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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended OCTOBER 27, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________
Commission file number 0-23420
QUALITY DINING, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1804902
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3820 EDISON LAKES PARKWAY
MISHAWAKA, INDIANA 46545
(Address of principal executive offices) (Zip Code)
(219) 271-4600
(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, WITHOUT 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 [_]
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]
$167,877,236
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock at December 9, 1996
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").
16,909,609
Number of shares of Common Stock, without par value, outstanding at
January 14, 1997
DOCUMENT INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference into this
Annual Report on Form 10-K
IDENTITY OF DOCUMENT PART OF FORM 10-K INTO WHICH
DOCUMENT IS INCORPORATED
Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held
March 26, 1997 PART III
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QUALITY DINING, INC.
Mishawaka, Indiana
Annual Report to Securities and Exchange Commission
October 27, 1996
PART I
ITEM 1. BUSINESS.
GENERAL
Quality Dining, Inc. (the "Company") is the owner, operator and franchisor of
Bruegger's(R) Bagel Bakery ("Bruegger's"), currently the largest chain of fresh
bagel bakeries in the United States. The Company also operates four other
distinct restaurant concepts. It owns the Grady's American Grill(R) and Italian
Dining concepts and develops and operates Burger King(R) restaurants and Chili's
Grill & Bar(TM) ("Chili's"(R)) as a franchisee of Burger King Corporation and
Brinker International, Inc. ("Brinker"), respectively. The Company operates its
Italian Dining restaurants under the tradenames of Spageddies Italian Kitchen(R)
("Spageddies"(R)) and Papa Vino's Italian Kitchen(TM) ("Papa Vino's"(TM)). As of
October 27, 1996, the Company operated and franchised 558 restaurants, including
425 retail bagel bakeries (100 Company-owned and 325 franchised), 42 Grady's
American Grill restaurants, five Spageddies, one Papa Vino's, 63 Burger King
restaurants and 22 Chili's. The Company's fundamental business strategy is to
combine the significant growth potential of Bruegger's with the Company's proven
operating skills and the strong cash flow of its other restaurant operations.
Since its founding in 1981, the Company has grown from a two-unit Burger King
franchisee to a leading multi-unit restaurant operator with $237.6 million in
total revenues in the fiscal year ended October 27, 1996. The Company has
achieved this growth while remaining consistently profitable in each year of its
operation. Management attributes the Company's growth and financial success to
its affiliation with quality franchisors and franchisees, the operation of well-
positioned, value-based concepts, a focus on total customer satisfaction and a
hands-on management style. In addition, the Company's strategy of building a
critical mass in targeted markets has enabled it to better understand and
respond to the needs of its customers and markets, as well as to take advantage
of certain operational efficiencies. Management believes that, as a result of
these factors, its restaurants appeal to a broad range of customers and generate
a high level of customer loyalty.
On June 7, 1996, the Company acquired Bruegger's Corporation, the owner,
operator and franchisor of Bruegger's Bagel Bakeries. Pursuant to the terms of
the merger agreement, Bruegger's Corporation became a wholly-owned subsidiary of
Quality Dining, Inc.
On December 21, 1995, the Company acquired the Grady's American Grill
restaurant concept and 42 Grady's American Grill restaurants from Brinker (the
"Grady's Acquisition"), pursuant to an asset purchase agreement. In connection
with the Grady's Acquisition, the Company also purchased all of the outstanding
stock of Grady's, Inc., incorporated three new wholly-owned subsidiaries and
organized an indirect wholly-owned limited partnership.
On October 28, 1995, the Company acquired from Brinker all rights to the
Spageddies concept in the United States. Brinker retained the international
rights to the Spageddies concept.
On August 14, 1995, the Company acquired all of the capital stock and/or
assets of 11 corporations (the "SHONCO Companies") owned or controlled by
William R. Schonsheck. The SHONCO Companies operated eight Burger King
restaurants in the Detroit, Michigan market and held the right to construct four
additional restaurants pursuant to a target reservation agreement with Burger
King Corporation.
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On November 10, 1994, the Company acquired all of the outstanding stock of
Grayling Corporation, Grayling Management Corporation, Chili's of Mt. Laurel,
Inc. and Chili's of Christiana, Inc. (the "Grayling Companies"). The Grayling
Companies operated eight Chili's restaurants located in the greater
Philadelphia, Pennsylvania market.
As a result of its acquisitions, the Company has grown significantly in size
and broadened the geographic area in which it operates. Any acquisition
involves inherent uncertainties, such as the effect on the acquired businesses
of integration into a larger organization and the availability of management
resources to oversee the operations of the acquired business. The Company's
ability to integrate the operations of acquired concepts is essential to its
future success. There can be no assurance as to the Company's ability to
integrate new businesses nor as to its success in managing the significantly
larger operations resulting therefrom.
In addition, the Company has recorded significant intangible assets in
connection with the acquisitions of Bruegger's Corporation, Grady's American
Grill, the SHONCO Companies and the Grayling Companies. Applicable accounting
standards require the Company to review long-lived assets (such as goodwill and
other intangible assets) for impairment whenever events or changes in
circumstances indicate that the carrying values of those assets may not be
recoverable. In the event that the Company determines that the carrying value
of such intangible assets is impaired, it would write-down such carrying value,
which would result in a charge to earnings. Any such charge could have a
material adverse effect on the Company's financial results.
The Company is an Indiana corporation, which is the indirect successor to a
corporation that commenced operations in 1981. Prior to the consummation of the
Company's initial public offering on March 8, 1994 (the "Offering"), the
business of the Company was transacted by the Company and eight affiliated
corporations. As a result of a reorganization effected prior to the Offering,
the Company became a management holding company. The Company, as used herein,
means Quality Dining, Inc. and all of its subsidiaries.
BUSINESS STRATEGY
The Company's objective is to continue to expand its business in a manner
focusing on total customer satisfaction, while maximizing the value of the
Company for its shareholders. The primary objective is focused on the growth
and expansion of the Bruegger's brand through aggressive development and broad-
based marketing and sales initiatives. Management believes that the Company has
the expertise required to develop the Bruegger's brand and execute an aggressive
expansion plan. Since 1981, the Company has grown from a two-unit Burger King
franchisee to a leading multi-concept restaurant operator with 558 owned and
franchised units at October 27, 1996. Management attributes the Company's
growth and financial success to its operating philosophy, which is shared by all
of the Company's concepts and is comprised of the following key elements:
Value-Based Concepts. Value-based restaurant concepts are important to the
Company's business strategy. Accordingly, in each of its restaurants, the
Company seeks to provide customers with value, which is a product of high-
quality menu selections, reasonably priced food, prompt, courteous service and a
pleasant dining atmosphere.
Focus on Customer Satisfaction. Through its comprehensive management training
programs and experienced management team, the Company seeks to ensure that its
employees provide customers with an enjoyable dining experience on a consistent
basis.
Hands-On Management Style. Members of the Company's senior management are
actively involved in the operations of each of the Company's restaurant
concepts. This active management approach is a key factor in the Company's
efforts to control costs and maximize operating income.
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Quality Franchise Partners. The Company has historically sought franchisors
and franchisees with established reputations for leadership in their various
segments of the restaurant industry who have proven integrity and share the
Company's focus on value, customer service and quality.
Distinct Management Teams. Each of the Company's concepts is managed by a
dedicated, singularly focused management group. The Company strives to allocate
proper resources to each concept to ensure operational and financial success
within each distinct concept.
Use of Technology. The Company actively tracks the performance of its
business utilizing computer and point-of-sale technology. In addition, the
Company's voice and data communications systems provide timely and accurate
tracking and reporting.
EXPANSION
The Company intends to develop the Bruegger's brand through aggressive
expansion. The Company's primary objective is to establish the Bruegger's
brand as a leading, recognized brand in the bagel industry. At the end of
fiscal 1996, the Company operated and franchised 425 retail bagel bakeries
system-wide (100 Company-owned and 325 franchised). The Company anticipates
opening 50 to 100 Company-owned bakeries in fiscal 1997.
The Company's expansion strategy for Bruegger's is focused on opening bakeries
in new markets and enhancing market penetration in existing markets. As of
December 31, 1996, the Company had executed development agreements pursuant to
which franchisees have paid, or committed to pay, franchise or development fees
with respect to 502 bakeries to be opened by the year 2002. Such franchisees
must open an aggregate of 802 bakeries by the year 2002 to retain territorial
exclusivity. As of December 31, 1996, 136 of these bakeries had been opened by
such franchisees. In connection with their commitments, the Company has granted
franchisees exclusive development rights to specific markets.
The Company has incurred significant start-up costs associated with owning
Bruegger's Bagel Bakeries and establishing the infrastructure necessary to
manage the development of owned bakeries, to institutionalize procedures and
systems, and to organize and implement an active franchising program. The
Company expects that these costs will continue to be significant as the Company
continues to implement its aggressive expansion plans for Bruegger's. In
addition, mature Bruegger's units (those open two or more years) typically
realize higher sales volumes than new units. Management believes that the
aggressive development of Bruegger's will cause the average age of Bruegger's
units to decline, which may have an adverse effect on average per unit sales.
During fiscal 1996, the Company added 88 retail bagel bakeries through
internal development and acquisition. The Company also added one new unit in its
Italian Dining Division, four new Burger King restaurants, 42 Grady's American
Grill restaurants and four additional Chili's restaurants.
In addition to the 100 Company-owned retail bagel bakeries, at the end of
fiscal 1996, the Company operated 42 Grady's American Grill restaurants, five
Spageddies, one Papa Vino's, 63 Burger King restaurants and 22 Chili's
restaurants. During fiscal 1997, the Company estimates it will add one or two
additional Grady's American Grill restaurants, one or two Papa Vino's, three to
five Burger King restaurants and three to five Chili's restaurants.
The Company generally desires to own the real estate on which its Grady's
American Grill, Italian Dining, Burger King and Chili's restaurants are located.
Since Bruegger's Bagel Bakeries are not typically free-standing facilities, the
Company generally will not purchase either the land or the building.
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The actual amount of the Company's total investment to open new restaurants
and bakeries depends upon various factors, including prevailing real estate
prices and lease rates, raw material costs and construction labor costs in each
market in which a new restaurant or bakery is to be opened.
The Company's ability to manage the significantly larger and more diverse
operations resulting from its recent and anticipated growth will be essential to
its success. The Company's business historically has focused primarily on the
development and operation of Burger King and Chili's restaurants. The
Bruegger's, Grady's American Grill and Italian Dining concepts have varying
degrees of name recognition. The retail bagel segment represents an emerging
quick-service restaurant concept, the long-term appeal and development potential
of which have not yet been fully established. Although the Company opened its
first Spageddies in 1994, the Company's Italian Dining concept is not yet proven
and is still in the developmental stage. In addition, the Company's
acquisitions of Bruegger's, Grady's American Grill and Spageddies have caused it
to assume many functions performed by the previous owners, requiring increased
staffing and expenditures in the areas of advertising and marketing, purchasing,
management information systems and others. Moreover, the Company is now a
franchisor of the Bruegger's concept, which is a new role for the Company.
Accordingly, the Company's development and operation of these restaurant
concepts are subject to a wider range of risks than those associated with the
development and operation of its Burger King and Chili's restaurants. As a
result of the foregoing factors, there can be no assurance that the Company's
expansion plans can be achieved, that such expansion will not result in reduced
sales at existing Company restaurants located near newly opened restaurants,
that the perceived benefits of the acquisitions will be realized or that each of
the new restaurant concepts will be operated profitably.
BRUEGGER'S BAGEL BAKERIES
General. Bruegger's is currently the largest chain of fresh bagel bakeries in
the United States. Bruegger's differentiates itself from its competitors by
providing customers with bagels baked in small batches on site throughout the
day using fresh, not frozen, dough. In order to provide its customers with a
consistently high-quality product and to minimize transportation and production
costs, Bruegger's is vertically integrated. Bruegger's units are served by
strategically located Company or franchisee-owned commissaries that produce
fresh dough and distribute other products to Bruegger's bakeries on a daily
basis.
Menu. Each Bruegger's operates from a standard menu designed by the Company.
A variety of bagel flavors are baked throughout the day in order to ensure the
customer a wide selection of fresh bagels. Bruegger's also offers a wide array
of deli-type sandwiches, cream cheeses, soups, desserts and coffee and other
beverages. Bagels are prepared utilizing the traditional old world Eastern
European process of boiling and baking, which produces a bagel with a smooth
crusty exterior and a soft chewy center.
Marketing. The Company maintains a general advertising fund for national and
regional advertising. Franchisees are generally required to spend 4% of sales
on advertising, one-half of which must be contributed to the general advertising
fund. The fund collects these fees and disburses the funds for costs associated
with maintaining, administering and preparing advertising, marketing, public
relations and promotional programs for the Bruegger's concept.
GRADY'S AMERICAN GRILL
General. Grady's American Grill restaurants feature high-quality food in a
classic American style, served in a warm and inviting setting. Prior to the
Company's acquisition of the concept from Brinker on December 21, 1995, Brinker
owned and operated all of the 42 Grady's American Grill restaurants now owned
and operated by the Company. In July 1996, the Company began implementing a
business plan emphasizing improved food quality and service that is expected to
improve operating performance.
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Menu. The Grady's American Grill menu features signature prime rib, high-
quality steaks, daily servings of fresh seafood, inviting salads, sandwiches,
soups and legendary desserts. Entrees emphasize on-premise scratch preparation
in a classic American style.
Marketing. As the owner of the Grady's American Grill concept, the Company
has full responsibility for marketing and advertising. The Company expects to
focus advertising and marketing efforts in local print media and radio, with
total expenditures estimated to range between 2% and 6% of the sales for its
Grady's American Grill restaurants.
SPAGEDDIES ITALIAN KITCHEN AND PAPA VINO'S ITALIAN KITCHEN
General. The Company operates two variations of its Italian Dining concept,
Spageddies and Papa Vino's. These Italian casual dining restaurants offer high-
quality food, generous portions and low prices, all enjoyed in a festive and
energized atmosphere. The Company believes its Italian Dining Division is well
positioned to take advantage of several growing trends, including the popularity
of casual dining, the consumer appeal of Italian foods and the increasing
consumer desire for value. As of October 27, 1996, five Spageddies and one Papa
Vino's restaurants were operated by the Company.
Menu. The restaurant menu includes an array of entrees, including traditional
Italian pasta, grilled meats and freshly prepared selections of pizza, soups,
salads and sandwiches. The menu also includes specialty appetizers, fresh baked
bread and desserts, together with a full-service bar. A fundamental component of
these concepts is to provide customers with a wide variety of high-quality,
value-priced Italian-style food.
Marketing. The Company has full responsibility for marketing and advertising
its Italian Dining restaurants. The Company focuses its advertising and
marketing efforts in local print media and radio, with total expenditures
estimated to range between 2% and 4% of the sales for these restaurants.
BURGER KING RESTAURANTS
General. Headquartered in Miami, Florida, Burger King Corporation is an
indirect wholly-owned subsidiary of Grand Metropolitan PLC, London, England.
Burger King Corporation has been franchising Burger King restaurants since 1954
and has since expanded to locations in all 50 states, the District of Columbia,
and 57 foreign countries and international territories. As of November 30,
1996, there were 8,807 Burger King restaurants in operation worldwide comprised
of 830 company-owned restaurants and 7,977 franchised restaurants.
Menu. Each Burger King restaurant offers a diverse menu containing a variety
of traditional and innovative food items, featuring the Whopper/(R)/ sandwich
and other flame-broiled hamburgers and sandwiches, which are prepared to order
with the customer's choice of condiments. The menu also typically includes
breakfast entrees, french fries, onion rings, desserts and soft drinks. The
Burger King system philosophy is characterized by its "Have It Your Way"/(R)/
service, generous portions and competitive prices, resulting in high value to
its customers. Management believes these characteristics distinguish Burger
King restaurants from their competitors and provide a significant competitive
advantage.
Marketing. As required by its franchise agreements, the Company contributes 4%
of its restaurant sales to an advertising and marketing fund controlled by
Burger King Corporation. Burger King Corporation uses this fund primarily to
develop system-wide advertising, sales promotions and marketing materials and
concepts. In addition to its required contribution to the advertising and
marketing fund, the Company makes local advertising expenditures intended
specifically to benefit its own Burger King restaurants. Typically, the Company
spends its local advertising dollars on television and radio.
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CHILI'S GRILL & BAR
General. The Chili's restaurant concept is owned by Brinker, a publicly-held
corporation headquartered in Dallas, Texas. As of December 31, 1996, there were
520 Chili's restaurants system-wide, comprised of 383 company-owned and 137
joint ventured or franchised restaurants. Chili's restaurants are full-service
restaurants, featuring quick, efficient and friendly table service designed to
minimize customer waiting time and facilitate table turnover. Service personnel
are dressed casually in jeans or slacks, knit shirts and aprons to reinforce the
casual, informal environment.
Menu. Chili's restaurants feature a casual atmosphere and a limited menu of
broadly appealing food items, including a variety of hamburgers, fajitas,
chicken and seafood entrees and sandwiches, barbecued ribs, salads, appetizers
and desserts, all of which are prepared fresh daily according to recipes
specified by Chili's. Emphasis is placed on serving substantial portions of
quality food at modest prices.
Marketing. Pursuant to its franchise agreements with Brinker, the Company
contributes 1/2% of sales from each restaurant to Brinker for advertising and
marketing to benefit all restaurants. The Company is also required to spend 2%
of sales from each restaurant on local advertising. The Company's advertising
expenditures typically exceed the levels required under its agreements with
Brinker and the Company spends substantially all of its advertising dollars on
television advertising. The Company also conducts promotional marketing efforts
targeted at its various local markets.
The Chili's franchise agreements provide that Brinker may establish
advertising cooperatives ("Cooperatives") for geographic areas where one or more
restaurants are located. Any restaurants located in areas subject to a
Cooperative are required to contribute 3% of sales to the Cooperative in lieu of
contributing 1/2% of sales to Brinker. Each such restaurant is also required to
directly spend 1/2% of sales on local advertising. To date, no Cooperatives
have been established in any of the Company's markets.
TRADEMARKS
The Company owns the following registered trademarks: Bruegger's(R), Grady's
American Grill(R), Spageddies Italian Kitchen(R), and Spageddies(R).
Additionally, Papa Vino's(TM) and Papa Vino's Italian Kitchen(TM) are trademarks
of the Company. The Company also owns a number of other trademarks and service
marks which are used in connection with its owned concepts. The Company believes
its marks are valuable and intends to maintain its marks and any related
registrations. Burger King(R) is a registered trademark of Burger King
Corporation. Chili's(R) and Chili's Grill & Bar(TM) are a registered trademark
and trademark, respectively, of Brinker.
ADMINISTRATIVE SERVICES
From its headquarters in Mishawaka, Indiana, the Company provides accounting,
information technology, purchasing and procurement, human resources, finance,
marketing, advertising, menu development, budgeting and planning, legal,
franchising, site selection and development support services for each of its
operating subsidiaries.
Management. During the past two fiscal years, the Company has added
significant management resources to coordinate and direct the Company's
strategic growth. The Company believes that these additions to its management
team have enhanced its ability to manage the larger and more diverse operations
resulting from its current and planned growth.
Each of the Company's restaurant concepts is managed by an experienced
management team. The Company's Bruegger's business is managed by the Chief
Executive Officer and Chief Operating Officer of Bruegger's Corporation through
a regional management structure. The Company's Burger King business is also
managed by geographic region,
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with a Director of Operations located in each specific market. Each Director of
Operations reports to the Chief Operating Officer of the Company's Burger King
Division. The Company's Chili's and Italian Dining concepts are each managed by
a Director of Operations who reports to the Senior Vice President - Full Service
Dining Division. For the Company's Grady's American Grill concept, two regional
Directors report to the Senior Vice President - Full Service Dining Division.
Site Selection. Site selection for new restaurants is made by the Company's
senior management under the direction of the Company's Chief Development Officer
and the Senior Vice President - Director of Development, subject in the case of
the Company's franchised restaurants to the approval of its franchisors. Within
a potential market area, the Company evaluates high-traffic locations to
determine profitable trading areas. Site-specific factors considered by the
Company include traffic generators, points of distinction, visibility, ease of
ingress and egress, proximity to direct competition, access to utilities, local
zoning regulations and various other factors. In addition, in evaluating
potential Chili's, Italian Dining and Grady's American Grill sites, the Company
considers applicable laws regulating the sale of alcoholic beverages. The
Company regularly reviews potential sites for expansion. Once a potential site
is selected, the Company utilizes demographic and site selection data to assist
in final site selection.
Quality Control. The Company's senior management and restaurant management
staff are principally responsible for assuring compliance with the Company's and
its franchisors' operating procedures. The Company and its franchisors have
uniform operating standards and specifications relating to the quality,
preparation and selection of menu items, maintenance and cleanliness of the
premises and employee conduct. Compliance with these standards and
specifications is monitored by frequent on-site visits and inspections by the
Company's senior management.
Information Technology Systems. Financial controls are maintained through a
centralized, computerized, accounting system, which allows the Company to track
operating performance on an ongoing basis. The Company has stand alone point-
of-sale registers installed in each of its restaurants. The point-of-sale
technology is linked directly to the Company's accounting system, thereby making
information available on a timely and detailed basis. This information enables
the Company to analyze customer purchasing habits, operating trends and
promotional results.
The Company's Chili's, Italian Dining and Grady's American Grill concepts use
fully automated reporting systems incorporating software provided by Brinker and
generate detailed financial information, which is provided to the Company's
executive offices on a daily basis. During fiscal 1996, the Company completed
the process of upgrading the financial reporting systems at its Burger King
restaurants and other components of its centralized computer system which will
allow the use of fully automated financial reporting for all of the Company's
restaurant concepts, including Bruegger's. As a result of upgrades completed in
fiscal 1995 and fiscal 1996, and the acquisitions of Bruegger's and Grady's
American Grill in fiscal 1996, the Company has undergone a significant
modification of its financial reporting systems. The Company anticipates that
ongoing modifications and upgrades will be required during fiscal 1997, the cost
of which the Company estimates will be approximately $1.5 to $2.5 million.
Training. The Company maintains comprehensive training programs for all of
its restaurant management personnel. Special emphasis is placed on quality food
preparation, service standards and total customer satisfaction.
The Company requires that Bruegger's managers, franchise operators and bakers,
as well as commissary managers, participate in the Bruegger's training program,
although the Company permits certain of its franchisees to operate their own
training program instead. The training program consists of five days of
operational basics and two weeks of supervised on-the-job training and focuses
on Bruegger's philosophies, policies and operating procedures. The Company
offers the training program on an as-needed basis and requires that such
training be provided before a manager, operator or baker assumes such position.
In addition, each Bruegger's unit requires its bakers to complete a specialized
training program focused on ensuring the consistent execution of the baking
process.
The training program for the Company's Burger King restaurant managers
features an intensive four-week, hands-on training period followed by two weeks
of classroom instruction and simulated restaurant management activities.
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Upon certification, new managers work closely with experienced managers to
solidify their skills and expertise. The Company's existing restaurant managers
regularly participate in the Company's ongoing training efforts, including
classroom programs, off-site training at Burger King Corporation's regional and
national training centers and other training/development programs, which the
Company's senior management designs from time to time. The Company generally
seeks to promote from within to fill Burger King restaurant management
positions.
The Company requires all general and restaurant managers of its Chili's
restaurants to participate in Chili's system-wide, comprehensive, 13-week
training program. The program teaches management trainees Chili's detailed food
preparation standards and procedures. The Company also participates in regional
and national training and development programs sponsored by Brinker. Managers
of the Company's Italian Dining and Grady's American Grill restaurants
participate in similar training programs conducted by the Company.
Purchasing. Purchasing and procurement for the Company's Bruegger's, Grady's
American Grill and Italian Dining concepts are managed by dedicated personnel
within each concept. The Company's purchasing and procurement departments
generally contract with full-service distributors. Unit-level purchasing
decisions from an approved list of suppliers are made by each of the Company's
restaurant managers based on their assessment of the provisioning needs of the
particular location. Purchase orders and invoices are reviewed by restaurant
general managers and by senior management.
The purchasing needs of the Company's Bruegger's Bakeries are primarily
satisfied by the Company-owned commissaries. Each commissary produces fresh
bagel dough daily and delivers it, along with Bruegger's branded cream cheese
and coffee and certain paper products, to the bakeries. Other items required in
the operation of Bruegger's units are purchased by the bakery manager pursuant
to system-wide specifications.
The Company participates in system-wide purchasing and distribution programs
with respect to its Chili's and Burger King restaurants, which have been
effective in reducing store-level expenditures on food and paper packaging
commodities.
FRANCHISE AND DEVELOPMENT AGREEMENTS
Bruegger's. As of October 27, 1996, the Company was a party to franchise and
development agreements with more than 35 franchisees, who were operating 325
franchised bakeries. Generally, each franchisee has been awarded an exclusive
territory in which to operate. As of December 31, 1996, the Company had
executed development agreements pursuant to which franchisees have paid, or
committed to pay, franchise or development fees with respect to 502 bakeries to
be opened by the year 2002. Such franchisees must open an aggregate of 802
bakeries by the year 2002 to retain territorial exclusivity. The Original
Franchisees (as defined below) are not obligated to build additional bakeries,
but have advised the Company that they intend to do so. The Company believes
that its strategy of working with a limited number of capable franchisees is the
best strategy to permit rapid expansion and a high degree of system
responsiveness to market developments and Bruegger's-related developments.
The Company has traditionally evaluated potential Bruegger's franchisees on
the basis of, among other things, their business background, restaurant
operating experience and financial resources. In particular, the Company has
focused on whether the franchisee has experience in multi-unit operations, has
proven ability to execute an aggressive growth plan while maintaining the
highest standards of quality and has the capital resources to develop additional
bakeries.
Expansion plans for the Bruegger's concept are dependent in part upon the
ability of the Company's existing Bruegger's franchisees to develop additional
bakeries. Moreover, the Company will realize a portion of its revenues from
continuing royalty payments from its Bruegger's franchisees and such revenues
will be dependent upon the ability of its franchisees to operate and develop
their bakeries and to promote and deliver the Bruegger's concept and its
reputation for quality and value. Although the Bruegger's franchisees have been
selected utilizing established criteria,
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there can be no assurance that such franchisees will have the business ability
or access to financial resources necessary to successfully develop or operate
bakeries in their franchise areas in a manner consistent with the Bruegger's
concept and standards. Should its franchisees encounter business or operational
difficulties, the Company's revenues would be affected and it could negatively
impact the Bruegger's brand and the ability to sell new franchises if the
Company desires to do so.
If the Company's Bruegger's franchisees are to continue their aggressive
development of Bruegger's Bagel Bakeries, they must secure significant
additional financing. The Company is considering various alternative programs
to provide necessary financing to certain Bruegger's franchisees to enable them
to execute their development plans. Any such program will likely require the
Company to secure additional debt or equity funds. Although the Company
believes that it will be able to implement such a program on terms acceptable to
the Company and such franchisees, there can be no assurance thereof. In the
absence of an acceptable program, the continued development of new bakeries by
the Company's Bruegger's franchisees could be adversely affected.
During fiscal 1996, a company owned by a Director and officer of the Company
acquired a number of Bruegger's Bagel Bakeries from independent franchisees.
The Company anticipates that these bakeries will be sold to other unrelated
franchisees of Bruegger's in fiscal 1997.
The Company enters into development agreements with each of its franchisees
pursuant to which it grants each franchisee the exclusive right to develop a
minimum number of bakeries within a specified territory. Under the current form
of development agreement, a franchisee pays a development fee upon the execution
of the development agreement in an amount based on the development schedule
pursuant to the agreement. Under the current form of franchise agreement, a
franchisee also will pay an initial franchise fee of $35,000 upon the execution
of each franchise agreement for each bakery opened. The Company intends to use
the current form of development and franchise agreements with each franchisee
after November 1996; provided, however, that franchisees with existing
development agreements which provide for an earlier form of franchise agreement
will continue to execute such earlier form. Prior to the adoption of the
current form of development and franchise agreements, each franchisee paid
franchise fees that ranged from $0 to $25,000 depending upon a number of
factors, such as whether it had subscribed to purchase shares of Bruegger's
Corporation preferred stock and whether it exceeded its development schedule.
As a result of the Company's acquisition of Bruegger's Corporation, no shares of
Bruegger's Corporation preferred stock remain outstanding and no subscriptions
to purchase such shares remain in effect.
The Company's Bruegger's franchise agreements generally provide for a term of
20 years and payment of a royalty fee of 5% of sales. In addition, the Company
generally has required the franchisee to spend 4% of sales on advertising, 2% of
which must be contributed to a general advertising fund that is used to promote
the Bruegger's concept on a national and regional level and the remaining 2% of
which must be spent on local store marketing. The current form of franchise
agreement requires the franchisees to spend 2% of sales on local store marketing
and make a contribution of 4% of sales to the general advertising fund which the
Company may increase by 1/4% per year (to a maximum of 8%).
The Company has the right to terminate any franchise agreement for a variety
of reasons, including a franchisee's failure to make payments when due or
failure to adhere to Bruegger's policies and standards. Many state franchise
laws limit the ability of a franchisor to terminate or refuse to renew a
franchise agreement.
The Company furnishes each franchisee with assistance in selecting sites and
developing bakeries. Each franchisee is responsible for selecting the location
of its bakeries, but it must obtain the Company's approval of each location
based on the accessibility and visibility of the site and targeted demographic
factors, including population density, income, age and traffic.
Two Directors of the Company and the brother of one of such Directors are the
principal shareholders of certain franchisees (the "Original Franchisees") that
operate certain Bruegger's Bagel Bakeries. As of October 27, 1996, the
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Original Franchisees owned and operated 152 franchised bakeries in New England,
Iowa, Minnesota, New York, North Carolina and Pennsylvania. Prior to 1993, all
Bruegger's bakeries were operated by the Original Franchisees.
The Original Franchisees have been awarded exclusive territories, but are not
obligated to develop a minimum number of bakeries. The franchise agreements
with the Original Franchisees differ from the standard Bruegger's franchise
agreements in that the Original Franchisees are not required to pay initial
franchise or development fees and pay franchise royalties of 4% of sales.
All franchisees are required to operate their bakeries in compliance with
Bruegger's policies, standards and specifications, including matters such as
menu items, ingredients, materials, supplies, services, fixtures, furnishings,
decor and signs. Each franchisee must serve items from an approved menu, but
has the full discretion to determine the prices to be charged to its customers.
Burger King. The Company and Burger King Corporation entered into a
development agreement on December 24, 1993 (the "Burger King Agreement"). The
Burger King Agreement reserves for the Company 25 specifically defined limited
geographic areas ("Areas") and grants the Company the exclusive right to select
and develop one Burger King restaurant in each of up to 18 of those Areas. The
Company paid a $90,000 fee for the exclusivity provided by the Burger King
Agreement. The Company's exclusive right in an Area expires with the opening by
the Company of a Burger King restaurant in that Area. As of October 27, 1996,
the Company had developed 16 Burger King restaurants under the Burger King
Agreement.
The franchise fee for a free-standing Burger King restaurant is currently
$40,000. In addition, each franchise agreement requires the Company to pay a
monthly royalty fee of 3 1/2% of sales and advertising fees of 4% of sales.
To maintain its rights under the Burger King Agreement, by December 31, 1999,
the Company must have developed a total of 18 Burger King restaurants under such
agreement, which includes the 16 Burger King restaurants already developed under
the Burger King Agreement as of October 27, 1996. Although the Company has the
right to develop 18 Burger King restaurants, the Company also has the right to
terminate the Burger King Agreement since it had developed at least 10 Burger
King restaurants prior to December 31, 1996. In addition, the Company has the
right to develop four additional Burger King restaurants pursuant to a target
reservation agreement acquired by the Company in the purchase of the SHONCO
Companies.
The Burger King Agreement and each franchise agreement prohibit the Company,
during the term of the agreements, from owning or operating any other hamburger
restaurant. For a period of one year following the termination of a franchise
agreement, the Company remains subject to such restriction within a two-mile
radius of the Burger King restaurant which was the subject of the franchise
agreement.
Under the Burger King Agreement, the Company is responsible for all costs and
expenses incurred in locating, acquiring and developing restaurant sites. The
Company must also satisfy Burger King Corporation's development criteria, which
include the specific site, the related purchase contract or lease agreement and
architectural and engineering plans for each of the Company's new Burger King
restaurants. Burger King Corporation may refuse to grant a franchise for any
proposed Burger King restaurant if the Company is not conducting the operations
of each of its Burger King restaurants in compliance with Burger King
Corporation's franchise requirements. Burger King Corporation may terminate the
Burger King Agreement if the Company defaults in the performance thereunder or
under any franchise agreement. Burger King Corporation periodically monitors
the operations of its franchised restaurants and notifies its franchisees of
failures to comply with franchise or development agreements that come to its
attention.
Burger King Corporation's franchise agreements convey the right to use its
trade names, trademarks and service marks with respect to specific Burger King
restaurants. Burger King Corporation also provides general construction
specifications, designs, color schemes, signs and equipment, formulas for
preparation of food and beverage products, marketing concepts, inventory,
operations and financial control methods, management training, technical
assistance and
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materials. Each franchise agreement prohibits the Company from transferring a
franchise without the prior approval of Burger King Corporation.
Chili's. The Company has a development agreement with Brinker (the "Chili's
Agreement") to develop 37 Chili's restaurants in two regions encompassing
counties in Indiana, Michigan, Ohio, Kentucky, Delaware, New Jersey and
Pennsylvania. The Company paid development fees totaling $260,000 for the right
to develop the restaurants in the regions, and each franchise agreement requires
the Company to pay an initial franchise fee of $40,000, a monthly royalty fee of
4% of sales and advertising fees of 1/2% of sales. As of October 27, 1996, the
Company operated 22 Chili's.
The Company currently is obligated to satisfy the following development
schedule, and is not permitted to develop more than 41 Chili's without specific
approval of the franchisor:
<TABLE>
<CAPTION>
MINIMUM CUMULATIVE NUMBER OF RESTAURANTS
----------------------------------------
MIDWEST PHILADELPHIA ENTIRE
REGION REGION TERRITORY
---------- --------------- -----------
<S> <C> <C> <C>
December 31, 1996 10 10 20
December 31, 1997 11 12 23
December 31, 1998 12 13 25
December 31, 1999 13 14 29/(1)/
December 31, 2000 14 15 33/(1)/
December 31, 2001 15 16 37/(1)/
</TABLE>
_________________
/(1)/Two of the restaurants to be opened in this year may be located in either
region at the Company's discretion.
Failure to adhere to this schedule constitutes a default under the Chili's
Agreement. The Chili's Agreement prohibits Brinker or any other Chili's
franchisee from establishing a Chili's restaurant within a specified geographic
radius of the Company's Chili's restaurants. The term of the Chili's Agreement
expires when the Company has completed the development schedule. The Chili's
Agreement and the franchise agreements prohibit the Company, for the term of the
agreements, from owning or operating other restaurants which are similar to a
Chili's restaurant. The Chili's Agreement extends this prohibition, but only
within the Company's development territories, for a period of two years
following the termination of such agreement. In addition, each franchise
agreement prohibits the Company, for the term of the franchise agreement and for
a period of two years following its termination, from owning or operating such
other restaurants within a 10-mile radius of the Chili's restaurant which was
the subject of such agreement.
Under the Chili's Agreement, the Company is responsible for all costs and
expenses incurred in locating, acquiring and developing restaurant sites. Each
proposed restaurant site, the related purchase contract or lease agreement and
the architectural and engineering plans for each of the Company's new Chili's
restaurants are subject to Brinker's approval. Brinker may refuse to grant a
franchise for any proposed Chili's restaurant if the Company is not conducting
the operations of each of its Chili's restaurants in compliance with the Chili's
restaurant franchise requirements. Brinker may terminate the Chili's Agreement
if the Company defaults in its performance thereunder or under any franchise
agreement. Brinker periodically monitors the operations of its franchised
restaurants and notifies the franchisees of any failure to comply with franchise
or development agreements that comes to its attention.
The franchise agreements convey the right to use the franchisor's trade names,
trademarks and service marks with respect to specific restaurant units. The
franchisor also provides general construction specifications, designs, color
schemes, signs and equipment, formulas for preparation of food and beverage
products, marketing concepts, inventory, operations and financial control
methods, management training and technical assistance and materials. Each
franchise agreement prohibits the Company from transferring a franchise without
the prior approval of the franchisor.
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Risks and Requirements of Franchisee Status. Due to the nature of franchising
and the Company's agreements with its franchisors, the success of the Company's
Burger King and Chili's concepts is, in large part, dependent upon the overall
success of its franchisors, including the financial condition, management and
marketing success of its franchisors and the successful operation of restaurants
opened by other franchisees. Certain matters with respect to the Company's
franchised concepts must be coordinated with, and approved by, the Company's
franchisors. In particular, certain franchisors must approve the opening by the
Company of any new franchised restaurant, including franchises opened within the
Company's existing franchised territories, and the closing of any of the
Company's existing franchised restaurants. The Company's franchisors also
maintain discretion over the menu items that may be offered in the Company's
franchised restaurants.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The industry is mature and competition can
be expected to increase. There are many well-established competitors with
substantially greater financial and other resources than the Company, some of
which have been in existence for a substantially longer period than the Company
and may have substantially more units in the markets where the Company's
restaurants are, or may be, located. The Company's Bruegger's concept competes
against local and regional bagel shops, regional and national deli and lunch
restaurants, supermarkets and convenience stores. The Company also faces
competition from regional and national bagel chains, including Einstein/Noah
Bagel Corp., Manhattan Bagel Company, Inc., Chesapeake Bagels, New York Bagel
Enterprises, Inc. and Dunkin' Donuts. McDonald's, Wendy's, Hardee's and "double
drive-thru" restaurants are the principal competitors to the Company's Burger
King restaurants. The competitors to the Company's Chili's and Italian Dining
restaurants are other casual dining concepts such as T.G.I. Friday's,
Applebee's, Bennigan's, Olive Garden and Red Lobster restaurants. The primary
competitors to Grady's American Grill are Houston's, J. Alexander's, Cooker Bar
& Grille, and O'Charley's Restaurant & Lounge, as well as a large number of
locally-owned, independent restaurants. The Company believes that competition
is likely to become even more intense in the future.
The Company and the restaurant industry in general are significantly affected
by factors such as changes in local, regional or national economic conditions,
changes in consumer tastes, weather conditions and various other consumer
concerns. In addition, factors such as increases in food, labor and energy
costs, the availability and cost of suitable restaurant sites, fluctuating
insurance rates, state and local regulations and the availability of an adequate
number of hourly-paid employees can also adversely affect the restaurant
industry.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to licensing and regulation by a
number of governmental authorities, which include alcoholic beverage control, in
the case of the Chili's, Italian Dining and Grady's American Grill restaurants,
and health, safety and fire agencies in the state or municipality in which the
restaurant is located. Difficulties or failures in obtaining the required
licenses or approvals could delay or prevent the opening of a new restaurant in
a particular area.
Alcoholic beverage control regulations require each of the Company's Chili's,
Italian Dining and Grady's American Grill restaurants to apply to a state
authority and, in certain locations, county or municipal authorities for a
license or permit to sell alcoholic beverages on the premises and to provide
service for extended hours and on Sundays. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations
of the Company's restaurants, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling, storage and dispensing of alcoholic beverages. The loss of a liquor
license for a particular Grady's American Grill, Italian Dining or Chili's
restaurant would most likely result in the closing of the restaurant.
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<PAGE>
The Company may be subject in certain states to "dramshop" statutes, which
generally provide a person injured by an intoxicated patron the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of
its existing comprehensive general liability insurance and has never been named
as a defendant in a lawsuit involving "dramshop" liability.
The Company's restaurant operations are also subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and tip
credits. Significant numbers of the Company's food service and preparation
personnel are paid at rates related to the federal minimum wage and,
accordingly, further increases in the minimum wage could increase the Company's
labor costs.
Because of its franchise operations for Bruegger's, the Company is subject to
the Trade Regulation Rule of the Federal Trade Commission titled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" and state and local laws and regulations that govern the offer, sale
and termination of franchises and the refusal to renew franchises. Continued
compliance with this broad federal, state and local regulatory network is
essential and costly and the failure to comply with such regulations may have an
adverse effect on the Company and its franchisees. Violation of franchising
laws and/or state laws and regulations regulating substantive aspects of doing
business in a particular state could limit the Company's ability to sell
franchises or subject the Company and its affiliates to rescission offers,
monetary damages, penalties, imprisonment and/or injunctive proceedings. In
addition, under court decisions in certain states absolute vicarious liability
may be imposed upon franchisors based upon claims made against franchisees.
While the Company believes that it maintains adequate insurance coverage for
such claims, there can be no assurance that such insurance will be sufficient to
cover potential claims against the Company.
The Company is also subject to various local, state and federal laws
regulating the discharge of pollutants into the environment. The Company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and, if
necessary, to correct environmental problems, the Company conducts environmental
audits of a proposed restaurant site in order to determine whether there is any
evidence of contamination prior to purchasing or entering into a lease with
respect to such site. To date, the Company's operations have not been
materially adversely affected by the cost of compliance with applicable
environmental laws.
EMPLOYEES
As of October 27, 1996, the Company employed approximately 10,000 persons. Of
those employees, approximately 150 hold management or administrative positions,
approximately 800 are involved in restaurant management, and the remainder are
engaged in the operation of the Company's restaurants. None of the Company's
employees is covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
ITEM 2. PROPERTIES.
As of October 27, 1996, 40 of the Company's Burger King restaurants were
leased from real estate partnerships owned by certain of the Company's founding
shareholders. In addition, the Company leased two of its Burger King
restaurants from William R. Schonsheck or entities controlled by him. See ITEM
13, "Certain Relationships and Related Transactions." The Company also leased
eight Burger King restaurants directly from Burger King Corporation and five
restaurants from unrelated third parties. All of the leases are triple net
leases requiring a base rent and an additional rent based upon sales to the
extent the additional rent exceeds the base rent. Except for the eight leases
with Burger King Corporation, all of the leases have renewal options. The eight
leases with Burger King Corporation are subject to the renewal of the franchise
agreements for those locations. The Company owned eight of its Burger King
restaurants as of October 27, 1996, and expects to own most of its new Burger
King restaurants.
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<PAGE>
As of October 27, 1996, the Company owned 9 of its Chili's restaurants and
five of its Italian Dining restaurants. The Company leased its other 13 Chili's
restaurants and one Italian Dining restaurant from unrelated parties.
As of October 27, 1996, one of the Company-owned Bruegger's Bagel Bakeries was
leased from an entity with which two of the Company's Directors are affiliated.
See ITEM 13, "Certain Relationships and Related Transactions." The Company also
leased 99 Company-owned Bruegger's Bagel Bakeries from unrelated parties. All
of the leases are triple net leases requiring a base rent and an additional rent
based upon sales to the extent the additional rent exceeds the base rent.
As of October 27, 1996, the Company leased 19 of its Grady's American Grill
restaurants from unrelated parties. The Company leased one Grady's American
Grill restaurant from a limited partnership of which a subsidiary of the Company
is the general partner. The Company's other 22 Grady's American Grill
restaurants were owned by the Company.
The following table sets forth, as of October 27, 1996, the 23 states in which
the Company operated restaurants and the number of restaurants in each state:
<TABLE>
<CAPTION>
NUMBER OF COMPANY-OPERATED RESTAURANTS
----------------------------------------------
GRADY'S
BURGER ITALIAN BRUEGGER'S AMERICAN
KING CHILI'S DINING BAKERIES GRILL TOTAL
------ ------- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Alabama......... 1 1
Arkansas........ 1 1
Colorado........ 3 3
Delaware........ 1 1
Florida......... 6 6
Georgia......... 5 5
Illinois........ 19 1 20
Indiana......... 32 4 2 4 42
Louisiana....... 1 1
Massachusetts... 9 9
Michigan........ 31 5 2 10 1 49
Mississippi..... 1 1
New Hampshire... 4 4
New Jersey...... 4 6 10
New Mexico...... 1 1
North Carolina.. 3 3
Ohio............ 2 2 43 1 48
Oklahoma........ 1 1
Pennsylvania.... 6 4 10
Tennessee....... 5 5
Texas........... 10 10
Vermont......... 1 1
Virginia........ 1 1
-- -- -- --- -- ---
63 22 6 100 42 233
====== == ======= === == ===
</TABLE>
The Company's headquarters facility, a 9,700 square-foot office building
constructed in 1988, is located in Mishawaka, Indiana, and is leased from an
affiliated partnership. A new headquarters facility is currently under
construction and is expected to be occupied in March 1997. The new 53,000
square-foot headquarters office building is located in Mishawaka, Indiana, and
is leased from a limited liability company in which the Company has a 50%
interest. The Company's existing headquarters facility has been subleased to a
local financial institution for a term extending through the expiration of the
Company's lease. The Company leases office space in Philadelphia,
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Pennsylvania, Phoenix, Arizona, Burlington, Vermont and Cleveland, Ohio for
regional management of its Bruegger's concept. The Company also leases office
space in Dallas, Texas and Detroit, Michigan for management of its Grady's
American Grill and Burger King restaurants, respectively. See ITEM 13, "Certain
Relationships and Related Transactions."
ITEM 3. LEGAL PROCEEDINGS.
On November 10, 1994, the Company acquired all of the outstanding stock of
Grayling Corporation, Grayling Management Corporation ("Grayling Management"),
Chili's of Mt. Laurel, Inc. ("Mt. Laurel") and Chili's of Christiana, Inc.
("Christiana"). Prior to entering into negotiations with the Company, Grayling
Corporation and its principal shareholder, T. Garrick Steele ("Steele"), had
entered into an agreement (the "Asset Agreement") to sell substantially all of
Grayling Corporation's assets to a third party, KK&G Enterprises, Inc. ("KK&G").
The Asset Agreement was terminated by Grayling Corporation and was not
consummated. On September 27, 1994, KK&G filed suit in the Court of Common
Pleas, Philadelphia County, Pennsylvania, against Grayling Corporation, Mt.
Laurel, Christiana and Steele seeking damages and specific performance of the
Asset Agreement. Steele is obligated to continue to defend the lawsuit and
indemnify the Company and Grayling Corporation against any loss or damages
resulting from the lawsuit. Management does not expect that the lawsuit will
have a material adverse effect on the Company's financial position or results of
operations. In making such assessment, management has considered the financial
ability of Steele to defend the lawsuit and indemnify the Company against any
loss or damages resulting from the lawsuit.
Big D Bagels, Inc. ("Big D"), a wholly-owned subsidiary of Ciatti's, Inc.
("Ciatti's"), is a franchisee of Bruegger's. Ciatti's is a publicly-held
corporation. Ciatti's filed a Registration Statement with the Securities and
Exchange Commission pursuant to which it proposed to commence a rights offering
to its existing shareholders to raise approximately $4.4 million in additional
equity (the "Proposed Offering"). When Bruegger's learned of the Proposed
Offering, it notified Ciatti's that the Development and Franchise Agreements
existing between Bruegger's Franchise Corporation, a wholly-owned subsidiary of
Bruegger's Corporation, and Big D (the "Franchise Documents") required Big D and
Ciatti's to obtain the consent of Bruegger's Franchise Corporation prior to
proceeding with the Proposed Offering. Ciatti's and Big D maintained that the
Franchise Documents did not require such consent, and they were unwilling to
request such consent. On November 8, 1996, Ciatti's and Big D filed a Complaint
for Declaratory and Injunctive Relief in the United States District Court for
the District of Minnesota, naming Quality Dining, Inc. and Bruegger's Franchise
Corporation as defendants and requesting the Court to determine that the
Franchise Documents do not require them to obtain consent for the Proposed
Offering. The Company and Bruegger's Franchise Corporation have requested the
Court to determine that the Franchise Documents require Ciatti's and Big D to
obtain such consent before proceeding with the Proposed Offering. On December
20, 1996, Ciatti's and Big D filed a Motion for Summary Judgment and Declaratory
Relief. Bruegger's Franchise Corporation is conducting certain discovery in
advance of preparing its response to the pending Motion for Summary Judgment and
Declaratory Relief. Currently, neither Ciatti's nor Big D has sought any
damages in this matter. Management does not expect that the lawsuit will have a
material adverse effect on the Company's financial position or results of
operations.
The Company is involved in various other legal proceedings incidental to the
conduct of its business. Management does not expect that any such proceedings
will have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the 1996 fiscal year.
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EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Daniel B. Fitzpatrick 39 Chairman of the Board, President and Chief Executive Officer
John C. Firth 39 Senior Vice President, General Counsel and Secretary
James K. Fitzpatrick 41 Senior Vice President, Chief Administrative Officer, Chief
Development Officer and Director
William R. Schonsheck 46 Senior Vice President, Chief Operating Officer of Burger
King Division and Director
Gerald O. Fitzpatrick 36 Senior Vice President, Burger King Division
W. Clark Knippers 35 Senior Vice President - Director of Development
Scott C. Smith 41 Senior Vice President - Full Service Dining Division
David M. Findlay 35 Vice President and Treasurer
Bruce A. Phillips 41 Vice President - Bruegger's Advertising and Marketing
Marti'n L. Miranda 33 Vice President, Controller and Assistant Secretary
Michael J. Wargo 36 Vice President - Director of Human Resources
</TABLE>
Daniel B. Fitzpatrick has served as President and Chief Executive Officer and
a Director of the Company since 1982. Prior to founding the Company, Mr.
Fitzpatrick worked for a franchisee of Burger King Corporation, rising to the
level of regional director of operations. He has over 23 years of experience in
the restaurant business. Mr. Fitzpatrick also serves as a director of 1st Source
Corporation, a multi-bank diversified financial services corporation based in
South Bend, Indiana.
John C. Firth serves as Senior Vice President, General Counsel and Secretary.
Prior to joining the Company in June 1996, he was a partner with the law firm of
Sopko and Firth. Since 1985, he has represented the Company as outside legal
counsel with responsibility for the Company's legal affairs.
James K. Fitzpatrick serves as Senior Vice President, Chief Administrative
Officer and Chief Development Officer. He has served as Senior Vice President
and Chief Development Officer of the Company since August 1995. Prior to that,
Mr. Fitzpatrick served as Vice President or Senior Vice President of the Company
in charge of the Company's Fort Wayne, Indiana Burger King restaurant operations
since 1984. Prior to joining the Company, he served as a director of operations
for a franchisee of Burger King Corporation. He has 25 years of experience in
the restaurant business.
William R. Schonsheck joined the Company in August 1995 as Senior Vice
President, Chief Operating Officer of the Burger King Division. Prior to
joining the Company, Mr. Schonsheck held various positions in the Burger King
system, most recently as a franchisee in Detroit, Michigan. Pursuant to an
employment agreement between the
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Company and Mr. Schonsheck, he is to serve as the Chief Operating Officer of the
Burger King Division. See ITEM 11, "Executive Compensation." Mr. Schonsheck has
over 28 years of experience in the Burger King business.
Gerald O. Fitzpatrick has served as the Vice President or Senior Vice
President of the Company in charge of the Company's South Bend, Indiana Burger
King operations since 1983. Prior to joining the Company, he served as a
district manager for a franchisee of Burger King Corporation. He has over 17
years of experience in the restaurant business.
W. Clark Knippers joined the Company in October 1996 and serves as Senior Vice
President - Director of Development. From October 1994 to October 1996, he was
President of Bread Garden Restaurants, Inc. Prior to October 1994, he was Vice
President of Development and Real Estate for Brinker, where he served for nearly
10 years.
Scott C. Smith joined the Company in May 1994 and has served as Vice President
or Senior Vice President of the Company in charge of the Company's Chili's and
Italian Dining operations since June 1994. Prior to joining the Company, he
served as director of franchise operations for the Chili's and Spageddies
divisions of Brinker. He has 22 years of experience in the restaurant business.
David M. Findlay has served as Vice President and Treasurer since October
1996. He joined the Company in May 1995 as Vice President - Director of
Planning and Investor Relations. Prior to joining the Company, Mr. Findlay
spent 10 years at The Northern Trust Company of Chicago, Illinois, specializing
in commercial lending to large companies and financial institutions.
Bruce A. Phillips serves as the Company's Vice President - Bruegger's
Advertising and Marketing. He joined the Company in May 1994 as Vice President
in charge of the Company's Bruegger's Bakeries operations. Prior to joining the
Company, he served as a marketing manager and an operations manager for Burger
King Corporation. He has over eight years of experience in the restaurant
business.
Marti'n L. Miranda has served as Vice President, Controller and Assistant
Secretary since October 1996. He joined the Company in May 1994 as Controller.
Prior to joining the Company, he served in a similar capacity with NBD
Insurance, a wholly owned subsidiary of NBD Corporation. Mr. Miranda is a
certified public accountant.
Michael J. Wargo has served as Vice President - Director of Human Resources
since September 1995. He joined the Company in January 1994. He was previously
employed by Valley American Bank & Trust Company as director of training and
development, and prior to that he was a human resources officer at NBD Bank.
Mr. Wargo has over 13 years of experience as a human resources professional.
The above information includes business experience during the past five years
for each of the Company's executive officers. Executive officers of the Company
serve at the discretion of the Board of Directors. Messrs. Daniel B.
Fitzpatrick, James K. Fitzpatrick and Gerald O. Fitzpatrick are brothers. There
is no family relationship between any other Directors or executive officers of
the Company.
The success of the Company's business is dependent upon the services of Daniel
B. Fitzpatrick, President and Chief Executive Officer of the Company. The
Company maintains key man life insurance on the life of Mr. Fitzpatrick in the
principal amount of $3.0 million. The loss of the services of Mr. Fitzpatrick
would have a material adverse effect upon the Company.
(Pursuant to General Instruction G(3) of Form 10-K, the foregoing information
is included as an unnumbered Item in Part I of this Annual Report in lieu of
being included in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders.)
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq Stock Market's National
Market under the symbol QDIN. The prices set forth below reflect the high and
low sales quotations for the Company's Common Stock as reported by Nasdaq for
the calendar periods indicated. As of January 14, 1997, there were 287 holders
of record and approximately 4,500 beneficial owners.
<TABLE>
<CAPTION>
Calendar 1996 Calendar 1995
High Low High Low
-------------------- --------------------
<S> <C> <C> <C> <C>
First Quarter $ 31.250 $ 19.750 $ 12.625 $ 11.625
Second Quarter 39.500 26.500 16.375 12.188
Third Quarter 33.500 24.563 21.500 15.750
Fourth Quarter 28.625 16.750 26.875 18.875
</TABLE>
The Company does not pay cash dividends on its Common Stock. The Company
currently intends to retain its earnings to finance future development of its
business and does not anticipate paying cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, results of operations, capital requirements, the financial condition
of the Company and general business conditions. The Company's revolving credit
agreement limits the payment of cash dividends and other distributions to an
aggregate amount not to exceed, for a given fiscal year, 40% of the Company's
consolidated net income for the immediately preceding fiscal year.
No unregistered equity securities were sold by the Company during fiscal 1996.
-18-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
QUALITY DINING, INC.
SELECTED FINANCIAL DATA
(In thousands, except unit and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (1)
OCTOBER 27, October 29, October 30, October 31, October 25,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues:
Restaurant sales:
Bruegger's Bagel Bakery $ 25,967 $ 5,270 $ 191 $ - $ -
Grady's American Grill 85,101 - - - -
Italian Dining Division 8,388 4,741 174 - -
Burger King 70,987 57,013 49,716 49,032 43,762
Chili's Grill & Bar 41,913 38,267 14,286 9,963 4,625
- -----------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 232,356 105,291 64,367 58,995 48,387
Franchise related revenue 5,274 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 237,630 105,291 64,367 58,995 48,387
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Restaurant operating expenses:
Food and beverage 72,201 31,176 18,576 16,465 13,168
Payroll and benefits 66,176 27,191 16,190 14,830 12,193
Depreciation and amortization 11,635 5,109 2,610 2,376 2,044
Other operating expenses 52,452 24,057 15,351 15,065 12,516
- ----------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 202,464 87,533 52,727 48,736 39,921
General and administrative 12,047 5,706 4,065 3,543 3,087
Consulting fee - - - 600 -
Amortization of intangibles 2,537 682 83 83 -
Restructuring and integration costs 9,938 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 226,986 93,921 56,875 52,962 43,008
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (3) 10,644 11,370 7,492 6,033 5,379
- -----------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (6,340) (2,699) (1,314) (1,673) (1,226)
Gain (loss) on sale of property and equipment 4 343 (59) 2 -
Interest income 206 127 155 165 169
Other income (expense), net 154 (12) (14) - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expense (5,976) (2,241) (1,232) (1,506) (1,057)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,668 9,129 6,260 4,527 4,322
Income taxes 1,998 3,240 2,332 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,670 $ 5,889 $ 3,928 $ 4,527 $ 4,322
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share $0.23 $0.85
- -------------------------------------------------------------------------------------
Weighted average shares outstanding 11,855 6,925
- -------------------------------------------------------------------------------------
Pro forma income data:
Net income as reported $ 3,928 $ 4,527 $ 4,322
Pro forma provision for income taxes (4) 512 1,675 1,599
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 3,416 $ 2,852 $ 2,723
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income per share $0.59 $0.64
- -----------------------------------------------------------------------------------------------------------------
Pro forma weighted average number of
common shares and common stock
equivalent shares outstanding (5) 5,801 4,438
- -----------------------------------------------------------------------------------------------------------------
RESTAURANT DATA:
Units open at end of period:
Bruegger's Bagel Bakery Division:
Company-owned 100 12 3 - -
Franchised 325 - - - -
Grady's American Grill 42 - - - -
Italian Dining Division 6 5 1 - -
Burger King 63 59 48 44 44
Chili's Grill & Bar 22 18 8 4 2
- -----------------------------------------------------------------------------------------------------------------------------------
Totals 558 94 60 48 46
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficiency $ (1,387) $ (1,826) $(1,894) $ (888) $ (751)
Total assets 388,014 99,247 43,273 24,946 22,671
Long-term debt, capitalized lease
and non-competition obligations 85,046 14,298 7,492 16,621 15,666
Total stockholders' equity 269,123 71,401 26,582 3,761 3,014
</TABLE>
(1) All fiscal years presented consisted of 52 weeks with the exception of the
fiscal year ended October 31, 1993, which consisted of 53 weeks.
(2) The selected income statement data include the operations of Bruegger's
Corporation from June 7, 1996; the Grady's American Grill restaurants from
December 21, 1995; SHONCO, Inc. and certain affiliated companies from
August 14, 1995; and Grayling Corporation and certain affiliated companies
from November 10, 1994. See Note 14 to the consolidated financial
statements.
(3) Operating income for the fiscal year ended October 27, 1996 includes
restructuring and integration charges of $1.9 million associated with costs
related to the acquisitions of the Grady's American Grill concept and
restaurants and Spageddies Italian Kitchen concept and $8.0 million
associated with costs related to the acquisition of Bruegger's Corporation.
(4) Reflects federal and state income taxes (assuming a 37% effective tax rate)
as if the Company had been taxed as a C Corporation rather than an S
Corporation during these entire periods. See Note 2 to the consolidated
financial statements.
(5) See Note 2 to the consolidated financial statements.
-20-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
For an understanding of the significant factors that influenced the Company's
performance during the past three fiscal years, the following discussion should
be read in conjunction with the consolidated financial statements appearing
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table reflects the percentages that certain items of revenue and
expense bear to total revenues, except restaurant operating expenses, which are
expressed as a percentage of total restaurant sales.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Restaurant sales:
Bruegger's Bagel Bakery 10.9% 5.0% 0.3%
Grady's American Grill 35.8 - -
Italian Dining Division 3.5 4.5 0.3
Burger King 29.9 54.2 77.2
Chili's Grill & Bar 17.7 36.3 22.2
- ----------------------------------------------------------------------------------------------------------------------
Total restaurant sales 97.8 100.0 100.0
Franchise related revenue 2.2 - -
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 100.0 100.0 100.0
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Restaurant operating expenses (as % of restaurant sales):
Food and beverage 31.1 29.6 28.9
Payroll and benefits 28.5 25.8 25.1
Depreciation and amortization 5.0 4.8 4.0
Other operating expenses 22.5 22.9 23.9
- ----------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 87.1 83.1 81.9
General and administrative 5.1 5.4 6.3
Amortization of intangibles 1.1 0.7 0.1
Restructuring and integration costs 4.2 - -
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 95.5 89.2 88.3
- ----------------------------------------------------------------------------------------------------------------------
Operating income 4.5 10.8 11.7
- ----------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (2.7) (2.5) (2.1)
Gain (loss) on sale of property and equipment - 0.3 (0.1)
Interest income 0.1 0.1 0.2
Other income 0.1 - -
- ----------------------------------------------------------------------------------------------------------------------
Total other expense, net (2.5) (2.1) (2.0)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 2.0 8.7 9.7
Income taxes 0.9 3.1 3.6
- ----------------------------------------------------------------------------------------------------------------------
Net income 1.1% 5.6% 6.1%
- ----------------------------------------------------------------------------------------------------------------------
Pro forma income data:
Net income as reported 6.1%
Pro forma provision for income taxes 0.8
- ---------------------------------------------------------------------------------------------------------------------
Pro forma net income 5.3%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Total revenues reached $237.6 million in fiscal 1996, an increase of 126%
compared to $105.3 million reported in fiscal 1995. In addition to restaurant
sales, total revenues in fiscal 1996 include $5.3 million of franchise related
revenues from the Company's retail bagel bakery operations. Franchise related
revenues consist of royalties on franchised restaurant sales, franchise and
development fees, net commissary revenue, interest income and other
miscellaneous fees from franchised operations.
-21-
<PAGE>
Restaurant sales in fiscal 1996 increased 121% to $232.4 million, compared to
$105.3 million in fiscal 1995. This increase was primarily attributable to sales
generated by newly opened and acquired restaurants in fiscal 1996. New Company-
owned restaurants open at the conclusion of fiscal 1996 that were not open
during the full fiscal year 1995 include: 97 Bruegger's Bagel Bakeries, 68 of
which were acquired on June 7, 1996 in the acquisition of Bruegger's
Corporation; 42 Grady's American Grill restaurants, which were purchased on
December 21, 1995; 17 Burger King restaurants; 14 Chili's Grill & Bar
restaurants; four Spageddies Italian Kitchen restaurants; and one Papa Vino's
Italian Kitchen restaurant. (See Note 14 to the consolidated financial
statements for additional information regarding acquisitions.)
Total restaurant operating expenses were $202.5 million in fiscal 1996, compared
to $87.5 million in fiscal 1995. As a percentage of restaurant sales, total
restaurant operating expenses increased from 83.1% in fiscal 1995 to 87.1% in
fiscal 1996 for the following reasons:
Food and beverage costs amounted to $72.2 million, or 31.1% of total restaurant
sales in fiscal 1996, compared to $31.2 million or 29.6 % of total restaurant
sales in fiscal 1995. This increase was primarily attributable to higher food
costs associated with the Grady's American Grill restaurants, which were
acquired in the first quarter of fiscal 1996, compared to the food costs of the
Company's other concepts.
Payroll and benefits were $66.2 million in fiscal 1996, compared to prior-year
levels of $27.2 million. As a percentage of total restaurant sales, payroll and
benefits increased from 25.8% in fiscal 1995 to 28.5% in fiscal 1996, primarily
as a result of the Company operating an increased number of full service and new
Bruegger's restaurants. These units typically operate at higher labor costs than
the Company's more mature Bruegger's and Burger King restaurants.
Depreciation and amortization increased $6.5 million to $11.6 million in fiscal
1996. As a percentage of total restaurant sales, depreciation and amortization
increased to 5.0% in fiscal 1996 from 4.8% in fiscal 1995, due to newly opened
units in the fiscal year.
Other restaurant operating expenses include rent and utilities, royalties,
promotional expense, repairs and maintenance, property taxes and insurance.
Other restaurant operating expenses were $52.5 million in fiscal 1996 compared
to $24.1 million in 1995. Other restaurant operating expenses as a percentage of
total restaurant sales, however, declined in fiscal 1996 to 22.5% from 22.9% in
fiscal 1995. This decrease was primarily due to effective cost control at the
restaurant level and an increase in the mix of owned restaurants versus leased
properties resulting in lower rent expense as a percentage of total restaurant
sales.
General and administrative expenses, which includes corporate and district
management costs, were $12.0 million in fiscal 1996, compared to $5.7 million in
fiscal 1995. As a percentage of total revenues, general and administrative
expenses decreased to 5.1% in fiscal 1996 from 5.4% in fiscal 1995. This
decrease was primarily due to the beneficial leverage derived from increased
sales at the Company's new and acquired restaurants.
Amortization of intangibles was $2.5 million in fiscal 1996, compared to $0.7
million in fiscal 1995. The increase was due to the amortization of intangible
assets related to the acquisitions of Bruegger's Corporation and Grady's
American Grill.
During fiscal 1996, the Company recorded special pre-tax charges for
restructuring and integration costs related to the acquisitions of Bruegger's
Corporation ($8.0 million) and the Grady's American Grill concept and
restaurants and the Spageddies Italian Kitchen concept ($1.9 million). In
connection with the Bruegger's acquisition, the charge represents costs
associated with combining and integrating administrative functions and
recruiting and relocating new employees, franchise related costs, and legal and
professional fees. The Company also accrued an additional $6.0 million as part
of the cost of the acquisition for facility closures,
-22-
<PAGE>
restaurant remodeling and relocation and severance packages for personnel.
Through fiscal 1996, $4.9 million of these costs have been incurred, of which
$3.5 million were cash payments and $1.4 million were non-cash charges,
primarily for the write down of assets. The Company expects to complete these
actions in fiscal 1997. At October 27, 1996, $9.0 million related to the
Bruegger's integration costs remained in accrued liabilities. The Grady's
American Grill and Spageddies charge represents the integration of computer
systems, employee transition costs, recruitment and relocation costs, and legal
and professional fees. At October 27, 1996, substantially all costs related to
the Grady's American Grill and Spageddies charge had been incurred.
Operating income was $10.6 million in fiscal 1996 compared to $11.4 million in
fiscal 1995. The special charges noted above were the primary reason for the
decline in operating income. Excluding the special charges, operating income
would have increased 81% in fiscal 1996 to $20.6 million, primarily as a result
of increased revenues from acquisitions and new store openings.
Total other expenses, as a percentage of total revenues, increased to 2.5% in
fiscal 1996 compared to 2.1% in fiscal 1995. This increase was primarily
attributable to higher interest costs arising from increased borrowings under
the Company's revolving credit facility to fund acquisitions and new restaurant
openings.
Income taxes in fiscal 1996 decreased to $2.0 million from $3.2 million in
fiscal 1995 due to lower pre-tax income in fiscal 1996, resulting primarily from
the special charges noted above. The Company's effective income tax rate in
fiscal 1996 increased to 42.8% from 35.5% in fiscal 1995, primarily due to the
nondeductible goodwill amortization resulting from the Bruegger's acquisition.
Net income in fiscal 1996 was $2.7 million compared to $5.9 million in fiscal
1995. In fiscal 1996, net income as a percentage of total revenues decreased to
1.1%, compared to 5.6% in fiscal 1995. Strong revenue growth in fiscal 1996 was
more than offset by the special charges noted above and increased costs
associated with a change in restaurant mix to a higher number of full service
restaurants.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Restaurant sales in fiscal 1995 were $105.3 million, an increase of 64% over
restaurant sales of $64.4 million in fiscal 1994. This increase was primarily
attributable to sales generated by restaurants operating in fiscal 1995 that
were not operating during fiscal 1994. New restaurants open at the conclusion of
fiscal 1995 that were not open during the full fiscal year in 1994 include: 14
Chili's restaurants, eight of which were acquired in November, 1994, as a result
of the acquisition of Grayling Corporation (see Note 14 to the consolidated
financial statements); 12 Bruegger's Bagel Bakeries; 17 Burger King restaurants,
eight of which were acquired in August, 1995 in the SHONCO acquisition; and five
Spageddies Italian Kitchen restaurants.
Total restaurant operating expenses were $87.5 million in fiscal 1995, a 66%
increase over the $52.7 million reported in fiscal 1994. As a percentage of
restaurant sales, total restaurant operating expenses increased from 81.9% in
fiscal 1994 to 83.1% in fiscal 1995.
Food and beverage costs increased $12.6 million to $31.2 million in fiscal 1995,
an increase of 68% from fiscal 1994. As a percentage of total restaurant sales,
food and beverage costs increased from 28.9% in fiscal 1994 to 29.6% in fiscal
1995. This increase was attributable to higher costs for lettuce and other
produce incurred primarily during the second quarter of fiscal 1995 and to the
relatively higher food and beverage costs associated with the increased number
of full service restaurants and Bruegger's Bagel Bakeries operated by the
Company.
Payroll and benefits were $27.2 million in fiscal 1995, an increase of 68% over
$16.2 million incurred in fiscal 1994. As a percentage of total restaurant
sales, payroll and benefits increased from 25.1% in fiscal 1994 to
-23-
<PAGE>
25.8% in fiscal 1995, primarily as a result of the Company operating an
increased number of Chili's, Spageddies and Bruegger's restaurants. These
concepts typically operate at higher rates of payroll than the Company's Burger
King restaurants.
Depreciation and amortization was $5.1 million in fiscal 1995, compared to $2.6
million in fiscal 1994. As a percentage of total restaurant sales, depreciation
and amortization increased from 4.0% in fiscal 1994 to 4.8% in fiscal 1995.
These increases were primarily attributable to higher costs of newly opened
units and a substantial number of acquired restaurants.
Other restaurant operating expenses were $24.1 million in fiscal 1995, an
increase of 57% over the $15.4 million in fiscal 1994. As a percentage of total
restaurant sales, other restaurant operating expenses decreased from 23.9% in
fiscal 1994 to 22.9% in fiscal 1995. This decrease was primarily due to higher
sales at the Burger King restaurants, effective cost control at the restaurant
level, and an increase in the mix of owned restaurants versus leased properties
resulting in lower rent expense as a percentage of total restaurant sales.
General and administrative expenses, which includes corporate and district
management costs, totaled $5.7 million in fiscal 1995, an increase of 40% over
$4.1 million in fiscal 1994. As a percentage of total restaurant sales, general
and administrative expenses decreased from 6.3% in fiscal 1994 to 5.4% in fiscal
1995. This decrease was primarily attributable to the beneficial leverage
derived from increased sales at the Company's new and acquired restaurants.
Operating income increased $3.9 million to $11.4 million in fiscal 1995, a 52%
increase over fiscal 1994. As a percentage of total revenues, operating income
decreased from 11.7% in fiscal 1994 to 10.8% in fiscal 1995 as a net result of
the factors described above.
Total other expense increased $1.0 million in fiscal 1995 compared to fiscal
1994. This increase was primarily attributable to higher interest expense
associated with increased borrowings under the Company's revolving credit
facility to fund new restaurant openings and acquisitions. On July 10, 1995, the
Company completed the sale of two Burger King restaurants to a related party for
$850,000 consisting of $600,000 in cash and 20,000 shares of the Company's
common stock valued at $250,000. The Company realized a gain on the sale of
$350,000 or $.03 per share. As a percentage of total revenues, other expenses
increased from 2.0% in fiscal 1994 to 2.1% in fiscal 1995.
Income taxes in fiscal 1995 increased to $3.2 million from $2.8 million
(including a $0.5 million pro forma provision for income taxes) in fiscal 1994
due to higher pre-tax income in fiscal 1995. The Company's effective income tax
rate in fiscal 1994 was 45.4% compared to 35.5% in fiscal 1995. The decrease in
the effective tax rate was due principally to a non-recurring charge of $546,000
required during the second quarter of fiscal 1994 to establish a provision for
deferred income taxes upon termination of the Company's S Corporation status.
Excluding the non-recurring charge, the Company's effective income tax rate in
fiscal 1994 was 36.7%.
Net income was $5.9 million in fiscal 1995 compared to $3.9 million in fiscal
1994. As a percentage of total revenues, net income decreased to 5.6% in fiscal
1995 from 6.1% in fiscal 1994, as a net result of the factors described above.
-24-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The following table summarizes the Company's principal sources and uses of cash:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operations $ 14,464 $ 12,908 $ 8,222
Nonoperating sources of cash:
Proceeds from sale of common stock, net 59,755 31,688 25,458
Borrowings of long-term debt 218,285 37,721 6,000
Nonoperating uses of cash:
Acquisitions of businesses, net of cash
acquired (77,168) (23,472) -
Purchase of property and equipment (41,135) (25,357) (14,574)
Repayment of long-term debt (163,223) (30,308) (14,200)
Increase in notes receivable (10,025) - -
</TABLE>
Cash flow generated from restaurant operations provides the Company with a
significant source of liquidity. Approximately 35%, 51% and 56% of the funds
required to construct restaurants and purchase other property and equipment were
generated by operating activities during fiscal 1996, 1995 and 1994,
respectively.
Increases in current assets and current liabilities are due in large part
to new restaurants opened during fiscal 1996. The Company is able to operate
effectively with negative working capital because substantially all sales are
for cash and costs are generally payable in 15 - 45 days. Similar increases in
current assets and current liabilities are expected as the Company continues
its aggressive restaurant development program.
On April 26, 1996, the Company amended its existing revolving credit
facility. The facility, as amended, provides for borrowings up to a maximum of
$150 million. The interest rate paid by the Company is the adjusted LIBOR rate
plus 1.5% (6.9375% at October 27, 1996). The loan agreement expires on April
26, 1999 and is unsecured. As of October 27, 1996, there was $78.6 million
outstanding under this revolving credit facility. (See Note 9 to the
consolidated financial statements.)
The Company's primary cash requirements in fiscal 1997 will be to finance
capital expenditures in connection with the opening of new restaurants and for
general working capital purposes. The Company's capital expenditures budget is
expected to range from $35 million to $60 million for fiscal 1997. During
fiscal 1997, the Company anticipates opening 50 to 100 Company-owned Bruegger's
Bagel Bakeries, one or two Grady's American Grill restaurants, one or two
Italian Dining restaurants, three to five Burger King restaurants and three to
five Chili's. The actual amount of the Company's cash requirements for capital
expenditures depends in part on the number of new restaurants opened and the
land acquisition costs associated with such restaurants. With the exception of
Bruegger's Bagel Bakeries, the Company expects to own the real estate for most
of the new restaurants, leasing only when purchasing is not feasible.
The Company anticipates that its cash flow from operations, together with
amounts available under its revolving credit agreement, will be sufficient to
fund its planned internal expansion and other internal operating cash
requirements through the end of fiscal 1997.
If the Company's Bruegger's franchisees are to continue their aggressive
development of Bruegger's Bagel Bakeries, they must secure significant
additional financing. The Company is considering various alternative programs to
provide necessary financing to certain Bruegger's franchisees to enable them to
execute their development plans. Any such program will likely require the
Company to secure additional debt or equity funds. Although the Company believes
that it will be able to implement such a program on terms acceptable to the
Company and such franchisees, there can be no assurance thereof. In the absence
of an acceptable program, the continued development of new bakeries by the
Company's Bruegger's franchisees could be adversely affected.
-25-
<PAGE>
IMPACT OF INFLATION
Management does not believe that inflation has had a material effect on the
Company's operations during the past several years. Increases in labor, food,
and other operating costs could adversely affect the Company's operations. In
the past, however, the Company generally has been able to modify its operating
procedures or increase menu prices to substantially offset increases in its
operating costs.
This report contains certain forward-looking statements, including
statements about the Company's development plans, that involve a number of risks
and uncertainties. Among the factors that could cause actual results to differ
materially are the following: the availability and cost of suitable locations
for new restaurants; the availability of capital to the Company and its
franchisees; the ability of the Company and its franchisees to develop and
operate their restaurants; the hiring, training and retention of skilled
management and other restaurant personnel; the integration and assimilation of
acquired concepts; the ability to upgrade the Company's infrastructure to
support its operations and development plans; the overall success of the
Company's franchisors; the ability to obtain the necessary government approvals
and third-party consents; and changes in governmental regulations, including
increases in the minimum wage.
-26-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
- ------------------------------------------------------------------------------
OCTOBER 27, October 29,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 444 $ 5,639
Accounts receivable 4,518 599
Accounts and note receivable, related parties 11,651 -
Note receivable 3,585 -
Inventories 3,082 825
Deferred income taxes 1,996 23
Other current assets 3,438 1,352
- ------------------------------------------------------------------------------
Total current assets 28,714 8,438
- ------------------------------------------------------------------------------
Property and equipment, net 177,044 63,209
- ------------------------------------------------------------------------------
Other assets:
Franchise fees and development costs, net 10,406 10,698
Goodwill, net 152,195 10,216
Trademarks, net 13,082 -
Pre-opening costs and non-competition agreements,
net 2,463 1,709
Liquor licenses, net 2,876 2,131
Investment in redeemable preferred stock - 2,625
Other 1,234 221
- ------------------------------------------------------------------------------
Total other assets 182,256 27,600
- ------------------------------------------------------------------------------
Total assets $388,014 $ 99,247
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized lease and
non-competition obligations, principally
to related parties $ 451 $ 360
Current portion of redeemable preferred
stock subscription payable - 375
Accounts payable 8,231 4,111
Accounts payable, related parties 300 1,076
Accrued liabilities 21,119 3,631
Income taxes payable - 711
- ------------------------------------------------------------------------------
Total current liabilities 30,101 10,264
Long-term debt 78,610 7,413
Capitalized lease and non-competition
obligations, principally to related
parties, less current portion 6,436 6,885
Redeemable preferred stock subscription
payable, less current portion - 875
Deferred income taxes 3,744 2,409
- ------------------------------------------------------------------------------
Total liabilities 118,891 27,846
- ------------------------------------------------------------------------------
Commitments and contingencies
(Notes 11, 12 and 13)
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued
Common stock, without par value: 50,000,000
shares authorized; 16,929,035 and 8,856,520
shares issued, respectively 28 28
Additional paid-in capital 258,242 63,190
Retained earnings 11,103 8,433
- ------------------------------------------------------------------------------
269,373 71,651
Less treasury stock, at cost, 20,000 shares 250 250
- ------------------------------------------------------------------------------
Total stockholders' equity 269,123 71,401
- ------------------------------------------------------------------------------
Total liabilities and stockholders' equity $388,014 $ 99,247
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-27-
<PAGE>
<TABLE>
<CAPTION>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
- --------------------------------------------------------------------------------------------------
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Restaurant sales:
Bruegger's Bagel Bakery $ 25,967 $ 5,270 $ 191
Grady's American Grill 85,101 - -
Italian Dining Division 8,388 4,741 174
Burger King 70,987 57,013 49,716
Chili's Grill & Bar 41,913 38,267 14,286
- --------------------------------------------------------------------------------------------------
Total restaurant sales 232,356 105,291 64,367
Franchise related revenue 5,274 - -
- --------------------------------------------------------------------------------------------------
Total revenues 237,630 105,291 64,367
- --------------------------------------------------------------------------------------------------
Operating expenses:
Restaurant operating expenses:
Food and beverage 72,201 31,176 18,576
Payroll and benefits 66,176 27,191 16,190
Depreciation and amortization 11,635 5,109 2,610
Other operating expenses 52,452 24,057 15,351
- --------------------------------------------------------------------------------------------------
Total restaurant operating expenses 202,464 87,533 52,727
General and administrative 12,047 5,706 4,065
Amortization of intangibles 2,537 682 83
Restructuring and integration costs 9,938 - -
- --------------------------------------------------------------------------------------------------
Total operating expenses 226,986 93,921 56,875
- --------------------------------------------------------------------------------------------------
Operating income 10,644 11,370 7,492
- --------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (6,340) (2,699) (1,314)
Gain (loss) on sale of property and equipment 4 343 (59)
Interest income 206 127 155
Other income (expense), net 154 (12) (14)
- --------------------------------------------------------------------------------------------------
Total other expense (5,976) (2,241) (1,232)
- --------------------------------------------------------------------------------------------------
Income before income taxes 4,668 9,129 6,260
Income taxes 1,998 3,240 2,332
- --------------------------------------------------------------------------------------------------
Net income $ 2,670 $ 5,889 $ 3,928
- --------------------------------------------------------------------------------------------------
Net income per share $0.23 $0.85
- -------------------------------------------------------------------------------
Weighted average shares outstanding 11,855 6,925
- -------------------------------------------------------------------------------
Pro forma income data (unaudited):
Net income as reported $ 3,928
Pro forma provision for income taxes 512
- --------------------------------------------------------------------------------------------------
Pro forma net income $ 3,416
- --------------------------------------------------------------------------------------------------
Pro forma net income per share $0.59
- --------------------------------------------------------------------------------------------------
Pro forma weighted average number of
common shares and common stock
equivalent shares outstanding 5,801
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-28-
<PAGE>
<TABLE>
<CAPTION>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------
Additional Total
Preferred Common Paid-in Retained Treasury Stockholders'
Stock Stock Capital Earnings Stock Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1993 $ - $26 $ 129 $ 3,606 $ - $ 3,761
Net income, fiscal 1994 - - - 3,928 - 3,928
S Corporation distributions - - - (6,567) - (6,567)
Issuance of common stock - 2 - - - 2
Proceeds from sale of common stock,
net of offering expenses - - 25,458 - - 25,458
Reclassification of S Corporation deficit - - (1,577) 1,577 - -
- -------------------------------------------------------------------------------------------------------------------
Balance, October 30, 1994 - 28 24,010 2,544 - 26,582
Net income, fiscal 1995 - - - 5,889 - 5,889
Issuance of common stock in acquisitions:
Grayling - - 3,350 - - 3,350
SHONCO - - 4,000 - - 4,000
Proceeds from sale of common stock,
net of offering expenses - - 31,688 - - 31,688
Exercise of stock options - - 129 - - 129
Tax benefit arising from the exercise
of stock options - - 13 - - 13
Treasury stock acquired - - - - (250) (250)
- -------------------------------------------------------------------------------------------------------------------
Balance, October 29, 1995 - 28 63,190 8,433 (250) 71,401
Net income, fiscal 1996 - - - 2,670 - 2,670
Bruegger's acquisition:
Issuance of common stock - - 123,051 - - 123,051
Issuance of preferred stock 11,780 - - - - 11,780
Exchange of preferred stock for common stock (10,115) - 10,115 - - -
Redemption of preferred stock (1,665) - - - - (1,665)
Proceeds from sale of common stock,
net of offering expenses - - 59,755 - - 59,755
Exercise of stock options - - 1,228 - - 1,228
Tax benefit arising from the exercise
of stock options - - 903 - - 903
- -------------------------------------------------------------------------------------------------------------------
Balance, October 27, 1996 $ - $28 $258,242 $11,103 $(250) $269,123
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-29-
<PAGE>
<TABLE>
<CAPTION>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,670 $ 5,889 $ 3,928
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 9,836 4,008 2,221
Amortization of other assets 5,192 1,991 549
(Gain) loss on sale of property and equipment (4) (343) 59
Deferred income taxes 42 413 623
Changes in operating assets and liabilities, excluding
effects of acquisitions and dispositions:
Accounts receivable (4,609) (243) (179)
Inventories (796) (182) (146)
Other current assets (1,319) (707) (149)
Accounts payable 603 1,012 897
Accrued liabilities 2,657 994 (215)
Income taxes payable 192 76 634
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,464 12,908 8,222
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (77,168) (23,472) -
Proceeds from sales of property and equipment 4 598 736
Purchase of property and equipment (41,135) (25,357) (14,574)
Purchase of redeemable preferred stock - (375) (750)
Repayment of stockholder notes receivable - - 623
Increase in notes receivable (10,025) - -
Payment of other assets (3,960) (1,799) (1,806)
Other, net (1,147) (101) 34
- ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (133,431) (50,506) (15,737)
- ------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from sale of common stock, net 59,755 31,688 25,458
Proceeds from exercise of stock options 1,228 129 -
Borrowings of long-term debt 218,285 37,721 6,000
Repayment of long-term debt (163,223) (30,308) (14,200)
Repayment of capitalized lease and non-competition obligations (358) (196) (172)
Payment of redeemable preferred stock subscription payable (250) (250) -
Redemption of preferred stock (1,665) - -
Repayment of stockholder notes payable - - (3,158)
S Corporation distributions paid - - (4,138)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 113,772 38,784 9,790
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,195) 1,186 2,275
Cash and cash equivalents, beginning of year 5,639 4,453 2,178
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 444 $ 5,639 $ 4,453
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 6,131 $ 2,687 $ 1,376
Cash paid for income taxes 2,850 2,665 1,075
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of redeemable preferred stock - 500 1,000
Property and equipment purchased and
related liability included in accounts payable 2,075 1,288 1,592
Common stock issued in acquisitions 123,051 7,350 -
Preferred stock issued in acquisition 11,780 - -
Long-term debt assumed in acquisition 16,135 - -
Treasury stock acquired in disposition of restaurants - 250 -
Non-competition agreement - 510 -
Note receivable acquired in disposition of restaurants 3,500 - -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
<PAGE>
Quality Dining, Inc.
Notes to Consolidated Financial Statements
{1} NATURE OF BUSINESS, REORGANIZATION AND PUBLIC OFFERINGS
NATURE OF BUSINESS - Quality Dining, Inc. and its subsidiaries (the "Company")
develop and operate both quick service and full service restaurants throughout
the United States. The Company owns, operates and franchises Bruegger's Bagel
Bakeries. As of October 27, 1996, there were 425 retail bagel bakeries, of
which 325 were operated by franchisees and 100 were Company-owned and operated.
The Company owns and operates 42 Grady's American Grill restaurants, five
restaurants under the trade name of Spageddies Italian Kitchen and one
restaurant under the trade name Papa Vino's Italian Kitchen. The Company also
operates, as a franchisee, 63 Burger King restaurants and 22 Chili's Grill & Bar
restaurants.
REORGANIZATION - On December 17, 1993, in connection with the initial public
offering of the Company's common stock described below, the Company's Board of
Directors and stockholders adopted Restated Articles of Incorporation and
authorized the reorganization of the Company. Under the Company's Restated
Articles of Incorporation, the Company's authorized capital stock consists of 50
million shares of common stock and five million shares of preferred stock, each
without par value. In addition, the Company's Board of Directors authorized a
7,869.1-for-one stock split of the common stock effected as a stock dividend on
December 17, 1993.
The Company's Board of Directors also adopted a share exchange and
reorganization agreement dated as of December 17, 1993 (the "Reorganization
Agreement") among the Company, certain of its affiliated companies and their
respective stockholders. Pursuant to the Reorganization Agreement, on March 1,
1994 the Company acquired all of the outstanding shares of capital stock of the
affiliated companies in a share exchange transaction under which additional
shares of the Company's common stock were issued to the stockholders of the
affiliated companies in exchange for all of their capital stock in the
affiliated companies.
The authorization of the common and preferred stock and effects of the
stock split and the reorganization have been reflected retroactively in the
accompanying consolidated financial statements as if the share exchange and
related mergers had been consummated at the beginning of the earliest period
presented.
PUBLIC OFFERINGS - On March 8, 1994, the Company completed an initial public
offering of 2,471,250 shares of its common stock at $11.50 per share. Net of
underwriting fees and offering expenses, proceeds to the Company amounted to
$25.5 million. On October 16, 1995, the Company completed a second public
offering consisting of 1,771,288 shares of its common stock at $19.25 per share.
Net of underwriting fees and offering expenses, proceeds to the Company
aggregated $31.7 million. On July 31, 1996, the Company completed a third public
offering consisting of 2,541,595 shares of its common stock at $25.00 per share.
Net of underwriting fees and offering expenses, proceeds to the Company
aggregated $59.8 million.
{2} SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The Company maintains its accounts on a 52/53 week fiscal year
ending the last Sunday in October. The fiscal years ended October 27, 1996
(fiscal 1996), October 29, 1995 (fiscal 1995) and October 30, 1994 (fiscal 1994)
each contained 52 weeks.
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Quality Dining, Inc. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.
Investments in unconsolidated affiliates are accounted for using the equity
method.
-31-
<PAGE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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.
INVENTORIES - Inventories consist primarily of restaurant food and supplies and
are stated at the lower of cost or market. Cost is determined using the first-
in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment, including capitalized leased
properties, are stated at cost. Depreciation and amortization are being recorded
on the straight-line method over the estimated useful lives of the related
assets, which range from three to 31 1/2 years, or the terms of the related
leases, if shorter. Upon the sale or disposition of property and equipment, the
asset cost and related accumulated depreciation is removed from the accounts and
any resulting gain or loss is included in income. Normal repairs and maintenance
costs are expensed as incurred.
GOODWILL AND TRADEMARKS - Goodwill arising from the excess of the purchase price
over the acquired tangible and intangible net assets acquired in acquisitions
and trademarks are being amortized on a straight-line basis, principally over 40
years. Accumulated amortization of goodwill as of October 27, 1996 and October
29, 1995 was $2,455,801 and $546,835, respectively. Accumulated amortization of
trademarks as of October 27, 1996 was $281,287 (none at October 29, 1995). The
Company reviews the carrying value of these recorded assets whenever events or
changes in circumstances warrant, and measures the potential impairment by
comparing the carrying value of the asset to the expected undiscounted net
future cash inflows resulting from the assets to which the intangible relates.
Management believes that no impairment of goodwill and trademarks has occurred
and that no reduction of the estimated useful life is warranted.
FRANCHISE FEES AND DEVELOPMENT COSTS - The Company's Burger King and Chili's
franchise agreements require the payment of a franchise fee for each restaurant
opened. Franchise fees are deferred and amortized on the straight-line method
over the lives of the respective franchise agreements. Development costs paid to
the respective franchisors are deferred and expensed in the period the related
restaurants are opened. The excess of the purchase price over the acquired
tangible and intangible assets acquired in the SHONCO acquisition has been
allocated to franchise rights (see Note 14). The franchise agreements generally
provide for a term of 20 years with renewal options upon expiration. Accumulated
amortization of franchise fees and development costs as of October 27, 1996 and
October 29, 1995 was $1,702,510 and $1,050,572, respectively.
FRANCHISE RELATED REVENUE RECOGNITION - Franchise related revenue includes
royalties, franchise fees, development fees, net commissary revenue, interest
income and other miscellaneous fees related to the Company's bagel business.
Franchisees are required to pay monthly royalties, generally 4% to 5% of
restaurant sales, which the Company recognizes as earned. Each franchisee also
pays an initial franchise fee for each bakery opened. Development fees, which
result from area development agreements with franchisees, are deferred and
recognized as revenue when all material conditions have been substantially
completed by the Company, which generally occurs when the bakeries under the
related area development agreements are opened. Deferred development fees at
October 27, 1996 were $770,000. Net commissary revenue results from products
sold to franchisees from Company-owned commissaries. Interest income results
from the Company's notes receivable from franchisees.
ADVERTISING - The Company maintains an advertising fund for national and
regional advertising for the Bruegger's Bagel Bakery ("Bruegger's") concept. The
advertising fund collects fees paid by Company-owned
-32-
<PAGE>
and franchised bakeries, and disburses funds relating to costs associated with
maintaining, administering and preparing advertising, marketing, public
relations and promotional programs for the Bruegger's concept. Contributions to
the fund are based on a specified percentage of sales, generally 2% to 4%. Such
contributions are recorded as earned and have been reflected as a reduction of
advertising expenses in the 1996 consolidated statement of income. The Company
incurs advertising expense related to its other concepts under franchise
agreements (see Note 5) or through local advertising. Advertising costs are
expensed at the time the related advertising first takes place. Advertising
costs for all concepts were $4.6 million, $2.9 million and $2.8 million for
fiscal years 1996, 1995 and 1994, respectively.
PRE-OPENING COSTS - Direct costs incurred in connection with opening new
restaurants are deferred and amortized on a straight-line basis over a 12-month
period following the opening of a restaurant. Amortization of pre-opening costs
aggregated $1,848,021, $1,007,320 and $248,264 for fiscal years 1996, 1995 and
1994, respectively.
LIQUOR LICENSES - Costs incurred in securing liquor licenses for the Company's
restaurants and the fair value of liquor licenses acquired in acquisitions are
capitalized and amortized on a straight-line basis, principally over 20 years.
Accumulated amortization of liquor licenses as of October 27, 1996 and October
29, 1995 was $269,752 and $146,157, respectively.
COMPUTER SOFTWARE COSTS - Costs of purchased and internally developed computer
software are capitalized and amortized over a five-year period using the
straight-line method. As of October 27, 1996 and October 29, 1995, capitalized
computer software costs, net of related accumulated amortization, aggregated
$1,707,512 and $406,957, respectively. Amortization of computer software costs
was $197,472 for fiscal year 1996. Amortization of computer software costs in
fiscal 1995 and 1994 was not significant.
CAPITALIZED INTEREST - Interest costs capitalized during the construction period
of new restaurants were $233,837 and $137,545 for fiscal years 1996 and 1995,
respectively. No interest was capitalized in fiscal 1994.
INCOME TAXES - In connection with the reorganization on March 1, 1994, the
Company terminated its S Corporation status and became taxable as a C
Corporation. On that date, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. Upon
termination of the Company's S Corporation status and adoption of SFAS No. 109,
the Company established a net deferred tax liability of $546,000 representing
the tax effect of cumulative temporary differences as of that date (see Note 7).
The consolidated statements of income for the fiscal years ended October
27, 1996 and October 29, 1995 include a provision for income taxes for the
entire period. Prior to March 1, 1994, the Company (or its predecessors) had
elected to be taxed under Subchapter S of the Internal Revenue Code. As a result
of the election, federal and state income taxes on the net income of the Company
were payable personally by the stockholders. The consolidated statement of
income for the fiscal year ended October 30, 1994 includes a provision for
federal and state income taxes only for the period March 1, 1994 through October
30, 1994. Accordingly, a pro forma provision for federal and state income taxes,
using a 37% effective rate, is presented for the period November 1, 1993 through
February 28, 1994 as if the Company were taxed as a C Corporation for the entire
fiscal year.
-33-
<PAGE>
CONCENTRATIONS OF CREDIT RISK - Financial instruments, which potentially subject
the Company to credit risk, consist primarily of cash and cash equivalents and
notes receivable (see Notes 13 and 14). Substantially all of the Company's cash
and cash equivalents at October 27, 1996 are concentrated with a bank located in
Michigan City, Indiana.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PRO FORMA DATA (UNAUDITED) - Pro forma net income per share for the fiscal year
ended October 30, 1994 is based on 4,437,552 shares of common stock and common
stock equivalents outstanding from November 1, 1993 to March 1, 1994, which
includes 4,000,000 shares of common stock outstanding, including shares issued
in the exchange of shares discussed in Note 1, and 437,552 shares of common
stock and common stock equivalents assumed to be outstanding, and 6,471,250
shares of common stock outstanding from that date through October 30, 1994.
The 437,552 shares of common stock and common stock equivalents assumed to
be outstanding are equivalent to the number of shares of common stock at the
initial public offering price of $11.50 per share (after deducting underwriting
discounts) necessary to fund that portion of the $5.1 million S Corporation and
special distributions payable to stockholders in excess of fiscal 1993
undistributed earnings in the aggregate amount of $4.4 million at October 31,
1993 and 26,359 common stock equivalents assumed outstanding resulting from the
granting of nonqualified stock options to certain employees of the Company to
purchase an aggregate of 26,590 shares of the Company's common stock.
RECLASSIFICATIONS - Certain information in the consolidated financial statements
for fiscal 1995 and 1994 has been reclassified to conform with the current
reporting format. The reclassifications had no effect on total assets,
liabilities and stockholders' equity or net income as previously reported.
RECENTLY ISSUED ACCOUNTING STANDARDS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement
establishes financial accounting and reporting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective for
fiscal years beginning after December 15, 1995. The Company does not expect
that the adoption of SFAS No. 121 in fiscal 1997 will have a material effect on
its consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes a fair value based method of
accounting for employee stock options or similar equity instruments, but allows
companies to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees".
Companies electing to continue to apply the accounting requirements in APB
Opinion No. 25 must, however, make pro forma disclosures of net income and net
income per share as if the fair value based method of accounting defined in SFAS
No. 123 had been applied. These disclosure requirements are effective for
fiscal years beginning after December 15, 1995. The Company expects to adopt
SFAS No. 123 on a disclosure basis only, beginning in fiscal 1997.
-34-
<PAGE>
{3} OTHER CURRENT ASSETS AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Other current assets and accrued liabilities consist of the following:
- ----------------------------------------------------------------------------
OCTOBER 27, October 29,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Other current assets:
Deposits $ 1,499 $ 465
Refundable income taxes 1,300 -
Prepaid expenses and other 639 887
- ----------------------------------------------------------------------------
$ 3,438 $ 1,352
- ----------------------------------------------------------------------------
Accrued liabilities:
Accrued salaries and wages $ 3,489 $ 1,621
Accrued advertising and royalties 756 633
Accrued property taxes 1,505 421
Accrued sales taxes 1,225 521
Accrued restructuring and integration costs 8,984 -
Deferred development fees 770 -
Other accrued liabilities 4,390 435
- ----------------------------------------------------------------------------
$ 21,119 $ 3,631
- ----------------------------------------------------------------------------
</TABLE>
{4} PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following:
- ----------------------------------------------------------------------------
OCTOBER 27, October 29,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Land $ 29,573 $10,217
Land improvements 7,406 3,411
Buildings 33,740 18,510
Capitalized leased property 7,644 7,644
Leasehold improvements 52,864 10,814
Restaurant equipment 60,885 26,510
Office furniture and equipment 4,288 1,289
Vehicles 979 552
Construction in progress 6,019 979
- ----------------------------------------------------------------------------
203,398 79,926
- ----------------------------------------------------------------------------
Less, accumulated depreciation and amortization:
Capitalized leased property 2,909 2,527
All other 23,445 14,190
- ----------------------------------------------------------------------------
26,354 16,717
- ----------------------------------------------------------------------------
Property and equipment, net $177,044 $63,209
- ----------------------------------------------------------------------------
</TABLE>
{5} FRANCHISE AND DEVELOPMENT RIGHTS
The Company has entered into franchise agreements with two franchisors for
the operation of two of its restaurant concepts, Burger King and Chili's. The
franchise agreements provide the franchisors with significant rights regarding
the business and operations of the Company's franchised restaurants. The
franchise agreements with Burger King Corporation require the Company to pay
royalty and advertising fees equal to 3.5% and 4.0% of Burger King restaurant
sales, respectively. The franchise agreements with Brinker International, Inc.
-35-
<PAGE>
("Brinker") covering the Company's Chili's restaurant concept require the
Company to pay royalty and advertising fees equal to 4.0% and 0.5% of Chili's
restaurant sales, respectively.
The Company has entered into development agreements to develop additional
restaurants in each of the two concepts. Each of the development agreements
requires the Company to pay a development fee. In addition, the development
agreements contain certain requirements regarding the number of units to be
opened in the future. Each restaurant opened will be subject to a separate
franchise agreement, which requires the payment of an initial franchise fee
(currently $40,000) for each such restaurant. Should the Company fail to comply
with the required development schedules or with the requirements of the
agreements for restaurants within areas covered by the development agreements,
the franchisors have the right to terminate the Company's development agreements
and the exclusivity provided by the development agreements.
The Company's Bruegger's Bagel Bakeries and Spageddies restaurant concepts
were previously subject to franchise and development agreements with Bruegger's
Corporation and Brinker, respectively. These agreements required the payment of
royalty and advertising fees and an initial franchise fee upon opening a
restaurant. On June 7, 1996, the Company acquired all of the issued and
outstanding shares of common stock of Bruegger's Corporation and is no longer
subject to such fees. On October 28, 1995, the Company acquired all rights to
the Spageddies restaurant concept in the United States from Brinker for a cash
payment of $100,000 and is no longer subject to such fees.
{6} RETIREMENT PLANS
The Company maintains a discretionary, noncontributory profit sharing plan
for its eligible employees. Plan contributions are determined by the Company's
Board of Directors and are based upon 5.7% of annual participant compensation in
excess of the social security wage base. Contributions in excess of that
amount, if any, are allocated to all plan participants on a pro-rata basis.
All employees are also eligible to participate in a 401(k) plan after one
year of service in which the employee has worked a minimum of 1,000 hours. The
Company matches a portion of the employee's contribution to the plan and
provides investment choices for the employee.
The Company's contributions under both plans aggregated $100,000, $70,000
and $60,000 for fiscal years 1996, 1995 and 1994, respectively.
{7} INCOME TAXES
The provision for income taxes for the fiscal years ended October 27, 1996,
October 29, 1995 and for the period March 1, 1994 through October 30, 1994 (see
Note 2) is summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fiscal Year Ended March 1, 1994
OCTOBER 27, October 29, to
(Dollars in thousands) 1996 1995 October 30, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,736 $2,320 $1,489
State 220 507 220
- ---------------------------------------------------------------------------------------------------
1,956 2,827 1,709
- ---------------------------------------------------------------------------------------------------
Deferred:
Establishment of net deferred
tax liability at date of termination
of S Corporation status (March 1, 1994) - - 546
Provision for the period 42 413 77
- ---------------------------------------------------------------------------------------------------
42 413 623
- ---------------------------------------------------------------------------------------------------
Total $1,998 $3,240 $2,332
- ---------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE>
The components of the deferred tax asset and liability are as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 27, October 29,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax asset:
FICA tip credit $ 215 $ -
Restructuring and integration costs 1,584 -
Stock appreciation rights 549 -
Accrued liabilities 700 -
Other 55 23
- ------------------------------------------------------------------------------
Current deferred tax asset 3,103 23
Less: Valuation allowance (1,107) -
- ------------------------------------------------------------------------------
$ 1,996 $ 23
- ------------------------------------------------------------------------------
Long-term deferred tax asset (liability):
Bruegger's net operating loss carryforwards $ 3,553 $ -
Property and equipment (2,617) (1,098)
Franchise fees (1,463) (1,481)
Pre-opening costs (698) (356)
Capitalized lease obligations 679 598
Other (228) (72)
- ------------------------------------------------------------------------------
Net long-term deferred tax liability (774) (2,409)
Less: Valuation allowance (2,970) -
- --------------------------------------------------------------------------
$(3,744) $(2,409)
- --------------------------------------------------------------------------
</TABLE>
Effective with the acquisition of Bruegger's Corporation on June 7, 1996, the
Company established a valuation allowance against Bruegger's Corporation's
deferred tax assets in the amount of $4.8 million. Subsequent to the acquisition
date, the Company reduced the valuation allowance by $680,000 with a
corresponding reduction of goodwill. Any future reductions in the valuation
allowance will also reduce goodwill. Net operating losses of Bruegger's
Corporation in the amount of $9.4 million expire through the year 2011 and are
subject to limitations as to their utilization.
