<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
- ---------- Securities Exchange Act of 1934
For the Quarter ended September 30, 1996
or
- ---------- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ____________ to ____________
Commission file number 0-19533 .
______________
SUPERCUTS, INC.
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 68-0141288
________________________ ____________________________________
(State of incorporation) (I.R.S. Employer Identification No.)
550 California Street, San Francisco, California 94104
________________________________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 693-4700
_____________________________
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ ______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 25, 1996
___________________________ _______________________________________________
Common Stock $.01 par value 11,259,309 shares
_______________________________________________
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Index to Exhibits 15
Report on Form 8-K 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and short-term investments $ 1,324 $ 2,054
Accounts receivable, net of allowance for doubtful
accounts of $177 and $47, respectively 4,282 3,255
Prepaid expenses and other assets 3,162 2,059
Deferred tax assets 5,583 6,600
Income taxes receivable -- 2,493
Inventories 1,654 1,885
------- -------
TOTAL CURRENT ASSETS 16,005 18,346
NON-CURRENT RECEIVABLES 13,722 13,917
PROPERTY AND EQUIPMENT, NET 27,363 28,891
OTHER ASSETS
Intangible assets, net 40,011 35,600
Deferred charges and other assets 850 612
------- -------
TOTAL OTHER ASSETS 40,861 36,212
------- -------
TOTAL ASSETS $97,951 $97,366
------- -------
------- -------
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable $ 6,747 $ 7,380
Accrued liabilities 6,599 6,408
Income taxes payable 695 --
Deferred franchise fees and other liabilities 798 1,489
Current portion of revolving line of credit 21,300 --
Current portion of other debt 1,264 371
Restructuring liabilities 8,268 11,965
------- -------
TOTAL CURRENT LIABILITIES 45,671 27,613
LONG-TERM LIABILITIES
Revolving line of credit -- 25,300
Other secured debt 3,858 --
Deferred income taxes 4,338 3,408
Other 1,672 2,479
------- -------
TOTAL LONG-TERM LIABILITIES 9,868 31,187
------- -------
TOTAL LIABILITIES 55,539 58,800
STOCKHOLDERS' EQUITY
Common stock $0.01 par value - 30,000,000
shares authorized; 12,066,149 and 11,982,385
issued at September 30, 1996 and December 31, 1995,
respectively 121 120
Additional paid-in capital 30,470 29,889
Retained earnings 16,462 13,198
Less 806,840 shares at September 30, 1996 and
December 31, 1995 in treasury at cost (4,641) (4,641)
------- -------
TOTAL STOCKHOLDERS' EQUITY 42,412 38,566
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $97,951 $97,366
------- -------
------- -------
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Company-owned Store Sales $21,555 $19,364 $ 62,643 $ 56,572
Franchised and Managed Store Revenues 6,304 6,534 18,748 18,824
------- ------- -------- --------
Total Revenues 27,859 25,898 81,391 75,396
COSTS AND EXPENSES
Company-owned Store Expense
Salaries and Benefits 10,855 9,547 31,035 28,906
Other Store Expense 7,106 7,152 20,824 21,046
------- ------- -------- --------
Total Store Expense 17,961 16,699 51,859 49,952
Field Management and Support 4,282 3,489 12,701 10,630
------- ------- -------- --------
Total Costs and Expenses 22,243 20,188 64,560 60,582
Corporate General & Administrative Expenses 1,408 1,451 4,577 4,325
Depreciation and Amortization 1,590 1,419 4,732 3,998
------- ------- -------- --------
INCOME FROM OPERATIONS 2,618 2,840 7,522 6,491
Interest (income) (292) (333) (1,003) (920)
Interest expense 653 548 1,989 1,694
Other (income), net of expenses (219) (207) (801) (757)
------- ------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,476 2,832 7,337 6,474
PROVISION FOR INCOME TAXES,
INCLUDING $1.5 MILLION CHARGE FOR
CHANGE IN ACCOUNTING ESTIMATE
(SEE NOTE 6) 2,327 1,035 4,073 2,272
------- ------- -------- --------
NET INCOME $ 149 $ 1,797 $ 3,264 $ 4,202
------- ------- -------- --------
------- ------- -------- --------
NET INCOME PER COMMON SHARE $ 0.01 $ 0.16 $ 0.29 $ 0.38
------- ------- -------- --------
------- ------- -------- --------
SYSTEM-WIDE SALES $80,143 $75,582 $236,619 $220,299
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
See Exhibit 11 for computation of earnings per share.
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,264 $ 4,202
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,732 3,998
Change in deferred income taxes 5,135 2,336
Changes in assets and liabilities:
Accounts receivable, net (1,027) (229)
Accounts payable and accrued liabilities (936) 2,187
Restructuring liabilities (2,377) --
Other assets and liabilities (3,098) (3,950)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,693 8,544
CASH FLOWS FROM INVESTING ACTIVITIES
Non-current receivables (4,699) (1,971)
Capital expenditures (1,732) (5,283)
Acquisition of stores, net of cash acquired (1,050) (1,163)
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (7,481) (8,417)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under (payments on) revolving line of credit (4,000) --
Other secured debt 5,040 --
Issuance of common stock 582 302
Repayment of other debt and other items (564) (148)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,058 154
------- -------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (730) 281
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF PERIOD 2,054 1,504
------- -------
CASH AND SHORT-TERM INVESTMENTS,
END OF PERIOD $ 1,324 $ 1,785
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid $ 1,986 $ 1,679
Income taxes paid 483 1,135
Liabilities assumed from acquisitions 824 55
------- -------
------- -------
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1.
The accompanying unaudited consolidated financial statements have been prepared
from the records of Supercuts, Inc. and its subsidiaries (the "Company") and, in
the opinion of management, include all adjustments necessary to present fairly
the financial position as of September 30, 1996, and the results of operations
and cash flows for the nine months ended September 30, 1996 and 1995. The
balance sheet as of December 31, 1995 has been prepared from the audited
financial statements of the Company.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from these interim financial statements. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's 1995 Annual Report on Form 10-K.
Management believes the Company's business does not experience any material
seasonality. The Company's quarterly results of operations, however, may
fluctuate as a result of a number of factors, including the timing of new store
openings. The results of operations for the nine months ended September 30,
1996, are not necessarily indicative of the operating results that may be
expected for the year ending December 31, 1996.
NOTE 2.
In 1996, the Company organized its operations management on a geographic basis,
incorporating franchise and Company-owned stores. The Company believes this
will provide better support for its growth in the future. The income statements
for the three and nine months ended September 30, 1995, have been reclassified
to reflect this new organization.
NOTE 3.
In December 1993, the Company entered into an agreement ("Credit Agreement")
with a syndicated bank group ("Banks") for a $30 million revolving line of
credit. The Credit Agreement was amended on March 29, 1996 ("Amended Credit
Agreement"), which is discussed below. The Credit Agreement was composed of
two facilities, a facility which had a maximum availability of $5 million,
expiring in December 1996, and a facility which had a maximum availability of
$22 million through December 1994, increasing to $25 million through
September 1996, decreasing thereafter by $2 million to $3 million quarterly,
expiring in December 1998. The Credit Agreement provided for a variety of
covenants, including that the Company maintain certain levels of tangible net
worth, EBITDA and financial ratios. Borrowings have been used to finance the
growth of the Company's new stores program. At September 30, 1996 and
December 31, 1995, there were $21.3 million and $25.3 million of borrowings
outstanding under the line, respectively.
7
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
Interest on borrowings under this agreement is payable in arrears at each
interest payment date at the base rate, as defined, or at the offshore rate, as
defined, plus in each case, an applicable margin, as well as certain commitment
fees. The weighted average interest rate on the line of credit was 8.7% and
7.7% at September 30, 1996 and December 31, 1995, respectively.
On March 29, 1996, the Company and the Banks executed an Amended Credit
Agreement which amended its $30 million revolving line of credit, and cured
any possible default under the previous covenants. The significant terms are
as follows:
1) Facility A is eliminated in the Amended Credit Agreement and Facility
B will have a maximum availability of $29.3 million. Expiration of
Facility B has been changed from December 31, 1998 to March 31, 1997.
2) Facility B requires a reduction in the maximum availability on the
following dates:
DATE MAXIMUM AVAILABILITY
-------------------- ------------------------
October 15, 1996 $28,325,000
November 15, 1996 27,325,000
December 31, 1996 26,800,000
January 31, 1997 25,800,000
February 28, 1997 24,800,000
3) The Banks receive a security interest in all the assets of the
Company.
4) The Company may purchase stores from investor/franchisee stores for
only up to $2 million to be paid over the term of the amendment.
5) The Company is limited in the amount of its receivable balance with the
investor/franchisees.
On October 28, 1996 the Company retired the outstanding balance due on the
revolving line of credit, and subsequently, terminated the Amended Credit
Agreement.
The Company entered into a Loan and Security Agreement ("Loan") as of
February 1, 1996, with Prime Leasing, Inc., under which the Company borrowed
$5.0 million. The terms of the Loan provide for 60 monthly payments of principal
and interest of approximately $104,000 and a final payment of $580,000. The Loan
is secured by certain store equipment and leasehold improvements.
8
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 4.
In late 1995, a majority of the Board of Directors concluded that it was
appropriate to modify the Company's expansion plans and to replace its Chairman
of the Board and Chief Executive Officer. Future expansion efforts will focus on
expanding with existing franchisees in existing franchise markets. Additionally,
because of the significant operating losses and negative cash flow from
Supercuts New York, Inc. and managed store expansion programs, stores in certain
markets, including metropolitan New York, will be closed or sold to franchisees
or other third parties. The restructuring costs related to these activities,
together with the costs relating to the management transition described above,
total $18.9 million before income taxes, of which $8.0 million relates to non-
cash items. This charge was recorded in the fourth quarter of 1995.
During the nine months ended September 30, 1996, total charges incurred by the
Company related to these restructuring activities were $3.7 million, of which
$1.3 million related to non-cash items. Primarily, the amounts incurred related
to professional fees, severance and costs related to the disposition of assets.
NOTE 5.
On July 14, 1996, the Company signed a merger agreement with Regis Corporation,
a Minneapolis-based owner and operator of 1,950 hair and retail product salons.
The merger was approved by the shareholders of both companies and was completed
on October 25, 1996, as a stock-for-stock transaction. The transaction will be
accounted for as a pooling-of-interest. Refer to Form 8-K dated July 14, 1996,
and Form S-4 dated September 24, 1996, for additional information on the merger
between the Company and Regis Corporation.
NOTE 6.
As reflected in the Statement of Operations for the quarter ended September
30, 1996, the Company has recorded as part of its September 30, 1996 income
tax provision a $1.5 million change in estimate associated with income tax
matters related to years prior to 1996. The change in esxtimate includes
changes resulting from the completion of an I.R.S. examination in the
quarter ended September 30, 1996.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1996, the Company organized its operations management on a geographic basis,
incorporating franchise and Company-owned stores. The Company believes this
will provide better support for its growth in the future. The income statements
for the three and nine months ended September 30, 1995, have been reclassified
to reflect this new organization.
REVENUES. Total revenues increased 7.6% to $27.9 million for the three months
ended September 30, 1996, from $25.9 million for the three months ended
September 30, 1995. Total revenues increased 8.0% to $81.4 million for the nine
months ended September 30, 1996, from $75.4 million for the same period ended
September 30, 1995.
Revenues from Company-owned store sales increased 11% to $21.6 million for
the three months ended September 30, 1996, from $19.4 million for the three
months ended September 30, 1995. Revenues from Company-owned store sales
increased 11% to $62.6 million for the nine months ended September 30, 1996,
from $56.6 million for the nine months ended September 30, 1995. The revenue
increase is primarily the result of an increase in the average number of
Company-owned stores open during the three and nine months ended September
30, 1996, compared to the same periods ended September 30, 1995, as well as
increased volume per store in the New York Metro market.
Franchised and managed store revenues decreased 3.5% to $6.3 million for the
three months ended September 30, 1996, from $6.5 million for the same period
ended September 30, 1995. Franchised and managed store revenues declined
slightly to $18.7 million for the nine months ended September 30, 1996, from
$18.8 million for the same period ended September 30, 1995. The decrease for
the three month period is attributable to a net 10 fewer new store openings
(17 fewer Investor/Franchisee offset by 7 additional Franchisee) in the third
quarter of 1996 as compared to the third quarter of 1995.
System-wide sales increased 6.0% and 7.4% for the three and nine months ended
September 30, 1996, respectively, increasing from $75.6 million to $80.1 million
for the three months ended September 30, 1995, and 1996, respectively, and from
$220.3 million to $236.6 million for the nine months ended September 30, 1995,
and 1996, respectively. This increase in System-wide sales is the result of the
total number of stores in the system increasing from 1,126 at September 30, 1995
to 1,172 at September 30, 1996. System-wide comparable store sales for the nine
months ended September 30, 1996, increased 2.6%.
COSTS AND EXPENSES. Costs and expenses for Company-owned stores include all
in-store operating expenses. Costs and expenses for Company-owned stores
increased 7.6% to $18.0 million for the three months ended September 30,
1996, from $16.7 million for the same period in 1995. Costs and expenses for
Company-owned stores increased 3.8% to $51.9 million for the nine months
ended September 30, 1996,
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
from $50.0 million for the same period in 1995. The increases were due
primarily to an increase in the average number of Company-owned stores in
operation in 1996. However, Company-owned store expenses decreased as a
percentage of sales to 83.3% from 86.2% for the three months ended September 30,
1996 and 1995, respectively, and to 82.8% from 88.3% for the nine months ended
September 30, 1996, and 1995, respectively. This represents a 2.9 and 5.5 point
decline for the two comparative periods, respectively. This was due primarily to
controlling store costs, especially salaries and benefits, relative to the
increase in Company-owned store sales.
Costs and expenses for Field management and support include training, marketing
and administrative expenses related to supporting stores system-wide. These
costs and expenses increased 23% from $3.5 million for the three months ended
September 30, 1995, to $4.3 million for the same period in 1996. These costs and
expenses increased 19% from $10.6 million for the nine months ended September
30, 1995, to $12.7 million for the same period in 1996. This increase was
primarily the result of an increased level of field support necessitated by the
net addition of 136 stores to the system since December 1994.
Corporate general & administrative expenses decreased 3.0% from $1.5 million for
the three months ended September 30, 1995, to $1.4 million for the same period
in 1996. These expenses increased 5.8% from $4.3 million for the nine months
ended September 30, 1995, to $4.6 million for the same period in 1996. This nine
month increase was due to increases in professional and consulting fees that the
Company incurred during the first quarter change in its organization.
Income from operations decreased 7.8% to $2.6 million for the three months ended
September 30, 1996, from $2.8 million for the three months ended September 30,
1995. Income from operations increased 16% to $7.5 million for the nine months
ended September 30, 1996, from $6.5 million for the nine months ended September
30, 1995, for the reasons noted above.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three and nine months ended
September 30, 1996 depreciation and amortization expense was $1.6 million and
$4.7 million, respectively, an increase of 12% and 18%, respectively, over the
comparable periods in 1995. This was due to an increase in the average number of
company-owned stores in operation from September 1995 to September 1996.
INTEREST INCOME. Interest income decreased 12% from $333 thousand to $292
thousand for the three months ended September 30, 1995, and 1996, respectively.
Interest income increased 9% from $920 thousand to $1.0 million for the nine
months ended September 30, 1995, and 1996, respectively. The increase for the
nine month period was due primarily to an increase in the notes receivable
balances due to the Company from the Investor/Franchise stores, offset by a
decrease in the same notes receivable balances in the third quarter as a result
of the acquisition by the Company of 28 Investor/Franchise stores.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE. Interest expense increased 19% from $548 thousand for the
three months ended September 30, 1995, to $653 thousand for the same period in
1996. Interest expense increased 17% from $1.7 million for the nine months
ended September 30, 1995, to $2.0 million for the same period in 1996. This
increase is primarily the result of higher debt balances carried by the Company
during the first nine months of 1996 as compared to the same period in 1995.
INCOME TAXES. The effective tax rate is 55.5% for the nine months ended
September 30, 1996, an increase of 20 percentage points from the comparable
period in 1995. This increase is due to a charge of $1.5 million for changes
in accounting estimates of the Company's income tax liabilities, based on the
completion of a recent I.R.S. examination. Absent this one-time change in
accounting estimates, the tax rate for the nine months ended September 30,
1996 would have approximated the prior year's rate.
NET INCOME. Net income decreased 98% to $149 thousand for the three months
ended September 30, 1996, when compared to the three months ended September 30,
1995, and decreased 22% to $3.3 million for the nine months ended September 30,
1996, when compared to the nine months ended September 30, 1995, for the reasons
noted above.
Excluding the impact of the change in accounting estimate for tax
liabilities, discussed above, net income would have decreased 8.2% to $1.6
million for the three months ended September 30, 1996, when compared to the
three months ended September 30, 1995, and would have increased 13% to $4.8
million for the nine months ended September 30, 1996, when compared to the
nine months ended September 30, 1995, for the reasons noted above.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operating activities for the nine months ended September 30,
1996, totaled $5.7 million while cash generated by operating activities totaled
$8.5 million for the nine months ended September 30, 1995, as the Company
pursues its restructuring plans which reduced cash generated by operating
activities by $2.4 million. Capital expenditures for the same periods totaled
$1.7 million and $5.3 million, respectively.
