has the right to sell to the Company
their interest in the Company for the sum of cash contributed by the Class A
Member and an amount equal to a 30% internal rate of return on the Class A
Member's cash contributions and pro rata assumed principal portion of the line
of credit, taking into account all prior distributions to such Class A Member.
Redeemable members' equity in the accompanying balance sheets includes the
accretion of the 30% internal rate of return. The total Class A Members'
interests which would be required to be purchased by the Company in any one
year is limited and would be payable in equal installments over a five-year
term, with interest. However, the Managers of the Company have the right to
dissolve the Company at any time after a certain number of "put options" of
Class A Member Units have been exercised.
9. RELATED PARTY TRANSACTIONS
During 1996, the Company sold certain assets of its four food court restaurants
and it's 50% interest in a joint venture which operates a food court to T.M.
Riders, LLC (T.M. Riders). In exchange for essentially all the assets of the
food courts and its interest in the joint venture, the Company received
$100,000 in cash and a note receivable for $500,000, due in annual installments
of $100,000 plus interest at the rate of 8% per year beginning December 1, 1997
over five years.
F-20
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
In February 1997, the Company invested a nominal amount in T.M. Riders in
exchange for a 9.5% common member interest. After ten stores have opened, the
Company will receive fees from T.M. Riders based on store openings and royalty
fees based on T.M. Riders' system-wide sales. In the event T.M. Riders has an
IPO, it has the option to increase the Company's ownership to 20.0% in exchange
for the elimination of such fees.
In February 1997, the Company invested a nominal amount in TW-Tennessee, LLC
(TW-Tennessee), a newly formed Tennessee limited liability company, in
exchange for a 9.5% common member interest. TW-Tennessee was organized to
open and operate Tumbleweed full service restaurants as a franchisee of the
Company. TW-Tennessee operates pursuant to an operating agreement in which
common members are required, upon unanimous agreement of all common members,
to make certain additional capital contributions in the form of cash and/or
assumption of liabilities of TW-Tennessee in proportion to their common
member ownership interest. During 1997, TW-Tennessee established a $1,000,000
line of credit with a bank for borrowings at the bank's prime rate (8.5% at
December 31, 1997). At December 31, 1997, TW-Tennessee had drawn down
$1,000,000 under this line of credit which expires on October 31, 1998. In
March 1998, the principal amount of the line of credit was increased to
$2,000,000 and the Company has guaranteed up to $1,200,000 of the principal
balance of the line of credit. Other members of TW-Tennessee have
individually guaranteed $750,000 of the principal balance of the line of
credit. As of March 31, 1998, TW-Tennessee had drawn down $1,129,000 under
the line of credit.
During 1997, TW-Tennessee entered into a $14,800,000 lease financing
arrangement whereby the Company and certain of its Common Members have jointly
and severally guaranteed 50% of TW-Tennessee's performance and obligations
under the terms of the arrangement to the extent of 100% of any amounts due
under the terms of building leases until the stores are operational and
thereafter to the extent of 25% of such amounts. At December 31, 1997,
approximately $6.4 million ($7.5 million through March 31, 1998) had been
expended by TW-Tennessee under the financing arrangement. TW-Tennessee also has
equipment leases totaling approximately $104,000 with a bank which are jointly
and severally guaranteed by its Common Members.
TW-Tennessee and T.M. Riders are governed and managed by Boards, some members
of which are also members of the Company's Board and investors in the Company.
Certain of these individuals are also investors in TW-Tennessee and T.M. Riders.
F-21
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company accounts for its investments in TW-Tennessee and T.M. Riders on the
equity method. Amounts in the financial statements related to the Company's
investments in these entities as of and for the year ended December 31, 1997
and the quarter ended March 31, 1998 were not significant. Franchise fees and
royalties recorded by the Company in relation to these entities were $25,000 in
1995, $17,000 in 1996 and $79,000 in 1997. For the quarters ended March 31,
1997 and 1998, these amounts were approximately $400 and $57,700, respectively.
The Company also provides management and accounting services for certain of
these entities for which fees are charged. Such management and accounting fees
recorded in other income related to these entities totaled approximately
$10,600 in 1995, $15,500 in 1996 and $57,600 in 1997. For the quarters ended
March 31, 1997 and 1998, these amounts were approximately $5,500 and $27,300,
respectively.
In August 1997, the Company entered into the International Agreement with
Tumbleweed International LLC (International), a restaurant developer based in
Brussels, Belgium. The International Agreement grants certain licensing and
franchising rights to International for the development of Tumbleweed
restaurants outside of the Western Hemisphere. International is a limited
liability company owned by three corporations which are controlled by certain
Members of the Company. In 1997, International paid $15,750 in fees to the
Company under the International Agreement.
10. COMMITMENTS
At December 31, 1997 and March 31, 1998, the Company had commitments of
approximately $530,000 and $802,500, respectively, for the completion of the
construction of two and three restaurants, respectively.
11. SUBSEQUENT EVENTS
IPO REGISTRATION AND REORGANIZATION
Tumbleweed, Inc. was incorporated in December 1997 in anticipation of an IPO in
1998. Concurrent with the closing of the planned IPO, the Company will merge
into Tumbleweed, Inc. and the interests of the current members of the Company
will be converted into a total of 5,145,000 shares of Tumbleweed, Inc. common
stock.
F-22
<PAGE>
Tumbleweed, LLC
Notes to Financial Statements (continued)
11. SUBSEQUENT EVENTS (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the accompanying pro forma balance sheet as of March 31, 1998,
reflects the change in capitalization attributable to the conversion of the
Company's members' interests into 5,145,000 shares of Tumbleweed, Inc. common
stock as if the IPO had closed on March 31, 1998 (excluding the effects of the
offering proceeds). The pro forma balance sheet also reflects the deferred tax
effects of the Company changing from a nontaxable to a taxable status. Such
deferred tax effects will be included in income at the date the change in tax
status occurs.
Additionally, pro forma net income in the accompanying pro forma income data
for the year ended December 31, 1997 and the quarters ended March 31, 1997 and
1998 reflects a pro forma adjustment to historical net income for federal and
state income taxes at an assumed effective rate of 36%. Pro forma net income
per share is computed based upon pro forma net income and the weighted average
number of shares of common stock outstanding during the period assuming the
conversion of the Company's members' interests into common stock as of the
beginning of the period.
F-23
<PAGE>
[INSIDE BACK COVER]
TUMBLEWEED MAKES IT REWARDING
Kentucky Locations
Louisville (7)
Elizabethtown
Lexington [map of Eastern United States showing company-owned
Frankfort and franchised store locations]
Florence
Bowling Green
Owensboro
Indiana Locations
Floyds Knobs
New Albany (2)
Salem
Evansville
Terre Haute
Illinois Locations
Rockford
Ohio Locations
Cincinnati (4)
Mason
Columbus
Heath
Wooster
Zanesville
Springfield
Chillicothe
Reynoldsburg
Tennessee Locations
Murfreesboro
Cookeville
Henderson
Nashville
Hermitage
Clarksville
Wisconsin Locations
Appleton
Madison
Milwaukee
International Locations
Jeddah, Saudi Arabia
Erlengen, Germany
Frankfurt, Germany
Fuerth, Germany As of 6-15-98
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN, OR INCORPORATED BY
REFERENCE IN, THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR
ANY SELLING AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
UNTIL _____ __, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
History and Pending Reorganization . . . . . . . . . . . . . . . . . . . .10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . .21
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . .23
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . .56
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . .59
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . .62
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . .65
</TABLE>
[TUMBLEWEED LOGO]
1,200,000 SHARES
COMMON STOCK
-------------------
PROSPECTUS
-------------------
, 1998
------------- ----
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, all of which
are borne by the Registrant. All amounts are estimated except the Securities
and Exchange Commission registration fee and the National Association of
Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
<S> <C>
AMOUNT
--------
Securities and Exchange Commission Registration Fee . . . . . $ 18,718
National Association of Securities Dealers, Inc.
Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . 6,845
Blue Sky Qualifications Fees and Expenses . . . . . . . . . . 10,000
Prospectus Distribution Expenses . . . . . . . . . . . . . . 75,000
Marketing and Solicitation . . . . . . . . . . . . . . . . . 175,000
Printing and Engraving Expenses . . . . . . . . . . . . . . . 40,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . 150,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . 250,000
Transfer Agent Fees and Expenses . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 69,437
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $800,000
--------
--------
</TABLE>
_________________
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware, as amended from time
to time (the "DGCL") authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
informed business judgment based on all material information reasonably
available to them. Absent the limitations now authorized by such legislation,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Although the DGCL does not change directors' duty of care, it enables
corporations to limit available relief to equitable remedies such as an
injunction or rescission. Article 10 of the Registrant's Certificate of
Incorporation limits the liability of the directors to the Registrant or its
stockholders (in their capacity as directors but not in their capacity as
officers). Specifically, a director of the Registrant will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit.
II-1
<PAGE>
Article 10 of the Registrant's Certificate of Incorporation provides for
indemnification to the fullest extent authorized by the DGCL, for each person
who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director
or officer of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, against all expense, liability and loss
(including reasonable attorneys' fees, judgments, fines, excise taxes under
the Employee Retirement Income Security Act of 1974, as in effect from time
to time ("ERISA"), penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The Registrant's
Certificate of Incorporation also provides that the Registrant's Board of
Directors may also provide indemnification to other employees or agents of
the Registrant with the same scope and effect as the indemnification of
directors and officers.
Article 10 of the Registrant's Certificate of Incorporation provides
that the Registrant may pay costs, charges and expenses (including attorneys'
fees) incurred by a director or officer of the Registrant, or such other
person acting on behalf of the registrant as determined in accordance with
Section 10.3 of Article 10, in defending a civil or criminal action, suit or
proceeding, in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer or other person to repay all amounts so advanced in the event that it
shall ultimately be determined that such director, officer or other person is
not entitled to be indemnified by the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 23, 1998, the Registrant issued a total of 13 shares of Common
Stock to John A. Butorac, Jr. and James M. Mulrooney for consideration of $10
per share in connection with the initial capitalization of the Registrant.
The Registrant relied upon the exemption from registration pursuant to
Section 4(2) under the Securities Act.
The Registrant has entered into an agreement providing for the merger of
Tumbleweed, LLC into the Registrant, which would become effective at the time of
the sale of a minimum of 700,000 shares of Registrant's Common Stock as
contemplated by this Registration Statement. In the merger, the membership
interests of members of Tumbleweed, LLC would be converted into approximately
5,145,000 shares of Registrant's Common Stock. The Registrant has relied upon
the exemption from registration pursuant to Section 4(2)under the Securities
Act.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<S> <C>
(a) EXHIBITS.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
2 Agreement and Plan of Merger, dated as of June 23, 1998, between
Tumbleweed, LLC and Registrant
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
5 Opinion of Brown, Todd & Heyburn PLLC*
10.1 Revolving Credit Loan Agreement, dated January 24, 1995, between
Bank One, Kentucky, N.A. (f/k/a Liberty National Bank & Trust
Company of Kentucky) and Registrant
10.2 Revolving Line of Credit Note, dated August 8, 1996, between
Tumbleweed, LLC and
II-2
<PAGE>
National City Bank of Kentucky and related Loan Agreement
10.3 Master International License Agreement, dated August 29, 1997,
between Tumbleweed International LLC and Tumbleweed, LLC
10.4 Employment Agreement between John A. Butorac, Jr. and Tumbleweed,
Inc.
10.5 Employment Agreement between James M. Mulrooney and Tumbleweed,
Inc.
10.6 Lease Agreement, dated August 28, 1997, between West Broad
Development, LLC and Tumbleweed, LLC
10.7 Lease Agreement between Keller LLC and Tumbleweed, LLC
10.8 Agreement and Assignment, dated April 20, 1995, between Keller
LLC and Tumbleweed, LLC.
10.9 Lease Agreement, dated April 1, 1995, between Douglass Ventures,
Abfam, Inc. and Blue Door-Bowling Green Joint Venture
10.10 Sublease Agreement, dated June 30, 1995, among Douglass Ventures,
Abfam, Inc., Blue Door-Bowling Green Joint Venture and
Tumbleweed, LLC
10.11 Sublease Agreement, dated February 5, 1997, between TW-Dixie
Bash, LLC and Tumbleweed, LLC (for Bardstown Road restaurant)
10.12 Sublease Agreement, dated February 5, 1997, between TW-Dixie
Bash, LLC and Tumbleweed, LLC (for Valley Station restaurant)
10.13 Asset Purchase Agreement, dated October 1, 1996, between Tex-Mex
To You, LLC and Tumbleweed, LLC.
10.14 Commitment Letter, dated June 12, 1997, between CNL Fund
Advisors, Inc. and TW Tennessee, LLC
10.15 Tumbleweed, Inc. 1998 Stock Option and Incentive Compensation
Plan
10.16 Form of Standard Franchise Agreement for Tumbleweed, LLC
10.17 Articles of Incorporation of Tumbleweed Marketing Fund, Inc.
10.18 By-laws of Tumbleweed Marketing Funds, Inc.
10.19 Bonus Compensation Plan for Senior Executives*
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Brown, Todd & Heyburn PLLC (included in Exhibit 5)*
24.1 Power of Attorney (included in the signature pages to this
Registration Statement)
27 Financial Data Schedule*
99.1 Form of Subscription Agreement
99.2 Form of Indication of Interest
99.3 Escrow Agreement between Tumbleweed, Inc. and National City Bank
of Kentucky, as
II-3
<PAGE>
Escrow Agent
99.4 Form of Selling Agent Agreement*
99.5 Form of Lock-Up Agreement*
</TABLE>
________________
* To be filed by Amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining liability under the Securities Act of
1933, the information omitted
II-4
<PAGE>
from the form of prospectus filed as a part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Louisville, Commonwealth of Kentucky, on the 23rd day of June, 1998.
TUMBLEWEED, INC.
By: /s/ John A. Butorac, Jr.
--------------------------
John A. Butorac, Jr.
President
POWER OF ATTORNEY
Know all men and women by these presents, that each person whose
signature appears below constitutes and appoints John A. Butorac, Jr. and
James M. Mulrooney and each of them such individuals true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and stead,
in any and all capacities, to sign all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to the offering contemplated by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange
Commission and any state or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on the 23rd day of June, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John A. Butorac, Jr.
---------------------------------- President, Chief June 23, 1998
John A. Butorac, Jr. Executive Officer and
Director
/s/ James M. Mulrooney
---------------------------------- Executive Vice June 23, 1998
James M. Mulrooney President, Chief
Financial Officer and
Director
/s/ David M. Roth
---------------------------------- Director June 23, 1998
David M. Roth
/s/ Minx Auerbach
---------------------------------- Director June 23, 1998
Minx Auerbach
/s/ Lewis Bass
---------------------------------- Director June 23, 1998
Lewis Bass
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Roger Drury
---------------------------------- Director June 23, 1998
Roger Drury
/s/ George Keller
---------------------------------- Director June 23, 1998
George Keller
/s/ Terrance A. Smith
---------------------------------- Director June 23, 1998
Terrance A. Smith
</TABLE>
II-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
TUMBLEWEED, LLC AND TUMBLEWEED, INC.
PURSUANT TO THE
KENTUCKY LIMITED LIABILITY COMPANY ACT
AND
DELAWARE GENERAL CORPORATION LAW
This Agreement and Plan of Merger (this "Agreement and Plan of Merger")
dated as of June 23, 1998, is entered into by TUMBLEWEED, LLC, a Kentucky
limited liability company and TUMBLEWEED, INC., a Delaware corporation.
ARTICLE I
THE CONSTITUENT ENTITIES
The name of each business entity that is a party to the merger (the
"Merger") are Tumbleweed, LLC, a Kentucky limited liability company (the "LLC")
and Tumbleweed, Inc., a Delaware corporation (the "Corporation") which shall be
the surviving business entity (the "Surviving Business Entity").
ARTICLE II
THE MERGER
Upon the terms and subject to the conditions set forth in this Agreement
and Plan of Merger; and in accordance with the Delaware General Corporation Law
(the "DGCL") and the Kentucky Limited Liability Company Act (the "KLLCA"), the
LLC shall be merged with and into the Corporation at the Effective Time (as
hereinafter defined). The Surviving Business Entity shall be governed by the
DGCL, and the separate existence of the LLC shall cease forthwith upon the
Effective Time. Limited liability shall be retained by the Surviving Business
Entity.
ARTICLE III
CONVERSION OF LLC INTERESTS AND SHARES
At the Effective Time, by virtue of the Merger and without any further
action on the part of the holders thereof:
(a) Each Class A Unit of the LLC that is outstanding immediately prior to
the Effective Time shall be converted into the right to receive 53,426
validly issued, fully paid and nonassessable shares of Common Stock,
$.01 par value, of the Surviving Business Entity (rounded to the
lowest whole number of shares of Common Stock of the Surviving
Business Entity with respect to the conversion of fractional Class A
Units of the LLC).
<PAGE>
(b) Each Class B Unit of the LLC that is outstanding immediately prior to
the Effective time shall be converted into the right to receive 59,377
validly issued, fully paid and nonassessable shares of Common Stock,
$.01 par value, of the Surviving Business Entity.
(c) The membership interest issued to the sole Class C Member of the LLC
in his capacity as such shall convert into 514,377 validly issued,
fully paid and nonassessable shares of Common Stock, $.01 par value,
of the Surviving Business Entity.
(d) The aggregate membership interests issued to all of the Common Members
of the LLC in their capacity as such that are outstanding immediately
prior to the Effective Time shall be converted into 2,830,351 validly
issued, fully paid and nonassessable shares of Common Stock, $.01 par
value, of the Surviving Business Entity (allocated among such Common
Members in accordance with their relative Participating Percentages).
(e) Each of the Common Stock, $.01 par value, of the Corporation issued
and outstanding immediately prior to the Effective Time shall
remain issued, outstanding and unchanged as a validly issued, fully
paid and nonassessable share of Common Stock, $.01 par value, of
the Surviving Business Entity.
ARTICLE IV
CERTIFICATE OF INCORPORATION AND BYLAWS
From and after the Effective Time, until changed or amended in accordance
with the Certificate of Incorporation, Bylaws or applicable law, the Certificate
of Incorporation and Bylaws of the Corporation will be the Certificate of
Incorporation and Bylaws of the Surviving Business Entity.
ARTICLE V
EFFECTS OF THE MERGER
At and after the Effective Time, the Merger will have the effects set forth
in the DGCL and the KBCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property rights, privileges,
powers and franchises of the LLC shall be vested in the Surviving Business
Entity, and all debts, liabilities and duties of the LLC shall become the debts,
liabilities and duties of the Surviving Business Entity.
2
<PAGE>
ARTICLE VI
ABANDONMENT
(1) Pursuant to Section 251(d) of the DGCL, the Board of Directors of the
Corporation may at any time prior to the filing of the Agreement and Plan of
Merger with the Secretary of State of the State of Delaware and with the
Secretary of State of the Commonwealth of Kentucky terminate the Agreement and
Plan of Merger notwithstanding approval of the Agreement and Plan of Merger by
the stockholders of the Corporation and the members of the LLC.
(2) Pursuant to the Section 275.350(3) of the Kentucky Limited Liability
Company Act, the Managers of the LLC, may at any time prior to the filing of the
Agreement and Plan of Merger with the Secretary of State of the State of
Delaware and with the Secretary of State of the Commonwealth of Kentucky,
abandon and terminate the Agreement and Plan of Merger notwithstanding approval
of the Agreement and Plan of Merger by the stockholders of the Corporation and
the members of the LLC.
ARTICLE VII
EFFECTIVE TIME
The Merger shall become effective upon the filing of a Certificate of
Merger (the "Certificate of Merger"), with the Secretary of State of the State
of Delaware and Articles of Merger ("Articles of Merger"), with the Secretary of
State of the Commonwealth of Kentucky or at such subsequent time as shall be
specified in the Certificate of Merger and in the Articles of Merger as the date
and time the Merger shall become effective being the "Effective Time".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed on their behalf as of the date first above written.
TUMBLEWEED, LLC
By: /s/ James M. Mulrooney
-----------------------------------
James M. Mulrooney, Manager
TUMBLEWEED, INC.
By: /s/ John A. Butorac, Jr.
-----------------------------------
John A. Butorac, Jr., President
and Chief Executive Officer
3
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TUMBLEWEED, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and hereby certify as follows:
1. NAME. The name of the Corporation is Tumbleweed, Inc. (hereinafter
referred to as the "Corporation").
2. REGISTERED AGENT. The address of the Corporation's registered office
in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City
of Wilmington, County of New Castle, Delaware 19801. The name of the
Corporation's registered agent at such address is The Corporation Trust Company.
3. PURPOSE. The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized and incorporated
under the General Corporation Law of the State of Delaware.
4. CAPITAL STOCK.
4.1 CAPITAL STOCK. The Corporation shall be authorized to issue
35,000,000 shares of capital stock, of which 30,000,000 shares shall be
designated Common Stock, having a par value of $0.01 per share, and 5,000,000
shares shall be designated Preferred Stock, having a par value of $0.01 per
share. The voting powers, designations and relative rights and preferences of
the two classes of capital stock are set forth below. Except as otherwise
provided by law or by the resolution or resolutions adopted by the Board of
Directors designating the rights, powers, and preferences of any series of
Preferred Stock, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote.
4.2 COMMON STOCK.
(a) POWERS, RIGHTS AND PREFERENCES. The Common Stock shall be
without distinction as to powers, rights and preferences and as to the
qualifications, limitations or restrictions thereof. At every annual or special
meeting of stockholders of the Corporation, every holder of Common Stock shall
be entitled to one vote, in person or by proxy, for each share of Common Stock
standing in such holder's name on the stock transfer records of the Corporation
in connection with all matters on which stockholders are generally entitled to
vote. The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof.
<PAGE>
(b) DIVIDENDS. After the requirements regarding preferential
dividends on Preferred Stock, if any, have been met and after the Corporation
has complied with all the requirements, if any, regarding the setting aside
of sums as sinking funds or redemption or purchase accounts, and subject
further to any preferential rights, if any, of the Preferred Stock, then, but
not otherwise, the holders of Common Stock shall be entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors.
(c) LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation and of the preferential
amounts, if any, to which the holders of Preferred Stock may be entitled, the
holders of Common Stock shall be entitled to share ratably, in proportion to
the number of shares of Common Stock held by each, in the remaining net
assets of the Corporation.
4.3 PREFERRED STOCK.
(a) ISSUANCE BY BOARD RESOLUTION; SERIES. The Board of
Directors is authorized to adopt, from time to time, a resolution or
resolutions providing for the issuance of one or more series of Preferred
Stock, to establish the number of shares to be included in each such series,
and to fix the designation, powers, privileges and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof.
(b) PREFERENCES AND RIGHT. The authority of the Board of
Directors with respect to each series shall include, but not be limited to,
determination of the following:
(1) the designation of the series, which may be by
distinguishing number, letter or title;
(2) the number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise provided in a
resolution of the Board of Directors providing for such series or the
certificate of designations recorded with the Secretary of State of the
State of Delaware relating to such series) increase or decrease (but not
below the number of shares thereof then outstanding);
(3) the rate and times at which, and the terms and
conditions of which, dividends on the shares of the series shall be paid,
whether the dividends shall be cumulative or non-cumulative, and if
cumulative, from what date or dates, and the preferences or relation, if
any, of such dividends to the dividends payable on any shares of any other
series or class of the Corporation;
(4) the price or prices (or method of determining such
price or prices) at which, the form of payment of such price or prices
(which may be cash, property or rights, including securities of the
Corporation, another corporation or other entity) for which, the period or
periods within which, and the terms and conditions upon which, the shares
of such series may
-2-
<PAGE>
be redeemed, in whole or in part, at the option of the Corporation
or at the option of the holder or holders thereof or upon the
happening of a specified event or specified events, if any;
(5) the obligation, if any, of the Corporation to purchase
or redeem shares of such series pursuant to a sinking fund or otherwise and
the price or prices at which, the form of payment of such price or prices
(which may be cash, property or rights, including securities of the
Corporation, another corporation or other entity) for which, the period or
periods within which, and the terms and conditions upon which, the shares
of such series shall be redeemed or purchased, in whole or in part,
pursuant to such obligation;
(6) the amount payable out of the assets of the Corporation
to the holders of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(7) provisions, if any, for the conversion or exchange of
the shares of such series, at any time or times at the option of the holder
or holders thereof or at the option of the Corporation or upon the
happening of a specified event or specified events, into shares of any
other class or classes or any other series of the same or any other class
or classes of stock, or any other security, of the Corporation, another
corporation or other entity, and the conversion price or prices, or the
rate or rates of exchange, and any adjustments thereof at which such
conversion or exchange may be made, and any other terms and conditions of
such conversion or exchange;
(8) restrictions on the issuance of shares of the same
series or of any other class or series, if any;
(9) the voting rights, if any, of the holders of shares of
the series, including the right to vote as a separate class or as one class
with the holders of any other series of Preferred Stock or Common Stock, or
both;
(10) whether any series of Preferred Stock shall have
priority over, parity with, or be junior to, Preferred Stock of any other
series, or shall be entitled to the benefit of limitations restricting (i)
the creation of indebtedness of the Corporation, (ii) the issuance of
shares of any other class or series having priority over, or being on a
parity with, the shares of such series, or (iii) the payment of dividends
on, the making of other distributions with respect to, or the purchase or
redemption of shares of, any other class or series on parity or ranking
junior to the Preferred Stock of any such series as to dividends or to
other distributions, and the terms of any such restrictions, or any other
restrictions with respect to shares of any class or series on parity with,
or ranking junior to, Preferred Stock of such series in any respect; and
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(11) any other powers, preferences, privileges and
relative, participating, optional or other special rights of such series
and the qualifications, limitations or restrictions thereof, to the full
extent now or hereafter permitted by law.
4.4 REGISTERED HOLDERS. The Corporation shall be entitled to treat
the person in whose name any share of its capital stock is registered as the
owner thereof for all purposes and shall not be bound to recognize any equitable
or other claim to, or interest in, such share on the part of any other person,
whether or not the Corporation shall have notice thereof, except as expressly
provided by applicable law.
5. INCORPORATOR. The name and mailing address of the sole incorporator
are:
Charles Fassler
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, KY 40202
6. STOCKHOLDER ACTION.
6.1 STOCKHOLDER ACTION. Effective as of the time at which the
Corporation shall have more than 20 registered holders of its capital stock, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by any consent in writing by such holders.
6.2 CALL OF SPECIAL MEETINGS; BUSINESS. Except as otherwise required
by law, and subject to the rights of the holders of any series of Preferred
Stock, special meetings of stockholders of the Corporation for any purpose or
purposes may be called only by (1) the Board of Directors pursuant to a
resolution stating the purpose or purposes thereof approved by a majority of the
total number of Directors which the Corporation would have if there were no
vacancies (the "Whole Board"), (2) the Chairman of the Board of Directors, or
(3) the President of the Corporation. Any power of stockholders to call a
special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting.
7. BOARD OF DIRECTORS.
7.1 BOARD OF DIRECTORS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or this Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
7.2 NUMBER OF DIRECTORS; CLASSES. The number of directors of the
Corporation (except as otherwise fixed by or pursuant to the provisions of
Section 4 of this Certificate of Incorporation relating to the rights of the
holders of any class or series of Preferred Stock to elect additional
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directors under specified circumstances) shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but in no event shall be less than five, nor more than eleven. Each
director shall hold office until such director's successor is duly elected
and qualified or until such director's earlier resignation or removal.
7.3 STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER
PROPOSAL OF BUSINESS. Advance notice of stockholder nominations for the
election of directors and of the proposal of business by stockholders at the
annual meeting of the Corporation must be given in the manner provided in the
By-Laws of the Corporation, as amended and in effect from time to time.
7.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights, if any, of any series of Preferred Stock to elect directors under
specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office until such
director's successor shall have been duly elected and qualified.
7.5 REMOVAL. Subject to the rights, if any, of any series of
Preferred Stock to elect directors under specified circumstances, any
director may be removed from office only for cause by the affirmative vote of
the holders of at least a majority of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors (the
"Voting Stock") then outstanding, voting together as a single class.
7.6 ELECTION OF DIRECTORS. Unless and except to the extent that the
By-Laws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
8. BY-LAWS. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation. Any By-Laws adopted by the
Board of Directors under the powers conferred hereby may be amended or repealed
by the stockholders at any annual or special meeting of stockholders by the
affirmative vote of the holders of a majority, or a greater percentage as
provided in the By-Laws, of the voting power of all capital stock issued and
outstanding and entitled to vote at such meeting.
9. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation reserves
the right at any time, and from time to time, to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and, except as set forth in Section 10, all
rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation, in its present form or as hereafter amended, are
granted subject to the right reserved in this Section. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 85% of the Voting Stock then
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outstanding, voting together as a single class, shall be required to alter,
amend or adopt any provision inconsistent with, or to repeal, Sections 6
through 10 of this Certificate of Incorporation.
10. LIMITED LIABILITY; INDEMNIFICATION.
10.1 ELIMINATION OF CERTAIN LIABILITY. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is hereafter amended to permit further elimination or limitation of
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of this Section 10.1 shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
10.2 RIGHT TO INDEMNIFICATION. Subject to Section 10.3, each
person who was or is made a party, or is threatened to be made a party, to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of
the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
reasonable attorneys' fees and expenses, judgments, fines, excise taxes under
the Employee Retirement Income Security Act of 1974, as in effect from time
to time ("ERISA"), penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The Corporation
may, by action of its Board of Directors, provide indemnification to other
employees or agents of the Corporation with the same scope and effect as the
indemnification of directors and officers pursuant to this Section 10.
10.3 PROCEDURE FOR INDEMNIFICATION. Any indemnification under this
Section 10 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
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ware, as the same exists or hereafter may be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment). Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or
proceeding (the "Disinterested Directors"), or (ii) if such a quorum of
Disinterested Directors is not obtainable, or, even if obtainable, a quorum
of Disinterested Directors so directs, by independent legal counsel and a
written opinion, or (iii) by the stockholders. The majority of Disinterested
Directors may, as they deem appropriate, elect to have the Corporation
indemnify any other employee, agent or other person acting for or on behalf
of the Corporation.
10.4 ADVANCES FOR EXPENSES. Costs, charges and expenses (including
attorneys' fees) incurred by a director or officer of the Corporation, or such
other person acting on behalf of the Corporation as determined in accordance
with Section 10.3 of this Certificate of Incorporation, in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of a
undertaking by or on behalf of the director, officer or other person to repay
all amounts so advanced in the event that it shall ultimately be determined that
such director, officer or other person is not entitled to be indemnified by the
Corporation as authorized in this Section 10 or otherwise.
10.5 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 10.2
or Section 10.4 of this Certificate of Incorporation is not paid in full by the
Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standards of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
10.6 OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Section 10 shall
not be deemed exclusive of any other rights to which a claimant may be entitled
under any law (common or statutory), By-Law, agreement, vote of stockholders or
Disinterested Directors or otherwise, both as to action in his or her official
capacity and as to any action in another capacity while holding office or while
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employed by or acting as agent for the Corporation, and shall inure to the
benefit of the estate, heirs, executors and administrators of such person.
All rights to indemnification under this Section 10 shall be deemed to be a
contract between the Corporation and each director and officer of the
Corporation who serves or served in such capacity at any time while this
Section 10 is in effect. Any repeal or modification of this Section 10, or
any repeal or modification of the relevant provisions of the General
Corporation Law of the State of Delaware or any other applicable law, shall
not in any way diminish any rights to indemnification of such director,
officer or the obligations of the Corporation arising hereunder with respect
to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
modification or repeal. For the purposes of this Section 10, references to
"the Corporation" include all constituent corporations absorbed in a
consolidation or merger, as well as the resulting or surviving corporation,
so that any person who is or was a director or officer of such a constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the
same position under the provisions of this Section 10 with respect to the
resulting or surviving corporation, as such person would if such person had
served the resulting or surviving corporation in the same capacity.
10.7 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
10.8 SEVERABILITY. If any provision or provisions of this Section 10
shall be held to be invalid, illegal or unenforceable for any reason whatsoever
(1) the validity, legality and enforceability of the remaining provisions of
this Section 10 (including, without limitation, each portion of any paragraph of
this Section 10 containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby, and (2) to the fullest
extent possible, the provisions of this Section 10 (including, without
limitation, each such portion of any paragraph of this Section 10 containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
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I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 17th day of December, 1997.
Charles Fassler
------------------------------
Charles Fassler
Incorporator
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BY-LAWS OF TUMBLEWEED, INC.
December 17, 1997
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION PAGE
1. Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Registered Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.3 Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.4 Notice of Meetings and Adjourned Meetings. . . . . . . . . . . . . . . . .1
2.5 Stockholders List. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.6 Quorum; Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.7 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.8 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.9 Introduction of Business at a Meeting of Stockholders. . . . . . . . . . .3
2.10 Nomination of Directors . . . . . . . . . . . . . . . . . . . . . . . . .4
2.11 Procedure for Election of Directors; Required Vote. . . . . . . . . . . .5
2.12 Inspectors of Elections; Opening and Closing. . . . . . . . . . . . . . .5
2.13 No Stockholder Action by Written Consent. . . . . . . . . . . . . . . . .5
3. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 Number, Classification and Term of Office. . . . . . . . . . . . . . . . .6
3.3 Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.4 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.5 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.6 Action by Consent of Board of Directors. . . . . . . . . . . . . . . . . .7
3.7 Conference Telephone Meetings. . . . . . . . . . . . . . . . . . . . . . .7
3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.9 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.10 Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.11 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.12 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.13 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.2 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.1 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION PAGE
5.2 Election of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.3 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.6 President. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.7 Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . . . 10
5.8 Vice-President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.9 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.12 Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Officers' Bond or Other Security. . . . . . . . . . . . . . . . . . . . 12
5.15 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Certificates of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . 12
6.4 Transfer of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Transfer Agents and Registrars . . . . . . . . . . . . . . . . . . . . . 13
6.6 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 Fixing the Record Date . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 Registered Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 13
7. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Checks, Notes, Drafts, Etc . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 Execution of Contracts, Deeds, Etc . . . . . . . . . . . . . . . . . . . 14
7.6 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.7 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.8 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.9 Voting of Stock in Other Corporations. . . . . . . . . . . . . . . . . . 15
8. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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BY-LAWS
OF
TUMBLEWEED, INC.
1. OFFICES.
1.1 REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
2. STOCKHOLDERS.
2.1 ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation, for the election of directors, the consideration of financial
statements and other reports, and the transaction of such other business as
may properly be brought before such meeting, shall be held no later than six
months following the end of the Corporation's fiscal year. The meeting shall
be held at such time and on such date as may be designated by the Board of
Directors. In the event the annual meeting is not held or if directors are
not elected at the annual meeting, a special meeting may be called and held
for that purpose.
2.2 SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of stockholders of the Corporation for any purpose or
purposes may be called only by (a) the Board of Directors pursuant to a
resolution stating the purpose or purposes thereof approved by a majority of
the total number of directors which the Corporation would have if there were
no vacancies (the "Whole Board"), (b) by the Chairman of the Board of
Directors (the "Chairman") or (c) by the President of the Corporation (the
"President"). No business other than that stated in the notice of the
Special Meeting shall be transacted at any special meeting.
2.3 PLACE OF MEETING. All meetings of the stockholders for the
election of directors shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place either
within or without the State of Delaware as shall be stated in the notice of
such meeting.
2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of
the annual meeting or a special meeting stating the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled
to vote at such meeting not less than ten, nor more than sixty, days before
the date
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of the meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid and
addressed to the stockholder at such person's address as it appears on the
stock transfer books of the Corporation. Such further notice shall be given
as may be required by law. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting. Any
previously scheduled meeting of the stockholders may be postponed, and any
special meeting of the stockholders may be canceled, by resolution of the
Board of Directors upon public notice or notice to all of the stockholders
given prior to the date previously scheduled for such meeting of stockholders.
2.5 STOCKHOLDERS LIST. 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 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, town or village 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.
2.6 QUORUM; ADJOURNMENTS. At any meeting of stockholders, the
holders of a majority of the issued and outstanding shares of stock entitled
to vote at the meeting of stockholders, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all
meetings of stockholders, except as otherwise provided by statute or by the
Corporation's Certificate of Incorporation as the same may be amended from
time to time ("Certificate of Incorporation"). If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
chairman of the meeting or a majority of the stockholders entitled to vote at
the meeting, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented by proxy.
2.7 VOTING. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the shares of stock having
voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which
by express provision of the General Corporation Law of the State of Delaware,
the Certificate of Incorporation or these By-Laws a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
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2.8 PROXIES. At each meeting of the stockholders, each
stockholder shall be entitled to vote in person or by proxy the shares of
capital stock having voting power held by such stockholder, but no proxy
shall be voted after three years from its date, unless the proxy provides for
a longer period.
2.9 INTRODUCTION OF BUSINESS AT A MEETING OF STOCKHOLDERS. At an
annual or special meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before an annual or special meeting of stockholders.
Notwithstanding anything in these By-Laws to the contrary, no business shall
be conducted at a meeting of stockholders except in accordance with the
procedure set forth in this Section 2.9. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that the business
was not properly brought before the meeting in accordance with the procedures
described by the By-Laws, and if the chairman of the meeting should so
determine, the chairman of the meeting shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
considered.
(a) SPECIAL MEETINGS. To be properly brought before a
special meeting of stockholders and acted upon at the meeting, business must
be specified in the notice of the special meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, the Chairman or the
President pursuant to Section 2.4 of these By-Laws.
(b) ANNUAL MEETINGS. At an annual meeting of stockholders,
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the annual meeting of
stockholders (1) by, or at the direction of, the Board of Directors, or (2)
by any stockholder of the Corporation who was a stockholder of record at the
time of giving of notice of the annual meeting, who is entitled to vote at
the annual meeting and who otherwise complies with all procedures and
requirements set forth in this Section 2.9.
(c) STOCKHOLDERS' NOTICE. For business to be properly brought
before an annual meeting of stockholders by a stockholder, the stockholder must
have given timely notice thereof in writing to the President or Secretary of the
Corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation not fewer than 60 days, nor more
than 90 days, prior to the scheduled date of the annual meeting regardless of
any postponement, deferral or adjournment of that meeting to a later date;
provided, however, that if fewer than 70 days notice or prior public disclosure
of the date of the annual meeting is made or given to stockholders, notice by
the stockholder to be timely must be received not later than the close of
business on the tenth day following the earlier of the day on which such notice
of the date of the meeting was mailed or the day on which such public disclosure
was made. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before an annual meeting of stockholders:
(1) a brief description of the business desired to be
brought before the annual meeting,
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(2) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any
other stockholders known by such stockholder to be supporting such
proposal,
(3) the class and number of shares of the Corporation which
are beneficially owned by such stockholder on the date of such
stockholder's notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such
stockholder's notice, and
(4) any material interest of the stockholder in such
proposal.
2.10 NOMINATION OF DIRECTORS. Only persons nominated in accordance
with the procedures set forth in this Section 2.10 shall be eligible for
election as directors. No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with procedures set forth in
this Section 2.10. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-Laws, and if the chairman of
the meeting should so determine, the chairman of the meeting shall so declare to
the meeting and the defective nomination shall be disregarded. Nominations of
persons for election to the Board of Directors may be made at a meeting of
stockholders by, or at the direction of, the Board of Directors or by any
stockholder of the Corporation who is entitled to vote for the election of
directors at such meeting and who complies with the notice procedures set forth
in this Section 2.10.
(a) STOCKHOLDER NOTICE. Nominations by stockholders shall be
made pursuant to timely notice in writing to the President or Secretary of the
Corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation not fewer than 60 days, nor more
than 90 days, prior to the scheduled date of a meeting, regardless of any
postponement, deferral or adjournment of that meeting to a later date; provided,
however, that if fewer than 70 days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so delivered or received not later than the close of
business on the tenth day following the earlier of the day on which such notice
of the date of such meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice shall set forth:
(1) as to each person whom the stockholder proposes to
nominate for election or reelection as a director
(A) the name, age, business address and residence
address of such person,
(B) the principal occupation or employment of such
person,
(C) the class and number of shares of the Corporation
which are beneficially owned by such person on the date of such
stockholder's notice, and
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(D) any other information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case, pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); and
(2) as to the stockholder giving the notice
(A) the name and address, as they appear on the
Corporation's books, of such stockholder and any other stockholders known
by such stockholder to be supporting such nominees, and
(B) the class and number of shares of the Corporation
which are beneficially owned by such stockholder on the date of such
stockholder's notice and by any other stockholders known by such
stockholder to be supporting such nominees on the date of such
stockholder's notice.
(b) EXCEPTIONS PURSUANT TO CORPORATE LAW. This Section 2.10
shall not apply to the election of a director to a directorship which may be
filled by the Board of Directors under the General Corporation Law of the State
of Delaware.
2.11 PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under an applicable preferred stock
designation, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, these
By-Laws or in the designation of rights of holders of any series of Preferred
Stock in all matters other than the election of directors, the affirmative vote
of a majority of the voting power of the shares present in person or represented
by proxy at the meeting and entitled to vote on the matter shall be the act of
the stockholders.
2.12 INSPECTORS OF ELECTIONS; OPENING AND CLOSING. The Board of
Directors by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspector(s)
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging such person's duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of such person's ability. The
inspector(s) shall have the duties prescribed by law. The chairman of the
meeting shall fix and announce at the meeting the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting.
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2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. If the Corporation
has more than 20 registered holders of its capital stock, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of such holders and may not be effected
by any consent in writing by such holders.
3. BOARD OF DIRECTORS.
3.1 GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, by the Certificate of Incorporation or by
these By-Laws required or directed to be exercised or done by the stockholders.
3.2 NUMBER, CLASSIFICATION AND TERM OF OFFICE.
(a) NUMBER; TERM OF OFFICE. Except as otherwise fixed by or
pursuant to the provisions of Section 4 of the Certificate of Incorporation
relating to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the number of the directors
of the Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Whole Board, but in no event shall be
less than five nor more than eleven. Each director shall hold office until such
director's successor is duly elected and qualified or until such director's
earlier resignation or removal.
(b) CLASSIFICATION The Board of Directors shall have the right
to divide the Board of Directors into three classes pursuant to a resolution
adopted by a majority of the Whole Board. If the Whole Board adopts such
resolution, each class shall be as nearly equal in number as possible with the
term of office of the first class of directors elected to expire at the first
annual meeting of stockholders thereafter, the term of office of the second
class of directors to expire one year thereafter, and the term of office of the
third class of directors to expire two years thereafter, with each class to hold
office until its successor is duly elected and qualified. At each succeeding
annual meeting of stockholders, directors elected to succeed those directors
whose terms then expire shall be elected for a full term of office to expire at
the third succeeding annual meeting of stockholders after their election or
thereafter when their respective successors in each case are duly elected and
qualified. Any director elected to a particular class by the stockholders or
directors shall be eligible, upon resignation or expiration of their term, to be
elected to a different class.
3.3 PLACE OF MEETING. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware.
3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held, within or without the State of Delaware, without notice other
than this By-Law, immediately after, and at
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the same place as, the annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place, within or without
the State of Delaware, for the holding of additional regular meetings without
other notice than such resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman, the President or a majority
of the Board of Directors then in office. The person or persons authorized
to call special meetings of the Board of Directors may fix the place and time
of the meetings. Notice of each special meeting shall be given to each
director, at least three days before the day on which the meeting is to be
held, in accordance with Section 4 of these By-Laws. Each such notice shall
state the time and place of the meeting, either within or without the State
of Delaware, but need not state the purpose thereof, except as otherwise
provided by the General Corporation Law of the State of Delaware or by these
By-Laws. Notice of any meeting of the Board of Directors need not be given
to any director who is present at such meetings; and any meeting of the Board
of Directors shall be a legal meeting without any notice thereof having been
given if all of the directors then in office are present at the meeting,
unless a director attends a meeting 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.
3.6 ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors or any
committee thereof may be taken without a meeting if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
3.7 CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board
of Directors or such 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 in a meeting shall
constitute presence in person at such meeting.
3.8 QUORUM. At all meetings of the Board of Directors, a majority
of directors then in office shall constitute a quorum for the transaction of
business, and the act of the majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors,
except as may be otherwise specifically provided by the General Corporation
Law of the State of Delaware or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, a
majority of the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting until a quorum
shall be present. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
3.9 VACANCIES. Except as otherwise provided for or fixed by or
pursuant to the provisions of Section 4 of the Certificate of Incorporation
relating to the rights of the holders of any series of Preferred Stock to
elect directors under specified circumstances, newly created directorships
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resulting from any increase in the number of directors and any vacancies on
the Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of
the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease
in the number of Directors constituting the Board of Directors shall shorten
the term of any incumbent Director.
3.10 COMMITTEES.
(a) The Board of Directors may, by resolution adopted by a
majority of the Whole Board, designate one or more committees, each committee
to consist of one or more directors. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of the member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not such members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and
may exercise all the powers over business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation under Sections 251 and 252 of the General
Corporation Law of the State of Delaware, recommending to the stockholders
the sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders the dissolution of the
Corporation or revocation of a dissolution or amending these By-Laws. Unless
a resolution of the Board of Directors so provides, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance
of stock or to adopt a certificate of ownership or merger pursuant to Section
253 of the General Corporation Law of the State of Delaware. Such committee
or committees shall have such name or names as may be determined from time to
time by a resolution adopted by the Board of Directors. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
(b) A majority of any committee may determine its action and fix
the time and place of its meetings, unless the Board of Directors shall
otherwise provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Section 3.5 of these By-Laws. The Board
shall have power at any time to fill vacancies in, to change the membership of,
or to dissolve any such committee.
3.11 REMOVAL. Subject to the rights of any series of Preferred Stock
to elect directors under specified circumstances, any director may be removed
from office only for cause by the affirmative vote of the holders of at least a
majority of the voting power of all shares of the
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Corporation entitled to vote generally in the election of directors then
outstanding and voting together as a single class.
3.12 RECORDS. The Board of Directors shall cause to be kept a record
containing the minutes of the proceedings of the meetings of the Board of
Directors and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
3.13 COMPENSATION. The Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
4. NOTICES.
4.1 NOTICES. Whenever, under the provisions of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these By-Laws, notice is required to be given to any director or stockholder,
such notice shall be in writing, shall be hand-delivered or sent by mail and
shall be addressed to such director or stockholder at his address as it appears
on the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same is personally delivered or
deposited in the United States mail. Notice to directors may also be given
orally, in person, by telephone or by facsimile (fax), and such notice shall be
deemed to be given upon confirmation of the transmission of the fax or upon oral
notice to the person who is the intended recipient when given orally.
4.2 WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the General Corporation Law of the State of Delaware,
the Certificate of Incorporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders, the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
5. OFFICERS.
5.1 OFFICERS. The Corporation may have such officers as the Board of
Directors may determine from time to time, including a Chairman, Vice-Chairman,
Chief Executive Officer, President, one or more Vice Presidents, a Secretary, a
Treasurer, and, if the Board shall so determine, an Assistant Secretary and an
Assistant Treasurer. Any two or more offices may be held by the same person.
Such other officers and agents shall be appointed in such manner, have
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such duties and hold their offices for such terms as may be determined by
resolution of the Board of Directors.
5.2 ELECTION OF OFFICERS. The officers shall be elected by the
Board of Directors at the first meeting of the Board of Directors after each
annual meeting of stockholders. Each officer shall hold office at the
pleasure of the Board of Directors until his or her successor shall have been
duly elected and qualified, until his or her death or until he or she shall
have resigned or shall have been removed or disqualified in the manner
hereinafter provided.
5.3 RESIGNATION. Any officer may resign at any time by giving
written notice of his or her resignation to the Board of Directors or to the
Chairman. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt by the Board of Directors or Chairman.
Unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
5.4 REMOVAL. Any officer may be removed, either with or without
cause, at any time, by action of the Board of Directors or the Chairman.
5.5 CHAIRMAN OF THE BOARD. If the Board of Directors designates a
Chairman, he or she shall preside at all meetings of the stockholders and of
the Board of Directors. He or she may sign certificates for shares of stock
of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these By-Laws to some other officer
or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. The Chairman shall, in general, perform all duties
incident to the office of chairman of the board and such other duties as may
be set forth in the By-Laws or may be prescribed by the Board of Directors
from time to time.
5.6 PRESIDENT. The President shall perform all duties instant to
the office of President and such other duties as may from time to time be
assigned to him or her by the Board of Directors. Unless the Board of
Directors otherwise determines, the President shall be the Chief Executive
Officer of the Corporation. At the request of the Chairman or, in his or her
absence, or in the event of the Chairman's inability or refusal to act, the
President shall perform the duties of the Chairman, and, when so acting,
shall have the powers of, and be subject to the restrictions placed upon, the
Chairman in respect of the performance of such duties, unless the Board of
Directors otherwise designates.
5.7 CHIEF EXECUTIVE OFFICER. If the Board appoints a Chief
Executive Officer, he or she shall have direct charge of the business of the
Corporation, subject to the general control of the Board of Directors, and
shall be the chief executive officer of the Corporation unless otherwise
determined by the Board of Directors. The Chief Executive Officer shall have
direct charge of the daily operational aspects of the Corporation's business,
unless otherwise determined by the Board of Directors, and shall have such
other duties as may be assigned to him or her from time to time by the Board
of Directors or its Chairman.
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5.8 VICE-PRESIDENT. Each Vice President shall perform all such
duties as from time to time may be assigned to him or her by the Board of
Directors, the Chairman, the President or the Chief Executive Officer. At the
request of the President, or in the absence of the President, or in the event of
his or her inability or refusal to act, the Vice-President (or, in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election), shall perform all the duties of the
President and, when so acting, shall have the power of, and be subject to the
restrictions placed upon, the President in respect of the performance of such
duties.
5.9 TREASURER. The Treasurer shall have charge and custody of, and
be responsible for, all funds and securities of the Corporation; receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever, and keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation; deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such banks, trust
companies and other depositories as shall be designated by the Board of
Directors or pursuant to its direction; and, in general, perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him or her by the Chairman, the President, the Chief
Executive Officer or the Board of Directors. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall supervise the investments of
the Corporation's funds. The Treasurer shall provide the Chief Executive
Officer an account of all transactions and of the financial condition of the
Corporation.
5.10 SECRETARY. The Secretary shall (a) attend all meetings of the
stockholders and all meetings of the Board of Directors and shall record and
keep, or cause to be recorded and kept, the minutes of the corporate meetings in
one or more books provided for that purpose, and shall perform like duties for
the standing committees when required; (b) see that all notices are duly given
in accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal, if any, of the Corporation;
(d) keep a register of the mailing address of each stockholder; (e) sign with
the Chairman, President or Vice-President certificates for shares of stock of
the Corporation; (f) have general charge of the stock transfer books of the
Corporation; and (g) in general, perform all duties as from time to time may be
assigned to him or her by the Chairman, the President, the Chief Executive
Officer or the Board of Directors.
5.11 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors (or if there shall be no such determination, then in the order of
their election) shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there shall
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there shall be no
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such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary
and shall perform such other duties as from time to time may be assigned by
the Board of Directors.
5.13 POWERS AND DUTIES. In the absence of any officer of the
Corporation, or for any other reason the Board of Directors may deem sufficient,
the Board of Directors may delegate for the time being the powers or duties of
such officer, or any of them, to any other officer or to any director. The
Board of Directors may from time to time delegate to any officer authority to
appoint and remove subordinate officers and to prescribe their authority and
duties. The Board of Directors shall determine which officers shall report
directly to the Board of Directors and which officers shall report to other
officers.
5.14 OFFICERS' BOND OR OTHER SECURITY. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of such officer's duties, in such amount and with
such surety as the Board of Directors may require.
5.15 COMPENSATION. The compensation of the officers shall be fixed
from time to time by the Board of Directors. Nothing contained herein shall
preclude any officer from serving the Corporation in any other capacity,
including that of director, or from serving any of its stockholders,
subsidiaries or affiliated corporations in any capacity, and receiving proper
compensation therefor.
6. CERTIFICATES OF STOCK.
6.1 STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman, the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares of stock owned by the holder
in the Corporation. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
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6.2 FACSIMILE SIGNATURES. Where a certificate of stock is
countersigned (a) by a transfer agent other than the Corporation or its
employee, or (b) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be a facsimile signature. In case 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 such person were such officer,
transfer agent or registrar at the date of issue.
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its records;
provided, however, that the Corporation shall be entitled to recognize and
enforce any lawful restriction on transfer. Whenever any transfer of stock
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of transfer if, when the certificates are presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
6.5 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
6.6 REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
6.7 FIXING THE RECORD DATE. In order that the Corporation may
determine the holders of stock of the Corporation entitled to notice of or to
vote at any meeting of stockholders or any adjournments thereof, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or 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 shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date, as
applicable, shall not be more than sixty nor less than ten days before the date
of the meeting of stockholders, nor more than sixty days prior to any other
action. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders, or
entitled to the benefit of any such other action, shall
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be determined pursuant to Section 213 of the General Corporation Law of the
State of Delaware. A determination of stockholders 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.
6.8 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares of stock to receive dividends and to vote as such owner and to hold
liable for calls and assessments a person registered on its books as the owner
of shares of stock, and the Corporation shall not be bound to recognize any
equitable or other claim to, or interest, in such share or shares of stock on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
7. GENERAL PROVISIONS.
7.1 AUDITS. The accounts, books and records of the Corporation shall
be audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.
7.2 BOOKS AND RECORDS. The books and records of the Corporation may
be kept outside the State of Delaware at such place or places as may from time
to time be designated by the Board of Directors.
7.3 CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
7.4 DIVIDENDS. Subject to the provisions of the General Corporation
Law of the State of Delaware and the Certificate of Incorporation, dividends
upon the shares of capital stock of the Corporation may be declared by the Board
of Directors at any regular or special meeting. Dividends may be paid in cash,
in property or in shares of stock of the Corporation, unless otherwise provided
by the General Corporation Law of the State of Delaware or the Certificate of
Incorporation.
7.5 EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer officers, agent or agents, in the name and on behalf of
the Corporation, to enter into or execute and deliver any and all contracts,
deeds, bonds, mortgages and other obligations or instruments, and such authority
may be general or confined to specific instances.
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7.6 FISCAL YEAR. The Board of Directors of the Corporation shall
have the power to fix, and from time to time change, the fiscal year of the
Corporation.
7.7 RESERVES. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors may, from time to time, determine in its absolute
discretion to be proper as a reserve or reserves to meet contingencies, for
equalizing dividends, for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may deem to be
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
7.8 SEAL. The seal of the Corporation shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
7.9 VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided
by resolution of the Board of Directors, the Chairman or the President, from
time to time, may (or may appoint one or more attorneys or agents to) cast the
votes which the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose shares of securities may be
held by the Corporation, at meetings of the holders of the shares or other
securities of such other corporation. In the event one or more attorneys or
agents are appointed, the Chairman or the President may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent. The Chairman or the President may, or may instruct the attorneys or
agents appointed to, execute or cause to be executed in the name and on behalf
of the Corporation or under its seal or otherwise such written proxies,
consents, waivers or other instruments as may be necessary or proper in the
circumstances.
8. AMENDMENTS. The Board of Directors is expressly authorized to adopt,
amend or repeal these By-Laws. Any By-Laws adopted by the Board of Directors
under the powers conferred hereby may be amended or repealed by the stockholders
at any annual or special meeting of stockholders by the affirmative vote of the
holders of a majority of the voting power of all capital stock issued and
entitled to vote at such meeting. Notwithstanding anything contained in these
By-Laws to the contrary, any proposed alteration or repeal of, or the adoption
of any provisions inconsistent with, Sections 2.2, 2.9, 2.10, 2.13, 3.2, 3.9 or
3.11 of these By-Laws by the stockholders shall require the affirmative vote of
the holders of at least 85% of the voting power of all capital stock issued and
entitled to vote at such meeting.
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LOAN AGREEMENT
This is a Revolving Credit Loan Agreement (this "Agreement") dated as of
January 24, 1995, among
LIBERTY NATIONAL BANK AND TRUST
COMPANY OF KENTUCKY
416 West Jefferson Street
Louisville, Kentucky 40202
TUMBLEWEED, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
RECITALS
A. This Agreement provides for a Revolving Credit (as defined below) in
the maximum principal amount of $7,500,000.00, pursuant to which the Borrower
(as defined below) may obtain Revolving Credit Loans (as defined below) during
the term of this Agreement, upon the terms and subject to the conditions
contained herein.
B. The Lender (as defined below) and the Borrower anticipate that
proceeds from the Revolving Credit will be used to finance the acquisition of
the Borrower's operating assets and for the Borrower's working capital needs.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1 -- DEFINITIONS
As used in this Agreement, the following terms and phrases shall have the
meanings set out after them:
"Accounts Receivable" shall have the meaning given it in the Security
Agreement.
"Affiliate" shall mean, (1) any Person that directly or indirectly owns,
controls or holds with power to vote ten percent (10%) or more of the
outstanding voting securities of the Borrower (a "Specified Person"), (2) any
other Person ten percent (10%) or more of whose outstanding voting securities
are directly or indirectly owned, controlled or held with power to vote by such
Specified Person, (3) any Person directly or indirectly controlling, controlled
by or under common control with such Specified Person, (4) any executive
officer, manager, member director or partner of such Specified Person, and (5)
if such Specified Person is an executive officer, manager, member director or
partner of any other Person, the Person for which such Specified Person acts in
any such capacity.
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"Board" shall mean the Board of Governors of the Federal Reserve System.
"Borrower" shall mean Tumbleweed, LLC, a Kentucky limited liability
company.
"Chattel Paper" shall have the meaning given it in the Security Agreement.
"Collateral" shall have the meaning given it in the Security Agreement.
"Class A Members" shall mean those persons identified on SCHEDULE 1
attached hereto. SCHEDULE 1 may be amended from time to time to reflect the
addition of additional Class A Members to the Company.
"Class A Member Assumption Agreement" shall mean any assumption agreement,
dated as of the date of this Agreement, executed by a Class A Member,
substantially in the form of the assumption agreement attached hereto as
ANNEX B.
"Class A Member Default" shall mean (i) a default by a Class A Member in
the performance of such Member's obligations under the Class A Member's
Assumption Agreement, (ii) the occurrence of an Event of Default under Sections
9.09, 9.10 or 9.11, if such Class A Member is substituted as the "Borrower," or
(iii) the failure by a Class A Member to observe, perform or comply with the
terms, obligations, covenants, agreements, conditions or other provisions of any
agreement, document or instrument which the Class A Member has entered into with
the Lender.
"Class A Member Letters of Credit" shall mean any irrevocable letter of
credit issued for the account of the Class A Members by a bank or banks
acceptable at all times to the Lender in a face amount equal to $260,000.00 per
Class A Member Unit (or a pro rata portion thereof as to any partial Class A
Member Unit), and otherwise in form and substance reasonably satisfactory to the
Lender, and any replacement, extension and/or renewal of any such letter of
credit.
"Class A Member Unit" shall mean an investment unit (1) sold pursuant to
the Private Placement Memorandum consisting of one Class A Member Unit in the
Borrower, and (2) as to which Class A Member Assumption Agreement(s) have been
executed pursuant to which an aggregate of $260,000.00 of the Note has been
assumed by the applicable Class A Member(s).
"CPA Firm" shall mean the firm of certified public accountants which
regularly performs accounting services for the Borrower, PROVIDED THAT such firm
is satisfactory to the Lender in its sole discretion.
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"Current Liabilities" shall mean all Indebtedness which in accordance with
generally accepted accounting principles consistently applied would be
classified as current liabilities.
"Equipment" shall have the meaning given it in the Security Agreement.
"Event of Default" shall mean any one of the occurrences which are Events
of Default under Section 9 of this Agreement.
"Full Pro rata Portion" shall mean the percentage which (1) the number one
bears to (2) the total number of Class A Member Units.
"General Intangibles" shall have the meaning given it in the Security
Agreement.
"Hazardous Materials" shall mean any and all substances, chemicals or
wastes (including, without limitation, asbestos, polychlorinated biphenyls
("PCBs") and petroleum) that are designated or defined (either by inclusion in a
list of materials or by reference to exhibited characteristics) as hazardous,
toxic or dangerous, or as a pollutant or contaminant in any of the Relevant
Environmental Laws.
"Indebtedness" shall mean all obligations, contingent or otherwise, which,
in accordance with generally accepted accounting principles, should be
classified on the obligor's balance sheet as liabilities, and includes (1)
liabilities (whether or not they should be so classified upon such balance
sheet) secured by any mortgage, pledge, security interest, lien, charge or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the liability secured shall have been assumed or the owner or acquiror of
the property otherwise has corporate liability therefor, (2) all obligations
with respect to any undertaking to pay or be responsible for the obligations of
any other party, or to purchase an obligation owned by any other party, or to
purchase assets to enable any other party to discharge one or more of its
obligations, whether or not reflected on the balance sheet or in a footnote, and
(3) obligations with respect to leases which, in accordance with generally
accepted accounting principles, should be capitalized on the balance sheet.
"Index Rate" shall mean at any time the annual interest rate most recently
designated and announced publicly from time to time by the Lender as its Index
Rate in effect at its principal office, and does not necessarily mean or imply
that such rate is the lowest rate then available from the Lender to any
customer.
"Instruments" shall have the meaning given it in the Security Agreement.
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"Inventory" shall have the meaning given it in the Security Agreement.
"Lender" shall mean Liberty National Bank and Trust Company of Kentucky, a
national banking association.
"Loan Documents" shall mean, collectively, this Agreement and all
agreements, documents and instruments referred to in this Agreement which are to
be executed by the Borrower and the Class A Members, or any of them, including,
without limitation, the Note, the Security Agreement, the Class A Member
Assumption Agreements, any Class A Member Letters of Credit, and any other
agreement, document or instrument to be executed in connection with this
Agreement.
"Managers" shall initially mean John A. Butorac, Jr. and James M.
Mulrooney, and shall include any additional or replacement managers under the
Tumbleweed Agreement.
"Maturity Date" shall mean January 23, 1998.
"Net Income" shall mean EITHER (a) if the CPA Firm has prepared audited
financial statements for the period in question, accompanied by an unqualified
opinion, the amount shown in the income statement (prepared and audited by the
CPA Firm) as net income, less all items of extraordinary income; or (b) in all
other cases, the net income of the Borrower, after exclusion of all items of
extraordinary income and after deduction of all direct and indirect expenses,
all as determined in accordance with GAAP.
"Net Worth" shall mean, with respect to a particular accounting for the
Borrower, (1) the total consolidated book value of all assets that the Borrower
(after deducting all applicable reserves and deferred taxes) MINUS (2) all of
the Borrower's Total Debt, as determined in accordance with generally accepted
accounting principles consistently applied.
"Note" shall mean the revolving credit note dated the date of this
Agreement by the Borrower, payable to the Lender's order in the maximum
principal amount of $7,500,000.00, substantially in the form of the note
attached to this Agreement as ANNEX A, and any note or other instrument in
renewal, replacement, substitution, extension and/or novation of the note.
"Offering Documents" shall mean those documents by which the offering of
the Class A Member Units was effected and shall include, without limitation, the
Private Placement Memorandum, the Tumbleweed Agreement, the Subscription
Agreement, and the Class A Member Assumption Agreements.
"Person" shall mean any individual, firm, trust, partnership, association,
company, corporation or other entity.
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<PAGE>
"Private Placement Memorandum" shall mean the private placement memorandum
of the Borrower dated October 10, 1994.
"Relevant Environment Laws" shall mean any and all federal, state and local
laws, codes, ordinances, rules, regulations, reported and publicly available
orders, reported judicial determinations, and reported and publicly available
decisions of an executive body or any governmental and quasi-governmental
entity, whether in the past, the present or the future, pertaining to health,
safety or the environment in effect in any and all jurisdictions in which the
Borrower is or at any time may be doing business, or where the Borrower's assets
are located. The Relevant Environmental Laws shall include, but shall not be
limited to, the following: (1) the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sections 9601, ET SEQ.; the Superfund
Amendments and Reauthorization Act, Public Law 99-949, 100 Stat. 1613; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ.; the
National Environmental Policy Act, 42 U.S.C. Section 4321; the Safe Drinking
Water Act, 42 U.S.C. Sections 300F, ET SEQ.; the Toxic Substances Control act,
15 U.S.C. Section 2601; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801; the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251,
ET SEQ.; the Clean Air Act, 42 U.S.C. Section 7401, ET SEQ.; and the regulations
promulgated in connection therewith; (2) EPA regulations pertaining to asbestos
(including 29 C.F.R. Sections 1910.1001 and 1926.58); and any state and local
laws and regulations pertaining to Hazardous Materials and/or asbestos.
"Regulation U" shall mean Regulation U of the Board.
"Request for Disbursement" shall mean a written request, or an oral request
which is promptly confirmed by a written request which is, signed by each of the
Managers of the Borrower for a Revolving Credit Loan in form, substance and
detail satisfactory to the Lender.
"Revolving Credit" shall have the same meaning given it in Section 2 of
this Agreement.
"Revolving Credit Loan" shall mean any single extension of credit by the
Lender to the Borrower pursuant to Section 3.01 of this Agreement.
"Revolving Credit Loans" shall mean the aggregate of all Revolving Credit
Loans, and the interest on all extensions of credit made by the Lender pursuant
to this Agreement.
"Security Agreement" shall mean the Security Agreement between the
Borrower and the Lender, of even date herewith, substantially in the form of
the security agreement attached hereto as ANNEX C, and incorporated herein by
reference.
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"Security Instruments" shall mean the Security Agreement, the Class A
Member Letters of Credit, the Class A Member Assumption Agreements and any
other instrument providing security for the Revolving Credit Loans or any
other Indebtedness or obligation of the Borrower, arising out of, in
connection with, or relating to, either directly or indirectly, this
Agreement or any of the other Loan Documents.
"Subscription Agreement" shall mean any subscription agreement between a
Class A Member and the Borrower executed pursuant to the Private Placement
Memorandum.
"Tangible Net Worth" shall mean the Net Worth of the Borrower MINUS the
value of any intangible assets, including, without limitation, organization
expenses, patents, trademarks, copyrights, goodwill, research and development,
training cost and unamortized debt discount.
"Tangible Property" shall have the meaning given it in the Security
Agreement.
"Termination Date" shall have the meaning given it in Section 2.02 of this
Agreement.
"Total Debt" shall mean the total unpaid principal balance of, and all
accrued but unpaid interest on, all of the Borrower's Indebtedness, including,
but not limited to, the Current Liabilities and the Revolving Credit Loans.
"Tumbleweed" shall mean Tumbleweed, LLC, a Kentucky limited liability
company.
"Tumbleweed Agreement" shall mean the Operating Agreement dated September
19, 1994, for Tumbleweed, f/k/a TW Operations, L.L.C.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the Commonwealth of Kentucky.
"Unmatured Default" shall mean the happening of any occurrence which would,
together with the giving of any required notice or the passage of any required
period of time, constitute an Event of Default.
Section 2 -- THE REVOLVING CREDIT
The Lender hereby establishes a revolving credit (the "Revolving Credit")
in favor of the Borrower as follows:
2.01 AMOUNT. The maximum principal amount of the Revolving Credit shall
be Seven Million Five Hundred Thousand Dollars ($7,500,000.00).
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2.02 TERM OF REVOLVING CREDIT. The Revolving Credit shall become
effective as of the date hereof and shall continue until the earlier to occur
of the maturity of the Note or the termination of the Revolving Credit
pursuant to this Agreement. The Note shall mature on January 23, 1998. The
Revolving Credit may be terminated or suspended in accordance with this
Agreement (including, by way of illustration and not by way of limitation, in
accordance with Section 2.03).
2.03 TERMINATION OR SUSPENSION OF REVOLVING CREDIT OTHER THAN BY MATURITY.
(a) Upon the occurrence and during the continuance of an Event of
Default under this Agreement or any other of the Loan Documents, the
Revolving Credit may at the Lender's option terminate and all amounts payable
under the Note and all other Indebtedness secured by the Security Agreement
shall automatically become due and payable in full.
(b) If (1) the Borrower shall suffer a material adverse change in
business prospects or financial condition, (2) an event occurs which the
Lender in good faith determines adversely affects the Lender's prospects for
repayment of the amounts due thereafter under the Note (it being understood
and agreed by the parties, however, that financial performance by the
Borrower which is not substantially in accordance with or better than that
forecasted in the Private Placement Memorandum shall not constitute, in and
of itself, (A) a material adverse change in the Borrower's business prospects
or financial condition in violation of clause (1) above, or (B) an event
which adversely affects the Lender's prospects for repayment of the amounts
due thereafter under the Note in violation of clause (2) above), or (3) an
Unmatured Default shall occur and be continuing, then the Lender may suspend
the Revolving Credit and the Borrower shall not have any right to request or
receive any Revolving Credit Loan pursuant to this Agreement so long as the
suspension remains in effect.
(c) The suspension or termination of the Revolving Credit shall
not in any way release the Borrower from obligations incurred under this
Agreement prior to termination, nor shall either suspension or termination of
the Revolving Credit terminate this Agreement. The provisions of this
Agreement and the security interests created to secure the Revolving Credit
Loans shall continue in full force and effect until all amounts, including,
without limitation, interest, penalties and other charges, owed by the
Borrower to the Lender have been paid in full.
Section 3 -- THE REVOLVING CREDIT
3.01 REVOLVING CREDIT LOANS. Upon the terms and subject to the
conditions of this Agreement, so long as the Revolving Credit remains in
effect and is not suspended or terminated, the Lender
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shall grant the Borrower such Revolving Credit Loans as the Borrower may
request from time to time in accordance with the provisions of this
Agreement. Upon the terms and subject to the conditions of this Agreement,
the Borrower shall have the right to borrow Revolving Credit Loans with an
aggregate outstanding unpaid principal balance of up to $7,500,000.00, so
long as (a) no Event of Default or Unmatured Default shall exist at the time
a Request for Disbursement is made; (b) all requirements for disbursement
provided in the Loan Documents have been satisfied; (c) the aggregate
outstanding unpaid principal balance of all Revolving Credit Loans, as the
same may exist from time to time, does not exceed the aggregate amount of
Indebtedness of the Borrower to the Lender assumed by all Class A Members
pursuant to Class A Member Assumption Agreements, and as to which there is
not a Class A Member Default; and (d) termination or suspension of the
Revolving Credit in accordance with this Agreement does not sooner occur.
The Revolving Credit Loans shall be evidenced by and payable in accordance
with the Note and on the terms of this Agreement. In the event of any
discrepancy between the terms of the executed Note and this Agreement, the
terms of the executed Note shall prevail. In any event, at no time shall the
aggregate unpaid principal balance of all Revolving Credit Loans made
pursuant to this Agreement which are outstanding at any one time exceed Seven
Million Five Hundred Thousand Dollars ($7,500,000.00).
3.02 INTEREST. The aggregate outstanding unpaid principal balance of the
Revolving Credit Loans, as such balance may exist from time to time, shall bear
interest at an annual rate equal to the Index Rate, from time to time in effect,
PLUS 25/100 percent (0.25%), from the date each Revolving Credit Loan is made
pursuant to this Agreement until the entire principal balance of and all accrued
interest on all Revolving Credit Loans have been paid. The interest rate shall
be adjusted, from time to time, on the same day on which the Lender changes the
Index Rate. All interest on Revolving Credit Loans shall be computed on the
basis of the actual number of days elapsed over an assumed year consisting of
360 days.
3.03 PURPOSE OF REVOLVING CREDIT LOANS. The Borrower shall use the
proceeds of the Revolving Credit Loans to finance the acquisition of the
Borrower's operating assets and to provide for the Borrower's working capital
needs.
3.04 PROCEDURES AND CONDITIONS. Each Revolving Credit Loan obtained by
the Borrower shall be subject to the following terms and conditions:
(a) Each Revolving Credit Loan obtained by the Borrower shall be in
the minimum principal amount of $25,000.00 unless the balance of the Revolving
Credit available for Revolving Credit Loans is at any time less than $25,000.00,
in
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which event a single draw in the amount of such available balance shall be
permitted.
(b) Whenever the Borrower desires to obtain a Revolving Credit Loan,
the Borrower shall make or deliver a Request for Disbursement to the Lender no
later than 11:00 A.M., local time in Louisville, Kentucky, on the date on which
the Borrower wishes to have the funds made available, specifying the amount of
the Revolving Credit Loan requested, the date on which the Borrower desires the
funds to be made available, the purpose for which the Revolving Credit Loan is
requested, and the account with the Lender in which the Lender shall deposit
such Revolving Credit Loan. The Lender shall deposit each Revolving Credit Loan
the Lender grants pursuant to this Agreement in the demand deposit and
disbursement account with the Lender which is designated by the Borrower.
(c) The Borrower shall not be entitled to obtain any Revolving Credit
Loan if any Event of Default, or Unmatured Default exists at the time of the
making of the Request for Disbursement, or would exist upon the making of the
Revolving Credit Loan requested, even if the Lender does not elect to terminate
or suspend the Revolving Credit as a result of such Event of Default, or
Unmatured Default.
(d) If the Borrower requests any Revolving Credit Loan which, if
made, would cause the aggregate principal amount of Revolving Credit Loans then
outstanding to exceed the maximum available amount of the Revolving Credit
(under Section 3.01 of this Agreement), then the Lender may, in its sole
discretion, (1) disburse all of the requested Revolving Credit Loan, in which
event, the maximum available amount of the Revolving Credit for purposes of this
Agreement shall temporarily be increased to the extent of such excess unless and
until the outstanding unpaid principal balance of the Revolving Credit Loans is
reduced in the normal course of the loan transactions hereunder to an amount
equal to or less than the maximum available amount of the Revolving Credit set
forth in Section 3.01 hereof, or (2) disburse that part of the requested
Revolving Credit Loan which would cause the aggregate principal amount of the
Revolving Credit Loans then outstanding to equal the maximum available amount of
the Revolving Credit.
(e) All Revolving Credit Loans shall be made in strict compliance
with the terms and conditions of this Agreement, unless the Lender elects in its
sole discretion to waive any of those terms and conditions. The waiver of any
terms and conditions with respect to any one Revolving Credit Loan shall not
constitute a waiver of the same or any other terms or conditions with respect to
any other Revolving Credit Loan.
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(f) Each request by the Borrower for a Revolving Credit Loan
hereunder shall constitute the re-making of the representations and warranties
by the Borrower contained in Section 8 of this Agreement.
3.05 MINIMUM PRINCIPAL BALANCE.
(a) If, for any reason, after the making of the first Revolving
Credit Loan the principal balance of the Revolving Credit Note is reduced below
$1,000.00, then, at the option either of the Borrower or of the Lender, the
Revolving Credit shall terminate upon five (5) banking days prior notice to the
others of them and all amounts due to the Lender under this Agreement and the
other Loan Documents shall then immediately be paid by the Borrower to the
Lender. Upon such payment, all security interests of the Lender in the
Collateral shall be released and the Borrower shall not be entitled to
thereafter obtain any further disbursements of the Revolving Credit under this
Agreement.
(b) If within thirty (30) days after a termination of the Revolving
Credit pursuant to Section 3.05(a) above, the Borrower requests that the
Revolving Credit be reinstated and the Borrower, at the Borrower's expense,
deliver to the Lender such documentation as the Lender may request in its sole
discretion, including, but not limited to, an opinion of counsel satisfactory to
the Lender that no intervening lien or other encumbrance has been filed or
otherwise exists which would affect the first priority security interests of the
Lender in the Collateral upon reinstatement of the Revolving Credit, then the
Lender shall reinstate the Revolving Credit upon the terms and subject to the
conditions of this Agreement and the other Loan Documents.
3.06 NOTATION OF DISBURSEMENTS AND PAYMENTS. Disbursements of, and
payments of principal with respect to, the Revolving Credit Loans shall be
evidenced by the Lender's notations made in the Lender's electronic data
processing equipment showing the date and amount of each advance or each
payment of principal or both. The principal amount outstanding under the
Note from time to time shall also be recorded by the Lender on that data
processing equipment. Once each quarter during the term of the Revolving
Credit, and at any other time upon written request by a Borrower, the Lender
shall give the Borrower written notice of the outstanding principal balance
of the Note and shall further disclose the applicable interest rate (but the
failure of the Lender to provide such written notice and/or disclosure shall
not relieve the Borrower of any obligations of the Borrower, payment or
otherwise, under this Agreement or any other of the Loan Documents, nor
otherwise derogate any of the obligations or liabilities of the Borrower
under this Agreement or any other of the Loan Documents). The aggregate
amount of all disbursements of the Revolving Credit Loans made and recorded
in the Lender's
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electronic data processing equipment, less all of the payments of principal
made by the Borrower on the Revolving Credit Loans and recorded in the
Lender's electronic data processing equipment, shall be prima facie evidence
of the outstanding principal balance due under the Note.
Section 4 -- PAYMENT OF REVOLVING CREDIT LOANS
4.01 NOTE PRINCIPAL PAYMENT. The Borrower shall pay to the Lender the
entire outstanding unpaid principal balance of, and all accrued but unpaid
interest on, all Revolving Credit Loans on the Maturity Date, or upon
acceleration as provided in this Agreement.
4.02 NOTE INTEREST PAYMENTS. Commencing on March 1, 1995, and continuing
on the first (1st) day of each and every calendar month during the term of the
Revolving Credit and upon the Maturity Date, or upon acceleration as provided in
this Agreement, the Borrower shall pay all accrued but unpaid interest on the
outstanding unpaid principal balance of all Revolving Credit Loans until the
entire principal balance of, and all accrued but unpaid interest on, all
Revolving Credit Loans have been paid in full.
4.03 APPLICATION OF PAYMENTS. The payments described in Section 4.02 of
this Agreement will be applied in accordance with the terms of the Note.
4.04 PAYDOWNS OF THE NOTE. The Borrower may at any time, and from time to
time, without penalty or premium, make principal payments of the Note in whole
or in part before the Maturity Date. Each such principal payment made by the
Borrower with respect to the Note shall be greater than or equal to $10,000.00,
and shall be applied to payment of principal of the Revolving Credit Loans
which, according to the records of the Lender, have been most recently
disbursed.
Section 5 -- SECURITY FOR AND
ASSUMPTION OF THE REVOLVING CREDIT
The Note and the Revolving Credit Loans evidenced thereby, are and shall
be secured by and/or entitled to the benefits of all of the following:
5.01 SECURITY INTEREST IN THE COLLATERAL. The Note and the Revolving
Credit Loans shall be secured by the security interests created pursuant to
the Security Agreement. Pursuant to the Security Agreement, the Borrower
shall grant to the Lender security interests in the Collateral.
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5.02 RIGHT OF OFFSET. The Revolving Credit Loans shall be secured by
the right of offset provided in Section 10.03 of this Agreement.
5.03 ASSUMPTION AGREEMENTS. Pursuant to the Class A Member Assumption
Agreements, each Class A Member shall assume a portion of the Borrower's
obligations under this Agreement and the other Loan Documents as provided
therein, as described in each such Class A Member Assumption Agreement. The
Indebtedness assumed by each Class A Member shall be several, separate and
pro rata. For each Class A Member Unit, the associated Class A Member's
assumed indebtedness shall be a Full Pro rata Portion of the Borrower's
obligations to the Lender under all of the Loan Documents (which assumption
shall be prorated with respect to any partial Class A Member Unit). For
example, in the event that the maximum offering of 30 Units is sold pursuant
to the Offering Documents, the assumed indebtedness of a Class A Member
purchasing three Class A Member Units would be ten percent (10%) (three times
the Full Pro rata Portion of 1/30th or 10%) of the Borrower's obligations to
the Lender under all of the Loan Documents and the assumed indebtedness of a
Class A Member purchasing one of Class A Member Unit would be approximately
3.34% (a Full Pro rata Portion of 1/30 or 3.34%) of the Borrower's
obligations to the Lender under all of the Loan Documents. Similarly, in the
event that the minimum offering of 24 Class A Member Units is sold pursuant
to the Offering Documents, the assumed indebtedness of a Class A Member
purchasing three Class A Member Units would be approximately 12.5% (three
times the Full Pro rata Portion of 1/24 or 12.5%) and the assumed
indebtedness of a Class A Member purchasing one Class A Member Unit would be
approximately 4.167% (a Full Pro rata Portion of 1/24 or 4.167%).
5.04 COLLATERAL SECURITY OF CLASS A MEMBERS. If required by the
Lender, at any time in its sole discretion, each Class A Member shall, within
forty-five (45) days after the Lender requests, provide a Class A Member
Letter of Credit or other satisfactory collateral. Each required Class A
Member Letter of Credit, if any, shall remain outstanding and in effect
during the entire term of the Revolving Credit, plus 180 days thereafter. If
any Class A Member Letter of Credit (or any replacement Class A Member Letter
of Credit) has an expiration date sooner than that, and such Class A Member
Letter of Credit (or replacement Class A Member Letter of Credit) is not
renewed at least 60 days prior to its expiration date, the Lender shall have
the right to draw upon such Class A Member Letter of Credit (or replacement)
and to use the proceeds to purchase certificates of deposit in the name of
the respective Class A Member, which shall be pledged to the Lender upon
terms and conditions acceptable to the Lender, in the exercise of its sole
discretion, as collateral security for all obligations of such Class A Member
previously secured by such Class A Member Letter of Credit. Upon the
occurrence of a default under or with respect to a particular Class A Member
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Assumption Agreement, or the Loan Documents assumed thereby, the Lender shall
have the right to draw against the appropriate Class A Member Letter of
Credit to such extent as the Lender shall determine in its sole discretion
and to apply the proceeds as provided in the appropriate Class A Member
Assumption Agreement (in which case the maximum amount of the Revolving
Credit shall be reduced by the amount of the proceeds so applied).
5.05 EXERCISE OF RIGHTS. The Borrower hereby waives any requirement of
marshaling of assets and/or any other legal or equitable doctrine which might
otherwise require the Lender to proceed against any Persons or any of the
Collateral or any other property or with respect to any other rights in any
particular order. Upon an Event of Default, the Lender may choose to exercise
any of its rights or enforce any of its security interests, or decline to
enforce any of its rights or enforce any of its security interests, at the
Lender's sole discretion. The failure of the Lender to exercise any rights or
enforce any security interest shall not release any Person or property with
respect to which the Lender has any rights or any security interests, or in any
way limit or diminish the Lender's rights with respect to any such property or
Person. The failure of the Lender to exercise any rights or enforce any
security interest shall not release any Person or property with respect to which
the Lender has any rights or any security interests, or in any way limit or
diminish the Lender's rights with respect to any such property or Person.
Section 6 -- CONDITIONS PRECEDENT
6.01 CONDITIONS PRECEDENT TO THE FIRST REVOLVING CREDIT LOAN. The
Borrower's right to request and receive Revolving Credit Loans shall be
conditioned upon the fulfillment of all the following conditions prior to the
making of the first Revolving Credit Loan:
(a) RESOLUTIONS. The Borrower shall have furnished the Lender with a
certified copy of the resolutions (1) authorizing the execution of this
Agreement, the Note, the Security Instruments, and any other documents,
instruments and agreements referred to herein which are required to be executed
and delivered by the Borrower, its Managers, or any of them, and (2) authorizing
consummation of the transactions contemplated by this Agreement.
(b) EXECUTED AGREEMENTS AND DOCUMENTS. The Borrower shall have
delivered, or shall have caused to be delivered, to the Lender each of the
following agreements and documents duly and fully executed by all applicable
parties with respect thereto other than the Lender:
(1) this Agreement;
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(2) the Note;
(3) the Security Agreement;
(4) the Class A Member Assumption Agreements;
(5) any and all security agreements, pledge agreements,
assignments, Class A Member Letters of Credit, and other
agreements, documents or instruments evidencing, securing,
and/or pertaining to the Revolving Credit; and
(6) such financing statements or other documents for filing with
public officials with respect to the Security Agreement and
the other Loan Documents as the Lender may reasonably
request
(c) EVIDENCE OF AUTHORITY. The Borrower shall have furnished the
Lender with evidence satisfactory to the Lender that the person(s) who execute
the Loan Documents on behalf of the Borrower have been fully authorized to
execute the Loan Documents on behalf of the Borrower, together with the true
signature of such persons.
(d) THE BORROWER'S FINANCIAL STATEMENTS. The Borrower shall have
furnished the Lender with current balance sheets, income statements and
statements of profit and loss of the Borrower. The Borrower's initial
financial statements shall be prepared internally, and subsequent annual
financial statements shall be audited by the CPA Firm. The business and
financial condition of the Borrower shall be satisfactory to the Lender in
all respects, as determined by the Lender in the exercise of its sole
discretion (it being understood and agreed by the parties, however, that
financial performance by the Borrower which is not substantially in
accordance with or better than that forecasted in the Private Placement
Memorandum shall not constitute, in and of itself, an unsatisfactory business
or financial condition).
(e) UNIFORM COMMERCIAL CODE RECORD SEARCHES. The results of the
Uniform Commercial Code record searches with respect to the Borrower's
Accounts Receivable, Inventory, Instruments, Chattel Paper, General
Intangibles, Equipment and other Tangible Property shall be satisfactory to
the Lender in all respects, in the Lender's sole discretion.
(f) NO CHANGE IN CONDITION. There shall have been no material
adverse change in the condition, financial or otherwise, of the Borrower,
from that existing on the date of the financial statements delivered to the
Lender in connection with the Lender's review of the Borrower in preparation
for the Lender's
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agreement to extend to the Borrower the Revolving Credit (it being understood
and agreed by the parties, however, that financial performance by the
Borrower which is not substantially in accordance with or better than that
forecasted in the Private Placement Memorandum shall not constitute, in and
of itself, a material adverse change in the condition, financial or
otherwise, of the Borrower).
(g) GOVERNMENTAL APPROVALS. The Borrower shall have obtained all
required governmental permits, certificates, consents and franchises necessary
to conduct the business now being conducted by the Borrower, and to own, lease
and operate the Borrower's business and property as they are now owned, leased
and operated.
(h) REPRESENTATION AND WARRANTIES. Each and every representation and
warranty made by or on behalf of the Borrower relating to the Loan Documents or
the transactions contemplated thereby shall be true, complete and correct on and
as of the date such Revolving Credit Loan is to be made.
(i) NO DEFAULTS. There shall exist no Event of Default, or Unmatured
Default which has not been cured to the Lender's satisfaction.
(j) FEES AND EXPENSES. The Borrower shall have paid (i) a loan
commitment fee not to exceed $75,000.00, and (ii) all out-of-pocket expenses
incurred by the Lender in connection with the transactions contemplated under
this Agreement, including, but not limited to, the Lender's reasonable
attorneys' fees incurred in preparing and negotiating the Loan Documents.
(k) PROOF OF INSURANCE. The Borrower shall have furnished the
Lender with a certificate of its insurance carrier demonstrating the
Borrower's compliance with the requirements of Section 7.01 of this Agreement.
(l) CERTIFICATES OF EXISTENCE OR GOOD STANDING. The Borrower shall
have furnished the Lender with a certificate of existence dated as of a recent
date from the Secretary of State of the Commonwealth of Kentucky and a
certificate of good standing or existence issued by the Secretary of State of
each state in which the Borrower transacts business.
(m) RECORDINGS AND FILINGS. All financing statements or other
instruments as the Lender may request have been executed and delivered by the
Borrower and filed or recorded in such public offices as the Lender may request
to perfect the security interests which secure the Revolving Credit Loans.
(n) CERTIFICATE OF ORGANIZATION AND OPERATING AGREEMENT. The
Borrower shall have furnished the Lender with
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certified copies of the Borrower's Articles of Organization and Operating
Agreement.
6.02 CONDITIONS PRECEDENT TO SUBSEQUENT REVOLVING CREDIT LOANS. The
Borrower's right to request and receive Revolving Credit Loans after the
first Revolving Credit Loan shall be conditioned upon the fulfillment of the
conditions set out in Sections 6.01(b), (d), (f), (g), (h), and (i), of this
Agreement.
Section 7 -- GENERAL COVENANTS
During the term of this Agreement, the Borrower shall comply with all of
the following provisions:
7.01 INSURANCE. The Borrower shall maintain insurance as follows:
(a) LIABILITY INSURANCE. The Borrower, at its own cost and expense,
shall procure, maintain and carry in full force and effect general liability,
public liability, workers' compensation liability and property damage insurance
with respect to its actions and operations to such extent, in such amounts and
with such deductibles as are commonly carried by prudent businesses similarly
situated. Without limiting the foregoing, such insurance shall insure against
any liability for loss, injury, damage or claims caused by or arising out of or
in connection with the operation of the Borrower's business, including, without
limitation, injury to or death of the Borrower's employees, agents or any other
persons and damage to or destruction of public or private property.
(b) PHYSICAL DAMAGE INSURANCE. The Borrower, at its own cost and
expense, shall insure all of its insurable properties to such extent, against
such hazards, in the amount of coverage and with such deductibles as are
commonly carried by prudent businesses similarly situated.
(c) GENERAL INSURANCE REQUIREMENTS.
(1) All insurance which the Borrower is required to maintain
shall be satisfactory to the Lender in form, amount and insurer. Such
insurance shall provide that any loss thereunder shall be payable
notwithstanding any action, inaction, breach of warranty or condition, breach
of declarations, misrepresentation or negligence of the Borrower. Each
policy shall contain an agreement by the insurer that, notwithstanding lapse
of a policy for any reason, or right of cancellation by the insurer or any
cancellation by the Borrower, such policy shall continue in full force and
effect for the benefit of the Lender for at least sixty (60) days after
written notice thereof to the Lender and the Borrower, and no alteration in
any such policy shall be made except upon sixty (60) days written notice of
such
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proposed alteration to the Lender and the Borrower and written approval by
the Lender. All policies of insurance required by this Section 7 shall name
the Lender as a loss payee and additional insured (as applicable).
(2) Prior to the expiration date of any policy of insurance
maintained pursuant to this Agreement, the Borrower shall provide the Lender
with a certificate of insurance evidencing the acquisition of a new policy, or
an extension or renewal of an existing policy, evidencing the Borrower's due
compliance with this section.
(3) If the Borrower fails to acquire any policy of insurance
required to be maintained pursuant to this section, or fails to renew or replace
any such policy at least five (5) days prior to the expiration thereof, or fails
to keep any such policy in full force and effect, the Lender shall have the
option (but not the obligation) to pay the premiums on any such policy of
insurance or to take out new insurance in amount, type, coverage and terms
satisfactory to the Lender. Any amounts paid therefor by the Lender shall be
immediately due and payable to the Lender by the Borrower, upon demand. No
exercise by the Lender of such option shall in any way affect the provisions of
this Agreement, including, without limitation, the provision that failure by the
Borrower to maintain the prescribed insurance shall constitute an Event of
Default.
7.02 TAXES AND OTHER PAYMENT OBLIGATIONS.
(a) Subject to the provisions of Section 7.02(b) hereof, the Borrower
shall pay and discharge, or cause to be paid and discharged, each before it
becomes in arrears, all taxes, assessments, governmental charges, levies, and
claims for labor, materials or supplies which if unpaid might become a lien or
charge upon any of its property, and all of its other debts, obligations and
liabilities.
(b) The Borrower may refrain from paying any amount it would be
required to pay pursuant to subparagraph (a) of this Section 7.02 if the
validity or amount thereof is being contested in good faith negotiations and by
appropriate administrative or judicial proceedings timely instituted which shall
operate to prevent the collection or enforcement of the obligation contested,
provided that if the Borrower is engaged in such contest, the Borrower shall
have set aside on its books appropriate reserves with respect thereto. If the
validity or amount of any such obligation in excess of $50,000.00 shall be
contested pursuant to the provisions of this subparagraph, the Borrower shall
notify the Lender immediately upon the institution of the proceedings contesting
the obligation.
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7.03 FINANCIAL STATEMENTS.
(a) ANNUAL FINANCIAL STATEMENTS. With respect to the Borrower, as
soon as available, and in any event within one hundred twenty (120) days after
the end of each fiscal year of the Borrower, the Borrower shall furnish to the
Lender the financial statements audited by the CPA Firm consisting of a balance
sheet, income statement, and statement of profit and loss for such fiscal year
together with comparative figures for the next preceding fiscal year, all in
form and substance satisfactory to the Lender.
(b) QUARTERLY FINANCIAL INFORMATION STATEMENTS. As soon as
available, and in any event within fifty (50) days after the end of each
calendar quarter, the Borrower shall furnish the Lender with a balance sheet
and income statement for the quarter just ended, unaudited but accompanied by
a certificate signed by its Managers stating that such financial statements
are correct and accurate (subject to audit and year-end adjustments). The
first such report shall be delivered to the Lender on or before July 21,
1995.
(c) ADDITIONAL FINANCIAL INFORMATION. The Borrower shall deliver
to the Lender such additional information with respect to its financial
condition as may be reasonably requested by the Lender from time to time.
7.04 FINANCIAL RECORDS. The Borrower shall maintain systems of
accounting in which full, true and correct entries shall be made of all
dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a basis
consistent with prior years and, without limitation, making appropriate
accruals and reserves for, or notes as to, estimated contingent losses and
liabilities.
7.05 PROPERTIES. The Borrower shall maintain its fixed assets in good
condition, subject only to normal wear and tear, and make all necessary and
proper repairs, renewals and replacements. The Borrower shall comply with all
material leases and other material agreements in order to prevent loss or
forfeiture, unless compliance is being contested in good faith negotiations and
by appropriate proceedings timely instituted which shall operate to prevent
enforcement of the loss or forfeiture.
7.06 EXISTENCE AND GOOD STANDING. The Borrower shall preserve its
existence. The Borrower shall be and remain qualified to do business, and in
good standing, in all states in which it is required to be so qualified.
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7.07 NOTICE REQUIREMENTS.
(a) DEFAULT. The Borrower shall notify the Lender in writing (1)
immediately if such Borrower, or any of the Borrower's Managers or key
employees, has actual knowledge that an Event of Default, Class A Member
Default or Unmatured Default has occurred, or that any representation or
warranty made in this Agreement, any of the other Loan Documents or in any
related document or instrument, was not true and complete or was misleading
in any material respect, when made; and (2) within fifteen (15) days after
Borrower has constructive notice of any Event of Default, Class A Member
Default or Unmatured Default or has notice that any representation or
warranty made in this Agreement, any of the other Loan Documents or in any
related document or instrument, for any reason was not true and complete, or
was misleading in any material respect, when made. Such notice shall specify
the nature of such Event of Default, Class A Member Default or Unmatured
Default and the action the Borrower has taken, or will take, to correct it.
(b) MATERIAL LITIGATION. The Borrower promptly shall notify the
Lender in writing of the institution or existence of any litigation or
administrative proceeding of which the Borrower has knowledge or which the
Borrower is or may become a party, and which might involve any material risk of
any judgment of a liability which (1) would be in excess of $100,000.00, or (2)
would otherwise result in any material adverse change in the business, assets or
condition, financial or otherwise, of Borrower.
(c) OTHER INFORMATION. From time to time, upon request by the
Lender, the Borrower shall furnish to the Lender, such information regarding
such entity's business, assets and condition, financial or otherwise, as the
Lender may reasonably request. The Lender shall have the right during
reasonable business hours to examine all of the business and financial books and
records of the Borrower and to make notes and abstracts therefrom, to make an
independent examination of the books and records of the Borrower for the purpose
of verifying the accuracy of reports delivered by such entity and ascertaining
compliance with this Agreement. The Lender shall give forty-eight (48) hours
prior oral or written notice of any examination to be conducted by the Lender in
accordance with the preceding sentence unless an Event of Default or Unmatured
Default has occurred and is continuing, in which event the Lender shall not be
required to give any notice prior to conducting any such examination. All
information furnished to, or obtained by, the Lender pursuant to this Agreement
shall be treated as confidential information.
(d) LOSS OF ASSETS. Promptly, but in no event later than ten (10)
days after each loss, the Borrower shall notify the
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Lender of any loss of its assets due to fire, theft or otherwise if the total
amount of such loss exceeds $100,000.00.
(e) CHANGE IN A BORROWER'S NAME OR LOCATION. The Borrower shall
notify the Lender in writing at least thirty (30) days in advance of effecting
any change in (1) the Borrower's name, except that the Borrower shall change its
name to "Tumbleweed LLC" effective as of the date of this Agreement, (2) the
location of its principal place of business, (3) the place where any of its
Collateral or records respecting its Collateral are kept (the Borrower shall not
remove any part of its Collateral or records respecting its Collateral from any
such location, other than temporarily in the ordinary course of business), or
(4) the name or location of the Borrower's registered agent. The Borrower shall
assist the Lender in filing such security agreements, financing statements or
other notices reasonably deemed necessary by the Lender to preserve and maintain
the continued validity, enforceability and priority of the Lender's security
interest in the Collateral.
7.08 NOTE, SECURITY INSTRUMENTS. The Borrower pay the Note in accordance
with its terms. The Borrower shall also comply with the provisions of each of
the Security Instruments to which it is a party.
7.09 COMPLIANCE WITH LAW. The Borrower shall comply in all material
respects with (a) all valid and applicable statutes, rules and regulations of
the United States of America, of the States thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction applicable
to such Borrower; (b) the orders, judgments and decrees of all courts or
administrative agencies with jurisdiction over such Borrower or its business;
and (c) the provisions of licenses issued to the Borrower pursuant thereto,
except where compliance therewith shall be currently contested in good faith
negotiations and by appropriate administrative or judicial proceedings, timely
instituted, which shall operate to stay any order with respect to such
noncompliance.
7.10 LIENS. Except for liens granted by the Borrower to PNC Bank,
Kentucky, Inc. and Stock Yards Bank and Trust Company, securing indebtedness
in the maximum aggregate amount of $3,100,000.00, security interests granted
by the Borrower to the Lender contemporaneously with the execution of this
Agreement, and except for liens, acquisitions, sales, assignments, pledges or
other transfers permitted under this Agreement, the Borrower shall not (a)
transfer any such property or assets or the income or profits therefrom for
the purpose of subjecting the same to payment of indebtedness or performance
of any other obligation except payments made in accordance with Section 7.02
of this Agreement, payments made to the Lender in accordance with the terms
and provisions of this Agreement, or payments or
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distributions permitted pursuant to Section 7.11 of this Agreement, or (b)
sell, assign, pledge or otherwise transfer any of the Collateral with or
without recourse, except for Inventory in the ordinary course of business.
The Borrower may incur or create, or suffer to be incurred or created or to
exist, the following liens without violating the provisions of this Section
7.10:
(1) Deposits or pledges made in connection with, or to secure
payment of workers' compensation, unemployment insurance, old age pensions or
other social security, or in connection with contests, to the extent that
payment thereof shall not at that time be required to be made in accordance
with Section 7.02 of this Agreement.
(2) Statutory liens for taxes or assessments or governmental
charges or levies if payment shall not at the time be required to be made in
accordance with Section 7.02 of this Agreement.
(3) With respect to the Collateral, the Borrower may incur
purchase money liens or purchase money security interests.
(4) Statutory liens (A) to secure payment of rent or lease
payments with respect to leases of real property, or (B) to secure claims for
labor, material or supplies to the extent that such payments shall at the time
be contested in good faith by appropriate administrative or judicial proceedings
timely instituted which shall operate to prevent the collection or enforcement
of the obligation contested; provided, that, if requested by the Lender in
writing, the Borrower shall have set aside on its books and records appropriate
reserves (consistent with generally accepted accounting principles) with respect
to actions against the Borrower.
(5) Encumbrances, mortgages, pledges, liens, charges,
restrictions or security interests which are subordinate to those granted by the
Borrower to the Lender contemporaneously with the execution of this Agreement
and which are granted in connection with the furnishing of funds by any Person
to the Borrower for use in the ordinary course of business of the Borrower.
7.11 DISTRIBUTIONS; ACQUISITION OF STOCK; NEW UNITS; PRINCIPAL PAYMENTS ON
NOTE. The Borrower shall not:
(a) Except for distributions by the Borrower to the Lender on behalf
of the Class A Members, which are deemed to be distributions under the
Tumbleweed Agreement to such Class A Members, make any cash payments, cash
advances or distributions on or in respect of any Class A Member Unit or other
interest in
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the Borrower (by reduction of capital or otherwise), or extend any credit to
any member of the Borrower or any Affiliate of the Borrower, or make any
payments of principal on any note of the Borrower payable to any member of
the Borrower or Affiliate of the Borrower, unless, at the same time, the cash
payment, cash advance, distribution or extension of credit would be made, (1)
the distribution is required under the Tumbleweed Agreement, (2) all
principal and interest payments on the Revolving Credit then due or past due
have been made, and (3) the Borrower has reserved an amount equal to all
principal and interest payments on the Revolving Credit which will become due
during the remainder of such fiscal year; provided, however, that so long as
no Event of Default has occurred or is continuing this Section 7.11(a) shall
not prohibit or restrict the payment of reasonable compensation to any member
or manager of the Borrower or any Affiliate of the Borrower for services
actually performed as contemplated in and for compensation described by the
Private Placement Memorandum.
(b) Purchase, retire, reacquire or redeem any Class A Member Unit
or other interest in the Borrower, or set apart any sum for the purpose of
retirement, acquisition, purchase or redemption of any Class A Member Unit or
other interest in such Borrower.
7.12 MERGERS, SALES, TRANSFERS AND OTHER DISPOSITIONS OF ASSETS.
Without the Lender's prior written consent, except as contemplated in the
Private Placement Agreement, which shall not be unreasonably withheld, the
Borrower shall not:
(a) Sell or otherwise transfer any material part of its assets;
(b) Purchase all or a substantial part of the assets of any other
business enterprise, except for transactions in the ordinary course and
consistent with the Borrower's existing business, or as described in the Private
Placement Memorandum;
(c) Effect any change in its name or business;
(d) Sell, assign, pledge, encumber or otherwise dispose of, with or
without recourse, any of the Collateral (except Inventory in the ordinary course
of business), except the endorsement of negotiable instruments for the purpose
of collection in the ordinary course of business;
(e) merge or consolidate with or into any other business enterprise;
or
(f) Liquidate or dissolve or take any action with a view toward
liquidation or dissolution.
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7.13 PREPAYMENTS OF INDEBTEDNESS. The Borrower shall not prepay any
existing Indebtedness owing to any Person (except prepayments to the Lender
permitted under this Loan Agreement), or guarantee or become a co-maker or an
accommodation maker on any note or other evidence of Indebtedness or contract
of any kind.
7.14 VERIFICATION OF FINANCIAL INFORMATION. The Lender may at any time,
and from time to time, require that any determinations of financial information
provided by the Borrower to the Lender be verified by the CPA Firm.
7.15 NO SIGNIFICANT CHANGE OF BUSINESS. The Borrower shall not
significantly change the nature of its business as conducted or proposed on the
date of this Agreement.
7.16 LIMITATION ON LOANS TO ANY PERSON. The Borrower shall not make a
loan of any of its assets to any Person.
7.17 DEMAND DEPOSIT ACCOUNTS. The Borrower shall maintain its primary
demand deposit and disbursement account with the Lender.
7.18 TUMBLEWEED AGREEMENT. Without the Lender's prior written consent,
which shall not be unreasonably withheld, the Borrower shall not materially
change or amend the Tumbleweed Agreement. If the Borrower amends the Tumbleweed
Agreement with or without the Lender's prior written consent, the Borrower shall
provide the Lender with a copy of any such amended or restated operating
agreement certified by its Managers within ten (10) days of the effective date
of any such amendment.
7.19 NO CHANGE IN MANAGERS. The Borrower shall not allow the removal
of John A. Butorac, Jr. or James M. Mulrooney as Managers without the
Lender's prior written consent, which shall not be unreasonably withheld, and
shall promptly notify the Lender of any such removal despite such Borrower's
efforts.
7.20 ENVIRONMENTAL COMPLIANCE.
(a) The Borrower shall notify the Lender promptly and in reasonable
detail in the event that the Borrower becomes aware of the presence of Hazardous
Materials or a violation of the Relevant Environmental Laws resulting from or in
connection, directly or indirectly, with the business or operations of the
Borrower.
(b) The Borrower shall ensure that its business and operations comply
and continue to comply in all material respects with the Relevant Environmental
Laws.
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(c) Should the Borrower conduct any business or operations in such a
way as to subject the Borrower or the Lender to a claim or violation of the
Relevant Environmental Laws (unless contested in good faith), the Borrower shall
immediately remedy and fully cure any conditions arising therefrom, at its own
cost and expense.
(d) At its sole cost and expense, the Borrower shall
(1) Pay immediately when due the cost of compliance with the
Relevant Environmental Laws; and
(2) Keep the Borrower's business, assets and operations free of
any lien imposed pursuant to the Relevant Environmental Laws.
(e) The Lender shall not be liable for, and the Borrower shall
immediately pay to the Lender when incurred and shall indemnify, defend and hold
the Lender harmless from and against, all loss, cost, liability, damage and
expense (including, without limitation, attorneys' fees and costs incurred in
the investigation, defense and settlement of claims) that the Lender may suffer
or incur as mortgagee (as holder of or assignee in possession or as successor in
interest to the Borrower as owner of a Lease, by virtue of exercising the
Lender's right pursuant to a security interest thereof) as a result of or in
connection in any way with any of the Relevant Environmental Laws (including,
without limitation, the assertion that any lien existing pursuant to the
Relevant Environmental Laws takes priority over the lien or security interest of
the Lender's), or any environmental assessment or study from time to time
reasonably undertaken or requested by Lender or breach of any covenant or
undertaking by the Borrower.
(f) There shall not occur any Hazardous Discharge or Environmental
Complaint.
7.21 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT. Without the
Lender's prior written consent, which shall not be withheld or delayed
unreasonably, the Borrower shall not make any changes in or amendments to its
Articles of Organization or the Tumbleweed Agreement.
7.22 NET INCOME. The Borrower shall have a minimum annual Net Income of
$600,000.00.
Section 8 -- REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Revolving
Credit Loans, the Borrower represents and warrants to the Lender as follows:
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8.01 GOVERNMENTAL FRANCHISES AND THE LIKE. The Borrower has all required
governmental permits, certificates, consents and franchises necessary to the
business now being conducted by it, and to own, lease and operate its respective
businesses and property as now owned, leased and operated. All such
governmental permits, certificates, consents and franchises are valid and in
effect, and the Borrower is not in violation of any of them. None of those
governmental permits, certificates, consents or franchises contain any term,
provision, condition or limitation materially more burdensome than that which is
generally applicable to persons engaged in the same or similar businesses as the
Borrower.
8.02 FINANCIAL STATEMENTS. No material adverse change has occurred in the
financial condition of the Borrower since the date of the financial statements
the Borrower has delivered to the Lender pursuant to Section 7.03, and such
financial statements are true and complete, have been prepared in accordance
with generally accepted accounting principles consistently applied, and omit no
material contingent liabilities of any kind, and fairly present the financial
condition of the Borrower as the date of its financial statements.
8.03 NO DEFAULTS. No Unmatured Default or Event of Default exists on the
date of this Agreement, nor will any such Unmatured Default or Event of Default
begin to exist immediately after the execution and delivery hereof.
8.04 EXISTENCE. The Borrower is a limited liability company duly
organized and validly existing under the laws of the Commonwealth of Kentucky
and has paid all fees due and owing to the office of the Secretary of State of
the Commonwealth of Kentucky, and has not filed articles of dissolution. The
Borrower has all necessary power and authority to carry on the businesses now
conducted by it and to be conducted by it. The Borrower is qualified to
transact business in every jurisdiction in which, because of the character of
its business or operations or ownership of property, it is required to so
qualify.
8.05 RIGHT TO ACT. No registration with or consent or approval of any
governmental agency of any kind is required for the execution, delivery,
performance and enforceability of the Loan Documents. The Borrower has full
power and authority, corporate, partnership and otherwise, to execute, deliver
and perform the Loan Documents to which it is a party. Each of the Class A
Member has full capacity to execute, deliver and perform the Loan Documents to
which each is a party.
8.06 NO CONFLICTS. The Borrower's execution, delivery and performance of
the Loan Documents to which it is a party does not, and will not, (a) violate
any provision of the Borrower's Articles of Organization or the Tumbleweed
Agreement, or any law,
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rule, regulation, or judgment, order or decree applicable to the Borrower, or
(b) otherwise constitute a default, impair the ability to perform or result
in the imposition of any lien under (1) any existing contract or other
obligation binding upon the Borrower or the property of the Borrower, with or
without the passage of time or the giving of notice or both; (2) any law,
rule or regulation applicable to the Borrower or its business; or (3) any
judgment, order or decree of any court or administrative agency applicable to
the Borrower.
8.07 AUTHORIZATION. The execution, delivery and performance of the Loan
Documents by the Borrower has been duly authorized by all necessary action by
the Borrower, and the Loan Documents have been duly executed and delivered by
the Borrower and constitute legal, valid and binding obligations enforceable in
accordance with their terms.
8.08 LITIGATION AND TAXES.
(a) There is no litigation, at law or in equity, or any proceeding
before any federal, state or municipal court, board or other governmental or
administrative agency pending, or threatened which might involve any judgment
or liability against the Borrower or which might otherwise result in any
material adverse change in the assets or condition, financial or otherwise,
of the Borrower. No judgment, decree or order of any federal, state or
municipal court, board or other governmental or administrative agency has
been issued against the Borrower or any of its assets which has, or might
have, a material adverse effect on the Borrower's business, assets or
condition, financial or otherwise.
(b) The Borrower has filed all tax returns which are required to be
filed and has paid or made reasonable provision for the payment of, all taxes
which have or may become due pursuant to such returns or pursuant to assessments
received. The Borrower does not know of any material additional assessments for
which reasonable reserves have not been established, and the Borrower has made
reasonable provision for all current taxes.
8.09 COMPLIANCE WITH CONTRACTUAL OBLIGATIONS AND JUDGMENTS.
(a) The Borrower is not in default in the payment, performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any lease, indenture, mortgage, deed of trust, promissory note, or
agreement, including, without limitation, the Tumbleweed Agreement, any of the
Offering Documents or any undertaking to which the Borrower is a party or by
which its assets are bound, which default would have a material adverse effect
upon the Borrower's business, assets or condition, financial or otherwise.
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(b) The Borrower is not in default with respect to any material
judgment, order, writ, injunction, decree or demand of any court, arbitrator or
governmental agency or body.
(c) The Borrower has not violated any applicable statute, regulation
or ordinance of the United States of America or of any state, municipality or
other subdivision, jurisdiction or agency thereof, in any respect materially and
adversely affecting the Borrower's business, property, assets, operations or
condition, financial or otherwise.
8.10 NO UNDISCLOSED LIABILITIES OR GUARANTIES. The Borrower has no
material liabilities, direct or contingent, except as disclosed or referred to
in the financial statements referred to in Section 8.02 of this Loan Agreement,
nor has the Borrower guaranteed, or otherwise become responsible for, the
material obligations of any Person.
8.11 INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
8.12 REGULATION U. The Borrower is not engaged principally or as one of
its important activities in the business of extending credit for the purpose of
purchasing or carrying margin stock within the meaning of Regulation U. No part
of the proceeds of any Revolving Credit Loan will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin stock within
the meaning of Regulation U, or for the purpose of purchasing or carrying or
trading in any securities under such circumstances as to involve the Borrower in
a violation of Regulation U. In particular, without limitation of the
foregoing, the Borrower will not use any part of the proceeds of any Revolving
Credit Loan to be made hereunder to acquire for itself or for any other person
any publicly held securities of any kind. The assets of the Borrower do not
include any margin stocks, and the Borrower has no present intention of
acquiring any margin stock. As used in this section, the terms "margin stock"
and "purpose of purchasing or carrying" shall have the meaning assigned to them
in Regulation U, and the term "publicly held," in respect of securities, shall
have the meaning assigned to it in Section 220.7(a) of Regulation T of the
Board.
8.13 DISCLOSURE. Neither this Agreement, nor any agreement, document,
certificate or statement furnished to the Lender by or on behalf of the Borrower
in connection with the transactions contemplated by this Agreement contains any
untrue statement of any material fact or omits to state any material fact
necessary to make the statements contained herein or therein not misleading.
There is no fact known to the Borrower which
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materially and adversely affects, or in the future might materially and
adversely affect, the business, operations, affairs or condition, financial
or otherwise, of the Borrower which has not been disclosed to the Lender.
8.14 OFFERING OF CLASS A MEMBER UNITS. As of the date of this Agreement,
26.5875 Class A Member Units have been sold pursuant to the Offering Documents.
8.15 COMPLIANCE WITH SECURITIES LAWS. Each Class A Member Unit has been
duly and legally issued, and has not been offered or sold in violation of any
federal or state securities laws or regulations.
8.16 TITLE TO PROPERTIES. Except for liens arising out of financing by
PNC Bank, Kentucky, Inc. and Stock Yards Bank and Trust Company, which secure
borrowing by the Company from such lenders in the aggregate maximum amount of
$3,100,000.00, and with respect to any real property subject to sale leaseback
transactions, the Borrower has good and marketable title to all of its property
and assets of all character, free and clear of all mortgages, liens and
encumbrances except (a) encumbrances granted to the Lender, (b) minor
irregularities in title which do not materially interfere with the use and
enjoyment by the Borrower of such properties and assets in the normal course of
business as presently conducted, or materially impair the value thereof for such
business, and (c) any other encumbrances permitted under the express terms of
the Borrower Documents.
8.17 ENVIRONMENTAL MATTERS.
(a) The Company has duly complied with, and its businesses,
operations, assets, equipment, leaseholds and facilities, including, without
limitation, the property to be acquired as contemplated in the Offering
Documents or the property included among the Collateral (collectively, the
"Property"), are in full compliance with, the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder, including, without limitation, all
the Relevant Environmental Laws and all other laws and regulations with respect
to reporting releases of Hazardous Materials and the registration, testing and
maintenance of underground storage tanks.
(b) The Company has been issued, and the Borrower will obtain and
maintain, all required federal, state and local permits, licenses, certificates
and approvals relating to (1) air emissions; (2) discharges to surface water or
ground water; (3) noise emissions; (4) solid or liquid waste disposal; (5) the
use, generation, storage, transportation or disposal of Hazardous Materials; and
(6) other environmental, health or safety matters.
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(c) The Company has received no notice of, and of or suspect any
fact(s) which might constitute violation(s) of any federal, state or local
environmental, health or safety laws, codes or ordinances, or any rules or
regulations promulgated thereunder, including, without limitation, any of the
Relevant Environmental Laws, which relate to the use, ownership or occupancy
of any of the Property and the Borrower is not in violation of any covenants,
conditions, easements, rights of way or restrictions affecting any of the
Property or any rights appurtenant thereto.
(d) Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill, release,
discharge or threatened release into or upon (1) the air; (2) the soils or
any improvements located thereon; (3) the surface water or ground water; or
(4) the sewer, septic system or waste treatment, storage or disposal system
servicing any of the Property, of any Hazardous Material at, upon, under, in
or from any of the Property (any of which is hereafter referred to as a
"Hazardous Discharge").
(e) There has been no complaint, order, directive, claim, citation or
notice by any governmental authority or any other Person with respect to (1) air
emissions; (2) spills, releases or discharges to soils or any improvements
located thereon, surface water, ground water or the sewer, septic system or
waste treatment, storage or disposal systems servicing the Property; (3) noise
emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage,
transportation or disposal of Hazardous Materials; or (6) other environmental,
health or safety matters, affecting the Company, any of the Property, any
improvements located thereon or the business conducted thereon (any of which is
hereafter referred to as an "Environmental Complaint").
(f) Hazardous Materials disposed of, treated or stored on or off-site
of any Property owned, leased or operated at any time by the Company have been
disposed of, treated and stored in full compliance with all applicable laws,
codes and ordinances and all rules and regulations promulgated thereunder,
including, without limitation, all Relevant Environmental Laws.
(g) Except for supplies that are to be used or sold in the
ordinary course of the Company's business and in full compliance with all
applicable laws, codes and ordinances (the "Supplies"), all of the Property
is free of all (1) Hazardous Materials; (2) underground storage tanks; and
(3) underground pipelines. Except for the Supplies, the Company has not
stored, treated or disposed of any Hazardous Materials on, in or under any of
the Property, or any part thereof, nor have permitted the Property, or any
part thereof, to be used for the storage, treatment or disposal of Hazardous
Materials. Except for the
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Supplies, there has been no storage, treatment, disposal or release of
Hazardous Materials on, in or under the Property at any time by any Person.
(h) Except in accordance with a valid governmental permit, license,
certificate or approval, the Company has not transported or accepted for
transport any Hazardous Materials.
(i) The Company is not aware of any claims or litigation, and none
of them have received any communication from any Person (including, without
limitation, any governmental authority), concerning the presence of Hazardous
Materials or concerning any violation or alleged violation of the Relevant
Environmental Laws. The Borrower agrees promptly to notify the Lender of any
such claims and to furnish the Lender of any such claims and to furnish the
Lender with a copy of any such communications received after the date hereof.
(j) The "Company" shall refer to the operation of the Borrower's
business and assets by Tumbleweed Mexican Food, Inc. and Tumbleweed Concepts,
Inc., prior to the acquisition of such business and assets by the Borrower
from Tumbleweed Mexican Food, Inc. and Tumbleweed Concepts, Inc., with
respect to which the Borrower makes the representations and warranties in
this Section 8.18 to the best of its knowledge, and with respect to the
Borrower's operations and assets, with respect to which the Borrower makes
the representations and warranties in this Section 8.18 without qualification.
Section 9 -- EVENTS OF DEFAULT
A default under any of the Loan Documents, including, without
limitation, the breach by the Borrower of any of the terms of this Agreement
or any of the Security Instruments, shall constitute an Event of Default
under this Agreement. Notwithstanding the above, Class A Members Default
shall constitute an Event of Default only as set forth in Section 9.12. In
addition, each of the following shall constitute an Event of Default:
9.01 FAILURE TO PAY. If the Borrower shall fail to pay in full, within
fifteen (15) days after the date the payment first becomes due, any installment
of principal or interest on the Note or a payment required by Section 4 of this
Agreement, or any other of its Indebtedness.
9.02 NO NOTICE REQUIRED. If the Borrower shall fail to observe, perform
or comply within any term, obligation, covenant, agreement, condition or other
provision contained in Sections 7.06, 7.07, 7.10, 7.11, 7.12, 7.14, 7.21, 7.22,
7.23, 11.01, or 12.14.
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9.03 NOTICE REQUIRED. If the Borrower shall fail to observe, perform
or comply with any term, obligation, covenant, agreement, condition or other
provision (other than those referred to in Section 9.02 hereof) contained or
referred to in this Agreement, and such failure shall not have been fully
corrected within thirty (30) days after the Lender has given written notice
thereof to the Borrower.
9.04 FALSITY OF REPRESENTATION OR WARRANTY. If any representation or
warranty or other statement of fact contained herein or in any of the Security
Instruments or in any writing, certificate, report or statement at any time
furnished the Lender by or on behalf of the Borrower pursuant to or in
connection with this Agreement or the Revolving Credit Loans shall be false or
misleading in any material respect or shall omit a material fact, whether or not
made with knowledge.
9.05 JUDGMENT AND LIENS. If a final judgment or judgments for the payment
of money in excess of the sum of $50,000.00 in the aggregate, or with respect to
property with a value in excess of such amount, shall be rendered against the
Borrower and such judgment or judgments shall remain unsatisfied in amounts in
excess of the sum of $50,000.00 in the aggregate for a period of ten (10)
consecutive days after the entry thereof and within that period has not been (a)
stayed pending appeal, and not discharged within ten (10) days after the
expiration of such stay, or (b) discharged. If a lien or notice of lien is
filed against any of the assets of the Borrower (other than liens permitted
under Section 7.10 hereof) and is not released within ninety (90) days after the
filing thereof.
9.06 SALE OF COLLATERAL. If the Borrower shall sell or otherwise dispose
of any item of the Collateral (except Inventory in the ordinary course of
business) with a fair market value in excess of $25,000.00, without the Lender's
prior written approval, which shall not be unreasonably withheld.
9.07 OTHER OBLIGATIONS TO THE LENDER. If the Borrower shall fail to
observe, perform or comply with the terms, obligations, covenants, agreements,
conditions or other provisions of any agreement, document or instrument which
the Borrower has entered into with the Lender.
9.08 TERMINATION OF EXISTENCE. If the Borrower takes any action that is
intended to result in termination of the Borrower's existence or the dissolution
or liquidation of the Borrower. If the Borrower is dissolved or liquidated or
its limited liability company existence terminated.
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9.09 SOLVENCY.
(a) If the Borrower shall (1) admit in writing its inability to pay
its debts generally as they become due, (2) become insolvent in that such
entity's total assets are less than all of its liabilities, or such entity is
unable to pay its debts generally as they become due, (3) make a general
assignment for the benefit of creditors, or (4) file a petition, or admit (by
answer, default or otherwise) the material allegations of any petition filed
against it, in bankruptcy under the federal bankruptcy laws (as in effect on the
date of this Agreement or as they may be amended from time to time), or under
any other law for the relief of debtors, or for the discharge, arrangement or
compromise of its debts.
(b) If a petition shall have been filed against the Borrower in
proceedings under the federal bankruptcy laws (as in effect on the date of this
Agreement, or as they may be amended from time to time), or under any other laws
for the relief of debtors, or for the discharge, arrangements or compromise of
its debts, or an order shall be entered by any court of competent jurisdiction
appointing a receiver, trustee or liquidator of all or part of such entity's
assets, and such petition or order is not dismissed or stayed within thirty (30)
consecutive days after entry thereof.
9.10 OBLIGATIONS TO THIRD PARTIES. If the Borrower defaults under the
terms of any material obligation or liability of the Borrower to any Person
other than the Lender, Class A or B Member, or any Affiliate of the Borrower,
and such default allows the holder thereof to accelerate the maturity date,
whether such obligation or liability is in existence on the date of this
Agreement or arises thereafter; provided, however, that the Borrower may refrain
from paying any such amount if the validity or amount of such obligation or
liability is being contested in good faith negotiations and by administrative or
judicial appropriate proceedings timely instituted which shall operate to
prevent the collection or enforcement of the obligation contested, provided that
the Borrower, if requested by the Lender, shall have set aside on its books
appropriate reserves with respect thereto.
9.11 ADVERSE FINANCIAL CHANGE. If there should be any material adverse
change in the financial condition of the Borrower, as determined in the Lender's
reasonable discretion, from its financial condition as shown on the financial
statements provided to the Lender as of the date of this Agreement, and such
adverse change is not fully corrected to Lender's reasonable satisfaction within
thirty (30) days after notice with respect thereto from the Lender.
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9.12 CLASS A MEMBER DEFAULTS. If there should occur one or more Class A
Member Defaults with respect to Class A Members who, in the aggregate, have
assumed, pursuant to their Class A Member Assumption Agreements, 20% or more of
the principal amount of the Revolving Credit.
9.13 ENVIRONMENTAL MATTERS. If any of the representations and warranties
in Section 8.17 shall be false or misleading in any material respect or shall
omit a material fact, irregardless of whether the Borrower had knowledge of such
misrepresentation or breach of warranty with respect to representations and
warranties relating to Tumbleweed Mexican Food, Inc. and Tumbleweed Concepts,
Inc.
Section 10 -- REMEDIES UPON DEFAULT
10.01 RIGHT TO ACCELERATE. Notwithstanding anything to the contrary, if
any Event of Default occurs, (1) the Revolving Credit shall terminate at the
Lender's option and the Borrower shall not have any further right to request or
receive any Revolving Credit Loan, and (2) all of the obligations of the
Borrower to the Lender under this Agreement, including, without limitation, the
indebtedness evidenced by the Note, shall immediately become due and payable in
full, without any presentment, demand or notice of any kind, all of which are
hereby waived by the Borrower. In addition, upon the occurrence of an Event of
Default, and at any time thereafter, unless all Events of Default have been
remedied to the full satisfaction of the Lender, the Lender shall have all of
the rights and remedies described in Sections 10.03 through 10.06, and it may
exercise one or more of them singly or in conjunction with others.
10.02 CLASS A MEMBER DEFAULT. Notwithstanding anything in this Agreement
to the contrary, if any Class A Member Default occurs, all of the obligations of
such Class A Member and the Borrower to the Lender under this Agreement, with
respect to the portion of the Revolving Credit assumed by the defaulting Class A
Member pursuant to a Class A Member Assumption Agreement, including without
limitation, the pro rata portion of the indebtedness evidenced by the Note,
shall immediately become due and payable in full, without presentment, demand or
notice of any kind, all of which are hereby waived by the Borrower. In
addition, upon the occurrence of an Class A Member Default, and at any time
thereafter, unless such Class A Member Default has been remedied to the full
satisfaction of the Lender, the Lender shall have all of the rights and remedies
described in Sections 10.03 through 10.06 with respect to the pro rata portion
of the Revolving Credit assumed by the defaulting Class A Member, and it may
exercise one or more of them singly or in conjunction with others.
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10.03 RIGHT OF OFFSET. The Lender has the right to apply all of the
deposit balances of the Borrower, and other sums and indebtedness which the
Lender holds for the credit or account or the Borrower against the obligations
of the Borrower to the Lender arising under this Agreement or as evidenced by
the Note. The Borrower hereby grants a security interest in such deposit
balances, other sums and indebtedness of the Lender to secure all of the
obligations of the Borrower under this Agreement and the Note. Such offsets by
the Lender may occur without notice to or demand upon the Borrower any other
Person. The Borrower hereby waives all such notices and demands.
10.04 ENFORCEMENT OF RIGHTS. The Lender has the right to protect and
enforce its rights by a suit in equity, an action at law or any other
appropriate proceeding either for specific performance of any covenant or
condition contained in this Agreement or under the Security Agreement or any of
the other Loan Documents or in aid of the exercise of any power granted in this
Agreement, the Security Instruments or any other Loan Document.
10.05 RIGHTS UNDER SECURITY INSTRUMENTS. The Lender shall also have all
rights and remedies granted under the Security Instruments intending to secure
the Note or any other indebtedness or obligation of the Borrower under this
Agreement.
10.06 CUMULATIVE REMEDIES. All of the rights and remedies of the Lender
upon occurrence of an Event of Default shall be cumulative to the greatest
extent permitted by law, may be exercised successively or concurrently, from
time to time, and shall be in addition to all of those rights and remedies
afforded to the Lender at law, in equity, or in bankruptcy. Notwithstanding the
foregoing, the Lender shall be entitled to recover from the cumulative exercise
of all remedies an amount no greater than the sum of (a) the outstanding
principal amount of all the Revolving Credit Loans, (b) all accrued but unpaid
interest with respect to the principal amount of all the Revolving Credit Loans,
(c) any other amounts that the Borrower is required by this Agreement to pay to
the Lender (for example, and without limitation, the reimbursement of reasonable
expenses and legal fees, and late charges), and (d) any costs, expenses or
damages which the Lender is otherwise permitted to recover by the terms of this
Agreement. Any exercise of any right or remedy shall not be deemed to be an
election of that right or remedy to the exclusion of any other right or remedy.
Section 11 - FEES AND EXPENSES
11.01 TRANSACTION EXPENSES. The Borrower shall pay to the Lender upon
demand all out-of-pocket expenses incurred by the Lender in connection with the
transactions contemplated under this Agreement, including, but not limited to,
the Lender's
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reasonable attorneys' fees incurred in preparing this Agreement and the other
Loan Documents and any and all costs and fees incurred in connection with the
recording and/or filing of any documents or instruments in any public office,
pursuant to or as a consequence of this Agreement, or to perfect or protect
any security for the Revolving Credit Loans. The Borrower shall also pay to
the Lender upon demand all out-of-pocket expenses incurred from time to time
in the administration of the Revolving Credit Loan, including, without
limitation, any out-of-pocket expenses (including, but not limited to,
attorneys fees) incurred by the Lender if any of the Borrower Documents
should be amended, extended and/or renewed from time to time.
11.02 ENFORCEMENT EXPENSES. If any Event of Default or Class A Member
Default shall occur under this Agreement, or any default shall occur under
any of the Loan Documents, the Borrower shall pay to the Lender, to the
extent allowable by applicable law, such amounts as shall be sufficient to
reimburse the Lender fully for all of its costs and expenses incurred in
enforcing its rights and remedies under this Agreement, the other Loan
Documents and any related documents, including, without limitation, the
Lender's reasonable attorneys' fees and court costs. Such amounts shall be
deemed to be included in the obligations secured by the Security Instruments.
Section 12 -- MISCELLANEOUS PROVISIONS
12.01 TERM OF AGREEMENT. The term of this Agreement shall commence as of
the date hereof, and continue until (a) the Revolving Credit has terminated
pursuant to this Agreement or has expired, (b) the first date on which all
Revolving Credit Loans and accrued but unpaid interest thereon shall have been
paid in full (unless the Revolving Credit is reinstated pursuant to Section
3.05), and (c) the Borrower shall have paid or performed all of their other
obligations hereunder.
12.02 NO WAIVERS. Failure or delay by the Lender in exercising any right
shall not be deemed to be or operate as a waiver of that right, nor shall any
right be exclusive of any other right referred to in this Agreement, or in any
other related document, or available at law or in equity, by statute or
otherwise. Any single or partial exercise of any right shall not preclude the
further exercise of that right. Every right of the Borrower and of the Lender
shall continue in full force and effect until such right is specifically waived
in a writing signed by the party waiving such right.
12.03 COURSE OF DEALING. No course of dealing among the Borrower and the
Lender shall operate as a waiver of any of the rights of the Borrower and the
Lender, or any of them, under this Agreement or under the other Loan Documents.
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<PAGE>
12.04 SEVERABILITY. If any part, term or provision of this Agreement is
held by any court to be unenforceable or prohibited by any law applicable to
this Agreement, the rights and obligations of the parties shall be construed and
enforced with that part, term or provision limited so as to make it enforceable
to the greatest extent allowed by law or, if it is totally unenforceable, as if
this Agreement did not contain that particular part, term or provision.
12.05 TIME OF THE ESSENCE. Time shall be of the essence in the
performance of all of the obligations of the Borrower under this Agreement, the
other Loan Documents and the other of the Indebtedness of the Borrower.
12.06 BENEFIT AND BINDING EFFECT. This Agreement shall inure to the
benefit of the Lender, its successors and assigns, and all benefits and
obligations of the Borrower shall inure to the benefit of and bind their
respective successors and, if and to the extent assignment is otherwise
permitted by this Agreement, assigns.
12.07 FURTHER ASSURANCES. The Borrower shall sign such financing
statements or other documents or instruments as the Lender may reasonably
request from time to time to more fully create, perfect, continue, maintain or
terminate the rights and security interests intended to be granted or created
pursuant to this Agreement or the other Loan Documents.
12.08 LATE CHARGES. In addition to any other rights or remedies which the
Lender might have, if the Borrower fails to pay any installment of the Revolving
Credit Loans when such installment first becomes due, the entire amount of such
over due installment shall bear interest at a default rate equal to the Index
Rate PLUS five percent (5%), until the entire amount of, and all accrued but
unpaid interest on, such over due installment have been paid in full.
12.09 WAIVERS BY THE BORROWER. The Borrower hereby waives, to the extent
permitted by applicable law, (a) all presentments, demands for performance,
notices of nonperformance, protests, notices of protest and notices of dishonor
in connection with the Note, (b) any requirement of diligence or promptness on
the part of the Lender in the enforcement of its rights under the provisions of
this Agreement, the Security Instruments, or any of the other Loan Documents,
(c) any requirement of marshaling assets or proceeding against Persons or assets
in any particular order, and (d) any and all notices of any kind and description
which may be required to be given by any statute or rule of law and any defense
of any kind which the Borrower may have as of the date of this Agreement or
hereafter have (except defenses arising out of the Lender's acts), with respect
to the liability of the
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<PAGE>
Borrower, or either of them, under this Agreement, the Security Instruments,
or the other Loan Documents.
12.10 INCORPORATION BY REFERENCE. All schedules, annexes or other
attachments to this Agreement are incorporated into this Agreement as if set
out in full at the first place in this Agreement that reference is made
thereto.
12.11 ENTIRE AGREEMENT; NO ORAL MODIFICATIONS. This Agreement, the
schedules and annexes hereto, and the documents and instruments referred to
herein constitute the entire agreement of the parties with respect to the
subject matter hereof. No change, modification, addition or termination of
this Agreement or any other of the Loan Documents shall be enforceable unless
in writing and signed by the party against whom enforcement is sought.
12.12 HEADINGS. The headings used in this Agreement are included for
ease of reference only and shall not be considered in the interpretation or
construction of this Agreement. Unless the particular context requires
otherwise, any reference in this Agreement (1) to a section, paragraph or
other grammatical subdivision shall be deemed to be a reference to a section,
paragraph or other grammatical subdivision of this Agreement, and (2) to an
Annex or a Schedule shall be deemed to be a reference to an Annex or a
Schedule attached to this Agreement.
12.13 GOVERNING LAW. This Agreement and the related documents and
instruments shall be governed by and construed in accordance with the laws of
the Commonwealth of Kentucky, without regard to its conflicts of law principles,
except to the extent that the laws of any other state where security for the
Note are located require that the laws of such other state shall govern the
creation, perfection or enforcement of the Lender's rights and security
interests in such security.
12.14 NO ASSIGNMENTS. The Borrower may not assign its rights under this
Agreement to any other party. Any attempted assignment without the Lender's
written consent shall be a default under this Agreement and shall be null and
void.
12.15 NOTICES.
(a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least five (5) business days before the time of sale, disposition or other
event or thing giving rise to the requirement of notice.
(b) Except as otherwise expressly provided in this Agreement, all
notices or communications under this Agreement shall be in writing and shall be
hand delivered, mailed certified
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<PAGE>
or registered mail, return receipt requested, sent by a small package courier
service, or transmitted by facsimile, confirmation requested, to the parties
as follows. Any notice so addressed and mailed by registered or certified
mail, return receipt requested, shall be deemed to have been given three
business days after being mailed. Any notice hand delivered to the address
below shall be deemed given when delivered. Any notice properly deposited
with a small package courier service with freight charges prepaid shall be
deemed delivered one day after such deposit. Any notice transmitted by
facsimile, confirmation requested, shall be deemed delivered as of the time
of transmission of such facsimile if the requested confirmation is received
within forty-eight (48) hours of such time of transmission.
(i) If to the Borrower:
Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attention: John A. Butorac, Jr. and
James M. Mulrooney
With a copy to:
Roth & Cooper, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
Fax Number: (502) 425-1295
(ii) If to the Lender:
Liberty National Bank and Trust
Company of Kentucky
416 West Jefferson Street
Louisville, Kentucky 40202
Attention: James Due
Fax Number: (502) 566-2367
With a copy to:
Scott W. Dolson
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax Number: (502) 581-1087
(c) Either the Borrower or the Lender may at any time, and from time
to time, change the address or telephone number for facsimile transmissions to
which notice shall be given by written notice setting forth the changed address
or telephone number.
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<PAGE>
12.16 SURVIVAL OF COVENANTS. All covenants, agreements, warranties and
representations made by the Borrower herein shall survive the making of each
Revolving Credit Loan, and the execution and delivery of this Agreement, the
Note and any and all of the other Loan Documents, and any Indebtedness, and
shall be deemed to be remade and restated by all of them each time the
Borrower requests a Revolving Credit Loan.
12.17 CONSENT TO JURISDICTION AND VENUE. THE BORROWER CONSENTS TO
ONE OR MORE ACTIONS BEING INSTITUTED AND MAINTAINED IN THE JEFFERSON COUNTY,
KENTUCKY, CIRCUIT COURT TO ENFORCE THIS AGREEMENT AND/OR ONE OR MORE OF THE
OTHER LOAN DOCUMENTS, AND WAIVES ANY OBJECTION TO ANY SUCH ACTION BASED UPON
LACK OF PERSONAL OR SUBJECT MATTER JURISDICTION OR IMPROPER VENUE. THE
BORROWER AGREES THAT ANY PROCESS OR OTHER LEGAL SUMMONS IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING MAY BE SERVED BY MAILING A COPY THEREOF BY
CERTIFIED MAIL, OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL, ADDRESSED TO THE
BORROWER AS PROVIDED IN SECTION 12.15 ABOVE.
12.18 WAIVER OF JURY TRIAL. IN ORDER TO AVOID DELAYS AND MINIMIZE
EXPENSE, THE LENDER, BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, AND THE
BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY LOAN DOCUMENT OR ANY AMENDMENT THERETO, WHETHER NOW
EXISTING OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A
JURY, AND A COPY OF THIS AGREEMENT OR OF THIS PROVISION OF THIS AGREEMENT MAY BE
FILED WITH ANY COURT AS EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO
THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
12.19 ACKNOWLEDGEMENT. THE BORROWER ACKNOWLEDGES THAT THE BORROWER HAS
RECEIVED A COPY OF THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, AS FULLY
EXECUTED BY THE PARTIES THERETO. THE BORROWER ACKNOWLEDGES THAT THE BORROWER
(a) HAS READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR HAS CAUSED SUCH
DOCUMENTS TO BE EXAMINED BY THE BORROWER'S REPRESENTATIVES OR ADVISORS; (b) IS
THOROUGHLY FAMILIAR WITH THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS; AND (c) HAS HAD THE OPPORTUNITY TO ASK SUCH QUESTIONS TO
REPRESENTATIVES OF THE LENDER, AND RECEIVE ANSWERS THERETO, CONCERNING THE TERMS
AND CONDITIONS OF THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS AS THE BORROWER DEEMS NECESSARY IN CONNECTION WITH THE BORROWER'S
DECISION TO ENTER INTO THIS AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have signed this Agreement
as of the date set forth in the preamble hereto, but actually on the dates set
forth below.
LIBERTY NATIONAL BANK AND TRUST
COMPANY OF KENTUCKY
By James V. Due
----------------------------
Title: Vice President
----------------------------
Date: 1-24-95
----------------------------
TUMBLEWEED, LLC
By /s/ John A. Butorac, Jr.
--------------------------------
John A. Butorac, Jr., Manager
Date: 1/19/95
----------------------------
and By /s/ James M. Mulrooney
------------------------------
James M. Mulrooney, Manager
Date: 1/19/95
----------------------------
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<PAGE>
ANNEX A TO LOAN AGREEMENT
REVOLVING CREDIT NOTE
$7,500,000.00 January 24, 1995
Louisville, Kentucky
For value received, TUMBLEWEED, LLC, a Kentucky limited liability company
(the "Borrower") promises to pay to the order of LIBERTY NATIONAL BANK AND TRUST
COMPANY OF KENTUCKY (the "Lender"), at 416 West Jefferson Street, Louisville,
Kentucky 40202, or at such other place as the holder of this Note may designate
by written notice to the Borrower from time to time, the principal sum of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000.00) or the aggregate unpaid
balance of advances made by the Lender pursuant to the Loan Agreement (defined
below), whichever is less, together with interest on the principal of this Note
from time to time outstanding at an annual rate equal to the "Index Rate"
charged by the Lender, as from time to time in effect, PLUS 25/100 percent
(0.25%).
INTEREST. Interest on this Note shall accrue from the date of this Note
until the entire principal balance of and all accrued interest on this Note have
been paid in full. As used in this Note, "Index Rate" shall mean at any time
the annual interest rate most recently designated and announced publicly from
time to time by the Lender as its Index Rate in effect at its principal office,
and does not necessarily mean or imply that such rate is the lowest rate then
available from the Lender to any customer. The interest rate of this Note shall
be adjusted, from time to time, on the same day on which the Index Rate is
changed by the Lender. As of the date of this Note the Index Rate is 8.50
percent, and the initial annual interest rate of this Note is 8.75 percent. All
interest on this Note shall be computed on the basis of the actual number of
days elapsed over an assumed year consisting of three hundred sixty (360) days.
INTEREST PAYMENTS. Commencing on March 1, 1995, and continuing on the
first (1st) day of each and every calendar month and on the Maturity Date (as
defined below), or upon acceleration as provided below, the Borrower shall pay
to the holder hereof all accrued but unpaid interest on the outstanding
principal amount of this Note until the entire principal balance of, and all
accrued but unpaid interest on, this Note have been paid in full.
PRINCIPAL PAYMENT. The Borrower shall pay to the holder hereof the entire
outstanding principal balance of, and all accrued but unpaid interest on, this
Note on January 23, 1998 (the "Maturity Date"), or upon acceleration as provided
below.
<PAGE>
NOTATION OF DISBURSEMENTS AND PAYMENTS. Disbursements of, and payments of
principal with respect to, this Note shall be evidenced by the Lender's
notations made in the Lender's electronic data processing equipment showing the
date and amount of each advance or each payment of principal or both. The
principal amount outstanding under this Note from time to time shall also be
recorded by the Lender on that data processing equipment. Once each month
during the term of this Note, and at any other time upon written request by the
Borrower, the Lender shall within a reasonable time after such request give the
Borrower written notice of the outstanding principal balance of this Note and
shall further disclose the applicable interest rate (but the failure of the
Lender to provide such written notice and/or disclosure shall not relieve the
Borrower of any obligations of the Borrower, payment or otherwise, under this
Note or any other of the Loan Documents (as defined in the Loan Agreement), nor
derogate any of the obligations or liabilities of the Borrower under this Note
or any other of the Loan Documents). The aggregate amount of all disbursements
evidenced by this Note which are made and recorded in the Lender's electronic
data processing equipment, less all of the payments of principal made by the
Borrower on the Revolving Credit Loans (as defined in the Loan Agreement)
evidenced by this Note and recorded in the Lender's electronic data processing
equipment, shall be prima facie evidence of the outstanding principal balance
due under this Note.
LENDER'S RIGHTS UPON DEFAULT. This is the promissory note described in the
Loan Agreement dated as of January 24, 1995 (the "Loan Agreement"), among the
Lender and the Borrower, and the Security Agreement dated as of January 24, 1995
(the "Security Agreement"), among the Lender and the Borrower. Any Event of
Default under the Loan Agreement or the Security Agreement shall constitute a
default under this Note. Upon the occurrence and during the continuance of any
default under this Note, including, without limitation, the failure of the
Borrower to pay any installment of interest or principal in full within fifteen
(15) days after the date the payment first becomes due, the holder of this Note
may, in addition to any other rights it may have under the Loan Agreement or
under law, at its option and without notice, declare the entire unpaid principal
balance of, and all accrued but unpaid interest on, this Note to be immediately
due and payable.
LATE CHARGE. In addition to any other rights or remedies which the holder
hereof might have, if the Borrower fails to pay any installment under this Note
when such installment first becomes due, the entire amount of such overdue
installment shall bear interest at a default rate equal to the Index Rate PLUS
five percent (5%), until the entire amount of, and all accrued but unpaid
interest on, such overdue installment have been paid in full.
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<PAGE>
PAYDOWNS. The Borrower may at any time, and from time to time, without
premium or penalty, make principal payments of this Note in whole or in part
before the Maturity Date. Each such principal payment made by the Borrower with
respect to this Note shall be in an amount greater than or equal to Ten Thousand
Dollars ($10,000.00), and shall be applied to payment of principal of the
Revolving Credit Loans which, according to the records of the Lender, have been
most recently disbursed. The Borrower shall continue to pay the interest
installments hereunder in the amounts and on the dates provided herein until the
entire principal balance of, and all accrued but unpaid interest on, this Note
have been paid in full. Payments of this Note will be applied first to
penalties and costs, if any, as provided in the Loan Agreement, second to
accrued but unpaid interest on this Note, and third to principal of this Note.
NO WAIVERS. Failure or delay by the holder hereof in exercising any of its
rights and remedies shall not constitute a waiver of any provision of this Note
or any other of the Loan Documents (as that term is defined in the Loan
Agreement) or any of its rights and remedies nor shall it prevent the holder
hereof from exercising any rights or remedies with respect to the subsequent
happening of the same or similar occurrences. All of the remedies of the holder
hereof shall be cumulative to the greatest extent permitted by law. Time shall
be of the essence in payment of all payments of interest and principal on this
Note.
COLLECTION AND ENFORCEMENT COSTS. If there is any default under this Note,
and this Note is placed in the hands of an attorney for collection, or is
collected through any court, including any bankruptcy court, the Borrower
promises to pay to the order of the holder hereof the reasonable attorneys' fees
and court costs incurred by the holder hereof in collecting or attempting to
collect or securing or attempting to secure this Note or enforcing the rights of
the holder hereof with respect to any collateral securing this Note, to the
extent allowed by the laws of the Commonwealth of Kentucky or any state in which
any collateral for this Note is situated.
APPLICABLE LAW. The laws of the Commonwealth of Kentucky, including
application of its conflicts of law principles, shall govern the validity,
construction, and interpretation of this Note.
WAIVERS. Except as provided in the Class A Member Assumption Agreements
(as that term is defined in the Loan Agreement), all parties to this Note,
whether makers, sureties, guarantors, endorsers, accommodation parties or
otherwise, shall be jointly and severally bound, and jointly and severally waive
presentment, demand, notice of dishonor, protest, notice of protest, notice of
nonpayment or nonacceptance and any other notice and all due diligence or
promptness that may otherwise be required by law, and all exemptions to which
the Borrower may now
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<PAGE>
or hereafter be entitled under the laws of the Commonwealth of Kentucky or of
the United States of America or any state thereof. The holder of this Note
may, with or without notice to any party and without affecting the
obligations of any maker, surety, guarantor, endorser, accommodation party or
any other party to this Note, (1) extend the time for payment of either
principal or interest from time to time, (2) release or discharge any one or
more parties liable on this Note, (3) suspend the right to enforce this Note
with respect to any persons, (4) change, exchange or release any property in
which the holder has any interest securing this Note, (5) justifiably or
otherwise, impair any collateral securing this Note or suspend the right to
enforce against any such collateral, and (6) at any time it deems it
necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
TUMBLEWEED, LLC
By________________________________
John A. Butorac, Jr., Manager
and by________________________________
James M. Mulrooney, Manager
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<PAGE>
ANNEX B
-------
ASSUMPTION AGREEMENT
--------------------
(Class A Member)
THIS ASSUMPTION AGREEMENT ("AGREEMENT") is made and entered into as of
the 24th day of January, 1995, by and among (I) TW OPERATIONS, L.L.C., a
Kentucky limited liability company (the "COMPANY"), (II) THE UNDERSIGNED
PARTY, who is a Class A Member of the Company (the "ASSUMING PARTY"), and
(III) LIBERTY NATIONAL BANK AND TRUST COMPANY OF KENTUCKY, 416 West Jefferson
Street, Louisville, Kentucky 40202 (the "LENDER").
RECITALS:
- --------
A. The Company has entered into a loan agreement with the Lender
dated as of January 24, 1995 (the "LOAN DATE"), pursuant to which the Lender
has agreed to provide the Company a 36-month revolving credit in the maximum
principal amount of $&,500,000.00 (The "LOAN AGREEMENT").