Differences between the effective income tax rate and the U.S. statutory tax
rate were as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
(Percent of pretax income) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income
tax benefit 3.1 3.6 3.3
S Corporation income for which no
income taxes were provided - - (8.2)
Recognition of net deferred tax liability upon
termination of S Corporation status - - 8.7
FICA tax credit (5.9) (1.6) (.6)
Goodwill amortization 10.5 - -
Other, net 1.1 (.5) .1
- ------------------------------------------------------------------------------------------
Effective tax rate 42.8% 35.5% 37.3%
- ------------------------------------------------------------------------------------------
</TABLE>
{8} DISTRIBUTIONS
As an S Corporation, the Company (or its predecessors) made annual
S Corporation distributions to its stockholders. On February 28, 1994, the
Company distributed to its stockholders its S Corporation earnings from November
1, 1993 through that date in the aggregate amount of $1.4 million. On December
17, 1993, the Company and its predecessors declared distributions to their
respective stockholders aggregating $5.1 million
-37-
<PAGE>
that were paid on January 4, 1994. Of the total distributions, an amount
representing undistributed S Corporation earnings through October 31, 1993 ($2.7
million) was paid in cash and a special distribution of $2.4 million was
represented by two-year promissory notes bearing interest at the rate of 6% per
annum. The promissory notes were repaid in full from the proceeds of the
Company's initial public offering.
{9} LONG-TERM DEBT AND CREDIT AGREEMENTS
On April 26, 1996, the Company amended its revolving credit agreement
providing for borrowings up to $150 million. The interest rate paid by the
Company is the adjusted LIBOR rate plus 1.5% (6.9375% at October 27, 1996).
Concurrently, the Company repaid the amount then outstanding under the previous
revolving loan agreement, which was terminated.
The revolving credit agreement expires on April 26, 1999 and is unsecured.
The revolving credit agreement contains, among other provisions, certain
restrictive covenants including maintenance of certain prescribed debt and fixed
charge coverage ratios, minimum levels of tangible net worth, as defined,
limitations on the incurrence of additional indebtedness and annual limitations
on the payment of dividends (other than stock dividends) on, or the purchase or
redemption of, any shares of the Company's capital stock in aggregate amounts
exceeding 40% of the Company's net income for the immediately preceding fiscal
year. As of October 27, 1996, there was $78.6 million outstanding under this
revolving credit agreement.
In connection with the Grady's American Grill acquisition (see Note 14),
the Company entered into a revolving credit agreement providing for borrowings
of up to $85 million with interest payable monthly at the lower of the adjusted
LIBOR rate plus 2% or the bank's prime rate less 0.5%. On December 21, 1995, the
Company borrowed $82 million under this agreement to finance the Grady's
American Grill acquisition and to repay the amount then outstanding under the
previous revolving credit agreement, which was terminated.
On February 22, 1994, the Company entered into a revolving credit
agreement, which as amended through August 10, 1995, provided for borrowings up
to a maximum of $45 million with interest payable monthly at the lower of the
LIBOR rate plus 2% or the bank's prime rate less 0.5%. As of October 29, 1995,
there was $7.4 million outstanding under this revolving credit agreement.
{10} STOCK OPTION PLANS
The Company has two stock option plans: the 1993 Stock Option and
Incentive Plan (the "Employee Plan") and the Outside Directors Stock Option Plan
(the "Outside Directors Plan").
Under the Employee Plan, shares of restricted stock and options to purchase
shares of the Company's common stock may be granted to officers and other
employees. An aggregate of one million shares of common stock, including an
additional 500,000 shares reserved in fiscal 1996, have been reserved for
issuance under the Employee Plan. On December 17, 1993, the Company's Board of
Directors granted nonqualified stock options for 770 employees to purchase an
aggregate of 26,590 shares of common stock at an exercise price of $.10 per
share. The options have a term of 10 years and were exercisable beginning
February 1, 1995. Compensation expense of approximately $300,000 associated with
the granting of these nonqualified stock options was recognized at the date of
the Company's initial public offering (March 8, 1994). Since that date, certain
of these employees terminated their employment with the Company prior to
exercising the options. As a result, the amount of compensation expense was
reduced to $212,838 for fiscal year 1994 and was further reduced by $37,883 and
$6,739 during fiscal years 1995 and 1996, respectively. These amounts are
included in general and administrative expenses in the consolidated statements
of income.
Under the Outside Directors Plan, 40,000 shares of common stock have been
reserved for the issuance of nonqualified stock options to be granted to non-
employee directors of the Company. On May 1, 1994 and on each May 1 thereafter,
each then non-employee director of the Company will receive an option to
purchase
-38-
<PAGE>
2,000 shares of common stock at an exercise price equal to the fair
market value of the Company's common stock on the date of grant. Each option has
a term of 10 years and becomes exercisable six months after the date of grant.
Activity with respect to the Company's stock option plans for fiscal years
1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Number of Shares Price Range
- -------------------------------------------------------------------
<S> <C> <C>
Outstanding, November 1, 1993 - $-
Granted 112,590 .10 - 11.50
Canceled .10
- -------------------------------------------------------------------
Outstanding, October 30, 1994 102,670 .10 - 11.50
Granted 173,950 12.125 - 21.25
Canceled (6,640) .10 - 12.125
Exercised (11,070) .10 - 12.125
- -------------------------------------------------------------------
Outstanding, October 29, 1995 258,910 .10 - 21.25
Granted 598,184 10.45 - 31.375
Canceled (35,450) .10 - 24.50
Exercised (118,527) .10 - 12.125
- -------------------------------------------------------------------
Outstanding, October 27, 1996 703,117 .10 - 31.375
- -------------------------------------------------------------------
Exercisable, October 27, 1996 129,812
- -------------------------------------------------
Available for future grants at October
27, 1996 207,286
- -------------------------------------------------
</TABLE>
{11} LEASES
The Company leases its office facilities and a substantial portion of the
land and buildings used in the operation of its restaurants. The restaurant
leases generally provide for a noncancelable term of five to 20 years and
provide for additional renewal terms at the Company's option. Most restaurant
leases contain provisions for percentage rentals on sales above specified
minimums. Rental expense incurred under these percentage rental provisions
aggregated approximately $1,087,900, $686,500 and $514,000 for fiscal years
1996, 1995 and 1994, respectively.
As of October 27, 1996, future minimum lease payments related to these
leases were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
Fiscal Year Capital Leases Operating Leases Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $ 1,081 $ 12,048 $ 13,129
1998 1,081 12,127 13,208
1999 1,081 11,888 12,969
2000 1,081 10,971 12,052
2001 1,081 9,700 10,781
2002 and thereafter 7,813 52,855 60,668
- --------------------------------------------------------------------------------
13,218 $109,589 $122,807
--------------------
Less: Amount representing interest 6,697
- ---------------------------------------------------
Present value of future minimum
lease payments of which $242 is
included in current
liabilities at October 27, 1996 $ 6,521
- ---------------------------------------------------
</TABLE>
-39-
<PAGE>
Future minimum lease payments do not include amounts payable by the Company
for maintenance costs, real estate taxes, insurance, contingent rentals payable
based on a percentage of sales above specified minimum amounts for restaurant
facilities, amounts due under an operating lease for Bruegger's office space
located in Vermont (see Note 13) or amounts due under a lease for the new
corporate headquarters (see Note 12).
Rent expense, including percentage rentals based on sales, was $9.9
million, $5.1 million and $3.2 million for fiscal years 1996, 1995 and 1994,
respectively.
{12} COMMITMENTS AND CONTINGENCIES
The Company is party to several legal proceedings which are considered by
management to be customary and incidental to its business. In the opinion of
management, after consulting with legal counsel, the ultimate disposition of
these lawsuits should not have a material adverse effect on the Company's
consolidated financial position or results of operations.
The Company is self-insured for the portion of its employee health care
costs not covered by insurance. The Company is liable for medical claims up to
$100,000 per eligible employee annually, and aggregate annual claims up to
approximately $2.2 million. The aggregate annual deductible is determined by
the number of eligible covered employees during the year and the coverage they
elect.
The Company is self-insured with respect to any worker's compensation
claims not covered by insurance. The Company maintains a $250,000 annual
deductible per occurrence and is liable for aggregate annual claims up to
approximately $600,000.
During fiscal 1996, the Company invested $718,750 for a 50% ownership
interest in a limited liability company ("LLC") established to acquire and
develop a 53,000 square-foot facility, which the Company intends to occupy in
1997 as its corporate headquarters and lease from the LLC. The investment is
accounted for using the equity method. The related lease agreement provides for
a fifteen-year initial term, with four additional five-year renewal options.
Minimum annual rental payments are estimated to be approximately $600,000 and
have not been included in the future minimum lease payments summarized in Note
11. The Company is responsible for costs incurred on the headquarters facility
in excess of those originally planned. The Company and the other member of the
LLC have jointly and severally guaranteed the debt of the LLC, which amounted to
$4.0 million at October 27, 1996.
At October 27, 1996, the Company had commitments aggregating $1.3 million
for the construction of restaurants.
-40-
<PAGE>
{13} RELATED PARTY TRANSACTIONS
The Company leases its current headquarters facility, one Bruegger's Bagel
Bakery and a substantial number of its Burger King restaurants from entities
that are substantially owned by certain directors, officers and stockholders of
the Company. Amounts paid for leases with these related entities are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended
OCTOBER 27, October 29, October 30,
(Dollars in thousands) 1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Operating leases:
Base rentals $2,542 $2,451 $2,424
Percentage rentals 350 365 353
- --------------------------------------------------------------------------------
2,892 2,816 2,777
- --------------------------------------------------------------------------------
Capitalized leases:
Interest 821 913 969
Reduction of lease obligations 204 188 168
Percentage rentals 200 160 123
- --------------------------------------------------------------------------------
1,225 1,261 1,260
- --------------------------------------------------------------------------------
Total $4,117 $4,077 $4,037
- --------------------------------------------------------------------------------
</TABLE>
The Company guarantees future minimum lease payments of certain affiliated
franchisees of Bruegger's. As of October 27, 1996, future minimum lease payments
related to these leases were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------
Fiscal Year
- --------------------------------------
<S> <C>
1997 $1,200
1998 1,175
1999 1,075
2000 919
2001 610
2002 and thereafter 1,826
- --------------------------------------
Total minimum lease payments $6,805
- --------------------------------------
</TABLE>
In October 1996, the Company entered into an agreement with a related party
to terminate a lease for office space located in Vermont. The agreement requires
a payment of $900,000 to be made in the first quarter of fiscal 1997. The
estimated cost for the termination of this lease was accrued as part of the cost
of the purchase of Bruegger's Corporation at the time of the acquisition (see
Note 14).
Affiliated real estate partnerships and two other entities related through
common ownership pay management fees to the Company as reimbursement for
administrative services provided. Total management fees for fiscal 1996, 1995
and 1994 were $14,500, $15,750 and $16,000, respectively.
During the fiscal years 1996, 1995 and 1994, the Company made payments to
companies owned by certain directors, stockholders and officers of the Company
of $399,140, $324,500 and $204,398, respectively, for air transportation
services and $11.7 million and $6.1 million in fiscal 1995 and 1994,
respectively, to a related party construction company to construct and renovate
certain of the Company's restaurants. As of November 1, 1995, the Company
acquired all of the capital stock of this related-party construction company.
During fiscal 1996, the Company loaned $9.9 million to a company owned by a
director and officer of the Company, which used the funds to acquire a number of
Bruegger's Bagel Bakeries from independent franchisees. The $9.9 million
promissory note bears interest at 11%, is due April 15, 1997 and is
collateralized by substantially all assets of the related company. Interest
income recognized by the Company on this note in fiscal 1996 amounted to
$119,000. Subsequent to October 27, 1996 and through January 10, 1997, the
-41-
<PAGE>
Company loaned this related company an additional $14.5 million to acquire
additional Bruegger's Bagel Bakeries from independent franchisees and for
working capital purposes. The Company anticipates that all of these bakeries
will be sold to other unrelated franchisees of Bruegger's in fiscal 1997.
The Company and its Bruegger's concept transact certain business activities
with the aforementioned related company and certain other entities whose
principal shareholders are directors and/or officers of the Company. A summary
of these transactions for the fiscal year ended October 27, 1996 included:
purchases of cream cheese ($2.0 million); sales of bagels and related products
($2.0 million); royalties earned ($1.7 million); marketing fees earned
($764,000); installation of point-of-sale registers ($410,000); management,
accounting, legal and computer support services ($534,000); and transaction fees
($210,000).
At October 27, 1996 and October 29, 1995, amounts owed by the Company to
related companies were $300,282 and $1.1 million, respectively. At October 27,
1996, amounts receivable from related parties aggregated $11.7 million (none at
October 29, 1995), which included the above note receivable of $9.9 million.
{14} ACQUISITIONS AND DISPOSITIONS
On July 15, 1996, the Company acquired all the assets, including
trademarks, of Moe's Broadway Bagel, Inc., operator of three Moe's Broadway
Bagel restaurants ("Moe's"), for $3.6 million in cash. In a concurrent
transaction, the Company sold the operating assets of Moe's to a third party in
exchange for a promissory note in the amount of $3.5 million and entered into
development and franchise agreements for which the Company collects franchise
related revenues. The promissory note bears interest at 11%, is due April 15,
1997 and is collateralized by substantially all assets of Moe's. The Company
retained the rights to all of Moe's trademarks and other intangible assets.
On June 7, 1996, the Company acquired all of the issued and outstanding
shares of common stock of Bruegger's Corporation. Pursuant to the terms of the
acquisition and related merger agreement, Bruegger's Corporation became a wholly
owned subsidiary of the Company. The purchase price consisted of the issuance of
5,127,121 shares of the Company's common stock, valued at $123.1 million, and
direct acquisition and estimated post-merger integration costs aggregating $6.9
million. The Company also issued 117,800 shares of its Series A Convertible
Cumulative Preferred Stock, without par value (the "Quality Dining Preferred
Stock") in exchange for a like number of issued and outstanding shares
(exclusive of those shares held by the Company, which were canceled) of
Bruegger's Corporation Class A Cumulative Convertible Preferred Stock, $100 par
value per share. Subsequent to the acquisition, 101,150 shares of the Quality
Dining Preferred Stock were converted into an aggregate of 285,531 shares of the
Company's common stock. The excess of the purchase price over the acquired
tangible and intangible net assets of $143.9 million has been allocated to
goodwill and is being amortized on a straight-line basis over 40 years.
In connection with the acquisition, the Company recorded a special pre-tax
charge of $8.0 million for combining and integrating administrative functions,
recruiting and relocating new employees, franchise related costs, and legal and
professional fees. This charge was in addition to the $6.0 million recorded as
part of the cost of the acquisition for facility closures, restaurant remodeling
and relocation and severance packages for Bruegger's personnel. Through fiscal
1996, approximately $4.9 million of these costs have been incurred, of which
$3.5 million were cash payments and $1.4 million were non-cash charges,
primarily for the write down of assets. The Company expects to complete these
actions in fiscal 1997.
On December 21, 1995, the Company acquired 42 Grady's American Grill
restaurants and all rights to the Grady's American Grill concept from Brinker
International, Inc. The purchase price aggregated $75.4 million consisting of
$74.4 million in cash and the incurrence of $1.0 million of liabilities and
direct acquisition costs. The cash portion of the purchase price was funded
through borrowings under the Company's revolving credit facility. The excess of
the purchase price over the acquired tangible and intangible net assets of $13.2
million has been allocated to trademarks and is being amortized on a straight-
line basis over 40 years.
-42-
<PAGE>
The acquisitions of Bruegger's Corporation and Grady's American Grill were
both accounted for using the purchase method and the operating results have been
included in the Company's consolidated financial statements since their
respective acquisition dates.
In connection with the acquisitions of Grady's American Grill and the
rights to the Spageddies restaurant concept in the United States, which was
finalized on October 28, 1995, the Company recorded a special pre-tax charge of
$1.9 million during the first quarter of fiscal 1996. The charge reflected the
estimated costs for integration of computer systems, employee transition costs,
recruitment and relocation costs, and legal and professional fees. At October
27, 1996, substantially all costs related to these activities had been incurred.
On August 14, 1995, the Company acquired all of the issued and outstanding
common stock of SHONCO, Inc. and three affiliated companies and certain
operating assets of three other affiliated companies. SHONCO, Inc. and its
affiliated companies (collectively, "SHONCO") owned and operated eight Burger
King restaurants in the Detroit, Michigan metropolitan area, and had the right
to develop four additional Burger King restaurants in that metropolitan area
under target reservation agreements acquired by the Company. The purchase price
of SHONCO aggregated $9.6 million and consisted of $5.1 million in cash
(including $450,000 paid in fiscal 1996), the issuance of 316,832 shares of the
Company's common stock, valued at $4.0 million, and the incurrence of a $510,000
liability under a non-competition agreement (discounted at 8.5%). The
acquisition was accounted for using the purchase method and the operating
results of SHONCO have been included in the Company's consolidated financial
statements since the date of the acquisition. A deferred tax liability of $1.4
million was established at the time of the acquisition for the income tax effect
of differences between the book and tax bases of certain of the assets acquired.
The excess of the purchase price over the acquired tangible and intangible net
assets of $7.7 million has been allocated to franchise rights and is being
amortized on a straight-line basis over 20 years.
On November 10, 1994, the Company acquired all of the outstanding capital
stock of Grayling Corporation and certain affiliated companies (collectively,
"Grayling"), and certain real estate and improvements from an affiliate of the
principal Grayling stockholder. Grayling operated eight Chili's restaurants in
the greater Philadelphia, Pennsylvania area. The purchase price for Grayling
aggregated $19.7 million consisting of $16.3 million in cash and the issuance of
286,080 shares of the Company's common stock valued at $3.4 million. The Company
also paid $2.6 million in cash for the real estate and improvements related to a
Chili's restaurant under construction held by an affiliate of the principal
Grayling stockholder. The cash portion of the purchase price was funded through
borrowings under the Company's revolving credit facility.
The acquisition was accounted for using the purchase method and the
operating results of Grayling have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the purchase
price over the acquired tangible and intangible net assets of $10.6 million has
been allocated to goodwill and is being amortized on a straight-line basis over
20 years.
-43-
<PAGE>
The following unaudited pro forma results for the fiscal years ended
October 27, 1996 and October 29, 1995 were developed assuming Bruegger's,
Grady's American Grill and SHONCO had been acquired as of the beginning of the
periods presented. Grayling has been included in the Company's historical
financial results since its acquisition date of November 10, 1994. For both
years, the unaudited pro forma results reflect certain adjustments, including
interest expense, depreciation of property and equipment and amortization of
intangible assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Fiscal Year Ended
OCTOBER 27, October 29,
(Dollars in thousands, except per share data) 1996 1995
- ------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Total revenues $269,555 $229,586
Pro forma net income (loss) (5,776) 2,001
Pro forma net income (loss) per share $(.39) $.16
- ------------------------------------------------------------------------------
</TABLE>
The unaudited pro forma results shown above are not necessarily indicative
of the consolidated results that would have occurred had the acquisitions taken
place at the beginning of the respective periods, nor are they necessarily
indicative of results that may occur in the future.
Effective July 10, 1995, the Company sold two of its Burger King
restaurants located in the Detroit, Michigan metropolitan area to the former
senior vice president of the Company responsible for the Detroit market of the
Company's Burger King restaurant division. The sales price for the two Burger
King restaurants aggregated $850,000 consisting of $600,000 in cash and the
assignment to the Company of 20,000 shares of the Company's common stock, valued
at $250,000. The Company recognized a pre-tax gain of $350,000 in connection
with this sale during fiscal 1995.
-44-
<PAGE>
Quality Dining, Inc.
Report of Independent Accountants
To the Stockholders and Board of Directors
of Quality Dining, Inc.:
We have audited the accompanying consolidated balance sheets of Quality Dining,
Inc. and subsidiaries as of October 27, 1996 and October 29, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the fifty-two week periods ended October 27, 1996, October 29, 1995 and
October 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quality Dining,
Inc. and subsidiaries as of October 27, 1996 and October 29, 1995, and the
consolidated results of their operations and their cash flows for the fifty-two
week periods ended October 27, 1996, October 29, 1995 and October 30, 1994, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
January 10, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's independent
accountants on accounting or financial disclosures.
-45-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item concerning the Directors and nominees
for Director of the Company and concerning disclosure of delinquent filers is
incorporated herein by reference to the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders, to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's last
fiscal year. Information concerning the executive officers of the Company is
included under the caption "Executive Officers of the Company" at the end of
Part I of this Annual Report. Such information is incorporated herein by
reference, in accordance with General Instruction G(3) to Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item concerning remuneration of the Company's
officers and Directors and information concerning material transactions
involving such officers and Directors is incorporated herein by reference to the
Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A within 120 days after the end of
the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item concerning certain relationships and
related transactions is incorporated herein by reference to the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders which
will be filed pursuant to Regulation 14A within 120 days after the end of the
Company's last fiscal year.
-46-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following consolidated financial statements of the Company and its
subsidiaries are set forth in Part II, Item 8.
Consolidated Balance Sheets as of October 27, 1996 and October 29,
1995
Consolidated Statements of Income for the fiscal years ended October
27, 1996, October 29, 1995 and October 30, 1994
Consolidated Statements of Stockholders' Equity for the fiscal years
ended October 27, 1996, October 29, 1995 and October 30, 1994
Consolidated Statements of Cash Flows for the fiscal years ended
October 27, 1996, October 29, 1995 and October 30, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules:
None
3. Exhibits:
A list of exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K
None.
-47-
<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.
QUALITY DINING, INC.
By /s/ Daniel B. Fitzpatrick
-------------------------
DANIEL B. FITZPATRICK
Date: January 23, 1997 President and Chief Executive Officer
Pursuant to the requirements of the Securities 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>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Daniel B. Fitzpatrick Chairman of the Board, President, Chief January 23, 1997
- --------------------------------------- Executive Officer and Director
Daniel B. Fitzpatrick (Principal Executive Officer)
/s/ David M. Findlay Vice President and Treasurer (Principal January 23, 1997
- --------------------------------------- Financial Officer)
David M. Findlay
/s/ Marti'n L. Miranda Vice President, Controller and Assistant January 23, 1997
- --------------------------------------- Secretary (Principal Accounting Officer)
Marti'n L. Miranda
/s/ Stephen A. Finn President and Chief Executive Officer of January 23, 1997
- --------------------------------------- Bruegger's Corporation and Director
Stephen A. Finn
/s/ James K. Fitzpatrick Senior Vice President, Chief Administrative January 23, 1997
- --------------------------------------- Officer, Chief Development Officer and Director
James K. Fitzpatrick
/s/ William R. Schonsheck Senior Vice President, Chief Operating Officer January 23, 1997
- --------------------------------------- of Burger King Division and Director
William R. Schonsheck
Co-Chairman of the Board and Director January , 1997
- ---------------------------------------
Nordahl L. Brue
/s/ Arthur J. Decio Director January 23, 1997
- ---------------------------------------
Arthur J. Decio
Director January , 1997
- ---------------------------------------
Michael J. Dressell
/s/ Ezra H. Friedlander Director January 23, 1997
- ---------------------------------------
Ezra H. Friedlander
/s/ Steven M. Lewis Director January 23, 1997
- ---------------------------------------
Steven M. Lewis
/s/ Christopher J. Murphy III Director January 23, 1997
- ---------------------------------------
Christopher J. Murphy III
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE NO.
EXHIBIT IN THIS
NO. DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------- ----------
<S> <C> <C>
2 (1) Share Exchange and Reorganization Agreement by and among the
Registrant and Burger Services, Inc., Bravokilo, Inc., Bendan
Restaurant, Inc., Burger Management of Muskegon, Inc., Burger
Management Fort Wayne, Inc., Best Bagels, Inc., Full Service Dining
Inc., Southwest Dining, Inc., Daniel B. Fitzpatrick, Gerald O. Fitzpatrick,
James K. Fitzpatrick, John D. Fitzpatrick, Ezra H. Friedlander, Benjamin
Schulman and Michael G. Sosinski dated as of December 17, 1993.................
2-B (2) Stock Purchase Agreement among the Registrant, Grayling Corporation,
T. Garrick Steele, Joseph E. Olin, Andrew P. Murphy, Anita L. Wood,
Thomas Miller and Steve Hunter dated as of September 27, 1994..................
2-C (3) Acquisition Agreement by and among the Registrant, Bravokilo, Inc.,
William R. Schonsheck, SHONCO, Inc., SHONCO II, Inc., SHONCO III,
Inc., SHONCO IV, Inc., SHONCO V, Inc., SHONCO VI, Inc., SHONCO Six,
Inc., SHONCO Seven Management, Inc., SHONCO X, Inc., SHONCO XI,
Inc. and SHONCO XII, Inc. dated as of July 13, 1995............................
2-D (6) Asset Purchase Agreement, as amended, dated as of October 30, 1995 by
and between the Registrant and Brinker International, Inc......................
2-E (7) Agreement and Plan of Merger, dated as of February 21, 1996, among the
Registrant, BAC, Inc., and Bruegger's Corporation..............................
3-A (9) Restated Articles of Incorporation of the Registrant...........................
3-B (10) By-Laws of the Registrant, as amended to date..................................
4 (8) Amended and Restated Revolving Credit Agreement, dated as of April 26,
1996, between the Registrant and GAGHC, Inc., as borrowers, and Texas
Commerce Bank National Association, as agent, NBD Bank, N.A., LaSalle
National Bank, NationsBank, N.A. (South), SunTrust Bank, Central Florida,
N.A., The Northern Trust Company and Key Bank..................................
4-A First Amendment, dated as of November 7, 1996, to Amended and Restated
Revolving Credit Agreement, dated as of April 26, 1996, between the
Registrant, GAGHC, Inc., and BF Holding, Inc., as borrowers, and Texas
Commerce Bank National Association, as agent, NBD Bank, N.A., LaSalle
National Bank, NationsBank, N.A. (South), SunTrust Bank, Central Florida,
N.A., The Northern Trust Company and Key Bank..................................
10-A (1) Form of Burger King Franchise Agreement........................................
10-B (1) Form of Chili's Franchise Agreement............................................
10-D (1) Form of Bruegger's Bakeries Franchise Agreement................................
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
EXHIBIT IN THIS
NO. DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------- ----------
<S> <C> <C>
10-E (1) (i) Target Reservation Agreement between Burger King Corporation
and the Registrant dated December 24, 1993; (ii) Side Letter Agreement
to Target Reservation Agreement dated December 21, 1993........................
10-F (1) Development Agreement between Chili's, Inc. and the Registrant
dated June 27, 1990............................................................
10-H (11) Form of Bruegger's Development Agreement (Preferred Stock
Franchisees)...................................................................
10-I (9) *1993 Stock Option and Incentive Plan, as amended, of the Registrant...........
10-J (1) *Outside Directors Stock Option Plan of the Registrant.........................
10-K (1) Lease Agreement between B.K. Main Street Properties
and the Registrant dated January 1, 1994.......................................
10-L Schedule of Related Party Leases...............................................
10-M (1) Form of Related Party Lease....................................................
10-Q Form of Bruegger's Development Agreement and Form of
Bruegger's Franchise Agreement attached thereto (Standard
Franchisees)...................................................................
10-R Form of Bruegger's Development Agreement and Form of
Bruegger's Franchise Agreement attached thereto (Related
Party Franchisees).............................................................
10-S Form of Bruegger's Development Agreement and Form of
Bruegger's Franchise Agreement attached thereto (Future
Franchisees)...................................................................
10-T (4) First Amendment dated May 2, 1995 to Development Agreement between
Chili's, Inc. and the Registrant dated June 27, 1990...........................
10-U Schedule of Bruegger's Related Party Development Agreements....................
10-V (4) *Employment Agreement between the Registrant and William R.
Schonsheck dated August 14, 1995...............................................
10-W (4) Non-Competition Agreement between the Registrant and William R.
Schonsheck dated August 14, 1995...............................................
10-X (4) Lease Agreement for Farmington Hills #509 between the Registrant and
William R. Schonsheck dated August 14, 1995...................................
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
EXHIBIT IN THIS
NO. DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------- ----------
<S> <C> <C>
10-Y (4) Lease Agreement for Belleville #4814 between the Registrant and
William R. Schonsheck dated August 14, 1995...................................
10-Z (4) Purchase and Sale Agreement between the Registrant and John D.
Fitzpatrick dated July 10, 1995................................................
10-AA (4) Target Reservation Agreement between Burger King Corporation and the
Registrant dated September 15, 1995............................................
10-AB (5) Stock Purchase Agreement between Ezra H. Friedlander, Daniel B.
Fitzpatrick and James K. Fitzpatrick, as shareholders of Tri-State Construction
Co., Inc., and the Registrant dated as of November 1, 1995.....................
10-AC (9) Agreement between the Registrant and Nordahl L. Brue and Michael J.
Dressell, dated February 21, 1996..............................................
10-AD Priority Charter Agreement between the Registrant and Burger Management of
South Bend #3, Inc., dated September 1, 1994...................................
10-AE *Resignation Agreement between the Registrant and Michael G. Sosinski,
dated as of October 25, 1996...................................................
10-AF Lease Agreement between the Registrant and Six Edison Lakes, L.L.C., dated
September 19, 1996.............................................................
10-AG Stock Option Agreement between the Registrant, Daniel B. Fitzpatrick and
Bagel Acquisition Corporation, dated August 12, 1996...........................
10-AH Computer and Communications Systems Agreement between the Registrant and
Bagel Acquisition Corporation, dated as of August 12, 1996.....................
10-AI Accounting Services Agreement between the Registrant and Bagel Acquisition
Corporation, dated as of August 12, 1996.......................................
10-AJ Management Services Agreement between the Registrant and Bagel Acquisition
Corporation, dated as of August 12, 1996.......................................
10-AK Schedule of Related Party Franchise Agreements.................................
10-AL (i) Revolving Credit Loan Agreement between the Registrant and Bagel
Acquisition Corporation, dated August 12, 1996; (ii) Promissory Note between
the Registrant and Bagel Acquisition Corporation, dated August 12, 1996........
10-AM First Amendment to Revolving Credit Loan Agreement, Promissory Note and Security
Agreement between the Registrant and Bagel Acquisition Corporation, dated as of
December 2, 1996...............................................................
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
EXHIBIT IN THIS
NO. DESCRIPTION FILING
- --------- ------------------------------------------------------------------------------- ----------
<S> <C> <C>
10-AN (i) Termination and Modification Agreement between the Registrant
and Howard Opera House Associates, dated October 23, 1996;
(ii) Lease between the Registrant and Howard Opera House
Associates, dated as of January 28, 1991; (iii) Lease between
the Registrant and Howard Opera House Associates, dated as of
January 28, 1991...............................................................
21 Subsidiaries of the Registrant.................................................
23 Written consent of Coopers & Lybrand L.L.P.....................................
27 Financial Data Schedule........................................................
</TABLE>
__________________
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
(1) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-1 (Registration No. 33-73826)
is incorporated herein by reference.
(2) The copy of this exhibit filed as the same exhibit number to the
Company's Report on Form 8-K dated November 23, 1994 is incorporated
herein by reference.
(3) The copy of this exhibit filed as Exhibit 2 to the Company's Report on
Form 8-K dated August 28, 1995 is incorporated herein by reference.
(4) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-1 (Registration No. 33-96806)
is incorporated herein by reference.
(5) The copy of this exhibit filed as the same exhibit number to the
Company's Report on Form 10-K for the year ended October 29, 1995 is
incorporated herein by reference.
(6) The copy of this exhibit filed as the same exhibit number to the
Company's Report on Form 8-K dated January 5, 1996 is incorporated herein
by reference.
(7) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-4 (Registration No. 333-2050)
is incorporated herein by reference.
(8) The copy of this exhibit filed as the same exhibit number to the
Company's Report on Form 8-K dated May 1, 1996 is incorporated herein by
reference.
(9) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
May 12, 1996 is incorporated herein by reference.
(10) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
August 4, 1996 is incorporated herein by reference.
(11) The copy of this exhibit filed as exhibit 10-H(i) "Development Agreement
between Bruegger's Franchise Corporation and Registrant dated November
15, 1993," to the Company's Registration Statement on Form S-1
(Registration No. 33-73826) is incorporated herein by reference.
S-5
<PAGE>
EXHIBIT 4A
FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This First Amendment to Amended and Restated Revolving Credit Agreement
(this "Amendment") dated as of November 7, 1996 by and between Quality Dining,
Inc., an Indiana corporation, GAGHC, Inc., a Delaware corporation, and BF
Holding, Inc., a Delaware corporation, as Borrowers, the banks now or hereafter
parties to the hereinafter defined Agreement (the "Banks") and Texas Commerce
Bank National Association, in its capacity as Agent for the Banks, amends and
restates the Amended and Restated Revolving Credit Agreement dated as of April
26, 1996 (said Revolving Credit Agreement, as amended hereby and as it may from
time to time hereafter be amended, the "Agreement") by and between Quality
Dining, Inc., an Indiana corporation, and GAGHC, Inc., a Delaware corporation,
as Borrowers, the Banks and Texas Commerce Bank National Association, in its
capacity as Agent for the Banks.
WITNESSETH:
WHEREAS, , pursuant to the Agreement, the Banks have agreed to make certain
loans to the Borrowers, which loans are evidenced by certain promissory notes
dated April 26, 1996 in the aggregate principal amount of $150,000,000 (the
"Existing Notes");
WHEREAS, the Borrowers, the Banks and the Agent desire to amend the
Agreement in certain respects, including, among other things, to add BF Holding,
Inc., a Delaware corporation ("BFH") as a Borrower under the Agreement; and
WHEREAS, in order to evidence the addition of BF Holding, Inc. as a
Borrower, the Borrowers, the Banks and the Agent will enter into this Amendment
and the Borrowers will deliver to each of the Banks a First Amended and Restated
Promissory Note dated the date hereof in a principal amount equal to the amount
of such Bank's Commitment (individually, an "Amended Note" and collectively, the
"Amended Notes"), in replacement for the Existing Notes.
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined
-------------
herein shall have the meanings attributed to such terms in the Agreement.
2. Amendments to Article I of Agreement.
------------------------------------
2.1. The definition of "Board of Directors" in Article I of the Agreement
is hereby amended in its entirety to read as follows:
<PAGE>
"Board of Directors" shall mean the Board of Directors of QDI, GAGHC,
------------------
BFH or any Subsidiary Guarantor, as applicable.
2.2. The definition of "Borrower" in Article I of the Agreement is hereby
amended in its entirety to read as follows:
"Borrower" shall mean each of QDI, GAGHC and BFH; and "Borrowers"
shall mean QDI, GAGHC and BFH together.
2.3. Article I of the Agreement is hereby amended by inserting immediately
following the definition of "Base Rate Loan" a new definition of "BFH" to read
as follows:
"BFH" shall mean BF Holding, Inc., a Delaware corporation, and its
---
successors and assigns, and any surviving, resulting or transferee
corporation.
2.4. Article I of the Agreement is hereby amended by inserting immediately
following the definition of "Federal Funds Rate" a new definition of "FFP
Guaranty" to read as follows:
"FFP Guaranty" shall mean the guaranty by QDI of the obligations of
------------
one or more franchisees of Bruegger's Corporation for the development of
Bruegger's Bagel Bakeries and related commissaries in respect of loans to
such franchisees pursuant to the Franchise Finance Program of QDI, provided
--------
that the aggregate principal amount of such loans at any time guaranteed by
QDI shall not exceed $35,000,000.
2.5. Article l of the Agreement is hereby amended by inserting immediately
following the definition of "Fixed Charges" a new definition of "FOPP
Investments" to read as follows:
"FOPP Investments" shall mean Investments by BFH in the form of (i) senior
-----------------
secured convertible loans (the "Convertible Loans") to entities ("Operating
Partners") that will acquire and develop Bruegger's Bagel Bakeries under
agreements with Bruegger's Corporation or its affiliates, which in each case (A)
is in a principal amount not to exceed 400% of the cash equity investment in
such Operating Partner, (B) bears interest at a rate equal to 1% above the Base
Rate, payable monthly, (C) is convertible into equity interests in the Operating
Partner at a conversion price per unit up to 125% of the price per unit paid by
Bakery Capital Company, L.L.C. and management of the Operating Partner, and (D)
is secured by substantially all of the assets of the Operating Partner and the
equity interests in the Operating Partner (other than those held by Bakery
Capital Company, L.L.C.), pursuant to and in accordance with the terms of the
Financed Operating Partner Program of Bruegger's Corporation, (ii) equity
interests in Operating Partners acquired by BFH pursuant to the conversion of
Convertible Loans and/or the exercise of options issued in connection with the
Convertible Loans, in each case at purchase price per unit up to 125% of the
price per unit paid by Bakery Capital Company, L.L.C. and management of the
Operating Partner, (iii) the purchase by Bruegger's Corporation or QDI of equity
interests in an Operating Partner from Bakery Capital Company, L.L.C., in the
event of the failure of such Operating Partner to redeem such equity interest
pursuant to the operating agreement of such Operating Partner, at a purchase
price not to exceed seven and one-half times operating store level cash flow of
the Operating Partner, before general and administrative expenses and certain
other adjustments as specified in such operating agreement and/or (iv) loans to
or equity investments in one or more Operating Partners, other
<PAGE>
than any such Investment described in clauses (I) through (iii) above, provided
that the aggregate amount (in the form of cash and other consideration) paid by
BFH in respect of Investments pursuant to this clause (iv) shall not exceed
$50,000,000.
2.6. Article I of the Agreement is hereby amended by amending the
definition of "Permitted Investments" by renumbering clause (viii) as clause (x)
and by inserting after clause (vii) a new clause (viii) and a new clause (ix) to
read as follows:
(viii) loans to Bagel Acquisition Corp. in an aggregate principal amount
outstanding at any time not to exceed $15,000,000, provided that for a
period of not exceeding 180 consecutive calendar days the aggregate
principal amount outstanding of such loans to Bagel Acquisition Corp. may
exceed $15,000,000 so long as the aggregate principal amount outstanding of
such loans does not at any time exceed $50,000,000; (ix) a loan to Mohold
Inc. in the principal amount of $4,500,000
3. Amendments to Article V of Agreement.
-------------------------- ---------
3.1. Section 5.12 is hereby amended by renumbering clause (ii) as clause
(iii) and inserting after "GAGHC" in the second line thereof a new subsection
(ii) to read as follows:
", (ii) BFH".
4. Amendments to Article VI of Agreement.
--------------------------- ----------
4.1. Section 6.1 of the Agreement is hereby amended in its entirety and
replaced with the following language:
6.1. Consolidated Tangible Net Worth. QDI shall maintain as of the
-------------------------------
last day of each fiscal quarter a Consolidated Tangible Net Worth in an
amount not less than $70,000,000, plus (i) for each of the fiscal quarters
of QDI, commencing with the fiscal quarter ended October 27, 1996, (x) 50%
of Consolidated Net Income of QDI for each fiscal quarter in which
Consolidated Net Income is positive, and (y) zero, for each fiscal quarter
in which Consolidated Net Income of QDI is zero or negative, plus (ii) the
proceeds (net of all reasonable and appropriate commissions, fees and
expenses) paid to or received by QDI in connection with the sale or other
disposition of any shares of the stock of or other equity interests in QDI.
4.2. Section 6.5 of the Agreement is hereby amended by deleting "and" at
the end of clause (f), by renumbering clause (g) as clause (h), by replacing the
reference to "clauses (a)-(f)" in the new clause (h) with a reference to
"clauses (a)-(g)", and by inserting a new clause (g) to read as follows:
<PAGE>
(g) FFP Guaranties in an aggregate principal amount at any time
outstanding not to exceed $35,000,000; and
4.3. Section 6.7 of the Agreement is hereby amended by inserting at the
end of clause (b) after "/1/or other equity interests therein, the following
words: "(except for any such purchases, redemption's, retirements or other
acquisitions payable solely in shares of common stock of QDI)".
4.4. Section 6.11 of the Agreement is hereby amended (I) by inserting in
the parenthetical appearing in the third and fourth lines of subsection (b) of
said section after the word "GAGHC" the following words: "or BFH" and.(ii) by
replacing in the last sentence of said section the word "GAGHC" with the
following words: "each of GAGHC and BFH".
4.5. Section 6.12 of the Agreement is hereby amended by inserting "(i)"
before "Permitted Investments" in said section and by inserting after "Permitted
Investments" the following words: "and (ii) any FOPP Investment, provided that
--------
immediately after the consummation of the FOPP Investment and after giving
effect thereto, no condition or event shall exist which constitutes a Default or
an Event of Default.
5. Amendment to Annex I and Annex II to Agreement.
----------------------------------------------
5.1. Annex I and Annex II to the Agreement are each hereby deleted in their
entirety and replaced with Annex I and Annex II, respectively, to this
Amendment.
6. Amendment to Exhibit A to Agreement.
-----------------------------------
6.1. Exhibit A to the Agreement is hereby deleted in its entirety and
replaced with Exhibit A to this Amendment.
7. Amendment to Exhibit B to Agreement.
-----------------------------------
7.1. Exhibit B to the Agreement is hereby deleted in its entirety and
replaced with Exhibit B to this Amendment.
8. Amendment to Exhibit E to Agreement.
-----------------------------------
8.1. The form of Assignment Agreement attached as Exhibit E to the
Agreement is hereby amended by inserting after "GAGHC, Inc., a Delaware
corporation" in the first paragraph thereof, the following words: "and BF
Holding, Inc., a Delaware corporation."
9. Representations and Warranties of the Company. In order to induce the
--------------------------------- -----------
Banks and the Agent to enter into this Amendment, each of the Borrowers
represents and warrants that:
91. The execution and delivery by such Borrower of this Amendment and the
Amended Notes have been duly authorized by proper corporate proceedings and this
Amendment, the Amended Notes and the Agreement, as previously amended and as
amended hereby, constitute the legal, valid and binding obligations of such
Borrower, enforceable against such Borrower in accordance with their
<PAGE>
respective terms.
9.2. Neither the execution and delivery by such Borrower of this Amendment
or the Amended Notes nor compliance with the provisions hereof or thereof will
violate any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on such Borrower or the articles of incorporation or by-laws of
such Borrower or the provisions of any indenture, instrument or agreement to
which such Borrower is a party or is subject, or by which it or its property is
bound, or conflict with or constitute a default thereunder.
9.3. Such Borrower has not received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable federal, state and local environmental, health and safety statutes
and regulations or the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action might have a material adverse effect on the business,
properties, condition (financial or otherwise) or results of operations of such
Borrower.
9.4. The representations and warranties set forth in Article IV of the
Agreement, as amended hereby, are true and correct on the date hereof and after
giving effect hereto, except that the representations and warranties set forth
in Section 4.5 as to financial statements of QDI shall be deemed a reference to
the audited and unaudited financial statements of QDI, as the case may be, most
recently delivered to the Banks pursuant to Section 5.1.
9.5. No Default or Event of Default and no Material Adverse Occurrence has
occurred and is continuing.
10. Effective Date. This Amendment shall become effective as of the date first
--------------
above written upon receipt by the Agent of each of the following items:
(a) Counterparts of this Amendment duly executed by each of the
Borrowers and each of the Banks;
(b) Duly executed Amended Notes, payable to the order of each of the
Banks, substantially in the form of Exhibit A hereto,
appropriately completed;
(c) Reaffirmation of Subsidiary Guaranty, duly executed and delivered
by each of the Wholly-Owned Subsidiaries of the Borrower (other
than GAGHC and BFH);
(d) Certificate of the Secretary or an Assistant Secretary of each of
QDI and GAGHC, certifying that (i) there has been no amendment to
the articles of incorporation or by-laws of such Borrower since
April 26, 1996 and (ii) attached is a true and correct copy of
the resolutions of such Borrower's Board of Directors authorizing
the execution and delivery of this Amendment and the Amended
Notes and any other documents or instruments executed and
delivered in connection herewith and the performance of all the
terms and provisions hereof;
<PAGE>
(e) Articles of Incorporation and all amendments thereto of BFH,
certified as of a recent date by the Secretary of State of the
state of its incorporation;
(f) Good standing certificates of BFH, certified as of a recent date
by the Secretary of State of the state of its incorporation and
the Secretaries of the State of each other state in which BFH is
qualified to do business;
(g) Certificate of the Secretary of BFH, certifying that (i) there
have been no changes to its Articles of Incorporation since the
date of the certification by the Secretary of State, (ii) a
correct and complete copy of its Bylaws, with all amendments
thereto, is attached to the certificate and (iii) a correct and
complete copy of the resolutions of its Board of Directors
authorizing BFH to become a Borrower under the Agreement and the
execution, delivery and performance of this Amendment and the
Amended Notes and any other documents or instruments executed and
delivered in connection herewith and the performance of all terms
and provisions herewith and therewith are attached to the
certificate, and such resolutions have not been subsequently
modified or repealed, and (iv) there are no proceedings pending
or contemplated as to the merger, consolidation, liquidation or
dissolution of such entity
(h) Incumbency Certificate, certified by the Secretary of each of the
Borrowers;
(i) Certificates of the Secretary or an Assistant Secretary of each
Guarantor certifying that (i) there has been no amendment to the
articles of incorporation or by-laws of such Guarantor since
April 26, 1996 and (ii) attached is a true and correct copy of
resolutions of such Guarantor's Board of Directors authorizing
the execution and delivery of the Reaffirmation of Subsidiary
Guaranty;
(1) Incumbency Certificate of each Guarantor certified by the
Secretary of such Guarantor;
(k) Closing certificate executed by the president, senior vice
president, chief financial officer or treasurer of QDI,
certifying that the representations and warranties contained in
the Agreement and each other Loan Document are true and accurate
in all material respects and that no Default or Event of Default
has occurred and is continuing;
(I) Written opinion of counsel to each of the Borrowers and the
Guarantors, in form and substance satisfactory to the Agent;
(m) Payment by the Borrowers of all costs and expenses of the Agent's
special counsel (including without limitation legal fees and
expenses) incurred in connection with preparation and execution
of this Amendment and incident to all proceedings in connection
with transactions contemplated hereby and documents relating to
this Amendment, the Amended Notes and the Agreement; and
<PAGE>
(n) Such other documents and instruments as the Agent shall
reasonably request.
11. Assumption by BFH. By executing this Amendment, BFH agrees to be bound by
-----------------
all of the terms of and to undertake all of the obligations of a "Borrower"
under the Agreement and the Amended Notes and agrees and confirms that it shall
hereafter be a party to the Agreement and obligor on the Amended Notes and all
references to a "Borrower" or the "Borrowers" in the Agreement and the Amended
Notes shall include BFH. BFH hereby ratifies and confirms all previous action
taken by or directions given by QDI and/or GAGHC under the Agreement.
12. Ratification. The Agreement, as amended hereby, shall remain in full force
------------
and effect and is hereby ratified, approved and confirmed in all respects.
13. References to Borrowers. From and after the effective date, all references
-------------------------
to "a Borrower", "each Borrower", "either "Borrower" each of the Borrowers" or
"the Borrowers, or either of them" or words of like import shall be deemed to be
a reference to each of QDI, GAGHC and BFH or any of them, as the context
requires.
14. References to Agreement. From and after the effective date hereof; (i) each
-----------------------
reference in the Agreement to "this Agreement," "hereof;" or "hereunder" or
words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as modified and
amended by this Amendment, and (ii) each reference in the Agreement to "a Note"
or "the Notes" and all references to the Notes in any and all agreements,
instruments, documents, notes, certificates and other writings of every kind and
nature shall be deemed to be a reference to an Amended Note or the Amended
Notes, as the context requires.
15. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
16. Execution in Counterparts. This Amendment may be executed in one or more
-------------------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
[The rest of this page is intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Borrowers, the Banks and the Agent have executed this
Amendment as of the date first above written.
QUALITY DINING, INC.
By: /s/
------------------------------------
John C. Firth
Senior Vice President
GAGHC, INC.
By: /s/
------------------------------------
David M. Findlay
Vice President
BF HOLDING, INC.
By: /s/
------------------------------------
Patrick J. Barry
President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, in its individual capacity and
as Agent for the Banks
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
NBD BANK, N.A.
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
KEY BANK NATIONAL ASSOCIATION
(Formerly, Society National Bank)
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
LASALLE NATIONAL BANK
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
NATIONSBANK, N.A. (SOUTH)
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/
------------------------------------
Name:__________________________________
Title:_________________________________
<PAGE>
ANNEX I
LIST OF JURISDICTIONS IN WHICH THE BORROWERS ARE QUALIFIED TO DO BUSINESS:
QUALITY DINING, INC. GAGHC, INC. BF HOLDING, INC.
- -------------------- ----------- ------------------
IN, MI, OH DE DE, VT
<PAGE>
ANNEX II
LIST OF SUBSIDIARIES, STATE OF INCORPORATION AND JURISDICTIONS QUALIFIED TO
DO BUSINESS:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
JURISDICTIONS
STATE OF QUALIFIED TO DO
SUBSIDIARY INCORPORATION BUSINESS STOCK OWNERSHIP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bravokilo, Inc. Indiana IN, MI Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Southwest Dining, Inc. Indiana IN, MI, OH Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Full Service Dining, Inc. Indiana IN, MI, OH Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Best Bagels, Inc. Indiana IN, MI, OH, PA, NJ Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Grayling Corporation Delaware DE, PA, NJ Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Grady's American Grill Indiana AK, CO, FL, Wholly Owned
Restaurant Corporation GA, IL, LA, Subsidiary of Borrower
MI, MS, NM,
NC, OH, OK,
TN, TX, VA
- ------------------------------------------------------------------------------------------------------------------
Grady's American Grill, LP Texas TX General Partner - Grady's American
Grill Restaurant Corporation 1%
Limited Partner - GAGHC, Inc. 99%
- ------------------------------------------------------------------------------------------------------------------
Grady's, Inc. Tennessee TN, AL Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Grayling Management Virginia VA Wholly Owned
Corporation Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Chili's of Mt. Laurel, Inc. New Jersey NJ Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Chili's of Christiana, Inc. Delaware DE Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
GAGHC, Inc. Delaware DE Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
GAGLC, Inc. Texas TX Wholly Owned
Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Tri-State Construction Indiana IN, MI, OH, NJ, PA Wholly Owned
Co., Inc. Subsidiary of Borrower
- ------------------------------------------------------------------------------------------------------------------
Bruegger's Corporation Delaware IA, MA, MN, MO, NY, NC, Wholly Owned
PA, OH, TN, IL, RI, NH, Subsidiary of
KY, MD, ME, VT, CT Borrower
- ------------------------------------------------------------------------------------------------------------------
Bruegger's Franchise Delaware VT Wholly Owned
Corporation Subsidiary of
Borrower
==================================================================================================================
</TABLE>
<PAGE>
EXHIBIT A
---------
[Form of Note]
AMENDED AND RESTATED PROMISSORY NOTE
$______ ______ 199
---
Chicago, Illinois
FOR VALUE RECEIVED, QUALITY DINING, INC., an Indiana corporation ("QDI")
GAGHC, INC., a Delaware corporation ("GAGHC"), and BF HOLDING, INC., a Delaware
corporation (collectively together with their successors and assigns, the
"Borrowers"), hereby promise, jointly and severally, to pay to
______________________ (the "Holder"), the principal sum of__________ DOLLARS
($______________) or such lesser amount as shall equal the aggregate unpaid
principal amount of the Advances (as defined in the hereinafter defined Credit
Agreement) made by the Holder to the Borrowers, or any of them, under the Credit
Agreement on the Termination Date (as defined in the Credit Agreement) and to
pay interest on the unpaid principal amount of each Advance, for the period
commencing on the date of such Advance until such Advance shall be paid in full,
at the rates per annum and on the dates provided in the Credit Agreement.
Both principal and interest are payable in lawful money of the United States
of America and in immediately available funds to the Agent (as defined in the
Credit Agreement) to such domestic account as the Agent may designate. The date,
amount and type of each Advance made by the Holder to the Borrowers, or any of
them, and each payment made on account of the principal thereof; shall be
recorded by the Holder on its hooks and, prior to any transfer of this Note,
endorsed by the Holder on the schedule attached hereto or any continuation
thereof; provided that the Holder's failure to make any such recordation or
notation shall not affect the Obligations of the Borrowers hereunder or under
the Credit Agreement.
This Note is one of the Notes referred to in the Amended and Restated
Revolving Credit Agreement (as amended by the First Amendment to Amended and
Restated Revolving Credit Agreement dated as of , 1996 and as it may
hereafter be amended from time to time, the "Credit Agreements') dated as of
April 26, 1996 by and between the Borrowers, the banks party thereto (the
/1/'Banks") and Texas Commerce Bank National Association, as agent (the
'/1/Agent"), which amends and restates the Revolving Credit Agreement dated as
of April 26, 1996 by and between the Borrowers, the banks party thereto and
Texas Commerce Bank National Association, as agent (the "Original Credit
Agreement"). This Note amends and restates and is issued in substitution for a
Promissory Note dated April 26, 1996 (the "Original Note") issued by QDI and
GAGHC pursuant to the Credit Agreement and evidences Advances made thereunder.
This Note does not constitute a novation of the obligations under the Original
Note. Capitalized terms used in this Note have the respective meanings assigned
to them in the Credit Agreement.
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of the
Advances evidenced by this Note upon the occurrence of certain events and for
prepayments of Advances upon the terms and conditions specified therein.
This Note is secured by a Subsidiary Guaranty issued by certain Wholly-Owned.
Subsidiaries of Quality Dining, Inc. in favor of the Agent for the benefit of
the Banks and may now or hereafter be secured by one or more other guaranties,
instruments or agreements of the Borrower or any other Person.
The Borrowers hereby waive demand, presentment, protest and notice of
nonpayment and protest.
THIS NOTE SHALL BE GOVERNED BY. AND CONSTRUED IN ACCORDANCE WITH. THE
---- ---- ----- -- -------- -- --- --------- -- ---------- ---- ---
INTERNAL LAWS OF THE STATE OF ILLINOIS.
- -------- ---- -- --- ----- -- --------
QUALITY DINING, INC.
By:
Daniel B. Fitzpatrick President
GAGHC, INC.,
By:
Daniel B. Fitzpatrick President
BF HOLDING, INC.
By:
Daniel B. Fitzpatrick President
<PAGE>
Schedule to Promissory Note
Date
Date of Amount Type Principal of
Advance of Advance of Advance Advance Repaid
- ---------------------------------------------------------------------------
<PAGE>
EXHIBITB
--------
NOTICE OF BORROWING
------ -- ---------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent
712 Main Street
Houston, Texas 77002-8059
Attention
(Date of Notice)
19
Ladies and Gentlemen:
The undersigned, [Quality Dining, Inc., an Indiana corporation] [GAGHC, Inc.,
a Delaware corporation][BF Holding, Inc., a Delaware corporation], refers to the
Amended and Restated Revolving Credit Agreement, dated as of April 26, 1996,
(said Amended and Restated Revolving Credit Agreement, as amended, modified or
supplemented from time to time being the "Agreement") by and between Quality
Dining, Inc., GAGHC, Inc. and BF Holding, Inc., as borrowers, the banks party
thereto and Texas Commerce Bank National Association, as agent. The terms used
herein shall have the meanings ascribed thereto in the Agreement. Pursuant to
the terms of the Agreement the undersigned hereby requests an Advance under the
Agreement, and in that connection sets forth below the information relating to
such Advance (the "Proposed Advance"):
(i) The borrowing date (which shall be a Business Day) of the Proposed
Advance is _________ 19
(ii) The aggregate amount of the Proposed Advance is $_____
(iii) The Proposed Advance is to be made as the following type(s) of Loan:
(A) $___________ Base Rate Loan; or
('3) $_________ LIBOR Base Loan.
(iv) If the Proposed Advance is to be made as a LIBOR Base Loan, the
Interest Period applicable thereto is __ months.
<PAGE>
The undersigned confirms that the conditions precedent set forth in Article
III of the Agreement are satisfied as of the date hereof
[QUALITY DINING, INC]
[GAGHC, INC.]
[BF HOLDING, INC.]
By:
Its:
<PAGE>
EXHIBIT 10-AD
PRIORITY CHARTER AGREEMENT
---------------------------
THIS AGREEMENT made this 1st day of September, 1994 by and between BURGER
MANAGEMENT OF SOUTH BEND #3, INC., an Indiana Corporation, and QUALITY DINING,
INC., an Indiana Corporation.
STATEMENT OF FACTS
Burger Management of South Bend #3, Inc. ("Burger Management") owns a
certain Beechcraft King Air B-200, Serial Number BB-1001 (the "Airplane") and
Burger Management and Quality Dining, Inc. desire to provide for the use of the
Airplane by Quality and its subsidiaries (collectively "Quality") from time to
time throughout the term of this Agreement on the terms and conditions
established herein.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. TERM. This Agreement shall be in effect for a period of six (6) months
----
from the date hereof. Thereafter, it shall automatically renew for successive
six (6) month periods unless terminated by either party by thirty (30) days
written notice.
2. PRIORITY CHARTER. Burger Management shall make the Airplane available
----------------
to Quality, upon reasonable prior notice from Quality, throughout the term of
this Agreement.
3. RENT. Quality shall pay to Burger Management, for the use of the
----
Airplane as provided herein, the sum of One Thousand One Hundred ($1,100.00)
Dollars per hour that the Airplane is in operation for Quality. Quality shall
submit payment to Burger Management within thirty (30) days of receipt of a
statement for charges incurred hereunder.
4. FLAT RATE. The rental rate provided in paragraph 3 above is intended
---------
to be a flat rate and Quality shall not be responsible for any expenses
associated with operating the Airplane including but not limited to fuel,
salaries and fringe benefits of pilots, taxes, insurance, hanger fees, landing
fees, stand-by charges and/or pilots' meals and lodging.
5. MAINTENANCE. Burger Management agrees that the Airplane will at all
-----------
times
<PAGE>
be maintained to standards consistent with F.A.A. Regulation 135 and shall
follow the Airplane's manufacturer's maintenance program and required inspection
guidelines, including, but not limited to, all airworthiness directives and
service bulletins.
6. INSURANCE AND INDEMNITY. Burger Management shall maintain in full
-----------------------
force and effect throughout the term of this Agreement a comprehensive policy of
insurance on the Airplane issued by a responsible insurance company in a form
and with liability limits as are customary for similar airplanes but in no
event less than that which may be required from time to time by any governmental
agencies or regulations applicable to the Airplane. Burger Management shall
indemnify and hold Quality harmless from any and all liability, loss or damage
Quality may suffer as a result of claims, demands or judgments against it,
arising out of the operation of the Airplane, including the reasonable cost of
defense, whether or not such claims were rightfully asserted or filed.
7. PILOTS. The rental rate specified in paragraph 3 above includes two
------
(2) qualified licensed pilots. Burger Management shall provide or arrange for
all appropriate training of pilots for the Airplane and shall implement
appropriate safety programs and other practices designed to maximize safe
travel for passengers on the Airplane.
8. CONTROL. The Airplane shall at all times be under the exclusive
-------
control of the pilot and co-pilot operating the Airplane. Any and all decisions
regarding flight plans, airworthiness of the Airplane, weather and/or any other
matter or thing that could possibly affect the safe operation of the Airplane
shall be made by the pilot, or in his absence, the co-pilot, whose
determinations shall be conclusive. All of Quality's personnel and any other
passengers on the Airplane at any time shall comply with any and all directives
given by the pilot and co-pilot.
9. BINDING EFFECT. The Agreement shall be binding upon and inure to the
--------------
benefit of Burger Management and Quality and there respective successors and
assigns.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
2
<PAGE>
between the parties pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both parties. No waiver
shall be binding unless executed in writing by the party making the waiver.
11. RELATIONSHIP OF THE PARTIES. The relationship between Burger
---------------------------
Management and Quality is that of independent contractor and under no
circumstances shall any of the employees of one party be deemed to be the
employees of the other for any purpose. Nothing contained in this Agreement nor
any act of the parties shall be construed to create a principal and agent, joint
venture, partnership, or similar relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the date and year first above written.
"BURGER MANAGEMENT" "QUALITY"
Burger Management of South Quality Dining, Inc.
Bend #3, Inc.
/s/ Daniel B. Fitzpatrick /s/ Michael G. Sosinski
- --------------------------- -------------------------
By: Daniel B. Fitzpatrick By: Michael G. Sosinski
Its: President Its: Chief Financial Officer
3
<PAGE>
EXHIBIT 10-AE
RESIGNATION AGREEMENT
---------------------
This Agreement is made as of October 25, 1996, by and between Quality Dining,
Inc. ("Corporation") and Michael G. Sosinski ("Employee").
RECITALS
A. Employee has been employed by Corporation to perform certain duties as
determined by Corporation during the term of Employee's employment.
B. Employee now desires to resign his employment with the Corporation
(including all offices and directorships) effective October 25, 1996,
according to the terms of this Agreement.
C. Incident to Employee's resignation, the Corporation is willing to pay
certain compensation to Employee and provide certain other benefits which
would not otherwise be due to Employee.
D. Employee and the Corporation desire to confirm by this Agreement the
acceptance of Employee's resignation and the termination of Employee's
employment as well as the acceptance by Employee of the consideration to
be furnished to him by the Corporation in consideration for the full and
complete release by Employee of the Corporation and its officers,
directors, employees, subsidiaries and affiliates.
NOW THEREFORE, in consideration of the terms and conditions set forth below, in
addition to other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Severance Pay. Corporation and Employee acknowledge that Employee's
employment with the Corporation (including all offices and directorships
with the Corporation) will terminate as of the end of the Corporation's
normal close of business on October 25, 1996 (the "Resignation Date"), and
that the Corporation will make severance payments to Employee in the total
amount of One Hundred Sixty Thousand Dollars ($160,000.00) (less taxes and
other legally required or authorized withholdings and deductions) (the
"Severance Payment"), payable to Employee as follows:
a) Fifty percent (50%) of the Severance Payment on the first regularly
scheduled payroll date following January 1, 1997;
b) Twenty-five percent (25%) of the Severance payment will be paid promptly
upon satisfactory completion of the Corporation's 1996 Fiscal Year audit; as
long as the audit does not reveal or uncover any material irregularities
within the Corporation's accounting practices; and
c) Twenty-five percent (25%) of the Severance Payment will be paid promptly
after the Corporation's annual meeting in March of 1997;
Provided, however, each of the payments specified in Paragraph 1(b) and (c)
above are contingent upon and shall be payable to Employee only if a
committee of outside directors of the Corporation determine, in their sole
discretion, that no issues, conditions, circumstances or complications exist
which would not otherwise exist had Employee discharged the duties of his
1
<PAGE>
office in the manner expected by the Corporation. Each of the payments in
this Paragraph 1 are severable and independent of each other and all other
provisions of this Agreement.
2. Stock Options. The Corporation agrees that all of the Employee's stock
options with the Corporation, both vested and unvested, will be vested by
the Corporation on the Resignation Date. The parties agree that all of the
Employee's stock options with the Corporation are accurately listed in
Exhibit A, attached hereto and made a part hereof (the "Options"). If not
sooner exercised, the Options will expire and terminate at the close of
business on October 24, 1999.
3. Vacation, Sick Leave and Personal Days. Employee agrees that he shall not be
entitled to and shall not receive any compensation for any accrued sick
days, vacation days and/or personal days, other than the compensation being
paid to him pursuant to this Agreement.
4. Other Benefits. Employee will be entitled to any benefits he is vested in on
the Resignation Date in the Corporation's retirement plan, in accordance
with the terms of such plan. Employee is not entitled to any other
Corporation benefits, except as stated in the Corporation's plans. The
Corporation will pay Employee's COBRA premiums for one (1) year from the
Resignation Date.
5. Corporation Stock. Employee is the owner of 36,927 shares of the
Corporation's common stock ("Stock"). If the Corporation's common stock does
not close at or above Thirty-Five Dollars ($35.00) per share ("Base Share
Price") on any date after the Resignation Date up to and including October
24, 1998, then Employee shall be entitled to the "Price Protection" in
accordance with the terms of this Paragraph. Subject to the foregoing,
Employee shall have the right, but not the obligation, to receive the Price
Protection by written notice to Corporation given no later than November 24,
1998. In such event, Corporation, at its option, shall either (i) pay
Employee the difference between (a) the Base Share Price and (b) the closing
price of Corporation's common stock on October 24, 1998 times the number of
shares of the Stock still owned by Employee on October 24, 1998 or (ii)
purchase the number of shares of the Stock still owned by Employee on
October 24, 1998 at the Base Share Price (the "Price Protection"). If
Corporation elects clause (ii), then upon the delivery of the applicable
purchase price by Corporation to Employee, Employee shall endorse to and
deliver the applicable stock certificates for the Stock and/or stock powers
and such other instruments as may be necessary to transfer the Stock to
Corporation or its designee. The Base Share Price and the number of shares
of the stock shall be equitably adjusted to reflect any mergers,
consolidations, stock splits, stock dividends or other similar events which
may occur subsequent to the Resignation Date.
6. Consulting Services. In consideration for the benefits and payments
specified in Paragraphs 1 and 2 above, Employee agrees to provide consulting
services to the Corporation from the Resignation Date through the date of
the Corporation's Annual Meeting in March of 1997. Employee's consulting
services shall include without limitation advising, consulting, counseling
and providing the Corporation with information concerning or relating to
Corporation's 1996 Fiscal Year audit ("Consulting Services"). The parties
estimate that the Consulting Services will require (but not be limited to)
approximately ten (10) hours per month. In addition to the Consulting
Services, Employee agrees to cooperate with Corporation and sign any
documents necessary to effectuate the intent of this Agreement, including
the execution and delivery of such other documents and records including,
without limitation, corporate minutes relating to any period Employee was an
officer or director of the Corporation.
2
<PAGE>
7. Non-Compete Restrictions. For a period of two (2) years after the
Resignation Date, Employee will not anywhere in the United States or Canada
independently or in association with others, engage in any work for, accept
any employment with, or render, directly or indirectly, advice, consulting
services or assistance of any kind to any person, partnership, corporation,
limited liability company, association, entity or other organization whose
principal or primary business is the baking, preparation and/or sale of
bagels, bagel sandwiches, cream cheeses and/or other such related products
of any sort for the duration of this period. Provided, however, the
foregoing shall not preclude Employee from rendering any such advice or
services to any bagel business operating in St. Joseph County provided such
business is not part of a system that has more than twenty-five (25) retail
outlets.
8. Full and Complete Release. Employee hereby unconditionally releases and
discharges Corporation from any claims, known or unknown, directly or
indirectly related to or in any way connected with Employee's employment
with Corporation or the resignation of Employee's employment with
Corporation. The parties agree and acknowledge that the claims or actions
released herein include, but are not limited to, those based on any common
law tort action or based on allegations of wrongful discharge and/or breach
of contract, and those alleging any violation or discrimination on the basis
of race, color, sex, religion, national origin, age, disability, or any
other basis under Title VII of the Civil Rights Act, Americans With
Disabilities Act, Family and Medical Leave Act, all as amended, or those
alleging any claim under any other federal, state, or local law, rule, or
regulation. Employee also agrees that Employee's rights under the
aforementioned statutes or any other federal, state, or local law, rule or
regulation are effectively waived by this Agreement.
9. Return of Property. Employee agrees that no later than five (5) days after
the Resignation Date, Employee shall return to Corporation all Corporation
property in Employee's possession or control, including, but not limited to,
Corporation documents, materials, computer disks, and other records.
10. Announcements. The Corporation and Employee agree not to make any derogatory
or negative comments concerning the other. Whenever Employee or Corporation
discuss, refer to, comment on or make any statements with regard to the
other party, both parties agree to discuss, refer to, comment on and make
any such statements with regards to the other party substantially in the
form and content as set forth in Exhibit B.
11. Definition of Corporation. The parties understand that as used in this
Agreement, "Corporation" includes Quality Dining, Inc. and all of their past
and present officers, directors, employees, trustees, agents, parents,
partners, shareholders, affiliates, principals, insurers, any and all
employee benefit plans (and any fiduciary of such plans) sponsored by the
aforesaid entities, and each of them, and each entity's subsidiaries,
predecessors, successors, and assigns, and all other entities, persons,
firms, or corporations liable or who might be subject to any claim or cause
of action arising out of or related to Employee's employment or Employee's
resignation of employment with the Corporation.
12. Enforceable. Employee further understands, and it is Employee's intent, that
in the event this Agreement is ever held to be invalid or unenforceable (in
whole or in part) as to any particular type of claim or charge or as to any
particular circumstances or provision, it shall remain fully valid and
enforceable as to all other claims, charges, circumstances and provisions.
As to any actions, claims, or charges that would not be released because of
the revocation, invalidity, or unenforceability of this Agreement, Employee
understands that the return of the severance payments described above, with
legal interest, is a prerequisite to asserting or bringing any such claims,
charges, or actions.
3
<PAGE>
13. Voluntary Agreement. Employee expressly acknowledges and agrees that he has
entered into this Agreement freely, knowingly and voluntarily and with full
knowledge and understanding of its terms and that it constitutes a binding
agreement releasing the Corporation from all claims arising out of
Employee's employment and separation from employment. Employee further
acknowledges that he has been given an opportunity to consult with
Employee's legal advisor prior to execution hereof.
14. Effective Date. This Agreement shall take effect seven (7) days after the
Employee executes it. The Employee shall have the right to revoke this
Agreement during the period of seven (7) days following his execution of
this Agreement. In order to revoke the Agreement, the Employee must notify
the undersigned representative of the Corporation, in writing, of his
decision to revoke, and said notice must be received by the undersigned
representative of the Corporation no later than seven (7) days following the
execution of this Agreement. If the Employee revokes this Agreement, he
shall promptly repay to the Corporation all consideration paid to the
Employee under Paragraphs 1 and 2 of this Agreement.
15. This Agreement shall be binding upon and inure to the benefit of the parties
and their heirs, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
EMPLOYEE QUALITY DINING, INC.
/s/ Michael G. Sosinski By: /s/ Daniel B. Fitzpatrick
- ----------------------- -------------------------
Michael G. Sosinski Daniel B. Fitzpatrick
President and CEO
<PAGE>
EXHIBIT A
EMPLOYEE STOCK OPTIONS
<PAGE>
EXHIBIT B
Mike Sosinski was employed by Quality Dining, Inc. from February of 1983
through October of 1996. During that time, Quality Dining grew from 7 Burger
King restaurants with approximately $6,000,000.00 in annual sales to a Company
that operated and franchised a total of 558 quick service and casual theme
dining restaurants with approximately $450,000,000.00 in system-wide sales.
From the time this Company went public in March of 1994, Mike served as its
Chief Financial Officer with responsibility for the Corporation's financial, tax
and accounting functions. Mike has left the Company to pursue other business
interests and spend more time with his family. Mike is pleased to have had the
opportunity to work at Quality Dining as it grew to one of the nation's pre-
eminent restaurant companies and Mike believes that under the strong leadership
of Dan Fitzpatrick, Quality Dining will continue to enjoy the dynamic growth and
success which has been its hallmark.
<PAGE>
EXHIBIT 10-AF
LEASE AGREEMENT
BETWEEN
SIX EDISON LAKES, L.L.C.
AS LANDLORD
AND
QUALITY DINING, INC.,
AS TENANT
LOCATION: 4220 Edison Lakes Parkway
Mishawaka, Indiana
DATED: September 19, 1996
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 19th day of September, 1996, by and between SIX EDISON
LAKES, L.L.C., an Indiana limited liability company ("Landlord") and QUALITY
DINING, INC., an Indiana Corporation ("Tenant"),
WITNESSETH:
ARTICLE 1. LEASE OF PREMISES
Section 1.1. Lease of Premises. Upon and subject to the terms and conditions
provided herein, Landlord leases to Tenant and Tenant leases from Landlord,
certain space in the office building described below, to be built in Edison
Lakes Corporate Park (the "Park"), St. Joseph County, Indiana, which building
(the "Building") shall be situated on the tract of land described on Exhibit A
attached hereto (the "Land"). The space in the Building leased to Tenant is
identified in Item A of the Basic Lease Provisions (the "Premises").
Section 1.2. Basic Lease Provisions.
----------- ----------------------
A. Building Address: 4220 Edison Lakes Parkway
Mishawaka, Indiana 46545
The entire Building.
B. Rentable Area of Premises: [See Article 21]
C. Tenant's Share: [See Article 21]
D. Monthly Rent: [See Article 21]
E. Term: Commences on the Commencement Date (as defined in Section 3.1) and
continues for one hundred eighty (180) months from (i) the Commencement
Date if such date is the first day of a calendar month, or (ii) the first
day of the calendar month immediately following the Commencement Date if
such date is not the first day of a calendar month.
F. Estimated Commencement Date: February 1, 1997
G. Broker: Cressy & Everett Commercial Company
H. Permitted Use: General office and test kitchen.
I. Space Plan Approval Date: [September 18, 1996]
J. Address for payments and notices as follows:
-2-
<PAGE>
Landlord: Cressy & Everett Management Co.
3930 Edison Lakes Parkway
Mishawaka, Indiana 46545
Tenant: Quality Dining, Inc.
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: Daniel B. Fitzpatrick
ARTICLE 2. CONSTRUCTION
Section 2.1. Building. Landlord agrees to construct the Building and the
Common Areas, as hereinafter defined, in accordance with the Plans and
Specifications prepared by The Troyer Group, Inc., dated May 18, 1996 as Project
No. 96078.00. Such construction shall be at the sole cost of Landlord.
Section 2.2. Tenant Finish. Landlord agrees to perform and complete the
tenant finish improvements. The cost of completing tenant finish improvement
items shall be borne by Landlord and Tenant as provided in Article 21. It is
further understood and agreed that in the event Tenant installs a test kitchen
in the Premises, Tenant shall be responsible for any and all costs and expense
associated with installing and maintaining said test kitchen including, but not
limited to, any increase utility charges, insurance premiums, etc.
Section 2.3. Landlord's Warranties. Landlord represents and warrants that
the Building, related common areas shall: (a) be constructed in a good and
workmanlike manner; (b) be constructed with new materials; (c) comply with all
applicable laws, ordinances and codes, including the Americans with Disabilities
Act and all zoning requirements, and (d) be of a quality comparable to first
class office buildings constructed in similar settings in the general area.
Section 2.4. Completion. Landlord shall use reasonable efforts to complete
the Building and Tenant Finish on or before February 1, 1997 ("Completion
Date"), subject to delays caused by Tenant, acts of God, strikes, lockouts
unavailability of materials and other unforeseeable events beyond Landlord's
control ("Excusable Delays"). Prior to the Completion Date, Tenant shall be
permitted access to the entire Premises for purposes of interior decoration,
occupancy and installation of fixtures and other equipment; provided, however,
Tenant's schedule within the Premises shall be communicated to Landlord and the
approval of Landlord or Landlord's project supervisor secured so as not to
interfere with other work of Landlord being carried on at that time within the
Premises; provided, further, that Landlord shall have no responsibility or
liability whatsoever for any loss or damage to any of Tenant's leasehold
improvements, fixtures, equipment or other materials installed or left in the
Premises prior to the Completion Date. Landlord shall provide Tenant with
written notice in the event Landlord has reason to believe that the Building or
Tenant Improvements will not be completed by the Completion Date.
For these purposes, the Building and the Premises shall be considered ready
for Tenant's occupancy when the Landlord delivers to Tenant a copy of an AIA
architect's certificate or comparable certificate of substantial completion
indicating that the Building and the Premises have been completed in
-3-
<PAGE>
accordance herewith, subject to "punch-list" items which do not affect Tenant's
access to the Premises, parking or ability to use the Premises to conduct its
normal business operations.
ARTICLE 3. TERM AND POSSESSION
Section 3.1. Term. This term of this Lease shall be the period of time
specified in Item E of the Basic Lease Provisions and shall commence upon the
earlier of (i) the date on which the Premises are first used and occupied by
Tenant's personnel for carrying on the normal functions of its business, or (ii)
the date ten (10) days after the Completion Date. Landlord shall provide
written notice to Tenant of Completion. The date of commencement determined as
provided above is herein called the "Commencement Date." The Commencement Date
shall in no event be postponed by reason of any delay caused by Tenant (for
example Tenant's failure to timely approve or furnish plans or specifications,
make material or color selections or decisions necessary for substantial
completion of such work, or complete Tenant's work). As used in this Lease,
"Term" shall include the original Term and any extension thereof effected in
accordance with an extension option, if any, expressly set forth herein.
Tenant shall be entitled to enter upon the Premises to complete interior
decoration work and to prepare the Premises for its occupancy, provided that (i)
its schedule in so doing shall be communicated to Landlord and the approval of
Landlord secured so as not to interfere with other work of Landlord being
carried on at the time, and (ii) Landlord shall have no responsibility or
liability whatsoever for any loss or damage to any of Tenant's leasehold
improvements, fixtures, equipment or any other materials installed or left in
the Premises prior to the Commencement Date.
Section 3.2. Tenant's Acceptance of the Premises. Upon delivery of
possession of the Premises to Tenant as provided herein, Tenant shall execute
and deliver to Landlord an agreement in the form attached as Exhibit D
("Acceptance Agreement") to acknowledge and confirm the Commencement Date and
that Tenant has accepted the Premises for occupancy subject only to those
defects specified by Tenant in the Acceptance Agreement and latent defects.
Landlord shall promptly thereafter correct such defects, subject to delays
beyond Landlord's reasonable control. If Tenant takes possession of and
occupies the Premises but fails to timely execute and deliver the Acceptance
Agreement, Tenant shall be deemed to have accepted the Premises for occupancy
and the condition thereof (including, but not limited to, the tenant finish
improvements constructed thereof) as satisfactory in all respects, except for
latent defects.
Section 3.3. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease or upon the exercise by Landlord of its right to re-
enter the Premises without terminating this Lease, Tenant shall immediately
surrender the Premises to Landlord, together with all alterations, improvements
and other property as provided herein, in a clean condition and otherwise in
good order, condition and repair except for ordinary wear and tear and the
effects of casualty, condemnation, or Landlord's acts or inaction, failing which
Landlord may place the Premises in such condition at Tenant's expense. Upon
such expiration or termination, Tenant shall have the right to remove its trade
fixtures and equipment as and to the extent permitted under Section 7.4. Tenant
shall, at its expense, promptly repair any damage caused by any such removal and
shall restore the Premises to the condition existing prior to the installation
of the items removed.
-4-
<PAGE>
Section 3.4. Holding Over. No holding over by Tenant after expiration or
earlier termination of the Term shall operate to extend the Lease. In the event
of any unauthorized holding over, Tenant shall pay Monthly Rent equal to one
hundred twenty-five percent (125%) of the Monthly Rent payable for the month
immediately preceding such holding over plus Additional Rent equal to one
hundred twenty-five percent (125%) of the estimated Additional Rent (including,
but not limited to, the estimated Annual Operating Expense Adjustment)
applicable to the period of such holding over; and Tenant shall indemnify
Landlord against all claims, damages, costs and expenses (including, but not
limited to, reasonable attorneys' fees) in connection with such holding over,
including, without limitation, all claims by any other person or entity to which
Landlord may have leased all or any part of the Premises effective upon or after
expiration or termination of the Term. Acceptance of such rent by Landlord
shall in no event constitute a waiver of Tenant's default or an authorization of
Tenant's holding over nor prevent Landlord from exercising any of its other
rights and remedies. Any holding over with the consent of Landlord in writing
shall thereafter constitute a lease from month-to-month.
ARTICLE 4. RENT
Section 4.1. Monthly Rent. Tenant shall pay, in advance on the first day of
each calendar month during the Term, Monthly Rent as specified in Item D of the
Basic Lease Provisions as the basic rent per month for the Premises. In the
case of a partial calendar month at or prior to the beginning of the Term, the
Monthly Rent for the partial month shall be prorated on a daily basis and shall
be paid on or before the first day of the Term. Tenant also agrees to pay
Landlord any excise, sales or privilege tax, if any, imposed by any governmental
authority on account of this Lease or the rent paid hereunder, but only if such
tax is in substitution for, or in lieu of, real estate taxes.
Section 4.2. Additional Rent.
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(a) Definitions. As used herein the following terms shall have the
meanings indicated:
(i) "Operating Expenses" shall mean the amount of all of Landlord's
reasonable and, in the case of affiliates of Landlord providing
goods or services, competitive direct costs and expenses paid or
incurred in operating and maintaining the Building and the Land
(including the Common Areas defined in Section 17.3) for a
particular calendar year as determined by Landlord in accordance
with generally accepted accounting principles, consistently
applied, including by way of illustration and not limitation: all
general property taxes and all assessments levied or assessed by
any lawful authority against the Building including land and
improvements together with the costs and expenses of contesting
the validity or amount of real estate taxes; the assessments and
other charges allocated to the Building or Land under the
Declarations of Protective Covenants for the Edison Lakes
Corporation Park and any other instrument applicable to the
Building or Land that is now or hereafter of record; sewage
treatment costs; insurance premiums; water, electrical and other
utility charges other than the separately billed electrical and
other charges paid by any tenant of the Building; service and
other charges incurred in the operation and maintenance of the
elevators and the heating, ventilation and air-conditioning
system; cleaning and other janitorial services; tools and
supplies; repair costs; landscape maintenance costs; security
services; license, permit and inspection fees; management fees
not to exceed
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four (4%) percent of all gross income; all additional direct costs
and expenses for electric utilities and repair costs it would have
paid or incurred during the applicable calendar year if the Building
had been fully occupied; a reserve equal to $.25 per Rentable Square
foot for capital expenditures excluded from Operating Expenses under
the provisions of subparagraph (iv) below; amortization of capital
improvements that produce a net reduction in operating costs
together with interest at the rate of nine percent (9%) per annum on
the unamortized balance thereof, but only to the extent they produce
a net reduction in Operating Expenses and in general all other costs
and expenses which would, under generally accepted accounting
principles, be regarded as operating and maintenance costs and
expenses, including those which would normally be amortized over a
period not to exceed five (5) years. The reserve shall be increased
to $.375 per Rentable Square foot during years 6 through 10 and $.50
per Rentable Square foot during subsequent years. There shall also
be included in Operating Expenses the cost or portion thereof
reasonably allocable to the Building, amortized over such period as
Landlord shall reasonably determine, together with interest at the
rate of nine percent (9%) per annum on the unamortized balance, of
any capital improvements required to be made to the Building after
the Commencement Date under any governmental law or regulation
enacted or imposed after the Commencement Date.
(ii) "Tenant's Share" shall mean the percentage specified in Item C of
the Basic Lease Provisions. This percentage was determined by
dividing the rentable area in the Premises by the total rentable
area in the Building, and shall be adjusted as necessary after
actual measurement made upon completion of the Building and the
Premises.
(iii)"Annual Operating Expense Adjustment" shall mean for each calendar
year falling wholly or partly within the Term, Tenant's Share of the
amount of the Operating Expenses for such year.
(iv) Exclusions from Operating Expenses. Notwithstanding anything to the
contrary contained herein, Operating Expenses (i) shall not include
the following: any amount for depreciation of the Building or any
part thereof or the Common Areas; except as expressly stated above,
any expense, depreciation or other charge for any capital
improvements to the Building or the Common Areas, including but not
limited to, any replacement of the roof, foundation or structure of
the Building, or mechanical, plumbing, electrical or other
components or equipment of the Building or Premises or parking lots,
driveways, walkways, curbs, drainage strips, sewer lines or any
other structure or component of the Premises that Landlord is
obligated to replace, provided that ordinary repair and maintenance
of such items shall be Operating Expenses; any expenses or charge
incurred in correcting any construction defect or for repair of any
part of the Building or Common Areas or any mechanical, plumbing,
electrical or heating, ventilation or air conditioning ("HVAC") or
other components or equipment therein or thereof which, if any such
instance, is covered by an applicable warranty or by insurance;
rental commissions or fees; legal fees in connection with Landlord
financing or refinancing, negotiation and preparation of leases, and
any disputes with lessees; franchise or income taxes imposed upon
Landlord, except as expressly noted if levied or imposed in lieu of
or replacement for real estate taxes; any cost or other
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charge for painting, repainting, decorating or redecorating for any
particular lessee; wages, salaries or other compensation paid to any
employees; any payment required under the terms of any mortgage or
deed of trust now or hereafter constituting a lien against the
Building; and (ii) shall not include any cost billed to and paid
directly by a lessee, or for which Landlord otherwise is reimbursed
in any manner (except by payment of Tenant's and other lessee's
proportionate shares as herein provided); and costs incurred as a
result of the negligence or willful acts of Landlord, its agents or
employees or other tenants of the Building.
(b) Obligation to Pay Additional Rent. In addition to the Monthly Rent,
Tenant agrees to pay as Additional Rent as provided herein the Annual
Operating Expense Adjustment for each calendar year falling wholly or
partly within the Term, except Tenant shall not be required to pay
Additional Rent for the first twelve (12) months of the lease term.
(i) Estimated Annual Operating Expense Adjustment. The Annual Operating
Expense Adjustment shall be estimated annually by Landlord, and
written notice thereof shall be given to Tenant at least thirty (30)
days prior to the beginning of each calendar year. Tenant shall
then pay to Landlord each month, at the same time the installment of
Monthly Rent is due, an amount equal to one-twelfth (1/12th) of the
estimated Annual Operating Expense Adjustment. Notwithstanding the
foregoing or anything to the contrary contained herein, Tenant shall
not be obligated to pay any estimated or actual Annual Operating
Expense Adjustment for the first twelve (12) months of the Term of
this Lease.
(ii) Increases in Estimated Annual Operating Expense Adjustment.
Landlord shall have the right to revise the estimated Annual
Operating Expense Adjustment for a given calendar year upon not less
than fifteen (15) days prior written notice to Tenant, provided that
the actual amount of the Annual Operating Expense Adjustment for
such calendar year will, in Landlord's reasonable judgment, exceed
Landlord's prior estimate for such calendar year. In addition, at
the time Landlord revises an estimated Annual Operating Expense
Adjustment for a given calendar year, Landlord shall be entitled to
collect from Tenant, within twenty (20) days after submitting a
statement thereof, a lump sum payment which, when added to the
monthly installments of the estimated Annual Operating Expense
Adjustment previously paid by Tenant in such calendar year and the
revised monthly installments to be made during the balance of such
calendar year, will equal the estimated Annual Operating Expense
Adjustment as then revised by Landlord.
(iii) Annual Adjustment. Within ninety (90) days after the end of each
calendar year (or as soon thereafter as is reasonably practicable),
Landlord shall prepare and deliver to Tenant statement showing the
actual Annual Operating Expense Adjustment for such calendar year,
and within fifteen (15) days of such date, Tenant shall pay Landlord
any deficiency, or Landlord shall credit the Tenant's account for
overpayment, of the Annual Operating Expense Adjustment for such
calendar year. Landlord's failure to timely deliver any statement
of an estimated Annual Operating Expense Adjustment or any statement
of an actual Annual Operating Expense Adjustment shall not relieve
Tenant of its obligation to pay, when such statement is provided,
the estimated
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Annual Operating Expense Adjustment or the actual
Annual Operating Expense Adjustment, as the case may be. In the
case of a calendar year falling only partly within the portion of
the Term during which Tenant is obligated to pay an Annual Operating
Expense Adjustment, the Annual Operating Expense Adjustment payable
by Tenant with respect to such year shall be prorated on the basis
of the number of days in such year that fall within such portion of
the Term in relation to the total number of days in such year.
(iv) Tenant Verification. Tenant or its accountants shall have the right
to inspect, upon reasonable notice, at reasonable times and in a
reasonable manner during the ninety (90) day period following the
delivery of Landlord's statement of the actual Annual Operating
Expense Adjustment for a calendar year, such of Landlord's books of
account and records as pertain to and contain information concerning
the Operating Expenses for such year in order to verify the amounts
thereof. In the event Tenant identifies errors or omissions in the
Landlord's statement of the actual Annual Operating Expense
Adjustment for any given calendar year which results in a net credit
due to Tenant, Tenant shall receive that credit in the manner
provided under Section 3.2(b)(iii) and, to the extent that credit
exceeds ten percent (10%) of the Tenant's Annual Operating Expense
Adjustment for that calendar year, the cost of Tenant's review shall
be paid by Landlord, and Tenant shall be entitled, at its option and
expense, to inspect or reinspect the Landlord's statement of the
actual Annual Operating Expense Adjustments from prior calendar
years during the Lease Term, and any net credit due to Tenant will,
likewise, be provided in the manner described in 3.2(b)(iii).
(v) Tax Abatement. The Annual Operating Expense Adjustment shall be
based on the actual real estate taxes payable by Landlord, so that
the adjustment will be reduced by the abatement of taxes previously
granted for the Building.
Section 4.3. Late Charges. Tenant acknowledges that the late payment by
Tenant to Landlord of Monthly Rent, Additional Rent or any other amount required
to be paid to Landlord under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which is extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed upon Landlord by
virtue of its debt obligations. Accordingly, if Tenant fails to make any
payment required hereunder when payment is due, Tenant shall pay a late charge
equal to two percent (2%) of such payment, but in no event such a late charge be
less than One Hundred Dollars ($100.00). Notwithstanding the foregoing, Tenant
shall be entitled to one (1) ten (10) day grace period after notice by Landlord
during each calendar year of the Lease Term before any such late charge shall be
due and payable.
Section 4.4. Manner of Payment. The Monthly Rent, Additional Rent and other
sums of money and charges payable by Tenant hereunder shall be paid promptly
when due, without relief from valuation and appraisement laws, notice or demand
therefor, or set off for any reason whatsoever. All payments required to be
paid by Tenant to Landlord under the provisions of this Lease shall be paid by
Tenant in lawful money of the United States at the address provided herein for
notices to Landlord or at such other place or to such other person as Landlord
may from time to time designate by notice to Tenant.
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ARTICLE 5. OCCUPANCY AND USE
Section 5.1 Occupancy. Tenant shall use and occupy the Premises for the
purposes set forth in Item I of the Basic Lease Provisions and shall not use the
Premises for any other purpose except with the prior written consent of
Landlord.
Section 5.2. Use of Premises. In connection with the use of the Premises,
Tenant agrees to do the following:
(a) Tenant shall use and maintain the Premises and conduct its business
thereon in a safe, careful, reputable and lawful manner and in compliance
with all laws, codes, ordinances, rules, regulations and orders
(collectively "Laws") of any governmental authority or agency, including
without limitation those governing zoning, health, safety (including fire
safety), and occupational hazards, pollution and environmental control,
and handicapped accessibility (including but not limited to any such laws
imposing upon Landlord or Tenant any duty respect or triggered by any
change in use or occupancy or any alteration or improvement of, in or to
the Premises after the Commencement Date), all requirement of Landlord's
insurance carrier, and all reasonable directions of Landlord, including
the Rules and Regulations attached hereto as Exhibit E, may be modified
from time to time by Landlord on reasonable notice to Tenant provided the
rules are uniformly and consistently applied to all other tenants in the
Building. Landlord acknowledges that it is familiar with Tenant's
intended use of the Premises and agrees that the directions of Landlord,
including any modified rules or regulations, will not interfere with
Tenant's intended use of the Premises.
(b) Tenant shall not use the Premises for any unlawful purpose or act, commit
or permit any waste or damage to the Premises, or do or permit anything
to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building
or injury or annoy them. Landlord shall not be responsible to Tenant for
the nonperformance by any other tenant or occupant of the Building of any
of the Rules and Regulations but shall use reasonable efforts to cause
other tenants to comply therewith.
(c) Tenant shall not use the Premises, or allow the Premises to be used, for
any purpose or in any manner which would, in Landlord's reasonable
judgment, invalidate any policy of insurance now or hereafter carried on
the Building or increase the rate of premiums payable on any such
insurance policy. Should Tenant fail to comply with this covenant,
Landlord may require that Tenant stop engaging in such activity and in
any event reimburse Landlord as Additional Rent for any increase in
premiums charged during the Term on the insurance carried by Landlord
that is attributable to Tenant's use of the Premises.
(d) Tenant shall not overload the floors of the Premises beyond their
designated weight-bearing capacity, which Landlord has determined to be
eighty (80) pounds per square foot live load, including an allowance for
partition load. Landlord reserves the right to direct the positioning of
all heavy equipment, furniture and fixtures which Tenant desires to place
in the Premises so as to distribute properly the weight thereof, and
require the removal of any equipment or furniture which exceeds the
weight limit specified herein.
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Section 5.3. Landlord's Rights Regarding Use. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Premises and the Common Areas by Tenant, its employees,
agents, customers and invitees, each of which may be exercised without notice or
liability to Tenant:
(a) Landlord may install such signs, advertisement or notices or tenant
identification information as it shall deem necessary and proper;
however, Tenant shall approve any use of Tenant's name or of any of its
trademarks.
(b) Landlord may grant to any person the exclusive right to conduct any
business or render any service in the Building, provided that such
exclusive right shall not operate to limit Tenant from using the Premises
for the use permitted in Item I of the Basic Lease Provisions and that
such business will be rendered or service provided at competitive rates.
(c) Landlord may control the Common Areas in such manner as it deems
necessary or proper, including by way of illustration and not limitation,
excluding or expelling any peddler, solicitor or loud or unruly person
from the Building; and closing or limiting access to the Building or any
part thereof, including entrances, corridors, doors and elevators, during
times of emergency, repairs, alterations or after regular business hours,
provided that Tenant will have reasonable access to the Premises at all
times.
Section 5.4. Access to and Inspection of the Premises. Landlord, its
employees and agents and any mortgagee of the Building shall have the right to
enter any part of the Premises at reasonable times for the purposes of examining
or inspecting the Premises, or showing the Premises to prospective purchasers,
mortgagees or tenants and making such repairs, alterations or improvements to
the Premises or the Building as Landlord may deem necessary or desirable. If
representatives of Tenant shall not be present to open and permit such entry
into the Premises at any time when such entry is necessary or permitted
hereunder, Landlord and its employees and agents may enter the Premises by means
of a master or pass key or otherwise. Landlord shall incur no liability to
Tenant for such entry, nor shall such entry constitute an eviction of Tenant or
a termination of this Lease or entitle Tenant to any abatement of rent therefor.
Landlord agrees that any such entry will be only after notice to Tenant and in
the presence of an employee of Tenant, except in the case of an emergency. Any
such entry shall not interfere with Tenant's use of the Premises.
Section 5.5. Hazardous Waste Provisions. (a) Tenant shall not in any manner
use, maintain or allow the use or maintenance of the Premises in violation of
any laws, including but not limited to those governing hazardous, toxic or
infectious waste, materials and substances. Tenant shall not use or allow the
use of the Premises or any part thereof to treat, store, dispose of, transfer,
release, convey or recover hazardous, toxic or infectious waste, materials or
substances nor shall Tenant otherwise, in any manner, possess or allow the
possession of any hazardous, toxic or infectious waste, materials or substances
on or about the Premises, except the ordinary course of business and in
compliance with all applicable laws. Hazardous, toxic or infectious waste,
materials or substances shall mean any solid, liquid or gaseous waste or
emission or any combination thereof which because of its quantity, concentration
or physical, chemical, or infectious characteristics may (i) cause or
significantly contribute to an increase in mortality or in serious or
incapacitating, irreversible illness, or (ii) pose the risk of a substantial
present or potential hazard to human health, to the environment or otherwise to
animal or plant life when used,
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treated, stored, transported, disposed of or otherwise managed or handled.
Tenant shall indemnify and hold harmless Landlord for any and all claims, loss,
liability, costs, expenses or damage, including reasonable attorneys' fees,
incurred by Landlord in connection with any breach by Tenant of its obligations
under this section.
(b) Landlord shall indemnify and hold harmless Tenant for any and all
claims, loss, liability, costs, expenses or damages, including reasonable
attorneys' fees, incurred by Tenant in connection with any environmental
condition existing on the Land prior to occupancy of the Premises by Tenant or
which are caused by Landlord.
(c) The provisions of this article shall survive the termination of this
Lease.
ARTICLE 6. UTILITIES AND OTHER BUILDING SERVICES
Section 6.1. Services to be Provided. (a) Provided Tenant is not in
default and subject to interruptions beyond Landlord's reasonable control,
Landlord shall furnish to Tenant the following utilities and other Building
services to the extent reasonably necessary for Tenant's comfortable use and
occupancy of the Premises for general office use as may be required by law or
directed by governmental authority:
(1) Heating, ventilation and air-conditioning between the hours of 7:00
a.m. and 8:00 p.m. Monday through Friday and 8:00 a.m. to 6:00 p.m. on
Saturday of each week except legal holidays.
(2) Electrical current not to exceed four (4) watts per square foot.
Tenant's use of electrical current shall at no time exceed the
capacity of the feeders to the Building or the risers or wiring
installation serving the Premises.
(3) Water in the Premises and in the Common Areas for lavatory and
drinking purposes.
(4) Cleaning and janitorial service for the Common Areas and the Premises
on Monday through Friday of each week except legal holidays; provided,
however, that Tenant shall be responsible for carpet cleaning in the
Premises other than routine vacuuming.
(5) Washing of windows at intervals reasonably established by Landlord.
(6) Replacement of all lamps, bulbs, starters and ballasts in Building
standard lighting (described in Exhibit B) as required from time to
time as a result of normal usage.
(7) Cleaning and maintenance of the Common Areas, including the removal of
rubbish and snow and the furnishing of paper towels, toilet tissue and
soap.
(8) Automatic elevator service.
(9) Repair and maintenance to the extent specified elsewhere in this
Lease.
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(10) Security services comparable to other buildings of similar size,
quality and location.
(b) Landlord shall also provide continuous (24 hours a day every day)
heating, ventilation and air-conditioning for Tenant's computer room as
identified on Exhibit B. Landlord recognizes that Exhibit B specifies a separate
HVAC system for the computer room with the specifications indicated in Exhibit B
to maintain air temperature as specified therein.
Section 6.2. Additional Services. If Tenant reasonably requests any other
utilities or Building services in addition to those identified above or any of
the above utilities or Building services in frequency, scope, quality or
quantity greater than those which Landlord determines are normally required by
other tenants in the Building for general office use, then Landlord shall use
reasonable efforts to attempt to furnish Tenant with such additional utilities
or Building services. In the event Landlord is able to and does furnish such
additional utilities or Building services, the costs thereof shall be borne by
Tenant who shall reimburse Landlord monthly for such costs as Additional Rent at
the same time payments of Monthly Rent are due.
Tenant shall not install or connect any electrical equipment other than the
business machines, computers and equipment typically used for general office and
test kitchen purposes by tenants in office buildings comparable to the Building
without Landlord's prior written consent. Landlord represents that the
electricity used by the equipment to be so installed or connected by Tenant does
not exceed the load capacity of the Building's electrical system serving the
Premises and is compatible therewith.
Section 6.3. Interruption of Services. Tenant understands, acknowledges
and agrees that any one or more of the utilities or other Building services
identified in Section 6.1 may be interrupted by reason of accident, emergency or
other causes beyond Landlord's reasonable control; that upon reasonable notice
such utilities or Building services may be discontinued or diminished
temporarily by Landlord until certain repairs, alterations or improvements can
be made; that Landlord does not represent or warranty the uninterrupted
availability of such utilities or Building services; and that any such
interruption shall not be deemed an eviction or disturbance of Tenant's right to
possession, occupancy and use of the Premises or any part thereof or render
Landlord liable to Tenant for damages by abatement of rent or otherwise or
relieve Tenant from the obligation to perform its covenants under this Lease;
provided, however, Landlord shall exercise its best efforts to minimize any such
interruptions, and, to the extent any such interruption is caused and can be
cured by events within the direct control of Landlord, Landlord shall exercise
its best efforts to minimize such interruption.
ARTICLE 7. REPAIRS, MAINTENANCE, ALTERATIONS,
IMPROVEMENTS AND FIXTURES
Section 7.1. Repair and Maintenance of Building. Subject to Section 7.2
and except for repairs made necessary by the negligence, misuse or default of
Tenant, its employees, agents, customers or invitees and not reimbursed by
insurance, Landlord shall make all necessary repairs to the exterior walls,
exterior doors, windows, corridors and other Common Areas of the Building, and
Landlord shall keep the Building in a safe, clean and neat condition and shall
use reasonable efforts to keep all equipment, such as elevators, plumbing,
heating, air-conditioning and similar equipment, in good condition and repair.
Except as provided in Article 6, Article 8 and Article 10 hereof, there shall be
no abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising
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from the making of any repairs, alterations or improvements in or to any portion
of the Building or the Premises or in or to any fixtures, appurtenances and
equipment therein or thereon.
Section 7.2. Repair and Maintenance of Premises. Landlord shall keep and
maintain the Premises in good order, condition and repair. Except for the
services specified in Section 6.1(a)(4), (5) and (6), and ordinary wear and
tear, casualty, condemnation, the costs of all repairs and maintenance to the
Premises shall be paid by Tenant as Additional Rent within twenty (20) days
after Landlord submits its statement of such costs.
Section 7.3. Alterations or Improvements. Tenant shall make no leasehold
improvements, alterations or additions on or about the Premises or any part
thereof without Landlord's prior written consent. If Landlord permits Tenant to
make any such improvements, alterations or additions, Tenant shall (i) obtain
all necessary permits and ensure all improvements, alterations and additions
which are made or necessitated thereby shall be made and performed in accordance
with all applicable laws, building codes, ordinances, covenants, rules and
regulations in a good and workmanlike manner and in quality equal to or better
than the original construction of the building and the Premises, (ii) comply
with such requirements as Landlord considers necessary or desirable, including,
without limitation, the requirement that Tenant obtain a policy of builder's
risk insurance written on a completed value basis, other insurance requirements
and requirements as to the manner in which and the times at which such work
shall be done and the contractor and subcontractors to perform such work, (iii)
promptly pay all costs of performing such work, and (iv) indemnify and hold
Landlord harmless from and against any and all liability, loss, damage and
expense (including, but not limited to, reasonable attorneys' fees) incurred by
Landlord that arise out of, result from or are in connection with such work.
All improvements, alterations and additions made by Tenant shall, except as
otherwise agreed in writing by Landlord, remain for the benefit of Landlord.
However, Landlord may elect by written notice to Tenant to require that Tenant,
at its expense, remove on or before thirty (30) days after expiration or earlier
termination of the Term all or any portion of the leasehold improvements,
alterations or additions made by Tenant and repair any damage caused by removal.
Section 7.4. Trade Fixtures. All of Tenant's trade fixtures and equipment
installed in the Premises may be removed by Tenant upon expiration or earlier
termination of this Lease, provided that (i) Tenant at its expense shall repair
any damage to the Premises and the Building caused by such removal and (ii)
Tenant is not then in default under this Lease provided however, Tenant shall be
entitled to remove its computer equipment irrespective of any disputes. After
expiration or earlier termination of the Term, Landlord shall have the right to
remove and store Tenant's trade fixtures and equipment and to have any damage
from such removal repaired, all at Tenant's expense.
Section 7.5. Mechanic's Lien. Tenant shall not permit or cause the filing
of any mechanic's lien against the premises or any part of the Building or Land.