Subsequent to the Company's acquisition by Regis Corporation, on October 28,
1996, the Company retired the outstanding balance due on its revolving line
of credit and terminated the respective agreement with its lenders.
The following table shows the number of stores in the Supercuts system for the
dates shown and the change in stores during the nine months ended September 30,
1996:
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
STORE COUNT
Investor/Franchisee
Company-owned Stores Managed Franchise
Stores by the Company Stores Total
- --------------------------------------------------------------------------------
September 30, 1995 355 134 637 1,126
===== === ==== =====
December 31, 1995 369 141 653 1,163
Openings 6 -- 27 33
Transfer to
Franchisee Control (63) -- 63 --
Acquisitions 48 (46) (2) --
Closed (8) (5) (11) (24)
----- --- ---- -----
September 30, 1996 352 90 730 1,172
===== === ==== =====
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 13, 1996, Mr. David E. Lipson and DEL Holding Corporation ("DEL"), a
Nevada corporation, which the Company believes is wholly owned by Mr. Lipson,
brought legal action against the Company and certain of its directors and
officers. The initial lawsuit, prior to subsequent amendments, sought
payment of $3 million, allegedly due to DEL pursuant to a Consulting
Agreement dated as of August 22, 1995, between the Company and DEL. The
initial lawsuit also sought unspecified damages allegedly sustained by Mr.
Lipson as a result of a delay in his ability to sell 1,508,220 shares of the
Company's common stock, which were sold by him between February 20 and
February 28, 1996, because of the Company's refusal to remove restrictive
legends from certificates representing such stock. According to his lawsuit,
Mr. Lipson sold the number of shares noted for an aggregate of $7.8 million,
or a reported average price of $5.20 per share. The Company's common stock
price range for the month of February, 1996, was a high of 7-3/8, a low of
5-1/8 and a close of 5-1/8. All matters that were heard in the United States
District Court for the Northern District of Illinois, Eastern Division, Case
No. 96C-0822, are currently on appeal in the United States Court of Appeals
for the Seventh Circuit. In the opinion of management, the outcome of the
litigation will not have a material adverse effect on the Company's financial
position or its results of operations.
Mr. Lipson has filed a claim against the Company in the Circuit Court of Cook
County, Illinois alleging that the Company has defamed him. Mr. Lipson requests
a judgment "in excess of $200 million." The Company believes the claim is
without merit and will defend the claim vigorously.
Mr. Lipson has also filed suit against the Company in the Court of Chancery of
the State of Delaware seeking advancement of expenses incurred by him in certain
litigation and other proceedings. The Company is defending the suit and does
not expect it to have a material adverse effect on the Company.
ITEM 5. OTHER INFORMATION
On July 14, 1996, the Company signed a merger agreement with Regis Corporation,
a Minneapolis-based owner and operator of 1,950 hair and retail product salons.
The merger was approved by the shareholders of both companies and was completed
on October 25, 1996, as a stock-for-stock transaction. The transaction will be
accounted for as a pooling of interest. Refer to Form 8-K dated July 14, 1996,
and Form S-4 dated September 24, 1996, for additional information on the merger
between the Company and Regis Corporation.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------
2.47 Certificate of Merger, dated October 25, 1996, between Supercuts,
Inc., a Delaware Corporation, and RGIS Merger Corporation
10.40 Master Development and Franchise Agreement and related Promissory
Note and Guaranty, dated August 12, 1996, by and between
Superbroward, L.L.C., a Delaware limited liability company, and
Supercuts, Inc., a Delaware Corporation
10.41 Master Development and Franchise Agreement and related Promissory
Note and Guaranty, dated September 9, 1996, by and between La
Carina Supercuts, Inc., a Florida Corporation, and Supercuts,
Inc., a Delaware Corporation
11 Computation of Earnings per Share.
REPORT ON FORM 8-K
- ------------------
None.
15
<PAGE>
SUPERCUTS, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1996 1995 1996 1995
------- -------- -------- -------
Net Earnings $ 149 $ 1,797 $ 3,264 $ 4,202
------- -------- -------- -------
------- -------- -------- -------
Weighted average number
of outstanding shares 11,236 11,173 11,205 11,162
------- -------- -------- -------
------- -------- -------- -------
Earnings per common
share $ 0.01 $ 0.16 $ 0.29 $ 0.38
------- -------- -------- -------
------- -------- -------- -------
Common stock equivalents are considered immaterial for the periods presented.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERCUTS, INC.
------------------------------------
Registrant
Date: November 14, 1996 ------------------------------------
John R. Conlisk, Jr.
Senior Vice President
Chief Financial Officer
(Duly authorized officer and
principal financial officer
of the registrant.)
17
<PAGE>
CERTIFICATE OF MERGER
OF
RGIS MERGER CORP.
INTO
SUPERCUTS, INC.
Pursuant to Section 251 of the Delaware General Corporation Law, the
undersigned chairman and secretary of Supercuts, Inc., a Delaware corporation,
hereby certify that:
1. The constituent corporations are: RGIS Merger Corp., a Delaware
corporation and Supercuts, Inc., a Delaware corporation.
2. An agreement of merger has been approved, adopted, certified,
executed, and acknowledged by each of the constituent corporations in
accordance with section 251(c) of the Delaware General Corporation Law.
3. Supercuts, Inc. shall be the surviving corporation.
4. The certificate of incorporation of the surviving corporation shall be
in the form attached hereto as Annex A.
5. The executed agreement of merger is on file at the principal office of
Supercuts, Inc. at 7201 Metro Boulevard, Minneapolis, Minnesota 55439.
6. A copy of the agreement of merger will be furnished by Supercuts,
Inc., on request and without cost, to any stockholder of any constituent
corporation.
IN WITNESS WHEREOF, Supercuts, Inc. has caused this certificate to be
executed by Thomas L. Gregory, its chairman and attested by Lawrence Imber, its
secretary, this 25th day of October, 1996.
SUPERCUTS, INC.
By: /s/ Thomas L. Gregory
--------------------------
Thomas L. Gregory
Its: Chairman
ATTEST:
By: /s/ Lawrence Imber
--------------------------
Lawrence Imber
Its: Secretary
<PAGE>
ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUPERCUTS, INC.
ARTICLE 1
The name of the corporation is Supercuts, Inc. ("Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Zip Code 19801. The name of the registered
agent at such address is The Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE 4
The aggregate number of shares which the Corporation shall have
authority to issue is one thousand (1,000), consisting of one class only,
designated as "Common Stock", $1.00 par value.
ARTICLE 5
The duration of the Corporation is perpetual.
ARTICLE 6
Except as the Board of Directors may otherwise determine from time to
time, the holders of stock of the Corporation shall have no preemptive rights to
subscribe for any class of stock of the Corporation, whether now or hereafter
authorized.
ARTICLE 7
The number of directors of the Corporation shall initially be one (1),
and thereafter the number of directors shall be such number (one or more) as may
be fixed from time to time by the By-Laws of the Corporation.
<PAGE>
ARTICLE 8
The Board of Directors shall have the following powers, in addition to
those prescribed by law or by the By-Laws of the Corporation:
(A) To make, alter, amend and repeal the By-Laws of the
Corporation, to the extent permitted by the law of the State of Delaware.
(B) Subject to the provisions of the laws of the State of
Delaware, to hold their meetings either within or without the State of Delaware,
to have one or more offices, and to keep the books of the Corporation outside
the State of Delaware, and at such place or places as may from time to time be
designated by them.
ARTICLE 9
Elections of directors need not be by written ballot except and to the
extent provided by the By-Laws of the Corporation.
ARTICLE 10
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; providing, however, that the foregoing clause shall not apply to any
liability of a director (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 the law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
ARTICLE 11
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred on
stockholders, directors or officers are subject to this reserved power.
<PAGE>
MASTER DEVELOPMENT AND FRANCHISE AGREEMENT
THIS MASTER DEVELOPMENT AND FRANCHISE AGREEMENT (the "Agreement") is made
and entered into this 12TH day of August, 1996, by and between SUPERCUTS,
INC., a Delaware corporation, with its principal business address at 550
California Street, San Francisco, California 94104 (the "Company"), and
SUPERBROWARD, L.L.C., a Delaware limited liability company, whose principal
business address is P.O. BOX 5577 CONCORD, CA 94524 ("Franchisee").
RECITALS
Franchisee has expressed an interest in acquiring and developing additional
Supercuts Store franchises in the Broward County, Florida market (the "Market").
Company, through its wholly-owned subsidiary, Supercuts Corporate Shops,
Inc. (which is included in the references to "Company"), currently owns and
operates 26 Supercuts Stores in the Market and one Supercuts Store in Miami
Lakes, Dade County, Florida, the addresses of which are listed in Exhibit A to
this Agreement (the "Corporate Stores").
Franchisee desires to acquire franchises for the Corporate Stores and to
develop and open additional Supercuts Store franchises in the Market and is
willing to comply with this Agreement's terms and conditions in order to receive
these rights.
Company is willing to grant franchises to Franchisee for the Corporate
Stores and to grant Franchisee the right to develop and open additional
Supercuts Store franchises in the Market if Franchisee complies with this
Agreement's terms and conditions.
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained in this Agreement and the other agreements and documents that this
Agreement references, Company and Franchisee agree as follows:
1. Subject to this Agreement's terms and conditions, Company hereby
grants Franchisee the right to operate the Corporate Stores as franchises. To
reflect these franchises, Company and Franchisee are, concurrently with the
signing of this Agreement, also signing 27 separate Franchise Agreements, one
for each Corporate Store, that will regulate Franchisee's operation of those
Stores according to Company's standards, specifications and operating
procedures. The form of Franchise Agreement that Company and Franchisee are
signing for each Corporate Store, which is Company's current standard form of
Franchise Agreement, is attached as Exhibit B. Each Franchise Agreement also
will include a Rider in the form attached as Exhibit C. Company retains title
to all fixed assets and leasehold improvements of the Corporate Stores unless
and until Franchisee exercises the buyout option described in Section 8.
However, Company is selling to Franchisee all of the retail supplies/inventory,
and transferring to Franchisee all of the petty cash, now located at the
Corporate Stores. Company agrees to reduce the amounts owed by Franchisee for
these items by the value of any vacation time accrued by the employees of the
<PAGE>
Corporate Stores. Company and Franchisee agree to determine the amounts due for
the retail supplies/inventory and petty cash, and the value of all accrued
vacation time, within fifteen days after this Agreement's date. The remaining
amount due to Company or Franchisee, as applicable, must be paid within 15 days
after the parties determine that amount. Despite the foregoing, Franchisee need
not pay for the "backbar" supplies (I.E., the non-retail inventory) located at
the Corporate Stores.
2. Subject to this Agreement's terms and conditions, Company hereby
grants Franchisee the right to occupy the premises of each Corporate Store
during the term of the Franchise Agreement for that Store. To reflect these
occupancy rights, Company and Franchisee are, concurrently with the signing of
this Agreement, also signing 27 separate Subleases, one for each Corporate
Store, that will regulate Franchisee's occupancy of those Stores. Franchisee
will make all required Sublease payments directly to Company, which then will
pay the landlord of each Store. However, if Company fails to make any Sublease
payment and to cure that default within the time period specified in the lease
after notice from the Store's landlord, Franchisee may make such Sublease
payment and set off that amount against the payments Franchisee must make under
this Agreement. The form of Sublease that Company and Franchisee are signing
for each Corporate Store, which is Company's current standard form of Sublease,
is attached as Exhibit D. Each Sublease also will include a Rider in the form
attached as Exhibit E.
3. Subject to this Agreement's terms and conditions, Company hereby
grants Franchisee the right, and Franchisee hereby undertakes the obligation, to
develop and open 15 additional Supercuts Store franchises (the "Additional
Stores") within the Market on or before December 31, 1998. Franchisee further
agrees to develop and open at least five of these 15 Additional Stores before
the one year anniversary of this Agreement. To reflect these development
rights, Company and Franchisee are, concurrently with the signing of this
Agreement, also signing a separate Area Development Agreement that will
incorporate the terms of this Agreement and this development schedule and,
together with Company's existing "Supercuts Expansion Policy," regulate
Franchisee's development of these Additional Stores within the Market according
to Company's standards, specifications and operating procedures. The form of
Area Development Agreement that Company and Franchisee are signing, which is
Company's current standard form of Area Development Agreement, is attached as
Exhibit F. The Area Development Agreement also will include a Rider in the form
attached as Exhibit G. The forms of Franchise Agreement and Sublease that
Franchisee will sign for each Additional Store it develops under the Area
Development Agreement will be (at Company's option) either (a) the forms of
Franchise Agreement and Sublease attached as Exhibits B and D or (b) Company's
then current forms of Franchise Agreement and Sublease offered to all
prospective franchisees (if Company modifies those documents after the date of
this Agreement), although Franchisee will sign the same forms of Franchise
Agreement and Sublease for each Additional Store it develops under the Area
Development Agreement and sign Riders to those documents substantially in the
form attached as
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<PAGE>
Exhibit H. Franchisee may apply to the Development Fees due
under the Area Development Agreement the $50,000 in development fees that it
already has credited but not applied under its existing area development
agreement for Dade County, Florida. If one of the Additional Stores that
Franchisee develops and opens under this Section 3 is destroyed or otherwise
rendered inoperable through no fault of Franchisee, Company will continue to
count that Additional Store as one of the 15 Additional Stores that Franchisee
must develop by December 31, 1998 if Franchisee replaces that Store within one
year after the Store is destroyed or rendered inoperable. If Franchisee fails
to do so, its failure will be a default of its development obligations under
this Section 3.
4.(a) Notwithstanding anything to the contrary contained in the forms
of Franchise Agreement and Sublease attached as Exhibits B and D, the
initial term of the franchise for each Corporate Store that Company is
granting under Section 1 above will be 10 years, except as provided in
subparagraph (b) and Section 8 below, and, when that initial term expires,
Franchisee will have the right to renew all franchises for an additional 10
year term on the same terms and conditions under which Franchisee then is
operating those Corporate Store franchises, provided Franchisee remodels
those Corporate Stores to conform to Company's then current standards for
Supercuts Stores. If Franchisee elects to renew these franchises, it must
renew all of the franchises. Franchisee may not elect to renew the
franchises for some, but not all, of the Corporate Stores. Despite the
foregoing provisions, Company and Franchisee acknowledge and agree that the
terms of the Subleases for the premises of the Corporate Stores, including
any renewal rights under those Subleases, might not exceed 10 years. If
Company cannot maintain legal possession of the premises of one or more
Corporate Stores for at least the 10 year term of this Agreement, Company
agrees to allow Franchisee to relocate those Corporate Stores to acceptable
substitute premises for which Company will sign leases and then sublease to
Franchisee. The initial and renewal terms of any Additional Store
franchises that Franchisee acquires under the Area Development Agreement
referenced in Section 3 will be as provided in the Franchise Agreements and
Subleases that Franchisee signs for those Stores, as modified by the forms
of Riders attached as Exhibit H.
(b) The initial term of the franchise for each Corporate Store will
be less than 10 years if Franchisee (i) exercises its buyout option under
Section 8 below or (ii) breaches any provision of this Agreement and
Company exercises its termination rights and/or buyout option under
Section 10 below.
5. After the date of this Agreement, Franchisee is responsible for all of
the costs and expenses of operating the Corporate Stores (even though Company
retains title to all fixed assets and leasehold improvements), including the
costs of insurance coverage of the type that Company customarily requires for
its own Supercuts Stores (with Company named as an additional insured
L-3
<PAGE>
and co-loss payee), and for all liabilities that arise during the operation of
the Corporate Stores. Concomitantly, Franchisee will have the right, except as
otherwise provided in Sections 6 and 7, to all revenue that the Corporate Stores
generate.
6. As partial consideration for Company's willingness to allow Franchisee
to operate the Corporate Stores as franchises, and notwithstanding anything to
the contrary contained in the Franchise Agreements for the Corporate Stores,
Franchisee agrees to pay Company during this Agreement's term the annual amount
of $1.54 million. Franchisee agrees to pay this amount in equal monthly
installments of $128,333.33. Each monthly installment is due on or before the
tenth day of each calendar month, with the first of such payments due September
10, 1996. The payment due for the month in which the parties sign this
Agreement will be prorated for the number of days during that month that
Franchisee actually operates the Corporate Stores. These lump sum payments are
in place of the royalty fees payable under the Franchise Agreements for the
Corporate Stores. However, if the Corporate Stores generate, in the aggregate,
more than $6.5 million in Gross Revenue (as defined below) during any calendar
year during this Agreement's term before the date on which Franchisee
effectively exercises its rights under Section 8 or Company exercises its rights
under Section 9, Franchisee also agrees to pay a royalty on the excess revenue
equal to 10% of the excess related to services provided and 4% of the excess
related to product sales. Franchisee will begin paying this royalty on the
service and product sales made during the month following the calendar month in
which Franchisee's aggregate Gross Revenue from all Corporate Stores first
exceeds $6.5 million. All amounts which Franchisee owes Company under this
Agreement will bear interest after their original due date at the highest
contract rate of interest that the law allows, not to exceed 18% per year.