B. In accordance with the terms of the Loan Agreement, the Company
has executed a promissory note (the "NOTE") in favor of the Lender, dated as
of the Loan Date, in the maximum principal amount of $7,500,000.00 and other
Loan Documents (as that term is defined in the Loan Agreement).
C. A condition to the Lender's funding of the Loan Agreement is that
each of the Class A Members of the Company assume, with separate and several
liability, a Full Prorata Portion (as hereinafter defined) of the Company's
obligations to make principal, interest, and other payments on the Note for
each Class A Unit (as hereinafter defined) owned by such Class A Member
(prorated with respect to partial Class A Units).
D. Assuming Party is willing to assume personal and primary
liability for the Note to the extent provided herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. ASSUMPTION OF LIABILITY.
(a) ASSUMPTION OF LIABILITY BY ASSUMING PARTY. Assuming
Party does hereby assume personal and primary liability for a Full Prorata
Portion (as hereinafter defined) of the Company's obligations under the Loan
Documents, including, without limitation, outstanding principal of, and
accrued and unpaid interest on, the Note, as the same may exist from time to
time (collectively, the "ASSUMED INDEBTEDNESS"), for each Class A Unit (as
hereinafter defined) owned by Assuming Party as of the date hereof (prorated
with respect to any partial Class A Unit); PROVIDED, HOWEVER, that the
maximum aggregate liability of Assuming Party under this Agreement shall not
exceed an amount equal to $260,000.00 for each Class A Unit owned by Assuming
Party as of the date hereof
<PAGE>
(prorated with respect to any partial Class A Unit). Upon demand by the
Lender in accordance with the terms of the Loan Agreement for all or any
portion of amounts due pursuant to the terms of the Loan Agreement or any of
the other Loan Documents, Assuming Party shall pay to the Lender an amount
equal to the Full Prorata Portion of such amounts due for each Class A Unit
held by Assuming Party, prorated with respect to any partial Class A Unit, or
such lesser amount as the Lender may demand. Any amounts paid to the Lender
pursuant to this Agreement shall be applied first to a Full Prorata Portion
of any applicable penalties and costs for each Class A Unit held by Assuming
Party, second to a Full Prorata Portion of any accrued but unpaid interest
for each Class A Unit held by Assuming Party, and third to a Full Prorata
Portion of the outstanding principal balance of the Note for each Class A
Unit held by Assuming Party, in each case prorated with respect to any
partial Class A Unit.
(b) CLASS A UNIT. For all purposes of this Agreement, the term
"CLASS A UNIT" shall mean and refer to each of those certain Class A Units
offered by the Company pursuant to that certain Private Placement Memorandum
dated October 10, 1994 (the "COMPANY'S CLASS A UNIT OFFERING").
(c) FULL PRORATA PORTION. For all purposes of this Agreement,
the term "FULL PRORATA PORTION" shall mean the percentage determined by
dividing (A) the number one (1) by (B) the total number of Class A Units
purchased by Assuming Party and the other Class A Members of the Company
pursuant to the Company's Class A Unit Offering and as to which this
Agreement or assumption agreements similar to this Agreement have been
executed.
(d) ACKNOWLEDGMENT OF LIMITATIONS ON MAXIMUM AVAILABLE
PRINCIPAL AMOUNT OF NOTE. Assuming Party acknowledges that, although the
face principal amount of the Note is $7,500,000.00, the maximum principal
amount which will be available to the Company under the Note is limited to an
amount equal to THE PRODUCT OF (i) $250,000.00, MULTIPLIED BY (II) the total
number of Class A Units purchased by Assuming Party and the other Class A
Members of the Company pursuant to the Company's Class A Unit Offering and as
to which this Agreement or assumption agreements similar to this Agreement
have been executed.
SPECIFICALLY, BUT NOT BY WAY OF LIMITATION, ASSUMING PARTY
ACKNOWLEDGES THAT (I) IF 24 CLASS A UNITS ARE SOLD PURSUANT
TO THE OFFERING TO ASSUMING PARTY AND CLASS A MEMBERS WHO
EXECUTE THIS AGREEMENT OR ASSUMPTION AGREEMENTS SIMILAR TO
THIS AGREEMENT, THE MAXIMUM PRINCIPAL AMOUNT AVAILABLE TO
THE COMPANY UNDER THE NOTE WILL BE $6,000,000.00 AND THE
FULL PRORATA PORTION PER CLASS A UNIT WILL BE ONE-TWENTY-FOURTH
(1/24TH), AND (II) IF 30 CLASS A UNITS ARE SOLD PURSUANT TO
THE OFFERING TO ASSUMING PARTY AND CLASS A MEMBERS WHO EXECUTE
THIS AGREEMENT OR ASSUMPTION AGREEMENTS SIMILAR TO THIS
AGREEMENT, THE MAXIMUM PRINCIPAL AMOUNT AVAILABLE TO THE
COMPANY UNDER THE NOTE WILL BE $7,500,000.00 AND THE FULL
PRORATA PORTION PER CLASS A UNIT WILL BE ONE-THIRTIETH
(1/30TH).
2. PRIMARY OBLIGATION OF ASSUMING PARTY.
(a) DIRECT ENFORCEMENT AGAINST ASSUMING PARTY. It is
understood and agreed that (I) this Agreement is being executed as a
condition to the Lender advancing funds to the Company under the Note and
(II) the Lender may enforce the obligation to pay principal, interest, and
other amounts under the Note against Assuming Party without first resorting
to any right or remedy against the Company or any other party liable for the
payment of the Note, or against collateral held as security for the payment
thereof or seeking enforcement of its remedies in any particular order before
seeking to enforce this Agreement.
(b) NO IMPAIRMENT. Assuming Party's liability for the
Assumed Indebtedness shall not be reduced, impaired, or affected by (A) any
modification or amendment (whether material or otherwise) of any obligation,
undertaking, or condition to be performed by the Company or the Class A
Members under the Note, the Loan Agreement, or any of the other Loan
Documents, (II) any replacement, renewal, or extension, or forbearance to the
terms of the Note or any of the Loan Documents shall be binding upon the
Class A Member if such modification (A) increases the aggregate principal
amount which may be owed to the Lender pursuant to the Loan Documents at any
one time to an amount in excess of $7,500,000.00, (B) extends the final
maturity date of the Note to a date later than five years after the date on
which the Note is initially funded, (C) requires an increase in the face
amount of the Letter of Credit (as hereinafter defined), (D) changes the
method of computation of the interest rate of the Note, or (E) requires the
extension of the expiration of the Letter of Credit beyond a date five years
after the date on which the Note is initially funded PLUS 180 days. The Class
A Member expressly agrees that the taking or possession of any other security
or form of security, or the releasing or modifying of any other security or
form of security, shall in no way affect the liability of the Class A Member
hereunder. The Class A Member acknowledges and agrees that if the Class A
Member directly makes payment to the Lender, whether by draw on the Letter of
Credit or otherwise, the Class A Member will have no claim against any of the
Company, the Company's Managers, or the Company's Members for the amount so
paid.
(c) CONTINUED LIABILITY OF THE COMPANY. By reason of the
assumptions of personal and primary liability with respect to the Loan by
Assuming Party and other assuming parties, the Company has been released as
the primary obligor with respect to the Loan. However, the Company continues
to be liability with respect to the Loan, and, except for the release of the
Company as the PRIMARY obligor with respect to the Loan, the Lender's
acceptance of Assuming Party's assumption of the Assumed Indebtedness in no
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<PAGE>
way impairs, limits, or abrogates the Lender's rights against the Company
conferred by the Loan Documents.
3. PAYMENT OF LOAN DEMAND AMOUNT. If and when Assuming Party
shall have received notice from the Lender that (a) a default has occurred
with respect to the Loan, or (b) demand for payment is otherwise being made
in accordance with the terms of the Loan Agreement, the Note, or any of the
other Loan Documents, Assuming Party shall immediately pay over to the
Lender an amount equal to the Assumed Indebtedness so demanded.
4. TERMINATION.
(a) UPON REPAYMENT AND TERMINATION OF NOTE, ETC.
Notwithstanding any other provision hereof to the contrary except Section 6
below, this Agreement shall automatically expire, become null and void, and
be of no further force or effect upon THE LAST TO OCCUR OF (i) the payment or
satisfaction in full of the Note, (II) the Company's full performance of its
obligations under the Loan Documents, OR (III) cancellation of the Loan at
the request of the Company or according to the terms of the Loan Documents.
(b) NO IMPAIRMENT BY IRREGULARITIES, ETC. Assuming Party
agrees that this Agreement shall remain in full effect without regard to, and
shall not be affected or impaired by (I) any invalidity, irregularity, or
unenforceability in whole or in part of the Note, the Loan Agreement, or any
of the other Loan Documents, (II) any limitation of the liability of the
Company thereunder, OR (III) any limitation on the method or terms of payment
thereunder which may now or hereafter be caused or imposed in any manner
whatsoever.
5. MAXIMUM LIABILITY. Notwithstanding any other provision
hereof to the contrary except Section 6 below, in no event shall Assuming
Party's liability under this Agreement exceed $260,000.00 for each Class A
Unit held by Assuming Party as of the date hereof, prorated with respect to
any partial Class A Units.
6. RESCISSION OF PAYMENT. Notwithstanding Sections 4 and 5
above, this Agreement shall continue to be effective, or be reinstated as the
case may be, with respect to any payment as though such payment had not been
made, if such payment by the Company or Assuming Party pursuant to the terms
and conditions of the Note, the Loan Agreement, this Agreement, or any other
of the Loan Documents is rescinded or must otherwise be restored or returned
by the Lender for any reason, including, without limitation (A) the
invalidity or unenforceability of the obligation paid, for any reason; (B)
failure or insufficiency of consideration for the obligation paid; or (C) the
insolvency, bankruptcy, or reorganization of the Company, Assuming Party, or
any of the Class A Members.
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<PAGE>
7. WAIVER.
(a) RENEWALS. The assumption of the Company's obligations
to the Lender in connection with the Loan, to the extent of the Assumed
Indebtedness set forth in this Agreement, shall extend to any and all
renewals, extensions, or modifications of the Note or of this Agreement in
whole or in part (which renewals, extensions, or modifications may be granted
without notice to or further authority from Assuming Party), together with
all reasonable expenses of and incidental to collection.
(b) WAIVER OF NOTICE. Assuming Party hereby waives notice
of acceptance of this Agreement and, except as otherwise specifically
provided herein, all notices or demands of any kind which Assuming Party may
be entitled (including, but not by way of limitation, notice of default,
demand for payment, presentment, demand, protest, and notice of dishonor).
(c) NO IMPAIRMENT. The obligations, undertakings, and
conditions to be performed or observed by Assuming Party under this Agreement
shall not be affected or impaired by reason of the happening from time to
time of any of the following with respect to the Note, the Loan Agreement, or
any other of the Loan Documents, or any assignment of the rights of the
Lender under this Agreement whether or not with notice to, or further consent
of, Assuming Party:
(i) Waiver by the Lender or any other persons of
the observance or performance by the Company or by Assuming Party of any
obligation, undertaking, or condition contained in the Note, the Loan
Agreement, or any other of the Loan Documents (except for the particular
observance or performance so waived);
(ii) Extension of the time for payment by the
Company of any amount, or by any Class A Member of such Class A Member's Full
Prorata Portion of any amount, owing or payable under the Note or the Loan
Agreement or of the time for payment or performance by the Company or any
other person of any other of their obligations under or arising out of the
note, the Loan Agreement or any other of the Loan Documents, or the
extension or the renewal of any thereof (except for the particular extension
or renewal so granted), PROVIDED, HOWEVER, that unless Assuming Party
consents, no such extension of the time for payment or performance shall be
binding upon Assuming Party if it (A) increases the aggregate principal
amount which may be bowed to the Lender pursuant to the Loan Documents at any
one time to an amount in excess of $7,500,000.00, (B) extends the final
maturity date of the Note to a date later than five years after the date on
which the Note is initially funded, or (C) required extension of the
expiration date of the Letter of Credit beyond a date five years after the
date on which the Note is initially funded PLUS 180 days;
(iii) Taking or omitting to take any action referred
to in the Note, the Loan Agreement, or any other of the Loan Documents;
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<PAGE>
(iv) Any failure, omission, delay, or lack on the
part of the Lender or any other person to enforce, assert, or exercise any
right, power, or remedy conferred on the Lender or any other person in the
Note, the Loan Agreement, or any other of the Loan Documents, or any action
on the part of the Lender or any other person granting indulgence or
extension in any form;
(v) Release, substitution, or replacement of all or
any part of the property serving as collateral security for the Loan, whether
or not permitted in any of the Loan Documents;
(vi) Any failure of title with respect to the
interest of the Lender in all or any part of the collateral;
(vii) The sale, divestiture, or other disposition of
any or all of Assuming Party's interest in the Company;
(viii) Any action or inaction (including, without
limitation, the election of the Lender to proceed with a judicial or
nonjudicial foreclosure against any real or personal property security it
holds) by the Lender or any other persons which results in any impairment or
destruction of (A) any subrogation rights of Assuming Party, (B) any rights
of Assuming Party to proceed against the Company or any other person for
reimbursement, or (C) any rights of the Lender with respect to any property
serving as collateral security for the Loan.
(d) LIMITATION ON ACTIONS. Unless Assuming Party consents, no
such action described in Sections 7(a) through 7(c) above shall be binding
upon Assuming Party if it (A) increases the aggregate principal amount which
may be owed to the Lender pursuant to the Loan Documents at any one time to
an amount in excess of $7,500,000.00, (B) extends the final maturity date of
the Note to a date later than five years after the date on which the Note is
initially funded, or (C) requires extension of the expiration date of the
Letter of Credit beyond a date five years after the date on which the Note is
initially funded PLUS 180 days.
8. LETTER OF CREDIT.
(a) PROVISION OF LETTER OF CREDIT UPON REQUEST. Assuming Party
shall provide to the Lender upon request an irrevocable standby letter of
credit in an amount equal to $260,000.00 multiplied by the number of Class A
Units (or partial Class A Units) purchased by Assuming Party, and otherwise
in form and substance reasonably satisfactory to the Lender and its counsel
(the "LETTER OF CREDIT"). Assuming Party shall cause the Letter of Credit (or
a Replacement Letter of Credit (defined below) to remain outstanding and in
effect until three years PLUS 180 days after the date on which the Loan is
initially funded (or if the Loan is extended or renewed by the Bank, until
180 days after THE FIRST TO OCCUR OF (I) five years following the date on
which the Loan is initially funded or (II) the extended or renewal maturity
date) (the "LATEST LETTER OF CREDIT DATE").
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<PAGE>
(b) REPLACEMENT LETTER OF CREDIT. If the Letter of Credit or
any letter of credit issued in replacement of the Letter of Credit or in
replacement of a replacement for the Letter of Credit (any such replacement,
a "REPLACEMENT LETTER OF CREDIT"), has an expiration date sooner than the
Latest Letter of Credit Date, and such Letter of Credit or Replacement Letter
of Credit is not renewed at least sixty (60) days prior to its expiration
date, the Lender shall have the right to draw upon such Letter of Credit or
Replacement Letter of Credit and use the proceeds to purchase a certificate
of deposit in the name of Assuming Party. The maturity date of the
certificate of deposit shall extend until three years PLUS 180 days (or if
the Loan is extended or renewed by the Bank, until 180 days after THE FIRST
TO OCCUR OF (I) five years following the date on which the Loan is initially
funded or (II) the extended or renewal maturity date). The Lender shall
retain possession of such certificate of deposit, and such certificate of
deposit shall thereby be pledged to the Lender to secure the obligations of
Assuming Party for the Assumed Indebtedness and otherwise under this
Agreement. Assuming Party shall execute and deliver to the Lender a
certificate of deposit pledge agreement on terms and conditions acceptable to
the Lender, in the exercise of its sole discretion, to evidence further the
pledge of the certificate of deposit to secure those obligations. Assuming
Party agrees that its undertaking to sign such a certificate of deposit
pledge agreement is specifically enforceable. The failure of the Lender to
propose and/or of Assuming Party to sign such a certificate of deposit pledge
agreement shall not prevent the certificate of deposit from having been
pledged to the Lender as collateral for the obligations of Assuming Party for
the Assumed Indebtedness and otherwise under this Agreement. Assuming Party
further agrees to sign such additional documents and instruments as the
Lender may request from time to time to more fully create, perfect, continue,
maintain, or terminate the Lender's security interest in the certificate of
deposit intended to be created in this Agreement and/or the certificate of
deposit pledge agreement.
(c) LENDER'S RIGHT TO DRAW ON LETTER OF CREDIT. If a default
occurs under this Agreement, or if an Event of Default (as defined in the
Loan Agreement) occurs under the Loan Agreement, then the Lender shall have
the right to draw upon the Letter of Credit to such extent as the Lender
shall determine. The Lender shall apply such amounts to the Company's
obligations under the Loan Documents assumed by Assuming Party under this
Agreement, and specifically as if such proceeds were amounts paid to the
Lender under Section 1 above.
(d) CHANGE REGARDING BANK ISSUING LETTER OF CREDIT. If the
bank issuing the Letter of Credit, or such bank's parent or assets, should be
acquired by another entity, or if any other event should occur that might
affect the financial strength of the bank issuing the Letter of Credit, then
the Lender is entitled to require that Assuming Party deliver to the Lender a
new, Replacement Letter of Credit from another financial institution,
satisfactory to the Lender in the Lender's sole discretion.
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<PAGE>
9. BINDING AGREEMENT. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective executors,
administrators, heirs, successors and assigns.
10. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Kentucky.
11. MISCELLANEOUS.
(a) SEPARATE OR CUMULATIVE ENFORCEMENT. The Lender may
enforce this Agreement with respect to one or more breaches either separately
or cumulatively.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior understandings of the parties with respect to the
subject matter hereof. This Agreement may not be modified or amended without
the prior written consent of the Lender and Assuming Party, and any attempted
modification or amendment without such consent shall be void.
(c) SEVERABILITY. If any part, term, or provision of this
Agreement is unenforceable or prohibited by any law applicable to this
Agreement, the rights and obligations of the parties shall be construed and
enforced with that part, term, or provision limited so as to make it
enforceable to the greatest extent allowed by law, or if it is totally
unenforceable, as if this Agreement did not contain that particular part,
term, or provision. A determination in one jurisdiction that any part, term,
or provision of this Agreement is unenforceable or prohibited by law does
not affect the validity or such part, term, or provision in any other
jurisdiction.
(d) CAPTIONS AND HEADINGS. The captions and headings in
this Agreement have been included for ease of reference only and shall not be
considered in the construction or interpretation of this Agreement.
(e) JEFFERSON COUNTY, KENTUCKY, JURISDICTION. Assuming
Party consents to one or more actions being instituted and maintained in the
Jefferson County, Kentucky, Circuit Court to enforce this Agreement and
waives any objections to any such action based upon lack of jurisdiction or
improper venue.
(f) REQUIREMENT TO PROVIDE FINANCIAL INFORMATION TO BANK.
Assuming Party agrees to provide the Lender during the term of this Agreement
with (i) annual financial statements signed by Assuming Party (and Assuming
Party's spouse if marital property is included therein), (ii) if requested,
copies of Assuming Party's tax return, and (iii) such additional financial
and other relevant information as the Lender may reasonably request from time
to time.
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<PAGE>
(g) NOTICES. Any notice or communications under this
Agreement from the Lender to Assuming Party shall be deemed to have been
given when mailed, certified, registered, or express mail, return receipt
requested, or hand delivered by a small package courier service to Assuming
Party, at the address shown for such Assuming Party in the Company's records.
Assuming Party may change the address to which notice shall be mailed by
written notice to the Lender setting forth the changed address.
ASSUMING PARTY ACKNOWLEDGES AND AGREES THAT SUCH ASSUMING PARTY IS
DIRECTLY LIABLE FOR THE FULL AMOUNT OF THE ASSUMED INDEBTEDNESS WHICH MAY BE
CALLED AT ANY TIME IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT OR THE LOAN
DOCUMENTS TO THE EXTENT OF A FULL PRORATA PORTION OF THE COMPANY'S
OBLIGATIONS UNDER THE LOAN DOCUMENTS FOR EACH CLASS A UNIT HELD BY ASSUMING
PARTY, PRORATED WITH RESPECT TO ANY PARTIAL CLASS A UNIT.
ASSUMING PARTY, BY EXECUTING THIS AGREEMENT, HEREBY ACKNOWLEDGES THAT
SUCH ASSUMING PARTY HAS READ THE PRIVATE PLACEMENT MEMORANDUM DATED OCTOBER
10, 1994, RELATING TO THE PURCHASE OF CLASS A UNITS BY THE ASSUMING PARTY AND
THE OTHER CLASS A MEMBERS, AND THAT, IN PARTICULAR, THE ASSUMING PARTY HAS
REVIEWED AND CONSIDERED THE RISKS ASSOCIATED WITH THE ASSUMING PARTY'S
EXECUTION OF THIS AGREEMENT.
ASSUMING PARTY IS AWARE THAT NONE OF THE LENDER, THE COMPANY, THE
MANAGERS OF THE COMPANY, OR ANY OTHER MEMBER OF THE COMPANY HAS AGREED TO
INDEMNIFY IN ANY MANNER OR HOLD THE ASSUMING PARTY HARMLESS FROM ASSUMING
PARTY'S LIABILITY UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
TW OPERATIONS, L.L.C.
BY: __________________________________
JOHN A. BUTORAC, JR., MANAGER
BY: __________________________________
JAMES M. MULROONEY, MANAGER
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<PAGE>
ASSUMING PARTY:
NUMBER OF --------------
CLASS A UNITS OWNED:___ |Please initial|
| |
--------------
_______________________________________
SIGNATURE
_______________________________________
PRINT NAME
_______________________________________
SIGNATURE OF CO-OWNER, IF ANY
_______________________________________
PRINT NAME OF CO-OWNER, IF ANY
LENDER:
LIBERTY NATIONAL BANK AND
TRUST COMPANY OF KENTUCKY
BY:____________________________________
TITLE:_________________________________
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<PAGE>
ANNEX C
TO LOAN AGREEMENT
SECURITY AGREEMENT
This is a Security Agreement dated as of January 24, 1995 (this
"Agreement"), among LIBERTY NATIONAL BANK AND TRUST COMPANY OF KENTUCKY, a
national banking association, 416 West Jefferson Street, Louisville, Kentucky
40202 (the "Secured Party"), and TUMBLEWEED, LLC, a Kentucky limited liability
company, 1900 Mellwood Avenue, Louisville, Kentucky 40206 (the "Debtor").
RECITALS
A. The Secured Party and the Debtor have entered into a Loan Agreement (as
defined below) (to which the form of this Security Agreement is attached as
ANNEX C), pursuant to which the Secured Party has extended to the Debtor the
Revolving Credit (as defined in the Loan Agreement).
B. The Debtor wishes to enter into this Agreement to secure the Debtor's
obligations under the Loan Agreement and the Note (as defined below).
NOW THEREFORE, the Debtor and the Secured Party agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used
in this Agreement shall have the meanings given them in the Loan Agreement. As
used in this Agreement, the terms defined in the preamble hereto shall have the
meanings given them there and the following terms shall have the following
meanings:
"Accounts Receivable" shall mean all of the Debtor's (1) rights to
payment for any goods sold or leased or for services rendered, whether such
right to payment exists on the date of this Agreement or is created thereafter,
and whenever and wherever acquired or arising, whether or not such right to
payment has been earned by performance, and whether or not such right to payment
is evidenced by any document, instrument or Chattel Paper, and including all
goods or Inventory returned to or repossessed by the Debtor and all claims
against common carriers for goods and Inventory lost in transit; and (2) the
proceeds or products of any of the foregoing. The amount of an Account
Receivable shall be the amount of the receivable net of all contractual
allowances and other discounts.
"Collateral" shall mean any or all of the property in which the Debtor
grants the Secured Party a security interest under Section 2 of this Agreement,
including, without limitation, accounts and Chattel Paper which have been sold.
"Chattel Paper" shall mean any or all writings which evidence both a
monetary obligation and a security interest in or a lease of specific goods,
whether owned by the Debtor on the
<PAGE>
date of this Agreement or acquired thereafter. When a transaction is
evidenced both by (1) such a security agreement or a lease AND (2) an
instrument or a series of instruments, the group of writings taken together
constitutes Chattel Paper.
"Equipment" shall mean the property owned by the Debtor and used or
bought for use primarily in its business, whether owned by the Debtor on the
date of this Agreement or acquired thereafter. Without limiting the foregoing,
the term "Equipment" shall have the meaning given it in Section 355.9-109 of the
Kentucky Revised Statutes ("KRS") and shall include the equipment used by the
Debtor in the operation of its business.
"Event of Default" shall have the meaning given it in Section 8 of
this Agreement.
"General Intangibles" shall have the meaning given in KRS Section
355.9-106 and includes, without limitation, and whether owned by the Debtor
on the date of this Agreement or acquired thereafter, any personal property
(including things in action, trademarks and copyrights), other than goods,
accounts, Chattel Paper, documents, Instruments and money. By way of
illustration, without limiting the foregoing, "General Intangibles" shall
include, whether now existing or hereafter arising or acquired, all existing
and future rents, late charges, penalties, fees, interest, royalties, rights,
claims, benefits and proceeds in, under or to any leases, franchise
agreements, insurance policies (whether held and/or maintained by the Debtor,
or otherwise), customer lists, choses in action, books, records, patents and
patents applications, copyrights, trademarks, trade names, trade secrets,
sales contracts, licenses, tax and any other types of refunds, returned and
unearned insurance premiums, claims, product designs, drawings, technical
data, computer programs, computer tapes and software, catalogs, blue prints,
contract rights, and all of the Debtor's rights as an unpaid vendor, lienor,
lessor or assignee, including, but not limited to, stoppage in transit,
replevin or reclamation.
"Instruments" shall mean all of the following whether owned by the
Debtor on the date of this Agreement or acquired thereafter: a negotiable
instrument (defined in KRS Section 355.3-104), or a certificated security
(defined in KRS Section 355.8-102) or any other writing which evidences a
right to the payment of money and is not itself a security agreement or lease
and is of a type which is in the ordinary course of business transferred by
delivery with any necessary endorsement or assignment.
"Inventory" shall mean all goods, whether owned or held by the
Debtor on the date of this Agreement or acquired thereafter, which are held
(1) for sale or lease or to be furnished under contracts of service, (2)
after so furnishing them under such contracts of service, and (3) as raw
materials, work in process or materials used or consumed in business.
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<PAGE>
"Note" shall mean the revolving credit note dated the date of this
Agreement by the Debtor, payable to the order of the Secured Party in the
maximum principal amount of $7,500,000.00, and any note or other instrument in
renewal, replacement, substitution, extension, payment and/or novation of the
note.
"Loan Agreement" shall mean the loan agreement dated as of the date of
this Agreement, among the Secured Party and the Debtor.
"Secured Obligations" shall mean all of the obligations secured by
this Agreement.
"Tangible Property" shall mean all of the Equipment, Inventory,
furniture, machinery, fixtures, leasehold improvements or other tangible
personal property owned by the Debtor and used or intended for use by the
Debtor in the conduct of its business.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the Commonwealth of Kentucky.
2. GRANT OF SECURITY INTEREST.
(a) The Debtor grants to the Secured Party a security interest in the
following property whether now existing or arising or acquired after the date of
this Agreement:
(1) all of the Debtor's right, title and interest in and to its
Accounts Receivable;
(2) all of the Debtor's right, title and interest in and to its
Chattel Paper;
(3) all of the Debtor's right, title and interest in and to its
Tangible Property;
(4) all of the Debtor's right, title and interest in and to its
General Intangibles;
(5) all of the Debtor's right, title and interest in and to its
Instruments;
(6) any property which the Debtor receives or which the Debtor
is or may hereafter be entitled to receive on account of any collections of or
with respect to its Accounts Receivable, or any instrument in payment of or
substitution for any of its Accounts Receivable;
(7) any property which the Debtor receives or which the Debtor
is or may hereafter be entitled to receive on account of any sale, exchange,
transfer or other disposition of its Chattel Paper;
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<PAGE>
(8) any property which the Debtor receives or which the Debtor
is or may hereafter be entitled to receive on account of any sale, exchange,
transfer or other disposition of its Tangible Property;
(9) any property which the Debtor receives or which the Debtor
is or may hereafter become entitled to receive on account of any sale, exchange,
transfer or other disposition of its General Intangibles; and
(10) any property which the Debtor receives or which the Debtor
is or may hereafter become entitled to receive on account of any sale, exchange,
transfer or other disposition of its Instruments.
(b) The Debtor further grants a security interest to the Secured
Party in the proceeds or products of any sale, exchange, collection or other
disposition of the Collateral or any part thereof.
3. OBLIGATIONS SECURED. The security interests granted by the Debtor
hereby secures the payment and performance of all of the following Secured
Obligations: (1) the Note and all Revolving Credit Loans (as defined in the
Loan Agreement) and other indebtedness evidenced by the Note; (2) all of the
obligations, agreements, covenants and representations of the Debtor
contained in this Agreement, the Loan Agreement and the other Loan Documents
(as defined in the Loan Agreement), whether or not now or hereafter evidenced
by any note, instrument or other writing; and (3) any and all indebtedness,
obligation or liability of the Debtor to the Secured Party, however
evidenced, whether now existing or hereafter arising, and whether direct or
indirect, accrued or unaccrued, matured or unmatured, known or unknown,
absolute, contingent or otherwise, arising out of or in connection with the
Revolving Credit or any of the Loan Documents.
4. REPRESENTATIONS AND WARRANTIES. To induce the Secured Party to enter
into this Agreement, the Debtor represents, warrants and agrees as follows:
(a) The Debtor has full power and authority to enter into and perform
this Agreement and this Agreement has been duly entered into and delivered and
constitutes the legal, valid and binding obligations of the Debtor, enforceable
in accordance with its terms.
(b) Except for liens created by financing statements filed by PNC
Bank, Kentucky, Inc. and Stock Yards Bank and Trust Company, evidencing
indebtedness in the maximum aggregate amount of $3,100,000.00, the Debtor has
good and marketable title to the Borrower's Collateral, and owns the Collateral
free and clear of any liens, charges, pledges, encumbrances, claims or security
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<PAGE>
interests other than the security interests created by this Agreement and
property taxes not yet due and payable.
(c) The books and records with respect to the Debtor's Accounts
Receivable will be kept at 1900 Mellwood Avenue, Louisville, Kentucky 40206,
and all of the Debtor's Tangible Property, is and will continue to be kept at
the locations described on SCHEDULE A to this Agreement.
(d) The Debtor's chief place of business is at 1900 Mellwood Avenue,
Louisville, Kentucky 40206.
(e) The Collateral is used and will be used for business purposes
only.
(f) The registered office of the Borrower's registered agent in
Kentucky is located in Jefferson County, Kentucky.
(g) Within the five (5) consecutive years last preceding the date of
this Agreement, the Borrower has not conducted business under, or otherwise
used, any name other than TW Operations, L.L.C. and Tumbleweed, LLC.
(h) Within the four (4) consecutive months next preceding the date of
this Agreement, the Borrower has not moved Inventory or Tangible Property from a
jurisdiction not listed on SCHEDULE A into a jurisdiction listed thereon.
(i) The Borrower understands and acknowledges that the Lender is
extending the Revolving Credit in reliance upon the security interests granted
by the Borrower evidenced by this Agreement. The Borrower intends to induce the
Lender to extend the Revolving Credit, recognizing that such inducement results
in this Agreement becoming legally valid and enforceable.
5. DURATION OF SECURITY INTEREST. The Secured Party, its successors and
assigns, shall hold the security interests created hereby upon the terms of this
Agreement, and this Agreement shall continue until the Secured Obligations have
been performed, executed, or paid in full.
6. CERTAIN NOTICES. The Debtor shall notify the Secured Party of any
change of location of its principal place of business or of the location of any
of the Collateral at least fifteen (15) days prior to effecting any such change.
7. COVENANT NOT TO DISPOSE OF OR IMPAIR COLLATERAL. Except as otherwise
permitted under the Loan Agreement, without prior written consent of the Secured
Party, the Debtor shall not sell, transfer or otherwise dispose of the
Collateral, or any part thereof or interest therein, except Inventory in the
ordinary course of business. The Debtor shall not permit any of the Collateral
to be levied upon under any legal process, nor shall the Debtor permit anything
to be done that may impair the value
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<PAGE>
of the Collateral or the security intended to be provided by this Agreement.
The Debtor shall not permit the liens of PNC Bank, Kentucky, Inc. and Stock
Yards Bank and Trust Company on the Collateral to evidence indebtedness in
excess of $3,100,000.00 in the aggregate.
8. DEFAULT. At the option of the Secured Party, the happening of any of
the following events shall constitute a default under this Agreement (an "Event
of Default"):
(a) The occurrence of any "Event of Default" under the Note, or any
other of the Loan Documents, or (2) any default under any other obligation,
instrument or agreement providing security for the Secured Obligations;
(b) Failure of the Debtor to perform or observe any term, obligation
or provision of this Agreement, which failure has not been fully corrected
within thirty (30) days after written notice has been given to the Debtor of
such failure;
(c) Loss, theft, damage, or destruction of any material part of the
Collateral if the loss is not insured against in accordance with the Loan
Agreement;
(d) Encumbrance of any of the Collateral, or the making of a levy,
seizure or attachment thereof or thereon except as permitted by the Loan
Agreement; or
(e) The Collateral becomes the subject matter of litigation which
could, in the reasonable opinion of the Secured Party, result in substantial
impairment or loss of the security interest intended to be provided by this
Agreement.
9. REMEDIES. Upon the occurrence and during the continuance of any Event
of Default, the Secured Party may at its option declare any and all of the
Secured Obligations to be immediately due and payable; and, in addition to that
right, and in addition to exercising all other rights or remedies, the Secured
Party may proceed to exercise with respect to the Collateral all rights, options
and remedies of a secured party upon default as provided for under the Uniform
Commercial Code. The rights of the Secured Party upon the occurrence and during
the continuance of the occurrence of an Event of Default shall include, without
limitation, the following:
(a) The right to require the Debtor to assemble the Collateral and
the books and records with respect to the Debtor's Accounts Receivable and make
them available to the Secured Party at a place to be designated by the Secured
Party;
(b) The right to require the Debtor to store its Tangible Property at
its own cost and risk on behalf of the Secured Party after the Secured Party has
retaken possession of such Tangible Property. Storage shall be in such manner
as to
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<PAGE>
prevent any deterioration of such Tangible Property, and shall be for a
reasonable time pending the sale or other disposition of such Tangible
Property;
(c) The right to sell the Collateral at public or private sale in
one or more lots in accordance with the Uniform Commercial Code. The Secured
Party may bid upon and purchase any or all of the Collateral at any public
sale thereof, and shall be entitled to apply the unpaid portion of the
Secured Obligations as a credit against the purchase price. The Secured
Party shall be entitled to apply the proceeds of any such sale to the
satisfaction of the Secured Obligations and to expenses incurred in realizing
upon the Collateral in accordance with the Uniform Commercial Code;
(d) The right to notify the account debtors on all or any part of
the Debtor's Accounts Receivable of the Secured Party's interest and to
require such account debtors to begin making payments directly to the Secured
Party regardless of whether the Debtor was previously making collections on
all or any part of its Accounts Receivable. The Secured Party shall have the
right to proceed against any such account debtors in its own name, or in the
name of the Debtor, as the case may be, with or without the consent of the
Debtor. The Secured Party may retain any such payments or collections and
apply them to the satisfaction of the Secured Obligations and to expenses
incurred in collection, all in accordance with the Uniform Commercial Code;
(e) The right to recover the reasonable expenses of taking possession
of any of the Collateral that may be reduced to possession, preparing the
Collateral for sale, selling the Collateral, collecting all or any part of the
Debtor's Accounts Receivable, and other like expenses, together with court costs
and reasonable attorneys' fees incurred in realizing upon the Collateral or
enforcing any provision of this Agreement;
(f) The right to retain the Collateral and become the owner thereof,
in accordance with the provisions of the Uniform Commercial Code; and
(g) The right to proceed by appropriate legal process at law or in
equity to enforce any provision of this Agreement or in aid of the execution of
any power of sale, or for foreclosure of the security interest of the Secured
Party, or for the sale of the Collateral under the judgment or decree of any
court.
10. MANDATORY LAWS GOVERNING EXERCISE OF REMEDIES. All of the remedies
under this Agreement are subject to the mandatory, non-waivable provisions of
the laws of the jurisdiction in which Collateral is located or which governs the
exercise of the remedies.
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11. CUMULATIVE REMEDIES. The rights and remedies of the Secured Party
shall be deemed to be cumulative, and any exercise of any right or remedy shall
not be deemed to be an election of that right or remedy to the exclusion of any
other right or remedy. Notwithstanding the foregoing, the Secured Party shall be
entitled to recover by the cumulative exercise of all remedies no more than the
sum of (a) the Secured Obligations remaining outstanding at the time of exercise
of such remedies, plus (b) the costs, fees and expenses the Secured Party is
otherwise entitled to recover.
12. WAIVERS. The Debtor acknowledges that this Agreement involves the
grant of multiple security interests, and the Debtor hereby waives, to the
extent permitted by applicable law, (a) any requirement of marshaling assets or
proceeding against persons or assets in any particular order, and (b) except as
otherwise required under the Loan Agreement, any and all notices of every kind
and description which may be required to be given by any statute or rule of law
and any defense of any kind which the Debtor may now or hereafter have with
respect to liability under this Agreement.
13. COLLECTIONS FROM ACCOUNTS RECEIVABLE.
(a) At any time when the Secured Party may exercise remedies under
Section 9 of this Agreement, the Secured Party shall have the right to notify
account debtors obligated on any or all Accounts Receivable to make payments
directly to the Secured Party.
(b) Until the Secured Party requests that account debtors of
Accounts Receivable be notified of the Secured Party's security interests
created pursuant to this Agreement, the Debtor shall continue to collect
payments on its Accounts Receivable and use the proceeds thereof in the
ordinary course of business. In any event, if any Event of Default has
occurred and is continuing, the Debtor may not use the proceeds from payments
on Accounts Receivable to satisfy any indebtedness to any person other than
the Secured Party. If the Debtor collects payments on any Accounts
Receivable beginning twenty-four (24) hours after an Event of Default has
occurred and while it is continuing, the Debtor shall hold the proceeds
received from that collection in trust for the Secured Party and shall turn
over such proceeds to the Secured Party immediately upon demand in the
identical form received, if so requested by the Secured Party. In the event
of such payment, the Secured Party shall credit the proceeds as payment of
the Secured Obligations first to interest, then to principal. Any credit
given to the Debtor for proceeds in form other than cash shall be conditional
upon final payment to the Debtor in cash or solvent credit of the items, and
if any item is not paid the amount of any credit given for it shall be
charged to the Debtor as appropriate whether or not the item is returned, and
such amount shall be a part of the obligations secured by this Agreement.
-8-
<PAGE>
(c) The Debtor shall not have the power to, nor shall the Debtor,
waive, compromise or discount any Accounts Receivable, without the prior
written consent of the Secured Party, except for (1) ordinary trade discounts
and allowances for payment within thirty (30) days of the date of invoice or
billing, and (2) discounts or allowances in the ordinary course of collecting
Accounts Receivable, amounting to not more than $50,000.00 in the aggregate
in any fiscal year of the Debtor.
(d) If any Accounts Receivable shall be evidenced by a promissory
note, trade acceptance or other instrument, the Debtor shall immediately
deliver such instrument to the Secured Party appropriately endorsed to the
Secured Party's order. The Debtor authorizes the Secured Party to endorse
same on the Debtor's behalf. The Debtors hereby waives presentments, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto.
14. SECURED PARTY AS AGENT. The Debtor hereby irrevocably constitutes the
Secured Party as its agent and attorney-in-fact at any time during any period
when the Secured Party may exercise remedies under Section 9 of this Agreement,
to (a) proceed against account debtors obligated on Accounts Receivable in the
Debtor's name or in the Secured Party's name, and (b) sign and endorse all
checks, drafts and other instruments in payment of Accounts Receivable, and (c)
perform all such other acts with respect to Accounts Receivable as the Secured
Party may in its discretion deem necessary to effectuate the security intended
to be granted in this Agreement.
15. SPECIAL COLLECTION PROCEDURE. Upon the Secured Party's demand at any
time when the Secured Party may exercise remedies under Section 9 of this
Agreement, the Debtor shall forthwith, upon receipt of all checks, drafts, cash
and other remittances in payment or on account of Accounts Receivable by the
Debtor, deposit the same in a special bank account maintained with the Secured
Party over which the Secured Party alone, to the exclusion of the Debtor, has
the power of withdrawal. The funds in such account shall be held by the Secured
Party for application toward the Secured Obligations. Such proceeds paid on
Accounts Receivable shall be deposited in precisely the form received, except
for the endorsement of the Debtor where necessary to permit collection of items,
which endorsement the Debtor agrees to make and which the Secured Party is also
hereby authorized by the Debtor to make in the Debtor's name and on the Debtor's
behalf as attorney-in-fact. Pending such deposit, the Debtor agrees that it will
not commingle any such checks, drafts, cash and other remittances with any other
funds or property, but will hold them separate and apart therefrom in express
trust for the Secured Party until deposited in that special account. The
Secured Party will, once each day, apply the whole of the collected funds on
deposit in such special account against the principal and/or interest of the
Note, the order and method of such application being in the sole discretion of
the Secured
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<PAGE>
Party. Any portion of the funds in the special account which the Secured
Party elects not to apply as provided in the preceding sentence shall be paid
over by the Secured Party to the Debtor.
16. BOOKS AND RECORDS. The Debtor shall maintain books and records with
respect to its Accounts Receivable in form and manner reasonably satisfactory to
the Secured Party, and the Secured Party shall have the right during business
hours to inspect any of the business properties, premises or books and records
of the Debtor relating to Accounts Receivable or other Collateral or the
proceeds thereof. The Secured Party shall give forty-eight (48) hours prior
oral or written notice of any inspection to be conducted by the Lender in
accordance with the preceding sentence unless an Event of Default has occurred
and is continuing, in which event the Secured Party shall not be required to
give any notice prior to conducting any such inspection. The Debtor further
agrees from time to time to furnish such reports, data and financial statements
with respect to the Collateral as the Secured Party may reasonably request from
time to time.
17. FILING FEES. The Debtor shall pay or cause to be paid all costs of
filing any and all financing, continuation and/or termination statements
necessary to perfect or protect or to maintain or terminate the perfection or
protection of the Secured Party's security interests created by this Agreement;
or shall upon demand reimburse the Secured Party for such costs, and until
reimbursement, such costs shall be a part of the obligations secured by this
Agreement.
18. CERTAIN OBLIGATIONS REGARDING COLLATERAL.
(a) The Debtor shall keep and maintain its Tangible Property in good
condition and repair and under adequate condition of storage to prevent its
deterioration or depreciation in value, reasonable wear and tear excepted.
(b) Except as otherwise permitted under the Loan Agreement, the
Debtor shall keep the Collateral free and clear of liens other than the security
interests created in favor of the Secured Party under this Agreement, and shall
declare and pay all fees, assessments, charges or taxes allocable to the
Collateral, or which might result in a lien against the Collateral unless the
Debtor at its own expense is contesting the validity or amount thereof in good
faith by an appropriate administrative or judicial proceeding timely instituted
which shall operate to prevent the collection or satisfaction of the lien or
amount so contested. If the Debtor fails to pay such amount and is not
contesting it in accordance with the preceding sentence, the Secured Party may,
but is not obligated to, pay it, and such payment shall be deemed conclusive
evidence of the legality or validity of such amount.
-10-
<PAGE>
(c) If the Debtor fails to provide insurance pursuant to the Loan
Agreement, the Secured Party may, but is not obligated to, pay for such
insurance. The Debtor shall promptly reimburse the Secured Party for any
payments made pursuant to this paragraph, and until reimbursement, such
payments shall be a part of the obligations secured by this Agreement.
19. Use and Inspection of Collateral. The Debtor shall not use the
Collateral in violation of any statute or ordinance, and the Secured Party shall
have the right, at reasonable hours, to inspect the Collateral at the premises
of the Debtor or wherever the Collateral may be located.
20. NOTICE.
(a) Any requirement of the Uniform Commercial Code of reasonable
notice shall be met if such notice is given at least five (5) business days
before the time of sale, disposition or other event or thing giving rise to the
requirement of notice.
(b) All notices or other communications under this Agreement shall be
made in accordance with Section 12.14 of the Loan Agreement.
21. FURTHER ASSURANCE. The Debtor shall sign from time to time such other
documents and instruments, and take such other action, as the Secured Party may
request to create and maintain more fully the security interests in the
Collateral intended to be created in this Agreement, and to perfect any such
interest.
22. MISCELLANEOUS.
(a) Failure by the Secured Party to exercise any right shall not be
deemed a waiver of that right, and any single or partial exercise of any right
shall not preclude the further exercise of that right. Every right of the
Secured Party shall continue in full force and effect until such right is
specifically waived in a writing signed by the Secured Party.
(b) If any part, term or provision of this Agreement is held by any
court to be prohibited by any law applicable to this Agreement, the rights and
obligations of the parties shall be construed and enforced with that part, term
or provision enforced to the greatest extent allowed by law, or if it is totally
unenforceable, as if this Agreement did not contain that particular part, term
or provision.
(c) The headings in this Agreement have been included for ease of
reference only, and shall not be considered in the construction or
interpretation of this Agreement.
(d) This Agreement shall inure to the benefit of the Secured Party,
its successors and assigns, and all obligations of the Debtor shall bind its
successors and assigns.
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<PAGE>
(e) To the extent allowed under the Uniform Commercial Code, this
Agreement shall in all respects be governed by and construed in accordance with
the laws of the Commonwealth of Kentucky, without regard to its conflicts of law
principles.
(f) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof. No change, modification, addition or
termination of this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought.
(g) The Debtor consents to one or more actions being instituted and
maintained in the Jefferson County, Kentucky, Circuit Court to enforce this
Agreement and/or one or more of the other Loan Documents (as defined in the Loan
Agreement), and waives any objection to any such action based upon lack of
personal or subject matter jurisdiction or improper venue. The Debtor agrees
that any process or other legal summons in connection with any such action or
proceeding may be served by mailing a copy thereof by certified mail, or any
substantially similar form of mail, addressed to the Debtor as provided in
Section 20 above.
23. WAIVER OF JURY TRIAL. IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE,
THE LENDER, BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, AND THE DEBTOR, BY
ITS EXECUTION AND DELIVERY OF THIS AGREEMENT EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY LOAN DOCUMENT OR ANY AMENDMENT THERETO, WHETHER NOW
EXISTING OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A
JURY, AND A COPY OF THIS AGREEMENT OR OF THIS PROVISION OF THIS AGREEMENT MAY BE
FILED WITH ANY COURT AS EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO
THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
24. ACKNOWLEDGEMENT. The Debtor acknowledges that the Debtor has received
a copy of this Agreement and each of the other Loan Documents, as fully executed
by the parties thereto. The Debtor acknowledges that the Debtor (a) has READ
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR HAS CAUSED SUCH DOCUMENTS TO BE
EXAMINED BY THE DEBTOR'S REPRESENTATIVES OR ADVISORS; (b) is thoroughly familiar
with the transactions contemplated in this Agreement and the other Loan
Documents; and (c) has had the opportunity to ask such questions to
representatives of the Lender, and receive answers thereto, concerning the terms
and conditions of the transactions contemplated in this Agreement and the other
Loan Documents as the Debtor deems necessary in connection with the Debtor's
decision to enter into this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Debtor and the Secured Party have executed and
delivered this Agreement as of the date set out in the preamble hereto, but
actually on the dates set forth below.
DEBTOR:
TUMBLEWEED, LLC
By________________________________
John A. Butorac, Jr., Manager
Date:_____________________________
and By____________________________
James M. Mulrooney, Manager
Date:_____________________________
SECURED PARTY:
LIBERTY NATIONAL BANK AND TRUST
COMPANY OF KENTUCKY
By________________________________
Title:____________________________
Date:_____________________________
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<PAGE>
SCHEDULE A
TO SECURITY AGREEMENT
1900 Mellwood Avenue, Louisville, Kentucky
1000 Linn Station Road, Louisville, Kentucky
3987 Dutchmans Lane, Louisville, Kentucky
4255 Outer Loop, Louisville, Kentucky
7484 Turfway Road, Saratoga Square, Florence, Kentucky
9956 Escort Drive, Mason Ohio
<PAGE>
REVOLVING LINE OF
CREDIT NOTE
$5,000,000 Louisville, Kentucky
August 8, 1996
FOR VALUE RECEIVED, the undersigned, TUMBLEWEED, LLC, a Kentucky limited
liability company (the "Borrower"), hereby promises to pay, on December 31,
1999, upon the terms and provisions hereafter provided, to the order of
NATIONAL CITY BANK OF KENTUCKY, a national banking association with offices
at 101 South Fifth Street, Louisville, Kentucky 40202, its successors and
assigns (the "Bank"), the principal sum of FIVE MILLION AND NO/100 DOLLARS
($5,000,000), or the aggregate principal amount of all advances made hereon
which shall be outstanding at the date of payment, whichever shall be less,
together with interest on the principal sums disbursed and outstanding hereon
from time to time in the manner and at the rates hereafter set forth.
IT IS UNDERSTOOD that the Borrower will request principal advances on
this revolving line of credit note (the "Note") from time to time. Bank
will honor such requests for advance in its discretion, provided that: no
default exists hereon or otherwise with regard to the loan evidenced hereby;
there is no default on any other loan now or hereafter owing bank by the
Borrower; and, the amount of the request will not cause the aggregate
principal amount owed on this Note to exceed the maximum principal amount
then available hereunder. The Borrower's indebtedness to the Bank on this
Note at any time shall be the total of all such advances plus accrued
interest, less payments received by Bank. The Bank may act on all matters,
including without limitation the making of advances, on the telephonic
instructions of any authorized manager designated by the Borrower, and may
rely thereon in doing and performing all actions which such manager shall
direct the Bank to perform. All telephonic instructions shall be confirmed
immediately in writing, should the Bank so require, but the failure of the
Bank to so require shall not affect the Borrower's liability to Bank hereon
or otherwise nor the right of Bank to rely on any such telephonic
instruction. The Bank may prescribe and may revise from time to time the form
that requests for advance hereon shall take.
PAYMENT OF THIS NOTE is secured by first mortgages and by assignments of
leases and rents encumbering real estate owned by the Borrower located in
Jefferson County, Kentucky and in Boone County, Kentucky, more particularly
described in a loan agreement of even date between Borrower and Bank (the
"Loan Agreement").
THE LOAN evidenced by this Note is made by Bank and is accepted by
Borrower pursuant to the terms and provisions of the Loan Agreement.
INTEREST shall be payable by Borrower on the principal sums actually
disbursed and outstanding hereon from time to time at an annual rate equal to
one-half of one per cent (1/2%) above the Bank's prime rate of interest,
calculated on the basis of a 360 day year and the actual number of days or
portion thereof elapsed. Any change in said prime rate subsequent to the date
<PAGE>
hereof shall become effective as to this Note immediately following a change
in the prime rate as quoted by the Bank. "Prime rate" shall mean the rate of
interest generally charged by Bank from time to time to is most substantial
and creditworthy commercial borrowers for 90-day unsecured loans, it being
understood and agreed, however, that such prime rate is the rate designated
by Bank as its "prime rate" and does not necessarily mean or imply that such
prime rate is the lowest rate then available from Bank on floating rate
loans to specific borrowers of the class described above. The first such
payment of interest only shall be due on or before September 1, 1996 and on
or before the first day of each month thereafter during the term hereof.
Simultaneously with each such monthly interest payment, the Borrower will
make a payment on principal to Bank in the amount of $30,000 per payment.
BORROWER AND BANK mutually consent, acknowledge and agree that effective
June 30, 1997, effective June 30, 1998 and effective June 30, 1999, the
maximum principal amount available to Borrower under this revolving credit
facility will be reduced to $4,640,000, to $4,280,000 and to $3,920,000,
respectively. Borrower will make, on or before each of said dates, payments
on principal in addition to regular monthly principal payments as may be
necessary to reduce the principal amount outstanding under this Note to such
amounts on or before said dates.
BORROWER shall repay Bank for advances made by Bank on this Note at the
times and in the amounts hereinabove set forth. Borrower may borrow, repay in
whole or in part at any time without premium or penalty, and reborrow
hereunder, subject to the terms hereof and subject to the terms of the Loan
Agreement.
THE COLLATERAL granted Bank to secure this Note and advances hereon
shall also secure payment of all renewals, extensions or modifications
hereof. Each request for advance hereon shall be a reaffirmation of all
collateral interests previously granted to the Bank and a reaffirmation of
all representations and warranties heretofore made to the Bank in the Loan
Agreement and made in all other documents securing or otherwise pertaining to
the subject revolving credit facility.
BORROWER shall pay to the holder hereof a late charge of five per cent
(5%) of any monthly installment of principal and/or interest not paid within
ten (10) days of the date same is due and payable.
IF DEFAULT is made in the payment of principal or interest hereof as and
when the same is or becomes due, or in the performance of any term, covenant
or condition required to be kept, observed or performed under this Note or
any other instrument executed in connection with this loan (including,
without limitation, the Loan Agreement, and (absent a specific contrary grace
or curative period) if same shall not be cured to the complete satisfaction
of the holder hereof within ten (10) days after any monetary default or
within thirty (30) days after the occurrence of any nonmonetary default on
the subject loan; or should Borrower default on any other indebtedness now or
hereafter owing Bank during the term hereof beyond any applicable grace or
curative period contained in any loan documents relative to such other
indebtedness; then the owner and holder of this Note may, without notice or
demand, declare all sums owning hereunder and under any of said other
instruments at once due and payable. If default is made
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<PAGE>
in the payment of this Note at maturity (regardless of how same may be
brought about) Borrower agrees, upon expiration of the aforesaid curative
periods, to pay to the owner and holder hereof interest at a default rate
equal to the annual rate for the principal hereof plus three per cent (3%)
until paid, together with all reasonable attorneys' fees and other costs of
collection occasioned by any of the foregoing.
BORROWER expressly waives demand and presentment for payment, notice of
nonpayment, protest, notice of protest, bringing of suit, and diligence in
taking any action to collect amounts called for hereunder and in the handling
of security at any time existing in connection therewith; and is and shall be
directly and primarily liable for the payment of all sums owing and to be
owing, regardless of and without any notice, diligence, act or omission or
with respect to the collection of any amount called for hereunder or in
connection with any right, lien, interest, or property at any and all times
had or existing as security for any amount called for hereunder or under any
other instrument executed in connection with the revolving line of credit
loan evidenced hereby.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT BORROWER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LOAN OR ANY
AGREEMENT CONTEMPLATED TO BE MADE OR EXECUTED IN CONJUNCTION THEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
BANK'S MAKING THE LOAN EVIDENCED HEREBY.
IN THE EVENT of any inconsistency in the terms and provisions of this
Note or any other loan document as to the rights and remedies of the holder
hereof, or in the event of any such inconsistency as between or among any two
(2) or more loan documents, then in any such event the holder shall have the
right at its sole option to elect which of such provisions shall govern.
THIS NOTE and the respective rights and liabilities of Borrower and the
holder of this Note shall be governed by and shall be construed in accordance
with the laws of the Commonwealth of Kentucky.
BORROWER:
TUMBLEWEED, LLC
(a Kentucky limited liability company)
By: /s/ James Mulrooney
------------------------------
its manager
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<PAGE>
LOAN AGREEMENT
By and between
TUMBLEWEED, LLC
(Borrower)
and
NATIONAL CITY BANK OF KENTUCKY
(Lender)
dated as of August 8, 1996
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), made and entered into as of
August 8, 1996, by and between TUMBLEWEED, LLC, a Kentucky limited liability
company with its principal office and place of business at 1900 Melwood
Avenue, Louisville, Kentucky 40206 (the "Borrower"), and NATIONAL CITY BANK
OF KENTUCKY, a national banking association with its principal office and
place of business at 101 South Fifth Street, Louisville, Kentucky 40202 (the
"Lender").
W I T N E S S E T H:
Borrower and Lender recite and agree as follows, which recitations and
agreements constitute a part of this Agreement:
A. Borrower engages in the business of owning, operating, developing
and franchising full service restaurants and food court restaurants, same
currently being located in Kentucky, Indiana, Ohio, Illinois and Wisconsin.
B. Borrower has requested that Lender make available to Borrower a
$5,000,000 revolving line of credit to provide real estate financing for five
(5) of Borrower's full service restaurants and its commissary (the
"Commissary") in the approximate amount of $2,800,000, with the remaining
available amount to be used for the acquisition and development of additional
restaurant facilities.
C. Lender has agreed to make such credit facility available to Borrower
pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Borrower and Lender agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires.
"ADVANCE" shall mean a disbursement by Lender of any sum to
Borrower hereunder pursuant to a Funding Application.
"ASSIGNMENTS" shall mean the first assignments of leases and rents
of even date between Borrower and Lender relative to real estate and the
improvements thereon owned by Borrower located in Jefferson County, Kentucky
and in Boone County, Kentucky.
<PAGE>
"BORROWER" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"BUSINESS DAY" shall mean a day on which Lender is open for
business.
"CASH FLOW AVAILABLE FOR DEBT SERVICE" shall mean earnings before
payment of interest and taxes plus depreciation and amortization.
"COLLATERAL" shall mean the property and rights of the Borrower
more particularly described in Section 3.1 of this Agreement.
"COMMITMENT LETTER" shall mean the commitment letter dated June 13,
1996 from Lender to Borrower outlining the basic terms of the Credit Facility.
"COMPLIANCE CERTIFICATE" shall mean the form attached to this
Agreement as Exhibit A and incorporated herein by reference.
"CREDIT FACILITY" shall mean the aggregate principal amount
available from Lender to Borrower from time to time under this Agreement.
"EVENTS OF DEFAULT" shall mean any of the events specified in
Section 7.1 of this Agreement.
"FUNDING APPLICATION" shall mean Borrower's request for an Advance.
"GAAP" shall mean generally accepted accounting principles
consistently applied as in effect at the time of application of the
provisions hereof so as to properly reflect the financial condition, and the
results of operations and changes in financial position, of Borrower;
PROVIDED, that if in this Agreement principles of accounting different from
those required by generally accepted accounting principles are specified, the
principles of accounting specified in this Agreement shall govern.
"LENDER" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"LOAN" shall mean at any time the aggregate outstanding principal
amount of all Advances made hereunder evidenced by the Note and unpaid
interest accrued thereon.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the
Assignments, the Mortgages and any and all other instruments now or hereafter
executed and delivered by Borrower in connection with the Credit Facility, as
any of such may be amended or supplemented from time to time.
2
<PAGE>
"LOAN YEAR" shall mean the following: the first Loan Year shall
expire on June 30, 1997; the second Loan Year shall expire on June 30, 1998;
the third Loan Year shall expire on June 30, 1999.
"MATERIAL ADVERSE EFFECT" shall mean any material adverse influence
on or change relative to (i) the validity or enforceability of this
Agreement, the Note or any other Loan Document, (ii) the business, operations
and assets of Borrower, (iii) the Collateral, or (iv) the Borrower's ability
to fulfill its obligations under this Agreement, the Note or the other Loan
Documents.
"MORTGAGES" shall mean the first mortgages of even date from
Borrower to Lender relative to real estate and the improvements thereon owned
by Borrower located in Jefferson County, Kentucky and in Boone County,
Kentucky.
"NOTE" shall mean the revolving line of credit note delivered by
Borrower to Lender pursuant to this Agreement, and all renewals,
modifications and extensions of same.
"PARTIAL LOAN YEAR" shall mean that six (6) month period of time
commencing after the end of the third Loan Year until the Termination Date
(hereinafter defined).
"RESTAURANTS" shall include, collectively, when and as applicable,
full service restaurants, Borrower's Commissary and its food court restaurants.
"TERMINATION DATE" shall mean December 31, 1999, as such date may
be extended from time to time by mutual agreement of Borrower and Lender.
1.2 OTHER DEFINITIONAL PROVISIONS. Defined terms used herein in the
singular shall import the plural and VICE VERSA and the gender used shall
include the other genders where appropriate.
ARTICLE II
TERMS OF THE CREDIT
2.1 COMMITMENT. Lender agrees to make Advances to Borrower on a
revolving credit basis from time to time on any Business Day from the date of
this Agreement through the Termination Date in an outstanding amount not to
exceed at any one time the Credit Facility. The Credit Facility shall
initially be FIVE MILLION AND NO/100 DOLLARS ($5,000,000). PROVIDED, that
upon the expiration of each of the first Loan Year, the second Loan Year and
the third Loan Year the Credit Facility will be reduced by $360,000, such
that the Credit Facility will be $4,640,000 during the second Loan Year,
$4,280,000 during the third Loan Year and $3,920,000 during the Partial Loan
Year. Within the foregoing limits, Borrower may borrow, repay and reborrow.
AND PROVIDED FURTHER, that Lender shall not be obligated to make an Advance
if an Event of Default shall have occurred and is then existing hereunder or
under any other Loan Document, nor shall Lender be obligated to make an
Advance which, when added
3
<PAGE>
to the principal amount advanced and outstanding on the Note, would exceed
the principal amount available under the Credit Facility.
2.2 PURPOSE OF THE CREDIT FACILITY. Proceeds of the Credit Facility
and Advances made to Borrower by Lender under the Note shall be used by
Borrower to provide financing for five (5) of Borrower's Restaurants and its
Commissary and to provide additional capital for acquisition and development
of additional Restaurants.
2.3 NOTE. To evidence the Loan and the Credit Facility Borrower shall
execute and deliver the Note to Lender in the principal amount of the Credit
Facility and dated as of the date hereof. The Note shall be payable and bear
interest as set forth therein.
2.4 COMMITMENT FEE. A commitment fee in an amount of $12,500 shall be
due Lender from Borrower, payable at closing of the Loan.
2.5 LEGAL FEES. Borrower agrees to pay all reasonable legal fees and
expenses of Lender incurred in connection with the closing of the Loan and
any modification, extension or renewal of same. Said fees and expenses shall
be due and payable upon Borrower's receipt of a statement from Lender's
counsel.
2.6 SET-OFF. Borrower hereby authorizes Lender to set off the
liability of Borrower on the Note and the Loan, without notice, against all
deposits and credits of Borrower with Lender (other than balances in trust
accounts, escrow accounts, and other accounts not beneficially owned by
Borrower).
ARTICLE III
COLLATERAL
3.1 COLLATERAL. To secure payment of the Note and all obligations of
Borrower to Lender under this Agreement and the other Loan Documents,
Borrower shall execute and deliver the Mortgages and the Assignments to
Lender relative to Borrower's Commissary located at 283 Thompson Avenue in
Jefferson County, Kentucky and Borrower's Restaurants located at 4225 Outer
Loop, 1900-1910 Mellwood Avenue, 10000 Linn Station Road and 3985 Dutchman's
Lane in Jefferson County, Kentucky and relative to Borrower's Restaurant at
7484 Turfway Road in Boone County, Kentucky.
3.2 SURVEYS. Prior to closing the Borrower will provide Lender with
current engineer's surveys for the Collateral, certified to the Lender and
Lender's title insurer, showing all boundaries, easements, improvements and
any special details associated with the Collateral. The surveys should be
sufficient to eliminate any survey exceptions from the Lender's mortgagee
title insurance policy.
3.3 TITLE AND TITLE INSURANCE. Fee simple title to the Collateral
shall be vested in the Borrower. The Lender will be provided with mortgagee
title insurance in the
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principal amount of the Loan. The terms and conditions of the policy and the
title insurer must be acceptable to Lender and its counsel.
3.4 APPRAISALS. Lender must be provided with appraisals of the
Collateral by an appraiser acceptable to Lender. The amount, form and
content of the appraisals shall be acceptable to Lender, shall be addressed
to Lender and shall meet all FIRREA's requirements.
3.5 ENVIRONMENTAL ASSESSMENTS. Prior to closing the Lender must be
provided with environmental site assessments of the Collateral. The
conclusions, content and form of the site assessments, as well as the
engineering firm or firms performing the assessments, must be satisfactory to
the Lender in its sole discretion.
3.6 INSURANCE. Lender shall be provided with evidence that Borrower
has adequate insurance for all of the Restaurants, as required by subsection
(f) of Section 5.1 of this Agreement.
3.7 OTHER COMPLIANCE. Borrower shall provide such other information,
documents and data and perform all other acts reasonably deemed necessary by
Lender to close the Loan.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. Lender shall not be
obligated to make the initial Advance hereunder, unless Lender has received,
in addition to those items described in Article III, the following documents
and writings in form and substance acceptable to Lender and its counsel:
(a) RESOLUTIONS. Resolutions on behalf of the Borrower signed
either by John A. Butorac, Jr. or James M. Mulrooney or by both of them or
their successors duly elected and appointed (individually, the "Manager", or
collectively, the "Managers") evidencing authorization and approval of the
execution and delivery of this Agreement and the other Loan Documents.
(b) ORGANIZATIONAL DOCUMENTS. Certified copies of the articles of
organization and the operating agreement of Borrower, with all amendments
thereto, and a Certificate of Existence issued by the Kentucky Secretary of
State.
(c) LEGAL OPINION. An opinion from counsel for Borrower
acceptable in form and content to Lender and its counsel.
(d) REPORT OF TAX LIEN SEARCHES. A report of federal and state
tax lien searches made in the appropriate public offices in the name of
Borrower.
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(e) CERTIFICATIONS AS TO REPRESENTATIONS AND WARRANTIES. Borrower
certifies that the representations and warranties of Borrower contained
herein are true and correct as of the date of this Agreement and the date of
the initial Advance to be made hereunder. Borrower agrees that a request by
Borrower for each additional Advance shall constitute reaffirmation by
Borrower that (i) such representations and warranties are true and correct as
of the date each such Advance is to be made, (ii) that no default exists
relative to the Loan Documents or relative to any other credit facility of
Borrower, and (iii) that no material actions, suits, legal, equitable,
arbitration or administrative proceedings are pending or, to the best of
Borrower's knowledge after due inquiry, threatened against Borrower, the
adverse determination of which could have a Material Adverse Effect on the
Loan Documents, the business operation or financial condition of Borrower or
the ability of Borrower to fulfill its obligations under the Loan Documents.
(f) LOAN DOCUMENTS AND OTHER CONDITIONS. All Loan Documents shall
be duly executed and delivered to Lender; and such other documents as Lender
and its counsel may reasonably require shall be duly executed and delivered
to Lender; evidence shall be produced as is satisfactory to Lender and its
counsel as to the occurrence of any further conditions precedent to the
closing of the Loan.
(g) RELEASE AND SATISFACTION OF EXISTING LIENS AND DEBTS. All
debts secured by liens upon and security interests in the Collateral shall be
paid and provision made for the release of all such liens and security
interests, all of which shall be at Borrower's sole expense.
4.2 CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES. Lender shall not be
obligated to make any Advance subsequent to the initial Advance hereunder if,
at the time such Advance is requested, an Event of Default shall have
occurred or if such Advance would exceed the amount of the Credit Facility
than available.
ARTICLE V
COVENANTS
5.1 AFFIRMATIVE COVENANTS. Until payment in full of the entire
principal balance of and all accrued interest on the Loan and the Note and
all other obligations relative thereto, Borrower agrees that Borrower will
observe and comply with all of the following covenants and agreements:
(a) PAYMENTS OF INDEBTEDNESS. Borrower shall make full and timely
payment of the principal of and accrued interest on the Loan and the Note and
on all other indebtedness of Borrower to Lender in accordance with their
respective terms.
(b) EXAMINATION OF LENDER. Borrower shall, at all reasonable
times, permit Lender to examine any or all of the Borrower's books and
financial records, to make excerpts therefrom and transcripts thereof, to
discuss the affairs, finances and accounts of
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Borrower with its Managers and to conduct any audit or similar examination
(including, without limitation, a collateral audit) deemed reasonably
necessary or appropriate by Lender at Borrower's cost and expense.
(c) FINANCIAL STATEMENTS AND REPORTS OF BORROWER. Borrower shall
furnish or shall cause the following to be furnished to Lender:
(i) QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45)
days after the end of each fiscal quarter, an internally generated income
statement for Borrower for the period from the beginning of Borrower's
applicable fiscal year to the end of such fiscal quarter and a balance sheet
as of the end of each such fiscal quarter, all prepared in accordance with
GAAP and certified by the Managers or chief financial officer of Borrower as
being true and accurate.
(ii) ANNUAL AUDITED FINANCIAL STATEMENTS. Within one hundred
twenty (120) days after the end of each fiscal year of Borrower, an audited
income statement of Borrower for such fiscal year and an audited balance
sheet as of the end of such fiscal year, all in reasonable detail and
accompanied by a report and opinion of independent certified public
accountants reasonably satisfactory to Lender, which report and opinion shall
be prepared in accordance with GAAP relative to reporting.
(d) BOOKS AND RECORDS. Borrower shall at all times maintain
its books and records at its principal office at 1900 Mellwood Avenue,
Louisville, Kentucky 40206.
(e) CLOSING OF RESTAURANTS. Borrower shall notify Lender of
the closing of any Restaurants within ten (10) days of same.
(f) INSURANCE. Borrower shall obtain and maintain in full
force and effect insurance and liability insurance for all its Restaurants,
including without limitation those Restaurants as comprise part of the
Collateral, in such amounts and with such companies as are reasonably
satisfactory to Lender. Lender shall be scheduled mortgagee and certificate
holder as regards all fire and extended coverage insurance relative to the
Collateral, and shall be scheduled as additional insured and certificate
holder as to liability insurance relative to the Collateral. If and only as
applicable, Borrower shall maintain flood insurance, as more particularly
described in the Mortgages.
All such policies shall provide that Lender be given not less than ten
(10) days prior written notice before cancellation of any such insurance
becomes effective. Certified copies of all such policies or current
certificates of insurance shall be delivered to Lender when and as required
by Lender.
(g) COMPLIANCE WITH LAWS. Borrower shall comply with all
applicable governmental statutes, regulations and rules governing the conduct
of Borrower's business and ownership of property.
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(h) TAXES AND ASSESSMENTS. Borrower shall pay all taxes,
assessments and governmental charges and levies imposed upon Borrower,
Borrower's income or any property before same become delinquent; provided,
however, that no such tax, assessment, charge or levy need be paid so long as
the validity thereof shall be contested in good faith by appropriate
proceedings for which a bond or other security reasonably satisfactory to
Lender shall have been posted, and provided further that Borrower shall have
set aside on Borrower's books adequate reserves therefor.
(i) EXISTENCE. Borrower shall preserve and maintain
Borrower's existence as a Kentucky limited liability company and its
qualification to do business in good standing in every jurisdiction in which
the nature of the business conducted by Borrower or the properties owned by
Borrower require such qualification.
(j) EVENTS OF DEFAULT AND NOTICE. Borrower shall, promptly
upon obtaining knowledge of the occurrence or existence of any Event of
Default, or of the occurrence or existence of a condition or event which,
with notice or the lapse of time, or both, would constitute an Event of
Default, deliver to Lender a certificate specifying the nature thereof, the
period of existence thereof, and what action Borrower has taken or proposes
to take with respect thereto.
(k) PAYMENT OF INDEBTEDNESS; COMPLIANCE WITH AGREEMENTS.
Borrower shall pay and discharge all of Borrower's debts and obligations in a
timely manner in accordance with their respective terms, and shall at all
times comply with each and every term and provision of the documents
evidencing and securing such debts and obligations, and with each and every
lease, contract, agreement or obligation Borrower may have or be a party to
with any person or as to which any of its properties may be subject.
(l) MANAGEMENT. Borrower shall notify Lender of any
substantial changes in the management of Borrower.
(m) ERISA. With respect to any Plan ("Plan" shall mean an
employee pension benefit plan or pension covered by ERISA, hereafter defined,
which is guaranteed by the Pension Benefit Guaranty Corporation or any
successor thereto) maintained or adopted by Borrower, Borrower shall (i) at
all times make prompt payments of contributions required to be made to meet
the minimum funding standards of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); (ii) promptly, after the filing thereof,
furnish to Lender copies of all reports of prohibited transactions and
accumulated funding deficiencies required to be made pursuant to the
provisions of ERISA; and (iii) notify the Lender promptly of the occurrence
of any reportable event within the meaning of ERISA.
(n) OTHER ACTS. Borrower agrees, upon the request of Lender,
to duly execute and deliver, or cause to be duly executed and delivered, such
further instruments, and do or cause to be done such further acts, as may be
necessary or proper in the reasonable opinion
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of Lender to carry out more effectively the provisions of this Agreement and
the other Loan Documents.
(o) ADDITIONAL NOTIFICATION. Borrower will notify Lender of
significant events as to Borrower, its assets and its business, including
without limitation any event causing material loss or depreciation in value
of Borrower's properties or assets by reason of casualty or any other cause.
Further, Borrower will notify Lender of any change in its structure, the name
under which Borrower conducts its business or any material portion thereof,
or any change in the ownership of any material portion of Borrower's
business, properties or assets.
5.2 FINANCIAL COVENANTS. Until payment in full of the entire principal
balance of and all accrued interest on the Loan and the Note and all other
obligations relative thereto, Borrower agrees that Borrower will observe and
comply with all of the following financial covenants and agreements.
(a) TANGIBLE NET WORTH. Borrower agrees to maintain a minimum
tangible net worth (defined in accordance with GAAP) in the following
amounts: during the first Loan Year, $9,500,000; during the second Loan Year,
$10,000,000; during the third Loan Year and thereafter, $10,500,000.
(b) DEBT COVERAGE RATIO. Borrower will maintain a ratio of (i)
Cash Flow Available for Debt Service to (ii) the current portion of long-term
debt and interest of at least 1.75 to 1.00 during the first Loan Year, and of
at least 2.00 to 1.00 for the second and third Loan Years and for the Partial
Loan Year commencing after October 31, 1997. Same shall be evaluated by
Lender as of June 30, September 30, December 31 and March 31, in respect of
the four (4) immediately preceding fiscal quarters ending as of the last day
of the most recently ended fiscal quarter.
(c) LEVERAGE. Borrower agrees to maintain a ratio of its total
liabilities to tangible net worth of not more than 1 to 1.
(d) COMPLIANCE CERTIFICATE. Borrower will complete and deliver to
Lender, not later than forty-five (45) days after each fiscal quarter, a
Compliance Certificate in the form of that attached hereto as Exhibit A or in
such other form as Lender may prescribe from time to time.
5.3 NEGATIVE COVENANTS. Borrower shall at all times comply with the
covenants contained in this Section 5.3, from the date hereof and for so long
as the Credit Facility shall remain available to Borrower.
(a) NO MERGER. Without Lender's prior written consent, which will
not be unreasonably withheld, Borrower shall not merge or consolidate with or
into any partnership, corporation, or other entity.
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(b) FISCAL YEAR, METHOD OF ACCOUNTING. Borrower shall not change
its fiscal year or method of accounting without thirty (30) days prior
written notice to Lender.
(c) LIQUIDATION AND DISPOSITIONS OF SUBSTANTIAL ASSETS. Without
Lender's prior written consent, which will not be unreasonably withheld,
Borrower shall not dissolve or liquidate or sell, lease or transfer, or
otherwise dispose of any material portion of its property or assets or
business.
(d) CONTRACTS. Borrower will not enter into any contract or
agreement which would materially and adversely affect its business, property,
ability to perform its obligations under the Note and this Agreement, or the
Collateral.
(e) TRANSACTIONS WITH RESPECT TO COLLATERAL. Borrower will not
enter into any transaction which materially and adversely affects the
Collateral or Borrower's ability to repay the Loan.
(f) DIVIDENDS. Borrower will not declare or pay dividends or
bonuses or make any distributions of Borrower's property or assets to any of
its members other than (i) to its members for the purpose of paying their
personal tax liabilities due by reason of income received from Borrower, (ii)
to its members, to enable them to make interest payments due on their line of
credit facility established with Bank One Kentucky, NA in the principal
amount of $7,034,375 and (iii) to the Managers pursuant to the management
agreements between the Borrower and each Manager.
(g) CHANGE IN OWNERSHIP. Borrower will not make, suffer or allow
a material change in the ownership of Borrower or the management of
Borrower's business.
ARTICLE VI
REPRESENTATION AND WARRANTIES
6.1 EXISTENCE. Borrower is a limited liability company duly organized
and validly existing under the laws of Kentucky; and is qualified to transact
business as a nonresident in every jurisdiction in which such qualification
is required.
6.2 NO RESTRICTIONS ON PERFORMANCE. Neither the execution or delivery
of this Agreement or any other Loan Document, the consummation of the
transactions contemplated hereby, nor the compliance with the terms and
conditions of this Agreement and the other Loan Documents:
(a) requires the consent or approval of, or registration with, any
federal, state, municipal or other governmental commission, board, agency,
bureau, authority, official or regulatory body;
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(b) violates any provision of law, any order of any court or any
order, rule or regulation of any agency of government;
(c) conflicts with or results in a breach of any of the terms,
conditions or provisions of any restrictions or of any agreement or
instrument to which the Borrower is a party or by which Borrower or any of
Borrower's properties may be bound or affected; or
(d) results in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the Collateral except liens
and security interests in favor of Lender.
6.3 PROPER EXECUTION. The Manager executing and delivering this
Agreement and the other Loan Documents on behalf of Borrower has been duly
authorized to do so, and this Agreement and the other Loan Documents are
legally binding upon Borrower in every respect in accordance with their
respective terms.
6.4 LEGAL PROCEEDINGS; TAXES. There are no actions, proceedings or
investigations pending, or to the knowledge of Borrower, threatened, before
any federal, state, municipal or other governmental department, commission,
board, agency, bureau, authority or official involving the likelihood of any
material judgment or liability against Borrower, or questioning or
threatening Borrower's right to carry on the business which Borrower
presently conducts or proposes to conduct, or which, if adversely determined,
would cause a Material Adverse Effect. All tax returns and reports of
Borrower required by law to be filed have been duly filed or will be filed in
a timely manner, and all taxes, assessments, withholdings, fees and other
governmental charges upon Borrower, Borrower's employees or upon any of
Borrower's assets, income or franchises, which are due and payable, have been
paid or will be paid in a timely manner.
6.5 ERISA. To the best of Borrower's knowledge, no fact or
circumstance, including but not limited to any reportable event within the
meaning of ERISA, exists in connection with any Plan of the Borrower which
might constitute grounds for the termination of any such Plan by the Pension
Benefit Guaranty Corporation or for the appointment of a trustee to
administer any such Plan.
6.6 NO MISREPRESENTATIONS. This Agreement, the other Loan Documents,
the financial covenants referred to herein and the financial information
relative to Borrower heretofore submitted to Lender prior to the issuance of
the Commitment Letter do not contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make any statement
made not misleading.
6.7 INDUCEMENT TO LENDER. The foregoing representations and warranties
are an inducement to Lender's entering into this Agreement, and each and
every request for an Advance by Borrower shall constitute a reaffirmation and
reiteration of each and every representation and warranty of Borrower
contained in this Article VI.
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ARTICLE VII
DEFAULTS AND REMEDIES
7.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event
of Default hereunder:
(a) PAYMENTS. If Borrower fails to make any payment of principal
and/or interest on the Note, or payment of any fee, expense or other amount
due hereunder, under the Note or under any other Loan Document, and shall any
such payment of principal, interest, fee, expense or other sum remain unpaid
for a period of ten (10) days after any such payment is due.
(b) COVENANTS AND AGREEMENTS. If Borrower shall fail or omit to
perform or observe any covenant, agreement, condition or other provision
contained or referred to in this Agreement or in any other Loan Document
(other than monetary default), and such failure or omission shall not have
been fully corrected to the reasonable satisfaction of Lender within thirty
(30) days after occurrence thereof.
(c) ACCURACY OF STATEMENTS. If any representation or warranty or
other statement of fact contained in this Agreement, in any other Loan
Document or in any writing, certification, report or statement at any time
furnished to Lender pursuant to or in connection with this Agreement or in
connection with obtaining the Credit Facility or otherwise, shall have been
false or misleading in any material respect or omitted to state a material
fact as of the date such representation, warranty or statement of fact was
made.
(d) JUDGMENTS. If a final judgment for the payment of money in
excess of the sum of $100,000 in the aggregate shall be entered against
Borrower, and such judgment shall remain unsatisfied and in effect for a
period of thirty (30) consecutive days after the entry thereof, and shall not
have been discharged or execution thereof stayed pending appeal, or if so
stayed, within ten (10) days after the expiration of any such stay if such
judgment shall not have been discharged.
(e) BORROWER'S SOLVENCY. If Borrower shall: (i) make a general
assignment for the benefit of creditors; (ii) apply for or consent to the
appointment of, or if for any other reason, a receiver, trustee or liquidator
of all or a substantial part of the assets of Borrower is appointed; (iii) be
adjudicated a bankrupt or insolvent; (iv) file a voluntary petition in
bankruptcy or file a petition or any answer seeking reorganization or an
arrangement with creditors or seeking to take advantage of any other law
relating to relief of debtors, or admit (by answer, default or otherwise) the
material allegations of a petition filed against Borrower in any bankruptcy,
reorganization, insolvency or other proceedings relating to relief for
debtors; (v) suffer or permit to continue unstayed and in effect for thirty
(30) consecutive days any judgment, decree or order entered by a court or
governmental agency of competent jurisdiction, which assumes control of
Borrower, approves a petition seeking reorganization of Borrower or any other
judicial modification of the rights of Borrower's creditors, or appoints a
receiver, trustee,
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custodian or liquidator for Borrower of all or a substantial part of
Borrower's assets; or (vi) fail to pay Borrower's debts as and when the
same mature.
(f) TERMINATION OR SUSPENSION OF BUSINESS. If Borrower shall
terminate or suspend the transaction of business.
(g) MATERIAL ADVERSE CHANGE. If any material adverse change shall
occur in the condition of Borrower, financial or otherwise.
(h) CHANGE IN OWNERSHIP OR MANAGEMENT. If any change in the
control, ownership or management of Borrower shall occur, the result of which
could, in the reasonable judgment of Lender, have a Material Adverse Effect.
(i) LOAN DOCUMENTS. If any provision of this Agreement, the Note
or any other Loan Document shall for any reason cease to be in full force and
effect; or be declared null and void or unenforceable in whole or in part; or
the validity or enforceability of any such document shall be challenged or
denied.
(j) INSECURITY. If Lender shall in good faith and acting in a
commercially reasonable manner, deem itself to be insecure with respect to
Borrower's ability or intention (i) to make full and timely payment of each
and every installment of principal and/or interest on the Note, or (ii) to
perform any or all of the material agreements, obligations, covenants,
conditions, warranties or representations made or to be performed by Borrower
pursuant to the terms of this Agreement or any other Loan Document.
(k) DEFAULT ON OTHER INDEBTEDNESS. If Borrower shall default
beyond any applicable grace or curative period on any other credit facility
available to Borrower which exceeds $100,000, then same shall constitute a
default by Borrower under this Agreement.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
Lender may exercise any one or more of the following remedies:
(a) ACCELERATION. Demand payment in full of all principal of and
accrued interest on the Note and/or any and all of Borrower's other
indebtedness to Lender, whereupon all indebtedness of Borrower to Lender
shall become immediately due and payable in full without any presentment,
demand or notice of any kind, all of which are hereby expressly waived by the
Borrower.
(b) ADVANCES; TERMINATION OF AGREEMENT. Refuse to make any
further Advances, and at Lender's sole discretion terminate this Agreement.
(c) JUDGMENT. Reduce any claim to judgment.
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(d) OFFSETS. If any state of facts or with the lapse of time or
the giving of notice, or both, would constitute an Event of Default, shall
occur or begin to exist, Lender shall have the right then, or at any time
thereafter, unless remedied to the reasonable satisfaction of Lender, to set
off against, and to appropriate and apply toward the payment of, first the
Note and then any other indebtedness then owed by Borrower to Lender, whether
or not such indebtedness shall have been matured or be due and payable and
whether or not Lender has declared the note evidencing such other
indebtedness in default, any and all deposit balances and other sums and
indebtedness then held or owed by Lender to or for the credit or account of
Borrower (other than balances in trust accounts, escrow accounts, and other
accounts not beneficially owned by Borrower), all without notice to or demand
upon Borrower or any other person, all such notices and demands being hereby
expressly waived.
(e) RIGHTS UNDER NOTE AND THIS AGREEMENT. Exercise all rights and
remedies granted Lender under any and all of the instruments now or hereafter
evidencing and securing the Credit Facility, including but not limited to the
Note and this Agreement.
(f) FORECLOSURE. Exercise all those rights and remedies allowed
to secured parties by all applicable laws, including without limitation
foreclosure of the liens of the Mortgages.
(g) POSSESSION. Enter upon the premises of Borrower and take
immediate possession of the Collateral, with or without legal process, either
personally or by means of a receiver appointed by a court of competent
jurisdiction.
(h) COLLECTION OF ACCOUNTS. Collect and receive all accounts,
rents, income, revenue, earnings, issues and profits from the Collateral.
(i) EXERCISE OF RIGHTS. Exercise, as Lender shall deem
appropriate, any and all other rights afforded by any applicable laws or by
this Agreement and the other Loan Documents, at law, in equity, or otherwise,
including, but not limited to, the rights to bring suits or other proceedings
before any tribunal or competent jurisdiction, either for specific
performance of any covenant or condition contained in the Loan Documents or
in aid of the exercise of any right granted to Lender under this Agreement.
(j) PERFORMANCE BY LENDER. Should Borrower fail to observe or
perform any covenant, duty or promise by it to be observed or performed under
the terms of this Agreement or the other Loan Documents, Lender may, but
shall not be obligated to, perform or attempt to perform, such covenant, duty
or promise on behalf of Borrower, and, in the event Lender shall do so,
Borrower shall immediately upon demand reimburse Lender for all expenses,
disbursements, fees and costs reasonably incurred by Lender in connection
therewith, with interest thereon at the rate specified in the Note. Lender
does not assume and shall never have, except by its express written consent,
any liability or responsibility for the performance of any covenant, duty or
promise of Borrower under this Agreement, the Mortgages or the Assignments.
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7.3 RIGHTS CUMULATIVE. The rights and remedies of Lender hereunder, in
the Note, and in the other Loan Documents are cumulative, may be exercised in
such sequence or combination as Lender may elect, and are not exclusive of
any rights or remedies otherwise provided by law.
ARTICLE VIII
MISCELLANEOUS
8.1 INTERPRETATION. No course of dealing in respect of, nor any
omission or delay in the exercise of, any right, power, or privilege by
Lender shall operate as a waiver thereof. Each right, power or privilege may
be exercised by Lender as often and in such order as Lender may deem
expedient. No waiver or consent granted by Lender in respect to this Agreement
or any related writing shall be binding upon Lender unless specifically
granted in writing, which right shall be strictly construed. Time shall be of
the essence in the performance of all Borrower's obligations under this
Agreement and the other Loan Documents. Borrower may not assign any of
Borrower's rights under this Agreement, and any such attempted assignment
shall be wholly null and void.
8.2 NOTICES. All notices and other communications hereunder or under
the other Loan Documents shall be in writing and shall be mailed by first
class mail or express mail, postage prepaid, or sent by telex, telegram or
other similar form of rapid transmission confirmed by mailing (by first class
or express mail, postage prepaid) written confirmation at substantially the
same time as such rapid transmission, or personally delivered to an officer
of the receiving party. All such communications shall be mailed, sent or
delivered to the parties hereto at their respective addresses as follows:
If to Borrower: TUMBLEWEED, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attention: James M. Mulrooney
With a copy to its counsel: Roth and Cooper, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222
Attention: David H. Cooper
If to Lender: NATIONAL CITY BANK OF KENTUCKY
8th Floor, National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
Attention: Rob King
Any communication so addressed and mailed shall be deemed to be given
when so mailed, except that notices and requests related to Advances shall
not be effective until
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actually received by Lender or Borrower, as the case may be; and any notice
so sent by rapid transmission shall be deemed to be given when receipt of
such transmission is acknowledged, and any communication so delivered in
person shall be deemed to be given when receipted for by, or actually
received by, an authorized officer of Borrower or Lender, as the case may be.
8.3 GOVERNING LAW. The laws of the Commonwealth of Kentucky shall
govern the construction of this Agreement and the rights, remedies and duties
of the parties hereto.
8.4 SECTION TITLES. The section titles of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
8.5 SEVERABILITY. The invalidity or unenforceability of any one (1) or
more phrases, sentences, clauses or paragraphs of this Agreement shall not
affect the validity or enforceability of the remaining portions of this
Agreement or of any part hereof.
8.6 INTEGRATION. The Loan Documents contain the entire agreement
between the parties relating to the Credit Facility. The Loan Documents
supersede any and all prior agreements and any and all contemporaneous oral
agreements between Lender and Borrower relative to the Credit Facility.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind each of Borrower
and Lender and their respective successors and assigns, and shall inure to
the benefit of Lender and Borrower and their respective successors and
assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day, month and year first above written.
BORROWER:
TUMBLEWEED, LLC
(a Kentucky limited liability company)
/s/ Joseph R. Gathright, Jr. By: /s/ James Mulrooney
- ---------------------------- -------------------------------
Witness its Manager
LENDER:
NATIONAL CITY BANK OF KENTUCKY
(a national banking association)
/s/ Joseph R. Gathright, Jr. By: /s/ Rob King
- --------------------------- -------------------------------
Witness its senior vice president
17
<PAGE>
EXHIBIT A
COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered to National City Bank of
Kentucky (the "Lender") pursuant to Section 5.2(d) of the loan agreement
dated as of August 8, 1996 between Tumbleweed, LLC (the "Borrower") and the
Lender (the "Loan Agreement"). All capitalized terms used herein not defined
herein shall have the meaning ascribed thereto in the Loan Agreement.
The Borrower hereby represents, warrants and certifies to the Lender the
following, as of the last day of the most recently ended fiscal quarter for
the Borrower:
A. Borrower's minimum tangible net worth as of the last day of the most
recently ended fiscal quarter was $__________________.
B. The ratio of Borrower's Cash Flow Available for Debt Service to the
current portion of long-term debt and interest in respect of the four (4)
immediately preceding fiscal quarters ending as of the last day of the most
recently ended fiscal quarter was __________________.
C. The ratio of Borrower's total liabilities to its tangible net worth
as of the last day of the most recently ended fiscal quarter was
__________________.
Borrower's manager executing and delivering this Compliance Certificate
on behalf of Borrower further certifies to the Lender that the manager has
reviewed the Loan Agreement and the Note and has no knowledge of any event or
condition which constitutes an Event of Default under the Loan Agreement
other than -- (if any Event of Default has occurred, describe same, the
period of existence of such default and what action the Borrower has taken or
proposes to take with respect thereto).
IN WITNESS WHEREOF, the Borrower has executed this Compliance
Certificate this ___ day of _____________, 199_.
TUMBLEWEED, LLC
By: _______________________________
its manager
<PAGE>
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (the "Agreement") made and entered into as
of June 30, 1997 by and between TUMBLEWEED, LLC, a Kentucky limited liability
company (hereafter "Mortgagor"), and NATIONAL CITY BANK OF KENTUCKY, a
national banking association with offices at 101 S. Fifth Street in
Louisville, Jefferson County, Kentucky 40202 (hereafter "Mortgagee");
WITNESSETH:
Mortgagor and Mortgagee recite and agree as follows, which recitations
and agreements constitute a part of this Agreement:
A. Mortgagor and Mortgagee have entered into a loan agreement dated as
of August 8, 1996 (the "Loan Agreement") pursuant to which Mortgagee agreed
to make available to Mortgagor, and Mortgagor agreed to accept, a revolving
line of credit facility in a principal amount not to exceed $5,000,000
outstanding at any time (the "Loan").
B. Mortgagor's obligation to repay the Loan is evidenced by
Mortgagor's revolving line of credit note payable to the order of Mortgagee
dated August 8, 1996 in a principal amount not to exceed $5,000,000
outstanding at any time (the "Note"), the Loan and the Note originally being
due and payable not later than December 31, 1999.
C. Payment of the Loan and the Note was and is secured by the
following, both relative to real property owned by Mortgagor located in
Jefferson County, Kentucky and both being dated as of August 8, 1996: first
mortgage from Mortgagor to Mortgagee recorded at Mortgage Book 4146, Page 330
in the Jefferson County Clerk's office; assignment of leases and rents
between Mortgagor and Mortgagee, recorded at Deed Book 6772, Page 517 in said
Clerk's office. (Said mortgage and said assignment of leases and rents are
hereinafter referred to as the "Jefferson County Collateral Documents").
D. Payment of the Loan and the Note was and is additionally secured by
the following, both relative to real property owned by Mortgagor located in
Boone County, Kentucky and both being dated as of August 8, 1996: first
mortgage from Mortgagor to Mortgagee, recorded at Mortgage Book 1228, Page
143 in the Boone County Clerk's office; assignment of leases and rents
between Mortgagor and Mortgagee, recorded at Deed Book 566, Page 9 in said
Clerk's office. (The aforesaid mortgage and assignment of leases and rents
are hereinafter referred to as the "Boone County Collateral Documents").
E. The Loan Agreement, the Note, the Jefferson County Collateral
Documents, the Boone County Collateral Documents and related instruments and
agreements are sometimes hereinafter collectively referred to as the "Loan
Documents."
<PAGE>
F. Mortgagor and Mortgagee have agreed upon an extension of the final
maturity of the Loan and the Note and have agreed to amend certain other
terms and provisions governing repayment thereof, as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the covenants and promises
of the parties hereto, the receipt and sufficiency of which are acknowledged
by Mortgagor and Mortgagee, the parties covenant and agree as follows:
1. Mortgagor represents and warrants that Mortgagor was and is the
owner and holder of the real estate encumbered by the Jefferson County
Collateral Documents and by the Boone County Collateral Documents, and hereby
acknowledges that there are no defenses or offsets to the Loan or the Loan
Documents evidencing, securing and otherwise relating to the Loan.
2. Mortgagor represents and warrants to Mortgagee that the Mortgagor
is not in default on the Loan or under the Loan Documents, nor does any
circumstance exist that with the giving of notice, the passage of time or
both would constitute such a default.
3. Mortgagor hereby ratifies and reaffirms its liability for payment
of the Loan and its obligation to pay and perform all sums and obligations
owing the Mortgagee under the Loan Agreement, the Note and the other Loan
Documents.
4. The final maturity date of the Loan and the Note is hereby extended
to December 31, 2000, and the Loan Documents shall be and hereby are modified
to reflect a maturity date of December 31, 2000.
5. Effective July 10, 1997 interest shall accrue on the principal
advanced and outstanding on the Loan and the Note at an annual rate equal to
one-quarter of one percent (1/4%) above the Mortgagee's prime rate of
interest (as "prime rate" is defined in and calculated under the Note) rather
than at one-half of one percent (1/2%) above said prime rate, and the Note
shall be and hereby is modified accordingly. Mortgagor will continue to make
principal payments on the Loan and Note at the times and in the amount
specified in the Note.
6. For and in consideration of the aforesaid extension of maturity and
adjustment of interest rate, the Mortgagor agrees to continue to pay the
principal of and interest on the Loan and the Note as specified in the Note
as amended hereby, and to otherwise continue to comply with all provisions of
the Loan Documents.
7. THE TOTAL PRINCIPAL AMOUNT EVIDENCED BY THE NOTE AND SECURED BY THE
JEFFERSON COUNTY COLLATERAL DOCUMENTS AND BY THE BOONE COUNTY COLLATERAL
DOCUMENTS IS A PRINCIPAL AMOUNT NOT TO EXCEED FIVE MILLION AND NO/100 DOLLARS
($5,000,000) OUTSTANDING AT ANY TIME. THE FINAL PAYMENT OF INTEREST ON THE
LOAN AND NOTE, TOGETHER WITH ALL PRINCIPAL OF THE LOAN AND NOTE NOT
THERETOFORE PAID, ARE DUE MORTGAGEE FROM MORTGAGOR NOT LATER THAN DECEMBER
31, 2000.
2
<PAGE>
8. To the extent the terms and provisions of this Agreement conflict
with the terms and provisions of the Loan Documents, the terms and provisions
of this Agreement shall govern. As so modified, all the Loan Documents are
ratified and readopted by Mortgagor and by Mortgagee in all respects.
9. This Agreement shall be binding upon and shall inure to the benefit
of the respective successors, representatives and assigns of the parties
hereto. In the event of the invalidity or unenforceability of any portion of
this Agreement, such invalidity or unenforceability shall not affect the
validity or enforceability of the remaining portions of this Agreement.
10. This Agreement shall be governed by and shall be interpreted in
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, this Agreement has been executed in multiple
original counterparts (each of which shall constitute one and the same
document) by the parties by their respective duly authorized representatives
as of the day, month and year hereinbefore written.
MORTGAGOR:
TUMBLEWEED, LLC
(A Kentucky limited liability company)
By: /s/ James Mulrooney
---------------------------------
its manager
MORTGAGEE:
NATIONAL CITY BANK OF KENTUCKY
(a national banking association)
By: /s/ Rob King
---------------------------------
its senior vice president
3
<PAGE>
STATE OF KENTUCKY )
)SS
COUNTY OF JEFFERSON )
I, a Notary Public in and for the State and County aforesaid, do hereby
certify that on this date _________________, duly authorized manager of
TUMBLEWEED, LLC, appeared before me and before me acknowledged that he
executed and delivered the foregoing instrument as his free and voluntary act
and deed, and as the free and voluntary act and deed of TUMBLEWEED, LLC, a
Kentucky limited liability company.
Witness my hand this _____ day of ___________, 1997.
My Commission Expires: ___________________________________
_______________________________
NOTARY PUBLIC
KENTUCKY STATE AT LARGE
STATE OF KENTUCKY )
)SS
COUNTY OF JEFFERSON )
I, a Notary Public in and for the State and County aforesaid, do hereby
certify that on this date Rob King, duly authorized officer of NATIONAL CITY
BANK OF KENTUCKY, appeared before me and before me acknowledged that he
executed and delivered the foregoing instrument as his free and voluntary act
and deed, and as the free and voluntary act and deed of NATIONAL CITY BANK OF
KENTUCKY, a Kentucky banking association.
Witness my hand this 27th day of June, 1997.
Notary Public, State at Large, KY
My Commission Expires: My commission expires Aug. 5th, 1998
/s/ Gloria R. Cecil
_______________________________
NOTARY PUBLIC
KENTUCKY STATE AT LARGE
4
<PAGE>
THIS INSTRUMENT PREPARED BY:
JOSEPH R. GATHRIGHT, JR.
EVANS, GATHRIGHT, HARDY & WILLOCK
Suite 1450, Citizens Plaza
500 W. Jefferson Street
Louisville, Kentucky 40202
/s/ Joseph R. Gathright, Jr.
- ----------------------------
Attorney at Law
5
<PAGE>
NATIONAL CITY NATIONAL CITY BANK, KENTUCKY
BANK P.O. Box 36000
Louisville, KY 40233-6000
502 581-4200
June 27, 1997
Mr. James M. Mulrooney
Executive Vice President & CFO
Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
Re: $5,000,000 REVOLVING LINE OF CREDIT
FACILITY (THE "LOAN") FROM NATIONAL
CITY BANK OF KENTUCKY (THE "BANK")
TO TUMBLEWEED, LLC (THE "BORROWER")
Dear Jim:
The loan agreement between the Borrower and the Bank dated as of August
8, 1996 (the "Loan Agreement") and the Note executed pursuant to the Loan
Agreement provide that on June 30, 1997 and upon the expiration of each Loan
Year thereafter the Credit Facility will be reduced by $360,000, the
availability to be $4,640,000 during the second loan year, $4,280,000 during
the third loan year, and $3,920,000 during the Partial Loan Year.
(Capitalized terms used in this letter not otherwise defined shall have the
meaning given them in the Loan Agreement).
In accordance with the Borrower's request the Bank hereby agrees to
waive the reduction of the Credit Facility scheduled to occur on June 30,
1997. Accordingly, the maximum availability on the Loan will be $5,000,000
during the second Loan Year, $4,640,000 during the third Loan Year,
$4,280,000 for the fourth Loan Year, and $3,920,000 for the Partial Loan
Year. (The foregoing contemplates that Borrower and Bank will enter into a
modification agreement extending the Termination Date from December 31, 1999
to December 31, 2000 and that the Partial Loan Year will commence after the
end of the fourth Loan Year).
It is mutually understood by the Bank and by the Borrower that the Bank's
waiver set forth in this letter is strictly limited to the terms hereof, and
does not constitute a waiver of scheduled reduction of the Credit Facility or
any other term or provision of the Loan Documents.
<PAGE>
Tumbleweed, LLC
Letter
Page 2
June 27, 1997
Bank and Borrower mutually acknowledge that, to the extent the
provisions of this letter are inconsistent with the Bank's commitment letter
to the Borrower dated June 13, 1996, with paragraph 2.1 of the Loan Agreement
and with the first full paragraph on page 2 of the Note, the provisions of
this letter will govern. Borrower and Bank further mutually acknowledge and
agree that, except as amended by this letter and as modified by a
modification agreement between the parties of even date herewith, all other
terms and provisions of the Loan and the Loan Documents shall remain the same.
Should you have any questions regarding this letter, do not hesitate to
contact me. Please sign in the space provided below and return to me,
thereby acknowledging and agreeing to the terms and conditions of this letter
on behalf of the Borrower.
Yours truly,
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Rob King
--------------------------------
Rob King
Senior Vice President
Receipt of the foregoing is hereby acknowledged and the terms and
provisions thereof accepted.
TUMBLEWEED, LLC
By: /s/ James P. Mulrooney
--------------------------------
James P. Mulrooney
Executive Vice President & CFO
Date: June 27, 1997
<PAGE>
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (the "Agreement") made and entered into as
of June 30, 1997 by and between TUMBLEWEED, LLC, a Kentucky limited liability
company (hereafter "Mortgagor"), and NATIONAL CITY BANK OF KENTUCKY, a
national banking association with offices at 101 S. Fifth Street in
Louisville, Jefferson County, Kentucky 40202 (hereafter "Mortgagee");
WITNESSETH:
Mortgagor and Mortgagee recite and agree as follows, which recitations
and agreements constitute a part of this Agreement:
A. Mortgagor and Mortgagee have entered into a loan agreement dated as
of August 8, 1996 (the "Loan Agreement") pursuant to which Mortgagee agreed
to make available to Mortgagor, and Mortgagor agreed to accept, a revolving
line of credit facility in a principal amount not to exceed $5,000,000
outstanding at any time (the "Loan").
B. Mortgagor's obligation to repay the Loan is evidenced by Mortgagor's
revolving line of credit note payable to the order of Mortgagee dated August
8, 1996 in a principal amount not to exceed $5,000,000 outstanding at any
time (the "Note"), the Loan and the Note originally being due and payable not
later than December 31, 1999.
C. Payment of the Loan and the Note was and is secured by the
following, both relative to real property owned by Mortgagor located in
Jefferson County, Kentucky and both being dated as of August 8, 1996: first
mortgage from Mortgagor to Mortgagee recorded at Mortgage Book 4146, Page 330
in the Jefferson County Clerk's office; assignment of leases and rents
between Mortgagor and Mortgagee, recorded at Deed Book 6772, Page 517 in said
Clerk's office. (Said mortgage and said assignment of leases and rents are
hereinafter referred to as the "Jefferson County Collateral Documents").
D. Payment of the Loan and the Note was and is additionally secured by
the following, both relative to real property owned by Mortgagor located in
Boone County, Kentucky and both being dated as of August 8, 1996: first
mortgage from Mortgagor to Mortgagee, recorded at Mortgage Book 1228, Page 143
in the Boone County Clerk's office; assignment of leases and rents between
Mortgagor and Mortgagee, recorded at Deed Book 566, Page 9 in said Clerk's
office. (The aforesaid mortgage and assignment of leases and rents are
hereinafter referred to as the "Boone County Collateral Documents").
E. The Loan Agreement, the Note, the Jefferson County Collateral
Documents, the Boone County Collateral Documents and related instruments and
agreements are sometimes hereinafter collectively referred to as the "Loan
Documents."
<PAGE>
F. Mortgagor and Mortgagee have agreed upon an extension of the final
maturity of the Loan and the Note and have agreed to amend certain other
terms and provisions governing repayment thereof, as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the covenants and promises
of the parties hereto, the receipt and sufficiency of which are acknowledged
by Mortgagor and Mortgagee, the parties covenant and agree as follows:
1. Mortgagor represents and warrants that Mortgagor was and is the
owner and holder of the real estate encumbered by the Jefferson County
Collateral Documents and by the Boone County Collateral Documents, and hereby
acknowledges that there are no defenses or offsets to the Loan or the Loan
Documents evidencing, securing and otherwise relating to the Loan.
2. Mortgagor represents and warrants to Mortgagee that the Mortgagor is
not in default on the Loan or under the Loan Documents, nor does any
circumstance exist that with the giving of notice, the passage of time or both
would constitute such a default.
3. Mortgagor hereby ratifies and reaffirms its liability for payment
of the Loan and its obligation to pay and perform all sums and obligations
owing the Mortgagee under the Loan Agreement, the Note and the other Loan
Documents.
4. The final maturity date of the Loan and the Note is hereby extended
to December 31, 2000, and the Loan Documents shall be and hereby are modified
to reflect a maturity date of December 31, 2000.
5. Effective July 10, 1997 interest shall accrue on the principal
advanced and outstanding on the Loan and the Note at an annual rate equal to
one-quarter of one percent (1/4%) above the Mortgagee's prime rate of
interest (as "prime rate" is defined in and calculated under the Note) rather
than at one-half of one percent (1/2%) above said prime rate, and the Note
shall be and hereby is modified accordingly. Mortgagor will continue to make
principal payments on the Loan and Note at the times and in the amount
specified in the Note.
6. For and in consideration of the aforesaid extension of maturity and
adjustment of interest rate, the Mortgagor agrees to continue to pay the
principal of and interest on the Loan and the Note as specified in the Note
as amended hereby, and to otherwise continue to comply with all provisions of
the Loan Documents.
7. THE TOTAL PRINCIPAL AMOUNT EVIDENCED BY THE NOTE AND SECURED BY THE
JEFFERSON COUNTY COLLATERAL DOCUMENTS AND BY THE BOONE COUNTY COLLATERAL
DOCUMENTS IS A PRINCIPAL AMOUNT NOT TO EXCEED FIVE MILLION AND NO/100 DOLLARS
($5,000,000) OUTSTANDING AT ANY TIME. THE FINAL PAYMENT OF INTEREST ON THE
LOAN AND NOTE, TOGETHER WITH ALL PRINCIPAL OF THE LOAN AND NOTE NOT
THERETOFORE PAID, ARE DUE MORTGAGEE FROM MORTGAGOR NOT LATER THAN DECEMBER
31, 2000.
2
<PAGE>
8. To the extent the terms and provisions of this Agreement conflict
with the terms and provisions of the Loan Documents, the terms and provisions
of this Agreement shall govern. As so modified, all the Loan Documents are
ratified and readopted by Mortgagor and by Mortgagee in all respects.
9. This Agreement shall be binding upon and shall inure to the
benefit of the respective successors, representatives and assigns of the
parties hereto. In the event of the invalidity or unenforceability of any
portion of this Agreement, such invalidity or unenforceability shall not
affect the validity or enforceability of the remaining portions of this
Agreement.
10. This Agreement shall be governed by and shall be interpreted in
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, this Agreement has been executed in multiple
original counterparts (each of which shall constitute one and the same
document) by the parties by their respective duly authorized representatives
as of the day, month and year hereinbefore written.
MORTGAGOR:
TUMBLEWEED, LLC
(A Kentucky limited liability company)
By: /s/ James Mulrooney
--------------------------
its manager
MORTGAGEE:
NATIONAL CITY BANK OF KENTUCKY
(a national banking association)
By: /s/ Rob King
--------------------------
its senior vice president
3
<PAGE>
STATE OF KENTUCKY )
)SS
COUNTY OF JEFFERSON )
I, a Notary Public in and for the State and County aforesaid, do hereby
certify that on this date _______________________, duly authorized manager of
TUMBLEWEED, LLC, appeared before me and before me acknowledged that he
executed and delivered the foregoing instrument as his free and voluntary act
and deed, and as the free and voluntary act and deed of TUMBLEWEED, LLC, a
Kentucky limited liability company.
Witness my hand this ____ day of ____________, 1997.
My Commission Expires: _____________________________
_______________________________________
NOTARY PUBLIC
KENTUCKY STATE AT LARGE
STATE OF KENTUCKY )
)SS
COUNTY OF JEFFERSON )
I, a Notary Public in and for the State and County aforesaid, do hereby
certify that on this date Rob King, duly authorized manager of NATIONAL CITY
BANK OF KENTUCKY, appeared before me and before me acknowledged that he
executed and delivered the foregoing instrument as his free and voluntary act
and deed, and as the free and voluntary act and deed of NATIONAL CITY BANK OF
KENTUCKY, a national banking association.
Witness my hand this 27th day of June, 1997.
My Commission Expires: Notary Public, State at Large, KY
My commission expires Aug. 5th, 1998
------------------------------------
/s/ Gloria R. Cecil
-----------------------------
NOTARY PUBLIC
KENTUCKY STATE AT LARGE
4
<PAGE>
MASTER INTERNATIONAL LICENSE AGREEMENT
This is a Master International License Agreement ("Agreement") dated as
of August 29, 1997, between TUMBLEWEED, LLC, a Kentucky limited liability
company (the "LICENSOR") and TUMBLEWEED INTERNATIONAL LLC, a Kentucky limited
liability company (the "LICENSEE").
RECITALS
A. LICENSOR is engaged in the restaurant and restaurant franchising
business and is the owner of the TUMBLEWEED-Registered Trademark- System
which is the LICENSOR's total business system, as it now exists or may be
changed by the LICENSOR, that LICENSOR has developed or LICENSOR may develop
for the operation of Tumbleweed Restaurants and includes: (a) the Trade names
"Southwest Mesquite Grill & Bar" and "Tumbleweed Mexican Food & Mesquite
Grill"; (b) the LICENSOR's confidential operations manual; (c) a sales
reporting system; (d) certain menus, products and secret recipes; (e) the
Tumbleweed Marks (as defined below); (f) LICENSOR's trade secrets and
know-how for the operation of Tumbleweed Restaurants; (g) a distinctive
exterior sign design and arrangement; and (h) a standardized, uniform
restaurant service, identified with the word "Tumbleweed" providing
distinctive Mexican, Tex-Mex and American Southwest-style food,
mesquite-flavored food and other foods, using certain standards,
specifications, methods, techniques, procedures, and management systems, all
in accordance with fair and ethical policies and practices, high standards of
efficiency, courtesy, and cleanliness, and of a distinctive nature and high
quality (collectively, the "TUMBLEWEED SYSTEM").
B. The TUMBLEWEED SYSTEM is identified by the trade name Tumbleweed,
and the marks Tumbleweed and Tumbleweed Mexican Food, both of which are used
together with a distinctive circular design that features either a depiction
of (1) a cactus plant, sun and mountain range, or (2) saloon with a
desert/sun background design, and other distinctive service marks and
trademarks that LICENSOR may own and that LICENSOR may identify in writing as
a Tumbleweed mark for use only as LICENSOR may prescribe, in a full service
and food court Tumbleweed Restaurants (collectively, the "TUMBLEWEED MARKS")
C. LICENSOR desires to promote, primarily through the grant of
sublicenses or franchises, the use of the TUMBLEWEED SYSTEM and TUMBLEWEED
MARKS in international restaurants and retail trade and operations (exclusive
of the Western Hemisphere) and has the right to use the TUMBLEWEED SYSTEM and
TUMBLEWEED MARKS in said restaurant and retail trade and operation. For
purposes of this Agreement: (i) "Western Hemisphere" is defined to mean the
half of the earth that includes all of North and South America, the
surrounding waters, and all neighboring islands, and (ii) "International
Territory" is defined to mean the earth, excluding the Western Hemisphere.
<PAGE>
D. LICENSEE has or will develop the expertise and structure necessary
to promote, develop and support the sublicensing/franchising of the
TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in the international markets
(exclusive of the Western Hemisphere); and
E. LICENSOR is willing to grant an exclusive license to LICENSEE to
use the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS under the terms and conditions
provided herein.
THE PARTIES AGREE AS FOLLOWS:
1. EXCLUSIVE RIGHTS.
(a) LICENSOR hereby grants LICENSEE the exclusive right and
license to use the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS in the
International Territory, in connection with restaurant and bar/lounge
services and in connection with the retail or wholesale sale of food products
(including alcoholic and nonalcoholic beverages) and for any other lawful
purpose. This grant specifically includes the right to grant sublicenses or
franchises for the use of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS within
the licensed area and LICENSOR acknowledges that LICENSEE intends to enter
into such sublicenses or franchises. This grant is exclusive to LICENSEE,
and LICENSOR shall not, during the term of this Agreement, in the
International Territory (i) use or license, or attempt to use or license, the
TUMBLEWEED MARKS, directly or indirectly, (ii) hold interests in a full
service or food court restaurant (as opposed to delivery service) that offers
as its primary food-products Mexican, Tex-Mex, American Southwest-style or
mesquite-flavored food restaurant business, or (iii) hold interests in a
business or enterprise that as its primary food-product manufactures or sells
Mexican, Tex-Mex, American Southwest-style or mesquite-flavored food products
at retail.
(b) LICENSEE shall have the exclusive right to utilize, develop,
sublicense or franchise the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS by itself
or with any person, firm, or entity in all or any part of the International
Territory on terms negotiated by LICENSEE.
(c) LICENSEE agrees and acknowledges that LICENSOR is the sole
owner of the TUMBLEWEED MARKS for the uses intended by LICENSEE as set forth
in this Agreement and for all other uses, and that this Agreement shall not
create in LICENSEE, nor shall this Agreement be construed as assigning to
LICENSEE, any ownership interest or legal title in or to any of the
TUMBLEWEED MARKS. All goodwill associated with the TUMBLEWEED MARKS arising
from LICENSEE'S use of the TUMBLEWEED MARKS shall inure solely to the benefit
of LICENSOR and not to that of LICENSEE. LICENSEE shall not take any action
that would have the effect of contesting or challenging the validity of
LICENSOR'S ownership of, or legal title in or to, any of the TUMBLEWEED MARKS
or any registration of the TUMBLEWEED MARKS.
-2-
<PAGE>
(d) Notwithstanding anything in this Agreement to the contrary,
LICENSEE shall not sell any of the Tumbleweed Products through delivery
services substantially similar to the Tumbleweed Delivery Business. Each of
the capitalized terms in this Section 1(d) shall have the meanings given to
them in the License and Distribution Agreement between LICENSOR and TM
Riders, LLC f/k/a Tex-Mex to You, LLC ("TM Riders, LLC").
2. DISCLOSURE AND USE OF TRADE SECRETS.
(a) LICENSOR will disclose to LICENSEE its TUMBLEWEED SYSTEM upon
execution of this Agreement and from time to time as modifications are made
to existing TUMBLEWEED SYSTEM as new information is developed or obtained.
LICENSEE shall have the exclusive right and license during the term of this
Agreement to use LICENSOR'S TUMBLEWEED SYSTEM for the purpose of utilizing,
developing, promoting, sublicensing or franchising the license rights covered
by this Agreement.
(b) LICENSEE agrees that all disclosures and communications of
TUMBLEWEED SYSTEM made by LICENSOR to LICENSEE, and not available to the
general public or otherwise available to LICENSEE through means not involving
a breach of obligations of confidentiality, shall be kept confidential and
LICENSEE shall not disclose any information to any persons or entities,
except as provided below.
(c) Notwithstanding any provision or inference to the contrary,
LICENSEE may disclose and communicate the TUMBLEWEED SYSTEM to its employees
and sublicensees or franchisees, their respective legal and financial
advisors, employees, agents, representatives and banks, but only to such
extent as shall be necessary to the proper operation of LICENSEE'S business,
or the business of such sublicensees and franchisees related thereto.
LICENSEE agrees to cause each such persons or entities to undertake to keep
the TUMBLEWEED SYSTEM confidential.
3. TERM OF LICENSE. This Agreement shall exist for a term of
twenty-five (25) years, and thereafter shall be renewable for successive five
(5) year terms at the option of LICENSEE by giving LICENSOR written notice of
such intent on the part of LICENSEE on or before six (6) months prior to the
expiration of the then current term; provided, however, if LICENSEE elects to
extend the term of this Agreement beyond the initial term hereof, the
territory to be included in this Agreement subsequent to the initial term
shall only be (1) those countries which LICENSOR then approves in writing,
and (2) those countries which LICENSEE has utilized, or licensed or
franchised, rights to the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS prior to the
expiration of the initial term hereof.
4. LICENSE FEE.
(a) LICENSEE will pay to LICENSOR a license fee for the exclusive
license rights granted hereunder equal to the greater of (i) One Hundred
Dollars ($100.00) per year, or (ii) an amount equal to 15% of any initial
license or territory fee and continuing royalty fee received by LICENSEE in
connection with the sublicense or franchise of license rights to utilize
-3-
<PAGE>
the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS; provided, that any sublicense or
franchise granted by LICENSEE shall provide for a minimum initial license or
territory fee of Twenty-Five Thousand Dollars ($25,000.00) times the number
of Tumbleweed Restaurants to be initially developed in the sublicense or
franchise territory (as determined by LICENSEE) and for a minimum continuing
royalty of three percent (3%) of gross receipts by the sublicensee or
franchisee from the sale of licensed or franchised services or products
(subject to deductions normally permitted by LICENSOR to be excluded by its
franchisees in the calculation of gross receipts subject to continuing
royalty). Any other fees or payments of whatsoever kind or character charged
or collected by LICENSEE on account of license rights granted hereunder shall
be for the exclusive account of LICENSEE and LICENSOR shall not share or
participate in such fees or payments, provided, however, if any restaurant
opening or franchise fee or similar fee charged by LICENSEE exceeds Fifty
Thousand Dollars ($50,000.00) per restaurant (excluding LICENSOR'S share of
the profits if it owns an interest in the restaurant), the excess shall, for
purposes of this Agreement only, be deemed to be initial license fees. Any
brokerage (excluding real estate or similar brokerage fees) fees paid by
LICENSEE to an unrelated third party in connection with a transaction that
results in the payment of an initial license or territory fee to LICENSEE
shall be offset against the amount of the license or territory fee for
purposes of determining LICENSOR'S share of such fee pursuant to this Section
4(a).
(b) The fee payable to LICENSOR with respect to initial license or
territory fees received by LICENSEE shall be paid to LICENSOR within thirty
(30) days of receipt of such initial license, territory or similar fee by
LICENSEE. The fee in respect of continuing royalty fees received by LICENSEE
shall be paid no later than thirty (30) days after receipt of the continuing
royalty fee by LICENSEE, or, in respect of any direct use of license rights
by LICENSEE, no later than thirty (30) days after the close of each fiscal
quarter of LICENSEE during the term hereof in respect of sales of licensed
services or products for that fiscal quarter (computed in the same manner and
at the same rate as if LICENSEE were a sublicensee of the LICENSEE). All
payments of fees hereunder shall be accompanied by a written statement
showing the amount of sales and license fee received or accrued during the
period in respect of which such fee is paid. Each such statement shall be
certified as correct and accurate by LICENSEE. Within thirty (30) days after
the close of each fiscal year of LICENSEE, LICENSEE shall send a written
statement showing the total of gross receipts subject to continuing royalty
and the sales of licensed products during that fiscal year and the amount of
the license fees received during such year.
(c) LICENSOR shall have the right, upon reasonable notice, to
audit the books and records of LICENSEE to determine license fees and
royalties received by LICENSEE, provided LICENSOR may not exercise such audit
right more frequently than twice during any twelve (12) month period.
(d) In the event that governmental laws or regulations in a
particular country prevent or restrict LICENSEE from collecting from a
sublicensee or franchisee or repatriating from a particular country initial
license, franchise, territory or royalty fees as contemplated herein, then
LICENSOR and LICENSEE will negotiate in good faith a satisfactory alternate
fee arrangement hereunder prior to completion of the sublicense or franchise
in such country.
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(e) If LICENSEE pays LICENSOR pursuant to Section 4(a) of this
Agreement an aggregate of $300,000.00 or more in license fees during any 12
month period commencing as of the date of this Agreement, or any 12 month
period commencing as of an anniversary date of this Agreement (in each case,
a "Contract Year"), then the 15% license fee percentage set forth in Section
4(a) shall be reduced by 2% per year for the next five succeeding Contract
Years (i.e., a reduction of the license fee from 15% to 5% over the next five
succeeding Contract Years); provided, however, that the minimum license fee
payable by LICENSEE to LICENSOR during any Contract Year commencing after the
Contract Year triggering the license fee percentage reduction pursuant to
this Section 4(e) shall be $300,000.00.
(f) Notwithstanding anything in this Section 4 to the contrary, if
LICENSEE has converted any existing restaurants of LICENSEE to Tumbleweed
Restaurants, then LICENSEE shall be entitled to a credit against any fees due
pursuant to this Section 4 until LICENSEE has fully recovered the agreed-upon
cost of conversion. LICENSEE shall be entitled to a credit with respect to
the conversion of a particular restaurant equal to the actual cost of such
conversion, upon providing LICENSOR with satisfactory documentation of such
expenditures. Notwithstanding the previous sentence, the credit with respect
to the conversion of a restaurant shall not exceed $60,000.00, unless
LICENSEE obtains advance approval from LICENSOR of any expenditures in excess
of such amount, which approval shall not be unreasonably withheld.
5. DEVELOPMENT SCHEDULE.
(a) LICENSEE shall construct and open, or convert from another
restaurant concept, or cause to be constructed and opened, or converted from
another concept, whether through sublicensees, franchisees or otherwise, a
minimum of four (4)Tumbleweed Restaurants per Contract Year starting with the
Contract Year commencing during calendar year 1998.
(b) In the event that during any Contract Year LICENSEE or its
sublicensees or franchisees construct and open or convert from another
concept more than four (4) Tumbleweed Restaurants, then LICENSEE'S
development obligation for subsequent Contract Years (starting with the very
next Contract Year) shall be reduced by such number.
(c) In the event LICENSEE defaults in the performance of its
development obligations set forth in this Section 5 during any Contract Year,
and LICENSEE or a sublicensee or franchisee of LICENSEE does not, within six
(6) months following the end of such Contract Year have open or under
construction, or in the process of conversion from another restaurant
concept, such number of Tumbleweed Restaurants as would, if opened, satisfy
LICENSEE'S development obligations for the then-Contract Year and all
preceding Contract Years on a cumulative basis, then LICENSOR, as its sole
and exclusive remedy, may terminate this Agreement as a result of such
default unless LICENSEE notifies LICENSOR that it desires to continue this
Agreement and agrees to pay, and thereafter does pay LICENSOR as liquidated
damages, and as LICENSOR'S sole and exclusive remedy for such default, an
amount equal to the license fee from continuing royalties LICENSOR would have
received had LICENSEE satisfied its development obligations hereunder, and in
such event this Agreement shall not be
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terminated as a result of such default. For purposes of this Section 5, the
license fee from continuing royalties will be payable as if (i) the license
fee charged was 15 percent (15%); (ii) the restaurant or restaurants had
opened on the last day of the six (6) month period referred to above; and
(iii) the weekly gross revenues of each restaurant were equal to 1/52nd of
the trailing 12 month per store average for all Tumbleweed Restaurants opened
pursuant to this Agreement which as of the date of computation have been
opened for at least 12 months; provided, however, that if there are less than
six Tumbleweed Restaurants opened pursuant to this Agreement as of the date
of computation, then all Tumbleweed Restaurants, including those located in
the Western Hemisphere, shall be used in making the computation.
(d) In the event LICENSEE does not elect to pay, or having elected
to pay, LICENSEE fails to pay, the liquidated damages as set forth in Section
5(c) to continue this Agreement and LICENSOR terminates this Agreement, this
Agreement shall, in any event, continue in full force and effect in respect
of (i) any territory sublicensed or franchised by LICENSEE provided such
sublicensee or franchisee is not then in default of its development
obligation and (ii) a territory defined as a six (6) mile radius of any
Tumbleweed Restaurant then opened or under construction or conversion by
LICENSEE or any sublicensee or franchisee of LICENSEE in any other territory.
6. TRADEMARK REGISTRATION. In any country where the TUMBLEWEED MARKS
are not registered (or the registration may be subject to expiration or
cancellation) and LICENSEE has a definitive agreement to exploit the license
rights in such country, or in good faith believes it will have such agreement
within 12 months, LICENSEE may request LICENSOR to make necessary application
to register the TUMBLEWEED MARKS in such country. LICENSEE shall bear costs
of such registration or continuation for all marks for any particular
country. LICENSOR, at LICENSEE's expense, shall make such filings and take
such other actions reasonably necessary to keep effective and continue any
existing international trademark or service mark registration of the
TUMBLEWEED MARKS.
7. DEFENSE OF MARK AND INFRINGEMENTS. LICENSEE shall notify LICENSOR
promptly of any written allegation or claim that the use by LICENSEE or
LICENSOR of any TUMBLEWEED SYSTEM OR TUMBLEWEED MARKS infringes upon the
rights of any other person or entity. Except as provided in this Section 7,
LICENSOR shall have absolute control of any claim or litigation involving
allegations of infringement of any trademark, service mark, trade name or
copyright by third parties. If LICENSEE learns of any use by any third party
of a trade name or trademark or service mark or copyright the same as or
confusingly similar to any TUMBLEWEED MARK, LICENSEE shall promptly notify
LICENSOR, and, if requested by LICENSOR, shall join with LICENSOR, at
LICENSOR'S expense, in such action as LICENSOR, in its sole discretion, may
deem advisable for the protection of LICENSEE'S rights. Except as provided
in this Section 7, LICENSEE shall not take any action with respect to any
TUMBLEWEED MARK which is substantially adversarial in nature and not
otherwise explicitly permitted under this Agreement without the LICENSOR'S
express prior written approval, provided, if after notice from LICENSEE,
LICENSOR does not promptly commence a defense of the TUMBLEWEED MARKS or an
action to contest any confusingly similar use then LICENSEE may commence such
action as its legal advisors indicate is necessary or desirable to
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protect the license rights acquired by LICENSEE hereunder. LICENSOR shall
defend the TUMBLEWEED MARKS and agrees to pay for the cost of defending the
TUMBLEWEED MARKS; provided, however, that LICENSOR'S obligation to pay such
cost in any Contract Year shall be limited to an amount equal to the
aggregate licensee fees received by LICENSOR from LICENSEE during the
Contract Year from Tumbleweed Restaurants located in the country in which
such controversy arose. If LICENSOR has reached its required limit with
respect to defending the TUMBLEWEED MARKS in a given country as contemplated
in the preceding sentence, then LICENSOR shall have the option of withdrawing
from the defense of such action, unless LICENSEE agrees to pay for the cost
of continuing the defense of the TUMBLEWEED MARKS in such country during such
Contract Year.
8. SUPERVISION AND QUALITY CONTROL. LICENSEE and its sublicensees and
franchisees shall provide services and produce and distribute products
pursuant to the license rights granted hereunder of high quality in
accordance with all applicable laws and regulations. The exploitation by
LICENSEE of the TUMBLEWEED SYSTEM and TUMBLEWEED MARKS shall be of a high
standard that shall not reflect in any material adverse manner upon the good
name of LICENSOR or the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS. The quality
of any products bearing the TUMBLEWEED MARKS shall be subject to approval by
LICENSOR prior to distribution or sale. LICENSOR shall not withhold such
approval unless LICENSOR determines in good faith that the sale of such
product would have a material adverse effect on the TUMBLEWEED SYSTEM or
TUMBLEWEED MARKS or the operation of Tumbleweed Restaurants by LICENSOR or
its franchisees in the Western Hemisphere. Any product sample submitted to
LICENSOR by LICENSEE shall be deemed approved unless disapproved by LICENSOR
in writing specifying the reason for such disapproval within twenty-one (21)
days following receipt thereof. Any substantial changes in any product
previously approved by LICENSOR shall be submitted to LICENSOR for its
approval in accordance with this Section 8.
9. IMPROVEMENTS BY LICENSEE. If LICENSEE or any of its sublicensees
or franchisees or the employees, agents or independent contractors of any of
them make, develop or invent improvements to the TUMBLEWEED SYSTEM and/or
products or services sold pursuant to this Agreement, LICENSEE shall grant to
LICENSOR and shall use its reasonable best efforts to cause its sublicensees,
franchisees, employees, agents or independent contractors to grant to
LICENSOR a limited, non-exclusive, royalty-free license in the Western
Hemisphere to use such improvements in its or any of its subsidiary, parent
or affiliate's restaurant and restaurant franchising businesses.
10. ADDITIONAL AGREEMENTS OF LICENSOR. LICENSOR agrees that, at all
times during the term of this Agreement, it shall upon request of LICENSEE:
(a) provide to LICENSEE a copy of any of its architectural plans
and specifications for the prototype Tumbleweed Restaurant and will provide
to LICENSEE upon request any materially updated or changed plans and
specifications for the prototype Tumbleweed Restaurant, in each case free of
cost to LICENSEE;
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(b) furnish LICENSEE with a copy of its operations and training
manuals and recipes and all updates and revisions thereto and furnish to
LICENSEE a set of such manuals concurrently with the opening of each
Tumbleweed Restaurant by any sublicensee or franchisee of LICENSEE, free of
cost to LICENSEE;
(c) permit LICENSEE and its sublicensees or franchisees, at
LICENSEE'S cost, to utilize LICENSOR'S in-store management training programs
in the United States, free of any fees charged by LICENSOR for training, but
otherwise at LICENSEE'S expense;
(d) furnish LICENSEE with menus and marketing materials as
requested by LICENSEE upon payment of the cost thereof plus twenty percent
(20%);
(e) furnish LICENSEE with all training materials at LICENSOR's
reproduction cost;
(f) provide, in the International Territory, at LICENSEE'S
reasonable request and at LICENSEE'S cost (including direct expenses of
salary, fringe benefits and travel), LICENSOR's training personnel;
(g) provide support services to LICENSEE, and at such cost to
LICENSOR and/or LICENSEE, as may be mutually agreed upon from time to time;
and
(h) use reasonable best efforts to cause all product suppliers to
LICENSEE to include labeling information provided by LICENSEE, to the extent
that such supplies are obtained through LICENSOR or through a contract
negotiated by LICENSOR.
11. ADDITIONAL AGREEMENTS OF LICENSEE. LICENSEE agrees that, at all
times during the term of this Agreement, it shall:
(a) insure that all food or other products served or sold by
LICENSEE hereunder or pursuant to sublicensees or franchisees granted by
LICENSEE is of high quality and substantially conforms to the ingredients,
portions, presentation, method of service, quality, coloring, flavoring,
formula, packaging and other characteristics specified by LICENSOR, subject
to such changes as may be reasonably be made by LICENSEE or its sublicensee
or franchisee to satisfy local demographics, cultural or market conditions;
(b) maintain or cause to be maintained, in each Tumbleweed
Restaurant operated by it or pursuant to sublicense or franchise from
LICENSEE, the equipment and all of the property located in such restaurant in
a first-class condition and repair and shall keep the same clean, neat, well
lit and sanitary, all in substantial compliance with written standards
prescribed from time to time by LICENSOR. LICENSEE agrees to promptly effect
all maintenance, repairs and replacements needed in connection with
maintaining each Tumbleweed Restaurant in a good condition and appearance;
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(c) substantially comply with all applicable laws, ordinances,
regulations, rules and other requirements of all applicable governmental
authorities in connection with licensed activities of LICENSEE or its
sublicensees or franchisees;
(d) permit LICENSOR at any and all reasonable times without prior
notification to enter and inspect each restaurant or other place of business
operated by LICENSEE or any sublicensee or franchisee of LICENSEE utilizing
the TUMBLEWEED SYSTEM or TUMBLEWEED MARKS and to (i) test and evaluate any
and all equipment, food products, food ingredients, beverages and supplies
and other products, if any, located therein and (ii) evaluate, interview and
meet with any and all employees and agents of LICENSEE or any such
sublicensee or franchisee, in order to assure itself that the provisions of
this Agreement are being observed and complied with. If LICENSOR finds that
any food, ingredients, supplies or other products do not substantially meet
current standards of LICENSOR after giving effect to reasonable local
demographic, cultural or market conditions, same shall immediately be
removed, even if such removal results in the disposal of products held in its
inventory; and
(e) exploit the license rights granted hereunder in good faith in
a manner reasonably determined to promote the maximum license fee payments to
LICENSOR, consistent with sound business and financial considerations of
LICENSEE. LICENSEE agrees to take such measures as are commercially prudent
to insure that any sublicensee or franchisee of it make timely payments of
license and franchise fees due LICENSEE.
12. TERMINATION.
(a) This Agreement shall be subject to termination by either party
upon a material default by the other party in the performance of any material
term, condition or covenant of this Agreement, and failure to remedy such
default within thirty (30) days after notice or demand by the other party.
If the default cannot reasonably be remedied within said thirty (30) day
period, this Agreement shall not be subject to termination as long as the
defaulting party is diligently and in good faith remedying the default.
(b) This Agreement may be terminated by LICENSOR, if after notice
by LICENSOR to LICENSEE, LICENSEE fails to remedy such default within thirty
(30) days after notice, if (i) any person or entity makes any transfer of
this Agreement or an equity interest in LICENSEE not permitted by Section 15,
or (ii) LICENSEE, its equity owners, or members of their immediate families
violate the restrictions of Section 14.
(c) This Agreement may be terminated by LICENSOR, effective upon
delivery of notice of termination to LICENSEE, if LICENSEE shall (1) have an
order of relief entered in any proceeding filed by it as the debtor under the
federal bankruptcy laws (as in effect on the date of this Agreement or as
they may be amended from time to time); (2) become insolvent in that its
total assets are in the aggregate worth less than all of its liabilities; (3)
make a general assignment for the benefit of creditors; (4) file a petition,
or admit (by answer, default or otherwise) the material allegations of any
petition filed against it as the debtor, in bankruptcy under the federal or
similar international bankruptcy or insolvency laws (as in effect on the date
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of this Agreement or as they may be amended from time to time), or under any
other law for the relief of debtors, or for the discharge, arrangement or
compromise of its debts; (5) consent to the appointment of a receiver,
conservator, trustee or liquidator of all or part (if greater than $50,000 in
value) of its assets; (6) if a petition shall have been filed against
LICENSEE in proceedings under the federal bankruptcy laws (as in effect on
the date of this Agreement, or as they may be amended from time to time), or
under any other laws for the relief of debtors, or for the discharge,
arrangement or compromise of its debts, or an order shall be entered by any
court of competent jurisdiction appointing a receiver, conservator, trustee
or liquidator of all or part of LICENSEE'S assets, and such petition or order
is not dismissed or stayed within sixty (60) consecutive days after entry
thereof; or (7) if LICENSEE becomes insolvent in the sense that LICENSEE is
unable to pay its bill as they become due.
13. ARBITRATION AND RELATED MATTERS. All disputes and differences
which may arise out of or in connection with this Agreement will be settled
as far as possible by means of negotiations between the parties hereto. All
such dispute and differences which are not settled by common accord are to be
resolved only by submission to ad hoc arbitration held in Louisville,
Kentucky (or in such other place as may be agreed upon by the parties hereto)
in conformity with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce (the "ICC") or any successor thereto and
with the following provisions:
(a) The arbitration tribunal shall consist of three impartial
arbitrators fluent in the English language appointed as follows: each party
shall appoint one arbitrator as provided below, and these two arbitrators
shall appoint one additional arbitrator who shall select the chairman of the
arbitration tribunal. Should the two arbitrators appointed by the parties
not agree upon the persons of the one additional arbitrator within thirty
(30) days from their nomination, the additional arbitrator shall be appointed
by the Court of Arbitration in accordance with the aforesaid Arbitration
Rules;
(b) The party desiring to submit a dispute to arbitration shall
notify this fact to the other party, mentioning the name and address of the
arbitrator appointed by it and other matters required by the ICC's
Arbitration Rules. The party who receives such notification is obligated to
appoint an arbitrator within fifteen (15) days from receipt of the aforesaid
notification; otherwise, such arbitrator will be appointed on request of the
claimant party by the Court of Arbitration;
(c) In the event of arbitration, the parties retain the right to
cross-examine an opposing party's witnesses, either through legal counsel,
expert witnesses or both. The proceedings of said arbitration shall be
conducted in English;
(d) The procedural and substantive law which shall govern the
arbitration is the law of the State of Delaware, exclusive of that forum's
law of conflict of laws.
(e) The decision of the arbitrators shall be final and binding
upon the parties and non-appealable, absent fraud in the arbitration. The
arbitrators' award shall state the reasons
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for their decision and determine how the costs of the arbitration are to be
divided among the parties; and
(f) The parties hereto submit to the jurisdiction of any forum for
purposes of enforcement of the arbitration award, which shall be enforceable
in any court of competent jurisdiction.
14. EXCLUSIVE RELATIONSHIP.
(a) LICENSEE acknowledges and agrees that LICENSOR would be unable
to protect the TUMBLEWEED SYSTEM against unauthorized use or disclosure and
would be unable to encourage free exchange of ideas and information among
Tumbleweed Restaurants if developers, franchisees and their equity owners
(and members of their immediate families) were permitted to engage in, hold
interests in or perform services for a business or enterprise other than a
Tumbleweed Restaurant, that (i) offers as its primary food-products Mexican,
Tex-Mex, American Southwest-style food or mesquite-flavored food for consumer
consumption through on-premises or carry-out dining, delivery service,
catering service or other distribution channel, or (ii) grants or has granted
franchises or licenses or establishes or has established joint ventures, for
the development and/or operation of an enterprise or business described in
the foregoing clause (i) (collectively, a "Competitive Business"). LICENSEE
further acknowledges and agrees that the restrictions contained in this
Section 14 will not hinder its activities or the activities of its equity
owners under this Agreement or in general. Except as provided below,
LICENSOR has entered into this Agreement with LICENSEE on the express
condition that, with respect to the development and operation of businesses
that offer as their primary food-products Mexican, Tex-Mex,
American-Southwest style food or mesquite-flavored food for consumer
consumption through on-premises and carry-out dining, delivery service,
catering service or other distribution channel or a business that grants or
has granted franchises or licenses or establishes or has established joint
ventures for the development or operation of such businesses, LICENSEE and
its equity owners and members of their respective immediate families will
deal exclusively with LICENSOR. Except for holding a passive equity interest
in an entity whose sole activity consists of owning or operating Texas
Roadhouse restaurants, LICENSEE agrees that, during the term of this
Agreement, neither LICENSEE, Terrance A. Smith ("Terry Smith"), any equity
owner of LICENSEE who participates in the day-to-day active executive
management of LICENSEE, nor any member of the immediate family of Terry Smith
or of an equity owner of LICENSEE who participates in the day-to-day active
executive management of LICENSEE (collectively, the "LICENSEE Affiliates"),
shall, directly or indirectly:
(1) own, manage, operate or control, directly or indirectly,
any Competitive Business, except that LICENSEE Affiliates may hold an
interest as a legal or beneficial owner in a Competitive Business so long as
such LICENSEE Affiliate does not violate the restrictions of paragraph
14(a)(2) with respect to such Competitive Business;
(2) perform services as a director, officer, manager,
employee, consultant, representative, agent, or otherwise for any Competitive
Business, except that a LICENSEE Affiliate may perform services for a
Competitive Business if such services, in the
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aggregate, do not require more than 30% of such LICENSEE Affiliate's business
time and attention (assuming a 40 hour business workweek) and do not
otherwise interfere with the performance of LICENSEE'S obligations under this
Agreement; or
(3) employ or seek to employ any person who is employed by
LICENSOR its affiliates or by any other developer or franchisee of Tumbleweed
Restaurants, nor induce nor attempt to induce any such person to leave said
employment without prior written consent of such person's employer.
(b) The restrictions of this Section 14 shall not be construed to
prohibit LICENSEE, any equity owner of LICENSEE, or any member of the
immediate family of an equity owners of LICENSEE, from having a direct or
indirect ownership interest in any Tumbleweed Restaurant, development
agreement or franchise agreement for the development or operation of any
Tumbleweed Restaurant, or from providing services to any such Tumbleweed
Restaurant pursuant to other agreements with LICENSOR, or from owning any
direct or indirect ownership interest in TM Riders, LLC.
(c) The restrictions in this Section 14 shall not be construed to
prohibit or restrict (i) any party to a development, license or franchise
agreement with Chi-Chi's International Operations, Inc., where such agreement
is in existence as of the date of this Agreement, from continuing to operate
as a developer or franchisee under the terms of such agreement, unless such
party has converted all of his restaurants to Tumbleweed Restaurants, or (ii)
LICENSEE and its employees from continuing to manage, advise and perform
services for any Chi-Chi's Restaurant falling within the scope of clause (i)
of this Section 14(c) (and LICENSOR shall not be entitled to any portion or
share of the fees, royalties and other payments with respect to such
Chi-Chi's Restaurants). The restrictions in this Section 14 shall also not
be construed to prohibit or restrict Terry Smith's ownership of an equity
interest in an entity that has the right to own, operate or develop Chi-Chi's
restaurants in the United Kingdom, so long as the activities are pursuant to
the terms of an agreement between the entity and Chi-Chi's (UK) Ltd.
existing as of the date of this Agreement.
15. TRANSFER.
(a) LICENSOR shall have a first right of refusal and option to
purchase ("first right and option") in accordance with the provisions of this
Section 15 in the event that (i) LICENSEE intends to sell, assign or
otherwise transfer or dispose of any of its rights and interest under this
Agreement, (ii) LICENSEE intends to issue any equity interests or rights to
acquire equity interests of LICENSEE, or (iii) any equity holder of LICENSEE
intends to sell, pledge, transfer, assign or in any other way whatsoever
encumber or dispose of any equity interests or rights to acquire equity
interests of LICENSEE. Any transaction described in this Section 15 is
hereinafter referred to as a "Transfer" or collectively referred to as
"Transfers", as the context may require; provided, however, that the
provisions of this Section 15 shall not apply to (1) an assignment of capital
stock as collateral to commercial or institutional lender for the purpose of
securing financing to develop or exploit the rights granted hereunder, but
shall be applicable with respect to any transfer by such commercial or
institutional lender, (2) an assignment of an
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equity interest to any company controlled by Terry Smith, but shall be
applicable with respect to any transfer by any company controlled by Terry
Smith, (3) a sublicense and franchise of rights hereunder otherwise made or
in accordance with the terms hereof. It is expressly understood and agreed
that LICENSOR'S first right and option as provided for herein shall be
applicable with respect to each and every successive transfer and, except
with respect to a specific intended transfer as to which LICENSOR fails to
exercise such first right and option, shall not be deemed waived by
LICENSOR'S failure to exercise, (4) the sale of any ownership interests in
LICENSEE to any of the persons listed on Exhibit A attached hereto (which may
be amended by mutual agreement of LICENSOR and LICENSEE, which agreement
shall not be unreasonably withheld), or (5) the sale of not more than 49% of
the ownership interests in LICENSEE, so long as Terry Smith and/or those
persons listed on Exhibit A continue to own at least 51% of the ownership
interests in LICENSEE in the aggregate and no ownership interests are held by
persons who own, operate or control a Competitive Business.
(b) LICENSEE shall give, or shall cause to be given to LICENSOR
not less than fourteen (14) days' prior written notice of any intended
Transfer. The notice of intended Transfer shall set forth the name of the
proposed transferee and a detailed statement of the material terms and
conditions of such intended transfer. LICENSOR shall have the first right
and option to purchase the interest proposed to be transferred on the terms
and conditions of such intended Transfer as so stated. If LICENSOR shall
elect to exercise its first right and option, it shall notify LICENSEE within
ten (10) days following LICENSOR's actual receipt of the notice of intended
Transfer and shall complete the purchase of the interest intended to be
transferred upon the terms outlined in the notice of intended Transfer within
forty-five (45) days of receipt of such notice.
(c) In the event that all or any portion of the consideration
offered by the intended transferee shall be in equity or debt securities of
any other entity, LICENSOR shall have the right either (1) to agree to pay
cash in any amount equivalent to the market value of the securities of such
entity or (2) to agree to tender equity or debt securities of LICENSOR or
LICENSOR's parent having a market value equivalent to the market value of the
securities of such entity, as agreed to in good faith by LICENSOR and
LICENSEE, or determined by binding arbitration if agreement cannot be
reached, in either of which cases LICENSOR shall be deemed to have matched
such offer.
(d) If LICENSOR fails to exercise its first right and option in
accordance with this Section 15, the intended transfer may be consummated on
substantially the terms and conditions specified in the notice of intended
Transfer; provided, however, the intended transfer shall not be consummated
unless the intended transferee executes a written consent to be bound by the
provisions of this Section 15 as to future Transfers, which consent LICENSEE
shall deliver, or shall cause to be delivered, to LICENSOR prior to
consummation of the intended Transfer.
(e) If Terry Smith should cease to serve full-time as
President/CEO of LICENSEE, then LICENSEE shall replace Terry Smith in those
positions with an individual or individuals approved by LICENSOR, which
approval shall not be unreasonably withheld.
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16. MISCELLANEOUS PROVISIONS.
(a) LICENSOR and LICENSEE agree that LICENSEE is and shall remain
an independent contractor with respect to LICENSOR, and this Agreement does
not in any way create the relationship of joint venture, partnership or
principal and agent between LICENSOR and LICENSEE. LICENSEE shall not act or
represent itself, directly or by implication, as agent for LICENSOR or in any
manner assume or create or attempt to assume or create any obligation on
behalf of or in the name of LICENSOR.
(b) All payments of territory fees or initial license fees to be
made hereunder are due to LICENSOR in U.S. dollar currency. LICENSOR must
cooperate in and shall be responsible for any approvals needed for the
exchange transaction. All other payments to be made hereunder shall be made
in the currency where the Tumbleweed Restaurant in respect to which such fee
is generated. Payments shall be made by air mail addressed to LICENSOR, by
wire transfer to LICENSOR'S account or as otherwise reasonably directed by
LICENSOR.
(c) This Agreement embodies the entire agreement of the parties
with respect to the subject matter hereof, and there exists no
representations, inducements, promises or agreements, oral or otherwise,
between the parties not contained herein. No amendment or modification of
this Agreement shall be made except by a written instrument duly executed by
LICENSOR and LICENSEE.
