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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: June 27, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file Number: 0-21397
COFFEE PEOPLE, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1073218
(State of Incorporation) (I.R.S. Employer
Identification No.)
11480 COMMERCIAL PARKWAY
CASTROVILLE, CA 95012
(Address of principal executive offices)
Issuer's telephone number: (831) 633-4001
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
(Title of class)
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/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Registrant's Common
Stock on August 31, 1998, as reported on the SmallCap tier of the Nasdaq Stock
Market was $5,457,690.
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As of August 31, 1998, there were 10,747,977 shares of Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................... 1
Item 2. Facilities....................................................... 7
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to Vote of Security Holders................ 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 10
Item 6. Selected Financial Data.......................................... 11
Item 7. Management's Discussion and Analysis............................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 21
Item 8. Financial Statements and Financial Statement Schedule............ 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 22
PART III
Item 10. Directors, Executive Officers, Promoters. and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 22
Item 11. Executive Compensation........................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Management... 30
Item 13. Certain Relationships and Related Transactions................... 31
PART IV
Item 14. Exhibits and Reports on Form 8-K. ............................... 32
Signatures................................................................ 36
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PART I
ITEM 1. BUSINESS
GENERAL
Coffee People, Inc. (the "Company" or "Coffee People") is the second
largest specialty coffee retailer in the United States with 246 franchise and
69 company-operated stores in the United States and internationally. In addition
to its network of retail outlets, the Company operates a coffee roasting
facility located in Castroville, California.
On May 19, 1998, Coffee People combined with Gloria Jean's Inc. ("Gloria
Jean's") in a transaction (the "merger") in which Coffee People acquired all of
the outstanding common stock of Gloria Jean's in exchange for the issuance of
7,460,679 shares of Coffee People common stock to Second Cup USA Holdings Ltd.
("Second Cup"), a wholly owned subsidiary of The Second Cup Ltd., giving Second
Cup 69.5% ownership of the combined company. Following completion of the merger,
Coffee People relocated its corporate offices from Beaverton, Oregon to
Castroville, California, where Gloria Jean's offices are located.
The transaction has been accounted for as a reverse merger in which
Gloria Jean's is treated as the accounting acquiror. As a result of this
accounting treatment, the historical financial statements of Gloria Jean's
become the historical financial statements of the combined company. Also
consistent with this accounting treatment, the fiscal year end for Coffee People
has been changed from December 31 to the last Saturday in June, to conform with
the year end used by Gloria Jean's.
The Company operates three retail brands:
Gloria Jean's: Gloria Jean's has 30 company-operated and 246 franchised
stores in 36 states, one U.S. territory and in six foreign countries. The
business was acquired by Second Cup effective September 30, 1995 from Brothers
Retail Corp. ("Brothers"), a subsidiary of Brothers Gourmet Coffees, Inc. which
had acquired the business in 1993 from its original owners. The first Gloria
Jean's store opened in 1979 in Illinois and franchising of Gloria Jean's stores
began in 1986.
Coffee People Oregon: Coffee People Oregon opened its first store in
Portland, Oregon in 1983 and currently has 25 stores, all located in Oregon. As
of August 31, 1998, all of the Coffee People Oregon stores are company-operated
and include neighborhood coffee houses, drive-through espresso bars, mall-based
stores and specialty kiosks.
Coffee Plantation: There are 14 company-operated Coffee Plantation
stores -- 12 located in Phoenix, Arizona and two located in Tucson, Arizona. The
Coffee Plantation stores were acquired in May 1997 from The Coffee Plantation,
Inc., an indirect wholly-owned subsidiary of Second Cup.
On September 1, 1998, the Company announced that all existing
company-operated Coffee People Oregon stores and Coffee Plantation stores would
be made available for franchising and that new Coffee People Oregon and Coffee
Plantation stores will be primarily franchised.
The Company's retail stores all carry coffee and coffee beverages
although product line differs somewhat among the three brands. Gloria Jean's
retail outlets generally offer a full range of coffee beans, coffee beverages,
teas and food as well as a variety of related gifts, supplies, equipment and
accessories. The Coffee People Oregon and Coffee Plantation stores sell coffee
beverages, coffee beans, cookies, pastries, ice cream, shakes and coffee-related
merchandise.
INDUSTRY OVERVIEW
The specialty coffee retail business in the United States is growing
rapidly and is undergoing substantial change. Industry sources estimate that
total retail sales of specialty coffee
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will reach $5.0 billion in 2000 from $1.5 billion in 1990. It is
estimated that the number of coffee cafes, espresso bars and espresso carts will
increase to 15,000 by 2000 from less than 1,000 in 1990. Due to ease of entry
into the business and the growing popularity of specialty coffee nationwide,
there has been a proliferation of single unit operators and small, regional
coffee companies, many having fewer than 50 stores.
Industry studies suggest that a high proportion of consumers in the
United States now recognize and appreciate the difference in quality between
instant and canned coffees and specialty coffees, which are made from higher
quality coffee beans roasted to specifications that produce coffee with more
flavor and consumer appeal. The percentage of consumers that have purchased
specialty coffee increased from 10 percent in 1989 to 31 percent in 1994 and is
expected to reach 50 percent by the year 2000.
The Company believes that the specialty coffee industry is entering a
period of consolidation, as small to medium-size coffee companies experience
growing demands for capital, management expertise and buying power.
The Company believes that it can continue to expand its three brands and
that it can participate in the consolidation of the specialty coffee industry by
combining with other strong regional specialty coffee companies throughout the
United States.
COMPANY STRATEGY
The Company's objective is to be a leading specialty coffee retailer in
selected markets by profitably expanding its network of retail stores, and by
seeking to grow in new markets through selected acquisitions.
The key elements of Coffee People's strategy include:
Moving to an "All Franchising" Business. The Company is pursuing an "all
franchising" strategy in its three retail brands. Existing company-operated
stores operating under the Coffee People Oregon and Coffee Plantation brands, as
well as new stores, are currently being offered for franchising. The Company's
Gloria Jean's stores are already primarily franchised.
Building on Regional Brand Awareness and Loyalty. The Company believes
that success as a specialty coffee retailer is enhanced by a regional focus. To
this end, all three retail brands will maintain their own distinct
"personalities" and local characteristics. While Gloria Jean's stores will
continue to be expanded nationally, both the Coffee People Oregon and Coffee
Plantation divisions will be grown in their respective regional markets.
Acquiring and Integrating Regional Operators. The Company anticipates
that there will be further consolidation in the specialty coffee industry. To
participate in this consolidation, Coffee People will evaluate opportunities
that may arise to combine local and regional coffee companies with strong brand
identity and customer loyalty, as well as other compatible specialty retailers.
DISTRIBUTION STRATEGY AND STORE TYPES
The Company's principal distribution channel is retail stores, including
mall-based stores, neighborhood coffee houses, drive-through espresso bars,
airport stores, and specialty kiosks. The Company may seek to develop other
distribution points such as wholesale, mail order catalogs, airlines and
co-developed stores that feature coffee and other complementary products. For
example, Coffee People Oregon has entered into a licensing agreement with an ice
cream manufacturer for the distribution of ice cream under Coffee People's brand
name in
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supermarkets and other grocery outlets.
The Company has five retail operating systems:
Mall-based Store/Kiosk/Cafe. Coffee People's mall-based stores consist
primarily of Gloria Jean's outlets. Mall-based stores generally are full-service
stores with limited seating, selling coffee-related merchandise and whole beans
along with prepared espresso-based drinks. As of June 27, 1998 Coffee People had
267 Gloria Jean's and four Coffee Plantation mall-based stores.
Neighborhood Coffee House. Neighborhood coffee houses, located in both
urban and suburban neighborhoods and business districts, offer a complete line
of coffee products, including beverages, beans and merchandise. As of June 27,
1998, Coffee People had 18 neighborhood coffee houses: seven in the Portland
area and one in Eugene, Oregon operating under the Coffee People brand, eight
neighborhood coffee houses in Arizona operating under the Coffee Plantation
brand and two under the Gloria Jean's brand.
Drive-Through Espresso Bar. The drive-through espresso bar operates
under the Motor Moka(R) brand. As of June 27, 1998, Coffee People operated nine
of these stores in Portland, two of which have indoor seating. Drive-through
stores without indoor seating generally have a walk-up window. These stores are
designed to maximize customer convenience by eliminating the need to park a car
and walk into a store. The Company intends to introduce Motor Mokas into
selected markets in early 1999.
Airport Store. Coffee People Oregon operates seven stores at Portland
International Airport operating under the brand name Aero Moka(R). These stores
include quick grab-and-go kiosks, coffee bars and a sit-and-relax cafe. Gloria
Jean's has one airport store and is in the process of opening more. Coffee
People believes these types of stores provide visibility and increase brand
recognition.
Specialty Kiosk or Cart. The Company's specialty kiosk or cart format is
designed for placement in high-traffic locations such as supermarkets,
university campuses and office building lobbies. Kiosks primarily sell coffee
beverages and pastries. Coffee People has nine kiosks - six operating under the
Gloria Jean's brand, one in Portland, operating under the Coffee People brand
and two Coffee Plantation kiosks in Phoenix. The Company intends to expand in
this area as opportunities arise.
CORPORATE ORGANIZATION
Coffee People is currently 69.4% owned by The Second Cup USA Holdings
Ltd., a wholly owned subsidiary of The Second Cup Ltd. headquartered in Toronto.
The remaining 30.6% of the Company is publicly owned.
Coffee People carries on its Gloria Jean's operations through its wholly
owned subsidiary Gloria Jean's Inc., which indirectly owns 100% of the
outstanding capital stock of Gloria Jean's Gourmet Coffees Franchising Corp.
("Franchising Corp.") and Gloria Jean's Gourmet Coffees Corp. ("Gourmet
Coffees"). Franchising Corp. is in the business of selling franchisees the right
to own and operate Gloria Jean's coffee stores. Gourmet Coffees is a wholesaler
and distributor of coffees, beverage products, and related supplies and
accessories to franchisees and third parties. In addition, Gourmet Coffees
generally negotiates and leases sites for the location of Gloria Jean's stores
on behalf of franchisees and subleases the sites to them on a cost pass through
basis.
Following the merger in May 1998, the Company performed a strategic
review to identify the most effective and profitable way to leverage the value
and growth potential of its three brands. Management concluded that the
franchise model utilized at Gloria Jean's was the best strategy for the Coffee
People Oregon and Coffee Plantation brands. The Company is proceeding with a
plan to franchise both company-operated and new Coffee People Oregon
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stores in Oregon and Coffee Plantation stores in Arizona.
PRODUCTS
The Company offers a broad product line including specialty coffees,
beverages, coffee beans, pastries and cookies, ice cream and shakes and coffee
related merchandise . Caffeinated and decaffeinated coffee and espresso-based
drinks are offered at all stores and a number of stores sell pastries, cookies,
ice cream and shakes. Certain Coffee Plantation stores offer an expanded menu
including soups, salads, sandwiches and light meals.
Most of the Company's retail outlets carry coffee-related accessories,
appliances and gift items to complement its coffee products. There is a heavy
emphasis on gift and accessory items in the majority of the Gloria Jean's stores
because of their mall locations. Because of this emphasis, the Gloria Jean's
portion of the business is highly seasonal with increased sales within the
eight-week period prior to Christmas. Approximately 30% of annual sales at
Gloria Jean's for the 1998 fiscal year occurred during this eight-week period.
The following table sets forth, as percentages, the approximate sales
mix by category of Coffee People's principal products for its most recently
completed fiscal year, based on results of company-operated stores:
<TABLE>
<CAPTION>
% of Sales
<S> <C>
Beverages 58
Coffee Beans 17
Food Items 11
Gifts and other Merchandise 14
---
Total 100
</TABLE>
COFFEE ROASTING FACILITY
The Company operates its own coffee roasting facility in Castroville,
California, from which it supplies all its franchise and company-operated
stores. Following the merger, the Company began the process of integrating the
Coffee People Oregon and Coffee Plantation roasting operations with those of
Gloria Jean's. As of August 31, 1998, the Castroville roasting facility is
supplying all the Coffee Plantation stores and the Company expects to complete
the integration of roasting for the Coffee People Oregon stores by the end of
January 1999.
In order to avoid speculation on spot coffee prices, which are subject
to price fluctuations, the Company typically enters into contracts to lock in a
portion of its future coffee prices. As of June 27, 1998, the Company had
contracted for approximately 65 percent of its overall estimated coffee
requirements through June 1999. The Company is subject, however, to the
worldwide supply and availability of coffee. Substantially all of the Company's
coffees are delivered through the port of San Francisco, approximately 115 miles
from Castroville.
The Company is committed to delivering the highest quality coffee and
has developed supply relationships with specialty coffee growers and processors
to ensure a reliable ongoing source of quality green coffee. The coffee is
roasted, packaged and distributed in accordance with exacting quality standards.
Roasted whole bean coffees are packaged in special one-way valve bags which
allow gases emitted by the freshly roasted coffee to escape while preventing air
or moisture from entering the bag and causing the coffee to stale.
In 1997, the Company began using a 4 oz valve can which applies the same
one-way valve technology to a can, permitting freshly ground coffee to be
packaged immediately after roasting. This results in fresher coffee than
typically available in a can, providing customers with a convenient, high
quality product which is particularly important for gift giving when the coffee
may not be consumed for several weeks after it is purchased. Coffee People
manufactures these canned coffee products for its franchisee stores,
company-operated stores and Second Cup stores in Canada.
The Company sells and distributes coffees to its franchisees on a
cost-plus basis, which includes the actual cost of green coffee and costs
associated with roasting and delivery, plus a
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fixed mark-up. As a result, the gross profit from wholesale product sales is
generally insulated from variability in coffee prices except to the extent that
such fluctuations affect the demand for specialty coffee. Gross profit
associated with sales of coffee at company-operated stores is not similarly
insulated.
FRANCHISES
On September 1, 1998, the Company announced that it was adopting an "all
franchising" business strategy. Existing company-operated stores operating under
the Coffee People Oregon and Coffee Plantation brands, as well as new stores,
are currently being offered for franchising. The Company's Gloria Jean's stores
are already primarily franchised.
Franchise Operations. The current franchise agreement requires
franchisees to purchase all of their coffee from the Company. In addition, the
Company supplies franchisees with other non-coffee products, such as cups, bags
and napkins. Suppliers of products sold in its franchised stores are subject to
Company approval to ensure that quality standards and product consistency are
maintained at all times.
Coffee People has a right of first refusal upon any sale or transfer of
an existing franchise store and has the right to approve new franchisees prior
to transfer or assignment.
The Company offers a number of its Gloria Jean's franchisees an
opportunity to operate a holiday gift center during the November-December
holiday season. The holiday gift centers are subject to the Company's approval
and the ability to obtain suitable locations each holiday season.
Management believes that store profitability and the quality of customer
service are maximized when stores are operated by talented and committed
management. The Company has implemented a rigorous screening process for the
selection of qualified franchisees and management.
Franchise Support Programs. The Company provides a variety of support
services to its franchisees, including training, supervision, business
consultation, strategic direction, marketing, product sourcing and volume
purchasing savings. The Company has established an intensive three week training
program for its franchisees which includes training on in-store operations,
coffee knowledge, merchandising, buying, controls and accounting. Management
works closely with franchisee representatives on issues that affect the
operations of stores. Franchisees are surveyed regularly to provide feedback on
subjects that affect the operations of their stores.
Franchise Economics. The franchisee is responsible for all of the
capital expenditures associated with the store, although the construction and
development process for new stores is usually coordinated by the Company in
order to ensure consistency of build out. For drive-through units the Company
utilizes an area development approach, under which the area developer agrees to
develop a specified number of units in a geographical territory and obtains
certain rights to that territory. Since July 1, 1996, ongoing charges to
franchisees have included a royalty of 6 percent of gross sales, and an
advertising fund contribution of up to 3 percent of gross sales.
MARKETING STRATEGY
The Company's central marketing strategy is to offer leading quality
products and exceptional customer service that creates customer loyalty in a
satisfying and stimulating environment. The Company seeks to satisfy multiple
coffee interests in three categories.
In its whole bean category, the Company features a number of proprietary
blends and estate coffees as well as leading flavored coffees. The Gloria Jean's
brand is known for its whole bean flavored coffees, which currently represent
more than 50 percent of whole bean sales and is a growing portion of the coffee
industry. The Company believes that the on-going development and featuring of
new flavors, blends and single origin coffees provide customers with variety and
retains their interest.
In its beverage category, the Company features brewed coffees,
espresso-based drinks,
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ice-cream drinks, Mocha Chiller and Fruit Chillers and a variety of other
drinks. Existing and new products are frequently sampled in stores to introduce
customers to new taste experiences.
In its gift and other merchandise category, the Company offers a
variety of proprietary gifts and merchandise to complement its coffee products.
COMPETITION
The specialty coffee market is intensely competitive and highly
fragmented. With low barriers to entry, competition in the industry is expected
to increase from national and regional chains, franchise operators and local
specialty coffee stores.
The Company competes with a growing number of specialty coffee retailers
including Starbucks, Seattle's Best Coffee, Barnie's, Coffee Beanery Ltd,
Caribou, Peet's Coffee and many others. The Company competes against virtually
all coffee sellers. A number of nationwide coffee manufacturers, such as Kraft
General Foods, Proctor & Gamble, and Nestle, distribute coffee products in
supermarkets and convenience stores, which may serve as substitutes for Coffee
People coffees. Other specialty coffee companies including Starbucks , Seattle's
Best Coffee, Bucks County, Brothers Gourmet Coffees and Green Mountain Coffee
Roasters, sell whole bean coffees in supermarkets and variety and discount
stores.
INTELLECTUAL PROPERTY
Coffee People owns federal trademark registrations for "Coffee People,"
"Coffee Plantation," and "Gloria Jean's" as well as several other slogans,
product names, design marks and logos. The Company also owns a number of common
law service marks and trademarks in the United States including "Gloria Jean's
Coffee Bean." Several federal trademark applications are pending, including one
for "Gloria Jean's Coffees." The Company has also received trademark and service
mark protection for the name Coffee People and related marks in Canada and
Japan.
GOVERNMENT REGULATION
In addition to the laws and regulations relating to the food service
industry, the Company is subject to Federal Trade Commission ("FTC") regulation
and state laws which regulate the offer and sale of franchises.
The FTC's Trade Regulation Rule relating to Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures (the "FTC
Rule") generally requires the Company to furnish to prospective franchisees a
franchise offering circular containing information prescribed by the FTC Rule.
In addition, several states presently regulate the offer and sale of franchises
and, subject to limited exemptions, require registration of the franchise
offering with state authorities.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship presently exist in a substantial number of
states. Such laws generally require registration of the franchise offering with
state authorities prior to making offers or sales and regulate the franchise
relationship by, for example, requiring the franchisor to deal with its
franchisees in good faith, prohibiting interference with the right of free
association among franchisees, prohibiting discrimination in fees and charges,
regulating the basis for (and/or means of) terminating the relationship,
requiring repurchase of inventories in some circumstances, restricting
nonrenewal by the franchisor, limiting restrictions on transfers or inheritance
of the franchisee's interests, regulating placement of competing units which
might adversely affect the franchisee's results and other matters. To date,
these laws have not precluded the Company from seeking franchisees in any given
area. Although such laws may restrict a franchisor in the termination of a
franchise agreement by, for example, requiring "good cause" to exist as a basis
for the termination, advance notice to the franchisee of the termination, an
opportunity to cure a default and repurchase of inventory or other compensation,
these provisions have not had a
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significant effect on the Company's franchise-related operations.
The Company believes that its operations comply in all material respects
with the FTC Rule and state franchise laws. There can be no assurance, however,
that changes to the FTC Rule or state franchise laws, or future court or
administrative decisions, will not affect the Company's franchise business.
There are also extensive federal, state and local government regulations
relating to the development and operation of food service outlets, including
laws and regulations relating to building and seating requirements, the
preparation and sale of food, cleanliness, safety in the workplace,
accommodations for the disabled and the Company's relationship with its
employees, such as minimum wage requirements, anti-discrimination laws, overtime
and working conditions and citizen requirements. The failure to obtain or retain
necessary food licenses, substantial increases in the minimum wage or
substantial increases in payroll taxes or requirements to fund mandatory
health-care or employee benefit programs could have a material adverse effect on
the Company.
EMPLOYEES
As of June 27, 1998, the Company had 1,409 employees, of which 508 were
full time and 901 were part time employees. None of the employees of the Company
are covered by a collective bargaining agreement. The Company believes that its
employee relations are good.
ITEM 2. FACILITIES
All of the Company's Gloria Jean's locations are operated in leased
premises, most situated in regional malls. Virtually all of the leased premises
occupied by franchised outlets are leased by Gloria Jean's which then enters
into sublease agreements with the franchisee on a cost pass-through basis.
Gloria Jean's, however, remains obligated under the lease. Gloria Jean's stores
are designed to accommodate locations in various sizes, ranging from 170 square
foot kiosk outlets (which sell principally coffee drinks and other beverages) to
2,000 square foot full service stores.
The Company currently owns the land and buildings at which two of its
company-operated Coffee People Oregon drive-through espresso bars (Motor
Moka(R)) are operated. In addition, it owns the building and leases the
underlying land for five additional company-operated facilities. Existing
company-operated retail stores range from 150 to 2,850 square feet. The monthly
lease rate for certain stores is based on that store's monthly sales revenue.
Certain of the Company's leases expire in the near future. There can be no
assurance that specific leases can be renewed on terms acceptable to Coffee
People or at all.
One of the Coffee People Oregon company-operated stores is operated in a
shopping mall undergoing redevelopment for which rent is paid month-to-month.
The lessor at any time could demand that Coffee People vacate the premises on 30
days prior written notice. The Company has periodic discussions with the lessor
relative to entering into a long-term lease.
Under its lease with the Port of Portland for the seven Aero Moka stores
at Portland International Airport, Coffee People Oregon is required to enter
into a joint venture with a certified disadvantaged business enterprise for one
of its airport stores. Upon entry into the joint venture, Coffee People will
have a 49 percent ownership in that store.
The Company's corporate offices and roasting facilities in Castroville,
California consist of approximately 60,000 square feet and are leased through
December 31, 2005. The Company believes that its facilities in Castroville are
adequate for its present needs and for the foreseeable future.
The Company currently leases approximately 9,400 square feet of office
space in
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Beaverton, Oregon and 1,888 square feet of office space in Tempe, Arizona for
its regional offices. The Company is seeking to sublet or assign the lease,
which expires in February 2004, for portions of its Beaverton office.
Approximately 2,660 square feet is currently subleased to a third party.
The Company's stores at fiscal year ended June 27, 1998 were located as
follows:
GLORIA JEAN'S STORES
<TABLE>
<CAPTION>
LOCATION # OF STORES
-------- -----------
<S> <C>
United States
Midwest 75
West 53
East 47
Southeast 33
Northeast 18
Southwest 18
---
Total, United States 244
---
United States Territory (Guam) 1
---
International
Ireland 2
Japan 14
Korea 2
Mexico 6
Australia 5
United Arab Emirates 2
---
Total, International 31
---
ALL STORES 276
===
</TABLE>
MIDWEST: Arkansas, Illinois, Indiana, Kansas, Michigan, Minnesota, Nebraska,
Oklahoma, Wisconsin, Missouri
WEST: Hawaii, California, Colorado, Nevada, Washington
EAST: Maryland, New Jersey, New York, Ohio, Pennsylvania, Virginia,
West Virginia
SOUTHEAST: Florida, Georgia, Kentucky, Louisiana, South Carolina,
North Carolina, Tennessee
NORTHEAST: Connecticut, Massachusetts, Maine, New Hampshire
SOUTHWEST: Arizona, New Mexico, Texas
COFFEE PEOPLE/OREGON
Oregon 25
COFFEE PLANTATION
Arizona 14
---
TOTAL ALL STORES 315
===
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant and a plaintiff in various lawsuits from time
to time. No
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legal proceedings are in progress or pending against the Company, other than
proceedings set forth below or proceedings incidental to carrying on its
business and operations in the ordinary course which, individually or in the
aggregate, are not material to the Company.
Security Trust Company v. Gloria Jean's Gourmet Coffees Corporation. The
claimant filed a claim in the Superior Court of the State of California, County
of Contra Costa, asking for unpaid rent and late charges for a Gloria Jean's
store in Richmond, California vacated by the Company. Gloria Jean's has
requested that the landlord mitigate damages caused by early termination of the
lease by seeking to relet the premises. Unpaid rent plus rent through the
remainder of the original lease term would be approximately $175,000. Management
does not believe the outcome of this litigation will have a material adverse
effect on the Company.
KKW Enterprises, Inc. v. Gloria Jean's Gourmet Coffee Franchising Corp.
On or about May 7, 1998, plaintiff filed a complaint against Franchising Corp.
in the Superior Court of the State of Rhode Island for Providence County
alleging that Franchising Corp. by making certain misrepresentations
fraudulently induced plaintiff to enter into franchise agreements for Gloria
Jean's stores. Plaintiff seeks damages for the losses it purportedly incurred in
obtaining and operating its Gloria Jean's stores and recission of its two
remaining franchise agreements. On Franchising Corp.'s motion, the case was
removed to the United States District Court for the District of Rhode Island.
Franchising Corp. has filed a Demand for Arbitration with the Chicago office of
the American Arbitration Association, seeking a declaration that Franchising
Corp. has no liability for the claims asserted and has demanded that plaintiff
submit the claims pending in the District Court to arbitration in accordance
with the franchising agreements. This case is still in the early stages of
litigation and there can be no assurance that a favorable outcome will be
obtained or that if the matter were resolved in favor of the plaintiff there
would not be a material adverse effect on the Company.
Sugai Products, Inc. v. Kona Kai Farms, Inc., Regton Companies, Inc.,
Starbucks Corp., Peet's Coffee and Tea, Inc., Gloria Jean's Gourmet Coffees
Corp. (the "Kona litigation"). On January 9, 1997, the plaintiffs filed a
putative class action against the defendants alleging violation of the Lanham
Act, the Hawaii Uniform Deceptive Trade Practices Act and the Hawaii Unfair
Trade Practices Act. The plaintiffs, who purport to represent a class of Kona
coffee growers, wholesalers and retailers, allege that the defendants sold
coffee beans grown in Central America under the false label "Kona coffee" and
seek an injunction, unspecified damages, attorneys' fees and costs. In March,
Gourmet Coffees Corp. and certain other defendants moved to dismiss the
complaint or, in the alternative, for a more definitive statement of the claim.
The plaintiffs filed a motion for class certification in July 1997. In January
1998, the United States District Court for the District of Hawaii denied class
certification.
In July of this year, Gloria Jean's and Brothers Gourmet Coffees agreed
on present and future indemnification in connection with the settlement of the
escrow account established pursuant to The Second Cup's purchase of Gloria
Jean's stock from Brothers. As consideration for the settlement, Gloria Jean's
has released Brothers from further liability for all pending and future legal
proceedings. Brothers has agreed to continued indemnification of Gloria Jean's
in connection with the Kona litigation as it relates to the period ended
November 9, 1995 and for amounts owed on California and Illinois sales tax
audits, currently under way, in excess of $130,000. On August 27, 1998, Brothers
filed a voluntary petition for relief under Chapter 11 of Title 11 of the United
States Code with the United States Bankruptcy Court for the District of
Delaware. However, the Company intends to take all legal measures to protect any
claims it may have against Brothers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the registrant was held on May
19, 1998.
(b) The meeting involved the election of directors. Proxy statements for
the meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There was no solicitation in opposition to management's
nominees as listed on the proxy statement. All of management's nominees were
elected.
9
<PAGE> 13
(c) Three other matters were also voted upon at the meeting. These
matters involved (i) the issuance of Coffee People's common shares to Second Cup
USA Holdings Ltd., a wholly owned subsidiary of The Second Cup Ltd., in exchange
for 100% of the issued and outstanding stock of Gloria Jean's Inc., (ii) the
approval of the 1998 Stock Incentive Plan, and (iii) the ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants. The
following table sets forth information with respect to votes cast for and
against each such matter and each nominee for director:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Matter For Against Abstaining Non-votes
- ------ --------- ------- ---------- ---------
<S> <C> <C> <C> <C>
The Issuance 1,882,169 2,462 3,250 0
1998 Stock Incentive Plan 1,464,201 12,400 11,280 0
Ratification of Accountants 1,877,189 7,362 3,330 0
Nominee
- -------
Douglas L. Ayer 1,810,694 77,187 0 --
Michael Bregman 1,811,444 76,437 0 --
Robert M. Haft 1,811,444 76,437 0 --
Alton W. McEwen 1,811,444 76,437 0 --
Gary G. Talboy 1,809,944 77,937 0 --
Kathy A. Welsh 1,811,444 76,437 0 --
</TABLE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on September 25, 1996 on the
Nasdaq National Market under the symbol "MOKA". After the reverse merger was
completed, the Nasdaq Listing Qualifications Panel concluded that the NASD
marketplace rules required the Company to meet the initial Nasdaq National
Market initial inclusion criteria following its merger with the U.S. operations
of The Second Cup Ltd. on May 19, 1998. As the Company's current share price was
below the minimum bid share price for listing on Nasdaq National Market on
August 27, 1998, the Company's common stock was moved from the Nasdaq National
Market to the Nasdaq SmallCap Market. The Company has submitted a formal listing
application to the Nasdaq SmallCap Market.
The table below sets forth for the periods indicated the high and low
sale prices per share of Coffee People common stock, as reported by the Nasdaq
National Market
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1998 (Ended June 27, 1998):
Fourth Quarter $4.25 $2.625
Third Quarter 3.063 2.50
Second Quarter 4.625 2.813
First Quarter 5.00 3.250
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1997 (Ended June 28, 1997)
Fourth Quarter $8.00 $4.50
Third Quarter 7.50 6.00
Second Quarter 9.125 6.25
First Quarter NA NA
</TABLE>
On August 31, 1998, the closing price of Coffee People common stock, as
reported on the Nasdaq SmallCap Market, was $1.875 and there were 502 record
holders of Coffee People common stock.
No cash dividends were declared or paid by Coffee People during any of
the periods presented above. On July 26, 1996, Coffee People declared a 3-for-2
stock split. Coffee People does not intend to pay any cash dividends in the
foreseeable future, and intends to retain all earnings for use in its business
operations. Coffee People's bank credit arrangements currently prohibit the
payment of cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
OWNED BY
KVETKO'S(4) OWNED BY BROTHERS(5)
----------- ---------------------------------------
34-WEEK 6-WEEK FISCAL 39-WEEK
PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
NOV 19, DEC 31, DEC 30, SEPT 29,
1993 1993 1994 1995
----------- ------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Franchise revenues ............. $ 2,218 $ 1,280 $ 6,804 $ 3,442
Retail sales(1) ................ 3,320 -- 8,935 4,704
Wholesale sales(1) ............. 9,850 6,325 15,054 8,595
-------- ------- -------- --------
Total revenues ................. 15,388 7,605 30,793 16,741
-------- ------- -------- --------
Expenses:
Cost of goods sold ............. 9,707 4,475 16,240 9,614
Store and other
operating expenses(2)(3) ..... -- -- 5,993 4,081
Depreciation and amortization .. 444 201 1,837 1,127
General and administrative
expenses(2)(3) ............... 5,778 1,128 6,288 4,552
Provision for store closures ... -- -- -- --
Acquisition and integration
expenses ..................... -- -- -- --
-------- ------- -------- --------
Total expenses ................. 15,929 5,804 30,358 19,374
-------- ------- -------- --------
Income (loss) from operations .... (541) 1,801 435 (2,633)
Interest income .................. 22 58 -- --
Interest expense ................. 230 16 351 888
-------- ------- -------- --------
Income (loss) before
(provision) benefit for
income taxes ................. (749) 1,843 84 (3,521)
</TABLE>
<TABLE>
<CAPTION>
OWNED BY
SECOND CUP
------------------------------
39-WEEK FISCAL FISCAL
PERIOD YEAR YEAR
ENDED ENDED ENDED
JUN 29, JUN 28, JUN 27,
1996 1997 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Franchise revenues ............. $ 4,971 $ 5,869 $ 6,035
Retail sales(1) ................ 6,657 7,631 11,436
Wholesale sales(1) ............. 13,329 17,079 17,580
----------- ----------- -----------
Total revenues ................. 24,957 30,579 35,051
----------- ----------- -----------
Expenses:
Cost of goods sold ............. 14,389 18,494 19,296
Store and other
operating expenses(2)(3) ..... 4,779 6,080 8,231
Depreciation and
amortization ................. 978 1,152 1,811
General and administrative
expenses(2)(3) .............. 2,825 5,458 4,079
Provision for store
closures ..................... -- 580 --
Acquisition and integration
expenses ..................... -- -- 437
----------- ----------- -----------
Total expenses ................. 22,971 31,764 33,854
----------- ----------- -----------
Income (loss) from
operations ..................... 1,986 (1,185) 1,197
Interest income .................. 203 426 315
Interest expense ................. -- -- 46
----------- ----------- -----------
Income (loss) before
(provision) benefit
for income taxes ............... 2,189 (759) 1,466
</TABLE>
11
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
(Provision) benefit for
income taxes ................... 287 -- (383) --
-------- ------- -------- --------
Income (loss) before
cumulative effect of
change in accounting
principle ...................... (462) 1,843 (299) (3,521)
Cumulative effect of change in
accounting principle ............ -- -- -- --
-------- ------- -------- --------
Net income (loss) ................ $ (462) $ 1,843 $ (299) $ (3,521)
======== ======= ======== ========
Shares used in computing
per share amounts ..............
Income (loss) per share:
Income (loss) before
cumulative effect of change in
accounting principle ........... $ -- $ -- $ --
Cumulative effect of change
in accounting principle ........ -- -- --
----------- ----------- -----------
Net income (loss) ................ $ -- $ -- $ --
=========== =========== ===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
(Provision) benefit for
income taxes ................... (965) (4) (728)
----------- ----------- -----------
Income (loss) before
cumulative effect of
change in accounting
principle ...................... 1,224 (763) 738
Cumulative effect of
change in accounting
principle ...................... -- (427) --
----------- ----------- -----------
Net income (loss) ................ $ 1,224 $ (1,190) $ 738
=========== =========== ===========
Shares used in computing
per share amounts .............. 7,460,479 7,460,479 7,812,491
Net income (loss) per share:
Income (loss) before cumulative
effect of change in
accounting principle ......... $ 0.16 $ (0.10) $ 0.09
Cumulative effect of change in
accounting principal ......... $ -- $ (0.06) $ --
----------- ----------- -----------
Net income (loss) ................ $ 0.16 $ (0.16) $ 0.09
=========== =========== ===========
</TABLE>
- -----------------------------
(1) For the 6-week period ended December 31, 1993, the information is not
available to accurately separate retail sales from wholesale sales.
(2) For the 34-week period ended November 19, 1993 and the 6-week period ended
December 31, 1993, the information is not available to accurately separate
store and other operating expenses from general and administrative expenses.
(3) For the 34-week period ended November 19, 1993 and the 6-week period ended
December 31, 1993, the information is not available to accurately separate
store and other operating expenses from general and administrative expenses.
(4) Due to the November 19, 1993 acquisition of Gloria Jean's Inc. ("Gloria
Jean's"), formerly Edglo Enterprises, Inc., by Brothers Retail Corp.
("Brothers"), the financial statements of the Company are not comparable to
those of the prior periods.
(5) Due to the September 30, 1995 acquisition of Gloria Jean's, formerly Edglo
Enterprises, by Second Cup, the financial statements of the Company are not
comparable to those of the prior periods.
<TABLE>
<CAPTION>
OWNED BY OWNED BY
KVETKO'S(3) OWNED BY BROTHERS(4) SECOND CUP
----------- ----------------------------------- ----------------------
34-WEEK 6-WEEK FISCAL 39-WEEK 39-WEEK FISCAL FISCAL
PERIOD PERIOD YEAR PERIOD PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
NOV 19, DEC 31, DEC 30, SEPT 29, JUN 29, JUN 28, JUN 27,
1993 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
(UNAUDITED)
Number of franchise
stores open at end
of period............. 164 169 187 209 224 236 246
Number of
corporate-owned
stores open at end
of period............. 24 24 23 27 23 31 69
</TABLE>
12
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Total number of
stores ................ 188 193 210 236 247 267 315
Store Activity:
(Unaudited)(1) ........
Number of stores
acquired during the
period(1) ............. 39
Number of stores
opened during the
period(1) ............. 17 29 26
Number of stores
closed during the
period(1) ............. 6 9 17
Systemwide sales--
unaudited(1) .......... $79,904 $102,065 $106,822
EBITDA (excluding certain
operating expenses) -
unaudited(2) .......... $ (97) $ 2,002 $ 2,272 $(1,506) $ 2,964 $ 547 $ 3,445
BALANCE SHEET DATA:
Total assets ............ $15,588 $52,834 $51,636 $46,043 $40,219 $ 38,923 $ 55,695
Long-term debt and
capital lease
obligations, net of
current portion ....... 214 195 84 25 -- -- 3,798
Common share
dividends ............. -- -- -- -- 1,562 -- --
Dividends per
common share .......... -- -- -- -- 0.21 -- --
</TABLE>
(1) Store activity, which includes the number of stores opened, closed or
disposed of during the period and systemwide sales is presented only for
those periods that Gloria Jean's was owned by Second Cup.
(2) EBITDA represents earnings before interest, taxes, depreciation,
amortization, provision for store closures, acquisition and integration
expenses, and cumulative effect of changes in accounting principles. This
information is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting principles
and is not intended to be superior to the financial information presented in
conformity with generally accepted accounting principles. This computation
may not be comparable to other similarly titled measures used by other
companies.
(3) Due to the November 19, 1993 acquisition of Gloria Jean's, formerly Edglo
Enterprises, by Brothers the financial statements of the Company are not
comparable to those of the prior periods.
(4) Due to the September 30, 1995 acquisition of Gloria Jean's, formerly Edglo
Enterprises, by Second Cup, the financial statements of the Company are not
comparable to those of the prior periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the federal securities law and involves a number of risks and
uncertainties. Actual results and trends may differ materially from the
statements contained in this discussion, depending on a variety of factors. Such
factors include, but are not limited to, the Company's ability to integrate the
Coffee People operations and to execute its franchising strategy; the Company's
ability to control costs associated with planned store closures; the price and
availability of green coffee; effects of competition; availability of additional
capital; and changes in applicable government regulations.
OVERVIEW
13
<PAGE> 17
Coffee People, Inc. ("Coffee People" or the "Company") is the second
largest specialty coffee retailer in the United States. On May 19, 1998, Coffee
People combined with Gloria Jean's Inc. ("Gloria Jean's") in a transaction (the
"merger") in which Coffee People acquired all of the outstanding common stock of
Gloria Jean's in exchange for the issuance of 7,460,679 shares of Coffee People
common stock to Second Cup USA Holdings Ltd. ("Second Cup"), a wholly owned
subsidiary of The Second Cup Ltd., giving Second Cup 69.5% ownership of the
combined company. Following completion of the merger, Coffee People relocated
its corporate offices from Beaverton, Oregon to Castroville, California, where
Gloria Jean's offices are located.
The transaction has been accounted for as a reverse merger in which
Gloria Jean's is treated as the accounting acquiror. As a result of this
accounting treatment, the historical financial statements of Gloria Jean's
became the historical financial statements of the combined company. Also
consistent with this accounting treatment, the fiscal year end for Coffee
People, Inc. has been changed from December 31 to the last Saturday in June, to
conform with the year end used by Gloria Jean's.
As of June 27, 1998, the Company had 246 franchised and 30
company-operated stores operating under the Gloria Jean's name in 36 states, one
U.S. territory, and six foreign countries, 25 company-operated stores operating
under the Coffee People name in Oregon, and 14 company-operated stores operating
under the Coffee Plantation name in Arizona. The Company also operates a coffee
roasting facility in Castroville, California.
The Gloria Jean's coffee business was started in Long Grove, Illinois,
in 1979 by Edward and Gloria Jean Kvetko. By 1993, the Gloria Jean's business
had grown to 188 franchised and company-operated stores located in 38 states and
one foreign country. On November 19, 1993, the Kvetkos sold all of the
outstanding common stock of their holding company, Edglo Enterprises, Inc.,
which owned the Gloria Jean's business, to Brothers, a wholly owned subsidiary
of Brothers Gourmet Coffees, Inc. At that time, the fiscal year-end of Gloria
Jean's was changed from March 31 to the last Saturday in December.
Effective September 30, 1995, Brothers sold the Gloria Jean's business,
together with a roasting facility, to a wholly owned subsidiary of The Second
Cup Ltd. At the time of its acquisition by The Second Cup Ltd., the fiscal
year-end of Gloria Jean's was changed to the last Saturday in June.
Coffee People had its origins in 1983. By the end of 1995, Coffee People
had grown to 19 company-operated stores all operating in Oregon. In September
1996, Coffee People completed an initial public offering in which it raised net
proceeds of $9,717,000 from the sale of 1,225,000 shares of Common Stock.
Following its initial public offering, Coffee People undertook an aggressive
expansion program, opening 14 new stores (seven of which were outside its core
market of Portland, Oregon) and acquiring 15 Coffee Plantation stores in Arizona
between October 1, 1996 and June 30, 1997. The Coffee Plantation stores were
acquired in May 1997 from The Coffee Plantation, Inc., an indirect wholly-owned
subsidiary of The Second Cup Ltd. During this period, Coffee People incurred
significant losses and, during its quarter ended June 30, 1997, took a charge of
$5,500,000 relating to the sale or closure of seven stores outside its Oregon
and Arizona markets and for related restructuring. Following this decision,
Coffee People re-evaluated its strategic alternatives and, after considering a
number of alternative courses of action and evaluating a number of potential
transactions, Coffee People agreed to the merger transaction in which it
combined with Gloria Jean's.
Because the merger closed on May 19, 1998, approximately six weeks prior
to the 1998 fiscal year-end, the operating results attributable to the acquired
Coffee People Oregon and Coffee
14
<PAGE> 18
Plantation operations have had only a limited impact on the overall operating
results of the combined company for the fiscal year ended June 27, 1998. Certain
costs associated with the acquisition and integration of Coffee People
operations have been accounted for as acquisition and integration expenses.
Gloria Jean's retail outlets generally offer a full range of gourmet
coffees, teas, and food, as well as a variety of related gifts, supplies,
equipment and accessories. Coffee People and Coffee Plantation stores sell
coffee beverages, coffee beans, cookies, pastries and coffee related
merchandise.
FISCAL YEAR ENDED JUNE 27, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 28, 1997
REVENUES. Total revenues increased 14.6% to $35,051,000 for the fiscal
year ended June 27, 1998, from $30,579,000 for the fiscal year ended June 28,
1997. The increase in total revenues was due primarily to an increase in retail
sales from company-operated stores.
Retail sales at company-operated stores increased 49.9% to $11,436,000
for the 1998 fiscal year from $7,631,000 in the 1997 fiscal year. The increase
in retail sales was due primarily to sales of $2,406,000 at the Company's Coffee
People Oregon and Coffee Plantation stores acquired on May 19, 1998, and to an
increase in the weighted average number of company-operated Gloria Jean's stores
- - 31 during the fiscal year ended June 27, 1998 as compared to 25 during the
fiscal year ended June 28, 1997.
Wholesale sales consist primarily of sales of roasted coffee and other
products and supplies to franchisees. Wholesale sales for the fiscal year ended
June 27, 1998 increased 2.9% to $17,580,000 for the fiscal year ended June 27,
1998 from $17,079,000 for the fiscal year ended June 28, 1997. This increase was
due to increased sales of coffee beans as a result of new franchisees as well as
a general price increase for products sold to franchised stores.
Franchise revenues consist primarily of initial franchise fees and
royalties received by Gloria Jean's on sales made at each franchise location.
Franchise revenue increased 2.8% to $6,035,000 for the fiscal year ended June
27, 1998 from $5,869,000 for the fiscal year ended June 28, 1997. The components
of this increase were a 27.7% increase in franchise fees to $640,000 in the 1998
fiscal year from $501,000 in the 1997 fiscal year and a 0.5% increase in
royalties to $5,395,000 in the 1998 fiscal year from $5,368,000 in the 1997
fiscal year. The increase in franchise fees was due to an increase in the number
of new stores franchised during the 1998 fiscal year over the number franchised
in the 1997 fiscal year. The increase in royalties was due to an increase in the
number of franchised stores which was offset by a decline of approximately one
percent in comparable store sales at franchised stores.
COSTS AND EXPENSES. Cost of goods sold increased 4.3% to $19,296,000 for
the fiscal year ended June 27, 1998, from $18,494,000 in the fiscal year ended
June 28, 1997, due to increases associated with the increases in retail sales.
These increases were partially offset by a reduction in cost of goods sold
associated with wholesale sales. Cost of goods sold as a percentage of retail
and wholesale sales decreased to 66.5% in the fiscal year ended June 27, 1998,
from 74.8% in the fiscal year ended June 28, 1997, due primarily to improvements
in production controls, plant efficiencies and a general increase in prices on
sales of products to franchised stores and also due to a more favorable cost
relationship associated with retail sales generated at the Company's Coffee
People Oregon and Coffee Plantation stores acquired on May 19, 1998. Product
costs as a percentage of retail sales are lower at Coffee People Oregon and
Coffee Plantation stores than at Gloria Jean's company-operated stores.
Store and other operating expenses increased 35.4% to $8,231,000 in the
fiscal year ended June 27, 1998, from $6,080,000 in the fiscal year ended June
28, 1997 primarily as a result of
15
<PAGE> 19
increased store operating expenses at Gloria Jean's company-operated stores and
store operating expenses attributable to the Coffee People Oregon and Coffee
Plantation stores acquired on May 19, 1998, and also to an increase in operating
expenses associated with franchise administration. These increases were
partially offset by a decline in franchise bad debt expense due to improved
credit and collection efforts. As a percentage of total revenues, store and
other operating expenses increased to 23.5% in the 1998 fiscal year from 19.9%
in the 1997 fiscal year.
Depreciation and amortization increased 57.2% to $1,811,000 in the
fiscal year ended June 27, 1998 from $1,152,000 in the fiscal year ended June
28, 1997, due to depreciation and amortization expense associated with the
Coffee People Oregon and Coffee Plantation stores acquired in May 1998 and an
increase in depreciation associated with new company-operated Gloria Jean's
stores opened during the year. These Gloria Jean's company-operated store assets
were depreciated until the Company decided at the end of fiscal year 1998 to
actively market these stores to franchisees. As a percentage of total revenues,
depreciation and amortization expense increased to 5.2% for the fiscal year
ended June 27, 1998 from 3.8% in the fiscal year ended June 28, 1997, primarily
due to depreciation and amortization associated with the increased number of
company-operated stores opened or acquired during the year which generally have
higher depreciation expense as a percentage of retail sales.
General and administrative expenses decreased to $4,079,000 in the 1998
fiscal year from $5,458,000 in the 1997 fiscal year primarily as a result of
expenses charged to general and administrative expense during the 1997 fiscal
period which were not incurred in the 1998 fiscal period, and as a result of a
$643,000 reimbursement received from Brothers in fiscal year 1998 in connection
with indemnification agreements associated with the 1995 acquisition of the
Gloria Jean's business from Brothers. The Brothers reimbursement in fiscal year
1998 represents a recovery of costs previously charged to general and
administrative expenses. Charges incurred in fiscal year 1997 that were not
incurred in fiscal year 1998 consisted of $420,000 associated with the
reacquisition and closure of a Gloria Jean's store pursuant to a repurchase
agreement and expenses associated with building a new management team and
implementing systems, standards, and controls throughout the organization.
General and administrative expense reductions in fiscal year 1998 were offset
somewhat by general and administrative expense increases arising as a result of
the Coffee People acquisition completed in May 1998. In addition, during fiscal
years 1998 and 1997, the Company recorded charges to general and administrative
expense of $223,000 and $198,000, respectively, for costs associated with the
write down of certain Gloria Jean's company-operated store assets. Because of
the foregoing factors, general and administrative expenses as a percentage of
total revenues decreased to 11.6% in the 1998 fiscal year from 17.8% in the 1997
fiscal year.
PROVISION FOR STORE CLOSURES: The Company took a charge of $580,000 in
fiscal year 1997 to provide for the closure of eight company-operated Gloria
Jean's stores. Costs relating to these stores incurred during the fiscal year
ended June 27, 1998 were $530,000. These costs were charged against the accrual
established at the end of the 1997 fiscal year. As of June 27, 1998, five of the
eight stores had been disposed of pursuant to lease termination agreements.
As of June 27, 1998, all of the Gloria Jean's company-operated stores
are held for sale to franchisees. For the 1998 fiscal year, revenues and
operating losses for these stores were $9,030,000 and $(1,204,000),
respectively. While management intends to sell these stores during fiscal year
1999, there can be no assurance that all of these actions can be taken by the
Company or that, if taken, such actions will improve the Company's financial
position, results of operations or
16
<PAGE> 20
cash flows.
ACQUISITION AND INTEGRATION EXPENSES: Acquisition and integration
expenses of $437,000 consist of costs associated with integrating Coffee People
operations and a portion of costs associated with exiting Coffee People
activities, including relocating and terminating Coffee People employees and
franchising Coffee People Oregon and Coffee Plantation retail stores. The exit
costs have been capitalized and recorded as an increase to goodwill to the
extent of Second Cup's 69.5% ownership interest. The remaining exit costs have
been expensed and are included in acquisition and integration expenses.
INTEREST INCOME. Interest income as a percentage of total revenues
decreased to 0.9% for the fiscal year ended June 27, 1998 from 1.4% for the
fiscal year ended June 28, 1997, due to a reduction in interest-bearing loans
receivable from an affiliated company resulting from the repayment of such loans
in fiscal year 1997.
INTEREST EXPENSE. Interest expense as a percentage of total revenues
increased to 0.1% for the fiscal year ended June 27, 1998 from 0.0 % for the
fiscal year ended June 28, 1997, as a result of interest incurred on long-term
debt obligations acquired as part of the Coffee People acquisition on May 19,
1998.
INCOME TAXES. The provision for income taxes increased to $728,000 for
the fiscal year ended June 27, 1998, from $4,000 for the fiscal year ended June
28, 1997, due to the Company generating taxable income during the 1998 period.
The effective tax rate of 49.7% for fiscal year 1998 primarily results from
federal and state income taxes and nondeductible goodwill amortization.
FIFTY-TWO WEEK PERIOD ENDED JUNE 28, 1997 COMPARED TO THE THIRTY-NINE WEEK
PERIOD ENDED JUNE 29, 1996.
The data presented for fiscal year 1996 consists of the thirty-nine week
period ended June 29, 1996, due to the acquisition of Gloria Jean's by Second
Cup effective September 30, 1995. Fiscal year 1997 consists of a full fifty-two
weeks. Approximately 30% to 35% of annual sales typically occur in the eight
week period preceding the year-end holidays. This seasonal trend together with
the substantial differences arising from the comparison of two periods of
differing lengths should be considered when reviewing the following discussion.
REVENUES. Total revenues increased 22.5% to $30,579,000 for the fiscal
year ended June 28, 1997 from $24,957,000 for the fiscal year ended June 29,
1996, due primarily to the impact of a full year of reported results in 1997
versus thirty-nine weeks in 1996. An additional 14 new franchises opened during
fiscal year 1997 also contributed to the increases in wholesale and other
revenue and franchise revenues. Retail sales increased to $7,631,000 for the
fiscal year ended June 29, 1997 from $6,657,000 for the thirty-nine week period
ended June 29, 1996. Wholesale and other revenues increased to $17,079,000 for
the fifty-two week period ended June 28, 1997 from $13,329,000 for the period
ended June 29, 1996. Franchise revenues increased to $5,869,000 for the 1997
period from $4,971,000 for the thirty-nine week period ended June 29, 1996.
COSTS AND EXPENSES. Cost of goods sold increased to $18,494,000 for the
fifty-two week period ended June 28, 1997 from $14,389,000 for the thirty-nine
week period ended June 29, 1996. Cost of goods sold increased to 74.8% as a
percentage of retail and wholesale sales for the 1997 period from 72.0% for the
1996 period due primarily to a write down of approximately $600,000 for holiday
gift pack inventory which did not meet Gloria Jean's quality standards and due
to a larger number of underperforming company-operated stores which had poor
operating efficiencies and higher coffee costs.
17
<PAGE> 21
Store and other operating expenses increased to $6,080,000 for the 1997
period from $4,779,000 for the 1996 period. Store and other operating expenses
as a percentage of total revenues increased to 19.9% in 1997 from 19.2% in 1996
primarily due to a larger number of underperforming company-operated stores
incurring higher operating expenses.
General and administrative expenses increased to $5,458,000 for the
period ended June 28, 1997 from $2,825,000 for the period ended June 29, 1996.
General and administrative expenses as a percentage of total revenues increased
to 17.8% in 1997 from 11.3% in 1996, due primarily to the investment undertaken
in building a new management team and implementing improved systems, standards
and controls throughout the organization. The increase also related to a
$198,000 write-down to market value of assets at company-operated stores which
were held for sale and a provision of $420,000 related to reacquisition and
store closure costs associated with a repurchase agreement.
PROVISION FOR STORE CLOSURES. The provision for store closures of
$580,000 consisted primarily of lease termination costs for eight of the
company-operated stores held for disposal. As of June 28, 1997, management
determined it was not feasible to sell these stores and implemented a plan to
close them during fiscal year 1998.
Revenues and operating income (losses) for the 24 company-operated
stores held for disposal, including the eight company-operated stores slated for
closure at June 28, 1997, were $7,051,000 and $(368,000) respectively, for the
fiscal year ended June 28, 1997 and $5,592,000 and $176,000, respectively, for
the thirty-nine week period ended June 29, 1996.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Effective as of the
beginning of fiscal year 1997, Gloria Jean's adopted the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). The
initial application of SFAS 121 to long-lived assets held for disposal at June
29, 1996 resulted in a non-cash charge of $427,000 (net of tax benefit of
$262,000) which represents the adjustment required to remeasure such assets at
the lower of carrying amount or fair value less costs to sell. Long-lived assets
held for disposal consist of leasehold improvements and furniture and other
property at company-operated stores which were held for sale. Assets held for
disposal at June 28, 1997 had an adjusted carrying value of $1,560,000.
INCOME TAXES. The provision for income taxes decreased to $4,000 for the
fiscal year ended June 28, 1997 from $965,000 for the thirty-nine week period
ended June 29, 1996. The decrease is due to Gloria Jean's reporting a net loss
before income taxes during fiscal 1997 as compared to income before income taxes
during the thirty-nine week period ended June 29, 1996. The effective income tax
rate decreased to 0% during fiscal year 1997 from 44.1% during the thirty-nine
week period ended June 29, 1996. During fiscal 1997, the federal and state
income tax benefit from the loss before income taxes was offset by amortization
of nondeductible goodwill and the write-off of an uncollectible income tax
receivable. During the thirty-nine week period ended June 29, 1996, the
effective income tax rate was comprised of federal and state income taxes and
amortization of nondeductible goodwill.
During fiscal 1997, management determined that no valuation allowance
was required for Gloria Jean's deferred tax assets of $2,592,000 since, based on
internal forecasts, management believes it is more likely than not the deferred
tax assets will be realized through future taxable income. The adjustment to the
valuation allowance during fiscal 1997 of $1,619,000 was recorded as a reduction
in goodwill since the prior year's valuation allowance related to net operating
loss carryforwards acquired from
18
<PAGE> 22
Brothers.
LIQUIDITY AND CAPITAL RESOURCES
As of June 27, 1998, all seven of the Coffee People Oregon stores
located outside of Oregon that Coffee People had identified for closure or
disposition in its quarter ended June 30, 1997, had been closed. Of these
stores, three had been sold and their store leases assigned and one store lease
had been terminated by agreement. Of the eight Gloria Jean's stores identified
for disposal during fiscal year 1997 five were disposed of during fiscal year
1998 pursuant to the lease termination agreements. Of the three remaining Gloria
Jean's stores, one was disposed of after June 27, 1998 pursuant to a lease
termination agreement and two remain open. The Company continues to make
payments on the lease obligations for the three remaining Coffee People stores
and for the three remaining Gloria Jean's stores not disposed of in fiscal year
1998. The Company will continue to make cash outlays for these stores for such
items as rent, utilities and insurance until such time as it is able to sell the
stores or until it can negotiate satisfactory arrangements with landlords for
re-leasing the store premises or for otherwise terminating the leases. Such
costs are charged against the accrual for store closures. There can be no
assurance that the Company will be successful at selling these stores or in
negotiating with landlords for the re-leasing of the store premises or for
terminating the leases. If the Company is not successful in these efforts, such
cash outlays could continue for an indeterminate period during the term of the
store leases. The Company is working with local real estate brokers to market,
re-lease or sublease these stores. The lease terms for these stores range from
two and one-half to nine years with expiration dates ranging from January 2001
through May 2007. Minimum future rental payments as of June 27, 1998 under the
six leases total $1,553,000.
As of June 27, 1998, the Company had $2,822,000 in cash and equivalents.
The Company had working capital of $5,277,000 as of June 27, 1998, as
compared to working capital of $10,802,000 at June 28, 1998. The primary reason
for the decline in working capital is the stock redemption in which Gloria
Jean's, in connection with the closing of the merger with Coffee People,
redeemed a total of $5,116,000 in common stock from Second Cup.