"Gross Revenue" means the total gross revenue Franchisee derives in accordance
with such accounting practices and procedures as Company determines and requires
with respect to the operation of Supercuts Stores, whether from sales for cash
or credit, and without regard to the source of payment thereof or the collection
thereof, or the cost of collection, including the sales of all merchandise and
services but excluding all sales, use, gross receipt and other similar taxes
added to the sales price and collected from the customer and less any bona fide
refunds. The term "sales of all merchandise and services" shall be construed in
its most comprehensive sense.
7. As additional consideration for Company's willingness to allow
Franchisee to operate the Corporate Stores as franchises, Franchisee will assume
payments to Prime Leasing, Inc. in the amount of $8,040 per month through May
2000 ($96,481 per year), with a final lump sum payment to Prime Leasing, Inc. of
$45,712 due in June 2000. While Franchisee is primarily responsible for these
Prime Leasing, Inc. payments, Company agrees to advance funds, and make the
monthly Prime Leasing, Inc. payments, on Franchisee's behalf through December
1998. To reflect these payments, Company and Franchisee are, concurrently with
the signing of this Agreement, also signing a Promissory Note in which
Franchisee agrees to repay Company on January 1, 1999 the principal amount of
$233,160, which equals the amount that Company will pay
L-4
<PAGE>
Prime Leasing, Inc. on Franchisee's behalf from this Agreement's date through
December 1998. Franchisee agrees to pay Company on a monthly basis in cash
the interest that accrues on the amounts that Company advances on
Franchisee's behalf. Interest will accrue as noted in the Promissory Note.
The form of Promissory Note that Franchisee will sign is attached as Exhibit I.
Franchisee agrees that, beginning January 1, 1999, it will make the
monthly and lump sum payments noted above directly to Company, which then
will make the required payments to Prime Leasing, Inc.
8. If Franchisee fully complies with this Agreement, the Franchise
Agreements for the Corporate Stores, the Area Development Agreement and the
Franchise Agreements for the Additional Stores (or has fully cured any defaults
which it has the right to cure), Franchisee will have the right, at any time
after December 31, 1998 and before the tenth anniversary date of this Agreement
(but only as of the end of a calendar month), to purchase the assets of the
Corporate Stores, to terminate this Agreement, to terminate the Franchise
Agreements, Subleases and related documents for the Corporate Stores and to
replace them with new Franchise Agreements, Subleases and related documents (the
standard terms of which will govern the operation of those Stores) and to cease
paying the annual $1.54 million amount referenced in Section 6 by paying Company
the buyout price described below (the "Buyout Price"). If Franchisee exercises
this right, Franchisee must exercise the right with respect to all of the
Corporate Stores. Franchisee may not elect to exercise the right with respect
to only some, but not all, of the Corporate Stores. The Additional Stores are
not affected by Franchisee's exercise of this right.
The Buyout Price equals the sum of:
(a) three times the greater of:
(i) cash flow (as defined below); or
(ii) $1.54 million; plus
(b) the undepreciated buildout/net book value of the assets of the
Corporate Stores (the value of which Company periodically will
apprise Franchisee upon reasonable request); plus
(c) all remaining Prime Leasing, Inc. payments.
"Cash flow," for purposes of subparagraph (a)(i) above, means the cash that
Franchisee receives from operating all Corporate Stores during the full 12
calendar month period preceding the date on which Franchisee notifies
Company that it desires to exercise its rights under this Section, less
rent paid under the Subleases, less any Advertising Fund
L-5
<PAGE>
contributions paid under the Franchise Agreements for the Corporate Stores
and less other customary profit and loss statement expenses recognized by
generally accepted accounting principles (but not capitalizable balance
sheet items), provided, however, that Franchisee may not deduct from cash
receipts the amounts that it pays to its owners (whether classified as
salary or otherwise), the amounts it pays Company under this Agreement,
including the Prime Leasing, Inc. payments, and non-cash charges such as
depreciation and amortization of fixed or intangible assets. If Company
and Franchisee cannot agree on the calculation of cash flow for the
Corporate Stores, Company's independent certified public accountants will
determine the cash flow for these Stores, and their decision will bind the
parties. This determination will be made at Company's expense. If
Franchisee exercises its buyout right, Company will give Franchisee
customary bills of sale and similar transfer documents. All assets will be
sold on an "as is, where is" basis with no warranties of condition,
merchantability or the like.
9. If Franchisee does not (a) by the tenth anniversary date of this
Agreement, exercise the buyout option described in Section 8 or (b) renew the
Franchise Agreements, Subleases and related documents for the Corporate Stores
for an additional 10 year term after the initial term expires, then:
(i) Franchisee's right to operate the Corporate Stores as franchises
will cease immediately;
(ii) all rights to operate the Corporate Stores will revert
immediately to Company without any payment of any kind; and
(iii) Company will have the right to purchase all of Franchisee's
Additional Stores for an amount equal to the sum of three times
cash flow of the Additional Stores, determined as in Section 8
above, plus the undepreciated buildout/net book value of the
fixed assets of the Additional Stores (all fixed assets to be
depreciated over their estimated useful lives, but no longer than
10 years). Company has the right to receive the same transfer
documents referenced in Section 8.
10. Company also has the right to terminate this Agreement and exercise
immediately the rights described in Section 9 if Franchisee fails at any time to
perform any of its obligations under this Agreement, including, but not limited
to, (a) operating the Corporate Stores as required under this Agreement and the
Franchise Agreements, Subleases and related documents that Franchisee signs for
the Corporate Stores, (b) developing, opening and operating the Additional
Stores as required under this Agreement, the Area Development Agreement and the
Franchise Agreements, Subleases and related documents that Franchisee signs for
the Additional Stores and
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<PAGE>
(c) making all payments required under this Agreement, and fails to cure any
of the defaults identified in subparagraphs (a) through (c) above within 10
days after receiving notice of that default from Company, provided, however,
that Company need not provide Franchisee with any notice of and opportunity
to cure a default, and may terminate this Agreement immediately and exercise
its rights under Section 9, if Franchisee commits its second default within
any 12 month period during this Agreement's term.
11. The term of this Agreement is 10 years, unless earlier terminated
under Sections 8 or 10.
12. Concurrently with the signing of this Agreement, each of Franchisee's
owners will sign the form of Guaranty attached as Exhibit J in which they will
guarantee Franchisee's obligations under this Agreement and all other agreements
that Franchisee signs for the Corporate Stores and Additional Stores. These
Guaranties will be secured by Pledge and Security Agreements in the form
attached as Exhibit K that each owner will sign concurrently with the execution
of his or her Guaranty. Franchisee also will sign a Security Agreement in the
form attached as Exhibit L covering all of its personal property.
13. EXCEPT TO THE EXTENT GOVERNED BY FEDERAL LAW, THIS AGREEMENT WILL BE
GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ITS CONFLICT
OF LAWS PRINCIPLES. IF AND TO THE EXTENT THAT THE PARTIES AGREE NOT TO PROCEED
BY MEANS OF ARBITRATION OR ARE NOT REQUIRED TO PROCEED BY ARBITRATION,
FRANCHISEE WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY OTHER
DOCUMENT SIGNED CONCURRENTLY WITH OR PURSUANT TO THIS AGREEMENT. FRANCHISEE
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
SAN FRANCISCO COUNTY, CALIFORNIA, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO FRANCHISEE AT THE ADDRESSES PROVIDED IN SECTION 20 BELOW.
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE (3) BUSINESS DAYS AFTER
THE SAME SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES MAILS, POSTAGE PREPAID.
FRANCHISEE WAIVES ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED UNDER THIS
SECTION AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY THE COURT.
14. This Agreement is binding upon Company and Franchisee and their
respective assigns and successors in interest and may not be modified except by
a written agreement signed by
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<PAGE>
both Company and Franchisee. Franchisee may not assign this Agreement or any
of its rights or obligations under this Agreement, and no owner of Franchisee
may assign an ownership interest in Franchisee, without Company's prior
written consent, which Company may withhold or grant for any or no reason
and, if it grants its consent, condition on Franchisee's sale or assignment
of all of its rights and responsibilities under all documents signed
concurrently with or pursuant to this Agreement. Company may assign this
Agreement without restriction.
15. Company 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 to the other or any other effective
date stated in the notice of waiver. Any waiver Company grants will be without
prejudice to any other rights it may have, will be subject to its continuing
review and may be revoked, in its sole discretion, at any time and for any
reason, effective upon delivery to Franchisee of ten (10) days' prior written
notice.
Company and Franchisee will not be deemed to have waived or impaired any
right, power or option this Agreement reserves (including, without limitation,
Company's right to demand exact compliance with every term, condition and
covenant or to declare any breach to be a default and to terminate this
Agreement and all other documents that Company and Franchisee are signing
concurrently with or pursuant to this Agreement before their terms expire) by
virtue of any custom or practice at variance with this Agreement's terms;
Company's or Franchisee's failure, refusal or neglect to exercise any right
under this Agreement or to insist upon the other's exact compliance with its
obligations under this Agreement; Company's waiver, forbearance, delay, failure
or omission to exercise any right, power or option, whether of the same, similar
or different nature, with other Supercuts Store franchisees; the existence of
other agreements for Supercuts Stores which contain provisions different from
those this Agreement contains; or Company's acceptance of any payments due from
Franchisee after any breach of this Agreement. Company and Franchisee agree
that, if Franchisee commits a default under any Franchise Agreement, Rider,
Sublease or other document signed concurrently with or pursuant to this
Agreement, but that default is not so serious in Company's sole discretion as to
warrant Company's termination of this Agreement and exercise of the rights
described in Sections 9 and 10 above, Company may elect to pursue Franchisee for
that specific default and need not exercise all of its rights under this
Agreement. However, that decision will not preclude Company, in the event of
another default, from exercising any and all rights under this Agreement.
16. If any part of this Agreement is declared by a court or arbitrator to
be invalid, unenforceable or unlawful for any reason, that decision will not
affect the validity, enforceability or lawfulness of any other part or the rest
of this Agreement, which will continue in full force and effect and bind the
parties as though the invalid, unenforceable or unlawful part was not contained
in the Agreement.
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<PAGE>
17. Except as provided below, all controversies, disputes or claims
between Company and Franchisee in connection with, arising from or with respect
to: (a) any provision of this Agreement or any other related agreement; (b) the
relationship of the parties; or (c) the validity of this Agreement or any other
related agreement, or any provision of such agreement, which is not resolved
within 15 days after either party notifies the other in writing of such
controversy, dispute or claim, shall be submitted for arbitration to the San
Francisco, California office of the American Arbitration Association on demand
of either party. The arbitration proceedings will be conducted in San
Francisco, California and heard by one arbitrator in accordance with the then
current Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator has the right to award or include in his or her award any relief
which he or she deems proper in the circumstances, including, without
limitation, money damages (with interest on unpaid amounts from date due),
specific performance, injunctive relief and attorneys' fees. The award and
decision of the arbitrator will be conclusive and binding upon all parties, and
judgment upon the award may be entered in any court of competent jurisdiction.
The parties acknowledge and agree that any arbitration award may be enforced
against either or both of them in a court of competent jurisdiction, and each
waives any right to contest the validity or enforceability of the award. The
parties further agree to be bound by the provision of any statute of limitations
which otherwise would be applicable to the controversy, dispute or claim which
is the subject of the arbitration proceeding. Without limiting the foregoing,
the parties are entitled in any arbitration proceeding to the entry of an order
by a court of competent jurisdiction pursuant to an opinion of the arbitrator
for specific performance of any of the requirements of this Agreement. This
provision will continue in full force and effect subsequent to and
notwithstanding expiration or termination of this Agreement. 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.
Despite Company's and Franchisee's agreement to arbitrate, each has the
right in a proper case to seek temporary restraining orders and temporary or
preliminary injunctive relief from a court of competent jurisdiction; provided,
however, that Company and Franchisee must contemporaneously submit their dispute
for arbitration on the merits as provided in this Section.
18. Company's and Franchisee's rights under this Agreement are cumulative,
and either party's exercise or enforcement of any right or remedy under this
Agreement will not preclude its exercise or enforcement of any other right or
remedy under this Agreement which Company or Franchisee is entitled by law to
enforce.
19. The recitals and exhibits are a part of this Agreement which, together
with the documents that Company and Franchisee are signing concurrently with
this Agreement, constitutes Company's and Franchisee's entire agreement and
supersedes all prior negotiations, representations, inducements, promises or
agreements, oral or otherwise.
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<PAGE>
20. All notices and reports to Company and Franchisee, if not personally
served, shall be deemed so delivered the same business day after sending by
telegraph, facsimile or comparable electronic system, one business day after
deposit with Federal Express or a comparable overnight courier company or three
days after being placed in the U.S. mail by registered or certified mail, return
receipt requested. All notices must be sent postage prepaid and addressed to
the respective party at the addresses noted on page 1 above or as either party
otherwise designates in writing from time to time.
21. COMPANY AND FRANCHISEE INTEND THIS AGREEMENT, ALL OTHER AGREEMENTS AND
DOCUMENTS SIGNED CONCURRENTLY WITH THIS AGREEMENT AND ALL OTHER AGREEMENTS AND
DOCUMENTS TO BE SIGNED PURSUANT TO THE RIGHTS GRANTED BY THIS AGREEMENT
(INCLUDING, BUT NOT LIMITED TO, FRANCHISE AGREEMENTS, RIDERS AND SUBLEASES FOR
CORPORATE STORES AND ADDITIONAL STORES) TO BE PART OF ONE INTEGRATED TRANSACTION
AND NOT SEPARATE TRANSACTIONS. IN THE EVENT OF A CONFLICT BETWEEN THIS
AGREEMENT AND ANY OTHER AGREEMENT, THIS AGREEMENT WILL PREVAIL.
SUPERCUTS, INC., a Delaware SUPERBROWARD, L.L.C., a Delaware
corporation limited liability company
By: /s/ Daniel M. Lechin By: /s/ Kathryn Ecenbarger
---------------------------------- ----------------------------
Its: Senior Vice President its:
---------------------------------- ----------------------------
Dated: August 23, 1996 Dated: August 23, 1996
---------------------------------- ----------------------------
L-10
<PAGE>
PROMISSORY NOTE
$233,160 August 12, 1996
FOR VALUE RECEIVED, SUPERBROWARD, L.L.C., a Delaware limited liability
company (Superbroward, L.L.C., its successors and assigns are hereinafter
collectively referred to as "Maker") promises to pay to the order of SUPERCUTS,
INC. (Supercuts, Inc., its successors and assigns are hereinafter collectively
referred to as "Lender") at its office at 550 California Street, San Francisco,
California, 94104, or such other place as the holder hereof may from time to
time appoint in writing, in lawful money of the United States of America, the
principal sum of TWO HUNDRED THIRTY-THREE THOUSAND, ONE HUNDRED SIXTY DOLLARS
($233,160), or, if less, the aggregate unpaid principal amount as may be
outstanding pursuant to the Master Agreement (as hereinafter defined) together
with interest on the principal balance from time to time unpaid at the rate of
the Prime Rate (as hereinafter defined). From and after the occurrence of an
Event of Default under the Master Agreement the outstanding principal amount
hereof shall bear interest at the rate of the Prime Rate plus four percent (4%).
Interest will be computed on the daily principal balance outstanding during the
period from the last payment date to the current payment date. Interest shall
be the product resulting when multiplying the rate of interest by the principal
balance outstanding, dividing by 360 and then multiplying by the actual number
of days interest has accrued. Advances of the principal evidenced by this Note
made by Lender to Maker and all payments made on account of the principal
thereof will be recorded by Lender in its records or, at its option, on the
attached schedule to this Note.
"Prime Rate" shall be the highest of the prime rates of interest as
reported in the Money Rate Section of the WALL STREET JOURNAL on the last
business day of the month for which an interest payment is to be made. If the
WALL STREET JOURNAL no longer publishes the Prime Rate as an index, Lender may
substitute a comparable index, including the prime rate or reference rate of a
financial institution selected by Lender.
Accrued interest on this Note shall be payable in arrears upon the receipt
by Maker of a statement from Lender, but in no event later than the fifth day of
each month for the immediately preceding month, with the first such payment due
no later than September 5, 1996. The principal indebtedness evidenced by this
Note shall be payable in a single installment on January 1, 1999, unless earlier
declared due and payable as provided in this Note.
This Note may be prepaid in whole or in part at any time without premium or
penalty.
This Note has been issued pursuant to the terms of that certain Master
Development and Franchise Agreement, dated August 12, 1996 (the "Master
Agreement"), between Lender and Maker. The terms, covenants, conditions,
provisions, stipulations and agreements of the Master Agreement are hereby made
a part of this Note, to the same extent and with the same effect as if
<PAGE>
they were fully set forth herein. Maker does hereby covenant to abide by and
comply with each and every term, covenant, provision, stipulation, promise,
agreement and condition set forth in the Master Agreement.