In the event any mechanic's lien is filed against the Premises or any part of
the Building or Land for work claimed to have been done for or materials claimed
to have been furnished to Tenant, Tenant shall cause such mechanic's lien to be
discharged of record within thirty (30) days after filing by bonding or as
provided or required by law or in any lawful manner. Tenant shall indemnify and
save Landlord harmless from and against any and all liability, loss, cost and
expense (including, but not limited to, reasonable attorneys' fees) in
connection with any such mechanic's lien.
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ARTICLE 8. FIRE OR OTHER CASUALTY; CASUALTY INSURANCE
Section 8.1. Casualty. (a) In the event of the total or partial
destruction of the Premises by fire or other casualty, the insurance proceeds,
if any, which as a result of such destruction are payable under the fire and
extended coverage insurance to be maintained by Landlord shall be payable to,
and be the sole property of, Landlord. Landlord shall rebuild, repair and
restore the Premises and/or the Building to substantially the same condition as
existed prior to the casualty; provided, however, that Landlord shall be
obligated to rebuild or restore the alterations, additions or improvements made
by Tenant to the Premises only to the extent that such are covered by the policy
of fire and extended coverage insurance to be maintained by Landlord.
Notwithstanding the foregoing, in the event that (i) the Premises and/or the
Building are so destroyed that the Premises cannot reasonably be restored within
one hundred eighty (180) days after the date of the damage or destruction, (ii)
the damage or destruction is not covered by the policy of fire and extended
coverage insurance to be maintained by Landlord and Landlord does not undertake
to restore the Premises and/or the Building within ninety (90) days after the
date of such damage or destruction, or (iii) the insurance proceeds (reduced by
any application thereof by Landlord's mortgagee to its mortgage) are
insufficient for restoration of the Premises and/or the Building and Landlord
does not undertake such restoration within ninety (90) days after the date of
such damage or destruction, then Landlord shall not be obligated to restore the
Premises and/or the Building or any portion thereof, and either Landlord or
Tenant may then terminate and cancel this Lease upon thirty (30) days written
notice to the other, and all obligations hereunder except those then due or
matured shall thereupon cease and terminate. Monthly Rent shall proportionately
abate during the time that the Premises or any part thereof is unusable by
reason of any casualty damage thereto.
(b) In the event the Lease is not terminated following any such fire or
other casualty, then, Landlord shall repair, rebuild and/or restore the Premises
and/or the Building as nearly as possible to the same condition as existed prior
to the fire or other casualty. In the event such repairs, rebuilding and/or
restoration following any such fire or casualty shall not be completed within
one hundred eighty (180) days following the date of the fire or other casualty,
Tenant may terminate this Lease immediately upon written notice to Landlord. All
such repairs and/or restoration shall be done in accordance with all applicable
laws, ordinances, rules and regulations of any applicable governmental
authority.
Section 8.2. Casualty Insurance. Landlord shall at all times during the
Term carry a policy of broad form fire and extended coverage insurance, which
insures the Building, including the Premises, for their full insurable value on
a replacement cost basis, against loss or damage by fire or other casualty
(namely, the perils against which insurance is afforded by a standard fire
insurance policy and extended coverage endorsement); provided, however, that
Landlord shall not be responsible for, and shall not be obligated to insure
against, any loss of or damage to any personal property of Tenant or which
Tenant may have in the Building or the Premises or any trade fixtures installed
by or paid for by Tenant on the Premises. If the tenant finish improvements made
by Tenant pursuant to Section 7.3 result in an increase in the premiums for
casualty insurance carried by Landlord on the Building, then the cost of such
increase shall be borne by Tenant, who shall reimburse Landlord for such cost as
Additional Rent after being separately billed therefor.
ARTICLE 9. INSURANCE
Section 9.1. Public Liability Insurance - Tenant. Tenant shall maintain
in full force and effect
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throughout the Term a policy of comprehensive general public liability insurance
(including blanket, contractual liability, broad form property damage, personal
injury, completed operations, products liability, and fire damage) issued by a
company or companies satisfactory to Landlord, naming Landlord, property
manager, and Tenant as insureds, and covering any and all claims for injuries to
or death of persons and damage to property occurring in or upon the Premises in
an amount not less than Three Million Dollars ($3,000,000.00) combined single
limit for both bodily injury and personal property.
Section 9.2. Public Liability Insurance - Landlord. Landlord shall
maintain in full force and effect throughout the Term a policy of comprehensive
general public liability insurance (including blanket, contractual liability,
broad form property damage, personal injury, completed operations, products
liability, and fire damage) issued by a company or companies satisfactory to
Tenant, naming Landlord, property manager, and Tenant as insureds, and covering
any and all claims for injuries to or death of persons and damage to property
occurring in or upon the Common Areas in an amount not less than Three Million
Dollars ($3,000,000.00) combined single limit for both bodily injury and
personal property.
Section 9.3. Insurance on Tenant's Property. Tenant shall also maintain
in full force and effect throughout the Term fire and extended coverage
insurance naming Landlord as an additional insured, on its fixtures, equipment,
merchandise and other personal property in or upon the Premises for its full
insurable value on a replacement cost basis, if obtainable, and if not
obtainable, for the full amount of its actual cash value.
Section 9.4. Certificates of Insurance. For each type of insurance which
either party is required to maintain under this Lease, that party shall furnish
the other party a certificate or certificates of insurance showing that each
such type of insurance is in full force and effect and not cancelable without
thirty (30) days prior written notice to the other party.
Section 9.5. Waiver of Subrogation. Landlord and Tenant hereby release
each other and each other's employees, agents, customers and invitees from any
and all liability for any loss of or damage or injury to (i) person or property
occurring in, on, or about the Premises, the Building or the Common Areas or
(ii) any personal property on or within the Building or the Common Areas or
(iii) the Building or Common Areas, by reason of fire or other casualty which is
insured against under the policies required to be maintained hereunder by
Landlord or Tenant (or would be so insured absent the failure of Landlord or
Tenant to maintain such insurance), regardless of cause, including negligence of
Landlord or Tenant and their respective employees, agents, customers and
invitees. Because the provisions of this Section are intended to preclude the
assignment of any claim mentioned herein by way of subrogation or otherwise to
any insurer or any other person to the extent of the foregoing mutual releases,
each party to this Lease shall give to each insurance company which has issued
to it one or more policies of fire and extended coverage insurance notice of the
provisions of this Section and have such insurance policies properly endorsed,
if necessary, to prevent the invalidation of such insurance by reason of the
provisions hereof.
Section 9.6. Tenant's Indemnification. Tenant assumes all risks and
responsibilities for accidents, injuries or damages to person or property and
agrees to indemnify and hold Landlord and property manager harmless from any and
all claims, liabilities, losses, costs and expenses (including attorneys' fees)
arising from or in connection with the condition, use or control of the Premises
and any
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improvements thereon during the term of this Lease. Tenant shall be
liable to Landlord for any damages to the Premises caused by Tenant or any
person coming on to the Premises by the license or invitation of Tenant, express
or implied (except Landlord, its agents or employees). This Section shall not,
however, impose upon Tenant any liability from which Tenant is released under
Section 9.5.
Section 9.7. Landlord's Indemnification. Landlord assumes all risks and
responsibilities for accidents, injuries or damages to person or property and
agrees to indemnify and hold Tenant harmless from any and all claims,
liabilities, losses, costs and expenses (including attorneys' fees) arising from
or in connection with the condition, use or control of the Building (other than
the Premises) and the Common Areas and any improvements thereon during the term
of this Lease. Landlord shall be liable to Tenant for any damages to Tenant or
any person coming on to the Building or Common Areas by the license or
invitation of Landlord, express or implied (except Tenant, its agents or
employees). This Section shall not, however, impose upon Landlord any liability
from which Landlord is released under Section 9.5.
Section 9.8 Increase in Insurance Rates. Tenant shall not use the
Premises for any purpose or in any manner which would, in Landlord's opinion,
invalidate any policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable thereunder or expose the Premises,
Building or surrounding land and improvements to the risk of contamination by
hazardous or toxic materials. If Tenant fails to comply with this covenant,
Landlord may require Tenant to stop engaging in such activity, and in all events
Tenant shall reimburse Landlord as Additional Rent for the increase in premiums
for the insurance carried by Landlord which is attributable to Tenant's use of
the Premises.
Section 9.9 Tenant's Property Landlord shall not be liable for, and
Tenant waives all claims against Landlord for, any damages (including, but not
limited to, consequential damages) or losses of or to property, sustained by
Tenant, however caused. All property of Tenant kept or stored in, upon or about
the Premises shall be so kept or stored at the sole risk of Tenant; and Tenant
shall hold Landlord harmless from any claims, costs or expenses, including
attorneys' fees, arising out of damage thereto.
ARTICLE 10. EMINENT DOMAIN
If the whole or any part of the Premises, Building or Common Areas shall be
taken for public or quasi-public use by a governmental or other authority having
the power of eminent domain or shall be conveyed to such authority in lieu of
such taking, and if such taking or conveyance shall cause the Premises or the
remaining part of the Premises to be untenantable and inadequate for use by
Tenant for the purpose for which they were leased, then either Landlord or
Tenant may, at its option, terminate this Lease as of the date of surrender of
possession by giving written notice of such termination to the other party. If
a part of the Premises shall be taken or conveyed but the Lease is not
terminated, then this Lease shall be terminated as to the part taken or conveyed
as of the date Tenant surrenders possession; Landlord shall make such repairs,
alterations and improvements as may be necessary to render tenantable, and, to
the extent possible, comparable, the part not taken or conveyed; and the rent
shall be reduced in proportion to the part of the Premises taken or conveyed.
If part of the Building or Common Areas is taken and this Lease is not
terminated, Landlord shall make such repairs, alterations and improvements as
shall be necessary to render the Building and the Common Areas as comparable to
their condition prior to the taking as possible. All compensation awarded for
such taking or conveyance shall be the property of Landlord without any
deduction therefrom for any present or future estate of
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Tenant, and Tenant hereby assigns to Landlord all of its right, title and
interest in and to any such award. However, Tenant shall have the right to
recover from such authority, but not from Landlord, such compensation as may be
separately awarded to Tenant on account of moving and relocation expenses and
depreciation to and removal of Tenant's property.
ARTICLE 11. RENTAL, PERSONAL PROPERTY AND OTHER TAXES
Tenant shall pay before delinquency any and all taxes, assessments, fees or
charges, including any sales, gross income, rental, business occupation or other
taxes, levied or imposed upon Tenant's business operations in the Premises and
any personal property or similar taxes levied or imposed upon Tenant's trade
fixtures, leasehold improvements or personal property located within the
Premises. In the event any such taxes, assessments, fees or charges are charged
to the account of, or are levied or imposed upon the property of Landlord,
Tenant shall reimburse Landlord for the same as Additional Rent.
Notwithstanding the foregoing, Tenant shall have the right to contest in good
faith any such item and to defer payment until after Tenant's liability therefor
is finally determined.
ARTICLE 12. ASSIGNMENT AND SUBLETTING
Tenant may assign this Lease or sublet the Premises or any part thereof
only with the prior written consent of Landlord, which consent shall not be
unreasonably withheld, delayed or conditioned.
ARTICLE 13. TRANSFERS BY LANDLORD
Section 13.1. Sale and Conveyance of the Building. Landlord shall have the
right to sell and convey the Building at any time during the Term of this Lease
subject only to the rights of Tenant hereunder.
Section 13.2. Subordination. So long as any present or future mortgagee
shall enter into a nondisturbance agreement with Tenant, in a form reasonably
satisfactory to Tenant, Tenant shall subordinate this Lease to any mortgage
presently existing or hereafter placed upon the Building. Tenant shall, at
Landlord's request, execute and deliver to Landlord, without cost, any
instrument which may be reasonably necessary; and, if Tenant fails or refuses to
do so, Landlord may execute such instrument in the name and as the act of
Tenant. Notwithstanding the foregoing, no default by Landlord under any such
mortgage shall affect Tenant's rights hereunder so long as the Tenant is not in
default under this Lease. Tenant shall, in the event any proceedings are
brought for the foreclosure of any such mortgage, attorn to the purchaser upon
any such foreclosure and recognize such purchaser as the Landlord under this
Lease.
ARTICLE 14. DEFAULTS AND REMEDIES
Section 14.1. Defaults by Tenant. The occurrence of any one or more of
the following events shall be a default under and breach of this Lease by
Tenant:
(a) Tenant shall fail to pay any payment of Monthly Rent or Additional
Rent within five (5) days after the same shall be due and payable or
Tenant shall fail to pay any other amounts due to
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Landlord from Tenant (including any amounts owed by Tenant for
Building Non-Standard Work) within thirty (30) days after the same
shall be due and payable.
(b) Tenant shall fail to perform or observe, whether by action or
inaction, any covenant, term, provision or condition of this Lease
(other than payment of rent or other charges payable hereunder) within
the thirty (30) day period after written notice of default has been
given by Landlord to Tenant; provided that in the case of a default
which by its nature cannot be cured within thirty (30) days, Tenant
shall have an additional reasonable period of time ("Additional
Period") to cure the default if, and only if, Tenant promptly and
within such thirty (30) day period commences to cure the default and
in good faith and with due diligence pursues the curing of the default
through the Additional Period until cured.
(c) A trustee or receiver shall be appointed to take possession of all or
substantially all of Tenant's assets in, on or about the Premises or
of Tenant's interest in this Lease (and Tenant does not regain
possession within sixty (60) days after such appointment); Tenant
makes an assignment for the benefit of creditors; or substantially all
of Tenant's assets in, on or about the Premises or Tenant's interest
in this Lease are attached or levied under execution (and Tenant does
not discharge the same within sixty (60) days thereafter.)
(d) A petition in bankruptcy or insolvency or for reorganization or
arrangement is filed by or against Tenant pursuant to any federal or
state statute (and, with respect to any such petition filed against
it, Tenant fails to secure a dismissal thereof within sixty (60) days
after such filing.)
Section 14.2. Remedies of Landlord. Upon the occurrence of any event of
default set forth in Section 14.1, Landlord shall have the following rights and
remedies, in addition to those allowed at law or in equity, any one or more of
which may be exercised without further notice to or demand upon Tenant:
(a) Landlord may re-enter the Premises and cure any default of Tenant, in
which event Tenant shall reimburse Landlord as Additional Rent for any
costs and expenses which Landlord may incur to cure such default; and
Landlord shall not be liable to Tenant for any loss or damage which
Tenant may sustain by reason of Landlord's action, regardless of
whether caused by Landlord's negligence or otherwise.
(b) Landlord may terminate this Lease, in which event (i) neither Tenant
nor any person claiming under or through Tenant shall thereafter be
entitled to possession of the Premises, and Tenant shall immediately
thereafter surrender the Premises to Landlord; (ii) Landlord may re-
enter the Premises and dispossess Tenant or any other occupants of the
Premises by any means permitted by law, and may remove their effects,
which termination, repossession and removal shall be without prejudice
to any other remedy which Landlord may have for possession, arrearage
in rent, continuing rental obligations which Tenant would have had
under this Lease had this Lease not been terminated and all other
damages and remedies available at law and in equity; it being
expressly understood and agreed that the liabilities and remedies
specified in this Subsection shall survive the termination of this
Lease.
(c) Landlord may, without terminating this Lease, re-enter the Premises
and re-let all or any part
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of the Premises for a term different from that which would otherwise
have constituted the balance of the Term and for rent and on terms and
conditions different from those contained herein, whereupon Tenant
shall be obligated to pay Landlord as liquidated damages the
difference between the rent provided for herein and that provided for
in any lease covering a subsequent reletting of the Premises, or, in
the event Landlord is unable to relet the Premises, [the present value
of] the rent provided for herein, for the period which would otherwise
have constituted the balance of the Term of this Lease, [less than the
fair market rental value of the Premises], together with all of
Landlord's reasonable costs and expenses for preparing the Premises
for re-letting, including all repairs, tenant finish improvements,
brokers' and attorneys' fees, and all loss or damage which Landlord
may sustain by reason of such re-entry and re-letting.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
(e) Landlord shall use reasonable efforts to mitigate its damages in case
of Tenant's default by reletting the Premises at a rental which is
reasonable in the circumstances. In any action, proceeding or hearing
on any claim or counterclaim that Landlord has failed to use
reasonable efforts or that Landlord relet the Premises at a rental
that was not reasonable, the fact that such rental may be at a rate
that it lower than the rent specified herein, or payable in different
increments, shall not, by itself, establish that Landlord failed to
use reasonable efforts to mitigate its damages.
Nothing contained herein shall be construed to accelerate the due date of
any rent provided for herein.
Section 14.3. Default by Landlord and Remedies of Tenant. It shall be a
default under and breach of this Lease by Landlord if it shall fail to perform
or observe any term, condition, covenant or obligation required to be performed
or observed by it under this Lease for a period of thirty (30) days after
written notice thereof from Tenant; provided, however, that if the term,
condition, covenant or obligation is of such nature that the same cannot
reasonably be performed within such thirty (30) day period, such default shall
be deemed to have been cured if Landlord commences such performance within said
thirty (30) day period and thereafter diligently completes the same. Upon the
occurrence of any such default, Tenant may sue for injunctive relief or to
recover damages for any loss resulting from the breach, but Tenant shall not be
entitled to withhold, set off or abate any rent due hereunder (except as
expressly provided in this Lease) unless otherwise ordered by a court of
competent jurisdiction.
Section 14.4. Limitation of Landlord's Liability. Notwithstanding
anything to the contrary herein, Tenant agrees that Tenant shall look solely to
Landlord's interest in and to the Building, subject to prior rights of any
present or future mortgagee of the Building, for the collection of any judgment
(or other judicial process) requiring payment of money by Landlord in the event
of default or breach by Landlord of any of the covenants, terms or conditions of
this Lease to be observed or performed by Landlord (including, without
limitation, any indemnity obligation of Landlord hereunder), and that no other
assets of Landlord shall be subject to levy, execution or other process for
satisfaction of Tenant's remedies.
The term "Landlord" shall mean and include only the owner or owners from
time to time of the Landlord's interest in this Lease. In the event of any
transfer or transfers of such interest (except a
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transfer for security), the Landlord named herein (or the transferor in the case
of a subsequent transfer) shall, after the date of such transfer, be released
from all liability for performance of any covenant, agreement and condition on
the part of the Landlord which are thereafter to be performed hereunder. The
transferee shall be deemed to have assumed (subject to the limitations of this
paragraph) all of the covenants, agreements and conditions herein to be observed
by Landlord with the result that such covenants, agreements and conditions shall
bind the Landlord its successors and assigns, only during and in respect of
their respective successive periods of ownership.
Section 14.5. Non-Waiver of Defaults. The failure or delay by either
party hereto to exercise or enforce at any time any of the rights or remedies or
other provisions of this Lease shall not be construed to be a waiver thereof nor
affect the validity of any part of this Lease or the right of either party
thereafter to exercise or enforce each and every such right or remedy or other
provision. No waiver of any default or breach of the Lease shall be deemed to be
a waiver of any other default or breach. The receipt by Landlord of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction, and Landlord
may accept such payment without prejudice to Landlord's right to recover the
balance of the rent due or to pursue any other remedies provided in this Lease.
No act or omission by Landlord or its employees or agents shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such a
surrender shall be valid unless in writing and signed by Landlord. The remedies
of Landlord under this Lease shall be cumulative, and no one of them shall be
construed as exclusive of any other or of any remedy provided at law or in
equity. The exercise of any one such right or remedy by Landlord shall not
impair its standing to exercise any other right or remedy.
Section 14.6. Attorneys' Fees. If either Landlord or Tenant brings suit
against the other to recover any sums owed under this Lease or to otherwise
enforce compliance with the terms, covenants and conditions of this Lease, the
prevailing party shall be entitled to receive from the other party reasonable
attorneys' fees and other costs and expenses incurred by such party in
connection with such suit regardless of whether such suit is prosecuted to
judgment. As used herein, "prevailing party" shall mean, in the case of a
claimant, one who is successful in obtaining substantially all of the relief
sought, and in the case of defendant or respondent, one who is successful in
denying substantially all of the relief sought by the claimant.
ARTICLE 15. NOTICES
Any notice required or permitted to be given under this Lease or by law
shall be deemed to have been given if it is written and delivered in person, by
overnight courier, or mailed by certified or registered mail, return receipt
requested, postage prepaid, to the party who is to receive such notice at the
address specified in Item K of the Basic Lease Provisions. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. The
address specified in Item K of the Basic Lease Provisions may be changed by
giving written notice thereof to the other party.
ARTICLE 16. LANDLORD'S RIGHT TO RELOCATE TENANT
(Intentionally Omitted)
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ARTICLE 17. MISCELLANEOUS GENERAL PROVISIONS
Section 17.1. Condition of Premises. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises or the Building or with respect to the suitability or
condition of any part of the Building for the conduct of Tenant's business
except as provided in this Lease.
Section 17.2. Insolvency or Bankruptcy. In no event shall this Lease be
assigned or assignable by operation of law, and in no event shall this Lease be
an asset of Tenant in any receivership, bankruptcy, insolvency, or
reorganization proceeding.
Section 17.3. Common Areas. The term "Common Areas," as used in this
Lease, refers to the areas of the Building and the Land which are designed for
use in common by all tenants of the Building and of the other buildings, if any,
on the Land and their respective employees, agents, customers, invitees and
others, and includes, by way of illustration and not limitation, entrances and
exits, hallways, restrooms, sidewalks, driveways, parking areas, landscaped
areas and other areas as may be designated by Landlord as part of the Common
Areas of the Building. Tenant shall have the non-exclusive right, in common with
others, to the use of the Common Areas, subject to such nondiscriminatory rules
and regulations as may be adopted by Landlord including those set forth in
Section 5.2 of this Lease. Landlord agrees that it will not establish any other
rules and regulations that would interfere with Tenant's use of the Premises.
Landlord reserves the right to change or modify the Building, the Common Areas
and other improvements and facilities located on the Land provided that (i)
neither the Premises nor the general character of the Building shall be changed,
(ii) Tenant's access to and use of the Premises shall not be materially impaired
by reason of such changes or modifications, and (iii) the number and location of
the parking spaces shall not be changed.
Section 17.4. Choice of Law. This Lease shall be governed by and
construed pursuant to the laws of the State of Indiana.
Section 17.5. Successors and Assigns. Except as otherwise provided in
this Lease, all of the covenants, conditions and provisions of this Lease shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
Section 17.6. Name. Tenant shall not, without the written consent of
Landlord, use the name of Edison Lakes Corporate Park for any purpose other than
as the address of the business to be conducted by Tenant in the Premises, and in
no event shall Tenant acquire any rights in or to such names by virtue of this
Lease.
Section 17.7. Examination of Lease. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
Section 17.8. Time and Consent. Time is of the essence of this Lease and
each and all of its provisions. Whenever the consent of Landlord or Tenant is
required under this Lease, such consent shall not be unreasonably withheld.
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Section 17.9. Construction. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. If more than one
person is named as Tenant, the obligations of such persons are joint and
several. The marginal headings and titles to the articles of this Lease are not
a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof. All references in this Lease to articles or
sections are to articles or sections contained in this Lease unless a different
document is expressly specified. All exhibits hereto are incorporated herein by
reference and made a part hereof with the same effect as if set out in full
herein.
Section 17.10. Prior Agreements. This Lease and the Acceptance Agreement
executed pursuant to Section 2.3 hereof contain all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreement, understanding or representation pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
Section 17.11. Severability of Invalid Provisions. If any provision of
this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
Section 17.12. Definition of the Relationship between the Parties.
Landlord shall not, by virtue of the execution of this Lease or the leasing of
the Premises to Tenant, become or be deemed a partner of or joint venturer with
Tenant in the conduct of Tenant's business on the Premises or otherwise.
Section 17.13. Estoppel Certificate. Tenant shall, within ten (10) days
following receipt of a written request from Landlord, execute, acknowledge and
deliver to any lender, purchaser or prospective lender or purchaser designated
by Landlord a written statement, in the form attached hereto as Exhibit F or in
such other form as Landlord may reasonably request, certifying (i) that this
Lease is in full force and effect and unmodified (or, if modified, stating the
nature of such modification), (ii) the date to which rent has been paid, and
(iii) that there are not, to Tenant's knowledge, any uncured defaults (or
specifying such defaults, if any are claimed). Any such statement may be relied
upon by a prospective purchaser or mortgagee of all or any part of the Building.
Tenant's failure to deliver such statement within such period shall be
conclusive upon Tenant that this Lease is in full force and effect and
unmodified and that there are no uncured defaults in Landlord's performance
hereunder.
Section 17.14. Force Majeure. Landlord and Tenant shall be excused for the
period of any delay in the performance of any obligation hereunder, other than
the Tenant's obligation to pay rent, or any other amounts due to Landlord under
the Lease or Landlord's obligation to pay any amounts due to Tenant under the
Lease, when such delay is occasioned by causes beyond its reasonable control,
including, but not limited to, war, invasion or hostility; work stoppages,
boycotts, slow-downs or strikes; shortages of materials, equipment, labor or
energy; man-made or natural casualties; weather conditions; acts or omissions of
governmental or political bodies; or civil disturbances or riots.
Section 17.15. Quiet Enjoyment. Landlord agrees that if Tenant performs
all of the covenants and agreements herein provided to be performed by Tenant,
Tenant shall, at all times during the Term of this Lease, have the peaceable and
quiet enjoyment of the Premises without any manner of hindrance.
Section 17.16. Antenna. Landlord consents to the installation of a
satellite dish antenna system (the
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"Antenna"), in accordance with plans and specifications approved, in advance, by
Landlord. Landlord shall be entitled to approve the size, design, location,
screening material and structural support for the Antenna. The Landlord's
approval of this is, however, subject to the following terms and conditions:
(a) Tenant shall install the Antenna at its own cost and expense at a
location designated by Landlord in accordance with the provisions of
this Section 17.16 and upon approval of a structural engineer which
costs shall also be borne by Tenant.
(b) Tenant shall install the Antenna in a manner which shall not interfere
with the quiet enjoyment of the Building by Landlord or other tenants
in the building.
(c) Tenant shall have the right to gain reasonable access to the area of
the installation of the Antenna for maintenance purposes.
(d) Tenant shall promptly repair any damage to the Building, Landlord's
property and/or the leased Premises caused by the installation,
operation or removal of the Antenna. Any such damage which requires
emergency repairs, as determined by Landlord in Landlord's sole
discretion, may be repaired by Landlord at Tenant's cost and expense.
Any such damage which is not of an emergency nature shall be made by
Tenant within ten (10) days following the date of the damage. In the
event Tenant fails to make any such repairs within such ten (10) day
period or in the event such repairs reasonably require in excess of
ten (10) days and Tenant has not commenced making such repairs within
such ten (10) day period and is not diligently proceeding to complete
such repair, Landlord may make such repairs and Tenant shall be
obligated to reimburse Landlord for the cost of any such repairs, upon
written notice by Landlord, along with Tenant's next installment of
Monthly Rent.
(e) Notwithstanding any other provision in the Lease to the contrary,
Tenant shall indemnify Landlord from and against any and all claims or
liabilities of whatever nature resulting from Tenant's installation,
operation or removal of the Antenna, to the extent not covered by
insurance.
(f) Upon expiration or earlier termination of this Lease, Tenant shall
remove or provide for the removal of the Antenna and bear the cost of
such removal and the cost of any and all damage to the Building,
Landlord's property, or the Premises resulting from such removal.
ARTICLE 18. SIGNAGE
Section 18.1 Building Signage. No sign, advertisement, or notice may be
inscribed, painted, or affixed on any part of the outside or inside of the
Building by the Tenant except on the directory board in the lobby of the
Building (at Landlord's expense) and except that Tenant shall have the exclusive
right to Building mounted signage, subject to the following:
a) such sign(s) shall be installed and maintained at Tenant's sole cost
and expense;
b) the type, size and location of such sign shall be subject to Landlord's
prior written approval, which approval shall not be unreasonably
withheld it being generally understood between
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Landlord and Tenant that Tenant's sign on the Building will consist of
individual back-lit letters spelling the Tenant's name and may include
Tenant's logo;
c) Tenant shall obtain all necessary governmental approvals and permits for
such sign; and
d) At the expiration of the term of this Lease, Tenant shall remove such sign
and restore the sign area to its original condition all at Tenant's
expense.
The Landlord reserves the right to remove all other signs at the expense of the
Tenant.
Section 18.2. Monument Signage. Tenant shall have the right to be
identified on two sides of one monument sign on the Building site. The location
of said monument sign shall be in the sole discretion of Landlord and the style
of said sign shall be consistent with the standard monument signs presently
existing in the Edison Lakes Corporate Park. The cost of said sign shall be paid
by Tenant, provided, however, if another tenant in the Building desires to be
identified on said monument sign, then Tenant shall be responsible for one-half
the cost of said monument sign plus the cost of its own lettering. In the event
Tenant elects to install said monument sign and Landlord subsequently adds
another tenant to said monument sign, then Landlord shall reimburse Tenant for
one-half the cost of said monument sign (exclusive of Tenant's lettering) at
such time as the additional tenant is added to said monument sign.
ARTICLE 19. OPTION TO RENEW
If Tenant is not in default hereunder, Tenant shall have the option to
renew the Term of this Lease for the Premises, for four (4) additional terms of
five (5) years each ("Option Period" or "Option Periods"). Such renewals shall
be upon the same terms and conditions contained in the Lease for the original
Term except for this provision giving the renewal option and subject to an
adjustment of the Monthly Rent as provided herein. Such options shall be
exercised by Tenant's giving written notice to Landlord of its intention to
renew the Term of the Lease no later than twelve (12) months prior to the
expiration of the then existing term. Tenant's failure to exercise any option to
renew shall extinguish its right and option for any subsequent renewal option.
In the event Tenant elects to exercise its option to renew the Term of this
Lease, the parties agree that the Monthly Rent during the Option Periods shall
be the fair market rent determined as follows: If Landlord and Tenant fail to
agree upon the fair market rent within twenty (20) days after Tenant exercises
its option to renew, Landlord and Tenant shall within five (5) days thereafter
select an appraiser having a minimum of ten (10) years experience in appraising
rental values in the county where the Premises are located. If Landlord and
Tenant do not agree on an appraiser within said five (5) days, an appraiser
meeting the aforesaid qualifications shall be selected by the President of the
local Board of Realtors who shall make the determination of fair market rent as
provided herein. Following the selection of an appraiser, Landlord and Tenant
shall each have fifteen (15) days within which to submit to such appraiser such
written information as they believe relevant to determining the fair market rent
of the Premises. After the expiration of such fifteen (15) day period, the
appraiser shall have twenty (20) days within which to deliver to Landlord and
Tenant such appraiser's written determination of the fair market rent of the
Premises. Thereafter, Tenant shall have the right to rescind its exercise of
its renewal option by written notice to Landlord within ten (10) days after
receiving such appraiser's written determination of the fair market rent of the
Premises. If Tenant shall fail to rescind its exercise of the
24
<PAGE>
option to renew, the rent so determined by the appraiser shall be the rental for
the next term of this Lease.
ARTICLE 20. PARKING
Landlord shall provide during the term of this Lease and all extensions or
renewals thereof, at no additional cost to Tenant, the parking facilities on the
Land for the exclusive use of Tenant, its officers, employees, agents and
invitees in the parking lot on the Land.
ARTICLE 21. RENT DETERMINATION
The Building is currently in the process of being designed and built.
Landlord's architect has determined the Rentable Area of the Premises and the
Rentable Area of the Building is 51,335, and Tenant's Share is 100%.
Tenant's actual rent per square foot shall be determined within ninety (90)
days after the Commencement Date pursuant to the formula calculated as follows.
"Total Project Costs" shall mean the actual costs expended by Landlord to
acquire the Land and develop and construct the Building including all
construction interest, soft costs, hard costs and the actual cost of tenant
improvements to the Premises. As of the date of this Lease, Landlord and Tenant
estimate that the Total Project Costs will be Five Million Seven Hundred Fifty
Thousand ($5,750,000.00) Dollars.
"Total Annual Return" shall mean an amount equal to the product of 11% and
the total equity required to be invested into the Project by the construction
and/or permanent lender. Landlord and Tenant estimate that the required equity
will be One Million Four Hundred Thirty-seven Thousand Five Hundred
($1,437,500.00) Dollars (25% of $5,750,000.00). Therefore, the estimated Total
Annual Return is $158,125.00 (11% x $1,437,500.00).
"Annual Debt Service" shall mean the regularly scheduled principal and
interest payments due under the permanent financing for the Project. Assuming:
Original Principal Amount $4,312,500.00
Interest Rate 8.25%
Amortization 20 years
the Annual Debt Service would be $440,944.00
-25-
<PAGE>
Accordingly, based on current estimates, Tenant's Monthly Rent per Rentable
square foot would be calculated as follows:
Total Project Cost 50,000 sq. ft x $115/sq. ft. $5,750,000
Required Equity 25% 1,437,500
----------
Mortgage 75% $4,312,500
Projected Interest Rate 1.75% over 10 year Treasuries 8.25%
Rentable Square
Footage 48,000
Annual Debt Service 8.25% for 20 years 440,944
Divided by 48,000 sq. ft. $9.19/sq. ft.
Total Annual Return 158,125
Divided by 48,000 sq. ft. $3.29/sq. ft.
Estimated Annual Net Rent $12.48/sq. ft.
In the event Tenant exceeds its Tenant improvement allowance of $25 per
square foot times the difference between (i) the Rentable Square Footage of
51,335 and (ii) the sum of the square footage of the (a) lobbies, (b) restrooms,
and (c) mechanical rooms which are being furnished by Landlord at Landlord's
expense, it shall pay such excess to Landlord within thirty (30) days of receipt
of a statement therefor. Tenant shall have the right to review all of Landlord's
books and records to verify Landlord's calculation. Landlord shall perform the
work identified on Exhibit B, the cost of which shall not be charged against
Tenant's improvement allowance. Any improvements to the Premises other than
those set forth on Exhibit B shall be charged against Tenant's improvement
allowance.
From the Commencement Date until such time as Tenant's Rent is actually
determined as provided above, Tenant shall make estimated Rent payments in the
amount of $12.48 per square foot. When Tenant's Rent is determined, any
overpayment (underpayment) shall be refunded to (paid by) Tenant within ten (10)
days of such determination.
Tenant's Monthly Rent shall be adjusted as of the date (the "Adjustment
Date") that Landlord's original permanent loan is refinanced. (As of the date of
this Lease, Landlord and Tenant anticipate that the original permanent loan will
mature ten (10) years following its inception). As of the Adjustment Date,
Tenant's Monthly Rent shall be calculated as above, using the actual (i) Total
Project Cost, and (ii) Annual Debt Service (as of the original determination)
except that the initial interest rate of the replacement loan shall be
substituted for the interest rate used for the original determination.
26
<PAGE>
ARTICLE 22. BUILDING
Tenant shall have the option to expand the Building, at its sole cost and
expense pursuant to plans and specifications which shall be subject to
Landlord's approval, which approval shall not be unreasonably withheld, delayed
or conditioned. In the event Tenant desires to expand the Building, it shall be
responsible for obtaining any and all approvals, permits, licenses, etc.
required and such expansion shall be subject to such other conditions as
Landlord may reasonably require including any approvals required by the
mortgagee of the Building. Tenant shall not be obligated to pay any additional
Base Rent in respect of such expansion, but shall be responsible for all
additional taxes, insurance, common area charges, etc. in accordance with the
terms of this Lease. At the conclusion at the term of this Lease, all such
improvements shall become the property of the Landlord.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year
first written above.
LANDLORD:
SIX EDISON LAKES, L.L.C.
Date: 9/19/96 By:/s/Donald G. Cressy
--------------------------------
Name:/s/Donald G. Cressy
------------------------------
Title: Manager
TENANT:
QUALITY DINING, INC.
Date: 9/19/96 By:/s/Daniel B. Fitzpatrick
--------------------------------
Name:
Title:
27
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE>
PARCEL IV: LEGAL DESCRIPTION
THAT PART OF THE WEST HALF OF THE SOUTHWEST QUARTER OF SECTION 34, TOWNSHIP 38
NORTH, RANGE 3 EAST, PENN TOWNSHIP, CITY OF MISHAWAKA, ST. JOSEPH COUNTY,
INDIANA WHICH IS DESCRIBED AS: BEGINNING AT A 5/8" CAPPED REBAR SET ON THE NORTH
RIGHT-OF-WAY LINE OF DAY ROAD WHICH IS N. 89/o/ -57' -15" E., 459.97 FT. (REC.
N. 89/o/ -56' -51" E., 459.99 FT.) AND N. 00/o/ -11' -45" E., 40.00 FT. (REC. N.
00/o/ -11' -21" E., 32.13 FT.) FROM A R.R. SPIKE FOUND MARKING THE SOUTHWEST
CORNER OF NORTH HALF OF THE SOUTHWEST QUARTER OF SAID SECTION 34; THENCE ALONG
THE EASTERLY RIGHT-OF-WAY LINE OF EDISON LAKES PARKWAY FOR THE NEXT THREE
COURSES, N. 45/o/ -04' -02" W., 35.21 FT. TO A SET 5/8" CAPPED REBAR (REC. N.
44/o/ -55' -54" W., 35.28 FT.) AND N. 00/o/ -09' -53" E., 101.04 FT. TO A SET
5/8" CAPPED REBAR (REC. N. 00/o/ -11' -21" E., 108.56 FT.) AND AROUND A 2008.26
FT. RADIUS CURVE TO THE LEFT AN ARC DISTANCE OF 433.21 FT. TO THE END OF A CHORD
BEARS N. 05/o/ -58' -15" W. AND HAVING A DISTANCE OF 432.37 FT. TO A SET 5/8"
CAPPED REBAR; THENCE N. 89/o/ -40' -00" E., 368.35 FT. TO A FOUND 3/4" REBAR ON
THE SOUTH LINE OF "WINDING BROOK PARK, SECTION H" AS RECORDED BY DOCUMENT NO.
8834271 IN THE RECORDS OF THE ST. JOSEPH COUNTY, INDIANA RECORDER'S OFFICE;
THENCE S. 00/o/ -09-49" E., 527.90 FT. TO A SET 5/8" CAPPED REBAR THENCE S.
44/o/-57' -15" W. 42.34' TO A SET 5/8" CAPPED REBAR ON THE NORTH RIGHT-OF-WAY
LINE OF DAY ROAD; THENCE S. 89/o/ -57' -15" W. ALONG SAID NORTH LINE, 270.33 FT.
TO THE POINT OF BEGINNING. CONTAINING 4.27 ACRES. SUBJECT TO ALL LEGAL HIGHWAYS,
EASEMENTS AND RESTRICTIONS OF RECORD.
<PAGE>
EXHIBIT B
LANDLORD'S WORK
1) The work described in Section 2.1.
2) Appropriate landscaping and plaza improvements to be mutually agreed upon
by Landlord and Tenant.
3) Perimeter walls sheetrocked, taped, sanded and painted.
4) Core areas finished including:
All restrooms, mechanical rooms, elevators, lobbies and janitorial
closets completed with painted drywall, drop ceilings, HVAC, light
fixtures, plumbing fixtures, doors and floors installed.
Landlord or its contractors shall be responsible for supplying adequate
utilities, including air conditioning equipment, to meet Tenant's requirements
provided, however that in the event Tenant furnishes Landlord or its contractors
any incorrect information with respect to Tenant's requirements, Landlord shall
not be responsible for any inadequacies resulting from such incorrect
information.
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT D
ACCEPTANCE OF PREMISES
TENANT: Quality Dining, Inc.
LANDLORD: Six Edison Lakes, L.L.C.
ADDRESS OF PREMISES: _____ Edison Lakes Parkway, Mishawaka, Indiana 46545
APPROXIMATE SQUARE FOOTAGE OF PREMISES: [ ]
DATE LEASE SIGNED:
DATE LANDLORD'S NOTICE SENT:
COMMENCEMENT DATE:
EXPIRATION DATE:
NEXT RENTAL PAYMENT DUE:
AMOUNT DUE ON NEXT RENTAL PAYMENT:
Tenant confirms the accuracy of the above information with respect to the
Lease. Tenant hereby acknowledges that (i) it has accepted the Premises and
(ii) the condition of the Premises is satisfactory and in conformity with the
provisions of the Lease in all respects, except as noted below and except for
latent defects.
________________________________________________________
TENANT:
QUALITY DINING, INC.
By:
-------------------------
Name: Daniel B. Fitzpatrick
Title: President
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
None.
<PAGE>
EXHIBIT F
ESTOPPEL CERTIFICATE
TENANT: Quality Dining, Inc.
LANDLORD: Six Edison Lakes, L.L.C.
PREMISES: _____ Edison Lakes Parkway, Mishawaka, Indiana 46545
LEASE EXPIRES:
The undersigned, the Tenant under the above lease ("Lease") certifies to [ ]
("Lender") that:
1. The Lease is presently in full force and effect and is unmodified except
as indicated at the end of this page.
2. The Lease represents the entire agreement between the parties as to this
leasing.
3. The term of the Lease has commenced, and rental is now accruing
thereunder.
4. The undersigned has accepted possession of the Premises, and any
improvements required by the terms of the Lease to be made by Landlord
have been completed to the satisfaction of the undersigned, except as
indicated below.
5. No rent under the Lease has been paid more than thirty (30) days in
advance of its due date.
6. To its knowledge, the undersigned, as of this date, has no charge, lien
or claim of offset under the Lease or otherwise against rents or other
charges due to become due thereunder, except as indicated below.
7. As of this date, to Tenant's knowledge, Landlord has performed all of its
obligations under the terms and conditions of the Lease and is not in
default hereunder, nor has any event or omission occurred which, but for
the passage of time or the giving of a notice or both, would be a default
by Landlord, except:
-------------------------------------------------------------------------
---------------------------
Dated: _______________________
<PAGE>
TENANT:
QUALITY DINING, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 10-AG
STOCK OPTION AGREEMENT
This Agreement is made this 12th day of August, 1996, by and between Daniel B.
Fitzpatrick ("Fitzpatrick"), Quality Dining, Inc. ("QDI"), an Indiana
corporation and Bagel Acquisition Corporation, an Indiana corporation ("BAC").
RECITALS
A. Fitzpatrick is the owner of one hundred shares (the "Shares") of BAC
which constitute 100% of the issued and outstanding capital stock of BAC.
B. Fitzpatrick desires to grant QDI the option to acquire the Shares in
accordance with the terms set forth below.
NOW THEREFORE, in consideration of the terms and conditions set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. Grant of Option. Fitzpatrick hereby grants QDI the right and option to
acquire the Shares subject to the terms and conditions of this Agreement.
2. Purchase Price. The purchase price for the Shares to be purchased hereunder
shall be one thousand dollars and no cents ($1,000) in addition to other
reasonable out of pocket expenses incurred by Fitzpatrick incident to his
ownership of the Shares up to the date QDI acquires the Shares.
3. Exercise of Option. QDI may exercise the option granted herein at any time,
from time to time up to and including the tenth anniversary date of this
Agreement, after which time this Agreement shall terminate along with all
rights granted hereunder.
4. Transfer, Assignment or Encumbrance. The rights granted hereunder may be
transferred, assigned or encumbered by QDI, at its sole discretion, and the
exercise of such rights by QDI shall not in any way affect the rights granted
it by Fitzpatrick and BAC hereunder.
5. Issuance of New Shares. In the event that BAC issues new or additional shares
to any person or entity, the option to purchase set forth herein shall extend
to such shares in the same manner and to the same extent this Agreement
applies to the Shares.
6. Entire Agreement. This Agreement contains all of the terms, conditions and
understandings of the parties with respect to the subject matter hereof and
shall supersede any and all prior understandings and agreements, written or
oral, relating
<PAGE>
thereto. Except as expressly provided herein, no modification or this
Agreement shall be binding on any party unless it is in writing signed by
Fitzpatrick, QDI and BAC.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
DANIEL B. FITZPATRICK: QUALITY DINING, INC.:
/s/ Daniel B. Fitzpatrick by /s/ Michael G. Sosinski
- ------------------------- -----------------------
Daniel B. Fitzpatrick Michael G. Sosinski,
Chief Financial Officer
BAGEL ACQUISITION CORPORATION:
by /s/ Daniel B. Fitzpatrick
- -------------------------
Daniel B. Fitzpatrick,
President
<PAGE>
EXHIBIT 10-AH
COMPUTER AND COMMUNICATIONS SYSTEMS AGREEMENT
---------------------------------------------
This Computer And Communications Systems Agreement ("Agreement") is made as of
the 12th day of August, 1996 by and between Quality Dining, Inc., an Indiana
corporation ("Company"), and Bagel Acquisition Corporation, an Indiana
corporation ("Developer").
RECITALS
--------
WHEREAS, The Company and the Developer have entered into or propose to
enter into one or more Franchise Agreements (each a "Franchise Agreement" and,
collectively, the "Franchise Agreements"), whereby the Company or a subsidiary
of Company shall grant to the Developer the right to operate a Bruegger's Bagel
Bakery Restaurant (the "Restaurant").
WHEREAS, under the Franchise Agreements, Developer is required to operate
the Restaurants in compliance with the specifications and standards which
Company prescribes from time to time for the Restaurants, including without
limitation, Company's specification and standards for computer hardware and
software and communications systems; and
WHEREAS, Company has developed specifications and standards for computer
hardware and software and communications systems to be used in the operation of
the Restaurants.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledge, the parties hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 "COMPUTER SYSTEM" - Those brands, types, makes, and/or models of
communications and computer systems or hardware specified or required by
Company for use by, between, or among the Restaurants.
1.2 "SPECIFIED SOFTWARE" - Such software, programming, and services which
Company from time to time specifies or requires for use by developers of
Restaurants.
<PAGE>
2. COMPUTER SYSTEMS AND SPECIFIED SOFTWARE.
---------------------------------------
2.1. Developer shall (i) acquire a Computer System for each Restaurant
opened and operated under the Franchise Agreements and acquire the right to
use the Specified Software; (ii) obtain any and all peripheral equipment
and accessories and arrange for any and all support services that may be
necessary to enable the Computer System and the Specified Software to
operate as intended, and (iii) take all other actions (including but not
limited to installation of electrical wiring and cabling, and temperature
and humidity controls) that may be necessary to prepare the Restaurant to
enable the Computer System and the Specified Software to operate as
required; and (iv) commence using the Computer System and the Specified
Software in the operation of each Restaurant in the manner required.
Developer shall be responsible for all costs associated with the foregoing,
including but not limited to transportation; installation; sales, use,
excise and similar taxes; and site preparation, and Company shall have no
liability to Developer or to any other party in connection with any of the
foregoing.
2.2. Developer acknowledges that Company may, during the term of this
Agreement, require Developer to modify, enhance and/or replace all or any
part of the Computer System and/or the Specified Software at Developer's
expense. Any such modifications, enhancements, and replacements may
require Developer to incur costs to purchase, lease and/or license new or
modified computer hardware and/or software or other equipment and to obtain
different and/or additional service and support services during the term of
this Agreement. Developer acknowledges that Company cannot estimate the
costs of future enhancements, modifications, and replacements to the
Computer system or the Specified Software.
3. INITIAL FEE. For each Restaurant Franchise Agreement executed between
Developer and Company, Developer shall pay Company a fee of Ten Thousand Dollars
($10,000.00) for services provided in connection with the initial set-up for
each such Restaurant.
4. SOFTWARE SUPPORT SERVICE. During the term of this Agreement and, provided
that Developer is in compliance with the terms hereof, Company shall provide to
Developer such support services as Company deems reasonably necessary to cause
the Computer System to operate in accordance with the standards for the software
specified from time to time by Company.
5. SOFTWARE SUPPORT SERVICE FEE. For the software support service provided by
Company to Developer during the term of this Agreement, Developer agrees to pay
to Company a software support fee (the "Software Support Fee") in the amount of
Five Hundred Dollars ($500.00) per accounting period ("Accounting Period"), in
accordance with the Company's thirteen four-week account periods, for each
Restaurants and office location open and operational during any portion of the
applicable Accounting Period.
<PAGE>
The Software Support Fee may be increased by Company from time to time, at its
sole option, upon written notice to Developer.
6. MODIFICATION AND ENHANCEMENT. From time to time during the term of this
Agreement, Developer may request assistance from Company regarding use of the
Computer System or Specified Software or may request that Company provide
additional software for Developer's use. Developer agrees to pay Company for any
out of pocket expenses incurred by Company as a result of Developers use of
Company's MIS support services or proprietary software.
7. TERM. The term of this Agreement shall be for a period of time commencing
on the effective date and continuing so long as any of the Franchise Agreements
remain in effect.
8. ASSIGNMENT. This Agreement and the rights and obligations arising
hereunder may not be assigned by Developer except in conjunction with an
assignment of the Franchise Agreement made in compliance with the terms of the
Franchise Agreement. This Agreement is fully assignable by Company and shall
inure to the benefit of any assignee or other successor to the interests of
Company therein.
9. MISCELLANEOUS.
-------------
9.1 In performing the Services set forth in this Agreement, the Company
will have neither express or implied power to execute agreements on behalf
of the Developer or in any manner bind the Developer as to any matter not
within the scope of this Agreement.
9.2 All notices provided for in this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
overnight express or facsimile transmission or registered or certified
mail, return receipt requested and postage prepaid. Any party may change
the address to which notices hereunder are to be sent to it by giving
written notice of such change of address in the manner herein provided for
giving notice. Any notice delivered personally or by overnight express
courier or facsimile transmission shall be deemed to have been given on the
date it is so delivered, and any notice delivered by registered or
certified mail delivery service shall be deemed to have been duly given
three business days after it is sent to the intended recipient at the
address set forth above.
9.3 THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF.
<PAGE>
9.4 A failure of any party to insist in any instance upon the strict and
punctual performance of any provision of this Agreement shall not
constitute a continuing waiver of such provision. No party shall be deemed
to have waived any rights, power, or privilege under this Agreement or any
provisions hereof unless such waiver shall have been in writing and duly
executed by the party to be charged with such waiver, and such waiver shall
be a waiver only with respect to the specific instance involved and shall
in no way impair the rights of the waiving party or the obligations of the
other party or parties in any other respect or at any other time. If any
provision of this Agreement shall be waived, or be invalid, illegal, or
unenforceable, the remaining provisions of this Agreement shall be
unaffected thereby and shall be unaffected thereby and shall remain binding
and in full force and effect. 9.5 This Agreement may be amended or modified
only by a written instrum ent signed by each of the parties hereto.
9.5 This Agreement may be amended or modified only by written instrument
signed by each of the parties hereto.
9.6 This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, either oral or written with respect thereto.
9.7 Nothing contained in this Agreement is intended, nor shall it be
construed, to create any rights in any person not a party to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COMPANY: DEVELOPER:
Quality Dining, Inc. Bagel Acquisition Corporation
By: /s/ Michael G. Sosinski By: /s/ Daniel B. Fitzpatrick
----------------------------- -------------------------------
Name: Michael G. Sosinski Name: Daniel B. Fitzpatrick
Title: Chief Financial Officer Title: President
<PAGE>
Exhibit 10-AI
ACCOUNTING SERVICES AGREEMENT
-----------------------------
This Accounting Services Agreement ("Agreement") is made as of the 12th day
of August, 1996 by and between Quality Dining, Inc., an Indiana corporation
("Company"), and Bagel Acquisition Corporation, an Indiana corporation
("Developer").
RECITALS
--------
1. The Company and the Developer have entered into or propose to enter
into one or more Franchise Agreements (each a "Franchise Agreement" and,
collectively, the "Franchise Agreements"), whereby the Company or a subsidiary
of Company shall grant to the Developer the right to operate a Bruegger's Bagel
Bakery Restaurant (the "Restaurant").
2. Pursuant to the Franchise Agreements, the Developer is required to
maintain certain accounting records and provide to the Company certain periodic
financial reports and other data.
3. Developer has requested and the Company has offered that the Company
assist the Developer in maintaining certain accounting records and preparing
certain financial reports required under the Franchise Agreements.
4. Developer desires to enter into an agreement pursuant to which the
Company would perform such services for Developer upon the terms and subject to
the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledge, the parties hereby agree as follows:
1. ACCOUNTING SERVICES.
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, the Company shall provide to the Developer for each
Restaurant operated by the Developer and for the Developer's Entity as
a whole the following accounting services (the "Services"):
1
<PAGE>
(a) per-unit calculation of revenue and expenses by accounting
category per the Company's standard chart of accounts and calculation
of Royalty Based Revenue and Royalty Fees (as each term is defined in
the Franchise Agreements);
(b) administration and maintenance of corporate payroll, and
administration of the processing of payroll and calculation of
applicable tax and other withholdings relating to the Developer's
Restaurants through the Company's designated payroll service bureau;
(c) administration of accounts payable (including check generation and
wire transfers);
(d) administration of recurring cash transfers between the Developer's
Restaurants and corporate bank accounts;
(e) administration and maintenance of a Developer general ledger
trial balance, balance sheet, income statement and certain other
corporate and Restaurant reports by accounting category per the
Company's standard chart of accounts and consistent with periodic
reports the Company customarily prepares in the normal course of
business to manage its financial affairs, and periodic distribution of
such reports to Developer using the company's Report Distribution
System;
(f) maintenance of all accounting records supporting Developer
financial statements (consistent with the Company's record retention
program) in reasonable fashion separate and discrete from the
accounting records of the Company's record retention program) in
reasonable fashion separate and discrete from the accounting records
of the Company; and
(g) preparation of period-end reconciliations and associated period-
end journal entries for all Developer balance sheet accounts.
1.2 The Services shall not include any of the following, each of which is
the sole responsibility of Developer:
(a) selection of accounting policies to be applied to the Developer's
books and records; however, the Company will consistently apply the
appropriate policies selected by Developer;
2
<PAGE>
(b) negotiation of terms and conditions between Developer and its
suppliers, vendors, and others, such as remittance due dates and
discounts;
(c) quarterly review and edit of the Developer's vendor masterfile for
current and accurate data; however the Company will appropriately
apply updates to the vendor masterfile as directed by the Developer;
(d) signature and final release of trade accounts payable disbursement
checks in excess of $200,000;
(e) final review and approval of annual financial statements;
(f) cash investment activities; however, the Company will initiate and
manage repetitive and/or fixed cash management activities as directed
in writing by the Developer;
(g) approval and coding of invoices for disbursement;
(h) preparation of budgets (except that the Company will develop a
budget process and calendar to facilitate the preparation of annual
budgets by the Developer); and
(i) preparation, filing, of signing of any tax returns required to be
filed by Developer, with the exception of sales and use tax returns
which will be prepared, but not, however, filed or signed by the
Company.
1.3 Developer agrees to supply the Company all information, materials,
data, and documents necessary or advisable to properly perform the
Services in such form, format, or media as the Company may reasonably
request, to make available the officers of the Developer to answer any
inquires in connection therewith.
2. FEES FOR SERVICES AND EXPENSE REIMBURSEMENT.
2.1 In consideration of the Services, the Developer agrees to pay to the
Company an administrative fee, separate and apart from any fee
otherwise payable under the Franchise Agreements, as follows:
(a) During the term of this Agreement, Developer will pay Company an
amount equal to Four Thousand Dollars ($4,000.00) per accounting
period ("Accounting Period"), in accordance of the
3
<PAGE>
Company's thirteen four-week account periods, for each corporate
entity which Developer uses to operate one or more of the Restaurants
during any portion of the applicable Accounting Period.
(b) During the term of this Agreement, Developer will pay Company an
amount equal to One Thousand Dollars ($1,000.00) per Accounting Period
for each Restaurant open and operational during any portion of the
applicable Accounting Period.
2.2 In addition to the payment of fees as specified in Section 2.1 of this
Agreement, the Developer shall reimburse the Company for all non-
ordinary, out-of-pocket expenses incurred by the Company or its
affiliates in connection with the Services rendered by them hereunder,
including, but not limited to, travel expenses, legal fees, fees of
experts, audit fees, tax fees, payroll service fees, etc. All non-
ordinary, out of pocket expenses, however, must be approved by
Developer prior to incurring such expense. Expenses payable under this
Section 2.2 shall be paid in the manner specified in Section 4.1 of
this Agreement.
3. TERM OF SERVICES. The term of this Agreement shall be for the period of
time commencing on the effective date hereof and continuing so long as any
of the Franchise Agreements remain in effect. Provided, however, that the
Company may terminate this Agreement without notice and cease rendering
the Services hereunder upon any non-payment by the Developer of the fees
and expenses provided for herein when such fees and expenses are due and
payable.
4. PAYMENT OF AMOUNTS DUE HEREUNDER: LIABILITY.
4.1 The Company will calculate and collect through electronic funds
transfer the total dollar amount of all fees and expenses due to the
Company hereunder, at the end of each Accounting Period.
4.2 The Company shall not be liable for any cost, damage, expense, or loss
of the Developer or any other person or entity arising or resulting,
directly or indirectly, from the failure of the Company to perform any
of the Services for the Developer hereunder or the misperformance of
any such Services, except to the extent such failure to perform or
such misperformance is the result of the Company's willful misconduct
or gross negligence, in which event Company's liability shall not
exceed its fee for such Services hereunder for the period in question.
4
<PAGE>
5. MISCELLANEOUS.
5.1 In performing the Services set forth in this Agreement, the Company
will have neither express or implied power to execute agreements on
behalf of the Developer or in any manner bind the Developer as to any
matter not within the scope of this Agreement.
5.2 All notices provided for in this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or
sent by overnight express or facsimile transmission or registered or
certified mail, return receipt requested and postage prepaid. Any
party may change the address to which notices hereunder are to be sent
to it by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally or
by overnight express courier or facsimile transmission shall be deemed
to have been given on the date it is so delivered, and any notice
delivered by registered or certified mail delivery service shall be
deemed to have been duly given three business days after it is sent to
the intended recipient at the address set forth above.
5.3 THIS AGREEMENT SHALL BE CONSTUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO
BE PERFOMED THEREIN WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS
THEREOF.
5.4 A failure of any party to insist in any instance upon the strict and
punctual performance of any provision of this Agreement shall not
constitute a continuing waiver of such provision. No party shall be
deemed to have waived any rights, power, or privilege under this
Agreement or any provisions hereof unless such waiver shall have been
in writing and duly executed by the party to be charged with such
waiver, and such waiver shall e a waiver only with respect to the
specific instance involved and shall in no way impair the rights of
the waiving party or the obligations of the other party or parties in
any other respect or at any other time. If any provision of this
Agreement shall be waived, or be invalid, illegal, or unenforceable,
the remaining provisions of this Agreement shall be unaffected thereby
and shall be unaffected thereby and shall remain binding and in full
force and effect.
5.5 This Agreement may be amended or modified only by a written
instrument signed by each of the parties hereto.
5
<PAGE>
5.6 This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings, either or oral or written with
respect thereto.
5.7 Nothing contained in this Agreement is intended, nor shall it be
construed, to create any rights in any person not a party to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COMPANY: DEVELOPER:
Quality Dining, Inc. Bagel Acquisition Corporation
By: /s/ Michael G. Sosinski By: /s/ Daniel B. Fitzpatrick
-------------------------- -------------------------
Name: Michael G. Sosinski Name: Daniel B. Fitzpatrick
Title: Chief Financial Officer Title: President
6
<PAGE>
EXHIBIT 10-AJ
MANAGEMENT SERVICES AGREEMENT
-----------------------------
This Management Services Agreement ("Agreement") is made as of the 12th day
of August, 1996 by and between Quality Dining, Inc., an Indiana corporation
("Company") and Bagel Acquisition Corporation, an Indiana corporation
("Developer").
RECITALS
--------
1. The Company and the Developer have entered into or propose to enter
into one or more Franchise Agreements (each a "Franchise Agreement" and,
collectively, the "Franchise Agreements"), whereby the Company or a subsidiary
of Company shall grant to the Developer the right to operate a Bruegger's Bagel
Bakery Restaurant (the "Restaurant").
2. Developer has requested and the Company has offered that the Company
perform or assist the Developer in performing certain management functions in
connection with Developers operations under the Franchise Agreements.
3. The Developer desires to enter into an agreement pursuant to which the
Company would perform such services for Developer upon the terms and subject to
the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledge, the parties hereby agree as follows:
1. MANAGEMENT SERVICES. Upon the terms and subject to the conditions set
forth in this Agreement, the Company shall provide to the Developer for
each Restaurant operated by the Developer and for the Developer as a whole
certain management services (the "Services"), including but not limited to
the following:
(a) insurance management;
(b) operations and management training;
(c) human resources management and assistance;
1
<PAGE>
(d) in-store marketing advice and assistance;
(e) multiple-unit operations management and assistance.
2. FEES FOR SERVICES AND EXPENSE REIMBURSEMENT.
2.1 In consideration of the Services, the Developer agrees to pay to
the Company, as a management fee separate and apart from any fee
otherwise payable under any of the Franchise Agreements an amount
equal to One Thousand Dollars ($1,000.00) per accounting period
("Accounting Period"), in accordance with the Company's thirteen four-
week account periods, for each Restaurant open and operational during
any portion of the applicable Accounting Period.
2.2 In addition to the payment of fees as specified in Section 2.1 of
this Agreement, the Developer shall reimburse the Company for all non-
ordinary, out-of-pocket expenses incurred by the Company or its
affiliates in connection with the Services rendered by them hereunder,
including, but not limited to, travel expenses, legal fees, fees of
experts, audit fees, tax fees, payroll service fees, etc. All non-
ordinary, out of pocket expenses, however, must be approved by
Developer prior to incurring such expense. Expenses payable under this
Section 2.2 shall be paid in the manner specified in Section 4.1 of
this Agreement.
3. TERM OF SERVICES. The term of this Agreement shall be for the period
of time commencing on the effective date hereof and continuing so long as
the any of the Franchise Agreements remain in effect. Provided, however,
that the Company may terminate this Agreement without notice and cease
rendering the Services hereunder upon any non-payment by the Developer of
the fees and expenses provided for herein when such fees and expenses are
due and payable.
4. PAYMENT OF AMOUNTS DUE HEREUNDER: LIABILITY.
4.1 The Company will calculate and collect through electronic funds
transfer the total dollar amount of all fees and expenses due to the
Company hereunder, at the end of each Accounting Period.
4.2 The Company shall not be liable for any cost, damage, expense,
or loss of the Developer or any other person or entity arising or
resulting, directly or indirectly, from the failure of the Company to
perform any of the Services for the Developer hereunder or the
misperformance of any such Services, except to the extent such failure
to perform or such misperformance is the result of the Company's
willful misconduct or gross
2
<PAGE>
negligence, in which event Company's liability shall not exceed its
fee for such Services hereunder for the period in question.
5. MISCELLANEOUS.
5.1 In performing the Services set forth in this Agreement, the
Company will have neither express or implied power to execute
agreements on behalf of the Developer or in any manner bind the
Developer as to any matter not within the scope of this Agreement.
5.2 All notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly given if delivered personally or
sent by overnight express or facsimile transmission or registered or
certified mail, return receipt requested and postage prepaid. Any
party may change the address to which notices hereunder are to be sent
to it by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally or
by overnight express courier or facsimile transmission shall be deemed
to have been given on the date it is so delivered, and any notice
delivered by registered or certified mail delivery service shall be
deemed to have been duly given three business days after it is sent to
the intended recipient at the address set forth above.
5.3 THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS THEREOF.
5.4 A failure of any party to insist in any instance upon the strict
and punctual performance of any provision of this Agreement shall not
constitute a continuing waiver of such provision. No party shall be
deemed to have waived any rights, power, or privilege under this
Agreement or any provisions hereof unless such waiver shall have been
in writing and duly executed by the party to be charged with such
waiver, and such waiver shall e a waiver only with respect to the
specific instance involved and shall in no way impair the rights of
the waiving party or the obligations of the other party or parties in
any other respect or at any other time. If any provision of this
Agreement shall be waived, or be invalid, illegal, or unenforceable,
the remaining provisions of this Agreement shall be unaffected thereby
and shall be unaffected thereby and shall remain binding and in full
force and effect.
5.5 This Agreement may be amended or modified only by a written
instrument signed by each of the parties hereto.
3
<PAGE>
5.6 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, either oral or
written with respect thereto.
5.7 Nothing contained in this Agreement is intended, nor shall it be
construed, to create any rights in any person not a party to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COMPANY: DEVELOPER:
Quality Dining, Inc. Bagel Acquisition Corporation
By: /s/ Michael G. Sosinski By: /s/ Daniel B. Fitzpatrick
----------------------- -------------------------
Name: Michael G. Sosinski Name: Daniel B. Fitzpatrick
Title: Chief Financial Officer Title: President
4
<PAGE>
EXHIBIT 10-AK
RELATED PARTY FRANCHISE AGREEMENTS
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE/1/
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAGEL ACQUISITION 16-0083 Whitefish 601 E Silver 12/3/93
CORPORATION (2) Bay Spring Drive
Whitefish Bay, WI
53217
BAGEL ACQUISITION 16-0146 Brookfield 16460 W Bluemound 12/14/94
CORPORATION Road
Brookfield, WI
53005
BAGEL ACQUISITION 16-0248 Monroe 1501 Monroe Street 8/24/95
CORPORATION Madison, WI 53711
BAGEL ACQUISITION 16-0256 University 3310 University 9/21/95
CORPORATION Avenue
Madison, WI 53703
BAGEL ACQUISITION 16-0283 Wauwatosa 8310 West 11/30/95
CORPORATION Bluemound Road
Wauwatosa, WI 53213
BAGEL ACQUISITION 16-0284 Oconomowoc 103 Summit 12/13/95
CORPORATION Hwy 67 & Thackeray
Trail
Oconomowoc, WI
53066
BAGEL ACQUISITION 16-0348 Shorewood Gary Linn 10/27/96
CORPORATION 4106 North Oakland
Avenue
Shorewood, WI 53211
BAGEL ACQUISITION 16-0355 Schroeder 5606 Schroeder Road 5/23/96
CORPORATION Madison, WI 53711
BAGEL ACQUISITION 16-0467 Mineral Kristin Allemand 12/13/96
CORPORATION Point Homestead Shoppes
6150 Mineral Point
Rd
Madison, WI 53705
BAGEL ACQUISITION 47-0319 16th & 1601 North Mountain 3/25/96
CORPORATION Mountain Upland, CA 91784
BAGEL ACQUISITION 47-0320 Foothills 870 East Foothill 3/12/96
CORPORATION & Campus Upland, CA 91786
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE/1/
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAGEL ACQUISITION 47-0380 Simi 2720 Cochran 6/10/96
CORPORATION Valley Street #101
Sycamore Plaza
Simi Valley, CA
93065
BAGEL ACQUISITION 47-0386 Chatsworth 20515 Devonshire 10/27/96
CORPORATION Devon Plaza
Chatsworth, CA
91311
BAGEL ACQUISITION 47-0395 Studio 12265 Ventura 10/27/96
CORPORATION City Boulevard
Studio City, CA
91604
BAGEL ACQUISITION 47-0457 Wilshire 12222 Wilshire 10/13/96
CORPORATION Boulevard
Los Angeles, CA
90025
BAGEL ACQUISITION 49-0325 Dunwoody 5575 Chamblee- 5/14/96
CORPORATION Dunwoody Road
Dunwoody, GA 30338
BAGEL ACQUISITION 49-0369 10995 State Bridge 6/1/96
CORPORATION Bridgepoint Road
Alpharetta, GA
30202
BAGEL ACQUISITION 49-0439 Gwinnett Gwinnett 10/25/96
CORPORATION Market Fair Marketfair Center
3675 Satellite
Boulevard #8
Duluth, GA 30243
BAGEL ACQUISITION 72-0184 River Road River Road 7/12/95
CORPORATION Shopping Center
6229 River Rd
Richmond, VA 23229
BAGEL ACQUISITION 72-0185 1222 Richmond Road 6/28/95
CORPORATION Williamsburg Williamsburg
Shopping Center
Williamsburg, VA
23185
BAGEL ACQUISITION 72-0186 Cary International 7/10/96
CORPORATION International Shopping Center
3555 West Cary
Street
Richmond, VA 23221
BAGEL ACQUISITION 72-0244 West 1100 West Cary 12/13/95
CORPORATION Cary/VCU Street
Richmond, VA 23220
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE/1/
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAGEL ACQUISITION 72-0315 Janaf Janaf Shopping 3/6/96
CORPORATION Center
1904 N. Military
Highway
Norfolk, VA 23502
BAGEL ACQUISITION 72-0330 Hilltop Hilltop West 4/30/96
CORPORATION Shopping Center
756 First Colonial
Road
Virginia Beach, VA
23451
BAGEL ACQUISITION 31-0269 Tinley Tinley Park Plaza 8/28/95
CORPORATION 16005 South Harlem
Avenue
Tinley Park, IL
60477
BAGEL ACQUISITION 31-0300 Orland Promenade Plaza 2/19/96
CORPORATION Park 14259 South Wolf
Road
Orland Park, IL
60462
BAGEL ACQUISITION 33-0202 Sahara & 4921 West Sahara 8/20/96
CORPORATION Decatur Avenue
Unit B
Las Vegas, NV 89102
BAGEL ACQUISITION 33-0259 Sunset & Whitney Ranch 10/27/96
CORPORATION Stephanie Center
687 North Stephanie
Henderson, NV 89014
BAGEL ACQUISITION 33-0281 Warm Warm Springs 1/19/96
CORPORATION Springs Marketplace
7291 So. Eastern
Suite A
Las Vegas, NV 89109
BAGEL ACQUISITION 33-0282 Spring 6831 West Flamingo 12/30/95
CORPORATION Valley Las Vegas, NV 89103
BAGEL ACQUISITION 73-0131 Audubon Audubon Square 4/18/96
CORPORATION Square Shopping Center
2642 Egypt Road
Norristown, PA
19403
BAGEL ACQUISITION 73-0171 Marketplace at 4/24/95
CORPORATION Collegeville Collegeville
305 Second Avenue,
Route 29
Collegeville, PA 19426
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE/1/
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAGEL ACQUISITION 34-0243 Guadalupe 2514 Guadalupe & 10/16/95
CORPORATION 26th
Austin, TX 78705
BAGEL ACQUISITION 34-0278 College Culpepper Plaza 10/26/95
CORPORATION Station 1703 Texas Avenue
College Station,
TX 77840
BAGEL ACQUISITION 34-0314 Dairy Dairy Ashford West 3/8/96
CORPORATION Ashford Center
14520-L Memorial
Houston, TX 77079
BAGEL ACQUISITION 34-0392 5th & 309 West 5th 8/19/96
CORPORATION Guadalupe Street
Austin, TX 78701
BAGEL ACQUISITION 34-0411 Village Village at Westlake 10/9/96
CORPORATION at Westlake 701 Capital of TX
Highway
Austin, TX 78746
BAGEL ACQUISITION 34-0456 Champions 5203-C FM 1960 West 1/7/97
CORPORATION Village The Champions
Village
Houston, TX 77069
BAGEL ACQUISITION 34-0290 River Oaks River Oaks 11/25/95
CORPORATION Shopping Center
2047 West Gray
Houston, TX 77019
BAGEL ACQUISITION 34-0291 Village Village Arcade 12/18/95
CORPORATION Arcade Shopping Center
5510 Morningside,
Suite 100
Houston, TX 77005
BAGEL ACQUISITION 34-0292 Centre at 5000 Westheimer 12/5/95
CORPORATION Post Oak Boulevard Suite 630
Houston, TX 77056
BAGEL ACQUISITION 34-0293 Roundrock Market at Roundrock 1/10/96
CORPORATION 110 North IH-35,
Suite 305
Round Rock, TX
78681
BAGEL ACQUISITION 29-0168 Harding 5311 Harding Road 10/11/95
CORPORATION Road Nashville, TN 37205
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE(1)
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAGEL ACQUISITION 29-0208 Franklin Brentwood Shopping 11/8/95
CORPORATION Road Center
330 Franklin Road
Brentwood, TN 37027
BAGEL ACQUISITION 29-0331 Wallace 323 Wallace Avenue 3/6/96
CORPORATION Louisville, KY
40207
BAGEL ACQUISITION 29-0332 Bardstown 1500 Bardstown Road 4/19/96
CORPORATION Road Louisville, KY
40205
BAGEL ACQUISITION 29-0333 Holiday 226 Holiday Manor 4/12/96
CORPORATION Manor Walk
Louisville, KY
40222
BAGEL ACQUISITION 29-0460 9409 Shelbyville 12/4/96
CORPORATION Hurstbourne Road
Corners Louisville, KY
40222
BAYSTATE BAGELS, INC.(3) 04-0006 Amherst 170 N Pleasant 4/1/84
Street
Amherst, MA 01002
BAYSTATE BAGELS, INC. 04-0038 12 Main Street 8/26/90
Brattleboro Brookside Plaza
Brattleboro, VT
05301
BAYSTATE BAGELS, INC. 04-0042 96-98 Main Street 4/12/96
Northampton Northampton, MA
01060
BAYSTATE BAGELS, INC. 04-0055 South Main 1 S Main Street 11/27/92
W Hartford, CT
06107
BAYSTATE BAGELS, INC. 04-0092 Avon Shops at River Park 8/18/94
45 E Main Street
Avon, CT 06001
BAYSTATE BAGELS, INC. 04-0151 2801 Main Street 6/3/95
Glastonbury Glastonbury, CT
06033
BAYSTATE BAGELS, INC. 04-0182 Bristol 1128 Farmington 7/7/95
Avenue
Bristol, CT 06010
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE(1)
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BAYSTATE BAGELS, INC. 04-0183 777 Queen Street 7/17/95
Southington Southington, CT
06489
BAYSTATE BAGELS, INC. 04-0190 Enfield 103 Elm Street 6/26/95
Enfield, CT 06082
BEANTOWN BAGELS, INC.(3) 07-0010 Kenmore 644-648 9/1/85
Commonwealth Avenue
Boston, MA 02215
BEANTOWN BAGELS, INC. 07-0016 Harvard 83 Mt Auburn Street 5/1/87
Square Cambridge, MA 02138
BEANTOWN BAGELS, INC. 07-0028 Auburndale 2050 Commonwealth 8/21/89
Avenue
Auburndale, MA
02166
BEANTOWN BAGELS, INC. 07-0034 Church 279 Massachusetts 4/28/90
Park Avenue
Boston, MA 02115
BEANTOWN BAGELS, INC. 07-0035 Wellesley 251 Washington 7/20/90
Street
Wellesley Hills,
MA 02181
BEANTOWN BAGELS, INC. 07-0043 Broad 64 Broad Street 1/15/91
Street Boston, MA 02110
BEANTOWN BAGELS, INC. 07-0044 Belmont 41 Leonard Street 5/31/91
Belmont, MA 02178
BEANTOWN BAGELS, INC. 07-0049 Lexington 413 Waltham Street 1/29/92
Lexington, MA 02173
BEANTOWN BAGELS, INC. 07-0051 West 659 VFW Parkway 8/3/92
Roxbury West Roxbury, MA
02167
BEANTOWN BAGELS, INC. 07-0063 Longwood 375 Longwood Avenue 3/23/93
Medical Boston, MA 02215
BEANTOWN BAGELS, INC. 07-0065 Porter 1876 Massachusetts 6/15/93
Square Avenue
Cambridge, MA 02138
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FRANCHISEE STORE NAME & NUMBER LOCATION OPENING DATE/1/
- ---------- ------------------- -------- ---------------
<S> <C> <C> <C>
BEANTOWN BAGELS, INC. 07-0069 97 Central 97 Central Avenue 7/23/93
Wellesley, MA 02181
BEANTOWN BAGELS, INC. 07-0099 Braintree Pearl Street Shops 2/15/95
173 Pearl Street
Braintree, MA 02184
BEANTOWN BAGELS, INC. 07-0106 Four 184 Cambridge 4/27/94
Corners Woburn, MA 01801
BEANTOWN BAGELS, INC. 07-0124 Hanover 2100 Washington 2/8/95
Street
Hanover, MA 02339
BEANTOWN BAGELS, INC. 07-0135 Brookline 235 Harvard Street 5/24/95
Brookline, MA 02146
BEANTOWN BAGELS, INC. 07-0152 Weston 31 Center Street 12/5/94
Weston, MA 02193
BEANTOWN BAGELS, INC. 07-0198 Newton 739 Beacon Street 12/22/95
Center Newton, MA 02159
BEANTOWN BAGELS, INC. 07-0227 211 211 Congress Street 3/13/96
Congress Boston, MA 02110
BEANTOWN BAGELS, INC. 07-0229 Anchor 211 Lincoln Street 12/29/95
Plaza Hingham, MA 02043
BEANTOWN BAGELS, INC. 07-0230 West 1191 Main Street 2/7/96
Concord West Concord, MA
01742
BEANTOWN BAGELS, INC. 07-0245 Framingham Shopper's World 9/20/96
1 Worchester Road,
B-3
Framingham, MA
01701
BEANTOWN BAGELS, INC. 07-0274 School 7 School Street 5/15/96
Street Boston, MA 02108
BEANTOWN BAGELS, INC. 07-0364 Winchester 600 Main Street 9/25/96
Winchester, MA 01890
</TABLE>
7
<PAGE>
EXHIBIT 10-AL(i)
REVOLVING CREDIT LOAN AGREEMENT
THIS REVOLVING CREDIT LOAN AGREEMENT, is made this 12th day of August,
1996, by and between BAGEL ACQUISITION CORPORATION, an Indinana corporation,
("Borrower") and QUALITY DINING, INC., an Indiana corporation, ("Lender").
RECITALS
A. Borrower has applied to Lender for a revolving credit loan not to
exceed ELEVEN MILLION DOLLARS ($11,000,000.00) (the "Loan"), to be used as
herein agreed, and has executed and delivered to the Lender its Promissory Note
of even date herewith in that amount, with interest (the "Promissory Note"),
and, to secure the Promissory Note, has executed and delivered on even date
herewith the Security Agreement, granting a security interest in the assets of
Borrower as described in the Security Agreement.
B. Lender agrees to make the Loan to Borrower according to the terms of
this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Lender agrees to make the Loan and Borrower agrees to accept the loan
in accordance with the terms and conditions set forth herein and in the
Promissory Note and Security Agreement.
2. Borrower warrants and represents that the purpose of the Loan shall be
for business and commercial use only and shall be used for the initial start up,
leasing costs, equipment purchase, advertising and labor associated with opening
one or more restaurants.
3. Borrower has agreed to grant a security interest to Lender in
Borrower's assets. On even date Borrower has executed and delivered to Lender
its Security Agreement. Borrower represents and warrants that the real and
personal Property conveyed by the Security Agreement consists of all assets of
Bagel Acquisition Corporation.
4. The Borrower agrees to execute and to deliver to the Lender, at
Lender's request, security agreements, financing statements, chattel mortgages
or other similar instruments covering all property of any kind whatsoever
purchased with the loan proceeds and concerning which there may be any doubt as
to their being subject to the Security Agreement.
5. Notwithstanding Section 1 hereof, Borrower may borrow less than the
entire amount of the loan provided that the Borrower does not borrow any other
funds, the purpose or effect of which is to reduce the amount to be borrowed
hereunder.
1
<PAGE>
6. Should either party to this Agreement have to enforce any provision
hereof against the other, in a court of law, by arbitration, or otherwise, the
prevailing party in such action shall receive from the non-prevailing party its
reasonable costs and attorneys fees.
7. This Agreement shall be construed in accordance with the laws of the
State of Indiana.
IN WITNESS WHEREOF, the parties have executed and sealed this Agreement the
day and year first above written.
QUALITY DINING, INC.
An Indiana corporation
By:/s/ Michael G. Sosinski
-----------------------------------
Name: Michael G. Sosinski
Title: Chief Financial Officer
BAGEL ACQUISITION CORPORATION.
an Indiana corporation
By:/s/ Daniel B. Fitzpatrick
-----------------------------------
Name: Daniel B. Fitzpatrick
Title: President
STATE OF ____________ )
) ss.
COUNTY OF ___________ )
Subscribed and sworn to before me this 12th day of August, 1996, by Michael
G. Sosinski as Chief Financial Officer of Quality Dining, Inc., an Indiana
corporation.
[S E A L]
-----------------------------------
Notary Public
My Commission Expires:________________
2
<PAGE>
STATE OF ___________ )
) ss.
COUNTY OF __________ )
Subscribed and sworn to before me this 12th day of August, 1996, by Daniel
B. Fitzpatrick, President of Bagel Acquisition Corporation an Indiana
corporation.
[S E A L]
-------------------------------
Notary Public
My Commission Expires:________________
3
<PAGE>
EXHIBIT 10-AM
FIRST AMENDMENT TO REVOLVING
CREDIT LOAN AGREEMENT, PROMISSORY NOTE AND
SECURITY AGREEMENT
THIS FIRST AMENDMENT to Revolving Credit Loan Agreement, Promissory Note
and Security Agreement ("Amendment") is made and entered into as of thes 2nd day
of December, 1996 by and between BAGEL ACQUISITION CORPORATION, an Indiana
Corporation ("Borrower") and QUALITY DINING, INC., an Indiana Corporation
("Lender.").
RECITALS
A. Borrower and Lender entered into a certain Revolving Credit Loan
Agreement, dated August 12, 1996 ("Loan Agreement").
B. Borrower signed, as maker, a certain Promissory Note related to the
Loan Agreement, dated August 12, 1996, in the face amount of Eleven Million
($11,000,000) Dollars and in favor of Lender as named payee ("Note").
C. Borrower and Lender entered into a certain Security Agreement, dated
August 12, 1996 securing the repayment of the Note ("Security Agreement").
D. Borrower and Lender wish to amend the Loan Agreement, Note and
Security Agreement.
NOW, THEREFORE, the parties hereto, each in consideration of the other's
promises and agreements hereinafter contained and for other good and valuable
consideration, agree that the Recitals above set forth are a part of this
Amendment for all purposes and further agree as follows:
1. The Loan Agreement is hereby amended by deleting the words and figures
"Eleven Million Dollars ($11,000,000)" from the second line of Recital A and
replacing them with "Thirty Million ($30,000,00) Dollars."
<PAGE>
2. The Note is hereby amended by:
(a) Deleting the figures "$11,000,000" from the third line and replacing
them with "$30,000,000", and
(b) Deleting the words and figures "Eleven Million Dollars ($11,000,000)"
from the eighth and ninth lines and replacing them with "Thirty
Million Dollars ($30,000,000);" and
(c) Deleting the date "February 12, 1997" from the tenth line and
replacing it with "April 15, 1997."
3. The Security Agreement is hereby amended by deleting the words and
figures "Eleven Million Dollars and no cents ($11,000,000.00)" from the eleventh
line and replacing them with "Thirty Million Dollars and no cents
($30,000,000)."
4. All of the terms, provisions and conditions of the Loan Agreement,
Note and Security Agreement shall remain in full force and effect to the extent
they are not amended hereby; and the Loan Agreement, Note and Security
Agreement, as amended hereby, shall continue in full force and effect in all
respects.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
"BORROWER"
Bagel Acquisition Corporation
/s/ Daniel B. Fitzpatrick
----------------------------------
By: Daniel B. Fitzpatrick
Its: President
"LENDER"
Quality Dining, Inc.
/s/ John C. Firth
----------------------------------
By: John C. Firth,
Its: Senior Vice President
<PAGE>
EXHIBIT 10-AN(i)
TERMINATION AND MODIFICATION AGREEMENT
--------------------------------------
THIS AGREEMENT made this 23 day of OCTOBER, 1996, by and between Howard
Opera House Associates, a Vermont limited partnership ("Lessor"), whose address
is P.O. Box 1082, Burlington, Vermont 05402, and Bruegger's Corporation, a
Delaware corporation ("Lessee"), whose address is 435 Park Place Circle,
Mishawaka, Indiana 46545.
WHEREAS, Lessor and Champlain Management Company, a Vermont corporation
("Champlain"), entered into a Lease as of January 28, 1991 for the premises
referred to as a test kitchen located on the second floor of the building at 93
Church Street, Burlington, Vermont (the "Test Kitchen Lease"); and
WHEREAS, Lessor and Champlain entered into a Lease as of January 28, 1991
for the premises located on the first floor of the building at 93 Church Street,
Burlington, Vermont for a Bruegger's Bagel Bakery (the "Bakery Lease"); and
WHEREAS, Lessee is successor by merger to Champlain; and
WHEREAS, Lessor and Lessee entered into a Lease as of July 1, 1995 for the
premises consisting of approximately 11,308 square feet of space on the third
floor of the building commonly known as 159 Bank Street, Burlington, Vermont
(the "Third Floor Lease"); and
WHEREAS, Lessor and Lessee entered into a Lease as of July 1, 1995 for the
premises consisting of approximately 11,767 square feet of space on the fourth
floor of the building commonly known as 150 Bank Street, Burlington, Vermont
(the "Fourth Floor Lease") (the Test Kitchen Lease, the Bakery Lease, the Third
Floor Lease and the Fourth Floor Lease are sometimes collectively referred to
herein as the "Leases"); and
WHEREAS, Lessor and Lessee desire to amend the Leases as hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. On January 2, 1997, Lessee shall pay to Lessor, or Lessor's assigns,
by wire transfer, Nine Hundred Thousand ($900,000.00) Dollars, which shall be
applied as follows:
1.1 Sixty-four thousand one hundred sixty-seven Dollars ($64,176.00)
shall constitute prepayment of the Base Annual Rental due under the Test Kitchen
Lease; and
1.2 Eight-hundred thirty-five thousand eight hundred twenty-four
Dollars ($835,824.00) shall constitute consideration
<PAGE>
for the termination of the Fourth Floor Lease and the Third Floor Lease.
2. Effective as of midnight on December 31, 1996 (the "Effective Date"),
the Test Kitchen Lease, the Third Floor Lease, the Fourth Floor Lease, and the
Bakery Lease shall be modified as follows:
2.1 Test Kitchen Lease.
2.1.1 The parties agree that the "Premises", as defined in the
Test Kitchen Lease, shall consist of approximately 1337 square feet of the
second floor of the Bruegger's Bagel Bakery located at 93 Church Street,
Burlington, Vermont and no portion of the basement space of the building in
which the test kitchen is located.
2.1.2 The Test Kitchen Lease shall remain in effect until the
end of the stated term; provided, however, all rents payable thereunder,
including any pass through items such as taxes, insurance and common area
maintenance charges ("Additional Rent") shall abate, and no amounts shall be
payable under the Test Kitchen Lease from Lessee to Lessor from and after the
Effective Date through the expiration of the initial term of the Test Kitchen
Lease on December 30, 2000. In the event Lessee exercises any options under the
Test Kitchen Lease, the rent, including Base Annual Rent and Additional Rent,
shall be as set forth in the Test Kitchen Lease, except that the Lessee's
Maintenance Percentage (as defined in the Third Floor Lease) shall be 1.94% of
Lessor's total Maintenance Costs (as defined in the Third Floor Lease).
2.1.3 Lessee may not exercise any option to renew the Test
Kitchen Lease unless it also exercises the option for the identical period of
time under the Bakery Lease.
2.2 Third Floor Lease.
2.2.1 As of the Effective Date, the Third Floor Lease shall
terminate and be of no further force and effect.
2.2.2 In the event Lessee so elects by written notice to Lessor
delivered on or before December 1, 1996, Lessee shall be entitled to lease a
portion of the premises contained in the Third Floor Lease as shown on the
attached Exhibit A (the "Retained Premises"). The term of the lease for the
Retained Premises shall commence January 1, 1997. The lease for the Retained
Premises shall be month-to-month at a monthly rental of Two Thousand Eight
Hundred Forty-one and 41/100 ($2,841.41)
2
<PAGE>
Dollars (10.54 x 3235 + 12), plus all additional rent provided for in the Third
Floor Lease, including, but not limited to the amounts provided for in
paragraphs 6 and 7 of the said lease, allocable to 3235 square feet. In the
event Lessee elects to lease the Retained Premises, all terms of the Third Floor
Lease, except for length of term and relevant rental provisions, shall be
included in the month-to-month lease for the Retained Premises; provided,
however, that no portion of the basement space of the building in which the
demised premises are located shall be included in the demised premises.
2.2.3 Except as provided above, Lessor releases Lessee from any
obligations arising after the Effective Date under the Third Floor Lease.
2.3 Fourth Floor Lease. As of the Effective Date, the Fourth Floor
Lease shall terminate and be of no further force and effect. Lessor releases
Lessee from any obligations arising after the Effective Date under the Fourth
Floor Lease.
2.4 Bakery Lease.
2.4.1 Lessee may not exercise any option to renew the Bakery
Lease unless Lessee also exercises the option for the identical period of time
under the Test Kitchen Lease.
2.4.2 "Premises" shall mean approximately 2352 square feet of
space situated on the first floor of the building known as 93-95 Church Street,
Burlington, Vermont, together with that portion of the basement of 93-95 Church
Street that is situated directly beneath the first floor space.
2.4.3 Lessee shall pay as additional rent to Lessor 100% of the
Marketplace Fee for the building known as 93-95 Church Street, Burlington,
Vermont, as and when billed by Lessor.
2.4.4 Lessee shall pay as additional rent to Lessor 3.45% of the
Maintenance Costs (as defined in the Third Floor Lease), to the extent such
Maintenance Costs are currently charged to Lessee.
2.4.5 Lessee shall pay as additional rent to Lessor 2.95% of the
property taxes for the building known as 81-95 Church Street, Burlington,
Vermont, as and when billed by Lessor.
2.4.6 In all other respects, the Bakery Lease shall remain in
full force and effect as set forth therein.
3
<PAGE>
3. This Agreement constitutes the entire agreement between the parties
hereto and no other agreements or understandings between the parties hereto will
be effective unless in writing singed by the parties.
4. This document may be signed in counterparts each of which shall be
deemed an original, but all together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the date and year first above written.
Lessor
Howard Opera House Associates,
a Vermont limited partnership
/S/ Nordah L. Brue
-------------------------------
By: Nordah L. Brue
-------------------------------
Its General Partner
-------------------------------
Lessee
Bruegger's Corporation, a
Delaware corporation,
successor by merger to
Champlain Management Company,
a Vermont corporation
/S/ Stephen A. Finn
-------------------------------
By: Stephen A. Finn
-------------------------------
Its President
-------------------------------
4
<PAGE>
EXHIBIT A
[Drawing of Floor Plan appears here]
<PAGE>
EXHIBIT 10-AN(ii)
LEASE
THIS LEASE made as of January 28th, 1991, by and between Howard Opera House
Associates (a Vermont limited partnership) ("Lessor") whose address is P.O. Box
374, Burlington, Vermont 05402 and Champlain Management Company, (a Vermont
corporation) (Lessee") whose address is 109 South Winooski Avenue, P.O. Box
374, Burlington, Vermont 05402.
Lessor and Lessee agree as follows.
1. Definitions. The fol1owing terms shall have the following meanings for all
purposes of this Lease:
"Annual Percentage Rental means four percent (4%) of Lessee's Gross Sales
in excess of 85% of the average sales of the first two Lease years.
"Base Annual Rental" means $46,600.
"Base Monthly Rental means an amount equal to 1/12 of the applicable Base
Annual Rental.
"Franchisor" means Champlain Management Company or its successor.
"Lease Term" means the period described in Section 3.
"Lease Year" means the 12 month period commencing on the first day of the
calendar year or the first day of the first month of such other 12 month period
as may be approved in writing by Lessor after the commencement of the Lease Term
and each successive 12 month period hereafter.
"Lessee" means Champlain Management Company or its successor or assiqns.
"Lessee's Gross Sales" means all retail sales arising from Lessee's
business conducted on the Premises, less sales tax and any amounts received from
sales of non-food items approved for use in connection with promotional
campaigns, if any, approved by Franchisor and as more fully defined on Exhibit A
to this Lease.
"Lessor means Howard Opera House Associates, its successors or assigns.
Monthly Percentage Rental means either that portion of the
Howard Opera House Associates- Bakery Lease - Page 1
<PAGE>
Annual Percentage Rental payable for each month or portion thereof.
"Premises" means the real property together with all building, structures,
fixtures and improvements related to the operation of the Bruegger's Bagel
Bakery located thereon, at 93 Church Street, Burlington, Vermont.
2. Demise of Premises. In consideration of the rentals and other sums to be
paid by Lessee and of the other terms, covenants and conditions on Lessee's part
to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby
takes and hires, the Premises.
3. Lease Term. The Lease Term of approximately ten (10) years, shall commence
on the earlier of a) the store opening or b) December 31, 1990 and shall expire
on either a) ten (10) years from the store opening or b) December 30, 2000,
unless terminated sooner as provided in this Lease and as may be extended for
four (4) periods of five (5) years each as set forth in Section 24.
4. Rental and Other Payments.
a. Lessee shall pay the Base Monthly Rental each month, on or before the
first day of the month for which it is due. If the Lease Term commences other
than on the first day of a calendar month, the Base Monthly Rental shall be
prorated from the date on which the Lease Term commences to and including the
last day of said month.
b. In addition to the Base Monthly Rental, Lessee shall pay the Monthly
Percentage Rental each month after which Lessee's aggregate Annual Gross Sales
for any Lease Year exceeds the Base Annual Rental as specified in Section 1.
Monthly Percentage Rental shall be paid on or before the first (1st) day of the
month following the month for which it is due, and contemporaneous with such
payment Lessee shall furnish to Lessor a written statement satisfactory to
Lessor, which Lessee shall warrant and certify to be complete and correct,
setting forth Lessee's Gross Sales for such month.
c. Within 90 days after the end of each Lease Year, Lessee shall furnish
to Lessor a written statement setting forth the Base Monthly Rental and Monthly
Percentage Rental actually paid for the applicable Base Year, the Lessee's Gross
Sales and the Annual Percentage Rental payable for that Lease Year. To the
extent that Lessee has not paid Monthly Percentage Rental in an amount equal to
the Annual Percentage Rental due for that Lease Year, it shall pay the
deficiency at the time the annual Statement is filed. To the extent that the
total actually paid in the applicable Lease Year as Base Monthly Rental and
Monthly Percentage Rental exceeds the Base Annual Rental and Annual Percentage
Renta1, such excess shall be refunded to Lessee.
For any partial year between the commencement of the Lease Term and
Howard Opera House Associates Bakery Lease - Page 2
<PAGE>
the beginning of the Lease Year, calculation of Base Annual Rental and Annual
Percentage Rental shall be prorated on the basis of the ration of the number of
days in such partial year to 365.
5. Rental to be Net to Lessor. The Base Annual Renta1 and Annual Percentage
Rental payable hereunder shall be net to Lessor, so that this Lease shall yield
to Lessor the rentals specified during the Lease Term, and that all costs,
expenses and obligations of every kind and nature, including management fees,
whatsoever relating to the Premises and the Equipment shall be paid by Lessee.
6. Taxes and Assessments Lessee shall pay, as the same become due and prior to
delinquency, all taxes and assessments which would affect in any manner the net
return realized by Lessor under this Lease, including without limitation the
following:
a. All taxes and assessments upon the Premises or part thereof or any
personal property, the Equipment, trade fixtures or improvements located on the
Premises, whether belonging to Lessor or Lessee, which are owing at the
commencement of this Lease or shall be assessed or come due during the Lease
Term or any tax or charge levied in lieu of such taxes arid assessments;
b. All taxes, charges, license fees or similar fees imposed by reason of
the use of the Premises and the Equipment by Lessee; and
c. All excise, transaction, privilege, license, sales, use and other
taxes upon the rental or other payments hereunder, the leasehold estate of
either party or the activities of either party pursuant to this Lease, except
for any tax upon or measured by the net income and profits of Lessor generally.
Lessee may seek a refund, rebate or abatement of any tax Levied or
assessed on the Premises or the Equipment but only if arrangements for paying
such tax prior to it becoming a lien on the Premises, together with all interest
and penalties, are made to the written satisfaction of Lessor.
7. Utilities. Lessee shall contract for, in its own name, and pay when due,
all charges for connection or use of water, gas, electricity, telephone, garbage
collection, sewer use and other utility services supplied to the Premises during
the Lease Term Under no circumstances shall Lessor be responsible for any
interruption of any utility service.
8. Insurance. Lessee shall maintain at its own expense the following types
and amounts of insurance (which may be included under a blanket insurance policy
if all the other terms hereof are satisfied), in addition to such other
insurance as Lessor may reasonably require:
a. Insurance against loss, damage or destruction by fire and
Howard Opera House Associates- Bakery Lease - Page 3
<PAGE>
other casualty including theft, vandalism and malicious mischief, flood (if the
Premises are in a location designated by the Federal Secretary of Housing and
Urban Development as a flood hazard area), earthquake (if the Premises are in an
area subject to destructive earthquakes within recorded history), boiler
explosion (if there is any boiler upon the premises), sprinkler damage (if the
premises have a sprinkler system), all matters covered by a standard extended
coverage endorsement and such other risks as Lessor may reasonably require,
insuring the Premises, the equipment and all improvements thereon for not less
than 90% of their full insurable replacement cost. Any insurance policy or
policies shall designate Lessor and Lessee as the named insureds as their
interest may appear and shall be payable as set forth in Section 17.
b. Comprehensive public liability and property damage insurance,
including a products liability clause, covering Lessor and Lessee against bodily
injury liability, property damage liability and automobile bodily injury and
property damage liability, including without limitation any liability arising
out of the ownership, maintenance repair, condition or operation of the Premises
or adjoining ways, streets or sidewalks. Such insurance policy or policies
shall contain a "severability of interest" clause or endorsement which
precludes the insurer from denying the claim of either Lessee or Lessor ,
because of the negligence or other acts of the other, shall be in amounts of not
less than $1,000,000 per injury and occurrence with respect to any insured
liability, whether for personal injury or property damage, or such higher limits
as Lessor may reasonably require from time to time, and shall be of form and
substance satisfactory to Lessor.
c. Worker's compensation, employer's liability and such other insurance
as may be necessary to comply with applicable laws. All insurance policies
shall:
i) Provide for a waiver of subrogation by the insurer as to claims
against Lessor, its general and limited partners, employees and Agents;
ii) Provide that such insurance cannot be unreasonably canceled,
invalidated or suspended on account of the conduct of Lessee, its officers,
directors, employees or agents;
iii) Provide that any "no other insurance" clause in the insurance
policy shall exclude any policies of insurance maintained by Lessor and that the
insurance policy shall not be brought into contribution with insurance
maintained by Lessor;
iv) Contain a standard, "without contribution", mortgage clause
endorsement in favor of any lender designated by Lessor;
Howard Opera House Associates- Bakery Lease - Page 4
<PAGE>
v) Provide that the policy of insurance shall not be terminated,
canceled or substantially modified without at least 30 days prior written notice
to Lessor arid to any lender covered by any standard mortgage clause
endorsement;
vi) Provide that the insurer shall not have the option to restore the
Premises if Lessor elects to terminate this Lease in accordance with the terms
hereof; and
vii) Be issued by insurance companies having a rating in Best's
Insurance Guide of Class VI or better.
Lessee shall provide to Lessor and any lender designated by Lessor
certificates of insurance or copies of insurance policies evidencing that
insurance satisfying the requirements of this Lease is in effect at all times.
9. Tax and Insurance Impound. Lessor may, at any time in its sole discretion,
require Lessee to pay to Lessor sums which will provide an impound account
(which shall not be deemed a trust fund) for paying up to the next one year of
taxes, assessments and insurance premiums. If Lessor so elects, it will
estimate the amounts needed for such purposes and will notify Lessee to pay the
same to Lessor in equal monthly installments, as nearly as practicable, in
addition to all other sums due under this Lease. Should additional funds be
required at any time, Lessee shall pay the same to Lessor on demand. Lessee
shall advise Lessor of all taxes and insurance bills which are due and shall
cooperate fully with Lessor in assuring that the same are paid. Lessor may
deposit all impounded funds in accounts insured by any Federal or State agency
and may commingle such funds with other funds and accounts of Lessor. Interest
or other gains from such funds, if any, shall be the sole property of Lessor.
In the event of any default by Lessee, Lessor may apply all impounded funds
against any sums due from Lessee to Lessor Lessor shall give to Lessee an
annual accounting showing all credits and debtors to and from such impounded
funds received from Lessee.
10. Payment of Rental and other Sums. All rental and other sums which Lessee
is required to pay hereunder shall be payable in full when due without right of
setoff against any other claim against or indebtedness of Lessor. Lessee shall,
at Lessor's request, establish arrangements whereby payments of Basic Monthly
Rental can be transferred by wire or other means directly from Lessee's bank
account to such account as Lessor may designate. Any delinquent payment (that
is, any payment not made within the period specified in Section 23) shall, in
addition to any other remedy of Lessor, bear interest at the rate of 18% per
annum, but in no event shall Lessee be obligated to pay a sum of interest higher
than the maximum legal rate then in effect. Monthly Percentage Rental shall be
made coincidental with Lessee's submission of monthly reports required in
Section 4(b).
Howard Opera House Associates- Bakery Lease - Page 5
<PAGE>
11. Use. Lessee may use the Premises for any lawful purpose. Except as set
forth below, Lessee will at all times during the Lease Term diligently operate
its business on the Premises. Lessee shall not cease diligent operation of
business during the Lease Term, except Lessee may discontinue operation by: (i)
giving written notice to Lessor 180 days prior to the day Lessee ceases
operation, (ii) providing adequate protection of the Premises during any period
of vacancy and (iii) paying all costs necessary to restore the Premises to its
condition on the day operation of the business ceased at such time as the
Premises is reopened for Lessee's business operations or other substituted use.
Notwithstanding anything herein to the contrary, Lessee shall pay monthly as
Base Annual Rental and Annual Percentage Rental during any period in which
Lessee discontinues operation an amount equal to the mean average of the sum of
the Base Annual Rental and Annual Percentage Rental for the three Lease Years
immediately preceding such period.
Lessee shall not convert the Premises to an alternative use during the
Lease Term, without Lessor's prior written consent, which consent will not be
unreasonably withheld. Lessor may consider the following in determining whether
to grant its consent, without being deemed to be unreasonable: (i) whether the
rental paid to Lessor would be equal to or greater than the anticipated rental
assuming continued existing use, ii) whether the proposed rental paid to Lessor
is reasonable considering the converted use of the Premises and the customary
rental prevailing in the community for such use, (iii) whether the converted use
will be consistent with the highest and best use of the Premises, and (iv)
whether the converted use will increase Lessor's risks or decrease the residual
value of the Premises.
12. Compliance with Laws. Lessee's use and occupation of the Premises, and the
condition thereof, shall not be in violation of any applicable governmental
requirement. Lessee shall, at Lessee's sole cost and expense, comply with all
applicable directions, rules and regulations of the fire marshall, health
officers, building inspector or other proper officer of any governmental agency
having jurisdiction. Lessee will not permit any act or condition to exist in or
about the Premises which will increase any insurance rate, except when such acts
are required in the normal course of its business and Lessee shall pay for such
increase.
