SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 29, 1997 Commission File Number: 33-27611-NY
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MAIN STREET AND MAIN INCORPORATED
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(Exact Name of registrant as specified in its charter)
DELAWARE 11-2948370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 NORTH 40TH STREET 85018
SUITE 200, PHOENIX, ARIZONA ------------------------------
- ---------------------------------------- (Zip Code)
(Address of principal executive offices)
(602) 852-9000
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
At March 17, 1998, there were outstanding 9,970,691 shares of the registrant's
Common Stock, $.001 par value. The aggregate market value of Common Stock held
by nonaffiliates of the registrant based on the sale trade price of the common
stock as reported by the National Association of Securities Dealers, Inc. on
March 17, 1998, was $29,042,462. For purposes of this computation, all
officers, directors, and 5% beneficial owners of the registrant are deemed to
be affiliates. Such determination should not be deemed an admission that such
officers, directors, or 5% beneficial owners are, in fact, affiliates of the
registrant.
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders is incorporated by
reference into Part III.
<PAGE>
MAIN STREET AND MAIN INCORPORATED
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 29, 1997
TABLE OF CONTENTS
PART I Page
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
ITEM 11. EXECUTIVE COMPENSATION 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 18
SIGNATURES 20
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PART I
ITEM 1. BUSINESS
General
The Company is the world's largest franchisee of T.G.I. Friday's
restaurants, currently owning 30 and managing 16 T.G.I. Friday's restaurants.
The Company owns the exclusive rights to develop additional T.G.I. Friday's
restaurants in territories encompassing most of the states of Arizona, Nevada,
and New Mexico and the San Francisco, California, Kansas City, Kansas, Kansas
City, Missouri and El Paso, Texas metropolitan areas. The Company also has the
exclusive right, together with TGI Friday's Inc., to develop additional T.G.I.
Friday's restaurants in the Los Angeles and San Diego metropolitan areas. The
Company plans to develop additional T.G.I. Friday's restaurants in its existing
development territories, in which it is required to open 35 additional
restaurants by December 31, 2002. In addition, the Company owns one Front Row
Sports Grill and has a 52% ownership interest in Redfish America, LLC, a cajun-
themed restaurant and bar concept, which currently owns and operates four
Redfish Looziana Roadhouse & Seafood Kitchen restaurants.
The Company's strategy is to (i) capitalize on the brand-name recognition
and goodwill associated with T.G.I. Friday's restaurants; (ii) expand the
Company's restaurant operations through the development of additional T.G.I.
Friday's restaurants in its existing development territories and through the
development of new restaurant concepts and the acquisition of restaurants
operating under other restaurant concepts; and (iii) increase its profitability
by continuing to enhance the dining experience of its guests and improving
operating efficiency.
The Company was incorporated in December 1988. The Company maintains its
principal executive offices at 5050 North 40th Street, Suite 200, Phoenix,
Arizona 85018, and its telephone number is (602) 852-9000. As used in this
Report, the term "Company" refers to Main Street and Main Incorporated and its
subsidiaries.
TGI Friday's Inc.
TGI Friday's Inc. is a wholly owned subsidiary of the Carlson Companies
Inc., a diversified company with business interests in the restaurant and
hospitality industries. The first T.G.I. Friday's restaurant was opened in 1965
in New York City. TGI Friday's Inc. has conducted a business since 1972 that is
substantially similar to the business currently conducted by its franchisees.
As of March 5, 1998, TGI Friday's Inc. had 166 franchisor-operated and 316
franchised restaurants operating worldwide. System-wide sales exceeded $1
billion in 1997. TGI Friday's Inc. currently owns approximately 2.6% of the
Company's outstanding Common Stock. Holders of the Company's Common Stock do
not have any financial interest in TGI Friday's Inc., and TGI Friday's Inc. has
no responsibility for the contents of this Report.
Concept
T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of high quality, freshly prepared popular foods and
beverages, including a number of innovative and distinctive menu items. The
restaurants feature quick, efficient, and friendly table service designed to
minimize customer waiting time and facilitate table turnover. Service personnel
are dressed in traditional red-and-white striped knit shirts and casual slacks
and are encouraged to individualize their outfits with decorative pins and
headwear, which enhance the T.G.I. Friday's theme and entertaining dining
atmosphere. The Company's restaurants generally are open seven days a week
between the hours of approximately 11:00 a.m. and 1:00 a.m. The Company
believes that the design and operational consistency of all T.G.I. Friday's
restaurants enable the Company to benefit significantly from the name
recognition and goodwill associated with T.G.I. Friday's restaurants.
Menu
The Company attempts to capitalize on the innovative and distinctive menu
items that have been an important attribute of T.G.I. Friday's restaurants. The
menu consists of more than 90 food items, including appetizers (such as
mushrooms, jalape-no poppers, buffalo wings, stuffed potato skins, quesadillas,
fried onion rings, and pot stickers); a variety of soups, salads, sandwiches,
wrappers, burgers,
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pizzadillas, and pasta; southwestern, oriental, and American specialty items;
beef, seafood, and chicken entrees; a kids' menu; and desserts. Beverages
include a full bar featuring wines, beers, classic and specialty cocktails and
after dinner drinks, soft drinks, milk, milk shakes, malts, hot chocolate,
coffee, tea, frozen fruit drinks known as Friday's Smoothies,\T and sparkling
fruit juice combinations known as Friday's Flings(R).
Menu prices range from $6 to $17 for beef, chicken, and seafood entrees;
$6 to $10 for pizzadillas, pasta, wrappers, and oriental and southwestern
specialty items; $4 to $9 for salads, sandwiches, and burgers; and $3 to $10
for appetizers and soups. Each restaurant offers a separate children's menu
with food entrees ranging from $2 to $3. Alcoholic beverage sales currently
account for approximately 23.6% of total revenue.
Restaurant Layout
Each of the Company's restaurants is similar in terms of exterior and
interior design. Each restaurant features a distinctive decor accented by
red-and-white striped awnings, brass railings, stained glass, and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.
Most of the restaurants are located in free-standing buildings. The
restaurants contain an average of 60 dining tables, seating an average of 210
guests, and a bar area seating an average of approximately 30 additional
guests.
The restaurants normally contain between 5,500 and 9,000 square feet of
space and average approximately 7,500 square feet. Most of the Company's
recently developed restaurants, however, contain 6,500 square feet of space.
Unit Economics
The Company estimates that its total cost of opening a new T.G.I. Friday's
restaurant currently ranges from $1,450,000 to $2,200,000, exclusive of annual
operating expenses and assuming that the underlying real estate is obtained
under a lease arrangement. These costs include approximately (i) $700,000 to
$1,450,000 for building, improvements, and permits, including liquor licenses,
(ii) $550,000 for furniture, fixtures, and equipment, (iii) $150,000 in
pre-opening expenses, including hiring expenses, wages for managers and hourly
employees, and supplies, and (iv) $50,000 for the initial franchise fee. Actual
costs, however, may vary significantly depending upon a variety of factors,
including the site and size of the restaurant and conditions in the local real
estate and employment markets. The Company's restaurants open for all of fiscal
1997 generated an average of approximately $2,949,000 in annual revenue.
Site Selection
When evaluating whether and where to seek expansion of the Company's
restaurant operations, the Company analyzes a restaurant's profit potential.
The Company considers the location of a restaurant to be one of the most
critical elements of the restaurant's long-term success. Accordingly, the
Company expends significant time and effort in the investigation and evaluation
of potential restaurant sites. In conducting the site selection process, the
Company obtains and examines detailed demographic information (such as
population characteristics, density, and household income levels), evaluates
site characteristics (such as visibility, accessibility, and traffic volume),
considers the restaurant's proximity to demand generators (such as shopping
malls, lodging, and office complexes), and analyzes potential competition.
Senior corporate management evaluates and approves each restaurant site prior
to its acquisition. TGI Friday's Inc. provides site selection guidelines and
criteria as well as site selection counseling and assistance. The selection of
a restaurant site by the Company requires the consent of TGI Friday's Inc.
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Current Restaurants
The following table sets forth certain information relating to each of
restaurants owned or managed by the Company as of March 17, 1998.
<TABLE>
<CAPTION>
Owned or
Square Seating In Operation Managed by the
Location Footage Capacity Since Company Since
- ---------------- ------- -------- ----- -------------
<S> <C> <C> <C> <C>
Acquired T.G.I. Friday's Restaurants (Owned)
Phoenix, Arizona .............................. 9,396 298 1985 1990
Mesa, Arizona ................................. 9,396 298 1985 1990
Tucson, Arizona ............................... 7,798 290 1982 1990
Las Vegas, Nevada ............................. 9,194 298 1982 1990
Kansas City, Missouri ......................... 8,500 270 1983 1993
Overland Park, Kansas ......................... 6,000 220 1992 1993
San Diego, California ......................... 8,002 234 1979 1993
Costa Mesa, California ........................ 8,345 232 1980 1993
Woodland Hills, California .................... 8,358 283 1980 1993
Valencia, California .......................... 6,500 232 1993 1993
Torrance, California .......................... 8,923 237 1982 1993
La Jolla, California .......................... 9,396 225 1984 1993
Palm Desert, California ....................... 9,194 235 1983 1993
West Covina, California ....................... 9,396 232 1984 1993
North Orange, California ...................... 9,194 213 1983 1993
Ontario, California ........................... 5,700 190 1993 1993
Laguna Niguel, California ..................... 6,730 205 1990 1993
San Bernardino, California .................... 9,396 236 1986 1993
Brea, California .............................. 6,500 195 1991 1993
Riverside, California ......................... 6,500 172 1991 1993
Developed T.G.I. Friday's Restaurants (Owned)
Scottsdale, Arizona ........................... 8,507 281 1991 1991
Glendale, Arizona ............................. 5,200 230 1993 1993
Albuquerque, New Mexico ....................... 5,975 270 1993 1993
Reno, Nevada .................................. 6,500 263 1994 1994
Oxnard, California ............................ 6,500 252 1994 1994
Carmel Mountain, California ................... 6,500 252 1995 1995
Rancho Santa Margarita, California ............ 6,548 252 1995 1995
Portland, Oregon (Front Row Sports Grill) ..... 13,080 320 1996 1996
Cerritos, California .......................... 6,250 223 1996 1996
Las Vegas, Nevada ............................. 6,700 251 1997 1997
San Francisco, California ..................... 6,700 251 1998 1998
Managed T.G.I. Friday's Restaurants(1)
San Bruno, California ......................... 8,345 200 1980 1993
San Francisco, California ..................... 4,748 161 1989 1993
San Jose, California .......................... 8,002 228 1977 1993
San Mateo, California ......................... 9,396 252 1984 1993
San Ramon, California ......................... 6,000 182 1990 1993
Lafayette, Louisana ........................... 6,800 277 1993 1996
Metarie, Louisiana ............................ 9,000 290 1978 1996
New Orleans, Louisiana ........................ 7,100 258 1994 1996
El Paso, Texas ................................ 4,800 198 1997 1997
Redfish Restaurants
Chicago, Illinois ............................. 6,200 214 1996 1997
Wheaton, Illinois ............................. 7,133 210 1997 1997
Denver, Colorado .............................. 7,925 321 1997 1997
Cincinnati, Ohio .............................. 7,133 239 1997 1997
</TABLE>
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(1) Does not include seven T.G.I. Friday's restaurants the Company began
managing on December 23, 1997 which are in the process of being purchased.
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The average size of the Company's acquired restaurants is approximately
8,000 square feet, and the average size of the Company's developed T.G.I.
Friday's restaurants is approximately 6,300 square feet.
Restaurant Operations
The T.G.I. Friday's System
T.G.I. Friday's restaurants are developed and operated pursuant to a
specified system (the "T.G.I. Friday's System" or the "System"). TGI Friday's
Inc. maintains detailed standards, specifications, procedures, and operating
policies to facilitate the success and consistency of all T.G.I. Friday's
restaurants. To ensure that the highest degree of quality and service is
maintained, each franchisee of TGI Friday's Inc. (including the Company) must
operate each T.G.I. Friday's restaurant in strict conformity with these
methods, standards, and specifications.
The Company believes the support as well as the standards, specifications,
and operating procedures of TGI Friday's Inc. are important elements in its
restaurant operations. The Company's policy is to execute these specifications,
procedures, and policies to the highest level of the standards of TGI Friday's
Inc.
The T.G.I. Friday's System includes distinctive exterior and interior
design, decor, color scheme, and furnishings; uniform specifications and
procedures for operations; standardized menus featuring special recipes and
menu items; procedures for inventory and management control; formal training
and assistance programs; and advertising and promotional programs. The T.G.I.
Friday's System also includes requirements for quality and uniformity of
products and services offered; the purchase or lease and use of equipment,
fixtures, furnishings, signs, inventory, recorded music, ingredients, and other
products and materials required for the development and operation of
restaurants conforming with the standards and specifications of TGI Friday's
Inc. from approved suppliers; and standards for the maintenance, improvement,
and modernization of restaurants, equipment, furnishings, and decor. TGI
Friday's Inc. has committed to its franchisees to continue to improve and
further develop the T.G.I. Friday's System and to provide such new information
and techniques to the franchisees by means of the Confidential Franchise
Operating manuals. The T.G.I. Friday's System is identified by means of certain
trade names, service marks, trademarks, logos, and emblems, including the marks
T.G.I. Friday's(R) and Friday's(R).
Once a restaurant is integrated into the Company's operations, the Company
provides a variety of corporate services to assure the proper execution of the
T.G.I. Friday's System and the operational success of the restaurant. The
Company's executive management continually monitors restaurant operations;
maintains management controls; inspects individual restaurants to assure the
quality of products and services and the maintenance of facilities; develops
employee programs for efficient staffing, motivation, compensation, and career
advancement; institutes procedures to enhance efficiency and reduce costs; and
provides centralized support systems.
The Company also maintains quality assurance procedures designed to assure
compliance with the high quality of products and services mandated by the
Company and TGI Friday's Inc. The Company responds to and investigates
inquiries and complaints, initiates on-site resolution of deficiencies, and
consults with each restaurant's staff to assure that proper action is taken to
correct any deficiency. Company personnel make unannounced visits to
restaurants to evaluate the facilities, products, and services. The Company
believes that its quality review program and executive oversight enhance
restaurant operations, reduce operating costs, improve customer satisfaction,
and facilitate the highest level of compliance with the T.G.I. Friday's System.
Restaurant Management
The Company's regional and restaurant management personnel are responsible
for complying with the operational standards of the Company and TGI Friday's
Inc. The Company's six regional managers are responsible for between five and
eleven of the Company's restaurants within their region and report to one of
the Company's two Directors of Operations who in turn report to the Company's
Vice President of Operations. Restaurant managers are responsible for
day-to-day restaurant operations, including customer relations, food
preparation and service, cost control, restaurant maintenance, and personnel
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relations. The Company typically staffs its restaurants with an on-site general
manager, one or two assistant managers, a kitchen manager, and approximately 90
hourly employees.
Recruitment and Training
The Company attempts to hire employees who are committed to the standards
maintained by the Company and TGI Friday's Inc. The Company also believes that
its high unit sales volume, the image and atmosphere of the T.G.I. Friday's
restaurant concept, and its career advancement and employee benefit programs
enable it to attract high quality management and restaurant personnel and to
enjoy a low level of employee turnover relative to the industry.
The Company emphasizes participation in continuing training programs
maintained by TGI Friday's Inc. and supplements those programs through the
employment of personnel devoted solely to employee training. Each restaurant
general and assistant manager completes a formal training program conducted by
the Company and TGI Friday's Inc., receiving between 10 and 15 weeks of
training depending on the prior experience and ability of the trainee. The
training covers all aspects of management philosophy and overall restaurant
operations, including supervisory skills, operating standards, accounting
procedures, employee selection and training, and the performance of all
positions necessary for restaurant operations.
Management believes that the Company's incentive, motivation, and training
programs enhance employee performance, result in better customer service, and
increase restaurant efficiency. The Company has implemented incentive programs
that reward restaurant managers when the restaurant's operating results surpass
designated goals and a reward and recognition program for outstanding
achievements by employees.
Maintenance and Improvement of Restaurants
The Company maintains its restaurants and all associated fixtures,
furnishings, and equipment in conformity with the T.G.I. Friday's System. The
Company also makes necessary additions, alterations, repairs, and replacements
to its restaurants as required by TGI Friday's Inc., including periodic
repainting or replacement of obsolete signs, furnishings, equipment, and decor.
The Company may be required, subject to certain limitations, to modernize its
restaurants to the then-current standards and specifications of TGI Friday's
Inc.
Management Information Systems
The Company has devoted considerable resources to develop and implement
management information systems that complement proprietary systems developed
and maintained by TGI Friday's Inc. Inventory control and transaction
processing are effected by means of a computerized sales system, which is
integrated into data processing systems the Company utilizes for financial and
management control, centralized accounting, and management information systems.
The Company uses five to six touchscreen computer registers located
conveniently throughout each of its restaurants. Servers enter guest orders by
touching the appropriate sections of the register's computer screen, which
transfers the information electronically to the kitchen and bar for
preparation. These registers also are connected to a personal computer in the
Company's restaurant and to the Company's corporate information system via
modem. Management receives detailed comparative reports on each restaurant's
sales and expense performance daily, weekly, and monthly.
The Company believes that its management information systems enable it to
increase the speed and accuracy of order taking and pricing, to better assess
guest preferences, to efficiently schedule labor to better serve guests, to
quickly and accurately monitor food and labor costs, to promptly access
financial and operating data, and to improve the accuracy and efficiency of
store-level information and reporting.
Equipment, Food Products, and Other Supplies
The Company leases or purchases all fixtures, furnishings, equipment,
signs, recorded music, food products, supplies, inventory, and other products
and materials required for the development and operation of its T.G.I. Friday's
restaurants from suppliers approved by TGI Friday's Inc. In order to be
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approved as a supplier, a prospective supplier must demonstrate to the
reasonable satisfaction of TGI Friday's Inc. its ability to meet the
then-current standards and specifications of TGI Friday's Inc. for such items,
possess adequate quality controls, and have the capacity to provide supplies
promptly and reliably. The Company is not required to purchase supplies from
any specified suppliers, but the purchase or lease of any items from an
unapproved supplier requires the prior approval of TGI Friday's Inc.
TGI Friday's Inc. maintains a list of approved suppliers and a set of the
T.G.I. Friday's System standards and specifications. TGI Friday's Inc. receives
no commissions on direct sales to its franchisees, but may receive rebates and
promotional discounts from manufacturers and suppliers, which are generally
passed on proportionately to the Company. TGI Friday's Inc. is an approved
supplier of various kitchen equipment and store fixtures, decorative
memorabilia, and various paper goods, such as menus and in-store advertising
materials and items. However, the Company is not required to purchase such
items from TGI Friday's Inc. If the Company elects to purchase such items from
TGI Friday's Inc., TGI Friday's Inc. derives revenue as a result of such
purchases.
Although not required to do so, the Company purchases from a single
national food supplier, utilized by TGI Friday's Inc. and many of its other
franchisees, most of the Company's key food products (with the exception of
produce, dairy products, and bread, which it purchases from approved local
suppliers) as well as many of its other restaurant supplies. This supplier is
not affiliated with the Company or TGI Friday's Inc. The Company does not have
a supply agreement or other contractual arrangement with the supplier and
effects purchases through purchase orders.
The Company's restaurants utilize a simple bar code system for daily
ordering of their primary food and merchandise items. Orders are sent
electronically to the supplier. The supplier guarantees 100% product delivery
overnight or same day deliveries and has comprehensive warehouse/delivery
outlets servicing each of the Company's markets.
The Company believes that its purchases from the supplier enable the
Company to maintain a high level of quality consistent with T.G.I. Friday's
restaurants, to realize convenience and dependability in the receipt of its
supplies, to avoid the costs of maintaining a large purchasing department,
large inventories, and product warehouses, and to attain cost advantages as the
result of volume purchases. The Company believes, however, that all essential
products are available from other national suppliers as well as from local
suppliers in the cities in which the Company's restaurants are located in the
event the Company determines to purchase its supplies from other suppliers.
Advertising and Marketing
The Company participates in the national marketing and advertising
programs conducted by TGI Friday's Inc. See "Business -- Franchise Agreements."
The programs primarily utilize network television and national publications and
feature new menu innovations and various promotion programs. In addition, the
Company from time to time supplements the marketing and advertising programs
conducted by TGI Friday's Inc. through local radio, newspaper, and magazine
advertising media and sponsorship of community events. During October 1995, in
conjunction with TGI Friday's Inc., the Company introduced a frequent diner
program that includes awards of food, merchandise and travel to frequent diners
based upon points accumulated through purchases.
As a franchisee of TGI Friday's Inc., the Company is able to utilize the
trade names, service marks, trademarks, emblems, and indicia of origin of TGI
Friday's Inc., including the marks T.G.I. Friday's(R) and Friday's(R). The
Company advertises in various media utilizing these marks to attract new
customers to its restaurants.
Expansion of Operations
Since 1990, the Company has acquired 30 existing T.G.I. Friday's
restaurants as well as the exclusive rights to develop restaurants in specified
territories. The acquisitions include 20 restaurants in California, three in
Arizona, and one in each of Colorado, Kansas, Missouri, Nebraska, Nevada,
Oregon, and Washington. The Company also has developed 15 new T.G.I. Friday's
restaurants. These include five in California, three in Washington, two in each
of Arizona and Nevada, and one in each of Colorado, New
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Mexico, and Texas. See "Business -- Current Restaurants." The Company
subsequently sold five of the restaurants it acquired in California, which it
continues to manage, and sold eight restaurants in Colorado, Nebraska, Oregon,
and Washington. In addition, the Company has developed one Friday's Front Row
Sports Grill in Portland, Oregon and, in 1997 acquired a 52% ownership interest
in Redfish America, LLC, which currently owns and operates four Redfish
Looziana Roadhouse & Seafood Kitchen restaurants. The Company recently entered
into a purchase agreement to acquire seven T.G.I. Friday's restaurants in
northern California and the related T.G.I. Friday's Development Agreements.
The Company plans to expand its restaurant operations through the
development of additional restaurants in the Company's existing development
territories. The Company plans to open ten additional restaurants over the next
year and to meet or exceed its development requirements thereafter. The Company
has sites for new T.G.I. Friday's restaurants in each of Mesa, Arizona, El
Paso, Texas, and San Diego, California. The Company currently is considering
other sites for additional restaurants, but has not entered into leases or
purchase agreements for any such sites.
The opening of new restaurants will depend on the Company's ability to
locate suitable sites in terms of favorable population characteristics, density
and household income levels, visibility, accessibility and traffic volume,
proximity to demand generators (including shopping malls, lodging, and office
complexes) and potential competition; to obtain financing for construction,
tenant improvements, furniture, fixtures, equipment, and other expenditures; to
negotiate acceptable leases or terms of purchase; to secure zoning,
environmental, health and similar regulatory approvals and liquor licenses; to
recruit and train qualified personnel; and to manage successfully the rate of
expansion and expanded operations. The opening of new restaurants also may be
affected by increased construction costs and delays resulting from governmental
regulatory approvals, strikes or work stoppages, adverse weather conditions,
and various acts of God. Newly opened restaurants may operate at a loss for a
period following their opening. The length of this period will depend upon a
number of factors, including the time of year the restaurant is opened, sales
volume, and operating costs. The acquisition of existing restaurants will
depend upon the Company's ability to identify and purchase restaurants that
meet its criteria on satisfactory terms and conditions. There can be no
assurance that the Company will be successful in achieving its expansion goals
through the development or acquisition of additional restaurants or that any
additional restaurants that are developed or acquired will be profitable. In
addition, the opening of additional restaurants in an existing market may have
the effect of drawing customers from and reducing the sales volume of existing
restaurants.
Development Agreements
The Company is a party to three development agreements with TGI Friday's
Inc. Each development agreement grants the Company the exclusive right to
develop additional T.G.I. Friday's restaurants in a specified territory and
obligates the Company to develop additional T.G.I. Friday's restaurants in that
territory in accordance with a specified development schedule.
The Company owns the exclusive rights to develop additional T.G.I.
Friday's restaurants in territories encompassing most of the states of Arizona,
Nevada, and New Mexico and the San Francisco, California, Kansas City, Kansas,
Kansas City, Missouri and El Paso, Texas metropolitan areas. The Company also
has the exclusive right, together with TGI Friday's Inc., to develop additional
T.G.I. Friday's restaurants in the Los Angeles and San Diego metropolitan
areas.
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The following table sets forth information regarding the Company's minimum
requirements to open new T.G.I. Friday's restaurants under its current
development agreements as well as the number of existing restaurants in each of
the Company's development territories.
<TABLE>
<CAPTION>
Los San San
Angeles Diego Francisco Southwest Midwest
Year Territory(1)(2) Territory(1)(2) Territory(2) Territory(3) Territory(4) Total
- ---- --------------- --------------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
1998 ..................... 2 1 1 2 1 7
1999 ..................... 2 1 1 1 1 6
2000 ..................... 3 1 1 1 1 7
2001 ..................... 3 1 1 1 1 7
2002 ..................... 4 1 1 1 1 8
-- -- -- -- -- --
14 5 5 6 5 35
Existing Restaurants...... 15 3 1 (5) 9 (6) 2 30
</TABLE>
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(1) TGI Friday's Inc. also will develop restaurants in this region.
(2) The Los Angeles, San Diego, and San Francisco Territories are covered by
one development agreement.
(3) Includes the states of Arizona, Nevada, and New Mexico and the El Paso,
Texas metropolitan area.
(4) Includes metropolitan Kansas City, Kansas and Kansas City, Missouri.
(5) Does not include 12 restaurants managed in the San Francisco Territory.
(6) Does not include one restaurant managed in the Southwest Territory.
Each development agreement gives TGI Friday's Inc. certain remedies in the
event that the Company fails to comply in a timely manner with its schedule for
restaurant development, if the Company otherwise defaults under the development
agreement or any franchise agreement relating to a restaurant within that
development territory as described below, or if the Company's officers or
directors breach the confidentiality or noncompete provisions of the
development agreement. The remedies available to TGI Friday's Inc. include (i)
the termination of the Company's exclusive right to develop restaurants in the
related territory; (ii) a reduction in the number of restaurants the Company
may develop in the related territory; (iii) the termination of the development
agreement; and (iv) an acceleration of the schedule for development of
restaurants in the related territory pursuant to the development agreement.
Franchise Agreements
The Company enters into a separate franchise agreement with respect to
each T.G.I. Friday's restaurant that it develops pursuant to a development
agreement. Each franchise agreement grants the Company an exclusive license to
operate a T.G.I. Friday's restaurant within a designated geographic area
(generally a three-mile limit from each restaurant) and obligates the Company
to operate such restaurant in accordance with the requirements and
specifications established by TGI Friday's Inc. relating to the preparation of
food products and quality of service as well as general operating procedures,
advertising, maintenance of records, and protection of trademarks. The
franchise agreements restrict the ability of the Company to transfer its
interest in its T.G.I. Friday's restaurants without the consent of TGI Friday's
Inc.
Each franchise agreement requires the Company to pay to TGI Friday's Inc.
an initial franchise fee, generally in the amount of $50,000. In addition, the
Company is obligated to pay TGI Friday's Inc. a royalty in the amount of 4% of
the gross revenue as defined in the franchise agreement for each restaurant.
Royalty payments under these agreements totaled $4,800,000, $4,850,000, and
$4,120,000 during fiscal 1995, 1996, and 1997, respectively. Each franchise
agreement also requires the Company to spend at least 2% of gross sales as
defined in the franchise agreement on local marketing and to contribute up to
4% of gross sales to a national marketing pool that is administered by TGI
Friday's Inc. During fiscal 1997, however, TGI Friday's Inc. generally required
the Company as well as all other franchisees to contribute up to 1.9% of gross
sales to the national marketing pool. Marketing expenses totaled
8
<PAGE>
$2,360,000, $1,554,000, and $1,919,000 during fiscal 1995, 1996, and 1997,
respectively. All funds contributed in excess of 2% of gross sales to the
national advertising fund may be credited against the local advertising
requirement.
A default under any franchise agreement will not constitute a default
under any other franchise agreement. A default under the franchise agreement
for a restaurant in a development territory may constitute a default under the
development agreement for that development territory.
Government Regulation
Each of the Company's restaurants is subject to licensing and regulation
by state and local departments and bureaus of alcohol control, health,
sanitation, and fire and to periodic review by the state and municipal
authorities for areas in which the restaurants are located. In addition, the
Company is subject to local land use, zoning, building, planning, and traffic
ordinances and regulations in the selection and acquisition of suitable sites
for constructing new restaurants. Delays in obtaining, or denials of, or
revocation or temporary suspension of, necessary licenses or approvals could
have a material adverse impact upon the Company's development of restaurants.
The Company also is subject to regulation under the Fair Labor Standards Act,
which governs such matters as working conditions and minimum wages. An increase
in the minimum wage rate or changes in tip-credit provisions, employee benefit
costs (including costs associated with mandated health insurance coverage) or
other costs associated with employees could adversely affect the Company. In
addition, the Company is subject to the Americans with Disabilities Act of 1990
that among other things, may require certain installations in new restaurants
or renovations to existing restaurants to meet federally mandated requirements.
To the Company's knowledge, the Company is in compliance in all material
respects with all applicable federal, state, and local laws affecting its
business.
Competition
The restaurant business is highly competitive with respect to price,
service, and food type and quality. In addition, restaurants compete for the
availability of restaurant personnel and managers. The Company's restaurants
compete with a large number of other restaurants, including national and
regional restaurant chains and franchised restaurant systems, many of which
have greater financial resources, more experience, and longer operating
histories than the Company, as well as with locally owned, independent
restaurants.
The Company's casual dining business also competes with various types of
food businesses, as well as other businesses, for restaurant locations. The
Company believes that site selection is one of the most crucial decisions
required in connection with the development of restaurants. As the result of
the presence of competing restaurants in the Company's development territories,
management devotes great attention to obtaining what it believes will be
premium locations for new restaurants, although no assurances can be given that
the Company will be successful in this regard.
Employees
The Company employs approximately 1,430 persons on a full-time basis, of
whom 50 are corporate management and staff personnel and 1,380 are restaurant
personnel. The Company also employs approximately 2,540 part-time employees.
Except for corporate and management personnel, employees generally are paid on
an hourly basis. The Company employs at each of its restaurants an average of
approximately 90 full-time and part-time hourly employees. None of the
Company's employees are covered by a collective bargaining agreement with the
Company. The Company never has experienced a major work stoppage, strike, or
labor dispute. The Company considers its relations with its employees to be
good.
9
<PAGE>
ITEM 2. PROPERTIES
In December 1993, the Company entered into a five-year lease for space to
serve as its corporate offices. The Company believes that the leased space is
adequate for its current and reasonably anticipated needs and that it will be
able to secure adequate space upon the expiration of the lease. See "Certain
Relationships and Related Transactions."
The Company leases space for all its restaurants. The initial lease terms
range from 10 to 20 years and contain renewal options for up to 20 years. The
leases typically provide for a fixed rental plus percentage rental. See Note 7
to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to routine contract, negligence,
employment related, and other litigation in the ordinary course of business.
The Company does not believe that it is subject to any pending litigation that
will have material adverse effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "MAIN" since October 30, 1992. The following table sets forth
the quarterly high and low sales prices of the Company's Common Stock for the
periods indicated as reported by the Nasdaq Stock Market.
High Low
---- ---
1996
First Quarter ............ $3-3/8 $2-3/8
Second Quarter ........... 4-3/8 2-1/4
Third Quarter ............ 3-1/8 1-3/4
Fourth Quarter ........... 2-7/8 1-3/8
1997
First Quarter ............ 2-9/16 1-9/16
Second Quarter ........... 2-25/32 1-5/8
Third Quarter ............ 3-7/8 2-5/16
Fourth Quarter ........... 4-3/8 2-5/8
On March 17, 1998, there were 770 holders of record of the Company's
Common Stock. On March 17, 1998, the closing sale price of the Common Stock on
the Nasdaq National Market was $3 7/8.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the Company for the periods indicated. The selected consolidated financial data
for each of the five fiscal years in the period ending December 29, 1997 has
been derived from the Company's consolidated financial statements, which have
been audited by Arthur Andersen LLP, independent accountants. This data should
be read in conjunction with, and are qualified by reference to, the Company's
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
(In thousands, except per share amounts)
Dec. 31, Dec. 26, Dec. 25, Dec. 30, Dec. 29
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................... $ 30,510 $ 111,262 $119,508 $ 122,563 $107,997
Restaurant operating expenses:
Cost of sales .................................. 8,645 30,516 34,005 35,089 30,995
Payroll and benefits ........................... 9,604 34,849 36,769 38,858 32,469
Depreciation and amortization .................. 1,176 3,884 4,353 4,586 3,552
Other operating expenses ....................... 8,364 31,621 35,250 36,944 30,589
--------- ---------- -------- --------- --------
Total restaurant operating expenses ........... 27,789 100,870 110,377 115,477 97,605
--------- ---------- -------- --------- --------
Income from restaurant operations ............... 2,721 10,392 9,131 7,086 10,392
Depreciation and amortization .................. 313 1,014 1,331 1,450 953
General and administrative expenses ............ 3,339 4,191 4,410 4,388 4,559
Restructuring and reorganization ............... -- -- -- 20,208 (2,390)
--------- ---------- -------- --------- --------
Operating income (loss) ......................... (931) 5,187 3,390 (18,960) 7,270
Interest expense, net .......................... 413 3,902 4,424 3,206 2,466
--------- ---------- -------- --------- --------
Net income (loss) from continuing
operations before income taxes and
extraordinary item ............................. (1,344) 1,285 (1,034) (22,166) 4,804
Provision for income taxes ...................... -- -- -- -- --
--------- ---------- -------- --------- --------
Net income (loss) from continuing
operations before extraordinary item ........... (1,344) 1,285 (1,034) (22,166) $ 4,804
Net income (loss)(1) ............................ $ (2,943) $ 1,285 $ (1,034) $ (22,166) $ 3,166
Diluted earings per share:
Net income (loss) from continuing
operations before extraordinary item .......... $ (0.42) $ 0.35 $ (0.22) $ (2.73) $ 0.47
Net income (loss)(1) ........................... $ (0.93) $ 0.35 $ (0.22) $ (2.73) $ 0.31
Weighted average shares outstanding --
diluted ........................................ 3,163 3,692 4,621 8,110 10,098
Balance Sheet Data:
Working capital ................................ $ (2,452) $ (10,905) $ (7,848) $ (1,343) $ (1,330)
Total assets ................................... 75,491 84,503 88,605 70,848 62,742
Long-term debt, net of current portion ......... 44,814 41,265 31,204 33,809 24,308
Stockholders' equity ........................... 21,006 22,601 37,261 16,585 22,203
</TABLE>
- ------------
(1) Fiscal 1993 includes $1,599,000, or $0.51 per share, of net loss related to
discontinued operations. Fiscal 1997 includes an extraordinary loss from
debt extinguishment of $1,638,000 or $0.16 per share.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company commenced its restaurant operations in May 1990 with the
acquisition of four T.G.I. Friday's restaurants in Arizona and Nevada. During
the past seven years, the Company has grown through acquisitions and
development of new restaurants and currently manages 51 restaurants.
During 1996, the Company had a change in management and implemented a
long-term business strategy to enhance its financial position, to place more
emphasis on its casual dining business in certain designated areas, and to
dispose of underperforming assets.
The first step was to strengthen the Company's financial position. This
was accomplished by the sale of 1,566,666 shares of Common Stock for $3,000,000
through a private placement transaction in January 1997, the sale of five
restaurants in northern California in March 1997 for $10,575,000, of which
$8,000,000 in proceeds were used to repay debt (See Notes 3 and 5 to Notes to
Consolidated Financial Statements), and new borrowings of $21.3 million with a
repayment period of 15 years. Proceeds from the new borrowings were used
primarily to pay off debt with shorter repayment periods (See Note 5 to Notes
to Consolidated Financial Statements).
The Company has also renegotiated its development agreements with T.G.I.
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is
required to build with the intent to focus on those development territories
that are most economically favorable (See Note 7 to Notes to Consolidated
Financial Statements). In addition, the Company has recorded a restructuring
and reorganization gain of $2,390,000 in 1997 and a loss of $20,208,000 in 1996
to dispose of various non-core assets and write down certain core assets to
realizable values (See Note 2 to Notes to Consolidated Financial Statements).
The next step in the Company's strategy will be to reduce operating costs
and expand its restaurant operations. This will entail continuing to build
T.G.I. Friday's restaurants and evaluating other concepts in the casual dining
segment. In April 1997, the Company became a majority partner in a venture to
develop and operate cajun-themed restaurants.
Results of Operations
The following table sets forth, for the periods indicated, the percentages
which certain items of income and expense bear to total revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
December 25, December 30, December 29,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenue ...................................... 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ............................... 28.5 28.6 28.7
Payroll and benefits ........................ 30.8 31.7 30.1
Depreciation and amortization ............... 3.6 3.7 3.3
Other operating expenses .................... 29.5 30.2 28.3
----- ----- -----
Total restaurant operating expenses ......... 92.4 94.2 90.4
----- ----- -----
Income from restaurant operations ............ 7.6 5.8 9.6
Depreciation and amortization ............... 1.1 1.2 .9
General and administrative expenses ......... 3.7 3.6 4.2
Restructuring and reorganization ............ -- 16.5 ( 2.2)
----- ----- -----
Operating income (loss) ...................... 2.8 (15.5) 6.7
Interest expense, net ........................ 3.7 2.6 2.3
----- ----- -----
Net income (loss) before income taxes and
extraordinary item .......................... ( 0.9)% (18.1)% 4.4%
===== ===== =====
</TABLE>
13
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Revenue for the fiscal year ended December 29, 1997 decreased 11.9% to
$107,997,000 compared to $122,563,000 in the fiscal year ended December 30,
1996. This decrease was due primarily to an additional week of revenue in the
53-week period ended December 30, 1996 compared to the normal 52 week period in
1997, the sale of five restaurants in northern California in January 1997, and
the sale of eight restaurants in Washington, Oregon, Colorado and Nebraska in
October 1997. The Company currently manages the five restaurants it sold in
northern California, along with four other T.G.I. Friday's restaurants in
Louisiana and El Paso, Texas, generating management fee revenue of $979,000 for
the fiscal year ended December 29, 1997. Revenue for the nine restaurants that
the Company manages totaled $23,500,000 for the year ended December 29, 1997.
The decrease in revenue was partially offset by a 2% increase in same store
sales and revenue from the Redfish restaurants of $4,693,000 for the fiscal
year ended December 29, 1997. Revenue from alcoholic beverages accounted for
23.6% of revenue for the fiscal year ended December 29, 1997 which is unchanged
from the prior year.
Cost of sales as a percentage of revenue increased to 28.7% in 1997 from
28.6% in 1996. The increase resulted from a lower-priced lunch menu introduced
in April 1997, the introduction of Jack Daniels Grill menu items, which have
higher food costs, and the consolidation of the Redfish restaurants, which have
higher food costs than T.G.I. Friday's restaurants. This increase was partially
offset by $979,000 in management fees included in 1997 revenue which has no
corresponding cost of sales.
Labor costs decreased as a percentage of revenue to 30.1% in 1997 from the
31.7% in 1996. A $.50 per hour increase in minimum wage in October 1996 was
more than offset by a menu price increase and better controls on managing labor
costs. Minimum wage in California, which restaurants in California account for
60% of the Company's revenue, has increased to $5.75 in March 1998. The Company
increased its menu prices in 1998 to offset this increased labor cost.
Other operating expenses include rent, real estate taxes, common area
maintenance charges, advertising, insurance, maintenance, and utilities. In
addition, the franchise agreements between TGI Friday's Inc. and the Company
require a 4% royalty and a contribution to a national marketing pool of up to
4% of gross sales, although the Company was only required to pay 1.9% and 1.7%
during 1997 and 1996, respectively, and will contribute 2.2% for 1998. Other
operating expenses decreased as a percentage of revenue to 28.3% in 1997 from
30.2% in 1996. The decreases were a result of lower advertising costs,
specifically related to the Company's frequency program, and lower supplies and
insurance costs, which were partially offset by an increase in contributions to
a national marketing pool administered by TGI Friday's Inc.