Maker shall remain liable for the payment of this Note, including interest,
notwithstanding any extensions of time of payment or any indulgence of any kind
or nature that Lender may grant to Maker or any guarantor, whether with or
without notice to Maker, and Maker hereby expressly waives such notice. No
release of any or all of the security given for this obligation shall release
any other maker, co-maker, surety, guarantor, or other party hereto in any
capacity.
Each of the following shall constitute an "Event or Default" under this
Note: (i) the failure of Maker to make any payment of the principal of or
interest on this Note when due and payable, (ii) the failure of Maker to perform
any of its obligations under the Master Agreement in accordance with the terms
thereof, or (iii) the failure of Maker to perform any of its obligations under
the documents and agreements delivered pursuant to the Master Agreement (the
"Documents"). Upon the occurrence of an Event of Default, this Note shall
become immediately due and payable and Lender shall have all of the rights and
remedies provided in the Master Agreement, as well as those rights and remedies
provided by any other applicable law, rule or regulation.
In the event that Lender institutes legal proceedings to enforce the
provisions of this Note, Maker agrees to pay to Lender, in addition to any
indebtedness due and unpaid, all costs and expenses of such proceedings,
including reasonable attorneys' fees.
Lender shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by an authorized officer of Lender and then only to the extent
specifically set forth therein. A waiver on one occasion shall not be construed
as continuing or as a bar to or waiver of such right or remedy on any other
occasion. All remedies conferred upon Lender by the Documents shall be
cumulative and none is exclusive, and such remedies may be exercised
concurrently or consecutively at Lender's option.
Except as expressly provided for in this Note, the Master Agreement or any
Document, every person at any time liable for the payment of the debt evidenced
hereby waives presentment for payment, demand, notice of nonpayment of this
Note, protest and notice of protest, trial by jury in any litigation arising out
of, relating to, or connected with this Note or any instrument given as security
herefor, all exemptions and homestead laws and all rights thereunder and
consents that Lender may extend the time of payment of any part or the whole of
the debt, or grant any other modifications or indulgence pertaining to payment
of this Note at any time, at the request of any other person liable for said
debt.
2
<PAGE>
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Lender for
the use, forebearance or detention of the money advanced or to be advanced
hereunder exceed the highest lawful rate permissible under the laws of the State
of California as applicable to Maker. If, from any circumstances whatsoever,
fulfillment of any provision of this Note or of any of the other Documents
shall, at the time performance of such provisions shall be due, involve the
payment of interest in excess of that authorized by law, the obligation to be
fulfilled shall be reduced to the limit so authorized by law, and if, from any
circumstances, Lender shall ever receive as interest an amount which would
exceed the highest lawful rate applicable to Maker, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance of the indebtedness evidenced hereby and not to the payment of interest.
All covenants, agreements, representations and warranties made herein in
the Master Agreement and in the Documents are deemed to have been relied upon by
Lender, notwithstanding any investigation by Lender on its behalf. All
provisions contained in this Note which are contrary to, prohibited by or
invalid under applicable laws or regulations shall be deemed omitted from this
Note and shall not invalidate the remaining provisions hereof.
This Note is given and accepted as evidence of indebtedness only and not in
payment or satisfaction of any indebtedness or obligation.
The form and essential validity of this Note shall be governed by the laws
of the State of California. If any provision of this Note is prohibited by, or
is unlawful or unenforceable under, any applicable law of any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof; provided that
where the provisions of any such applicable law may be waived, they hereby are
waived by Maker to the full extent permitted by law in order that this Note
shall be deemed to be a valid and binding Note in accordance with its terms.
Time is of the essence with respect to all Maker's obligations and
agreements under this Note.
This Note and all the provisions, conditions, promises and covenants hereof
shall inure to the benefit of Lender, its successors and assigns, and shall be
binding in accordance with the terms hereof upon Maker, its successors and
assigns, provided nothing herein shall be deemed consent to any assignment
restricted or prohibited by the terms of the Master Agreement or the Documents.
All notices required hereunder shall be given in accordance with the Master
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused its duly authorized officers
to execute this Note on its behalf as of the date and year first set forth
above.
SUPERBROWARD, L.L.C.,
a Delaware limited liability company
By: Ecendale Associates, Inc.
Its: Managing Member
By: /s/ Kathryn Ecenbarger
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
4
<PAGE>
Schedule attached to Promissory Note, August 12, 1996
of SUPERBROWARD, L.L.C. payable to the order of SUPERCUTS, INC.
in the maximum principal amount of $233,160.
ADVANCES AND PRINCIPAL PAYMENTS
Amount of Unpaid
Amount of Principal Principal Notation
Date Advance Made Repaid Balance Made By
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The aggregate unpaid principal amount shown on this schedule shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on this Note. The
failure to record the date and amount of any principal advance on this schedule
shall not, however, limit or otherwise affect the obligations of Borrower under
this Note to repay the principal amount of the such advances together with all
interest accruing thereon.
5
<PAGE>
EXHIBIT J
GUARANTY
GUARANTY, dated as of August , 1996, of , an
individual ("Guarantor"), in favor of "SUPERCUTS, INC.," a Delaware corporation
("Supercuts").
W I T N E S S E T H:
WHEREAS, Superbroward, L.L.C., a Delaware limited liability company
("Superbroward"), has entered each of the documents and agreements set forth on
Exhibit A attached hereto with Supercuts (collectively, the "Documents").
WHEREAS, Guarantor is the owner of a membership interest in Superbroward
and Guarantor will derive direct and indirect economic benefits from the
transactions contemplated by the Documents; and
WHEREAS, as a condition precedent to Supercuts entering into the Documents
and the transactions contemplated thereby, Supercuts is requiring that Guarantor
shall have executed and delivered this Guaranty;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce Supercuts to enter into the Documents and
the transactions contemplated thereby, it is agreed as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the meanings
assigned to them in the foregoing recitals and as set forth below:
"OBLIGATIONS" shall mean all debts, liabilities and obligations for
monetary amounts and all covenants and duties regarding such amounts of any kind
or nature, present or future, arising under the Documents.
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"PROMISSORY NOTE" shall mean the Promissory Note, dated August ___, 1996,
issued by Superbroward to Supercuts in the maximum principal amount of $233,160.
<PAGE>
References to this "Guaranty" shall mean this Guaranty, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Guaranty as the same may be in effect
at the time such reference becomes operative.
2. THE GUARANTY. The guaranty of Guarantor hereunder is as follows:
2.1. GUARANTY OF OBLIGATIONS OF SUPERBROWARD. Guarantor hereby
unconditionally guarantees to Supercuts, and its successors, indorsees,
transferees and assigns, the prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of the Obligations. Guarantor
agrees that this Guaranty is a guaranty of payment and performance and not
of collection, and that her [his] obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, any Document or any other
agreement, document or instrument to which Superbroward and/or
Guarantor is or are or may become a party;
(b) the absence of any action to enforce this Guaranty or any
Document or the waiver or consent by Supercuts with respect to any of
the provisions thereof;
(c) the existence, value or condition of, or failure to perfect
Supercuts' lien against any security for the Obligations or any
action, or the absence of any action, by Supercuts in respect thereof
(including, without limitation, the release of any such security); or
(d) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by Guarantor that her [his] obligations under this Guaranty
shall not be discharged until the payment and performance, in full, of the
Obligations. Guarantor shall be regarded, and shall be in the same
position, as principal debtor with respect to the Obligations. Guarantor
expressly waives all rights she [he] may have, now or in the future, under
any statute, or at common law, or at law or in equity, or otherwise, to
compel Supercuts to proceed in respect of the Obligations against
Superbroward or any other party or against any security for the payment and
performance of the Obligations before proceeding against, or as a condition
to proceeding against, Guarantor. Guarantor agrees that any notice or
directive given at any time to Supercuts which is inconsistent with the
waiver in the immediately preceding sentence shall be null and void and may
be ignored by Supercuts, and, in addition, may not be pleaded or introduced
as evidence in any litigation relating to this Guaranty for the reason that
such pleading or introduction would be at variance with the written terms
of this Guaranty, unless Supercuts has or have specifically agreed
otherwise in writing. It is agreed among Guarantor and Supercuts that the
foregoing
2
<PAGE>
waivers are of the essence of the transaction contemplated by the
Documents and that, but for this Guaranty and such waivers, Supercuts would
decline to enter into the Documents.
2.2. DEMAND BY SUPERCUTS. In addition to the terms of this Guaranty
set forth in Section 2.1 hereof, and in no manner imposing any limitation
on such terms, it is expressly understood and agreed that, if the then
outstanding principal amount of the Obligations (together with all accrued
interest thereon) is declared to be immediately due and payable, then,
Guarantor shall, upon demand in writing therefor by Supercuts to Guarantor,
pay to Supercuts the entire outstanding Obligations due and owing to
Supercuts.
2.3 ENFORCEMENT OF GUARANTY. In no event shall Supercuts have any
obligation (although it is entitled, at its option) to proceed against
Superbroward or any other person or any real or personal property pledged
to secure the Obligations before seeking satisfaction from Guarantor, and
Supercuts may proceed, prior or subsequent to, or simultaneously with, the
enforcement of Supercuts' rights hereunder, to exercise any right or remedy
which it may have against any property, real or personal, as a result of
any lien it may have as security for all or any portion of the Obligations.
2.4 WAIVER. In addition to the waivers contained in Section 2.1
hereof, Guarantor waives, and agrees that she [he] shall not at any time
insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshalling of
assets or redemption laws, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the
performance by Guarantor of her [his] obligations under, or the enforcement
by Supercuts of, this Guaranty. Guarantor hereby waives diligence (whether
for non-payment or protest or of acceptance, maturity, extension of time,
change in nature or form of the Obligations, acceptance of further
security, release of further security, composition or agreement arrived at
as to the amount of, or the terms of, the Obligations, notice of adverse
change in Superbroward's financial condition or any other fact which might
materially increase the risk to Guarantor), presentment and demand with
respect to any of the Obligations or all other demands whatsoever and
waives the benefit of all provisions of law which are or might be in
conflict with the terms of this Guaranty. Guarantor represents, warrants
and agrees that, as of the date of this Guaranty, her [his] obligations
under this Guaranty are not subject to any defense against Supercuts or
Superbroward of any kind. Guarantor further agrees that her [his]
obligations under this Guaranty shall not be subject to any counterclaims,
offsets or defenses against Supercuts or against Superbroward of any kind
which may arise in the future.
2.5. BENEFITS OF GUARANTY. The provisions of this Guaranty are for
the benefit of Supercuts and its successors, transferees, indorsees and
assigns, and nothing herein contained shall impair, as between Superbroward
and Supercuts, the obligations of Superbroward under the Documents. In the
event all or any part of the Obligations are transferred, indorsed or
assigned by Supercuts to any person or persons in accordance with
3
<PAGE>
the provisions of the Documents, any reference to "Supercuts" herein shall
be deemed to refer equally to such Person or Persons.
2.6. MODIFICATION OF OBLIGATIONS, ETC. If Supercuts shall at any time
or from time to time, with or without the consent of, or notice to,
Guarantor:
(a) change or extend the manner, place or terms of payment of,
or renew or alter all or any portion of, the Obligations;
(b) take any action under or in respect of the Documents in the
exercise of any remedy, power or privilege contained therein or
available to it at law, equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Documents;
(d) extend or waive the time for any of Guarantor's,
Superbroward's or any other Person's performance of, or compliance
with, any term, covenant or agreement on its part to be performed or
observed under the Documents, or waive such performance or compliance
or consent to a failure of, or departure from, such performance or
compliance;
(e) take and hold security or collateral for the payment of the
Obligations guaranteed hereby or sell, exchange, release, dispose of,
or otherwise deal with, any property pledged, mortgaged or conveyed,
or in which Supercuts has been granted a lien, to secure any
indebtedness of Guarantor or Superbroward to Supercuts;
(f) release anyone who may be liable in any manner for the
payment of any amounts owed by Guarantor or Superbroward to Supercuts;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of
Guarantor or Superbroward are subordinated to the claims of Supercuts;
and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by Guarantor or Superbroward to Supercuts in such manner
as Supercuts shall determine in their discretion;
then Supercuts shall not incur any liability to Guarantor pursuant hereto
as a result thereof, and no such action shall impair or release the
obligations of Guarantor under this Guaranty.
4
<PAGE>
2.7. REINSTATEMENT. This Guaranty shall remain in full force and
effect and continue to be effective in the event any petition be filed by
or against Superbroward or Guarantor for liquidation or reorganization, in
the event Superbroward or Guarantor becomes insolvent or makes an
assignment for the benefit of creditors or in the event a receiver or
trustee be appointed for all or any significant part of Superbroward's or
Guarantor's assets, and shall continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of the Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced
in amount, or must otherwise be restored or returned by Supercuts, whether
as a "voidable preference", "fraudulent conveyance", or otherwise, all as
though such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
2.8. ELECTION OF REMEDIES. If Supercuts may, under applicable law,
proceed to realize its benefits under any of the Documents giving Supercuts
a lien upon any collateral, whether owned by Superbroward or by any other
Person, either by judicial foreclosure or by non-judicial sale or
enforcement, Supercuts may, at its sole option, determine which of its
remedies or rights it may pursue without affecting any of its rights and
remedies under this Guaranty. If, in the exercise of any of its rights and
remedies, Supercuts shall forfeit any of its rights or remedies, including
its right to enter a deficiency judgment against Superbroward or any other
person, whether because of any applicable laws pertaining to "election of
remedies" or the like, Guarantor hereby consents to such action by
Supercuts and waives any claim based upon such action, even if such action
by Supercuts shall result in a full or partial loss of any rights of
subrogation which Guarantor might otherwise have had but for such action by
Supercuts. Any election of remedies which results in the denial or
impairment of the right of Supercuts to seek a deficiency judgment against
Superbroward shall not impair Guarantor's obligation to pay the full amount
of the Obligations. In the event Supercuts shall bid at any foreclosure or
trustee's sale or at any private sale permitted by law or the Documents,
Supercuts may bid all or less then the amount of the Obligations and the
amount of such bid need not be paid by Supercuts but shall be credited
against the Obligations. The amount of the successful bid at any such
sale, conducted in a commercially reasonable manner, whether Supercuts or
any other party is the successful bidder, shall be conclusively deemed to
be the fair market value of the collateral and the difference between such
bid amount and the remaining balance of the Obligations shall be
conclusively deemed to be the amount of the Obligations guaranteed under
this Guaranty, notwithstanding that any present or future law or court
decision or ruling may have the effect of reducing the amount of any
deficiency claim to which Supercuts might otherwise be entitled but for
such bidding at any such sale.
2.9. CONTINUING GUARANTY. Guarantor agrees that this Guaranty is a
continuing guaranty and shall remain in full force and effect until the
payment and performance in full of the Obligations.
5
<PAGE>
2.10. WAIVER OF SUBROGATION. Guarantor hereby waives any right of
subrogation Guarantor has or may have against Superbroward with respect to
Guarantor's obligations hereunder. In addition, Guarantor hereby waives
any right to proceed against Superbroward, now or hereafter, for
contribution, indemnity, reimbursement, and any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether
arising under express or implied contract or by operation of law, which
Guarantor may now have or hereafter have against Superbroward with respect
to Guarantor's obligations hereunder. Guarantor also hereby waives any
rights to recourse to or with respect to any asset of Superbroward.
Guarantor agrees that in light of the immediately foregoing waivers, the
execution of this Guaranty shall not be deemed to make Guarantor a
"creditor" of Superbroward, and that for purposes of Sections 547 and 550
of the Bankruptcy Code, Guarantor shall not be deemed a "creditor" of
Superbroward. Guarantor acknowledges and agrees that this waiver is
intended to benefit Supercuts and shall not limit or otherwise affect
Guarantor's liability hereunder or the enforceability of this Guaranty, and
that Supercuts and its successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 2.10
and their rights under this Section 2.10 shall survive payment in full of
the Guaranteed Obligations.
3. DELIVERIES. Guarantor shall deliver to Supercuts, concurrently with
the execution of this Guaranty, each of the following documents duly executed by
Guarantor in form and content acceptable to Supercuts:
(a) Pledge and Security Agreement;
(b) Recognition Agreement; and
(c) UCC-1 Financing Statement.
2. REPRESENTATIONS AND WARRANTIES. To induce Supercuts to enter into the
Documents and the transactions contemplated thereby, Guarantor makes the
following representations and warranties to Supercuts, each and all of which
shall survive the execution and delivery of this Guaranty:
2.1. NO CONFLICT. The execution, delivery and performance of this
Guaranty and all instruments and documents to be delivered by Guarantor in
connection with this Guaranty, will not violate any law or regulation, or
any order or decree of any court or governmental instrumentality, will not
conflict with or result in the breach of, or constitute a default under any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Guarantor is a party or by which Guarantor or any of her [his]
property is bound will not result in the creation or imposition of any lien
upon any of the property of Guarantor and the same do not require the
consent or approval of any governmental body, agency, authority or any
other Person except those already obtained.