For the fiscal year ended June 27, 1998, cash provided by operating
activities was $882,000, as compared to cash provided by operating activities of
$2,705,000 for the fiscal year ended June 28, 1997.
For the fiscal year ended June 27, 1998, net cash used in investing
activities was $555,000 primarily as a result of the purchase of property, plant
and equipment, partially offset by cash acquired in the acquisition of Coffee
People. For the fiscal year ended June 28, 1997, cash provided by investing
activities was $1,250,000, primarily as a result of the repayment of loans by an
affiliated company, which repayment was in excess of capital expenditures for
property, plant and equipment.
For the fiscal year ended June 27, 1998, the Company had net cash used
by financing activities of $4,786,000 primarily as a result of the stock
redemption from The Second Cup Ltd. For the fiscal year ended June 28, 1997, net
cash used by financing activities totaled $1,562,000 primarily as a result of
dividends paid by Gloria Jean's to The Second Cup Ltd.
The Company has a line of credit with its primary bank providing for
borrowings through August 1, 1999 of up to $500,000. Borrowings bear interest at
the rate of 0.5% over the bank's prime rate (9.0% as of June 27, 1998) and are
secured by substantially all of Coffee People's assets, including accounts
receivable, inventories, trade fixtures and equipment. As of June 27, 1998,
there were no borrowings outstanding under the line of credit, however, $73,000
of the line was reserved for a letter of credit dated August 1, 1997.
Contemporaneously with the closing of the merger with Gloria Jean's,
Coffee People
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<PAGE> 23
entered into a loan agreement with The Second Cup Ltd. which provides for a
credit facility of up to $4,000,000 over a five year term. The facility expires
May 19, 2003. The interest rate for amounts drawn under the line is 11.5%. As of
June 27, 1998, no amounts had been borrowed under the credit facility.
Coffee People believes that anticipated cash flow from operations,
existing cash and bank debt will be sufficient to meet Coffee People's cash
requirements through the end of the fiscal year ending June 26, 1999.
SEASONALITY
The Company's business is subject to seasonal fluctuations, due to
seasonal changes and general economic conditions, among other factors.
Historically, net sales from Coffee People Oregon stores have been highest
during the first and fourth fiscal quarters, which include the spring and summer
months. Historically, Gloria Jean's highest sales and earnings have occurred in
the second and third fiscal quarters. In addition, quarterly results have and,
in the future are likely to be, substantially affected by the timing of new
store openings. Because of the seasonality of Gloria Jean's business and the
impact of new store openings, results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year and cannot
be used to indicate financial performance for an entire year.
YEAR 2000
The "Year 2000 Problem" refers to the possible failure of many computer
systems that may arise as a result of many existing computer programs using only
the last two digits to refer to a year. The Company has undertaken an initial
review of the potential effects on it of the Year 2000 problem. These potential
problems are being addressed on a system-by-system basis.
The Company has determined that its general accounting system (which
includes invoicing, accounts receivable and inventory control) must be upgraded
to make the system Year 2000 compliant. The Company estimates that the cost of
upgrading the accounting system will be approximately $10,000 and that the
upgrade will be completed before the end of the current calendar year. As of
June 27, 1998, the Company had expended approximately $5,000 to remedy this
problem.
The Company is continuing to review its information technology ("IT")
hardware and software, including personal computers, application and network
software for Year 2000 compliance readiness. The review process entails
evaluation of hardware/software and testing. The Company believes its IT review
will be completed by the end of the current year. While the review process is
ongoing, the Company believes that the cost to bring its IT systems into Year
2000 compliance will be under $50,000 and it does not foresee any material
difficulties with completing the necessary changes prior to January 1, 2000.
The Company expects that its review of non-IT systems (including voice
communications and security) will be completed before the end of the current
calendar year. The estimated costs to remedy non-IT systems is not expected to
be material.
The Company expects that the source of funds for evaluation and
remediation of Year 2000 compliance issues will be cash flow from operations.
The Company believes that its most significant internal risk posed by
the Year 2000 Problem is the possibility of a failure of its accounting system.
If the accounting system were to fail, the Company would have to implement
manual processes, which may slow the timeliness of information needed to manage
the business. As discussed above, the Company plans to avoid this risk by
upgrading its accounting systems; however, there can be no assurance that such
actions will avoid problems that may arise.
The third parties whose Year 2000 problems could have the greatest
effect on the Company are
20
<PAGE> 24
believed by the Company to be banks that maintain the Company's depository
accounts and credit card processing systems, the company that processes the
Company's payroll and which maintains the Company's human resource databases,
and companies that supply or distribute coffee beans and other goods. The
Company has not confirmed the state of Year 2000 readiness of these parties.
The Company has not yet established a "contingency plan" to address
potential Year 2000 problems and is currently considering the extent to which it
will develop a formal contingency plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. The supply and price of green coffee beans is
subject to significant volatility, generally caused by multiple factors beyond
the Company's control, including weather, political and economic conditions in
coffee producing countries, and other supply-related matters. Because the
Company's coffee roasting operation supplies products to Gloria Jean's
franchisees on a cost-plus basis, the Company believes that its gross profit on
wholesale sales is generally insulated from the risk of volatility in prices of
green coffee beans, except to the extent that such fluctuation affects the
demand for specialty coffee. Company-operated stores are not so similarly
insulated. In addition, other factors may affect gross profit, such as
production efficiencies or inefficiencies (including roasting shrinkage) and
write-offs of excess coffee inventories. During fiscal year 1997, worldwide
coffee prices increased significantly.
In order to avoid speculation on spot coffee prices, the Company
typically undertakes to lock in the cost of a portion of its future coffee
purchases by entering into contracts to purchase green coffee over future
periods at fixed prices, or at future prices to be determined within one to 12
months from the time of the actual purchase. At June 27, 1998, these purchase
commitments totaled approximately $3,850,000 for approximately 3,000,000 pounds
of green coffee at an average contract cost per pound of $1.28. These
commitments represent approximately 65% of the Company's estimated coffee
requirements through June 26, 1999. Because of the significant decline in
worldwide coffee prices from their 1997 highs, these commitments are not
currently favorable to market at September 20, 1998.
The Company does not use commodity based financial instruments to hedge
coffee purchases.
Financial Market Risk. The Company does not maintain a substantial
investment portfolio. However, it does have arrangements with its primary bank
to invest monies on deposit in overnight repurchase agreements and in other
marketable short-term securities with maturities of generally less than 90 days.
Based upon the current portfolio, a 100 basis point move in short-term interest
rates would not have a material effect on the Company's financial condition or
results of operations.
The Company's principal market risk with respect to its financial debt
instruments is to changes in the prime rate charged by major banks in the United
States and to other benchmark rates to which interest rates under the Company's
loan agreements may be tied. In June 1998, the Company elected to have
$4,400,000 of its term loan with Bank of America bear interest at 2.25% over the
Interbank Offered Rate ("IBOR rate"), an offshore rate used by the Bank that is
similar to the London Interbank Offered Rate (LIBOR rate). As a result of this
election, the interest rate on $4,400,000 of the Company's term loan was reduced
from the 9% floating rate (0.5% over the bank's prime rate of 8.5%) to 7.9375%
(2.25% over the IBOR rate of 5.6875%). Under the current arrangement, this rate
will be adjusted each 90 days. At June 27, 1998, a 100 basis point increase in
the IBOR rate (then 5.6875%) would result in additional interest expense of
$44,000 on an annualized basis. A return to the 9% floating rate tied to the
prime rate (8.5% at June 27, 1998) would have a similar impact on the Company's
results of operations.
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<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report.
1. Financial Statements:
Report of independent accountants .......................... F-1
Report of independent accountants .......................... F-2
Consolidated balance sheets at June 27, 1998 and
June 28, 1997 ............................................ F-3
Consolidated statements of operations for the fiscal
years ended June 27, 1998 and June 28, 1997 and the
39-week period ended June 29, 1996 ....................... F-4
Consolidated statements of stockholders' equity for the
fiscal years ended June 27, 1998 and June 28, 1997 and
the 39-week period ended June 29, 1996 ................... F-5
Consolidated statements of cash flows for the fiscal
years ended June 27, 1998 and June 28, 1997 and the
39-week period ended June 29, 1996 ....................... F-6
Notes to consolidated financial statements ................. F-8
2. Financial Statement Schedule:
Report of independent accountants on financial statement
schedule for the 39-week period ended June 29, 1996 ...... F-26
Report of independent accountants on financial statement
schedule for the fiscal years ended June 27, 1998
and June 26, 1997 ........................................ F-27
II. Valuation and Qualifying Accounts .................. F-28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the year ended June 27, 1998, there were no disagreements with the
Company's independent accountants, PricewaterhouseCoopers LLP, on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make
reference to on its report on the financial statements for the year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of August 31, 1998 with
respect to each executive officer and director of Coffee People.
<TABLE>
<CAPTION>
HAS SERVED
AS
NAME AGE OFFICE DIRECTOR (1)
- ---- --- ------ ------------
<S> <C> <C> <C>
Michael Bregman 44 Chairman of the Board Since 1998
Alton W. McEwen 55 President, Since 1998
Chief Executive Officer
and Director
Mark J. Archer 41 Executive Vice President,
Chief Financial Officer
and Secretary
Robert R. Rodriguez 45 President, Gloria Jean's division
Taylor H. Devine 57 President, Chief Operating
Officer, Coffee People
Oregon division
Thomas M. Twitchel 40 Senior Vice President, Operations
Coffee Plantation division
Matthew J. Kimble 46 Vice President, Human Resources
Stephen L. King 48 Vice President, Development
Julie A. Munger 37 Vice President, Corporate Controller
Kenneth B. Ross 49 Vice President, Finance
Lisa T. Steere 35 Vice President, Marketing
</TABLE>
22
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Douglas L. Ayer(2) 61 Director Since 1996
Robert M. Haft(2) 45 Director Since 1998
Gary G. Talboy(3) 49 Director Since 1992
Kathy A. Welsh(3) 41 Director Since 1998
</TABLE>
(1) The directors hold office until the next annual meeting of shareholders or
until their successors are duly elected
(2) Member of Compensation Committee
(3) Member of Audit Committee
Mr. Bregman has been Chairman of the Board of Coffee People since May 1998.
He was a director of Gloria Jean's Inc. ("Gloria Jean's"), Gloria Jean's Gourmet
Coffees Franchising Corp. ("Franchising Corp."), Gloria Jean's Gourmet Coffees
("Gourmet Coffees") and Edglo Enterprises, Inc. ("Edglo") from November 1995
through June 1998. Mr. Bregman has been a director of The Second Cup Ltd.
("Second Cup Ltd.") since 1988. Between 1988 and 1989, he served as President
and Secretary of Second Cup Ltd. and has been Chairman and Chief Executive
Officer of Second Cup Ltd. since 1989. Mr. Bregman serves on the board of
directors of two public companies, Vincor International Inc., a producer and
marketer of wine and refreshment products, and Clairvest Group Inc., an
investment company.
Mr. McEwen has been President and Chief Executive Officer of Coffee People
since May 1998. He was President and Chief Operating Officer of Gloria Jean's
from 1996 to 1998. From 1988 to 1996, Mr. McEwen was President and Chief
Operating Officer of Second Cup Ltd. and has been a director of Second Cup Ltd.
since 1988. He has been a director of Gloria Jean's, Franchising Corp., Gourmet
Coffees and Edglo since November 1995.
Mr. Archer has been Executive Vice President, Chief Financial Officer and
Secretary of Coffee People since May 1998 and held the title of Executive Vice
President and Chief Financial Officer of Gloria Jean's from February 1998 to May
1998. In June 1998, he was appointed Chief Financial Officer and director of
Gloria Jean's, Franchising Corp., Gourmet Coffees, Inc. and Edglo. He previously
was Senior Vice President and Chief Financial Officer of Jamba Juice Company, a
venture capital backed chain of smoothie and juice restaurants from September
1995 through November 1997. Mr. Archer served as Chief Financial Officer and a
director of Del Taco, Inc. from 1993 to 1995 and as Chief Financial Officer of
Canteen Corporation from 1989 to 1993.
Mr. Rodriguez has been President of the Company's Gloria Jean's unit since
September 1998. He was Divisional Vice President of Strategic Planning and
Regional Vice President of Operations for McDonald's Corporation prior to
joining the Company from July 1994 to August 1998. From February 1992 to July
1994 he participated in the Executive Fast Track Training Program with
McDonald's Corporation. He worked with PepsiCo's Taco Bell division from January
1981 to September 1992, serving as zone vice president from March 1989 to
December 1991.
Mr. Devine was named President and Chief Operating Officer of Coffee
People's Oregon Divison in May 1998. He was President and Chief Executive
Officer of Coffee People prior to the merger. He joined the Company in September
1995 as President, Chief Operating Officer and a director. Mr. Devine served as
President and a director of Takeout Taxi Holdings, Inc., a multi-restaurant
marketing and delivery company, from January 1992 to September 1995. From
October 1987 until December 1991, he held several positions with Blockbuster
Entertainment Corporation include Vice President of International Operations.
Previously, Mr. Devine was founder, President and Chief Executive Officer of
Inform, Inc. and served as Executive Vice President and Chief Operating Officer
for Field Financial Corporation (dba Mrs. Fields Cookies) from August 1982 until
December 1985.
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<PAGE> 27
Mr. Twitchel became Senior Vice President of Operations of the Company's
Coffee Plantation Division in May 1998. He was a management and real estate
consultant with TMT Partners from August 1997 to May 1998. From November 1996 to
July 1997, he was Senior Vice President of Coffee Planation, Inc. in Arizona.
Mr. Twitchel was Vice President of Operations with Red Robin International, Inc.
in Irvine, California from January 1993 until August 1996.
Mr. Kimble joined Coffee People in January 1997 as Vice President, Human
Resources. From February 1996 to January 1997, he served as Human Resources
Manager-Special Assignment from April 1994 to February 1996 and was Employment
Manger for Payless Drug Stores N.W. from June 1991 to April 1994.
Mr. King has been Vice President, Development since May 1998. Previously he
was Vice President, Development for Gloria Jean's from September 1997 to May
1998 and served as Vice President, Real Estate from January 1997 until September
1997. Prior to joining the Company, Mr. King was the director of North American
Leasing for the Sunglass Hut from August 1996 through November 1996. From
January 1995 through August 1996, Mr. King was a self-employed real estate
consultant in Aledo, Texas. He formerly was employed as a director of real
estate by The Bombay Company of Fort Worth, Texas from June 1982 through June
1995.
Ms. Munger joined Coffee People in August 1998 as Vice President and
Corporate Controller and Chief Financial Officer of Gloria Jean's Division. She
was previously Director of Business Analysis and Vice President and Controller
for Household Credit Services, Inc., a subsidiary of Household International
from 1987 to 1998. A Certified Public Accountant in California, Ms. Munger
worked at Deloitte, Haskins and Sells from 1984 to 1987.
Mr. Ross became Vice President, Finance in May 1998. He joined the Company
in November 1993 as Chief Financial Officer and was appointed Secretary in
August 1996. From 1979 to November 1993, he engaged in the private practice of
law in Portland, Oregon and taught accounting and real estate classes at
Portland State University. Mr. Ross is an Attorney at Law and a Certified Public
Accountant.
Ms. Steere was elected Vice President, Marketing in May 1998 and held the
same position with Gloria Jean's from August 1997 to May 1998. She was Marketing
Director for Fresh Express from October 1996 to August 1997. From August 1991 to
October 1996, Ms. Steere held several positions with Nestle, including Consumer
Marketing Director in the Beverage Division. From December 1989 to August 1991,
she was Assistant Brand Manager of Coffee at Proctor & Gamble.
Mr. Ayer has been a director of Coffee People since January 1996, when
International Capital Partners , Inc. ("ICP"), of which he is President and
Managing Partner, represented investors in a private placement of Common Stock
of Coffee People. Mr. Ayer has been associated with ICP since 1989 when it was
founded. He serves on the board of directors of four private companies and two
additional public companies, BioPool International Inc., a medical diagnostic
test kit company, and Zila, Inc., a dental supply company. Prior to joining ICP,
Mr. Ayer was Chief Executive Officer and a principal stockholder of Cametrics,
Inc., a privately held manufacturer of custom fabricated engineered components.
Mr. Haft has been a director of Coffee People since May 1998 and a director
of Second Cup Ltd. since October 1996. Since September 1997, he has been
Chairman of the Board and Chief Executive Officer of Vitamin Superstore. From
1995 until September 1997, Mr.Haft was Chairman of the Board and Chief Executive
Officer of PharMor Drug Stores. He also served at various positions at different
times with Dart Group, a retailing, real estate and financial management company
from 1975 to 1993, including Director, President and Chief Operations Officer.
24
<PAGE> 28
Mr. Talboy has been a director of Coffee People since it started corporate
operations in 1992. He was Secretary-Treasurer of Coffee People from 1992 to
August 1996. From 1985 until 1992, Mr. Talboy was a 50 percent partner in the
partnership that was the predecessor of Coffee People. Currently, Mr. Talboy is
primarily active as a coffee industry consultant through his company, Specialty
Coffee Consultants.
Ms. Welsh has been a director of Coffee People since May 1998. She has
served as Executive Vice President and Chief Financial Officer of Second Cup
Ltd. since 1996. From 1993 to 1996, she acted as Vice President and Chief
Financial Officer of Canada Bread Co. (fka Corporate Foods Limited), Canada's
largest bakery and a majority subsidiary of Maple Leaf Foods Inc.
COMPENSATION OF DIRECTORS
In fiscal 1998, directors who are not employees of the Company or its
affiliates received $2,000 for each Board meeting attended and $1,000 for each
telephonic Board meeting participated in that required a total preparation and
participation time greater than two hours. Additionally, non-employee committee
members received $500 for each committee meeting attended and non-employee
committee chairs received $1,000 for each meeting attended and chaired.
Directors are reimbursed for expenses incurred in connection with attending
meetings of the Board and committees thereof.
Directors who are not employees of the Company or its affiliates are
eligible to participate in the Company's 1998 Stock Option Plan annual grant
of Incentive Stock Options to acquire 10,000 shares of Common Stock is made to
each director who is not an employee of the Company or its affiliates. All
options vest one-third ratably on the first, second and third anniversary of the
grant date. The exercise price is the fair market value of the shares at the
date of the grant, measured by the closing share price reported on Nasdaq on the
grant date.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee's purposes are, among other things, to make recommendations
concerning the selection of Coffee People's independent accountants, to review
the independence of such accountants, to review the scope of services to be
performed by the independent accountants, and to review internal accounting
procedures and the implementation by Coffee People of recommendations made by
the independent accountants. Mr. Talboy and Ms. Welsh serve on the Audit
Committee, with Ms. Welsh acting as Chair.
The purposes of the Compensation Committee are to make recommendations to
the Board of Directors with respect to executive compensation and to administer
Coffee People's employee stock option plans. Mr. Ayer and Mr. Haft serve on the
Compensation Committee, with Mr. Ayer acting as Chair.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by the
Company's Chief Executive Officer and former Chief Executive Officer and the
four other most highly
25
<PAGE> 29
compensated executive officers whose salary and bonus exceeded $100,000 in
fiscal year 1998 (collectively referred to as the "Named Executive Officers")
during each of the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS/(#) ($)
- ------------------------------- ---- -------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alton W. McEwen, President,
Chief Executive Officer(1) 1998 $225,000 $25,000 (*) 63,900(4) $ 363(2)
1997 212,000 -- $45,000(3) 6,200(4) 363(2)
1996 N/A N/A N/A N/A N/A
Mark J. Archer, Executive
Vice President, Chief Finan-
cial Officer and Secretary(5) 1998 $ 58,346 -- $54,359(6) 50,000 --
1997 N/A N/A N/A N/A N/A
1996 N/A N/A N/A N/A N/A
Taylor H. Devine, President,
Chief Operating Officer -
Coffee People Oregon
division(7) 1998 $150,000 -- (*) 10,500 2,035(8)
1997 150,000 -- (*) 63,000 2,035(8)
1996 115,068 N/A $24,845(9) 150,000 920(8)
Stephen L. King, Vice Presi-
dent, Development(10) 1998 $140,000 $52,000 (*) 9,800 --
1997 42,307 3,000 N/A N/A N/A
1996 N/A N/A N/A N/A N/A
David G. Harrington, Vice Presi-
dent, Operations - Gloria
Jean's division(11) 1998 $120,000 -- (*) 8,400 --
1997 50,769 N/A N/A N/A N/A
1996 N/A N/A N/A N/A N/A
</TABLE>
* Benefits and perquisites received totaled less than 10% of combined salary
and bonus.
(1) Mr. McEwen became President and Chief Executive Officer of Coffee People,
Inc. on May 19, 1998 upon completion of the Merger. He was appointed as
President of Second Cup's U.S. operations (including Gloria Jean's) on
July 22, 1996.
(2) Represents premium for term life insurance.
(3) Represents a housing subsidy paid to Mr. McEwen in conjunction with his
appointment as an officer of Gloria Jean's and his relocation to
Castroville, California.
26
<PAGE> 30
(4) Reflects options to purchase 50,000 common shares of Coffee People, Inc.
granted in fiscal year 1998, 13,900 options to purchase shares of The
Second Cup Ltd. granted in fiscal 1998 and 6,200 options to purchase
shares of The Second Cup Ltd. granted in fiscal 1997.
(5) Mr. Archer joined Gloria Jean's Inc. as Executive Vice President, Chief
Financial Officer and Secretary on February 19, 1998. Upon completion of
the merger on May 19, 1998, he assumed these positions with Coffee People,
Inc.
(6) Represents moving expenses and housing subsidies paid to Mr. Archer in
conjunction with his appointment as an officer of Gloria Jean's Inc. and
his relocation to Castroville, California.
(7) Mr. Devine was President and Chief Executive Officer of Coffee People,
Inc. from May 21, 1997 until May 19, 1998. Upon completion of the merger,
he became President and Chief Operating Officer of the Coffee People
Oregon division. Mr. Devine started with Coffee People, Inc. on September
11, 1995 and served as President and Chief Operating Officer until May 21,
1997.
(8) Represents premium for term life insurance and employer contributions to
401(k) account.
(9) Represents moving expenses and housing subsidies paid to Mr. Devine in
conjunction with his appointment as President and Chief Operating Officer
of Coffee People, Inc. and his relocation to Portland, Oregon.
(10) Mr. King joined Gloria Jean's Inc. on January 2, 1997, and was appointed
as Vice President, Development of Coffee People, Inc. upon completion of
the merger on May 19, 1998.
(11) Mr. Harrington joined Gloria Jean's Inc. on December 9, 1996, and was
appointed as Vice President, Operations of the Gloria Jean's division,
upon completion of the merger on May 19, 1998. He resigned from the
Company on August 26, 1998.
STOCK OPTION INFORMATION
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended June 27,
1998.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
PERCENT
OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alton W. McEwen 50,000 20.1% $3.20 June 23, 2008 $100,623 $254,999
Mark J. Archer 50,000 20.1% 3.20 June 23, 2008 100,623 254,999
Taylor H. Devine 10,500 4.2% 3.20 June 23, 2008 21,131 53,550
Stephen L. King 9,800 4.0% 3.20 June 23, 2008 19,722 49,980
David G. Harrington 8,200 3.3% 3.20 June 23, 2008 16,502 41,820
</TABLE>
- ---------------
(1) The potential realizable values listed are based on an assumption that the
market price of the Company's Common Stock appreciates at the stated rate,
compounded annually, from the date of grant to the expiration date. The 5%
and 10% assumed rates of appreciation are determined by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate of the future market price of the Company's Common
27
<PAGE> 31
Stock.
(2) All options granted vest one-third ratably on the first, second and third
anniversary of the grant date, June 23, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares covered by
exercisable and unexercisable options held by the Named Executive Officers on
June 27, 1998, and the aggregate gains that would have been realized had these
options been exercised on June 27, 1998, even though these options were not
exercised, and the unexercisable options could not have been exercised, on that
date. The Named Executive Officers did not exercise any stock options during the
1998 fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name Options at Fiscal Year End(#) At Fiscal Year End($)(1)
---- ---------------------------------- ----------------------------------
Exercisable Unexercisable(2) Exercisable Unexercisable(2)
----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Alton W. McEwen -- 50,000 -- --
Mark J. Archer -- 50,000 -- --
Taylor H. Devine 115,200 108,300 -- --
Stephen L. King -- 9,800 -- --
David G. Harrington -- 8,200 -- --
</TABLE>
- ---------------------------
(1) These amounts represent the difference between the exercise price of the
in-the-money options and the market price of the Company's Common Stock on
June 27, 1998. The closing price of the Company's Common Stock on that day
on the NASDAQ National Market System was $3.06. Options are in-the-money if
the market value of the shares covered thereby is greater than the option
exercise price.
(2) Future exercisability is subject to a number of factors, including, but not
limited to, the optionee remaining employed by the Company.
EMPLOYMENT AGREEMENTS
Mark J. Archer, Executive Vice President, Chief Financial Officer and
Secretary of the Company, has an employment agreement providing for the payment
of twelve months salary if terminated for reasons other than cause.
Taylor H. Devine serves as President and Chief Operating Officer of the
Coffee People Oregon division under an employment contract that provides for a
base salary of $150,000 per year, a $25,000 bonus payable for the successful
consummation of the Merger six months following the Closing, and additional
bonuses of $18,750 payable both six months and twelve months after the closing.
The bonuses will be forfeited in the event Mr. Devine voluntarily resigns and is
no longer employed by Coffee People on the date scheduled for payment of the
bonus. The agreement with Mr. Devine also provides for severance payments upon
termination by the Company: if termination is for cause, he will receive his
salary through termination plus one month's salary; if termination is without
cause, he will receive his salary through termination plus salary for the later
of twelve months following the Closing or six months following termination, paid
as a lump sum. The agreement further provides that Mr. Devine is required to
give 90 days written notice of resignation and upon his voluntary resignation,
he will receive wages paid through the last day of employment only. Finally, Mr.
Devine agrees not to engage in any business in competition with Coffee People in
the United States, meaning any retail operations for which 50% or more of total
sales are derived from coffee or coffee-related products, for a period of three
years following the
28
<PAGE> 32
cessation of his employment with Coffee People.
STOCK OPTION PLANS
In 1993, 1994, 1995, 1996 and 1998, the Board of Directors and the
stockholders adopted the 1993 Stock Option Plan, the 1994 Stock Option Plan, the
1995 Stock Option Plan, the 1996 Stock Option Plan, and the 1998 Stock Incentive
Plan, respectively (collectively, the "Stock Option Plans"). The Stock Option
Plans provide for the grant of options to purchase up to an aggregate of
1,046,575 shares of Common Stock to officers, key employees and consultants.
Options granted under the Stock Option Plans may be either incentive stock
options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or non-statutory stock options ("NSOs").
Pursuant to the Stock Option Plans, the plan administrator has the authority to
determine in its discretion the recipients of grants, the number of options to
be granted and other terms and provisions of each option.
ISOs may be issued only to employees of Coffee People. The exercise price
for ISOs granted under the Stock Option Plans may not be less than 100 percent
of the fair market value of the Common Stock at the time of the grant and the
aggregate fair market value (as determined at the time of the grant) of shares
issuable upon exercise of incentive stock options for the first time in any one
calendar year may not exceed $100,000. Options granted under the Stock Option
Plans have a maximum term of 10 years from the date of the grant. In the case of
ISOs granted to holders of more than 10 percent of the voting power of the
Company, the exercise price may not be less than 110 percent of the fair market
value and the option by its terms may not be exercisable more than 5 years after
the date or grant. NSOs may be granted at not less than 85 percent of the fair
market value of the Common Stock at the date of the grant. Options granted under
the Stock Option Plans become exercisable in whole or in part from time to time
as determined by the plan administrator. Options are not transferable other than
by will or the laws of descent and distribution, and each option is exercisable
during the lifetime of the optionee only by such optionee.
As of June 27, 1998, options to purchase 579,189 shares of Common Stock were
granted and outstanding under the Stock Option Plans, at a weighted average
exercise price of $6.39.
EMPLOYEE STOCK PURCHASE PLAN
On June 3, 1994, Coffee People adopted an Employee Stock Purchase Plan (the
"ESPP"). Under the ESPP, 150,000 shares of Common Stock have been reserved for
issuance to and purchase by employees of Coffee People. As of June 27, 1998,
16,860 shares of Common Stock have been sold under the ESPP.
All employees with over six months of service who work more than 20 hours
per week and who do not own stock or options for more than 5% of Coffee People's
stock are eligible to participate in the ESPP.
To date, Coffee People has implemented the ESPP through periodic issuances
of Common Stock. Coffee People also may implement the ESPP through open market
purchases of Common Stock. At the beginning of each applicable subscription
period, Coffee People offers to each participant in the ESPP an option to
purchase a maximum number of shares based upon a percentage of the participant's
base compensation for the period divided by 85% of the market value of the
Common Stock at that time. At the end of each period, each participant can
acquire such shares at the lower of 85% of the fair market value at the
beginning or at the end of the period. The ESPP allows participants to authorize
payroll deductions or to make cash payments to be applied toward the purchase of
shares of Common Stock. Unless a participant gives written notice to Coffee
People, the option to purchase Common Stock with the cash value of his or her
account is deemed to have been automatically exercised at the end of each
29
<PAGE> 33
applicable period. Upon written notice at any time prior to the end of an
applicable period, a participant may elect to withdraw the value of his or her
account at such time.
The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. Under that Code section, employees may not be granted
options if immediately after the grant such employee would own stock or hold
options to purchase stock possessing 5% or more of the voting power or value of
all stock of Coffee People, nor may any participant purchase Common Stock having
a fair market value exceeding $25,000 in any calendar year.
The Board of Directors may at any time amend or terminate the ESPP, except
that the approval of Coffee People's stockholders is required within 12 months
of the adoption of any amendment increasing the number of shares authorized for
issuance under the ESPP. Unless extended by the Board of Directors, the ESPP
will terminate on the earlier of ten years from its effective date, or when all
of the shares reserved for issuance under the ESPP have been issued.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows, as of August 31, 1998, the number and percentage
of outstanding shares of Coffee People's Common Stock beneficially owned by each
person known by Coffee People to beneficially own 5% or more of Coffee People's
Common Stock, by each director, by each of the executive officers named in the
Summary Compensation Table, and by all directors and executive officers of
Coffee People as a group. To Coffee People's knowledge, each named beneficial
owner has sole voting and investment power with respect to the shares listed
except as indicated below.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) COMMON SHARES
- --------------------------------------- ------------ -------------
<S> <C> <C>
Second Cup USA Holdings Ltd.(3) 7,460,679 69.4%
175 Bloor Street East, Suite 801
South Tower
Toronto Ontario M4W 3R8
Canada
Cara Operations Limited(4) 7,460,679 69.4%
6303 Airport Road
Mississauga Ontario L4V 1R8
Canada
Michael Bregman(5) 7,460,679 69.4%
Gary G. Talboy 285,250 2.7%
Taylor H. Devine(6) 116,400 1.1%
Alton W. McEwen 10,000 0.0%
Mark J. Archer 0 0.0%
</TABLE>
30
<PAGE> 34
<TABLE>
<S> <C> <C>
Stephen King 0 0.0%
David G. Harrington 0 0.0%
Douglas L. Ayer 0 0.0%
Robert A. Haft 0 0.0%
Kathy A. Welsh 0 0.0%
All officers and directors as a group (15 persons)(7)(8) 525,730 4.8%
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address for each person in this table is c/o
Coffee People Inc., 11480 Commercial Parkway, Castroville, California 95012
(2) Includes shares beneficially owned which includes shares that may be
acquired pursuant to options within 60 days of August 31, 1998.
(3) Second Cup USA Holdings Ltd. is a wholly owned subsidiary of The Second Cup
Ltd., a corporation organized under the laws of Ontario, Canada.
(4) Represents shares held by Second Cup USA Holdings Ltd., of which Cara
Operations Limited may be deemed to be a controlling person by virtue of its
ownership of 39.3% of the common stock of The Second Cup Ltd.
(5) Represents shares held by Second Cup USA Holdings Ltd., of which Mr. Bregman
may be deemed to be a controlling person by virtue of his ownership,
directly and indirectly, of 13.3% of the common stock of The Second Cup Ltd.
Mr. Bregman is Chairman of the Board and Chief Executive Officer of The
Second Cup Ltd.
(6) Includes 115,200 shares issuable upon exercise of stock options.
(7) Includes 139,200 shares issuable upon exercise of stock options held by
certain executive officers.
(8) Does not include the 7,460,679 shares shown for Mr. Bregman for which he may
be deemed to be a beneficial owner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 4, 1993, Coffee People redeemed 141,047.25 shares of
Common Stock owned by Gary G. Talboy. The total purchase price was $250,375. As
part of the consideration for the redemption, Coffee People gave promissory
notes in the amount of $245,000 to Mr. Talboy. A monthly payment in the amount
of $2,975 is made to Mr. Talboy on his note, which bears interest at the rate of
2% over the prime rate of interest (10.5% at June 27, 1998). The principal
amount of the note at June 27, 1998 was $169,399. Mr. Talboy's note may be
prepaid in full at any time without penalty. His note is secured by
substantially all of Coffee People's assets, including accounts receivable,
inventories, trade fixtures and equipment, tangible and intangible personal
property, after acquired property and the proceeds thereof. Mr. Talboy's
security interest is subordinate to the security interest held by Coffee
People's bank. This loan was paid off on September 3, 1998.
On December 31, 1993, Kenneth B. Ross, Vice President - Finance, exercised
incentive stock options for 37,500 shares of Common Stock and paid for such
shares by giving a promissory note to Coffee People in the amount of $83,333.
The note bears interest at the rate of 8.5% per annum and is due on December 31,
1998. On January 17, 1995, Mr. Ross exercised incentive
31
<PAGE> 35
stock options for 26,250 shares of Common Stock and paid for such shares by
giving promissory notes to Coffee People in the aggregate amount of $58,333.
These notes bear interest at the rate of 8.5% per annum and are due December 31,
1999. On May 26, 1998, Mr. Ross exercised incentive stock options for 11,250
shares of Common Stock and paid for such shares by giving a promissory note to
the Company in the amount of $25,000. This note bears interest at the rate of
8.5% per annum and is due May 26, 2003. The notes provide that in the event any
of the stock is sold before the notes mature, all accrued interest and a pro
rata portion of the principal balance must be paid in full.
On July 1, 1994, Mr. Talboy purchased the land and building on which
Coffee People operates its Motor Moka drive-through espresso bar at 525 NE Grand
Avenue, Portland, Oregon. Immediately following the closing of Mr. Talboy's
purchase, Coffee People leased the property from Mr. Talboy under a 15-year
lease that requires Coffee People to pay Mr. Talboy base rent of $6,375 per
month. The lease provides for rent escalation in 2000 and annually thereafter
based upon the increase in the consumer price index in effect at the end of 1997
and also requires Coffee People to pay all utilities, insurance, property taxes,
and repairs and maintenance relating to the property. These lease terms may not
be as favorable to Coffee People as Coffee People might have been able to obtain
from an unrelated third party.
Coffee People pays Mr. Talboy consulting fees of $1,000 per month for
consulting services with respect to Coffee People's sourcing and supply of
coffee. This consulting contract terminated in September 1998. From time to time
Mr. Talboy provides other consulting services to Coffee People for a fee of $35
per hour.
In July of this year, Gloria Jean's and Brothers Gourmet Coffees agreed
on present and future indemnification. As consideration for the settlement of
the escrow account pursuant to the Stock Purchase Agreement, and except as
stated herein, Gloria Jean's has released Brothers from all further liability
for all pending and future legal proceedings. Brothers has agreed to continued
indemnification of Gloria Jean's for a settlement of or any amount of damages
awarded in connection with the Kona litigation relating to the period ending
November 9, 1995 and for amounts owed on California and Illinois sales tax
audits, currently underway, in excess of $130,000. On August 27, 1998, Brothers
filed a voluntary petition for relief under Chapter 11 of Title 11 of the United
States Bankruptcy Court for the District of Delaware. However, the Company
intends to take all legal measures to protect any claims it may have against
Brothers.
FORWARD-LOOKING INFORMATION. This 10-K contains forward-looking statements
within the meaning of the federal securities law and involves a number or risks
and uncertainties. Actual results and trends may differ materially from
statements contained in this document, depending on a variety of factors. Such
factors include, but are not limited to, the Company's ability to continue to
add franchisees, convert the Coffee People Oregon and Coffee Plantation
company-operated stores to franchise operations, the price and availability of
green coffee, effects of competition, availability of additional capital and
changes in applicable government regulations.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
32
<PAGE> 36
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2 Agreement and Plan of Merger between the Company and The Second
Cup Inc., dated February 19, 1998. (Incorporated by reference to
the Company's Registration Statement on Form S-4, filed
April 24, 1998).
3.1 Registrant's Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form SB-2, effective September 25, 1996 (Registration No.
333-5376-LA)).
3.2 Registrants' Bylaws, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
4 See Article 2 of Exhibit 3(i) and Article II of Exhibit 3(ii).
10.1* Registrant's 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.2* Registrant's 1994 Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.3* Registrant's 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.4* Registrant's 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.5* Form of Incentive Stock Option Agreement related to 1993, 1994,
1995 and 1996 Stock Option Plans (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.6* Form of Nonstatutory Stock Option Agreement related to 1993, 1994,
1995 and 1996 Stock Option Plans (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA).
10.7* Registrant's Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement
on Form SB-2, effective September 25, 1996 (Registration No.
333-5376-LA)).
10.8 Supply Agreement dated February 17, 1997 between Registrant and
Coffee Bean International, Inc., as amended (incorporated in part
by reference to Exhibit 10.8 of the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996)**
10.9 Form of Indemnity Agreement (incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form SB-2,
effective September 25, 1996 (Registration No. 333-5376-LA)).
10.9(a) Business Loan Agreement with Bank of America NT & SA, dated
August 3,
</TABLE>
33
<PAGE> 37
<TABLE>
<S> <C>
1995, as amended (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form SB-2, effective
September 25, 1996 (Registration No. 333-5376-LA) and the
Company's quarterly report on Form 10-QSB for the quarter ended
September 30, 1997).
10.10 Security Agreement with Bank of America NT & SA, dated August 3,
1995 (incorporated by reference to Exhibit 10.10(a) to the
Company's Registration Statement on Form SB-2, effective September
25, 1996 (Registration No. 333-5376-LA)).
10.12* Employment Agreement with Taylor H. Devine, President and Chief
Executive Officer (incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement on Form SB-2, effective
September 25, 1996 (Registration No. 333-5376-LA)).
10.13* Terms of employment with Taylor H. Devine, effective as of the
closing of the Merger. (Incorporated by reference to the Company's
Registration Statement on Form S-4, filed April 24, 1998).
10.17 Redemption agreement, dated January 4, 1993 between the Registrant
and Gary G. Talboy (incorporated by reference to Exhibit 10.15 to
the Company's Registration Statement on Form SB-2, effective
September 25, 1996 (Registration No. 333-5376-LA)).
10.17(a) Promissory Note, dated January 4, 1993, payable to Gary G. Talboy
in original principal amount of $245,000 (incorporated by
reference to Exhibit 10.15(a)) to the Company's Registration
Statement on Form SB-2, effective September 25, 1996 (Registration
No. 333-5376-LA)).
10.18 Security Agreement, dated January 4, 1993, among the Registrant,
Jeffrey M. Ferguson and Gary G. Talboy (incorporated by reference
to Exhibit 10.17 to the Company's Registration Statement on Form
SB-2, effective September 25, 1996 (Registration No.
333-5376-LA)).
10.19 Food and Beverage Concession Lease Agreement; dated June 10, 1994,
between the Registrant and the Port of Portland (incorporated by
reference to Exhibit 10.18 to the Company's Registration Statement
on Form SB-2, effective September 25, 1996 (Registration No.
333-5376-LA).
10.20 Common Stock Purchase Agreement, dated as of January 11, 1996,
among the Registrant and certain purchasers (incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement
on Form SB-2, effective September 25, 1996 (Registration No.
333-5376-LA)).
10.21 Warrant Agreement, dated as of January 23, 1996, between the
Registrant and International Capital Partners, Inc. (Incorporated
by reference to Exhibit 10.20 to the Company's Registration
Statement on Form SB-2, effective September 25, 1996 (Registration
No. 333-5376-LA)).
10.22 Form of Warrant Agreement, dated September 30, 1996, with
representations of the several underwriters of the Company's
initial public offering (incorporated by reference to Exhibit 1.2
to the Company's Registration Statement on Form SB-2, effective
September 25, 1996 (Registration No. 333-5376-LA)).
10.23 Form of Coffee Plantation Franchise Agreement.
10.24 Form of Gloria Jean's Gourmet Coffees Franchising Corp.
Franchise Agreement.
</TABLE>
34
<PAGE> 38
<TABLE>
<S> <C>
23.1 Consent of PricewaterhouseCoopers, Independent Accountants
(Toronto).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
(San Francisco).
27 Financial Data Schedule.
</TABLE>
* Management contract or compensatory plan or arrangement.
** Certain portions of this exhibit are omitted pursuant to an Order of
Confidential Treatment.
(b) Reports on Form 8-K
The Registrant filed two Current Reports on Form 8-K during the quarter
ended June 27, 1998.
A Current Report on Form 8-K dated May 26, 1998 was filed to report
under Item 4 the Change in the Registrant's Certifying Accountant from Arthur
Andersen LLP to Price Waterhouse LLP.
A Current Report on Form 8-K dated June 3, 1998, was filed to report
under Item 2 the closing of the transaction in which the Registrant acquired
100% of the outstanding capital stock of Gloria Jean's Inc. in exchange for the
issuance of 7,460,679 shares of common stock to a wholly owned subsidiary of The
Second Cup Ltd., to report under Item 5 the resignation of certain officers as
contemplated by the transaction, and to provide under Item 7 the financial
statements and proforma financial information of the acquired business.
35
<PAGE> 39
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COFFEE PEOPLE, INC.
Dated__________, 1998 By: /s/ Alton W. McEwen
--------------------------------------
Alton W. McEwen, President
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Dated__________, 1998 By: /s/ Alton W.McEwen
--------------------------------------
Alton W. McEwen, President
Chief Executive Officer and Director
Dated__________, 1998 By: /s/ Mark J. Archer
--------------------------------------
Mark J. Archer, Executive Vice
President, Chief Financial Officer
and Secretary
(Principal Financial Officer)
Dated__________, 1998 By: /s/ Julie A. Munger
--------------------------------------
Julie A. Munger, Vice President
Corporate Controller
(Principal Accounting Officer)
Dated__________, 1998 By: /s/ Michael Bregman
--------------------------------------
Michael Bregman
Chairman of the Board of Directors
Dated__________, 1998 By: /s/ Douglas L. Ayer
--------------------------------------
Douglas L. Ayer, Director
Dated__________, 1998 By: /s/ Robert M. Haft
--------------------------------------
Robert M. Haft, Director
Dated__________, 1998 By: /s/ Gary G. Talboy
--------------------------------------
Gary G. Talboy, Director
Dated__________, 1998 By: /s/ Kathy A. Welsh
--------------------------------------
Kathy A. Welsh, Director
36
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Coffee People, Inc.
We have audited the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows of Coffee People, Inc. (formerly Gloria
Jean's Inc.) and its subsidiaries for the 39-week period ended June 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards
of the United States. 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.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the results of operations and cash flows of
Coffee People, Inc. and its subsidiaries for the 39-week period ended June 29,
1996 in conformity with generally accepted accounting principles in the United
States.
/s/ PRICEWATERHOUSECOOPERS
Toronto, Ontario
August 16, 1996
F-1
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Coffee People, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Coffee
People, Inc. and its subsidiaries at June 27, 1998 and June 28, 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for long-lived assets to be disposed of,
effective as of the beginning of fiscal 1997.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
August 26, 1998
F-2
<PAGE> 42
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------------
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,822 $ 7,281
Accounts receivable, net of allowance for doubtful accounts of
$1,156 and $1,660 3,262 2,233
Receivable from affiliate -- 285
Inventories 4,052 3,563
Prepaid expenses and other assets 713 424
Deferred income taxes 2,621 1,342
------- -------
Total current assets 13,470 15,128
Property, plant and equipment, net 12,711 6,415
Goodwill, net 25,967 16,187
Other assets 113 60
Deferred income taxes 3,434 1,133
------- -------
Total assets $55,695 $38,923
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,279 $ --
Accounts payable 1,421 1,550
Payable to related party 984 --
Accrued liabilities 1,010 1,038
Accrued payroll and employee benefits 931 541
Accrued acquisition expenses 631 --
Accrual for store closures 1,291 580
Franchisee deposits 459 486
Deferred franchise fee income 187 131
------- -------
Total current liabilities 8,193 4,326
Long-term debt, less current portion 3,798 --
Deferred rent expense 202 300
------- -------
Total liabilities 12,193 4,626
------- -------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, no par value; authorized, 10,000,000 shares; none issued
or outstanding -- --
Common stock, no par value; authorized, 5,000,000 shares; issued and
outstanding, 10,746,040 and 7,460,679 shares 44,630 35,825
Stock subscription notes receivable (338) --
Accumulated deficit (790) (1,528)
------- -------
Total stockholders' equity 43,502 34,297
------- -------
Total liabilities and stockholders' equity $55,695 $38,923
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 43
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------------
FOR THE
39-WEEK
FOR THE FISCAL PERIOD
YEAR ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Franchise revenue $ 6,035 $ 5,869 $ 4,971
Corporate store sales 11,436 7,631 6,657
Wholesale sales 17,580 17,079 13,329
------- ------- -------
Total revenues 35,051 30,579 24,957
------- ------- -------
Expenses:
Cost of goods sold 19,296 18,494 14,389
Store and other operating expenses 8,231 6,080 4,779
Depreciation and amortization 1,811 1,152 978
General and administrative expenses 4,079 5,458 2,825
Provision for store closures -- 580 --
Acquisition and integration expenses 437 -- --
------- ------- -------
Total expenses 33,854 31,764 22,971
------- ------- -------
Income (loss) from operations 1,197 (1,185) 1,986
Interest income 315 426 203
Interest expense (46) -- --
------- ------- -------
Income (loss) before income taxes 1,466 (759) 2,189
Provision for income taxes 728 4 965
------- ------- -------
Income (loss) before cumulative effect of change in
accounting principle 738 (763) 1,224
Cumulative effect of change in acccounting principle, net of
income tax benefit of $262 -- (427) --
------- ------- -------
Net income (loss) $ 738 $(1,190) $ 1,224
======= ======= =======
Net income (loss) per share - basic and diluted:
Income (loss) before cumulative effect of change in
accounting principle $ .09 $ (.10) $ .16
Cumulative effect of change in accounting principle -- (.06) --
------- ------- -------
Net income (loss) $ .09 $ (.16) $ .16
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 44
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------
STOCK
COMMON STOCK SUBSCRIPTION
EQUIVALENT NOTES ACCUMULATED
SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Issuance of common stock 7,460,679 $35,825 $ -- $ -- $35,825
Net income -- -- -- 1,224 1,224
Dividends -- -- -- (1,562) (1,562)
---------- ------- ----- -------- -------
Balance, June 29, 1996 7,460,679 35,825 -- (338) 35,487
Net loss -- -- -- (1,190) (1,190)
---------- ------- ----- -------- -------
Balance, June 28, 1997 7,460,679 35,825 -- (1,528) 34,297
Gloria Jean's, Inc. reverse
merger, net of stock
issuance costs 3,274,111 11,398 (313) -- 11,085
CP Old, Inc. merger -- 2,498 -- -- 2,498
Stock redemption from
Second Cup, Inc. -- (5,116) -- -- (5,116)
Exercise of stock options 11,250 25 (25) -- --
Net income -- -- -- 738 738
---------- ------- ----- -------- -------
Balance, June 27, 1998 10,746,040 $44,630 $(338) $ (790) $43,502
========== ======= ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 45
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
FOR THE FISCAL FOR THE 39-WEEK
YEAR ENDED PERIOD ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 738 $(1,190) $ 1,224
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,811 1,152 978
Provision for store closures -- 580 --
Deferred income taxes 702 (414) 965
Write down of assets held for disposal 223 887 --
Loss (gain) on disposal of assets 147 (65) (8)
Write off of uncollectible income taxes receivable -- 127 --
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable (861) 423 1,588
Receivable from/due to affiliate 1,269 (285) --
Inventories 48 438 236
Prepaid expenses and other assets 126 (14) 273
Income taxes receivable -- 190 (23)
Accounts payable (1,077) 493 (999)
Accrued liabilities (1,617) 615 (482)
Accrual for store closures (584) -- --
Income taxes payable 26 -- --
Franchisee deposits (27) (138) (208)
Deferred franchise fee income 56 (129) --
Deferred rent expense (98) 35 (50)
-------- -------- --------
882 2,705 3,494
-------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,260) (2,919) (1,179)
Proceeds from disposal of property, plant
and equipment 221 369 145
Acquisition of business -- -- (29,597)
Loans to an affiliated company -- 3,800 (3,800)
Cash acquired in Gloria Jean's, Inc. reverse merger,
net of transaction expenses 1,258 -- --
Cash received in CP Old, Inc. merger 226 -- --
-------- -------- --------
(555) 1,250 (34,431)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 46
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (Continued)
- ---------------------------------------------------------------------------------------------------------------
FOR THE FISCAL FOR THE 39-WEEK
YEAR ENDED PERIOD ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds on issuance of shares $ -- $ -- $35,825
Dividends paid -- (1,562) --
Stock redemption from Second Cup, Inc. (4,675) -- --
Payments on long-term debt (111) -- --
------- ------- -------
(4,786) (1,562) 35,825
------- ------- -------
Increase (decrease) in cash and cash equivalents (4,459) 2,393 4,888
Cash and cash equivalents, beginning of period 7,281 4,888 --
------- ------- -------
Cash and cash equivalents, end of period $ 2,822 $ 7,281 $ 4,888
======= ======= =======
Supplemental cash flow information:
Cash paid for income taxes $ -- $ -- $ 23
Noncash transactions:
Dividend declared $ -- $ -- $ 1,562
Accrual for stock redemption from Second Cup, Inc. $ 441 $ -- $ --
Disposal of property, plant and equipment in
exchange for note receivable $ 109 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 47
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Coffee People, Inc. (Coffee People), formerly Gloria Jean's Inc. (Gloria
Jean's), an Oregon Corporation, is a retailer of gourmet coffee, with 246
franchised and 69 company-owned retail stores operating in 36 states, one
U.S. territory and 6 foreign countries under the names of Gloria Jean's,
Coffee People and Coffee Plantation. The retail stores offer a full range
of coffee beverages, coffee beans, teas and food, as well as a variety of
related gifts, supplies, equipment and accessories.
On May 19, 1998, the Company issued 7,460,679 shares of its common stock
to Second Cup, Inc. (Second Cup), in exchange for 100% of the outstanding
common stock of Gloria Jean's, a wholly-owned subsidiary of Second Cup.
After the merger, Second Cup owned 69.5% of the outstanding common stock
of the combined company. The merger has been accounted for as a reverse
merger in which Gloria Jean's is the accounting acquirer.
Prior to the Gloria Jean's reverse merger, Gloria Jean's was merged with
CP Old, Inc., a wholly-owned subsidiary of Second Cup, and the combined
company continued as Gloria Jean's. At the time of the CP Old, Inc.
merger, CP Old, Inc. had no operations.
On October 16, 1995, the Company acquired all of the issued and
outstanding shares of stock of Edglo Enterprises (Edglo) and its
wholly-owned subsidiary companies, and certain other assets.
The consolidated financial statements include the accounts of Coffee
People and its wholly-owned subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Under its franchise agreements, the Company develops and constructs a new
store, provides training, and assists in the grand opening and
merchandising for which it receives an initial franchise fee. Ongoing
charges to franchisees include a royalty fee of 6% of gross sales and an
advertising fund contribution of up to 3% of gross sales. Franchisees are
required to purchase all of their coffee from the Company, which is
roasted in the Company's facility in California, except for those
franchisees who commenced operations prior to July 1993. These latter
franchisees are required to purchase approximately 85% of their coffee
requirements from the Company.
FISCAL YEAR END
The Company's fiscal year is a fifty-two or fifty-three week period ending
on the last Saturday in June. Fiscal 1998 and 1997 each consisted of
fifty-two weeks.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications of prior period amounts have been made to
conform with the June 27, 1998 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements
F-8
<PAGE> 48
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt instruments. At June 27,
1998 and June 28, 1997, the fair value of the Company's receivables,
accounts payable, and debt under loans approximated the carrying value.
CONCENTRATION OF CREDIT
Accounts receivable primarily consist of amounts related to royalties and
sales of whole beans and related products to franchisees. The Company
extends credit to the majority of its franchisees. Credit losses are
provided for in the financial statements based upon the Company's previous
experience and management's expectations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of purchase to be cash equivalents. The
concentration of credit risk associated with cash and cash equivalents is
low due to the credit quality of the financial institutions and the
liquidity of these financial instruments.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Certain of the Company's inventories are subject to price
fluctuations. Cost includes materials, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is provided using the straight-line method
over the estimated useful lives of the assets ranging from three to seven
years for equipment, furniture and fixtures, and twenty-five years for
buildings. Leasehold improvements are capitalized and amortized on a
straight-line basis over the shorter of the initial lease term or the
estimated useful lives of the assets, generally ten years. Maintenance and
repairs are charged to expense as incurred.
GOODWILL
Amortization of goodwill is provided using the straight-line method over
40 years. Accumulated amortization as of June 27, 1998 and June 28, 1997
was $1,276 and $801, respectively. Amortization expense for the fiscal
years ended June 27, 1998 and June 28, 1997, and the 39-week period ended
June 29, 1996 was $475, $455 and $348, respectively.
The Second Cup Ltd., the largest specialty coffee retailer in Canada, has
been in operation since 1975. At the time of the acquisition of Gloria
Jean's in September 1995, the transaction was considered as a platform for
the Second Cup Ltd. to expand their well established operations into the
United States. Since specialty coffee's place in the North American
marketplace has been established over an extensive period and is not
considered to be restricted by any existing regulatory, contractual or
market factors, management determined 40 years to be an appropriate useful
life over which to amortize the goodwill.
F-9
<PAGE> 49
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
IMPAIRMENT OF LONG-LIVED ASSETS
Effective as of the beginning of fiscal 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121), on a prospective basis. SFAS 121
requires the Company to review long-lived assets and certain identifiable
intangibles, including goodwill, for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The assessment of impairment is based on the estimated
undiscounted future cash flows from operating activities compared with the
carrying value of the assets. If the undiscounted future cash flows of an
asset are less than the carrying value, a write-down would be recorded,
measured by the amount of the difference between the carrying value of the
asset and the fair value of the asset. Management believes there has been
no decline in the carrying value of long-lived assets, including goodwill.
Assets to be disposed of are recorded at the lower of carrying amount or
fair value less cost to sell (Note 5). Such assets are not depreciated
while held for sale.
FRANCHISE OPERATIONS
Initial franchise fees for stores are deferred and recognized as income
when the store has opened. Franchise revenue consists of royalties and
franchise fees. Such amounts totaled $5,395 and $640, respectively, for
the fiscal year ended June 27, 1998, $5,368 and $501, respectively, for
the fiscal year ended June 28, 1997, and $4,242 and $729, respectively,
for the 39-week period ended June 29, 1996. Costs directly associated with
franchise operations, excluding cost of sales, were $1,745, $1,930 and
$1,048, respectively, for the fiscal years ended June 27, 1998 and June
28, 1997, and the 39-week period ended June 29, 1996. Cost of sales
related to franchise operations was $14,020, $13,516 and $11,551,
respectively, for the fiscal years ended June 27, 1998 and June 28, 1997,
and the 39-week period ended June 29, 1996.
DEFERRED RENT EXPENSE
Certain of the Company's lease agreements provide for scheduled rent
increases during the term of the lease. Rent is expensed on a
straight-line basis over the initial lease term.
STORE OPENING COSTS
Costs incurred in connection with start-up and promotion of new stores are
expensed as incurred.
ADVERTISING
Advertising costs are expensed as incurred. For the fiscal years ended
June 27, 1998 and June 28, 1997, and the 39-week period ended June 29,
1996, advertising costs were $325, $341 and $156, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under
this method, deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. A valuation allowance is provided
against deferred tax assets to the extent that it is more likely than not
that the asset will not be realized.
F-10
<PAGE> 50
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company's results of operations were included in Second Cup's
consolidated federal and state income tax returns until the Gloria Jean's
reverse merger on May 19, 1998 (Note 2). For financial reporting purposes,
Second Cup allocated income taxes to the Company as though it were a
separate taxpayer.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company measures compensation cost for employee stock options and
similar equity instruments using the intrinsic value-based method of
accounting.
EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128) as of the beginning of
the second quarter of fiscal 1998. SFAS 128 required the Company to
replace its traditional earnings per share (EPS) disclosures with a dual
presentation of basic and diluted EPS and to restate all prior EPS data
presented. During the fiscal years ended June 27, 1998 and June 28, 1997,
and the 39-week period ended June 29, 1996, basic and diluted EPS are the
same. The number of shares used in the EPS calculation were 7,812,491
7,460,679 and 7,460,679, respectively, for the fiscal years ended June 27,
1998 and June 28, 1997, and the 39-week period ended June 29, 1996.