In total, depreciation and amortization decreased as a percentage of
revenue to 4.2% in 1997 from 4.9% in 1996. The decrease was due primarily to
the write-offs in the fourth quarter of 1996 related to asset impairments.
General and administrative expenses as a percentage of revenue increased
to 4.2% in 1997 from 3.6% in 1996. These increases relate primarily to the
relative fixed nature of these expenses in comparison to the overall decline in
revenue.
Interest expense was approximately $2,466,000 in 1997 compared to
$3,206,000 in 1996. These decreases were a result of the retirement of $8.0
million of indebtedness with proceeds from the sale of five restaurants in
northern California in January 1997.
No income tax provision was recorded in 1997 or 1996 due to the
availability of net operating loss carryforwards.
Fiscal 1996 Compared to Fiscal 1995
Revenue for the fiscal year ended December 30, 1996 increased by 2.6% to
$122,563,000 compared to $119,508,000 for the fiscal year ended December 25,
1995. This increase related primarily to restaurants developed during 1996
along with an additional week of revenue in the 53 week period ended
14
<PAGE>
December 30, 1996 compared to the normal 52 week period of 1995. When comparing
revenue for 1996 to the prior year, same store sales decreased $3,580,000 or
3.2%. Revenue from alcoholic beverages accounted for 23.6% of revenue for the
fiscal year ended December 30, 1996 compared to 22.2% for the prior year.
Cost of sales increased as a percentage of revenue to 28.6% in 1996 from
28.5% in 1995 due to a shift in the beverage market to premium/specialty beers
and liquors, which have slightly lower margins, and higher prices for dairy
products. In addition, cost of sales increased as a result of increases in
portion sizes on several menu items; however, some of the resulting increase
has been offset by negotiated purchasing discounts.
Labor costs increased as a percentage of revenue to 31.7% in 1996 from
30.8% in 1995. This increase is almost entirely related to the decline in same
store sales in relation to the fixed component of labor costs and an increase
in minimum wage from $4.25 to $4.75 per hour. Approximately 75% of the
Company's revenue is derived from restaurants in non-tip credit states where
tipped employees are paid at or above the Federal minimum wage as opposed to
tip credit states where tipped employees are paid at half the minimum wage. The
$0.50 per hour increase in minimum wage that became effective on October 1,
1996, increased the Company's labor costs as a percentage of revenue by
approximately 1.0%.
Other restaurant operating expenses increased as a percentage of revenue
to 30.2% in 1996 from 29.5% in 1995 primarily as a result of the relatively
fixed nature of these costs and the decline in same store sales.
In total, depreciation and amortization increased as a percentage of
revenue to 4.9% in 1996 from 4.7% in 1995. This increase is due primarily to
the fixed nature of these expenses given a decline in same store sales.
General and administrative expenses decreased as a percentage of revenue
to 3.6% in 1996 from 3.7% in 1995. The decrease relates to reductions in
corporate staff coupled with the relatively fixed nature of these expenses in
comparison to the overall increase in revenue.
Interest expense was approximately $3,206,000 in 1996 compared to
$4,424,000 in 1995. This decrease was a result of the retirement of $8,700,000
of indebtedness with the proceeds from a public offering completed in September
1995.
No income tax provision was recorded in 1996 or 1995 due to the
availability of net operating loss carryforwards.
Liquidity and Capital Resources
The Company's primary use of funds over the past five years has been for
the acquisition of existing T.G.I. Friday's restaurants and exclusive
development rights. These acquisitions were financed principally through the
issuance of long-term debt and Common Stock. The Company has also expended
funds for the development of new restaurants. The principal source of these
funds has been operating cash flow, supplemented by bank and lease financing.
Net cash flows from operating activities were $1,722,000 in 1995,
$4,444,000 in 1996, and $2,624,000 in 1997. These were supplemented by net cash
flows from financing of $4,195,000 and $2,051,000, for the years ended 1995 and
1996, respectively, to fund the Company's acquisitions and development of new
restaurants. In 1997, the Company used $8,287,000 of net cash flows for
financing activities which came primarily from the sale of assets.
The Company's current liabilities exceed its current assets due in part to
cash expended on the Company's development requirements and also because the
restaurant business receives substantially immediate payment for sales, while
payables related to inventories and other current liabilities normally carry
longer payment terms, usually 15 to 30 days. At December 29, 1997 the Company
had a cash balance of $8,424,000. Monthly cash receipts have been sufficient to
pay all obligations as they become due.
At December 29, 1997, the Company had long-term debt of $24,308,000 and
current portion of long-term debt of $1,233,000.
15
<PAGE>
Approximately $20,839,000 of this debt is a Term Loan comprised of three
notes from one lender, bears interest at 9.457% and is payable in equal monthly
installments of principal and interest of approximately $222,000 (combined)
until the notes are paid in full on May 1, 2012.
In October 1997, the Company sold eight T.G.I Friday's restaurants in
Washington, Oregon, Colorado and Nebraska. The sale price of these restaurants
totaled $8,877,000 and resulted in a gain before taxes of approximately
$3,636,000. The Company recently entered into a purchase agreement to acquire
seven T.G.I Friday's restaurants in northern California and the related T.G.I.
Friday's Development Agreements. The purchase price of approximately $8,600,000
will be funded by the assumption of approximately $5,000,000 of existing debt
of the Seller, $2,500,000 of new debt and $1,100,000 of the Company's
accumulated cash.
The Company plans to develop at least ten additional TGI Friday's over the
next year. The Company's primary lender has committed to finance the development
of these new restaurants and has given the Company different alternatives under
with this financing would be provided for each new restaurant.
The Company leases all of its restaurants with terms ranging from 10 to 20
years. Minimum payments on the Company's existing lease obligations are
approximately $4,900,000 per year through 2002.
Year 2000
The Company continues to assess the impact that the Year 2000 issue will
have on its information systems and operations. The Company's corporate
information system, which consolidates operating results from all the
restaurants and processes accounts payable and payroll, will be Year 2000
compliant through updated software versions that are being released by the
software vendor. The Company is currently evaluating new point-of-sale
equipment along with new back-office software for each of its restaurants.
These systems and related equipment which process guest orders, schedule labor,
and provide store level operating data need to be upgraded periodically to
incorporate the latest technology, which is estimated to cost up to $2,500,000
over the next two years. These new systems will ensure that the Company is Year
2000 compliant.
This Mangement Discussion and Analysis contains forward-looking
information regarding the Company's business strategies. This forward-looking
information is based primarily on the Company's expectations and is subject to
a number of risks and uncertainties, some of which are beyond the Company's
control. Actual results could differ materially from the forward-looking
information as a result of numerous factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the report thereon, the
notes thereto and the supplementary data commencing at page F-1 of this report,
which financial statements, report, notes and data are incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy that it will not enter into any
transactions with directors, officers, or holders of more than 5% of its Common
Stock on terms which are less favorable to the Company than could be obtained
from independent third parties and that any loans to directors, officers, or 5%
stockholders will be approved by a majority of the disinterested directors.
In December 1993, the Company entered into a five-year lease for space to
serve as the corporate offices of the Company. Steven A. Sherman owns a
majority interest in the building housing the space. The lease was approved by
the disinterested directors of the Company. The lease provides for annual rent
of approximately $175,000 in 1998. Rental payments under this agreement were
approximately $169,000 and $172,000 during 1996 and 1997, respectively.
In May 1991, the Company became a party to a five-year management
assistance agreement with AsianStar, Inc. ("AsianStar"). J. Y. Lee, the
Chairman and principal stockholder of AsianStar, was a director of the Company
from September 27, 1991 to February 13, 1996. The Company recorded
approximately $441,000 of income relating to the management assistance
agreement during fiscal 1995. In 1996, the Company finalized an agreement with
AsianStar to exchange the receivable generated by this agreement, approximately
$1,497,000, and cash of approximately $162,000 for an ownership interest in
AsianStar. This investment was subsequently written off due to the uncertainty
of the Korean venture resulting from a down turn in the Korean economy. See
Note 2 to the Notes to Consolidated Financial Statements.
During 1996, the Company sold 766,666 shares of its Common Stock at fair
market value at the time of purchase to John F. Antioco and Gerard T. Bisceglia
for $1,500,000.
In January 1997, the Company sold a total of 1,250,000 shares of its
Common Stock for $2,500,000, which exceeded the fair market value of the stock
on the date of purchase. Of these shares, John F. Antioco and Bart A. Brown,
Jr. purchased a total of 500,000 shares and unrelated accredited investors
purchased the balance.
In October 1997, the Company sold three T.G.I. Friday's resaurants in
Colorado and Nebraska to Sherman Restaurants, LLC for $2,768,000. Sherman
Restaurants, LLC is controlled by Samuel Sherman, the brother of Steven Sherman
who serves as a director of the Company.
The Company believes that the foregoing transactions were no less
favorable to the Company than could be obtained from non-affiliated parties.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1 Certificate of Incorporation of the Registrant(3)
3.2 Certificate of Amendment of Restated Certificate of Incorporation(6)
3.3 Amended and Restated Bylaws of the Registrant(3)
10.1 Registrant's 1990 Stock Option Plan(2)
10.2 Purchase Agreement between the Registrant and TGI Friday's Inc.(1)
10.3 Purchase Agreement between the Registrant and WRI U.S., Inc.(2)
10.4 Asset Purchase Agreement between the Registrant and Kansas City Cafe Company(4)
10.5 Form of Franchise Agreement between the Registrant and TGI Friday's Inc.(5)
10.6 Stock Purchase Agreement, as amended, between the Registrant and TGI Friday's
Inc.(5)
10.7 Asset Conveance Agreement among CNL California Restaurants, LTD., Main St.
California, Inc. and Registrant.(7)
10.8 Stock Purchase Agreement among CNL California Restaurants, LTD., Main St.
California, Inc. and Registrant.(7)
10.9 Form of Management Agreement between Main St. California II, Inc. and Main St.
California, Inc., a wholly owned subsidiary of Registrant.(7)
10.10 Master Incentive Agreements between Main St. California II, Inc. and Main St.
California, Inc., a wholly owned subsidiary of Registrant.(7)
10.11 Employment Agreement with Bart A. Brown, Jr.(9)
10.12 Employment Agreement with Gerard T. Bisceglia.(9)
10.13 Promissory Note between Registrant and CNL Financial I, Inc.(9)
10.14 Promissory Note between Registrant and CNL Financial I, Inc.(9)
10.15 Promissory Note between Registrant and CNL Financial I, Inc.(9)
10.16 Registrant's 1995 Stock Option Plan(8)
10.17 Amended and Restated Development Agreement between TGI Friday's Inc. and
Cornerstone Productions, Inc., a wholly owned subsidiary of the Registrant.
10.18 Amended and Restated Development Agreement between TGI Friday's Inc. and Main
St. California, Inc., a wholly owned subsidiary of the Registrant.
10.19 Amended and Restated Development Agreement between TGI Friday's Inc. and Main
St. Midwest, Inc., a wholly owned subsidiary of the Registrant.
10.20 Amended and Restated Purchase Agreement between RJR Holdings, Inc. and Main St.
California, Inc., a wholly owned Subsidiary of the Registrant.
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
- ------------
(1) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1990, filed with the Securities and Exchange Commission on or
about April 1, 1991.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-40993) which became effective in September
1991.
(3) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 30, 1991, filed with the Securities and Exchange Commission on or
about March 31, 1992.
(4) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission in May 1992.
(5) Incorporated by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on or about April 15, 1994.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 33-71230) which became effective in July 1994.
18
<PAGE>
(7) Incorporated by reference to the Registrant's Form 8-K Report filed with
the Commission in January 1997.
(8) Incorporated by reference to Registrant's Proxy Statement for its 1995
Annual Meeting of Stockholders.
(9) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 30, 1996, filed with the Securities and Exchange Commission on or
about April 14, 1997.
(b) The following report of Independent Public Accountants and financial
statements are filed as a part of this report.
1. Consolidated Financial Statements (included as Page F-1 through F-16 of
this report)
Report of Independent Public Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 30, 1996 and December 29,
1997.
Consolidated Statements of Operations for the years ended December
25, 1995, December 30, 1996 and December 29, 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 25, 1995, December 30, 1996 and December 29,
1997.
Consolidated Statements of Cash Flows for the years ended December
25, 1995, December 30, 1996 and December 29, 1997.
Notes to Consolidated Financial Statements
2. Consolidated Schedules
These schedules are omitted because they are not applicable, not
required or because required information is included in the consolidated
financial statements or notes hereto.
(c) Report on Form 8-K
The Registrant filed a Report on Form 8-K on January 16, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAIN STREET AND MAIN INCORPORATED
Date: March 26, 1998 /s/ BART A. BROWN, JR.
By: --------------------------------------
Bart A. Brown, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ JOHN F. ANTIOCO Chairman of the Board March 26, 1998
- --------------------------
John F. Antioco
/s/ BART A. BROWN, JR. President and Chief Executive Officer March 26, 1998
- -------------------------- (Principal Executive Officer)
Bart A. Brown, Jr.
/s/ GERARD T. BISCEGLIA Executive Vice President and Director March 26, 1998
- --------------------------
Gerard T. Bisceglia
/s/ MARK C. WALKER Chief Financial Officer (Principal March 26, 1998
- -------------------------- Financial and Accounting Officer),
Mark C. Walker Secretary and Treasurer
/s/ JANE EVANS Director March 26, 1998
- --------------------------
Jane Evans
/s/ JOHN C. METZ Director March 26, 1998
- --------------------------
John C. Metz
/s/ STEVEN A. SHERMAN Director March 26, 1998
- --------------------------
Steven A. Sherman
</TABLE>
20
<PAGE>
MAIN STREET AND MAIN INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants .............................................. F-2
Consolidated Balance Sheets at December 30, 1996 and December 29, 1997 ................ F-3
Consolidated Statements of Operations for the fiscal years ended December 25, 1995,
December 30, 1996, and December 29, 1997 ............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
December 25, 1995, December 30, 1996, and December 29, 1997 .......................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1995,
December 30, 1996, and December 29, 1997 ............................................. F-6
Notes to Consolidated Financial Statements ............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Main Street and Main Incorporated:
We have audited the accompanying consolidated balance sheets of MAIN STREET
AND MAIN INCORPORATED (a Delaware corporation) and subsidiaries as of December
29, 1997, and December 30, 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 29, 1997, December 30, 1996, and December 25, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Main Street and Main
Incorporated and subsidiaries as of December 29, 1997 and December 30, 1996,
and the results of their operations and their cash flows for the years ended
December 29, 1997, December 30, 1996, and December 25, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 13, 1998
F-2
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 29, December 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ................................. $ 8,424 $ 2,613
Accounts receivable, net .................................. 3,293 1,248
Inventories ............................................... 1,043 1,275
Prepaid expenses .......................................... 289 173
Assets held for disposal, net ............................. 363 10,929
--------- ---------
Total current assets ................................... 13,412 16,238
Property and equipment, net .................................. 30,194 32,162
Other assets, net ............................................ 3,091 4,780
Franchise costs, net ......................................... 15,288 16,418
Note receivable .............................................. 757 1,250
--------- ---------
$ 62,742 $ 70,848
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt ......................... $ 1,233 $ 2,523
Accounts payable .......................................... 3,890 3,750
Other accrued liabilities ................................. 9,619 11,308
--------- ---------
Total current liabilities .............................. 14,742 17,581
--------- ---------
Long-term debt, net of current portion ....................... 24,308 33,809
--------- ---------
Other liabilities and deferred credits ....................... 1,489 2,873
--------- ---------
Commitments and contingencies ................................
Stockholders' Equity
Common stock, $.001 par value, 25,000,000 shares authorized;
9,970,691 and 8,718,491 shares issued and outstanding in 1997
and 1996, respectively ...................................... 10 9
Additional paid-in capital ................................... 44,145 41,694
Accumulated deficit .......................................... (21,952) (25,118)
--------- ---------
22,203 16,585
--------- ---------
$ 62,742 $ 70,848
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
December 29, December 30, December 25,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue ................................................ $ 107,997 $ 122,563 $ 119,508
--------- ---------- ---------
Restaurant Operating Expenses
Cost of sales ....................................... 30,995 35,089 34,005
Payroll and benefits ................................ 32,469 38,858 36,769
Depreciation and amortization ....................... 3,552 4,586 4,353
Other operating expenses ............................ 30,589 36,944 35,250
--------- ---------- ---------
Total restaurant operating expenses .............. 97,605 115,477 110,377
--------- ---------- ---------
Income from restaurant operations ...................... 10,392 7,086 9,131
Depreciation and amortization ....................... 953 1,450 1,331
General and administrative expenses ................. 4,559 4,388 4,410
Restructuring and reorganization .................... (2,390) 20,208 --
--------- ---------- ---------
Operating income (loss) ................................ 7,270 (18,960) 3,390
Interest expense, net .................................. 2,466 3,206 4,424
--------- ---------- ---------
Net income (loss) before income taxes and
extraordinary item ................................. 4,804 (22,166) (1,034)
Provision for income taxes ............................. -- -- --
--------- ---------- ---------
Net income (loss) before extraordinary item ......... 4,804 (22,166) (1,034)
Extraordinary loss from debt extinguishment ......... 1,638 -- --
--------- ---------- ---------
Net income (loss) ...................................... $ 3,166 $ (22,166) $ (1,034)
========= ========== =========
Basic Earnings Per Share
Income (loss) before extraordinary item ............. $ 0.48 $ (2.73) $ (0.22)
Extraordinary item .................................. ( 0.16) -- --
--------- ---------- ---------
Net income (loss) .................................. $ 0.32 $ (2.73) $ (0.22)
========= ========== =========
Diluted Earnings Per Share
Income (loss) before extraordinary item ............. $ 0.47 $ (2.73) $ (0.22)
Extraordinary item .................................. ( 0.16) -- --
--------- ---------- ---------
Net income (loss) ................................ $ 0.31 $ (2.73) $ (0.22)
========= ========== =========
Weighted Average Number Of Shares Outstanding
-- Basic ........................................... 9,918 8,110 4,621
========= ========== =========
Weighted Average Number Of Shares Outstanding
-- Diluted ......................................... 10,098 8,110 4,621
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Par Paid-In Accumulated
Shares Value Capital Deficit Total
-------- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 26, 1994 ......... 3,637 $ 4 $ 24,515 $ (1,918) $ 22,601
Shares issued in connection with
public offering, net ............ 4,313 4 15,674 -- 15,678
Shares issued in connection with
options exercised ............... 2 -- 16 -- 16
Net loss .......................... -- -- -- (1,034) (1,034)
----- ---- -------- ---------- ---------
BALANCE, December 25, 1995 ......... 7,952 8 40,205 (2,952) 37,261
Shares issued in connection with
private placement ............... 766 1 1,489 -- 1,490
Net loss .......................... -- -- -- (22,166) (22,166)
----- ---- -------- ---------- ---------
BALANCE, December 30, 1996 ......... 8,718 9 41,694 (25,118) 16,585
Shares issued in connection with
private placement ............... 1,250 1 2,447 -- 2,448
Shares issued in connection with
options exercised ............... 3 -- 4 -- 4
Net income ........................ -- -- -- 3,166 3,166
----- ---- -------- ---------- ---------
BALANCE, December 29, 1997 ......... 9,971 $ 10 $ 44,145 $ (21,952) $ 22,203
===== ==== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
December 29, December 30, December 25,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 3,166 $ (22,166) $ (1,034)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ......................... 4,505 6,036 5,684
Restructuring and reorganization ...................... (2,391) 20,208 --
Extraordinary loss from debt extinguishment ........... 1,638 -- --
Changes in assets and liabilities
Accounts receivable, net ........................... 122 1,104 (378)
Inventories ........................................ 124 57 (130)
Prepaid expenses ................................... (116) 288 (134)
Other assets, net .................................. (1,288) (1,380) (2,187)
Accounts payable ................................... 57 207 (1,464)
Other accrued liabilities .......................... (3,193) 90 1,365
------- --------- --------
Net Cash Flows -- Operating Activities ........... 2,624 4,444 1,722
------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to acquire assets through business
combination .......................................... (880) -- --
Payment of accrued acquisition costs .................. -- -- (242)
Net additions to property and equipment ............... (6,613) (8,623) (7,196)
Sale of assets ........................................ 17,326 - --
Cash received from sale-leaseback transaction ......... 1,641 -- 3,213
------- --------- --------
Net Cash Flows -- Investing Activities ........... 11,474 (8,623) (4,225)
------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock .................... 2,504 1,490 16,186
Financing and offering costs paid ..................... (52) -- (1,774)
Long term debt borrowings ............................. 21,554 4,506 3,028
Principal payments on long term debt .................. (32,293) (3,945) (13,245)
------- --------- --------
Net Cash Flows -- Financing Activities ........... (8,287) 2,051 4,195
------- --------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................. 5,811 (2,128) 1,692
CASH AND CASH EQUIVALENTS, BEGINNING ..................... 2,613 4,741 3,049
------- --------- --------
CASH AND CASH EQUIVALENTS, ENDING ........................ $ 8,424 $ 2,613 $ 4,741
======= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ................ $ 3,404 $ 2,987 $ 5,041
======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Main Street and Main Incorporated (the "Company") is a Delaware
corporation engaged in the business of acquiring, developing and operating
restaurants. The Company currently owns 30 T.G.I. Friday's restaurants and one
Front Row Sports Grill, and operates 16 T.G.I. Friday's restaurants under
management agreements. The Company has a 52% ownership interest in Redfish
America, LLC which currently owns and operates four Redfish restaurants.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, and Redfish America, LLC. All material
intercompany transactions have been eliminated in consolidation.
Fiscal Year
The Company's restaurants operate on a fiscal year which ends on the
Monday closest to December 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RESTRUCTURING AND REORGANIZATION
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No.121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived assets to be Disposed Of " which the
Company adopted in 1996. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss must be recognized in the amount of the difference between the
carrying value and the fair value. Assets to be disposed of must be valued at
the lower of carrying value or fair value less costs to sell.
During 1996, the Company implemented a long-term business strategy to
place more emphasis on the core business and to dispose of underperforming core
assets and non-core assets. As a result of implementing this strategy, combined
with certain events occurring during 1996 and 1997, the Company recognized a
gain on sale of assets, a restructuring charge, and impairment of certain
assets as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gain on sale of assets ................................ $ (5,231) $ --
Impairment of non-core assets ......................... 1,660 6,985
Impairment of core assets held for disposal ........... -- 8,674
Impairment of core assets used in operations .......... 842 3,141
Other restructuring costs ............................. 339 1,408
--------- --------
$ (2,390) $ 20,208
========= ========
</TABLE>
Gain on Sale of Assets
In January 1997, the Company sold five restaurants in Northern California
(the "Northern California Sale") for $10,575,000 in cash and entered into a
Management Agreement with the buyer to manage
F-7
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
the restaurants. This transaction resulted in a gain before taxes of
approximately $1,595,000. Of the total proceeds, $8,000,000 was used to reduce
the Company's Term Loan with the balance used for working capital purposes. In
addition, the Company sold eight T.G.I. Friday's restaurants in Washington,
Oregon, Colorado and Nebraska. The sale price of these restaurants totaled
$8,877,000 and resulted in a gain before taxes of approximately $3,636,000.
Impairment of non-core assets
In December 1993, the Company sold its dairy and food distribution
business for $7,500,000, including a promissory note in the amount of
$6,000,000 due on December 31, 1996. During the second quarter of 1996, the
debtor on the $6,000,000 promissory note sold assets related to its dairy
operations, which represented a significant portion of the collateral securing
the note. The debtor used cash from the sale to pay down senior debt and to
provide working capital for its ice cream novelty production facility. Due to
uncertainty of the business, the Company's promissory note, net of the deferred
gain booked at the time of the initial sale, was written down by $4,136,000
during 1996. During 1997, the Company wrote off the remaining carrying value of
$1,000,000 due to further adverse developments with the dairy and food
distribution business.
In May 1991, the Company entered into a five-year management assistance
agreement with AsianStar Co., Ltd. (AsianStar), a Korean company affiliated
with a former director of the Company, to provide management services and
expertise relative to the development and operation of T.G.I. Friday's
restaurants in the Republic of Korea. The management assistance agreement
provided for the Company to receive a fee of 3% of the net revenue of the first
two restaurants developed in Seoul, Korea. The Company recorded approximately
$441,000 of royalty income during 1995. In 1996, the Company finalized an
agreement with AsianStar to exchange its receivable, from the recognition of
royalty income, for an ownership interest in AsianStar. Due to uncertainty of
the Korean venture and the estimated length of time before the Company will
receive any return on its investment, a $1,000,000 impairment loss was taken
during 1996. The Company's investment in the Korean venture was approximately
$660,000 as of December 30, 1996 and is included in other assets. During 1997,
the Company wrote off the remaining carrying value of this investment due to
further uncertainty of the Korean venture resulting from a down turn in the
Korean economy.
In addition, during 1996, the Company determined that property and
equipment related to its indoor entertainment center being leased to a third
party exceeded its realizable value based on the level of lease payments to be
received over the remaining life of the lease, which resulted in an impairment
loss of $582,000. The remaining balance of the 1996 impairment of non-core
assets is comprised primarily of write downs of real estate that the Company
was holding for future restaurant development and now has plans to dispose of
within the next 12 months.
Impairment of core assets held for disposal:
During 1996, the Company recorded a $5,541,000 charge to write off
property and equipment and pre-opening costs associated with two of the
Company's recently developed restaurants. One of the restaurants was a Front
Row Sports Grill in Portland, Oregon and the other was a T.G.I. Friday's
restaurant in Denver, Colorado. In addition, the Company took a $1,096,000
impairment loss charge in 1996 related to closing a 20 year old T.G.I. Friday's
restaurant in southern California in 1997. The remaining balance of the 1996
impairment loss of $2,037,000 of core assets held for disposal relates to
assets of three T.G.I. Friday's restaurants that were written down to fair
value and disposed of during 1997.
Impairment of core assets used in operations:
In accordance with SFAS No. 121, the Company recorded a charge of
$3,141,000 during 1996 related to three of its T.G.I. Friday's restaurants
where undiscounted cash flows over the remaining term of the
F-8
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
lease did not support the carrying value of the assets. During 1997, the
Company recorded a charge of $874,000 related primarily to two Redfish
restaurants where undiscounted cash flows did not support the carrying value of
the assets.
Other restructuring costs:
Other restructuring costs include severance, contract termination and
professional services costs incurred in conjunction with the restructuring.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the application of the
following accounting policies:
Cash and Cash Equivalents
Cash and cash equivalents include funds on hand, short-term money market
investments and certificate of deposit accounts with original maturities within
91 days of purchase.
Inventories
Inventories consist primarily of food, beverages and supplies and are
stated at cost using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, depreciated on a straight-line
basis over the estimated useful lives, and consist of the following (in
thousands):
<TABLE>
<CAPTION>
Useful Lives 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Land ......................................... -- $ 534 $ 1,234
Building and leasehold improvements .......... 5-20 20,924 21,950
Kitchen equipment ............................ 5-7 7,418 7,858
Restaurant equipment ......................... 5-10 3,162 3,539
Smallwares and decor ......................... 5-10 4,017 4,410
Office equipment and furniture ............... 5-7 1,487 1,498
Equipment under capital leases ............... 7 315 357
--------- ---------
37,857 40,846
Less: Accumulated depreciation and
amortization ............................... (11,340) (10,520)
--------- ---------
26,517 30,326
Construction in progress ..................... 3,677 1,836
--------- ---------
Total ..................................... $ 30,194 $ 32,162
========= =========
</TABLE>
Assets Held for Disposal
In January 1997 the Company sold five restaurants in Northern California
for $10,575,000 in cash. The net carrying value of the five restaurants sold
was approximately $8,669,000 at December 30, 1996 and is included in assets
held for disposal. The remaining balance of assets held for disposal at
December 30, 1996 consists of the net assets of three T.G.I. Friday's
restaurants and two parcels of land. Only one parcel of land remains undisposed
of at December 29, 1997.
F-9
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Franchise Costs
The Company has paid certain franchise costs for the exclusive right to
operate restaurants in its franchise territories. These costs are being
amortized on a straight-line basis and consist of the following (in thousands):
<TABLE>
<CAPTION>
Amortization
Period 1997 1996
------ ---- ----
<S> <C> <C> <C>
Franchise fees and license costs ......... 20-30 $ 17,775 $ 18,430
Prepaid franchise fees ................... -- 100 30
-------- --------
17,875 18,460
Less: Accumulated amortization ........... (2,587) (2,042)
-------- --------
Total ................................. $ 15,288 $ 16,418
======== ========
</TABLE>
Franchise fees and license costs represent the value assigned to the
franchise agreements in the regions acquired and to the licenses to operate the
restaurants. These agreements provide for an initial term of 20 years with two
renewal terms of 10 years each. Prepaid franchise fees relate to the
restaurants the Company is committed to develop under the terms of the
development agreements (Note 7).
Pre-opening Costs
The Company defers certain start-up costs directly related to the opening
of new restaurants. Pre-opening costs of approximately $227,000 and $148,000 as
of December 29, 1997 and December 30, 1996, respectively, are included in other
assets in the consolidated balance sheets.
The Company's policy is to amortize pre-opening costs over 12 months
commencing with the opening of each new restaurant. Amortization of pre-opening
costs (excluding amounts included in the restructuring charge), was
approximately $287,000, $318,000 and $640,000 in 1997, 1996, and 1995,
respectively.
Other Accrued Liabilities
Other accrued liabilities consist of the following ( in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Bank overdraft ...................................... $ 1,574 $ 2,432
Accrued payroll ..................................... 2,074 2,429
Accrued losses on assets held for disposal .......... 2,116 1,572
Accrued sales tax ................................... 669 861
Accrued interest .................................... 7 946
Other accrued liabilities ........................... 3,179 3,068
------- --------
Total ........................................ $ 9,619 $ 11,308
======= ========
</TABLE>
Income Taxes
The Company utilizes the liability method of accounting for income taxes
as set forth in SFAS No.109, Accounting for Income Taxes. Under the liability
method, deferred taxes are provided based on the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities, using enacted tax rates in the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income during the period that includes the enactment date.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which supersedes Accounting Principles Board ("APB")
Opinion No. 15, the existing authoritative
F-10
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
guidance. The statement modifies the calculation of primary and fully diluted
earnings per share ("EPS") and replaces them both with basic and diluted EPS.
SFAS No. 128 is effective for financial statements for both interim and annual
periods presented after December 15, 1997 and as a result, all prior period EPS
data have been restated. The following table sets forth basic and diluted EPS
computations for the years ended December 29, 1997, December 30, 1996, and
December 25, 1995 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------------------------------- -----------------------------------
Per Share Per Share
Net Income Shares Amount Net Loss Shares Amount
------------ -------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS .................... $ 3,166 9,918 $ 0.32 $ (22,166) 8,110 $ (2.73)
======= =========
Effect of stock options ...... -- 180 -- --
------- ----- ---------- -----
Diluted EPS .................. $ 3,166 10,098 $ 0.31 $ (22,166) 8,110 $ (2.73)
======= ====== ======= ========== ===== =========
<CAPTION>
1995
-----------------------------------
Per Share
Net Loss Shares Amount
------------- -------- ------------
<S> <C> <C> <C>
Basic EPS .................... $ (1,034) 4,621 $ (0.22)
=========
Effect of stock options ...... -- --
--------- -----
Diluted EPS .................. $ (1,034) 4,621 $ (0.22)
========= ===== =========
</TABLE>
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS Nos.
130 and 131, "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"),
respectively (collectively, the "Statements"). The Statements are effective for
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting of comprehensive income and its components in annual financial
statements. SFAS 131 establishes standards for reporting financial and
descriptive information about an enterprise's operating segments in its annual
financial statements and selected segment information in interim financial
reports. Reclassification or restatement of comparative financial statements or
financial information for earlier periods is required upon adoption of SFAS 130
and SFAS 131, respectively. Application of the Statements' requirements is not
expected to have a material impact on the Company's financial position, results
of operations or earnings per share data as currently reported.
F-11
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. INCOME TAXES
Deferred income taxes arise due to differences in the treatment of income
and expense items for financial reporting and income tax purposes. In 1996 and
1995, the Company generated net operating losses and in 1997, the Company
utilized net operating losses. The effect of temporary differences and
carryforwards that gave rise to deferred tax balances at December 29, 1997 and
December 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Temporary Differences
------------------------ Tax Carry Net Deferred
December 29, 1997 Deductible Taxable Forwards Tax Assets
- ----------------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Excess tax over book depreciation
and amortization ........................ $ -- $ (2,757) $ -- $ (2,757)
Provision for estimated expenses ......... 1,207 -- -- 1,207
Restructuring and reorganization ......... 3,673 -- -- 3,673
Other .................................... -- (491) -- (491)
General business and AMT credits ......... -- -- 2,668 2,668
Net operating loss carryforward .......... -- -- 5,905 5,905
Valuation reserve ........................ -- -- (9,837) (9,837)
------- --------- -------- ---------
Total .............................. $ 4,880 $ (3,248) $ (1,264) $ 368
======= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Temporary Differences Tax Carry
------------------------ Forwards and Net Deferred
December 30, 1996 Deductible Taxable Carrybacks Tax Assets
- ----------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Excess tax over book depreciation
and amortization ........................ $ -- $ (3,301) $ -- $ (3,301)
Provision for estimated expenses ......... 1,363 -- -- 1,363
Restructuring and reorganization ......... 6,955 -- -- 6,955
Other .................................... -- (491) -- (491)
General business and AMT credits ......... -- -- 2,117 2,117
Net operating loss carryforward .......... -- -- 4,461 4,461
Valuation reserve ........................ -- -- (10,790) (10,790)
------- --------- --------- ---------
Total .............................. $ 8,318 $ (3,792) $ (4,212) $ 314
======= ========= ========= =========
</TABLE>
The amounts recorded as net deferred tax assets at December 29, 1997 and
December 30, 1996 are included as a component of other assets in the
consolidated balance sheets. The remaining net deferred tax asset as of
December 29, 1997 consists primarily of the benefits to be obtained from the
use of net operating loss carryforwards and credits expected to be realized in
the future.
In 1997, the Company's tax provision was fully offset by the reversal of
prior year valuation allowances. The Company did not recognize for financial
reporting purposes any benefits related to net operating losses generated
during 1995 and 1996.
At December 29, 1997, the Company had approximately $14,700,000 of net
operating and capital loss carryforwards to be used to offset future income for
income tax purposes. These carryforwards expire in the years 2002 to 2013.
F-12
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Reconciliations of the federal income tax rate to the Company's effective
tax rate were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory federal rate ....................... 34.0% (34.0)%
State taxes, net of federal benefit .......... 6.0 ( 6.0)
Nondeductible expenses ....................... 7.5 1.4
Benefit of FICA credit ....................... (18.0) ( 3.3)
Change in valuation allowance ................ (29.5) 41.9
----- -----
0.0% 0.0%
===== =====
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Maturity
Dates Interest Rates 1997 1996
--------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Term Loan I ....................... 2002 2.8% over LIBOR $ -- $ 26,500
Term Loan II ...................... 2012 9.457% 20,839 --
TGI Friday's note payable ......... 1997 12% -- 1,817
Other notes payable ............... 1999-2015 9.96 - 11% 4,639 7,839
Capital Leases .................... 1999 11.5% 63 176
-------- --------
25,541 36,332
Less current portion .............. (1,233) (2,523)
-------- --------
Total ............................. $ 24,308 $ 33,809
======== ========
</TABLE>
In March 1997, the Term Loan I was repaid with $8,000,000 of proceeds from
the Northern California Sale (Note 3) and with proceeds from new borrowings.
The new borrowings (Term Loan II), comprised of three notes from one lender,
bear interest at 9.457% and are payable in equal monthly installments of
principal and interest of approximately $222,000 (combined) until the notes are
paid in full on May 1, 2012. Proceeds from the Term Loan II were also used to
repay the TGI Friday's note including accrued interest of $301,000, with the
remaining proceeds used for general corporate purposes. The early
extinguishment of the Term Loan I resulted in an extraordinary loss of
$1,638,000, before income taxes. The Company currently finances equipment and
leasehold improvements at certain restaurants it developes. These notes range
from $400,000 to $950,000, have interest rates ranging from 10% to 11% and
require monthly principal and interest payments.
The Term Loan II is secured by the assets of 16 T.G.I. Friday's
restaurants and contains one financial covenant relative to a fixed charge
coverage ratio, which the Company currently is in compliance with. In addition,
assets at five T.G.I. Friday's restaurants and at the Front Row Sports Grill
have been pledged as collateral for other debt.
Maturities of long-term debt, giving effect to the new borrowings
discussed above, are as follows (in thousands):
1998 ............... $ 1,233
1999 ............... 1,338
2000 ............... 1,324
2001 ............... 1,452
2002 ............... 1,467
Thereafter ......... 18,727
--------
Total ........... $ 25,541
========
F-13
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. STOCKHOLDERS' EQUITY
On September 29, 1995, the Company sold 3,750,000 shares of its Common
Stock in connection with a public offering and an additional 562,500 shares of
its Common Stock on October 30, 1995 pursuant to the exercise of the
Underwriter's over-allotment option. The net proceeds to the Company from this
offering were approximately $15,678,000, after deducting estimated offering
expenses and underwriting discounts and commissions. The Company used a portion
of the net proceeds to retire indebtedness and the remaining proceeds to
develop new restaurants and to provide funds for general corporate purposes.
During 1996, the Company sold 766,666 shares of its Common Stock to two
officers of the Company for $1,500,000. In January 1997, the Company sold
1,250,000 shares of its Common Stock to various investors, including 500,000
shares purchased by two officers of the Company for total proceeds of
$2,500,000.
Stock Options
In July 1990, the Company's Board of Directors approved a stock option
plan ("the 1990 Plan"). The 1990 Plan provides for issuance of up to 250,000
options to acquire shares of the Company's Common Stock. The options are
intended to qualify as incentive stock options within the meaning of Section
422A of the Internal Revenue Code of 1986 or as options which are not intended
to meet the requirements of such section (non-statutory stock options) and may
include stock appreciation rights, restricted stock awards, phantom stock,
performance shares or non-employee director options.
The exercise price of all incentive stock options granted under the 1990
Plan must be at least equal to the fair market value of such shares as of the
date of grant or, in the case of incentive stock options granted to the holder
of 10% or more of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The exercise price of all
non-statutory stock options granted under the 1990 Plan shall be determined by
the Board of Directors of the Company at the time of grant. The maximum
exercise period for which the options may be granted is 10 years from the date
of grant (five years in the case of incentive stock options granted to an
individual owning more than 10% of the Company's Common Stock).
In January 1996, the Company adopted a new stock option plan ("the 1996
Plan"), with terms comparable to the 1990 Plan, covering 325,000 shares of
Common Stock.
During 1997, the Company canceled substantially all outstanding options
and granted new options under the 1990 and 1996 Plans. In addition, the
Company's Board of Directors approved the issuance of 1,250,000 non-statutory
stock options to three of the Company's officers during 1996 and the issuance
of 425,000 non-statutory stock options to two of the Company's officers during
1997.