6
<PAGE>
2.2. ENFORCEABILITY. This Guaranty and each of the instruments and
documents delivered by Guarantor in connection with this Guaranty
constitute the legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms.
3. PERMITTED ASSIGNMENT BY SUPERCUTS. Supercuts may freely assign its
rights and delegate its duties under this Guaranty, but no such assignment or
delegation shall increase or diminish Guarantor's obligations hereunder.
Supercuts agrees to give Guarantor prompt notice of such assignment or
delegation and agrees to use its best efforts to give such notice at least three
(3) business days prior to such assignment or delegation, but the consent of
Guarantor shall not be required for any such assignment or delegation and
failure to give such notice shall not effect the validity or enforceability of
any such assignment or delegation or this Guaranty or subject Supercuts to any
liability.
4. FURTHER ASSURANCES. Guarantor agrees, upon the written request of
Supercuts, to execute and deliver to Supercuts, from time to time, any
additional instruments or documents reasonably considered necessary by Supercuts
to cause this Guaranty to be, become or remain valid and effective in accordance
with its terms.
5. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by
Guarantor hereunder shall be made to Supercuts free and clear of, and without
deduction for, any and all present and future taxes, withholdings, levies,
duties, and other governmental charges ("Taxes"), excluding such income and
franchise taxes of the United States and any political subdivision thereof which
would otherwise have been payable by Supercuts if Superbroward had paid the
Obligations to Supercuts in accordance with the terms of the Documents. Upon
request by Supercuts, Guarantor shall furnish to Supercuts a receipt for any
Taxes paid by Guarantor pursuant to this Section 7 or, if no Taxes are payable
with respect to any payments required to be made by Guarantor hereunder,
evidence reasonably acceptable to Supercuts that no such Taxes are payable. If
Taxes are paid by Supercuts, Guarantor will, upon demand of Supercuts, and
whether or not such Taxes shall be correctly or legally asserted, indemnify
Supercuts for such payments, together with any interest, penalties and expenses
in connection therewith plus interest thereon at the Prime Rate (as defined in
the Promissory Note) plus four percent (4%).
6. MISCELLANEOUS.
6.1. ENTIRE AGREEMENT; AMENDMENTS. This Guaranty, together with the
documents delivered in accordance with Section 3 and the other Documents,
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to a
guaranty of the loans Obligations and may not be amended or supplemented
except by a writing signed by Guarantor and Supercuts.
6.2. HEADINGS. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.
7
<PAGE>
6.3. SEVERABILITY. In the event that any one or more of the
provisions contained in this Guaranty shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision or provisions in every
other respect and the remaining provisions of this Guaranty shall not be in
any way impaired.
6.4. NOTICES. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may
be given to or served upon any of the parties by another, or whenever any
of the parties desires to give or serve upon another any such communication
with respect to this Guaranty, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and either
shall be delivered pursuant to the provisions of Section 20 of the Master
Development and Franchise Agreement, dated August ___, 1996, between
Superbroward and Supercuts, addressed as follows:
(a) If to Supercuts, at: Supercuts, Inc.
550 California Street
San Francisco, California 94104
Attention: --------------------
Telecopy No.: (412) 693-4944
(a) If to Guarantor, at: -------------------------------
-------------------------------
-------------------------------
Telecopier No: (___) ___-____
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, in person, by delivery service or by overnight
courier service, with receipt acknowledged, the date of telecopy
transmission or three (3) business days after the same shall have been
deposited with the United States mail, postage prepaid.
3.2. BINDING EFFECT. This Guaranty shall bind Guarantor and shall
inure to the benefit of Supercuts and its successors and assigns.
Guarantor may not assign this Guaranty.
3.3 NON-WAIVER. The failure of Supercuts to enforce any right or
remedy hereunder, or promptly to enforce any such right or remedy, shall
not constitute a waiver thereof, nor give rise to any estoppel against
Supercuts, nor excuse Guarantor from its
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obligations hereunder. Any waiver of any such right or remedy by Supercuts
must be in writing and signed by Supercuts.
3.4. TERMINATION. This Guaranty shall terminate and be of no further
force or effect at such time as the Obligations shall be paid and performed
in full and the Documents are terminated. Upon payment and performance in
full of the Obligations and termination of the Document, Supercuts shall
deliver to Guarantor such documents as Guarantor may reasonably request to
evidence such termination.
3.5. GOVERNING LAW; WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION.
THE TERMS OF THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (EXCLUSIVE
OF ANY RULES AS TO CONFLICT OF LAWS) AND THE LAWS OF THE UNITED STATES
APPLICABLE THEREIN. IF AND TO THE EXTENT THAT GUARANTOR AND SUPERCUTS
AGREE NOT TO PROCEED BY MEANS OF ARBITRATION OR ARE NOT REQUIRED TO PROCEED
BY ARBITRATION, GUARANTOR WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER OR
UNDER THE OTHER DOCUMENTS DELIVERED IN CONNECTION WITH THIS GUARANTY OR
RELATING TO EACH OF THE FOREGOING. AS PART OF THE CONSIDERATION FOR NEW
VALUE THIS DAY RECEIVED, GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN SAN FRANCISCO COUNTY, CALIFORNIA
AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON GUARANTOR, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESSES PROVIDED IN SECTION 8.4 ABOVE AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE (3) BUSINESS DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES MAILS,
POSTAGE PREPAID. GUARANTOR WAIVES ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
3.6. ARBITRATION. Except as provided below, all controversies,
disputes or claims between Supercuts and Guarantor in connection with,
arising from or with respect to: any provision of this Guaranty or any
other related agreement; the relationship of the parties; or the validity
of this Guaranty or any other related agreement, or any provision of such
agreement, which is not resolved within 15 days after either party notifies
the other in writing of such controversy, dispute or claim, shall be
submitted for arbitration to the San Francisco, California office of the
American Arbitration Association on demand of either party. The
arbitration proceedings will be conducted in San Francisco, California and
heard by one arbitrator in accordance with the then current Commercial
Arbitration Rules
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of the American Arbitration Association. The arbitrator
has the right to award or include in his or her award any relief which he
or she deems proper in the circumstances, including, without limitation,
money damages (with interest on unpaid amounts from date due), specific
performance, injunctive relief and attorneys' fees. The award and decision
of the arbitrator will be conclusive and binding upon all parties, and
judgment upon the award may be entered in any court of competent
jurisdiction. The parties acknowledge and agree that any arbitration award
may be enforced against either or both of them in a court of competent
jurisdiction, and each waives any right to contest the validity or
enforceability of the award. The parties further agree to be bound by the
provision of any statute of limitations which otherwise would be applicable
to the controversy, dispute or claim which is the subject of the
arbitration proceeding. Without limiting the foregoing, the parties are
entitled in any arbitration proceeding to the entry of an order by a court
of competent jurisdiction pursuant to an opinion of the arbitrator for
specific performance of any of the requirements of this Guaranty. This
provision will continue in full force and effect subsequent to and
notwithstanding expiration or termination of this Guaranty. 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.
Despite Supercuts' and Guarantor's agreement to arbitrate, each has
the right in a proper case to seek temporary restraining orders and
temporary or preliminary injunctive relief from a court of competent
jurisdiction; provided, however, that Supercuts and Guarantor must
contemporaneously submit their dispute for arbitration on the merits as
provided in this Section.
3.7. SECURITY. The obligations of Guarantor under this Guaranty are
secured in part pursuant to the terms of the Pledge and Security Agreement
referred to in Section 3.
3.8. COUNTERPARTS. This Guaranty may be executed in any number of
counterparts which shall individually and collectively constitute one
agreement.
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first above written.
[GUARANTOR]
By: ----------------------------------
Name: -----------------------------
Title: ----------------------------
Accepted and acknowledged by
SUPERCUTS, INC.
By: ----------------------------------
Name: -----------------------------
Title: ----------------------------
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MASTER DEVELOPMENT AND FRANCHISE AGREEMENT
THIS MASTER DEVELOPMENT AND FRANCHISE AGREEMENT (the "Agreement") is
made and entered into this ____ day of September, 1996, by and between
SUPERCUTS, INC., a Delaware corporation, with its principal business address
at 550 California Street, San Francisco, California 94104 (the "Company"),
and LA CARINA SUPERCUTS, INC., whose principal business address is _____________
("Franchisee").
R E C I T A L S
Franchisee has expressed an interest in acquiring and developing
additional Supercuts Store franchises in the Tampa/Ft. Myers, Florida market
(the "Market").
Company, through its wholly-owned subsidiary, Supercuts Corporate Shops,
Inc. (which is included in the references to "Company"), currently owns and
operates Supercuts Stores in the Market, the assets of some of which Company
would like to sell, and franchises for some of which Company would like to
grant, to Franchisee. The addresses of the Supercuts Stores the assets of
which Company would like to sell, and franchises for which Company would like
to grant, to Franchisee (the "Purchased Stores") are listed in Exhibit A to
this Agreement. The addresses of the Supercuts Stores the assets of which
Company will allow Franchisee to use (but not buy) during this Agreement's
term, but franchises for which Company would like to grant to Franchisee (the
"Corporate Stores"), are listed in Exhibit B to this Agreement.
Franchisee desires to buy the assets of, and franchises for, the
Purchased Stores, to acquire franchises for the Corporate Stores, and to
develop and open additional Supercuts Store franchises in the Market and is
willing to comply with this Agreement's terms and conditions in order to
receive these rights.
Company is willing to sell Franchisee the assets of the Purchased
Stores, to grant franchises to Franchisee for the Purchased Stores and the
Corporate Stores, and to grant Franchisee the right to develop and open
additional Supercuts Store franchises in the Market if Franchisee complies
with this Agreement's terms and conditions.
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained in this Agreement and the other agreements and documents that this
Agreement references, Company and Franchisee agree as follows:
1. (a) Subject to this Agreement's terms and conditions, Company hereby
grants Franchisee the right to operate the Purchased Stores and Corporate
Stores as franchises. To reflect these franchises, Company and Franchisee
are, concurrently with the signing of this Agreement, also signing 36
separate Franchise Agreements, one for each Purchased Store
<PAGE>
and Corporate Store, that will regulate Franchisee's operation of those
Stores according to Company's standards, specifications and operating
procedures. The form of Franchise Agreement that Company and Franchisee
are signing for each Purchased Store and Corporate Store, which is
Company's current standard form of Franchise Agreement, is attached as
Exhibit C. The Franchise Agreements for the Purchased Stores and
Corporate Stores will include a Rider in the form attached as Exhibits D
and E, respectively.
(a) Company will retain title to all of the fixed assets and
leasehold improvements of the Corporate Stores unless and until Franchisee
exercises the buyout option described in Section 8. During this
Agreement's term, Company will lease these items to Franchisee to use in
operating the Corporate Stores. No additional consideration is due from
Franchisee for these leases.
(b) Company hereby sells to Franchisee all of the fixed assets and
leasehold improvements of the Purchased Stores. Company is selling these
items to Franchisee on an "as is, where is" basis, with no warranties of
condition, merchantability or the like. Company represents it has good and
marketable title to these items and is selling such items free and clear of
all mortgages, pledges, liens, encumbrances, security interests and fixture
filings. Concurrently with the signing of this Agreement, Company is
giving Franchisee a Bill of Sale, in the form attached as Exhibit F, to
document the sale of the fixed assets and leasehold improvements.
(c) Company hereby sells to Franchisee at cost all of the retail
supplies/inventory, and will allow Franchisee to keep all of the petty
cash, now located at the Purchased Stores and Corporate Stores. Such
inventory shall not be dated. Company and Franchisee agree to determine
the amounts due for the retail supplies/inventory, and the total value of
the petty cash, within 15 days after this Agreement's date. Franchisee
must pay Company the sum of these amounts within 15 days after the parties
determine the amounts. Despite the foregoing, Franchisee need not pay for
the "backbar" supplies (I.E., the non-retail inventory) located at the
Purchased Stores and Corporate Stores.
(d) Company will pay to Franchisee all of the accrued vacation pay of
the existing employees of the Purchased Stores and Corporate Stores as of
this Agreement's date. Franchisee then will be responsible for all of the
employees' accrued vacation pay. Company and Franchisee agree to determine
the amounts due for accrued vacation pay within 15 days after this
Agreement's date. Company must pay Franchisee these amounts within 15 days
after they determine them, although Company may set off the amounts that it
must pay under this subparagraph against the amounts that Franchisee must
pay Company under subparagraph (d).
(e) Any credits in the Five Percent Fund associated with the
Purchased Stores and the Corporate Stores shall continue to apply to such
stores.
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2. Subject to this Agreement's terms and conditions and any landlord
approval required by a store lease, Company hereby grants Franchisee the
right to occupy the premises of each Purchased Store and Corporate Store
during the term of the Franchise Agreement for that Store. To reflect these
occupancy rights, Company and Franchisee are, concurrently with the signing
of this Agreement, also signing 36 separate Subleases, one for each Purchased
Store and Corporate Store, that will regulate Franchisee's occupancy of those
Stores. Company represents to Franchisee that the leases for the Purchased
Stores and Corporate Stores allow Company to enter into the Subleases with
Franchisee. Franchisee will make all required Sublease payments directly to
Company, which then will pay the landlord of each Store. However, if Company
fails to make any Sublease payment and to cure that default within the time
period the lease specifies after notice from the Store's landlord, Franchisee
may make the Sublease payment and set off that amount against the payments
Franchisee must make under this Agreement. The form of Sublease that Company
and Franchisee are signing for each Purchased Store and Corporate Store,
which is Company's current standard form of Sublease, is attached as Exhibit
G. The Sublease for each Corporate Store also will include a Rider in the
form attached as Exhibit H. While Franchisee has the right to close one or
more of the Purchased Stores, Franchisee agrees to remain liable for all
payments due under the Subleases for those closed Purchased Stores. Company
and Franchisee agree that their intent, and part of the consideration for
this transaction, is Franchisee's willingness to remain liable for all
payments due under the Sub-leases during the entire term of the leases for
the Purchased Stores, whether or not Franchisee operates those Purchased
Stores.
3. Subject to this Agreement's terms and conditions, Company hereby
grants Franchisee the right, and Franchisee hereby undertakes the obligation,
to develop and open 5 additional Supercuts Store franchises (the "Additional
Stores") within the Market on or before December 31, 2000. Of these 5
Additional Stores, Franchisee agrees to develop and open at least one during
each of the 1997, 1998 and 1999 calendar years. To reflect these development
rights, Company and Franchisee are, concurrently with the signing of this
Agreement, also signing a separate Area Development Agreement that will
incorporate the terms of this Agreement and this development schedule and,
together with Company's existing "Supercuts Expansion Policy," regulate
Franchisee's development of these Additional Stores within the Market
according to Company's standards, specifications and operating procedures.
The form of Area Development Agreement that Company and Franchisee are
signing, which is Company's current standard form of Area Development
Agreement, is attached as Exhibit I. The Area Development Agreement also
will include a Rider in the form attached as Exhibit J. The forms of
Franchise Agreement and Sublease that Franchisee will sign for each
Additional Store it develops under the Area Development Agreement will be (at
Company's option) either the forms of Franchise Agreement and Sublease
attached as Exhibits C and G or Company's then current forms of Franchise
Agreement and Sublease offered to all prospective franchisees (if Company
modifies those documents after the date of this Agreement), although
Franchisee will sign the same forms of Franchise Agreement and Sublease for
each Additional Store it develops under the Area Development Agreement. If
one of the Additional Stores that Franchisee develops and opens under
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this Section 3 is destroyed or otherwise rendered inoperable through no fault
of Franchisee, Company will continue to count that Additional Store as one of
the 5 Additional Stores that Franchisee must develop by December 31, 2000 if
Franchisee replaces that Store within one year after the Store is destroyed
or rendered inoperable. If Franchisee fails to do so, its failure will be a
default of its development obligations under this Section 3.
4. (a) Notwithstanding anything to the contrary contained in the forms
of Franchise Agreement and Sublease attached as Exhibits C and G, the
initial term of the franchise for each Corporate Store that Company is
granting under Section 1 above will be 7 years. When that initial term
expires, Franchisee will not have the right to renew the franchises (and
subleases) for the Corporate Stores unless it exercises the buyout right
under Section 8. Despite the foregoing provisions, Company and Franchisee
acknowledge and agree that the terms of the Subleases for the premises of
the Corporate Stores, including any renewal rights under those Subleases,
might not equal 7 years. If Company cannot maintain legal possession of
the premises of one or more Corporate Stores for at least the 7 year term
of this Agreement, Company agrees to allow Franchisee to relocate those
Corporate Stores to acceptable substitute premises, at no additional fee,
for which Company will sign leases and then sublease to Franchisee. The
initial and renewal terms of any Purchased Store or Additional Store
franchises are or will be as provided in the Franchise Agreements and
Subleases that Franchisee signs for those Stores.
(a) The initial term of the franchise for each Corporate Store will
be less than 7 years if Franchisee breaches any provision of this Agreement
and Company exercises its termination rights under Section 10 below.