Historical EPS prior to the Gloria Jean's merger has been retroactively
restated to reflect the equivalent number of shares received in the
reverse merger (Note 2).
2. MERGERS AND ACQUISITIONS
GLORIA JEAN'S REVERSE MERGER
On May 19, 1998, Coffee People, Inc. (Old Coffee People) issued 7,460,679
shares of common stock having a value of $11,398, net of stock issuance
costs of $1,330, to Second Cup in exchange for 100% of the outstanding
common stock of Gloria Jean's. The merger has been accounted for as a
reverse merger in which Gloria Jean's is the accounting acquirer. The
historical records of Gloria Jean's became the historical records of the
company, and the purchase method of accounting was applied to the Old
Coffee People assets acquired and liabilities assumed to the extent of
Second Cup's 69.5% ownership interest. The results of operations of Old
Coffee People have been included with those of Gloria Jean's beginning May
19, 1998. Historical stockholders' equity and EPS prior to the merger have
been retroactively restated for the equivalent number of shares received
in the merger after giving effect to the difference in par value of Gloria
Jean's common stock ($1 par value) and Old Coffee People's common stock
(no par value). Pursuant to the merger agreement, Gloria Jean's redeemed a
portion of its current outstanding common stock from Second Cup prior to
the merger. The stock was redeemed for an amount which left not less than
$2,500 in cash and cash equivalents in the accounts of Gloria Jean's after
payment of expenses incurred related to the merger.
The stock redemption totaled $5,116.
F-11
<PAGE> 51
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Old Coffee People sells coffee beverages, coffee beans, cookies, pastries,
ice cream, shakes and coffee-related merchandise at company-owned retail
stores located principally in Oregon and Arizona. The following is the
allocation of the purchase price to the net assets acquired at fair value:
<TABLE>
<S> <C>
Issuance of common stock, net of
stock issuance costs $11,398
Transaction costs 838
-------
Total purchase price 12,236
-------
Net assets acquired 2,003
-------
Cost in excess of net assets acquired $10,233
=======
</TABLE>
The following unaudited pro forma information is presented to show the
results of operations had the acquisition occurred June 29, 1996:
<TABLE>
<S> <C>
Cash $ 226
Deferred tax assets 2,272
-------
Net assets $2,498
======
</TABLE>
The above results of operations are not intended to be indicative of the
results of operations which actually would have been realized had the
acquisition occurred as of June 29, 1996, nor of the future results of
operations of the combined company.
The Company has developed a plan to consolidate certain corporate
functions and to restructure Old Coffee People's operations. Such plan
includes relocating certain Old Coffee People corporate employees to the
Company's Castroville, California headquarters, terminating corporate
employees with duplicative functions, consolidating the roasting of coffee
in the Company's Castroville roasting facility and franchising Old Coffee
People's retail stores. Management anticipates that the relocation and
termination of employees will be completed by November 1998 and a majority
of the retail stores will be franchised by the end of 1999. As of June 27,
1998, the Company accrued $548 related to these activities. These costs
have been capitalized and recorded as an increase in goodwill to the
extent of Second Cup's 69.5% ownership interest. The remaining costs were
charged to expense and are included in acquisition and integration
expenses.
F-12
<PAGE> 52
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
CP OLD, INC. MERGER
In May 1998, Gloria Jean's was merged with CP Old, Inc., a wholly-owned
subsidiary of Second Cup, and the combined company continued as Gloria
Jean's. At the time of the merger, CP Old, Inc. had no operations. Upon
closing of the merger, the assets and liabilities of CP Old, Inc. were
transferred at their historical carrying values with a corresponding
increase in stockholders' equity. Such assets and liabilities consisted of
the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Total revenues $ 56,147 $ 52,190
Income before cumulative effect of change in
accounting principle 520 (7,747)
Net income (loss) 520 (8,174)
Earnings (loss) per share - basic and diluted $ .05 $ (.76)
</TABLE>
EDGLO ACQUISITION
On October 16, 1995, the Company acquired Edglo. The effective date of the
acquisition was designated as September 30, 1995 for convenience purposes.
The acquisition has been accounted for using the purchase method of
accounting. The following is the allocation to the net assets acquired at
fair value of the purchase price paid of $29,597 (including acquisition
costs of $350):
<TABLE>
<S> <C>
Current assets $10,723
Capital assets 4,972
Other assets 68
Goodwill 18,609
-------
34,372
-------
Current liabilities 4,460
Other liabilities 315
-------
4,775
-------
Net assets acquired $29,597
=======
</TABLE>
During the fiscal year ended June 27, 1998, the Company received $642
(included as a reduction in general and administrative expenses) from the
former owners of Edglo pursuant to an escrow agreement. This amount
represents a reimbursement for certain expenses incurred by Gloria Jean's
as a result of the Edglo acquisition. Such expenses were included in
general and administrative expenses in years prior to fiscal 1998.
F-13
<PAGE> 53
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Coffee
Unroasted $2,169 $1,175
Roasted 368 840
Other merchandise held for sale 898 490
Supplies 617 1,058
------ ------
$4,052 $3,563
====== ======
</TABLE>
During the fiscal year ended June 28, 1997, inventory writedowns resulting
from excess inventory totaled approximately $600.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Land $ 786 $ --
Building 745 --
Manufacturing equipment 2,580 2,460
Leasehold improvements 6,954 3,893
Furniture, fixtures and other 4,572 2,044
-------- --------
15,637 8,397
Less:Accumulated depreciation (2,071) (1,095)
Less:Write down of assets held for disposal (855) (887)
-------- --------
$ 12,711 $ 6,415
======== ========
</TABLE>
Included above in manufacturing equipment and leasehold improvements are
assets under construction of $89 at June 27, 1998 and $539 at June 28,
1997.
F-14
<PAGE> 54
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
5. ASSETS HELD FOR SALE AND PROVISION FOR STORE CLOSURE COSTS
Effective as of the beginning of fiscal 1997, the Company adopted the
provisions of SFAS 121. The initial application of SFAS 121 to long-lived
assets held for disposal at June 30, 1996 resulted in a non-cash charge of
$427 (net of tax benefit of $262) which represents the adjustment required
to remeasure such assets at the lower of carrying amount or fair value
less cost to sell. Long-lived assets held for disposal consist of
leasehold improvements and furniture, fixtures and other property at the
Company's corporate-owned stores which management plans to sell to
franchisees.
During fiscal 1998 and 1997, the Company recorded additional charges of
$223 and $198 (included in general and administrative expenses),
respectively, to remeasure long-lived assets at corporate-owned stores
which management plans to sell to franchisees or close, at the lower of
carrying amount or fair value less cost to sell. As of June 27, 1998, all
of the Gloria Jean's corporate-owned stores are held for sale to
franchises. Assets held for sale at June 27, 1998 and June 28, 1997 had
adjusted carrying values of $2,895 and $1,560, respectively. Revenues and
operating income (losses) for these stores totaled $9,030 and $(1,204),
respectively, for the fiscal year ended June 27, 1998, $7,051 and $(368),
respectively, for the fiscal year ended June 28, 1997, and $5,592 and
$176, respectively, for the 39-week period ended June 29, 1996. During the
fiscal year ended June 27, 1998, the Company sold eight corporate-owned
stores. The Company is negotiating with a third-party equipment leasing
company for a sale-leaseback of substantially all of the Gloria Jean's
corporate-owned store assets. Management believes the selling price for
these store assets will approximate their carrying value at June 27, 1998.
While the corporate-owned stores are being actively marketed for sale, the
Company expects the period of sale may exceed one year for some of the
stores.
As of June 28, 1997, the Company determined that it was not feasible to
sell eight of the corporate-owned stores held for disposal and recorded a
provision of $580 for store closure costs consisting primarily of lease
termination costs. The Company incurred costs of $530 for store closures
during fiscal 1998 and charged this amount against the accrual for store
closures.
As of June 27, 1998, the accrual for store closures consists of closure
costs at the Old Coffee People corporate-owned stores which were closed as
of the Gloria Jean's reverse merger date. The accrual of $1,291 consists
primarily of lease termination costs. The Company is working with local
real estate brokers to market, re-lease or sublease all of these stores.
F-15
<PAGE> 55
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
6. DEBT
The Company assumed debt in connection with the Gloria Jean's reverse
merger. Such debt consists of the following at June 27, 1998:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of $6 each, plus
interest at 9.0%, commencing September 1, 1995, due August 1, 1998 $ 12
Note payable to bank, payable in monthly installments of $100 each, plus
interest at two different interest rates (8.0% at June 27, 1998),
commencing June 1, 1997, due May 1, 2002 4,700
Note payable to stockholder (also a director), payable in monthly
installments of $3, including interest at 2.0% over the prime rate
(10.50% at June 27, 1998), due December 1, 2002 149
Note payable to the Port of Portland, payable in monthly
installments of $5, commencing April 8, 1995, including
interest at 12.0%, due March 8, 2003 216
-------
5,077
Less-current portion (1,279)
-------
$ 3,798
=======
</TABLE>
The Company has a line of credit agreement with a bank in the amount of
$500 expiring August 1999. The interest rate for amounts drawn under the
line is 0.5% over the prime rate. There is no amount outstanding under the
line of credit at June 27, 1998. Of the $500 line, a total of $73 is
reserved for use under a letter of credit dated September 1998.
The Company has a revolving line of credit agreement with Second Cup
Limited in the amount of $4,000 expiring May 2003. The interest rate for
amounts drawn under the line is 11.5%. There is no amount outstanding
under the line of credit at June 27, 1998.
The bank notes and line of credit are secured by substantially all of Old
Coffee People's assets, including accounts receivable, inventories, trade
fixtures and equipment. These debt agreements contain restrictions
relating to specified financial ratios as well as the lender's standard
covenants and restrictions. As of June 27, 1998, the Company was in
compliance with all debt covenants.
F-16
<PAGE> 56
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The stockholder note is secured by substantially all of the Company's
assets and is subordinated to the bank notes.
The principal payments on long-term debt are as follows at June 27, 1998:
<TABLE>
<S> <C>
1999 $1,279
2000 1,268
2001 1,271
2002 1,179
2003 80
------
$5,077
======
</TABLE>
7. INCOME TAXES
The Company's provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
FOR THE
39-WEEK
FOR THE FISCAL PERIOD
YEAR ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Current provision
Federal $ 26 $ 135 $ --
State -- 21 --
----- ----- -----
26 156 --
----- ----- -----
Deferred provision (benefit)
Federal 628 (371) 863
State 74 (43) 102
----- ----- -----
702 (414) 965
----- ----- -----
$ 728 $(258) $ 965
===== ===== =====
</TABLE>
F-17
<PAGE> 57
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company's provision (benefit) for income taxes is included in the
financial statements as follows:
<TABLE>
<CAPTION>
FOR THE
39-WEEK
FOR THE FISCAL PERIOD
YEAR ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Continuing operations $ 728 $ 4 $ 965
Cumulative effect of change in accounting principle -- (262) --
----- ----- -----
$ 728 $(258) $ 965
===== ===== =====
</TABLE>
The cumulative effect of change in accounting principle of $427 is net of
an income tax benefit of $262, comprised of federal and state income
taxes.
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE
39-WEEK
FOR THE FISCAL PERIOD
YEAR ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
<S> <C> <C> <C>
Federal statutory rate 34.0% (34.0)% 34.0%
State income taxes, net of federal benefit 4.0 (4.0) 4.0
Amortization of nondeductible goodwill 12.0 22.8 6.0
Write-off of uncollectible income taxes receivable -- 16.7 --
Other (0.3) (1.5) 0.1
---- --- ----
49.7% 0.0 % 44.1%
==== === ====
</TABLE>
F-18
<PAGE> 58
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The components of the Company's net deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $ 588 $ 628
Net operating loss carryforwards (NOLs) 3,913 1,281
Asset write downs, store closures and relocation
provisions 1,748 635
Basis difference in property, plant and equipment 155 --
Employee benefits 151 --
Other 199 48
------- -------
6,754 2,592
Valuation allowance (699) --
------- -------
Net deferred tax assets 6,055 2,592
Deferred tax liability
Basis difference in property, plant and equipment -- (117)
------- -------
Net deferred tax assets $ 6,055 $ 2,475
======= =======
</TABLE>
During the fiscal year ended June 28, 1997, the Company reversed a $1,619
valuation allowance related to NOLs acquired from Edglo. The non-cash
adjustment to the valuation allowance was recorded as a reduction in
goodwill.
In connection with the Gloria Jean's reverse merger (Note 2), the Company
recorded a deferred tax asset of $2,010, net of a valuation allowance of
$699. This amount was recorded as a reduction to goodwill arising from the
Gloria Jean's reverse merger. The valuation allowance of $699 relates to
NOLs of Old Coffee People which, due to limitations on utilization of the
NOLs, management believes are not more likely than not realizable. To the
extent these NOLs are utilized, goodwill will be reduced.
In connection with the CP Old, Inc. merger, the Company recorded a
deferred tax asset of $2,272 related to CP Old, Inc. NOLs which management
believes will more likely than not be realized. The effect of recording
this deferred tax asset was an increase in stockholders' equity (common
stock).
Based on internal forecasts and industry trends, management believes it is
more likely than not the deferred tax assets of $6,055 at June 27, 1998
will be realized through future taxable income.
F-19
<PAGE> 59
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company has federal NOLs of approximately $10,298 which expire as
follows:
<TABLE>
<S> <C>
2010 $ 3,938
2011 3,056
2012 2,986
2013 318
---------
$ 10,298
========
</TABLE>
Approximately $1,840 of these NOLs are available to offset Old Coffee
People's future taxable income. Pursuant to Internal Revenue Code Section
382 (Section 382), utilization of these NOLs is limited to $700 per year.
Approximately $6,620 of these NOLs are available to offset Gloria Jean's
future taxable income. Pursuant to Section 382, utilization of these NOLs
is limited to $568 per year. Utilization of all of the Company's NOLs may
be further limited in the event of a change in ownership of the Company.
8. FRANCHISED AND COMPANY-OWNED STORES
The number of retail stores is as follows:
<TABLE>
<CAPTION>
COMPANY-
FRANCHISED OWNED
STORES STORES
<S> <C> <C>
Beginning of period, June 28, 1997 236 31
Opened/acquired 14 51
Franchised 8 (8)
Closed (12) (5)
--- --
End of period, June 27, 1998 246 69
=== ==
</TABLE>
9. MINIMUM LEASE COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain retail store, office and warehouse facilities
under operating leases expiring through 2008. The Company is the lessee in
most of the franchisees' lease agreements. The Company has sublease
agreements with individual franchisees, whereby the franchisee assumes
responsibility for and makes lease payments directly to the landlord. The
Company also has sublease agreements for certain company-owned stores and
office facilities whereby the sublease tenants are responsible for the
lease payments. Rental expense is reported net of sublease income in
accordance with retail industry practice. Most lease agreements contain
renewal options at varying terms and rent escalation clauses. Certain
leases provide for contingent rentals based upon gross sales.
F-20
<PAGE> 60
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Rental expense under lease agreements for the fiscal year ended June 27,
1998 and June 28, 1997, and the 39-week period ended June 29, 1996 was
$2,159, $1,700 and $1,540, respectively, net of sublease income.
Minimum future lease commitments as of June 27, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS NET
MINIMUM LESS MINIMUM
LEASE SUBLEASE LEASE
COMMITMENTS RENTALS COMMITMENTS
<S> <C> <C> <C>
1999 $11,853 $ 8,000 $ 3,853
2000 11,281 7,589 3,692
2001 10,033 6,708 3,325
2002 8,470 5,596 2,874
2003 7,158 4,490 2,668
Thereafter 15,720 8,438 7,282
------- ------- -------
$64,515 $40,821 $23,694
======= ======= =======
</TABLE>
As of June 28, 1997, the Company accrued $420 (included in accrued
liabilities) related to its obligation to repurchase a franchised store if
the franchised store did not meet certain financial targets. When this
franchised store was repurchased, the Company intended to close it. The
amount accrued consisted primarily of the estimated repurchase price and
lease termination costs. Costs incurred to repurchase and close the
franchised store were $373 as of June 27, 1998. During the fiscal year
ended June 27, 1998, the Company was reimbursed for such costs pursuant to
an escrow agreement with the former owners of Gloria Jean's (Note 2).
As of June 27, 1998, the Company has approximately $4,200 of outstanding
purchase commitments related to green coffee.
The Company has an agreement with a supplier to purchase substantially all
of the coffee requirements for its Oregon stores through January 1999.
As a requirement under a lease with the Port of Portland, the Company is
committed to enter into a joint venture with a third party for one of the
Company's stores at Portland International Airport. Once the agreement is
finalized, the Company will have a 49% ownership interest in that store.
The Company is subject to litigation in the ordinary course of business.
In the opinion of management, the ultimate outcome of existing litigation
would not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
F-21
<PAGE> 61
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
10. STOCK SUBSCRIPTION NOTES RECEIVABLE
The Company has stock subscription notes receivable which were issued
primarily by Old Coffee People to certain officers and employees upon the
exercise of incentive stock options. The notes bear interest at the rate
of 8.5% per annum from the date of exercise and are due from December 1998
through May 2003. The notes provide that in the event any of the common
stock is sold before the notes mature, all accrued interest and a pro rata
portion of the principal balance must be paid.
11. INCENTIVE PLANS
STOCK OPTION PLANS
At the time of the Gloria Jean's reverse merger, Old Coffee People had
four stock option plans - the 1993 Stock Option Plan, the 1994 Stock
Option Plan, the 1995 Stock Option Plan and the 1996 Stock Option Plan.
These stock option plans continued in effect subsequent to the Gloria
Jean's reverse merger. Optionholders as of the merger date were given the
opportunity to reprice their existing stock options at a price equal to
the fair market value of the stock on the date the repricing was approved
by the Board of Directors. Optionholders choosing to reprice their stock
options cancelled their option shares and received a reduced number of new
option shares on the repricing date. No options were repriced as of June
27, 1998. On August 1, 1998, seven optionholders elected to reprice their
stock options. As a result, 302,000 old option shares with a weighted
average price per share of $9.21 were surrendered and 77,850 new option
shares were issued at an exercise price of $3.20 per share. The exercise
price exceeded the fair market value on the grant date.
Effective May 19, 1998, the Company adopted the 1998 Stock Option Plan.
Under all five stock option plans, key employees and consultants may be
granted either incentive or nonqualified stock options. Incentive stock
options must comply with the requirements of the Internal Revenue Code,
may be granted only to employees and may be granted at not less than the
fair market value of the stock at the date of grant. Nonqualified options
may be granted to employees and consultants at not less than 85% of the
fair market value of the stock at the date of grant. Cancelled options are
available for future grant. The number of options granted, the option
price, the term of the option and the vesting period are determined by the
Board of Directors.
Stock option activity under the aforementioned stock options plans was as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER
SHARES SHARE
<S> <C> <C>
Outstanding at Gloria Jean's reverse merger date 342,439 $ 8.57
Granted 248,000 3.20
Exercised (11,250) 2.22
------- --------
Outstanding at June 27, 1998 579,189 $ 6.39
======= ========
</TABLE>
F-22
<PAGE> 62
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
For all five plans, there were 1,005,953 shares of unissued common stock
reserved for issuance at June 27, 1998. Options to purchase 188,565 shares
with a weighted average exercise price of $8.84 were exercisable at June
27, 1998.
Options outstanding and exercisable, and related weighted average life
information by grant price as of June 27, 1998 were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTION OPTIONS OPTIONS REMAINING LIFE
PRICE OUTSTANDING EXERCISABLE (YEARS)
<S> <C> <C> <C>
$ 2.22 13,689 13,689 5
3.20 248,000 -- 10
4.75 5,000 1,000 9
5.56 2,000 400 9
6.50 30,000 6,000 9
6.94 16,500 3,300 9
8.00 21,000 18,376 6
9.00 63,000 37,800 8
10.00 150,000 90,000 7
10.00 30,000 18,000 8
------- -------
579,189 188,565
======= =======
</TABLE>
No compensation cost has been recognized for the 1998 Stock Option Plan.
If compensation cost for this plan had been determined based on the fair
value at the grant date, the Company's net income and net income per share
for the fiscal year ended June 27, 1998 would be as follows:
<TABLE>
<S> <C>
Net income $ 696
Net income per share-basic and diluted $ .09
</TABLE>
The Company used the Black-Scholes option pricing model to estimate the
fair value of options granted during the fiscal year ended June 27, 1998
(no options were granted during the fiscal year ended June 28, 1997 or the
39-week period ended June 29, 1996). The weighted average assumptions used
to compute compensation cost in the above pro forma and to estimate the
weighted average fair market value of options granted are as follows:
<TABLE>
<S> <C>
Risk-free interest rate 5.5%
Dividend yield 0%
Volatility 70%
Expected term (years) 5
Weighted average fair market value $ 1.94
</TABLE>
F-23
<PAGE> 63
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
At the time of the Gloria Jean's reverse merger, Old Coffee People had an
Employee Stock Purchase Plan (the ESPP) under which 150,000 shares of
common stock have been reserved for issuance to and purchase by employees
of Old Coffee People. The ESPP continued after the reverse merger. All Old
Coffee People employees with over four months of service who work more
than 20 hours per week and who do not own stock and stock options for more
than 5% of the Company's stock are eligible to participate in the ESPP.
The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. No shares were purchased under
the ESPP during the fiscal year ended June 27, 1998.
12. RETIREMENT PLANS
Effective March 1, 1997, the Company adopted a tax deferred savings plan
(the 401(k) Plan). Substantially all employees with over one year of
service are eligible to participate in the 401(k) Plan. Participants who
choose to participate may contribute up to 15% of their pretax
compensation to the 401(k) Plan subject to the statutorily prescribed
annual limits. All contributions to the 401(k) Plan are fully vested and
nonforfeitable at all times. The Company does not match employee
contributions.
Old Coffee People has a tax deferred savings plan (Old Coffee People
401(k) Plan) which covers all employees of Old Coffee People with over six
months of service and who work an average of at least 30 hours per week.
Participants may contribute up to 20% of their pretax compensation to the
Old Coffee People 401(k) Plan subject to the statutorily prescribed annual
limits. All contributions to the Old Coffee People 401(k) Plan, including
company contributions, are fully vested and nonforfeitable at all times.
Company contributions were immaterial during the fiscal year ended June
27, 1998.
13. RELATED PARTY TRANSACTIONS
During the period ended June 29, 1996, the Company issued 1,200 shares of
its common stock to Second Cup for cash of $35,825.
In February 1996, the Company commenced roasting coffee for CP Old, Inc..
The Company initially charged CP Old, Inc. a roasting fee and subsequently
sold roasted coffee to CP Old, Inc. For the fiscal year ended June 28,
1997 and the 39-week period ended June 29, 1996, total sales to the
affiliated company were $823 and $56, respectively (none in fiscal 1998).
The Company had demand loans to an affiliated company which bore interest
at 8.25% per annum. The loans were repaid during fiscal 1997. Interest
received was $280 for the fiscal year ended June 28, 1997 and $66 for the
39-week period ended June 29, 1996.
During the fiscal year ended June 27, 1998, The Second Cup Ltd. incurred
costs on the Company's behalf. Such amounts are included in payable to
related party.
F-24
<PAGE> 64
COFFEE PEOPLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
As of June 27, 1998, the Company had a lease with a stockholder who is a
director of the Company. Rental expense associated with this lease was
approximately $10,000 during the fiscal year ended June 27, 1998.
14. CASH HELD IN TRUST
The Company holds cash in trust on behalf of franchisees, which includes
the advertising fund and the construction trust account. The cash held in
trust amounted to $795 at June 27, 1998. These funds have not been
included in the Company's balance sheet.
15. UNAUDITED QUARTERLY DATA
<TABLE>
<CAPTION>
PER SHARE - BASIC AND DILUTED
INCOME (LOSS) -----------------------------
BEFORE INCOME (LOSS)
CUMULATIVE BEFORE CUMULATIVE
INCOME (LOSS) EFFECT OF CHANGE EFFECT OF CHANGE
FROM IN ACCOUNTING NET INCOME IN ACCOUNTING NET INCOME
REVENUES OPERATIONS PRINCIPLE (LOSS) PRINCIPLE (LOSS)
-------- ------------- ---------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1998:
1st Quarter $ 7,940 $ 784 $ 492 $ 492 $ .07 $ .07
2nd Quarter 10,115 1,796 1,057 1,057 .14 .14
3rd Quarter 7,394 730 456 456 .06 .06
4th Quarter 9,602 (2,113) (1,267) (1,267) (.15) (.15)
-------- -------- -------- --------
$ 35,051 $ 1,197 $ 738 $ 738 $ .09 $ .09
======== ======== ======== ========
FISCAL 1997:
1st Quarter $ 5,493 $ (740) $ (629) $ (1,056) $ (.08) $ (.14)
2nd Quarter 11,230 1,947 2,041 2,041 .27 .27
3rd Quarter 6,607 (438) (308) (308) (.04) (.04)
4th Quarter 7,249 (1,954) (1,867) (1,867) (.25) (.25)
-------- -------- -------- --------
$ 30,579 $ (1,185) $ (763) $ (1,190) $ (.10) $ (.16)
======== ======== ======== ========
</TABLE>
F-25
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Coffee People, Inc.
Our audit of the consolidated financial statements referred to in our
report dated August 16, 1996 appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 8 of this
Form 10-K insofar as it relates to the 39-week period ended June 29, 1996. In
our opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein for the 39-week period ended June
29, 1996 when read in conjunction with the related consolidated financial
statements.
PRICEWATERHOUSECOOPERS
Toronto, Ontario
August 16, 1996
F-26
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Coffee People, Inc.
Our audits of the consolidated financial statements referred to in our
report dated August 26, 1998 appearing in the Coffee People, Inc. Annual Report
on Form 10-K for the fiscal year ended June 27, 1998 also included an audit of
the Financial Statement Schedule listed in Item 8 of this Form 10-K insofar as
it relates to the fiscal years ended June 27, 1998 and June 28, 1997. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein for the fiscal years ended June 27,
1998 and June 28, 1997 when read in conjunction with the related consolidated
financial statements.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
August 26, 1998
F-27
<PAGE> 67
SCHEDULE II
COFFEE PEOPLE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
-------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
39-week period ended June 29, 1996:
Allowance for doubtful accounts ...... $ 3,000 $ 775 $(2,717)(1) $ 1,058
Amortization of goodwill ............. -- 346 -- 346
Fiscal year ended June 28, 1997:
Allowance for doubtful accounts ...... $ 1,058 $ 602 $ -- $ 1,660
Amortization of goodwill ............. 346 455 -- 801
Fiscal year ended June 27, 1998:
Allowance for doubtful accounts ...... $ 1,660 $ 19 $ (523)(1) $ 1,156
Amortization of goodwill ............. 801 475 -- 1,276
</TABLE>
- --------
(1) Write-off of receivables considered uncollectible.
F-28
<PAGE> 1
EXHIBIT 10.23
COFFEE PLANTATION(R)
FRANCHISE AGREEMENT
This Coffee Plantation(R) Franchise Agreement is made and entered into
by and between Coffee People, Inc., an Oregon corporation (referred to as the
"Franchisor," "we," "us" or "our"), with its principal office currently at 11480
Commercial Parkway, Castroville, California 95012, and
__________________________________________________________________ (individually
and collectively referred to as the "Franchisee," "you" or "your") whose
principal address is __________________________________________________. If
there is more than one Franchisee, their obligations under this Agreement and
all other agreements (whether past, present or future) are, and shall be, joint
and several.
IN A NUMBER OF PLACES IN THIS AGREEMENT, YOU'RE ASKED TO INITIAL CERTAIN
ITEMS. INITIALING BY YOU CONFIRMS, WITHOUT LESSENING THE IMPORTANCE OR BINDING
NATURE OF EACH OF THE PROVISIONS OF THIS AGREEMENT, THAT YOU RECOGNIZE THE
SPECIAL SIGNIFICANCE OF THOSE ITEMS AND THE FACT THAT THEY'VE BEEN FULLY
DISCUSSED WITH YOU, AND READ, UNDERSTOOD AND AGREED TO BY YOU. PLEASE INITIAL
BELOW AND AT ALL OTHER POINTS INDICATED.
YOUR INITIALS: __________ / __________
1. BUSINESS BACKGROUND AND PRELIMINARY AGREEMENTS
1.1 INTRODUCTION. We've developed, and plan to continue to develop,
methods of operating Coffee Plantation(R) Stores ["Plantation Store(s)"] which
offer, at retail, bulk specialty coffees, teas, beverages, coffee and tea makers
and related supplies, accessories and gifts and other items as approved by us
from time-to-time in our sole and absolute discretion (the "Products.")
Plantation Stores generally offer beverages for immediate consumption on the
premises and some Plantation Stores carry pastries, cookies and baked goods and
have seating areas, in each case as consented to by us.
Plantation Stores are operated with formats, signs, equipment, layout,
systems, methods, procedures and designs approved by us and which utilize a
special architectural design, offer the Products, and utilize certain
trademarks, service marks, trade dress and other commercial symbols, including
"Coffee Plantation." Plantation Stores operate at locations that feature the
"Coffee Plantation(R) System" (as defined below), any element of which we can
modify from time-to-time in our sole and absolute discretion and with which you
will promptly comply.
1
<PAGE> 2
We selectively award, to qualified persons, franchises (the "Franchise")
to own and operate a Plantation Store using the Coffee Plantation System and the
Names and Marks and Trade Dress. Where we deem it appropriate, the Franchise
(and this Agreement) may be subject to a separate written Addendum signed by you
and us and granting you rights to operate variations of the standard Plantation
Store, such as a Coffee Plantation Drive-Through Unit (sometimes referred to as
"Motor Moka(R)"), a Coffee Plantation Espresso Bar/Kiosk (the "Bar/Kiosk"), or
otherwise.
You've applied for a franchise to own and operate a Plantation Store or
other facility at premises identified in Section 2.1 below and your application
has been approved by us in reliance on all of the representations made in your
application.
1.2 DEFINITIONS. The following terms have the meanings listed below.
Other terms used in this Agreement are defined and construed in the context in
which they occur.
"AFFILIATE" - Any person, company or other entity which controls, is
controlled by or is under common control with another person, company or
other entity, as well as any spouse, parent, child and/or sibling and
any entity controlled by any spouse, parent, child and/or sibling. Our
affiliates include (but are not necessarily limited to), at present,
Gloria Jean's Gourmet Coffees Franchising Corp., Gloria Jean's Gourmet
Coffees Corp., Edglo Enterprises, Inc., Gloria Jean's Inc., Coffee
People Inc., Second Cup USA Holdings Ltd. and The Second Cup Ltd.)
"AGREEMENT" - This Coffee Plantation(R) Franchise Agreement.
"DESIGNATED EQUIPMENT" - Equipment that meets our requirements and is to
be obtained and used by you in the operation of your Plantation Store.
"FRANCHISE" - The right to operate a single Plantation Store at the
Premises pursuant to the terms and conditions of this Agreement.
"FRANCHISOR-RELATED PERSONS/ENTITIES" - Collectively and individually,
but not necessarily limited to, the following, whether past, present or
future: Gloria Jean's Gourmet Coffees Franchising Corp., Gloria Jean's
Gourmet Coffees Corp., Edglo Enterprises, Inc., Gloria Jean's Inc.,
Coffee People Inc., Second Cup USA Holdings Ltd. and The Second Cup
Ltd., the partners, shareholders, officers, directors,
2
<PAGE> 3
agents, attorneys, accountants, and/or employees and/or any affiliates,
of any of the foregoing and each of their respective partners,
shareholders, officers, directors, agents, attorneys, accountants,
and/or employees, as well as any company(ies)/person(s) acting by,
through, under or in concert or affiliated or associated in any way with
any of the foregoing, as well as any past, present and/or future
predeccesors, successors and/or assigns of any of the foregoing.
"GOOD STANDING" - "Good Standing" includes (but is not limited to) you
and each affiliate of yours (a) not being in default or threat of
default under this Agreement and/or any other agreement, or any other
legal obligation, to us and/or any affiliate of ours and (b) operating
each Coffee Plantation(R) Franchise, in which you and/or any affiliate
of yours has any ownership or other interest, in full compliance with
the System and Manuals and all of our other requirements.
"MANUAL(S)" - One or more handbooks, manuals, bulletins and/or volumes,
other written materials (including materials distributed electronically
or otherwise), and video, audio and/or software media, regardless of
title, containing (among other things) specifications, standards,
policies and procedures prescribed from time-to-time by us and to be
followed by you in connection with your operation, marketing or
otherwise of your Plantation Store and your performance under this
Agreement, including (but not limited to) all goods and services to be
sold and/or provided at or from your Plantation Store and/or in
association with the Marks. The Manuals include all changes and
supplements issued by us in the future, each of which you'll promptly
comply with.
"NAMES AND MARKS" - The trademarks, service marks and other commercial
symbols now and/or in the future owned by us and which we designate,
from time-to-time, to be used to identify the services and/or products
offered by Plantation Stores, including (but not limited to) "Coffee
Plantation", the Trade Dress and certain associated logos.
"PLANTATION STORE" - The Coffee Plantation(R) Store which you're
franchised to operate at the Premises pursuant to this Agreement,
including any Bar/Kiosk, Drive-Through Unit or other facility which we
authorize you to operate.
"PREMISES" - The location at which you will operate a single Plantation
Store, as permitted and accepted by us pursuant to this Agreement.
"PRODUCTS" - Bulk specialty coffees, teas, beverages, bakery items,
coffee and tea makers and related supplies,
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accessories and gifts and other items as approved by us from
time-to-time to be offered at or from your Plantation Store, in our sole
and absolute discretion.
"SERVICES" - Services approved by us from time-to-time to be offered at
or from your Plantation Store, in our sole and absolute discretion.
"SIMILAR BUSINESS"- Any business that now or in the future offers,
sells, distributes, provides or is otherwise involved or deals with,
whether at wholesale, retail or otherwise, any goods and/or services
(including, among others, the Products) now or in the future authorized
by us to be offered at or from Plantation Stores, or similar products,
including any business awarding franchises or licenses to others to
operate or be involved with any such business.
"STORE" - The Plantation Store you're authorized to own and operate
pursuant to this Agreement.
"SYSTEM" - The distinctive format and method of doing business now or in
the future developed, used and/or modified by us in our sole and
absolute discretion for the operation of a retail sales outlet
specializing in the sale of specialty coffees, teas, food products,
other beverages and other related gift items, including (but not limited
to) (a) distinguishing characteristics related to the image, design,
appearance, layout and color scheme of a Plantation Store, (b) design,
style, color and other distinguishing characteristics of fixtures,
showcases, signs and furnishings, (c) layout, design and selection of
equipment, (d) specifications used in preparing Products for sale, (e)
methods used for selecting, purchasing, marketing, displaying and
selling Products, (f) operating, marketing and other systems, procedures
and standards and (g) the standards of quality, service and cleanliness
used in the operation of a Plantation Store.
"TRADE DRESS" - The Plantation Store design and image developed by us
for Plantation Stores, as it currently exists and as it may be revised
and further developed by us from time-to-time in our sole and absolute
discretion.
"US," "WE," "OUR" OR "FRANCHISOR" - Coffee People, Inc., an Oregon
corporation.
"YOU," "YOUR" OR "FRANCHISEE" - The individual(s) signing this Agreement
as Franchisee. (If there's more than one Franchisee, each is jointly and
severally obligated under
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this Agreement and all other agreements/documents with us.)
2. AWARD OF FRANCHISE
2.1 AWARD OF FRANCHISE. Subject to the provisions of this Agreement, we
award you a franchise to operate a retail Plantation Store at
______________________________________________ only, or a substitute premises
approved (in accordance with Section 4 below) by us, and to use the Coffee
Plantation System, and the Names and Marks and Trade Dress, in the operation
thereof, for a term commencing on the effective date of this Agreement and
ending upon the expiration of the initial or remaining initial term of the lease
or sublease for the premises of your Plantation Store. Termination or expiration
of this Agreement shall constitute a termination or expiration of the Franchise.
You will not conduct any business or other activity from your Plantation Store,
or using the Coffee Plantation System, Name and Marks, Trade Dress or otherwise,
other than as expressly authorized under this Agreement.
You understand and agree that critical to the Coffee Plantation(R)
System and this Agreement, as well as your possible success, is full adherence
by you to each element of the Coffee Plantation(R) System, including (among
other things), use and sale of only those Products, Designated Equipment and
suppliers as are approved by us from time-to-time, your using only prescribed
building and equipment layouts and designs, your strictly adhering to our
then-current standards of quality, service and cleanliness, your close and
personal working relationship with your Plantation Store, and your personal
accountability for the performance of your obligations under this and other
agreements. Accordingly, you will continuously comply with all such (and other)
elements of the then-current Coffee Plantation System. You agree that you will
at all times faithfully, honestly and diligently perform your obligations
hereunder, and that you will continuously exert your best efforts to promote,
enhance and maximize the business of your Plantation Store and the goodwill of
the Name and Marks.
YOUR INITIALS: __________ / __________
2.2 NON-EXCLUSIVITY. The Franchise is a "spot" franchise only and is
awarded for a single location only, with you having no other rights. You do not
have, have not paid for, and have no expectation of receiving any benefits of,
any "exclusive territory" or any "exclusive," "protected" or "reserved"
territorial, similar or other rights, no such rights are granted or will be
inferred and there is, and will be, no limitation of
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any type on the rights of us, or any of the Franchisor-Related Persons/Entities,
to locate and/or consent to the location of other Plantation Stores or other
distribution facilities and/or channels of distribution of any type (including,
without limitation, Motor Moka(R), other drive-through units and/or any other
channels of distribution), whether or not using the Coffee Plantation System,
the Names and Marks and/or Trade Dress, and/or involved in any Similar Business
or otherwise, at any location, regardless of the distance from, impact on, or
vicinity of, your Plantation Store or the number of Plantation Stores, other
outlets or otherwise in any area or market and you have no right to exclude,
control or impose conditions on the location or development of future Coffee
Plantation (or other) Franchisor-owned, franchised or other units of any type
(including, without limitation, Motor Moka(R), other drive-through units and/or
any other channels of distribution) or at any location. In particular, you
understand and agree that some or all of the Franchisor-Related Persons/Entities
currently, and may in the future, own and operate, and/or franchise or otherwise
license, Similar Businesses (and/or other competitive outlets/businesses) and
concepts located (or to be located) anywhere, including in proximity to you, and
that such businesses may now or in the future be in direct or indirect
competition with you.
We (and each and all of the Franchisor-Related Persons/Entities), and
those we, and/or any of the Franchisor-Related Persons/Entities, appoint, retain
(without limitation of any kind or nature) all rights with respect to; (a)
Plantation Stores, the Coffee Plantation System, the Names and Marks and Trade
Dress, the sale of Products and any other products and services under any name,
mark, trade dress or otherwise, anywhere in the world: (b) the right to operate
or grant others the right to operate specialty coffee stores, other coffee
beverage facilities or any other businesses anywhere in the world at such
locations as we (and the Franchisor-Related Persons/Entities) deem appropriate
in our (and their) sole and absolute discretion, regardless of the proximity to,
or impact on, your Plantation Store and on such terms and conditions as we,
and/or any of the Franchisor-Related Persons/Entities wish; (c) the right to
roast, develop, wholesale, market, distribute, sell or otherwise Products or
other items/services through any channel of distribution (including, without
limitation, mail order, Internet, World Wide Web, at wholesale and/or retail,
through grocery stores, supermarkets, discount stores, convenience stores or
otherwise), to be located anywhere and selling, etc. to anyone located anywhere,
whether under or in association with the Coffee Plantation System, the Names and
Marks and/or Trade Dress or any other name, mark, trade dress or otherwise,
regardless of the proximity to, or impact on, your Plantation Store, on such
terms and conditions, as we and/or any of the Franchisor-Related
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Persons/Entities, in our (and their) sole and absolute discretion, wish; and (d)
own, operate, franchise, license or otherwise any business located anywhere,
regardless of the proximity to, or impact on, your Plantation Store, whether
competitive or not and whether or not under the Coffee Plantation (or any other
system), the Names and Marks and/or Trade Dress or any other name, mark, trade
dress or otherwise, including to or with such persons/entities, and on such
terms and conditions, as we and/or any of the Franchisor-Related
Persons/Entities wish, in our (and their) sole and absolute discretion.
Since you do not have any territorial or similar rights, there is no
restriction regarding you soliciting or servicing customers located anywhere,
although you may do so only from your Plantation Store or as otherwise expressly
approved by us in writing.
We (and each and all of the Franchisor-Related Persons/Entities) can
acquire, or engage in any other transaction with, other businesses (competitive
or not), with companies and/or units located anywhere, including in proximity to
your Plantation Store, including arrangements where other units are converted to
the Coffee Plantation(R) or other format (including using the Coffee Plantation
System and/or the Names and Marks and/or Trade Dress) and/or any other format
and/or in which we and/or any of the Franchisor-Related Entities are acquired
and/or company-owned, franchised or other businesses (including your Plantation
Store) are converted to another format (whether competitive or not), maintained
as a new concept under the Coffee Plantation System and/or the Names and Marks
and/or Trade Dress or maintained as a separate concept.
We (and each and all of the Franchisor-Related Persons/Entities) can
develop or become associated with other concepts (including dual branding and/or
other franchise systems) for the same, similar, related, competitive or
different products and/or services, whether or not using the Coffee Plantation
System and/or the Names and Marks and/or Trade Dress, and may grant franchises
or other rights with respect to locations and/or businesses in connection
therewith, in each case in our sole and absolute discretion. Units offering
these concepts can be located anywhere, in our sole and absolute discretion,
including in proximity to your Plantation Store.
YOUR INITIALS: __________ / __________
3. SUCCESSOR FRANCHISE
3.1 YOUR RIGHTS. Your rights and our obligations under
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this Agreement terminate at the expiration of the initial term, but at that
time, subject to the conditions below, you will be eligible to be awarded a
successor franchise (which may materially differ from this Agreement and its
requirements) for your Coffee Plantation Store for a single additional term
(without any further term, successor franchise or right of renewal), equal to
the term of the renewal or extension of the lease or sublease for the premises
of your Plantation Store (or the initial term of the lease or sublease for the
premises, if such initial term of the lease or sublease has not expired as of
the effective date of the renewal of the franchise) on the terms, and under the
conditions, set forth in our then-current form of Franchise Agreement (but
without any provision for further successor franchises or renewal); provided,
however, that in no event shall we be obligated to negotiate or obtain any
renewal, extension or otherwise of any lease or sublease, or solicit or accept
any proposal from the landlord (or other person/entity controlling the premises)
for a renewal, extension or otherwise of any lease or sublease, even if on the
same terms and conditions as have previously been applicable to the premises.
3.2 YOUR OBLIGATIONS. Any award of the successor franchise must meet all
of the following conditions, each of which are agreed to be reasonable, together
with such other conditions as are reasonable at the time:
(1) You (and each affiliate of yours) have fully and continuously
complied with this Agreement and all other agreements with us (and/or any
affiliate of ours), in each case without any defaults, cured or uncured, during
the term (including all of the conditions set out below);
(2) You maintain possession of your Premises and by the
expiration date of this Agreement have refurbished, remodeled, expanded and
otherwise brought your Plantation Store and its operation into full compliance
with all then-applicable standards (including then-applicable design standards,
including equipment, and appearance) applicable to franchises awarded for new
Plantation Stores, are in full compliance with any lease or sublease
requirements applicable to your Plantation Store premises and present evidence
satisfactory to us that you have the right to remain in possession of your
Coffee Plantation Store for the duration of the successor franchise; or, in the
event you are unable to maintain possession of the premises, or in our judgment
your Coffee Plantation Store should be relocated, you secure substitute premises
consented to by us and have furnished, stocked and equipped such premises to
bring your Plantation Store and inventory into full compliance with our
then-current requirements by the expiration date of this Agreement;
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(3) You have given us written notice of election to obtain the
successor franchise, not less than six (6) months, but not more than twelve (12)
months, prior to the expiration of the term of this Agreement. Within ninety
(90) days after our receipt of such timely notice, we will furnish you with
written notice of: (a) any reasons which could cause us not to award the
successor franchise, including any deficiencies which require correction and a
schedule for correction thereof by you, and (b) our then-current requirements
relating to the image, appearance, decoration, furnishing, equipping, stocking
and programs of a Coffee Plantation Store, and a schedule for you to complete
such upgrading, modifications or otherwise, as a condition of receiving the
successor franchise. Prior to the expiration date of this Agreement, you will
fully cure all such deficiencies and fully satisfy all such requirements and
conditions. You understand and agree that we may refuse to award a successor
franchise if, in our reasonable judgment, you (or any affiliate of yours) have
failed to render satisfactory performance as a Franchisee in any operational or
other areas (including, but not limited to, safety, compliance with the System
and all Manuals, adverse impact on the Marks and associated goodwill, etc.),
whether or not such failure constitutes or constituted a default. The award of
the successor franchise will be conditioned (among other things) on your (and
your affiliates') continued compliance with all the terms and conditions of this
Agreement (and all other agreements with us and/or any affiliate) up to the date
of expiration and correction of any deficiencies within the periods specified by
us.
(4) You (and each affiliate of yours) have satisfied all monetary
obligations owed to us and any company affiliated with us and have timely and
fully met such and all other obligations throughout the term of this Agreement;
(5) You've executed our then-current form of Franchise Agreement
and related documents (with appropriate modifications to reflect the fact that
the successor Franchise Agreement relates to the award of a successor franchise
without the right to further successor franchises or renewals), including
guarantees, as are then customarily used by us in the award of franchises for
Coffee Plantation Stores, and the economic and other terms of which may
materially differ from the terms of this Agreement, including, without
limitation, higher royalty fees and/or marketing contributions; provided,
however, you will not be required to pay the then-current initial franchise fee.
In our sole and absolute discretion, and to further your and our mutual
interests in having consistent documents to cover all of your units, and to
update documents to reflect changed competitive and other conditions, we can
require you to sign our then-current form of Franchise Agreement to cover all
Coffee
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Plantation Stores in which you (or any affiliate) then have an interest;
(6) You've complied with our then-current qualification and
training requirements. We may require your personnel to attend and successfully
complete any retraining program(s), and at such times and location(s), as we
then specify. There will be no charge for any retraining program(s), but you'll
be responsible for all travel, meals, lodging and other expenses of your
personnel.;
(7) You (and each owner and/or affiliate of yours) have executed
a general release, in form prescribed by us, of any and all claims, liabilities
and/or obligations, of any nature whatsoever, however arising, known or unknown,
against us and/or any or all of the Franchisor-Related Persons/Entities. If you
fail to execute such a release, the awarding of a successor franchise will be
the equivalent of the granting of such release, since you and we agree that it
would be inappropriate and improper for you to continue in a franchise (or
other) relationship with us, and have the right to use the Marks and System, if
you had any claims, liabilities and/or obligations, of any nature whatsoever,
however arising, known or unknown, against us (or other persons/entities covered
by such a release) or otherwise failed to execute such a release, particularly
in view of the fact that you are not being charged a full initial franchise fee
in connection with the successor franchise; and
(8) You've paid us a non-refundable (unless the successor
franchise is denied) successor franchise fee equal to fifty percent (50%) of our
then-current initial franchise fee for a first franchise (subject to a $10,000
minimum which is subject to adjustment for inflation as described in this
Agreement). We must receive the fee from you at the time of your election.
Failure by you and/or your owners to timely complete such requirements
will be deemed an election by you not to obtain the successor franchise.
YOUR INITIALS: __________ / __________
3.3 RELEASES ON GRANTS OF ADDITIONAL, ETC. FRANCHISES. If, at any time,
you or any affiliate is to receive one or more successor, additional, other
and/or further franchise(s) from us or any of the Franchisor-Related
Persons/Entities, whether or not a successor franchise, you, each of your
affiliates, each owner of the Franchisee, the new franchisee and each owner
thereof will at each such time execute a general release, in form prescribed by
us, of any and all claims, liabilities and/or obligations, of
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any nature whatsoever, however arising, known or unknown, against us and/or any
or all of the Franchisor-Related Persons/Entities, except (where so required by
applicable law) for any claims exclusively related to the offer and sale of the
successor, additional, other and/or further franchise(s).
YOUR INITIALS: __________ / __________
4. LOCATION OF STORE
You may operate your Plantation Store only at the location and premises
identified in Section 2.1, or a substitute location and/or premises hereafter
approved by us. The premises may be used only for the operation of a Plantation
Store. If your lease or sublease for the premises of your Plantation Store
terminates prior to expiration without your fault, or if the premises are
damaged, condemned or otherwise rendered unusable, we will grant permission for
relocation of your Plantation Store to a location and premises consented to by
us in our sole and absolute discretion, within a reasonable period of time and
you, each of your affiliates and each owner of the Franchisee will execute a
general release, in form prescribed by us, of any and all claims, liabilities
and/or obligations, of any nature whatsoever, however arising, known or unknown,
against us and/or any or all of the Franchisor-Related Persons/Entities. You
must lease or sublease and develop such premises in compliance with
then-applicable standards utilized in the granting of franchises for a
Plantation Store and the term of the Franchise will be extended to coincide with
the initial term of the lease or sublease for the substitute premises. Any such
relocation shall be at your sole expense.
5. DEVELOPMENT AND OPENING OF YOUR STORE
5.1 LEASE OR SUBLEASE OF PREMISES OF YOUR STORE. You will,
contemporaneously with the execution of this Agreement or such later date
specified by us, lease or sublease the premises of your Plantation Store
identified in Section 2.1 in the form and manner prescribed by us and deliver a
copy of such executed lease or sublease to us immediately after execution
thereof. We have the right to review and consent to any lease or sublease for
the premises of your Plantation Store. You agree not to execute any lease or
sublease which has not been consented to in writing by us. We may require that
the premises of your Plantation Store be subleased directly from us or our
affiliate according to the terms of our, or our affiliate's, standard form of
sublease or, at our option, that the lease obtained by you be collaterally
assigned to us pursuant to the terms of our standard collateral assignment of
lease form.
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Any lease or sublease for the Premises must be reasonably satisfactory
to us and must, in any event, contain all of the following provisions, each of
which you agree is reasonable:
(a) Providing us with the right, at our sole option at any time and
without further consideration, to receive an assignment of your leasehold
interest and take possession of the Premises, whether on termination,
cancellation, recission or expiration of your rights under any lease/sublease or
under this Agreement or otherwise, in each case without the lessor's or
sublessor's consent and specifying that the lessor/sublessor will accept us as a
substitute tenant on notice from us that we are exercising our rights. (If we
exercise this option and you, and each affiliate of yours, are not in default,
or under notice of default, and if your rights have not been terminated or
expired, under this Agreement or any other agreement with us or any affiliate of
ours, we'll sublease the Premises to you on the same terms as we lease it,
subject to our usual security deposit and other conditions.) You agree to do all
acts necessary or appropriate to accomplish such assignment, on our request and
will, at the same time you sign this Agreement, sign the Collateral Assignment
of Lease attached hereto;
(b) Obligating the lessor/sublessor to provide us with all sales and
other information it may have, whether provided by you or otherwise, related to
the operation of your Plantation Store;
(c) Evidencing your right to operate your Plantation Store in accordance
this Agreement and the Manuals, subject only to the provisions of applicable
law;
(d) Prohibiting you from subleasing or assigning all or any part of your
rights, extending the term or renewing or modifying the lease without our prior
written consent, which may be withheld in our sole and absolute discretion;
(e) Requiring the lessor/sublessor to concurrently provide us with a
copy of any written notice of default under the lease sent to you and granting
us the right (but without any obligation on our part) to cure any default under
the lease, if you fail to do so, within fifteen (15) days after the expiration
of the period in which you can cure the default and then, at our further option,
to receive an assignment of your leasehold interest but without any liability
for any other defaults of yours;
(f) Providing that the premises will be used only for the operation of a
Plantation Store pursuant to a Franchise Agreement with us in good standing;
(g) Providing that any default by the Franchisee under this
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Agreement or any other agreement with us (or any of our affiliates) may, at our
option, constitute a default under the lease (you agreeing that any default by
you under the lease may, at our option, constitute a default under this
Agreement); and
(h) Providing that no sale, assignment or transfer of your leasehold
interest will be approved or otherwise consented to, or any change, addition, or
other modification to the lease or other instruments be made, without obtaining
our prior written consent.
You won't execute a lease or sublease, or any modification or amendment,
without our prior written consent, which we can withhold in our sole and
absolute discretion. You'll deliver a copy of the signed lease or sublease to us
within five (5) days after it's signed. If you own the Premises and we request,
you'll enter into a lease with us for a term equal to the term of the Franchise
(with matching renewal options) on commercially reasonable terms, and will
sublease the Premises from us on the same terms as the prime lease.
If such provisions are not included in the lease or other instruments,
we may, without liability and at our sole option at any time (a) require that
you immediately cause such provisions to be inserted or (b) terminate your
rights and our obligations under this Agreement. If you own (or acquire) the
Premises, you will enter into arrangements with us granting us benefits
substantially identical to those set out above.
YOUR INITIALS: __________ / __________
5.2 DEVELOPMENT OF YOUR PLANTATION STORE. Unless we exercise our option
to provide store development services by us or an affiliate (which we have no
obligation to do), we'll furnish you with (and may update from time-to-time)
specifications and other requirements for design, decoration, layout, equipment,
furniture, fixtures, signs and other items for Plantation Stores (the
"Plantation Store Design Specifications"), with which you'll promptly comply.
You agree that the Plantation Store Design Specifications are an integral part
of the System and that your Plantation Store will be developed, constructed,
designed and operated in full compliance with the latest Plantation Store Design
Specifications at all times.
We may require you to use our services (or those of an entity we
designate) as your agent (and at your sole expense) to develop, build-out, etc.
your Plantation Store, pursuant to the terms and conditions, and including the
compensation and other arrangements, of our then-current Store Development
Agreement, but we have no obligation to provide such services until and
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unless we require you to sign such Agreement. Your Plantation Store Development
Agreement will set forth the fee paid to us (or our affiliates) for its services
(the "Development Fee") and the parties' other responsibilities.
You won't make any commitments with respect to any location or operate a
Plantation Store and/or use the System or any of the Marks, from or at any
location (nor will you relocate your Plantation Store) until and unless we've
accepted such location. If there is any disagreement or dispute relating to any
aspect of your site, you and we will resolve it through good faith
mediation/arbitration as provided in this Agreement.
While we may, as a courtesy, assist you in evaluating or negotiating any
lease (or other documents or arrangements) or otherwise assist you in your
efforts to select and obtain a site by providing consultation, evaluation and/or
otherwise (including providing references to potential contractors, real estate
agents, site selection specialists and other professionals, some of whom may be
affiliated and/or associated with us), we strongly recommend that you have all
matters related to site selection and securing reviewed by your own independent
attorney, real estate broker, architect and other professionals retained by you.
While the selection of a site by you is subject to our reasonable consent, and
although this franchise may be awarded for a specific existing location, neither
we nor any company or person will recommend or approve any particular location
or any related services to you. Acceptance by us of any location is in no way a
recommendation, approval or endorsement of such location nor a representation or
warranty as to its legal or business availability, suitability, appropriateness,
success potential or otherwise and we cannot guarantee success for any location.
You're the only person and/or company with any liability or responsibility for
those decisions and matters.
In any case, you understand and agree that the selection and securing of
a site, the negotiation of a lease or purchase, the selection of developers,
real estate agents, site selection specialists, contractors, etc., financing and
all other matters related in any way to your site are exclusively and entirely
your sole and ultimate responsibility and that neither we, any of
Franchisor-Related Persons/Entities nor any other person or company affiliated
or associated with us in any way will have any liability or responsibility with
respect to any matters related in any way to the site for your Plantation Store,
including (but not limited to) site location, identification, evaluation,
selection, lease/purchase negotiation, financing, review of documents,
construction, build out, development, compliance with local requirements,
suitability for any use or purpose and/or any other aspect of the development
process (and any related steps)
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or otherwise, all such responsibilities being solely yours.
We will (unless you and we execute a Store Development Agreement) make
available to you standard plans and specifications to be utilized by you in the
construction or otherwise of your Plantation Store. You'll obtain, at your sole
expense, all further qualified architectural and engineering services to prepare
surveys, site and foundation plans and adapt any plans and specifications to
your location and all applicable laws, regulations and ordinances. Any changes
from plans provided by us must be submitted to us for our consent, which we may
grant, condition or withhold in our sole and absolute discretion. Neither we nor
any other person or company recommended by and/or affiliated in any way with us
will have any liability with respect to any plans, specifications and/or other
items/services provided to you and/or to be utilized by you in the construction
or otherwise of your Plantation Store, or any deviations or modifications
therefrom, nor with respect to the preparation, construction, operation or
otherwise of your Plantation Store, whether in accordance with standard plans or
otherwise, all such responsibilities being solely yours.
We make no representations, guarantees or otherwise as to the costs of
development and build-out (or otherwise) of your Plantation Store, the date on
which your Plantation Store will be open for business or otherwise, such matters
not being within our sole control.
You agree that without our ability to limit our (and others') liability
as set forth in this Agreement (and, in particular, this Section), we wouldn't
be willing to award this Franchise to you (and would consider developing the
location as a company-owned unit) or to be involved in any way in assisting you
in any of these matters.