F-14
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock option information as of December 29, 1997, December 30, 1996, and
December 25, 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- -------------------------- -----------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
period ...................................... 1,596,500 $ 3.40 118,413 $ 12.93 173,037 $ 12.74
Granted ...................................... 781,950 2.46 1,668,500 3.25 -- --
Exercised .................................... 2,200 2.50 -- -- 2,500 6.52
Canceled ..................................... 298,750 3.51 190,413 9.42 52,124 12.60
--------- --------- -------
Options outstanding at end of period ......... 2,077,500 2.90 1,596,500 3.40 118,413 12.93
========= ========= =======
Exercisable at end of period ................. 1,224,291 3.40 350,000 2.00 86,469 12.85
========= ========= =======
Weighted average fair value of options
granted ..................................... $ 1.44 $ 0.59 N/A
========= ========= =======
</TABLE>
Entities electing to remain with the accounting in APB Opinion No. 25 must
make pro forma disclosures of net income and earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25; therefore, no compensation cost is recognized in the
accompanying financial statements for stock-based employee awards. The Company
had computed, for pro forma disclosure purposes, the value of all options
granted during 1997 and 1996, using Black-Scholes option pricing model with the
following weighted average assumptions:
1997 1996
Options Options
------- -------
Risk free interest rate ......... 6.2% 5.8%
Expected dividend yield ......... 0.0% 0.0%
Expected lives in years ......... 4.0 3.5
Expected volatility ............. 71.3% 40.7%
If the Company had accounted for its stock-based compensation plans using
a fair value based method of accounting, the Company's year end net income and
earnings per share would have been reported as follows (in thousands, except
per share amounts):
1997 1996
---- ----
Net income (loss):
Pro Forma ...................... $ 2,442 $ (22,451)
Earnings per share:
Pro Forma -- Basic ............. 0.25 (2.77)
Pro Forma -- Diluted ........... 0.24 (2.77)
The effects of applying SFAS No. 123 for providing pro forma disclosures
for 1997 and 1996 are not likely to be representative of the effects on
reported net income and earnings per common stock and common stock equivalent
for future years, because options vest over several years and additional awards
are made each year.
F-15
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Common Stock Warrants
As of December 29, 1997 and December 30, 1996 the Company had outstanding
warrants to acquire its securities as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Common Stock to be acquired by warrants issued to a former Director;
exercisable at $20.00 through June 1997; non-callable .................... -- 68,182
Common Stock to be acquired by warrants issued to various Company
employees; exercisable at $12.50 through July 1997; non-callable ......... -- 93,750
Common Stock to be acquired by warrants issued to lenders in connection
with the Term Loan; exercisable at $9.08 through March 2004;
callable ................................................................. 231,277 202,898
------- -------
Total .................................................................. 231,277 364,830
======= =======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Development Agreements
The Company is obligated under three separate development agreements to
open 35 new T.G.I. Friday's restaurants through 2002. The development
agreements give TGI Friday's Inc. certain remedies in the event the Company
fails to timely comply with the development agreements, including the right
under certain circumstances, to reduce the number of restaurants the Company
may develop in the related franchised territory, or terminate the Company's
exclusive rights to develop restaurants in the related franchised territory.
The Company development territories include Arizona, Nevada, New Mexico, the
Los Angeles, San Diego and San Francisco, California areas, and the Kansas City
and El Paso metropolitan areas.
Franchise, License and Marketing Agreements
In accordance with the terms of the T.G.I. Friday's restaurant franchise
agreements, the Company is required to pay franchise fees of $50,000 for each
restaurant opened. The Company is also required to pay a royalty of up to 4% of
gross sales. Royalty expense was approximately $4,120,000, $4,850,000 and
$4,800,000 under these agreements during 1997, 1996 and 1995, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on
marketing, although during 1997 it was only required to pay up to 1.85% of
gross sales. Marketing expense under these agreements was approximately
$1,919,000, $1,554,000 and $2,360,000 during 1997, 1996 and 1995, respectively.
Operating Leases
The Company leases land and restaurant facilities under operating leases
having terms expiring at various dates through March 2015. The restaurant
leases have from two to three renewal clauses of five years each at the option
of the Company and have provisions for contingent rentals based upon percentage
of gross sales as defined. The Company's minimum future lease payments as of
December 29, 1997 were as follows (in thousands):
1998 ............... $ 4,841
1999 ............... 4,722
2000 ............... 4,857
2001 ............... 4,947
2002 ............... 4,938
Thereafter ......... 43,612
-------
Total .......... $67,917
=======
F-16
<PAGE>
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Rental expense during 1997, 1996 and 1995 was approximately $5,081,000,
$6,299,000, and $5,872,000 respectively. In addition, the Company paid
contingent rentals of $499,000, $539,000 and $433,000 during 1997, 1996 and
1995, respectively.
Contingencies
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
The Company is also subject, from time to time, to audit by various taxing
authorities reviewing the Company's income, property, sales, use and payroll
taxes. Management believes that any findings from such audits will not have a
material impact on its financial statements.
8. BENEFIT PLANS
The Company maintains a 401(k) Savings Plan for all of its employees. The
Company currently matches 25% of the participants' contributions for the first
6% of the participants' compensation. Contributions by the Company were
approximately $78,000, $79,000 and $71,000 during 1997, 1996 and 1995,
respectively.
9. RELATED PARTY TRANSACTIONS
In October 1997, the Company sold three T.G.I. Friday's resaurants in
Colorado and Nebraska to Sherman Restaurants, LLC for $2,768,000 (Note 2).
Sherman Restaurants, LLC is controlled by Samuel Sherman, the brother of Steven
Sherman who serves as a director of the Company.
In December 1993, the Company entered into a five year lease agreement for
corporate office space with an entity controlled by two officers of the
Company. The lease provides for annual rent of approximately $175,000 in 1998.
Approximately $172,000, $169,000 and $166,000 was paid in rent during 1997,
1996 and 1995, respectively.
F-17
TGI FRIDAY'S INC.
Main Street and Main Incorporated
Cornerstone Productions, Inc.
Amended and Restated Development Agreement
Dated April 30th, 1997
"Southwest"
<PAGE>
TGI FRIDAY'S INC.
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
Main Street and Main Incorporated
TABLE OF CONTENTS
-----------------
RECITALS 1
1. GRANT 2
2. DEVELOPMENT FEE 2
3. SCHEDULE AND MANNER FOR EXERCISING
DEVELOPMENT RIGHTS 2
4. SITE SELECTION 4
5. TERM 5
6. DUTIES OF THE PARTIES 5
7. DEFAULT 9
8. TRANSFER OF INTEREST 11
9. COVENANTS 14
10. NOTICES AND PAYMENTS 17
11. INDEPENDENT CONTRACTOR AND INDEMNIFICATION 18
12. APPROVALS, WAIVERS AND REMEDIES 20
13. SEVERABILITY AND CONSTRUCTION 21
14. ENTIRE AGREEMENT 22
15. APPLICABLE LAW 22
16. ACKNOWLEDGMENTS 22
EXHIBIT A - THE TERRITORY
EXHIBIT B - FRANCHISE AGREEMENT
EXHIBIT C - CONFIDENTIALITY AGREEMENT
EXHIBIT D - CONFIDENTIALITY AGREEMENT AND COVENANT NOT TO COMPETE
EXHIBIT E - NON-DISCLOSURE FORM
"Southwest"
<PAGE>
DEVELOPMENT AGREEMENT
This Amended and Restated Development Agreement ("Agreement") is entered
into this 30th day of April, 1997 by and between TGI Friday's Inc., a New York
corporation, with its principal place of business at 7540 LBJ Freeway, Dallas,
Texas 75251 (hereinafter "Franchisor") and Cornerstone Productions, Inc., a
Delaware corporation, with its principal place of business at 5050 North 40th
Street, Suite 200 Phoenix, AZ 85018 (hereinafter "Developer").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort and money, has developed and owns a unique and distinctive system
(hereinafter "System") relating to the establishment and operation of
full-service restaurants utilizing the trade name T.G.I. Friday's and featuring
a specialized menu and full-bar service;
WHEREAS, the distinguishing characteristics of the System include, without
limitation, distinctive exterior and interior design, decor, color scheme and
furnishings; special recipes and menu items; uniform standards, specifications
and procedures for operations; quality and uniformity of products and services
offered; procedures for inventory and management control; training and
assistance; and advertising and promotional programs; all of which may be
changed, improved and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade names,
service marks, trademarks, emblems and indicia of origin, including but not
limited to the marks T.G.I. Friday's(R), Friday's(R) and The American Bistro(R)
and such other trade names, service marks and trademarks as are now designated
and may hereafter be designated by Franchisor in writing for use in connection
with the System (hereinafter "Proprietary Marks");
WHEREAS, Franchisor continues to develop, use and control the use of such
Proprietary Marks in order to identify for the public the source of services and
products marketed thereunder and under the System, and to represent the System's
high standards of quality, appearance and services;
WHEREAS, Developer wishes to obtain certain development rights to operate
restaurants utilizing the System (hereinafter "Restaurants" or "franchised
businesses") in the territory described in this Agreement;
NOW, THEREFORE, the parties in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
1. GRANT
-----
"Southwest"
1
<PAGE>
A. Franchisor hereby grants to Developer and Developer accepts, pursuant
to the terms and conditions of this Agreement, development rights to establish
and operate new Restaurants and to use the System solely in connection
therewith, at specific locations to be designated in separate T.G.I. Friday's
franchise agreements (hereinafter "Franchise Agreement") executed as provided in
Subsection 3.A hereof and pursuant to the Development Schedule set forth in
Subsection 3.B hereof. Each Restaurant developed hereunder shall be located in
the area described on Exhibit A (hereinafter "Territory) and outlined on the map
attached hereto as part of Exhibit A. Expressly excluded from the Territory are
airport properties otherwise located within the boundaries of the Territory,
Franchisor reserving the rights to establish or license another party to
establish Restaurants at airport properties even if otherwise located within the
boundaries of the Territory.
B. Each Restaurant for which a development right is granted hereunder
shall be established and operated pursuant to a Franchise Agreement to be
entered into between Developer and Franchisor in accordance with Subsection 3.A
hereof.
C. Except as otherwise provided in this Agreement, Franchisor shall not
establish nor license anyone other than Developer to establish any Restaurant in
the Territory during the term of this Agreement.
D. This Agreement is not a franchise agreement and does not grant to
Developer any right to use Franchisor's Proprietary Marks or the System.
E. Developer shall have no right under this Agreement to license others to
use the Proprietary Marks or the System.
2. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
-----------------------------------------------------
A. Developer shall exercise each development right granted herein only by
executing a Franchise Agreement for each Restaurant at a site consented to by
Franchisor in the Territory as hereinafter provided. The Franchise Agreement for
each Restaurant developed in accordance with the development schedule
hereinafter set forth (and as it may be amended by consent of the parties) shall
be in the form of the franchise agreement attached hereto as Exhibit B. The
franchise fee to be paid by Developer shall be Fifty Thousand Dollars
($50,000.00) for each Restaurant to be located in the Territory during the term
of this Agreement, payable upon execution of the Franchise Agreement for each
Restaurant.
B. Recognizing that time is of the essence, Developer agrees to exercise
each of the development rights granted hereunder in the manner specified in
Subsection 3.A hereof, and to satisfy the development schedule set forth below:
C. Developer shall develop, open, commence operation of and continuously
operate pursuant to the respective Franchise Agreements seven (7) Restaurants in
the Territory, pursuant to the Development Schedule as follows:
"Southwest"
2
<PAGE>
ASSUMES YEAR ENDS DECEMBER 25TH
SOUTHWEST - EXCLUSIVE DEVELOPMENT
<TABLE>
<CAPTION>
- --------------------------- -------------------------- -------------------------- --------------------------
Date of Preliminary Site Date Franchise Agreement
Restaurant No. Consent Signed & Fees Paid Date Open & Operating
- --------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
1 3-25-97 7-25-97 12-25-97
- --------------------------- -------------------------- -------------------------- --------------------------
2&3 3-25-98 7-25-98 12-25-98
- --------------------------- -------------------------- -------------------------- --------------------------
4 3-25-99 7-25-99 12-25-99
- --------------------------- -------------------------- -------------------------- --------------------------
5 3-25-00 7-25-00 12-25-00
- --------------------------- -------------------------- -------------------------- --------------------------
6 3-25-01 7-25-01 12-25-01
- --------------------------- -------------------------- -------------------------- --------------------------
7 3-25-02 7-25-02 12-25-02
- --------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Failure by Developer to adhere to the development schedule shall
constitute a material event of default under this Agreement as provided in
Subsection 7.C hereof. Notwithstanding anything in this Agreement to the
contrary, provided Developer has commenced construction of a Restaurant in a
timely manner so as to adhere to the development schedule and is diligently
pursuing such construction to completion, delays in the opening of such
Restaurant caused by Force Majeure (as defined in the Franchise Agreement) shall
not constitute an event of default under this Agreement.
D. Franchisor and Developer agree that during the year 2002 and 2007 a new
development schedule will be negotiated providing for the number of additional
Restaurants to be developed during the ensuring five (5) and three (3) year
periods and the schedule for such development. In the event the parties are
unable to agree upon the number of Restaurants to be developed or the schedule
for such development within thirty (30) days after having exerted good faith
efforts to do so, the parties agree to retain an independent third party
("Appraiser") mutually acceptable to both parties to determine such issues. The
decision of such Appraiser shall be binding on Franchisor and Developer. In the
event the parties are unable to agree upon a mutually acceptable Appraiser, the
selection of appraisers and the determination of the issues shall be conducted
using the same procedures set forth at Subsection ss.17.03 of the Franchise
Agreement attached hereto as Exhibit B. Should Developer fail to develop
according to the new development schedule, Developer agrees that it will lose
its rights to further development within the Territory and agrees that
Franchisor shall have the right to develop or license other parties to develop
Restaurants within the Territory. For each of the additional Restaurants to be
developed during the ensuing five (5) and three (3) year periods, Developer
shall execute the standard form of franchise agreement then being offered to new
System franchisees and other ancillary agreements as Franchisor may require for
the franchised business, the terms of which may differ from the terms of the
Franchise Agreement attached to this Agreement, including, without limitation, a
higher franchise fee, percentage royalty rate and advertising contribution.
3. SITE SELECTION
--------------
"Southwest"
3
<PAGE>
A. Developer assumes all cost, liability, expense and responsibility for
locating, obtaining and developing sites for Restaurants, and for constructing
and equipping Restaurants at such sites. The development of a Restaurant at any
site must be consented to by Franchisor in accordance with the then existing
site selection procedures including, but not limited to, the following
procedures:
(1) Prior to acquisition by lease or purchase of a site for a
Restaurant in the Territory, Developer shall submit to Franchisor for each
Restaurant, in the form prescribed by Franchisor, a description of the site, a
market feasibility study for the site which shall include, but not be limited
to, demographic information, site plans and such other information or materials
as Franchisor may reasonably require, together with a letter of intent or other
evidence satisfactory to Franchisor which confirms Developer's favorable
prospects for obtaining the site. Recognizing that time is of the essence,
Developer agrees that it must submit such information and materials for each
proposed site to Franchisor in writing for its consent. Franchisor shall have
thirty (30) days after receipt of such information and materials from Developer
to consent to or refuse its consent to use the proposed site as the location for
a Restaurant, which consent shall not be unreasonably withheld. No site shall be
deemed approved unless it has been expressly approved to in writing by
Franchisor.
(2) Developer acknowledges that Franchisor's consent to the use of
a prospective Restaurant site or the rendering of assistance in the selection of
a site for a Restaurant does not constitute a representation, promise or
guarantee by Franchisor that a Restaurant operated at that site would be
profitable or otherwise successful.
(3) After the location for a Restaurant is consented to by
Franchisor and leased or acquired by Developer in accordance with the
requirements of this Section 4, Developer shall execute a Franchise Agreement
relating to the Restaurant and its location shall be recorded in Attachment A to
the applicable Franchise Agreement.
B. If the Developer will occupy the premises of any Restaurant under a
lease, Developer shall furnish to Franchisor a copy of the executed lease within
ten (10) days after execution thereof. Prior to such execution, Developer shall
submit the lease to Franchisor for its written approval. Unless Developer has
obtained Franchisor's written consent to the exclusion of a required provision,
the lease shall include the following terms and conditions:
(1) That the premises shall be used for the operation of the
Restaurant;
(2) That the lessor consents to the use of such Proprietary Marks
and signage as Franchisor may prescribe for the franchised business;
(3) That the lessor agrees to furnish Franchisor with copies of
any and all letters and notices sent to Developer pertaining to the lease and
the premises at the same time that such letters and notices are sent to
Developer;
"Southwest"
4
<PAGE>
(4) That Developer may not sublease or assign all or any part of
its occupancy rights, or extend the term of or renew the lease, without
Franchisor's prior written consent, which shall not be unreasonably withheld;
(5) That Franchisor shall have the right to enter the premises to
make any modification necessary to protect Franchisor's Proprietary Marks or to
cure any default under the lease, this Agreement or the Franchise Agreement;
(6) That the lessor agrees that Developer may assign the lease to
Franchisor; that the lessor will consent to such assignment and may not impose
any assignment fee or similar charge on Franchisor in connection with such
assignment; and that Franchisor may sublease the premises for all or any part of
the remaining term of the lease; and
(7) That the lessor and Developer shall not amend or otherwise
modify the lease in any manner which would materially and adversely affect any
of the foregoing terms and conditions without Franchisor's prior written
consent.
C. Developer shall construct the Restaurant in accordance with the
provisions of the Franchise Agreement.
4. TERM
----
Unless sooner terminated in accordance with the provisions of this
Agreement, the term of this Agreement shall commence on the date hereof and
shall be in effect until December 31, 2010.
5. DUTIES OF THE PARTIES
---------------------
A. Franchisor shall furnish to Developer the following:
(1) Upon execution hereof, one (1) copy of the Development Manual
("Development Manual"), which is a part of the Confidential Operating Manuals
("Manuals") referred to in Section 7 of the Franchise Agreement. The Development
Manual contains the instructions, requirements, standards, specifications and
procedures for the development and construction of a typical Restaurant,
including site selection guidelines and criteria, construction management
techniques and development planning and scheduling methods. The Development
Manual will be delivered to Developer on loan upon execution of this Agreement
and shall be returned to Franchisor immediately upon request or upon termination
or expiration of this Agreement. Developer shall at all times treat the
Development Manual as confidential.
(2) Such site selection counseling and assistance as Franchisor
may deem advisable.
(3) Such on-site evaluation as Franchisor may deem advisable in
response to Developer's requests for site approval; provided, however, that
Franchisor shall not provide on-
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site evaluation for any proposed site prior to the receipt of all required
information and materials concerning such site prepared pursuant to Section 4
hereof.
(4) Upon execution hereof, one (1) set of Franchisor's standard
plans and specifications for the construction of a typical Restaurant including
the exterior and interior design and layout, fixtures, furnishings and signs.
(5) Preopening and opening training and assistance as Franchisor
deems advisable with due regard to the number of trained personnel then employed
by Franchisee and/or its affiliates then operating other Restaurants utilizing
the System.
B. Developer makes the following representations, warranties and covenants
and accepts the following obligations:
(1) Developer shall comply with all terms and conditions set forth
in this Agreement.
(2) Upon execution of this Agreement, Developer shall designate:
(i) an individual who is fully authorized to act on behalf
of Developer in all transactions with Franchisor concerning Developer's
obligations under this Agreement ("Representative"). A qualified Representative
shall be designated at all times during the term of this Agreement by Developer
and Developer shall designate a replacement Representative from time to time as
necessary; and
(ii) an individual meeting Franchisor's reasonable approval
to operate the franchised
business (an "Operator") who will promptly attend and complete Franchisor's
management training program in accordance with the provisions of Subsection
ss.4.03 of the Franchise Agreement. An approved Operator shall be designated at
all times during the term of this Agreement by Developer and Developer shall
designate a replacement Operator from time to time as necessary.
(3) If this Agreement provides for the development of three or
more Restaurants, Developer will be required to designate an individual to
supervise the Restaurants (a "Regional Manager") in accordance with the
provisions of Subsection ss.4.02 of the Franchise Agreement.
(4) Developer and Developer's Principals (as defined in Subsection
13.A hereof) covenant and agree that neither shall, during the term of this
Agreement or thereafter, communicate, divulge or use for the benefit of any
other person, persons, partnership, association or corporation any confidential
information, knowledge or know-how concerning the methods of development and
operation of the Restaurant which may be communicated to Developer or
Developer's Principals or of which they may be apprised by virtue of Developer's
operation under the terms of this Agreement. Developer and Developer's
Principals shall divulge such confidential information only to such of
Developer's employees as must have access to it in connection with their
employment. Any and all information, knowledge, techniques and
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know-how, including without limitation, the Development Manual and all drawings,
materials, equipment, recipes, computer and point of sale programs and output
from such programs, and all other data which Franchisor designates as
confidential shall be deemed confidential for purposes of this Agreement.
Neither Developer nor any of Developer's Principals shall at any time, without
Franchisor's prior written consent, copy, duplicate, record or otherwise
reproduce such materials or information, in whole or in part, or otherwise make
the same available to any unauthorized person. Developer shall be permitted to
disclose confidential information and materials to its legal counsel and its
business, financial and other professional consultants and contractors, but only
to the extent that such disclosure is necessary in order for such parties to
provide services or professional advice related to the franchised business and
this Agreement and then only after such parties have executed non-disclosure
covenants in a form substantially similar to the Non-Disclosure form attached
hereto as Exhibit E. Developer shall be responsible for compliance by such
parties with such covenants.
(5) Developer shall, prior to the disclosure of any confidential
information, require any of its employees who will have access to such
confidential information to execute covenants that they will maintain the
confidentiality of information they receive in connection with their employment
by Developer. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third
party beneficiary of such covenants with the independent right of enforcement.
Such covenants shall be in a form substantially similar to the Confidentiality
Agreement attached hereto as Exhibit C. Developer shall be responsible for
compliance by its employees with such covenants.
(6) If Developer or Developer's Principals develop any new process
or improvement in the development, operation or promotion of the Restaurants,
Developer agrees to promptly notify Franchisor and provide Franchisor with all
necessary information concerning same, without compensation. Developer and
Developer's Principals acknowledge that any such process or improvement shall
become the property of Franchisor and Franchisor may utilize or disclose such
information to other developers as it determines to be appropriate.
(7) Developer and each of Developer's Principals acknowledge
complete ownership by Franchisor of the Proprietary Marks, specifications,
standards, management and accounting methods, operating procedures and other
concepts embodied in and comprising the System, and covenants that during the
term of this Agreement or thereafter, regardless of the cause of termination,
Developer and each of Developer's Principals shall not, either directly or
indirectly, contest or aid others in contesting, the exclusive ownership and
rights of Franchisor in any aspect of the System, or do anything that will
otherwise impair such rights without Franchisor's prior written consent,
including, without limitation, using or reproducing any materials copyrighted by
Franchisor.
(8) Developer and each of Developer's Principals acknowledge and
agree: (a) that any failure to comply with the covenants in this Subsection 6.B
or any failure to obtain execution of the covenants in Subsection 6.B(5) shall
constitute a material event of default under Subsection 7.C; (b) that any such
failure will cause Franchisor irreparable injury for which no adequate remedy at
law may be available; and (c) therefore, Franchisor shall be entitled, in
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addition to any other remedies which it may have hereunder, at law, or in
equity, to obtain specific performance of, or to an injunction against violation
of, the requirements of Subsections 6.B(4), (5) and (7), without the necessity
of showing actual or threatened damage and without being required to furnish a
bond or other security. If Franchisor prevails, Developer agrees to pay all
court costs and reasonable attorneys' fees incurred by Franchisor in connection
with the enforcement of Subsections 6.B(4), (5) and (7), including the
agreements referred to in Subsection 6.B(5).
(9) Developer shall comply with all requirements of federal, state
and local laws, rules and regulations.
C. Developer represents, warrants and covenants that:
(1) Developer is duly organized and validly existing under the
state law of its formation;
(2) Developer is duly qualified and is authorized to do business
in each jurisdiction in which its business activities or the nature of the
properties owned by it require such qualification;
(3) Developer's corporate charter shall at all times permit the
development and operation of the Restaurants;
(4) The execution of this Agreement and the transactions
contemplated hereby are within Developer's corporate power;
(5) Copies of Developer's Articles of Incorporation, Bylaws, other
governing documents and any amendments thereto, including the resolution of the
Board of Directors authorizing entry into and performance of this Agreement,
shall be promptly furnished to Franchisor;
(6) Developer shall maintain a current list of all owners of
record and all beneficial owners known to Developer of any class of voting
securities of the corporation. Such list shall be furnished to Franchisor upon
request;
(7) Developer shall maintain stop-transfer instructions against
the transfer on its records of any equity securities and each stock certificate
of the corporation shall have conspicuously endorsed upon its face a statement
in a form satisfactory to Franchisor that it is held subject to and that further
assignment or transfer thereof is subject to all restrictions imposed upon
assignments by this Agreement.
(8) Each of Developer's Principals personally, unconditionally and
irrevocably guarantee to Franchisor and its successors and assigns that all of
Developer's obligations under this Agreement will be punctually paid and
performed. Upon default by Developer or notice from Franchisor, Developer's
Principals will immediately make each payment and perform each
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obligation required of Developer under this Agreement. Without affecting the
obligations of Developer's Principals under this guaranty, Franchisor may,
without notice to Developer's Principals, waive, renew, extend, modify, amend or
release any indebtedness or obligation of Developer, or settle, adjust, or
compromise any claims against Developer. Developer's Principals waive all
demands and notices of every kind with respect to this guaranty including,
without limitation, notice of: presentment, demand for payment or performance by
Developer, any default by Developer or any guarantor, and any release of any
guarantor or other security for this Agreement or the obligations of Developer.
Franchisor may pursue its rights against Developer's Principals without first
exhausting its remedies against Developer and without joining any other
guarantor hereto, and no delay on the part of Franchisor in the exercise of any
right or remedy shall operate as a waiver of such right or remedy. No single or
partial exercise by Franchisor of any right or remedy shall preclude the further
exercise of such right or remedy. Upon receipt by Franchisor of notice of the
death of one of Developer's Principals, the estate of the deceased will be bound
by the foregoing guaranty, but only for defaults and obligations under this
Agreement existing at the time of death; the obligations of the other of
Developer's Principals shall continue in full force and effect.
D. Developer acknowledges and agrees that the representations, warranties
and covenants set forth in Subsection 6.C are continuing obligations of
Developer and that any failure to comply with such representations, warranties
and covenants shall constitute a material event of default under this Agreement
pursuant to Subsection 7.C hereof.
6. DEFAULT
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A. The rights granted to Developer in this Agreement have been granted in
reliance on Developer's representations and assurances, among others, that the
conditions set forth in Sections 1, 3 and 4 of this Agreement will be met by
Developer in a timely manner. Time is of the essence in relation to all
obligations of Developer in this Agreement.
B. Developer shall be deemed to be in default under this Agreement and all
rights granted herein shall automatically terminate without notice to Developer,
if Developer shall become insolvent or make a general assignment for the benefit
of creditors; or if a petition in bankruptcy is filed under any chapter of Title
11 of the United States Code by Developer or such a petition is filed against
Developer and not opposed by Developer; or if a bill in equity or other
proceeding for the appointment of a receiver of Developer or other custodian for
Developer's business or assets is filed and consented to by Developer; or if a
receiver or other custodian (permanent or temporary) of Developer's assets or
property, or any part thereof, is appointed by any court of competent
jurisdiction; or if proceedings for a composition with creditors under any state
or federal law should be instituted by or against Developer; or if a final
non-appealable judgment remains unsatisfied or of record for thirty (30) days or
longer (unless supersedes bond is filed); or if Developer is dissolved; or if
execution is levied against Developer's business or property; or if suit to
foreclose any lien or mortgage against the premises or equipment of any
Restaurant developed hereunder is instituted against Developer and not dismissed
or bonded within thirty (30) days; or if the real property (owned by Developer)
of any Restaurants or
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personal property of any Restaurants developed hereunder shall be sold after
levy thereupon by any sheriff, marshal or constable.
C. If Developer fails to comply with the development schedule set forth in
Subsection 3.B hereof or any subsequent development schedule; Developer or
Developer's Principals fail to comply with the restrictions on confidential
information set forth in Subsection 6.B(4) or the requirements of Subsection 9.B
concerning in-term covenants against competition (except where liquidated
damages have been otherwise expressly provided); Developer fails to obtain
execution of the covenants from the persons designated by Franchisor pursuant to
Subsections 6.B(5) and 9.G; Developer breaches the warranties, representations
and covenants set forth in Subsection 6.C; Developer or any partner or
shareholder makes or attempts to make a transfer or assignment in violation of
Section 8 hereof; Developer fails to pay any monies owed to Franchisor within
ten (10) days after written notice from Franchisor that the same has not been
paid; Developer fails to comply with any other terms and conditions of this
Agreement, or the terms of any Franchise Agreements or any other development
agreements between Developer and Franchisor; such action shall constitute a
material event of default under this Agreement. Upon such default, Franchisor,
in its discretion, may do any one or more of the following:
(1) Terminate this Agreement and all rights granted hereunder
without affording Developer any opportunity to cure the default, effective
immediately upon notice to Developer;
(2) Provide Developer a reasonable period of time, not to exceed
thirty (30) days after notice from Franchisor, to cure a default which is
susceptible to cure;
(3) Reduce the number of Restaurants which Developer may
thereafter establish pursuant to Subsection 1.A of this Agreement;
(4) Terminate the territorial exclusivity granted Developer in
Subsection 1.C hereof, or reduce the Territory granted Developer hereunder; or
(5) Accelerate the development schedule set forth in Subsection
3.B hereof.
D. Upon termination of this Agreement, Developer shall have no right to
establish or operate any Restaurant for which a Franchise Agreement has not been
executed by Franchisor and delivered to Developer prior to or at the time of
termination and Franchisor shall be entitled to establish and to license others
to establish Restaurants in the Territory except as may be otherwise provided
under any other agreement which is then in effect between Franchisor and
Developer.
E. No default under this Agreement shall constitute a default under any
Franchise Agreement between the parties hereto, unless Developer's acts or
omissions also violate the terms and conditions of the applicable Franchise
Agreement.
7. TRANSFER OF INTEREST
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A. Franchisor shall have the right to transfer or assign this Agreement
and all or any part of its rights or obligations herein to any person or legal
entity.
B. (1) Developer understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Developer, and that Franchisor has
granted the development rights in reliance on the business skill, financial
capacity and business reputation and character of the Developer. Accordingly,
neither Developer nor any initial or subsequent successor or assign to any part
of Developer's interest in the development rights, shall sell, assign, transfer,
convey, give away, pledge, mortgage or otherwise encumber any direct or indirect
interest in this Agreement or in any entity which owns the development rights
without the prior written consent of Franchisor; provided, however, that
Franchisor's prior written consent shall not be required for a transfer of an
interest in a publicly-held corporation. A "publicly-held corporation" is a
corporation (a) any of the securities of which are registered or quoted on a
national or regional stock exchange, the National Quotation System of the
National Association of Securities Dealers or the "pink sheets" published by the
National Quotation Bureau and (b) which is a reporting corporation pursuant to
Sections 12 and 15 of the Securities Exchange Act of 1934, as amended. Any
purported assignment or transfer, by operation of law or otherwise, not having
the written consent of Franchisor required by this Subsection 8.B shall be null
and void and shall constitute a material event of default for which Franchisor
may terminate this Agreement pursuant to Subsection 7.C hereof.
(2) Franchisor shall not unreasonably withhold its consent to a
transfer of any interest in Developer or in this Agreement. Franchisor may, in
its sole discretion, require any or all of the following as conditions of its
approval:
(a) All of Developer's accrued monetary obligations and all
other outstanding obligations to Franchisor, its subsidiaries and its affiliates
shall have been satisfied;
(b) Developer is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Developer and Franchisor or its subsidiaries and affiliates;
(c) If the transferor shall no longer own an interest in
this Agreement, the transferor shall have executed a general release, in a form
satisfactory to Franchisor, of any and all claims against Franchisor and its
officers, directors, shareholders and employees, in their corporate and
individual capacities, including, without limitation, claims arising under this
Agreement and federal, state and local laws, rules and ordinances;
(d) The transferee shall enter into a written agreement in
a form satisfactory to Franchisor, assuming full, unconditional, joint and
several liability for and agreeing to perform from the date of the transfer, all
obligations, covenants and agreements of transferor contained in this Agreement;
and as applicable, transferee's shareholders, partners or other investors, shall
also execute such agreement;
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(e) The transferee shall demonstrate to Franchisor's
satisfaction the following: that transferee meets the criteria which Franchisor
considers when reviewing a prospective developer's application for development
rights including Franchisor's educational, managerial and business standards;
that transferee possesses a good moral character, business reputation and credit
rating; that transferee has the aptitude and ability to conduct the franchised
businesses contemplated herein (as may be evidenced by prior related business
experience or otherwise); and that transferee has reasonably adequate financial
resources and capital to develop and operate the franchised businesses;
(f) At Franchisor's option, a transferee of Developers
entire interest in this Agreement shall execute (and/or, upon Franchisor's
request, shall cause all interested parties to execute), the standard form of
development agreement then being offered to new System developers and other
ancillary agreements as Franchisor may require for the development of the
Restaurants, which agreements shall supersede this Agreement and its ancillary
documents in all respects and the terms of which agreements may differ from the
terms of this Agreement; provided, however, that the transferee shall not be
required to pay any initial development fee;
(g) Developer and Developer's Principals shall remain
liable for all of their respective obligations to Franchisor in connection with
this Agreement incurred prior to the effective date of the transfer and shall
execute any and all instruments reasonably requested by Franchisor to evidence
such liability;
(h) Developer shall pay a transfer fee of Five Thousand
Dollars ($5,000.00), or such greater amount as is necessary to reimburse
Franchisor for its reasonable costs and expenses associated with reviewing the
application to transfer, including, without limitation, legal and accounting
fees;
(i) If transferee is a corporation or a partnership,
transferee shall make and will be bound by any or all of the representations,
warranties and covenants set forth at Subsection 6.C as Franchisor requests.
Transferee shall provide to Franchisor evidence satisfactory to Franchisor that
the terms of Subsection 6.C have been satisfied and are true and correct on the
date of the transfer.
(3) Developer acknowledges and agrees that each condition which
must be met by the transferee is reasonable and necessary to assure such
transferee's full performance of the obligations hereunder.
(4) In the event the proposed transfer is to a corporation formed
solely for the convenience of ownership, Franchisor's consent may be conditioned
upon any of the requirements set forth at Subsection 8.B(2), except that the
requirements set forth at Subsections 8.B(2)(c), (e), (f), (h) and (i) shall not
apply. With respect to a transfer to a corporation formed for the convenience of
ownership, the percentage of interest owned in the transferee shall be the same
as that previously owned in the transferor, except as may be required by law.
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C. (1) If Developer desires to accept any bona fide offer from a third
party to purchase an interest in the development rights or in this Agreement,
Developer shall promptly notify Franchisor in writing of each such offer, and
shall provide such information and documentation relating to the offer as
Franchisor may require. Franchisor shall have the right and option, exercisable
within thirty (30) days after receipt of such written notification and
documentation, to send written notice to Developer that Franchisor intends to
purchase such interest on the same terms and conditions offered by the third
party. Any material change in the terms of any offer prior to closing shall
constitute a new offer subject to the same rights of first refusal by Franchisor
as in the case of an initial offer. Failure of Franchisor to exercise the option
afforded by this Subsection 8.C shall not constitute a waiver of any other
provision of this Agreement, including all of the requirements of Subsection 8.B
with respect to a proposed transfer.
(2) In the event the offer from the third party provides for
payment of consideration other than cash or involves certain intangible
benefits, Franchisor may elect to purchase the interest proposed to be sold for
the reasonable equivalent in cash. If the parties cannot agree within a
reasonable time on the reasonable equivalent in cash of the non-cash part of the
offer, appraisers shall be designated by Franchisor and Developer in the same
manner as provided at Subsection 17.03 of the Franchise Agreement to determine
such amount and such determination shall be final and binding.
(3) If Franchisor elects to exercise the option described above,
it shall have the right to set off the cost of the appraisal, if any, against
any payment made hereunder.
D. (1) Upon the death of any person with an interest in this Agreement or
in Developer (the "Deceased"), the executor, administrator or other personal
representative of the Deceased shall transfer such interest to a third party
approved by Franchisor within twelve (12) months after the death. If no personal
representative is designated or appointed or no probate proceedings are
instituted with respect to the estate of the Deceased, then the distributee of
such interest must either (a) be approved by Franchisor as a transferee or (b)
transfer such interest to a third party approved by Franchisor within twelve
(12) months after the date of the death of the Deceased.
(2) Upon the permanent disability of any person with an interest
in this Agreement or in Developer, Franchisor may, in its sole discretion,
require such interest to be transferred to a third party approved by Franchisor
within six (6) months after notice to Developer. "Permanent disability" shall
mean any physical, emotional or mental injury, illness or incapacity which would
prevent a person from performing the obligations set forth in this Agreement for
at least ninety (90) consecutive days and from which condition recovery within
ninety (90) days from the date of determination of disability is unlikely.
Permanent disability shall be determined by a licensed practicing physician
selected by Franchisor upon examination of the person; or if the person refuses
to submit to an examination, then such person shall be automatically deemed
permanently disabled as of the date of such refusal for the purpose of this
Subsection 8.D. The costs of any examination required by this Subsection 8.D
shall be paid by Franchisor.
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(3) Upon the death or claim of permanent disability of any person
with an interest in this Agreement or in Developer, Developer or a
representative of Developer must promptly notify Franchisor of such death or
claim of permanent disability. Any transfer upon death or permanent disability
shall be subject to the same terms and conditions as described in Subsection 8.B
for any inter vivos transfer. If an interest is not transferred upon death or
permanent disability as required in this Subsection 8.D, in accordance with the
terms and conditions of Section 8, unless such failure is due to legal
prohibitions or factors outside the control of the representative, such failure
shall constitute a material event of default for which Franchisor may terminate
this Agreement pursuant to Subsection 7.C hereof.
(4) The foregoing provisions of this Subsection 8.D shall not
apply if Developer is a publicly-held corporation as defined at Subsection
8.B(1) hereof.
E. Franchisor's consent to a transfer of any interest in Developer or this
Agreement shall not constitute a waiver of any claims it may have against the
transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
8. COVENANTS
---------
A. Developer covenants that during the term of this Agreement except as
otherwise approved in writing by Franchisor, Developer shall devote requisite
time, energy and best efforts to meet its obligations under this Agreement;
shall require its Operator to devote full time, energy and best efforts to the
overall day-to-day management and operation of the franchised business; and
shall require its Regional Manager, if applicable, to devote full time, energy
and best efforts to the management and supervision of the Restaurants.
B. Developer and Developer's Principals specifically acknowledge that they
will receive valuable specialized training, trade secrets and confidential
information, including, without limitation, information regarding the site
selection and other methods and techniques of Franchisor and the System related
to the development of the Restaurants which are beyond the present skills and
experience possessed by Developer, Developer's Principals and Developer's
managers and other employees. Developer and Developer's Principals acknowledge
that such training, trade secrets and confidential information provide a
competitive advantage and will be valuable to them in the development of the
franchised businesses and that gaining access to such training, trade secrets
and confidential information are, therefore, a primary reason why they are
entering into this Agreement. In consideration for such training, trade secrets
and confidential information, Developer and Developer's Principals covenant as
follows:
(1) With respect to Developer, during the term of this Agreement,
or with respect to each of Developer's Principals, during the term of this
Agreement for so long as such individual or entity satisfies the definition of
"Developer's Principal" as described in Subsection 13.A, neither Developer nor
any of Developer's Principals shall, either directly or indirectly, for
themselves, or through, on behalf of, or in conjunction with any person,
persons, partnership or corporation:
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(a) Divert or attempt to divert any business or customer of
the franchised businesses to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with Franchisor's Proprietary Marks and
the System;
(b) Employ or seek to employ any person who, to Developer's
knowledge, is at that time or has within one (1) year been employed by
Franchisor or by any other developer or franchisee of Franchisor, or otherwise
directly or indirectly to induce such person to leave his or her employment
thereat (for breach of this covenant and due to the difficulty of establishing
the precise amount of damages, for each breach of this covenant Developer agrees
to pay to Franchisor or other developer of Franchisor as appropriate, liquidated
damage in amount equal to the annualized rate of compensation of such person in
the final twelve (12) months of employment with such former employer);
(c) Own, maintain, operate, engage in or have an ownership
interest (including any right to share in revenues or profits) in any food
and/or beverage operations which are the same or substantially similar in
concept, decor or menus to restaurants within the System.