5. After the date of this Agreement, Franchisee is responsible for all
of the costs and expenses of operating the Corporate Stores (even though
Company retains title to all of the fixed assets and leasehold improvements)
and Purchased Stores, including the costs of insurance coverage of the type
that Company customarily requires for its own Supercuts Stores (with Company
named as an additional insured and co-loss payee), and for all liabilities
that arise during the operation of the Corporate Stores and Purchased Stores.
Company and Franchisee agree to pro-rate the expenses of operating the
Corporate Stores and Purchased Stores for the month in which the parties sign
this Agreement. Company and Franchise agree to pro-rate these expenses within
15 days after this Agreement's date. All amounts owed by one party to the
other due to these pro-rations must be paid within 15 days after the parties
determine the appropriate pro-rations. Concomitantly, Franchisee will have
the right, except as otherwise provided in Sections 6 and 7, to all revenue
that the Purchased Stores and Corporate Stores generate after this
Agreement's date.
6. As partial consideration for Company's willingness to allow
Franchisee to operate the Corporate Stores and the Purchased Stores as
franchises, and to use the assets and leasehold improvements of the Corporate
Stores, and notwithstanding anything to the contrary contained in the
Franchise Agreements for the Corporate Stores and the Purchased Stores,
Franchisee agrees to
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make monthly payments to Company during this Agreement's term in the amount
of $65,584. Each monthly payment of $65,584 is due on or before the tenth
day of each calendar month. Franchisee must make this monthly payment even
if it closes one or more Purchased Stores. (Franchisee does not have the
right to close a Corporate Store.) There will be no reduction whatsoever in
this required monthly payment, although the payment due for the month in
which the parties sign this Agreement will be prorated for the number of days
during that month that Franchisee actually operates the Corporate Stores and
the Purchased Stores. These lump sum $65,584 monthly payments are in place
of the royalty fees payable under the Franchise Agreements for the Corporate
Stores and the Purchased Stores. However, if the Corporate Stores and
Purchased Stores generate, in the aggregate, more than $5.5 million in Gross
Revenue (as defined below) during any calendar year during this Agreement's
term beginning in the year 2000, Franchisee also agrees to pay a royalty on
the excess revenue (that portion exceeding $5.5 million) equal to 10% of the
excess related to services provided and 4% of the excess related to product
sales. Franchisee will begin paying this additional royalty on the service
and product sales made during the month following the calendar month in which
Franchisee's aggregate Gross Revenue from all Corporate Stores and Purchased
Stores first exceeds $5.5 million. Except as otherwise specifically provided
in this Agreement, all amounts which Franchisee owes Company under this
Agreement will bear interest after their original due date at the highest
commercial contract rate of interest that the law allows, not to exceed 18%
per year. "Gross Revenue" means the total gross revenue Franchisee derives
in accordance with such accounting practices and procedures as Company
determines and requires with respect to the operation of Supercuts Stores,
whether from sales for cash or credit, and without regard to the source of
payment thereof or the collection thereof, or the cost of collection,
including the sales of all merchandise and services but excluding all sales,
use, gross receipt and other similar taxes added to the sales price and
collected from the customer and less any bona fide refunds. The term "sales
of all merchandise and services" shall be construed in its most comprehensive
sense.
The first $250,000 that Franchisee must pay in the aggregate under this
Section 6 and for monthly interest under Section 7 is to be paid by a
Promissory Note in the form attached as Exhibit K. The $250,000 principal
due under the Promissory Note is payable in full on the third anniversary
date of this Agreement. Interest on the outstanding principal, accruing at
an 8% per annum rate, is payable monthly by the tenth day of each month.
7. As consideration for Company's sale to Franchisee of the assets and
leasehold improvements of the Purchased Stores, Franchisee agrees to pay
Company the principal amount of $550,000. This amount is to be paid by a
Promissory Note in the form attached as Exhibit L. The principal due under
the Promissory Note is payable in full on the seventh anniversary date of
this Agreement. Interest on the outstanding principal, accruing at an 8% per
annum rate, is payable monthly by the tenth day of each month (except for the
portion of these interest payments that Company allows Franchisee to add to
the Promissory Note referenced in Section 6 above). Such interest payments
are in addition to payments required in Section 6 above.
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8. If Franchisee substantially and materially complies with this
Agreement, the Franchise Agreements and Subleases for the Purchased Stores
and Corporate Stores, the Area Development Agreement and the Franchise
Agreements for the Additional Stores by (i) making all required payments,
(ii) developing the Additional Stores as required, and (iii) operating all
Purchased Stores, Corporate Stores and Additional Stores according to
Company's standards and specifications (or has fully cured any defaults which
it has the right to cure), Franchisee will have the right, on the seventh
anniversary date of this Agreement, to purchase the fixed assets and
leasehold improvements of the Corporate Stores, to terminate the Franchise
Agreements, Subleases and related documents for the Corporate Stores and to
replace them with new Franchise Agreements, Subleases and related documents
(the standard terms of which will govern the operation of those Stores) by
paying Company $2.85 million (including the $550,000 due under the Promissory
Note for the Purchased Stores). This amount will be payable in full at the
closing, which must take place on or before this Agreement's term expires.
If Franchisee exercises this right, Franchisee must exercise the right with
respect to all of the Corporate Stores. Franchisee may not elect to exercise
the right with respect to only some, but not all, of the Corporate Stores.
The Additional Stores are not affected by Franchisee's exercise of this
right. If Franchisee exercises its right to buy the fixed assets and
leasehold improvements of the Corporate Stores, Company will give Franchisee
customary bills of sale and similar transfer documents. All assets will be
sold on an "as is, where is" basis with no warranties of condition,
merchantability or the like but free and clear of all mortgages, pledges,
liens, encumbrances, security interests and fixture filings.
9. If Franchisee does not exercise the buyout right described in
Section 8 by the seventh anniversary date of this Agreement, then:
(i) Franchisee's right to operate the Corporate Stores as franchises
will cease immediately; and
(ii) all rights to operate the Corporate Stores will revert
immediately to Company without any payment of any kind.
10. Company has the right to terminate this Agreement if Franchisee
fails at any time to perform any of its obligations under this Agreement,
including, but not limited to, operating the Purchased Stores and Corporate
Stores as required under this Agreement and the Franchise Agreements,
Subleases and related documents that Franchisee signs for the Purchased
Stores and Corporate Stores; developing, opening and operating the Additional
Stores as required under this Agreement, the Area Development Agreement and
the Franchise Agreements, Subleases and related documents that Franchisee
signs for the Additional Stores; and making all payments required under this
Agreement; and fails to cure any of these defaults within 20 days after
receiving notice of that default from Company, provided, however, that
Company need not provide Franchisee with any notice of and opportunity to
cure a default, and may terminate this Agreement
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immediately, if Franchisee commits its second default within any 12 month
period during this Agreement's term.
11. The term of this Agreement is 7 years, unless earlier terminated
under Section 10.
12. Company agrees that, as additional consideration for the
transaction this Agreement describes, it will:
(a) Replace, at its own cost and expense, the "Cutting Edge" point-
of-sale system currently at the Purchased Stores and Corporate Stores with
the "Helikon" point-of-sale system. Company will complete the replacement
within 30 days after this Agreement's date.
(b) Maintain, at its own cost and expense, a total of at least 2
educators in the Market during this Agreement's term to train, at no cost
to Franchisee, employees of Purchased Stores and Corporate Stores.
(c) Reimburse Franchisee, during the first year of this Agreement's
term only, for the salaries and fringe benefits of the 3 Market Directors
operating in the Market, who will become Franchisee's employees after the
date of this Agreement. Franchisee agrees not to increase the salaries and
fringe benefits of these 3 Market Directors during the first year of this
Agreement's term. If Franchisee does so, Franchisee must pay the excess
portion of their salaries and fringe benefits over their current levels.
(d) Pay, on a pro-rata basis, $200,000 of the first $300,000 that
Franchisee elects to spend during the first 2 years of this Agreement's
term on approved deferred maintenance at the Purchased Stores and Corporate
Stores (E.G., signs, floors, remodeling, fixtures and equipment and the
like). Company agrees to pay its pro rata share of this maintenance within
30 days after it receives a verified invoice detailing the work that has
been, or is to be, done at the Purchased Stores and Corporate Stores (or
within any other time period acceptable to the contractor or supplier).
(e) Supply Franchisee with store financial information for the
Purchased Stores and Corporate Stores for the two year period immediately
preceding the date hereof in the format in which Company originally
prepared such information.
13. Concurrently with the signing of this Agreement, each of
Franchisee's owners will sign the form of Guaranty attached as Exhibit M in
which they will guarantee Franchisee's obligations under this Agreement and
all other agreements that Franchisee signs for the Corporate Stores,
Purchased Stores and Additional Stores. These Guaranties will be secured by
Pledge and Security Agreements in the form attached as Exhibit N that each
owner will sign concurrently with the execution of his or her Guaranty.
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14. EXCEPT TO THE EXTENT GOVERNED BY FEDERAL LAW, THIS AGREEMENT WILL
BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ITS
CONFLICT OF LAWS PRINCIPLES. IF AND TO THE EXTENT THAT THE PARTIES AGREE NOT
TO PROCEED BY MEANS OF ARBITRATION OR ARE NOT REQUIRED TO PROCEED BY
ARBITRATION, FRANCHISEE WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT
OR ANY OTHER DOCUMENT SIGNED CONCURRENTLY WITH OR PURSUANT TO THIS AGREEMENT.
FRANCHISEE CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE CITY OF SAN FRANCISCO AND SAN FRANCISCO COUNTY,
CALIFORNIA, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED
TO FRANCHISEE AT THE ADDRESSES PROVIDED IN SECTION 21 BELOW. SERVICE SO MADE
WILL BE DEEMED TO BE COMPLETED THREE (3) BUSINESS DAYS AFTER DEPOSIT IN THE
UNITED STATES MAILS, POSTAGE PREPAID. FRANCHISEE WAIVES ANY OBJECTION TO
VENUE OF ANY ACTION INSTITUTED UNDER THIS SECTION AND CONSENTS TO THE
GRANTING OF ANY LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.
15. This Agreement is binding upon Company and Franchisee and their
respective assigns and successors in interest and may not be modified except
by a written agreement signed by both Company and Franchisee. Franchisee may
not assign this Agreement or any of its rights or obligations under this
Agreement, and no owner of Franchisee may assign an ownership interest in
Franchisee, without Company's prior written consent, which Company will not
unreasonably withhold, although Company may condition its consent on
Franchisee's sale or assignment of all of its rights and responsibilities
under all documents signed concurrently with or pursuant to this Agreement.
If Company consents to any assignment, Franchisee's owners must reaffirm the
Guaranties they are signing under Section 13 of this Agreement. All
Guaranties and Pledge and Security Agreements signed concurrently with the
signing of this Agreement will remain in full force and effect despite any
assignment. Company may assign this Agreement without restriction.
16. Company 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 to the other or any
other effective date stated in the notice of waiver. Any waiver Company
grants will be without prejudice to any other rights it may have, will be
subject to its continuing review and may be revoked, in its sole discretion,
at any time and for any reason, effective upon delivery to Franchisee of 10
days' prior written notice.
Company and Franchisee will not be deemed to have waived or impaired any
right, power or option this Agreement reserves (including, without
limitation, Company's right to demand exact
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compliance with every term, condition and covenant or to declare any breach
to be a default and to terminate this Agreement and all other documents that
Company and Franchisee are signing concurrently with or pursuant to this
Agreement before their terms expire) by virtue of any custom or practice at
variance with this Agreement's terms; Company's or Franchisee's failure,
refusal or neglect to exercise any right under this Agreement or to insist
upon the other's exact compliance with its obligations under this Agreement;
Company's waiver, forbearance, delay, failure or omission to exercise any
right, power or option, whether of the same, similar or different nature,
with other Supercuts Store franchisees; the existence of other agreements for
Supercuts Stores which contain provisions different from those this Agreement
contains; or Company's acceptance of any payments due from Franchisee after
any breach of this Agreement. Company and Franchisee agree that, if
Franchisee commits a default under any Franchise Agreement, Rider, Sublease
or other document signed concurrently with or pursuant to this Agreement, but
that default is not so serious in Company's sole discretion as to warrant
Company's termination of this Agreement, Company may elect to pursue
Franchisee for that specific default and need not exercise all of its rights
under this Agreement. However, that decision will not preclude Company, in
the event of another default, from exercising any and all rights under this
Agreement.
17. If any part of this Agreement is declared by a court or arbitrator
to be invalid, unenforceable or unlawful for any reason, that decision will
not affect the validity, enforceability or lawfulness of any other part or
the rest of this Agreement, which will continue in full force and effect and
bind the parties as though the invalid, unenforceable or unlawful part was
not contained in the Agreement.
18. Except as provided below, all controversies, disputes or claims
between Company and Franchisee in connection with, arising from or with
respect to: any provision of this Agreement or any other related agreement;
the relationship of the parties; or the validity of this Agreement or any
other related agreement, or any provision of that agreement; which is not
resolved within 15 days after either party notifies the other in writing of
the controversy, dispute or claim, must be submitted for arbitration to the
San Francisco, California office of the American Arbitration Association on
demand of either party. The arbitration proceedings will be conducted in San
Francisco, California and heard by one arbitrator in accordance with the then
current Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator has the right to award or include in his or her award any
relief which he or she deems proper in the circumstances, including, without
limitation, money damages (with interest on unpaid amounts from date due),
specific performance, injunctive relief and attorneys' fees. The award and
decision of the arbitrator will be conclusive and binding upon all parties,
and judgment upon the award may be entered in any court of competent
jurisdiction. The parties acknowledge and agree that any arbitration award
may be enforced against either or both of them in a court of competent
jurisdiction, and each waives any right to contest the validity or
enforceability of the award. The parties further agree to be bound by the
provision of any statute of limitations which otherwise would be applicable
to the controversy, dispute or claim which is the subject of the arbitration
proceeding. Without limiting the foregoing, the parties are entitled in any
arbitration proceeding to
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<PAGE>
the entry of an order by a court of competent jurisdiction pursuant to an
opinion of the arbitrator for specific performance of any of the requirements
of this Agreement. This provision will continue in full force and effect
subsequent to and notwithstanding this Agreement's expiration or termination.
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.
Despite Company's and Franchisee's agreement to arbitrate, each has the
right in a proper case to seek temporary restraining orders and temporary or
preliminary injunctive relief from a court of competent jurisdiction;
provided, however, that Company and Franchisee must contemporaneously submit
their dispute for arbitration on the merits as provided in this Section.
19. Company's and Franchisee's rights under this Agreement are
cumulative, and either party's exercise or enforcement of any right or remedy
under this Agreement will not preclude its exercise or enforcement of any
other right or remedy under this Agreement which Company or Franchisee is
entitled by law to enforce.
20. The recitals and exhibits are a part of this Agreement which,
together with the documents that Company and Franchisee are signing
concurrently with this Agreement, constitutes Company's and Franchisee's
entire agreement and supersedes all prior negotiations, representations,
inducements, promises or agreements, oral or otherwise.
21. All notices and reports to Company and Franchisee, if not
personally served, will be deemed delivered the same business day after
sending by telegraph, facsimile or comparable electronic system, one business
day after deposit with Federal Express or a comparable overnight courier
company or 3 days after being placed in the U.S. mail by registered or
certified mail, return receipt requested. All notices must be sent postage
prepaid and addressed to the respective party at the addresses noted on page
1 above or as either party otherwise designates in writing from time to time.
22. COMPANY AND FRANCHISEE INTEND THIS AGREEMENT, ALL OTHER AGREEMENTS
AND DOCUMENTS SIGNED CONCURRENTLY WITH THIS AGREEMENT AND ALL OTHER
AGREEMENTS AND DOCUMENTS TO BE SIGNED PURSUANT TO THE RIGHTS GRANTED BY THIS
AGREEMENT (INCLUDING, BUT NOT LIMITED TO, FRANCHISE AGREEMENTS, RIDERS AND
SUBLEASES FOR PURCHASED STORES, CORPORATE STORES AND ADDITIONAL STORES) TO BE
PART OF ONE INTEGRATED TRANSACTION AND NOT SEPARATE TRANSACTIONS. IN THE
EVENT OF A CONFLICT BETWEEN THIS AGREEMENT AND ANY OTHER AGREEMENT, THIS
AGREEMENT WILL PREVAIL.
23. Company makes the following additional representations:
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(a) The transactions this Agreement contemplates do not conflict
with any of the Company's current financing arrangements;
(b) It will reasonably advise any future financing sources of its
obligations under this Agreement;
(c) It has the authority to enter into and perform this Agreement,
and all actions this Agreement contemplates have been approved by all
requisite corporate action;
(d) To the best of its knowledge:
(i) all leases for the Purchased Stores and Corporate Stores
are in full force and effect and not in default;
(ii) it has not received notice from any governmental agency
which would adversely affect the transaction this Agreement
contemplates or the Purchased Stores and Corporate Stores;
(iii) it is not a party to any litigation which would
adversely affect the Purchased Stores and Corporate Stores;
and
(iv) it is in compliance with all laws related to the Purchased
Stores and Corporate Stores; and
(e) The historical financial statements concerning the Purchased
Stores and Corporate Stores that Company has provided to Franchisee were
taken from the records maintained by Company. Company warrants that the
sales levels reflected in those financial statements are true and correct.