(d) No failure by either party to exercise any right given to it
hereunder, or to insist upon strict compliance by the other party with any
obligation, agreement or undertaking hereunder, and no custom or practice of
the parties at variance with the terms hereof shall constitute a waiver of a
party's rights to demand full and exact compliance by the other party with
the terms hereof. Waiver by either party of any particular default by the
other party shall not affect or impair the party's rights with respect to any
subsequent default of the same or of a different nature, nor shall any delay
or omission of either party to exercise any rights arising from such default
affect or impair such party's rights as to such default or any subsequent
default.
(e) If any covenant or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by reason of any statute,
rule of law, administrative order, judicial decision or public policy, all
other conditions and provisions of this Agreement shall, nevertheless, remain
in full force and effect, and no covenant or provision hereof shall be deemed
dependent upon any other covenant or provision. This Agreement shall be
construed to give each term hereof the fullest possible legal effect.
(f) If any one or more of the provisions of this Agreement shall
for any reason be held to be excessively broad as to time, duration,
geographical scope, activity, or subject, each such provision shall be
construed, by limiting and reducing it, so as to be enforceable to the extent
compatible with applicable law then in force.
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<PAGE>
(g) All notices and other communications hereunder shall be in
writing and, except as otherwise provided herein, stall be deemed given when
personally delivered or when sent by registered or certified mail, or
internationally recognized overnight carrier, return receipt requested,
postage prepaid, addressed as follows (or to such other person cr at such
other address as to which any party hereof shall have given the other written
notice):
If to LICENSOR:
Tumbleweed, LLC
1900 Mellwood Ave.
Louisville, Kentucky 40206
Attn: Manager
Fax: (502) 893-6676
with a copy to:
David M. Roth
Roth Foley Bryant & Cooper
1230 Liberty Bank Lane
Suite 200
Louisville, Kentucky 40222-5763
Fax: (502) 425-1295
If to LICENSEE:
Tumbleweed International, LLC
Steenweg op Brussel 541
Box 2
3090 Overijse
Fax: 011-322-6570247
Attn: Terrance A. Smith
with a copy to:
Michael M. Fleishman
Greenbaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Fax: (502) 587-3695
(h) The captions and headings used in the sections and subsections
hereunder are used for convenience of reference only, and shall be ignored in
interpreting, defining or construing the provisions of this Agreement.
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<PAGE>
(i) LICENSEE AND ITS EQUITY OWNERS AGREE THAT ALL JUDICIAL ACTIONS
BROUGHT BY LICENSOR AGAINST LICENSEE OR ITS EQUITY OWNERS OR BY LICENSEE OR
ITS EQUITY OWNERS AGAINST LICENSOR OR ITS SUBSIDIARIES, AFFILIATES,
SHAREHOLDERS, OFFICERS, DIRECTORS, MANAGERS, AGENTS OR EMPLOYEES MUST BE
BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN JEFFERSON COUNTY, KENTUCKY
OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY AND LICENSEE
(AND EACH OWNER) IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND
WAIVE ANY OBJECTION LICENSEE, OR EQUITY OWNER MAY HAVE TO EITHER THE
JURISDICTION OF OR VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING,
LICENSOR MAY BRING AN ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR
PRELIMINARY INJUNCTION, OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR
STATE COURT OF GENERAL JURISDICTION IN THE STATE OR JURISDICTION IN WHICH
LICENSEE RESIDES OR IN WHICH THE DEVELOPMENT AREA IS LOCATED.
(j) LICENSOR AND LICENSEE IRREVOCABLY WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER OF THEM.
(k) This Agreement and all the terms hereof shall be binding
upon, and shall inure to the benefit of, LICENSEE, LICENSOR and their
respective successors and permitted assigns.
(l) For the purposes of this Agreement "Force Majeure" shall mean
any event constituting an "Act of God" which is beyond the reasonable control
of LICENSOR, LICENSEE or any sublicensee or franchisee of LICENSEE (and for
this purpose, without prejudice to the generality of the foregoing, any
strike, lock-out or other form of industrial action, whether or not involving
such party's own work force, shall be taken to be outside that reasonable
control) and prevents total or partial carrying out of any of its obligations
hereunder. If either party is affected by Force Majeure, it shall promptly
notify the other party and furnish evidence of the occurrence and duration of
the same. Any contractual obligation of any party, the performance of which
is prevented in whole or in part by Force Majeure, shall be suspended during
the period in which the Force Majeure continues, and any period for
performance of that obligation shall be extended accordingly.
(m) LICENSEE agrees during the term hereof to maintain in effect
in connection with its business comprehensive general liability insurance of
not less than Two Million U.S. Dollars ($2,000,000.00) per accident or
occurrence from bodily injury and One Hundred Thousand U.S. Dollars
($100,000.00) per accident or occurrence for property damage, which insurance
shall specifically cover the liability assumed by LICENSEE under Section
16(n). Such insurance policy shall name LICENSOR as an additional insured as
its interest may appear and shall provide that it cannot be canceled without
at least ten (10) days prior written
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<PAGE>
notice to the LICENSOR. Within thirty (30) days of the date of the
Agreement, LICENSEE will deliver to LICENSOR certificates of insurance
showing that all required insurance is in effect.
(n) As between LICENSOR and LICENSEE, LICENSEE shall be solely
responsible for all losses, damages and contractual liabilities to third
persons arising out of or in connection with the activities of LICENSEE and
of licensees and franchisees of LICENSEE pursuant to this Agreement, and for
all claims or demands for damages to property, or for injury, illness or
death of persons directly or indirectly resulting therefrom; and LICENSEE
shall defend, indemnify and hold harmless LICENSOR and its members, agents,
attorneys and affiliates from all such claims, demands, losses, obligations,
costs, attorney's fees, expenses, liabilities, debts or damages directly or
indirectly resulting therefrom, unless resulting from the gross negligence or
willful misconduct of LICENSOR. If such claims are asserted against LICENSOR
or its affiliates, LICENSOR shall notify LICENSEE, and LICENSEE may assume
the defense of such claims and LICENSOR shall reasonably cooperate with
LICENSEE with respect thereto. If LICENSEE fails to assume the defense, then
LICENSOR may defend in such manner as it deems appropriate. In the event
LICENSEE fails to provide such defense and LICENSOR undertakes such defense,
then LICENSEE shall reimburse LICENSOR for all costs, including attorney's
fees, incurred by LICENSOR or its affiliates in effecting such defense, in
addition to any sum which LICENSOR or its affiliates may incur by reason of
any settlement or judgment. LICENSOR's right to indemnification hereunder
shall exist notwithstanding that joint or concurrent liability may be imposed
on LICENSOR by law.
(o) LICENSEE shall defend, indemnify and hold harmless LICENSOR
and its agents, affiliates, members, and attorneys harmless from and against
all claims, demands, losses, obligations, costs, attorney's fees, expenses,
liabilities, debts or damages directly or indirectly arising out of or with
respect to any claim by Chi-Chi's, Inc. against LICENSOR relating to the
subject matter of this Agreement or the relationship established between
LICENSOR and LICENSEE established by this Agreement.
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<PAGE>
(p) In the event of a breach or threatened breach by either party
of any of the provisions of this Agreement, the other party shall be entitled
to obtain a temporary restraining order and temporary and permanent
injunctive relief without the necessity of proving actual damages by reason
of such breach or threatened breach, and to the extent permissible under the
applicable statutes and rules of procedure, a temporary injunction or
restraining order may be granted immediately upon the commencement of any
such suit and without notice.
(q) Each of the parties acknowledges that the other party has
spent and will continue to spend a great deal of time, money and effort to
recruit, hire and train qualified personnel. Accordingly, during the term of
this Agreement and for a period of one year thereafter, without the prior
written consent of the other party, neither LICENSOR nor LICENSEE shall,
directly or indirectly, alone or with others, solicit, attempt to solicit or
otherwise induce or attempt to induce to leave the employ (or other service
relationship) of such other party, or employ or obtain the services of in any
capacity, any of the employees or independent contractors providing services
to such party (collectively, "Personnel"), or any such Personnel for a period
of one year after they cease to be an employee or provide services as an
independent contractor to such other party.
IN WITNESS WHEREOF, the parties hereto have executed this Master
International License Agreement on the day, month and year first above
written.
TUMBLEWEED, LLC
By: /s/ John A. Butorac, Jr.
----------------------------------------
John A. Butorac, Jr., as Manager
and By: /s/ James M. Mulrooney
------------------------------------
James M. Mulrooney, as Manager
("LICENSOR")
TUMBLEWEED INTERNATIONAL
LLC
By: /s/ [illegible]
----------------------------------------
Title: President
("LICENSEE")
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of June 23, 1998, by and between
TUMBLEWEED INC., a Delaware corporation (the "Company"), and JOHN A. BUTORAC,
JR. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Tumbleweed, LLC, a Kentucky
limited liability company (the "LLC") pursuant to a Management Agreement dated
September 19, 1994 between the LLC and the Executive, as amended effective
January 1, 1998 (as so amended, the "Management Agreement");
WHEREAS, immediately following the proposed merger of LLC into the Company
(the "Merger"), the Company desires to induce the Executive to terminate the
Management Agreement and be employed by the Company for the period provided in
this Agreement in accordance with the terms and conditions set forth below; and
WHEREAS, the Executive is willing to terminate the Management Agreement and
be employed by the Company immediately following the Merger on a full-time basis
in accordance with the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows effective as of the effective date of Merger (the "Effective Date"):
1. EMPLOYMENT.
(a) The Company hereby employs the Executive as President and Chief
Executive Officer of the Company, and the Executive hereby accepts such
employment with the Company, for the period set forth in Section 2 hereof, all
upon the terms and conditions hereinafter set forth.
(b) The Company and the Executive acknowledge and agree that the
Management Agreement is hereby terminated and that neither party shall have any
further obligations to the other thereunder except for obligations arising prior
to the date hereof.
(c) The Executive affirms and represents that he is under no
obligation to any former employer or other party which is in any way
inconsistent with, or which imposes any restriction upon, the Executive's
acceptance of employment hereunder with the Company, the employment of the
Executive by the Company, or the Executive's undertakings under this Agreement.
2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter
provided, the term
<PAGE>
of the Executive's employment under this Agreement shall be for a period
beginning on the Effective Date (the "Employment Date") and ending five years
after the Employment Date (such period referred to as the "Initial Term").
Unless earlier terminated as hereinafter provided, the term of the
Executive's employment under this Agreement shall be automatically extended
on a year-to-year basis (such one-year periods referred to as "Additional
Terms") upon the expiration of the Initial Term or any Additional Term,
unless prior to the commencement of a 90-day period expiring at the end of
such Initial Term or any Additional Term, either the Company or the Executive
provide notice in writing to the other that the term of this Agreement shall
not be extended. For purposes of this Agreement, the term "Employment Term"
shall mean the Initial Term plus all Additional Terms.
3. DUTIES. The Executive shall be employed as President and Chief
Executive Officer of the Company and shall faithfully and competently perform
such employment duties and responsibilities as the Board of Directors of the
Company may from time to time prescribe. The Executive shall have primary
responsibility over the following Company matters: operations, marketing,
training, franchising, purchasing and the commissary and shall share
responsibility with the Executive Vice President and Chief Financial Officer of
the Company with respect to all other Company matters except financial, banking,
accounting, legal and construction. The Executive shall report directly to the
Board of Directors with respect to all matters as to which the Executive has
primary or shared responsibility. The Executive shall perform his duties at
such places and times as the Board of Directors of the Company may reasonably
prescribe. Except during vacation periods and reasonable periods of absence due
to sickness, personal injury or other disability, the Executive shall devote his
full time throughout the Employment Term to the services required of him
hereunder; provided, however that the Executive shall be permitted to invest his
personal assets and manage his personal investment portfolio in such a form and
manner as will not require any business services on his part to be provided to
any third party or conflict with the provisions of Sections 7, 8 or 10 hereof.
The Executive shall render his services exclusively to the Company during the
Employment Term. The Executive agrees to perform his duties hereunder to the
best of his ability and at a level of competency consistent with the position
occupied, to act on all matters in a manner he reasonably believes to be in and
not opposed to the best interests of the Company, and to use his best efforts,
skill and ability to promote the profitable growth of the Company. The
Executive and the Company agree that the Executive shall perform his duties
primarily at the Company's principal corporate office and that he shall travel
as necessary to perform his duties.
4. COMPENSATION.
(a) BASE SALARY. As compensation for the performance by the
Executive of the services to be performed by the Executive hereunder during the
Employment Term, the Company shall pay the Executive a base salary ("Base
Salary") which shall initially be at the annual rate of Two Hundred Thousand
Dollars ($200,000.00). Effective January 1 of each year of the Employment Term,
the Base Salary shall increase by the percentage increase in the Consumer Price
Index (All Cities 1984 = 100) from January 1 of the previous year. The Board of
Directors shall review the Base Salary annually to determine if any further
increase in Base Salary is merited. Any Base Salary payable hereunder shall be
paid in regular intervals in
<PAGE>
accordance with the Company's payroll practices.
(b) BONUSES. The Executive shall be eligible to receive bonuses in
accordance with bonus plans ("Bonus Plans") approved by the Board of Directors
of the Company from time to time.
(c) WITHHOLDING, ETC. The payment of any Base Salary and bonuses
hereunder shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required under the Company's employee benefit plans.
(d) EQUITY OPTIONS. As such time as the Board of Directors of the
Company deems it appropriate, the Executive shall be granted options to purchase
equity securities of the Company.
5. BENEFITS. During the Employment Term, the Executive shall:
(a) be eligible to participate in all employee fringe benefits
(including, without limitation, life insurance, health, disability and dental
plans) and any pension and/or profit sharing plans that may be provided by the
Company for its key executive employees in accordance with the provisions of any
such plans, as the same may be in effect on and after the Effective Date,
excluding equity or bonus plans except the bonuses provided for in Section 4(b)
hereof and any other bonus specifically granted by the Board of Directors of the
Company to the Executive;
(b) be entitled to four weeks of paid vacation;
(c) be entitled to a car allowance in the amount of $500.00 per
month, plus mileage reimbursement based upon the Company's policies applicable
thereto; and
(d) be entitled to reimbursement for all reasonable and necessary
itemized out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder in accordance with the Company's policies
applicable thereto (excluding any category of expenses described in any other
provision of this Section 5).
6. TERMINATION.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) termination of the Executive's employment hereunder by the
Executive at any time for any reason whatsoever (including, without limitation,
resignation or retirement);
(iii) termination of the Executive's employment hereunder by the
<PAGE>
Company because of the Executive's inability to perform his duties on account of
disability or incapacity for a period of 90 or more consecutive days;
(iv) termination of the Executive's employment hereunder by the
Company at any time "for cause" (as defined below), such termination to take
effect immediately upon written notice from the Company to the Executive; and
(v) termination of the Executive's employment hereunder by the
Company at any time, other than termination by reason of disability or
incapacity as contemplated by clause (iii) above or termination by the Company
"for cause" as contemplated by clause (iv) above.
The following actions, failures or events by or affecting the Executive
shall constitute "cause" for termination within the meaning of clause (iv)
above: (1) conviction of having committed a felony, (2) acts of dishonesty or
moral turpitude that are materially detrimental to the Company and/or its
Affiliates (as defined in Section 14 hereof), (3) failure by the Executive to
obey the reasonable and lawful directions of the Board of Directors of the
Company, if written notice is given to the Executive of such failure (which
notice shall set forth in reasonable detail the nature thereof) and the
Executive fails to obey such directions within 20 days of receipt of such notice
to the reasonable satisfaction of the Board of Directors, (4) the Executive's
willful breach of any material agreement or covenant of this Agreement, if
written notice is given to the Executive of such breach (which notice shall set
forth in reasonable detail the nature thereof) and the Executive fails to cure
such breach within 20 days of receipt of such notice to the reasonable
satisfaction of the Board of Directors, or (5) determination by the Board of
Directors of the Company, acting in good faith and with reasonable
justification, that the Executive's performance of his duties hereunder has been
unsatisfactory, if written notice is given to the Executive that the Executive's
performance has been unsatisfactory (which notice shall set forth in reasonable
detail the nature of the unsatisfactory performance), the Executive is provided
the opportunity to develop a plan in cooperation with the Board of Directors of
the Company to cure such unsatisfactory performance, and the Executive fails to
cure the unsatisfactory performance in accordance with such plan within 20 days
thereafter to the reasonable satisfaction of the Board of Directors of the
Company.
(b) In addition to the obligations of the Company under Section 6(c)
below, if the Executive's employment is terminated pursuant to clause (v) of
paragraph (a) above, then the Company shall also continue to pay to the
Executive, as severance pay or liquidated damages or both, the amount of his
Base Salary which the Executive would have otherwise been entitled to receive
pursuant to Section 4(a) hereof had the Executive's employment not been so
terminated, from the date of termination until the date that is twelve months
after the date of such termination.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in
paragraph (b) above, the Company shall not be obligated to make any payments to
the Executive or on his behalf of whatever kind or nature by reason of the
Executive's cessation of employment (including, without limitation, by reason of
termination of the Executive's employment by the Company for "cause"), other
than (i) such amounts, if any, of his Base Salary, if any, as shall have accrued
and remained unpaid as of
<PAGE>
the date of such termination; (ii) any bonus that is payable under the terms
of the Bonus Plan then applicable to the Executive; and (iii) such other
amounts which may be then otherwise payable to the Executive from the
Company's benefits plans or reimbursement policies, if any.
(d) Amounts payable pursuant to this Section 6 are in lieu of any
severance pay that would otherwise be payable to the Executive upon termination
of his employment with the Company under the Company's severance pay policies,
if any.
7. CONFIDENTIALITY. The Executive hereby covenants, agrees and
acknowledges as follows:
(a) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its Affiliates
which may be made known to the Executive by the Company or any of its Affiliates
during the period of his employment by the Company.
(b) The Executive agrees that he will not without the prior written
consent of the Company use for his benefit or disclose at any time during his
employment by the Company, or thereafter, except to the extent required by, or
applicable to, the performance by him of his duties as a Executive of the
Company, any information obtained or developed by him while in the employ of the
Company with respect to any actual or potential recipes, suppliers, products,
services, employees, documents pertaining to the Company or any of its
Affiliates, financial affairs, systems, applications, or methods of marketing,
service or procurement of the Company or any of its Affiliates, or any
confidential matter regarding the business of the Company or any of its
Affiliates, except information that at the time is generally known to the public
other than as a result of disclosure by him not permitted hereunder and except
for information required to be disclosed under applicable law or by order of a
court of competent jurisdiction (collectively, "Confidential Information").
(c) Upon the written request of the Executive, the Company will
provide, from time to time, written notice stating whether or not it considers
any particular item of information to be Confidential Information. In any
event, the Executive agrees to contact the Company prior to any disclosure of
any information acquired during the term of his employment by the Company that
may possibly be considered Confidential Information to determine whether the
Company considers it to be so.
(d) The Executive agrees that upon termination of his employment by
the Company for any reason, the Executive shall forthwith return to the Company
all documents and papers (including any and all copies thereof) relating to
Confidential Information and other physical property in his possession belonging
to the Company or any of its Affiliates.
(e) Without limiting the generality of Section 12 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this Section
7 shall be binding upon the Executive's heirs, successors and legal
representatives.
8. OWNERSHIP OF CERTAIN WORKS CREATED BY THE EXECUTIVE. Upon request by
the Board
<PAGE>
of Directors of the Company, the Executive will promptly disclose and
describe to the Company all recipes, inventions, improvements, discoveries,
technical developments and works of authorship, whether or not copyrightable,
made or conceived by him either alone or with others during the Employment
Term. All such works, made, devised or discovered by the Executive, whether
by himself or jointly with others, which relate or pertain in any way to the
business of the Company or any of its Affiliates ("Work Products") shall
inure to the benefit of the Company or such Affiliate and become and remain
the Company's or such Affiliate's sole and exclusive property. Work Products
may be created within or without the facilities of the Company or its
Affiliates and before, during or after normal business hours. Work Products
are specifically intended to be works made for hire by the Executive, but in
any event, the Executive agrees to execute an assignment (and does hereby
assign) to the Company, the Executive's entire right, title and interest in
and to Work Products, and to execute any other instruments and documents that
may be reasonably requested by the Company for the purpose of applying for
and obtaining a copyright with respect thereto in the United States and in
all foreign countries. The Executive further agrees, whether or not in the
employ of the Company, to cooperate to the extent and in the manner
reasonably requested by the Company in the prosecution or defense of any
litigation or other proceedings involving any Work Products, but all of the
Executive's reasonable expenses in connection therewith shall be paid by the
Company.
9. NON-ASSIGNABILITY.
(a) Neither this Agreement nor any right or interest hereunder shall
be assignable by the Executive, his beneficiaries, or legal representatives
without the prior written consent of the Company.
(b) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
(c) This Agreement and any rights and interests hereunder may be
assigned or delegated by the Company to any Affiliate, or to any successor to
the Company, and Executive shall be bound by such assignment or delegation.
10. COMPETITION, ETC.
(a) Until the termination of the Executive's employment hereunder and
during the two-year period following the termination of the Executive's
employment hereunder for any reason whatsoever, the Executive will not make any
statement or perform any act intended to advance an interest of any existing or
prospective competitor of the Company or any of its Affiliates in any way that
will or may injure an interest of the Company or any of its Affiliates in its
relationship and dealings with existing or potential suppliers or customers, or
solicit or encourage any other employee of the Company or any of its Affiliates
to do any act that is disloyal to the Company or any of its Affiliates,
inconsistent with the interest of the Company or
<PAGE>
any of its Affiliate's interests or in violation of any provision of this
Agreement.
(b) Until the termination of the Executive's employment hereunder and
during the two-year period following the termination of the Executive's
employment hereunder for any reason whatsoever, the Executive will not directly
or indirectly (as an Executive, officer, director, manager, consultant,
independent contractor, advisor or otherwise) engage in competition with, or
acquire any proprietary interest in, perform any services for, lend his name to,
participate in or be connected with any entity that owns or operates any
"Southwestern style" restaurants that feature Tex-Mex items (excluding
restaurants that predominantly serve steak or that derive less than 10% of their
revenues from Tex-Mex or Mexican items) and are located or intended to be
located anywhere within a radius of ten (10) miles of any Tumbleweed restaurant
open or proposed to be opened at such time.
(c) Until the termination of the Executive's employment hereunder,
the Executive will not directly or indirectly solicit for employment, or advise
or recommend to any other person that they employ or solicit for employment, any
employee of the Company or any of its Affiliates. During the two year period
following the termination of the Executive's employment hereunder, the Executive
will not directly or indirectly solicit for employment, or advise or recommend
to any person that they employ or solicit for employment, any person who was an
employee of the Company as of, or within (90) days prior to, the date of such
termination.
The term "proposed" with respect to Tumbleweed Restaurants shall include
all locations for which negotiations are being conducted and/or have been
conducted at the time of the termination of the Executive's employment hereunder
with the intention of establishing a restaurant thereon.
In connection with the foregoing provisions of this Section 10, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood. The
Executive further agrees that the limitations set forth in this Section 10
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its Affiliates. It is understood and agreed that the
covenants made by the Executive in this Section 10 (and in Sections 7 and 8
hereof) shall survive the expiration or termination of this Agreement.
For purposes of this Section 10, a proprietary interest in a business is
ownership, whether through direct or indirect stock holdings or otherwise, of
five percent (5%) or more of such business. The Executive shall be deemed to
expect to acquire a proprietary interest in a business or to be made an
employee, officer, director, manager, consultant, independent contractor,
advisor or otherwise of such entity if such possibility has been discussed with
any officer, director, employee, agent, or promoter of such entity.
11. INJUNCTIVE RELIEF. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Sections
7, 8, or 10 hereof would be inadequate and, therefore, agrees that the Company
and any of its Affiliates shall be entitled to injunctive relief in addition to
any other available rights and remedies in cases of any such breach
<PAGE>
or threatened breach; provided, however, that nothing contained herein shall
be construed as prohibiting the Company or any of its Affiliates from
pursuing any other rights and remedies available for any such breach or
threatened breach.
12. BINDING EFFECT. Without limiting or diminishing the effect of Section
9 hereof, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns. The covenants contained in Sections 7, 8 and 10 hereof shall also
inure to the benefit of, and be enforceable by, any Affiliate that would be
adversely affected by the breach thereof.
13. NOTIFICATION TO FUTURE EMPLOYERS. The Executive shall notify any
future employer engaged in the restaurant industry of his obligations under the
provisions of Sections 7, 8 and 10 hereof.
14. AFFILIATE. For the purposes of this Agreement, the term "Affiliate"
or "Affiliates" shall mean any entity which owns, operates, manages, licenses or
franchises a Tumbleweed restaurant or which (i) directly or indirectly, controls
the Company, (ii) is controlled, directly or indirectly, by the Company or (iii)
is under common control, directly or indirectly, with the Company.
15. RELATED PARTY TRANSACTIONS. Other than as contemplated by this
Agreement, after the date hereof, neither the Executive nor any member of his
immediate family shall directly, or indirectly through an entity that he
possesses an interest in, enter into any arrangements, agreements or
transactions with the Company or any of its Affiliates without the prior consent
of the Audit Committee of Board of Directors of the Company.
16. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to the
Company, at the Company's principal place of business, and if to the Executive,
at his home address most recently filed with the Company, or to such other
address or addresses as either party shall have designated in writing to the
other party hereto.
17. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
18. SEVERABILITY. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Sections 7, 8
or 10 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Sections 7, 8 or 10 hereof shall not be
rendered void but shall apply to such extent as such court may judicially
determine constitutes a reasonable restriction under the circumstances. If any
part of this Agreement other than Sections 7, 8 or 10 hereof is held by a court
of competent jurisdiction to be invalid, illegal or incapable of being enforced
in whole or in part by reason of any rule of law or public policy, such part
shall be deemed to be severed from the remainder of this Agreement for the
purpose only of the particular legal proceedings in question and such part and
all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
<PAGE>
19. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
20. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof and
thereof, including, without limitation, the Management Agreement. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and
delivered this Agreement as of the day and year first above written.
TUMBLEWEED, INC.
By: /s/ James M. Mulrooney
------------------------------------
James M. Mulrooney, Executive Vice
President and Chief Financial Officer
/s/ John A. Butorac, Jr.
---------------------------------------
John A. Butorac, Jr.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of June 23, 1998, by and between
TUMBLEWEED INC., a Delaware corporation (the "Company"), and JAMES M. MULROONEY
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Tumbleweed, LLC, a Kentucky
limited liability company (the "LLC") pursuant to a Management Agreement dated
September 19, 1994 between the LLC and the Executive, as amended effective
January 1, 1998 (as so amended, the "Management Agreement");
WHEREAS, immediately following the proposed merger of LLC into the Company
(the "Merger"), the Company desires to induce the Executive to terminate the
Management Agreement and be employed by the Company for the period provided in
this Agreement in accordance with the terms and conditions set forth below; and
WHEREAS, the Executive is willing to terminate the Management Agreement and
be employed by the Company immediately following the Merger on a full-time basis
in accordance with the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows effective as of the effective date of Merger (the "Effective Date"):
1. EMPLOYMENT.
(a) The Company hereby employs the Executive as Executive Vice
President and Chief Financial Officer of the Company, and the Executive hereby
accepts such employment with the Company, for the period set forth in Section 2
hereof, all upon the terms and conditions hereinafter set forth.
(b) The Company and the Executive acknowledge and agree that the
Management Agreement is hereby terminated and that neither party shall have any
further obligations to the other thereunder except for obligations arising prior
to the date hereof.
(c) The Executive affirms and represents that he is under no
obligation to any former employer or other party which is in any way
inconsistent with, or which imposes any restriction upon, the Executive's
acceptance of employment hereunder with the Company, the employment of the
Executive by the Company, or the Executive's undertakings under this Agreement.
2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter
provided, the term
<PAGE>
of the Executive's employment under this Agreement shall be for a period
beginning on the Effective Date (the "Employment Date") and ending five years
after the Employment Date (such period referred to as the "Initial Term").
Unless earlier terminated as hereinafter provided, the term of the
Executive's employment under this Agreement shall be automatically extended
on a year-to-year basis (such one-year periods referred to as "Additional
Terms") upon the expiration of the Initial Term or any Additional Term,
unless prior to the commencement of a 90-day period expiring at the end of
such Initial Term or any Additional Term, either the Company or the Executive
provide notice in writing to the other that the term of this Agreement shall
not be extended. For purposes of this Agreement, the term "Employment Term"
shall mean the Initial Term plus all Additional Terms.
3. DUTIES. The Executive shall be employed as Executive Vice President
and Chief Financial Officer of the Company and shall faithfully and competently
perform such employment duties and responsibilities as the Board of Directors of
the Company may from time to time prescribe. The Executive shall have primary
responsibility over the following Company matters: financial, banking,
accounting, legal and construction and shall share responsibility with the Chief
Executive Officer of the Company with respect to all other Company matters
except operations, marketing, training, franchising, purchasing and the
commissary. The Executive shall report directly to the Board of Directors with
respect to all matters as to which the Executive has primary or shared
responsibility. The Executive shall perform his duties at such places and times
as the Board of Directors of the Company may reasonably prescribe. Except
during vacation periods and reasonable periods of absence due to sickness,
personal injury or other disability, the Executive shall devote his full time
throughout the Employment Term to the services required of him hereunder;
provided, however that the Executive shall be permitted to invest his personal
assets and manage his personal investment portfolio in such a form and manner as
will not require any business services on his part to be provided to any third
party or conflict with the provisions of Sections 7, 8 or 10 hereof. The
Executive shall render his services exclusively to the Company during the
Employment Term. The Executive agrees to perform his duties hereunder to the
best of his ability and at a level of competency consistent with the position
occupied, to act on all matters in a manner he reasonably believes to be in and
not opposed to the best interests of the Company, and to use his best efforts,
skill and ability to promote the profitable growth of the Company. The
Executive and the Company agree that the Executive shall perform his duties
primarily at the Company's principal corporate office and that he shall travel
as necessary to perform his duties.
4. COMPENSATION.
(a) BASE SALARY. As compensation for the performance by the
Executive of the services to be performed by the Executive hereunder during the
Employment Term, the Company shall pay the Executive a base salary ("Base
Salary") which shall initially be at the annual rate of One Hundred Seventy-Five
Thousand Dollars ($175,000.00). Effective January 1 of each year of the
Employment Term, the Base Salary shall increase by the percentage increase in
the Consumer Price Index (All Cities 1984 = 100) from January 1 of the previous
year. The Board of Directors shall review the Base Salary annually to determine
if any further increase in Base Salary is merited. Any Base Salary payable
hereunder shall be paid in regular intervals in
<PAGE>
accordance with the Company's payroll practices.
(b) BONUSES. The Executive shall be eligible to receive bonuses in
accordance with bonus plans ("Bonus Plans") approved by the Board of Directors
of the Company from time to time.
(c) WITHHOLDING, ETC. The payment of any Base Salary and bonuses
hereunder shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required under the Company's employee benefit plans.
(d) EQUITY OPTIONS. As such time as the Board of Directors of the
Company deems it appropriate, the Executive shall be granted options to purchase
equity securities of the Company.
5. BENEFITS. During the Employment Term, the Executive shall:
(a) be eligible to participate in all employee fringe benefits
(including, without limitation, life insurance, health, disability and dental
plans) and any pension and/or profit sharing plans that may be provided by the
Company for its key executive employees in accordance with the provisions of any
such plans, as the same may be in effect on and after the Effective Date,
excluding equity or bonus plans except the bonuses provided for in Section 4(b)
hereof and any other bonus specifically granted by the Board of Directors of the
Company to the Executive;
(b) be entitled to four weeks of paid vacation;
(c) be entitled to a car allowance in the amount of $500.00 per
month, plus mileage reimbursement based upon the Company's policies applicable
thereto; and
(d) be entitled to reimbursement for all reasonable and necessary
itemized out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder in accordance with the Company's policies
applicable thereto (excluding any category of expenses described in any other
provision of this Section 5).
6. TERMINATION.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) termination of the Executive's employment hereunder by the
Executive at any time for any reason whatsoever (including, without limitation,
resignation or retirement);
(iii) termination of the Executive's employment hereunder by the
<PAGE>
Company because of the Executive's inability to perform his duties on
account of disability or incapacity for a period of 90 or more consecutive
days;
(iv) termination of the Executive's employment hereunder by the
Company at any time "for cause" (as defined below), such termination to take
effect immediately upon written notice from the Company to the Executive; and
(v) termination of the Executive's employment hereunder by the
Company at any time, other than termination by reason of disability or
incapacity as contemplated by clause (iii) above or termination by the Company
"for cause" as contemplated by clause (iv) above.
The following actions, failures or events by or affecting the Executive
shall constitute "cause" for termination within the meaning of clause (iv)
above: (1) conviction of having committed a felony, (2) acts of dishonesty or
moral turpitude that are materially detrimental to the Company and/or its
Affiliates (as defined in Section 14 hereof), (3) failure by the Executive to
obey the reasonable and lawful directions of the Board of Directors of the
Company, if written notice is given to the Executive of such failure (which
notice shall set forth in reasonable detail the nature thereof) and the
Executive fails to obey such directions within 20 days of receipt of such notice
to the reasonable satisfaction of the Board of Directors, (4) the Executive's
willful breach of any material agreement or covenant of this Agreement, if
written notice is given to the Executive of such breach (which notice shall set
forth in reasonable detail the nature thereof) and the Executive fails to cure
such breach within 20 days of receipt of such notice to the reasonable
satisfaction of the Board of Directors, or (5) determination by the Board of
Directors of the Company, acting in good faith and with reasonable
justification, that the Executive's performance of his duties hereunder has been
unsatisfactory, if written notice is given to the Executive that the Executive's
performance has been unsatisfactory (which notice shall set forth in reasonable
detail the nature of the unsatisfactory performance), the Executive is provided
the opportunity to develop a plan in cooperation with the Board of Directors of
the Company to cure such unsatisfactory performance, and the Executive fails to
cure the unsatisfactory performance in accordance with such plan within 20 days
thereafter to the reasonable satisfaction of the Board of Directors of the
Company.
(b) In addition to the obligations of the Company under Section 6(c)
below, if the Executive's employment is terminated pursuant to clause (v) of
paragraph (a) above, then the Company shall also continue to pay to the
Executive, as severance pay or liquidated damages or both, the amount of his
Base Salary which the Executive would have otherwise been entitled to receive
pursuant to Section 4(a) hereof had the Executive's employment not been so
terminated, from the date of termination until the date that is twelve months
after the date of such termination.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in
paragraph (b) above, the Company shall not be obligated to make any payments to
the Executive or on his behalf of whatever kind or nature by reason of the
Executive's cessation of employment (including, without limitation, by reason of
termination of the Executive's employment by the Company for "cause"), other
than (i) such amounts, if any, of his Base Salary, if any, as shall have accrued
and remained unpaid as of
<PAGE>
the date of such termination; (ii) any bonus that is payable under the terms
of the Bonus Plan then applicable to the Executive; and (iii) such other
amounts which may be then otherwise payable to the Executive from the
Company's benefits plans or reimbursement policies, if any.
(d) Amounts payable pursuant to this Section 6 are in lieu of any
severance pay that would otherwise be payable to the Executive upon termination
of his employment with the Company under the Company's severance pay policies,
if any.
7. CONFIDENTIALITY. The Executive hereby covenants, agrees and
acknowledges as follows:
(a) The Executive's employment hereunder creates a relationship of
confidence and trust between the Executive and the Company with respect to
certain information pertaining to the business of the Company and its Affiliates
which may be made known to the Executive by the Company or any of its Affiliates
during the period of his employment by the Company.
(b) The Executive agrees that he will not without the prior written
consent of the Company use for his benefit or disclose at any time during his
employment by the Company, or thereafter, except to the extent required by, or
applicable to, the performance by him of his duties as a Executive of the
Company, any information obtained or developed by him while in the employ of the
Company with respect to any actual or potential recipes, suppliers, products,
services, employees, documents pertaining to the Company or any of its
Affiliates, financial affairs, systems, applications, or methods of marketing,
service or procurement of the Company or any of its Affiliates, or any
confidential matter regarding the business of the Company or any of its
Affiliates, except information that at the time is generally known to the public
other than as a result of disclosure by him not permitted hereunder and except
for information required to be disclosed under applicable law or by order of a
court of competent jurisdiction (collectively, "Confidential Information").
(c) Upon the written request of the Executive, the Company will
provide, from time to time, written notice stating whether or not it considers
any particular item of information to be Confidential Information. In any
event, the Executive agrees to contact the Company prior to any disclosure of
any information acquired during the term of his employment by the Company that
may possibly be considered Confidential Information to determine whether the
Company considers it to be so.
(d) The Executive agrees that upon termination of his employment by
the Company for any reason, the Executive shall forthwith return to the Company
all documents and papers (including any and all copies thereof) relating to
Confidential Information and other physical property in his possession belonging
to the Company or any of its Affiliates.
(e) Without limiting the generality of Section 12 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this Section
7 shall be binding upon the Executive's heirs, successors and legal
representatives.
8. OWNERSHIP OF CERTAIN WORKS CREATED BY THE EXECUTIVE. Upon request by
the Board
<PAGE>
of Directors of the Company, the Executive will promptly disclose and
describe to the Company all recipes, inventions, improvements, discoveries,
technical developments and works of authorship, whether or not copyrightable,
made or conceived by him either alone or with others during the Employment
Term. All such works, made, devised or discovered by the Executive, whether
by himself or jointly with others, which relate or pertain in any way to the
business of the Company or any of its Affiliates ("Work Products") shall
inure to the benefit of the Company or such Affiliate and become and remain
the Company's or such Affiliate's sole and exclusive property. Work Products
may be created within or without the facilities of the Company or its
Affiliates and before, during or after normal business hours. Work Products
are specifically intended to be works made for hire by the Executive, but in
any event, the Executive agrees to execute an assignment (and does hereby
assign) to the Company, the Executive's entire right, title and interest in
and to Work Products, and to execute any other instruments and documents that
may be reasonably requested by the Company for the purpose of applying for
and obtaining a copyright with respect thereto in the United States and in
all foreign countries. The Executive further agrees, whether or not in the
employ of the Company, to cooperate to the extent and in the manner
reasonably requested by the Company in the prosecution or defense of any
litigation or other proceedings involving any Work Products, but all of the
Executive's reasonable expenses in connection therewith shall be paid by the
Company.
9. NON-ASSIGNABILITY.
(a) Neither this Agreement nor any right or interest hereunder shall
be assignable by the Executive, his beneficiaries, or legal representatives
without the prior written consent of the Company.
(b) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
(c) This Agreement and any rights and interests hereunder may be
assigned or delegated by the Company to any Affiliate, or to any successor to
the Company, and Executive shall be bound by such assignment or delegation.
10. COMPETITION, ETC.
(a) Until the termination of the Executive's employment hereunder and
during the two-year period following the termination of the Executive's
employment hereunder for any reason whatsoever, the Executive will not make any
statement or perform any act intended to advance an interest of any existing or
prospective competitor of the Company or any of its Affiliates in any way that
will or may injure an interest of the Company or any of its Affiliates in its
relationship and dealings with existing or potential suppliers or customers, or
solicit or encourage any other employee of the Company or any of its Affiliates
to do any act that is disloyal to the Company or any of its Affiliates,
inconsistent with the interest of the Company or
<PAGE>
any of its Affiliate's interests or in violation of any provision of this
Agreement.
(b) Until the termination of the Executive's employment hereunder and
during the two-year period following the termination of the Executive's
employment hereunder for any reason whatsoever, the Executive will not directly
or indirectly (as an Executive, officer, director, manager, consultant,
independent contractor, advisor or otherwise) engage in competition with, or
acquire any proprietary interest in, perform any services for, lend his name to,
participate in or be connected with any entity that owns or operates any
"Southwestern style" restaurants that feature Tex-Mex items (excluding
restaurants that predominantly serve steak or that derive less than 10% of their
revenues from Tex-Mex or Mexican items) and are located or intended to be
located anywhere within a radius of ten (10) miles of any Tumbleweed restaurant
open or proposed to be opened at such time.
(c) Until the termination of the Executive's employment hereunder,
the Executive will not directly or indirectly solicit for employment, or advise
or recommend to any other person that they employ or solicit for employment, any
employee of the Company or any of its Affiliates. During the two year period
following the termination of the Executive's employment hereunder, the Executive
will not directly or indirectly solicit for employment, or advise or recommend
to any person that they employ or solicit for employment, any person who was an
employee of the Company as of, or within (90) days prior to, the date of such
termination.
The term "proposed" with respect to Tumbleweed Restaurants shall include
all locations for which negotiations are being conducted and/or have been
conducted at the time of the termination of the Executive's employment hereunder
with the intention of establishing a restaurant thereon.
In connection with the foregoing provisions of this Section 10, the
Executive represents that his experience, capabilities and circumstances are
such that such provisions will not prevent him from earning a livelihood. The
Executive further agrees that the limitations set forth in this Section 10
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the Company and its Affiliates. It is understood and agreed that the
covenants made by the Executive in this Section 10 (and in Sections 7 and 8
hereof) shall survive the expiration or termination of this Agreement.
For purposes of this Section 10, a proprietary interest in a business is
ownership, whether through direct or indirect stock holdings or otherwise, of
five percent (5%) or more of such business. The Executive shall be deemed to
expect to acquire a proprietary interest in a business or to be made an
employee, officer, director, manager, consultant, independent contractor,
advisor or otherwise of such entity if such possibility has been discussed with
any officer, director, employee, agent, or promoter of such entity.
11. INJUNCTIVE RELIEF. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Sections
7, 8, or 10 hereof would be inadequate and, therefore, agrees that the Company
and any of its Affiliates shall be entitled to injunctive relief in addition to
any other available rights and remedies in cases of any such breach
<PAGE>
or threatened breach; provided, however, that nothing contained herein shall
be construed as prohibiting the Company or any of its Affiliates from
pursuing any other rights and remedies available for any such breach or
threatened breach.
12. BINDING EFFECT. Without limiting or diminishing the effect of Section
9 hereof, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns. The covenants contained in Sections 7, 8 and 10 hereof shall also
inure to the benefit of, and be enforceable by, any Affiliate that would be
adversely affected by the breach thereof.
13. NOTIFICATION TO FUTURE EMPLOYERS. The Executive shall notify any
future employer engaged in the restaurant industry of his obligations under the
provisions of Sections 7, 8 and 10 hereof.
14. AFFILIATE. For the purposes of this Agreement, the term "Affiliate"
or "Affiliates" shall mean any entity which owns, operates, manages, licenses or
franchises a Tumbleweed restaurant or which (i) directly or indirectly, controls
the Company, (ii) is controlled, directly or indirectly, by the Company or (iii)
is under common control, directly or indirectly, with the Company.
15. RELATED PARTY TRANSACTIONS. Other than as contemplated by this
Agreement, after the date hereof, neither the Executive nor any member of his
immediate family shall directly, or indirectly through an entity that he
possesses an interest in, enter into any arrangements, agreements or
transactions with the Company or any of its Affiliates without the prior consent
of the Audit Committee of Board of Directors of the Company.
16. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to the
Company, at the Company's principal place of business, and if to the Executive,
at his home address most recently filed with the Company, or to such other
address or addresses as either party shall have designated in writing to the
other party hereto.
17. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
18. SEVERABILITY. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Sections 7, 8
or 10 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Sections 7, 8 or 10 hereof shall not be
rendered void but shall apply to such extent as such court may judicially
determine constitutes a reasonable restriction under the circumstances. If any
part of this Agreement other than Sections 7, 8 or 10 hereof is held by a court
of competent jurisdiction to be invalid, illegal or incapable of being enforced
in whole or in part by reason of any rule of law or public policy, such part
shall be deemed to be severed from the remainder of this Agreement for the
purpose only of the particular legal proceedings in question and such part and
all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
<PAGE>
19. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
20. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof and
thereof, including, without limitation, the Management Agreement. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and
delivered this Agreement as of the day and year first above written.
TUMBLEWEED, INC.
By: /s/ John A. Butorac, Jr.
------------------------------------
John A. Butorac, Jr., President and CEO
/s/ James M. Mulrooney
---------------------------------------
James M. Mulrooney
<PAGE>
(3780 WEST BROAD STREET, COLUMBUS, OHIO LOCATION)
LEASE AGREEMENT
BY
WEST BROAD DEVELOPMENT, LLC
("LESSOR")
AND
TUMBLEWEED, LLC
("LESSEE")
August 28, 1997
<PAGE>
SUMMARY OF SELECTED LEASE PROVISIONS
(3780 WEST BROAD STREET, COLUMBUS, OHIO)
IMPORTANT NOTICE
This Summary is for convenience and reference only. It is merely a summary
and, therefore, is incomplete. Furthermore, this Summary is subject to the
provisions of the Lease in its entirety. In the event of any conflict between
the provisions of this Summary and any of the provisions of the Lease, the
Lease provisions shall govern.
<TABLE>
<CAPTION>
<S> <C>
LESSOR . . . . . . . . . . . . . West Broad Development, LLC
LESSEE . . . . . . . . . . . . . Tumbleweed, LLC
LEASED PREMISES. . . . . . . . . Approximately 0.517 acre located as an
outparcel at 3780 West Broad Street,
Columbus, Ohio (SEE EXHIBIT A for detailed
description)
INITIAL TERM . . . . . . . . . . 20 Years From Full Base Rent Commencement
Date
RENEWAL TERMS. . . . . . . . . . Two (2) Five Year Renewal Terms
BASE RENT BEFORE FULL BASE
RENT COMMENCEMENT DATE . . . . . Amount equal to interest on the Total Lessor
Investment during such period at a rate equal
to the Agreed Rental Factor
BASE RENT AFTER THE FULL BASE
RENT COMMENCEMENT DATE . . . . . Initial Term: $10,000 per month ($120,000
annualized) Renewal Terms: $10,000 per month
($120,000 annualized) PLUS CPI Increase
(Based on increase in CPI for last year of
preceding Initial Term or Renewal Term OVER
CPI for first year of preceding Initial Term
or Renewal Term)
PERCENTAGE RENT. . . . . . . . . 5% of Restaurant's Gross Sales (over Base
Rent, payable within 60 days after the end of
each year)
INSURANCE. . . . . . . . . . . . To be provided by Lessee
UTILITIES. . . . . . . . . . . . To be provided by Lessee
REAL PROPERTY TAXES. . . . . . . To be paid by Lessee
MAINTENANCE. . . . . . . . . . . To be provided by Lessee
LESSEE'S OBLIGATION TO BUILD . . Lessee to renovate restaurant per agreed
specifications and directions at a reimbursed
cost by Lessor not to exceed $1,000,000 LESS
Direct Lessor Expenditures
</TABLE>
_______________________________________________________________________________
Summary of Selected Provisions - Page i
<PAGE>
LEASE AGREEMENT
(3780 WEST BROAD STREET, COLUMBUS, OHIO LOCATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1 GRANT OF LEASED PREMISES; ACQUISITION CONTINGENCY. . . . . . . . . . . . .1
1.1 PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ACQUISITION CONTINGENCY. . . . . . . . . . . . . . . . . . . . . . 1
2 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 COMMENCEMENT AND EXPIRATION OF TERM. . . . . . . . . . . . . . . . 2
(a) INITIAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) RENEWAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 RENT; SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) DETERMINATION OF BASE RENT . . . . . . . . . . . . . . . . . . . 3
(b) TOTAL LESSOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . 3
(c) AGREED RENTAL FACTOR . . . . . . . . . . . . . . . . . . . . . . 4
(d) PAYMENT OF THE BASE RENT . . . . . . . . . . . . . . . . . . . . 4
(e) CPI INCREASE . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) STATED PORTION OF THE BASE RENT. . . . . . . . . . . . . . . . . 5
(g) CPI INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 PERCENTAGE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) DETERMINATION OF PERCENTAGE RENT . . . . . . . . . . . . . . . . 5
(b) DEFINITION OF GROSS SALES. . . . . . . . . . . . . . . . . . . . 6
(c) REPORTS OF SALES . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) RECORD OF SALES; INSPECTIONS AND AUDITS. . . . . . . . . . . . . 7
(e) PAYMENT OF PERCENTAGE RENT . . . . . . . . . . . . . . . . . . . 7
(f) RETAIL RESTRICTION LIMIT/FAILURE TO OPERATE. . . . . . . . . . . 7
3.3 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 DELINQUENT RENT; LATE CHARGE . . . . . . . . . . . . . . . . . . . 8
3.5 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 SURVIVAL OF OBLIGATION TO PAY RENT . . . . . . . . . . . . . . . . 8
4 USE OF THE LEASED PREMISES; QUIET ENJOYMENT . . . . . . . . . . . . . . . 9
4.1 GENERAL PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 HAZARDS AND WASTE. . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT. 9
(a) POWER AND AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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Table of Contents - Page ii
<PAGE>
LEASE AGREEMENT
(3780 WEST BROAD STREET, COLUMBUS, OHIO LOCATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
(b) LIENS AND ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . 9
(c) QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5 INSURANCE; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 FIRE AND HAZARD INSURANCE. . . . . . . . . . . . . . . . . . . . . 10
5.2 LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS . . . . . . . 11
5.4 OTHER INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 CERTIFICATES OF INSURANCE. . . . . . . . . . . . . . . . . . . . . 11
5.6 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . 11
5.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 12
6 RECONSTRUCTION AND EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . 12
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE LEASED PREMISES . . . . . . 12
(a) GENERAL OBLIGATION TO REPAIR; CERTAIN RIGHTS OF LESSEE TO
TERMINATE LEASE. . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) DAMAGE AND REPAIR. . . . . . . . . . . . . . . . . . . . . . . . 13
(c) SPECIFICATIONS AND APPROVALS . . . . . . . . . . . . . . . . . . 13
(d) INSURANCE PROCEEDS ESCROW. . . . . . . . . . . . . . . . . . . . 14
(e) MORTGAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(f) CONTINUATION OF LEASE. . . . . . . . . . . . . . . . . . . . . . 14
(g) NO REDUCTION OF RENT . . . . . . . . . . . . . . . . . . . . . . 14
(h) LESSEE'S CONTINUING OBLIGATION TO INSURE . . . . . . . . . . . . 15
6.2 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) TERMINATION OF LEASE AS TO PORTION OF LEASED PREMISES TAKEN. . . 15
(b) TAKING OF LESS THAN A SUBSTANTIAL PORTION OF THE LEASED PREMISES 15
(c) TAKING OF A SUBSTANTIAL PORTION OF THE LEASED PREMISES . . . . . 15
(d) SUBSTANTIAL PORTION. . . . . . . . . . . . . . . . . . . . . . . 15
(e) CONTESTING TAKING; ALLOCATION OF PROCEEDS. . . . . . . . . . . . 16
7 UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS; CONSTRUCTION OF
SPECIFIED BUILDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 MAINTENANCE AND REPAIRS. . . . . . . . . . . . . . . . . . . . . . 16
(a) LESSEE'S GENERAL OBLIGATION TO MAINTAIN. . . . . . . . . . . . . 16
(b) SPECIFIC MAINTENANCE OBLIGATIONS OF LESSEE . . . . . . . . . . . 17
(c) WAIVER OF LESSOR LIABILITY . . . . . . . . . . . . . . . . . . . 17
7.3 ALTERATIONS BY LESSEE. . . . . . . . . . . . . . . . . . . . . . . 17
(a) NONSTRUCTURAL INTERIOR ALTERATIONS . . . . . . . . . . . . . . . 17
(b) STRUCTURAL ALTERATIONS . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE>
LEASE AGREEMENT
(3780 WEST BROAD STREET, COLUMBUS, OHIO LOCATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
(c) ALTERATIONS BECOME PART OF LEASED PREMISES . . . . . . . . . . . 18
7.4 MECHANICS OR MATERIALMEN'S LIENS . . . . . . . . . . . . . . . . . 18
7.5 SIGNS AND OTHER TRADE FIXTURES . . . . . . . . . . . . . . . . . . 18
7.6 LESSOR'S RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . . 18
7.7 CONSTRUCTION OF SPECIFIED BUILDING.. . . . . . . . . . . . . . . . 19
(a) LESSEE'S OBLIGATION TO CONSTRUCT SPECIFIED BUILDING. . . . . . . 19
(b) COMMENCEMENT AND COMPLETION OF CONSTRUCTION. . . . . . . . . . . 19
(c) LESSEE'S EQUIPMENT AND TRADE FIXTURES. . . . . . . . . . . . . . 20
(d) LESSEE'S PAYMENT OF EXCESS CONSTRUCTION COSTS WITHOUT
REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) WAIVER OF LESSOR LIABILITY WITH RESPECT TO CONSTRUCTION. . . . . 20
8 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES. . . . . . . . . . . . . . 21
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES . . . . . . . . . . 21
(b) NOTICE AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 PERSONAL PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . . 21
8.3 INCOME AND OTHER TAXES . . . . . . . . . . . . . . . . . . . . . . 21
9 ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT. . . . . . . . . . . . . 22
9.1 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . 22
(a) LESSEE'S OBLIGATION TO EXECUTE ESTOPPEL CERTIFICATE WHEN
REQUESTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) FAILURE OF LESSEE TO DELIVER ESTOPPEL CERTIFICATE. . . . . . . . 22
(c) LESSEE OBLIGATION TO FURNISH FINANCIAL AND TAX INFORMATION TO
LENDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 MORTGAGE SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 23
9.3 NONDISTURBANCE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 23
9.4 DEFAULT OF LESSOR UNDER MORTGAGES. . . . . . . . . . . . . . . . . 23
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS
LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.1 DEFAULT BY LESSEE; REMEDIES . . . . . . . . . . . . . . . . . . . 24
(a) MATERIAL DEFAULT AND BREACH BY LESSEE. . . . . . . . . . . . . . 24
(b) LESSOR'S REMEDIES UPON DEFAULT BY LESSEE . . . . . . . . . . . . 25
10.2 DEFAULT BY LESSOR . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) MATERIAL DEFAULT AND BREACH BY LESSOR. . . . . . . . . . . . . . 27
(b) LESSEE'S REMEDIES UPON DEFAULT BY LESSOR . . . . . . . . . . . . 27
10.3 REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 ATTORNEY FEES AND COSTS . . . . . . . . . . . . . . . . . . . . . 28
10.5 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<PAGE>
LEASE AGREEMENT
(3780 WEST BROAD STREET, COLUMBUS, OHIO LOCATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
10.6 WAIVER OF CERTAIN DEFENSES. . . . . . . . . . . . . . . . . . . . 29
11 RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.1 EXERCISE OF RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . 29
11.2 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. . . . . . . . . . . . 29
11.3 TRANSFER OF EQUITY INTERESTS IN LESSOR. . . . . . . . . . . . . . 29
11.4 TRANSFERS TO RELATED PARTIES EXCLUDED . . . . . . . . . . . . . . 30
12 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.1 ASSIGNMENT OR SUBLETTING. . . . . . . . . . . . . . . . . . . . . 30
12.2 SUCCESSOR LESSOR'S LIABILITY. . . . . . . . . . . . . . . . . . . 31
12.3 RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . 31
12.4 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 31
12.5 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) DELIVERY OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . 31
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD. . . . . . . . . . . . 32
12.6 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.7 SEVERABILITY AND INVALIDITY . . . . . . . . . . . . . . . . . . . 33
12.8 CAPTIONS, HEADINGS AND SUMMARY. . . . . . . . . . . . . . . . . . 33
12.9 SUCCESSORS AND PERMITTED ASSIGNS. . . . . . . . . . . . . . . . . 33
12.10 GENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.11 RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.12 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.14 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . 34
12.15 TRIPLE NET LEASE . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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Table of Contents - Page v
<PAGE>
LEASE AGREEMENT
(3780 WEST BROAD, COLUMBUS OHIO LOCATION)
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
--A--
ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
AGREED RENTAL FACTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANNUAL GROSS SALES STATEMENT. . . . . . . . . . . . . . . . . . . . . . . 6
--B--
BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--C--
CPI INCREASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CPI INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--D--
DIRECT LESSOR EXPENDITURES. . . . . . . . . . . . . . . . . . . . . . . . 4
--F--
FULL BASE RENT COMMENCEMENT DATE. . . . . . . . . . . . . . . . . . . . . 3
--G--
GROSS SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--I--
INITIAL TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--L--
LATE NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LESSEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LESSEE'S WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
LESSOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 29
LESSOR REIMBURSEMENT EXPENDITURES . . . . . . . . . . . . . . . . . . . . 4
--M--
MORTGAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MORTGAGEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MORTGAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--P--
PERCENTAGE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PLANS AND SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 18
PRIME RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PROJECT ARCHITECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--R--
REAL ESTATE SALES CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . 1
REAL PROPERTY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RELATED PARTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
RENEWAL TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RENEWAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RESTAURANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--S--
SPECIFIED BUILDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
STATED PORTION OF THE BASE RENT . . . . . . . . . . . . . . . . . . . . . 5
SUBSTANTIAL PORTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--T--
TOTAL LESSOR INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . 3
TRADE FIXTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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Index of Defined Terms - Page 6
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the ___
day of __________________, 1997, BY AND BETWEEN (i) WEST BROAD DEVELOPMENT, a
Kentucky limited liability company (the "LESSOR"), AND (ii) TUMBLEWEED, LLC,
a Kentucky limited liability company (the "LESSEE").
WITNESSETH:
IN CONSIDERATION OF the mutual covenants and agreements herein
contained, the parties agree as follows:
ARTICLE
1
GRANT OF LEASED PREMISES; ACQUISITION CONTINGENCY
________________________________________
1.1 PREMISES
Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, for the term, at the rental and upon all of the conditions set forth
herein, that certain real property, consisting of approximately 0.517 ACRES,
generally referred to as an outparcel located at 3780 WEST BROAD STREET,
COLUMBUS, OHIO, and more particularly described on EXHIBIT A attached hereto,
and all improvements thereon and fixtures and appurtenances thereto,
INCLUDING, BUT NOT LIMITED TO, any fixtures, buildings, or other improvements
or alterations constructed, added, or made by Lessor or Lessee during the
Term (as hereinafter defined) in accordance with the provisions of this Lease
and all of Lessor's easements and appurtenances in, over, and upon adjoining
and adjacent public and private land, highways, roads, streets, lanes and
other areas reasonably required for ingress and egress and for the
installation, maintenance, operation and service of utilities (the "LEASED
PREMISES").
1.2 ACQUISITION CONTINGENCY
Notwithstanding any other provision of this Lease which might be
construed to the contrary, this Lease is contingent upon the acquisition of
the Leased Premises by Lessor pursuant to that certain REAL ESTATE SALES
CONTRACT dated MARCH 10, 1997, between Lessor, as the assignee of the
purchaser thereunder, and MID-AMERICA RESTAURANT VENTURES, INC., as seller
thereunder (the "REAL ESTATE SALES CONTRACT"). Lessee acknowledges receipt of
a true and complete copy of the Real Estate Sales Contract. If such
acquisition of the Leased Premises by Lessor does not occur, then this Lease
shall be null and void and neither party shall have any obligation of
performance to the other party under this Lease.
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Text of Agreement - Page 1
<PAGE>
ARTICLE
2
TERM
________________________________________
2.1 COMMENCEMENT AND EXPIRATION OF TERM.
(a) INITIAL TERM
The Initial Term of this Lease shall commence as of the Full
Base Rent Commencement Date (as hereinafter defined) and shall end on the LAST
DAY OF THE 240TH CALENDAR MONTH following the Full Base Rent Commencement Date,
unless sooner terminated in accordance with the terms and conditions set forth
herein (the "INITIAL TERM").
(b) RENEWAL TERMS
The term of this Lease shall be automatically renewed for two
successive additional periods of 60 MONTHS each (collectively, the "RENEWAL
TERMS" and each individually, a "RENEWAL TERM") upon the expiration of each of
the Initial Term and the first Renewal Term (the Initial Term and all Renewal
Terms are collectively referred to as the "TERM") unless, at least 180 DAYS
prior to the expiration of the Initial Term or the first Renewal Term, Lessee
gives written notice to Lessor that the Term will end at the expiration of such
period. This Lease shall not be renewable at the end of the second Renewal Term
unless amended in writing to provide for such renewal. the renewal of this Lease
shall not be deemed to correct or obviate the need to correct any default
hereunder, and such renewal shall not affect in any way the right of either
party under this Lease to exercise any of such party's rights or remedies in the
event of a default by the other party either before or after the effective date
of such renewal.
2.2 HOLDING OVER
In the absence of a written agreement to the contrary or written
renewal of this Lease, if Lessee remains in possession of the Leased Premises
after the expiration of the Term or the sooner termination of this Lease,
Lessee, at the option of Lessor, shall be deemed to be occupying the Leased
Premises as a tenant from month-to-month, subject to all of the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy, and either party may terminate such month-to-month
tenancy on 30 DAYS' notice to the other.
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Text of Agreement - Page 2
<PAGE>
ARTICLE
3
RENT; SECURITY DEPOSIT
________________________________________
3.1 BASE RENT
(a) DETERMINATION OF BASE RENT
Lessee shall pay Lessor a minimum guaranteed rental (the "BASE
RENT") with respect to each month during the Term determined in accordance with
the following schedule (PROVIDED, HOWEVER, that the Base Rent for any partial
month during the Term shall be prorated in accordance with the ratio of the
number of days of such month within the Term to the total number of days of such
month):
<TABLE>
<CAPTION>
<S> <C>
PERIOD BASE RENT
During the Term, but Amount equal to interest on the Total Lessor
before Full Base Rent Investment (as hereinafter defined) during such
Commencement Date(2) period at a rate equal to the Agreed Rental Factor
(as hereinafter defined)
During the Initial Term, $10,000 per month (1)
but after Full Base Rent
Commencement Date(2)
During the Renewal Terms $10,000 per month (1) plus CPI Increase (as
hereinafter defined)
</TABLE>
(1) Adjusted to 12% of Total Lessor Investment (as hereinafter defined)
if Total Lessor Investment is less than $1,000,000.00.
(2) The FULL BASE RENT COMMENCEMENT DATE shall mean THE EARLIER TO
OCCUR OF (i) the date Lessee first derives revenues from the sale
of food and beverages in the ordinary course of its Restaurant
business upon the Leased Premises OR (ii) 180 days after Lessee
first commences LESSEE'S WORK (defined below).
(b) TOTAL LESSOR INVESTMENT
For all purposes of this Lease, the term "TOTAL LESSOR
INVESTMENT" as of any date shall mean THE SUM OF (i) the amounts paid by
LESSOR through such date in connection with the purchase and acquisition of
the Leased Premises, INCLUDING, BUT NOT LIMITED TO, "soft costs" such as
legal fees, title, environmental assessment, and survey expenses, real estate
agent and broker commissions, permit and license fees, engineering fees, and
architectural fees, and the costs of Lessor's demolishing and hauling away
the front porch patio area if the
_______________________________________________________________________________
Text of Agreement - Page 3
<PAGE>
restrictions prohibiting such area are not removed prior to construction of
the Specified Building (the "DIRECT LESSOR EXPENDITURES"), it being agreed by
lessor and lessee that the amount of such Direct Lessor Expenditures
(EXCLUSIVE of the acquisition purchase price paid by Lessor to the seller of
the Leased Premises) shall conclusively be $65,000.00 in the aggregate, (ii)
the amounts paid by Lessor to Lessee as reimbursement for Lessee's Work with
respect to the Specified Building as hereinafter provided (the "LESSOR
REIMBURSEMENT EXPENDITURES," AND (iii) any amounts treated as part of the
Total Lessor Investment pursuant to the provisions of Section 7.7(b) hereof.
Notwithstanding any other provision of this Lease which might be construed to
the contrary, it is the parties' intention and agreement that the Total
Lessor Investment, in the aggregate, will not exceed the sum of $1,000,000.00
at any time, and at no time shall Lessor have any obligation to pay any
amount to Lessee as a Lessor Reimbursement Expenditure to the extent that
such payment would cause the Total Lessor Investment as of such time to
exceed the sum of $1,000,000.00.
(c) AGREED RENTAL FACTOR
For all purposes of this Lease, the term "AGREED RENTAL
FACTOR" to be applied with respect to any funds constituting a part of the Total
Lessor Investment during any period shall mean a rate equal to THE GREATER OF
(i) the interest rate per annum paid by Lessor to a bank or other commercial
lending institution with respect to such funds, if and to the extent such funds
have been borrowed by Lessor, PLUS 1% PER ANNUM, OR (ii) the interest rate per
annum most recently designated by BANK OF LOUISVILLE AND TRUST COMPANY,
Louisville, Kentucky (the "BANK"), as its "Prime Rate" in effect during such
period, as the same may be changed from time to time by the Bank during such
period (the "PRIME RATE"), PLUS 1% PER ANNUM.
(d) PAYMENT OF THE BASE RENT
Before the Full Base Rent Commencement Date, the Base Rent
shall be due and payable on a monthly basis, within FIVE (5) DAYS following
demand by Lessor setting forth the amount thereof based on the outstanding
balance of the Total Lessor Investment during the immediately preceding calendar
month and the applicable Agreed Rental Factor with respect thereto. After the
Full Base Rent Commencement Date, the Base Rent shall be due and payable in
advance on the 1st day of such month, without prior demand therefor. Unless
otherwise directed by Lessor in writing, Lessee shall pay the Base Rent due and
payable at any time to Lessor at the address for Lessor which is then applicable
as to notices under the provisions of Section 12.5 below.
(e) CPI INCREASE
For all purposes of this Agreement, the term "CPI INCREASE"
with respect to each Renewal Period shall mean an amount WHICH BEARS THE SAME
RATIO TO
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the Stated Portion of the Base Rent (as hereinafter defined) with respect to
such Renewal Period AS the CPI Index (as hereinafter defined) for the last
year of the Initial Term or Renewal Term, as the case may be, immediately
preceding such Renewal Term BEARS TO the CPI Index for the first year of such
Initial Term or Renewal Term, as the case may be, preceding such Renewal Term.
(f) STATED PORTION OF THE BASE RENT
For all purposes of this Agreement, the term "STATED PORTION
OF THE BASE RENT" with respect to the Base Rent for any Renewal Period shall
mean the portion of such Base Rent determined without regard to any CPI Increase
(I.E., the fixed dollar amount of the Base Rent as set forth in the schedule set
forth above with respect to such Renewal Period).
(g) CPI INDEX
For all purposes of this Agreement, the term "CPI INDEX" for
any year shall mean the simple average CONSUMER PRICE INDEX FOR ALL ITEMS AND
MAJOR GROUP FIGURES FOR ALL URBAN CONSUMERS, as published by the Bureau of Labor
Statistics, U.S. Department of Labor, with respect to such year. Accordingly,
(i) if such consumer price index is published monthly, the CPI Index will be the
simple average of the 12 indices so published, (ii) if such consumer price index
is published quarterly, the CPI Index will be the simple average of the 4
indices so published, AND (iii) if such consumer price index is published only
annually, the CPI Index will be the index so published. If there is no such
consumer price index published with respect to any year, then its successor (or
if no such successor exists, the most comparable index thereto) shall be used
and applied on a reasonably consistent and equitable basis.
3.2 PERCENTAGE RENT
(a) DETERMINATION OF PERCENTAGE RENT
In addition to the Base Rent, Lessee shall pay to Lessor, as a
percentage rental (the "PERCENTAGE RENT") with respect to each year (or partial
year) during the Term of this Lease, an amount equal to 5% of Lessee's Gross
Sales during such year ONLY to the extent such Percentage Rent exceeds the
Stated Base Rent applicable for such calendar year.
(b) DEFINITION OF GROSS SALES
The term "GROSS SALES" with respect to any year (or partial
year) during the Term shall mean the aggregate gross sales price of all food,
beverages, merchandise, vending machine sales, and any other items sold, and all
charges for services performed by Lessor or by any tenants, licensees, or
concessionaires of
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Lessor, in, from, or with respect to the Leased Premises, whether for cash,
on credit, or otherwise, EXCLUDING, HOWEVER, (i) any rental tax, sales tax,
gross receipts tax, or similar tax by whatever name called, the amount of
which is determined by the amount of sales made, and which Lessee may be
required to collect and account for to any governmental agency, (ii) any
transfers of food or beverages made by Lessee from the Leased Premises to any
other stores, warehouses, or commissaries of Lessee or its affiliated
companies or franchisees without mark-up or gross profit, (iii) any credits
or refunds made to customers as a courtesy or for food, beverages, or other
merchandise or items returned, exchanged or deemed unsatisfactory, (iv) any
returns of food, beverages, or other merchandise or items to suppliers or
manufacturers, (v) the net amount of any discounts allowed to customers,
including discounts resulting from the issuance to customers of trading
stamps, receipts or coupons for food or beverages, AND (vi) any amounts
received by Lessee from the sale of Lessee's Trade Fixtures or other items
not held by Lessee for sale in the ordinary course of business.
(c) REPORTS OF SALES
At the time that the Percentage Rent is due and payable with
respect to each year (or partial year) during the Term, Lessee shall submit to
Lessor a written statement of the Gross Sales of Lessee with respect to such
year (or partial year), certified by an officer of Lessee (the "ANNUAL GROSS
SALES STATEMENT"), and, if requested by Lessor, such Annual Gross Sales
Statement shall be accompanied by copies of the sales tax returns filed by
Lessor with the Kentucky Revenue Cabinet with respect to the Gross Sales of
Lessee in, from, or with respect to the Leased Premises during such year (or
partial year); PROVIDED, HOWEVER, that if any such sales tax return is not
required to have been filed, and, in fact, has not been filed, at or before the
time that the Annual Gross Sales Statement is due to be delivered to Lessor
under this Lease, then such sales tax return shall be submitted to Lessor within
10 DAYS after it is filed. In addition, if requested by Lessor, Lessee shall,
within 20 DAYS following the end of each calendar month during the Term, furnish
to Lessor a monthly statement of the Gross Sales of Lessee during such calendar
month. Each Annual Gross Sales Statement and monthly statement of Gross Sales
shall be treated as confidential by Lessor.
(d) RECORD OF SALES; INSPECTIONS AND AUDITS
Lessee shall prepare and keep, at its principal place of
business, for a period of not less than THREE (3) YEARS, adequate books and
records (conforming to generally accepted accounting principles, consistently
applied) showing its Gross Sales for each calendar month throughout the Term.
Upon at least 10 DAYS' prior notice to Lessee, Lessor or Lessor's representative
may inspect and audit the records of the Lessee's Gross Sales during regular
business hours; PROVIDED, HOWEVER, that such inspection is commenced within
THREE (3) YEARS after the date that Lessor receives statements of Lessee's Gross
Sales and is limited to the period covered by such
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statements. If such audit by Lessor discloses a deficiency in the Gross Sales
for such period, then Lessee shall promptly pay to Lessor (i) the amount of
such deficiency AND (ii) if the deficiency is EQUAL TO OR GREATER THAN 5% of
the amount of Gross Sales with respect to which Lessee paid Lessor Percentage
Rent, the reasonable cost of such audit. If the statements furnished by
Lessee during any two out of three consecutive Lease Years understate
Lessee's Gross Sales by 5% OR MORE in each of such two years, then Lessor
may, at Lessor's sole option and not in derogation, reduction or elimination
of any other rights or remedies of Lessor, terminate this Lease by notice to
Lessee, PROVIDED, HOWEVER, Lessor shall not have the right to so terminate if
the understatement was due to inadvertence or clerical error of which Lessee
had no knowledge.
(e) PAYMENT OF PERCENTAGE RENT
The Percentage Rent with respect to each year (or partial
year) during the Term of this Lease shall be due and payable within 60 DAYS
after the end of such year (or partial year), without prior demand therefor.
Unless otherwise directed by Lessor in writing, Lessee shall pay the Percentage
Rent due and payable at any time to Lessor at the address for Lessor which is
then applicable as to notices under the provisions of Section 12.5 below.
(f) RETAIL RESTRICTION LIMIT/FAILURE TO OPERATE
The parties acknowledge that the realization of the benefits
of the Percentage Rent are dependent upon Lessee maximizing its gross sales and
that failure to operate, or self-competition, is inconsistent with the
generation of appropriate levels of Percentage Rent. The parties further
acknowledge that Base Rent was negotiated together with, and giving
consideration to, the Percentage Rent and that self-competition or failure to
operate by Lessee will deprive Lessor of a bargained-for consideration.
Accordingly, Lessee covenants and agrees that during the Term (i) Lessee will
not, directly or indirectly, engage in any business similar to, or in
competition with, the business operated on the Leased Premises within a radius
of TWO (2) MILES from the Leased Premises AND (ii) Lessee shall use its
reasonable best efforts to operate its Restaurant (as hereinafter defined) in
the Leased Premises with reasonable due diligence and efficiency so as to
maximize, to the extent reasonably and economically feasible, the Percentage
Rent which may be produced by such manner of operation. Subject to matters
beyond the reasonable control of Lessee, Lessee shall carry at all times in the
Leased Premises such inventories of food, liquor, and other goods as shall be
reasonably designed to maximize, to the extent reasonably and economically
feasible, the return to Lessor and Lessee. Lessee shall generally operate seven
days a week at such hours as are customary for similar restaurants in the
geographic area of the Leased Premises.
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3.3 ADDITIONAL RENT
Lessee shall pay, as additional rent, certain amounts with respect
to taxes, maintenance, and other factors as provided under other provisions of
this Lease (collectively, the "ADDITIONAL RENT"). For all purposes of this
Lease, the term "RENT" shall include all Base Rent, Percentage Rent and
Additional Rent.
3.4 DELINQUENT RENT; LATE CHARGE
Each unpaid installment of Rent or other amount required to be paid
by Lessee to Lessor under this Lease shall bear interest from 10 days after the
date on which such Rent or other amount is due and payable at the Prime Rate
plus 2% PER ANNUM. In addition, in the event that any Rent or any other payment
required to be made by Lessee under this Lease is not paid as and when due and
such failure continues for more than a period of 10 days thereafter (without
regard to any notices), Lessee shall pay to Lessee a late charge equal to THE
GREATER OF (i) 5% of the amount of such delinquent Rent or other payment, OR
(ii) an amount equal to any late charge incurred by Lessor on Lessor's first
mortgage loan cause by such delinquent payment by Lessee.
3.5 SECURITY DEPOSIT
There shall be no security deposit required under this Lease.
3.6 SURVIVAL OF OBLIGATION TO PAY RENT
Lessee's obligation to pay all Rent when due shall survive the
expiration or sooner termination of the Term.
ARTICLE
4
USE OF THE LEASED PREMISES; QUIET ENJOYMENT
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4.1 GENERAL PURPOSES
Lessee may use or permit the use of the Leased Premises for a
full-service TUMBLEWEED-Registered Trademark- restaurant ("RESTAURANT") and
such other activities as are incidental thereto, and may not use or permit
the use of the Leased Premises for any other use or purposes without the
prior written consent of Lessor, which approval shall not be unreasonably
withheld.
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4.2 COMPLIANCE WITH LAWS
Lessee shall not use the Leased Premises in violation of any
statute, law, ordinance, or governmental code, rule, or regulation now or
hereafter applicable to the Leased Premises, INCLUDING, BUT NOT LIMITED TO,
violation of any Federal, state or local environmental laws, any fire, health,
or safety codes, and any zoning rules and regulations.
4.3 HAZARDS AND WASTE
Lessee shall not create or permit any hazard, nuisance, menace, or
waste in, on or about the Leased Premises.
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT
Subject to acquisition of the Lease Premises by Lessor as provided
under Section 1.2 hereof, Lessor represents and warrants to Lessee that:
(a) POWER AND AUTHORITY
Lessor owns the Leased Premises in fee simple and has full
power and authority to execute and perform its obligations under this Lease.
(b) LIENS AND ENCUMBRANCES
During the Term, the Leased Premises shall be free and clear
of all liens and encumbrances superior to the leasehold interests of Lessee
under this Lease, EXCEPT (i) those liens and encumbrances of record as of the
date of execution of this Lease (or liens or encumbrances in substitution or
renewal thereof), (ii) those liens and encumbrances which may be placed on the
Leased Premises by or with the specific written consent of Lessor in connection
with any buildings or other improvements required to be built by Lessor or
Lessee under this Lease, (iii) those liens or encumbrances which may be placed
on the Leased Premises by or with the specific written consent of Lessor in
compliance with the provisions of Sections 9.2 and 9.3 hereof, (iv) existing
zoning ordinances which affect the Leased Premises or which may hereafter exist
during the Term, (v) easements for public utilities and easements of any public
highways, AND (vi) the lien of real estate ad valorem taxes not then due and
payable.
(c) QUIET ENJOYMENT
During the Term, PROVIDED, HOWEVER, that Lessee is not in
default under this Lease, Lessee shall peaceably hold and have quiet enjoyment
of the Leased Premises free from interference from anyone lawfully claiming any
interest in the Leased Premises (but subject to the terms and conditions of this
Lease).
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(d) TAXES
All taxes on the Leased Premises, EXCEPT current taxes not due
and payable, have been paid in full.
ARTICLE
5
INSURANCE; INDEMNIFICATION
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5.1 FIRE AND HAZARD INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at all
times during the Term of this Lease one or more policies of insurance covering
loss or damage to the Leased Premises in the amount of the full replacement
value thereof. Such policies shall provide protection against all perils
included within the classifications of fire, extended coverage, vandalism,
malicious mischief and special extended perils (all risks) and shall name Lessor
as an additional insured. To the extent reasonably possible, Lessee shall
increase such insurance from time to time during the Term to include such
additional risks or greater coverage of the risks set forth above as may be
reasonably required by Lessor's lenders.
5.2 LIABILITY INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at all
times during the Term of this Lease one or more insurance policies of
comprehensive public liability insurance insuring Lessor and Lessee against all
liability arising out of the ownership, use, occupancy, or maintenance of the
Leased Premises, with policy limits of no less than $5,000,000.00 with respect
to injuries to, or death of, any persons on the Leased Premises, or occurrences
of any property damage to third parties caused on the Leased Premises, whether
or not caused by any of Lessee's employees, agents, representatives, guests or
invitees.
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS
If the nature of Lessee's operation is such as to place any or all
of its employees under the coverage of local workers' compensation or similar
statutes and/or unemployment compensation schedules, Lessee shall also keep in
force, at Lessee's expense, workers' compensation or similar insurance affording
statutory coverage and containing statutory limits, and shall make all
unemployment compensation contributions required by law.
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5.4 OTHER INSURANCE
Lessee shall be responsible for obtaining, at Lessee's expense,
business interruption insurance which will cover the payment of Rent and other
charges due hereunder for at least TWELVE (12) MONTHS and insurance on the
equipment, inventory, merchandise, supplies and other property of Lessee on or
about the Leased Premises in a commercially reasonable amount. Lessee, on its
behalf and on its insurers' behalf, hereby expressly waives any and all claims
against Lessor for loss or damage to Lessee's equipment, inventory, merchandise,
supplies and other property on or about the Leased Premises due to fire,
explosion, windstorm, or any other casualty, or due to any other cause
whatsoever, regardless whether Lessee or Lessor has procured insurance thereon
and regardless of the cause of such loss or damage, INCLUDING, BUT NOT LIMITED
TO, loss or damage resulting from the negligence of Lessor or Lessor's partners,
officers, managers, members, directors, employees, agents, or representatives.
5.5 CERTIFICATES OF INSURANCE
Lessee shall deliver to Lessor copies of the insurance policies
required under Sections 5.1 and 5.2 hereof or certificates evidencing the
existence and amounts of such insurance with loss payable clauses satisfactory
to Lessor. No such policy shall be cancelable or subject to reduction of
coverage or other modification EXCEPT after 10 DAYS' prior written notice to
Lessor. Lessor shall, within 10 DAYS prior to the expiration of any policy,
furnish Lessor with renewals or "binders" thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand of Lessor or the applicable insurance company.
5.6 WAIVER OF SUBROGATION
Lessor and Lessee each hereby waives any and all rights of recovery
against the other, or against the partners, officers, managers, members,
directors, employees, agents and representatives of the other, for loss or
damage to such waiving party or its property or the property of others under its
control, to the extent such damage or destruction is insured against under any
insurance policies in force at the time of such loss or damage. The provisions
of this Section 5.6 shall be effective during the Term for so long as such
provisions do not prohibit securing insurance coverage from responsible
insurance companies by either party after a good faith effort. Lessor and Lessee
shall give notice to its insurance carrier(s) that the foregoing mutual waiver
of subrogation is contained in this Lease and attempt in good faith to cause its
insurance policies with respect to the Leased Premises, and the property
contained therein, to be endorsed to permit the foregoing waiver of subrogation.
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5.7 INDEMNIFICATION
Lessee shall indemnify Lessor and save and hold Lessor harmless
from and against any and all claims, actions, damages, liabilities, and expenses
in connection with loss of life, personal injury and/or damage to property
arising from, out of, or in connection with the occupancy or use by Lessee of
the Leased Premises or any part thereof; PROVIDED, HOWEVER, that this
indemnification by Lessee shall not extend to acts of negligence of Lessor, or
Lessor's officers, managers, members, directors, partners, employees, agents, or
representatives, or to events or accidents which occur as a result of Lessor's
failure to perform its obligations under this Lease. In the event Lessor shall,
without any fault on its part, be made a party to any litigation commenced by or
against Lessee, or against Lessor as a result of any action or inaction by
Lessee in connection with the Leased Premises, then Lessee shall protect and
hold Lessor harmless and shall pay all costs, expenses, and reasonable attorneys
fees incurred or paid by Lessor in connection with such litigation.
ARTICLE
6
RECONSTRUCTION AND EMINENT DOMAIN
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6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE LEASED PREMISES
(a) GENERAL OBLIGATION TO REPAIR; CERTAIN RIGHTS OF LESSEE TO
TERMINATE LEASE
Lessee shall use every reasonable precaution against fire and
shall, in the case of fire or other casualty, give immediate notice thereof to
Lessor. In case of fire or other casualty, Lessee shall, at its own expense and
subject to the other provisions of this Section 6.1, cause the damage to be
promptly repaired and the improvements reconstructed at the cost and expense of
Lessee; PROVIDED, HOWEVER, that Lessee shall be entitled to use for such purpose
the insurance proceeds, if any, available by reason of such loss; AND PROVIDED
FURTHER, HOWEVER, that notwithstanding the foregoing, if (i) the Leased Premises
are damaged so substantially by fire or other casualty as to make MORE THAN 50%
of the rentable square footage of the buildings constituting a part of the
Leased Premises untenantable AND (ii) such damage to the Leased Premises occurs
at a time when the remainder of the Term is 12 MONTHS OR LESS, then Lessee may,
at Lessee's option and upon at least 10 DAYS' prior written notice to Lessor,
terminate this Lease without penalty or liability; PROVIDED, HOWEVER, that in
the event of such termination by Lessee, Lessee shall, at its sole cost and
expense (i) remove all remains and debris so that the Leased Premises shall be
safe and sightly, (ii) grade and compact the Leased Premises so that surface
water drainage or other causes will not damage the Leased Premises or the
properties adjoining the Leased Premises, AND (iii) pay Lessor a lump sum
termination payment equal to the total of SIX (6) MONTHS of the Base Rent then
in effect. If Lessee shall not commence to remove
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such remains and debris, and grade and compact the Premises within 60 DAYS
from the date of any such damage or destruction, or, if thereafter Lessee
shall fail to diligently pursue the removal of such remain and debris, then
Lessor shall be entitled to receive the insurance proceeds otherwise payable
to, or held by, Lessee, to the extent necessary to remove all remains and
debris, and grade and compact the Leased Premises in the manner described
herein. Any insurance proceeds after (i) the removal of such remains and
debris, (ii) grading and compacting the Leased Premises, AND (iii) paying the
lump sum termination payment to Lessor, shall distributed to Lessee.
(b) DAMAGE AND REPAIR
Subject to and in accordance with the other provisions of this
Section 6.1, Lessee may, at Lessee's expense, either promptly repair, replace,
or rebuild such building or other improvement or delay the commencement of the
work until the proceeds of all insurance policies covering the casualty or
hazard (and any replacement funds therefor which Lessor is required to provide
under Section 6.1((e)) below) are made available to Lessee for such purpose.
Lessee shall continue the commenced work with reasonable diligence until its
completion.
(c) SPECIFICATIONS AND APPROVALS
Lessee shall make the repair, replacement, or rebuilding in
accordance with applicable plans and specifications (reflecting a structure
either substantially the same as that which existed prior to the fire or other
casualty (SUBJECT, HOWEVER, to changes required by then applicable laws or
governmental regulations) or with such differences as may be proposed by Lessee
and approved by Lessor, acting reasonably and in good faith). Such plans and
specifications shall first be submitted to and approved in writing by Lessor,
which approval shall not be unreasonably withheld or delayed. Before any work is
commenced, the plans and specifications shall be filed with and approved by all
applicable municipal or other governmental authorities, and, if so required by
the terms of Lessor's mortgage, Lessee shall attempt in good faith to obtain and
deliver to Lessor the written consent of any present mortgagee. Lessor shall
join in any application to the mortgagee for such consent and use all reasonable
efforts in attempting to obtain such consent. Before commencing the work, Lessee
shall procure at Lessee's expense, and deliver to Lessor, all policies of
insurance usually required in connection with such work.
(d) INSURANCE PROCEEDS ESCROW
For the purpose of paying the cost of repair, replacement, or
rebuilding, Lessee shall deposit the insurance proceeds in an escrow account
with such escrow agent as Lessor, acting reasonably and in good faith, may
designate, which escrow agent shall disburse such insurance proceeds during the
course of the work. If the proceeds are insufficient to pay the cost of the
work, Lessee shall pay the
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deficiency. If the proceeds exceed the cost of such work, Lessee shall retain
the excess.
(e) MORTGAGES
If the holder of any existing mortgages (the "MORTGAGEE")
elects to exercise the Mortgagee's right, if any, to apply any insurance
proceeds towards the reduction of the mortgage, Lessor shall make available to
Lessee, for the sole purpose of the repair, replacement, or rebuilding for which
Lessee is obligated, an amount equal to the total insurance proceeds retained by
such Mortgagee (PROVIDED, HOWEVER, if the amount necessary for such repair,
replacement, or rebuilding is less than the total amount of the insurance
proceeds retained by such Mortgagee, then any such excess shall be treated as a
prepayment of Rent or other payments thereafter becoming due from Lessee under
this Lease). If Lessor fails to make such funds available within a reasonable
time after final settlement of the loss with the insurers, Lessee may either
terminate this Lease or complete the repair, replacement, or rebuilding and
deduct the amount not reimbursed against the Rent or other payments thereafter
becoming due from Lessee under this Lease.
(f) CONTINUATION OF LEASE
EXCEPT as otherwise provided herein, this Lease shall not
terminate or be affected in any manner by reason of the damage or destruction,
by fire or other casualty, in whole or in part, of the Leased Premises or by
reason of the untenantability of the Leased Premises.
(g) NO REDUCTION OF RENT
Lessee is required to obtain and maintain in full force and
effect during the Term certain business interruption or other insurance.
Accordingly, if this Lease remains in effect following damage to the Leased
Premises by fire or other casualty, the Rent shall not be reduced or abated.
(h) LESSEE'S CONTINUING OBLIGATION TO INSURE
Any termination by the Lessee of the Lease under this Section
6.1 shall not relieve Lessee of any liabilities to Lessor regarding Lessee's
responsibility for having insured the Leased Premises for the benefit and
interest of Lessor as provided under this Lease.
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6.2 EMINENT DOMAIN
(a) TERMINATION OF LEASE AS TO PORTION OF LEASED PREMISES TAKEN
In the event that all or any portion of the Leased Premises is
taken under the power of eminent domain by any competent authority, this Lease
shall terminate as to the part so taken as of the date on which Lessee is
required to yield possession thereof to the taking authority.
(b) TAKING OF LESS THAN A SUBSTANTIAL PORTION OF THE LEASED
PREMISES
If the taking of a portion of the Leased Premises is not a
Substantial Portion, then Lessor shall make all repairs, alterations and
replacements as may be necessary in order to restore the portion of the Leased
Premises not taken to useful condition and the Rent shall be reduced on an
equitable basis to take into account the elimination of the portion of the
Leased Premises taken.
(c) TAKING OF A SUBSTANTIAL PORTION OF THE LEASED PREMISES
If the taking of a portion of the Leased Premises is a
Substantial Portion, then either Lessor or Lessee shall have the option to
terminate this Lease as of the date on which Lessee is required to yield
possession of the portion taken to the taking authority, which option shall be
exercised by Lessor or Lessee by written notice delivered to the other of them
on or prior to such date. Unless this Lease is so terminated, Lessor shall make
all repairs, alterations and replacements as may be necessary in order to
restore the portion of the Leased Premises not taken to as useful a condition as
is practicable and the Rent shall be reduced on an equitable basis to take into
account the elimination of the portion of the Leased Premises taken.
(d) SUBSTANTIAL PORTION
For all purposes of this Agreement, the term "SUBSTANTIAL
PORTION" means (i) any part of the building on the Leased Premises, (ii) 10% or
more of the parking spaces on the Leased Premises, (iii) 15% or more of the land
area demised as part of the Leased Premises, (iv) any property which affects the
direct access from the Leased Premises to any adjacent street or highway, AND
(IV) any portion of the land or improvements, the absence of which is reasonably
likely to have a substantial impact on the business of Lessee conducted in, or,
or from the Leased Premises.
(e) CONTESTING TAKING; ALLOCATION OF PROCEEDS
Only Lessor shall have the right to contest any proposed or
declared taking or condemnation of the fee of and leasehold in the Leased
Premises. All compensation awarded for taking of the fee of and the leasehold in
the Leased
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Premises shall belong to and be the property of Lessor, and Lessee hereby
assigns to Lessor all of Lessee's rights, if any, to any such compensation,
EXCEPT any compensation for moving or relocation expenses payable to Lessee,
losses relating to Lessee's Trade Fixtures (as hereinafter defined), losses
relating to any permanent improvements to the Leased Premises made by Lessee
during the Term (based on the ratio that the fair market value of such
improvements made by Lessee during the Term bears to the fair market value of
all improvements to the Leased Premises for which an award is made), and
losses of profits to which Lessee would be entitled to recovery.
ARTICLE
7
UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS; CONSTRUCTION OF SPECIFIED
BUILDING
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7.1 UTILITIES
Lessee shall timely pay for all heat, water, sewer service, gas,
electricity, telephone and other utilities and services used in or about the
Leased Premises, and all such utilities and services, as applicable, shall be
metered to the Leased Premises in Lessee's name.
7.2 MAINTENANCE AND REPAIRS
(a) LESSEE'S GENERAL OBLIGATION TO MAINTAIN
Lessee, at Lessee's expense, shall maintain the Leased
Premises and all additions thereto and improvements thereof in good repair and
condition throughout the Term and shall yield up the Leased Premises upon the
expiration or sooner termination of this Lease in broom clean condition and in
as good and tenantable condition as the Leased Premises were in at the beginning
of the Term or at the time later added to the Leased Premises, as the case may
be, normal wear and tear excepted.
(b) SPECIFIC MAINTENANCE OBLIGATIONS OF LESSEE
In furtherance of, and not by way of limitation of, Lessee's
obligations under Section 7.2(a) hereof, Lessee, at Lessee's expense, shall be
responsible for all repairs, replacements and maintenance required with respect
to the Leased Premises, INCLUDING, BUT NOT LIMITED TO, the repair and/or
replacement of (i) any burst, stopped or leaking water, gas, sewer or other
pipes or plumbing fixtures or equipment, (ii) any dysfunctional or
malfunctioning lighting, electrical, or heating, ventilation and air
conditioning components, circuits, facilities or systems, (iii) any fences,
parking areas, sidewalks, driveways, landscaping and signs, (iv) any sprinklers
or other fire or smoke alarm or control devices, AND (v) any foundations,
structural
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components, exterior or interior walls and surfaces, roofs, gutters,
downspouts, ceilings, windows and doors.
(c) WAIVER OF LESSOR LIABILITY
Lessor shall not be responsible or liable to Lessee for any
loss or damage resulting from any cause whatsoever, INCLUDING, BUT NOT LIMITED
TO, any loss or damage from any burst, stopped or leaking water, gas, sewer or
other pipes or plumbing fixtures or equipment, or from any failure of or defect
in any lighting, electrical, or heating, ventilation and air conditioning
components, circuits, facilities or systems.
7.3 ALTERATIONS BY LESSEE
(a) NONSTRUCTURAL INTERIOR ALTERATIONS
Without any necessity of obtaining Lessor's consent, Lessee,
at Lessee's expense, may from time to time during the Term make any interior
alterations, additions, or improvements in and to the Leased Premises which
Lessee may deem advisable and which do not affect the structural components of
any building or other improvement. Any such interior alteration, addition, or
improvement shall be made in a first class workmanship manner and in accordance
with all valid requirements of municipal or other governmental authorities.
(b) STRUCTURAL ALTERATIONS
Lessee shall not make any structural additions or other
alterations to, nor remove or demolish, any building or other improvement
constituting a part of the Leased Premises without the prior written consent of
Lessor, which shall not be unreasonably withheld.
(c) ALTERATIONS BECOME PART OF LEASED PREMISES
Lessee agrees that any and all improvements or alterations to
the Leased Premises shall immediately become the property of the Lessor and
shall remain upon and as part of the Leased Premises.
7.4 MECHANICS OR MATERIALMEN'S LIENS
Unless Lessee shall contest the validity thereof as hereinafter
provided, Lessee shall not allow any mechanic's, materialman's, or other liens
to be filed against the Leased Premises or any part thereof as a result of any
act of omission by Lessee. Lessee may contest, by appropriate proceedings, the
amount, validity or application of any mechanic's, materialman's, or other lien
filed against the Leased Premises or any part thereof so long as (i) no part of
the Leased Premises would be subject to loss, sale or forfeiture before
determination of such contest, (ii) Lessor is not subject to any
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criminal penalty as a result of the failure to pay such lien, AND (iii)
Lessee conducts all such contests, at Lessee's expense, with due diligence
and in good faith.
7.5 SIGNS AND OTHER TRADE FIXTURES
Lessee may construct, build, or install on the Leased Premises any
and all racks, counters, tables, shelves, signage, and other trade fixtures and
equipment of every kind or nature which might be necessary or desirable to the
Lessee's use of the Leased Premises for permitted purposes (collectively, the
"TRADE FIXTURES"). All such Trade Fixtures shall at all times be and remain the
property of Lessee, and, so long as Lessee is not in default under this Lease,
Lessee shall have the right to remove all or any part of the Trade Fixtures from
the Leased Premises at any time during, or upon the expiration or sooner
termination of, the Term; PROVIDED, HOWEVER, that Lessee shall repair or
reimburse Lessor for the full costs of repairing any damage to the Leased
Premises resulting from the installation or removal of such Trade Fixtures. It
is specifically understood and agreed that all trademarks, trade names, service
marks, signs, and other marks of identification used by Lessee in Lessee's
business shall remain the exclusive property of Lessee at all times, and Lessor
shall have no right, title, or interest in or to any of such trademarks, trade
names, service marks, signs, or other marks of identification.
7.6 LESSOR'S RIGHT OF ENTRY
Lessor and Lessor's employees and agent shall have the right to
enter the Leased Premises from time to time during reasonable hours and upon
reasonable notice to Lessee (or at any time with or without notice in the event
of any emergency) in order to (i) examine the Leased Premises, (ii) make such
repairs and alterations as may be necessary for the safety and preservation of
the improvements on the Leased Premises (the cost of which repairs and
alterations shall be borne by Lessee), but without any obligations to make any
such repairs or alterations, OR (iii) exhibit the Leased Premises for sale or
lease and place one or more "For Sale or Rent" signs on the Leased Premises
during the 6 months immediately preceding the expiration of the Term, which
signs shall not be removed by Lessee.
7.7 CONSTRUCTION OF SPECIFIED BUILDING.
(a) LESSEE'S OBLIGATION TO CONSTRUCT SPECIFIED BUILDING.
Lessee covenants and agrees to proceed with due diligence, at
Lessee's expense, to perform Lessee's Work (as hereinafter defined) and renovate
the existing building on the Leased Premises and erect or cause to be erected on
the Leased Premises related improvements and site work (collectively, the
"SPECIFIED BUILDING"). The Specified Building shall be based on, and constructed
substantially in accordance with, the 5,400 SQUARE FOOT prototype Tumbleweed
restaurant plans and designs (the "PLANS AND SPECIFICATIONS") prepared by the
architectural firm of
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WOLFGANG & DOERSCHLAG (the "PROJECT ARCHITECT"), SUBJECT, HOWEVER, to such
changes as may be required from time to time by reason of the specific site
location, the nature of the construction as a renovation of an existing
building on the Leased Premises, or in order to obtain building permits. All
design, architectural, engineering, excavation and construction work shall be
performed in a first class workmanship manner and in accordance with all
applicable building codes and other requirements of governmental authorities.
The work necessary to construct the specified building in accordance with the
plans and specifications is referred to herein as "LESSEE'S WORK". Unless and
until the Total Lessor Investment equals $1,000,000.00, Lessor shall
reimburse Lessee for Lessee's expenditures incurred in connection with the
Lessee's Work. Such reimbursement shall be made by Lessor within TEN (10)
DAYS after Lessee requests such reimbursement and submits to Lessor such
receipts, invoices, architect's certificates, contractor or subcontractor
lien waivers, and/or other documents as Lessor or any lender to Lessor may
reasonably require. Lessee's Work shall be deemed completed upon
certification by the Project Architect that Lessee's Work is substantially
complete and issuance of a certificate of occupancy for the Leased Premises.
Lessee shall indemnify Lessor and hold Lessor harmless from and against any
loss, claim, or expense, including damage to property, injuries to person, or
mechanics' or materialmen's liens arising out of the performance of Lessee's
Work by Lessee, its employees, agents, and contractors.
(b) COMMENCEMENT AND COMPLETION OF CONSTRUCTION.
Lessee agrees that the construction of the Specified Building
shall commence as soon as reasonably possible after acquisition of the Leased
Premises by Lessor in accordance with the provisions of Section 1.2 hereof, and
such construction shall be diligently pursued thereafter until completed. If the
Specified Building is not completed within SIX (6) MONTHS after commencement
(UNLESS such noncompletion is due to circumstances beyond the reasonable control
of Lessee), Lessor may, at Lessor's sole option, take over the completion of the
Specified Building and all sums expended for such purpose by Lessee shall
constitute a part of the Total Lessor Investment UNLESS AND UNTIL the payment of
any such amount would cause the Total Lessor Investment to exceed $1,000,000.00,
in which case any such excess amount paid by Lessor shall be immediately repaid
to Lessor by Lessee upon demand.
(c) LESSEE'S EQUIPMENT AND TRADE FIXTURES.
In addition to performing the scope of Lessee's Work, Lessee
shall be responsible for installing its equipment and Trade Fixtures, which
shall be completed as promptly as reasonably and feasibly possible following
completion of Lessee's Work.
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(d) LESSEE'S PAYMENT OF EXCESS CONSTRUCTION COSTS WITHOUT
REIMBURSEMENT.
Lessor and Lessee agree that Lessor's obligation to reimburse
Lessee for the cost of the Lessee's Work shall cease at the time that the Total
Lessor Investment equals $1,000,000.00. In such event, Lessee shall be required
to complete Lessee's Work at Lessee's sole expense without reimbursement from
Lessor.
(e) WAIVER OF LESSOR LIABILITY WITH RESPECT TO CONSTRUCTION.
Nothing in this Lease shall be construed in any way as
constituting Lessor as the agent of the Lessee in designing, engineering or
constructing the Specified Building or any other improvements to the Leased
Premises. Lessee shall pay all of its contractors or subcontractors regarding
the scope of its improvements to the Leased Premises and shall remove, if
applicable, any mechanics' liens which may be filed against the Leased Premises
as a result of Lessee's non-payment of contract sums due to its contractors and
subcontractors. To the extent possible, all contractor's, subcontractor's,
manufacturer's, and vendor's warranties and guarantees, and any construction or
maintenance service contracts, IF ANY, with respect to any construction,
improvements, or repairs performed by or at the direction or request of Lessee
on or to the Leased Premises shall be issued in the name of, or otherwise be
available to, both Lessee and Lessor, as their interests may appear.
ARTICLE
8
TAXES
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8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES
As Additional Rent hereunder, Lessee shall pay all Real
Property Taxes (as hereinafter defined) applicable to the Leased Premises during
the Term, commencing with those due and payable in calendar year 1997; PROVIDED,
HOWEVER, that the Real Property Taxes for any year which are payable by Lessee
shall be subject to a prorata adjustment based upon the number of days of said
year during which the Leased Premises are leased to Lessee. For all purposes of
this Lease, the term "REAL PROPERTY TAXES" shall include any form of assessment,
licensing, commercial rental tax, levy, penalty, ad valorem tax, or other tax
(other than income, inheritance and estate taxes) imposed upon Lessor with
respect to the Leased Premises, or otherwise against or with respect to the
Leased Premises, by any authority having the direct or indirect power to tax,
including any city, county, state or federal Government, and any school,
agricultural or other improvement district thereof.
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(b) NOTICE AND PAYMENT
Following receipt by Lessor of the then current bills for Real
Property Taxes due and payable in 1997 or later years during the Term, Lessor
shall forward a copy thereof to Lessee. Within 30 DAYS after receipt of such
notice from Lessor, Lessee shall pay to Lessor any amount properly stated
therein to be due (SUBJECT, HOWEVER, to the prorata adjustment for any partial
year within the Term, as provided for under Section 8.1((a)) hereof).
8.2 PERSONAL PROPERTY TAXES.
Lessee shall pay, prior to delinquency, all taxes assessed against
or with respect to any Trade Fixtures, furnishings, equipment, or other personal
property contained in the Leased Premises. Any such taxes imposed upon or
otherwise payable by Lessor shall be treated and included as Real Property Taxes
which are subject to the provisions of Section 8.1 hereof.
8.3 INCOME AND OTHER TAXES
Nothing in this Lease shall be construed as requiring Lessee to pay
(i) any municipal, state or Federal income taxes assessed against Lessor,
(ii) any municipal, state, or Federal capital, levy, estate, succession,
inheritance, or transfer taxes of Lessor, OR (iii) any corporate franchise taxes
imposed upon any corporate owner of the fee of the Leased Premises.
ARTICLE
9
ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT
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9.1 ESTOPPEL CERTIFICATE
(a) LESSEE'S OBLIGATION TO EXECUTE ESTOPPEL CERTIFICATE WHEN
REQUESTED
From time to time, upon at least 10 DAYS' prior written notice
from Lessor, Lessee shall execute, acknowledge and deliver to Lessor, at no cost
to Lessor, a statement in writing (i) certifying that, as of the date of such
statement, this Lease is unmodified and in full force and effect (or, if
modified at such time, stating the nature of such modification and certifying
that this Lease, as so modified, is then in full force and effect),
(ii) certifying the date to which the Rent and other charges are then paid in
advance, if any, AND (iii) acknowledging that, as of the state of such
statement, there are not, to Lessee's knowledge, any uncured defaults on the
part of Lessor hereunder, or specifying such defaults if any are claimed. Any
such statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Leased Premises.
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(b) FAILURE OF LESSEE TO DELIVER ESTOPPEL CERTIFICATE
Lessee's failure to deliver such statement within the 10 DAY
period provided for under Section 9.1(a) above shall be conclusive upon Lessee
that, as of the end of such 10 DAY period (i) this Lease is in full force and
effect, without modification EXCEPT as may be represented by Lessor; (ii) there
are no uncured defaults on the part of Lessor hereunder; AND (iii) not more than
one month's rent has been paid in advance.
(c) LESSEE OBLIGATION TO FURNISH FINANCIAL AND TAX INFORMATION TO
LENDERS
If Lessor desires to finance or refinance the Leased Premises,
or any part thereof, Lessee hereby agrees to deliver to any lender designated by
Lessor such financial statements and tax returns as may be reasonably required
by such lender. All such financial statements and tax returns shall be received
by Lessor in confidence and shall be used only for the purpose herein set forth.
9.2 MORTGAGE SUBORDINATION
Subject to Lessor's compliance with the provisions of Section 9.3
hereof, Lessee agrees that this Lease shall at all times be subject and
subordinate to (i) all mortgages, liens, security interests, and other
encumbrances (hereinafter sometimes referred to collectively as "MORTGAGES" and
each individually as a "MORTGAGE") against the Leased Premises as of the date of
execution of this Lease, INCLUDING, BUT NOT LIMITED TO, the extent to which such
Mortgages secure current and future advances made under current debts and
obligations of Lessor, AND (ii) all Mortgages subsequently placed on the Leased
Premises by or with the consent of Lessor. Subject to Lessor's compliance with
the provisions of Section 9.3 hereof, Lessee agrees that, upon written demand by
Lessor and at no cost to Lessor, Lessee shall execute such documents as may be
required at any time and from time to time to effectuate and evidence such
subordinations.
9.3 NONDISTURBANCE AGREEMENTS
If, as of the date of execution of this Lease, there are any
Mortgages against the Leased Premises, or if Lessor shall subsequently encumber
or permit the encumbrance of the Leased Premises by any Mortgages, Lessor shall
have the mortgagee, lienholder or other secured party with respect to each
Mortgage execute a non-disturbance agreement providing that, so long as Lessee
is not in default under this Lease and continues to perform all of its
obligations under this Lease, (i) Lessee's tenancy shall not be disturbed,
(ii) this Lease shall not be affected by any default under such Mortgage, AND
(iii) in the event of any foreclosure or other enforcement of such
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Mortgage, and notwithstanding any resulting transfer of Lessor's rights under
this Lease, the rights of Lessee under this Lease shall expressly survive and
this Lease shall in all respects continue in full force and effect.
9.4 DEFAULT OF LESSOR UNDER MORTGAGES
If Lessor defaults in making payments under any Mortgage, or if
Lessor is otherwise in default under any Mortgage, Lessee shall have the right
to pay any or all Rent thereafter becoming due under this Lease to the
mortgagee, lienholder, or secured party under such Mortgage instead of to
Lessor, and any payments so made shall, to the extent thereof, discharge the
obligation of Lessee hereunder respecting the payment of such Rent. Subject to
Lessor's compliance with the provisions of Section 9.3 hereof, Lessee shall
execute an acceptance of, and shall fully comply with the terms of, any
collateral or conditional assignment of rents executed by Lessor.
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS LEASE
Lessee agrees that Lessee will give reasonably detailed notice to
any holder of a Mortgage with respect to the Leased Premises (PROVIDED, HOWEVER,
that Lessee has been notified in writing of the name and address of such
Mortgage holder) of any default of Lessor which would entitle Lessee to
terminate this Lease or reduce or abate the Rent hereunder. Such Mortgage holder
shall have the right, but not the obligation, to cure such default within a
period of 30 DAYS after such notice (or within such longer period of time as may
reasonably be required to cure such default if such default cannot reasonably be
cured within said 30 DAY period), and Lessee shall not terminate this Lease or
reduce or abate the Rent hereunder during such period.
ARTICLE
10
DEFAULT
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10.1 DEFAULT BY LESSEE; REMEDIES
(a) MATERIAL DEFAULT AND BREACH BY LESSEE
The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(i) The vacating or abandonment of the Leased Premises by
Lessee for 60 DAYS out of any period of 120 CONSECUTIVE DAYS during
the Term.
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(ii) The failure by Lessee to make any payment
of Rent or any other payment required to be made by
Lessee under this Lease as and when due and the
continuance of such failure for a period of 10 DAYS
after written notice thereof to Lessee (a "LATE
NOTICE"), Lessee hereby waiving any other statutory or
other notices of default for nonpayment of Rent;
PROVIDED, HOWEVER, that the failure by Lessee to make
any payment of Rent or any other payment required to be
made by Lessee under this Lease as and when due and the
continuance of such failure for a period of 10 DAYS
thereafter (without regard to any notices) shall
constitute a material default under this Lease if,
during the TWELVE (12) MONTH period ending with the
month in which such due date occurs, Lessor has given
more than TWO (2) Late Notices to Lessee.
(iii) The failure by Lessee to observe or
perform any of the covenants, conditions, or provisions
of this Lease to be observed or performed by Lessee,
other than those described in Section 10.1(a)(ii)
above, and the continuance of such failure for a period
of 30 DAYS after written notice thereof from Lessor to
Lessee; PROVIDED, HOWEVER, that if the nature of
Lessee's default is such that more than 30 DAYS is
reasonably required for its cure, then Lessee shall not
be deemed to be in default if Lessee commences such
cure within such 30 DAY period and thereafter
diligently pursues such cure to completion.
(iv) The making by Lessee of any general
assignment or general arrangement for the benefit of
creditors.
(v) The filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a
petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, such action is dismissed
within 60 DAYS).
(vi) The appointment of a trustee or receiver
to take possession of all or substantially all of
Lessee's assets located at the Leased Premises or of
Lessee's interests under this Lease, unless possession
is restored to Lessee within 60 DAYS.
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(vii) The attachment, execution, or other
judicial seizure of all or substantially all of
Lessee's assets located at the Leased Premises or of
Lessee's interests under this Lease, unless such
seizure is bonded or discharged within 60 DAYS.
(b) LESSOR'S REMEDIES UPON DEFAULT BY LESSEE
In the event of any material default or breach by Lessee, as
provided under Section 10.1((a)) above, Lessor may at any time thereafter, with
or without additional notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
(i) Re-enter the Leased Premises and remove all persons
and property from the Leased Premises. In such event, such
property may be removed and stored in a public warehouse or
elsewhere at the cost, and for the account, of Lessee. Should
Lessor elect to re-enter, as provided in this Lease, or should
Lessor take possession pursuant to legal proceedings or pursuant
to any notice provided for by law, Lessor may either terminate
this Lease or Lessor may, from time to time, without terminating
this Lease, re-let the Leased Premises or any part thereof for
such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and on such
other terms and conditions as Lessor, in Lessor's reasonable
discretion, may deem advisable with the right to make alterations
and repairs to the Leased Premises. On each re-letting, (A)
Lessee shall be immediately liable to pay to Lessor, in addition
to any indebtedness other than Rent due under this Lease, the
reasonable expenses of re-letting and of making such alterations
and repairs incurred by Lessor, and the amount, if any, by which
the Rent provided for under this Lease for the period of
re-letting (up to, but not beyond, the Term of this Lease)
exceeds the amount agreed to be paid as Rent for the Leased
Premises for the period of re-letting; OR (B) at the option of
Lessor, rents received by Lessor from re-letting shall be
applied, first, to the payment of any indebtedness, other than
Rent due under this Lease; second, to the payment of any
reasonable expenses of re-letting and making alterations and
repairs; and third, to the payment of Rent due and unpaid under
this Lease, with the residue, if any, being held by Lessor and
applied in payment of future Rent as it may become due and
payable under this
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Lease. If Lessee has been credited with any rent to be received
by re-letting under option (A) above, and such rent was not
promptly paid to Lessor by the new tenant, or if the rentals
received from the re-letting under option (B) above during any
month is less than the Rent required to be paid during such month
under this Lease, then Lessee shall pay any deficiency to Lessor,
such deficiency to be calculated and paid monthly. No re-entry or
taking possession of the Leased Premises by Lessor shall be
construed as an election on the part of Lessor to terminate this
Lease unless written notice of such intention is given to Lessee
or unless the termination of this Lease is decreed by a court of
competent jurisdiction. In spite of any re-letting without
termination, Lessor may at any time thereafter elect to terminate
this Lease for such previous breach. Should Lessor at any time
terminate this Lease for any breach, in addition to any other
remedy it may have, Lessor may recover from Lessee all damages
incurred by reason of such breach, including the worth at the
time of termination of THE EXCESS, IF ANY, OF the amount of rent
and charges equivalent to rent reserved in this Lease OVER the
then reasonable rental value of the Leased Premises for the
remainder of the stated term, all of which amounts shall be
immediately due and payable from Lessee to Lessor.
(ii) Maintain Lessee's right to possession, in
which case this Lease shall continue in effect whether
or not Lessee shall have abandoned the Leased Premises.
In such event, Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease,
including the right to recover the Rent as it becomes
due hereunder.
(iii) Require specific performance by Lessee of
Lessee's obligations under this Lease.
(iv) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial
decisions of the Commonwealth of Kentucky.
10.2 DEFAULT BY LESSOR
(a) MATERIAL DEFAULT AND BREACH BY LESSOR
A material default and breach of this Lease by Lessor shall
occur upon the failure by Lessor to observe or perform any of the covenants,
conditions, or
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provisions of this Lease to be observed or performed by Lessor and the
continuance of such failure for a period of 30 DAYS after written notice
thereof from Lessee to Lessor; PROVIDED, HOWEVER, that if the nature of
Lessor's default is such that more than 30 DAYS is reasonably required for
its cure, then Lessor shall not be deemed to be in default if Lessor
commences such cure within such 30 DAY period and thereafter diligently
pursues such cure to completion.
(b) LESSEE'S REMEDIES UPON DEFAULT BY LESSOR
In the event of any material default or breach by Lessor, as
provided under Section 10.2((a)), Lessee may at any time thereafter, with or
without additional notice or demand and without limiting Lessee in the exercise
of any right or remedy which Lessee may have by reason of such default or
breach:
(i) Remedy such breach or default and deduct from the Rent
then or thereafter due under this Lease the reasonable costs of
such remedy, including interest thereon at the Prime Rate plus 2%
per annum until recovered through such Rent offsets.
(ii) If Lessor is indebted to Lessee because of
a breach or default of this Lease at the expiration of
the Term, Lessee may, at its option, extend this Lease
on the same terms and conditions as provided herein
until such indebtedness is fully recovered by Lessee by
offsets against the Rent then or thereafter due under
this Lease.
(iii) Require specific performance by Lessor of
Lessor's obligations under this Lease.
(iv) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial
decisions of the Commonwealth of Kentucky.
10.3 REMEDIES CUMULATIVE
All rights and remedies of Lessor enumerated in Section 10.1((a))
hereof and all rights and remedies of Lessee enumerated in Section 10.2((a))
hereof shall be cumulative, and none shall exclude any other right or remedy
allowed by law or equity. Said rights and remedies may be exercised and enforced
concurrently or successively from time to time at Lessor's or Lessee's option,
respectively.
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10.4 ATTORNEY FEES AND COSTS
If any party shall default with respect to any of such party's
obligations under this Lease, such defaulting party shall pay all costs,
expenses, and reasonable attorneys' fees which are incurred or paid by the other
parties to this Lease in enforcing the covenants and agreements of the
defaulting party under this Lease.
10.5 FORCE MAJEURE
In the event that either Lessor or Lessee shall be delayed in,
hindered in, or prevented from the performance of any act required hereunder by
reason of any strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or the act, failure to act, or default of the other
party, or for other reasons beyond such party's control, then such party's
performance of such act shall be excused during the period of the delay and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay.
10.6 WAIVER OF CERTAIN DEFENSES
Should either Lessor or Lessee seek recourse to equity to enforce
any of its rights under this Lease by specific performance, injunction, or other
equitable relief, the other party agrees to, and hereby does waive any
defense(s), which it might otherwise have that there is any adequate remedy at
law.
ARTICLE
11
RIGHT OF FIRST REFUSAL
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11.1 EXERCISE OF RIGHT OF FIRST REFUSAL
During the Term, if (i) Lessor shall receive a bona fide offer to
purchase or otherwise acquire all or any part of the Leased Premises and Lessor
shall desire to accept such offer, OR (ii) Lessor shall make an offer to sell or
otherwise dispose of all or any part of the Leased Premises, then, EXCEPT as
otherwise provided under Section 11.4 below, Lessor shall grant Lessee the right
to purchase or acquire such interests in the Leased Premises at the price and on
the other terms and conditions of the offer so made. Lessor shall give written
notice to Lessee of any such offer, which notice shall attach a true and correct
copy of the offer, if in writing, or otherwise shall describe in detail all of
the terms and conditions of the offer. Lessee shall have a period of ten (10)
days after such notice is given within which to exercise Lessee's right of first
refusal under this Article 11 by giving written notice of such exercise to
Lessor. Notwithstanding anything herein which might be construed to the
contrary, the closing of Lessee's
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acquisition of all or any portion of the Leased Premises pursuant to this
Article 11 shall occur no sooner than 30 days after Lessee's exercise of
Lessee's right of first refusal.
11.2 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL
If Lessee shall fail or neglect to timely exercise Lessee's right
of first refusal after receipt of the notice from Lessor provided for under
Section 11.1, then Lessee's right of first refusal as to the offer set forth in
such notice from Lessor shall expire and Lessor may sell or otherwise dispose of
the Leased Premises to the person who made such offer upon the terms and
conditions thereof (all as described in Lessor's notice to Lessee). Any such
sale or other disposition shall be subject to all of the terms, conditions, and
covenants of this Lease and any present or future leases of the Leased Premises
(including the right of first refusal rights provided for under this Article 11
as to any subsequent offers).
11.3 TRANSFER OF EQUITY INTERESTS IN LESSOR
If Lessor is a corporation, joint venture, partnership, or limited
liability company, the transfer of any or all of the equity interests in such
entity to unrelated parties for good and valuable consideration shall be subject
to right of first refusal rights in favor of Lessee under terms and conditions
substantially similar to those set forth in the other provisions of this Article
11; PROVIDED, HOWEVER, that if, at such time, Lessor is an electing S
corporation under the Internal Revenue Code of 1986, as amended, or under any
similar subsequent tax law, and such election would be terminated by reason of
Lessee's exercise of its right of first refusal rights under this Article 11,
then Lessee may designate one or more persons who would not cause such election
to be terminated and who shall then have the right to exercise Lessee's right of
first refusal rights on their own behalf.
11.4 TRANSFERS TO RELATED PARTIES EXCLUDED
Notwithstanding any other provision of this Article 11 which might
be construed to the contrary, Lessee shall be given notice of any proposed
transfer, for nominal or no consideration, of all or any part of the Leased
Premises or of the equity interests described in Section 11.3 to any Related
Party with respect to Lessor, BUT Lessee shall have no right of first refusal
rights with respect to such proposed transfers. For all purposes of this Lease,
the term "RELATED PARTY" with respect to Lessor shall mean (i) any entity
controlling, controlled by, or under common control with Lessor, (ii) any owner
of the equity interests in Lessor, if Lessor is an entity, (iii) any individual
related by blood or marriage to Lessor, if Lessor is an individual, or to the
owners of the equity interests in Lessor, if Lessor is an entity, AND (iv) any
entity the equity interests of which, or the beneficial interests in which, are
owned by any of the individuals or entities described in the foregoing clauses
of this sentence.
______________________________________________________________________________
Text of Agreement - Page 29
<PAGE>
ARTICLE
12
MISCELLANEOUS
________________________________________
12.1 ASSIGNMENT OR SUBLETTING
Lessee shall not assign this Lease in whole or in part or sublease
all or any portion of the Leased Premises without the prior written consent of
Lessor, which consent shall not be unreasonably withheld; PROVIDED, HOWEVER,
that, notwithstanding the foregoing, Lessee may assign this Lease in whole or in
part or sublease all or any portion of the Leased Premises without the prior
written consent of Lessor to any entity controlling, controlled by, or under
common control with, Lessee. Unless otherwise agreed to by Lessor, in the event
of any assignment or sublease of this Lease by Lessee permitted under this
Section 12.1, Lessee shall remain fully liable to Lessor in connection with this
Lease and with respect to the Leased Premises. Lessor may freely assign any or
all of its rights and obligations under this Lease.
12.2 SUCCESSOR LESSOR'S LIABILITY
The term "Lessor" as used herein at any time shall mean only the
owner or owners at such time of the fee title to the Leased Premises and, in the
event of any transfer of such title, Lessor herein named (and in case of any
subsequent transfers, then the transferor) shall be relieved from and after the
date of such transfer of all liability with respect to Lessor's obligations
under this Lease thereafter to be performed; PROVIDED, HOWEVER, that any funds
in the hands of Lessor or the then transferor at the time of such transfer, in
which Lessee has an interest, shall be delivered to the transferee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns only during their
respective periods of ownership.
12.3 RELATIONSHIP OF THE PARTIES
Nothing contained in this Lease shall be deemed or construed by the
parties hereto, or by any third party, as creating the relationship of principal
and agent, partnership, or joint venture between or among any of the parties.
12.4 ENTIRE AGREEMENT
It is expressly understood and agreed by and among the parties
hereto that this Lease sets forth all the promises, agreements, conditions and
understandings between Lessor and Lessee relative to the Leased Premises and
that there are no other promises, agreements, conditions or understandings,
either oral or written, among them other than as are herein set forth. It is
further understood and agreed that no
______________________________________________________________________________
Text of Agreement - Page 30
<PAGE>
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Lessor or Lessee unless reduced to writing and signed by them,
and by direct reference therein made a part hereof.
12.5 NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals, offers,
counteroffers or other communications required or permitted under this Lease
shall be in writing AND (i) delivered by personal delivery to such intended
recipient, which personal delivery shall be evidenced by a written receipt
therefor signed by such recipient, (ii) sent by United States certified,
registered or express mail, return receipt requested, postage prepaid, or by
reputable express delivery service (such as Federal Express, UPS, Airborne,
Purolator, or DHL), fees prepaid, addressed to the intended recipient thereof,
at the address listed for such party below, or at such other address as such
party shall furnish in writing to the other parties to this Lease, OR
(iii) transmitted by fax to such intended recipient at the fax number listed for
such party below (or such other fax number as such party shall furnish in
writing to the other parties to this Lease), receipt of which transmission shall
be confirmed by such recipient.
TO LESSOR: WEST BROAD DEVELOPMENT, LLC
1230 Liberty Bank Lane, Suite 220
Louisville, Kentucky 40222
ATTENTION: Richard J. Reeves, Member
Fax: (502) 425-1295
WITH COPY TO: ROTH FOLEY BRYANT & COOPER, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
TO LESSEE: TUMBLEWEED, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
ATTENTION: John A. Butorac, Jr. & James M. Mulrooney,
Managers
Fax: (502) 893-6676
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals,
offers, counteroffers or other communications shall be effective upon being
personally
______________________________________________________________________________
Text of Agreement - Page 31
<PAGE>
delivered and properly receipted, TWO (2) DAYS after being properly addressed
and deposited in the United States mail or with a reputable express delivery
service or upon being transmitted by fax and properly receipted, as set forth
above. However, the time period in which a response to any such notice,
request, demand, consent, approval, offer, counteroffer or other
communication must be given shall commence to run from the date of receipt of
personal delivery, the date on the return receipt or express delivery
receipt, or the date of confirmation of receipt of the fax, as the case may
be, of the notice, request, demand, consent, approval, offer, counteroffer or
other communication by the addressee thereof; PROVIDED, HOWEVER, that if any
party rejects delivery of any such notice, request, demand, consent,
approval, offer, counteroffer or other communication properly sent by mail or
express delivery service, or fails or neglects to accept delivery after TWO
(2) ATTEMPTS to so deliver by postal or express delivery authorities, as the
case may be, the time period for a response shall commence TWO (2) DAYS
following the proper mailing or depositing with the express delivery service,
as the case may be, of such notice, request, demand, consent, approval,
offer, counteroffer or other communication.
12.6 NO WAIVER
No waiver by any party of any provisions of this Lease, nor any
default by any party, shall affect the rights of the waiving or nondefaulting
party or parties thereafter to enforce such provision or to exercise any right
or remedy in the event of any other default, whether similar or dissimilar. No
waiver shall be binding unless executed in writing by the party making the
waiver, nor shall any waiver constitute a continuing waiver.
12.7 SEVERABILITY AND INVALIDITY
The invalidity or unenforceability of any provision hereof shall
not affect or impair any other provisions hereof; PROVIDED, HOWEVER, should any
provision hereof providing for the payment of any rents, compensation or
reimbursement to Lessor be invalid or unenforceable, Lessor may, at its sole
option, terminate this Lease at any time giving Lessee 10 days' prior written
notice of such election to terminate.
12.8 CAPTIONS, HEADINGS AND SUMMARY
The captions and headings throughout this Lease and the Summary at
the beginning of this Lease are for convenience and reference only and the words
contained in such captions, headings and Summary shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision or the scope or intent
of this Lease, nor in any way affect this Lease.
______________________________________________________________________________
Text of Agreement - Page 32
<PAGE>
12.9 SUCCESSORS AND PERMITTED ASSIGNS
Subject to the provisions of Section 12.2 hereof, the terms,
covenants and conditions of this Lease shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
12.10 GENDER
The use of any gender in this Lease shall include all other
genders, the singular shall include the plural, and the plural shall include the
singular, as the context may require.
12.11 RECORDING
No party to this Lease shall record this Lease without the other
parties' prior written consent, but each party shall, upon request of any other
party, execute, acknowledge and deliver to such other party a "short form"
memorandum of this Lease for recording purposes.
12.12 GOVERNING LAW
This Lease shall be construed and interpreted in accordance with
the laws of the Commonwealth of Kentucky without regard to any conflict of laws
provisions.
12.13 COUNTERPARTS
This Lease may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
12.14 FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party may reasonably request, in
order to more effectively implement the transactions contemplated herein.
12.15 TRIPLE NET LEASE
It is the intention of the parties that this Lease constitute a
"Triple Net" or "Net-Net-Net" lease. Accordingly, whether or not specifically
mentioned in this Lease, during the Term, Lessee shall be obligated to make,
either directly or by payment of Additional Rent or other amounts to Lessor with
respect to real estate taxes or other such items, all maintenance, repair,
replacement, real estate taxes, assessments,
______________________________________________________________________________
Text of Agreement - Page 33
<PAGE>
insurance premiums, and other payments connected with or arising out of
Lessee's use or occupation of the Leased Premises and customarily paid by the
lessee under a "Triple Net" or "Net-Net-Net" lease.
IN WITNESS WHEREOF, the parties hereto have set their hands as of
the day and year first hereinabove written.
LESSOR:
WEST BROAD DEVELOPMENT, LLC
By: /s/ Richard J. Reeves
--------------------------------------
RICHARD J. REEVES, MEMBER
LESSEE:
TUMBLEWEED, LLC
By: /s/ John A. Butorac, Jr.
--------------------------------------
JOHN A. BUTORAC, JR., MANAGER
By: /s/ James M. Mulrooney
--------------------------------------
JAMES M. MULROONEY, MANAGER
EXHIBIT A: LEGAL DESCRIPTION OF LEASED PREMISES
______________________________________________________________________________
Text of Agreement - Page 34
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LEASED PREMISES
______________________________________________________________________________
Exhibit A
<PAGE>
(TRI-COUNTY TUMBLEWEED, CINCINNATI, OHIO)
LEASE AGREEMENT
BY
KELLER LLC
("LESSOR")
AND
TUMBLEWEED, LLC
("LESSEE")
<PAGE>
SUMMARY OF SELECTED LEASE PROVISIONS
(TRI-COUNTY TUMBLEWEED, CINCINNATI, OHIO)
IMPORTANT NOTICE
----------------
THIS SUMMARY IS FOR CONVENIENCE AND REFERENCE ONLY. IT IS MERELY A SUMMARY AND,
THEREFORE, IS INCOMPLETE. FURTHERMORE, THIS SUMMARY IS SUBJECT TO THE PROVISIONS
OF THE LEASE IN ITS ENTIRETY, AND IN THE EVENT OF ANY CONFLICT BETWEEN THE
PROVISIONS OF THIS SUMMARY AND ANY OF THE PROVISIONS OF THE LEASE, THE LEASE
PROVISIONS SHALL GOVERN.
<TABLE>
<CAPTION>
<S> <C>
LESSOR............................. KELLER, LLC
LESSEE............................. TUMBLEWEED, LLC
LEASED PREMISES.................... Approximately 1.5978 acres located on
Princeton Pike, Springdale, Ohio
(SEE EXHIBIT A FOR DETAILED DESCRIPTION)
INITIAL TERM....................... 11-YEARS
RENEWAL TERMS...................... FOUR 5-YEAR Renewal Periods
BASE INITIAL TERM (BEFORE $1,625,000
RENT "CEILING" REACHED).......... NO RENT DUE OR ACCRUED
INITIAL TERM (AFTER $1,625,000
"CEILING" REACHED, BUT BEFORE
REVENUE PRODUCING BUSINESS
OPERATIONS COMMENCED)......... AMOUNT PER MONTH equal to THE PRODUCT OF
(I) $1,625,000, TIMES (II) STOCKYARDS
PRIME RATE PLUS 1% PER ANNUM, TIMES
(III) THE QUOTIENT OF (A) THE NUMBER
OF DAYS IN SUCH MONTH, DIVIDED BY
(B) 365.
INITIAL TERM (AFTER REVENUE
PRODUCING BUSINESS
OPERATIONS COMMENCED)......... $15,557.42 PER MONTH ($186,689.04
annualized) (*)
RENEWAL TERMS................. $15,557.42 PER MONTH ($186,689.04
annualized) (*)
PLUS CPI Increase (Based on Increase in CPI for Last Year of
Preceding Initial Term or Renewal
Term OVER CPI for Second-to-Last Year)
PERCENTAGE RENT............... 5% of Lessee's Annual Gross Sales OVER
$2,100,000.00
</TABLE>
(*) Base Rent will be adjusted to 11.49% of costs, if Lessor's Total Investment
is less than $1,625,000
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INSURANCE..................... To be provided by Lessee
UTILITIES..................... To be provided by Lessee
REAL PROPERTY TAXES........... To be paid by Lessee
MAINTENANCE................... To be provided by Lessee
RIGHT OF FIRST REFUSAL........
Lessee has right of first refusal at
time of proposed sale, exchange, or
other disposition of Leased Premises by
Lessor
LESSOR'S OBLIGATION TO BUILD.. Lessor to build restaurant building
per Lessee's specifications and
directions at a cost, including land
cost and Deemed Interest Factor, not
to exceed $1,625,000
</TABLE>
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<PAGE>
LEASE AGREEMENT
(TRI-COUNTY TUMBLEWEED, CINCINNATI, OHIO)
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
ARTICLE/SECTION PAGE
- -------------------------------------------------------------------------------
1 GRANT OF LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 COMMENCEMENT AND EXPIRATION OF TERM.. . . . . . . . . . . . . . . . 1
2.2 HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 RENT; SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 PERCENTAGE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 DELINQUENT RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 SURVIVAL OF OBLIGATION TO PAY RENT. . . . . . . . . . . . . . . . . 6
4 USE OF THE LEASED PREMISES; QUIET ENJOYMENT. . . . . . . . . . . . . . . . 6
4.1 GENERAL PURPOSES. . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 HAZARDS AND WASTE . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT . 7
5 INSURANCE; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 FIRE AND HAZARD INSURANCE . . . . . . . . . . . . . . . . . . . . . 8
5.2 LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS. . . . . . . . 8
5.4 OTHER INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 CERTIFICATES OF INSURANCE . . . . . . . . . . . . . . . . . . . . . 9
5.6 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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<PAGE>
LEASE AGREEMENT
(TRI-COUNTY TUMBLEWEED, CINCINNATI, OHIO)
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
ARTICLE/SECTION PAGE
- -------------------------------------------------------------------------------
6 RECONSTRUCTION AND EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . 10
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE LEASED PREMISES. . . . . . . 10
6.2 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7 UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS; CONSTRUCTION OF
SPECIFIED BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . 13
7.3 ALTERATIONS BY TENANT . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 MECHANICS OR MATERIALMEN'S LIENS. . . . . . . . . . . . . . . . . . 14
7.5 SIGNS AND OTHER TRADE FIXTURES. . . . . . . . . . . . . . . . . . . 14
7.6 LESSOR'S RIGHT OF ENTRY . . . . . . . . . . . . . . . . . . . . . . 15
7.7 CONSTRUCTION OF SPECIFIED BUILDING. . . . . . . . . . . . . . . . . 15
8 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES . . . . . . . . . . . . . . 17
8.2 PERSONAL PROPERTY TAXES.. . . . . . . . . . . . . . . . . . . . . . 17
8.3 INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9 ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT . . . . . . . . . . . . . 18
9.1 ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 MORTGAGE SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . 18
9.3 NONDISTURBANCE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 19
9.4 DEFAULT OF LESSOR UNDER MORTGAGES . . . . . . . . . . . . . . . . . 19
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS LEASE 19
10 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1 DEFAULT BY LESSEE; REMEDIES. . . . . . . . . . . . . . . . . . . . 20
10.2 DEFAULT BY LESSOR. . . . . . . . . . . . . . . . . . . . . . . . . 22
10.3 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . . 23
10.4 ATTORNEY FEES AND COSTS. . . . . . . . . . . . . . . . . . . . . . 23
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<PAGE>
LEASE AGREEMENT
(TRI-COUNTY TUMBLEWEED, CINCINNATI, OHIO)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
ARTICLE/SECTION PAGE
- --------------------------------------------------------------------------------
10.5 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.6 WAIVER OF CERTAIN DEFENSES . . . . . . . . . . . . . . . . . . . 23
11 RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . . . . . . 23
11.1 EXERCISE OF RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . 23
11.2 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL . . . . . . . . . . . 24
11.3 TRANSFER OF EQUITY INTERESTS IN LESSOR . . . . . . . . . . . . . 24
11.4 TRANSFERS TO RELATED PARTIES EXCLUDED. . . . . . . . . . . . . . 24
12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 ASSIGNMENT OR SUBLETTING . . . . . . . . . . . . . . . . . . . . 25
12.2 SUCCESSOR LESSOR'S LIABILITY . . . . . . . . . . . . . . . . . . 25
12.3 RELATIONSHIP OF THE PARTIES. . . . . . . . . . . . . . . . . . . 25
12.4 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 25
12.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.6 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.7 SEVERABILITY AND INVALIDITY. . . . . . . . . . . . . . . . . . . 27
12.8 CAPTIONS, HEADINGS AND SUMMARY . . . . . . . . . . . . . . . . . 27
12.9 SUCCESSORS AND PERMITTED ASSIGNS . . . . . . . . . . . . . . . . 28
12.10 GENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.11 RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.13 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.14 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . 28
-v-
<PAGE>
--A--
ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--B--
BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--C--
CEILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CPI INCREASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CPI INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--G--
GROSS SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--I--
INITIAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--L--
LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LESSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 25
--M--
MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MORTGAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--N--
NOTICE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--P--
PERCENTAGE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--R--
REAL PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
RENEWAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RENEWAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--S--
SPECIFIED BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
STATED PORTION OF THE BASE RENT. . . . . . . . . . . . . . . . . . . . . 3
STOCKYARDS PRIME RATE. . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUBSTANTIAL PORTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--T--
TOTAL LESSOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . 3
TRADE FIXTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the ___
day ________, 1995 by (I) KELLER LLC, a Kentucky limited liability company,
(the "LESSOR"); and (II) TUMBLEWEED, LLC, a Kentucky limited liability
company (the "LESSEE").
WITNESSETH:
----------
IN CONSIDERATION OF the mutual covenants and agreements herein
contained, the parties agree as follows:
ARTICLE
1
GRANT OF LEASED PREMISES
----------------------------------------------------
1.1 PREMISES
Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, for the term, at the rental and upon all of the conditions set forth
herein, that certain real property and all improvements thereon and fixtures
and appurtenances thereto located at ______ PRINCETON PIKE, SPRINGDALE, OHIO
4______, as more particularly described on EXHIBIT A attached hereto and made
a part hereof, including, but not limited to, any fixtures, buildings, or
other improvements or alterations constructed, added, or made by Lessor or
Lessee during the Term (as hereinafter defined) in accordance with the
provisions of this Lease and all of Lessor's easements and appurtenances in,
over, and upon adjoining and adjacent public and private land, highways,
roads, streets, lanes and other areas reasonably required for ingress and
egress and for the installation, maintenance, operation and service of
utilities (the "LEASED PREMISES").
ARTICLE
2
TERM
----------------------------------------------------
2.1 COMMENCEMENT AND EXPIRATION OF TERM.
(a) INITIAL TERM
The initial term of this Lease shall commence as of the date
hereof and shall end on the LAST DAY OF THE 132ND MONTH AFTER THE FULL BASE RENT
COMMENCEMENT DATE (defined below), unless sooner terminated in accordance with
the terms and conditions set forth herein (the "INITIAL TERM").
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<PAGE>
(b) RENEWAL TERMS
The term of this Lease shall be automatically renewed for
successive additional periods of 60 months each (collectively, the "RENEWAL
TERMS" and each individually, a "RENEWAL TERM") upon the expiration of the
Initial Term and each of the first three Renewal Terms (the Initial Term and
all Renewal Terms are collectively referred to as the "TERM"), unless at
least 120 days prior to the expiration of the Initial Term or any Renewal
Term Lessee gives written notice to Lessor that the Term will end at the
expiration of such period. This Lease shall not be renewable at the end of
the fourth Renewal Term unless amended in writing to provide for such renewal.
2.2 HOLDING OVER
In the absence of a written agreement to the contrary or written
renewal of this Lease, if Lessee remains in possession of the Leased Premises
after the expiration of the Term or the sooner termination of this Lease,
Lessee, at the option of Lessor, shall be deemed to be occupying the Leased
Premises as a tenant from month-to-month at 150% of the then Monthly Base
Rent, subject to all of the conditions, provisions and obligations of this
Lease insofar as the same are applicable to a month-to-month tenancy, and
either party may terminate such month-to-month tenancy on 30 days' notice to
the other.
ARTICLE
3
RENT; SECURITY DEPOSIT
----------------------------------------------------
3.1 BASE RENT
(a) DETERMINATION OF BASE RENT
Lessee shall pay to Lessor a minimum guaranteed rental
(the "BASE RENT") with respect to each month during the Term determined in
accordance with the following schedule (PROVIDED, HOWEVER, that the Base Rent
for any partial month during the Term shall be prorated in accordance with
the ratio of the number of days of such month within the Term to the total
number of days of such month):
---------------------------------------------------------------
PERIOD BASE RENT
---------------------------------------------------------------
Initial Term (before No rent due or accrued
$1,625,000 Ceiling
reached)
---------------------------------------------------------------
Initial Term (after Amount per month equal to THE
$1,625,000 Ceiling PRODUCT OF (I) $1,625,000, TIMES
reached, but before (II) Stockyards Prime Rate PLUS 1%
Full Base Rent per annum, TIMES (III) THE QUOTIENT
---------------------------------------------------------------
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<PAGE>
---------------------------------------------------------------
Commencement OF (A) the number of days in such
Date(2) month, DIVIDED BY (B) 365
---------------------------------------------------------------
Initial Term(2) $15,557.42 per month (1)
---------------------------------------------------------------
Renewal Term $15,557.42 per month
(1) PLUS CPI Increase
---------------------------------------------------------------
(1) Adjusted to 11.49% of Total Lessor Investment (as
hereinafter defined) if Total Lessor Investment is less
than $1,625,000.
(2) FULL BASE RENT COMMENCEMENT DATE shall mean the earlier to
occur of (a) the date Lessee first derives revenues from the
sale of food and beverages in the ordinary course of its
restaurant business upon the Leased Premises or (b) 30 days
after completion of LESSOR'S WORK (defined below)
(b) CPI INCREASE
(i) For all purposes of this Agreement, the term
"CPI INCREASE" with respect to each Renewal Period shall mean an amount WHICH
BEARS THE SAME RATIO TO the Stated Portion of the Base Rent (as hereinafter
defined) with respect to such Renewal Period AS the CPI Index (as hereinafter
defined) for the last year of the Term immediately preceding such Renewal
Term BEARS TO the CPI Index for the second-to-last year of the Term preceding
such Renewal Term.
(ii) For all purposes of this Agreement, the term
"STATED PORTION OF THE BASE RENT" with respect to the Base Rent for any
Renewal Period shall mean the portion of such Base Rent determined without
regard to any CPI Increase (I.E., the fixed dollar amount of the Base Rent as
set forth in the schedule set forth above with respect to such Renewal
Period).
(iii) For all purposes of this Agreement, the term "CPI
INDEX" for any year shall mean the simple average CONSUMER PRICE INDEX FOR
ALL ITEMS AND MAJOR GROUP FIGURES FOR ALL URBAN CONSUMERS, as published by
the Bureau of Labor Statistics, U.S. Department of Labor, with respect to
such year. Accordingly, (A) if such consumer price index is published
monthly, the CPI Index will be the simple average of the 12 indices so
published, (B) if such consumer price index is published quarterly, the CPI
Index will be the simple average of the 4 indices so published, and (C) if
such consumer price index is published only annually, the CPI Index will be
the index so published. If there is no such consumer price index published
with respect to any year, then its successor (or if no such successor exists,
the most comparable index thereto) shall be used and applied on a reasonably
consistent and equitable basis.
(c) TOTAL LESSOR INVESTMENT
For all purposes of this Lease , the term "TOTAL LESSOR
INVESTMENT" shall mean THE SUM OF (I) the amount paid by Lessor to acquire
the land constituting a part of the Leased Premises including any "soft
costs" such as legal fees, title and survey expenses, permit and license fees
and architect fees, (II) the amounts expended by Lessor to build the
Specified Building as hereinafter provided, AND (III) an amount equal to
interest on the amounts expended by Lessor pursuant to the foregoing clauses
(I) and (II) from the dates of such expenditures until
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<PAGE>
THE FIRST TO OCCUR OF (A) actual monetary Base Rent being required to be paid
pursuant to Section 3.1((a)) above, OR (B) the Total Lessor Investment equals
$1,625,000 (the "CEILING"), such interest equivalent amount to be computed
based on a rate per annum equal to the Stockyards Prime Rate PLUS 1% per
annum during such period. For all purposes of this Lease, the term
"STOCKYARDS PRIME RATE" during any period shall mean the interest rate per
annum most recently designated by STOCK YARDS BANK AND TRUST COMPANY,
Louisville, Kentucky (the "BANK"), as its "Prime Rate" in effect at the
beginning of such period and as the same may be changed from time to time by
the Bank during such period.
(d) PAYMENT OF THE BASE RENT
The Base Rent for the first month of the Term shall be
due and payable in advance upon execution of this Lease, and the Base Rent
for each month of the Term thereafter shall be due and payable in advance on
the 1st day of such month, without prior demand therefor. Unless otherwise
directed by Lessor in writing, Lessee shall pay the Base Rent due and payable
at any time to Lessor at the address for Lessor which is then applicable as
to notices under the provisions of Section 12.5 below.
3.2 PERCENTAGE RENT
(a) DETERMINATION OF PERCENTAGE RENT
In addition to the Base Rent, Lessee shall pay to Lessor,
as a percentage rental (the "PERCENTAGE RENT") with respect to each year (or
partial year) during the Term of this Lease, an amount equal to FIVE PERCENT
(5%) of THE EXCESS, IF ANY, OF Lessee's Gross Sales during such year, OVER
$2,100,000.00 (which amount shall be prorated for any partial lease year).
(b) DEFINITION OF GROSS SALES
The term "GROSS SALES" with respect to any year (or
partial year) during the Term shall mean the aggregate gross sales price of
all food, beverages and merchandise sold in, from, or with respect to the
Leased Premises, whether for cash, on credit, or otherwise, EXCLUDING,
HOWEVER, (I) any rental tax, sales tax, gross receipts tax, or similar tax by
whatever name called, the amount of which is determined by the amount of
sales made, and which Lessee may be required to collect and account for to
any governmental agency, (II) any transfers of food or beverages made by
Lessee from the Leased Premises to any other stores, warehouses, or
commissaries of Lessee or its affiliated companies or franchisees without
mark-up or gross profit, and that are unrelated to sales generated from the
Leased Premises, (III) any credits or refunds made to customers as a courtesy
or for food or beverages returned, exchanged or deemed unsatisfactory, (IV)
any returns of food or beverages to suppliers or manufacturers, and (V) the
net amount of any discounts allowed to customers, including discounts
resulting from the issuance to customers of trading stamps, receipts or
coupons for food or beverages.
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<PAGE>
(c) RECORD OF SALES
Lessee shall keep complete and accurate books and records
of its Gross Sales, which books and records shall be kept for at least two
years by Lessee at Lessee's address hereinafter designated for notices. At
the time that the Percentage Rent is due and payable with respect to each
year (or partial year) during the Term, Lessee shall submit to Lessor a
written statement of the Gross Sales of Lessee with respect to such year (or
partial year). Such statement of Gross Sales shall be treated as confidential
by Lessor and shall be conclusive unless Lessor, within 90 days after receipt
of such statement, shall cause an audit of applicable records to be commenced
by a certified public accountant engaged and paid by Lessor, which audit
shall thereafter be pursued by such certified public accountant with
reasonable diligence; PROVIDED, HOWEVER, that if such audit discloses a
discrepancy greater than 10% of the amount of Gross Sales with respect to
which Lessee paid Lessor Percentage Rent, then Lessee shall reimburse Lessor
for the costs of such audit together with interest at the Stockyards Prime
Rate per annum as to any underpayment of the Percentage Rent.
(d) PAYMENT OF PERCENTAGE RENT
The Percentage Rent with respect to each year (or partial
year) during the Term of this Lease shall be due and payable within 60 days
after the end of such year (or partial year), without prior demand therefor.
Unless otherwise directed by Lessor in writing, Lessee shall pay the
Percentage Rent due and payable at any time to Lessor at the address for
Lessor which is then applicable as to notices under the provisions of Section
12.5 below.
(e) RETAIL RESTRICTION LIMIT/FAILURE TO OPERATE
The parties acknowledge that the realization of the
benefits of a percentage rent lease are dependent upon Lessee maximizing its
gross sales and that failure to operate or self-competition is inconsistent
with the generation of maximum gross sales. The parties further acknowledge
that Base Rent was negotiated together with and giving consideration to the
Percentage Rent rate and base and that self-competition or failure to operate
by Lessee will deprive Lessor of a bargained-for consideration. Accordingly,
Lessee covenants and agrees that during the Term and any extensions or
renewals thereof (a) Lessee will not, directly or indirectly, engage in any
business similar to or in competition with the business operated on the
Leased Premises within a radius of two miles from the Leased Premises
(provided, however, a "food court" type of restaurant shall not be deemed to
be competitive with the business operated on the Leased Premises) and (b)
Lessee shall use its reasonable best efforts to operate its restaurant
business in the Leased Premises with reasonable due diligence and efficiency
so as to maximize to the extent reasonably and economically feasible the
Gross Sales which may be produced by such manner of operation. Subject to
matters beyond the reasonable control of Lessee, Lessee shall carry at all
times in the Leased Premises a stock of merchandise of such size, character,
and quality as shall be reasonably designed to maximize to the extent
reasonably and economically feasible the return to Lessor and Lessee. Lessee
shall generally operate seven days a week at
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<PAGE>
such hours as are customary for similar restaurants in the geographic area of
the Leased Premises.
3.3 ADDITIONAL RENT
Lessee shall pay, as additional rent, certain amounts with
respect to taxes, maintenance, and other factors as provided under other
provisions of this Lease (collectively, the "ADDITIONAL RENT"). For all
purposes of this Lease, the term "RENT" shall include all Base Rent,
Percentage Rent, and Additional Rent.