YOUR INITIALS: __________ / __________
5.3 FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES AND SIGNS. Your Plantation
Store's initial fixtures, equipment and Storefront shall be part of our
development of your Plantation Store. Thereafter, you agree to use in the
operation of your Plantation Store only those fixtures, items of equipment,
supplies and signs that we have approved for a Plantation Store as meeting its
specifications and standards for appearance, function, design, quality and
performance and you further agree to place or display at the premises of your
Plantation Store (interior and exterior) only such signs, emblems, lettering,
logos and display materials that are from time to time approved in writing by
us, in each case at your sole cost and expense. If
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you propose to purchase, lease or otherwise use any fixture, equipment, supply
or sign which is not then approved by us, you shall first notify us in writing
and shall submit to us sufficient specifications, photographs, drawings and/or
other information or samples for a determination by us of whether such fixture,
equipment, supply or sign complies with its specifications and standards, which
determination shall be made and communicated in writing to you within a
reasonable time.
5.4 STORE OPENING. You won't open your Plantation Store for business
until: (1) we notify you that all of your pre-opening obligations have been
fulfilled; (2) pre-opening training of all of your personnel has been completed;
(3) all amounts then due us (or any affiliate) have been paid and all
pre-opening obligations of yours fully performed; and (4) we've been furnished
with copies of all insurance policies (or such other evidence of insurance
coverage and payment of premiums as we request) and leases/subleases as required
by this Agreement. You agree to use your best efforts to merchandise your
Plantation Store as soon as possible after obtaining possession of your
Plantation Store premises and to open your Plantation Store for business and
commence the conduct of its business by the period required by your lease or
sublease or, if sooner, within five (5) days after notice from us that it is in
suitable condition therefor. We will supply our employee who will assist you for
a period of up to seven (7) days in the opening of your Store and we may, in our
sole and absolute discretion, provide similar assistance for up to five (5)
additional days. In addition, we may provide our employee for such additional
days(s) as we deem appropriate in assisting you with the opening of your
Plantation Store. If you (or your affiliate) already own(s) a Plantation Store,
all pre-opening and opening assistance will be provided at our sole and absolute
discretion.
5.5 TERMINATION UPON YOUR FAILURE TO OPEN YOUR STORE. If you fail to
lease or sublease your Plantation Store premises as required by this Agreement,
or fail to proceed with the merchandising or fail to open your Plantation Store
by the date required in this Agreement, we, at our sole option, shall have the
right to terminate this Agreement effective upon giving written notice to you,
in each case with no refund of any amounts paid to us or any affiliate. In
connection with such termination, you will execute documents acceptable to us,
providing for (1) continuation of your indemnification, confidentiality and
non-competition obligations and the dispute avoidance and resolution provisions
of this Agreement, including those of Article 19, together with the provisions
of Article 23, and (2) a general release, in form prescribed by us, of any and
all claims, liabilities and/or obligations, of any nature whatsoever, however
arising, known or unknown, against us and/or
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any or all of the Franchisor-Related Persons/Entities.
YOUR INITIALS: __________ / __________
5.6 GRAND OPENING PROGRAM. You will spend at least One Thousand Dollars
($1,000) (we recommend $4,000) to conduct grand opening advertising and
promotions, such advertising and promotions (which must be approved in advance
in writing by us) to occur during a time period designated by us.
6. TRAINING AND OPERATING ASSISTANCE
6.1 TRAINING. Prior to the opening of your Plantation Store, we will
furnish, and you (or your controlling shareholder, general partner, managing
member or similar person if you are a business entity), shall attend, and
complete to our satisfaction, a training program on the operation of a
Plantation Store, furnished at such time and place as we may designate. Such
training will be given by us without charge, but you will be solely responsible
for the compensation of the trainee, as well as such trainee's travel, lodging
and personal expenses. Such initial training will consist of approximately
fifteen (15) days or such additional time as we may elect. If you (or your
affiliate) already own(s) a Plantation Store, all training will be provided at
our sole and absolute discretion.
Upon your successful completion of the training program, you may (at our
option) be permitted to train your Plantation Store managers. We do not have to
provide training for your Plantation Store managers but we can require that each
of your Plantation Store managers attend, and complete to our satisfaction, such
initial and ongoing training as we require from time-to-time. We may charge a
reasonable fee for training your Plantation Store managers.
You'll be responsible for all travel, living, incidental and other
expenses and compensation of you and your personnel attending any training
program.
If we, in our sole and absolute discretion, determine that you (or a
managing partner or shareholder consented to by us) have not successfully
completed (or are not making satisfactory progress in) your initial training, we
may cancel all of your rights (and all of our obligations) under this Agreement
and/or any other agreements with you and return the Initial Franchise Fee (less
$10,000 to cover our sales, training and other expenses, among other things) to
you, and you will return all manuals and you (and each affiliate of yours)
execute documentation providing for a general release, in a form
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prescribed by us, of any and all claims, liabilities and/or obligations, of any
nature whatsoever, however arising, known or unknown, against us and/or any or
all of the Franchisor-Related Persons/Entities and we will provide you with a
similar release, except that your indemnity, non-competition, confidentiality
obligations, and the dispute avoidance and resolution provisions of this
Agreement, including those of Article 19, together with the provisions of
Article 23, will be preserved, and at our option, if the premises were not
leased from us or our affiliates, you will assign the lease or sublets the
premises to us or our affiliates. We will not exercise this termination right
until you have had at least two (2) individuals (one of whom may be you) fail to
successfully complete training.
If, whether as a result of observations, test results or otherwise
during initial training or thereafter (including during operation of your
Plantation Store) we determine, in our sole and absolute discretion, that it's
appropriate, we can require that a manager or other person designated by us be
placed in your Plantation Store to supervise its day-to-day operations for the
purpose of assuring compliance with our standards and you will pay all costs in
connection therewith, including salary, normal corporate benefits, travel,
meals, lodging and incidental expenses.
You (or a managing partner or shareholder consented to by us) and your
Plantation Store manager must attend and successfully complete additional and/or
refresher training programs (if we designate them as mandatory) conducted at
location(s) specified by us, including national and regional conferences,
conventions and meetings, and your other employees may be required to attend
mandatory training programs presented by us at your Plantation Store. We may
charge a reasonable fee for any training programs, aside from the initial owner
training which is included in the Initial Franchise Fee.
6.2 HIRING AND TRAINING OF EMPLOYEES BY YOU. You (or a manager meeting
all of our training and other requirements) will hire all employees of your
Plantation Store, be exclusively responsible for the terms of their employment
and compensation and implement a training program for employees of your
Plantation Store in compliance with our standards. You agree to maintain at all
times a staff of trained employees sufficient to operate your Plantation Store
in compliance with our standards. You agree that all management personnel hired
by you may be required to sign an Employment Agreement containing
non-competition and confidential information covenants substantially similar to
those contained in this Agreement.
6.3 OPERATING ASSISTANCE. We will advise you from time to
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time of operating problems of your Plantation Store disclosed by reports
submitted to or visitations made by us. We will furnish to you such assistance
in connection with the operation of your Plantation Store as is from time to
time deemed appropriate by us. Operating assistance may consist of advice and
guidance with respect to:
1. methods and operating procedures to be utilized by a Plantation
Store;
2. additional Products and services authorized for a Plantation
Store;
3. purchasing of Products and supplies;
4. formulating and implementing advertising, merchandising and
promotional programs; and
5. the establishment of administrative, bookkeeping, accounting,
inventory control, sales training and general operating
procedures for the proper operation of a Plantation Store.
You understand and agree that all advice and guidance provided by us is
only supportive of the operation of your Plantation Store and that the overall
success of your Plantation Store is primarily dependent upon your business
abilities and efforts. We will not charge you for such operating assistance
unless such operating assistance is made necessary by your failure to comply
with this Agreement or if you request operating assistance in excess of what is
normally provided by us. Any such charges will be reasonable and payable upon
your receipt of an invoice for the same. In addition, we reserve the right to
impose, and you will pay, reasonable fines and penalties if you repeatedly
refuse or fail to comply with this Agreement and/our our standards and
specifications.
6.4 COMPUTER HARDWARE AND SOFTWARE SYSTEMS. Since the effective and
efficient operation of a Plantation Store may be intimately connected with the
use and maintenance of appropriate computer hardware and software systems, with
direct interconnection to (and access by) our computer hardware and software
systems, you must purchase, use, maintain and update computer and other systems
(including point-of-sale systems) and software programs which meet our
specifications as they evolve over time and which, in some cases, may only be
available through us and/or our affiliates. You must maintain your systems
on-line to provide full access for computer systems used by us and you must
promptly update and otherwise change your computer hardware and software systems
as we require from time-to-time, at
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your expense. We may require that all maintenance, support, upgrades, etc. be
performed by us, an affiliate or a supplier designated by us. You'll pay all
amounts charged by any supplier or licensor of the systems and programs used by
you, including charges for use, maintenance, support and/or update of these
systems or programs.
7. MANUAL
During the term of the Franchise, we will loan you (or allow you
electronic or other access to), one copy of a manual, which consists of one or
more manuals (hereinafter referred to as the "Manual"), for a Plantation Store
containing mandatory and suggested specifications, standards and operating
procedures prescribed from time to time by us for a Plantation Store and
information relative to your obligations hereunder. We can modify any aspect of
the Manuals, the Coffee Plantation(R) System or specifications, standards,
policies and procedures of Coffee Plantation Stores, to, among other things,
specify brands, types and/or models of equipment which must be used by you in
the operation of your Coffee Plantation Store, to specify changes in the
Products and Services used and/or offered by you, and/or to specify changes in
the decor, format, image, products, services, operations or otherwise of a
Coffee Plantation Store. You'll promptly and continuously comply, at your sole
expense, with all provisions of, and additions/deletions/changes to, the
Manuals. You have no expectation that the Manuals (and the Coffee Plantation(R)
System) will not be changed over time and you and we, in fact, anticipate that
such changes will take place, in response to competitive challenges, commercial
opportunities and otherwise. You'll keep your copy of the Manuals current by
immediately inserting all modified pages and (at our option) destroying or
returning to us all superseded material. In the event of a dispute about the
contents of the Manuals, the master copies maintained by us will be controlling.
Any such additions/deletions/changes will take precedence over all prior
communications and in the event of a dispute, the master Manuals maintained at
our office shall control. The provisions of the Manuals as modified from time to
time by us and communicated to you constitute provisions of this Agreement and
as such are binding upon you. The Manuals contain proprietary information of
ours and you agree to keep the Manuals and information contained therein
confidential at all times during and after the term of the Franchise.
YOUR INITIALS: __________ / __________
8. STORE IMAGE AND OPERATING STANDARDS
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8.1 CONDITION AND APPEARANCE OF YOUR STORE, PERIODIC UPGRADING. Because
your Store's full compliance with the Coffee Plantation System is a vital
component in the possible success of all Coffee Plantation outlets and can
directly affect the value of the Names and Marks and Trade Dress and their
associated goodwill, you agree that: (1) neither your Plantation Store nor the
Premises will be used for any purposes other than the operation of a Plantation
Store in full compliance with this Agreement and the Manuals; (2) you'll
maintain the condition and appearance of your Plantation Store, its equipment,
furniture, fixtures, signs, and the Premises in accordance with our
specifications and standards and consistent with the approved image of a
Plantation Store and as provided under the Manuals, as changed from time-to-time
and as an attractive, clean, convenient and efficiently operated specialty
retail food store offering high quality Products and efficient and courteous
Services; (3) you will perform such ongoing repair, maintenance and upgrading,
with respect to the decor, equipment, furniture, fixtures, signs and otherwise,
of your Plantation Store and the Premises, as may be required by us from
time-to-time to maintain its condition, appearance, and efficient operation,
including, without limitation: (a) thorough cleaning, repainting and
redecorating of the interior and exterior; (b) interior and exterior repair of
the Premises; (c) repair or replacement of damaged, worn out or obsolete
equipment, furniture, fixtures, signs and otherwise and as is required by your
lease or sublease; (4) you will not make any material alterations or
replacements to the Premises or other items, or to the appearance of your
Plantation Store as originally approved by us, without our prior written consent
and any approval that may be necessary under the lease or sublease for the
premises; and (5) you will place or display at the Premises (interior and
exterior) and on all other items only such signs, emblems, lettering, logos and
display and advertising materials that are from time-to-time designated by us;
in each case at your sole cost. You will use and display the Names and Marks and
Trade Dress only in such manner, and using such equipment and other systems, as
we authorize from time-to-time, in each case promptly complying with any changes
we may require, all at your sole cost and expense.
If at any time in our reasonable judgment the general state of repair,
appearance or cleanliness of the premises of your Plantation Store or its
fixtures, equipment or signs does not meet our standards, we will so notify you,
specifying the action to be taken by you to correct such deficiency. If you fail
or refuse to initiate within fifteen (15) days after receipt of such notice or
such lesser period required by the lease or sublease, and thereafter continue a
bona fide program to undertake and complete any such required maintenance, we
may, but will not be obligated, to enter upon the premises and effect such
repairs,
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painting and replacement of fixtures, equipment or signs on your behalf and you
will pay the entire costs therefor to us on demand.
We may, at intervals and to the extent determined by us in our sole and
absolute discretion, require you to upgrade your Plantation Store and the
Premises (including, but not limited to, remodeling, expansion, redecoration,
re-equipping, refurbishment and refurnishing the Premises, your Plantation Store
and changing any products and services offered) to meet our then-current
standards and requirements, which may require additional investment by you, and,
subject to approval by us of plans, layouts, designs and otherwise, and you will
promptly and fully comply with all such requirements.
YOUR INITIALS: __________ / __________
8.2 DESIGNATED EQUIPMENT, PRODUCTS AND/OR SUPPLIERS. The reputation and
goodwill of each Plantation Store is based on, and can be maintained only by,
the satisfaction of all customers who rely on the availability of a wide variety
of quality Designated Equipment, Products and Services, compliance with the
Coffee Plantation System and courteous and efficient service provided by all
employees of Plantation Stores. We've already specified, and plan to specify in
the future, various suppliers of Designated Equipment, Products and/or Services,
as well as other items, to be used or provided by Plantation Stores and that
meet our standards and requirements, in each case in our sole and absolute
discretion. Your Plantation Store will purchase/lease, use and offer all of, and
only, such types, brands and/or quality of Designated Equipment, Products and
Services as we designate and, where we so require, use only suppliers as
designated by us. Designated suppliers may include, and may be limited to, us
and/or companies affiliated with us. We may designate a single supplier or
limited number of suppliers, may designate a supplier only as to certain items
and may require concentration of purchases with one or more suppliers to obtain
lower prices, advertising support and/or other benefits in our sole and absolute
discretion. Specification of a supplier may be conditioned on requirements
relating to frequency of delivery, standards of service, including prompt
attention to complaints, or other criteria, and may be temporary, pending a
further evaluation of such supplier by us, in each case in our sole and absolute
discretion.
You shall at all times maintain an adequate and representative inventory
of Products, sufficient in quality, quantity and variety, to satisfy customer
demand and realize the full potential of your Plantation Store, as prescribed
from time
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to time by us. The inventory of your Plantation Store shall contain a full
inventory of each Coffee Plantation brand or other private brands of ours which
shall be given prominent display. We and our affiliates shall not have any
liability to you if we or they are at any time unable for any reason to offer
any Coffee Plantation brand or other brand of Products for purchase by you or at
competitive prices. The Products may be offered by an affiliate of us.
You'll notify us in writing (and submit to us such information,
specifications, and samples as we request) if you propose to purchase, use or
offer any type, brand and/or quality of items that have not been previously
specified by us, or if you propose to use any supplier who has not been
previously specified by us for the proposed item and will arrange for
pre-payment of reasonable charges connected with our review and evaluation of
any proposal. We'll notify you within a reasonable time whether or not you're
authorized to purchase or use the proposed type, brand and/or model of such
items or to deal with the proposed supplier. We may, from time-to-time, withhold
and/or revoke our approval of particular items or suppliers in our sole and
absolute discretion and business judgment. On receipt of written notice of
revocation, you must immediately cease to sell or use any disapproved items and
cease to deal with or use items from any such suppliers, unless we, in our sole
and absolute discretion, direct otherwise.
You are prohibited from developing, creating, generating, owning,
licensing, leasing or otherwise utilizing any computer media and/or electronic
media (including but not limited to the Internet, world wide web, bulletin
boards, news group and/or Telnet) which may be used, or in any manner uses,
displays or utilizes the Coffee Plantation trademarks, tradenames, or other
commercial symbols or offers to sell or sells any of the Products and/or
services which are or may at a later date be offered for sale in Plantation
Stores. If you desire to utilize any computerized or electronic media in
conjunction with the operation of your Plantation Store, you must obtain our
prior written approval of such usage, and we may in our sole and absolute
discretion approve or not approve such usage. If we grant approval, we or our
affiliates will be the owners of and/or control the approved computerized or
electronic content and media.
YOUR INITIALS: __________ / __________
8.3 SPECIFICATIONS, STANDARDS AND OPERATING PROCEDURES. You agree that
the operation of your Plantation Store, continuously in compliance with our high
standards, is vitally
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important to us and other Coffee Plantation Franchisees and is a vital element
in the possible success of your Plantation Store, the Plantation Stores of other
Franchisees and of us and that a lack of uniform high standards can place all
Plantation operators at a competitive disadvantage and in a position of business
risk. Accordingly, you'll operate your Plantation Store, and use the Marks, in
prompt, continuous and full compliance with the Coffee Plantation(R) System and
the Manuals, as each is modified by us from time-to-time in our sole and
absolute discretion and without limitation, you promptly complying with each
such modification.
In particular, you'll promptly comply with all of our ongoing
requirements, standards and operating procedures relating to the operation,
appearance, function, cleanliness, menu, products, ingredients, days and hours
of operation, and otherwise of a Plantation Store (including, without
limitation, use of specified equipment, products, services, programs and
computer hardware and software), and with our other requirements for a
Plantation Store, as they may be developed or changed by us from time-to-time in
our sole and absolute discretion. You'll purchase, use and offer each of the
systems, services, equipment and products designated by us and, where we so
require, use only suppliers authorized by us and will not use or offer any
systems, services, equipment, products or suppliers not specified by us.
Mandatory specifications, standards and operating procedures prescribed from
time-to-time by us in the Manuals, or otherwise communicated to you, will
constitute provisions of this Agreement as if fully set forth herein. All
references to this Agreement include all such mandatory specifications,
standards and operating procedures.
YOUR INITIALS: __________ / __________
8.4 SUPPLIERS OF SPECIALTY COFFEE. In recognition that the quality and
uniformity of the specialty coffee and tea carried by Plantation Stores is of
paramount importance to the reputation and goodwill of Plantation Stores, you
must purchase all coffee offered at your Plantation Store from us or an
affiliate of ours. In the event our affiliates cease supplying you with coffee,
we may designate a supplier or suppliers of coffee. In such event, in addition
to the criteria listed elsewhere in this Agreement, a proposed supplier must
also meet our criteria as to the size of the coffee bean, the method of
preparation of the bean, the region of origin of the bean, the quality of
flavoring used in bean preparation, the consistency of bean color and moisture
content after roasting, the type of packaging and the type of roaster used and
other standards as we designate from time-to-time in our sole and absolute
discretion.
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YOUR INITIALS: __________ / __________
8.5 USE OF SUPPLIES IMPRINTED WITH NAMES AND MARKS. You shall only use
displays, boxes, bags, paper, forms, packaging materials, labels and other
Products and supplies imprinted with the Names and Marks as prescribed from time
to time by us.
8.6 STANDARDS OF SERVICE. Your Plantation Store shall at all times give
prompt, courteous and efficient service to its customers. Among other things, we
may specify (and change from time-to-time) service standards and you will comply
with all then-current service and other standards. You and your Plantation Store
shall in all dealings with customers, suppliers and the public adhere to the
highest standards of honesty, integrity, fair dealing and ethical conduct.
8.7 PRODUCT STANDARDS. You shall not advertise, offer for sale, sell or
otherwise distribute any Products or other items which do not meet our
then-current standards. All reasonable complaints by your customers shall be
honored by you pursuant to the policies set-forth in the Manuals.
8.8 SPECIFICATIONS, STANDARDS AND PROCEDURES. You agree to comply with
all specifications, standards and operating procedures (whether contained in the
Manuals or any other document or notice and as issued and/or changed by us from
time-to-time in our sole and absolute discretion) relating to the operation of a
Plantation Store, including, without limitation, those relating to:
1) recipes, preparation procedures and authorized ingredients;
2) type, quality and shelf life of Products offered;
3) Product dating programs, including removal of "out of date"
Product;
4) merchandising techniques;
5) the safety, maintenance, cleanliness, function and appearance of
the Plantation Store premises and its fixtures, equipment and
signs;
6) uniforms and aprons to be worn by and general appearance of
Plantation Store employees;
7) use of Names and Marks and Trade Dress;
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8) hours during which your Plantation Store will be open for
business;
9) use and retention of standard forms;
10) use and illumination of signs, posters, displays, standard
formats and similar items; and
11) identification of you as the owner of your Plantation Store.
You're required to participate in any and all programs which we elect to
utilize as operational tools in the operation of your Plantation Store. These
operational tools may include (but are not limited to) programs involving
customer satisfaction, quality control, operational standards, product standards
and the like (the "Programs"). The Programs may be created or developed by us,
our affiliates or by third parties and the content, duration and frequency of
the Programs will vary and will be determined solely by us. You will be required
to pay for the Programs and the costs will vary according to the program and
frequency of the program.
8.9 COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES. You shall secure
and maintain in force all required licenses, permits and certificates relating
to the operation of your Plantation Store and operate your Plantation Store in
full compliance with all applicable laws, ordinances and regulations. All
advertising and promotion by you shall be completely factual and shall conform
to the highest standards of ethical advertising. You agrees to refrain from any
business or advertising practice which may be injurious to our business and/or
the goodwill associated with the Names and Marks and Trade Dress and other
Plantation Stores.
8.10 MANAGEMENT OF YOUR PLANTATION STORE. Your Plantation Store must be
managed only by you, or a full-time manager, who (in each case) has successfully
completed our training and other requirements, which may change over time. The
employment of any full-time manager is subject to our prior approval.
Notwithstanding the employment of a full-time manager, you (or the Franchisee's
controlling owner if Franchisee is a business entity) must attend and complete
initial and any required ongoing training, unless waived by us, in our sole and
absolute discretion. If you have completed the Initial Training, you shall be
qualified to train your managers, unless we direct otherwise. If we, in our sole
and absolute discretion, determine that your full-time manager is not properly
performing his or her duties, you shall take such corrective measures as are
necessary to immediately rectify the situation. You shall keep us informed
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at all times of the identity of any employee(s) acting as full-time manager(s)
of your Plantation Store.
If you (or any affiliate) owns and/or operates more than one Plantation
Store, the manager of each of your Plantation Stores must have at least a twenty
five percent (25%) equity interest in such Plantation Store(s.) You will have 90
days to replace any 25% equity manager.
8.11 EXCLUSIVE RELATIONSHIP, RESTRICTIONS ON SIMILAR BUSINESSES DURING
FRANCHISE TERM AND AFTER TRANSFER, TERMINATION, EXPIRATION, REPURCHASE, ETC. You
and we share a mutual interest in avoiding situations where persons or companies
who are, or have been, Coffee Plantation Franchisees operate or otherwise become
involved with, a Similar Business, anywhere, either during the term of, or after
the termination or expiration, of your rights under, this Agreement.
This mutual interest exists since you and we both agree that (1) such
activities would, as a practical and realistic business matter, make use of
techniques, methods, systems and procedures learned by the operator while
he/she/it was a Coffee Plantation Franchisee, (2) the operation of a Similar
Business, irrespective of location or vicinity to any existing or future
Plantation Store, would inevitably draw on and benefit from the operator's
training and experience as a Coffee Plantation Franchisee, including techniques
not known to you or other operators prior to becoming a Coffee Plantation
Franchisee, (3) operation of such a business, and use of any such techniques,
methods, systems and procedures, would damage both us and other Coffee
Plantation Franchisees and unfairly limit reasonable expansion alternatives open
to us and our Franchisees, particularly in light of the limited number of goods
and services provided by us and our Franchisees and the limited number of
favorable locations or areas available, thereby placing us and other Coffee
Plantation operators at a competitive disadvantage, (4) there would be an
extreme difficulty and expense involved in accurately determining actual
financial impact from such activities by a current or former Coffee Plantation
Franchisee, (5) such activities would expose us and our Franchisees to a
strategy under which a person could acquire a Plantation franchise, learn all of
our methods of doing business including innovations by other Coffee Plantation
Franchisees, default under the franchise agreement or otherwise obtain
termination or expiration and then open an unlimited number of locations drawing
on their experience and training as a Coffee Plantation Franchisee, including
access to favorable locations, (6) the possibility of such occurrences would
discourage the free flow of information and innovation within the Coffee
Plantation(R) System, resulting in reduced growth and a decline in the value of
the investments made by us and our
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Franchisees in Plantation Stores and the System, making subsequent sales or
operation of Plantation franchises in the area of a Similar Business, or other
areas, extremely difficult and placing us and our Franchisees at a disadvantage
in the competitive marketplace, (7) such activities could reduce your level of
time and attention given to your operation of an Plantation Store and thereby
reduce its chances for success, and (8) such activities would constitute an
unfair and inequitable method of competition with us and other Coffee Plantation
Franchisees and is the type of behavior to which you (as a Coffee Plantation
Franchisee) would strenuously object if engaged in by another Coffee Plantation
Franchisee.
In addition, you acknowledge and agree that (1) you will receive
valuable training and confidential information throughout the term of the
Franchise, including, without limitation, information regarding our promotional,
operation, sales, and marketing methods and techniques and the System which was
not known to you before becoming a Coffee Plantation Franchisee, (2) we would be
unable to protect such confidential information and other information and
techniques against unauthorized use or disclosure, would be unable to encourage
a free exchange of ideas and information among Coffee Plantation Franchisees and
the goodwill and other assets of our business and those of other Coffee
Plantation Franchisees would be at risk if franchise owners and members of their
immediate families were permitted to hold interests in or perform services for a
Similar Business during or after the term of the Franchise Agreement, (3) your
ownership and/or operation of, or any other relationship with, a Similar
Business would necessarily benefit from, and be inconsistent with, your status
and obligations as a Coffee Plantation Franchisee and (4) the requirements of
this section have been expressly bargained for and are an express condition of
our award of the Franchise to you.
You acknowledge that you've considered, as reasonable business
alternatives, other franchise opportunities, as well as the possibility of your
entering our industry as a non-franchised participant (in each instance not
being subject to the restrictions of this Agreement), each of the restrictions
on competition contained in this Agreement (including, but not limited to, those
in this Section) are fair, reasonable and necessary for the protection of all
members of the Plantation family of companies, including you and your fellow
Coffee Plantation Franchisees and represent a reasonable balancing of the
legitimate long-term interests of us, you and other Coffee Plantation
Franchisees, and will not impose any undue hardship on you, since you have other
valuable opportunities, skills, experience, education and abilities unrelated to
the ownership and/or operation of a Plantation Store and which will provide you
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with the opportunity to derive significant income from other endeavors.
Therefore, to protect your and our investments and those of all Coffee
Plantation Franchisees, you and we agree as follows: (1) during the term of this
Agreement (and any other Franchise Agreement with us) and any extension thereof,
and (2) for three (3) years after any transfer, repurchase, the termination
(whether for cause or otherwise) of your rights, the expiration of this (or any
other) Agreement (without award of an Additional Term), and/or the date on which
you cease to operate your last Plantation Store, whichever is later, neither
you, any affiliate of yours, nor any shareholder or partner of yours (in the
event you are or become a corporation or partnership), nor any member of your
immediate family nor any member of the immediate family of any affiliate,
shareholder or partner of yours will [except for Plantation Stores operated in
good standing under franchise agreements with us]: (a) have any direct or
indirect interest as a disclosed or beneficial owner in any Similar Business
located, or operating units located, anywhere; (b) have any direct or indirect
interest (whether through a member of the immediate family of yours or any owner
of you, or otherwise) as a disclosed or beneficial owner in any entity which is
awarding franchises or licenses or establishing joint ventures or other business
enterprises for the operation of Similar Businesses located, or operating units
located, anywhere; (c) perform services as a director, officer, manager,
employee, consultant, representative, agent, or otherwise for any Similar
Business or any entity which is awarding franchises or licenses or establishing
joint ventures to operate Similar Businesses anywhere; or (d) directly or
indirectly employ, or seek to employ, any person who is employed by us or any
affiliate or by any other Coffee Plantation Franchisee, nor induce nor attempt
to induce any that person to leave said employment without the prior written
consent of us and that person's employer; provided that if the foregoing
restriction regarding our and the employer's consent is unenforceable, you will
first notify us and that employer before taking any action with respect to any
such employment or offer of employment. You confirm that prior to entering into
the franchised business you possessed (and still possess) valuable skills
unrelated to the franchised business, have the ability to be gainfully employed
in other fields entirely acceptable to you and that the strict enforcement of
the restrictions of this Agreement will not work any undue or significant
hardship on you or your family.
If any of the restrictions of this Section are determined to be
unenforceable due to excessive duration, geographic scope, business coverage or
otherwise, you and we agree that they will be reduced to the level that provides
the greatest restriction
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but which is still enforceable, notwithstanding any choice-of-law or other
provisions in this Agreement to the contrary. The time period of the competitive
restrictions described in this Agreement will be extended by the length of time
in which you or any other person or entity are in breach of any provision of
this Agreement (including the limitations of this Section.) The provisions of
this Section will continue in full force and effect through the extended time
period. The restrictions of this Section don't apply to the ownership of shares
of a class of securities listed on a stock exchange or traded on the
over-the-counter market that represent less than three percent (3%) of the
number of shares of that class issued and outstanding. If you violate any
obligations under this Agreement (or otherwise) with respect to a Similar
Business, our remedies will include (but are not limited to) the right to obtain
a temporary restraining order, preliminary and/or permanent injunction (or other
equitable relief), notwithstanding any provisions to the contrary.
On our request, you will obtain written non-competition commitments from
the persons subject to the non-competition provisions of this Agreement, in such
form as we direct and naming you and us as beneficiaries of such agreements.
If the restrictions of this Section are unenforceable or are reduced to
a level which we, in our sole and absolute discretion, find unacceptable, we
may, in addition to any other remedies available to us, require you to pay a fee
(either paid immediately on a present value basis or over time, as we select) of
one-half (1/2) of the royalties and marketing contributions which would be
payable if the business in question was a franchised Plantation Store, for three
(3) years, such amount having been jointly selected by you and us as fair and
appropriate damages and in consideration of (1) the difficulty of accurately
predicting actual damages, (2) the fact you will inevitably benefit in the
operation of such business from your training and experience as a Coffee
Plantation Franchisee, (3) the possible impact on the expansion and operation of
our system, including the expense and difficulty of a sale of a franchise in
your area and (4) you not having any rights, nor we having any obligations,
under this Agreement or otherwise during such period.
YOUR INITIALS: __________ / __________
8.12 INSURANCE. You'll maintain in force policies of insurance issued by
carriers approved by us covering various risks, as specified by us, including
(but not limited to) the following: (1) comprehensive general liability
insurance against
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claims for bodily and personal injury, death and property damage caused by, or
occurring in conjunction with, your Plantation Store, under one or more policies
of insurance containing minimum liability coverage prescribed by us from
time-to-time; (2) all risk property and casualty insurance for the replacement
value of your Plantation Store and all associated items (including, but not
limited to, leasehold improvements, furniture, fixtures, equipment, signs,
inventory, supplies, and materials) and (3) business interruption insurance
providing for continued payment of all amounts due (or to become due) us and/or
any affiliate of ours under this Agreement or otherwise.
For your information, our current insurance requirements (which can be
changed by us at any time in our sole and absolute discretion and with such
changes you'll promptly comply) for your Plantation store include the following:
Type of Insurance Limits and Other Details
Property Direct risks of physical loss (special form) including
Earthquake Sprinkler Leakage if the building is
sprinklered. Coverage to include contents, building (if
owned or required by lease) and business income [50%
co-insurance or loss of earnings at 12 months including
Extra Expense]
Commercial General Liability $2,000,000 General Aggregate
$2,000, 000 Products Aggregate
$1,000,000 Each Occurrence
$1,000,000 Personal Injury/Advertising Injury $5,000
Medical Payments
$50,000 Fire Legal
Workers' Compensation Statutory
$1,000,000 Employer's Liability
Automobile $1,000,000 Bodily Injury/Property Damage
$1,000,000 Uninsured Motorist
$5,000 Medical Payments
(Covered Autos: All Owned, Leased, Non- Owned
and Hired Vehicles)
We may periodically specify the types and amounts of coverage required
under such insurance policies and require different and/or additional kinds of
insurance at any time,
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including excess liability insurance. Each insurance policy must name us, our
affiliates and the Franchisor-Related Persons/Entities as additional named
insureds, will contain a waiver of all subrogation rights against us, our
affiliates, the Franchisor-Related Persons/Entities and any successors and
assigns, and will provide for thirty (30) days' prior written notice to us of
any material modifications, cancellation, or expiration of such policies.
Prior to the expiration of the term of each insurance policy, you'll
furnish us with (1) a copy of each renewal or replacement insurance policy to be
maintained by you for the immediately following term and (2) evidence of
pre-payment of the premium. If you fail to maintain required insurance coverage,
or to furnish satisfactory evidence thereof and the payment of the premiums
therefor, we, in addition to our other rights and remedies hereunder, may (but
aren't required to) obtain such insurance coverage on your behalf and you'll
fully cooperate with us in our efforts to obtain the insurance policies,
promptly execute all forms or instruments required, allow any required
visitations of your Plantation Store, and pay to us, on demand, any costs and
premiums incurred by us.
Your obligations to maintain insurance coverage will not be affected by
reason of any separate insurance maintained by us, nor will the maintenance of
such insurance relieve you of any obligations under this Agreement or otherwise.
8.13 FRANCHISEE ADVISORY COUNCIL. We will actively encourage the
formation of a Franchisee Advisory Council to be selected by all Coffee
Plantation(R) Franchisees and we will periodically meet with such Council to
consult with and advise us regarding the operation and development of the Coffee
Plantation(R) System, including such matters as strategic marketing plans,
advertising programs, public relations, research and development, operating
policies and practices, program development, etc. We'll give appropriate
consideration to all input from such Council but retain the ultimate authority
and responsibility for all such decisions.
8.14 PROGRAM PARTICIPATION. We may impose conditions on your
participation in any program, whether with suppliers or otherwise (including,
but not limited to, any program involving payments from third party suppliers),
as we determine in our sole and absolute discretion, including, but not limited
to, our requiring you to be in compliance with such standards and qualifications
as we designate (in our sole and absolute discretion) and/or you (and each
affiliate of yours) being a Plantation Franchisee in good standing and not in
default under this, or any other, agreement with us and/or any affiliate of
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ours.
YOUR INITIALS: __________ / __________
8.15 CONTINUED PAYMENT OF ROYALTIES AND OTHER OBLIGATIONS DURING
CLOSURE, ETC. You and we recognize that closure of your Plantation Store may
become necessary from time-to-time for remodeling, due to fire or other
casualty, governmental action, shopping center or street closure, etc. of
course, if your Plantation Store, the Premises or any significant assets used in
the operation of the franchise are damaged or become inoperable or if your
Plantation Store is closed for any reason, you will promptly undertake all steps
necessary to remedy such conditions and return your Plantation Store to full
operation as soon as possible. If any closure of your unit takes place for any
reason, you will immediately notify us, submit a plan for re-opening (with
discussion of budget, deadlines, possible relocation and subject to our
reasonable approval) and diligently take (at your expense) all steps necessary
to fully re-open your Plantation Store for business as soon as possible. In any
event, all financial obligations of yours to us or any affiliate, whether under
this Agreement or otherwise, will remain in full force and effect during such
closure and any amounts due or to become due us or any affiliate calculated
based on Gross Sales or similar amounts (such as percentage royalties,
percentage Marketing Fund Contributions, percentage rent, etc.) will continue to
be paid during such closure, as specified below. During any closure, weekly
Gross Sales will be assumed to be equal to the average weekly Gross Sales during
the 3 four-week periods (or shorter period if your Plantation Store was not open
for such 3 four-week periods) prior to such closure beginning. Since you will
continue to have this obligation to pay percentage and other amounts based on
average assumed Gross Sales (as well as your obligation to pay minimum amounts)
even though your Plantation Store is closed, you will maintain business
interruption insurance as provided in this Agreement or otherwise specified by
us.
YOUR INITIALS: __________ / __________
9. PROPRIETARY AND CONFIDENTIAL INFORMATION OF OURS
We have, and plan to develop and acquire from time-to-time, certain
confidential and proprietary information and trade secrets, including but not
necessarily limited to, the following categories (the "Confidential
Information"): (1) methods, techniques, specifications, standards, policies,
procedures,
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information, concepts, systems, and knowledge of and experience in the
development, operation and franchising of Plantation Stores; (2) marketing
programs for Plantation Stores; (3) specifications for, and suppliers of,
certain materials, equipment, furniture and fixtures for Plantation Stores; (4)
methods, procedures and techniques for preparing, marketing and presenting the
Products and Services; and (5) information regarding the Products and Services
authorized to be offered from, or used at, Plantation Stores. In any dispute
between you and us involving any question as to whether or not certain
information is, in fact, confidential and/or proprietary to us, or any related
issues, the burden of proof and the burden of going forward will be on you.
We'll disclose, to you, during training, in the Manuals and in guidance
and assistance furnished to you during the term of the Franchise, parts of the
Confidential Information needed for the operation of a Plantation Store, and you
may learn additional Confidential Information of ours during the term of the
Franchise. You will not acquire any interest in the Confidential Information,
other than the right to utilize it in the operation of a franchised Plantation
Store at the Premises and pursuant to this Agreement.
You acknowledge and agree that the Confidential Information is a
valuable asset of ours, includes trade secrets of ours and will be disclosed to
you solely on the condition that you will forever: (1) not use the Confidential
Information in any way other than the operation of your Plantation Store under a
Franchise Agreement in good standing with us; (2) maintain the absolute secrecy
and confidentiality of the Confidential Information during and after the term of
this Agreement; (3) not make unauthorized copies of any portion of the
Confidential Information; and (4) adopt and implement all reasonable procedures
prescribed by us from time-to-time to prevent unauthorized use or disclosure of,
or access to, the Confidential Information. Specifically, you will not sell,
rent or allow anyone to use any list of customers (such list being part of the
Confidential Information and our property) other than in connection with the
mailing of advertising materials approved by us for your Plantation Store. You
agree that any unauthorized use or duplication of any part of the Confidential
Information, including in any other business, would be an unfair method of
competition with us and other Plantation Store Franchisees.
So as to assist in the development of the Coffee Plantation System and
for the mutual benefit of all Plantation operators, we'll have the perpetual
right to use and to authorize our affiliates and/or other Plantation Stores to
use, and you'll fully and promptly disclose to us, all ideas, concepts, methods,
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techniques and otherwise relating to the development, marketing, operation
and/or otherwise of a Plantation Store, or which would be usable therein, which
are conceived or developed by you and/or your employees during the term of this
Agreement, in each case without compensation or other obligation.
You'll cause each of your employees, agents, principals and affiliates
to execute and deliver to you an agreement containing substantially the same
provisions as set forth in this Section, in a form or forms consented to by us.
An original of each executed Confidentiality Agreement will be available for our
inspection during business hours. You will, on our request, deliver to us copies
of any Confidentiality Agreement.
YOUR INITIALS: __________ / __________
10. MARKETING
10.1 MARKETING FUND. Our experience and business judgment is that a
unified marketing program, on both a local and broader level, is an essential
factor in the potential success of all Plantation Stores, to achieve top-of-mind
awareness in potential customers, to build and retain goodwill associated with
the Names and Marks thereby hopefully benefiting all Coffee Plantation
operators, to create improved brand loyalty among new and future customers and
to achieve a favorable retail position for all Plantation Stores. To maximize
the possibility of obtaining these goals, you and we have agreed to a marketing
program as follows:
We've instituted an advertising, publicity and marketing fund (the
"Marketing Fund") for such advertising, advertising-related, marketing and/or
public relations programs, services and/or materials as we, in our sole and
absolute discretion, may deem necessary or appropriate to promote Plantation
Stores. The Marketing Fund may be combined with any marketing fund otherwise
established for Plantation Stores and the funds merged for use in accordance
with this Agreement. You will contribute to the Marketing Fund three percent
(3%) of the Gross Sales of your Plantation Store (we may reduce or waive this
amount on an individual or other basis in our sole and absolute discretion.)
Marketing Fund Contributions will be calculated and paid at the same time, in
the same manner, and for the same periods, as royalty payments. We will cause
each Plantation Store owned by us or any affiliate to make contributions to the
Marketing Fund based on the contribution rate generally in effect at the time
such Plantation Store most recently came under our ownership. You understand
that, due to differing forms of Franchise Agreements or otherwise, some Coffee
Plantation Franchisees may
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have different Marketing Fund and/or other obligations than in this Agreement.
We will have sole and absolute discretion over all matters relating to
the Marketing Fund in any way, including (but not limited to) its management,
all financial matters, expenditures, receipts and/or investments by the
Marketing Fund, timing of expenditures, creative concepts, content, materials
and endorsements for any marketing programs, together with the geographic,
market, and media placement and allocation thereof. The Marketing Fund may be
used, in our sole and absolute discretion, to (among other things) pay costs of
new product development, menu boards and other signage, preparing, producing,
distributing and using marketing, advertising and other materials and programs;
administering national, regional and other marketing programs, purchasing media,
employing advertising, public relations and other agencies and firms; and
supporting public relations, market research and other advertising and marketing
activities, as well as any expenses associated with any Franchisee Advisory
Council(s), if those Councils, and such expenses, are approved by us in our sole
and absolute discretion. A brief statement regarding the availability of
information regarding the purchase of Coffee Plantation franchises may be
included in advertising and other items produced and/or distributed using the
Marketing Fund. Where approved by a majority of any Franchisee Advisory Council,
the Marketing Fund may also be used for research, secret shoppers, store
development testing and other purposes.
We can, in our sole and absolute discretion, arrange for services, goods
and otherwise, including (but not limited to) creative concepts, production,
placement, purchase of media, legal, accounting and other services, to be
provided to the Marketing Fund by us, any of the Franchisor-Related
Persons/Entities and our and/or their employees or agents, including
persons/entities who may be owned, operated, controlled by, and/or affiliated
with, us (such as an "in-house advertising agency") or who may be independent.
We may use the Marketing Fund to compensate and reimburse any of such
persons/entities (including ourselves) as we deem appropriate in our sole and
absolute discretion (including payment of commissions) and to compensate
ourselves and/or others for administrative and other services, materials, etc.
rendered to the Marketing Fund, provided that any compensation to us or any
affiliate will not be unreasonable in amount. While we are not required to
submit any proposed or other expenditures by (or any other matters relating to)
the Marketing Fund for approval by any Franchisee Advisory Council, if
Franchisor does submit any matters for approval and approval is granted by a
majority of such Franchisee Advisory Council, such approval will be final and
binding on you.
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You will participate in all marketing programs instituted by the
Marketing Fund or us but will retain full freedom to set your own prices, except
that we may, to the greatest degree permitted by applicable law, specify maximum
prices above which you will not sell or otherwise provide any goods or services
and you will comply with all such maximum prices. The Marketing Fund will, as
available, furnish you with marketing, advertising and promotional formats and
sample materials and may charge the direct cost of producing them plus shipping
and handling. We may, in our sole and absolute discretion, use the Marketing
Fund to pay the costs of advertising, advertising-related, marketing and/or
public relations programs, services and/or materials with respect to locations,
programs or concepts where Products and/or Services offered under the Name
and/or Marks are to be offered in conjunction with products and/or services
offered under other marks, including (but not limited to) any co-branding, dual
franchising or other programs, and any other franchised or non-franchised
alternative channel of distribution, whether controlled by us or not.
The Marketing Fund will be accounted for separately from our other funds
(but may be commingled with our other funds) and will not be used to defray any
of our general operating expenses, except for such salaries, administrative
costs, overhead and other expenses as we may reasonably incur in activities
related to the Marketing Fund and its programs (including, without limitation,
conducting market research, preparing advertising and marketing materials,
insurance, legal costs and collecting and accounting for the Marketing Fund.) In
any event, we may charge the Marketing Fund for attorney's fees and other costs
related in any way to our defense of any claims against us and/or any of the
Franchisor-Related Persons/Entities regarding the Marketing Fund or with respect
to collecting amounts due and/or expenditures by or from the Marketing Fund. We
may, in our sole and absolute discretion, spend in any fiscal year an amount
greater or less than the aggregate contributions to the Marketing Fund in that
year and the Marketing Fund may borrow from us or other lenders to cover
deficits of the Marketing Fund or cause the Marketing Fund to invest any surplus
for future use by the Marketing Fund. You authorize us to collect for remission
to the Marketing Fund any advertising or promotional monies or credits offered
by any supplier based upon purchases by you or otherwise. In any event, and
notwithstanding any designation by you, any provisions of this Agreement to the
contrary or otherwise, your Marketing Fund contributions may be applied, in our
sole and absolute discretion, to any obligations of you to us or any affiliate,
including (but not limited to) royalties, marketing contributions, purchases,
interest, rent or otherwise. All interest earned on monies contributed to, or
held in, the
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Marketing Fund may be retained in our General Account and/or applied and/or
expended by us as we determine in our sole and absolute discretion and is not
subject to the restrictions of this Agreement. A statement of monies collected
and costs incurred by the Marketing Fund will be prepared annually by us and be
furnished to you upon written request. We may (but are not required to) have
financial statements of the Marketing Fund audited and any costs in connection
therewith will be paid by the Marketing Fund. We will have the right to cause
the Marketing Fund to be incorporated or operated through an entity separate
from us as we deem appropriate in our sole and absolute discretion, and such
successor entity will have all rights and duties of ours relating to the
Marketing Fund.
Franchisor may (but is not required to) remit a portion of Marketing
Fund contributions back to a franchisee on such terms and conditions as
Franchisor determines in Franchisor's sole and absolute discretion, including
(but not limited to) reimbursement of local advertising expenditures made by a
Franchisee and Franchisor may waive and/or compromise claims for contributions
to, and/or claims against or with respect to, the Marketing Fund in Franchisor's
sole and absolute discretion, using the Marketing Fund to pay any such claims.
We will have sole and absolute discretion as to whether or not Franchisor takes
legal or other action against any franchisee who is in default of his or her
obligations with respect to the Marketing Fund (including obligations to make
contributions) or otherwise and whether a franchisee may be allowed to make
direct advertising expenditures in place of contributions to the Marketing Fund.
We have no obligation to ensure that expenditures by the Marketing Fund
in or affecting any geographic area or Plantation Store are or will be
proportionate or equivalent to the contributions to the Marketing Fund by
Plantation Stores operating in that geographic area or that any Plantation Store
will benefit directly or in proportion to its contribution to the Marketing Fund
or from the development of advertising and marketing materials and/or programs,
the placement of advertising or otherwise. We will have no obligation to cause
other Plantation Stores, licensees or outlets (some of which may be under
different arrangements) to contribute to the Marketing Fund, any cooperative or
engage in local marketing. You agree that we (and each of the Franchisor-Related
Persons/Entities) will not have any direct or indirect liability or obligation
to you, the Marketing Fund or otherwise with respect to the management,
maintenance, direction, administration or otherwise of the Marketing Fund. You
agree that neither we (nor any of the Franchisor-Related Persons/Entities) will
be liable for any act or omission, whether with respect to the Marketing Fund or
otherwise which is consistent with this Agreement or other
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information provided to you, or which is done in subjective good faith. You and
we, each having a mutual interest in, and agreeing on the critical practical
business importance of, your and our relationship being governed solely by
written instruments signed by the parties to be bound (and not having either of
us subject to the uncertainty and ambiguity inherent in the application of legal
or other concepts not expressly agreed to in writing by you and us), agree that
your and our rights and obligations with respect to the Marketing Fund and all
related matters are governed solely by the express terms of this Agreement and
that this Agreement (and the parties' relationship and all rights and
obligations with respect to the Marketing Fund) are not in the nature of a
"trust," "fiduciary relationship" or similar special arrangement and is only an
ordinary commercial relationship between independent businesspersons for their
independent economic benefit. We may maintain Marketing Fund assets in one or
more accounts designated as "trust accounts" (or similarly designated), for
purposes of protecting such assets from claims of third-party creditors or
otherwise, but such designation and/or treatment will not operate to create any
"trust," "fiduciary relationship" or similar special arrangement as to the
Marketing Fund, its assets or otherwise.
YOUR INITIALS: __________ / __________
10.2 MARKETING BY YOU. You shall submit for prior approval by us, any
and all advertising and promotional materials prepared by you for your
Plantation Store and you shall not use any disapproved or unapproved advertising
or promotional materials. You shall comply with any advertising requirements
contained in any lease or sublease for the premises of your Plantation Store.
All advertising and promotional materials including any computerized media or
electronic media used by you must be completely factual, comply with all
applicable laws and conform to the highest standards of ethical advertising and
policies prescribed from time to time by us.
You shall list and advertise your Plantation Store in the principal
classified telephone directory distributed within its primary trading area, in
such business classifications as we prescribe from time to time, utilizing our
standard classified telephone directory advertisement at your sole expense. When
more than one Plantation Store serves a metropolitan area, we may require all
such Plantation Stores to be listed in the classified directory advertisement
and you shall pay an equal share of the cost thereof.
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YOUR INITIALS: __________ / __________
11. STORE RECORDS AND REPORTING.
11.1 BOOKKEEPING, ACCOUNTING AND RECORDS, CASH REGISTER, COMPUTER AND
OTHER SYSTEMS. You'll establish and maintain at your own expense a bookkeeping,
accounting, recordkeeping and records retention system conforming to
requirements prescribed by us from time-to-time (including, without limitation,
requirements for timely entering of information into data bases of a computer
program designated by us and periodic printouts of reports generated by such
computer program).
Each transaction related to your Plantation Store will be processed on a
computer system as prescribed by us. You will use (and only use) the cash
register, computer and other systems (including hardware and software) as
designated by us from time-to-time in our sole and absolute discretion. We may,
from time-to-time in our sole and absolute discretion, designate different cash
register, computer and other systems for use in your Plantation Store and may
modify such systems, each of which you'll promptly and fully comply with at your
sole expense.
As directed by us, you will participate in our electronic reporting
system covering sales and other items, with direct interconnection to (and full,
on-line access by) our computer hardware and software systems. You will
continuously use, maintain and update electronic cash register, computer and
other systems (including point-of-sale systems) and software programs which meet
such specifications as we designate, from time-to-time and in our sole and
absolute discretion, and which, in some cases, may include components only
available from us, our affiliates and/or suppliers approved by us. You will
maintain your cash register, computer and all other systems on-line to provide
full access for computer systems used by us and you will promptly update and
otherwise change your electronic cash register, computer hardware and software
systems as we require from time-to-time in our sole and absolute discretion, at
your sole expense. We reserve the right to have full access to such electronic
cash register, computer and other systems and the sales information and data
contained therein and to retrieve, analyze, download, and use the software and
all data contained therein (as well as any other information reported to us) at
any time and as we determine in our sole and absolute discretion. You will
promptly and fully pay all amounts charged by any supplier or licensor (which
may be us and/or an affiliate) of the systems and programs used by you,
including charges for use, maintenance, support and/or update of these systems
or programs.
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We may require you to obtain specified computer hardware and/or
software, including, without limitation, a license to use proprietary software
developed by us or others and you agree to do so. Modification of specifications
for the components of the cash register, computer and other systems may require
you to incur costs to purchase, lease and/or license new or modified computer
hardware and/or software and to obtain service and support for the cash
register, computer and other systems during the term of this Agreement. We
cannot estimate the future costs of the cash register, computer and other
systems (or additions, modifications, maintenance or support) and your related
costs may not be fully amortizable over the remaining term of this Agreement.
You agree to pay all costs in connection with obtaining/maintaining/upgrading,
etc. the computer hardware and software comprising the cash register, computer
and other systems (and additions, modifications, maintenance or support). Within
sixty (60) days after you receive notice from us, you will obtain, install and
thereafter use the components of the cash register, computer and other systems
that we designate from time-to-time. We have the right to charge a reasonable
fee for the license, modification, maintenance or support of proprietary
software that we may license to you and other goods and services that we or any
affiliates furnish to you related to the cash register, computer and other
systems.
YOUR INITIALS: __________ / __________
11.2 REPORTS, FINANCIAL STATEMENTS AND TAX RETURNS. You will provide to
us the such information regarding the operation of your Plantation Store as we
specify from time-to-time and in the manner we designate, which may be either
through computer software that we specify, or faxed or mailed copies of reports
or documents, as designated by us, including through full, direct, on-line
access to your cash register, computer and other systems.
Our current information requirements (which we may expand or otherwise
change from time-to-time in our sole and absolute discretion) are as follows,
including receipt by us by the deadlines specified:
(1) within 24 hours of the end of each fiscal week a report of
Gross Sales by hard copy, electronically or otherwise as we designate;
(2) within seven (7) days after the close of each fiscal
four-week period (or otherwise as we require from time-to-time in our sole and
absolute discretion) forwarding (by hard copy, electronically or otherwise as we
designate) to us of "z" tapes and/or other information from your cash register,
together
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with a statement reconciling reports of Gross Sales and all amounts owed to us,
including (but not limited to) royalties, marketing fund contributions and
percentage rent;
(3) a report, as of the end of each fiscal four-week period (or
otherwise as we require from time-to-time in our sole and absolute discretion),
of Gross Sales, net sales, product costs, labor costs, inventory activity and
copies of the recap for the preceding fiscal four-week period by hard copy,
electronically or otherwise as we designate, together with copies of such other
information and supporting records as we designate. Such reports will be
maintained on the Premises for our inspection at any time but we may require you
to regularly submit such reports, no later than 10 days after the close of each
fiscal four-week period (or otherwise as we require from time-to-time in our
sole and absolute discretion);
(4) within twenty (20) days after the end of each twelve (12) or
sixteen (16) fiscal week period as determined by us, a period profit and loss
statement and a balance sheet for your Plantation Store, prepared, verified and
signed by you;
(5) within forty-five (45) days after the end of each fiscal year
of your Plantation Store, an unaudited fiscal year-end balance sheet, income
statement reflecting all year-end adjustments and statement of changes in
financial position, in each case for your Plantation Store, prepared in
accordance with generally accepted accounting principles consistently applied,
and verified and signed by you;
(6) within sixty (60) days after such returns are filed, exact
copies of your Plantation Store's state sales tax returns and those portions of
your tax returns relating to your Plantation Store; and
(7) on request by us, such other data, information and supporting
records for such periods as we from time-to-time require. Each report and
financial statement submitted by you' to us will be verified as correct and
signed by you personally if a sole proprietorship, by a partner if a
partnership, or by an executive officer if a corporation. We reserve the right
to require you, at your own expense, to have audited financial statements
prepared by a certified public accountant on an annual basis and presented to us
with such account's report.
You'll maintain and to furnish to us, on request, for the term of
this Agreement and any successor franchises, plus 3 years, complete copies of
(a) all records of or relating to your Plantation Store and (b) all income,
sales and other tax returns filed by you reflecting activities of your
Plantation Store, you
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hereby waiving any privileges with regard to any records and/or tax returns.
YOUR INITIALS: __________ / __________
12. NAMES AND MARKS AND TRADE DRESS
12.1 OWNERSHIP OF NAMES AND MARKS AND TRADE DRESS. Your right to use the
Names and Marks and Trade Dress is derived solely from this Agreement and is
limited to the operation of your Plantation Store in compliance with this
Agreement (and the Manuals) at the location and premises authorized hereunder,
and by all applicable standards, specifications and operating procedures
prescribed by us, in our sole and absolute discretion, from time to time during
the term of this Franchise. You agree that all usage of the Names and Marks and
Trade Dress, including usage on computerized or electronic media (including but
not limited to the World Wide Web, the Internet, Telnet, newsgroups, bulletin
boards, FTP, e-mail and the like) by you, and any goodwill established thereby,
belongs to, and shall inure to the exclusive benefit of, us. You further agree
that after the termination or expiration of the Franchise you will not directly
or indirectly at any time or in any manner identify you, any owner or other
business as a Plantation Store, a former Plantation Store or as a franchisee of
or otherwise associated with us, or use in any manner or for any purpose any of
the Names and Marks or Trade Dress, or other indicia of a Plantation Store.
12.2 LIMITATIONS ON YOUR USE OF NAMES AND MARKS AND TRADE DRESS. You
agree to use the Names and Marks and Trade Dress as the sole service mark and
trade name identification of your Plantation Store. You shall display a notice
in such form as we may prescribe that you are an independent owner of your
Plantation Store pursuant to this Agreement. You shall not use any of the Names
and Marks as part of any corporate name or with any prefix, suffix or other
modifying words, terms, designs or symbols (other than logos licensed to you
hereunder), or in any modified form, nor may you use any Names and Marks and
Trade Dress in connection with the sale of any unauthorized product or service
or in any other manner including via computerized media and electronic media not
explicitly authorized in writing by us. All bank accounts, licenses, permits or
other similar documents shall contain the actual name of the person or entity
owning your Plantation Store and may contain "d/b/a Coffee Plantation." You
shall obtain any fictitious name, assumed name or "doing business" registration
as may be required by law.