13. Maintenance. Lessee hereby accepts the Premises "as is", with no
representation or warranty of Lessor as to the condition thereof. Lessee shall
at all times, at its own expense, maintain, repair and replace, as necessary,
the Premises, including all portions of the Premises whether or not the Premises
were in such condition upon the commencement of this Lease.
14. Alterations. Lessee shall not commit actual or constructive waste upon the
Premises or materially alter the exterior or structural elements of the Premises
in any manner without the prior written consent
Howard Opera House Associates- Bakery Lease - Page 6
<PAGE>
of Lessor. Any work, at any time, commenced by Lessee on the Premises shall be
prosecuted diligently to completion, shall be of good workmanship and materials
and shall comply fully with all the terms of this Lease. Any addition to or
alteration of the Premises shall be deemed a part of the Premises and belong to
Lessor at the expiration of the Lease Term.
15. Indemnification. Except for negligence of Lessor, Lessee shall indemnify
and hold harmless Lessor and Lessor's general and limited partners, officers,
agents and employees, from and against any and all claims, demands, causes of
action, suits, proceedings, liabilities, damages, losses, costs and expenses,
including attorney fees caused by, incurred or resulting from its operations of
or relating in any manner to the Premises, whether relating to their original
design or construction, latent defects, alterations, maintenance, use by Lessee
or any person thereon, supervision or otherwise, or from any breach of default
under or failure to perform any term or provision of this Agreement by Lessee,
its officers, employees, agents or other persons. It is expressly understood
that Lessee's obligations under this paragraph shall survive the expiration or
earlier termination of this Lease for any reason.
16. Quiet Enjoyment. So long as Lessee shall pay rental and other sums herein
provided and shall keep and perform all of the terms, covenants and conditions
on its part herein contained, Lessor covenants, that Lessee, subject to Lessor's
rights herein, shall have the right to the peaceful and quiet occupancy of the
Premises.
17. Condemnation or Destruction.
a. In case of a taking of all or any part of the Premises or the
commencement of any proceedings or negotiations which might result in a taking,
for any public or quasi public purpose by any lawful power or authority by
exercise of the right of condemnation or eminent domain by agreement between
Lessor, Lessee and those authorized to exercise such right (Taking), Lessee will
promptly give written notice thereof to Lessor, generally describing the nature
and extent of such Taking. Lessee may prosecute, if permissible under the
appropriate law of the jurisdiction, any award, compensation or damages
resulting from a Total Taking, to which it is entitled but shall not have the
right to Lessor's ward, compensation or damages.
b. In case of a Taking of the whole of the Project, other than for
temporary use ("Total Taking"), this Lease shall terminate as of the date of
such Total Taking and all rental and other sum or sums of money and other
charges provided to be paid by Lessee shall be apportioned and paid to the date
of such Total Taking. Total Taking shall include a taking of substantially all
the premises if the remainder of the Premises is not useable and cannot be made
useable for the purposes provided herein.
Howard Opera House Associates- Bakery Lease - Page 7
<PAGE>
c. In case of temporary use of the whole or any part of the Premises by a
Taking, this Lease shall remain in full force and effect without any reduction
of rent or any other sum payable hereunder. Lessee shall be entitled to the
entire award for such taking whether paid by damages, rent or otherwise, unless
the period of occupation and use by the condemning authorities shall extend
beyond the date of expiration of this Lease, in which case the award made for
such taking shall be apportioned between Lessor arid Lessee as of the date of
such expiration. At the termination of any such use or occupation of the
Premises, Lessee will, at its own cost and expense, promptly commence and
complete the restoration of the Premises. Lessee shall not be required to make
the restoration if the term of this Lease shall expire prior to, or within one
(1) year after, the date of termination of the temporary use so taken, and in
such event Lessor shall be entitled to recover all damages and awards arising
out of the failure of the condemning authority to repay and restore the building
at the expiration of such temporary taking.
d. In the event of a Taking of less than all of the Premises other than a
temporary use (Partial Taking) or of damage or destruction to all or any part of
the Premises, all awards, compensation or damages shall be paid to Lessor and
Lessor shall have the option to terminate this Lease by notifying Lessee in
writing within 60 days after Lessee gives Lessor notice of such damage or
destruction or that title as vested in the taking authority. Lessee shall
thereupon have a period of 60 days in which to elect in writing to continue this
Lease on the terms herein provided. If Lessee does not elect to continue this
Lease or shall fail during such 60 day period to elect to continue this Lease,
then this Lease shall terminate as of the last day of the month during which
such period expired. Lessee shall then immediately vacate and surrender the
premises, all obligations of either party hereunder shall cease as of the date
of termination and Lessor may retain all such awards, compensation or damages.
If Lessor does not elect to terminate this Lease, or if Lessor so elects but
Lessee elects to continue this Lease, then this Lease shall continue on the
following terms: Rental and other sums due under this Lease shall continue
unabated, and Lessee shall promptly commence and diligently prosecute
restoration of the Premises to the same condition, as nearly as practicable, as
prior to such partial condemnation, damage or destruction as approved by Lessor
in its sole discretion. Lessor shall promptly make available in installments as
restoration progresses an amount equal to any award, compensation or damages
received by Lessor, upon written request of Lessee accompanied by evidence
reasonably satisfactory to Lessor that such amount has been paid or is due and
payable and is properly a part of such costs and that there are no mechanics or
similar liens for labor and/or materials theretofore supplied in connection with
the restoration. Lessor shall be entitled to keep any portion of such award,
compensation or damages which may be in excess of the cost of restoration, and
Lessee shall bear all additional costs, fees and
Howard Opera House Associates- Bakery Lease - Page 8
<PAGE>
expenses of such restoration in excess of the amount of the amount of any such-
award, compensation or damages.
e. Notwithstanding the foregoing, if at the time of any Taking or at any
time thereafter Lessee shall be in default under this Lease and such default
shall be continuing, Lessor is hereby authorized and empowered, in the name and
on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any
for an award on account of any Taking and to collect such award and apply the
same, after deducting all costs, fees and expenses incident to the collection
thereof, to the curing of such default and any other then existing default and
any other then existing default under this Lease.
18. Inspection. Lessor and its authorized representatives shall have the
right, upon giving reasonable notice, to enter the Premises or any part thereof
and inspect the same and make photographic or other evidence concerning Lessee's
compliance with the terms of this Lease. Lessee shall keep full, complete and
accurate books, records and accounts of all business done including any sales or
other tax reports that Lessee may be required to furnish to any governmental
agency at or from the Premises sufficient to permit Lessor to verify all
statements, certificates and accountings delivered to Lessor. Should any audit
by Lessor reveal that any statement or account rendered by Lessee was in error
by 10% or more, then in addition to any other remedy of Lessor, Lessee shall
reimburse the cost of such audit to Lessor upon demand.
Lessee hereby consents to Lessor's providing information it obtains to
Franchisor and to Lessor's obtaining from Franchisor information which
Franchisor receives relating to Lessee's operation of its business in the
Premises.
19. Franchisor Requirements. Lessee, in its use, occupancy and maintenance of
the Premises shall comply with all requirements of its license agreement with
Franchisor.
20. Default and Remedies;
a. Each of the following shall be deemed a breach of this Lease and a
default by Lessee:
i) If any material representation or warranty of Lessee herein or
as Seller in the Purchase Agreement was false when made, or in the event that
any such representation or warranty is continuing and becomes false at any time,
or if Lessee renders any false statement or account;
ii) If any rent of or other monetary sums due remain unpaid for five
(5) days after written notice thereof to Lessee;
iii) If Lessee becomes insolvent, performs any act of
Howard Opera House Associates- Bakery Lease - Page 9
<PAGE>
bankruptcy or is not generally paying its debts as the same become due;
iv) If Lessee fails to perform any of the covenants, conditions or
obligations of this Lease; or
v) If there is a breach or default under the Purchase Agreement,
under any license or franchise permitting Lessee or Guarantors to operate the
Premises in the manner authorized or if such license or franchise otherwise
terminates or expires, under any guarantee of Lessee's obligations under this
Lease or under any other agreement between Lessor and Lessee.
b. If any such breach or default does not involve the payment of any
rental or other monetary sum, is not willful or intentional, does not place any
rights or property of Lessor in immediate jeopardy, is not known to Lessee
(unless Lessor has given Lessee notice thereof) and is within the reasonable
power of Lessee to cure within 30 days after receipt of notice thereof, all as
determined by Lessor in its reasonable discretion, then such event shall not
constitute a default hereunder, unless otherwise expressly provided herein,
unless and until Lessor shall have given Lessee notice thereof and a period of
30 days shall have elapsed, during which period Lessee may correct or cure such
event, upon failure of which a default shall be deemed to have occurred
hereunder without further notice or demand of any kind. If such breach or
default cannot reasonably be cured with the 30 day period, as determined by
Lessor in its reasonable discretion, and Lessee is diligently pursuing a cure of
such breach or default, then Lessee shall, after receiving notice specified
herein, have a reasonable period to cure such breach or default.
c. In the event of any breach or default, and without any notice, except,
if applicable, the notice prior to default required under certain circumstances
by Paragraph b above or such other notice as may be required by law and cannot
be waived by Lessee (all other notices being hereby waived), Lessor shall be
entitled to exercise, at its option, concurrently, successively or in any
combination, all remedies available at law or in equity, including without
limitation any one or ore of the following:
i) To terminate this Lease;
ii) To reenter and take possession-of the Premises or any art
thereof (which reentry shall not operate to terminate this Lease unless Lessor
expressly so elects), of any or all personal property or fixtures of Lessee upon
the Premises, the Equipment and of all franchises, licenses, permits and other
rights or privileges of Lessee pertaining to the use and operation of the
Premises and to conduct business thereon in the name of Lessor or of Lessee but
for the sole profit and benefit of Lessor and without compensation to Lessee;
Howard Opera House Associates- Bakery Lease - Page 10
<PAGE>
iii) To seize all personal property, the Equipment or fixtures upon
the Premises which Lessee owns or in which it has an interest, in which Lessor
shall have a landlord's lien and is hereby granted a security interest, and to
dispose thereof in accordance with laws prevailing at the time and place of
such seizure or to remove all or any portion of such property and cause the same
to be stored in a public warehouse or elsewhere at the cost of Lessee:
iv) To relet the Premises or any part thereof for such term or terms
(including a term which extends beyond the original term of his Lease, at such
rentals and upon such other terms as Lessor, in its sole discretion, may
determine, with all proceeds received from such reletting being applied to the
rentals and other sums due from Lessee in such order as Lessor may, in its sole
discretion, determine, with Lessee remaining liable for deficiency;
v) To recover from Lessee an amount equal to the difference between
the rentals and such other sums (including all sums required to be paid by
Lessee, such as taxes and insurance) to be received from the date of such breach
to the expiration of the original term hereof and the reasonable long term
rental value of the Premises for the same period; and/or
vi) To recover from Lessee all expenses, including attorney fees,
reasonably paid or incurred by Lessor as a result of such breach.
In addition, in the event of any breach or default by Lessee, Lessor may,
but shall not be obligated to, immediately or at any time thereafter, and
without notice, except as required herein, correct such breach or default
without, however, curing the same for the account and at the expense of the
Lessee. Any sum or sums so paid by Lessor, together with interest at the then
existing maximum legal rate, but not higher than 18% per annum, and all costs
and damages, shall be deemed to be additional rent hereunder and shall be
immediately due from Lessee to Lessor.
21. Mortgage and Subordination. Lessor's interest in this Lease, the Equipment
or the Premises shall not be subordinate to any encumbrances placed upon the
Premises by or resulting from any act of Lessee, and nothing herein contained
shall be construed to require such subordination by Lessor. Lessee shall keep
the Premises free from any liens for work performed, materials furnished or
obligations incurred by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT
AUTHORIZED TO PLACE ANY LIEN, MORTGAGE, DEED OF TRUST OR ENCUMBRANCE OF ANY KIND
UPON ALL OR ANY PART OF THE PREMISES AND THE EQUIPMENT OF LESSEE'S LEASEHOLD
INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION SHALL BE VOID.
This Lease at all time shall be subordinated to the lien or any ground
leases, mortgage, mortgages, trust deed or trust deeds now or hereafter placed
upon the Premises by Lessor, and Lessee covenants and
Howard Opera House Associates- Bakery Lease - Page 11
<PAGE>
agrees to execute and deliver, upon demand, such further instruments
subordinating this Lease to the lien of any such ground lease, mortgage,
mortgages, trust deed or trust deeds as shall be desired by Lessor, or any
mortgagees or proposed mortgagees or trustees under trust deeds, upon the
condition that Lessee shall have the right to remain in possession of the
Premises under the terms of this Lease, notwithstanding any default in any such
mortgage, mortgages, trust deed or trust deeds, or after foreclosure thereof so
long as Lessee is not in default under any of the covenants, conditions and
agreements contained in this Lease.
If any mortgagee or trustee elects to have this Lease and the interest of
Lessee hereunder be superior to any such interest or right and evidences such
election by notice given to Lessee, then this Lease and the interest of Lessee
hereunder shall be deemed superior to any such mortgage or trust deed, whether
this Lease was executed before or after such mortgage or trust deed and in that
event such mortgagee or trustee shall have the same rights with respect to this
Lease as if it had been executed and delivered prior to the execution and
delivery of the mortgage or trust deed and has been assigned to such mortgagee
or trustee.
Lessee shall execute and deliver whatever instruments may be required for
such purposes, and in the event Lessee fails so to do within 10 days after
demand in writing, Lessee does hereby make, constitute and irrevocably appoint
Lessor's agent as its attorney-in-fact and in its name, place and stead so to
do.
Lessee shall give written notice to any mortgage lender having a recorded
security instrument upon the Premises or any part thereof of any breach or
default by Lessor of any of its obligations under this Lease and to give such
mortgage lender at least 60 days beyond any notice period to which Lessor might
be entitled to cure such default before Lessee may exercise any remedy with
respect thereto. Lessee shall provide Lessee's most recent audited financial
statements upon request to Lessor or any mortgage lender and to certify the
continuing accuracy of such financial statements in such manner as Lessor or
such mortgage lender may request.
22. Estoppel Certificate At any time, and from time to time, Lessee agrees,
promptly and in no event later than ten (10) days after a request in writing
from Lessor, to execute, acknowledge and deliver to Lessor a statement in
writing certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications) and the dates to which the rental and
other charges have been paid.
23. Assignment. Lessor shall have the right to sell or convey the Premises
subject to this Lease or to assign its right, title and
Howard Opera House Associates- Bakery Lease - Page 12
<PAGE>
interest as Lessor under this Lease in whole or in part. In the event of any
such sale or assignment other than a security assignment, Lessor shall be
relieved, from and after the date of such transfer or conveyance, of liability
for the performance of any obligation of Lessor contained herein, except for
obligations or liabilities accrued prior to such assignment or sale.
Lessee acknowledges that Lessor has been induced to enter into this Lease
in anticipation of receiving substantial percentage rentals from Lessee's
contemplated use of the Premises and that Lessor has relied both on the business
experience and credit worthiness of Lessee and upon the particular purposes for
which Lessee intends to sue the Premises. Lessee shall not assign this Lease or
any interest therein, or sublet a11 or any part of the Premises, which were
originally intended for Bagel Bakery occupation, without the prior written
consent of Lessor which consent shall not be unreasonably withheld. Lessor may
withhold or condition such consent upon such matters as Lessor may in its sole
discretion determine, including without limitation the experience and
creditworthiness of the assignee, the assumption by the assignee of all Lessee's
obligations hereunder by undertakings enforceable by Lessor, the transfer to
such assignee of all necessary licenses and franchises to continue operating the
Premises for the purposes herein provided, receipt of such representations and
warranties from such assignee as Lessor may request, including such matters as
its organization, existence, good standing and finances and other matters,
whether or not similar in kind. No such assignment or subletting shall relieve
the original Lessee, any prior assignee or any guarantor of their obligations
respecting this Lease. Lessor hereby consent to any assignment of Lessee's
interest under this Lease to Franchisor.
24. Option to Renew. Lessee, provided it is not in default hereunder at the
time of exercise or at the expiration of the Lease Term or, if applicable, the
first extension of the Lease Term and provided that the franchise or license
agreement with Franchisor is extended for a period of not less than the
applicable renewal period, shall have the option to continue this Lease in
effect for four (4) additional periods of five (5) years each in accordance with
its original terms and provisions except for the following:
i) in the event the annual fair market rental value of the Premises
to be determined as set forth below is greater than the Base Annual Rental then
the annual fair market value of the Premises shall be substituted for the Base
Annual Rental and all other provisions shall remain the same; and
ii) in the event the annual fair market rental value of the Premises
is less than the Base Annual Rental the provisions of this Lease shall remain
the same.
Lessee shall exercise such renewal option by giving written notice
Howard Opera House Associates- Bakery Lease - Page 13
<PAGE>
to Lessor of its intention to do so not more than 270 days nor less than 2l0
days prior to the expiration of the Lease Term or the first, second, or third
extension of the Lease Term and upon receipt of such notice Lessor shall within
90 days, at Lessee's expense, cause an appraisal of the fair market rental value
of the Premises to be made by an independent appraiser. If within 20 days after
being notified of the result of such appraisal Lessee elects to reject that
appraisal then Lessor shall nominate to Lessee a list of not less than three (3)
independent appraisers who are experienced with appraising property similar to
the Premises and are familiar with the geographical region where the Premises
are located, and Lessee shall select one such appraiser. Within 60 days an
appraisal shall then be made of the Premises by that appraiser and within 20
days after the results of that appraisal shall have been delivered to Lessee,
Lessee shall notify Lessor in writing of its election to exercise this option to
renew this lease and shall pay the rental so established above which shall be
absolutely net to Lessor as provided in Section 6 hereof. If such notice of
exercise is not received by Lessor within the 20 day period then this Lease
shall terminate on the last day of the Lease Term or, if applicable, the last
day of the first renewal term.
25. Notices. All notices, demands, requests, consents, approvals or other
instruments required or permitted to be given by either party pursuant to this
Lease shall be in writing and shall be deemed to have been properly given if
sent by registered or certified mail, postage prepaid, to the parties at the
addresses set forth in the first paragraph hereof or to such other address as
either party may give notice pursuant to this Section from time to time. All
notices shall be deemed received when delivered but in no event later than five
(5) days after they are deposited with the United States Postal Service,
whichever shall first occur.
26. Holding Over. If Lessee remains in possession of the Premises after the
expiration of the term hereof, Lessee maybe deemed a tenant on a month-to-month
basis and shall continue to pay rentals and other sums in the amount herein
provided and to comply with all the terms of this Lease; provided that nothing
herein nor the acceptance of rent by Lessor shall be deemed a consent to such
holding over.
27. Landlord's Lien. Lessor shall have a landlord's lien upon all furnishings,
fixtures, equipment, decoration, supplies, accessories and other personal
property which Lessee owns or in which it has an interest located on the
Premises to secure the payment of all rental and other sums due hereunder and
the performance of all other obligations of Lessee under this Lease.
28. Removal of Lessee's Property. At the expiration of the term of this Lease,
and if Lessee is not then in breach hereof, Lessee may remove from the Premises
all personal property belonging to Lessee. Lessee shall repair any damage
caused by such removal and shall leave the
Howard Opera House Associates- Bakery Lease - Page 14
<PAGE>
Premises broom clean and in good condition and repair inside and out.
29. Financial Statements. Within the 45 days after the end of each fiscal
quarter or after any 3 four week periods, and within 120 days after the end of
each fiscal year of Lessee, Lessee shall deliver to Lessor (1) complete
financial statements of Lessee including a balance sheet, profit and loss
statement, statement of changes in cash and all other related schedules for the
fiscal period then ended; and (2) income statements for the business at the
Premises showing gross sales, profits and losses for the fiscal period then
ended. All such financial statements shall be prepared in accordance with
generally accepted accounting principles, consistently applied from period to
period, and shall be certified to be accurate and complete by Lessee (or the
Treasurer or other appropriate officer of Lessee). In the event that Lessee's
property and business at the Premises is ordinarily consolidated with other
business for financial statement purposes, such financial statements shall be
prepared on a consolidated basis showing separately the sales, profits and
losses, assets and liabilities pertaining to the Premises with the basis for
allocation of overhead of other charges being clearly set forth. The financial
statements delivered to Lessor need not be audited, but Lessee shall deliver to
Lessor copies of any audited financial statements of Lessee which may be
prepared, as soon as they are available.
30. Lessor's Liability. Notwithstanding anything to the contrary provided in
this Lease, it is specifically understood and agreed, such Agreement being a
primary consideration for the execution of this Lease by Lessor, that there
shall be absolutely no personal liability on the part of Lessor or any partner
of Lessor, its successors or assigns with respect to any of the terms, covenants
and conditions of this Lease and that Lessee shall look solely to the assets of
Lessor for the satisfaction of each and every remedy of Lessee in the event of
any breach by Lessor of any of the terms, covenants and conditions of this Lease
to be performed by Lessor, such exculpation of liability to be absolute and
without any exception whatsoever.
31. Consent of Lessor. Lessor shall have no liability for damages resulting
from Lessor's failure to give any consent, approval or instruction reserved to
Lessor, Lessee's sole remedy in any such event being an action for injunctive
relief.
32. Waiver and Amendment. No provision of this Lease shall be deemed waived or
amended except by a written instrument unambiguously setting forth the matter
waived or amended and signed by the party against which enforcement of such
waiver or amendment is sought. Waiver of any matter shall not be deemed a
waiver of the same or any other matter on any future occasion.
33. Joint Venture. Neither the provision set forth herein for the computation
of Annual Percentage Rental, nor any one or more agreements
Howard Opera House Associates- Bakery Lease - Page 15
<PAGE>
contained herein, is intended, nor shall the same be deemed or construed, to
create a partnership between Lessor and Lessee, to make them joint venturers,
nor to make Lessor in any way responsible for the debts or losses of Lessee.
34. Captions. Captions are used throughout this Lease for convenience of
reference only and shall not be considered in any manner in the construction or
interpretation hereof.
35. Severability. The provisions of this Lease shall be deemed severable. If
any part of this Lease shall be held unenforceable by any court of competent
jurisdiction, the remainder shall remain in full force and effect, and such
unenforceable provision shall be reformed by such court so as to give maximum
legal effect to the intention of the parties as expressed therein.
36. Construction Generally. This is a long-term commercial lease between
entrepreneurs which has been entered into by both parties in reliance upon the
economic and legal bargains contained herein. This Lease shall be interpreted
and construed in a fair and impartial manner without regard to such factors as
the party which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party
37. Other Documents. Each of the parties agrees to sign such other and further
documents as may be appropriate to carry out the intentions expressed in this
Lease. The parties shall execute and record a Memorandum of Lease and Option
evidencing this Lease and Lessee's purchase option contained herein.
38. Attorney Fees. In the event of any judicial or other adversarial
proceeding between the parties concerning this Lease, to the extent permitted by
law, the prevailing party shall be entitled to recover all of its reasonable
attorney fees and other costs in addition to any other relief to which it may be
entitled.
39. Entire Agreement. This Lease, and any other instruments or agreement
referred to herein, constitute the entire agreement between the parties with
respect to the subject matter hereof, and there are no other representations,
warranties or agreement except as herein provided.
40. Counterparts. This Lease may be executed in one or more counterparts, each
of which shall be deemed an original.
Howard Opera House Associates- Bakery Lease - Page 16
<PAGE>
IN WITNE5S WHEREOF, Lessor and Lessee have entered into this Lease as of
the date first above written.
LESSOR:
/s/ Rose J. Bacon HOWARD OPERA HOUSE ASSOCIATES
- --------------------------------
/s/ Stephen H. Kramer By: /s/ Michael J. Dressell
- -------------------------------- ------------------------------------
Michael J. Dressell, General Partner
/s/ Rose J. Bacon
- --------------------------------
LESSEE:
CHAMPLAIN MANAGEMENT COMPANY
/s/ Dorothy A. Haskins
- --------------------------------
By: /s/ Steven P. Schonberg
------------------------------------
Steven P. Schonberg, Chief Financial
Officer and Duly Authorized Agent
STATE OF VERMONT )
)
COUNTY OF CHITTENDEN )
The foregoing instrument was acknowledged before me on this 28th day of
January, 1991 by Michael J Dressell, general partner of Howard Opera House
Associates.
/s/ Rose J. Bacon
----------------------------------------
Notary Public
My Commission Expires: 2/10/91
STATE OF VERMONT )
)
COUNTY OF CHITTENDEN )
The foregoing instrument was acknowledged before me on this 28th day of
January, 1991 by Steven P. Schonberg, Chief Financial Officer and Duly
Authorized Agent of Champlain Management Company.
/s/ Rose J. Bacon
----------------------------------------
Notary Public
My Commission Expires: 2/10/91
Howard Opera House Associates- Bakery Lease - Page 17
<PAGE>
SHORT FORM LEASE AGREEMENT
This Short Form Lease-Agreement made as of this 11th day of March, l99l,
between Howard Opera House Associates, a Vermont limited partnership, of
Burlington, Vermont, (hereinafter referred to as "LANDLORD") and Champlain
Management Company, a Vermont corporation, of Burlington, Vermont, (hereinafter
referred to as "TENANT").
WHEREAS, the parties executed a lease as of January 28, 1991 ("Lease") that
relates to the premises described herein;
WHEREAS, the parties desire to set forth a Short Form Lease the purpose of
recording the same in the Land Records of the City of Burlington.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the parties agree as follows:
1. Description of Premises.
The LANDLORD hereby leases to the TENANT and the TENANT hereby leases from
the LANDLORD the following described premises:
The real property together with all building, structures, fixtures and
improvements related to the operation of the Bruegger's Bagel Bakery
located thereon, at 93 Church Street, Burlington, Vermont.
2. Commencement and Term.
Said Lease is for a term of ten (10) years commencing on the earlier of a)
the store opening or b) December 31, 1990 and expiring either a) ten (10) years
after the store opening, or b) December 30, 2000, unless terminated sooner as
provided in the Lease. TENANT may extend the term for four (4) periods of five
<PAGE>
(5) years each as set forth in Section 24 of the Lease.
3. Complete Lease.
A more complete lease is in the possession of both LANDLORD and TENANT. It
is understood that this Short Form Lease shall be recorded in the City of
Burlington Land Records.
4. No Modification.
In the event conflicts exist between the terms of this Agreement and the
terms of the Lease, the terms of the Lease shall control.
Dated at Burlington, Vermont, this 11th day of March, 1991.
LANDLORD:
/s/ Sherry L. Moser By: /s/ Nordahl L. Brue
- -------------------------------- ------------------------------------
Witness Howard Opera House Associates,
General Partner
/s/ David T. Austin
- --------------------------------
Witness
TENANT
/s/ Rose J. Bacon By: /s/ Stephen P. Schonberg
- -------------------------------- ------------------------------------
Witness Champlain Management Company,
Duly Authorized Agent
/s/ Denise M. Longchamp
- --------------------------------
Witness
STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Burlington, this 11th day of March, 1991, personally appeared Nordahl L.
Brue and he/she acknowledged this instrument, by him/her sealed and subscribed,
to be his/her free act and deed of Howard Opera House Associates.
Before me, /s/ David T. Austin
----------------------------------
Notary Public
<PAGE>
Exhibit 10-AN(iii)
LEASE
THIS LEASE made as of January 28th, 1991, by and between Howard Opera House
Associates (a Vermont limited partnership) ("Lessor") whose address is P.O. Box
374, Burlington, Vermont 05402 and Champlain Management Company, (a Vermont
corporation) ("Lessee") whose address is 109 South Winooski Avenue, P.O. Box
374, Burlington, Vermont 05402.
Lessor and Lessee agree as follows:
1. Definitions. The following terms shall have the following meanings for all
purposes of this Lease:
"Base Annual Rental" means $16,044.
"Base Monthly Rental" means an amount equal to 1/12 of the applicable Base
Annual Rental.
"Franchisor" means Champlain Management Company or its successor.
"Lease Term" means the period described in Section 3.
"Lease Year" means the 12 month period commencing on the first day of the
calendar year or the first day of the first month of such other 12 month period
as may be approved in writing by Lessor after the commencement of the Lease Term
and each successive 12 month period thereafter.
"Lessee" means Champlain Management Company or its successor or assigns.
"Lessor" means Howard Opera House Associates, its successors or assigns.
"Premises" means the real property together with all building, structures,
fixtures and improvements related to the operation of the test kitchen located
on the second floor at 93 Church Street, Burlington, Vermont.
2. Demise of Premises. In consideration of the rentals and other sums to be
paid by Lessee and of the other terms, covenants and conditions on Lessee's part
to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby
takes and hires, the Premises.
3. Lease Term. The Lease Term of approximately ten (10) years, shall
Howard Opera House Associates- Test Kitchen Lease - Page 1
<PAGE>
commence on the earlier of a) the store opening or b) December 31, 1990 and
shall expire on either a) ten (10) years from the store opening or b) December
30, 2000, unless terminated sooner as provided in this Lease and as may be
extended for four (4) periods of five (5) years each as set forth in Section 24.
4. Rental and Other Payments.
a. Lessee shall pay the Base Monthly Rental each month, on or before the
first day of the month for which it is due. If the Lease Term commences other
than on the first day of a calendar month, the Base Monthly Rental shall be
prorated from the date on which the Lease Term commences to and including the
last day of said month.
For any partial year between the commencement of the Lease Term and the
beginning of the Lease Year, calculation of Base Annual Rental shall be prorated
on the basis of the ration of the number of days in such partial year to 365.
5. Rental to be Net to Lessor. The Base Annual Rental payable hereunder shall
be net to Lessor, so that this Lease shall yield to Lessor the rentals specified
during the Lease Term, and that all costs, expenses and obligations of every
kind and nature, including management fees, whatsoever relating to the Premises
and the Equipment shall be paid by Lessee.
6. Taxes and Assessments. Lessee shall pay, as the same become due and prior
to delinquency, all taxes and assessments which would affect in any manner the
net return realized by Lessor under this Lease, including without limitation the
following:
a. All taxes and assessments upon the Premises or part thereof or any
personal property, the Equipment, trade fixtures or improvements located on the
Premises, whether belonging to Lessor or Lessee, which are owing at the
commencement of this Lease or shall be assessed or come due during the Lease
Term or any tax or charge levied in lieu of such taxes and assessments;
b. All taxes, charges, license fees or similar fees imposed by reason of
the use of the Premises and the Equipment by Lessee; and
c. All excise, transaction, privilege, license, sales, use and other
taxes upon the rental or other payments hereunder, the leasehold estate of
either party or the activities of either party pursuant to this Lease, except
for any tax upon or measured by the net income and profits of Lessor generally.
Lessee may seek a refund, rebate or abatement of any tax levied or
assessed on the Premises or the Equipment but only if arrangements for paying
such tax prior to it becoming a lien on the
Howard Opera House Associates- Test Kitchen Lease - Page 2
<PAGE>
Premises, together with all interest and penalties, are made to the written
satisfaction of Lessor.
7. Utilities. Lessee shall contract for, in its own name, and pay when due,
all charges for connection or use of water, gas, electricity, telephone, garbage
collection, sewer use and other utility services supplied to the Premises during
the Lease Term. Under no circumstances shall Lessor be responsible for any
interruption of any utility service.
8. Insurance. Lessee shall maintain at its own expense the following types
and amounts of insurance (which may be included under a blanket insurance policy
if all the other terms hereof are satisfied), in addition to such other
insurance as Lessor may reasonably require:
a. Insurance against loss, damage or destruction by fire and other
casualty, including theft, vandalism and malicious mischief, flood (if the
Premises are in a location designated by the Federal Secretary of Housing and
Urban Development as a flood hazard area), earthquake (if the Premises are in an
area subject to destructive earthquakes within recorded history), boiler
explosion (if there is any boiler upon the premises), sprinkler damage (if the
premises have a sprinkler system), all matters covered by a standard extended
coverage endorsement and such other risks as Lessor may reasonably require,
insuring the Premises, the Equipment and all improvements thereon for not less
than 90% of their full insurable replacement cost. Any insurance policy or
policies shall designate Lessor and Lessee as the named insureds as their
interest may appear and shall be payable as set forth in Section 17.
b. Comprehensive public liability and property damage insurance,
including a products liability clause, covering Lessor and Lessee against bodily
injury liability, property damage liability and automobile bodily injury and
property damage liability, including without limitation any liability arising
out of the ownership, maintenance repair, condition or operation of the Premises
or adjoining ways, streets or sidewalks. Such insurance policy or policies shall
contain a "severability of interest" clause or endorsement which precludes the
insurer from denying the claim of either Lessee or Lessor because of the
negligence or other acts of the other, shall be in amounts of not less than
$1,000,000 per injury and occurrence with respect to any insured liability,
whether for personal injury or property damage, or such higher limits as Lessor
may reasonably require from time to time, and shall be of form and substance
satisfactory to Lessor.
c. Worker's compensation, employer's liability and such other insurance
as may be necessary to comply with applicable laws. All insurance policies
shall:
i) Provide for a waiver of subrogation by the insurer as to
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claims against Lessor, its general and limited partners, employees and agents;
ii) Provide that such insurance cannot be unreasonably cancelled,
invalidated or suspended on account of the conduct of Lessee, its officers,
directors, employees or agents;
iii) Provide that any "no other insurance" clause in the insurance
policy shall exclude any policies of insurance maintained by Lessor and that the
insurance policy shall not be brought into contribution with insurance
maintained by Lessor;
iv) Contain a standard1 "without contribution", mortgage clause
endorsement in favor of any lender designated by Lessor;
v) Provide that the policy of insurance shall not be terminated,
cancelled or substantially modified without at least 30 days prior written
notice to Lessor and to any lender covered by any standard mortgage clause
endorsement;
vi) Provide that the insurer shall not have the option to restore the
Premises if Lessor elects to terminate this Lease in accordance with the terms
hereof; and
vii) Be issued by insurance companies having a rating in Best's
Insurance Guide of Class VI or better.
Lessee shall provide to Lessor and any lender designated by Lessor
certificates of insurance or copies of insurance policies evidencing that
insurance satisfying the requirements of this Lease is in effect at all times.
9. Tax and Insurance Impound. Lessor may, at any time in its sole discretion,
require Lessee to pay to Lessor sums which will provide an impound account
(which shall not be deemed a trust fund) for paying up to the next one year of
taxes, assessments and insurance premiums. If Lessor so elects, it will estimate
the amounts needed for such purposes and will notify Lessee to pay the same to
Lessor in equal monthly installments, as nearly as practicable, in addition to
all other sums due under this Lease. Should additional funds be required at any
time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor
of all taxes and insurance bills which are due and shall cooperate fully with
Lessor in assuring that the same are paid. Lessor may deposit all impounded
funds in accounts insured by any Federal or State agency and may commingle such
funds with other funds and accounts of Lessor. Interest or other gains from such
funds, if any, shall be the sole property of Lessor. In the event of any default
by Lessee, Lessor may apply all impounded funds against any sums due from Lessee
to Lessor. Lessor shall give to Lessee an annual accounting showing all credits
and debtors to and from such impounded funds received from
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Lessee.
10. Payment of Rental and Other Sums. All rental and other sums which Lessee
is required to pay hereunder shall be payable in fu1l when due without right of
setoff against any other claim against or indebtedness of Lessor. Lessee shall,
at Lessor's request, establish arrangements whereby payments of Basic Monthly
Rental can be transferred by wire or other means directly from Lessee's bank
account to such account as Lessor may designate. Any delinquent payment (that
is, any payment not made within the period specified in Section 23) shall, in
addition to any other remedy of Lessor, bear interest at the rate of 18% per
annum, but in no event shall Lessee be obligated to pay a sum of interest higher
than the maximum legal rate then in effect. Monthly Percentage Rental shall be
made coincidental with Lessee's submission of monthly reports required in
Section 4(b).
11. Use. Lessee may use the Premises for any lawful purpose. Except as set
forth below, Lessee will at all times during the Lease Term diligently operate
its business on the Premises. Lessee shall not cease diligent operation of
business during the Lease Term, except Lessee may discontinue operation by: (i)
giving written notice to Lessor 180 days prior to the day Lessee ceases
operation, (ii) providing adequate protection of the Premises during any period
of vacancy and (iii) paying all costs necessary to restore the Premises to its
condition on the day operation of the business ceased at such time as the
Premises is reopened for Lessee's business operations or other substituted use.
Notwithstanding anything herein to the contrary, Lessee shall pay monthly as
Base Annual Rental during any period in which Lessee discontinues operation an
amount equal to the mean average of the sum of the Base Annual Rental for the
three Lease Years immediately preceding such period.
Lessee shall not convert the Premises to an alternative use during the
Lease Term, without Lessor's prior written consent, which consent will not be
unreasonably withheld. Lessor may consider the following determining whether to
grant its consent, without being deemed to be unreasonable: (i) whether the
rental paid to Lessor would be equal to greater than the anticipated rental
assuming continued existing use, (ii) whether the proposed rental paid to Lessor
is reasonable considering the converted use of the Premises and the customary
rental prevailing in the community for such use, (iii) whether the converted use
will be consistent with the highest and best use of the Premises, and (iv)
whether the converted use will increase Lessor's risks or decrease the residual
value of the Premises.
12. Compliance with Laws. Lessee's use and occupation of the Premises, and the
condition thereof, shall not be in violation of any applicable governmental
requirement. Lessee shall, at Lessee's sole cost and expense, comply with all
applicable directions, rules and regulations of the fire marshall, health
officers, building inspector or other proper
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officer of any governmental agency having jurisdiction. Lessee will not permit
any act or condition to exist in or about the Premises which will increase any
insurance rate, except when such acts are required in the normal course of its
business and Lessee shall pay for such increase.
13. Maintenance. Lessee hereby accepts the Premises "as is", with no
representation or warranty of Lessor as to the condition thereof. Lessee shall
at all times, at its own expense, maintain, repair and replace, as necessary,
the Premises, including all portions of the Premises whether or not the Premises
were in such condition upon the commencement of this Lease.
14. Alterations. Lessee shall not commit actual or constructive waste upon the
Premises or materially alter the exterior or structural elements of the Premises
in any manner without the prior written consent of Lessor. Any work, at any
time, commenced by Lessee on the Premises shall be prosecuted diligently to
completion, shall be of good workmanship and materials and shall comply fully
with all the terms of this Lease. Any addition to or alteration of the Premises
shall be deemed a part of the Premises and belong to Lessor at the expiration of
the Lease Term.
15. Indemnification. Except for negligence of Lessor, Lessee shall indemnify
and hold harmless Lessor and Lessor's general and limited partners, officers,
agents and employees, from and against any and all claims, demands, causes of
action, suits, proceedings, liabilities, damages, losses, costs and expenses,
including attorney fees, caused by, incurred or resulting from its operations of
or relating in any manner to the Premises, whether relating to their original
design or construction, latent defects, alterations, maintenance, use by Lessee
or any person thereon, supervision or otherwise, or from any breach of, default
under or failure to perform any term or provision of this Agreement by Lessee,
its officers, employees, agents or other persons. It is expressly understood
that Lessee's obligations under this paragraph shall survive the expiration or
earlier termination of this Lease for any reason.
16. Quiet Enjoyment. So long as Lessee shall pay rental and other sums herein
provided and shall keep and perform all of the terms, covenants and conditions
on its part herein contained, Lessor covenants that Lessee, subject to Lessor's
rights herein, shall have the right to the peaceful and quiet occupancy of the
Premises.
17. Condemnation or Destruction.
a. In case of a taking of all or any part of the Premises or the
commencement of any proceedings or negotiations which might result in a taking,
for any public or quasi public purpose by any lawful power or authority by
exercise of the right of condemnation or eminent domain by agreement between
Lessor, Lessee and those authorized to exercise such
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right ("Taking"), Lessee will promptly give written notice thereof to Lessor,
generally describing the nature and extent of such Taking. Lessee may prosecute,
if permissible under the appropriate law of the jurisdiction, any award,
compensation or damages resulting from a Total Taking, to which it is entitled
but shall not have the right to Lessor's award, compensation or damages.
b. In case of a Taking of the whole of the Project, other than for
temporary use ("Total Taking"), this Lease shall terminate as of the date of
such Total Taking and all rental and other sum or sums of money and other
charges provided to be paid by Lessee shall be apportioned and paid to the date
of such Total Taking. Total Taking shall include a taking of substantially all
the Premises if the remainder of the Premises is not useable and cannot be made
useable for the purposes provided herein.
c. In case of temporary use of the whole or any part of the Premises by a
Taking, this Lease shall remain in full force and effect without any reduction
of rent or any other sum payable hereunder. Lessee shall be entitled to the
entire award for such taking, whether paid by damages, rent or otherwise, unless
the period of occupation and use by the condemning authorities shall extend
beyond the date of expiration of this Lease, in which case the award made for
such taking shall be apportioned between Lessor and Lessee as of the date of
such expiration. At the termination of any such use or occupation of the
Premises, Lessee will, at its own cost and expense, promptly commence and
complete the restoration of the Premises. Lessee shall not be required to make
the restoration if the term of this Lease shall expire prior to, or within one
(1) year after, the date of termination of the temporary use so taken, and in
such event Lessor shall be entitled to recover all damages and awards arising
out of the failure of the condemning authority to repay and restore the building
at the expiration of such temporary taking.
d. In the event of a Taking of less than all of the Premises other than a
temporary use ("Partial Taking") or of damage or destruction to all or any part
of the Premises, all awards, compensation or damages shall be paid to Lessor and
Lessor shall have the option to terminate this Lease by notifying Lessee in
writing within 60 days after Lessee gives Lessor notice of such damage or
destruction or that title has vested in the taking authority. Lessee shall
thereupon have a period of 60 days in which to elect in writing to continue this
Lease on the terms herein provided. If Lessee does not elect to continue this
Lease or shall fail during such 60 day period to elect to continue this Lease,
then this Lease shall terminate as of the last day of the month during which
such period expired. Lessee shall then immediately vacate and surrender the
Premises, all obligations of either party hereunder shall cease as of the date
of termination and Lessor may retain all such awards, compensation or damages.
If Lessor does not elect to terminate this Lease, or if Lessor so elects but
Lessee elects to continue this
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Lease, then this Lease shall continue on the following terms: Rental and other
sums due under this Lease shall continue unabated, and Lessee shall promptly
commence and diligently prosecute restoration of the Premises to the same
condition, as nearly as practicable; as prior to such partial condemnation,
damage or destruction as approved by Lessor in its sole discretion. Lessor
shall promptly make available in installments as restoration progresses an
amount equal to any award, compensation or damages received by Lessor, upon
written request of Lessee accompanied by evidence reasonably satisfactory to
Lessor that such amount has been paid or is due and payable and is properly a
part of such costs and that there are no mechanics or similar liens for labor
and/or materials theretofore supplied in connection with the restoration.
Lessor shall be entitled to keep any portion of such award, compensation or
damages which may be in excess of the cost of restoration, and Lessee shall bear
all additional costs, fees and expenses of such restoration in excess of the
amount of the amount of any such award, compensation or damages.
e. Notwithstanding the foregoing, if at the time of any Taking or at any
time thereafter Lessee shall be in default under this Lease and such default
shall be continuing, Lessor is hereby authorized and empowered, in the name and
on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any,
for an award on account of any Taking and to collect such award and apply the
same, after deducting all costs, fees and expenses incident to the collection
thereof, to the curing of such default and any other then existing default and
any other then existing default under this Lease.
18. Inspection. Lessor and its authorized representatives shall have the
right, upon giving reasonable notice, to enter the Premises or any part thereof
and inspect the same and make photographic or other evidence concerning Lessee's
compliance with the terms of this Lease. Lessee shall keep full, complete and
accurate books, records and accounts, of all business done including any sales
or other tax reports that Lessee may be required to furnish to any governmental
agency at or from the Premises sufficient to permit Lessor to verify all
statements, certificates and accountings delivered to Lessor. Should any audit
by Lessor reveal that any statement or account rendered by Lessee was in error
by 10% or more, then in addition to any other remedy of Lessor, Lessee shall
reimburse the cost of such audit to Lessor upon demand.
Lessee hereby consents to Lessor's providing information it obtains to
Franchisor and to Lessor's obtaining from Franchisor information which
Franchisor receives relating to Lessee's operation of its business on the
Premises.
19. Franchisor Requirements. Lessee, in its use, occupancy and maintenance of
the Premises shall comply with all requirements of its license agreement with
Franchisor.
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20. Default and Remedies.
a. Each of the following shall be deemed a breach of this Lease and a
default by Lessee:
i) If any material representation or warranty of Lessee herein or as
Seller in the Purchase Agreement was false when made, or in the event that any
such representation or warranty is continuing and becomes false at any time, or
if Lessee renders any false statement or account;
ii) If any rent of or other monetary sums due remain unpaid for five
(5) days after written notice thereof to Lessee;
iii) If Lessee becomes insolvent, performs any act of bankruptcy or
is not generally paying its debts as the same become due;
iv) If Lessee fails to perform any of the covenants, conditions or
obligations of this Lease; or
v) If there is a breach or default under the Purchase Agreement,
under any license or franchise permitting Lessee or Guarantors to operate the
Premises in the manner authorized or if such license or franchise otherwise
terminates or expires, under any Guarantee of Lessee's obligations under this
Lease or under any other agreement between Lessor and Lessee.
b. If any such breach or default does not involve the payment of any
rental or other monetary sum, is not willful or intentional, does not place any
rights or property of Lessor in immediate jeopardy, is not known to Lessee
(unless Lessor has given Lessee notice thereof) and is within the reasonable
power of Lessee to cure within 30 days after receipt of notice thereof, all as
determined by Lessor in its reasonable discretion, then such event shall not
constitute a default hereunder, unless otherwise expressly provided herein,
unless and until Lessor shall have given Lessee notice thereof and a period of
30 days shall have elapsed, during which period Lessee may correct or cure such
event, upon failure of which a default shall be deemed to have occurred
hereunder without further notice or demand of any kind. If such breach or
default cannot reasonably be cured with the 30 day period, as determined by
Lessor, in its reasonable discretion, and Lessee is diligently pursuing a cure
of such breach or default, then Lessee shall, after receiving notice specified
herein, have a reasonable period to cure such breach or default.
c. In the event of any breach or default, and without any notice, except,
if applicable, the notice prior to default required under certain circumstances
by Paragraph b above or such other notice as may be required by law and cannot
be waived by Lessee (all other notices being hereby waived), Lessor shall be
entitled to exercise, at its
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option, concurrently, successively or in any combination, all remedies available
at law or in equity, including without limitation any one or more of the
following:
i) To terminate this Lease;
ii) To reenter and take possession of the Premises or any part thereof
(which reentry shall not operate to terminate this Lease unless Lessor expressly
so elects), of any or all personal property or fixtures of Lessee upon the
Premises, the Equipment and of all franchises, licenses, permits and other
rights or privileges of Lessee pertaining to the use and operation of the
Premises and to conduct business thereon in the name of Lessor or of Lessee but
for the sole profit and benefit of Lessor and without compensation to Lessee;
iii) To seize all personal property, the Equipment or fixtures upon
the Premises which Lessee owns or in which it has an interest, in which Lessor
shall have a landlord's lien and is hereby granted a security interest, and to
dispose thereof in accordance with laws prevailing at the time and place of such
seizure or to remove all or any portion of such property and cause the same to
be stored in a public warehouse or elsewhere at the cost of Lessee;
iv) To relet the Premises or any part thereof for such term or terms
(including a term which extends beyond the original term of this Lease, at such
rentals and upon such other terms as Lessor, in its sole discretion, may
determine, with all proceeds received from such reletting being applied to the
rentals and other sums due from Lessee in such order as Lessor may, in its sole
discretion, determine, with Lessee remaining liable for deficiency;
v) To recover from Lessee an amount equal to the difference between
the rentals and such other sums (including all sums required to be paid by
Lessee, such as taxes and insurance) to be received from the date of such breach
to the expiration of the original term hereof and the reasonable long term
rental value of the Premises for the same period; and/or
vi) To recover from Lessee all expenses, including attorney fees,
reasonably paid or incurred by Lessor as a result of such breach.
In addition, in the event of any breach or default by Lessee, Lessor may,
but shall not be obligated to, immediately or at any time thereafter, and
without notice, except as required herein, correct such breach or default
without, however, curing the same for the account and at the expense of the
Lessee. Any sum or sums so paid by Lessor, together with interest at the then
existing maximum legal rate, but not higher than 18% per annum, and all costs
and damages, shall be deemed to be additional rent hereunder and shall be
immediately due from Lessee to Lessor.
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21. Mortgage and Subordination. Lessor's interest in this Lease, the Equipment
or the Premises shall not be subordinate to any encumbrances placed upon the
Premises by or resulting from any act of Lessee, and nothing herein contained
shall be construed to require such subordination by Lessor. Lessee shall keep
the Premises free from any liens for work performed materials furnished or
obligations incurred by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT
AUTHORIZED TO PLACE ANY LIEN, MORTGAGE, DEED OF TRUST OR ENCUMBRANCE OF ANY KIND
UPON ALL OR ANY PART OF THE PREMISES AND THE EQUIPMENT OF LESSEE'S LEASEHOLD
INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION SHALL BE VOID.
This Lease at all time shall be subordinated to the lien or any ground
leases, mortgage, mortgages, trust deed or trust deeds now or hereafter placed
upon the Premises by Lessor, and Lessee covenants and agrees to execute and
deliver, upon demand, such further instruments subordinating this Lease to the
lien of any such ground lease, mortgage, mortgages, trust deed or trust deeds as
shall be desired by Lessor, or any mortgagees or proposed mortgagees or trustees
under trust deeds, upon the condition that Lessee shall have the right to remain
in possession of the Premises under the terms of this Lease, notwithstanding any
default in any such mortgage, mortgages, trust deed or trust deeds, or after
foreclosure thereof, so long as Lessee is not in default under any of the
covenants, conditions and agreements contained in this Lease.
If any mortgagee or trustee elects to have this Lease and the interest of
Lessee hereunder be superior to any such interest or right and evidences such
election by notice given to Lessee, then this Lease and the interest of Lessee
hereunder shall be deemed superior to any such mortgage or trust deed, whether
this Lease was executed before or after such mortgage or trust deed and in that
event such mortgagee or trustee shall have the same rights with respect to this
Lease as if it had been executed and delivered prior to the execution and
delivery of the mortgage or trust deed and has been assigned to such mortgagee
or trustee.
Lessee shall execute and deliver whatever instruments may be required for
such purposes, and in the event Lessee fails so to do within 10 days after
demand in writing, Lessee does hereby make, constitute and irrevocably appoint
Lessor's agent as its attorney-in-fact and in its name, place and stead so to
do.
Lessee shall give written notice to any mortgage lender having a recorded
security instrument upon the Premises or any part thereof of any breach or
default by Lessor of any of its obligations under this Lease and to give such
mortgage lender at least 60 days beyond any notice period to which Lessor might
be entitled to cure such default before Lessee may exercise any remedy with
respect thereto. Lessee shall provide Lessee's most recent audited financial
statements upon
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request to Lessor or any mortgage lender and to certify the continuing accuracy
of such financial statements in such manner as Lessor or such mortgage lender
may request.
22. Estoppel Certificate. At any time, and from time to time, Lessee agrees,
promptly and in no event later than ten (10) days after a request in writing
from Lessor, to execute, acknowledge and deliver to Lessor a statement in
writing certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications) and the dates to which the rental and
other charges have been paid.
23. Assignment. Lessor shall have the right to sell or convey the Premises
subject to this Lease or to assign its right, title and interest as Lessor under
this Lease in whole or in part. In the event of any such sale or assignment
other than a security assignment, Lessor shall be relieved, from and after the
date of such transfer or conveyance, of liability for the performance of any
obligation of Lessor contained herein, except for obligations or liabilities
accrued prior to such assignment or sale.
Lessee acknowledges that Lessor has been induced to enter into this Lease
in anticipation of receiving substantial percentage rentals from Lessee's
contemplated use of the Premises and that Lessor has relied both on the business
experience and credit worthiness of Lessee and upon the particular purposes for
which Lessee intends to sue the Premises. Lessee shall not assign this Lease or
any interest therein, or sublet all or any part of the Premises, which were
originally intended for Bagel Bakery occupation, without the prior written
consent of Lessor which consent shall not be unreasonably withheld. Lessor may
withhold or condition such consent upon such matters as Lessor may in its sole
discretion determine, including without limitation the experience and
creditworthiness of the assignee, the assumption by the assignee of all Lessee's
obligations hereunder by undertakings enforceable by Lessor, the transfer to
such assignee of all necessary licenses and franchises to continue operating the
Premises for the purposes herein provided, receipt of such representations and
warranties from such assignee as Lessor may request, including such matters as
its organization, existence, good standing and finances and other matters,
whether or not similar in kind. No such assignment or subletting shall relieve
the original Lessee, any prior assignee or any guarantor of their obligations
respecting this Lease. Lessor hereby consent to any assignment of Lessee's
interest under this Lease to Franchisor.
24. Option to Renew. Lessee, provided it is not in default hereunder at the
time of exercise or at the expiration of the Lease Term or, if applicable, the
first extension of the Lease Term and provided that the franchise or license
agreement with Franchisor is extended for a period of not less than the
applicable renewal period, shall have the option to
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continue this Lease in effect for four (4) additional periods of five (5) years
each in accordance with its original terms and provisions except for the
following:
i) in the event the annual fair market rental value of the Premises
to be determined as set forth below is greater than the Base Annual Rental then
the annual fair market value of the Premises shall be substituted for the Base
Annual Rental and all other provisions shall remain the same; and
ii) in the event the annual fair market rental value of the Premises
is less than the Base Annual Rental the provisions of this Lease shall remain
the same.
Lessee shall exercise such renewal option by giving written notice to
Lessor of its intention to do so not more than 270 days nor less than 210 days
prior to the expiration of the Lease Term or the first, second, or third
extension of the Lease Term and upon receipt of such notice Lessor shall within
90 days, at Lessee's expense, cause an appraisal of the fair market rental value
of the Premises to be made by an independent appraiser. If within 20 days after
being notified of the result of such appraisal Lessee elects to reject that
appraisal then Lessor shall nominate to Lessee a list of not less than three (3)
independent appraisers who are experienced with appraising property similar to
the Premises and are familiar with the geographical region where the Premises
are located, and Lessee shall select one such appraiser. Within 60 days an
appraisal shall then be made of the Premises by that appraiser and within 20
days after the results of that appraisal shall have been delivered to Lessee,
Lessee shall notify Lessor in writing of its election to exercise this option to
renew this Lease and shall pay the rental so established above which shall be
absolutely net to Lessor as provided in Section 6 hereof. If such notice of
exercise is not received by Lessor within the 20 day period then this Lease
shall terminate on the last day of the Lease Term or, if applicable, the last
day of the first renewal term.
25. Notices. All notices, demands, requests, consents, approvals or other
instruments required or permitted to be given by either party pursuant to this
Lease shall be in writing and shall be deemed to have been properly given if
sent by registered or certified mail, postage prepaid, to the parties at the
addresses set forth in the first paragraph hereof or to such other address as
either party may give notice pursuant to this Section from time to time. All
notices shall be deemed received when delivered but in no event later than five
(5) days after they are deposited with the United States Postal Service,
whichever shall first occur.
26. Holding Over. If Lessee remains in possession of the Premises after the
expiration of the term hereof, Lessee maybe deemed a tenant on a month-to-month
basis and shall continue to pay rentals and other sums
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in the amount herein provided and to comply with all the terms of this Lease;
provided that nothing herein nor the acceptance of rent by Lessor shall be
deemed a consent to such holding over.
27. Landlord's Lien. Lessor shall have a landlord's lien upon all furnishings,
fixtures, equipment, decoration, supplies, accessories and other personal
property which Lessee owns or in which it has an interest located on the
Premises to secure the payment of all rental and other sums due hereunder and
the performance of all other obligations of Lessee under this Lease.
28. Removal of Lessee's Property. At the expiration of the term of this Lease,
and if Lessee is not then in breach hereof, Lessee may remove from the Premises
all personal property belonging to Lessee. Lessee shall repair any damage caused
by such removal and shall leave the Premises broom clean and in good condition
and repair inside and out.
29. Financial Statements. Within the 45 days after the end of each fiscal
quarter or after any 3 four week periods, and within 120 days after the end of
each fiscal year of Lessee, Lessee shall deliver to Lessor (1) complete
financial statements of Lessee including a balance sheet, profit and loss
statement, statement of changes in cash and all other related schedules for the
fiscal period then ended; and (2) income statements for the business at the
Premises showing gross sales, profits and losses for the fiscal period then
ended. All such financial statements shall be prepared in accordance with
generally accepted accounting principles, consistently applied from period to
period, and shall be certified to be accurate and complete by Lessee (or the
Treasurer or other appropriate officer of Lessee). In the event that Lessee's
property and business at the Premises is ordinarily consolidated with other
business for financial statement purposes, such financial statements shall be
prepared on a consolidated basis showing separately the sales, profits and
losses, assets and liabilities pertaining to the Premises with the basis for
allocation of overhead of other charges being clearly set forth. The financial
statements delivered to Lessor need not be audited, but Lessee shall deliver to
Lessor copies of any audited financial statements of Lessee which may be
prepared, as soon as they are available.
30. Lessor's Liability. Notwithstanding anything to the contrary provided in
this Lease, it is specifically understood and agreed, such agreement being a
primary consideration for the execution of this Lease by Lessor, that there
shall be absolutely no personal liability on the part of Lessor or any partner
of Lessor, its successors or assigns with respect to any of the terms, covenants
and conditions of this Lease and that Lessee shall look solely to the assets of
Lessor for the satisfaction of each and every remedy of Lessee in the event of
any breach by Lessor of any of the terms, covenants and conditions of this Lease
to be performed by Lessor, such exculpation of liability to be absolute and
without any exception whatsoever.
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31. Consent of Lessor. Lessor shall have no liability for damages resulting
from Lessor's failure to give any consent, approval or instruction reserved to
Lessor, Lessee's sole remedy in any such event being an action for injunctive
relief.
32. Waiver and Amendment. No provision of this Lease shall be deemed waived or
amended except by a written instrument unambiguously setting forth the matter
waived or amended and signed by the party against which enforcement of such
waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver
of the same or any other matter on any future occasion.
33. Joint Venture. Neither the provision set forth herein for the computation
of Annual Percentage Rental, nor any one or more agreements contained herein, is
intended, nor shall the same be deemed or construed, to create a partnership
between Lessor and Lessee, to make them joint venturers, nor to make Lessor in
any way responsible for the debts or losses of Lessee.
34. Captions. Captions are used throughout this Lease for convenience of
reference only and shall not be considered in any manner in the construction or
interpretation hereof.
35. Severability. The provisions of this Lease shall be deemed severable. If
any part of this Lease shall be held unenforceable by any court of competent
jurisdiction, the remainder shall remain in full force and effect, and such
unenforceable provision shall be reformed by such court so as to give maximum
legal effect to the intention of the parties as expressed therein.
36. Construction Generally. This is a long-term commercial lease between
entrepreneurs which has been entered into by both parties in reliance upon the
economic and legal bargains contained herein. This lease shall be interpreted
and construed in a fair and impartial manner without regard to such factors as
the party which prepared the instrument, the relative bargaining powers of the
parties or the domicile of any party.
37. Other Documents. Each of the parties agrees to sign such other and further
documents as may be appropriate to carry out the intentions expressed in this
Lease. The parties shall execute and record a Memorandum of Lease and Option
evidencing this Lease and Lessee's purchase option contained herein.
38. Attorney Fees. In the event of any judicial or other adversarial proceeding
between the parties concerning this Lease; to the extent permitted by law, the
prevailing party shall be entitled to recover all of its reasonable attorney
fees and other costs in addition to any other relief to which it may be
entitled.
Howard Opera House Associates- Test Kitchen Lease - Page 15
<PAGE>
39. Entire Agreement. This Lease, and any other instruments or agreement
referred to herein, constitute the entire agreement between the parties with
respect to the subject matter hereof, and there are no other representations,
warranties or agreement except as herein provided.
40. Counterparts. This Lease may be executed in one or more counterparts, each
of which shall be deemed an original.
Howard Opera House Associates- Test Kitchen Lease - Page 16
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of
the date first above written.
LESSOR:
HOWARD OPERA HOUSE ASSOCIATES
/s/ Rose J. Baacon
- ----------------------------
By:/s/ Michael J. Dressell
----------------------------
/s/ Stephen H. Kramer Michael J. Dressell, General
- ---------------------------- Partner
/s/ Rose J. Bacon
- ---------------------------- LESSEE:
CHAMPLAIN MANAGEMENT COMPANY
Dorthy A. Haskine
- ----------------------------
BY: /s/ Stephen P. Schonberg
---------------------------
Steven P. Schonberg, Chief
Financial Officer and Duly
Authorized Agent
STATE OF VERMONT )
)
COUNTY OF CHITTENDEN )
The foregoing instrument was acknowledged before me on this 28th day of
January, 1991 by Michael J. Dressell, general partner of Howard Opera House
Associates.
/s/ Rose J. Bacon
-----------------------------------
Notary Public
My Commission Expires: 2/10/91
STATE OF VERMONT )
)
COUNTY OF CHITTENDEN )
The foregoing instrument was acknowledged before me on this 28th day of
January, 1991 by Steven P. Schonberg, Chief Financial Officer and Duly
Authorized Agent of Champlain Management Company.
/s/ Rose J. Bacon
-----------------------------------
Notary Public
My Commission Expires: 2/10/91
Howard Opera House Associates- Test Kitchen Lease - Page 17
<PAGE>
SHORT FORM LEASE AGREEMENT
This Short Form Leas Agreement made as of this 11th day of March, 1991,
between Howard Opera House Associates, a Vermont limited partnership, of
Burlington, Vermont, (hereinafter referred to as "LANDLORD") and Champlain
Management Company, a Vermont corporation, of Burlington, Vermont, (hereinafter
referred to as "TENANT").
WHEREAS, the parties executed a Lease as of January 28, 1991 ("Lease") that
relates to the premises described herein;
WHEREAS, the parties desire to set forth a Short Form Lease for the
purposes of recording the same in the Land Records of the City of Burlington.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the parties agree as follows:
1. Description of Premises.
The LANDLORD hereby leases to the TENANT and the Tenant hereby leases from
the LANDLORD the following described premises:
The real property together with all building, structures, fixtures and
improvements related to the operation of the test kitchen located on
the second floor at 93 Church Street, Burlington, Vermont.
2. Commencement and Term.
Said Lease is for a term of ten (10) years commencing on the earlier of a)
the store opening or b) December 31, 1990 and expiring either a) ten (10) years
after the store opening, or b) on December 30, 2000, unless terminated sooner as
provided in the Lease. TENANT may extend the term for four (4) periods of five
(5) years each as set forth in Section 24 of the Lease.
<PAGE>
3. Complete Lease.
A more complete lease is in the possession of both LANDLORD and TENANT. It
is understood that this Short Form Lease shall be recorded in the City of
Burlington Land Records.
4. No Modification.
In the event any conflicts exist between the terms of this Agreement and
the terms of the Lease, the terms of the Lease shall control.
Dated at Burlington, Vermont, this 11th day of March, 1991.
LANDLORD:
/s/ Sherry L. Moser By: /s/ Nordahl L. Brue
- -------------------------- ------------------------------
Witness Howard Opera House Associates,
General Partner
/s/ David T. Austin
- --------------------------
Witness
TENANT:
/s/ Rose J. Bacon
- --------------------------
Witness By: /s/ Steven P. Schonberg
-------------------------------
Champlain Management Company,
/s/ Denise M. Longchamp Duly Authorized Agent
- --------------------------
Witness
STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Burlington, this 11th day of March, 1991, personally appeared
Nordahl L. Brue and he acknowledged this instrument, by him sealed and
subscribed to be his free act and deed of Howard Opera House Associates.
Before me, /s/ David T. Austin
---------------------------------
Notary Public
<PAGE>
STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Burlington, this 11th day of March, 1991, personally appeared
Steven P. Schonberg and he/she acknowledged this instrument, by him/her sealed
and subscribed, to be his/her free act and deed and the free act and deed of
Champlain Management Company.
Before me, /s/ Denise M. Longchamp
----------------------------------
Notary Public
<PAGE>
EXHIBIT 10-L
SCHEDULE OF RELATED PARTY LEASES
EXISTING RESTAURANTS AS OF 1/15/97
<TABLE>
<CAPTION>
LEASE EXPIRATION ANNUAL BASE
COMMENCEMENT DATE OF RENTAL ($)
LOCATION LANDLORD DATE INITIAL TERM AS OF 10/27/96 1/
<S> <C> <C> <C> <C>
BURGER KING RESTAURANTS:
- --------------------------
Indiana
- -------
Michigan City Bendan Properties 09/01/86 09/30/06 85,404
Plymouth Bendan Properties 06/22/84 06/30/04 52,596
Mishawaka #1 Bendan Properties 08/29/84 08/31/04 63,048
Goshen #1 Bendan Properties 10/25/84 10/25/04 80,496
LaPorte F & S Realty 03/26/85 03/31/05 73,896
Mishawaka #2 Bendan Properties 05/15/85 05/31/05 75,324
Fort Wayne #1 B.K. Fort Wayne Properties 08/01/86 08/31/06 58,632
Mishawaka #3 Bendan Properties 09/19/86 09/30/06 73,248
Fort Wayne #2 B.K. Fort Wayne Properties 11/01/86 11/30/06 78,240
Warsaw Bendan Properties 11/22/86 11/30/06 69,876
South Bend #2 Bendan Properties 01/08/87 01/31/07 82,032
Huntington B.K. Fort Wayne Properties 06/12/87 06/30/07 54,960
Fort Wayne #3 B.K. Fort Wayne Properties 10/26/87 10/31/07 95,148
Fort Wayne #4 B.K. Fort Wayne Properties 12/01/87 12/31/07 93,996
Columbia City B.K. Fort Wayne Properties 04/01/89 04/30/09 94,500
Angola B.K. Fort Wayne Properties 06/01/89 06/30/09 94,500
South Bend #3 Bendan Properties 09/26/89 09/30/09 69,024
South Bend #4 Bendan Properties 12/13/89 12/31/09 94,500
Bluffton B.K. Fort Wayne Properties 12/10/90 12/31/10 84,372
South Bend #5 Bendan Properties 01/21/91 01/21/11 111,672
Kendallville B.K. Fort Wayne Properties 04/11/91 04/11/11 74,256
Goshen #2 Bendan Properties 07/01/92 07/31/12 86,400
South Bend #6 Silver Creek Plaza, Inc. 05/27/94 05/31/04 100,080
Goshen #3 F & S Realty 2/ 3/ 35,000
- -
Michigan
- --------
Benton Harbor #1 Bendan Properties 10/31/90 02/14/03 18,528
St. Joseph Bendan Properties 12/31/86 12/31/06 108,156
</TABLE>
_______________
1/ Total annual rent for related party leases for Burger King restaurants
- -
equals Annual Base Rental plus an amount by which 7% of the restaurant's
gross sales (8-1/2% of the restaurant's gross sales in the case of related
party leases with William R. Schonsheck or Shon-Cass) exceeds Annual Base
Rental (the "Percentage Rental").
2/ Lease is to commence upon the sooner of the first day of operations or 120
- -
days after November 19, 1996; as of January 15, 1997, the restaurant was not
yet operational.
3/ Initial term is ten years from date of commencement of lease (see note 2).
- -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Benton Harbor #2 4/ J & B Realty 08/24/81 12/02/06 5/ 68,112
Woodhaven Fitzpatrick Properties 10/23/85 10/31/05 95,196
Highland Fitzpatrick Properties 05/30/84 05/30/04 77,028
Muskegon #1 B.K. Muskegon Properties 07/01/84 07/01/04 72,888
Norton Shores B.K. Muskegon Properties 07/01/84 07/01/04 66,540
Hartland Fitzpatrick Properties 05/01/86 05/31/06 77,208
Stevensville Bendan Properties 06/19/86 06/30/06 72,804
Muskegon #2 B.K. Muskegon Properties 06/23/86 06/30/06 68,988
Howell Fitzpatrick Properties 06/22/87 07/31/07 78,300
Fremont B.K. Muskegon Properties 04/14/88 04/30/08 78,096
South Haven Bendan Properties 05/05/88 05/31/08 74,004
Taylor #2 Fitzpatrick Properties 09/12/89 09/30/09 87,744
Whitehall B.K. Muskegon Properties 07/06/90 07/30/10 92,472
Dowagiac Bendan Properties 04/10/91 04/10/11 74,256
Brighton Fitzpatrick Properties 09/17/92 09/17/12 121,500
Farmington William R. Schonsheck 08/14/95 10/01/03 89,208
Belleville #2 Shon-Cass 08/14/95 12/31/05 118,926
BRUEGGER'S BAGEL BAKERIES:
- -------------------------
Vermont
- -------
Burlington Howard Opera House 12/31/90 12/30/00 46,600
</TABLE>
4/ Percentage Rental is based on 8% of gross sales.
- -
5/ Lease was extended on 12/3/96 to 12/2/2006.
- -
-2-
<PAGE>
EXHIBIT 10-Q
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
<PAGE>
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
1. DEVELOPMENT RIGHTS AND OBLIGATIONS........................................ 1
2 TERM...................................................................... 2
3. DEVELOPMENT FEE........................................................... 4
4. SITE SELECTION............................................................ 5
5. SELECTION OF OPERATOR..................................................... 6
6. CONFIDENTIAL INFORMATION.................................................. 6
7. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS.............................. 7
8. TRANSFER OF INTEREST...................................................... 8
9. DEFAULT AND TERMINATION.................................................. 12
10. COVENANTS................................................................ 13
11. NOTICES.................................................................. 15
12. INDEPENDENT CONTRACTOR AND INDEMNIFICATION............................... 15
13. APPROVALS AND WAIVERS.................................................... 16
14. SEVERABILITY AND CONSTRUCTION............................................ 17
15. ENTIRE AGREEMENT; APPLICABLE LAW......................................... 17
16. ACKNOWLEDGMENTS.......................................................... 18
EXHIBIT A - PROPRIETARY MARKS
EXHIBIT B - DEVELOPMENT AREA
EXHIBIT C - BRUEGGER'S BAGELS FRANCHISE AGREEMENT
<PAGE>
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT ("Agreement") is entered into on _______________
________, 19___, between BRUEGGER'S FRANCHISE CORPORATION, a Delaware
corporation ("Franchisor"), and _____________________________________________
("Developer").
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor; distinctive exterior and interior restaurant design, decor, color
scheme, fixtures, and furnishings; standards and specifications for ingredients,
food preparation, equipment, supplies, and restaurant operations; and
advertising and promotional programs; all of which may be changed, improved, and
further developed by Franchisor and its affiliates from time to time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "BRUEGGER'S", as set forth in Exhibit A to this Agreement,
and such other trade names, service marks, and trademarks as may hereafter be
designated by Franchisor in writing for use in the System (the "Proprietary
Marks");
WHEREAS, Developer wishes to obtain the right to develop restaurants under
the System and the Proprietary Marks ("Bakeries") within the territory defined
in Exhibit B to this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DEVELOPMENT RIGHTS AND OBLIGATIONS
1.1 Franchisor grants Developer the exclusive right, except as provided in
Section 1.4 hereof, during the initial term set forth in Section 2.1, and
Developer undertakes the obligation, pursuant to the terms and conditions of
this Agreement, to develop a minimum of _____________ (___) Bakeries, solely
within the territory defined in Exhibit B to this Agreement (the "Development
Area"). The Bakeries shall be located only at the specific locations approved
in writing by Franchisor pursuant to Section 4.1 below.
1.2 Developer shall exercise its development rights hereunder solely by
executing a separate Bruegger's Bagels Franchise Agreement ("Franchise
Agreement") for each Bakery to be developed hereunder. The Franchise Agreement
for all Bakeries to be developed during the initial term (as defined in Section
2.1) and first renewal term (as defined in Section 2.2.1)
<PAGE>
shall be in the form of Exhibit C to this Agreement. The Franchise Agreement
for each Bakery developed during any renewal period after the first renewal
term, if any, shall be in the form being offered by Franchisor to franchisees at
the time each Bakery is developed, the terms of which may differ from the terms
of Exhibit C. The Franchise Agreement for each Bakery shall be executed by
Developer upon Franchisor's approval of the site for the Bakery pursuant to
Section 4.1 below.
1.3 Developer shall develop and be operating at least ______ (_) Bakeries
on or before [fifteen months after the date of the Agreement] (the "Development
Obligation").
1.4 Franchisor retains the right:
1.4.1 To establish and operate (directly or through an affiliate) one
or more Bakeries, to franchise others to establish and operate one or more
Bakeries, and to sell and distribute under the Bruegger's "name" any of the
items designated as "Required Items" from time to time in Franchisor's
Confidential Operations Manuals, at any location outside the Development Area.
1.4.2 To sell and distribute, and license others to sell and
distribute food products including, but not limited to, cream cheese products
and other bagel spreads under the "Bruegger's" name or under any other name,
directly or indirectly, through supermarkets, delicatessens, specialty food
stores, convenience stores, and other wholesale and retail food stores, at any
location outside the Development Area.
1.4.3 To establish and operate, and franchise others to establish and
operate Bruegger's Bakeries in any mall, military base, airport, hospital,
educational institution or highway rest area ("Excluded Locations"), whether or
not such Excluded Locations are located inside or outside the Development Area.
For purposes of this paragraph, "mall" shall be defined as any enclosed shopping
facility which contains 100,000 square feet or more of enclosed space.
1.5 This Agreement does not grant Developer any right to use the
Proprietary Marks or the System. All rights to use the Proprietary Marks and
the System are granted solely under the terms of the Franchise Agreement.
Developer acknowledges that it will have no right under this Agreement or under
any Franchise Agreement to subfranchise any other person or legal entity to use
the Proprietary Marks or the System.
2. TERM
2.1 Unless sooner terminated as provided herein, the initial term of this
Agreement shall expire on [fifteen months after the date of this Agreement].
-2-
<PAGE>
2.2 If Developer shall be in compliance with all of the following, then
Developer may extend the rights granted hereunder for additional terms the
duration of which are described below:
2.2.1 For the first renewal term, which shall be for a _______ (__)
year period, Developer shall have successfully complied with the Development
Obligation set forth in Section 1.3 hereof; provided, however, during this first
renewal term, Developer shall develop Bakeries in accordance with the following
schedule (the "First Renewal Development Schedule"):
Minimum cumulative
number of Bakeries
Developer must have open and
Deadline: in operation by deadline:
-------- ------------------------
____________ __
____________ __
____________ __
____________ __
If Developer fails to have open and in operation the minimum number of Bakeries
required on each of the dates specified in the First Renewal Development
Schedule, Franchisor, at its option, may terminate this Agreement by written
notice to Developer and no further renewal terms shall be available. The
termination of the Agreement shall be Franchisor's sole remedy for Developer's
failure to satisfy the First Renewal Development Schedule. Termination of this
Agreement pursuant to this Section 2.2.1 shall not affect the right or
obligation of Developer to operate each Bakery in the Development Area for which
a Franchise Agreement has been executed prior to termination of this Agreement.
2.2.2 For all additional renewal terms, each of which shall be for a
one (1) year period, Developer shall have successfully complied with the
deadlines set forth in Section 2.2.1 hereof, and shall have increased the total
number of Bakeries open and in operation pursuant to this Agreement in
accordance with the schedule set forth below.
2.2.2.1 For the second through seventh renewal terms,
Developer shall have increased the total number of Bakeries open and in
operation pursuant to this Agreement in accordance with the following schedule:
-3-
<PAGE>
Minimum number
of Bakeries open and
Renewal Term Deadline in operation by Deadline
------------ -------- ------------------------
Third __ __
Fourth __ __
Fifth __ __
Sixth __ __
Seventh __ __
For example, as a condition to the third renewal term, Developer shall have open
and in operation at least __ Bakeries on ______________________; and as a
condition to the seventh renewal term, Developer shall have in operation at
least __ Bakeries on _______________________________.
2.2.2.2 Beginning with the eighth renewal term and for each renewal
term thereafter, Developer shall have successfully complied with the deadlines
set forth in Section 2.2.2.1 hereof, and Developer shall have increased the
total number of Bakeries in operation by at least ____ (_) Bakeries over the
minimum required during the immediately preceding renewal term. For example, as
a condition to the ninth renewal term, Developer must have open and in operation
at least __ Bakeries at the conclusion of the eighth renewal term; and as a
condition to the tenth renewal term, Developer must have in operation at least
__ Bakeries at the conclusion of the ninth renewal term.
2.2.3 Developer shall not be in default of any provision of this
Agreement, any amendment hereof, any Franchise Agreement, or any other Agreement
between Developer and Franchisor or its affiliates, and shall have complied in
all material respects with such agreements throughout their respective terms;
2.2.4 Developer shall have satisfied all monetary obligations owed by
Developer to Franchisor and its affiliates, and shall have timely met those
obligations throughout the initial term and all renewal terms of this Agreement;
and
2.2.5 Developer shall execute a general release, in a form prescribed by
Franchisor, of any and all claims against Franchisor, its affiliates, and their
respective officers, directors, shareholders, and employees, in their corporate
and individual capacities.
3. DEVELOPMENT FEE
In consideration of the development rights in the Development Area granted
herein, Developer shall pay Franchisor a fully non-refundable development fee of
___________________ Dollars ($________) ("Development Fee"). Developer
acknowledges
-4-
<PAGE>
that the Development Fee shall be fully earned in consideration of the
administrative and other expenses incurred by Franchisor and Franchisor's lost
or deferred opportunity to enter into similar arrangements with others. The
Development Fee shall be payable upon execution and delivery of this Agreement.
4. SITE SELECTION
4.1 Developer, at its sole expense, shall identify and obtain a site for
each Bakery to be developed hereunder and, if applicable, for each bagel dough
manufacturing site. Before acquiring a site by lease or purchase, Developer
shall submit to Franchisor such information and materials as Franchisor may
reasonably request to evaluate the site. After receipt of such information and
materials, Franchisor, in its sole discretion, shall approve or refuse to
approve the proposed site. Franchisor shall either approve or reject a proposed
site not later than thirty (30) days after receipt of all information and
materials requested pursuant to this Section 4.1. No site shall be deemed to
have received Franchisor's approval unless it has been approved in writing by
Franchisor. The site approved in writing by Franchisor shall be the "Approved
Location" referred to in the Franchise Agreement.
4.2 With respect to both Bakeries and bagel dough manufacturing sites,
Franchisor shall furnish to Developer the following:
4.2.1 Site selection guidelines and criteria, which shall be provided
upon execution of this Agreement, and such site selection counseling and
assistance as Franchisor may deem advisable; and
4.2.2 Such on-site evaluations, if any, as Franchisor may deem
advisable in response to Developer's request for Franchisor's approval of a
proposed site.
4.3 If Developer will occupy the premises of a Bakery and/or a bagel dough
manufacturing site (if separate from the Bakery) under a lease, Developer shall,
prior to the execution of the lease, submit the lease to Franchisor for its
written approval. Franchisor's approval of the lease may be conditioned on the
inclusion in the lease of any or all of the following terms and conditions,
among others:
4.3.1 That the lessor consents to Developer's use of such Proprietary
Marks and signage as Franchisor may prescribe for the Bakery or the bagel dough
manufacturing site, as the case may be;
4.3.2 That the use of the premises be restricted solely to the
operation of the Bakery (or bagel dough manufacturing site, as the case may be)
during the term of the Franchise Agreement, as it may be extended in accordance
with its terms;
-5-
<PAGE>
4.3.3 That Developer be prohibited from subleasing or assigning all
or any part of its occupancy rights or from extending the term of or renewing
the lease without Franchisor's prior written consent;
4.3.4 That the lessor provide to Franchisor copies of all notices of
default given to Franchisee under the lease;
4.3.5 That Franchisor have the right to enter the premises to make
modifications necessary to protect the Proprietary Marks or the System or to
cure any default under the applicable Franchise Agreement or under the lease;
4.3.6 That Franchisor (or Franchisor's designee) have the option,
upon default, expiration, or termination of the applicable Franchise Agreement,
and upon notice to the lessor, to assume all of Developer's rights under the
lease, including any right to assign or sublease; and
4.3.7 That the tenant under the lease have the right to remodel the
premises without the prior approval of the lessor.
4.4 Developer shall furnish Franchisor with a copy of each executed lease
within ten (10) days after its execution.
5. SELECTION OF OPERATOR
Before opening its first Bakery and throughout the term of this Agreement,
Developer shall employ an individual who shall be responsible for the operations
of all Bakeries developed pursuant to this Agreement (the "Operator").
Developer may not hire an individual as Operator without first obtaining
Franchisor's written approval, which approval Franchisor shall not unreasonably
withhold. Franchisor may reject any proposed Operator who does not have
significant prior experience in the multi-unit restaurant business.
6. CONFIDENTIAL INFORMATION
6.1 Except as hereinafter provided, Developer shall not, during the term
of this Agreement or at any time thereafter, communicate, divulge, or use for
the benefit of any other person or entity any confidential information,
knowledge, trade secrets, or know-how which may be communicated to Developer or
of which Developer may be apprised by virtue of Developer's activities under
this Agreement. Developer may divulge such confidential information only: (i)
to such of its employees as deemed necessary by Developer; and (ii) to
Developer's contractors and prospective landlords with the prior written
approval of Franchisor. All information, knowledge, trade secrets, know-how,
techniques, and other data which Franchisor designates as confidential shall be
deemed confidential for purposes of this Agreement, except information which
Developer can demonstrate came to its attention by
-6-
<PAGE>
lawful means prior to disclosure thereof by Franchisor, or which, at or after
the time of disclosure by Franchisor to Developer, had become or later becomes a
part of the public domain, through publication or communication by others.
6.2 At Franchisor's request, Developer shall require its employees and any
other person to whom Developer wishes to disclose any confidential information
of Franchisor to execute covenants that they will maintain the confidentiality
of such information. Such covenants shall be in a form satisfactory to
Franchisor, including, without limitation, specific identification of Franchisor
as a third-party beneficiary with the independent right to enforce the
covenants.
7. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS
7.1 If Developer is a corporation, Developer shall comply with the
following requirements during the term of this Agreement:
7.1.1 Developer shall furnish Franchisor with a copy of its Articles
or Certificate of Incorporation, Bylaws, and any other corporate governing
documents Franchisor may reasonably request, and any amendments thereto;
7.1.2 Developer shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
7.1.3 Developer shall maintain stop transfer instructions against the
transfer on its records of any equity security, and shall issue no securities
upon the face of which the following printed legend does not legibly and
conspicuously appear:
The transfer of ownership of shares represented by this Certificate is
subject to the terms and conditions of an Agreement with Bruegger's
Franchise Corporation. Reference is made to the provisions of the
Development Agreement and to the Articles and Bylaws of the Corporation.
7.1.4 Developer shall maintain a current list of all owners of record
and all beneficial owners of any class of voting stock of Developer and shall
furnish the list to Franchisor upon request.
7.2 If Developer is a partnership, Developer shall comply with the
following requirements during the term of this Agreement:
7.2.1 Developer shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto.
-7-
<PAGE>
7.2.2 Developer shall include in its partnership certificate, if any,
filed with the state in which Developer was formed a statement that the transfer
of ownership of a partnership interest is subject to the terms and conditions of
an Agreement with Bruegger's Franchise Corporation.
7.2.3 Developer shall prepare and furnish to Franchisor, upon
request, a list of all general and limited partners in Developer.
7.3 If Developer is a limited liability company, Developer shall comply
with the following requirements during the term of this Agreement:
7.3.1 Developer shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto.
7.3.2 Developer shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
7.3.3 Developer's limited liability company operating agreement shall
include provisions that state that the transfer of shares is subject to the
terms and conditions of an Agreement with Franchisor.
7.3.4 Developer shall prepare and furnish to Franchisor, upon
request, a list of all members of Developer.
7.4 Developer shall furnish to Franchisor, within ninety (90) days after
the end of each fiscal year of Developer, an income statement showing the
results of Developer's operations during such fiscal year and a balance sheet as
of the end of such fiscal year, both of which shall be prepared in accordance
with generally accepted accounting principles and reviewed by an independent
certified public accountant. If, however, the foregoing income statements and
balance sheets are audited by an independent certified public accountant, then
Developer shall furnish the audited income statements and balance sheets rather
than the reviewed income statements and balance sheets.
8. TRANSFER OF INTEREST
8.1 Franchisor shall have the right to transfer or assign this Agreement
or any part of its rights or obligations under this Agreement to any person or
legal entity. Developer agrees that Franchisor shall have no liability after
the effective date of such transfer or assignment for the performance of any
obligations hereunder.
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<PAGE>
8.2 Developer understands and acknowledges that the rights and duties set
forth in this Agreement are personal to Developer and that Franchisor has
granted these rights in reliance on the business skill, financial capacity, and
personal character of Developer's present owners and management. Accordingly,
neither Developer nor any immediate or remote successor to any part of
Developer's interest in this Agreement, nor any individual, partnership,
corporation, or other legal entity which directly or indirectly owns any
interest in Developer, shall sell, assign, transfer, convey, or give away any
direct or indirect interest in this Agreement, the Developer, or in all or
substantially all of the assets of the Developer without the prior written
consent of Franchisor. Developer shall notify Franchisor in writing of any
proposed transfer at least thirty (30) days before such proposed transfer is to
take place, and shall provide such information and documentation relating to the
proposed transfer as Franchisor may reasonably require. Any purported
assignment or transfer not having the written consent of Franchisor required by
this Section 8.2 shall be null and void and shall constitute a material breach
of this Agreement, for which Franchisor may immediately terminate this Agreement
without opportunity to cure pursuant to Section 9.2 of this Agreement.
8.3 Notwithstanding any other provision of this Section 8:
8.3.1 Developer shall not pledge or otherwise encumber this Agreement
or any interest of Developer as security for any loan or other obligation; and
8.3.2 Neither Developer nor any individual, partnership, corporation,
or other legal entity which directly or indirectly owns any interest in
Developer shall: (i) pledge or otherwise encumber any such direct or indirect
ownership interest in itself or in the Developer; or (ii) offer or sell
securities of itself or of Developer in an offering registered with the
Securities and Exchange Commission ("Commission") on any form then in use for
the registration of securities pursuant to the rules of the Commission in full
compliance with the Securities Act of 1933, or in any other public offering; and
8.3.3 If Developer is an entity, then the owner or owners of the
equity of Developer may, without Franchisor's prior written consent, sell,
assign, transfer or give away to employees of Developer, in an amount aggregated
during the term of this Agreement, as it may be extended pursuant to Section 2,
of not more than twenty-five percent (25%) of the outstanding equity of the
Developer, provided (i) Franchisor receives written notice of such transfer not
later than thirty (30) days prior to the transfer, which notice shall identify
the transferee, describe the transferee's position of employment, and include a
calculation demonstrating that the planned transfer complies with this Section
8.3.3, and (ii) such transfer, when combined with all prior transfers of the
equity of Developer, does not result in a change in control of Developer. Any
purported assignment or transfer not in compliance with this Section 8.3.3 shall
be null and void and shall constitute a material breach of this Agreement, for
which Franchisor may immediately terminate this Agreement without opportunity to
cure.
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<PAGE>
8.4 Franchisor shall have the right, exercisable within thirty (30) days
after receipt of written notice of a proposed transfer pursuant to Section 8.2,
to purchase the interest proposed to be transferred by sending written notice to
the transferor, as follows:
8.4.1 If the transfer is proposed to be made pursuant to a sale,
Franchisor may purchase the interest on the same terms and conditions offered by
the third party. Closing on such purchase shall occur within sixty (60) days
after the date of notice from Franchisor to the seller of the Franchisor's
election to purchase. If the consideration, terms, and/or conditions offered by
the third party are such that Franchisor may not reasonably be required to
furnish the same consideration, terms, and/or conditions, then Franchisor may
purchase the interest proposed to be sold for the reasonable equivalent in cash.
If the parties cannot agree within thirty (30) days on the reasonable equivalent
in cash, an independent appraiser shall be designated by Franchisor, at
Franchisor's expense, and the appraiser's determination shall be binding. Any
material change in the terms of the offer from a third party after Franchisor
has elected not to purchase the seller's interest shall constitute a new offer
subject to the same rights of first refusal by Franchisor as in the case of the
third party's initial offer.
8.4.2 If the transfer is proposed to be made pursuant to a gift for
no consideration, Franchisor shall designate an independent appraiser to
determine the fair market value of the interest proposed to be transferred.
Franchisor and Developer shall each pay one-half of the expense of the
appraisal. Franchisor may purchase such interest at the fair market value
determined by the appraiser. Closing on such purchase shall occur within sixty
(60) days after notice from Franchisor to the transferor of the appraiser's
determination of fair market value.
8.5 If Franchisor elects not to exercise its right of first refusal under
Section 8.4, the proposed transferor may complete the transfer after obtaining
Franchisor's written consent as required under Section 8.2. Except as
hereinafter provided, Franchisor shall not unreasonably withhold its consent to
a proposed transfer. Franchisor may, however, withhold consent, in its sole
discretion, to the transfer if such transfer is not made in conjunction with a
simultaneous transfer of all comparable interests held by the transferor in all
Franchise Agreements executed pursuant to this Agreement. In addition, if the
proposed transfer, alone or together with other previous, simultaneous, or
proposed transfers, would have the effect of changing control of Developer or of
the rights granted under this Agreement, Franchisor may, in its sole discretion,
withhold consent to such transfer. In any event, if Franchisor consents to any
transfer, Franchisor may require conditions to any such consent, including, but
not limited to, the following:
8.5.1 That all of Developer's accrued monetary obligations and all
other outstanding obligations to Franchisor and its affiliates have been
satisfied;
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<PAGE>
8.5.2 That 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 affiliates or any Franchise Agreement
executed pursuant to this Agreement;
8.5.3 The transferee (or, if the transferee is a corporation or
partnership, such owners of a beneficial interest in the transferee as
Franchisor may request) shall demonstrate to Franchisor's satisfaction that it
meets Franchisor's educational, managerial, and business standards; possesses a
good moral character, business reputation, and credit rating; has the aptitude
and ability to conduct the business contemplated hereunder (as may be evidenced
by prior related business experience or otherwise); and has adequate financial
resources and capital to complete development of the territory in a timely
manner; and
8.5.4 That the transferee enter into a written assignment, in a form
satisfactory to Franchisor, assuming and agreeing to discharge all of
Developer's obligations under this Agreement;
8.5.5 That the transferor execute a general release, in a form
satisfactory to Franchisor, of any and all claims against Franchisor, its
affiliates and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities;
8.5.6 That employees of the transferee who have not previously
completed a training program approved by Franchisor, at the transferee's
expense, complete any training programs then in effect for new Bruegger's Bagels
franchisees; and
8.5.7 That Developer pay a transfer fee of Five Thousand Dollars
($5,000) plus Franchisor's actual expenses for outside services associated with
reviewing the application to transfer, including, but not limited to, reasonable
attorneys' fees.
8.6 The executor or personal representative of a person with an interest
in Developer shall transfer his or her interest to a third party approved by
Franchisor within a reasonable time after the date of such person's death or
declaration of such person's mental incapacity. Such transfers shall be subject
to Franchisor's right of first refusal under Section 8.4, or, if such right is
not exercised, the same conditions as may be imposed on any inter vivos transfer
under Section 8.5. In the case of transfer by bequest, if the beneficiaries are
unable to meet the conditions of this Section 8, the executor shall transfer the
decedent's interest to another party approved by Franchisor, subject to all of
the terms and conditions for transfers contained in this Agreement. If an
interest is not disposed of under this Section 8.6 within two (2) years from the
date of death or appointment of a personal representative, Franchisor may
terminate this Agreement pursuant to Section 9.2.3 below.
8.7 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor may have against the transferring party, nor shall it be
deemed a waiver of
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<PAGE>
Franchisor's right to demand exact compliance by the transferor or transferee
with any of the terms of this Agreement by the transferor or transferee.
8.8 Securities of Developer may be sold in an offering not requiring
registration under any federal or state securities laws, subject to all of the
conditions of this Section 8, including Franchisor's right of first refusal
under Section 8.4. All materials required for the private offering by federal
or state law shall be submitted to Franchisor for review prior to their use.
Franchisor's review of any offering shall be limited solely to the subject of
the relationship between Franchisee and Franchisor. No offering shall imply, by
use of the Proprietary Marks or otherwise, that Franchisor is participating in
an underwriting, issuance, or offering of securities of either Developer or
Franchisor. Developer and any other participants in the offering must fully
indemnify Franchisor in connection with the offering. For each proposed
offering, Developer shall pay to Franchisor a non-refundable fee of Five
Thousand Dollars ($5,000) to reimburse Franchisor for its costs and expenses
associated with reviewing the proposed offering. Developer shall give
Franchisor written notice at least thirty (30) days prior to the date of
commencement of any offering.
9. DEFAULT AND TERMINATION
9.1 Developer shall be in default under this Agreement, and all rights
granted herein shall automatically terminate without notice to Developer, if
Developer becomes insolvent or makes a general assignment for the benefit of
creditors; if a petition in bankruptcy is filed by Developer or such a petition
is filed against Developer and not opposed by Developer; if Developer is
adjudicated as bankrupt or insolvent; 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; 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; if proceedings for a composition with creditors under any state or
federal law is instituted by or against Developer; if a final judgment remains
unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond
is filed); if Developer is dissolved; if execution is levied against Developer's
business or property; if suit to foreclose any lien or mortgage against the
premises or equipment of any Bakery developed hereunder is instituted against
Developer and not dismissed within thirty (30) days; or if the real or personal
property of any Bakery developed hereunder is sold after levy thereupon by any
sheriff, marshall, or constable.
9.2 Franchisor shall have the right to terminate this Agreement, effective
immediately upon the receipt of written notice by Developer, if any of the
following events occurs:
9.2.1 If Developer fails to comply with the First Renewal Development
Schedule;
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9.2.2 If any Franchise Agreement for a Bakery developed hereunder is
terminated for default;
9.2.3 In the event of any transfer of an interest in Developer or in
this Agreement which does not comply with Section 8 of this Agreement, or any
transfer of an interest in Developer by intestate succession to an heir who is
unable to meet the conditions of Section 8; or
9.2.4 If Developer, or any entity which controls Developer, becomes a
publicly-held corporation, as referenced in Section 8.3.2.
9.3 If Developer fails to cure any default of any other provision of this
Agreement within thirty (30) days after receiving written notice of default from
Franchisor, this Agreement shall terminate at the end of such thirty-day period
without further notice from Franchisor.
9.4 Upon termination of this Agreement, Developer shall have no right to
establish or operate any Bakery for which a Franchise Agreement has not been
executed by the parties prior to termination; and Franchisor shall be entitled
to establish, and to franchise others to establish, Bakeries at any location in
the Development Area except as may be otherwise provided under the terms of any
Franchise Agreement which remains in effect between Franchisor and Developer.
9.5 No right or remedy herein conferred upon or reserved to Franchisor is
exclusive of any other right or remedy provided or permitted by law or in
equity.
10. COVENANTS
10.1 Developer acknowledges that, pursuant to this Agreement, Developer
will receive valuable confidential information, including, without limitation,
information regarding the site selection, marketing, and food preparation
techniques of Franchisor and the System. Developer covenants that, during the
term of this Agreement, Developer shall not, either directly or indirectly, for
itself, or through, on behalf of, or in conjunction with any person or legal
entity:
10.1.1 Divert or attempt to divert any present or prospective
business or customer of any Bakery 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 the Proprietary Marks
and the System;
10.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor or who was employed by Franchisor within the preceding
three (3) months, or
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<PAGE>
otherwise directly or indirectly induce such person to leave his or her
employment with Franchisor; or
10.1.3 Own, manage, operate, engage in, be employed by, provide any
assistance to, or have any interest in (as owner or otherwise) any other
business whose sales of fresh or packaged bagels and cream cheese are more than
five percent (5%) of its total sales by annual dollar value.
10.2 Developer covenants that, except as otherwise approved in writing by
Franchisor, Developer shall not, for one (1) year after the expiration or
termination of this Agreement or the approved transfer of this Agreement to a
new developer, either directly or indirectly, for itself or through, on behalf
of, or in conjunction with any person or legal entity, own, maintain, operate,
engage in, be employed by, provide assistance to, or have any interest in any
business (i) whose sales of fresh or packaged bagels and cream cheese are more
than five percent (5%) of its total sales by annual dollar volume, and (ii)
which is, or is intended to be, located within the Development Area, except
pursuant to a Franchise Agreement with Franchisor.
10.3 Sections 10.1.3 and 10.2 shall not apply to ownership by Developer of
a less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
10.4 Developer understands and acknowledges that Franchisor shall have the
right, in its sole discretion, to reduce the scope of any covenant set forth in
Sections 10.1 and 10.2 of this Agreement, or any portion thereof, without
Developer's consent, effective immediately upon receipt by Developer of written
notice thereof; and Developer agrees that it shall comply forthwith with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section 15.1 hereof.
10.5 Developer agrees that the existence of any claims it 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 10.
Developer agrees to pay all costs and expenses incurred by Franchisor in
enforcing this Section 10, including, but not limited to, reasonable attorneys
fees.
10.6 Developer acknowledges that Developer's violation of the terms of
this Section 10 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Developer accordingly consents to
the issuance of an injunction prohibiting any conduct by Developer in violation
of the terms of this Section 10. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
10.7 At Franchisor's request, Developer shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 10 (including covenants applicable upon the termination of an
individual's relationship with Developer)
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<PAGE>
from any or all officers, directors, and holders of a direct or indirect
beneficial interest of five percent (5%) or more of the securities of Developer.
Every covenant required by this Section 10.7 shall be in a form satisfactory to
Franchisor, including, without limitation, specific identification of Franchisor
as a third party beneficiary with the independent right to enforce the covenant.
10.8 Franchisor agrees that it shall not employ or seek to employ any
person who is at the time employed by Developer or who was employed by Developer
within the preceding three (3) months, or otherwise directly or indirectly
induce such person to leave his or her employment with Developer.
11. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or delivered or sent by another
method which affords the sender evidence of receipt or attempted delivery, to
the respective parties at the following addresses, unless and until a different
address has been designated by written notice to the other party:
Notices to Franchisor: Bruegger's Franchise Corporation
P.O. Box 374
159 Bank Street
Burlington, Vermont 05402
Attn: Vice President of Development
With a copy to: Nordahl L. Brue, Esq.
Sheehey Brue Gray & Furlong P.C.
P.O. Box 66
119 South Winooski Avenue
Burlington, Vermont 05402
Notices to Developer: ______________________________________
______________________________________
______________________________________
Attn:_________________________________
Any notice sent or delivered which affords the sender evidence of receipt or
attempted delivery shall be deemed to have been given and received at the date
and time of receipt or attempted delivery.
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<PAGE>
12. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
12.1 It is understood and agreed by the parties 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 make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.
12.2 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.
12.3 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. Franchisor shall in no event
assume liability for, or be deemed liable hereunder as a result of, any such
action, nor shall Franchisor be liable by reason of any act or omission of
Developer or any claim or judgment arising therefrom against Developer or
Franchisor. Developer shall hold harmless and indemnify Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees against any claim arising directly or indirectly from, as a result of,
or in connection with Developer's activities hereunder, as well as the costs of
defending against any such claim.
13. APPROVALS AND WAIVERS
13.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor
therefor, and, except as may be otherwise expressly provided herein, such
approval or consent must be obtained in writing and signed by an officer of
Franchisor.
13.2 Franchisor makes no warranties or guarantees upon which Developer may
rely and assumes no liability or obligation to Developer by providing any
waiver, approval, consent, or suggestion to Developer in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
13.3 No failure of Franchisor to exercise any right reserved to it in this
Agreement or to insist upon strict compliance by Developer with any obligation
or condition in this Agreement, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of Franchisor's right
to exercise such right or to demand exact compliance with any of the terms of
this Agreement. Waiver by Franchisor of any particular default by Developer
shall not affect or impair Franchisor's rights with respect to any subsequent
default of the same, similar, or different nature; nor shall any delay,
forbearance, or omission of Franchisor to exercise any power or right arising
out of any breach or default by Developer of any of the terms, provisions, or
covenants of this Agreement affect or impair Franchisor's
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<PAGE>
right to exercise the same; nor shall such constitute a waiver by Franchisor of
any rights hereunder or rights to declare any subsequent breach or default and
to terminate this Agreement prior to the expiration of its term.
14. SEVERABILITY AND CONSTRUCTION
14.1 If, for any reason, any provision of this Agreement 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 invalidity shall
not impair the operation of, or have any other effect upon, such other
provisions of this Agreement as may remain otherwise intelligible. The latter
shall continue to be given full force and effect and bind the parties hereto,
and the invalid provision(s) shall be deemed not to be a part of this Agreement.
14.2 Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Developer, Franchisor, and such of their successors and
assigns as may be contemplated by Section 8 above, any rights or remedies under
or by reason of this Agreement.
14.3 Any provision or covenant of this Agreement which expressly or by
reasonable implication imposes obligations after the expiration or termination
of this Agreement shall survive such expiration or termination.
14.4 Developer agrees to be bound by any promise or covenant imposing the
maximum duty permitted by law which is subsumed within the terms of any
provision of this Agreement, as though it were separately articulated in and
made a part of this Agreement, that may result from (i) striking from any of the
provisions hereof any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final decision to which Franchisor is a party, or (ii) reducing the scope of any
promise or covenant to the extent required to comply with such a court or agency
order.
15. ENTIRE AGREEMENT; APPLICABLE LAW
15.1 This Agreement, the documents referred to herein, and the Exhibits
attached hereto constitute the entire agreement between Franchisor and Developer
concerning the subject matter hereof and supersede all prior agreements,
negotiations, representations, and correspondence concerning the same subject
matter. Except for those permitted to be made unilaterally by Franchisor
hereunder, no amendment, change, or variance from this Agreement shall be
binding on either party unless agreed to in writing by the parties and executed
by their authorized officers or agents.
15.2 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law the
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<PAGE>
laws of such state shall prevail, without regard to the application of such
state's conflict of law rules.
15.3 Any action (whether or not arising out of this Agreement) brought by
Developer against Franchisor in any court, whether federal or state, shall be
brought, and any action brought by Franchisor against Developer may be brought,
within the judicial district in which Franchisor has its principal place of
business. The parties hereby waive all questions of personal jurisdiction or
venue for the purpose of carrying out this provision.
15.4 No right or remedy conferred upon or reserved to Franchisor or
Developer by this Agreement is intended to be, nor shall be deemed, exclusive of
any other right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy.
15.5 Nothing herein contained shall bar Franchisor'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.
15.6 Any and all claims and actions arising out of or relating to this
Agreement or the relationship of Developer and Franchisor, brought by either
party against the other, shall be commenced within eighteen (18) months from the
occurrence of the facts giving rise to such claim or action, or such claim or
action shall be barred.