3.4 DELINQUENT RENT
Each unpaid installment of Rent or other amount required to be
paid by Lessee to Lessor under this Lease shall bear interest from 10 days
after the date on which such Rent or other amount is due and payable at the
Prime Rate plus 2% per annum.
3.5 SECURITY DEPOSIT
There shall be no security deposit required under this Lease.
3.6 SURVIVAL OF OBLIGATION TO PAY RENT
Lessee's obligation to pay all Rent when due shall survive the
expiration or sooner termination of the Term.
ARTICLE
4
USE OF THE LEASED PREMISES; QUIET ENJOYMENT
----------------------------------------------------
4.1 GENERAL PURPOSES
Lessee shall use or permit the use of the Leased Premises for a
restaurant and such other activities as are incidental thereto, and may not
use or permit the use of the Leased Premises for any other use or purposes
without the prior written consent of Lessor, which approval shall not be
unreasonably withheld.
4.2 COMPLIANCE WITH LAWS
Lessee, at its sole cost and expense, shall comply in all
material respects, and shall cause the Leased Premises to comply, in all
material respects, with all statutes, laws, ordinances, and governmental
codes, rules, and regulations now or hereafter applicable to the Leased
Premises, including, without limitation, all federal, state, or local
environmental laws, all fire, health, or safety codes and all zoning rules
and regulations and including, without limitation, those which require
- 6 -
<PAGE>
the making of any structural or non-structural repairs, alterations, or
improvements to the Leased Premises.
4.3 HAZARDS AND WASTE
Lessee shall not create or permit any hazard, nuisance, menace,
or waste in, on or about the Leased Premises.
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT
Lessor represents and warrants to Lessee that:
(a) POWER AND AUTHORITY
Lessor owns the Leased Premises in fee simple and has
full power and authority to execute and perform its obligations under this
Lease.
(b) LIENS AND ENCUMBRANCES
During the Term, the Leased Premises shall be free and
clear of all liens and encumbrances superior to the leasehold interests of
Lessee under this Lease, EXCEPT (I) those liens and encumbrances of record
(other than mortgages) as of the date Lessor obtained the land comprising a
part of the Leased Premises (or liens or encumbrances in substitution or
renewal thereof), (II) those liens and encumbrances which may be placed on
the Leased Premises by or with the specific written consent of Lessor and
Lessee in connection with any buildings or other improvements required to be
built by Lessor or Lessee under this Lease, (III) those liens or encumbrances
which may be placed on the Leased Premises by or with the specific written
consent of Lessor in compliance with the provisions of Sections 9.2 and 9.3
hereof, (IV) existing zoning ordinances which affect the Leased Premises or
which may hereafter exist during the Term, and (V) easements for public
utilities and easements of any public highways, and (vi) the lien of real
estate ad valorm taxes not then due and payable.
(c) QUIET ENJOYMENT
During the Term, PROVIDED, HOWEVER, that Lessee is not in
default under this Lease, Lessee shall peaceably hold and have quiet
enjoyment of the Leased Premises free from interference from anyone lawfully
claiming any interest in the Leased Premises (but subject to the terms and
conditions of this Lease).
(d) TAXES
All taxes on the Leased Premises, except current taxes
not due and payable, have been paid in full.
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<PAGE>
ARTICLE
5
INSURANCE; INDEMNIFICATION
----------------------------------------------------
5.1 FIRE AND HAZARD INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at
all times during the Term of this Lease one or more policies of insurance
covering loss or damage to the Leased Premises in the amount of the full
replacement value thereof. Such policies shall provide protection against all
perils included within the classifications of fire, extended coverage,
vandalism, malicious mischief and special extended perils (all risks) and
shall name Lessor as an additional insured.
5.2 LIABILITY INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at
all times during the Term of this Lease one or more insurance policies of
comprehensive public liability insurance insuring Lessor and Lessee against
all liability arising out of the ownership, use, occupancy, or maintenance of
the Leased Premises, with policy limits of no less than $5,000,000.00 with
respect to injuries to, or death of, any persons on the Leased Premises, or
occurrences of any property damage to third parties caused on the Leased
Premises, whether or not caused by any of Lessee's employees, agents,
representatives, guests or invitees.
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS
If the nature of Lessee's operation is such as to place any or
all of its employees under the coverage of local workers' compensation or
similar statutes and/or unemployment compensation schedules, Lessee shall
also keep in force, at Lessee's expense, workers' compensation or similar
insurance affording statutory coverage and containing statutory limits, and
shall make all unemployment compensation contributions required by law.
5.4 OTHER INSURANCE
Lessee shall be responsible for obtaining, at Lessee's expense,
business interruption insurance which will cover the payment of Rent and
other charges due hereunder for at least twelve months and insurance on the
equipment, inventory, merchandise, supplies and other property of Lessee on
or about the Leased Premises in a commercially reasonable amount. Lessee, on
its behalf and on its insurers' behalf, hereby expressly waives any and all
claims against Lessor for loss or damage to Lessee's equipment, inventory,
merchandise, supplies and other property on or about the Leased Premises due
to fire, explosion, windstorm, or any other casualty, or due to any other
cause whatsoever, regardless whether Lessee has procured insurance thereon
and regardless of the cause of such loss or damage, including, without
limitation, loss or damage resulting from the negligence of Lessor or
Lessor's partners, officers, managers, members, directors, employees, agents
and representatives.
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<PAGE>
5.5 CERTIFICATES OF INSURANCE
Lessee shall deliver to Lessor copies of the insurance policies
required under Sections 5.1 and 5.2 hereof and certificates evidencing the
existence and amounts of such insurance with loss payable clauses
satisfactory to Lessor. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after 10 days' prior
written notice to Lessor. Lessor shall, within 10 days prior to the
expiration of any policy, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee,
which amount shall be payable by Lessee to Lessor upon demand of Lessor or
the applicable insurance company.
5.6 WAIVER OF SUBROGATION
Lessor and Lessee each hereby waives any and all rights of
recovery against the other, or against the partners, officers, managers,
members, directors, employees, agents and representatives of the other, for
loss or damage to such waiving party or its property or the property of
others under its control, to the extent such damage or destruction is insured
against under any insurance policies in force at the time of such loss or
damage. The provisions of this Section 5.6 shall be effective during the Term
for so long as such provisions do not prohibit securing insurance coverage
from responsible insurance companies by either party after a good faith
effort. Lessor and Lessee shall give notice to its insurance carrier(s) that
the foregoing mutual waiver of subrogation is contained in this Lease and
attempt in good faith to cause its insurance policies with respect to the
Leased Premises, and the property contained therein, to be endorsed to permit
the foregoing waiver of subrogation.
5.7 INDEMNIFICATION
Lessee shall indemnify Lessor and save and hold Lessor harmless
from and against any and all claims, actions, damages, liabilities, and
expenses in connection with loss of life, personal injury and/or damage to
property arising from, out of, or in connection with the occupancy or use by
Lessee of the Leased Premises or any part thereof; PROVIDED, HOWEVER, that
this indemnification by Lessee shall not extend to acts of negligence of
Lessor, or Lessor's officers, managers, members, directors, partners,
employees, agents, or representatives, or to events or accidents which occur
as a result of Lessor's failure to perform its obligations under this Lease.
In the event Lessor shall, without any fault on its part, be made a party to
any litigation commenced by or against Lessee, or against Lessor as a result
of any action or inaction by Lessee in connection with the Leased Premises,
then Lessee shall protect and hold Lessor harmless and shall pay all costs,
expenses, and reasonable attorneys fees incurred or paid by Lessor in
connection with such litigation.
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<PAGE>
ARTICLE
6
RECONSTRUCTION AND EMINENT DOMAIN
----------------------------------------------------
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE LEASED PREMISES
(a) OBLIGATION TO RESTORE MINOR DAMAGE
If the Leased Premises are damaged by fire or other
casualty as to make 25% or less of the rentable square footage of the
buildings constituting a part of the Leased Premises untenantable and such
loss is fully covered by insurance obtained by Lessee as required under this
Lease, Lessor shall repair or restore the Leased Premises to substantially
the same condition as before the damage as soon as reasonably practicable to
the extent of available insurance proceeds.
(b) OPTIONS IF SUBSTANTIAL DAMAGE; NOTICE
If the Leased Premises are damaged so substantially by
fire or other casualty as to make more than 25% of the rentable square
footage of the buildings constituting a part of the Leased Premises
untenantable, Lessor shall have 30 days (the "NOTICE PERIOD") from the date
of such damage to notify Lessee whether Lessor elects to repair and restore
the Leased Premises to substantially the same condition as before the damage;
PROVIDED, HOWEVER, that if such damage to the Leased Premises occurs at a
time when the remainder of the Term is 12 months or less, then,
notwithstanding any other provision hereof which might be construed to the
contrary, Lessee may, at Lessee's option and upon at least 10 days prior
written notice to Lessor, terminate this Lease without penalty or liability,
upon which termination Lessee shall promptly surrender the Leased Premises to
Lessor.
(c) LESSOR'S ELECTION NOT TO RESTORE OR FAILURE TO GIVE NOTICE
If Lessor notifies Lessee within the Notice Period that
Lessor elects not to repair or restore the Leased Premises, or if Lessor
fails or neglects to notify Lessee within the Notice Period that Lessor plans
to repair and restore the Leased Premises, then, in either case, Lessee may,
at its option, within 30 days after the expiration of the Notice Period,
terminate this Lease and surrender the Leased Premises to Lessor. Unless so
terminated, this Lease shall remain in full force and effect for the
remainder of the Term as to the usable portion of the Leased Premises.
(d) LESSOR'S ELECTION TO RESTORE
If Lessor notifies Lessee during the Notice Period that
Lessor elects to restore and repair the Leased Premises, then this Lease
shall remain in full force and effect; PROVIDED, HOWEVER, that if Lessor
fails to commence such repairs and restoration within
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<PAGE>
a reasonable time thereafter or fails to pursue and implement such repairs
and restoration with reasonable diligence (subject only to events beyond
Lessor's control as provided in Section 10.5 hereof, then Lessee, at Lessee's
option, may cancel this Lease and surrender the Leased Premises to Lessor.
(e) REDUCTION OF RENT
To the extent that this Lease remains in effect following
damage to the Leased Premises by fire or other casualty, the Rent for the
time period commencing on the date of the damage and ending on the date on
which Lessor completes repair and restoration of the Leased Premises as
provided under Section 6.1((a)) hereof shall be reduced on an equitable basis
to take into account the elimination of the portion of the Leased Premises
made untenantable by such fire or other casualty; PROVIDED, HOWEVER, that the
Rent shall not be reduced or abated if the damage or destruction of the
Leased Premises, whether total or partial, is the result of the negligence of
Lessee, or Lessee's officers, managers, members, directors, partners, agents,
employees, representatives, guests or invitees
(f) LESSEE'S CONTINUING OBLIGATION TO INSURE
Any termination by the Lessee of the Lease under this
Section 6.1 shall not relieve Lessee of any liabilities to Lessor regarding
Lessee's responsibility for having insured the Leased Premises for the
benefit and interest of Lessor as provided under this Lease.
6.2 EMINENT DOMAIN
(a) TERMINATION OF LEASE AS TO PORTION OF LEASED PREMISES
TAKEN
In the event that all or any portion of the Leased
Premises is taken under the power of eminent domain by any competent
authority, this Lease shall terminate as to the part so taken as of the date
on which Lessee is required to yield possession thereof to the taking
authority.
(b) TAKING OF LESS THAN A SUBSTANTIAL PORTION OF THE LEASED
PREMISES
If the taking of a portion of the Leased Premises is not
a Substantial Portion, then Lessor shall make all repairs, alterations and
replacements as may be necessary in order to restore the portion of the
Leased Premises not taken to useful condition to the extent of the available
condemnation award and the Rent shall be reduced on an equitable basis to
take into account the elimination of the portion of the Leased Premises taken.
(c) TAKING OF A SUBSTANTIAL PORTION OF THE LEASED PREMISES
If the taking of a portion of the Leased Premises
substantially impairs the usefulness of the Leased Premises for the purposes
for which the Leased Premises were being used by Lessee immediately prior to
the taking, then either Lessor or Lessee shall have the option to terminate
this Lease as of the date on which Lessee is required to yield possession of
the portion taken to the taking authority, which option shall be exercised by
Lessor or Lessee by
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written notice delivered to the other of them on or prior to such date.
Unless this Lease is so terminated, Lessor shall make all repairs,
alterations and replacements as may be necessary in order to restore the
portion of the Leased Premises not taken to as useful a condition as is
practicable to the extent of available condemnation proceeds and the Rent
shall be reduced on an equitable basis to take into account the elimination
of the portion of the Leased Premises taken.
(d) SUBSTANTIAL PORTION
For all purposes of this Agreement, the term "SUBSTANTIAL
PORTION" (I) any part of the building on the Leased Premises, (II) 10% or
more of the parking spaces on the Leased Premises, (III) 15% or more of the
land area demised as part of the Leased Premises, (IV) any property which
materially and adversely affects the direct access from the Leased Premises
to any adjacent street or highway, and (IV) any portion of the land or
improvements, the absence of which is reasonably likely to have a substantial
impact on the business of Lessee conducted in, or, or from the Leased
Premises.
(e) CONTESTING TAKING; ALLOCATION OF PROCEEDS
Only Lessor shall have the right to contest any proposed
or declared taking or condemnation of the fee of and leasehold in the Leased
Premises. All compensation awarded for taking of the fee of and the leasehold
in the Leased Premises shall belong to and be the property of Lessor,
provided that Lessee shall have the right to make a separate claim for its
own award for the compensation of its moving or relocation expenses or losses
relating to Lessee's Trade Fixtures.
ARTICLE
7
UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS;
CONSTRUCTION OF SPECIFIED BUILDING
----------------------------------------------------
7.1 UTILITIES
Lessee shall timely pay for all heat, water, sewer service, gas,
electricity, telephone and other utilities and services used in or about the
Leased Premises, and all such utilities and services, as applicable, shall be
metered to the Leased Premises in Lessee's name.
7.2 MAINTENANCE AND REPAIRS
(a) LESSEE'S GENERAL OBLIGATION TO MAINTAIN
Lessee, at Lessee's expense, shall maintain the Leased
Premises and all additions thereto and improvements thereof in good repair
and condition throughout the Term and shall yield up the Leased Premises upon
the expiration or sooner termination of this Lease in broom clean condition
and in as good and tenantable condition as the Leased Premises were in at
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the beginning of the Term or at the time later added to the Leased Premises,
as the case may be, normal wear and tear excepted.
(b) SPECIFIC MAINTENANCE OBLIGATIONS OF LESSEE
In furtherance of, and not by way of limitation of,
Lessee's obligations under Section 7.2((a)) hereof, Lessee, at Lessee's
expense, shall be responsible for all repairs, replacements and maintenance
required with respect to the Leased Premises, including, but not limited to,
the repair and/or replacement of (I) any burst, stopped or leaking water,
gas, sewer or other pipes or plumbing fixtures or equipment, (II) any
dysfunctional or malfunctioning lighting, electrical, or heating, ventilation
and air conditioning components, circuits, facilities or systems, (III) any
fences, parking areas, sidewalks, driveways, landscaping and signs, (IV) any
sprinklers or other fire or smoke alarm or control devices and (V) any
foundations, structural components, exterior or interior walls and surfaces,
roofs, gutters, downspouts, ceilings, windows and doors.
(c) WAIVER OF LESSOR LIABILITY
Lessor shall not be responsible or liable to Lessee for
any loss or damage resulting from any cause whatsoever, including, but not
limited to, any loss or damage from any burst, stopped or leaking water, gas,
sewer or other pipes or plumbing fixtures or equipment, or from any failure
of or defect in any lighting, electrical, or heating, ventilation and air
conditioning components, circuits, facilities or systems.
7.3 ALTERATIONS BY TENANT
(a) NONSTRUCTURAL INTERIOR ALTERATIONS
Without any necessity of obtaining Lessor's consent,
Lessee, at Lessee's expense, may from time to time during the Term make any
interior alterations, additions, or improvements in and to the Leased
Premises which Lessee may deem advisable and which do not affect the
structural components of any building or other improvement. Any such interior
alteration, addition, or improvement shall be made in a first class
workmanship manner and in accordance with all valid requirements of municipal
or other governmental authorities.
(b) STRUCTURAL ALTERATIONS
Lessee shall not make any structural additions or other
alterations to, nor remove or demolish, any building or other improvement
constituting a part of the Leased Premises without the prior written consent
of Lessor, which shall not be unreasonably withheld.
(c) ALTERATIONS BECOME PART OF LEASED PREMISES
Lessee agrees that any and all improvements or
alterations to the Leased Premises shall immediately become the property of
the Lessor and shall remain upon and as part of the Leased Premises.
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7.4 MECHANICS OR MATERIALMEN'S LIENS
Unless Lessee shall contest the validity thereof as hereinafter
provided, Lessee shall not allow any mechanic's, materialman's, or other
liens to be filed against the Leased Premises or any part thereof as a result
of any act of omission by Lessee. Lessee may contest, by appropriate
proceedings, the amount, validity or application of any mechanic's,
materialman's, or other lien filed against the Leased Premises or any part
thereof so long as (I) no part of the Leased Premises would be subject to
loss, sale or forfeiture before determination of such contest, (II) Lessor is
not subject to any criminal penalty as a result of the failure to pay such
lien, and (III) Lessee conducts all such contests, at Lessee's expense, with
due diligence and in good faith. If required by Lessor's mortgagee, Lessee
shall cause any such lien to be discharged of record by posting a bond.
7.5 SIGNS AND OTHER TRADE FIXTURES
Lessee may construct, build, or install on the Leased Premises
any and all racks, counters, tables, shelves, signage, and other trade
fixtures and equipment of every kind or nature which might be necessary or
desirable to the Lessee's use of the Leased Premises for permitted purposes
(collectively, the "TRADE FIXTURES"). All such Trade Fixtures shall at all
times be and remain the property of Lessee, and, so long as Lessee is not in
default under this Lease, Lessee shall have the right to remove all or any
part of the Trade Fixtures from the Leased Premises at any time during, or
upon the expiration or sooner termination of, the Term; PROVIDED, HOWEVER,
that Lessee shall repair or reimburse Lessor for the full costs of repairing
any damage to the Leased Premises resulting from the installation or removal
of such Trade Fixtures. It is specifically understood and agreed that all
trademarks, trade names, service marks, signs, and other marks of
identification used by Lessee in Lessee's business shall remain the exclusive
property of Lessee at all times, and Lessor shall have no right, title, or
interest in or to any of such trademarks, trade names, service marks, signs,
or other marks of identification.
7.6 LESSOR'S RIGHT OF ENTRY
Lessor and Lessor's employees and agent shall have the right to
enter the Leased Premises from time to time during reasonable hours and upon
reasonable notice to Lessee (or at any time with or without notice in the
event of any emergency) in order to (I) examine the Leased Premises, (II)
make such repairs and alterations as may be necessary for the safety and
preservation of the improvements on the Leased Premises (the cost of which
repairs and alterations shall be borne by Lessee), but without any
obligations to make any such repairs or alterations, or (III) exhibit the
Leased Premises for sale or lease and place one or more "For Sale or Rent"
signs on the Leased Premises during the 6 months immediately preceding the
expiration of the Term, which signs shall not be removed by Lessee.
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<PAGE>
7.7 CONSTRUCTION OF SPECIFIED BUILDING.
(a) LESSOR OBLIGATION TO CONSTRUCT SPECIFIED BUILDING.
Lessor covenants and agrees to proceed with due diligence, at Lessor's
expense and without reimbursement by Lessee (UNLESS AND UNTIL the Total
Lessor Investment totals $1,625,000) to erect or cause to be erected on the
Leased Premises a permanent building (containing approximately 7,000 square
feet of usable space) and related improvements and site work (collectively,
the "SPECIFIED BUILDING"). The Specified Building shall be based on, and
constructed strictly in accordance with, the modified prototype "maxi"
Tumbleweed restaurant plans and designs as reflected in those certain plans
and specifications with respect to the Leased Premises dated
_____________________ (the "Plans and Specifications") prepared by the
architectural firm of BAYUS & EVOLA, (the "Project Architect"), SUBJECT,
HOWEVER, to such changes as may be required from time to time by Lessee
provided that such changes are consistent with the overall design and do not
unreasonably delay the scheduled completion of construction and subject to
any changes necessary to obtain building permits. All design, architectural,
engineering, excavation and construction work shall be performed in a first
class workmanship manner and in accordance with all applicable building codes
and other requirements of governmental authorities. The work necessary to
construct the specified building in accordance with the plans and
specifications is referred to herein as "LESSOR'S WORK." Lessor's Work shall
be deemed completed upon certification by the Project Architect that Lessor's
Work is substantially complete and issuance of a certificate of occupancy for
the Leased Premises. By opening the Leased Premises for business, and except
as otherwise noted to Lessor in writing at or prior to the time of opening,
Lessee shall be deemed to have (a) accepted the Leased Premises, (b)
acknowledged that the same are in the condition called for hereunder, and (c)
agreed that the obligations of Landlord imposed hereunder with respect to
Lessor's Work have been fully performed.
(b) COMMENCEMENT AND COMPLETION OF CONSTRUCTION.
Lessor agrees that the construction of the Specified Building
shall commence within 30 days after the plans and specifications have been
approved for construction purposes by Lessee and a building permit has been
issued by applicable governmental authorities, and such construction shall be
diligently pursued thereafter until completed. If the Specified Building is
not completed within 6 months after commencement (unless such noncompletion
is due to circumstances beyond the reasonable control of Lessor), Lessee may,
at Lessee's sole option, take over the completion of the Specified Building
and all sums expended for such purpose by Lessee (EXCEPT to the extent that
any such amount, when paid by Lessor, would cause the Total Lessor Investment
to exceed $1,625,000) shall be repayable to Lessee by Lessor upon demand.
(c) LESSEE'S WORK
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Lessee shall be responsible for installing its equipment
and Trade Fixtures ("Lessee's Work"). Lessee shall commence Lessee's Work as
promptly as reasonably and feasibly possible after Lessor has notified Lessee
that Lessor's Work has progressed to the point where Lessee's Work may be
commenced. Lessee shall be permitted access to the Leased Premises in order
to perform Lessee's Work provided that Lessee's Work shall be performed in
such a manner as not to unreasonably interfere with Lessor's Work. Lessee
shall indemnify Lessor and hold Lessor harmless from and against any loss,
claim, or expense, including damage to property, injuries to person, or
mechanics' or materialmen's liens arising out of the performance of Lessee's
Work by Lessee, its employees, agents, and contractors.
(d) LESSEE'S PAYMENT OF EXCESS CONSTRUCTION COSTS.
Lessor and Lessee agree that Lessor's obligation to pay
for the construction of the Specified Building shall not exceed an amount
which would cause the Total Lessor Investment to exceed $1,625,000. Any
amounts in excess of Lessor's obligations which are necessary in order to
construct the Specified Building in accordance with the plans and
specifications, as approved by Lessee, shall be paid by Lessee when due.
(e) WAIVER OF LESSEE LIABILITY WITH RESPECT TO CONSTRUCTION.
Nothing in this Lease shall be construed in any way as
constituting the Lessor as the agent of the Lessee in designing, engineering,
or constructing the Specified Building or any other improvements to the
Leased Premises. Lessee shall not be answerable or accountable in any way
for any loss or damage arising from the negligence or carelessness of Lessor
or Lessor's contractor or any of their subcontractors, officer, directors,
partners, employees, agents, or representatives by reason of Lessor's
constructing said improvements pursuant to the terms of this Lease. Lessor
shall pay all of its contractors or subcontractors regarding the scope of its
improvements to the Leased Premises and shall remove, if applicable, any
mechanics' liens which may be filed against the Leased Premises as a result
of Lessor's non-payment of contract sums due to its contractors and
subcontractors. Lessor shall further assign, transfer or otherwise convey to
Lessee any of its or its contractor's or subcontractor's manufacturer's or
vendor's performance warranties or quality of construction guarantees, or any
construction or maintenance service contracts, with respect to the scope of
construction or repairs as performed by Lessor on or to the Leased Premises.
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ARTICLE
8
TAXES
----------------------------------------------------
8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES
As Additional Rent hereunder, Lessee shall pay all Real
Property Taxes (as hereinafter defined) applicable to the Leased Premises
during the Term, commencing with those due and payable in calendar year 1995;
PROVIDED, HOWEVER, that the Real Property Taxes for any year which are
payable by Lessee shall be subject to a prorata adjustment based upon the
number of days of said year during which the Leased Premises are leased to
Lessee. For all purposes of this Lease, the term "REAL PROPERTY TAXES" shall
include any form of assessment, licensing, commercial rental tax, levy,
penalty, ad valorem tax, or other tax (other than income, inheritance and
estate taxes) imposed upon Lessor with respect to the Leased Premises, or
otherwise against or with respect to the Leased Premises, by any authority
having the direct or indirect power to tax, including any city, county, state
or federal Government, and any school, agricultural or other improvement
district thereof.
(b) NOTICE AND PAYMENT
Following receipt by Lessor of the then current bills for
Real Property Taxes due and payable in 1995 or later years during the Term,
Lessor shall forward a copy thereof to Lessee. Within 30 days after receipt
of such notice from Lessor, Lessee shall pay to Lessor any amount properly
stated therein to be due (SUBJECT, HOWEVER, to the prorata adjustment for any
partial year within the Term, as provided for under Section 8.1((a)) hereof).
8.2 PERSONAL PROPERTY TAXES.
Lessee shall pay, prior to delinquency, all taxes assessed
against or with respect to any Trade Fixtures, furnishings, equipment, or
other personal property contained in the Leased Premises. Any such taxes
imposed upon or otherwise payable by Lessor shall be treated and included as
Real Property Taxes which are subject to the provisions of Section 8.1 hereof.
8.3 INCOME TAXES
Nothing in this Lease shall be construed as requiring Lessee to
pay (I) any municipal, state or Federal income taxes assessed against Lessor,
(II) any municipal, state, or Federal capital, levy, estate, succession,
inheritance, or transfer taxes of Lessor, or (III) any corporate franchise
taxes imposed upon any corporate owner of the fee of the Leased Premises.
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ARTICLE
9
ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT
----------------------------------------------------
9.1 ESTOPPEL CERTIFICATE
(a) LESSEE'S OBLIGATION TO EXECUTE ESTOPPEL CERTIFICATE WHEN
REQUESTED
From time to time, upon at least 10 days prior written
notice from Lessor, Lessee shall execute, acknowledge and deliver to Lessor,
at no cost to Lessor, a statement in writing (I) certifying that, as of the
date of such statement, this Lease is unmodified and in full force and effect
(or, if modified at such time, stating the nature of such modification and
certifying that this Lease, as so modified, is then in full force and
effect), and the Base Rent Commencement Date, (II) certifying the date to
which the Rent and other charges are then paid in advance, if any, and the
amount of the Rent and other charges paid by Tenant, and (III) acknowledging
that, as of the date of such statement, there are not, to Lessee's knowledge,
any uncured defaults on the part of Lessor hereunder, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Leased Premises.
(b) FAILURE OF LESSEE TO DELIVER ESTOPPEL CERTIFICATE
Lessee's failure to deliver such statement within the 10
day period provided for under Section 9.1((a)) above shall be conclusive upon
Lessee that, as of the end of such 10 day period (I) this Lease is in full
force and effect, without modification except as may be represented by
Lessor; (II) there are no uncured defaults on the part of Lessor hereunder;
and (III) not more than one month's rent has been paid in advance.
(c) LESSEE OBLIGATION TO FURNISH FINANCIAL AND TAX
INFORMATION TO LENDERS
If Lessor desires to finance or refinance the Leased
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender
designated by Lessor such financial statements and tax returns as may be
reasonably required by such lender. All such financial statements and tax
returns shall be received by Lessor in confidence and shall be used only for
the purpose herein set forth.
9.2 MORTGAGE SUBORDINATION
Subject to Lessor's compliance with the provisions of Section 9.3
hereof, Lessee agrees that this Lease shall at all times be subject and
subordinate to (I) all mortgages, liens, security interests, and other
encumbrances (hereinafter sometimes referred to collectively as "MORTGAGES"
and each individually as a "MORTGAGE") against the Leased Premises as of the
date of execution of this Lease, including, but not limited to, the extent to
which such Mortgages
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secure current and future advances made under current debts and obligations
of Lessor, and (II) all Mortgages subsequently placed on the Leased Premises
by or with the consent of Lessor. Subject to Lessor's compliance with the
provisions of Section 9.3 hereof, Lessee agrees that, upon written demand by
Lessor and at no cost to Lessor, Lessee shall execute such documents as may
be required at any time and from time to time to effectuate and evidence such
subordinations.
9.3 NONDISTURBANCE AGREEMENTS
If, as of the date of execution of this Lease, there are any
Mortgages against the Leased Premises, or if Lessor shall subsequently
encumber or permit the encumbrance of the Leased Premises by any Mortgages,
Lessor shall have the mortgagee, lienholder or other secured party with
respect to each Mortgage execute a non-disturbance agreement providing that,
so long as Lessee is not in default under this Lease and continues to perform
all of its obligations under this Lease, (I) Lessee's tenancy shall not be
disturbed, (II) this Lease shall not be affected by any default under such
Mortgage, and (III) in the event of any foreclosure or other enforcement of
such Mortgage, and notwithstanding any resulting transfer of Lessor's rights
under this Lease, the rights of Lessee under this Lease shall expressly
survive and this Lease shall in all respects continue in full force and
effect.
9.4 DEFAULT OF LESSOR UNDER MORTGAGES
If Lessor defaults in making payments under any Mortgage, or if
Lessor is otherwise in default under any Mortgage, Lessee shall have the
right to pay any or all Rent thereafter becoming due under this Lease to the
mortgagee, lienholder, or secured party under such Mortgage instead of to
Lessor, and any payments so made shall, to the extent thereof, discharge the
obligation of Lessee hereunder respecting the payment of such Rent. Subject
to Lessor's compliance with the provisions of Section 9.3 hereof, Lessee
shall execute an acceptance of, and shall fully comply with the terms of, any
collateral or conditional assignment of rents executed by Lessor.
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS
LEASE
Lessee agrees that Lessee will give reasonably detailed notice to
any holder of a Mortgage with respect to the Leased Premises (PROVIDED,
HOWEVER, that Lessee has been notified in writing of the name and address of
such Mortgage holder) of any default of Lessor which would entitle Lessee to
terminate this Lease or reduce or abate the Rent hereunder. Such Mortgage
holder shall have the right, but not the obligation, to cure such default
within a period of 30 days after such notice (or within such longer period of
time as may reasonably be required to cure such default if such default
cannot reasonably be cured within said 30 day period), and Lessee shall not
terminate this Lease or reduce or abate the Rent hereunder during such
period.
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9.6 ATTORNMENT
If any person shall succeed to all or any part of Lessor's
interest in the Leased Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, and
if so requested or required by such successor in interest, Lessee shall
attorn to such successor in interest and shall execute such agreement in
confirmation of such attornment as such successor in interest shall
reasonably request; provided, however, in any such event, that such successor
to Lessor's interest shall execute a nondisturbance agreement as described in
Section 9.3 hereof.
ARTICLE
10
DEFAULT
10.1 DEFAULT BY LESSEE; REMEDIES
(a) MATERIAL DEFAULT AND BREACH BY LESSEE
The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(i) The vacating or abandonment of the
Leased Premises by Lessee for 60 days out of any period
of 120 consecutive days during the Term.
(ii) The failure by Lessee to make any
payment of Rent or any other payment required to be
made by Lessee under this Lease as and when due and the
continuance of such failure for a period of 10 days
after written notice thereof to Lessee, Lessee hereby
waiving any statutory notice of default for nonpayment
of Rent.
(iii) The failure by Lessee to observe or
perform any of the covenants, conditions, or provisions
of this Lease to be observed or performed by Lessee,
other than those described in Section 10.1((a))((ii))
above, and the continuance of such failure for a period
of 30 days after written notice thereof from Lessor to
Lessee; PROVIDED, HOWEVER, that if the nature of
Lessee's default is such that more than 30 days is
reasonably required for its cure, then Lessee shall not
be deemed to be in default if Lessee commences such
cure within such 30 day period and thereafter
diligently pursues such cure to completion.
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(iv) The making by Lessee of any general
assignment or general arrangement for the benefit of
creditors.
(v) The filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a
petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, such action is dismissed
within 60 days).
(vi) The appointment of a trustee or receiver
to take possession of all or substantially all of
Lessee's assets located at the Leased Premises or of
Lessee's interests under this Lease, unless possession
is restored to Lessee within 60 days.
(vii) The attachment, execution, or other
judicial seizure of all or substantially all of
Lessee's assets located at the Leased Premises or of
Lessee's interests under this Lease, unless such
seizure is bonded or discharged within 60 days.
(b) LESSOR'S REMEDIES UPON DEFAULT BY LESSEE
In the event of any material default or breach by Lessee,
as provided under Section 10.1((a)) above, Lessor may at any time thereafter,
with or without additional notice or demand and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
default or breach:
(i) Terminate Lessee's right to possession
of the Leased Premises by any lawful means, in which
case this Lease shall terminate and Lessee shall
immediately surrender possession of the Leased Premises
to Lessor. In such event, Lessor shall be entitled to
recover from Lessee all damages reasonably incurred by
Lessor by reason of Lessee's default, including, but
not limited to, (I) the cost of recovering possession
of the Leased Premises, (II) the expenses of reletting,
the cost of any reasonably required new tenant
improvements and allowances, reasonable attorneys'
fees, and any real estate commissions actually paid,
and (III) the reasonable present value as of the date
that Lessor recovers possession of the Leased Premises
of THE EXCESS OF (A) the amount of unpaid Rent which
would have been due and payable during the balance of
the Term after such date had the Lease not been
terminated by reason of Lessee's default, OVER (B) the
amount of net rental income reasonably estimated to be
received by Lessor during such period through reletting
of the Leased Premises. Lessor shall exercise Lessor's
best efforts to mitigate damages
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against Lessee by re-letting the Leased Premises in a prompt
and commercially reasonable manner.
(ii) Maintain Lessee's right to possession,
in which case this Lease shall continue in effect
whether or not Lessee shall have abandoned the Leased
Premises. In such event, Lessor shall be entitled to
enforce all of Lessor's rights and remedies under this
Lease, including the right to recover the Rent as it
becomes due hereunder.
(iii) Require specific performance by Lessee
of Lessee's obligations under this Lease.
(iv) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial
decisions of the State of Ohio.
10.2 DEFAULT BY LESSOR
(a) MATERIAL DEFAULT AND BREACH BY LESSOR
A material default and breach of this Lease by Lessor
shall occur upon the failure by Lessor to observe or perform any of the
covenants, conditions, or provisions of this Lease to be observed or
performed by Lessor and the continuance of such failure for a period of 30
days after written notice thereof from Lessee to Lessor; PROVIDED, HOWEVER,
that if the nature of Lessor's default is such that more than 30 days is
reasonably required for its cure, then Lessor shall not be deemed to be in
default if Lessor commences such cure within such 30 day period and
thereafter diligently pursues such cure to completion.
(b) LESSEE'S REMEDIES UPON DEFAULT BY LESSOR
In the event of any material default or breach by Lessor,
as provided under Section 10.2((a)), Lessee may at any time thereafter, with
or without additional notice or demand and without limiting Lessee in the
exercise of any right or remedy which Lessee may have by reason of such
default or breach:
(i) Remedy such breach or default and deduct
from the Rent then or thereafter due under this Lease
the reasonable costs of such remedy, including interest
thereon at the Prime Rate plus 2% per annum until
recovered through such Rent offsets offsets against the
Rent then or thereafter due under this Lease.
(ii) Require specific performance by Lessor
of Lessor's obligations under this Lease.
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(iii) Pursue any other remedy now or hereafter
available to Lessee under the laws or judicial
decisions of the State of Ohio.
10.3 REMEDIES CUMULATIVE
All rights and remedies of Lessor enumerated in Section 10.1((a))
hereof and all rights and remedies of Lessee enumerated in Section 10.2((a))
hereof shall be cumulative, and none shall exclude any other right or remedy
allowed by law or equity. Said rights and remedies may be exercised and
enforced concurrently or successively from time to time at Lessor's or
Lessee's option, respectively.
10.4 ATTORNEY FEES AND COSTS
If any party shall default with respect to any of such party's
obligations under this Lease, such defaulting party shall pay all costs,
expenses, and reasonable attorneys' fees which are incurred or paid by the
other parties to this Lease in enforcing the covenants and agreements of the
defaulting party under this Lease.
10.5 FORCE MAJEURE
In the event that either Lessor or Lessee shall be delayed in,
hindered in, or prevented from the performance of any act required hereunder
by reason of any strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or the act, failure to act, or default of the other
party, or for other reasons beyond such party's control, then such party's
performance of such act shall be excused during the period of the delay and
the period for the performance of any such act shall be extended for a period
equivalent to the period of such delay.
10.6 WAIVER OF CERTAIN DEFENSES
Should either Lessor or Lessee seek recourse to equity to enforce
any of its rights under this Lease by specific performance, injunction, or other
equitable relief, the other party agrees to, and hereby does waive any
defense(s), which it might otherwise have that there is any adequate remedy at
law.
ARTICLE
11
RIGHT OF FIRST REFUSAL
--------------------------------
11.1 EXERCISE OF RIGHT OF FIRST REFUSAL
During the Term, if (I) Lessor shall receive a bona fide offer to
purchase or otherwise acquire all or any part of the Leased Premises and
Lessor shall desire to accept such offer, or (II) Lessor shall make an offer
to sell or otherwise dispose of all or any part of the
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Leased Premises, then, EXCEPT as otherwise provided under Section 11.4 below,
Lessor shall grant Lessee the right to purchase or acquire such interests in
the Leased Premises at the price and on the other terms and conditions of the
offer so made. Lessor shall give written notice to Lessee of any such offer,
which notice shall attach a true and correct copy of the offer, if in
writing, or otherwise shall describe in detail all of the terms and
conditions of the offer. Lessee shall have a period of ten (10) days after
such notice is given within which to exercise Lessee's right of first refusal
under this Article 11 by giving written notice of such exercise to Lessor.
Notwithstanding anything herein which might be construed to the contrary, the
closing of Lessee's acquisition of all or any portion of the Leased Premises
pursuant to this Article 11 shall occur no sooner than 30 days after Lessee's
exercise of Lessee's right of first refusal. The foregoing right of first
refusal shall be subordinate to the lien of any mortgage on the Leased
Premises, but shall apply in the event of any sale by foreclosure or
otherwise by the mortgagee.
11.2 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL
If Lessee shall fail or neglect to timely exercise Lessee's right
of first refusal after receipt of the notice from Lessor provided for under
Section 11.1, then Lessee's right of first refusal as to the offer set forth
in such notice from Lessor shall expire and Lessor may sell or otherwise
dispose of the Leased Premises to the person who made such offer upon the
terms and conditions thereof (all as described in Lessor's notice to Lessee).
Any such sale or other disposition shall be subject to all of the terms,
conditions, and covenants of this Lease and any present or future leases of
the Leased Premises (including the right of first refusal rights provided for
under this Article 11 as to any subsequent offers).
11.3 TRANSFER OF EQUITY INTERESTS IN LESSOR
If Lessor is a corporation, joint venture, partnership, or
limited liability company, the transfer of any or all of the equity interests
in such entity shall be subject to right of first refusal rights in favor of
Lessee under terms and conditions substantially similar to those set forth in
the other provisions of this Article 11.
11.4 TRANSFERS TO RELATED PARTIES EXCLUDED
Notwithstanding any other provision of this Article 11 which
might be construed to the contrary, Lessee shall be given notice of any
proposed transfer, for nominal or no consideration, of all or any part of the
Leased Premises or of the equity interests described in Section 11.3 to any
Related Party with respect to Lessor, BUT Lessee shall have no right of first
refusal rights with respect to such proposed transfers. For all purposes of
this Lease, the term "RELATED PARTY" with respect to Lessor shall mean (I)
any entity controlling, controlled by, or under common control with Lessor,
(II) any owner of the equity interests in Lessor, if Lessor is an entity,
(III) any individual related by blood or marriage to Lessor, if Lessor is an
individual, or to the owners of the equity interests in Lessor, if Lessor is
an entity, and (IV) any entity the equity interests of which, or the
beneficial interests in which, are owned by any of the individuals or
entities described in the foregoing clauses of this sentence.
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ARTICLE
12
MISCELLANEOUS
-------------------------
12.1 ASSIGNMENT OR SUBLETTING
Lessee shall not assign this Lease in whole or in part or
sublease all or any portion of the Leased Premises without the prior written
consent of Lessor, which consent shall not be unreasonably withheld;
PROVIDED, HOWEVER, that, notwithstanding the foregoing, Lessee may assign
this Lease in whole or in part or sublease all or any portion of the Leased
Premises without the prior written consent of Lessor to any entity
controlling, controlled by, or under common control with, Lessee. Unless
otherwise agreed to by Lessor, in the event of any assignment or sublease of
this Lease by Lessee permitted under this Section 12.1, Lessee shall remain
fully liable to Lessor in connection with this Lease and with respect to the
Leased Premises. Lessor may freely assign any or all of its rights and
obligations under this Lease.
12.2 SUCCESSOR LESSOR'S LIABILITY
The term "Lessor" as used herein at any time shall mean only the
owner or owners at such time of the fee title to the Leased Premises and, in
the event of any transfer of such title, Lessor herein named (and in case of
any subsequent transfers, then the transferor) shall be relieved from and
after the date of such transfer of all liability with respect to Lessor's
obligations under this Lease thereafter to be performed; PROVIDED, HOWEVER,
that any funds in the hands of Lessor or the then transferor at the time of
such transfer, in which Lessee has an interest, shall be delivered to the
transferee. The obligations contained in this Lease to be performed by Lessor
shall, subject as aforesaid, be binding on Lessor's successors and assigns
only during their respective periods of ownership.
12.3 RELATIONSHIP OF THE PARTIES
Nothing contained in this Lease shall be deemed or construed by
the parties hereto, or by any third party, as creating the relationship of
principal and agent, partnership, or joint venture between or among any of
the parties.
12.4 ENTIRE AGREEMENT
It is expressly understood and agreed by and among the parties
hereto that this Lease sets forth all the promises, agreements, conditions
and understandings between Lessor and Lessee relative to the Leased Premises
and that there are no other promises, agreements, conditions or
understandings, either oral or written, among them other than as are herein
set forth. It is further understood and agreed that no subsequent alteration,
amendment, change or
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<PAGE>
addition to this Lease shall be binding upon Lessor or Lessee unless reduced
to writing and signed by them, and by direct reference therein made a part
hereof.
12.5 NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals,
offers, counteroffers or other communications required or permitted under
this Lease shall be in writing and (I) delivered by personal delivery to such
intended recipient, which personal delivery shall be evidenced by a written
receipt therefor signed by such recipient, (II) sent by United States
certified, registered or express mail, return receipt requested, postage
prepaid, or by reputable express delivery service (such as Federal Express,
UPS, Airborne, Purolator, or DHL), fees prepaid, addressed to the intended
recipient thereof, at the address listed for such party below, or at such
other address as such party shall furnish in writing to the other parties to
this Lease, or (III) transmitted by fax to such intended recipient at the fax
number listed for such party below (or such other fax number as such party
shall furnish in writing to the other parties to this Lease), receipt of
which transmission shall be confirmed by such recipient.
TO LESSOR: Keller, LLC
Attn: George R. Keller
4201 Paoli Peak
Floyds Knobs, Indiana 47119
Fax: (502) ____________________
WITH COPY TO: Joseph L. Ardery, Esq.
Brown Todd & Heyburn
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax (502) 581-1087
TO LESSEE: Tumbleweed, LLC
A Kentucky Limited Liability Company
1900 Mellwood Avenue
Louisville, Kentucky 40206
ATTENTION: John A. Butorac, Jr. & James M.
Mulrooney, Managers
Fax: (502) 893-6676
WITH COPY TO: Roth & Cooper, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
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<PAGE>
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals,
offers, counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, two (2) days after being properly
addressed and deposited in the United States mail or with a reputable express
delivery service or upon being transmitted by fax and properly receipted, as set
forth above. However, the time period in which a response to any such notice,
request, demand, consent, approval, offer, counteroffer or other communication
must be given shall commence to run from the date of receipt of personal
delivery, the date on the return receipt or express delivery receipt, or the
date of confirmation of receipt of the fax, as the case may be, of the notice,
request, demand, consent, approval, offer, counteroffer or other communication
by the addressee thereof; PROVIDED, HOWEVER, that if any party rejects delivery
of any such notice, request, demand, consent, approval, offer, counteroffer or
other communication properly sent by mail or express delivery service, or fails
or neglects to accept delivery after two (2) attempts to so deliver by postal or
express delivery authorities, as the case may be, the time period for a response
shall commence two (2) days following the proper mailing or depositing with the
express delivery service, as the case may be, of such notice, request, demand,
consent, approval, offer, counteroffer or other communication.
12.6 NO WAIVER
No waiver by any party of any provisions of this Lease, nor any
default by any party, shall affect the rights of the waiving or nondefaulting
party or parties thereafter to enforce such provision or to exercise any right
or remedy in the event of any other default, whether similar or dissimilar. No
waiver shall be binding unless executed in writing by the party making the
waiver, nor shall any waiver constitute a continuing waiver.
12.7 SEVERABILITY AND INVALIDITY
The invalidity or unenforceability of any provision hereof shall
not affect or impair any other provisions hereof; PROVIDED, HOWEVER, should any
provision hereof providing for the payment of any rents, compensation or
reimbursement to Lessor be invalid or unenforceable, Lessor may, at its sole
option, terminate this Lease at any time giving Lessee 10 days' prior written
notice of such election to terminate.
12.8 CAPTIONS, HEADINGS AND SUMMARY
The captions and headings throughout this Lease and the Summary at
the beginning of this Lease are for convenience and reference only and the words
contained in such captions, headings and Summary shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision or the scope or intent
of this Lease, nor in any way affect this Lease.
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<PAGE>
12.9 SUCCESSORS AND PERMITTED ASSIGNS
Subject to the provisions of Section 12.2 hereof, the terms,
covenants and conditions of this Lease shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
12.10 GENDER
The use of any gender in this Lease shall include all other
genders, the singular shall include the plural, and the plural shall include the
singular, as the context may require.
12.11 RECORDING
No party to this Lease shall record this Lease without the other
parties' prior written consent, but each party shall, upon request of any other
party, execute, acknowledge and deliver to such other party a "short form"
memorandum of this Lease for recording purposes.
12.12 GOVERNING LAW
This Lease shall be construed and interpreted in accordance with
the laws of the State of Ohio without regard to any conflict of laws
provisions.
12.13 COUNTERPARTS
This Lease may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
12.14 FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party may reasonably request, in
order to more effectively implement the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first hereinabove written.
LESSOR:
/s/ Marlyn L. Gibson KELLER, LLC
- -------------------------------
WITNESS
By: /s/ George R. Keller
- ------------------------------- -------------------------------
WITNESS GEORGE R. KELLER, MEMBER
<PAGE>
LESSEE:
/s/ Kay Gru??? TUMBLEWEED, LLC
- -----------------------
WITNESS
/s/ Pam Brown BY: /s/ John A. Butorac, Jr.
- ----------------------- ------------------------------
WITNESS JOHN A. BUTORAC, JR., MANAGER
BY: /s/ James M. Mulrooney
---------------------------------
JAMES M. MULROONEY, MANAGER
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LEASED PREMISES
That certain parcel of land, together with all improvements, privileges and
appurtenances thereto and all right, title and interest, if any, of Lessor in
and to any property lying in the bed of any street, road, highway, or avenue
opened or proposed in front of, adjacent to, or adjoining such land, located in
the City of Springdale, Hamilton County, Ohio, being a portion of Hamilton
County Auditors Parcel 599-43-56, and being more particularly described as
follows:
SITUATE in Section 12, Town 3, Entire Range 1, Springfield Township,
City of Springdale, Hamilton County, Ohio, and being more particularly
described as follows:
COMMENCING at a point in the west line of Princeton
Pike at the southeast corner of Lot 8 of Tri-County
Merchandise Park, Block A, as recorded in Plat Book
210, page 57, Hamilton County Recorder's Office, said
point being South 01DEG. 00' 00" West, 527.64 feet
along the east line of Section 12 and North 65DEG. 12'
00" West, 43.72 feet from the intersection of the
centerlines of Princeton Pike and Tri-County Parkway
and said east line of Section 12;
THENCE along the west line of Princeton Pike, South
01DEG. 00' 00" West, 129.64 feet to the True Point of
Beginning; THENCE, continuing along the same, South
01DEG. 00' 00" West, 181.00 feet to a point; THENCE,
North 89DEG. 00' 00" West, 415.34 feet to a point;
THENCE, North 01DEG. 00' 00' East, 21.96 feet to a
point; THENCE, North 24DEG. 48' 00" East, 173.82 feet
to a point; THENCE, South 89DEG. 00' 00" East, 345.00
feet to The Point of Beginning.
CONTAINING 1.5978 acres of land, more or less, and
being subject to all legal easements and rights-of-way
on record.
<PAGE>
AGREEMENT AND ASSIGNMENT
THIS AGREEMENT AND ASSIGNMENT ("Agreement") is made and entered into as of
the 20th day April, 1995 by (i) KELLER LLC, an Indiana limited liability
company, ("KELLER"); and (ii) TUMBLEWEED, LLC, a Kentucky limited liability
company ("TW").
RECITALS:
A. TW entered into an AGREEMENT OF PURCHASE AND SALE dated February 2,
1995 (the "PURCHASE AGREEMENT"), under which TW agreed to buy, and GREGG PANCERO
and JON ZIPPERSTEIN (the "SELLERS") agreed to sell, all of that certain parcel
of land situated in the City of Springdale, Hamilton County, Ohio, together with
all improvements, privileges and appurtenances thereto, which is commonly
referred to as a parcel located on Princeton Pike near Merchant Street,
Springdale, Ohio and which is more particularly described in EXHIBIT A attached
hereto (the "PROPERTY").
B. A copy of the Purchase Agreement is attached hereto as EXHIBIT B.
B. TW now desires to assign to Keller all of TW's rights and obligations
under the Purchase Agreement and lease the Property, when improved, from Keller,
and Keller desires to accept such assignment, improve the Property, and lease
the Property, when improved, to TW, all upon the terms and conditions set forth
herein.
AGREEMENT:
IN CONSIDERATION OF the mutual covenants and agreements herein contained,
the parties agree as follows:
ARTICLE
1
ASSIGNMENT OF PURCHASE AGREEMENT
---------------------------------------------------------
1.1 ASSIGNMENT OF PURCHASE AGREEMENT
In accordance with the provisions of Section 21 of the Purchase
Agreement, TW hereby assigns to Keller all of TW's right, title, interests,
duties, and obligations in, to, and under the Purchase Agreement, and Keller
hereby accepts such assignment and agrees to purchase the Property pursuant
to the Purchase Agreement and to otherwise fully and timely comply with and
perform all provisions of the Purchase Agreement which TW would be required
to comply with or perform if the Purchase Agreement had not been assigned to
Keller under this Agreement.
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<PAGE>
1.2 REIMBURSEMENT OF $5,000 DEPOSIT
Keller agrees to pay to TW the sum of $5,000.00 in immediately
available funds upon execution of this Agreement, which amount shall
constitute partial consideration for TW's assigning the Purchase Agreement to
Keller.
1.3 ACKNOWLEDGMENT OF ASSIGNMENT
Keller and TW agree to execute and deliver to the Sellers a
separate document acknowledging the assignment of the Purchase Agreement from
TW to Keller in the form of that attached hereto as EXHIBIT C.
1.4 INDEMNIFICATION
Keller shall indemnify TW and save and hold TW harmless from and
against any and all claims, actions, damages, liabilities, and expenses,
including, but not limited to, reasonable attorneys' fees which occur as a
result of Keller's failure to perform TW's obligations under the Purchase
Agreement.
1.5 REPRESENTATION AND WARRANTY
TW represents and warrants to Keller that (a) a true, correct, and
complete copy of the Purchase Agreement is attached hereto as a part hereof
and that there have been no amendments or modifications of the Purchase
Agreement, (b) TW is not in default of any of its obligations under the
Purchase Agreement and has not breached any of its agreements under the
Purchase Agreement, (c) to the best of TW's knowledge, there has not been any
breach or default by the Seller under the Purchase Agreement, and (d) TW has
provided Keller with copies of all material title, survey, engineering,
environmental, and other due diligence items obtained by TW with respect to
the Property and shall provide Keller with any of the foregoing that it
obtains subsequent to the date hereof.
ARTICLE
2
EXECUTION OF LEASE
--------------------------------------------------------
2.1 EXECUTION OF LEASE
Immediately following Keller's acquisition of the Property pursuant
to the Purchase Agreement, Keller and TW shall enter into a lease of the
Property in form and content substantially identical to that attached hereto
as EXHIBIT D (the "LEASE").
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<PAGE>
2.2 CONSTRUCTION OF BUILDING
Immediately following execution of this assignment, Lessee and
Keller shall finalize and approve the plans and specifications for the
Specified Building (as defined in the Lease) and, upon execution of the
Lease, Keller shall diligently pursue the construction of the Specified
Building in accordance with such plans and specifications (SUBJECT, HOWEVER,
to changes from time to time as directed by Lessee), provided that such
changes are consistent with the overall design and do not unreasonably delay
the scheduled completion of construction and subject to any changes necessary
to obtain building permits, all as provided for under the Lease and subject
to the requirements and limitations set forth in the Lease, including, but
not limited to, the $1,625,000 Ceiling as to Keller's total investment
(referred to as "Lessor's Total Investment" in the Lease). If such plans and
specifications have not been agreed upon by Keller and TW within ten days
after the date hereof, this Agreement shall terminate and neither party shall
have any further obligation hereunder. The acknowledgment of assignment
referred to in Section 1.3 above shall not be delivered to the Sellers unless
and until the plans and specifications are approved.
ARTICLE
3
DEFAULT
--------------------------------------------------------
3.1 DEFAULT
If either party shall fail to fully perform such party's
obligations and duties under this Agreement, or shall otherwise default under
this Agreement, the nondefaulting party shall have all of the rights and
remedies available at law, in equity, in bankruptcy or otherwise. All such
rights and remedies shall be cumulative to the fullest extent provided by law.
3.2 ATTORNEY FEES AND COSTS
If either party shall fail to fully perform such party's
obligations and duties under this Agreement, or shall otherwise default under
this Agreement, such defaulting party shall pay all costs, expenses, and
reasonable attorneys' fees which are incurred or paid by the nondefaulting
party in enforcing the covenants and agreements of the defaulting party under
this Agreement.
3.3 WAIVER OF CERTAIN DEFENSES
Should either party seek recourse to equity to enforce any of its
rights under this Agreement by specific performance, injunction, or other
equitable relief, the other party agrees
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<PAGE>
to, and hereby does waive any defense(s), which such
party might otherwise have that there is any adequate remedy at law.
ARTICLE
4
MISCELLANEOUS
--------------------------------------------------------
4.1 ASSIGNMENT
Neither party may assign any of its right, title, interests,
obligations, or duties in, to, or under this Agreement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
4.2 ENTIRE AGREEMENT; MODIFICATION; WAIVER
This Agreement, together with the exhibits, constitutes the entire
agreement among the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all parties
hereto. No waiver of any of the provisions of this Agreement will be deemed,
or will constitute, a waiver of any other provision, whether or not similar,
nor will any waiver constitute a continuing waiver. No waiver will be
binding unless executed in writing by the party making the waiver.
4.3 SUCCESSORS AND ASSIGNS
This Agreement shall be binding on, and inure to the benefit
of, the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
4.4 NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals, offers,
counteroffers or other communications required or permitted under this
Agreement shall be in writing and (i) delivered by personal delivery to such
intended recipient, which personal delivery shall be evidenced by a written
receipt therefor signed by such recipient, (ii) sent by United States
certified, registered or express mail, return receipt requested, postage
prepaid, or by reputable express delivery service (such as Federal Express,
UPS, Airborne, Purolator, or DHL), fees prepaid, addressed to the intended
recipient thereof, at the address listed for such party below, or at such
other address as such party shall furnish in writing to the other parties to
this Agreement, or (iii) transmitted by fax to such intended recipient at the
fax number listed for such party below (or such other fax number as such
party shall furnish in writing to the other parties to this Agreement),
receipt of which transmission shall be confirmed by such recipient.
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<PAGE>
TO LESSOR: Keller LLC
Attn: George R. Keller
4201 Paoli Peak
Floyds Knobs, Indiana 47119
Fax: (502) ____________________
WITH COPY TO: Joseph L. Ardery, Esq.
Brown Todd & Heyburn
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax (502) 581-1087
TO LESSEE: Tumbleweed, LLC
A Kentucky Limited Liability Company
1900 Mellwood Avenue
Louisville, Kentucky 40206
ATTENTION: John A. Butorac, Jr. & James M. Mulrooney,
Managers
Fax: (502) 893-6676
WITH COPY TO: Roth & Cooper, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals,
offers, counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, two (2) days after being
properly addressed and deposited in the United States mail or with a
reputable express delivery service or upon being transmitted by fax and
properly receipted, as set forth above. However, the time period in which a
response to any such notice, request, demand, consent, approval, offer,
counteroffer or other communication must be given shall commence to run from
the date of receipt of personal delivery, the date on the return receipt or
express delivery receipt, or the date of confirmation of receipt of the fax,
as the case may be, of the notice, request, demand, consent, approval, offer,
counteroffer or other communication by the addressee thereof; PROVIDED,
HOWEVER, that if any party rejects delivery of any such notice, request,
demand, consent, approval, offer, counteroffer or other communication
properly sent by mail or express delivery service, or fails or neglects to
accept delivery after two (2) attempts to so deliver by postal or express
delivery authorities, as the case may be, the time period for a response
shall commence two (2) days following the proper mailing or depositing with
the express delivery service, as the case may be, of such notice, request,
demand, consent, approval, offer, counteroffer or other communication.
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<PAGE>
4.5 CAPTIONS AND HEADINGS
The captions and headings throughout this Agreement are for
convenience and reference only and the words contained in such captions and
headings shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or
meaning of any provision or the scope or intent of this Agreement, nor in any
way affect this Agreement.
4.6 GENDER
The use of any gender in this Agreement shall include all other
genders, the singular shall include the plural, and the plural shall include
the singular, as the context may require.
4.7 GOVERNING LAW
This Agreement shall be construed and interpreted in accordance
with the laws of the Commonwealth of Kentucky without regard to any conflict
of laws provisions.
4.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
4.9 FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party may reasonably request,
in order to more effectively implement the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first hereinabove written.
KELLER
[illegible]
- -----------------------
WITNESS
[illegible] BY: /s/ GEORGE R. KELLER
- ----------------------- -----------------------------
WITNESS GEORGE R. KELLER
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<PAGE>
TW:
[illegible]
- ------------------------ TUMBLEWEED, LLC
WITNESS
/s/ PAM BROWN BY: /s/ JOHN A. BUTORAC, JR., MANAGER
- ------------------------ ---------------------------------
WITNESS JOHN A. BUTORAC, JR., MANAGER
BY: /s/ JAMES M. MULROONEY, MANAGER
---------------------------------
JAMES M. MULROONEY, MANAGER
Exhibits:
EXHIBIT A-DESCRIPTION OF THE PROPERTY
EXHIBIT B-PURCHASE AGREEMENT
EXHIBIT C-ACKNOWLEDGMENT OF ASSIGNMENT
EXHIBIT D-LEASE
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LEASED PREMISES
1.5978 Acre Tract
(Parcel II - Tumbleweed)
SITUATE in Section 12, Town 3, Entire Range 1, Springfield Township,
City of Springdale, Hamilton County, Ohio, and being more particularly
described as follows:
COMMENCING at a point in the west line of Princeton Pike at the
southeast corner of Lot 8 of Tri-County Merchandise Park, Block A, as
recorded in Plat Book 210, page 57, Hamilton County Recorder's Office,
said point being South 01DEG. 00' 00" West, 527.64 feet along the east
line of Section 12 and North 65DEG. 12' 00" West, 43.72 feet from the
intersection of the centerlines of Princeton Pike and Tri-County Parkway
and said east line of Section 12;
THENCE along the west line of Princeton Pike, South 01DEG. 00' 00"
West, 129.64 feet to the True Point of Beginning; THENCE, continuing
along the same, South 01DEG. 00' 00" West, 181.00 feet to a point;
THENCE, North 89DEG. 00' 00" West, 415.34 feet to a point; THENCE,
North 01DEG. 00' 00" East, 21.96 feet to a point; THENCE North 24DEG.
48' 00" East, 173.82 feet to a point; THENCE south 89DEG. 00' 00"
East, 345.00 feet to The Point of Beginning.
CONTAINING 1.5978 acres of land, more or less and being subject to all
legal easements and rights-of-way on record.
<PAGE>
EXHIBIT B
PURCHASE AGREEMENT
<PAGE>
EXHIBIT C
ACKNOWLEDGMENT OF ASSIGNMENT
<PAGE>
EXHIBIT D
LEASE
<PAGE>
LEASE
THIS LEASE ("LEASE"), made and entered into at Louisville, Kentucky, by
and among (I) DOUGLASS VENTURES, a Kentucky general partnership, 1113 Red Fox
Road, Louisville, Kentucky 40205, and ABFAM, INC., a Kentucky corporation,
Kentucky Home Life Building, 239 S. 5th Street, 17th Floor, Louisville,
Kentucky 40202-3269 (hereinafter collectively called "LESSOR"), (II) BLUE
DOOR - BOWLING GREEN JOINT VENTURE, a Kentucky limited partnership, 13018
Settlers Point Trail, Louisville, Kentucky 40226 (hereinafter called
"LESSEE"), and (III) BLUE DOOR RESTAURANTS, INC., a Kentucky corporation,
13018 Settlers Point Trail, Louisville, Kentucky 40226 and RICHARD J. REEVES,
13018 Settlers Point Trail, Louisville, Kentucky 40226, (hereinafter
collectively called "GUARANTORS").
WITNESSETH:
ARTICLE I - GRANT AND TERM
SECTION 1.1 -
(a) LEASED PREMISES.
For and in consideration of the rents, covenants, conditions and
agreements hereinafter reserved and contained, Lessor leases to Lessee and
Lessee hereby leases from Lessor that certain real property and all improvements
thereon and fixtures and appurtenances thereto located at 1780 Scottsville Road,
Bowling Green, Warren County, Kentucky 42104, as more particularly described on
EXHIBIT "A" attached hereto and made a part hereof, together with any fixtures,
buildings, or other improvements or alterations constructed, added, or made by
Lessor or Lessee during the Term (as hereinafter defined) in accordance with the
provisions of this Lease (the "PREMISES").
(b) ADDITIONAL PARKING LEASE.
Lessee shall continue to maintain in full force and effect the Lease
between Lessee and BLUE DOOR RESTAURANTS, INC., dated October 31, 1994, for
premises adjacent to the Premises, during the Term and any extended or renewal
term thereof (hereinafter referred to as the "PARKING LEASE"), a copy of which
is attached hereto as EXHIBIT "B"; PROVIDED, HOWEVER, to the extent that Lessee,
at the direction of Lessor as provided under Section 2.1(c), pays to Lessor the
rental payments provided for under the Parking Lease and such payments to Lessor
are made reasonably in advance of the due dates therefor under the Parking
Lease, then Lessor shall have the obligation to remit such payments to the
landlord under the Parking Lease. Lessee does hereby assign unto Lessor, all of
Lessee's right to exercise the Right of First Refusal contained in the Parking
Lease, and Lessee further agrees to assign the Parking Lease in its entirety, to
Lessor, upon request of Lessor. Lessor and Lessee acknowledge and agree that
the First Right of Refusal contained in the Parking Lease is and shall continue
to be for the benefit of Lessor, and Lessee shall immediately notify Lessor of
any event which would give rise to the right to exercise such Right of First
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<PAGE>
Refusal, which shall be Lessor's sole right. Lessee further agrees that Lessee
shall not modify the Parking Lease in any manner without the prior written
consent of Lessor.
SECTION 1.2 - COMMENCEMENT OF TERM
The Term of this Lease shall commence as of the date hereof (the
"COMMENCEMENT DATE"). Lessee hereby accepts the Premises for occupancy in its
current "as is" condition and acknowledges that the Premises are satisfactory
and in conformity with the provisions of this Lease.
SECTION 1.3 - TIME OF RENTAL PAYMENTS
The first rentals due under this Lease shall be payable in advance for any
partial calendar month of occupancy on a prorated basis and thereafter on the
first day of each calendar month in advance. Rental for a final partial calendar
month of the Lease Term shall also be prorated.
SECTION 1.4 - LENGTH OF TERM
The Term of this Lease shall be for twenty (20) years, commencing on the
date set forth above and ending at 12:01 a.m. twenty (20) years thereafter,
unless extended by written agreement of the parties. For all purposes of this
Lease, the term "LEASE YEAR" shall mean (I) the initial one year period
commencing on the date set forth above and ending at 12:01 a.m. twelve months
thereafter and (II) each one year period thereafter, it being acknowledged by
the parties that if the date set forth above is not the first day of a calendar
month, such one year periods will begin and end DURING, rather than at the
beginning and end of, a calendar month.
ARTICLE II - RENT AND NONWAIVER OF CONDITIONS
SECTION 2.1 - BASE RENT
Lessee shall pay to Lessor, as minimum guaranteed rental (the "BASE RENT")
during the Term the following amounts:
(a) YEARS ONE (1) THROUGH TEN (10)
Commencing on the first (1st) day of the commencement of the Term of
this Lease and continuing through the last day of the tenth (10th) Lease Year of
the Term of this Lease, the annual Base Rent shall be One Hundred Four Thousand
Dollars ($104,000.00) per Lease Year payable by Lessee to Lessor in equal
installments of Eighty-six Hundred Sixty-six Dollars Sixty-seven cents
($8,666.67) per month.
(b) YEARS ELEVEN (11) THROUGH TWENTY (20)
(i) YEARS ELEVEN (11) THROUGH FIFTEEN (15). Commencing on the
first (1st) day of the eleventh (11th) Lease Year of the Term hereof and
continuing through the last day of the fifteenth (15th) Lease Year of the
Term hereof, the annual Base Rent shall be an amount equal to the annual Base
Rent during the initial ten (10) Lease Years of the Term, increased by an
amount equal to the increase in the cost of living from three (3) months
prior to the date of commencement
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of this Lease until three (3) months prior to the end of the initial ten (10)
Lease Years of the Term hereof, as reflected in the Consumer Price Index For
All Items and Major Group Figures For All Urban Consumers published by the
Bureau of Labor Statistics, US Department of Labor ("INDEX"), payable by
Lessee to Lessor in equal monthly installments.
(ii) YEARS SIXTEEN (16) THROUGH TWENTY (20). Commencing on the first
(1st) day of the sixteenth (16th) Lease Year of the Term hereof and continuing
through the last day of the Twentieth (20th) Lease Year of the Term hereof, the
annual Base Rent shall be an amount equal to the annual Base Rent during the
previous five (5) Lease Years of the Term (Lease Years 11-15), increased by an
amount equal to the increase in the cost of living from three (3) months prior
to the date of commencement of the eleventh (11th) Lease Year of the Term until
three (3) months prior to the end of the fifteenth (15th) Lease Year of the
Term, as reflected in the Index, payable by Lessee to Lessor in equal monthly
installments.
(iii) SUCCESSOR INDEX. If there is no Consumer Price Index For All
Items and Major Group Figures For All Urban Consumers published by the Bureau of
Labor Statistics, US Department of Labor, at the times referred to above, then
the most-nearly comparable successor, or if no successor exists, then the most
reasonably comparable other index then being published, shall constitute, and be
used as, the "INDEX" for purposes of this Lease.
(c) PAYMENT OF MONTHLY RENT
The monthly rent shall be payable without prior demand therefor, in
advance and as provided in Section 1.3 above. The rent shall be payable at the
same place as Lessor may specify in writing from time to time for the giving of
notices, as provided in Section 10.1 below, and Lessee shall continue to pay
rent to the address so specified until written notice of a changed address is
given by Lessor to Lessee in the manner so prescribed for the giving of notices.
Unless and until otherwise instructed in a written instrument executed by both
of the Lessors, one-half (1/2) of the monthly rent shall be paid to each of the
Lessors. If the Commencement Date is other than the first day of a month, rent
for the period commencing with and including the Commencement Date until the
first day of the following month shall be prorated at the rate of one-thirtieth
(1/30) of the fixed monthly rental charges per day and shall be due and payable
upon the Commencement Date above referred to. In addition to the rental
referred to above, unless and until otherwise directed by either of the Lessors
in writing, Lessee shall continue to directly pay all rent and other moneys due
pursuant to the Parking Lease referred to herein, when due pursuant to the terms
thereof.
SECTION 2.2 - PERCENTAGE RENT
(a) DETERMINATION OF PERCENTAGE
In addition to the annual Base Rent above provided for, Lessee shall
pay to Lessor each Lease Year as additional rent, Percentage Rent equal to the
amount, if any, by which six (6%) percent of Lessee's Gross Sales exceeds the
annual Base Rent payable hereunder from time to time ("PERCENTAGE RENT"). The
Percentage Rent shall be determined and payable semiannually on or before the
20th day following the close of each full six month period of the Term
(excluding for this purpose a partial month at the beginning and end of the
Term), based on Gross Sales for such
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period. The first and last payments of Percentage Rents due hereunder shall
include a percentage of Gross Sales for any partial months at the beginning
and end of the Term. As soon as practical after the end of each rental year,
but in any case within sixty (60) days thereafter, the Percentage Rent paid
or payable for such rental year shall be adjusted between Lessor and Lessee
on the basis of an audit or compilation of Lessee's books to be made by
Lessee's certified public accountant, each party hereby agreeing to make such
adjustment and to pay to the other, on demand, such amount as may be
necessary to effect adjustment to the agreed Percentage Rent for the annual
period.
(b) GROSS SALES DEFINED
For the purpose of this agreement, the term "GROSS SALES" shall mean
the actual sales prices of all food, beverages, goods, wares and merchandise
sold and the actual charges for all services performed by Lessee or by any
subtenant, licensee or concessionaire in, at or from the Premises, whether for
cash, on credit or otherwise, (without reserve or deduction for inability or
failure to collect) including, but not limited to, such sales and services (i)
where the orders therefor originate in, at or from the Premises, whether
delivery or performance is made from the Premises, or from some other place,
(ii) pursuant to mail, telephone, telegraph or other similar orders received at
the Premises, (iii) by means of mechanical and other vending devices in the
Premises, (iv) all deposits not refunded to purchasers, (v) as a result of
transactions originating in, at or from the Premises, or (vi) which Lessee or
any subtenant, licensee, or concessionaire, in the normal and customary course
of its business, would credit or attribute to its operations at the Premises or
any part thereof. Each sale upon installment or credit shall be treated as a
sale for the full price in the month during which such sale shall be made,
irrespective of the time when Lessee shall receive payment therefor.
(c) EXCLUSIONS FROM GROSS SALES
The following shall be excluded from Gross Sales, namely: (i) any
exchange of food, beverages or other goods sold between stores or other
facilities of Lessee where such exchange is made solely for the convenient
operation of the Lessee's business and not for the purpose of consummating a
sale made in, at or from the Premises, (ii) returns to shippers or
manufacturers, (iii) cash or credit refunds to customers on transactions
otherwise included in Gross Sales, (iv) sales of fixtures, machinery and
equipment after use thereof in the conduct of Lessee's business in the Premises,
(v) amounts collected and paid out by Lessee for any sales, excise or similar
tax imposed by any duly constituted governmental authority, (vi) the amount of
any discount on sales to employees.
(d) LESSEE'S RECORDS
Lessee will keep and preserve for at least two years, at an office of
the Lessee in Louisville, Kentucky, original or duplicate books and records
which shall disclose all information required to determine Gross Sales, as above
defined, the disposition of cash receipts and entries of credit sales, and such
other information relating to or in support of the items comprising Gross Sales
as may be reasonably required by Lessor. Lessor, its employees and accountants,
shall have the right, during regular business hours, to inspect such books and
records and to make any examination or audit thereof which Lessor may desire.
If such audit shall disclose a liability for
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rent of three percent (3%) or more in excess of the rentals theretofore paid
by Lessee for such period, Lessee shall promptly pay to Lessor the cost of
such audit in addition to the deficiency in rental, which deficiency shall be
payable in any event.
(e) STATEMENTS TO BE FURNISHED BY LESSEE
Lessee further covenants and agrees to supply to Lessor monthly
statements of Gross Sales and in addition, at the time stated in Section 2.2(a)
above, Lessee will deliver to Lessor a written statement signed by Lessee or by
an authorized officer of Lessee, showing the Gross Sales, as above defined, made
respectively, in each of the preceding six and twelve-month lease periods and
not later than sixty (60) days after the close of each Lease Year, and after the
termination of the Lease or any renewal thereof, Lessee will deliver to Lessor a
certificate of a certified public accountant showing the amount of the Gross
Sales, specifically stated to be as above defined, of the preceding year.
SECTION 2.3 - PAYMENT OF RENT - GENERAL
All amounts payable by Lessee under this Lease shall be deemed to be rent
and shall be payable and recoverable as rent in the manner herein provided, and
Lessor shall have all rights against Lessee for default in any such payment as
in the case of arrears of rent. Rent shall be paid to Lessor, without deduction
or set-off, in legal tender of the United States of America, at the address of
the Lessor as set forth in Section 10.1 of this Lease, or to such other person
or at such other address as the Lessor may from time to time designate in
writing. Lessee's obligation to pay rent shall survive the expiration or earlier
termination of this Lease.
SECTION 2.4 - NONWAIVER OF CONDITIONS
Extension of time for payment of rent, indulgence or change by Lessor of
the mode or time of payment of rent upon any occasion shall not be construed as
a waiver of the provisions of this Article or as requiring a similar extension,
indulgence or change by Lessor on any subsequent occasion.
ARTICLE III - CONDITIONS, TAXES AND UTILITIES
SECTION 3.1 - LEASE CONDITIONS
The Premises are leased subject to the following conditions:
(a) All conditions, restrictions and limitations, if any, now
appearing of record;
(b) Existing zoning ordinances which affect the Premises or which may
hereafter exist during the Term of this Lease;
(c) Easements for public utilities and easements of any public
highways;
(d) The terms and conditions of this Lease.
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SECTION 3.2 - ADDITIONAL RENT FOR REAL PROPERTY TAXES
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES
As Additional Rent hereunder, Lessee shall pay all Real Property Taxes
(as hereinafter defined) applicable to the Premises during the Term, commencing
with those due and payable in calendar year 1995. Lessee shall be responsible
for payment of all Real Property Taxes due for the year 1995, without proration,
provided however, Lessee shall only be responsible for Lessee's proportionate
share of any Real Property Taxes due for the last year of the Term of this Lease
prorated based upon the number of days of said year during which the Premises
are leased to Lessee. For all purposes of this Lease, the term "REAL PROPERTY
TAXES" shall include any form of assessment, licensing, commercial rental tax,
levy, penalty, ad valorem tax, or other tax (other than income, inheritance and
estate taxes) imposed upon Lessor with respect to the Premises, or otherwise
against or with respect to the Premises, by any authority having the direct or
indirect power to tax, including any city, county, state or federal Government,
and any school, agricultural or other improvement district thereof.
(b) NOTICE AND PAYMENT
Following receipt by Lessor of the then current bills for Real
Property Taxes due and payable in 1995 or later years during the Term, Lessor
shall forward a copy thereof to Lessee. Within ten (10) days after receipt of
such notice from Lessor, Lessee shall pay to Lessor any amount stated therein to
be due.
(c) PERSONAL PROPERTY TAXES
Lessee shall pay, prior to delinquency, all taxes assessed against or
with respect to any trade fixtures, furnishings, equipment, or other personal
property contained in the Premises. Any such taxes imposed upon or otherwise
payable by Lessor shall be treated and included as Real Property Taxes which are
subject to the provisions of Section 3.2 (a) hereof.
SECTION 3.3 - UTILITIES
Lessee agrees to pay for all heat, water, sewer service charges, gas,
electricity and other public utilities used in or about the Premises.
Lessor does not represent or warrant the uninterrupted availability of
utilities, which may be discontinued or temporarily diminished for any reason,
whether by accident, emergency, causes beyond Lessor's control, or otherwise.
Any such interruption shall not render Lessor liable to Lessee in damages by
abatement of rent or otherwise, or relieve Lessee from the obligation to perform
its covenants and agreements under this Lease.
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ARTICLE IV - LESSEE'S COVENANTS CONCERNING RENTS AND COMPLIANCE WITH
PARKING LEASE; LESSOR'S RIGHT OF ENTRY; USE OF PREMISES; ASSIGNMENT AND
SUBLETTING
SECTION 4.1 - PAYMENT OF RENTALS
Lessee shall pay to Lessor, Lessor's heirs, successors in title and assigns
or to Lessor's agent (if an agent is specifically designated by Lessor), the
specified rent at the times and in the manner above provided.
SECTION 4.2 - ADDITIONAL RENTALS
Lessee agrees to pay as additional rent any and all sums which may become
due by reason of the failure of Lessee to comply with any of the covenants of
this Lease and any and all damages, costs and expenses which Lessor may suffer
or incur by reason of any default of Lessee or failure on Lessee's part to
comply with the covenants of this Lease, and each of them.
SECTION 4.3 - LESSOR'S RIGHT OF ENTRY
Lessor, its employees and agents, shall have the right to enter the
Premises at all reasonable times for the purpose of examining or inspecting
same, showing the same to prospective purchasers, mortgagees or tenants, and for
making such repairs, alterations or improvements to the Premises as Lessor may
deem necessary or desirable for the safety and preservation of the said
Premises, but without any obligations to make repairs to the Premises. Lessor
may enter the Premises by means of a master key and Lessor shall incur no
liability for such entry.
SECTION 4.4 - USE OF PREMISES
The Premises shall be used by Lessee for conduct of Lessee's restaurant
business and such other activities as are incidental thereto, and shall not be
used for any other purpose without the prior written consent of Lessor, which
shall not be unreasonably withheld. Lessee shall not use the Premises in any
manner constituting a violation of any ordinance, statute, regulation or order
of any governmental authority. Lessee shall use the Premises in a safe, careful,
proper and lawful manner and shall keep, operate and maintain the Premises in
good condition, appearance and repair as provided in Section 6.1 hereof. Lessee
shall not commit, or allow to be committed, any act of waste in, on or about the
Premises. Lessee shall not create, maintain or permit any nuisance in the
Premises, or permit any objectionable or offensive noise or odors to be emitted
from the Premises, nor shall the Premises be used in any unlawful manner or for
any illegal purpose. Lessee further agrees that Lessee shall not violate any
environmental statutes or regulations, or permit or cause any "hazardous
materials" as defined below, to be stored or used on, in, under or affecting all
or any portion of the Premises or any surrounding areas, except DE MINIMIS
amounts of such hazardous materials (such as cooking oils, cleaning solvents,
etc.) used or stored on the Premises in connection with the ordinary course of
Lessee's restaurant business and in compliance with all applicable laws,
regulations, and rules governing the use and storage of such materials. Lessee
hereby covenants and agrees, at its sole cost and expense, to indemnify, protect
and hold harmless Lessor against and from any and all damages, losses,
liabilities, obligations, penalties, claims,
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litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses (including, without limitation, reasonable
attorneys' and experts' fees and disbursements) of any kind or of any nature
whatsoever which may at any time be imposed upon, incurred by or asserted or
awarded against Lessor or the Premises and arises from or out of or in
connection with the use or placement of any hazardous materials by Lessee on,
in or under any portion of the Premises or any surrounding areas, or the
enforcement of this Lease. Lessee expressly agrees that it shall not permit
or cause to be constructed on, at, or under the Premises any tanks or other
containers to store hazardous substances. Hazardous substances shall include
all "Hazardous Wastes" or "Hazardous Substances" as those terms are defined
in Section 1004 of the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. Section 6903 of the regulations promulgated under Section 3001 of
RCRA, 42 U.S.C. Section 6921, Section 101(14) of the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601(14), as such statutes may be modified or amended in the future.
SECTION 4.5 - ASSIGNMENT AND SUBLETTING
This Lease may not be assigned, or the Premises sublet, without the prior
written consent of the Lessor, which may not be unreasonably withheld. If Lessor
consents to an assignment or sublease, Lessee and Guarantors shall nevertheless
remain fully responsible and liable for the payment of rent and the performance
of all of Lessee's obligations under the Lease; provided, however, that in the
event of a default under the Lease, Lessor may, at its option, collect rent
directly from the assignee or subtenant and such action shall not be construed
as a novation or release of Lessee. A change in the majority ownership of Lessee
shall be deemed to be an assignment of this Lease, for which Lessor's consent
shall be required.
ARTICLE V - ALTERATIONS AND LIENS
SECTION 5.1 - ALTERATIONS
No alterations, additions or improvements to the Premises, except such as
may be provided for in this Lease, shall be made without first having the
consent, in writing, of Lessor, and in all events, Lessee shall bear all the
costs thereof. Any improvements, additions or alterations made by Lessee after
such consent shall have been given, including any and all fixtures installed,
excepting trade fixtures, shall at Lessor's option remain on the Premises as the
property of Lessor, or if directed by Lessor, shall be removed therefrom and the
Premises restored to their original condition, ordinary wear and tear excepted,
at the cost of Lessee, at the expiration or earlier termination of this Lease.
Lessee shall, at Lessee's own cost, repair any damage caused by the removal of
trade fixtures, restoring the Premises to their original condition at Lessee's
own expense, ordinary wear and tear excepted.
SECTION 5.2 - LIENS
Lessee agrees to save Lessor harmless on account of any claim or lien of
mechanics, materialmen or others in connection with any alterations, additions
or improvements of or to the Premises to which Lessor may have given its
consent. Lessee will furnish such waiver or waivers of liens and appropriate
affidavits from the general contractor or subcontractors as Lessor may require.
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Lessee shall not place weights on any portion of the Premises beyond the safe
carrying capacity of the structure, nor overload the electric wiring. Lessee
shall not encumber, attempt to encumber or permit the encumbrance of the
Premises, this Lease, the Parking Lease Premises or the Parking Lease
attached hereto as EXHIBIT "B" or any equipment (including replacements)
herein referred to.
ARTICLE VI - MAINTENANCE AND REPAIR:
COMPLIANCE WITH LAW: SIGNS
SECTION 6.1 - MAINTENANCE AND REPAIR
Lessee shall continuously keep, operate and maintain in good condition,
appearance and repair and make any replacements to each and every part and
portion of the Premises (as well as any personal property furnished by Lessor)
at its own expense whether interior or exterior, structural or nonstructural,
ordinary or extraordinary, foreseen or unforeseen, which may be necessary in
order to keep the building, improvements and other portions of the Premises in
good order and condition, whether required pursuant to law, rules, regulations
or ordinances now existing or hereafter enacted, including, but not limited to,
full responsibility for (i) the roof, foundations and structural portions of the
Premises, and (ii) the heating and air-conditioning units and all other
mechanical equipment, restaurant equipment, furniture and furnishings, plumbing,
wiring and lighting (maintaining adequate illumination at all times for Lessee's
own use and security), and (iii) all doors and plate glass, and (iv) the
sidewalks, parking areas and driveways, and (v) each and every other portion of
the Premises, and (vi) the premises described in the Parking Lease attached as
EXHIBIT "B" pursuant to the terms thereof. Lessee shall at all times keep the
Premises and improvements, equipment and the Premises described in the Parking
Lease attached as EXHIBIT "B" (to the extent required therein) in a clean and
neat condition, free of dirt, debris and other refuse and shall keep the
sidewalks, parking areas and driveways clear, clean and unobstructed in any way
and free from ice and snow and shall likewise maintain any plantings, shrubbery,
flower beds and grass in suitable condition and appearance, all at Lessee's sole
expense. The Premises are accepted by the Lessee in their present "as is"
condition and Lessee further acknowledges that this is a "net-net-net" Lease.
Lessee shall surrender the Premises at the expiration of the Term or at such
other time as Lessee may vacate the Premises broom clean and in good order,
condition and repair, excepting only ordinary wear and tear. Should Lessee fail
to surrender the Premises as herein provided, Lessor may restore the Premises to
such condition and make any necessary repairs or replacements, all at Lessee's
expense.
Lessor shall not be required to rebuild or to make any repairs,
replacements or renewals of any nature or description to the Premises or to make
any expenditures whatsoever in connection with this Lease or to maintain the
Premises in any way. Lessee expressly waives any right contained in any law now
or hereafter in effect to make any repairs at the expense of Lessor.
If Lessee fails to perform any of its obligations as above referred to,
then Lessor may (but shall have no obligation to) enter the Premises and perform
such obligation without liability to Lessee for any loss or damage to Lessee
thereby incurred, and Lessee shall pay Lessor for the cost
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thereof, plus twenty (20%) percent of such cost for overhead and supervision,
within seven (7) days of receipt of Lessor's invoice therefor.
SECTION 6.2 - COMPLIANCE WITH LAW
Upon receipt of notice from any duly constituted public authorities, Lessee
shall comply with their lawful requirements and save Lessor harmless from
penalties, fines, costs or damages resulting from Lessee's occupancy and use of
the Premises.
SECTION 6.3 - SIGNS
Lessee shall not be permitted to paint, place, erect or cause to be
painted, placed or erected, signs in or about the Premises which are visible
from the exterior of the Premises without first obtaining written consent from
Lessor, which written consent shall not be unreasonably withheld. At or prior to
the expiration of this Lease or any renewal thereof, Lessee shall remove any
signs installed with Lessor's approval, and shall restore the walls and other
portions of the Premises, to which any of the said signs were attached, to
their former condition, ordinary wear and tear excepted. Lessee's current signs
are hereby approved.
ARTICLE VII - INSURANCE, WAIVER OF SUBROGATION AND INDEMNITY
SECTION 7.1 - INSURANCE
During the Term of this Lease, Lessee shall obtain and keep in full force
at all times during the Term of this Lease at its own expense:
(a) Fire insurance with extended coverage and
water damage insurance in the name of Lessor for the full
insurable value of the Premises (including all improvements,
furniture, furnishings and equipment). Such policy shall
provide for protection against all perils included within
the classifications of fire, extended coverage, vandalism,
malicious mischief and special extended perils (all risks)
and the initial coverage shall be in the amount of no less
than Six Hundred Thousand ($600,000) Dollars.
(b) Fire insurance with extended coverage and water damage
insurance in amounts sufficient to fully cover Lessee's
improvements and all property (including equipment,
inventory, merchandise and supplies) in or on the Premises
which is not owned by Lessor.
(c) Comprehensive Public Liability insurance in the name of
Lessor, with Lessee named as additional insured, insuring
Lessor and Lessee against all liability arising out of the
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ownership, use, occupancy or maintenance of the Premises,
with policy limits in amounts which are from time to time
acceptable to Lessor, but not less than Five Million
($5,000,000) Dollars with respect to injuries to or death
of, any persons on the Premises, or occurrences of any
property damage caused on the Premises, whether or not
caused by any of Lessor's or Lessee's employees, agents,
representatives, guests or invitees.
(d) Business interruption insurance in an amount sufficient
to cover Lessee's business operating costs, including the
rent and expenses for which Lessee is responsible under the
terms of this Lease.
Policies for such insurance shall be in a form and with an insurer reasonably
acceptable to Lessor, shall require at least thirty (30) days written notice to
Lessor of termination or material alteration during the Term, and Lessor shall
be named as an additional insured, as its interest may appear on each of the
policies which are not issued directly in the name of the Lessor as the primary
insured. Lessee shall promptly deliver to Lessor certified copies or other
evidence of such policies, and evidence satisfactory to Lessor that all premiums
thereon have been paid and the policies are in full force and effect.
SECTION 7.2 - WAIVER OF SUBROGATION
It is agreed by the parties hereto that if the building, improvements or
contents thereof shall be damaged or destroyed by an insured peril, then, and to
the extent allowable without invalidating such insurance, and whether or not
such damage or destruction was caused by the negligence of either party, neither
party shall have any liability to any insurer for or in respect of such damage
or destruction. Certificates evidencing the above shall be furnished to the
Lessor upon request.
SECTION 7.3 - INDEMNITY BY LESSEE
Lessee shall and does hereby hold Lessor harmless, and Lessor shall not be
held responsible for and is hereby expressly relieved, from any and all
liability by reason of any injury, loss or damage to any person or property in
or about the Premises, however caused, whether the loss, injury or damage be to
the person or property of Lessee or any other person.
ARTICLE VIII - FIRE AND RECONSTRUCTION
SECTION 8.1 - FIRE AND RECONSTRUCTION
Lessee shall use every reasonable precaution against fire and shall, in
case of fire or other casualty, give immediate notice thereof to Lessor, who
shall, unless the improvements on the Premises be so damaged that Lessor shall
decide not to reconstruct same, thereupon cause the damage to be promptly
repaired. During such period of repair, rent shall not be abated. If said
improvements be so damaged that Lessor shall decide not to reconstruct same,
either temporarily or permanently, then the Term shall cease and the accrued
rent shall be paid up to the time of the fire
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or other casualty with no further obligation on either party hereunder to
recognize this Lease if the improvements be later rebuilt. In the event that
the Lessor elects not to rebuild, Lessor shall notify Lessee on or before
ninety (90) days after said damage has occurred. Should Lessor elect to
repair or rebuild the Premises, Lessee shall be responsible for payment of
all costs and expenses, if any, in excess of the proceeds of insurance paid
by reason of such casualty.
ARTICLE IX - LESSEE'S DEFAULT, WAIVER AND POSSESSION
SECTION 9.1 - LESSEE'S DEFAULT
In the event Lessee fails to pay all of the rent hereby reserved when due,
or should Lessee fail for a period of ten (10) days after written notice by
Lessor to comply with any of the other terms, covenants or conditions of this
Lease, or if Lessee shall abandon or vacate the Premises or any part thereof
before the end of said Term, or if Lessee shall be adjudicated bankrupt or
insolvent according to law, or shall make an assignment for the benefit of
creditors, or in the event of an involuntary assignment or attachment on or levy
on Lessee's interest herein, or in the event Lessee defaults under the Parking
Lease herein referred to, then and in any of said cases, Lessor may lawfully
enter upon the Premises or any part thereof and repossess the same as of the
former estate of Lessor and expel Lessee and those claiming under and through
Lessee, and remove Lessee's effects, without being deemed guilty of any manner
of trespass, and without prejudice to any remedies which might otherwise be used
for arrears of rent or breach of covenants, and upon entry as aforesaid, this
Lease shall terminate. Notwithstanding such termination, Lessee shall remain
liable for any rent and other expenses for which Lessee is responsible, and
damages which may be due or sustained prior thereto, and all reasonable costs,
professional fees and expenses incurred by Lessor in leasing the Premises to
another tenant (including repair and remodeling of the Premises for such
tenant), and the Lessee shall further be liable for liquidated damages equal to
the total rent and other expenses for which Lessee is responsible under the
terms of this Lease which, but for termination, would have become payable during
the unexpired portion of the Term remaining at the time of such termination,
less the amount of rent, if any, which Lessor may receive during such period
from others to whom the Premises may be rented on such terms and conditions and
at such rent as Lessor in Lessor's sole discretion, shall deem proper. If such
termination shall take place after the expiration of two (2) or more Lease Years
of this Lease, then the Percentage Rent payable hereunder, if any, in each Lease
Year after such termination, shall be conclusively presumed to be equal to the
average Percentage Rent payable during such expired Lease Years. If such
termination shall take place before the expiration of two (2) Lease Years of
this Lease, then the Percentage Rent payable hereunder, if any, in each Lease
Year after such termination shall be conclusively presumed to be equal to twelve
(12) times the average monthly amount of Percentage Rent, based upon Gross Sales
during each such month. Such liquidated damages shall be payable immediately
upon termination of this Lease under this section, unless Lessor, in its sole
discretion, elects to receive such liquidated damages at another time or payable
in different intervals, including Lessor's right to demand the continuous
payment of such rent monthly on the date set forth herein for the payment of
rent. The remedies provided in this Lease shall be cumulative and in addition to
those which Lessor might otherwise be entitled either at law or in equity.
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SECTION 9.2 - WAIVER BY LESSOR
Waiver by Lessor of any breach of the terms hereof by Lessee or any
indulgence by Lessor of Lessee as to the time of payment of any installment of
rent at any time, or from time to time, shall not be construed to be a waiver of
any subsequent breach or imply any future indulgence. The receipt of rent by
Lessor after said rent is due and payable shall not be construed as a waiver of
any default, and the receipt by Lessor of less than the full amount of rent due
shall be a payment on account of rent and Lessor may accept such payment without
prejudice to its right to recover the balance of the rent or to pursue any other
remedies provided in this Lease. No endorsement or statement on any check or any
letter accompanying any check, or payment as rent, shall be deemed an accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance of such rent or payment, or to pursue any
other remedy available to Lessor.
ARTICLE X - NOTICES
SECTION 10.1 - NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals, offers,
counteroffers or other communications required or permitted under this Lease
shall be in writing and (i) delivered by personal delivery to such intended
recipient, which personal delivery shall be evidenced by a written receipt
therefor signed by such recipient, (ii) sent by United States certified,
registered or express mail, return receipt requested, postage prepaid, or by
reputable express delivery service (such as Federal Express, UPS, airborne,
Purolator, or DHL), fees prepaid, addressed to the intended recipient thereof,
at the address listed for such party below, or at such other address as such
party shall furnish in writing to the other parties to this Lease, or (iii)
transmitted by fax to such intended recipient at the fax number listed for such
party below (or such other fax number as such party shall furnish in writing to
the other parties to this Lease), receipt of which transmission shall be
confirmed by such recipient.
TO LESSOR: ABFAM, Inc.
Kentucky Home Life Building
239 S. 5th Street, 17th Floor
Louisville, KY 40202-3269
ATTN: Leslie D. Aberson
Fax: (502) 587-8656
AND: Douglass Ventures
1113 Red Fox Road
Louisville, KY 40205
ATTN: Bruce J. Roth and David M. Roth
Fax: (502) 425-1295
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TO LESSEE: Blue Door - Bowling Green Joint Venture
A Kentucky Limited Partnership
13018 Settlers Point Trail
Louisville, KY 40226
ATTN: Richard J. Reeves
Fax: (502) 228-3682
GUARANTORS: Blue Door Restaurants, Inc.
13018 Settlers Point Trail
Louisville, KY 40226
ATTN: Richard Reeves
Fax: (502) 228-3682
Richard J. Reeves
13018 Settlers Point Trail
Louisville, KY 40226
Fax: (502) 228-3682
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals, offers,
counteroffers or other communications shall be effective (i) upon being
personally delivered and properly receipted, or (ii) two (2) days after being
properly addressed and deposited in the United States mail or with a reputable
express delivery service or (iii) upon being transmitted by fax and properly
receipted, as set forth above. However, the time period in which a response to
any such notice, request, demand, consent, approval, offer, counteroffer or
other communication must be given shall commence to run from the date of receipt
of personal delivery, the date on the return receipt or express delivery
receipt, or the date of confirmation of receipt of the fax, as the case may be,
of the notice, request, demand, consent, approval, offer, counteroffer or other
communication by the addressee thereof, provided, however, that if any party
rejects delivery of any such notice, request, demand, consent, approval, offer,
counteroffer or other communication properly sent by mail or express delivery
service, or fails or neglects to accept delivery after two (2) attempts to so
deliver by postal or express delivery authorities, as the case may be, the time
period for a response shall commence two (2) days following the proper mailing
or depositing with the express delivery service, as the case may be, of such
notice, request, demand, consent, approval, offer, counteroffer or other
communication.
ARTICLE XI - QUIET ENJOYMENT, VIOLATION OF LAW, AND HOLDING OVER
SECTION 11.1 - QUIET ENJOYMENT OF LESSEE
Subject to the terms, conditions and covenants contained herein, Lessor
covenants that Lessee, upon paying the rent and complying with the terms,
covenants and conditions herein, shall and may peaceably and quietly have, hold
and enjoy the Premises for the Term aforesaid.
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SECTION 11.2 - VIOLATION OF LAW
Notwithstanding any provisions of this Lease to the contrary, should any
court of competent jurisdiction hold that the use of the Premises is unlawful,
or contrary to any zoning regulation, or in violation of any restriction on the
use of the Premises and such holding or judgment becomes final without further
appeal, then and in that event, Lessor shall not be liable for any loss, cost,
damage or expense which may be sustained by Lessee by reason of such ruling, and
in such event Lessor or Lessee shall have the right to terminate this Lease at
such time without either party having any further liability hereunder to the
other, provided however that Lessee shall not be so released unless Lessee is
not in default at such time and further providing Lessee is not at fault.
Lessee shall be responsible to comply with all terms of this Lease including the
payment of rentals provided for herein until such time as the Lease is
terminated in accordance with this section.
SECTION 11.3 - HOLDING OVER
In the absence of a written agreement to the contrary, if Lessee should
remain in occupancy of the Premises after the expiration of the Lease Term,
or any formal extension thereof, Lessee shall remain only as a tenant from
month-to-month, and all applicable provisions of this Lease shall also be
applicable during such month-to-month tenancy.
SECTION 12.1 - CONDEMNATION
If the whole or any part of the Premises shall be taken under the power of
eminent domain, then this Lease shall terminate as to the part so taken on the
day when Lessee is required to yield possession thereof, and Lessor shall make
such repairs and alterations as may be necessary in order to restore the part
not taken to useful condition. If the amount of the Premises so taken is such as
to impair substantially the usefulness of the Premises for the purposes for
which the same are hereby leased, then either party shall have the right to
terminate this Lease as of the date when Lessee is required to yield possession,
if such right to terminate is exercised on or before the date when Lessee is
required to yield possession, unless another date is mutually agreed upon
between Lessor and Lessee. All compensation awarded for such taking of the fee
and the leasehold shall belong to and be the property of the Lessor and in no
event shall Lessee have any claim against Lessor for the value of the unexpired
Term of this Lease; provided, however, that the Lessor shall not be entitled to
any portion of the award made to the Lessee for the cost of removal of its
personal property.
ARTICLE XIII - LIMITATION OF LESSOR'S LIABILITY
SECTION 13.1 - TRANSFER OF OWNERSHIP
The term "Lessor" as used in this Lease so far as covenants or obligations
on the part of Lessor are concerned shall be limited to mean and include only
the owners at the time in question of the fee simple title to the Premises and
in the event of any transfer or transfers of such fee simple title, the then
grantor of the fee simple title shall be automatically relieved after the date
of such transfer or conveyance of all liability as respects the performance of
any obligations on the part of Lessor contained in this Lease thereafter to be
performed, it being intended hereby that all the obligations contained in this
Lease on the part of Lessor shall be binding upon Lessor and Lessor's
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assigns only during and in respect of their respective period of ownership of
the fee simple interest in the Premises. Provided, however, no transferor
shall be so relieved of liability hereunder until the transferee shall assume
all obligations of Lessor hereunder in writing directed to Lessee.
SECTION 13.2 - LEASEHOLD ESTATE LIMITATION
Notwithstanding any provision in this Lease to the contrary, Lessee agrees
that Lessee shall look solely to Lessor's interest in the Premises in the event
of any default or breach by Lessor with respect to any of the terms and
provisions of this Lease on the part of the Lessor to be performed or observed,
and no other assets of Lessor shall be subject to levy, execution, or other
judicial process of/or award for the satisfaction of any claim by Lessee.
SECTION 13.3 - LESSEE'S WAIVER OF CLAIMS
Lessor and Lessor's agents, employees and contractors shall not be
liable for, and Lessee hereby releases them from any and all claims for and
damage to person or property sustained by Lessee or any person claiming
through Lessee resulting from any fire, accident, occurrence or condition in
or upon the Premises (including all improvements, the parking lot, walkways
and land) of which they are a part, including, but not limited to, such
claims for damages resulting from (i) any defect in or failure of plumbing,
heating or air-conditioning equipment, electrical wiring or installation
thereof, water pipes, stairs, railing, walks, parking areas and drives; (ii)
any equipment or appurtenance becoming out of repair; (iii) the bursting,
leaking or running of any tank, wash stand, water closet, waste pipe, drain
or any other pipe or tank in, upon or about the building or Premises; (iv)
the backing up of any sewer pipe or downspouts; (v) the escape of steam,
water or gas; (vi) water being upon or coming through the roof or any other
place upon or near such building or Premises or otherwise; (vii) the falling
of any fixtures, plaster or stucco; (viii) broken glass; and (ix) any act or
omission of covenants by Lessor.
ARTICLE XIV - SUBORDINATION OF LEASE TO MORTGAGE AND ESTOPPEL CERTIFICATE
Section 14.1 - SUBORDINATION OF LEASE TO MORTGAGE
On written request by Lessor, Lessee shall execute and deliver to Lessor or
Lessor's designate, an agreement subordinating this Lease to any mortgage upon
the Premises; provided, however, such subordination shall be upon the express
condition that the validity of this Lease shall be recognized by the Mortgagee,
and that, notwithstanding any default by the Mortgagor with respect to said
mortgage or any foreclosure thereof, Lessee's possession and right of use under
this Lease in and to the Premises shall not be disturbed by such Mortgagee
unless and until Lessee shall commit an uncured default hereof, and this Lease
or Lessee's right to possession hereunder shall have been terminated in
accordance with the provisions of this Lease.
If Lessor desires to finance or refinance the Premises, or any part
thereof, Lessee and Guarantors hereby agree to deliver to Lessor and any lender
designated by Lessor such financial statements and tax returns as may be
reasonably required by such lender. All such financial statements and tax
returns shall be received by Lessor and such lender in confidence and shall be
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used only for the purpose herein set forth. In addition, Lessor shall have the
right from time to time to request financial statements and tax returns of
Lessee and Guarantors for any other legitimate purpose, including Lessor
satisfying itself that the financial condition of Lessee and Guarantors
adequately secures this Lease.
SECTION 14.2 - ESTOPPEL CERTIFICATE
Within ten (10) days following receipt of a written request from Lessor,
Lessee shall execute, acknowledge and deliver to Lessor or to any prospective
lender or purchaser designated by Lessor, a written statement certifying (1)
that this Lease is in full force and effect and unmodified or, if modified,
stating the nature of such modification, (2) the date to which rent has been
paid, and (3) that there are not, to Lessee's knowledge, any uncured defaults,
or specifying such defaults, if any are claimed. In the event Lessee fails to
execute such written statement, then Lessee hereby gives Lessor, Lessee's power
of attorney to prepare and execute in behalf of Lessee, such estoppel
certificate.
ARTICLE XV - INTEREST ON ARREARAGE; LITIGATION; GUARANTEE; AND OPTION TO
PURCHASE
SECTION 15.1 - INTEREST ON ARREARAGE
All arrearages in the payment of rent or in the payment of any other
amounts which become due under the terms of this Lease shall bear interest from
the date when due and payable at the maximum lawful rate, and if none, then at
the rate of eighteen (18%) per cent per annum, until paid. Notwithstanding the
above, in order to recover extra expenses involved in handling delinquent
payments, Lessee shall pay a "late charge" of TWO HUNDRED FIFTY ($250) DOLLARS
when any installment of rent is paid more than seven (7) days after the due date
thereof. It is expressly understood that the "late charge" is for the extra
expense incurred by the Lessor in processing the delinquency.
SECTION 15.2 - LITIGATION
In the event that Lessor shall, without fault on Lessor's part, be made a
party to any litigation commenced by or against Lessee (except litigation
commenced by Lessee against Lessor for non-performance of the terms, covenants
and agreements contained in this Lease on the part of Lessor to be kept or
performed), then Lessee shall furnish legal representation to Lessor of Lessor's
choice and pay all costs, damages and expenses incurred in connection with such
litigation.
SECTION 15.3 - GUARANTEE
In consideration of Lessor entering into the within Lease with Lessee,
and as a condition thereof, Guarantors hereby guarantee unto Lessor, Lessor's
legal representatives, successors and assigns, the payment of rent and
additional rent and all other payments to be made by Lessee under this Lease
and the full performance and observance by Lessee of all the other terms,
covenants, conditions and agreements herein provided to be performed and
observed by Lessee, for which the Guarantors shall be jointly and severally
liable with the Lessee, without requiring any notice of
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<PAGE>
nonpayment, nonperformance or nonobservance, or proof of notice or demand,
all of which the Guarantors hereby expressly waive. The Guarantors expressly
agree that Lessor may proceed against the Guarantors (or either of them)
before or after or simultaneously with proceeding against Lessee for default.
This Guarantee shall not be terminated, effected or impaired in any way or
manner whatsoever by reason of the assertion by Lessor against Lessee of any
of the rights or remedies reserved to Lessor pursuant to the provisions of
this Lease, or by reason of summary or other proceedings against Lessee, or
by the omission of Lessor to enforce any of its rights against Lessee, or by
reason of any extension of time or indulgence granted by Lessor to Lessee.
The Guarantors further covenant and agree (1) that Guarantors will be jointly
and severally bound by all of the provisions, terms, conditions, restrictions
and limitations contained in this Lease, the same as though Guarantors were
named herein as Lessee, and (2) that this Guarantee is absolute and
unconditional and shall remain and continue in full force and effect as to
any renewal, extension, option, amendment, addition, assignment, sublease,
transfer or other modification of this Lease, whether or not Guarantors shall
have knowledge or have been notified of or consented to any such renewal,
extension, option, amendment, addition, assignment, sublease, transfer or
other modification of this Lease. If Lessor at any time is compelled to take
any action or proceeding in Court or otherwise to enforce or compel
compliance with the terms of this Guarantee, the Guarantors shall, in
addition to any other rights or remedies to which Lessor may be entitled
hereunder or as a matter of law or in equity, be obligated to pay all costs,
including attorneys' fees, incurred or expended by Lessor in connection
therewith. All obligations and liabilities of Guarantors pursuant to this
Guarantee shall be binding upon the Guarantors and their successors.
SECTION 15.4 - OPTION TO PURCHASE
Lessor hereby grants unto Lessee the right and option to purchase the real
estate described in the attached EXHIBIT "A", together with the improvements and
appurtenances thereto ("OPTION"). The Option may be exercised at any time
between January 1, 1999, and April 30, 1999, at which time this Option shall
expire unless properly exercised. The Purchase Price shall be an amount equal
to Eight Hundred Thousand ($800,000) Dollars increased by an amount equal to the
increase, if any, in the cost of living from three (3) months prior to the date
of commencement of this Lease until April 1, 1999, as reflected in the Index.
The purchase price shall paid all cash at the time of closing.
Lessee shall exercise the Option herein granted by giving Lessor no less
than sixty (60) days prior written notice thereof together with a good faith
deposit of FIFTY THOUSAND ($50,000.00) DOLLARS payable by certified check to
Lessor. Closing shall take place on July 1, 1999, at a place determined by
Lessor, unless another time, date or place is agreed upon by the parties. Title
shall be conveyed to Lessee in fee simple and with covenant of Special Warranty,
free and clear of all liens and encumbrances excepting (i) any 1st Mortgage lien
against the property then existing, which shall assumed by purchaser with proper
credit against the purchase price, and (ii) taxes due and payable in the year of
closing and all subsequent taxes which Lessee shall assume and agree to pay and
(iii) all restrictions, stipulations, easements, covenants, conditions,
limitations, zoning ordinances and other matters of record affecting said
property. In the event of default under the terms of this Lease or termination
of this Lease for any reason whatsoever, or upon expiration of the Option period
without exercise of the Option, then and in any such event, Lessee's right to
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exercise the above Option shall terminate and said Option shall be null and
void. The Option herein granted is personal to the Lessee and can not be
assigned, transferred or conveyed to any other person, firm or entity, except
with the consent of Lessor, which may be arbitrarily withheld.
In the event Lessor has acquired title to the Parking Lease Premises
described in the Parking Lease attached hereto as EXHIBIT "B", then Lessee shall
be obligated, upon exercise of the Option to purchase the Premises as above
referred to, to acquire the Parking Lease Premises simultaneously upon the same
terms and conditions referred to above, excepting that the purchase price
thereof shall be an amount equal to the amount paid by Lessor to acquire said
property increased by an amount equal to the increase in the cost of living from
three (3) months prior to the date of closing of purchase of said property until
April 1, 1999, determined as above provided. In the event Lessor has not
acquired said property as of the date of closing, then Lessor agrees to reassign
to Lessee all of Lessor's right, title and interest in and to the Right of First
Refusal to acquire the premises described in the Parking Lease, or if previously
assigned to Lessor by Lessee, the Parking Lease itself, if such Parking Lease is
in force and effect at such time.
ARTICLE XVI - GENERAL
SECTION 16.1 - MAINTAINING REGULAR HOURS
Lessee agrees to occupy the Premises fully staffed upon the Commencement
Date referred to in Section 1.2 hereof and thereafter to conduct within one
hundred (100%) percent of the Premises the business permitted herein and to
remain open for business during regular and customary hours established by other
like businesses in the general area. Lessee shall not vacate or abandon the
Premises at any time during the Term without Lessor's written consent.
SECTION 16.2 - BROKER'S COMMISSION
Each of the parties represents and warrants that there are no claims for
brokerage commissions or finders fees in connection with the execution of this
Lease. Each of the parties shall indemnify the other against, and hold the
other harmless from all liabilities arising from any such claim including,
without limitation, the cost of counsel fees in connection therewith.
SECTION 16.3 - RELATIONSHIP OF THE PARTIES
Nothing contained in this Lease shall be deemed or construed by the parties
hereto, or by any third party, as creating the relationship of principal and
agent, partnership, or joint venture between or among any of the parties.
SECTION 16.4 - APPLICABLE LAW
This Lease shall be construed under the laws of the Commonwealth of
Kentucky wherein the Premises are situated.
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<PAGE>
SECTION 16.5 - ENTIRE AGREEMENT
This Lease, and any riders, addendums or exhibits attached hereto and
forming a part hereof, set forth all the promises, agreements, conditions and
understandings between Lessor or Lessor's agent and Lessee or Lessee's agent
relative to the Premises, and there are no other promises, agreements,
conditions or understandings, either oral or written, between them other than
those herein set forth. No subsequent alteration, amendment, change or addition
to this Lease shall be binding upon Lessor or Lessee unless reduced to writing
and signed by them, and by direct reference therein made a part hereof.
SECTION 16.6 -CAPTIONS, ETC.
The various captions used in this Lease are for convenience of reference
only and shall not in any way limit or amplify the terms hereof.
SECTION 16.7 - BINDING EFFECT
Except as may be otherwise specifically provided herein by the execution of
this Lease, Lessor, Lessee and Guarantors do hereby bind themselves, their
heirs, administrators, executors, successors and permitted assigns, to all of
its terms, covenants and conditions. Further, except as may be otherwise
specifically referred to herein, the term "Lessor", "Lessee" or "Guarantors"
includes the heirs, executors, administrators, successors, assigns, committee,
curator, trustees and receivers of Lessor, Lessee or Guarantors, as the case may
be.
SECTION 16.8 - SEVERABILITY AND INVALIDITY
The invalidity or unenforceability of any provision hereof shall not affect
or impair any other provisions hereof; provided, however, should any provision
hereof providing for the payment of any rents, compensation or reimbursement to
Lessor be invalid or unenforceable, Lessor may, at its sole option, terminate
this Lease at any time giving Lessee ten (10) days' prior written notice of such
election to terminate.
SECTION 16.9 - GENDER
The use of any gender in this Lease shall include all other genders, the
singular shall include the plural, and the plural shall include the singular, as
the context may require.
SECTION 16.10 - COUNTERPARTS
This Lease may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
SECTION 16.11 - FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party
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may reasonably request, in order to more effectively implement the
transactions contemplated herein.
IN TESTIMONY WHEREOF, the parties have executed this Lease as of the 1st
day of April, 1995.
LESSOR:
ABFAM, INC.
A KENTUCKY CORPORATION
BY: /s/ Leslie D. Aberson
--------------------------------
LESLIE D. ABERSON, PRESIDENT
DOUGLASS VENTURES
A KENTUCKY GENERAL PARTNERSHIP
BY: /s/ David M. Roth
--------------------------------
DAVID M. ROTH, GENERAL PARTNER
LESSEE:
BLUE DOOR - BOWLING GREEN JOINT VENTURE
BY: BLUE DOOR RESTAURANTS, INC.
A KENTUCKY CORPORATION, MANAGING JOINT
VENTURE PARTNER
BY: /s/ Richard J. Reeves
------------------------------
RICHARD J. REEVES, PRESIDENT
GUARANTORS:
BLUE DOOR RESTAURANTS, INC.,
A KENTUCKY CORPORATION
BY: /s/ Richard J. Reeves
-------------------------------
RICHARD J. REEVES, PRESIDENT
/s/ Richard J. Reeves
-------------------------------------
RICHARD J. REEVES, INDIVIDUALLY
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Exhibit "A"
LEGAL DESCRIPTION
That certain real property and located in Bowling Green, Warren County,
Kentucky, as more particularly described below, together with all improvements
thereon and fixtures and appurtenances thereto and together with any fixtures,
buildings, or other improvements or alterations constructed, added, or made by
Lessor or Lessee during the Term in accordance with the provisions of this
Lease:
DESCRIPTION:
BEGINNING at an iron pin in the intersection of the East
right of way of Scottsville Road and the North right of way
line of Ashley Street; thence with Scottsville Road North 25
degrees 18 minutes 41 seconds W 175 feet; thence leaving
said right of way North 64 degrees 41 minutes 17 seconds E
275 feet to a point; thence S 25 degrees 18 minutes 41
seconds E 175 feet to the North right of way line of Ashley
Street; thence with said right of way line S 64 degrees 41
minutes 17 seconds W 275 feet to the point of beginning and
being Lot No. 54 of the Hartland Subdivision, Section 7, as
recorded in Plat Book 23, Page 7, in the Office of the
Warren County Court Clerk.
SOURCE OF TITLE:
BEING the same property conveyed to Lessor by Deed
from BLUE DOOR RESTAURANTS, INC., dated the 18th day of
July, 1994, and recorded in Deed Book ____,
Page ____, in the Office of the Warren County Court Clerk.
<PAGE>
Exhibit "B"
PARKING LEASE
COPY OF PARKING LEASE FOLLOWS
<PAGE>
LEASE
THIS LEASE, made and entered into in duplicate on this the 31st day of
October, 1994, by and between R. HARVEY JOHNSTON, III, and his wife, SARAH O.
JOHNSTON (acting by and through her attorney in fact, R. Harvey Johnston,
III), whose address is 2438 Ewing Ford Road, Bowling Green, Kentucky, 42103,
hereinafter collectively referred to as the "Lessor"; and BLUE DOOR
RESTAURANTS, INC., A Kentucky corporation, whose address is
______________________________________________________________________________,
hereinafter referred to as the "Lessee."
WITNESSETH:
WHEREAS, the Lessor will own that certain real estate with no
improvements thereon known as Lot No. 55 of the Hartland Commercial
Subdivision located on Fairway Street in the City of Bowling Green, Warren
County, Kentucky, 42103; and,
WHEREAS, the Lessor desires to lease unto the Lessee, and the Lessee
desires to lease from the Lessor, that certain real estate and the
appurtenances thereunto as described herein.
NOW THEREFORE, for and in consideration of the mutual covenants, terms,
and conditions contained herein, it is agreed as follows:
I. LEASED PREMISES. The Lessor hereby leases unto the Lessee that
certain real estate with no improvements located thereon known as Lot No. 55
of the Hartland Commercial Subdivision as highlighted in yellow on that plat
attached hereto as Exhibit "A" and made a part hereof and located on Fairway
<PAGE>
Street in the City of Bowling Green, Warren County, Kentucky, 42103, and all
the appurtenances thereunto in its "AS IS, WHERE IS" condition (hereinafter
referred to as the "Leased Premises").
II. TERM. The term of this Lease shall commence the 1st day of Nov.,
1994, and continue for a period of five (5) years through the 31st day of
Oct., 1999.
III. RENT. A) AMOUNT: The Leesee agrees to pay to the Lessor during the
first year of this Lease, an annual fixed rent in the sum of EIGHTEEN
THOUSAND AND NO/100 DOLLARS ($18,000.00). The fixed rent shall be payable in
monthly installments of ONE THOUSAND, FIVE HUNDRED AND NO/100 DOLLARS
($1,500.00) by the Lessee in advance on the first day of each month,
commencing on the 1st day of Nov., 1994. During the second and third years of
this Lease, the Lessee agrees to pay to the Lessor an annual fixed rent in
the sum of TWENTY-FOUR THOUSAND AND NO/100 DOLLARS ($24,000.00) per year. The
fixed rent shall be payable in monthly installments of TWO THOUSAND AND
NO/100 DOLLARS ($2,000.00) in advance on the first day of each month. During
the fourth and fifth years of this Lease, the Lessee agrees to pay to the
Lessor an annual fixed rent in the sum of THIRTY THOUSAND AND NO/100 DOLLARS
($30,000.00) per year. The fixed rent shall be payable in monthly
installments of TWO THOUSAND, FIVE HUNDRED AND NO/100 DOLLARS ($2,500.00) in
advance on the first day of each month.
B) PAYMENT. All payments of rent shall be made by the Lessee to the
Lessor without demand or notice to P.O. Box 4000,
2
<PAGE>
Bowling Green, Kentucky, 42102-4000, or such place as the Lessor may from
time to time designate in writing. All rent shall be payable in current legal
tender of the United States of America, as the same is then, by law,
designated. Rent shall be paid to the Lessor on the 1st day of each month;
all successive rental payments shall be paid pursuant to Paragraph III (A)
hereinabove. If any rent payment is not received by the Lessor by the tenth
(10th) day of the month, the Lessee will pay unto the Lessor a late charge or
ONE HUNDRED AND NO/100 DOLLARS ($100.00).
IV. SECURITY DEPOSIT. The Lessor acknowledges receipt of the sum of
_______________________________________________ DOLLARS ($_________), which
sum shall be a security deposit to be held by the Lessor as security for any
unpaid rent or damage to the Leased Premises by the Lessee.
V. UTILITIES. The Lessee shall pay all utility charges upon the Leased
Premises, including, but not limited to, water, electricity, gas, sewer,
sanitation, and other power or utility services used on or in connection with
the Leased Premises and will hold the Lessor harmless for payment of same.
The Lessee shall pay all utility deposits.
VI. MAINTENANCE OF PREMISES LEASED. The Lessee shall be responsible for
all routine maintenance to the Leased Premises. The Lessee will not commit
waste to the Leased Premises and the Lessee shall maintain the Leased
Premises in as good a condition as now exists, ordinary wear and tear
excepted.
3
<PAGE>
The Lessee shall not make any alterations or improvements to the Leased
Premises without the prior written consent of the Lessor, which consent shall
not be unreasonably withheld. If permission is so granted, the Lessee shall
make such alterations and improvements in accordance with applicable laws and
building codes and in a good and workmanshiplike manner, and shall provide
the Lessor with lien waivers if requested. Further, the Lessee does hereby
fully and completely indemnify the Lessor against any mechanic's liens or
other liens or claims in connection with the making of such alterations or
improvements. All permanent improvements, replacements, and betterments made
by the Lessee shall become the property of the Lessor on the expiration of this
lease; provided however, that this shall not include equipment and all other
personal property of the Lessee, which shall remain the Lessee's property and
shall be removable prior to the end of this lease; provided that the Lessee
shall restore completely any damage to the Leased Premises resulting from
such removal prior to the termination of this lease.
VII. TAXES. The Lessee shall pay all ad valorem real property taxes
assessed against the Leased Premises, including real estate and improvements
for calendar year 1995 and all subsequent years during the term of this
lease. The Lessor shall pay all ad valorem real property taxes assessed
against the Leased Premises, including real estate and improvements for
calendar year 1994.
4
<PAGE>
VIII. LIABILITY INSURANCE AND INSURANCE. The Lessee shall maintain a
comprehensive liability policy of insurance protecting the Lessee and the
Lessor against any liability occasioned by accident on or about the Leased
Premises, the limits of such insurance not to be less than One Million and
no/100 Dollars ($1,000,000.00) in respect to one occurrence, which policy or
policies of insurance shall be endorsed to reflect that the Lessor is named
an additional insured thereon. The Lessee agrees to indemnifiy the Lessor
against and to hold the Lessor harmless from any and all claims or demands
for loss or damage to property or for injury or death to any person from any
cause whatsoever while in, upon, or about the Leased Premises.
IX. ADDITIONAL RENT. All taxes, charges, costs, and expenses which the
Lessee is required to pay hereunder, together with all interest and penalties
that may accrue thereon in the event of the Lessee's failure to pay such
amounts, and all damages, costs, and expenses which the Lessor may incur by
reason of any default of the Lessee or failure on the Lessee's part to comply
with the terms of this lease shall be deemed to be additional rent and, in
the event of non-payment by the Lessee, the Lessor shall have all the rights
and remedies with respect thereto as the Lessor may have for non-payment of
the basic rent.
X. CONDEMNATION. In the event all or any portion of the Leased Premises
are condemned by any public authority so as to materially interfere with the
conduct of the Lessee's business, this Lease may be terminated by the Lessee.
Any condemnation
5
<PAGE>
award for the land and/or improvements shall be the sole property of the
Lessor.
XI. Warranties by Lessor. The Lessor warrants that it is the equitable
owner of a good and marketable title to the Leased Premises in fee simple,
fully marketable in all respects, except ad valorem real property taxes, all
existing easements for public roads and public utilities, rules and
regulations of the City-County Planning commission of Warren County,
Kentucky, all building and use restrictions applicable to the Leased
Premises, and any mortage lien indebtedness of the Lessor. Further, the
Lessor warrants that it has the full right and power to enter into this Lease.
XII. USE OF LEASED PREMISES. It is understood by and between the parties
hereto that the Lessee shall utilize the Leased Premises in accordance with
all laws of the United States of America, the Commonwealth of Kentucky, and
those applicable zoning laws and other governmental regulations. Further, the
Lessee shall use the Leased Premises for a parking lot and shall not use the
Leased Premises for any other purpose without the prior written consent of
the Lessor, which consent shall not be unreasonably withheld.
XIII. DEFAULT. The following shall constitute events of default:
A) Non-payment when due of any rental payment under this Lease which
is not remedied within five (5) days after written notice from the Lessor;
6
<PAGE>
B) Non-payment when due of any insurance premium, fee or other
charge under this Lease which is not remedied within five (5) days after
written notice from the Lessor;
C) A breach or failure of performance by the Lessee of any provision
under this Lease which is not remedied within five (5) days after written
notice from the Lessor;
D) The Lessee (1) files a petition in bankruptcy or for the approval
of a plan of reorganization or arrangement under the Bankruptcy Code which
now exists or as may be amended, or an admission seeking relief therein
provided; (2) is unable or admits in writing its inability to pay its debts
as they become due; (3) makes an assignment for the benefit of creditors; (4)
has a receiver appointed, voluntarily or otherwise, for its property; (5) is
adjudicated a bankrupt; (6) becomes insolvent, however, otherwise evident; or
E) The Lessee assigns, encumbers, mortgages, subleases or permits
the Leased Premises or any part thereof to be used or occupied by any other
person(s) or entity(ies) without the prior written consent of the Lessor.
In the event that the Lessee becomes and remains in material default as
defined above for a period of five (5) days after written notice of same by
the Lessor, the Lessor may, at its option, terminate this Lease and re-enter
the Leased Premises, in which event this lease shall become null and void;
provided however, re-entry under the provision of this paragraph shall not
act as a release of the Lessee for any rentals due hereunder
7
<PAGE>
which have accrued at the time of the default or which would accrue over the
remaining term of this Lease. Further, the Lessor may recover from the Lessee
all payments due under this lease and claim a landlord's lien against the
property of the Lessee and the Lessee grants unto the Lessor a landlord's
lien in the event of default under the provisions of this Lease. In the event
that the Lessor incurs any expenses, including collection or attorney's fees
and court costs, by reason of default or the breach by the Lessee of any of
the terms, covenants, and conditions contained herein, the Lessee agrees to
reimburse the Lessor the aforesaid expenses.
Any notice required under the terms and conditions of this Lease shall be
given by certified mail, return receipt requested, to the addresses of the
Lessor and the Lessee as appear on Page 1 of this Lease.
XIV. ENTRY AND INSPECTION. The Lessee shall permit the Lessor and its
agents to enter the Leased Premises at all reasonable times and upon
reasonable notice for any of the following purposes: A) to inspect the same;
B) to maintain the Leased Premises; C) to make such repairs to the Leased
Premises as the Lessor may elect to make; D) to post notices
ofnon-responsibility for alterations or additions or repairs; and E) to
further market for sale the Leased Premises. "Market" shall include
advertising, the placing of a sign on the Leased Premises, and the showing of
the Leased Premises at reasonable times as determined by the Lessor in its
sole discretion. The
8
<PAGE>
Lessor shall have such right of entry and the right to fulfill the purpose
thereof without any rebate of rent to the Lessee for any loss of occupancy or
quiet enjoyment of the Leased Premises thereby occasioned.
XV. SUBLETTING AND ASSIGNING. The Lessee shall not assign, mortgage,
encumber, lease, sublet, or permit the Leased Premises or any part thereof to
be used by others without the prior written consent of the Lessor. If this
Lease is assigned or if the Leased Premises or any part thereof is sublet or
occupied by an person(s) or entity(ies) other than the Lessee, the Lessor may,
after default by the Lessee, collect rent form the assignee, subtenant, or
occupant, and apply the net amount collected to the rent herein reserved. No
such assignment, subletting, occupancy, or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, subtenant, or
occupant as tenant, or release of the Lessee from the further performance by
the Lessee of the covenants in this Lease. Consent by the Lessor to any
assignment, subletting, or occupancy shall not be construed to relieve the
Lessee from obtaining the written consent of the Lessor to any further
assignment, subletting, or occupancy by any perosn(s) or entity(ies) other
than the Lessee.
XVI. SUBORDINATION. The Lessee agrees to cooperate with the Lessor in
any sale or refinancing of the Leased Premises and to that end, the Lessee
agrees, if requested by the Lessor, to subordinate in writing its interest in
the Leased Premises or its
9
<PAGE>
lease to the lien of any mortgage securing indebtedness placed on the Leased
Premises by the Lessor.
XVII. RIGHT OF FIRST REFUSAL. It is agreed and understood that in the
event the Lessor decides to sell the Leased Premises, the Lessor will extend
to the Lessee by written notice, the right of first refusal to purchase the
Leased Premises upon such terms and conditions as determined by the Lessor.
The Lessee must exercise the right of first refusal by giving written notice
within fifteen (15) days after the Lessee's receipt of written notice from
the Lessor and the Lessee must close said transaction within thirty (30) days
of the Lessee's receipt of the original written notice from the Lessor.
XVIII. SEVERABILITY. If any provision of this Lease shall be declared
invalid or unenforceable, the remainder shall continue in full force and
effect.
IXX. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure to
the benefit of the parties hereto, their successors and/or assigns.
XX. ENTIRE AGREEMENT. This Lease contains the entire agreement between
the parties hereto, is a total integration thereof and may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification and/or discharge is sought.
XXI. GOVERNING LAW. This Lease shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Kentucky.
10
<PAGE>
XXII. GRAMMATICAL USAGE. In construing this Lease, neuter pronouns shall be
substituted for those masculine in gender and vice versa, and plural terms
shall be substituted for those singular and singular for plural in any place
in which the context so requires.
XXIII. REMEDIES CUMULATIVE. The specified remedies to which the Lessor may
resort under the terms of this Lease are cumulative and are not intended to
be exclusive of any remedies or means of redress to which the Lessor may be
lawfully entitled in case of any breach or threatened breach by the Lessee of
any provisions of this Lease.
XXIV. RECORDING. This Lease shall not be recorded for any public
inspection by the parties hereto; provided however, that a Memorandum of
Lease may be placed of record by either of the parties hereto, same to
reflect only the parties to this Lease and the Leased Premises which are
affected by this Lease.
XXV. AUTHORITY. The Lessor and the Lessee warrant that the parties
executing this Lease on its behalf do so by virtue of proper authority
granted by resolutions appropriately adopted pursuant to the By-laws of such
corporation.
IN TESTIMONY WHEREOF, witness the signatures of the authorized
representatives of the parties hereto on this the day and date first above
written.
11
<PAGE>
LESSOR:
/s/ R. HARVEY JOHNSTON, III
----------------------------
R. HARVEY JOHNSTON, III
/s/ SARAH O. JOHNSTON
--------------------------------
SARAH O. JOHNSTON (acting by and
through her attorney in fact,
R. Harvey Johnston, III)
LESSEE:
BLUE DOOR RESTAURANTS, INC., A
Kentucky corporation
By: /s/ R. J. Reeves
------------------------------
ATTEST:
/s/ R. J. Reeves
- ---------------------------------
Secretary
COMMONWEALTH OF KENTUCKY )
)SS
COUNTY OF WARREN )
The foregoing instrument was acknowledged before me this the 31st day of
October ,1994, by R. HARVEY JOHNSTON, III, and his wife, SARAH O. JOHNSTON
(acting by and through her attorney in fact, R. Harvey Johnston, III), Lessor.
Deborah L. Wade (now Peeples)
----------------------------
NOTARY PUBLIC
My Commission Expires: 6/27/95
12
<PAGE>
STATE OF KENTUCKY )
)SS
COUNTY OF JEFFERSON )
The foregoing instrument was acknowledged before me this the 2 day of
November, 1994, by Richard Reeves and Richard Reeves, to me personally known
are the President and Secretary of BLUE DOOR RESTAURANTS, INC., a Kentucky
corporation, Lessee, and that said instrument was signed on behalf of said
corporation by proper authority and was the act of the corporation for the
purposes stated above.
Illegible
----------------------------
NOTARY PUBLIC
My Commission Expires: 6/17/96
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("AGREEMENT") is made as of this 30th day of
June, 1995 by and among (i) DOUGLAS VENTURES, a Kentucky general partnership
with its principal office at 1113 Red Fox Road, Louisville, Kentucky 40205
and ABFAM, INC., a Kentucky corporation with its principal office at 239
South 5th Street, 17th Floor, Louisville, Kentucky 40202-3269 (hereinafter
collectively referred to as the "LESSOR"); (ii) BLUE DOOR-BOWLING GREEN JOINT
VENTURE, a Kentucky joint venture having its principal office at 1230 Liberty
Bank Lane, Suite 220, Louisville, Kentucky 40222 (hereinafter referred to as
"LESSEE"); (iii) TUMBLEWEED, LLC, a Kentucky limited liability company having
its principal place of business at 1900 Mellwood Avenue, Louisville, Kentucky
40206; (hereinafter referred to as "SUB-LESSEE"); and (iv) BLUE DOOR
ENTERPRISES, INC., f/k/a Blue Door Restaurants, Inc., a Kentucky corporation
having its principal office at 1230 Liberty Bank Lane, Suite 220, Louisville,
Kentucky 40222 and RICHARD J. REEVES, an individual residing at 13018
Settlers Point Trail, Goshen, Kentucky 40226 (hereinafter collectively
referred to as the "GUARANTORS").
RECITALS:
A. Lessor and Lessee entered into a certain Lease dated April 1, 1995
(hereinafter referred to as the "LEASE" and attached hereto as EXHIBIT "A")
covering certain real estate with improvements thereon known as 1780
Scottsville Road in Bowling Green, Warren County, Kentucky (hereinafter
referred to as the "LEASED PREMISES").
B. Sub-Lessee is interested in subletting the Leased Premises from Lessee
and said Lease permits the subletting of the Leased Premises by Lessee.
C. Guarantors join in this Agreement for purposes of guaranteeing Lessee's
performance hereunder.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, Lessor, Lessee and Sub-Lessee agree as follows:
1. PREMISES AND RENTAL. Lessee hereby leases unto Sub-Lessee and
Sub-Lessee hereby leases from Lessee, effective on the 1st day of July, 1995,
that real property described in the Lease, to have and to hold during the
Term.
2. INITIAL TERM. The initial term of this Agreement shall commence as of
the date hereof and end on July 31, 1995 UNLESS sooner terminated as
hereinafter provided (the "INITIAL TERM").
-1-
<PAGE>
3. ADDITIONAL TERMS. Unless sooner terminated as hereinafter provided,
this Agreement shall be automatically renewed and extended on a
month-to-month basis for additional consecutive terms of one (1) calendar
month each (the "ADDITIONAL TERMS") upon the expiration of the Initial Term
or any Additional Terms, UNLESS AT LEAST 30 days prior to the expiration of
the Initial Term and any Additional Terms, Sub-Lessee shall have given
written notice to the other stating that the Term of this Agreement shall not
be so renewed or extended (the "30 DAY NOTICE"). The parties acknowledge
that neither party is under any obligation to refrain from delivering a 30
Day Notice to the other thereby permitting this Agreement to be automatically
renewed or extended upon the expiration of the Initial Term or any Additional
Term.
4. TERM AND PRORATIONS. For all purposes of this Agreement, the term
"TERM" shall mean the Initial Term PLUS all Additional Terms. If applicable,
all utility charges and real property taxes will be prorated as of the date
Sub-Lessee actually takes possession of the Leased Premises.
5. COVENANTS OF SUB-LESSEE. Unless otherwise provided herein, Sub-Lessee
assumes and agrees to perform all the duties and obligations as the Lessee
under the Lease from and after the effective date of this Agreement and shall
have the same rights and privileges as Lessee thereunder.
6. LESSEE'S OBLIGATIONS NOT ASSUMED BY SUB-LESSEE. Notwithstanding
anything to the contrary in this Agreement, Sub-Lessee does not assume, and
shall not be responsible for, obligations of the Lessee under the Lease.
Sub-Lessee shall look solely to Lessee for performance of Lessee's
obligations under the Lease. Sub-Lessee agrees to cooperate with Lessee, at
Lessee's sole expense, to require Lessee to perform its obligations under the
Lease. Lessee shall indemnify and hold Sub-Lessee harmless from any suits,
actions or damages resulting from or connected with such cooperation.
7. NOTICES. Any notices which any party may desire or be required to serve
upon each other shall be served upon deposit in the U.S. mail, registered or
certified, postage paid, addressed to respective party as follows:
If to Lessor: ABFAM, Inc.
239 South 5th Street, 17th Floor
Louisville, Kentucky 40202
and
DOUGLAS VENTURES
1113 Red Fox Road
Louisville, Kentucky 40205
-2-
<PAGE>
If to Lessee: Blue Door Enterprises, Inc.
1230 Liberty Bank Lane
Suite 220
Louisville, Kentucky 40222
Attn: Richard J. Reeves
If to Sub-Lessee: Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attn: John A. Butorac, Jr. and
James M. Mulrooney, Managers
8. ASSIGNMENT. Sub-Lessee shall not assign this Agreement, nor
further sublet all or any portion of the Leased Premises, without the written
consent of Lessee and Landlord.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and month first above written by the duly authorized signatures of the
parties indicated below.
LESSOR:
DOUGLASS VENTURES,
A KENTUCKY GENERAL PARTNERSHIP
/s/ David M. Roth
------------------------------------------------
DAVID M. ROTH, GENERAL PARTNER
ABFAM, INC.,
A KENTUCKY CORPORATION
------------------------------------------------
LESLIE D. ABERSON, PRESIDENT
LESSEE:
BLUE DOOR-BOWLING GREEN JOINT VENTURE, A KENTUCKY
JOINT VENTURE
BY: /s/ Richard J. Reeves
---------------------------------------------
RICHARD J. REEVES, PRESIDENT OF
BLUE DOOR ENTERPRISES, INC., A KENTUCKY
CORPORATION, ITS MANAGING JOINT VENTURE
PARTNER
-3-
<PAGE>
SUB-LESSEE:
TUMBLEWEED, LLC
BY: /s/ John A. Butorac, Jr.
---------------------------------------------
JOHN A. BUTORAC, JR., MANAGER
BY: /s/ James M. Mulrooney
---------------------------------------------
JAMES M. MULROONEY, MANAGER
GUARANTORS:
BLUE DOOR ENTERPRISES, INC.
BY: /s/ Richard J. Reeves
---------------------------------------------
RICHARD J. REEVES, PRESIDENT
RICHARD J. REEVES
BY: /s/ Richard J. Reeves
---------------------------------------------
RICHARD J. REEVES, INDIVIDUALLY
-4-
<PAGE>
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
SUBLEASE AGREEMENT
BY
TW-DIXIEBASH, LLC
("LESSOR")
AND
TUMBLEWEED, LLC
("LESSEE")
February 5, 1997
<PAGE>
SUMMARY OF SELECTED SUBLEASE PROVISIONS
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
IMPORTANT NOTICE
THIS SUMMARY IS FOR CONVENIENCE AND REFERENCE ONLY. IT IS MERELY A SUMMARY AND,
THEREFORE, IS INCOMPLETE. FURTHERMORE, THIS SUMMARY IS SUBJECT TO THE
PROVISIONS OF THE SUBLEASE IN ITS ENTIRETY. IN THE EVENT OF ANY CONFLICT
BETWEEN THE PROVISIONS OF THIS SUMMARY AND ANY OF THE PROVISIONS OF THE
SUBLEASE, THE SUBLEASE PROVISIONS SHALL GOVERN.
<TABLE>
<CAPTION>
<S> <C>
Lessor . . . . . . . . . . . . . . TW-DixieBash, LLC
LESSEE . . . . . . . . . . . . . . Tumbleweed, LLC
SUBLEASE OF UNDERLYING
GROUND LEASE . . . . . . . . . . . Lessee becomes Lessor's sublessee on Ground
Lease and assumes all obligations
thereunder
SUBLEASED PREMISES . . . . . . . . Approximately 0.99 acres located in
Bashford Manor Mall, Louisville, Jefferson
County, Kentucky (SEE EXHIBIT A for
detailed description)
TERM . . . . . . . . . . . . . . . 20 Years From Full Base Rent Commencement
Date
RENEWAL TERMS. . . . . . . . . . . None
BASE RENT BEFORE FULL BASE
RENT COMMENCEMENT DATE . . . . . . Amount equal to interest on the Total
Lessor Investment during such period at a
rate equal to the Agreed Rental Factor
BASE RENT AFTER THE FULL BASE
RENT COMMENCEMENT DATE . . . . . . $7,000 per month ($84,000 annualized)
NET CASH FLOW RENT . . . . . . . . 30% of Restaurant's net cash flow
INSURANCE. . . . . . . . . . . . . To be provided by Lessee
UTILITIES. . . . . . . . . . . . . To be provided by Lessee
REAL PROPERTY TAXES. . . . . . . . To be paid by Lessee
MAINTENANCE. . . . . . . . . . . . To be provided by Lessee
LESSEE'S OBLIGATION TO BUILD . . . Lessee to build Restaurant and Improvements
per agreed specifications and directions at
a reimbursed cost by Lessor not to exceed
$700,000 LESS Direct Lessor Expenditures
</TABLE>
______________________________________________________________________________
Summary of Selected Provisions - Page i
<PAGE>
SUBLEASE AGREEMENT
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1 GRANT OF SUBLEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 SUBLEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 CONSENT OF GROUND LEASE LANDLORD TO SUBLEASE; LESSOR'S ASSUMPTION OF
LESSEE'S OBLIGATIONS UNDER GROUND LEASE . . . . . . . . . . . . . . . . 1
2 TERM; HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 COMMENCEMENT AND EXPIRATION OF TERM; NO RENEWAL TERM. . . . . . . . 2
2.2 HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 RENT; NO SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 NET CASH FLOW RENT. . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 DELINQUENT RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 SURVIVAL OF OBLIGATION TO PAY RENT. . . . . . . . . . . . . . . . . 6
4 USE OF THE SUBLEASED PREMISES; QUIET ENJOYMENT . . . . . . . . . . . . . . 7
4.1 GENERAL PURPOSES. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 HAZARDS AND WASTE . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT . 7
5 INSURANCE; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 FIRE AND HAZARD INSURANCE . . . . . . . . . . . . . . . . . . . . . 8
5.2 LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS. . . . . . . . 9
5.4 OTHER INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 CERTIFICATES OF INSURANCE . . . . . . . . . . . . . . . . . . . . . 9
5.6 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .10
</TABLE>
______________________________________________________________________________
Table of Contents - Page ii
<PAGE>
SUBLEASE AGREEMENT
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
6 RECONSTRUCTION AND EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . .10
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE SUBLEASED PREMISES . . . . .10
6.2 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . .12
7 UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS; CONSTRUCTION OF SPECIFIED
BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
7.1 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
7.2 MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . .13
7.3 ALTERATIONS BY TENANT . . . . . . . . . . . . . . . . . . . . . . .14
7.4 MECHANICS OR MATERIALMEN'S LIENS. . . . . . . . . . . . . . . . . .15
7.5 SIGNS AND OTHER TRADE FIXTURES. . . . . . . . . . . . . . . . . . .15
7.6 LESSOR'S RIGHT OF ENTRY . . . . . . . . . . . . . . . . . . . . . .15
7.7 CONSTRUCTION OF SPECIFIED BUILDING. . . . . . . . . . . . . . . . .16
8 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES . . . . . . . . . . . . . .18
8.2 PERSONAL PROPERTY TAXES.. . . . . . . . . . . . . . . . . . . . . .18
8.3 INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
9 ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT . . . . . . . . . . . . .19
9.1 ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . .19
9.2 MORTGAGE SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . .20
9.3 NONDISTURBANCE AGREEMENTS . . . . . . . . . . . . . . . . . . . . .20
9.4 DEFAULT OF LESSOR UNDER MORTGAGES . . . . . . . . . . . . . . . . .21
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS
SUBLEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
10 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
10.1 DEFAULT BY LESSEE; REMEDIES. . . . . . . . . . . . . . . . . . . .22
10.2 DEFAULT BY LESSOR. . . . . . . . . . . . . . . . . . . . . . . . .24
10.3 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . .25
10.4 ATTORNEY FEES AND COSTS. . . . . . . . . . . . . . . . . . . . . .25
10.5 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . .25
10.6 WAIVER OF CERTAIN DEFENSES . . . . . . . . . . . . . . . . . . . .25
</TABLE>
______________________________________________________________________________
Table of Contents - Page iii
<PAGE>
SUBLEASE AGREEMENT
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
11.1 ASSIGNMENT OR SUBLETTING . . . . . . . . . . . . . . . . . . . . .26
11.2 SUCCESSOR GROUND LEASE LANDLORD'S AND LESSOR'S LIABILITY . . . . .26
11.3 RELATIONSHIP OF THE PARTIES. . . . . . . . . . . . . . . . . . . .27
11.4 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .27
11.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
11.6 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
11.7 SEVERABILITY AND INVALIDITY. . . . . . . . . . . . . . . . . . . .29
11.8 CAPTIONS, HEADINGS AND SUMMARY . . . . . . . . . . . . . . . . . .29
11.9 SUCCESSORS AND PERMITTED ASSIGNS . . . . . . . . . . . . . . . . .29
11.10 GENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
11.11 RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
11.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . .30
11.13 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . .30
11.14 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . .30
</TABLE>
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Table of Contents - Page iv
<PAGE>
SUBLEASE AGREEMENT
(BASHFORD MANOR MALL, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY)
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
--A--
Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Agreed Rental Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--B--
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--D--
Direct Lessor Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 3
--F--
Full Base Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . 3
--G--
Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ground Lease Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--L--
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lessee's Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lessor Reimbursement Expenditures. . . . . . . . . . . . . . . . . . . . . . 3
--M--
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
--N--
Net Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Net Cash Flow Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notice Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
--P--
Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . .16
Prime Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Project Architect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
--R--
Real Property Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Restaurant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--S--
Specified Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subleased Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Substantial Portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
--T--
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Lessor Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trade Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
______________________________________________________________________________
Index of Defined Terms - Page 5
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("SUBLEASE") is made and entered into as of the 5TH
day of FEBRUARY, 1997 by (I) TW-DIXIEBASH, LLC, a Kentucky limited liability
company (the "LESSOR"); AND (II) TUMBLEWEED, LLC, a Kentucky limited liability
company (the "LESSEE").
WITNESSETH:
IN CONSIDERATION OF the mutual covenants and agreements herein contained,
the parties agree as follows:
ARTICLE
1
GRANT OF SUBLEASE
________________________________________
1.1 SUBLEASED PREMISES
Pursuant to that certain GROUND LEASE AGREEMENT dated FEBRUARY 5,
1997 by and between Lessor, as the "Tenant," and BASHFORD MANOR MALL as the
"Landlord" ("GROUND LEASE LANDLORD"), a copy of which is attached hereto and
incorporated by reference herein as EXHIBIT A (as amended and subject to future
amendments, the "GROUND LEASE"), Lessor hereby subleases to Lessee, and Lessee
hereby subleases from Lessor, for the Term (as hereinafter defined), at the
rental and upon all of the conditions set forth herein, that certain real
property and all improvements thereon and fixtures and appurtenances thereto
located at BASHFORD MANOR MALL LOCATED IN JEFFERSON COUNTY, KENTUCKY as more
particularly described on EXHIBIT B attached hereto and made a part hereof,
INCLUDING BUT NOT LIMITED TO, any fixtures, buildings, or other improvements or
alterations constructed, added or made by Lessor or Lessee during the Term and
all of Lessor's easements and appurtenances in, over, and upon adjoining and
adjacent public and private land, highways, roads, streets, lanes and other
areas reasonably required for ingress and egress and for the installation,
maintenance, operation and service of utilities (the "SUBLEASED PREMISES").
1.2 CONSENT OF GROUND LEASE LANDLORD TO SUBLEASE; LESSOR'S ASSUMPTION
OF LESSEE'S OBLIGATIONS UNDER GROUND LEASE
Ground Lease Landlord has consented to this Sublease pursuant to
Section 10.01 of the Ground Lease. Lessee hereby assumes and shall be obligated
to perform, as sublessee under the Ground Lease, all of the rental payment and
other obligations of Lessor under the Ground Lease during the Term, and in this
regard,
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Text of Agreement - Page 1
<PAGE>
Lessee shall, on Lessor's behalf, pay to Ground Lease Landlord all rent
amounts as specified in Section 2.01 under the Ground Lease.
ARTICLE
2
TERM; HOLDING OVER
________________________________________
2.1 COMMENCEMENT AND EXPIRATION OF TERM; NO RENEWAL TERM.
The Term of this Sublease shall commence as of the date hereof
and shall end TWENTY (20) YEARS AFTER THE FULL BASE RENT COMMENCEMENT DATE
(defined below), unless sooner terminated in accordance with the terms and
conditions set forth herein (the "TERM"). There shall be no renewal term(s).