(2) With respect to Developer, for a continuous uninterrupted
period commencing upon the expiration or termination of this Agreement or with
respect to each of Developer's Principals, for a continuous uninterrupted period
commencing upon the earlier of: (i) the expiration or termination of this
Agreement or (ii) the time such individual or entity ceases to satisfy the
definition of "Developer's Principal" as described in Subsection 13.A, and
(a) For one (1) year thereafter neither Developer nor any
of Developer's Principals shall, either directly or indirectly, for themselves,
or through, on behalf of, or in conjunction with any person, persons,
partnership or corporation:
(i) Divert or attempt to divert any business or
customer of the franchised businesses to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Franchisor's
Proprietary Marks and the System;
(ii) Employ or seek to employ any person who, to
Developer's knowledge, is at that time or has within one (1) year been employed
by Franchisor or by any other developer or franchisee of Franchisor, or
otherwise directly or indirectly to induce such person to leave his or her
employment thereat (for breach of this covenant and due to the difficulty of
establishing the precise amount of damages, for each breach of this covenant
Developer agrees to pay to Franchisor or other developer of Franchisor as
appropriate, liquidated damage in amount equal to the annualized rate of
compensation of such person in the final twelve (12) months of employment with
such former employer);
(iii) Own, maintain, operate, engage in or have an
ownership interest (including any right to share in revenues or profits) in any
food and/or beverage operations which
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are the same or substantially similar in concept, decor or menus to restaurants
within the System, which are, or are intended to be, located within the
Territory; and
(b) For one (1) year thereafter neither Developer nor any
of Developer's Principals shall, either directly or indirectly, for themselves,
or through, on behalf of, or in conjunction with any person, persons,
partnership or corporation own, maintain, operate, engage in, or have any
interest (including any right to share in the revenues or profits) in any food
and/or beverage operations which are the same or substantially similar in
concept, decor or menus to restaurants within the System, which business are, or
are intended to be, located within a radius of three (3) miles of any restaurant
in the System.
(3) Subsections 9.B(1)(c), 9.B(2)(a)(iii) and 9.B(2)(b) shall not
apply to an ownership interest of less than five percent (5%) of the outstanding
equity securities of any publicly-held company if such interest is owned for
investment only and not owned by an officer, director, employee or consultant of
such publicly-held company, nor to an ownership interest in any food and/or
beverage operations which are not the same nor substantially similar in concept,
decor or menus, such as Nathan's, McDonalds and other fast food restaurants (as
the same are operated on March 9, 1990), Chi-Chi's, El Chico and other
ethnic-theme restaurants (as the same are operated on March 9, 1990), and The
Tavern on the Green, Windows on the World and other fine dining white tablecloth
restaurants (as the same are operated on March 9, 1990). For the purposes of
comparison only, such Subsections shall preclude involvement as aforesaid in
restaurants such as Bennigans, Houstons, Chilis, Houlihan's and other casual
dining restaurants (as the same are operated on March 9, 1990).
C. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Section 9 is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Developer and Developer's
Principals expressly agree to be bound by any lesser covenant subsumed within
the terms of such covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part of this Section
9.
D. Developer and Developer's Principals understand and acknowledge that
Franchisor shall have the right, in its sole discretion, to reduce the scope of
any covenant set forth in Subsection 9.B of this Agreement, or any portion
thereof, without their consent, effective immediately upon written notice to
Developer and Developer and Developer's Principals agree that they shall comply
forthwith with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 14 hereof.
E. Developer and Developer's Principals expressly agree that the existence
of any claims they may have against Franchisor, whether or not arising from this
Agreement, shall not constitute a defense to the enforcement by Franchisor of
the covenants in this Section 9.
F. Developer and each of Developer's Principals acknowledge and agree: (1)
that any failure to comply with the covenants in this Section 9 or any failure
to obtain execution of the
"Southwest"
16
<PAGE>
covenants in Subsection 9.G below shall constitute a material event of default
under Subsection 7.C; (2) that a violation of the requirements of this Section 9
would result in irreparable injury to Franchisor for which no adequate remedy at
law may be available; and (3) therefore, Franchisor shall be entitled, in
addition to any other remedies which it may have hereunder, at law, or in
equity, to obtain specific performance of or an injunction against the violation
of the requirements of this Section 9, without the necessity of showing actual
or threatened damage and without being required to furnish a bond or other
security. If Franchisor prevails, Developer agrees to pay all costs and expenses
(including reasonable attorneys' fees) incurred by Franchisor in connection with
the enforcement of this Section 9, including enforcement of the agreements
referred to in Subsection 9.G below.
G. Developer shall, prior to arranging any training or disclosing any
confidential information, require its Representative, Operator, Regional
Manager, if applicable, and such other supervisory or managerial employees of
Developer as Franchisor shall designate to execute covenants similar to those
set forth in this Section 9 and in Section 6 (including covenants applicable
upon the termination of a person's relationship with Developer). Every covenant
required shall be in a form satisfactory to Franchisor, including, without
limitation, specific identification of Franchisor as a third party beneficiary
of such covenants with the independent right of enforcement. Such covenants
shall be in a form substantially similar to the Confidentiality Agreement and
Covenant Not to Compete attached hereto as Exhibit D. Developer shall be
responsible for compliance by its employees with such covenants.
9. NOTICES AND PAYMENTS
--------------------
All notices required to be given hereunder shall be in writing and shall
be sent by personal delivery or by certified or registered mail, return receipt
requested to the respective parties.
If directed to Franchisor, the notice shall be addressed to TGI Friday's
Inc., attention General Counsel, 7540 LBJ Freeway, Dallas, Texas 75251.
If directed to Developer or Developer's Principals, the notice shall be
addressed to Developer, at the address shown on the first page hereof.
Any notices sent by certified or registered mail shall be deemed given at
the time of mailing. Any change in the foregoing addresses shall be effected by
giving fifteen (15) days written notice of such change to the other party.
Unless otherwise specified, all payments required to be made by Developer
to Franchisor under this Agreement are due and payable immediately upon demand
and/or receipt of any billing therefore and shall be sent by personal delivery
or by mail, postage prepaid, and directed to Franchisor as shown above.
10. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
"Southwest"
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<PAGE>
A. It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, that Developer is an
independent contractor, and that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, employer, joint employer, enterprise or servant of
the other for any purpose whatsoever.
B. Developer shall hold itself out to the public to be an independent
contractor operating pursuant to this Agreement. Developer agrees to take such
actions as shall be necessary to that end.
C. Developer understands and agrees that nothing in this Agreement
authorizes Developer to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name; and that Franchisor shall in no event assume liability for
or be deemed liable hereunder for any such action; nor shall Franchisor be
deemed liable by reason of any act or omission of Developer in the conduct of
its business pursuant to this Agreement, or for any claim or judgment arising
therefrom. Except as otherwise expressly provided herein to the contrary, this
provision shall apply mutatis mutandis to Franchisor.
D. (1) Developer will, at all times, indemnify and hold harmless to the
fullest extent permitted by law Franchisor, its corporate affiliates, successors
and assigns and the respective directors, officers, employees, agents and
representatives of each (Franchisor and all others hereinafter collectively
"Indemnitees") from all "losses and expenses" (as defined below) incurred in
connection with any action, suit, proceeding, claim, demand, investigation or
inquiry (formal or informal), or any settlement thereof (whether or not a formal
proceeding or action has been instituted) which arises out of or is based upon
any of the following:
(a) The infringement, alleged infringement, or any other
violation or alleged violation by Developer or any of Developer's Principals of
any patent, mark or copyright or other proprietary right owned or controlled by
third parties.
(b) The violation, breach or asserted violation or breach
by Developer or any of Developer's Principals of any contract, federal, state or
local law, regulation, ruling, standard or directive or any industry standard.
(c) Libel, slander or any other form of defamation of
Franchisor or the System, by Developer or any of Developer's Principals.
(d) The violation or breach by Developer or any of
Developer's Principals of any warranty, representation, agreement or obligation
in this Agreement.
(e) Acts, errors or omissions of Developer or any of its
agents, servants, employees, contractors, partners, affiliates or
representatives.
"Southwest"
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The provisions of Subsections 11.D(1)(c), (d) and (e) shall apply mutatis
mutandis to Franchisor.
(2) Developer agrees to give Franchisor notice of any such action,
suit, proceeding, claim, demand, inquiry or investigation. At the expense and
risk of Developer, Franchisor may elect to assume (but under no circumstance is
obligated to undertake), the defense and/or settlement of any such action, suit,
proceeding, claims, demand, inquiry or investigation. Such an undertaking by
Franchisor shall, in no manner or form, diminish the obligation of Developer to
indemnify Franchisor and to hold it harmless.
(3) In order to protect persons or property, or its reputation or
goodwill, or the reputation or goodwill of others, Franchisor may, at any time
and without notice, as it, in its judgment deems appropriate consent or agree to
settlements or take such other remedial or corrective action as it deems
expedient with respect to the action, suit, proceeding, claim, demand, inquiry
or investigation if, in Franchisor's sole judgment, there are reasonable grounds
to believe that:
(a) any of the acts or circumstances enumerated in
Subsection 11.D(1) above have occurred; or
(b) any act, error, or omission of Developer or any of
Developer's Principals may result directly or indirectly in damage, injury or
harm to any person or any property.
(4) (a) All losses and reasonable expenses incurred under this
Section shall be chargeable to and paid by Developer pursuant to its obligations
of indemnity under this Section, regardless of any actions, activity or defense
undertaken by Franchisor or the subsequent success or failure of such actions,
activity or defense.
(b) As used in this Section, the phrase "losses and
expenses" shall include, without limitation, all losses, compensatory, exemplary
or punitive damages, fines, charges, costs, expenses, lost profits, reasonable
attorneys' fees, court costs, settlement amounts, judgments, compensation for
damages to the Franchisor's reputation and goodwill, reasonable costs of or
resulting from delays, financing, costs of advertising material and media
time/space, and costs of changing, substituting or replacing the same, and any
and all reasonable expenses of recall, refunds, compensation, public notices and
other such reasonable amounts incurred in connection with the matters described.
(5) Indemnitees do not assume any liability whatsoever for acts,
errors, or omissions of those with whom Developer or any of Developer's
Principals may contract, regardless of the purpose. Developer shall hold
harmless and indemnify Indemnitees for all losses and expenses which may arise
out of any acts, errors or omissions of these third parties.
(6) Under no circumstances shall Indemnitees be required or
obligated to seek recovery from third parties or otherwise mitigate their losses
in order to maintain a claim against
"Southwest"
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<PAGE>
Developer or any of Developer's Principals. Developer and each of Developer's
Principals agrees that the failure to pursue such recovery or mitigate loss will
in no way reduce the amounts recoverable by Indemnitees from Developer or any of
Developer's Principals.
11. APPROVALS, WAIVERS AND REMEDIES
-------------------------------
A. Whenever this Agreement requires the approval or consent of Franchisor,
Developer shall make a timely written request to Franchisor for such approval or
consent.
B. Franchisor makes no warranties or guarantees upon which Developer may
rely and assumes no liability or obligation to Developer or any third party to
which it would not otherwise be subject, by providing any waiver, approval,
advice, consent, or services to Developer in connection with this Agreement, or
by reason of any neglect, delay or denial of any request therefor.
C. No failure of Franchisor to exercise any power reserved to it by this
Agreement, or to insist upon strict compliance by Developer or Developer's
Principals with any obligation or condition hereunder, and no custom or practice
of the parties at variance with the terms hereof, shall constitute a waiver or
estoppel of Franchisor's right to demand exact compliance with any of the terms
herein and Developer and each of Developer's Principals warrants and undertakes
that it shall not rely on such failure, custom or practice. Waiver by Franchisor
of any particular default by Developer or any of Developer's Principals shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same, similar or different nature, nor shall delay, forbearance, or
omission of Franchisor to exercise any power or right arising out of any breach
or default by its other developers or by Developer or any of Developer's
Principals of any of the terms, provisions, or covenants hereof, affect or
impair Franchisor's right to exercise the same, nor shall such constitute a
waiver by Franchisor of any right hereunder, or the right to declare any
subsequent breach or default and to terminate this Agreement prior to the
expiration of its term. Subsequent acceptance by Franchisor of any payments due
to it hereunder shall not be deemed to be a waiver by Franchisor of any
preceding breach by Developer of any terms, covenants or conditions of this
Agreement. Except as otherwise expressly provided herein to the contrary, this
provision shall apply mutatis mutandis to Franchisor.
D. Except as otherwise expressly provided herein to the contrary, all
rights and remedies of the parties hereto shall be cumulative and not
alternative, in addition to and not exclusive of any other rights or remedies
which are provided for herein or which may be available at law or in equity in
case of any breach, failure or default or threatened breach, failure or default
of any term, provision or condition of this Agreement. The rights and remedies
of the parties hereto shall be continuing and shall not be exhausted by any one
or more uses thereof, and may be exercised at any time or from time to time as
often as may be expedient; and any option or election to enforce any such right
or remedy may be exercised or taken at any time and from time to time. The
expiration or earlier termination of this Agreement shall not discharge or
release Franchisor or Developer from any liability or obligation then accrued,
or any liability or obligation continuing beyond, or arising out of, the
expiration or earlier termination of this Agreement.
"Southwest"
20
<PAGE>
E. Nothing herein contained shall bar either party's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
12. SEVERABILITY AND CONSTRUCTION
-----------------------------
A. The term "Developer's Principals" as used in this Agreement shall
include, collectively and individually: all officers, directors and holders of a
direct or indirect beneficial interest in the securities of Developer (or of any
corporation which directly or indirectly controls Developer).
B. Except as expressly provided to the contrary herein, each portion,
section, part, term and/or provision of this Agreement shall be considered
severable; and if, for any reason, any portion, section, part, term and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation by a court or agency having valid
jurisdiction, such shall not impair the operation of or have any other affect
upon such other portions, sections, parts, terms and/or provisions of this
Agreement as may remain intelligible, and the latter will continue to be given
full force and effect and bind the parties hereto; and said invalid portions,
sections, parts, terms and/or provisions shall be deemed not to be a part of
this Agreement.
C. Developer and Developer's Principals expressly agree to be bound by any
promise or covenant imposing the maximum duty permitted by law which is subsumed
within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
from any of the provisions hereof any portion or portions which a court may hold
to be unreasonable and unenforceable in a final decision to which Franchisor is
a party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order or to the extent which Franchisor in
its sole discretion may otherwise determine.
D. All captions in this Agreement are intended solely for the convenience
of the parties, and none shall be deemed to affect the meaning or construction
of any provision hereof.
E. All references herein to the masculine, neuter, or singular shall be
construed to include the masculine, feminine, neuter, or plural, where
applicable; and all acknowledgments, promises, covenants, agreements and
obligations herein made or undertaken by Developer shall be deemed jointly and
severally undertaken by all those executing this Agreement on behalf of
Developer.
F. This Agreement may be executed in several parts, and each copy so
executed shall be deemed an original.
G. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or entity
other than Developer,
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<PAGE>
Franchisor, Franchisor's officers, directors, and employees, and such of
Developer's and Franchisor's respective successors and assigns as may be
contemplated (and, as to Developer, permitted) by Section 8 hereof, any rights
or remedies under or by reason of this Agreement.
H. This Agreement will become effective only upon execution hereof by the
President or a vice president of Franchisor.
13. ENTIRE AGREEMENT
----------------
THIS AGREEMENT, THE DOCUMENTS REFERRED TO HEREIN, AND THE EXHIBITS HERETO
CONSITTURE THE ENTIRE, FULL AND COMPLETE AGREEMENT BETWEEN FRANCHISOR AND
DEVELOPER CONCERNING THE SUBJECT MATTER HEREOF AND SHALL SUPERSEDE ALL PRIOR
AGREEMENTS, NO OTHER REPRESENTATIONS HAVING INDUCED DEVELOPER TO EXECUTE THIS
AGREEMENT. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, OF FAIR DEALING OR
OTHERWISE, BETWEEN THE PARTIES OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS
AGREEMENT. EXCEPT THOSE PERMITTED TO BE MADE UNILATERALLY BY FRANCHISOR
HEREUNDER, NO AMENDMENT, CHANGE OR VARIANCE FROM THIS AGREEMENT SHALL BE BINDING
ON EITHER PARTY UNLESS MUTUALLY AGREED TO BY THE PARTIES AND EXECUTED IN
WRITING.
14. APPLICABLE LAW
--------------
A. DEVELOPER AND DEVELOPER'S PRINCIPALS ACKNOWLEDGE THAT FRANCHISOR MAY
GRANT NUMEROUS DEVELOPMENT RIGHTS THROUGHOUT THE UNITED STATES ON TERMS AND
CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF
MUTUAL BENEFIT TO DEVELOPER AND DEVELOPER'S PRINCIPALS AND TO FRANCHISOR THAT
THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES
AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF TEXAS DOES NOT CONFLICT
WITH LOCAL FRANCHISE INVESTMENT STATUTES, RULES AND REGULATIONS, TEXAS LAW SHALL
APPLY TO THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN
ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO. NOTWITHSTANDING THE ABOVE, THE
PARTIES RECOGNIZE THAT THE STATE IN WHICH A POST-TERMINATION OR POST-EXPIRATION
COVENANT AGAINST COMPETITION WILL BE ENFORCED HAS THE SIGNIFICANT PUBLIC POLICY
INTEREST: AND, THEREFORE, WITH RESPECT TO ANY ACTION REGARDING SUCH COVENANTS
CONTAINED IN THIS AGREEMENT, THE LAW OF THE STATE IN WHICH THE COVENANT WOULD BE
ENFORCED SHALL APPLY.
B. THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE
AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, SHALL BE RESOLVED BY A
PROCEEDING IN A COURT IN
"Southwest"
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<PAGE>
DALLAS COUNTY, TEXAS, AND DEVELOPER AND DEVELOPER'S PRINCIPALS EACH IRREVOCABLY
ACCEPT THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL
COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR SUCH CLAIMS, CONTROVERSIES OR
DISPUTES; PROVIDED, HOWEVER, WITH RESPECT TO ANY ACTION WHICH INCLUDES
INJUNCTIVE RELIEF, FRANCHISOR MAY BRING SUCH ACTION IN ANY STATE WHICH HAS
JURISDICTION.
C. The parties agree that service of process in any proceeding arising out
of or relating to this Agreement or the performance thereof may be made as to
Developer and Developer's Principals by serving a person of suitable age and
discretion (such as the person in charge of the office) at the address of
Developer specified in this Agreement and as to Franchisor, by serving the
President or a vice president of Franchisor at the address of Franchisor or by
serving Franchisor's registered agent.
15. ACKNOWLEDGMENTS
---------------
A. Developer acknowledges that it has conducted an independent
investigation of the business contemplated by this agreement, and recognizes
that it involves business risks and that the success of the venture is largely
dependent upon the business abilities of developer. Franchisor expressly
disclaims the making of, and developer acknowledges that it has not received or
relied upon, any warranty or guaranty express or implied, as to the potential
volume, profits, or success of the business venture contemplated by this
agreement.
B. Developer acknowledges that Franchisor has made no representations
about the development rights granted herein that are contrary to the terms of
this Agreement or the documents referred to herein and Exhibits attached hereto,
and further represents to Franchisor, as an inducement to its entry into this
Agreement, that Developer has made no misrepresentations in obtaining the
development rights granted herein.
C. Developer acknowledges that it has received, read and understood this
Agreement, the documents referred to herein and the Exhibits attached hereto and
that Franchisor has accorded Developer ample time and opportunity to consult
with advisors of Developer's own choosing about the potential benefits and risks
of entering into this Agreement.
D. Developer acknowledges that it received a complete copy of this
Agreement, the documents referred to herein and the Exhibits attached hereto, at
least five (5) business days prior to the date on which this Agreement was
executed. Developer further acknowledges that it has received the disclosure
document required by the Trade Regulation Rule of the Federal Trade Commission
entitled "Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures" at least ten (10) business days prior to the date
on which this Agreement was executed.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement on the day and year first above written.
"Southwest"
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<PAGE>
WITNESS: TGI FRIDAY'S INC.
By: /S/ Leslie Sharmer
- ----------------- ------------------------
Name Name: Leslie Sharmer
----------------------
Title: Vice President
---------------------
CORNERSTONE PRODUCTIONS, INC.
By: /S/ Bart A. Brown, JR.
------------------------
Name: Bart A. Brown, JR.
----------------------
Title: President
---------------------
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<PAGE>
Each of the undersigned acknowledge and agree as follows:
(1) Each has read the terms and conditions of this Agreement;
(2) Each is included in the term "Developer's Principals" as described
in Subsection 13.A of this Agreement;
(3) Each jointly and severally makes all of the covenants,
representations and agreements of Developer's Principals set forth in this
Agreement and is obligated to perform thereunder; and
(4) Each jointly and severally guarantees Developer's obligations to
Franchisor in accordance with Subsection 6.C(8) of this Agreement.
DEVELOPER'S PRINCIPALS
WITNESS: Main Street and Main Incorporated
By: Bart A. Brown, JR.
- ------------------ ----------------------------
Title: President
-------------------------
<PAGE>
EXHIBIT A
---------
The Territory
1) The following counties in the State of Arizona:
Apache South Graham Navajo
Apache North Greenlee Pima
Cochise La Paz Pinal
Coconino Maricopa Santa Cruz
Gila Mohave Yavapai
2) The following counties in the State of Nevada:
Carson City Humboldt Nye South
Churchill Lander Pershing
Clark Lincoln Storey
Douglas Lyon Washoe
Esmeralda Mineral
Eureka Nye North
2) The following counties in the State of New Mexico:
Bernalillo Harding San Juan
Catron Hidalgo San Miguel
Chaves Lea North Sandoval
Cibola Lincoln Santa Fe
Colfax Los Alamos Sierra
De Baca Luna Socorro
Donna Ana McKinley Taos
Eddy Mora Torrance
Grant Otero Valencia
Guadalupe Rio Arriba
2) The following counties in the State of Texas:
Culberson
El Paso
Hudspeth
"Southwest"
TGI FRIDAY'S INC.
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
Main Street California, Inc.
Dated: May 2, 1997
"California"
<PAGE>
TGI FRIDAY'S INC.
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
RECITALS 1
1. GRANT 2
2. PREFERENTIAL RIGHTS 2
3. SCHEDULE AND MANNER FOR EXERCISING
DEVELOPMENT RIGHTS 3
4. SITE SELECTION 5
5. TERM 7
6. DUTIES OF THE PARTIES 7
7. DEFAULT 11
8. TRANSFER OF INTEREST 13
9. COVENANTS 16
10. NOTICES AND PAYMENTS 19
11. INDEPENDENT CONTRACTOR AND INDEMNIFICATION 19
12. APPROVALS, WAIVERS AND REMEDIES 21
13. SEVERABILITY AND CONSTRUCTION 22
14. ENTIRE AGREEMENT 23
15. APPLICABLE LAW 24
16. ACKNOWLEDGMENTS 24
EXHIBIT A - THE TERRITORY
EXHIBIT B - FRANCHISE AGREEMENT
EXHIBIT C - CONFIDENTIALITY COVENANTS
EXHIBIT D - CONFLICT OF INTEREST AND CONFIDENTIALITY COVENANTS
"California"
<PAGE>
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
This Amended and Restated Development Agreement ("Agreement") is
entered into this 2nd day of May, 1997 by and between TGI Friday's Inc., a New
York corporation, with its principal place of business in Dallas, Texas
(hereinafter "Franchisor") and Main St. California, Inc., an Arizona
corporation, with its principal place of business at 5050 N. 40th Street, Suite
200 Phoenix, AZ 85018 (hereinafter "Developer").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort and money, has developed and owns a unique and distinctive system
(hereinafter "System") relating to the establishment and operation of
full-service restaurants utilizing the trade name T.G.I. Friday's and featuring
a specialized menu and full-bar service;
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, color
scheme and furnishings; special recipes and menu items; uniform standards,
specifications and procedures for operations; quality and uniformity of products
and services offered; procedures for inventory and management control; training
and assistance; and advertising and promotional programs; all of which may be
changed, improved and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade
names, service marks, trademarks, emblems and indicia of origin, including but
not limited to the marks T.G.I. Friday's(R), Friday's(R) and The American
Bistro(R) and such other trade names, service marks and trademarks as are now
designated and may hereafter be designated by Franchisor in writing for use in
connection with the System (hereinafter "Proprietary Marks");
WHEREAS, Franchisor derives its rights in the Proprietary Marks
pursuant to a certain Assignment Agreement dated December 29, 1992 (the
"Assignment Agreement") by and between Franchisor and TGI Friday's of Minnesota,
Inc. a Minnesota corporation ("TGIFM"), pursuant to which Franchisor transferred
to TGIFM all right, title and interest in the Proprietary Marks and TGIFM
granted back to Franchisor the perpetual and exclusive right and license to use
the Proprietary Marks and the right to sub-license the Proprietary Marks to
third parties.
WHEREAS, Franchisor continues to develop, use and control the use of
such Proprietary Marks in order to identify for the public the source of
services and products marketed thereunder and under the System, and to represent
the System's high standards of quality, appearance and services;
"California"
1
<PAGE>
WHEREAS, Developer wishes to obtain certain development rights to
operate restaurants utilizing the System (hereinafter "Restaurants" or
"franchised businesses") in the territory described in this Agreement;
NOW, THEREFORE, the parties in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
1. GRANT
-----
A. Franchisor hereby grants to Developer and Developer accepts,
pursuant to the terms and conditions of this Agreement, development rights to
establish and operate the number of T.G.I. Friday's Restaurants set forth in the
Development Schedule as may be approved by Franchisor in accordance with its
then current Site Consent Procedures, and to use the System solely in connection
therewith, at specific locations to be designated in separate T.G.I. Friday's
franchise agreements (hereinafter "Franchise Agreement") executed as provided in
Subsection 3.A hereof and pursuant to the Development Schedule set forth in
Subsection 3.B hereof. Each Restaurant developed hereunder shall be located in
the area described on page A-1 and A-2 of Exhibit A attached hereto (hereinafter
"Territory") and outlined on the maps attached hereto as page A-3 and A-4 of
Exhibit A. Expressly excluded from the Territory are airport properties
otherwise located within the boundaries of the Territory, Franchisor reserving
the rights to establish or license another party to establish Restaurants at
airport properties even if otherwise located within the boundaries of the
Territory. Also excluded from the Territory are any areas contained within a
three (3) mile radius of any T.G.I. Friday's restaurants located within the
boundaries of the Territory as of the date of this Agreement. Unless
specifically set forth in this Agreement, the rights granted herein shall not
include the exclusive right to develop Friday's American Bar locations within
the Territory.
B. Each Restaurant for which a development right is granted hereunder
shall be established and operated pursuant to a Franchise Agreement to be
entered into between Developer and Franchisor in accordance with Subsection 3.A
hereof.
C. Except as otherwise provided in this Agreement, Franchisor shall not
establish nor license anyone other than Developer to establish any Restaurant in
the Territory during the term of this Agreement.
D. This Agreement is not a franchise agreement and does not grant to
Developer any right to use Franchisor's Proprietary Marks or the System.
E. Developer shall have no right under this Agreement to license others
to use the Proprietary Marks or the System.
2. PREFERENTIAL RIGHTS
-------------------
During the term in for so long as no default has occurred and
is continuing and no event has occurred which, with the giving of notice or
lapse of time, or both, would constitute a
"California"
2
<PAGE>
default, Franchisor shall, prior to granting any development or franchising
rights in such of the regions as remain subject to this Agreement with respect
to new restaurant concepts developed by Franchisor and which Franchisor
determines, in its discretion, to franchise in such regions, discuss in good
faith with Developer, Developer's acquisition of such development and franchise
rights with respect to such new concepts, including the Friday's American Bar,
upon such terms and conditions as would be acceptable, at the time, to
Franchisor and Developer. Notwithstanding the foregoing, nothing herein shall
require that such discussions result in Franchisor's granting such rights to
Developer or that Developer undertake to develop and franchise such new concepts
in such regions
3. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
-----------------------------------------------------
A. Developer shall exercise each development right granted herein only
by executing a Franchise Agreement for each Restaurant at a site consented to by
Franchisor in the Territory as hereinafter provided. The Franchise Agreement for
each development right exercised hereunder in accordance with each regional
development schedule set forth in Subsection 3.B hereof shall be in the form of
the franchise agreement attached hereto as Exhibit B. The franchise fee to be
paid by Developer for the initial development in accordance with the initial
development schedules set forth in Subsection 3.B hereof shall be Fifty Thousand
Dollars ($50,000.00) for each Restaurant to be located in the Territory, payable
upon execution of the Franchise Agreement for each Restaurant. .
B. Recognizing that time is of the essence, Developer agrees to
exercise each of the development rights granted hereunder in the manner
specified in Subsection 3.A hereof, and to satisfy the initial development
schedule set forth below:
In the San Francisco Region of the Territory (as defined in Exhibit A)
<TABLE>
<CAPTION>
---------------------- -------------------------- ------------------------- --------------------------
Restaurant No. Date of Preliminary Site Date Franchise Date Open & Operating
Consent Agreement Signed & Fees
Paid
---------------------- -------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
---------------------- -------------------------- ------------------------- --------------------------
1 & 2 6/98 9/98 12/15/98
---------------------- -------------------------- ------------------------- --------------------------
3 6/99 9/99 12/15/99
---------------------- -------------------------- ------------------------- --------------------------
4 6/00 9/00 12/15/00
---------------------- -------------------------- ------------------------- --------------------------
5 6/01 9/01 12/15/01
---------------------- -------------------------- ------------------------- --------------------------
6 6/02 9/02 12/15/02
---------------------- -------------------------- ------------------------- --------------------------
</TABLE>
Date Open & Operating # Restaurants this Period
--------------------- -------------------------
12/15/98 2
12/15/99 1
12/15/00 1
12/15/01 1
12/15/02 1
Total Restaurants 6
"California"
3
<PAGE>
In the Los Angeles Region of the Territory (as defined in Exhibit A)
<TABLE>
<CAPTION>
---------------------- -------------------------- ------------------------- --------------------------
Restaurant No. Date of Preliminary Site Date Franchise Date Open & Operating
Consent Agreement Signed & Fees
Paid
---------------------- -------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
0 12/15/97
---------------------- -------------------------- ------------------------- --------------------------
1 & 2 6/98 9/98 12/15/98
---------------------- -------------------------- ------------------------- --------------------------
3 & 4 6/99 9/99 12/15/99
---------------------- -------------------------- ------------------------- --------------------------
5, 6 & 7 6/00 9/00 12/15/00
---------------------- -------------------------- ------------------------- --------------------------
8, 9 & 10 6/01 9/01 12/15/01
---------------------- -------------------------- ------------------------- --------------------------
11, 12, 13 & 14 6/02 9/02 12/15/02
---------------------- -------------------------- ------------------------- --------------------------
</TABLE>
Date Open & Operating # Restaurants this Period
--------------------- -------------------------
12/15/97 0
12/15/98 2
12/15/99 2
12/15/00 3
12/15/01 3
12/15/02 4
Total Restaurants: 14
In the San Diego Region of the Territory (as defined in Exhibit A)
<TABLE>
<CAPTION>
---------------------- -------------------------- ------------------------- --------------------------
Restaurant No. Date of Preliminary Site Date Franchise Date Open & Operating
Consent Agreement Signed & Fees
Paid
---------------------- -------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
0 12/15/97
---------------------- -------------------------- ------------------------- --------------------------
1 6/98 9/98 12/15/98
---------------------- -------------------------- ------------------------- --------------------------
2 6/99 9/99 12/15/99
---------------------- -------------------------- ------------------------- --------------------------
3 6/00 9/00 12/15/00
---------------------- -------------------------- ------------------------- --------------------------
4 6/01 9/01 12/15/01
---------------------- -------------------------- ------------------------- --------------------------
5 6/02 9/02 12/15/02
---------------------- -------------------------- ------------------------- --------------------------
</TABLE>
Date Open & Operating # Restaurants this Period Total # Restaurants
--------------------- ------------------------- -------------------
12/15/97 0
12/15/98 1
12/15/99 1
12/15/00 1
12/15/01 1
12/15/02 1
Total Restaurants: 5
Notwithstanding the grant of rights herein, the San Diego and Los
Angeles regions may, at Franchisor's election, be co-developed by Franchisor
with company operated restaurants. Franchisor additionally reserves the right to
issue franchises for location within the San Diego and Los Angeles regions to
third parties on a site specific basis, without the issuance of a development
territory or additional development rights.
"California"
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<PAGE>
Failure by Developer to adhere to the initial or any subsequent
regional development schedule shall constitute a material event of default under
this Agreement as provided in Subsection 7.C hereof with respect to such region.
Failure by Developer to adhere to the initial or any subsequent regional
development schedule with respect to any two of the San Francisco, Los Angeles
or San Diego Regions shall constitute a material event of default as provided in
Subsection 7.C hereof with respect to this Agreement. Notwithstanding anything
in this Agreement to the contrary, provided Developer has commenced construction
of a Restaurant in a timely manner so as to adhere to the development
schedule(s) and is diligently pursuing such construction to completion, delays
in the opening of such Restaurant caused by Force Majeure (as defined in the
Franchise Agreement) shall not constitute an event of default under this
Agreement with respect to such development schedule(s).
C. Franchisor and Developer agree that during the years 2002 and 2007
of the term of the Agreement a new development schedule for each region will be
negotiated providing for the number of Restaurants to be developed in such
region during the ensuing five (5) or six (6) (as appropriate) year period and
the schedule for such development. In the event the parties are unable to agree
upon the number of Restaurants to be developed or the schedule for such
development in any region within thirty (30) days after having exerted good
faith efforts to do so, the parties agree to retain an independent third party
("Appraiser") mutually acceptable to both parties to determine such factors. The
decision of such Appraiser shall be binding on Franchisor and Developer. In the
event the parties are unable to agree upon a mutually acceptable Appraiser, the
selection of appraisers and the determination of the necessary factors shall be
conducted using the same procedures set forth at Subsection 16.03 of the
Franchise Agreement attached hereto as Exhibit B. In the event the Appraiser
determines that no Restaurants should be developed during the ensuing five (5)
or six (6) year period in any region(s), either party may terminate this
Development Agreement with respect to such region(s) upon written notice given
to the other party within ninety (90) days from the date such Appraiser renders
its written opinion. In the event this Development Agreement is not so
terminated within such ninety (90) day period, it shall remain in full force and
effect and a new regional development schedule shall be negotiated for the five
(5) year period next following. Should Developer fail to develop according to
the new regional development schedule, Developer agrees that it will lose its
rights to development within such region, and agrees that Franchisor shall have
the right to develop or license other parties to develop Restaurants within such
region. For each of the Restaurants to be developed during each five (5) or (6)
year period, Developer shall execute the standard form of franchise agreement
then being offered to new System franchisees and other ancillary agreements as
Franchisor may require for the franchised business, the terms of which may
differ from the terms of the Franchise Agreement attached to this Agreement,
including, without limitation, a higher franchise fee, percentage royalty rate
and advertising contribution.
4. SITE SELECTION
--------------
A. Developer assumes all cost, liability, expense and responsibility
for locating, obtaining and developing sites for Restaurants, and for
constructing and equipping Restaurants at such sites. The development of a
Restaurant at any site must be consented to by Franchisor in accordance with the
then existing site selection procedures including, but not limited to, the
following procedures:
"California"
5
<PAGE>
(1) Prior to acquisition by lease or purchase of a site for a
Restaurant in the Territory, Developer shall submit to Franchisor for each
Restaurant, in the form prescribed by Franchisor, a description of the site, a
market feasibility study for the site which shall include, but not be limited
to, demographic information, site plans and such other information or materials
as Franchisor may reasonably require, together with a letter of intent or other
evidence satisfactory to Franchisor which confirms Developer's favorable
prospects for obtaining the site. Recognizing that time is of the essence,
Developer agrees that it must submit such information and materials for each
proposed site to Franchisor in writing for its consent. Franchisor shall have
thirty (30) days after receipt of such information and materials from Developer
to consent to or refuse its consent to use the proposed site as the location for
a Restaurant, which consent shall not be unreasonably withheld. No site shall be
deemed approved unless it has been expressly approved to in writing by
Franchisor.
(2) Developer acknowledges that Franchisor's consent to the
use of a prospective Restaurant site or the rendering of assistance in the
selection of a site for a Restaurant does not constitute a representation,
promise or guarantee by Franchisor that a Restaurant operated at that site would
be profitable or otherwise successful.
(3) After the location for a Restaurant is consented to by
Franchisor and leased or acquired by Developer in accordance with the
requirements of this Section 4, Developer shall execute a Franchise Agreement
relating to the Restaurant and its location shall be recorded in Attachment A to
the applicable Franchise Agreement.
B. If the Developer will occupy the premises of any Restaurant under a
lease, Developer shall furnish to Franchisor a copy of the executed lease within
ten (10) days after execution thereof. Prior to such execution, Developer shall
submit the lease to Franchisor for its written approval. Unless Developer has
obtained Franchisor's written consent to the exclusion of a required provision,
the lease shall include the following terms and conditions:
(1) That the premises shall be used for the operation of the
Restaurant;
(2) That the lessor consents to the use of such Proprietary
Marks and signage as Franchisor may prescribe for the franchised business;
(3) That the lessor agrees to furnish Franchisor with copies
of any and all letters and notices sent to Developer pertaining to the lease and
the premises at the same time that such letters and notices are sent to
Developer;
(4) That Developer may not sublease or assign all or any part
of its occupancy rights, or extend the term of or renew the lease, without
Franchisor's prior written consent, which shall not be unreasonably withheld;
(5) That Franchisor shall have the right to enter the premises
to make any modification necessary to protect Franchisor's Proprietary Marks or
to cure any default under the lease, this Agreement or the Franchise Agreement;
"California"
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<PAGE>
(6) That the lessor agrees that Developer may assign the lease
to Franchisor; that the lessor will consent to such assignment and may not
impose any assignment fee or similar charge on Franchisor in connection with
such assignment; and that Franchisor may sublease the premises for all or any
part of the remaining term of the lease; and
(7) That the lessor and Developer shall not amend or otherwise
modify the lease in any manner which would materially affect any of the
foregoing terms and conditions without Franchisor's prior written consent.
C. Developer shall construct the Restaurant in accordance with the
provisions of the Franchise Agreement.
5. TERM
----
Unless sooner terminated in accordance with the provisions of this
Agreement, the term of this Agreement shall commence on the date hereof and
shall be in effect until December 15, 2013.
6. DUTIES OF THE PARTIES
---------------------
A. Franchisor shall furnish to Developer the following:
(1) One (1) copy of the Development Manual ("Development
Manual"), which is a part of the Confidential Operating Manuals ("Manuals")
referred to in Section 3 of the Franchise Agreement. The Development Manual
contains the instructions, requirements, standards, specifications and
procedures for the development and construction of a typical Restaurant,
including site selection guidelines and criteria, construction management
techniques and development planning and scheduling methods. The Development
Manual will be delivered to Developer on loan upon execution of this Agreement
and shall be returned to Franchisor immediately upon request or upon termination
or expiration of this Agreement.
Developer shall at all times treat the Development Manual as confidential.
(2) Such site selection counseling and assistance as
Franchisor may deem advisable.
(3) Such on-site evaluation as Franchisor may deem advisable
in response to Developer's requests for site approval; provided, however, that
Franchisor shall not provide on-site evaluation for any proposed site prior to
the receipt of all required information and materials concerning such site
prepared pursuant to Section 4 hereof.
(4) One (1) set of Franchisor's standard plans and
specifications for the construction of a typical Restaurant including the
exterior and interior design and layout, fixtures, furnishings and signs.
"California"
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<PAGE>
(5) Pre-opening and opening training and assistance as
Franchisor deems advisable with due regard to the number of trained personnel
then employed by Franchisee and/or its affiliates then operating other
Restaurants utilizing the System. Developer currently operates in excess of
seven Restaurants. In accordance with current policy, Franchisor would provide
no more than two NSO Team Members for each opening.