15.7 Developer and Franchisor irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Developer and Franchisor hereby waive to the fullest extent permitted by law any
right to, or claim of, any punitive or exemplary damages against the other and
agree that, in the event of a dispute between them, each shall be limited to the
recovery of any actual damages sustained by it.
15.8 If Developer shall consist of two or more persons or entities at any
time during the term of this Agreement, their obligations hereunder to
Franchisor shall be joint and several.
16. ACKNOWLEDGMENTS
16.1 Developer acknowledges that the success of the business venture
contemplated by this Agreement involves substantial business risks and is
largely dependent upon Developer's business skills and financial and other
resources. Franchisor expressly disclaims the making of, and Developer
acknowledges not having received, any warranty or guarantee, express or implied,
as to the potential volume, profits, or success of the business venture
contemplated by this Agreement.
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16.2 Developer acknowledges that Developer has received, read, and
understood this Agreement and the attached Exhibits, and that Developer has had
ample time and opportunity to consult with advisors of Developer's own choosing
about the potential benefits and risks of entering into this Agreement.
16.3 Developer acknowledges that it received a complete copy of this
Agreement and the attached Exhibits at least five (5) business days prior to the
date on which this Agreement was executed. Developer further acknowledges that
it 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 have duly executed this Agreement on the
day and year first above written.
BRUEGGER'S FRANCHISE CORPORATION DEVELOPER:_________________________________
By:_____________________________ By:________________________________________
Title:__________________________ Title:_____________________________________
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<PAGE>
EXHIBIT A
to
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Marks Type Registered Reg. No.
- ------------------------- ---- ---------- ---------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
APPLICATIONS PENDING
--------------------
Date Sent
Marks Type for Filing Application No.
- ----- ----- ---------- ---------------
BRUEGGER'S BAGELS/
BAKED FRESH AND DESIGN SM 1/16/96 N/A
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 N/A
JAVAHH! TM 7/3/95 N/A
SINGLE BAKER/SINGLE
BAGEL @ HEARTH DESIGN SM 1/16/96 N/A
</TABLE>
<PAGE>
EXHIBIT B
to
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
DEVELOPMENT AREA
----------------
The Development Area (see Section 1.1) shall be the following:
<PAGE>
EXHIBIT C
to
BRUEGGER'S BAGELS
DEVELOPMENT AGREEMENT
FRANCHISE AGREEMENT
-------------------
The attached form of Franchise Agreement shall be used for all Bakeries to
be developed during the initial term and during the first renewal term of this
Agreement, but not during any subsequent renewal term.
<PAGE>
BRUEGGER'S BAGELS
FRANCHISE AGREEMENT
<PAGE>
BRUEGGER'S BAGELS
FRANCHISE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<C> <S> <C>
1. GRANT.................................................................... 1
2. TERM AND RENEWAL......................................................... 3
3. DUTIES OF FRANCHISOR..................................................... 3
4. FEES..................................................................... 4
5. CONSTRUCTING AND OPENING THE BAKERY...................................... 5
6. TRAINING................................................................. 6
7. DUTIES OF FRANCHISEE..................................................... 8
8. PROPRIETARY MARKS....................................................... 12
9. OPERATIONS MANUALS...................................................... 14
10. CONFIDENTIAL INFORMATION................................................ 14
11. ACCOUNTING AND RECORDS.................................................. 15
12. ADVERTISING AND PROMOTION............................................... 16
13. INSURANCE............................................................... 19
14. TRANSFER OF INTEREST.................................................... 20
15. DEFAULT AND TERMINATION................................................. 24
16. OBLIGATIONS UPON TERMINATION OF EXPIRATION.............................. 26
17. COVENANTS............................................................... 28
18. ORGANIZATION OF FRANCHISEE.............................................. 29
19. TAXES, PERMITS, AND INDEBTEDNESS........................................ 31
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.............................. 31
21. APPROVALS AND WAIVER.................................................... 32
22. NOTICES................................................................. 32
23. ENTIRE AGREEMENT........................................................ 33
24. SEVERABILITY AND CONSTRUCTION........................................... 33
25. APPLICABLE LAW; ARBITRATION............................................. 34
26. ACKNOWLEDGEMENTS........................................................ 36
</TABLE>
EXHIBIT A - PROPRIETARY MARKS
<PAGE>
BRUEGGER'S BAGELS
FRANCHISE AGREEMENT
THIS AGREEMENT is entered into on _______________, 19___ by and between
BRUEGGER'S FRANCHISE CORPORATION, a Delaware corporation ("Franchisor"), and
_____________________________ ("Franchisee").
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor; distinctive exterior and interior restaurant design, decor, color
scheme, fixtures, and furnishings; standards and specifications for ingredients,
food preparation, equipment, supplies, and restaurant operations; and
advertising and promotional programs; all of which may be changed, improved, and
further developed by Franchisor and its affiliates from time to time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "BRUEGGER'S", as set forth in Exhibit A to this Agreement,
and such other trade names, service marks, and trademarks as may hereafter be
designated by Franchisor in writing for use in the System (the "Proprietary
Marks");
WHEREAS, Franchisee wishes to obtain the right to establish and operate a
Bruegger's Bakery at the location specified in this Agreement;
WHEREAS, Franchisor and Franchisee are parties to a Bruegger's Bagels
Development Agreement dated _______________ ("Development Agreement") under
which Franchisee has the right and obligation to develop Bruegger's Bakeries
within a specific geographic territory that includes the location specified in
this Agreement, and pursuant to which the parties are entering into this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. GRANT
-----
1.1 Franchisor grants to Franchisee the exclusive right, except as
provided in Section 1.4 hereof, and Franchisee undertakes the obligation, on the
terms and conditions set forth in this Agreement, to establish and operate one
Bruegger's Bakery at the location
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specified in Section 1.2 below (the "Bakery") and to use the Proprietary Marks
and the System solely in connection therewith. Franchisor further grants to
Franchisee, subject to Section 7.5 below, the right to use certain trade secrets
of Franchisor's affiliates to manufacture bagel dough, solely for use in the
Bakery.
1.2 Franchisee shall operate the Bakery only at___________________________
__________(the "Approved Location" or "Premises").
1.3 Except as provided in Section 1.4, Franchisor shall not establish a
Bruegger's Bakery or franchise others to establish a Bruegger's Bakery within an
area determined by drawing a circle around the Bakery, which circle shall have
the Bakery as its center, and which circle shall be the smaller of the following
(the "Exclusive Area"):
1.3.1 A circle with a one and one-half (1.5) mile radius; or
1.3.2 A circle that contains a population of thirty thousand
persons, the radius of which circle shall be determined at such time or times as
Franchisor communicates to Franchisee an intent to establish a Bruegger's Bakery
or franchise others to establish a Bruegger's Bakery within one and one-half
(1.5) miles of the Bakery. For purposes of this Section 1.3.2, the population
shall be the greater of the daytime population or the residential population.
1.4 Franchisor retains the right:
1.4.1 To establish and operate (directly or through an
affiliate) one or more Bakeries, to franchise others to establish and operate
one or more Bakeries, and to sell and distribute under the Bruegger's "name" any
of the items designated as "Required Items" from time to time in Franchisor's
Confidential Operations Manuals, at any location outside the Exclusive Area.
1.4.2 To sell and distribute, and license others to sell and
distribute food products including, but not limited to, cream cheese products
and other bagel spreads under the "Bruegger's" name or under any other name,
directly or indirectly, through supermarkets, delicatessens, specialty food
stores, convenience stores, and other wholesale and retail food stores, at any
location outside the Exclusive Area.
1.4.3 To establish and operate, and franchise others to
establish and operate Bruegger's Bakeries in any mall, military base, airport,
hospital, educational institution or highway rest area ("Excluded Locations"),
whether or not such Excluded Locations are located inside or outside the
Exclusive Area. For purposes of this Section 1.4.3, "mall" shall be defined as
any enclosed shopping facility which contains 100,000 square feet or more of
enclosed space.
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2. TERM AND RENEWAL
----------------
2.1 Unless sooner terminated as provided herein, the initial term of
this Agreement shall expire twenty (20) years from the date first written above.
2.2 Franchisee may renew the rights granted hereunder for additional
terms of the lesser of ten (10) years or the remaining term (including any
extensions) of the lease for the premises of the Bakery (the "Premises"),
subject to the following conditions:
2.2.1 Franchisee shall have given Franchisor written notice of
Franchisee's election to renew not less than six (6) months nor more than nine
(9) months before the end of the then current term;
2.2.2 Franchisee shall not be in default of any provision of
this Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor or its affiliates, and Franchisee shall have
substantially complied with such agreements throughout their respective terms;
2.2.3 Franchisee shall have satisfied all monetary obligations
owed by Franchisee to Franchisor and its affiliates, and shall have timely met
those obligations throughout the initial term and all renewal terms of this
Agreement;
2.2.4 Franchisee shall make or provide for, in a manner
satisfactory to Franchisor, such renovation and modernization of the Bakery as
Franchisor may reasonably require, including, without limitation, installation
of new equipment and renovation of signs, furnishings, fixtures, and decor to
reflect the then-current standards and image of the System;
2.2.5 Franchisee shall execute Franchisor's then-current form of
renewal franchise agreement, which shall supersede this Agreement in all
respects;
2.2.6 Franchisee shall execute a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities; and
2.2.7 Franchisee shall comply with Franchisor's then-current
qualification and training requirements for new franchisees.
3. DUTIES OF FRANCHISOR
--------------------
3.1 Franchisor shall provide to Franchisee one set of Franchisor's
representative plans for the construction and layout of a Bruegger's Bakery.
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3.2 Franchisor shall provide to Franchisee, on loan, one set of
Franchisor's confidential operations manuals (the "Manuals").
3.3 Franchisor shall provide to Franchisee, on loan, only upon written
request pursuant to Section 7.5.2 below, one copy of Franchisor's confidential
Bagel Production Manual.
3.4 Franchisor shall provide a training program prescribed by
Franchisor, for the persons required or permitted to attend training under
Section 6 of this Agreement.
3.5 Franchisor shall provide such pre-opening and opening supervision
and assistance as Franchisor deems advisable.
3.6 Franchisor shall designate at least one supplier of Bruegger's
Direct Set Cream Cheese and license such supplier or suppliers to use the secret
recipes necessary to produce Bruegger's Direct Set Cream Cheese.
3.7 In addition to the advertising and promotional materials produced
by the advertising fund established by Franchisor for the System (the "Fund," as
further described in Section 12 of this Agreement), Franchisor shall make
available to Franchisee such advertising and promotional materials as Franchisor
may elect to produce with Franchisor's own funds. Franchisor may charge a
purchase price for such non-Fund materials equal to the costs to produce them.
3.8 Franchisor shall provide to Franchisee from time to time, as
Franchisor deems appropriate, advice and written materials concerning techniques
of managing and operating the Bakery.
4. FEES
----
[IF THE FRANCHISE AGREEMENT IS ONE OF THE FIRST THREE (3) FRANCHISE
AGREEMENTS EXECUTED BY FRANCHISEE PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN
THE FOLLOWING ALTERNATIVE FORM OF SECTION 4.1 SHALL APPLY:]
4.1 In consideration of the rights granted herein, Franchisee has paid
to Franchisor an initial franchise fee of Twenty-five Thousand Dollars
($25,000), receipt of which is hereby acknowledged, which is fully earned and
nonrefundable in consideration of the administrative and other expenses incurred
by Franchisor and Franchisor's lost or deferred opportunity to enter into
similar arrangements with others.
[IF THE FRANCHISEE HAS PREVIOUSLY EXECUTED THREE (3) FRANCHISE AGREEMENTS
PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN THE FOLLOWING ALTERNATIVE FORM OF
SECTION 4.1 SHALL APPLY:]
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4.1 In consideration of the rights granted herein, Franchisee has paid
to Franchisor an initial franchise fee of Twenty Thousand Dollars ($20,000),
receipt of which is hereby acknowledged, which is fully earned and non-
refundable in consideration of the administrative and other expenses incurred by
Franchisor and Franchisor's lost or deferred opportunity to enter into similar
arrangements with others.
4.2 Franchisee shall pay Franchisor a weekly royalty fee in an amount
equal to five percent (5%) of the Gross Sales of the Bakery. As used in this
Agreement, "Gross Sales" means all revenue from the sale of all products and all
other income of every kind related to the Bakery (including, without limitation,
any proceeds from business interruption insurance), whether for cash or credit,
and regardless of collection in the case of credit. Gross Sales shall not
include any sales taxes or other taxes collected from customers by Franchisee
and paid directly to the appropriate taxing authority. For purposes of this
Agreement, unless otherwise designated by Franchisor in writing, a week begins
on Wednesday and ends on the following Tuesday.
4.3 Franchisee shall contribute weekly to the Fund the amount specified
in Section 12.1 below.
4.4 Franchisee shall designate an account at a commercial bank of its
choice (the "Account") for the payment of weekly royalty fees and advertising
fund contributions. Franchisee shall furnish the bank with such authorizations
as may be necessary to permit Franchisor to make withdrawals from the Account by
electronic funds transfer. On Monday of each week, Franchisor shall transfer
from the Account an amount equal to the royalty fees and advertising
contributions due from Franchisee based on Gross Sales for the preceding week.
Franchisor shall furnish Franchisee with a written confirmation of each such
transfer. Franchisee agrees to maintain sufficient funds in the Account at all
times to cover all royalty fees and advertising contributions payable to
Franchisor. If funds in the Account are insufficient to cover the amounts
payable at the time Franchisor makes its weekly electronic funds transfer, the
amount of the shortfall shall be deemed overdue, and Franchisee shall pay
Franchisor, on demand, in addition to the overdue amount, daily interest on such
amount from the date it was due until paid, at the rate of eighteen percent
(18%) per annum or the maximum rate permitted by law, whichever is less.
Entitlement to such interest shall be in addition to any other remedies
Franchisor may have.
5. CONSTRUCTING AND OPENING THE BAKERY
-----------------------------------
5.1 With respect to both the Bakery and the bagel dough manufacturing
site, Franchisor shall furnish to Franchisee a copy of Franchisor's
representative plans and specifications for construction of a Bakery and, if
applicable, a bagel dough manufacturing site, including exterior and interior
design and layout plans.
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5.2 Franchisee shall construct and equip the Bakery and any facility in
which Franchisee manufactures bagel dough pursuant to Section 7.5.2 below at
Franchisee's own expense. Before commencing construction of the Bakery,
Franchisee, at its expense, shall employ a qualified architect or engineer to
prepare preliminary and final architectural and engineering drawings and
specifications for the Premises consistent with Franchisor's representative
plans for a Bruegger's Bakery. As requested by the Franchisor, the preliminary
and final drawings and specifications shall be submitted to Franchisor for
approval. If Franchisor has not approved or rejected the drawings and
specifications within thirty (30) days after receipt of a complete set of
drawings and specifications, then Franchisor's approval shall be deemed
received. Once approved by Franchisor, the drawings and specifications shall
not be changed or modified without the prior written consent of Franchisor.
5.3 Franchisee shall obtain, at Franchisee's expense, all zoning
classifications, permits, and clearances (including, but not limited to,
certificates of occupancy and mall or strip center clearances) which may be
required by federal, state, or local laws, ordinances, or regulations.
5.4 During the entire period of construction of the Bakery, Franchisee
shall permit Franchisor and its agents to inspect the site at all reasonable
times. Franchisee shall complete construction and installation of all
furniture, fixtures, equipment, and signs in accordance with the final plans and
specifications approved by Franchisor under Section 5.1 above, and shall notify
Franchisor of the anticipated construction completion date.
5.5 Franchisee shall open the Bakery within one (1) year after the date
of this Agreement. The parties agree that time is of the essence in the opening
of the Bakery.
6. TRAINING; MANUALS
-----------------
[IF THIS AGREEMENT RELATES TO THE FIRST BAKERY TO BE OPENED BY FRANCHISEE
PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN THE FOLLOWING ALTERNATIVE FOR OF
SECTION 6.1 SHALL APPLY:]
6.1 Within sixty (60) days before the Bakery opens for business, the
manager, and two bakers designated by Franchisee, together with the individual
who shall be responsible for the operations of all Bakeries operated by
Franchisee (the "Operator") shall attend and complete Franchisor's training
program to Franchisor's satisfaction.
[IF THIS AGREEMENT RELATES TO ANY BAKERY SUBSEQUENT TO THE FIRST BAKERY
OPERATED BY FRANCHISEE PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN THE FOLLOWING
ALTERNATIVE VERSION OF SECTION 6.1 SHALL APPLY:]
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6.1 Franchisee shall provide a training program to its own personnel.
Except as provided in this Section 6, the Operator, within sixty (60) days
before the Bakery opens for business, the manager and two bakers designated by
Franchisee together with the individual who shall be responsible for the
operations of all Bakeries operated by Franchisee (the "Operator"), shall attend
and complete the training program conducted by Franchisee, unless such
individuals previously completed training to Franchisor's satisfaction. The
content and administration of Franchisee's training program must be at least
equal to those of Franchisor's training program and must be approved in advance
by Franchisor. Franchisor will provide Franchisee with the materials and, to
the extent Franchisee deems its necessary or appropriate, assistance in
designing and developing Franchisee's own training program. Franchisor shall
have the right to review Franchisee's training program periodically to ensure
its quality and to verify that managers, and bakers are being trained in a
timely and satisfactory manner. Franchisor shall notify Franchisee of any
deficiencies in the training program. Franchisee shall promptly cure such
deficiencies. If Franchisee fails to cure such deficiencies within a reasonable
time, Franchisor may require all Operators, Bakery managers and bakers to attend
training conducted by Franchisor at Franchisee's expense, until such time as the
deficiencies in Franchisee's program have been corrected to Franchisor's
satisfaction.
6.2 Similarly, within sixty (60) days before a bagel dough
manufacturing site opens for business, the manager of such facility shall attend
and complete Franchisor's training program to Franchisor's satisfaction, or, if
applicable, shall attend and complete a training program conducted by Franchisee
and approved by Franchisor pursuant to the Development Agreement.
6.3 After the Bakery opens for business:
6.3.1 Any person employed by Franchisee to serve as Operator, as
manager or baker of the Bakery, or as manager of a bagel dough manufacturing
site, before commencing his or her duties, shall attend and satisfactorily
complete the training program referred to in Section 6.1; and
6.3.2 Such of Franchisee's employees as Franchisor may
reasonably designate shall attend and complete, to Franchisor's satisfaction,
such additional training programs as Franchisor may reasonably require from time
to time.
6.4 All training conducted by Franchisor shall be held in either
Burlington, Vermont or Chicago, Illinois unless Franchisor designates a
different location by written notice to Franchisee. Franchisor shall provide
instructors, training facilities, and training materials for all such training
at no charge to Franchisee. Franchisee shall be responsible for all other
expenses for training of its employees, including, but not limited to, the costs
of transportation, lodging, meals, and wages.
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6.5 Franchisor shall provide to Franchisee, on loan, one set of
Manuals. The Manuals shall remain the sole property of Franchisor and shall be
kept in a secure place at all times. Franchisee shall not photocopy, duplicate,
record, or otherwise reproduce the Manuals or any of its contents without the
prior written consent of Franchisor.
7. DUTIES OF FRANCHISEE
--------------------
7.1 In order to protect the reputation and goodwill of Franchisor and
to maintain high standards of operation under the System, Franchisee shall
operate the Bakery in strict conformance with the methods, standards, and
specifications prescribed by Franchisor from time to time in the Manuals or
otherwise in writing. If Franchisee, pursuant to Section 7.5.2 below, produces
its own bagel dough for the Bakery, Franchisee shall manufacture such bagel
dough in strict conformance with the methods, standards, and specifications
prescribed by Franchisor from time to time in the Bagel Production Manual.
Franchisee shall not deviate from such standards, specifications, and procedures
without Franchisor's prior written consent.
7.2 Franchisee shall use the Premises solely for the operation of the
Bakery, shall keep the Bakery open and in normal operation for the minimum hours
and days specified in the Manuals and as permitted by applicable laws, and shall
refrain from using or permitting the use of the Premises for any other purpose
or activity at any time without first obtaining the written consent of
Franchisor.
7.3 Except to the extent provided in Section 5.1 of the Development
Agreement, Franchisee shall be solely responsible for all employment decisions
and functions of the Bakery, including, without limitation, those related to
hiring, firing, training, wage and hour requirements, recordkeeping,
supervision, and discipline of employees. Franchisee shall maintain a
competent, conscientious, trained staff with enough members to operate the
Bakery in an efficient and competent manner. Franchisee shall take such steps
as are necessary to ensure that its employees preserve good customer relations;
render competent, prompt, courteous, and knowledgeable service; and meet such
minimum standards as Franchisor may establish from time to time in the Manuals.
7.4 Franchisee shall offer for sale in the Bakery all products and
services which are designated as core products by Franchisor from time to time
in the Manuals (the "Required Items"). Franchisee may also offer for sale any
non-Required Items and services which have been approved by Franchisor in the
Manuals for sale in a Bruegger's Bakery, but Franchisee shall not offer or sell
any other products or services without Franchisor's prior written consent. All
products shall be sold only in the weights, sizes, forms, and packages approved
by Franchisor. Franchisee shall discontinue selling or offering for sale any
products or services which Franchisor, in its sole discretion, disapproves in
writing at any time. Franchisee shall have sole discretion as to the prices of
all products and services offered and sold by it to its customers.
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7.5 A principal purpose of the relationship created by this Agreement
is to enable Franchisee to sell bagels prepared from dough made in accordance
with the proprietary recipe and manufacturing process owned by Bruegger's
Corporation, an affiliate of Franchisor ("Bruegger's Bagels"), and to sell
varieties of a special cream cheese product ("Bruegger's Direct Set Cream
Cheese") made in accordance with proprietary recipes owned by Bruegger's
Corporation and a proprietary manufacturing processes owned by Franklin County
Cheese Corporation, another affiliate of Franchisor. In order to protect the
ownership interests of Franchisor's affiliates in the proprietary recipes and
processes and to ensure the quality, uniformity, and distinctiveness of
Bruegger's Bagels and Bruegger's Direct Set Cream Cheese, Franchisee agrees
that:
7.5.1 All of Franchisee's requirements of Bruegger's Direct Set
Cream Cheese shall be purchased by Franchisee from a supplier designated by
Franchisor; and
7.5.2 All of Franchisee's requirements of bagel dough shall
either be: (i) manufactured by Franchisee in strict conformance with the
standards and procedures set forth by Franchisor from time to time in the Bagel
Production Manual; or (ii) purchased by Franchisee from a supplier designated by
Franchisor. Franchisor shall furnish one (1) copy of the Bagel Production
Manual to Franchisee within one (1) week after receipt of written notification
from Franchisee that Franchisee intends to produce its own bagel dough for the
Bakery, unless Franchisee has previously received a copy of the Bagel Production
Manual pursuant to another Bruegger's Bagels Franchise Agreement, in which case
Franchisor shall have no obligation to furnish an additional copy. Franchisee's
written notice shall explicitly acknowledge Franchisee's obligation to hold the
Bagel Production Manual and its contents in strict confidence at all times
pursuant to Section 9 of this Agreement.
7.6 Except for bagel dough and Bruegger's Direct Set Cream Cheese, as
provided in Section 7.5, Franchisee shall purchase all products and services for
the Bakery solely from suppliers who demonstrate to Franchisor's continuing
reasonable satisfaction the ability to meet Franchisor's standards and
specifications, who possess adequate quality controls and capacity to supply
Franchisee's needs promptly and reliably, and who have been approved by
Franchisor in the Manuals or otherwise in writing. For purposes of Sections 7.5
and 7.6, "supplier" means any source of products or services, including, but not
limited to, manufacturers, wholesalers, and distributors. If Franchisee desires
to purchase products or services from an unapproved supplier, Franchisee shall
submit to Franchisor a written request to approve the proposed supplier,
together with such information as Franchisor may reasonably require. Franchisor
shall have the right to require that its representatives be permitted to inspect
the supplier's facilities, and that samples from the supplier be delivered for
evaluation and testing either to Franchisor or to an independent testing
facility designated by Franchisor. A charge not to exceed the reasonable cost
of the evaluation and testing shall be paid by Franchisee, whether or not the
supplier is approved. Within thirty (30) days after its receipt of Franchisee's
request and completion of evaluation and testing (if required by Franchisor),
Franchisor shall notify Franchisee in writing of its approval or disapproval of
the
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proposed supplier. Approval shall not be unreasonably withheld. Franchisee
shall not purchase, sell, or offer for sale any products or services of the
proposed supplier until Franchisor's written approval of the proposed supplier
is received. Franchisor may revoke its approval of particular suppliers from
time to time if Franchisor determines, in its sole judgment, that such suppliers
or their products or services no longer meet Franchisor's standards. Upon
receipt of written notice of revocation, Franchisee shall cease to purchase from
the disapproved supplier and, in the case of revocation based on failure of
products to meet Franchisor's standards, Franchisee shall dispose of its
remaining inventory of such products as directed by Franchisor.
7.7 Franchisee shall acquire and install in the Bakery, at Franchisee's
expense, point of sale equipment and software that is compatible with
Franchisor's data collection systems and that Franchisor approves in writing
prior to installation and use. Franchisee shall maintain electronic connection
of its point of sale systems with those of Franchisor; shall use the point of
sale systems in accordance with the policies and operational procedures issued
by Franchisor from time to time; shall transmit data to Franchisor or permit
Franchisor to poll Franchisee's systems at the times specified by Franchisor;
shall maintain its point of sale systems in good working order at all times;
and shall ensure that Franchisee's employees are adequately trained in the use
of such systems and the related policies and procedures of Franchisor.
Franchisee shall bear all costs of installation, operation, and maintenance of
the point of sale systems, except for toll charges incurred by Franchisor in
accessing Franchisee's systems.
7.8 In addition to the requirements of Section 7.7, Franchisee shall
acquire and install in the Bakery and any facility in which Franchisee
manufactures bagel dough, at Franchisee's expense, such fixtures, furnishings,
equipment, decor, and signs as Franchisor may reasonably direct from time to
time. Franchisee shall not install or permit to be installed on or about the
Premises, without Franchisor's prior written consent, any fixtures, furnishings,
equipment, decor, signs, or other items not previously approved by Franchisor.
7.9 Franchisee shall permit Franchisor and its agents to enter the
Bakery and any facility in which Franchisee manufactures bagel dough at any time
during normal business hours to conduct inspections; shall cooperate with such
inspections by rendering such assistance as Franchisor's representatives may
reasonably request; and, upon notice from Franchisor or its agents, shall
immediately begin such steps as may be necessary to correct any deficiencies
noted during any such inspection.
7.10 Franchisee shall maintain the Premises (including adjacent public
areas) in a clean, orderly condition and in excellent repair. Franchisee, at
its own expense, shall make such additions, alterations, repairs, and
replacement as may be required for that purpose (but no others without
Franchisor's prior written consent).
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7.11 At Franchisor's request, but not more often than once every seven
(7) years, unless sooner required by Franchisee's lease, Franchisee shall
refurbish the Bakery to conform to the then-current design and service system,
trade dress, and color schemes for a new Bruegger's Bakery. Such refurbishment
may require expenditures by Franchisee on, among other things, structural
changes, installation of new equipment, remodeling, redecoration, and
modifications to existing improvements. Franchisor shall consider the useful
life of the capital improvements in developing its standards for regular
refurbishment.
7.12 Franchisee shall participate in special promotional activities
which Franchisor may prescribe generally for the System, including but not
limited to an annual "Bruegger's Birthday" promotion, provided that Franchisee
shall always have sole discretion as to the prices charged to its customers. If
Franchisor prescribes any such activities, Franchisee shall bear its own costs
of conducting such activities for the Bakery.
7.13 Franchisee shall not implement any change in the System without the
prior written consent of Franchisor. Franchisee shall notify Franchisor in
writing of any change in the System which Franchisee desires to implement, and
shall provide to Franchisor such information as Franchisor requests regarding
the proposed change. Franchisee acknowledges and agrees that Franchisor shall
have the right to incorporate the change into the System and thereupon obtain
all right, title, and interest of Franchisee therein, without compensation to
Franchisee.
7.14 Franchisee acknowledges that the System may be unilaterally
supplemented, improved, and otherwise modified from time to time by Franchisor.
Franchisee agrees to comply with all reasonable requirements of Franchisor in
that regard, including, without limitation, offering and selling new types of
products or services as specified by Franchisor.
7.15 Franchisee shall comply with all terms of its lease or sublease for
the Premises and all other agreements affecting the operation of the Bakery.
Franchisee shall undertake best efforts to maintain a good working relationship
with its landlord and shall refrain from any activity which may jeopardize
Franchisee's right to remain in possession of, or to renew the lease or sublease
for, the Premises.
7.16 Franchisee shall operate the Bakery in full compliance with all
applicable municipal, county, state and federal laws, rules, regulations and
ordinances, including, without limitation, all government regulations relating
to occupational hazard and health, worker's compensation insurance, unemployment
insurance and withholding and payment of federal and state income taxes, social
security taxes and sales taxes. Within ten (10) days after receipt thereof by
Franchisee, Franchisee shall forward to Franchisor copies of any and all
reports, warnings, notices of violation or other evidence reflecting less than
full compliance by Franchisee with any applicable laws, rules, regulations or
ordinances.
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8. PROPRIETARY MARKS
-----------------
8.1 Franchisor represents that Bruegger's Corporation has granted
Franchisor a license to use, and to license others to use, the Proprietary
Marks; that, subject to any common law rights of others, Franchisor has the
right to license Franchisee to use the Proprietary Marks; and that Franchisor
has taken and will take all steps reasonably necessary to preserve and protect
the validity of the Proprietary Marks and its right to license others to use
them.
8.2 Franchisee agrees that:
8.2.1 Franchisee shall use only the Proprietary Marks designated
by Franchisor and shall use them only in the manner authorized by Franchisor;
8.2.2 Franchisee shall use the Proprietary Marks only for the
operation of the Bakery and only at the Approved Location or in advertising for
the Bakery;
8.2.3 Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the Bakery only under the name
"BRUEGGER'S BAGELS", shall use all Proprietary Marks without prefix or suffix,
and shall not use the Proprietary Marks as part of its corporate or legal name;
8.2.4 Franchisee shall ensure that all advertising and
promotional materials, packaging, signs, decorations, and other items which may
be specified by Franchisor bear the Proprietary Marks in the form, color, size,
and location prescribed by Franchisor;
8.2.5 Franchisee, as directed by Franchisor, shall identify
itself as the owner of the Bakery in conjunction with any use of the Proprietary
Marks, including, but not limited to, on invoices, order forms, receipts, and
business stationery, as well as at such conspicuous locations on the Premises as
Franchisor may designate in writing;
8.2.6 Franchisee's right to use the Proprietary Marks is limited
to such uses as are authorized under this Agreement, and any unauthorized use
shall constitute an infringement of Franchisor's rights and the rights of
Bruegger's Corporation;
8.2.7 Franchisee shall not use the Proprietary Marks to incur
any obligation or indebtedness on behalf of Franchisor or Bruegger's
Corporation;
8.2.8 Franchisee shall comply with Franchisor's instructions in
filing and maintaining any requisite trade name or fictitious name
registrations, and shall execute any documents deemed necessary by Franchisor to
obtain protection for the Proprietary Marks or to maintain their continued
validity and enforceability; and
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8.2.9 During the term of this Agreement and after its expiration
or termination, Franchisee shall not directly or indirectly contest the validity
of, or take any other action which tends to jeopardize the rights of Franchisor
or its affiliates to the ownership of or right to use and to license others to
use the Proprietary Marks.
8.3 Franchisee acknowledges that:
8.3.1 The Proprietary Marks are valid and serve to identify the
System and those who are authorized to operate under the System;
8.3.2 Franchisee's use of the Proprietary Marks pursuant to this
Agreement does not give Franchisee any ownership interest or other interest in
the Proprietary Marks;
8.3.3 Any and all goodwill arising from Franchisee's use of the
Proprietary Marks shall inure exclusively to the benefit of Franchisor and
Bruegger's Corporation, and upon expiration or termination of this Agreement, no
monetary amount shall be assigned as attributable to any goodwill associated
with Franchisee's use of the System or the Proprietary Marks; and
8.3.4 The license to use the Proprietary Marks granted hereunder
is nonexclusive.
8.4 Franchisee shall promptly notify Franchisor of any unauthorized use
of the Proprietary Marks, any challenge to the validity of the Proprietary
Marks, or any challenge to the ownership by Franchisor or Bruegger's Corporation
of the Proprietary Marks, Franchisor's right to use and to license others to
use, or Franchisee's right to use the Proprietary Marks. Franchisee acknowledges
that Franchisor and Bruegger's Corporation have the right to direct and control
any administrative proceeding or litigation involving the Proprietary Marks,
including any settlement thereof. Franchisor and Bruegger's Corporation have the
right, but not the obligation, to take action against uses by others that may
constitute infringement of the Proprietary Marks. Franchisor shall defend or
cause the defense of Franchisee against any third-party claim, suit, or demand
arising out of Franchisee's use of the Proprietary Marks. Franchisor shall bear
the cost of such defense (including the cost of any judgment or settlement) if
Franchisee has used the Proprietary Marks in accordance with this Agreement, but
otherwise Franchisee shall bear the cost of such defense (including the cost of
any judgment or settlement). Franchisee shall execute any and all documents and
do such acts as Franchisor deems necessary to carry out the defense or
prosecution of any litigation involving the Proprietary Marks, including, but
not limited to, becoming a nominal party to any legal action. Except to the
extent that such litigation is the result of Franchisee's use of the Proprietary
Marks in a manner inconsistent with the terms of this Agreement, Franchisor
agrees to reimburse Franchisee for its out-of-pocket costs in doing such acts.
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8.5 Franchisor reserves the right to modify the Proprietary Marks
and/or to substitute different proprietary marks for use in identifying the
System and the businesses operating thereunder. Franchisee shall implement
promptly any such modification or substitution at Franchisee's sole cost and
expense. Franchisor shall have no obligation or liability to Franchisee as a
result of such modification or substitution.
9. OPERATIONS MANUALS
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9.1 Franchisee shall treat the Manuals, the Bagel Production Manual,
any other manuals approved by Franchisor for use in connection with the Bakery,
and all information contained therein as confidential, and shall maintain such
information in strict secrecy. Franchisee shall not copy, duplicate, record, or
otherwise reproduce the foregoing materials, in whole or in part, or otherwise
make them available to any unauthorized person, except as required by law.
9.2 The Manuals and the Bagel Production Manual shall remain the sole
property of Franchisor and shall at all times be kept in a secure place in the
Bakery or, in the case of the Bagel Production Manual, in the facility where
Franchisee manufactures bagel dough.
9.3 Franchisor may from time to time revise the contents of the Manuals
and the Bagel Production Manual. Franchisee agrees to comply with each new or
changed standard upon reasonable notice thereof from Franchisor.
10. CONFIDENTIAL INFORMATION
------------------------
10.1 Franchisee shall not, during the term of this Agreement or at any
time thereafter, communicate, divulge, or use for the benefit of any other
person or entity any confidential information, knowledge, trade secrets, or
know-how which may be communicated to Franchisee or of which Franchisee may be
apprised by virtue of Franchisee's activities under this Agreement. Franchisee
may divulge such confidential information only: (i) to such of its employees as
must have access to it in order to operate the Bakery; and (ii) to Franchisee's
contractors and the landlord of the Premises with the prior written approval of
Franchisor. All information, knowledge, trade secrets, know-how, techniques, and
other data which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, except information which Franchisee
can demonstrate came to its attention by lawful means prior to disclosure
thereof by Franchisor, or which, at or after the time of disclosure by
Franchisor to Franchisee, had become or later becomes a part of the public
domain, through publication or communication by others.
10.2 At Franchisor's request, Franchisee shall require its employees,
landlord, contractors, and any other person to whom Franchisee wishes to
disclose any confidential information of Franchisor to execute covenants that
they will maintain the confidentiality of
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such information. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third-
party beneficiary with the independent right to enforce the covenants.
11. ACCOUNTING AND RECORDS
----------------------
11.1 Franchisee shall prepare, and shall preserve for at least three (3)
years from the dates of their preparation, complete and accurate books, records,
and accounts, in accordance with generally accepted accounting principles.
11.2 All Gross Sales and all sales tax and other charges collected on
behalf of third parties shall be recorded by Franchisee in accordance with the
procedures prescribed in the Manuals on such point of sale systems as Franchisor
may specify pursuant to Section 7.7 above.
11.3 Franchisee shall submit to Franchisor, at Franchisee's expense, in
the form prescribed by Franchisor:
11.3.1 By no later than Monday of each week, a complete and accurate
report of Gross Sales for the preceding week, and such other weekly data as
Franchisor may reasonably require;
11.3.2 Within ninety (90) days after the end of each fiscal year of
Franchisee, an income statement showing the results of Franchisee's operations
during such fiscal year and a balance sheet as of the end of such fiscal year,
both of which shall be prepared in accordance with generally accepted accounting
principles and reviewed by an independent certified public accountant. If,
however, the foregoing income statements and balance sheets are audited by an
independent certified public accountant, then Franchisee shall furnish the
audited income statements and balance sheets rather than the reviewed income
statements and balance sheets; and
11.3.3 Interim unaudited income statements and balance sheets, not
less often than quarterly, within forty-five (45) days after the end of the
period to which the statements relate.
11.4 Franchisor and its designated agents shall have the right to
examine and copy, at Franchisor's expense, on reasonable notice and during
normal business hours, the books, records, accounts, and sales tax returns of
Franchisee. Franchisor shall also have the right, at any time, to have an
independent audit made of the books of Franchisee. If an inspection or audit
reveals that any payment to Franchisor has been understated, Franchisee shall
immediately pay to Franchisor the amount owed, together with daily interest from
the date such amount was due until paid at the rate of eighteen percent (18%)
per annum or the maximum rate permitted by law, whichever is less. If an
inspection or audit reveals any
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underpayment by Franchisee of two percent (2%) or more, Franchisee shall, in
addition to payment of monies owed with interest, reimburse Franchisor for all
costs connected with the inspection or audit (including, without limitation,
expenses for travel, lodging and wages, and reasonable accounting and legal
costs). The foregoing remedies shall be in addition to any other remedies
Franchisor may have.
12. ADVERTISING AND PROMOTION
Recognizing the value of advertising and promotion and the importance of
the standardization of advertising and promotion to the furtherance of the
goodwill and public image of the System, the parties agree as follows:
12.1 Franchisee shall contribute weekly to an advertising fund
established by Franchisor for the System (the "Fund") two percent (2%) of the
Gross Sales of the Bakery. Contributions shall be made by electronic funds
transfer, as specified in Section 4.4. Franchisor shall use all Fund monies
received from Franchisee in any manner consistent with Section 12.3 below.
Franchisor, or its affiliates, shall contribute a like percentage for each
Bruegger's Bakery that Franchisor, or its affiliates, operates.
12.2 In addition to its contributions to the Fund, Franchisee shall
spend monthly for local advertising and promotion two percent (2%) of the Gross
Sales of the Bakery. Subject to Franchisor's approval, Franchisee may satisfy a
portion of this expenditure by giving away product. In such instances, however,
the credit against the local advertising and promotion obligation shall be
limited to the cost of goods to Franchisee. All local advertising and promotion
must be approved by Franchisor pursuant to Section 12.6 below.
12.3 The Fund shall be maintained and administered by a National
Advertising Council ("NAC"):
12.3.1 The NAC shall operate as follows:
12.3.1.1 The NAC shall be comprised of two groups of
members. Group A shall consist of three or more persons selected by Franchisor.
Franchisor shall determine, in its sole discretion, the timing and methods for
selection of the members of Group A. Group B shall consist of a number of
persons equal to the number of members of Group A. The members of Group B shall
be chosen annually by election by all Franchisees under the System based upon a
voting system of one vote per one eligible Bakery.
12.3.1.2 The NAC shall be charged with review and approval
of marketing plans that shall be developed and submitted to the NAC from time to
time by Franchisor. After a marketing plan has been approved by the NAC,
Franchisor shall implement the plan without further review by the NAC.
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12.3.1.3 Franchisor reserves the right, in its sole
discretion, to establish and modify, from time to time, the duties,
organization, form, manner of operation, authority, membership, methods of
member selection, eligibility for voting and all other aspects of the NAC
pursuant to such governing documents as Franchisor may prepare; provided,
however, that Franchisees shall continue to have representation on the NAC.
12.3.2 Franchisee acknowledges that the Fund is intended to
maximize general public recognition, acceptance, and use of the System, and that
Franchisor is not obligated, in administering the Fund, to make expenditures for
Franchisee which are equivalent or proportional to Franchisee's contribution, or
to ensure that any particular franchisee benefits directly or pro rata from
--------
expenditures by the Fund.
12.3.3 The Fund, all contributions thereto, and any earnings
thereon shall be used exclusively to meet any and all costs of maintaining,
administering, directing, conducting, and preparing advertising, marketing,
public relations, and/or promotional programs and materials and any other
activities which Franchisor or the NAC, as the case may be, believes will
enhance the image of the System, including, but not limited to, the costs of
preparing and conducting media advertising campaigns; direct mail advertising;
marketing surveys; employing advertising and/or public relations agencies to
assist therein; purchasing promotional items; conducting and administering in-
store promotions; and providing promotional and other marketing materials and
services to the businesses operating under the System.
12.3.4 All sums received for the Fund shall be maintained in an
account separate from the other monies of Franchisor and shall be used only as
provided in Section 12.3.3 above. Franchisor shall maintain separate
bookkeeping accounts for the Fund.
12.3.5 Franchisor shall employ an independent certified public
accountant to conduct an annual audit of the Fund. The cost of the annual audit
shall be paid from the Fund.
12.4 In addition to its contributions to the Fund and its monthly
expenditure for local advertising and promotion, Franchisee shall spend a
minimum of Five Thousand Dollars ($5,000) for grand opening marketing pursuant
to a grand opening marketing plan developed by Franchisee and approved by
Franchisor.
12.5 Franchisor shall have the right, in its sole discretion, to
designate geographic areas for purposes of establishing local or regional
advertising cooperatives ("Cooperatives"). If the Bakery is within the
territory of an existing Cooperative at the time the Bakery opens for business,
Franchisee shall immediately become a member of the Cooperative. If a
Cooperative applicable to the Bakery is established during the term of this
Agreement, Franchisee shall become a member no later than thirty (30) days after
the date
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approved by Franchisor for the Cooperative to commence operation. In no event
shall Franchisee be required to be a member of more than one Cooperative for the
Bakery. Franchisor (or its affiliate, as the case may be,) shall become a member
in any Cooperatives established for a geographic region that includes a
Bruegger's Bakery owned by Franchisor (or its affiliate). The following
provisions shall apply to each Cooperative:
12.5.1 Each Cooperative shall be organized and governed in a form
and manner, and shall commence operations on a date, approved in advance by
Franchisor in writing. No changes in the bylaws or other governing documents of
a Cooperative shall be made without Franchisor's prior written consent.
12.5.2 Each Cooperative shall be organized for the exclusive
purpose of administering regional advertising programs and developing, subject
to Franchisor's approval, promotional materials for use by the members in local
advertising.
12.5.3 No advertising or promotional plans or materials may be
used by a Cooperative or furnished to its members without prior approval of
Franchisor pursuant to Section 12.6 below.
12.5.4 Franchisee and each other member of the Cooperative shall
contribute every fourth Monday to the Cooperative, commencing with the first
Monday after the Cooperative commences operations, the amount determined by the
membership. Said amount may not exceed two percent (2%) of the Gross Sales of
each Bakery operated by the members unless approved by a unanimous vote of
eligible members. Franchisee's obligation to make local advertising
expenditures under Section 12.2 above shall be reduced by the amount of
Franchisee's contributions to the Cooperative. Each required contribution shall
be based on Gross Sales for the preceding four week period, and shall be
submitted together with such statements or reports as may be required by
Franchisor, or by the Cooperative with Franchisor's prior written approval.
12.5.5 Franchisor, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, and/or from the obligation to contribute thereto
(including a reduction, deferral or waiver of such contribution), upon written
request of such franchisee stating sufficient reasons to support such exemption.
Franchisor's decision concerning any request for exemption shall be final. If
an exemption is granted to a franchisee, the franchisee shall be required to
spend on local advertising the amount the franchisee otherwise would have been
required to contribute to the Cooperative.
12.5.6 Franchisor and its designated agents shall have the right
to examine and copy, at Franchisor's expense, on reasonable notice and during
normal business hours, the books, records, and accounts of any Cooperative.
Franchisor shall also have the right, at any time, to have an independent audit
made of the books of any Cooperative.
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12.6 All advertising and promotion by Franchisee and by Cooperatives
shall be in such media and of such type and format as Franchisor may approve,
shall be conducted in a dignified manner, and shall conform to such standards
and requirements as Franchisor may specify. Franchisee or the Cooperative shall
submit written samples of all proposed advertising and promotional plans and
materials to Franchisor for its approval (except with respect to prices to be
charged) at least thirty (30) days before their intended use, unless such plans
and materials were prepared by Franchisor or have been approved by Franchisor
within the last twelve (12) months. Proposed advertising plans or materials
shall be deemed to have been approved if they have not been disapproved by
Franchisor within fifteen (15) days after their receipt by Franchisor.
12.7 At Franchisor's request, Franchisee shall furnish Franchisor with
copies of invoices and other appropriate documentation of Franchisee's
compliance with Sections 12.2 and 12.4 above.
12.8 Franchisee, at its own expense, shall obtain listings in the white
pages and yellow pages of local telephone directories.
13. INSURANCE
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13.1 Before commencing any activities under this Agreement, Franchisee
shall procure, and thereafter shall maintain in full force and effect at all
times during the term of this Agreement, at Franchisee's expense, an insurance
policy or policies protecting Franchisee, Franchisor, Franchisor's affiliates,
and their respective officers, directors, shareholders, and employees against
any demand or claim with respect to personal injury, death, or property damage,
or any loss, liability, or expense whatsoever arising or occurring at or in
connection with the Bakery or any bagel dough manufacturing site, including, but
not limited to, comprehensive general liability insurance, property and casualty
insurance, statutory workers' compensation insurance, employer's liability
insurance, product liability insurance, and business interruption insurance.
Such policy or policies shall be written by a responsible carrier or carriers
acceptable to Franchisor, shall name Franchisor as an additional insured as
specified by Franchisor, and shall provide at least the types and minimum
amounts of coverage specified in the Manuals.
13.2 Franchisee's obligation to obtain and maintain the policy or
policies in the amounts specified in the Manuals shall not be limited in any way
by reason of any insurance which may be maintained by Franchisor, nor shall
Franchisee's performance of that obligation relieve it of liability under the
indemnity in Section 20.2 of this Agreement.
13.3 All public liability and property damage policies shall contain a
provision that Franchisor, although named as an insured, shall nevertheless be
entitled to recover under such policies on any loss occasioned to Franchisor or
its servants, agents, or employees by reason of the negligence of Franchisee or
its servants, agents, or employees.
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13.4 Before commencing any operations under this Agreement, and
thereafter at least thirty (30) days prior to the expiration of any policy,
Franchisee shall deliver to Franchisor certificates of insurance evidencing the
proper types and at least the minimum amounts of coverage specified in the
Manuals. All such certificates shall expressly provide that no less than thirty
(30) days' prior written notice shall be given Franchisor in the event of
material alteration to or cancellation of the coverage evidenced by such
certificates.
13.5 Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as such requirements may be revised from
time to time by Franchisor in the Manuals or otherwise in writing, Franchisor
shall have the right (but not the obligation) to procure such insurance and to
charge its cost to Franchisee, which charges, together with a reasonable fee for
Franchisor's services, shall be payable by Franchisee immediately upon demand.
The foregoing remedies shall be in addition to any other remedies Franchisor may
have.
14. TRANSFER OF INTEREST
--------------------
14.1 Franchisor shall have the right to transfer or assign this
Agreement or any part of its rights or obligations under this Agreement to any
person or legal entity. Franchisee agrees that Franchisor shall have no
liability after the effective date of such transfer or assignment for the
performance of any obligations hereunder.
14.2 Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Franchisee and that Franchisor has
granted this franchise in reliance on the business skill, financial capacity,
and personal character of Franchisee's owners and management. Accordingly,
neither Franchisee, nor any immediate or remote successor to any part of
Franchisee's interest in this Agreement, nor any individual, partnership,
corporation, or other legal entity which directly or indirectly owns any
interest in Franchisee, shall sell, assign, transfer, convey, or give away any
direct or indirect interest in this Agreement, in Franchisee, or in all or
substantially all of the assets of the Bakery without the prior written consent
of Franchisor. Franchisee shall notify Franchisor in writing of any proposed
transfer at least thirty (30) days before such proposed transfer is to take
place and shall provide such information and documentation relating to the
proposed transfer as Franchisor may reasonably require. Any purported assignment
or transfer not having the written consent of Franchisor required by this
Section 14.2 shall be null and void and shall constitute a material breach of
this Agreement, for which Franchisor may immediately terminate this Agreement
without opportunity to cure pursuant to Section 15.2.5 of this Agreement.
14.3 Notwithstanding any other provision of this Section 14:
14.3.1 Except as provided in Section 14.6 of this Agreement,
Franchisee shall not pledge or otherwise encumber this Agreement or the lease
for the
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Premises, or any interest of Franchisee therein, as security for any loan or
other obligation; and
14.3.2 Neither Franchisee nor any individual, partnership,
corporation, or other legal entity which directly or indirectly owns any
interest in Franchisee shall: (i) pledge or otherwise encumber any ownership
interest in itself or in the Franchisee; or (ii) offer or sell securities of
itself or of Franchisee in an offering registered with the Securities and
Exchange Commission ("Commission") on any form then in use for the registration
of securities pursuant to the rules of the Commission in full compliance with
the Securities Act of 1933, or in any other public offering; and
14.3.3 If Franchisee is an entity, then the owner or owners of
the equity of Franchisee may, without Franchisor's prior written consent, sell,
assign, transfer or give away to employees of Franchisee, in an amount
aggregated during the term of this Agreement, as it may be extended, of not more
than twenty-five percent (25%) of the outstanding equity of the Franchisee,
provided (i) Franchisor receives written notice of such transfer not later than
thirty (30) days prior to the transfer, which notice shall identify the
transferee, describe transferee's position of employment, and include a
calculation demonstrating that the planned transfer complies with this Section
14.3.3, and (ii) such transfer, when combined with all prior transfers of the
equity of Franchisee, does not result in a change in control of Franchisee. Any
purported assignment or transfer not in compliance with this Section 14.3.3
shall be null and void and shall constitute a material breach of this Agreement
for which Franchisor may immediately terminate this Agreement without
opportunity to cure.
14.4 Franchisor shall have the right, exercisable within thirty (30)
days after receipt of written notice of a proposed transfer pursuant to Section
14.2, to purchase the interest proposed to be transferred by sending written
notice to the transferor, as follows:
14.4.1 If the transfer is proposed to be made pursuant to a
sale, Franchisor may purchase the interest on the same terms and conditions
offered by the third party. Closing on such purchase shall occur within sixty
(60) days after the date of notice from Franchisor to seller of Franchisor's
election to purchase. If the consideration, terms, and/or conditions offered by
the third party are such that Franchisor may not reasonably be required to
furnish the same consideration, terms, and/or conditions, then Franchisor may
purchase the interest proposed to be sold for the reasonable equivalent in cash.
If the parties cannot agree within thirty (30) days on the reasonable equivalent
in cash, an independent appraiser shall be designated by Franchisor at
Franchisor's expense, and the appraiser's determination shall be binding. Any
material change in the terms of the offer from a third party after Franchisor
has elected not to purchase the seller's interest shall constitute a new offer
subject to the same rights of first refusal by Franchisor as in the case of the
third party's initial offer.
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14.4.2 If the transfer is proposed to be made pursuant to a gift
for no consideration, Franchisor shall designate an independent appraiser to
determine the fair market value of the interest proposed to be transferred.
Franchisor and Franchisee shall each pay one-half of the expense of the
appraisal. Franchisor may purchase such interest at the fair market value
determined by the appraiser. Closing on such purchase shall occur within sixty
(60) days after notice from Franchisor to the transferor of the appraiser's
determination of fair market value.
14.5 If Franchisor elects not to exercise its right of first refusal
under Section 14.4, the proposed transferor may complete the transfer after
obtaining Franchisor's written consent as required under Section 14.2. Except as
hereinafter provided, Franchisor shall not unreasonably withhold its consent to
a proposed transfer. Franchisor may, however, withhold consent, in its sole
discretion if such transfer is not made in conjunction with a simultaneous
transfer of all comparable interests held by the transferor in the Development
Agreement and all other Franchise Agreements executed pursuant to the
Development Agreement. In addition, if the proposed transfer, alone or together
with other previous, simultaneous, or proposed transfers, would have the effect
of changing control of Franchisee, ownership of Franchisee's rights or
obligations under this Agreement, or ownership of all or substantially all of
the assets of the Bakery, Franchisor, in its sole discretion, may withhold
consent to such transfer. In any event, if Franchisor consents to any transfer,
Franchisor may require conditions to any such consent, including, but not
limited to, the following:
14.5.1 That all of Franchisee's accrued monetary obligations and
all other outstanding obligations to Franchisor and its affiliates have been
satisfied;
14.5.2 That Franchisee is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor or its affiliates;
14.5.3 That the transferee (and, if the transferee is a
corporation or partnership, such owners of a beneficial interest in the
transferee as Franchisor may request) demonstrate to Franchisor's satisfaction
that it meets Franchisor's educational, managerial, and business standards;
possesses a good moral character, business reputation, and credit rating; has
the aptitude and ability to operate the Bakery (as may be evidenced by prior
related business experience or otherwise); and has adequate financial resources
and capital to operate the Bakery;
14.5.4 That the transferee enter into a written assignment, in a
form satisfactory to Franchisor, assuming and agreeing to discharge all of
Franchisee's obligations under this Agreement;
14.5.5 That the transferor execute a general release, in a form
satisfactory to Franchisor, of any and all claims against Franchisor, its
affiliates, and their
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respective officers, directors, shareholders, and employees, in their corporate
and individual capacities;
14.5.6 That employees of the transferee who have not previously
completed a training program approved by Franchisor, at the transferee's
expense, complete any training programs then in effect for new Bruegger's Bakery
franchisees; and
14.5.7 That Franchisee pay a transfer fee of Five Thousand
Dollars ($5,000) plus Franchisor's actual expenses for outside services
associated with reviewing the application to transfer, including, but not
limited to, reasonable attorneys' fees.
14.6 Franchisee may grant a security interest in the assets of the
Bakery, but only if Franchisee has obtained the written agreement of the secured
party that, in the event of any default by Franchisee under any documents
related to the security interest, Franchisor shall have the right (but not the
obligation) to be substituted as obligor to the secured party and to cure the
default of Franchisee, except that any acceleration of indebtedness due to
Franchisee's default shall not apply.
14.7 The executor or personal representative of a person with an
interest in Franchisee shall transfer his or her interest to a third party
approved by Franchisor within a reasonable time after the date of such person's
death or declaration of such person's mental incapacity. Such transfers shall be
subject to Franchisor's right of first refusal under Section 14.4 or, if such
right is not exercised, the same conditions as may be imposed on any inter vivos
transfer under Section 14.5. In the case of a transfer by bequest, if the
beneficiaries are unable to meet the conditions of this Section 14, the executor
shall transfer the decedent's interest to another party approved by Franchisor,
subject to all of the terms and conditions for transfers contained in this
Agreement. If an interest is not disposed of under this Section 14.7 within two
(2) years from the date of death or appointment of a personal representative,
Franchisor may terminate this Agreement pursuant to Section 15.2.6 below.
14.8 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor may have against the transferring party, nor shall it be
deemed a waiver of Franchisor's right to demand exact compliance by the
transferor or transferee with any of the terms of this Agreement.
14.9 Securities of Franchisee may be sold in an offering not requiring
registration under any federal or state securities laws, subject to all of the
conditions of this Section 14, including Franchisor's right of first refusal
under Section 14.4. All materials required for the private offering by federal
or state law shall be submitted to Franchisor for review prior to their use.
Franchisor's review of any offering shall be limited solely to the subject of
the relationship between Franchisee and Franchisor. No offering shall imply, by
use of the Proprietary Marks or otherwise, that Franchisor is participating in
an underwriting, issuance, or offering of securities of either Franchisee or
Franchisor. Franchisee and any
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other participants in the offering must fully indemnify Franchisor in connection
with the offering. For each proposed offering, Franchisee shall pay to
Franchisor a non-refundable fee of Five Thousand Dollars ($5,000) to reimburse
Franchisor for its costs and expenses associated with reviewing the proposed
offering. Franchisee shall give Franchisor written notice at least thirty (30)
days prior to the date of commencement of any offering.
15. DEFAULT AND TERMINATION
-----------------------
15.1 Franchisee shall be deemed to be in default under this Agreement,
and all rights granted to Franchisee herein shall automatically terminate
without notice to Franchisee, if Franchisee becomes insolvent or makes a general
assignment for the benefit of creditors; if a petition in bankruptcy is filed by
Franchisee or is filed against and not opposed by Franchisee; if Franchisee is
adjudicated a bankrupt or insolvent; if a bill in equity or other proceeding for
the appointment of a receiver of Franchisee or other custodian for Franchisee's
business or assets is filed and consented to by Franchisee; if a receiver or
other custodian (permanent or temporary) of Franchisee's assets or property, or
any part thereof, is appointed by any court of competent jurisdiction; if
proceedings for a composition with creditors under any state or federal law are
instituted by or against Franchisee; if a final judgment against Franchisee
remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); if Franchisee is dissolved; if execution is levied
against Franchisee's business or property; if suit to foreclose any lien or
mortgage against the Premises or equipment of the Bakery is instituted against
Franchisee and not dismissed within thirty (30) days; or if the real or personal
property of the Bakery is sold after levy thereupon by any sheriff, marshal, or
constable.
15.2 If any of the following events of default occurs, Franchisor, at
its option, may terminate this Agreement without affording Franchisee any
opportunity to cure the default, effective immediately upon receipt of written
notice by Franchisee:
15.2.1 If Franchisee fails to construct and open the Bakery
within the time specified in Section 5.4 of this Agreement;
15.2.2 If Franchisee at any time ceases to operate or otherwise
abandons the Bakery, loses the right to possession of the Premises, or otherwise
forfeits the right to do or transact business in the jurisdiction where the
Bakery is located. However, if, through no fault of Franchisee, the Premises are
damaged or destroyed by an event such that repairs or reconstruction cannot be
completed within sixty (60) days thereafter, then Franchisee shall have thirty
(30) days after the event in which to apply for Franchisor's approval to
relocate and/or reconstruct the Bakery, which approval shall not be unreasonably
withheld;
15.2.3 If Franchisee or any principal officer of Franchisee is
convicted of a felony, a crime involving moral turpitude, or any other crime or
offense that
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Franchisor believes is reasonably likely to have an adverse effect on the
System, the Proprietary Marks, the goodwill associated therewith, or
Franchisor's interest therein;
15.2.4 If a threat or danger to public health or safety results
from the construction, maintenance, or operation of the Bakery or any facility
in which Franchisee manufactures bagel dough and the Franchisee knew or should
have known of the threat or danger to public health or safety resulting from the
construction, maintenance, or operation of the Bakery;
15.2.5 If any person or entity with an interest referred to in
Section 14 purports to transfer such interest other than in accordance with
Section 14;
15.2.6 If an approved transfer is not effected within two (2)
years following death or mental incapacity, as required by Section 14.7, or if
any transfer by intestate succession is made to an heir who is unable to meet
the conditions of Section 14;
15.2.7 If Franchisee fails to comply with the covenants in
Section 17.1 below;
15.2.8 If Franchisee discloses or divulges any contents of the
Manuals, the Bagel Production Manual, or other confidential information of
Franchisor, except as permitted under Section 10 hereof;
15.2.9 If Franchisee knowingly maintains false books or records
or knowingly submits any false reports to Franchisor;
15.2.10 If Franchisee refuses to permit Franchisor to inspect the
premises, books, records, or accounts of the Bakery or of any facility in which
Franchisee manufactures bagel dough, as provided herein;
15.2.11 If Franchisee, after curing a default pursuant to Section
15.4 hereof, commits the same default again within one (1) year, whether or not
cured after notice; or
15.2.12 If Franchisee is in default under Section 15.4 three (3)
times within any twelve-month period, whether such defaults are of a similar or
different nature and whether or not any of them is cured after notice.
15.3 If Franchisee fails, refuses, or neglects to pay any monies owing
to Franchisor or its affiliates, or fails to submit financial or other
information required under this Agreement, within seven (7) days after receipt
of notice of default from Franchisor, this Agreement shall terminate at the end
of such seven-day period without further notice from Franchisor.
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15.4 Except as provided in Sections 15.1 through 15.3, Franchisor may
terminate this Agreement only in the event of a default by Franchisee, and only
by giving Franchisee written notice of termination stating the nature of the
default at least thirty (30) days prior to the effective date of termination. If
the default is not cured to Franchisor's reasonable satisfaction within the
thirty-day period (or such longer period as applicable law may require or as
shall be required to complete the cure, provided such cure shall be commenced
within said thirty (30) day period, and such cure is diligently prosecuted to
completion), this Agreement shall terminate without further notice to
Franchisee, effective at the end of such cure period. Any material failure to
comply with the requirements imposed by this Agreement (as it may from time to
time reasonably be supplemented by the Manuals) shall be a default under this
Section 15.4 including, but not limited to, the following events:
15.4.1 If Franchisee sells any unapproved products or otherwise
fails to maintain or observe any of the standards or procedures prescribed by
Franchisor in this Agreement, the Manuals, or otherwise in writing;
15.4.2 If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or any other identifying characteristics of the System, or
otherwise materially impairs the goodwill associated therewith or Franchisor's
rights therein; or
15.4.3 If Franchisee fails, refuses, or neglects to obtain
Franchisor's prior written approval or consent as required by this Agreement
(other than consent to a transfer under Section 14, the breach of which is
addressed in Section 15.2.5).
16. OBLIGATIONS UPON TERMINATION OR EXPIRATION
------------------------------------------
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall immediately terminate, and:
16.1 Franchisee shall immediately cease to operate the Bakery; shall not
thereafter, directly or indirectly, represent itself to the public or hold
itself out as a present or former franchisee of Franchisor; and, if applicable,
shall immediately cease production of any bagel dough using trade secrets or
know-how furnished by Franchisor.
16.2 Franchisee shall immediately and permanently cease to use in any
manner whatsoever the confidential methods, procedures, and techniques
associated with the System; the "BRUEGGER'S" mark; the "BRUEGGER'S BAGELS" name;
and all other Proprietary Marks, distinctive forms, slogans, signs, symbols, and
devices associated with the System.
16.3 Franchisee shall take such action as may be necessary to cancel any
assumed name registration or equivalent registration obtained by Franchisee
which contains the name "BRUEGGER'S" or any other Proprietary Marks, and shall
furnish evidence satisfactory to Franchisor of compliance with this obligation
within five (5) days after
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termination or expiration of this Agreement. Franchisee hereby appoints
Franchisor its attorney-in-fact to carry out the requirements of this Section
16.3, if Franchisee fails to do so within such five-day period.
16.4 At Franchisor's option, Franchisee shall assign to Franchisor
Franchisee's interest in the lease or sublease for the Premises and, also at
Franchisor's option, Franchisee's interest in the lease or sublease for the
property in which Franchisee manufactures bagel dough. If Franchisor elects not
to exercise its option to acquire either or both of such leases or subleases,
Franchisee shall make such modifications or alterations to the Premises and
bagel dough manufacturing site (including, without limitation, changing or
assigning the telephone number to Franchisor) immediately upon termination or
expiration of this Agreement as may be necessary to distinguish the Premises and
bagel dough manufacturing site from those of a Bruegger's Bakery or related
facility, and shall make such specific additional changes as Franchisor may
reasonably request for that purpose. If Franchisee fails or refuses to comply
with the requirements of this Section 16.4, Franchisor shall have the right to
enter the Premises and bagel dough manufacturing site, without being guilty of
trespass or any other tort, for the purpose of making or causing to be made such
changes as may be required, at the expense of Franchisee, which expense
Franchisee agrees to pay on demand.
16.5 Franchisee shall not use any reproduction, counterfeit, copy, or
colorable imitation of the Proprietary Marks, either in connection with such
other business or the promotion thereof, which in Franchisor's sole discretion
is likely to cause confusion, mistake, or deception or to dilute Franchisor's
rights in and to the Proprietary Marks. Franchisee shall not use any designation
of origin or description or representation which, in Franchisor's sole
discretion, falsely suggests or represents an association or connection with
Franchisor.
16.6 Franchisee shall promptly pay all sums owing to Franchisor and its
affiliates. In the event of termination for default by Franchisee, such sums
shall include all damages, costs, and expenses incurred by Franchisor as a
result of the default, including, but not limited to, reasonable attorneys'
fees.
16.7 Franchisee shall pay to Franchisor all damages, costs, and expenses
(including, but not limited to, reasonable attorneys' fees) incurred by
Franchisor subsequent to the termination or expiration of this Agreement in
obtaining injunctive or other relief for the enforcement of any provisions of
this Section 16.
16.8 Franchisee shall immediately deliver to Franchisor the Manuals, the
Bagel Production Manual, and all other records, correspondence, and instructions
containing confidential information relating to the System or the operation of a
Bruegger's Bakery, all of which are acknowledged to be the property of
Franchisor.
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16.9 Franchisor shall have the right, exercisable by written notice
within thirty (30) days after expiration or termination, but not the obligation,
to purchase from Franchisee any or all of the furnishings, equipment, signs, and
fixtures of the Bakery and of the facility in which Franchisee manufactures
bagel dough, if any, at fair market value or at Franchisee's depreciated book
value based upon a seven year straight line depreciation schedule, whichever is
less, and to purchase any or all inventory and supplies of the Bakery at fair
market wholesale value. If the parties cannot agree on the price of any such
items within a reasonable time, an independent appraiser shall be appointed by
Franchisor at Franchisor's expense, and the appraiser's determination shall be
binding on both parties. If Franchisor exercises any option to purchase provided
herein, Franchisor shall have the right to set off all amounts due from
Franchisee against any payment.
16.10 Franchisee shall comply with the post-term covenants contained in
Section 17.2 of this Agreement.
17. COVENANTS
---------
17.1 Franchisee specifically acknowledges that Franchisee will receive
valuable, specialized training and confidential information regarding the
manufacturing, operational, sales, promotional, and marketing methods and
techniques of Franchisor and the System. Franchisee covenants that, during the
term of this Agreement, except as otherwise approved in writing by Franchisor,
Franchisee shall not, either directly or indirectly, for itself or through, on
behalf of, or in conjunction with any person or legal entity:
17.1.1 Divert or attempt to divert any present or prospective
business or customer 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 the Proprietary Marks and the
System;
17.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor, or who has been employed by Franchisor within the
preceding three (3) months, or otherwise directly or indirectly induce such
person to leave his or her employment with Franchisor; or
17.1.3 Own, maintain, operate, engage in, be employed by, provide
any assistance to, or have any interest in any other business whose sales of
fresh or packaged bagels and cream cheese are more than five percent (5%) of its
total sales by annual dollar volume, except pursuant to another Franchise
Agreement with Franchisor.
17.2 Franchisee covenants that, except pursuant to another Franchise
Agreement with Franchisor, or as otherwise approved in writing by Franchisor,
Franchisee shall not, for two (2) years after the expiration or termination of
this Agreement or the approved transfer of this Agreement to a new franchisee,
either directly or indirectly, for itself or through, on
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behalf of, or in conjunction with any person or legal entity, own, maintain,
operate, engage in, be employed by, provide assistance to, or have any interest
in any business whose sales of bagels and cream cheese are more than five
percent (5%) of its total sales by annual dollar volume, and which is, or is
intended to be, located (i) within ten (10) miles of the Approved Location, or
(ii) within five (5) miles of any other Bruegger's Bakery.
17.3 Sections 17.1.3 and 17.2 shall not apply to ownership by Franchisee
of less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
17.4 Franchisor shall have the right, in its sole discretion, to reduce
the scope of any covenant set forth in Sections 17.1 and 17.2, or any portion
thereof, without Franchisee's consent, effective immediately upon receipt by
Franchisee of written notice thereof. Franchisee agrees to comply with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section 23 hereof.
17.5 Franchisee agrees that the existence of any claims it 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 17. Franchisee agrees to pay all costs and expenses incurred by
Franchisor in enforcing this Section 17, including, but not limited to
reasonable attorneys' fees.
17.6 Franchisee acknowledges that Franchisee's violation of the terms of
this Section 17 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Franchisee accordingly consents to
the issuance of an injunction prohibiting any conduct by Franchisee in violation
of the terms of this Section 17. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
17.7 At Franchisor's request, Franchisee shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 17 (including covenants applicable upon the termination of a person's
relationship with Franchisee) from any or all of the following persons: (i) all
personnel employed by Franchisee who have received or will receive training from
Franchisor; and (ii) all officers, directors, and holders of a direct or
indirect beneficial interest of five percent (5%) or more of the securities of
Franchisee. Each covenant required by this Section 17.7 shall be in a form
approved by Franchisor, including, without limitation, specific identification
of Franchisor as a third party beneficiary with the independent right to enforce
the covenant.
18. ORGANIZATION OF FRANCHISEE
--------------------------
18.1 If Franchisee is a corporation, Franchisee shall comply with the
following requirements:
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18.1.1 Franchisee's charter shall at all times provide that its
activities are confined exclusively to developing and operating Bruegger's
Bakeries.
18.1.2 Franchisee shall promptly furnish to Franchisor copies of
its articles of incorporation, bylaws, and other governing documents, and any
amendments thereto, including the resolution of Franchisee's board of directors
authorizing entry into this Agreement.
18.1.3 Franchisee shall maintain stop-transfer instructions
against the transfer on its records of any equity securities. Each stock
certificate of Franchisee shall conspicuously display on its face the following
printed legend:
The transfer of ownership of shares represented by this certificate is
subject to the terms and conditions of an Agreement with Bruegger's
Franchise Corporation. Reference is made to the provisions of the
Agreement and to the Articles and Bylaws of the Corporation.
18.1.4 Franchisee shall maintain a current list of all owners of
record and all beneficial owners of any class of voting securities of Franchisee
and shall furnish the list to Franchisor upon request.
18.2 If Franchisee is a partnership, Franchisee shall comply with the
following requirements:
18.2.1 Franchisee shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto.
18.2.2 Franchisee shall include in its partnership certificate,
if any, filed with the state in which Franchisee was formed a statement that the
transfer of ownership of a partnership interest is subject to the terms and
conditions of an Agreement with Bruegger's Franchise Corporation.
18.2.3 Franchisee shall prepare and furnish to Franchisor from
time to time, upon request, a list of all general and limited partners in
Franchisee.
18.3 If Franchisee is a limited liability company, Franchisee shall comply
with the following requirements during the term of this Agreement:
18.3.1 Franchisee shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto.
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18.3.2 Franchisee shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
18.3.3 Franchisee's limited liability company operating agreement
shall include provisions that state that the transfer of shares is subject to
the terms and conditions of an Agreement with Bruegger's Franchise Corporation.
18.3.4 Franchisee shall prepare and furnish to Franchisor, upon
request, a list of all members of Franchisee.
19. TAXES, PERMITS, AND INDEBTEDNESS
--------------------------------
19.1 Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in the
operation of the Bakery. Franchisee shall pay to Franchisor an amount equal to
any sales tax, gross receipts tax, or similar tax (other than income tax)
imposed on Franchisor with respect to any payments to Franchisor required under
this Agreement.
19.2 In the event of any bona fide dispute as to Franchisee's
liability for taxes assessed or other indebtedness, Franchisee may contest the
validity or the amount of the tax or indebtedness in accordance with procedures
of the taxing authority or applicable law, but in no event shall Franchisee
permit a tax sale or seizure by levy or execution or similar writ or warrant, or
attachment by a creditor, to occur against the Bakery.
19.3 Franchisee shall comply with all federal, state, and local laws,
rules, and regulations and shall timely obtain any and all permits,
certificates, or licenses necessary for the proper conduct of the Bakery,
including, without limitation, licenses to do business, fictitious name
registrations, sales tax permits, and fire clearances.
19.4 Franchisee shall immediately notify Franchisor in writing of the
commencement of any action, suit, or proceeding and of the issuance of any
order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality which may adversely affect the operation or
financial condition of the Bakery.
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
20.1 It is understood and agreed by the parties that this Agreement
does not create a fiduciary relationship between them, that Franchisee shall be
an independent contractor, and that nothing in this Agreement is intended to
make either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. During
the term of this Agreement, Franchisee shall hold itself out to the public as an
independent contractor operating the Bakery pursuant to a franchise
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agreement from Franchisor. Franchisee agrees to take such action as may be
necessary to do so, including, without limitation, exhibiting a notice, the
content of which Franchisor reserves the right to specify, in a conspicuous
place at the Premises.
20.2 Nothing in this Agreement authorizes Franchisee to make any
contract, agreement, warranty, or representation on Franchisor's behalf or to
incur any debt or other obligation in Franchisor's name. Franchisor shall in no
event assume liability for or be deemed liable as a result of any such action,
nor shall Franchisor be liable by reason of any act or omission of Franchisee in
its operation of the Bakery, or for any claim or judgment arising therefrom
against Franchisee or Franchisor. Franchisee shall hold harmless and indemnify
Franchisor, its affiliates, and their respective officers, directors, and
employees against any claims, losses, costs, expenses, liabilities, and damages
arising directly or indirectly from, as a result of, or in connection with
Franchisee's operation of the Bakery, as well as the costs of defending against
such claims (including reasonable attorneys' fees).
21. APPROVALS AND WAIVERS
---------------------
21.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent must be obtained in writing and signed by
an officer of Franchisor.
21.2 Franchisor makes no warranties or guarantees upon which
Franchisee may rely and assumes no liability or obligation to Franchisee by
providing any waiver, approval, consent, or suggestion to Franchisee in
connection with this Agreement, or by reason of any neglect, delay, or denial of
any request therefor.
21.3 No delay or failure of Franchisor to exercise any right under
this Agreement or to insist upon strict compliance by Franchisee with any
obligation or condition hereunder, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of Franchisor's right
to exercise such right or to demand exact compliance by Franchisee with any of
the terms hereof. Waiver by Franchisor of any particular default of Franchisee
shall not affect or impair Franchisor's rights with respect to any subsequent
default of the same, similar, or a different nature. 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 Franchisee of any of the terms,
covenants, or conditions of this Agreement.
22. NOTICES
-------
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or sent by other means which
affords the sender evidence of delivery or attempted delivery, to the respective
parties at the following addresses unless and until a different address has been
designated by written notice to the other party:
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Notices to Franchisor: Bruegger's Franchise Corporation
P.O. Box 374
159 Bank Street
Burlington, Vermont 05401
Attn: Vice President of Development
With a copy to: Nordahl L. Brue, Esq.
Sheehey Brue Gray & Furlong P.C.
P.O. Box 66
119 South Winooski Avenue
Burlington, Vermont 05402
Notices to Franchisee:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Any notice by a means which affords the sender evidence of delivery or attempted
delivery shall be deemed to have been given and received at the date and time of
receipt or attempted delivery.
23. ENTIRE AGREEMENT
----------------
This Agreement and the documents referred to herein constitute the entire
Agreement between Franchisor and Franchisee concerning the subject matter hereof
and supersede all prior agreements, negotiations, representations, and
correspondence concerning the same subject matter. Except for those permitted
to be made unilaterally by Franchisor hereunder, no amendment, change, or
variance from this Agreement shall be binding on either party unless agreed to
by the parties in a writing executed by their authorized officers or agents.
24. SEVERABILITY AND CONSTRUCTION
-----------------------------
24.1 If, for any reason, any provision of this Agreement is determined
to be invalid or in conflict with any existing or future law or regulation by a
court or agency having valid jurisdiction, such invalidity shall not impair the
operation of or have any other effect upon such other provisions as may remain
otherwise intelligible. The latter shall continue to be given full force and
effect, and the invalid provisions shall be deemed not to be a part of this
Agreement.
24.2 All covenants and obligations which expressly or by reasonable
implication are to be performed, in whole or in part, after the expiration or
termination of this Agreement shall survive such expiration or termination.
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24.3 Except as explicitly provided to the contrary herein, nothing in
this Agreement is intended or shall be deemed to confer upon any person or legal
entity other than Franchisee, Franchisor, Franchisor's officers, directors, and
employees, and such of Franchisor's and Franchisee's successors and assigns as
may be contemplated by Section 14 hereof, any rights or remedies under or by
reason of this Agreement.
24.4 Franchisee agrees 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 (i) striking from any provision of this
Agreement any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final decision to which Franchisor is a party, or (ii) reducing the scope of any
promise or covenant to the extent required to comply with such a court or agency
order.
25. APPLICABLE LAW; ARBITRATION
---------------------------
25.1 This Agreement shall be governed by the laws of the state in
which Franchisor has its principal place of business from time to time. In the
event of any conflict of law, the laws of such state shall prevail, without
regard to the application of such state's conflict-of-law rules.
25.2 Except as provided in Sections 25.3 and 25.9, any claim or
controversy arising out of or related to this Agreement (including but not
limited to any claim that the Agreement or any of its provisions is invalid,
illegal, or otherwise voidable or void), the relationship between Franchisor and
Franchisee, or Franchisee's operation of the Bakery shall be submitted to
arbitration pursuant to the then-prevailing rules of the American Arbitration
Association, except as such rules may be modified by the following:
25.2.1 Franchisor and Franchisee shall each select one
arbitrator. The arbitrators selected by Franchisor and Franchisee shall jointly
select a neutral third arbitrator, who shall chair the panel and shall be an
attorney in good standing with substantial expertise and experience in
commercial disputes involving franchising or trade regulation.
25.2.2 The arbitrators shall determine, consistent with the
parties' objectives to avoid undue expense and delay, the types, amount, and
timing of discovery to be provided by the parties.
25.2.3 The arbitrators shall not entertain or permit any class
or consolidated proceeding.
25.2.4 The arbitrators' fees shall be borne equally by the
parties. Except as provided in Section 25.2.5, all other costs and expenses in
connection with the arbitration shall be borne by the party who incurs such
expense or who requests a service (such as, but not limited to, a transcript of
the arbitration proceeding).
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25.2.5 The decision of a majority of the arbitrators shall be
final and binding on the parties, and the arbitrators' award shall be the
exclusive remedy between the parties with respect to all claims, counterclaims,
and issues presented or pled to the panel. The arbitrators may award injunctive
relief as well as damages, but they shall have no authority to award punitive or
exemplary damages. Any monetary award shall be paid promptly, without deduction
or offset. Judgment upon the award may be entered in any court having
jurisdiction thereof. If the award is upheld by a court of competent
jurisdiction in a proceeding by either party to enforce the award or to
challenge the award, the party challenging the award or resisting its
enforcement shall pay, to the extent permitted by law, all reasonable costs,
legal fees, and expenses incurred by the party defending the award or seeking
its enforcement.
25.2.6 The decision of the arbitrators shall have no collateral
estoppel effect with respect to any person or entity who is not a party to the
arbitration proceeding.
25.3 Unless otherwise agreed by Franchisor and Franchisee at the time
of the dispute, Section 25.2 shall not apply to: (i) any claim or dispute
involving actual or threatened disclosure or misuse of the contents of the
Manuals, the Bagel Production Manual, or any other confidential information or
trade secrets of Franchisor and its affiliates; (ii) any claim or dispute
involving the ownership, validity, use of, or right to use or license the
Proprietary Marks; (iii) any action by Franchisor to enforce the covenants set
forth in Section 17 of this Agreement; or (iv) any action by Franchisor to stop
or prevent any threat or danger to public health or safety resulting from the
construction, maintenance, or operation of the Bakery or any facility in which
Franchisee manufactures bagel dough.
25.4 Any issue regarding arbitrability or the enforcement of Section
25.2 shall be governed by the Federal Arbitration Act and the federal common law
of arbitration.
25.5 Any arbitration proceeding or other action, whether or not
arising out of this Agreement, brought by Franchisee against Franchisor shall be
brought, and any arbitration proceeding or other action brought by Franchisor
against Franchisee may be brought, in the judicial district in which Franchisor
has its principal place of business. The parties hereby waive all questions of
personal jurisdiction and venue for the purpose of carrying out this provision.
25.6 Except as otherwise provided in this Section 25, no right or
remedy conferred upon or reserved to Franchisor or Franchisee by this Agreement
is exclusive of any other right or remedy provided herein or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
25.7 Any and all claims and actions arising out of or relating to this
Agreement, the relationship of Franchisee and Franchisor, or Franchisee's
operation of the Bakery brought by either party against the other, whether in
arbitration or any other proceeding, shall be
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<PAGE>
commenced within eighteen (18) months from the occurrence of the facts giving
rise to such claim or action, or such claim or action shall be barred.
25.8 Franchisor and Franchisee irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Franchisor and Franchisee hereby waive to the fullest extent permitted by law
any right to, or claim of, any punitive or exemplary damages against the other
and agree that, in the event of a dispute between them, each shall be limited to
the recovery of any actual damages sustained by it.
25.9 Nothing in this Agreement shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for obtaining
specific performance, restraining orders, and preliminary injunctions.
26. ACKNOWLEDGMENTS
---------------
26.1 Franchisee acknowledges that it has conducted an independent
investigation of the business franchised hereunder, and recognizes that the
business venture contemplated by this Agreement involves business risks and that
its success will be largely dependent upon the ability of Franchisee as an
independent business. Franchisor expressly disclaims the making of, and
Franchisee acknowledges that it has not received, any warranty or guarantee,
express or implied, as to the potential sales, income, profits, or success of
the business venture contemplated by this Agreement.
26.2 Franchisee acknowledges that it received a complete copy of this
Agreement, the attachments hereto, and agreements relating thereto, if any, at
least five (5) business days prior to the date on which this Agreement was
executed. Franchisee further acknowledges that it 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.
26.3 Franchisee acknowledges that it has read and understood this
Agreement, the attachments hereto, and agreements relating thereto, if any, and
that Franchisor has accorded Franchisee ample time and opportunity to consult
with advisors of Franchisee's own choosing about the potential benefits and
risks of entering into this Agreement.
26.4 ACKNOWLEDGMENT OF ARBITRATION:
I understand that this agreement contains an agreement to arbitrate
certain specific issues. After signing this document, I understand
that I will not be able to bring a lawsuit concerning any dispute
that may arise which is covered by one of these arbitration
agreements, unless it involves a
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<PAGE>
question of constitutional or civil rights. Instead, I agree to
submit any such dispute to an impartial arbitrator as set forth in
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
BRUEGGER'S FRANCHISE _____________________________
CORPORATION FRANCHISEE
By: By:
------------------------ --------------------------
Name: Name:
---------------------- ------------------------
Title: Title:
--------------------- -----------------------
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<PAGE>
EXHIBIT A
to
BRUEGGER'S BAGELS
FRANCHISE AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Mark Type Registered Reg. No.
- ------------------------- ---- ---------- ---------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
</TABLE>
APPLICATIONS PENDING
--------------------
<TABLE>
<CAPTION>
Date Sent
Marks Type for Filing Application No.
- ------------------------- ----- ---------- ---------------
<S> <C> <C> <C>
BRUEGGER'S BAGELS/
BAKED FRESH AND DESIGN SM 1/16/96 N/A
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 N/A
JAVAHH! TM 7/3/95 N/A
SINGLE BAKER/SINGLE
BAGEL @ HEARTH DESIGN SM 1/16/96 N/A
</TABLE>
<PAGE>
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
<PAGE>
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEVELOPMENT RIGHTS AND OBLIGATIONS.............. 2
2 TERM............................................ 3
3. DEVELOPMENT FEE................................. 3
4. SITE SELECTION.................................. 3
5. TRAINING OF DEVELOPER EMPLOYEES................. 5
6. OPERATIONS MANUALS.............................. 5
7. CONFIDENTIAL INFORMATION........................ 6
8. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS.... 6
9. TRANSFER OF INTEREST............................ 8
10. DEFAULT AND TERMINATION.........................14
11. COVENANTS.......................................16
12. NOTICES.........................................17
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION......18
14. APPROVALS AND WAIVERS...........................19
15. SEVERABILITY AND CONSTRUCTION...................19
16. ENTIRE AGREEMENT................................20
17. APPLICABLE LAW; ARBITRATION.....................21
18. ACKNOWLEDGMENTS.................................23
</TABLE>
EXHIBIT A - PROPRIETARY MARKS
EXHIBIT B - DEVELOPMENT AREA
EXHIBIT C - BRUEGGER'S FRESH BAGEL BAKERY AFFILIATE
FRANCHISE AGREEMENT
<PAGE>
EXHIBIT 10-R
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
THIS AMENDED AND RESTATED AFFILIATE DEVELOPMENT AGREEMENT ("Agreement") is
entered into on December 8, 1995, between BRUEGGER'S FRANCHISE CORPORATION, a
Delaware corporation ("Franchisor"), and GOFER BAGELS, INC., a Minnesota
corporation and NORSTAR BAGEL BAKERIES, INC., a Minnesota corporation (together
the "Developer").
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor; distinctive exterior and interior restaurant design, decor, color
scheme, fixtures, and furnishings; standards and specifications for ingredients,
food preparation, equipment, supplies, and restaurant operations; and
advertising and promotional programs; all of which may be changed, improved, and
further developed by Franchisor and its affiliates from time to time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "BRUEGGER'S", as set forth in Exhibit A to this Agreement,
and such other trade names, service marks, and trademarks as may hereafter be
designated by Franchisor in writing for use in the System (the "Proprietary
Marks");
WHEREAS, Developer wishes to obtain the right to develop restaurants under
the System and the Proprietary Marks ("Bakeries") within the territory defined
in Exhibit B to this Agreement;
WHEREAS, Michael J. Dressell and Nordahl L. Brue own interests in both
Franchisor and Developer;
WHEREAS, on or about March 29, 1994, Franchisor and Developer entered
into an Affiliate Development Agreement to provide for the development of
Bakeries;
WHEREAS, the parties now desire to modify and restate such Affiliate
Development Agreement;
NOW, THEREFORE, the parties agree as follows:
<PAGE>
1. DEVELOPMENT RIGHTS AND OBLIGATIONS
1.1 Franchisor grants Developer the exclusive right (to the extent
described in Section 1.4), pursuant to the terms and conditions of this
Agreement, to develop Bakeries within the territory defined in Exhibit B to this
Agreement (the "Development Area"). The Bakeries shall be located only at the
specific locations approved in writing by Franchisor pursuant to Section 4.1
below.
1.2 Developer shall exercise its development rights hereunder solely by
executing a separate Bruegger's Fresh Bagel Bakery Affiliate Franchise Agreement
("Franchise Agreement") for each Bakery already developed or to be developed
hereunder or by causing an affiliate of the Developer reasonably acceptable to
Franchisor to execute such separate Bruegger's Fresh Bagel Bakery Affiliate
Franchise Agreement. The Franchise Agreement for all Bakeries to be developed
during the term of this Agreement shall be in the form of Exhibit C to this
Agreement. The Franchise Agreement for each additional Bakery developed during
the period of any renewal of this Agreement, if any, shall be in the form being
offered by Franchisor to new franchisees at the time the first Bakery is
developed during such renewal period, the terms of which may differ from the
terms of Exhibit C. The Franchise Agreement for each Bakery shall be executed by
Developer upon Franchisor's approval of the site for the Bakery pursuant to
Section 4.1 below. Notwithstanding the foregoing, through any renewal term of
this Agreement, the transfer provisions set forth in Section 14 of the Franchise
Agreement attached as Exhibit C shall be included in and supersede such similar
provisions in the then current Franchise Agreement for Bakeries developed after
the initial term.
1.3 During the initial term of this Agreement, Developer shall have no
obligation to develop Bakeries in the Development Area, but shall be free to
develop as many as it chooses, consistent with the terms of this Agreement.
1.4 During the term of this Agreement or any renewals hereof, Franchisor
and its affiliates shall not, anywhere within the Development Area, (1)
establish or operate (directly or through an affiliate) a Bakery, franchise
others to establish or operate a Bakery, (2) sell or distribute under the
"BRUEGGER'S" name any of the items designated as "Core Products" from time to
time in Franchisor's confidential operations manuals, or (3) sell or distribute
or license others to sell or distribute under any name or mark other than the
Proprietary Marks any items described as "Core Products" from time to time in
Franchisor's confidential operations manuals at any location inside the
Development Area, except that Franklin County Cheese Corporation, its
affiliates, successors and assigns may sell Direct Set Cream Cheese and other
bagel spreads anywhere inside or outside the Development Area under any name or
mark other than the Proprietary Marks. Franchisor and its affiliates retain the
rights, among others: (a) to establish, and franchise others to establish,
Bruegger's Fresh Bagel Bakeries in any location outside the Development Area;
and (b) to sell and distribute, and license others to sell and distribute, food
products including, but not limited to, cream cheese products and other bagel
spreads under the "BRUEGGER'S" name (or under any other name), directly or
2
<PAGE>
indirectly, through supermarkets, delicatessens, specialty food stores,
convenience stores, and other wholesale and retail food stores, at any location
outside the Development Area.
1.5 This Agreement does not grant Developer any right to use the
Proprietary Marks or the System. All rights to use the Proprietary Marks and
the System are granted solely under the terms of the Franchise Agreement.
Developer acknowledges that it will have no right under this Agreement or under
any Franchise Agreement to subfranchise any other person or legal entity to use
the Proprietary Marks or the System.
2. TERM
2.1 Unless sooner terminated as provided herein, the term of this
Agreement shall expire March 29, 2024.
3. DEVELOPMENT FEE
3.1 In consideration of the development rights granted herein, Developer
shall pay Franchisor a Development Fee of One Dollar ($1.00), receipt of which
is hereby acknowledged.
4. SITE SELECTION
4.1 Developer, at its sole expense, shall identify and obtain a site for
each Bakery to be developed hereunder and, if applicable, for each bagel dough
manufacturing site. Before acquiring a site by lease or purchase, Developer
shall submit to Franchisor such information and materials as Franchisor may
reasonably request to evaluate the site. After receipt of such information and
materials, Franchisor, in its reasonable discretion, shall approve or refuse to
approve the proposed site. Franchisor shall either approve or reject a proposed
site not later than fifteen (15) Business Days after receipt of all information
and materials reasonably requested pursuant to this Section 4.1. In evaluating
a proposed site, the Franchisor shall consider site standards established by
then existing Bakeries that, during the immediately preceding twelve month
period, have experienced sales volumes above the median for the System. A site
shall be deemed to have received Franchisor's approval unless it has been
rejected in writing by Franchisor within such fifteen (15) Business Day period.
The site approved (or deemed approved) by Franchisor shall be the "Approved
Location" referred to in the Franchise Agreement. Notwithstanding the
foregoing, any Bakeries operated in the Development Area by Developer as of the
date this Agreement is executed shall be deemed Approved Locations. For
purposes of this Agreement, "Business Days" shall be any days except Saturday,
Sunday or the following national holidays: New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving and Christmas.
4.2 With respect to both Bakeries and bagel dough manufacturing sites,
Franchisor shall furnish to Developer the following:
3
<PAGE>
4.2.1 Site selection guidelines and criteria, and such site
selection counseling and assistance as Franchisor may deem advisable;
4.2.2 Such on-site evaluations, if any, as Franchisor may deem
advisable in response to Developer's request for Franchisor's approval of a
proposed site; and
4.2.3 Franchisor's representative plans and specifications for
construction of a Bakery and, if applicable, a bagel dough manufacturing site,
including exterior and interior design and layout plans.
4.3 If Developer will occupy the premises of a Bakery and/or a bagel dough
manufacturing site (if separate from the Bakery) under a lease, Developer shall,
prior to the execution of the lease, submit the lease to Franchisor for its
written approval which shall not be unreasonably withheld. Developer shall use
commercially reasonable efforts to negotiate a lease for the premises of each
Bakery that includes all of the following terms and conditions:
4.3.1 That the lessor consents to Developer's use of such
Proprietary Marks and signage as Franchisor may prescribe for the Bakery or the
bagel dough manufacturing site, as the case may be;
4.3.2 That the use of the premises be restricted solely to the
operation of the Bakery (or bagel dough manufacturing site, as the case may be)
and any ancillary uses connected to the operation of the Bakery (or dough
manufacturing site, as the case may be) during the term of the Franchise
Agreement, as it may be extended in accordance with its terms;
4.3.3 That Developer be prohibited from subleasing or assigning
all or any part of its occupancy rights or from extending the term of or
renewing the lease without Franchisor's prior written consent which shall not be
unreasonably withheld; provided, however, such consent shall not be necessary to
extend the term or renew the lease so that it continues for a term not longer
than the then existing term of the Franchise Agreement for such location;
4.3.4 That the lessor provide to Franchisor copies of all notices
of default given to Franchisee under the lease;
4.3.5 That Franchisor have the right to enter the premises to make
modifications necessary to protect the Proprietary Marks or the System or to
cure any default under the applicable Franchise Agreement or under the lease;
4.3.6 That Franchisor (or Franchisor's designee) have the option,
upon default, expiration, or termination of the applicable Franchise Agreement,
and upon notice to the lessor, to assume all of Developer's rights and
obligations under the lease, including any right to assign or sublease;
provided, however, that Franchisor shall not exercise any renewal
4
<PAGE>
options under the lease unless it obtains a release from the lessor of any
personal guarantees given by Nordahl L. Brue or Michael J. Dressell and of other
guaranties given by entities owned or controlled by Nordahl L. Brue or Michael
J. Dressell, for any renewal period; and
4.3.7 That the tenant under the lease have the right to remodel
the premises without the prior approval of the lessor.
4.4 Developer shall furnish Franchisor with a copy of each executed lease
within ten (10) days after its execution.
4.5 Notwithstanding the terms of any Franchise Agreement executed pursuant
to this Agreement, Developer shall not be required to pay an initial franchisee
fee or a transfer fee to Franchisor based upon an approved request by Developer
for consent to change the location of an existing Bakery to a new location
within the Development Area. In all other respects, such a request shall be
treated as a request for a new site pursuant to this Section 4.
5. TRAINING OF DEVELOPER EMPLOYEES
After the first Bakery developed hereunder opens for business, Developer
shall have the right to fulfill Franchisor's responsibility under each Franchise
Agreement to conduct training for each manager, assistant manager, and baker of
a Bakery, provided that the content and administration of Developer's training
program are at least equal to those of Franchisor's training program and are
approved in advance by Franchisor. Franchisor shall have the right to review
Developer's training program periodically to ensure its quality and to verify
that managers, assistant managers, and bakers are being trained in a timely and
satisfactory manner. Franchisor shall notify Developer of any deficiencies in
the training program. If Developer fails to cure such deficiencies within a
reasonable time, Franchisor may revoke its approval of the training program and
require all Bakery managers, assistant managers, and bakers to attend training
conducted by Franchisor, until such time as the deficiencies in Developer's
program have been corrected to Franchisor's satisfaction.
6. OPERATIONS MANUALS
Franchisor shall provide to Developer, on loan, for each Bakery and bagel
dough manufacturing site developed hereunder, one set of Franchisor's
confidential Operations Manuals, as they exist from time to time (the
"Manuals"). The Manuals shall remain the sole property of Franchisor and shall
be kept in a secure place at all times. Developer shall not photocopy,
duplicate, record, or otherwise reproduce the Manuals or any of their contents
without the prior written consent of Franchisor.
7. CONFIDENTIAL INFORMATION
7.1 Except as hereinafter provided, Developer shall not, during the term
of this Agreement or at any time thereafter, communicate, divulge, or use for
the benefit of any other
5
<PAGE>
person or entity any confidential information, knowledge, trade secrets, or
know-how which may be communicated to Developer or of which Developer may be
apprised by virtue of Developer's activities under this Agreement. Developer may
divulge such confidential information only: (i) to such of its employees and
outside advisors as deemed necessary by Developer; and (ii) to Developer's
contractors and prospective landlords with the prior written approval of
Franchisor. All information, knowledge, trade secrets, know-how, techniques, and
other data of Franchisor or its affiliates which Franchisor designates in
writing as confidential shall be deemed confidential for purposes of this
Agreement, except information which Developer can demonstrate came to its
attention by lawful means prior to disclosure thereof by Franchisor, or which,
at or after the time of disclosure by Franchisor to Developer, had become or
later becomes a part of the public domain, through publication or communication
by others.
7.2 At Franchisor's request, Developer shall require its managers, bakers,
assistant managers, commissary employees, administrative personnel and any other
person to whom Developer wishes to disclose any confidential information of
Franchisor to execute covenants that they will maintain the confidentiality of
such information. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third-
party beneficiary with the independent right to enforce the covenants.
8. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS
8.1 If Developer is a corporation, Developer shall comply with the
following requirements during the term of this Agreement:
8.1.1 Developer shall furnish Franchisor with a copy of its
Articles or Certificate of Incorporation, Bylaws, and any other corporate
governing documents Franchisor may reasonably request, and any amendments
thereto;
8.1.2 Developer shall confine its activities, and its governing
documents or a shareholder's agreement shall at all times provide that its
activities are confined, exclusively to the development and operation of the
Bakeries and/or bagel dough manufacturing sites to be developed hereunder;
provided, hereunder, that such restriction shall automatically terminate at the
time Developer (or its parent or successor) files a registration statement with
the Securities and Exchange Commission covering sales of its shares to the
public.
8.1.3 Until or unless Developer or a Holding Company (as defined
in Section 9.3.5) issues securities pursuant to a Public Offering (as defined in
Section 9.3.5) in accordance with the terms of this Agreement, Developer shall
maintain a current list of all owners of record and all beneficial owners of any
class of voting stock of Developer and shall furnish the list to Franchisor upon
request.
The transfer of ownership of shares represented by this Certificate is
subject to the terms and conditions of an Agreement with Bruegger's
Franchise Corporation.
6
<PAGE>
Reference is made to the provisions of the Development Agreement and to the
Articles and Bylaws of the Corporation.
8.1.4 Until such time as Developer or a Holding Company issues
securities pursuant to a Public Offering in accordance with the terms of this
Agreement, Developer shall maintain a current list of all owners of record and
all beneficial owners of any class of voting stock of Developer and shall
furnish the list to Franchisor upon request.
8.1.5 If Developer operated Bakeries before the effective date of
this Agreement, then, notwithstanding the foregoing Sections 8.1.2 and 8.1.3,
Developer shall not be in violation of this Agreement so long as Developer
limits its activities exclusively to developing and operating Bakeries and
restricts the transfer of its shares of stock to only those transfers authorized
by this Agreement.
8.2 If Developer is a partnership, Developer shall comply with the
following requirements during the term of this Agreement:
8.2.1 Developer shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto.
8.2.2 Developer shall include in its partnership certificate, if
any, filed with the state in which Developer was formed a statement that the
transfer of ownership of a partnership interest is subject to the terms and
conditions of an Agreement with Bruegger's Franchise Corporation.
8.2.3 Developer shall prepare and furnish to Franchisor, upon
request, a list of all general and limited partners in Developer.
8.3 If Developer is a limited liability company, Developer shall comply
with the following requirements during the term of this Agreement:
8.3.1 Developer shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto.
8.3.2 Developer shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
8.3.3 Developer's limited liability company operating agreement
shall include provisions that state that the transfer of shares is subject to
the terms and conditions of an Agreement with Franchisor.
7
<PAGE>
8.3.4 Until such time as Developer or a Holding Company issues
securities pursuant to a Public Offering in accordance with the terms of this
Agreement, Developer shall prepare and furnish to Franchisor, upon request, a
list of all members of Developer.
8.4 Developer shall furnish to Franchisor, within ninety (90) days after
the end of each fiscal year of Developer, an income statement showing the
results of Developer's operations during such fiscal year and a balance sheet as
of the end of such fiscal year, both of which shall be prepared in accordance
with generally accepted accounting principles and reviewed by an independent
certified public accountant. If, however, the foregoing income statements and
balance sheets are audited by an independent certified public accountant, then
Developer shall furnish the audited income statements and balance sheets rather
than the reviewed income statements and balance sheets. Franchisor shall use
reasonable efforts to keep all such income statements and balance sheets
confidential except as required by law.
8.5 During the period that Nordahl L. Brue or Michael J. Dressell
continues to own an interest in Developer, the income statements and balance
statements provided pursuant to Section 8.3 of the Agreement may be audited or
reviewed (as the case may be) by a certified public accountant who is not
independent of the Developer, provided that Nordahl L. Brue or Michael J.
Dressell personally certifies that each such income statement and balance sheet
is complete, accurate and prepared in accordance with generally accepted
accounting principles.
9. TRANSFER OF INTEREST
9.1 Franchisor shall have the right to transfer or assign this Agreement
or any part of its rights or obligations herein to any person or legal entity.
9.2 Developer understands and acknowledges that the rights and duties set
forth in this Agreement are granted in reliance on the business skill, financial
capacity, and personal character of Developer's present owners and management.
Accordingly, except as specifically provided in Section 9.3: (i) neither
Developer nor any Holding Company may issue any capital stock of the Developer
or the Holding Company and (ii) no holders of any capital stock of the Developer
or the Holding Company (collectively the "Holders" and individually a "Holder"),
may sell, assign, transfer, convey, or give away any such capital stock, in each
case without receiving the prior written consent of the Franchisor. In
addition, neither the Developer nor any Holding Company shall assign, transfer,
convey or give away any interest in this Agreement without the prior written
consent of Franchisor (except as specifically provided in Section 9.3).
Developer shall notify Franchisor in writing of any proposed transfer at least
thirty (30) days before any transfer is to take place, and shall provide such
information and documentation relating to the proposed transfer as Franchisor
may reasonably request. Any purported assignment or transfer not effected in
compliance with this Agreement shall be null and void and shall constitute a
material breach of this Agreement, for which Franchisor may immediately
terminate this Agreement without opportunity to cure pursuant to Section 10.2 of
this Agreement; provided, however that failure to provide the notice referred to
above shall not give rise to termination if the other conditions of this
8
<PAGE>
Section 9 shall have been satisfied, unless Developer shall fail to give this
notice three (3) times during any twelve month period, or four (4) times during
the term of this Agreement.