2.2 HOLDING OVER
In the absence of a written agreement to the contrary or written
renewal of this Sublease, if Lessee remains in possession of the Subleased
Premises after the expiration of the Term or the sooner termination of this
Sublease, Lessee, at the option of Lessor, shall be deemed to be occupying the
Subleased Premises as a tenant from month-to-month at 150% of the then Base
Rent, subject to all of the conditions, provisions and obligations of this
Sublease insofar as the same are applicable to a month-to-month tenancy, and
either party may terminate such month-to-month tenancy on 30 days' notice to the
other.
ARTICLE
3
RENT; NO SECURITY DEPOSIT
________________________________________
3.1 BASE RENT
(a) DETERMINATION OF BASE RENT
In addition to paying all rent as due under the Ground
Lease (which shall be paid directly to Ground Lease Landlord on Lessor's
behalf), Lessee shall pay Lessor, pursuant to this Sublease, a minimum
guaranteed rental (the "BASE RENT") with respect to each month during the Term
determined in accordance with the following schedule (PROVIDED, HOWEVER, that
the Base Rent for any partial month during the Term shall be prorated in
accordance with the ratio of the number of days of such month within the Term to
the total number of days of such month):
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Text of Agreement - Page 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PERIOD BASE RENT
During the Term, but Amount equal to interest on the Total Lessor
before Full Base Rent Investment (as hereinafter defined) during such
Commencement Date(2) period at a rate equal to the Agreed Rental Factor
(as hereinafter defined)
During the Term, but $7,000 per month (1)
after Full Base Rent
Commencement Date(2)
</TABLE>
(1) Adjusted to 12% of Total Lessor Investment (as hereinafter
defined) if Total Lessor Investment is less than $700,000.00.
(2) Consistent in all respects with the Ground Lease, the FULL BASE
RENT COMMENCEMENT DATE shall mean THE EARLIER TO OCCUR OF (i) the
date Lessee first derives revenues from the sale of food and
beverages in the ordinary course of its Restaurant business upon
the Subleased Premises OR (ii) 180 days after Lessee first
commences LESSEE'S WORK (defined below).
(b) TOTAL LESSOR INVESTMENT
For all purposes of this Sublease, the term "TOTAL LESSOR
INVESTMENT" as of any date shall mean THE SUM OF (i) the amounts paid by Lessor
through such date in connection with the leasing of, and obtaining rights to,
the Subleased Premises, INCLUDING, BUT NOT LIMITED TO, "soft costs" such as
legal fees, title, environmental assessment, and survey expenses, real estate
agent and broker commissions, permit and license fees, engineering fees, and
architectural fees (the "DIRECT LESSOR EXPENDITURES"), (ii) the amounts paid by
Lessor to Lessee as reimbursement for Lessee's Work with respect to the
Specified Building as hereinafter provided (the "LESSOR REIMBURSEMENT
EXPENDITURES," AND (iii) any amounts treated as part of the Total Lessor
Investment pursuant to the provisions of Section 7.7(b) hereof. Notwithstanding
any other provision of this Sublease which might be construed to the contrary,
it is the parties' intention and agreement that the Total Lessor Investment, in
the aggregate, will not exceed the sum of $700,000.00 at any time, and at no
time shall Lessor have any obligation to pay any amount to Lessee as a Lessor
Reimbursement Expenditure to the extent that such payment would cause the Total
Lessor Investment as of such time to exceed the sum of $700,000.00.
(c) AGREED RENTAL FACTOR
For all purposes of this Sublease, the term "AGREED RENTAL
FACTOR" to be applied with respect to any funds constituting a part of the Total
Lessor Investment during any period shall mean a rate equal to THE GREATER OF
(i) the interest rate per annum paid by Lessor to a bank or other commercial
lending institution with
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Text of Agreement - Page 3
<PAGE>
respect to such funds, if and to the extent such funds have been borrowed by
Lessor, PLUS 1% PER ANNUM, OR (ii) the interest rate per annum most recently
designated by BANK OF LOUISVILLE AND TRUST COMPANY, Louisville, Kentucky (the
"BANK"), as its "Prime Rate" in effect during such period, as the same may be
changed from time to time by the Bank during such period (the "PRIME RATE"),
PLUS 1% PER ANNUM.
(d) PAYMENT OF THE BASE RENT
Before the Full Base Rent Commencement Date, the Base Rent
shall be due and payable on a monthly basis, within FIVE (5) DAYS following
demand by Lessor setting forth the amount thereof based on the outstanding
balance of the Total Lessor Investment during the immediately preceding calendar
month and the applicable Agreed Rental Factor with respect thereto. After the
Full Base Rent Commencement Date, the Base Rent shall be due and payable in
advance on the 1st day of such month, without prior demand therefor. Unless
otherwise directed by Lessor in writing, Lessee shall pay the Base Rent due and
payable at any time to Lessor at the address for Lessor which is then applicable
as to notices under the provisions of Section 11.5 below.
3.2 NET CASH FLOW RENT
(a) DETERMINATION OF NEW CASH FLOW RENT
In addition to Base Rent, Lessee shall pay Lessor, as
additional rental with respect to each calendar year (or partial calendar year)
during the Term of this Sublease, an amount equal to THIRTY PERCENT (30%) of
Lessee's positive Net Cash Flow, if any, from any operations or activities
conducted on or related to the Leased Premises and/or the Restaurant (as
hereinafter defined) located thereon (the "NET CASH FLOW RENT"). Under no
circumstances shall Lessor have any liability to Lessee or any other person at
any time for any negative Net Cash Flow of Lessee. Nothing in this Sublease
shall be construed as creating any partnership, joint venture, agency, or
similar relationship between Lessor and Lessee, and under no circumstances shall
Lessor have any liability or responsibility whatsoever for any obligations or
liabilities of Lessee.
(b) DEFINITION OF NET CASH FLOW
The term "NET CASH FLOW" with respect to any calendar year
(or partial calendar year) during the Term shall mean Lessee's net cash flow
from store-level operations and activities conducted on or related to the Leased
Premises and/or the Restaurant (as hereinafter defined), as reflected in
Lessee's financial statements, prepared in accordance with generally acceptable
accounting practices consistently applied, BUT WITHOUT REGARD TO ANY
(i) overhead, corporate burden, or other such charges, (ii) depreciation,
amortization and other noncash types of expenditures or
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Text of Agreement - Page 4
<PAGE>
accruals, AND (iii) financing or investment charges (OTHER THAN normal
equipment leasing charges), as the case may be, which are otherwise reflected
in such financial statements.
(c) PAYMENT OF NET CASH FLOW RENT
The portion of the Net Cash Flow Rent for each calendar
year (or partial calendar year) during the Term which is attributable to the Net
Cash Flow for each calendar quarter of such year shall be estimated as of the
end of such calendar quarter based upon the interim statement of operations for
such calendar quarter, and such estimated quarterly payment of the Net Cash Flow
Rent, if any, shall be due and payable within 15 days after the end of such
calendar quarter, without prior demand therefor. The actual Net Cash Flow Rent
for each calendar year (or partial calendar year) shall then be finally computed
upon finalization of the audited financial statements of Lessee for such year,
and the difference, if any, between the actual amount so determined and the
total of all of the estimated payments thereof previously paid to Lessor shall
be either (i) paid by Lessee to Lessor, if the finally determined amount is
greater than the aggregate estimated amounts previously paid, OR (ii) paid by
Lessor to Lessee if the finally determined amount is less than the aggregate
estimated amounts previously paid (but such obligation of Lessor to repay any
such amounts shall be limited to the aggregate of all estimated amounts
previously paid by Lessee to Lessor with respect to such calendar year (or
partial calendar year only). The Net Cash Flow Rent shall be conclusively
determined on an annual basis, and the Net Cash Flow Rent for any calendar year
(or partial calendar year) during the Term shall not be reduced or otherwise
affected by any negative Net Cash Flow of Lessee for any prior or subsequent
calendar year (or partial calendar year). Unless otherwise directed by Lessor in
writing, Lessee shall pay the Net Cash Flow Rent due and payable at any time to
Lessor at the address for Lessor which is then applicable as to notices under
the provisions of Section 11.5 below.
(d) RETAIL RESTRICTION LIMIT/FAILURE TO OPERATE
The parties acknowledge that the realization of the
benefits of the Net Cash Flow Rent are dependent upon Lessee maximizing its
gross sales and that failure to operate, or self-competition, is inconsistent
with the generation of appropriate levels of Net Cash Flow Rent. The parties
further acknowledge that Base Rent was negotiated together with, and giving
consideration to, the Net Cash Flow Rent and that self-competition or failure to
operate by Lessee will deprive Lessor of a bargained-for consideration.
Accordingly, Lessee covenants and agrees that during the Term (i) Lessee will
not, directly or indirectly, engage in any business similar to, or in
competition with, the business operated on the Subleased Premises within a
radius of TWO (2) MILES from the Subleased Premises AND (ii) Lessee shall use
its reasonable best efforts to operate its Restaurant (as hereinafter defined)
in the Subleased Premises with reasonable due diligence and efficiency so as to
maximize, to the extent
______________________________________________________________________________
Text of Agreement - Page 5
<PAGE>
reasonably and economically feasible, the Net Cash Flow Rent which may be
produced by such manner of operation. Subject to matters beyond the
reasonable control of Lessee, Lessee shall carry at all times in the
Subleased Premises such inventories of food, liquor, and other goods as shall
be reasonably designed to maximize, to the extent reasonably and economically
feasible, the return to Lessor and Lessee. Lessee shall generally operate
seven days a week at such hours as are customary for similar restaurants in
the geographic area of the Subleased Premises.
3.3 ADDITIONAL RENT
In addition to Base Rent and Net Cash Flow Rent, Lessee shall
pay, as additional rent, certain amounts with respect to taxes, maintenance and
other factors as provided under other provisions of this Sublease (collectively,
the "ADDITIONAL RENT"). For all purposes of this Sublease, the term "RENT" shall
include all Base Rent, Net Cash Flow Rent, Additional Rent, and rent or other
amounts due and payable under the Ground Lease.
3.4 DELINQUENT RENT
Each unpaid installment or payment of Rent or other amount
required to be paid by Lessee to Lessor under this Sublease shall bear interest
from TEN (10) DAYS after the date on which such Rent or other amount is due and
payable at the Prime Rate plus 2% PER ANNUM; PROVIDED, HOWEVER, that the accrual
or payment of such interest shall not serve to correct any default nor affect in
any way Lessor's rights or remedies upon default.
3.5 SECURITY DEPOSIT
There shall be no security deposit required under this Sublease.
3.6 SURVIVAL OF OBLIGATION TO PAY RENT
Lessee's obligation to pay all Rent when due shall survive the
expiration or sooner termination of the Term.
ARTICLE
4
USE OF THE SUBLEASED PREMISES; QUIET ENJOYMENT
4.1 GENERAL PURPOSES
Lessee shall use or permit the use of the Subleased Premises for
a Tumbleweed-Registered Trademark- full service restaurant ("RESTAURANT") and
such other activities as are incidental thereto, and Lessee may not use or
permit the use of the Subleased
______________________________________________________________________________
Text of Agreement - Page 6
<PAGE>
Premises for any other use or purposes without the prior written consent of
Lessor, which approval shall not be unreasonably withheld.
4.2 COMPLIANCE WITH LAWS
Lessee, at its sole cost and expense, shall comply in all
material respects, and shall cause the Subleased Premises to comply in all
material respects, with all statutes, laws, ordinances and governmental codes,
rules and regulations now or hereafter applicable to the Subleased Premises,
INCLUDING, BUT NOT LIMITED TO, all federal, state or local environmental laws,
all fire, health or safety codes, all zoning rules and regulations, and any
laws, ordinances, codes, rules or regulations which require the making of any
structural or non-structural repairs, alterations or improvements to the
Subleased Premises.
4.3 HAZARDS AND WASTE
Lessee shall not create or permit any hazard, nuisance, menace or
waste in, on or about the Subleased Premises.
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT
Lessor represents and warrants to Lessee that:
(a) POWER AND AUTHORITY
Lessor is the Tenant pursuant to the Ground Lease, has the
authority to sublease the Subleased Premises to Lessee, and otherwise has full
power and authority to execute and perform its obligations under this Sublease.
(b) LIENS AND ENCUMBRANCES
During the Term, the Subleased Premises shall be free and
clear of all liens and encumbrances superior to the leasehold interests of
Lessee under this Sublease, EXCEPT (i) those liens and encumbrances of record as
of the date Lessor subleased the land from Ground Lease Landlord comprising the
Subleased Premises (or liens or encumbrances in substitution or renewal
thereof), (ii) those liens, encumbrances or mortgages which may be placed on the
Subleased Premises by or with the specific written consent of Lessor, Lessee or
Ground Lease Landlord in connection with any buildings or other improvements
required to be built by Lessee under this Sublease or the Ground Lease,
(iii) those liens or encumbrances which may be placed on the Subleased Premises
by or with the specific written consent of Lessor in compliance with the
provisions of Sections 9.2 and 9.3 hereof, (iv) existing zoning ordinances which
affect the Subleased Premises or which may hereafter exist during
______________________________________________________________________________
Text of Agreement - Page 7
<PAGE>
the Term, (v) easements for public utilities and easements of any public
highways, AND (vi) the lien of real estate ad valorem taxes not then due and
payable.
(c) QUIET ENJOYMENT
During the Term, PROVIDED, HOWEVER, that Lessee is not in
default under this Sublease, Lessee shall peaceably hold and have quiet
enjoyment of the Subleased Premises free from interference from anyone lawfully
claiming any interest in the Subleased Premises (but subject to the terms and
conditions of this Sublease).
(d) TAXES
All taxes on the Subleased Premises, EXCEPT current taxes
not due and payable, have been paid in full.
ARTICLE
5
INSURANCE; INDEMNIFICATION
________________________________________
5.1 FIRE AND HAZARD INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at
all times during the Term of this Sublease one or more policies of insurance
covering loss or damage to the Subleased Premises in the amount of the full
replacement value thereof. Such policies shall provide protection against all
perils included within the classifications of fire, extended coverage,
vandalism, malicious mischief and special extended perils (all risks) and shall
name Lessor and Ground Lease Landlord as an additional insured.
5.2 LIABILITY INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at
all times during the Term of this Sublease one or more insurance policies of
comprehensive public liability insurance insuring Lessor, Ground Lease Landlord
and Lessee against all liability arising out of the ownership, use, occupancy,
or maintenance of the Subleased Premises, with policy limits of no less than
$5,000,000.00 with respect to injuries to, or death of, any persons on the
Subleased Premises, or occurrences of any property damage to third parties
caused on the Subleased Premises, whether or not caused by any of Lessee's
employees, agents, representatives, guests or invitees.
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS
If the nature of Lessee's operation is such as to place any or
all of its employees under the coverage of local workers' compensation or
similar statutes and/or unemployment compensation schedules, Lessee shall also
keep in force, at
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Text of Agreement - Page 8
<PAGE>
Lessee's expense, workers' compensation or similar insurance affording
statutory coverage and containing statutory limits, and shall make all
unemployment compensation contributions required by law.
5.4 OTHER INSURANCE
Lessee shall be responsible for obtaining, at Lessee's expense,
business interruption insurance which will cover the payment of Rent and other
charges due hereunder for at least TWELVE (12) MONTHS and insurance on the
equipment, inventory, merchandise, supplies and other property of Lessee on or
about the Subleased Premises in a commercially reasonable amount. Lessee, on its
behalf and on its insurers' behalf, hereby expressly waives any and all claims
against Lessor for loss or damage to Lessee's equipment, inventory, merchandise,
supplies and other property on or about the Subleased Premises due to fire,
explosion, windstorm, or any other casualty, or due to any other cause
whatsoever, regardless whether Lessee or Lessor has procured insurance thereon
and regardless of the cause of such loss or damage, INCLUDING, BUT NOT LIMITED
TO, loss or damage resulting from the negligence of Lessor or Lessor's partners,
officers, managers, members, directors, employees, agents, or representatives.
5.5 CERTIFICATES OF INSURANCE
Lessee shall deliver to Lessor copies of the insurance policies
required under Sections 5.1 through 5.4 hereof and certificates evidencing the
existence and amounts of such insurance with loss payable clauses satisfactory
to Lessor. No such policy shall be cancelable or subject to reduction of
coverage or other modification EXCEPT after at least 10 DAYS' prior written
notice to Lessor. Lessor shall, within 10 DAYS prior to the expiration of any
policy, furnish Lessor with renewals or "binders" thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand of Lessor or the applicable insurance
company.
5.6 WAIVER OF SUBROGATION
Lessor and Lessee each hereby waives any and all rights of
recovery against the other, or against the partners, officers, managers,
members, directors, employees, agents and representatives of the other, for loss
or damage to such waiving party or its property or the property of others under
its control, to the extent such damage or destruction is insured in favor of
such party against under any insurance policies in force at the time of such
loss or damage. The provisions of this Section 5.6 shall be effective during the
Term for so long as such provisions do not prohibit securing insurance coverage
from responsible insurance companies by either party after a good faith effort.
Lessor and Lessee shall give notice to its insurance carrier(s) that the
foregoing mutual waiver of subrogation is contained in this Sublease and
______________________________________________________________________________
Text of Agreement - Page 9
<PAGE>
attempt in good faith to cause its insurance policies with respect to the
Subleased Premises, and the property contained therein, to be endorsed to
permit the foregoing waiver of subrogation.
5.7 INDEMNIFICATION
Lessee shall indemnify Lessor and save and hold Lessor harmless
from and against any and all claims, actions, damages, liabilities, and expenses
in connection with loss of life, personal injury and/or damage to property
arising from, out of, or in connection with the occupancy or use by Lessee of
the Subleased Premises or any part thereof; PROVIDED, HOWEVER, that this
indemnification by Lessee shall not extend to acts of negligence of Lessor, or
Lessor's officers, managers, members, directors, partners, employees, agents, or
representatives, or to events or accidents which occur as a result of Lessor's
failure to perform its obligations under this Sublease. In the event Lessor
shall, without any fault on its part, be made a party to any litigation
commenced by or against Lessee, or against Lessor as a result of any action or
inaction by Lessee in connection with the Subleased Premises, then Lessee shall
protect and hold Lessor harmless and shall pay all costs, expenses, and
reasonable attorneys fees incurred or paid by Lessor in connection with such
litigation.
ARTICLE
6
RECONSTRUCTION AND EMINENT DOMAIN
________________________________________
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE SUBLEASED PREMISES
(a) OBLIGATION TO RESTORE MINOR DAMAGE
If the Subleased Premises are damaged by fire or other
casualty as to make 25% OR LESS of the rentable square footage of the buildings
constituting a part of the Subleased Premises untenantable and such loss is
fully covered by insurance obtained by Lessee as required under this Sublease,
Lessor shall repair or restore the Subleased Premises to substantially the same
condition as before the damage as soon as reasonably practicable to the extent
of available insurance proceeds.
(b) OPTIONS IF SUBSTANTIAL DAMAGE; NOTICE
If the Subleased Premises are damaged so substantially by
fire or other casualty as to make MORE THAN 25% of the rentable square footage
of the buildings constituting a part of the Subleased Premises untenantable,
Lessor shall have 30 DAYS (the "NOTICE PERIOD") from the date of such damage to
notify Lessee whether Lessor elects to repair and restore the Subleased Premises
to substantially the same condition as before the damage; PROVIDED, HOWEVER,
that if such damage to the Subleased Premises occurs at a time when the
remainder of the Term is 12 MONTHS OR
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LESS, then, notwithstanding any other provision hereof which might be
construed to the contrary, Lessee may, at Lessee's option and upon at least
10 DAYS' prior written notice to Lessor, terminate this Sublease without
penalty or liability, upon which termination Lessee shall promptly surrender
the Subleased Premises to Lessor.
(c) LESSOR'S ELECTION NOT TO RESTORE OR FAILURE TO GIVE NOTICE
If Lessor notifies Lessee within the Notice Period that
Lessor elects not to repair or restore the Subleased Premises, or if Lessor
fails or neglects to notify Lessee within the Notice Period that Lessor plans to
repair and restore the Subleased Premises, then, in either case, Lessee may, at
its option, within 30 DAYS after the expiration of the Notice Period, terminate
this Sublease and surrender the Subleased Premises to Lessor. Unless so
terminated, this Sublease shall remain in full force and effect for the
remainder of the Term as to the usable portion of the Subleased Premises.
(d) LESSOR'S ELECTION TO RESTORE
If Lessor notifies Lessee during the Notice Period that
Lessor elects to restore and repair the Subleased Premises, then this Sublease
shall remain in full force and effect; PROVIDED, HOWEVER, that if Lessor fails
to commence such repairs and restoration within a reasonable time thereafter or
fails to pursue and implement such repairs and restoration with reasonable
diligence (subject only to events beyond Lessor's control as provided in Section
10.5 hereof, then Lessee, at Lessee's option, may cancel this Sublease and
surrender the Subleased Premises to Lessor.
(e) NO REDUCTION OF RENT
Lessee is required to obtain and maintain in full force
and effect during the Term certain business interruption or other insurance.
Accordingly, if this Sublease remains in effect following damage to the
Subleased Premises by fire or other casualty, the Rent shall not be reduced or
abated.
(f) LESSEE'S CONTINUING OBLIGATION TO INSURE
Any termination by the Lessee of the Sublease under this
Section 6.1 shall not relieve Lessee of any liabilities to Lessor regarding
Lessee's responsibility for having insured the Subleased Premises for the
benefit and interest of Lessor as provided under this Sublease.
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6.2 EMINENT DOMAIN
(a) TERMINATION OF SUBLEASE AS TO PORTION OF SUBLEASED
PREMISES TAKEN
In the event that all or any portion of the Subleased
Premises is taken under the power of eminent domain by any competent authority,
this Sublease shall terminate as to the part so taken as of the date on which
Lessee is required to yield possession thereof to the taking authority.
(b) TAKING OF LESS THAN A SUBSTANTIAL PORTION OF THE SUBLEASED
PREMISES
If the taking of a portion of the Subleased Premises is
not a Substantial Portion, then Lessor shall make all repairs, alterations and
replacements as may be necessary in order to restore the portion of the
Subleased Premises not taken to useful condition to the extent of the available
condemnation award and the Rent shall be reduced on an equitable basis to take
into account the elimination of the portion of the Subleased Premises taken.
(c) TAKING OF A SUBSTANTIAL PORTION OF THE SUBLEASED PREMISES
If the taking of a portion of the Subleased Premises
substantially impairs the usefulness of the Subleased Premises for the purposes
for which the Subleased Premises were being used by Lessee immediately prior to
the taking, then either Lessor or Lessee shall have the option to terminate this
Sublease as of the date on which Lessee is required to yield possession of the
portion taken to the taking authority, which option shall be exercised by Lessor
or Lessee by written notice delivered to the other of them on or prior to such
date. Unless this Sublease is so terminated, Lessor shall make all repairs,
alterations and replacements as may be necessary in order to restore the portion
of the Subleased Premises not taken to as useful a condition as is practicable
to the extent of available condemnation proceeds and the Rent shall be reduced
on an equitable basis to take into account the elimination of the portion of the
Subleased Premises taken.
(d) SUBSTANTIAL PORTION
For all purposes of this Sublease, the term "SUBSTANTIAL
PORTION" (i) any part of the building on the Subleased Premises, (ii) 10% OR
MORE of the parking spaces on the Subleased Premises, (iii) 15% OR MORE of the
land area demised as part of the Subleased Premises, (iv) any property which
materially and adversely affects the direct access from the Subleased Premises
to any adjacent street or highway, AND (iv) any portion of the land or
improvements, the absence of which is reasonably likely
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to have a substantial impact on the business of Lessee conducted in, on, or
from the Subleased Premises.
(e) CONTESTING TAKING; ALLOCATION OF PROCEEDS
Only Lessor shall have the right to contest any proposed
or declared taking or condemnation of any of the leasehold interests in the
Subleased Premises. All compensation awarded for taking of the leasehold
interests in the Subleased Premises shall belong to and be the property of
Lessor, PROVIDED, HOWEVER, that Lessee shall have the right to make a separate
claim for its own award for the compensation of its moving or relocation
expenses or losses relating to Lessee's Trade Fixtures (as hereinafter defined).
ARTICLE
7
UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS;
CONSTRUCTION OF SPECIFIED BUILDING
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7.1 UTILITIES
Lessee shall timely pay for all heat, water, sewer service, gas,
electricity, telephone, cable television and other utilities and services used
in or about the Subleased Premises, and all such utilities and services, as
applicable, shall be metered to the Subleased Premises in Lessee's name.
7.2 MAINTENANCE AND REPAIRS
(a) LESSEE'S GENERAL OBLIGATION TO MAINTAIN
Lessee, at Lessee's expense, shall maintain the Subleased
Premises and all additions thereto and improvements thereof in good repair and
condition throughout the Term and shall yield up the Subleased Premises upon the
expiration or sooner termination of this Sublease in broom clean condition and
in as good and tenantable condition as the Subleased Premises were in at the
beginning of the Term or at the time later added to the Subleased Premises, as
the case may be, normal wear and tear excepted.
(b) SPECIFIC MAINTENANCE OBLIGATIONS OF LESSEE
In furtherance of, and not by way of limitation of,
Lessee's obligations under Section 7.2(a) hereof, Lessee, at Lessee's expense,
shall be responsible for all repairs, replacements and maintenance required with
respect to the Subleased Premises, INCLUDING, BUT NOT LIMITED TO, the repair
and/or replacement of (i) any burst, stopped or leaking water, gas, sewer or
other pipes or plumbing fixtures or
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equipment, (ii) any dysfunctional or malfunctioning lighting, electrical, or
heating, ventilation and air conditioning components, circuits, facilities or
systems, (iii) any fences, parking areas, sidewalks, driveways, landscaping
and signs, (iv) any sprinklers or other fire or smoke alarm or control
devices, AND (v) any foundations, structural components, exterior or interior
walls and surfaces, roofs, gutters, downspouts, ceilings, windows and doors.
(c) WAIVER OF LESSOR LIABILITY
Lessor shall not be responsible or liable to Lessee for
any loss or damage resulting from any cause whatsoever, INCLUDING, BUT NOT
LIMITED TO, any loss or damage from any burst, stopped or leaking water, gas,
sewer or other pipes or plumbing fixtures or equipment, or from any failure of
or defect in any lighting, electrical, or heating, ventilation and air
conditioning components, circuits, facilities or systems.
7.3 ALTERATIONS BY TENANT
(a) NONSTRUCTURAL INTERIOR ALTERATIONS
Without any necessity of obtaining Lessor's consent,
Lessee, at Lessee's expense, may from time to time during the Term make any
interior alterations, additions or improvements in and to the Subleased Premises
which Lessee may deem advisable and which do not affect the structural
components of any building or other improvement. Any such interior alteration,
addition or improvement shall be made in a first class workmanship manner and in
accordance with all valid requirements of municipal or other governmental
authorities.
(b) STRUCTURAL ALTERATIONS
Lessee shall not make any structural additions or other
alterations to, nor remove or demolish, any building or other improvement
constituting a part of the Subleased Premises without the prior written consent
of Lessor, which shall not be unreasonably withheld.
(c) ALTERATIONS BECOME PART OF SUBLEASED PREMISES
Lessee agrees that any and all improvements or alterations
to the Subleased Premises shall immediately become the property of the Lessor
and shall remain upon and as part of the Subleased Premises.
7.4 MECHANICS OR MATERIALMEN'S LIENS
Unless Lessee shall contest the validity thereof as hereinafter
provided, Lessee shall not allow any mechanic's, materialman's or other liens to
be filed against the Subleased Premises or any part thereof as a result of any
act of omission by
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Lessee. Lessee may contest, by appropriate proceedings, the amount, validity
or application of any mechanic's, materialman's or other lien filed against
the Subleased Premises or any part thereof so long as (i) no part of the
Subleased Premises would be subject to loss, sale or forfeiture before
determination of such contest, (ii) Lessor is not subject to any criminal
penalty as a result of the failure to pay such lien, AND (iii) Lessee
conducts all such contests, at Lessee's expense, with due diligence and in
good faith. If required by Lessor's mortgagee, Lessee shall cause any such
lien to be discharged of record by posting a bond.
7.5 SIGNS AND OTHER TRADE FIXTURES
Lessee may construct, build, or install on the Subleased Premises
any and all racks, counters, tables, shelves, signage and other trade fixtures
and equipment of every kind or nature which might be necessary or desirable to
the Lessee's use of the Subleased Premises for permitted purposes (collectively,
the "TRADE FIXTURES"). All such Trade Fixtures shall at all times be and remain
the property of Lessee and, so long as Lessee is not in default under this
Sublease, Lessee shall have the right to remove all or any part of the Trade
Fixtures from the Subleased Premises at any time during, or upon the expiration
or sooner termination of, the Term; PROVIDED, HOWEVER, that Lessee shall repair
or reimburse Lessor for the full costs of repairing any damage to the Subleased
Premises resulting from the installation or removal of such Trade Fixtures. It
is specifically understood and agreed that all trademarks, trade names, service
marks, signs, and other marks of identification used by Lessee in Lessee's
business shall remain the exclusive property of Lessee at all times, and Lessor
shall have no right, title or interest in or to any of such trademarks, trade
names, service marks, signs or other marks of identification.
7.6 LESSOR'S RIGHT OF ENTRY
Lessor and Lessor's employees and agents shall have the right to
enter the Subleased Premises from time to time during reasonable hours and upon
reasonable notice to Lessee (or at any time with or without notice in the event
of any emergency) in order to (i) examine the Subleased Premises, (ii) make such
repairs and alterations as may be necessary for the safety and preservation of
the improvements on the Subleased Premises (the cost of which repairs and
alterations shall be borne by Lessee), but without any obligations to make any
such repairs or alterations, OR (iii) exhibit the Subleased Premises for sale or
Sublease and place one or more "For Sale or Rent" signs on the Subleased
Premises during the 6 months immediately preceding the expiration of the Term,
which signs shall not be removed by Lessee.
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7.7 CONSTRUCTION OF SPECIFIED BUILDING.
(a) LESSEE'S OBLIGATION TO CONSTRUCT SPECIFIED BUILDING.
Lessee covenants and agrees to proceed with due diligence,
at Lessee's expense, to perform Lessee's Work (as hereinafter defined) and erect
or cause to be erected on the Subleased Premises a permanent building
(containing approximately 5,400 square feet of usable space) and related
improvements and site work (collectively, the "SPECIFIED BUILDING"). The
Specified Building shall be based on, and constructed substantially in
accordance with, the 5,400 SQUARE FOOT prototype Tumbleweed restaurant plans and
designs (the "PLANS AND SPECIFICATIONS") prepared by the architectural firm of
WOLFGANG & DOERSCHLAG (the "PROJECT ARCHITECT"), SUBJECT, HOWEVER, to such
changes as may be required from time to time by reason of the specific site
location or in order to obtain building permits. All design, architectural,
engineering, excavation and construction work shall be performed in a first
class workmanship manner and in accordance with all applicable building codes
and other requirements of governmental authorities. The work necessary to
construct the specified building in accordance with the plans and specifications
is referred to herein as "LESSEE'S WORK". Unless and until the Total Lessor
Investment equals $700,000.00, Lessor shall reimburse Lessee for Lessee's
expenditures incurred in connection with the Lessee's Work. Such reimbursement
shall be made by Lessor within TEN (10) DAYS after Lessee requests such
reimbursement and submits to Lessor such receipts, invoices, architect's
certificates, contractor or subcontractor lien waivers, and/or other documents
as Lessor or any lender to Lessor may reasonably require. Lessee's Work shall be
deemed completed upon certification by the Project Architect that Lessee's Work
is substantially complete and issuance of a certificate of occupancy for the
Subleased Premises. Lessee shall indemnify Lessor and hold Lessor harmless from
and against any loss, claim, or expense, including damage to property, injuries
to person, or mechanics' or materialmen's liens arising out of the performance
of Lessee's Work by Lessee, its employees, agents, and contractors.
(b) COMMENCEMENT AND COMPLETION OF CONSTRUCTION.
Lessee agrees that the construction of the Specified
Building shall commence in the time frame specified in the Ground Lease, and
such construction shall be diligently pursued thereafter until completed. If the
Specified Building is not completed within SIX (6) MONTHS after commencement
(unless such noncompletion is due to circumstances beyond the reasonable control
of Lessee), Lessor may, at Lessor's sole option, take over the completion of the
Specified Building and all sums expended for such purpose by Lessee shall
constitute a part of the Total Lessor Investment UNLESS AND UNTIL the payment of
any such amount would cause the Total Lessor Investment to exceed $700,000.00,
in which case any such excess amount paid by Lessor shall be immediately repaid
to Lessor by Lessee upon demand.
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(c) LESSEE'S EQUIPMENT AND TRADE FIXTURES.
In addition to performing the scope of Lessee's Work,
Lessee shall be responsible for installing its equipment and Trade Fixtures,
which shall be completed as promptly as reasonably and feasibly possible
following completion of Lessee's Work.
(d) LESSEE'S PAYMENT OF EXCESS CONSTRUCTION COSTS WITHOUT
REIMBURSEMENT.
Lessor and Lessee agree that Lessor's obligation to
reimburse Lessee for the cost of the Lessee's Work shall cease at the time that
the Total Lessor Investment equals $700,000.00. In such event, Lessee shall be
required to complete Lessee's Work at Lessee's sole expense without
reimbursement from Lessor.
(e) WAIVER OF LESSOR LIABILITY WITH RESPECT TO CONSTRUCTION.
Nothing in this Sublease shall be construed in any way as
constituting Lessor as the agent of the Lessee in designing, engineering or
constructing the Specified Building or any other improvements to the Subleased
Premises. Lessee shall pay all of its contractors or subcontractors regarding
the scope of its improvements to the Subleased Premises and shall remove, if
applicable, any mechanics' liens which may be filed against the Subleased
Premises as a result of Lessee's non-payment of contract sums due to its
contractors and subcontractors. To the extent possible, all contractor's,
subcontractor's, manufacturer's, and vendor's warranties and guarantees, and any
construction or maintenance service contracts, IF ANY, with respect to any
construction, improvements, or repairs performed by or at the direction or
request of Lessee on or to the Subleased Premises shall be issued in the name
of, or otherwise be available to, both Lessee and Lessor, as their interests may
appear.
ARTICLE
8
TAXES
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8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES
As Additional Rent hereunder, Lessee shall pay all Real
Property Taxes (as hereinafter defined) applicable to the Subleased Premises
during the Term, commencing with those due and payable in calendar year 1997;
PROVIDED, HOWEVER, that the Real Property Taxes for any year which are payable
by Lessee shall be subject to a prorata adjustment based upon the number of days
of said year during which the Subleased Premises are subleased to Lessee. For
all purposes of this Sublease, the
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term "REAL PROPERTY TAXES" shall include any form of assessment, licensing,
commercial rental tax, levy, penalty, ad valorem tax, or other tax (other
than income, inheritance and estate taxes) imposed upon Lessor or Ground
Lease Landlord with respect to the Subleased Premises, or otherwise against
or with respect to the Subleased Premises, by any authority having the direct
or indirect power to tax, including any city, county, state or federal
Government, and any school, agricultural or other improvement district
thereof.
(b) NOTICE AND PAYMENT
Following receipt by Lessor of the then current bills for
Real Property Taxes due and payable in 1997 or later years during the Term,
Lessor shall forward a copy thereof to Lessee (or, alternatively, Ground Lease
Landlord shall forward a copy of such tax bills directly to Lessee). Within
THIRTY (30) DAYS after receipt of such notice from Lessor (or, alternatively,
direct notice from Ground Lease Landlord), Lessee shall pay to Lessor (or,
alternatively, directly to Ground Lease Landlord) any amount properly stated
therein to be due (SUBJECT, HOWEVER, to the prorata adjustment for any partial
year within the Term, as provided for under Section 8.1(a) hereof).
8.2 PERSONAL PROPERTY TAXES.
Lessee shall pay, prior to delinquency, all taxes assessed
against or with respect to any Trade Fixtures, furnishings, equipment, or other
personal property contained in the Subleased Premises. Any such taxes imposed
upon or otherwise payable by Lessor shall be treated and included as Real
Property Taxes which are subject to the provisions of Section 8.1 hereof.
8.3 INCOME TAXES
Nothing in this Sublease shall be construed as requiring Lessee
to pay (i) any municipal, state or Federal income taxes assessed against Lessor,
(ii) any municipal, state, or Federal capital, levy, estate, succession,
inheritance, or transfer taxes of Lessor, OR (iii) any corporate franchise taxes
imposed upon any corporate owner of the fee of the Subleased Premises.
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ARTICLE
9
ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT
________________________________________
9.1 ESTOPPEL CERTIFICATE
(a) LESSEE'S OBLIGATION TO EXECUTE ESTOPPEL CERTIFICATE WHEN
REQUESTED
From time to time, upon at least TEN (10) DAYS' prior
written notice from Lessor or Ground Lease Landlord, Lessee shall execute,
acknowledge and deliver to Lessor or Ground Lease Landlord, as the case may be,
at no cost to Lessor, a statement in writing (i) certifying that, as of the date
of such statement, this Sublease and the Ground Lease are each unmodified and in
full force and effect (or, if modified at such time, stating the nature of such
modification and certifying that this Sublease or the Ground Lease, as the case
may be, as so modified, is then in full force and effect), (ii) certifying the
Base Rent Commencement Date, (ii) certifying the date to which the Rent or other
charges are then paid in advance, if any, and the amount of the Rent and other
charges paid by Tenant, AND (iii) acknowledging that, as of the date of such
statement, there are not, to Lessee's knowledge, any uncured defaults on the
part of Lessor hereunder or any uncured defaults on the part of Lessor or Ground
Lease Landlord under the Ground Lease, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Subleased Premises.
(b) FAILURE OF LESSEE TO DELIVER ESTOPPEL CERTIFICATE
Lessee's failure to deliver such statement within the TEN
(10) DAY period provided for under Section 9.1(a) above shall be conclusive upon
Lessee that, as of the end of such TEN (10) DAY period (i) this Sublease is in
full force and effect, without modification except as may be represented by
Lessor; (ii) the Base Rent Commencement Date is as represented by Lessor,
(iii) there are no uncured defaults on the part of Lessor hereunder or any
uncured defaults on the part of Lessor or Ground Lease Landlord under the Ground
Lease, AND (iii) not more than one month's Base Rent (and no other amount of
Rent) has been paid in advance.
(c) LESSEE'S OBLIGATION TO FURNISH FINANCIAL AND TAX
INFORMATION TO LENDERS
If Lessor or Ground Lease Landlord desires to finance or
refinance the Subleased Premises, or any part thereof, Lessee hereby agrees to
deliver to any lender designated by Lessor or Ground Lease Landlord such
financial statements and tax returns as may be reasonably required by such
lender. All such financial statements
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and tax returns shall be received by Lessor or Ground Lease Landlord in
confidence and shall be used only for the purpose herein set forth.
9.2 MORTGAGE SUBORDINATION
Subject to Lessor's compliance with the provisions of Section 9.3
hereof, Lessee agrees that this Sublease shall at all times be subject and
subordinate to (i) all mortgages, liens, security interests, and other
encumbrances (hereinafter sometimes referred to collectively as "MORTGAGES" and
each individually as a "MORTGAGE") against the Subleased Premises as of the date
of execution of this Sublease, INCLUDING, BUT NOT LIMITED TO, the extent to
which such Mortgages secure current and future advances made under current debts
and obligations of Lessor AND (ii) all Mortgages subsequently placed on the
Subleased Premises by or with the consent of Lessor or Ground Lease Landlord.
Subject to Lessor's compliance with the provisions of Section 9.3 hereof, Lessee
agrees that, upon written demand by Lessor and at no cost to Lessor or Ground
Lease Landlord, Lessee shall execute such documents as may be required at any
time and from time to time to effectuate and evidence such subordinations.
9.3 NONDISTURBANCE AGREEMENTS
If, as of the date of execution of this Sublease, there are any
Mortgages against the Subleased Premises, or if Lessor shall subsequently
encumber or permit the encumbrance of the Subleased Premises by any Mortgages,
Lessor or Ground Lease Landlord, as the case may be, shall have the mortgagee,
lienholder or other secured party with respect to each Mortgage execute a
nondisturbance agreement providing that, so long as Lessee is not in default
under this Sublease or the Ground Lease and continues to perform all of its
obligations under this Sublease and the Ground Lease, (i) Lessee's tenancy shall
not be disturbed, (ii) this Sublease and the Ground Lease shall not be affected
by any default under such Mortgage, AND (iii) in the event of any foreclosure or
other enforcement of such Mortgage, and notwithstanding any resulting transfer
of Lessor's rights under this Sublease or any resulting transfer of Ground Lease
Landlord's rights under the Ground Lease, the rights of Lessee under this
Sublease and the Ground Lease shall expressly survive and this Sublease and the
Ground Lease shall in all respects continue in full force and effect.
9.4 DEFAULT OF LESSOR UNDER MORTGAGES
If Lessor or Ground Lease Landlord, as applicable, defaults in
making payments under any Mortgage, or if Lessor or Ground Lease Landlord, as
applicable, is otherwise in default under any Mortgage, Lessee shall have the
right to pay any or all Rent thereafter becoming due under this Sublease, or any
rent or other amounts becoming due under the Ground Lease, as the case may be,
to the mortgagee, lienholder, or secured party under such Mortgage instead of to
Lessor or to Ground
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Lease Landlord, as applicable, and any payments so made shall, to the extent
thereof, discharge the obligation of Lessee hereunder respecting the payment
of such Rent and/or discharge the obligation of Lessee and Lessor under the
Ground Lease respecting the payment of such rent or other amounts under the
Ground Lease, as applicable. Subject to Lessor's compliance with the
provisions of Section 9.3 hereof, Lessee shall execute an acceptance of, and
shall fully comply with the terms of, any collateral or conditional
assignment of rents executed by Lessor or Ground Lease Landlord, as
applicable.
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS
SUBLEASE
Lessee will give reasonably detailed notice to any holder of a
Mortgage with respect to the Subleased Premises (PROVIDED, HOWEVER, that Lessee
has been notified in writing of the name and address of such Mortgage holder) of
any default of Lessor or Ground Lease Landlord, as the case may be, which would
entitle Lessee to terminate this Sublease or the Ground Lease, as applicable, or
reduce or abate the Rent hereunder or the rent under the Ground Lease, as
applicable. Such Mortgage holder shall have the right, but not the obligation,
to cure such default within a period of THIRTY (30) DAYS after such notice (or
within such longer period of time as may reasonably be required to cure such
default if such default cannot reasonably be cured within said THIRTY (30) DAY
period), and Lessee shall not terminate this Sublease or the Ground Lease, as
the case may be, or reduce or abate the Rent hereunder or the rent under the
Ground Lease, as the case may be, during such period.
9.6 ATTORNMENT
If any person shall succeed to all or any part of Lessor's or
Ground Lease Landlord's interest in the Subleased Premises, whether by purchase,
foreclosure, deed in lieu of foreclosure, power of sale, termination of
Sublease, or otherwise, and if so requested or required by such successor in
interest, Lessee shall attorn to such successor in interest and shall execute
such agreement in confirmation of such attornment as such successor in interest
shall reasonably request; PROVIDED, HOWEVER, in any such event, that such
successor to Lessor's or Ground Lease Landlord's interest shall execute a
nondisturbance agreement as described in Section 9.3 hereof.
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ARTICLE
10
DEFAULT
________________________________________
10.1 DEFAULT BY LESSEE; REMEDIES
(a) MATERIAL DEFAULT AND BREACH BY LESSEE
The occurrence of any one or more of the following events
shall constitute a material default and breach of this Sublease by Lessee:
(i) The vacating or abandonment of the Subleased
Premises by Lessee for SIXTY (60) DAYS out of any period of 120
CONSECUTIVE DAYS during the Term.
(ii) The failure by Lessee to make any payment of Rent
or any other payment required to be made by Lessee under this
Sublease as and when due and the continuance of such failure for
a period of TEN (10) DAYS after written notice thereof to Lessee,
Lessee hereby waiving any statutory notice of default for
nonpayment of Rent.
(iii) The failure by Lessee to observe or perform any of
the covenants, conditions, or provisions of this Sublease to be
observed or performed by Lessee, OTHER THAN those described in
Section 10.1(a)(ii) above, and the continuance of such failure
for a period of THIRTY (30) DAYS after written notice thereof
from Lessor to Lessee; PROVIDED, HOWEVER, that if the nature of
Lessee's default is such that more than THIRTY (30) DAYS is
reasonably required for its cure, then Lessee shall not be deemed
to be in default if Lessee commences such cure within such THIRTY
(30) DAY period and thereafter diligently pursues such cure to
completion.
(iv) The making by Lessee of any general assignment or
general arrangement for the benefit of creditors.
(v) The filing by or against Lessee of a petition to
have Lessee adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Lessee, such action is
dismissed within SIXTY (60) DAYS).
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(vi) The appointment of a trustee or receiver to take
possession of all or substantially all of Lessee's assets located
at the Subleased Premises or of Lessee's interests under this
Sublease, UNLESS possession is restored to Lessee within SIXTY
(60) DAYS.
(vii) The attachment, execution, or other judicial
seizure of all or substantially all of Lessee's assets located at
the Subleased Premises or of Lessee's interests under this
Sublease, unless such seizure is bonded or discharged within
SIXTY (60) DAYS.
(b) LESSOR'S REMEDIES UPON DEFAULT BY LESSEE
In the event of any material default or breach by Lessee,
as provided under Section 10.1(a) above, Lessor may at any time thereafter, with
or without additional notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
(i) Terminate Lessee's right to possession of the
Subleased Premises by any lawful means, in which case this
Sublease shall terminate and Lessee shall immediately surrender
possession of the Subleased Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages
reasonably incurred by Lessor by reason of Lessee's default,
INCLUDING, BUT NOT LIMITED TO (i) the cost of recovering
possession of the Subleased Premises, (ii) the expenses of
reletting, the cost of any reasonably required new tenant
improvements and allowances, reasonable attorneys' fees, and any
real estate commissions actually paid, AND (iii) the reasonable
present value as of the date that Lessor recovers possession of
the Subleased Premises of THE EXCESS OF (A) the amount of unpaid
Rent which would have been due and payable during the balance of
the Term after such date had the Sublease not been terminated by
reason of Lessee's default, OVER (B) the amount of net rental
income reasonably estimated to be received by Lessor during such
period through reletting of the Subleased Premises. Lessor shall
exercise Lessor's best efforts to mitigate damages against Lessee
by reletting the Subleased Premises in a prompt and commercially
reasonable manner.
______________________________________________________________________________
Text of Agreement - Page 23
<PAGE>
(ii) Maintain Lessee's right to possession, in which
case this Sublease shall continue in effect whether or not Lessee
shall have abandoned the Subleased Premises. In such event,
Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Sublease, including the right to recover the
Rent as it becomes due hereunder.
(iii) Require specific performance by Lessee of Lessee's
obligations under this Sublease.
(iv) Pursue any other remedy now or hereafter available
to Lessor under the laws or judicial decisions of the
Commonwealth of Kentucky.
10.2 DEFAULT BY LESSOR
(a) MATERIAL DEFAULT AND BREACH BY LESSOR
A material default and breach of this Sublease by Lessor
shall occur upon the failure by Lessor to observe or perform any of the
covenants, conditions, or provisions of this Sublease to be observed or
performed by Lessor and the continuance of such failure for a period of THIRTY
(30) DAYS after written notice thereof from Lessee to Lessor; PROVIDED, HOWEVER,
that if the nature of Lessor's default is such that more than THIRTY (30) DAYS
is reasonably required for its cure, then Lessor shall not be deemed to be in
default if Lessor commences such cure within such THIRTY (30) DAY period and
thereafter diligently pursues such cure to completion.
(b) LESSEE'S REMEDIES UPON DEFAULT BY LESSOR
In the event of any material default or breach by Lessor,
as provided under Section 10.2(a), Lessee may at any time thereafter, with or
without additional notice or demand and without limiting Lessee in the exercise
of any right or remedy which Lessee may have by reason of such default or
breach:
(i) Remedy such breach or default and deduct from the
Rent then or thereafter due under this Sublease the reasonable
costs of such remedy, including interest thereon at the Prime
Rate PLUS 2% PER ANNUM until recovered through such Rent offsets
against the Rent then or thereafter due under this Sublease.
(ii) Require specific performance by Lessor of Lessor's
obligations under this Sublease.
______________________________________________________________________________
Text of Agreement - Page 24
<PAGE>
(iii) Pursue any other remedy now or hereafter available
to Lessee under the laws or judicial decisions of the
Commonwealth of Kentucky.
10.3 REMEDIES CUMULATIVE
All rights and remedies of Lessor enumerated in Section 10.1(a)
hereof and all rights and remedies of Lessee enumerated in Section 10.2(a)
hereof shall be cumulative, and none shall exclude any other right or remedy
allowed by law or equity. Said rights and remedies may be exercised and enforced
concurrently or successively from time to time at Lessor's or Lessee's option,
respectively.
10.4 ATTORNEY FEES AND COSTS
If any party shall default with respect to any of such party's
obligations under this Sublease, such defaulting party shall pay all costs,
expenses, and reasonable attorneys' fees which are incurred or paid by the other
parties to this Sublease in enforcing the covenants and agreements of the
defaulting party under this Sublease.
10.5 FORCE MAJEURE
In the event that either Lessor or Lessee shall be delayed in,
hindered in, or prevented from the performance of any act required hereunder by
reason of any strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or the act, failure to act, or default of the other
party, or for other reasons beyond such party's control, then such party's
performance of such act shall be excused during the period of the delay and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay.
10.6 WAIVER OF CERTAIN DEFENSES
Should either Lessor or Lessee seek recourse to equity to enforce
any of its rights under this Sublease by specific performance, injunction, or
other equitable relief, the other party agrees to, and hereby does waive any
defense(s), which it might otherwise have that there is any adequate remedy at
law.
______________________________________________________________________________
Text of Agreement - Page 25
<PAGE>
ARTICLE
11
MISCELLANEOUS
________________________________________
11.1 ASSIGNMENT OR SUBLETTING
Lessee shall not assign this Sublease in whole or in part or
sublease all or any portion of the Subleased Premises without the prior written
consent of Lessor, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that, notwithstanding the foregoing, Lessee may assign this Sublease in
whole or in part or sublease all or any portion of the Subleased Premises
without the prior written consent of Lessor to any entity controlling,
controlled by, or under common control with, Lessee. Unless otherwise agreed to
by Lessor, in the event of any assignment or sublease of this Sublease by Lessee
permitted under this Section 11.1, Lessee shall remain fully liable to Lessor in
connection with this Sublease and with respect to the Subleased Premises. Lessor
may freely assign any or all of its rights and obligations under this Sublease.
11.2 SUCCESSOR GROUND LEASE LANDLORD'S AND LESSOR'S LIABILITY
The term "Ground Lease Landlord" as used herein at any time shall
mean only the owner or owners at such time of the fee title to the Subleased
Premises and, in the event of any transfer of such title, Ground Lease Landlord
herein named (and in case of any subsequent transfers, then the transferor)
shall be relieved from and after the date of such transfer of all liability with
respect to Ground Lease Landlord's obligations under the Ground Lease thereafter
to be performed; PROVIDED, HOWEVER, that any funds in the hands of Ground Lease
Landlord or the then transferor at the time of such transfer, in which Lessee
has an interest, shall be delivered to the transferee. The obligations contained
in the Ground Lease to be performed by Ground Lease Landlord shall, subject as
aforesaid, be binding on Ground Lease Landlord's successors and assigns only
during their respective periods of ownership. The term "Lessor" as used herein
at any time shall mean only the primary tenant (as opposed to the sublessee)
under the Ground Lease and, in the event of any transfer of such rights, Lessor
herein named (and in case of any subsequent transfers, then the transferor)
shall be relieved from and after the date of such transfer of all liability with
respect to Lessor's obligations under this Sublease thereafter to be performed;
PROVIDED, HOWEVER, that any funds in the hands of Lessor or the then transferor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the transferee. The obligations contained in this Sublease to be
performed by Lessor, subject as aforesaid, shall be binding on Lessor's
successors and assigns only during their respective periods of holding such
primary leasehold interests under the Ground Lease.
______________________________________________________________________________
Text of Agreement - Page 26
<PAGE>
11.3 RELATIONSHIP OF THE PARTIES
Nothing contained in this Sublease shall be deemed or construed
by the parties hereto, or by any third party, as creating the relationship of
principal and agent, partnership, joint venture, or other similar relationship
between or among any of the parties.
11.4 ENTIRE AGREEMENT
It is expressly understood and agreed by and among the parties
hereto that this Sublease and the Ground Lease set forth all the promises,
agreements, conditions and understandings between Lessor and Lessee relative to
the Subleased Premises and that there are no other promises, agreements,
conditions or understandings, either oral or written, among them other than as
are herein set forth. It is further understood and agreed that no subsequent
alteration, amendment, change or addition to this Sublease or the Ground Lease
shall be binding upon Lessor or Lessee unless reduced to writing and signed by
them, and by direct reference therein made a part hereof.
11.5 NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals,
offers, counteroffers or other communications required or permitted under this
Sublease shall be in writing and (i) delivered by personal delivery to such
intended recipient, which personal delivery shall be evidenced by a written
receipt therefor signed by such recipient, (ii) sent by United States certified,
registered or express mail, return receipt requested, postage prepaid, or by
reputable express delivery service (such as Federal Express, UPS, Airborne,
Purolator, or DHL), fees prepaid, addressed to the intended recipient thereof,
at the address listed for such party below, or at such other address as such
party shall furnish in writing to the other parties to this Sublease, OR
(iii) transmitted by fax to such intended recipient at the fax number listed for
such party below (or such other fax number as such party shall furnish in
writing to the other parties to this Sublease), receipt of which transmission
shall be confirmed by such recipient.
TO LESSOR: TW-DixieBash, LLC
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David H. Cooper, Member
Fax: (502) 425-1295
______________________________________________________________________________
Text of Agreement - Page 27
<PAGE>
WITH COPY TO: Roth Foley Bryant & Cooper
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
TO LESSEE: Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
ATTENTION: John A. Butorac, Jr. & James M. Mulrooney,
Managers
Fax: (502) 893-6676
WITH COPY TO: Roth Foley Bryant & Cooper
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals,
offers, counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, TWO (2) DAYS after being properly
addressed and deposited in the United States mail or with a reputable express
delivery service or upon being transmitted by fax and properly receipted, as set
forth above. However, the time period in which a response to any such notice,
request, demand, consent, approval, offer, counteroffer or other communication
must be given shall commence to run from the date of receipt of personal
delivery, the date on the return receipt or express delivery receipt, or the
date of confirmation of receipt of the fax, as the case may be, of the notice,
request, demand, consent, approval, offer, counteroffer or other communication
by the addressee thereof; PROVIDED, HOWEVER, that if any party rejects delivery
of any such notice, request, demand, consent, approval, offer, counteroffer or
other communication properly sent by mail or express delivery service, or fails
or neglects to accept delivery after TWO (2) ATTEMPTS to so deliver by postal or
express delivery authorities, as the case may be, the time period for a response
shall commence TWO (2) DAYS following the proper mailing or depositing with the
express delivery service, as the case may be, of such notice, request, demand,
consent, approval, offer, counteroffer or other communication.
11.6 NO WAIVER
No waiver by any party of any provisions of this Sublease, nor
any default by any party, shall affect the rights of the waiving or
nondefaulting party or parties
______________________________________________________________________________
Text of Agreement - Page 28
<PAGE>
thereafter to enforce such provision or to exercise any right or remedy in
the event of any other default, whether similar or dissimilar. No waiver
shall be binding unless executed in writing by the party making the waiver,
nor shall any waiver constitute a continuing waiver.
11.7 SEVERABILITY AND INVALIDITY
The invalidity or unenforceability of any provision hereof shall
not affect or impair any other provisions hereof; PROVIDED, HOWEVER, should any
provision hereof providing for the payment of any rents, compensation or
reimbursement to Lessor or Ground Lease Landlord be invalid or unenforceable,
Lessor may, at its sole option, terminate this Sublease at any time giving
Lessee TEN (10) DAYS' prior written notice of such election to terminate.
11.8 CAPTIONS, HEADINGS AND SUMMARY
The captions and headings throughout this Sublease and the
Summary at the beginning of this Sublease are for convenience and reference only
and the words contained in such captions, headings and Summary shall in no way
be held or deemed to define, limit, describe, explain, modify, amplify or add to
the interpretation, construction or meaning of any provision or the scope or
intent of this Sublease, nor in any way affect this Sublease.
11.9 SUCCESSORS AND PERMITTED ASSIGNS
Subject to the provisions of Section 11.2 hereof, the terms,
covenants and conditions of this Sublease shall inure to the benefit of, and
shall be binding upon, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
11.10 GENDER
The use of any gender in this Sublease shall include all other
genders, the singular shall include the plural, and the plural shall include the
singular, as the context may require.
11.11 RECORDING
No party to this Sublease shall record this Sublease without the
other parties' prior written consent, but each party shall, upon request of any
other party, execute, acknowledge and deliver to such other party a "short form"
memorandum of this Sublease for recording purposes.
______________________________________________________________________________
Text of Agreement - Page 29
<PAGE>
11.12 GOVERNING LAW
This Sublease shall be construed and interpreted in accordance
with the laws of the Commonwealth of Kentucky without regard to any conflict of
laws provisions.
11.13 COUNTERPARTS
This Sublease may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
11.14 FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party may reasonably request, in
order to more effectively implement the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first hereinabove written.
LESSOR:
TW-DIXIEBASH, LLC
By: /s/ David H. Cooper
----------------------------------------
DAVID H. COOPER, MEMBER
LESSEE:
TUMBLEWEED, LLC
By: /s/ John A. Butorac, Jr.
----------------------------------------
JOHN A. BUTORAC, JR., MANAGER
By: /s/ James M. Mulrooney
----------------------------------------
JAMES M. MULROONEY, MANAGER
EXHIBIT A: GROUND LEASE
______________________________________________________________________________
Text of Agreement - Page 30
<PAGE>
EXHIBIT B: Legal Description of Subleased Premises
______________________________________________________________________________
Text of Agreement - Page 31
<PAGE>
EXHIBIT A
COPY OF GROUND LEASE
[Copy of Ground Lease Attached]
______________________________________________________________________________
Exhibit A
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF SUBLEASED PREMISES
That certain parcel of land, together with all improvements, privileges and
appurtenances thereto and all right, title and interest, if any, of Lessor in
and to any property lying in the bed of any street, road, highway, or avenue
opened or proposed in front of, adjacent to, or adjoining such land, located in
the City of Louisville, Jefferson County, Kentucky, and being more particularly
described as follows:
______________________________________________________________________________
Exhibit B
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF SUBLEASED PREMISES
That certain parcel of land, together with all improvements, privileges and
appurtenances thereto and all right, title and interest, if any, of Lessor in
and to any property lying in the bed of any street, road, highway, or avenue
opened or proposed in front of, adjacent to, or adjoining such land, located in
the City of Louisville, Jefferson County, Kentucky, and being more particularly
described as follows:
Being Tract 3 as shown on minor subdivision plat approved by the Louisville
and Jefferson County Planning Commission on February 12, 1996, Docket No.
38-97, attached to and made a part of Instrument of Consolidation dated
November 6, 1996, and recorded in Deed Book 6872, Page 809, in the Office of
the Clerk of Jefferson County, Kentucky.
Being a part of the same property acquired by HOLIDAY STATION ASSOCIATES
LIMITED, a Kentucky limited partnership, by Deed dated June 29, 1995, of
record in Deed Book 6607, Page 494, in the Office of the Clerk of Jefferson
County, Kentucky.
<PAGE>
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
SUBLEASE AGREEMENT
BY
TW-DIXIEBASH, LLC
("LESSOR")
AND
TUMBLEWEED, LLC
("LESSEE")
FEBRUARY 5, 1997
<PAGE>
SUMMARY OF SELECTED SUBLEASE PROVISIONS
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
IMPORTANT NOTICE
THIS SUMMARY IS FOR CONVENIENCE AND REFERENCE ONLY. IT IS MERELY A SUMMARY
AND, THEREFORE, IS INCOMPLETE. FURTHERMORE, THIS SUMMARY IS SUBJECT TO THE
PROVISIONS OF THE SUBLEASE IN ITS ENTIRETY. IN THE EVENT OF ANY CONFLICT
BETWEEN THE PROVISIONS OF THIS SUMMARY AND ANY OF THE PROVISIONS OF THE
SUBLEASE, THE SUBLEASE PROVISIONS SHALL GOVERN.
<TABLE>
<CAPTION>
<S> <C>
LESSOR . . . . . . . . . . . . . TW-DixieBash, LLC
LESSEE . . . . . . . . . . . . . Tumbleweed, LLC
SUBLEASE OF UNDERLYING
GROUND LEASE . . . . . . . . . . Lessee becomes Lessor's sublessee on Ground
Lease and assumes all obligations thereunder
SUBLEASED PREMISES . . . . . . . Approximately 52,000 square feet comprising
Outparcel 3 in the Holiday Station
Development, Valley Station, Jefferson County,
Kentucky (SEE EXHIBIT A for detailed
description)
TERM . . . . . . . . . . . . . . 20 Years From Full Base Rent Commencement Date
RENEWAL TERMS. . . . . . . . . . Three 5-Year Renewal Terms
BASE RENT BEFORE FULL BASE
RENT COMMENCEMENT DATE . . . . . Amount equal to interest on the Total Lessor
Investment during such period at a rate equal
to the Agreed Rental Factor
BASE RENT AFTER THE FULL BASE
RENT COMMENCEMENT DATE . . . . . $5,000 per month ($60,000 annualized)
NET CASH FLOW RENT . . . . . . . 30% of Restaurant's net cash flow
INSURANCE. . . . . . . . . . . . To be provided by Lessee
UTILITIES. . . . . . . . . . . . To be provided by Lessee
REAL PROPERTY TAXES. . . . . . . To be paid by Lessee
MAINTENANCE. . . . . . . . . . . To be provided by Lessee
LESSEE'S OBLIGATION TO BUILD . . Lessee to build Restaurant and Improvements
per agreed specifications and directions at a
reimbursed cost by Lessor not to exceed
$500,000 LESS Direct Lessor Expenditures
</TABLE>
_______________________________________________________________________________
Summary of Selected Provisions - Page i
<PAGE>
SUBLEASE AGREEMENT
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1 GRANT OF SUBLEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1.1 SUBLEASED PREMISES . . . . . . . . . . . . . . . . . . . . . . . .5
1.2 CONSENT OF GROUND LEASE LANDLORD TO SUBLEASE; LESSOR'S ASSUMPTION
OF LESSEE'S OBLIGATIONS UNDER GROUND LEASE 5
2 TERM; HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 COMMENCEMENT AND EXPIRATION OF TERM; RENEWAL TERMS.. . . . . . . .5
2.2 RENEWAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.3 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3 RENT; NO SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 NET CASH FLOW RENT . . . . . . . . . . . . . . . . . . . . . . . .5
3.3 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.4 DELINQUENT RENT. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.5 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . .5
3.6 SURVIVAL OF OBLIGATION TO PAY RENT . . . . . . . . . . . . . . . .5
4 USE OF THE SUBLEASED PREMISES; QUIET ENJOYMENT. . . . . . . . . . . . . .5
4.1 GENERAL PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . .5
4.2 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . .5
4.3 HAZARDS AND WASTE. . . . . . . . . . . . . . . . . . . . . . . . .5
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR;
QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . .5
5 INSURANCE; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .5
5.1 FIRE AND HAZARD INSURANCE. . . . . . . . . . . . . . . . . . . . .5
5.2 LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . . .5
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS . . . . . . .5
5.4 OTHER INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . .5
5.5 CERTIFICATES OF INSURANCE. . . . . . . . . . . . . . . . . . . . .5
5.6 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . . . . . .5
5.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
_______________________________________________________________________________
Table of Contents - Page ii
<PAGE>
SUBLEASE AGREEMENT
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
6 RECONSTRUCTION AND EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . .5
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE SUBLEASED PREMISES . . . .5
6.2 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . .5
7 UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS; CONSTRUCTION
OF SPECIFIED BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.1 UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7.2 MAINTENANCE AND REPAIRS. . . . . . . . . . . . . . . . . . . . . .5
7.3 ALTERATIONS BY TENANT. . . . . . . . . . . . . . . . . . . . . . .5
7.4 MECHANICS OR MATERIALMEN'S LIENS . . . . . . . . . . . . . . . . .5
7.5 SIGNS AND OTHER TRADE FIXTURES . . . . . . . . . . . . . . . . . .5
7.6 LESSOR'S RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . .5
7.7 CONSTRUCTION OF SPECIFIED BUILDING.. . . . . . . . . . . . . . . .5
8 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES. . . . . . . . . . . . . .5
8.2 PERSONAL PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . .5
8.3 INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .5
9 ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT. . . . . . . . . . . . .5
9.1 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . .5
9.2 MORTGAGE SUBORDINATION . . . . . . . . . . . . . . . . . . . . . .5
9.3 NONDISTURBANCE AGREEMENTS. . . . . . . . . . . . . . . . . . . . .5
9.4 DEFAULT OF LESSOR UNDER MORTGAGES. . . . . . . . . . . . . . . . .5
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER
THIS SUBLEASE. . . . . . . . . . . . . . . . . . . . . . . . . . .5
10 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
10.1 DEFAULT BY LESSEE; REMEDIES . . . . . . . . . . . . . . . . . . .5
10.2 DEFAULT BY LESSOR . . . . . . . . . . . . . . . . . . . . . . . .5
10.3 REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . .5
10.4 ATTORNEY FEES AND COSTS . . . . . . . . . . . . . . . . . . . . .5
10.5 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . .5
10.6 WAIVER OF CERTAIN DEFENSES. . . . . . . . . . . . . . . . . . . .5
</TABLE>
_______________________________________________________________________________
Table of Contents - Page iii
<PAGE>
SUBLEASE AGREEMENT
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
11 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.1 ASSIGNMENT OR SUBLETTING. . . . . . . . . . . . . . . . . . . . .5
11.2 SUCCESSOR GROUND LEASE LANDLORD'S AND LESSOR'S LIABILITY. . . . .5
11.3 RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . .5
11.4 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . .5
11.5 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.6 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.7 SEVERABILITY AND INVALIDITY . . . . . . . . . . . . . . . . . . .5
11.8 CAPTIONS, HEADINGS AND SUMMARY. . . . . . . . . . . . . . . . . .5
11.9 SUCCESSORS AND PERMITTED ASSIGNS. . . . . . . . . . . . . . . . .5
11.10 GENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.11 RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.12 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . .5
11.13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . .5
11.14 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . .5
</TABLE>
_______________________________________________________________________________
Table of Contents - Page iv
<PAGE>
SUBLEASE AGREEMENT
(HOLIDAY STATION DEVELOPMENT, VALLEY STATION, JEFFERSON COUNTY, KENTUCKY)
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
--A--
ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
AGREED RENTAL FACTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--B--
BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--D--
DIRECT LESSOR EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . 4
--F--
FULL BASE RENT COMMENCEMENT DATE . . . . . . . . . . . . . . . . . . . . . 4
--G--
GROUND LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GROUND LEASE LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--I--
INITIAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--L--
LESSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LESSEE'S WORK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LESSOR REIMBURSEMENT EXPENDITURES. . . . . . . . . . . . . . . . . . . . . 5
--M--
MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MORTGAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--N--
NET CASH FLOW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NET CASH FLOW RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NOTICE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--P--
PLANS AND SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 17
PRIME RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PROJECT ARCHITECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--R--
REAL PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
RENEWAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RENEWAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RESTAURANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--S--
SPECIFIED BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SUBLEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUBLEASED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUBSTANTIAL PORTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
--T--
TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TOTAL LESSOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 4
TRADE FIXTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
______________________________________________________________________________
Index of Defined Terms - Page 5
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("SUBLEASE") is made and entered into as of the
30TH day of APRIL, 1997 by (i) TW-DIXIEBASH, LLC, a Kentucky limited liability
company (the "LESSOR"); AND (ii) TUMBLEWEED, LLC, a Kentucky limited liability
company (the "LESSEE").
W I T N E S S E T H:
IN CONSIDERATION OF the mutual covenants and agreements herein contained,
the parties agree as follows:
ARTICLE
1
GRANT OF SUBLEASE
________________________________________
1.1 SUBLEASED PREMISES
Pursuant to that certain GROUND LEASE AGREEMENT dated APRIL 30, 1997
by and between Lessor, as the "Tenant," and HOLIDAY STATION ASSOCIATES LIMITED
as the "Landlord" ("GROUND LEASE LANDLORD"), a copy of which is attached hereto
and incorporated by reference herein as EXHIBIT A (subject to future amendments,
if any, the "GROUND LEASE"), Lessor hereby subleases to Lessee, and Lessee
hereby subleases from Lessor, for the Term (as hereinafter defined), at the
rental and upon all of the conditions set forth herein, that certain real
property and all improvements thereon and fixtures and appurtenances thereto
located at HOLIDAY STATION DEVELOPMENT LOCATED IN VALLEY STATION, JEFFERSON
COUNTY, KENTUCKY as more particularly described on EXHIBIT B attached hereto and
made a part hereof, INCLUDING BUT NOT LIMITED TO, any fixtures, buildings, or
other improvements or alterations constructed, added or made by Lessor or Lessee
during the Term and all of Lessor's easements and appurtenances in, over, and
upon adjoining and adjacent public and private land, highways, roads, streets,
lanes and other areas reasonably required for ingress and egress and for the
installation, maintenance, operation and service of utilities (the "SUBLEASED
PREMISES").
1.2 CONSENT OF GROUND LEASE LANDLORD TO SUBLEASE; LESSOR'S ASSUMPTION OF
LESSEE'S OBLIGATIONS UNDER GROUND LEASE
Ground Lease Landlord has consented to this Sublease pursuant to
Section 18 of the Ground Lease. Lessee hereby assumes and shall be obligated to
perform, as sublessee under the Ground Lease, all of the rental payment and
other obligations of Lessor under the Ground Lease during the Term, and in this
regard, Lessee shall, on Lessor's behalf, pay to Ground Lease Landlord all rent
amounts as specified in Section 4 under the Ground Lease.
_______________________________________________________________________________
Text of Agreement - Page 2
<PAGE>
ARTICLE
2
TERM; HOLDING OVER
________________________________________
2.1 COMMENCEMENT AND EXPIRATION OF TERM; RENEWAL TERMS.
The initial term of this Sublease shall commence as of the date
hereof and shall end TWENTY (20) YEARS AFTER THE FULL BASE RENT COMMENCEMENT
DATE (defined below), unless sooner terminated in accordance with the terms and
conditions set forth herein (the "INITIAL TERM").
2.2 RENEWAL TERMS.
The term of this Sublease shall be automatically renewed for
additional successive periods of SIXTY (60) MONTHS each (collectively, the
"RENEWAL TERMS" and each individually, a "RENEWAL TERM") upon the expiration of
the Initial Term and each of the first TWO (2) Renewal Terms, UNLESS Lessee
gives written notice to Lessor at least 120 DAYS prior to the expiration of such
Initial Term or Renewal Term of Lessee's election not to renew this Sublease.
The Term of this Sublease shall not automatically or otherwise renew upon the
expiration of the third Renewal Term, UNLESS this Sublease is amended in writing
by the parties, in their sole discretion, to provide for such renewal. The
Initial Term and all Renewal Terms are hereinafter collectively referred to as
the "TERM."
2.3 HOLDING OVER
In the absence of a written agreement to the contrary or written
renewal of this Sublease, if Lessee remains in possession of the Subleased
Premises after the expiration of the Term or the sooner termination of this
Sublease, Lessee, at the option of Lessor, shall be deemed to be occupying the
Subleased Premises as a tenant from month-to-month at 150% of the then Base
Rent, subject to all of the conditions, provisions and obligations of this
Sublease insofar as the same are applicable to a month-to-month tenancy, and
either party may terminate such month-to-month tenancy on 30 days' notice to the
other.
_______________________________________________________________________________
Text of Agreement - Page 3
<PAGE>
ARTICLE
3
RENT; NO SECURITY DEPOSIT
________________________________________
3.1 BASE RENT
(a) DETERMINATION OF BASE RENT
In addition to paying all rent as due under the Ground Lease
(which shall be paid directly to Ground Lease Landlord on Lessor's behalf),
Lessee shall pay Lessor, pursuant to this Sublease, a minimum guaranteed rental
(the "BASE RENT") with respect to each month during the Term determined in
accordance with the following schedule (PROVIDED, HOWEVER, that the Base Rent
for any partial month during the Term shall be prorated in accordance with the
ratio of the number of days of such month within the Term to the total number of
days of such month):
<TABLE>
<CAPTION>
<S> <C>
PERIOD BASE RENT
------ ---------
During the Term, but Amount equal to interest on
before Full Base Rent the Total Lessor Investment (as
Commencement Date(2) hereinafter defined) during such
period at a rate equal to the Agreed
Rental Factor (as hereinafter defined)
During the Term, but $5,000 per month (1)
after Full Base Rent
Commencement Date(2)
</TABLE>
(1) Adjusted to 12% of Total Lessor Investment (as
hereinafter defined) if Total Lessor Investment is less
than $500,000.00.
(2) Consistent in all respects with the Ground Lease,
the FULL BASE RENT COMMENCEMENT DATE shall mean THE
EARLIER TO OCCUR OF (i) the date Lessee first derives
revenues from the sale of food and beverages in the
ordinary course of its Restaurant business upon the
Subleased Premises OR (ii) 180 days after Lessee first
commences LESSEE'S WORK (defined below).
(b) TOTAL LESSOR INVESTMENT
For all purposes of this Sublease, the term "TOTAL LESSOR
INVESTMENT" as of any date shall mean THE SUM OF (i) the amounts paid by Lessor
through such date in connection with the leasing of, and obtaining rights to,
the Subleased Premises, INCLUDING, BUT NOT LIMITED TO, "soft costs" such as
legal fees, title, environmental assessment, and survey expenses, real estate
agent and broker commissions, permit and license fees, engineering fees, and
architectural fees (the "DIRECT LESSOR EXPENDITURES"), (ii) the amounts paid by
Lessor to Lessee as
_______________________________________________________________________________
Text of Agreement - Page 4
<PAGE>
reimbursement for Lessee's Work with respect to the Specified Building as
hereinafter provided (the "LESSOR REIMBURSEMENT EXPENDITURES," AND (iii) any
amounts treated as part of the Total Lessor Investment pursuant to the
provisions of Section 7.7((b)) hereof. Notwithstanding any other provision of
this Sublease which might be construed to the contrary, it is the parties'
intention and agreement that the Total Lessor Investment, in the aggregate,
will not exceed the sum of $500,000.00 at any time, and at no time shall
Lessor have any obligation to pay any amount to Lessee as a Lessor
Reimbursement Expenditure to the extent that such payment would cause the
Total Lessor Investment as of such time to exceed the sum of $500,000.00.
(c) AGREED RENTAL FACTOR
For all purposes of this Sublease, the term "AGREED RENTAL
FACTOR" to be applied with respect to any funds constituting a part of the Total
Lessor Investment during any period shall mean a rate equal to THE GREATER OF
(i) the interest rate per annum paid by Lessor to a bank or other commercial
lending institution with respect to such funds, if and to the extent such funds
have been borrowed by Lessor, PLUS 1% PER ANNUM, OR (ii) the interest rate per
annum most recently designated by BANK OF LOUISVILLE AND TRUST COMPANY,
Louisville, Kentucky (the "BANK"), as its "Prime Rate" in effect during such
period, as the same may be changed from time to time by the Bank during such
period (the "PRIME RATE"), PLUS 1% PER ANNUM.
(d) PAYMENT OF THE BASE RENT
Before the Full Base Rent Commencement Date, the Base Rent
shall be due and payable on a monthly basis, within FIVE (5) DAYS following
demand by Lessor setting forth the amount thereof based on the outstanding
balance of the Total Lessor Investment during the immediately preceding calendar
month and the applicable Agreed Rental Factor with respect thereto. After the
Full Base Rent Commencement Date, the Base Rent shall be due and payable in
advance on the 1st day of such month, without prior demand therefor. Unless
otherwise directed by Lessor in writing, Lessee shall pay the Base Rent due and
payable at any time to Lessor at the address for Lessor which is then applicable
as to notices under the provisions of Section 11.5 below.
3.2 NET CASH FLOW RENT
(a) DETERMINATION OF NEW CASH FLOW RENT
In addition to Base Rent, Lessee shall pay Lessor, as
additional rental with respect to each calendar year (or partial calendar year)
during the Term of this Sublease, an amount equal to THIRTY PERCENT (30%) of
Lessee's positive Net Cash Flow, if any, from any operations or activities
conducted on or related to the Leased Premises and/or the Restaurant (as
hereinafter defined) located thereon (the "NET CASH
_______________________________________________________________________________
Text of Agreement - Page 5
<PAGE>
FLOW RENT"). Under no circumstances shall Lessor have any liability to Lessee
or any other person at any time for any negative Net Cash Flow of Lessee.
Nothing in this Sublease shall be construed as creating any partnership,
joint venture, agency, or similar relationship between Lessor and Lessee, and
under no circumstances shall Lessor have any liability or responsibility
whatsoever for any obligations or liabilities of Lessee.
(b) DEFINITION OF NET CASH FLOW
The term "NET CASH FLOW" with respect to any calendar year (or
partial calendar year) during the Term shall mean Lessee's net cash flow from
store-level operations and activities conducted on or related to the Leased
Premises and/or the Restaurant (as hereinafter defined), as reflected in
Lessee's financial statements, prepared in accordance with generally acceptable
accounting practices consistently applied, BUT WITHOUT REGARD TO ANY
(i) overhead, corporate burden, or other such charges, (ii depreciation,
amortization and other noncash types of expenditures or accruals, AND
(iii) financing or investment charges (OTHER THAN normal equipment leasing
charges), as the case may be, which are otherwise reflected in such financial
statements.
(c) PAYMENT OF NET CASH FLOW RENT
The portion of the Net Cash Flow Rent for each calendar year
(or partial calendar year) during the Term which is attributable to the Net Cash
Flow for each calendar quarter of such year shall be estimated as of the end of
such calendar quarter based upon the interim statement of operations for such
calendar quarter, and such estimated quarterly payment of the Net Cash Flow
Rent, if any, shall be due and payable within 15 days after the end of such
calendar quarter, without prior demand therefor. The actual Net Cash Flow Rent
for each calendar year (or partial calendar year) shall then be finally computed
upon finalization of the audited financial statements of Lessee for such year,
and the difference, if any, between the actual amount so determined and the
total of all of the estimated payments thereof previously paid to Lessor shall
be either (i) paid by Lessee to Lessor, if the finally determined amount is
greater than the aggregate estimated amounts previously paid, OR (ii) paid by
Lessor to Lessee if the finally determined amount is less than the aggregate
estimated amounts previously paid (but such obligation of Lessor to repay any
such amounts shall be limited to the aggregate of all estimated amounts
previously paid by Lessee to Lessor with respect to such calendar year (or
partial calendar year only). The Net Cash Flow Rent shall be conclusively
determined on an annual basis, and the Net Cash Flow Rent for any calendar year
(or partial calendar year) during the Term shall not be reduced or otherwise
affected by any negative Net Cash Flow of Lessee for any prior or subsequent
calendar year (or partial calendar year). Unless otherwise directed by Lessor in
writing, Lessee shall pay the Net Cash Flow Rent due and payable at any
_______________________________________________________________________________
Text of Agreement - Page 6
<PAGE>
time to Lessor at the address for Lessor which is then applicable as to
notices under the provisions of Section 11.5 below.
(d) RETAIL RESTRICTION LIMIT/FAILURE TO OPERATE
The parties acknowledge that the realization of the benefits of the
Net Cash Flow Rent are dependent upon Lessee maximizing its gross sales and that
failure to operate, or self-competition, is inconsistent with the generation of
appropriate levels of Net Cash Flow Rent. The parties further acknowledge that
Base Rent was negotiated together with, and giving consideration to, the Net
Cash Flow Rent and that self-competition or failure to operate by Lessee will
deprive Lessor of a bargained-for consideration. Accordingly, Lessee covenants
and agrees that during the Term (i) Lessee will not, directly or indirectly,
engage in any business similar to, or in competition with, the business operated
on the Subleased Premises within a radius of TWO (2) MILES from the Subleased
Premises AND (ii) Lessee shall use its reasonable best efforts to operate its
Restaurant (as hereinafter defined) in the Subleased Premises with reasonable
due diligence and efficiency so as to maximize, to the extent reasonably and
economically feasible, the Net Cash Flow Rent which may be produced by such
manner of operation. Subject to matters beyond the reasonable control of Lessee,
Lessee shall carry at all times in the Subleased Premises such inventories of
food, liquor, and other goods as shall be reasonably designed to maximize, to
the extent reasonably and economically feasible, the return to Lessor and
Lessee. Lessee shall generally operate seven days a week at such hours as are
customary for similar restaurants in the geographic area of the Subleased
Premises.
3.3 ADDITIONAL RENT
In addition to Base Rent and Net Cash Flow Rent, Lessee shall pay,
as additional rent, certain amounts with respect to taxes, maintenance and other
factors as provided under other provisions of this Sublease (collectively, the
"ADDITIONAL RENT"). For all purposes of this Sublease, the term "RENT" shall
include all Base Rent, Net Cash Flow Rent, Additional Rent, and rent or other
amounts due and payable under the Ground Lease.
3.4 DELINQUENT RENT
Each unpaid installment or payment of Rent or other amount required
to be paid by Lessee to Lessor under this Sublease shall bear interest from TEN
(10) DAYS after the date on which such Rent or other amount is due and payable
at the Prime Rate plus 2% PER ANNUM; PROVIDED, HOWEVER, that the accrual or
payment of such interest shall not serve to correct any default nor affect in
any way Lessor's rights or remedies upon default.
_______________________________________________________________________________
Text of Agreement - Page 7
<PAGE>
3.5 SECURITY DEPOSIT
There shall be no security deposit required under this Sublease.
3.6 SURVIVAL OF OBLIGATION TO PAY RENT
Lessee's obligation to pay all Rent when due shall survive the
expiration or sooner termination of the Term.
ARTICLE
4
USE OF THE SUBLEASED PREMISES; QUIET ENJOYMENT
______________________________________________
4.1 GENERAL PURPOSES
Lessee shall use or permit the use of the Subleased Premises for a
Tumbleweed-Registered Trademark- full service restaurant ("RESTAURANT") and such
other activities as are incidental thereto, and Lessee may not use or permit the
use of the Subleased Premises for any other use or purposes without the prior
written consent of Lessor, which approval shall not be unreasonably withheld.
4.2 COMPLIANCE WITH LAWS
Lessee, at its sole cost and expense, shall comply in all material
respects, and shall cause the Subleased Premises to comply in all material
respects, with all statutes, laws, ordinances and governmental codes, rules and
regulations now or hereafter applicable to the Subleased Premises, INCLUDING,
BUT NOT LIMITED TO, all federal, state or local environmental laws, all fire,
health or safety codes, all zoning rules and regulations, and any laws,
ordinances, codes, rules or regulations which require the making of any
structural or non-structural repairs, alterations or improvements to the
Subleased Premises.
4.3 HAZARDS AND WASTE
Lessee shall not create or permit any hazard, nuisance, menace or
waste in, on or about the Subleased Premises.
4.4 GENERAL REPRESENTATIONS AND WARRANTIES OF LESSOR; QUIET ENJOYMENT
Lessor represents and warrants to Lessee that:
_______________________________________________________________________________
Text of Agreement - Page 8
<PAGE>
(a) POWER AND AUTHORITY
Lessor is the Tenant pursuant to the Ground Lease, has the
authority to sublease the Subleased Premises to Lessee, and otherwise has full
power and authority to execute and perform its obligations under this Sublease.
(b) LIENS AND ENCUMBRANCES
During the Term, the Subleased Premises shall be free and
clear of all liens and encumbrances superior to the leasehold interests of
Lessee under this Sublease, EXCEPT (i) those liens and encumbrances of record
as of the date Lessor subleased the land from Ground Lease Landlord
comprising the Subleased Premises (or liens or encumbrances in substitution
or renewal thereof), (ii) those liens, encumbrances or mortgages which may be
placed on the Subleased Premises by or with the specific written consent of
Lessor, Lessee or Ground Lease Landlord in connection with any buildings or
other improvements required to be built by Lessee under this Sublease or the
Ground Lease, (iii) those liens or encumbrances which may be placed on the
Subleased Premises by or with the specific written consent of Lessor in
compliance with the provisions of Sections 9.2 and 9.3 hereof, (iv) existing
zoning ordinances which affect the Subleased Premises or which may hereafter
exist during the Term, (v) easements for public utilities and easements of
any public highways, AND (vi) the lien of real estate ad valorem taxes not
then due and payable.
(c) QUIET ENJOYMENT
During the Term, PROVIDED, HOWEVER, that Lessee is not in
default under this Sublease, Lessee shall peaceably hold and have quiet
enjoyment of the Subleased Premises free from interference from anyone lawfully
claiming any interest in the Subleased Premises (but subject to the terms and
conditions of this Sublease).
(d) TAXES
All taxes on the Subleased Premises, EXCEPT current taxes not
due and payable, have been paid in full.
ARTICLE
5
INSURANCE; INDEMNIFICATION
________________________________________
5.1 FIRE AND HAZARD INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at all
times during the Term of this Sublease one or more policies of insurance
covering loss or damage to the Subleased Premises in the amount of the full
replacement value thereof.
_______________________________________________________________________________
Text of Agreement - Page 9
<PAGE>
Such policies shall provide protection against all perils included within the
classifications of fire, extended coverage, vandalism, malicious mischief and
special extended perils (all risks) and shall name Lessor and Ground Lease
Landlord as an additional insured.
5.2 LIABILITY INSURANCE
Lessee, at Lessee's expense, shall obtain and keep in force at all
times during the Term of this Sublease one or more insurance policies of
comprehensive public liability insurance insuring Lessor, Ground Lease Landlord
and Lessee against all liability arising out of the ownership, use, occupancy,
or maintenance of the Subleased Premises, with policy limits of no less than
$5,000,000.00 with respect to injuries to, or death of, any persons on the
Subleased Premises, or occurrences of any property damage to third parties
caused on the Subleased Premises, whether or not caused by any of Lessee's
employees, agents, representatives, guests or invitees.
5.3 WORKERS' COMPENSATION AND UNEMPLOYMENT CONTRIBUTIONS
If the nature of Lessee's operation is such as to place any or all
of its employees under the coverage of local workers' compensation or similar
statutes and/or unemployment compensation schedules, Lessee shall also keep in
force, at Lessee's expense, workers' compensation or similar insurance affording
statutory coverage and containing statutory limits, and shall make all
unemployment compensation contributions required by law.
5.4 OTHER INSURANCE
Lessee shall be responsible for obtaining, at Lessee's expense,
business interruption insurance which will cover the payment of Rent and other
charges due hereunder for at least TWELVE (12) MONTHS and insurance on the
equipment, inventory, merchandise, supplies and other property of Lessee on or
about the Subleased Premises in a commercially reasonable amount. Lessee, on its
behalf and on its insurers' behalf, hereby expressly waives any and all claims
against Lessor for loss or damage to Lessee's equipment, inventory, merchandise,
supplies and other property on or about the Subleased Premises due to fire,
explosion, windstorm, or any other casualty, or due to any other cause
whatsoever, regardless whether Lessee or Lessor has procured insurance thereon
and regardless of the cause of such loss or damage, INCLUDING, BUT NOT LIMITED
TO, loss or damage resulting from the negligence of Lessor or Lessor's partners,
officers, managers, members, directors, employees, agents, or representatives.
5.5 CERTIFICATES OF INSURANCE
Lessee shall deliver to Lessor copies of the insurance policies
required under Sections 5.1 through 5.4 hereof and certificates evidencing the
existence and
_______________________________________________________________________________
Text of Agreement - Page 10
<PAGE>
amounts of such insurance with loss payable clauses satisfactory to Lessor.
No such policy shall be cancelable or subject to reduction of coverage or
other modification EXCEPT after at least 10 DAYS' prior written notice to
Lessor. Lessor shall, within 10 DAYS prior to the expiration of any policy,
furnish Lessor with renewals or "binders" thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand of Lessor or the applicable insurance
company.
5.6 WAIVER OF SUBROGATION
Lessor and Lessee each hereby waives any and all rights of recovery
against the other, or against the partners, officers, managers, members,
directors, employees, agents and representatives of the other, for loss or
damage to such waiving party or its property or the property of others under its
control, to the extent such damage or destruction is insured in favor of such
party against under any insurance policies in force at the time of such loss or
damage. The provisions of this Section 5.6 shall be effective during the Term
for so long as such provisions do not prohibit securing insurance coverage from
responsible insurance companies by either party after a good faith effort.
Lessor and Lessee shall give notice to its insurance carrier(s) that the
foregoing mutual waiver of subrogation is contained in this Sublease and attempt
in good faith to cause its insurance policies with respect to the Subleased
Premises, and the property contained therein, to be endorsed to permit the
foregoing waiver of subrogation.
5.7 INDEMNIFICATION
Lessee shall indemnify Lessor and save and hold Lessor harmless from
and against any and all claims, actions, damages, liabilities, and expenses in
connection with loss of life, personal injury and/or damage to property arising
from, out of, or in connection with the occupancy or use by Lessee of the
Subleased Premises or any part thereof; PROVIDED, HOWEVER, that this
indemnification by Lessee shall not extend to acts of negligence of Lessor, or
Lessor's officers, managers, members, directors, partners, employees, agents, or
representatives, or to events or accidents which occur as a result of Lessor's
failure to perform its obligations under this Sublease. In the event Lessor
shall, without any fault on its part, be made a party to any litigation
commenced by or against Lessee, or against Lessor as a result of any action or
inaction by Lessee in connection with the Subleased Premises, then Lessee shall
protect and hold Lessor harmless and shall pay all costs, expenses, and
reasonable attorneys fees incurred or paid by Lessor in connection with such
litigation.
_______________________________________________________________________________
Text of Agreement - Page 11
<PAGE>
ARTICLE
6
RECONSTRUCTION AND EMINENT DOMAIN
________________________________________
6.1 CASUALTY, DESTRUCTION OR DAMAGE TO THE SUBLEASED PREMISES
(a) OBLIGATION TO RESTORE MINOR DAMAGE
If the Subleased Premises are damaged by fire or other casualty
as to make 25% OR LESS of the rentable square footage of the buildings
constituting a part of the Subleased Premises untenantable and such loss is
fully covered by insurance obtained by Lessee as required under this Sublease,
Lessor shall repair or restore the Subleased Premises to substantially the same
condition as before the damage as soon as reasonably practicable to the extent
of available insurance proceeds.
(b) OPTIONS IF SUBSTANTIAL DAMAGE; NOTICE
If the Subleased Premises are damaged so substantially by fire
or other casualty as to make MORE THAN 25% of the rentable square footage of the
buildings constituting a part of the Subleased Premises untenantable, Lessor
shall have 30 DAYS (the "NOTICE PERIOD") from the date of such damage to notify
Lessee whether Lessor elects to repair and restore the Subleased Premises to
substantially the same condition as before the damage; PROVIDED, HOWEVER, that
if such damage to the Subleased Premises occurs at a time when the remainder of
the Term is 12 MONTHS OR LESS, then, notwithstanding any other provision hereof
which might be construed to the contrary, Lessee may, at Lessee's option and
upon at least 10 DAYS' prior written notice to Lessor, terminate this Sublease
without penalty or liability, upon which termination Lessee shall promptly
surrender the Subleased Premises to Lessor.
(c) LESSOR'S ELECTION NOT TO RESTORE OR FAILURE TO GIVE NOTICE
If Lessor notifies Lessee within the Notice Period that Lessor
elects not to repair or restore the Subleased Premises, or if Lessor fails or
neglects to notify Lessee within the Notice Period that Lessor plans to repair
and restore the Subleased Premises, then, in either case, Lessee may, at its
option, within 30 DAYS after the expiration of the Notice Period, terminate this
Sublease and surrender the Subleased Premises to Lessor. Unless so terminated,
this Sublease shall remain in full force and effect for the remainder of the
Term as to the usable portion of the Subleased Premises.
(d) LESSOR'S ELECTION TO RESTORE
If Lessor notifies Lessee during the Notice Period that Lessor
elects to restore and repair the Subleased Premises, then this Sublease shall
remain in
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full force and effect; PROVIDED, HOWEVER, that if Lessor fails to commence
such repairs and restoration within a reasonable time thereafter or fails to
pursue and implement such repairs and restoration with reasonable diligence
(subject only to events beyond Lessor's control as provided in Section 10.5
hereof, then Lessee, at Lessee's option, may cancel this Sublease and
surrender the Subleased Premises to Lessor.
(e) NO REDUCTION OF RENT
Lessee is required to obtain and maintain in full force and
effect during the Term certain business interruption or other insurance.
Accordingly, if this Sublease remains in effect following damage to the
Subleased Premises by fire or other casualty, the Rent shall not be reduced or
abated.
(f) LESSEE'S CONTINUING OBLIGATION TO INSURE
Any termination by the Lessee of the Sublease under this
Section 6.1 shall not relieve Lessee of any liabilities to Lessor regarding
Lessee's responsibility for having insured the Subleased Premises for the
benefit and interest of Lessor as provided under this Sublease.
6.2 EMINENT DOMAIN
(a) TERMINATION OF SUBLEASE AS TO PORTION OF SUBLEASED PREMISES
TAKEN
In the event that all or any portion of the Subleased Premises
is taken under the power of eminent domain by any competent authority, this
Sublease shall terminate as to the part so taken as of the date on which Lessee
is required to yield possession thereof to the taking authority.
(b) TAKING OF LESS THAN A SUBSTANTIAL PORTION OF THE SUBLEASED
PREMISES
If the taking of a portion of the Subleased Premises is not a
Substantial Portion, then Lessor shall make all repairs, alterations and
replacements as may be necessary in order to restore the portion of the
Subleased Premises not taken to useful condition to the extent of the available
condemnation award and the Rent shall be reduced on an equitable basis to take
into account the elimination of the portion of the Subleased Premises taken.
(c) TAKING OF A SUBSTANTIAL PORTION OF THE SUBLEASED PREMISES
If the taking of a portion of the Subleased Premises
substantially impairs the usefulness of the Subleased Premises for the purposes
for which the Subleased Premises were being used by Lessee immediately prior to
the taking, then
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either Lessor or Lessee shall have the option to terminate this Sublease as
of the date on which Lessee is required to yield possession of the portion
taken to the taking authority, which option shall be exercised by Lessor or
Lessee by written notice delivered to the other of them on or prior to such
date. Unless this Sublease is so terminated, Lessor shall make all repairs,
alterations and replacements as may be necessary in order to restore the
portion of the Subleased Premises not taken to as useful a condition as is
practicable to the extent of available condemnation proceeds and the Rent
shall be reduced on an equitable basis to take into account the elimination
of the portion of the Subleased Premises taken.
(d) SUBSTANTIAL PORTION
For all purposes of this Sublease, the term "SUBSTANTIAL
PORTION" (i) any part of the building on the Subleased Premises, (ii) 10% OR
MORE of the parking spaces on the Subleased Premises, (iii) 15% OR MORE of the
land area demised as part of the Subleased Premises, (iv) any property which
materially and adversely affects the direct access from the Subleased Premises
to any adjacent street or highway, AND (iv) any portion of the land or
improvements, the absence of which is reasonably likely to have a substantial
impact on the business of Lessee conducted in, on, or from the Subleased
Premises.
(e) CONTESTING TAKING; ALLOCATION OF PROCEEDS
Only Lessor shall have the right to contest any proposed or
declared taking or condemnation of any of the leasehold interests in the
Subleased Premises. All compensation awarded for taking of the leasehold
interests in the Subleased Premises shall belong to and be the property of
Lessor, PROVIDED, HOWEVER, that Lessee shall have the right to make a separate
claim for its own award for the compensation of its moving or relocation
expenses or losses relating to Lessee's Trade Fixtures (as hereinafter defined).
ARTICLE
7
UTILITIES; MAINTENANCE, ALTERATIONS AND REPAIRS;
CONSTRUCTION OF SPECIFIED BUILDING
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7.1 UTILITIES
Lessee shall timely pay for all heat, water, sewer service, gas,
electricity, telephone, cable television and other utilities and services used
in or about the Subleased Premises, and all such utilities and services, as
applicable, shall be metered to the Subleased Premises in Lessee's name.
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7.2 MAINTENANCE AND REPAIRS
(a) LESSEE'S GENERAL OBLIGATION TO MAINTAIN
Lessee, at Lessee's expense, shall maintain the Subleased
Premises and all additions thereto and improvements thereof in good repair and
condition throughout the Term and shall yield up the Subleased Premises upon the
expiration or sooner termination of this Sublease in broom clean condition and
in as good and tenantable condition as the Subleased Premises were in at the
beginning of the Term or at the time later added to the Subleased Premises, as
the case may be, normal wear and tear excepted.
(b) SPECIFIC MAINTENANCE OBLIGATIONS OF LESSEE
In furtherance of, and not by way of limitation of, Lessee's
obligations under Section 7.2(a) hereof, Lessee, at Lessee's expense, shall be
responsible for all repairs, replacements and maintenance required with respect
to the Subleased Premises, INCLUDING, BUT NOT LIMITED TO, the repair and/or
replacement of (i) any burst, stopped or leaking water, gas, sewer or other
pipes or plumbing fixtures or equipment, (ii) any dysfunctional or
malfunctioning lighting, electrical, or heating, ventilation and air
conditioning components, circuits, facilities or systems, (iii) any fences,
parking areas, sidewalks, driveways, landscaping and signs, (iv) any sprinklers
or other fire or smoke alarm or control devices, AND (v) any foundations,
structural components, exterior or interior walls and surfaces, roofs, gutters,
downspouts, ceilings, windows and doors.
(c) WAIVER OF LESSOR LIABILITY
Lessor shall not be responsible or liable to Lessee for any
loss or damage resulting from any cause whatsoever, INCLUDING, BUT NOT LIMITED
TO, any loss or damage from any burst, stopped or leaking water, gas, sewer or
other pipes or plumbing fixtures or equipment, or from any failure of or defect
in any lighting, electrical, or heating, ventilation and air conditioning
components, circuits, facilities or systems.
7.3 ALTERATIONS BY TENANT
(a) NONSTRUCTURAL INTERIOR ALTERATIONS
Without any necessity of obtaining Lessor's consent, Lessee, at
Lessee's expense, may from time to time during the Term make any interior
alterations, additions or improvements in and to the Subleased Premises which
Lessee may deem advisable and which do not affect the structural components of
any building or other improvement. Any such interior alteration, addition or
improvement shall be made in a first class workmanship manner and in accordance
with all valid requirements of municipal or other governmental authorities.
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(b) STRUCTURAL ALTERATIONS
Lessee shall not make any structural additions or other
alterations to, nor remove or demolish, any building or other improvement
constituting a part of the Subleased Premises without the prior written consent
of Lessor, which shall not be unreasonably withheld.
(c) ALTERATIONS BECOME PART OF SUBLEASED PREMISES
Lessee agrees that any and all improvements or alterations to
the Subleased Premises shall immediately become the property of the Lessor and
shall remain upon and as part of the Subleased Premises.
7.4 MECHANICS OR MATERIALMEN'S LIENS
Unless Lessee shall contest the validity thereof as hereinafter
provided, Lessee shall not allow any mechanic's, materialman's or other liens to
be filed against the Subleased Premises or any part thereof as a result of any
act of omission by Lessee. Lessee may contest, by appropriate proceedings, the
amount, validity or application of any mechanic's, materialman's or other lien
filed against the Subleased Premises or any part thereof so long as (i) no part
of the Subleased Premises would be subject to loss, sale or forfeiture before
determination of such contest, (ii) Lessor is not subject to any criminal
penalty as a result of the failure to pay such lien, AND (iii) Lessee conducts
all such contests, at Lessee's expense, with due diligence and in good faith. If
required by Lessor's mortgagee, Lessee shall cause any such lien to be
discharged of record by posting a bond.
7.5 SIGNS AND OTHER TRADE FIXTURES
Lessee may construct, build, or install on the Subleased Premises
any and all racks, counters, tables, shelves, signage and other trade fixtures
and equipment of every kind or nature which might be necessary or desirable to
the Lessee's use of the Subleased Premises for permitted purposes (collectively,
the "TRADE FIXTURES"). All such Trade Fixtures shall at all times be and remain
the property of Lessee and, so long as Lessee is not in default under this
Sublease, Lessee shall have the right to remove all or any part of the Trade
Fixtures from the Subleased Premises at any time during, or upon the expiration
or sooner termination of, the Term; PROVIDED, HOWEVER, that Lessee shall repair
or reimburse Lessor for the full costs of repairing any damage to the Subleased
Premises resulting from the installation or removal of such Trade Fixtures. It
is specifically understood and agreed that all trademarks, trade names, service
marks, signs, and other marks of identification used by Lessee in Lessee's
business shall remain the exclusive property of Lessee at all times, and Lessor
shall have no right, title or interest in or to any of such trademarks, trade
names, service marks, signs or other marks of identification.
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7.6 LESSOR'S RIGHT OF ENTRY
Lessor and Lessor's employees and agents shall have the right to
enter the Subleased Premises from time to time during reasonable hours and upon
reasonable notice to Lessee (or at any time with or without notice in the event
of any emergency) in order to (i) examine the Subleased Premises, (ii) make such
repairs and alterations as may be necessary for the safety and preservation of
the improvements on the Subleased Premises (the cost of which repairs and
alterations shall be borne by Lessee), but without any obligations to make any
such repairs or alterations, OR (iii) exhibit the Subleased Premises for sale or
Sublease and place one or more "For Sale or Rent" signs on the Subleased
Premises during the 6 months immediately preceding the expiration of the Term,
which signs shall not be removed by Lessee.
7.7 CONSTRUCTION OF SPECIFIED BUILDING.
(a) LESSEE'S OBLIGATION TO CONSTRUCT SPECIFIED BUILDING.
Lessee covenants and agrees to proceed with due diligence, at
Lessee's expense, to perform Lessee's Work (as hereinafter defined) and erect or
cause to be erected on the Subleased Premises a permanent building (containing
approximately 3,200 square feet of usable space) and related improvements and
site work (collectively, the "SPECIFIED BUILDING"). The Specified Building shall
be based on, and constructed substantially in accordance with, the 3,200 SQUARE
FOOT prototype Tumbleweed restaurant plans and designs (the "PLANS AND
SPECIFICATIONS") prepared by the architectural firm of WOLFGANG & DOERSCHLAG
(the "PROJECT ARCHITECT"), SUBJECT, HOWEVER, to such changes as may be required
from time to time by reason of the specific site location or in order to obtain
building permits. All design, architectural, engineering, excavation and
construction work shall be performed in a first class workmanship manner and in
accordance with all applicable building codes and other requirements of
governmental authorities. The work necessary to construct the specified building
in accordance with the plans and specifications is referred to herein as
"LESSEE'S WORK". Unless and until the Total Lessor Investment equals
$500,000.00, Lessor shall reimburse Lessee for Lessee's expenditures incurred in
connection with the Lessee's Work. Such reimbursement shall be made by Lessor
within TEN (10) DAYS after Lessee requests such reimbursement and submits to
Lessor such receipts, invoices, architect's certificates, contractor or
subcontractor lien waivers, and/or other documents as Lessor or any lender to
Lessor may reasonably require. Lessee's Work shall be deemed completed upon
certification by the Project Architect that Lessee's Work is substantially
complete and issuance of a certificate of occupancy for the Subleased Premises.
Lessee shall indemnify Lessor and hold Lessor harmless from and against any
loss, claim, or expense, including damage to property, injuries to person, or
mechanics' or materialmen's liens arising out of the performance of Lessee's
Work by Lessee, its employees, agents, and contractors.
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(b) COMMENCEMENT AND COMPLETION OF CONSTRUCTION.
Lessee agrees that the construction of the Specified Building
shall commence in the time frame specified in the Ground Lease, and such
construction shall be diligently pursued thereafter until completed. If the
Specified Building is not completed within SIX (6) MONTHS after commencement
(unless such noncompletion is due to circumstances beyond the reasonable control
of Lessee), Lessor may, at Lessor's sole option, take over the completion of the
Specified Building and all sums expended for such purpose by Lessee shall
constitute a part of the Total Lessor Investment UNLESS AND UNTIL the payment of
any such amount would cause the Total Lessor Investment to exceed $500,000.00,
in which case any such excess amount paid by Lessor shall be immediately repaid
to Lessor by Lessee upon demand.
(c) LESSEE'S EQUIPMENT AND TRADE FIXTURES.
In addition to performing the scope of Lessee's Work, Lessee
shall be responsible for installing its equipment and Trade Fixtures, which
shall be completed as promptly as reasonably and feasibly possible following
completion of Lessee's Work.
(d) LESSEE'S PAYMENT OF EXCESS CONSTRUCTION COSTS WITHOUT
REIMBURSEMENT.
Lessor and Lessee agree that Lessor's obligation to reimburse
Lessee for the cost of the Lessee's Work shall cease at the time that the Total
Lessor Investment equals $500,000.00. In such event, Lessee shall be required to
complete Lessee's Work at Lessee's sole expense without reimbursement from
Lessor.
(e) WAIVER OF LESSOR LIABILITY WITH RESPECT TO CONSTRUCTION.
Nothing in this Sublease shall be construed in any way as
constituting Lessor as the agent of the Lessee in designing, engineering or
constructing the Specified Building or any other improvements to the Subleased
Premises. Lessee shall pay all of its contractors or subcontractors regarding
the scope of its improvements to the Subleased Premises and shall remove, if
applicable, any mechanics' liens which may be filed against the Subleased
Premises as a result of Lessee's non-payment of contract sums due to its
contractors and subcontractors. To the extent possible, all contractor's,
subcontractor's, manufacturer's, and vendor's warranties and guarantees, and any
construction or maintenance service contracts, IF ANY, with respect to any
construction, improvements, or repairs performed by or at the direction or
request of Lessee on or to the Subleased Premises shall be issued in the name
of, or otherwise be available to, both Lessee and Lessor, as their interests may
appear.
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ARTICLE
8
TAXES
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8.1 ADDITIONAL RENT FOR REAL PROPERTY TAXES
(a) LESSEE OBLIGATION TO PAY REAL PROPERTY TAXES
As Additional Rent hereunder, Lessee shall pay all Real
Property Taxes (as hereinafter defined) applicable to the Subleased Premises
during the Term, commencing with those due and payable in calendar year 1997;
PROVIDED, HOWEVER, that the Real Property Taxes for any year which are payable
by Lessee shall be subject to a prorata adjustment based upon the number of days
of said year during which the Subleased Premises are subleased to Lessee. For
all purposes of this Sublease, the term "REAL PROPERTY TAXES" shall include any
form of assessment, licensing, commercial rental tax, levy, penalty, ad valorem
tax, or other tax (other than income, inheritance and estate taxes) imposed upon
Lessor or Ground Lease Landlord with respect to the Subleased Premises, or
otherwise against or with respect to the Subleased Premises, by any authority
having the direct or indirect power to tax, including any city, county, state or
federal Government, and any school, agricultural or other improvement district
thereof.
(b) NOTICE AND PAYMENT
Following receipt by Lessor of the then current bills for Real
Property Taxes due and payable in 1997 or later years during the Term, Lessor
shall forward a copy thereof to Lessee (or, alternatively, Ground Lease Landlord
shall forward a copy of such tax bills directly to Lessee). Within THIRTY (30)
DAYS after receipt of such notice from Lessor (or, alternatively, direct notice
from Ground Lease Landlord), Lessee shall pay to Lessor (or, alternatively,
directly to Ground Lease Landlord) any amount properly stated therein to be due
(SUBJECT, HOWEVER, to the prorata adjustment for any partial year within the
Term, as provided for under Section 8.1((a)) hereof).
8.2 PERSONAL PROPERTY TAXES.
Lessee shall pay, prior to delinquency, all taxes assessed against
or with respect to any Trade Fixtures, furnishings, equipment, or other personal
property contained in the Subleased Premises. Any such taxes imposed upon or
otherwise payable by Lessor shall be treated and included as Real Property Taxes
which are subject to the provisions of Section 8.1 hereof.
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8.3 INCOME TAXES
Nothing in this Sublease shall be construed as requiring Lessee to
pay (i) any municipal, state or Federal income taxes assessed against Lessor,
(ii) any municipal, state, or Federal capital, levy, estate, succession,
inheritance, or transfer taxes of Lessor, OR (iii) any corporate franchise taxes
imposed upon any corporate owner of the fee of the Subleased Premises.
ARTICLE
9
ESTOPPEL CERTIFICATES; SUBORDINATION; ATTORNMENT
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9.1 ESTOPPEL CERTIFICATE
(a) LESSEE'S OBLIGATION TO EXECUTE ESTOPPEL CERTIFICATE WHEN
REQUESTED
From time to time, upon at least TEN (10) DAYS' prior written
notice from Lessor or Ground Lease Landlord, Lessee shall execute, acknowledge
and deliver to Lessor or Ground Lease Landlord, as the case may be, at no cost
to Lessor, a statement in writing (i) certifying that, as of the date of such
statement, this Sublease and the Ground Lease are each unmodified and in full
force and effect (or, if modified at such time, stating the nature of such
modification and certifying that this Sublease or the Ground Lease, as the case
may be, as so modified, is then in full force and effect), (ii) certifying the
Base Rent Commencement Date, (ii) certifying the date to which the Rent or other
charges are then paid in advance, if any, and the amount of the Rent and other
charges paid by Tenant, AND (iii) acknowledging that, as of the date of such
statement, there are not, to Lessee's knowledge, any uncured defaults on the
part of Lessor hereunder or any uncured defaults on the part of Lessor or Ground
Lease Landlord under the Ground Lease, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Subleased Premises.
(b) FAILURE OF LESSEE TO DELIVER ESTOPPEL CERTIFICATE
Lessee's failure to deliver such statement within the TEN
(10) DAY period provided for under Section 9.1(a) above shall be conclusive
upon Lessee that, as of the end of such TEN (10) DAY period (i) this Sublease
is in full force and effect, without modification except as may be
represented by Lessor; (ii) the Base Rent Commencement Date is as represented
by Lessor, (iii) there are no uncured defaults on the part of Lessor
hereunder or any uncured defaults on the part of Lessor or Ground Lease
Landlord under the Ground Lease, AND (iii) not more than one month's Base
Rent (and no other amount of Rent) has been paid in advance.
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(c) LESSEE'S OBLIGATION TO FURNISH FINANCIAL AND TAX INFORMATION TO
LENDERS
If Lessor or Ground Lease Landlord desires to finance or
refinance the Subleased Premises, or any part thereof, Lessee hereby agrees to
deliver to any lender designated by Lessor or Ground Lease Landlord such
financial statements and tax returns as may be reasonably required by such
lender. All such financial statements and tax returns shall be received by
Lessor or Ground Lease Landlord in confidence and shall be used only for the
purpose herein set forth.
9.2 MORTGAGE SUBORDINATION
Subject to Lessor's compliance with the provisions of Section 9.3
hereof, Lessee agrees that this Sublease shall at all times be subject and
subordinate to (i) all mortgages, liens, security interests, and other
encumbrances (hereinafter sometimes referred to collectively as "MORTGAGES" and
each individually as a "MORTGAGE") against the Subleased Premises as of the date
of execution of this Sublease, INCLUDING, BUT NOT LIMITED TO, the extent to
which such Mortgages secure current and future advances made under current debts
and obligations of Lessor AND (ii) all Mortgages subsequently placed on the
Subleased Premises by or with the consent of Lessor or Ground Lease Landlord.
Subject to Lessor's compliance with the provisions of Section 9.3 hereof, Lessee
agrees that, upon written demand by Lessor and at no cost to Lessor or Ground
Lease Landlord, Lessee shall execute such documents as may be required at any
time and from time to time to effectuate and evidence such subordinations.
9.3 NONDISTURBANCE AGREEMENTS
If, as of the date of execution of this Sublease, there are any
Mortgages against the Subleased Premises, or if Lessor shall subsequently
encumber or permit the encumbrance of the Subleased Premises by any Mortgages,
Lessor or Ground Lease Landlord, as the case may be, shall have the mortgagee,
lienholder or other secured party with respect to each Mortgage execute a
nondisturbance agreement providing that, so long as Lessee is not in default
under this Sublease or the Ground Lease and continues to perform all of its
obligations under this Sublease and the Ground Lease, (i) Lessee's tenancy shall
not be disturbed, (ii) this Sublease and the Ground Lease shall not be affected
by any default under such Mortgage, AND (iii) in the event of any foreclosure or
other enforcement of such Mortgage, and notwithstanding any resulting transfer
of Lessor's rights under this Sublease or any resulting transfer of Ground Lease
Landlord's rights under the Ground Lease, the rights of Lessee under this
Sublease and the Ground Lease shall expressly survive and this Sublease and the
Ground Lease shall in all respects continue in full force and effect.
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9.4 DEFAULT OF LESSOR UNDER MORTGAGES
If Lessor or Ground Lease Landlord, as applicable, defaults in
making payments under any Mortgage, or if Lessor or Ground Lease Landlord, as
applicable, is otherwise in default under any Mortgage, Lessee shall have the
right to pay any or all Rent thereafter becoming due under this Sublease, or any
rent or other amounts becoming due under the Ground Lease, as the case may be,
to the mortgagee, lienholder, or secured party under such Mortgage instead of to
Lessor or to Ground Lease Landlord, as applicable, and any payments so made
shall, to the extent thereof, discharge the obligation of Lessee hereunder
respecting the payment of such Rent and/or discharge the obligation of Lessee
and Lessor under the Ground Lease respecting the payment of such rent or other
amounts under the Ground Lease, as applicable. Subject to Lessor's compliance
with the provisions of Section 9.3 hereof, Lessee shall execute an acceptance
of, and shall fully comply with the terms of, any collateral or conditional
assignment of rents executed by Lessor or Ground Lease Landlord, as applicable.
9.5 LESSEE'S NOTICE TO MORTGAGEES OF LESSOR'S DEFAULTS UNDER THIS
SUBLEASE
Lessee will give reasonably detailed notice to any holder of a
Mortgage with respect to the Subleased Premises (PROVIDED, HOWEVER, that Lessee
has been notified in writing of the name and address of such Mortgage holder) of
any default of Lessor or Ground Lease Landlord, as the case may be, which would
entitle Lessee to terminate this Sublease or the Ground Lease, as applicable, or
reduce or abate the Rent hereunder or the rent under the Ground Lease, as
applicable. Such Mortgage holder shall have the right, but not the obligation,
to cure such default within a period of THIRTY (30) DAYS after such notice (or
within such longer period of time as may reasonably be required to cure such
default if such default cannot reasonably be cured within said THIRTY (30) DAY
period), and Lessee shall not terminate this Sublease or the Ground Lease, as
the case may be, or reduce or abate the Rent hereunder or the rent under the
Ground Lease, as the case may be, during such period.
9.6 ATTORNMENT
If any person shall succeed to all or any part of Lessor's or Ground
Lease Landlord's interest in the Subleased Premises, whether by purchase,
foreclosure, deed in lieu of foreclosure, power of sale, termination of
Sublease, or otherwise, and if so requested or required by such successor in
interest, Lessee shall attorn to such successor in interest and shall execute
such agreement in confirmation of such attornment as such successor in interest
shall reasonably request; PROVIDED, HOWEVER, in any such event, that such
successor to Lessor's or Ground Lease Landlord's interest shall execute a
nondisturbance agreement as described in Section 9.3 hereof.
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ARTICLE
10
DEFAULT
________________________________________
10.1 DEFAULT BY LESSEE; REMEDIES
(a) MATERIAL DEFAULT AND BREACH BY LESSEE
The occurrence of any one or more of the following events shall
constitute a material default and breach of this Sublease by Lessee:
(i) The vacating or abandonment of the Subleased Premises
by Lessee for SIXTY (60) DAYS out of any period of 120 CONSECUTIVE
DAYS during the Term.
(ii) The failure by Lessee to make any payment of
Rent or any other payment required to be made by Lessee
under this Sublease as and when due and the continuance
of such failure for a period of TEN (10) DAYS after
written notice thereof to Lessee, Lessee hereby waiving
any statutory notice of default for nonpayment of Rent.
(iii) The failure by Lessee to observe or perform
any of the covenants, conditions, or provisions of this
Sublease to be observed or performed by Lessee, OTHER
THAN those described in Section 10.1(a)(ii) above,
and the continuance of such failure for a period of
THIRTY (30) DAYS after written notice thereof from Lessor
to Lessee; PROVIDED, HOWEVER, that if the nature of
Lessee's default is such that more than THIRTY (30) DAYS
is reasonably required for its cure, then Lessee shall
not be deemed to be in default if Lessee commences such
cure within such THIRTY (30) DAY period and thereafter
diligently pursues such cure to completion.
(iv) The making by Lessee of any general
assignment or general arrangement for the benefit of
creditors.
(v) The filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating
to bankruptcy (unless, in the case of a petition filed
against Lessee, such action is dismissed within SIXTY
(60) DAYS).
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(vi) The appointment of a trustee or receiver to
take possession of all or substantially all of Lessee's
assets located at the Subleased Premises or of Lessee's
interests under this Sublease, UNLESS possession is
restored to Lessee within SIXTY (60) DAYS.
(vii) The attachment, execution, or other judicial
seizure of all or substantially all of Lessee's assets
located at the Subleased Premises or of Lessee's
interests under this Sublease, unless such seizure is
bonded or discharged within SIXTY (60) DAYS.
(b) LESSOR'S REMEDIES UPON DEFAULT BY LESSEE
In the event of any material default or breach by Lessee, as
provided under Section 10.1((a)) above, Lessor may at any time thereafter, with
or without additional notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
(i) Terminate Lessee's right to possession of the Subleased
Premises by any lawful means, in which case this Sublease shall
terminate and Lessee shall immediately surrender possession of the
Subleased Premises to Lessor. In such event, Lessor shall be
entitled to recover from Lessee all damages reasonably incurred by
Lessor by reason of Lessee's default, INCLUDING, BUT NOT LIMITED TO
(i) the cost of recovering possession of the Subleased Premises,
(ii) the expenses of reletting, the cost of any reasonably required
new tenant improvements and allowances, reasonable attorneys' fees,
and any real estate commissions actually paid, AND (iii) the
reasonable present value as of the date that Lessor recovers
possession of the Subleased Premises of THE EXCESS OF (A) the amount
of unpaid Rent which would have been due and payable during the
balance of the Term after such date had the Sublease not been
terminated by reason of Lessee's default, OVER (B) the amount of net
rental income reasonably estimated to be received by Lessor during
such period through reletting of the Subleased Premises. Lessor
shall exercise Lessor's best efforts to mitigate damages against
Lessee by reletting the Subleased Premises in a prompt and
commercially reasonable manner.
_______________________________________________________________________________
Text of Agreement - Page 24
<PAGE>
(ii) Maintain Lessee's right to possession, in
which case this Sublease shall continue in effect whether
or not Lessee shall have abandoned the Subleased
Premises. In such event, Lessor shall be entitled to
enforce all of Lessor's rights and remedies under this
Sublease, including the right to recover the Rent as it
becomes due hereunder.
(iii) Require specific performance by Lessee of
Lessee's obligations under this Sublease.
(iv) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial decisions
of the Commonwealth of Kentucky.
10.2 DEFAULT BY LESSOR
(a) MATERIAL DEFAULT AND BREACH BY LESSOR
A material default and breach of this Sublease by Lessor shall
occur upon the failure by Lessor to observe or perform any of the covenants,
conditions, or provisions of this Sublease to be observed or performed by Lessor
and the continuance of such failure for a period of THIRTY (30) DAYS after
written notice thereof from Lessee to Lessor; PROVIDED, HOWEVER, that if the
nature of Lessor's default is such that more than THIRTY (30) DAYS is reasonably
required for its cure, then Lessor shall not be deemed to be in default if
Lessor commences such cure within such THIRTY (30) DAY period and thereafter
diligently pursues such cure to completion.
(b) LESSEE'S REMEDIES UPON DEFAULT BY LESSOR
In the event of any material default or breach by Lessor, as
provided under Section 10.2(a), Lessee may at any time thereafter, with or
without additional notice or demand and without limiting Lessee in the exercise
of any right or remedy which Lessee may have by reason of such default or
breach:
(i) Remedy such breach or default and deduct from the Rent
then or thereafter due under this Sublease the reasonable costs of
such remedy, including interest thereon at the Prime Rate PLUS 2%
PER ANNUM until recovered through such Rent offsets against the Rent
then or thereafter due under this Sublease.
(ii) Require specific performance by Lessor of
Lessor's obligations under this Sublease.
_______________________________________________________________________________
Text of Agreement - Page 25
<PAGE>
(iii) Pursue any other remedy now or hereafter
available to Lessee under the laws or judicial decisions
of the Commonwealth of Kentucky.
10.3 REMEDIES CUMULATIVE
All rights and remedies of Lessor enumerated in Section 10.1(a)
hereof and all rights and remedies of Lessee enumerated in Section 10.2(a)
hereof shall be cumulative, and none shall exclude any other right or remedy
allowed by law or equity. Said rights and remedies may be exercised and enforced
concurrently or successively from time to time at Lessor's or Lessee's option,
respectively.
10.4 ATTORNEY FEES AND COSTS
If any party shall default with respect to any of such party's
obligations under this Sublease, such defaulting party shall pay all costs,
expenses, and reasonable attorneys' fees which are incurred or paid by the other
parties to this Sublease in enforcing the covenants and agreements of the
defaulting party under this Sublease.
10.5 FORCE MAJEURE
In the event that either Lessor or Lessee shall be delayed in,
hindered in, or prevented from the performance of any act required hereunder by
reason of any strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or the act, failure to act, or default of the other
party, or for other reasons beyond such party's control, then such party's
performance of such act shall be excused during the period of the delay and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay.
10.6 WAIVER OF CERTAIN DEFENSES
Should either Lessor or Lessee seek recourse to equity to enforce
any of its rights under this Sublease by specific performance, injunction, or
other equitable relief, the other party agrees to, and hereby does waive any
defense(s), which it might otherwise have that there is any adequate remedy at
law.
_______________________________________________________________________________
Text of Agreement - Page 26
<PAGE>
ARTICLE
11
MISCELLANEOUS
________________________________________
11.1 ASSIGNMENT OR SUBLETTING
Lessee shall not assign this Sublease in whole or in part or
sublease all or any portion of the Subleased Premises without the prior written
consent of Lessor, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that, notwithstanding the foregoing, Lessee may assign this Sublease in
whole or in part or sublease all or any portion of the Subleased Premises
without the prior written consent of Lessor to any entity controlling,
controlled by, or under common control with, Lessee. Unless otherwise agreed to
by Lessor, in the event of any assignment or sublease of this Sublease by Lessee
permitted under this Section 11.1, Lessee shall remain fully liable to Lessor in
connection with this Sublease and with respect to the Subleased Premises. Lessor
may freely assign any or all of its rights and obligations under this Sublease.
11.2 SUCCESSOR GROUND LEASE LANDLORD'S AND LESSOR'S LIABILITY
The term "Ground Lease Landlord" as used herein at any time shall
mean only the owner or owners at such time of the fee title to the Subleased
Premises and, in the event of any transfer of such title, Ground Lease Landlord
herein named (and in case of any subsequent transfers, then the transferor)
shall be relieved from and after the date of such transfer of all liability with
respect to Ground Lease Landlord's obligations under the Ground Lease thereafter
to be performed; PROVIDED, HOWEVER, that any funds in the hands of Ground Lease
Landlord or the then transferor at the time of such transfer, in which Lessee
has an interest, shall be delivered to the transferee. The obligations contained
in the Ground Lease to be performed by Ground Lease Landlord shall, subject as
aforesaid, be binding on Ground Lease Landlord's successors and assigns only
during their respective periods of ownership. The term "Lessor" as used herein
at any time shall mean only the primary tenant (as opposed to the sublessee)
under the Ground Lease and, in the event of any transfer of such rights, Lessor
herein named (and in case of any subsequent transfers, then the transferor)
shall be relieved from and after the date of such transfer of all liability with
respect to Lessor's obligations under this Sublease thereafter to be performed;
PROVIDED, HOWEVER, that any funds in the hands of Lessor or the then transferor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the transferee. The obligations contained in this Sublease to be
performed by Lessor, subject as aforesaid, shall be binding on Lessor's
successors and assigns only during their respective periods of holding such
primary leasehold interests under the Ground Lease.
_______________________________________________________________________________
Text of Agreement - Page 27
<PAGE>
11.3 RELATIONSHIP OF THE PARTIES
Nothing contained in this Sublease shall be deemed or construed by
the parties hereto, or by any third party, as creating the relationship of
principal and agent, partnership, joint venture, or other similar relationship
between or among any of the parties.
11.4 ENTIRE AGREEMENT
It is expressly understood and agreed by and among the parties
hereto that this Sublease and the Ground Lease set forth all the promises,
agreements, conditions and understandings between Lessor and Lessee relative to
the Subleased Premises and that there are no other promises, agreements,
conditions or understandings, either oral or written, among them other than as
are herein set forth. It is further understood and agreed that no subsequent
alteration, amendment, change or addition to this Sublease or the Ground Lease
shall be binding upon Lessor or Lessee unless reduced to writing and signed by
them, and by direct reference therein made a part hereof.
11.5 NOTICES
(a) DELIVERY OF NOTICE
All notices, demands, requests, consents, approvals, offers,
counteroffers or other communications required or permitted under this Sublease
shall be in writing and (i) delivered by personal delivery to such intended
recipient, which personal delivery shall be evidenced by a written receipt
therefor signed by such recipient, (ii) sent by United States certified,
registered or express mail, return receipt requested, postage prepaid, or by
reputable express delivery service (such as Federal Express, UPS, Airborne,
Purolator, or DHL), fees prepaid, addressed to the intended recipient thereof,
at the address listed for such party below, or at such other address as such
party shall furnish in writing to the other parties to this Sublease, OR
(iii) transmitted by fax to such intended recipient at the fax number listed for
such party below (or such other fax number as such party shall furnish in
writing to the other parties to this Sublease), receipt of which transmission
shall be confirmed by such recipient.
TO LESSOR: TW-DixieBash, LLC
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David H. Cooper, Member
Fax: (502) 425-1295
_______________________________________________________________________________
Text of Agreement - Page 28
<PAGE>
WITH COPY TO: Roth Foley Bryant & Cooper
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
TO LESSEE: Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
ATTENTION: John A. Butorac, Jr. & James M. Mulrooney,
Managers
Fax: (502) 893-6676
WITH COPY TO: Roth Foley Bryant & Cooper
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
ATTENTION: David M. Roth
Fax: (502) 425-1295
(b) EFFECTIVE DATE OF NOTICE; RESPONSE PERIOD
All such notices, demands, requests, consents, approvals,
offers, counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, TWO (2) DAYS after being properly
addressed and deposited in the United States mail or with a reputable express
delivery service or upon being transmitted by fax and properly receipted, as set
forth above. However, the time period in which a response to any such notice,
request, demand, consent, approval, offer, counteroffer or other communication
must be given shall commence to run from the date of receipt of personal
delivery, the date on the return receipt or express delivery receipt, or the
date of confirmation of receipt of the fax, as the case may be, of the notice,
request, demand, consent, approval, offer, counteroffer or other communication
by the addressee thereof; PROVIDED, HOWEVER, that if any party rejects delivery
of any such notice, request, demand, consent, approval, offer, counteroffer or
other communication properly sent by mail or express delivery service, or fails
or neglects to accept delivery after TWO (2) ATTEMPTS to so deliver by postal or
express delivery authorities, as the case may be, the time period for a response
shall commence TWO (2) DAYS following the proper mailing or depositing with the
express delivery service, as the case may be, of such notice, request, demand,
consent, approval, offer, counteroffer or other communication.
11.6 NO WAIVER
No waiver by any party of any provisions of this Sublease, nor any
default by any party, shall affect the rights of the waiving or nondefaulting
party or parties
_______________________________________________________________________________
Text of Agreement - Page 29
<PAGE>
thereafter to enforce such provision or to exercise any right or remedy in
the event of any other default, whether similar or dissimilar. No waiver
shall be binding unless executed in writing by the party making the waiver,
nor shall any waiver constitute a continuing waiver.
11.7 SEVERABILITY AND INVALIDITY
The invalidity or unenforceability of any provision hereof shall not
affect or impair any other provisions hereof; PROVIDED, HOWEVER, should any
provision hereof providing for the payment of any rents, compensation or
reimbursement to Lessor or Ground Lease Landlord be invalid or unenforceable,
Lessor may, at its sole option, terminate this Sublease at any time giving
Lessee TEN (10) DAYS' prior written notice of such election to terminate.
11.8 CAPTIONS, HEADINGS AND SUMMARY
The captions and headings throughout this Sublease and the Summary
at the beginning of this Sublease are for convenience and reference only and the
words contained in such captions, headings and Summary shall in no way be held
or deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision or the scope or intent
of this Sublease, nor in any way affect this Sublease.
11.9 SUCCESSORS AND PERMITTED ASSIGNS
Subject to the provisions of Section 11.2 hereof, the terms,
covenants and conditions of this Sublease shall inure to the benefit of, and
shall be binding upon, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
11.10 GENDER
The use of any gender in this Sublease shall include all other
genders, the singular shall include the plural, and the plural shall include the
singular, as the context may require.
11.11 RECORDING
No party to this Sublease shall record this Sublease without the
other parties' prior written consent, but each party shall, upon request of any
other party, execute, acknowledge and deliver to such other party a "short form"
memorandum of this Sublease for recording purposes.
_______________________________________________________________________________
Text of Agreement - Page 30
<PAGE>
11.12 GOVERNING LAW
This Sublease shall be construed and interpreted in accordance with
the laws of the Commonwealth of Kentucky without regard to any conflict of laws
provisions.
11.13 COUNTERPARTS
This Sublease may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
11.14 FURTHER ASSURANCES
From time to time, at any party's request and without further
consideration, each party shall execute and deliver such further instruments,
and take such other actions as the requesting party may reasonably request, in
order to more effectively implement the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and
year first hereinabove written.
LESSOR:
TW-DIXIEBASH, LLC
By: /s/ David H. Cooper
-----------------------------
DAVID H. COOPER, MEMBER
LESSEE:
TUMBLEWEED, LLC
By: /s/ John A. Butorac, Jr.
------------------------------
JOHN A. BUTORAC, JR., MANAGER
By: /s/ James M. Mulrooney
------------------------------
JAMES M. MULROONEY, MANAGER
_______________________________________________________________________________
Text of Agreement - Page 31
<PAGE>
EXHIBIT A: GROUND LEASE
EXHIBIT B: LEGAL DESCRIPTION OF SUBLEASED PREMISES
_______________________________________________________________________________
Text of Agreement - Page 32
<PAGE>
EXHIBIT A
COPY OF GROUND LEASE
[Copy of Ground Lease Attached]
_______________________________________________________________________________
Exhibit A
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF SUBLEASED PREMISES
That certain parcel of land, together with all improvements, privileges and
appurtenances thereto and all right, title and interest, if any, of Lessor in
and to any property lying in the bed of any street, road, highway, or avenue
opened or proposed in front of, adjacent to, or adjoining such land, located in
the City of Louisville, Jefferson County, Kentucky, and being more particularly
described as follows:
_______________________________________________________________________________
Exhibit B
<PAGE>
ASSETS PURCHASE AGREEMENT
(TUMBLEWEED FOOD COURTS)
BETWEEN
TEX-MEX TO YOU, LLC ("BUYER")
AND
TUMBLEWEED, LLC ("SELLER")
OCTOBER 1, 1996
<PAGE>
TABLE OF CONTENTS
Article/Section Page
1. PURCHASE AND SALE OF ACQUIRED ASSETS. . . . . . . . . . . . . . . . . . . . 2
2. PURCHASE PRICE; PAYMENT AND ALLOCATION; SECURITY AGREEMENT. . . . . . . . . 4
2.1 Purchase Price; Note. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Security Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. ASSUMPTION OF LIABILITIES; PROVISION FOR BUYER'S WARRANTY . . . . . . . . . 5
3.1 Buyer Assumes No Liabilities Unless Scheduled . . . . . . . . . . . . 5
4. CLOSING AND CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. ADDITIONAL COVENANTS OF THE PARTIES.. . . . . . . . . . . . . . . . . . . . 6
5.1 Consulting Fee to Buyer Regarding Franchised Food Courts. . . . . . . 6
5.2 Transfer of the Permits and Licenses; Management Agreement. . . . . . 7
5.3 Conveyance of Acquired Assets; Buyer's Assumption of Utility
Charges and Real Estate Taxes.. . . . . . . . . . . . . . . . . . . . . . 7
5.4 Employees of Seller.. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 License and Distribution Agreement. . . . . . . . . . . . . . . . . . 8
5.6 Sublease of Food Courts to Buyer. . . . . . . . . . . . . . . . . . . 8
5.7 Seller to Provide Temporary Accounting and/or Management Services
for Buyer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. REPRESENTATIONS AND WARRANTIES SELLER.. . . . . . . . . . . . . . . . . . . 9
6.1 Organization and Existence. . . . . . . . . . . . . . . . . . . . . . 9
6.2 Authority and Approval; No Violations; Consents.. . . . . . . . . . . 9
6.3 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . .10
6.4 Title to, and Condition of, Acquired Assets.. . . . . . . . . . . . .10
6.5 Claims and Litigation.. . . . . . . . . . . . . . . . . . . . . . . .10
6.6 Required Permits and Licenses.. . . . . . . . . . . . . . . . . . . .10
6.7 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . . .11
6.8 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . . . .11
6.9 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
6.10 Employee Benefit or Deferred Compensation Plans. . . . . . . . . . .12
6.11 Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . .13
6.12 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Page i
<PAGE>
TABLE OF CONTENTS
Article/Section Page
6.14 Public Utilities.. . . . . . . . . . . . . . . . . . . . . . . . . .14
6.15 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.16 Accuracy and Completeness of Representations and Warranties. . .Error!
7. REPRESENTATIONS AND WARRANTIES OF BUYER.. . . . . . . . . . . . . . . . . .15
7.1 ORGANIZATION AND EXISTENCE. . . . . . . . . . . . . . . . . . . . . .15
7.2 AUTHORITY, APPROVAL; NO VIOLATIONS; CONSENTS. . . . . . . . . . . . .16
7.3 CLAIMS AND LITIGATION.. . . . . . . . . . . . . . . . . . . . . . . .16
7.4 BROKERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
7.5 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.. . . . .17
8. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.. . . . . . . . . . . . . . . .17
8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES.. . . . . . . . .17
8.2 PERFORMANCE BY SELLER.. . . . . . . . . . . . . . . . . . . . . . . .17
8.3 CERTIFICATION BY SELLER.. . . . . . . . . . . . . . . . . . . . . . .17
8.4 CONSENTS, LICENSES AND APPROVALS. . . . . . . . . . . . . . . . . . .17
8.5 ABSENCE OF LITIGATION.. . . . . . . . . . . . . . . . . . . . . . . .18
8.6 INSPECTIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8.7 BUYER'S SUBLEASES OF THE FOOD COURTS. . . . . . . . . . . . . . . . .18
9. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. . . . . . . . . . . . . . . .18
9.1 ACCURACY OF BUYER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . .18
9.2 BUYER'S PERFORMANCE.. . . . . . . . . . . . . . . . . . . . . . . . .19
9.3 CERTIFICATION BY BUYER. . . . . . . . . . . . . . . . . . . . . . . .19
9.4 ABSENCE OF LITIGATION.. . . . . . . . . . . . . . . . . . . . . . . .19
10. DELIVERIES AND TRANSACTIONS AT THE CLOSING.. . . . . . . . . . . . . . . .19
10.1 DELIVERIES BY SELLER.. . . . . . . . . . . . . . . . . . . . . . . .19
10.2 DELIVERIES BY BUYER. . . . . . . . . . . . . . . . . . . . . . . . .20
10.3 DELIVERIES BY BUYER AND SELLER.. . . . . . . . . . . . . . . . . . .20
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . .20
12. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
12.1 INDEMNIFICATION OF BUYER.. . . . . . . . . . . . . . . . . . . . . .21
12.2 INDEMNIFICATION OF SELLER. . . . . . . . . . . . . . . . . . . . . .21
12.3 INDEMNITY PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . .22
Page ii
<PAGE>
TABLE OF CONTENTS
Article/Section Page
13. BUYER'S REMEDIES; OFFSET.. . . . . . . . . . . . . . . . . . . . . . . . .23
14. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
15. OTHER AGREEMENTS OF THE PARTIES; MISCELLANEOUS.. . . . . . . . . . . . . .24
15.1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
15.2 TRANSFER, RECORDING AND ATTORNEY'S FEES. . . . . . . . . . . . . . .24
15.3 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
15.4 ENTIRE AGREEMENT; MODIFICATION; WAIVER.. . . . . . . . . . . . . . .25
15.5 SUCCESSORS AND ASSIGNS; ASSIGNMENT.. . . . . . . . . . . . . . . . .25
15.6 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
15.7 EXECUTION IN COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . .26
15.8 FURTHER ASSURANCES.. . . . . . . . . . . . . . . . . . . . . . . . .27
15.9 SEVERABILITY OF PROVISIONS.. . . . . . . . . . . . . . . . . . . . .27
15.10 GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . . . .27
15.11 EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
15.12 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
15.13 RISK OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Page iii
<PAGE>
INDEX OF DEFINED TERMS
--A--
ACQUIRED ASSETS. . . . . . . . . . . . 2
AGREEMENT. . . . . . . . . . . . . . . 1
--B--
BIGGS OPERATION. . . . . . . . . . . . 1
BUYER. . . . . . . . . . . . . . . . . 1
--C--
CERCLA . . . . . . . . . . . . . . . .12
CLOSING. . . . . . . . . . . . . . . . 6
CLOSING ATTORNEYS. . . . . . . . . . . 6
CLOSING DATE . . . . . . . . . . . . . 6
--D--
DEPOSITS . . . . . . . . . . . . . . . 3
--E--
EMPLOYEE PLANS . . . . . . . . . . . .13
ENVIRONMENTAL LAWS . . . . . . . . . .12
ERISA. . . . . . . . . . . . . . . . . 5
EXCLUDED ASSETS. . . . . . . . . . . . 2
--F--
FAYETTE OPERATION. . . . . . . . . . . 1
FAYETTE PARTNERSHIP. . . . . . . . . . 1
FIXED ASSETS . . . . . . . . . . . . . 2
FOOD COURT . . . . . . . . . . . . . . 1
FOOD COURTS. . . . . . . . . . . . . . 1
--I--
INDEMNIFIED PARTY. . . . . . . . . . .22
INDEMNIFYING PARTY . . . . . . . . . .22
INVENTORIES. . . . . . . . . . . . . . 2
--L--
LEASES, PURCHASE ORDERS AND OTHER
CONTRACTS. . . . . . . . . . . . . . . 3
LIABILITIES. . . . . . . . . . . . . . 5
LICENSE AND DISTRIBUTION AGREEMENT . . 8
LIQUOR LICENSE MANAGEMENT CONTRACT . . 7
--M--
MISCELLANEOUS ASSETS . . . . . . . . . 4
--N--
NORTHGATE OPERATION. . . . . . . . . . 1
NOTE . . . . . . . . . . . . . . . . . 4
--O--
OXMOOR OPERATION . . . . . . . . . . . 1
--P--
PERMITS AND LICENSES . . . . . . . . . 3
PERMITTED EXCEPTIONS . . . . . . . . . 5
PRODUCTS AND SERVICES. . . . . . . . . 1
PURCHASE PRICE . . . . . . . . . . . . 4
--R--
REAL PROPERTY INTERESTS. . . . . . . . 3
REAL PROPERTY LEASES . . . . . . . . . 3
REQUIRED PERMITS AND LICENSES. . . . .11
RIVER FALLS FOOD COURT . . . . . . . . 1
--S--
SECURITY AGREEMENT . . . . . . . . . . 4
SELLER . . . . . . . . . . . . . . . . 1
ST. MATTHEW'S MALL FOOD COURT. . . . . 1
--T--
TRI-COUNTY OPERATION . . . . . . . . . 1
Page iv
<PAGE>
ASSETS PURCHASE AGREEMENT
TUMBLEWEED FOOD COURTS
THIS ASSETS PURCHASE AGREEMENT ("AGREEMENT") is made as of the 1ST day
of OCTOBER, 1996, BY AND BETWEEN (I) TEX-MEX TO YOU, LLC, a Kentucky limited
liability company with its principal office located at 1230 Liberty Bank
Lane, Suite 200, Louisville, Jefferson County, Kentucky 40222 (hereinafter
referred to as "BUYER") AND (II) TUMBLEWEED, LLC, a Kentucky limited
liability company with its principal office located at 1900 Mellwood Avenue,
Jefferson County, Kentucky 40206 (the "SELLER").
RECITALS:
A. Seller is engaged, in pertinent part, in the business of operating
"Tumbleweed" food court restaurants (collectively, the "FOOD COURTS" and each
individually, a "FOOD COURT") upon leased premises at each of the following
locations: (I) the Oxmoor Mall in Louisville, Kentucky (the "OXMOOR
OPERATION"), (II) the Bigg's Mall in Middletown, Kentucky (the "BIGGS
OPERATION"), (III) the Tri-County Mall on Princeton Pike in Cincinnati, Ohio
(the "TRI-COUNTY OPERATION"), (IV) the Northgate Mall in Colerain Township,
Hamilton County, Ohio (the "NORTHGATE OPERATION") AND (V) the Fayette Mall on
Nicholasville Road in Lexington, Kentucky (the "FAYETTE OPERATION"). In each
case, the Food Courts offer Mexican and/or Tex-Mex food products, grilled
products, and other food and beverage items which are the same or similar to
those served at Tumbleweed casual dining restaurants, and otherwise render
"fast food" restaurant services to the general public (the "PRODUCTS AND
SERVICES").
B. All of the Food Courts, EXCEPT for the Fayette Operation, are
directly owned and operated by Seller. The Fayette Operation is owned by
FAYETTE MALL TUMBLEWEED CAFE (the "FAYETTE PARTNERSHIP"), a Kentucky general
partnership in which Seller owns a 50% general partnership interest. Seller
manages the Fayette Operations by agreement with the Fayette Partnership, and
the Fayette Partnership is a franchisee of Seller.
C. Seller has been planning and negotiating to open a new food court
restaurant at THE MALL AT ST. MATTHEWS, in St. Matthews, Kentucky (the "ST.
MATTHEW'S MALL FOOD COURT").
D. Seller is the franchisor with respect to a "Tumbleweed" food court
restaurant located and operated by an independent franchisee at River Falls
Mall in Jeffersonville, Indiana (the "RIVER FALLS FOOD COURT").
E. Seller now desires to sell, transfer and assign to Buyer, and Buyer
desires to purchase and acquire from Seller, substantially all of Seller's
assets and properties used in and with respect to the Food Courts, INCLUDING,
BUT NOT LIMITED TO, Seller's general partnership interest in the Fayette
Partnership and Seller's rights to the St. Matthew's Mall Food Court, all
upon and subject to the terms and conditions set forth in this Agreement.
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F. Contemporaneously herewith, Seller is granting Buyer a license to
market and sell the Products and Services at the Food Courts, the St.
Matthew's Mall Food Court, and at any other similar food court of Buyer which
may be located in the future within the Louisville or Lexington, Kentucky
metropolitan areas under Seller's federally registered TUMBLEWEED-Registered
Trademark-marks, and the right to market and sell the Products and Services
at similar food courts of Buyer or Buyer's licensees or franchisees, which
may be located in the future outside the Louisville and Lexington, Kentucky
metropolitan areas, BUT ONLY under a name and marks other than Seller's
federally registered TUMBLEWEED-Registered Trademark- marks, all pursuant and
subject to the specific terms of a License and Distribution Agreement (as
defined in Section 5.5 hereof).
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ACQUIRED ASSETS
At the Closing (as defined in Section 4 hereof) and upon the terms
and conditions set forth herein, Seller agrees to sell, transfer, convey,
assign and deliver to Buyer, and Buyer agrees to purchase and acquire from
Seller, all of Seller's assets and properties, tangible and intangible, real,
personal, and mixed, which are physically located at the Food Courts or which
constitute intangible assets used exclusively with respect to the Food
Courts, EXCLUDING those assets and properties set forth on EXHIBIT A attached
hereto (the "EXCLUDED ASSETS") (all of such assets and properties OTHER THAN
the Excluded Assets, are hereinafter collectively referred to as the
"ACQUIRED ASSETS"):
(a) All cash on hand, marketable securities or other
sources of immediately available funds held by Seller with respect to the
Food Courts;
(b) All of Seller's accounts receivable, if any, with
respect to the Food Courts;
(c) All of Seller's food processing machinery,
equipment, processors, accessories, utensils and parts; tables, chairs, and
other furniture; computer equipment and systems; inventories of items not
normally held for resale; racks; storage containers; fixtures; furnishings;
tools; dies; jigs; and all other miscellaneous supplies, but only to the
extent used or held for use with respect to the Food Courts (collectively,
the "FIXED ASSETS");
(d) All food, alcoholic and non-alcoholic beverage,
restaurant supply, and other inventories of Seller held for use with respect
to the Food Courts (collectively, the "INVENTORIES");
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(e) All of Seller's rights, title and interests under,
in and to all open, unfilled or partially filled customer or other purchase
orders, bids, contracts, commitments or service contracts; third party payor
agreements; equipment leases and leases or contracts with respect to any of
the other Acquired Assets and other agreements to which Seller is a party
regarding the Food Courts (collectively, the "LEASES, PURCHASE ORDERS AND
OTHER CONTRACTS");
(f) All of Seller's rights, title and interests under,
in and to all permits or other types of licenses, rights to sell certain
brand names of products, certificates of authority, waivers, concessions and
similar rights granted to or held by Seller, to the extent such are
assignable or transferable and to the extent they relate to the Food Courts
or the St. Matthew's Mall Food Court (collectively, the "PERMITS AND
LICENSES");
(g) All escrows, prepayments, trust funds, guarantee
funds, purchase orders or other security deposits for services yet to be
rendered, or for goods yet to be provided, or other funds held by Seller or
third parties, which are subject to repayment or return to customers or third
parties upon the passage of time, the occurrence of any event, or the failure
to occur of a delivery of goods or the rendering of services and which relate
to the Food Courts or the St. Matthew's Mall Food Court (collectively, the
"DEPOSITS");
(h) All of Seller's rights, title, and interests under,
in and to those certain leases of real property with respect to the Oxmoor
Operation, the Biggs Operation, the Tri-County Operation, and the Northgate
Operation (the "REAL PROPERTY LEASES"), and all leasehold improvements of
Seller thereon, a schedule or copies of which are attached hereto as EXHIBIT
B (collectively, the "REAL PROPERTY INTERESTS"), SUBJECT, HOWEVER, to the
rights of the landlord and Seller, as sublessor or assignor, under the Real
Property Leases; and
(i) All of Seller's 50% general partnership interest as
a general partner of the Fayette Partnership; and
(j) Except as set forth in EXHIBIT A attached hereto, or
as otherwise expressly excluded under this Agreement, all other tangible or
intangible assets and properties of any nature whatsoever held or used by
Seller in connection with the Food Courts; all lists of customers and
suppliers; menus; customer records; records of inspections by state, local
and federal agencies; all prepaid expenses; all worker's compensation or
other such similar accounts, if any; all engineering or technical drawings
and designs; all quality control specifications, warranties and guarantees;
all know-how, trade secrets or other proprietary, confidential or intangible
property used in connection with the Food Courts; all records with respect to
market research, market development or any of the Acquired Assets; all
catalogues and advertising brochures relating to the Food Courts; all
signage; all telephone numbers
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and post office boxes relating to the Food Courts; all stationery, invoices,
quotation and other forms; and all records of every kind and type necessary
or appropriate to facilitate Buyer's continuation of the Food Courts
(collectively, the "MISCELLANEOUS ASSETS").