12.3 NOTIFICATION OF INFRINGEMENTS AND CLAIMS. You shall immediately
notify us of any apparent infringement of or
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challenge to your use of any of the Names and Marks and/or Trade Dress or claim
by any person of any rights in any of the Names and Marks and/or Trade Dress and
you shall not communicate with any person other than us and our respective
counsel in connection with any such infringement, challenge or claim. We shall
have sole and absolute discretion to take such action as we and they deem
appropriate and the right to exclusively control any litigation or Patent and
Trademark Office or other administrative proceeding arising out of any such
infringement, challenge or claim or otherwise relating to any Names and Marks
and/or Trade Dress. You agree to execute any and all instruments and documents,
render such assistance, and do such acts and things as may, in the opinion of us
or our counsel be necessary or advisable to protect and maintain our interests
in any litigation or Patent and Trademark office or other proceeding or to
otherwise protect and maintain our interests in any of the Names and Marks and
Trade Dress.
12.4 DISCONTINUANCE OF USE OF NAMES AND MARKS AND TRADE DRESS. If it
becomes advisable at any time, in our sole and absolute discretion, for you to
modify or discontinue the use of any of the Names and Marks and/or Trade Dress
or use one or more additional or substitute name(s), trademarks, service marks
or trade dress, you will promptly comply (at your sole expense) with our
directions to modify or otherwise discontinue the use of such Names and Marks
and/or Trade Dress, or use one or more additional or substitute names,
trademarks, service marks and/or trade dress, including (but not limited to)
replacement of all signage, etc. Neither we nor any of the Franchisor-Related
Persons/Entities will have any liability or obligation (whether of defense,
indemnity, expense reimbursement or otherwise) to you, and you agree to make no
claim, for, or in connection with, any modification, discontinuance or
otherwise, and/or any dispute regarding the Names and Marks and/or Trade Dress
and/or your and/or our rights in or to them. We make no guaranty that a
modification, discontinuance or otherwise may not be required, whether as a
result of expiration, termination or limitation of our rights to the Names and
Marks and/or Trade Dress or otherwise.
You understand that there is always a possibility that there might be
one or more businesses, similar to the business covered by the Franchise,
operating in or near the area(s) where you may do business or otherwise, using a
name, marks and/or trade dress similar to ours and with superior rights to such
name and/or marks as a result of prior use or otherwise. We strongly urge you to
research this possibility, using telephone directories, local filings and other
means, prior to your signing this Agreement, any other documents, expending or
paying any sums or making any commitments and you understand that if you fail to
do
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so, you are at risk.
YOUR INITIALS: __________ / __________
13. INITIAL FRANCHISE FEE
13.1 INITIAL FRANCHISE FEE, NON-REFUNDABLE. Your initial franchisee fee,
which will be paid to us on signing this Agreement, is Twenty Five Thousand
Dollars ($25,000.) The initial franchise fee is fully earned by us on signing of
this Agreement and is entirely nonrefundable (as are all amounts paid to us
and/or any affiliate) except for possible partial or other refund (in each case
at our sole option) as expressly provided in other Sections of this Agreement.
You understand that the initial franchise fee may not be same for all
franchisees and may take into account factors such as size of territory,
previous business relationship with us or otherwise.
YOUR INITIALS: __________ / __________
13.2 RELEASES. The execution of this Agreement will constitute, and you
(and each affiliate of yours, together with each owner of you, if you are a
business entity, and/or any affiliate of yours) will, as a condition to the
granting of this and/or any future or other Franchise, execute, in a form
prescribed by us, a general release, of any and all claims, liabilities and/or
obligations, of any nature whatsoever, however arising, known or unknown,
against us and/or any or all of the Franchisor-Related Persons/Entities,
excepting only (where so required by applicable law) those claims solely related
to the offer and sale of the new Franchise, you agreeing that it would be
inappropriate from a business standpoint to enter into further franchise
relationships with us while there might be a possibility of claims based on a
prior relationship. For example, if you own Franchises Nos. 1 and 2 and are
being awarded Franchise No. 3, the release by you would cover all matters other
than (where so required by applicable law) those solely related to the offer and
sale of Franchise No. 3. We can make no assurance as to whether additional or
future franchises may be granted to you or the prices, terms or conditions
relating thereto. If we should, through inadvertence or otherwise, fail to
require such separate release at any time, the execution of this Agreement, and
each Franchise Agreement after this one, will be regarded as the equivalent of
the granting of such releases. A copy of the release language currently required
by us (which we may modify in the future, in our sole and absolute discretion)
is attached as Exhibit 13.2
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YOUR INITIALS: __________ / __________
13.3 UPDATING OF AGREEMENTS. In addition, and in the interests of
consistency, efficiency of administration, improved ability to meet competitive
challenges and ongoing improvement of the Coffee Plantation(R) System (among
other things), on award of this or any other and/or subsequent Coffee Plantation
or other franchise to you (and/or any affiliate) by us (and/or any affiliate),
and/or as a condition to any transfer (as defined below) or relocation by you
(and/or any affiliate) and/or the award of any successor franchise to you
(and/or any affiliate), we may require that any or all existing franchise
agreement(s) with you (and/or any affiliate) be cancelled and the then-current
form of Coffee Plantation(R) Franchise Agreement(s) be executed (using the
then-current royalties, marketing fund contributions and other provisions) with
respect to each Plantation Store owned and/or operated by you (and/or any
affiliate), with appropriate modifications to reflect the facts that, for such
pre-existing units only: (a) no initial franchise fee will be charged and (b)
the expiration date of the initial term, and the duration of any successor
franchise, will not be changed with respect to such pre-existing units as a
result of your signing such new agreement(s). (For example, if your Franchise
Agreement for a pre-existing unit had an expiration date of January 1, 2005,
with a successor franchise expiring January 1, 2015, the expiration date of the
new Franchise Agreement for that pre-existing unit would be January 1, 2005,
with a successor franchise expiring January 1, 2015.)
YOUR INITIALS: __________ / __________
14. ROYALTY
14.1 ROYALTY - PERCENTAGE. Every fiscal week (or otherwise as we require
from time-to-time in our sole and absolute discretion), you'll pay us six
percent (6%) of the Gross Sales received or earned during the preceding fiscal
week or other period (weeks currently run from Sunday through Saturday, but we
can change this in our sole and absolute discretion.)
Royalties are to be received by us electronically or otherwise on the
5th day after each week for the preceding week (or otherwise as we require from
time-to-time in our sole and absolute discretion), subject to prior payment by
means of electronic funds transfer or otherwise as provided in this Agreement.
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YOUR INITIALS: __________ / __________
14.2 DEFINITION OF "GROSS SALES". As used in this Agreement, the term
"Gross Sales" shall mean and include all revenues, whether cash or credit and
whether or not such sales are made at or from the premises of your Plantation
Store or any other location, including, if approved by us via computerized or
electronic media, (but excluding sales tax collected and paid when due to the
appropriate taxing authority and actual customer refunds, adjustments and
credits) which are, or could be, received or earned (1) by or with respect to
your Plantation Store, (and/or at or from the Premises) (2) by you (or on/for
your behalf or benefit) and which relate to the type of products, services or
any other items which are or could be provided, sold, rented or otherwise
distributed at, through or in association with a Plantation Store and/or (3) by
you (or on your behalf or for your benefit) with respect to products and
services which are, or could be, provided, sold, or otherwise distributed in
association with any use of the Names and Marks, the Trade Dress, the Plantation
System, or any related techniques, systems, procedures, or know-how or the
operation of any Similar Business. All transactions will be recorded at full
list retail selling price and without discount. You'll not divert any business
or take any other actions (or fail to take any actions) which would have the
effect of reducing the Gross Sales with respect to which royalties are payable
and you will use your best efforts to maximize Gross Sales. All sales and/or
billings, whether collected or not, will be included in Gross Sales, with no
deduction for credit card or other charges.
YOUR INITIALS: __________ / __________
14.3 PAYMENT OF ROYALTY AND MARKETING FUND CONTRIBUTION, ELECTRONIC
FUNDS TRANSFER. You must participate in our then-current electronic funds
transfer program authorizing us to utilize a pre-authorized bank draft system on
a weekly basis (or otherwise as we specify from time-to-time in our sole and
absolute discretion.) All royalties, Marketing Fund Contributions and other
amounts due us (or any affiliate) for each period must be received by us (and
such affiliate) or credited to our (or our affiliate's) account by
pre-authorized bank debit before 5:00 p.m. on the 5th day after each week or
other point in time specified by us. We may, from time-to-time, specify periodic
amounts for regular electronic or other transfer to our (or our affiliate's)
account, based on past reports of sales by you and reasonable expectations of
royalties, Marketing Contributions and other amounts to become due from you. You
will
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participate in our then-current electronic reporting and collection system
covering sales and other items.
YOUR INITIALS: __________ / __________
14.4 INTEREST AND LATE FEES ON LATE PAYMENTS AND/OR REPORTS. All amounts
you may owe us and/or our affiliates will bear interest at the highest
applicable legal rate for open account business credit, but not to exceed one
and one-half percent (1.5%) per month. You'll pay a late fee of Three Hundred
Dollars ($300.00), plus $50.00 per day, for each report and/or each payment
received by us after its due date. You agree to pay a dishonored check fee of
Two Hundred Dollars ($200.00), for each dishonored check tendered by you.
Notwithstanding any provision in this Agreement to the contrary, in no event
will any amounts be charged as late fees or otherwise which exceed or violate
any applicable legal restrictions. Each of the foregoing amounts will be subject
to adjustment for inflation, as set forth in this Agreement.
14.5 APPLICATION OF PAYMENTS, SET-OFFS ETC. Except for payments
appropriately designated by you as payable to the Marketing Fund, we (and/or any
affiliate) can apply any payments received from you, whether designated as
payable to us or otherwise, to any past due or other indebtedness of yours (or
any affiliate of yours) for royalties, marketing contributions, purchases,
interest or otherwise as we choose in our sole and absolute discretion. We
(and/or any affiliate) can set off, from any amounts that may be owed to you (or
any affiliate of yours), any amount that you owe to us (and/or any affiliate) or
with respect to any marketing contribution. We can retain any amounts we have
received for your account (whether rebates or other funds and whether paid by or
due from suppliers or otherwise), as a credit and payment against any amounts
that you (or any affiliate of yours) owe or will owe to us (or any affiliate) or
with respect to any marketing contribution, without notice and at any time.
YOUR INITIALS: __________ / __________
14.6 INFLATION ADJUSTMENTS. Where so designated in this Agreement with
respect to certain amounts, such amounts will be adjusted as of July 1 of each
year, the first adjustment to be made as of the July 1 after the date of this
Agreement, (the first "adjustment date") in proportion to the changes in the
Consumer Price Index (U.S. Average, all items) maintained by the
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U.S. Department of Labor (or such equivalent index as may be adopted in the
future) between March 30 of the preceding year and March 30 of the year in which
the adjustment is to be made. We will notify you of the percentage adjustment
between March 30 and July 1 of each year.
YOUR INITIALS: __________ / __________
15. IN-PERSON REVIEW, VISITATIONS AND AUDITS
15.1 IN-PERSON REVIEW. When and if requested by us, you and your
director of operations/manager will, at your expense, meet with our
representatives at our then-current headquarters or other location designated by
us, for the purpose of discussing and reviewing your Plantation Store's
operations, status, financial performance and other matters.
YOUR INITIALS: __________ / __________
15.2 OUR VISITATIONS, ETC. We and/or our agents will have the right, at
any time during business hours, and without prior notice to you, to: (1) inspect
the Premises, the Designated Equipment and other equipment, furniture, fixtures,
signs, operating materials and supplies; (2) observe, photograph and video tape
(or otherwise record) the operations of your Plantation Store for such periods
as we deem necessary in our sole and absolute discretion; (3) remove samples of
any items for testing and analysis; (4) interview personnel of your Plantation
Store; (5) interview customers and employees of your Plantation Store; (6)
inspect, and/or conduct, supervise or observe a physical count of, the inventory
and assets of your Plantation Store; and (7) inspect and copy any books,
records, documents or otherwise relating to your Plantation Store. You'll
cooperate fully with us in connection with such matters. You'll present to your
customers such evaluation forms as are periodically prescribed by us and will
participate and/or request your customers to participate in any surveys
performed by or on behalf of us.
We have the right to have confidential and undisclosed "shoppers" and/or
other individuals visit your Plantation Store and you will reimburse us for the
reasonable fees and costs incurred in connection with those activities and we
will share their reports with you.
YOUR INITIALS: __________ / __________
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15.3 AUDIT AND INSPECTION. We (and/or our designees, including any
landlord or its agent pursuant to the lease or sublease for the premises for
your Plantation Store) will have the right at any time during business hours,
and without prior notice to you, to inspect and/or audit the properties, assets,
premises, business records, bookkeeping and accounting records, sales and income
tax records and returns (you waiving all privileges with respect thereto), cash
register tapes, invoices, payroll records, check stubs and bank deposit
receipts, computer files and other records of, and/or relating in any way to,
your Plantation Store and the books and records of any person(s), corporation or
partnership which holds, or does business with, the Franchise. You'll fully
cooperate with our representatives and independent accountants/attorneys hired
by us to conduct any such inspection or audit. Our right to audit includes the
right to access all cash registers, computers and other equipment by electronic
means. In the event any inspection or audit discloses an understatement of Gross
Sales, you will pay to us, within five (5) days after receipt of the inspection
or audit report, the royalties and marketing contributions due on the amount of
such understatement, plus interest (at the rate and on the terms provided
herein) from the date originally due until the date of payment. If any
inspection or audit is made necessary by your failure to furnish reports,
supporting records, other information or financial statements, or to furnish
reports, records, information or financial statements on a timely basis, or if
an understatement of Gross Sales for any period is determined by any audit or
inspection to be greater than two percent (2%), you will reimburse us for the
cost of the inspection or audit, including, without limitation, the charges of
any independent accountants, and the travel expenses, room and board and
applicable per diem charges for our and their employees. Should any audit reveal
an intentional understatement of Gross Sales for any period in any amount, or an
understatement (whether intentional or not) of Gross Sales for any period to be
greater than five percent (5%), or any other violation of this Agreement, we may
terminate all of your rights, and our obligations, hereunder, in addition to
exercising any other remedies we may have. These remedies are in addition to all
other remedies and rights of ours hereunder or under applicable law, including
termination.
YOUR INITIALS: __________ / __________
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16. TERMINATION OF THE FRANCHISE.
16.1 DEFAULTS WITH NO RIGHT TO CURE. Your rights and our obligations
under this Agreement will automatically terminate on delivery [or, in any event,
on three (3) calendar days after mailing] of notice of termination to you
(without further action by us and without opportunity to cure) if: (1) you or
any of your owners fail, in the time provided in, or otherwise in accordance
with, this Agreement to: (a) locate a site accepted by us; (b) obtain lawful
possession of the Premises; or (c) develop and open your Plantation Store; (2)
you or any of your owners abandons or fails to operate your Plantation Store for
more than seven (7) calendar days in accordance with our then-current standards
and specifications or the lease or sublease for the premises, or surrenders or
transfers control without our prior written approval; (3) you or any of your
owners has made any material misrepresentation or omission in your application
for the Franchise, including (but not limited to) failure to disclose any prior
litigation or criminal convictions (other than minor traffic offenses); (4) you
or any of your owners is judged bankrupt, becomes insolvent, makes an assignment
for the benefit of creditors, is unable to pay his or her debts as they become
due, or a petition under any bankruptcy law is filed against you or any of your
owners or a receiver or other custodian is appointed for a substantial part of
the assets of your Plantation Store; (5) you or any of your owners is convicted
by a trial court of or pleads no contest to a felony, or to any crime or offense
that may adversely affect the reputation of the Franchisee or any owner or your
Plantation Store or the goodwill associated with the Names and Marks or engages
in any misconduct which unfavorably affects the reputation of the Franchisee or
any owner or your Plantation Store, us or the goodwill associated with the Names
and Marks (including, but not limited to, health or safety hazards, drug or
alcohol problems, or allowing unlawful activities or unauthorized or illegal
items to be used or distributed at the Premises or in connection with the
Franchise); (6) you or any of the Franchisee's owners makes an unauthorized
"transfer" (as defined in this Agreement); (7) you or any of the Franchisee's
owners makes any unauthorized use or disclosure of or duplicates any copy of any
Confidential Information, makes any unauthorized use of the Marks, or uses,
duplicates, or discloses any portion of the Manuals or you and/or any other
person/entity violates any restriction on ownership, operation, etc., of a
Similar Business; (8) you or any of the Franchisee's owners loses the right to
possession of the Premises and does not relocate your Plantation Store to other
premises in accordance with this Agreement; (9) you make any misrepresentation
to us or any affiliate, including any misrepresentation of Gross Sales or any
amounts due us or any affiliate; (10) you (and/or any owner and/or affiliate of
yours) file any legal action (including
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arbitration, but not including mediation) against us and/or any of the
Franchisor-Related Persons/Entities and do not receive a final judgment or award
substantially in your favor on the merits; (11) you have failed to retain (or
otherwise fail to produce on request) any records required to be maintained by
our record retention policy or otherwise are required for us to confirm your
compliance with the provisions of this (or any other) agreement; or (12) you
sell or have present in your Plantation Store for sale or otherwise any coffee
not purchased from us or our affiliate.
YOUR INITIALS: __________ / __________
16.2 DEFAULTS WITH RIGHT TO CURE. Your rights and our obligations under
this Agreement will automatically terminate on our mailing of notice of
termination to you (without further action by us and without further opportunity
to cure beyond that set forth in this section), if you, any of the Franchisee's
owners or any affiliate of any of the foregoing:
(1) fail to report accurately the Gross Sales of your Plantation
Store (or fail to submit, in fully accurate and complete form and when
required, any other report due under this Agreement, any lease/sublease
or otherwise) or fail to make payments of any amounts due us, any
affiliate and/or any supplier/creditor of yours and do not correct such
failure within ten (10) calendar days after written notice is mailed to
you;
(2) cause or permit to exist any default under the lease or
sublease for the Premises and fail to cure such default within the
applicable cure period set forth in the lease or sublease; fail to
remain current in your obligations to taxing authorities, landlords,
equipment lessors, suppliers or others; or fail to comply with any other
provision of this Agreement (or any other agreement with us and/or any
affiliate of ours) or any specification, standard or operating procedure
or rule prescribed by us not providing for a shorter notice period; and,
in any such case, do not: (a) correct such failure within thirty (30)
calendar days after written notice of such failure to comply is mailed
to you; or (b) if such failure cannot reasonably be corrected within
such thirty (30) day period, undertake within thirty (30) calendar days
after such written notice is mailed to you, and diligently continue
until completion, efforts to bring your Plantation Store into full
compliance and furnish, at our request, proof acceptable to us of such
efforts and the date full compliance will be achieved; provided that, in
any event, such defaults must be fully cured within ninety (90) calendar
days after such written
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notice is mailed to you
YOUR INITIALS: __________ / __________
16.3 REPEATED DEFAULTS. Your rights and our obligations under this
Agreement will terminate immediately upon notice to you and without opportunity
to cure, if you or any affiliate fails on two (2) or more separate occasions
within any period of twelve (12) consecutive months, or on three (3) or more
separate occasions within any period of twenty-four (24) consecutive months, to
comply with any provisions (whether the same or different) of this Agreement
(and/or any other agreement with us and/or any of our affiliates) and/or the
Manuals, whether or not such failures to comply are timely corrected.
YOUR INITIALS: __________ / __________
16.4 CROSS-DEFAULTS, NON-EXCLUSIVE REMEDIES, ETC. Any default by you (or
any person/company affiliated with you) under this Agreement may be regarded as
a default under any other agreement (including, but not limited to, any lease
and/or sublease) between us (or any affiliate of ours) and you (or any affiliate
of yours) and any default by you (or any person/company affiliated with you)
under any other agreement (including, but not limited to, any lease and/or
sublease) between us (or any affiliate of ours) and you (or any person/company
affiliated with you) may be regarded as a default under this Agreement, in each
case with us (and any affiliate of ours) to have all remedies allowed at law,
including termination of your rights (and/or those of any person/company
affiliated with you) and our (and/or our affiliates') obligations. No right or
remedy which we may have (including termination) is exclusive of any other right
or remedy provided under law or equity and we may pursue any rights and/or
remedies available.
YOUR INITIALS: __________ / __________
16.5 NO EQUITY ON TERMINATION, ETC. Your ownership of the Franchise is
controlled by the provisions of this Agreement and you will have no equity or
other continuing interest in the Franchise, any goodwill associated with it or
otherwise, or any right to compensation, return of amounts paid or otherwise, at
the expiration and/or termination of the term of the Franchise.
16.6 EXTENDED CURE PERIOD. Notwithstanding anything contained herein to
the contrary, where we have the right to
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[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COFFEE
PEOPLE, INC. ANNUAL FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-27-1998
[PERIOD-START] JUN-29-1997
[PERIOD-END] JUN-27-1998
<EXCHANGE RATE> 1
[CASH] 2,822
[SECURITIES] 0
[RECEIVABLES] 4,418
[ALLOWANCES] 1,156
[INVENTORY] 4,052
[CURRENT-ASSETS] 13,470
[PP&E] 15,637
[DEPRECIATION] 2,926
[TOTAL-ASSETS] 55,695
[CURRENT-LIABILITIES] 8,193
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 44,630
[OTHER-SE] (338)
[TOTAL-LIABILITY-AND-EQUITY] 55,695
[SALES] 29,016
[TOTAL-REVENUES] 35,051
[CGS] 19,296
[TOTAL-COSTS] 19,296
[OTHER-EXPENSES] 14,558
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 46
[INCOME-PRETAX] 1,466
[INCOME-TAX] 728
[INCOME-CONTINUING] 738
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 738
[EPS-PRIMARY] .09
[EPS-DILUTED] .09
</TABLE>
<PAGE> 55
terminate this Agreement, we shall have the right, to be exercised in our sole
and absolute discretion, to grant to you, in lieu of immediate termination of
this Agreement, an extended period of time to cure the breach which gave rise to
our right to terminate, but in no event shall such extended cure period be less
than thirty (30) days, nor more than six (6) months, from the last day of the
cure period otherwise applicable to such breach. You acknowledge that our
election to grant such an extended cure period shall not operate as a waiver of
any of our rights hereunder and that, in consideration for and at the time of
such an extension, you and each owner and/or affiliate of yours will execute a
general release of all claims, known or unknown, by or on behalf of you and/or
any owner and/or any affiliate of yours against us and/or any or all of the
Franchisor-Related Persons/Entities and if you fail to execute such a release,
the grant of such an extension will, in itself, constitute such a release.
YOUR INITIALS: __________ / __________
16.7 MANAGEMENT OF THE STORE AFTER ISSUANCE OF NOTICE OF DEFAULT. If we
issue a notice of default, we will have the right, in addition to our other
rights and remedies, (but no obligation) to appoint a manager to operate your
Plantation Store until you have cured all defaults. In addition to all other
amounts due us and/or any affiliate and/or supplier, you will pay all costs in
connection therewith, including salary, normal corporate benefits, travel,
meals, lodging and incidental expenses during such management period. All funds
from the operation of the Plantation Store during the period of management by us
will be kept in a separate fund and all expenses of the Plantation Store,
including compensation, other costs and travel and living expenses of our
appointed manager, shall be charged to you and may be paid out of such fund.
Operation of the Plantation Store during any such period shall be for and on
behalf of you; provided that we shall only have a duty to utilize reasonable
efforts in the operation of the Plantation Store and shall, in any case, not be
liable to you for any debts, losses or obligations incurred by the Plantation
Store, or to any creditor of yours for any items purchased by the Plantation
Store during any period in which it is managed by us. In the event that the fund
maintained by us is insufficient to pay the expenses of the Plantation Store in
a reasonable business-like manner, we shall so notify you and you shall, within
five (5) business days, deposit in the fund such amounts as shall be required by
us to attain a reasonable balance in the fund. The provisions of this Paragraph
shall not restrict our right to terminate this Agreement as herein provided or
affect any of our indemnity or other rights.
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YOUR INITIALS: __________ / __________
16.8 OUR RIGHT TO DISCONTINUE PROVIDING PRODUCTS TO YOU AFTER ISSUANCE
OF NOTICE OF DEFAULT. if we issue a notice of default, and/or you fail to adhere
to our standard credit terms, or those of our affiliates, with respect to
payment for any goods and/or services, we and/or our affiliates may (1) require
you to pay C.O.D. (i.e., cash on delivery) by certified check until such time as
you correct all such problems or (2) cease providing items to you, in addition
to any other remedies we may have.
YOUR INITIALS: __________ / __________
16.9 OUR RIGHT TO TERMINATE THE FRANCHISE AND RETURN THE INITIAL
FRANCHISE FEE. At any time, and in our sole and absolute discretion, we may
elect to terminate all of your rights, and all of our obligations, under this
Agreement, any lease/sublease and/or otherwise and return to you the initial
franchise fee (or portion thereof) actually paid by you (without interest). In
such a case, you will perform thereafter each of your obligations under this
Agreement, any lease/sublease and/or otherwise with respect to termination
(including all post-term obligations of yours) wherever contained in this
Agreement, any lease/sublease and/or otherwise, including but not limited to
de-identification of your Plantation Store, and promptly deliver to us all
manuals and other material as provided in this Agreement or in the Manuals and
you (and each owner and/or affiliate of yours) will execute a general release,
in form prescribed by us, of any and all claims, liabilities and/or obligations,
of any nature whatsoever, however arising, known or unknown, against us and/or
any or all of the Franchisor-Related Persons/Entities. Your obligations
regarding indemnity and confidentiality and the provisions of this Agreement
relating to dispute avoidance and resolution (including but not limited to all
provisions of Article 19), and our rights with respect to receiving an
assignment of any lease and/or sublease, together with the provisions of Article
23, will survive any expiration, termination or cancellation of this Agreement
and we may take possession of the Premises; provided that in the event of
exercise of our rights under this sub-section, your post-term non-competition
obligations will be canceled and of no further force or effect.
YOUR INITIALS: __________ / __________
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16.10 EXECUTION OF RELEASE ON DEFAULT, ETC. In our sole and absolute
discretion, in any case where you have committed a default under this Agreement,
any lease/sublease and/or otherwise which would allow us to terminate your
rights, we may (but are not required to) waive our rights to collect any
royalties, advertising contributions and other amounts which would have become
due if you had continued in operation as a Coffee Plantation Franchisee and you
will, in consideration for such waiver, execute a general release, in form
prescribed by us, of any and all claims, liabilities and/or obligations, of any
nature whatsoever, however arising, known or unknown, against us and/or any or
all of the Franchisor-Related Persons/Entities. This option may be exercised by
us at any time, including before, at the same time as or after termination,
expiration or otherwise and whether or not you or we have made any claims, or
begun any proceedings, against the other or anyone else.
YOUR INITIALS: __________ / __________
17. RIGHTS AND OBLIGATIONS ON REPURCHASE, TERMINATION AND/OR EXPIRATION OF THE
FRANCHISE OR OTHERWISE.
17.1 TERMINATION OF RIGHTS AND OBLIGATIONS, PAYMENTS OF AMOUNTS OWED,
ETC. Repurchase, termination or expiration of this Agreement will constitute a
termination or expiration of all of your rights and all of our obligations.
You'll pay to us and each of our affiliates, within ten (10) days after the
effective date of any repurchase, termination or expiration of the Franchise, or
such later date that the amounts due are determined, such royalties, marketing
contributions, amounts owed for purchases or otherwise by you (or any affiliate)
from us and/or any affiliate, interest due on any of the foregoing, and all
other amounts owed to us (or any affiliate) which are then unpaid.
YOUR INITIALS: __________ / __________
17.2 MARKS, TRADE DRESS, PHONE LISTINGS, ETC. After any repurchase,
termination or expiration of the Franchise, you will: (1) not directly or
indirectly at any time or in any manner identify yourself or any business as a
current or former Plantation Store, or as a current or former franchisee of or
as otherwise associated with us, or use any Mark or any colorable imitation
thereof in any manner or for any purpose, or utilize for any purpose any trade
name, trademark or service mark or other commercial symbol that suggests or
indicates a connection or association with us; (2) remove all signs containing
any Mark
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and return to us or (at our option) destroy all forms and materials containing
any Mark or otherwise identifying or relating to a Plantation Store; (3) take
such actions as may be required to cancel all fictitious or assumed name or
equivalent registrations relating to your use of any Mark; (4) if you retain
possession of the Premises, you will, at your expense, make such modifications
and alterations, including removal of all distinctive signage, appearance,
physical and structural features associated with the Trade Dress of Plantation
Stores, as may be necessary or appropriate to distinguish the Premises clearly
from its former appearance and from other Plantation Stores as to prevent any
possibility that the public will associate the Premises with Plantation Stores
and any confusion created by such association, and (5) take all actions
necessary or appropriate to transfer any telephone number(s), and any telephone
directory listings, associated with the Marks and/or your Plantation Store to
us.
You acknowledge and agree that (1) we have the sole rights to, and
complete ownership of, all telephone or other service (including home page,
cellular and fax), numbers, directory listings, Internet or similar connections
(including all rights to any "home page" used by you) and/or advertising with
respect to, and/or used in connection with, your Plantation Store business
and/or associated with the Marks, (2) any direction by us is conclusive evidence
of our rights in and to any such service, numbers, directory listings and/or
advertising and (3) we shall have the sole and exclusive right and authority to
direct their amendments, transfers, call-forwarding, terminations or any matters
with respect thereto. You'll execute such documents, and do all other acts, as
may be required by us and/or any service provider to effect a transfer,
call-forwarding or otherwise to us [or such person(s) as we designates] of all
such service (including home page, cellular and fax), numbers, directory
listings and/or advertising; provided that we shall hold such documents until
the earlier of (a) we notify you that you (or any affiliate of yours) are in
default under this Agreement or any other agreement with us (or any affiliate of
ours), (b) this Agreement expires or is terminated, or (c) any repurchase.
You'll pay all amounts, whether due and payable or not, that any service
provider may require in connection with such transfer or otherwise and will sign
all releases and other documents (including those providing that you indemnify
and hold harmless any service provider and us) required by any service provider
and/or us in connection therewith. An Assignment of Phone Number form must be
executed prior to corporate training.
At our option, we may at any time require that any accounts covering any
telephone or other service, numbers, directory listings and/or advertising be in
our name rather than yours,
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with all billings to be sent to us [or such person(s) as we designate] but to be
paid by you within 10 days of submission to you. We may require that you
maintain a deposit with us [or such person(s) as we designate] sufficient to
cover 3 months of reasonably anticipated service, numbers, directory listings
and/or advertising, but in any event no less than $1500, subject to annual
adjustment for inflation as set forth in this Agreement.
We own the list of your customers and may use such list in any way we
wish, both before and after any termination, expiration, repurchase or
otherwise.
You authorize us, and hereby appoint us and any officer of ours, as your
attorney in fact, to direct the telephone company, other service providers and
all listing agencies to transfer the same to us or as we direct, should you fail
or refuse to do so, and such companies may accept this Agreement as conclusive
evidence of our exclusive rights in such telephone numbers, directory listings,
home pages and otherwise and its authority to direct their transfer.
You'll furnish to us, within thirty (30) days after the effective date
of termination or expiration, satisfactory evidence of your compliance with the
foregoing obligations.
YOUR INITIALS: __________ / __________
17.3 CONFIDENTIAL INFORMATION. You agree that on any repurchase,
termination or expiration of the Franchise (without award of a successor
franchise): (1) you will immediately cease to use any Confidential Information
of ours disclosed to or otherwise learned or acquired by you in any business or
otherwise; and (2) you will return to us all copies of the Manuals and any other
confidential materials which have been loaned or made available to you by us.
YOUR INITIALS: __________ / __________
17.4 COVENANT NOT TO COMPETE, CONTINUED CONFIDENTIALITY, ETC.
Notwithstanding any termination, transfer, expiration or repurchase, you'll
continue to observe the confidentiality, non-competition and other restrictions
of this Agreement, including (but not limited to) those of Section 8.11;
provided that if such non-competition restrictions are unenforceable or are
reduced to a level which we, in our sole and absolute discretion, find
unacceptable, we may, in the alternative, require you to pay a
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fee (either on a present value basis or over time, as we select) of one-half
(1/2) of the royalties which would be payable if the business in question was a
franchised Plantation Store, for the three (3) years after termination,
expiration or repurchase, such amount having been jointly selected by you and us
as fair and appropriate damages and in consideration of (1) the difficulty of
accurately predicting actual damages, (2) the fact you will inevitably benefit
in the operation of such business from your training and experience as a
Plantation Store Franchisee, (3) the possible impact on the expansion and
operation of our system, including the expense and difficulty of a sale of a
franchise in the area of operation of such a business and (4) you not having any
rights, nor we having any obligations, under this Agreement or otherwise during
such period.
YOUR INITIALS: __________ / __________
17.5 CONTINUING OBLIGATIONS. All obligations of yours and rights of
ours, including your obligation to pay royalties, advertising contributions and
other amounts, and the provisions of this Agreement with respect to dispute
avoidance and resolution (including, but not limited to, those of Article 19),
together with the provisions of Article 23, and all other obligations of yours
and rights of ours which expressly or by their nature survive the transfer,
repurchase, expiration or termination of this Agreement or the Franchise
(including, but not limited to, your indemnity, confidentiality and
non-competition obligations), will continue in full force and effect subsequent
to and notwithstanding its expiration or termination and until they are
satisfied in full or by their nature expire. All these obligations will apply
notwithstanding any rejection of this Agreement in a bankruptcy proceeding or
otherwise. In any event, our exercise of any rights of termination will not be
our sole remedy and where we have terminated our obligations and/or your rights
under this Agreement by reason of a default of yours, you will not be released
or discharged from, and will be required to pay, your obligations hereunder,
including your obligations to pay minimum and percentage royalties, advertising
contributions and other amounts which would have become due if you had continued
in operation as a Plantation Franchisee and our remedies will include (but are
not limited to) the right to collect the present value of such amounts as of the
date of such termination and to otherwise receive the benefit of our bargain
with you, as well as acceleration of the balances of all promissory notes and
other unpaid amounts owed to us or any affiliates of ours, you and we agreeing
that it would be unjust and damaging to the interests of all Plantation
operators and the integrity of the Coffee Plantation system if a Plantation
Franchisee could utilize a strategy under which he/she would
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default, have his/her rights to use the Names and Marks and System properly
terminated as a result of that default and then entirely escape any financial
consequences related to obligations accruing after the date of termination. If
you continue to operate your business, after termination or expiration, using
any of the Names and/or Marks or any aspect of the System, our remedies will
include (but will not be limited to) recovery of the greater of (a) all profits
or earned by you in the operation of your business after such termination or
expiration or (b) all royalties, advertising contributions and other amounts
which would have been due if such termination or expiration had not occurred. At
any time from the date of this Agreement through and including 120 days after
any termination, cancellation, recission, repurchase or expiration, for any
reason, of your and/or our rights under this Agreement, we may, at our option
and without further consideration, receive an assignment of your leasehold
interest under any lease/sublease of the Premises (and/or any other facilities
from which you operate your Plantation Store and in each case without the
lessor's or sublessor's consent), terminating your rights to the Premises and
assuming the balance of any lease or sublease.
YOUR INITIALS: __________ / __________
17.6 OUR RIGHT TO PURCHASE ANY OR ALL OF THE ASSETS OF YOUR PLANTATION
STORE AT ANY TIME (INCLUDING ON EXPIRATION OR TERMINATION) AT FAIR MARKET VALUE.
At any time (including, but not limited to, on termination by us of our
obligations and/or your rights under this Agreement, or on expiration of this
Agreement), we will have the option (but no obligation), exercisable by giving
written notice thereof, to purchase from you any or all of the assets used in,
or in connection with, your Plantation Store. We may give this notice any time
through ninety (90) days after the effective date of any termination or
expiration. Assets available for purchase by us will include, without
limitation, real property, leasehold interests and/or improvements, equipment,
furniture, fixtures, signs, inventory and/or the lease or sublease for the
Premises. If the premises were not leased to you by us or our affiliates, the
right to an assignment of your lease or sublease for the premises of your
Plantation Store (or, if assignment is prohibited, a sublease for the full
remaining term and on the same terms and conditions as your lease) will be
included as part of the purchase. We'll have the unrestricted right to assign
any option to purchase and/or any related rights. We'll be entitled to all
customary representations, warranties and agreements given by the seller of the
assets of a business, including, without limitation, representations and
warranties as to ownership, condition and title to assets, liens and
encumbrances relating to assets,
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validity of contracts, and liabilities (contingent or otherwise) and including
typical non-competition covenants by the seller and each owner/executive of the
Franchisee. The purchase price will be fair market value, determined in a manner
consistent with reasonable depreciation of leasehold improvements owned by you
and the items purchased, provided that, in any event, the purchase price will
not contain any factor or increment for the Names and Marks or any trademark,
service mark or other commercial symbol used in connection with the operation of
your Plantation Store, any goodwill, going concern value or any franchise
rights, and further provided that we may exclude from the assets purchased any
equipment, furniture, fixtures, signs, inventory or otherwise that do not meet
quality standards for Plantation Stores. There shall be no provision for payment
for leasehold improvements, the title of which shall be governed by the terms of
your lease or sublease for your Plantation Store premises. The length of the
remaining term of the lease or sublease for the Premises of your Plantation
Store will also be considered in determining fair market value of any lease or
sublease to be acquired. If you and we are unable to agree on the fair market
value of any assets, fair market value will be determined by an independent
appraiser selected by you and us, and if you and we are unable to agree on an
appraiser, you and we will each select one appraiser, who together will select a
third appraiser, and the fair market value will be deemed to be the average of
the three (3) independent appraisals. All sales, transfer and/or similar taxes
are to be paid by you. In connection with such purchase, you (and each affiliate
of yours) will execute a general release, in form prescribed by us, of any and
all claims, liabilities and/or obligations, of any nature whatsoever, however
arising, known or unknown, against us and/or any or all of the
Franchisor-Related Persons/Entities.
The purchase price may be paid by us or our assignee in cash or
securities on closing or as follows, pursuant to an unsecured promissory note:
Twenty Percent (20%) of the purchase price will be paid on closing, the second
Twenty Percent (20%) will be paid no later than ninety (90) days after closing,
the third Twenty Percent (20%) no later than one hundred eighty (180) days after
closing, the fourth Twenty Percent (20%) no later than two hundred ten (210)
days after closing, and the final Twenty Percent (20%) no later than two hundred
fifty (250) days after closing (in all cases without interest), provided that if
we require non-competition covenants to be given, the final Forty Percent (40%)
of the purchase price may be paid out in 60 equal monthly installments,
beginning at 30 days after close with no interest. Closing will take place no
later than thirty (30) days after receipt by you of notice of exercise of this
option to purchase, at which time you will deliver instruments transferring to
us or our assignee: (1) good and merchantable title to the
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assets purchased, free and clear of all liens and encumbrances (other than liens
and security interests acceptable to us in our sole and absolute discretion),
and demonstrating that all sales, transfer and/or similar taxes are to be paid
by you through escrow if we so require; (2) all licenses and permits of your
Plantation Store which may be assigned or transferred; and (3) the lease or
sublease for the Premises, if acquired by us. If you cannot deliver clear title
to all of the purchased assets as aforesaid, or in the event there are other
unresolved issues, or we otherwise require in our sole and absolute discretion,
the closing of the sale will be accomplished through an escrow. You and we will,
prior to closing, comply with any applicable bulk sales and/or similar laws.
We'll have the right to set off against and reduce the purchase price by any and
all amounts owed by you (or any affiliate) to us or any affiliate of ours, and
the amount of any encumbrances or liens against the assets or any obligations
assumed by us or we may, in the alternative, require you to pay such amounts in
full at closing. If we exercise this option to purchase, pending the closing of
such purchase as hereinabove provided, we will have the right to appoint a
manager to maintain the operation of your Plantation Store. Alternatively, we
may require you to close your Plantation Store during such period without
removing any assets from the Premises. You'll maintain in force all insurance
policies required pursuant to this Agreement, until the date of closing. Our
rights under this or any other Section may be assigned by us, in our sole and
absolute discretion, to any person or entity we choose.
If such option is exercised, you will forever indemnify and hold us
harmless against, all obligations incurred in connection with the business.
You'll furnish us with a complete list of accounts unpaid by you within ten (10)
days of our notice of intent to exercise this option. We may (but are not
required to) pay these unpaid bills directly to the parties owed and deduct them
from the purchase price in lieu of paying such portion of the purchase price
directly to you.
YOUR INITIALS: __________ / __________
18. TRANSFER
18.1. BY US. This Agreement, and any and/or all of our rights and/or
obligations under it, are fully transferable by us in our sole and absolute
discretion and will inure to the benefit of any person or entity to whom we
transfer it, or to any other legal successor to our interest in this Agreement.
If we transfer this Agreement, or any and/or all of our rights and/or
obligations under it, all past, current and future obligations of us (and of any
of the Franchisor-Related Persons/Entities) to you
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will cease and be forever extinguished.
YOUR INITIALS: __________ / __________
18.2 BY YOU. The rights and duties created by this Agreement are
personal to you (or your owners if the Franchisee is a partnership or
corporation) and we have awarded the Franchise to you relying on the individual
or collective character, skill, aptitude, attitude, business ability and
financial capacity of you or such owners. Accordingly, neither this Agreement
nor the Franchise (nor any interest therein), nor any part or all of the
ownership of the Franchisee or your Plantation Store (or any interest in it or
assets associated with any of the foregoing), may be transferred without our
prior written approval. Any such transfer (or attempted transfer) without such
approval will constitute a breach hereof and convey no rights to, or interests
in, this Agreement, the Franchise, the Franchisee, your Plantation Store, such
assets or otherwise.
The term "transfer" includes (but is not limited to); any voluntary,
involuntary, direct or indirect assignment, sale, gift, pledge, mortgage of, or
any granting of any security or other interest (whether or not controlling) in;
(1) this Agreement; (2) the Franchise; (3) the ownership of the Franchisee; (4)
your Plantation Store; or (5) any assets associated with any of the foregoing. A
transfer also includes (but is not limited to) the following events: (1) any
transfer of ownership of capital stock or any partnership or similar interest;
(2) any merger or consolidation or issuance of additional securities
representing an ownership interest in the Franchisee; (3) any sale of voting
stock of the Franchisee or any security convertible to voting stock of the
Franchisee; (4) any transfer in a divorce, insolvency, corporate or partnership
dissolution proceeding or otherwise by operation of law; (5) any transfer of any
interest in any revenues, profits, rights or assets of your Plantation Store; or
(6) the creation or otherwise of any security or similar interest affecting any
of the foregoing. Any transfer by you (or any of your owners if the Franchisee
is a business entity) to a corporation and/or of any interest in the event of
your death or the death of an owner of the Franchisee, by will, declaration of
or transfer in trust, under the laws of intestate succession, or otherwise will
be governed by all of the provisions on transfer of this Agreement. We may, in
our sole and absolute discretion, deny approval to any transfer involving a
portion of your franchise or a portion of any of the foregoing items.
YOUR INITIALS: __________ / __________
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18.3 CONDITIONS FOR APPROVAL OF ANY TRANSFER BY FRANCHISEE, ETC. Any
transfer by or on behalf of you and/or any entity affiliated with and/or
controlled by you will be subject to all of the conditions specified below and
anywhere else in this Agreement (each of which you and we agree are reasonable),
together with such other terms and conditions as are reasonable in the specific
circumstances of the proposed transfer but, in any event, we may refuse consent
to any transfer if, in our sole and absolute discretion, the proposed transferee
is, has been or will be associated with a Similar Business or if they do not
meet our then-current financial, experience and other standards for issuance of
an Coffee Plantation(R) Franchise directly by us. A transfer of ownership,
possession or control of your Plantation Store or any of its assets may only be
made in conjunction with a transfer of the Franchise.
All of the following conditions must be met prior to, or concurrently
with, the effective date of any transfer unless we require you to meet them
earlier. We may waive any condition in our sole and absolute discretion:
(a) You must be in full compliance with this Agreement, all
leases/subleases and all other agreements between you (including any affiliate)
and us (including any affiliate);
(b) The transferee and its owners must have sufficient business
experience, aptitude and financial resources to operate your Plantation Store,
must be individuals of good moral character and must meet all financial and
other standards then-applied by us in evaluating prospects to whom we might
award a Plantation Store franchise in the then-current business and competitive
environment;
(c) All of your obligations (including all obligations of any
entity affiliated with and/or related to you) to us (including any entity
affiliated with and/or related to us) must be expressly assumed by the
transferee;
(d) You must pay all royalties, marketing contributions, and
other amounts owed by you (including any entity affiliated with and/or related
to you) to us (including any entity affiliated with and/or related to us) which
are then unpaid (the balances of all promissory notes and other unpaid amounts
owed to us and/or any affiliates of ours shall be accelerated and paid in full),
all obligations to third parties arising out of the operation of your Plantation
Store must be satisfied or assumed by the transferee and your Plantation Store
and its operations must have been brought into full compliance with the
specifications and standards then applicable for new
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and/or renewing Plantation Stores, including compliance with all then-current
standards for facility design, furniture, equipment, software, signage,
provision of goods and services, methods of operation and other Coffee
Plantation System Standards, plus such renovation and modernization of the
Plantation Store as we may require to reflect the then-current standards and
image of the System, all at your (or the transferee's) sole expense;
(e) You must submit all required reports, financial statements
and other documents due us up to the effective date of the transfer;
(f) You must have complied with all of the provisions of this
Agreement, any amendment or successor hereto, and all other agreements between
you and us, our subsidiaries, affiliates or divisions, and, at the time of
transfer, shall not be in default thereof;
(g) The transferee and its personnel must (at our option)
complete or agree to complete our training program to our satisfaction;
(h) The transferee must obtain, within the time limits set by us,
and maintain thereafter, all permits, licenses and insurance required for the
operation of the franchised business;
(i) You and the transferor(s) must remain liable for all
obligations to us, our subsidiaries, affiliates, and divisions, in connection
with the franchised business prior to, through and after the effective date of
the transfer and shall execute any and all instruments reasonably required by us
to evidence such liability;
(j) To the extent required by the terms of any leases or other
agreements, the lessors or other parties must have consented to the proposed
transfer;
(k) The transferee must assume all of your duties and obligations
to us (and any affiliate of ours) and, at our option, (a) agree to be bound by
all terms and conditions of this Agreement (and any lease/sublease) for the
remainder of its term or (b) execute our then-current form of franchise
agreement and ancillary documents (including lease/subleases and guarantees) as
are then customarily used by us in the award of franchises for Plantation Stores
(which may, among other things, provide for higher royalties, marketing
contributions and materially different rights and obligations than are provided
in this Agreement) provided, however, that the term thereof will not be greater
than the remaining term of this Agreement and no initial franchise fee will be
required;
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(l) You or the transferee must pay us a non-refundable transfer
fee of equal to ten percent (10%) of the total value paid or to be paid to you
or any affiliate in connection with the transfer (subject to a $10,000 minimum,
subject to adjustment for inflation as described in this Agreement), provided
that we may reduce, defer or waive such fee in individual cases in our sole and
absolute discretion. Such fee must be deposited with us on a non-refundable
basis on your notification to us of the proposed transfer and prior to our
undertaking any review, drafting of documents or other activities;
(m) You and each of your owners and/or affiliates [and the
transferee (and each owner and/or affiliate of the transferee) if the transferee
or such owner and/or affiliate is or has been a franchisee of, or had any other
relationship with, us or any of the Franchisor-Related Persons/Entities] must
execute a general release, in a form prescribed by us, of any and all claims,
liabilities and/or obligations, of any nature whatsoever, however arising, known
or unknown, against us and/or any or all of the Franchisor-Related
Persons/Entities;
(n) If you or your owners finance any part of the sale price of
the transferred interest or obtains any security interest in the Franchise, the
franchised business (or any of its assets) or otherwise, you and your owners
(and the transferee) must agree that all obligations of the transferee under or
pursuant to any promissory notes, agreements, security interests reserved and/or
held by you or your owners, or otherwise will be subordinate to the obligations
of the transferee to pay royalties, marketing contributions, and other amounts
due and/or to become due to us and/or any affiliate of ours and otherwise to
comply with this Agreement, the franchise agreement and all other agreements
executed or to be executed by the transferee; provided that, in our sole and
absolute discretion, we may refuse to allow you or anyone else to grant or
receive a pledge, mortgage, lien or any security or similar interest in and/or
to the Franchise, the franchised business (or any of its assets) or otherwise;
(o) Notwithstanding any transfer, your non-competition, indemnity
and confidentiality obligations, and the provisions relating to dispute
resolution (which include, but are not limited to, those of Article 19), as well
as those of Article 23, of this Agreement will survive any transfer;
(p) The transferee must obtain from you an agreement that, to the
maximum extent permitted by law, you will not, for a period of at least three
(3) years following the transfer, either directly or indirectly, or as owner,
partner, director, officer, employee, consultant, agent, manager or stockholder,
disclosed or
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undisclosed owner, officer, agent, employee or in any other capacity whatsoever,
participate or engage, actively or inactively, in any Similar Business or any
other business substantially similar to any business then engaged in by us or
any of our Franchisees, and we shall be named as a third-party beneficiary of
such agreement.
(q) The transfer must be made in compliance with any laws that
apply to the transfer, including state and federal laws governing the offer and
sale of franchises; and
(r) In any event, we may withhold or condition our consent to any
transfer as we deem appropriate based on the circumstances of the transfer or
otherwise.
If we believe, in our sole and absolute discretion, that the terms
and/or conditions of any transfer (including, but not limited to, the price
and/or terms of payment) or any surrounding circumstances would make the
transfer not in the best interests of us, the proposed transferee or the Coffee
Plantation(R) family of Franchisees (for example, if the price to be charged
and/or the terms of payment would be so burdensome as to, in our sole and
absolute discretion, possibly adversely affect the future operations of a
Plantation Store by the proposed transferee) we may (but are not required to)
refuse to consent to such transfer. If we refuse to grant consent for any
reason, your (and the proposed transferee's) sole remedy will be to have such
matter resolved through arbitration and for the arbitrator, if appropriate, to
order consent to be granted, no damages or other relief to be awarded. We may
(but are not required to) candidly discuss all matters related to any transfer
and/or proposed transfer (including our views of the price to be charged and/or
the terms of payment) with you, any proposed transferee and/or otherwise and
will have no liability to you or anyone else regarding such views, discussions
or otherwise. In no case will you or any transferee rely on us to review or
evaluate any proposed transaction (our examination and possible consent not
being an approval or recommendation) and neither we nor anyone else will have
any liability to you, any proposed or actual transferee or otherwise in
connection with our examination and/or possible consent or withholding of
consent, with respect to any transfer and/or proposed transfer or our exercise
of any right of ours (including the right to discuss our views with the proposed
transferee and/or withhold consent), you agreeing to indemnify and hold us
harmless from any liability to you, the proposed transferee or otherwise.
YOUR INITIALS: __________ / __________
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18.4 ADDITIONAL CONDITIONS FOR TRANSFER TO A WHOLLY-OWNED CORPORATION.
Subject to compliance with all other requirements of this Agreement relating to
transfer(including execution of a general release, in form prescribed by us, of
any and all claims, liabilities and/or obligations, of any nature whatsoever,
however arising, known or unknown, against us and/or any or all of the
Franchisor-Related Persons/Entities and satisfying all payment and transfer fee
requirements; provided that if such transfer is made within 90 days of the date
of this Agreement, all but $750 (subject to adjustment for inflation as
described in this Agreement) of the transfer fee will be waived), if you're in
full compliance with this Agreement, we won't withhold our consent to a transfer
of this Agreement, the Franchise and your Plantation Store to a corporation
which conducts no business other than your Plantation Store. Such a transfer
will not relieve you of your obligations hereunder, and you'll remain jointly
and severally liable to us for all of your, and such corporation's, past,
current and/or future obligations, under any other agreement(s) (whether past,
current and/or future) with us or any affiliate of ours and/or any franchise,
lease/sublease and/or other agreement(s) to be executed by such corporation.
In addition, any such transfer will be subject to reasonable
restrictions, including but not limited to the following (each of which are
agreed to be reasonable):
(a) The transferee corporation must be newly organized, the
articles of incorporation, bylaws and other organizational documents of such
corporation must recite that the issuance and transfer of any ownership interest
in the corporation are restricted by the terms of this Agreement and must
provide that its activities are confined solely to acting as a Plantation
Franchisee as franchised and in good standing under this Agreement;
(b) You must maintain (and continue to maintain) management
control of the corporation and ownership of at least fifty-one percent (51%) of
the equity and voting power of all issued and outstanding capital stock in the
transferee corporation and to personally manage the affairs of such corporation;
(c) The individual Franchisee (or, if the Franchisee is a
partnership, at least one of the partners) must be and remain the chief
executive officer of the corporation;
(d) The transferee corporation must enter into a written
assignment (in form satisfactory to us) in which such corporation assumes all of
the Franchisee's past,
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current and/or future obligations under this Agreement and any other past,
current and/or future agreement(s) with us and/or any affiliate of ours. At our
option we may, in addition to requiring such assumptions, require such
corporation to execute our then-current form of franchise agreement,
lease/sublease and ancillary documents (including guarantees by the owners of
such corporation) as are then customarily used by us in the award of franchises
for Plantation Stores;
(e) All current and future shareholders of the transferee
corporation must enter into a written agreement (in a form provided or approved
by us) agreeing to comply with this Agreement and any other past, current and/or
future agreement(s) with us and/or any affiliate of ours and jointly and
severally guaranteeing all of the transferee corporation's past, current and/or
future obligations under this Agreement, any lease/sublease and any other past,
current and/or future agreement(s) with us and/or any affiliate of ours;
(f) Each stock certificate of the transferee corporation must
bear a legend reciting or referring to the restrictions of this Agreement,
including those on the issuance and transfer of stock in the transferee
corporation;
(g) No shares of securities of any type in the transferee
corporation may be issued without obtaining our prior written consent, which may
be subject to the restrictions on transfer herein and other reasonable
conditions as we deem appropriate;
(h) All obligations of the Franchisee under this Agreement and/or
any other agreement(s) with us and/or any affiliate of ours (including all
financial and operational compliance matters) must be satisfied prior to the
transfer;
(i) No more than twenty percent (20%), in the aggregate, of the
voting rights of the transferee corporation may ever be owned beneficially or of
record by institutions or publicly held companies;
(j) There shall never be more than 12 owners ("Owners") with
ownership interests in the transferee corporation, or any Franchisee of ours
(married couples and family trusts to be considered together as one for these
purposes);
(k) There will be no public offerings of debt or equity ownership
in or by the transferee corporation;
(l) None of the Owners will, directly or indirectly, engage in,
or have any interest in, any Similar
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Business, except that any Owner may own up to three percent (3%) of the stock of
a publicly-traded Similar Business; and
(m) In any event, the we may withhold or condition our consent to
any transfer as we deem appropriate in our sole and absolute discretion based on
the circumstances of the transfer or otherwise.
Throughout the term of this Agreement, the transferee corporation will
not do any act (including any transfer of assets or otherwise) which would
reduce its net worth to a level not reasonably acceptable to us and no transfer
will take place unless the Franchisee is current in all payments to us, the
Marketing Fund and each of the Franchisor-Related Persons/Entities. The
requirements of this Agreement with respect to a transfer shall similarly apply
to any transfer to a partnership or any other entity.
YOUR INITIALS: __________ / __________
18.5. DEATH OR DISABILITY OF FRANCHISEE. On your death or permanent
disability or, if the Franchisee is a corporation or partnership, on the death
or permanent disability of the owner of a controlling interest in the
Franchisee, the executor, administrator, conservator, guardian or other personal
representative of such person will transfer his or her interest in this
Agreement and the Franchise, or such interest in the Franchisee, to a third
party subject to our consent and all of the provisions of this Agreement with
respect to a transfer and possible exercise of our right-of-first-refusal. Such
disposition of this Agreement and the Franchise, or such interest in the
Franchisee (including, without limitation, transfer by bequest or inheritance),
will be completed within a reasonable time, not to exceed six (6) months from
the date of death or permanent disability and will be subject to all the terms
and conditions applicable to transfers contained in this Agreement. Failure to
so transfer the interest in this Agreement and the Franchise, or such interest
in the Franchisee, within said period of time will constitute a breach of this
Agreement. You shall be deemed to have a "permanent disability" if your
personal, active participation in management of your Plantation Store is for any
reason curtailed for a continuous period of six (6) months.
In the event of your death, disability, absence or otherwise, we can
(but are not required to) operate the franchised business on your behalf and at
your expense for such period of time (and under such terms and conditions) as we
determine, including paying out of the assets and/or revenues of the franchised
business any or all past, current and/or future
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obligations of the franchised business (including any amounts owed to us and/or
any affiliate) in such priorities as we determine from time-to-time in our sole
and absolute discretion. We can pay ourselves a reasonable amount to reimburse
us for our management services and other costs. We can obtain approval of a
court or arbitrator for any such arrangements, the attorney's fees and other
costs incurred in connection with obtaining such approval to be charged against
the assets and/or revenues of the franchised business. We'll be indemnified by
you (and/or your estate) against any costs and/or liabilities incurred by us in
connection with, or related in any way to, the operation (or otherwise) of the
franchised business.