9.3 Notwithstanding any other provision of this Section 9:
9.3.1 Franchisor acknowledges that Developer is currently party to
financing arrangements that require the pledge and assignment as collateral of
this Agreement, the leases for the Approved Locations, the Franchise Agreements
executed pursuant to this Agreement, other personal property assets, and any and
all interest of Developer therein, and some or all of the outstanding stock of
Developer, all as security for any loan, guarantee or other obligation;
9.3.2 Franchisor hereby agrees that, without further consent from
Franchisor, Developer may pledge, assign as collateral with right of
reassignment, or otherwise encumber this Agreement, any and all Franchise
Agreements executed pursuant to this Agreement, the leases for any of the
Approved Locations, any and all other collateral of the Developer, and any
interest of Developer therein, as security for any loan, guarantee or other
obligation;
9.3.3 Franchisor hereby agrees that, without further consent from
Franchisor, Developer or any individual, partnership, corporation or other legal
entity which directly or indirectly owns any interest in Developer, may pledge
or otherwise encumber any ownership interest in Developer as security for a
loan, guarantee or other obligation;
9.3.4 No prior written consent under Section 9.2 shall be required
and no right of first refusal under Section 9.4 shall be available to Franchisor
with respect to (i) any transfers, assignments or sales of securities by any
Holder aggregating less than 20% of the securities held by Holder; provided no
such transferee shall be deemed a Holder for purposes of further transfers
pursuant to this subsection (i); (ii) any transfers, assignments or sales by a
Holder to spouses or lineal descendants or to trusts or other fiduciaries for
the benefit of spouses or lineal descendants of such Holder; (iii) any
transfers, assignments or sales of securities by any party who is a Holder as of
the date of this Agreement to any other Holder; (iv) any merger, acquisition or
other reorganization involving the Developer in which securities owned by a
Holder are in substantial part exchanged for or converted into securities of
another entity; (v) any transfers to persons or entities who are stockholders or
affiliates of a Holder as of the date of this Agreement (including other
entities controlled by persons or entities who are affiliates of the Holders as
of the date of this Agreement) or, if the Holder is a partnership, to existing
partners of such Holder; (vi) any transfers, assignments or sales to employees
of Developer pursuant to an incentive plan adopted by Developer, provided that
the securities authorized for issuance under such plan at any time shall not
exceed 25% of Developer's total outstanding securities; (vii) any transfers
mandated by federal or state law or regulation; or (viii) any bona fide
transaction not intended to avoid the provisions hereof in which any Holder
merges or consolidates with a person or sells all or substantially all of its
assets (including the shares of common stock owned by it at such time) to such a
person in exchange for securities of such person, or any transfer by a Holder to
a person which the
9
<PAGE>
Holder controls, is controlled by or is under common control with; provided,
however, that, except in the case of Section (vii) above, Nordahl L. Brue and
Michael J. Dressell, or either of them and their respective spouses or lineal
descendants, shall continue to own beneficially at least five percent (5%) of
the total outstanding securities of Developer, or of the entity that owns and
controls Developer, and further provided that, prior to the consummation of the
transfers described in Sections (i) through (vi) and (viii) and (ix) inclusive,
such transferees agree to be bound by the terms and conditions of this Agreement
by executing and delivering to each party hereto their agreements to that
effect.
9.3.5 Either Developer or any partnership, corporation, or other
legal entity which directly or indirectly owns any interest in Developer (a
"Holding Company") may issue securities of either Developer or such Holding
Company by means of a registered public offering (a "Public Offering") at any
time after December 31, 1997. In the event of a Public Offering, the Franchisor
shall reasonably cooperate with the Developer and/or the Holding Company in
connection with such Public Offering. No prior written consent under Section
9.2 and no right of first refusal under Section 9.4 shall be available to
Franchisor in connection with a Public Offering.
9.3.6 No prior written consent under Section 9.2 shall be required
and no right of first refusal under Section 9.4 shall be available to Franchisor
with respect to any sale, transfer, assignment or conveyance of securities of
the Developer or the Holding Company by either Developer or the Holding Company
or by any Holder which does not result in a Change of Control of Developer or
the Holding Company and which is not proposed to be made to a direct competitor
of Franchisor in the fresh bagel bakery business.
9.3.6.1 As used in this Section 9.3.6, a "Change of Control"
shall mean the occurrence of any of the following: (i) a sale or other
disposition, in one or a series of transactions, of all or substantially all of
the assets of Developer or the Holding Company other than to an Affiliate of the
Developer or the Holding Company; (ii) any person, persons or entity (other than
a Permitted Holder) becomes the beneficial owner of 40% or more of the
outstanding equity of the Developer or the Holding Company; or (iii) any
transaction in which, after giving effect thereto, the Permitted Holders cease
to own at least 60% of the outstanding equity in Developer; (iv) the Developer
or the Holding Company engages in any merger, consolidation, sale of capital
stock or any other transaction with any other person or entity, with the effect
that after the transaction, the Permitted Holders own, directly or indirectly,
in the aggregate less than 60% of the outstanding equity of (x) the Developer or
the Holding Company, as applicable, if the Developer or the Holding Company, as
applicable, is the surviving entity, or (y) the surviving or resulting entity if
the Developer or the Holding Company is not the surviving entity, in each such
case immediately after the transaction; or (v) any transfer, assignment, sale or
disposition of the equity of Developer or the Holding Company that causes the
percentage ownership of an Operator or a successor Operator reasonably
satisfactory to Franchisor to be less than two percent (2%) of the total
outstanding securities of Developer or of the Holding Company. As used in this
Section 9.3.6.1, "Affiliate" means with respect to any person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such person;
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"Permitted Holder" means any person, partnership, corporation or other legal
entity which as of the date of this Agreement directly or indirectly owns an
interest in Developer or the Holding Company and any of their Affiliates; and
"Operator" shall be the individual responsible for the operations of all
Bakeries developed pursuant to this Agreement.
9.3.7 Except as provided in Section 9.3.3, neither Developer nor
Holding Company may offer or sell securities by means of a Public Offering;
provided, however,
9.3.8 None of the transfers provided for in this Section 9.3 shall
trigger the right of first refusal set forth in Section 9.4 of this Agreement or
the transfer fee set forth in Section 9.6.5 of this Agreement;
9.3.9 Franchisor shall, upon reasonable request from Developer,
execute and deliver to Developer such written approvals and acknowledgements
consistent with this Section 9.3 as shall be reasonably requested from time to
time for delivery to prospective assignees or transferees of Developer or its
owners.
9.4 Franchisor shall have the right, exercisable within thirty (30) days
after receipt of written notice of a proposed transfer pursuant to Section 9.2,
but not including those transfers permitted without Franchisor's consent under
Section 9.3, to purchase the interest proposed to be transferred by sending
written notice to the transferor, as follows:
9.4.1 If the transfer is proposed to be made pursuant to a sale of
the assets or equity of Developer or Holding Company to a third party,
Franchisor may purchase the interest on the same terms and conditions offered by
the third party. Closing on such purchase shall occur within forty-five (45)
days from the date of notice to the seller of the election to purchase by
Franchisor. If the consideration, terms and/or conditions offered by a third
party are such that Franchisor may not reasonably be required to furnish the
same consideration, terms, and/or conditions, then Franchisor may purchase the
interest proposed to be sold for the reasonable equivalent in cash. If the
parties cannot agree within a reasonable time on the cash consideration, an
independent appraiser shall be designated by Franchisor, at Franchisor's
expense, and the determination of the appraiser shall be binding on both
parties. Any material change thereafter in the terms of the offer from a third
party shall constitute a new offer subject to the same rights of first refusal
by Franchisor as in the case of the third party's initial offer.
9.4.2 If such transfer is proposed to be made for less than full
consideration, Franchisor shall designate an independent appraiser to determine
the fair market value of the interest proposed to be transferred. Franchisor
shall pay the entire expense of the appraisal. Franchisor may purchase such
interest at the fair market value determined by the appraiser. Closing on such
purchase shall occur within forty-five (45) days after notice from Franchisor to
the transferor of the appraiser's determination of fair market value.
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9.5 Except as provided in Section 9.3, if Franchisor's right of first
refusal arises under Section 9.4, but Franchisor fails to exercise such right,
then the proposed transferor may complete the transfer after obtaining any
consent in writing from Franchisor required under Section 9.2. Except as
hereinafter provided, Franchisor shall not unreasonably withhold its consent to
a proposed transfer. Franchisor may, however, withhold consent, in its sole
discretion, to the transfer if such transfer is not made in conjunction with a
simultaneous transfer of all comparable interests held by the transferor in all
Franchise Agreements executed pursuant to this Agreement.
9.6 In those instances in which Franchisor's consent is required for a
transfer, Franchisor may require any or all of the following conditions to such
consent:
9.6.1 All of Developer's accrued monetary obligations to
Franchisor and its affiliates shall have been satisfied;
9.6.2 Developer shall not at the time of transfer be in default of
any provision of this Agreement, any amendment hereof or successor hereto, or
any other agreement between Developer and Franchisor or its affiliates or any
Franchise Agreement executed pursuant to this Agreement;
9.6.3 The transferor and Franchisor shall have executed mutual
general releases, in a form reasonably satisfactory to Franchisor, of any and
all claims against each other and the affiliates of each other, and the
respective and its officers, directors, shareholders, and employees of each
other, in their corporate and individual capacities;
9.6.4 If the transfer is made by the Developer rather than a
person or entity owning an interest in the Developer, the transferee shall enter
into a written assignment, in a form satisfactory to Franchisor, assuming and
agreeing to discharge all of Developer's obligations under this Agreement;
9.6.5 If a transfer, alone or together with previous,
simultaneous, or proposed transfers, would have the effect of changing control
of Developer or of the rights granted under this Agreement, Developer shall pay
a transfer fee of Five Thousand Dollars ($5,000) plus Franchisor's reasonable
expenses for outside services associated with reviewing the application to
transfer, including, but not limited to, reasonable attorneys' fees; provided,
however, no transfer fee or expense reimbursement shall be due in connection
with an assignment of any interest in Developer or this Agreement between
Michael J. Dressell and Nordahl L. Brue. Notwithstanding any provision in the
Development Agreement or any Franchise Agreement, in the event Franchisor
approves of a simultaneous transfer of the Development Agreement and more than
one Franchise Agreement to a single transferee, or an affiliated group of
transferees or a sale of control of Developer or the Holding Company, Developer
shall pay a total transfer fee of $5,000.00 regardless of the number of
Franchise Agreements or Bakeries transferred, plus Franchisor's reasonable
expenses for outside services
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associated with reviewing the application to transfer, including but not limited
to, reasonable attorneys' fees.
9.7 Except with respect to transfers allowable without Franchisor's
consent under Section 9.3, the executor or personal representative of a person
with an interest in Developer shall transfer such person's interest to a third
party approved by Franchisor within a reasonable time after the date of such
person's death or declaration of such person's mental incapacity. Except as
provided in Section 9.3 above, such transfers shall be subject to Franchisor's
right of first refusal under Section 9.4, or if such right is not exercised, the
same conditions as any inter vivos transfer under Section 9.6. In the case of
----- -----
transfer by bequest, if the beneficiaries are unable to meet the conditions of
this Section 9, the executor shall transfer the deceased's interest to another
party approved by Franchisor within a reasonable time, subject to all the terms
and conditions for transfers contained in this Section 9. If the interest is
not disposed of within two (2) years from the date of death or appointment of a
personal representative, Franchisor may terminate this Agreement by written
notice.
9.8 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor 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 transferor or transferee.
9.9 In the event Developer or Holding Company shall attempt to obtain
funds by the sale of securities in Developer or Holding Company in accordance
with the provisions of this Agreement, Developer agrees to submit any written
information related to the System, the Bakeries, this Agreement or any other
aspect of the franchised business to Franchisor for review and approval prior to
its inclusion in any offering material, which approval may be withheld on any
reasonable basis; provided, however, Franchisor may not reject information that
must be included to comply with applicable state and federal securities laws.
Franchisor shall use reasonable efforts to respond promptly to any and all
requests for approval of such offering materials. No offering by Developer or
the Holding Company shall imply in any way that Franchisor is participating in
an underwriting, issuance, or offering of securities of either Developer or
Franchisor. Furthermore, Developer may not use the Proprietary Marks in
connection with the offering material, except that in limited circumstances as
approved by Franchisor, which consent shall not be unreasonably withheld,
Developer may use the "Bruegger's" name and the "Bruegger's" and "Bruegger's
Fresh Bagel Bakery" trademarks in such offering materials for the purpose of
identifying the business of Developer including use of a photograph of a Bakery,
subject to Franchisor's consent, which shall not be unreasonably withheld. In
addition, neither Developer, nor the affiliated entity that seeks to offer
securities for sale, shall have a name that is substantially similar to
"Bruegger's" or otherwise creates a likelihood of confusion to the public
between Developer, or the affiliated entity who seeks to sell securities, and
Franchisor. Franchisor's review of any offering material shall be limited to
the subject of the relationship between Developer and Franchisor and to the
compliance with this Section 9.9. Developer must fully indemnify Franchisor in
connection with the offering. For each proposed offering, Developer shall pay
to Franchisor a non-refundable fee
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of Five Thousand Dollars ($5,000) to reimburse Franchisor for its costs and
expenses associated with reviewing the proposed offering. Developer shall give
Franchisor written notice at least thirty (30) days prior to the date of
commencement of any offering.
9.10 The restrictions on transfer and Franchisor's rights of first refusal
set forth in this Section 9 shall terminate upon the filing of a registration
statement with the Securities and Exchange Commission by Developer or a Holding
Company; provided such registration filing is effected in accordance with the
terms of this Agreement.
9.11 Franchisor and Developer hereby agrees that the provisions set forth
in this Section 9 shall also apply with respect to any proposed transfer
otherwise subject to restriction under any Franchise Agreement executed pursuant
to this Agreement. Consequently, the provisions of this Section 9 supersede any
conflicting or contrary provisions set forth in any Franchise Agreement executed
by Developer pursuant to this Agreement.
10. DEFAULT AND TERMINATION
10.1 Developer shall be in default under this Agreement, and all rights
granted herein shall automatically terminate without notice to Developer, if
Developer becomes insolvent or makes a general assignment for the benefit of
creditors; if a petition in bankruptcy is filed by Developer or such a petition
is filed against Developer and not opposed by Developer; if Developer is
adjudicated as bankrupt or insolvent; 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; 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; if proceedings for a composition with creditors under any state or
federal law is instituted by or against Developer; if a final judgment remains
unsatisfied or of record for sixty (60) days or longer (unless supersedeas bond
is filed); if Developer is dissolved; if execution is levied against Developer's
business or property; if suit to foreclose any lien or mortgage against the
premises or equipment of any Bakery developed hereunder is instituted against
Developer and not dismissed within sixty (60) days (except a mechanic's or
materialman's lien with respect to which Developer has a good faith dispute
regarding the amount due, provided Developer has set aside sufficient funds to
satisfy the obligation); or if the real or personal property of any Bakery
developed hereunder is sold after levy thereupon by any sheriff, marshall, or
constable.
10.2 Franchisor shall have the right to terminate this Agreement, effective
immediately upon the receipt of written notice by Developer, if any of the
following events occurs:
10.2.1 In the event of any transfer of an interest in Developer or in
this Agreement which does not comply with Section 9 of this Agreement, or any
transfer of an interest in Developer by intestate succession to an heir who is
unable to meet the conditions of Section 9; or
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10.2.2 If Developer, or any entity which controls Developer, becomes
a publicly-held corporation in violation of the terms of Sections 9.3.5 or 9.9
of this Agreement.
10.3 If Developer fails to cure any default of any other provision of this
Agreement within thirty (30) days after receiving written notice of default from
Franchisor, this Agreement shall terminate at the end of such thirty-day period
without further notice from Franchisor. Except as provided in Sections 10.1 and
10.2, Franchisor may terminate this Agreement only in the event of a default by
Developer, and only by giving Developer written notice of termination stating
the nature of the default at least thirty (30) days prior to the effective date
of termination. If the default is not cured to Franchisor's reasonable
satisfaction within the thirty-day period (or such longer period as applicable
law may require or as may be reasonably practical, provided Developer diligently
prosecutes such cure to completion), this Agreement shall terminate without
further notice to Developer, effective at the end of the thirty-day period (or
such longer period as this Section 10.3 shall provide).
10.4 Upon termination of this Agreement, Developer shall have no right
under this Agreement to establish or operate any Bakery for which a Franchise
Agreement has not been executed by the parties prior to termination; and
Franchisor shall be entitled to establish, and to franchise others to establish,
Bakeries at any location in the Development Area except as may be otherwise
provided under the exclusivity provisions of any Franchise Agreement which
remains in effect between Franchisor and Developer.
10.5 No right or remedy herein conferred upon or reserved to Franchisor is
exclusive of any other right or remedy provided or permitted by law or in
equity.
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11. COVENANTS
11.1 Developer acknowledges that, pursuant to this Agreement, Developer
will receive valuable confidential information, including, without limitation,
information regarding the site selection, marketing, and food preparation
techniques of Franchisor and the System. Developer covenants that, during the
term of this Agreement, Developer shall not, either directly or indirectly, for
itself, or through, on behalf of, or in conjunction with any person or legal
entity:
11.1.1 Divert or attempt to divert any present or prospective
business or customer of any Bakery 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 the Proprietary Marks
and the System; provided, however, if this provision is violated by an employee
of Developer who does not own either equity or stock appreciation rights in
Developer, then this default shall be deemed cured if the employee's employment
with Developer is terminated;
11.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor or who was employed by Franchisor within the preceding
three (3) months, or otherwise directly or indirectly induce such person to
leave his or her employment with Franchisor; or
11.1.3 Own, manage, operate, engage in, be employed by, provide any
assistance to, or have any interest in (as owner or otherwise) any other
business whose sales of fresh or packaged bagels and cream cheese are more than
five percent (5%) of its total sales by annual dollar value.
11.2 Developer covenants that, except as otherwise approved in writing by
Franchisor, Developer shall not, for one (1) year after the expiration or
termination of this Agreement or the approved transfer of this Agreement to a
new developer, either directly or indirectly, for itself or through, on behalf
of, or in conjunction with any person or legal entity, own, maintain, operate,
engage in, be employed by, provide assistance to, or have any interest in any
business (i) whose sales of fresh or packaged bagels and cream cheese are more
than five percent (5%) of its total sales by annual dollar volume, and (ii)
which is, or is intended to be, located within the Development Area, except
pursuant to a Franchise Agreement with Franchisor.
11.3 Sections 11.1.3 and 11.2 shall not apply to ownership by Developer of
a less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation or to operation of one or more
Bakeries pursuant to Franchise Agreements with Franchisor.
11.4 Developer understands and acknowledges that Franchisor shall have the
right, in its sole discretion, to reduce the scope of any covenant set forth in
Sections 11.1 and 11.2
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of this Agreement, or any portion thereof, without Developer's consent,
effective immediately upon receipt by Developer of written notice thereof; and
Developer agrees that it shall comply forthwith with any covenant as so
modified, which shall be fully enforceable notwithstanding the provisions of
Section 16.1 hereof.
11.5 Developer agrees that the existence of any claims it 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 11.
Developer agrees to pay all costs and expenses incurred by Franchisor in
enforcing this Section 11, including, but not limited to, reasonable attorneys
fees.
11.6 Developer acknowledges that Developer's violation of the terms of this
Section 11 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Developer accordingly consents to
the issuance of an injunction prohibiting any conduct by Developer in violation
of the terms of this Section 11. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
11.7 At Franchisor's request, Developer shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 11 (including covenants applicable upon the termination of an
individual's relationship with Developer) from any or all officers and directors
of Developer. Every covenant required by this Section 11.7 shall be in a form
reasonably satisfactory to Franchisor, including, without limitation, specific
identification of Franchisor as a third party beneficiary with the independent
right to enforce the covenant.
11.8 Franchisor covenants that, during the term of this Agreement,
Franchise shall not, directly or indirectly, or through or on behalf of, or in
conjunction with any person or legal entity, employ or seek to employ any person
who is at that time employed by Developer or who was employed by Developer
within the preceding six (6) months, or otherwise directly or indirectly induce
such person to leave his or her employment with Developer.
11.9 Franchisor covenants that it possesses all corporate power necessary
to enter into this Agreement, to grant Developer the rights granted herein and
to perform the transactions contemplated hereunder.
12. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or delivered or sent by another
method which affords the sender evidence of receipt or attempted delivery, to
the respective parties at the following addresses, unless and until a different
address has been designated by written notice to the other party:
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Notices to Franchisor: Bruegger's Franchise Corporation
159 Bank Street
P.O. Box 374
Burlington, Vermont 05402
Attn: Vice President of Development
With a copy to: Nordahl L. Brue, Esq.
Sheehey Brue Gray & Furlong P.C.
119 South Winooski Avenue
P.O. Box 66
Burlington, Vermont 05402
Notices to Developer: Mr. J. Krut Schreck
NORSTAR BAGEL BAKERIES, INC.
1433 E. Franklin Avenue, Suite 3B
Minneapolis, MN 55404
With a copy to: Mr. Steven P. Schonberg
Champlain Management Services, Inc.
159 Bank Street
P.O. Box 1082
Burlington, Vermont 05402
Any notice sent or delivered which affords the sender evidence of receipt or
attempted delivery shall be deemed to have been given and received at the date
and time of receipt or attempted delivery.
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
13.1 It is understood and agreed by the parties 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 make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.
13.2 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.
13.3 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. Franchisor shall in no event
assume liability for, or be deemed liable hereunder as a result of, any such
action, nor shall Franchisor be liable by reason of any act or omission of
Developer or any claim or judgment arising therefrom
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against Developer or Franchisor. Developer shall hold harmless and indemnify
Franchisor, its affiliates, and their respective officers, directors,
shareholders, and employees against any claim arising directly or indirectly
from, as a result of, or in connection with Developer's activities hereunder, as
well as the costs of defending against any such claim, except to the extent the
claim is caused by Franchisor's breach of its obligations under this Agreement.
14. APPROVALS AND WAIVERS
14.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor
therefor, and, except as may be otherwise expressly provided herein, such
approval or consent must be obtained in writing and signed by an officer of
Franchisor. Franchisor shall respond to each such request in writing not later
than thirty (30) days after receipt of the request for such approval or consent.
14.2 Franchisor makes no warranties or guarantees upon which Developer may
rely and assumes no liability or obligation to Developer by providing any
waiver, approval, consent, or suggestion to Developer in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
14.3 No delay or failure of either party to exercise any right reserved to
it in this Agreement or to insist upon strict compliance by the other party with
any obligation or condition in this Agreement, and no custom or practice of the
parties at variance with the terms hereof, shall constitute a waiver of either
party's right to exercise such right or to demand exact compliance by the other
party with any of the terms hereof. Waiver by either party of any particular
default by the other shall not affect or impair said party's rights with respect
to any subsequent default of the same, similar, or different nature. 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 of the
terms, covenants, or conditions of this Agreement.
15. SEVERABILITY AND CONSTRUCTION
15.1 If, for any reason, any provision of this Agreement 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 invalidity shall
not impair the operation of, or have any other effect upon, such other
provisions of this Agreement as may remain otherwise intelligible. The latter
shall continue to be given full force and effect and bind the parties hereto,
and the invalid provision(s) shall be deemed not to be a part of this Agreement.
15.2 Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Developer, Franchisor, and such of their successors and
assigns as may be contemplated by Section 9 above, any rights or remedies under
or by reason of this Agreement.
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15.3 Any provision or covenant of this Agreement which expressly or by
reasonable implication imposes obligations after the expiration or termination
of this Agreement shall survive such expiration or termination.
15.4 Developer and Franchisor 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 of this Agreement, as though it were separately articulated in and
made a part of this Agreement, that may result (i) from striking from any of the
provisions hereof any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final decision to which either Franchisor or Developer is a party, or (ii) from
reducing the scope of any promise or covenant to the extent required to comply
with such a court or agency order.
16. ENTIRE AGREEMENT
16.1 This Agreement, the documents referred to herein, and the Exhibits
attached hereto constitute the entire agreement between Franchisor and Developer
concerning the subject matter hereof and supersede all prior agreements,
negotiations, representations, and correspondence concerning the same subject
matter. Except for those permitted to be made unilaterally by Franchisor
hereunder, no amendment, change, or variance from this Agreement shall be
binding on either party unless agreed to in writing by the parties and executed
by their authorized officers or agents.
16.2 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law, the laws of such state shall prevail, without regard to
the application of such state's conflict of law rules.
16.3 Any action (whether or not arising out of this Agreement) brought by
Developer against Franchisor in any court, whether federal or state, shall be
brought, and any action brought by Franchisor against Developer may be brought,
within the judicial district in which Franchisor has its principal place of
business. The parties hereby waive all questions of personal jurisdiction or
venue for the purpose of carrying out this provision.
16.4 No right or remedy conferred upon or reserved to Franchisor or
Developer by this Agreement is intended to be, nor shall be deemed, exclusive of
any other right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy.
16.5 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.
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16.6 Any and all claims and actions arising out of or relating to this
Agreement or the relationship of Developer and Franchisor, brought by either
party against the other, shall be commenced within one year from the occurrence
of the facts giving rise to such claim or action, or such claim or action shall
be barred.
16.7 Developer and Franchisor irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Developer and Franchisor hereby waive to the fullest extent permitted by law any
right to, or claim of, any punitive or exemplary damages against the other and
agree that, in the event of a dispute between them, each shall be limited to the
recovery of any actual damages sustained by it.
17. APPLICABLE LAW; ARBITRATION
17.1 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law, the laws of such state shall prevail, without regard to
the application of such state's conflict-of-law rules.
17.2 Except as provided in Sections 17.3 and 17.9, any claim or controversy
arising out of or related to this Agreement (including but not limited to any
claim that the Agreement or any of its provisions is invalid, illegal, or
otherwise voidable or void), the relationship between Franchisor and Developer,
or Developer's operation of the Bakery shall be submitted to arbitration
pursuant to the then-prevailing rules of the American Arbitration Association,
except as such rules may be modified by the following:
17.2.1 Franchisor and Developer shall each select one arbitrator.
The arbitrators selected by Franchisor and Developer shall jointly select a
neutral third arbitrator, who shall chair the panel and shall be an attorney in
good standing with substantial expertise and experience in commercial disputes
involving franchising or trade regulation.
17.2.2 The arbitrators shall determine, consistent with the
parties' objectives to avoid undue expense and delay, the types, amount, and
timing of discovery to be provided by the parties.
17.2.3 The arbitrators shall not entertain or permit any class or
consolidated proceeding.
17.2.4 The arbitrators' fees shall be borne equally by the parties.
Except as provided in Section 17.2.5, all other costs and expenses in connection
with the arbitration shall be borne by the party who incurs such expense or who
requests a service (such as, but not limited to, a transcript of the arbitration
proceeding).
17.2.5 The decision of a majority of the arbitrators shall be final
and binding on the parties, and the arbitrators' award shall be the exclusive
remedy between the parties
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with respect to all claims, counterclaims, and issues presented or pled to the
panel. The arbitrators may award injunctive relief as well as damages, but they
shall have no authority to award punitive or exemplary damages. Any monetary
award shall be paid promptly, without deduction or offset. Judgment upon the
award may be entered in any court having jurisdiction thereof. If the award is
upheld by a court of competent jurisdiction in a proceeding by either party to
enforce the award or to challenge the award, the party challenging the award or
resisting its enforcement shall pay, to the extent permitted by law, all
reasonable costs, legal fees, and expenses incurred by the party defending the
award or seeking its enforcement.
17.2.6 The decision of the arbitrators shall have no collateral
estoppel effect with respect to any person or entity who is not a party to the
arbitration proceeding.
17.3 Unless otherwise agreed by Franchisor and Developer at the time of the
dispute, Section 17.2 shall not apply to: (i) any claim or dispute involving
actual or threatened disclosure or misuse of the contents of the Manuals, the
Bagel Production Manual, or any other confidential information or trade secrets
of Franchisor and its affiliates; (ii) any claim or dispute involving the
ownership, validity, use of, or right to use or license the Proprietary Marks;
(iii) any action by Franchisor to enforce the covenants set forth in Section 11
of this Agreement; or (iv) any action by Franchisor to stop or prevent any
threat or danger to public health or safety resulting from the construction,
maintenance, or operation of the Bakery or any facility in which Developer
manufactures bagel dough.
17.4 Any issue regarding arbitrability or the enforcement of Section 17.2
shall be governed by the Federal Arbitration Act and the federal common law of
arbitration.
17.5 Any arbitration proceeding or other action, whether or not arising out
of this Agreement, brought by Developer against Franchisor shall be brought, and
any arbitration proceeding or other action brought by Franchisor against
Developer may be brought, in the judicial district in which Franchisor has its
principal place of business. The parties hereby waive all questions of personal
jurisdiction and venue for the purpose of carrying out this provision.
17.6 Except as otherwise provided in this Section 17, no right or remedy
conferred upon or reserved to Franchisor or Developer by this Agreement is
exclusive of any other right or remedy provided herein or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
17.7 Any and all claims and actions arising out of or relating to this
Agreement, the relationship of Developer and Franchisor, or Developer's
operation of the Bakery brought by either party against the other, whether in
arbitration or any other proceeding, shall be commenced within eighteen months
from the occurrence of the facts giving rise to such claim or action, or such
claim or action shall be barred.
22
<PAGE>
17.8 Franchisor and Developer irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Franchisor and Developer hereby waive to the fullest extent permitted by law any
right to, or claim of, any punitive or exemplary damages against the other and
agree that, in the event of a dispute between them, each shall be limited to the
recovery of any actual damages sustained by it.
17.9 Nothing in this Agreement shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for obtaining
specific performance, restraining orders, and preliminary injunctions.
17.10 This Agreement shall supersede and replace any prior Agreement
between Franchisor and Developer relating to the development of Bakeries in the
Development Area.
18. ACKNOWLEDGMENTS
18.1 ACKNOWLEDGMENT OF ARBITRATION:
I understand that this agreement contains an agreement to arbitrate
certain specific issues. After signing this document, I understand
that I will not be able to bring a lawsuit concerning any dispute that
may arise which is covered by one of these arbitration agreements,
unless it involves a question of constitutional or civil rights.
Instead, I agree to submit any such dispute to an impartial arbitrator
as set forth in this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
BRUEGGER'S FRANCHISE CORPORATION GOFER BAGELS, INC.
By: /s/ ???? By: /s/ Steven P. Schuberg
------------------------ ------------------------
Title::_____________________ Title:_____________________
NORSTAR BAGEL BAKERIES, INC
By: /s/ Steven P. Schuberg
------------------------
Title:VP Finance & Treasurer
----------------------
23
<PAGE>
EXHIBIT A
to
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Marks Type Registered Reg. No.
- ---------------- ---- ---------- --------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
</TABLE>
<PAGE>
EXHIBIT B
to
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
DEVELOPMENT AREA
----------------
The Development Area shall be the following:
The entire State of Minnesota.
<PAGE>
EXHIBIT C
to
AMENDED AND RESTATED
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE DEVELOPMENT AGREEMENT
AFFILIATE FRANCHISE AGREEMENT
-----------------------------
The form of Affiliate Franchise Agreement for all Bakeries to be developed
during the term of this Agreement is attached.
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE FRANCHISE AGREEMENT
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE FRANCHISE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
1. GRANT...................................................... 2
2. TERM AND RENEWAL........................................... 2
3. DUTIES OF FRANCHISOR....................................... 4
4. FEES....................................................... 4
5. CONSTRUCTING AND OPENING THE BAKERY AND BAGEL DOUGH
MANUFACTURING SITE......................................... 5
6. TRAINING................................................... 6
7. DUTIES OF FRANCHISEE....................................... 7
8. PROPRIETARY MARKS..........................................11
9. OPERATIONS MANUALS.........................................13
10. CONFIDENTIAL INFORMATION...................................14
11. ACCOUNTING AND RECORDS.....................................14
12. ADVERTISING AND PROMOTION..................................16
13. INSURANCE..................................................19
14. TRANSFER OF INTEREST.......................................20
15. DEFAULT AND TERMINATION....................................26
16. OBLIGATIONS UPON TERMINATION OF EXPIRATION.................29
17. COVENANTS..................................................31
18. ORGANIZATION OF FRANCHISEE.................................33
19. TAXES, PERMITS, AND INDEBTEDNESS...........................35
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.................35
21. APPROVALS AND WAIVER.......................................36
22. NOTICES....................................................36
23. ENTIRE AGREEMENT...........................................37
24. SEVERABILITY AND CONSTRUCTION..............................37
25. APPLICABLE LAW; ARBITRATION................................38
26. ACKNOWLEDGEMENTS...........................................40
</TABLE>
EXHIBIT A - PROPRIETARY MARKS
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE FRANCHISE AGREEMENT
THIS AFFILIATE FRANCHISE AGREEMENT is entered into as of ________________,
_____ by and between BRUEGGER'S FRANCHISE CORPORATION, a Delaware corporation
("Franchisor"), and ______________________________________________
("Franchisee").
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor; distinctive exterior and interior restaurant design, decor, color
scheme, fixtures, and furnishings; standards and specifications for ingredients,
food preparation, equipment, supplies, and restaurant operations; and
advertising and promotional programs; all of which may be changed, improved, and
further developed by Franchisor and its affiliates from time to time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "BRUEGGER'S", as set forth in Exhibit A to this Agreement,
and such other trade names, service marks, and trademarks as may hereafter be
designated by Franchisor in writing for use in the System (the "Proprietary
Marks");
WHEREAS, Franchisee wishes to obtain the right to establish and operate a
Bruegger's Fresh Bagel Bakery at the location specified in this Agreement;
WHEREAS, Franchisor and Franchisee are parties to a Development Agreement
dated _______________ ("Development Agreement") under which Franchisee has the
right to develop Bruegger's Fresh Bagel Bakeries within a specific geographic
territory that includes the location specified in this Agreement, and pursuant
to which the parties are entering into this Agreement;
WHEREAS, Michael J. Dressell and Nordahl L. Brue own interests in both
Franchisor and Franchisee;
NOW, THEREFORE, the parties agree as follows:
- 1 -
<PAGE>
1. GRANT
-----
1.1 Franchisor grants to Franchisee the exclusive right (to the extent
described in Section 1.3), and Franchisee undertakes the obligation, on the
terms and conditions set forth in this Agreement, to establish and operate one
Bruegger's Fresh Bagel Bakery at the location specified in Section 1.2 below
(the "Bakery") and to use the Proprietary Marks and the System solely in
connection therewith. Franchisor further grants to Franchisee, subject to
Section 7.5 below, the right to use certain trade secrets of Franchisor's
affiliates to manufacture bagel dough, solely for use in the Bakery.
1.2 Franchisee shall operate the Bakery only at______________________
__________________________ (the "Approved Location").
1.3 Neither Franchisor nor any of its affiliates shall establish or
operate (directly or through an affiliate) a Bruegger's Fresh Bagel Bakery or
franchise others to establish or operate a Bruegger's Fresh Bagel Bakery within
an area determined by drawing a circle around the Bakery, which circle shall
have the Bakery as its center, and which circle shall be the smaller of the
following (the "Exclusive Area"):
1.3.1 A circle with a one and one half (1.5) mile radius; or
1.3.2 A circle that contains a population of thirty thousand
persons, the radius of which circle shall be determined at such time or times as
Franchisor communicates to Franchisee an intent to establish a Bruegger's Fresh
Bagel Bakery or franchise others to establish a Bruegger's Fresh Bagel Bakery
within one and one half (1.5) miles of the Bakery. For purposes of this Section
1.3.2, the population shall be the greater of the daytime population or the
residential population.
1.4 Franchisee acknowledges that, except as provided in Section 1.3
hereof, this Agreement does not grant or imply any protected area or territory
for Franchisee or the Bakery. Except as set forth in the Development Agreement,
so long as it remains in full force and effect, Franchisor and its affiliates
retain the rights, among others: (a) to establish, and franchise others to
establish, Bruegger's Fresh Bagel Bakeries in any location, outside the
Exclusive Area; and (b) to sell and distribute, and license others to sell and
distribute, food products (including, but not limited to, cream cheese products
and other bagel spreads) under the "BRUEGGER'S" name (or under any other name),
directly or indirectly, through supermarkets, delicatessens, specialty food
stores, convenience stores, and other wholesale and retail food stores, at any
location, outside of the Exclusive Area.
2. TERM AND RENEWAL
----------------
2.1 Unless sooner terminated as provided herein, the initial term of
this Agreement shall expire on the earlier of:
- 2 -
<PAGE>
2.1.1 Twenty (20) years from the date first written above; or
2.1.2 The final expiration of Franchisee's lease for the
premises of the Bakery.
2.2 Franchisee shall be entitled to renew the rights granted hereunder
for additional terms of the lesser of ten (10) years or the remaining term
(including any extensions) of the lease for the premises of the Bakery (the
"Premises"), subject to the following conditions:
2.2.1 Franchisee shall have given Franchisor written notice of
Franchisee's election to renew not less than three (3) months nor more than nine
(9) months before the end of the then current term;
2.2.2 Franchisee shall not be in default of any provision of
this Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor or its affiliates, and Franchisee shall have
substantially complied with such agreements throughout their respective terms;
2.2.3 Franchisee shall have satisfied all monetary obligations
owed by Franchisee to Franchisor and its affiliates, and shall have timely met
those obligations throughout the initial term and all renewal terms of this
Agreement;
2.2.4 Franchisee shall execute the form of franchise agreement
required by the Development Agreement, or if the term of the Development
Agreement has expired, then Franchisee shall execute Franchisor's then-current
form of renewal franchise agreement, which shall supersede this Agreement in all
respects;
2.2.4 Franchisee shall execute Franchisor's then-current form of
renewal franchise agreement, which shall supersede this Agreement in all
respects; provided, that the transfer provisions set forth in Section 14 of this
Agreement shall be included in an shall supersede any similar provisions in the
then-current form of renewal franchise agreement.
2.2.5 Franchisee shall execute a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities relating to or arising
out of the Bakery or this Agreement, about which Franchisee has knowledge or
should have knowledge; and
2.2.6 Franchisee shall comply with Franchisor's then-current
qualification and training requirements for new franchisees.
- 3 -
<PAGE>
3. DUTIES OF FRANCHISOR
--------------------
3.1 Franchisor shall provide to Franchisee one set of Franchisor's
representative plans for the construction and layout of a Bruegger's Fresh Bagel
Bakery.
3.2 Franchisor shall provide to Franchisee, on loan, one set of
Franchisor's confidential operations manuals (the "Manuals").
3.3 Franchisor shall provide to Franchisee, on loan, only upon written
request pursuant to Section 7.5.2 below, one copy of Franchisor's confidential
Bagel Production Manual.
3.4 Franchisor shall provide a training program prescribed by
Franchisor, for the persons required or permitted to attend training under
Section 6 of this Agreement.
3.5 Franchisor shall provide such pre-opening and opening supervision
and assistance as Franchisor deems advisable.
3.6 Franchisor shall designate at least one supplier of Bruegger's
Direct Set Cream Cheese and license such supplier or suppliers to use the secret
recipes necessary to produce Bruegger's Direct Set Cream Cheese. If Franchisor
obtains any agreements for the supply of Bruegger's Direct Set Cream Cheese for
the benefit of the owners of all Bakeries in the System, Franchisee shall also
be eligible to participate on a basis equivalent to other franchisees.
3.7 In addition to the advertising and promotional materials produced
by the advertising fund established by Franchisor for the System (the "Fund," as
further described in Section 12 of this Agreement), Franchisor shall make
available to Franchisee such advertising and promotional materials as Franchisor
may elect to produce with Franchisor's own funds. Franchisor may charge a
purchase price for such non-Fund materials equal to the costs to produce them.
3.8 Franchisor shall provide to Franchisee from time to time, as
Franchisor deems appropriate, advice and written materials concerning techniques
of managing and operating the Bakery.
4. FEES
----
4.1 In consideration of the rights granted herein, Franchisee has paid
to Franchisor an initial franchise fee of One Dollar ($1.00), receipt of which
is hereby acknowledged, which is fully earned and non-refundable in
consideration of the administrative and other expenses incurred by Franchisor
and Franchisor's lost or deferred opportunity to enter into similar arrangements
with others.
- 4 -
<PAGE>
4.2 Franchisee shall pay Franchisor a weekly royalty fee in an amount
equal to four percent (4%) of the Gross Sales of the Bakery. As used in this
Agreement, "Gross Sales" means all revenue from the sale of all products and all
other income of every kind related to the Bakery whether for cash or credit, and
regardless of collection in the case of credit. Gross Sales shall not include
any sales taxes or other taxes collected from customers by Franchisee and paid
directly to the appropriate taxing authority and shall not include any bona fide
refunds. For purposes of this Agreement, unless otherwise designated by
Franchisor in writing, a week begins on Wednesday and ends on the following
Tuesday.
4.3 Franchisee shall contribute weekly to the Fund the amount specified
in Section 12.1 below.
4.4 Franchisee shall designate an account at a commercial bank of its
choice (the "Account") for the payment of weekly royalty fees and advertising
fund contributions. Franchisee shall furnish the bank with such authorizations
as may be necessary to permit Franchisor to make withdrawals from the Account by
electronic funds transfer. On Monday of each week, Franchisor shall transfer
from the Account an amount equal to the royalty fees and advertising
contributions due from Franchisee based on Gross Sales for the preceding week.
Franchisor shall furnish Franchisee with a written confirmation of each such
transfer. Franchisee agrees to maintain sufficient funds in the Account to cover
all royalty fees and advertising contributions payable to Franchisor at all
times that such amounts become due and payable. If funds in the Account are
insufficient to cover the amounts payable at the time Franchisor makes its
weekly electronic funds transfer, the amount of the shortfall shall be deemed
overdue, and Franchisee shall pay Franchisor, on demand, in addition to the
overdue amount, daily interest on such amount from the date it was due until
paid, at the rate of eighteen percent (l8%) per annum or the maximum rate
permitted by law, whichever is less. Entitlement to such interest shall be in
addition to any other remedies Franchisor may have.
4.5 Franchisee shall pay all customary costs and fees associated with
establishing the Account and authorizing Franchisor to access the Account for
electronic transfers in accordance with this Agreement; provided, however, that
Franchisor shall pay fees, if any, charged for each such electronic transfer and
any extraordinary fees charged to establish the Account solely because the
Account is accessible to electronic transfers.
5. CONSTRUCTING AND OPENING THE BAKERY AND BAGEL DOUGH MANUFACTURING SITE
----------------------------------------------------------------------
5.1 Franchisee shall construct and equip the Bakery and any facility in
which Franchisee manufactures bagel dough pursuant to Section 7.5.2 below at
Franchisee's own expense. Before commencing construction of the Bakery or any
bagel dough manufacturing site, Franchisee, at its expense, shall employ a
qualified architect and, if required by applicable governmental codes and
regulations, a qualified engineer, to prepare architectural and engineering
drawings and specifications for the Premises consistent with Franchisor's
- 5 -
<PAGE>
representative plans for a Bruegger's Fresh Bagel Bakery or a bagel dough
manufacturing site, as the case may be. As requested by the Franchisor, the
drawings and specifications shall be submitted to Franchisor for approval. If
Franchisor has not approved or rejected the drawings and specifications within
fifteen (15) days after receipt of a complete set of drawings and
specifications, then Franchisor's approval shall be deemed received. Once
approved by Franchisor, the drawings and specifications shall not be changed or
modified in any significant or material way without the prior written consent of
Franchisor. For purposes of this Section 5.1, "Business Days" shall be any days
except Saturday, Sunday or the following national holidays: New Year's Day,
Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving and Christmas.
5.2 Franchisee shall obtain, at Franchisee's expense, all zoning
classifications, permits, and clearances (including, but not limited to,
certificates of occupancy and mall or strip center clearances) which may be
required by federal, state, or local laws, ordinances, or regulations.
Franchisee shall not be responsible for obtaining any approvals or registrations
needed by Franchisor to enable Franchisor to offer franchises for sale.
5.3 During the entire period of construction of the Bakery, Franchisee
shall permit Franchisor and its agents to inspect the site at all reasonable
times. Franchisee shall complete construction and installation of all
furniture, fixtures, equipment, and signs in accordance with the final plans and
specifications approved by Franchisor under Section 5.1 above, and shall notify
Franchisor of the anticipated construction completion date.
5.4 Franchisee shall open the Bakery within one (1) year after the date
of this Agreement. If, however, through no fault of Franchisee, the Premises
are damaged or destroyed prior to opening by an event such that repairs or
reconstruction cannot be completed within sixty (60) days thereafter, then
Franchisee shall have thirty (30) days after the event in which to apply for
Franchisor's approval to relocate and/or reconstruct the Bakery, which approval
shall not be unreasonably withheld, and if such period extends beyond the one
(1) year period described in this Section 5.4, then the one (1) year period
shall be extended accordingly. The parties agree that time is of the essence in
the opening of the Bakery.
5.5 If a Bakery is already in existence at the Approved Location as of
the date of this Agreement, the provisions in Section 5.1 through 5.4 inclusive
shall be deemed satisfied.
6. TRAINING
--------
6.1 Within sixty (60) days before the Bakery opens for business, the
manager, and two or more bakers designated by Franchisee, together with an owner
or officer of Franchisee satisfactory to Franchisor (if one such owner or
officer has not already completed such training to Franchisor's satisfaction),
shall attend and complete Franchisor's training program to Franchisor's
satisfaction, or, if applicable, shall attend and complete a training
- 6 -
<PAGE>
program conducted by Franchisee and approved by Franchisor pursuant to the
Development Agreement.
6.2 After the Bakery opens for business, any person employed by
Franchisee to serve as a manager or baker of the Bakery, or as manager of a
bagel dough manufacturing site, before commencing his or her duties, shall
attend and satisfactorily complete the training program referred to in Section
6.1.
6.3 All training conducted by Franchisor shall be held in either
Burlington, Vermont or Chicago, Illinois unless Franchisor designates a
different location by written notice to Franchisee. Franchisor shall provide
instructors, training facilities, and training materials for all such training
at no charge to Franchisee. Franchisee shall be responsible for all other
expenses for training of its employees, including, but not limited to, the costs
of transportation, lodging, meals, and wages.
7. DUTIES OF FRANCHISEE
--------------------
7.1 In order to protect the reputation and goodwill of Franchisor and
to maintain high standards of operation under the System, Franchisee shall
operate the Bakery in strict conformance with the methods, standards, and
specifications relating to the Bakery prescribed by Franchisor from time to time
in the Manuals or otherwise in writing; provided that the Manuals and such
written instructions shall be generally applicable throughout the System. If
Franchisee, pursuant to Section 7.5.2 below, produces its own bagel dough for
the Bakery, Franchisee shall manufacture such bagel dough in strict conformance
with the methods, standards, and specifications prescribed by Franchisor from
time to time in the Bagel Production Manual. Franchisee shall not deviate from
such standards, specifications, and procedures without Franchisor's prior
written consent.
7.2 Franchisee shall use the Premises solely for the operation of the
Bakery, shall keep the Bakery open and in normal operation for the minimum hours
and days specified in the Manuals, and shall refrain from using or permitting
the use of the Premises for any other purpose or activity at any time without
first obtaining the written consent of Franchisor. Notwithstanding the
foregoing, Franchisee may use a portion of the Premises for training, office
space and storage without the Franchisor's consent, provided such uses are
related to the operation of the Bakery.
7.3 Franchisee shall be solely responsible for all employment decisions
and functions of the Bakery, including, without limitation, those related to
hiring, firing, training, wage and hour requirements, recordkeeping,
supervision, and discipline of employees. Franchisee shall maintain a competent,
trained staff with sufficient members to operate the Bakery in an efficient and
competent manner. Franchisee shall take such steps as are necessary to ensure
that its employees preserve good customer relations; render competent,
- 7 -
<PAGE>
prompt, courteous, and knowledgeable service; and meet such minimum standards as
Franchisor may establish from time to time in the Manuals.
7.4 Franchisee shall offer for sale in the Bakery all products and
services which are designated as core products by Franchisor from time to time
in the Manuals (the "Core Products"). Franchisee may also offer for sale any
non-Core Products and services which have been approved by Franchisor in the
Manuals for sale in a Bruegger's Fresh Bagel Bakery, but Franchisee shall not
offer or sell any other products or services without Franchisor's prior written
consent. All products shall be sold only in the weights, sizes, forms, and
packages approved by Franchisor. Franchisee shall discontinue selling or
offering for sale any products or services which Franchisor, in its sole
discretion, disapproves in writing at any time. Franchisee shall have sole
discretion as to the prices of all products and services offered and sold by it
to its customers.
7.5 A principal purpose of the relationship created by this Agreement
is to enable Franchisee to sell bagels prepared from dough made in accordance
with the secret recipe and manufacturing process owned by Bruegger's
Corporation, an affiliate of Franchisor ("Bruegger's Bagels"), and to sell
varieties of a special cream cheese product ("Bruegger's Direct Set Cream
Cheese") made in accordance with secret recipes owned by Bruegger's Corporation
and a secret manufacturing process owned by Franklin County Cheese Corporation,
another affiliate of Franchisor. In order to protect the ownership interests of
Franchisor's affiliates in the secret recipes and processes and to ensure the
quality, uniformity, and distinctiveness of Bruegger's Bagels and Bruegger's
Direct Set Cream Cheese, Franchisee agrees that:
7.5.1 All of Franchisee's requirements of Bruegger's Direct Set
Cream Cheese shall be purchased by Franchisee from a supplier designated by
Franchisor; and
7.5.2 All of Franchisee's requirements of bagel dough shall
either be: (i) manufactured by Franchisee in strict conformance with the
standards and procedures set forth by Franchisor from time to time in the Bagel
Production Manual; or (ii) purchased by Franchisee from a supplier designated by
Franchisor. Franchisor shall furnish one (1) copy of the Bagel Production
Manual to Franchisee within one (1) week after receipt of written notification
from Franchisee that Franchisee intends to produce its own bagel dough for the
Bakery, unless Franchisee has previously received a copy of the Bagel Production
Manual pursuant to another Bruegger's Fresh Bagel Bakery Franchise Agreement, in
which case Franchisor shall have no obligation to furnish an additional copy.
Franchisee's written notice shall explicitly acknowledge Franchisee's obligation
to hold the Bagel Production Manual and its contents in strict confidence at all
times pursuant to Section 9 of this Agreement.
7.6 Except for bagel dough and Bruegger's Direct Set Cream Cheese, as
provided in Section 7.5, Franchisee shall purchase all products and services for
the Bakery that are subject to Franchisor's review, standards or specifications
solely from suppliers who
- 8 -
<PAGE>
demonstrate to Franchisor's continuing reasonable satisfaction the ability to
meet Franchisor's standards and specifications, who possess adequate quality
controls and capacity to supply Franchisee's needs promptly and reliably, and
who have been approved by Franchisor in the Manuals or otherwise in writing. For
purposes of Sections 7.5 and 7.6, "supplier" means any source of products or
services, including, but not limited to, manufacturers, wholesalers, and
distributors. If Franchisee desires to purchase products or services from an
unapproved supplier, Franchisee shall submit to Franchisor a written request to
approve the proposed supplier, together with such information as Franchisor may
reasonably require. Franchisor shall have the right to require that its
representatives be permitted to inspect the supplier's facilities, and that
samples from the supplier be delivered for evaluation and testing either to
Franchisor or to an independent testing facility designated by Franchisor.
Franchisee and Franchisor shall each pay on-half of the reasonable cost of the
evaluation and testing if Franchisor chooses to evaluate and test or cause the
evaluation and testing of the supplier, whether or not the supplier is approved.
Within thirty (30) days after its receipt of Franchisee's request and completion
of evaluation and testing (if required by Franchisor), Franchisor shall notify
Franchisee in writing of its approval or disapproval of the proposed supplier.
Approval shall not be unreasonably withheld. Franchisee shall not purchase,
sell, or offer for sale any products or services of the proposed supplier until
Franchisor's written approval of the proposed supplier is received. Franchisor
may revoke its approval of particular suppliers from time to time if Franchisor
determines, in its sole judgment, that such suppliers or their products or
services no longer meet Franchisor's standards. Upon receipt of written notice
of revocation, Franchisee shall cease to purchase from the disapproved supplier
and, in the case of revocation based on failure of products to meet Franchisor's
standards, Franchisee shall dispose of its remaining inventory of such products
as directed by Franchisor.
7.7 Franchisee shall acquire and install in the Bakery, at Franchisee's
expense, point of sale equipment and software that is compatible with
Franchisor's data collection systems and that Franchisor approves in writing
prior to installation and use. Franchisee shall maintain electronic connection
of its point of sale systems with those of Franchisor; shall use the point of
sale systems in accordance with the policies and operational procedures issued
by Franchisor from time to time; shall transmit data to Franchisor or permit
Franchisor to poll Franchisee's systems at the times specified by Franchisor;
shall maintain its point of sale systems in good working order at all times; and
shall ensure that Franchisee's employees are adequately trained in the use of
such systems and the related policies and procedures of Franchisor. Franchisee
shall bear all costs of installation, operation, and maintenance of the point of
sale systems, except for toll charges incurred by Franchisor in accessing
Franchisee's systems. If Franchisor requires collection of additional data
after installation of conforming equipment, and the collection of such
additional data requires replacement of existing equipment by Franchisee, then
Franchisor shall, at Franchisee's option, purchase from Franchisee the obsolete
equipment at Franchisee's depreciated cost for such items, which cost shall be
reduced according to a five year straight line depreciation schedule.
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7.8 In addition to the requirements of Section 7.7, Franchisee shall
acquire and install in the Bakery and any facility in which Franchisee
manufactures bagel dough, at Franchisee's expense, such Fixtures, furnishings,
equipment, decor, and signs as Franchisor may reasonably direct from time to
time to remain competitive in the marketplace. Franchisee shall not install or
permit to be installed on or about the Premises, without Franchisor's prior
written consent, any Fixtures, furnishings, equipment, decor, signs, or other
items not previously approved by Franchisor. For purposes of this paragraph
"Fixtures" shall mean those items of equipment that are affixed to the real
estate constituting the Bakery in such a way that damage shall be done to the
Premises to remove such items from the Premises.
7.9 Franchisee shall permit Franchisor and its agents to enter the
Bakery and any facility in which Franchisee manufactures bagel dough at any time
during normal business hours to conduct inspections; shall cooperate with such
inspections by rendering such assistance as Franchisor's representatives may
reasonably request; and, upon notice from Franchisor or its agents, shall
immediately begin such steps as may be necessary to correct any deficiencies
noted during any such inspection.
7.10 Franchisee shall maintain the Premises (including adjacent public
areas to the fullest extent Franchisee is permitted to maintain such areas) in a
clean, orderly condition and in excellent repair. Franchisee, at its own
expense, shall make such additions, alterations, repairs, and replacement as may
be required for that purpose (but no others without Franchisor's prior written
consent).
7.11 At Franchisor's request, but not more often than once every seven
(7) years, Franchisee shall refurbish the Bakery to conform to the then-current
design and service system, trade dress, and color schemes for a new Bruegger's
Fresh Bagel Bakery. Such refurbishment may require expenditures by Franchisee
on, among other things, structural changes, installation of new equipment,
remodeling, redecoration, and modifications to existing improvements.
Franchisor shall consider the useful life of the capital improvements in
developing its standards for regular refurbishment.
7.12 Franchisee shall participate in special promotional activities
which Franchisor may prescribe generally for the System, including but not
limited to an annual "Bruegger's Birthday" promotion, provided that Franchisee
shall always have sole discretion as to the prices charged to its customers. If
Franchisor prescribes any such activities, Franchisee shall bear its own costs
of conducting such activities for the Bakery.
7.13 Franchisee shall not implement any change in the System without the
prior written consent of Franchisor. Franchisee shall notify Franchisor in
writing of any change in the System which Franchisee desires to implement, and
shall provide to Franchisor such information as Franchisor requests regarding
the proposed change. Franchisee acknowledges and agrees that Franchisor shall
have the right to incorporate the change into the System and
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thereupon obtain all right, title, and interest of Franchisee therein, without
compensation to Franchisee.
7.14 Franchisee acknowledges that the System may be unilaterally
supplemented, improved, and otherwise modified from time to time by Franchisor.
Franchisee agrees to comply with all reasonable requirements of Franchisor in
that regard, including, without limitation, offering and selling new types of
products or services as specified by Franchisor, provided bagels continue to
constitute an essential component of the System.
7.15 Franchisee shall comply with all terms of its lease or sublease for
the Premises and all other agreements affecting the operation of the Bakery.
7.16 Franchisee shall operate the Bakery in full compliance with all
applicable material municipal, county, state and federal laws, rules,
regulations and ordinances, including, without limitation, all government
regulations relating to occupational hazard and health, worker's compensation
insurance, unemployment insurance and withholding and payment of federal and
state income taxes, social security taxes and sales taxes. Within ten (10) days
after receipt thereof by Franchisee, Franchisee shall forward copies of any and
all reports, warnings, notices of violation or other evidence reflecting less
than full compliance by Franchisee with any applicable material laws, rules,
regulations or ordinances.
8. PROPRIETARY MARKS
-----------------
8.1 Franchisor represents that Bruegger's Corporation has granted
Franchisor a license to use, and to license others to use, the Proprietary
Marks; that, subject to any common law rights of others, Franchisor has the
right to license Franchisee to use the Proprietary Marks; and that Franchisor
has taken and will take all steps reasonably necessary to preserve and protect
the validity of the Proprietary Marks and its right to license others to use
them.
8.2 Franchisee agrees that:
8.2.1 Franchisee shall use only the Proprietary Marks designated
by Franchisor and shall use them only in the manner authorized by Franchisor;
8.2.2 Franchisee shall use the Proprietary Marks only for the
operation of the Bakery and only at the Approved Location or in advertising for
the Bakery;
8.2.3 Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the Bakery only under the name
"BRUEGGER'S FRESH BAGEL BAKERY", shall use all Proprietary Marks without prefix
or suffix, and shall not use the Proprietary Marks as part of its corporate or
legal name;
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8.2.4 Franchisee shall ensure that all advertising and
promotional materials, packaging, signs, decorations, and other items which may
be specified by Franchisor bear the Proprietary Marks in the form, color, size,
and location prescribed by Franchisor;
8.2.5 Franchisee, as directed by Franchisor, shall identify
itself as the owner of the Bakery in conjunction with any use of the Proprietary
Marks, including, but not limited to, on invoices, order forms, receipts, and
business stationery, as well as at such conspicuous locations on the Premises as
Franchisor may designate in writing;
8.2.6 Franchisee's right to use the Proprietary Marks is limited
to such uses as are authorized under this Agreement, and any unauthorized use
shall constitute an infringement of Franchisor's rights and the rights of
Bruegger's Corporation;
8.2.7 Franchisee shall not use the Proprietary Marks to incur
any obligation or indebtedness on behalf of Franchisor or Bruegger's
Corporation;
8.2.8 Franchisee shall comply with Franchisor's reasonable
instructions in filing and maintaining any requisite trade name or fictitious
name registrations, and shall execute any documents deemed necessary by
Franchisor to obtain protection for the Proprietary Marks or to maintain their
continued validity and enforceability; and
8.2.9 During the term of this Agreement and after its expiration
or termination, Franchisee shall not directly or indirectly contest the validity
of, or take any other action which tends to jeopardize the rights of Franchisor
or its affiliates to the ownership of or right to use and to license others to
use the Proprietary Marks.
8.3 Franchisee acknowledges that:
8.3.1 The Proprietary Marks serve to identify the System and
those who are authorized to operate under the System;
8.3.2 Franchisee's use of the Proprietary Marks pursuant to this
Agreement does not give Franchisee any ownership interest in the Proprietary
Marks;
8.3.3 Any and all goodwill arising from Franchisee's use of the
Proprietary Marks shall inure exclusively to the benefit of Franchisor and
Bruegger's Corporation, and upon expiration or termination of this Agreement, no
monetary amount shall be assigned as attributable to any goodwill associated
with Franchisee's use of the System or the Proprietary Marks; and
8.3.4 The license to use the Proprietary Marks granted hereunder
is nonexclusive.
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8.4 Franchisee shall promptly notify Franchisor, to the extent any of
the same are known or suspected by Franchisee, of any unauthorized use of the
Proprietary Marks, any challenge to the validity of the Proprietary Marks, or
any challenge to the ownership by Franchisor or Bruegger's Corporation of the
Proprietary Marks, Franchisor's right to use and to license others to use, or
Franchisee's right to use the Proprietary Marks. Franchisee acknowledges that
Franchisor and Bruegger's Corporation have the right to direct and control any
administrative proceeding or litigation involving the Proprietary Marks,
including any settlement thereof. Franchisor and Bruegger's Corporation have
the right, but not the obligation, to take action against uses by others that
may constitute infringement of the Proprietary Marks. Franchisor shall defend
Franchisee against any third-party claim, suit, or demand arising out of
Franchisee's use of the Proprietary Marks. Franchisor shall bear the cost of
such defense (including reasonable attorney's fees and the cost of any judgment
or settlement) if Franchisee has used the Proprietary Marks in accordance with
this Agreement, but otherwise Franchisee shall bear the cost of such defense
(including the cost of any judgment or settlement). Franchisee shall execute
any and all documents and do such acts as Franchisor deems necessary to carry
out the defense or prosecution of any litigation involving the Proprietary
Marks, including, but not limited to, becoming a nominal party to any legal
action. Except to the extent that such litigation is the result of Franchisee's
use of the Proprietary Marks in a manner inconsistent with the terms of this
Agreement, Franchisor agrees to reimburse Franchisee for its out-of-pocket costs
in doing such acts.
8.5 Franchisor reserves the right to modify the Proprietary Marks
and/or to substitute different proprietary marks for use in identifying the
System and the businesses operating thereunder. Franchisee shall implement
promptly any such modification or substitution. Franchisor shall bear the costs
of modifying Franchisee's signs (up to the depreciated book value, based on a
five year straight line depreciation, for the signs to be replaced) to conform
to the new Proprietary Marks, unless Franchisor has previously required
refurbishment of the Bakery pursuant to Section 7.11 and the refurbishment has
not been completed. Franchisor shall otherwise have no obligation or liability
to Franchisee as a result of such modification or substitution.
9. OPERATIONS MANUALS
------------------
9.1 Franchisee shall treat the Manuals, the Bagel Production Manual,
any other manuals approved by Franchisor for use in connection with the Bakery,
and all information contained therein as confidential, and shall maintain such
information in strict secrecy except that Franchisee may divulge such
information to such employees who must have access to the information in order
to operate the Bakery, provided each such employee shall first execute a
confidentiality agreement in accordance with Section 10.2 of this Agreement.
Franchisee shall not copy, duplicate, record, or otherwise reproduce the
foregoing materials, in whole or in part, or otherwise make them available to
any unauthorized person, except as necessary to fulfill its obligations under
this Agreement.
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9.2 The Manuals and the Bagel Production Manual shall remain the sole
property of Franchisor and shall at all times be kept in a secure place in the
Bakery or, in the case of the Bagel Production Manual, in the facility where
Franchisee manufactures bagel dough.
9.3 Franchisor may from time to time revise the contents of the Manuals
and the Bagel Production Manual. Franchisee agrees to comply with each
reasonable new or reasonably changed standard upon reasonable notice thereof
from Franchisor.
10. CONFIDENTIAL INFORMATION
------------------------
10.1 Franchisee shall not, during the term of this Agreement or at any
time thereafter, communicate, divulge, or use for the benefit of any other
person or entity any confidential information, knowledge, trade secrets, or
know-how which may be communicated to Franchisee or of which Franchisee may be
apprised by virtue of Franchisee's activities under this Agreement. Franchisee
may divulge such confidential information only: (i) to such of its employees as
must have access to it in order to operate the Bakery; and (ii) to Franchisee's
contractors and the landlord of the Premises with the prior written approval of
Franchisor. All information, knowledge, trade secrets, know-how, techniques,
and other data which Franchisor designates in writing as confidential shall be
deemed confidential for purposes of this Agreement, except information which
Developer can demonstrate came to its attention by lawful means prior to
disclosure thereof by Franchisor, or which, at or after the time of disclosure
by Franchisor to Franchisee, had become or later becomes a part of the public
domain, through publication or communication by others.
10.2 At Franchisor's request, Franchisee shall require its managers,
assistant managers, and bakers and any other person to whom Franchisee wishes to
disclose any confidential information of Franchisor to execute covenants that
they will maintain the confidentiality of such information. Franchisor shall
not require such covenants from employees to whom such confidential information
is not disclosed. Such covenants shall be in a form satisfactory to Franchisor,
including, without limitation, specific identification of Franchisor as a third-
party beneficiary with the independent right to enforce the covenants.
11. ACCOUNTING AND RECORDS
----------------------
11.1 Franchisee shall prepare, and shall preserve for at least three (3)
years from the dates of their preparation, complete and accurate books, records,
and accounts, in accordance with generally accepted accounting principles.
11.2 All Gross Sales and all sales tax and other charges collected on
behalf of third parties shall be recorded by Franchisee in accordance with the
procedures prescribed in the Manuals on such point of sale systems as Franchisor
may specify pursuant to Section 7.7 above.
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11.3 Franchisee shall submit to Franchisor, at Franchisee's expense, in
the form prescribed by Franchisor:
11.3.1 By no later than Monday of each week, a complete and
accurate report of Gross Sales for the preceding week, and such other weekly
data as Franchisor may reasonably require;
11.3.2 Within ninety (90) days after the end of each fiscal year
of Franchisee, an income statement showing the results of Franchisee's
operations during such fiscal year and a balance sheet as of the end of such
fiscal year, both of which shall be prepared in accordance with generally
accepted accounting principles and reviewed by an independent certified public
accountant. If, however, the foregoing income statements and balance sheets are
audited by an independent certified public accountant, then Franchisee shall
furnish the audited income statements and balance sheets rather than the
reviewed income statements and balance sheets. In either such case, the
Franchisor shall use reasonable efforts to keep the income statement and balance
sheet confidential except to the extent required by law; and
11.3.3 Interim unaudited income statements and balance sheets, not
less often than quarterly, within forty-five (45) days after the end of the
period to which the statements relate.
11.4 During the period that Nordahl L. Brue or Michael J. Dressell
continues to own an interest in Franchisee, the income statements and balance
statements that shall be provided pursuant to Section 11.3 of the Agreement may
be audited or reviewed (as the case may be) by a certified public accountant who
is not independent of the Franchisee, provided that Nordahl L. Brue or Michael
J. Dressell personally certifies that each such income statement and balance
sheet is complete, accurate and prepared in accordance with generally accepted
accounting principals.
11.5 Franchisor and its designated agents shall have the right to
examine and copy, at Franchisor's expense, on reasonable notice and during
normal business hours, the books, records, accounts, and sales tax returns of
Franchisee. Franchisor shall also have the right, at any time, but not more
than four times each calendar year, to have an independent audit made of the
books of Franchisee. If an inspection or audit reveals that any payment to
Franchisor has been understated, Franchisee shall immediately pay to Franchisor
the amount owed, together with daily interest from the date such amount was due
until paid at the rate of eighteen percent (l8%) per annum or the maximum rate
permitted by law, whichever is less. If an inspection or audit reveals any
underpayment by Franchisee of two percent (2%) or more, Franchisee shall, in
addition to payment of monies owed with interest, reimburse Franchisor for all
costs connected with the inspection or audit (including, without limitation,
expenses for travel, lodging and wages, and reasonable accounting and legal
costs). The foregoing remedies shall be in addition to any other remedies
Franchisor may have.
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Franchisor shall use reasonable efforts to hold confidential information
obtained in connection with this Section 11.5. If an inspection or audit reveals
that Franchisee has overpaid the amount due, then Franchisor shall promptly
refund the amount of the overpayment to the extent that such amount exceeds the
amount of any monies then due to Franchisor.
12. ADVERTISING AND PROMOTION
-------------------------
Recognizing the value of advertising and promotion and the importance of
the standardization of advertising and promotion to the furtherance of the
goodwill and public image of the System, the parties agree as follows:
12.1 Franchisee shall contribute weekly to an advertising fund
established by Franchisor for the System (the "Fund") two percent (2%) of the
weekly Gross Sales of the Bakery. Contributions shall be made by electronic
funds transfer, as specified in Section 4.4. For the first year after the date
the Bakery opens for business, Franchisor will use one-half of the Fund monies
received from Franchisee to pay for (or to reimburse Franchisee for) the cost of
implementing a first-year advertising and promotion plan developed by Franchisee
and approved by Franchisor. Thereafter, Franchisor shall use all Fund monies
received from Franchisee in any manner consistent with Section 12.3 below.
Franchisor, or its affiliates, shall contribute a like percentage for each
Bruegger's Fresh Bagel Bakery that Franchisor, or its affiliates, operates.
12.2 In addition to its contributions to the Fund, Franchisee shall
spend monthly for local advertising and promotion two percent (2%) of the
monthly Gross Sales of the Bakery. All local advertising and promotion must be
approved by Franchisor pursuant to Section 12.6 below.
12.3 The Fund shall be maintained and administered by Franchisor as
follows:
12.3.1 A National Advertising Council ("NAC") shall administer
the portion of the Fund not returned to individual Franchisees pursuant to
Section 12.1 (or an analogous provision in a successor agreement) of the
Franchise Agreement. The NAC shall operate as follows:
12.3.1.1 The NAC shall be comprised of two groups of
members. Group A shall consist of three or more persons selected by Franchisor.
Franchisor shall determine, in its sole discretion, the timing and methods for
selection of the members of Group A. Group B shall consist of a number of
persons equal to the number of members of Group A. The members of Group B shall
be chosen annually by election by all Franchisees under the System based upon a
voting system of one vote per one eligible Bakery.
12.3.1.2 The NAC shall be charged with review and
approval of marketing plans that shall be developed and submitted to the NAC
from time to
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time by Franchisor. After a marketing plan has been approved by the NAC,
Franchisor shall implement the plan without further review by the NAC.
12.3.1.3 Franchisor reserves the right, in its sole
discretion, to establish and modify, from time to time, the duties,
organization, form, manner of operation, authority, membership, methods of
member selection, eligibility for voting and all other aspects of the NAC
pursuant to such governing documents as Franchisor may prepare; provided,
however, that Franchisees shall continue to have representation on the NAC.
12.3.2 Franchisee acknowledges that the Fund is intended to
maximize general public recognition, acceptance, and use of the System, and that
Franchisor is not obligated, in administering the Fund, to make expenditures for
Franchisee which are equivalent or proportional to Franchisee's contribution, or
to ensure that any particular franchisee benefits directly or pro rata from
--- ----
expenditures by the Fund.
12.3.3 The Fund, all contributions thereto, and any earnings
thereon shall be used exclusively to meet any and all costs of maintaining,
administering, directing, conducting, and preparing advertising, marketing,
public relations, and/or promotional programs and materials and any other
activities which Franchisor or the NAC, as the case may be, believes will
enhance the image of the System, including, but not limited to, the costs of
preparing and conducting media advertising campaigns; direct mail advertising;
marketing surveys; employing advertising and/or public relations agencies to
assist therein; purchasing promotional items; conducting and administering in-
store promotions; and providing promotional and other marketing materials and
services to the businesses operating under the System.
12.3.4 All sums received for the Fund shall be maintained in an
account separate from the other monies of Franchisor and shall be used only as
provided in Sections 12.1 and 12.3.3 above. Franchisor shall maintain separate
bookkeeping accounts for the Fund.
12.3.5 Franchisor shall employ an independent certified public
accountant to conduct an annual audit of the Fund. The cost of the annual audit
shall be paid from the Fund.
12.4 In addition to its contributions to the Fund and its monthly
expenditure for local advertising and promotion, Franchisee shall spend a
minimum of Five Thousand Dollars ($5,000) for grand opening marketing pursuant
to a grand opening marketing plan developed by Franchisee and approved by
Franchisor.
12.5 Franchisor shall have the right, in its sole discretion, to
designate geographic areas for purposes of establishing local or regional
advertising cooperatives
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("Cooperatives"). Such geographic areas shall consist of one or more areas of
dominant influence ("ADI"), as defined from time to time by Arbitron Company. If
the Bakery is within the territory of an existing Cooperative at the time the
Bakery opens for business, Franchisee shall immediately become a member of the
Cooperative. If a Cooperative applicable to the Bakery is established during the
term of this Agreement, Franchisee shall become a member no later than thirty
(30) days after the date approved by Franchisor for the Cooperative to commence
operation. In no event shall Franchisee be required to be a member of more than
one Cooperative for the Bakery. Franchisor (or its affiliate, as the case may
be,) shall become a member in any Cooperatives established for a geographic
region that includes a Bruegger's Fresh Bagel Bakery owned by Franchisor (or its
affiliate). The following provisions shall apply to each Cooperative:
12.5.1 Each Cooperative shall be organized and governed in a form
and manner, and shall commence operations on a date, approved in advance by
Franchisor in writing. No changes in the bylaws or other governing documents of
a Cooperative shall be made without Franchisor's prior written consent.
12.5.2 Each Cooperative shall be organized for the exclusive
purpose of administering regional advertising programs and developing, subject
to Franchisor's approval, promotional materials for use by the members in local
advertising.
12.5.3 No advertising or promotional plans or materials may be
used by a Cooperative or furnished to its members without prior approval of
Franchisor pursuant to Section 12.6 below.
12.5.4 Franchisee and each other member of the Cooperative shall
contribute every fourth Monday to the Cooperative, commencing with the first
Monday after the Cooperative commences operations, the amount determined by the
membership. Said amount may not exceed two percent (2%) of the Gross Sales of
each Bakery operated by the members unless approved by a unanimous vote of
eligible members. Franchisee's obligation to make local advertising
expenditures under Section 12.2 above shall be reduced by the amount of
Franchisee's contributions to the Cooperative. Each required contribution shall
be based on Gross Sales for the preceding four week period, and shall be
submitted together with such statements or reports as may be required by
Franchisor, or by the Cooperative with Franchisor's prior written approval.
12.5.5 Franchisor, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, and/or from the obligation to contribute thereto
(including a reduction, deferral or waiver of such contribution), upon written
request of such franchisee stating sufficient reasons to support such exemption.
Franchisor's decision concerning any request for exemption shall be final. If
an exemption is granted to a franchisee, the franchisee shall be required to
spend on
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local advertising the amount the franchisee otherwise would have been required
to contribute to the Cooperative.
12.6 All advertising and promotion by Franchisee and by Cooperatives
shall be in such media and of such type and format as Franchisor may approve,
shall be conducted in a dignified manner, and shall conform to such standards
and requirements as Franchisor may specify. Franchisee or the Cooperative shall
submit written samples of all proposed advertising and promotional plans and
materials to Franchisor for its approval (except with respect to prices to be
charged) at least thirty (30) days before their intended use, unless such plans
and materials were prepared by Franchisor or have been approved by Franchisor
within the last twelve (12) months. Proposed advertising plans or materials
shall be deemed to have been approved if they have not been disapproved by
Franchisor within fifteen (15) days after their receipt by Franchisor.
12.7 At Franchisor's request, Franchisee shall furnish Franchisor with
copies of invoices and other appropriate documentation of Franchisee's
compliance with Sections 12.2 and 12.4 above.
12.8 Franchisee, at its own expense, shall obtain listings in the white
pages and yellow pages of local telephone directories.
13. INSURANCE
---------
13.1 Before commencing any activities under this Agreement, Franchisee
shall procure, and thereafter shall maintain in full force and effect at all
times during the term of this Agreement, at Franchisee's expense, an insurance
policy or policies protecting Franchisee, Franchisor, Franchisor's affiliates,
and their respective officers, directors, shareholders, and employees against
any demand or claim with respect to personal injury, death, or property damage,
or any loss, liability, or expense whatsoever arising or occurring at or in
connection with the Bakery or any bagel dough manufacturing site, including, but
not limited to, comprehensive general liability insurance, property and casualty
insurance, statutory workers' compensation insurance, employer's liability
insurance, product liability insurance, and business interruption insurance.
Such policy or policies shall be written by a responsible carrier or carriers
acceptable to Franchisor, shall name Franchisor as an additional insured as
specified by Franchisor, and shall provide at least the types and minimum
amounts of commercially reasonable coverage specified in the Manuals.
13.2 Franchisee's obligation to obtain and maintain the policy or
policies in the amounts specified in the Manuals shall not be limited in any way
by reason of any insurance which may be maintained by Franchisor, nor shall
Franchisee's performance of that obligation relieve it of liability under the
indemnity in Section 20.2 of this Agreement.
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13.3 All public liability and property damage policies shall contain a
provision that Franchisor, although named as an insured, shall nevertheless be
entitled to recover under such policies on any loss occasioned to Franchisor or
its servants, agents, or employees by reason of the negligence of Franchisee or
its servants, agents, or employees.
13.4 Before commencing any operations under this Agreement, and
thereafter prior to the expiration of any policy, Franchisee shall deliver to
Franchisor certificates of insurance evidencing the proper types and at least
the minimum amounts of coverage specified in the Manuals. All such certificates
shall expressly provide that no less than ten (10) days' prior written notice
shall be given Franchisor in the event of material alteration to or cancellation
of the coverage evidenced by such certificates.
13.5 Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as such requirements may be revised from
time to time by Franchisor in the Manuals or otherwise in writing, but which
requirements shall in all cases by commercially reasonable, Franchisor shall
have the right (but not the obligation) to procure such insurance and to charge
its cost to Franchisee, which charges, together with a reasonable fee for
Franchisor's services, shall be payable by Franchisee immediately upon demand.
The foregoing remedies shall be in addition to any other remedies Franchisor may
have.
14. TRANSFER OF INTEREST
--------------------
14.1 Franchisor shall have the right to transfer or assign this
Agreement or any part of its rights or obligations herein to any person or legal
entity. Franchisee agrees that Franchisor shall have no liability after the
effective date of such transfer or assignment for the performance of any
obligations hereunder.
14.2 Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are granted in reliance on the business skill,
financial capacity, and personal character of Franchisee's present owners and
management. Accordingly, except as specifically provided in Section 14.3: (i)
neither Franchisee nor any Holding Company may issue any capital stock of the
Franchisee or the Holding Company, and (ii) no holders of any capital stock in
either Franchisee or a Holding Company (collectively the "Holders" and
individually a "Holder"), may sell, assign, transfer, convey, or give away any
such capital stock, in each case without receiving the prior written consent of
the Franchisor. In addition, neither the Franchisee or any Holding Company
shall assign, transfer convey or give away any interest in this Agreement
without the prior written consent of Franchisor (except as specifically provided
in Section 14.3 below). Franchisee shall notify Franchisor in writing of any
proposed transfer at least thirty (30) days before any transfer is to take
place, and shall provide such information and documentation relating to the
proposed transfer as Franchisor may reasonably request. Any purported
assignment or transfer not effected in compliance with this Agreement shall be
null and void and shall constitute a material breach of this Agreement, for
which Franchisor may immediately terminate this Agreement without
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opportunity to cure pursuant to Section 15.2. of this Agreement; provided,
however that failure to provide the notice referred to above shall not give rise
to termination if the other conditions of this Section 14 shall have been
satisfied, unless Franchisee shall fail to give this notice three (3) times
during any twelve month period, or four (4) times during the term of this
Agreement.
14.3 Notwithstanding any other provision of this Section 14:
14.3.1 Franchisor acknowledges that Franchisee is currently party
to financing arrangements that require the pledge and assignment as collateral
of this Agreement, the lease for the Approved Location, other personal property
assets, and any and all interest of Franchisee therein, and some or all of the
outstanding stock of Franchisee, all as security for any loan, guarantee or
other obligation;
14.3.2 Franchisor hereby agrees that, without further consent
from Franchisor, Franchisee may pledge, assign as collateral with right of
reassignment, or otherwise encumber this Agreement, the lease for the Approved
Location, any and all other collateral of the Franchisee, and any interest of
Franchisee therein, as security for any loan, guarantee or other obligation;
14.3.3 Franchisor hereby agrees that, without further consent
from Franchisor, Franchisee or any individual, partnership, corporation or other
legal entity which directly or indirectly owns any interest in Franchisee, may
pledge or otherwise encumber any ownership interest in Franchisee as security
for a loan, guarantee or other obligation;
14.3.4 No prior written consent under Section 14.2 shall be
required and no right of first refusal under Section 14.4 shall be available to
Franchisor with respect to (i) any transfers, assignments or sales of securities
by any Holder aggregating less than 20% of the securities held by Holder;
provided no such transferee shall be deemed a Holder for purposes of further
transfers pursuant to this subsection (i); (ii) any transfers, assignments or
sales by a Holder to spouses or lineal descendants or to trusts or other
fiduciaries for the benefit of spouses or lineal descendants of such Holder;
(iii) any transfers, assignments or sales of securities by any party who is a
Holder as of the date of this Agreement to any other Holder; (iv) any merger,
acquisition or other reorganization involving the Franchisee in which securities
owned by a Holder are in substantial part exchanged for or converted into
securities of another entity; (v) any transfers to persons or entities who are
stockholders or affiliates of a Holder as of the date of this Agreement
(including other entities controlled by persons or entities who are affiliates
of the Holders as of the date of this Agreement) or, if the Holder is a
partnership, to existing partners of such Holder; (vi) any transfers,
assignments or sales to employees of Franchisee pursuant to an incentive plan
adopted by Franchisee, provided that the securities authorized for issuance
under such plan at any time shall not exceed 25% of Franchisee's total
outstanding securities; (vii) any transfers mandated by federal or state law or
regulation; or (viii) any bona fide transaction not intended to avoid the
provisions hereof in
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which any Holder merges or consolidates with a person or sells all or
substantially all of its assets (including the shares of common stock owned by
it at such time) to such a person in exchange for securities of such person, or
any transfer by a Holder to a person which the Holder controls, is controlled by
or is under common control with; provided, however, that Nordahl L. Brue and
Michael J. Dressell, or either of them and their respective spouses or lineal
descendants, shall continue to own beneficially at least five percent (5%) of
the total outstanding securities of Franchisee, or of the entity that owns and
controls Franchisee, and further provided that, prior to the consummation of the
transfers described in Sections (i) through (viii) inclusive, such transferees
agree to be bound by the terms and conditions of this Agreement by executing and
delivering to each party hereto their agreements to that effect.
14.3.5 Either Franchisee or any partnership, corporation, or
other legal entity which directly or indirectly owns any interest in Franchisee
(a "Holding Company") may issue securities of either Franchisee or such Holding
Company by means of a registered public offering (a "Public Offering") at any
time after December 31, 1997. In the event of a Public Offering, the Franchisor
shall reasonably cooperate with the Franchisee and/or the Holding Company in
connection with such Public Offering. No prior written consent under Section
14.2 and no right of first refusal under Section 14.2 shall be available to
Franchisor in connection with a Public Offering.
14.3.6 No prior written consent under Section 14.2 shall be
required and no right of first refusal under Section 14.4 shall be available to
Franchisor with respect to any sale, transfer, assignment, or conveyance of
securities of the Franchisee or the Holding Company by either Franchisee or the
Holding Company or by any Holder which does not result in a Change of Control of
Franchisee or the Holding Company and which is not proposed to be made to a
direct competitor of Franchisor in the fresh bagel bakery business.
14.3.6.1 As used in this Section 14.3.6, a "Change of
Control" shall mean the occurrence of any of the following: (i) a sale or other
disposition, in one or a series of transactions, of all or substantially all of
the assets of Franchisee or the Holding Company other than to an Affiliate of
the Franchisee or the Holding Company; (ii) any person, persons or entity
(other than a Permitted Holder) becomes the beneficial owner of 40% or more of
the outstanding equity of the Franchisee or the Holding Company; or (iii) any
transaction in which, after giving effect thereto, the Permitted Holders cease
to own at least 60% of the outstanding equity in Developer; (iv) the Franchisee
or the Holding Company engages in any merger, consolidation, sale of capital
stock or any other transaction with any other person or entity, with the effect
that after the transaction, the Permitted Holders own, directly or indirectly,
in the aggregate less than 60% of the outstanding equity of (x) the Franchisee
or the Holding Company, as applicable, if the Franchisee or the Holding Company,
as applicable, is the surviving entity, or (y) the surviving or resulting entity
if the Franchisee or the Holding Company is not the surviving entity, in each
such case immediately after the transaction; or (v) any transfer, assignment,
sale or disposition of the equity of Franchisee or the Holding Company that
causes the percentage ownership of an Operator or successor
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Operator reasonably satisfactory to Franchisor to be less than two percent (2%)
of the total outstanding securities of Franchisee or of the Holding Company. As
used in this Section 14.3.6.1, "Affiliate" means with respect to any person, any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such person; "Permitted Holder" means any
person, partnership, corporation or other legal entity which as of the date of
this Agreement directly or indirectly owns an interest in Developer or the
Holding Company and any of their Affiliates; and "Operator" shall be the
individual responsible for the operations of all Bakeries developed pursuant to
the Development Agreement.
14.3.7 Except as provided in Section 14.3.3, neither Franchisee
nor Holding Company may offer or sell securities by means of a Public Offering;
14.3.8 None of the transfers provided for in this Section 14.3
shall trigger the right of first refusal set forth in Section 14.4 of this
Agreement or the transfer fee set forth in Section 14.6.5 of this Agreement;
14.3.9 Franchisor shall, upon reasonable request from Franchisee,
execute and deliver to Franchisee such written approvals and acknowledgements
consistent with this Section 14.3 as shall be reasonably requested from time to
time for delivery to prospective assignees or transferees of Franchisee or its
owners.
14.4 Franchisor shall have the right, exercisable within thirty (30)
days after receipt of written notice of a proposed transfer pursuant to Section
14.2, but not including those transfers permitted without Franchisor's consent
in Section 14.3, to purchase the interest proposed to be transferred by sending
written notice to the transferor, as follows:
14.4.1 If the transfer is proposed to be made pursuant to a sale
of the assets or equity of Franchisee or Holding Company to a third party,
Franchisor may purchase the interest on the same terms and conditions offered by
the third party. Closing on such purchase shall occur within forty-five (45)
days from the date of notice to the seller of the election to purchase by
Franchisor. If the consideration, terms, and/or conditions offered by a third
party are such that Franchisor may not reasonably be required to furnish the
same consideration, terms, and/or conditions, then Franchisor may purchase the
interest proposed to be sold for the reasonable equivalent in cash. If the
parties cannot agree within a reasonable time on the cash consideration, an
independent appraiser shall be designated by Franchisor, at Franchisor's
expense, and the determination of the appraiser shall be binding on both
parties. Any material change thereafter in the terms of the offer from a third
party shall constitute a new offer subject to the same rights of first refusal
by Franchisor as in the case of the third party's initial offer;
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14.4.2 If such transfer is proposed to be made for less than full
consideration, Franchisor shall designate an independent appraiser to determine
the fair market value of the interest proposed to be transferred. Franchisor
shall pay the entire expense of the appraisal. Franchisor may purchase such
interest at the fair market value determined by the appraiser. Closing on such
purchase shall occur within forty-five (45) days after notice from Franchisor to
the transferor of the appraiser's determination of fair market value.
14.5 Except as provided in Section 14.3, if Franchisor's right of first
refusal arises under Section 9.4, but Franchisor fails to exercise such right,
then the proposed transferor may complete the transfer after obtaining any
consent in writing from Franchisor required under Section 14.2. Franchisor
shall not unreasonably withhold its consent to a proposed transfer. Franchisor
may, however, withhold consent, in its sole discretion, to the transfer if such
transfer is not made in conjunction with a simultaneous transfer of all
comparable interests held by the transferor in the Development Agreement and all
Franchise Agreements executed pursuant to the Development Agreement.
14.6 In those instances in which Franchisor's consent is required for a
transfer, Franchisor may require any or all of the following conditions to such
consent:
14.6.1 All of Franchisee's accrued monetary obligations to
Franchisor and its affiliates shall have been satisfied;
14.6.2 Franchisee shall not at the time of transfer be in default
of any provision of this Agreement, any amendment hereof or successor hereto, or
any other agreement between Franchisee and Franchisor or its affiliates or any
Franchise Agreement executed pursuant to this Agreement;
14.6.3 The transferor and Franchisor shall have executed mutual
general releases, in a form reasonably satisfactory to Franchisor, of any and
all claims against each other and the affiliates of each other, and the
respective and its officers, directors, shareholders, and employees of each
other, in their corporate and individual capacities;
14.6.4 If the transfer is made by the Franchisee rather than a
person or entity owning an interest in the Franchisee, the transferee shall
enter into a written assignment, in a form satisfactory to Franchisor, assuming
and agreeing to discharge all of Franchisee's obligations under this Agreement;
14.6.5 If a transfer, alone or together with previous,
simultaneous, or proposed transfers, would have the effect of changing control
of Franchisee or of the rights granted under this Agreement, Franchisee shall
pay a transfer fee of Five Thousand Dollars ($5,000) plus Franchisor's
reasonable expenses for outside services associated with reviewing the
application to transfer, including, but not limited to, reasonable attorneys'
fees; provided, however, no transfer fee or expense reimbursement shall be due
in connection with an
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assignment of any interest in Franchisee or this Agreement between Michael J.
Dressell and Nordahl L. Brue. Notwithstanding any provision in the Development
Agreement or any Franchise Agreement, in the event Franchisor approves of a
simultaneous transfer of the Development Agreement and more than one Franchise
Agreement to a single transferee or an affiliated group of transferees or a sale
of control of Developer or the Holding Company, Franchisee shall pay a total
transfer fee of $5,000.00 regardless of the number of Franchise Agreements or
Bakeries transferred, plus Franchisor's reasonable expenses for outside services
associated with reviewing the application to transfer, including but not limited
to, reasonable attorneys' fees.
14.7 Except with respect to the transfers allowable without Franchisor's
consent under Section 14.3, the executor or personal representative of a person
with an interest in Franchisee shall transfer such person's interest to a third
party approved by Franchisor within a reasonable time after the date of such
person's death or declaration of such person's mental incapacity. Except as
provided in Section 14.3 above, such transfers shall be subject to Franchisor's
right of first refusal under Section 14.4, or if such right is not exercised,
the same conditions as any inter vivos transfer under Section 14.6. In the case
----- -----
of transfer by bequest, if the beneficiaries are unable to meet the conditions
of this Section 14, the executor shall transfer the deceased's interest to
another party approved by Franchisor within a reasonable time, subject to all
the terms and conditions for transfers contained in this Section 14. If the
interest is not disposed of within two (2) years from the date of death or
appointment of a personal representative, Franchisor may terminate this
Agreement by written notice.
14.8 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor 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 transferor or transferee.
14.9 In the event Franchisee or Holding Company shall attempt to obtain
funds by the sale of securities in Franchisee or Holding Company in accordance
with the provisions of this Agreement, Franchisee agrees to submit any written
information related to the System, the Bakeries, this Agreement or any other
aspect of the franchised business to Franchisor for review and approval prior to
its inclusion in any offering material, which approval may be withheld on any
reasonable basis; provided, however, Franchisor may not reject information that
must be included to comply with applicable state and federal securities laws.
Franchisor shall use reasonable efforts to respond promptly to any and all
requests for approval of such offering materials. No offering by Franchisee or
the Holding Company shall imply in any way that Franchisor is participating in
an underwriting, issuance, or offering of securities of either Franchisee or
Franchisor. Furthermore, Franchisee may not use the Proprietary Marks in
connection with the offering material, except that in limited circumstances as
approved by Franchisor, which consent shall not be unreasonably withheld.
Franchisee may use the "Bruegger's" name and the "Bruegger's" and "Bruegger's
Fresh Bagel Bakery" trademarks in
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such offering materials for the purpose of identifying the business of
Franchisee, including use of a photograph of a Bakery, subject to Franchisor's
consent, which shall not be unreasonably withheld. In addition, neither
Franchisee, nor the affiliated entity that seeks to offer securities for sale,
shall have a name that is substantially similar to "Bruegger's" or otherwise
creates a likelihood of confusion to the public between Franchisee, or the
affiliated entity who seeks to sell securities, and Franchisor. Franchisor's
review of any offering material shall be limited to the subject of the
relationship between Franchisee and Franchisor and to the compliance with this
Section 14.9. Franchisee must fully indemnify Franchisor in connection with the
offering. For each proposed offering, Franchisee shall pay to Franchisor a non-
refundable fee of Five Thousand Dollars ($5,000) to reimburse Franchisor for its
costs and expenses associated with reviewing the proposed offering. Franchisee
shall give Franchisor written notice at least thirty (30) days prior to the date
of commencement of any offering.
14.10 The restrictions on transfer and Franchisor's rights of first
refusal set forth in this Section 14 shall terminate upon the filing of a
registration statement with the Securities and Exchange Commission by Franchisee
or a Holding Company; provided such registration filing is effected in
accordance with the terms of this Agreement.
15. DEFAULT AND TERMINATION
-----------------------
15.1 Franchisee shall be deemed to be in default under this Agreement,
and all rights granted to Franchisee herein shall automatically terminate
without notice to Franchisee, if Franchisee becomes insolvent or makes a general
assignment for the benefit of creditors; if a petition in bankruptcy is filed by
Franchisee or is filed against and not opposed by Franchisee; if Franchisee is
adjudicated a bankrupt or insolvent; if a bill in equity or other proceeding for
the appointment of a receiver of Franchisee or other custodian for Franchisee's
business or assets is filed and consented to by Franchisee; if a receiver or
other custodian (permanent or temporary) of Franchisee's assets or property, or
any part thereof, is appointed by any court of competent jurisdiction; if
proceedings for a composition with creditors under any state or federal law are
instituted by or against Franchisee; if a final judgment against Franchisee
remains unsatisfied or of record for sixty (60) days or longer (unless
supersedeas bond is filed); if Franchisee is dissolved; if execution is levied
against Franchisee's business or property; if suit to foreclose any lien or
mortgage against the Premises or equipment of the Bakery is instituted against
Franchisee and not dismissed within sixty (60) days (except a mechanic's or
materialman's lien with respect to which Franchisee has a good faith dispute
regarding the amount due, provided Developer has set aside sufficient funds to
satisfy the obligation); or if the real or personal property of the Bakery is
sold after levy thereupon by any sheriff, marshal, or constable.
15.2 If any of the following events of default occurs, Franchisor, at
its option, may terminate this Agreement without affording Franchisee any
opportunity to cure the default, effective immediately upon receipt of written
notice by Franchisee:
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15.2.1 If Franchisee fails to construct and open the Bakery
within the time specified in Section 5.4 of this Agreement;
15.2.2 If Franchisee or any principal officer (president, vice
president, treasurer, controller, any financial officer or the Operator, or any
area manager) of Franchisee is convicted of a non-vehicular felony, a crime
involving moral turpitude, or any other crime or offense that Franchisor
believes is reasonably likely to have an adverse effect on the System, the
Proprietary Marks, the goodwill associated therewith, or Franchisor's interest
therein;
15.2.3 If a substantial threat or danger to public health or
safety results from the construction, maintenance, or operation of the Bakery or
any facility in which Franchisee manufactures bagel dough and the Franchisee
knew or should have known of the threat or danger to public health or safety
resulting from the construction, maintenance, or operation of the Bakery;
15.2.4 If any person or entity with an interest referred to in
Section 14 purports to transfer such interest other than in accordance with
Section 14;
15.2.5 To the extent required by Section 14.6, if an approved
transfer is not effected within two (2) years following death or mental
incapacity, or if any transfer by intestate succession is made to an heir who is
unable to meet the conditions of Section 14;
15.2.6 If Franchisee fails to comply with the covenants in
Section 17.1 below;
15.2.7 If Franchisee discloses or divulges any material contents
of the Manuals, the Bagel Production Manual, or other confidential information
of Franchisor, except as permitted under Section 10 hereof;
15.2.8 If Franchisee knowingly maintains false books or records
or knowingly submits any false reports to Franchisor; provided, however, the
conduct of a single employee of Franchisee, who shall be neither an officer nor
a director of Franchisor, shall not constitute such knowing conduct if
Franchisee exercises reasonable prudence in monitoring the conduct of its
employees and promptly cures any defaults arising from such fraudulent conduct;
15.2.9 If Franchisee refuses to permit Franchisor to inspect the
premises, books, records, or accounts of the Bakery or of any facility in which
Franchisee manufactures bagel dough, as provided herein;
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15.2.10 If Franchisee, after curing a material default pursuant to
Section 15.5 hereof, commits the same material default on two additional
occasions within one (1) year, whether or not cured after notice; or
15.2.11 If Franchisee is in default under a material provision of
the Agreement to which Section 15.5 is applicable three (3) times within any
nine-month period, whether such material defaults are of a similar or different
nature and whether or not any of them is cured after notice.
15.3 If Franchisee fails, refuses, or neglects to pay any monies owing
to Franchisor or its affiliates, or fails to submit financial or other
information required under this Agreement, within seven (7) days after receipt
of notice of default from Franchisor, this Agreement shall terminate at the end
of such seven-day period without further notice from Franchisor.
15.4 If Franchisee at any time ceases to operate or otherwise abandons
the Bakery, loses the right to possession of the Premises, or otherwise forfeits
the right to do or transact business in the jurisdiction where the Bakery is
located, within seven (7) days after receipt of notice of said default from
Franchisor, this Agreement shall terminate at the end of such seven (7) day
period without further notice from Franchisor. However, if, through no fault of
Franchisee, the Premises are damaged or destroyed by an event such that repairs
or reconstruction cannot be completed within sixty (60) days thereafter, then
Franchisee shall have thirty (30) days after the event in which to apply for
Franchisor's approval to relocate and/or reconstruct the Bakery, which approval
shall not be unreasonably withheld.
15.5 Except as provided in Sections 15.1 through 15.4, Franchisor may
terminate this Agreement only in the event of a default by Franchisee, and only
by giving Franchisee written notice of termination stating the nature of the
default at least thirty (30) days prior to the effective date of termination.
If the default is not cured to Franchisor's reasonable satisfaction within the
thirty-day period (or such longer period as applicable law may require or as may
be reasonably practical, provided Franchisee diligently prosecutes such cure to
completion), this Agreement shall terminate without further notice to
Franchisee, effective at the end of the thirty-day period (or such longer period
as applicable law may require). Any material failure to comply with the
requirements imposed by this Agreement (as it may from time to time reasonably
be supplemented by the Manuals) shall be a default under this Section 15.5
including, but not limited to, the following events:
15.5.1 If Franchisee sells any unapproved products or otherwise
materially fails to maintain or observe any of the standards or procedures
prescribed by Franchisor in this Agreement, the Manuals, or otherwise in
writing;
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15.5.2 If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or any other identifying characteristics of the System, or
otherwise materially impairs the goodwill associated therewith or Franchisor's
rights therein; or
15.5.3 If Franchisee fails, refuses, or neglects to obtain
Franchisor's prior written approval or consent as required by this Agreement
(other than consent to a transfer under Section 14, the breach of which is
addressed in Section 15.2.5).
15.6 Notwithstanding anything else in this Agreement, Franchisor agrees
not to assert any claim for future royalty payments or advertising fees under
this Agreement if: (i) this Agreement is terminated prior to conclusion of its
term; and (ii) prior to such termination, Franchisor (who shall not unreasonably
withhold its agreement) and Franchisee agree that the sole reason for
termination of the Agreement is that the Approved Location is not appropriate
for a Bruegger's Fresh Bagel Bakery. All other rights and remedies available to
Franchisor under this Agreement arising out of the termination of the Agreement
shall remain in full force and effect, all post-term covenants imposed upon
Franchisee.
16. OBLIGATIONS UPON TERMINATION OR EXPIRATION
------------------------------------------
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall immediately terminate, and:
16.1 Franchisee shall immediately cease to operate the Bakery; shall not
thereafter, directly or indirectly, represent itself to the public or hold
itself out as a present or former franchisee of Franchisor with respect to the
Bakery; and, if applicable, shall immediately cease production of any bagel
dough using trade secrets or know-how furnished by Franchisor not lawfully in
the public domain, except pursuant to another Franchise Agreement with
Franchisor..
16.2 Franchisee shall immediately and permanently cease to use in any
manner whatsoever the confidential methods, procedures, and techniques
associated with the System; the "BRUEGGER'S" mark; the "BRUEGGER'S FRESH BAGEL
BAKERY" name; and all other Proprietary Marks, distinctive forms, slogans,
signs, symbols, and devices associated with the System; provided that this
provision shall not affect any rights granted to Franchisee pursuant to any
other Franchise Agreements.
16.3 Franchisee shall take such action as may be necessary to cancel any
assumed name registration or equivalent registration obtained by Franchisee in
connection with the Bakery which contains the name "BRUEGGER'S" or any other
Proprietary Marks, and shall furnish evidence satisfactory to Franchisor of
compliance with this obligation within five (5) business days after termination
or expiration of this Agreement. Franchisee hereby appoints Franchisor its
attorney-in-fact to carry out the requirements of this Section 16.3, if
Franchisee fails to do so within such five-day period.
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16.4 At Franchisor's option, Franchisee shall assign to Franchisor, at
fair market value, Franchisee's interest in the lease or sublease for the
Premises and, also at Franchisor's option, if Franchisee will retain fewer
Bakeries within a fifty-mile radius of the bagel dough manufacturing site than
the Franchisor, Franchisee's interest in the lease or sublease for the property
in which Franchisee manufactures bagel dough. If the parties cannot agree on
fair market value within a reasonable time, each party shall designate an
independent appraiser. These two appraisers shall designate a third appraiser.
Franchisor and Franchisee shall pay for the appraiser that they designate and
one-half of the expense of the third appraiser. The three (3) appraisers shall
determine the fair market value of the property. If Franchisor elects not to
exercise its option to acquire either or both of such leases or subleases,
Franchisee shall make such modifications or alterations to the Premises and
bagel dough manufacturing site (including, without limitation, changing or
assigning the telephone number to Franchisor) immediately upon termination or
expiration of this Agreement as may be necessary to distinguish the Premises and
bagel dough manufacturing site from those of a Bruegger's Fresh Bagel Bakery or
related facility, and shall make such specific additional changes as Franchisor
may reasonably request for that purpose. If Franchisee fails or refuses to
comply with the requirements of this Section 16.4, Franchisor shall have the
right to enter the Premises and bagel dough manufacturing site, without being
guilty of trespass or any other tort, for the purpose of making or causing to be
made such changes as may reasonably be required, at the expense of Franchisee,
which expense Franchisee agrees to pay on demand.
16.4.1 If Franchisor exercises its option to acquire any lease of
Franchisee, then Franchisor and Franchisee shall enter into an assignment and
assumption agreement that shall include provisions under which Franchisor
agrees to indemnify and hold harmless Franchisee from any claims for defaults
under such lease that may occur after the assignment, and under which Franchisee
shall indemnify Franchisor from any claims for defaults under such lease that
occurred prior to the assignment. In addition, Franchisor shall use
commercially reasonable efforts to obtain a release of any personal guarantees
made of Franchisee's obligations under such lease.
16.5 Franchisee shall not use any reproduction, counterfeit, copy, or
colorable imitation of the Proprietary Marks, either in connection with such
other business or the promotion thereof, which in Franchisor's sole discretion
is likely to cause confusion, mistake, or deception or to dilute Franchisor's
rights in and to the Proprietary Marks. Franchisee shall not use any
designation of origin or description or representation which, in Franchisor's
sole discretion, falsely suggests or represents an association or connection
with Franchisor.