2. PURCHASE PRICE; PAYMENT AND ALLOCATION; SECURITY AGREEMENT
2.1 PURCHASE PRICE; NOTE
The Purchase Price (the "PURCHASE PRICE") to be paid by Buyer to
Seller for the Acquired Assets is $600,000, which shall be paid in the
following manner: (A) $100,000 of the Purchase Price shall be paid by Buyer
in cash or in immediately available funds at the Closing (SUBJECT, HOWEVER,
to offset and reduction by reason of any offsets, prorations or adjustments
otherwise provided for under the Agreement), AND (B) the remaining $500,000
of the Purchase Price (SUBJECT, HOWEVER, to offset and reduction by reason of
any offsets, prorations or adjustments otherwise provided for under the
Agreement) shall be evidenced by a FIVE (5) YEAR PROMISSORY NOTE (the "NOTE")
substantially in the form of that attached hereto as EXHIBIT C, which Note
shall be executed by Buyer and delivered to Seller at the Closing.
2.2 ALLOCATION
The parties agree that the Purchase Price shall be allocated
among the Acquired Assets as agreed upon by the parties at the Closing, and
the parties agree to report, to the extent reporting is required by law, the
transactions which are the subject of this Agreement for Federal and state
tax purpose in accordance with such allocation of the Purchase Price.
2.3 SECURITY AGREEMENT
At Closing, Buyer shall execute and deliver to Seller a
security agreement in form and substance acceptable to Buyer and Seller,
acting reasonably, in good faith, and in accordance with standards generally
applied by Kentucky banks with respect to secured loans (the "SECURITY
AGREEMENT") (and related UCC-1 or other necessary financing statements)
granting to Seller, as security for Buyer's obligations under the Note, a
security interest in (A) all of the Acquired Assets AND (B) Buyer's rights,
title and interests with respect to the St. Matthew's Mall Food Court (or, if
applicable, in any limited liability company, partnership, corporation, or
other entity which may be organized by Buyer in order to own and operate the
St. Matthews Mall Food Court, it being the current intent of Buyer to have a
70% member interest in a limited liability company established to own and
operate such food court). Upon payment of the Note, Seller shall, at its sole
expense, execute and file all appropriate releases or terminations with
respect to the Security Agreement and the UCC-1 financing statements.
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3. ASSUMPTION OF LIABILITIES; PROVISION FOR BUYER'S WARRANTY
3.1 BUYER ASSUMES NO LIABILITIES UNLESS SCHEDULED
EXCEPT FOR (I) the assumption by Buyer of obligations arising
after the Closing under those Leases, Purchase Orders, and Other Contracts
which have been disclosed by Seller to Buyer prior to the Closing and which
Buyer has deemed acceptable at or prior to the Closing, AND (II) the
subleases or assignments of the Leases upon terms and conditions reasonably
acceptable to Buyer pursuant to Section 8.7 (the "PERMITTED EXCEPTIONS"),
Buyer shall not assume, discharge, or be responsible or liable for, any
debts, obligations or liabilities of Seller whatsoever (collectively, the
"LIABILITIES"), INCLUDING, BUT NOT LIMITED TO:
(a) All trade accounts payable incurred in the ordinary
course of business prior to the Closing;
(b) All liabilities that have been incurred by
Seller in the ordinary course of business prior to the Closing
Date, specifically with respect to:
(i) Liabilities arising out of claims by third
parties (including any governmental agency or authority)
against Seller alleging any violation of federal, state or
other laws or violation of rules or regulations thereunder;
(ii) Liabilities to employees of Seller for
workers' compensation, deferred compensation, accrued vacation
or sick pay, severance pay, termination pay, unemployment
benefits or any other type of liabilities, payments or
benefits arising out of their employment or the termination of
their employment with Seller;
(iii) Liabilities under any "employee pension
benefit plans" (as defined in Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")),
or under any "employee welfare benefit plans" (as defined in
ERISA), established or maintained by Seller;
(iv) Liabilities for property, sales, excise or
other taxes whatsoever, whether foreign, federal, state or
local, arising out of the prior ownership or transfer of the
Acquired Assets by Seller, the conduct of the Food Courts by
Seller, or otherwise;
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(v) Liabilities under any product liability,
tort liability or similar claims alleging personal injury,
death, damage or destruction to property or consequential
damages (whether arising out of contract, quasi-contract or
tort) with respect to products manufactured or sold by, or
services rendered by, Seller prior to the Closing;
(vi) Liabilities arising out of any pending or
threatened litigation;
(vii) Obligations for cash rebates to customers,
or other liabilities with respect to warranties or guarantees
regarding products manufactured or sold by, or services
rendered by, Seller prior to the Closing;
(viii) Liabilities arising out of any breach or
default by Seller in the performance of any of the Leases,
Purchase Orders and Other Contracts, or of the obligations of
the Seller under any of the Permits and Licenses; and
(ix) Liabilities for Seller's income taxes, if
any, as a consequence of this transaction, which such
liability shall solely remain with Seller.
4. CLOSING AND CLOSING DATE.
The Closing of the transaction contemplated in this Agreement (the
"CLOSING") shall take place at Roth & Cooper, P.S.C., 1230 Liberty Bank Lane,
Suite 200, Louisville, Jefferson County, Kentucky 40222 (the "CLOSING
ATTORNEYS") at 10:00 AM ON OCTOBER 1, 1996 (unless the inability to close by
such date is due to the lack of satisfaction of any of the conditions precedent
to Buyer's obligations and Buyer elects in writing to extend the allowable time
for the Closing, in Buyer's sole discretion) or at such other time and place as
shall be mutually agreed upon by Buyer and Seller (the "CLOSING DATE").
5. ADDITIONAL COVENANTS OF THE PARTIES.
5.1 CONSULTING FEE TO BUYER REGARDING FRANCHISED FOOD COURTS.
The parties agree that Seller shall continue to franchise, as
franchisor, the Fayette Operation and the River Falls Food Court, unless and
until such time as Buyer, in Buyer's sole discretion and upon at least 30 DAYS
prior written notice to Seller, elects to assume such rights and privileges from
Seller. During such period, Seller shall be entitled to all royalties and
franchise fees paid by such franchisees. Furthermore, during such period, Buyer
shall provide marketing, supervisory, and
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consulting services to Seller with respect to such franchise operations on an
"as needed" basis, and in consideration thereof, Seller shall pay to Buyer a
fee in an amount equal to 90% of such royalty and franchise fees received by
Seller. In addition, Buyer, with the consent of Seller, shall have the right
to establish other new food court operations in the future as a franchisee of
Seller under the same services and fee arrangement as provided above with
respect to the Fayette Operation and the River Falls Food Court.
5.2 TRANSFER OF THE PERMITS AND LICENSES; MANAGEMENT AGREEMENT.
Seller shall cooperate with Buyer in obtaining all necessary
licenses and approvals from licensors, or from federal, state and local
governments, including liquor licenses, for the continued operation of the Food
Courts by Buyer, if any. Until such time as such liquor licenses can be
transferred to and/or obtained in Buyer's name, Seller shall allow Buyer to
operate the Food Courts under a "LIQUOR LICENSE MANAGEMENT CONTRACT" in form and
substance acceptable to Seller and Buyer. In such regard, but not by way of
limitation, Seller, as transferor, and Buyer, as transferee, will execute and
file and deliver all applicable instruments or documents as may to necessary and
appropriate to effectuate the transfer or assignment of the Permits and Licenses
including, but not limited to, those which are necessary or appropriate with
respect to:
(a) Licensors or other such parties with which Seller
has a license, agreement or otherwise the authority in which to sell
products, or render services, to the general public on or behalf of, or in
conjunction with, such licensors or other such parties; and
(b) Governmental agencies having jurisdiction or
authority over, or with respect to, any of the Permits and Licenses.
All fees and other costs payable in connection with any such application or
transfer thereof shall be the obligation of, and shall be timely paid by,
Buyer.
5.3 CONVEYANCE OF ACQUIRED ASSETS; BUYER'S ASSUMPTION OF UTILITY
CHARGES AND REAL ESTATE TAXES.
At the Closing, Seller shall convey to Buyer all of the
Acquired Assets by delivery of such bills of sale and assignment or other
transfer instruments as Buyer may require, conveying to Buyer good and
marketable fee simple title to the Acquired Assets free and clear of all
mortgages, pledges, charges, liens, restrictions, encumbrances, covenants,
conditions, leases and other exceptions except for the Permitted Exceptions.
All utility charges and property taxes (if applicable pursuant to the Real
Property Leases on the Food Courts) shall be prorated as of the Closing Date.
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5.4 EMPLOYEES OF SELLER.
Effective as of the Closing, Seller shall pay any termination
pay, severance pay, sick pay or vacation pay, any unemployment benefits, any
pension plan benefits or welfare plan benefits, and any other benefits to
which any past or current employees of Seller may be entitled, or to which
they may claim to be entitled, by virtue of their employment or the
termination of their employment with Seller. Although Buyer shall be under no
obligation to hire or employee any such employees, Buyer may offer
employment, effective as of the Closing or thereafter, to any of Seller's
employees directly connected with the operation of the Food Courts as Buyer
may deem advisable in Buyer's sole discretion. To the extent, if any, that
any of such employees of Seller are employed by Buyer following the Closing,
such employment shall be for such compensation and on such other terms and
conditions as may be determined by Buyer, in Buyer's sole discretion.
Furthermore, to the extent, if any, that Buyer employs any of such employees
of Seller and expressly assumes, or otherwise becomes liable for, any accrued
vacation pay, sick pay or other liabilities as of the Closing in connection
therewith, Seller shall pay the amount thereof to Buyer at the Closing.
5.5 LICENSE AND DISTRIBUTION AGREEMENT.
At or prior to Closing, the parties shall enter into a License
and Distribution Agreement, in form and substance acceptable to Buyer and
Seller, setting forth the terms and conditions under which Seller shall
license Buyer to use its federally registered TUMBLEWEED-Registered
Trademark- marks and/or to market and sell its food products with respect to
food courts and certain proposed food delivery activities (the "LICENSE AND
DISTRIBUTION AGREEMENT").
5.6 SUBLEASE OF FOOD COURTS TO BUYER.
Pursuant to a sublease agreement in form and substance
acceptable to Buyer, acting reasonably and in good faith. Seller shall
sublease the Food Courts to Buyer on the same terms and conditions under
which Seller currently operates such Food Courts under the Real Property
Leases, whether or not the consent of the appropriate landlords are obtained.
To the extent possible, both parties shall use their best efforts to maintain
such Real Property Leases in effect. It is anticipated that the Real Property
Lease on the Northgate Operation will terminate on January 1, 1997 and the
Tri-County Operation will terminate on November 1, 1998 and that Seller shall
have no further exposure on such Real Property Leases after such dates. Upon
Buyer's request, Seller shall assist Buyer, and use its best reasonable
efforts, in renewing any of the Real Property Leases and/or in obtaining the
actual consent of any such landlord to such sublease.
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5.7 SELLER TO PROVIDE TEMPORARY ACCOUNTING AND/OR MANAGEMENT SERVICES
FOR BUYER.
After the Closing, Seller shall provide to Buyer the "back
office" accounting and administrative services which are necessary or
appropriate in connection with the management of the Food Courts, consistent
with past practices, for a fee of $400 PER MONTH PER FOOD COURT LOCATION.
Either party may terminate such services upon at least 90 DAYS prior written
notice to the other.
6. REPRESENTATIONS AND WARRANTIES SELLER.
Seller represents and warrants to Buyer as follows:
6.1 ORGANIZATION AND EXISTENCE.
Seller is a limited liability company duly organized and in
good standing under the laws of the Commonwealth of Kentucky. Seller has, and
at all times has had, full power and authority to own its properties and to
conduct its business, INCLUDING, BUT NOT LIMITED TO, the operation of the
Food Courts. Seller is qualified as a foreign entity in every other
jurisdiction in which the nature of its business, or the character or
location of its operations, requires Seller to be qualified as a foreign
entity. No other jurisdiction has demanded or indicated that Seller is
required to so qualify.
6.2 AUTHORITY AND APPROVAL; NO VIOLATIONS; CONSENTS.
Seller has full power and authority to enter into, deliver and
perform this Agreement. Seller's execution, delivery and performance of, and
the consummation of the transactions contemplated by this Agreement, have
been duly authorized. This Agreement has been duly executed and delivered by
Seller and constitutes its legal, valid and binding obligation, enforceable
in accordance with its terms. The execution, delivery and performance of, and
the consummation of the transactions contemplated in this Agreement, do not
and will not:
(a) Conflict with, or result in a violation or breach
of, any of the terms, conditions or provisions of, or constitute a default
under, Seller's Articles of Organization, Seller's Operating Agreement, or
any instrument, agreement, mortgage, security interest, judgment, order,
writ, award, decree or other restriction to which Seller is a party, or as to
which any of the Acquired Assets is subject, or by which Seller is bound, or
any statute or regulatory provision affecting Seller or any of the Acquired
Assets;
(b) Require the approval, consent or authorization of
any Federal, state or local court, governmental authority or regulatory body,
or of any creditor of Seller or of any other person or entity, EXCEPT as
covered by the Permits and
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Licenses which have been disclosed by Buyer to Seller prior to the Closing
and which shall be obtained at or prior to the Closing; or
(c) Give any party with rights under any instrument,
agreement, mortgage, security interest, judgment, order, writ, award, decree
or other restriction to which Seller is a party, or by which Seller is bound,
the right to terminate, modify or otherwise change the rights or obligations
of Seller hereunder.
6.3 ABSENCE OF UNDISCLOSED LIABILITIES.
With respect to the Food Courts and the other Acquired Assets,
Seller does not have, or will not have at the time of the Closing, any debts,
obligations (including obligations as a guarantor) or liabilities of any
nature, secured or unsecured, whether fixed, absolute, accrued, contingent or
otherwise, which are or would be inconsistent with any of the representations
and warranties of Seller contained in this Agreement, or in any document,
certificate, instrument, exhibit or schedule delivered in connection
herewith, or which have had or may be expected to have any adverse effect on
the capacity or ability of Seller to fully carry out its obligations under
this Agreement.
6.4 TITLE TO, AND CONDITION OF, ACQUIRED ASSETS.
Seller has and will have at the time of the Closing, and will
transfer to Buyer as required under this Agreement, good and marketable fee
simple title to the Acquired Assets free and clear of all mortgages, pledges,
charges, liens, restrictions, encumbrances, covenants, conditions, leases and
other exceptions EXCEPT the Permitted Exceptions. The Acquired Assets are
sold AS IS, except as otherwise provided in this Agreement.
6.5 CLAIMS AND LITIGATION.
There are no claims, actions, suits, proceedings or
investigations, either administrative or judicial, pending or, to the best of
Seller's knowledge and belief, threatened or contemplated, against Seller
with respect to, or otherwise affecting, the Food Courts or any of the other
Acquired Assets at law or in equity, or before any arbitrator, court or
before or by any other governmental agency or instrumentality, domestic or
foreign. Seller is not subject to, or in default under, any court or
administrative order, writ, injunction or decree applicable to or with
respect to the Food Courts or any of the other Acquired Assets, nor is Seller
in violation of any law, regulation or rule so applicable.
6.6 REQUIRED PERMITS AND LICENSES.
Seller has received all permits, concessions, licenses,
certificates of compliance, consents, approvals, orders, certificates and
authorizations required or necessary for the operation of the Food Courts
(the "REQUIRED PERMITS AND
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LICENSES") INCLUDING, BUT NOT LIMITED TO, the liquor licenses. Promptly
following a request by Buyer to do so, Seller shall furnish to Buyer a
complete list of the Required Permits and Licenses and, to the extent
possible, a true and correct copy of each of the Required Permits and
Licenses, as amended or modified through the date hereof. All of the Required
Permits and Licenses are either freely assignable or transferable upon
application to appropriate authorities, or may be directly obtained by Buyer
upon application to appropriate authorities assuming, in each case, that
Buyer meets the requirements of the issuer for obtaining and holding such
Required Permits and Licenses. All of the Required Permits and Licenses are
in full force and effect, and no suspension or cancellation of any of them is
threatened or, to the best of Seller's knowledge and belief, contemplated.
Seller has no reason to believe that any of the Required Permits and Licenses
would not be renewed upon its normal expiration. Seller has never had a
permit, license or other qualification to conduct, participate or be involved
in any of the Food Courts or activity in connection therewith denied,
revoked, restricted or suspended, nor has Seller been involved in any
proceeding to deny, revoke, restrict or suspend the rights, powers or
privileges under any such permit, license or qualification, or been barred
from, or ordered to cease any activities conducted under, any such license or
qualification.
6.7 COMPLIANCE WITH LAWS.
Seller is not in violation of any material law, regulation,
rule, ordinance, order, judgment, writ, injunction or decree of any Federal,
state or local government, or instrumentality or agency thereof, or any
court, with respect to the Food Courts or any of the other Acquired Assets,
and Seller is not aware of any facts or circumstances which may constitute or
result in any such violation. The operation of the Food Courts, and the use
of the Acquired Assets in connection therewith, do not violate, and at the
Closing will not violate, any provision of any material building, life
safety, occupational safety or other code, regulations, governmental
ordinances or governmental orders. Seller shall convey the Acquired Assets to
the Buyer, and the assigned rights of Buyer under any lease agreements, free
and clear of any such violations.
6.8 ENVIRONMENTAL MATTERS.
There are no toxic, hazardous or carcinogenic substances or
wastes disposed of, stored or present on, in or under, the Food Courts, or
utilized by Seller in the conduct of the Food Courts or use of the Acquired
Assets other than in the ordinary course of business, nor have any such
substances or wastes been sent by Seller to any other sites for storage,
treatment, reuse, recycling or disposal prior to the date hereof. To the best
of Seller's knowledge and belief, there are no releases or threats of
releases of any toxic, hazardous or carcinogenic substances or wastes to the
environment from or at the Food Courts, INCLUDING, WITHOUT LIMITATION, any
migration of any release or threatened release of such substances or wastes
from one environmental medium to another environmental medium or from one
location to
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another location. To the best of Seller's knowledge and belief, with respect
to the Food Courts and the other Acquired Assets, Seller is in compliance
with all Federal, state, and local statutes, rules, ordinances and other laws
and regulations relating to protection of the environment, INCLUDING, WITHOUT
LIMITATION, the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act and the Hazardous and Solid Waste Amendments of
1984, 42 U.S.C. Section 6901, ET SEQ.; the Clean Air act, 42 U.S.C. Section
7401, ET SEQ.; the Clear Water Act, 33 U.S.C. Section 1251, ET SEQ.; the Safe
Drinking Water Act, 42 U.S.C. Section 300f, ET SEQ.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601, ET SEQ.; the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. Section 136, ET SEQ.; the Emergency
Planning and Community Right-To-Know Act, 42 U.S.C. Section 11001, ET SEQ.;
and the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, 42 U.S.C. Section 9601, ET SEQ. ("CERCLA"), and any foreign laws,
statutes, rules, orders, ordinances and other laws and regulations
thereunder, relating to or regulating hazardous or toxic substances or air,
water or land quality, waste or other similar environmental matters
(collectively, the "ENVIRONMENTAL LAWS"). To the best of Seller's knowledge
and belief, no conditions exist on any other property within reasonable
proximity of the Food Courts for which Seller is, or may be responsible for,
all or any portion of costs or expenses associated with the reclamation or
clean-up of such property under CERCLA or any of the other Environmental
Laws. With respect to the Food Courts, no liens have been asserted against
any assets of Seller for all or any portion of the costs or expenses
associated with the reclamation or clean-up of any waste disposal site or
other property under CERCLA or any of the other Environmental Laws. With
respect to the Food Courts or any of the other Acquired Assets, there are no
pending or, to the best of Seller's knowledge and belief, threatened, claims,
assessments or litigation against Seller with respect to any alleged
noncompliance with any of the Environmental Laws.
6.9 INSURANCE.
Seller has maintained all policies of insurance and bonds
necessary or appropriate with respect to the Food Courts, INCLUDING, BUT NOT
LIMITED TO, all necessary or appropriate workers' compensation, health,
automobile, general liability, tort liability and product liability policies.
Such policies are in amounts and provide against such losses and risks as are
generally maintained for comparable businesses and properties, and meet the
requirements of all leases, franchises, licenses, agreements or permits to
which Seller is a party. All such policies are in full force and effect with
all premiums due thereon paid in full as of the Closing Date.
6.10 EMPLOYEE BENEFIT OR DEFERRED COMPENSATION PLANS.
Except as disclosed to Buyer, with respect to Seller's
employees engaged in the operation of the Subject Food Courts, Seller does
not maintain or contribute to any (I) "Employee Welfare Benefit Plan" (as
defined in Section 3(1) of ERISA), including any multi-employer Plan; (II)
"Employee Pension Benefit Plan" (as defined in Section 3(2) of ERISA and not
exempted under Section 4(b) or 201 of
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ERISA) including any multi-employer plan; (III) deferred compensation plan;
(IV) bonus plan; (V) stock option plan or employee stock purchase plan; OR
(VI) other employee benefit plan, agreement, arrangement or commitment
(collectively, "EMPLOYEE PLANS"). Seller shall be solely liable for, and pay
for all costs with respect to, the termination of such Employee Welfare
Benefit Plans or the funding of such Employee Welfare Benefit Plans through
the Closing Date (INCLUDING, BUT NOT LIMITED TO, any obligations which may
arise by reason of the termination of any of Seller's employees on or prior
to the Closing Date in connection with the transactions contemplated herein),
as may be applicable.
6.11 CONTRACTS AND COMMITMENTS.
EXCEPT for the Leases, Purchase Orders and Other Contracts,
true and correct copies of which have been delivered by Seller to Buyer,
Seller is not a party to or bound by, and will be a party to or bound by at
the time of the Closing, with respect to the Food Courts or any of the other
Acquired Assets, any written or oral (I) employment contracts, management or
consulting agreements; or service agreements, (II) contracts with sales
representatives, franchisees, agents, media providers, or other contracts
affecting or regarding the marketing of the Food Courts; (III) contracts with
any labor union or association or other employee group; (IV) leases with
respect to any property, real or personal, whether as lessor or lessee; (V)
patent, know-how, trademark, service mark, copyrights, licenses or other
contracts requiring the payment or providing for the receipt of any royalty;
(VI) agreements creating a lien or other security interest in any personal
property, tangible or intangible; (VII) contracts or commitments for capital
expenditures in excess of $5,000.00, in the aggregate; (VIII) agreements
creating or providing for long-term debt or continuing credit or any
guarantee thereof; (IX) bonus, incentive compensation, stock option or stock
purchase plans; (X) contracts continuing over a period of more than 30 days
from its date; OR (XI) other material contracts, whether or not made in the
ordinary course of business. Seller has in all material respects performed
all obligations required to be performed by Seller to date under the Leases,
Purchase Orders and Other Contracts and is not in default under any
agreements, leases or other instruments or contracts to which Seller is a
party or by which Seller is bound, nor to Seller's knowledge are there any
outstanding disputes under any such agreements. Except for any required
consents, neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, will result in a breach or default, or
result in the acceleration of any obligation under, nor cause any
termination, cancellation or other loss of benefits under any such
agreements, leases or other instruments or contracts.
6.12 LABOR MATTERS.
Seller is not a party to, and is not presently negotiating,
any collective bargaining agreement with respect to the Food Courts. With
respect to the Food Courts, there are no union organizational or
representation efforts underway or threatened, nor are there any existing or
threatened labor strikes, slow downs, disputes,
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grievances or disturbances affecting or which might affect production or
operations at, or deliveries from or into, any of the Food Courts. With
respect to the Food Courts, Seller has substantially complied with the
National Labor Relations Act, as amended, Title VII of the Civil Rights Act
of 1964, as amended and the Occupational Safety and Health Act, Executive
Order 11246, the regulations under such acts and all other Federal and state
laws relating to the employment of labor, INCLUDING, BUT NOT LIMITED TO, any
provisions thereof relating to wages, hours, collective bargaining and the
payment of social security and similar taxes, and Seller is not liable for
any arrears of wages or any taxes of penalties for failure to comply with any
of the foregoing, and no proceedings before any court, governmental agency or
instrumentality or arbitrator relating to such matters, including any unfair
labor practice claims, are pending or threatened.
6.13 TAXES.
With respect to the Food Courts and the other Acquired Assets,
Seller has filed, or will cause to be timely filed after the Closing Date,
all sales, income, and other tax returns (Federal, state, foreign and local)
required to be filed by it, and has paid, or will timely pay before or after
the Closing Date, all taxes shown to be due and payable on said returns, all
assessments received by it, and all other taxes (Federal, state, foreign and
local) due and payable by Seller with respect to the Food Courts and the
other Acquired Assets. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the assessment of any tax
or deficiency against Seller with respect to the Food Courts or the other
Acquired Assets, nor are there any actions, suits, proceedings,
investigations or claims now pending against Seller, or any matters under
discussion with any Federal, state, foreign or local authority relating to
any taxes or assessments or any claims for additional taxes or assessments
asserted against Seller with respect to the Food Courts or the other Acquired
Assets. Seller has withheld, and will withhold through the Closing Date,
proper and accurate amounts from its employees with respect to the Food
Courts, in full and complete compliance with the tax withholding provisions
of the applicable Internal Revenue Code and other applicable Federal,
foreign, state or local laws. Seller has filed proper and accurate Federal,
foreign, state and local returns and reports for all years and periods (and
portions thereof) for which any such returns and reports were due with
respect to such employee income tax withholding and social security and
unemployment taxes and will continue to so file reports for all periods
through and including the Closing Date. All payments due from Seller on
account of such employee income tax withholding or social security and
unemployment taxes in respect of years and periods (and portions thereof)
ended on or prior to the Closing Date will be paid prior tothe Closing Date
or in a timely manner by Seller thereafter.
6.14 PUBLIC UTILITIES.
All public utilities required for the operation of each Food
Court, INCLUDING, BUT NOT LIMITED TO, water, sanitary and storm sewer, gas,
electric, telephone
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and cable television connections, as applicable, are available at such Food
Court. Seller further represents and warrants to Buyer that, to Seller's
knowledge, all utilities are satisfactory and adequate for the operation of
the Food Courts, as they have been customarily operated.
6.15 BROKERS.
All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Seller directly with
Buyer and without the assistance or intervention of any other person, either
as a result of any act of Seller, or otherwise, in such manner as to give
rise to any valid claim against Seller for a finder's fee, brokerage
commission or other like payment.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
7.1 ORGANIZATION AND EXISTENCE.
Buyer is a limited liability company duly organized under the
laws of the Commonwealth of Kentucky. Buyer has, and at all times has had,
full power and authority to own its properties and to conduct its business.
Buyer is not qualified as a foreign entity in any other jurisdiction, and
neither the nature of its business, nor the character or location of its
operations, requires Buyer to be qualified as a foreign entity. No other
jurisdiction has demanded or indicated that Buyer is required to so qualify.
On or before the Closing Date, Buyer will qualify as a foreign entity in any
other jurisdiction in which the nature of its business, or the character or
location of its operations, after the transactions contemplated herein,
requires Buyer to be qualified as a foreign entity.
7.2 AUTHORITY, APPROVAL; NO VIOLATIONS; CONSENTS.
Buyer has full power and authority to enter into, deliver and
perform this Agreement. Buyer's execution, delivery and performance of, and
the consummation of the transactions contemplated by this Agreement, have
been duly authorized by its Board of Directors. This Agreement has been duly
executed and delivered by Buyer and constitutes the legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms. The execution,
delivery and performance of, and the consummation of the transactions
contemplated in this Agreement, do not and will not:
(a) Conflict with, or result in a violation or breach
of, any of the terms, conditions or provisions of, or constitute a default
under, the Articles of Organization or the Operating Agreement of Buyer, or
any instrument, agreement, mortgage, security interest, judgment, order,
writ, award, decree or other restriction to which Buyer is a party or by
which Buyer is bound, or any statute or regulatory provision affecting Buyer;
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(b) Require the approval, consent or authorization of
any Federal, state or local court, governmental authority or regulatory body,
or of any creditor of Buyer, or of any other person or entity, EXCEPT as
covered by the Permits and Licenses or as otherwise known to Seller and not
disclosed to Buyer; or
(c) Give any party with rights under any instrument,
agreement, mortgage, security interest, judgment, order, writ, award, decree
or other restriction to which Buyer is a party, or by which Buyer is bound,
the right to terminate, modify or otherwise change the rights or obligations
of Buyer hereunder.
7.3 CLAIMS AND LITIGATION.
There are no claims, actions, suits, proceedings or
investigations, either administrative or judicial, pending or, to the best of
Buyer's knowledge and belief, threatened or contemplated, against or
affecting Buyer at law or in equity, or before any arbitrator, court or
before or by any other governmental agency or instrumentality, domestic or
foreign. Buyer is not subject to, or in default under, any court or
administrative order, writ, injunction or decree, nor is Buyer in violation
of any law, regulation or rule so applicable.
7.4 BROKERS.
All negotiations relative to this Agreement, and the
transactions contemplated hereby, have been carried on by Buyer directly with
Seller and without the assistance or intervention of any other person, either
as a result of any act of Buyer, or otherwise, in such manner as to give rise
to any valid claim against Buyer for a finder's fee, brokerage commission or
other like payment.
7.5 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND
WARRANTIES.
No representation, warranty or other statement by Buyer
contained in this Agreement, or in any certificate, schedule, exhibit or
other document furnished pursuant hereto with respect to Buyer, contains any
untrue statement of fact, or omits to state a fact necessary to make the
statements contained herein or therein not misleading.
8. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set forth in
this Article 0. Buyer may waive any or all of these conditions, in whole or
in part, as Buyer may deem advisable, without prior notice. Seller hereby
covenants and agrees to use such party's best efforts, and to take any and
all actions which, in good faith, may be necessary,
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advisable or appropriate to effect satisfaction of all the conditions set
forth in this Article 0.
8.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES.
All representations and warranties made by Seller in this
Agreement or in any other agreement, exhibit, schedule or other written
statement delivered by Seller hereunder, including all exhibits thereto,
shall be true and correct on, and as of, the Closing Date as though made on
that date.
8.2 PERFORMANCE BY SELLER.
Seller shall have performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by Seller on or before the Closing Date.
8.3 CERTIFICATION BY SELLER.
Buyer shall have received a certificate, dated as of the
Closing Date, signed by the Managers of Seller, certifying that (I) all
representations and warranties made by Seller in this Agreement and in any
other agreements, exhibits, schedules or other written statements delivered
by Seller in connection with this Agreement are true and correct as of the
Closing Date; AND (II) Seller has performed, satisfied and complied with all
covenants, agreements and conditions to be performed by Seller under this
Agreement on or before the Closing Date.
8.4 CONSENTS, LICENSES AND APPROVALS.
All consents, authorizations and approvals required to be
obtained with respect to the sale, assignment and transfer of the Acquired
Assets by Seller and the operation of the Food Courts after the Closing,
INCLUDING, BUT NOT LIMITED TO, all of the Leases, Purchase Orders and Other
Contracts, all of the Required Permits and Licenses, and all liquor licenses,
shall have been obtained by Buyer or obtained by Seller and delivered to
Buyer, as may be applicable, on or before the Closing Date; PROVIDED,
HOWEVER, that Buyer may be assigned any Real Property Lease as to any Food
Court location without the consent of the landlord thereto, but, in such
event, Seller shall be liable for any damages or losses to Buyer by reason of
the failure to obtain such landlord consent in an aggregate amount not to
exceed the portion of the Purchase Price allocable to the Acquired Assets
with respect to such Food Court location.
8.5 ABSENCE OF LITIGATION.
No action, suit or proceeding before any court or any
governmental body or other authority pertaining to the transactions
contemplated by this Agreement
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or to their consummation shall have been instituted or threatened on or
before the Closing Date.
8.6 INSPECTIONS.
Buyer, acting reasonably and in good faith, shall have been
satisfied with the results of Buyer's audit, review, inspection, examination,
and analyses of the Acquired Assets and of all of the documents, information
and data furnished to, or otherwise obtained and examined by, the Buyer in
connection with the transactions contemplated herein.
8.7 BUYER'S SUBLEASES OF THE FOOD COURTS.
At the time of the Closing, if required by Buyer, the
applicable lessor shall have executed an estoppel and consent document with
respect to each Real Property Lease, in form and substance satisfactory to
Buyer's legal counsel, which, INTER ALIA (I) provides, as an attachment, a
true and correct copy of such lease, including the initial lease and any
amendments thereto, (II) certifies that there are no defaults existing under
such lease and that such lessor is not aware of any circumstances which would
result in a default upon the giving of notice or the passage of time, AND
(III) evidences such lessor's consent to Seller's sublease, or assignment and
transfer of such lease, to Buyer.
9. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE.
The obligations of Seller under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out in this
Article 9. Seller may waive on its behalf any or all of these conditions in
whole or in part, as Seller may deem advisable, without prior notice. Buyer
hereby covenants and agrees to use Buyer's best efforts, and to take any and
all actions which, in good faith, may be necessary, advisable or appropriate
to effect satisfaction of all the conditions set forth in this Article 9.
9.1 ACCURACY OF BUYER'S REPRESENTATIONS AND WARRANTIES.
All representations and warranties made by Buyer in this
Agreement or in any other agreement, exhibit, schedule or other written
statement delivered by Buyer hereunder, including all exhibits thereto, shall
be true and correct on, and as of, the Closing Date as though made on that
date.
9.2 BUYER'S PERFORMANCE.
Buyer shall have performed, satisfied and complied with all
covenants, agreements and conditions which Buyer is required by this
Agreement to perform, comply with, or satisfy on or before the Closing Date.
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9.3 CERTIFICATION BY BUYER.
Seller shall have received a certificate, dated the Closing
Date, signed by the Managing Directors of Buyer, certifying that (I) all
representations and warranties made by Buyer in this Agreement and in any
other agreements, exhibits, schedules or other written statements delivered
by Buyer in connection with this Agreement are true and correct as of the
Closing Date; AND (II) Buyer has performed, satisfied and complied with all
covenants, agreements and conditions to be performed by Buyer under this
Agreement on or before the Closing Date.
9.4 ABSENCE OF LITIGATION.
No action, suit or proceeding before any court or any
governmental body or other authority pertaining to the transactions
contemplated by this Agreement or to their consummation shall have been
instituted or threatened on or before the Closing Date.
10. DELIVERIES AND TRANSACTIONS AT THE CLOSING.
10.1 DELIVERIES BY SELLER.
At the Closing, Seller shall deliver the following items and
documents to Buyer (all of which documents shall be satisfactory to Buyer and
Buyer's counsel, in their reasonable discretion):
(a) BILL OF SALE. Such bills of sale, endorsements,
assignments, leases and other transfer instruments as are required under
Section 0 or other provisions of this Agreement.
(b) POSSESSION. Possession of all of the Acquired Assets.
(c) CONSENTS. All consents and approvals required for
the assignment and transfer of the Acquired Assets by Seller to Buyer
(INCLUDING, BUT NOT LIMITED TO, the transfer to Buyer of all of the Required
Permits and Licenses).
(d) INCUMBENCY CERTIFICATE. An incumbency certificate as
to the Managers authorized to act on behalf of Seller and copies of
resolutions which shall be in full force and effect at the time of delivery,
authorizing the execution and delivery of this Agreement and the consummation
and performance of the transactions provided for herein, certified by the
Managers of Seller as of the Closing Date.
(e) CERTIFICATE. The certificate of Seller provided for
in Section 0 hereof (which may be combined with and included in the
incumbency certificate provided for above).
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(f) SUBLEASE. The documents required to sublease the
Food Courts to Buyer with lessor's consent thereto (if required by Buyer).
10.2 DELIVERIES BY BUYER.
At the Closing, Buyer shall deliver to Seller the following
items and documents (which documents shall be satisfactory to Seller and
Seller's counsel, in their reasonable discretion):
(a) FUNDS. The funds as provided for under Section 2.1
hereof, SUBJECT, HOWEVER, to the adjustments, offsets and prorations provided
for under this Agreement.
(b) INCUMBENCY CERTIFICATE. An incumbency certificate as
to the Managing Directors authorized to act on behalf of Buyer and copies of
resolutions, duly adopted by the Board of Directors of Buyer, which shall be
in full force and effect at the time of delivery, authorizing the execution
and delivery of this Agreement and the consummation and performance of the
transactions provided for herein, certified by the Managing Directors of
Buyer as of the Closing Date.
(c) CERTIFICATE. The certificate of Buyer provided for
in Section 9.3 hereof (which may be combined with and included in the
incumbency certificate provided for above).
(d) NOTE. The Note as provided for under Section 2.1.
10.3 DELIVERIES BY BUYER AND SELLER.
At the Closing, Seller and Buyer shall duly execute and
deliver to each other (I) a closing statement regarding the receipt and
disbursement of funds by the attorney designated by the various parties as
the closing attorney, (II) the Security Agreement and any necessary or
appropriate UCC-1 Financing Statements with respect thereto (which documents
shall be satisfactory to such parties and their counsel in their reasonable
discretion), AND (III) any other instrument as may be necessary or
appropriate to effectuate the transactions contemplated under this Agreement.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in this Agreement, or
in any document, certificate, instrument, exhibit or schedule delivered in
connection herewith, shall survive the Closing and continue to be binding
regardless of any investigation made at any time by any party.
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12. INDEMNIFICATION.
12.1 INDEMNIFICATION OF BUYER.
Seller indemnifies and holds Buyer harmless from and against
any and all claims, demands, obligations, damages, recoveries, liabilities,
losses or deficiencies, whether accrued, absolute, contingent, known, unknown
or otherwise (INCLUDING, WITHOUT LIMITATION, any and all penalties, interest,
reasonable attorneys' fees and other costs and expenses relating to any and
all actions, suits, proceedings, demands, assessments and judgments), which
arise out of, result from, or relate to:
(a) Seller's ownership or use of the Acquired
Assets at or prior to the Closing, INCLUDING, BUT NOT LIMITED
TO, Seller's operation of the Food Courts at or prior to the
Closing and Seller's obligations under the Real Property
Leases with respect to periods at or prior to the Closing; or
(b) The Fayette Operation prior to the Closing or
Seller's capacity as a joint venture partner therein; or
(c) Any other activities of Seller, INCLUDING, BUT
NOT LIMITED TO, Seller's franchising or other activities with
respect to the Food Courts; or
(d) Any misrepresentation, breach of warranty,
breach of covenant or nonfulfillment of any agreement on the
part of Seller under this Agreement.
12.2 INDEMNIFICATION OF SELLER.
Buyer hereby indemnifies and holds Seller harmless from and
against any and all claims, demands, obligations, damages, recoveries,
liabilities, losses or deficiencies, whether accrued, absolute, contingent,
known, unknown or otherwise (including, without limitation, any and all
penalties, interest, reasonable attorneys' fees and other costs and expenses
relating to any and all actions, suits, proceedings, demands, assessments and
judgments), which arise out of, result from, or relate to:
(a) Buyer's ownership or use of the Acquired Assets
after the Closing, INCLUDING, BUT NOT LIMITED TO, Buyer's
operation of the Food Courts after the Closing and Buyer's
obligations under the Real Property Leases with respect to
periods after the Closing; or
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(b) Any misrepresentation, breach of warranty,
breach of covenant or nonfulfillment of any agreement on the
part of Buyer under this Agreement.
12.3 INDEMNITY PROCEDURE.
Each party (an "INDEMNIFIED PARTY") shall give notice to each
of the other parties (each, an "INDEMNIFYING PARTY") within a reasonable time
after the Indemnified Party has knowledge of any claim against such
Indemnifying Party as to which recovery may be sought hereunder because of
any indemnity set forth above, or because of the commencement of any legal
proceedings which may give rise to any indemnity set forth above, whichever
shall first occur, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from such claim. The
failure by any Indemnifying Party to notify such Indemnified Party of the
Indemnifying Party's election to defend such claim or litigation within
fifteen (15) days after notice hereof by the Indemnified Party shall be
deemed a waiver by such Indemnifying Party of its rights to defend such claim
and any litigation resulting therefrom; PROVIDED, HOWEVER, that the failure
of the Indemnifying Party to so notify such Indemnified Party shall not
affect any indemnity obligation of the Indemnifying Party hereunder. If any
one or more of the Indemnifying Parties assumes the defense of any such claim
or litigation resulting therefrom, such Indemnifying Parties shall take all
reasonable steps necessary in the defense or settlement of such claim or
litigation resulting therefrom. No Indemnifying Party shall, in the defense
of such claim or any litigation therefrom, consent to the entry of any
judgment (except with the consent of the Indemnified Party, which shall not
be unreasonably withheld) or enter into any settlement (except with the
consent of the Indemnified Party, which shall not be unreasonably withheld)
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability with respect to such claim or litigation. If no Indemnifying Party
assumes the defense of any claim or litigation resulting therefrom in
accordance with the foregoing procedure, the Indemnified Party may defend any
such claim or litigation in such manner as the Indemnified Party may
reasonably deem appropriate and may settle such claim or litigation on such
terms as it may reasonably deem appropriate. In such event, the Indemnifying
Parties, jointly and severally, shall promptly cause reimbursement to the
Indemnified Party of the amount of such reasonable settlement and all
reasonable expenses, legal or otherwise, incurred by the Indemnified Party in
connection with the defense against or settlement of such claim or
litigation. If no settlement of such claim or litigation is made, the
Indemnifying Parties, jointly and severally, shall promptly reimburse the
Indemnified Party for the amount of any judgment rendered with respect to
such claim or in such litigation as well as all reasonable expenses, legal or
otherwise, incurred by the Indemnified Party in connection with the defense
of such claim or litigation
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13. BUYER'S REMEDIES; OFFSET.
Upon the occurrence of any event for which an Indemnified Party is
entitled to indemnification hereunder by an Indemnifying Party under the
provisions of Article 0 hereof, the Indemnified Party shall have all of the
rights and remedies available to the Indemnified Party at law, in equity, in
bankruptcy or otherwise (SUBJECT, HOWEVER, to the arbitration provisions of
this Agreement) and, in addition, shall have the right to offset any amount
for which it is entitled to indemnification against any other amounts which
the Indemnifying Party may at that time, or thereafter, owe to the
Indemnified Party. All of such rights and remedies shall be cumulative to the
fullest extent provided by law.
14. ARBITRATION.
All claims, demands, disputes, controversies and differences that
may arise between the parties to this Agreement concerning any issue relating
to the interpretation or enforcement of this Agreement shall be settled by
arbitration on the following terms:
(a) Either party may, by written notice to the other
party within 45 days after a controversy has arisen that is subject to this
Agreement, appoint an arbitrator who shall be an attorney experienced in
serving as an arbitrator under the rules of the American Arbitration
Association. The other party shall, by written notice, within 30 days after
receipt of such notice by the first party, appoint a second arbitrator who
shall have the same qualifications and, in default of such second
appointment, the first arbitrator appointed shall be the sole arbitrator.
(b) When two arbitrators have been appointed in
accordance with subsection (a), they shall, if possible, agree upon a third
arbitrator with the same qualifications and shall appoint him or her by
written notice signed by both of them with a copy mailed to each party to
this Agreement within 15 days after the appointment of the second arbitrator.
If such 15 day period has elapsed without notice of appointment of the third
arbitrator, then either party or both may, in writing, request a state court
within JEFFERSON COUNTY, KENTUCKY, to appoint a third arbitrator.
(c) In lieu of the foregoing, the parties may agree upon
a single arbitrator who shall serve as the sole arbitrator for all purposes
of this Section 14.
(d) On the appointment of the three arbitrators or
single arbitrator as provided for above, such arbitrators or arbitrator shall
hold an arbitration hearing in Louisville, Kentucky, within 60 days after
such appointment(s) are completed. At the hearing, the arbitrators or
arbitrator shall allow each party to present that party's case, evidence and
witnesses, if any, in the presence of the other party and in accordance with
such rules and requirements as such arbitrators or arbitrator may provide.
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(e) The award of the majority of the three arbitrators,
or the award of the sole arbitrator, as the case may be (which award may
include, but not by way of limitation, an award of attorneys fee and costs
incurred by either party) shall be binding on the parties to this Agreement,
with no right to appeal with respect to any questions of law or any other
issue to any court, and judgment may be entered on such award in any court
having jurisdiction.
(f) The parties request that the arbitrators or
arbitrator include in the award explicit provision for the payment of all
arbitration costs and expenses on terms the arbitrators or arbitrator deem
just, but if the award does not include a complete determination with respect
to such costs for any reason, such costs shall be borne one-half by each of
the two parties.
(g) EXCEPT where in conflict with the terms of this
Agreement, the rules and procedures of American Arbitration Association shall
govern the Arbitration proceedings.
15. OTHER AGREEMENTS OF THE PARTIES; MISCELLANEOUS.
15.1 TAXES.
Seller shall be liable and responsible for, and will duly and
timely pay, all applicable state and local sales, use or transfer taxes which
may arise out of or result from the transactions contemplated under this
Agreement.
15.2 TRANSFER, RECORDING AND ATTORNEY'S FEES.
Buyer shall pay for state or county documentary stamps or
similar charges or transfer fees, and any recording fees, due and payable, if
any, in connection with the transfer to Buyer of the Acquired Assets pursuant
to this Agreement. Seller and Buyer agree to split the attorney's fees
charged by Roth & Cooper, P.S.C. regarding the preparation and/or review of
this Agreement and any documentation in connection with the Closing. Each
party shall pay its own accountant's fees with respect to the preparation
and/or review of any documentation relating to this Agreement.
15.3 LIENS.
Any mechanics, materialman's or other lien, charge, order or
the like against any of the Acquired Assets shall be removed and satisfied of
record by Seller prior to the Closing. If, subsequent to the Closing, any
mechanics, materialman's or other lien, charge or order for the payment of
money shall be filed against any of the Acquired Assets or against Buyer, or
Buyer's successors or assigns, BASED UPON any act or omission of Seller, its
agents, servants or employees, or any contractor or subcontractor connected
with the repair, maintenance or improvement of the Acquired Assets prior to
the Closing (whether or not such lien, charge or order shall be valid or
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enforceable as such), within thirty (30) days after notice to Seller, Seller
shall take such action, by bonding, deposit, payment or otherwise, as will
remove and satisfy such lien of record.
15.4 ENTIRE AGREEMENT; MODIFICATION; WAIVER.
This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter contained herein and supersedes all
prior and contemporaneous agreements, representations and understandings of
the parties. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by all parties hereto. No waiver of any
of the provisions of this Agreement will be deemed, or will constitute, a
waiver of any other provision, whether or not similar, nor will any waiver
constitute a continuing waiver. No waiver will be binding unless executed in
writing by the party making the waiver.
15.5 SUCCESSORS AND ASSIGNS; ASSIGNMENT.
This Agreement shall be binding on, and inure to the benefit
of, the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns. Neither party may transfer or assign its
interests pursuant to this Agreement without the prior written consent of the
other party, which shall not be unreasonably withheld.
15.6 NOTICES.
(a) All notices, demands, requests, offers,
counteroffers or other communications required or permitted under this
Agreement shall be in writing and either (I) delivered by personal delivery
to such intended recipient, which personal delivery shall be evidenced by a
written receipt therefor signed by such recipient; (II) sent by United States
certified, registered or express mail, return receipt requested, postage
prepaid, or by reputable express delivery service (such as Federal Express,
UPS, Airborne, Purolator, or DHL), fees prepaid, addressed to the intended
recipient thereof, at the address listed for such party below, or at such
other address as such party shall furnish in writing to the other parties to
this Agreement; OR (III) transmitted by fax to such intended recipient at the
fax number listed for such party below (or such other fax number as such
party shall furnish in writing to the other parties to this Agreement),
receipt of which transmission shall be confirmed by such recipient.
IF TO SELLER: Tumbleweed, LLC
1900 Mellwood Avenue
Louisville, Kentucky 40206
Attn: Managers and President/CEO
Fax: (502) 893-6676
Page 25
<PAGE>
WITH A COPY TO:
Scott W. Dolson
Brown Todd & Heyburn PLLC
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax: (502) 581-1087
IF TO BUYER: Tex-Mex To You, LLC
1230 Liberty Bank Lane; Suite 200
Louisville, Kentucky 40222
Attn: Board of Directors
Fax: (502) 425-125
WITH A COPY TO:
David M. Roth
Roth & Cooper, P.S.C.
1230 Liberty Bank Lane, Suite 200
Louisville, Kentucky 40222-5763
Fax: (502) 425-1295
(b) All such notices, demands, requests, offers,
counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, two (2) days after being
properly addressed and deposited in the United States mail or with a
reputable express delivery service or upon being transmitted by fax and
properly receipted, as set forth above. However, the time period in which a
response to any such notice, request, demand, counteroffer or other
communication must be given shall commence to run from the date of receipt of
personal delivery, the date on the return receipt or express delivery
receipt, or the date of confirmation of receipt of the fax, as the case may
be, of the notice, request, demand, counteroffer or other communication by
the addressee thereof; PROVIDED, HOWEVER, that if any party rejects delivery
of any such notice, request, demand, counteroffer or other communication
properly sent by mail or express delivery service, or fails or neglects,
without reasonable cause, to accept delivery after two (2) attempts to so
deliver by postal or express delivery authorities, as the case may be, the
time period for a response shall commence two (2) days following the proper
mailing or depositing with the express delivery service, as the case may be,
of such notice, request, demand, counteroffer or other communication.
15.7 EXECUTION IN COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same document.
Page 26
<PAGE>
15.8 FURTHER ASSURANCES.
Each of the parties hereby agrees to execute and deliver all
of the agreements, documents and instruments required to be executed and
delivered by such party under this Agreement and to execute and deliver such
additional instruments and documents and to take such additional actions as
may reasonably be required from time to time in order to effectuate the
transactions contemplated by this Agreement, whether prior to, at, or after
the Closing.
15.9 SEVERABILITY OF PROVISIONS.
The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
15.10 GOVERNING LAW.
This Agreement is executed and delivered in, and shall be
governed, enforced and interpreted in accordance with, the laws of the
Commonwealth of Kentucky without regard to its conflict of laws provisions.
15.11 EXHIBITS.
The exhibits attached hereto constitute a part of this
Agreement and are incorporated herein by reference in their entirety as if
fully set forth in this Agreement at the point where first mentioned herein.
15.12 CAPTIONS.
Section titles or captions contained in this Agreement are
inserted only as a matter of convenience and reference, and in no way define,
limit, extend or describe the scope of this Agreement, or the intent of any
provision hereof.
15.13 RISK OF LOSS.
Risk of loss with respect to or destruction of any of the
Acquired Assets shall remain with Seller until the Closing.
Page 27
<PAGE>
WAIVER OF CONFLICT OF INTERESTS
REGARDING ROTH & COOPER, P.S.C.
SELLER AND BUYER EACH HEREBY EXPRESSLY ACKNOWLEDGES ITS WAIVER OF ANY
CONFLICT OF INTEREST IN CONNECTION WITH THE ENGAGEMENT OF ROTH & COOPER,
P.S.C. TO PERFORM LEGAL SERVICES REGARDING THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREIN. ROTH & COOPER, P.S.C. HAS REPRESENTED AND
CONTINUES TO REPRESENT EACH OF SELLER AND BUYER ON VARIOUS MATTERS.
FURTHERMORE, THE PRINCIPALS OF ROTH & COOPER, P.S.C., DAVID M. ROTH AND DAVID
H. COOPER, ARE INVESTORS AND EQUITYHOLDERS IN EACH OF SELLER AND BUYER. EACH
OF SELLER AND BUYER ACKNOWLEDGES THAT IT HAS BEEN ADVISED AND ENCOURAGED BY
ROTH & COOPER, P.S.C. TO SEEK INDEPENDENT LEGAL COUNSEL TO REPRESENT ITS
INTERESTS IN CONNECTION WITH THE NEGOTIATION, DRAFTING, AND IMPLEMENTATION OF
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN. BY AGREEMENT OF THE
PARTIES AND BECAUSE OF THEIR POSITION AS THE SOLE OWNERS AND MANAGING
DIRECTORS OF TEX-MEX TO YOU, LLC DURING THE PERIOD OF THE NEGOTIATION OF THIS
TRANSACTION, ROTH AND COOPER, P.S.C. HAS REPRESENTED TEX-MEX TO YOU, LLC IN
THIS TRANSACTION.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
BUYER:
TEX-MEX TO YOU, LLC
By: /s/ David M. Roth
---------------------------------------------
DAVID M. ROTH, MANAGING DIRECTOR
By: /s/ David H. Cooper
---------------------------------------------
DAVID H. COOPER, MANAGING DIRECTOR
Page 28
<PAGE>
SELLER:
TUMBLEWEED, LLC
By: /s/ John A. Butorac, Jr.
---------------------------------------------
JOHN A. BUTORAC, JR., MANAGER
By: /s/ James M. Mulrooney
---------------------------------------------
JAMES M. MULROONEY, MANAGER
Page 29
<PAGE>
EXHIBITS
TO
ASSETS PURCHASE AGREEMENT
EXHIBIT A - Excluded Assets
EXHIBIT B - Real Property Leases
EXHIBIT C - Note
Page 30
<PAGE>
EXHIBIT A
EXCLUDED ASSETS
1. Rights as a franchisor of the Food Courts (SUBJECT, HOWEVER, to the
provisions of Section 5.1 of this Agreement)
2. All right, title, and interests in and to the Tumbleweed Restaurants OTHER
THAN the Food Courts
3. All financial, tax, wage, personnel, and other records regarding the
operation of the Food Courts prior to the Closing which Seller reasonably
deems advisable to retain; PROVIDED, HOWEVER, that the parties agree that,
following the Closing, (I) Buyer shall have the right to access and copy
any such retained records when and if reasonably necessary in connection
with Buyer's operation of the Food Courts (or other restaurants upon such
sites), AND (II) during a period of SEVEN (7) YEARS following the Closing,
no such retained records shall be destroyed or discarded by Seller without
first giving Buyer at least THIRTY (30) DAYS prior written notice of
Seller's intent to take such action, during which period, Buyer shall have
the option, in Buyer's sole discretion, to take possession of such records.
4. Tangible personal property owned by the Fayette Partnership.
5. Fixed Assets and other assets used in the Tumbleweed commissary.
6. The Tumbleweed System and the Tumbleweed Marks (as such terms are defined
in the License and Distribution Agreement).
7. $25,000 development reimbursement fee payable to Tumbleweed regarding the
development of the St. Matthew's Mall Food Court.
<PAGE>
EXHIBIT B
REAL PROPERTY LEASES
[SCHEDULE OR COPIES OF DOCUMENTS FOLLOW]
<PAGE>
EXHIBIT C
NOTE
[COPY OF DOCUMENT FOLLOWS]
<PAGE>
EXHIBIT C
PROMISSORY NOTE
$500,000.00 Louisville, Kentucky
October 1, 1996
FOR VALUE RECEIVED, the undersigned, TEX-MEX TO YOU, LLC, a Kentucky
limited liability company having its principal office and mailing address at
1230 Liberty Bank Lane, Suite 200, Louisville, Jefferson County, Kentucky
40222 ("MAKER"), or its successors and assigns, hereby promises and agrees to
pay to the order of TUMBLEWEED, LLC, a Kentucky limited liability company
having its principal office and mailing address at 1900 Mellwod Avenue,
Louisville, Jefferson County, Kentucky 40206 ("PAYEE"), or its successors and
assigns, the aggregate principal sum of $500,000.00, together with interest
thereon as hereinafter provided, in lawful money of the United States of
America, pursuant to that certain Assets Purchase Agreement between Maker and
Payee of even date herewith (the "AGREEMENT").
1. INTEREST RATE
(a) From the date hereof until paid-in-full, this five year
promissory note (the "NOTE") shall bear interest on the unpaid principal
balance thereof at a rate of 8.0% per annum.
(b) All interest on this Note shall be computed daily on the basis
of the actual number of days elapsed over an assumed year consisting of three
hundred sixy (360) days.
(c) In determining whether or not the interest paid or payable
under any specific contingency under this Note exceeds the highest applicable
lawful rate, Maker and Payee shall, to the maximum extent permitted under
applicable law, (I) characterize any non-principal payment as an expense, fee
or premium rather than as interest and (II) exclude voluntary prepayments and
the effects thereof.
2. PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS AND MATURITY DATE.
Maker shal pay Payee $100,000 in principal, plus accrued interest on the
existing balance on this Note thereon, on the first day of December for FIVE
CONSECUTIVE YEARS, the first payment of which shall be due and payable on
DECEMBER 1, 1997, and the subsequent payments of which shall be due and
payable on each of DECEMBER 1, 1998, DECEMBER 1, 1999, DECEMBER 1, 2000 and
DECEMBER 1, 2001 until this Note is paid in full; PROVIDED, HOWEVER, that
principal of this Note may be prepaid in whole or in part without penalty or
premium at any time prior to DECEMBER 1, 2001 (the "MATURITY DATE"). Payee
shall have no obligation to advance, and Maker shall have no right to
reborrow, any amounts so repaid. The entire outstanding principal balance, if
not sooner repaid, plus all accrued but unpaid interest thereon, shall be due
and payable in full on the Maturity Date.
Page 1
<PAGE>
3. APPLICATION OF PAYMENTS; OVERDUE PAYMENTS. All payments on this Note
shall be applied first to the payment of any expenses or charges payable
hereunder, next to accrued interest, and then to the principal balance
hereof. Any payment on this Note that is overdue for more than FOURTEEN (14)
DAYS from its due date after written notice of such overdue payment is given
by the holder to the Maker shall bear interest at the rate of 10% per annum
until paid. The charging or payment of any interest on delinquent payments
shall not be construed as curing or correcting any default by Maker under
this Note or as a waiver by Payee of any of its rights or remedies with
respect to such default. All payments of principal and interest, and any
other sums due under this Note, shall be made in immediately available funds
to Payee at the address set forth above or such other address which the
holder shall give Maker written notice thereof.
4. SECURITY. This Note is secured by the collateral specified in a
Security Agreement of even date herewith between Maker and Payee (the
"SECURITY AGREEMENT"). The holder of this Note is entitled to all the
benefits of the Security Agreement.
5. DEFAULT. The occurrence of any one or more of the following events
shall constitute a default (the "DEFAULT") under this Note:
(a) the failure of Maker to pay principal and interest of this Note
as and when due, if such failure shall continue for FIFTEEN (15) DAYS after
Payee shall have given Maker written notice thereof;
(b) A proceeding being filed or commenced against Maker for
dissolution or liquidation;
(c) Maker voluntarily or involuntarily terminating, liquidating or
dissolving or being terminated, liquidated or dissolved;
(d) The insolvency or business failure of Maker on this Note;
(e) The appointment of a custodian, trustee, liquidator or receiver
for, or for any of the property of, Maker;
(f) An assignment for the benefit of creditors by, or the filing of
a petition under any bankruptcy, insolvency or debtor's relief law or for any
readjustment of indebtedness, composition or extension by or against Maker;
(g) Any representation or warranty made by Maker to Payee under the
Agreement pursuant to which this Note has been issued or under Security
Agreement shall be proven to be, or was at the time made, untrue or
materially misleading; or
Page 2
<PAGE>
(h) Any default (after any applicable requirement for notice and
cure) under the Security Agreement, under the Agreement, or under that
certain License and Distribution Agreement entered into between the parties
contemporaneously herewith.
Upon the occurrence of any Default other than as specified under Section
6(a), if such other Default is not cured by Maker with TEN (10) DAYS after
the holder gives written notice of such Default to Maker, the holder of this
Note may, at the holder's discretion, declare the entire unpaid principal
balance of, and all accrued interest on this Note, to be immediately due and
payable.
6. NO WAIVER; REMEDIES. Failure of the holder to exercise any of its
rights and remedies shall not constitute a waiver of the right to exercise
the same at that or any other time. The receipt of any payment after such
payment is due and payable shall not be construed as a waiver of any default,
and the receipt by the holder of less than the full amount of any payment
shall be construed as being on account of such payment and the holder may
accept such payment without prejudice to the holder's right to recover the
balance of the amounts due under this Note or the holder's right to pursue
any other available remedies. No endorsement or statement on any check or any
letter accompanying any check or payment shall be deemed an accord and
satisfaction, and the holder may accept such check or payment without
prejudice to the holder's right to recover the balance of the amounts due
under this Note or to pursue any other available remedies. All rights and
remedies of the holder hereof upon default hereunder shall be cumulative to
the greatest extent permitted by law. Time shall be of the essence in the
payment of the principal and interest due on this Note.
7. EXPENSES. If there is any default under this Note, and this Note is
placed in the hands of an attorney for collection, or is collected through
any court, including any bankruptcy court, Maker shall pay to the holder
hereof its reasonable attorneys' fees and court costs incurred in collecting
or attempting to collect or securing or attempting to secure this Note or
enforcing the holder's rights in any collateral securing this Note.
8. SEVERABILITY. The invalidity or unenforceability of any provision of
this Note shall not impair the validity or enforceability of any other
provision of this Note.
9. GOVERNING LAW. This Note has been made, executed and delivered in
Louisville, Kentucky and shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Kentucky without regard to its conflict
of laws rules.
10. WAIVERS OF NOTICES; RELEASES. Maker hereby waive presentment,
demand, notice of dishonor, protest, notice of protext and nonpayment, and
further waives all exemptions to which Maker may now or hereafter be entitled
under the laws of the Commonwealth of Kentucky or any other state or of the
United States, and
Page 3
<PAGE>
further agrees that the holder of this Note shall have the right, without
notice, to deal in any way and at any time with Maker without waiving any
rights the holder of this Note may have hereunder or by virtue of the laws of
the Commonwealth of Kentucky or any other state of the United States.
MAKER:
TEX-MEX TO YOU, LLC
By:
-----------------------------------------
David M. Roth, Managing Director
By:
-----------------------------------------
David H. Cooper, Managing Director
Page 4
<PAGE>
[LETTERHEAD]
June 12, 1997
VIA FEDERAL EXPRESS
C. Raymond Maddux
TW Tennessee, L.L.C.
c/o Spartan Food Group, Inc.
1210 Briarville Road
Building E, Suite 500
Madison, Tennessee 37115
RE: TUMBLEWEED SOUTHWEST MESQUITE GRILL & BAR / APPROXIMATELY
$13,200,000.00 OF SALE/LEASEBACK FINANCING (AND IN THE CASE OF
ONE PARTICULAR SITE IN HENDERSONVILLE, TENNESSEE, GROUND LEASE
FINANCING) AND $1,600,000.00 OF EQUIPMENT LEASE FINANCING FOR
ACQUISITION, CONVERSION AND REMODELING OF FIVE(5) EXISTING
BARBWIRE RESTAURANTS AND UP TO SEVEN (7) SHONEY'S RESTAURANTS OR
OTHER RESTAURANTS AND ACQUISITION AND CONSTRUCTION OF TWO(2)
PROTOTYPE RESTAURANTS (THE "PROPERTIES")
Dear Mr. Maddux:
CNL Fund Advisors, Inc. (the "Company") hereby issues this commitment
letter ("Commitment") by which it agrees to enter, or cause an affiliate to
enter, into sale-leaseback transactions (and in the case of one particular
site located in Hendersonville, Tennessee (the "Hendersonville Property"), a
ground lease transaction) with the TW Tennessee, L.L.C. (as "Seller/Lessee")
for an amount not to exceed Thirteen Million Two Hundred Thousand Dollars
($13,200,000.00) for acquisition, conversion and remodeling of five (5)
Barbwire Restaurants and up to seven (7) Shoney's restaurants or other
restaurants, each of which shall be converted to be operated as a Tumbleweed
Southwest Mesquite Grill & Bar, and two (2) prototype Tumbleweed Southwest
Mesquite Grill & Bar restaurants (each a "Prototype Restaurant") to be
constructed, developed and operated (the "Properties") in accordance with the
prototype restaurants created and operated by the franchisor of Tumbleweed
Southwest Mesquite Grill & Bar, Tumbleweed L.L.C. Seller/Lessee agrees to
make the Properties available for acquisition and leaseback within the time
periods and subject to the terms and conditions set forth in this Commitment.
Seller/Lessee agrees to make its interest in the existing lease for the
Hendersonville Property available for assignment to
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 2
the Company within the time periods and subject to the terms and conditions
set forth herein including, without limitation, the terms and conditions of
Paragraph 21 of this Commitment. The Properties are to be located in
locations to be mutually determined.
This Commitment provides funding for the acquisition of Properties (and
in the case of the Hendersonville Property, ground lease rights) beginning as
of the date hereof and ending not later than July 1, 1998; the five(5)
Barbwire Restaurants are to be acquired on or before August 1, 1997, with
conversion/remodeling to occur on or after the acquisition date. Funding
under this Commitment and the obligations of the Company hereunder are both
expressly conditioned upon: (a) availability of funds raised by the Company
for the purpose of acquiring properties for sale-leaseback transactions; (b)
approval of each Property by the Company based on a physical inspection of
the Properties and a review of the site and other information to be provided
to the Company by Seller/Lessee and specified in the following paragraph; and
(c) final credit approval of Seller/Lessee by the Company.
Within thirty(30) days following the full execution of this Commitment,
and within each ninety(90) day period thereafter until expiration of this
Commitment, Seller/Lessee shall submit to the Company, in writing, a list of
the prospective Properties for acquisition by the Company which lists shall
specify the proposed closing dates and estimated Purchase Prices (as defined
below). Contemporaneously with submitting each list of prospective
Properties, Seller/Lessee shall submit to the Company, for each Property,
complete site information and trade area analyses, and demographic and
feasibility studies prepared by Seller/Lessee, which includes a demographic
profile of the trade area, aerial photographs and maps indicating the
Property location and competition within the trade area, traffic generation
information, and photographs of each Property. The Company shall have
thirty(30) days after receipt of the complete information in which to reject
any Property on the basis of the foregoing information, by written
notification to Seller/Lessee. Failure to provide such notification by the
Company shall be deemed an approval of the furnished information for purposes
of Company's determination of the acceptability of the Property.
This Commitment is made subject to the following terms and conditions:
1. PURCHASE PRICE. The maximum "Purchase Price" (as hereinafter
defined) the Company shall fund for each Property shall not exceed the amount
referred to as the "Development Cap" for the total of the "Purchase Cost" and
the "Remodel Cost" set forth on the schedule attached hereto as EXHIBIT "A",
and shall not cause the appraisal referred to in Paragraph 10.B. hereof to
exceed the limitation set forth in that Paragraph. The purchase price for
each Barbwire Restaurant Property and Shoney's or other restaurant Property
(the"Purchase Price") will equal the total of (i) the actual cost of the land
and existing improvements comprising a portion of the Property, plus (ii)
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 3
the actual and verifiable "hard" construction costs for conversion and
remodeling of the improvements into a Tumbleweed Southwest Mesquite Grill &
Bar (see paragraph 2 below for a clarification of what costs are "hard"
costs) to be constructed on the Property, plus (iii) all approved
Seller/Lessee closing costs, plus (iv) all Company closing and acquisition
costs, plus (v) all approved Seller/Lessee out-of-pocket "soft" costs related
to the Property. The Purchase Price for each of the Prototype Restaurants
will equal the total of (m) the actual cost of the land comprising a portion
of the Property, plus (n) the actual and verifiable "hard" construction costs
for the improvements (as defined in paragraph 2 below) to be constructed on
the Property, plus (o) all approved Seller/Lessee closing costs, plus (p) all
Company closing and acquisition costs, plus (q) all approved Seller/Lessee
out-of-pocket "soft" costs related to the Property. Soft costs submitted by
Seller/Lessee for inclusion in the Purchase Price shall not include any
internal overhead cost of Seller/Lessee or internal profit. All Company
acquisition costs incurred in connection with this transaction shall be paid
by Seller/Lessee, but as indicated above the Company will permit
Seller/Lessee to include them in the Purchase Price so that the costs will be
funded at closing out of the sale-leaseback proceeds. The Company acquisition
costs will include an appraisal fee (approximately $2,900.00), an ASTM Phase
I Environmental Audit of the Property (approximately $2,500.00), closing fees
and expenses (equal to one percent (1.0%) of the Purchase Price), a
mechanical/structural inspection of the Property performed by a licensed
mechanical engineer (approximately $2,000.00), travel and lodging expenses
(not to exceed $2,000.00) related to the physical inspection of the Property
by a Company representative, the Company's legal fees related to the closing,
and related miscellaneous out-of-pocket expenses (e.g., Federal Express
charges). Seller/Lessee's closing costs which will be included in the
Purchase Price include title insurance premiums, transfer taxes or stamps,
survey costs, recording fees and other closing costs approved by the Company.
The Company shall provide Seller/Lessee with initial funding of costs related
to the land (and existing improvements, for the Barbwire Restaurants and
Shoney's restaurants or other restaurant Properties) acquisition, generally
constituting items (i), (iii), (iv), (m), (o) and (p) above. The balance of
the Purchase Price, which total Purchase Price shall not exceed such amount
previously identified by Seller/Lessee and approved by the Company, shall be
paid by the Company in connection with the renovation, remodeling,
construction and completion of the improvements pursuant to the Construction
Agreement as described below.
2. IMPROVEMENTS. At closing for all Properties, the Company will
enter into a Construction Agreement (or Construction Addendum to the Lease
Agreement) with Seller/Lessee whereby it will be Seller/Lessee's
responsibility to construct the restaurant improvements on the land. For
purpose of subparagraph 1(ii) and (n) above, the "hard" costs of improvements
to be funded by the Company are limited to site improvement costs, building
structure, doors, wall and floor tile, windows, drop ceiling, plumbing,
electrical, and HVAC. "Hard" costs shall not include signs, wall covering
(other than tile), counters, floor covering (other than tile), or any other
items
<PAGE>
Mr. Raymond C. Maddux
June 12, 1997
Page 4
which may be financed as "equipment". Prior to closing, Seller/Lessee shall
obtain and deliver to the Company all necessary governmental permits,
licenses and approvals required to commence construction on the Property. The
Construction Agreement shall require, among other things: (a) that the
Seller/Lessee shall enter into all construction contracts in its name only;
(b) that the project shall be bonded (payment and performance bonds) by a
surety company or companies which are acceptable to the Company; and (c) that
the Seller/Lessee agrees to complete the improvements in a good and
workmanlike manner, in accordance with the plans and specifications approved
by the Company and all applicable building codes and governmental
requirements. The Construction Agreement will contain a put agreement with
the Company whereby it will be Seller/Lessee's responsibility to insure that
the improvements are completed according to the schedule attached hereto as
EXHIBIT "A". If Seller/Lessee fails to complete the improvements within the
prescribed time period, the Company will have the option to require
Seller/Lessee to repurchase the land and all improvements completed through
that date pursuant to the Construction Agreement. Hard costs shall be
advanced by the Company as partial payments of the Purchase Price, on a
thirty(30) day draw basis with not less than ten percent (10%) retainage and
appropriate lien release and progress payment matters as required under the
Construction Agreement and the Company's standard disbursement procedures, in
amounts not to exceed the total cumulative Purchase Price for each Property,
with any remaining balance to be disbursed upon completion and occupancy.
Seller/Lessee shall deliver to the Company prior to the final disbursement of
construction funds and prior to Seller/Lessee's occupancy an architects'
certificate stating that all the improvements have been fully completed in
the manner set forth above and a certificate of occupancy and evidence of
compliance with any and all governmental regulations regarding the
completion, occupancy and use of the Property, including any and all required
licenses or permits, a final contractor's affidavit, an as-built survey, a
title policy update and other documentation required by the Company to
evidence full payment for all work performed in connection with the project.
The Construction Agreement will provide that Seller/Lessee will deliver a
completed turn-key facility to the Company. Construction funds will be
disbursed to Seller/Lessee by the Company in the manner described in the
Construction Agreement and rent shall accrue and be payable on all monies
disbursed by the Company from the date of the land closing.
3. PROTOTYPE RESTAURANT PROPERTIES. Seller/Lessee currently intends to
develop the two(2) Prototype Restaurants according to the prototype
Tumbleweed Southwest Mesquite Grill & Bar proposed and developed by
Seller/Lessee's franchisor, Tumbleweed L.L.C. At or before the time
Seller/Lessee proposes Properties for operation of the Prototype Restaurants,
Seller/Lessee shall provide a detailed written report with respect to such
Prototype Restaurants, including such information and descriptions as Company
may require, including without limitation, operating histories of
franchisor's prototype restaurants, proforma operating statements, prototype
building plans, estimated building costs and other items deemed necessary or
advisable by Company. Such
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 5
Prototype Restaurants shall be subject to Company's prior written approval,
which may be approved or disapproved in Company's sole discretion.
4. CONTRACT FOR PURCHASE AND SALE. Prior to each closing, the Company
and Seller/Lessee shall enter into a contract for purchase and sale
consistent with this Commitment and containing such commercially reasonable
representation and warranties as may be required by the Company.
5. LEASE. The lease agreements to be entered into between the Company
and Seller/Lessee (the "Lease") shall be in form acceptable to the Company.
The form of the Lease and all related document shall be finalized within
thirty (30) days following the date of the full execution of this Commitment,
and shall, upon acceptance of the Seller/Lessee and the Company, be attached
to this Commitment as composite EXHIBIT "B". The Lease shall include the
following provisions:
A. TERM. The primary term of the Lease will be twenty (20) years with
two (2) successive five(5) year renewal options.
B. RENT. There shall be an initial construction period rent ("Interim
Rent") equal to eleven percent (11.00%)(the "Base Lease Rate")
multiplied by the amounts funded by the Company to Seller/Lessee
at the land closing, with the Interim Rent being increased for all
additional advances of the Purchase Price as made, and with a
final adjustment after final funding to equal the Base Lease Rate
multiplied by the final total Purchase Price ("Minimum Rent"). The
initial annual minimum rent ("Minimum Rent") under the Lease shall
be equal to eleven percent (11.00%) multiplied by the Purchase
Price. Minimum Rent shall be increased at the end of the sixtieth
(60th) month after the land closing and at the end of each sixty
(60) month period thereafter by ten percent (10%) of the Minimum
rent payable during the immediately preceding Lease Year. Interim
Rent and Minimum Rent will be payable in equal advance monthly
installment on the first day of each month, with appropriate
adjustments for increases effective as additional advances are
made. A percentage rent sum ("Percentage Rent") shall be due and
payable in addition to the Minimum Rent. Percentage Rent shall be
payable within thirty (30) days following the end of each Lease
Year. Percentage Rent due under the Lease in any Lease Year shall
equal the difference between (i) five percent (5%) times
Seller/Lessee's gross sales for such Lease Year, minus (ii) the
Minimum Rent (as adjusted for automatic increases). Percentage
Rent shall be calculated on a pro rata basis for any partial Lease
Year.
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Mr. C. Raymond Maddux
June 12, 1997
Page 6
C. LATE CHARGES. A late charge in the amount of five percent(5%) of
the amount due shall be payable with respect to any payment due
under the Lease which is received more than ten (10) days after
the due date. In addition to any late charge, in the event the
Company does not receive rent within ten (10) days after the due
date, interest shall be due at the highest rate allowable by law
and payable with respect to such payment from the expiration of
the ten (10) day grace period until the Company receives such
payment.
D. INSURANCE, TAXES, UTILITIES, MAINTENANCE AND REPAIRS. The Lease
shall be absolutely triple net. Accordingly, Seller/Lessee shall
pay all taxes and assessments, utilities, maintenance costs, repair
costs, the costs of replacing obsolete components, and insurance
costs applicable to both the Property and any equipment thereon.
Seller/Lessee will be required to maintain the Property and all
components thereof to a standard which complies with the Lease. At
or prior to the closing, Seller/Lessee shall deliver to the
Company satisfactory evidence of (i) "all risk" property insurance
(including earthquake and flood insurance, where applicable) in an
amount not less than the insurable replacement cost of the
Property without deductible, (ii) comprehensive general liability
insurance and liquor liability insurance, each in an amount not
less than Two Million Dollars ($2,000,000.00) for each occurrence,
with any deductible to be approved by the Company, and with a
general aggregate of Ten Million Dollars ($10,000,000.00), and
with an umbrella policy in an amount not less than Ten Million
Dollars ($10,000,000.00) per occurrence in excess of the general
liability and liquor liability coverages required above, and (iii)
business interruption insurance for not less than six (6) months
coverage for each occurrence, with any deductible to be approved
by the Company. In each case, all insurance shall name the Company
and/or its affiliates as an additional insured and coverage may
not be amended or canceled without thirty (30) days prior written
notice to the Company. All insurance companies shall be selected by
Seller/Lessee, rated A minus (A-) or better by Best's Insurance
Rating Service, and shall be acceptable to the Company in
Company's reasonable discretion.
7. ASSIGNABILITY OF LEASE INTEREST. Seller/Lessee shall not have the
right to sublease the Property or any improvements or assign its
rights under the Lease unless it obtains Company's prior written
approval. Seller/Lessee may assign its rights under the Lease to
Tumbleweed L.L.C. provided that such assignee's financial and
credit standing is acceptable to Company in Company's sole
discretion, and in such event, Company may elect to release
Seller/Lessee from its obligations under the Lease. In connection
with and prior to any permitted assignment or subletting,
Seller/Lessee
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Mr. C. Raymond Maddux
June 12, 1997
Page 7
shall give the Company written notice of such an assignment
or subletting together with (i) a copy of the assignment or
subletting documents, and the name, address and telephone number
of the assignee or sublet tenant and (ii) a new insurance policy
and binder naming the assignee or sublet tenant operator and
occupant of the Property. The Company may assign its rights under
the Lease without Seller/Lessee's consent in connection with a
transfer of the Property to any affiliate of the Company, and in
such event, Seller/Lessee's right of first refusal (defined
elsewhere in this Commitment) shall not apply to such assignment
and transfer.
F. CONDUCT OF BUSINESS. The use of the Property shall be limited to
the operation of a Tumbleweed Southwest Mesquite Grill & Bar, and
Seller/Lessee shall continuously operate such restaurant on the
Property except for temporary closure due to repairs, acts of God
and similar matters. Notwithstanding the foregoing, certain of the
Properties shall continue to operate as Barbwire Restaurants prior
to remodeling and conversion, according to the schedule attached
hereto as EXHIBIT "A". The Seller/Lessee shall at all times
maintain the Property and operate its business in compliance with
all applicable regulations and requirements of all county,
municipal, state, federal and other governmental authorities, and
instruments of record affecting the Property which are now in
force or which are enacted during the term of the Lease.
G. FORM OF ENTITY. Seller/Lessee must be duly formed and in good
standing under the laws of the state of its formation and, if it
is a foreign entity, it shall be qualified to do business in the
state where the Property is located.
H. SELLER/LESSEE'S FIRST RIGHT OF REFUSAL. The Lease shall provide
the Seller/Lessee with a first right of refusal to purchase the
Property on the same terms and conditions as those contained in an
offer received by the Company from a third party if the Company
intends to accept such third party offer. Seller/Lessee's right of
first refusal shall not apply to assignments and transfers made by
the Company to an affiliate of the Company.
I. GUARANTY. With respect to the Seller/Lessee's obligations arising
under the Lease and related documents, C. Raymond Maddux, Vaughan
Allen, Thomas B. Miller and K.L. Dudney shall jointly and severally
unconditionally guarantee fifty percent (50%), and Tumbleweed,
L.L.C., David M. Roth, Bruce J. Roth and David H. Cooper shall
jointly and severally unconditionally guarantee fifty percent
(50%), of: (i) Seller/Lessee's full and faithful performance of
all of Seller/Lessee's obligations
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 8
under the Lease and related documents, to the extent of one
hundred percent of any amounts due under such Lease and related
documents until completion of remodeling/renovation and the date
on which Seller/Lessee begins operating the Tumbleweed Southwest
Mesquite Grill & Bar restaurant thereon, and thereafter the first
twenty-five percent (25%) of such amounts; and (ii)
Seller/Lessee's full and faithful performance of all
Seller/Lessee's obligations under the equipment lease financing
documents, to the extent of one hundred percent (100%) of any
amounts due under such equipment lease financing documents.
J. OPTION TO PURCHASE. At any time after the seventh (7th) Lease
Year, the Seller/Lessee shall have the option to purchase the
Property upon the terms and conditions set forth in the Lease
provided that Seller/Lessee is not in default at the time of the
exercise of such option. The option to purchase the Property shall
terminate if the Seller/Lessee's right of first refusal becomes
operative, Seller/Lessee does not exercise such right, and the
offer triggering Seller/Lessee's right of first refusal closes. In
the event the Seller/Lessee exercises its option to purchase, the
option purchase price shall be the greater of:
i. The fair market value of the Property as of the option
exercise date determined by an appraiser selected by the
Company; or
ii. The Purchase Price paid by the Company for the Property (as
determined under Paragraph 1 hereof) plus twenty percent
(20%).
In the event the appraiser selected by the Company is not
acceptable to Seller/Lessee, then for purposes of determining the
fair market value of the Property, the Company shall select an
appraiser (at its expense) to determine the fair market value of
the Property and Seller/Lessee shall also select an appraiser (at
its expense) to determine the fair market value of the Property.
If such appraisers cannot agree on the fair market value of the
Property as of the option exercise date and the lower of the two
appraisals is not less than ninety-five percent (95%) of the
higher appraisal, then the average of the two (2) appraisals shall
be conclusively considered to be the fair market value of the
Property. If such appraisers cannot agree on the fair market value
of the Property as of the option exercise date and the lower of
the two appraisals is less than ninety-five percent (95%) of the
higher appraisal, then the two (2) appraisers shall select a third
appraiser (the expense of which shall be shared equally by
Seller/Lessee and the Company) to determine such fair market value
and the average of the three (3)
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 9
appraisals shall be conclusively considered to be the fair market
value of the Property. If one party fails to select an appraiser
within thirty (30) days after the option exercise date, and the
other party (the "Second Party") does select an appraiser, then
the Second Party may notify the First Party that unless First Party
has selected an appraiser within ten (10) days following delivery
of the said notice to the First Party, the Second Party's
appraisal shall be deemed to represent the fair market value of
the Property.
K. NON-COMPETE. During the term of the Lease and any extensions
thereof, Seller/Lessee shall not own an interest in, or operate,
another Tumbleweed Southwest Mesquite Grill & Bar within a three
(3) mile radius of the Property.
6. SITE INSPECTIONS. The Company reserves the right to physically
inspect and approve each Property proposed by Seller/Lessee for closing in
accordance with the transactions contemplated herein.
7. MANAGING OPERATOR(S). The Company's obligations under this
Commitment with respect to any Property is subject and contingent upon
Company's approval, in its sole discretion, of Seller/Lessee's management
Agreement with respect thereto with Tumbleweed, L.L.C., containing such terms
as are approved by Company.
8. ADVERSE CONDITIONS. This Commitment shall be contingent upon no
material adverse change in the financial condition of Seller/Lessee or any
Guarantor or the occurrence of any event which may, in the Company's
reasonable judgment, have a material adverse effect upon the Seller/Lessee or
any Guarantor. In addition, the Company's obligation hereunder is subject to
the ongoing review of Seller/Lessee's and each Guarantor's financial
statements. To that end, the Company shall have the right to review quarterly
unaudited statements of Seller/Lessee and of Tumbleweed, L.L.C. and annual
personal financial statements of each individual Guarantor, along with any
other financial information the Company may reasonably require.
9. LEGAL DOCUMENTS. Company's counsel will prepare all leases,
purchase agreements, construction agreements and related documents.
Seller/Lessee and Guarantors agree that approval of such documents shall not
be unreasonably withheld.
10. REQUIRED DOCUMENTS. Not later than thirty (30) days prior to any
land closing, the Seller/Lessee must submit or cause to be submitted to the
Company or the Company shall have otherwise received the following documents
or information in form and substance satisfactory to the Company, and the
Company will use its best efforts to review such documents and information
and to prepare closing documentation in a timely manner. Failure to furnish
any of this information in a timely manner will delay the closing. The
Company shall have received and approved:
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Mr. C. Raymond Maddux
June 12, 1997
Page 10
A. The Company shall order an ALTA Owner's Form of Title Insurance
Commitment (an ALTA Leasehold Form of Title Insurance Commitment
in the case of the Hendersonville Property) in the amount of the
Purchase Price issued by a National Division Office of Lawyers
Title Insurance Corporation or another title insurance company
acceptable to the Company. A 50 year chain of title shall also be
provided to the Company. The title insurance commitment shall
provide for extended coverage and any necessary title endorsements
required by Company's counsel, and title shall be subject to no
material exceptions, unless approved in writing by the Company
prior to closing.
B. The Company shall order an appraisal completed by an appraiser
selected by the Company showing that the fair market value of the
Property (including improvements to be funded by the Company) is
not less than one hundred ten percent (110%) of the Purchase Price.
C. The Company shall order a current (dated not more than 180 days
prior to closing) Phase I environmental assessment report or
audit (prepared according to ASTM standards and including the
review and delivery to the Company of a 50 year chain of title
report) approved by and certified to the Company and its
affiliates in accordance with the Company's certification
instructions prepared by an appropriately licensed professional
selected and approved by the Company, stating, among other things,
that:
i. There is a low likelihood of the existence on the Property of
the presence beyond minimum action levels of petroleum,
petrochemical, toxic or other hazardous substances.
ii. Neither the Property nor any property within a one-half (1/2)
mile radius thereof (that by reason of its elevation or
relative groundwater gradient could result in any contaminants
migrating to the Property) is identified on any local, state or
federal register as a site containing or potentially containing
any hazardous waste or toxic material beyond minimum action
levels;
iii. Nothing in the public records discloses a condition or
circumstance with respect to the Property which may require or
may hereafter require a clean-up, removal or other remedial
action or response which could subject an owner of the Property
to any damages, penalties, claims, costs, or expenses;
<PAGE>
Mr. Raymond C. Maddux
June 12, 1997
Page 11
iv. Based on an actual inspection of the Property and a review of
available public records it does not appear that tanks or other
facilities (including, but not limited to, petroleum,
petrochemical or hazardous waste storage tanks or other
facilities) are presently (or have ever been unless removed in
accordance with law and with no further action recommended by
the applicable governmental authority) located on, under or at
the Property.
The firm providing the Phase I report or audit shall deliver to the Company
(a) a copy of their errors and omissions liability coverage policy, which
shall be in an amount which is not less than $2,000,000; (b) a statement
describing any pending or threatened litigation against such firm; and (c) a
resume of the engineers preparing such report or audit.
D. A copy of the most recent Property real estate tax bill and a copy
of the paid receipt therefor.
E. Five (5) copies of a current (within 90 days prior to closing)
survey of the Property certified to the Company and/or its
affiliates (as directed by the Company) and the title company,
which survey was prepared after the date hereof by a registered
surveyor acceptable to the title company issuing the title
commitment. The survey must show all existing improvements on the
Property, all setback lines, all easements and utility lines, and
shall reveal no material encroachments, unless waived by the
Company.
F. Certificates of insurance evidencing liability casualty coverage
in the form and amounts required above.
G. Such documentation as is necessary to evidence the fact that
Seller/Lessee is validly organized as a limited liability company
and in good standing under the laws of the state of its formation
and that it is authorized to do business in the state where the
Property is located, together with such resolutions or approvals
as are required for it to enter into this Commitment and to
consummate the transactions contemplated hereby.
H. A copy of Seller/Lessee's equipment lease financing documents
relating to and encumbering the Property, if any, together with
a list of all items financed by the equipment lender/lessor.
I. If Seller/Lessee presently owns the Property and the Property has
existing improvements, Seller/Lessee shall furnish copies of
deeds, closing statements,
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 12
construction contracts and other information showing Seller/Lessee's
original cost of the Property. If new improvements are to be
constructed or if existing improvements are to be renovated on the
Property, then Seller/Lessee shall furnish such previously-listed
information showing the original cost of the Property plus
construction bids from general contractors for the
construction/renovation of the Property. Such bids are to be
submitted on the Company's form and shall include all impact fees,
site development costs, and soft costs. The final general
construction contract shall contain provisions for (i) ten percent
(10%) retainage, and (ii) contractor's submission to the Company
of all underlying contracts, invoices and releases with or from
materialmen and subcontractors.
J. Two (2) copies of the governmentally approved site plan for the
Property, showing ingress and egress, paving, grading, drainage,
all utility connections, parking, the building location and the
location of all related facilities.
K. The Company may, if it so elects, order a current (dated not more
than 90 days prior to closing) structural and mechanical report or
audit of the building and other improvements, approved by and
certified to the Company and its affiliates in accordance with the
Company's certification instructions prepared by an appropriately
licensed professional approved by the Company, which report or
audit shall be satisfactory to the Company in all respects.
L. Copies of all necessary governmental permits, licenses and
approvals required to construct or operate the Property as a
Tumbleweed Southwest Mesquite Grill & Bar (including without
limitation, the liquor license and the certificate of occupancy or
equivalent, issued by the applicable governmental authority).
M. If Seller/Lessee is a franchisee of the restaurant operated on the
Property then Seller/Lessee shall furnish a copy of
Seller/Lessee's original franchise agreement as to the Property
and, prior to the closing, the Company shall receive from the
franchisor a certificate (this form shall be prepared by the
Company and provided directly by the Company to the franchisor)
verifying, among other things, the existence and validity of the
franchise as to both Seller/Lessee and the Property, and that no
default exists under the franchise agreement.
N. Such other information or documentation as the Company might
request as a prudent purchaser in order to finalize the
transactions contemplated hereby and to comply with the
requirements of all local, state and federal agencies, and all
regulations and laws to which the Company and its affiliates are
subject.
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Mr. C. Raymond Maddux
June 12, 1997
Page 13
11. OPINION OF COUNSEL. As a condition to closing, Company's counsel
shall require the opinion of Seller/Lessee's counsel and Guarantors' counsel
as to such matters as Company's counsel may deem appropriate, including but
not limited to:
A. Seller/Lessee and Tumbleweed, L.L.C. are duly organized and
validly existing under the laws of the state of their formation;
have the power and their representatives have been duly authorized
to enter into the transactions contemplated by this Commitment;
and all necessary approvals required to consummate the
transactions contemplated hereby have been obtained.
B. there is no threatened or pending litigation to Seller/Lessee or
any affiliate of Seller/Lessee or Guarantors which might affect
either the sale or lease of the Property, or the operation of the
contemplated business therein, or which might have a material
adverse affect upon the financial condition of Seller/Lessee or
Guarantors.
C. Seller/Lessee and Guarantors are not in violation of any
agreement, law, ordinance, regulation, ruling, court order or
other governmental enactment regarding the Property and that
consummation of the transactions contemplated hereby will not
place Seller/Lessee or Guarantors in violation of any such matter.
D. All documents executed by Seller/Lessee and Guarantors in
connection with the closing have been duly executed and delivered,
constitute valid and binding obligations of Seller/Lessee and
Guarantors, and are enforceable according to their terms.
E. Seller/Lessee's franchise agreement remains in full force and
effect and Seller/Lessee is not in default with respect to any of
Seller/Lessee's obligations thereunder.
F. The contemplated transactions are not security arrangements or
financing secured by real property but are, for all purposes, true
leases.
12. CLOSING. At each closing, Seller/Lessee and Guarantors shall
execute and/or deliver to the Company all documents, monies, instruments and
other items required by this Commitment. The Company's obligation to close is
conditioned upon its receipt and approval of all such documents, monies,
instruments and items.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 14
13. EQUIPMENT LEASE FINANCING. In addition to the sale-leaseback
transactions provided for herein, but only upon the election of
Seller/Lessee, the Company agrees to enter or cause an affiliate to enter
into equipment lease financing transactions with respect to the Properties
acquired and developed in accordance with the terms and conditions of this
Commitment. The Seller/Lessee and the Company shall enter into a Lease and
other documents as may be required by the Company (collectively, the
"Financing Documents"), which Financing Documents shall be in form and
contain terms satisfactory to the Company. The Company acknowledges that it
has agreed to provide equipment lease financing, in amounts not to exceed the
applicable amount referred to as "Equipment Cost" set forth on the schedule
attached hereto as EXHIBIT "A", with a lease term not to exceed seven (7)
years, and with monthly lease payments based upon an interest rate of ten and
one-half percent (10.50%) per annum and a seven (7) year amortization
schedule. In connection with any such equipment lease financing provided by
the Company, Seller/Lessee shall be required to pay all customary equipment
lease financing fees and costs, including without limitation, a two percent
(2%) commitment/closing fee payable to the Company, taxes, and all closing
costs.
14. APPLICABLE LAW. This Commitment shall be construed in accordance
with the laws of the State of Florida. It is agreed that time shall be of the
essence all terms and provisions of this Commitment.
15. SURVIVAL. The terms and conditions of this Commitment shall
survive closing with respect to the transaction contemplated herein.
16. NOT A SECURITY ARRANGEMENT. The parties hereto acknowledge and
agree that the contemplated transactions are not intended as a security
arrangement or financing by real property, but rather shall be construed for
all purposes as true leases.
17. COMPANY'S RIGHT OF FIRST REFUSAL. During the period of this
Commitment, the Company shall have the right to finance, and Seller/Lessee
agrees to place with the Company, up to $13,200,000.00 of sale/leaseback
transactions. If during the period of time covered by this Commitment,
Seller/Lessee desires to enter into sale/leaseback transactions in excess of
the funding limits to which the Company is then committed, the Company shall
have the right of first refusal to fund any additional properties which
Seller/Lessee intends to acquire or sell on a sale/leaseback basis on the
same or better terms than are being offered by any third party financing
entity.
18. COMMITMENT PERIOD. This Commitment shall expire unless, on or
before ten (10) business days from the date of this Commitment set forth
above, this Commitment is accepted and
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 15
returned to the Company together with a commitment fee of $10,000.00. The
commitment fee will be retained by the Company in connection with the
execution of this Commitment and such fee will be returned at the final
closing on the last Property. If the transactions contemplated herein do not
close within the time periods specified in this Commitment due to
Seller/Lessee's failure to comply with the terms of this Commitment, then the
Company shall have the option to terminate its obligation hereunder and
retain the commitment fee to cover expenses, in which event this Commitment
shall be of no further force or effect.
19. BROKERAGE. The Company has not engaged any broker with respect to
this Commitment, or the sale of Properties by Seller/Lessee to the Company or
the leaseback thereof. In the event any brokerage fee or commission is
payable to any person in connection with the transactions contemplated
herein, Seller/Lessee shall be responsible for paying such fee(s).
20. ASSIGNMENT OF COMMITMENT. This Commitment is not assignable by
Seller/Lessee. The Company may assign this Commitment in whole or part to an
affiliate of the Company without Seller/Lessee's consent.
21. HENDERSONVILLE PROPERTY GROUND LEASE. The terms of Paragraphs 1-20
of this Commitment shall apply to the Hendersonville Property as supplemented
by the terms set forth in this paragraph. In the event of a conflict between
the terms of Paragraphs 1-20 of this Commitment, as such terms relate to the
Hendersonville Property, and this paragraph, the terms of this paragraph
shall control.
A. TERM. The term of the Ground Lease, as hereinafter defined, shall
be not less than fifteen (15) years. Seller/Lessee shall, prior to
closing, exercise appropriate options under the Ground Lease, as
hereinafter defined, in order to achieve such term.
B. ASSIGNMENT OF GROUND LEASE. The Company will receive an assignment
of the ground lessee's interest in the Hendersonville Property,
provide funding for the reconstruction, conversion, and remodeling
of the existing restaurant building and related improvements (the
"Hendersonville Improvements") on the Hendersonville Property, and
shall lease the Hendersonville Property and Hendersonville
Improvements to Seller/Lessee pursuant to a restaurant lease (as
described below) and related agreements. The funding provided for
herein will be for the reconstruction, conversion, and remodeling
of the Hendersonville Improvements and a leaseback of the
Hendersonville Improvements and the Hendersonville Property, with
closing (meaning the date on which Seller/Lessee executes and
delivers to
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 16
Company the documents required by the terms of this commitment) to
occur not later than July 1, 1998.
C. REVIEW AND APPROVAL. The ground lease for the Hendersonville
Property entered into or to be entered into between the fee owner
of the land as "Landlord" (the "Ground Lessor") and Seller/Lessee
as "Tenant" (the "Ground Lease") must be acceptable to the Company
in all respects. As soon as is practical, but in no event later
than thirty (30) days prior to closing, Seller/Lessee shall
deliver to the Company for the Company's review a copy of the
proposed Ground Lease. In the event Seller/Lessee has already
executed such Ground Lease, the Company may require, as a further
condition of closing, an amendment thereto containing such terms
as are acceptable to the Company. After the Company and its
counsel have reviewed the Ground Lease and all other relevant
information, the Company's counsel will notify Seller/Lessee in
writing of those modifications which are necessary to be made to
the Ground Lease before the Ground Lease may be approved by the
Company.
D. ASSIGNMENT. Seller/Lessee shall execute and deliver to the Company
an Assignment of Ground Lease in recordable form, pursuant to
which all of Seller/Lessee's rights, title and interest in and to
the Ground Lease shall be assigned to (but not assumed by) the
Company including, without limitation, any rights of first refusal
to purchase the Hendersonville Property, options to purchase the
Hendersonville Property and options to renew the Ground Lease
contained therein.
E. INDEMNITY. Seller/Lessee shall execute and deliver to the Company
an Indemnification Agreement, pursuant to which (i) Seller/Lessee
shall acknowledge and agree that the Company's interest in the
Property is limited to the interests of the "Tenant" under the
Ground Lease and that Seller/Lessee's rights under the
Hendersonville Restaurant Lease, as hereinafter defined, are
subject in all respects to the terms and conditions of the Ground
Lease; and (ii) Seller/Lessee shall covenant and agree to fully
perform and comply with any and all obligations on the part of the
"Tenant" under the Ground Lease, including without limitation the
payment of all rents and other sums payable to the "Landlord"
under the Ground Lease and performance and compliance with other
terms and conditions of the Ground Lease; and (iii) Seller/Lessee
shall covenant and agree to indemnify the Company and hold the
Company harmless of, from and against any and all claim, loss or
damage whatsoever, including attorneys' fees and costs, relating
to the terms and conditions of the Ground Lease and the
performance thereof by Tenant.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 17
F. TRI-PARTY AGREEMENT. Seller/Lessee, the Ground Lessor and the
Company shall enter into a Tri-Party Agreement which shall
provide, among other things, that (i) the Ground Lessor
acknowledges and consents to the assignment of the Ground Lease by
Seller/Lessee to the Company; (ii) the Ground Lessor shall certify
that the Ground Lease is in full force and effect, that the Ground
Lease has not been amended or modified except as disclosed by the
Ground Lessor, and that no defaults or events of default then
exist under the Ground Lease; (iii) the Ground Lessor acknowledges
and consents to the construction of the Hendersonville
Improvements by Seller/Lessee (funded by the Company) and the
leaseback of same to Seller/Lessee under a separate lease
agreement; (iv) the Ground Lessor acknowledges and agrees that
Seller/Lessee shall remain liable for, and that the Company shall
not be liable for, the performance and compliance with any and all
obligations on the part of the "Tenant" under the Ground Lease,
including without limitation the payment of all rents and other
sums payable to the "Landlord" under the Ground Lease; (v) the
Ground Lessor shall henceforth be obligated to provide the Company
with any notice required to be served on the "Tenant" under the
Ground Lease (including any notices of default, events of default
or failures to perform under the Ground Lease) and grant the
Company the right to cure such defaults within the applicable
curative periods granted to the "Tenant" under the Ground Lease;
(vi) the Ground Lessor acknowledges and agrees that if the Ground
Lease is terminated prior to the expiration of the initial term of
the Ground Lease or any renewal/extension thereof (except by
reason of condemnation or casualty as provided in the Ground
lease), then the Company shall have the option, exercisable by the
Company in the Company's sole discretion within thirty (30) days
following receipt of notice of the termination from the Ground
Lessor, to locate a replacement leaseback tenant under the
Hendersonville Restaurant Lease, as hereinafter defined, and enter
into a new ground lease with the Ground Lessor with respect to the
Property for the remaining term of the Ground Lease and on the same
terms and conditions as those set forth in the Ground Lease (and in
connection therewith cure or cause to be cured any past defaults
under the Ground Lease).
G. HENDERSONVILLE RESTAURANT LEASE. The lease agreement for the
Hendersonville Improvements to be entered into between the Company
and Seller/Lessee (the "Hendersonville Restaurant Lease") shall
contain all of the terms of the form Lease provided for in
Paragraph 5 of this Commitment except as otherwise provided in
this sub-paragraph 21.G:
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 18
(i) TERM. The term of the Hendersonville Restaurant Lease shall
be fifteen (15) years with no renewal options. The term of
the Hendersonville Restaurant Lease shall expire upon the
earlier of (i) the expiration date provided for in the form
Lease set forth in Paragraph 5 of this Commitment, (ii) the
expiration of the original term of the Ground Lease, or
(iii) the earlier termination of the Ground Lease.
Seller/Lessee shall have the same rights with respect to
renewal of the Hendersonville Restaurant Lease as
Seller/Lessee would have under the terms of the form Lease
provided for in Paragraph 5 of this Commitment, provided
that the Ground Lease also provides for such renewals of its
initial term. In the event that the Ground Lease does
provide for extensions/renewals of its initial term and
Seller/Lessee desires to exercise the right to extend/renew
the Ground Lease, Seller/Lessee shall be required to provide
the Company with written notice of same not less than ninety
(90) days prior to the time that notice to extend the
initial term of the Ground Lease must be delivered to the
Ground Lessor pursuant to the terms of the Ground Lease. In
no event shall Seller/Lessee have the right to extend the
term of the Hendersonville Restaurant Lease beyond the term
of any extensions/renewals authorized by the Ground Lease.
(ii) RENT. For purposes of the Hendersonville Restaurant Lease,
"Base Lease Rate" shall mean thirteen and one-half percent
(13.5%), provided that the remaining term of the Ground
Lease as of the date of closing is exactly fifteen (15)
years. If the remaining term of the Ground Lease as of the
date of closing is a period of time less than fifteen (15)
years, the Base Lease Rent to be used for purposes of
calculating Interim Rent and Minimum Rent shall be
determined by the Company based on the actual remaining term
of the Ground Lease. Rent during the construction period
shall be calculated by multiplying 11.00% times the amounts
theretofore funded by Company pursuant to this Commitment.
(iii) OPTION TO PURCHASE. The Hendersonville Restaurant Lease
shall provide that at any time after the tenth (10th) Lease
Year, Seller/Lessee shall have the option to purchase the
Hendersonville Improvements and the Company's interest in
the Hendersonville Property upon the terms and conditions to
be set forth in the Hendersonville Restaurant Lease provided
that Seller/Lessee has no uncured default at the time of the
exercise of such option. The option to purchase the
Hendersonville Improvements and the Company's interest in
the Hendersonville Property shall terminate if the
Seller/Lessee's
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 19
right of first refusal becomes operative, Seller/Lessee does
not exercise such right, and the offer triggering
Seller/Lessee's right of first refusal closes. The option to
purchase shall be subject to the terms of the Ground Lease.
In the event Seller/Lessee exercises its option to purchase,
the option purchase price shall equal the sum of (A) the net
present value (calculated as of the date of payment) of all
remaining monthly payments of Minimum Rent (including any
scheduled Minimum Rent increases) due to be paid to the
Company pursuant to the Hendersonville Restaurant Lease for
the then remaining portion of the initial term of the
Hendersonville Restaurant Lease, discounted at ten percent
(10%) per annum, plus (B) ten (10) months of the then
current Minimum Rent.
(iv) TERMINATION PAYMENT. In the event of the Hendersonville
Restaurant Lease is terminated for any reason other than the
exercise of the option to purchase or the right of first
refusal pursuant to paragraph 5.H and 21.G.(iii) hereof,
Seller/Lessee shall pay to the Company a termination payment
(as liquidated damages and not as a penalty) equal to the
sum of (A) the net present value (calculated as of the date
of payment) of all remaining monthly payments of Minimum
Rent (including any scheduled Minimum Rent increases) due to
be paid to the Company pursuant to the Hendersonville
Restaurant Lease for the then remaining portion of the
initial term of the Hendersonville Restaurant Lease,
discounted at ten percent (10%) per annum, plus (B) ten (10)
months of the then current Minimum Rent.
If this Commitment is acceptable to you, please sign the space provided
below and return one executed original letter to my office. Following receipt
of the executed Commitment, I shall instruct our legal counsel to prepare
definitive documents consistent with the foregoing terms and conditions. If
you have any questions, please do not hesitate to call me.
Very truly yours,
CNL FUND ADVISORS, INC.
By: /s/ Robert A. Bourne
---------------------------------
Robert A. Bourne, President
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 20
ACCEPTED AND AGREED:
AS TO SELLER/LESSEE:
TW TENNESSEE, L.L.C.
By: Ray Maddux
---------------------------
Name: Ray Maddux
-------------------------
As its: Chief Manager/President
-----------------------
Date: June 16, 1997
-------------------------
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 21
AS TO GUARANTORS:
TUMBLEWEED, L.L.C.
By: James Mulrooney
----------------------------
Name: James M. Mulrooney
--------------------------
As its: Executive VP & CFO
------------------------
Date: 6-17-97
--------------------------
/s/ C. Raymond Maddux
- --------------------------------
C. RAYMOND MADDUX
Date: 6/16/97
--------------------------
/s/ Vaughan Allen
- --------------------------------
VAUGHAN ALLEN
Date: 6/16/97
--------------------------
/s/ Thomas B. Miller
- --------------------------------
THOMAS B. MILLER
Date: 6/16/97
--------------------------
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 22
/s/ K.L. Dudney
- --------------------------------
K.L. DUDNEY
Date: 6-17-97
---------------------------
/s/ David M. Roth
- --------------------------------
DAVID M. ROTH
Date: 6/19/97
---------------------------
/s/ Bruce J. Roth
- --------------------------------
BRUCE J. ROTH
Date: 6-19-97
---------------------------
/s/ David H. Cooper
- --------------------------------
DAVID H. COOPER
Date: 6-19-97
---------------------------
Exhibits:
A - Property List with Purchase Cost and Remodel Cost
Composite B - Lease Form
<PAGE>
TUMBLEWEED, INC.
1998 STOCK OPTION AND INCENTIVE COMPENSATION PLAN
Tumbleweed, Inc. (the "Company") hereby establishes a stock option and
incentive plan for the benefit of its employees and members of its Board, as set
forth below.
SECTION 1 -- PURPOSE
The Company adopts this compensation program for certain key employees and
members of its Board to (a) increase the profitability and growth of the
Company; (b) provide competitive compensation to employees and directors while
obtaining the benefits of tax deferral, (c) attract and retain exceptional
personnel and encourage excellence in the performance of individual
responsibilities; (d) motivate key employees and Company directors to contribute
to the Company's success, and (e) attract and retain highly qualified persons to
serve on the Company's Board.
SECTION 2 -- DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings below
unless the context clearly indicates otherwise:
2.1 "AWARD" means an Incentive Stock Option, a Nonqualified Stock Option,
a Stock Appreciation Right, a Restricted Stock Award, or a Performance Share
Award granted under the Plan.
2.2 "AWARD AGREEMENT" means a written agreement between a Participant and
the Company covering the specific terms and conditions of an Award.
2.3 "BOARD" means the Board of Directors of the Company.
2.4 "CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
2.5 "COMMITTEE" means the committee appointed by the Board pursuant to
Section 4.1 to administer the Plan
2.6 "COMPANY" shall mean Tumbleweed, Inc., and its successors.
2.7 "DIRECTOR" means a voting member of the Board, excluding any person
who serves solely in an advisory capacity or as a director emeritus.
2.8 "DISABILITY" means permanent disability within the meaning of Section
22(e)(3) of the Code.
<PAGE>
2.9 "EFFECTIVE DATE" shall have the meaning set forth in Section 15.
2.10 "EMPLOYEE" means a salaried employee of the Company or a Subsidiary.
2.11 "FAIR MARKET VALUE" means the closing market price per share of Stock
as reported on the date as of which Fair Market Value is to be determined, or,
if no trades were reported on that date, the closing price on the most recent
trading day immediately preceding such date for which closing price information
is available.
2.12 "GRANT DATE" means, with respect to an Award, the date as of which
the Award is granted as stated in the Award Agreement, or as otherwise provided
in Section 11.
2.13 "INCENTIVE STOCK OPTION" means an option to purchase Stock granted
under Section 6 of the Plan which is designated by the Committee as an Incentive
Stock Option and is intended to meet the requirements of Section 422 of the
Code.
2.14 "INDEPENDENT DIRECTOR" means a Director who is not a current or
former employee or officer of the Company or a Subsidiary and who does not
receive any remuneration from the Company or any Subsidiary for service to the
Company or a Subsidiary in any capacity other than as a Director. A Director
who is an affiliate of a franchisee of the Company shall not be disqualified as
an Independent Director solely on the basis of such status.
2.15 "NONQUALIFIED STOCK OPTION" means an option to purchase Stock granted
under Sections 6 or 11 of the Plan which is not intended to be an Incentive
Stock Option.
2.16 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.17 "OPTION PERIOD" means the period from the Grant Date of an Option to
the date the period for exercise of the Option expires as stated in the Award
Agreement.
2.18 "PARTICIPANT" means an Employee or Director who has been granted an
Award under the Plan.
2.19 "PERFORMANCE SHARE" means the grant of contingent shares of Stock
under Section 10 of the Plan.
2.20 "PLAN" means this Tumbleweed, Inc. 1998 Stock Option and Incentive
Compensation Plan.
2.21 "RESTRICTION PERIOD" means the period of time from the Grant Date of
a Restricted Stock Award to the date when the restrictions placed on the Stock
in the Award Agreement lapse.
2.22 "RESTRICTED STOCK AWARD" OR "RESTRICTED STOCK" means a Restricted
Stock
<PAGE>
Award granted under Section 9 of the Plan.
2.23 "RETIREMENT" means a Participant's Termination of Employment or
Termination of Service with the Company or a Subsidiary after attaining age 60
(or earlier with the Company's or the Subsidiary's consent).
2.24 "STOCK" means the Company's voting common stock of no par value per
share, or such other securities into which the Stock may be converted, by merger
or otherwise.
2.25 "STOCK APPRECIATION RIGHT" OR "SAR" means a Stock Appreciation Right
granted under Section 7 of the Plan.
2.26 "SUBSIDIARY" means any corporation which at the time qualifies as a
subsidiary of the Company under the definition of "subsidiary corporation" in
Section 424(f) of the Code.
2.27 "TERMINATION OF EMPLOYMENT" shall be deemed to have occurred at the
close of business on the last day on which an Employee is carried as an active
employee on the records of the Company or a Subsidiary. The Committee shall
determine in accordance with Section 13.2 whether an authorized leave of
absence, or other absence on military or government service, constitutes
severance of the employment relationship between the Company or a Subsidiary and
the Employee.
2.28 "TERMINATION OF SERVICE" shall be deemed to have occurred at the
close of business on the last day on which a Director serves as a Director of
the Company.
SECTION 3 -- STOCK SUBJECT TO THE PLAN
3.1 AUTHORIZED STOCK. Subject to adjustment as provided in Section 3.3,
the aggregate number of shares of Stock that may be issued pursuant to Awards
under the Plan shall be equal to the greater of 635,000 shares or 10% of the
Stock outstanding from time to time (the "Aggregate Maximum"), and shall be
increased automatically upon increase of the outstanding shares of Stock,
provided that the number of shares that may be issued pursuant to Incentive
Stock Option Awards shall not exceed 535,000 shares. If a change in the number
of outstanding shares of Stock occurs that both (i) is not provided for in
Section 3.3 of the Plan and (ii) would cause the foregoing calculation to result
in a number of shares greater than the Aggregate Maximum in effect immediately
prior to the change, the Aggregate Maximum shall be automatically increased to
that greater number. The Aggregate Maximum shall not be decreased except
pursuant to Section 3.3 or an amendment to this Plan. Of the aggregate number
of shares available pursuant to Awards under the Plan, 100,000 shares shall be
reserved exclusively for issuance pursuant to Options granted to Independent
Directors as provided in Section 11. To the extent that any shares of Stock
subject to an Award are not delivered because the Award is settled in cash, such
shares shall not be deemed to have been issued for purposes of determining the
Aggregate Maximum. Stock delivered under the Plan may consist, in whole or in
part, of authorized and unissued shares or shares acquired from shareholders
upon such terms as the Board deems
<PAGE>
appropriate for reserve in connection with exercise hereunder.
3.2 EFFECT OF EXPIRATIONS. If any Award granted under the Plan expires
or terminates without exercise, the Stock no longer subject to such Award shall
be available to be re-awarded under the Plan.
3.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the number of shares of Stock or the kind of
shares or securities issuable upon exercise of an Award, an appropriate and
proportionate adjustment shall be made by the Committee in the number and kind
of shares which may be delivered under the Plan, and in the number and kind of
or price of shares subject to outstanding Awards, so that no Award shall be
diluted or increased; provided that the number of shares subject to any Award
shall always be a whole number. Any adjustment of an Incentive Stock Option
under this Section shall be made in such a manner so as not to constitute a
"modification" within the meaning of Section 424(h) of the Code. If the Company
shall at any time merge, consolidate with or into another corporation or
association, or enter into a statutory share exchange or any other similar
transaction in which shares of Stock are converted as a matter of law into
securities and/or other property, each Participant will thereafter receive, upon
the exercise of an Award, the securities or property to which a holder of the
number of shares of Stock then deliverable upon the exercise of such Award would
have been entitled if such Award had been exercised immediately prior to such
merger, consolidation, or share exchange and the Company shall take such steps
in connection with such merger, consolidation or share exchange as may be
necessary to assure that the provisions of this Plan shall thereafter be
applicable, as nearly as is reasonably possible, in relation to any securities
or property thereafter deliverable upon the exercise of such Award. Any
restrictions applicable under a Restricted Stock Award Agreement shall apply to
any replacement shares receive by a Participant under this Section 3.3 as a
result of a reorganization, merger, consolidation or similar transaction.
SECTION 4 -- ADMINISTRATION
4.1 COMMITTEE GOVERNANCE. This Plan shall be administered by the
Committee which shall consist of two or more Independent Directors appointed by
the Board. The number of Committee members shall be determined by the Board.
The Board shall add or remove members from the Committee as the Board sees fit,
and vacancies shall be filled by the Board. The Committee shall select one of
its members as the chairperson of the Committee and shall hold meetings at such
times and places as it may determine. The Committee may appoint a secretary
and, subject to the provisions of the Plan and to policies determined by the
Board, may make such rules and regulations for the conduct of its business as it
shall deem advisable. Written action of the Committee may be taken by a
majority of its members, and actions so taken shall be fully effective as if
taken by a vote of a majority of the members at a meeting duly called and held.
A majority of Committee members shall constitute a quorum for purposes of
meeting. The act of a majority of the members present at any meeting for which
there is a quorum shall be a valid act of
<PAGE>
the Committee.
4.2 COMMITTEE TO INTERPRET PLAN. Subject to the provisions of the Plan,
the Committee shall have sole power to (i) construe and interpret the Plan; (ii)
establish, amend or waive rules and regulations for its administration; (iii) to
determine and accelerate the exercisability of any Award or the termination of
any Restriction Period; (iv) to correct inconsistencies in the Plan or in any
Award Agreement, or any other instrument relating to an Award; and (v) subject
to the provisions of Section 11, to amend the terms and conditions of any Award
to the extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Notwithstanding the foregoing, no action of
the Committee may, without the consent of the person or persons entitled to
exercise any outstanding Award, adversely affect the rights of such person or
persons.
4.3 EXCULPATION. No member of the Board or the Committee shall be liable
for actions or determinations made in good faith with respect to the Plan, or
for Awards under it.
4.4 SELECTION OF PARTICIPANTS. The Committee shall have the authority to
grant Awards from time to time to such Employees as may be selected by it in its
sole discretion.
4.5 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the Plan, including factual determinations, shall be
final, conclusive and binding on all persons, including the Company, its
Subsidiaries, its shareholders, Participants and their estates and assignees.
4.6 AWARD AGREEMENTS. Except for Options automatically granted to
Independent Directors pursuant to Section 11, each Award under the Plan shall be
evidenced by an Award Agreement which shall be signed by the Chairman or
Secretary of the Committee and by the Participant, and shall contain such terms
and conditions as may be approved by the Committee, which need not be the same
in all cases. Any Award Agreement may be supplemented or amended in writing
from time to time as approved by the Committee, provided that the terms of the
Agreement as amended or supplemented, as well as the terms of the original Award
Agreement, are not inconsistent with the provisions of the Plan. An Employee
who receives an Award under the Plan shall not, with respect to the Award, be
deemed to have become a Participant, or to have any rights with respect to the
Award, unless and until the Award Agreement has been signed by the Chairman or
Secretary of the Committee and by the Employee and delivered to the Committee,
and the Employee has otherwise complied with the applicable terms and conditions
of the Award. The Committee may condition any Award upon the agreement by the
Participant to such confidentiality, non-competition, and non-solicitation
covenants as the Committee deems appropriate.
4.7 LIMITATION ON AWARDS. No part of any Option or SAR Award may be
exercised, no Performance Share shall be issued, and no Restriction Period will
lapse to the extent the exercise, issuance or lapse would cause the Participant
to have compensation from the Company and its affiliated companies for any year
in excess of one million dollars and which is
<PAGE>
nondeductible by the Company and its affiliated companies pursuant to Code
Section 162(m). Any portion of an Award that is not exercisable, not issued
or for which a Restriction Period does not lapse because of this limitation
shall continue to be exercisable or shall be issued, or the Restriction
Period shall lapse, in any subsequent year in which the exercise, issuance or
lapse would not cause the loss of the Company's or its affiliated companies'
compensation tax deduction, provided such exercise or issuance occurs before
the Award expires, and otherwise complies with the terms and conditions of
the Plan and the Award Agreement
SECTION 5 -- AWARDS UNDER THE PLAN
Subject to the limitations of the Plan, the Committee may in its sole and
absolute discretion grant Awards in such numbers, upon such terms and at such
times as the Committee shall determine, provided that no Employee may be granted
Awards representing more than 200,000 shares hereunder (as adjusted under
Section 3.3). Employees who are expected to contribute substantially to the
growth and profitability of the Company or a Subsidiary are eligible for
selection by the Committee under Section 4.4 to receive Awards.
SECTION 6 -- STOCK OPTIONS
6.1 GRANT. Both Incentive Stock Options and Nonqualified Stock Options
may be granted under the Plan. If an Option is designated as an Incentive Stock
Option but does not qualify as such under Section 422 of the Code, the Option
(or portion thereof) shall be treated as a Nonqualified Stock Option, and
governed by Section 83 of the Code. All Options granted to Employees under the
Plan shall be evidenced by an Award Agreement in such form as the Committee may
from time to time approve. All Options are subject to the terms and conditions
of this Section 6 and such additional terms and conditions contained in the
Award Agreement, which need not be the same in each case, not inconsistent with
the provisions of the Plan, as the Committee finds desirable.
6.2 EXERCISE PRICE. The exercise price per share of Stock covered by an
Option shall be determined by the Committee, provided that the exercise price
for an Incentive Stock Option shall not be less than 100% of the Fair Market
Value of the Stock on the Grant Date, unless the Incentive Stock Option granted
to a person who on the Grant Date owns (within the meaning of Section 424 of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary, in which case the exercise
price shall be at least 110% of the Fair Market Value of the Stock on the Grant
Date.
6.3 OPTION PERIOD. The Option Period shall be determined by the
Committee, and unless otherwise specifically provided in the Award Agreement, no
Option shall be exercisable later than ten years from the Grant Date. No
Incentive Stock Option shall be exercisable later than ten years from the Grant
Date, provided that in the case of an Employee who on the Grant Date owns or is
deemed to own (within the meaning of Section 425(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of the Company or any
Subsidiary,
<PAGE>
the Incentive Stock Option shall not be exercisable later than five
years from the Grant Date. Options may expire prior to the end of the Option
Period due to the Participant's Termination of Employment or Termination of
Service as provided in Section 8, or in accordance with any provision of the
Award Agreement. No Option may be exercised at any time unless the Option is
valid and outstanding.
6.4 LIMITATION ON AMOUNT OF INCENTIVE STOCK OPTIONS. The aggregate Fair
Market Value (determined as of each Option Grant Date) of Stock with respect to
which a Participant's Incentive Stock Options are exercisable for the first time
during any calendar year (under this and all other stock option plans of the
Company and any Subsidiary) shall not exceed $100,000.
6.5 NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in this
Section 6.5, no Option shall be transferable by a Participant otherwise than by
will or the laws of descent and distribution, and an Option shall be
exercisable, during the Participant's lifetime, only by the Participant (or, in
the event of the Participant's legal incapacity or incompetency, the
Participant's guardian or legal representative). The Committee may in an Award
Agreement allow a Participant, subject to any restrictions under Section 16(b)
of the Exchange Act, to transfer all or part of a Nonqualified Stock Option to
(i) the Participant's spouse or lineal descendants ("Immediate Family Members"),
(ii) trusts for the exclusive benefit of the Participant and/or his Immediate
Family Members, or (iii) a partnership or limited liability company in which the
Participant and/or his Immediate Family Members are the only partners or
members, as applicable. Such transfer may be made by a Participant only if
there is no consideration for the transfer, and subsequent transfers of any
Option shall be prohibited other than in accordance with this Section 6.5 and by
will or the laws of descent and distribution. Following a transfer of an
Option, the Option shall continue to be subject to the same terms and conditions
as were applicable immediately before the transfer, and Termination of
Employment or Service, Retirement, Disability, satisfaction of service
requirements or performance objectives, and other conditions to exercise of an
Option shall be applied with respect to the original Participant. However, for
purposes of exercising the Option, the term Participant shall refer to the
transferee. In addition, for purposes of the death benefit provisions of
Section 8, the Participant's Representative shall be deemed to refer to the
transferee, the personal representative of the transferee's estate, or after
final settlement of the transferee's estate, the successor or successors
entitled thereto by law.
6.6 EXERCISE. An Option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the Option may be exercised at a
particular time and to such other conditions (E.G., exercise could be
conditioned on performance) as the Committee in its discretion may specify upon
granting the Option or as otherwise provided in this Section 6.
6.7 METHOD OF EXERCISE. To exercise an Option, the Participant or the
other person(s) entitled to exercise the Option shall deliver to the Committee
(i) a written notice of exercise in such form as the Committee may prescribe,
specifying the number of full shares to be purchased; (ii) payment in full of
the exercise price in accordance with Section 6.8; and (iii) in the case of
Nonqualified Stock Options, any required withholding taxes as provided in
Section 14. No shares
<PAGE>
of Stock shall be issued unless the Participant has fully complied with the
provisions of this Section 6.7.
6.8 PAYMENT OF EXERCISE PRICE. To the extent provided in the Award
Agreement for an Option and subject to the rules of Section 16 of the Exchange
Act and any exchange on which the Stock is traded at any relevant time, payment
of the exercise price may be made (i) in cash; (ii) in shares of Stock (based on
the Fair Market Value of the Stock on the date the Option is exercised)
acceptable to the Committee and owned by the Participant (or jointly by the
Participant and his spouse) for at least six months evidenced by negotiable
certificates or by a written attestation of ownership and consent to issuance,
in satisfaction of the Option or portion thereof being exercised, of only the
net shares of Stock (those equal in value to the difference between the exercise
price and the then Fair Market Value); (iii) by a written election to have the
Company retain that number of shares of Stock subject to the Option having an
aggregate Fair Market Value equal to the aggregate exercise price of the Option,
provided that for Incentive Stock Options, this right must be granted by the
Committee at the time the Option is granted and may not be added in any
modification of the Award Agreement; or (iv) by any combination thereof. If
permitted in the Award Agreement, Restricted Stock (valued as if it were not
subject to restrictions on transfer or possibilities of forfeiture) issued to
the Participant may be tendered as payment of the exercise price of an Option.
If Restricted Stock is tendered as the exercise price of an Option, a number of
shares of Stock issued on exercise of such Option, equal to the number of shares
of Restricted Stock tendered as consideration thereof, shall be subject to the
same restrictions as the Restricted Stock so tendered and shall be held by the
secretary of the Company pursuant to Section 9.1.
SECTION 7 -- STOCK APPRECIATION RIGHTS
7.1 GRANT. All Stock Appreciation Rights ("SAR's") granted under the
Plan shall be evidenced by an Award Agreement in such form as the Committee may
from time to time approve. All SARs are subject to the terms and conditions of
this Section 7 and such additional terms and conditions contained in the Award
Agreement, which need not be the same in each case, not inconsistent with the
Plan, as the Committee finds desirable.
7.2 EXERCISE PRICE. The exercise price per share of Stock subject to a
SAR shall be determined by the Committee at the time of grant and specified in
the Award Agreement.
7.3 EXERCISE PERIOD. The exercise period shall be determined by the
Committee, and unless otherwise specified in the Award Agreement, no SAR shall
be exercisable later than ten years from the Grant Date. No SAR may be
exercised at any time unless such SAR is valid and outstanding as provided in
this Section 7.
7.4 NONTRANSFERABILITY. No SAR shall be transferable other than by
will or by the laws of descent and distribution, and SAR's shall be exercisable,
during the Participant's lifetime, only by the Participant (or, in the event of
the Participant's legal incapacity or incompetency, the Participant's guardian
or legal representative).
7.5 EXERCISE. An SAR may be exercised, so long as it, is valid and
outstanding, from
<PAGE>
time to time in part or as a whole, subject to any limitations with respect
to the number of shares for which the SAR may be exercised at a particular
time and to such other conditions (E.G., exercise could be conditioned on
performance) as the Committee in its discretion may specify upon granting the
SAR or as otherwise provided in this Section 7.
7.6 METHOD OF EXERCISE. To exercise an SAR, the Participant or the other
person(s) entitled to exercise the SAR shall give written notice of exercise to
the Committee, specifying the number of full shares with respect to which the
SAR is being exercised, and, if the Award Agreement provides that the
Participant may elect the method of payment, whether the SAR is to be paid in
cash or Stock.
7.7 PAYMENT UPON EXERCISE. Upon the exercise of an SAR, a Participant
shall be entitled to receive an amount, in cash or whole shares of Stock (or a
combination thereof) as provided in the Award Agreement, equal to the amount by
which the then Fair Market Value of one share of Stock exceeds the exercise
price per share specified in the Award Agreement, multiplied by the number of
shares with respect to which the SAR is exercised. The number of shares of Stock
to be delivered to the Participant upon exercise of an SAR shall be based on the
Fair Market Value of the Stock on the date of exercise. Payment of an SAR shall
be made in cash, shares of Stock, or a combination of cash and shares of Stock,
as provided in the Award Agreement, which may provide the Participant a choice
regarding the form of payment. A certificate or certificates for shares of
Stock acquired upon exercise of an SAR shall be issued in the name of the
Participant and distributed to the Participant as soon as practicable following
exercise, subject to Section 13.3. No fractional shares of Stock will be
issuable upon exercise of an SAR and, unless otherwise provided in the Award
Agreement, the Participant will receive cash in lieu of fractional shares.
SECTION 8 -- LIMITATIONS ON EXERCISE OF OPTIONS AND SARS
AFTER TERMINATION OF EMPLOYMENT OR SERVICE
8.1 After a Participant's Termination of Employment or Termination of
Service, an Option or SAR may be exercised, subject to adjustment as provided in
Section 3.3, only to the extent that the Option or SAR was exercisable
immediately before the Termination of Employment or Service, but in no event
after the expiration date of the Option or SAR as specified in the Award
Agreement. Except to the extent that shorter or longer periods are provided in
the Award Agreement, a Participant's right to exercise an Option or SAR upon
Termination of Employment or Service shall terminate:
(i) At the expiration of three months (Incentive Stock Options)
or one year (Nonqualified Stock Options and SARs) after the Participant's
Retirement; provided, however, if an Incentive Stock Option is not exercised
after three months, it will remain exercisable as if it were a Nonqualified
Stock Option and will be a Nonqualified Stock Option when exercised; or
(ii) At the expiration of one year in the event of Disability of
the Participant; or
<PAGE>
(iii) At the expiration of one year after the Participant's death
if the Participant's Termination of Employment or Service occurs by reason of
death; any Option or SAR exercised under this subparagraph (iii) may be
exercised by the legal representative of the estate of the Participant or by the
person or persons who acquire the right to exercise such Option or SAR by
bequest or inheritance; or
(iv) No later than three months after the Participant's
Termination of Employment or Service for any reason other than those described
in (i) through (iii) above or termination for "Cause" as described in Section
8.2.
8.2 TERMINATION FOR CAUSE. In the event the Committee determines that an
Employee's employment has been terminated for Cause, the Employee shall forfeit
any and all unexercised Option and Stock Appreciation Rights Awards immediately
upon the Termination of Employment. For purposes of this Plan, "Cause" shall
mean the Employee's (i) willful failure to substantially perform such Employee's
reasonably assigned duties on behalf of the Company, (ii) repeated gross
negligence in performing such Optionee's duties, (iii) illegal conduct in
performing such Employee's duties, (iv) willful actions contrary to the
Company's interest, (v) repeated refusal to comply with the reasonable and
lawful instructions of management of the company, or (vi) violation of the
obligations imposed on the Employee under any confidentiality or solicitation
covenants to which the Employee is bound under the terms of the Stock Option
Agreement or otherwise.
SECTION 9 -- RESTRICTED STOCK AWARDS
9.1 GRANT. All Restricted Stock Awards granted under the Plan shall
be evidenced by an Award Agreement in such form as the Committee may from
time to time approve. All Restricted Stock Awards are subject to the terms
and conditions in this Section 9, and such additional terms and conditions
contained in the Award Agreement, which need not be the same in each case,
not inconsistent with the provisions of the Plan, as the Committee finds
desirable. The Company shall issue, in the name of each Participant who is
granted a Restricted Stock Award, a certificate for the shares of Stock
granted in the Award (subject to Section 13.3), as soon as practicable after
the Grant Date. The Secretary of the Company shall hold such certificates for
the Participant's benefit until the Restriction Period lapses or the
Restricted Stock is forfeited to the Company in accordance with the Award
Agreement.
9.2 RESTRICTION PERIOD. The Restriction Period shall be determined by
the Committee, and shall commence on the Grant Date and expire at the time
specified in the Award Agreement. The Committee may provide in an Award
Agreement that a Restriction Period that has not otherwise expired will expire
immediately upon the Retirement, death or Disability of the Participant.
Unless otherwise provided in the Award Agreement, in the event of a
Participant's Termination of Employment or Termination of Service during the
Restriction Period for any reason, the Participant's rights to the Stock subject
to the Restricted Stock Award shall be forfeited and all such Stock shall
immediately be surrendered to the Company.
<PAGE>
9.3 RIGHTS OF PARTICIPANT. During the Restriction Period, the
Participant may not sell, transfer, pledge, assign or otherwise dispose of
shares of Restricted Stock. Any attempt by a Participant to sell, transfer,
pledge, assign or otherwise dispose of Restricted Stock shall cause immediate
forfeiture of the Award. Except as provided in the previous sentence and as
otherwise provided in the Award Agreement, a Participant shall have, with
respect to Restricted Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares and the right to receive all dividends
and other distributions with respect to such shares, provided that the
Participant has become the holder of record of the Stock. The Committee may
provide in an Award Agreement that dividends paid on Restricted Stock must be
reinvested in shares of Stock, which may or may not be subject to the same
Restriction Period applicable to the original Restricted Stock Award. In the
event of any adjustment as provided in Section 3.3 or if any securities are
received as a dividend on Restricted Stock, new or additional shares or
securities shall be subject to the same terms and conditions as the original
Restricted Stock.
9.4 EXPIRATION OF RESTRICTION PERIOD. At the expiration of the
Restriction Period, the restrictions contained in Section 9.3 and in the Award
Agreement shall, except as otherwise specifically provided in the Award
Agreement, expire, and the Company shall, subject to the provisions of Section
13.3 and the Award Agreement, deliver to the Participant a certificate
evidencing the Participant's ownership of the Stock free of the restrictions.
9.5 NONTRANSFERABILITY. No Restricted Stock Award shall be transferable
other than by will or the laws of descent and distribution until any
restrictions applicable to such Award have lapsed and a certificate evidencing
the Participant's ownership of the stock free of restrictions has been issued.
SECTION 10 -- PERFORMANCE SHARE AWARDS
10.1 GRANT. All Performance Share Awards granted under the Plan shall be
evidenced by an Award Agreement in such form as the Committee may from time to
time approve. All Performance Share Awards are subject to the terms and
conditions of this Section 10 and such additional terms and conditions contained
in the Award Agreement, which terms and conditions need not be the same in each
case, not inconsistent with the Plan, as the Committee finds desirable.
10.2 PERFORMANCE CRITERIA. The performance criteria for each Performance
Share Award shall be determined by the Committee, and shall may consist of
service requirements and any measures of performance of the Company or any
Subsidiary or such other criteria as the Committee specifies. At the times
specified in the Award Agreement, the Committee shall evaluate actual
performance during such performance period compared to the performance criteria
established for the Award, and shall determine the extent to which a cash or
stock payment is to be made pursuant to the Performance Share Award. The
Committee may provide in an Award Agreement that one or more performance
criteria under an Award will be deemed to have been met upon the Retirement,
death or Disability of the Participant. Unless otherwise provided in the Award
Agreement, in the event of a Participant's Termination of Employment or
Termination of
<PAGE>
Service for any reason before performance criteria have been met, the
Participant's rights to payment of a Performance Share Award shall be
forfeited.
10.3 PAYMENT. Performance Share Awards will be paid only after the
Committee determines, in its sole discretion, that the performance criteria
established under Section 10.2 have been achieved, subject to such other terms
and conditions as may be included in the Award Agreement and to the Committee's
right to waive any performance criteria in its discretion. Payment shall be
made, as provided in the Award Agreement (which may provide the Participant a
choice regarding the form of payment), in cash or whole shares of Stock (or a
combination thereof) having a Fair Market Value equal to the number of shares of
Stock represented by the Performance Share Award. A certificate or certificates
for shares of Stock to be issued pursuant to a Performance Share Award shall be
issued in the name of the Participant and distributed to the Participant as soon
as practicable following the Committee's determination that performance criteria
have been met, subject to Section 13.3. No fractional shares of Stock will be
issued in connection with a Performance Share Award and, unless otherwise
provided in the Award Agreement, the Participant will receive cash in lieu of
fractional shares.
10.4 RIGHTS OF PARTICIPANT. A Participant shall not, with respect to a
Performance Share Award or any Stock that may in the future be issued under it,
have any rights as a stockholder of the Company, such as the right to vote the
shares or the right to receive dividends and other distributions, at any time
before the Participant has become the holder of record of the Stock.
10.5 NONTRANSFERABILITY. No Performance Share Award shall be
transferable other than by will or by the laws of descent and distribution.
SECTION 11 -- STOCK OPTION AWARDS TO INDEPENDENT DIRECTORS
11.1 GENERAL. Options granted to Independent Directors pursuant to this
Section 11 are Nonqualified Stock Options and are governed by Section 83 of the
Code. Neither the Board nor the Committee shall have any discretion with
respect to the terms and conditions set forth in this Section 11 governing
Options awarded to Independent Directors.
11.2 INITIAL GRANT. Each Independent Director in office on the date
the Company completes the sale of not less than 700,000 shares of Stock in an
initial public offering registered pursuant to the Securities Act of 1933, as
amended (the "IPO Closing Date"), will automatically be granted an Option for
10,000 shares of Stock as of the IPO Closing Date. Each Independent Director
first elected to the Board after the IPO Closing Date will automatically be
granted an Option for 10,000 shares of Stock as of the date of his initial
election to the Board by the Corporation's stockholders.
11.3 ANNUAL GRANT. Each Independent Director in office on January 1 of
each year following the calendar year in which the IPO Closing Date occurs will
automatically be granted an Option for 1,000 shares of Stock as of that date.
<PAGE>
11.4 EXERCISE PRICE. The exercise price per share of Stock covered by an
Option granted to an Independent Director as of the IPO Closing Date shall be
the price per share at which Stock is sold in the initial public offering. The
exercise price per share of Stock covered by an Option granted to an Independent
Director after the IPO Closing Date shall be the Fair Market Value of the Stock
on the Grant Date.
11.5 OPTION PERIOD. Options granted pursuant to this Section 11 shall
become exercisable with respect to (i) one-third of the number of shares
subject to the Option on the first anniversary of the Grant Date, (ii)
two-thirds of the number of shares subject to the Option on the second
anniversary of the Grant Date, and (iii) all of the shares subject to the
Option on the third anniversary of the Grant Date. No Option shall be
exercisable later than ten years from the Grant Date. An Option may be
exercised by an Independent Director, from time to time in part or as a
whole, so long as it is valid, outstanding and exercisable.
11.6 METHOD OF EXERCISE. To exercise an Option, the Independent Director
or the other person(s) entitled to exercise the Option shall deliver to the
Committee (i) a written notice of exercise in such form as the Committee may
prescribe, specifying the number of full shares to be purchased; (ii) payment in
full of the exercise price in accordance with Section 11.7; and (iii) any
required withholding taxes as provided in Section 14. No shares of Stock shall
be issued unless the Participant has fully complied with the provisions of this
Section 11.6.
11.7 PAYMENT OF EXERCISE PRICE. Subject to the rules of Section 16 of
the Exchange Act and any exchange on which the Stock is traded at any relevant
time, payment of the exercise price may be made (i) in cash; (ii) in shares of
Stock (based on the Fair Market Value of the Stock on the date the Option is
exercised) owned by the Participant (or jointly by the Participant and the
Participant's spouse) for at least six months evidenced by negotiable
certificates or by a written attestation of ownership and consent to issuance,
in satisfaction of the Option or portion thereof being exercised, of only the
net shares of Stock (those equal in value to the difference between the exercise
price and the then Fair Market Value); or (iii) by any combination thereof.
11.8 TRANSFERABILITY. Options granted pursuant to this Section 11 shall
be transferable to the extent the Committee is authorized by Section 6.5 to
allow transfer in an Award Agreement.
11.9 TERMINATION OF SERVICE. An Option granted pursuant to this Section
11 may be exercised by an Independent Director following Termination of Service,
subject to adjustment as provided in Section 3.3, only to the extent that the
Option was exercisable immediately before the Termination of Service, but in no
event after the earlier of the expiration date of the Option as provided in
Section 11.5 or the period described in Section 8.
SECTION 12 -- AMENDMENTS AND TERMINATION
12.1 AMENDMENTS AND TERMINATION. The Committee or the Board may terminate,
suspend, amend or alter the Plan, but no action of the Committee may:
(a) Impair or adversely affect the rights of a Participant under an
outstanding
<PAGE>
Award theretofore granted, without the Participant's consent, other than as
provided in Section 13.3; or,
(b) Without the approval of the stockholders:
(i) Increase the total amount of Stock which may be delivered
under the Plan pursuant to Incentive Stock Options or the limit in Section 5 on
grants to individual Employees, except as is provided in Section 3.3 of the
Plan;
(ii) Decrease the exercise price of any Incentive Stock Option
to less than the exercise price on the date the Option was granted;
(iii) Change the class of Employees eligible to receive Incentive
Stock Option Awards under the Plan; or
(iv) Extend the period during which Incentive Stock Option
Awards may be granted, as specified in Section 16.
12.2 CONDITIONS ON AWARDS. In granting an Award, the Committee may
establish any conditions that it determines are consistent with the purposes and
provisions of the Plan, including, without limitation, a condition that the
granting of an Award is subject to the surrender for cancellation of any or all
outstanding Awards held by the Participant. Any new Award made under this
Section may contain such terms and conditions as the Committee may determine,
including an exercise price that is lower than that of any surrendered Award.
12.3 SELECTIVE AMENDMENTS. Any amendment or alteration of the Plan may be
limited to, or may exclude from its effect, particular classes of Participants.
SECTION 13 -- GENERAL PROVISIONS
13.1 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive compensation, and the Plan is not intended to
constitute a plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and shall not extend, with respect to any
payments not yet made to a Participant, any rights that are greater than those
of a general creditor of the Company.
13.2 TRANSFERS, LEAVES OF ABSENCE AND OTHER CHANGES IN EMPLOYMENT STATUS.
For purposes of the Plan (i) a transfer of an Employee from the Company to a
Subsidiary or vice versa, or from one Subsidiary to another, or (ii) a leave of
absence not in excess of 90 days duly authorized in writing by the Company or a
Subsidiary for military service, sickness or any other purpose approved by the
Company or a Subsidiary, shall not be Termination of Employment. The Committee,
in its sole discretion subject to the terms of the Award Agreement, shall
determine the disposition of all Awards made under the Plan in all cases
involving any substantial change in employment status other than an event
described in this Section 13.2.
<PAGE>
13.3 RESTRICTIONS ON DISTRIBUTION OF STOCK. The Committee may require
Participants receiving Stock pursuant to any Award under the Plan to represent
to and agree with the Company in writing that the Participant is acquiring the
Stock for investment without a view to distribution thereof. No Stock shall be
issued or transferred pursuant to an Award unless the Committee determines, in
its sole discretion, that such issuance or transfer complies with all relevant
provisions of law, including but not limited to, the (i) limitations, if any,
imposed in the state of issuance or transfer, (ii) restrictions, if any, imposed
by the Securities Act of 1933, as amended, the Exchange Act, and the rules and
regulations promulgated thereunder, and (iii) requirements of any stock exchange
upon which the Stock may then be listed. The certificates for Stock issued
pursuant to an Award may include any legend that the Committee deems appropriate
to reflect any restrictions on transfer. The Company shall not be obligated to
register any securities covered hereby or to take any affirmative action in
order to cause the issuance of Stock pursuant to an Award to comply with any law
or regulation of any governmental authority.
13.4 ASSIGNMENT PROHIBITED. Subject to the provisions of the Plan and the
Award Agreement, no Award shall be assigned, transferred, pledged or otherwise
encumbered by the Participant otherwise than by will or by the laws of descent
and distribution, and an Award shall be exercisable, during the Participant's
lifetime, only by the Participant. Awards shall not be pledged or hypothecated
in any way, and shall not be subject to any execution, attachment, or similar
process. Any attempted transfer, assignment, pledge, hypothecation or other
disposition of an Award contrary to the provisions of the Plan, or the levy of
any process upon an Award, shall be null, void and without effect.
13.5 OTHER COMPENSATION PLANS. Nothing contained in the Plan shall prevent
the Company from adopting other compensation arrangements, subject to
stockholder approval if such approval is required.
13.6 LIMITATION OF AUTHORITY. No person shall at any time have any right
to receive an Award hereunder and no person other than a duly authorized member
of the Committee shall have authority to enter into an agreement on behalf of
the Company for the granting of an Award or to make any representation or
warranty with respect thereto. Participants shall have no rights in respect to
any Award except as set forth in the Plan and the applicable Award Agreement.
13.7 NO RIGHT TO EMPLOYMENT. Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan or any Award Agreement, nor any provision of the Plan,
shall be construed as giving to any person the right to be retained in the
employ or service of the Company or any other entity as an employee, director or
independent contractor or to interfere in any way with the right of the Company
or any other entity to terminate any person's service or employment at any time.
13.8 POOLING. Notwithstanding anything in the Plan to the contrary, if
any right under or feature of the Plan would cause to be ineligible for pooling
a transaction that would, but for the right or feature hereunder, be eligible
for such accounting treatment, the Board of Directors, upon recommendation of
the Committee, may modify or adjust the right or feature so that the
<PAGE>
transaction will be eligible for pooling of interest accounting. Such
modification or adjustment may include payment of cash or issuance to a
Participant of Stock having a Fair Market Value equal to the cash value of
such right or feature.
13.9 NOT A SHAREHOLDER. The person or persons entitled to exercise, or
who have exercised, an Option or SAR shall not be entitled to any rights as a
shareholder of the Company with respect to any Stock to be issued upon such
exercise until such persons or persons shall have become the holder of record
of such Stock.
13.10 SEVERABILITY. If any provision of this Plan is found to be illegal
or unenforceable by any court of law in any jurisdiction, the remaining
provisions hereof and thereof shall be severable and enforceable in accordance
with their terms, and all provisions shall remain enforceable in any other
jurisdiction.
13.11 HEADINGS. The headings in this Plan have been inserted solely for
convenience of reference and shall not be considered in the interpretation or
construction of this Plan.
13.12 GOVERNING LAW. The validity, interpretation, construction and
administration of this Plan shall be governed by the laws of the Company's state
of incorporation, as it may change from time to time.
SECTION 14 -- TAXES
14.1 TAX WITHHOLDING. All Participants shall make arrangements
satisfactory to the Committee to pay to the Company or a Subsidiary, any
federal, state or local taxes required to be withheld with respect to an Award
issued under the Plan at the time such taxes are required to be withheld. If a
Participant fails to make such tax payments, the Company and its Subsidiary
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant, including a
payment related to any Award under the Plan.
14.2 SHARE WITHHOLDING. If permitted by the Committee, a tax withholding
obligation may be satisfied by the Company retaining shares of Stock with a fair
market value equal to the amount required to be withheld. Any Stock so withheld
will not be counted against the number of shares available for issuance under
Section 3.1 of the Plan.