(6) Training programs for the Operator (as hereinafter
defined) in the operation of the Restaurants at such location, as may be
designated by Franchisor from time to time in the Manuals or otherwise in
writing.
B. Developer makes the following representations, warranties and
covenants and accepts the following obligations:
(1) Developer shall comply with all terms and conditions set
forth in this Agreement.
(2) Upon execution of this Agreement, Developer shall
designate:
(i) an individual who is fully authorized to act on
behalf of Developer in all transactions with Franchisor concerning Developer's
obligations under this Agreement ("Representative"). A qualified Representative
shall be designated at all times during the term of this Agreement by Developer
and Developer shall designate a replacement Representative from time to time as
necessary; and
(ii) an individual meeting Franchisor's reasonable
approval to operate the franchised business (an "Operator") who will promptly
attend and complete Franchisor's management training program in accordance with
the provisions of Section 7.01.B(2) of the Franchise Agreement. An approved
Operator shall be designated at all times during the term of this Agreement by
Developer and Developer shall designate a replacement from time to time as
necessary.
(3) If this Agreement provides for the development of three or
more Restaurants, Developer will be required to designate an individual to
supervise the Restaurants (a "Regional Manager") in accordance with the
provisions of Subsection 7.01.B(3) of the Franchise Agreement.
(4) Developer and Developer's Principals (as defined in
Subsection 13.A hereof) covenant and agree that neither shall, during the term
of this Agreement or thereafter, communicate, divulge or use for the benefit of
any other person, persons, partnership, association or corporation any
confidential information, knowledge or know-how concerning the methods of
development and operation of the Restaurant which may be communicated to
Developer or Developer's Principals or of which they may be apprised by virtue
of Developer's operation under the terms of this Agreement. Developer and
Developer's Principals shall divulge such confidential information only to such
of Developer's employees as must have access to it in connection with their
employment. Any and all information, knowledge, techniques and know-how,
including without limitation, the Development Manual and all drawings,
materials, equipment, recipes, computer and point of sale programs and output
from such programs, and all other data which Franchisor designates as
"California"
8
<PAGE>
confidential shall be deemed confidential for purposes of this Agreement.
Neither Developer nor any of Developer's Principals shall at any time, without
Franchisor's prior written consent, copy, duplicate, record or otherwise
reproduce such materials or information, in whole or in part, or otherwise make
the same available to any unauthorized person.
(5) Developer shall, prior to the disclosure of any
confidential information, require any of its employees who will have access to
such confidential information to execute covenants that they will maintain the
confidentiality of information they receive in connection with their employment
by Developer. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third
party beneficiary of such covenants with the independent right of enforcement.
Such covenants shall be in a form substantially similar to the Confidentiality
Covenants attached hereto as Exhibit C. Developer shall be responsible for
compliance by its employees with such covenants.
(6) If Developer or Developer's Principals develop any new
process or improvement in the development, operation or promotion of the
Restaurants, Developer agrees to promptly notify Franchisor and provide
Franchisor with all necessary information concerning same, without compensation.
Developer and Developer's Principals acknowledge that any such process or
improvement shall become the property of Franchisor and Franchisor may utilize
or disclose such information to other developers as it determines to be
appropriate.
(7) Developer and each of Developer's Principals acknowledge
complete ownership by Franchisor of the Proprietary Marks, specifications,
standards, management and accounting methods, operating procedures and other
concepts embodied in and comprising the System, and covenants that during the
term of this Agreement or thereafter, regardless of the cause of termination,
Developer and each of Developer's Principals shall not, either directly or
indirectly, contest or aid others in contesting, the exclusive ownership and
rights of Franchisor in any aspect of the System, or do anything that will
otherwise impair such rights without Franchisor's prior written consent,
including, without limitation, using or reproducing any materials copyrighted by
Franchisor.
(8) Developer and each of Developer's Principals acknowledge
and agree: (a) that any failure to comply with the covenants in this Subsection
6.B or any failure to obtain execution of the covenants in Subsection 6.B(5)
shall constitute a material event of default under Subsection 7.C; (b) that any
such failure will cause Franchisor irreparable injury for which no adequate
remedy at law may be available; and (c) therefore, Franchisor shall be entitled,
in addition to any other remedies which it may have hereunder, at law, or in
equity, to obtain specific performance of, or to an injunction against violation
of, the requirements of Subsections 6.B(4), (5) and (7), without the necessity
of showing actual or threatened damage and without being required to furnish a
bond or other security. Developer and each of Developer's Principals agree to
pay all court costs and reasonable attorneys' fees incurred by Franchisor in
connection with the enforcement of Subsections 6.B(4), (5) and (7), including
the agreements referred to in Subsection 6.B(5).
(9) Developer shall comply with all requirements of federal,
state and local laws, rules and regulations.
"California"
9
<PAGE>
C. Developer represents, warrants and covenants that:
(1) Developer is duly organized and validly existing under the
state law of its formation;
(2) Developer is duly qualified and is authorized to do
business in each jurisdiction in which its business activities or the nature of
the properties owned by it require such qualification;
(3) Developer's corporate charter shall at all times provide
that the activities of Developer are confined exclusively to the development and
operation of the Restaurants;
(4) The execution of this Agreement and the transactions
contemplated hereby are within Developer's corporate power;
(5) Copies of Developer's Articles of Incorporation, Bylaws,
other governing documents and any amendments thereto, including the resolution
of the Board of Directors authorizing entry into and performance of this
Agreement, shall be promptly furnished to Franchisor;
(6) Developer shall maintain a current list of all owners of
record and all beneficial owners of any class of voting securities of the
corporation. Such list shall be furnished to Franchisor upon request;
(7) If Developer is a corporation, Developer shall maintain
stop-transfer instructions against the transfer on its records of any equity
securities and each stock certificate of the corporation shall have
conspicuously endorsed upon its face a statement in a form satisfactory to
Franchisor that it is held subject to and that further assignment or transfer
thereof is subject to all restrictions imposed upon assignments by this
Agreement;
(8) Developer represents that: (a) Gerard Bisceglia and Bart
Brown, Jr. are voting members of the Board of Directors of Developer; (b) that
Gerard Bisceglia and Bart Brown, Jr. (or their approved replacements) shall at
all times during the term of this Agreement be and remain voting members of the
Board of Directors of Developer; and (c) that Developer shall obtain the prior
written approval of Franchisor of any replacement or subsequent replacement for
Gerard Bisceglia and Bart Brown, Jr. in accordance with the provisions of
Section 8 of this Agreement before either of them or any approved replacement is
replaced as a member of the Board.
(9) Each of Developer's Principals unconditionally and
irrevocably guarantees to Franchisor and its successors and assigns that all of
Developer's obligations under this Agreement will be punctually performed. Upon
default by Developer or notice from Franchisor, Developer's Principals will
immediately perform each obligation required of Developer under this Agreement.
Without affecting the obligations of Developer's Principals under this guaranty,
Franchisor may, without notice to Developer's Principals, waive, renew, extend,
modify, amend or release any obligation of Developer, or settle, adjust, or
compromise any claims against Developer. Developer's Principals waive all
demands and notices of every kind with respect to this guaranty including,
without limitation, notice of: presentment, demand for payment or performance by
"California"
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<PAGE>
Developer, any default by Developer or any guarantor, and any release of any
guarantor or other security for this Agreement or the obligations of Developer.
Franchisor may pursue its rights against Developer's Principals without first
exhausting its remedies against Developer and without joining any other
guarantor hereto, and no delay on the part of Franchisor in the exercise of any
right or remedy shall operate as a waiver of such right or remedy. No single or
partial exercise by Franchisor of any right or remedy shall preclude the further
exercise of such right or remedy.
D. Developer acknowledges and agrees that the representations,
warranties and covenants set forth in Subsection 6.C are continuing obligations
of Developer and that any failure to comply with such representations,
warranties and covenants shall constitute a material event of default under this
Agreement pursuant to Subsection 7.C hereof.
7. DEFAULT
-------
A. The rights granted to Developer in this Agreement have been granted
in reliance on Developer's representations and assurances, among others, that
the conditions set forth in Sections 1, 3 and 4 of this Agreement will be met by
Developer in a timely manner. Time is of the essence in relation to all
obligations of Developer in this Agreement.
B. Developer shall be deemed to be in default under this Agreement and
all rights granted herein shall automatically terminate without notice to
Developer, if Developer shall become insolvent or make a general assignment for
the benefit of creditors; or if a petition in bankruptcy is filed under any
chapter of Title 11 of the United States Code by Developer or such a petition is
filed against Developer and not opposed by Developer; or if a bill in equity or
other proceeding for the appointment of a receiver of Developer or other
custodian for Developer's business or assets is filed and consented to by
Developer; or if a receiver or other custodian (permanent or temporary) of
Developer's assets or property, or any part thereof, is appointed by any court
of competent jurisdiction; or if proceedings for a composition with creditors
under any state or federal law should be instituted by or against Developer; or
if a final judgment remains unsatisfied or of record for thirty (30) days or
longer (unless supersedeas bond is filed); or if Developer is dissolved; or if
execution is levied against Developer's business or property; or if suit to
foreclose any lien or mortgage against the premises or equipment of any
Restaurant developed hereunder is instituted against Developer and not dismissed
within thirty (30) days; or if the real or personal property of any Restaurants
developed hereunder shall be sold after levy thereupon by any sheriff, marshal
or constable.
C. If Developer fails to comply with any initial regional development
schedule set forth in Subsection 3.B hereof or any subsequent regional
development schedule; Developer or Developer's Principals fail to comply with
the restrictions on confidential information set forth in Subsection 6.B(4) or
the requirements of Subsection 9.B concerning in-term covenants against
competition (except where liquidated damages have been otherwise expressly
provided); Developer fails to obtain execution of the covenants from the persons
designated by Franchisor pursuant to Subsections 6.B(5) and 9.G; Developer
breaches the warranties, representations and covenants set forth in Subsection
6.C; Developer or any partner or shareholder makes or attempts to make a
transfer or assignment in violation of Section 8 hereof; Developer fails to pay
any monies owed to Franchisor within ten (10) days of the date the monies become
due and payable; Developer fails to comply with any other terms and conditions
of this Agreement, or the terms of any Franchise
"California"
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<PAGE>
Agreements or any other development agreements between Developer and Franchisor;
such action shall constitute a material event of default under this Agreement.
Upon such default, Franchisor, in its discretion, may do any one or more of the
following:
(1) Terminate this Agreement and all rights granted hereunder
without affording Developer any opportunity to cure the default, effective
immediately upon notice to Developer; provided, however, any failure to comply
with the initial (or any subsequent) regional development schedule in any one of
the San Francisco, Los Angeles and San Diego Regions shall constitute a material
event of default only with regard to such Region and Franchisor may terminate
the development rights for such region; and provided further that any failure to
comply with the initial (or any subsequent) regional development schedule in
more than one of the San Francisco, Los Angeles and San Diego Regions shall
constitute a material event of default under this Agreement, and Franchisor
shall have the right to exercise any or all of the remedies set forth in this
Section 7;
(2) Provide Developer a reasonable period of time, not to
exceed thirty (30) days after notice from Franchisor, to cure a default which is
susceptible to cure;
(3) Reduce the number of Restaurants which Developer may
establish pursuant to Subsection 1.A of this Agreement;
(4) Terminate the territorial exclusivity granted Developer in
Subsection 1.C hereof, or reduce the Territory granted Developer hereunder; or
(5) Accelerate the development schedule set forth in
Subsection 3.B hereof.
D. Upon termination of this Agreement, Developer shall have no right to
establish or operate any Restaurant for which a Franchise Agreement has not been
executed by Franchisor and delivered to Developer at the time of termination and
Franchisor shall be entitled to establish and to license others to establish
Restaurants in the region(s) affected or the Territory (as appropriate) except
as may be otherwise provided under any other agreement which is then in effect
between Franchisor and Developer.
E. No default under this Agreement shall constitute a default under any
Franchise Agreement between the parties hereto, unless Developer's acts or
omissions also violate the terms and conditions of the applicable Franchise
Agreement.
F. All rights and remedies of Franchisor shall be cumulative and in
addition to, and not exclusive of, any other right or remedy provided for herein
or which may be available at law or in equity. The expiration or termination of
this Agreement shall not discharge or release Developer or any Principal from
any liability or obligation then accrued or any liability or obligation
continuing beyond, or arising out of, such expiration or termination.
G. Nothing herein contained shall bar or impair Franchisor's right to
obtain injunctive or other equitable relief.
"California"
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<PAGE>
8. TRANSFER OF INTEREST
--------------------
A. Franchisor shall have the right to transfer or assign this Agreement
and all or any part of its rights or obligations herein to any person or legal
entity.
B. (1) Developer and Developer's Principals understand and acknowledge
that the rights and duties set forth in this Agreement are personal to
Developer, and that Franchisor has granted the development rights in reliance on
the business skill, financial capacity and business reputation and character of
the Developer . Accordingly, neither Developer nor any initial or subsequent
successor or assign to any part of Developer's interest in the development
rights, shall sell, assign, transfer, convey, give away, pledge, mortgage or
otherwise encumber any direct or indirect interest in this Agreement or in any
entity which owns the development rights without the prior written consent of
Franchisor; provided, however, that Franchisor's prior written consent shall not
be required for a transfer of an interest in a publicly-held corporation. A
publicly-held corporation is a corporation registered pursuant to Section 12
under the Securities Exchange Act of 1934, as amended. Any purported assignment
or transfer, by operation of law or otherwise, not having the written consent of
Franchisor required by this Subsection 8.B shall be null and void and shall
constitute a material event of default for which Franchisor may terminate this
Agreement pursuant to Subsection 7.C hereof.
(2) Franchisor shall not unreasonably withhold its consent to
a transfer of any interest in Developer or in this Agreement. Franchisor may, in
its sole discretion, require any or all of the following as conditions of its
approval:
(a) All of Developer's accrued monetary obligations
and all other outstanding obligations to Franchisor, its subsidiaries and its
affiliates shall have been satisfied;
(b) Developer is not in default of any provision of
this Agreement, any amendment hereof or successor hereto, or any other agreement
between Developer and Franchisor or its subsidiaries and affiliates;
(c) The transferor shall have executed a general
release, in a form satisfactory to Franchisor, of any and all claims against
Franchisor and its officers, directors, shareholders and employees, in their
corporate and individual capacities, including, without limitation, claims
arising under this Agreement and federal, state and local laws, rules and
ordinances;
(d) The transferee shall enter into a written
agreement in a form satisfactory to Franchisor, assuming full, unconditional,
joint and several liability for and agreeing to perform from the date of the
transfer, all obligations, covenants and agreements contained in this Agreement;
and as applicable, transferee's spouse, shareholders, partners or other
investors, shall also execute such agreement;
(e) The transferee shall demonstrate to Franchisor's
satisfaction the following: that transferee meets the criteria which Franchisor
considers when reviewing a prospective developer's application for development
rights including Franchisor's educational, managerial and business standards;
that transferee possesses a good moral character, business
"California"
13
<PAGE>
reputation and credit rating; that transferee has the aptitude and ability to
conduct the franchised businesses contemplated herein (as may be evidenced by
prior related business experience or otherwise); and that transferee has
reasonably adequate financial resources and capital to develop and operate the
franchised businesses;
(f) At Franchisor's option, the transferee shall
execute (and/or, upon Franchisor's request, shall cause all interested parties
to execute), the standard form of development agreement then being offered to
new System developers and other ancillary agreements as Franchisor may require
for the development of the Restaurants, which agreements shall supersede this
Agreement and its ancillary documents in all respects and the terms of which
agreements may differ from the terms of this Agreement; provided, however, that
the transferee shall not be required to pay any development fee;
(g) Developer and Developer's Principals shall remain
liable for all of the obligations to Franchisor in connection with this
Agreement incurred prior to the effective date of the transfer and shall execute
any and all instruments reasonably requested by Franchisor to evidence such
liability;
(h) Developer shall pay a transfer fee of Five
Thousand Dollars ($5,000.00), or such greater amount as is necessary to
reimburse Franchisor for its reasonable costs and expenses associated with
reviewing the application to transfer, including, without limitation, legal and
accounting fees;
(i) If transferee is a corporation or a partnership,
transferee shall make and will be bound by any or all of the representations,
warranties and covenants set forth at Subsection 6.C as Franchisor requests.
Transferee shall provide to Franchisor evidence satisfactory to Franchisor that
the terms of Subsection 6.C have been satisfied and are true and correct on the
date of the transfer.
(3) Developer acknowledges and agrees that each condition
which must be met by the transferee is reasonable and necessary to assure such
transferee's full performance of the obligations hereunder.
(4) In the event the proposed transfer is to a corporation
formed solely for the convenience of ownership, Franchisor's consent may be
conditioned upon any of the requirements set forth at Subsection 8.B(2), except
that the requirements set forth at Subsections 8.B(2)(c), (e), (f) and (h) shall
not apply. With respect to a transfer to a corporation formed for the
convenience of ownership, the percentage of interest owned in the transferee
shall be the same as that previously owned in the transferor, except as may be
required by law.
(5) INTENTIONALLY DELETED.
(6) With respect to the approval of a replacement for Gerard
Bisceglia or Bart Brown, Jr. or any subsequently approved replacement as a
voting member of the Board of Directors of Developer, Franchisor, in its sole
discretion, may require, among others, any or all of the following as conditions
of its approval:
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(a) Developer not being in default of any provision
of this Agreement, any amendment hereof or successor hereto, or any other
agreement between Developer and Franchisor, or their subsidiaries and
affiliates;
(b) the replacement shall enter into a written
agreement in a form satisfactory to Franchisor agreeing to assume and perform
the covenants and agreements contained herein to be assumed and performed by
Developer's Principals; and
(c) the replacement shall demonstrate to Franchisor's
satisfaction the following: that the replacement meets the criteria which
Franchisor considers when reviewing a prospective developer's application for
development rights including Franchisor's educational, managerial and business
standards; that the replacement possesses a good moral character, business
reputation and credit rating; and that the replacement has the aptitude and
ability to conduct the franchised business (as may be evidenced by prior related
business experience or otherwise).
C. (1) Any party holding any interest (including interests required to
be transferred pursuant to Subsection 8.D hereof if such proposed transfer would
constitute the sale to or purchase by a third party of any interests in the
Franchisee, the franchised business or this Agreement) in Developer or in this
Agreement who desires to accept any bona fide offer from a third party to
purchase such interest shall promptly notify Franchisor in writing of each such
offer, and shall provide such information and documentation relating to the
offer as Franchisor may require. Franchisor shall have the right and option,
exercisable within thirty (30) days after receipt of such written notification
and documentation, to send written notice to the seller that Franchisor intends
to purchase the seller's interest on the same terms and conditions offered by
the third party. Any material change in the terms of any offer prior to closing
shall constitute a new offer subject to the same rights of first refusal by
Franchisor as in the case of an initial offer. Failure of Franchisor to exercise
the option afforded by this Subsection 8.C shall not constitute a waiver of any
other provision of this Agreement, including all of the requirements of
Subsection 8.B with respect to a proposed transfer.
(2) In the event the offer from the third party provides for
payment of consideration other than cash or involves certain intangible
benefits, Franchisor may elect to purchase the interest proposed to be sold for
the reasonable equivalent in cash. If the parties cannot agree within a
reasonable time on the reasonable equivalent in cash of the non-cash part of the
offer, an independent appraiser shall be designated by Franchisor to determine
such amount and his determination shall be final and binding.
(3) If Franchisor elects to exercise the option described
above, it shall have the right to set off the cost of the appraisal, if any,
against any payment made hereunder.
D. INTENTIONALLY DELETED
E. Franchisor's consent to a transfer of any interest in Developer or
this Agreement shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
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9. COVENANTS
---------
A. Developer covenants that during the term of this Agreement except as
otherwise approved in writing by Franchisor, Developer shall devote requisite
time, energy and best efforts to meet its obligations under this Agreement and
shall require its Operators and Regional Manager, if applicable, to devote full
time, energy and best efforts to the management, operation and supervision of
the franchised business and the Restaurants.
B. Developer and Developer's Principals specifically acknowledge that
they will receive valuable specialized training, trade secrets and confidential
information, including, without limitation, information regarding the site
selection and other methods and techniques of Franchisor and the System related
to the development of the Restaurants which are beyond the present skills and
experience possessed by Developer, Developer's Principals and Developer's
managers and other employees. Developer and Developer's Principals acknowledge
that such training, trade secrets and confidential information provide a
competitive advantage and will be valuable to them in the development of the
franchised businesses and that gaining access to such training, trade secrets
and confidential information are, therefore, a primary reason why they are
entering into this Agreement. In consideration for such training, trade secrets
and confidential information, Developer and Developer's Principals covenant as
follows:
(1) With respect to Developer, during the term of this
Agreement, or with respect to each of Developer's Principals, during the term of
this Agreement for so long as such individual or entity satisfies the definition
of "Developer's Principal" as described in Subsection 13.A, neither Developer
nor any of Developer's Principals shall, either directly or indirectly, for
themselves, or through, on behalf of, or in conjunction with any person,
persons, partnership or corporation:
(a) Divert or attempt to divert any business or
customer of the franchised businesses to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any other act
injurious or prejudicial to the goodwill associated with Franchisor's
Proprietary Marks and the System;
(b) Employ or seek to employ any person who, to
Developer's knowledge, is at that time or has within one (1) year been employed
by Franchisor or by any other developer or franchisee of Franchisor, or
otherwise directly or indirectly to induce such person to leave his or her
employment thereat (for breach of this covenant and due to the difficulty of
establishing the precise amount of damages, for each breach of this covenant
Developer agrees to pay to Franchisor or other developer of Franchisor as
appropriate, liquidated damage in amount equal to the annualized rate of
compensation of such person in the final twelve (12) months of employment with
such former employer);
(c) Own, maintain, operate, engage in or have an
ownership interest (including any right to share in revenues or profits) in any
food and/or beverage operations which are the same or substantially similar in
concept, decor or menus to restaurants within the System.
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(2) With respect to Developer, for a continuous uninterrupted
period commencing upon the expiration or termination of this Agreement or with
respect to each of Developer's Principals, for a continuous uninterrupted period
commencing upon the earlier of: (i) the expiration or termination of this
Agreement or (ii) the time such individual or entity ceases to satisfy the
definition of "Developer's Principal" as described in Subsection 13.A, and
(a) For one (1) year thereafter neither Developer nor
any of Developer's Principals shall, either directly or indirectly, for
themselves, or through, on behalf of, or in conjunction with any person,
persons, partnership or corporation:
(i) Divert or attempt to divert any business
or customer of the franchised businesses to any competitor, by direct or
indirect inducement or otherwise, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with Franchisor's
Proprietary Marks and the System;
(ii) Employ or seek to employ any person who
is at that time or has within one (1) year been employed by Franchisor or by any
other developer or franchisee of Franchisor, or otherwise directly or indirectly
to induce such person to leave his or her employment thereat (for breach of this
covenant and due to the difficulty of establishing the precise amount of
damages, for each breach of this covenant Developer agrees to pay to Franchisor
or other developer of Franchisor as appropriate, liquidated damage in amount
equal to the annualized rate of compensation of such person in the final twelve
(12) months of employment with such former employer);
(iii) Own, maintain, operate, engage in or
have an ownership interest (including any right to share in revenues or profits)
in any business offering the same or similar products and services as offered by
restaurants within the System, which business is, or is intended to be, located
within the Territory; and
(b) For one (1) year thereafter neither Developer nor
any of Developer's Principals shall, either directly or indirectly, for
themselves, or through, on behalf of, or in conjunction with any person,
persons, partnership or corporation own, maintain, operate, engage in, or have
any interest (including any right to share in the revenues or profits) in any
food and/or beverage operations which are the same or substantially similar in
concept, decor or menus to restaurants within the System, which business are, or
are intended to be, located within a radius of three (3) miles of any restaurant
in the System.
(3) Subsections 9.B(1)(c), 9.B(2)(a)(iii) and 9.B(2)(b) shall
not apply to an ownership interest of less than five percent (5%) of the
outstanding equity securities of any publicly-held company if such interest is
owned for investment only and not owned by an officer, director, employee or
consultant of such publicly-held company, nor to an ownership interest in any
food and/or beverage operations which are not the same nor substantially similar
in concept, decor or menus, such as Nathan's, McDonalds and other fast food
restaurants (as the same are operated on November 16, 1993), Chi-Chi's, El Chico
and other ethnic-theme restaurants (as the same are operated on November 16,
1993), and The Tavern on the Green, Windows on the World and other fine dining
white tablecloth restaurants (as the same are operated on November 16, 1993).
For purposes of comparison only, such subsections shall preclude involvement as
aforesaid in
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restaurants such as Bennigans, Houstons, Chili's, Houlihan's and other casual
dining restaurants (as same are operated on November 16, 1993).
C. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Section 9 is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Developer and Developer's
Principals expressly agree to be bound by any lesser covenant subsumed within
the terms of such covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part of this Section
9.
D. Developer and Developer's Principals understand and acknowledge that
Franchisor shall have the right, in its sole discretion, to reduce the scope of
any covenant set forth in Subsection 9.B of this Agreement, or any portion
thereof, without their consent, effective immediately upon written notice to
Developer and Developer and Developer's Principals agree that they shall comply
forthwith with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 14 hereof.
E. Developer and Developer's Principals expressly agree that the
existence of any claims they may have against Franchisor, whether or not arising
from this Agreement, shall not constitute a defense to the enforcement by
Franchisor of the covenants in this Section 9.
F. Developer and each of Developer's Principals acknowledge and agree:
(1) that any failure to comply with the covenants in this Section 9 or any
failure to obtain execution of the covenants in Subsection 9.G below shall
constitute a material event of default under Subsection 7.C; (2) that a
violation of the requirements of this Section 9 would result in irreparable
injury to Franchisor for which no adequate remedy at law may be available; and
(3) therefore, Franchisor shall be entitled, in addition to any other remedies
which it may have hereunder, at law, or in equity, to obtain specific
performance of or an injunction against the violation of the requirements of
this Section 9, without the necessity of showing actual or threatened damage and
without being required to furnish a bond or other security. Developer and
Developer's Principals agree to pay all costs and expenses (including reasonable
attorneys' fees) incurred by Franchisor in connection with the enforcement of
this Section 9, including enforcement of the agreements referred to in
Subsection 9.G below.
G. Developer shall, prior to arranging any training or disclosing any
confidential information, require its Representative, Regional Manager, if
applicable, and such other supervisory or managerial employees of Developer as
Franchisor shall designate to execute covenants similar to those set forth in
this Section 9 and in Section 6 (including covenants applicable upon the
termination of a person's relationship with Developer). Every covenant required
shall be in a form satisfactory to Franchisor, including, without limitation,
specific identification of Franchisor as a third party beneficiary of such
covenants with the independent right of enforcement. Such covenants shall be in
a form substantially similar to the Conflict of Interest and Confidentiality
Covenants attached hereto as Exhibit D. Developer shall be responsible for
compliance by its employees with such covenants.
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10. NOTICES AND PAYMENTS
--------------------
A. All notices required to be given hereunder shall be in writing and
shall be sent by personal delivery, by next-day delivery service, by electronic
means, or by certified mail, return receipt requested, to the respective
parties.
If directed to Franchisor, the notice shall be addressed to TGI
Friday's Inc., attention General Counsel, 7540 LBJ Freeway, Dallas, Texas 75251.
If directed to Developer or Developer's Principals, the notice shall be
addressed to Developer, at the address shown on the first page hereof.
Any notices sent by personal delivery, next-day delivery service or by
electronic means shall be deemed given on the next business day after
transmittal. Any notices sent by certified or registered mail shall be deemed
given on the third business day after the time of mailing. Any change in the
foregoing addresses shall be effected by giving fifteen (15) days written notice
of such change to the other party.
B. Unless otherwise specified, all payments required to be made by
Developer to Franchisor under this Agreement are due and payable immediately
upon demand and/or receipt of any billing therefore and shall be sent by
personal delivery, by next-day delivery service, by electronic means, or by
mail, postage prepaid, and directed to Franchisor as shown above.
11. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Developer
is an independent contractor, and that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, employer, joint employer, enterprise or servant of
the other for any purpose whatsoever.
B. Developer shall hold itself out to the public to be an independent
contractor operating pursuant to this Agreement. Developer agrees to take such
actions as shall be necessary to that end.
C. Developer understands and agrees that nothing in this Agreement
authorizes Developer to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name; and that Franchisor shall in no event assume liability for
or be deemed liable hereunder for any such action; nor shall Franchisor be
deemed liable by reason of any act or omission of Developer in the conduct of
its business pursuant to this Agreement, or for any claim or judgment arising
therefrom. Except as otherwise expressly provided herein to the contrary, this
provision shall apply mutatis mutandis to Franchisor.
D. (1) Developer and each of Developer's Principals will, at all times,
indemnify and hold harmless to the fullest extent permitted by law Franchisor,
its corporate affiliates, successors and assigns and the respective directors,
officers, employees, agents and representatives of each (Franchisor and all
others hereinafter collectively "Indemnitees") from all "losses and
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expenses" (as defined below) incurred in connection with any action, suit,
proceeding, claim, demand, investigation or inquiry (formal or informal), or any
settlement thereof (whether or not a formal proceeding or action has been
instituted) which arises out of or is based upon any of the following:
(a) The infringement, alleged infringement, or any
other violation or alleged violation by Developer or any of Developer's
Principals of any patent, mark or copyright or other proprietary right owned or
controlled by third parties.
(b) The violation, breach or asserted violation or
breach by Developer or any of Developer's Principals of any contract, federal,
state or local law, regulation, ruling, standard or directive or any industry
standard.
(c) Libel, slander or any other form of defamation of
Franchisor or the System, by Developer or any of Developer's Principals.
(d) The violation or breach by Developer or any of
Developer's Principals of any warranty, representation, agreement or obligation
in this Agreement.
(e) Acts, errors or omissions of Developer or any of
its agents, servants, employees, contractors, partners, affiliates or
representatives.
The provisions of Subsections 11.D(1)(c), (d) and (e) shall apply
mutatis mutandis to Franchisor.
(2) Developer and each of Developer's Principals agree to give
Franchisor immediate notice of any such action, suit, proceeding, claim, demand,
inquiry or investigation. Provided the exercise of the rights reserved to
Franchisor in this Subsection 11.D. does not materially and adversely affect the
insurance coverage maintained by Developer, at the expense and risk of Developer
and each of Developer's Principals, Franchisor may elect to assume (but under no
circumstance is obligated to undertake), the defense and/or settlement of any
such action, suit, proceeding, claim, demand, inquiry or investigation. If the
exercise of the rights reserved to Franchisor in this Subsection 11.D. would
materially and adversely affect the insurance coverage maintained by Developer,
then in that event Franchisor shall have the right, in place of other rights, to
associate counsel of its own choosing and at Developer's expense, to monitor the
defense and/or settlement of any such action, suit, proceedings, claims, demand,
inquiry or investigation; it being understood, however, that the foregoing is
not intended to limit Franchisor's rights to seek equitable relief by way of
injunction or otherwise or to take reasonable actions to mitigate damage, injury
or harm to persons or property. Any such undertakings by Franchisor shall, in no
manner or form, diminish the obligation of Developer and each of Developer's
Principals to indemnify Franchisor and to hold it harmless.
(3) Subject to the provisions of Subsection 11.D(2) above, in
order to protect persons or property, or its reputation or goodwill, or the
reputation or goodwill of others, Franchisor may, at any time and without
notice, as it, in its judgment deems appropriate consent or agree to settlements
or take such other remedial or corrective action as it deems expedient with
respect to the action, suit, proceeding, claim, demand, inquiry or investigation
if, in Franchisor's sole judgment, there are reasonable grounds to believe that:
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(a) any of the acts or circumstances enumerated in
Subsection 11.D(1) above have occurred; or
(b) any act, error, or omission of Developer or any
of Developer's Principals may result directly or indirectly in damage, injury or
harm to any person or any property.
(4) Subject to the provisions of Subsection 11.D(2) above:
(a) All losses and expenses incurred under this
Section shall be chargeable to and paid by Developer or any of Developer's
Principals pursuant to its obligations of indemnity under this Section,
regardless of any actions, activity or defense undertaken by Franchisor or the
subsequent success or failure of such actions, activity or defense.
(b) As used in this Section, the phrase "losses and
expenses" shall include, without limitation, all losses, compensatory, exemplary
or punitive damages, fines, charges, costs, expenses, lost profits, attorneys'
fees, court costs, settlement amounts, judgments, compensation for damages to
the Franchisor's reputation and goodwill, costs of or resulting from delays,
financing, costs of advertising material and media time/space, and costs of
changing, substituting or replacing the same, and any and all expenses of
recall, refunds, compensation, public notices and other such amounts incurred in
connection with the matters described.
(5) Indemnitees do not assume any liability whatsoever for
acts, errors, or omissions of those with whom Developer or any of Developer's
Principals may contract, regardless of the purpose. Developer and each of
Developer's Principals shall hold harmless and indemnify Indemnitees for all
losses and expenses which may arise out of any acts, errors or omissions of
these third parties.
(6) Under no circumstances shall Indemnitees be required or
obligated to seek recovery from third parties or otherwise mitigate their losses
in order to maintain a claim against Developer or any of Developer's Principals.
Developer and each of Developer's Principals agrees that the failure to pursue
such recovery or mitigate loss will in no way reduce the amounts recoverable by
Indemnitees from Developer or any of Developer's Principals.
12. APPROVALS, WAIVERS AND REMEDIES
-------------------------------
A. Whenever this Agreement requires the approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor for such
approval or consent.
B. Franchisor makes no warranties or guarantees upon which Developer
may rely and assumes no liability or obligation to Developer or any third party
to which it would not otherwise be subject, by providing any waiver, approval,
advice, consent, or services to Developer in connection with this Agreement, or
by reason of any neglect, delay or denial of any request therefor.
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C. No failure of Franchisor to exercise any power reserved to it by
this Agreement, or to insist upon strict compliance by Developer or Developer's
Principals with any obligation or condition hereunder, and no custom or practice
of the parties at variance with the terms hereof, shall constitute a waiver or
estoppel of Franchisor's right to demand exact compliance with any of the terms
herein and Developer and each of Developer's Principals warrants and undertakes
that it shall not rely on such failure, custom or practice. Waiver by Franchisor
of any particular default by Developer or any of Developer's Principals shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same, similar or different nature, nor shall delay, forbearance, or
omission of Franchisor to exercise any power or right arising out of any breach
or default by its other developers or by Developer or any of Developer's
Principals of any of the terms, provisions, or covenants hereof, affect or
impair Franchisor's right to exercise the same, nor shall such constitute a
waiver by Franchisor of any right hereunder, or the right to declare any
subsequent breach or default and to terminate this Agreement prior to the
expiration of its term. Subsequent acceptance by Franchisor of any payments due
to it hereunder shall not be deemed to be a waiver by Franchisor of any
preceding breach by Developer of any terms, covenants or conditions of this
Agreement. Except as otherwise expressly provided herein to the contrary, this
provision shall apply mutatis mutandis to Franchisor.
D. Except as otherwise expressly provided herein to the contrary, all
rights and remedies of the parties hereto shall be cumulative and not
alternative, in addition to and not exclusive or any other rights or remedies
which are provided for herein or which may be available at law or in equity in
case of any breach, failure or default or threatened breach, failure or default
of any term, provision or condition of this Agreement. The rights and remedies
of the parties hereto shall be continuing and shall not be exhausted by any one
or more uses thereof, and may be exercised at any time or from time to time as
often as may be expedient; and any option or election to enforce any such right
or remedy may be exercised or taken at any time and from time to time. The
expiration of earlier termination of this Agreement shall not discharge or
release Franchisor or Developer from any liability or obligation then accrued,
or any liability or obligation continuing beyond, or arising out of, the
expiration or earlier termination of this Agreement.
E. Nothing herein contained shall bar either party's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
13. SEVERABILITY AND CONSTRUCTION
-----------------------------
A. The term "Developer's Principals" as used in this Agreement shall
mean Main Street and Main Incorporated, a Delaware corporation.
B. Except as expressly provided to the contrary herein, each portion,
section, part, term and/or provision of this Agreement shall be considered
severable; and if, for any reason, any portion, section, part, term and/or
provision herein is determined to be invalid and contrary to, or in conflict
with, any existing or future law or regulation by a court or agency having valid
jurisdiction, such shall not impair the operation of or have any other affect
upon such other portions, sections, parts, terms and/or provisions of this
Agreement as may remain intelligible, and the latter will continue to be given
full force and effect and bind the parties hereto; and said invalid portions,
sections, parts, terms and/or provisions shall be deemed not to be a part of
this Agreement.
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C. Developer and Developer's Principals expressly agree to be bound by
any promise or covenant imposing the maximum duty permitted by law which is
subsumed within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
from any of the provisions hereof any portion or portions which a court may hold
to be unreasonable and unenforceable in a final decision to which Franchisor is
a party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order or to the extent which Franchisor in
its sole discretion may otherwise determine.
D. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
E. All references herein to the masculine, neuter, or singular shall be
construed to include the masculine, feminine, neuter, or plural, where
applicable.
F. This Agreement may be executed in several parts, and each copy so
executed shall be deemed an original.
G. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or entity
other than Developer, Franchisor, Franchisor's officers, directors, and
employees, and such of Developer's and Franchisor's respective successors and
assigns as may be contemplated (and, as to Developer, permitted) by Section 8
hereof, any rights or remedies under or by reason of this Agreement.
H. This Agreement will become effective only upon execution hereof by
the President or a vice president of Franchisor.
14. ENTIRE AGREEMENT
----------------
This Agreement, the documents referred to herein, and the Exhibits
hereto constitute the entire, full and complete agreement between Franchisor and
Developer concerning the subject matter hereof and shall supersede all prior
agreements, no other representations having induced Developer to execute this
Agreement. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, OF FAIR DEALING OR
OTHERWISE, BETWEEN THE PARTIES OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS
AGREEMENT. EXCEPT THOSE PERMITTED TO BE MADE UNILATERALLY BY FRANCHISOR
HEREUNDER, NO AMENDMENT, CHANGE OR VARIANCE FROM THIS AGREEMENT SHALL BE BINDING
ON EITHER PARTY UNLESS MUTUALLY AGREED TO BY THE PARTIES AND EXECUTED IN
WRITING.
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15. APPLICABLE LAW
--------------
A. DEVELOPER AND DEVELOPER'S PRINCIPALS ACKNOWLEDGE THAT FRANCHISOR MAY
GRANT NUMEROUS DEVELOPMENT RIGHTS THROUGHOUT THE UNITED STATES ON TERMS AND
CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF
MUTUAL BENEFIT TO DEVELOPER AND DEVELOPER'S PRINCIPALS AND TO FRANCHISOR THAT
THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES
AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF TEXAS DOES NOT CONFLICT
WITH LOCAL FRANCHISE INVESTMENT STATUTES, RULES AND REGULATIONS, TEXAS LAW SHALL
APPLY TO THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT (EXCEPT FOR TEXAS
CHOICE OF LAW RULES) AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE
HERETO. NOTWITHSTANDING THE ABOVE, THE PARTIES RECOGNIZE THAT THE STATE IN WHICH
A POST-TERMINATION OR POST-EXPIRATION COVENANT AGAINST COMPETITION WILL BE
ENFORCED HAS THE SIGNIFICANT PUBLIC POLICY INTEREST: AND THEREFORE, WITH RESPECT
TO ANY ACTION REGARDING SUCH COVENANTS CONTAINED IN THIS AGREEMENT, THE LAW OF
THE STATE IN WHICH THE COVENANT WOULD BE ENFORCED SHALL APPLY.
B. THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE
AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, SHALL BE RESOLVED BY A
PROCEEDING IN A COURT IN DALLAS COUNTY, TEXAS, AND DEVELOPER AND DEVELOPER'S
PRINCIPALS EACH IRREVOCABLY ACCEPT THE JURISDICTION OF THE COURTS OF THE STATE
OF TEXAS AND THE FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR SUCH CLAIMS,
CONTROVERSIES OR DISPUTES; PROVIDED, HOWEVER, WITH RESPECT TO ANY ACTION WHICH
INCLUDES INJUNCTIVE RELIEF, FRANCHISOR MAY BRING SUCH ACTION IN ANY STATE WHICH
HAS JURISDICTION.
C. The parties agree that service of process in any proceeding arising
out of or relating to this Agreement or the performance thereof may be made as
to Developer and Developer's Principals by serving a person of suitable age and
discretion (such as the person in charge of the office) at the address of
Developer specified in this Agreement and as to Franchisor, by serving the
President or a vice president of Franchisor at the address of Franchisor or by
serving Franchisor's registered agent.
16. ACKNOWLEDGMENTS
---------------
A. Developer and Developer's Principals acknowledges that it has
conducted an independent investigation of the business contemplated by this
Agreement, and recognizes that it involves business risks and that the success
of the venture is largely dependent upon the business abilities of Developer.
FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING OF, AND
"California"
24
<PAGE>
DEVELOPER DEVELOPER'S PRINCIPALS ACKNOWLEDGE THAT IT HAS NOT RECEIVED OR RELIED
UPON, ANY WARRANTY OR GUARANTY EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME,
PROFITS, OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT.
B. Developer and Developer's Principals acknowledge that Franchisor has
made no representations about the development rights granted herein that are
contrary to the terms of this Agreement or the documents referred to herein and
Exhibits attached hereto, and further represents to Franchisor, as an inducement
to its entry into this Agreement, that Developer has made no misrepresentations
in obtaining the development rights granted herein.
C. Developer and Developer's Principals acknowledge that it has
received, read and understood this Agreement, the documents referred to herein
and the Exhibits attached hereto and that Franchisor has accorded them ample
time and opportunity to consult with advisors of Developer's own choosing about
the potential benefits and risks of entering into this Agreement.
D. Developer and Developer's Principals acknowledge that it received a
complete copy of this Agreement, the documents referred to herein and the
Exhibits attached hereto, at least five (5) business days prior to the date on
which this Agreement was executed. Developer and Developer's Principals further
acknowledge that it has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" at least ten (10) business days prior to the date on which this
Agreement was executed.
17. RESTATED AGREEMENT
------------------
This Development Agreement amends and restates that certain Development
Agreement dated December 23, 1993 by and between the parties hereto.
"California"
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement on the day and year first above written.
WITNESS: TGI FRIDAY'S INC.
SIGNATURE ILLEGIBLE By: /s/ Leslie Sharman
- --------------------- ----------------------------
Name: Leslie Sharman
--------------------------
Title: Vice President
-------------------------
MAIN ST. CALIFORNIA INC.
Patricia A. Davies By: /s/ Bart A. Brown, Jr.
- --------------------- ----------------------------
Name: Bart A. Brown, Jr.
--------------------------
Title: President
-------------------------
Main Street and Main Incorporated acknowledges and agrees as follows:
(1) it has read the terms and conditions of this Agreement;
(2) it is "Developer's Principal" as described in Subsection 13.A
of this Agreement; and
(3) it is bound as a Developer's Principal as set forth in this
Agreement and is obligated to perform thereunder.
Developer's Principal
MAIN STREET AND MAIN INCORPORATED
Patricia A. Davies By: /s/ Bart A. Brown, Jr.
- --------------------- ----------------------------
Name: Bart A. Brown, Jr.
--------------------------
Title: President
-------------------------
"California"
26
<PAGE>
EXHIBIT A
---------
THE "SAN DIEGO REGION":
- -----------------------
In the state of California - The counties of :
Imperial
San Diego
THE "SAN FRANCISCO REGION": The counties of :
- ---------------------------
In the state of California:
Lake
Marin
Mendocino
Napa
San Francisco
San Mateo
Santa Clara
Sonoma
THE "LOS ANGELES REGION": The counties of :
- -------------------------
In the state of California:
Inyo
Orange
Riverside
San Bernardino
Ventura
Los Angeles county, excluding that portion of the county which is bounded on the
north by Sunset Boulevard to U.S. Hwy. 100, (the Harbor Fwy.), on the south by
I. 10 (the Santa Monica Frwy.), and on the west by the Pacific Ocean.
"California"
TGI FRIDAY'S INC.
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
MAIN ST. MIDWEST, INC.
(KANSAS, NEBRASKA & MISSOURI TERRITORY)
Dated: May 2, 1997
"Kansas - Midwest"
<PAGE>
TGI FRIDAY'S INC.
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
RECITALS 1
1. GRANT 2
2. PREFERENTIAL RIGHTS 2
3. SCHEDULE AND MANNER FOR EXERCISING
DEVELOPMENT RIGHTS 3
4. SITE SELECTION 5
5. TERM 6
6. DUTIES OF THE PARTIES 6
7. DEFAULT 10
8. TRANSFER OF INTEREST 12
9. COVENANTS 15
10. NOTICES AND PAYMENTS 18
11. INDEPENDENT CONTRACTOR AND INDEMNIFICATION 19
12. APPROVALS, WAIVERS AND REMEDIES 21
13. SEVERABILITY AND CONSTRUCTION 22
14. ENTIRE AGREEMENT 23
15. APPLICABLE LAW 23
16. ACKNOWLEDGMENTS 24
"Kansas - Midwest"
<PAGE>
EXHIBIT A - THE TERRITORY
EXHIBIT B - FRANCHISE AGREEMENT
EXHIBIT C - CONFIDENTIALITY COVENANTS
EXHIBIT D - CONFLICT OF INTEREST AND CONFIDENTIALITY COVENANTS
"Kansas - Midwest"
<PAGE>
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
This Amended and Restated Development Agreement ("Agreement") is
entered into this 2nd day of May, 1997 by and between TGI Friday's Inc., a New
York corporation, with its principal place of business in Dallas, Texas
(hereinafter "Franchisor") and Main St. Midwest, Inc. , a Kansas corporation,
with its principal place of business at 5050 N. 40th Street #200, Phoenix, AZ
85018 (hereinafter "Developer"), successor in interest to Kansas City Cafe
Company (hereinafter "KCCC"(hereinafter "Developer").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time,
skill, effort and money, has developed and owns a unique and distinctive system
(hereinafter "System") relating to the establishment and operation of
full-service restaurants utilizing the trade name T.G.I. Friday's and featuring
a specialized menu and full-bar service;
WHEREAS, the distinguishing characteristics of the System
include, without limitation, distinctive exterior and interior design, decor,
color scheme and furnishings; special recipes and menu items; uniform standards,
specifications and procedures for operations; quality and uniformity of products
and services offered; procedures for inventory and management control; training
and assistance; and advertising and promotional programs; all of which may be
changed, improved and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain
trade names, service marks, trademarks, emblems and indicia of origin, including
but not limited to the marks T.G.I. Friday's(R), Friday's(R) and The American
Bistro(R) and such other trade names, service marks and trademarks as are now
designated and may hereafter be designated by Franchisor in writing for use in
connection with the System (hereinafter "Proprietary Marks");
WHEREAS, Franchisor derives its rights in the Proprietary Marks
pursuant to a certain Assignment Agreement dated December 29, 1992 (the
"Assignment Agreement") by and between Franchisor and TGI Friday's of Minnesota,
Inc. a Minnesota corporation ("TGIFM"), pursuant to which Franchisor transferred
to TGIFM all right, title and interest in the Proprietary Marks and TGIFM
granted back to Franchisor the perpetual and exclusive right and license to use
the Proprietary Marks and the right to sub-license the Proprietary Marks to
third parties.
WHEREAS, Franchisor continues to develop, use and control the use
of such Proprietary Marks in order to identify for the public the source of
services and products marketed thereunder and under the System, and to represent
the System's high standards of quality, appearance and services;
"Midwest"
1
<PAGE>
WHEREAS, Developer wishes to obtain certain development rights to
operate restaurants utilizing the System (hereinafter "Restaurants" or
"franchised businesses") in the territory described in this Agreement;
NOW, THEREFORE, the parties in consideration of the undertakings
and commitments of each party to the other party set forth herein, hereby agree
as follows:
1. GRANT
-----
A. Franchisor hereby grants to Developer and Developer accepts,
pursuant to the terms and conditions of this Agreement, development rights to
establish and operate the number of T.G.I. Friday's Restaurants set forth in the
Development Schedule as may be approved by Franchisor in accordance with its
then current Site Consent Procedures, and to use the System solely in connection
therewith, at specific locations to be designated in separate T.G.I. Friday's
franchise agreements (hereinafter "Franchise Agreement") executed as provided in
Subsection 3.A hereof and pursuant to the Development Schedule set forth in
Subsection 3.B hereof. Each Restaurant developed hereunder shall be located in
the area described on Exhibit A attached hereto (hereinafter "Territory") and
outlined on the maps attached hereto as of Exhibit A. Expressly excluded from
the Territory are airport properties otherwise located within the boundaries of
the Territory, Franchisor reserving the rights to establish or license another
party to establish Restaurants at airport properties even if otherwise located
within the boundaries of the Territory. Franchisor reserving the rights to
establish or license another party to establish Restaurants at airport
properties even if otherwise located within the boundaries of the Territory.
B. Each Restaurant for which a development right is granted
hereunder shall be established and operated pursuant to a Franchise Agreement to
be entered into between Developer and Franchisor in accordance with Subsection
3.A hereof.
C. Except as otherwise provided in this Agreement, Franchisor
shall not establish nor license anyone other than Developer to establish any
Restaurant in the Territory during the term of this Agreement.
D. This Agreement is not a franchise agreement and does not grant
to Developer any right to use Franchisor's Proprietary Marks or the System.
E. Developer shall have no right under this Agreement to license
others to use the Proprietary Marks or the System.
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<PAGE>
3. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
--------------------------------------------------------
A. Developer shall exercise each development right granted herein
only by executing a Franchise Agreement for each Restaurant at a site consented
to by Franchisor in the Territory as hereinafter provided. The Franchise
Agreement for each development right exercised hereunder in accordance with the
development schedule set forth in Subsection 3.B hereof shall be in the form of
the franchise agreement attached hereto as Exhibit B. The franchise fee to be
paid by Developer for the development in accordance with the development
schedule set forth in Subsection 3.B hereof shall be Fifty Thousand Dollars
($50,000.00) for each Restaurant to be located in the Territory, payable upon
execution of the Franchise Agreement for each Restaurant. .
B. Recognizing that time is of the essence, Developer agrees to
exercise each of the development rights granted hereunder in the manner
specified in Subsection 3.A hereof, and to satisfy the development schedule set
forth below:
Midwest Territory (as defined in Exhibit A)
------------------ ------------------- ------------------ -------------
Restaurant No. Date of Date Franchise Date Open &
Preliminary Site Agreement Signed Operating
Consent & Fees Paid
------------------ ------------------- ------------------ -------------
1 6/98 9/98 12/15/98
------------------ ------------------- ------------------ -------------
2 6/99 9/99 12/15/99
------------------ ------------------- ------------------ -------------
3 6/00 9/00 12/15/00
------------------ ------------------- ------------------ -------------
4 6/01 9/01 12/15/01
------------------ ------------------- ------------------ -------------
5 6/02 9/02 12/15/02
------------------ ------------------- ------------------ -------------
"Midwest"
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<PAGE>
Failure by Developer to adhere to the development schedule shall
constitute a material event of default under this Agreement as provided in
Subsection 7.C hereof
C. Franchisor and Developer agree that during the year 2002 of
the term of the Agreement a new development schedule will be negotiated
providing for the number of Restaurants to be developed during the ensuing 7
year period and the schedule for such development. In the event the parties are
unable to agree upon the number of Restaurants to be developed or the schedule
for such development within thirty (30) days after having exerted good faith
efforts to do so, the parties agree to retain an independent third party
("Appraiser") mutually acceptable to both parties to determine such factors. The
decision of such Appraiser shall be binding on Franchisor and Developer. In the
event the parties are unable to agree upon a mutually acceptable Appraiser, the
selection of appraisers and the determination of the necessary factors shall be
conducted using the same procedures set forth at Subsection 17.03 of the
Franchise Agreement attached hereto as Exhibit B. Should Developer fail to
develop according to the new development schedule, Developer agrees that it will
lose its rights to development within, and agrees that Franchisor shall have the
right to develop or license other parties to develop Restaurants within the
Territory. For each of the Restaurants to be developed Developer shall execute
the standard form of franchise agreement then being offered to new System
franchisees and other ancillary agreements as Franchisor may require for the
franchised business, the terms of which may differ from the terms of the
Franchise Agreement attached to this Agreement, including, without limitation, a
higher franchise fee, percentage royalty rate and advertising contribution.
4. SITE SELECTION
--------------
A. Developer assumes all cost, liability, expense and
responsibility for locating, obtaining and developing sites for Restaurants, and
for constructing and equipping Restaurants at such sites. The development of a
Restaurant at any site must be consented to by Franchisor in accordance with the
then existing site selection procedures including, but not limited to, the
following procedures:
(1) Prior to acquisition by lease or purchase of a
site for a Restaurant in the Territory, Developer shall submit to Franchisor for
each Restaurant, in the form prescribed by Franchisor, a description of the
site, a market feasibility study for the site which shall include, but not be
limited to, demographic information, site plans and such other information or
materials as Franchisor may reasonably require, together with a letter of intent
or other evidence satisfactory to Franchisor which confirms Developer's
favorable prospects for obtaining the site. Recognizing that time is of the
essence, Developer agrees that it must submit such information and materials for
each proposed site to Franchisor in writing for its consent. Franchisor shall
have thirty (30) days after receipt of such information and materials from
Developer to consent to or refuse its consent to use the proposed site as the
location for a Restaurant, which consent shall not be unreasonably withheld. No
site shall be deemed approved unless it has been expressly approved to in
writing by Franchisor.
"Midwest"
4
<PAGE>
(2) Developer acknowledges that Franchisor's
consent to the use of a prospective Restaurant site or the rendering of
assistance in the selection of a site for a Restaurant does not constitute a
representation, promise or guarantee by Franchisor that a Restaurant operated at
that site would be profitable or otherwise successful.
(3) After the location for a Restaurant is
consented to by Franchisor and leased or acquired by Developer in accordance
with the requirements of this Section 4, Developer shall execute a Franchise
Agreement relating to the Restaurant and its location shall be recorded in
Attachment A to the applicable Franchise Agreement.
B. If the Developer will occupy the premises of any Restaurant
under a lease, Developer shall furnish to Franchisor a copy of the executed
lease within ten (10) days after execution thereof. Prior to such execution,
Developer shall submit the lease to Franchisor for its written approval. Unless
Developer has obtained Franchisor's written consent to the exclusion of a
required provision, the lease shall include the following terms and conditions:
(1) That the premises shall be used for the
operation of the Restaurant;
(2) That the lessor consents to the use of such
Proprietary Marks and signage as Franchisor may prescribe for the franchised
business;
(3) That the lessor agrees to furnish Franchisor
with copies of any and all letters and notices sent to Developer pertaining to
the lease and the premises at the same time that such letters and notices are
sent to Developer;
(4) That Developer may not sublease or assign all
or any part of its occupancy rights, or extend the term of or renew the lease,
without Franchisor's prior written consent, which shall not be unreasonably
withheld;
(5) That Franchisor shall have the right to enter
the premises to make any modification necessary to protect Franchisor's
Proprietary Marks or to cure any default under the lease, this Agreement or the
Franchise Agreement;
(6) That the lessor agrees that Developer may
assign the lease to Franchisor; that the lessor will consent to such assignment
and may not impose any assignment fee or similar charge on Franchisor in
connection with such assignment; and that Franchisor may sublease the premises
for all or any part of the remaining term of the lease; and
(7) That the lessor and Developer shall not amend
or otherwise modify the lease in any manner which would materially affect any of
the foregoing terms and conditions without Franchisor's prior written consent.
"Midwest"
5
<PAGE>
C. Developer shall construct the Restaurant in accordance with
the provisions of the Franchise Agreement.
5. TERM
----
Unless sooner terminated in accordance with the provisions of this
Agreement, the term of this Agreement shall commence on the date hereof and
shall terminate on June 26, 2009.
6. DUTIES OF THE PARTIES
---------------------
A. Franchisor shall furnish to Developer the following:
(1) One (1) copy of the Development Manual
("Development Manual"), which is a part of the Confidential Operating Manuals
("Manuals") referred to in Section 4 of the Franchise Agreement. The Development
Manual contains the instructions, requirements, standards, specifications and
procedures for the development and construction of a typical Restaurant,
including site selection guidelines and criteria, construction management
techniques and development planning and scheduling methods. The Development
Manual will be delivered to Developer on loan upon execution of this Agreement
and shall be returned to Franchisor immediately upon request or upon termination
or expiration of this Agreement. Developer shall at all times treat the
Development Manual as confidential.
(2) Such site selection counseling and assistance
as Franchisor may deem advisable.
(3) Such on-site evaluation as Franchisor may deem
advisable in response to Developer's requests for site approval; provided,
however, that Franchisor shall not provide on-site evaluation for any proposed
site prior to the receipt of all required information and materials concerning
such site prepared pursuant to Section 4 hereof.
(4) One (1) set of Franchisor's standard plans and
specifications for the construction of a typical Restaurant including the
exterior and interior design and layout, fixtures, furnishings and signs.
(5) Pre-opening and opening training and assistance
as Franchisor deems advisable with due regard to the number of trained personnel
then employed by Franchisee and/or its affiliates then operating other
Restaurants utilizing the System. Developer currently operates in excess of
seven Restaurants. In accordance with current policy, Franchisor would provide
no more than two NSO Team Members for each opening.
(6) Training programs for the Operator (as
hereinafter defined) in the operation of the Restaurants at such location, as
may be designated by Franchisor from time to time in the Manuals or otherwise in
writing.
"Midwest"
6
<PAGE>
B. Developer makes the following representations, warranties and
covenants and accepts the following obligations:
(1) Developer shall comply with all terms and
conditions set forth in this Agreement.
(2) Upon execution of this Agreement, Developer
shall designate:
(i) an individual who is fully
authorized to act on behalf of Developer in all transactions with Franchisor
concerning Developer's obligations under this Agreement ("Representative"). A
qualified Representative shall be designated at all times during the term of
this Agreement by Developer and Developer shall designate a replacement
Representative from time to time as necessary;
(3) If this Agreement provides for the development
of three or more Restaurants, Developer will be required to designate an
individual to supervise the Restaurants (a "Regional Manager") in accordance
with the provisions of Subsection 4.03 of the Franchise Agreement.
(4) Developer and Developer's Principals (as
defined in Subsection 13.A hereof) covenant and agree that neither shall, during
the term of this Agreement or thereafter, communicate, divulge or use for the
benefit of any other person, persons, partnership, association or corporation
any confidential information, knowledge or know-how concerning the methods of
development and operation of the Restaurant which may be communicated to
Developer or Developer's Principals or of which they may be apprised by virtue
of Developer's operation under the terms of this Agreement. Developer and
Developer's Principals shall divulge such confidential information only to such
of Developer's employees as must have access to it in connection with their
employment. Any and all information, knowledge, techniques and know-how,
including without limitation, the Development Manual and all drawings,
materials, equipment, recipes, computer and point of sale programs and output
from such programs, and all other data which Franchisor designates as
confidential shall be deemed confidential for purposes of this Agreement.
Neither Developer nor any of Developer's Principals shall at any time, without
Franchisor's prior written consent, copy, duplicate, record or otherwise
reproduce such materials or information, in whole or in part, or otherwise make
the same available to any unauthorized person.
(5) Developer shall, prior to the disclosure of any
confidential information, require any of its employees who will have access to
such confidential information to execute covenants that they will maintain the
confidentiality of information they receive in connection with their employment
by Developer. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third
party beneficiary of such covenants with the independent right of enforcement.
Such covenants shall be in a form substantially similar to the Confidentiality
Covenants attached hereto as Exhibit C. Developer shall be responsible for
compliance by its employees with such covenants.
"Midwest"
7
<PAGE>
(6) If Developer or Developer's Principals develop
any new process or improvement in the development, operation or promotion of the
Restaurants, Developer agrees to promptly notify Franchisor and provide
Franchisor with all necessary information concerning same, without compensation.
Developer and Developer's Principals acknowledge that any such process or
improvement shall become the property of Franchisor and Franchisor may utilize
or disclose such information to other developers as it determines to be
appropriate.
(7) Developer and each of Developer's Principals
acknowledge complete ownership by Franchisor of the Proprietary Marks,
specifications, standards, management and accounting methods, operating
procedures and other concepts embodied in and comprising the System, and
covenants that during the term of this Agreement or thereafter, regardless of
the cause of termination, Developer and each of Developer's Principals shall
not, either directly or indirectly, contest or aid others in contesting, the
exclusive ownership and rights of Franchisor in any aspect of the System, or do
anything that will otherwise impair such rights without Franchisor's prior
written consent, including, without limitation, using or reproducing any
materials copyrighted by Franchisor.
(8) Developer and each of Developer's Principals
acknowledge and agree: (a) that any failure to comply with the covenants in this
Subsection 6.B or any failure to obtain execution of the covenants in Subsection
6.B(5) shall constitute a material event of default under Subsection 7.C; (b)
that any such failure will cause Franchisor irreparable injury for which no
adequate remedy at law may be available; and (c) therefore, Franchisor shall be
entitled, in addition to any other remedies which it may have hereunder, at law,
or in equity, to obtain specific performance of, or to an injunction against
violation of, the requirements of Subsections 6.B(4), (5) and (7), without the
necessity of showing actual or threatened damage and without being required to
furnish a bond or other security. If Franchisor prevails, Developer and each of
Developer's Principals agree to pay all court costs and reasonable attorneys'
fees incurred by Franchisor in connection with the enforcement of Subsections
6.B(4), (5) and (7), including the agreements referred to in Subsection 6.B(5).
(9) Developer shall comply with all requirements of
federal, state and local laws, rules and regulations.
"Midwest"
8
<PAGE>
C. In the event Developer is a corporation or a partnership,
Developer represents, warrants and covenants that:
(1) Developer is duly organized and validly
existing under the state law of its formation;
(2) Developer is duly qualified and is authorized
to do business in each jurisdiction in which its business activities or the
nature of the properties owned by it require such qualification;
(3) Developer's corporate charter or written
partnership agreement shall at all times provide that the activities of
Developer are confined exclusively to the development and operation of the
Restaurants;
(4) The execution of this Agreement and the
transactions contemplated hereby are within Developer's corporate power, or if
Developer is a partnership, permitted under Developer's written partnership
agreement;
(5) If Developer is a corporation, copies of
Developer's Articles of Incorporation, Bylaws, other governing documents and any
amendments thereto, including the resolution of the Board of Directors
authorizing entry into and performance of this Agreement, shall be promptly
furnished to Franchisor; or, if Developer is a partnership, copies of the
written partnership agreement, other governing documents and any amendments
thereto shall be promptly furnished to Franchisor including evidence of consent
or approval of the entry into and performance of this Agreement by the requisite
number or percentage of partners, if such approval or consent is required by
Developer's written partnership agreement;
(6) If Developer is a corporation, Developer shall
maintain a current list of all owners of record and all beneficial owners of any
class of voting securities of the corporation; or if Developer is a partnership,
Developer shall maintain a current list of all owners of an interest in the
partnership. Such lists shall be furnished to Franchisor upon request;
(7) If Developer is a corporation, Developer shall
maintain stop-transfer instructions against the transfer on its records of any
equity securities and each stock certificate of the corporation shall have
conspicuously endorsed upon its face a statement in a form satisfactory to
Franchisor that it is held subject to and that further assignment or transfer
thereof is subject to all restrictions imposed upon assignments by this
Agreement; provided, however, that the requirements of this Subsection 6.C(7)
shall not apply to a publicly-held corporation (as defined at Subsection 8.B(1)
hereof). If Developer is a partnership, its written partnership agreement shall
provide that ownership of an interest in the partnership is held subject to and
that further assignment or transfer is subject to all restrictions imposed upon
assignments by this Agreement;
(8) Developer represents that: (a) Gerard Bisceglia
and Bart Brown, Jr. are voting members of the Board of Directors of Developer
and (ii) together constitute a majority of the voting members of the Board with
voting control over the actions of the Board; (or an approved replacement of
either or both of them; (b) that Gerard Bisceglia and Bart Brown, Jr.(or their
"Midwest"
9
<PAGE>
approved replacements) shall at all times during the term of this Agreement be
and remain voting members of the Board of Directors of Developer and (ii)
together constitute a majority of the voting members of the Board with voting
control over the actions of the Board; and (c) that Developer shall obtain the
prior written approval of Franchisor of any replacement or subsequent
replacement for or an approved replacement of either or both of them Gerard
Bisceglia and Bart Brown, Jr. in accordance with the provisions of Section 8 of
this Agreement before either of them or any approved replacement is replaced as
a member of the Board. Gerard Bisceglia or Bart Brown, Jr. or an approved
replacement of either or both of them is replaced as a member of the Board.
Notwithstanding the foregoing, in the event the Board of Directors of Developer
is reduced to a single director Board, either Gerard Bisceglia or Bart Brown,
Jr., or an approved replacement shall be the sole Director
D. Developer acknowledges and agrees
that the representations, warranties and covenants set forth in Subsection 6.C
are continuing obligations of Developer and that any failure to comply with such
representations, warranties and covenants shall constitute a material event of
default under this Agreement pursuant to Subsection 7.C hereof.
"Midwest"
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<PAGE>
7. DEFAULT
-------
A. The rights granted to Developer in this Agreement have been
granted in reliance on Developer's representations and assurances, among others,
that the conditions set forth in Sections 1, 3 and 4 of this Agreement will be
met by Developer in a timely manner. Time is of the essence in relation to all
obligations of Developer in this Agreement.
B. Developer shall be deemed to be in default under this
Agreement and all rights granted herein shall automatically terminate without
notice to Developer, if Developer shall become insolvent or make a general
assignment for the benefit of creditors; or if a petition in bankruptcy is filed
under any chapter of Title 11 of the United States Code by Developer or such a
petition is filed against Developer and not opposed by Developer; or if a bill
in equity or other proceeding for the appointment of a receiver of Developer or
other custodian for Developer's business or assets is filed and consented to by
Developer; or if a receiver or other custodian (permanent or temporary) of
Developer's assets or property, or any part thereof, is appointed by any court
of competent jurisdiction; or if proceedings for a composition with creditors
under any state or federal law should be instituted by or against Developer; or
if a final judgment remains unsatisfied or of record for thirty (30) days or
longer (unless supersedeas bond is filed); or if Developer is dissolved; or if
execution is levied against Developer's business or property; or if suit to
foreclose any lien or mortgage against the premises or equipment of any
Restaurant developed hereunder is instituted against Developer and not dismissed
within thirty (30) days; or if the real or personal property of any Restaurants
developed hereunder shall be sold after levy thereupon by any sheriff, marshal
or constable.
C. If Developer fails to comply with the development schedule set
forth in Subsection 3.B hereof or any subsequent development schedule; Developer
or Developer's Principals fail to comply with the restrictions on confidential
information set forth in Subsection 6.B(4) or the requirements of Subsection 9.B
concerning in-term covenants against competition (except where liquidated
damages have been otherwise expressly provided); Developer fails to obtain
execution of the covenants from the persons designated by Franchisor pursuant to
Subsections 6.B(5) and 9.G; Developer breaches the warranties, representations
and covenants set forth in Subsection 6.C; Developer or any partner or
shareholder makes or attempts to make a transfer or assignment in violation of
Section 8 hereof; Developer fails to pay any monies owed to Franchisor within
ten (10) days of the date the monies become due and payable; Developer fails to
comply with any other terms and conditions of this Agreement, or the terms of
any Franchise Agreements or any other development agreements between Developer
and Franchisor; such action shall constitute a material event of default under
this Agreement. Upon such default, Franchisor, in its discretion, may do any one
or more of the following:
(1) Terminate this Agreement and all rights granted
hereunder without affording Developer any opportunity to cure the default,
effective immediately upon notice to Developer;
(2) Provide Developer a reasonable period of time,
not to exceed thirty (30) days after notice from Franchisor, to cure a default
which is susceptible to cure;
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(3) Reduce the number of Restaurants which
Developer may establish pursuant to Subsection 1.A of this Agreement;
(4) Terminate the territorial exclusivity granted
Developer in Subsection 1.C hereof, or reduce the Territory granted Developer
hereunder; or
(5) Accelerate the development schedule set forth
in Subsection 3.B hereof.
D. Upon termination of this Agreement, Developer shall have no
right to establish or operate any Restaurant for which a Franchise Agreement has
not been executed by Franchisor and delivered to Developer at the time of
termination and Franchisor shall be entitled to establish and to license others
to establish Restaurants in the Territory except as may be otherwise provided
under any other agreement which is then in effect between Franchisor and
Developer.
E. No default under this Agreement shall constitute a default
under any Franchise Agreement between the parties hereto, unless Developer's
acts or omissions also violate the terms and conditions of the applicable
Franchise Agreement.
8. TRANSFER OF INTEREST
--------------------
A. Franchisor shall have the right to transfer or assign this
Agreement and all or any part of its rights or obligations herein to any person
or legal entity.
B. (1) Developer and Developer's Principals understand and
acknowledge that the rights and duties set forth in this Agreement are personal
to Developer, and that Franchisor has granted the development rights in reliance
on the business skill, financial capacity and business reputation and character
of the Developer . Accordingly, neither Developer nor any initial or subsequent
successor or assign to any part of Developer's interest in the development
rights, nor any individual, partnership, corporation or other entity which
directly or indirectly has or owns any interest in this Agreement or in
Developer shall sell, assign, transfer, convey, give away, pledge, mortgage or
otherwise encumber any direct or indirect interest in this Agreement or in any
entity which owns the development rights without the prior written consent of
Franchisor; provided, however, that Franchisor's prior written consent shall not
be required for a transfer of less than a five percent (5%) interest in a
publicly-held corporation. A publicly-held corporation is a corporation
registered pursuant to Section 12 under the Securities Exchange Act of 1934, as
amended. Any purported assignment or transfer, by operation of law or otherwise,
not having the written consent of Franchisor required by this Subsection 8.B
shall be null and void and shall constitute a material event of default for
which Franchisor may terminate this Agreement pursuant to Subsection 7.C hereof.
(2) Franchisor shall not unreasonably withhold its
consent to a transfer of any interest in Developer or in this Agreement.
Franchisor may, in its sole discretion, require any or all of the following as
conditions of its approval:
(a) All of Developer's accrued
monetary obligations and all other
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outstanding obligations to Franchisor, its subsidiaries and its affiliates shall
have been satisfied;
(b) Developer is not in default of
any provision of this Agreement, any amendment hereof or successor hereto, or
any other agreement between Developer and Franchisor or its subsidiaries and
affiliates;
(c) The transferor shall have
executed a general release, in a form satisfactory to Franchisor, of any and all
claims against Franchisor and its officers, directors, shareholders and
employees, in their corporate and individual capacities, including, without
limitation, claims arising under this Agreement and federal, state and local
laws, rules and ordinances;
(d) The transferee shall enter into
a written agreement in a form satisfactory to Franchisor, assuming full,
unconditional, joint and several liability for and agreeing to perform from the
date of the transfer, all obligations, covenants and agreements contained in
this Agreement; and as applicable, transferee's spouse, shareholders, partners
or other investors, shall also execute such agreement;
(e) The transferee shall demonstrate
to Franchisor's satisfaction the following: that transferee meets the criteria
which Franchisor considers when reviewing a prospective developer's application
for development rights including Franchisor's educational, managerial and
business standards; that transferee possesses a good moral character, business
reputation and credit rating; that transferee has the aptitude and ability to
conduct the franchised businesses contemplated herein (as may be evidenced by
prior related business experience or otherwise); and that transferee has
reasonably adequate financial resources and capital to develop and operate the
franchised businesses;
(f) At Franchisor's option, the
transferee shall execute (and/or, upon Franchisor's request, shall cause all
interested parties to execute), the standard form of development agreement then
being offered to new System developers and other ancillary agreements as
Franchisor may require for the development of the Restaurants, which agreements
shall supersede this Agreement and its ancillary documents in all respects and
the terms of which agreements may differ from the terms of this Agreement;
provided, however, that the transferee shall not be required to pay any
development fee;
(g) Developer and Developer's
Principals shall remain liable for all of the obligations to Franchisor in
connection with this Agreement incurred prior to the effective date of the
transfer and shall execute any and all instruments reasonably requested by
Franchisor to evidence such liability;
(h) Developer shall pay a transfer
fee of Five Thousand Dollars ($5,000.00), or such greater amount as is necessary
to reimburse Franchisor for its reasonable costs and expenses associated with
reviewing the application to transfer, including, without limitation, legal and
accounting fees;
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(i) If transferee is a corporation
or a partnership, transferee shall make and will be bound by any or all of the
representations, warranties and covenants set forth at Subsection 6.C as
Franchisor requests. Transferee shall provide to Franchisor evidence
satisfactory to Franchisor that the terms of Subsection 6.C have been satisfied
and are true and correct on the date of the transfer.
(3) Developer acknowledges and agrees that each
condition which must be met by the transferee is reasonable and necessary to
assure such transferee's full performance of the obligations hereunder.
(4) In the event the proposed transfer is to a
corporation formed solely for the convenience of ownership, Franchisor's consent
may be conditioned upon any of the requirements set forth at Subsection 8.B(2),
except that the requirements set forth at Subsections 8.B(2)(c), (e), (f) and
(h) shall not apply. With respect to a transfer to a corporation formed for the
convenience of ownership, the percentage of interest owned in the transferee
shall be the same as that previously owned in the transferor, except as may be
required by law.
(5) Notwithstanding any other provision of this
Section 8, if: (a) together Gerard Bisceglia, Bart Brown, Jr. or an approved
replacement of either or both of them shall no longer constitute a majority of
the voting members of the Board of Directors of Developer with voting control
over the actions of the Board, or (b) either Gerard Bisceglia, Bart Brown, Jr.
or an approved replacement of either or both of them is no longer a voting
member of the Board, then under any of such circumstances, Franchisor may, at
its option, terminate this Agreement effective sixty (60) days after notice to
Developer
(5) INTENTIONALLY DELETED.
----------------------
(6) With respect to the approval of any replacement
for Steven A. Sherman, Joe W. Panter or a replacement for Gerard Bisceglia or
Bart Brown, Jr. or any subsequently approved replacement of either or both of
them as a voting member of the Board of Directors of Developer, Franchisor, in
its sole discretion, may require, among others, any or all of the following as
conditions of its approval:
(a) Developer shall not be in default of any
provision of this Agreement, any amendment hereof or successor hereto, or any
other agreement between Developer and Franchisor, or their subsidiaries and
affiliates;
(b) the replacement shall enter into a written
agreement in a form satisfactory to Franchisor agreeing to assume and perform
the covenants and agreements contained herein to be assumed and performed by
Developer's Principals; and
(c) the replacement shall demonstrate to
Franchisor's satisfaction the following: (i) that the replacement meets the
criteria which Franchisor considers when reviewing a prospective developer's
application for development rights, including Franchisor's educational,
managerial and business standards, (ii) that the replacement possesses a good
moral character, business reputation
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and credit rating, and (iii) that the replacement has the aptitude and ability
to conduct the franchised business (as may be evidenced by prior related
business experience or otherwise).
C. (1) Any party holding any interest (including interests
required to be transferred pursuant to Subsection 8.D hereof if such proposed
transfer would constitute the sale to or purchase by a third party of any
interests in the Franchisee, the franchised business or this Agreement) in
Developer or in this Agreement who desires to accept any bona fide offer from a
third party to purchase such interest shall promptly notify Franchisor in
writing of each such offer, and shall provide such information and documentation
relating to the offer as Franchisor may require. Franchisor shall have the right
and option, exercisable within thirty (30) days after receipt of such written
notification and documentation, to send written notice to the seller that
Franchisor intends to purchase the seller's interest on the same terms and
conditions offered by the third party. Any material change in the terms of any
offer prior to closing shall constitute a new offer subject to the same rights
of first refusal by Franchisor as in the case of an initial offer. Failure of
Franchisor to exercise the option afforded by this Subsection 8.C shall not
constitute a waiver of any other provision of this Agreement, including all of
the requirements of Subsection 8.B with respect to a proposed transfer.
(2) In the event the offer from the third party
provides for payment of consideration other than cash or involves certain
intangible benefits, Franchisor may elect to purchase the interest proposed to
be sold for the reasonable equivalent in cash. If the parties cannot agree
within a reasonable time on the reasonable equivalent in cash of the non-cash
part of the offer, an independent appraiser shall be designated by Franchisor to
determine such amount and his determination shall be final and binding.
(3) If Franchisor elects to exercise the option
described above, it shall have the right to set off one-half (1/2) of the cost
of the appraisal, if any, against any payment made hereunder.
E. Franchisor's consent to a transfer of any interest in
Developer or this Agreement shall not constitute a waiver of any claims it may
have against the transferring party, nor shall it be deemed a waiver of
Franchisor's right to demand exact compliance with any of the terms of this
Agreement by the transferee.
9. COVENANTS
---------
A. Developer covenants that during the term of this Agreement
except as otherwise approved in writing by Franchisor, Developer shall devote
requisite time, energy and best efforts to meet its obligations under this
Agreement and shall require its Operators and Regional Manager, if applicable,
to devote full time, energy and best efforts to the management, operation and
supervision of the franchised business and the Restaurants.
B. Developer and Developer's Principals specifically acknowledge
that they will receive valuable specialized training, trade secrets and
confidential information, including, without limitation, information regarding
the site selection and other methods and techniques of Franchisor
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and the System related to the development of the Restaurants which are beyond
the present skills and experience possessed by Developer, Developer's Principals
and Developer's managers and other employees. Developer and Developer's
Principals acknowledge that such training, trade secrets and confidential
information provide a competitive advantage and will be valuable to them in the
development of the franchised businesses and that gaining access to such
training, trade secrets and confidential information are, therefore, a primary
reason why they are entering into this Agreement. In consideration for such
training, trade secrets and confidential information, Developer and Developer's
Principals covenant as follows:
(1) With respect to Developer, during the term of
this Agreement, or with respect to each of Developer's Principals, during the
term of this Agreement for so long as such individual or entity satisfies the
definition of "Developer's Principal" as described in Subsection 13.A, neither
Developer nor any of Developer's Principals shall, either directly or
indirectly, for themselves, or through, on behalf of, or in conjunction with any
person, persons, partnership or corporation:
(a) Divert or attempt to divert any business
or customer of the franchised businesses to any competitor, by direct or
indirect inducement or otherwise, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with Franchisor's
Proprietary Marks and the System;
(b) Employ or seek to employ any person who,
is at that time or has within one (1) year been employed by Franchisor or by any
other developer or franchisee of Franchisor, or otherwise directly or indirectly
to induce such person to leave his or her employment thereat (for breach of this
covenant and due to the difficulty of establishing the precise amount of
damages, for each breach of this covenant Developer agrees to pay to Franchisor
or other developer of Franchisor as appropriate, liquidated damage in amount
equal to the annualized rate of compensation of such person in the final twelve
(12) months of employment with such former employer);
(c) Own, maintain, operate, engage in or have
an ownership interest (including any right to share in revenues or profits) in
any business offering the same or similar products and services as offered by
restaurants within the System.