16.6 Franchisee shall promptly pay all sums owing to Franchisor and its
affiliates. In the event of termination for default by Franchisee, such sums
shall include all damages, costs, and expenses incurred by Franchisor as a
result of the default, including, but not limited to, reasonable attorneys'
fees.
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16.7 Franchisee shall pay to Franchisor all damages, costs, and expenses
(including, but not limited to, reasonable attorneys' fees) incurred by
Franchisor subsequent to the termination or expiration of this Agreement in
obtaining injunctive or other relief for the enforcement of any provisions of
this Section 16.
16.8 Franchisee shall immediately deliver to Franchisor the Manuals, the
Bagel Production Manual, and all other records, correspondence, and instructions
containing confidential information relating to the System or the operation of a
Bruegger's Fresh Bagel Bakery, all of which are acknowledged to be the property
of Franchisor.
16.9 Franchisor shall have the right, exercisable by written notice
within thirty (30) days after expiration or termination, but not the obligation,
to purchase from Franchisee any or all of the furnishings, equipment, signs, and
fixtures of the Bakery and of the facility in which Franchisee manufactures
bagel dough, if any, at fair market value and to purchase any or all inventory
and supplies of the Bakery at fair market wholesale value. If the parties
cannot agree on the price of any such items within a reasonable time, each party
shall designate an independent appraiser. These two appraisers shall designate
a third appraiser, Franchisor and Franchisee shall each pay for the appraiser
that they designate and one-half of the third appraiser. The three (3)
appraisers shall determine the applicable fair market value of the property. If
Franchisor exercises any option to purchase provided herein, Franchisor shall
have the right to set off all amounts due from Franchisee against any payment.
16.10 Franchisee shall comply with the post-term covenants contained in
Section 17.2 of this Agreement.
17. COVENANTS
---------
17.1 Franchisee specifically acknowledges that Franchisee will receive
valuable, specialized training and confidential information regarding the
manufacturing, operational, sales, promotional, and marketing methods and
techniques of Franchisor and the System. Franchisee covenants that, during the
term of this Agreement, except as otherwise approved in writing by Franchisor,
Franchisee shall not, either directly or indirectly, for itself or through, on
behalf of, or in conjunction with any person or legal entity:
17.1.1 Divert or attempt to divert any present or prospective
business or customer 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 the Proprietary Marks and the
System;
17.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor, or who has been employed by Franchisor within the
preceding three (3) months, or otherwise directly or indirectly induce such
person to leave his or her employment with Franchisor; or
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<PAGE>
17.1.3 Own, maintain, operate, engage in, be employed by, provide
any assistance to, or have any interest in any other business whose sales of
fresh or packaged bagels and cream cheese are more than five percent (5%) of its
total sales by annual dollar volume, except pursuant to another Franchise
Agreement with Franchisor.
17.2 Franchisee covenants that, except pursuant to another Franchise
Agreement with Franchisor, or as otherwise approved in writing by Franchisor,
Franchisee shall not, for two (2) years after the expiration or termination of
this Agreement or the approved transfer of this Agreement to a new franchisee,
either directly or indirectly, for itself or through, on behalf of, or in
conjunction with any person or legal entity, own, maintain, operate, engage in,
be employed by, provide assistance to, or have any interest in any business
whose sales of bagels and cream cheese are more than five percent (5%) of its
total sales by annual dollar volume, and which is, or is intended to be, located
(i) within ten (10) miles of the Approved Location, or (ii) within five (5)
miles of any other Bruegger's Fresh Bagel Bakery.
17.3 Sections 17.1.3 and 17.2 shall not apply to ownership by Franchisee
of less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
17.4 Franchisor shall have the right, in its sole discretion, to reduce
the scope of any covenant set forth in Sections 17.1 and 17.2, or any portion
thereof, without Franchisee's consent, effective immediately upon receipt by
Franchisee of written notice thereof. Franchisee agrees to comply with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section 23 hereof.
17.5 Franchisee agrees that the existence of any claims it 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 17. Franchisee agrees to pay all costs and expenses incurred by
Franchisor in enforcing this Section 17, including, but not limited to
reasonable attorneys' fees.
17.6 Franchisee acknowledges that Franchisee's violation of the terms of
this Section 17 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Franchisee accordingly consents to
the issuance of an injunction prohibiting any conduct by Franchisee in violation
of the terms of this Section 17. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
17.7 At Franchisor's request, Franchisee shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 17 (including covenants applicable upon the termination of a person's
relationship with Franchisee) from any or all of the following persons: (a) all
personnel employed by Franchisee who have received or will receive training from
Franchisor; and (b) all officers, directors, and holders of a direct or indirect
beneficial interest of five percent (5%) or more of the securities of
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<PAGE>
Franchisee. Each covenant required by this Section 17.7 shall be in a form
approved by Franchisor, including, without limitation, specific identification
of Franchisor as a third party beneficiary with the independent right to enforce
the covenant.
17.8 Franchisor agrees that it shall not employ or seek to employ any
person who is at the time employed by Franchisee or who was employed by
Franchisee within the preceding six (6) months, or otherwise directly or
indirectly induce such person to leave his or her employment with Franchisee.
18. ORGANIZATION OF FRANCHISEE
--------------------------
18.1 If Franchisee is a corporation, Franchisee shall comply with the
following requirements:
18.1.1 Franchisee's charter or organizational documents shall at
all times provide that its activities are confined exclusively to developing and
operating Bruegger's Fresh Bagel Bakeries and/or bagel dough manufacturing
sites; provided, however that such restriction shall automatically terminate at
the time Franchisee (or its parent or successor) files a registration statement
with the Securities and Exchange Commission covering sales of its shares to the
public.
18.1.2 Franchisee shall promptly furnish to Franchisor copies of
its articles of incorporation, bylaws, and other governing documents, and any
amendments thereto, including the resolution of Franchisee's board of directors
authorizing entry into this Agreement.
18.1.3 Until or unless Franchisee or its parent or success
corporation begins offering its shares for sale to the public pursuant to a
registration statement filed with the Securities and Exchange Commission,
Franchisee shall maintain stop-transfer instructions against the transfer on its
records of any equity securities. Each stock certificate of Franchisee shall
conspicuously display on its face the following printed legend:
The transfer of ownership of shares represented by this
certificate is subject to the terms and conditions of an
Agreement with Bruegger's Franchise Corporation.
Reference is made to the provisions of the Agreement and
to the Articles and Bylaws of the Corporation.
18.1.4 Until such time as Franchisee issues securities pursuant
to a Public Offering (as defined in Section 14.3.3) in accordance with the terms
of this Agreement, Franchisee shall maintain a current list of all owners of
record and all beneficial owners of any class of voting securities of Franchisee
and shall furnish the list to Franchisor upon request.
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<PAGE>
18.1.5 If Franchisee began operating a Bakery at the Approved
Location before the execution of this Agreement, then, notwithstanding the
foregoing Sections 18.1.1 and 18.1.3, Franchisee shall not be in violation of
this Agreement so long as Franchisee limits it activities exclusively to
developing and operating Bakeries and restricts the transfer of its shares of
stock to only those transfers authorized by this Agreement.
18.2 If Franchisee is a partnership, Franchisee shall comply with the
following requirements:
18.2.1 Franchisee shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto.
18.2.2 Franchisee shall include in its partnership certificate,
if any, filed with the state in which Franchisee was formed a statement that the
transfer of ownership of a partnership interest is subject to the terms and
conditions of an Agreement with Bruegger's Franchise Corporation.
18.2.3 Franchisee shall prepare and furnish to Franchisor from
time to time, upon request, a list of all general and limited partners in
Franchisee.
18.3 If Franchisee is a limited liability company, Franchisee shall
comply with the following requirements during the term of this Agreement:
18.3.1 Franchisee shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto.
18.3.2 Franchisee shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
18.3.3 Franchisee's limited liability company operating agreement
shall include provisions that states that the transfer of shares is subject to
the terms and conditions of an Agreement with Bruegger's Franchise Corporation.
18.3.4 Until such time as Franchisee issues securities pursuant
to a Public Offering (as defined in Section 14.3.3) in accordance with the terms
of this Agreement, Franchisee shall prepare and furnish to Franchisor, upon
request, a list of all members of Franchisee.
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<PAGE>
19. TAXES, PERMITS, AND INDEBTEDNESS
--------------------------------
19.1 Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in the
operation of the Bakery. Franchisee shall pay to Franchisor an amount equal to
any sales tax, gross receipts tax, or similar tax (other than income tax)
imposed on Franchisor with respect to any payments to Franchisor required under
this Agreement.
19.2 In the event of any bona fide dispute as to Franchisee's liability
for taxes assessed or other indebtedness, Franchisee may contest the validity or
the amount of the tax or indebtedness in accordance with procedures of the
taxing authority or applicable law, but in no event shall Franchisee permit a
tax sale or seizure by levy or execution or similar writ or warrant, or
attachment by a creditor, to occur against the Bakery.
19.3 Franchisee shall comply with all federal, state, and local laws,
rules, and regulations and shall timely obtain any and all permits,
certificates, or licenses necessary for the proper conduct of the Bakery,
including, without limitation, licenses to do business, fictitious name
registrations, sales tax permits, and fire clearances.
19.4 Franchisee shall immediately notify Franchisor in writing of its
knowledge of the commencement of any action, suit, or proceeding and of the
issuance of any order, writ, injunction, award, or decree of any court, agency,
or other governmental instrumentality which may materially adversely affect the
operation or financial condition of the Bakery.
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
20.1 It is understood and agreed by the parties that this Agreement does
not create a fiduciary relationship between them, that Franchisee shall be an
independent contractor, and that nothing in this Agreement is intended to make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. During
the term of this Agreement, Franchisee shall hold itself out to the public as an
independent contractor operating the Bakery pursuant to a franchise agreement
from Franchisor. Franchisee agrees to take such action as may be necessary to
do so, including, without limitation, exhibiting a notice, the content of which
Franchisor reserves the right to specify, in a conspicuous place at the
Premises.
20.2 Nothing in this Agreement authorizes Franchisee to make any
contract, agreement, warranty, or representation on Franchisor's behalf or to
incur any debt or other obligation in Franchisor's name. Franchisor shall in no
event assume liability for or be deemed liable as a result of any such action,
nor shall Franchisor be liable by reason of any act or omission of Franchisee in
its operation of the Bakery, or for any claim or judgment arising therefrom
against Franchisee or Franchisor. Franchisee shall hold harmless and
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<PAGE>
indemnify Franchisor, its affiliates, and their respective officers,
directors, and employees against any claims, losses, costs, expenses,
liabilities, and damages arising directly or indirectly from, as a
result of, or in connection with Franchisee's operation of the Bakery,
as well as the costs of defending against such claims (including
reasonable attorneys' fees), except to the extent the claims, losses,
costs, expenses, liabilities and damages arise from Franchisor's
breach of its obligations under this Agreement.
21. APPROVALS AND WAIVERS
---------------------
21.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent must be obtained in writing and signed by
an officer of Franchisor. Franchisor shall respond to each such request in
writing not later than thirty (30) days after receipt of the request for such
approval or consent.
21.2 Franchisor makes no warranties or guarantees upon which Franchisee
may rely and assumes no liability or obligation to Franchisee by providing any
waiver, approval, consent, or suggestion to Franchisee in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
21.3 No delay or failure of either party to exercise any right reserved
to it in this Agreement or to insist upon strict compliance by the other party
with any obligation or condition in this Agreement, and no custom or practice of
the parties at variance with the terms hereof, shall constitute a waiver of
either party's right to exercise such right or to demand exact compliance by the
other party with any of the terms hereof. Waiver by either party of any
particular default by the other shall not affect or impair either party's rights
with respect to any subsequent default of the same, similar, or a different
nature. 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
Franchisee of any of the terms, covenants, or conditions of this Agreement.
22. NOTICES
-------
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or sent by other means which
affords the sender evidence of delivery or attempted delivery, to the respective
parties at the following addresses unless and until a different address has been
designated by written notice to the other party:
Notices to Franchisor: Bruegger's Franchise Corporation
P.O. Box 374
159 Bank Street
Burlington, Vermont 05402
Attn: Vice President of Development
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<PAGE>
With a copy to: Nordahl L. Brue, Esq.
Sheehey Brue Gray & Furlong P.C.
P.O. Box 66
119 South Winooski Avenue
Burlington, Vermont 05402
Notices to Franchisee: _____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
With a copy to: Mr. Steven P. Schonberg
P.O. Box 1082
159 Bank Street
Burlington, Vermont 05402
Any notice by a means which affords the sender evidence of delivery or attempted
delivery shall be deemed to have been given and received at the date and time of
receipt or attempted delivery.
23. ENTIRE AGREEMENT
----------------
This Agreement and the documents referred to herein constitute the entire
Agreement between Franchisor and Franchisee concerning the subject matter hereof
and supersede all prior agreements, negotiations, representations, and
correspondence concerning the same subject matter. Except for those permitted
to be made unilaterally by Franchisor hereunder, no amendment, change, or
variance from this Agreement shall be binding on either party unless agreed to
by the parties in a writing executed by their authorized officers or agents.
24. SEVERABILITY AND CONSTRUCTION
-----------------------------
24.1 If, for any reason, any provision of this Agreement is determined
to be invalid or in conflict with any existing or future law or regulation by a
court or agency having valid jurisdiction, such invalidity shall not impair the
operation of or have any other effect upon such other provisions as may remain
otherwise intelligible. The latter shall continue to be given full force and
effect, and the invalid provisions shall be deemed not to be a part of this
Agreement.
24.2 All covenants and obligations which expressly or by reasonable
implication are to be performed, in whole or in part, after the expiration or
termination of this Agreement shall survive such expiration or termination.
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<PAGE>
24.3 Except as explicitly provided to the contrary herein, nothing in
this Agreement is intended or shall be deemed to confer upon any person or legal
entity other than Franchisee, Franchisor, Franchisor's officers, directors, and
employees, and such of Franchisor's and Franchisee's successors and assigns as
may be contemplated by Section 14 hereof, any rights or remedies under or by
reason of this Agreement.
24.4 Franchisee and Franchisor 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 (i) striking from any
provision of this Agreement any portion or portions which a court or agency
having valid jurisdiction may hold to be unreasonable and unenforceable in an
unappealed final decision to which either Franchisor or Franchisee is a party,
or (ii) reducing the scope of any promise or covenant to the extent required to
comply with such a court or agency order.
25. APPLICABLE LAW; ARBITRATION
---------------------------
25.1 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law, the laws of such state shall prevail, without regard to
the application of such state's conflict-of-law rules.
25.2 Except as provided in Sections 25.3 and 25.9, any claim or
controversy arising out of or related to this Agreement (including but not
limited to any claim that the Agreement or any of its provisions is invalid,
illegal, or otherwise voidable or void), the relationship between Franchisor and
Franchisee, or Franchisee's operation of the Bakery shall be submitted to
arbitration pursuant to the then-prevailing rules of the American Arbitration
Association, except as such rules may be modified by the following:
25.2.1 Franchisor and Franchisee shall each select one
arbitrator. The arbitrators selected by Franchisor and Franchisee shall jointly
select a neutral third arbitrator, who shall chair the panel and shall be an
attorney in good standing with substantial expertise and experience in
commercial disputes involving franchising or trade regulation.
25.2.2 The arbitrators shall determine, consistent with the
parties' objectives to avoid undue expense and delay, the types, amount, and
timing of discovery to be provided by the parties.
25.2.3 The arbitrators shall not entertain or permit any class or
consolidated proceeding.
25.2.4 The arbitrators' fees shall be borne equally by the
parties. Except as provided in Section 25.2.5, all other costs and expenses in
connection with the
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<PAGE>
arbitration shall be borne by the party who incurs such expense or who
requests a service (such as, but not limited to, a transcript of the
arbitration proceeding).
25.2.5 The decision of a majority of the arbitrators shall be
final and binding on the parties, and the arbitrators' award shall be the
exclusive remedy between the parties with respect to all claims, counterclaims,
and issues presented or pled to the panel. The arbitrators may award injunctive
relief as well as damages, but they shall have no authority to award punitive or
exemplary damages. Any monetary award shall be paid promptly, without deduction
or offset. Judgment upon the award may be entered in any court having
jurisdiction thereof. If the award is upheld by a court of competent
jurisdiction in a proceeding by either party to enforce the award or to
challenge the award, the party challenging the award or resisting its
enforcement shall pay, to the extent permitted by law, all reasonable costs,
legal fees, and expenses incurred by the party defending the award or seeking
its enforcement.
25.2.6 The decision of the arbitrators shall have no collateral
estoppel effect with respect to any person or entity who is not a party to the
arbitration proceeding.
25.3 Unless otherwise agreed by Franchisor and Franchisee at the time of
the dispute, Section 25.2 shall not apply to: (i) any claim or dispute involving
actual or threatened disclosure or misuse of the contents of the Manuals, the
Bagel Production Manual, or any other confidential information or trade secrets
of Franchisor and its affiliates; (ii) any claim or dispute involving the
ownership, validity, use of, or right to use or license the Proprietary Marks;
(iii) any action by Franchisor to enforce the covenants set forth in Section 17
of this Agreement; or (iv) any action by Franchisor to stop or prevent any
threat or danger to public health or safety resulting from the construction,
maintenance, or operation of the Bakery or any facility in which Franchisee
manufactures bagel dough.
25.4 Any issue regarding arbitrability or the enforcement of Section
25.2 shall be governed by the Federal Arbitration Act and the federal common law
of arbitration.
25.5 Any arbitration proceeding or other action, whether or not arising
out of this Agreement, brought by Franchisee against Franchisor shall be
brought, and any arbitration proceeding or other action brought by Franchisor
against Franchisee may be brought, in the judicial district in which Franchisor
has its principal place of business. The parties hereby waive all questions of
personal jurisdiction and venue for the purpose of carrying out this provision.
25.6 Except as otherwise provided in this Section 25, no right or remedy
conferred upon or reserved to Franchisor or Franchisee by this Agreement is
exclusive of any other right or remedy provided herein or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
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<PAGE>
25.7 Any and all claims and actions arising out of or relating to this
Agreement, the relationship of Franchisee and Franchisor, or Franchisee's
operation of the Bakery brought by either party against the other, whether in
arbitration or any other proceeding, shall be commenced within one (1) year from
the occurrence of the facts giving rise to such claim or action, or such claim
or action shall be barred.
25.8 Franchisor and Franchisee irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Franchisor and Franchisee hereby waive to the fullest extent permitted by law
any right to, or claim of, any punitive or exemplary damages against the other
and agree that, in the event of a dispute between them, each shall be limited to
the recovery of any actual damages sustained by it.
25.9 Nothing in this Agreement shall bar either party's right to obtain
injunctive relief against threatened conduct that will cause it loss or damage,
under the usual equity rules, including the applicable rules for obtaining
specific performance, restraining orders, and preliminary injunctions.
26. ACKNOWLEDGMENTS
---------------
26.1 Franchisee acknowledges that it has conducted an independent
investigation of the business franchised hereunder, and recognizes that the
business venture contemplated by this Agreement involves business risks and
that its success will be largely dependent upon the ability of Franchisee as an
independent business. Franchisor expressly disclaims the making of, and
Franchisee acknowledges that it has not received, any warranty or guarantee,
express or implied, as to the potential sales, income, profits, or success of
the business venture contemplated by this Agreement.
26.2 Franchisee acknowledges that it received a complete copy of this
Agreement, the attachments hereto, and agreements relating thereto, if any, at
least five (5) business days prior to the date on which this Agreement was
executed. Franchisee further acknowledges that it 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.
26.3 Franchisee acknowledges that it has read and understood this
Agreement, the attachments hereto, and agreements relating thereto, if any, and
that Franchisor has accorded Franchisee ample time and opportunity to consult
with advisors of Franchisee's own choosing about the potential benefits and
risks of entering into this Agreement.
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<PAGE>
26.4 ACKNOWLEDGMENT OF ARBITRATION:
I understand that this agreement contains an agreement to arbitrate
certain specific issues. After signing this document, I understand
that I will not be able to bring a lawsuit concerning any dispute
that may arise which is covered by one of these arbitration
agreements, unless it involves a question of constitutional or
civil rights. Instead, I agree to submit any such dispute to an
impartial arbitrator as set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
BRUEGGER'S FRANCHISE CORPORATION ________________________
FRANCHISEE
By:___________________ By:_____________________
Name:_________________ Name:___________________
Title:________________ Title:__________________
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<PAGE>
EXHIBIT A
to
BRUEGGER'S FRESH BAGEL BAKERY
AFFILIATE FRANCHISE AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Mark Type Registered Reg. No.
- ------------------------- ---- ---------- ---------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
</TABLE>
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
-----------------------------
DEVELOPMENT AGREEMENT
---------------------
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
-----------------------------
DEVELOPMENT AGREEMENT
---------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. DEFINITIONS............................................... 4
2. DEVELOPMENT RIGHTS AND OBLIGATIONS........................ 5
3. DEVELOPMENT FEE........................................... 9
4. SITE SELECTION............................................ 10
5. ADDITIONAL SERVICES....................................... 11
6. SELECTION OF OPERATOR..................................... 12
7. CONFIDENTIAL INFORMATION.................................. 12
8. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS.............. 13
9. TRANSFER OF INTEREST...................................... 14
10. DEFAULT AND TERMINATION................................... 17
11. COVENANTS................................................. 18
12. NOTICES................................................... 20
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION................ 20
14. APPROVALS AND WAIVERS..................................... 21
15. SEVERABILITY AND CONSTRUCTION............................. 22
16. ENTIRE AGREEMENT; APPLICABLE LAW.......................... 22
17. ACKNOWLEDGMENTS........................................... 24
</TABLE>
EXHIBIT A - PROPRIETARY MARKS
EXHIBIT B - DEVELOPMENT AREA
EXHIBIT C - DEVELOPMENT SCHEDULE
EXHIBIT D - BRUEGGER'S FRESH BAGEL
BAKERY FRANCHISE AGREEMENT
EXHIBIT E - ACCOUNTING SERVICES AGREEMENT
EXHIBIT F - SOFTWARE LICENSING AND MAINTENANCE AGREEMENT
EXHIBIT G - COMMISSARY ACCOUNTING SOFTWARE LICENSING AND
MAINTENANCE AGREEMENT
<PAGE>
BRUEGGER'S FRESH BAGELS BAKERY
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT ("Agreement") is entered into on ____________,
19_____ (the "Effective Date") between BRUEGGER'S FRANCHISE CORPORATION, a
Delaware Corporation ("FRANCHISOR"), and DEVELOPER (as defined below):
Name: ______________________________
______________________________
______________________________
Principal Address:
______________________________
______________________________
______________________________
RECITALS
1. Franchisor and its affiliates have developed a system relating to the
preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
2. The distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor or its affiliates; distinctive exterior and interior restaurant
design, decor, color scheme, fixtures, and furnishings; standards and
specifications for ingredients, food preparation, equipment, supplies, and
restaurant operations; and advertising and promotional programs; all of which
may be changed, improved, and further developed by Franchisor and its affiliates
from time to time;
3. The System is identified by means of certain trade names, service marks,
trademarks, logos, emblems, and indicia of origin, including but not limited to
the mark "BRUEGGER'S," as set forth in Exhibit A to this Agreement, and such
other trade names, service marks, and trademarks as may hereafter be designated
by Franchisor in writing for use in the System (the "Proprietary Marks");
<PAGE>
4. Developer wishes to obtain the right to develop restaurants under the
System and the Proprietary Marks within the territory defined in Exhibit B to
this Agreement (the "Development Area");
1. DEFINITIONS
For purposes of this Agreement, the meanings of the following terms are as
follows. Certain other terms may be defined when they appear within the text of
the Agreement.
"Accounting Period" - One of thirteen periods of four consecutive weeks in each
fiscal year of the Franchisor that is designated by Franchisor as an accounting
period.
"Agreement Term" - The period commencing on the Effective Date and ending on the
earlier of: 1)__________________________________; or 2) the date that this
Agreement expires or terminates according to its terms.
"Bagel Store" - a food service business, including a Bakery, which derives a
significant portion of its revenue from the sale of bagels and/or bagel related
products or from any other product or service which is or hereafter becomes a
source of a significant portion of the revenue of a Bakery.
"Bakery" - A food service business that:
1. offers products for consumer consumption through on premises dining
and carry-out;
2. operates using the System and the Proprietary Marks; and
3. is either operated by Franchisor or pursuant to a valid Unit Franchise
Agreement.
"Development Agreement" - An agreement between Franchisor and Developer
pursuant to which Developer is given the right to enter into Unit Franchise
Agreements for Bruegger's Fresh Bagel Bakeries within a geographic region
identified in the Development Agreement.
"Development Area" - The geographic area described in Exhibit B to this
Agreement.
"Development Quota" - The number of Bakeries required to be opened and operating
as required by the Development Schedule.
"Development Schedule" - The schedule of Bakeries required to be open and
operational at specified dates within the Development Area as set forth on
Exhibit C hereto.
"Excluded Location" - Any mall (an enclosed shopping facility which contains
100,000 square feet or more of enclosed space) or Institutional Location.
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"Institutional Location" - Any public building, military base, airport,
hospital, educational institution factory, turnpike, toll road or highway or any
rest areas adjacent to any such location.
"Required Items" - Products required by the Franchisor, from time to time in its
sole discretion, for sale at or from the Bakeries, including bagels, bagel
related products, Franchisor's proprietary brand of cream cheese and other
spreads, sandwiches, soups, salads, baked goods, breakfast items, an assortments
of hot and cold beverages, teas (leaves, bags, dry mixes and related forms),
coffee (Franchisor's proprietary brand of coffee including beans, ground and
related forms), and other food products and merchandise, all of which are
subject to modification or discontinuation in Franchisor's sole discretion from
time to time and may include additional or substitute products.
"Unit Franchise Agreement" - The franchise agreement being granted by Franchisor
to Developers in the offering and granting of franchises for Bakeries (including
all exhibits, riders, addenda and attachments there), in either the form of
which is attached hereto as Exhibit D or the form which is adopted and used by
Franchisor from time to time in the offering and granting of franchises for
Bakeries.
2. DEVELOPMENT RIGHTS AND OBLIGATIONS
2.1 Developer has requested that Franchisor grant to Developer the right
to develop, own and operate certain Bakeries within the Development Area in
accordance with the Development Schedule. Provided that Developer is in full
compliance with all of the terms and conditions of this Agreement, including
without limitation, the development obligations set forth in Section 2.4 hereof,
and the Unit Franchise executed pursuant to this Agreement, Franchisor will
grant Developer during the Agreement Term, and in accordance with the provisions
hereof, the right to develop and operate the number of Bakeries specified in the
Development Schedule. Developer acknowledges and agrees that Developer's rights
hereunder are limited to the designated number of Bakeries and the schedule and
timing of store openings in the Development Area during the term of the
Development Schedule as set forth herein. Developer is not granted any rights to
develop or operate, and Developer will not develop or operate, Bakeries outside
of the Development Area, except pursuant to rights granted to Developer under
other written agreements entered into with Franchisor.
2.2 Developer expressly acknowledges and agrees that it has no right to
renew its rights under this Agreement upon expiration of the Agreement Term.
Developer acknowledges and agrees that the execution and delivery of this
Agreement shall constitute notice to Developer of non-renewal for the purposes
of fulfilling the requirements of any applicable state or federal law governing
the non-renewal of franchise or development rights.
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2.3. Except as otherwise provided in the Agreement (including, without
limitation, Sections 2.6 and 2.7) and provided that Developer is in full
compliance with this Agreement and with all Unit Franchise Agreements between
Developer and Franchisor, Franchisor and its affiliates will not operate or
grant franchises for the operation of Bakeries within the Development Area.
2.4 Developer agrees that during the Agreement Term, it will continuously
exert its best efforts to promote and enhance the development of Bakeries within
the Development Area. Without limiting the foregoing obligation, Developer
agrees to have open and operational, the number of units set forth in the
Development Schedule and as required under this Agreement by the opening dates
specified therein. Developer acknowledges that Franchisor makes no
representations or warranties that the Development Area can support, or that
there are sufficient sites for, the number of Bakeries specified in the
Development Schedule and represents that it has conducted its own internal and
market analysis and concluded that the obligations set forth hereunder are
reasonable and that it is capable of fulfilling same.
2.5 Franchisor, on behalf of itself and its affiliates and designees,
retains all rights with respect to the System, the Proprietary Marks and the
sale of any products associated therewith, anywhere in the world, including but
not limited to:
2.5.1 The right to establish and operate (directly or through an
affiliate), and to franchise others to establish and operate, one or more food
service businesses including, without limitation, Bakeries and Bagel Stores, and
to sell and distribute under the Proprietary Marks any of the Required Items, at
any location within or outside the Development Area, both during and upon
expiration or termination of this Agreement, and on such terms and conditions as
Franchisor, in its sole discretion, deems appropriate (subject to the rights
granted to Developer in Section 2.3 of this Agreement).
2.5.2 The right, and the option to grant others (including any person
or entity related in any way to the Franchisor) the right, to develop,
manufacture, market sell and distribute food products including, but not
limited to, cream cheese products and other bagel spreads or any other product
or service under the "Bruegger's" name or under any other name, directly or
indirectly, through any channel of distribution, including, without limitation,
supermarkets, delicatessens, specialty food stores, convenience stores, and
other wholesale and retail food stores, at any location within and/or outside
the Development Area.
2.5.3 In accordance with Sections 2.6 and 2.7 below, the right to
develop additional Bakeries and to acquire, operate and convert to a Bakery, any
business, including, without limitation, businesses operating one or more Bagel
Stores (other than Bakeries) or other food service businesses, located or
operating within and/or outside the Development Area.
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2.5.4 The right to establish and operate, and franchise others to
establish and operate a Bakery in or at any Excluded Location whether or not
such Excluded Locations are located inside or outside the Development Area.
Franchisor and Developer expressly acknowledge and agree that the right to
develop and operate Bakeries at the Excluded Locations shall not be subject to
Developer's rights as set forth in Sections 2.6 and 2.7 below.
2.6 Notwithstanding anything to the contrary in this Agreement, if during
the term of this Agreement Franchisor locates one or more sites suitable for a
Bakery within the Development Area (a "Tactical Site"), Franchisor shall notify
Developer in writing of such Tactical Site if Franchisor intends that such
Tactical Site be developed and operated as a Bakery. Within ten (10) days after
Developer's receipt of Franchisor's notice regarding such Tactical Site
(including any relevant site-related materials in Franchisor's possession),
Developer shall notify Franchisor if Developer desires to develop and operate a
Bakery at such Tactical Site. If Developer fails to so notify Franchisor within
such time period, then Franchisor or its designee shall have the right to
develop and operate a Bakery at such Tactical Site.
If Developer timely notifies Franchisor in writing that Developer desires
to develop and operate a Bakery at such Tactical Site and Franchisor has fully
negotiated a lease or purchase agreement for such Tactical Site, then Developer
shall: 1) obtain the consent of the landlord to enter into such lease and
execute and deliver same to landlord, if applicable; or 2) execute a purchase
agreement or an assignment of purchase agreement, if applicable; and 3) execute
Franchisor's then current form of standard unit franchise agreement containing
Franchisor's then current fees and expense requirements and such ancillary
documents as are then customarily used by Franchisor in the grant of franchises
for Bakeries (collectively, the "Franchise Documents") as modified for use in
connection with the Tactical Site, as necessary, and 4) pay Franchisor a site
location and negotiation fee (the "Site Location and Negotiation Fee") equal to
Ten Thousand Dollars ($10,000.00) plus Franchisor's reasonable out-of-pocket
expenses incurred in locating such Tactical Site and negotiating the lease or
purchase agreement, all within ten (10) business days after Franchisor's
delivery of the lease or purchase agreement, as the case may be, and the
Franchise Documents to Developer. The Site Location and Negotiation Fee is paid
to compensate Franchisor for the internal costs of the site location services it
provides. Franchisor shall fully cooperate with Developer in obtaining the
landlord's consent to execute such lease or the seller's consent to execute such
purchase agreement or assignment of purchase agreement as the case may be.
If Developer timely notifies Franchisor in writing that Developer desires
to develop and operate a Bakery at such Tactical Site and Franchisor has not
fully negotiated a lease or purchase agreement for such Tactical Site, then
Developer will have thirty (30) days in which to negotiate and deliver to
Franchisor a lease or purchase agreement for such Tactical Site in form for
execution. If Franchisor disapproves the lease or purchase agreement for failure
to meet Franchisor's requirements, Developer will
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have ten (10) business days within which to negotiate and deliver to Franchisor
a revised lease or purchase agreement for such Tactical Site in form for
execution. If Franchisor approves the lease or the purchase agreement for such
Tactical Site, then Developer will: 1) execute such lease or purchase agreement,
as applicable; 2) execute the Franchise Documents; and 3) pay to Franchisor its
reasonable out-of-pocket expenses in locating such Tactical Site and, to the
degree applicable, partially negotiating the lease or purchase agreement, all
within ten (10) business days after Franchisor's delivery of the Franchise
Documents to Developer.
If Developer: 1) declines the option to develop the Tactical Site; 2) fails
to timely notify Franchisor of its election to develop the Tactical Site; or 3)
fails to timely execute the approved lease or purchase agreement and execute and
deliver to Franchisor the Franchise Documents and pay the applicable expenses as
provided herein, then Franchisor or its designee may develop and operate or
franchise others to operate a Bakery at such Tactical Site.
Any Tactical Site for which Developer executes the Franchise Documents and
develops and opens a Bakery will count toward the Development Quota.
2.7 If during the Agreement Term Franchisor acquires the shares or assets
(which may include, by way of illustration and not by way of limitation,
furniture, fixtures, equipment, leasehold improvements and/or leasehold
interest) of any business operating a Bagel Store at one or more sites located
within the Development Area which meets Franchisor's specifications and
standards as in effect from time to time for conversion to a Bakery (the
"Acquisition Site"), and Franchisor determines in its sole discretion to convert
such Acquisition Site to a Bakery, Franchisor agrees to offer to sell such
Acquisition Site to Developer for the price paid therefor by Franchisor. Such
price will include that portion of the direct and indirect costs and liabilities
incurred or assumed by Franchisor in making such acquisition and allocated to
such Acquisition Site, whether paid or owed to the seller of such Acquisition
Site, Franchisor, an affiliate of Franchisor or third parties, and other
expenses allocated or otherwise related to such Acquisition Site (including
losses, whether from continuing operations or closing acquired units) plus
interest at the Franchisor's cost of money on the balance of such amounts from
time to time, provided that:
(1) such sale will not conflict with any existing legal
obligation of Franchisor or the business being acquired;
(2) such sale will not preclude the completion of the
acquisition on the terms agreed to by Franchisor;
(3) such sale will not, in Franchisor's judgment, interfere with
any other legal agreement, arrangement or combination or affect
federal or state income tax
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consequences arising from the acquisition in a manner adverse to any
of the parties thereto; and
(4) Developer agrees to: a) execute, concurrently with
Developer's purchase the Franchise Documents, as modified
for use in connection with an Acquisition Site, as necessary
for each and every such Acquisition Site; b) convert each
such Acquisition Site to a Bakery as soon as practicable
thereafter (but in no event later than the date specified by
Franchisor) in accordance with Franchisor's standards and
specifications; and c) close or sell within a reasonable
time period specified by Franchisor any of the acquired
sites which are not suitable for conversion to Bakeries.
Developer shall have thirty (30) days after receipt of Franchisor's offer
in which to accept or reject such offer by written notice to Franchisor. If
accepted, Developer shall have thirty (30) days from the date of acceptance to
complete the acquisition.
In the event Developer rejects or fails to timely accept Franchisor's offer
to sell such Acquisition Sites or Franchisor is unable to extend such offer for
any of the aforementioned reasons, Franchisor may operate, alter, modify,
refurbish, remodel, promote and market or franchise others to operate any such
Acquisition Site. For purposes of this Section, all references to Franchisor
shall be deemed to include its affiliates.
Any Acquisition Site for which Developer executes the Franchise Documents and
develops and opens a Bakery shall count toward the Development Quota set forth
in the Development Schedule.
3. DEVELOPMENT FEE
In consideration of the development rights in the Development Territory
granted herein, Developer shall pay Franchisor a fully non-refundable
development fee of ______________________________________ Dollars ($___________)
(the "Development Fee"). Developer acknowledges that the Development Fee shall
be fully earned as of the date of this Agreement in consideration of the
administrative and other expenses incurred by Franchisor and Franchisor's lost
or deferred opportunity to enter into similar arrangements with others. The
Development Fee shall be payable upon execution and delivery of this Agreement.
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4. SITE SELECTION
4.1 Developer, at its sole expense, shall identify and obtain a site for
each Bakery to be developed hereunder and, if applicable, for each bagel dough
manufacturing site. Before acquiring a site by lease or purchase, Developer
shall submit to Franchisor such information and materials as Franchisor may
reasonably request to evaluate the site along with the Site Selection Deposit of
seventeen thousand five hundred dollars ($17,500). The information and materials
requested by Franchisor in this regard may be changed from time to time in
Franchisor's sole discretion. No later than thirty (30) days after receipt of
all such information and materials required pursuant to this section 4.1,
Franchisor, in its sole discretion, shall approve or refuse to approve the
proposed site. Developer acknowledges and agrees that (1) Franchisor shall have
the right, in its sole discretion, to approve or disapprove a site and
Franchisor shall have no liability therefor; and (2) Franchisor's approval of a
site is not a representation or guarantee that such site will be successful as a
Bakery. No site shall be deemed to have received Franchisor's approval unless it
has been approved in writing by Franchisor. The site approved in writing by
Franchisor shall be the "Approved Location" referred to in the Franchise
Agreement.
4.2 With respect to both Bakeries and bagel dough manufacturing sites,
Franchisor shall furnish to Developer the following:
4.2.1 Site selection guidelines and criteria, which shall be
provided upon execution of this Agreement, and such site selection counseling
and assistance as Franchisor may deem advisable; and
4.2.2 Such on-site evaluations, if any, as Franchisor may deem
advisable in response to Developer's request for Franchisor's approval of a
proposed site.
4.3 If Developer will occupy the premises of a Bakery and/or a bagel dough
manufacturing site (if separate from the Bakery) under a lease, Developer shall,
prior to the execution of the lease, submit the lease to Franchisor for its
written approval. Franchisor's approval of the lease may be conditioned
upon, but in no way limited to, inclusion in the lease of any or all
of the following terms and conditions, among which Franchisor may
change from time to time, in its sole discretion:
4.3.1 That the lessor consents to Developer's use of such
Proprietary Marks and signage as Franchisor may prescribe for the Bakery or the
bagel dough manufacturing site, as the case may be;
4.3.2 That the use of the premises be restricted solely to the
operation of the Bakery (or bagel dough manufacturing site, as the case may be)
during the term of the Franchise Agreement, as it may be extended in accordance
with its terms;
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4.3.3 That Developer be prohibited from subleasing or assigning
all or any part of its occupancy rights or from extending the term of or
renewing the lease without Franchisor's prior written consent;
4.3.4 That the lessor provide to Franchisor copies of all notices
of default given to Developer under the lease;
4.3.5 That Franchisor have the right to enter the premises to make
modifications necessary to protect the Proprietary Marks or the System or to
cure any default under the applicable Franchise Agreement or under the lease;
4.3.6 That Franchisor (or Franchisor's designee) have the option,
upon default, expiration, or termination of the applicable Unit Franchise
Agreement, and upon notice to the lessor, to assume all of Developer's rights
under the lease, including any right to assign or sublease; and
4.3.7 That the tenant under the lease have the right to remodel
the premises without the prior approval of the lessor.
4.4 Developer shall furnish Franchisor with a copy of each executed lease
within ten (10) days after its execution.
4.5 Franchisor shall offer Developer a franchise to operate a Bakery at
the Approved Location by delivering to Developer a Unit Franchise Agreement in
execution form provided that:
4.5.1 Developer is then in full compliance with all of the terms
and conditions of this Agreement and any other agreement, Unit Franchise
Agreement or Development Agreement between Franchisor and Developer;
4.5.2 Developer is in full compliance with the requirements of
Section 4.3 above;
4.5.3 Developer has obtained legal possession of the Approved
Location; and
4.5.4 Developer, in Franchisor's opinion, has sufficient financial
and managerial resources to construct and operate the Approved Location in
accordance with Franchisor's then current standards and specifications for store
development and operation and to continue to meet Developer's obligations under
this Agreement and any other Agreement between Developer and Franchisor.
5. ADDITIONAL SERVICES
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As a condition to entering into this Agreement, Franchisor may require
Developer to enter into separate agreements with Franchisor or its affiliates or
designees to provide accounting and administrative services and licenses to use
certain proprietary business management and accounting software. These
agreements (the "Accounting Services Agreement," "Software Licensing and
Maintenance Agreement" and "Commissary Software Licensing and Maintenance
Agreement" are attached hereto as Exhibits E, F and G respectively, and referred
to herein collectively, as, the "Service Agreements"). Developer acknowledges
that the Service Agreements are integral to the rights granted hereunder and
agrees to execute such agreements, in the form attached hereto, upon
Franchisor's request.
6. SELECTION OF OPERATOR
Before opening its first Bakery and throughout the Agreement Term,
Developer shall employ an individual who shall devote his or her full time and
best effort to and be responsible for the operations of all Bakeries developed
pursuant to this Agreement (the "Operator"). Developer may not hire an
individual as Operator without first obtaining Franchisor's written approval.
Franchisor shall have sole and absolute discretion in determining whether or not
to grant such approval.
7. CONFIDENTIAL INFORMATION
7.1 Except as hereinafter provided, Developer shall not, during the
Agreement Term or at any time thereafter, communicate, divulge, or use for the
benefit of any other person or entity any confidential information, knowledge,
trade secrets, or know-how which may be communicated to Developer or of which
Developer may be apprised by virtue of Developer's activities under this
Agreement. Developer may divulge such confidential information only: (i) to such
of its employees as deemed necessary by Developer; and (ii) to Developer's
contractors and prospective landlords with the prior written approval of
Franchisor. All information, knowledge, trade secrets, know-how, techniques, and
other data which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, except information which Developer
can demonstrate came to its attention by lawful means prior to disclosure
thereof by Franchisor, or which, at or after the time of disclosure by
Franchisor to Developer, had become or later becomes a part of the public
domain, through publication or communication by others.
7.2 At Franchisor's request, Developer shall require its employees and
any other person to whom Developer wishes to disclose any confidential
information of Franchisor to execute covenants that they will maintain the
confidentiality of such information. Such covenants shall be in a form
satisfactory to Franchisor, including,
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without limitation, specific identification of Franchisor as a third-party
beneficiary with the independent right to enforce the covenants.
8. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS
8.1 If Developer is a corporation, Developer shall comply with the
following requirements during the Agreement Term:
8.1.1 Developer shall furnish Franchisor with a copy of its
Articles or Certificate of Incorporation, Bylaws, and any other corporate
governing documents Franchisor may reasonably request, and any amendments
thereto;
8.1.2 Developer shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
8.1.3 Developer shall maintain stop transfer instructions against
the transfer on its records of any equity security, and shall issue no
securities upon the face of which the following printed legend does not legibly
and conspicuously appear:
The transfer of ownership of shares represented by this Certificate is
subject to the terms and conditions of an Agreement with Bruegger's
Franchise Corporation. Reference is made to the provisions of the
Development Agreement and to the Articles and Bylaws of the Corporation.
8.1.4 Developer shall maintain a current list of all owners
of record and all beneficial owners of any class of voting stock of Developer
and shall furnish the list to Franchisor upon request.
8.2 If Developer is a partnership, Developer shall comply with the
following requirements during the Agreement Term:
8.2.1 Developer shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto.
8.2.2 Developer shall include in its partnership certificate,
if any, filed with the state in which Developer was formed, a statement
that the transfer of ownership of a partnership interest is subject to the terms
and conditions of an Agreement with Bruegger's Franchise Corporation.
8.2.3 Developer shall prepare and furnish to Franchisor, upon
request, a list of all general and limited partners in Developer.
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8.3 If Developer is a limited liability company, Developer shall comply
with the following requirements during the Agreement Term:
8.3.1 Developer shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto;.
8.3.2 Developer shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
8.3.3 Developer's limited liability company operating agreement
shall include provisions that state that the transfer of shares is subject to
the terms and conditions of an Agreement with Franchisor; and
8.3.4 Developer shall prepare and furnish to Franchisor, upon
request, a list of all members of Developer.
8.4 Developer shall furnish to Franchisor, within ninety (90) days after
the end of each fiscal year of Developer, an income statement showing the
results of Developer's operations during such fiscal year and a balance sheet as
of the end of such fiscal year, both of which shall be prepared in accordance
with generally accepted accounting principles and reviewed by an independent
certified public accountant. If, however, the foregoing income statements and
balance sheets are audited by an independent certified public accountant, then
Developer shall furnish the audited income statements and balance sheets rather
than the reviewed income statements and balance sheets.
9. TRANSFER OF INTEREST
9.1 Franchisor shall have the right to transfer or assign this Agreement
or any part of its rights or obligations under this Agreement to any person or
legal entity. Developer agrees that Franchisor shall have no liability after the
effective date of such transfer or assignment for the performance of any
obligations hereunder.
9.2 Developer understands and acknowledges that the rights and duties set
forth in this Agreement are personal to Developer and that Franchisor has
granted these rights in reliance on the business skill, financial capacity, and
personal character of Developer's present owners and management. Accordingly,
except as provided below in Section 9.3 and 9.4, neither Developer nor any
immediate or remote successor to any part of Developer's interest in this
Agreement, nor any individual, partnership, corporation, or other legal entity
which directly or indirectly owns any interest in Developer, shall, without the
prior express written consent of Franchisor: (i) sell, assign, transfer, convey,
pledge, encumber or give away any direct or indirect interest in this Agreement,
itself, the
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Developer, or in all or substantially all of the assets of the Developer; or
(ii) offer or sell securities of itself or Developer.
9.3 Subject to Franchisor's right of first refusal under Section 9.5, the
executor or personal representative of a person with an interest in Developer
may transfer his or her interest to a third party approved by Franchisor within
a reasonable time after the date of such person's death or declaration of such
person's mental incapacity. In the case of transfer by bequest, if the
beneficiaries are unable to meet the conditions of this Section 9, the executor
may transfer the decedent's interest to another party approved by Franchisor,
subject to all of the terms and conditions for transfers contained in this
Agreement. If an interest is not disposed of under this Section 9.3 within two
(2) years from the date of death or declaration of mental incapacity, Franchisor
may terminate this Agreement pursuant to Section 10.2.2 below.
9.4 Subject to Franchisor's right of first refusal under Section 9.5, if
Developer is an entity, then the owner or owners of the equity of Developer may,
without Franchisor's prior written consent, sell, assign, transfer or give away
to employees of Developer during the Agreement Term, an aggregated amount of not
more than twenty percent (20%) of the outstanding equity of the Developer,
provided: (i) Franchisor receives written notice of such transfer not later than
thirty (30) days prior to the transfer, which notice shall identify the
transferee, describe the transferee's position of employment, and include a
calculation demonstrating that the planned transfer complies with this Section
9.4; and (ii) such transfer, when combined with all prior transfers of the
equity of Developer, does not result in a transfer of more than twenty percent
(20%) of the outstanding equity of Developer.
9.5 Franchisor shall have the right, exercisable within thirty (30) days
after receipt of a written request for approval of a proposed transfer pursuant
to this Section 9, to purchase the interest proposed to be transferred. The
request for approval of transfer must include a true and complete copy of the
proposed purchase agreement and any ancillary agreements and not be subject to
financing or any other contingencies. Franchisor's thirty (30) day period for
determining whether or not to exercise its right of first refusal shall not
commence until transferor has provided all information and documentation
required hereunder in a form and substance satisfactory to Franchisor. If
Franchisor desires to exercise its right of first refusal, it shall do so by
providing written notice (the "Purchase Notice") to transferor that it intends
to purchase the interest on the same terms and conditions offered by the third
party. Closing on such purchase shall occur within sixty (60) days after the
date of transferor's receipt of the Purchase Notice. If the consideration,
terms, and/or conditions offered by the third party are such that Franchisor may
not reasonably be required to furnish the same consideration, terms, and/or
conditions, then Franchisor may purchase the interest proposed to be sold for
the reasonable equivalent in cash. If the parties cannot agree within thirty
(30) days of transferor's receipt of the Purchase Notice on the reasonable
equivalent in cash, an independent appraiser shall be designated by Franchisor
at Franchisor's expense, and the appraiser's determination shall be binding. Any
material change in the terms of the offer
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from a third party after Franchisor has elected not to purchase the seller's
interest shall constitute a new offer subject to the same rights of first
refusal by Franchisor as in the case of the third party's initial offer.
9.6 If Franchisor elects not to exercise its right of first refusal under
Section 9.5, the proposed transferor may complete the transfer after obtaining
Franchisor's written consent as required under Section 9.2. In any event,
Franchisor's consent to any transfer shall be contingent on certain conditions
which shall be determined in Franchisor's sole discretion. The conditions may
include, but shall not be limited to, the following:
9.6.1 That all of Developer's accrued monetary obligations and all
other outstanding obligations to Franchisor and its affiliates have been
satisfied;
9.6.2 That 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 affiliates or any Franchise Agreement
executed pursuant to this Agreement;
9.6.3 The transferee (or, if the transferee is a corporation or
partnership, such owners of a beneficial interest in the transferee as
Franchisor may request) shall demonstrate to Franchisor's satisfaction that it
meets Franchisor's educational, managerial, and business standards; possesses a
good moral character, business reputation, and credit rating; has the aptitude
and ability to conduct the business contemplated hereunder (as may be evidenced
by prior related business experience or otherwise); and has adequate financial
resources and capital to complete development of the territory in a timely
manner;
9.6.4 That the transferee enter into a written assignment, in a form
satisfactory to Franchisor, assuming and agreeing to discharge all of
Developer's obligations under this Agreement;
9.6.5 That the transferor execute a general release, in a form
satisfactory to Franchisor, of any and all claims against Franchisor, its
affiliates and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities;
9.6.6 That employees of the Developer who have not previously
completed a training program approved by Franchisor, at the Developer's expense,
complete any training programs then in effect for new Bruegger's Fresh Bagel
Bakery franchisees;
9.6.7 That transferor pay a transfer fee of Five Thousand Dollars
($5,000) plus Franchisor's actual expenses for outside services associated with
reviewing the application to transfer, including, but not limited to, reasonable
attorneys' fees; and
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9.6.8 That the price and terms of the proposed transfer are not so
burdensome as to adversely affect or have a potentially adverse affect on the
Franchisor's rights and interest under this Agreement.
9.7 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor may have against the transferring party, nor shall it be
deemed a waiver of Franchisor's right to demand exact compliance by the
transferor, transferee or Developer with any of the terms of this Agreement by
the transferor or transferee.
10. DEFAULT AND TERMINATION
10.1 Developer shall be in default under this Agreement, and all rights
granted herein shall automatically terminate without notice to Developer, if
Developer becomes insolvent or makes a general assignment for the benefit of
creditors; if a petition in bankruptcy is filed by Developer or such a petition
is filed against Developer and not opposed by Developer; if Developer is
adjudicated as bankrupt or insolvent; 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; 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; if proceedings for a composition with creditors under any state or
federal law is instituted by or against Developer; if a final judgment remains
unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond
is filed); if Developer is dissolved; if execution is levied against Developer's
business or property; if suit to foreclose any lien or mortgage against the
premises or equipment of any Bakery developed hereunder is instituted against
Developer and not dismissed within thirty (30) days; or if the real or personal
property of any Bakery developed hereunder is sold after levy thereupon by any
sheriff, marshall, or constable.
10.2 Franchisor shall have the right to terminate this Agreement,
effective immediately upon the receipt of written notice by Developer, if any of
the following events occurs:
10.2.1 If Developer fails to satisfy the development obligations of
this Agreement as set forth in the Development Schedule;
10.2.2 In the event of any transfer of an interest in Developer or in
this Agreement which does not comply with Section 9 of this Agreement, or any
transfer of an interest in Developer by intestate succession to an heir who is
unable to meet the conditions of Section 9;
17
<PAGE>
10.2.3 If Developer is in default under Section 10.3 three (3) times
within any twelve-month period, whether such defaults are of a similar or
different nature and whether or not any of them is cured after notice; or
10.2.4 If Franchisor has delivered to Developer a final notice of
termination for any Unit Franchise Agreement, Development Agreement, Service
Agreement or any other agreement between Franchisor (or any of its affiliates)
and Developer (except for termination due to a permanent closing of a Bakery
with Franchisor's prior written consent).
10.3 If Developer fails to cure any default of any other provision of this
Agreement within thirty (30) days after receiving written notice of default from
Franchisor, this Agreement shall terminate at the end of such thirty (30) day
period without further notice from Franchisor.
10.4 Upon termination of this Agreement, Developer shall have no right to
establish or operate any Bakery for which a Franchise Agreement has not been
executed by the parties prior to termination; and Franchisor shall be entitled
to establish, and to franchise others to establish, Bakeries at any location in
the Development Area except as may be otherwise provided under the terms of any
Franchise Agreement which remains in effect between Franchisor and Developer.
10.5 No right or remedy herein conferred upon or reserved to Franchisor is
exclusive of any other right or remedy provided or permitted by law or in
equity.
11. COVENANTS
11.1 Developer acknowledges that, pursuant to this Agreement, Developer
will receive valuable confidential information, including, without limitation,
information regarding the site selection, marketing, and food preparation
techniques of Franchisor and the System. Developer covenants that, during the
Agreement Term, Developer shall not, either directly or indirectly, for itself,
or through, on behalf of, or in conjunction with any person or legal entity:
11.1.1 Divert or attempt to divert any present or prospective
business or customer of any Bakery 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 the Proprietary Marks
and the System;
11.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor or who was employed by Franchisor within the preceding
three (3) months, or otherwise directly or indirectly induce such person to
leave his or her employment with Franchisor; or
18
<PAGE>
11.1.3 Own, manage, operate, engage in, be employed by, provide any
assistance to, or have any interest in (as owner or otherwise) any other
business whose sales of fresh or packaged bagels and cream cheese are more than
five percent (5%) of its total sales by annual dollar value.
11.2 Developer covenants that, except as otherwise approved in writing by
Franchisor, Developer shall not, for one (1) year after the expiration or
termination of this Agreement or the approved transfer of this Agreement to a
new developer, either directly or indirectly, for itself or through, on behalf
of, or in conjunction with any person or legal entity, own, maintain, operate,
engage in, be employed by, provide assistance to, or have any interest in any
business (i) whose sales of fresh or packaged bagels and cream cheese are more
than five percent (5%) of its total sales by annual dollar volume, and (ii)
which is, or is intended to be, located within the Development Area, except
pursuant to a Franchise Agreement with Franchisor.
11.3 Sections 11.1.3 and 11.2 shall not apply to ownership by Developer of
a less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
11.4 Developer understands and acknowledges that Franchisor shall have the
right, in its sole discretion, to reduce the scope of any covenant set forth in
Sections 11.1 and 11.2 of this Agreement, or any portion thereof, without
Developer's consent, effective immediately upon receipt by Developer of written
notice thereof; and Developer agrees that it shall comply forthwith with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section 16.1 hereof.
11.5 Developer agrees that the existence of any claims it 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 11.
Developer agrees to pay all costs and expenses incurred by Franchisor in
enforcing this Section 11, including, but not limited to, reasonable attorneys
fees.
11.6 Developer acknowledges that Developer's violation of the terms of
this Section 11 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Developer accordingly consents to
the issuance of an injunction prohibiting any conduct by Developer in violation
of the terms of this Section 11. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
11.7 At Franchisor's request, Developer shall obtain and furnish
to Franchisor executed covenants similar in substance to those set forth in this
Section 11 (including covenants applicable upon the termination of an
individual's relationship with Developer) from any or all officers, directors,
and holders of a direct or indirect beneficial interest of five percent (5%) or
more of the securities of Developer. Every covenant required by this Section
11.7 shall be in a form satisfactory to Franchisor, including, without
limitation,
19
<PAGE>
specific identification of Franchisor as a third party beneficiary with the
independent right to enforce the covenant.
11.8 Franchisor agrees that it shall not employ or seek to employ any
person who is at the time employed by Developer or who was employed by Developer
within the preceding three (3) months, or otherwise directly or indirectly
induce such person to leave his or her employment with Developer.
12. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or delivered or sent by another
method which affords the sender evidence of receipt or attempted delivery, to
the respective parties at the following addresses, unless and until a different
address has been designated by written notice to the other party:
Notices to Franchisor: Bruegger's Franchise Corporation
3820 Edison Lakes Parkway
Mishawaka, IN 46545
Attn: President
With a copy to: Bruegger's Franchise Corporation
3820 Edison Lakes Parkway
Mishawaka, IN 46545
Attn: General Counsel
Notices to Developer: ________________________________
________________________________
________________________________
Attn:___________________________
Any notice sent or delivered which affords the sender evidence of receipt or
attempted delivery shall be deemed to have been given and received at the date
and time of receipt or attempted delivery.
20
<PAGE>
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
13.1 It is understood and agreed by the parties 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 make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.
13.2 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.
13.3 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. Franchisor shall in no event
assume liability for, or be deemed liable hereunder as a result of, any such
action, nor shall Franchisor be liable by reason of any act or omission of
Developer or any claim or judgment arising therefrom against Developer or
Franchisor. Developer shall hold harmless and indemnify Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees against any claim arising directly or indirectly from, as a result of,
or in connection with Developer's activities hereunder, as well as the costs of
defending against any such claim.
14. APPROVALS AND WAIVERS
14.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor
therefor, and, except as may be otherwise expressly provided herein, such
approval or consent must be obtained in writing and signed by an officer of
Franchisor.
14.2 Franchisor makes no warranties or guarantees upon which Developer may
rely and assumes no liability or obligation to Developer by providing any
waiver, approval, consent, or suggestion to Developer in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
14.3 No failure of Franchisor to exercise any right reserved to it in this
Agreement or to insist upon strict compliance by Developer with any obligation
or condition of this Agreement, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of Franchisor's right
to exercise such right or to demand exact compliance with any of the terms of
this Agreement. Waiver by Franchisor of any particular default by Developer
shall not affect or impair Franchisor's rights with respect to any subsequent
default of the same, similar, or different nature; nor
21
<PAGE>
shall any delay, forbearance, or omission of Franchisor to exercise any power or
right arising out of any breach or default by Developer of any of the terms,
provisions, or covenants of this Agreement affect or impair Franchisor's right
to exercise the same; nor shall such constitute a waiver by Franchisor of any
rights hereunder or rights to declare any subsequent breach or default and to
terminate this Agreement prior to the expiration of its term.
15. SEVERABILITY AND CONSTRUCTION
15.1 If, for any reason, any provision of this Agreement 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 invalidity shall
not impair the operation of, or have any other effect upon, such other
provisions of this Agreement as may remain otherwise intelligible. The latter
shall continue to be given full force and effect and bind the parties hereto,
and the invalid provision(s) shall be deemed not to be a part of this Agreement.
15.2 Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Developer, Franchisor, and such of their successors and
assigns as may be contemplated by Section 8 above, any rights or remedies under
or by reason of this Agreement.
15.3 Any provision or covenant of this Agreement which expressly or by
reasonable implication imposes obligations after the expiration or termination
of this Agreement shall survive such expiration or termination.
15.4 Developer agrees to be bound by any promise or covenant imposing the
maximum duty permitted by law which is subsumed within the terms of any
provision of this Agreement, as though it were separately articulated in and
made a part of this Agreement, that may result from (i) striking from any of the
provisions hereof any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final decision to which Franchisor is a party, or (ii) reducing the scope of any
promise or covenant to the extent required to comply with such a court or agency
order.
16. ENTIRE AGREEMENT; APPLICABLE LAW
16.1 This Agreement, the documents referred to herein, and the Exhibits
attached hereto constitute the entire agreement between Franchisor and Developer
concerning the subject matter hereof and supersede all prior agreements,
negotiations, representations, and correspondence concerning the same subject
matter. Except for
22
<PAGE>
those permitted to be made unilaterally by Franchisor hereunder, no amendment,
change, or variance from this Agreement shall be binding on either party unless
agreed to in writing by the parties and executed by their authorized officers or
agents.
16.2 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law, the laws of such state shall prevail, without regard to
the application of such state's conflict of law rules.
16.3 Any action (whether or not arising out of this Agreement) brought by
Developer against Franchisor in any court, whether federal or state, shall be
brought, and any action brought by Franchisor against Developer may be brought,
within the judicial district in which Franchisor has its principal place of
business. The parties hereby waive all questions of personal jurisdiction or
venue for the purpose of carrying out this provision.
16.4 No right or remedy conferred upon or reserved to Franchisor or
Developer by this Agreement is intended to be, nor shall be deemed, exclusive of
any other right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy.
16.5 Nothing herein contained shall bar Franchisor'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.
16.6 Any and all claims and actions arising out of or relating to this
Agreement or the relationship of Developer and Franchisor, brought by either
party against the other, shall be commenced within eighteen (18) months from the
occurrence of the facts giving rise to such claim or action, or such claim or
action shall be barred.
16.7 Developer and Franchisor irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Developer and Franchisor hereby waive to the fullest extent permitted by law any
right to, or claim of, any punitive or exemplary damages against the other and
agree that, in the event of a dispute between them, each shall be limited to the
recovery of any actual damages sustained by it.
16.8 If Developer shall consist of two or more persons or entities at any
time during the Agreement Term, their obligations hereunder to Franchisor shall
be joint and several.
23
<PAGE>
17. ACKNOWLEDGMENTS
17.1 Developer acknowledges that the success of the business venture
contemplated by this Agreement involves substantial business risks and is
largely dependent upon Developer's business skills and financial and other
resources. Franchisor expressly disclaims the making of, and Developer
acknowledges not having received, any warranty or guarantee, express or implied,
as to the potential volume, profits, or success of the business venture
contemplated by this Agreement.
17.2 Developer acknowledges that Developer has received, read, and
understood this Agreement and the attached Exhibits, and that Developer has had
ample time and opportunity to consult with advisors of Developer's own choosing
about the potential benefits and risks of entering into this Agreement.
17.3 Developer acknowledges that it received a complete copy of this
Agreement and the attached Exhibits at least five (5) business days prior to the
date on which this Agreement was executed. Developer further acknowledges that
it 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 have duly executed this Agreement on the
day and year first above written.
FRANCHISOR DEVELOPER:
Bruegger's Franchise Corporation _________________________________
By:_______________________________ By:______________________________
Title:____________________________ Title:___________________________
24
<PAGE>
EXHIBIT A
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Marks Type Registered Reg. No.
- ---------------- ---- ---------- --------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
<CAPTION>
APPLICATIONS PENDING
--------------------
Date Sent Application
Marks Type for Filing No.
- ----- ---- ---------- -----------
<S> <C> <C> <C>
BRUEGGER'S BAGELS/
BAKED FRESH AND DESIGN SM 1/16/96 75,046,205
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 75,007,530
(Class No. 29 & 30)
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 75,007,532
(Class No. 42)
JAVAHH! TM 7/3/95 75,697,540
SINGLE BAKER/SINGLE
BAGEL @ HEARTH DESIGN SM 1/16/96 75,046,199
</TABLE>
<PAGE>
EXHIBIT B
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
DEVELOPMENT AREA
----------------
The Development Area shall be as follows:
<PAGE>
EXHIBIT C
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
DEVELOPMENT SCHEDULE
--------------------
2
<PAGE>
EXHIBIT D
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
FRANCHISE AGREEMENT
-------------------
The attached form of Franchise Agreement shall be used for all Bakeries to be
developed during the Agreement Term.
3
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
FRANCHISE AGREEMENT
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
-----------------------------
FRANCHISE AGREEMENT
-------------------
<TABLE>
<S> <C>
1.DEFINITIONS..................................................................2
2.GRANT........................................................................3
3.TERM AND SUCCESSOR FRANCHISE AGREEMENTS......................................6
4.DUTIES OF FRANCHISOR.........................................................8
6.CONSTRUCTING AND OPENING THE BAKERY..........................................9
8.DUTIES OF FRANCHISEE........................................................12
9.PROPRIETARY MARKS AND COPYRIGHTS............................................16
10.OPERATIONS MANUALS.........................................................19
12.ACCOUNTING AND RECORDS.....................................................20
13.ADVERTISING AND PROMOTION..................................................21
14.INSURANCE..................................................................24
15.TRANSFER OF INTEREST.......................................................25
16.DEFAULT AND TERMINATION....................................................28
18.COVENANTS..................................................................32
19.ORGANIZATION OF FRANCHISEE.................................................34
20.TAXES, PERMITS, AND INDEBTEDNESS...........................................35
21.INDEPENDENT CONTRACTOR AND INDEMNIFICATION.................................36
23.NOTICES....................................................................37
24.ENTIRE AGREEMENT...........................................................38
25.SEVERABILITY AND CONSTRUCTION..............................................38
26.APPLICABLE LAW; ARBITRATION................................................39
27.ACKNOWLEDGMENTS............................................................41
</TABLE>
EXHIBIT A - PROPRIETARY MARKS
EXHIBIT B - APPROVED LOCATION
<PAGE>
BRUEGGER'S FRESH BAGEL BAKERY
FRANCHISE AGREEMENT
THIS AGREEMENT is entered into on __________, 19_____ by and between
BRUEGGER'S FRANCHISE CORPORATION, a Delaware corporation ("Franchisor") and
"Franchisee" (as defined below):
Name: __________________________________
__________________________________
__________________________________
Principal Address: __________________________________
__________________________________
__________________________________
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of distinctive bagels and cream cheese and the
establishment and operation of restaurants specializing in the sale of the
bagels, cream cheese, and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of bagels and cream cheese products prepared in accordance
with secret recipes and manufacturing processes owned by affiliates of
Franchisor; distinctive exterior and interior restaurant design, decor, color
scheme, fixtures, and furnishings; standards and specifications for ingredients,
food preparation, equipment, supplies, and restaurant operations; and
advertising and promotional programs; all of which may be changed, improved, and
further developed by Franchisor and its affiliates from time to time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "BRUEGGER'S", as set forth in Exhibit A to this Agreement,
and such other trade names, service marks, and trademarks as may hereafter be
designated by Franchisor in writing for use in the System (the "Proprietary
Marks");
WHEREAS, Franchisee wishes to obtain the right to establish and operate a
Bruegger's Fresh Bagel Bakery at the location specified in this Agreement;
WHEREAS, Franchisor and Franchisee are parties to a Bruegger's Fresh Bagel
Bakery Development Agreement dated December 18, 1996 (the "Development
Agreement") under which Franchisee has the right and obligation to develop
Bakeries (as defined below) within a specific geographic territory that
includes the location specified in this Agreement, and pursuant to which the
parties are entering into this Agreement,
-1-
<PAGE>
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the meanings of the following terms are as
follows. Certain other terms may be defined when they appear within the text of
the Agreement.
"Approved Location" or "Premises" - The location of the Bakery as set forth in
Exhibit B hereto.
"Bagel Store" - a food service business, including a Bakery, which derives a
significant portion of its revenue from the sale of bagels and/or bagel related
products or from any other product or service which is or hereafter becomes a
source of a significant portion of the revenue of a Bakery.
"Bakery" - A food service business that:
1. offers products for consumer consumption through on premises dining
and carry-out;
2. operates using the System and the Proprietary Marks; and
3. is operated by Franchisor or pursuant to a valid Unit Franchise
Agreement.
"Exclusive Area" - the smaller of:
1. an area determined by drawing a circle around the Approved Location,
which circle shall have the Approved Location as its center, and which shall be
the smaller of the following:
a. a circle with a one and one-half (1.5) mile radius; or
b. a circle that contains a population of thirty thousand persons,
the radius of which circle shall be determined at such time or times as
Franchisor communicates to Franchisee an intent to establish a Bakery or
franchise others to establish a Bakery within one and one-half (1.5) miles of
the Bakery. For purposes of this Agreement, the population used to determine the
size of the Exclusive Area shall be the greater of the daytime population or the
residential population; or
2. the circle described in 1 above less any portion of that circle which
extends outside of the Development Area as described in the Development
Agreement
-2-
<PAGE>
"Required Items" - Products required by the Franchisor, from time to time in its
sole discretion, for sale at or from the Bakeries, including bagels, bagel
related products, Franchisor's proprietary brand of cream cheese and other
spreads, sandwiches, soups, salads, baked goods, breakfast items, an assortments
of hot and cold beverages, teas (leaves, bags, dry mixes and related forms),
coffee (Franchisor's proprietary brand of coffee including beans, ground and
related forms), and other food products and merchandise, all of which are
subject to modification or discontinuation in Franchisor's sole discretion from
time to time and may include additional or substitute products.
2. GRANT
2.1 Franchisor grants to Franchisee the exclusive right, except as
provided in Section 2.4, 2.5 and 2.6 hereof, and Franchisee undertakes the
obligation, on the terms and conditions set forth in this Agreement, to
establish and operate a Bakery and to use the Proprietary Marks and the System
solely in connection therewith. Franchisor further grants to Franchisee, subject
to Section 8.5 below, the right to use certain trade secrets of Franchisor's
affiliates to manufacture bagel dough, solely for use in the Bakery.
2.2 Franchisee shall operate the Bakery only at the the Approved Location.
2.3 Except as provided in this Agreement (including without limitation
Section 2.4, 2.5 and 2.6), Franchisor shall not, during the Agreement Term,
establish a Bakery or franchise others to establish a Bakery within the
Exclusive Area.
2.4 Franchisor, on behalf of itself and its affiliates and designees,
retains all rights with respect to the System, the Proprietary Marks and the
sale of any products associated therewith, anywhere in the world, including but
not limited to:
2.4.1 The right to establish and operate (directly or through an
affiliate), and to franchise others to establish and operate, one or more food
service businesses including, without limitation, Bakeries and Bagel Stores, and
to sell and distribute under the Proprietary Marks any of the Required Items, at
any location within or outside the Exclusive Area, both during and upon
expiration or termination of this Agreement, and on such terms and conditions as
Franchisor, in its sole discretion, deems appropriate (subject to the rights
granted to Franchisee in Section 2.3 of this Agreement.)
2.4.2 The right and the option to grant others (including any person
or entity related in any way to the Franchisor ) the right to develop,
manufacture, market sell and distribute food products including, but not limited
to, cream cheese products and other bagel spreads or any other product or
service, under the "Bruegger's" name or under any other name, directly or
indirectly, through any channel of distribution, including, without limitation,
supermarkets, delicatessens, specialty food stores, convenience stores,
-3-
<PAGE>
and other wholesale and retail food stores, at any location within and/or
outside the Exclusive Area.
2.4.3 In accordance with Sections 2.5 and 2.6 below, the right to
develop additional Bakeries and to acquire, operate and convert to a Bakery, any
business, including, without limitation, businesses operating one or more Bagel
Stores (other than Bakeries) or other food service businesses, located or
operating within and/or outside the Exclusive Area.
2.4.4 The right to establish and operate, and franchise others
to establish and operate a Bakery in any mall, military base, airport, hospital,
educational institution or highway rest area ("Excluded Locations"), whether or
not such Excluded Locations are located inside or outside the Exclusive Area.
For purposes of this Section 2.4.4 "mall" shall be defined as any enclosed
shopping facility which contains 100,000 square feet or more of enclosed space.
Franchisor and Franchisee expressly acknowledge and agree that the right to
develop and operate Bakeries at the Excluded Locations shall not be subject to
Franchisee's rights as set forth in Sections 2.5 and 2.6 below.
2.5 Notwithstanding anything to the contrary in this Agreement, if
during the term of this Agreement Franchisor locates a site suitable for a
Bakery within the Exclusive Area (a "Tactical Site"), Franchisor shall notify
Franchisee in writing of such Tactical Site if Franchisor intends that such
Tactical Site be developed and operated as a Bakery. Within ten (10) days after
Franchisee's receipt of Franchisor's notice regarding such Tactical Site
(including any relevant site-related materials in Franchisor's possession),
Franchisee shall notify Franchisor if Franchisee desires to develop and operate
a Bakery at such Tactical Site. If Franchisee fails to so notify Franchisor
within such time period, then Franchisor or its designee shall have the right to
develop and operate a Bakery at such Tactical Site.
If Franchisee timely notifies Franchisor in writing that Franchisee desires
to develop and operate a Bakery at such Tactical Site and Franchisor has fully
negotiated a lease or purchase agreement for such Tactical Site, then Franchisee
shall: 1) obtain the consent of the landlord to enter into such lease and
execute and deliver same to landlord, if applicable; or 2) execute a purchase
agreement or an assignment of purchase agreement, if applicable; and 3) execute
Franchisor's then current form of standard unit franchise agreement containing
Franchisor's then current fees and expense requirements and such ancillary
documents (including guarantees) as are then customarily used by Franchisor in
the grant of franchises for Bakeries (collectively, the "Franchise Documents")
as modified for use in connection with the Tactical Site, as necessary, and (4)
pay Franchisor a site location and negotiation fee (the "Site Location and
Negotiation Fee") equal to Ten Thousand Dollars ($10,000.00) plus Franchisor's
reasonable out-of-pocket expenses incurred in locating such Tactical Site and
negotiating the lease or purchase agreement, all within ten (10) business days
after Franchisor's delivery to Franchisee of the lease or purchase agreement, as
the case may be, and the Franchise documents. the site location and Negotiation
Fee is paid to compensate Franchisor for
-4-
<PAGE>
the internal costs of the site location services it provides. Franchisor shall
fully cooperate with Franchisee in obtaining the landlord's consent to execute
such lease or the seller's consent to execute such purchase agreement or
assignment of purchase agreement as the case may be.
If Franchisee timely notifies Franchisor in writing that Franchisee desires
to develop and operate a Bakery at such Tactical Site and Franchisor has not
fully negotiated a lease or purchase agreement for such Tactical Site, then
Franchisee will have thirty (30) days in which to negotiate and deliver to
Franchisor a lease or purchase agreement for such Tactical Site in form for
execution. If Franchisor disapproves the lease or purchase agreement for failure
to meet Franchisor's requirements, Franchisee will have ten (10) business days
within which to negotiate and deliver to Franchisor a revised lease or purchase
agreement for such Tactical Site in form execution. If Franchisor approves the
lease or the purchase agreement for such Tactical Site, then Franchisee will: 1)
execute such lease or purchase agreement, as applicable; 2) execute the
Franchise Documents; and 3) pay to Franchisor its reasonable out-of-pocket
expenses in locating such Tactical Site and, to the degree applicable, partially
negotiating the lease or purchase agreement, all within ten business (10) days
after Franchisor's delivery of the Franchise Documents to Franchisee.
If Franchisee: 1) declines the option to develop the Tactical Site; 2)
fails to timely notify Franchisor of its election to develop the Tactical Site;
or 3) fails to timely execute the approved lease or purchase agreement, execute
and deliver to Franchisor the Franchise Documents and pay the applicable
expenses as provided herein, then Franchisor or its designee may develop and
operate or franchise others to operate a Bakery at such Tactical Site.
Any Tactical Site for which Franchisee executes the Franchise
Documents and develops and opens a Bakery will count toward the Development
Quota set forth in the Development Agreement.
2.6 If during the Agreement Term Franchisor acquires the shares or assets
(which may include, by way of illustration and not by way of limitation,
furniture, fixtures, equipment, leasehold improvements and/or leasehold
interest) of any business operating a Bagel Store at one or more sites located
within the Exclusive Area which meets Franchisor's specifications and standards
as in effect from time to time for conversion to a Bakery (the "Acquisition
Site"), and Franchisor determines in its sole discretion to convert such
Acquisition Site to a Bakery, Franchisor agrees to offer to sell such
Acquisition Site to Franchisee for the price paid therefor by Franchisor. Such
price will include that portion of the direct and indirect costs and liabilities
incurred or assumed by Franchisor in making such acquisition and allocated to
such Acquisition Site, whether paid or owed to the seller of such Acquisition
Site, Franchisor, an affiliate of Franchisor or third parties, and other
expenses allocated or otherwise related to such Acquisition Site (including
losses, whether from continuing operations or closing acquired units) plus
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interest at the Franchisor's cost of money on the balance of such amounts from
time to time, provided that:
(1) such sale will not conflict with any existing legal
obligation of Franchisor or the business being acquired;
(2) such sale will not preclude the completion of the
acquisition on the terms agreed to by Franchisor;
(3) such sale will not, in Franchisor's judgment,
interfere with any other legal agreement, arrangement or
combination or affect federal or state income tax
consequences arising from the acquisition in a manner
adverse to any of the parties thereto; and
(4) Franchisee agrees to execute, concurrently with
Franchisee's purchase: a) the Franchise Documents, as
modified for use in connection with an Acquisition Site,
as necessary for each and every such Acquisition Site; b)
convert each such Acquisition Site to a Bakery as soon as
practicable thereafter (but in no event later than the date
specified Franchisor) in accordance with Franchisor's standards
and specifications; and c) close or sell within a reasonable
time period specified by Franchisor any of the acquired sites
which are not suitable for conversion to Bakeries.
Franchisee shall have thirty (30) days after receipt of Franchisor's offer
in which to accept or reject such offer by written notice to Franchisor. If
accepted, Franchisee shall have thirty (30) days from the date of acceptance to
complete the acquisition.
In the event Franchisee rejects or fails to timely accept Franchisor's
offer to sell such Acquisition Sites or Franchisor is unable to extend such
offer for any of the aforementioned reasons, Franchisor may operate, alter,
modify, refurbish, remodel, promote and market or franchise others to operate
any such Acquisition Site. For purposes of this Section, all references to
Franchisor shall be deemed to include its affiliates.
Any Acquisition Site for which Franchisee executes the Franchise Documents
and develops and opens a Bakery shall count toward the Development Quota set
forth in the Development Schedule.
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3. TERM AND SUCCESSOR FRANCHISE AGREEMENTS
3.1 Unless sooner terminated as provided herein, the initial term of this
Agreement (the "Agreement Term") commences on the date the Bakery opens for
business under this Agreement (the "Commencement Date") and expires twenty (20)
years from the Commencement Date, unless sooner terminated, in accordance with
the provisions of this Agreement.
3.2 Franchisee shall have, exercisable upon expiration of the Agreement
Term, and upon expiration of each agreement term thereafter, an option to obtain
a successor Franchise Agreement (the "Successor Agreement") for the Bakery, for
an additional terms of the lesser of ten (10) years or the remaining term
(including any extensions) of the lease for the premises of the Bakery (the
"Premises"), subject to the following conditions:
3.2.1 Franchisee shall have given Franchisor written notice of
Franchisee's election to exercise its option not less than six (6) months nor
more than nine (9) months before the end of the then current term;
3.2.2 Franchisee shall not be in default of any provision of this
Agreement, or any Successor Agreement, any amendment hereof or successor hereto,
or any other agreement between Franchisee and Franchisor or its affiliates, and
Franchisee shall have substantially complied with such agreements throughout
their respective terms;
3.2.3 Franchisee shall have satisfied all monetary obligations owed
by Franchisee to Franchisor and its affiliates, and shall have timely met those
obligations throughout Agreement Term and the terms of any Successor Agreement;
3.2.4 Franchisee shall make or provide for, in a manner satisfactory
to Franchisor, such renovation and modernization of the Bakery as Franchisor may
reasonably require, including, without limitation, installation of new equipment
and renovation of signs, furnishings, fixtures, and decor to reflect the then-
current standards and image of the System;
3.2.5 Franchisee shall execute Franchisor's then-current form of
Successor Agreement, which shall supersede this Agreement in all respects;
3.2.6 Franchisee shall execute a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities;
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3.2.7 Franchisee shall comply with Franchisor's then-current
qualification and training requirements for new Bruegger's Fresh Bagel Bakery
franchisees; and.
3.2.8 Franchisee shall pay Franchisor a fee equal to the then-current
initial franchise fee being charged for new franchises.
4. DUTIES OF FRANCHISOR
4.1 Franchisor shall provide to Franchisee one set of Franchisor's
representative plans for the construction and layout of a Bakery.
4.2 Franchisor shall provide to Franchisee, on loan, one set of
Franchisor's confidential operations manuals (the "Manuals").
4.3 Franchisor shall provide to Franchisee, on loan, only upon written
request pursuant to Section 8.5.2 below, one copy of Franchisor's confidential
Bagel Production Manual (the "Bagel Production Manual").
4.4 Franchisor shall provide a training program prescribed by Franchisor,
for the persons required or permitted to attend training under Section 7 of this
Agreement.
4.5 Franchisor shall provide such pre-opening and opening supervision and
assistance as Franchisor deems advisable.
4.6 Franchisor shall designate at least one supplier of Bruegger's Cream
Cheese and license such supplier or suppliers to use the secret recipes
necessary to produce Bruegger's Cream Cheese.
4.7 In addition to the advertising and promotional materials produced by
the advertising fund established by Franchisor for the System (the "Fund," as
further described in Section 13 of this Agreement), Franchisor shall make
available to Franchisee such advertising and promotional materials as Franchisor
may elect to produce with Franchisor's own funds. Franchisor may charge a
purchase price for such non-Fund materials equal to the costs to produce them.
4.8 Franchisor shall provide to Franchisee from time to time, as
Franchisor deems appropriate, advice and written materials concerning techniques
of managing and operating the Bakery.
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5. FEES
5.1 In consideration of the rights granted herein, Franchisee has paid to
Franchisor an initial franchise fee of Thirty Five Thousand Dollars ($35,000),
receipt of which is hereby acknowledged, which is fully earned and non-
refundable in consideration of the administrative and other expenses incurred by
Franchisor and Franchisor's lost or deferred opportunity to enter into similar
arrangements with others. The initial franchise fee, less the Site Selection
Deposit of Seventeen Thousand Five Hundred Dollars ($17,500), shall be paid to
the Franchisor on or before the date that the Bakery commences operation.
5.2 Franchisee shall pay Franchisor a weekly royalty fee in an amount
equal to five percent (5%) of the Gross Sales of the Bakery for the preceding
week. As used in this Agreement, "Gross Sales" means the full retail selling
price of all products sold and all other income of every kind related to the
Bakery or received at the Premises (including, without limitation, any proceeds
from business interruption insurance and premiums), whether for cash or credit,
(and regardless of collection in the case of credit) and without any deduction
for any discounts, coupons or other promotional activities which reduce the
everyday retail selling price of any products or services sold from the Bakery.
Gross Sales shall not include any sales taxes or other taxes collected from
customers by Franchisee and paid directly to the appropriate taxing authority.
For purposes of this Agreement, unless otherwise designated by Franchisor in
writing, a week begins on Monday and ends on the following Sunday.
5.3 Franchisee shall contribute weekly to the Fund the amount specified in
Section 13.1 below (the "Advertising Fund Contribution").
5.4 Franchisee shall designate an account at a commercial bank of its
choice (the "Account") for the payment of weekly royalty fees and the
Advertising Fund Contribution. Franchisee shall furnish the bank with such
authorizations as may be necessary to permit Franchisor to make withdrawals from
the Account by electronic funds transfer. On Thursday of each week, Franchisor
shall transfer from the Account an amount equal to the royalty fees and
Advertising Fund Contribution due from Franchisee based on Gross Sales for the
preceding week. Franchisor shall furnish Franchisee with a written confirmation
of each such transfer. Franchisee agrees to maintain sufficient funds in the
Account at all times to cover all royalty fees and Advertising Fund
Contribution payable to Franchisor. If funds in the Account are insufficient to
cover the amounts payable at the time Franchisor makes its weekly electronic
funds transfer, the amount of the shortfall shall be deemed overdue, and
Franchisee shall pay Franchisor, on demand, in addition to the overdue amount,
daily interest on such amount from the date it was due until paid, at the rate
of eighteen percent (18%) per annum or the maximum rate permitted by law,
whichever is less. Entitlement to such interest shall be in addition to any
other remedies Franchisor may have.
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6. CONSTRUCTING AND OPENING THE BAKERY
6.1 Franchisor shall furnish to Franchisee a copy of Franchisor's
representative plans and specifications for construction of a Bakery and, if
applicable, a bagel dough manufacturing site, including exterior and interior
design and layout plans.
6.2 Franchisee shall construct and equip the Bakery and any facility in
which Franchisee manufactures bagel dough pursuant to Section 8.5.2 below at
Franchisee's own expense. Before commencing construction of the Bakery,
Franchisee, at its expense, shall employ a qualified architect or engineer to
prepare preliminary and final architectural and engineering drawings and
specifications for the Premises consistent with Franchisor's representative
plans for a Bakery. As requested by the Franchisor, the preliminary and final
drawings and specifications shall be submitted to Franchisor for approval. If
Franchisor has not approved or rejected the drawings and specifications within
thirty (30) days after receipt of a complete set of drawings and specifications,
then Franchisor's approval shall be deemed received. Once approved by
Franchisor, the drawings and specifications shall not be changed or modified
without the prior written consent of Franchisor.
6.3 Franchisee shall obtain, at Franchisee's expense, all zoning
classifications, permits, and clearances (including, but not limited to,
certificates of occupancy and mall or strip center clearances) which may be
required by federal, state, or local laws, ordinances, or regulations.
6.4 During the entire period of construction of the Bakery, Franchisee
shall permit Franchisor and its agents to inspect the site at all reasonable
times. Franchisee shall complete construction and installation of all furniture,
fixtures, equipment, and signs in accordance with the final plans and
specifications approved by Franchisor under Section 6.1 above, and shall notify
Franchisor of the anticipated construction completion date.
6.5 Franchisee shall open the Bakery within one (1) year after the date of
this Agreement. The parties agree that time is of the essence in the opening of
the Bakery.
7. TRAINING; MANUALS
[IF THIS AGREEMENT RELATES TO THE FIRST BAKERY TO BE OPENED BY FRANCHISEE
PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN THE FOLLOWING ALTERNATIVE FORM OF
SECTION 7.1 SHALL APPLY:]
7.1 Within sixty (60) days before the Bakery opens for business, the
manager, and two bakers designated by Franchisee, together with the individual
who shall be
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responsible for the operations of all Bakeries operated by Franchisee (the
"Operator") shall attend and complete Franchisor's training program to
Franchisor's satisfaction.
[IF THIS AGREEMENT RELATES TO ANY BAKERY SUBSEQUENT TO THE FIRST BAKERY
OPERATED BY FRANCHISEE PURSUANT TO THE DEVELOPMENT AGREEMENT, THEN THE FOLLOWING
ALTERNATIVE VERSION OF SECTION 7.1 SHALL APPLY:]
7.1 Franchisee shall provide a training program to its own personnel.
Except as otherwise provided in this Section 7, within sixty (60) days before
the Bakery opens for business, the manager and two bakers designated by
Franchisee together with the individual who shall be responsible for the
operations of all Bakeries operated by Franchisee (the "Operator"), shall attend
and complete the training program conducted by Franchisee, unless such
individuals previously completed training to Franchisor's satisfaction. The
content and administration of Franchisee's training program must be at least
equal to those of Franchisor's training program and must be approved in advance
by Franchisor. Franchisor will provide Franchisee with the materials and, to the
extent Franchisee deems its necessary or appropriate, assistance in designing
and developing Franchisee's own training program. Franchisor shall have the
right to review Franchisee's training program periodically to ensure its quality
and to verify that managers, and bakers are being trained in a timely and
satisfactory manner. Franchisor shall notify Franchisee of any deficiencies in
the training program. Franchisee shall promptly cure such deficiencies. If
Franchisee fails to cure such deficiencies within a reasonable time, Franchisor
may require all Operators, Bakery managers and bakers to attend training
conducted by Franchisor at Franchisee's expense, until such time as the
deficiencies in Franchisee's program have been corrected to Franchisor's
satisfaction.
7.2 Similarly, within sixty (60) days before a bagel dough manufacturing
site opens for business, the manager of such facility shall attend and complete
Franchisor's training program to Franchisor's satisfaction, or, if applicable,
shall attend and complete a training program conducted by Franchisee and
approved by Franchisor pursuant to the Development Agreement.
7.3 After the Bakery opens for business:
7.3.1 Any person employed by Franchisee to serve as Operator, as
manager or baker of the Bakery, or as manager of a bagel dough manufacturing
site, before commencing his or her duties, shall attend and satisfactorily
complete the training program referred to in Section 7.1; and
7.3.2 Such of Franchisee's employees as Franchisor may reasonably
designate shall attend and complete, to Franchisor's satisfaction, such
additional training programs as Franchisor may reasonably require from time to
time.
7.4 All training conducted by Franchisor shall be held at a location
designated by Franchisor. Franchisor shall provide instructors, training
facilities, and training
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materials for all such training at no charge to Franchisee. Franchisee shall be
responsible for all other expenses for training of its employees, including, but
not limited to, the costs of transportation, lodging, meals, and wages.
7.5 Franchisor shall provide to Franchisee, on loan, one set of Manuals.
The Manuals shall remain the sole property of Franchisor and shall be kept in a
secure place at all times. Franchisee shall not photocopy, duplicate, record, or
otherwise reproduce the Manuals or any of its contents without the prior written
consent of Franchisor.
8. DUTIES OF FRANCHISEE
8.1 In order to protect the reputation and goodwill of Franchisor and to
maintain high standards of operation under the System, Franchisee shall operate
the Bakery in strict conformance with the methods, standards, and specifications
prescribed by Franchisor from time to time in the Manuals or otherwise in
writing. If Franchisee, pursuant to Section 8.5.2 below, produces its own bagel
dough for the Bakery, Franchisee shall manufacture such bagel dough in strict
conformance with the methods, standards, and specifications prescribed by
Franchisor from time to time in the Bagel Production Manual. Franchisee shall
not deviate from such standards, specifications, and procedures without
Franchisor's prior written consent.
8.2 Franchisee shall use the Premises solely for the operation of the
Bakery, shall keep the Bakery open and in normal operation for the minimum hours
and days specified in the Manuals and as permitted by applicable laws, and shall
refrain from using or permitting the use of the Premises for any other purpose
or activity at any time without first obtaining the written consent of
Franchisor.
8.3 Except to the extent provided in Section 6 of the Development
Agreement, Franchisee shall be solely responsible for all employment decisions
and functions of the Bakery, including, without limitation, those related to
hiring, firing, training, wage and hour requirements, recordkeeping,
supervision, and discipline of employees. Franchisee shall maintain a competent,
conscientious, trained staff with enough members to operate the Bakery in an
efficient and competent manner. Franchisee shall take such steps as are
necessary to ensure that its employees preserve good customer relations; render
competent, prompt, courteous, and knowledgeable service; and meet such minimum
standards as Franchisor may establish from time to time in the Manuals.
8.4 Franchisee shall offer for sale in the Bakery all products and
services which are designated as core products by Franchisor from time to time
in the Manuals as Required Items. Franchisee may also offer for sale any
non-required items and services which have been approved by Franchisor in the
Manuals for sale in a Bakery, but Franchisee shall not offer or sell any other
products or services without Franchisor's prior written consent. All products
shall be sold only in the weights, sizes, forms, and packages approved by
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Franchisor. Franchisee shall discontinue selling or offering for sale any
products or services which Franchisor, in its sole discretion, disapproves in
writing at any time. Franchisee shall have sole discretion as to the prices of
all products and services offered and sold by it to its customers.
8.5 A principal purpose of the relationship created by this Agreement is
to enable Franchisee to sell bagels prepared from dough made in accordance with
the proprietary recipe and manufacturing process owned by Bruegger's
Corporation, an affiliate of Franchisor ("Bruegger's Bagels"), and to sell
varieties of a special cream cheese product ("Bruegger's Cream Cheese") made in
accordance with proprietary recipes owned by Bruegger's Corporation. In order to
protect the ownership interests of Franchisor's and its affiliates in the
proprietary recipes and processes and to ensure the quality, uniformity, and
distinctiveness of Bruegger's Bagels and Bruegger's Cream Cheese, Franchisee
agrees that:
8.5.1 All of Franchisee's requirements of Bruegger's Cream Cheese
shall be purchased by Franchisee from a supplier designated by Franchisor; and
8.5.2 All of Franchisee's requirements of bagel dough shall either
be: (i) manufactured by Franchisee in strict conformance with the standards and
procedures set forth by Franchisor from time to time in the Bagel Production
Manual; or (ii) purchased by Franchisee from a supplier designated by
Franchisor. Franchisor shall furnish one (1) copy of the Bagel Production Manual
to Franchisee within one (1) week after receipt of written notification from
Franchisee that Franchisee intends to produce its own bagel dough for the
Bakery, unless Franchisee has previously received a copy of the Bagel Production
Manual pursuant to another Bruegger's Fresh Bagels Bakery Franchise Agreement,
in which case Franchisor shall have no obligation to furnish an additional copy.
Franchisee's written notice shall explicitly acknowledge Franchisee's obligation
to hold the Bagel Production Manual and its contents in strict confidence at all
times pursuant to Section 10 of this Agreement.
8.6 In addition to the restriction's regarding purchase of bagel dough and
Bruegger's Cream Cheese, as provided in Section 8.5, Franchisee shall purchase
all other products and services for the Bakery solely from suppliers who
demonstrate to Franchisor's continuing reasonable satisfaction the ability to
meet Franchisor's standards and specifications; possess adequate quality
controls and capacity to supply Franchisee's needs promptly and reliably; and
have been approved by Franchisor in the Manuals or otherwise in writing. For
purposes of Sections 8.5 and 8.6, "supplier" means any source of products or
services, including, but not limited to, manufacturers, wholesalers, and
distributors. If Franchisee desires to purchase products or services from an
unapproved supplier, Franchisee shall submit to Franchisor a written request to
approve the proposed supplier, together with such information as Franchisor may
reasonably require. Franchisor shall have the right to require that its
representatives be permitted to inspect the supplier's facilities, and that
samples from the supplier be delivered for evaluation and testing either to
Franchisor or to an independent testing facility designated by Franchisor.
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A charge not to exceed the reasonable cost of the evaluation and testing shall
be paid by Franchisee, whether or not the supplier is approved. Within thirty
(30) days after its receipt of Franchisee's request and completion of evaluation
and testing (if required by Franchisor), Franchisor shall notify Franchisee in
writing of its approval or disapproval of the proposed supplier. Approval shall
not be unreasonably withheld. Franchisee shall not purchase, sell, or offer for
sale any products or services of the proposed supplier until Franchisor's
written approval of the proposed supplier is received. Franchisor may revoke its
approval of particular suppliers from time to time if Franchisor determines, in
its sole judgment, that such suppliers or their products or services no longer
meet Franchisor's standards. Upon receipt of written notice of revocation,
Franchisee shall cease to purchase from the disapproved supplier and, in the
case of revocation based on failure of products to meet Franchisor's standards,
Franchisee shall dispose of its remaining inventory of such products as directed
by Franchisor.
8.7 Franchisee shall acquire and install in the Bakery, at Franchisee's
expense, point of sale equipment and software that Franchisor approves in
writing prior to installation and use. Franchisee shall maintain electronic
connection of its point of sale systems with those of Franchisor; shall use the
point of sale systems in accordance with the policies and operational procedures
issued by Franchisor from time to time; shall transmit data to Franchisor or
permit Franchisor to poll Franchisee's systems at the times specified by
Franchisor; shall maintain its point of sale systems in good working order at
all times; and shall ensure that Franchisee's employees are adequately trained
in the use of such systems and the related policies and procedures of
Franchisor. Franchisee shall bear all costs of installation, operation, and
maintenance of the point of sale systems, except for toll charges incurred by
Franchisor in accessing Franchisee's systems.
8.8 In addition to the requirements of Section 8.7, Franchisee shall
acquire and install in the Bakery and any facility in which Franchisee
manufactures bagel dough, at Franchisee's expense, such fixtures, furnishings,
equipment, decor, and signs as Franchisor may reasonably direct from time to
time. Franchisee shall not install or permit to be installed on or about the
Premises, without Franchisor's prior written consent, any fixtures, furnishings,
equipment, decor, signs, or other items not previously approved by Franchisor.
8.9 Franchisee shall permit Franchisor and its agents to enter the Bakery
and any facility in which Franchisee manufactures bagel dough at any time during
normal business hours to conduct inspections; shall cooperate with such
inspections by rendering such assistance as Franchisor's representatives may
reasonably request; and, upon notice from Franchisor or its agents, shall
immediately begin such steps as may be necessary to correct any deficiencies
noted during any such inspection.
8.10 Franchisee shall maintain the Premises (including adjacent public
areas) in a clean, orderly condition and in excellent repair. Franchisee, at its
own expense, shall make such additions, alterations, repairs, and replacement as
may be required for that purpose (but no others without Franchisor's prior
written consent).
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8.11 At Franchisor's request, but not more often than once every five (5)
years, unless sooner required by Franchisee's lease, Franchisee shall refurbish
the Bakery to conform to the then-current design and service system, trade
dress, and color schemes for a new Bakery. Such refurbishment may require
expenditures by Franchisee on, among other things, structural changes,
installation of new equipment, remodeling, redecoration, and modifications to
existing improvements. Franchisor shall consider the useful life of the capital
improvements in developing its standards for regular refurbishment.
8.12 Franchisee shall participate in special promotional activities which
Franchisor may prescribe generally for the System, including but not limited to
an annual "Bruegger's Birthday" promotion, provided that Franchisee shall always
have sole discretion as to the prices charged to its customers. If Franchisor
prescribes any such activities, Franchisee shall bear its own costs of
conducting such activities for the Bakery.
8.13 Franchisee shall not implement any change in the System without the
prior written consent of Franchisor. Franchisee shall notify Franchisor in
writing of any change in the System which Franchisee desires to implement, and
shall provide to Franchisor such information as Franchisor requests regarding
the proposed change. Franchisee acknowledges and agrees that Franchisor shall
have the right to incorporate the change into the System and thereupon obtain
all right, title, and interest of Franchisee therein, without compensation to
Franchisee.
8.14 Franchisee acknowledges that the System may be unilaterally
supplemented, improved, and otherwise modified from time to time by Franchisor.
Franchisee agrees to comply with all reasonable requirements of Franchisor in
that regard, including, without limitation, offering and selling new types of
products or services as specified by Franchisor.
8.15 Franchisee shall comply with all terms of its lease or sublease for
the Premises and all other agreements affecting the operation of the Bakery.
Franchisee shall undertake best efforts to maintain a good working relationship
with its landlord and shall refrain from any activity which may jeopardize
Franchisee's right to remain in possession of, or to renew the lease or sublease
for, the Premises.
8.16 Franchisee shall operate the Bakery in full compliance with all
applicable municipal, county, state and federal laws, rules, regulations and
ordinances, including, without limitation, all government regulations relating
to occupational hazard and health, worker's compensation insurance, unemployment
insurance and withholding and payment of federal and state income taxes, social
security taxes and sales taxes. Within ten (10) days after receipt thereof by
Franchisee, Franchisee shall forward to Franchisor copies of any and all
reports, warnings, notices of violation or other evidence reflecting less than
full compliance by Franchisee with any applicable laws, rules, regulations or
ordinances.
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8.17 Franchisee shall at all times employ a manager who shall devote his or
her full time and best efforts to the operation of the Bakery and who has been
trained in accordance with the provisions of Section 7 of this Agreement.
9. PROPRIETARY MARKS AND COPYRIGHTS
9.1 Franchisor represents that Bruegger's Corporation has granted
Franchisor a license to use, and to license others to use, the Proprietary
Marks; that, subject to any common law rights of others, Franchisor has the
right to license Franchisee to use the Proprietary Marks; and that Franchisor
has taken and will take all steps reasonably necessary to preserve and protect
the validity of the Proprietary Marks and its right to license others to use
them.
9.2 Franchisee acknowledges and agrees that Franchisor or its affiliates
are the owners of certain copyrighted or copyrightable works (the "Copyrights")
and that the Copyrights are valuable property of the Franchisor or its
affiliates. Franchisor authorizes the Franchisee to use the Copyrights on the
condition that Franchisee complies with all of the terms and conditions of this
Section 9.2. Franchisee acknowledges and agrees that the Franchisor may create,
acquire or obtain licenses for certain additional copyrights in various works of
authorship used in connection with the operation of a Bakery, including, but not
limited to, all categories of works eligible for protection under the United
States Copyright law, all of which shall be deemed to be part of the Copyrights,
as that term is defined herein. The Copyrights include, but are not limited to,
the Manuals, advertisements, promotional materials, labels, menus, posters
coupons, gift certificates, signs and store designs, plans and specifications
and may include all or part of the Proprietary Marks or other trade dress used
as part of the System. Franchisee acknowledges that this Agreement does not
confer any interest in the Copyrights on Franchisee, other than the right to use
them in the operation of a Bakery in compliance with the terms of this
Agreement. If Franchisee prepares any adaptation, translation or work derived
from the Copyrights, including, but not limited to, advertisements, promotional
materials, labels, menus or posters, whether or not such adaptation was
authorized by the Franchisor, Franchisee agrees that such material shall be the
property of Franchisor and Franchisee hereby assigns all its right, title and
interest therein to the Franchisor (or a person designated by Franchisor).
Franchisee agrees to execute any documents, in recordable form, which Franchisor
deems necessary to reflect or perfect such ownership. Franchisee shall submit
all such adaptation, translation or derivative works to Franchisor for approval
prior to use.
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9.3 Franchisee agrees that:
9.3.1 Franchisee shall use only the Proprietary Marks and
Copyrights designated by Franchisor and shall use them only in the manner
authorized by Franchisor;
9.3.2 Franchisee shall use the Proprietary Marks and Copyrights only
for the operation of the Bakery and only at the Approved Location or in
advertising for the Bakery;
9.3.3 Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the Bakery only under the name
"BRUEGGER'S BAGELS" or such other name or mark as may be designated by
Franchisor, shall use all Proprietary Marks without prefix or suffix, and shall
not use the Proprietary Marks as part of its corporate or legal name;
9.3.4 Franchisee shall ensure that all advertising and promotional
materials, packaging, signs, decorations, and other items which may be specified
by Franchisor bear the Proprietary Marks in the form, color, size, and location
prescribed by Franchisor;
9.3.5 Franchisee, as directed by Franchisor, shall identify itself
as the owner of the Bakery in conjunction with any use of the Proprietary Marks,
including, but not limited to, on invoices, order forms, receipts, and business
stationery, as well as at such conspicuous locations on the Premises as
Franchisor may designate in writing;
9.3.6 Franchisee's right to use the Proprietary Marks and Copyrights
are limited to such uses as are authorized under this Agreement, and any
unauthorized use shall constitute an infringement of Franchisor's rights and the
rights of Bruegger's Corporation;
9.3.7 Franchisee shall not use the Proprietary Marks to incur any
obligation or indebtedness on behalf of Franchisor or Bruegger's Corporation;
9.3.8 Franchisee shall comply with Franchisor's instructions in
filing and maintaining any requisite trade name or fictitious name
registrations, and shall execute any documents deemed necessary by Franchisor to
obtain protection for the Proprietary Marks and Copyrights or to maintain
their continued validity and enforceability;
9.3.9 During the term of this Agreement and after its expiration or
termination, Franchisee shall not directly or indirectly contest the validity
of, or take any other action which tends to jeopardize the rights of Franchisor
or its affiliates to the ownership of or right to use and to license others to
use the Proprietary Marks; and
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9.3.10 Franchisee shall ensure that the Proprietary Marks and the
Copyrights shall bear the ("R"), "TM","SM" or copyright notice, respectively,
as may be prescribed by the Franchisor from time to time.