SECTION 15 -- EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date (the "Effective Date") when the
Board of Directors adopts the Plan, subject to approval of the Plan by a
majority of the total votes eligible to be cast at a meeting of shareholders
following adoption of the Plan by the Board of Directors, which vote shall be
taken within 12 months of the Effective Date. Awards may be granted before
obtaining shareholder approval of the Plan, but any such Awards shall be
contingent upon such shareholder approval being obtained and may not be
exercised before such approval.
<PAGE>
SECTION 16 -- TERM OF PLAN
The Plan has no termination date, provided that no Incentive Stock Option
may be issued on or after the tenth anniversary of the Effective Date as defined
in Section 15.
* * * * *
<PAGE>
TUMBLEWEED, LLC
FRANCHISE AGREEMENT
<PAGE>
TUMBLEWEED, LLC
FRANCHISE AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
1. PREAMBLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. GRANT OF FRANCHISE. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. GRANT OF FRANCHISE.. . . . . . . . . . . . . . . . . . . . . . . . 5
B. MINIMUM NET WORTH. . . . . . . . . . . . . . . . . . . . . . . . . 5
C. TERM AND RENEWAL. . . . . . . . . . . . . . . . . . . . . . . 5
D. EXCLUSIVITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
E. RIGHTS RETAINED BY TUMBLEWEED.. . . . . . . . . . . . . . . . 7
4. DUTIES OF TUMBLEWEED. . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. EQUIPMENT SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . 7
B. DESIGN SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . 7
C. MANUAL/APPROVED SUPPLIER LISTS . . . . . . . . . . . . . . . . . . 7
D. SALES REPORTING SYSTEM . . . . . . . . . . . . . . . . . . . . . . 8
E. PROTECTION OF MARKS. . . . . . . . . . . . . . . . . . . . . . . . 8
F. OPENING ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . 8
G. INSPECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H. ADVICE REGARDING MODIFICATIONS. . . . . . . . . . . . . . . . 8
I. TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
J. ADDITIONAL TRAINING. . . . . . . . . . . . . . . . . . . . . . . . 9
K. CONTINUING ASSISTANCE AND RESEARCH . . . . . . . . . . . . . . . . 9
5. DUTIES OF FRANCHISEE. . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. INITIAL FRANCHISE FEE. . . . . . . . . . . . . . . . . . . . . . . 9
B. MONTHLY REPORT, ROYALTY AND
DIRECT DEBIT AUTHORIZATION . . . . . . . . . . . . . . . . . . . . 9
C. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D. SITE SELECTION AND LEASE. . . . . . . . . . . . . . . . . . . 11
E. RESTAURANT DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . 12
F. RESTAURANT OPENING . . . . . . . . . . . . . . . . . . . . . . . . 13
G. SIGNS AND NAMES. . . . . . . . . . . . . . . . . . . . . . . . . . 14
H. EQUIPMENT, FIXTURES, FURNISHINGS . . . . . . . . . . . . . . . . . 14
I. RESTAURANT PRODUCTS AND SERVICES. . . . . . . . . . . . . . . 14
i
<PAGE>
SECTION PAGE
J. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS. . . . . . . . . . . 15
K. INSPECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
L. MANUAL, SPECIFICATIONS, STANDARDS AND PROCEDURES . . . . . . . . . 17
M. USE OF SALES REPORTING SYSTEM; TAX RETURNS . . . . . . . . . . . . 18
N. OPERATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
O. EMPLOYEES' TRAINING AND UNIFORMS . . . . . . . . . . . . . . . . . 19
P. MARKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Q. CLEANLINESS AND REPAIR; RENOVATION . . . . . . . . . . . . . . . . 21
R. TIME OPEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
S. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . 22
T. LITIGATION; NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 22
U. INSURANCE; CONDEMNATION AND CASUALTY . . . . . . . . . . . . . . . 23
V. RELATIONSHIP OF PARTIES/INDEMNIFICATION. . . . . . . . . . . . . . 24
W. CONSENT TO PUBLICATIONS. . . . . . . . . . . . . . . . . . . . . . 26
X. LOCAL ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . 26
Y. NATIONAL ADVERTISING PROGRAM . . . . . . . . . . . . . . . . . . . 27
6. CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 28
7. COVENANTS NOT TO COMPETE. . . . . . . . . . . . . . . . . . . . . . . . 30
A. USE OF TUMBLEWEED SYSTEM . . . . . . . . . . . . . . . . . . . . . 30
B. COMPETITION DURING TERM. . . . . . . . . . . . . . . . . . . . . . 31
C. COMPETITION AFTER TERMINATION OR EXPIRATION. . . . . . . . . . . . 32
8. TERMINATION OF THE FRANCHISE. . . . . . . . . . . . . . . . . . . . . . 33
A. BY FRANCHISEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
B. BY TUMBLEWEED. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
C. TUMBLEWEED'S RIGHTS ON TERMINATION OR EXPIRATION . . . . . . . . . 35
D. CONTINUING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . 37
E. TUMBLEWEED'S RIGHT TO PURCHASE
ASSETS OF THE RESTAURANT . . . . . . . . . . . . . . . . . . . . . 37
ii
<PAGE>
SECTION PAGE
9. TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
A. BY TUMBLEWEED. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
B. FRANCHISEE MAY NOT TRANSFER
WITHOUT APPROVAL OF TUMBLEWEED . . . . . . . . . . . . . . . . . . 38
C. CONDITIONS FOR APPROVAL OF TRANSFER. . . . . . . . . . . . . . . . 40
D. TRANSFER TO A WHOLLY-OWNED CORPORATION . . . . . . . . . . . . . . 42
E. DEATH OR INCAPACITY OF FRANCHISEE. . . . . . . . . . . . . . . . . 43
F. PUBLIC OR PRIVATE OFFERING . . . . . . . . . . . . . . . . . . . . 43
G. EFFECT OF CONSENT TO TRANSFER. . . . . . . . . . . . . . . . . . . 43
H. TUMBLEWEED's RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . 43
I. ADDITIONAL RESTRICTIONS ON FRANCHISEE. . . . . . . . . . . . . . . 44
J. FRANCHISEE'S RIGHT OF FIRST REFUSAL
TO PERFORM DELIVERY SERVICE. . . . . . . . . . . . . . . . . . . . 45
10. INTERPRETATION AND ENFORCEMENT. . . . . . . . . . . . . . . . . . . . . 46
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS. . . . . . . . . 46
B. WAIVER OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 46
C. RIGHTS OF PARTIES ARE CUMULATIVE . . . . . . . . . . . . . . . . . 47
D. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . 48
E. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
F. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
G. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
H. CONSENT TO JURISDICTION AND VENUE.. . . . . . . . . . . . . . 51
I. WAIVER OF PUNITIVE DAMAGES.. . . . . . . . . . . . . . . . . . . . 51
J. WAIVER OF JURY TRIAL.. . . . . . . . . . . . . . . . . . . . . . . 51
K. LIMITATIONS OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . 52
L. COSTS AND LEGAL FEES . . . . . . . . . . . . . . . . . . . . . . . 52
11. NOTICES AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 52
12. ACKNOWLEDGMENTS, REPRESENTATIONS AND COVENANTS. . . . . . . . . . . . . 53
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TUMBLEWEED, LLC
FRANCHISE AGREEMENT
This is an Agreement dated as of the date referenced in Section 11.13 by
and among TUMBLEWEED, LLC, a Kentucky limited liability company with its
principal office at 1900 Mellwood Avenue, Louisville, Kentucky 40206
("TUMBLEWEED"), and , whose principal
business address is ("FRANCHISEE").
1. PREAMBLES.
TUMBLEWEED and its Affiliates (as defined below) have developed and
continue to develop methods of operating distinctive restaurants offering
distinctive Mexican and American Southwest-style food, mesquite flavored food
and other foods approved by TUMBLEWEED (the "Products" as defined in more
detail below). Such a restaurant is defined below as a "TUMBLEWEED
Restaurant." TUMBLEWEED Restaurants operate pursuant to the "TUMBLEWEED
System" (defined below). TUMBLEWEED operates, and licenses others to
operate, TUMBLEWEED Restaurants using the TUMBLEWEED System and the
TUMBLEWEED Marks (as defined below).
TUMBLEWEED grants to certain qualified persons or entities who meet
TUMBLEWEED'S qualifications and who are willing to undertake the investment
and effort, franchises to own and operate a TUMBLEWEED Restaurant.
FRANCHISEE has applied for a Franchise to own and operate a TUMBLEWEED
Restaurant at the Site (defined below). FRANCHISEE'S application and Site
have been approved by TUMBLEWEED in reliance upon all the representation made
in such application.
2. CERTAIN DEFINITIONS.
As used in this Agreement, the terms listed below shall have the
meanings that follow them. Other terms used in this Agreement are defined
and construed in the context in which they occur:
"AFFILIATE" - Any person, entity or company that directly or indirectly
owns or controls TUMBLEWEED, that is directly or indirectly owned or
controlled by TUMBLEWEED, or that is under common control with TUMBLEWEED.
For purposes of this definition, "control" means the power to direct or cause
the direction of the management and policies of an entity.
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"APPROVED SUPPLIER" - A supplier that TUMBLEWEED has approved in writing
to supply one or more designated products to TUMBLEWEED Restaurants.
"COMPANY RESTAURANTS" - TUMBLEWEED Restaurants owned and operated by
TUMBLEWEED or any of its Affiliates.
"COMPETITIVE BUSINESS" - A business or enterprise other than a
TUMBLEWEED Restaurant, that (a) offers Mexican or American Southwest-style
food or food prepared on a mesquite-flavored food for consumer consumption
through on-premises or carry-out dining, delivery service, catering service
or other distribution channel; or (b) grants or has granted franchises or
licenses or establishes or has established joint ventures, for the
development and/or operation of an enterprise or business described in the
foregoing clause (a).
"EXCLUSIVE AREA" - An area within a three (3) mile radius of the Site,
except that the Exclusive Area shall not include any area outside any
development area as defined in any development agreement between TUMBLEWEED
and FRANCHISEE, whether or not the Development Agreement has expired or been
terminated.
"FRANCHISE" - The right to operate a TUMBLEWEED Restaurant at a
particular location and to use the Marks and the TUMBLEWEED System in the
operation thereof.
"GROSS SALES" - The entire amount of the revenues from all business
conducted in, on, about, or from the RESTAURANT, whether in the form of sales of
goods or services, whether such revenues are evidenced by cash, credit, checks,
gift certificates, services, property or other means of exchange, and whether
such sales are of food, beverages, liquor, tobacco products, vending machine
items, game machine services, or other services, merchandise, or products of any
nature whatsoever. Gross Sales, however, shall not include (a) the excess of
any over-rings over actual sales, (b) the amount of any refunds, allowances, or
discounts to customers or employees granted for promotional or other valid
business purposes, provided the actual receipts, if any, have been included in
full in Gross Sales, (c) the amount of any excise or sales tax levied upon
retail sales and actually paid over to the appropriate governmental authority,
or (d) isolated sales of non-inventory items or the bulk sale of the business
itself in a manner permitted under this Agreement.
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"MANUAL" - The confidential operations manual titled "TUMBLEWEED
Restaurant Owner's Operations Manual" as TUMBLEWEED may amend and revise it
from time to time as described in Section 5.M.
"MENU" - The standard menu pertaining to TUMBLEWEED Restaurants included
in the Manual as TUMBLEWEED may amend, modify and revise it from time to
time, in its sole discretion.
"NATIONAL ADVERTISING FUND" - The account created by TUMBLEWEED pursuant
to Section 5.Y.
"NATIONAL ADVERTISING PROGRAM" - The advertising program to be conducted
on behalf of all TUMBLEWEED Restaurants under certain circumstances in the
discretion of TUMBLEWEED pursuant to Section 5.Y.
"OPERATOR" - The individual primarily responsible for the successful
operation of the TUMBLEWEED Restaurant located at the Site designated on
EXHIBIT A.
"OWNERS" - All persons or entities holding direct or indirect, legal or
beneficial ownership interests in FRANCHISEE, and all persons who have other
direct or indirect property rights in FRANCHISEE or this Agreement. All
current owners are listed in EXHIBIT A of this Agreement.
"PERSON" - An individual, partnership, corporation, or other business
entity.
"PRODUCTS" - Products TUMBLEWEED approves or requires from time to time
in its sole discretion for sale at or from the RESTAURANT; including without
limitation the items listed on the Menu and the ingredients thereof including
the Secret Recipes.
"REQUIRED MINIMUM NET WORTH" - A minimum net worth, determined in
accordance with generally accepted accounting principles, of $3,000,000 if
FRANCHISEE is an individual and $5,000,000 if FRANCHISEE is a corporation,
partnership or limited liability company.
"RESTAURANT" - FRANCHISEE'S single TUMBLEWEED Restaurant to be operated
under this Agreement at the Site designated on EXHIBIT A of this Agreement.
"SALES REPORTING SYSTEM" - The recordkeeping and reporting system used
in all franchised TUMBLEWEED Restaurants as a part of the TUMBLEWEED System
as TUMBLEWEED may amend it from time to time.
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"SECRET RECIPES" - The unique and secret formulas for the preparation of
certain sauces and food items developed by TUMBLEWEED for use in the
preparation of Mexican and American Southwest-style food served in TUMBLEWEED
Restaurants including, without limitation, the secret mix of spices included
in such sauces and food items.
"SITE" - The location of the RESTAURANT identified in EXHIBIT A of this
Agreement.
"TUMBLEWEED MARKS" - The tradenames TUMBLEWEED and TUMBLEWEED MEXICAN
FOOD, and the marks TUMBLEWEED and TUMBLEWEED MEXICAN FOOD, with the mark
TUMBLEWEED being used by itself or with TUMBLEWEED and TUMBLEWEED MEXICAN
FOOD each being used as composite marks in conjunction with a distinctive
circular design featuring a depiction of a cactus plant, sun and mountain
range, and such other distinctive service marks and trademarks that
TUMBLEWEED may own from time to time and are identified by TUMBLEWEED in
writing to FRANCHISEE as a TUMBLEWEED Mark for use in TUMBLEWEED Restaurants.
"TUMBLEWEED RESTAURANT" - A restaurant that offers full table-side
service operated under the TUMBLEWEED Marks and through the use of the
TUMBLEWEED System, whether owned by TUMBLEWEED or by some other Person under
a franchise agreement with TUMBLEWEED or its Affiliates. The term
"TUMBLEWEED Restaurants" does not include restaurants typically located in a
shopping mall food courts ("food court restaurants") that offer a limited
menu and counter service only, nor does the term "TUMBLEWEED Restaurants"
include locations that offer primarily delivery service to residences and
business facilities ("DELIVERY UNIT(S)").
"TUMBLEWEED SYSTEM" - The total business system, as it now exists or may
exist as changed from time to time by TUMBLEWEED, that has been developed or
may hereafter be developed by TUMBLEWEED for the operation of TUMBLEWEED
Restaurants including without limitation:
(a) The trade name "TUMBLEWEED MEXICAN FOOD & MESQUITE GRILL."
(b) The Manual.
(c) The Sales Reporting System.
(d) The Menu, Products and Secret Recipes.
(e) The TUMBLEWEED Marks.
(f) TUMBLEWEED'S trade secrets and know-how for the operation of
TUMBLEWEED Restaurants.
(g) A distinctive exterior sign design and arrangement.
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(h) A standardized, uniform restaurant service, identified with the
word "TUMBLEWEED" providing distinctive Mexican and American
Southwest-style food, mesquite-flavored food, and other foods, using
certain standards, specifications, methods, techniques, procedures, and
management systems, all in accordance with fair and ethical policies and
practices, high standards of efficiency, courtesy, and cleanliness, and
of a distinctive nature and high quality.
3. GRANT OF FRANCHISE.
A. GRANT OF FRANCHISE.
TUMBLEWEED hereby grants to FRANCHISEE a nontransferable license and
franchise to use the TUMBLEWEED System in the operation of the RESTAURANT at
the Site, and FRANCHISEE accepts such license and franchise, in accordance
with the further terms and conditions of this Agreement. FRANCHISEE
understands and agrees that it is not granted any rights under this Agreement
to offer Products or services other than as expressly authorized in this
Agreement, and that without TUMBLEWEED's prior written consent, FRANCHISEE
shall have no right to offer Products and services through food court
restaurants and/or Delivery Units.
B. MINIMUM NET WORTH.
FRANCHISEE represents and warrants to TUMBLEWEED that it has a net worth
(determined in accordance with generally accepted accounting principles) equal
to or exceeding the Required Minimum Net Worth. FRANCHISEE covenants that it
shall maintain a net worth (determined in accordance with generally accepted
accounting principles) equal to or exceeding the Required Minimum Net Worth
throughout the term of this Agreement. FRANCHISEE represents and warrants that
its share structure and initial capitalization are as set forth in EXHIBIT A and
covenants it will not vary from that share structure without the prior written
approval of TUMBLEWEED.
C. TERM AND RENEWAL.
(1) The license and franchise granted herein shall be for a period of
twenty (20) years from the date of this Agreement.
(2) At the expiration of such term, FRANCHISEE may renew this
Agreement at its option for an additional period of ten (10) years by
meeting the conditions stated below:
(i) FRANCHISEE shall pay TUMBLEWEED a renewal fee of $5,000 or
its legal worth, whichever is greater.
(ii) FRANCHISEE shall enter into a new franchise agreement and
any ancillary agreements then used by TUMBLEWEED for the granting of
franchises to
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<PAGE>
operate TUMBLEWEED Restaurants (with appropriate modifications to
reflect the fact that the franchise agreement relates to a renewal
franchise). The new franchise agreement shall supersede this Agreement
and may include significant changes from this Agreement including but
not limited to higher royalty and advertising obligation requirements.
(iii) FRANCHISEE shall give TUMBLEWEED written notice of its
election to renew not less than six (6) months nor more than twelve (12)
months before the end of the term.
(iv) FRANCHISEE shall not, when notice is given or at the time of
renewal, be in default of any provision of this Agreement, any amendment
hereof, or any successor hereto any other agreements with TUMBLEWEED or its
affiliates, and shall have substantially complied during their respective
terms with the terms and conditions of all such agreements.
(v) FRANCHISEE and its Owners shall execute a general release in
a form prescribed by TUMBLEWEED.
(vi) FRANCHISEE shall have performed such renovation,
replacement, redecorating, remodeling, and repairs as TUMBLEWEED may
require, which may be in addition to the actions required by Section 4.D,
to cause the RESTAURANT to reflect the image of TUMBLEWEED Restaurants then
being developed and to employ the equipment, fixtures, furnishings, and
furniture conforming to the specifications for such items being used in
TUMBLEWEED Restaurants then being developed.
(vii) Failure by FRANCHISEE and its Owners to sign and
deliver to TUMBLEWEED the agreements and releases described above within
thirty (30) days after delivery to FRANCHISEE shall be deemed an election
by FRANCHISEE not to renew.
D. EXCLUSIVITY.
So long as FRANCHISEE is in full compliance with this Agreement, during
the term of this Agreement, without FRANCHISEE'S prior written consent,
TUMBLEWEED shall not operate, and shall not license, franchise or otherwise
authorize any Person to operate, any other TUMBLEWEED Restaurant within the
Exclusive Area. In the event TUMBLEWEED and/or its Affiliates license,
franchise or otherwise authorize any Person to operate delivery service of
Products within the Exclusive Area, FRANCHISEE shall have a right of first
refusal to operate such delivery service as described in Section 9.J.
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E. RIGHTS RETAINED BY TUMBLEWEED.
Except as expressly limited by Paragraph D above, TUMBLEWEED (on behalf
of itself and its Affiliates) retains all rights with respect to TUMBLEWEED
Restaurants, the TUMBLEWEED Marks and the sale of the Products and services,
anywhere in the world, including, without limitation: (i) the right to
operate or grant others the right to operate TUMBLEWEED Restaurants at such
locations anywhere outside the Exclusive Area regardless of its proximity to
the RESTAURANT and on such terms and conditions as TUMBLEWEED, in its sole
discretion, deems appropriate; (ii) the right to operate or grant others the
right to operate restaurants under other service marks or trademarks at such
locations, including in the Exclusive Area as TUMBLEWEED, in its sole
discretion, deems appropriate; (iii) the right to develop, market, produce,
distribute, and/or sell Products through any channel of distribution under or
in association with the TUMBLEWEED Marks or any other service marks or
trademarks including in the Exclusive Area, subject to Section 9.J.; (iv) the
right to develop, market, produce, distribute and/or sell any other product
or service or own or operate any other business under the TUMBLEWEED Marks or
any other service marks or trademarks including in the Exclusive Area.
4. DUTIES OF TUMBLEWEED.
TUMBLEWEED shall perform or cause to be performed the following duties
and services for FRANCHISEE.
A. EQUIPMENT SPECIFICATIONS.
TUMBLEWEED shall make available to FRANCHISEE specifications for
equipment and furniture suitable for use in a TUMBLEWEED Restaurant.
B. DESIGN SPECIFICATIONS.
TUMBLEWEED will also make available to FRANCHISEE at its request general
layouts, drawings and specifications for a typical TUMBLEWEED Restaurant,
including mandatory and suggested specifications for dimensions, designs,
image, interior layout, finish materials and color scheme.
C. MANUAL/APPROVED SUPPLIER LISTS.
TUMBLEWEED shall loan FRANCHISEE a copy of the Manual, which shall
remain the property of TUMBLEWEED. The Manual may be changed, modified, or
supplemented from time to time whenever TUMBLEWEED, in its sole discretion,
shall deem such to be necessary. Any reference in this Agreement to the
Manual shall be deemed to be a reference to the Manual as it may be so
changed, modified, or supplemented from time to time.
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<PAGE>
TUMBLEWEED shall provide FRANCHISEE with a list of all designated approved
suppliers as described in more detail in Section 5.J. herein which list shall
remain the property of TUMBLEWEED.
D. SALES REPORTING SYSTEM.
TUMBLEWEED shall provide FRANCHISEE with documents and training
essential to the operation of the Sales Reporting System for use by
FRANCHISEE in the operation of the RESTAURANT and the furnishing of reports
to TUMBLEWEED.
E. PROTECTION OF MARKS.
TUMBLEWEED shall comply with its obligation with respect to FRANCHISEE's
use of the TUMBLEWEED Marks as described in Section 5.P of this Agreement.
F. OPENING ASSISTANCE.
If FRANCHISEE shall give TUMBLEWEED thirty (30) days advance notice of
the opening of the RESTAURANT, TUMBLEWEED, at its option and in its
discretion, shall provide FRANCHISEE such assistance as TUMBLEWEED determines
is required in connection with the opening of the RESTAURANT, including
assistance by TUMBLEWEED'S personnel in the planning and development of
preopening and promotional programs.
G. INSPECTIONS.
TUMBLEWEED shall inspect the RESTAURANT at such intervals as TUMBLEWEED
deems appropriate and may make recommendations to FRANCHISEE from time to
time regarding methods of improving the efficiency of operations at the
RESTAURANT.
H. ADVICE REGARDING MODIFICATIONS.
TUMBLEWEED shall advise FRANCHISEE of new developments, modifications,
changes, or improvements in the TUMBLEWEED System as they may occur from time
to time.
I. TRAINING.
TUMBLEWEED shall provide four (4) to twelve (12) weeks of training to
the Operator designated in EXHIBIT A of this Agreement, and three (3) other
managers or supervisors of the RESTAURANT, the length of training to be
determined by TUMBLEWEED for each trainee. All training shall be conducted
at one or more TUMBLEWEED Restaurants designated by TUMBLEWEED. The trainees
shall receive no compensation from TUMBLEWEED during such training periods
and all of such trainees' compensation and expenses shall be paid by
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FRANCHISEE. If at any time a new Operator is agreed upon by TUMBLEWEED and
FRANCHISEE, TUMBLEWEED may in its reasonable discretion require such new
Operator to receive the same training, and TUMBLEWEED shall be due a fee of
$1,000 for providing such training.
J. ADDITIONAL TRAINING.
TUMBLEWEED shall provide FRANCHISEE with continuing training programs
for reasonable fees as new and more efficient procedures are made a part of
the TUMBLEWEED System. Participation in such additional training may be
mandatory or optional at TUMBLEWEED's sole discretion, and FRANCHISEE shall
be responsible for the salaries, and the transportation and living expenses,
of the trainees.
K. CONTINUING ASSISTANCE AND RESEARCH.
TUMBLEWEED shall provide such periodic continuing individual or group
advice, consultation, and assistance rendered by personal visits, telephone,
or bulletins as TUMBLEWEED may deem necessary and appropriate. TUMBLEWEED
shall engage in continuing research and development regarding improved
operating procedures and product improvement and shall inform FRANCHISEE of
improved methods of operation applicable to the TUMBLEWEED System.
5. DUTIES OF FRANCHISEE.
FRANCHISEE shall perform the following duties to TUMBLEWEED.
A. INITIAL FRANCHISE FEE.
Upon the execution of this Agreement, FRANCHISEE shall pay TUMBLEWEED an
initial franchise fee of $35,000.
B. MONTHLY REPORT, ROYALTY AND
DIRECT DEBIT AUTHORIZATION.
(1) On or before the fifteenth (15th) day of each month, FRANCHISEE
shall:
(a) Submit to TUMBLEWEED a complete and correct statement
of Gross Sales for the preceding calendar month on the form for
such reports included in the Sales Reporting System;
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(b) Pay TUMBLEWEED a cash royalty in an amount equal to the
following percentages of Franchisee's Gross Sales:
On this amount of cumulative annual* FRANCHISEE shall pay TUMBLEWEED a
Gross Sales: monthly royalty equal to this percentage
of Gross Sales:
On cumulative annual Gross Sales Three percent (3%)
from $0 to $2,000,000
On cumulative annual Gross Sales Four percent (4%)
from $2,000,001 to $2,500,000
On cumulative annual Gross Sales of Five percent (5%)
$2,500,001 and higher
* As used in this Section 5(b), the term "annual" refers to the period
from January 1st of each year until December 31st of that same year.
During the Restaurant's first year, the term "annual" refers to the
period from the date the Restaurant first opens for business until
December 31st of that same year, without pro-rating the threshold
figures noted above.
(2) FRANCHISEE agrees to give TUMBLEWEED written authorization, in
such form TUMBLEWEED designates (the current form of which is attached
hereto as EXHIBIT D) for direct debits entries and/or credit correction
entries to FRANCHISEE'S bank operating account (the "Account"). Under this
procedure FRANCHISEE authorizes TUMBLEWEED to initiate debit entries and/or
credit correction entries to the Account for payments of Royalties,
National Advertising Fund Contributions (defined below) and other amounts
payable under this Agreement, including, but not limited to, purchases for
equipment, Products and any other items, purchased from TUMBLEWEED or its
Affiliates and any interest charges due thereon. FRANCHISEE agrees to make
the funds available in the Account for withdrawal by electronic transfer no
later than the due date for payment therefor. The amount actually
transferred from the Account to pay Royalties and National Advertising Fund
Contributions will be based on the RESTAURANT'S Gross Sales reported to
TUMBLEWEED or otherwise determined by TUMBLEWEED. If FRANCHISEE has not
reported Gross Sales of the RESTAURANT to TUMBLEWEED for any reporting
period as required above, TUMBLEWEED will be authorized to debit the
Account in an amount equal to the Royalties and National Advertising Fund
Contributions transferred from the Account for the last reporting period
for which a report of the Gross Sales of the RESTAURANT was provided to it.
If at any time TUMBLEWEED determines that FRANCHISEE underreported the
Gross Sales of the RESTAURANT, or underpaid Royalties, National Advertising
Fund Contributions or other amounts due to TUMBLEWEED under this Agreement,
TUMBLEWEED is authorized to initiate immediately a debit to the Account in
the appropriate amount in accordance with the foregoing procedure,
including interest as provided for in this Agreement. Any overpayment will
be credited to the Account through a credit effective as of the first
reporting date after TUMBLEWEED and FRANCHISEE determine that such credit
is due. With respect to purchases from TUMBLEWEED or our Affiliates,
TUMBLEWEED reserves the right to require FRANCHISEE to pay by cashiers or
certified check on delivery if FRANCHISEE has failed on one or more
occasion to make funds available in the Account as required by this
Section.
C. INTEREST.
FRANCHISEE shall pay TUMBLEWEED interest at the rate of the lesser of
twelve percent (12%) per annum or the maximum rate of interest allowable by
law on all sums due TUMBLEWEED hereunder from their respective due dates
until paid.
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D. SITE SELECTION AND LEASE.
Prior to the execution of this Agreement, FRANCHISEE will have obtained
TUMBLEWEED's approval of the Site in accordance with TUMBLEWEED's procedures.
FRANCHISEE will have submitted to TUMBLEWEED a complete site report
(containing such demographic, commercial, and other information and
photographs as TUMBLEWEED may reasonably require) for the Site which
FRANCHISEE reasonably believes to conform to certain minimum site selection
criteria established by TUMBLEWEED from time to time. In approving or
disapproving any proposed site, TUMBLEWEED will consider such matters as it
deems material, including, without limitation, demographic characteristics,
traffic patterns, parking, the predominant character of the neighborhood,
competition from other businesses providing similar services within the area
(including other TUMBLEWEED Restaurants), the proximity to other businesses,
the exclusivity granted to other franchisees or developers of TUMBLEWEED, the
nature of other businesses in proximity to the site, and other commercial
characteristics (including the purchase price or rental obligations and other
lease terms for the Site) and the size, appearance, and other physical
characteristics.
FRANCHISEE HEREBY ACKNOWLEDGES AND AGREES THAT TUMBLEWEED'S APPROVAL OF
THE SITE DOES NOT CONSTITUTE AN ASSURANCE, REPRESENTATION OR WARRANTY OF ANY
KIND, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OF THE SITE FOR A TUMBLEWEED
RESTAURANT OR FOR ANY OTHER PURPOSE. TUMBLEWEED'S APPROVAL OF THE SITE
INDICATES ONLY THAT TUMBLEWEED BELIEVES THE SITE COMPLIES WITH ACCEPTABLE
MINIMUM CRITERIA ESTABLISHED BY TUMBLEWEED SOLELY FOR ITS PURPOSES AS OF THE
TIME OF THE EVALUATION. FRANCHISEE AND TUMBLEWEED ACKNOWLEDGE THAT
APPLICATION OF CRITERIA THAT HAVE BEEN EFFECTIVE WITH RESPECT TO OTHER SITES
AND PREMISES MAY NOT BE PREDICTIVE OF POTENTIAL FOR THE RESTAURANT AND THAT,
SUBSEQUENT TO TUMBLEWEED'S APPROVAL OF THE SITE, DEMOGRAPHIC AND/OR ECONOMIC
FACTORS, SUCH AS COMPETITION FROM OTHER SIMILAR BUSINESSES, INCLUDED IN OR
EXCLUDED FROM TUMBLEWEED'S CRITERIA COULD CHANGE, THEREBY ALTERING THE
POTENTIAL OF THE SITE. SUCH FACTORS ARE UNPREDICTABLE AND ARE BEYOND
TUMBLEWEED'S CONTROL. TUMBLEWEED SHALL NOT BE RESPONSIBLE FOR THE FAILURE OF
THE SITE TO MEET FRANCHISEE'S EXPECTATIONS AS TO REVENUE OR OPERATIONAL
PERFORMANCE. FRANCHISEE FURTHER ACKNOWLEDGES AND AGREES THAT ITS ACCEPTANCE
OF A FRANCHISE FOR THE OPERATION OF A TUMBLEWEED RESTAURANT AT THE SITE IS
BASED ON ITS OWN INDEPENDENT INVESTIGATION OF THE SUITABILITY OF THE SITE.
FRANCHISEE must obtain lawful possession of the Site within thirty (30)
days of execution of this Agreement. Any lease or sublease for the Site
shall, in form satisfactory to TUMBLEWEED: (1) provide for notice to
TUMBLEWEED of, and TUMBLEWEED's right to cure, FRANCHISEE's default under
said lease or sublease; (2) provide for FRANCHISEE's right to assign its
interest under said lease or sublease to TUMBLEWEED without the lessor's or
sublessor's consent; (3) authorize and require the lessor or sublessor to
disclose to TUMBLEWEED, upon TUMBLEWEED's request, sales and other
information furnished to the lessor by FRANCHISEE; and (4) provide that
TUMBLEWEED shall have the right, in its sole
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discretion, upon termination or expiration (without the grant of a renewal
franchise) of this Agreement to assume said lease or sublease. FRANCHISEE
agrees that it will not execute a lease or sublease without the prior written
approval of TUMBLEWEED. FRANCHISEE shall deliver a copy of the signed lease
or sublease to TUMBLEWEED within fifteen (15) days of its execution.
FRANCHISEE further agrees that it will not execute or agree to any
modification of the lease or sublease which would affect TUMBLEWEED's rights
without the prior written approval of TUMBLEWEED. If FRANCHISEE shall have
failed to obtain lawful possession of the Site (through acquisition or lease)
within thirty (30) days after delivery of TUMBLEWEED's approval thereof,
TUMBLEWEED may, at its sole discretion, withdraw approval of such site.
E. RESTAURANT DEVELOPMENT.
FRANCHISEE is responsible for developing the RESTAURANT. TUMBLEWEED
will furnish you with mandatory and suggested specifications and layouts as
described in Section 4.A. FRANCHISEE must prepare all required construction
plans and specifications to suit the shape and dimensions of the Site and to
insure that such plans and specifications comply with applicable ordinances,
building codes and permit requirements and with lease or sublease
requirements and restrictions, if any. FRANCHISEE must submit construction
plans and specifications to TUMBLEWEED for approval before construction of
the RESTAURANT is commenced and, at its request, to submit all revised or "as
built" plans and specifications during the course of such construction.
FRANCHISEE agrees, at its expense, to do the following with respect to
developing the RESTAURANT at the Site:
(1) secure all financing required to develop and operate the
RESTAURANT;
(2) submit all construction plans to us for our approval;
(3) obtain all zoning changes, planning consents, building, utility,
sign, health, sanitation, business and other permits, licenses and
approvals required to construct and operate the RESTAURANT;
(4) construct all required improvements to the Site and decorate the
RESTAURANT in compliance with plans and specifications approved by
TUMBLEWEED;
(5) obtain TUMBLEWEED's approval of all contractors, engineers,
architects and others used in connection with the development of the Site
and the RESTAURANT;
(6) purchase or lease and install all required equipment, fixtures,
furnishings, and signs required for the RESTAURANT;
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(7) purchase an adequate opening inventory of authorized and approved
materials, supplies and Products;
(8) obtain all customary contractors' sworn statements and partial
and final waivers of lien for construction, remodelling, decorating and
installation or services; and
(9) open the RESTAURANT for business and thereafter operate it on a
regular and continuing basis for the term of this Agreement.
F. RESTAURANT OPENING.
FRANCHISEE agrees not to open the RESTAURANT for business until:
(1) it complies with all its obligations under Section 5.E;
(2) TUMBLEWEED approves the RESTAURANT as developed in accordance
with its specifications and standards;
(3) pre-opening training has been completed to the satisfaction of
TUMBLEWEED;
(4) the franchise fee (defined below) and all other amounts then due
TUMBLEWEED have been paid;
(5) TUMBLEWEED has been furnished with copies of all insurance
policies required by this Agreement, or such other evidence of insurance
coverage and payment of premiums as it requests or accepts; and
(6) other items which TUMBLEWEED may reasonably require.
FRANCHISEE agrees to comply with these conditions and to be prepared to open the
RESTAURANT for business within one hundred fifty (150) days after the date of
this Agreement.
G. SIGNS AND NAMES.
TUMBLEWEED and FRANCHISEE agree that it is essential that all TUMBLEWEED
Restaurants display uniform signs and names. FRANCHISEE shall exhibit and
permit to be exhibited on the Site only such signs as are approved by
TUMBLEWEED. FRANCHISEE shall purchase such signs only from suppliers
designated or approved by TUMBLEWEED (which may include TUMBLEWEED and/or its
Affiliates) as described below. FRANCHISEE shall not use any name or
designation for the RESTAURANT except the TUMBLEWEED Marks. FRANCHISEE shall
use and display in the operation of the RESTAURANT the
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TUMBLEWEED Marks and TUMBLEWEED'S distinctive labels, signs, cartons, and
containers all in accordance with the Manual or as otherwise prescribed by
TUMBLEWEED.
H. EQUIPMENT, FIXTURES, FURNISHINGS.
FRANCHISEE agrees to use in the development and operation of the
RESTAURANT only the equipment, fixtures, furnishings and signs that
TUMBLEWEED approved for TUMBLEWEED RESTAURANTS as meeting its specifications
and standards for quality, design, appearance, function and performance. The
RESTAURANT shall contain all equipment prescribed in the Manual and no
equipment shall be installed in the RESTAURANT (including without limitation
any vending machine or game machine) unless every component of the equipment
and every aspect of the installation complies in all respects with
TUMBLEWEED'S written specifications for the components and the installation
as set forth in the Manual or as otherwise specified by TUMBLEWEED.
FRANCHISEE agrees to acquire approved brands, types or models of other
equipment, fixtures, furnishings and signs only from suppliers designated or
approved by TUMBLEWEED (which may include TUMBLEWEED and/or it Affiliates) as
described below.
I. RESTAURANT PRODUCTS AND SERVICES.
FRANCHISEE agrees that the RESTAURANT shall (1) offer for sale all
Products (and no other products) and (2) provide only the services that
TUMBLEWEED, in its sole discretion, may authorize and/or require from time to
time for the RESTAURANT. FRANCHISEE agrees that the RESTAURANT shall not
offer for sale or sell any products or services at or from the RESTAURANT
which have not been approved by TUMBLEWEED in writing or use the Site or
RESTAURANT for any purpose other than the operation of a TUMBLEWEED
Restaurant. FRANCHISEE shall be required to meet TUMBLEWEED's
specifications, standards and procedures for Products and services, which are
prescribed from time to time in the Manual or otherwise in writing.
FRANCHISEE acknowledges and agrees that the serving, presentation and
preparation of Products is important to the image of the TUMBLEWEED System,
and that FRANCHISEE shall not sell any Products that are not served,
presented and prepared in accordance with TUMBLEWEED's specifications,
standards and procedures prescribed in the Manual or otherwise in writing.
FRANCHISEE shall cause the RESTAURANT to offer at all times all of the
Products listed on the Menu.
J. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS.
The reputation and goodwill of all TUMBLEWEED Restaurants are based
upon, and can only be maintained by, the sale of distinctive, high-quality
Products, and the preparation, presentation and serving of Products in an
efficient and appealing manner. TUMBLEWEED and its Affiliates have developed
and shall continue to develop certain proprietary products which will be
prepared by or for TUMBLEWEED according to its Secret Recipes, techniques
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and formulas. TUMBLEWEED also has developed and shall continue to develop
standards and specifications for other products, ingredients, beverages,
materials and supplies incorporated in or used in the preparation, presenting
and serving of products and services authorized for sale at or from
TUMBLEWEED Restaurants.
TUMBLEWEED has approved and shall review and continue to approve
suppliers and distributors of the foregoing products, supplies and materials
that meet its standards and requirements including, without limitation,
standards and requirements relating to quality, quantity and portions,
prices, volume capability, frequency of delivery, distribution methods and
locations, standards of service, including prompt attention to complaints,
consistency, reliability, financial capability, labor and customer relations
and other criteria. FRANCHISEE agrees that the RESTAURANT shall:
(1) purchase any proprietary equipment, materials, supplies and other
proprietary products developed by or for TUMBLEWEED or its Affiliates
whether or not pursuant to a Secret Recipe, formula or technique or bearing
the TUMBLEWEED Marks only from TUMBLEWEED, its Affiliates or designees
required and licensed by TUMBLEWEED to manufacture, prepare, distribute
and/or sell such products; and
(2) purchase only from distributors and suppliers approved or
required by TUMBLEWEED all other goods, products, ingredients, beverages,
materials and supplies used in the preparation of Products and equipment,
fixtures, furnishings, signs, menus, forms, paper and plastic products,
packaging or other materials used in the RESTAURANT.
TUMBLEWEED shall, in its sole discretion, designate in the Manual or
otherwise in writing which Products: (a) are required to be purchased from
TUMBLEWEED, its Affiliates or its designated suppliers; or (b) may be
produced and/or prepared at the RESTAURANT; or (c) may be purchased from any
approved supplier. TUMBLEWEED may from time to time modify the list of
approved or required suppliers and distributors, and may designate itself or
an Affiliate as a required manufacturer, supplier and/or distributor of
certain equipment, products, materials, supplies or other items. FRANCHISEE
shall not, after receipt in writing of such modification, reorder any product
from any supplier or distributor that is no longer approved. TUMBLEWEED may
approve or require a single distributor or supplier for any products,
materials or supplies and may approve or require a distributor or supplier
only as to certain products, materials and supplies, and such approval may be
temporary pending TUMBLEWEED's further evaluation of such distributor or
supplier. TUMBLEWEED may concentrate purchases with one or more distributors
or suppliers to obtain lower prices and/or advertising support and/or
services for the benefit of the TUMBLEWEED System and/or TUMBLEWEED
Restaurants. TUMBLEWEED may establish commissaries and distribution
facilities owned and operated by TUMBLEWEED or its Affiliates which
TUMBLEWEED may designate as an approved or required distributor or supplier.
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FRANCHISEE shall notify TUMBLEWEED and submit to TUMBLEWEED such
information, specifications and samples as TUMBLEWEED requests if it proposes
to purchase any goods, products, ingredients, beverages, menus, equipment,
fixtures, furnishings, signs, forms, paper or plastic products, packaging or
other materials or utensils from a distributor or supplier whom TUMBLEWEED
has disapproved or not previously approved. TUMBLEWEED shall use its
reasonable best efforts to notify FRANCHISEE within one hundred twenty (120)
days after receipt of all requested information and materials whether
FRANCHISEE is authorized to purchase such products from such distributor or
supplier. If FRANCHISEE fails to receive a notice of approval or disapproval
within such one hundred twenty (120) day period, FRANCHISEE may purchase such
products from such distributor or supplier, provided that TUMBLEWEED's
failure to give its approval or disapproval will not be deemed to constitute
its approval thereof. TUMBLEWEED may require FRANCHISEE to reimburse
TUMBLEWEED for its reasonable costs incurred in connection with the
evaluation, inspection and supervision of such distributor or supplier.
K. INSPECTIONS.
(1) TUMBLEWEED shall have the unqualified right to examine or audit
all of FRANCHISEE'S books, records, returns, and correspondence wherever
located, and to make copies thereof, directly or through any accountant,
attorney, or other agent at any reasonable time or times and from time to
time. FRANCHISEE shall cooperate, and shall cause all of its employees to
cooperate, fully with the personnel performing any such examination or
audit and shall promptly provide any and all records, cash register tapes,
and other documents requested by such personnel. FRANCHISEE shall retain
during the term of this Agreement and for three (3) years after any
termination or expiration hereof, all books and records related to the
RESTAURANT, including without limitation, all sale checks, purchase orders,
invoices, payroll records, customer lists, check stubs, sales tax records
and returns, cash receipts and disbursements journals, and general ledgers.
If any examination or audit shows that the Gross Sales of the RESTAURANT
for any month exceed the sum reported by FRANCHISEE to TUMBLEWEED for that
month by more than three percent (3%) of the amount reported, FRANCHISEE
shall reimburse TUMBLEWEED for the reasonable costs of such examination or
audit including without limitation the charges of any independent
accountant, attorney, or agent and the travel expenses, room and board, and
compensation of such independent accountant, attorney, or agent and of
TUMBLEWEED'S employees participating in the audit. Nothing herein shall in
any way limit the right of TUMBLEWEED to terminate this Agreement under
Section 8.
(2) TUMBLEWEED shall have the right to inspect the RESTAURANT and to
inspect and test any and all equipment, food products, and food ingredients
located therein and to confer with any and all managerial and operational
employees of FRANCHISEE in order to assure itself that the provisions of
this Agreement are being observed and to videotape, photograph or record
any of the same. FRANCHISEE shall
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permit TUMBLEWEED'S authorized representatives, at any and all times
during regular business hours, to enter the RESTAURANT for such purpose.
L. MANUAL, SPECIFICATIONS, STANDARDS AND PROCEDURES.
FRANCHISEE acknowledges that the operation of the RESTAURANT in
compliance with TUMBLEWEED's high standards, the TUMBLEWEED System and the
Manual is important to TUMBLEWEED and other TUMBLEWEED Restaurants and
FRANCHISEE agrees to maintain such high standards in the operation of the
RESTAURANT. FRANCHISEE agrees to comply with all mandatory specifications,
standards and operating procedures, whether or not contained in the Manual
relating to the appearance, function, cleanliness, days and hours of
operation, and operation of a TUMBLEWEED Restaurant and with TUMBLEWEED's
requirements for the decor, design and image of a TUMBLEWEED Restaurant, as
they may be developed or changed by TUMBLEWEED from time to time. FRANCHISEE
acknowledges and agrees that all mandatory specifications, standards, and
operating procedures prescribed from time to time by TUMBLEWEED shall
constitute binding obligations on the part of FRANCHISEE, and any failure by
FRANCHISEE to adhere to such mandatory specifications, standards and
operating procedures shall constitute grounds for termination of this
Agreement by TUMBLEWEED, as provided for herein. All references herein to
this Agreement shall include all such mandatory specifications, standards,
and operating procedures.
FRANCHISEE recognizes and agrees that, from time to time hereafter,
TUMBLEWEED may change or modify the TUMBLEWEED System and the Manual,
including without limitation the adoption and use of new or modified trade
names, trademarks, service marks, copyrighted materials, menu items,
products, equipment, or techniques. FRANCHISEE will accept, use, and display
for the purpose of this Agreement any such changes in the TUMBLEWEED System
and the Manual, as if they were part of this Agreement at the time of
execution hereof. FRANCHISEE will make such expenditures as such changes or
modifications in the TUMBLEWEED System and the Manual may reasonably require.
FRANCHISEE shall not change, modify, or alter the TUMBLEWEED System or the
Manual in any way.
M. USE OF SALES REPORTING SYSTEM; TAX RETURNS.
FRANCHISEE shall complete accurately and fully all forms that are part
of the Sales Reporting System, shall deliver true copies of such of those
completed forms to TUMBLEWEED as it may request from time to time, and shall
maintain all such original forms for a period of not less than seven (7)
years from their respective dates of completion by FRANCHISEE. FRANCHISEE
shall make weekly sales reports by telephone or facsimile to TUMBLEWEED of
such information as TUMBLEWEED may desire.
With respect to the operation and financial condition of the RESTAURANT,
FRANCHISEE shall furnish to TUMBLEWEED in the form prescribed by TUMBLEWEED
from time to time: (1) on or before the twentieth (20th) day of each month a
report of the Gross
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Sales of the RESTAURANT as described in Section 5.B.; (2) upon request by
TUMBLEWEED, such other data, information, and supporting records for such
periods as TUMBLEWEED from time to time requires; and (3) within ninety (90)
days after the end of FRANCHISE's fiscal year, a fiscal year-end balance
sheet, an income statement of the RESTAURANT for such fiscal year reflecting
all year-end adjustments, and a statement of changes in cash flow of the
RESTAURANT, prepared in accordance with generally accepted accounting
principles consistently applied. Each report and financial statement
submitted by FRANCHISEE to TUMBLEWEED shall be signed by FRANCHISEE and
verified as correct in the manner prescribed by TUMBLEWEED.
FRANCHISEE agrees to maintain and to furnish to TUMBLEWEED upon filing
complete copies of all income, sales, value added, use and service tax
returns filed by FRANCHISEE reflecting activities of the RESTAURANT.
N. OPERATOR.
The Operator must be an Owner of at least a 10% equity interest in
FRANCHISEE. The Operator shall devote his/her full time to the supervision
and direction of the operations of the RESTAURANT and/or other TUMBLEWEED
Restaurants, but need not be engaged in the day-to-day operations of the
RESTAURANT. FRANCHISEE shall maintain for the RESTAURANT at all times at
least three (3) managers or supervisors who have completed TUMBLEWEED's
training program and the number of assistant managers required for adequate
staffing of the RESTAURANT, and shall at all times keep TUMBLEWEED advised of
the identities of such manager and assistant managers. TUMBLEWEED shall have
the right to deal with such manager and assistant managers on matters
pertaining to day-to-day operations of, and reporting requirements for, the
RESTAURANT. The RESTAURANT at all times shall be under the direct, on-site
supervision of a manager or assistant manager who has completed TUMBLEWEED's
training program. TUMBLEWEED may require FRANCHISEE obtain confidentiality
and/or non-competition agreements from certain of its employees.
FRANCHISEE shall hire all employees of the RESTAURANT and shall be
exclusively responsible for the terms of their employment and compensation
and for the proper training of such employees in the operation of the
RESTAURANT. TUMBLEWEED may require FRANCHISEE to obtain confidentiality and
non-competition from certain of its employees.
O. EMPLOYEES' TRAINING AND UNIFORMS.
Prior to the opening of the RESTAURANT, the Operator and not less than
three (3) other managers or supervisors designated by FRANCHISEE shall attend
and successfully complete the training programs conducted by TUMBLEWEED
described in Section 4.I. All employees of FRANCHISEE other than the
Operator and the managers or supervisors who have successfully completed a
training program described in Section 4.I shall be trained by the Operator in
accordance with the training guidelines contained in the Manual. Such
training shall
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be completed not later than five (5) weeks following the respective initial
dates of employment of each such employee. All employees of FRANCHISEE,
including the Operator, shall wear uniforms of such design and color as
TUMBLEWEED shall prescribe from time to time in the Manual or otherwise.
P. MARKS.
(1) FRANCHISEE acknowledges that its right to use the TUMBLEWEED
Marks is limited solely to uses directly connected with its operation of
the RESTAURANT during the term of this Agreement pursuant to and in
compliance with this Agreement and all applicable standards, specifications
and operating procedures TUMBLEWEED prescribes from time to time, and is
derived solely from this Agreement. Any unauthorized use of the TUMBLEWEED
Marks by FRANCHISEE or its Owners, officers, directors, employees, members,
managers, agents or representatives shall constitute a breach of this
Agreement and an infringement of the rights of TUMBLEWEED and its
Affiliates in and to the TUMBLEWEED Marks. FRANCHISEE acknowledges and
agrees that all usage of the TUMBLEWEED Marks and any goodwill established
thereby shall inure to the exclusive benefit of TUMBLEWEED and its
Affiliates and that this Agreement does not confer any goodwill or other
ownership interests in the TUMBLEWEED Marks upon FRANCHISEE (other than the
right to operate the RESTAURANT in strict compliance with this Agreement).
All provisions of this Agreement applicable to the TUMBLEWEED Marks shall
apply to any other trademarks, service marks, commercial symbols and trade
dress hereafter TUMBLEWEED authorizes and licenses for use by FRANCHISEE.
(2) FRANCHISEE shall not use any TUMBLEWEED Mark as part of any
corporate or other entity name or with any prefix, suffix, or other
modifying words, terms, designs or symbols, or in any modified form, nor
may you use any TUMBLEWEED Mark in connection with the performance or sale
of any unauthorized services or products or in any other manner not
expressly authorized in writing by TUMBLEWEED. FRANCHISEE agrees to
display the TUMBLEWEED Marks prominently and only in the manner prescribed.
You shall attorn to, and fully recognize TUMBLEWEED's ownership rights and
interests in, the TUMBLEWEED Marks and shall obtain such business name
registrations as may be required under applicable law, provided, however,
that such business names shall not incorporate any of the TUMBLEWEED Marks
or any design component features therein, or any similar designations
thereof.
(3) FRANCHISEE shall immediately notify TUMBLEWEED of any apparent
infringement of, or challenge to, its use of any TUMBLEWEED Mark, or claim
by any person of any rights in any TUMBLEWEED Mark, and FRANCHISEE shall
not communicate with any person other than TUMBLEWEED, its Affiliates and
its counsel with respect to any such infringement, challenge or claim.
TUMBLEWEED shall have
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sole discretion to take such action as it deems appropriate in
connection with the foregoing and the right to control exclusively any
settlement, litigation, arbitration or Patent and Trademark Office or
other court proceeding arising out of any such alleged infringement,
challenge or claim or otherwise relating to any TUMBLEWEED Mark.
FRANCHISEE agrees to execute any and all instruments and documents,
render such assistance, and do such acts and things as may, in the
opinion of TUMBLEWEED's counsel, be necessary or advisable to protect
and maintain the ownership interest of TUMBLEWEED and of its Affiliates
in any litigation or other proceeding or to otherwise protect and
maintain their interests in the TUMBLEWEED Marks. TUMBLEWEED will
reimburse FRANCHISEE for the reasonable out-of-pocket expenses incurred
and paid by it in complying with the requirements imposed by this
Paragraph.
(4) If it becomes advisable at any time in TUMBLEWEED's sole judgment
for FRANCHISEE to modify or discontinue use of any or all TUMBLEWEED Marks
and/or for FRANCHISEE to use one or more additional or substitute
trademarks or service marks or an additional or substitute type of trade
dress, FRANCHISEE agrees to immediately comply with TUMBLEWEED's directions
and to modify or otherwise discontinue the use of such TUMBLEWEED Mark,
and/or to use one or more additional or substitute trademarks, service
marks, logos or commercial symbols or additional or substitute trade dress
after notice thereof by TUMBLEWEED. Neither TUMBLEWEED nor its Affiliates
shall have any obligation to reimburse FRANCHISEE for any expenditures made
by FRANCHISEE to modify or discontinue the use of a TUMBLEWEED Mark or to
adopt additional or substitute marks for discontinued TUMBLEWEED Marks,
including, without limitation, any expenditures relating to advertising or
promotional materials or to compensate FRANCHISEE for any goodwill related
to the discontinued Mark.
(5) TUMBLEWEED shall indemnify FRANCHISEE against, and reimburse it
for, all damages for which it is held liable in any proceeding arising out
of its authorized use of any TUMBLEWEED Mark, pursuant to and in compliance
with this Agreement, and for all costs reasonably incurred by it in the
defense of any such claim brought against it or in any such proceeding in
which its named as a party, provided that it has timely notified TUMBLEWEED
of such claim or proceeding, has given TUMBLEWEED sole control of the
defense and settlement of any such claim, and has otherwise complied with
this Agreement.
Q. CLEANLINESS AND REPAIR; RENOVATION.
(1) At all times and at its expense, FRANCHISEE shall maintain the
RESTAURANT and the equipment, fixtures, furnishings, furniture, premises,
parking area, landscaped areas, and exterior and interior signs relating
thereto, in a clean, attractive, well-finished, and safe condition and
shall make at its expense such additions, alterations, repairs, and
replacements thereto as may be required to keep the
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RESTAURANT in the highest degree of sanitation, attractiveness, high
finish, and safety, including, without limitation, such periodic
repainting, repairs to equipment not in good working order, and
replacement of outdated signs, as TUMBLEWEED may reasonably direct in
order to maintain the high quality and uniformity of the TUMBLEWEED
System. Nothing herein shall be construed to allow FRANCHISEE to
operate any aspect of its business out of conformity with the TUMBLEWEED
System or to limit the requirements of Section 5.Q(3) regarding major
renovation, replacement, redecorating, or remodeling.
(2) FRANCHISEE recognizes the importance of all TUMBLEWEED
Restaurants being maintained in a sanitary, attractive, and safe condition
with uniformity in their signs and certain other fixtures and furnishings.
FRANCHISEE hereby agrees that TUMBLEWEED shall have the right, at any time
and from time to time after the fifth (5th) anniversary of this Agreement,
and after each successive such fifth (5th) anniversary, to require
FRANCHISEE to spend up to $50,000 for such major renovation, replacement,
redecoration, and remodeling of the RESTAURANT and the equipment, fixtures,
furnishings, and furniture used by FRANCHISEE therein as TUMBLEWEED shall
reasonably deem necessary to bring the RESTAURANT and the equipment,
fixtures, furniture, and furnishings used therein up to the then current
standards of new TUMBLEWEED Restaurants. Nothing in this Section 5.J.(2)
shall be interpreted to relieve FRANCHISEE of its duties under
Section 5.J.(1) regarding maintenance, repair, cleanliness, and safety, and
the amounts required to be expended under this Section 5.J.(2) shall be in
addition to any other sums that FRANCHISEE may have been expended for
repairs, additions, alterations, replacements, renovation, redecorating, or
remodeling.
(3) If FRANCHISEE shall deem it necessary at any time to renovate,
redecorate, replace, or remodel the RESTAURANT or any equipment, fixtures,
furniture, or furnishings used at the Site, in an amount exceeding $10,000
in any year, FRANCHISEE shall obtain the prior written consent of
TUMBLEWEED. If TUMBLEWEED determines that FRANCHISEE plans any renovation,
replacement, redecoration, or remodeling in violation of this provision, in
addition to any other remedy TUMBLEWEED may have, TUMBLEWEED shall have the
right to obtain an injunction from a court of competent jurisdiction
against any such action.
R. TIME OPEN.
Except as may otherwise be permitted or prescribed by TUMBLEWEED or
required by law, the FRANCHISEE shall keep the RESTAURANT open and fully
operational seven (7) days a week every week, opening not later than 11:00
a.m. and closing not earlier than midnight on Friday and Saturday and 11:00
p.m. on all other days. FRANCHISEE may close the RESTAURANT each calendar
year for up to four (4) days, each of which shall be a nationally recognized
business holiday or bona fide religious holiday.
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S. COMPLIANCE WITH LAW.
FRANCHISEE shall maintain in effect all licenses, permits, and other
government authorizations necessary to enable the continuous operation of the
RESTAURANT in accordance with the TUMBLEWEED System. FRANCHISEE shall
maintain and operate the RESTAURANT in strict compliance with all applicable
laws, ordinances, regulations, and other requirements of the federal
government and all state, county, municipal, and other governments with
authority over the RESTAURANT.
T. LITIGATION; NOTICES.
FRANCHISEE shall notify TUMBLEWEED in writing within ten (10) days of
the commencement of any action, suit or proceeding, and of the issuance of
any order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality, which may adversely affect FRANCHISEE'S
financial condition, any aspect of the operation of the RESTAURANT, or the
ability of FRANCHISEE or Owners to meet their obligations under this
Agreement.
FRANCHISEE shall give prompt written notice to TUMBLEWEED of each and
every event seriously affecting the operation of the RESTAURANT or the
ability of FRANCHISEE or Owners to perform their obligations under this
Agreement or the Owner's Agreement including without limitation the death or
disability of any Owner or of the Operator.
U. INSURANCE; CONDEMNATION AND CASUALTY.
(1) FRANCHISEE shall maintain in full force and effect the following
insurance:
(a) Insurance against fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil commotion, vandalism, and
malicious mischief, and other risks usually insured against by persons
operating like businesses and properties in the area of the RESTAURANT,
covering the RESTAURANT (and all premises and contents thereof including
all improvements) equal to, at least 90% of the full insurable value
thereof.
(b) Comprehensive general liability insurance including food
products, liquor, personal injury, and nonowner automobile liability, of
not less than $500,000 per person and $1,000,000 per occurrence.
(c) Workers' compensation insurance as required by the law of
the state in which the RESTAURANT is located.
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(d) Automobile insurance with bodily injury limits of
$250,000/500,000 and a property damage limit of $100,000.
(e) If the RESTAURANT shall not have been completed as of the
date of this Agreement, builder's risk insurance in the amount of all
unpaid construction costs of the RESTAURANT.
(f) All other insurance required by law (including applicable
alcohol beverage laws), under the lease or sublease for the RESTAURANT or
by TUMBLEWEED as set forth in the Manual from time to time.
(2) Each insurance policy required under this Agreement shall be
issued by an issuer satisfactory to TUMBLEWEED, shall name TUMBLEWEED and
FRANCHISEE as insureds and shall provide that such policy shall not be
cancelable without thirty (30) days prior written notice to TUMBLEWEED,
except in the instance of cancellation for nonpayment of premium, in which
event such policy shall provide that it shall not be cancelled without ten
(10) days prior written notice to TUMBLEWEED. The general liability
insurance shall insure TUMBLEWEED, FRANCHISEE, and the officers and
employees of each of them against liability for personal injury, death, or
property damage arising or occurring upon or in connection with the
RESTAURANT or by reason of FRANCHISEE'S operation or occupancy of the
RESTAURANT, whether the injury occurs or the cause arises on or off the
premises thereof. Upon each anniversary of this Agreement, including any
extensions or renewals thereof, upon any change of insurer and at any time
upon TUMBLEWEED'S written request, FRANCHISEE shall deliver to TUMBLEWEED a
certificate or certificates showing that all required insurance is in full
force and effect. If FRANCHISEE fails to maintain any required insurance,
TUMBLEWEED may, but shall not be required to, obtain such insurance and
FRANCHISEE shall reimburse TUMBLEWEED for any premiums paid by it for any
such insurance immediately upon receipt from TUMBLEWEED of notice of such
payment by TUMBLEWEED.
(3) FRANCHISEE shall give TUMBLEWEED notice at the earliest possible
time of any proposed partial or total taking of the Site by any
governmental authority through the exercise of the power of eminent domain.
If TUMBLEWEED determines that the Site or any part thereof is likely to be
taken, TUMBLEWEED shall decide within ninety (90) days of such
determination whether to authorize the transfer of the license granted
hereunder to a nearby location selected by FRANCHISEE, if FRANCHISEE shall
make such selection within thirty (30) days of such determination by
TUMBLEWEED. TUMBLEWEED shall not unreasonably withhold such authorization.
If such transfer is authorized by TUMBLEWEED, and FRANCHISEE opens for
business at such other location within one (1) year of the closing of the
old location, the new location shall thenceforth be deemed to be the Site
under this
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Agreement in the same manner and for the same term as was the former
location of the RESTAURANT.
(4) If the Site is damaged by fire or other casualty and FRANCHISEE
acts expeditiously to repair the damage and completes such repair in not
more than one hundred eighty (180) days, this Agreement shall remain in
effect during such repair period notwithstanding any other provision of
this Agreement.
(5) The term of this Agreement shall be extended by any interruption
in the operation of the RESTAURANT due to an event described in this
Section, but in no event shall such extension or extensions cause the term
to be extended more than one (1) year. Any such interruption shall excuse
the Franchise from the minimum royalty provision of Section 5.B as long as
FRANCHISEE is, in TUMBLEWEED'S reasonable judgment, acting promptly and
effectively to recommence operations.
V. RELATIONSHIP OF PARTIES/INDEMNIFICATION.
(1) It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that
TUMBLEWEED and FRANCHISEE are and shall be independent contractors, and
that nothing in this Agreement is intended to make either party a general
or special agent, joint venturer, partner, or employee of the other for any
purpose. FRANCHISEE shall conspicuously identify itself in all dealings
with customers, suppliers, public officials, FRANCHISEE personnel, and
others as the owner of the RESTAURANT under a franchise granted by
TUMBLEWEED and shall conspicuously and prominently place such other notices
of independent ownership on the Site and on such forms, business cards,
stationery, advertising, and other materials as TUMBLEWEED may require from
time to time.
(2) FRANCHISEE shall not employ any of the TUMBLEWEED Marks in
signing any contract, application for any license or permit, or in a manner
that may result in liability of TUMBLEWEED or its Affiliates for any
indebtedness or obligation of FRANCHISEE, nor will FRANCHISEE use the
TUMBLEWEED Marks in any way not expressly authorized herein. Except as
expressly authorized in writing, neither TUMBLEWEED nor FRANCHISEE shall
make any express or implied agreements, warranties, guarantees or
representations, or incur any debt in the name of or on behalf of the
other, or represent that their relationship is other than franchisor and
franchise owner, and neither TUMBLEWEED nor FRANCHISEE shall be obligated
by or have any liability under any agreements or representations made by
the other that are not expressly authorized in writing, nor shall
TUMBLEWEED be obligated for any damages to any person or property directly
or indirectly arising out of the operation of the RESTAURANT or
FRANCHISEE's business authorized by or conducted pursuant to the Franchise.
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(3) TUMBLEWEED shall have no liability for any sales, value added,
use, service, occupation, excise, gross receipts, income, property, payroll
or other taxes, whether levied upon this Agreement, FRANCHISEE, the
RESTAURANT or FRANCHISEE's property, or upon TUMBLEWEED, in connection with
the sales made or business conducted by FRANCHISEE (except any taxes
TUMBLEWEED is required by law to collect from FRANCHISEE with respect to
purchases from TUMBLEWEED). Payment of all such taxes shall be the
responsibility of FRANCHISEE.
(4) FRANCHISEE agrees to indemnify, defend and hold TUMBLEWEED, its
Affiliates, and their respective shareholders, directors, officers,
managers, employees, agents, successors and assignees harmless against and
to reimburse them for (1) all claims, obligations and damages described in
this Section, (2) any and all taxes described above and (3) any and all
claims and liabilities directly or indirectly arising out of the operation
of the RESTAURANT, the use of the TUMBLEWEED Marks, or the transfer of any
interest in this Agreement, the Franchise, the RESTAURANT, some or all of
the assets of the RESTAURANT (other than the sale of inventory items in the
ordinary course of business) or FRANCHISEE, in any manner not in accordance
with this Agreement, to the extent that such claims, obligations, damages,
taxes, losses or liabilities do not arise from the gross negligence or
wrongful conduct of TUMBLEWEED. For purposes of this indemnification,
"claims" shall mean and include all obligations, actual and consequential
damages, and costs incurred in the defense of any claim against TUMBLEWEED,
including without limitation reasonable accountants', attorneys', attorney
assistants', arbitrators' and expert witness fees, costs of investigation
and proof of facts, court costs, other litigation expenses, and travel and
living expenses. TUMBLEWEED shall have the right to defend any such claim
against it in such manner as TUMBLEWEED deems appropriate or desirable in
its sole discretion. This indemnity shall continue in full force and
effect subsequent to and notwithstanding the expiration or termination of
this Agreement.
W. CONSENT TO PUBLICATIONS.
FRANCHISEE consents to the use by TUMBLEWEED of any and all information
regarding FRANCHISEE'S operations as shall be required by any federal, state,
county, municipal, or other governmental statute, ordinance, rule, or
regulation regarding the offering, sale or operation of franchises or as
TUMBLEWEED may find desirable in dealing with any governmental authority or
with any prospective franchisee. Without limiting the generality of the
foregoing, FRANCHISEE hereby consents to the use of any and all data
regarding its operations by TUMBLEWEED in compliance with the Federal Trade
Commission's trade regulation rule regarding disclosure requirements and
prohibitions concerning franchising and business opportunity ventures and any
and all state franchise registration statutes and hereby agrees to supply to
TUMBLEWEED, in addition to all other information to be supplied hereunder,
such additional data TUMBLEWEED may reasonably require to comply with the
disclosure provisions of all such statutes, ordinances, rules, and
regulations and to provide
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potential franchisees such information as TUMBLEWEED may find desirable to
provide in connection with such disclosures and TUMBLEWEED'S franchise sales
activities.
X. LOCAL ADVERTISING.
(a) During each accounting year of FRANCHISEE during the initial term
hereof and any renewal or extension hereof, FRANCHISEE shall expend for
local and regional advertising and for programs relating to sales promotion
an amount designated by TUMBLEWEED and deemed appropriate by it for the
maximization of FRANCHISEE'S profits and sales, which shall not exceed two
percent (2%) of FRANCHISEE'S Gross Sales for such accounting year.
FRANCHISEE shall participate at its expense within the limitations set
forth above in such prize contests, telephone yellow page advertising, and
other local, regional, or national sales promotion programs as may be
established by TUMBLEWEED from time to time. FRANCHISEE agrees to honor
any coupons or similar promotional materials issued by TUMBLEWEED or by
other franchise owners in areas outside the Exclusive Area which have been
approved by TUMBLEWEED. The receipts surrendered by FRANCHISEE in honoring
such coupons shall count toward FRANCHISEE'S obligation to expend for local
advertising. All local advertising and promotion shall be subject to
TUMBLEWEED'S prior approval and shall be designed and produced in such a
way, and in accordance with procedures TUMBLEWEED may adopt as part of the
Manual or otherwise prescribed from time to time, to protect TUMBLEWEED'S
proprietary interest in the TUMBLEWEED System. Without limiting the
generality of the foregoing, FRANCHISEE shall issue no coupon redeemable at
any TUMBLEWEED Restaurant, including the RESTAURANT, without the prior
written approval of TUMBLEWEED.
(b) No FRANCHISEE advertising or other use of any component of the
TUMBLEWEED System shall contain any statement or material which, in the
judgment of TUMBLEWEED, may be in bad taste or inconsistent with
TUMBLEWEED'S public image, or bring disparagement, ridicule, or scorn upon
TUMBLEWEED or any property or right included in the TUMBLEWEED System.
FRANCHISEE shall cause to appear on all advertising, promotional or display
materials and matter appropriate presentation of the name "TUMBLEWEED"
including such copyright notices and notices of trademark and service mark
rights and registrations as may be designated by TUMBLEWEED.
(c) If an advertising cooperative is established by a majority of
franchised and Company Restaurants during the initial term of this
Agreement or any renewal or extension hereof in the "Area of Dominant
Influence" (as then defined by the Arbitron Company) in which the
RESTAURANT is located, then FRANCHISEE shall become a member of such
cooperative and shall abide by its bylaws and rules so long as the
cooperative is in existence.
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(d) Examples of all advertising and other promotional materials of
any kind that FRANCHISEE desires to use, either directly or through an
advertising cooperative, and which have not been prepared or previously
approved by TUMBLEWEED, shall be submitted to TUMBLEWEED for its prior
written approval. If FRANCHISEE or the cooperative do not receive either
an approval or disapproval of such materials within thirty (30) days of the
date of its submission to TUMBLEWEED, then the FRANCHISEE or the
cooperative may presume TUMBLEWEED approves of such materials for current
use. Notwithstanding the foregoing, TUMBLEWEED reserves the right to
disapprove or withdraw its approval for any such materials at any time for
any reason.
Y. NATIONAL ADVERTISING PROGRAM.
TUMBLEWEED, at its option, may establish a national public relations and
advertising program (the National Advertising Program). The National
Advertising Program shall be funded with the same rate of contribution from
each franchised TUMBLEWEED Restaurant the franchise agreement for which
provides for such participation and from each TUMBLEWEED Restaurant
TUMBLEWEED owns. All contributions to the National Advertising Program shall
be used solely and exclusively for national, regional, and local advertising,
development of sales and advertising tools, and public relations for the
TUMBLEWEED System. The establishment of the National Advertising Program
shall not constitute TUMBLEWEED'S assumption of either responsibility for or
coordination of local advertising programs for TUMBLEWEED franchisees. If
TUMBLEWEED exercises its discretion to create the National Advertising
Program:
(a) FRANCHISEE shall contribute to the National Advertising Program
an amount to be determined by TUMBLEWEED not to exceed one percent (1%) of
FRANCHISEE'S Gross Sales during such periods as there are less than 100
TUMBLEWEED Restaurants in operation; 1-1/2% during such periods as there
are 100-199 TUMBLEWEED Restaurants in operation; up to 2% during such
periods as there are 200-299 TUMBLEWEED Restaurants in operation; and up
to 3% during such period as there are over 300 TUMBLEWEED Restaurants in
operation. TUMBLEWEED shall give FRANCHISEE at least thirty (30) days
notice of any increase or decrease in the amount to be paid by FRANCHISEE.
National Advertising Fund Contributions shall be paid on or before the
twentieth (20th) day of each month based upon Gross Sales during the
preceding month.
(b) TUMBLEWEED shall establish a separate account which shall be
known as the National Advertising Fund and all contributions to the
National Advertising Program shall become a part of such Fund. All
expenses of the National Advertising Program, including without limitation
all general administrative costs, public relations, and advertising,
merchandising, and promotional material expenses of the National
Advertising Program, shall be paid from the Fund.
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(c) TUMBLEWEED may determine all aspects of the advertising to be
conducted under the National Advertising Program, after reasonable
consultation with its participating franchisees, including without
limitation the choice of media and nature and location of advertising.
There is no assurance that all owners of franchised TUMBLEWEED Restaurants
will benefit directly or pro rata from advertising carried out by the
National Advertising Program. TUMBLEWEED undertakes no obligation to
ensure that expenditures by the Fund in or affecting any geographic area
are proportionate or equivalent to the contributions to the Fund by
TUMBLEWEED Restaurants operating in that geographic area.
(d) TUMBLEWEED shall, upon written request, furnish FRANCHISEE with
an annual accounting of the funds received and disbursed under the National
Advertising Program.
(e) Although TUMBLEWEED currently intends the National Advertising
Fund to be of perpetual duration once it is established, TUMBLEWEED
maintains the right to terminate the National Advertising Fund at any time
after its creation. The National Advertising Fund shall not be terminated,
however, until all monies therein have been expended for advertising and
promotional purposes consistent with the National Advertising Program.
6. CONFIDENTIAL INFORMATION.
TUMBLEWEED possesses, and will further develop and acquire, certain
confidential and proprietary information and trade secrets including but not
limited to the following categories of information, methods, techniques,
procedures and knowledge developed or to be developed by TUMBLEWEED, its
Affiliates, and/or franchisees and developers (the "Confidential
Information"):
(1) methods, techniques, equipment, specifications, recipes (or any
derivatives thereof), ingredients, standards, policies, procedures,
information, concepts, systems relating to and knowledge of and experience
in the development, operation, and franchising of TUMBLEWEED Restaurants
and the TUMBLEWEED System;
(2) marketing and promotional programs for TUMBLEWEED Restaurants;
(3) knowledge of specifications for and suppliers of certain
Products, ingredients, materials, equipment and fixtures for TUMBLEWEED
Restaurants or, for TUMBLEWEED's commissary operations;
(4) the Manual;
(5) information concerning Product sales, operating results,
financial performance, consumer preferences, inventory requirements for
Products, materials and supplies and other financial data of TUMBLEWEED
Restaurants; and
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(6) customer lists and Product sales of the RESTAURANT.
TUMBLEWEED will disclose to FRANCHISEE such parts of the Confidential
Information as are required for the operation of the RESTAURANT to FRANCHISEE
in providing guidance and assistance furnished to FRANCHISEE under this
Agreement and FRANCHISEE may learn or otherwise obtain from TUMBLEWEED
additional Confidential Information during the term hereof. FRANCHISEE
acknowledges and agrees that neither FRANCHISEE nor any other person or
entity will acquire any interest in or right to use the Confidential
Information, other than the right to use it in the operation of the
RESTAURANT pursuant to this Agreement, and that the use or duplication of the
Confidential Information in any other business would constitute unfair
competition with TUMBLEWEED and with other TUMBLEWEED Restaurants developers
and franchisees. FRANCHISEE agrees to disclose the Confidential Information
to Owners and to its employees only to the extent reasonably necessary for
the operation of the RESTAURANT hereunder.
FRANCHISEE acknowledges and agrees that the Confidential Information is
a valuable asset of TUMBLEWEED, is proprietary and includes trade secrets of
TUMBLEWEED. The Confidential Information is disclosed to FRANCHISEE solely
on the condition that FRANCHISEE, its Owners and employees who have access to
Confidential Information agree, and FRANCHISEE does hereby agree that, during
and after the term of this Agreement, FRANCHISEE, its Owners, officers,
directors, members, managers, agents, representatives and such employees:
(1) will not use the Confidential Information in any other business
or capacity;
(2) will forever maintain the absolute confidentiality of the
Confidential Information;
(3) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written or other tangible form; and
(4) will adopt and implement all reasonable procedures prescribed
from time to time by TUMBLEWEED to prevent unauthorized use or disclosure
of the Confidential Information, including, without limitation, requiring
employees and Owners who will have access to such information to execute
confidentiality agreements in the form prescribed by TUMBLEWEED.
FRANCHISEE shall provide TUMBLEWEED, at its request, executed originals of
each such agreement.
Nothing contained herein shall be construed to prohibit FRANCHISEE from
using the Confidential Information in connection with the operation of any
TUMBLEWEED Restaurant pursuant to a franchise agreement or pursuant to a
development agreement between TUMBLEWEED and FRANCHISEE.
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FRANCHISEE agrees to disclose to TUMBLEWEED all ideas, concepts,
methods, techniques and products relating to the operation of TUMBLEWEED
Restaurants conceived or developed by FRANCHISEE or its Owners, employees,
officers, directors, members, managers, agents and representatives during the
term of this Agreement. FRANCHISEE hereby grants to TUMBLEWEED and agrees to
procure from its Affiliates, Owners or employees a perpetual, non-exclusive
and worldwide right to use same in all TUMBLEWEED Restaurants operated by
TUMBLEWEED, its Affiliates and its franchisees. TUMBLEWEED shall have no
obligation to make any payment with respect to any such idea, concept,
method, technique or product. FRANCHISEE agrees that FRANCHISEE will not use,
nor will it allow any other person or entity to use, any such concept,
method, technique or product without obtaining TUMBLEWEED's prior written
approval, which may be withheld in TUMBLEWEED's sole discretion.
7. COVENANTS NOT TO COMPETE.
A. USE OF TUMBLEWEED SYSTEM.
FRANCHISEE and Owners recognize the uniqueness of the TUMBLEWEED System
and, except as authorized under this Agreement or other written agreement
with TUMBLEWEED, none of them shall use, directly or indirectly, through any
corporation, partnership or association, or any employment or consulting
arrangement, at any time during or after the term of this Agreement, any of
the TUMBLEWEED System including without limitation any information from the
Manual, the Sales Reporting System, the Secret Recipes or the TUMBLEWEED
Marks in any food service business or other business of any kind, (including
but not limited to a Competitive Business) nor shall any of them copy or
imitate directly or indirectly, through any corporation, partnership, or
association, or any employment or consulting arrangement, during or after the
term of this Agreement, any of the TUMBLEWEED System, or prepare or serve any
product that would be deceptively similar to any of TUMBLEWEED'S products.
B. COMPETITION DURING TERM.
FRANCHISEE acknowledges and agrees that TUMBLEWEED 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 TUMBLEWEED Restaurants, if developers, franchisees and their owners
(and members of their immediate families) were permitted to engage in, hold
interests in or perform services for a Competitive Business. FRANCHISEE
further acknowledges and agrees that the restrictions contained in this
Section will not hinder its activities or the activities of its Owners under
this Agreement or in general. TUMBLEWEED has entered into this Agreement with
FRANCHISEE on the express condition that, with respect to the development and
operation of businesses that offer Mexican or American-Southwest style food
or mesquite flavored food for consumer consumption through
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on-premises or carry-out dining, delivery service, catering service or other
distribution channel or a business that grants or has granted franchises or
licenses or establishes or has established joint ventures, for the
development or operation of such a business. FRANCHISEE and its Owners and
members of their respective immediate families will deal exclusively with
TUMBLEWEED. FRANCHISEE therefore agrees that, during the term of this
Agreement, neither FRANCHISEE nor any Owner of FRANCHISEE, nor any member of
the immediate family of FRANCHISEE or a Owner of FRANCHISEE, shall directly
or indirectly:
(a) have any interest as a disclosed or beneficial owner in any
Competitive Business (This restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market that represent less than three
percent (3%) of the number of shares of that class of securities issued and
outstanding);
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) employ or seek to employ any person who is employed by
TUMBLEWEED, its Affiliates or by any other developer or franchise owner of
TUMBLEWEED Restaurants, nor induce nor attempt to induce any such person to
leave said employment without the prior written consent of such person's
employer.
Furthermore, if FRANCHISEE is a corporation or partnership, it will not
engage in any business or other activity, directly or indirectly, other than
the development and operation of RESTAURANTS.
The restrictions of this Section shall not be construed to prohibit
FRANCHISEE, any Owner of FRANCHISEE, or any member of the immediate family of
FRANCHISEE or its Owners from having a direct or indirect ownership interest
in any TUMBLEWEED Restaurant, Development Agreement or Franchise Agreement
for the development or operation of any TUMBLEWEED Restaurant, or any entity
owning, controlling or operating a TUMBLEWEED Restaurant, or from providing
services to any such TUMBLEWEED Restaurant pursuant to other agreements with
TUMBLEWEED.
C. COMPETITION AFTER TERMINATION OR EXPIRATION.
Upon termination of this Agreement by TUMBLEWEED in accordance with its
terms and conditions or by FRANCHISEE without good cause, or upon expiration
of this Agreement, neither FRANCHISEE nor any of its Owners shall directly or
indirectly (through a member of the immediate family of FRANCHISEE or a Owner
of FRANCHISEE, or otherwise) for a period of two (2) years commencing on the
effective date of such termination or expiration or the date on which
FRANCHISEE ceases to conduct its activities hereunder, whichever is later:
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(i) have any interest as a disclosed or beneficial owner in any
Competitive Business or
(ii) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive
Business;
located or operating within a ten (10) mile radius of the RESTAURANT of any
other TUMBLEWEED Restaurant in operation or under construction or the effective
date of such termination or expiration; or
(iii) employ or seek to employ any person who is employed by
TUMBLEWEED, its Affiliates or by any other developer or franchise owner of
TUMBLEWEED, nor induce nor attempt to induce any such person to leave said
employment without the prior written consent of such person's employer.
The restrictions of subparagraph (i) of this Paragraph will not be
applicable to the ownership of shares of a class of securities listed on a
stock exchange or traded on the over-the-counter market that represent less
than three percent (3%) of the number of shares of that class of securities
issued and outstanding nor shall they be construed to prohibit FRANCHISEE,
any Owner of FRANCHISEE or any member of the immediate family of FRANCHISEE
or its Owner's from having a direct or indirect ownership interest in any
TUMBLEWEED Restaurant, Development Agreement or Franchise Agreement for the
development or operation of any TUMBLEWEED Restaurant, or any entity owning,
controlling or operating a TUMBLEWEED Restaurant, or from providing services
to a TUMBLEWEED Restaurant.
8. TERMINATION OF THE FRANCHISE.
A. BY FRANCHISEE.
If FRANCHISEE is in full compliance with this Agreement and TUMBLEWEED
materially breaches this Agreement, FRANCHISEE may terminate this Agreement
effective thirty (30) days after delivery of written notice of termination if
FRANCHISEE gives written notice of such breach to TUMBLEWEED and TUMBLEWEED
does not:
(1) correct such failure within thirty (30) days after delivery of such
notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30) days
after delivery of such notice, undertake within ten (10) days after
delivery of such notice, and continue until completion, efforts to
cure such breach.
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Any termination of this Agreement by FRANCHISEE other than as provided in
this Paragraph shall be deemed a termination by FRANCHISEE without cause.
B. BY TUMBLEWEED.
TUMBLEWEED may terminate this Agreement, effective upon delivery of
notice of termination to FRANCHISEE, or, if applicable, upon failure to cure
to TUMBLEWEED's satisfaction any breach by the expiration of any period of
time within which such breach may be cured in accordance with the provisions
set forth below if:
(1) FRANCHISEE fails to develop the RESTAURANT in accordance with this
Agreement and commence operation of business within the time provided
in this Agreement;
(2) FRANCHISEE or any of its Owners abandons, surrenders or transfers
control of the operation of the RESTAURANT without prior written
approval of TUMBLEWEED;
(3) FRANCHISEE or any of its Owners has made any material
misrepresentation or omission in the application for the Franchise;
(4) FRANCHISEE or any of its Owners is convicted by a trial court of or
pleads guilty or no contest to a felony, or to another crime or
offense that may adversely affect the reputation of FRANCHISEE or the
RESTAURANT or the goodwill associated with the TUMBLEWEED Marks or
engages in any misconduct which adversely affects the reputation of
any TUMBLEWEED Restaurant or the goodwill associated with the
TUMBLEWEED Marks;
(5) FRANCHISEE or any of its Owners makes an assignment or transfer in
violation of this Agreement;
(6) FRANCHISEE or any of its Owners makes any unauthorized use or
disclosure of or duplicates any copy of any Confidential Information,
makes any unauthorized use of the TUMBLEWEED Marks or uses,
duplicates, or discloses any portion of the Manual or challenges or
seeks to challenge the validity of the TUMBLEWEED Marks or TUMBLEWEED
System or the Confidential Information;
(7) FRANCHISEE loses the right to possession of the Site;
(8) FRANCHISEE becomes insolvent in the sense that FRANCHISEE is unable to
pay its bills as they become due or the current liabilities of
FRANCHISEE exceed its current assets;
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(9) FRANCHISEE, its Owners, or members of their immediate families violate
the restrictions of Section 7.B. hereof;
(10) FRANCHISEE fails to report accurately the Gross Sales of the
RESTAURANT or fails to make payments of any amounts due TUMBLEWEED for
royalty fees, National Advertising Fund contributions, purchases from
TUMBLEWEED or its Affiliates, or any other amounts due to TUMBLEWEED
or its Affiliates, and does not correct such failure within ten (10)
days after written notice thereof;
(11) FRANCHISEE causes or permits to exist a default under the lease or
sublease for the Site and fails to cure such default within the
applicable cure period set forth in the lease or sublease;
(12) FRANCHISEE or any of its Owners fail on three or more separate
occasions within any period of twenty-four (24) consecutive months to
comply with this Agreement, whether or not such failures to comply are
corrected after notice of default is given, or fail on two (2) or more
separate occasions within any period of twelve (12) consecutive months
to comply with the same requirement under this Agreement, whether or
not such failures to comply are corrected after notice of default is
given; or
(13) FRANCHISEE or any of its Owners fail to comply with any other
provision of this Agreement or any mandatory specification, standard,
or operating procedure prescribed by TUMBLEWEED and do not:
(a) correct such failure within thirty (30) days after written notice
of such failure to comply is delivered to FRANCHISEE; or (b) if such
failure cannot reasonably be corrected within the aforesaid
thirty (30) day period, undertake within ten (10) days after such
written notice is delivered to FRANCHISEE, and continue until
completion, efforts to bring the FRANCHISEE into full compliance, and
furnish proof acceptable to TUMBLEWEED upon its request of such
efforts and the date full compliance will be achieved.
C. TUMBLEWEED'S RIGHTS ON TERMINATION OR EXPIRATION.
Upon any termination of this Agreement for any cause and upon any
expiration of this Agreement:
(1) FRANCHISEE shall immediately pay to TUMBLEWEED upon termination or
expiration of this Agreement such royalty fees, National Advertising
Fund contributions, amounts owed for purchases by FRANCHISEE from
TUMBLEWEED or its Affiliates, interest due on any of the foregoing,
and all other amounts owed to TUMBLEWEED or its Affiliates which are
then unpaid;
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(2) Upon the termination or expiration of this Agreement, FRANCHISEE
shall: (1) not thereafter directly or indirectly at any time or in
any manner identify itself or any business as a current or former
TUMBLEWEED Restaurant, or as a current or former franchisee of or as
otherwise associated with TUMBLEWEED, or use any TUMBLEWEED Mark, any
colorable imitation thereof or any mark substantially identical to or
confusingly similar to any TUMBLEWEED Mark in any manner or for any
purpose, or utilize for any purpose any trade name, trademark or
service mark, or other commercial symbol or trade dress that suggests
or indicates a connection or association with TUMBLEWEED; (2) remove
all signs containing any TUMBLEWEED Mark, and return to TUMBLEWEED or
destroy all supplies and other forms and materials containing any
TUMBLEWEED Mark or otherwise identifying or relating to a TUMBLEWEED
Restaurant; (3) take such action as may be required to cancel or, at
TUMBLEWEED's option, to transfer to TUMBLEWEED or its designee, all
fictitious or assumed name or equivalent registrations relating to its
use of any TUMBLEWEED Mark; (4) take all such actions as may be
necessary to transfer any telephone number and any telephone directory
listings associated with the TUMBLEWEED Marks to TUMBLEWEED
(FRANCHISEE acknowledges that, as between TUMBLEWEED and FRANCHISEE,
TUMBLEWEED has the sole right to and interest in all telephone numbers
and directory listings associated with the TUMBLEWEED Marks, and
FRANCHISEE authorizes TUMBLEWEED, and hereby appoints TUMBLEWEED and
any officer of TUMBLEWEED as his or her attorney in fact, to direct
the telephone company and all listing agencies to transfer the same to
TUMBLEWEED or at its direction, should FRANCHISEE fail or refuse to do
so, and the telephone company and all listing agencies may accept this
Agreement as conclusive of the exclusive right of the TUMBLEWEED in
such telephone numbers and directory listings and its authority to
direct their transfer); and (5) if TUMBLEWEED does not purchase the
RESTAURANT as provided in Paragraph E of this Section, at FRANCHISEE's
expense, make such modifications and alterations, including removal of
all distinctive physical and structural features associated with the
distinctive restaurant design, decor, image and other trade tress
which TUMBLEWEED authorizes FRANCHISEE to use in connection with its
operation of a TUMBLEWEED Restaurant as may be necessary to
distinguish the Site of the RESTAURANT so clearly from its former
appearance and from other TUMBLEWEED Restaurants as to prevent any
possibility that the public will associate the Site with TUMBLEWEED
Restaurants and any confusion created by such association. (Such
modifications and alterations shall include, but not be limited to,
removing or covering the distinctive color scheme; removing outside
neon lighting; and removing all advertising, and promotional
materials). FRANCHISEE shall furnish to TUMBLEWEED (i) within thirty
(30) days after the effective date of termination or expiration,
evidence satisfactory to TUMBLEWEED of FRANCHISEE's compliance with
Subparagraphs (1) and (3) of the foregoing obligations, and
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(ii) within thirty (30) days after the later of expiration of
TUMBLEWEED's option to purchase the RESTAURANT, as provided in this
Section, or receipt of notice that TUMBLEWEED elects not to purchase
the RESTAURANT pursuant to this Section, evidence satisfactory to
TUMBLEWEED of FRANCHISEE's compliance with the foregoing obligations;
(3) FRANCHISEE agrees that upon termination or expiration of the Franchise
(without grant of a renewal franchise): (1) it will immediately cease
to use any Confidential Information of TUMBLEWEED disclosed to or
otherwise learned or acquired by FRANCHISEE in any business or
otherwise; and (2) it will return to TUMBLEWEED all copies of the
Manual and any other confidential materials which have been loaned or
made available to it by TUMBLEWEED;
(4) Upon termination of this Agreement by TUMBLEWEED in accordance with
its terms and conditions or by FRANCHISEE without good cause, or upon
expiration of this Agreement (without the grant of a renewal
franchise), FRANCHISEE and its Owners shall comply with the provisions
of Section 7.C. of this Agreement.
D. CONTINUING OBLIGATIONS.
All obligations of TUMBLEWEED and FRANCHISEE which expressly or by their
nature survive or are intended to survive the expiration or termination of
this Agreement shall continue in full force and effect subsequent to and
notwithstanding its expiration or termination and until they are satisfied in
full or by their nature expire.
E. TUMBLEWEED'S RIGHT TO PURCHASE
ASSETS OF THE RESTAURANT.
Upon termination of this Agreement by TUMBLEWEED in accordance with its
terms and conditions, upon termination of this Agreement by FRANCHISEE
without cause, or upon expiration of this Agreement (without the grant of a
Successor Franchise), TUMBLEWEED shall have the option, exercisable by giving
written notice thereof within sixty (60) days from the date of such
expiration or termination, to purchase from FRANCHISEE all the assets used in
the RESTAURANT. Assets shall include, without limitation, leasehold
improvements, equipment, furniture, fixtures, signs, supplies and the lease
or sublease for the Site and at TUMBLEWEED's sole option, such Products as it
may designate. TUMBLEWEED shall have the unrestricted right to assign this
option to purchase. TUMBLEWEED or its assignee shall be entitled to all
customary warranties and representations given by the seller of a business
including, without limitation, representations and warranties as to (i)
ownership, condition and title to assets; (ii) liens and encumbrances
relating to the assets; and (iii) validity of contracts and liabilities,
inuring to TUMBLEWEED or affecting the assets, contingent or otherwise. The
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purchase price for the assets of the RESTAURANT (excluding Products
designated by TUMBLEWEED) shall be the fair market value, determined as of
the date of termination of expiration of this Agreement in a manner
consistent with reasonable depreciation of leasehold improvements owned by
FRANCHISEE and the equipment, furniture, fixtures, signs and supplies of the
RESTAURANT, provided that the purchase price shall not contain any factor or
increment for any trademark, service mark or other commercial symbol used in
connection with the operation of the RESTAURANT, goodwill or "going concern"
value for the RESTAURANT and further provided that TUMBLEWEED may exclude
from the assets purchased hereunder any equipment, furniture, fixtures, signs
and supplies that are not approved as meeting quality standards for
TUMBLEWEED Restaurants. The purchase price for Products shall be 80% of the
price paid by FRANCHISEE. The length of the remaining term of the lease or
sublease for the Site of the RESTAURANT shall also be considered in
determining the fair market value hereunder. If TUMBLEWEED and FRANCHISEE
are unable to agree on the value of the assets, the value shall be determined
by an independent appraiser selected by TUMBLEWEED and FRANCHISEE, and if
they are unable to agree on an appraiser, TUMBLEWEED and FRANCHISEE shall
each select one appraiser, who shall select a third appraiser, and the value
shall be deemed to be the average of the three (3) independent appraisals.
Nothing contained herein shall restrict the manner in which the appraisers so
selected value the leasehold improvements, equipment, furniture, fixtures,
signs and inventory. The purchase price shall be paid in cash, a cash
equivalent, or marketable securities of equal value at the closing of the
purchase, which shall take place no later than ninety (90) days after receipt
by FRANCHISEE of notice of exercise of this option to purchase, at which time
FRANCHISEE shall deliver instruments transferring to TUMBLEWEED or its
assignee: (1) good and merchantable title to the assets purchased, free and
clear of all liens and encumbrances (other than liens and security interests
acceptable to TUMBLEWEED or its assignee), with all sales and other transfer
taxes paid by FRANCHISEE; (2) all licenses and permits of the RESTAURANT
which may be assigned or transferred; and (3) the lease or sublease for the
Site. In the event that FRANCHISEE cannot deliver clear title to all of the
purchased assets as aforesaid, or in the event there shall be other
unresolved issues, the closing of the sale shall be accomplished through an
escrow. Further, FRANCHISEE and TUMBLEWEED shall, prior to closing, comply
with all applicable legal requirements, including the bulk sales provisions
of the Uniform Commercial Code of the state in which the RESTAURANT is
located. TUMBLEWEED shall have the right to set off against and reduce the
purchase price by any and all amounts owed by FRANCHISEE to TUMBLEWEED, and
the amount of any encumbrances or liens against the assets or any obligations
assumed by TUMBLEWEED. If TUMBLEWEED or its assignee exercises this option
to purchase, pending the closing of such purchase as hereinabove provided,
TUMBLEWEED shall have the right to appoint a manager to maintain the
operation of the RESTAURANT. Alternatively, TUMBLEWEED may require FRANCHISEE
to close the RESTAURANT during such time period without removing any assets
from the Site. FRANCHISEE shall maintain in force all insurance policies
required pursuant to this Agreement, until the date of closing. If the Site
is leased, TUMBLEWEED agrees to use reasonable efforts to effect a
termination of the existing lease for the Site and enter into a new lease on
reasonable terms with the landlord. In the event TUMBLEWEED is unable to
enter into a new lease
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TUMBLEWEED will indemnify and hold harmless FRANCHISEE from any ongoing
liability under the lease from the date TUMBLEWEED assumes possession of the
Site.
9. TRANSFERS.
A. BY TUMBLEWEED.
This Agreement is fully transferable by TUMBLEWEED and shall inure to
the benefit of any transferee or other legal successor to the interests of
TUMBLEWEED herein.
B. FRANCHISEE MAY NOT TRANSFER
WITHOUT APPROVAL OF TUMBLEWEED.
FRANCHISEE understands and acknowledges that the rights and duties
created by this Agreement are personal to FRANCHISEE and its Owners and that
TUMBLEWEED has granted the rights hereunder to FRANCHISEE in reliance upon
the individual or collective character, skill, aptitude, attitude, business
ability and financial capacity of FRANCHISEE and its Owners. Accordingly,
neither (a) this Agreement nor (b) any interest in the ownership of
FRANCHISEE, the Franchise, the RESTAURANT or some or all of the assets of the
RESTAURANT (other than inventory items in the ordinary course of business),
may be transferred without the prior written approval of TUMBLEWEED. Any
such transfer without such approval shall constitute a breach hereof and
convey no rights to or interests in this Agreement, the Franchise, FRANCHISEE
or the RESTAURANT or in the assets thereof. The stock certificates of
FRANCHISEE shall bear the legend set forth in EXHIBIT A attached hereto.
TUMBLEWEED shall have no duty to relieve any Owner transferring any stock or
securities of FRANCHISEE from any of his duties as a Owner under this
Agreement.
As used in this Agreement the term "transfer" shall mean and include
the voluntary, involuntary, conditional, direct or indirect assignment, sale,
gift or other transfer by FRANCHISEE (or any of its Owners) of any interest
in or grant of any security interest in:
(1) this Agreement;
(2) the Franchise;
(3) FRANCHISEE;
(4) the RESTAURANT; or
(5) some or all of the assets of the RESTAURANT (other than inventory
items in the ordinary course of business).
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As used above, an assignment, sale or other transfer shall include the
following events:
(1) the transfer of ownership of shares or a partnership interest;
(2) merger or consolidation or issuance of additional securities
representing an ownership interest;
(3) any sale of voting shares of FRANCHISEE or any security convertible to
voting shares of FRANCHISEE or any agreement granting the right to
exercise or control the exercise of the voting rights of any holder of
an ownership interest; or
(4) transfer in a divorce, insolvency, corporate or partnership
dissolution proceeding or, in the event of the death of FRANCHISEE or
an Owner of FRANCHISEE, by will, declaration of or transfer in trust,
or under the laws of intestate succession or otherwise by operation of
law.
C. CONDITIONS FOR APPROVAL OF TRANSFER.
TUMBLEWEED will not unreasonably withhold its approval of a transfer of
an interest in this Agreement, the FRANCHISEE, the Franchise or the
RESTAURANT (or any of its assets) that meets all the applicable requirements
of this Paragraph. All of the following conditions must be met prior to, or
concurrently with, the effective date of the transfer:
(1) FRANCHISEE and its Owners shall be in full compliance with this
Agreement;
(2) the proposed transferee and its owners must be individuals of good
moral character and otherwise meet TUMBLEWEED's then applicable
standards for TUMBLEWEED Restaurant franchisees and if the proposed
transferee, its owners or affiliates have any other franchise
agreements or development agreements with TUMBLEWEED, they are in full
compliance with any such agreements and comply with subparagraph (6)
below;
(3) a transfer of ownership in the RESTAURANT or the assets of the
RESTAURANT (other than inventory in the ordinary course of business)
may only be made in conjunction with a transfer of this Agreement and
all other TUMBLEWEED Restaurants developed pursuant to a development
agreement with TUMBLEWEED, if applicable. If the transfer is of an
Owner's interest in the FRANCHISEE, the transferee's name and relevant
information shall be added as EXHIBIT A hereto, and the transferee
shall then be bound by all provisions
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applicable to Owners and shall execute the Owner's Undertaking
attached as EXHIBIT B hereto; and
(4) FRANCHISEE and its Owners or the transferring Owner(s) and the
transferee (if it is then a developer or franchisee of TUMBLEWEED)
must execute a general release, in form satisfactory to TUMBLEWEED, of
any and all claims against TUMBLEWEED, its Affiliates and their
respective shareholders, officers, directors, employees and agents.
In addition to the above, if the transfer is of this Agreement or a
controlling interest in FRANCHISEE, or is one of a series of transfers which
in the aggregate constitute the transfer of this Agreement or a controlling
interest in FRANCHISEE, all of the following conditions must be met prior to,
or concurrently with, the effective date of the transfer:
(5) the transferee must have sufficient business experience, aptitude and
financial resources to operate the RESTAURANT and perform the
obligations of the transferor under this Agreement and neither the
transferee nor its owners may be engaged in or intend to engage in a
Competitive Business;
(6) FRANCHISEE and the transferee (if it is then a developer or franchisee
of TUMBLEWEED) must pay such royalty fees, National Advertising Fund
contributions, amounts owed for purchases by FRANCHISEE or such
transferee from TUMBLEWEED and its Affiliates, and all other amounts
owed to TUMBLEWEED or its Affiliates, which are then due and unpaid;
(7) the transferee and/or its personnel must agree to complete
TUMBLEWEED's training program to TUMBLEWEED's satisfaction;
(8) the transferee and its owners, at TUMBLEWEED's option, must agree, in
a manner satisfactory to TUMBLEWEED, to be bound by all terms and
conditions of this Agreement for the remainder of its term or execute
TUMBLEWEED's then current form of standard franchise agreement and
such ancillary documents (including guaranties) as are then
customarily used by TUMBLEWEED in the grant of franchises for
TUMBLEWEED Restaurants, modified as necessary to provide for the same
royalty fees required hereunder and a term equal to the remaining term
of this Agreement;
(9) FRANCHISEE or the transferee must have paid TUMBLEWEED a transfer fee
in the amount of Five Thousand Dollars ($5,000.00) or its costs and
expenses, whichever is greater;
(10) TUMBLEWEED must approve the material terms and conditions of such
transfer, including, without limitation, that the price and terms of
payment are not so
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burdensome as to adversely affect TUMBLEWEED's rights and interests
under this Agreement;
(11) if FRANCHISEE and/or its transferring Owner(s) finances any part of
the sale price of the transferred interest, FRANCHISEE and/or its
transferring Owner(s) must agree, in a manner satisfactory to
TUMBLEWEED, that all obligations of the transferee under or pursuant
to any promissory notes, agreements or security interests reserved by
FRANCHISEE and/or its transferring Owner(s) in the assets of the
RESTAURANT shall be subordinate to the obligations of the transferee
to pay royalty fees, National Advertising Fund contribution and other
amounts due to TUMBLEWEED and its Affiliates, and otherwise to comply
with this Agreement or the franchise agreement executed by the
transferee;
(12) FRANCHISEE and its Owners (in the case of a transfer of this
Agreement) or its Owner(s) must execute a noncompetition agreement in
favor of TUMBLEWEED and the transferee, providing that neither
FRANCHISEE, its Owner(s) nor its transferring Owner(s) (whichever is
applicable, through a member of the immediate family of FRANCHISEE,
its Owners or the transferring Owner(s) of FRANCHISEE, or otherwise)
shall directly or indirectly for a period of two (2) years commencing
on the effective date of such transfer:
(a) have any interest as a disclosed or beneficial owner in
any Competitive Business; or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business;
located or operating within ten (10) miles of the RESTAURANT or any
other TUMBLEWEED Restaurant in operation or under construction on the
effective date of such transfer; or
(c) employ or seek to employ, any person who is employed by
TUMBLEWEED, its Affiliates or any developer or franchise owner of
TUMBLEWEED, nor induce nor attempt to induce any such person to leave
said employment without the prior written consent of such person's
employer.
(13) the transfer must be made in compliance with all applicable laws.
Subparagraphs (10) and (11) shall not apply to transfers by gift, bequest, or
inheritance. The restrictions of Subparagraph 12(a) shall not be applicable
to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market that represent
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less than three percent (3%) of the number of shares of that class of
securities issued and outstanding.
The rights of FRANCHISEE and its Owners to transfer interests in this
Agreement, the Franchise, FRANCHISEE, the RESTAURANT (or the assets of the
RESTAURANT) may be exercised only by the FRANCHISEE or its Owners and shall
not be exercisable by a receiver, trustee, liquidator or other person acting
in a comparable capacity with respect to the assets or ownership of
FRANCHISEE.
D. TRANSFER TO A WHOLLY-OWNED CORPORATION.
If FRANCHISEE is in full compliance with this Agreement, TUMBLEWEED
shall not unreasonably withhold its approval of a transfer in the case of a
proposed assignment or transfer of this Agreement, the Franchise, and the
RESTAURANT to a corporation which conducts no business other than the
RESTAURANT, which is actually managed by FRANCHISEE, in which FRANCHISEE
maintains management control and owns and controls one hundred percent (100%)
of the equity and voting power of all issued and outstanding capital stock.
All certificates representing shares of stock of such corporation must be
endorsed with the legend set forth in EXHIBIT A. Such an assignment shall
not relieve FRANCHISEE of his or her obligations hereunder, and FRANCHISEE
shall remain jointly and severally liable to TUMBLEWEED for all obligations
hereunder.
E. DEATH OR INCAPACITY OF FRANCHISEE.
Upon the death of FRANCHISEE or the permanent incapacity of FRANCHISEE
to conduct business affairs or, if FRANCHISEE is a corporation or
partnership, upon the death or permanent incapacity of an Owner of
FRANCHISEE, all of such person's interest in this Agreement, or such interest
in FRANCHISEE shall be transferred to a transferee approved by TUMBLEWEED.
Such disposition of this Agreement or such interest in FRANCHISEE (including,
without limitation, transfer by bequest or inheritance), shall be completed
within a reasonable time, not to exceed six (6) months from the date of
death or permanent disability and shall be subject to all the terms and
conditions applicable to transfers contained in this Section. Failure to so
transfer the interest in this Agreement or such interest in FRANCHISEE,
within said period of time shall constitute a breach of this Agreement.
F. PUBLIC OR PRIVATE OFFERING.
Securities of FRANCHISEE or an entity owning a direct or indirect
equity interest in FRANCHISEE, this Agreement, the Franchise or the
RESTAURANT may not be offered to the public pursuant to a private or public
or governmentally regulated offering without the prior written consent of
TUMBLEWEED which may be withheld in TUMBLEWEED's sole
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discretion. FRANCHISEE shall reimburse TUMBLEWEED for its reasonable
expenses incurred in connection with the offering or proposed offering
(including attorneys' fees).
G. EFFECT OF CONSENT TO TRANSFER.
TUMBLEWEED's consent to a transfer of this Agreement or any interest in
FRANCHISEE, the RESTAURANT, or the assets of the RESTAURANT shall not
constitute a waiver of any claims it may have against FRANCHISEE (or its
Owners), nor shall it be deemed a waiver of TUMBLEWEED's right to demand
exact compliance with any of the terms or conditions of this Agreement by the
transferee.
H. TUMBLEWEED'S RIGHT OF FIRST REFUSAL.
If FRANCHISEE or any of its Owners shall at any time determine to sell
an interest in this Agreement, the Franchise, the RESTAURANT, some or all of
the assets of the RESTAURANT (other than inventory items in the ordinary
course of business) or an ownership interest in FRANCHISEE, FRANCHISEE or its
Owner(s) shall obtain a bona fide, arms length, executed written offer and
earnest money deposit (in the amount of five percent (5%) or more of the
offering price) from a qualified, responsible, bona fide and fully disclosed
purchaser. A true and complete copy of the offer (and any proposed ancillary
agreements) shall immediately be submitted to TUMBLEWEED by FRANCHISEE, such
Owner(s) or both. The offer must apply only to an interest in this Agreement,
the Franchise, the RESTAURANT, the assets of the RESTAURANT or FRANCHISEE.
It must not include the purchase of any other property or rights of
FRANCHISEE (or such Owner(s)), but if the offeror proposes to buy any other
property or rights from FRANCHISEE (or such Owner(s)) under a separate,
contemporaneous offer, the price and terms of purchase offered to FRANCHISEE
(or such Owner(s)) for the interest in this Agreement, the Franchise, the
RESTAURANT, the assets of the RESTAURANT or FRANCHISEE shall reflect the bona
fide price offered therefor and shall not reflect any value for any other
property or rights. TUMBLEWEED shall have the right, exercisable by written
notice delivered to FRANCHISEE or such Owner(s) within thirty (30) days from
the date of delivery of an exact copy of such offer to TUMBLEWEED, to
purchase such interest for the price and on the terms and conditions
contained in such offer, provided that TUMBLEWEED may substitute cash, a cash
equivalent, or marketable securities of equal value for any form of payment
proposed in such offer, TUMBLEWEED's credit shall be deemed equal to the
credit of any proposed purchaser, and TUMBLEWEED shall have not less than
sixty (60) days to prepare for closing. TUMBLEWEED shall be entitled to all
customary representations and warranties given by the seller of a business,
including, without limitation, representations and warranties as to (i)
ownership, condition and title to stock and/or assets; (ii) liens and
encumbrances relating to the stock and/or assets; and (iii) validity of
contracts and liabilities, contingent or otherwise, of the corporation whose
stock is purchased. If TUMBLEWEED does not exercise its right of first
refusal, FRANCHISEE or such Owner(s) may complete the sale to such purchaser
pursuant to and on the exact terms of such offer, subject to TUMBLEWEED's
approval of the transfer, as provided for herein, provided that if the sale
to such purchaser is
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not completed within one hundred twenty (120) days after delivery of such
offer to TUMBLEWEED, or if there is a change in the terms of the sale,
TUMBLEWEED shall have an additional right of first refusal for thirty (30)
days on the same terms and conditions as are applicable to the initial right
of first refusal.
I. ADDITIONAL RESTRICTIONS ON FRANCHISEE.
Without TUMBLEWEED'S prior written consent, FRANCHISEE shall not:
(1) Pay or declare any dividend other than stock dividends or redeem
or acquire, directly or indirectly, any of FRANCHISEE'S stock, if after the
dividend payment, redemption or acquisition FRANCHISEE'S current
liabilities would exceed its current assets.
(2) Except for purchase money security interests and mortgages
incidental to the acquisition of the Site and the commencement of
RESTAURANT operations and disclosed fully to TUMBLEWEED, create or permit
to exist any lien or encumbrance (including any charge upon assets
purchased under conditional sales or other title retention agreements) upon
any of its assets, whether now owned or hereafter acquired, other than
liens and encumbrances incidental to the conduct of FRANCHISEE'S business
or the ownership of its assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credits or which do
not in the aggregate materially detract from the value of FRANCHISEE'S
assets or materially impair the use thereof in the operation of its
business.
(3) Assume, guarantee, endorse, or otherwise become liable upon
obligations of any Person (except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business).
(4) Purchase or otherwise acquire any shares of stock or obligations
of, or make loans or advances to, or investments in, any Person except
investments and direct obligations of the United States of America, prime
commercial paper and certificates of deposit issued by commercial banks,
money market funds investing only in the foregoing, securities listed on a
national exchange, or mutual funds investing only in the foregoing.
(5) Become a party as lessee under a lease of real or personal
property other than the Site and equipment described in the Manual and
actually used in the RESTAURANT.
(6) Engage in any business except the operation of the RESTAURANT at
the Site and the operation of other TUMBLEWEED Restaurants under separate
development and franchise agreements with TUMBLEWEED pursuant to the terms
of such agreements.
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J. FRANCHISEE'S RIGHT OF FIRST REFUSAL
TO PERFORM DELIVERY SERVICE.
If TUMBLEWEED and/or its Affiliates in their sole discretion determine
to operate or license third parties to operate Delivery Units in the
Exclusive Area, FRANCHISEE shall be notified by TUMBLEWEED in writing of such
determination and FRANCHISEE shall have fifteen (15) days after receipt of
such notice to inform TUMBLEWEED, in writing, that FRANCHISEE wishes to
exercise its right of first refusal to operate such Delivery Unit(s) in
accordance with TUMBLEWEED's or its Affiliate's standards and specifications
(the "Delivery Standards"). If FRANCHISEE timely notifies TUMBLEWEED of its
exercise of its right of first refusal, neither TUMBLEWEED nor its Affiliate
shall operate or grant another Person the right to operate Delivery Service
for so long as FRANCHISEE operates Delivery Units in the Exclusive Area in
accordance with the Delivery Standards. FRANCHISEE acknowledges that it may
be required to sign additional documents in order to implement the provisions
of this Section 9.J, and that such documents will not contain provisions
inconsistent with this Section 9.J. If FRANCHISEE declines or fails to
timely exercise its right of first refusal, or if FRANCHISEE fails to operate
Delivery Units in accordance with the Delivery Standards, then TUMBLEWEED
and/or its Affiliate may operate or license another Person to operate
Delivery Units in the Exclusive Area.
10. INTERPRETATION AND ENFORCEMENT.
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.
If any provision of this Agreement relating to the in-term exclusive
dealing covenants is declared or made invalid or unenforceable by judicial
action, legislation or other government action TUMBLEWEED, in its sole
discretion, if it believes that the continuation of this Agreement would not
be in its best interests, may terminate this Agreement upon sixty (60) days
prior written notice to FRANCHISEE.
All other provisions of this Agreement are severable and this Agreement
shall be interpreted and enforced as if all completely invalid or
unenforceable provisions were not contained herein and partially valid and
enforceable provisions shall be enforced to the extent valid and enforceable.
To the extent the post-transfer restrictive covenants or post-termination
restrictive covenants contained herein are deemed unenforceable by virtue of
their scope in terms of geographic area, business activity prohibited, or
length of time, but may be made enforceable by reductions of either or any
thereof, FRANCHISEE and TUMBLEWEED agree that same shall be enforced to the
fullest extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought. If any applicable and binding
law or rule of any jurisdiction requires a greater prior notice of the
termination of this Agreement than is required hereunder, or the taking of
some other action not required hereunder, or if under any applicable and
binding law or rule of any jurisdiction, any provision of this Agreement or
any specification, standard or operating procedure prescribed by TUMBLEWEED
is invalid or unenforceable, the prior notice and/or other action required by
such law or rule shall be substituted for the comparable provisions hereof,
and TUMBLEWEED shall have the right, in its sole discretion, to modify such
invalid or unenforceable provision, specification, standard or operating
procedure to the extent required to be valid and enforceable. Such
modifications to this Agreement shall be effective only in such jurisdiction
and shall be enforced as originally made and entered into in all other
jurisdictions.
B. WAIVER OF OBLIGATIONS.
TUMBLEWEED and FRANCHISEE may by written instrument unilaterally waive
or reduce any obligation of or restriction upon the other under this
Agreement, effective upon delivery of written notice thereof to the other or
such other effective date stated in the notice of waiver. Whenever this
Agreement requires TUMBLEWEED's prior approval or consent, FRANCHISEE shall
make a timely written request therefor and such approval shall be obtained in
writing. In the event FRANCHISEE desires to request a waiver from the
TUMBLEWEED, FRANCHISEE shall follow the procedures with regard to requests
for waivers and the TUMBLEWEED's response thereto set forth in the Manual.
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TUMBLEWEED makes no warranties or guarantees upon which FRANCHISEE may
rely, and assumes no liability or obligation to FRANCHISEE, by granting any
waiver, approval, or consent to FRANCHISEE, or by reason of any neglect,
delay, or denial of any request therefor. Any waiver granted by TUMBLEWEED
shall be without prejudice to any other rights TUMBLEWEED may have, will be
subject to continuing review by TUMBLEWEED, and may be revoked, in
TUMBLEWEED's sole discretion, at any time and for any reason, effective upon
delivery to FRANCHISEE of ten (10) days' prior written notice.
TUMBLEWEED and FRANCHISEE shall not be deemed to have waived or impaired
any right, power or option reserved by this Agreement (including, without
limitation, the right to demand exact compliance with every term, condition
and covenant herein, or to declare any breach thereof to be a default and to
terminate this Agreement prior to the expiration of its term), by virtue of
any (i) custom or practice of the parties at variance with the terms hereof;
(ii) any failure, refusal, or neglect of TUMBLEWEED or FRANCHISEE to exercise
any right under this Agreement or to insist upon exact compliance by the
other with its obligations hereunder, including, without limitation, any
mandatory specification, standard or operating procedure; (iii) any waiver,
forbearance, delay, failure, or omission by TUMBLEWEED to exercise any right,
power, or option, whether of the same, similar or different nature, with
respect to any TUMBLEWEED Restaurant or any development or franchise
agreement therefor; (iv) any grant of a Franchise Agreement to FRANCHISEE; or
(v) the acceptance by TUMBLEWEED of any payment from FRANCHISEE after any
breach of this Agreement.
Neither TUMBLEWEED nor FRANCHISEE shall be liable for loss or damage or
deemed to be in breach of this Agreement if its failure to perform its
obligations results from any of the following and is not caused or
exacerbated by the non-performing party: (1) transportation shortages,
inadequate supply of equipment, merchandise, supplies, labor, material, or
energy, or the voluntary forgoing of the right to acquire or use any of the
foregoing 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 thereof; (2) compliance with
any law, ruling, order, regulation, requirement, or instruction of any
federal, state, or municipal government or any department or agency thereof;
(3) acts of God; (4) acts of war or insurrection; (5) strikes, lockouts,
boycotts, fire and other casualties; or (6) any other similar event or cause.
Any delay resulting from any of said causes shall extend performance
accordingly or excuse performance, in whole or in part, as may be reasonable,
except that such causes shall not excuse payment of amounts owed at the time
of such occurrence or payment of any fees thereafter and as soon as
performance is possible the non-performing party shall immediately resume
performance nor shall such period of excused non-performance exceed six (6)
months.
C. RIGHTS OF PARTIES ARE CUMULATIVE.
The rights of TUMBLEWEED and FRANCHISEE hereunder are cumulative and no
exercise or enforcement by TUMBLEWEED or FRANCHISEE of any right or remedy
hereun-
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der shall preclude the exercise or enforcement by TUMBLEWEED or FRANCHISEE of
any other right or remedy hereunder or which TUMBLEWEED or FRANCHISEE is
entitled by law to enforce.
D. BINDING EFFECT.
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and
shall not be modified except by written agreement signed by both FRANCHISEE
and TUMBLEWEED.
E. CONSTRUCTION.
The preambles and exhibits are a part of this Agreement, which
constitutes the entire agreement of the parties, and there are no other oral
or written understandings or agreements between TUMBLEWEED and FRANCHISEE
relating to the subject matter of this Agreement. Nothing in this Agreement
is intended, nor shall be deemed, to confer any rights or remedies upon any
person or legal entity not a party hereto. The headings of the several
sections and paragraphs hereof are for convenience only and do not define,
limit, or construe the contents of such sections or paragraphs. The term
"FRANCHISEE" as used herein is applicable to one or more persons, a
corporation or a partnership, as the case may be, and the singular usage
includes the plural and the masculine and neuter usages include each other
and the feminine. References to "ownership interests" shall include: (a) in
relation to a company, the ownership of shares in the company; (b) in
relation to a partnership, the ownership of a general or limited partnership
interest; or (c) in relation to a trust, the ownership of the beneficial
interest of such trust. References to "immediate family" as used herein
shall mean parents, spouses, natural and adopted children and siblings and
their spouses, and the parents, children and siblings of spouses. References
to a "controlling interest" in FRANCHISEE shall mean, if FRANCHISEE is a
company, thirty-three and one-third percent (33-1/3%) or more of the voting
shares of FRANCHISEE if FRANCHISEE is owned by three (3) or more persons or
entities, otherwise fifty percent (50%) or more of the voting control of
FRANCHISEE, and, if FRANCHISEE is a partnership, thirty-three and one-third
percent (33-1/3%) of the general partnership interest in FRANCHISEE if
FRANCHISEE has three (3) or more general partners, otherwise fifty percent
(50%) or more of the general partnership interest. If two or more persons
are at any time FRANCHISEE hereunder, whether or not as partners or joint
venturers, their obligations and liabilities to TUMBLEWEED shall be joint and
several. This Agreement shall be executed in multiple copies, each of which
shall be deemed an original.
F. ARBITRATION.
EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED TO OR BASED ON, (1)
ANY ACTION BY TUMBLEWEED TO STOP OR PREVENT ANY THREAT OR DANGER TO PUBLIC
HEALTH OR SAFETY RESULTING FROM THE CONSTRUCTION OR OPERATION OF THE
RESTAURANT; OR (2) AT
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TUMBLEWEED'S OPTION, FRANCHISEE'S USE OF THE TUMBLEWEED MARKS, ALL
CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN TUMBLEWEED AND ITS SUBSIDIARIES,
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, MANAGERS, AGENTS AND EMPLOYEES
AND FRANCHISEES (AND ITS OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF
APPLICABLE) ARISING OUT OF OR RELATED TO:
(I) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN TUMBLEWEED AND
FRANCHISEE OR ANY PROVISION OF ANY SUCH AGREEMENT;
(II) TUMBLEWEED'S RELATIONSHIP WITH FRANCHISEE;
(III) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN FRANCHISEE AND TUMBLEWEED OR ANY PROVISION OF ANY SUCH AGREEMENT;
OR
(IV) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE RELATING
TO THE ESTABLISHMENT AND OPERATION OF THE RESTAURANT
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY OFFICE
OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT
AS OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY,
OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTIONS 1 ET SEQ.) AND NOT
BY ANY STATE ARBITRATION LAW.
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF WHICH THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING,
WITHOUT LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE
DATE DUE), SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND
COSTS, PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY
MARK GENERIC OR OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, TO AWARD EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF
THE ARBITRATOR WILL BE CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND
JUDGMENT
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UPON THE AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
TUMBLEWEED AND FRANCHISEE AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER
APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. TUMBLEWEED AND
FRANCHISEE FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION
PROCEEDING, EACH MUST SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A
COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL
PROCEDURE) WITHIN THE SAME PROCEEDING AS THE CLAIM TO WHICH IT RELATES. ANY
SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS DESCRIBED ABOVE WILL BE FOREVER
BARRED.
TUMBLEWEED AND FRANCHISEE AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN
INDIVIDUAL, NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING
BETWEEN TUMBLEWEED AND ITS AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS,
AGENTS AND EMPLOYEES AND FRANCHISEE (AND/OR ITS OWNERS, GUARANTORS,
AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY NOT BE CONSOLIDATED WITH ANY
OTHER ARBITRATION PROCEEDING BETWEEN THEM AND ANY OTHER PERSON, CORPORATION,
LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
TUMBLEWEED AND FRANCHISEE EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM
A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT TUMBLEWEED AND
FRANCHISEE MUST CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE
MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE PROVIDED IN THE FIRST PARAGRAPH OF
THIS SECTION 10.
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
G. GOVERNING LAW.
ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTIONS 1 ET SEQ). EXCEPT TO THE EXTENT GOVERNED
BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR
49
<PAGE>
OTHER FEDERAL LAW, THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE
RELATIONSHIP BETWEEN TUMBLEWEED AND FRANCHISEE WILL BE GOVERNED BY THE LAWS
OF THE COMMONWEALTH OF KENTUCKY WITHOUT REGARD TO ITS CONFLICT OF LAWS
PRINCIPLES.
H. CONSENT TO JURISDICTION AND VENUE.
FRANCHISEE AND ITS OWNERS AGREE THAT ALL JUDICIAL ACTIONS BROUGHT BY
TUMBLEWEED AGAINST FRANCHISEE OR ITS OWNERS OR BY FRANCHISEE OR ITS OWNERS
AGAINST TUMBLEWEED OR ITS SUBSIDIARIES, AFFILIATES, SHAREHOLDERS, OFFICERS,
DIRECTORS, MANAGERS, AGENTS OR EMPLOYEES MUST BE BROUGHT IN ANY COURT OF
COMPETENT JURISDICTION IN JEFFERSON COUNTY, KENTUCKY OR FEDERAL DISTRICT
COURT FOR THE WESTERN DISTRICT OF KENTUCKY AND FRANCHISEE (AND EACH OWNER)
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND WAIVE ANY
OBJECTION FRANCHISEE, OR OWNER MAY HAVE TO EITHER THE JURISDICTION OF OR
VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, TUMBLEWEED MAY BRING AN
ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY INJUNCTION,
OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF GENERAL
JURISDICTION IN THE STATE IN WHICH FRANCHISEE RESIDES OR IN WHICH THE
RESTAURANT IS LOCATED.
I. WAIVER OF PUNITIVE DAMAGES.
EXCEPT WITH RESPECT TO FRANCHISEE'S OBLIGATION TO INDEMNIFY TUMBLEWEED
PURSUANT TO SECTION 5.V. AND CLAIMS TUMBLEWEED BRINGS AGAINST FRANCHISEE FOR
UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, TUMBLEWEED
AND FRANCHISEE AND ITS 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, IN THE EVENT OF A DISPUTE BETWEEN THEM, THE PARTY MAKING A
CLAIM WILL BE LIMITED TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL
DAMAGES IT SUSTAINS.
J. WAIVER OF JURY TRIAL.
TUMBLEWEED AND FRANCHISEE IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF
THEM.
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K. LIMITATIONS OF CLAIMS.
ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
RELATIONSHIP OF FRANCHISEE AND TUMBLEWEED PURSUANT TO THIS AGREEMENT WILL BE
BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM THE DATE ON
WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1) YEAR
FROM THE DATE ON WHICH FRANCHISEE OR TUMBLEWEED KNEW OR SHOULD HAVE KNOWN, IN
THE EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH
CLAIMS, WHICHEVER OCCURS FIRST.
L. COSTS AND LEGAL FEES.
If TUMBLEWEED or FRANCHISEE is required to enforce this Agreement in a
judicial or arbitration proceeding, the party prevailing in such proceeding
shall be reimbursed by the other party for its costs and expenses, including,
without limitation, reasonable accountants', attorneys', attorneys
assistants', arbitrators' and expert witness fees, cost of investigation and
proof of facts, court costs, other litigation expenses and travel and living
expenses, whether incurred prior to, in preparation for or in contemplation
of the filing of any such proceeding. If TUMBLEWEED is required to engage
legal counsel in connection with any failure by FRANCHISEE to comply with
this Agreement, FRANCHISEE shall reimburse TUMBLEWEED for any of the
above-listed costs and expenses incurred by it.
11. NOTICES AND PAYMENTS.
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Operating Manual shall be deemed
so delivered at the time delivered by hand, one (1) business day after
transmission by telegraph or telex, one (1) business day after being placed
in the hands of a commercial courier service for overnight delivery, or three
(3) business days after placement in the United States Mail by Registered or
Certified Mail, Return Receipt Requested, postage prepaid and addressed to
TUMBLEWEED at TUMBLEWEED, LLC, 1900 Mellwood Avenue, Louisville, Kentucky
40206, to the attention of the President, or its most current principal
business address of which FRANCHISEE has been notified, or to FRANCHISEE at
FRANCHISEE's most current principal business address of which TUMBLEWEED has
been notified, as applicable. All payments and reports required by this
Agreement shall be directed to Tumbleweed, LLC, 1900 Mellwood Avenue,
Louisville, Kentucky 40206, or to such other persons and places as TUMBLEWEED
may direct from time to time. Any required payment or report not actually
received by TUMBLEWEED during regular business hours on the date due (or
postmarked by postal authorities at least two (2) days prior thereto) shall
be deemed delinquent.
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12. ACKNOWLEDGMENTS, REPRESENTATIONS AND COVENANTS.
FRANCHISEE ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT AND TUMBLEWEED'S
UNIFORM FRANCHISE OFFERING CIRCULAR AND THAT IT UNDERSTANDS AND ACCEPTS THE
TERMS, CONDITIONS AND COVENANTS CONTAINED IN THIS AGREEMENT AS BEING
REASONABLY NECESSARY TO MAINTAIN TUMBLEWEED'S HIGH STANDARDS OF QUALITY AND
SERVICE AND THE UNIFORMITY OF THOSE STANDARDS AT ALL TUMBLEWEED RESTAURANTS
IN ORDER TO PROTECT AND PRESERVE THE GOODWILL OF THE TUMBLEWEED MARKS.
FRANCHISEE ACKNOWLEDGES THAT IT HAS CONDUCTED AN INDEPENDENT
INVESTIGATION OF THE BUSINESS CONTEMPLATED BY THIS AGREEMENT AND RECOGNIZES
THAT, LIKE ANY OTHER BUSINESS, THE NATURE OF THE BUSINESS CONDUCTED BY
TUMBLEWEED RESTAURANTS MAY EVOLVE AND CHANGE OVER TIME, THAT AN INVESTMENT IN
A TUMBLEWEED RESTAURANT INVOLVES BUSINESS RISKS, AND THAT THE SUCCESS OF THE
VENTURE IS LARGELY DEPENDENT UPON THE BUSINESS ABILITIES AND EFFORTS OF
FRANCHISEE.
FRANCHISEE FURTHER ACKNOWLEDGES THAT ITS OBLIGATION TO RENOVATE OR
REDECORATE THE RESTAURANT AND ITS FURNISHINGS WILL REQUIRE ADDITIONAL CAPITAL
EXPENDITURES FROM TIME TO TIME AND THAT ALL GOODWILL ARISING FROM
FRANCHISEE'S OPERATION OF THE RESTAURANT WILL INURE TO THE BENEFIT OF AND BE
THE PROPERTY OF TUMBLEWEED. FRANCHISEE ACKNOWLEDGES AND UNDERSTANDS THAT
THERE MAY BE VARIANCES BETWEEN THIS AGREEMENT AND OTHER FRANCHISE AGREEMENTS
TUMBLEWEED HAS ENTERED INTO OR MAY ENTER INTO WITH OTHER FRANCHISEES.
FRANCHISEE ACKNOWLEDGES THAT NO REPRESENTATIONS OR STATEMENTS OF ACTUAL,
AVERAGE, PROJECTED OR FORECASTED SALES, PROFITS OR EARNINGS HAVE BEEN MADE
WITH RESPECT TO TUMBLEWEED RESTAURANTS OR THE BUSINESS CONTEMPLATED BY THIS
AGREEMENT. NEITHER TUMBLEWEED'S SALES PERSONNEL NOR ANY EMPLOYEE OR OFFICER
OF THE TUMBLEWEED IS AUTHORIZED TO MAKE ANY CLAIMS OR STATEMENTS AS TO THE
EARNINGS, SALES OR PROFITS OR PROSPECTS OR CHANCES OF SUCCESS THAT ANY
DEVELOPER OR FRANCHISEE CAN EXPECT OR THAT PRESENT OR PAST DEVELOPERS OR
FRANCHISEES HAVE HAD. TUMBLEWEED SPECIFICALLY INSTRUCTS ITS SALES PERSONNEL,
AGENTS, EMPLOYEES AND OFFICERS THAT THEY ARE NOT PERMITTED TO MAKE SUCH
CLAIMS OR STATEMENTS AS TO THE EARNINGS, SALES OR PROFITS OR THE PROSPECTS OR
CHANCES OF SUCCESS, NOR ARE THEY AUTHORIZED TO REPRESENT OR ESTIMATE DOLLAR
FIGURES AS TO TUMBLEWEED RESTAURANTS. TUMBLEWEED RECOMMENDS THAT APPLICANTS
FOR FRANCHISES MAKE THEIR OWN INVESTIGATIONS AND DETERMINE WHETHER OR NOT THE
BUSINESS CONTEMPLATED BY THIS AGREEMENT IS PROFITABLE. TUMBLEWEED WILL NOT
BE BOUND BY ANY UNAUTHORIZED REPRESENTATIONS AS TO FRANCHISEE'S EARNINGS,
SALES, PROFITS OR PROSPECTS OR CHANCES OF SUCCESS. TUMBLEWEED RECOMMENDS
THAT EACH APPLICANT FOR FRANCHISES CONSULT WITH AN ATTORNEY OF ITS CHOOSING
AND FURTHER BE REPRESENTED BY LEGAL COUNSEL AT THE TIME OF ITS CLOSING.
FRANCHISEE ACKNOWLEDGES THAT IT HAS NOT RECEIVED OR RELIED ON ANY
REPRESENTATIONS ABOUT THE DEVELOPMENT RIGHTS HEREIN GRANTED BY TUMBLEWEED, OR
ITS OFFICERS, DIRECTORS,
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EMPLOYEES OR AGENTS, THAT ARE CONTRARY TO THE STATEMENTS MADE IN TUMBLEWEED'S
UNIFORM FRANCHISE OFFERING CIRCULAR OR TO THE TERMS HEREIN.
FRANCHISEE ACKNOWLEDGES THAT IN ALL OF ITS DEALINGS WITH FRANCHISEE, THE
OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS OF TUMBLEWEED ACT ONLY IN A
REPRESENTATIVE CAPACITY AND NOT IN AN INDIVIDUAL CAPACITY. FRANCHISEE
FURTHER ACKNOWLEDGES THAT THIS AGREEMENT, AND ALL BUSINESS DEALINGS BETWEEN
FRANCHISEE AND SUCH INDIVIDUALS AS A RESULT OF THIS AGREEMENT, ARE SOLELY
BETWEEN FRANCHISEE AND TUMBLEWEED. FRANCHISEE FURTHER REPRESENTS TO
TUMBLEWEED, AS AN INDUCEMENT TO ITS ENTRY INTO THIS AGREEMENT, THAT NEITHER
FRANCHISEE NOR ITS OWNERS HAVE MADE ANY MISREPRESENTATIONS IN OBTAINING THE
RIGHTS GRANTED HEREUNDER.
IF FRANCHISEE IS A LEGAL ENTITY, FRANCHISEE (I) REPRESENTS AND WARRANTS
THAT IT IS DULY ORGANIZED AND VALIDLY EXISTING IN GOOD STANDING UNDER THE
LAWS OF THE JURISDICTION OF ITS ORGANIZATION, IS QUALIFIED TO DO BUSINESS IN
ALL JURISDICTIONS IN WHICH ITS BUSINESS ACTIVITIES OR THE NATURE OF
PROPERTIES OWNED BY FRANCHISEE REQUIRES SUCH QUALIFICATION, AND HAS THE
AUTHORITY TO EXECUTE, DELIVER AND CARRY OUT ALL OF THE TERMS OF THIS
AGREEMENT; AND (II) AGREES THAT ALL CERTIFICATES REPRESENTING OWNERSHIP
INTERESTS OF FRANCHISEE NOW OUTSTANDING OR HEREAFTER ISSUED WILL BE ENDORSED
WITH A LEGEND IN FORM APPROVED BY TUMBLEWEED RECITING THAT THE TRANSFER OF
OWNERSHIP INTERESTS IN FRANCHISEE IS SUBJECT TO RESTRICTIONS CONTAINED IN
THIS AGREEMENT. FRANCHISEE FURTHER REPRESENTS AND WARRANTS THAT ALL OWNERS
OF FRANCHISEE AND THEIR INTERESTS THEREIN ARE COMPLETELY AND ACCURATELY
LISTED IN EXHIBIT A OF THIS AGREEMENT AND THAT FRANCHISEE WILL EXECUTE SUCH
REVISED EXHIBITS A AS MAY BE NECESSARY DURING THE TERM OF THIS AGREEMENT TO
REFLECT ANY CHANGES IN THE INFORMATION CONTAINED THEREIN.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in counterparts on the day and year first above written.
TUMBLEWEED, LLC -------------------------------------
FRANCHISEE (Print Name)
By: By:
--------------------------------- ----------------------------------
Title: Title:
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EXHIBIT A
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN TUMBLEWEED, LLC
AND____________________
1. OWNERS: List the full name and mailing address of each person or
entity who directly or indirectly owns an equity or voting interest in
FRANCHISEE, and describe the nature of the interest.
Name: Number of Shares Owned:
---------------------------------- --------------
Address: % of Total Shares:
------------------------------- -------------------
Number of Shares Owner is Entitled to
- --------------------------------------- Vote:
--------------------------------
- --------------------------------------- Other Interest (Describe):
-----------
- ---------------------------------------
-------------------------------------
Name: Number of Shares Owned:
---------------------------------- --------------
Address: % of Total Shares:
------------------------------- -------------------
Number of Shares Owner is Entitled to
- --------------------------------------- Vote:
--------------------------------
- --------------------------------------- Other Interest (Describe):
-----------
- ---------------------------------------
-------------------------------------
Name: Number of Shares Owned:
---------------------------------- --------------
Address: % of Total Shares:
------------------------------- -------------------
Number of Shares Owner is Entitled to
- --------------------------------------- Vote:
--------------------------------
- --------------------------------------- Other Interest (Describe):
-----------
- ---------------------------------------
-------------------------------------
Name: Number of Shares Owned:
---------------------------------- --------------
Address: % of Total Shares:
------------------------------- -------------------
Number of Shares Owner is Entitled to
- --------------------------------------- Vote:
--------------------------------
- --------------------------------------- Other Interest (Describe):
-----------
- ---------------------------------------
-------------------------------------
A-1
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Name: Number of Shares Owned:
---------------------------------- --------------
Address: % of Total Shares:
------------------------------- -------------------
Number of Shares Owner is Entitled to
- --------------------------------------- Vote:
--------------------------------
- --------------------------------------- Other Interest (Describe):
-----------
- ---------------------------------------
-------------------------------------
2. MANAGEMENT: As required pursuant to Section 2 of this Agreement,
the following Owner shall be the Operator of the Restaurant:
Name:
----------------------------------
3. RESTAURANT SITE: As required by Section 2 of this Agreement, the
Site for the RESTAURANT is as follows:
--------------------------------------------
--------------------------------------------
4. SHARE STRUCTURE AND INITIAL CAPITALIZATION: As required pursuant
to Section 3.B of this Agreement, FRANCHISEE and its Owners represent and
warrant that the share structure and initial capitalization of FRANCHISEE is
as follows:
SHARE STRUCTURE
NUMBER PERCENTAGE
OWNER OF SHARES OWNERSHIP
As of the date hereof, there are ( ) shares
authorized and there are ( ) shares which are issued
and outstanding. There are no other authorized classes of shares.
A-2
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INITIAL CAPITALIZATION
5. FRANCHISEE and each of the Guarantors hereby agree that each
certificate for shares of FRANCHISEE now or hereafter issued will bear the
following legend:
The transfer of this stock is subject to the terms and
conditions of a Franchise Agreement with TUMBLEWEED, LLC, a
Kentucky corporation, dated ________________, 19___ and may
not be sold, assigned, transferred, pledged, mortgaged,
hypothecated, or in any way encumbered without the prior
written consent of TUMBLEWEED, LLC except as set forth in
such Franchise Agreement.
-------------------------------
TUMBLEWEED, LLC FRANCHISEE (Print Name)
By: By:
------------------------------ ------------------------------
Title: Title:
------------------------ ------------------------
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EXHIBIT B
OWNER'S UNDERTAKING
FRANCHISE AGREEMENT
This Undertaking is made and executed by the undersigned as of the
day of , 19 . The undersigned (and each of them, if more than
one) ("OWNER") has an interest in
, a ("FRANCHISEE"). FRANCHISEE is the developer under
that certain Tumbleweed, LLC Franchise Agreement dated as of
, 19 (the "Franchise Agreement") with Tumbleweed, LLC, a Kentucky
limited liability company ("TUMBLEWEED"). This Undertaking is hereby
incorporated and made a part of the Franchise Agreement and will be attached
thereto.
1. ACKNOWLEDGMENTS. Owner acknowledges and agrees that TUMBLEWEED has
entered into the Franchise Agreement with FRANCHISEE on the condition that
each Owner of FRANCHISEE (as defined in the Franchise Agreement) and their
spouse be personally obligated and jointly and severally liable with
FRANCHISEE (and with each other Owner of FRANCHISEE) for the performance of
each and every obligation of FRANCHISEE (and its Owners) under the Franchise
Agreement, any amendments or modifications to the Franchise Agreement, any
extensions of or successors to the Franchise Agreement, and under each and
every agreement ancillary thereto that has been or hereafter may be entered
by FRANCHISEE with TUMBLEWEED (all such agreements are collectively referred
to herein as the "Franchise Agreements"). OWNER also acknowledges and agrees
that TUMBLEWEED has entered into the Franchise Agreements on the condition
that each Owner and their spouse agree to certain restrictions with respect
to Confidential Information (defined below) and interests in Competitive
Businesses (defined below.)
2. OWNER'S REPRESENTATIONS AND ASSUMPTION OF LIABILITY. In
consideration of and as an inducement to the execution of the Franchise
Agreements by TUMBLEWEED, Owner hereby personally and unconditionally:
(a) represents and warrants to TUMBLEWEED that Exhibit A to the
Franchise Agreement is accurate and complete;
(b) represents, warrants and guarantees to TUMBLEWEED and its
successors and assigns, that FRANCHISEE will punctually pay and perform
each and every undertaking, agreement, and covenant set forth in any of the
Franchise Agreements;
(c) agrees to promptly notify TUMBLEWEED if Owner becomes aware of
any change in any Owner of TUMBLEWEED; and
B-1
<PAGE>
(d) agrees to be personally bound by, and personally liable for the
breach of, each and every provision in the Franchise Agreement and each and
every provision in any other Franchise Agreements, as if OWNER were the
FRANCHISEE thereunder.
3. WAIVERS BY OWNER. OWNER hereby waives:
(a) acceptance and notice of acceptance by TUMBLEWEED of the
foregoing undertakings;
(b) notice of demand for payment of any indebtedness or
nonperformance by FRANCHISEE of any obligations guaranteed by OWNER;
(c) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations of FRANCHISEE guaranteed
by OWNER;
(d) any right OWNER may have to require that an action be brought
against FRANCHISEE or any other person as a condition of liability; and
(e) any and all other notices and legal or equitable defenses to
which OWNER may be entitled.
4. FURTHER AGREEMENTS AND UNDERSTANDINGS. OWNER hereby consents and
agrees that:
(a) OWNER's direct and immediate liability under this Owner's
Undertaking is joint and several with FRANCHISEE and each other Owner of
FRANCHISEE;
(b) OWNER agrees to render any payment or performance required under
the Franchise Agreements upon demand if FRANCHISEE fails or refuses
punctually to do so;
(c) OWNER's liability hereunder is not contingent or conditioned upon
pursuit by TUMBLEWEED of any remedies against FRANCHISEE or any other
person;
(d) this Undertaking will continue in full force and effect for and
as to any extension of or modification or amendment to any of the Franchise
Agreements notwithstanding the transfer of any interest in any of the
Franchise Agreements or FRANCHISEE, and OWNER waives notice of any and all
such extensions, modifications, amendments, or transfers;
(e) OWNER'S liability hereunder is not diminished, relieved or
otherwise affected by any extension of time, credit or other indulgence, or
any waiver which TUMBLEWEED may from time to time grant to FRANCHISEE or to
any other person, including without limitation, the acceptance of any
partial payment or performance, or the
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compromise or release of any claims (including the release of other
Owners or guarantors), or the taking of any action by TUMBLEWEED which
may have the effect of increasing the obligations of OWNER, none of
which in any way modifies or amend this Undertaking, which will be
continuing and irrevocable during the term of the Franchise Agreement
and so long as any performance is or may be owed under any of the
Franchise Agreements by FRANCHISEE or its Owners and so long as
TUMBLEWEED may have any cause of action against FRANCHISEE or its
Owners; and
(f) OWNER expressly waives any claim or other right which OWNER (or
any of them) may now have or hereafter acquire against FRANCHISEE,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, indemnification or any right to participate in
any claim or remedy of TUMBLEWEED against FRANCHISEE, whether or not such
claim, right or remedy arises in equity or under contract, statute or
common law.
5. PROTECTION OF CONFIDENTIAL INFORMATION. OWNER acknowledges and
agrees that the use or duplication of the Confidential Information in any
other business would be detrimental to TUMBLEWEED and FRANCHISEE and would
constitute unfair competition with TUMBLEWEED and other TUMBLEWEED Restaurant
developers and franchisees. OWNER acknowledges and agrees that the
Confidential Information is confidential to and a valuable asset of
TUMBLEWEED, is proprietary, includes trade secrets of TUMBLEWEED and will be
disclosed to FRANCHISEE solely on the condition that OWNER agrees, and OWNER
hereby does agree, that OWNER: (1) will not use the Confidential Information
in any other business or capacity; (2) will forever maintain the absolute
confidentiality of the Confidential Information; (3) will not make
unauthorized copies of any portion of the Confidential Information disclosed
in written or other tangible form; and (4) will follow all reasonable
procedures prescribed from time to time by TUMBLEWEED and FRANCHISEE to
prevent unauthorized use or disclosure of or access to the Confidential
Information. Notwithstanding the foregoing, nothing herein shall prevent
OWNER from continuing to use, after termination of this Agreement, any
portion of the Confidential Information that has become generally known or
easily accessible, other than by a breach of any obligation of
confidentiality to TUMBLEWEED or FRANCHISEE.
6. RESTRICTIVE COVENANT DURING THE TERM OF THE FRANCHISE AGREEMENTS.
OWNER acknowledges and agrees that TUMBLEWEED 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 TUMBLEWEED
Restaurants, if persons or entities authorized to use the Confidential
Information were permitted to engage in, hold interests in (other than
passive interests) or perform services for a Competitive Business. OWNER
therefore agrees that during the term of the Franchise Agreements and so long
as OWNER is either a Owner, employee, officer or director of FRANCHISEE,
OWNER shall not directly or indirectly:
(a) have any interest as a disclosed or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on the stock exchange
or traded on the over-the-counter market that
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represents less than three percent (3%) of the number of shares of that
class of securities issued and outstanding);
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) employ or seek to employ any person who is employed by
TUMBLEWEED, is Affiliates or by any other developer or franchise owner of
TUMBLEWEED Restaurants, nor induce nor attempt to induce any such person to
leave said employment without the prior written consent of such person's
employer.
Nothing in this Agreement shall preclude OWNER from acquiring ownership
of shares in a business which is not a Competitive Business.
7. RESTRICTIVE COVENANT UPON TRANSFER, TERMINATION OR EXPIRATION OF
THE FRANCHISE AGREEMENTS. Upon the first to occur of: (a) termination or
expiration of the Franchise Agreements or (b) the date as of which OWNER is
neither an owner, employee, officer or director of FRANCHISEE, OWNER agrees
that OWNER will not have any interest as a disclosed or beneficial owner in
or perform services as a director, officer, manager, employee consultant
representative, agent or otherwise for any Competitive Business located or
operating within a ten (10) mile radius of any TUMBLEWEED Restaurant in
operation or under construction in the Exclusive Area or any other TUMBLEWEED
Restaurant for a period of two (2) years, commencing on the date of the
applicable event described in clauses (a) and (b) above. OWNER further
agrees not to employ or seek to employ, any person who is employed by
TUMBLEWEED, its Affiliates or any developer or franchise owner of TUMBLEWEED,
nor induce or attempt to induce any such person to leave said employment
without the prior written consent of such person's employer.
8. DEFINITIONS. All capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Franchise Agreement.
9. SURRENDER OF DOCUMENTS. OWNER agrees that, as of the effective
date on which OWNER ceases to be an Owner of FRANCHISEE, OWNER shall
immediately cease to use the Confidential Information disclosed to or
otherwise learned or acquired by OWNER, and will promptly return to
FRANCHISEE (or TUMBLEWEED if directed by TUMBLEWEED) all copies of the
Confidential Information loaned or made available to OWNER.
10. BENEFIT. This Agreement is executed for the expressed benefit of
TUMBLEWEED and FRANCHISEE and shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
11. INTERPRETATION AND ENFORCEMENT. OWNER agrees and acknowledges that
the interpretation and enforcement of this Owner's Undertaking shall be
governed by the provisions of Sections 14 and 15 of the Franchise Agreement.
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IN WITNESS WHEREOF, the parties have executed this Owner's Undertaking
as of the day and year first above written.