(2) With respect to Developer, for a continuous
uninterrupted period commencing upon the expiration or termination of this
Agreement or with respect to each of Developer's Principals, for a continuous
uninterrupted period commencing upon the earlier of: (i) the expiration or
termination of this Agreement or (ii) the time such individual or entity ceases
to satisfy the definition of "Developer's Principal" as described in Subsection
13.A, and
(a) For one (1) year thereafter neither
Developer nor any of Developer's Principals shall, either directly or
indirectly, for themselves, or through, on behalf of, or in conjunction with any
person, persons, partnership or corporation:
(i) Divert or attempt to divert any
business or customer of the "Midwest"
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franchised businesses to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with Franchisor's Proprietary Marks and
the System;
(ii) Employ or seek to employ any person
who is at that time or has within one (1) year been employed by Franchisor or by
any other developer or franchisee of Franchisor, or otherwise directly or
indirectly to induce such person to leave his or her employment thereat (for
breach of this covenant and due to the difficulty of establishing the precise
amount of damages, for each breach of this covenant Developer agrees to pay to
Franchisor or other developer of Franchisor as appropriate, liquidated damage in
amount equal to the annualized rate of compensation of such person in the final
twelve (12) months of employment with such former employer);
(iii) Own, maintain, operate, engage in
or have an ownership interest (including any right to share in revenues or
profits) in any business offering the same or similar products and services as
offered by restaurants within the System, which business is, or is intended to
be, located within the Territory; and
(b) For one (1) year thereafter neither
Developer nor any of Developer's Principals shall, either directly or
indirectly, for themselves, or through, on behalf of, or in conjunction with any
person, persons, partnership or corporation own, maintain, operate, engage in,
or have any interest (including any right to share in the revenues or profits)
in any business offering the same or similar products and services as offered by
restaurants within the System, which business is, or (ii) to future food and
beverage operations which are not e System. intended to be, located within a
radius of three (3) miles of any restaurant in the System.
(3) Subsections 9.B(1)(c), 9.B(2)(a)(iii) and 9.B(2)(b)
shall not apply: (i) to an ownership interest of less than five percent (5%) of
the outstanding equity securities of any publicly-held company if such interest
is owned for investment only and not owned by an officer, director, employee or
consultant of such publicly-held company;
(ii) to future food and beverage operations which
are not the same or substantially similar in concept, decor or menus to
restaurants with the System.
C. The parties agree that each of the foregoing covenants shall
be construed as independent of any other covenant or provision of this
Agreement. If all or any portion of a covenant in this Section 9 is held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
an unappealed final decision to which Franchisor is a party, Developer and
Developer's Principals expressly agree to be bound by any lesser covenant
subsumed within the terms of such covenant that imposes the maximum duty
permitted by law, as if the resulting covenant were separately stated in and
made a part of this Section 9.
D. Developer and Developer's Principals understand and
acknowledge that Franchisor shall have the right, in its sole discretion, to
reduce the scope of any covenant set forth in Subsection 9.B of this Agreement,
or any portion thereof, without their consent, effective
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immediately upon written notice to Developer and Developer and Developer's
Principals agree that they shall comply forthwith with any covenant as so
modified, which shall be fully enforceable notwithstanding the provisions of
Section 14 hereof.
E. Developer and Developer's Principals expressly agree that the
existence of any claims they may have against Franchisor, whether or not arising
from this Agreement, shall not constitute a defense to the enforcement by
Franchisor of the covenants in this Section 9.
F. Developer and each of Developer's Principals acknowledge and
agree: (1) that any failure to comply with the covenants in this Section 9 or
any failure to obtain execution of the covenants in Subsection 9.G below shall
constitute a material event of default under Subsection 7.C; (2) that a
violation of the requirements of this Section 9 would result in irreparable
injury to Franchisor for which no adequate remedy at law may be available; and
(3) therefore, Franchisor shall be entitled, in addition to any other remedies
which it may have hereunder, at law, or in equity, to obtain specific
performance of or an injunction against the violation of the requirements of
this Section 9, without the necessity of showing actual or threatened damage and
without being required to furnish a bond or other security. If Franchisor
prevails, Developer and Developer's Principals agree to pay all costs and
expenses (including reasonable attorneys' fees) incurred by Franchisor in
connection with the enforcement of this Section 9, including enforcement of the
agreements referred to in Subsection 9.G below.
G. Developer shall, prior to arranging any training or disclosing
any confidential information, require its Representative, Regional Manager, if
applicable, and such other supervisory or managerial employees of Developer as
Franchisor shall designate to execute covenants similar to those set forth in
this Section 9 and in Section 6 (including covenants applicable upon the
termination of a person's relationship with Developer). Every covenant required
shall be in a form satisfactory to Franchisor, including, without limitation,
specific identification of Franchisor as a third party beneficiary of such
covenants with the independent right of enforcement. Such covenants shall be in
a form substantially similar to the Confidentiality Agreement and Covenant Not
to Compete attached hereto as Exhibit D. Developer shall be responsible for
compliance by its employees with such covenants.
10. NOTICES AND PAYMENTS
--------------------
A. All notices required to be given hereunder shall be in writing
and shall be sent by personal delivery or by certified or registered mail,
return receipt requested to the respective parties.
If directed to Franchisor, the notice shall be addressed to TGI
Friday's Inc., attention General Counsel, 7540 LBJ Freeway Dallas, Texas 75251.
If directed to Developer or Developer's Principals, the notice
shall be addressed to Developer, at the address shown on the first page hereof.
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Any notices sent by certified or registered mail shall be deemed
given at the time of mailing. Any change in the foregoing addresses shall be
effected by giving fifteen (15) days written notice of such change to the other
party.
Unless otherwise specified, all payments required to be made by
Developer to Franchisor under this Agreement are due and payable immediately
upon demand and/or receipt of any billing therefore and shall be sent by
personal delivery or by mail, postage prepaid, and directed to Franchisor as
shown above.
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11. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Developer
is an independent contractor, and that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, employer, joint employer, enterprise or servant of
the other for any purpose whatsoever.
B. Developer shall hold itself out to the public to be an
independent contractor operating pursuant to this Agreement. Developer agrees to
take such actions as shall be necessary to that end.
C. Developer understands and agrees that nothing in this
Agreement authorizes Developer to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name; and that Franchisor shall in no event assume liability for
or be deemed liable hereunder for any such action; nor shall Franchisor be
deemed liable by reason of any act or omission of Developer in the conduct of
its business pursuant to this Agreement, or for any claim or judgment arising
therefrom
D. (1) Developer and each of Developer's Principals will, at all
times, indemnify and hold harmless to the fullest extent permitted by law
Franchisor, its corporate affiliates, successors and assigns and the respective
directors, officers, employees, agents and representatives of each (Franchisor
and all others hereinafter collectively "Indemnitees") from all "losses and
expenses" (as defined below) incurred in connection with any action, suit,
proceeding, claim, demand, investigation or inquiry (formal or informal), or any
settlement thereof (whether or not a formal proceeding or action has been
instituted) which arises out of or is based upon any of the following, provided,
however, such indemnity shall not extend to any liability, claim, demand,
damages or action to the extent that the liability is determined to have been
caused by Franchisor or by a product which Developer is required to purchase
from Franchisor and to the extent that the product so purchased has not been
adulterated or modified by Developer and has been used in the manner prescribed
by Franchisor, if any:
(a) The infringement, alleged infringement,
or any other violation or alleged violation by Developer or any of Developer's
Principals of any patent, mark or copyright or other proprietary right owned or
controlled by third parties.
(b) The violation, breach or asserted
violation or breach by Developer or any of Developer's Principals of any
contract, federal, state or local law, regulation, ruling, standard or directive
or any industry standard.
(c) Libel, slander or any other form of
defamation of Developer or the System, by Developer or any of Developer's
Principals.
(d) The violation or breach by Developer or
any of Developer's
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Principals of any warranty, representation, agreement or obligation in this
Agreement.
(e) Acts, errors or omissions of Developer or
any of its agents, servants, employees, contractors, partners, affiliates or
representatives.
(2) Developer and each of Developer's Principals
agrees to give Franchisor notice of any such action, suit, proceeding, claim,
demand, inquiry or investigation. At the expense and risk of Developer and each
of Developer's Principals, Franchisor may elect to assume (but under no
circumstance is obligated to undertake), the defense and/or settlement of any
such action, suit, proceeding, claims, demand, inquiry or investigation. Such an
undertaking by Franchisor shall, in no manner or form, diminish the obligation
of Developer and each of Developer's Principals to indemnify Franchisor and to
hold it harmless.
(3) In order to protect persons or property, or
its reputation or goodwill, or the reputation or goodwill of others, Franchisor
may, at any time and without notice, as it, in its judgment deems appropriate
consent or agree to settlements or take such other remedial or corrective action
as it deems expedient with respect to the action, suit, proceeding, claim,
demand, inquiry or investigation if, in Franchisor's sole judgment, there are
reasonable grounds to believe that:
(a) any of the acts or circumstances
enumerated in Subsection 11.D(1) above have occurred; or
(b) any act, error, or omission of Developer
or any of Developer's Principals may result directly or indirectly in damage,
injury or harm to any person or any property.
(a) All losses and expenses incurred under
this Section shall be chargeable to and paid by Developer or any of Developer's
Principals pursuant to its obligations of indemnity under this Section,
regardless of any actions, activity or defense undertaken by Franchisor or the
subsequent success or failure of such actions, activity or defense.
(b) As used in this Section, the phrase
"losses and expenses" shall include, without limitation, all losses,
compensatory, exemplary or punitive damages, fines, charges, costs, expenses,
lost profits, attorneys' fees, court costs, settlement amounts, judgments,
compensation for damages to the Franchisor's reputation and goodwill, costs of
or resulting from delays, financing, costs of advertising material and media
time/space, and costs of changing, substituting or replacing the same, and any
and all expenses of recall, refunds, compensation, public notices and other such
amounts incurred in connection with the matters described.
(5) Indemnitees do not assume any liability
whatsoever for acts, errors, or omissions of those with whom Developer or any of
Developer's Principals may contract, regardless of the purpose. Developer and
each of Developer's Principals shall hold harmless and indemnify Indemnitees for
all losses and expenses which may arise out of any acts, errors or omissions of
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these third parties.
(6) Under no circumstances shall Indemnitees be
required or obligated to seek recovery from third parties or otherwise mitigate
their losses in order to maintain a claim against Developer or any of
Developer's Principals. Developer and each of Developer's Principals agrees that
the failure to pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable by Indemnitees from Developer or any of Developer's
Principals.
(7) Notwithstanding anything in this Section 11 to
the contrary, the obligation to indemnify shall not extend to (i) losses
resulting from a breach of this Agreement by Franchisor, or the willful conduct
or negligent act or omission of Franchisor; or (ii) to the extent such loss is
covered by insurance benefiting Franchisor.
12. APPROVALS, WAIVERS AND REMEDIES
-------------------------------
A. Whenever this Agreement requires the approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor for such
approval or consent.
B. Franchisor makes no warranties or guarantees upon which
Developer may rely and assumes no liability or obligation to Developer or any
third party to which it would not otherwise be subject, by providing any waiver,
approval, advice, consent, or services to Developer in connection with this
Agreement, or by reason of any neglect, delay or denial of any request therefor.
C. No failure of Franchisor to exercise any power reserved to it
by this Agreement, or to insist upon strict compliance by Developer or
Developer's Principals with any obligation or condition hereunder, and no custom
or practice of the parties at variance with the terms hereof, shall constitute a
waiver or estoppel of Franchisor's right to demand exact compliance with any of
the terms herein and Developer and each of Developer's Principals warrants and
undertakes that it shall not rely on such failure, custom or practice. Waiver by
Franchisor of any particular default by Developer or any of Developer's
Principals shall not affect or impair Franchisor's rights with respect to any
subsequent default of the same, similar or different nature, nor shall delay,
forbearance, or omission of Franchisor to exercise any power or right arising
out of any breach or default by its other developers or by Developer or any of
Developer's Principals of any of the terms, provisions, or covenants hereof,
affect or impair Franchisor's right to exercise the same, nor shall such
constitute a waiver by Franchisor of any right hereunder, or the right to
declare any subsequent breach or default and to terminate this Agreement prior
to the expiration of its term. Subsequent acceptance by Franchisor of any
payments due to it hereunder shall not be deemed to be a waiver by Franchisor of
any preceding breach by Developer of any terms, covenants or conditions of this
Agreement. The provisions of this Subsection 12.C. shall apply mutatis mutandis.
D. All rights and remedies of the parties hereto shall be
cumulative and not alternative, in addition to and not exclusive of any other
rights or remedies which are provided for herein or which may be available at
law or in equity in case of any breach, failure or default or threatened breach,
failure or default of any term, provision or condition of this Agreement. The
rights and
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remedies of the parties hereto shall be continuing and shall not be exhausted by
any one or more uses thereof, and may be exercised at any time or from time to
time as often as may be expedient; and any option or election to enforce any
such right or remedy may be exercised or taken at any time and from time to
time. The expiration of earlier termination of this Agreement shall not
discharge or release Franchisor or Developer from any liability or obligation
then accrued, or any liability or obligation continuing beyond, or arising out
of, the expiration or earlier termination of this Agreement.
E. Nothing herein contained shall bar either party's right to
obtain injunctive relief against threatened conduct that will cause it loss or
damages, under the usual equity rules, including the applicable rules for
obtaining restraining orders and preliminary injunctions.
13. SEVERABILITY AND CONSTRUCTION
-----------------------------
A. The term "Developer's Principals" as used in this Agreement
shall mean Main Street and Main Incorporated, a Delaware corporation.
B. Except as expressly provided to the contrary herein, each
portion, section, part, term and/or provision of this Agreement shall be
considered severable; and if, for any reason, any portion, section, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation by a court or agency
having valid jurisdiction, such shall not impair the operation of or have any
other affect upon such other portions, sections, parts, terms and/or provisions
of this Agreement as may remain intelligible, and the latter will continue to be
given full force and effect and bind the parties hereto; and said invalid
portions, sections, parts, terms and/or provisions shall be deemed not to be a
part of this Agreement.
C. Developer and Developer's Principals expressly agree to be
bound by any promise or covenant imposing the maximum duty permitted by law
which is subsumed within the terms of any provision hereof, as though it were
separately articulated in and made a part of this Agreement, that may result
from striking from any of the provisions hereof any portion or portions which a
court may hold to be unreasonable and unenforceable in a final decision to which
Franchisor is a party, or from reducing the scope of any promise or covenant to
the extent required to comply with such a court order or to the extent which
Franchisor in its sole discretion may otherwise determine.
D. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
E. All references herein to the masculine, neuter, or singular
shall be construed to include the masculine, feminine, neuter, or plural, where
applicable; and all acknowledgments, promises, covenants, agreements and
obligations herein made or undertaken by Developer shall be deemed jointly and
severally undertaken by all those executing this Agreement on behalf of
Developer.
F. This Agreement may be executed in several parts, and each copy
so executed shall
"Midwest"
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be deemed an original.
G. Except as expressly provided to the contrary herein, nothing
in this Agreement is intended, nor shall be deemed, to confer upon any person or
entity other than Developer, Franchisor, Franchisor's officers, directors, and
employees, and such of Developer's and Franchisor's respective successors and
assigns as may be contemplated (and, as to Developer, permitted) by Section 8
hereof, any rights or remedies under or by reason of this Agreement.
H. This Agreement will become effective only upon execution
hereof by the President or a vice president of Franchisor.
14. ENTIRE AGREEMENT
----------------
This Agreement, the documents referred to herein, and the
Exhibits hereto constitute the entire, full and complete agreement between
Franchisor and Developer concerning the subject matter hereof and shall
supersede all prior agreements, no other representations having induced
Developer to execute this Agreement. THERE ARE NO WARRANTIES, EXPRESS OR
IMPLIED, OF FAIR DEALING OR OTHERWISE, BETWEEN THE PARTIES OTHER THAN THOSE
EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT THOSE PERMITTED TO BE MADE
UNILATERALLY BY FRANCHISOR HEREUNDER, NO AMENDMENT, CHANGE OR VARIANCE FROM THIS
AGREEMENT SHALL BE BINDING ON EITHER PARTY UNLESS MUTUALLY AGREED TO BY THE
PARTIES AND EXECUTED IN WRITING.
15. APPLICABLE LAW
--------------
A. DEVELOPER AND DEVELOPER'S PRINCIPALS ACKNOWLEDGE THAT
FRANCHISOR MAY GRANT NUMEROUS DEVELOPMENT RIGHTS THROUGHOUT THE UNITED STATES ON
TERMS AND CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT
IS OF MUTUAL BENEFIT TO DEVELOPER AND DEVELOPER'S PRINCIPALS AND TO FRANCHISOR
THAT THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES
AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF TEXAS DOES NOT CONFLICT
WITH LOCAL FRANCHISE INVESTMENT STATUTES, RULES AND REGULATIONS, TEXAS LAW SHALL
APPLY TO THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN
ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO. NOTWITHSTANDING THE ABOVE, THE
PARTIES RECOGNIZE THAT THE STATE IN WHICH A POST-TERMINATION OR POST-EXPIRATION
COVENANT AGAINST COMPETITION WILL BE ENFORCED HAS THE SIGNIFICANT PUBLIC POLICY
INTEREST: AND, THEREFORE, WITH RESPECT TO ANY ACTION REGARDING SUCH COVENANTS
CONTAINED IN THIS AGREEMENT, THE LAW OF THE STATE IN WHICH THE COVENANT WOULD BE
ENFORCED SHALL APPLY.
"Midwest"
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B. THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH
CANNOT BE AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, SHALL BE
RESOLVED BY A PROCEEDING IN A COURT IN DALLAS COUNTY, TEXAS, AND DEVELOPER AND
DEVELOPER'S PRINCIPALS EACH IRREVOCABLY ACCEPT THE JURISDICTION OF THE COURTS OF
THE STATE OF TEXAS AND THE FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR
SUCH CLAIMS, CONTROVERSIES OR DISPUTES; PROVIDED, HOWEVER, WITH RESPECT TO ANY
ACTION WHICH INCLUDES INJUNCTIVE RELIEF, FRANCHISOR MAY BRING SUCH ACTION IN ANY
STATE WHICH HAS JURISDICTION.
C. The parties agree that service of process in any proceeding
arising out of or relating to this Agreement or the performance thereof may be
made as to Developer and Developer's Principals by serving a person of suitable
age and discretion (such as the person in charge of the office) at the address
of Developer specified in this Agreement and as to Franchisor, by serving the
President or a vice president of Franchisor at the address of Franchisor or by
serving Franchisor's registered agent.
"Midwest"
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16. ACKNOWLEDGMENTS
---------------
A. Developer acknowledges that it has conducted an independent
investigation of the business contemplated by this Agreement, and recognizes
that it involves business risks and that the success of the venture is largely
dependent upon the business abilities of Developer. FRANCHISOR EXPRESSLY
DISCLAIMS THE MAKING OF, AND DEVELOPER ACKNOWLEDGES THAT IT HAS NOT RECEIVED OR
RELIED UPON, ANY WARRANTY OR GUARANTY EXPRESS OR IMPLIED, AS TO THE POTENTIAL
VOLUME, PROFITS, OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS
AGREEMENT.
B. Developer acknowledges that Franchisor has made no
representations about the development rights granted herein that are contrary to
the terms of this Agreement or the documents referred to herein and Exhibits
attached hereto, and further represents to Franchisor, as an inducement to its
entry into this Agreement, that Developer has made no misrepresentations in
obtaining the development rights granted herein.
C. Developer acknowledges that it has received, read and
understood this Agreement, the documents referred to herein and the Exhibits
attached hereto and that Franchisor has accorded Developer ample time and
opportunity to consult with advisors of Developer's own choosing about the
potential benefits and risks of entering into this Agreement.
D. Developer acknowledges that it received a complete copy of
this Agreement, the documents referred to herein and the Exhibits attached
hereto, at least five (5) business days prior to the date on which this
Agreement was executed. Developer further acknowledges that it has received the
disclosure document required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" at least ten (10) business days
prior to the date on which this Agreement was executed.
17. RESTATED AGREEMENT
------------------
This Development Agreement amends and restates that certain
Development Agreement dated June 26, 1989, as Amended and Restated April 17,
1995
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IN WITNESS WHEREOF, the parties hereto have duly executed,
sealed, and delivered this Agreement on the day and year first above written.
ATTEST: TGI FRIDAY'S INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MAIN ST. MIDWEST, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Main Street and Main Incorporated acknowledges and agrees as
follows:
(1) it has read the terms and conditions of this Agreement;
(2) it is a "Developer's Principals" as described in Subsection
13.A of this Agreement; and
(3) it is bound as a Developer's Principal as set forth in this
Agreement and is obligated to perform thereunder.
Developer's Principal
MAIN STREET AND MAIN INCORPORATED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
"Midwest"
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EXHIBIT A
---------
THE TERRITORY
-------------
(1) The following counties in the State of Kansas:
Anderson Johnson
Atchison Leavenworth
Doniphan Linn
Douglas Miami
Franklin Wyandotte
(2) The following counties in the State of Nebraska:
Burt Otoe
Butler Pawnee
Cass Richardson
Colfax Sarpy
Cuming Saunders
Dodge Seward
Douglas Washington
Johnson
Nemaha
(3) The following counties in the State of Missouri:
Andrew Grundy
Atchison Henry
Bates Jackson
Caldwell Johnson
Carroll Lafayette
Cass Linn
Clay Livingston
Clinton Pettis
Daviess Platte
DeKalb Ray
Gentry Saline
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this "Agreement") made as
of the 17th day of March 1998 by and between RJR HOLDINGS, INC., a Delaware
corporation ("Seller"), and MAIN ST. CALIFORNIA, INC., an Arizona corporation
("Buyer").
Recitals:
A. Seller conducts the business of ownership and operation ("Seller's
Business") of seven existing and open T.G.I. Friday's restaurants located in
California and more particularly identified hereinbelow ("Restaurants"), each of
which is covered by a franchise agreement (the "Franchise Agreements") with TGI
Friday's Inc. ("TGIF"). Each of the Restaurants is operated pursuant to a
specified system of standards, specifications and operating procedures mandated
by TGIF (the "T.G.I. Friday's System").
B. The parties hereto desire to effect the purchase by Buyer of the assets
hereinafter described of Seller related to the ownership and operation of the
Restaurants.
C. Seller and Buyer heretofore entered into that certain Asset Purchase
Agreement dated December 23, 1997 covering the sale of assets of Seller to Buyer
and that certain First Amendment to Asset Purchase Agreement and Interim
Management Agreement and Security Agreement dated December 29, 1997 which
amended said Asset Purchase Agreement (said Asset Purchase Agreement, as
heretofore amended, is hereinafter sometimes referred to as the "Prior
Agreement").
D. Seller and Buyer heretofore entered into an Interim Management
Agreement dated December 23, 1997 (the "Management Agreement") providing for
management of the operations of the Restaurants by Buyer pending the Closing of
the Prior Agreement. Buyer has managed of the operations of the Restaurants
pursuant to the Management Agreement since December 23, 1997 (the "Commencement
Date").
E. Seller and Buyer heretofore entered into a Security Agreement dated
December 23, 1997 (the "Security Agreement") pursuant to which Seller granted a
security interest in assets of Seller to Buyer to secure payment and performance
of obligations of Seller under the Prior Agreement, the Management Agreement,
and the Security Agreement.
F. On December 29, 1997, Buyer loaned to Seller the sum of $195,427.47 by
wire transfer of that sum (the "First Loan") to an account at Wells Fargo Bank
in the name of Continental Consulting Corp. to cover Seller's payroll and
related taxes through December 22, 1997. Said sum has been expended by Seller
for that purpose.
G. Since December 29, 1997 to the date hereof, Buyer has loaned additional
sums to
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Seller by paying various obligations of Seller (collectively, the "Second
Loan").
H. Seller will require an additional loan or loans from Buyer to pay
various obligations of Seller from the date hereof to the Closing Date
(collectively, the "Future Loans"). For purposes hereof, interest paid by Buyer
to, or accrued in favor of, Franchise Mortgage Acceptance Company or TGIF for
the period March 3, 1998 through the first to occur of April 29, 1998 or the
Closing Date shall constitute Future Loans.
I. Immediately following the execution and delivery of this Agreement,
Seller intends to make a general assignment for the benefit of creditors (the
"Assignment") to Credit Managers Association of California (the "Assignee"). The
date on which the Assignment is made is referred to as the "Assignment Date."
J. The parties hereto now desire to amend and restate the Prior Agreement
in its entirety as set forth herein and to amend and supplement the Security
Agreement as set forth herein. Capitalized terms herein which are not otherwise
defined herein have the meanings given to them in the Management Agreement or
the Security Agreement.
Agreements:
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter set forth, the parties hereto agree that the Prior
Agreement is hereby amended and restated in its entirety as follows and the
Security Agreement is amended and supplemented as hereinafter provided:
Section 1. Purchased Assets.
1.1 Assets and Properties to be Purchased. Seller hereby agrees, subject
to all the terms and conditions of this Agreement, to make a general assignment
for the benefit of creditors of Seller with the understanding that the assignee
of such assets (the "Assignee") will sell them to Buyer on the terms and
conditions set forth herein if there are no other qualified buyers pursuant to
Section 17.6 hereof, and Buyer agrees to buy all of the following assets and
properties (the "Purchased Assets"), on the terms and conditions set forth
herein, free and clear of all liabilities, obligations, liens and encumbrances,
except as set forth in Section 2.1 hereof, at the Closing provided for in
Section 11 hereof (the "Closing"):
(a) Leased Real Estate. All right, title and interest of Seller in
and to the real property leases described on Schedule 1.1(a) (the "Leases" or
the "Leased Properties"). The Leased Properties shall be conveyed free and clear
of any liabilities of Seller which encumber the Leased Properties, except as set
forth in Section 2.1 hereof.
(b) Improvements. All of the right, title and interest of Seller
in and to the buildings and all other improvements, fixtures and structures
located on the Leased Properties, including those described in Schedule 1.1(b)
(collectively, the "Improvements").
(c) Personal Property. All of the right, title and interest of
Seller in and to any
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and all personal property utilized in connection with the businesses conducted
in the Restaurants and at Seller's corporate headquarters (including any such
assets held under capital leases), including, but not limited to, the (i)
mechanical systems, fixtures and equipment comprising a part of or attached to
or located in the Restaurants; (ii) pylons and other signs, silverware,
glassware, and other utensils and dishes, tables, chandeliers, lamps, stained or
leaded glass, marble tops, fans, televisions, clocks, carpets, drapes, art work,
memorabilia, paintings, posters, graphics and other furnishings and comprising a
part of or attached to or located in the Restaurants, including without
limitation, any furnishings located in business offices or party rooms; (iii)
maintenance equipment and tools owned by Seller and used in connection with the
Restaurants; (iv) stoves, ovens, refrigerators, walk-in cold storage boxes and
other kitchen equipment and other machinery, equipment, fixtures, keys, and; (v)
the inventory and supplies in such quantity and quality as is customarily
maintained on the Leased Properties by Seller and meeting minimum requirements
of TGIF under each Franchise Agreement, including food, beverages, spirits,
dishes, china, silver, glassware, paper goods, promotional items, uniforms,
linens and all other inventory and supplies (the "Inventory"), and office
equipment used in Restaurants and Seller's corporate headquarters and which
personal property is presently located in, on or used in connection with the
Restaurants, or is hereafter acquired in the ordinary course of business, and
replacements of Inventory used in the ordinary course of business (collectively,
the "Personal Property"), including, but not limited to, the Personal Property
described on Schedule 1.1(c).
(d) Contracts. All rights and interests of Seller in all
agreements, contracts and operating leases relating to the Restaurants set forth
in Schedule 1.1(d) (collectively, the "Contracts"); provided, however, that
Buyer shall not be obligated to assume or perform any obligation or liability of
Seller pursuant to any contract or agreement except as and to the extent
specifically provided in accordance with Section 2.1 below.
(e) Ancillary Assets. All right, title and interest in and to all
permits, licenses (including liquor licenses), certificates of occupancy,
governmental approvals, site plans, surveys, plans and specifications, marketing
materials and floor plans which relate to the Restaurants, the Leased
Properties, the Improvements or the Personal Property to the extent transferable
(the "Ancillary Assets").
(f) Computer Software and Hardware. All of Seller's right, title
and interest in and to all computer software and hardware owned, leased under
operating leases or licensed by or to Seller, which is located at or exclusively
used for the Restaurants that is not otherwise prohibited from transfer by
contract between Seller and the owner thereof, including those items described
in Schedule 1.1(f).
(g) Telephone Numbers. All of Seller's right, title and interest
in and to all telephone and facsimile numbers used by Seller for the
Restaurants, including those described in Schedule 1.1(g).
(h) Documents. All of the right, title and interest of Seller in
and to all information and documentation of Seller regarding the Restaurants,
including, but not limited to, surveys, title reports, tax assessment records,
engineering and building plans and
3
<PAGE>
specifications and reports (such as environmental reports), as-built drawings,
development plans, plats, site plans, zoning materials, leases, guarantees,
contracts, combinations to all locks on or in the Restaurants and all books,
records and files relating to the ownership, management and/or operation
(including those relating to financial matters and employees) and correspondence
pertaining to that portion of Seller's Business relating solely to the operation
of the Restaurants (other than Seller's corporate minute books and stock record
books) (collectively, the "Documents"). Buyer agrees to allow Seller access to
said records at all reasonable hours upon forty-eight hours prior notice by
Seller after the Closing.
(i) Franchise Agreements. All of the right, title and interest of
Seller in and to the Franchise Agreements described in Schedule 1.1(i).
(j) Development Agreement. All of the right, title and interest of
Seller in the Development Agreement described in Schedule 1.1(j).
(k) Trademarks and Licenses. All of the right, title and interest
of Seller in and to the trademarks, service marks, trade names and copyrights to
the extent that the same are used in connection with the Restaurants as now
conducted and all licenses pursuant to which Seller may be entitled to use any
of the foregoing, provided that the Seller shall retain the right to use the
same in connection with its businesses conducted away from the Restaurants.
1.2 Assets and Properties Excluded from Sale. Except as expressly set
forth in Section 1.1 hereof, no assets of Seller shall be sold to Buyer
hereunder but instead shall remain the sole property of Seller. In particular,
Seller shall retain all of its accounts and rebates receivable and use the
proceeds thereof to pay liabilities of Seller.
Section 2. Liabilities Assumed By Buyer.
2.1 Assumed Liabilities. Buyer hereby agrees, subject to all the terms and
conditions of this Agreement, to assume at the Closing the liabilities and
obligations of Seller and the Assignee arising after the date of the Closing
(the "Closing Date") under the Leases, the Contracts, any operating leases or
licenses under which Seller has the right to use computer software and hardware
identified in Schedule 1.1(f), the Franchise Agreements and the Development
Agreement. In addition, Buyer agrees, subject to all the terms and conditions of
this Agreement, to assume the liabilities and obligations of Seller and the
Assignee set forth in Schedule 2.1 (the "Assumed Liabilities") as of the dates
set forth in Schedule 2.1. In connection therewith, Buyer agrees to indemnify
and hold harmless the Assignee and Seller and its shareholders, Joseph F. Khoury
and Ronald I. Brendzel, and their spouses from and against all liabilities,
suits, actions, proceedings, claims, demands, losses, damages, fees, costs,
penalties and expenses (including, but not limited to, reasonable attorney's and
accountant's fees) arising out of liabilities and obligations of Seller and the
Assignee assumed by Buyer pursuant to this Section 2.1.
2.2 Liabilities Not Assumed. Except as specifically provided for in
Section 2.1 above or allocations provided under Section 3.3 of this Agreement,
Buyer assumes no other
4
<PAGE>
obligations or liabilities of Seller, whether known or unknown, matured or
unmatured, liquidated or unliquidated, fixed or contingent or otherwise,
including, without limitation, contracts of Seller not specified in Schedule
1.1(f).
Section 3. Title Insurance, Interim Management Agreement, Allocations, Etc.
3.1 Title Insurance. As soon as reasonably possible after the date of this
Agreement, Seller has provided Buyer preliminary commitments for title insurance
issued by Lawyers Title Insurance Company, with copies of all exceptions set
forth therein, insuring Buyer's interest in the Leases. The cost of such title
insurance will be borne equally by Seller and Buyer. Buyer may notify Seller of
its disapproval of any exception shown in the preliminary commitment (other than
the lien of real estate taxes for the current calendar year not yet due and
payable, those defects or encumbrances identified on Schedule 3.1, rights
reserved in federal patents or state deeds and building or use restrictions
general to the district (the "Permitted Exceptions"). If, within ten (10) days
after the receipt of such notice Seller has not removed or given reasonable
written assurances to Buyer that such disapproved exception(s) will be removed
before the Closing Date, Buyer may, at its option within ten (10) days
thereafter, terminate this Agreement by giving notice of such termination to
Seller. On such termination, all rights and obligations of Seller and Buyer
under this Agreement shall terminate and be of no further force or effect. Buyer
may elect to waive any disapproved exceptions and close on the remaining terms.
3.2 Interim Management Agreement. On and after the Assignment Date to and
including the Closing (or the date of termination of this Agreement as
hereinafter provided), Buyer shall manage the operations of the Restaurants for
the Assignee pursuant to the New Management Agreement referred to in Section
9.11(c) below. The Assignee shall grant to Buyer a security interest in all of
the assets of the assignment estate to secure the payment of any obligation of
the Assignee under the New Management Agreement or this Agreement pursuant to
the New Security Agreement referred to in Section 9.11(c) below. The period
beginning with the Commencement Date and concluding with the Closing or
termination of this Agreement, if earlier, is referred to as the "Interim
Period."
3.3 Allocations. Results of operations of the Restaurants during the
Interim Period shall be for the account of Buyer as provided in the Management
Agreement and the New Management Agreement. The expenses described in Schedule
3.3 hereto will be prorated between Buyer and Seller as of the Commencement
Date. Any fees, transfer taxes, intangible taxes or other such taxes or other
transfer costs (including attorney fees and expenses) associated with the
transfer of the Purchased Assets (including the Ancillary Assets) to Buyer shall
be allocated between Seller and Buyer in the manner provided in Schedule 3.3
hereto. Costs incurred in order to obtain Buyer's financing to complete this
acquisition (such as appraisal fees, lender title insurance, etc.) shall be
solely Buyer's cost. Buyer shall bear sales taxes on the sale of sales taxable
assets covered by this Agreement.
3.4 Security Agreement. Seller and Buyer heretofore entered into the
Security Agreement pursuant to which Seller granted to Buyer a security interest
in all or substantially
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<PAGE>
all of the assets of Seller as collateral for the obligations of Seller under
this Agreement, the Management Agreement, and the Security Agreement. The
Assignee and Buyer will enter into the New Security Agreement provided for in
Section 9.11(c) below upon the Assignment provided for in Section 9.11 below.
The Breakup Fee (provided for and defined in Section 17.6 hereof), First Loan,
Second Loan, and any and all Future Loans (collectively, the "Loans"), and the
obligations of Seller and the Assignee under this Agreement, the Management
Agreement, the New Management Agreement, the Security Agreement and/or the New
Security Agreement, including Secured Party Expenses incurred in enforcing
payment of any such debts and obligations if there is an Event of Default, are
included in the Obligations secured by the Security Agreement and the New
Security Agreement. Seller will pay all Secured Party Expenses if there is an
Event of Default under the Security Agreement. The Loans, including Secured
Party Expenses if there is an Event of Default, will be paid in full to Buyer by
Seller at the Closing or, if earlier, on termination of the New Management
Agreement.
Section 4. Purchase Price.
4.1 Amount of Purchase Price. The purchase price (the "Purchase Price")
for all of the Purchased Assets (including Inventories) shall be the sum of
Eight Million Six Hundred Thousand Six Hundred Ninety-Two Dollars
($8,600,692.00).
4.2 Payment of Purchase Price. At the Closing, Buyer shall pay the entire
Purchase Price in the following manner:
(a) Assumption of Liabilities. A portion of the Purchase Price
equal to the current balance due on the Assumed Liabilities set forth on
Schedule 2.1 hereof as of the dates set forth in Schedule 2.1 which are assumed
by Buyer shall be paid by Buyer's assumption of those Assumed Liabilities; and
(b) Cancellation of Loans. A portion of the Purchase Price equal
to the Loans owed to Buyer at the Closing shall be paid by Buyer's cancellation
of the Loans at the Closing; and
(c) Cash Payment. The balance of the Purchase Price shall be paid
at the Closing by wire transfer to the Assignee.
4.3 Allocation of Purchase Price. Buyer and Seller agree that the total
Purchase Price shall be allocated to the Purchased Assets in the manner set
forth in Schedule 4.3 hereto. Buyer and Seller agree that the allocation set
forth in Schedule 4.3 has been made in accordance with the requirements of
Section 1060 of the Internal Revenue Code of 1986, as amended, and any
applicable Treasury Regulations promulgated thereunder. Buyer and Seller, each
at its own expense, agree to file appropriate forms with the Internal Revenue
Service setting forth the information required to be furnished to the Internal
Revenue Service by Section 1060 and the applicable Treasury Regulations
thereunder.
Section 5. Seller's Representations and Warranties.
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To induce Buyer to enter into this Agreement and for the benefit of Buyer,
Seller represents and warrants as follows:
5.1 Corporate Status and Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. Immediately prior to the Assignment Date, Seller had the
requisite corporate power and authority to own, operate and lease its assets and
properties and to carry on its business as now being conducted and is duly
qualified to do business in all jurisdictions in which the nature of its
business requires such qualification. The execution and delivery of this
Agreement, the Management Agreement and the Security Agreement and the making of
the Assignment have been validly authorized by all necessary corporate action of
Seller, including, but not limited to, shareholder approval, and each of this
Agreement, the Management Agreement and the Security Agreement constitutes the
valid, legal and binding obligation of Seller enforceable in accordance with its
terms.
5.2 Financial Statements. The financial statements ("Financial
Statements") of Seller regarding the Restaurants for 1995 and 1996 (copies of
which have been delivered to Buyer) were prepared in accordance with the books
and records of Seller and requirements established by TGIF applied on a
consistent basis throughout the periods involved and with past periods, and
correctly, fairly and accurately present the results of operations of Seller
regarding each of the Restaurants for the periods indicated. Seller has provided
Buyer with copies of Store Income Estimates for the first eleven months of
calendar year 1997, which estimates substantially reflect the items set forth
thereon.
5.3 Books and Records. The books of account and other corporate records of
Seller with respect to the Restaurants are complete and accurate in all material
respects, have been maintained in accordance with customary business practices
and the matters contained therein are appropriately reflected in the Financial
Statements.
5.4 Real Estate. Seller has set forth in Schedule 5.4 a listing of the
location, basis of occupancy, square footage and seating capacity of each of the
Restaurants. Seller has delivered to Buyer a true and accurate copy of each
lease and other document pursuant to which Seller leases or otherwise occupies
each of the Restaurants (collectively, "Real Estate Documents"). With respect to
the Restaurants, Seller does not have any interest as owner, lessor, lessee or
otherwise in any real estate except as set forth in Schedule 5.4. Except as set
forth in Schedule 5.4, Seller has not received notice from any landlord of any
Leased Property that Seller is in default of any terms, conditions or provisions
of any Lease. The Leases are in good standing and, except for the making of the
Assignment, no condition exists which, with the passage of time, giving of
notice, or both, would lead to a default under any of the Leases. There is no
existing, proposed or, to Seller's knowledge, contemplated plan to widen, modify
or realign any street or highway adjoining any Leased Property, or any existing,
proposed or contemplated eminent domain proceedings, or private purchase in lieu
thereof, relating to any Leased Property or any portion thereof.
5.5 Subsidiaries and Joint Ventures. Seller's Business with respect to the
Restaurants has not been conducted through any subsidiary of Seller or any other
affiliate.
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5.6 Ownership of Assets and Properties. Seller has good and marketable
title to all of the Purchased Assets and Buyer will acquire from the Assignee
good and marketable title to all of the Purchased Assets at the Closing. All of
such assets and properties are owned and will be conveyed to Buyer at the
Closing free and clear of all liens, mortgages, pledges, security interests,
restrictions, prior assignments, encumbrances and claims of every kind and
character, except as disclosed in Schedule 5.6.
5.7 Condition of Assets and Properties. Except as otherwise set forth in
Schedule 5.7, to the knowledge of Seller, as of the Commencement Date, the
buildings, equipment, fixtures, furniture, furnishings, office equipment and all
other tangible personal assets and properties comprising the Improvements and
the Personal Property, are in good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excluded. Buyer
acknowledges and agrees that the Improvements and the Personal Property will be
sold to Buyer pursuant to this Agreement on an "As-Is, Where-Is" basis.