However, Franchisee acknowledges and agrees that any historical information
is not a warranty or guaranty that the Purchased Stores and Corporate
Stores will reach those levels of performance after this Agreement's date.
SUPERCUTS, INC., a Delaware LA CARINA SUPERCUTS, INC., a
corporation Florida corporation
By:______________________________ By:______________________________
Its:___________________________ Its:___________________________
Dated:___________________________ Dated:___________________________
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EXHIBIT L
PROMISSORY NOTE
$550,000 September 9, 1996
FOR VALUE RECEIVED, LA CARINA SUPERCUTS, INC., a Florida corporation (La
Carina Supercuts, Inc., its successors and assigns are hereinafter
collectively referred to as "Maker") promises to pay to the order of
SUPERCUTS, INC. (Supercuts, Inc., its successors and assigns are hereinafter
collectively referred to as "Lender") at its office at 550 California Street,
San Francisco, California, 94104, or such other place as the holder hereof
may from time to time appoint in writing, in lawful money of the United
States of America, the principal sum of FIVE HUNDRED FIFTY THOUSAND DOLLARS
($550,000), together with interest on the principal balance from time to time
unpaid at the rate of eight percent (8%) per annum. From and after the
occurrence of an Event of Default (as hereinafter defined) the outstanding
principal amount hereof shall bear interest at the rate of ten percent (10%)
per annum until paid in full. Interest will be computed on the daily
principal balance outstanding during the period from the last payment date to
the current payment date. Interest shall be the product resulting when
multiplying the rate of interest by the principal balance outstanding,
dividing by 360 and then multiplying by the actual number of days interest
has accrued.
Accrued interest on this Note shall be payable in arrears upon the
receipt by Maker of a statement from Lender, but in no event later than the
tenth day of each month for the immediately preceding month, with the first
such payment due no later than October 10, 1996. The principal indebtedness
evidenced by this Note shall be payable in a single installment on September
9, 2003, unless earlier declared due and payable as provided in this Note.
This Note may be prepaid in whole or in part at any time without premium
or penalty.
This Note has been issued pursuant to the terms of Section 7 of that
certain Master Development and Franchise Agreement, dated September 9, 1996
(the "Master Agreement"), between Lender and Maker. The terms, covenants,
conditions, provisions, stipulations and agreements of the Master Agreement
are hereby made a part of this Note, to the same extent and with the same
effect as if they were fully set forth herein. Maker does hereby covenant to
abide by and comply with each and every term, covenant, provision,
stipulation, promise, agreement and condition set forth in the Master
Agreement.
<PAGE>
Maker shall remain liable for the payment of this Note, including
interest, notwithstanding any extensions of time of payment or any indulgence
of any kind or nature that Lender may grant to Maker or any guarantor,
whether with or without notice to Maker, and Maker hereby expressly waives
such notice. No release of any or all of the security given for this
obligation shall release any other maker, co-maker, surety, guarantor, or
other party hereto in any capacity.
Each of the following shall constitute an "Event or Default" under this
Note: (i) the failure of Maker to make any payment of the principal of or
interest on this Note when due and payable, (ii) the failure of Maker to
perform any of its obligations under the Master Agreement in accordance with
the terms thereof, or (iii) the failure of Maker to perform any of its
obligations under the documents and agreements delivered pursuant to the
Master Agreement (the "Documents"). Upon the occurrence of an Event of
Default, this Note shall become immediately due and payable and Lender shall
have all of the rights and remedies provided in the Master Agreement, as well
as those rights and remedies provided by any other applicable law, rule or
regulation.
In the event that Lender institutes legal proceedings to enforce the
provisions of this Note, Maker agrees to pay to Lender, in addition to any
indebtedness due and unpaid, all costs and expenses of such proceedings,
including reasonable attorneys' fees.
Lender shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by an authorized officer of Lender and then only to the extent
specifically set forth therein. A waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on
any other occasion. All remedies conferred upon Lender by the Documents
shall be cumulative and none is exclusive, and such remedies may be exercised
concurrently or consecutively at Lender's option.
Except as expressly provided for in this Note, the Master Agreement or
any Document, every person at any time liable for the payment of the debt
evidenced hereby waives presentment for payment, demand, notice of nonpayment
of this Note, protest and notice of protest, trial by jury in any litigation
arising out of, relating to, or connected with this Note or any instrument
given as security herefor, all exemptions and homestead laws and all rights
thereunder and consents that Lender may extend the time of payment of any
part or the whole of the debt, or grant any other modifications or indulgence
pertaining to payment of this Note at any time, at the request of any other
person liable for said debt.
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Lender for
the use, forebearance or detention of the money advanced or to be advanced
hereunder exceed the highest lawful rate permissible under the laws of the
State of California as applicable to Maker. If, from any circumstances
whatsoever, fulfillment of any provision of this Note or of any of the other
Documents shall, at the time performance of
2
<PAGE>
such provisions shall be due, involve the payment of interest in excess of
that authorized by law, the obligation to be fulfilled shall be reduced to
the limit so authorized by law, and if, from any circumstances, Lender shall
ever receive as interest an amount which would exceed the highest lawful rate
applicable to Maker, such amount which would be excessive interest shall be
applied to the reduction of the unpaid principal balance of the indebtedness
evidenced hereby and not to the payment of interest.
All covenants, agreements, representations and warranties made herein,
in the Master Agreement and in the Documents are deemed to have been relied
upon by Lender, notwithstanding any investigation by Lender on its behalf.
All provisions contained in this Note which are contrary to, prohibited by or
invalid under applicable laws or regulations shall be deemed omitted from
this Note and shall not invalidate the remaining provisions hereof.
This Note is given and accepted as evidence of indebtedness only and not
in payment or satisfaction of any indebtedness or obligation.
The form and essential validity of this Note shall be governed by the
laws of the State of California. If any provision of this Note is prohibited
by, or is unlawful or unenforceable under, any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such prohibition without invalidating the remaining
provisions hereof; provided that where the provisions of any such applicable
law may be waived, they hereby are waived by Maker to the full extent
permitted by law in order that this Note shall be deemed to be a valid and
binding Note in accordance with its terms.
Time is of the essence with respect to all Maker's obligations and
agreements under this Note.
This Note and all the provisions, conditions, promises and covenants
hereof shall inure to the benefit of Lender, its successors and assigns, and
shall be binding in accordance with the terms hereof upon Maker, its
successors and assigns, provided nothing herein shall be deemed consent to
any assignment restricted or prohibited by the terms of the Master Agreement
or the Documents.
All notices required hereunder shall be given in accordance with the
Master Agreement.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
officers to execute this Note on its behalf as of the date and year first set
forth above.
LA CARINA SUPERCUTS, INC.,
a Florida corporation
By:___________________________
Name:______________________
Title:_____________________
3
<PAGE>
EXHIBIT K
PROMISSORY NOTE
$250,000 September 9, 1996
FOR VALUE RECEIVED, LA CARINA SUPERCUTS, INC., a Florida corporation (La
Carina Supercuts, Inc., its successors and assigns are hereinafter
collectively referred to as "Maker") promises to pay to the order of
SUPERCUTS, INC. (Supercuts, Inc., its successors and assigns are hereinafter
collectively referred to as "Lender") at its office at 550 California Street,
San Francisco, California, 94104, or such other place as the holder hereof
may from time to time appoint in writing, in lawful money of the United
States of America, the principal sum of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000), together with interest on the principal balance which has been
advanced and which is from time to time unpaid at the rate of eight percent
(8%) per annum. From and after the occurrence of an Event of Default (as
hereinafter defined) the principal amount hereof shall bear interest at the
rate of ten percent (10%) per annum until paid in full. Interest will be
computed on the daily principal balance outstanding during the period from
the last payment date to the current payment date. Interest shall be the
product resulting when multiplying the rate of interest by the principal
balance outstanding, dividing by 360 and then multiplying by the actual
number of days interest has accrued.
Accrued interest on this Note shall be payable in arrears upon the
receipt by Maker of a statement from Lender, but in no event later than the
tenth day of each month for the immediately preceding month, with the first
such payment due no later than October 10, 1996. The principal indebtedness
evidenced by this Note shall be payable in a single installment on September
9, 1999, unless earlier declared due and payable as provided in this Note.
This Note may be prepaid in whole or in part at any time without premium
or penalty.
This Note has been issued pursuant to the terms of Section 6 of that
certain Master Development and Franchise Agreement, dated September 9, 1996
(the "Master Agreement"), between Lender and Maker. The terms, covenants,
conditions, provisions, stipulations and agreements of the Master Agreement
are hereby made a part of this Note, to the same extent and with the same
effect as if they were fully set forth herein. Maker does hereby covenant to
abide by and comply with each and every term, covenant, provision,
stipulation, promise, agreement and condition set forth in the Master
Agreement.
<PAGE>
Maker shall remain liable for the payment of this Note, including
interest, notwithstanding any extensions of time of payment or any indulgence
of any kind or nature that Lender may grant to Maker or any guarantor,
whether with or without notice to Maker, and Maker hereby expressly waives
such notice. No release of any or all of the security given for this
obligation shall release any other maker, co-maker, surety, guarantor, or
other party hereto in any capacity.
Each of the following shall constitute an "Event or Default" under this
Note: (i) the failure of Maker to make any payment of the principal of or
interest on this Note when due and payable, (ii) the failure of Maker to
perform any of its obligations under the Master Agreement in accordance with
the terms thereof, or (iii) the failure of Maker to perform any of its
obligations under the documents and agreements delivered pursuant to the
Master Agreement (the "Documents"). Upon the occurrence of an Event of
Default, this Note shall become immediately due and payable and Lender shall
have all of the rights and remedies provided in the Master Agreement, as well
as those rights and remedies provided by any other applicable law, rule or
regulation.
In the event that Lender institutes legal proceedings to enforce the
provisions of this Note, Maker agrees to pay to Lender, in addition to any
indebtedness due and unpaid, all costs and expenses of such proceedings,
including reasonable attorneys' fees.
Lender shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by an authorized officer of Lender and then only to the extent
specifically set forth therein. A waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on
any other occasion. All remedies conferred upon Lender by the Documents
shall be cumulative and none is exclusive, and such remedies may be exercised
concurrently or consecutively at Lender's option.
Except as expressly provided for in this Note, the Master Agreement or
any Document, every person at any time liable for the payment of the debt
evidenced hereby waives presentment for payment, demand, notice of nonpayment
of this Note, protest and notice of protest, trial by jury in any litigation
arising out of, relating to, or connected with this Note or any instrument
given as security herefor, all exemptions and homestead laws and all rights
thereunder and consents that Lender may extend the time of payment of any
part or the whole of the debt, or grant any other modifications or indulgence
pertaining to payment of this Note at any time, at the request of any other
person liable for said debt.
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Lender for
the use, forebearance or detention of the money advanced or to be advanced
hereunder exceed the highest lawful rate permissible under the laws of the
State of California as applicable to Maker. If, from any circumstances
whatsoever, fulfillment of any provision of this Note or of any of the other
Documents shall, at the time performance of
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<PAGE>
such provisions shall be due, involve the payment of interest in excess of
that authorized by law, the obligation to be fulfilled shall be reduced to
the limit so authorized by law, and if, from any circumstances, Lender shall
ever receive as interest an amount which would exceed the highest lawful rate
applicable to Maker, such amount which would be excessive interest shall be
applied to the reduction of the unpaid principal balance of the indebtedness
evidenced hereby and not to the payment of interest.
All covenants, agreements, representations and warranties made herein,
in the Master Agreement and in the Documents are deemed to have been relied
upon by Lender, notwithstanding any investigation by Lender on its behalf.
All provisions contained in this Note which are contrary to, prohibited by or
invalid under applicable laws or regulations shall be deemed omitted from
this Note and shall not invalidate the remaining provisions hereof.
This Note is given and accepted as evidence of indebtedness only and not
in payment or satisfaction of any indebtedness or obligation.
The form and essential validity of this Note shall be governed by the
laws of the State of California. If any provision of this Note is prohibited
by, or is unlawful or unenforceable under, any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such prohibition without invalidating the remaining
provisions hereof; provided that where the provisions of any such applicable
law may be waived, they hereby are waived by Maker to the full extent
permitted by law in order that this Note shall be deemed to be a valid and
binding Note in accordance with its terms.
Time is of the essence with respect to all Maker's obligations and
agreements under this Note.
This Note and all the provisions, conditions, promises and covenants
hereof shall inure to the benefit of Lender, its successors and assigns, and
shall be binding in accordance with the terms hereof upon Maker, its
successors and assigns, provided nothing herein shall be deemed consent to
any assignment restricted or prohibited by the terms of the Master Agreement
or the Documents.
All notices required hereunder shall be given in accordance with the
Master Agreement.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
officers to execute this Note on its behalf as of the date and year first set
forth above.
LA CARINA SUPERCUTS, INC.,
a Florida corporation
By:___________________________
Name:_______________________
Title:______________________
3
<PAGE>
GUARANTY
GUARANTY, dated as of September 9, 1996, of DOUGLAS S. BELL, an
individual ("Guarantor"), in favor of "SUPERCUTS, INC.," a Delaware
corporation ("Supercuts").
W I T N E S S E T H:
WHEREAS, La Carina Supercuts, Inc., a Florida corporation ("La Carina"),
has entered each of the documents and agreements set forth on Exhibit A
attached hereto with Supercuts (collectively, the "Documents").
WHEREAS, Guarantor is the owner of all of the outstanding capital stock
of La Carina and Guarantor will derive direct and indirect economic benefits
from the transactions contemplated by the Documents; and
WHEREAS, as a condition precedent to Supercuts's entering into the
Documents and the transactions contemplated thereby, Supercuts is requiring
that Guarantor shall have executed and delivered this Guaranty;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce Supercuts to enter into the Documents
and the transactions contemplated thereby, it is agreed as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the meanings
assigned to them in the foregoing recitals and as set forth below:
"OBLIGATIONS" shall mean all debts, liabilities and obligations for
monetary amounts and all covenants and duties regarding such amounts of any
kind or nature, present or future, of La Carina arising under the Documents.
"PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether Federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"PROMISSORY NOTES" shall mean, collectively, the Promissory Note, dated
September 9, 1996, issued by La Carina to Supercuts in the principal amount
of $250,000 and the Promissory Note, dated September 9, 1996, issued by La
Carina to Supercuts in the principal amount of $550,000.
<PAGE>
References to this "Guaranty" shall mean this Guaranty, including all
amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to the Guaranty as the same may be in
effect at the time such reference becomes operative.
2. THE GUARANTY. The guaranty of Guarantor hereunder is as follows:
2.1 GUARANTY OF OBLIGATIONS OF LA CARINA. Guarantor hereby
unconditionally guarantees to Supercuts, and its successors, indorsees,
transferees and assigns, the prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of the Obligations. Guarantor
agrees that this Guaranty is a guaranty of payment and performance and not
of collection, and that his obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, any Document or any other
agreement, document or instrument to which La Carina and/or Guarantor
is or are or may become a party;
(b) the absence of any action to enforce this Guaranty or any
Document or the waiver or consent by Supercuts with respect to any of
the provisions thereof;
(c) the existence, value or condition of, or failure to perfect
Supercuts's lien against, any security for the Obligations or any
action, or the absence of any action, by Supercuts in respect thereof
(including, without limitation, the release of any such security); or
(d) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by Guarantor that his obligations under this Guaranty shall
not be discharged until the payment and performance, in full, of the
Obligations. Guarantor shall be regarded, and shall be in the same
position, as principal debtor with respect to the Obligations. Guarantor
expressly waives all rights he may have, now or in the future, under any
statute, or at common law, or at law or in equity, or otherwise, to compel
Supercuts to proceed in respect of the Obligations against La Carina or any
other party or against any security for the payment and performance of the
Obligations before proceeding against, or as a condition to proceeding
against, Guarantor. Guarantor agrees that any notice or directive given at
any time to Supercuts which is inconsistent with the waiver in the
immediately preceding sentence shall be null and void and may be ignored by
Supercuts, and, in addition, may not be pleaded or introduced as evidence
in any litigation relating to this Guaranty for the reason that such
pleading or introduction would be at variance with the written terms of
this Guaranty, unless Supercuts has or have specifically agreed otherwise
in
2
<PAGE>
writing. It is agreed among Guarantor and Supercuts that the foregoing
waivers are of the essence of the transaction contemplated by the Documents
and that, but for this Guaranty and such waivers, Supercuts would decline
to enter into the Documents.
2.2 DEMAND BY SUPERCUTS. In addition to the terms of this
Guaranty set forth in Section 2.1 hereof, and in no manner imposing any
limitation on such terms, it is expressly understood and agreed that, if
the then outstanding principal amount of the Obligations (together with
all accrued interest thereon) is declared to be immediately due and
payable, then, Guarantor shall, upon demand in writing therefor by
Supercuts to Guarantor, pay to Supercuts the entire outstanding
Obligations due and owing to Supercuts.