Print Name of OWNER below:
ACCEPTED: --------------------------------------
- ------------------------------------ Signature of OWNER:
FRANCHISEE
By:
---------------------------------
Title:
------------------------------
--------------------------------------
Print Name of Spouse of OWNER below:
TUMBLEWEED, LLC
--------------------------------------
By:
----------------------------------
Title:
-------------------------------
Signature of Spouse of OWNER:
--------------------------------------
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EXHIBIT C
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made and entered into as of this day of among
TUMBLEWEED, LLC, a Kentucky limited liability company, ("COMPANY")
, ("FRANCHISEE"), and a resident of
("EMPLOYEE").
RECITALS
(a) Pursuant to the terms of a Franchise Agreement between COMPANY and
FRANCHISEE dated , 19__ (the "Franchise Agreement"), COMPANY has
granted to FRANCHISEE the right to own and operate a TUMBLEWEED Restaurant
(the "RESTAURANT") at (the "Premises") (all capitalized terms
not defined herein shall have the respective meanings set forth in the
Franchise Agreement);
(b) EMPLOYEE is an employee of FRANCHISEE who will have access to some
or all of the Confidential Information (as defined below) in connection with
the operation of the RESTAURANT at the Premises;
(c) In consideration of the grant of the franchise for the RESTAURANT
to FRANCHISEE and the employment of EMPLOYEE, as a condition precedent to
allowing EMPLOYEE to have access to the Confidential Information, and as a
material term of the Franchise Agreement necessary to protect TUMBLEWEED's
ownership interest in and FRANCHISEE'S right to use the Confidential
Information, COMPANY and FRANCHISEE require that EMPLOYEE enter into this
Agreement; and
(d) In consideration of the grant of the franchise for the RESTAURANT
to FRANCHISEE and to avoid a material breach thereof, as the case may be,
COMPANY, FRANCHISEE and EMPLOYEE desire to enter into this Agreement; and
(e) Due to the nature of COMPANY's business, any use or disclosure of
the Confidential Information other than in accordance with this Agreement
will cause COMPANY and FRANCHISEE substantial harm.
AGREEMENT
NOW, THEREFORE, in consideration of the grant of the franchise for the
RESTAURANT to FRANCHISEE and/or to prevent COMPANY from declaring a material
breach thereunder, and in consideration of the covenants and mutual
agreements contained herein and other good and
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valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
(1) RECITALS. The recitals set forth above shall be deemed to be
incorporated herein as if fully set forth in this Agreement, and this
Agreement shall be interpreted in light of such recitals.
(2) DEFINITION OF CONFIDENTIAL INFORMATION. As used herein, the term
"Confidential Information" shall mean certain confidential and proprietary
information and trade secrets consisting of the following categories of
information, methods, techniques, procedures and knowledge developed or to be
developed or acquired by COMPANY, and its franchisees relating to the
operation of TUMBLEWEED restaurants (the "Confidential Information"),
including, without limitation: (1) methods, techniques, equipment,
specifications, recipes, ingredients, standards, policies, procedures,
information, concepts, systems relating to and knowledge of and experience in
the development, operation, and franchising of TUMBLEWEED Restaurants and the
TUMBLEWEED System; (2) marketing and promotional programs for TUMBLEWEED
Restaurants; (3) knowledge of specifications for and suppliers of certain
Products, ingredients, materials, equipment and fixtures for TUMBLEWEED
Restaurants or, for TUMBLEWEED's commissary operations; (4) the Manual; (5)
information concerning Product sales, operating results, financial
performance, consumer preferences, inventory requirements for Products,
materials and supplies and other financial data of TUMBLEWEED Restaurants;
and (6) customer lists and Product sales of the RESTAURANT.
(3) PROTECTION OF CONFIDENTIAL INFORMATION. COMPANY will disclose to
FRANCHISEE certain Confidential Information pursuant to the Franchise
Agreement. EMPLOYEE acknowledges and agrees that EMPLOYEE will not acquire
any interest in or right to use the Confidential Information, except the
right to use it strictly in accordance with the Franchise Agreement, and that
the use or duplication of the Confidential Information in any other business
would be detrimental to COMPANY and would constitute unfair competition with
COMPANY and other TUMBLEWEED restaurant franchisees. EMPLOYEE acknowledges
and agrees that the Confidential Information is a valuable asset of COMPANY,
is proprietary, includes trade secrets of COMPANY and is disclosed to
EMPLOYEE by FRANCHISEE solely on the condition that EMPLOYEE agrees, and
EMPLOYEE hereby does agree, that EMPLOYEE: (1) will not use the Confidential
Information in any other business or capacity; (2) will forever maintain the
absolute confidentiality of the Confidential Information during and after the
term of the Franchise Agreement; (3) will not make unauthorized copies of any
portion of the Confidential Information disclosed in written form; and (4)
will follow all reasonable procedures prescribed from time to time by COMPANY
and FRANCHISEE to prevent unauthorized use or disclosure of or access to the
Confidential Information. Nothing contained herein shall be construed to
prohibit EMPLOYEE from using the Confidential Information in connection with
the operation of a TUMBLEWEED restaurant (other than the RESTAURANT) pursuant
to a franchise agreement with COMPANY. EMPLOYEE agrees to disclose to
COMPANY all ideas, concepts, methods, techniques and products relating to the
development and operation of TUMBLEWEED restaurants conceived or developed by
EMPLOYEE during the term of this Agreement, and COMPANY shall have a
perpetual, non-
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exclusive and worldwide right to incorporate same in the TUMBLEWEED system
for use in all TUMBLEWEED restaurants operated by COMPANY and its
franchisees. COMPANY shall have no obligation to make any payment to
EMPLOYEE with respect to any idea, concept, method, technique or product
developed or suggested by EMPLOYEE and incorporated by COMPANY in the
TUMBLEWEED system. EMPLOYEE agrees that EMPLOYEE will not use any such
concept, method, technique or product in the operation of the RESTAURANT
without obtaining COMPANY's prior written approval.
(4) SURRENDER OF DOCUMENTS. EMPLOYEE agrees that, as of the effective
date of the earlier of (a) a termination or expiration of the Franchise
Agreement, or (b) the termination by EMPLOYEE or FRANCHISEE of EMPLOYEE's
employment, EMPLOYEE shall immediately cease to use the Confidential
Information disclosed to or otherwise learned or acquired by EMPLOYEE and
return to FRANCHISEE (or COMPANY if directed by COMPANY) all copies of the
Confidential Information loaned or made available to EMPLOYEE.
(5) WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions in this Agreement shall not be deemed a waiver
of such term, covenant or condition, nor shall any waiver or relinquishment
of any right or remedy under this Agreement at any one or more times be
deemed a waiver or relinquishment of such right or remedy at any other time
or times.
(6) RIGHTS OF PARTIES ARE CUMULATIVE. The rights of the parties are
cumulative and no exercise or enforcement by a party of any right or remedy
under this Agreement shall preclude the exercise or enforcement by such party
of any other right or remedy under this Agreement or which it is entitled by
law to enforce.
(7) BENEFIT. This Agreement shall inure to the benefit of and be
binding upon the parties to this Agreement and their respective heirs,
successors and assigns.
(8) ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties with respect to the subject matter addressed in this
Agreement and all prior negotiations, agreements and understanding are merged
this Agreement. This Agreement may not be modified or rescinded except by a
written agreement to such effect signed by the party against whom enforcement
is sought.
(9) GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with
the internal laws of the state of Kentucky, except that its choice of law and
conflict of law rules shall not apply.
(10) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above but actually on the dates set forth
below.
Print name of EMPLOYEE below: TUMBLEWEED, LLC
By:
- ------------------------------------ ----------------------------------
Title:
-------------------------------
Date:
--------------------------------
Signature of EMPLOYEE: FRANCHISEE:
By:
- ------------------------------------ ----------------------------------
Title:
-------------------------------
Date:
--------------------------------
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<PAGE>
EXHIBIT D
TO THE FRANCHISE AGREEMENT BY AND BETWEEN
TUMBLEWEED, LLC
AND _____________________________________
DATED _________________________
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
(Name of Person or Legal Entity)(ID Number)
The undersigned depositor ("DEPOSITOR") hereby authorizes Tumbleweed, LLC
("TUMBLEWEED") to initiate debit entries and/or credit correction entries to
the undersigned's checking and/or savings account(s) indicated below and the
depository designated below ("DEPOSITORY") to debit such account pursuant to
TUMBLEWEED's instructions.
- ----------------------------------- --------------------------------------
DEPOSITORY Branch
- --------------------- ------------- ---------------------------------
City State
Zip Code
- -------------------------- -------------------------------------------
Bank Transit/ABA Number
Account Number
- -----------------------------------------------------------------------------
This authority is to remain in full and force and effect until DEPOSITORY has
received joint written notification from TUMBLEWEED and DEPOSITOR of the
DEPOSITOR's termination of such authority in such time and in such manner as
to afford DEPOSITORY a reasonable opportunity to act on it. Notwithstanding
the foregoing, DEPOSITORY shall provide TUMBLEWEED and DEPOSITOR with thirty
(30) days' prior written notice of the termination of this authority. If an
erroneous debit entry is initiated to DEPOSITOR's account, DEPOSITOR shall
have the right to have the amount of such entry credited to such account by
DEPOSITORY, if (a) within fifteen (15) calendar days following the date on
which DEPOSITORY sent to DEPOSITOR a statement of account or a written notice
pertaining to such entry or (b) forty-five (45) days after posting, which
ever occurs first, DEPOSITOR shall have sent to DEPOSITORY a written notice
identifying such entry, stating that such entry was in error and requesting
DEPOSITORY to credit the amount thereof to such account. These rights are in
addition to any rights DEPOSITOR may have under federal and state banking
laws.
- -------------------------------------- -------------------------------------
DEPOSITOR DEPOSITORY
By: By:
----------------------------------- ----------------------------------
Title: Title:
----------------------------- ---------------------------
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<PAGE>
- -------------------------------------- -------------------------------------
Date: Date:
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<PAGE>
ARTICLES OF INCORPORATION
OF
TUMBLEWEED MARKETING FUND, INC.
The undersigned hereby incorporates a nonprofit corporation without
capital stock or stockholders, under the provisions of KRS 273.161 ET. SEQ.,
and for that purpose adopts the following Articles of Incorporation:
ARTICLE
1
NAME OF CORPORATION
1.1 The name of the corporation is TUMBLEWEED MARKETING FUND, INC. (the
"CORPORATION").
ARTICLE
2
PURPOSES AND POWERS
2.1 Any provision of these Articles of Incorporation to the contrary
notwithstanding, the Corporation shall not have any purpose or object, nor
have or exercise any power, nor engage in any activity, which in any way
contravenes, or is in conflict with, the other provisions of ARTICLE 2 of
these Articles of Incorporation.
2.2 The objects and purposes of the Corporation, and the powers it
shall have and may exercise, are as follows:
(a) The primary object and purpose of the Corporation is to plan,
prepare, design, produce, broadcast, distribute, maintain, supervise and
administer advertising and promotional programs, materials, and activities
for present and future Tumbleweed restaurant outlets and all activities
related and incident thereto, INCLUDING, BUT NOT LIMITED TO, (i) television,
radio, magazine, and newspaper advertising, print media, direct mail, and
outdoor billboard advertising, (ii) advertising related to special offers and
promotions and introductory products, (iii) marketing surveys and other
public relations activities, AND (iv) the engaging and consulting with
advertising and public relations firms to assist in such activities.
(b) The Corporation shall not engage in any business for profit,
and nothing in these Articles of Incorporation or the Bylaws shall authorize
the Corporation to engage in any transaction, carry on any activity, or
engage in any business, for profit.
(c) The Corporation's gain, profit, and property shall not inure
to the incorporator, to any officer or director, to any Member, or to any
other person. The contributions to
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the Corporation, and any interest, dividends, or other earnings thereon, LESS
taxes on such earnings, if any, shall be received, held, invested, and
disbursed solely for the not-for-profit purposes set forth in this ARTICLE 2.
(d) The Corporation shall not pay dividends, and no part of the
income of the Corporation shall be distributed to the incorporator, the
Members, directors, or officers or the Corporation, or any other person.
(e) In furtherance of, and at all times subject to, the aforesaid
purposes, enterprises, activities and projects, the Corporation shall have
the power and authority:
(i) To make and amend Bylaws, not inconsistent with these
Articles of Incorporation or with the laws of the Commonwealth of Kentucky,
for managing the activities and regulating the affairs of the Corporation;
(ii) To make contracts and guarantees, incur liabilities,
borrow money, issue its notes, bonds, and other obligations and secure any of
its obligations by mortgage, pledge, or other hypothecation of any of its
properties or any interests therein;
(iii) To borrow funds, and to spend in any fiscal year an
amount greater or less than the aggregate contributions to the Corporation in
that fiscal year;
(iv) To elect directors and appoint officers, employees, and
agents of the Corporation and define their duties and any compensation in a
reasonable amount to its Members, directors, officers, employees, and agents
for services rendered;
(v) To invest and reinvest any of the Corporation's funds or
property and the increments in, and avails or proceeds of, any such property
in such investments as may be deemed advisable from time to time by the
Corporation's Board of Directors, INCLUDING, BUT NOT LIMITED TO, stocks,
bonds, secured and unsecured obligations, undivided interests, leases,
commercial paper, financial and governmental instruments, savings and other
depository accounts, and other securities and properties;
(vi) To take title to, and hold in its own name, such real or
personal property, or both, and such interests in either such type of
property as the Corporation may acquire, for the purposes herein set out, and
to sell, transfer, and dispose of any such property or reinvest the proceeds
thereof as herein permitted;
(vii) To become a member of any other nonstock or nonprofit
corporation organized under the laws of any state, or to become affiliated
with any other organization of like character existing under the laws of any
state; provided, however, that the purposes of such corporation or
organization are not inconsistent with the other provisions of this ARTICLE 2;
(viii)To do any and all things which the Corporation's Board
of Directors may determine, consistent with the provisions hereof, to be
necessary or appropriate to effectuate
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<PAGE>
the purposes of which the Corporation is organized as herein set forth, to
the extent that the doing of such act or thing is not inconsistent with the
provisions of Chapter 273 of Kentucky Revised Statutes, or any other
applicable law or statute of the Commonwealth of Kentucky.
ARTICLE
3
DURATION
3.1 The Corporation shall have perpetual duration.
ARTICLE
4
MEMBERS
4.1 The Corporation shall not have any authority to issue capital stock.
4.2 There shall be two (2) classes of Members which shall be designated
as "VOTING MEMBERS" and "NONVOTING MEMBERS." The voting powers,
limitations, preferences, and rights of each class of membership shall be as
follows:
(a) Voting rights upon any and all matters shall be vested solely
in the Voting Members of the Corporation, EXCEPT as may be otherwise provided
by applicable law or in the Bylaws of the Corporation. The Nonvoting Members
shall have no voting rights, EXCEPT as may be otherwise provided by
applicable law or in the Bylaws of the Corporation.
(b) EXCEPT as provided above with respect to voting rights, both
classes of membership in the Corporation shall be entitled to receive the net
assets of the Corporation upon dissolution and shall be without distinction
as to powers, preferences, and rights.
4.3 Except as otherwise provided in these Articles of Incorporation and
in all cases consistent with the purposes and powers of the Corporation set
forth in ARTICLE 2 hereof, the terms and conditions of membership in the
Corporation, and the rights, privileges, duties, and obligations of the
Corporation's Members, shall be as stated in the Bylaws and be SUBJECT TO
amendment of the Bylaws from time to time in the manner permitted under these
Articles of Incorporation.
ARTICLE
5
BOARD OF DIRECTORS
5.1 All corporate powers shall be exercised by or under the authority
of, and the activities and affairs of the Corporation managed under the
direction of, its Board of Directors.
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5.2 The Board of Directors shall consist of such number of individuals
as may be fixed in the corporation's Bylaws; provided, however, that the
Board of Directors shall not, in any event, consist of fewer than three (3)
individuals.
5.3 The Voting Members, if any, entitled to vote as to the election of
directors under these Articles of Incorporation shall elect the directors of
the Corporation at the annual meeting of the Members, or as otherwise
provided in the Corporation's Bylaws, or if there shall be no such Voting
Members, then the Board of Directors shall elect the directors of the
Corporation at the annual meeting of the Board of Directors, or as otherwise
provided in the Corporation's Bylaws.
5.4 The term of office of each director shall be as provided by the
Corporation's Bylaws. Each director so elected shall hold office for said
term and until his or her respective successor shall have been duly elected
and shall have accepted office.
5.5 Directors may be removed from office during their term of office
as provided in the Corporation's Bylaws.
5.6 The annual meetings of the Corporation's Board of Directors shall
be held at such time and place as may be provided in the Corporation's Bylaws.
5.7 The duties and powers of the Board of Directors, committees, and
officers of the Corporation shall, except as otherwise specifically provided
herein or in the Corporation's Bylaws, be such as are usually incident to
similar Boards of Directors, similar committees and similar officers, and in
addition, shall be such as may be conferred upon said Board of Directors,
upon such committees, or upon such officers by law, or any amendment to the
Articles of Incorporation or Bylaws, or by appropriate corporate resolution.
ARTICLE
6
INITIAL BOARD OF DIRECTORS
6.1 The number of directors constituting the initial Board of Directors
is three (3) and the names and mailing addresses of the persons who are to
serve as directors are as follows, and each such director shall serve until
the first annual meeting of the Members, if there are any Members of the
Corporation, or until the first annual meeting of the Board of Directors, if
there are no Members of the Corporation, as the case may be, and until such
director's successor in office is elected and shall qualify:
JOHN A. BUTORAC, JR.
1900 MELLWOOD AVENUE
LOUISVILLE, KY 40206
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<PAGE>
JAMES M. MULROONEY
1900 MELLWOOD AVENUE
LOUISVILLE, KY 40206
DAVID M. ROTH
1230 LIBERTY BANK LANE, SUITE 200
LOUISVILLE, KY 40222-5763
ARTICLE
7
INITIAL REGISTERED OFFICE AND AGENT
7.1 The address of the initial registered office of the Corporation is
1230 LIBERTY BANK LANE, SUITE 200, LOUISVILLE, KENTUCKY 40222-5763, and the
name of the initial registered agent at such address is DAVID M. ROTH.
ARTICLE
8
PRINCIPAL OFFICE
8.1 The address of the principal office of the Corporation is 1900
MELLWOOD AVENUE, LOUISVILLE, KENTUCKY 40222-5763.
ARTICLE
9
DISTRIBUTION OF ASSETS UPON DISSOLUTION
9.1 If, at any time, this Corporation dissolves, the assets of this
Corporation shall be applied and distributed in the manner provided under KRS
273.303, which may include distributions to the Corporation's Members, and no
such distribution shall be deemed to be a dividend or distribution of the
Corporation's income or profits.
ARTICLE
10
INCORPORATOR
10.1 DAVID M. ROTH, whose address is 1230 LIBERTY BANK LANE, SUITE 200,
LOUISVILLE, KENTUCKY 40222-5763, is the sole incorporator of the Corporation.
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<PAGE>
ARTICLE
11
INDEMNIFICATION OF MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
11.1 To the fullest extent permitted by, and in accordance with the
provisions of, Kentucky law, as the same exists or may hereafter be amended,
but only to the extent not in conflict with the provisions of ARTICLE 2 of
these Articles of Incorporation, the Corporation shall indemnify each Member,
director, officer, employee or agent of the Corporation against expenses
(including, but not limited to, attorney's fees), judgments, taxes,
penalties, fines (including, but not limited to, any excise tax assessed with
respect to any employee benefit plan) and amounts paid in settlement
(collectively, a "LIABILITY"), incurred by such Member, director, officer,
employee or agent in connection with defending any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) to which such Member, director, officer, employee or agent
is, or is threatened to be made, a party because such Member, director,
officer, employee or agent is or was a Member, director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a member, director, officer, partner, employee or agent of
another domestic or foreign corporation, partnership, joint venture, trust or
other enterprise, including, but not limited to, service with respect to
employee benefits plans. A Member, director, officer, employee or agent of
the Corporation shall be considered to be serving an employee benefit plan at
the Corporation's request if the duties of such Member, director, officer,
employee or agent to the Corporation also impose duties on or otherwise
involve services by such Member, director, officer, employee or agent to the
plan or to participants in or beneficiaries of the plan.
11.2 To the fullest extent authorized or permitted by, and in accordance
with the provisions of, Kentucky Law, as the same exists or may hereafter be
amended, but only to the extent not in conflict with the provisions of
ARTICLE 2 of these Articles of Incorporation, the Corporation shall pay or
reimburse expenses (including, but not limited to, attorney's fees) incurred
by a Member, director, officer, employee or agent of the Corporation who is a
party to a proceeding in advance of final disposition of such proceeding.
11.3 The indemnification against Liability and advancement of expenses
provided by, or granted pursuant to, this ARTICLE 11 with respect to any
Member, director, officer, employee or agent of the Corporation shall, to the
fullest extent authorized or permitted by, and in accordance with the
provisions of, Kentucky Law, as the same exists or may hereafter be amended,
but only to the extent not in conflict with the provisions of ARTICLE 2 of
these Articles of Incorporation (i) not be deemed exclusive of other rights,
if any, to which such Member, director, officer, employee or agent of the
Corporation seeking such indemnification or advancement may be entitled under
any bylaw, agreement, action of disinterested directors, or otherwise, as to
any action by such Member, director, officer, employee or agent in his or her
official capacity as such or as to any action of such Member, director,
officer, employee or agent of the Corporation in any other capacity, (ii)
continue as to a person who has ceased to be a Member, director, officer,
employee or agent of the Corporation, and (iii) inure to the benefit of the
heirs, executors, and administrators of such a person.
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<PAGE>
11.4 To the fullest extent authorized or permitted by, and in accordance
with the provisions of, Kentucky Law, as the same exists or may hereafter be
amended, but only to the extent not in conflict with the provisions of
ARTICLE 2 of these Articles of Incorporation, the Corporation may purchase
and maintain insurance on behalf of an individual who is or was a Member,
director, officer, employee or agent of the Corporation, or who, while a
Member, director, officer, employee or agent of the Corporation, is or was
serving at the request of the Corporation as a member, director, officer,
partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against Liability asserted against or incurred by such
Member, director, officer, employee or agent in that capacity or arising from
such Member, director, officer, employee or agent's status as a Member,
director, officer, employee or agent, whether or not the Corporation would
have power to indemnify such Member, director, officer, employee or agent
against the same Liability under the provisions of this ARTICLE 11.
11.5 Any repeal or modification of this ARTICLE 11 by the Board of
Directors shall not adversely affect any right or protection of a Member,
director, officer, employee or agent of the Corporation under this ARTICLE 11
with respect to any act or omission occurring prior to the time of such
repeal or modification.
ARTICLE
12
ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS
12.1 A director of the Corporation shall not be personally liable to the
Corporation for monetary damages for breach of such director's duties as a
director; provided, however, that this provision shall not eliminate or limit
the liability of a director for the following: (i) for any transaction in
which such director's personal financial interest is in conflict with the
financial interests of the Corporation; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or are known to such
director to be a violation of law; or (iii) for any transaction from which
such director derived an improper personal benefit. This ARTICLE 12 shall
continue to be applicable with respect to any such breach of duties by a
director of the Corporation as a director notwithstanding that such director
may thereafter cease to be a director and shall inure to the personal benefit
of such director's heirs, executors and administrators.
ARTICLE
13
PRIVATE PROPERTY OF INCORPORATOR AND DIRECTORS
13.1 None of the private property of the incorporator or any Member or
director of the Corporation shall be subject to any of the Corporation's
debts and liabilities.
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<PAGE>
ARTICLE
14
SEVERABILITY OF PROVISIONS
14.1 Except as may conflict with the provisions of ARTICLE 2 of these
Articles of Incorporation, if any provision of these Articles of
Incorporation or its application to any person or circumstances shall be held
invalid by a court of competent jurisdiction, the invalidity shall not
affect any other provisions or applications of these Articles of
Incorporation that can be given effect without the invalid provision or
application, and, to this end, the provisions of these Articles of
Incorporation are severable.
ARTICLE
15
AMENDMENTS; BYLAWS
15.1 The Corporation's Articles of Incorporation may be amended in the
manner provided by law; SUBJECT, HOWEVER, to the approval of the Members, if
any.
15.2 The Board of Directors shall adopt Bylaws for the Corporation,
SUBJECT, HOWEVER, to the approval of the Voting Members, if any, and the
Board of Directors may change or revise such Bylaws at any time and from time
to time, SUBJECT, HOWEVER, to the approval of the Voting Members, if any.
IN TESTIMONY WHEREOF, witness the signature of the undersigned on this
2nd day of December, 1995.
/s/ DAVID M. ROTH, INCORPORATOR
-------------------------------
David M. Roth, Incorporator
THIS INSTRUMENT WAS PREPARED BY:
/s/ DAVID M. ROTH
- ---------------------------
David M. Roth
ROTH & COOPER, P.S.C.
1230 LIBERTY BANK LANE, SUITE 200
LOUISVILLE, KENTUCKY 40222-5763
TELEPHONE:(502)425-6688
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<PAGE>
[LETTERHEAD]
June 12, 1997
VIA FEDERAL EXPRESS
C. Raymond Maddux
TW Tennessee, L.L.C.
c/o Spartan Food Group, Inc.
1210 Briarville Road
Building E, Suite 500
Madison, Tennessee 37115
RE: TUMBLEWEED SOUTHWEST MESQUITE GRILL & BAR / APPROXIMATELY
$13,200,000.00 OF SALE/LEASEBACK FINANCING (AND IN THE CASE OF
ONE PARTICULAR SITE IN HENDERSONVILLE, TENNESSEE, GROUND LEASE
FINANCING) AND $1,600,000.00 OF EQUIPMENT LEASE FINANCING FOR
ACQUISITION, CONVERSION AND REMODELING OF FIVE(5) EXISTING
BARBWIRE RESTAURANTS AND UP TO SEVEN (7) SHONEY'S RESTAURANTS OR
OTHER RESTAURANTS AND ACQUISITION AND CONSTRUCTION OF TWO(2)
PROTOTYPE RESTAURANTS (THE "PROPERTIES")
Dear Mr. Maddux:
CNL Fund Advisors, Inc. (the "Company") hereby issues this commitment
letter ("Commitment") by which it agrees to enter, or cause an affiliate to
enter, into sale-leaseback transactions (and in the case of one particular
site located in Hendersonville, Tennessee (the "Hendersonville Property"), a
ground lease transaction) with the TW Tennessee, L.L.C. (as "Seller/Lessee")
for an amount not to exceed Thirteen Million Two Hundred Thousand Dollars
($13,200,000.00) for acquisition, conversion and remodeling of five (5)
Barbwire Restaurants and up to seven (7) Shoney's restaurants or other
restaurants, each of which shall be converted to be operated as a Tumbleweed
Southwest Mesquite Grill & Bar, and two (2) prototype Tumbleweed Southwest
Mesquite Grill & Bar restaurants (each a "Prototype Restaurant") to be
constructed, developed and operated (the "Properties") in accordance with the
prototype restaurants created and operated by the franchisor of Tumbleweed
Southwest Mesquite Grill & Bar, Tumbleweed L.L.C. Seller/Lessee agrees to
make the Properties available for acquisition and leaseback within the time
periods and subject to the terms and conditions set forth in this Commitment.
Seller/Lessee agrees to make its interest in the existing lease for the
Hendersonville Property available for assignment to
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 2
the Company within the time periods and subject to the terms and conditions
set forth herein including, without limitation, the terms and conditions of
Paragraph 21 of this Commitment. The Properties are to be located in
locations to be mutually determined.
This Commitment provides funding for the acquisition of Properties (and
in the case of the Hendersonville Property, ground lease rights) beginning as
of the date hereof and ending not later than July 1, 1998; the five(5)
Barbwire Restaurants are to be acquired on or before August 1, 1997, with
conversion/remodeling to occur on or after the acquisition date. Funding
under this Commitment and the obligations of the Company hereunder are both
expressly conditioned upon: (a) availability of funds raised by the Company
for the purpose of acquiring properties for sale-leaseback transactions; (b)
approval of each Property by the Company based on a physical inspection of
the Properties and a review of the site and other information to be provided
to the Company by Seller/Lessee and specified in the following paragraph; and
(c) final credit approval of Seller/Lessee by the Company.
Within thirty(30) days following the full execution of this Commitment,
and within each ninety(90) day period thereafter until expiration of this
Commitment, Seller/Lessee shall submit to the Company, in writing, a list of
the prospective Properties for acquisition by the Company which lists shall
specify the proposed closing dates and estimated Purchase Prices (as defined
below). Contemporaneously with submitting each list of prospective
Properties, Seller/Lessee shall submit to the Company, for each Property,
complete site information and trade area analyses, and demographic and
feasibility studies prepared by Seller/Lessee, which includes a demographic
profile of the trade area, aerial photographs and maps indicating the
Property location and competition within the trade area, traffic generation
information, and photographs of each Property. The Company shall have
thirty(30) days after receipt of the complete information in which to reject
any Property on the basis of the foregoing information, by written
notification to Seller/Lessee. Failure to provide such notification by the
Company shall be deemed an approval of the furnished information for purposes
of Company's determination of the acceptability of the Property.
This Commitment is made subject to the following terms and conditions:
1. PURCHASE PRICE. The maximum "Purchase Price" (as hereinafter
defined) the Company shall fund for each Property shall not exceed the amount
referred to as the "Development Cap" for the total of the "Purchase Cost" and
the "Remodel Cost" set forth on the schedule attached hereto as EXHIBIT "A",
and shall not cause the appraisal referred to in Paragraph 10.B. hereof to
exceed the limitation set forth in that Paragraph. The purchase price for
each Barbwire Restaurant Property and Shoney's or other restaurant Property
(the"Purchase Price") will equal the total of (i) the actual cost of the land
and existing improvements comprising a portion of the Property, plus (ii)
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 3
the actual and verifiable "hard" construction costs for conversion and
remodeling of the improvements into a Tumbleweed Southwest Mesquite Grill &
Bar (see paragraph 2 below for a clarification of what costs are "hard"
costs) to be constructed on the Property, plus (iii) all approved
Seller/Lessee closing costs, plus (iv) all Company closing and acquisition
costs, plus (v) all approved Seller/Lessee out-of-pocket "soft" costs related
to the Property. The Purchase Price for each of the Prototype Restaurants
will equal the total of (m) the actual cost of the land comprising a portion
of the Property, plus (n) the actual and verifiable "hard" construction costs
for the improvements (as defined in paragraph 2 below) to be constructed on
the Property, plus (o) all approved Seller/Lessee closing costs, plus (p) all
Company closing and acquisition costs, plus (q) all approved Seller/Lessee
out-of-pocket "soft" costs related to the Property. Soft costs submitted by
Seller/Lessee for inclusion in the Purchase Price shall not include any
internal overhead cost of Seller/Lessee or internal profit. All Company
acquisition costs incurred in connection with this transaction shall be paid
by Seller/Lessee, but as indicated above the Company will permit
Seller/Lessee to include them in the Purchase Price so that the costs will be
funded at closing out of the sale-leaseback proceeds. The Company acquisition
costs will include an appraisal fee (approximately $2,900.00), an ASTM Phase
I Environmental Audit of the Property (approximately $2,500.00), closing fees
and expenses (equal to one percent (1.0%) of the Purchase Price), a
mechanical/structural inspection of the Property performed by a licensed
mechanical engineer (approximately $2,000.00), travel and lodging expenses
(not to exceed $2,000.00) related to the physical inspection of the Property
by a Company representative, the Company's legal fees related to the closing,
and related miscellaneous out-of-pocket expenses (e.g., Federal Express
charges). Seller/Lessee's closing costs which will be included in the
Purchase Price include title insurance premiums, transfer taxes or stamps,
survey costs, recording fees and other closing costs approved by the Company.
The Company shall provide Seller/Lessee with initial funding of costs related
to the land (and existing improvements, for the Barbwire Restaurants and
Shoney's restaurants or other restaurant Properties) acquisition, generally
constituting items (i), (iii), (iv), (m), (o) and (p) above. The balance of
the Purchase Price, which total Purchase Price shall not exceed such amount
previously identified by Seller/Lessee and approved by the Company, shall be
paid by the Company in connection with the renovation, remodeling,
construction and completion of the improvements pursuant to the Construction
Agreement as described below.
2. IMPROVEMENTS. At closing for all Properties, the Company will
enter into a Construction Agreement (or Construction Addendum to the Lease
Agreement) with Seller/Lessee whereby it will be Seller/Lessee's
responsibility to construct the restaurant improvements on the land. For
purpose of subparagraph 1(ii) and (n) above, the "hard" costs of improvements
to be funded by the Company are limited to site improvement costs, building
structure, doors, wall and floor tile, windows, drop ceiling, plumbing,
electrical, and HVAC. "Hard" costs shall not include signs, wall covering
(other than tile), counters, floor covering (other than tile), or any other
items
<PAGE>
Mr. Raymond C. Maddux
June 12, 1997
Page 4
which may be financed as "equipment". Prior to closing, Seller/Lessee shall
obtain and deliver to the Company all necessary governmental permits,
licenses and approvals required to commence construction on the Property. The
Construction Agreement shall require, among other things: (a) that the
Seller/Lessee shall enter into all construction contracts in its name only;
(b) that the project shall be bonded (payment and performance bonds) by a
surety company or companies which are acceptable to the Company; and (c) that
the Seller/Lessee agrees to complete the improvements in a good and
workmanlike manner, in accordance with the plans and specifications approved
by the Company and all applicable building codes and governmental
requirements. The Construction Agreement will contain a put agreement with
the Company whereby it will be Seller/Lessee's responsibility to insure that
the improvements are completed according to the schedule attached hereto as
EXHIBIT "A". If Seller/Lessee fails to complete the improvements within the
prescribed time period, the Company will have the option to require
Seller/Lessee to repurchase the land and all improvements completed through
that date pursuant to the Construction Agreement. Hard costs shall be
advanced by the Company as partial payments of the Purchase Price, on a
thirty(30) day draw basis with not less than ten percent (10%) retainage and
appropriate lien release and progress payment matters as required under the
Construction Agreement and the Company's standard disbursement procedures, in
amounts not to exceed the total cumulative Purchase Price for each Property,
with any remaining balance to be disbursed upon completion and occupancy.
Seller/Lessee shall deliver to the Company prior to the final disbursement of
construction funds and prior to Seller/Lessee's occupancy an architects'
certificate stating that all the improvements have been fully completed in
the manner set forth above and a certificate of occupancy and evidence of
compliance with any and all governmental regulations regarding the
completion, occupancy and use of the Property, including any and all required
licenses or permits, a final contractor's affidavit, an as-built survey, a
title policy update and other documentation required by the Company to
evidence full payment for all work performed in connection with the project.
The Construction Agreement will provide that Seller/Lessee will deliver a
completed turn-key facility to the Company. Construction funds will be
disbursed to Seller/Lessee by the Company in the manner described in the
Construction Agreement and rent shall accrue and be payable on all monies
disbursed by the Company from the date of the land closing.
3. PROTOTYPE RESTAURANT PROPERTIES. Seller/Lessee currently intends to
develop the two(2) Prototype Restaurants according to the prototype
Tumbleweed Southwest Mesquite Grill & Bar proposed and developed by
Seller/Lessee's franchisor, Tumbleweed L.L.C. At or before the time
Seller/Lessee proposes Properties for operation of the Prototype Restaurants,
Seller/Lessee shall provide a detailed written report with respect to such
Prototype Restaurants, including such information and descriptions as Company
may require, including without limitation, operating histories of
franchisor's prototype restaurants, proforma operating statements, prototype
building plans, estimated building costs and other items deemed necessary or
advisable by Company. Such
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 5
Prototype Restaurants shall be subject to Company's prior written approval,
which may be approved or disapproved in Company's sole discretion.
4. CONTRACT FOR PURCHASE AND SALE. Prior to each closing, the Company
and Seller/Lessee shall enter into a contract for purchase and sale
consistent with this Commitment and containing such commercially reasonable
representation and warranties as may be required by the Company.
5. LEASE. The lease agreements to be entered into between the Company
and Seller/Lessee (the "Lease") shall be in form acceptable to the Company.
The form of the Lease and all related document shall be finalized within
thirty (30) days following the date of the full execution of this Commitment,
and shall, upon acceptance of the Seller/Lessee and the Company, be attached
to this Commitment as composite EXHIBIT "B". The Lease shall include the
following provisions:
A. TERM. The primary term of the Lease will be twenty (20) years with
two (2) successive five(5) year renewal options.
B. RENT. There shall be an initial construction period rent ("Interim
Rent") equal to eleven percent (11.00%)(the "Base Lease Rate")
multiplied by the amounts funded by the Company to Seller/Lessee
at the land closing, with the Interim Rent being increased for all
additional advances of the Purchase Price as made, and with a
final adjustment after final funding to equal the Base Lease Rate
multiplied by the final total Purchase Price ("Minimum Rent"). The
initial annual minimum rent ("Minimum Rent") under the Lease shall
be equal to eleven percent (11.00%) multiplied by the Purchase
Price. Minimum Rent shall be increased at the end of the sixtieth
(60th) month after the land closing and at the end of each sixty
(60) month period thereafter by ten percent (10%) of the Minimum
rent payable during the immediately preceding Lease Year. Interim
Rent and Minimum Rent will be payable in equal advance monthly
installment on the first day of each month, with appropriate
adjustments for increases effective as additional advances are
made. A percentage rent sum ("Percentage Rent") shall be due and
payable in addition to the Minimum Rent. Percentage Rent shall be
payable within thirty (30) days following the end of each Lease
Year. Percentage Rent due under the Lease in any Lease Year shall
equal the difference between (i) five percent (5%) times
Seller/Lessee's gross sales for such Lease Year, minus (ii) the
Minimum Rent (as adjusted for automatic increases). Percentage
Rent shall be calculated on a pro rata basis for any partial Lease
Year.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 6
C. LATE CHARGES. A late charge in the amount of five percent(5%) of
the amount due shall be payable with respect to any payment due
under the Lease which is received more than ten (10) days after
the due date. In addition to any late charge, in the event the
Company does not receive rent within ten (10) days after the due
date, interest shall be due at the highest rate allowable by law
and payable with respect to such payment from the expiration of
the ten (10) day grace period until the Company receives such
payment.
D. INSURANCE, TAXES, UTILITIES, MAINTENANCE AND REPAIRS. The Lease
shall be absolutely triple net. Accordingly, Seller/Lessee shall
pay all taxes and assessments, utilities, maintenance costs, repair
costs, the costs of replacing obsolete components, and insurance
costs applicable to both the Property and any equipment thereon.
Seller/Lessee will be required to maintain the Property and all
components thereof to a standard which complies with the Lease. At
or prior to the closing, Seller/Lessee shall deliver to the
Company satisfactory evidence of (i) "all risk" property insurance
(including earthquake and flood insurance, where applicable) in an
amount not less than the insurable replacement cost of the
Property without deductible, (ii) comprehensive general liability
insurance and liquor liability insurance, each in an amount not
less than Two Million Dollars ($2,000,000.00) for each occurrence,
with any deductible to be approved by the Company, and with a
general aggregate of Ten Million Dollars ($10,000,000.00), and
with an umbrella policy in an amount not less than Ten Million
Dollars ($10,000,000.00) per occurrence in excess of the general
liability and liquor liability coverages required above, and (iii)
business interruption insurance for not less than six (6) months
coverage for each occurrence, with any deductible to be approved
by the Company. In each case, all insurance shall name the Company
and/or its affiliates as an additional insured and coverage may
not be amended or canceled without thirty (30) days prior written
notice to the Company. All insurance companies shall be selected by
Seller/Lessee, rated A minus (A-) or better by Best's Insurance
Rating Service, and shall be acceptable to the Company in
Company's reasonable discretion.
7. ASSIGNABILITY OF LEASE INTEREST. Seller/Lessee shall not have the
right to sublease the Property or any improvements or assign its
rights under the Lease unless it obtains Company's prior written
approval. Seller/Lessee may assign its rights under the Lease to
Tumbleweed L.L.C. provided that such assignee's financial and
credit standing is acceptable to Company in Company's sole
discretion, and in such event, Company may elect to release
Seller/Lessee from its obligations under the Lease. In connection
with and prior to any permitted assignment or subletting,
Seller/Lessee
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 7
shall give the Company written notice of such an assignment
or subletting together with (i) a copy of the assignment or
subletting documents, and the name, address and telephone number
of the assignee or sublet tenant and (ii) a new insurance policy
and binder naming the assignee or sublet tenant operator and
occupant of the Property. The Company may assign its rights under
the Lease without Seller/Lessee's consent in connection with a
transfer of the Property to any affiliate of the Company, and in
such event, Seller/Lessee's right of first refusal (defined
elsewhere in this Commitment) shall not apply to such assignment
and transfer.
F. CONDUCT OF BUSINESS. The use of the Property shall be limited to
the operation of a Tumbleweed Southwest Mesquite Grill & Bar, and
Seller/Lessee shall continuously operate such restaurant on the
Property except for temporary closure due to repairs, acts of God
and similar matters. Notwithstanding the foregoing, certain of the
Properties shall continue to operate as Barbwire Restaurants prior
to remodeling and conversion, according to the schedule attached
hereto as EXHIBIT "A". The Seller/Lessee shall at all times
maintain the Property and operate its business in compliance with
all applicable regulations and requirements of all county,
municipal, state, federal and other governmental authorities, and
instruments of record affecting the Property which are now in
force or which are enacted during the term of the Lease.
G. FORM OF ENTITY. Seller/Lessee must be duly formed and in good
standing under the laws of the state of its formation and, if it
is a foreign entity, it shall be qualified to do business in the
state where the Property is located.
H. SELLER/LESSEE'S FIRST RIGHT OF REFUSAL. The Lease shall provide
the Seller/Lessee with a first right of refusal to purchase the
Property on the same terms and conditions as those contained in an
offer received by the Company from a third party if the Company
intends to accept such third party offer. Seller/Lessee's right of
first refusal shall not apply to assignments and transfers made by
the Company to an affiliate of the Company.
I. GUARANTY. With respect to the Seller/Lessee's obligations arising
under the Lease and related documents, C. Raymond Maddux, Vaughan
Allen, Thomas B. Miller and K.L. Dudney shall jointly and severally
unconditionally guarantee fifty percent (50%), and Tumbleweed,
L.L.C., David M. Roth, Bruce J. Roth and David H. Cooper shall
jointly and severally unconditionally guarantee fifty percent
(50%), of: (i) Seller/Lessee's full and faithful performance of
all of Seller/Lessee's obligations
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 8
under the Lease and related documents, to the extent of one
hundred percent of any amounts due under such Lease and related
documents until completion of remodeling/renovation and the date
on which Seller/Lessee begins operating the Tumbleweed Southwest
Mesquite Grill & Bar restaurant thereon, and thereafter the first
twenty-five percent (25%) of such amounts; and (ii)
Seller/Lessee's full and faithful performance of all
Seller/Lessee's obligations under the equipment lease financing
documents, to the extent of one hundred percent (100%) of any
amounts due under such equipment lease financing documents.
J. OPTION TO PURCHASE. At any time after the seventh (7th) Lease
Year, the Seller/Lessee shall have the option to purchase the
Property upon the terms and conditions set forth in the Lease
provided that Seller/Lessee is not in default at the time of the
exercise of such option. The option to purchase the Property shall
terminate if the Seller/Lessee's right of first refusal becomes
operative, Seller/Lessee does not exercise such right, and the
offer triggering Seller/Lessee's right of first refusal closes. In
the event the Seller/Lessee exercises its option to purchase, the
option purchase price shall be the greater of:
i. The fair market value of the Property as of the option
exercise date determined by an appraiser selected by the
Company; or
ii. The Purchase Price paid by the Company for the Property (as
determined under Paragraph 1 hereof) plus twenty percent
(20%).
In the event the appraiser selected by the Company is not
acceptable to Seller/Lessee, then for purposes of determining the
fair market value of the Property, the Company shall select an
appraiser (at its expense) to determine the fair market value of
the Property and Seller/Lessee shall also select an appraiser (at
its expense) to determine the fair market value of the Property.
If such appraisers cannot agree on the fair market value of the
Property as of the option exercise date and the lower of the two
appraisals is not less than ninety-five percent (95%) of the
higher appraisal, then the average of the two (2) appraisals shall
be conclusively considered to be the fair market value of the
Property. If such appraisers cannot agree on the fair market value
of the Property as of the option exercise date and the lower of
the two appraisals is less than ninety-five percent (95%) of the
higher appraisal, then the two (2) appraisers shall select a third
appraiser (the expense of which shall be shared equally by
Seller/Lessee and the Company) to determine such fair market value
and the average of the three (3)
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 9
appraisals shall be conclusively considered to be the fair market
value of the Property. If one party fails to select an appraiser
within thirty (30) days after the option exercise date, and the
other party (the "Second Party") does select an appraiser, then
the Second Party may notify the First Party that unless First Party
has selected an appraiser within ten (10) days following delivery
of the said notice to the First Party, the Second Party's
appraisal shall be deemed to represent the fair market value of
the Property.
K. NON-COMPETE. During the term of the Lease and any extensions
thereof, Seller/Lessee shall not own an interest in, or operate,
another Tumbleweed Southwest Mesquite Grill & Bar within a three
(3) mile radius of the Property.
6. SITE INSPECTIONS. The Company reserves the right to physically
inspect and approve each Property proposed by Seller/Lessee for closing in
accordance with the transactions contemplated herein.
7. MANAGING OPERATOR(S). The Company's obligations under this
Commitment with respect to any Property is subject and contingent upon
Company's approval, in its sole discretion, of Seller/Lessee's management
Agreement with respect thereto with Tumbleweed, L.L.C., containing such terms
as are approved by Company.
8. ADVERSE CONDITIONS. This Commitment shall be contingent upon no
material adverse change in the financial condition of Seller/Lessee or any
Guarantor or the occurrence of any event which may, in the Company's
reasonable judgment, have a material adverse effect upon the Seller/Lessee or
any Guarantor. In addition, the Company's obligation hereunder is subject to
the ongoing review of Seller/Lessee's and each Guarantor's financial
statements. To that end, the Company shall have the right to review quarterly
unaudited statements of Seller/Lessee and of Tumbleweed, L.L.C. and annual
personal financial statements of each individual Guarantor, along with any
other financial information the Company may reasonably require.
9. LEGAL DOCUMENTS. Company's counsel will prepare all leases,
purchase agreements, construction agreements and related documents.
Seller/Lessee and Guarantors agree that approval of such documents shall not
be unreasonably withheld.
10. REQUIRED DOCUMENTS. Not later than thirty (30) days prior to any
land closing, the Seller/Lessee must submit or cause to be submitted to the
Company or the Company shall have otherwise received the following documents
or information in form and substance satisfactory to the Company, and the
Company will use its best efforts to review such documents and information
and to prepare closing documentation in a timely manner. Failure to furnish
any of this information in a timely manner will delay the closing. The
Company shall have received and approved:
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 10
A. The Company shall order an ALTA Owner's Form of Title Insurance
Commitment (an ALTA Leasehold Form of Title Insurance Commitment
in the case of the Hendersonville Property) in the amount of the
Purchase Price issued by a National Division Office of Lawyers
Title Insurance Corporation or another title insurance company
acceptable to the Company. A 50 year chain of title shall also be
provided to the Company. The title insurance commitment shall
provide for extended coverage and any necessary title endorsements
required by Company's counsel, and title shall be subject to no
material exceptions, unless approved in writing by the Company
prior to closing.
B. The Company shall order an appraisal completed by an appraiser
selected by the Company showing that the fair market value of the
Property (including improvements to be funded by the Company) is
not less than one hundred ten percent (110%) of the Purchase Price.
C. The Company shall order a current (dated not more than 180 days
prior to closing) Phase I environmental assessment report or
audit (prepared according to ASTM standards and including the
review and delivery to the Company of a 50 year chain of title
report) approved by and certified to the Company and its
affiliates in accordance with the Company's certification
instructions prepared by an appropriately licensed professional
selected and approved by the Company, stating, among other things,
that:
i. There is a low likelihood of the existence on the Property of
the presence beyond minimum action levels of petroleum,
petrochemical, toxic or other hazardous substances.
ii. Neither the Property nor any property within a one-half (1/2)
mile radius thereof (that by reason of its elevation or
relative groundwater gradient could result in any contaminants
migrating to the Property) is identified on any local, state or
federal register as a site containing or potentially containing
any hazardous waste or toxic material beyond minimum action
levels;
iii. Nothing in the public records discloses a condition or
circumstance with respect to the Property which may require or
may hereafter require a clean-up, removal or other remedial
action or response which could subject an owner of the Property
to any damages, penalties, claims, costs, or expenses;
<PAGE>
Mr. Raymond C. Maddux
June 12, 1997
Page 11
iv. Based on an actual inspection of the Property and a review of
available public records it does not appear that tanks or other
facilities (including, but not limited to, petroleum,
petrochemical or hazardous waste storage tanks or other
facilities) are presently (or have ever been unless removed in
accordance with law and with no further action recommended by
the applicable governmental authority) located on, under or at
the Property.
The firm providing the Phase I report or audit shall deliver to the Company
(a) a copy of their errors and omissions liability coverage policy, which
shall be in an amount which is not less than $2,000,000; (b) a statement
describing any pending or threatened litigation against such firm; and (c) a
resume of the engineers preparing such report or audit.
D. A copy of the most recent Property real estate tax bill and a copy
of the paid receipt therefor.
E. Five (5) copies of a current (within 90 days prior to closing)
survey of the Property certified to the Company and/or its
affiliates (as directed by the Company) and the title company,
which survey was prepared after the date hereof by a registered
surveyor acceptable to the title company issuing the title
commitment. The survey must show all existing improvements on the
Property, all setback lines, all easements and utility lines, and
shall reveal no material encroachments, unless waived by the
Company.
F. Certificates of insurance evidencing liability casualty coverage
in the form and amounts required above.
G. Such documentation as is necessary to evidence the fact that
Seller/Lessee is validly organized as a limited liability company
and in good standing under the laws of the state of its formation
and that it is authorized to do business in the state where the
Property is located, together with such resolutions or approvals
as are required for it to enter into this Commitment and to
consummate the transactions contemplated hereby.
H. A copy of Seller/Lessee's equipment lease financing documents
relating to and encumbering the Property, if any, together with
a list of all items financed by the equipment lender/lessor.
I. If Seller/Lessee presently owns the Property and the Property has
existing improvements, Seller/Lessee shall furnish copies of
deeds, closing statements,
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 12
construction contracts and other information showing Seller/Lessee's
original cost of the Property. If new improvements are to be
constructed or if existing improvements are to be renovated on the
Property, then Seller/Lessee shall furnish such previously-listed
information showing the original cost of the Property plus
construction bids from general contractors for the
construction/renovation of the Property. Such bids are to be
submitted on the Company's form and shall include all impact fees,
site development costs, and soft costs. The final general
construction contract shall contain provisions for (i) ten percent
(10%) retainage, and (ii) contractor's submission to the Company
of all underlying contracts, invoices and releases with or from
materialmen and subcontractors.
J. Two (2) copies of the governmentally approved site plan for the
Property, showing ingress and egress, paving, grading, drainage,
all utility connections, parking, the building location and the
location of all related facilities.
K. The Company may, if it so elects, order a current (dated not more
than 90 days prior to closing) structural and mechanical report or
audit of the building and other improvements, approved by and
certified to the Company and its affiliates in accordance with the
Company's certification instructions prepared by an appropriately
licensed professional approved by the Company, which report or
audit shall be satisfactory to the Company in all respects.
L. Copies of all necessary governmental permits, licenses and
approvals required to construct or operate the Property as a
Tumbleweed Southwest Mesquite Grill & Bar (including without
limitation, the liquor license and the certificate of occupancy or
equivalent, issued by the applicable governmental authority).
M. If Seller/Lessee is a franchisee of the restaurant operated on the
Property then Seller/Lessee shall furnish a copy of
Seller/Lessee's original franchise agreement as to the Property
and, prior to the closing, the Company shall receive from the
franchisor a certificate (this form shall be prepared by the
Company and provided directly by the Company to the franchisor)
verifying, among other things, the existence and validity of the
franchise as to both Seller/Lessee and the Property, and that no
default exists under the franchise agreement.
N. Such other information or documentation as the Company might
request as a prudent purchaser in order to finalize the
transactions contemplated hereby and to comply with the
requirements of all local, state and federal agencies, and all
regulations and laws to which the Company and its affiliates are
subject.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 13
11. OPINION OF COUNSEL. As a condition to closing, Company's counsel
shall require the opinion of Seller/Lessee's counsel and Guarantors' counsel
as to such matters as Company's counsel may deem appropriate, including but
not limited to:
A. Seller/Lessee and Tumbleweed, L.L.C. are duly organized and
validly existing under the laws of the state of their formation;
have the power and their representatives have been duly authorized
to enter into the transactions contemplated by this Commitment;
and all necessary approvals required to consummate the
transactions contemplated hereby have been obtained.
B. there is no threatened or pending litigation to Seller/Lessee or
any affiliate of Seller/Lessee or Guarantors which might affect
either the sale or lease of the Property, or the operation of the
contemplated business therein, or which might have a material
adverse affect upon the financial condition of Seller/Lessee or
Guarantors.
C. Seller/Lessee and Guarantors are not in violation of any
agreement, law, ordinance, regulation, ruling, court order or
other governmental enactment regarding the Property and that
consummation of the transactions contemplated hereby will not
place Seller/Lessee or Guarantors in violation of any such matter.
D. All documents executed by Seller/Lessee and Guarantors in
connection with the closing have been duly executed and delivered,
constitute valid and binding obligations of Seller/Lessee and
Guarantors, and are enforceable according to their terms.
E. Seller/Lessee's franchise agreement remains in full force and
effect and Seller/Lessee is not in default with respect to any of
Seller/Lessee's obligations thereunder.
F. The contemplated transactions are not security arrangements or
financing secured by real property but are, for all purposes, true
leases.
12. CLOSING. At each closing, Seller/Lessee and Guarantors shall
execute and/or deliver to the Company all documents, monies, instruments and
other items required by this Commitment. The Company's obligation to close is
conditioned upon its receipt and approval of all such documents, monies,
instruments and items.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 14
13. EQUIPMENT LEASE FINANCING. In addition to the sale-leaseback
transactions provided for herein, but only upon the election of
Seller/Lessee, the Company agrees to enter or cause an affiliate to enter
into equipment lease financing transactions with respect to the Properties
acquired and developed in accordance with the terms and conditions of this
Commitment. The Seller/Lessee and the Company shall enter into a Lease and
other documents as may be required by the Company (collectively, the
"Financing Documents"), which Financing Documents shall be in form and
contain terms satisfactory to the Company. The Company acknowledges that it
has agreed to provide equipment lease financing, in amounts not to exceed the
applicable amount referred to as "Equipment Cost" set forth on the schedule
attached hereto as EXHIBIT "A", with a lease term not to exceed seven (7)
years, and with monthly lease payments based upon an interest rate of ten and
one-half percent (10.50%) per annum and a seven (7) year amortization
schedule. In connection with any such equipment lease financing provided by
the Company, Seller/Lessee shall be required to pay all customary equipment
lease financing fees and costs, including without limitation, a two percent
(2%) commitment/closing fee payable to the Company, taxes, and all closing
costs.
14. APPLICABLE LAW. This Commitment shall be construed in accordance
with the laws of the State of Florida. It is agreed that time shall be of the
essence all terms and provisions of this Commitment.
15. SURVIVAL. The terms and conditions of this Commitment shall
survive closing with respect to the transaction contemplated herein.
16. NOT A SECURITY ARRANGEMENT. The parties hereto acknowledge and
agree that the contemplated transactions are not intended as a security
arrangement or financing by real property, but rather shall be construed for
all purposes as true leases.
17. COMPANY'S RIGHT OF FIRST REFUSAL. During the period of this
Commitment, the Company shall have the right to finance, and Seller/Lessee
agrees to place with the Company, up to $13,200,000.00 of sale/leaseback
transactions. If during the period of time covered by this Commitment,
Seller/Lessee desires to enter into sale/leaseback transactions in excess of
the funding limits to which the Company is then committed, the Company shall
have the right of first refusal to fund any additional properties which
Seller/Lessee intends to acquire or sell on a sale/leaseback basis on the
same or better terms than are being offered by any third party financing
entity.
18. COMMITMENT PERIOD. This Commitment shall expire unless, on or
before ten (10) business days from the date of this Commitment set forth
above, this Commitment is accepted and
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 15
returned to the Company together with a commitment fee of $10,000.00. The
commitment fee will be retained by the Company in connection with the
execution of this Commitment and such fee will be returned at the final
closing on the last Property. If the transactions contemplated herein do not
close within the time periods specified in this Commitment due to
Seller/Lessee's failure to comply with the terms of this Commitment, then the
Company shall have the option to terminate its obligation hereunder and
retain the commitment fee to cover expenses, in which event this Commitment
shall be of no further force or effect.
19. BROKERAGE. The Company has not engaged any broker with respect to
this Commitment, or the sale of Properties by Seller/Lessee to the Company or
the leaseback thereof. In the event any brokerage fee or commission is
payable to any person in connection with the transactions contemplated
herein, Seller/Lessee shall be responsible for paying such fee(s).
20. ASSIGNMENT OF COMMITMENT. This Commitment is not assignable by
Seller/Lessee. The Company may assign this Commitment in whole or part to an
affiliate of the Company without Seller/Lessee's consent.
21. HENDERSONVILLE PROPERTY GROUND LEASE. The terms of Paragraphs 1-20
of this Commitment shall apply to the Hendersonville Property as supplemented
by the terms set forth in this paragraph. In the event of a conflict between
the terms of Paragraphs 1-20 of this Commitment, as such terms relate to the
Hendersonville Property, and this paragraph, the terms of this paragraph
shall control.
A. TERM. The term of the Ground Lease, as hereinafter defined, shall
be not less than fifteen (15) years. Seller/Lessee shall, prior to
closing, exercise appropriate options under the Ground Lease, as
hereinafter defined, in order to achieve such term.
B. ASSIGNMENT OF GROUND LEASE. The Company will receive an assignment
of the ground lessee's interest in the Hendersonville Property,
provide funding for the reconstruction, conversion, and remodeling
of the existing restaurant building and related improvements (the
"Hendersonville Improvements") on the Hendersonville Property, and
shall lease the Hendersonville Property and Hendersonville
Improvements to Seller/Lessee pursuant to a restaurant lease (as
described below) and related agreements. The funding provided for
herein will be for the reconstruction, conversion, and remodeling
of the Hendersonville Improvements and a leaseback of the
Hendersonville Improvements and the Hendersonville Property, with
closing (meaning the date on which Seller/Lessee executes and
delivers to
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 16
Company the documents required by the terms of this commitment) to
occur not later than July 1, 1998.
C. REVIEW AND APPROVAL. The ground lease for the Hendersonville
Property entered into or to be entered into between the fee owner
of the land as "Landlord" (the "Ground Lessor") and Seller/Lessee
as "Tenant" (the "Ground Lease") must be acceptable to the Company
in all respects. As soon as is practical, but in no event later
than thirty (30) days prior to closing, Seller/Lessee shall
deliver to the Company for the Company's review a copy of the
proposed Ground Lease. In the event Seller/Lessee has already
executed such Ground Lease, the Company may require, as a further
condition of closing, an amendment thereto containing such terms
as are acceptable to the Company. After the Company and its
counsel have reviewed the Ground Lease and all other relevant
information, the Company's counsel will notify Seller/Lessee in
writing of those modifications which are necessary to be made to
the Ground Lease before the Ground Lease may be approved by the
Company.
D. ASSIGNMENT. Seller/Lessee shall execute and deliver to the Company
an Assignment of Ground Lease in recordable form, pursuant to
which all of Seller/Lessee's rights, title and interest in and to
the Ground Lease shall be assigned to (but not assumed by) the
Company including, without limitation, any rights of first refusal
to purchase the Hendersonville Property, options to purchase the
Hendersonville Property and options to renew the Ground Lease
contained therein.
E. INDEMNITY. Seller/Lessee shall execute and deliver to the Company
an Indemnification Agreement, pursuant to which (i) Seller/Lessee
shall acknowledge and agree that the Company's interest in the
Property is limited to the interests of the "Tenant" under the
Ground Lease and that Seller/Lessee's rights under the
Hendersonville Restaurant Lease, as hereinafter defined, are
subject in all respects to the terms and conditions of the Ground
Lease; and (ii) Seller/Lessee shall covenant and agree to fully
perform and comply with any and all obligations on the part of the
"Tenant" under the Ground Lease, including without limitation the
payment of all rents and other sums payable to the "Landlord"
under the Ground Lease and performance and compliance with other
terms and conditions of the Ground Lease; and (iii) Seller/Lessee
shall covenant and agree to indemnify the Company and hold the
Company harmless of, from and against any and all claim, loss or
damage whatsoever, including attorneys' fees and costs, relating
to the terms and conditions of the Ground Lease and the
performance thereof by Tenant.
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 17
F. TRI-PARTY AGREEMENT. Seller/Lessee, the Ground Lessor and the
Company shall enter into a Tri-Party Agreement which shall
provide, among other things, that (i) the Ground Lessor
acknowledges and consents to the assignment of the Ground Lease by
Seller/Lessee to the Company; (ii) the Ground Lessor shall certify
that the Ground Lease is in full force and effect, that the Ground
Lease has not been amended or modified except as disclosed by the
Ground Lessor, and that no defaults or events of default then
exist under the Ground Lease; (iii) the Ground Lessor acknowledges
and consents to the construction of the Hendersonville
Improvements by Seller/Lessee (funded by the Company) and the
leaseback of same to Seller/Lessee under a separate lease
agreement; (iv) the Ground Lessor acknowledges and agrees that
Seller/Lessee shall remain liable for, and that the Company shall
not be liable for, the performance and compliance with any and all
obligations on the part of the "Tenant" under the Ground Lease,
including without limitation the payment of all rents and other
sums payable to the "Landlord" under the Ground Lease; (v) the
Ground Lessor shall henceforth be obligated to provide the Company
with any notice required to be served on the "Tenant" under the
Ground Lease (including any notices of default, events of default
or failures to perform under the Ground Lease) and grant the
Company the right to cure such defaults within the applicable
curative periods granted to the "Tenant" under the Ground Lease;
(vi) the Ground Lessor acknowledges and agrees that if the Ground
Lease is terminated prior to the expiration of the initial term of
the Ground Lease or any renewal/extension thereof (except by
reason of condemnation or casualty as provided in the Ground
lease), then the Company shall have the option, exercisable by the
Company in the Company's sole discretion within thirty (30) days
following receipt of notice of the termination from the Ground
Lessor, to locate a replacement leaseback tenant under the
Hendersonville Restaurant Lease, as hereinafter defined, and enter
into a new ground lease with the Ground Lessor with respect to the
Property for the remaining term of the Ground Lease and on the same
terms and conditions as those set forth in the Ground Lease (and in
connection therewith cure or cause to be cured any past defaults
under the Ground Lease).
G. HENDERSONVILLE RESTAURANT LEASE. The lease agreement for the
Hendersonville Improvements to be entered into between the Company
and Seller/Lessee (the "Hendersonville Restaurant Lease") shall
contain all of the terms of the form Lease provided for in
Paragraph 5 of this Commitment except as otherwise provided in
this sub-paragraph 21.G:
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 18
(i) TERM. The term of the Hendersonville Restaurant Lease shall
be fifteen (15) years with no renewal options. The term of
the Hendersonville Restaurant Lease shall expire upon the
earlier of (i) the expiration date provided for in the form
Lease set forth in Paragraph 5 of this Commitment, (ii) the
expiration of the original term of the Ground Lease, or
(iii) the earlier termination of the Ground Lease.
Seller/Lessee shall have the same rights with respect to
renewal of the Hendersonville Restaurant Lease as
Seller/Lessee would have under the terms of the form Lease
provided for in Paragraph 5 of this Commitment, provided
that the Ground Lease also provides for such renewals of its
initial term. In the event that the Ground Lease does
provide for extensions/renewals of its initial term and
Seller/Lessee desires to exercise the right to extend/renew
the Ground Lease, Seller/Lessee shall be required to provide
the Company with written notice of same not less than ninety
(90) days prior to the time that notice to extend the
initial term of the Ground Lease must be delivered to the
Ground Lessor pursuant to the terms of the Ground Lease. In
no event shall Seller/Lessee have the right to extend the
term of the Hendersonville Restaurant Lease beyond the term
of any extensions/renewals authorized by the Ground Lease.
(ii) RENT. For purposes of the Hendersonville Restaurant Lease,
"Base Lease Rate" shall mean thirteen and one-half percent
(13.5%), provided that the remaining term of the Ground
Lease as of the date of closing is exactly fifteen (15)
years. If the remaining term of the Ground Lease as of the
date of closing is a period of time less than fifteen (15)
years, the Base Lease Rent to be used for purposes of
calculating Interim Rent and Minimum Rent shall be
determined by the Company based on the actual remaining term
of the Ground Lease. Rent during the construction period
shall be calculated by multiplying 11.00% times the amounts
theretofore funded by Company pursuant to this Commitment.
(iii) OPTION TO PURCHASE. The Hendersonville Restaurant Lease
shall provide that at any time after the tenth (10th) Lease
Year, Seller/Lessee shall have the option to purchase the
Hendersonville Improvements and the Company's interest in
the Hendersonville Property upon the terms and conditions to
be set forth in the Hendersonville Restaurant Lease provided
that Seller/Lessee has no uncured default at the time of the
exercise of such option. The option to purchase the
Hendersonville Improvements and the Company's interest in
the Hendersonville Property shall terminate if the
Seller/Lessee's
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 19
right of first refusal becomes operative, Seller/Lessee does
not exercise such right, and the offer triggering
Seller/Lessee's right of first refusal closes. The option to
purchase shall be subject to the terms of the Ground Lease.
In the event Seller/Lessee exercises its option to purchase,
the option purchase price shall equal the sum of (A) the net
present value (calculated as of the date of payment) of all
remaining monthly payments of Minimum Rent (including any
scheduled Minimum Rent increases) due to be paid to the
Company pursuant to the Hendersonville Restaurant Lease for
the then remaining portion of the initial term of the
Hendersonville Restaurant Lease, discounted at ten percent
(10%) per annum, plus (B) ten (10) months of the then
current Minimum Rent.
(iv) TERMINATION PAYMENT. In the event of the Hendersonville
Restaurant Lease is terminated for any reason other than the
exercise of the option to purchase or the right of first
refusal pursuant to paragraph 5.H and 21.G.(iii) hereof,
Seller/Lessee shall pay to the Company a termination payment
(as liquidated damages and not as a penalty) equal to the
sum of (A) the net present value (calculated as of the date
of payment) of all remaining monthly payments of Minimum
Rent (including any scheduled Minimum Rent increases) due to
be paid to the Company pursuant to the Hendersonville
Restaurant Lease for the then remaining portion of the
initial term of the Hendersonville Restaurant Lease,
discounted at ten percent (10%) per annum, plus (B) ten (10)
months of the then current Minimum Rent.
If this Commitment is acceptable to you, please sign the space provided
below and return one executed original letter to my office. Following receipt
of the executed Commitment, I shall instruct our legal counsel to prepare
definitive documents consistent with the foregoing terms and conditions. If
you have any questions, please do not hesitate to call me.
Very truly yours,
CNL FUND ADVISORS, INC.
By: /s/ Robert A. Bourne
---------------------------------
Robert A. Bourne, President
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 20
ACCEPTED AND AGREED:
AS TO SELLER/LESSEE:
TW TENNESSEE, L.L.C.
By: Ray Maddux
---------------------------
Name: Ray Maddux
-------------------------
As its: Chief Manager/President
-----------------------
Date: June 16, 1997
-------------------------
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 21
AS TO GUARANTORS:
TUMBLEWEED, L.L.C.
By: James Mulrooney
----------------------------
Name: James M. Mulrooney
--------------------------
As its: Executive VP & CFO
------------------------
Date: 6-17-97
--------------------------
/s/ C. Raymond Maddux
- --------------------------------
C. RAYMOND MADDUX
Date: 6/16/97
--------------------------
/s/ Vaughan Allen
- --------------------------------
VAUGHAN ALLEN
Date: 6/16/97
--------------------------
/s/ Thomas B. Miller
- --------------------------------
THOMAS B. MILLER
Date: 6/16/97
--------------------------
<PAGE>
Mr. C. Raymond Maddux
June 12, 1997
Page 22
/s/ K.L. Dudney
- --------------------------------
K.L. DUDNEY
Date: 6-17-97
---------------------------
/s/ David M. Roth
- --------------------------------
DAVID M. ROTH
Date: 6/19/97
---------------------------
/s/ Bruce J. Roth
- --------------------------------
BRUCE J. ROTH
Date: 6-19-97
---------------------------
/s/ David H. Cooper
- --------------------------------
DAVID H. COOPER
Date: 6-19-97
---------------------------
Exhibits:
A - Property List with Purchase Cost and Remodel Cost
Composite B - Lease Form
<PAGE>
BY-LAWS
OF
TUMBLEWEED
MARKETING FUND, INC.
<PAGE>
BY-LAWS
OF
TUMBLEWEED MARKETING FUND, INC.
SECTION PAGE
- -------------------------------------------------------------------------------
1 PURPOSES AND OFFICES...................................................... 1
1.1 PURPOSES................................................................ 1
1.2 PRINCIPAL OFFICE........................................................ 1
1.3 REGISTERED OFFICE....................................................... 1
2 MEMBERS................................................................... 2
2.1 CLASSES OF MEMBERS...................................................... 2
2.2 MEMBERSHIP.............................................................. 2
(a) Qualification for Membership........................................ 2
(b) Transfer of Tumbleweed Outlet....................................... 3
(c) Multiple Franchises, Licensors, Licensees........................... 3
2.3 CONTRIBUTIONS OF MEMBERS................................................ 3
(a) Contributions....................................................... 3
(b) Use of Contributions by the Corporation............................. 4
2.4 MAXIMUM RATE OF CONTRIBUTION; VOTING ON INCREASED RATE.................. 4
2.5 EXPENDITURES............................................................ 4
2.6 FINANCIAL STATEMENTS.................................................... 5
2.7 MEMBERS IN GOOD STANDING................................................ 5
2.8 MEMBERS NOT IN GOOD STANDING............................................ 5
3 MEETINGS OF MEMBERS....................................................... 5
3.1 ANNUAL MEETINGS......................................................... 5
(a) Scheduling of Annual Meetings....................................... 5
(b) Order of Business at Annual Meeting................................. 6
3.2 SPECIAL MEETINGS........................................................ 6
3.3 NOTICES OF ANNUAL OR SPECIAL MEETINGS................................... 6
3.4 GOVERNANCE OF MEETINGS.................................................. 6
3.5 EXPENSES................................................................ 7
-i-
<PAGE>
BY-LAWS
OF
TUMBLEWEED MARKETING FUND, INC.
SECTION PAGE
- -------------------------------------------------------------------------------
3.6 WAIVER AND CONSENT TO MEETINGS........................................ 7
3.7 CLOSING MEMBER RECORD BOOKS AND FIXING OF A RECORD DATE............... 7
3.8 VOTING BY MEMBERS..................................................... 7
3.9 VOTING BY CERTAIN HOLDERS............................................. 8
(a) Entities.......................................................... 8
(b) Administrators, Executors, Guardians, Conservators, and Trustees.. 8
(c) Receiver.......................................................... 8
(d) Control by Two or More Fiduciaries................................ 8
(e) Pledged Outlets................................................... 8
(f) Corporation's Recognition of Authorized Persons................... 9
3.10 DISPUTES............................................................. 9
3.11 VOTING RECORD........................................................ 9
3.12 QUORUM AND MAJORITY VOTE............................................. 9
3.13 PROXIES.............................................................. 9
3.14 ACTION BY CONSENT OF MEMBERS......................................... 10
4 DIRECTORS............................................................... 10
4.1 GENERAL POWERS........................................................ 10
4.2 NUMBER OF DIRECTORS; TERM OF OFFICE................................... 10
(a) Initial Board of Directors......................................... 10
(b) Increase of Board of Directors to Four Persons Within Three Months. 10
(c) Composition of the Board of Directors.............................. 10
(d) Term of Office; Removal............................................ 11
4.3 ELECTION OF FRANCHISEE DIRECTOR(S).................................... 12
(a) Election By Mail-In Ballot........................................ 12
(b) Election At Meeting............................................... 13
4.4 ELIGIBILITY TO BE DIRECTOR............................................ 14
(a) Eligibility to be Franchisee Director............................ 14
(b) Eligibility to be Franchisor Director............................. 14
(c) Failure of Eligibility............................................ 14
4.5 CHAIRPERSON AND VICE CHAIRPERSON...................................... 14
(a) Election of Chairperson and Vice Chairperson...................... 14
(b) Duties of Chairperson and Vice Chairperson........................ 14
-ii-
<PAGE>
BY-LAWS
OF
TUMBLEWEED MARKETING FUND, INC.
SECTION PAGE
- -------------------------------------------------------------------------------
4.6 PURPOSES AND DUTIES OF THE BOARD...................................... 15
(a) Advertising, Publicity, and Promotional
Programs of the Corporation....................................... 15
(b) Establishment of Rules and Regulations............................ 15
(c) Performance of Acts and Functions Granted Under
Articles or By-Laws............................................... 15
4.7 ANNUAL AND REGULAR MEETINGS........................................... 16
4.8 SPECIAL MEETINGS...................................................... 16
4.9 NOTICE................................................................ 16
4.10 QUORUM............................................................... 16
4.11 MANNER OF ACTING..................................................... 16
4.12 VACANCIES............................................................ 16
4.13 COMPENSATION......................................................... 17
4.14 GUESTS AT BOARD MEETINGS............................................. 17
4.15 GOVERNANCE OF MEETINGS............................................... 17
4.16 ACTION BY WRITTEN CONSENT............................................ 17
5 OFFICERS................................................................ 18
5.1 CLASSES............................................................... 18
5.2 ELECTION AND TERM OF OFFICE........................................... 18
5.3 REMOVAL AND RESIGNATIONS.............................................. 18
5.4 VACANCIES............................................................. 18
5.5 CHAIRPERSON OF THE BOARD.............................................. 18
5.6 PRESIDENT............................................................. 19
5.7 VICE PRESIDENT........................................................ 19
5.8 TREASURER............................................................. 19
5.9 SECRETARY............................................................. 20
5.10 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES....................... 20
5.11 COMPENSATION......................................................... 20
-iii-
<PAGE>
BY-LAWS
OF
TUMBLEWEED MARKETING FUND, INC.
SECTION PAGE
- -------------------------------------------------------------------------------
6 CONTRACTS, LOANS, CHECKS AND DEPOSITS................................... 20
6.1 CONTRACTS............................................................. 20
6.2 LOANS................................................................. 20
6.3 CHECKS, DRAFTS, ETC................................................... 21
6.4 DEPOSITS.............................................................. 21
6.5 ANNUAL COMPILATION.................................................... 21
7 EXECUTIVE AND OTHER COMMITTEES.......................................... 21
7.1 EXECUTIVE COMMITTEE................................................... 21
(a) Authority......................................................... 21
(b) Tenure and Qualifications......................................... 22
(c) Meetings.......................................................... 22
(d) Quorum............................................................ 22
(e) Action Without a Meeting.......................................... 22
(f) Vacancies......................................................... 22
(g) Resignations and Removal.......................................... 22
7.2 OTHER COMMITTEES....................................................... 22
8 MISCELLANEOUS........................................................... 23
8.1 AMENDMENTS............................................................ 23
(a) Authority to Alter, Amend, or Repeal.............................. 23
(b) Procedure......................................................... 23
8.2 FISCAL YEAR........................................................... 23
8.3 SEAL.................................................................. 24
8.4 NOTICES............................................................... 24
(a) Delivery of Notice................................................ 24
(b) Effective Date of Notice.......................................... 24
8.5 WAIVER OF NOTICE...................................................... 24
8.6 CONSTRUCTION.......................................................... 24
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BY-LAWS OF
TUMBLEWEED MARKETING FUND, INC.
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ARTICLE
1
PURPOSES AND OFFICES
1.1 PURPOSES
The primary object and purpose of the Corporation is to plan, prepare,
design, produce, broadcast, distribute, maintain, supervise, and administer
national, regional, and local advertising and promotional programs,
materials, and activities for present and future Tumbleweed restaurant
outlets and all activities related thereto, INCLUDING, BUT NOT LIMITED TO,
(i) television, radio, magazine, and newspaper advertising, print media,
direct mail, and outdoor billboard advertising, (ii) advertising related to
special offers and promotions and introductory products, (iii) marketing
surveys and other public relations activities, AND (iv) the engaging and
consulting with advertising and public relations firms to assist in such
activities (collectively, the "NATIONAL ADVERTISING PROGRAM"). The
establishment and operation of this Corporation and the National Advertising
Program shall not constitute this Corporation's or the Franchisor's (as
hereinafter defined) assumption of either responsibility for or coordination
of local advertising programs for any Franchisee, Licensor, or Licensee (as
such terms are hereinafter defined). There is no assurance that all
Franchisees, Licensors, or Licensees will benefit directly or pro rata from
any advertising carried out as a part of the National Advertising Program.
1.2 PRINCIPAL OFFICE.
Unless and until changed by the Board of Directors (the "BOARD"),
the principal office of the Corporation in the Commonwealth of Kentucky shall
be located at 1900 MELLWOOD AVENUE, LOUISVILLE, JEFFERSON COUNTY, KENTUCKY
40206. The Corporation may have such other offices, either within or without
the Commonwealth of Kentucky, as the Board may deem advisable.
1.3 REGISTERED OFFICE.
The registered office of the Corporation may be, but need not be,
identical with its principal office in the Commonwealth of Kentucky. The
address of the registered office may be changed from time to time by the
Board.
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ARTICLE
2
MEMBERS
2.1 CLASSES OF MEMBERS
As provided in the Corporation's Articles of Incorporation, the
Corporation shall have two (2) classes of members ("MEMBERS"), which shall
be designated as "VOTING MEMBERS" and "NONVOTING MEMBERS." The sole
Voting Member of the Corporation shall be TUMBLEWEED, LLC, a Kentucky limited
liability company, or its successors or assigns (the "FRANCHISOR");
PROVIDED, HOWEVER, that the Board may, in its sole discretion, grant voting
rights to one or more affiliates or Licensors. All other Members shall be
Nonvoting Members.
2.2 MEMBERSHIP
(a) QUALIFICATION FOR MEMBERSHIP
Subject to the provisions of Section 2.2(c) hereof, the Members
of the Corporation shall be:
(i) The Franchisor;
(ii) Each sole proprietor, partnership, corporation, limited
liability company, or other entity that is now or subsequently
becomes a franchisee of Franchisor (each, a "FRANCHISEE," and,
collectively, the "FRANCHISEE");
(iii) If and to the extent authorized in advance by written
resolution of the Board, each sole proprietor, partnership,
corporation, limited liability company, or other entity that is now
or subsequently becomes licensed by Franchisor to use or license
others to use all or any of the registered or unregistered trade
names, trademarks, service marks, or logos of Franchisor (each, a
"LICENSOR," and, collectively, the "LICENSORS"); AND
(iv) If and to the extent authorized in advance by written
resolution of the Board, each sole proprietor, partnership,
corporation, limited liability company, or other entity that is now
or subsequently becomes licensed by any Licensor to use all or any of
the registered or unregistered trade names, trademarks, service
marks, or logos of Franchisor which Licensor is permitted to further
license under its license agreement with Franchisor (each, a
"LICENSEE," and, collectively, the "LICENSEES");
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PROVIDED, HOWEVER, that no Franchisee, Licensor, or Licensee shall become a
Member of the Corporation UNLESS AND UNTIL such Franchisee, Licensor, or
Licensee has entered into a valid ADVERTISING AGREEMENT with the Corporation
in a form approved by the Board (the "ADVERTISING AGREEMENT").
(b) TRANSFER OF TUMBLEWEED OUTLET
The transfer by a Member of a Tumbleweed restaurant, outlet, or
other site or entity legally using any one or more of the registered or
unregistered trade names, trademarks, service marks, or logos of Franchisor
pursuant to a license or franchise by Franchisor or pursuant to a license by
a Franchisor-authorized Licensor (as applicable, an "OUTLET") in accordance
with the provisions of the applicable franchise, development, license, or
other agreement between such Member and Franchisor or between such Member and
a Franchisor-authorized Licensor, as the case may be, shall automatically
result in the transferee becoming a Member of the Corporation and being
subject to the terms and conditions of these By-Laws and the Advertising
Agreement entered into by such transferee's predecessor(s)-in-interest;
PROVIDED, HOWEVER, that the Board may require such transferee to enter into a
new Advertising Agreement or an assignment or other agreement under which the
transferee acknowledges such transferee's adoption of the Advertising
Agreement entered into by the transferee's predecessor(s)-in-interest.
(c) MULTIPLE FRANCHISEES, LICENSORS, LICENSEES
No Franchisee, Licensor, or Licensee shall be entitled to more
than ONE (1) MEMBERSHIP in the Corporation regardless of the number of
Outlets franchised or licensed to such Franchisee, Licensor, or Licensee. Any
Franchisee, Licensor, or Licensee that owns, or is entitled, directly or
indirectly, to vote or control, MORE THAN 50% in the aggregate of the
outstanding voting rights of another Franchisee, Licensor, or Licensee AND
the Franchisee, Licensor, or Licensee so owned or controlled shall together
be deemed to be a single Franchisee, Licensor, or Licensee and shall be
entitled to only one (1) membership in the Corporation. In the event that
there is a dispute as to whether a Franchisee, Licensor, or Licensee owns, or
is entitled, directly or indirectly, to vote or control, MORE THAN 50% in the
aggregate of the outstanding voting rights of any other Franchisee, Licensor,
or Licensee, the determination of the Board shall be conclusive and binding.
2.3 CONTRIBUTIONS OF MEMBERS
(a) CONTRIBUTIONS
Each Member shall contribute to the Corporation on a monthly
basis an amount equal to such percentage of Gross Sales as may be designated
by the Board from time to time, SUBJECT, HOWEVER, to the limitations set
forth in Section 2.4 hereof. The obligation to make such contribution shall
accrue when and as the Gross Sales of such Member occur during each month,
but the payment of such contribution shall be deferred and paid on or before
the TWENTIETH (20TH) DAY of the immediately following month (the "DUE
DATE"). For all purposes of these By-Laws, the term "GROSS SALES" shall
mean the same Gross Sales as those upon which the Member pays its royalty,
franchise, license, or other fees to Franchisor or a Licensor (or if
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there are no such royalty, franchisee, license, or other fees as to such
Franchisee, Licensor, or Licensee, then such term shall have the same meaning
as the definition of "Gross Sales" set forth in Franchisor's standard form
of franchise agreement as attached to the Uniform Franchise Offering Circular
most recently then in effect for Franchisor). There shall be a finance charge
equal to THE LESSER of 12% PER ANNUM OR the maximum amount permitted by law
on any balance outstanding after THIRTY (30) DAYS following the due date. The
rate of contribution to the Corporation may be changed from time to time by
the Board, SUBJECT, HOWEVER, to the maximum rate applicable at such time
under Section 2.4 hereof; PROVIDED, HOWEVER, no such change shall be
effective unless and until at least THIRTY (30) DAYS notice thereof is given
to the Members.
(b) USE OF CONTRIBUTION BY THE CORPORATION
All contributions of Members and all income thereon shall be
received by the Corporation in trust and held in one or more depository or
investment accounts collectively called the "NATIONAL ADVERTISING FUND."
Such funds shall be disbursed and expended solely for the nonprofit purposes
set forth in the Corporation's Articles of Incorporation.
2.4 MAXIMUM RATE OF CONTRIBUTION; VOTING ON INCREASED RATE
The maximum monthly contribution rate shall be such of the following
as may be applicable;
(i) ONE PERCENT (1%) during any period that there are FEWER
THAN 100 OUTLETS in operation;
(ii) ONE AND ONE-HALF PERCENT (1-1/2%) during any period that
there are BETWEEN 100 AND 199 OUTLETS in operation, inclusively;
(iii) TWO PERCENT (2%) during any period that there are BETWEEN
200 AND 299 OUTLETS in operation, inclusively; OR
(iv) THREE PERCENT (3%) during any period that there are MORE
THAN 300 OUTLETS in operation.
Any proposal by the Board to change the rate of contribution to a rate which
is in excess of the maximum rate of contribution applicable at such time
under the preceding restrictions shall require the unanimous consent of the
Members.
2.5 EXPENDITURES
The Corporation may spend in any fiscal year an amount greater or less
than the aggregate contributions to and income of the Corporation in such
fiscal year. If the Corporation has excess funds at the end of a fiscal year,
all expenditures in the following fiscal year(s) shall be made (i) first, out
of accumulated earnings from previous fiscal years, (ii) second, out of
earnings in the current fiscal year, AND (iii) third, from contributions.
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2.6 FINANCIAL STATEMENTS
Upon request, a copy of the Corporation's financial statements
prepared by the Corporation's certified public accounts shall be provided
without charge to any Member in good standing.
2.7 MEMBERS IN GOOD STANDING
Every Member (i) who continues to be a valid and current Franchisee,
Licensor, or Licensee, (ii) who is not in default to the Corporation on its
obligations under Section 2.3(a) hereof with respect to any Outlet, AND (iii)
who is not in default to the Corporation on any other obligations for a
period in excess of FORTY-FIVE (45) DAYS, shall be a Member in good standing
of the Corporation. Any Member who ceases to be a Franchisee, Licensor, or
Licensee shall also immediately thereupon cease to be a Member of the
Corporation, BUT shall remain liable to the Corporation for any obligations
accrued through the date of such cessation, INCLUDING, BUT NOT LIMITED TO,
the obligation to make contributions to the Corporation based on Gross Sales
through the date of such cessation.
2.8 MEMBERS NOT IN GOOD STANDING
Every Member who is not in good standing pursuant to Section 2.7
hereof shall automatically lose all rights and privileges of a Member,
INCLUDING, BUT NOT LIMITED TO, the right to attend meetings or receive
notices thereof, but each such Member who is not in good standing shall
continue to be obligated to pay the contributions to the Corporation provided
for under Section 2.3(a) hereof and shall be subject to all other obligations
and duties of a Member. Upon correction of all deficient matters described in
Section 2.7 hereof, a Member shall be reinstated as a Member in good standing.
ARTICLE
3
MEETINGS OF MEMBERS
3.1 ANNUAL MEETINGS
(a) SCHEDULING OF ANNUAL MEETINGS
The annual meeting of the Members shall be held at such time and
place as the Chairperson of the Board may designate, or as may be otherwise
directed by the Board. If the Board determines that it is not feasible to
have all Members attend a single annual meeting, two or more annual meetings
shall be held at such times and places as the Chairperson of the Board may
designate or as may be directed by the Board. If, for any reason, the annual
meeting(s) of the Members shall not be held on the day designated, such
meeting(s) may be called and held as special meeting(s) or as rescheduled
annual meeting(s).
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(b) ORDER OF BUSINESS AT ANNUAL MEETING
Unless and except to the extent otherwise directed by the Board,
the order of business at the annual meeting(s) of the Members shall be as
follows:
(i) Reading of minutes of last preceding meeting;
(ii) Report of the chief executive officer and/or other
officer(s) designated by the chief executive officer or the
Board to report;
(iii) Report of the Treasurer;
(iv) Transaction of other business; AND
(v) Adjournment;
PROVIDED, HOWEVER, that the presiding officer of any such meeting may, in the
absence of any valid objection, vary the order of business in such presiding
officer's discretion.
3.2 SPECIAL MEETINGS
Special meetings of the Voting and/or Nonvoting Members may be called
at any time by the Board. The Board may designate any place within or without
the Commonwealth of Kentucky as the place for any special meeting of the
Members. If no such designation is made, the place of meeting shall be at the
registered office of the Corporation in the Commonwealth of Kentucky.
3.3 NOTICE OF ANNUAL OR SPECIAL MEETINGS
Written notice stating the place, day and hour of any annual or
special meeting shall be delivered not less than 10 days nor more than 50
days before the date of the meeting by or at the direction of the Chairperson
of the Board, the Secretary, or the Board, to each Voting and/or Nonvoting
Member who will be entitled to vote on the matters intended to be considered
at such meeting. The notice for an annual meeting shall state that the
meeting being called is an annual meeting; otherwise, a notice for any annual
or special meeting may, but need not, state the general or specific purpose
or purposes for such meeting.
3.4 GOVERNANCE OF MEETINGS
The Chairperson of the Board and the Secretary of the Corporation
shall act as the chairperson and secretary, respectively, at each meeting of
the Voting and/or Nonvoting Members of the Corporation.
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3.5 EXPENSES
The costs and expenses associated with conducting annual or special
meetings shall be paid by the Corporation to such extent as may be authorized
by the Board.
3.6 WAIVER AND CONSENT TO MEETINGS
Attendance at a meeting, whether annual or special, shall constitute a
waiver of notice, UNLESS such attendance is expressly for the purpose of
objecting, at the beginning of such meeting, to the transaction of any
business because the meeting is not lawfully called or convened. If a meeting
of the Voting and/or Nonvoting Members shall occur without all of the Voting
and/or Nonvoting Members in attendance, as may be applicable, a prior or
subsequent written waiver of notice or consent to the holding of such meeting
by the absent Members of such class or classes as may be applicable shall be
equivalent to the call and giving of any requisite notice, and such meeting
shall be valid without call or notice, and any corporate action may be taken
at such meeting.
3.7 CLOSING MEMBER RECORD BOOKS AND FIXING OF A RECORD DATE
The Board may close its Voting and/or Nonvoting Member record books,
as may be applicable, for a period not exceeding 50 days nor less than 10
days, immediately prior to the date of any meeting of such class or classes
of Members, or in lieu thereof, may fix in advance a date, not exceeding 50
days and not less than 10 days prior to the date of any meeting of such class
or classes of Members, as the record date for the determination of the Voting
and/or Nonvoting Members entitled to notice of, to attend, and to vote (to
the extent, and on such matters as, such Member is entitled to vote) at, such
meeting. The Voting and/or Nonvoting Members of record on such record date,
as may be applicable, shall be the Members entitled to notice of, to attend,
and to vote (to the extent, and on such matters as, such Member is entitled
to vote) at, such meeting. If the Member record books are not closed and no
record date is fixed by the Board, the date on which notice of the meeting
is mailed shall be deemed to be the record date for the determination of the
Voting and/or Nonvoting Members of the Corporation for the purposes set forth
in the immediately preceding sentence. When a determination of Members has
been made as provided herein, such determination shall apply to any
adjournment of the meeting for which such determination was made.
3.8 VOTING BY MEMBERS
Each Member in good standing on both the record date with respect to a
meeting of the Members of such class and the date of such meeting shall, at
such meeting, be entitled to ONE (1) VOTE for each Outlet owned or controlled
by such Member on each matter on which such Member is entitled to vote. A
Member may cast all or none (BUT NOT some, BUT fewer than all) of such
Member's votes on each matter properly submitted to be voted on by such
Member. Notwithstanding any other provision hereof which might be construed
to the contrary, Nonvoting Members may vote only on those matters set forth
in Sections 2.4 and 4.3 hereof. Voting Members shall be entitled to vote on
all matters to be voted on by the Members or any class thereof.
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3.9 VOTING BY CERTAIN HOLDERS
(a) ENTITIES
A Member which is a corporation, partnership, limited liability
company, or other entity may cast its votes in such manner as directed by
such Member's president, chief executive officer, general partner, manager,
or other party charged with management of the entity, or by proxy appointed
by any of such persons or the governing board, if any, of such entity, or by
such other officer, agent or proxy as the by-laws, partnership agreement,
operating agreement, or other governing instrument of such entity may
prescribe.
(b) ADMINISTRATORS, EXECUTORS, GUARDIANS, CONSERVATORS, AND TRUSTEES
A Member controlled by an administrator, executor, guardian or
conservator may have its votes cast by such fiduciary, either in person or by
proxy, without a transfer of any interests of such Member into such
fiduciary's name. A Member controlled by a trustee may have its votes cast by
such trustee, either in person or by proxy, but no trustee shall be entitled
to so vote without a transfer of the Member's interests into the trustee's
name.
(c) RECEIVER
A Member controlled by a receiver may have its votes cast by such
receiver, and such votes may be cast without the transfer of the Member's
interests into such receiver's name if authority to do so is contained in an
appropriate order of the court by which such receiver was appointed.
(d) CONTROL BY TWO OR MORE FIDUCIARIES
If a Member is controlled jointly by two or more fiduciaries,
unless the Secretary of the Corporation is given written notice to the
contrary by any of such fiduciaries, the vote of one or more of such
fiduciaries shall be presumed to be the vote of all such fiduciaries. If a
Member is controlled jointly by two or more fiduciaries, the directions of
the majority (or both in the case of two fiduciaries) of such fiduciaries
shall control the manner of voting or the giving of a proxy unless the
instrument or order appointing the fiduciaries otherwise directs. If, in any
case, fiduciaries are equally divided upon the manner of casting votes which
they are jointly authorized to vote, any court of competent jurisdiction may,
upon petition filed by any of the fiduciaries, or by any beneficiary, appoint
an additional person to act with the fiduciaries in determining the manner in
which the votes shall be cast upon the particular questions as to which the
fiduciaries are divided.
(e) PLEDGED OUTLETS
A Member whose Outlets are pledged shall be entitled to cast such
Member's votes until the Outlets have been transferred into the name of the
pledgee, and thereafter, the pledgee shall be entitled to cast the votes
attributable to the Outlets so transferred.
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(f) CORPORATION'S RECOGNITION OF AUTHORIZED PERSONS
Unless objection is filed at the beginning of a meeting by another
person purporting to represent the Member, the secretary of the meeting may
recognize any person purporting to represent a Member at such meeting as
being the person authorized to so represent such Member. Any officer of the
Corporation may, but shall not be required to, demand written proof that the
person purporting to represent a Member at a meeting is, in fact, authorized
to so represent such Member. Such proof, if demanded, shall be presented
prior to such person's casting, or further casting, as the case may be, of
such Member's votes.
3.10 DISPUTES
Any dispute as to the voting rights of a Member shall be submitted to
the Secretary of the Corporation to be decided upon by the chief executive
officer of the Corporation, with the Member whose voting rights are in issue
having the right to appeal this decision to the full Board. The decision of
the Board shall be final as to any dispute.
3.11 VOTING RECORD
The officer or agent having charge of the Corporation's Member record
books shall make a complete list of the Voting Members and Nonvoting Members
(if applicable) entitled to vote at each meeting, with each class of Members
being arranged in alphabetical order and with the address of, and the number
of votes held by, each Member.
3.12 QUORUM AND MAJORITY VOTE
Presence in person or by proxy of Voting and/or Nonvoting Members
representing AT LEAST 25% of the Voting and/or Nonvoting Members entitled to
vote on each matter to be voted on at such meeting shall constitute a quorum
at such meeting. A quorum shall not be lost by the departure of any Members
before adjournment. Except as otherwise specifically provided in these
By-Laws, the affirmative vote of a majority of those Voting and/or Nonvoting
Members entitled to vote on any particular matter properly submitted to the
meeting and present in person or by proxy at a meeting at which a quorum is
in represented shall be necessary to decide in favor of such matter.
3.13 PROXIES
At all meetings of the Voting and/or Nonvoting Members, a Member
entitled to attend and vote at such meeting may vote by proxy executed in
writing by the Member or by the Member's duly authorized attorney-in-fact;
PROVIDED, HOWEVER, that a proxy may only be given to and exercised by another
Member in good standing of the Corporation. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No
proxy shall be irrevocable, and any proxy may be revoked at any time in
writing or in person at the meeting for which it was given. A proxy may only
be given for a single meeting (which shall include any continuation or
adjournment of such meeting).
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3.14 ACTION BY CONSENT OF MEMBERS
Any action required to be taken, or which may be taken, at a meeting of
the Voting and/or Nonvoting Members may be taken without a meeting and
without prior notice, if the action is taken by all of the Voting and/or
Nonvoting Members, as the case may be, entitled to vote on the action or if
the action is taken by Voting and/or Nonvoting Members entitled to vote on
the action representing not less than eighty (80%), or such higher percentage
as may be required by the Act, or by the ARTICLES OF INCORPORATION, of the
votes entitled to be cast on such matter.
ARTICLE
4
DIRECTORS
4.1 GENERAL POWERS
The property and affairs of the Corporation shall be managed by its
Board.
4.2 NUMBER OF DIRECTORS; TERM OF OFFICE
(a) INITIAL BOARD OF DIRECTORS
The initial Board shall consist of three (3) individuals as
designated in the Corporation's Articles of Incorporation. Each such
director shall serve until the first annual meeting of the Members, if there
are any Members of the Corporation, or until the first annual meeting of the
Board of Directors, if there are no Members of the Corporation, as the case
may be, and until such director's successor in office is appointed or elected
and shall qualify.
(b) INCREASE OF BOARD OF DIRECTORS TO FOUR PERSONS WITHIN THREE
MONTHS
Within three (3) months after the date of the Corporation's
incorporation, the Voting Members shall designate another individual to serve
as an additional, fourth director, which person shall be a Franchisee or an
individual who is an officer, director, partner, member, manager, or employee
of a Franchisee, and, EXCEPT as otherwise hereinafter provided, the Board
shall thereupon and thereafter consist of FOUR (4) INDIVIDUALS who shall be
elected or appointed as hereinafter set forth. Such additional director
shall serve until the first annual meeting of the Members, if there are any
Members of the Corporation, or until the first annual meeting of the Board of
Directors, if there are no Members of the Corporation, as the case may be,
and until such director's successor in office is appointed or elected and
shall qualify.
(c) COMPOSITION OF THE BOARD OF DIRECTORS
Except as otherwise provided herein, the Board shall consist
of FOUR (4) INDIVIDUALS, who shall be elected or appointed as follows:
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(i) THREE (3) of the directors shall be appointed by the
Franchisor by notice of such appointment by Franchisor to the
Corporation (the "FRANCHISOR DIRECTORS").
(ii) ONE (1) of the directors shall be elected by
majority vote of all of the Members in the manner hereinafter set
forth (the "FRANCHISEE DIRECTOR").
The number of directors, and their classification as Franchisor Directors or
Franchisee Directors, may be changed at any time and from time to time by
vote of the Voting Members of the Corporation; PROVIDED, HOWEVER, that the
number of Franchisee Directors may never be fewer than one. Any such change
in the number of directors by vote of the Voting Members shall be reflected
as an amendment to these By-Laws.
(d) TERM OF OFFICE; REMOVAL
(i) Each Franchisee Director shall hold office for a term
commencing upon the date of such Franchisee Director's election
and ending one (1) year thereafter or upon the date such
Franchisee Director's successor is elected and takes office,
SUBJECT, HOWEVER, to sooner removal as hereinafter provided. At a
meeting of the Members called expressly for such purpose, any
Franchisee Director may be removed, with or without cause, by
majority vote of the Members then entitled to vote with respect to
the election of a Franchisee Director.
(ii) Each Franchisor Director shall hold office for a term
commencing upon the date of such Franchisor Director's appointment
and ending upon such Franchisor Director's death, resignation,
removal by Franchisor (which removal may be effected by Franchisor
at any time, with or without cause, by notice of such removal by
Franchisor to the Corporation and to such Franchisor Director),
such Franchisor Director's removal under Section 4.2(d)(iii)
hereof.
(iii) In addition to any other removal process provided for
herein, the Board may, by the affirmative vote of AT LEAST
THREE-FOURTHS (3/4THS) of the directors, remove any director for
cause. Upon such vote, the Board shall give such director written
notice of such director's removal and shall advise the Franchisor
of such removal.
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4.3 ELECTION OF FRANCHISEE DIRECTOR(S)
The Franchisee Director(s) shall be elected each year. Nominations for
the Franchisee Director(s) to be elected for the upcoming year may be made
only by Members in good standing. The schedule and process for making
nominations and conducting elections shall be one of the following, as
determined by the Secretary (unless otherwise directed by the Board):
(a) ELECTION BY MAIL-IN BALLOT
(i) By October 1st of each year, the Members shall send their
nominations for the Franchisee Director(s) to the Secretary,
postage prepaid.
(ii) By October 15th of such year, the Secretary shall send by
U.S. mail to each Member eligible to vote a ballot containing the
name of each nominee, along with, if timely furnished by the
nominee, biographical data of such nominee and a statement of such
nominee in support of such nominee's candidacy.
(iii) Completed ballots must be sent to the Secretary, postage
prepaid and postmarked no later than November 15th of such year.
(iv) By November 30th of such year, the ballots shall be
compiled and the votes tabulated by the Secretary. The winner
shall be the candidate who is determined to have received the
highest number of votes.
(v) In the case of a tie as to the highest number of votes
received, a run-off election shall be held via mail ballot between
December 1st and December 20th of such year between the nominees
with respect to which such tie exists. Such run-off election
shall be held in the same manner prescribed herein for a regular
election.
(vi) If a run-off election should result in a tie, the matter
shall be referred to the Board (EXCLUDING any Franchisee Director
who is involved in the run-off) which shall determine the nominee
to take office as such Franchisee Director.
(vii) Within FIVE (5) DAYS after the election is completed, the
Secretary shall certify the results to the chief executive officer
who shall forthwith by mail announce the winner to all Members in
good standing. Such announcement shall also set
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forth the name of each Franchisor Director to serve for the upcoming
year.
(b) ELECTION AT MEETING
(i) By October 1st of each year, the Members shall send their
nominations for the Franchisee Director(s) to the Secretary,
postage prepaid.
(ii) By November 30th of such year, an annual or special meeting
of the Members eligible to vote on the election of the Franchisee
Director(s) shall be held.
(iii) Ballots containing the name of each nominee, along with, if
timely furnished by the nominee, biographical data of such nominee
and a statement of such nominee in support of such nominee's
candidacy, shall be distributed at or prior to the meeting.
(iv) Completed ballots will be collected at such time during the
meeting as may be designated by the secretary of the meeting.
(v) The ballots shall then be compiled and the votes tabulated by
the Secretary. The winner shall be the candidate who is determined
to have received the highest number of votes.
(vi) In the case of a tie as to the highest number of votes
received, a run-off election shall be held, immediately, between
the nominees with respect to which such tie exists. Such run-off
election shall be held in the same manner prescribed herein for a
regular election.
(vii) If a run-off election should result in a tie, the matter
shall be referred to the Board (EXCLUDING any Franchisee Director
who is involved in the run-off) which shall determine the nominee
to take office as such Franchisee Director.
(viii) Unless announced at the meeting, within FIVE (5) DAYS after
the election is completed, the Secretary shall certify the result
to the chief executive officer who shall forthwith by mail
announce the winner to all Members in good standing. Such
announcement shall also set forth the name of each Franchisor
Director to serve for the upcoming year.
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<PAGE>
4.4 ELIGIBILITY TO BE DIRECTOR
(a) ELIGIBILITY TO BE FRANCHISEE DIRECTOR
No individual shall be eligible to be a Franchisee Director UNLESS
(i) the principal amount of such individual's business time is devoted to
operating one or more Outlets, AND (ii) such individual is (A) an "active
employee," "active partner," "active member," or "active manager" of a Member
in good standing, OR (B) a sole proprietor Member in good standing. For all
purposes hereof, the terms "active employee," "active partner," "active
member" or "active manager" of a Member shall mean an individual who is,
respectively, a common law employee of such Member, a partner of such Member
which is a partnership, a member of such Member which is a limited liability
company managed by its members, or a manager of such Member which is a
limited liability company managed by its manager(s), as the case may be, and
who devotes AT LEAST 50% of such individual's business time to the
management and operation of one or more Outlets of such Member.
(b) ELIGIBILITY TO BE FRANCHISOR DIRECTOR
No individual shall be eligible to be a Franchisor Director unless
such individual is an officer, director, manager, member, or employee of
Franchisor, any Licensor, or any other Member of the Corporation.
(c) FAILURE OF ELIGIBILITY
Whenever any Franchisor Director or Franchisee Director ceases to
fulfill the eligibility requirements of this Section 4.4, such director's
status as a director shall automatically and immediately terminate and the
vacancy so created shall be filled in the manner hereinafter set forth in
Section 4.12.
4.5 CHAIRPERSON AND VICE CHAIRPERSON
(a) ELECTION OF CHAIRPERSON AND VICE CHAIRPERSON
The Board shall, by affirmative vote of a majority of the
directors, annually elect a Chairperson and a Vice Chairperson from among the
directors, each of whom shall serve until he or she ceases to serve as a
director or until his or her successor as Chairperson or Vice Chairperson, as
the case may be, is elected. A Chairperson or Vice Chairperson may succeed
himself or herself in office.
(b) DUTIES OF CHAIRPERSON AND VICE CHAIRPERSON
Unless otherwise directed by the Board, the Chairperson of the
Board shall preside at all meetings of the Board and the Members and shall
represent the Corporation at meetings and seminars that concern the
Corporation (PROVIDED, HOWEVER, that, unless otherwise directed by the Board,
the chairperson may designate any other officer of the Corporation to so
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<PAGE>
represent the Corporation). In the absence of the Chairperson or the
chairperson's inability to perform, the Vice Chairperson shall perform the
duties of the Chairperson.
4.6 PURPOSES AND DUTIES OF THE BOARD
The general purpose and duty of the Board is to manage the affairs
and property of the Corporation. In this regard, BUT NOT BY WAY OF
LIMITATION, it shall be the duty and purpose of the Board:
(a) ADVERTISING, PUBLICITY, AND PROMOTIONAL PROGRAMS OF THE CORPORATION
To manage and supervise all advertising, publicity, and
promotional programs of the Corporation, INCLUDING, BUT NOT LIMITED TO:
(i) The evaluation and approval of all advertising, publicity,
and promotional programs of the corporation (all such programs to be approved
by, or be undertaken in accordance with standards set by, the Franchisor) and
to establish the fiscal policies relative thereto.
(ii) The planning and approval of each year's advertising,
publicity, and promotional programs of the Corporation within the limits of
an estimated budget based on projected contributions.
(iii) The review from time to time of the performance of the
advertising agency or agencies and/or public relations firm or firms employed
by the Corporation and the determination whether any a change in any such
agency or firm should be made.
(b) ESTABLISHMENT OF RULES AND REGULATIONS
To establish, and amend from time to time as deemed advisable,
such rules and regulations as the Board may deem advisable with respect to
contributions, membership, meetings, and other matters concerning the Members
of the Corporation.
(c) PERFORMANCE OF ACTS AND FUNCTIONS GRANTED UNDER ARTICLES OR BY-LAWS
(i) To perform all acts and functions granted to the Board by the
Articles of Incorporation and By-Laws of the Corporation, as either or both
may be amended or restated from time to time, and all acts reasonably related
thereto.
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<PAGE>
4.7 ANNUAL AND REGULAR MEETINGS
An annual meeting of the Board shall be held during each year at such
time and place as the Chairperson of the Board may designate or as may be
otherwise directed by the Board. The Board may provide by resolution the time
and place, either within or without the Commonwealth of Kentucky, for the
holding of regular meetings without other notice than such resolution.
4.8 SPECIAL MEETINGS
Special meetings of the Board may be called by, or at the request of,
the Chairperson of the Board or, if the Corporation has more than one
director, any two directors. All special meetings of the Board shall be held
at the principal office of the Corporation or such other place as may be
specified in the notice of the meeting.
4.9 NOTICE
Notice of the annual meeting of the Board shall be given at least thirty
(30) days prior thereto by written notice to the directors, and notice of any
special meeting of the Board shall be given at least two days prior thereto
by written notice to the directors. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of
the Board need be specified in the notice or waiver of notice of such meeting.
4.10 QUORUM
Three-fourths of the number of directors fixed by, or determined in
accordance with, the Articles of Incorporation shall constitute a quorum for
the transaction of business at any meeting of the Board, PROVIDED HOWEVER,
that if fewer than three-fourths of the directors are present at said
meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
4.11 MANNER OF ACTING
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board, unless otherwise required by
the Articles of Incorporation or these By-Laws. Upon demand of any director,
voting upon any matter before the meeting shall be by secret ballot.
4.12 VACANCIES
Any vacancy occurring in the Board by reason of the death, resignation,
or removal of a Franchisor Director shall be filled by appointment of the
Franchisor, which appointment shall be effected by the delivery of written
notice of appointment to the Secretary of the Corporation.
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<PAGE>
Any vacancy occurring in the Board by reason of the death, resignation, or
removal of a Franchisee Director shall be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board.
A director appointed or elected to fill a vacancy shall be appointed or
elected for the unexpired term of such director's predecessor in office. Any
directorship to be filled by reason of an increase in the number of
Franchisor Directors shall be filled by appointment of the Franchisor, which
appointment shall be effected by the delivery of written notice of
appointment to the Secretary of the Corporation. Any directorship to be
filled by reasons of an increase in the number of Franchisee Directors may be
filled by the Board for a term of office continuing only until the next
election of directors by the Members.
4.13 COMPENSATION
All directors shall serve without compensation. Reasonable
expenses of directors incurred to attend annual, regular, or special meetings
of the Board shall be reimbursed by the Corporation; PROVIDED, HOWEVER, that
such expenses are not in excess of the actual cost of traveling from and
returning to the director's home city, lodging, meals, and other reasonable
and necessary expenses. The Board may also direct that the Corporation
reimburse directors, officers of the Corporation, and others for their
reasonable expenses of attending seminars or other events at the direction
of the Board.
4.14 GUESTS AT BOARD MEETINGS
Members in good standing, agency representatives, and special
guests may attend meetings of the Board and, at the discretion of the
chairman of the meeting, may participate in, but not vote at, such meeting;
PROVIDED, HOWEVER, that the Board shall exclude from any meeting any person,
other than a director, whose presence at such meeting is objected to by two
or more directors.
4.15 GOVERNANCE OF MEETINGS
The Chairperson of the Board and the Secretary of the Corporation
shall act as the chairman and secretary, respectively, at each Board meeting.
4.16 ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken by the Board at a
meeting may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the directors.
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<PAGE>
ARTICLE
5
OFFICERS
5.1 CLASSES
The officers of the Corporation shall be a President, a Secretary
and a Treasurer, each of whom shall be elected by the Board. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board. Any two or more officers may be held by the same
person.
5.2 ELECTION AND TERM OF OFFICE
The officers of the Corporation shall be elected by the Board at
the first, and thereafter at each annual, meeting of the Board. If the
election of officer shall not be held at any such meeting, such election
shall be held as soon thereafter as is practicable. Vacancies may be
filled or new officers created and filled at any meeting of the Board. Each
officer shall hold office until such officer's successor shall be duly
elected or until such officer's death or until such officer shall resign or
shall have been removed in the manner hereinafter provided.
5.3 REMOVAL AND RESIGNATIONS
Any officer or agent elected or appointed by the Board may be
removed by the Board whenever, in the Board's judgment, the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of an officer or agent shall not of itself create contract
rights. Any officer of the Corporation may resign at any time by giving
written notice to the President or Secretary of the Corporation, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
5.4 VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the Board for the unexpired
portion of the term.
5.5 CHAIRPERSON OF THE BOARD
The Chairperson of the Board, if that office be created and
filled, shall, unless otherwise provided by the Board, be the chief executive
officer of the Corporation and, if such, shall, in general, supervise and
control the affairs and business of the Corporation, subject to control by
the Board. The Chairperson of the Board shall preside at all meetings of the
Members and the Board.
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<PAGE>
5.6 PRESIDENT
The President, UNLESS a Chairperson is appointed and serving as
chief executive officer pursuant to Section 5.5, shall be the chief executive
officer of the Corporation. If no Chairperson has been appointed or, in the
absence of the Chairperson, and any Vice Chairperson, the President shall
preside at all meetings of the Members and of the Board. Except as
otherwise specifically provided by the Board or by these By-Laws, or as
otherwise required by law, the President may sign any deeds, mortgages,
guarantees, licenses, bonds, contracts or other instruments on behalf of the
Corporation. Subject to the power and authority of any Chairperson serving
as the chief executive officer pursuant to Section 5.5, the President shall,
in general, perform all duties incident to the office of President
(INCLUDING, BUT NOT LIMITED TO, the responsibility and authority over the
staff of the Corporation and the power and authority to employ, train,
assign work to, and discharge staff personnel) and such other duties as may
be prescribed by the Board from time to time. Unless otherwise ordered by the
Board, and subject to the power and authority of the Board, the President
shall have full power and authority on behalf of the Corporation to attend,
act and vote at any meetings of shareholders of any corporation in which the
Corporation may hold stock, and at any such meeting shall hold and may
exercise all rights incident to the ownership of such stock which the
Corporation, as owner, would have had and exercised if present. The Board,
Chairperson of the Board, or President may confer like powers on any other
person or persons. If a Chairperson is serving as the chief executive officer
pursuant to Section 5.5, the President shall report to, and be subject to the
direction and control of, such Chairperson, and the Chairperson may, in the
Chairperson's sole discretion (unless otherwise provided by the Board)
directly exercise any power and authority of, and directly take any actions
which could be taken by, the President with respect to the Corporation. The
president may also be referred to as the "EXECUTIVE DIRECTOR" of the
Corporation. Unless otherwise directed by the Chairperson of the Board or the
Board, the President shall approve all nonbudgeted expenditures for any
project or program EXCEPT TO THE EXTENT such expenditures are greater than
FIVE THOUSAND DOLLARS ($5,000.00).
5.7 VICE PRESIDENT
In the absence of the President, or in the event of the President's
inability or refusal to act, the Vice President, if that office be created
and filled (or, in the event there shall be more than one Vice President, the
Vice Presidents in order designated at the time of their election, or in the
absence of any designation, then in the order of their election), shall
perform the duties of the President and when so acting shall have all the
powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such duties as from time to time may be assigned
to such Vice President by the Chairperson of the Board, the President, or
the Board.
5.8 TREASURER
The Treasurer shall have charge and custody of and be responsible
for all funds and securities of the Corporation; receive and give receipts for
monies due and payable to the Corporation from any source whatsoever, and
deposit all such monies in the name of the Corporation in such banks, trust
companies and other depositors as shall be selected in accordance with the
provisions of Section 6.4; and, in general, perform all the duties incident
to the
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<PAGE>
office of the Treasurer and such other duties as from time to time may be
assigned to the treasurer by the Chairperson of the Board, the President, or
the Board. If required by the Board, the Treasurer shall give a bond for the
faithful discharge of the Treasurer's duties in such sum and with such surety
or sureties as the Board shall determine.
5.9 SECRETARY
The Secretary shall (a) keep the minutes of meetings of the Members
and the Board in one or more books or files provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of
these By-Laws or as required by law; (c) be custodian of the corporate
records and of the seal, if any, of the Corporation; (d) keep a register of
the mailing address of each Member and director; (e) have general charge of
the Member record books of the Corporation; AND (f) in general, perform all
duties incident to the office of Secretary and such other duties as from
time to time may be assigned to the Secretary by the Chairperson of the
Board, the President, or by Board.
5.10 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES
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 by the Chairperson of the Board, the
President, or the Board. The Assistant Treasurer, if that office shall be
created and filled, shall, if required by the Board, give bond for the
faithful discharge of his duty in such sum and with such surety as the Board
shall determine.
5.11 COMPENSATION
The compensation of the officers of the Corporation shall be fixed
from time to time by the Board, and no officer shall be prevented from
receiving such compensation by reason of the fact that such officer is also
a director of the Corporation.
ARTICLE
6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 CONTRACTS
The Board may authorize any officer or officers, agent or agents, to
enter into any contract and execute and deliver any instruments in the name of
and on behalf of the Corporation. Such authority may be general or confined
to specific instances.
6.2 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. Such authority may be general or confined to
specific instances.
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<PAGE>
6.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes
or other evidences of indebtedness issued in the name of the Corporation shall
be signed by such officer or officers, or agent or agents, of the Corporation
and in such manner as shall, from time to time, be determined by resolution
of the Board or these By-Laws.
6.4 DEPOSITS
All funds of the Corporation not otherwise employed shall be
deposited, from time to time, to the credit of the Corporation in such
banks, trust companies and other depositories as the Board may select.
6.5 ANNUAL COMPILATION
An annual compilation by the Corporation's certified public
accountants of the financial books and records of the Corporation shall be
ordered by the Board at the close of each fiscal year of the Corporation,
and a complete copy of such compilation shall be mailed to each director
with the opinions, if any, furnished by the accountants. The Board may, from
time to time upon the affirmative vote of a majority of the directors, direct
that the financial books and records be subject to annual review or audit in
lieu of a compilation.
ARTICLE
7
EXECUTIVE AND OTHER COMMITTEES
7.1 EXECUTIVE COMMITTEE
The Board, by resolution adopted by a majority of the full Board,
may designate from among its members an Executive Committee.
(a) AUTHORITY
When the Board is not in session, the Executive Committee
shall have and may exercise all of the authority of the Board, except to the
extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee, and except also that the Executive
Committee shall not have the authority of the Board in reference to amending
the Articles of Incorporation, adopting a plan of merger or consolidation,
recommending to the shareholders the sale, lease or other disposition of all
or substantially all of the property and assets of the Corporation otherwise
than in the usual and regular course of its business, recommending to the
shareholders a voluntary dissolution of the Corporation or a revocation
thereof, or amending these By-Laws.
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<PAGE>
(b) TENURE AND QUALIFICATIONS
Each member of the Executive Committee shall hold office until
the next regular meeting of the Board following his designation and until such
member's successor shall be duly designated and qualified.
(c) MEETINGS
Regular meetings of the Executive Committee may be held
without notice at such times and places as the Executive Committee may fix
from time to time by resolution. Special meetings of the Executive Committee
may be called by any member thereof upon not less than one day's notice
stating the place, date and hour of the meeting. Any member of the Executive
Committee may waive notice of any meeting and no notice of any meeting need be
given to any member thereof who attends in person. The notice of a meeting
of the Executive Committee need not state the business proposed to be
transacted at the meeting.
(d) QUORUM
A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business at any meeting thereof.
Action of the Executive Committee must be authorized by the affirmative vote
of a majority of the members present at a meeting at which a quorum is present.
(e) ACTION WITHOUT A MEETING
Any action required or permitted to be taken by the Executive
Committee at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
members of the Executive Committee.
(f) VACANCIES
Any vacancy in the Executive Committee may be filled by a
resolution adopted by a majority of the full Board.
(g) Resignations and Removal
Any member of the Executive Committee may be removed at any
time, with or without cause, by resolution adopted by a majority of the full
Board. Any member of the Executive Committee may resign from the Executive
Committee at any time by giving written notice to the President or Secretary
of the Corporation, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
7.2 OTHER COMMITTEES
The Board, by resolution adopted by a majority of the full Board,
may designate from among its members such other committees as from time to
time it may consider necessary or
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<PAGE>
appropriate to conduct the affairs of the Corporation. Each such committee
shall have such power and authority as the Board may, from time to time,
legally establish for it. The tenure and qualifications of the members of
each committee; the time, place and organization of such committee's
meetings; the notice required to call any such meeting; the number of members
of each such committee that shall constitute a quorum; the affirmative vote
of the committee members required effectively to take action at any meeting
at which a quorum is present; the action that any such committee can take
without a meeting; the method in which a vacancy among the members of such
committee can be filled and the procedures by which resignations and removals
of members of such committee shall be acted upon or accomplished shall be
fixed by the resolution adopted by the Board relative to such matters.
ARTICLE
8
MISCELLANEOUS
8.1 AMENDMENTS
(a) AUTHORITY TO ALTER, AMEND, OR REPEAL
The Board shall have the power and authority to alter, amend
or repeal these By-Laws by the vote of THREE-FOURTHS (3/4THS) of the entire
Board; PROVIDED, HOWEVER, that the maximum rate of contribution that the
Board may require to be made by Members may only be changed by the
affirmative vote of the Members as otherwise provided in these By-Laws.
(b) PROCEDURE
All proposed alterations, amendments, or repeals with respect
to these By-Laws shall be submitted in writing to the directors at least TEN
(10) DAYS prior to the meeting at which the proposed alteration, amendment,
or repeal is to be introduced. Any proposed alteration, amendment, or repeal
may be changed by action of the Board at any meeting prior to the Board's
vote on such amendment at such meeting. A director's presence in person or
by proxy at any meeting at which a proposed alteration, amendment, or repeal
is considered shall be deemed a waiver of such TEN (10) DAY notice unless
attendance is expressly for the purpose of objecting, at the beginning of
such meeting, to the transaction of business because the meeting is not
lawfully called or convened. Alternatively, any proposed alteration,
amendment, or repeal may be effected by written resolution of the Board
adopted by unanimous consent without any requirement of prior notice.
8.2 FISCAL YEAR
The Board shall have the power to fix, and from time to time
change, the fiscal year of the Corporation. Unless and until so fixed or
changed, the fiscal year of the Corporation shall be the calendar year.
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<PAGE>
8.3 SEAL
The Board may adopt a corporate seal in any form which the Board
may deem advisable.
8.4 NOTICES
(a) DELIVERY OF NOTICE
Except as may otherwise be required by law, all notices,
demands, requests, consents, approvals, waivers, proxies, offers,
counteroffers or other communications required or permitted under this By-Laws
shall be in writing and (i) delivered by personal delivery to such intended
recipient, which personal delivery shall be evidenced by a written receipt
therefor signed by such recipient, (ii) sent by United States certified,
registered or express mail, return receipt requested, postage prepaid, or by
reputable express delivery service (such as Federal Express, UPS, Airborne,
Purolator, or DHL), fees prepaid, addressed to the intended recipient
thereof, at the address listed for such party in the records of the
Corporation, or at such other address as such party shall furnish in writing
to the Corporation, or (iii) transmitted by fax to such intended recipient
at the fax number listed for such party in the records of the Corporation (or
such other fax number as such party shall furnish in writing to the
Corporation), receipt of which transmission shall be confirmed by such
recipient.
(b) EFFECTIVE DATE OF NOTICE
Except as may otherwise be required by law, all such notices,
demands, requests, consents, approvals, waivers, proxies, offers,
counteroffers or other communications shall be effective upon being
personally delivered and properly receipted, upon being properly addressed
and deposited in the United States mail or with a reputable express delivery
service or upon being transmitted by fax and properly receipted, as set forth
above.
8.5 WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these By-Laws, the Articles of Incorporation, or any applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice.
8.6 CONSTRUCTION
Unless the context specifically requires otherwise, any reference
in these By-Laws to any gender shall include all other genders; any reference
to the singular shall include the plural; and any reference to the plural
shall include the singular.
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<PAGE>
THE ABOVE BY-LAWS OF THIS CORPORATION
WERE ADOPTED BY the BOARD AND APPROVED BY
THE SOLE VOTING MEMBER AS OF DECEMBER 28,
1995.
/s/ JAMES MULROONEY
-------------------
JAMES M. MULROONEY, SECRETARY
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<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated March 31, 1998, with
respect to the financial statements of Tumbleweed, LLC, and our report dated
June 23, 1998, with respect to the balance sheet of Tumbleweed, Inc., included
in the Registration Statement (Form S-1) and related Prospectus of Tumbleweed,
Inc. for the registration of 1,200,000 shares of its common stock.
/s/ Ernst & Young LLP
Louisville, Kentucky
June 23, 1998
<PAGE>
SUBSCRIPTION AGREEMENT
TUMBLEWEED, INC., 1900 MELLWOOD AVENUE, LOUISVILLE, KENTUCKY 40206
Dear Sirs:
I acknowledge that I have read the Prospectus dated _________, 1998 (the
"Prospectus") describing the offer by Tumbleweed, Inc. (the "Company") of up to
1,200,000 shares of Common Stock (the "Shares") at the price of $10.00 per
Share. I hereby subscribe to purchase from the Company the number of Shares
detailed below. The minimum individual subscription is 100 Shares, for a total
price of $1,000.00. I acknowledge that the Company may, in its sole discretion,
accept subscriptions for less than 100 Shares.
<TABLE>
<S> <C>
A. NUMBER OF SHARES (MINIMUM OF ___)
-----------
B. PRICE PER SHARE $10.00
-----------
TOTAL PURCHASE PRICE (A X B)
-----------
-----------
</TABLE>
In consideration for such Shares, I hereby submit a check made payable to
"National City Bank of Kentucky, Escrow Agent for Tumbleweed, Inc.", for the
total purchase price of $_______. I acknowledge that the Company may, in its
sole discretion, accept or reject my subscription, in whole or in part.
Recognizing that the Company must rely upon the information and on the
representations set forth herein, I (either in an individual capacity or as an
authorized representative of an entity, if applicable) hereby represent, warrant
and agree that I am (if an individual) (i) a bona fide resident of Kentucky,
Tennessee, Indiana, Ohio, Texas, Wisconsin, Illinois, Colorado, Minnesota or
Virginia (ii) over 21 years of age, (iii) legally competent to execute this
Agreement or (if any entity) I am authorized to execute this Agreement and (iv)
the entity is domiciled in Kentucky, Tennessee, Indiana, Ohio, Texas, Wisconsin,
Illinois, Colorado, Minnesota or Virginia.
I HEREBY AGREE AND UNDERSTAND THAT MY SIGNATURE TO THIS AGREEMENT CONSTITUTES MY
PURCHASE OF THE SHARES SUBJECT TO ACCEPTANCE OF THIS SUBSCRIPTION BY THE COMPANY
IN ITS SOLE DISCRETION. I agree that I will execute such other documents
necessary to complete the transactions contemplated hereby, and agree to be
bound by all of the terms and provisions of this Agreement and to perform all of
my obligations hereunder with respect to the Shares to be purchased.
A check for the purchase price, drawn to the order of "National City Bank of
Kentucky, Escrow Agent for Tumbleweed, Inc.", is enclosed in full payment of
this subscription. The payment so delivered, or the applicable part thereof,
shall be returned promptly to me, without interest or deduction, if this
subscription is not accepted in full by the Company.
Very truly yours,
INDIVIDUAL OR JOINT PURCHASER(S) (SEE BACK):
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
Printed Name(s) of Individual/Joint Signature(s) of Individual/Joint
Purchaser(s) Purchaser(s)
Address: Date:
----------------------------- --------------------------------
City: Ownership:
-------------------------------- ---------------------------
(see back)
State: Zip: SSN or Taxpayer ID#:
------------------- ------- -----------------
Home Phone: ( ) Work Phone: ( )
------------------------ ------------------------
MAKE CHECKS PAYABLE TO "NATIONAL CITY BANK OF KENTUCKY,
ESCROW AGENT FOR TUMBLEWEED, INC."
<PAGE>
OWNERSHIP METHODS
(ALL PURCHASERS MUST SELECT ONE)
[ ] INDIVIDUAL (Represents ownership by one person. One signature required.)
[ ] JOINT TENANTS (Joint Tenants with Rights of Survivorship. Commonly used
where spouses are investing together and desire assets to pass to the
surviving spouse free of probate. Both parties must sign.)
[ ] TENANTS IN COMMON (Each investor has an undivided interest. All investors
must sign.)
[ ] TRUST (Please include name of trust, name of trustee, date trust was
formed and copy of the trust agreement.)
[ ] PARTNERSHIP (Please include copy of the partnership agreement authorizing
signature.)
[ ] CORPORATION (Please include corporate resolution authorizing signature.)
[ ] UNIFORM GIFTS TO MINORS ACT - UGMA (The adult custodian must sign.)
[ ] OTHER (Please specify and include copy of document authorizing signature.)
TO BE COMPLETED BY ENTITY PURCHASER:
(Trust, Partnership, Corporation, UGMA, Other)
The undersigned trustee, partner or officer warrants that he has full power and
authority from all necessary beneficiaries, partners, members, directors, or
stockholders of the entity named above to execute this Subscription Agreement on
behalf of the entity and that investment in the Partnership is not prohibited by
the governing documents of the entity and that the entity is domiciled in
Kentucky, Tennessee, Indiana, Ohio, Texas, Wisconsin, Illinois, Colorado,
Minnesota or Virginia.
- -------------------------------- ---------------------------------------------
Printed Name of Entity Purchaser Signature and title of trustee, partner or
authorized officer
Date: , 1998 Taxpayer ID#: Telephone: ( )
------- ------------------ ------------------
Address: City: State: Zip:
------------------------------ --------------- ----- -------
TO BE COMPLETED BY TUMBLEWEED, INC.:
ACCEPTED AND AGREED TO: TUMBLEWEED, INC.
Dated: , 1998 BY:
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President
TO BE COMPLETED BY SELLING BROKER (IF ANY):
Name:
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Firm:
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Address:
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City: State: Zip:
----------------------------------- --------------- ---------------
Telephone: ( ) FAX: ( )
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OFFICE USE ONLY
Date of Call: Broker Date: Check #:
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Mailed Date: Broker Code:
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MAKE CHECKS PAYABLE TO "NATIONAL CITY BANK OF KENTUCKY,
ESCROW AGENT FOR TUMBLEWEED, INC."
<PAGE>
[Return to Tumbleweed Inc.,
1900 Mellwood Avenue, Louisville, Kentucky 40206
Indications of Interest are requested by June __, 1998.]
TUMBLEWEED, INC. COMMON STOCK
INDICATION OF INTEREST
(NON-BINDING)
This will serve as an indication of my interest in subscribing for the
number of shares of Common Stock, $.01 par value (the "Common Stock"), of
Tumbleweed, Inc. indicated below at the price of $10.00 per share. I understand
that this indication of my interest in subscribing for shares of Common Stock is
not a legally binding commitment on my part to purchase any shares of Common
Stock, or by the Company to sell any shares of Common Stock to me.
I hereby confirm that:
1. A copy of the preliminary Prospectus dated June __, 1998 has been
delivered to me and, in indicating my interest in subscribing for
shares of Common Stock, I am not relying upon any representation
other than as set forth in such preliminary Prospectus.
2. The state of residence indicated below is my true state of legal
residence. (Non-United States residents should indicate their
country of residence.)
- ------------------------------ ------------------------------
Number of Shares Print Name
- ------------------------------
State of residence (country if Mailing Address:
non-United States resident)
------------------------------
------------------------------
Dated: ,1998
------------------------ ------------------------------
PHONE:
------------------------
FAX:
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Signature(s)
The Company is presently accepting only non-binding indications of interest to
purchase shares of Common Stock, but will not accept binding subscriptions or
accept payment for any shares until after the Registration Statement (of which
the preliminary Prospectus referred to above is a part) has been declared
effective by the Securities and Exchange Commission. DO NOT SEND PAYMENT WITH
THIS INDICATION OF INTEREST. After the Registration Statement has been declared
effective, the Company will send a Subscription Agreement and a copy of the
final Prospectus relating to the offering to the prospective investor at the
mailing address provided above.
********
No offer to buy the securities can be accepted and no part of the purchase price
can be received until the Registration Statement has become effective, and any
such offer may be withdrawn or revoked, without obligation or commitment of any
kind, at any time prior to notice of its acceptance given after the effective
date. An indication of interest in response hereto will involve no obligation
or commitment of any kind.
<PAGE>
ESCROW AGREEMENT
THIS AGREEMENT ("Agreement") made this ____ day of _______________, 1998,
is by and between TUMBLEWEED, INC., a Delaware corporation (the "Issuer"), and
NATIONAL CITY BANK OF KENTUCKY (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, the Issuer has prepared a Registration Statement on Form S-1 (the
"Registration Statement") in connection with the proposed direct public offering
(the "Offering") of its securities (the "Securities") to investors on the terms
described in the attached Information Sheet; and
WHEREAS, the Issuer proposes to establish an escrow account (the "Escrow
Account") to which subscription monies which are received by the Escrow Agent
from subscribers in the Offering ("Subscribers") are to be credited, and the
Escrow Agent is willing to establish the Escrow Account on the terms and subject
to the conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. INFORMATION SHEET. Each capitalized term not otherwise defined in
this Agreement shall have the meaning set forth for such term on the Information
Sheet.
2. ESTABLISHMENT OF THE BANK ACCOUNT.
2.1 The Escrow Agent shall establish a bank account (the "Bank
Account") for the purpose of (a) depositing all subscription monies (checks,
cash or wire transfers) which are received by the Escrow Agent from Subscribers
who have submitted Valid Subscriptions (as defined in Section 3.1), (b) holding
subscription monies which are collected through the banking system, and (c) for
disbursing collected funds, all as described herein.
2.2 The Escrow Agent shall invest all subscription monies deposited
in the Bank Account in the Investment Fund. Individual records of the amount
deposited by each Subscriber and interest earned thereon shall be maintained by
the Escrow Agent.
2.3 The offering period ("Offering Period") shall consist of the
period of time set forth on the Information Sheet. The Offering Period shall be
extended by an additional period of time (the "Extension Period") only if the
Escrow Agent shall have received written notice thereof at least two (2)
business days prior to the expiration of the Offering Period. The Extension
Period shall be deemed to commence on the next calendar day following the
expiration of the Offering Period and shall end on the date set forth on the
Information Sheet. The last day of the Offering Period, or the last day of the
Extension Period (if the Escrow Agent has received written notice thereof as
hereinabove provided), is referred to herein as the "Termination Date." Except
as provided in Section 4.3 hereof, after the Termination Date, the Escrow Agent
shall not accept any additional amounts from Subscribers.
<PAGE>
3. DEPOSITS TO THE BANK ACCOUNT.
3.1 Promptly after receiving subscription monies in the form of
check, cash or wire transfer ("Subscription Funds") from any Subscriber who has
submitted a subscription (a "Subscription"), the Escrow Agent shall determine
whether the Subscription is a Valid Subscription. The Escrow Agent shall not be
required to accept for credit to the Escrow Account or for deposit into the Bank
Account checks which are not accompanied by a Valid Subscription. Wire
transfers and cash representing Subscription Funds shall not be deemed deposited
in the Escrow Account until the Escrow Agent has received Valid Subscriptions
with respect to such payments. A Subscription shall be deemed a "Valid
Subscription" only if:
(a) the Subscription Funds are accompanied by a Subscription Agreement in
the form of Exhibit B hereto which contains
(i) the name, address and social security (or taxpayer ID) number of
the Subscriber,
(ii) the number of the Shares subscribed for by the Subscriber,
(iii) the aggregate dollar amount of such Subscription (which
shall be $10.00 multiplied by the number of Shares
subscribed for by the Subscriber (the "Subscription
Amount")), and
(iv) the Subscriber's signature,
(b) the Subscription Funds accompanying such Subscription are in the exact
amount of the Subscription Amount, and
(c) the state listed in the Subscription Agreement as part of the
Subscriber's address shall be one of the states listed on Exhibit C
hereto (which list may be modified from time to time by the Issuer
through notice to the Subscriber), and
(d) if the Subscription Funds are represented by a check, the check is
payable to "National City Bank of Kentucky, Escrow Agent for
Tumbleweed, Inc."
If the Escrow Agent is unable to determine whether the Subscription is a
Valid Subscription, the Escrow Agent shall forward the Subscription Agreement to
the Issuer who shall make such determination, which determination by the Issuer
shall be conclusive for purposes of this Agreement. If the Subscription for any
Subscriber is not a Valid Subscription, the Escrow Agent shall deliver the
Subscription Agreement to the Issuer. If the Escrow Agent has not received a
Valid Subscription for such Subscriber within 15 days of such delivery (or such
sooner date that is specified by the Issuer), then the Escrow Agent shall return
to such Subscriber all Subscription Funds (or if the Subscription Funds are
represented by a check, such check) received from such Subscriber.
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<PAGE>
3.2 With respect to each Valid Subscription, the Escrow Agent shall
deposit the related Subscription Funds into the Bank Account. Amounts of monies
so deposited are hereinafter referred to as "Escrow Amounts." The Escrow Agent
shall process all Escrow Amounts for collection through the banking system.
Promptly following the deposit of Subscription Funds in the Bank Account, the
Escrow Agent shall forward the original Subscription Agreement relating thereto
to the Issuer and retain a copy thereof.
3.3 The Escrow Agent shall not be required to accept in the Escrow
Account any Subscription Funds, whether by check, cash or wire, except during
the Escrow Agent's regular business hours.
3.4 Those Escrow Amounts received from Subscribers who have submitted
Valid Subscriptions ("Escrow Subscribers") which have been deposited in the Bank
Account and which have cleared the banking system and have been collected by the
Escrow Agent are herein referred to as the "Fund."
3.5 The Escrow Agent shall not be required to accept in the Escrow
Account any amounts representing payments by Subscribers, whether by check, cash
or wire, except during the Escrow Agent's regular business hours.
4. DISBURSEMENT FROM THE BANK ACCOUNT.
4.1 If so instructed by the Issuer, at any time, or subject to
Section 4.3 below, if by the close of regular banking hours on the Termination
Date, the Escrow Agent determines that the amount in the Fund is less than the
Minimum Dollar Amount, then the Escrow Agent shall promptly refund to each
Escrow Subscriber the amount of payment received from such Escrow Subscriber or
which thereafter clears the banking system, plus interest accumulated from
investment of such payment in the Investment Fund, by drawing checks on the Bank
Account for the amounts of such payments and transmitting them to the Escrow
Subscribers. In such event, the Escrow Agent shall promptly notify the Issuer
in writing of these payments.
4.2 Subject to Section 4.3 below, if at any time up to the close of
regular banking hours on the Termination Date, the Escrow Agent determines that
the amount in the Fund is at least equal to the Minimum Dollar Amount, the
Escrow Agent shall promptly notify the Issuer of such fact in writing. The
Escrow Agent shall promptly disburse the Fund, by drawing checks on the Bank
Account in accordance with instructions in writing signed by the Issuer as to
the disbursement of the Fund, promptly after it receives such instructions.
Thereafter the Escrow Agent shall disburse such additional amounts as may be
deposited from time to time in the Fund, by drawing checks on the Bank Account
in accordance with instructions in writing signed by the Issuer as to the
disbursement of additional amounts deposited in the Fund, promptly after it
receives such instructions.
4.3 If the Escrow Agent has on hand at the close of business on the
Termination Date any uncollected amounts which when added to the Fund would
raise the amount in the Fund to the Minimum Dollar Amount, a collection period
("Collection Period") consisting of the number of business days set forth on the
Information Sheet shall be utilized to allow such uncollected amounts to clear
the banking system. During the Collection Period, the Escrow Agent shall not
accept any additional Subscription Funds. If at the close of business on the
last day of the Collection
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<PAGE>
Period an amount sufficient to raise the amount in the Fund to the Minimum
Dollar Amount shall not have cleared the banking system, the Escrow Agent
shall promptly notify the Issuer in writing of such fact and shall promptly
return all amounts then in the Fund, and any amounts which thereafter clear
the banking system, to the Escrow Subscriber as provided in Section 4.1
hereof.
4.4 Upon disbursement of the Fund pursuant to the terms of this
Article 4, the Escrow Agent shall be relieved of all further obligations and
released from all liability under this Agreement. It is expressly agreed and
understood that in no event shall the aggregate amount of payments made by the
Escrow Agent exceed the amount of the Fund.
5. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW AGENT. It is understood
and agreed that the duties of the Escrow Agent are purely ministerial in nature,
and that:
5.1 The Escrow Agent shall notify the Issuer, when requested, of the
Escrow Amounts which have been deposited in the Bank Account and of the amounts,
constituting the Fund, which have cleared the banking system and have been
collected by the Escrow Agent.
5.2 The Escrow Agent shall be under no duty or responsibility to
enforce collection of any check delivered to it hereunder. The Escrow Agent,
within a reasonable time, shall return to the Issuer any check received which is
dishonored, together with the Subscription Agreement which accompanied such
check.
5.3 If the Escrow Agent is uncertain as to its duties or rights
hereunder or shall receive instructions with respect to the Bank Account, the
Escrow Amounts or the Fund which, in its sole determination, are in conflict
either with other instructions received by it or with any provision of this
Agreement, it shall be entitled to hold the Escrow Amounts, the Fund, or a
portion thereof, in the Bank Account pending the resolution of such uncertainty
to the Escrow Agent's sole satisfaction, by final judgment of a court or courts
of competent jurisdiction or otherwise; or the Escrow Agent, at its sole option,
may deposit the Fund (and any other Escrow Amounts that thereafter become part
of the Fund) with the clerk of a court of competent jurisdiction in a proceeding
to which all parties in interest are joined. Upon the deposit by the Escrow
Agent of the Fund with the clerk of any court, the Escrow Agent shall be
relieved of all further obligations and released from all liability hereunder.
5.4 The Escrow Agent shall not be liable for any action taken or
omitted hereunder, or for the misconduct of any employee, agent or attorney
appointed by it, except in the case of willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with counsel of its own choosing
and shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
5.5 The Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Escrow Amounts, the
Fund or any part thereof or to file any financing statement under the Uniform
Commercial Code with respect to the Fund or any part thereof.
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<PAGE>
6. AMENDMENT; RESIGNATION. This Agreement may be altered or amended only
with the written consent of the Issuer and the Escrow Agent. The Escrow Agent
may resign for any reason three (3) business days after giving written notice to
the Issuer. Should the Escrow Agent resign as herein provided, it shall not be
required to accept any deposit, make any disbursement or otherwise dispose of
the Escrow Amounts or the Fund, but its only duty shall be to hold the Escrow
Amounts until they clear the banking system and the Fund for a period of not
more than five (5) business days following the effective date of such
resignation, at which time (a) if a successor escrow agent shall have been
appointed and written notice thereof (including the name and address of such
successor escrow agent) shall have been given to the resigning Escrow Agent by
the Issuer and such successor escrow agent, then the resigning Escrow Agent
shall pay over to the successor escrow agent the Fund, less any portion thereof
previously paid out in accordance with this Agreement; or (b) if the resigning
Escrow Agent shall not have received written notice signed by the Issuer and a
successor escrow agent, then the resigning Escrow Agent shall promptly refund
the amount in the Fund to the Issuer, without interest thereon or deduction
therefrom; whereupon, in either case, the Escrow Agent shall be relieved of all
further obligations and released from all liability under this Agreement.
Without limiting the provisions of Section 8 hereof, the resigning Escrow Agent
shall be entitled to be reimbursed by the Issuer for any expenses incurred in
connection with its resignation, transfer of the Fund to a successor escrow
agent or distribution of the Fund pursuant to this Section 6.
7. REPRESENTATIONS AND WARRANTIES. The Issuer hereby represents and
warrants to the Escrow Agent that:
7.1 No party other than the parties hereto and the prospective
purchasers have, or shall have, any lien, claim or security interest in the
Escrow Amounts or the Fund or any part thereof.
7.2 No financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Amounts or the Fund or any part thereof.
7.3 The Subscription Agreement submitted with each deposit shall, at
the time of submission and at the time of the disbursement of the Fund, be
deemed a representation and warranty that such deposit represents a bona fide
payment by the Subscriber described therein for the amount of Securities set
forth in such Subscription Information.
7.4 All of the information contained in the Information Sheet is, as
of the date hereof, and will be, at the time of any disbursement of the Fund,
true and correct.
8. FEES AND EXPENSES. The Escrow Agent shall be entitled to the escrow
agent fees ("Escrow Agent Fees") set forth on the Information Sheet, payable as
and when stated therein. In addition, the Issuer agrees to reimburse the Escrow
Agent for any reasonable expenses incurred in connection with this Agreement,
including, but not limited to, reasonable counsel fees. Upon receipt of the
Minimum Dollar Amount, the Escrow Agent shall have a lien upon the Fund to the
extent of its fees for services as Escrow Agent.
9. INDEMNIFICATION AND CONTRIBUTION.
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<PAGE>
9.1 The Issuer agrees to indemnify the Escrow Agent and its officers,
directors, employees, agents and shareholders (collectively referred to as the
"Indemnitees") against, and hold them harmless of and from, any and all loss,
liability, cost, damage and expense, including without limitation, reasonable
counsel fees, which the Indemnitees may suffer or incur by reason of any action,
claim or proceeding brought against the Indemnitees arising out of or relating
in any way to this Agreement or any transaction to which this Agreement relates,
unless such action, claim or proceeding is the result of the willful misconduct
or gross negligence of the Indemnitees.
9.2 If the indemnification provided for in Section 9.1 is applicable,
but for any reason is held to be unavailable, the Issuer shall contribute such
amounts as are just and equitable to pay, or to reimburse the Indemnitees for,
the aggregate of any and all losses, liabilities, costs, damages and expenses,
including counsel fees, actually incurred by the Indemnitees as a result of or
in connection with, and any amount paid in settlement of, any action, claim or
proceeding arising out of or relating in any way to any actions or omissions of
the Indemnitors.
9.3 The provisions of this Article 9 shall survive any termination of
this Agreement, whether by disbursement of the Fund, resignation of the Escrow
Agent or otherwise.
10. GOVERNING LAW AND ASSIGNMENT. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Kentucky and
shall be binding upon the parties hereto and their respective successors and
assigns; provided, however, that any assignment or transfer by any party of its
rights under this Agreement or with respect to the Escrow Amounts or the Fund
shall be void against the Escrow Agent unless (a) written notice thereof shall
be given to the Escrow Agent; and (b) the Escrow Agent shall have consented in
writing to such assignment or transfer.
11. NOTICES. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express Mail
service offered by the United States Post Office, and addressed, if to the
Issuer, at its address set forth on the Information Sheet, and if to the Escrow
Agent, to the attention of Stephanie Haysley, National City Bank of Kentucky,
P.O. Box 36010, Louisville, KY. 40233.
12. SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
13. EXECUTION IN SEVERAL COUNTERPARTS. This Agreement may be executed in
several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one Agreement, binding on all of the parties
hereto.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection therewith.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
NATIONAL CITY BANK OF KENTUCKY
By:
-----------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
TUMBLEWEED, INC.
By:
-----------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
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<PAGE>
ESCROW AGREEMENT INFORMATION SHEET
1. THE ISSUER
Name: TUMBLEWEED, INC.
Address: 1900 Mellwood Avenue, Louisville, Kentucky 40206
State of incorporation or organization: Delaware
2. THE SHARES
Description of the Securities to be offered: Common Stock
Par value, if any: $.01
Offering price per share: $10.00
3. MINIMUM AMOUNTS REQUIRED FOR DISBURSEMENT OF THE ESCROW ACCOUNT
Aggregate dollar amount which must be collected before the Escrow Account
may be disbursed to the Issuer, exclusive of any interest earned
thereon after deposit ("Minimum Dollar Amount"): $7,000,000.00
4. PLAN OF DISTRIBUTION OF THE SECURITIES
Offering Period:
End of Extension Period:
Collection Period: 7 business days
5. Title of Escrow Account: National City Bank of Kentucky, Escrow Agent
for Tumbleweed, Inc.
6. INVESTMENT FUND:___________________________________
7. ESCROW AGENT FEES
Amount due upon completion of the escrow:______________________________
Fee for each subscription properly submitted pursuant to the terms
of the Escrow Agreement_______________________________________________
Fee for each check returned pursuant to the terms of the Escrow Agreement
$10.00
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