5.8 Taxes. Except as set forth in Schedule 5.8, Seller has filed all tax
returns and reports required to be filed with all appropriate federal, state,
foreign and local taxing authorities with respect to Restaurants and has paid in
full all taxes and assessments (including, but not limited to, income,
withholding, excise, unemployment, Social Security, occupation, transfer,
franchise, property, sales and use taxes, lease taxes, import duties or charges
and all penalties and interest in respect thereof) required to have been paid to
date with respect to Restaurants. To the best of Seller's knowledge, such tax
returns and reports are correct in all material respects. To the best of
Seller's knowledge, each such tax return accurately reflects the proper income
and allowable expenses and deductions of Seller for the periods covered thereby,
and the tax, if any, relating thereto.
5.9 Compliance with Law and Other Regulations. Except as set forth in
Schedule 5.9, to the best of the knowledge of Seller, Seller is in substantial
compliance with all requirements (including those relating to environmental
matters) of federal, state and local law, and all requirements of all
governmental bodies and agencies having jurisdiction over it, the conduct of its
business, the use of its assets and properties and all premises occupied by it.
With respect to the Restaurants, to the best of Seller's knowledge, there is no
environmental contamination, toxic waste or other discharge, spill, construction
component, structural element or condition, other than cleaning solvents and
other substances normally used in the day-to-day operations of businesses such
as the Restaurants, adversely affecting any of the Leased Properties nor has
Seller received any official notice or citation that the Leased Properties in
any way contravene any federal, state or local law or regulation relating to
environmental, health or safety matters, including without limitation any
requirements of the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") nor any OSHA requirements. Without limiting the
foregoing, Seller has properly filed all reports, paid all monies and obtained
all licenses, permits, certificates and authorizations needed or required for
the conduct of its business and the use of its assets and properties and the
premises occupied by it in connection therewith and is in substantial compliance
in all respects with all conditions, restrictions and provisions of all of the
foregoing. Seller has not received any notice from any federal, state or local
authority or any insurance or inspection
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body that any of its assets, properties, facilities, equipment or business
procedures or practices fails to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public authority or
body.
5.10 Labor, Employment Contracts, and Employee Benefit Programs. Except as
set forth in Schedule 5.10, with respect to Restaurants, Seller is not a party
to any collective bargaining agreement, employment agreement or independent
contractor agreement, and Seller has not experienced any labor problems or is a
party to any pending or threatened labor dispute. Seller has complied in all
material respects with all applicable provisions of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), and with all other applicable
federal, state and local laws relating to the employment of labor, including,
but not limited to, the provisions thereof relative to wages, hours, collective
bargaining, working conditions and payment of taxes of any kind, and Seller is
not liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing nor does it have any obligations for any
vacation, sick leave or other compensatory time except as set forth in Schedule
5.10. Schedule 5.10 summarizes all employee benefit programs Seller provides for
employees at Restaurants.
5.11 Litigation. Except as set forth in Schedule 5.11, with respect to
Restaurants, there are no suits, actions, claims, arbitrations, administrative
or other proceedings or governmental investigations pending or, to the best of
Seller's knowledge, threatened against or affecting Seller, its right to conduct
its business or the assets and properties being transferred hereunder in any
court or before or by any federal, state, local or other governmental department
or agency, and neither Seller nor its business nor the assets and properties
being transferred hereunder are subject to or directly affected by any order,
judgment, award, decree or ruling of any court or governmental agency.
5.12 Insurance. There is in effect at present, and there has been in
effect at all times since January 1, 1996 with respect to the Restaurants, (a)
public liability and workers' compensation insurance, (b) fire and extended
coverage insurance (including earthquake coverage) and (c) general liability
insurance, including product liability and liquor liability insurance. Seller
has not received notice from or on behalf of any issuer of any such policy of
its intention to cancel or refuse to renew any policy issued by it or to
increase the cost of premiums thereunder.
5.13 Agreement Not in Breach of Other Instruments Affecting Seller. The
contracts, agreements and leases set forth in Schedule 5.13 require the consent
or authorization of third parties for the transfer, assignment and/or sublease
of said instruments. The requirement of approvals or authorizations for the
transfer, assignment and/or sublease of such contracts, agreements and leases
shall be a condition precedent to Closing. Except for those contracts,
agreements and leases set forth on Schedule 5.13, and except as the same may be
affected by the Assignment, the execution and delivery of this Agreement, the
Management Agreement and the Security Agreement and the consummation of the
transactions contemplated hereby and thereby, and the fulfillment of the terms
hereof and thereof, will not violate any provision of, or result in the breach
of any term or provision of, or result in the termination or modification of, or
constitute a default under, or conflict with, or cause the
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acceleration of any obligation under, or permit any party to modify or
terminate, any loan agreement, note, debenture, indenture, mortgage, deed of
trust, lease, contract, agreement or other obligation of any description
relating to the Restaurants (including any Lease, Contract, Document, Real
Estate Document, Franchise Agreement or Development Agreement) to which Seller
is a party or by which Seller is bound, or any judgment, decree, order or award
of any court, governmental body or arbitrator or any applicable law, rule or
regulation.
5.14 Actions in the Ordinary Course of Business. Except as set forth in
Schedule 5.14 since September 30, 1997, Seller has not with respect to the
Restaurants:
(a) taken any action except in the ordinary and usual course of
business;
(b) borrowed any money or become contingently liable for any
obligation or liability of another;
(c) incurred any debt, liability or obligation of any nature to
any party except for obligations arising from the purchase of goods or the
rendition of services in the ordinary course of business;
(d) failed to use its best efforts to preserve its business
organization intact, to keep available the services of its employees and
independent contractors, or to preserve its relationships with its customers,
suppliers and others with which it deals; or
(e) increased or committed to increase the salary, fee or
compensation of any employee, independent contractor, agent, firm or person
performing services for any of the Restaurants.
5.15 No Material Adverse Change. Except as set forth in (i) Schedule 5.15,
(ii) the Management Agreement, and (iii) the making of the Assignment, since
September 30, 1997, there has not been and there is not threatened (a) any
material adverse change in the results of operations or business of the
Restaurants, (b) any material physical loss or damage to any of assets or
properties or to the premises occupied by the Restaurants (whether or not such
damage or loss is covered by insurance), or (c) any other event or condition of
any character which has materially and adversely affected, or may be reasonably
expected to materially and adversely affect, the assets, properties, business,
prospects or affairs of the Restaurants.
5.16 Compliance with Requirements of TGIF. Seller has furnished to Buyer
true and accurate copies of each Franchise Agreement relating to the Restaurants
and the Development Agreement. Except as set forth in Schedule 5.16 , Seller has
not received notice from TGIF that Seller is in default of the terms, conditions
or provisions of any Franchise Agreement or the Development Agreement. Except as
set forth in Schedule 5.16, each of the Franchise Agreements and the Development
Agreement is valid, binding and enforceable in accordance with its terms, each
Franchise Agreement is in good standing and no condition exists which (with the
passage of time, the giving of notice, or both) would lead to a default under
any such agreement, and Seller has performed all of its obligations under each
Franchise Agreement and the Development Agreement in accordance with its terms;
and is
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operating each of the Restaurants substantially in accordance with the T.G.I.
Friday's System. With respect to the Restaurants, except as set forth in
Schedule 5.16, Seller has no agreements or understandings (written or oral)
with, or obligations to, TGIF that will survive the Closing and be binding on
Buyer other than as set forth in the Franchise Agreements and the Development
Agreement.
5.17 All Necessary Assets Transferred. At the Closing, the Assignee shall
have transferred to Buyer the Purchased Assets, which shall constitute all
assets necessary for Buyer to operate the Restaurants in substantially the same
manner as operated by Seller on the Commencement Date, except for necessary cash
accounts and prepaid items.
5.18 Payments to Affiliates. Except as otherwise described in Schedule
5.18 hereto, since December 1, 1997, no money has been paid and no property has
been transferred by or in behalf of Seller to or for the benefit of Joseph F.
Khoury, Ronald I. Brendzel, any other shareholder of Seller, any member of the
family of any of such persons or shareholders, or any affiliate of any of such
persons or shareholders, including, without limitation, Wesco Restaurant Group
of Hawaii, Inc. and JKF Restaurants, Inc. or any Insider (as such term is
defined in Section 1800 of the California Civil Code) of any of the foregoing
(collectively, the "Affiliates").
5.19 Statements and Other Documents Not Misleading. Neither this
Agreement, including all schedules and exhibits hereto, nor any other financial
statement, document or other instrument furnished or delivered by Seller to
Buyer in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact or omits to state a material fact required
to be stated in order to make such statement, document or other instrument not
misleading. In addition to the foregoing, Seller has not failed to inform Buyer
as to any material fact relating to the business, assets, properties, prospects
or affairs relating to the Restaurants.
Section 6. Buyer's Representations and Warranties.
To induce Seller to enter into this Agreement, Buyer represent and
warrants as follows:
6.1 Entity Status and Authority. Buyer is duly organized, validly existing
and in good standing under the laws of its state of organization. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been validly authorized by all appropriate company
action.
6.2 Agreement Not in Breach of Other Instruments. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, and the fulfillment of the terms hereof, will not violate any provision
of the articles of incorporation or by-laws of Buyer nor will they result in the
breach of any term or provision of, or constitute a default under, or conflict
with, or cause the acceleration of any obligation under, any loan agreement,
note, debenture, indenture, mortgage, deed of trust, lease, contract, agreement
or other obligation of any description to which Buyer is a party or by which it
is bound, or any judgment, decree, order or award of any court, governmental
body or
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arbitrator, or any applicable law, rule or regulation.
6.3 Intention of Buyer. As of the date hereof, Buyer intends to complete
the purchase of the Purchased Assets contemplated by this Agreement and, except
for the occurrence of a material adverse change affecting the Purchased Assets
or the failure of a material condition to Buyer's obligation to complete such
purchase (other than accuracy of Seller's representations and warranties as of
the Closing Date as set forth in Section 9.11 hereof) between the date hereof
and the Closing Date, Buyer knows of no reason why it will not complete such
purchase.
Section 7. Continuation and Survival of Representations and Warranties.
Except as the same may be affected by the transactions contemplated by
this Agreement, each of the representations and warranties contained in this
Agreement shall be true and correct on and as of the Closing Date. All such
representations and warranties shall survive the Closing and the consummation of
the transactions contemplated by this Agreement for a period of one hundred
twenty days following the Closing Date.
Section 8. Seller's Covenants.
Seller agrees with respect to the Restaurants and Seller's interest
therein that, between the date hereof and the Closing Date, or following the
Closing Date:
8.1 Untruth of Representations and Warranties. Seller shall not take or
suffer or permit any action which would render untrue any of the representations
or warranties of Seller herein contained, nor shall Seller omit to take any
action, the omission of which would render untrue any such representation or
warranty.
8.2 Conduct of Business. The operations of the Restaurants shall be
conducted in the manner provided in the New Management Agreement.
8.3 Preservation of Organization. Seller shall no take any action which
would interfere with the ability of Buyer (a) to preserve intact the present
business organizations of the Restaurants, (b) to keep available the services of
employees, independent contractors and agents of Seller for the Restaurants, (c)
to maintain the present goodwill and favorable relationships of the Restaurants
with landlords, suppliers, customers and all others having business dealings or
relationships with the Restaurants, (including TGIF), and (d) to preserve and
maintain in force all Franchise Agreements, Development Agreement, licenses,
registrations, franchises, trademarks, copyrights, bonds and other similar
rights of Seller regarding or relating to the Restaurants.
8.4 Maintenance of Insurance. Buyer will maintain in force during the term
of the New Management Agreement insurance as provided in the New Management
Agreement. Buyer will arrange to include the Assignee as an additional insured
under such insurance upon the Assignment referred to in Section 9.11 hereof.
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8.5 Maintenance of Assets and Properties. Except for the Assignment
contemplated by Section 9.11 hereof or as otherwise permitted by Section 17.6
hereof, Seller and the Assignee shall not, without the prior written consent of
Buyer, convey any interest in the Restaurants or subject the Restaurants, or any
portion thereof, to any additional liens, encumbrances or similar matters.
8.6 Employees. Seller, with respect to the Restaurants, shall not increase
the compensation of or benefits for any employee, independent contractor or
agent, hire any employee or engage any independent contractor or agent.
8.7 Licenses and Permits. Seller shall cooperate with Buyer in obtaining
all necessary permits and licenses (and where possible will assign such permits
and licenses to Buyer) (including liquor licenses) and consents necessary to
continue operating the Restaurants after the Closing as operated on the date of
this Agreement.
8.8 Delivery of Disclosure Schedules. To the extent that the Schedules
contemplated by Section 5 of this Agreement (the "Disclosure Schedules") are not
delivered to Buyer prior to the execution of this Agreement, within ten days
following the date of this Agreement, Seller shall deliver to Buyer a complete
set of such Disclosure Schedules in form and substance reasonably acceptable to
Buyer.
8.9 Effect of Management Agreement and Assignment. In the event of any
conflict between any of the provisions of this Section 8 and any of the
provisions of the New Management Agreement, the applicable provisions of the New
Management Agreement shall prevail and control and the conflicting provisions of
this Section 8 shall be disregarded. Seller shall not be deemed to have breached
any of its obligations under this Section 8 as a result of any action or
omission of Buyer in performing or breaching any of its obligations under the
New Management Agreement. Seller shall not be deemed to have breached any of its
obligations under this Section 8 as a result of the Assignment referred to in
Section 9.11 hereof. Section 9. Buyer's Conditions Precedent to Closing.
The obligations of Buyer hereunder and its obligations to consummate the
Closing provided for herein shall be subject to the following conditions
precedent, any one or more of which may be waived by Buyer:
9.1 Compliance With Agreements and Covenants. Seller shall have performed
and complied in all material respects with each of its agreements, covenants and
obligations under this Agreement to be performed on or prior to the Assignment
Date. The Assignee shall have performed and complied in all material respects
with each of its agreements, covenants and obligations under this Agreement to
be performed on or prior to the Closing Date, except those calling for
performance after the Closing Date.
9.2 No Material Adverse Change. There shall have been no material adverse
change after the date of this Agreement in the business, assets, properties or
financial condition of the Restaurants taken as a whole other than material
adverse changes directly resulting from
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actions taken by the Buyer as manager of Restaurants pursuant to the terms of
the Management Agreement without the consent or approval of the Assignee.
9.3 Absence of Litigation or Proceedings. No litigation, governmental
action or other proceedings shall have been threatened or commenced against
Seller with respect to any matter or against any person with respect to the
consummation of the transactions provided for herein which, in the reasonable
judgment of Buyer, would make it impractical to consummate the purchase of the
Purchased Assets on the terms and conditions set forth in this Agreement.
Notwithstanding the foregoing, Buyer promises to use its commercially reasonable
best efforts in cooperation with Seller to complete such purchase despite any
such litigation, governmental action, or proceedings provided that, in Buyer's
reasonable judgment, the costs to Buyer to complete such purchase would not be
materially increased in relation to the Purchase Price as a result of such
litigation, governmental action, or proceedings.
9.4 Approval by Buyer. All actions, proceedings, instruments and documents
required to perform this Agreement or incident thereto, and all other legal
matters (including assurances as to the due organization, existence, good
standing, corporate power and qualification to do business of Seller; the
authorization, power and authority of Seller to execute, deliver and perform
this Agreement; the absence of any violation by Seller of its articles of
incorporation, by-laws or contractual obligations or its violation of any
applicable laws, regulations or orders; and the absence of any litigation
involving Seller with respect to the Restaurants), shall have been approved by
Buyer and its counsel, which approval shall not be unreasonably withheld.
9.5 Real Estate Matters. To the extent required by the Leases, all
landlords shall have consented to the assignment of the Leased Properties to
Buyer or, in the alternative, Buyer shall have negotiated, for execution at the
Closing, new leases for any of the Leased Properties on terms and conditions
satisfactory to Buyer. Buyer shall have received from each of the landlords of
the Leased Properties estoppel certificates or other written assurance in form
and substance reasonably acceptable to Buyer and its Lender and its counsel,
confirming that each Lease is in full force and effect, that no default or
breach exists thereunder, and such other facts pertaining to each Lease as Buyer
may reasonably request. Buyer shall use its commercially reasonable best efforts
in cooperation with Seller to obtain such consents and estoppel certificates.
9.6 Approval by TGIF. TGIF shall have approved the transactions
contemplated hereby including the transfer of the Franchise Agreements and the
Development Agreement to Buyer in a manner reasonably satisfactory to Buyer.
Without limiting the foregoing, Buyer shall have obtained from TGIF, with
Seller's cooperation, satisfactory assurances that the Restaurants are in
compliance in all material respects with the Franchise Agreements and that no
condition exists with respect to the Restaurants which, with the giving of
notice and/or passage of time, or both, would result in the occurrence of a
default under any of the Franchise Agreements or the Development Agreement and
Buyer shall use its best efforts to obtain from TGIF a release of any and all
obligations of Seller under the Franchise Agreements and the Development
Agreement. Buyer shall use its commercially reasonable
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best efforts in cooperation with Seller to obtain such approval and assurance
from Friday's.
9.7 Amendment of Development Agreement. TGIF shall have executed an
amendment to the Development Agreement containing terms reasonably satisfactory
to Buyer. Buyer will use its commercially reasonable best efforts in cooperation
with Seller to obtain such amendment.
9.8 Amendment To FMAC Loan Agreement. Franchise Mortgage Acceptance
Company ("FMAC") shall have executed amendments to its Loan Agreement (and the
related secured Promissory Notes, Deeds of Trust and Security Agreements)
containing terms substantially in accordance with the Memorandum of
Understanding attached as Exhibit D to the Prior Agreement.
9.9 Permanent Liquor Licenses. Buyer shall have been issued permanent
liquor licenses necessary to continue operating each of the Restaurants in the
present manner.
9.10 Accuracy of Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall have been true and
correct as of the Commencement Date and the date of this Agreement.
9.11 Assignment for Benefit of Creditors. The sale of the Purchased Assets
to Buyer hereunder shall be consummated in connection with an assignment for the
benefit of creditors of Seller in compliance with the following procedures (the
"Assignment"):
(a) Assignment to Assignee. Immediately following the execution
and delivery of this Agreement, Seller shall make a general assignment for the
benefit of creditors pursuant to an instrument of assignment in the form of
Exhibit A attached hereto (the "Assignment Instrument") as a result of which all
of the assets of Seller, including the Purchased Assets, shall be assigned to,
and accepted by, the Assignee.
(b) Assumption of Agreement. Upon the acceptance of the
Assignment, the Assignee shall assume the obligations of Seller under this
Agreement by executing the form of Acceptance of Assignee at the foot of this
Agreement; provided, however, that the Assignee shall not assume any obligations
of Seller for any misrepresentation or breach of warranty under Section 5 of
this Agreement.
(c) Execution of New Management Agreement and Security Agreement.
Upon the acceptance of the Assignment, the Assignee and Buyer shall execute and
deliver a new Management Agreement (the "New Management Agreement") and a new
Security Agreement (the "New Security Agreement") in the forms attached hereto
as Exhibits B and C, respectively.
(d) Acceptance and Assumption of Leases and Contracts. Upon the
acceptance of the Assignment, the Assignee shall accept the assignment of
Seller's interests in the Leases, the Franchise Agreements, the Development
Agreement and other Contracts included in the Purchased Assets without assuming
the obligations of Seller thereunder.
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Upon the Closing, the Assignee shall assume and assign to Buyer all of Seller's
obligations and rights under the Leases, the Franchise Agreements, the
Development Agreement and the other Contracts included in the Purchased Assets.
(e) Sale of Purchased Assets by Assignee. The Assignee shall
complete the sale of the Purchased Assets assigned by Seller to the Assignee to
Buyer hereunder on the terms and conditions set forth herein at the Closing
pursuant to bills of sale and other instruments of assignment satisfactory to
Buyer and its counsel and its Lender.
(f) Fees and Expenses of Assignee. The fees and expenses of the
Assignee will be as provided in the Assignment Instrument and will be borne and
paid by Seller or will be paid to the Assignee out of the proceeds of sale of
the Purchased Assets. Buyer will loan Seller up to $12,500.00 to enable Seller
to pay the preliminary expenses of the Assignee and any and all such loans by
Buyer to Seller shall constitute part of the Loans, which shall be paid in full
to Buyer upon termination of this Agreement or at the Closing.
(g) Fiduciary Duties of Assignee. Nothing in this Agreement, the
New Management Agreement, or the New Security Agreement shall be interpreted,
construed, or enforced in a manner which would prevent the Assignee from
discharging its fiduciary duties to the creditors of Seller.
9.12 Release of Liens. All liens on any of the Purchased Assets, except
for liens securing Assumed Liabilities which are assumed by Buyer at the
Closing, shall have been released and eliminated prior to the Closing in a
manner satisfactory to Buyer and its counsel, including, without limitation,
liens in favor of Ronald I. Brendzel, Joseph F. Khoury, their spouses, JFK
Restaurants, Inc., all other Affiliates, and FMAC.
Section 10. Seller's Conditions Precedent to Closing.
The obligations of the Assignee to consummate the Closing provided for
herein shall be subject to the following conditions precedent, any one or more
of which may be waived by the Assignee:
10.1 Compliance with Agreements and Covenants. Buyer shall have performed
and complied with each of its agreements, covenants and obligations to be
performed hereunder on or prior to the Closing Date except those calling for
performance after the Closing Date.
10.2 Truth and Correctness of Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall have
been true and correct at all times between the date of this Agreement and the
Closing Date, with the same force and effect as if made on and as of that date.
10.3 Approval by Counsel. All actions, proceedings, instruments and
documents required to perform this Agreement or incident hereto, and all other
legal matters, shall have been approved by counsel for the Assignee, which
approval shall not be unreasonably withheld.
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10.4 Delivery of Documents. All other documents required to be delivered
by Buyer at or prior to the Closing shall have been delivered or shall be
tendered at the Closing.
10.5 Form of Instruments. The materials required by Section 10.4 above
shall be in a commercial form reasonably satisfactory to the Assignee and its
counsel.
Section 11. Closing.
The Leases, the Franchise Agreements, and the Development Agreement will
be assigned to Buyer through an escrow with Lawyers Title Insurance Company
("Escrowholder"). This Agreement constitutes escrow instructions to the
Escrowholder, and upon receipt, Escrowholder shall establish an escrow account
for this transaction ("Escrow"). Assignment of the Leases, Franchise Agreements,
and Development Agreement under this Agreement by Seller to Buyer shall take
place through the Escrowholder at its most convenient office, or at such other
place as may be agreed upon by Escrowholder and Buyer. Closing of the sale of
the remaining Purchased Assets by the Assignee to Buyer shall occur
simultaneously with the assignment of the Leases, the Franchise Agreements and
the Development Agreement to Buyer at the offices of Buyer or Buyer's counsel.
Such Closing shall take place in the manner and in accordance with the
provisions set forth in this Agreement. Closing shall occur at such time within
three business days following fulfillment of all conditions to the Closing as
the Assignee and Buyer have confirmed in writing to Escrowholder and the
fulfillment of the conditions precedent with respect to the purchase and sale of
the Purchased Assets and the date of the last of such notices shall be the
closing date of the Escrow (the Closing Date) and the Closing of the sale of the
Purchased Assets by the Assignee to Buyer. Seller and Buyer shall each have the
right to terminate this Agreement if the conditions precedent to its obligations
with respect to the purchase and sale of the Purchased Assets as provided herein
have not been satisfied by April 30, 1998.
Section 12. Deliveries At Closing.
12.1 Deliveries by Seller. At the Closing, Seller and the Assignee shall
deliver:
(a) Such assignments of leases, bills of sale, instruments of
assignment and other instruments and documents as may be necessary to convey to
Buyer title to all the assets and properties to be transferred hereunder.
(b) The certificate of Seller that all representations and
warranties of Seller contained in this Agreement have been true and correct as
of the Commencement Date.
(c) The certificate of Seller certifying to the resolutions
constituting all necessary corporate action by the board of directors and by the
shareholders of Seller to authorize the consummation of the transactions
provided for herein.
(d) The consents or authorizations for the transfer, assignment of
the Contracts, Agreements and Leases (including the Franchise Agreements and the
Development
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Agreement) described in Schedule 5.14.
12.2 Deliveries by Buyer. At the Closing, Buyer shall deliver:
(a) An instruments of assumption of liabilities under which Buyer
shall assume the obligations and liabilities described in Item 1 of Schedule 2.1
hereto.
(b) An instrument of cancellation and forgiveness of the Loans
referenced in Section 4.2(b) above.
(c) A bank wire transfer to Lawyers Title Insurance in such amount
as will enable Lawyers Title Insurance to pay in full at the Closing the
liabilities described in Items 2, 3, 4, 5, 8, 9, 10 of Schedule 2.1 hereto.
(d) A bank wire transfer for the balance of the Purchase Price
payable to the Assignee by wire transfer pursuant to Section 4.2(c) above.
(e) The certificate of Buyer that all representations and
warranties of Buyer contained in this Agreement have been true and correct at
all times between the date of this Agreement through the Closing Date.
(f) The Certificate of Buyer certifying to the resolutions
constituting all necessary corporate action by the board of directors of Buyer
to authorize the consummation of the transactions provided for herein.
12.3 Costs of Closing. Seller, the Assignee and Buyer shall each be
responsible for its attorney's fees. The Assignee shall be solely responsible
for payment of any fees and costs to Trenwith Securities, Inc., if any, and
Buyer shall have no responsibility for any such fees and costs. Nothing
contained in this Agreement shall constitute an admission that Trenwith
Securities, Inc. has a claim under priority FIRST (as defined in the Assignment
Instrument). Other costs which are necessary to consummate this transaction
shall be paid by Seller, the Assignee or Buyer as provided in Schedule 3.3.
Section 13. Risk of Loss, Destruction, Condemnation.
13.1 Risk of Loss. The risk of loss or damage to the Restaurants, or any
part thereof, by fire or other casualty until the Closing Date shall be on
Seller. If, prior to the Closing, the Restaurants, or any portion thereof, are
damaged by fire, or any other cause of whatsoever nature, Seller shall promptly
give Buyer written notice of such damage. If the cost for repairing such damage
shall, in the reasonable judgment of Buyer, exceed $50,000 for any of the
Restaurants, Buyer shall have the option, by written notice delivered to Seller
within ten days of receipt by Buyer of Seller's notice of damage to Buyer,
either (a) to require Seller to convey the Restaurants to Buyer in their damaged
condition and to assign to Buyer all of Seller's right, title and interest in
and to any claims Seller may have under the insurance policies covering the
Restaurants, or (b) to terminate this Agreement as to all of the Restaurants.
Should Buyer elect to terminate this Agreement, neither party hereto shall have
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any further duties or obligations hereunder. If the cost for repairing such
damage to any individual Seller's Restaurant shall, in the reasonable judgment
of Buyer, be less than $50,000, then to the extent the repairs are not covered
by insurance, Buyer shall pay for such repairs and may offset the non-insured
cost of such repairs from the Purchase Price.
Section 14. Further Assurances.
Seller, the Assignee and Buyer shall execute and deliver all such other
instruments and take all such other action as any party may reasonably request
from time to time, before or after the Closing, in order to effectuate the
transactions provided for herein. The parties shall cooperate with each other
and with their respective counsel and accountants in connection with any steps
to be taken as a part of their respective obligations under this Agreement.
Seller and Buyer will use their commercially reasonable best efforts in mutual
cooperation to obtain approval to the issuance of permanent liquor licenses with
respect to the Restaurants to Buyer and to consummate the purchase and sale of
the Purchased Assets on the terms and conditions set forth herein despite
commencement of litigation, governmental action, or other proceedings as
contemplated in and subject to the provisions of Section 9.3 hereof.
Section 15. Indemnification by Seller.
15.1 Limited Title Indemnity. For a period of one hundred twenty days
after the Closing Date, if it shall appear that any representation or warranty
of Seller contained or referred to in Section 5.6 of this Agreement was
incorrect or untrue, or that Seller or the Assignee breached any covenant or
agreement contained in Section 5.6 of this Agreement, Seller or the Assignee
shall pay Buyer or there shall be offset against and deducted from the Purchase
Price, at Buyer's option, the amount of the loss, expense or damage suffered or
incurred by Buyer, which would not have been suffered or incurred if the facts
set forth in those representations or warranties had been correct or those
covenants and agreements had not been breached; provided however, Seller and the
Assignee shall only be liable to Buyer pursuant to the terms of this section to
the extent that the total of any such amounts exceed $50,000.00, and once the
threshold of $50,000 is reached, the entire $50,000.00 and any additional amount
shall be due and payable.
15.2 Advances by Buyer. Without limiting any of the foregoing provisions
of this Section 15, Buyer shall have the right to advance any sums necessary to
cure any breach of any representation, warranty, covenant or agreement of Seller
contained in this Agreement and then deduct any such sums from the Purchase
Price, subject to the approval of the Assignee for any amount in excess of
$10,000.
15.3 Release of Liens for Indemnity. Anything set forth in this Agreement
or the Security Agreement to the contrary notwithstanding, any money paid by the
Assignee to any creditor of Seller following the Closing and any money paid to
the Assignee or which the Assignee (including reasonable attorney's fees) is
entitled to be paid for its fees and expenses in serving as the Assignee shall
be free of any Buyer Claims (as defined in Section 20.11 below).
19
<PAGE>
Section 16. Post Closing Obligations.
16.1 Accounting Reconciliation. Seller and Buyer have verified and
documented all closing prorations and other amounts relating to the Restaurants.
All necessary prorations and adjustments have been made in order to insure that
all operating and other costs of the Restaurants incurred in connection with and
properly allocable to the ownership and operation of the Restaurants prior to
the Commencement Date have been borne and paid by Seller, notwithstanding when
such cost is actually paid, and all revenues from the Seller's Restaurant to the
Commencement Date have been retained by or paid to Seller, and all costs and
revenues accruing after the Commencement Date have been borne or received, as
applicable, by Buyer.
Section 17. Termination.
17.1 Right to Terminate. Notwithstanding anything to the contrary
contained herein, this Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Closing: (a) by Seller if the conditions
precedent set forth in Section 10 are not satisfied, or waived in writing by
Seller; and (b) by Buyer if the conditions precedent set forth in Section 9 are
not satisfied, or waived in writing by Buyer; and (c) by either party if the
closing has not occurred on or before April 30, 1998.
17.2 Termination Resulting from Material Breach By Seller. In the event
Buyer terminates this Agreement as a result of Seller's material breach of the
provisions of any of (i) Sections 5.1 through 5.20, (ii) Sections 8.1 through
8.12 or (iii) Seller's failure to make the deliveries required by Section 12.1,
then Buyer may; (a) terminate this Agreement and seek damages as provided by law
from Seller for Seller's breach; (b) proceed to Closing and seek damages as
provided by law from Seller for Seller's breach; or (c) proceed to Closing and
waive the breach.
17.3 Termination Resulting from Material Breach by Buyer. In the event
Seller terminates this Agreement as a result of the Buyer's material breach of
the provision of any of Sections 6.1 or 6.2; or (ii) Buyer's failure to make the
deliveries required by Section 12.2 (including a wire transfer of the cash
portion of the Purchase Price) then Seller may (a) terminate this Agreement and
seek damages as provided by law from Buyer for Buyer's breach; (b) proceed to
Closing and seek damages from Buyer for Buyer's breach; (c) proceed to Closing
and waive the breach.
17.4 Termination due to other Causes. If this Agreement is terminated by
either Buyer or Seller for any reason other than as provided for in Sections
17.2 or 17.3 hereof, neither party hereto shall have any liability or obligation
to the other party.
17.5 Specific Performance. Seller agrees that damages may not be an
adequate remedy to Buyer in the event Seller refuses to close the transaction
contemplated by this Agreement. Seller, therefore, agrees that Buyer shall be
entitled to specific performance should Buyer seek specific performance.
20
<PAGE>
17.6 Sale of Purchased Assets by Assignee to Other Buyer. After the
Assignment and before the Closing, the Assignee may terminate this Agreement and
sell the Purchased Assets to a buyer other than Buyer (the "Other Buyer") on the
following terms and conditions:
(a) The total price payable for the Purchased Assets by the Other
Buyer must be not less than Nine Million Four Hundred Thousand Dollars
($9,400,00.00).
(b) The Assignee will pay to Buyer the sum of Four Hundred
Twenty-Eight Thousand Five Hundred Dollars ($428,500.00) in immediately
available funds through a wire transfer to such account as Buyer may designate
within two business days after the closing of the sale to the Other Buyer (the
"Breakup Fee"). The Breakup Fee shall constitute an administrative expense claim
against the Assignee in its capacity as assignee of Seller, subject only to
claims entitled to priority and the Assignee's fees and expenses (including its
attorneys' fees) as provided for in the Assignment Instrument.
Section 18. Brokers and Finders.
Each of the parties hereto represents and warrants to the others that,
except for Trenwith Securities, Inc. ("Trenwith"), attention Leon M. Bronfin,
Managing Director, 450 Newport Center Drive, Suite 550, Newport Beach, CA 92660,
which has been retained by Seller, it has not employed or retained any broker or
finder in connection with the transactions contemplated by this Agreement nor
has it had any dealings with any person which, in either case, may entitle that
person to a fee or commission from any other party hereto. Each of the parties
indemnifies and holds the others harmless from and against any claim, demand or
damages whatsoever by virtue of any arrangement or commitment made by it with or
to any person that may entitle such person to any fee or commission from the
other parties to this Agreement.
Section 19. Closing Date.
The Closing Date shall be such date within three business days following
fulfillment of all of the conditions to the Closing set forth in Sections 9 and
10 hereof that shall be designated in writing by Buyer to the Assignee upon not
less than two days written notice but not later than April 30, 1998. The Closing
shall take place at 10:00 a.m. at the offices of Buyer or Buyer's counsel.
Section 20. General Provisions.
20.1 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against receipt
or upon actual receipt of registered or certified mail, postage prepaid, return
receipt requested, addressed as set forth below:
(a) If to Seller:
21
<PAGE>
RJR Holdings, Inc.
6222 Wilshire Boulevard, Suite 401
Los Angeles, CA 90048
With a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue, Suite 4400
Los Angeles, CA 90071-3197
Attention: Bennett Silverman
(b) If to Buyer:
Bart A. Brown, Jr.
President
Main Street and Main Incorporated
5050 North 40th Street, #200
Phoenix, AZ 85018
With a copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, CA 90067
Attention: Robert H. Goon
(c) If to the Assignee:
Richard Kaufman
President
Credit Managers Association of California
40 East Verdugo Avenue
Burbank, CA 91502
With a copy to:
Sulmeyer, Kupetz, Baumann & Rothman
300 South Grand Avenue, 14th Floor
Los Angeles, CA 90071-3124
Attention: Ronald E. Gordon
Any party may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
22
<PAGE>
20.2 Binding Nature of Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no party may assign or transfer its or his
rights or obligations under this Agreement without the prior written consent of
the other party hereto.
20.3 Entire Agreement. This Agreement together with the Management
Agreement and the Security Agreement contain the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and thereof, and supersede all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter hereof and thereof.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing.
20.4 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed, interpreted and enforced in accordance with the internal laws of the
State of California.
20.5 Schedules and Exhibits. All Schedules and Exhibits referred to herein
or attached hereto are hereby incorporated by reference into, and made a part
of, this Agreement.
20.6 Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
20.7 Titles Not to Affect Interpretation. The titles of Sections contained
in this Agreement are for convenience only, and they neither form a part of this
Agreement nor are they to be used in the construction or interpretation hereof.
20.8 Provisions Separable. The provisions of this Agreement are
independent and separable from each other, and no provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in part.
20.9 Shareholders Not Liable. None of the shareholders or their spouses
shall have any responsibility whatsoever for any of the obligations or
liabilities of Seller under this Agreement.
23
<PAGE>
20.10 Confidentiality. The parties hereto will not intentionally disclose
the terms of this Agreement to any third party except as may be required in the
good faith discretion of the Assignee to allow the Assignee to discharge its
fiduciary obligations or as may be required by applicable federal or state laws
or regulations or by any governmental or regulatory agency or court of law or in
other legal proceedings (provided that the disclosing party gives prior written
notice of the disclosure and the opportunity to seek appropriate protective
orders or other relief), and except that the parties may disclose the terms of
this Agreement to their respective financial and legal advisors and agents,
provided that such parties maintain the confidentiality thereof.
20.11 Limitations on Liability. Claims, causes of action, or claims for
relief which Buyer may have arising under or related to this Agreement, the
Management Agreement, the New Management Agreement, the Security Agreement, or
the New Security Agreement (collectively, "Buyer Claims") shall be subject to
the following agreements:
(a) Neither the shareholders of Seller nor their spouses shall
have any liability whatsoever for any Buyer Claims.
(b) Neither Credit Managers Association of California nor any of
its officers, directors, employees, attorneys, agents, shareholders, members or
their heirs, assigns and successors shall have any corporate or personal
liability for any Buyer Claims; provided, however, nothing contained herein
shall deprive or limit Buyer of any of its rights to assert and collect any
Buyer Claims as a creditor of Seller entitled to treatment under priority FIRST
of the Assignment Instrument or to offset or deduct any Buyer Claims against or
from the Purchase Price.
(c) Any claims Buyer may have under Section 17.6 hereof or under
the New Management Agreement or the New Security Agreement shall constitute an
administrative expense claim against the Assignee in its capacity as assignee of
the assets of Seller, subject only to the prior payment by the Assignee of (i)
claims entitled to priority, and (ii) the fees and expenses of the Assignee
(including reasonable attorneys' fees) provided for in the Assignment
Instrument.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.
SELLER: BUYER:
RJR HOLDINGS, INC., MAIN ST. CALIFORNIA, INC.,
a Delaware corporation an Arizona corporation
By: _______________________________ By: _______________________________
Ronald I. Brendzel, President Bart A. Brown, Jr., President
By: _______________________________
Joseph F. Khoury, Secretary
25
<PAGE>
ACCEPTANCE OF ASSIGNEE
The undersigned Assignee hereby assumes the obligations of Seller under the
foregoing Amended and Restated Asset Purchase Agreement as of the 17th day of
March 1998.
CREDIT MANAGERS ASSOCIATION OF CALIFORNIA
By:____________________________
Richard Kaufman, President
26
<PAGE>
LIST OF EXHIBITS
EXHIBIT A -- Assignment Instrument
EXHIBIT B -- New Management Agreement
EXHIBIT C -- New Security Agreement
Main Street and Main Incorporated
Subsidiaries of the Registrant
Name of Subsidiaries State of Incorporation
-------------------- ----------------------
Main St. Hospitality, Inc. Arizona
Main Entertainment, Inc. Arizona
Cornerstone Production, Inc. Delaware
Main St. Northwest, Inc. Arizona
Fiddlesticks, Inc. Arizona
Main St. California, Inc. Arizona
Main St. Midwest, Inc. Arizona
Main St. El Paso, Inc. Arizona
Main St./Cornerstone Texas, Inc. Texas
Main St. Louisiana Restaurants, Inc. Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit shall not be deemed filed for purpose of Section 11 of the
Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of such sections, nor shall it be deemed a
part of any other filing which incorporates this report by reference, unless
such other filing expressly incorporates this Exhibit by reference.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> DEC-29-1997
<EXCHANGE-RATE> 1
<CASH> 8,424
<SECURITIES> 0
<RECEIVABLES> 3,293
<ALLOWANCES> 0
<INVENTORY> 1,043
<CURRENT-ASSETS> 13,412
<PP&E> 41,534
<DEPRECIATION> (11,340)
<TOTAL-ASSETS> 62,742
<CURRENT-LIABILITIES> 14,742
<BONDS> 24,308
0
0
<COMMON> 10
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<TOTAL-LIABILITY-AND-EQUITY> 62,742
<SALES> 107,997
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<OTHER-EXPENSES> 66,610
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</TABLE>