2.3 ENFORCEMENT OF GUARANTY. In no event shall Supercuts have any
obligation (although it is entitled, at its option) to proceed against La
Carina or any other person or any real or personal property pledged to
secure the Obligations before seeking satisfaction from Guarantor, and
Supercuts may proceed, prior or subsequent to, or simultaneously with, the
enforcement of Supercuts's rights hereunder, to exercise any right or
remedy which it may have against any property, real or personal, as a
result of any lien it may have as security for all or any portion of the
Obligations.
2.4 WAIVER. In addition to the waivers contained in Section 2.1
hereof, Guarantor waives, and agrees that he shall not at any time
insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshalling
of assets or redemption laws, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the
performance by Guarantor of his obligations under, or the enforcement by
Supercuts of, this Guaranty. Guarantor hereby waives diligence (whether
for non-payment or protest or of acceptance, maturity, extension of
time, change in nature or form of the Obligations, acceptance of further
security, release of further security, composition or agreement arrived
at as to the amount of, or the terms of, the Obligations, notice of
adverse change in La Carina's financial condition or any other fact
which might materially increase the risk to Guarantor), presentment and
demand with respect to any of the Obligations or all other demands
whatsoever and waives the benefit of all provisions of law which are or
might be in conflict with the terms of this Guaranty. Guarantor
represents, warrants and agrees that, as of the date of this Guaranty,
his obligations under this Guaranty are not subject to any defense
against Supercuts or La Carina of any kind. Guarantor further agrees
that his obligations under this Guaranty shall not be subject to any
counterclaims, offsets or defenses against Supercuts or against La
Carina of any kind which may arise in the future.
2.5 BENEFITS OF GUARANTY. The provisions of this Guaranty are for
the benefit of Supercuts and its successors, transferees, indorsees and
assigns, and nothing herein contained shall impair, as between La Carina
and Supercuts, the obligations of La Carina under the Documents. In the
event all or any part of the Obligations are transferred,
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<PAGE>
indorsed or assigned by Supercuts to any person or persons in accordance
with the provisions of the Documents, any reference to "Supercuts"
herein shall be deemed to refer equally to such Person or Persons.
2.6 MODIFICATION OF OBLIGATIONS, ETC. If Supercuts shall at any
time or from time to time, with or without the consent of, or notice to,
Guarantor:
(a) change or extend the manner, place or terms of payment of,
or renew or alter all or any portion of, the Obligations;
(b) take any action under or in respect of the Documents in the
exercise of any remedy, power or privilege contained therein or
available to it at law, equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Documents;
(d) extend or waive the time for any of Guarantor's, La
Carina's or any other Person's performance of, or compliance with,
any term, covenant or agreement on its part to be performed or
observed under the Documents, or waive such performance or
compliance or consent to a failure of, or departure from, such
performance or compliance;
(e) take and hold security or collateral for the payment of the
Obligations guaranteed hereby or sell, exchange, release, dispose of,
or otherwise deal with, any property pledged, mortgaged or conveyed,
or in which Supercuts has been granted a lien, to secure any
indebtedness of Guarantor or La Carina to Supercuts;
(f) release anyone who may be liable in any manner for the
payment of any amounts owed by Guarantor or La Carina to Supercuts;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of
Guarantor or La Carina are subordinated to the claims of Supercuts;
and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by Guarantor or La Carina to Supercuts in such manner as
Supercuts shall determine in their discretion;
then Supercuts shall not incur any liability to Guarantor pursuant hereto
as a result thereof, and no such action shall impair or release the
obligations of Guarantor under this Guaranty.
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<PAGE>
2.7 REINSTATEMENT. This Guaranty shall remain in full force and
effect and continue to be effective in the event any petition be filed
by or against La Carina or Guarantor for liquidation or reorganization,
in the event La Carina or Guarantor becomes insolvent or makes an
assignment for the benefit of creditors or in the event a receiver or
trustee be appointed for all or any significant part of La Carina's or
Guarantor's assets, and shall continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the
Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by Supercuts, whether as a "voidable preference", "fraudulent
conveyance", or otherwise, all as though such payment or performance had
not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
2.8 ELECTION OF REMEDIES. If Supercuts may, under applicable law,
proceed to realize its benefits under any of the Documents giving
Supercuts a lien upon any collateral, whether owned by La Carina or by
any other Person, either by judicial foreclosure or by non-judicial sale
or enforcement, Supercuts may, at its sole option, determine which of
its remedies or rights it may pursue without affecting any of its rights
and remedies under this Guaranty. If, in the exercise of any of its
rights and remedies, Supercuts shall forfeit any of its rights or
remedies, including its right to enter a deficiency judgment against La
Carina or any other person, whether because of any applicable laws
pertaining to "election of remedies" or the like, Guarantor hereby
consents to such action by Supercuts and waives any claim based upon
such action, even if such action by Supercuts shall result in a full or
partial loss of any rights of subrogation which Guarantor might
otherwise have had but for such action by Supercuts. Any election of
remedies which results in the denial or impairment of the right of
Supercuts to seek a deficiency judgment against La Carina shall not
impair Guarantor's obligation to pay the full amount of the Obligations.
In the event Supercuts shall bid at any foreclosure or trustee's sale or at
any private sale permitted by law or the Documents, Supercuts may bid all
or less than the amount of the Obligations and the amount of such bid need
not be paid by Supercuts but shall be credited against the Obligations.
The amount of the successful bid at any such sale, conducted in a
commercially reasonable manner, whether Supercuts or any other party is the
successful bidder, shall be conclusively deemed to be the fair market value
of the collateral and the difference between such bid amount and the
remaining balance of the Obligations shall be conclusively deemed to be the
amount of the Obligations guaranteed under this Guaranty, notwithstanding
that any present or future law or court decision or ruling may have the
effect of reducing the amount of any deficiency claim to which Supercuts
might otherwise be entitled but for such bidding at any such sale.
5
<PAGE>
2.9 CONTINUING GUARANTY. Guarantor agrees that this Guaranty is a
continuing guaranty and shall remain in full force and effect until the
payment and performance in full of the Obligations.
2.10 WAIVER OF SUBROGATION. Guarantor hereby waives any right of
subrogation Guarantor has or may have against La Carina with respect to
Guarantor's obligations hereunder. In addition, Guarantor hereby waives
any right to proceed against La Carina, now or hereafter, for contribution,
indemnity, reimbursement, and any other suretyship rights and claims,
whether direct or indirect, liquidated or contingent, whether arising under
express or implied contract or by operation of law, which Guarantor may now
have or hereafter have against La Carina with respect to Guarantor's
obligations hereunder. Guarantor also hereby waives any rights to recourse
to or with respect to any asset of La Carina. Guarantor agrees that in
light of the immediately foregoing waivers, the execution of this Guaranty
shall not be deemed to make Guarantor a "creditor" of La Carina, and that
for purposes of Sections 547 and 550 of the Bankruptcy Code, Guarantor
shall not be deemed a "creditor" of La Carina. Guarantor acknowledges and
agrees that this waiver is intended to benefit Supercuts and shall not
limit or otherwise affect Guarantor's liability hereunder or the
enforceability of this Guaranty, and that Supercuts and its successors and
assigns are intended third party beneficiaries of the waivers and
agreements set forth in this Section 2.10 and their rights under this
Section 2.10 shall survive payment in full of the Guaranteed Obligations.
3. DELIVERIES. Guarantor shall deliver to Supercuts, concurrently with
the execution of this Guaranty, each of the following documents duly executed
by Guarantor in form and content acceptable to Supercuts:
(a) Pledge and Security Agreement;
(b) Stock Certificate and stock powers;
(c) Assignment of Life Insurance Policy as Collateral; and
(d) UCC-1 Financing Statement.
2. REPRESENTATIONS AND WARRANTIES. To induce Supercuts to enter into
the Documents and the transactions contemplated thereby, Guarantor makes the
following representations and warranties to Supercuts, each and all of which
shall survive the execution and delivery of this Guaranty:
2.1 NO CONFLICT. The execution, delivery and performance of this
Guaranty and all instruments and documents to be delivered by Guarantor
in connection with this Guaranty, will not violate any law or
regulation, or any order or decree of any court or governmental
instrumentality, will not conflict with or result in the breach of, or
constitute a default under any indenture, mortgage, deed of trust,
lease, agreement or other instrument to which Guarantor is a party or by
which Guarantor or any of his property is bound, will
6
<PAGE>
not result in the creation or imposition of any lien upon any of the
property of Guarantor and the same do not require the consent or
approval of any governmental body, agency, authority or any other Person
except those already obtained.
2.2 ENFORCEABILITY. This Guaranty and each of the instruments and
documents delivered by Guarantor in connection with this Guaranty
constitute the legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms.
3. PERMITTED ASSIGNMENT BY SUPERCUTS. Supercuts may freely assign its
rights and delegate its duties under this Guaranty, but no such assignment or
delegation shall increase or diminish Guarantor's obligations hereunder.
Supercuts agrees to give Guarantor prompt notice of such assignment or
delegation and agrees to use its best efforts to give such notice at least
three (3) business days prior to such assignment or delegation, but the
consent of Guarantor shall not be required for any such assignment or
delegation and failure to give such notice shall not affect the validity or
enforceability of any such assignment or delegation or this Guaranty or
subject Supercuts to any liability.
4. FURTHER ASSURANCES. Guarantor agrees, upon the written request of
Supercuts, to execute and deliver to Supercuts, from time to time, any
additional instruments or documents reasonably considered necessary by Supercuts
to cause this Guaranty to be, become or remain valid and effective in accordance
with its terms.
5. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made
by Guarantor hereunder shall be made to Supercuts free and clear of, and
without deduction for, any and all present and future taxes, withholdings,
levies, duties, and other governmental charges ("Taxes"), excluding such
income and franchise taxes of the United States and/or any political
subdivision thereof with respect to such amounts which would otherwise have
been payable by Supercuts if La Carina had paid the Obligations to Supercuts
in accordance with the terms of the Documents. Upon request by Supercuts,
Guarantor shall furnish to Supercuts a receipt for any Taxes paid by
Guarantor pursuant to this Section 7 or, if no Taxes are payable with respect
to any payments required to be made by Guarantor hereunder, evidence
reasonably acceptable to Supercuts that no such Taxes are payable. If Taxes
are paid by Supercuts, Guarantor will, upon demand of Supercuts, and whether
or not such Taxes shall be correctly or legally asserted, indemnify Supercuts
for such payments, together with any interest, penalties and expenses in
connection therewith plus interest thereon at the rate of ten percent (10%)
per annum.
7
<PAGE>
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT; AMENDMENTS. This Guaranty, together with the
documents delivered in accordance with Section 3 and the other Documents,
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to a
guaranty of the Obligations and may not be amended or supplemented except
by a writing signed by Guarantor and Supercuts.
6.2 HEADINGS. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.
6.3 SEVERABILITY. In the event that any one or more of the
provisions contained in this Guaranty shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision or provisions in every
other respect and the remaining provisions of this Guaranty shall not be
in any way impaired.
6.4 NOTICES. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may
be given to or served upon any of the parties by another, or whenever any
of the parties desires to give or serve upon another any such communication
with respect to this Guaranty, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and either
shall be delivered pursuant to the provisions of Section 21 of the Master
Development and Franchise Agreement, dated September 9, 1996, between La
Carina and Supercuts, addressed as follows:
(a) If to Supercuts, at: Supercuts, Inc.
550 California Street
San Francisco, California 94104
Attention: General Counsel
Telecopy No.: (412) 693-4944
(a) If to Guarantor, at: Douglas S. Bell
2211 Augusta Drive
Suite 13
Houston, Texas 77057
Telecopier No: (713) 621-3109
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other
8
<PAGE>
communication hereunder shall be deemed to have been duly given or
served on the date on which personally delivered, in person, by delivery
service or by overnight courier service, with receipt acknowledged, the
date of telecopy transmission or three (3) business days after the same
shall have been deposited with the United States mail, postage prepaid.
3.1 BINDING EFFECT. This Guaranty shall bind Guarantor and shall
inure to the benefit of Supercuts and its successors and assigns.
Guarantor may not assign this Guaranty.
3.2 NON-WAIVER. The failure of Supercuts to enforce any right or
remedy hereunder, or promptly to enforce any such right or remedy, shall
not constitute a waiver thereof, nor give rise to any estoppel against
Supercuts, nor excuse Guarantor from its obligations hereunder. Any waiver
of any such right or remedy by Supercuts must be in writing and signed by
Supercuts.
3.3 TERMINATION. This Guaranty shall terminate and be of no
further force or effect at such time as the Obligations shall be paid
and performed in full and the Documents are terminated. Upon payment
and performance in full of the Obligations and termination of the
Documents, Supercuts shall deliver to Guarantor such documents as
Guarantor may reasonably request to evidence such termination.
3.4 GOVERNING LAW; WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THE
TERMS OF THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (EXCLUSIVE
OF ANY RULES AS TO CONFLICT OF LAWS) AND THE LAWS OF THE UNITED STATES
APPLICABLE THEREIN. IF AND TO THE EXTENT THAT GUARANTOR AND SUPERCUTS
AGREE NOT TO PROCEED BY MEANS OF ARBITRATION OR ARE NOT REQUIRED TO PROCEED
BY ARBITRATION, GUARANTOR WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER OR
UNDER THE OTHER DOCUMENTS DELIVERED IN CONNECTION WITH THIS GUARANTY OR
RELATING TO EACH OF THE FOREGOING. AS PART OF THE CONSIDERATION FOR NEW
VALUE THIS DAY RECEIVED, GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN SAN FRANCISCO COUNTY, CALIFORNIA
AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON GUARANTOR, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESSES PROVIDED IN SECTION 8.4 ABOVE AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE (3) BUSINESS DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES MAILS,
POSTAGE PREPAID. GUARANTOR WAIVES ANY OBJECTION TO VENUE OF
9
<PAGE>
ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
3.5 ARBITRATION. Except as provided below, all controversies,
disputes or claims between Supercuts and Guarantor in connection with,
arising from or with respect to: any provision of this Guaranty or any
other related agreement; the relationship of the parties; or the
validity of this Guaranty or any other related agreement, or any
provision of such agreement, which is not resolved within 15 days after
either party notifies the other in writing of such controversy, dispute
or claim, shall be submitted for arbitration to the San Francisco,
California office of the American Arbitration Association on demand of
either party. The arbitration proceedings will be conducted in San
Francisco, California and heard by one arbitrator in accordance with the
then current Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator has the right to award or include in his or
her award any relief which he or she deems proper in the circumstances,
including, without limitation, money damages (with interest on unpaid
amounts from date due), specific performance, injunctive relief and
attorneys' fees. The award and decision of the arbitrator will be
conclusive and binding upon all parties, and judgment upon the award may
be entered in any court of competent jurisdiction. The parties
acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction, and each
waives any right to contest the validity or enforceability of the award.
The parties further agree to be bound by the provision of any statute of
limitations which otherwise would be applicable to the controversy,
dispute or claim which is the subject of the arbitration proceeding.
Without limiting the foregoing, the parties are entitled in any
arbitration proceeding to the entry of an order by a court of competent
jurisdiction pursuant to an opinion of the arbitrator for specific
performance of any of the requirements of this Guaranty. This
provision will continue in full force and effect subsequent to and
notwithstanding expiration or termination of this Guaranty. 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.
Despite Supercuts's and Guarantor's agreement to arbitrate, each has
the right in a proper case to seek temporary restraining orders and
temporary or preliminary injunctive relief from a court of competent
jurisdiction; provided, however, that Supercuts and Guarantor must
contemporaneously submit their dispute for arbitration on the merits as
provided in this Section.
3.6 SECURITY. The obligations of Guarantor under this Guaranty are
secured in part pursuant to the terms of the Pledge and Security Agreement
referred to in Section 3.
3.7 COUNTERPARTS. This Guaranty may be executed in any number of
counterparts which shall individually and collectively constitute one
agreement.
10
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
as of the date first above written.
_________________________________
DOUGLAS S. BELL
Accepted and acknowledged by
SUPERCUTS, INC.
By:_________________________________
Name:_____________________________
Title:____________________________
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SUPERCUTS, INC., AND SUBSIDIARIES
AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000822553
<NAME> SUPERCUTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,324
<SECURITIES> 0
<RECEIVABLES> 4,459
<ALLOWANCES> 177
<INVENTORY> 1,654
<CURRENT-ASSETS> 16,005
<PP&E> 43,343
<DEPRECIATION> 15,981
<TOTAL-ASSETS> 97,951
<CURRENT-LIABILITIES> 45,671
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 42,291
<TOTAL-LIABILITY-AND-EQUITY> 97,951
<SALES> 6,662
<TOTAL-REVENUES> 81,391
<CGS> 4,012
<TOTAL-COSTS> 64,560
<OTHER-EXPENSES> 9,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,989
<INCOME-PRETAX> 7,337
<INCOME-TAX> 4,073
<INCOME-CONTINUING> 3,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,264
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