9.4 Franchisee acknowledges that:
9.4.1 The Proprietary Marks and Copyrights are valid and serve to
identify the System and those who are authorized to operate under the System;
9.4.2 Franchisee's use of the Proprietary Marks and Copyrights
pursuant to this Agreement does not give Franchisee any ownership interest or
other interest in the Copyrights or Proprietary Marks;
9.4.3 Any and all goodwill arising from Franchisee's use of the
Proprietary Marks and Copyrights shall inure exclusively to the benefit of
Franchisor and Bruegger's Corporation, and upon expiration or termination of
this Agreement, no monetary amount shall be assigned as attributable to any
goodwill associated with Franchisee's use of the System, the Proprietary
Marks, or the Copyrights; and
9.4.4 The license to use the Proprietary Marks and Copyrights
granted hereunder is nonexclusive.
9.5 Franchisee shall promptly notify Franchisor of any unauthorized use of
the Proprietary Marks or Copyrights or any challenge to the validity of the
Proprietary Marks or Copyrights, the ownership by Franchisor or Bruegger's
Corporation of the Proprietary Marks or Copyrights or Franchisor's right to use
and to license others to use, or Franchisee's right to use the Proprietary Marks
or Copyrights. Franchisee acknowledges that Franchisor and Bruegger's
Corporation have the right to direct and control any administrative proceeding
or litigation involving the Proprietary Marks or Copyrights, including any
settlement thereof. Franchisor and Bruegger's Corporation have the right, but
not the obligation, to take action against uses by others that may constitute
infringement of the Proprietary Marks or Copyrights. Franchisor shall defend or
cause the defense of Franchisee against any third-party claim, suit, or demand
arising out of Franchisee's use of the Proprietary Marks or Copyrights.
Franchisor shall bear the cost of such defense (including the cost of any
judgment or settlement) if Franchisee has used the Proprietary Marks or
Copyrights in accordance with this Agreement, but otherwise Franchisee shall
bear the cost of such defense (including the cost of any judgment or
settlement). Franchisee shall execute any and all documents and do such acts as
Franchisor deems necessary to carry out the defense or prosecution of any
litigation involving the Proprietary Marks or Copyrights, including, but not
limited to, becoming a nominal party to any legal action. Except to the extent
that such litigation is the result of Franchisee's use of the Proprietary Marks
or Copyrights in a manner inconsistent with the terms of this Agreement,
Franchisor agrees to reimburse Franchisee for its out-of-pocket costs in doing
such acts.
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9.6 Franchisor reserves the right to modify or require Franchisee to
discontinue use of any of the Proprietary Marks and Copyrights and/or to
substitute different service marks, trademarks or copyrighted
material for use in identifying the System and the businesses operating
thereunder. When required by Franchisor, Franchisee shall promptly discontinue
use of such Proprietary Marks or Copyrights or implement any modification or
substitution of same at Franchisee's sole cost and expense. Franchisor shall
have no obligation or liability to Franchisee as a result of such modification
or substitution.
10. OPERATIONS MANUALS
10.1 Franchisee shall treat the Manuals, the Bagel Production Manual, any
other manuals approved by Franchisor for use in connection with the Bakery, and
all information contained therein as confidential, and shall maintain such
information in strict secrecy. Franchisee shall not copy, duplicate, record, or
otherwise reproduce the foregoing materials, in whole or in part, or otherwise
make them available to any unauthorized person, except as required by law.
10.2 The Manuals and the Bagel Production Manual shall remain the sole
property of Franchisor and shall at all times be kept in a secure place in the
Bakery or, in the case of the Bagel Production Manual, in the facility where
Franchisee manufactures bagel dough.
10.3 Franchisor may from time-to-time revise the contents of the Manuals
and the Bagel Production Manual. Franchisee agrees to update its Manuals and
Bagel Production Manual and to comply with each new or changed standard upon
reasonable notice thereof from Franchisor. In the event of a dispute about the
contents of the Manuals or Bagel Production Manual, the master copies maintained
by Franchisor at its principal offices shall be controlling.
11. CONFIDENTIAL INFORMATION
11.1 Franchisee shall not, during the term of this Agreement or at any
time thereafter, communicate, divulge, or use for the benefit of any other
person or entity any confidential information, knowledge, trade secrets, or
know-how which may be communicated to Franchisee or of which Franchisee may be
apprised by virtue of Franchisee's activities under this Agreement. Franchisee
may divulge such confidential information only: (i) to such of its employees as
must have access to it in order to operate the Bakery; and (ii) to Franchisee's
contractors and the landlord of the Premises with the prior written approval of
Franchisor. All information, knowledge, trade secrets, know-how, techniques, and
other data which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, except information which
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Franchisee can demonstrate came to its attention by lawful means prior to
disclosure thereof by Franchisor, or which, at or after the time of disclosure
by Franchisor to Franchisee, had become or later becomes a part of the public
domain, through publication or communication by others.
11.2 At Franchisor's request, Franchisee shall require its employees,
landlord, contractors, and any other person to whom Franchisee wishes to
disclose any confidential information of Franchisor to execute covenants that
they will maintain the confidentiality of such information. Such covenants shall
be in a form satisfactory to Franchisor, including, without limitation, specific
identification of Franchisor as a third-party beneficiary with the independent
right to enforce the covenants.
12. ACCOUNTING AND RECORDS
12.1 Franchisee shall prepare, and shall preserve for at least three (3)
years from the dates of their preparation, complete and accurate books, records,
and accounts, in accordance with generally accepted accounting principles.
12.2 All Gross Sales and all sales tax and other charges collected on
behalf of third parties shall be recorded by Franchisee in accordance with the
procedures prescribed in the Manuals on such point of sale systems as Franchisor
may specify pursuant to Section 8.7 above.
12.3 Franchisee shall submit to Franchisor, at Franchisee's expense, in
the form prescribed by Franchisor:
12.3.1 By no later than Monday of each week, a complete and accurate
report of Gross Sales for the preceding week, and such other weekly data as
Franchisor may reasonably require;
12.3.2 Within ninety (90) days after the end of each fiscal year of
Franchisee, an income statement showing the results of Franchisee's operations
during such fiscal year and a balance sheet as of the end of such fiscal year,
both of which shall be audited by an independent certified public accountant;
and
12.3.3 Interim unaudited income statements and balance sheets, not
less often than quarterly, within forty-five (45) days after the end of the
period to which the statements relate.
12.4 Franchisor and its designated agents shall have the right to examine
and copy, at Franchisor's expense, on reasonable notice and during normal
business hours, the books, records, accounts, and sales tax returns of
Franchisee. Franchisor shall also have the right, at any time, to have an
independent audit made of the books of Franchisee. If
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an inspection or audit reveals that any payment to Franchisor has been
understated, Franchisee shall immediately pay to Franchisor the amount owed,
together with daily interest from the date such amount was due until paid at the
rate of eighteen percent (18%) per annum or the maximum rate permitted by law,
whichever is less. If an inspection or audit reveals any underpayment by
Franchisee of two percent (2%) or more, Franchisee shall, in addition to payment
of monies owed with interest, reimburse Franchisor for all costs connected with
the inspection or audit (including, without limitation, expenses for travel,
lodging and wages, and reasonable accounting and legal costs). The foregoing
remedies shall be in addition to any other remedies Franchisor may have.
13. ADVERTISING AND PROMOTION
Recognizing the value of advertising and promotion and the importance of
the standardization of advertising and promotion to the furtherance of the
goodwill and public image of the System, the parties agree as follows:
13.1 Franchisee shall contribute weekly to the advertising Fund
established by Franchisor for the System four percent (4%) of the Gross Sales of
the Bakery. The percentage of Gross Sales Franchisee is required to contribute
may be increased, at Franchisor's sole discretion, by up to one quarter of one
percent (.25%) per calendar year during each year of the Agreement Term, but in
no event shall the required contribution during the Agreement Term exceed eight
percent (8%) of Franchisee's Gross Sales. Contributions shall be made by
electronic funds transfer, as specified in Section 5.4. Franchisor shall use all
Fund monies received from Franchisee in any manner consistent with Section 13.3
below. Franchisor, or its affiliates, shall contribute a like percentage for
each Bakery that Franchisor, or its affiliates, operate.
13.2 In addition to its contributions to the Fund, Franchisee shall spend
monthly for local advertising and promotion two percent (2%) of the Gross Sales
of the Bakery. Franchisee expressly acknowledges and agrees that neither all nor
any portion of this required expenditure for local advertising and promotion may
be satisfied by giving away products of any kind. All local advertising and
promotion must be approved by Franchisor pursuant to Section 13.9 below.
13.3 The Franchisor shall direct all advertising, media placement,
marketing and public relations programs and activities financed by the Fund,
with sole discretion over strategic direction, creative concepts, materials and
endorsements used therein, and the geographic, market and media placement and
allocation thereof. Franchisee acknowledges and agrees that the Fund may be used
to pay various costs and expenses as Franchisor may determine in its sole
discretion, including by way of example and without limitation: preparing and
producing video, audio and written advertising materials; interest on borrowed
funds; sponsorship of sporting, charitable, or similar events;
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reasonable salaries and expenses of employees of Franchisor or its affiliates
working for or on behalf of the Fund or on advertising, marketing, public
relations materials, programs, or activities or promotions prepared, planned or
undertaken on behalf of the Fund and administrative costs and overhead of
Franchisor or its affiliates incurred in activities reasonably related to the
administration and activities of the Fund; administering advertising programs,
including, without limitation, purchasing direct mail and other media
advertising and employing advertising agencies to assist therewith; and
supporting public relations, marketing and consumer research and other
advertising, promotional and marketing activities, including testing and test
marketing programs, fulfillment charges, and development and implementation and
testing of trade dress and design prototypes. Franchisee agrees to participate
in all advertising, marketing, promotions, research, and public relations
programs instituted by the Franchisor, whether or not such is paid for by
proceeds from the Fund.
13.4 Franchisee acknowledges that the Fund and all contributions thereto,
and any earnings thereon, shall be used is intended to maximize general public
recognition, acceptance, and use of the System, and that Franchisor is not
obligated, in administering the Fund, to make expenditures for Franchisee which
are equivalent or proportional to Franchisee's contribution, or to ensure that
any particular franchisee benefits directly or pro rata from expenditures by the
--- ----
Fund. Franchisee acknowledges that its failure to derive any such benefit will
not serve as a basis for a reduction or elimination of its obligation to
contribute to the Fund. Franchisee further acknowledges and agrees that the
failure (whether with or without Franchisor's permission) of any other
franchisee to make the appropriate amount of contributions to the Fund shall not
in any way release Franchisee from or reduce Franchisee's obligations under this
Section 13.4, such obligations being separate and independent obligations of
Franchisee under this Agreement. Except as expressly provided in this Section
13.4, Franchisor assumes no direct or indirect liability or obligation to
Franchisee with respect to maintenance, direction, or administration of the
Fund.
13.5 Nothing in this Agreement shall be construed to create a trust or
fiduciary relationship of any kind or nature whatsoever among the parties as it
relates to the Fund or Franchisor's actions with respect thereto including, but
not limited to, collection of payments, maintenance of the bank account,
bookkeeping, and disbursement of monies from the Fund.
13.6 In addition to its contributions to the Fund and the required monthly
expenditure for local advertising and promotion, Franchisee shall conduct grand
opening marketing activities pursuant to the then current grand opening
marketing plan prescribed by Franchisor. Franchisor may require Franchisee to
expend up to Fifteen Thousand Dollars ($15,000) to conduct such grand opening
marketing activities.
13.7 Franchisor shall have the right, in its sole discretion, to designate
geographic areas for purposes of establishing local or regional advertising
cooperatives ("Cooperatives"). If the Bakery is within the territory of an
existing Cooperative at the
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time the Bakery opens for business, Franchisee shall immediately begin
participating in the Cooperative comprised of the Bakeries located within such
geographic area. If a Cooperative applicable to the Bakery is established during
the term of this Agreement, Franchisee shall begin participating no later than
thirty (30) days after the date approved by Franchisor for the Cooperative to
commence operation. In no event shall more than one Cooperative be applicable to
the Bakery. Franchisor (or its affiliate, as the case may be,) shall become a
member in any Cooperatives established for a geographic region that includes a
Bakery owned by Franchisor (or its affiliate). The following provisions shall
apply to each Cooperative:
13.7.1 Each Cooperative shall be organized and governed in a form
and manner, and shall commence operations on a date, approved in advance by
Franchisor in writing. Franchisor reserves the right to change, in its sole
discretion, the form and manner of the organization and governance of any
Cooperative and Franchisee hereby agrees to implement any such change
immediately upon notice from Franchisor. No changes in the bylaws or other
governing documents of a Cooperative shall be made without Franchisor's prior
written consent.
13.7.2 Each Cooperative shall be organized for the exclusive
purpose of administering regional advertising programs and developing, subject
to Franchisor's approval, promotional materials for use by the members in local
advertising.
13.7.3 No advertising or promotional plans or materials may be used
by a Coopeerative or furnished to its members without prior approval of
Franchisor pursuant to Section 13.8 below.
13.7.4 Franchisee and each other member of the Cooperative shall
contribute every fourth Monday to the Cooperative, commencing with the first
Monday after the Cooperative commences operations, all or any portion of the
local advertising expenditure required pursuant to Section 13.2 above, as
determined by the membership. Said amount may not exceed two percent (2%) of the
Gross Sales of each Bakery operated by the members unless approved by a
unanimous vote of eligible members. Franchisee's obligation to make local
advertising expenditures under Section 13.2 above shall be reduced by the amount
of Franchisee's contributions to the Cooperative. Each required contribution
shall be based on Gross Sales for the preceding four week period, and shall be
submitted together with such statements or reports as may be required by
Franchisor, or by the Cooperative with Franchisor's prior written approval.
13.7.5 Franchisor, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, and/or from the obligation to contribute thereto
(including a reduction, deferral or waiver of such contribution), upon written
request of such franchisee stating sufficient reasons to support such exemption.
Franchisor's decision concerning any request for exemption shall be final. If an
exemption is granted to a franchisee, the franchisee shall be required
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to spend on local advertising the amount the franchisee otherwise would have
been required to contribute to the Cooperative.
13.7.6 Franchisor and its designated agents shall have the right to
examine and copy, at Franchisor's expense, on reasonable notice and during
normal business hours, the books, records, and accounts of any Cooperative.
Franchisor shall also have the right, at any time, to have an independent audit
made of the books of any Cooperative.
13.8 All advertising and promotion by Franchisee and by Cooperatives shall
be in such media and of such type and format as Franchisor may approve, shall be
conducted in a dignified manner, and shall conform to such standards and
requirements as Franchisor may specify. Franchisee or the Cooperative shall
submit written samples of all proposed advertising and promotional plans and
materials to Franchisor for its approval (except with respect to prices to be
charged) at least thirty (30) days before their intended use, unless such plans
and materials were prepared by Franchisor or have been approved by Franchisor
within the last twelve (12) months. Proposed advertising plans or materials
shall be deemed to have been approved if they have not been disapproved by
Franchisor within fifteen (15) days after their receipt by Franchisor.
13.9 At Franchisor's request, Franchisee shall furnish Franchisor with
copies of invoices and other appropriate documentation of Franchisee's
compliance with Sections 13.2 and 13.6 above.
13.10 Franchisee, at its own expense, shall obtain listings in the white
pages and yellow pages of local telephone directories. Franchisee acknowledges
that any expense incurred with respect to obtaining such listings shall be in
addition to, and not in lieu of, any other expenditures required to be made
pursuant to this Section 13.
14. INSURANCE
14.1 Before commencing any activities under this Agreement, Franchisee
shall procure, and thereafter shall maintain in full force and effect at all
times during the term of this Agreement, at Franchisee's expense, an insurance
policy or policies protecting Franchisee, Franchisor, Franchisor's affiliates,
and their respective officers, directors, shareholders, and employees against
any demand or claim with respect to personal injury, death, or property damage,
or any loss, liability, or expense whatsoever arising or occurring at or in
connection with the Bakery or any bagel dough manufacturing site, including, but
not limited to, comprehensive general liability insurance, property and casualty
insurance, statutory workers' compensation insurance, employer's liability
insurance, product liability insurance, and business interruption insurance.
Such policy or policies shall be written by a responsible carrier or carriers
acceptable to Franchisor,
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shall name Franchisor as an additional insured as specified by Franchisor, and
shall provide at least the types and minimum amounts of coverage specified in
the Manuals.
14.2 Franchisee's obligation to obtain and maintain the policy or policies
in the amounts specified in the Manuals shall not be limited in any way by
reason of any insurance which may be maintained by Franchisor, nor shall
Franchisee's performance of that obligation relieve it of liability under the
indemnity in Section 21.2 of this Agreement.
14.3 All public liability and property damage policies shall contain a
provision that Franchisor, although named as an insured, shall nevertheless be
entitled to recover under such policies on any loss occasioned to Franchisor or
its servants, agents, or employees by reason of the negligence of Franchisee or
its servants, agents, or employees.
14.4 Before commencing any operations under this Agreement, and thereafter
at least thirty (30) days prior to the expiration of any policy, Franchisee
shall deliver to Franchisor certificates of insurance evidencing the proper
types and at least the minimum amounts of coverage specified in the Manuals. All
such certificates shall expressly provide that no less than thirty (30) days'
prior written notice shall be given Franchisor in the event of material
alteration to or cancellation of the coverage evidenced by such certificates.
14.5 Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as such requirements may be revised from
time to time by Franchisor in the Manuals or otherwise in writing, Franchisor
shall have the right (but not the obligation) to procure such insurance and to
charge its cost to Franchisee, which charges, together with a reasonable fee for
Franchisor's services, shall be payable by Franchisee immediately upon demand.
The foregoing remedies shall be in addition to any other remedies Franchisor may
have.
15. TRANSFER OF INTEREST
15.1 Franchisor shall have the right to transfer or assign this Agreement
or any part of its rights or obligations under this Agreement to any person or
legal entity. Franchisee agrees that Franchisor shall have no liability after
the effective date of such transfer or assignment for the performance of any
obligations hereunder.
15.2 Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Franchisee and that Franchisor has
granted these rights in reliance on the business skill, financial capacity, and
personal character of Franchisee's present owners and management. Accordingly,
except as provided below in Section 15.3 and 15.4, neither Franchisee nor any
immediate or remote successor to any
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part of Franchisee's interest in this Agreement, nor any individual,
partnership, corporation, or other legal entity which directly or indirectly
owns any interest in Franchisee, shall, without the prior express written
consent of Franchisor: (i) sell, assign, transfer, convey, pledge, encumber or
give away any direct or indirect interest in this Agreement or itself, or in all
or substantially all of the assets of the Franchisee; or (ii) offer or sell
securities of itself.
15.3 Subject to Franchisor's right of first refusal under Section 15.5, the
executor or personal representative of a person with an interest in Franchisee
may transfer his or her interest to a third party approved by Franchisor within
a reasonable time after the date of such person's death or declaration of such
persons mental incapacity. In the case of transfer by bequest, if the
beneficiaries are unable to meet the conditions of this Section 15, the executor
may transfer the decedent's interest to another party approved by Franchisor,
subject to all of the terms and conditions for transfers contained in this
Agreement. If an interest is not disposed of under this Section 15.3 within two
(2) years from the date of death or declaration of mental incapacity, Franchisor
may terminate this Agreement pursuant to Section 16.2.6 below.
15.4 Subject to Franchisor's right of first refusal under Section 15.5, if
Franchisee is an entity, then the owner or owners of the equity of Franchisee
may, without Franchisor's prior written consent, sell, assign, transfer or give
away to employees of Franchisee during the Agreement Term, an aggregated amount
of not more than twenty percent (20%) of the outstanding equity of the
Franchisee, provided: (i) Franchisor receives written notice of such transfer
not later than thirty (30) days prior to the transfer, which notice shall
identify the transferee, describe the transferee's position of employment, and
include a calculation demonstrating that the planned transfer complies with this
Section 15.4; and (ii) such transfer, when combined with all prior transfers of
the equity of Franchisee, does not result in a transfer of more than twenty
percent (20%) of the outstanding equity of Franchisee.
15.5 Franchisor shall have the right, exercisable within thirty (30) days
after receipt of a written request for approval of a proposed transfer pursuant
to this Section 15, to purchase the interest proposed to be transferred. The
request for approval of transfer must include a true and complete copy of the
proposed purchase agreement and any ancillary agreements and not be subject to
financing or any other contingencies. Franchisor's thirty (30) day period for
determining whether or not to exercise its right of first refusal shall not
commence until transferor has provided all information and documentation
required hereunder in a form and substance satisfactory to Franchisor. If
Franchisor desires to exercise its right of first refusal, it shall do so by
providing written notice (the "Purchase Notice") to transferor that it intends
to purchase the interest on the same terms and conditions offered by the third
party. Closing on such purchase shall occur within sixty (60) days after the
date of transferor's receipt of the Purchase Notice. If the consideration,
terms, and/or conditions offered by the third party are such that Franchisor may
not reasonably be required to furnish the same consideration, terms, and/or
conditions, then Franchisor may purchase the interest proposed to be sold for
the
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reasonable equivalent in cash. If the parties cannot agree within thirty (30)
days of transferor's receipt of the Purchase Notice on the reasonable equivalent
in cash, an independent appraiser shall be designated by Franchisor at
Franchisor's expense, and the appraiser's determination shall be binding. Any
material change in the terms of the offer from a third party after Franchisor
has elected not to purchase the interest sought to be transferred shall
constitute a new offer subject to the same rights of first refusal by Franchisor
as in the case of the third party's initial offer.
15.6 If Franchisor elects not to exercise its right of first refusal under
Section 15.5, the proposed transferor may complete the transfer after obtaining
Franchisor's written consent as required under Section 15.2. In any event,
Franchisor's consent to any transfer shall be contingent on certain conditions
which shall be determined in Franchisor's sole discretion. The conditions may
include, but shall not be limited to, the following:
15.6.1 That all of Franchisee's accrued monetary obligations and
all other outstanding obligations to Franchisor and its affiliates have been
satisfied;
15.6.2 That Franchisee is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor or its affiliates or any Franchise Agreement
executed pursuant to this Agreement;
15.6.3 The transferee (or, if the transferee is a corporation or
partnership, such owners of a beneficial interest in the transferee as
Franchisor may request) shall demonstrate to Franchisor's satisfaction that it
meets Franchisor's educational, managerial, and business standards; possesses a
good moral character, business reputation, and credit rating; has the aptitude
and ability to conduct the business contemplated hereunder (as may be evidenced
by prior related business experience or otherwise); and has adequate financial
resources and capital to complete fulfill its obligations hereunder in a timely
manner;
15.6.4 That the transferee enter into a written assignment, in a
form satisfactory to Franchisor, assuming and agreeing to discharge all of
Franchisee's obligations under this Agreement;
15.6.5 That the transferor execute a general release, in a form
satisfactory to Franchisor, of any and all claims against Franchisor, its
affiliates and their respective officers, directors, shareholders, and
employees, in their corporate and individual capacities;
15.6.6 That employees of the Franchisee who have not previously
completed a training program approved by Franchisor, at the Franchisee's
expense, complete any training programs then in effect for new Bruegger's Fresh
Bagel Bakery franchisees;
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15.6.7 That transferor pay a transfer fee of Five Thousand Dollars
($5,000) plus Franchisor's actual expenses for outside services associated with
reviewing the application to transfer, including, but not limited to, reasonable
attorneys' fees; and
15.6.8 That the price and terms of the proposed transfer are not so
burdensome as to adversely affect or have a potentially adverse affect on the
Franchisor's rights and interest under this Agreement.
15.7 Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor may have against the transferring party, nor shall it be
deemed a waiver of Franchisor's right to demand exact compliance by the
transferor, transferee or Franchisee with any of the terms of this Agreement by
the transferor or transferee.
16. DEFAULT AND TERMINATION
16.1 Franchisee shall be deemed to be in default under this Agreement, and
all rights granted to Franchisee herein shall automatically terminate without
notice to Franchisee, if Franchisee becomes insolvent or makes a general
assignment for the benefit of creditors; if a petition in bankruptcy is filed by
Franchisee or is filed against and not opposed by Franchisee; if Franchisee is
adjudicated a bankrupt or insolvent; if a bill in equity or other proceeding for
the appointment of a receiver of Franchisee or other custodian for Franchisee's
business or assets is filed and consented to by Franchisee; if a receiver or
other custodian (permanent or temporary) of Franchisee's assets or property, or
any part thereof, is appointed by any court of competent jurisdiction; if
proceedings for a composition with creditors under any state or federal law are
instituted by or against Franchisee; if a final judgment against Franchisee
remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); if Franchisee is dissolved; if execution is levied
against Franchisee's business or property; if suit to foreclose any lien or
mortgage against the Premises or equipment of the Bakery is instituted against
Franchisee and not dismissed within thirty (30) days; or if the real or personal
property of the Bakery is sold after levy thereupon by any sheriff, marshal, or
constable.
16.2 If any of the following events of default occurs, Franchisor, at its
option, may terminate this Agreement without affording Franchisee any
opportunity to cure the default, effective immediately upon receipt of written
notice by Franchisee:
16.2.1 If Franchisee fails to construct and open the Bakery within
the time specified in Section 65.5 of this Agreement;
16.2.2 If Franchisee at any time ceases to operate or otherwise
abandons the Bakery, loses the right to possession of the Premises, or otherwise
forfeits the right to do or transact business in the jurisdiction where the
Bakery is located. However, if,
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through no fault of Franchisee, the Premises are damaged or destroyed by an
event such that repairs or reconstruction cannot be completed within sixty (60)
days thereafter, then Franchisee shall have thirty (30) days after the event in
which to apply for Franchisor's approval to relocate and/or reconstruct the
Bakery, which approval shall not be unreasonably withheld;
16.2.3 If Franchisee or any principal officer of Franchisee is
convicted of a felony, a crime involving moral turpitude, or any other crime or
offense that Franchisor believes is reasonably likely to have an adverse effect
on the System, the Proprietary Marks, the goodwill associated therewith, or
Franchisor's interest therein;
16.2.4 If a threat or danger to public health or safety results
from the construction, maintenance, or operation of the Bakery or any facility
in which Franchisee manufactures bagel dough and the Franchisee knew or should
have known of the threat or danger to public health or safety resulting from the
construction, maintenance, or operation of the Bakery;
16.2.5 If any person or entity with an interest referred to in
Section 15 purports to transfer such interest other than in accordance with
Section 15;
16.2.6 If an approved transfer is not effected within two (2) years
following death or mental incapacity, as required by Section 15, or if any
transfer by intestate succession is made to an heir who is unable to meet the
conditions of Section 15;
16.2.7 If Franchisee fails to comply with the covenants in Section
18.1 below;
16.2.8 If Franchisee discloses or divulges any contents of the
Manuals, the Bagel Production Manual, or other confidential information of
Franchisor, except as permitted under Section 11 hereof;
16.2.9 If Franchisee knowingly maintains false books or records or
knowingly submits any false reports to Franchisor;
16.2.10 If Franchisee refuses to permit Franchisor to inspect the
premises, books, records, or accounts of the Bakery or of any facility in which
Franchisee manufactures bagel dough, as provided herein;
16.2.11 If Franchisee, after curing a default pursuant to Section
16.4 hereof, commits the same default again within one (1) year, whether or not
cured after notice;
16.2.12 If Franchisee is in default under Section 16.4 three (3)
times within any twelve-month period, whether such defaults are of a similar or
different nature and whether or not any of them is cured after notice; or
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16.2.13 If Franchisor has delivered to Franchisee a final notice of
termination for any Unit Franchise Agreement, the Development Agreement or any
other agreement between Franchisor (or any of its affiliates) and Franchisee
(except for termination due to a permanent closing of a Bakery with Franchisor's
prior written consent).
16.3 If Franchisee fails, refuses, or neglects to pay any monies owing
to Franchisor or its affiliates, or fails to submit financial or other
information required under this Agreement, within seven (7) days after receipt
of notice of default from Franchisor, this Agreement shall terminate at the end
of such seven-day period without further notice from Franchisor.
16.4 Except as provided in Sections 16.1 through 16.3, Franchisor may
terminate this Agreement only in the event of a default by Franchisee, and only
by giving Franchisee written notice of termination stating the nature of the
default at least thirty (30) days prior to the effective date of termination. If
the default is not cured to Franchisor's reasonable satisfaction within the
thirty (30) day period (or such longer period as applicable law may require or
as shall be required to complete the cure, provided such cure shall be commenced
within said thirty (30) day period, and such cure is diligently prosecuted to
completion), this Agreement shall terminate without further notice to
Franchisee, effective at the end of such cure period. Any material failure to
comply with the requirements imposed by this Agreement (as it may from time to
time reasonably be supplemented by the Manuals) shall be a default under this
Section 16.4 including, but not limited to, the following events:
16.4.1 If Franchisee sells any unapproved products or otherwise
fails to maintain or observe any of the standards or procedures prescribed by
Franchisor in this Agreement, the Manuals, or otherwise in writing;
16.4.2 If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks, Copyrights or any other identifying characteristics of the
System, or otherwise materially impairs the goodwill associated therewith or
Franchisor's rights therein; or
16.4.3 If Franchisee fails, refuses, or neglects to obtain
Franchisor's prior written approval or consent as required by this Agreement
(other than consent to a transfer under Section 15, the breach of which is
addressed in Section 16.2.5).
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17. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall immediately terminate, and:
17.1 Franchisee shall immediately cease to operate the Bakery; shall
not thereafter, directly or indirectly, represent itself to the public or hold
itself out as a present or former franchisee of Franchisor; and, if applicable,
shall immediately cease production of any bagel dough using trade secrets or
know-how furnished by Franchisor.
17.2 Franchisee shall immediately and permanently cease to use in any
manner whatsoever the confidential methods, procedures, and techniques
associated with the System; the "BRUEGGER'S" mark; the "BRUEGGER'S BAGELS" name;
and all other Copyrights and Proprietary Marks, distinctive forms, slogans,
signs, symbols, and devices associated with the System.
17.3 Franchisee shall take such action as may be necessary to cancel any
assumed name registration or equivalent registration obtained by Franchisee
which contains the name "BRUEGGER'S" or any other Proprietary Marks, and shall
furnish evidence satisfactory to Franchisor of compliance with this obligation
within five (5) days after termination or expiration of this Agreement.
Franchisee hereby appoints Franchisor its attorney-in-fact to carry out the
requirements of this Section 17.3, if Franchisee fails to do so within such five
(5) day period.
17.4 At Franchisor's option, Franchisee shall assign to Franchisor
Franchisee's interest in the lease or sublease for the Premises and, also at
Franchisor's option, Franchisee's interest in the lease or sublease for the
property in which Franchisee manufactures bagel dough. If Franchisor elects not
to exercise its option to acquire either or both of such leases or subleases,
Franchisee shall make such modifications or alterations to the Premises and
bagel dough manufacturing site (including, without limitation, changing or
assigning the telephone number to Franchisor) immediately upon termination or
expiration of this Agreement as may be necessary to distinguish the Premises and
bagel dough manufacturing site from those of a Bakery or related facility, and
shall make such specific additional changes as Franchisor may reasonably request
for that purpose. If Franchisee fails or refuses to comply with the requirements
of this Section 17.4, Franchisor shall have the right to enter the Premises and
bagel dough manufacturing site, without being guilty of trespass or any other
tort, for the purpose of making or causing to be made such changes as may be
required, at the expense of Franchisee, which expense Franchisee agrees to pay
on demand.
17.5 Franchisee shall not use any reproduction, counterfeit, copy, or
colorable imitation of the Proprietary Marks, or the Copyrights, either in
connection with such other business or the promotion thereof, which in
Franchisor's sole discretion is likely to cause confusion, mistake, or deception
or to dilute Franchisor's rights in and to the Proprietary Marks or Copyrights.
Franchisee shall not use any designation of origin or
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description or representation which, in Franchisor's sole discretion, falsely
suggests or represents an association or connection with Franchisor.
17.6 Franchisee shall promptly pay all sums owing to Franchisor and its
affiliates. In the event of termination for default by Franchisee, such sums
shall include all damages, costs, and expenses incurred by Franchisor as a
result of the default, including, but not limited to, reasonable attorneys'
fees.
17.7 Franchisee shall pay to Franchisor all damages, costs, and expenses
(including, but not limited to, reasonable attorneys' fees) incurred by
Franchisor subsequent to the termination or expiration of this Agreement in
obtaining injunctive or other relief for the enforcement of any provisions of
this Section 17.
17.8 Franchisee shall immediately deliver to Franchisor the Manuals, the
Bagel Production Manual, and all other records, correspondence, and instructions
containing confidential information relating to the System or the operation of a
Bakery, all of which are acknowledged to be the property of Franchisor.
17.9 Franchisor shall have the right, exercisable by written notice
within thirty (30) days after expiration or termination, but not the obligation,
to purchase from Franchisee any or all of the furnishings, equipment, signs, and
fixtures of the Bakery and of the facility in which Franchisee manufactures
bagel dough, if any, at fair market value or at Franchisee's depreciated book
value based upon a seven (7) year straight line depreciation schedule, whichever
is less, and to purchase any or all inventory and supplies of the Bakery at fair
market wholesale value. If the parties cannot agree on the price of any such
items within a reasonable time, an independent appraiser shall be appointed by
Franchisor at Franchisor's expense, and the appraiser's determination shall be
binding on both parties. If Franchisor exercises any option to purchase provided
herein, Franchisor shall have the right to set off all amounts due from
Franchisee against any payment.
17.10 Franchisee shall comply with the post-term covenants contained in
Section 18.2 of this Agreement.
18. COVENANTS
18.1 Franchisee specifically acknowledges that Franchisee will receive
vaulable, specialized training and confidential information regarding the
manufacturing, operational, sales, promotional, and marketing methods and
techniques of Franchisor and the System. Franchisee covenants that, during the
term of this Agreement, except as otherwise approved in writing by Franchisor,
Franchisor shall not, either directly or indirectly, for itself or through, on
behalf of, of in conjunction with any person or legal entity:
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18.1.1 Divert or attempt to divert any present or prospective
business or customer 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 the Proprietary Marks and the
System;
18.1.2 Employ or seek to employ any person who is at that time
employed by Franchisor, or who has been employed by Franchisor within the
preceding three (3) months, or otherwise directly or indirectly induce such
person to leave his or her employment with Franchisor; or
18.1.3 Own, maintain, operate, engage in, be employed by, provide
any assistance to, or have any interest in any other business whose sales of
fresh or packaged bagels and cream cheese are more than five percent (5%) of its
total sales by annual dollar volume, except pursuant to another Franchise
Agreement with Franchisor.
18.2 Franchisee covenants that, except pursuant to another Franchise
Agreement with Franchisor, or as otherwise approved in writing by Franchisor,
Franchisee shall not, for two (2) years after the expiration or termination of
this Agreement or the approved transfer of this Agreement to a new franchisee,
either directly or indirectly, for itself or through, on behalf of, or in
conjunction with any person or legal entity, own, maintain, operate, engage in,
be employed by, provide assistance to, or have any interest in any business
whose sales of bagels and cream cheese are more than five percent (5%) of its
total sales by annual dollar volume, and which is, or is intended to be, located
(i) within ten (10) miles of the Approved Location, or (ii) within five (5)
miles of any other Bakery.
18.3 Sections 18.1.3 and 18.2 shall not apply to ownership by Franchisee
of less than five percent (5%) beneficial interest in the outstanding equity
securities of any publicly-held corporation.
18.4 Franchisor shall have the right, in its sole discretion, to
reduce the scope of any covenant set forth in Sections 18.1 and 18.2,
or any portion thereof, without Franchisee's consent, effective immediately upon
receipt by Franchisee of written notice thereof. Franchisee agrees to comply
with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 24 hereof.
18.5 Franchisee agrees that the existence of any claims it 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 18. Franchisee agrees to pay all costs and expenses incurred by
Franchisor in enforcing this Section 18, including, but not limited to
reasonable attorneys' fees.
18.6 Franchisee acknowledges that Franchisee's violation of the terms of
this Section 18 would result in irreparable injury to Franchisor for which no
adequate remedy
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at law may be available, and Franchisee accordingly consents to the issuance of
an injunction prohibiting any conduct by Franchisee in violation of the terms of
this Section 18. Such injunctive relief shall be in addition to any other
remedies Franchisor may have.
18.7 At Franchisor's request, Franchisee shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 18 (including covenants applicable upon the termination of a person's
relationship with Franchisee) from any or all of the following persons: (i) all
personnel employed by Franchisee who have received or will receive training from
Franchisor; and (ii) all officers, directors, and holders of a direct or
indirect beneficial interest of five percent (5%) or more of the securities of
Franchisee. Each covenant required by this Section 18.7 shall be in a form
approved by Franchisor, including, without limitation, specific identification
of Franchisor as a third party beneficiary with the independent right to enforce
the covenant.
19. ORGANIZATION OF FRANCHISEE
19.1 If Franchisee is a corporation, Franchisee shall comply with the
following requirements:
19.1.1 Franchisee's charter shall at all times provide that its activities
are confined exclusively to developing and operating Bakeries.
19.1.2 Franchisee shall promptly furnish to Franchisor copies
of its articles of incorporation, bylaws, and other governing documents, and any
amendments thereto, including the resolution of Franchisee's board of directors
authorizing entry into this Agreement.
19.1.3 Franchisee shall maintain stop-transfer instructions
against the transfer on its records of any equity securities. Each stock
certificate of Franchisee shall conspicuously display on its face the following
printed legend:
The transfer of ownership of shares represented
by this certificate is subject to the terms and
conditions of an Agreement with Bruegger's
Franchise Corporation. Reference is made to the
provisions of the Agreement and to the Articles
and Bylaws of the Corporation.
19.1.4 Franchisee shall maintain a current list of all owners
of record and all beneficial owners of any class of voting securities of
Franchisee and shall furnish the list to Franchisor upon request.
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19.2 If Franchisee is a partnership, Franchisee shall comply with the
following requirements:
19.2.1 Franchisee shall furnish Franchisor with a copy of its
partnership agreement and such other governing documents as Franchisor may
reasonably request, and any amendments thereto;
19.2.2 Franchisee shall include in its partnership certificate,
if any, filed with the state in which Franchisee was formed a statement that the
transfer of ownership of a partnership interest is subject to the terms and
conditions of an Agreement with Bruegger's Franchise Corporation; and.
19.2.3 Franchisee shall prepare and furnish to Franchisor
from time to time, upon request, a list of all general and limited partners in
Franchisee.
19.3 If Franchisee is a limited liability company, Franchisee shall
comply with the following requirements during the term of this Agreement:
19.3.1 Franchisee shall furnish Franchisor with a copy of its
Certificate of Formation, limited liability company operating agreement, and any
other entity governing documents as Franchisor might reasonably request, and any
amendments thereto;
19.3.2 Franchisee shall confine its activities, and its governing
documents shall at all times provide that its activities are confined,
exclusively to the development and operation of the Bakeries to be developed
hereunder;
19.3.3 Franchisee's limited liability company operating
agreement shall include provisions that state that the transfer of shares is
subject to the terms and conditions of an Agreement with Bruegger's Franchise
Corporation; and
19.3.4 Franchisee shall prepare and furnish to Franchisor, upon
request, a list of all members of Franchisee.
20. TAXES, PERMITS, AND INDEBTEDNESS
20.1 Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in the
operation of the Bakery. Franchisee shall pay to Franchisor an amount equal to
any sales tax, gross receipts tax, or similar tax (other than income tax)
imposed on Franchisor with respect to any payments to Franchisor required under
this Agreement.
20.2 In the event of any bona fide dispute as to Franchisee's liability
for taxes assessed or other indebtedness, Franchisee may contest the validity or
the amount of the
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tax or indebtedness in accordance with procedures of the taxing authority or
applicable law, but in no event shall Franchisee permit a tax sale or seizure by
levy or execution or similar writ or warrant, or attachment by a creditor, to
occur against the Bakery.
20.3 Franchisee shall comply with all federal, state, and local laws,
rules, and regulations and shall timely obtain any and all permits,
certificates, or licenses necessary for the proper conduct of the Bakery,
including, without limitation, licenses to do business, fictitious name
registrations, sales tax permits, and fire clearances.
20.4 Franchisee shall immediately notify Franchisor in writing of the
commencement of any action, suit, or proceeding and of the issuance of any
order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality which may adversely affect the operation or
financial condition of the Bakery.
21. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
21.1 It is understood and agreed by the parties that this Agreement does
not create a fiduciary relationship between them, that Franchisee shall be an
independent contractor, and that nothing in this Agreement is intended to make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. During
the term of this Agreement, Franchisee shall hold itself out to the public as an
independent contractor operating the Bakery pursuant to a franchise agreement
from Franchisor. Franchisee agrees to take such action as may be necessary to do
so, including, without limitation, exhibiting a notice, the content of which
Franchisor reserves the right to specify, in a conspicuous place at the
Premises.
21.2 Nothing in this Agreement authorizes Franchisee to make any contract,
agreement, warranty, or representation on Franchisor's behalf or to incur any
debt or other obligation in Franchisor's name. Franchisor shall in no event
assume liability for or be deemed liable as a result of any such action, nor
shall Franchisor be liable by reason of any act or omission of Franchisee in its
operation of the Bakery, or for any claim or judgment arising therefrom against
Franchisee or Franchisor. Franchisee shall hold harmless and indemnify
Franchisor, its affiliates, and their respective officers, directors, and
employees against any claims, losses, costs, expenses, liabilities, and damages
arising directly or indirectly from, as a result of, or in connection with
Franchisee's operation of the Bakery, as well as the costs of defending against
such claims (including reasonable attorneys' fees).
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22. APPROVALS AND WAIVERS
22.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent must be obtained in writing and signed by
an officer of Franchisor.
22.2 Franchisor makes no warranties or guarantees upon which Franchisee
may rely and assumes no liability or obligation to Franchisee by providing any
waiver, approval, consent, or suggestion to Franchisee in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
22.3 No delay or failure of Franchisor to exercise any right under this
Agreement or to insist upon strict compliance by Franchisee with any obligation
or condition hereunder, and no custom or practice of the parties at variance
with the terms hereof, shall constitute a waiver of Franchisor's right to
exercise such right or to demand exact compliance by Franchisee with any of the
terms hereof. Waiver by Franchisor of any particular default of Franchisee shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same, similar, or a different nature. 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 Franchisee of any of the terms, covenants,
or conditions of this Agreement.
23. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or sent by other means which
affords the sender evidence of delivery or attempted delivery, to the respective
parties at the following addresses unless and until a different address has been
designated by written notice to the other party:
Notices to Franchisor: Bruegger's Franchise Corporation
3820 Edison Lakes Parkway
Mishawaka, IN 46545
Attn: President
With a copy to: Bruegger's Franchise Corporation
3820 Edison Lakes Parkway
Mishawaka, IN 46545
Attn: General Counsel
Notices to Franchisee: All notices to be sent to the Franchisee at the
address set forth on page 1 of this Agreement
Attn: Manager
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Any notice by a means which affords the sender evidence of delivery or attempted
delivery shall be deemed to have been given and received at the date and time of
receipt or attempted delivery.
24. ENTIRE AGREEMENT
This Agreement and the documents referred to herein constitute the entire
Agreement between Franchisor and Franchisee concerning the subject matter hereof
and supersede all prior agreements, negotiations, representations, and
correspondence concerning the same subject matter. Except for those permitted
to be made unilaterally by Franchisor hereunder, no amendment, change, or
variance from this Agreement shall be binding on either party unless agreed to
by the parties in a writing executed by their authorized officers or agents.
25. SEVERABILITY AND CONSTRUCTION
25.1 If, for any reason, any provision of this Agreement is determined to
be invalid or in conflict with any existing or future law or regulation by a
court or agency having valid jurisdiction, such invalidity shall not impair the
operation of or have any other effect upon such other provisions as may remain
otherwise intelligible. The latter shall continue to be given full force and
effect, and the invalid provisions shall be deemed not to be a part of this
Agreement.
25.2 All covenants and obligations which expressly or by reasonable
implication are to be performed, in whole or in part, after the expiration or
termination of this Agreement shall survive such expiration or termination.
25.3 Except as explicitly provided to the contrary herein, nothing in this
Agreement is intended or shall be deemed to confer upon any person or legal
entity other than Franchisee, Franchisor, Franchisor's officers, directors, and
employees, and such of Franchisor's and Franchisee's successors and assigns as
may be contemplated by Section 14 hereof, any rights or remedies under or by
reason of this Agreement.
25.4 Franchisee agrees 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 (i) striking from any provision of this
Agreement any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final decision to which Franchisor is a party, or (ii) reducing the scope of any
promise or covenant to the extent required to comply with such a court or agency
order.
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26. APPLICABLE LAW; ARBITRATION
26.1 This Agreement shall be governed by the laws of the state in which
Franchisor has its principal place of business from time to time. In the event
of any conflict of law, the laws of such state shall prevail, without regard to
the application of such state's conflict-of-law rules.
26.2 Except as provided in Sections 26.3 and 26.9, any claim or
controversy arising out of or related to this Agreement (including but not
limited to any claim that the Agreement or any of its provisions is invalid,
illegal, or otherwise voidable or void), the relationship between Franchisor and
Franchisee, or Franchisee's operation of the Bakery shall be submitted to
arbitration pursuant to the then-prevailing rules of the American Arbitration
Association, except as such rules may be modified by the following:
26.2.1 Franchisor and Franchisee shall each select one arbitrator.
The arbitrators selected by Franchisor and Franchisee shall jointly select a
neutral third arbitrator, who shall chair the panel and shall be an attorney in
good standing with substantial expertise and experience in commercial disputes
involving franchising or trade regulation.
26.2.2 The arbitrators shall determine, consistent with the
parties' objectives to avoid undue expense and delay, the types, amount, and
timing of discovery to be provided by the parties.
26.2.3 The arbitrators shall not entertain or permit any class or
consolidated proceeding.
26.2.4 The arbitrators' fees shall be borne equally by the parties.
Except as provided in Section 26.2.5, all other costs and expenses in
connection with the arbitration shall be borne by the party who incurs such
expense or who requests a service (such as, but not limited to, a transcript of
the arbitration proceeding).
26.2.5 The decision of a majority of the arbitrators shall be final
and binding on the parties, and the arbitrators' award shall be the exclusive
remedy between the parties with respect to all claims, counterclaims, and issues
presented or pled to the panel. The arbitrators may award injunctive relief as
well as damages, but they shall have no authority to award punitive or exemplary
damages. Any monetary award shall be paid promptly, without deduction or offset.
Judgment upon the award may be entered in any court having jurisdiction thereof.
If the award is upheld by a court of competent jurisdiction in a proceeding by
either party to enforce the award or to challenge the award, the party
challenging the award or resisting its enforcement shall pay, to the extent
permitted by law, all reasonable costs, legal fees, and expenses incurred by the
party defending the award or seeking its enforcement.
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26.2.6 The decision of the arbitrators shall have no collateral
estoppel effect with respect to any person or entity who is not a party to the
arbitration proceeding.
26.3 Unless otherwise agreed by Franchisor and Franchisee at the time of
the dispute, Section 26.2 shall not apply to: (i) any claim or dispute
involving actual or threatened disclosure or misuse of the contents of the
Manuals, the Bagel Production Manual, or any other confidential information or
trade secrets of Franchisor and its affiliates; (ii) any claim or dispute
involving the ownership, validity, use of, or right to use or license the
Proprietary Marks; (iii) any action by Franchisor to enforce the covenants set
forth in Section 18 of this Agreement; or (iv) any action by Franchisor to
stop or prevent any threat or danger to public health or safety resulting from
the construction, maintenance, or operation of the Bakery or any facility in
which Franchisee manufactures bagel dough.
26.4 Any issue regarding arbitrability or the enforcement of Section
26.2 shall be governed by the Federal Arbitration Act and the federal common law
of arbitration.
26.5 Any arbitration proceeding or other action, whether or not arising
out of this Agreement, brought by Franchisee against Franchisor shall be
brought, and any arbitration proceeding or other action brought by Franchisor
against Franchisee may be brought, in the judicial district in which Franchisor
has its principal place of business. The parties hereby waive all questions of
personal jurisdiction and venue for the purpose of carrying out this provision.
26.6 Except as otherwise provided in this Section 26, no right or remedy
conferred upon or reserved to Franchisor or Franchisee by this Agreement is
exclusive of any other right or remedy provided herein or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
26.7 Any and all claims and actions arising out of or relating to this
Agreement, the relationship of Franchisee and Franchisor, or Franchisee's
operation of the Bakery brought by either party against the other, whether in
arbitration or any other proceeding, shall be commenced within eighteen (18)
months from the occurrence of the facts giving rise to such claim or action, or
such claim or action shall be barred.
26.8 Franchisor and Franchisee irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Franchisor and Franchisee hereby waive to the fullest extent permitted by law
any right to, or claim of, any punitive or exemplary damages against the other
and agree that, in the event of a dispute between them, each shall be limited to
the recovery of any actual damages sustained by it.
26.9 Nothing in this Agreement shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damage,
under the usual equity
-40-
<PAGE>
rules, including the applicable rules for obtaining specific performance,
restraining orders, and preliminary injunctions.
27. ACKNOWLEDGMENTS
27.1 Franchisee acknowledges that it has conducted an independent
investigation of the business franchised hereunder, and recognizes that the
business venture contemplated by this Agreement involves business risks and that
its success will be largely dependent upon the ability of Franchisee as an
independent business. Franchisor expressly disclaims the making of, and
Franchisee acknowledges that it has not received, any warranty or guarantee,
express or implied, as to the potential sales, income, profits, or success of
the business venture contemplated by this Agreement.
27.2 Franchisee acknowledges that it received a complete copy of this
Agreement, the attachments hereto, and agreements relating thereto, if any, at
least five (5) business days prior to the date on which this Agreement was
executed. Franchisee further acknowledges that it 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.
27.3 Franchisee acknowledges that it has read and understood this
Agreement, the attachments hereto, and agreements relating thereto, if any, and
that Franchisor has accorded Franchisee ample time and opportunity to consult
with advisors of Franchisee's own choosing about the potential benefits and
risks of entering into this Agreement.
27.4 ACKNOWLEDGMENT OF ARBITRATION:
I UNDERSTAND THAT THIS AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE CERTAIN
SPECIFIC ISSUES. AFTER SIGNING THIS DOCUMENT, I UNDERSTAND THAT I WILL NOT BE
ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE WHICH IS COVERED
BY ONE OF THESE ARBITRATION AGREEMENTS, UNLESS IT INVOLVES A QUESTION OF
CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD, I AGREE TO SUBMIT ANY SUCH DISPUTE
TO AN IMPARTIAL ARBITRATOR AS SET FORTH IN THIS AGREEMENT.
-41-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
FRANCHISOR FRANCHISEE:
Bruegger's Franchise Corporation ___________________________________
By: _____________________________ By:________________________________
Title: __________________________ Title:_____________________________
-42-
<PAGE>
EXHIBIT A
to
BRUEGGER'S FRESH BAGELS BAKERY
FRANCHISE AGREEMENT
PROPRIETARY MARKS
-----------------
<TABLE>
<CAPTION>
Date
Registered Mark Type Registered Reg. No.
- --------------- ---- ---------- --------
<S> <C> <C> <C>
BRUEGGER'S TM 11/22/88 1,513,741
THE BEST THING ROUND SM 6/15/93 1,776,884
BRUEGGEROONS TM 7/13/93 1,781,622
BRUEGGER'S LAST NIGHT'S
BAGELS AND DESIGN TM 7/13/93 1,781,629
BRUEGGER'S BAGEL BAKERY
FRESH BAGELS AND DESIGN SM 8/31/93 1,790,827
BRUEGGER'S FRESH BAGEL
BAKERY AND DESIGN SM 8/31/93 1,790,828
BRUEGGER'S SM 9/7/93 1,792,050
</TABLE>
APPLICATIONS PENDING
--------------------
<TABLE>
<CAPTION>
Date Sent Application
Marks Type for Filing No.
- ----- ---- --------- -------------
<S> <C> <C> <C>
BRUEGGER'S BAGELS/
BAKED FRESH AND DESIGN SM 1/16/96 75,046,205
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 75,007,530
(Class No. 29 & 30)
TOTALLY COMPLETELY
OBSESSED WITH FRESHNESS SM/TM 10/16/95 75,007,532
(Class No. 42)
JAVAHH! TM 7/3/95 75,697,540
SINGLE BAKER/SINGLE
BAGEL @ HEARTH DESIGN SM 1/16/96 75,046,199
</TABLE>
-43-
<PAGE>
EXHIBIT B
to
BRUEGGER'S FRESH BAGEL BAKERY
FRANCHISE AGREEMENT
APPROVED LOCATION
-----------------
-2-
<PAGE>
EXHIBIT E
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
ACCOUNTING SERVICES AGREEMENT
4
<PAGE>
ACCOUNTING SERVICES AGREEMENT
This Accounting Services Agreement ("Agreement") is made this _____
day of _________, 19___, by and between Bakery Capital Company, Inc.,
("Operating Partner") and Bruegger's Corporation, a Delaware corporation
("Company").
RECITALS
1. Operating Partner and Bruegger's Franchise Corporation, a Delaware
corporation which is an affiliate of Company ("BFC"), have entered into a
Development Agreement dated ______________ _____, 19___ (as amended from time to
time, the "Development Agreement"), and have entered into or propose to enter
into one or more franchise agreements (each a "Franchise Agreement"), each
granting to Operating Partner the right to operate one Bruegger's Bagel Bakery
("Bakery").
2. Pursuant to the Development Agreement and/or the Franchise
Agreements, Operating Partner is required to maintain certain accounting records
and provide to BFC certain periodic financial reports and other data.
3. Upon the terms and subject to the conditions hereinafter provided,
Operating Partner and Company desire to enter into an agreement pursuant to
which Company would assist Operating Partner in maintaining certain accounting
records and preparing certain financial reports required under the Development
Agreement and/or the Franchise Agreements.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, as well as other good and valuable consideration,
the sufficiency and receipt of which are hereby acknowledged, the parties hereby
agree as follows:
1. ACCOUNTING SERVICES.
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, Company shall provide the following accounting services (the
"Services") to Operating Partner for each Bakery, for each Bruegger's Bagel
Bakery commissary operated by Operating Partner ("Commissary"), and for
Operating Partner and each corporation, limited liability company or other legal
entity which is controlled by Operating Partner (each, including Operating
Partner, an "Operating Partner Entity"):
(a) Calculation of revenue and expenses by accounting category
according to Company's standard chart of accounts and calculation of Gross
Sales and Royalty Fees (as each term is defined in the Franchise
Agreements);
-1-
<PAGE>
(b) Administration and maintenance of Operating Partner Entity
payroll, and administration of the processing of payroll and calculation of
applicable tax and other withholdings relating to the Bakeries or
Commissaries through Company's designated payroll service bureau;
(c) Administration of accounts payable (including check generation);
(d) Administration of recurring cash transfers between Operating
Partner's applicable Bakery, Commissary and Operating Partner Entity bank
accounts;
(e) Administration and maintenance, for each Operating Partner Entity,
of a general ledger trial balance, balance sheet, income statement and
certain other Operating Partner Entity, Bakery or Commissary reports by
accounting category according to Company's standard chart of accounts and
consistent with periodic reports Company customarily prepares in the normal
course of business to manage its financial affairs, and periodic
distribution of such reports to Operating Partner;
(f) Maintenance of all accounting records supporting each Operating
Partner Entity's financial statements (consistent with Company's record
retention program) in reasonable fashion separate and discrete from the
accounting records of Company; and
(g) Preparation of period end reconciliations and associated period
end journal entries for all Operating Partner Entity balance sheet
accounts.
1.2 The Services shall not include (with respect to any Bakery,
Commissary or Operating Partner Entity) any of the following, each of which is
the sole responsibility of Operating Partner:
(a) Except as provided in Section 1.3 of this Agreement, selection of
accounting policies to be applied to Operating Partner's books and records;
provided, however, that Company will consistently apply the appropriate
policies selected by Operating Partner;
(b) Negotiation of terms and conditions between Operating Partner and
its suppliers, vendors, and others, such as remittance due dates and
discounts;
(c) Quarterly review and edit of Operating Partner's vendor masterfile
for current and accurate data; provided, however, that Company will
appropriately apply updates to the vendor masterfile as directed by
Operating Partner;
-2-
<PAGE>
(d) Signature and final release of trade accounts payable disbursement
checks in excess of $200,000;
(e) Final review and approval of annual financial statements;
(f) Cash investment activities; provided, however, that Company will
initiate and manage repetitive and/or fixed cash management activities as
directed in writing by Operating Partner;
(g) Approval and coding of invoices for disbursement;
(h) Preparation of budgets (except that Company will develop a budget
process and calendar to facilitate the preparation of annual budgets by
Operating Partner, which Operating Partner agrees to adopt and adhere to);
and
(i) Preparation, filing, or signing of any tax returns required to be
filed by Operating Partner, with the exception of sales and use tax returns
which will be prepared by Company but will not be filed or signed by
Company.
1.3 Operating Partner agrees to effectively apply any and all
accounting policies and procedures communicated by Company to Operating Partner,
as the same may be modified and updated from time to time, on a timely basis,
which actions and compliance shall be a condition to Company's obligations
hereunder.
1.4 Operating Partner agrees to utilize auditors and tax consultants
designated by Company for annual audit and tax return preparation activities.
1.5 Operating Partner agrees to utilize Company's designated bankers
(except for Bakery and Commissary bank accounts) and credit card processors for
all corporate cash management activities.
1.6 Operating Partner agrees to supply Company all information,
materials, data, and documents necessary or advisable to properly perform the
Services in such form, format, or media as Company may reasonably request, to
make available the officers of Operating Partner to answer any inquiries in
connection therewith, and to cooperate with Company in the performance of its
duties.
2. FEES FOR SERVICES AND EXPENSE REIMBURSEMENT.
2.1 In consideration of the Services, Operating Partner agrees to pay
to Company, in addition to any fee otherwise payable under the Development
Agreement or any Franchise Agreement or other agreement between Company (or its
affiliates) and Operating Partner, the accounting and administrative services
fees set forth below:
-3-
<PAGE>
(a) A fee of $4,000 per Operating Partner Entity for each four-week
accounting period of Company ("Accounting Period") for each Operating
Partner Entity in existence during all or any portion of such Accounting
Period;
(b) A fee of $500 per Bakery for each Accounting Period for each
Bakery open and operating during all or any portion of such Accounting
Period; and
(c) A fee of $1,000 per Commissary for each Accounting Period for each
Commissary open and operating during all or any portion of such Accounting
Period.
Operating Partner agrees that the foregoing accounting and
administrative services fees may be increased cumulatively by not more than 10%
per Company fiscal year at the sole discretion of Company effective upon written
notice thereof.
2.2 In addition to the payment of fees as specified in Section 2.1 of
this Agreement, Operating Partner shall reimburse Company for all reasonable,
non-ordinary, out-of-pocket expenses incurred by Company or its affiliates in
connection with the Services rendered by them hereunder, including, but not
limited to, travel expenses, legal fees, fees of experts, audit fees, tax fees
and payroll service fees. Expenses payable under this Section 2.2 shall be paid
promptly in the manner specified in Section 3.1 of this Agreement.
3. PAYMENT OF AMOUNTS DUE HEREUNDER; LIABILITY.
3.1 Company will calculate and Operating Partner hereby authorizes
Company to collect through electronic funds transfer, at the end of each
Accounting Period, the total dollar amount of all accounting and administrative
services fees and expenses then due to Company hereunder.
3.2 Company shall not be liable for any cost, damage, expense, or
loss of any Operating Partner Entity or its owners, partners, shareholders,
officers, members, directors, employees, suppliers, or vendors, or any other
person or entity arising or resulting, directly or indirectly, from (i) the
failure of Company to perform any of the Services or the misperformance of any
such Services, except to the extent such failure to perform or such
misperformance is the result of Company's willful misconduct or gross
negligence, in which event Company's liability shall not exceed its fee for such
hereunder for the Accounting Period in question, or (ii) reliance by Operating
Partner, its owners, partners, shareholders, officers, members, directors,
employees, suppliers, or vendors, or any other person or entity on any data or
advice Company may provide pursuant to this Agreement. In no event will Company
be liable for indirect, incidental, consequential, special, speculative,
exemplary, or punitive damages (including, but not limited to, loss of revenue
or profit).
3.3 COMPANY MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED
-4-
<PAGE>
HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THEIR ADEQUACY, QUALITY, PERFORMANCE,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE.
4. TERM OF SERVICES.
4.1 The term of this Agreement shall commence on the date of this
Agreement and continue indefinitely until termination of all Development
Agreements and Franchise Agreements between Operating Partner and BFC; and
provided further that Company may terminate this Agreement without notice and
cease rendering the Services, also without notice, upon any non-payment by
Operating Partner of the fees and expenses provided for herein when such fees
and expenses are due and payable.
4.2 Termination of this Agreement shall terminate Company's
obligations to provide the Services. Upon termination of this Agreement,
Operating Partner shall pay to Company the fees due Company in accordance with
Section 2.1 hereof for the Services rendered by Company through the date of
termination and reimburse Company in accordance with Section 2.2 hereof for
expenses incurred by Company in connection with the Services rendered by Company
through the date of termination.
5. MISCELLANEOUS.
5.1 In performing the Services set forth in this Agreement, Company
will have neither express nor implied power to execute agreements on behalf of
Operating Partner or in any manner bind Operating Partner as to any matter not
within the scope of this Agreement.
5.2 All notices, requests, waivers and other similar communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given if delivered personally or sent by
overnight express or facsimile transmission or registered or certified mail,
return receipt requested, postage prepaid, and properly addressed as follows:
If to Operating Partner: Bakery Capital Company, Inc.
_________________________
_________________________
Attention: Chief Executive Officer
Facsimile: ________________
If to Company: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: President
Facsimile: (219) 243-4377
-5-
<PAGE>
with a copy to: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: General Counsel
Facsimile: (219) 243-4393
or to such other address as either party shall designate by proper notice.
Notices will be deemed to have been received as of the earlier of the date of
actual receipt or, in the case of notices sent via U.S. Mail, three (3) days
after mailing. A signed receipt shall be obtained where a notice is delivered
in person.
5.3 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the state of Delaware applicable to contracts made
and to be performed therein without regard to the conflict of law provisions
thereof.
5.4 The failure by any party at any time to require performance of
any provision hereof shall not affect its right later to require such
performance. No waiver in any one or more instance shall (except as otherwise
stated therein) be deemed to be a further or continuing waiver of any such
condition or breach in any other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
5.5 In the event that any term or provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable in
whole or in part, the remainder of this Agreement or the application of such
term or provision to circumstances other than those as to which it is held
invalid, void or unenforceable shall not be affected thereby and every term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
5.6 This Agreement may be amended or modified only by a written
instrument signed by each of the parties hereto.
5.7 This Agreement is the entire agreement, and supersedes all prior
agreements and understandings, written and oral, among the parties hereto or any
of them with respect to the subject matter hereof.
5.8 This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
5.9 The captions in this Agreement are inserted only as a matter of
convenience and are not intended to define, limit, construe or describe the
scope or intent of any provision of this Agreement.
-6-
<PAGE>
5.10 Nothing contained in this Agreement is intended, nor shall it be
construed, to create any rights in any person not a party to this Agreement.
5.11 Operating Partner shall not assign any of its interest in this
Agreement without the prior written consent of Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BRUEGGER'S CORPORATION
By: __________________________________
Title: __________________________________
BAKERY CAPITAL COMPANY, INC.
By: _________________________________,
Its Chief Executive Officer
By: __________________________________
Title: __________________________________
-7-
<PAGE>
EXHIBIT F
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
SOFTWARE LICENSING AND MAINTENANCE AGREEMENT
5
<PAGE>
SOFTWARE LICENSING AND
MAINTENANCE AGREEMENT
This Software Licensing and Maintenance Agreement (the "Agreement") is
made this ____ day of ___________, 19____, by and between Bakery Capital
Company, Inc. ("Licensee") and Bruegger's Corporation, a Delaware corporation
("Licensor").
RECITALS
1. Licensee and Bruegger's Franchise Corporation, a Delaware
corporation which is an affiliate of Licensor ("BFC"), have entered into a
Development Agreement dated _____________ ______, 19___ (as amended from time to
time, the "Development Agreement") and have entered into or propose to enter
into one or more franchise agreements (each a "Franchise Agreement"), each
granting to Licensee the right to operate one Bruegger's Bagel Bakery.
2. Pursuant to the Development Agreement and/or the Franchise
Agreements, Licensee is required to use certain software which is owned by
Licensor and to use certain other software which is owned by a third party.
3. Upon the terms and subject to the conditions hereinafter
provided, Licensee and Licensor desire to enter into an agreement pursuant to
which Licensor would license certain software to Licensee and assist Licensee in
maintaining such software, and Licensee would license certain other software
from the third party.
AGREEMENTS
In consideration of the mutual covenants contained herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree:
1. DEFINITIONS.
------------
As used in this Agreement, the following terms shall have the meanings
hereinafter defined:
1.1 "Affiliate" shall mean with respect to either party, any
---------
company, any individual, corporation, partnership, association, joint
venture, trust, estate, limited liability company, or other legal
entity that now or hereafter directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with such party. The term "control," including the terms
"controlling," "controlled by," and "under common control with," means
the possession, direct or indirect, of the power to direct or cause
the direction of the
<PAGE>
management and policies of a person, whether through the ownership of
voting shares, by contract or otherwise.
1.2 "Bakery" shall mean each Bruegger's Bagel Bakery operated by
------
Licensee pursuant to a Franchise Agreement.
1.3 "Commissary" shall mean each Bruegger's Bagel Bakery
----------
commissary operated by Licensee as a franchisee of Licensor.
1.4 "Enhancement" means any and all changes to the Licensed
-----------
Products that (a) improve the operating performance but do not alter
the basic function of the Licensed Products; (b) incorporate fixes or
bypasses for errors; or (c) are offered to any of the Other Users,
whether at no additional charge or otherwise.
1.5 "Installed Location" shall mean each Bakery and Commissary,
------------------
and each office of an Operating Partner Entity, in which the Licensed
Products are used on one or more computers or computer terminals.
1.6 "Intellectual Property Rights" means any and all
----------------------------
exclusionary rights existing from time to time anywhere in the world
under patent law, copyright law, trade-secret law, trademark law,
unfair competition law, or otherwise.
1.7 "Licensed Products" shall mean the Licensed Software, and
-----------------
the User Documentation, Specifications, Upgrades and Enhancements, if
any are supplied pursuant to this Agreement, each reproduction of the
foregoing made pursuant to this Agreement, and any one or more of
them.
1.8 "Licensed Software" means the computer software programs
-----------------
identified in Exhibit A attached to this Agreement, applicable to
various environments, in human readable source code form and machine
executable object code form, and all related Specifications,
applications, and design documents, together with all related know how
and all related Documentation.
1.9 "Operating Partner Entity" means Licensee and each
------------------------
corporation, limited liability company or other legal entity which is
controlled by Licensee.
1.10 "Other Users" means the other parties who have obtained the
-----------
licensed right to use the Licensed Products.
1.11 "Release" means an update of the Licensed Products that may
-------
incorporate any Enhancements or other changes made by Licensor,
including patches and bypasses previously furnished to any of its
Other Users.
-2-
<PAGE>
1.12 "Specifications" shall mean all specifications for, and
--------------
descriptions of the functional capabilities of, the Licensed Software
provided by Licensor to Licensee, whether included in the User
Documentation, descriptive documents or materials provided by Licensor
to Licensee in tangible, intangible, written or oral form, with
respect to the Licensed Products.
1.13 "Third Party Software" means the third party-owned computer
--------------------
software programs identified in Exhibit A and related specifications,
documentation materials, modifications, enhancements, interfaces, and
associated know-how, which together or separately are not owned by
Licensor.
1.14 "Upgrade" means all improvements in the Licensed Products
-------
that (a) add to or alter the basic functions of such Licensed
Products; or (b) may be offered to Other Users.
1.15 "User Documentation" means all documentation and any
------------------
succeeding changes thereto relating to installation, maintenance and
operation of the Licensed Software. User Documentation may, but need
not, include all documents, functional specifications, users manuals
and instructions, flow diagrams, file descriptions and definitions,
and job control procedures developed by or for Licensor in connection
with the Licensed Software, and all Releases and Enhancements thereto.
2. GRANT OF LICENSE.
-----------------
2.1 Licensor hereby grants to Licensee a nonexclusive right and
license to use the Licensed Products in accordance with the terms and
conditions of this Agreement.
2.2 Licensor hereby grants Licensee the right to use the
Licensed Products at each Installed Location set forth on Exhibit B
attached to this Agreement, with one or more computers, computer
terminals and/or other devices which allow users to access the
Licensed Software. Exhibit B shall be amended from time to time to
include any additional Installed Locations which do not exist on the
date of this Agreement.
2.3 Other than as expressly set forth herein, Licensor owns all
right, title and interest in and to the Licensed Products and the
Intellectual Property Rights pertaining thereto.
3. TERM OF LICENSE. This Agreement shall commence upon the date
---------------
of this Agreement and shall terminate according to the provisions of Section 12
hereof or upon
-3-
<PAGE>
termination of all Development Agreements and Franchise Agreements between
Licensee and BFC.
4. DELIVERABLES.
-------------
4.1 Upon receipt from Licensee of a fully executed original of
this Agreement and written evidence that Licensee has obtained the
license(s) referenced in Section 11 herein, Licensor shall deliver
magnetic media containing the Licensed Software and such number of
copies of User Documentation as are set forth in Exhibit A. Licensor
will install the Licensed Software at one Installed Location and
Licensee shall install the Licensed Software at all other Installed
Locations.
4.2 Licensee may copy the Licensed Software, in whole or in
part, for Licensee's internal use and for purposes of back-up or
archiving. Licensee may reproduce the User Documentation or other
written materials supplied with respect to the Licensed Products for
Licensee's internal use.
4.3 Licensee will not alter, deface, remove, cover up, or
mutilate in any manner whatsoever any copyright or other proprietary
notice which Licensor may incorporate in or attach or affix to the
Licensed Products, or on copies it makes in whole or in part thereof.
5. MAINTENANCE. Licensor will deliver to Licensee, during the
-----------
term of this Agreement, all Releases or Upgrades (collectively, the "Software
Maintenance"), to the extent that the same are offered to any of the Other
Users.
6. SUPPORT. Licensor shall provide software support service and
-------
consultation accessibility by telephone during Licensor's regular business hours
and, in addition, the following special software support services (collectively,
the "Software Support") to each of the Installed Locations:
6.1 Morning and Evening Help Desk. A morning and evening "Help
-----------------------------
Desk" whereby Licensee's employees may call Licensor's [Management
Information Services Department] concerning any questions or problems
pertaining to the use or operation of the Licensed Software arising
after [7:00] a.m. until 8:00 a.m. and after 5:00 p.m. until [8:59]
p.m. (EST), Monday through Friday; and
6.2 Weekend Help Desk. A weekend "Help Desk" whereby Licensee's
-----------------
employees may call Licensor's [Management Information Services
Department] concerning any questions or problems pertaining to the use
or operation of the Licensed Software arising after [7:00] a.m. until
[8:59] p.m. (EST) on Saturday and Sunday.
-4-
<PAGE>
7. LICENSE AND MAINTENANCE FEES.
-----------------------------
7.1 As compensation to Licensor for the License granted to
Licensee hereunder, Licensee shall pay Licensor a license purchase fee
in the amount of $10,000 per Installed Location, which shall be due
and payable to Licensor (a) with respect to each Bakery and
Commissary, upon execution of the Franchise Agreement relating thereto
between Licensee and BFC, and (b) with respect to each office of an
Operating Partner Entity, (i) upon execution of this Agreement for
each such office then listed on Exhibit B and (ii) upon commencement
of the operations of each such office, for each such office later
added to Exhibit B, as amended from time to time.
7.2 In consideration of the Software Maintenance and Software
Support provided to Licensee hereunder, Licensee shall pay Licensor a
software maintenance fee in the amount of $500 per Installed Location
for each four-week accounting period of Licensor ("Accounting Period")
for each Installed Location open and operating during all or any
portion of such Accounting Period.
8. TAXES. Licensee shall pay all federal, state and local sales,
-----
excise, use, or similar taxes based upon payments to be made by it hereunder or
otherwise based on the receipt of the license rights granted herein (excluding,
however, any tax on the income of Licensor).
9. PAYMENT OF FEES.
----------------
9.1 Licensee will pay the license purchase fees, at the times
provided in Section 7.1 hereof, by wire transfer or certified check, or by
such other means as may be agreed upon by Licensor and Licensee.
9.2 Licensor will calculate and Licensee hereby authorizes Licensor
to collect through electronic funds transfer, at the end of each Accounting
Period, the total dollar amount of all software maintenance fees then due
to Licensor hereunder.
10. LIABILITY.
----------
10.1 The Licensed Products, including, but not limited to, all
Licensed Software, Enhancements, User Documentation, Specifications,
Releases, and Upgrades, are furnished by Licensor to Licensee under
this Agreement without any oral or written representation concerning
the operation or suitability of such items, and are provided AS IS.
-5-
<PAGE>
10.2 LICENSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE LICENSED PRODUCTS, INCLUDING, BUT NOT LIMITED
TO, THEIR ADEQUACY, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE.
10.3 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, INCLUDING, BUT NOT LIMITED
TO, LOSS OF ANTICIPATED PROFITS, RESULTING FROM THE PARTY'S
PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
11. RIGHTS TO THIRD PARTY SOFTWARE. It shall be Licensee's
-------------------------------
responsibility to obtain, directly from the licensor(s) thereof, any and all
license(s) necessary for Licensee to use all Third Party Software identified in
Exhibit A. Exhibit A shall be amended from time to time to include any
additional Third Party Software which is added after the date of this Agreement.
12. MODIFICATIONS. Licensee shall not have the right to
--------------
independently modify, or merge with any other products, the Licensed Software
through the services of its own employees or of any independent contractor.
13. TERMINATION.
------------
13.1 The right and license granted hereunder may be canceled by
Licensor if Licensee is in default of any amount due under this
Agreement for a period of 30 days and may be canceled by either party
at any time upon default by the other party of any provision of this
Agreement if such default is not corrected within 30 days after
receipt of written notice thereof.
13.2 Licensee agrees to pay all applicable costs and attorney's
fees, to the extent permitted by law, for the collection of payments
and other charges due under this Agreement.
13.3 Within 60 days after the termination of this Agreement and
within 30 days after the cancellation for default of this Agreement
for any reason, Licensee shall deliver to Licensor any and all
portions of the Licensed Products and any information, documents, flow
charts, logic diagrams, source code, test materials source code, or
the like relating thereto and all copies thereof in whatever form,
including partial copies, whether or not the same have been modified
by Licensee or Licensor.
-6-
<PAGE>
14. CONFIDENTIALITY.
----------------
14.1 Any information, whether or not protected by a patent or
copyright, which has been provided (i) in writing by one party to the
other party pursuant to this Agreement and is identified by a legend
thereon as being proprietary or confidential, or (ii) orally by one
party to the other party pursuant to this Agreement, is designated as
confidential at the time of disclosure and is reduced to a written
summary (identified by a legend thereon as being proprietary or
confidential) (hereinafter "Confidential Information") shall be
treated by the receiving party as being the proprietary information of
the other, and shall be protected by the same security procedures as
are used by the receiving party in protecting its own trade secrets
and other confidential data.
14.2 The Licensed Products shall be deemed the Confidential
Information of Licensor.
14.3 With respect to all such Confidential Information to be
kept confidential pursuant to this Section, each party agrees (a) not
to provide or make available any of the other party's Confidential
Information in any form to any person other than those employees,
agents or representatives of the receiving party who have a need to
know consistent with the authorized use of such Confidential
Information; (b) not to reproduce such Confidential Information except
for use reasonably necessary to the performance of this Agreement; (c)
not to exploit or use the other party's Confidential Information
except as permitted by this Agreement and (d) to return or destroy all
such Confidential Information which is in written or graphic form at
the conclusion of its use or termination of this Agreement.
14.4 A party in receipt of the other party's Confidential
Information shall not be liable (subject to any patent rights or
registered copyrights of the disclosing party) for any use or
disclosure of the other party's Confidential Information which:
(a) was in the public domain prior to the
receipt of same by the receiving party, or has
subsequently become part of the public domain by
publication or otherwise except by the receiving
party's wrongful act;
(b) was in the receiving party's possession
or known to the receiving party prior to its receipt
hereunder, and was not acquired directly or indirectly
from the disclosing party;
(c) was independently developed by the receiving party;
-7-
<PAGE>
(d) was received by the receiving party from a third
party which the receiving party reasonably believed had no
obligation of secrecy with respect thereto;
(e) consists solely of generalized data processing
ideas, concepts, know-how or techniques; or
(f) is disclosed pursuant to court order.
15. PROPRIETARY RIGHTS. Nothing herein shall convey to Licensee any
------------------
right in the Licensed Products other than those rights expressly granted herein.
Licensee acknowledges that the Licensed Products are proprietary products
developed by Licensor for its restaurant business and that the Licensed Products
shall be used by Licensee only in connection with the operation of the Bakeries
and the Commissaries (the "Permitted Use"). Other than in connection with the
Permitted Use, Licensee shall not use the Licensed Products for any other
purpose, including, but not limited to, the purpose of assisting Licensee in the
operation of any restaurant other than the Bakeries.
16. INDEMNIFICATION.
---------------
16.1 Licensee shall indemnify and hold harmless Licensor and its
Affiliates against any and all losses, liabilities, judgments, awards,
settlements, damages and cost (including legal fees and expenses) for
any claims against Licensor arising out of or related to the use of
the Licensed Products or other related materials by Licensee or
Licensee's Affiliates.
16.2 Licensor shall indemnify and defend Licensee against any
claim of patent or copyright infringement arising out of Licensee's
use of the Licensed Products; provided, however, that Licensor is
notified promptly in writing of such claim and is given complete
authority and information required for defending or settling any claim
of patent or copyright infringement or suit resulting therefrom, and
further provided that Licensee is not in default of any of the
provisions of this Agreement.
17. NOTICES. All notices, requests, waivers and other similar
-------
communications required or permitted to be given pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by overnight express or facsimile transmission or registered
or certified mail, return receipt requested, postage prepaid, and properly
addressed as follows:
-8-
<PAGE>
If to Licensee: Bakery Capital Company, Inc.
____________________________________
____________________________________
Attention: Chief Executive Officer
Facsimile: ________________________
If to Licensor: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: President
Facsimile: (219) 243-4377
with a copy to: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: General Counsel
Facsimile: (219) 243-4393
or to such other address as either party shall designate by proper notice.
Notices will be deemed to have been received as of the earlier of the date of
actual receipt or, in the case of notices sent via U.S. Mail, three (3) days
after mailing. A signed receipt shall be obtained where a notice is delivered in
person.
18. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed therein without regard to the
conflict of law provisions thereof.
19. NO WAIVER. The failure by any party at any time to require
---------
performance of any provision hereof shall not affect its right later to require
such performance. No waiver in any one or more instance shall (except as
otherwise stated therein) be deemed to be a further or continuing waiver of any
such condition or breach in any other instances or a waiver of any other
condition or breach of any other term, covenant, representation or warranty.
20. SEVERABILITY. In the event that any term or provision of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable in whole or in part, the remainder of this Agreement or the
application of such term or provision to circumstances other than those as to
which it is held invalid, void or unenforceable shall not be affected thereby
and every term and provision of this Agreement shall be valid and enforced to
the fullest extent permitted by law.
21. AMENDMENT. This Agreement may be amended or modified only by a
---------
written instrument signed by each of the parties hereto.
-9-
<PAGE>
22. ENTIRE AGREEMENT. This Agreement is the entire agreement, and
----------------
supersedes all prior agreements and understandings, written and oral, among the
parties hereto or any of them with respect to the subject matter hereof.
23. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
24. CAPTIONS. The captions in this Agreement are inserted only
--------
as a matter of convenience and are not intended to define, limit, construe or
describe the scope or intent of any provision of this Agreement.
25. NO THIRD PARTIES. Nothing contained in this Agreement is
----------------
intended, nor shall it be construed, to create any rights in any person not a
party to this Agreement, other than the Affiliates of Licensor.
26. ASSIGNMENT. Licensee shall not assign any of its interest in
----------
this Agreement without the prior written consent of Licensor.
27. SURVIVAL. The rights and obligations of parties set forth in
--------
Sections 10, 11, 13, 14, 15 and 16 shall survive the termination or expiration
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
BRUEGGER'S CORPORATION BAKERY CAPITAL COMPANY,INC.
By: __________________________ _______________________________________
Title: _______________________ By: _______________________________
Its Chief Executive Officer
By: _______________________________
Title: _______________________________
-10-
<PAGE>
EXHIBIT A
Description of Licensed Software:
Copies of Documentation: ______
Description of Third-Party Software:
-11-
<PAGE>
EXHIBIT B
Installed Locations of Licensee
- -------------------------------
A. Bakeries:
B. Commissaries:
C. Offices of Operating Partners Entities:
-12-
<PAGE>
EXHIBIT G
to
BRUEGGER'S FRESH BAGEL BAKERY
DEVELOPMENT AGREEMENT
COMMISSARY ACCOUNTING SOFTWARE
LICENSING AND MAINTENANCE AGREEMENT
<PAGE>
COMMISSARY ACCOUNTING SOFTWARE LICENSING
AND MAINTENANCE AGREEMENT
This Commissary Accounting Software Licensing and Maintenance
Agreement (the "Agreement") is made this ____ day of ___________, 19___, by and
between Bakery Capital Company, Inc., ("Licensee") and Bruegger's Corporation,
a Delaware corporation ("Licensor").
RECITALS
1. Licensee and Bruegger's Franchise Corporation, a Delaware
corporation which is an affiliate of Licensor ("BFC"), have entered into a
Development Agreement dated ______________, 19___ (as amended from time to time,
the "Development Agreement") and have entered into or propose to enter into one
or more franchise agreements (each a "Franchise Agreement"), each granting to
Licensee the right to operate one Bruegger's Bagel Bakery.
2. Pursuant to the Development Agreement and/or the Franchise
Agreements, Licensee is required to use certain commissary accounting software
which is owned by Licensor and to use certain other software which is owned by a
third party.
3. Upon the terms and subject to the conditions hereinafter
provided, Licensee and Licensor desire to enter into an agreement pursuant to
which Licensor would license certain commissary accounting software to Licensee
and assist Licensee in maintaining such software, and Licensee would license
certain other software from the third party.
AGREEMENTS
In consideration of the mutual covenants contained herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree:
1. DEFINITIONS.
------------
As used in this Agreement, the following terms shall have the meanings
hereinafter defined:
1.1 "Affiliate" shall mean with respect to either party, any
---------
company, any individual, corporation, partnership, association, joint
venture, trust, estate, limited liability company, or other legal entity
that now or hereafter directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with such party. The term "control," including the terms "controlling,"
"controlled by," and "under common control with," means the possession,
direct or indirect, of the power to direct or cause the direction of the
-1-
<PAGE>
management and policies of a person, whether through the ownership of
voting shares, by contract or otherwise.
1.2 "Bakery" shall mean each Bruegger's Bagel Bakery operated by
------
Licensee pursuant to a Franchise Agreement.
1.3 "Commissary" shall mean each Bruegger's Bagel Bakery commissary
----------
operated by Licensee as a franchisee of Licensor.
1.4 "Enhancement" means any and all changes to the Licensed
-----------
Products that (a) improve the operating performance but do not alter the
basic function of the Licensed Products; (b) incorporate fixes or bypasses
for errors; or (c) are offered to any of the Other Users, whether at no
additional charge or otherwise.
1.5 "Installed Location" shall mean each Commissary in which the
------------------
Licensed Products are used on one or more computers or computer terminals.
1.6 "Intellectual Property Rights" means any and all exclusionary
----------------------------
rights existing from time to time anywhere in the world under patent law,
copyright law, trade-secret law, trademark law, unfair competition law, or
otherwise.
1.7 "Licensed Products" shall mean the Licensed Software, and the
-----------------
User Documentation, Specifications, Upgrades and Enhancements, if any are
supplied pursuant to this Agreement, each reproduction of the foregoing
made pursuant to this Agreement, and any one or more of them.
1.8 "Licensed Software" means the computer software programs
-----------------
identified in Exhibit A attached to this Agreement, applicable to various
environments, in human readable source code form and machine executable
object code form, and all related Specifications, applications, and design
documents, together with all related know how and all related
Documentation.
1.9 "Other Users" means the other parties who have obtained the
-----------
licensed right to use the Licensed Products.
1.10 "Release" means an update of the Licensed Products that may
-------
incorporate any Enhancements or other changes made by Licensor, including
patches and bypasses previously furnished to any of its Other Users.
1.11 "Specifications" shall mean all specifications for, and
--------------
descriptions of the functional capabilities of, the Licensed Software
provided by Licensor to Licensee, whether included in the User
Documentation, descriptive documents or
-2-
<PAGE>
materials provided by Licensor to Licensee in tangible, intangible, written
or oral form, with respect to the Licensed Products.
1.12 "Third Party Software" means the third party-owned computer
--------------------
software programs identified in Exhibit A and related specifications,
documentation materials, modifications, enhancements, interfaces, and
associated know-how, which together or separately are not owned by
Licensor.
1.13 "Upgrade" means all improvements in the Licensed Products that
-------
(a) add to or alter the basic functions of such Licensed Products; or (b)
may be offered to Other Users.
1.14 "User Documentation" means all documentation and any succeeding
------------------
changes thereto relating to installation, maintenance and operation of the
Licensed Software. User Documentation may, but need not, include all
documents, functional specifications, users manuals and instructions, flow
diagrams, file descriptions and definitions, and job control procedures
developed by or for Licensor in connection with the Licensed Software, and
all Releases and Enhancements thereto.
2. GRANT OF LICENSE.
-----------------
2.1 Licensor hereby grants to Licensee a nonexclusive right and
license to use the Licensed Products in accordance with the terms and
conditions of this Agreement.
2.2 Licensor hereby grants Licensee the right to use the Licensed
Products at each Installed Location set forth on Exhibit B attached to this
Agreement, with one or more computers, computer terminals and/or other
devices which allow users to access the Licensed Software. Exhibit B shall
be amended from time to time to include any additional Installed Locations
which do not exist on the date of this Agreement.
2.3 Other than as expressly set forth herein, Licensor owns all
right, title and interest in and to the Licensed Products and the
Intellectual Property Rights pertaining thereto.
3. TERM OF LICENSE. This Agreement shall commence upon the date
---------------
of this Agreement and shall terminate according to the provisions of Section 12
hereof or upon termination of all Development Agreements and Franchise
Agreements between Licensee and BFC.
-3-
<PAGE>
4. DELIVERABLES.
-------------
4.1 Upon receipt from Licensee of a fully executed original of this
Agreement and written evidence that Licensee has obtained the license(s)
referenced in Section 11 herein, Licensor shall deliver magnetic media
containing the Licensed Software and such number of copies of User
Documentation as are set forth in Exhibit A. Licensor will install the
Licensed Software at one Installed Location and Licensee shall install the
Licensed Software at all other Installed Locations.
4.2 Licensee may copy the Licensed Software, in whole or in part,
for Licensee's internal use and for purposes of back-up or archiving.
Licensee may reproduce the User Documentation or other written materials
supplied with respect to the Licensed Products for Licensee's internal use.
4.3 Licensee will not alter, deface, remove, cover up, or mutilate
in any manner whatsoever any copyright or other proprietary notice which
Licensor may incorporate in or attach or affix to the Licensed Products, or
on copies it makes in whole or in part thereof.
5. MAINTENANCE. Licensor will deliver to Licensee, during the
-----------
term of this Agreement, all Releases or Upgrades (collectively, the "Software
Maintenance"), to the extent that the same are offered to any of the Other
Users.
6. SUPPORT. Licensor shall provide software support service and
-------
consultation accessibility by telephone during Licensor's regular business hours
and, in addition, the following special software support services (collectively,
the "Software Support") to each of the Installed Locations:
6.1 Morning and Evening Help Desk. A morning and evening "Help
-----------------------------
Desk" whereby Licensee's employees may call Licensor's [Management
Information Services Department] concerning any questions or problems
pertaining to the use or operation of the Licensed Software arising after
[7:00] a.m. until 8:00 a.m. and after 5:00 p.m. until [8:59] p.m. (EST),
Monday through Friday; and
6.2 Weekend Help Desk. A weekend "Help Desk" whereby Licensee's
-----------------
employees may call Licensor's [Management Information Services Department]
concerning any questions or problems pertaining to the use or operation of
the Licensed Software arising after [7:00] a.m. until [8:59] p.m. (EST) on
Saturday and Sunday.
-4-
<PAGE>
7. LICENSE AND MAINTENANCE FEES.
-----------------------------
7.1 As compensation to Licensor for the License granted to Licensee
hereunder, Licensee shall pay Licensor a license purchase fee in the amount
of $10,000 per Installed Location, which shall be due and payable to
Licensor with respect to each Installed Location upon commencement of the
operations of each such Installed Location.
7.2 In consideration of the Software Maintenance and Software
Support provided to Licensee hereunder, Licensee shall pay Licensor a
software maintenance fee in the amount of $500 per Installed Location for
each four-week accounting period of Licensor ("Accounting Period") for each
Installed Location open and operating during all or any portion of such
Accounting Period.
8. TAXES. Licensee shall pay all federal, state and local sales,
-----
excise, use, or similar taxes based upon payments to be made by it hereunder or
otherwise based on the receipt of the license rights granted herein (excluding,
however, any tax on the income of Licensor).
9. PAYMENT OF FEES.
----------------
9.1 Licensee will pay the license purchase fees, at the times
provided in Section 7.1 hereof, by wire transfer or certified check, or by
such other means as may be agreed upon by Licensor and Licensee.
9.2 Licensor will calculate and Licensee hereby authorizes Licensor
to collect through electronic funds transfer, at the end of each Accounting
Period, the total dollar amount of all software maintenance fees then due
to Licensor hereunder.
10. LIABILITY.
----------
10.1 The Licensed Products, including, but not limited to, all
Licensed Software, Enhancements, User Documentation, Specifications,
Releases, and Upgrades, are furnished by Licensor to Licensee under this
Agreement without any oral or written representation concerning the
operation or suitability of such items, and are provided AS IS.
10.2 LICENSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE LICENSED PRODUCTS, INCLUDING, BUT NOT LIMITED
TO, THEIR ADEQUACY, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE.
-5-
<PAGE>
10.3 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, INCLUDING, BUT NOT LIMITED TO,
LOSS OF ANTICIPATED PROFITS, RESULTING FROM THE PARTY'S PERFORMANCE OR
NONPERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. RIGHTS TO THIRD PARTY SOFTWARE. It shall be Licensee's
------------------------------
responsibility to obtain, directly from the licensor(s) thereof, any and all
license(s) necessary for Licensee to use all Third Party Software identified in
Exhibit A. Exhibit A shall be amended from time to time to include any
additional Third Party Software which is added after the date of this Agreement.
12. MODIFICATIONS. Licensee shall not have the right to
-------------
independently modify, or merge with any other products, the Licensed Software
through the services of its own employees or of any independent contractor.
13. TERMINATION.
-----------
13.1 The right and license granted hereunder may be canceled by
Licensor if Licensee is in default of any amount due under this Agreement
for a period of 30 days and may be canceled by either party at any time
upon default by the other party of any provision of this Agreement if such
default is not corrected within 30 days after receipt of written notice
thereof.
13.2 Licensee agrees to pay all applicable costs and attorney's
fees, to the extent permitted by law, for the collection of payments and
other charges due under this Agreement.
13.3 Within 60 days after the termination of this Agreement and
within 30 days after the cancellation for default of this Agreement for any
reason, Licensee shall deliver to Licensor any and all portions of the
Licensed Products and any information, documents, flow charts, logic
diagrams, source code, test materials source code, or the like relating
thereto and all copies thereof in whatever form, including partial copies,
whether or not the same have been modified by Licensee or Licensor.
14. CONFIDENTIALITY.
----------------
14.1 Any information, whether or not protected by a patent or
copyright, which has been provided (i) in writing by one party to the other
party pursuant to this Agreement and is indentified by a legend thereon as
being proprietary or confidential, or (ii) orally by one party to the other
party pursuant to
-6-
<PAGE>
this Agreement, is designated as confidential at the time of disclosure and
is reduced to a written summary (identified by a legend thereon as being
proprietary or confidential) (hereinafter "Confidential Information") shall
be treated by the receiving party as being the proprietary information of
the other, and shall be protected by the same security procedures as are
used by the receiving party in protecting its own trade secrets and other
confidential data.
14.2 The Licensed Products shall be deemed the Confidential
Information of Licensor.
14.3 With respect to all such Confidential Information to be kept
confidential pursuant to this Section, each party agrees (a) not to provide
or make available any of the other party's Confidential Information in any
form to any person other than those employees, agents or representatives of
the receiving party who have a need to know consistent with the authorized
use of such Confidential Information; (b) not to reproduce such
Confidential Information except for use reasonably necessary to the
performance of this Agreement; (c) not to exploit or use the other party's
Confidential Information except as permitted by this Agreement and (d) to
return or destroy all such Confidential Information which is in written or
graphic form at the conclusion of its use or termination of this Agreement.
14.4 A party in receipt of the other party's Confidential
Information shall not be liable (subject to any patent rights or registered
copyrights of the disclosing party) for any use or disclosure of the other
party's Confidential Information which:
(a) was in the public domain prior to the receipt of same by
the receiving party, or has subsequently become part of the public
domain by publication or otherwise except by the receiving party's
wrongful act;
(b) was in the receiving party's possession or known to the
receiving party prior to its receipt hereunder, and was not acquired
directly or indirectly from the disclosing party;
(c) was independently developed by the receiving party;
(d) was received by the receiving party from a third party
which the receiving party reasonably believed had no obligation of
secrecy with respect thereto;
-7-
<PAGE>
(e) consists solely of generalized data processing ideas,
concepts, know-how or techniques; or
(f) is disclosed pursuant to court order.
15. PROPRIETARY RIGHTS. Nothing herein shall convey to Licensee
------------------
any right in the Licensed Products other than those rights expressly granted
herein. Licensee acknowledges that the Licensed Products are proprietary
products developed by Licensor for its restaurant business and that the Licensed
Products shall be used by Licensee only in connection with the operation of the
Commissaries (the "Permitted Use"). Other than in connection with the Permitted
Use, Licensee shall not use the Licensed Products for any other purpose,
including, but not limited to, the purpose of assisting Licensee in the
operation of any restaurant other than the Bakeries.
16. INDEMNIFICATION.
----------------
16.1 Licensee shall indemnify and hold harmless Licensor and its
Affiliates against any and all losses, liabilities, judgments, awards,
settlements, damages and cost (including legal fees and expenses) for any
claims against Licensor arising out of or related to the use of the
Licensed Products or other related materials by Licensee or Licensee's
Affiliates.
16.2 Licensor shall indemnify and defend Licensee against any claim
of patent or copyright infringement arising out of Licensee's use of the
Licensed Products; provided, however, that Licensor is notified promptly in
writing of such claim and is given complete authority and information
required for defending or settling any claim of patent or copyright
infringement or suit resulting therefrom, and further provided that
Licensee is not in default of any of the provisions of this Agreement.
17. NOTICES. All notices, requests, waivers and other similar
-------
communications required or permitted to be given pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by overnight express or facsimile transmission or registered
or certified mail, return receipt requested, postage prepaid, and properly
addressed as follows:
If to Licensee: Bakery Capital Company, Inc.
___________________________________
___________________________________
Attention: Chief Executive Officer
Facsimile: _______________________
-8-
<PAGE>
If to Licensor: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: President
Facsimile: (219) 243-4377
with a copy to: Bruegger's Corporation
3820 Edison Lakes Parkway
Mishawaka, Indiana 46545
Attention: General Counsel
Facsimile: (219) 243-4393
or to such other address as either party shall designate by proper notice.
Notices will be deemed to have been received as of the earlier of the date of
actual receipt or, in the case of notices sent via U.S. Mail, three (3) days
after mailing. A signed receipt shall be obtained where a notice is delivered
in person.
18. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed therein without regard to the
conflict of law provisions thereof.
19. NO WAIVER. The failure by any party at any time to require
---------
performance of any provision hereof shall not affect its right later to require
such performance. No waiver in any one or more instance shall (except as
otherwise stated therein) be deemed to be a further or continuing waiver of any
such condition or breach in any other instances or a waiver of any other
condition or breach of any other term, covenant, representation or warranty.
20. SEVERABILITY. In the event that any term or provision of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable in whole or in part, the remainder of this Agreement or the
application of such term or provision to circumstances other than those as to
which it is held invalid, void or unenforceable shall not be affected thereby
and every term and provision of this Agreement shall be valid and enforced to
the fullest extent permitted by law.
21. AMENDMENT. This Agreement may be amended or modified only by a
---------
written instrument signed by each of the parties hereto.
22. ENTIRE AGREEMENT. This Agreement is the entire agreement, and
----------------
supersedes all prior agreements and understandings, written and oral, among the
parties hereto or any of them with respect to the subject matter hereof.
-9-
<PAGE>
23. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
24. CAPTIONS. The captions in this Agreement are inserted only as
--------
a matter of convenience and are not intended to define, limit, construe or
describe the scope or intent of any provision of this Agreement.
25. NO THIRD PARTIES. Nothing contained in this Agreement is
----------------
intended, nor shall it be construed, to create any rights in any person not a
party to this Agreement, other than the Affiliates of Licensor.
26. ASSIGNMENT. Licensee shall not assign any of its interest in
----------
this Agreement without the prior written consent of Licensor.
27. SURVIVAL. The rights and obligations of parties set forth in
--------
Sections 10, 11, 13, 14, 15 and 16 shall survive the termination or expiration
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
BRUEGGER'S CORPORATION BAKERY CAPITAL COMPANY, INC.
By: __________________________ __________________________________
Title: _______________________ By: _____________________________
Its Chief Executive Officer
By: _____________________________
Title ___________________________
-10-
<PAGE>
EXHIBIT A
Description of Licensed Software:
Copies of Documentation: _______
Description of Third-Party Software:
-11-
<PAGE>
EXHIBIT B
Installed Location of Licensee
- ------------------------------
A. Commissaries:
-12-
<PAGE>
EXHIBIT 10-U
RELATED PARTY DEVELOPMENT AGREEMENTS
(All Development Agreements with the entities listed below
are the Related Party Franchisee Form (Exhibit 10-R))
<TABLE>
<CAPTION>
DEVELOPER EXECUTION DATE TERRITORY
<S> <C> <C>
Baystate Bagels, Inc. 3/29/94/ Amended 12/8/95 Western MA, CT,
Southern VT
Beantown Bagels, Inc. 3/29/94/ Amended 12/8/95 Suburban Boston
Flour City Bagels, Inc. 3/29/94/ Amended 12/8/95 Albany, Rochester and
Syracuse, NY
Gofer Bagels, Inc. 3/29/94/ Amended 12/8/95 Minnesota
Hawkeye Bagel Bakeries, 3/29/94/ Amended 12/8/95 Iowa
Inc.
Iron City Bagels, Inc. 3/29/94/ Amended 12/8/95 Pittsburgh, PA
Lakeland Bagels, Inc. 3/29/94/ Amended 12/8/95 Minnesota
Norland Bagels, Inc. 3/29/94/ Amended 12/8/95 Minnesota
Norstar Bagel Bakeries, 3/29/94/ Amended 12/8/95 Minnesota
Inc.
Outland Bagels, Inc. 3/29/94/ Amended 12/8/95 Rochester, MN
Tarheel Bagels, Inc. 3/29/94/ Amended 12/8/95 Tri-Cities of North
Carolina
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
State of
Incorporation
Subsidiary Or Organization DBA
---------- --------------- ---
<S> <C> <C>
BEST BAGELS, INC. Indiana Bruegger's Fresh Bagel
Bakery
BRAVOKILO, INC. Indiana Burger King restaurant
FULL SERVICE DINING, INC. Indiana Spageddies restaurant
SOUTHWEST DINING, INC. Indiana Chili's restaurant
GRAYLING CORPORATION Delaware Chili's restaurant
CHILI'S OF MT. LAUREL, INC. New Jersey Chili's restaurant
CHILI'S OF CHRISTIANA, INC. Delaware Chili's restaurant
GRADY'S AMERICAN GRILL Indiana Grady's American
RESTAURANT CORPORATION Grill restaurant
GAGHC, INC. Delaware Grady's American
Grill restaurant
GAGLC, INC. Texas Grady's American
Grill restaurant
GRADY'S AMERICAN GRILL L.P. Texas Grady's American
Grill restaurant
GRADY'S, INC. Tennessee Grady's American
Grill restaurant
BRUEGGER'S CORPORATION Delaware Bruegger's Bagel Bakery
BF HOLDING, INC. Delaware Bruegger's Bagel Bakery
BRUEGGER'S FRANCHISE Delaware Bruegger's Bagel Bakery
CORPORATION
MOHOLD FRANCHISE Delaware Moe's Broadway Bagel
CORPORATION
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Quality Dining, Inc. on Form S-8 (File No. 33-84698) of our report dated January
10, 1997, on our audits of the consolidated financial statements of Quality
Dining, Inc. and subsidiaries as of October 27, 1996 and October 29, 1995, and
for the fifty-two week periods ended October 27, 1996, October 29, 1995 and
October 30, 1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
South Bend, Indiana
January 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-27-1997
<PERIOD-END> OCT-27-1997
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 19,754
<ALLOWANCES> 0
<INVENTORY> 3,082
<CURRENT-ASSETS> 28,714
<PP&E> 203,398
<DEPRECIATION> 26,354
<TOTAL-ASSETS> 388,014
<CURRENT-LIABILITIES> 30,101
<BONDS> 85,131
<COMMON> 28
0
0
<OTHER-SE> 269,095
<TOTAL-LIABILITY-AND-EQUITY> 388,014
<SALES> 232,356
<TOTAL-REVENUES> 237,630
<CGS> 72,201
<TOTAL-COSTS> 226,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,340
<INCOME-PRETAX> 4,668
<INCOME-TAX> 1,998
<INCOME-CONTINUING> 2,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,670
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