YOUR INITIALS: __________ / __________
18.6 OUR RIGHT OF FIRST REFUSAL. If you or any of the Franchisee's
owners wish to engage in any transfer subject to this Agreement, (a) you or your
owners will obtain a bona fide, executed written offer and deposit [in the
amount of ten percent (10%) or more of the offering price and in the form of a
cashier's check] and (b) a true and complete copy of the offer (and any proposed
ancillary agreements) will immediately be submitted to us by you, the
Franchisee's owners or both, together with a non-refundable deposit of the
transfer fee. The offer must be unconditional (except for our consent) and apply
only to an interest in this Agreement, the Franchise, your Plantation Store or
the Franchisee and must not include the purchase of any other property or rights
of yours (or the Franchisee's owners); but if the offeror proposes to buy any
other property or rights from you (or the Franchisee's owners) under a related
offer, the price and terms of purchase offered to you (or the Franchisee's
owners) for the interest in this Agreement, the Franchise, your Plantation
Store, or the Franchisee will reflect the bona fide price offered therefor and
will not reflect any value for any other property or rights. We may exclude from
the assets purchased hereunder any items that are not approved as meeting
quality standards for Plantation Stores, as well as any portion of the price
attributable to goodwill. If any of the assets to be purchased do not meet the
standards we then apply to new Plantation Stores or you are in default, we can
require that such assets be replaced and/or brought into compliance with our
requirements before the sale is completed, and/or such defaults be cured, and
the time for us to give notice of intent to exercise our right-of-first-refusal
will not begin to run until all such assets have been brought up to such
standard and such defaults cured.
We'll have the right, exercisable by written notice delivered to you or
the Franchisee's owners within thirty (30)
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days from the date of delivery of an exact copy of such offer to us, together
with your deposit of any transfer fee and satisfaction of all other requirements
for our consent to such transfer, to notify you that we have elected to purchase
such interest for the price and on the terms and conditions contained in such
offer (less any portion of the price attributable to goodwill), provided that we
may substitute cash, a cash equivalent, or securities of equal value for any
form of payment proposed in such offer, our credit will be deemed equal to the
credit of any proposed purchaser, and we will have not less than sixty (60) days
from the date you receive our notice of intention to exercise such
right-of-first-refusal to prepare for closing. We'll be entitled to purchase any
interest subject to all customary representations, warranties and agreements
given by the seller of the assets of a business or voting stock of an
incorporated business, as applicable including, without limitation,
representations and warranties as to ownership, condition and title to stock
and/or assets, liens and encumbrances relating to the stock and/or assets,
validity of contracts, and liabilities, contingent or otherwise, of the
corporation whose stock is purchased and including typical non-competition
covenants by the seller and each owner of the Franchisee. In connection with
such purchase, you will sign a general release, in form prescribed by us, of any
and all claims, liabilities and/or obligations, of any nature whatsoever,
however arising, known or unknown, against us and/or any or all of the
Franchisor-Related Persons/Entities. If, for any reason, such transaction is not
consummated within one hundred and twenty (120) days after the date of delivery
of an exact copy of such offer to us, together with your deposit of any transfer
fee and satisfaction of all other requirements for our consent to such transfer,
or if you seek to effect a transaction on terms and conditions, or to any person
or entity, other than as set forth in the offer disclosed to us by you, then the
proposed transaction shall be deemed withdrawn, and all of the provisions of
this Section shall again become fully applicable, as if such transaction had not
been proposed.
If we do not exercise our right-of-first-refusal, you or your owner may
complete the sale to such purchaser pursuant to and on the exact terms of such
offer, subject to the conditions provided in this Agreement, provided that if
there is a material change in the terms of the sale, we will have an additional
right-of-first-refusal for thirty (30) days on the same terms and conditions as
are applicable to the initial right-of-first-refusal. Our rights under this or
any other Section may be assigned by us, in our sole and absolute discretion, to
any person or entity we choose.
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YOUR INITIALS: __________ / __________
18.7 RELEASE, EFFECT OF TRANSFER. In connection with ANY transfer, etc.
of any interest of or by Franchisee (including, but not limited to, an transfer
to a corporation) Franchisee and each of its owners and/or affiliates [and the
transferee (and each owner and/or affiliate of the transferee) if the transferee
or such owner and/or affiliate is or has been a franchisee of, or had any other
relationship with, Franchisor or any of the Franchisor-Related Person/Entities]
must execute a general release, in a form prescribed by Franchisor, of any and
all claims, liabilities and/or obligations, of any nature whatsoever, however
arising, known or unknown, against us and/or any or all of the
Franchisor-Related Persons/Entities.
Our consent to a transfer, or failure to exercise any
right-of-first-refusal, will not constitute a waiver of any claims we may have
against Franchisee (or its owners or affiliates), nor will it be deemed a waiver
of our right to demand exact compliance with any of the terms or conditions of
this Agreement or any other agreement by any transferor or transferee. Unless we
expressly in writing release Franchisee from its obligations under this
Agreement (which we have no obligation to do), Franchisee will remain and be
liable for all of the payment and other obligations under this Agreement (and
any other agreement with us and/or any affiliate) and any Franchise Agreement
and/or other agreement executed by any transferee, including any defaults by any
transferee. Any transfer (including any transfer consented to by us and even if
the transferee executes a new franchise agreement) will not act as a termination
of Franchisee`s confidentiality, indemnity, non-competition and other
obligations under this Agreement, including any obligations which by their
nature survive the term of this Agreement [Franchisee's non-competition
obligations to expressly continue for the full original term of this Agreement
notwithstanding any transfer], or affect Franchisee's and our obligations and
rights under the dispute avoidance and resolution provisions of this Agreement,
including Articles 19 and 23. Any dispute regarding any proposed or completed
transfer (including our alleged failure to consent to a proposed transfer) will
be resolved under the mediation/arbitration provisions of this Agreement and
Franchisee's sole remedy will be an order that we grant consent.
YOUR INITIALS: __________ / __________
19. DISPUTE AVOIDANCE AND RESOLUTION
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19.1 MEDIATION AND MANDATORY BINDING ARBITRATION, WAIVER OF RIGHT TO
TRIAL BY JURY, ETC. Realizing that in business relationships there's always a
possibility of differences of opinion or other disagreements and that what is
most important is to resolve any disputes amicably, quickly, inexpensively and
professionally and to return to business as soon as possible, it's with that
same spirit of cooperation that you and we pledge to resolve differences and to
use the procedures specified in this Agreement (and particularly this Article
19), believing that these procedures will reduce instances of possible disputes
and make the resolution of any disputes which do arise less expensive, quicker,
less subject to public notoriety and achievable in a less formal and
antagonistic means than litigation, as well as to increase the opportunities for
you and we to maintain a mutually beneficial business relationship
Therefore, you and we agree as follows:
(a) Any litigation, claim, dispute, suit, action, controversy,
proceeding or otherwise ("claim") between or involving you (and/or any owner
and/or affiliate of yours or which could be brought by, or on behalf of, you,
any owner and/or affiliate of yours) and us (and/or any claim against or
involving any or all of the Franchisor-Related Persons/Entities or otherwise),
except as expressly provided below at Section 19.1 (e) whether arising out of or
relating in any way to this and/or any other agreement and/or any other
document, any alleged breach of any duty or otherwise (including but not limited
to the underlying legality of the offer and/or sale of any franchise, any action
for rescission or other setting aside of such sale or any transaction, agreement
or document and any claim that this Agreement or any portion thereof is invalid,
illegal, void, unenforceable or otherwise and any claim of fraud, including
fraud in the inducement) and on whatever theory and/or facts based, will be:
(1) First, discussed in a face-to-face meeting between you
(or an individual authorized to make binding commitments on behalf of you) and a
corporate executive of ours authorized to make binding commitments on our
behalf. This meeting will be held at our then-current headquarters and within 30
days after either you or we give written notice to the other proposing such a
meeting.
(2) Second, if, in the opinion of either you or us, the
meeting has not successfully resolved such matters and if desired by any person
or entity involved in the claim, submitted to non-binding mediation for a
minimum of eight hours before (a) Franchise Arbitration and Mediation, Inc.
("FAM") (or an
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organization designated by FAM) or (b) any other mediation organization approved
by all such persons and/or entities or (c) by Judicial Arbitration and Mediation
Service (JAMS) if FAM cannot conduct such mediation and the parties cannot agree
on a mediation organization. On election by any party, arbitration and/or any
other remedy allowed by this Agreement may proceed forward at the same time as
mediation. In the mediation, you and we shall each be represented by an
individual authorized to make binding commitments on your and our respective
behalfs and may be represented by counsel. In addition, you and/or we may, with
permission of the mediator, bring such additional persons as are needed to
respond to questions, contribute information and/or participate in the
negotiations. The fees and expenses of the mediator and/or mediation
organization shall be shared equally by you and we. The mediator shall be
disqualified as a witness, consultant, expert or counsel for any party with
respect to the dispute and any related matters.
(3) Third, if neither you nor we desire mediation (or if
such mediation is not successful in resolving such claim), submitted to and
finally resolved by binding arbitration before and in accordance with the
arbitration rules of FAM (or any successor organization); provided that if such
arbitration is unable to be heard by FAM for any reason, the arbitration will be
conducted by Judicial Arbitration and Mediation Service (JAMS.) The fees and
expenses of the arbitrator(s) and/or arbitration organization shall be shared
equally by the disputants. In each case, the parties to any
mediation/arbitration will execute appropriate confidentiality agreements,
excepting only such public disclosures and filings as are required by law.
(b) Any mediation/arbitration (and any appeal of arbitration)
will be exclusively conducted at our then-current headquarters, to facilitate
participation of important individuals and availability of documents, etc. to
the resolution of the matter, and by a mediator/arbitrator experienced in
franchising. You and we acknowledge the critical importance of a single source
for decisions in arbitration (and in any court actions) to guide you and us, to
eliminate the possibility of inconsistent decisions and awards which could
adversely affect the uniform development and administration of the Coffee
Plantation System and group of companies and to maximize the opportunity for the
arbitrator to give due consideration to your and our ongoing practical business
needs in this regard. Except as expressly provided below, the parties to any
mediation or arbitration will bear their own costs, including attorney's fees.
Any claim, and any mediation/arbitration, will be conducted and resolved on an
individual basis only and not on a class-wide, multiple plaintiff or similar
basis. On request of any party to a claim, the arbitrator may be required to
issue a written award, specifying the facts found and the law applied, but the
party so
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requesting will bear the fees and charges incurred in connection therewith. The
arbitrator may award or otherwise provide for temporary restraining orders,
preliminary injunctions, injunctions, attachments, claim and delivery
proceedings, temporary protective orders, receiverships and other pre-judgment,
equitable and/or interim relief as appropriate pending final resolution by
binding arbitration of a claim, as well as in connection with any such final
resolution, and may issue summary orders disposing of all or part of a claim at
any point. Each party consents to the enforcement of such orders, injunctions,
etc. by any court having jurisdiction. In any arbitration, any and all pre-trial
discovery devices (including, but not limited to, depositions, written
interrogatories, requests for admission, and requests for production, inspection
and copying of documents) will be available to the disputants as if the subject
matter of the arbitration were pending in a civil action before a court of
general jurisdiction in the state whose law is to be applied under Section
19.14. The arbitrator shall have the power to order compliance with such
discovery procedures, as well as assess sanctions for non-compliance with any
order. The arbitrator (rather than a court) shall decide any questions relating
in any way to the parties' agreement (or claimed agreement) to arbitrate,
including but not limited to applicability, subject matter, timeliness, scope,
remedies and any alleged fraud in the inducement, or otherwise. Each participant
must submit or file any claim which would constitute a compulsory counterclaim
(as defined by the applicable rule under the Federal Rules of Civil Procedure)
within the same proceeding as the claim to which it relates. Any such claim
which is not submitted or filed in such proceeding will be forever barred. Any
offers, discussions, negotiations, mediations or otherwise in connection with
possible settlement or other resolution of any claim may not be introduced in
evidence (or for any other purpose) in any arbitration proceeding, court
proceeding or otherwise.
(c) If any party to an arbitration wishes to appeal any final
award by an arbitrator (there will be no appeal of interim awards or other
interim relief), that party can appeal, within thirty (30) days of such final
award, to a three (3) arbitrator panel to be appointed by the same organization
as conducted the arbitration, such panel to conduct all proceedings at the same
location as specified in subsection (b) above. The issues on appeal will be
limited to the proper application of the law to the facts found at the
arbitration and will not include any trial de novo or other fact-finding
function. The party requesting such appeal must pay all costs and fees charged
by such arbitration appeal panel and/or arbitration organization in connection
with such appeal, as well as posting any bond deemed appropriate by such
arbitration organization or arbitration
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appeal panel. In addition, a party requesting appeal, and who does not prevail
on appeal, will pay the other party's (or parties') attorneys' fees and other
costs of responding to such appeal.
(d) Judgment on any preliminary or final arbitration award
[subject to the opportunity for appeal as contemplated above] may be entered in
any court having jurisdiction and will be binding, final and non-appealable.
(e) The obligation herein to mediate and/or arbitrate will not be
binding on us with respect to claims or issues relating primarily to (i) the
validity of any trademarks, service marks or other intellectual property of our,
(ii) our rights to obtain possession of any real and/or personal property
(including any action in unlawful detainer, ejectment or otherwise) (iii) our
rights to obtain a writ of attachment and/or other pre-judgment remedies and/or
(iv) our rights to receive and enforce a temporary restraining order,
preliminary injunction, permanent injunction or other equitable relief, and our
exercise of any such rights and/or remedies will not be deemed a waiver of our
rights to require or use mediation and/or arbitration.
(f) Notwithstanding any provisions of this Agreement or otherwise
relating to which state or provincial laws this Agreement will be governed by
and construed under, all issues relating to arbitrability and/or the enforcement
of the agreement to arbitrate contained herein will be decided by the arbitrator
(including all claims that this Agreement in general, and/or the within
agreement to arbitrate, was procured by fraud in the inducement or otherwise)
and will be governed by the Federal Arbitration Act (9 U.S.C. Section 1 et seq.)
and the federal common law of arbitration. Notwithstanding any provisions of
state law to the contrary, Franchisor intends to fully enforce the provisions of
this franchise agreement and other documents, including all venue,
choice-of-laws and mediation/arbitration provisions, and to rely on federal
preemption under the Federal Arbitration Act (9 U.S.C. Section 1 et seq.)
(g) Franchisee and Franchisor each knowingly waive all rights to
trial by a court or jury, understanding that arbitration may be less formal than
a court or jury trial, may use different rules of procedure and evidence and
that appeal is generally less available, still strongly preferring (for the
reasons set forth in this section and the following one) mediation and/or
arbitration to resolve any disputes, except as provided in Section 19.1(e).
YOUR INITIALS: __________ / __________
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19.2 VENUE, WAIVER OF RIGHTS TO TRIAL BY JURY, LIMITATION OF DAMAGES,
ETC.
Without in any way limiting or otherwise affecting your and our
obligations regarding mediation/binding arbitration, you and we agree that any
litigation between you and us (and/or involving any owner and/or affiliate of
yours or which could be brought by you or on your behalf and including any
matters involving any of the Franchisor-Related Persons/Entities or otherwise),
whether to enforce an arbitration award or involving any litigation, dispute,
controversy, claim, proceeding or otherwise which is not subject to any
agreement regarding mediation/arbitration (or in the event that a court having
jurisdiction should hold that any agreement regarding mediation and/or
arbitration is not enforceable) or otherwise, and bearing in mind your and our
joint interest in having a single court determine issues in a consistent manner
for application throughout the Coffee Plantation System and not having us or our
Franchisees exposed to inconsistent decisions, will be held exclusively before a
court in the most immediate judicial district encompassing our then-current
headquarters and having subject matter jurisdiction or the United States
District Court encompassing our then-current headquarters (where a basis for
federal jurisdiction exists, all filings, proceedings and otherwise will be
exclusively in such Federal court, in preference to State court), you and we
consenting to the exclusive jurisdiction of such court(s) and WAIVING ALL RIGHTS
TO TRIAL BY JURY. Any claim, and any litigation, will be conducted and resolved
on an individual basis only and not on a class-wide, multiple plaintiff or
similar basis.
So as to achieve many of the advantages which would normally be
associated with arbitration (such as lower expense, more rapid resolution of
controversies, fewer protracted and complex proceedings, reduced instances of
costly and time-consuming appeal, use of a more sophisticated and experienced
trier of fact and law, etc.) and for your and our mutual benefit, you and we
agree that in any litigation, you (and each owner and affiliate of yours) and we
each knowingly waive all rights to trial by jury and, in any arbitration,
litigation or otherwise, you and we each waive any right to recover, and any
rights to make claims for (whether by claim, counter-claim, offset, way of
defense or otherwise), punitive, exemplary, multiple, pain-and-suffering, mental
distress, incidental, consequential, special, lost income and/or profits (except
as expressly provided below) and/or similar damages under any theory whatsoever,
you and we agreeing that such claims are inherently speculative and subject to
abuse, often serving as obstacles to the reasonable resolution or settlement of
a dispute and frequently operating to primarily
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benefit the attorneys involved in the claim, provided that, in any event, we may
recover the then-current value of any initial franchise fees, royalties,
marketing contributions, lease payments and/or other payments you are, or would
be, obligated to make, or would normally make, in the absence of a breach or
termination, to us or any affiliated company, whether under this Agreement or
otherwise, it being your and our intention that we receive the full benefit of
our bargain with you, as wells as any past due payments owed to us and/or any
affiliate. In any event, our maximum liability (combined with the maximum
liability of any of the Franchisor-Related Persons/Entities or any of them)
shall be (collectively) limited to the return to you of the initial franchise
fee actually paid by you and your maximum liability will be limited to the
present value of the royalties, advertising contributions and other amounts
which normally would have been paid by you if the franchise had continued in
existence for its full term and any renewals, together with any past due
payments owed to us and/or any affiliate, but, in any case, there shall be no
limitation on your indemnity and/or similar obligations, whether with respect to
trade accounts, other third-party claims or otherwise. You and we have agreed on
this limitation in recognition of the facts that the calculation of any actual
damages would be exceedingly difficult and subject to speculation and possible
abuse and that the foregoing compromises benefit both of us equally. You agree
that we will not be required to post a bond in order to obtain any injunctive or
other equitable relief or otherwise and that your only remedy if an injunction
or other equitable relief is entered against you will be to obtain dissolution
of such injunction, etc.
The dispute avoidance and resolution provisions of this Agreement
(including, but not limited to, this Article 19 and Article 23) shall apply to
any claims, arbitration, litigation or otherwise between you and us, and/or by
any owner and/or affiliate of yours, or which could be brought by you or on your
behalf, whether against us and/or any or all of the Franchisor-Related
Persons/Entities.
YOUR INITIALS: __________ / __________
19.3 PRIOR NOTICE OF CLAIMS BY YOU. Prior to you taking any legal or
other action against us and/or any of the Franchisor-Related Persons/Entities,
whether for arbitration, damages, injunctive, equitable or other relief
(including but not limited to recision) and whether by way of claim,
counterclaim, cross-complaint, raised as an affirmative defense, offset or
otherwise, you will first give us sixty (60) days prior written notice and
opportunity to cure such alleged act or omission [or, if such
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alleged act or omission cannot reasonably be cured within such sixty (60) day
period, and we are diligently continuing efforts to attempt to cure such alleged
act or omission, such additional time as we are continuing such efforts];
provided that any dispute regarding our withholding consent with respect to a
proposed transfer by you may be immediately submitted to face-to-face meeting,
mediation and arbitration as provided in Section 19.1.
Since you and we share a mutual interest in your possible success and
each believe that it is important that any possible business problems be
addressed as soon as possible, you and we agree that if you have any complaint
regarding our failing to perform any obligation to you (including, but not
limited to, training, marketing, operational support, representations by us or
otherwise) you will promptly advise us in writing of such problem within 90 days
of the problem arising, so that we can have an opportunity to correct the
problem. If you fail to so advise us, you will be forever precluded from taking
any legal or other action against us and/or any of the Franchisor-Related
Persons/Entities, whether for arbitration, damages, injunctive, equitable or
other relief (including but not limited to recision) and whether by way of
claim, counterclaim, cross-complaint, raised as an affirmative defense, offset
or otherwise with regard to the problem.
YOUR INITIALS: __________ / __________
19.4 PERIODS IN WHICH TO MAKE CLAIMS
(a) No arbitration, action or suit (whether by way of claim,
counterclaim, cross-complaint, raised as an affirmative defense, offset or
otherwise) by either you or us will lie or be permitted against the other (nor
by you against any of the Franchisor-Related Persons/Entities), whether for
damages, rescission, injunctive or any other legal and/or equitable relief, in
respect of any alleged breach of this Agreement, or any other claim of any type,
unless such party will have commenced such arbitration proceeding, action or
suit before the expiration of the earlier of:
(1) One (1) year after the date on which the state of facts
giving rise to the cause of action comes to the
attention of, or should reasonably have come to the
attention of, such party; or
(2) One (1) year after the initial occurrence of any act or
omission giving rise to the cause of
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action, whenever discovered.
(b) Notwithstanding the foregoing limitations, where any federal,
state or provincial law provides for a shorter limitation period than above
described, whether on notice or otherwise, such shorter period will govern.
(c) The foregoing limitations may, where brought into effect by
our failure to commence an action within the time periods specified, operate to
exclude our right to sue for damages but will in no case, even on expiration or
lapse of the periods specified or referenced above, operate to prevent us from
terminating your rights and our obligations under this Agreement as provided
herein and under applicable law nor prevent us from obtaining any appropriate
court judgment, order or otherwise which enforces and/or is otherwise consistent
with such termination.
(d) The limitations set forth in subsections (a) and (b) will not
apply to our claims arising from or related to: (1) indemnification by you; (2)
your confidentiality, non-competition or other exclusive relationship
obligations; and/or (3) your unauthorized use of the Name and/or Marks.
YOUR INITIALS: __________ / __________
19.5 WITHHOLDING CONSENT. In no event will you make any claim, whether
directly, by way of set-off, counter-claim, defense or otherwise, for money
damages or otherwise, by reason of any withholding or delaying of any consent or
approval by us. Your sole remedy for any such claim is to submit it to a
face-to-face meeting, mediation and arbitration as described in this Agreement
and, if the face-to-face meeting and mediation fail to resolve the matter, for
the arbitrator to order us to grant such consent. Unless expressly provided
otherwise in this Agreement, approvals and consents may be withheld by us in our
sole and absolute discretion.
YOUR INITIALS: __________ / __________
19.6 SURVIVAL AND CONSTRUCTION. Each provision of this Article 19,
together with the provisions of Article 23, will be deemed to be self-executing
and continue in full force and effect subsequent to and notwithstanding the
expiration, termination, setting aside, cancellation, recision, unenforceability
or otherwise of this Agreement (or any part of it) for any reason,
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and will survive and will govern any claim for recision or otherwise.
Each provision of this Agreement (including but not limited to those
relating to mandatory arbitration, waiver of jury trial, limitation of damages,
prior notice of claims, shortened periods in which to bring claims, costs and
attorney's fees, or otherwise) will be construed as independent of, and
severable from, every other provision and if any provisions are deemed to be
unenforceable in any way, such provisions will be modified or interpreted to the
minimum extent necessary to have them comply with the law (including making such
provision mutual in effect) and the remaining provisions of this Agreement will
remain in full force and effect, the parties agreeing that the unenforceability
of any provisions of this Article 19 (or otherwise) will not affect the
remainder of this Article 19 (or otherwise), notwithstanding any statutory or
decisional law to the contrary.
Each party reserves the right to challenge any law, rule or judicial or
other construction which would have the effect of varying or rendering
ineffective any provision of this Agreement. The benefits and protections of
this Agreement which apply to us (including, but not limited to, all provisions
relating to indemnification and/or releases) shall also apply to any past,
current and/or future Franchisor-Related Persons/Entities as if they were
expressly named beneficiaries of such provisions. In each case where we may
exercise any option or other right, we may do so in our sole and absolute
discretion, without liability or other obligation. So as to preserve the
flexibility to deal with practical business situations (which you and we agree
should benefit our businesses in the long term), we may, in our sole and
absolute discretion, elect to not enforce (or to selectively enforce) any
provision of this Agreement, or any other agreement, any policy or otherwise,
whether with respect to you and/or any other franchisee or otherwise, and we may
apply different policies to any franchisee, all without liability or other
obligation and any such acts or omissions will not limit or otherwise affect our
rights, whether to enforce this Agreement or otherwise.
YOUR INITIALS: __________ / __________
19.7 COSTS AND ATTORNEYS' FEES. Except as expressly provided otherwise
in this Agreement with respect to appeal of an arbitration award or otherwise,
and based on your and our judgment that attorney's fees provisions often operate
to primarily benefit the attorneys involved in any claim and/or to
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encourage specious claims to the detriment of everyone involved in a franchise
system, the parties will each bear their own costs of enforcement and/or defense
(including but not limited to attorney's fees) in any claim or dispute between
you and us (including you and/or our affiliates, related persons/entities, etc.)
and will make no claim with regard thereto.
YOUR INITIALS: __________ / __________
19.8 VALIDITY AND EXECUTION. This Agreement will become valid only when
executed and accepted by us at our headquarters.
YOUR INITIALS: __________ / __________
19.9 BINDING EFFECT, MODIFICATION AND REPRESENTATIONS. This Agreement is
binding on the parties hereto and their respective executors, administrators,
heirs, assigns, and successors in interest, and will not be modified or
supplemented except by means of a written agreement signed by both you and our
President or one of our Vice Presidents, provided that changes to the Manual may
be made by us at any time and will be fully binding on you notwithstanding any
provisions of this Section or otherwise. No other officer, field representative,
salesperson or other person has the right or authority to sign on our behalf, to
make oral or written modifications to this Agreement, or to make any
representations or agreements on behalf of us, and any such modifications,
representations and/or agreements shall not be binding on us. Similarly, other
than any of the individual Franchisee(s) (or any partner or corporate officer of
Franchisee, if Franchisee is a partnership or corporation), no person has the
right or authority to sign on behalf of Franchisee, to make oral or written
modifications to this Agreement on behalf of Franchisee, or to make any
representations or agreements on behalf of Franchisee, and any such
modifications, representations and/or agreements shall not be binding on
Franchisee. You expressly acknowledge that no oral promises, representations or
declarations were made to or relied on by you and that our obligations are
confined exclusively to the terms herein. You understand and assume the business
risks inherent in the franchised enterprise.
YOUR INITIALS: __________ / __________
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19.10 CONSTRUCTION, ETC. Except as expressly provided otherwise, nothing
in this Agreement is intended, nor will be deemed, to confer any rights or
remedies on any person or legal entity not a party hereto. Except where this
Agreement expressly provides otherwise, we have the right to condition, withhold
and/or refuse, in our sole and absolute discretion, any request by you and our
approval of, or consent to, any action or omission by you. The headings of the
several Articles and Sections hereof are for convenience only and do not define,
limit, or construe the contents of such Articles or Sections. The term
"attorneys' fees" will include, without limitation, legal fees, whether incurred
prior to, in preparation for or in contemplation of the filing of any written
demand or claim, action, hearing or proceeding to enforce the obligations of
this Agreement. References to a "controlling interest" in the Franchisee will
mean fifty percent (50%) or more of the voting control of the Franchisee if the
Franchisee is a corporation, and any general partnership interest if the
Franchisee is a partnership. The term "you" as used herein is applicable to one
or more persons, a corporation or a partnership, as the case may be. The
singular usage includes the plural and the masculine and neuter usages include
the other and the feminine. If two or more persons are at any time the
Franchisee hereunder, whether or not as partners or joint venturers, their
obligations and liabilities to us will be joint and several. This Agreement will
be executed in multiple copies, each of which will be deemed an original. Each
of the provisions of this Agreement (including Articles 19 and 23) apply to any
claim brought (or which could be brought) by any owner and/or affiliate of yours
or by or on your behalf. If any limitation on your rights (including, but not
limited to, any limitation on damages, waiver of jury trial, shortened period in
which to make any claim or otherwise) is held unenforceable with respect to you,
then such limitation will not apply to us. We shall have the sole right to
enforce the obligations of this (or any other) Franchise (or other) Agreement
and neither you nor any other franchisee of ours shall be deemed a third party
beneficiary with respect to this or any other agreement.
You and we, each believing that (1) having written documents as the only
basis for their legal relationship benefits each equally and reduces the risk of
uncertainty in what should be a long-term business relationship and (2) this
Agreement should be strictly interpreted according to its express terms, and
each having a concern with (among other things) an approach whereby a court or
arbitrator might impose (or limit or expand) duties on either that were not
expressly agreed to in writing by you and us, agree that you and we mutually
waive any "implied covenant of good faith and fair dealing" and that no such (or
similar) doctrine, rule of interpretation or otherwise will have any application
to your and our relationship, this Agreement or any
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other agreement between you and us (or any affiliate or Franchisor-Related
Persons/Entities) nor will affect our ability to make binding changes to the
Coffee Plantation System, the Manual(s) or otherwise. Neither you nor we have
any expectation that your or our rights and obligations will be otherwise than
as expressly set forth in this Agreement or that where any contractual provision
allows you or us any discretion in action or otherwise, the exercise of that
discretion will be limited in any way. You agree that we will not be liable for
any act or omission, whether with respect to the Marketing Fund or otherwise,
which is consistent with this Agreement or other information provided to you, or
which is done in subjective good faith. No course of dealing between you and us,
nor any course of dealing or agreement between us and anyone else, past, present
or future, will affect your or our rights under this Agreement or otherwise.
When we use the phrase "sole and absolute discretion" (or any similar phrase or
concept), whether in this Agreement or otherwise, you agree that there will be
absolutely no limitation (including, but not limited to, any "implied covenant
of good faith and fair dealing" or otherwise) on our completely unrestrained
ability and right to exercise that discretion in any way we choose.
If any applicable and binding law or rule of any jurisdiction requires a
greater prior notice of the termination of, or refusal to renew, this Agreement
than is required hereunder, or the taking of some other action not required
hereunder, or if under any applicable and binding law or rule of any
jurisdiction, any provision of this Agreement or any specification, standard or
operating procedure prescribed by us is invalid or unenforceable, the prior
notice and/or other action required by such law or rule shall be substituted for
the comparable provisions hereof, and we will have the right, in our sole and
absolute discretion, to modify such invalid or unenforceable provision,
specification, standard, or operating procedure to the extent required to be
valid and enforceable. You agree to be bound by any promise or covenant imposing
the maximum duty permitted by law which is subsumed within the terms of any
provision hereof, as though it were separately articulated in and made a part of
this Agreement, that may result from striking from any of the provisions hereof,
or any specification, standard or operating procedure prescribed by us, any
portion or portions which a court may hold to be unenforceable in a final
decision to which you are a party, or from reducing the scope of any promise or
covenant to the extent required to comply with such a court order. Such
modifications to this Agreement shall be effective only in such jurisdiction,
unless we elect to give them greater applicability, and shall be enforced as
originally made and entered into in all other jurisdictions.
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You will have no right to enforce any obligation of our or any other
person/entity (including, but not limited to, any other Coffee Plantation(R)
Franchisee) under, and you will not be deemed a third party beneficiary of, any
other Franchise Agreement, other agreement or otherwise.
YOUR INITIALS: __________ / __________
19.11 NON-RETENTION OF FUNDS. You do not have the right to offset or
withhold payments owed to us (and/or any affiliate) for amounts purportedly due
you (or any affiliate of yours) from us, the Franchisor-Related Persons/Entities
and/or any affiliate as a result of any dispute of any nature or otherwise, but
will pay such amounts to us (or our affiliate) and only thereafter seek
reimbursement in accordance with the provisions of Article 19. If you believe
that we or any other person/entity has violated any legal duty to you, you will,
notwithstanding such dispute, pay as designated all sums specified under this
Agreement or any other agreement, whether to be paid to us or the
Franchisor-Related Persons/Entities (including royalties, any unpaid portion of
the initial franchise fee, any marketing contributions and/or amounts payable to
franchisee councils and/or cooperatives, rent or otherwise) and will not
withhold any payments until and unless such dispute has been finally determined
in your favor.
YOUR INITIALS: __________ / __________
19.12 SEVERABILITY; SUBSTITUTION OF VALID PROVISIONS. Except as
otherwise stated in this Agreement, each provision of this Agreement, and any
portion of any provision, is severable (including, but not limited to, any
provision affecting any rights to recovery for breach of any legal obligation,
including but not limited to waiver of statutory benefits such as rights to jury
trial, exemplary or punitive damages, recovery of attorney's fees and/or
shortening of statutes of limitations), and the remainder of this Agreement will
continue in full force and effect. To the extent that any provision restricting
your competitive activities is deemed unenforceable, you and we agree that such
provisions will be enforced to the fullest extent permissible under governing
law. This Agreement will be deemed automatically modified to comply with
governing law if such law requires: (a) a greater time period for notice of the
termination of, or refusal to renew, this Agreement; or (b) the taking of some
other action not described in this Agreement. We may modify
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any invalid or unenforceable provision to the extent required to be valid and
enforceable and you will be bound by the modified provisions.
YOUR INITIALS: __________ / __________
19.13 WAIVERS. Our waiver of any breach(es) under this or any other
agreement [whether by failure to exercise a power or right available to us,
failure to insist on strict compliance with the terms, obligations or conditions
of any agreement, development of a custom or practice between you and us (or
others) which is at variance with the terms of any agreement, acceptance of
partial or other payments or otherwise], whether with respect to you or others,
will not affect our rights with regard to any breach by you or anyone else or
constitute a waiver of our right to demand exact compliance by you with the
terms of this Agreement or otherwise. Subsequent or other acceptance by us of
any payments or performance by you will not be deemed a waiver of any preceding
or other breach by you of this Agreement or otherwise. The rights and remedies
provided in this Agreement are cumulative and we will not be prohibited from
exercising any rights or remedies provided under this Agreement or permitted
under law or equity.
YOUR INITIALS: __________ / __________
19.14 CHOICE OF LAWS. Except with respect to the applicability of the
Federal Arbitration Act, 9 U.S.C. Section 1 et seq. and the effect of federal
pre-emption of state law by such Act and except to the extent governed by the
United States Trademark Act and other federal laws, or as provided elsewhere in
this Agreement, you and we agree that this Agreement (including any claims,
counter-claims or otherwise by you) and all other matters concerning you and us
(and/or you and any of the Franchisor-Related Persons/Entities), including your
and our/their respective rights and obligations, will be governed by, and
construed and enforced in accordance with, the laws of the state where your
Plantation Store is, or will be, located, without regard to the laws of such
state relating to conflicts of laws or choice of law; except that the provisions
of any law of that state regarding franchises (including, without limitation,
registration, disclosure, or relationship, and the regulations thereunder) shall
not apply unless such state's jurisdictional, definitional and other
requirements are met independently of, and without reference to, this Section.
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YOUR INITIALS: __________ / __________
19.15 ADVICE OF LAWYERS, ALTERNATIVE INVESTMENT OPPORTUNITIES, ETC. You
acknowledge that you have had the opportunity (and we have strongly advised you)
to have this Agreement and all other documents reviewed by your own attorney and
that you have read, understood, had an opportunity to discuss with us, and
agreed to each provision of this Agreement. You agree that you have been under
no compulsion to sign this Agreement, that you have carefully reviewed and
thought about each provision of this Agreement, that you have considered other
franchise opportunities as well as the possibility of you entering our industry
as a non-franchised participant and that, therefore, this Agreement will be
deemed to have been drafted by you and we in equal parts and that no
presumptions or inferences concerning this Agreement's terms, interpretation or
otherwise will result by reason of the fact that we prepared this Agreement or
may be unwilling (in the interest of consistency of system administration) to
change its terms.
YOUR INITIALS: __________ / __________
20. INDEPENDENT CONTRACTORS AND INDEMNIFICATION
We and you are independent contractors. You shall conspicuously identify
the Franchisee, at the premises of your Plantation Store and in all dealings
with suppliers, as the owner of your Plantation Store. Neither we nor you shall
make any agreements or representations in the name of or on behalf of the other
or that our relationship is other than franchisor and franchisee and neither we
nor you shall be obligated by or have any liability under any agreements or
representations made by the other that are not expressly authorized hereunder,
nor shall we be obligated for any damages to any person or property directly or
indirectly arising out of the operation of your Plantation Store or your
business conducted pursuant to the Franchise. We shall have no liability for any
sales, use, excise, income, property or other taxes levied upon your Plantation
Store or its assets or in connection with the sales made or business conducted
by your Plantation Store.
You're the only one responsible for any damage, loss or other claims
arising out of, or related in any way to, any of your acts, errors or omissions,
whether related to you, your
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employees, agents or representatives, your operations or ownership of your
Plantation Store or otherwise arising. You will indemnify and hold harmless us,
all of Franchisor-Related Persons/Entities, all Coffee Plantation(R) Franchisees
or other operators and/or any of the foregoing, from all fines, suits,
proceedings, claims, demands, actions, loss, damages, costs, fees (including
attorney's fees and related expenses) and/or any other expense, obligation
and/or liability of any kind or nature, however arising, growing out of or
otherwise connected with and/or related to any act, error and/or omission of
yours (including, but not limited to, your ownership and/or operation of your
Plantation Store, any act or omission of your employees and/or agents, and/or
any transfer of any interest in this Agreement, your Plantation Store, the
Franchise, the Franchisee or otherwise.) We'll have the right to control all
litigation, and defend and/or settle any claim, against and/or including us
and/or the Franchisor-Related Persons/Entities or affecting our and/or their
interests, in such manner as we deem appropriate in our sole and absolute
discretion, in each case without affecting our rights under such indemnity.
YOUR INITIALS: __________ / __________
21. NOTICES
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Manuals will be deemed so delivered
at the time delivered by hand, immediately on transmission by facsimile
transmission or other electronic system, including e-mail or any similar means,
one (1) business day after being placed in the hands of a commercial courier
service for overnight delivery, or three (3) business days after placement in
the United States Mail by Registered or Certified Mail, Return Receipt
Requested, postage prepaid and addressed to us at our then-current headquarters,
to the attention of the President, or at our most current principal business
address of which you have been notified in writing, and to you at your
Plantation Store. Until your Plantation Store has opened for business, we may
send you notices at any address appearing in your application for a franchise or
in our records. All payments and reports required by this Agreement will be
directed to us at our address as specified above. Any required payment or report
not actually received by us during regular business hours on the date due will
be deemed delinquent. Notice to any one owner of the Franchisee shall be deemed
effective as to all owners of the Franchisee.
22. EFFECTIVE DATE OF AGREEMENT
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This Agreement shall take effect upon the date of our execution and
delivery of this Agreement to you.
23. ACKNOWLEDGMENTS AND REPRESENTATIONS, ENTIRE AGREEMENT, NO FIDUCIARY
RELATIONSHIP, ETC.
MAKE SURE YOU READ THE FOLLOWING SECTIONS CAREFULLY! THEY'RE IMPORTANT AND ARE
IN THIS AGREEMENT TO BE CERTAIN THAT NEITHER YOU NOR WE HAVE ANY
MISUNDERSTANDINGS OR INAPPROPRIATE EXPECTATIONS.
You and we agree that there does not exist any fiduciary, trust or
similar special relationship between you and us, that the relationship between
you and us is an ordinary commercial relationship between independent
businesspeople intended for mutual but independent economic benefit and is not
in any sense, nor is intended to be, a fiduciary, trust or similar special
relationship, that each party has dealt with each other at arm's length and as
businesspersons with equivalent bargaining power, notwithstanding the
relationship of Franchisor and Franchisee, and that you have alternative
commercial opportunities (some of which are franchised) which you have
investigated and in which you can invest.
YOUR INITIALS: __________ / __________
You acknowledge that you [and each of your owners (if you are a
corporation or partnership) and investors] has read this Agreement and our
Uniform Franchise Offering Circular and all exhibits and that you and they
understand and accept the terms, conditions, and covenants contained in this
Agreement as being necessary to maintain our high standards of quality and
service and the uniformity of those standards at all Plantation Stores and to
protect and preserve the goodwill of the Marks and the System.
YOUR INITIALS: __________ / __________
You and we, each agreeing on the critical practical business importance
of our relationship being governed solely by written documents signed by you and
us (including any concurrently executed written personal guarantees, Statement
of Prospective Franchisee and/or exhibits - schedules - addenda - promissory
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note(s) security agreement(s) or other written documents signed by the party to
be bound thereby, all of which will be deemed to be part of this Agreement for
the purposes of this Section 23) and not wishing to create misunderstandings,
confusion and possible conflict through reference to any alleged prior and/or
contemporaneous oral and/or written representations, understandings, agreements
or otherwise, or any legal doctrines such as "good faith and fair dealing" or
otherwise which might introduce an element of uncertainty into our relationship,
jointly intend, represent, warrant and agree that:
(1) this Agreement contains the final, complete and exclusive expression
of the terms of your and our agreement, and the final, complete and exclusive
expression of your and our intent, and entirely supersedes and replaces any and
all prior and/or concurrent understandings, agreements, inducements, prior
course(s) of dealing, representations (financial or otherwise), promises,
options, rights-of-first refusal, guarantees, warranties (express or implied) or
otherwise (whether oral or written) between you and us,
(2) there are no prior and/or concurrent understandings, agreements,
inducements, course(s) of dealing, representations (financial or otherwise),
promises, options, rights-of-first refusal, guarantees, warranties (express or
implied) or otherwise (whether oral or written) which are not fully expressed in
this Agreement, and
(3) no prior and/or concurrent understandings, agreements, inducements,
course(s) of dealing, representations (financial or otherwise), promises,
options, rights-of-first refusal, guarantees, warranties (express or implied) or
otherwise (whether oral or written) of any kind or nature whatsoever have been
made by us or anyone else, nor have been relied on by you nor will have any
force or effect; excepting only the written representations made by you in
connection with your application for this franchise.
You and we each expressly disclaim any understandings, agreements,
inducements, course(s) of dealing, representations (financial or otherwise),
promises, options, rights-of-first refusal, guarantees, warranties (express or
implied) or otherwise (whether oral or written) which are not fully expressed in
writing in this Agreement. This is equally important to you, as well as us,
since, just as we do not wish to deal with allegations that we may have made or
entered into understandings, representations, etc. not fully expressed in
writing in this Agreement (such as alleged earnings claims), you do not wish to
deal with allegations that you made or entered into understandings,
representations, etc. (such as promises to
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achieve particular sales or royalty payment levels, would open a particular
number of units, etc.) which are not fully expressed in writing in this
Agreement.
YOUR INITIALS: __________ / __________
In particular, you have not been promised, nor have we or anyone else
made any promises, representations and/or warranties, nor have you received or
relied on any promises, representations or warranties, that
(1) any payments by you are refundable at your option,
(2) we will repurchase any rights granted hereunder (or any associated
business) or will be able to assist you in any resale,
(3) you will succeed in the franchised business,
(4) you will achieve any particular sales, income or other levels of
performance,
(5) you will have any exclusive rights of any type other than as
expressly set forth herein,
(6) you will receive any level of advertising (television or otherwise),
marketing assistance, site location, development or other services, operational
assistance or otherwise other than as expressly set forth in this Agreement,
(7) you will not be required to obtain any licenses in order to operate
your Plantation Store,
(8) any location will be successful,
(9) it will be anyone's responsibility other than yours to obtain all
licenses necessary in order to establish and operate your Plantation Store or
(10) that you will be awarded additional or further franchises or other
rights, except as expressly set forth in a written document signed by a
corporate officer of Franchisor.
No contingency, condition, prerequisite, prior requirement, or otherwise
(including but not limited to obtaining financing, obtaining a site or
otherwise) exists with respect to you fully performing any or all of your
obligations under this Agreement.
YOUR INITIALS: __________ / __________
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You have not received or relied on (nor have we or anyone else provided)
any oral or written: sales, income or other projections of any kind or nature or
any statements, representations, data, charts, tables, spreadsheets or
mathematical calculations or otherwise which stated or suggested any level or
range of actual or potential sales, costs, income, expenses, profits, cash flow,
tax effects or otherwise and neither we nor anyone else has made, nor have you
relied on, any promises, representations or warranties as to any profits or
otherwise you may realize in the operation of a Plantation Store, nor have you
received or relied on any representations regarding any working capital or other
funds necessary to reach any "breakeven" or any other financial level. We are
unable, and do not attempt, to predict, forecast or project future performance,
revenues, profits or otherwise of any Plantation Store. If any such information,
promises, representations and/or warranties has been provided to you, it should
not be relied on, we will not be bound by it, and, if you do rely on such
information, promises, representations and/or warranties, you do so at your own
risk.
YOUR INITIALS: __________ / __________
You acknowledge and agree that the success of the business venture
contemplated to be undertaken by you is speculative, is and will be dependent on
your personal efforts, that while we can provide you with systems, methods,
procedures, techniques and other "tools," including the Coffee Plantation System
and otherwise, your success ultimately depends on your efforts, including your
proactive, diligent and thorough knowledge and application of the Coffee
Plantation System, that entry into any business enterprise is always associated
with risk and that no assurance of success has been or can be given to you. You
acknowledge and represent that you have entered into this Agreement and made an
investment only after (1) making an independent investigation of the
opportunity, including having received a list, in connection with the
presentation of our Uniform Franchise Offering Circular, of (and having spoken
with) other franchisees currently operating or who have operated Plantation
Stores, (2) having had an opportunity to have this transaction and all related
documents reviewed by an attorney and a financial advisor of your choosing, such
review having been strongly recommended by us and (3) having independently
researched all applicable licensing and other requirements related to the
operation of your Plantation Store. You
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acknowledge that you and each person signing as Franchisee (and/or having any
investment and/or interest in your Plantation Store) has received, reviewed,
understood and fully read, and all questions have been answered regarding, (1) a
copy of our Uniform Franchise Offering Circular with all exhibits at least ten
(10) business days prior to the earlier of your and/or any such person (a)
signing any binding documents or (b) paying any sums and (2) a copy of this
Agreement and all other agreements complete and in form ready to sign at least
five (5) business days prior to the earlier of you and/or any such person (a)
signing any binding documents or (b) paying any sums. You acknowledge that you
have been given an opportunity to clarify any provision you did not understand
and that the terms, conditions and covenants contained in this Agreement are
reasonable and necessary to maintain our high standards of quality and service
and the uniformity of those standards at all Plantation Stores and thereby to
protect and preserve the goodwill of the Names and Marks and Trade Dress.
YOUR INITIALS: __________ / __________
You understand that we are relying on you to bring forward in writing at
this time any matters inconsistent with any of the matters set forth in this
Section 23 or otherwise so that we can correct any misunderstandings or
inappropriate expectations and you agree that if any of the statements or
matters set forth in this Section 23 or otherwise are not true, correct and
complete you will make a written statement regarding such next to your signature
below so that we may address and resolve any such issue(s) at this time and
before either you or we go forward.
YOUR INITIALS: __________ / __________
You acknowledge and agree that in all of your dealings with the
Franchisor, the officers, directors, employees, and agents of the Franchisor act
only in a representative capacity and not in an individual capacity. You further
acknowledge that this Agreement, and all business dealings between you and such
Individuals as a result of this Agreement, are solely between you and Coffee
People, Inc. and that no other persons or entities, including any of the
Franchisor-Related Persons/Entities, have or will have any duties or obligations
to you. You further represent to us, as an inducement to our entry into this
Agreement, that you have made no misrepresentations in obtaining the Franchise.
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YOUR INITIALS: __________ / __________
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date stated below.
FRANCHISOR: COFFEE PEOPLE, INC.
By: _________________________________
President
FRANCHISEE(S) (INDIVIDUAL):
____________________________________
Name
____________________________________
Signature
____________________________________
Name
____________________________________
Signature
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FRANCHISEE (CORP., LLC OR PARTNERSHIP)
___________________________________
Legal Name of Franchisee Entity
a _______________________ _____________________________________
Jurisdiction of Formation Corporation, LLC or Partnership
By: _________________________________
Name
_________________________________
Signature
Title: _______________________________
Date: _______________________________
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GUARANTY AND ASSUMPTION OF OBLIGATIONS
In consideration of, and as an inducement to, the execution of the above
Franchise Agreement and any Addenda thereto (individually or collectively the
"Agreement") by Coffee People, Inc. ("Franchisor"), each of the undersigned
("Guarantors") hereby personally and unconditionally (1) guarantees to us and
its successors and assigns, for the term of the Agreement and thereafter as
provided in the Agreement, that __________________________________________
("Franchisee") shall punctually pay and perform each and every undertaking,
agreement and covenant set forth in the Agreement and (2) agrees to be
personally bound by, and personally liable for the breach of, each and every
provision in the Agreement. Each of the undersigned waives:
1. acceptance and notice of acceptance by us of the foregoing undertakings;
2. notice of demand for payment of any indebtedness or nonperformance of
any obligations hereby guaranteed;
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed;
4. any right he may have to require that an action be brought against you
or any other person as a condition of liability; and
5. all rights to payments and claims for reimbursement or subrogation which
any of the Guarantors may have against you arising as a result of the
Guarantors' execution of and performance under this guaranty.
6. Each of the undersigned consents and agrees that:
7. his direct and immediate liability under this guaranty shall be joint
and several;
8. he shall render any payment or performance required under the Agreement
upon demand if you fails or refuses punctually to do so;
9. such liability shall not be contingent upon or conditioned upon pursuit
by us of any remedies against you or any other person; and
10. such liability shall not be diminished, relieved or otherwise affected
by any extension of time, credit or the indulgence
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which We may from time to time grant to you or to any other person,
including, without limitation, the acceptance of any partial payment or
performance, or the compromise or release of any claims, none of which
shall in any way modify or amend this guaranty, which shall be
continuing and irrevocable during the term of the Agreement.
If Franchisor is required to enforce this Guaranty and Assumption of
Obligations in any judicial or arbitration proceeding or appeal thereof, the
Guarantors shall reimburse Franchisor for its costs and expenses, including but
not limited to, reasonable accountants', attorneys', attorney assistants',
arbitrators' and expert witness fees, costs of investigation and proof of facts,
court costs, other litigation expenses and travel and living expenses, whether
incurred prior to, in preparation for or in contemplation of the filing of any
written demand, claim, action, hearing or proceeding to enforce this Guaranty
and Assumption of Obligations.
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IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the same day and year as the Agreement was executed.
GUARANTORS
_________________________________
Name
_________________________________
Signature
_________________________________
Name
_________________________________
Signature
WITNESS
_________________________________
Name
_________________________________
Signature
Date: _______________________________
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EXHIBIT 10.24
GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP.
FRANCHISE AGREEMENT
-----------------------------------
Franchisee
-----------------------------------
-----------------------------------
Location
-----------------------------------
Date of Agreement
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C> <C>
1. BUSINESS BACKGROUND AND PRELIMINARY AGREEMENTS 1
2. GRANT AND RENEWAL OF FRANCHISE 2
A. GRANT OF FRANCHISE 2
B. NON-EXCLUSIVITY 2
C. RENEWAL OF FRANCHISE 3
D. MANNER OF RENEWAL 4
E. RELEASES ON GRANTS OF ADDITIONAL, ETC. FRANCHISES 4
3. LOCATION OF STORE 5
4. DEVELOPMENT AND OPENING OF STORE 5
A. LEASE OR SUBLEASE OF PREMISES OF STORE 5
B. DEVELOPMENT OF STORE 6
C. FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES AND SIGNS 6
D. STORE OPENING 6
E. TERMINATION UPON FAILURE OF THE FRANCHISEE
TO OPEN STORE 7
F. GRAND OPENING PROGRAM 7
5. TRAINING AND OPERATING ASSISTANCE 7
A. TRAINING 7
B. HIRING AND TRAINING OF EMPLOYEES BY THE FRANCHISEE 8
C. OPERATING ASSISTANCE 8
6. OPERATING MANUAL 8
7. STORE IMAGE AND OPERATING STANDARD 9
A. CONDITION AND APPEARANCE OF STORE 9
B. ALTERATIONS TO THE STORE 9
C. AUTHORIZED PRODUCTS 9
D. APPROVED BRANDS AND/OR SUPPLIERS 10
E. SUPPLIERS OF GOURMET COFFEE 10
F. USE OF SUPPLIES IMPRINTED WITH NAMES AND MARKS 11
G. STANDARDS OF SERVICE 11
H. DETERIORATED PRODUCTS AND COMPLAINTS 11
I. SPECIFICATIONS, STANDARDS AND PROCEDURES 11
J. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES 12
K. MANAGEMENT OF THE STORE 12
L. CONFLICTING AND COMPETING INTERESTS 13
M. INSURANCE 13
8. PROPRIETARY AND CONFIDENTIAL INFORMATION OF THE FRANCHISOR 14
9. ADVERTISING AND PROMOTION 14
A. BY THE FRANCHISOR 14
B. MARKETING FUND 14
C. BY THE FRANCHISEE 17
</TABLE>
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<TABLE>
<S> <C> <C>
10. STORE RECORDS AND REPORTING 17
A. BOOKKEEPING, ACCOUNTING AND RECORDS 17
B. REPORTS, FINANCIAL STATEMENTS AND TAX RETURNS 18
11. NAMES AND MARKS 19
A. OWNERSHIP OF NAMES AND MARKS 19
B. LIMITATIONS ON THE FRANCHISEE'S USE OF NAMES AND MARKS 19
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS 19
D. DISCONTINUANCE OF USE OF NAME AND/OR MARKS 20
12. INITIAL FRANCHISE FEE 20
13. ROYALTY AND SERVICE FEE 21
A. AMOUNT OF ROYALTY AND SERVICE FEE 21
B. DEFINITION OF "GROSS SALES" 21
C. PAYMENT OF ROYALTY AND SERVICE FEE
AND MARKETING FUND CONTRIBUTION 21
D. INTEREST ON LATE PAYMENTS AND LATE FEES 22
14. INSPECTIONS AND AUDITS 22
A. THE FRANCHISOR'S RIGHT TO INSPECT STORE 22
B. THE FRANCHISOR'S RIGHT TO AUDIT 22
15. TERMINATION OF FRANCHISE 23
A. BY THE FRANCHISOR 23
B. RIGHT OF FRANCHISOR TO MANAGE AFTER
NOTICE OF DEFAULT TO THE FRANCHISEE 24
C. RIGHT OF FRANCHISOR TO DISCONTINUE PRODUCTS TO THE
FRANCHISEE AFTER NOTICE OF DEFAULT TO THE FRANCHISEE 25
D. EXTENDED CURE PERIOD 25
E. FRANCHISOR'S RIGHT TO TERMINATE THE FRANCHISE, RETURN
THE INITIAL FRANCHISE FEE AND ALLOW FRANCHISEE TO COMPETE 25
F. EXECUTION OF RELEASE ON DEFAULT, ETC. 26
G. CROSS-DEFAULTS, NON-EXCLUSIVE REMEDIES, ETC. 26
16. THE FRANCHISEE'S OBLIGATION UPON TERMINATION OR EXPIRATION 26
A. PAYMENT OF AMOUNTS OWED TO THE FRANCHISOR 26
B. RETURN OF MANUALS 27
C. CANCELLATION OF ASSUMED NAMES AND TRANSFER OF PHONE NUMBERS 27
D. FRANCHISOR HAS RIGHT TO PURCHASE STORE 27
E. REPURCHASE OF INVENTORY 28
F. COVENANT NOT TO COMPETE 28
G. CONTINUING OBLIGATIONS 29
17. ASSIGNMENT, TRANSFER AND ENCUMBRANCE 29
A. BY FRANCHISOR 29
B. THE FRANCHISEE MAY NOT ASSIGN WITHOUT
APPROVAL OF THE FRANCHISOR 29
C. ASSIGNMENT TO PARTNERSHIP OR CORPORATION 30
D. FRANCHISOR'S RIGHT OF FIRST REFUSAL 30
E. DEATH OR PERMANENT DISABILITY OF THE FRANCHISEE 31
F. RELEASE, EFFECT OF TRANSFER 31
</TABLE>
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<TABLE>
<S> <C> <C>
18. DISPUTE AVOIDANCE AND RESOLUTION 32
A. MEDIATION AND MANDATORY BINDING ARBITRATION,
WAIVER OF RIGHT TO TRIAL BY JURY, ETC. 32
B. VENUE, WAIVER OF RIGHTS TO TRIAL BY JURY,
LIMITATION OF DAMAGES, ETC. 34
C. PRIOR NOTICE OF CLAIMS BY FRANCHISEE 36
D. PERIODS IN WHICH TO MAKE CLAIMS 36
E. WITHHOLDING CONSENT 37
F. SURVIVAL AND CONSTRUCTION 37
G. COSTS AND ATTORNEYS' FEES 38
H. VALIDITY AND EXECUTION 38
I. BINDING EFFECT, MODIFICATION AND REPRESENTATIONS 38
J. CONSTRUCTION, ETC. 38
K. NON-RETENTION OF FUNDS 40
L. SEVERABILITY; SUBSTITUTION OF VALID PROVISIONS 40
M. WAIVERS 40
N. CHOICE OF LAWS 41
O. ADVICE OF LAWYERS, ALTERNATIVE INVESTMENT OPPORTUNITIES, ETC. 41
19. INDEPENDENT CONTRACTORS AND INDEMNIFICATION 41
20. NOTICES 42
21. EFFECTIVE DATE OF AGREEMENT 42
22. ACKNOWLEDGMENTS AND REPRESENTATIONS,
ENTIRE AGREEMENT, NO FIDUCIARY RELATIONSHIP, ETC. 42
GUARANTY OF OBLIGATIONS 46
</TABLE>
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GLORIA JEAN'S(R)
FRANCHISE AGREEMENT
This Agreement is made and entered into by and between Gloria Jean's
Gourmet Coffees Franchising Corp., an Illinois corporation (hereinafter referred
to as the "FRANCHISOR." "we," "us" or "our"), with its principal office at 11480
Commercial Parkway, Castroville, California 95012, _________________
(hereinafter referred to as the "FRANCHISEE," "you" or "your") whose principal
address is _________________________________________________.
1. BUSINESS BACKGROUND AND PRELIMINARY AGREEMENTS
The FRANCHISOR and its affiliated company, Gloria Jean's Gourmet
Coffees Corp. ("GJGC Corp"), has developed a store offering for retail sale bulk
gourmet coffees, teas, beverages, coffee and tea makers and related supplies,
accessories and gifts (hereinafter referred to as the "PRODUCTS"). These stores
are known as GLORIA JEAN'S COFFEES STORES (hereinafter referred to as a "GJC
STORE(S)"). Most GJC STORES carry beverages for immediate consumption on the
premises, including coffee, espresso, cappuccino and tea. In addition, some GJC
STORES carry pastries, cookies and baked goods and have seating areas. All such
GJC STORES are operated with uniform formats, signs, equipment, layout, systems,
methods, procedures and designs which utilize a unique architectural design,
offer uniform products, and utilize certain trademarks, service marks, trade
dress and other commercial symbols, including "Gloria Jean's Coffees" "Gloria
Jean's Coffee Bean" and "Gloria Jean's." (Such trademarks, service marks and
other commercial symbols are hereinafter referred to as the "Names and Marks.")
GJC STORES operate at locations that feature a distinctive format and method of
doing business, including color scheme, signs, equipment, layouts, systems,
methods, procedures, designs and marketing and advertising standards and formats
(the "GLORIA JEAN'S System"), any element of which FRANCHISOR can modify from
time-to-time in its sole and absolute discretion and with which FRANCHISEE will
promptly comply.
The FRANCHISOR grants to qualified persons franchises to own and
operate a GJC STORE and where appropriate, a Gloria Jean's Coffees Holiday Gift
Center (the "CENTER"), pursuant to the Holiday Gift Center Addendum (the
"HOLIDAY GIFT CENTER ADDENDUM"), which if granted by the FRANCHISOR will become
a part of this Franchise Agreement, subject to the particular terms of the
HOLIDAY GIFT CENTER ADDENDUM, or a Gloria Jean's Coffees Espresso Bar/Kiosk (the
"BAR/KIOSK"), pursuant to the Espresso Bar/Kiosk Addendum (the "BAR/KIOSK
ADDENDUM"), which if granted by the FRANCHISOR will become a part of the
Franchise Agreement offering the PRODUCTS authorized and approved by the
FRANCHISOR
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and utilizing its business systems, formats, methods, specifications, standards,
operating procedures, operating assistance and Names and Marks. The FRANCHISEE
has applied for a franchise to own and operate a GJC STORE or a BAR/KIOSK at the
premises identified in Paragraph A of Section 2 below and such application has
been approved by the FRANCHISOR in reliance upon all of the representations made
therein.
The FRANCHISEE acknowledges receiving and reading this Agreement and
any addenda hereto and the FRANCHISOR's Uniform Franchise Offering Circular
(with all exhibits) at least 10 business days before signing this Agreement
and/or any other binding document, paying any amounts or making any commitments
and has been given an opportunity to clarify any provision the FRANCHISEE did
not understand. The FRANCHISEE further acknowledges that he understands and
accepts the terms, conditions and covenants contained in this Agreement as being
reasonably necessary to maintain the FRANCHISOR's high standards of quality and
service and the uniformity of those standards at all GJC STORES and thereby to
protect and preserve the goodwill of the Names and Marks.
As used in this Agreement, "Franchisor-Related Entities" includes,
collectively and individually, but is not necessarily limited to, the following,
whether past, present or future: Gloria Jean's Gourmet Coffees Franchising
Corp., Gloria Jean's Gourmet Coffees Corp., Edglo Enterprises, Inc., Gloria
Jean's Inc., Coffee People Inc., Second Cup USA Holdings Ltd. and The Second Cup
Ltd., the partners, shareholders, officers, directors, agents, attorneys,
accountants, and/or employees and/or any affiliated companies and/or persons, of
any of the foregoing and each of their respective partners, shareholders,
officers, directors, agents, attorneys, accountants, and/or employees, as well
as any company(ies)/person(s) acting by, through, under or in concert or
affiliated or associated in any way with any of the foregoing, as well as any
past, present and/or future successors and/or assigns of any of the foregoing.
As used in this Agreement, "affiliate" means any past, present or future person,
company or other entity which controls, is controlled by or is under common
control with another person, company or other entity and includes, at present,
Gloria Jean's Gourmet Coffees Franchising Corp., Gloria Jean's Gourmet Coffees
Corp., Edglo Enterprises, Inc., Gloria Jean's Inc., Coffee People Inc., Second
Cup USA Holdings Ltd. and The Second Cup Ltd.
2. GRANT AND RENEWAL OF FRANCHISE
A. GRANT OF FRANCHISE
Subject to the provisions of this Agreement, the FRANCHISOR hereby
grants to the FRANCHISEE a franchise to operate a GJC
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STORE at __________________________________ (hereinafter referred to as the
"STORE"), or a substitute premises hereafter approved (in accordance with
Section 3 below) by the FRANCHISOR, and to use the Names and Marks in the
operation thereof, for a term commencing on the effective date of this Agreement
and ending upon the expiration of the initial or remaining initial term of the
lease or sublease for the premises of the STORE (hereinafter referred to as the
"FRANCHISE"). Termination or expiration of this Agreement shall constitute a
termination or expiration of the FRANCHISE.
B. NON-EXCLUSIVITY
The FRANCHISE is a "spot" franchise only and is awarded for a single
location only, as accepted by FRANCHISOR, with the FRANCHISEE having no other
rights. The FRANCHISEE does not have, and has not paid for, any "exclusive
territory" or any "exclusive," "protected" or "reserved" territorial or other
rights, no such rights are granted or will be inferred and there is, and will
be, no limitation of any type on the rights of the FRANCHISOR or any of the
Franchisor-Related Entities to locate and/or consent to the location of other
GJC STORES or other distribution facilities of any type at any location,
regardless of the distance from, impact on, or vicinity of, the FRANCHISEE'S GJC
STORE or the number of GJC STORES, other outlets or otherwise in any area or
market.
The FRANCHISOR (on behalf of itself and each and all of the
Franchisor-Related Entities) retains all rights with respect to GJC STORES, the
Names and Marks, the sale of PRODUCTS and any other products and services,
anywhere in the world, including, without limitation of any kind or nature: (a)
the right to operate or grant others the right to operate gourmet coffee stores
and/or other coffee beverage facilities at such locations as it deems
appropriate regardless of the proximity to, or impact on, the STORE and on such
terms and conditions as the FRANCHISOR, and/or any of the Franchisor-Related
Entities, in our and their sole and absolute discretion, wish; (b) the right to
roast, develop, wholesale, market, distribute, sell or otherwise PRODUCTS
through any channel of distribution (including, without limitation, mail order,
wholesale and/or retail), to such persons/entities, and under or in association
with the Names and Marks or any other trademark, regardless of the proximity to,
or impact on, the STORE, on such terms and conditions, as the FRANCHISOR and/or
any of the Franchisor-Related Entities, in our and their sole and absolute
discretion, wish; and (c) the right to roast, develop, wholesale, retail,
market, distribute, sell or otherwise any product or service, or own, operate,
franchise, license or otherwise any business, whether competitive or not and
under the Names and Marks or any other trademark, to or with such
persons/entities, and on such terms and conditions, regardless of
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the proximity to, or impact on, the STORE, as the FRANCHISOR and/or any of the
Franchisor-Related Entities, in our and their sole and absolute discretion,
wish.
Since the FRANCHISEE does not have any territorial or similar rights,
there is no restriction regarding the FRANCHISEE soliciting or servicing
customers located anywhere, although the FRANCHISEE may do so only from the
STORE, or a substitute premises approved by the FRANCHISOR.
The FRANCHISOR (on behalf of itself and each and all of the
Franchisor-Related Entities) can acquire, or engage in any other transaction
with, other businesses, with units located anywhere, including arrangements
where other units are converted to the Gloria Jean's(R) format (including using
the Names and Marks) and/or any other format and/or in which the FRANCHISOR or
any of the Franchisor-Related Entities are acquired and/or company-owned,
franchised or other businesses are converted to another format, maintained as a
new concept under the Names and Marks or maintained as a separate concept.
The FRANCHISOR (on behalf of itself and each and all of the
Franchisor-Related Entities) can develop or become associated with other
concepts (including dual branding and/or other franchise systems) for the same,
similar, related, competitive or different products and/or services, whether or
not using the Names and Marks, and may grant franchises or other rights with
respect to locations and/or businesses in connection therewith. Units offering
these concepts can be located anywhere, in the FRANCHISOR'S sole and absolute
discretion, including in proximity to FRANCHISEE'S GJC STORE.
C. RENEWAL OF FRANCHISE
If upon expiration of the initial term of the FRANCHISE: (1) the
FRANCHISEE has fully and continuously complied with this Agreement and all other
agreements with FRANCHISOR (and/or any affiliate of FRANCHISOR), in each case
without any defaults, cured or uncured, during the term; and (2) (a) the
FRANCHISEE maintains possession of the premises of the STORE and, prior to any
renewal term beginning, refurbishes, remodels, expands and otherwise brings the
STORE and its operation into full compliance with all then-applicable standards
(including then-applicable design standards, including equipment) applicable to
franchises awarded for new GJC STORES and in compliance with any lease or
sublease requirements applicable to the STORE premises; or (b) if the FRANCHISEE
is unable to maintain possession of such premises, or if in the judgment of the
FRANCHISOR the STORE should be relocated, the FRANCHISEE secures suitable
substitute premises approved by the FRANCHISOR, within a reasonable period of
time within the same shopping center or within the same Standard
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Metropolitan Statistical Area in which the prior premises was located and agrees
to lease or sublease and develop such substitute premises in compliance with
then-applicable standards utilized in the granting of franchises for a GJC
STORE, then the FRANCHISEE shall have the right to renew the FRANCHISE for an
single additional term equal to the term of the renewal or extension of the
lease or sublease for the premises of the STORE (or the initial term of the
lease or sublease for such the premises, if such initial term of the lease or
sublease has not expired as of the effective date of the renewal of the
franchise) on the terms, and under the conditions, set forth in this Agreement;
provided, however, that in no event shall the FRANCHISOR be obligated to
negotiate or obtain any renewal, extension or otherwise of any lease or
sublease, or solicit or accept any proposal from the landlord (or other
person/entity controlling the premises) for a renewal, extension or otherwise of
any lease or sublease, even if on the same terms and conditions as have
previously been applicable to the premises.
Such renewal shall be with payment of a non-refundable (unless renewal
is denied) renewal franchise fee equal to fifty percent (50%) of FRANCHISOR's
then-current initial franchise fee for a first franchise. FRANCHISEE (and each
owner and/or affiliate) must also execute a general release, in form prescribed
by FRANCHISOR, of any and all claims, liabilities and/or obligations, of any
nature whatsoever, however arising, known or unknown, against FRANCHISOR and/or
any or all of the Franchisor-Related Entities. If FRANCHISEE fails to execute
such a release, the granting of the renewal franchise will be the equivalent of
the granting of such release, since FRANCHISEE and FRANCHISOR agree that it
would be inappropriate and improper for FRANCHISEE to continue in a franchise
(or other) relationship, and for the FRANCHISEE to have the right to use the
Name and Marks, if FRANCHISEE had any claims, liabilities and/or obligations, of
any nature whatsoever, however arising, known or unknown, against FRANCHISOR (or
other persons/entities covered by such a release) or otherwise failed to execute
such a release, particularly in view of the fact that FRANCHISEE is not being
charged a full initial franchise fee in connection with the RENEWAL. The phrase
"term of the FRANCHISE" used herein shall mean the initial term and the renewal
term if the FRANCHISE is renewed.
D. MANNER OF RENEWAL
Renewal of the FRANCHISE shall be effected by the execution by the
FRANCHISOR and the FRANCHISEE of the FRANCHISOR's then-current form of franchise
agreement (which may provide for higher royalty and service fees and advertising
contributions and other significant provisions of which may vary, but without
any further term, successor franchise or right of renewal), general releases
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and all other agreements and legal instruments and documents then customarily
used by the FRANCHISOR in the grant of franchises for the ownership and
operation of a GJC STORE. The FRANCHISEE agrees to notify FRANCHISOR not more
than nine (9) months nor less that six (6) months prior to expiration of the
term in writing of FRANCHISEE's election to renew the FRANCHISE and pay the
renewal fee at the same time. Thereafter, FRANCHISOR shall state the reasons for
the FRANCHISOR's refusal to renew. Failure or refusal by the FRANCHISEE to
execute such agreements, instruments and documents necessary to renew the
FRANCHISE within sixty (60) days after delivery thereof to the FRANCHISEE shall
be deemed an election by the FRANCHISEE not to renew the FRANCHISE.
In connection with any renewal, FRANCHISEE must meet FRANCHISOR'S
then-current qualification and training requirements. FRANCHISOR may require
FRANCHISEE and/or any of its personnel to attend and successfully complete any
retraining program(s), and at such times and location(s), as FRANCHISOR then
specifies. There will be no charge for any retraining program(s), but FRANCHISEE
will be responsible for all travel, meals, lodging and other expenses of its
personnel.
E. RELEASES ON GRANTS OF ADDITIONAL, ETC. FRANCHISES
If, at any time, FRANCHISEE or any affiliate is to receive one or more
successor, additional, other and/or further franchise(s) from FRANCHISOR or any
of the Franchisor-Related Entities, whether or not a renewal franchise,
FRANCHISEE, each of its affiliates, each owner of the FRANCHISEE, the new
franchisee and each owner thereof will at each such time execute a general
release, in form prescribed by FRANCHISOR, of any and all claims, liabilities
and/or obligations, of any nature whatsoever, however arising, known or unknown,
against FRANCHISOR and/or any or all of the Franchisor-Related Entities, except
(where so required by applicable law) for any claims exclusively related to the
offer and sale of the additional, other and/or further franchise(s).
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3. LOCATION OF STORE
The FRANCHISEE may operate the STORE only at the location and premises
identified in Paragraph A of Section 2 or a substitute location and/or premises
hereafter approved by the FRANCHISOR. The premises may be used only for the
operation of a GJC STORE. If the FRANCHISEE's lease or sublease for the premises
of the STORE terminates prior to expiration without fault of the FRANCHISEE, or
if the premises is damaged, condemned or otherwise rendered unusable, the
FRANCHISOR will grant permission for relocation of the STORE to a location and
premises approved by the FRANCHISOR, within a reasonable period of time in the
same shopping center or within the same Standard Metropolitan Statistical Area
in which the prior premises were located. The FRANCHISEE must lease or sublease
and develop such premises in compliance with then-applicable standards utilized
in the granting of franchises for a GJC STORE and the term of the FRANCHISE will
be extended to coincide with the initial term of the lease or sublease for the
substitute premises. Any such relocation shall be at the FRANCHISEE's sole
expense.
4. DEVELOPMENT AND OPENING OF STORE
A. LEASE OR SUBLEASE OF PREMISES OF STORE
The FRANCHISEE will contemporaneously with the execution of this
Agreement or such later date specified by the FRANCHISOR, lease or sublease the
premises of the STORE identified in Paragraph A of Section 2 in the form and
manner prescribed by the FRANCHISOR and deliver a copy of such executed lease or
sublease to the FRANCHISOR immediately after execution thereof. The FRANCHISOR
has the right to review and approve any lease or sublease for the premises of
the STORE. The FRANCHISEE agrees not to execute any lease or sublease which has
not been approved in writing by the FRANCHISOR. The FRANCHISOR may require that
the premises of the STORE be subleased directly from the FRANCHISOR or its
affiliate according to the terms of the FRANCHISOR or its affiliate's standard
form of sublease or, at the FRANCHISOR's option, that the lease obtained by the
FRANCHISEE be collaterally assigned to the FRANCHISOR pursuant to the terms of
its standard collateral assignment of lease form, to secure the performance by
the FRANCHISEE of his obligations hereunder. If the FRANCHISEE leases the
premises directly, the lease for the premises of the STORE shall contain
substantially the following provisions:
1. "Anything contained in this lease to the contrary notwithstanding,
Lessor agrees that without its consent, this lease and the right, title
and interest of the Lessee hereunder, may be assigned by the Lessee to
GLORIA JEAN'S GOURMET COFFEES CORP., an Illinois corporation, or its
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designee; provided that said corporation shall execute such documents
evidencing its agreement to thereafter keep and perform, or cause to be
kept and performed, all of the obligations of the Lessee arising under
this lease from and after the time of such assignment."
2. "Lessee hereby agrees that Lessor may, upon the written request of
GLORIA JEAN'S GOURMET COFFEES CORP., disclose to said corporation all
reports, information or data in Lessor's possession with respect to
sales made in, upon or from the leased premises."
3. "Lessor shall give written notice to GLORIA JEAN'S GOURMET COFFEES
CORP. concurrently with the giving of such notice to Lessee of any
default by Lessee under the lease and the said corporation shall have,
after the expiration of the period during which the Lessee may care
such default, an additional fifteen (15) days to cure, at its sole
option, any such default."
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B. DEVELOPMENT OF STORE
The FRANCHISOR or its affiliates, as agents for and at the expense and
on behalf of the FRANCHISEE, will develop and build-out the premises of the
STORE. The FRANCHISEE shall be required to enter into the FRANCHISOR's or its
affiliates' standard store development agreement. The store development
agreement shall set forth the fee paid to the FRANCHISOR or its affiliates for
its services (the "DEVELOPMENT FEE") and the parties other responsibilities.
While FRANCHISOR may act as FRANCHISEE'S agent in connection with the
development and build-out of the STORE, and may approve a location, and although
this franchise may be granted for a specific existing location, the selection of
the premises for the STORE is exclusively and entirely FRANCHISEE'S sole and
ultimate responsibility and that neither FRANCHISOR, any of Franchisor-Related
Entities nor any other person or company affiliated or associated with
FRANCHISOR in any way will have any liability or responsibility with respect to
any matters related in any way to the site location, identification, evaluation,
selection, suitability or otherwise, all such responsibilities being solely
FRANCHISEE'S.
Site selection, development, approval or otherwise by FRANCHISOR of any
STORE is in no way a recommendation, approval or endorsement of such location
nor a representation or warranty as to its legal or business availability,
suitability, appropriateness, success potential or otherwise and FRANCHISOR
cannot guarantee success for any location. The FRANCHISEE is the only person
and/or company with any liability or responsibility for those decisions and
matters.
FRANCHISEE agrees that without FRANCHISOR'S ability to limit its (and
others') liability as set forth in this Agreement (and, in particular, this
Section), FRANCHISOR would not be willing to award this Franchise to FRANCHISEE
(and would consider developing the location as a company-owned unit only) or to
be involved in any way in assisting FRANCHISEE in development of the Store.
C. FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES AND SIGNS
The STORE's initial fixtures, equipment and storefront shall be part of
the FRANCHISOR'S development of the STORE. Thereafter, the FRANCHISEE agrees to
use in the operation of the STORE those fixtures, items of equipment, supplies
and signs that the FRANCHISOR has approved for a GJC STORE as meeting its
specifications and standards for appearance, function, design, quality and
performance. The FRANCHISEE further agrees to place or display at the premises
of the STORE (interior and exterior) only such signs, emblems, lettering, logos
and display materials
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that are from time to time approved in writing by the FRANCHISOR. If the
FRANCHISEE proposes to purchase, lease or otherwise use any fixture, equipment,
supply or sign which is not then approved by the FRANCHISOR, the FRANCHISEE
shall first notify the FRANCHISOR in writing and shall submit to the FRANCHISOR
sufficient specifications, photographs, drawings and/or other information or
samples for a determination by the FRANCHISOR of whether such fixture,
equipment, supply or sign complies with its specifications and standards, which
determination shall be made and communicated in writing to the FRANCHISEE within
a reasonable time.
D. STORE OPENING
Once FRANCHISOR has developed and built-out the STORE and turned over
possession to the FRANCHISEE, FRANCHISEE agrees to use his best efforts to
merchandise the STORE as soon as possible after obtaining possession of the
STORE premises and to open the STORE for business and commence the conduct of
its business by the period required by the FRANCHISEE's lease or sublease or, if
sooner, within five (5) days after notice from the FRANCHISOR that it is in
suitable condition therefor. The FRANCHISOR will supply its employee who will
for a period of seven (7) days assist FRANCHISEE in the opening of FRANCHISEE'S
STORE. In addition, FRANCHISOR may provide the employee for such additional
days(s) as FRANCHISOR may so deem appropriate in assisting FRANCHISEE with the
opening of the STORE. If the FRANCHISEE already owns a GJC STORE, all such
assistance will be provided at the FRANCHISOR's sole discretion.
E. TERMINATION UPON FAILURE OF THE FRANCHISEE TO OPEN STORE
If the FRANCHISEE fails to lease or sublease the STORE premises as
required by Paragraph A of Section 4, or fails to proceed with the merchandising
of the STORE as required by or fails to open the STORE by the date required in
Paragraph D of this Section 4, the FRANCHISOR, at its sole option, shall have
the right to terminate this Agreement effective upon giving written notice to
the FRANCHISEE. In connection with such termination, the FRANCHISEE will execute
documents acceptable to FRANCHISOR, providing for (1) continuation of
FRANCHISEE'S indemnification, confidentiality and non-competition obligations
and the dispute avoidance and resolution provisions of this Agreement, including
those of Article 18, together with the provisions of Article 22, and (2) a
general release, in form prescribed by FRANCHISOR, of any and all claims,
liabilities and/or obligations, of any nature whatsoever, however arising, known
or unknown, against FRANCHISOR and/or any or all of the Franchisor-Related
Entities.
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F. GRAND OPENING PROGRAM
The FRANCHISEE agrees to spend between One Thousand Dollars ($1,000.00)
and Four Thousand Dollars ($4,000.00) to conduct grand opening advertising and
promotions, such advertising and promotions (which must be approved in advance
in writing by the FRANCHISOR) to occur within the four (4) month period
following the opening of the STORE for business.
5. TRAINING AND OPERATING ASSISTANCE
A. TRAINING
Prior to the opening of the STORE, the FRANCHISOR shall furnish and the
FRANCHISEE (or its controlling shareholder, general partner, managing member or
similar person if the FRANCHISEE is a business entity), and the manager of the
STORE, if any, (approved by the FRANCHISOR) shall attend and complete to the
FRANCHISOR's satisfaction a training program on the operation of a GJC STORE,
furnished at such time and place as the FRANCHISOR may designate. Such training
will be given by the FRANCHISOR without charge; provided that the FRANCHISEE
shall be solely responsible for the compensation of the trainee as well as such
trainee's travel, lodging and personal expenses. Such training will consist of
eighteen (18) days or such additional days as FRANCHISOR may elect of training.
If the FRANCHISEE or the approved manager fails to complete training to the
FRANCHISOR's satisfaction, the FRANCHISOR shall have the option for a period of
thirty (30) days of terminating this Agreement effective upon written notice to
the FRANCHISEE. In such event, FRANCHISOR has the option to refund the entire
initial franchise fee to the FRANCHISEE; provided the FRANCHISEE and its owners
have executed general releases in a form approved by the FRANCHISOR of any and
all claims against the FRANCHISOR and its affiliates, officers, directors,
employees, agents, successors and assigns, excepting only claims relating to the
FRANCHISOR's obligations under this Paragraph, and at the FRANCHISOR's option,
if the premises was not leased from the FRANCHISOR or its affiliates, the
FRANCHISEE assigns the lease or sublets the premises to the FRANCHISOR or its
affiliates. The FRANCHISOR, subsequent to the opening of the STORE, shall
require of and shall provide to any new manager reasonable training and may
require the FRANCHISEE and/or experienced managers to attend a refresher
program; provided that the FRANCHISOR may elect to make a reasonable charge for
any training provided after the opening of the STORE. If the FRANCHISEE already
owns a GJC STORE, FRANCHISEE will be required to attend refresher or additional
training as FRANCHISOR shall in its sole discretion determine, as a condition of
FRANCHISEE obtaining the right to open any additional GJC STORE. Upon
FRANCHISEE's successful completion of the training program, FRANCHISEE will be
permitted to train its
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store managers.
B. HIRING AND TRAINING OF EMPLOYEES BY THE FRANCHISEE
The FRANCHISEE shall hire all employees of the STORE, be exclusively
responsible for the terms of their employment and compensation and implement a
training program for employees of the STORE in compliance with the FRANCHISOR's
standards. The FRANCHISEE agrees to maintain at all times a staff of trained
employees sufficient to operate the STORE in compliance with the FRANCHISOR's
standards. The FRANCHISEE agrees that all management personnel hired by
FRANCHISEE may be required to sign an Employment Agreement containing
non-competition and confidential information covenants substantially similar to
those contained in Paragraph F of Section 16 and in Section 8 herein.
C. OPERATING ASSISTANCE
The FRANCHISOR will advise the FRANCHISEE from time to time of
operating problems of the STORE disclosed by reports submitted to or inspections
made by the FRANCHISOR. Further, the FRANCHISOR will furnish to the FRANCHISEE
such assistance in connection with the operation of the STORE as is from time to
time deemed appropriate by the FRANCHISOR. Operating assistance may consist of
advice and guidance with respect to:
1. methods and operating procedures utilized by a GJC STORE or
the STORE;
2. additional products and services authorized for a GJC STORE;
3. purchasing of PRODUCTS and supplies;
4. formulating and implementing advertising, merchandising and
promotional programs; and
5. the establishment of administrative, bookkeeping, accounting,
inventory control, sales training and general operating
procedures for the proper operation of a GJC STORE
The FRANCHISEE understands and agrees that all advice and guidance
provided by the FRANCHISOR is only supportive of the operation of the STORE and
that the overall success of the STORE is primarily dependent upon the
FRANCHISEE's business abilities and efforts. The FRANCHISOR will not charge the
FRANCHISEE for such operating assistance unless such operating assistance is
made necessary by the FRANCHISEE's failure to comply with this Agreement or if
the FRANCHISEE requests operating assistance in excess of what is normally
provided by the FRANCHISOR. Any such
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charges will be reasonable and payable upon the FRANCHISEE's receipt of an
invoice for the same. In addition, the FRANCHISOR reserves the right to impose
reasonable fines and penalties if the FRANCHISEE repeatedly refuses or fails to
comply with this Agreement and the FRANCHISOR's standards and specifications.
6. OPERATING MANUAL
The FRANCHISOR will loan to the FRANCHISEE during the term of the
FRANCHISE one copy of an operating manual, which consists of one or more manuals
(hereinafter referred to as the "OPERATING MANUAL"), for a GJC STORE containing
mandatory and suggested specifications, standards and operating procedures
prescribed from time to time by the FRANCHISOR for a GJC STORE and information
relative to other obligations of the FRANCHISEE hereunder. The FRANCHISOR shall
have the right to add to and otherwise modify the OPERATING MANUAL from time to
time to reflect changes in the type or quantity of authorized PRODUCTS,
standards of service or product quality, the operation of a GJC STORE or to meet
competition. Any such addition or modification takes precedence over all prior
communications and in the event of a dispute, the master OPERATING MANUAL
maintained at the FRANCHISOR's office shall control. The provisions of the
OPERATING MANUAL as modified from time to time by the FRANCHISOR and
communicated to the FRANCHISEE constitute provisions of this Agreement and as
such are binding upon the FRANCHISEE. The OPERATING MANUAL contains proprietary
information of the FRANCHISOR and the FRANCHISEE agrees to keep the OPERATING
MANUAL and information contained therein confidential at all times during and
after the term of the FRANCHISE.
7. STORE IMAGE AND OPERATING STANDARD
A. CONDITION AND APPEARANCE OF STORE
The FRANCHISEE agrees to maintain the condition and appearance of the
STORE consistent with the image of a GJC STORE as an attractive, clean,
convenient and efficiently operated specialty shop offering high quality
PRODUCTS and efficient and courteous service. The FRANCHISEE agrees to effect
such maintenance of the STORE as is reasonably required from time to time to
maintain such condition, appearance and efficient operation, including, without
limitation, replacement of worn out or obsolete fixtures,
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equipment and signs, repair of the interior and exterior of the STORE and
periodic cleaning and decorating or as is required by the FRANCHISEE's lease or
sublease. FRANCHISEE shall also replace and/or add additional fixtures and
equipment which FRANCHISOR at a later day may require to be installed in all the
GJC STORES. If at any time in the FRANCHISOR's reasonable judgment the general
state of repair, appearance or cleanliness of the premises of the STORE or its
fixtures, equipment or signs does not meet the FRANCHISOR's standards therefor,
the FRANCHISOR shall so notify the FRANCHISEE, specifying the action to be taken
by the FRANCHISEE to correct such deficiency. If the FRANCHISEE fails or refuses
to initiate within fifteen (15) days after receipt of such notice or such lesser
period required by the lease or sublease, and thereafter continue a bona fide
program to undertake and complete any such required maintenance, the FRANCHISOR
shall have the right (in addition to its rights under Section 15), but shall not
be obligated, to enter upon the premises of the STORE and effect such repairs,
painting and replacement of fixtures, equipment or signs on behalf of the
FRANCHISEE and the FRANCHISEE shall pay the entire costs therefor to the
FRANCHISOR on demand.
B. ALTERATIONS TO THE STORE
The FRANCHISEE shall make no material alterations to the leasehold
improvements or appearance of the STORE nor shall the FRANCHISEE make any
material replacements of or alterations to the fixtures, equipment or signs of
the STORE without prior written approval by the FRANCHISOR and any approval that
may be necessary under the lease or sublease for the premises.
C. AUTHORIZED PRODUCTS
The presentation of a uniform image to the public and the offering of
uniform product lines is an essential element of a successful franchise system.
The FRANCHISEE therefore agrees that the STORE will offer brands and types of
PRODUCTS and services from time to time specified by the FRANCHISOR. The
FRANCHISEE further agrees that the STORE will not, without prior written
approval by the FRANCHISOR, offer any other products or services nor shall the
STORE or the premises which it occupies be used for any purpose other than the
operation of a GJC STORE in compliance with this Agreement and the FRANCHISEE's
lease or sublease for the premises.
FRANCHISEE is prohibited from developing, creating, generating, owning,
licensing, leasing or otherwise utilizing any computer media and/or electronic
media (including but not limited to the Internet, world wide web, bulletin
boards, news group and Telnet) which may be used, or in any manner uses,
displays or utilizes the Gloria Jean's trademarks, tradenames, or other
commercial symbols or offers to sell or sells any of the products and/or
services which are or may at a later date be offered for sale in GJC STORES
and/or Espresso Bar/Kiosks. If the FRANCHISEE desires to utilize any
computerized or electronic media in conjunction with the operation of the STORE
and/or BAR/KIOSK, FRANCHISEE must obtain FRANCHISOR's prior written approval of
such usage, and FRANCHISOR my in its sole discretion approve or not approve such
usage. If FRANCHISOR grants its approval,
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FRANCHISOR or its affiliates will be the owners of and/or control the approved
computerized or electronic media.
D. APPROVED BRANDS AND/OR SUPPLIES
The reputation and goodwill of GJC STORES is based upon, and can be
maintained only by, the sale of high-quality products. The FRANCHISEE therefore
agrees that the STORE will only offer for sale authorized PRODUCTS as specified
by the FRANCHISOR and other products approved for the STORE from time to time as
being acceptable and from approved suppliers. The term PRODUCTS as used in this
Agreement, include all products hereafter approved and/or developed by the
FRANCHISOR. The FRANCHISOR may from time to time modify the list of approved
brands and/or suppliers and the FRANCHISEE shall not, after receipt in writing
of such modification, reorder any brand or from any supplier which has been
determined to be no longer of acceptable quality. Subject to Section 7.E. below,
if the FRANCHISEE proposes to sell any product of a brand which has not been
approved as being acceptable or from a supplier which has not been approved, he
shall first notify the FRANCHISOR in writing and submit sufficient photographs,
drawings, specifications, samples and/or other information concerning the
product and/or the supplier and the FRANCHISOR shall, within a reasonable time,
notify the FRANCHISEE in writing whether or not such proposed brand and/or such
proposed supplier is acceptable. The FRANCHISOR may approve a supplier for any
PRODUCTS and may approve a supplier only as to certain PRODUCTS. The FRANCHISOR
may concentrate purchases with one or more suppliers to obtain lower prices
and/or the best advertising support and/or services for a group of GJC STORES
owned or franchised by the FRANCHISOR or its affiliates. Approval of a supplier
may be conditioned on requirements related to the frequency of delivery,
standards of service, including prompt attention to customer complaints,
consistency and reliability and may be temporary pending a further evaluation of
such supplier by the FRANCHISOR. The FRANCHISOR will require any supplier
applying for approval to allow the FRANCHISOR or its affiliates to inspect the
proposed supplier's facilities to assist the FRANCHISOR in determining if the
proposed supplier meets the FRANCHISOR's criteria. The FRANCHISEE shall at all
times maintain an adequate and representative inventory of PRODUCTS, sufficient
in quality, quantity and variety, to satisfy customer demand and realize the
full potential of the STORE, as prescribed from time to time by the FRANCHISOR.
The inventory of the STORE shall contain a representative number of each GJC
STORE brand or other private brands of the FRANCHISOR which shall be given
representative display area. The FRANCHISOR shall not have any liability to the
FRANCHISEE if the FRANCHISOR is at any time unable for any reason to offer any
GJC STORE brand or other brand of PRODUCTS for purchase by the FRANCHISEE or at
competitive prices. Such PRODUCTS may be offered by an affiliate of the
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FRANCHISOR.
E. SUPPLIERS OF GOURMET COFFEE
In recognition that the quality and uniformity of the gourmet coffee
and tea carried by GJC STORES is of paramount importance to the reputation and
goodwill of GJC STORES, the FRANCHISEE must purchase all gourmet coffee offered
at the STORE from GJGC Corp. In the event GJGC Corp. ceases supplying the
FRANCHISEE with gourmet coffee, the FRANCHISOR will designate a supplier or
suppliers of gourmet coffee. In such event, the FRANCHISEE may propose a
supplier to the FRANCHISOR in accordance with the procedure for obtaining
approval of suppliers with respect to other PRODUCTS offered by the FRANCHISEE,
set forth in Section 7.D. above. In addition to the criteria listed in Section
7.D. a proposed supplier must also meet the FRANCHISOR'S criteria as to the size
of the coffee bean, the method of preparation of the bean, the region of origin
of the bean, the quality of flavoring used in bean preparation the consistency
of bean color and moisture content after roasting, the type of packaging and the
type of roaster used. The FRANCHISOR will require any supplier applying for
approval to allow the FRANCHISOR or its affiliates to inspect the proposed
supplier's roasting facilities and green bean purchase contracts to assist the
FRANCHISOR in determining if the proposed supplier meets the FRANCHISOR's
criteria.
F. USE OF SUPPLIES IMPRINTED WITH NAMES AND MARKS
The FRANCHISEE shall in the operation of the STORE use displays, boxes,
bags, paper, forms, packaging materials, labels and other paper and plastic
products and supplies imprinted with the Names and Marks as prescribed from time
to time by the FRANCHISOR.
G. STANDARDS OF SERVICE
The STORE shall at all times give prompt, courteous and efficient
service to its customers. The FRANCHISEE and the STORE shall in all dealings
with customers, suppliers and the public adhere to the highest standards of
honesty, integrity, fair dealing and ethical conduct.
H. DETERIORATED PRODUCTS AND COMPLAINTS
The FRANCHISEE shall not advertise, offer for sale or sell any damaged,
molded or deteriorated PRODUCTS or PRODUCTS which are "out of date" as provided
in the OPERATING MANUAL or as specified on the PRODUCT itself. All damaged,
molded, deteriorated or "out of date" PRODUCTS shall be withdrawn from sale and
removed from the STORE. All reasonable complaints by
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customers shall be honored pursuant to the policy set- forth in the OPERATING
MANUAL.
I. SPECIFICATIONS, STANDARDS AND PROCEDURES
The FRANCHISEE agrees to comply with all mandatory specifications,
standards and operating procedures (whether contained in the OPERATING MANUAL or
any other document or notice) relating to the operation of a GJC STORE and the
STORE, including, without limitation, those relating to:
1) type, quality and shelf life of PRODUCTS offered;
2) PRODUCT dating programs, including removal of "out of date"
PRODUCT;
3) merchandising techniques;
4) the safety, maintenance, cleanliness, function and appearance
of the STORE premises and its fixtures, equipment and signs;
5) uniforms and aprons to be worn by and general appearance of
STORE employees;
6) use of Names and Marks;
7) hours during which the STORE will be open for business;
8) use and retention of standard forms;
9) use and illumination of signs, posters, displays, standard
formats and similar items; and
10) identification of the FRANCHISEE as the owner of the STORE.
All such specifications, standards and operating procedures will be
reasonable and consistent with the obligations of the FRANCHISEE under the lease
or sublease for the premises of the STORE and applicable laws and ordinances.
Mandatory specifications, standards and operating procedures prescribed from
time to time by the FRANCHISOR in the OPERATING MANUAL or otherwise communicated
to the FRANCHISEE in writing, shall constitute provisions of this Agreement as
if fully set-forth herein. All references herein to this Agreement shall include
all such mandatory specifications, standards and operating procedures.
FRANCHISEE is required to participate in any and all programs which
FRANCHISOR elects to utilize as operational tools
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in the operation of FRANCHISEE'S STORE and/or Espresso Bar/Kiosk. These
operational tools may include but are not limited to programs involving customer
satisfaction, quality control, operational standards, product standards and the
like (the "Programs"). The Programs may be created or developed by FRANCHISOR,
its affiliates or by third parties and the duration and frequency of the
Programs will vary and will be determined solely by FRANCHISOR. The FRANCHISEE
will be required to pay for the Programs and the costs will vary according to
the program and frequency of the program.
J. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES
The FRANCHISEE shall secure and maintain in force all required
licenses, permits and certificates relating to the operation of the STORE and
shall operate the STORE in full compliance with all applicable laws, ordinances
and regulations, including, without limitation, all government regulations
relating to handling of food products, occupational hazards and health, worker's
compensation insurance, unemployment insurance and withholding and payment of
federal, state and local income taxes, social security taxes and sales taxes.
All advertising and promotion by the FRANCHISEE shall be completely factual and
shall conform to the highest standards of ethical advertising. The FRANCHISEE
agrees to refrain from any business or advertising practice which may be
injurious to the business of the FRANCHISOR and the goodwill associated with the
Names and Marks and other GJC STORES.
K. MANAGEMENT OF THE STORE
The STORE shall be managed by the FRANCHISEE or if approved by
FRANCHISOR by a full-time manager who has completed, to the satisfaction of the
FRANCHISOR, the training program. The employment of any full-time manager is
subject to FRANCHISOR's prior approval. Notwithstanding the employment of a
full-time manager the FRANCHISEE (or its controlling shareholder if the
FRANCHISEE is a corporation) must attend and complete training to the
FRANCHISOR's satisfaction, unless waived by the FRANCHISOR, in its sole
discretion, at the FRANCHISEE's request. If FRANCHISEE has completed the
Franchise Training FRANCHISEE shall be qualified to train its managers. If and
in the event the FRANCHISOR, in its sole discretion, determines that said
full-time manager is not properly performing his duties, the FRANCHISOR shall
advise the FRANCHISEE and the FRANCHISEE shall take such corrective measures as
are necessary to immediately rectify the situation. The FRANCHISEE shall keep
the FRANCHISOR informed at all times of the identity of any employee(s) acting
as manager(s) of the STORE.
In the event the FRANCHISEE acquires additional GJC STORES,
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the FRANCHISEE shall be permitted to act as the manager of all such GJC STORES
and shall be further permitted to hire and train assistant managers who shall
work for and under the direction of the FRANCHISEE. In such event, FRANCHISEE
shall attend additional or refresher training as FRANCHISOR in its sole
discretion shall determine as provided in Paragraph A of Section 5 of this
Agreement, and thereafter FRANCHISEE shall be permitted to train its managers.
L. CONFLICTING AND COMPETING INTERESTS
The FRANCHISEE agrees that the FRANCHISEE will at all times faithfully,
honestly and diligently perform his obligations hereunder, that he will
continuously exert his best efforts to promote and enhance the business of the
STORE and that he will not engage in any business or other activity that will
conflict with his obligations hereunder. The FRANCHISEE shall not divert
elsewhere any trade, commerce or business which ordinarily would be transacted
by the FRANCHISEE in or from the STORE and to this end, the FRANCHISEE shall not
at any time sell or rent to anyone any list of customers or permit the use of
such list by anyone for any purpose other than the mailing of advertising
material for the STORE. The FRANCHISEE further agrees that neither the
FRANCHISEE nor any of its owners (through a member of the immediate family of
the FRANCHISEE or an owner of the FRANCHISEE or otherwise) will, during the term
of the FRANCHISE, have any interest as an owner (except of publicly-traded
securities or interests in other GJC STORES pursuant to other franchise
agreements heretofore or hereafter entered into), partner, director, officer,
employee, consultant, representative, agent, or in any other capacity, in any
other retail store principally offering products substantially similar to the
PRODUCTS then being offered by the majority of the GJC STORES, nor will they
have any interest, as aforesaid, in any entity which franchises or otherwise
grants to others the right to sell products similar to the PRODUCTS then being
offered by the majority of the GJC STORES.
M. INSURANCE
The FRANCHISEE shall at all times during the term of the FRANCHISE
maintain in force at the FRANCHISEE's sole expense comprehensive public and
product liability insurance (and motor vehicle liability insurance, if a motor
vehicle is employed in the operation of the STORE), against claims for bodily
and personal injury, death and property damage caused by or occurring in
conjunction with the operation of the STORE or otherwise in conjunction with the
conduct of business by the FRANCHISEE pursuant to the FRANCHISE. Such insurance
coverage shall be maintained under one or more policies of insurance containing
minimum liability protection of Two Million Dollars
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($2,000,000.00) for bodily and personal injury and death and One Hundred
Thousand Dollars ($100,000.00) for property damage, or such greater amounts and
such additional coverages and insureds as may be required by the lease or
sublease for the premises of the STORE, and issued by an insurance carrier rated
A or better by Alfred M. Best & Company, Inc. All such liability insurance
policies shall name the FRANCHISOR and GJGC Corp. as additional insureds and
shall provide that the FRANCHISOR will receive thirty (30) days' prior written
notice of termination, expiration or cancellation of any such policy. The
FRANCHISOR may reasonably increase the minimum liability protection requirement
annually and require different or additional kinds of insurance to reflect
inflation, changes in standards of liability, higher damage awards in public,
product or motor vehicle liability litigation or other relevant changes in
circumstances. The FRANCHISEE shall submit to the FRANCHISOR a copy of the
certificate or other evidence of the issuance, renewal or extension of each such
insurance policy prior to obtaining possession of the STORE and annually
thereafter. If the FRANCHISEE at any time fails or refuses to maintain in effect
any insurance coverage required by the FRANCHISOR, or to furnish satisfactory
evidence thereof, the FRANCHISOR, at its option and in addition to its other
rights and remedies hereunder, may, but need not, obtain such insurance
coverage, on behalf of the FRANCHISEE, and the FRANCHISEE shall promptly execute
any applications or other forms or instruments required to obtain any such
insurance and pay to the FRANCHISOR, on demand, any costs and premiums incurred
by the FRANCHISOR.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION OF THE FRANCHISOR
The FRANCHISEE acknowledges that his knowledge of the operation of a
GJC STORE will be derived from information disclosed to the FRANCHISEE by the
FRANCHISOR pursuant to the FRANCHISE and that such information, including,
without limitation, the contents of the OPERATING MANUAL, is proprietary and
confidential. The FRANCHISEE agrees that he will maintain the absolute
confidentiality of all such information during and after the term of the
FRANCHISE and that he will not use any such information in any other business or
in any manner not specifically authorized or approved in writing by the
FRANCHISOR.
9. ADVERTISING AND PROMOTION
A. BY THE FRANCHISOR
The FRANCHISOR will develop, prepare and offer to the FRANCHISEE (with
or without charge) such posters, ad formats, direct mail, point of sale and
other advertising materials for the STORE as the FRANCHISOR deems appropriate in
its sole and absolute discretion, and will implement a marketing program as
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described below. FRANCHISEE shall be required to participate in all advertising
and/or promotional campaigns which FRANCHISOR may establish.
B. MARKETING FUND
The FRANCHISOR'S experience and business judgment is that a unified
marketing program, on both a local and broader level, is an essential factor in
the potential success of all GJC STORES, to achieve top-of-mind awareness in
potential customers, to build and retain goodwill associated with the Name and
Marks thereby hopefully benefiting all GLORIA JEAN'S operators, to create
improved brand loyalty among new and future customers and to achieve a favorable
retail position for all GJC STORES. To maximize the possibility of obtaining
these goals, FRANCHISOR and FRANCHISEE have agreed to a marketing program as
follows:
The FRANCHISOR has instituted an advertising, publicity and marketing
fund (the "Marketing Fund") for such advertising, advertising-related, marketing
and/or public relations programs, services and/or materials as FRANCHISOR, in
its sole and absolute discretion, may deem necessary or appropriate to promote
GJC STORES. The Marketing Fund may be combined with any marketing fund otherwise
established for GJC STORES and the funds merged for use in accordance with this
Agreement. FRANCHISEE will contribute to the Marketing Fund two percent (2%) of
the gross sales of the STORE (as defined in Paragraph B of Section 13), payable
as provided in Paragraph C of Section 13. The FRANCHISOR reserves the right to
increase the amount the FRANCHISEE is required to contribute to an amount not to
exceed three percent (3%) of the gross sales of the STORE. The Franchisor will
cause all GJC STORES owned by it to make contributions to the Marketing Fund
based on the contribution rate generally in effect at the time such GJC STORES
most recently came under the FRANCHISOR'S ownership. FRANCHISEE understands
that, due to differing forms of Franchise Agreements or otherwise, some GLORIA
JEAN'S Franchisees may have different Marketing Fund and/or other obligations
than in this Agreement.
The FRANCHISOR will have sole and absolute discretion over all matters
relating to the Marketing Fund in any way, including (but not limited to) its
management, all financial matters, expenditures, receipts and/or investments by
the Marketing Fund, timing of expenditures, creative concepts, content,
materials and endorsements for any marketing programs, together with the
geographic, market, and media placement and allocation thereof. The Marketing
Fund may be used, in FRANCHISOR'S sole and absolute discretion, to (among other
things) pay costs of preparing, producing, distributing and using marketing,
advertising and other materials and programs; administering national, regional
and other marketing programs, purchasing media, employing
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advertising, public relations and other agencies and firms; and supporting
public relations, market research and other advertising and marketing
activities, as well as any expenses associated with any Franchisee Advisory
Council(s), if those Councils, and such expenses, are approved by FRANCHISOR in
its sole and absolute discretion. A brief statement regarding the availability
of information regarding the purchase of GLORIA JEAN'S franchises may be
included in advertising and other items produced and/or distributed using the
Marketing Fund.
FRANCHISOR can, in its sole and absolute discretion, arrange for
services, goods and otherwise, including (but not limited to) creative concepts,
production, placement, purchase of media, legal, accounting and other services,
to be provided to the Marketing Fund by itself, any of the Franchisor-Related
Entities and FRANCHISOR'S and/or their employees or agents, including
persons/entities who may be owned, operated, controlled by, and/or affiliated
with, FRANCHISOR (such as an "in-house advertising agency") or who may be
independent. FRANCHISOR may use the Marketing Fund to compensate and reimburse
any of such persons/entities (including itself) as FRANCHISOR deems appropriate
in its sole and absolute discretion (including payment of commissions) and to
compensate itself and/or others for administrative and other services,
materials, etc. rendered to the Marketing Fund, provided that any compensation
to FRANCHISOR or any affiliate will not be unreasonable in amount. While
FRANCHISOR is not required to submit any proposed or other expenditures by (or
any other matters relating to) the Marketing Fund for approval by any Franchisee
Advisory Council, if FRANCHISOR does submit any matters for approval and
approval is granted by a majority of such Franchisee Advisory Council, such
approval will be final and binding on FRANCHISEE.
FRANCHISEE will participate in all advertising and public relations
programs instituted by the Marketing Fund but will retain full freedom to set
FRANCHISEE'S own prices, except that FRANCHISOR may, to the greatest degree
permitted by applicable law, specify maximum prices above which FRANCHISEE will
not sell or otherwise provide any goods or services and FRANCHISEE will comply
with all such maximum prices. The Marketing Fund will, as available, furnish
FRANCHISEE with marketing, advertising and promotional formats and sample
materials and may charge the direct cost of producing them plus shipping and
handling. FRANCHISOR may, in its sole and absolute discretion, use the Marketing
Fund to pay the costs of advertising, advertising-related, marketing and/or
public relations programs, services and/or materials with respect to locations,
programs or concepts where products and/or services offered under the Name
and/or Marks are to be offered in conjunction with products and/or services
offered under other marks, including (but not limited to) any co-branding, dual
franchising or other programs, and any
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other franchised or non-franchised alternative channel of distribution, whether
controlled by FRANCHISOR or not.
The Marketing Fund will be accounted for separately from FRANCHISOR'S
other funds (but may be commingled with FRANCHISOR'S other funds) and will not
be used to defray any of FRANCHISOR'S general operating expenses, except for
such salaries, administrative costs, overhead and other expenses as FRANCHISOR
may reasonably incur in activities related to the Marketing Fund and its
programs (including, without limitation, conducting market research, preparing
advertising and marketing materials, insurance, legal costs and collecting and
accounting for the Marketing Fund.) In any event, FRANCHISOR may charge the
Marketing Fund for attorney's fees and other costs related in any way to
FRANCHISOR'S defense of any claims against FRANCHISOR and/or the
Franchisor-Related Entities regarding FRANCHISOR'S management of the Marketing
Fund or otherwise or with respect to collecting amounts due and/or expenditures
by or from the Marketing Fund. FRANCHISOR may, in FRANCHISOR'S sole and absolute
discretion, spend in any fiscal year an amount greater or less than the
aggregate contributions to the Marketing Fund in that year and the Marketing
Fund may borrow from FRANCHISOR or other lenders to cover deficits of the
Marketing Fund or cause the Marketing Fund to invest any surplus for future use
by the Marketing Fund. FRANCHISEE authorizes FRANCHISOR to collect for remission
to the Marketing Fund any advertising or promotional monies or credits offered
by any supplier based upon purchases by FRANCHISEE or otherwise. In any event,
and notwithstanding any designation by FRANCHISEE, any provisions of this
Agreement to the contrary or otherwise, FRANCHISEE'S Marketing Fund
contributions may be applied, in FRANCHISOR'S sole and absolute discretion, to
any obligations of FRANCHISEE to FRANCHISOR or any affiliate, including (but not
limited to) royalties, marketing contributions, purchases, interest or
otherwise. All interest earned on monies contributed to the Marketing Fund will
be contributed to the Marketing Fund. A statement of monies collected and costs
incurred by the Marketing Fund will be prepared annually by FRANCHISOR and be
furnished to FRANCHISEE upon written request. FRANCHISOR may (but is not
required to) have financial statements of the Marketing Fund audited and any
costs in connection therewith will be paid by the Marketing Fund. FRANCHISOR
will have the right to cause the Marketing Fund to be incorporated or operated
through an entity separate from FRANCHISOR as FRANCHISOR deems appropriate in
its sole and absolute discretion, and such successor entity will have all rights
and duties of FRANCHISOR relating to the Marketing Fund.
FRANCHISOR may (but is not required to) remit a portion of Marketing
Fund contributions back to a franchisee on such terms and conditions as
FRANCHISOR determines in FRANCHISOR'S sole and absolute discretion, including
(but not limited to) reimbursement
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of local advertising expenditures made by a Franchisee and FRANCHISOR may waive
and/or compromise claims for contributions to, and/or claims against or with
respect to, the Marketing Fund in FRANCHISOR'S sole and absolute discretion,
using the Marketing Fund to pay any such claims. The FRANCHISOR will have sole
and absolute discretion as to whether or not FRANCHISOR takes legal or other
action against any franchisee who is in default of his or her obligations with
respect to the Marketing Fund (including obligations to make contributions) or
otherwise and whether a franchisee may be allowed to make direct advertising
expenditures in place of contributions to the Marketing Fund.
FRANCHISEE acknowledges and agrees that the Marketing Fund is generally
intended to maximize general recognition of the Name and/or Marks and patronage
of GJC STORES. Although FRANCHISOR will generally endeavor to utilize the
Marketing Fund to develop advertising and marketing materials and programs, and
to place advertising, that will benefit all GJC STORES, FRANCHISOR will have no
obligation to ensure that expenditures by the Marketing Fund in or affecting any
geographic area or STORE are or will be proportionate or equivalent to the
contributions to the Marketing Fund by GJC STORES operating in that geographic
area or that any GJC STORE will benefit directly or in proportion to its
contribution to the Marketing Fund or from the development of advertising and
marketing materials and/or programs, the placement of advertising or otherwise.
FRANCHISOR will have no obligation to cause other GJC STORES, licensees or
outlets (some of which may be under different arrangements) to contribute to the
Marketing Fund, any cooperative or engage in local marketing. FRANCHISEE agrees
that FRANCHISOR (and each of the Franchisor-Related Entities) will not have any
direct or indirect liability or obligation to FRANCHISEE, the Marketing Fund or
otherwise with respect to the management, maintenance, direction, administration
or otherwise of the Marketing Fund. FRANCHISEE agrees that neither FRANCHISOR
(not any of the Franchisor-Related Entities) will be liable for any act or
omission, whether with respect to the Marketing Fund or otherwise which is
consistent with this Agreement or other information provided to FRANCHISEE, or
which is done in subjective good faith. FRANCHISEE and FRANCHISOR, each having a
mutual interest in, and agreeing on the critical practical business importance
of, FRANCHISEE'S and FRANCHISOR'S relationship being governed solely by written
instruments signed by the parties to be bound (and not having either FRANCHISEE
or FRANCHISOR subject to the uncertainty and ambiguity inherent in the
application of legal or other concepts not expressly agreed to in writing by
FRANCHISEE and FRANCHISOR), agree that FRANCHISEE'S and FRANCHISOR'S rights and
obligations with respect to the Marketing Fund and all related matters are
governed solely by the express terms of this Agreement and that this Agreement
(and the parties' relationship and all rights and obligations with respect to
the Marketing Fund) are not in the nature of a
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"trust," "fiduciary relationship" or similar special arrangement and is only an
ordinary commercial relationship between independent businesspersons for their
independent economic benefit. FRANCHISOR may maintain Marketing Fund assets in
one or more accounts designated as "trust accounts" (or similarly designated),
for purposes of protecting such assets from claims of third-party creditors or
otherwise, but such designation and/or treatment will not operate to create any
"trust," "fiduciary relationship" or similar special arrangement as to the
Marketing Fund, its assets or otherwise.
C. BY THE FRANCHISEE.
1. The FRANCHISEE shall submit for prior approval by the
FRANCHISOR, any and all advertising and promotional materials including any
computerized media or electronic media (including but not limited to the World
Wide Web, the Internet, Telnet, news groups, bulletin boards, FTP, E-Mail and
the like) prepared by the FRANCHISEE for the STORE and the FRANCHISEE shall not
use any disapproved or unapproved advertising or promotional materials. The
FRANCHISEE shall comply with any advertising requirements contained in his lease
or sublease for the premises of the STORE. All advertising and promotional
materials including any computerized media or electronic media (including but
not limited to the World Wide Web, the Internet, Telnet, news groups, bulletin
boards, FTP, e-mail and the like) used by the FRANCHISEE must be completely
factual, comply with all applicable laws and conform to the highest standards of
ethical advertising and policies prescribed from time to time by FRANCHISOR.
2. The FRANCHISEE shall list and advertise the STORE in the
principal classified telephone directory distributed within its primary trading
area, in such business classifications as the FRANCHISOR prescribes from time to
time, utilizing the FRANCHISOR's standard classified telephone directory
advertisement at the FRANCHISEE's sole expense. When more than one GJC STORE
serves a metropolitan area, the FRANCHISOR may require all such GJC STORES to be
listed in the classified directory advertisement and the FRANCHISEE shall pay an
equal share of the cost thereof.
10. STORE RECORDS AND REPORTING.
A. BOOKKEEPING, ACCOUNTING AND RECORDS.
The FRANCHISEE shall establish a bookkeeping, accounting and
recordkeeping system conforming to the requirements prescribed by the
FRANCHISOR, including, without limitation, the use and retention of cash
register tapes, invoices, payroll records, check stubs, bank deposit receipts,
sales tax records and returns, and such journals and ledgers which properly
summarize
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the transactions of the STORE. The FRANCHISEE shall only utilize in the STORE
the cash register and computer system approved by the FRANCHISOR.
The FRANCHISEE must buy and use the cash register and computer systems
the FRANCHISOR prescribes from time to time in the operation of the STORE. The
FRANCHISOR may develop different cash register and computer systems in the
future and specifications for certain components of the cash register and
computer system and may modify such specifications and the components from time
to time. As part of such cash register and computer systems, the FRANCHISOR may
require the FRANCHISEE to obtain specified computer hardware and/or software,
including, without limitation, a license to use proprietary software developed
by the FRANCHISOR or others and the FRANCHISEE agrees to do so. Modification of
such specifications for the components of the cash register and computer systems
may require the FRANCHISEE to incur costs to purchase, lease and/or license new
or modified computer hardware and/or software and to obtain service and support
for the cash register and computer systems during the term of this Agreement.
The FRANCHISEE acknowledges that the FRANCHISOR cannot estimate the future costs
of the cash register and computer systems (or additions, modifications,
maintenance or support) and that the FRANCHISEE's cost of obtaining the cash
register and computer systems (and additions, modifications, maintenance or
support) may not be fully amortizable over the remaining term of this Agreement.
The FRANCHISEE agrees to incur such costs in connection with obtaining the
computer hardware and software comprising the cash register and computer systems
(and additions, modifications, maintenance or support), provided that the cash
register and computer systems that the FRANCHISOR specifies for use is the same
cash register and computer systems that it then currently uses in a majority of
the GJC STORES that it owns and operates. Within sixty (60) days after the
FRANCHISEE receives notice from the FRANCHISOR, the FRANCHISEE agrees to obtain
the components of the cash register and computer systems that the FRANCHISOR
designates and requires. The FRANCHISEE further acknowledges and agrees that the
FRANCHISOR has the right to charge a reasonable systems fee for the license,
modification, maintenance or support of proprietary software that it may license
to the FRANCHISEE and other services that the FRANCHISOR or its affiliates
furnish to the FRANCHISEE related to the cash register and computer systems.
B. REPORTS, FINANCIAL STATEMENTS AND TAX RETURNS.
The FRANCHISEE shall furnish to the FRANCHISOR in the form from time to
time prescribed by the FRANCHISOR:
1) on or before the tenth (10th) day following the end of each
four (4) week period determined by FRANCHISOR, via the
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United States Mail, first class postage affixed, a statement of the gross sales
(as defined in Paragraph B of Section 13) of the STORE for the immediately
preceding four (4) week period, prepared, verified and signed by the FRANCHISEE
or other approved employee, together with copies of such other information and
supporting records as the FRANCHISOR from time to time requires;
2) within thirty (30) days after the end of each sixteen (16)
or seventeen (17) week period as determined by the FRANCHISOR, a period profit
and loss statement and a balance sheet for the STORE, prepared, verified and
signed by the FRANCHISEE; provided, that the FRANCHISEE will prepare profit and
loss statements on a sixteen (16) or seventeen (17) week period and if
requested, submit them to the FRANCHISOR;
3) within forty-five (45) days after the end of each fiscal
year of the STORE, an unaudited annual statement of profit and loss of the STORE
for the fiscal year and a balance sheet for the STORE as of the end of the
fiscal year, verified and signed by the FRANCHISEE; and
4) within thirty (30) days after such returns are filed, upon
request of the FRANCHISOR, exact copies of the STORE's state sales tax returns.
The verifications required by this subsection shall be made by the
FRANCHISEE personally if a sole proprietorship, by a partner if a partnership,
or by an executive officer if a corporation.
As directed by FRANCHISOR, FRANCHISEE will participate in FRANCHISOR'S
electronic reporting system covering sales and other items, with direct
interconnection to (and access by) FRANCHISOR'S computer hardware and software
systems. FRANCHISEE will continuously use, maintain and update electronic cash
register, computer and other systems (including point-of-sale systems) and
software programs which meet FRANCHISOR'S specifications as they evolve over
time and which, in some cases, may only be available through FRANCHISOR,
FRANCHISOR'S affiliates and/or suppliers approved by FRANCHISOR. FRANCHISEE will
maintain its systems on-line to provide full access for computer systems used by
FRANCHISOR and FRANCHISEE will promptly update and otherwise change FRANCHISEE'S
electronic cash register, computer hardware and software systems as FRANCHISOR
requires from time-to-time, at FRANCHISEE'S sole expense. The FRANCHISOR
reserves the right to have full access to such electronic cash register and
computer systems and the sales information and data contained therein and to
retrieve, analyze, download and use the software and all data contained therein
at any time. FRANCHISEE will promptly and fully pay all amounts charged by any
supplier or licensor of the systems and programs
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used by FRANCHISEE, including charges for use, maintenance, support and/or
update of these systems or programs.
11. NAMES AND MARKS
A. OWNERSHIP OF NAMES AND MARKS
The FRANCHISOR is the licensee of GJGC Corp. of the Names and Marks
licensed to the FRANCHISEE by this Agreement and the FRANCHISEE's right to use
the Names and Marks is derived solely from this Agreement and is limited to the
operation of the STORE in compliance with this Agreement at the location and
premises identified in Paragraph A of Section 2 (or a substitute premises
hereafter approved by the FRANCHISOR as provided in Section 3), and by all
applicable standards, specifications and operating procedures prescribed by the
FRANCHISOR from time to time during the term of this FRANCHISE. The FRANCHISEE
agrees that all usage of the Names and Marks including usage on computerized
media or electronic mail (including but not limited to the World Wide Web, the
Internet, Telnet, newsgroups, bulletin boards, FTP, e-mail and the like) by the
FRANCHISEE and any goodwill established thereby shall inure to the exclusive
benefit of the FRANCHISOR and GJGC Corp. The FRANCHISEE further agrees that
after the termination or expiration of the FRANCHISE he will not directly or
indirectly at any time or in any manner identify the FRANCHISEE, any owner or
other business as a GJC STORE, a former GJC STORE or as a franchisee of or
otherwise associated with the FRANCHISOR, or use in any manner or for any
purpose any of the Names and Marks or other indicia of a GJC STORE.
B. LIMITATIONS ON THE FRANCHISEE'S USE OF NAMES AND MARKS
The FRANCHISEE agrees to use the Names and Marks as the sole service
mark and trade name identification of the STORE. The FRANCHISEE shall display a
notice in such form as the FRANCHISOR may prescribe that the FRANCHISEE is an
independent owner of the STORE pursuant to this Agreement. The FRANCHISEE shall
not use any of the Names and Marks as part of any corporate name or with any
prefix, suffix or other modifying words, terms, designs or symbols (other than
logos licensed to the FRANCHISEE hereunder), or in any modified form, nor may
the FRANCHISEE use any Names and Marks in connection with the sale of any
unauthorized product or service or in any other manner including via
computerized media and electronic media not explicitly authorized in writing by
the FRANCHISOR. All bank accounts, licenses, permits or other similar documents
shall contain the actual name of the person or entity owning the STORE and may
contain "d/b/a GLORIA JEAN'S COFFEES." The FRANCHISEE shall obtain any
fictitious name, assumed name or "doing business" registration as may be
required by law.
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C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS
The FRANCHISEE shall immediately notify the FRANCHISOR of any apparent
infringement of or challenge to the FRANCHISEE's use of any of the Names and
Marks or claim by any person of any rights in any of the Names and Marks and the
FRANCHISEE shall not communicate with any person other than the FRANCHISOR and
GJGC Corp. and their counsel in connection with any such infringement, challenge
or claim. The FRANCHISOR and the Franchisor-Related Entities shall have sole
discretion to take such action as they deem appropriate and the right to
exclusively control any litigation or Patent and Trademark Office or other
administrative proceeding arising out of any such infringement, challenge or
claim or otherwise relating to any Names and Marks. The FRANCHISEE agrees to
execute any and all instruments and documents, render such assistance, and do
such acts and things as may, in the opinion of the FRANCHISOR's or GJGC Corp.'s
counsel be necessary or advisable to protect and maintain the FRANCHISOR's and
GJGC Corp.'s interests in any litigation or Patent and Trademark office or other
proceeding or to otherwise protect and maintain the FRANCHISOR's and GJGC
Corp.'s interests in any of the Names and Marks.
D. DISCONTINUANCE OF USE OF NAME AND/OR MARKS
If it becomes advisable at any time, in FRANCHISOR's sole and absolute
discretion, for FRANCHISEE to modify or discontinue the use of the Name and/or
any of the Marks or use one or more additional or substitute name(s), trademarks
or service marks, FRANCHISEE will promptly comply (at FRANCHISEE's sole expense)
with FRANCHISOR's directions to modify or otherwise discontinue the use of such
Name and/or Marks, or use one or more additional or substitute names, trademarks
or service marks, including (but not limited to) replacement of all signage,
etc. Neither FRANCHISOR nor any of the Franchisor-Related Entities will have any
liability or obligation (whether of indemnity, expense reimbursement or
otherwise) to FRANCHISEE, and FRANCHISEE agrees to make no claim, for, or in
connection with, any modification, discontinuance or otherwise, and/or any
dispute regarding the Name and/or any of the Marks and/or FRANCHISEE's and/or
FRANCHISOR's rights in or to them. FRANCHISOR makes no guaranty that a
modification, discontinuance or otherwise may not be required, whether as a
result of expiration, termination or limitation of FRANCHISOR's rights to the
Name and/or Marks or otherwise.
FRANCHISEE understands that there is always a possibility that there
might be one or more businesses, similar to the business covered by the
Franchise, operating in or near the area(s) where FRANCHISEE may do business or
otherwise, using a name and/or marks similar to FRANCHISOR's and with superior
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rights to such name and/or marks as a result of prior use or otherwise.
FRANCHISOR strongly urges FRANCHISEE to research this possibility, using
telephone directories, local filings and other means, prior to FRANCHISEE's
signing this Agreement, any other documents, expending or paying any sums or
making any commitments and FRANCHISEE understands that if FRANCHISEE fails to do
so before making any commitments or spending any money, it is at risk.
12. INITIAL FRANCHISE FEE
The FRANCHISEE shall pay to the FRANCHISOR a nonrecurring initial
franchise fee for the FRANCHISE in the amount of Twenty Five Thousand Dollars
($25,000.00), which is payable upon the execution of this Agreement (less any
amounts previously paid by the FRANCHISEE, if any) and which is fully earned by
the FRANCHISOR upon payment. Except as provided in Paragraph A of Section 5 or
FRANCHISOR is unable to obtain a location acceptable to FRANCHISOR within nine
(9) months alter the effective date of the Franchise Agreement the initial
franchise fee is nonrefundable.
The execution of this Agreement will constitute, and FRANCHISEE (and
each affiliate of FRANCHISEE's) will, as a condition to the granting of this
and/or any future or other Franchise, execute, in a form prescribed by
FRANCHISOR,, a general release, of any and all claims, liabilities and/or
obligations, of any nature whatsoever, however arising, known or unknown,
against FRANCHISOR and/or any or all of the Franchisor-Related Entities,
excepting only (where so required by applicable law) those claims solely related
to the offer and sale of the new Franchise, FRANCHISEE agreeing that it would be
inappropriate from a business standpoint to enter into further franchise
relationships with FRANCHISOR while there might be a possibility of claims based
on a prior relationship. For example, if FRANCHISEE owns Franchises Nos. 1 and 2
and is being awarded Franchise No. 3, the release by FRANCHISEE would cover all
matters other than (where so required by applicable law) those solely related to
the offer and sale of Franchise No. 3. FRANCHISOR can make no assurance as to
whether additional or future franchises may be granted to FRANCHISEE or the
prices, terms or conditions relating thereto. If FRANCHISOR should, through
inadvertence or otherwise, fail to require such separate release at any time,
the execution of this Agreement, and each Franchise Agreement after this one,
will be regarded as the equivalent of the granting of such releases.
13. ROYALTY AND SERVICE FEE
A. AMOUNT OF ROYALTY AND SERVICE FEE
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The FRANCHISEE agrees to pay to the FRANCHISOR a royalty and service
fee of six percent (6%) of the gross sales of the STORE, as defined in Paragraph
B below, payable as provided in Paragraph C below.
B. DEFINITION OF "GROSS SALES"
As used in this Agreement, the term "gross sales" shall mean and
include the total actual gross charges for all products and services sold to
customers of the STORE, for cash or credit, whether such sales are made at or
from the premises of the STORE, or any other location, including if approved by
the FRANCHISOR via computerized media or electronic media (including but not
limited to the World Wide Web, the Internet, Telnet, FTP, newsgroups, bulletin
boards, FTP, e-mail and the like) but excluding: sales, use, service or excise
taxes collected from customers and paid to the appropriate taxing authority;
customer refunds and adjustments; and amounts collected from customers
representing the actual cost of shipping PRODUCTS, including payments to common
carriers and the United States Postal Service.
C. PAYMENT OF ROYALTY AND SERVICE FEE AND MARKETING FUND
CONTRIBUTION
The royalty and service fee (as above provided) and the Marketing Fund
contribution (as provided in Section 9) shall be payable on the tenth (10th) day
following the end of each four (4) week period, as determined by the FRANCHISOR.
This payment shall be accompanied by a sales report (the form of which will be
created and furnished by the FRANCHISOR) completed, verified and signed by the
FRANCHISOR.
As directed by FRANCHISOR, FRANCHISEE must participate in FRANCHISOR'S
then-current electronic funds transfer program authorizing FRANCHISOR to utilize
a pre-authorized bank draft system on a every four-week basis, or otherwise as
FRANCHISOR specifies from time-to-time in FRANCHISOR'S sole and absolute
discretion. All royalties, advertising contributions and other amounts due
FRANCHISOR (and/or any affiliate) for each period must be received by FRANCHISOR
(or such affiliate) or credited to the appropriate account by pre-authorized
bank debit before 5:00 p.m. on the 10th day after each four-week period, or
other point in time specified by FRANCHISOR. FRANCHISOR may, from time-to-time,
specify periodic amounts for regular transfer to FRANCHISOR'S account, based on
past reports of sales by FRANCHISEE and reasonable expectations of royalties,
advertising contributions and other amounts to become due from FRANCHISEE.
D. INTEREST ON LATE PAYMENTS AND LATE FEES
All royalty and service fees, advertising contributions and
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any other amounts owed to the FRANCHISOR or its affiliates by the FRANCHISEE,
pursuant to the FRANCHISE, shall bear interest after due date at the highest
legal rate for open account business credit in the state in which the STORE is
located not to exceed one and one-half percent (1 1/2%) per month. The
FRANCHISEE must also pay the FRANCHISOR or its affiliates a late fee of Two
Hundred Fifty Dollars ($250.00) per occurrence subject to applicable law. The
FRANCHISEE acknowledges that this Paragraph D shall not constitute the
FRANCHISOR's agreement to accept such payments after they are due or a
commitment by the FRANCHISOR to extend credit to or otherwise "finance" the
FRANCHISEE's operation of the STORE. Further, the FRANCHISEE acknowledges that
his failure to pay any amounts when due will constitute a breach of this
Agreement as provided in Paragraph A of Section 15 notwithstanding the
provisions of this Paragraph D.
14. INSPECTIONS AND AUDITS
A. THE FRANCHISOR'S RIGHT TO INSPECT STORE
To determine whether the FRANCHISEE is complying with this Agreement,
the FRANCHISOR shall have the right at any time during business hours, and
without prior notice to the FRANCHISEE, to inspect the STORE and the PRODUCTS
therein contained. Further, the FRANCHISOR shall have the right to conduct,
supervise or observe a physical count of the inventory and assets of the STORE
at such times as the FRANCHISOR shall reasonably determine. The FRANCHISEE shall
fully cooperate with representatives of the FRANCHISOR making any such
inspection or conducting, supervising or observing any such inventory and shall
permit representatives of the FRANCHISOR to take photographs, movies or
videotapes of the premises and to interview employees and customers of the
STORE.
B. THE FRANCHISOR'S RIGHT TO AUDIT.
The FRANCHISOR or its agent or designee (including any landlord or its
agent pursuant to the lease or sublease for the premises for the STORE) shall
have the right at any time during business hours, and without prior notice to
the FRANCHISEE, to inspect and audit, or cause to be inspected or audited, the
business records, bookkeeping and accounting records, cash register tapes,
invoices, payroll records, check stubs and bank deposit receipts of the STORE,
reports, financial statements, the FRANCHISEE's state and federal tax returns or
schedules, other forms, information and supporting records which the FRANCHISEE
is required to submit to the FRANCHISOR hereunder and the books and records of
any corporation or partnership which owns or operates the STORE. The FRANCHISEE
shall fully cooperate with representatives of the FRANCHISOR and any independent
accountants hired by the FRANCHISOR to conduct any such inspection or audit.
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In the event any such inspection or audit shall disclose an understatement of
the gross sales of the STORE for any period or periods, the FRANCHISEE shall pay
to the FRANCHISOR, within ten (10) days after receipt of the inspection or audit
report, the royalty and service fee (and Marketing Fund contribution) plus
interest and late fees due on the amount of such understatement. Further, in the
event such audit is made necessary by the failure of the FRANCHISEE to furnish
reports, financial statements, tax returns or schedules as herein required, or
if an understatement of gross sales for any period is determined by any such
inspection or audit to be greater than two percent (2%), the FRANCHISEE shall
reimburse the FRANCHISOR for the cost of such inspection or audit, including,
without limitation, the charges of any independent accountant and the travel
expenses, room and board and compensation of employees of the FRANCHISOR and the
FRANCHISOR shall have the right to require the FRANCHISEE to furnish, at the
FRANCHISEE's sole cost and expense audited financial statements thereafter. In
the event any such audit reveals an overstatement of the gross sales of the
STORE for any period or periods, the FRANCHISOR shall pay to the FRANCHISEE,
within ten (10) days of the receipt of the inspection or audit report the
royalty and service fee (and advertising contribution) paid by the FRANCHISEE on
such overstatement. The right to audit may in case of a landlord's right to
audit pursuant to a lease or sublease extend beyond termination of the
FRANCHISE.
15. TERMINATION OF FRANCHISE
A. BY THE FRANCHISOR
In addition to the FRANCHISOR's right to terminate this Agreement upon
the failure of the FRANCHISEE to lease or sublease the STORE premises or to
proceed with STORE development or to merchandise and open the STORE for business
(as provided in Paragraphs A, B, C, D and E of Section 4) or upon the FRANCHISEE
or the manager's failure to complete training to the FRANCHISOR's satisfaction
(as provided in Paragraph A of Section 5), the FRANCHISOR may terminate this
Agreement effective upon delivery of notice of termination to the FRANCHISEE,
if:
1) the FRANCHISEE or any of its owners makes an assignment for
the benefit of creditors or an admission of his inability to pay his
obligations as they become due;
2) the FRANCHISEE or any of its owners files a voluntary
petition in bankruptcy, files any pleading seeking any reorganization,
liquidation or dissolution under any law, admits or fails to contest
the material allegations of any such pleading filed against him, is
adjudicated a bankrupt or insolvent, a receiver is appointed for a
substantial part of the assets of the FRANCHISEE or any of
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its owners or the STORE, or the claims of creditors of the FRANCHISEE
or any of its owners or the STORE are abated or subject to a moratorium
under any law; this provision may not be enforceable under Federal
Bankruptcy Law (11 U.S.C. Section 101 et. seq.)
3) the FRANCHISEE abandons, surrenders or transfers control of
the operation of the STORE or fails to actively operate the STORE in
accordance with standards and specifications of the FRANCHISOR and the
lease or sublease for the premises, unless precluded from doing so by
damage to the premises of the STORE, war or civil disturbance, natural
disaster, labor dispute or other event beyond the FRANCHISEE's
reasonable control;
4) the FRANCHISEE suffers termination of or fails to obtain
renewal or extension of the lease or sublease for, or otherwise fails
to maintain possession of the premises of the STORE identified in
Paragraph A of Section 2 or a substitute premises approved by the
FRANCHISOR;
5) the FRANCHISEE submits to the FRANCHISOR on two (2) or more
separate occasions at any time during any two (2) year period of the
term of the FRANCHISE a monthly report, financial statement, tax
return, schedule or other information or supporting record which
understates the gross sales of the STORE for any period by more than
two percent (2%);
6) the FRANCHISEE repeatedly fails or refuses: (i) to submit
when due, four (4) week period reports, sixteen (16) or seventeen (17)
week period or annual financial statements, tax returns, schedules or
other information or supporting records; (ii) to pay when due the
royalty and service fees, advertising contributions, amounts due for
any PRODUCTS purchased from the FRANCHISOR or its affiliates or other
payments due to the FRANCHISOR or its affiliates; (iii) to pay when due
amounts owed to other suppliers or creditors; or (iv) to comply with
any other provision of this Agreement; whether or not such failures or
refusals are corrected after notice thereof is delivered to the
FRANCHISEE;
7) the FRANCHISEE operates the STORE in a manner that presents
a health or safety hazard to its customers, employees or the public;
8) the FRANCHISEE or any of its owners are convicted of a
felony or other crime which substantially impairs the goodwill
associated with the Names and Marks or engages in any misconduct which
affects the reputation of the STORE or
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the goodwill associated with the Names and Marks;
9) the FRANCHISEE or any of its owners makes an unauthorized
assignment of the FRANCHISE, this Agreement, the STORE or its assets or
an ownership interest in the FRANCHISEE as hereinafter defined in
Paragraphs B and C of Section 17;
10) the FRANCHISEE fails to pay any amount owed to the
FRANCHISOR or its affiliates when the same is due and payable and does
not correct such failure within five (5) days after written notice of
such failure to comply is delivered to the FRANCHISOR; or
11) FRANCHISEE sells coffee not purchased from GJGC Corp.
pursuant to the requirements set forth herein, Section 7.E.
12) FRANCHISEE or any affiliate fails on two (2) or more
separate occasions within any period of twelve (12) consecutive months,
or on three (3) or more separate occasions within any period of
twenty-four (24) consecutive months, to comply with any provisions
(whether the same or different) of this Agreement, any lease or
sublease, any other agreement with FRANCHISOR and/or any affiliate
and/or the OPERATING MANUAL, whether or not such failures to comply are
timely corrected.
13) the FRANCHISEE fails to comply with any other material
provision of this Agreement, any lease or sublease, any other agreement
with FRANCHISOR and/or any affiliate or any mandatory specification,
standard or operating procedure prescribed by the FRANCHISOR and does
not correct such failure within fifteen (15) days after written notice
of such failure to comply (which shall describe the action that the
FRANCHISEE must take) is delivered to the FRANCHISEE.
14) the FRANCHISEE (and/or any owner and/or affiliate of the
FRANCHISEE) files any action (including arbitration, but not including
mediation) against FRANCHISOR, and/or any of the Franchisor-Related
Entities, and does not receive a final judgment or award substantially
in FRANCHISEE'S favor on the merits.
B. RIGHT OF FRANCHISOR TO MANAGE AFTER
NOTICE OF DEFAULT TO THE FRANCHISEE
If the FRANCHISOR delivers to the FRANCHISEE a notice of default
pursuant to Paragraph A(11) or (12) of Section 15 of this Agreement, and if it
is the belief of the FRANCHISOR that the GJC STORE is being inadequately
managed, the FRANCHISOR shall have
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the right to appoint a manager to operate the GJC STORE until the FRANCHISEE is
able to resume the proper management and operation of the GJC STORE. All funds
from the operation of the GJC STORE during the period of management by the
FRANCHISOR's appointed manager shall be kept in a separate fund and all expenses
of the GJC STORE, including compensation, other costs and travel and living
expenses of the FRANCHISOR's appointed manager, shall be charged to such fund.
In addition to the royalty and service fees and advertising fees due hereunder,
the FRANCHISOR shall charge Two Hundred Dollars ($200.00) per day during the
period of management by the FRANCHISOR's appointed manager as a management fee.
Operation of the GJC STORE during any such period shall be for and on behalf of
the FRANCHISEE; provided that the FRANCHISOR shall only have a duty to utilize
reasonable efforts in the operation of the GJC STORE and shall not be liable to
the FRANCHISEE for any debts, losses or obligations incurred by the GJC STORE,
or to any creditor of the FRANCHISEE for any products, materials, supplies or
services purchased by the GJC STORE during any period in which it is managed by
the FRANCHISOR's appointed manager. In the event that the fund maintained by the
FRANCHISOR is insufficient to pay the expenses of the GJC STORE in a reasonable
business-like manner, the FRANCHISOR shall so notify the FRANCHISEE and the
FRANCHISEE shall, within five (5) business days, deposit in the fund such
amounts as shall be required by the FRANCHISOR to attain a reasonable balance in
the fund. The provisions of this Paragraph shall not restrict the FRANCHISOR's
right to terminate this Agreement as herein provided.
C. RIGHT OF FRANCHISOR TO DISCONTINUE PRODUCTS TO THE
FRANCHISEE AFTER NOTICE OF DEFAULT TO THE FRANCHISEE
If the FRANCHISOR delivers to the FRANCHISEE a notice of default or
non-compliance pursuant to Paragraph A(10) or (11) of Section 15 of this
Agreement, in addition to the FRANCHISOR's other rights and remedies, the
FRANCHISOR reserves the right of the FRANCHISOR (and its affiliates) if
currently selling PRODUCTS, to discontinue selling PRODUCTS to the FRANCHISEE
until such time as the FRANCHISEE corrects the default. Additionally, if the
FRANCHISEE fails to adhere to the standard credit terms of the FRANCHISOR's
affiliates with respect to payment for any PRODUCTS sold by the FRANCHISOR's
affiliates to the FRANCHISEE, the FRANCHISOR's affiliates reserve the right to
cease selling PRODUCTS to the FRANCHISEE or requiring the FRANCHISEE to pay
C.O.D. (i.e., cash on delivery) by certified check until such time as the
FRANCHISEE corrects this problem.
D. EXTENDED CURE PERIOD
Notwithstanding anything contained herein to the contrary, where
FRANCHISOR has the right to terminate this Agreement,
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FRANCHISOR shall also have the right, to be exercised in FRANCHISOR's sole and
absolute discretion, to grant to FRANCHISEE, in lieu of immediate termination of
this Agreement, an extended period of time to cure the breach which gave rise to
FRANCHISOR's right to terminate, but in no event shall such extended cure period
be less than thirty (30) days, nor more than six (6) months, from the last day
of the cure period otherwise applicable to such breach. FRANCHISEE acknowledges
that FRANCHISOR's election to grant such an extended cure period shall not
operate as a waiver of any of FRANCHISOR's rights hereunder and that, in
consideration for such an extension, FRANCHISEE and each owner and/or affiliate
of FRANCHISEE's will execute a general release of all claims, known or unknown,
by or on behalf of FRANCHISEE and/or any owner and/or any affiliate of
FRANCHISEE's against FRANCHISOR and/or any or all of the Franchisor-Related
Entities and if FRANCHISEE fails to execute such a release, the grant of such an
extension will, in itself, constitute such a release.
E. FRANCHISOR'S RIGHT TO TERMINATE THE FRANCHISE, RETURN
THE INITIAL FRANCHISE FEE AND ALLOW FRANCHISEE TO COMPETE
At any time, and in FRANCHISOR's sole and absolute discretion,
FRANCHISOR may elect to terminate all of FRANCHISEE's rights, and all of
FRANCHISOR's obligations, under this Agreement and return to FRANCHISEE the
initial franchise fee (or portion thereof) actually paid by FRANCHISEE (without
interest). In such a case, FRANCHISEE will perform thereafter each of
FRANCHISEE's obligations under this Agreement with respect to termination
(including all post-term obligations of FRANCHISEE) wherever contained in this
Agreement, including but not limited to de-identification of FRANCHISEE's GJC
STORE, and promptly deliver to FRANCHISOR all manuals and other material as
provided in this Agreement or in the Manuals and FRANCHISEE (and each owner
and/or affiliate of FRANCHISEE) will execute a general release, in form
prescribed by FRANCHISOR, of any and all claims, liabilities and/or obligations,
of any nature whatsoever, however arising, known or unknown, against FRANCHISOR
and/or any or all of the Franchisor-Related Entities. FRANCHISEE's obligations
regarding indemnity and confidentiality and the provisions of this Agreement
relating to dispute avoidance and resolution (including but not limited to all
provisions of Article 18), and FRANCHISOR's rights with respect to receiving an
assignment of any lease and/or sublease, together with the provisions of Article
22, will survive any expiration, termination or cancellation of this Agreement;
provided that in the event of exercise of FRANCHISOR'S rights under this
sub-section, FRANCHISEE's post-term non-competition obligations will be canceled
and of no further force or effect.
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F. EXECUTION OF RELEASE ON DEFAULT, ETC.
At FRANCHISOR's option, in any case where FRANCHISEE has committed a
default under this Agreement which would allow FRANCHISOR to terminate
FRANCHISEE's rights, FRANCHISOR may (but is not required to) waive FRANCHISOR's
rights to collect any royalties, advertising contributions and other amounts
which would have become due if FRANCHISEE had continued in operation as a GLORIA
JEAN'S Franchisee and FRANCHISEE will, in consideration for such waiver, execute
a general release, in form prescribed by FRANCHISOR, of any and all claims,
liabilities and/or obligations, of any nature whatsoever, however arising, known
or unknown, against FRANCHISOR and/or any or all of the Franchisor-Related
Entities. This option may be exercised by FRANCHISOR at any time, including
before, at the same time as or after termination, expiration or otherwise and
whether or not FRANCHISEE or FRANCHISOR have made any claims, or begun any
proceedings, against the other or anyone else.
G. CROSS-DEFAULTS, NON-EXCLUSIVE REMEDIES, ETC.
Any default by FRANCHISEE (or any person/company affiliated with
FRANCHISEE) under this Agreement may be regarded as a default under any other
agreement between FRANCHISOR (or any affiliate of FRANCHISOR) and FRANCHISEE (or
any affiliate of FRANCHISEE) and any default by FRANCHISEE (or any
person/company affiliated with FRANCHISEE) under any other agreement between
FRANCHISOR (or any affiliate of FRANCHISOR) and FRANCHISEE (or any
person/company affiliated with FRANCHISEE) may be regarded as a default under
this Agreement, in each case with FRANCHISOR (and each affiliate of FRANCHISOR)
to have all remedies allowed at law, including termination of FRANCHISEE'S
rights (and/or those of any person/company affiliated with FRANCHISEE) and
FRANCHISOR'S (and/or its affiliates') obligations. No right or remedy which
FRANCHISOR may have (including termination) is exclusive of any other right or
remedy provided under law or equity and FRANCHISOR may pursue any rights and/or
remedies available.
16. THE FRANCHISEE'S OBLIGATION UPON TERMINATION OR EXPIRATION
A. PAYMENT OF AMOUNTS OWED TO THE FRANCHISOR
The FRANCHISEE agrees to pay to the FRANCHISOR and its affiliates
within ten (10) days after the effective date of termination or expiration of
the FRANCHISE, or such later date that the amounts due to the FRANCHISOR and its
affiliates are determined, such royalty and service fees, advertising
contributions, amounts owed for PRODUCTS purchased by the FRANCHISEE from the
FRANCHISOR and its affiliates and all other amounts owed to the FRANCHISOR and
its affiliates which are then
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unpaid, including any interest and late fees due pursuant to this Agreement,
including Paragraph D of Section 13.
B. RETURN OF MANUALS.
The FRANCHISEE agrees that upon termination or expiration of the
FRANCHISE, he will immediately return to the FRANCHISOR all copies of the
OPERATING MANUAL for a GJC STORE which have been loaned to him by the
FRANCHISOR.
C. CANCELLATION OF ASSUMED NAMES AND TRANSFER OF PHONE NUMBERS.
The FRANCHISEE agrees that upon termination or expiration of the
FRANCHISE, he will take such action as may be required to cancel all assumed
names or equivalent registrations relating to his use of the Names and Marks and
to notify the telephone company and all listing agencies of the termination or
expiration of the FRANCHISEE's right to use any telephone number and any
classified and other telephone directory listings associated with any Names and
Marks and with a GJC STORE and to authorize transfer of same to the FRANCHISOR
or its designee. The FRANCHISEE acknowledges that as between the FRANCHISOR and
the FRANCHISEE, the FRANCHISOR has the sole right to and interest in all
telephone numbers and directory listings associated with any Names and Marks of
the STORE and the FRANCHISEE authorizes the FRANCHISOR, and hereby appoints the
FRANCHISOR and any officer of the FRANCHISOR as his attorney-in-fact, to direct
the telephone company and all listing agencies to transfer the same to the
FRANCHISOR or its designee should the FRANCHISEE fail or refuse to do so. The
telephone company and all listing agencies may accept such direction or this
Agreement as conclusive evidence of the exclusive rights of the FRANCHISOR in
such telephone numbers and directory listings and its authority to direct their
transfer.
FRANCHISEE shall also be required to cancel or if FRANCHISOR so elects
to have assigned to FRANCHISOR, all ownership of any and all computerized media
or electronic media, including but not limited to the World Wide Web, the
Internet, Telnet, news groups, bulletin boards, FTP, e-mail and the like which
presently or which may later exist.
D. FRANCHISOR HAS RIGHT TO PURCHASE STORE.
1) If this Agreement is terminated prior to its expiration by the
FRANCHISOR in accordance with the provisions of this Agreement, the FRANCHISOR
shall have the right and option (exercisable by written notice thereof within
thirty (30) days after the determination of the purchase price as provided in
subparagraph (2) below) to purchase (at the purchase price
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determined pursuant to subparagraph (2) below) from the FRANCHISEE some or all
of the assets (including the FRANCHISEE's inventory of saleable PRODUCTS which
have been fully paid for by the FRANCHISEE) of the STORE and if the premises
were not leased to the FRANCHISEE by the FRANCHISOR or its affiliates, the right
to an assignment of the FRANCHISEE's lease or sublease for the premises of the
STORE (or, if assignment is prohibited, a sublease for the full remaining term
and on the same terms and conditions as the FRANCHISEE's lease). There shall be
no provision for payment for leasehold improvements, the title of which shall be
governed by the terms of the FRANCHISEE's lease or sublease for the STORE
premises. The purchase price for the assets of the STORE shall be the
depreciated value of those assets as shown on the FRANCHISEE's most current
federal tax return; provided that the purchase price shall not contain any
factor or increment for "goodwill" or "going concern value." The purchase price
for the saleable inventory of the FRANCHISEE which have been fully paid for by
the FRANCHISEE shall be equal to ninety percent (90%) of the original invoice
cost charged to the FRANCHISEE. The FRANCHISOR may exclude from the assets
purchased hereunder any fixtures, equipment, signs or PRODUCTS and supplies in
the inventory of the STORE that are not approved as meeting quality standards
for a GJC STORE. The purchase price shall be paid by the FRANCHISOR in cash at
the closing of the purchase. Contemporaneously therewith, the FRANCHISEE shall:
(i) deliver instruments transferring good and merchantable title to the assets
purchased, free and clear of all liens and encumbrances to the FRANCHISOR or its
nominee with all sales and other transfer taxes paid by the FRANCHISEE; and (ii)
assign or transfer all licenses or permits which may be assigned or transferred.
In the event that the FRANCHISEE cannot deliver clear title to all of the
purchased assets as aforesaid, or in the event there shall be other unresolved
issues, the closing of the sale shall be accomplished through an escrow.
Further, the FRANCHISEE and the FRANCHISOR shall, prior to closing, comply with
the applicable Bulk Sales provisions of the Uniform Commercial Code as enacted
in the state where the STORE is located. If the FRANCHISOR exercises its option
to purchase, pending the closing of such purchase as hereinabove provided, the
FRANCHISOR shall have the right to appoint a manager to maintain the operation
of the STORE, upon the terms and conditions of Paragraph B of Section 15.
Alternatively, the FRANCHISOR may require the FRANCHISEE to close the STORE
during such time period without removing therefrom any assets. The FRANCHISEE
shall maintain in force all required insurance policies until the date of
closing. In connection with such purchase, FRANCHISEE (and each owner and/or
affiliate of FRANCHISEE) will execute a general release, in form prescribed by
FRANCHISOR, of any and all claims, liabilities and/or obligations, of any nature
whatsoever, however arising, known or unknown, against FRANCHISOR and/or any or
all of the Franchisor-Related Entities.
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2) If agreement on the depreciated value is not reached by the
FRANCHISEE and the FRANCHISOR within ten (10) days after the effective date of
termination, the determination of depreciated value (as above defined) shall be
submitted to a board of three certified appraisers. One appraiser shall be
selected by each party hereto and the third shall be selected by said two
appraisers. In the event of the death, resignation or disability of any such
appraiser, his successor shall be selected as the appraiser so succeeded was
selected. The average of the price determinations of the appraisers shall be
final and binding upon both parties. Each party shall pay all fees, costs and
expenses of the appraiser appointed by it and one-half of the fees, costs and
expenses of the third appraiser.
3) In the event the FRANCHISOR does not exercise said option to
purchase, the FRANCHISEE shall, within ten (10) days after the earlier of (i)
the expiration of the option period without exercise by the FRANCHISOR of its
option or (ii) service by the FRANCHISOR upon the FRANCHISEE of written notice
that the FRANCHISOR does not intend to exercise its option, remove from the
STORE by physical removal or in the case of signs, by obliteration, painting
over or otherwise, and cease to use, either at the STORE or elsewhere, all
names, distinctive architectural or other designs, signs, pictures, crests,
shields, and other advertising and equipment which are indicative of the
FRANCHISOR or FRANCHISEE. All PRODUCTS which are not merchantable due to
physical deterioration or which are "out-of-date" shall be destroyed by the
FRANCHISEE.
E. REPURCHASE OF INVENTORY
If this Agreement expires or is terminated by the FRANCHISOR for any
reason, the FRANCHISOR shall repurchase all saleable inventory of the
FRANCHISEE, which bear the Names and Marks and have been fully paid for by the
FRANCHISEE for a price equal to ninety percent (90%) of the original invoice
cost charged to the FRANCHISEE; provided, however, that the FRANCHISEE shall pay
all freight costs in connection with the shipment of the saleable inventory to
such location as the FRANCHISOR may designate.
F. COVENANT NOT TO COMPETE
If this Agreement expires or is terminated by the FRANCHISOR for any
reason, the FRANCHISEE and its owners agree that for a period of two (2) years,
commencing on the effective date of termination of this Agreement or the date on
which the FRANCHISEE ceases to conduct the business conducted pursuant to this
Agreement, whichever is later, neither the FRANCHISEE nor its owners (through a
member of the immediate family of the FRANCHISEE or an owner of the FRANCHISEE
or otherwise) will have
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any interest as an owner (except of publicly-traded securities and interests in
other GJC STORES pursuant to other franchise agreements heretofore or hereafter
entered into), partner, director, officer, employee, consultant, representative,
agent, or in any other capacity, in any retail store principally offering
products substantially similar to the PRODUCTS then being offered by the
majority of the GJC STORES/BAR/KIOSKS/HOLIDAY GIFT CENTERS and located within
either: (i) the Standard Metropolitan Statistical Area wherein the STORE is
located; or (ii) a ten (10) mile radius from any then existing GJC STORE, nor
will they have any interest, as aforesaid, in any entity which franchises or
grants to others the right to sell products similar to the PRODUCTS then being
offered by the majority of the GJC STORES/BAR/KIOSKS/HOLIDAY GIFT CENTERS.
G. CONTINUING OBLIGATIONS
All obligations of the FRANCHISOR and the FRANCHISEE which expressly or
by their nature survive the expiration or termination of the FRANCHISE shall
continue in full force and effect subsequent to and notwithstanding the
expiration or termination of this Agreement and until they are satisfied in full
or by their nature expire. The continuing right of any landlord pursuant to the
terms and conditions of a lease or sublease for the STORE's premises to audit
the FRANCHISEE's books and records after termination of any leases or sublease.
17. ASSIGNMENT, TRANSFER AND ENCUMBRANCE
A. BY FRANCHISOR.
This Agreement, and any and/or all of FRANCHISOR's rights and/or
obligations under it, are fully transferable by FRANCHISOR in its sole and
absolute discretion and will inure to the benefit of any person or entity to
whom FRANCHISOR transfers it, or to any other legal successor to FRANCHISOR's
interest in this Agreement. If FRANCHISOR transfers this Agreement, or any
and/or all of its rights and/or obligations under it, all past, current and
future obligations of FRANCHISOR (and of any of the Franchisor-Related Entities)
to FRANCHISEE will cease and be forever extinguished.
B. THE FRANCHISEE MAY NOT ASSIGN WITHOUT APPROVAL OF THE
FRANCHISOR
The FRANCHISE is personal to the FRANCHISEE (or its owners) and neither
the FRANCHISE, this Agreement (except as hereinafter provided with respect to
assignment to a partnership or corporation), the STORE or its (other than in the
ordinary course of its business) assets nor any part or all of the ownership of
the FRANCHISEE may be voluntarily, involuntarily, directly or
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indirectly assigned, subdivided, subfranchised or otherwise transferred by the
FRANCHISEE or its owners (including, without limitation, in the event of the
death of the FRANCHISEE or an owner of the FRANCHISEE, by will, declaration of
or transfer in trust or the laws of intestate succession) without the prior
written approval of the FRANCHISOR, and any such assignment or transfer without
such approval shall constitute a breach hereof and shall convey no rights to or
interest in the FRANCHISE, this Agreement, the STORE or its assets or any part
or all of the ownership interest in the FRANCHISEE. If the FRANCHISEE is in full
compliance with this Agreement, the FRANCHISOR shall not unreasonably withhold
its approval of an assignment or transfer to proposed assignees or transferees
who are of good moral character and otherwise meet the FRANCHISOR's
then-applicable standards for GJC STORE franchisees and the transferee or owners
of the transferee in form approved by the FRANCHISOR agree to be personally
bound jointly and severally by all provisions of this Agreement and guarantee
performance thereof and all other agreements between the FRANCHISEE and the
FRANCHISOR and its affiliates to the same extent as if they had been original
parties to the agreements. A transfer of ownership in the STORE may only be made
in conjunction with a transfer of the FRANCHISE. If the transfer is of the
FRANCHISE, this Agreement or a controlling interest in the FRANCHISEE, or is one
of a series of transfers which in the aggregate constitute the transfer of the
FRANCHISE, this Agreement or a controlling interest in the FRANCHISEE, all of
the following conditions must be met prior to, or concurrently with the
effective date of the transfer: (1) the transferee must have sufficient business
experience and financial resources; (2) the transferee must assume all existing
obligations of the transferor hereunder and under the lease or sublease (if the
premises was not leased from the FRANCHISOR or its affiliates); (3) the
transferee must attend and complete the training program to the satisfaction of
the FRANCHISOR; (4) if any part of the sale price of the transferred interest is
financed, the FRANCHISEE and its owners and the transferor shall have agreed
that all obligations of the transferee to either of them shall be subordinate to
the obligations of the transferee to pay all fees and other amounts due to the
FRANCHISOR and its Affiliates, and otherwise comply with the Agreement or the
franchise agreement executed by the transferee; (5) the STORE must be in
compliance with or be brought up to the then current design and equipment
standards for GJC STORES; and (6) the transferee must execute and be bound by
all provisions of the FRANCHISOR's then-current form of franchise agreement (and
sublease if the STORE was subleased directly from the FRANCHISOR or its
affiliates), which may provide for a higher royalty and service fee and
advertising contributions and other significant provisions may vary from what is
provided hereunder and shall provide for a term equal to the remaining term of
the FRANCHISE. The FRANCHISOR shall not charge such transferee an initial
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franchise fee for the FRANCHISE, but will charge the transferor its then current
assignment fee which will not exceed fifty percent (50%) of its then current
initial franchise fee, to cover the FRANCHISOR's costs in approving and
effectuating the assignment.
C. ASSIGNMENT TO PARTNERSHIP OR CORPORATION.
If the FRANCHISEE is in full compliance with this Agreement, the
FRANCHISOR shall not unreasonably withhold its consent to a transfer of the
FRANCHISE, this Agreement, the STORE and its assets to a partnership or
corporation which conducts no business other than the STORE (and other GJC
STORES under franchise agreements with the FRANCHISOR), which is actively
managed by the FRANCHISEE and in which the FRANCHISEE owns and controls not less
than fifty-one percent (51%) of the general partnership interests or the equity
and voting power; provided that the corporation or partnership execute the
FRANCHISOR's standard assignment and assumption agreement, and the shareholders
or partners, in form approved by the FRANCHISOR, agree to be personally bound
jointly and severally by all provisions of this Agreement and guarantee the
performance thereof and all other agreements between the FRANCHISEE and the
FRANCHISOR and its affiliates, to the same extent as if they had been parties to
the original agreements, and all issued and outstanding stock certificates of
such corporation shall bear a legend reflecting or referring to the restrictions
of Paragraph B of this Section.
D. FRANCHISOR'S RIGHT OF FIRST REFUSAL.
If the FRANCHISEE or its owners shall at any time determine to sell the
FRANCHISE, this Agreement, the STORE or its assets or an ownership interest in
the FRANCHISEE, the FRANCHISEE or its owners shall obtain a bona fide, executed
written offer accompanied by a cashier's check for ten percent (10%) of the
purchase price to serve as forfeitable earnest money thereunder, from a
responsible and fully disclosed purchaser and shall submit an exact copy of such
offer to the FRANCHISOR. The FRANCHISOR or its designee shall, for a period of
thirty (30) days from the date of delivery of such offer, have the right,
exercisable by written notice to the FRANCHISEE or its owners, to purchase the
interest for the price and on the terms and conditions contained in such offer;
provided that the FRANCHISOR or its designee may substitute cash for any form of
payment proposed in such offer. If the FRANCHISOR or its designee does not
exercise this right of first refusal, the FRANCHISEE or its owners may complete
the sale of the FRANCHISE, the STORE and its assets or such ownership interest
to such purchaser (on the terms of the bona fide offer subject to the
FRANCHISOR's approval of the purchaser as provided in Paragraph B of this
Section); provided that if the sale to such purchaser is not completed within
one hundred twenty (120)
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days after delivery of such offer to the FRANCHISOR, the FRANCHISOR or its
designee shall again have the right of first refusal as herein provided.
E. DEATH OR PERMANENT DISABILITY OF THE FRANCHISEE
Upon the death or permanent disability of the FRANCHISEE or if the
FRANCHISEE is a corporation or partnership, upon the death or permanently
disability of the owner of the controlling interest in the FRANCHISEE, the
executor, administrator, conservator or other personal representative of such
person shall transfer his interest to the heirs or beneficiaries of such person
or to a third party approved by the FRANCHISOR within a period of twelve (12)
months. Such transfers, including, without limitation, transfers by devise or
inheritance or trust provisions, shall be subject to the same conditions for
transfers contained in this Agreement. Failure to so dispose of such interest
within said period of time shall constitute a breach of this Agreement. The
FRANCHISEE shall be deemed to have a "permanent disability" if the usual, active
participation in the GJC STORE by the FRANCHISEE as contemplated pursuant to
this Agreement is for any reason curtailed for a continuous period of six (6)
months.
If after the death or permanent disability of the FRANCHISEE or an
owner of the FRANCHISEE, the GJC STORE is not being managed by a competent and
trained manager (as determined by the FRANCHISOR in its sole discretion), the
FRANCHISOR is authorized to immediately appoint a manager to maintain the
operation of the GJC STORE for a period not to exceed twelve (12) months or
until an approved assignee shall be able to assume the management and operation
of the GJC STORE, upon the terms and conditions of Paragraph D of Section 15.
F. RELEASE, EFFECT OF TRANSFER
In connection with ANY assignment, etc. of any interest of or by
FRANCHISEE (including, but not limited to, an assignment to a corporation)
FRANCHISEE and each of its owners and/or affiliates [and the transferee (and
each owner and/or affiliate of the transferee) if the transferee or such owner
and/or affiliate is or has been a franchisee of, or had any other relationship
with, FRANCHISOR or any of the Franchisor-Related Entities] must execute a
general release, in a form prescribed by FRANCHISOR, of any and all claims,
liabilities and/or obligations, of any nature whatsoever, however arising, known
or unknown, against FRANCHISOR and/or any or all of the Franchisor-Related
Entities.
FRANCHISOR'S consent to a transfer, or failure to exercise any
right-of-first-refusal, will not constitute a waiver of any
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claims FRANCHISOR may have against FRANCHISEE (or its owners or affiliates), nor
will it be deemed a waiver of FRANCHISOR'S right to demand exact compliance with
any of the terms or conditions of this Agreement or any other agreement by any
transferor or transferee. Unless FRANCHISOR expressly in writing releases
FRANCHISEE from its obligations under this Agreement (which FRANCHISOR has no
obligation to do), FRANCHISEE will remain and be liable for all of the payment
and other obligations under this Agreement (and any other agreement with us
and/or any affiliate) and any Franchise Agreement and/or other agreement
executed by any transferee, including any defaults by any transferee. Any
transfer (including any transfer consented to by FRANCHISOR and even if the
transferee executes a new franchise agreement) will not act as a termination of
FRANCHISEE`S confidentiality, indemnity, non-competition and other obligations
under this Agreement, including any obligations which by their nature survive
the term of this Agreement [FRANCHISEE'S non-competition obligations to
expressly continue for the full original term of this Agreement notwithstanding
any transfer], or affect FRANCHISEE'S and FRANCHISOR'S obligations and rights
under the dispute avoidance and resolution provisions of this Agreement,
including Articles 18 and 22. Any dispute regarding any proposed or completed
transfer (including FRANCHISOR'S alleged failure to consent to a proposed
transfer) will be resolved under the mediation/arbitration provisions of this
Agreement and FRANCHISEE'S sole remedy will be an order that FRANCHISOR grant
consent.
18. DISPUTE AVOIDANCE AND RESOLUTION
A. MEDIATION AND MANDATORY BINDING ARBITRATION, WAIVER OF RIGHT
TO TRIAL BY JURY, ETC.
Realizing that in business relationships there's always a possibility
of differences of opinion or other disagreements and that what is most important
is to resolve any disputes amicably, quickly, inexpensively and professionally
and to return to business as soon as possible, it's with that same spirit of
cooperation that FRANCHISEE and FRANCHISOR pledge to resolve differences and to
use the procedures specified in this Agreement (and particularly this Article
18), believing that these procedures will reduce instances of possible disputes
and make the resolution of any disputes which do arise less expensive, quicker,
less subject to public notoriety and achievable in a less formal and
antagonistic means than litigation, as well as to increase the opportunities for
FRANCHISEE and FRANCHISOR to maintain a mutually beneficial business
relationship
Therefore, FRANCHISEE and FRANCHISOR agree as follows:
(1) Any litigation, claim, dispute, suit, action,
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controversy, proceeding or otherwise ("claim") between or involving FRANCHISEE
(and/or any owner and/or affiliate of FRANCHISEE or which could be brought by,
or on behalf of, FRANCHISEE, any owner and/or affiliate of FRANCHISEE) and
FRANCHISOR (and/or any claim against or involving any or all of the
Franchisor-Related Entities or otherwise), except as expressly provided below at
Section 18 A. (5), whether arising out of or relating in any way to this and/or
any other agreement and/or any other document, any alleged breach of any duty or
otherwise (including but not limited to the underlying legality of the offer
and/or sale of any franchise, any action for rescission or other setting aside
of such sale or any transaction, agreement or document and any claim that this
Agreement or any portion thereof is invalid, illegal, void, unenforceable or
otherwise and any claim of fraud, including fraud in the inducement) and on
whatever theory and/or facts based, will be:
(a) First, discussed in a face-to-face meeting between
FRANCHISEE (or, if the Franchisee is a corporation or partnership, an
individual authorized to make binding commitments on behalf of the
Franchisee) and a corporate executive of FRANCHISOR's authorized to
make binding commitments on FRANCHISOR's behalf. This meeting will be
held at the FRANCHISOR'S then-current headquarters and within 30 days
after either FRANCHISEE or FRANCHISOR gives written notice to the other
proposing such a meeting.
(b) Second, if, in the opinion of either FRANCHISEE or
FRANCHISOR, the meeting has not successfully resolved such matters and
if desired by any person or entity involved in the claim, submitted to
non-binding mediation for a minimum of eight hours before (a) Franchise
Arbitration and Mediation, Inc. ("FAM") (or an organization designated
by FAM) or (b) any other mediation organization approved by all such
persons and/or entities or (c) by Judicial Arbitration and Mediation
Service (JAMS) if FAM cannot conduct such mediation and the parties
cannot agree on a mediation organization. On election by any party,
arbitration and/or any other remedy allowed by this Agreement may
proceed forward at the same time as mediation. In the mediation,
FRANCHISEE and FRANCHISOR shall each be represented by an individual
authorized to make binding commitments on FRANCHISEE'S and FRANCHISOR'S
respective behalfs and may be represented by counsel. In addition,
FRANCHISEE and/or FRANCHISOR may, with permission of the mediator,
bring such additional persons as are needed to respond to questions,
contribute information and/or participate in the negotiations. The fees
and expenses of the mediator and/or mediation organization shall be
shared equally by FRANCHISEE and FRANCHISOR. The mediator shall be
disqualified as a
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witness, consultant, expert or counsel for any party with respect to
the dispute and any related matters.
(c) Third, if neither FRANCHISEE nor FRANCHISOR desire
mediation (or if such mediation is not successful in resolving such
claim), submitted to and finally resolved by binding arbitration before
and in accordance with the arbitration rules of FAM (or any successor
organization); provided that if such arbitration is unable to be heard
by FAM for any reason, the arbitration will be conducted by Judicial
Arbitration and Mediation Service (JAMS.) The fees and expenses of the
arbitrator(s) and/or arbitration organization shall be shared equally
by the disputants. In each case, the parties to any
mediation/arbitration will execute appropriate confidentiality
agreements, excepting only such public disclosures and filings as are
required by law.
(2) Any mediation/arbitration (and any appeal of
arbitration) will be exclusively conducted at the office of the
mediating/arbitrating organization (or its representatives) which is located
closest to FRANCHISOR's then-current headquarters and, if at all possible, by a
mediator/arbitrator experienced in franchising. FRANCHISEE and FRANCHISOR
acknowledge the critical importance of a single source for decisions in
arbitration (and in any court actions) to guide FRANCHISEE and FRANCHISOR, to
eliminate the possibility of inconsistent decisions and awards which could
adversely affect the uniform development and administration of the GLORIA JEAN'S
System and group of companies and to maximize the opportunity for the arbitrator
to give due consideration to FRANCHISEE's and FRANCHISOR's ongoing practical
business needs in this regard. Except as expressly provided below, the parties
to any mediation or arbitration will bear their own costs, including attorney's
fees. Any claim, and any mediation/arbitration, will be conducted and resolved
on an individual basis only and not on a class-wide, multiple plaintiff or
similar basis. On request of any party to a claim, the arbitrator may be
required to issue a written award, specifying the facts found and the law
applied, but the party so requesting will bear the fees and charges incurred in
connection therewith. The arbitrator may award or otherwise provide for
temporary restraining orders, preliminary injunctions, injunctions, attachments,
claim and delivery proceedings, temporary protective orders, receiverships and
other pre-judgment, equitable and/or interim relief as appropriate pending final
resolution by binding arbitration of a claim, as well as in connection with any
such final resolution, and may issue summary orders disposing of all or part of
a claim at any point. Each party consents to the enforcement of such orders,
injunctions, etc. by any court having jurisdiction. In any arbitration, any and
all pre-trial discovery devices (including, but not limited to, depositions,
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written interrogatories, requests for admission, and requests for production,
inspection and copying of documents) will be available to the disputants as if
the subject matter of the arbitration were pending in a civil action before a
court of general jurisdiction in the state whose law is to be applied under
Section 18 N. The arbitrator shall have the power to order compliance with such
discovery procedures, as well as assess sanctions for non-compliance with any
order. The arbitrator (rather than a court) shall decide any questions relating
in any way to the parties' agreement (or claimed agreement) to arbitrate,
including but not limited to applicability, subject matter, timeliness, scope,
remedies and any alleged fraud in the inducement, or otherwise. Each participant
must submit or file any claim which would constitute a compulsory counterclaim
(as defined by the applicable rule under the Federal Rules of Civil Procedure)
within the same proceeding as the claim to which it relates. Any such claim
which is not submitted or filed in such proceeding will be forever barred. Any
offers, discussions, negotiations, mediations or otherwise in connection with
possible settlement or other resolution of any claim may not be introduced in
evidence (or for any other purpose) in any arbitration proceeding, court
proceeding or otherwise.
(3) If any party to an arbitration wishes to appeal any
final award by an arbitrator (there will be no appeal of interim awards or other
interim relief), that party can appeal, within thirty (30) days of such final
award, to a three (3) arbitrator panel to be appointed by the same organization
as conducted the arbitration, such panel to conduct all proceedings at the same
location as specified in subsection (b) above. The issues on appeal will be
limited to the proper application of the law to the facts found at the
arbitration and will not include any trial de novo or other fact-finding
function. The party requesting such appeal must pay all costs and fees charged
by such arbitration appeal panel and/or arbitration organization in connection
with such appeal, as well as posting any bond deemed appropriate by such
arbitration organization or arbitration appeal panel. In addition, a party
requesting appeal, and who does not prevail on appeal, will pay the other
party's (or parties') attorneys' fees and other costs of responding to such
appeal.
(4) Judgment on any preliminary or final arbitration award
[subject to the opportunity for appeal as contemplated above] may be entered in
any court having jurisdiction and will be binding, final and non-appealable.
(5) The obligation herein to mediate and/or arbitrate will
not be binding on FRANCHISOR with respect to claims or issues relating primarily
to (i) the validity of any trademarks, service marks or other intellectual
property of
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FRANCHISOR, (ii) FRANCHISOR's rights to obtain possession of any real and/or
personal property (including any action in unlawful detainer, ejectment or
otherwise) (iii) FRANCHISOR's rights to obtain a writ of attachment and/or other
pre-judgment remedies and/or (iv) FRANCHISOR's rights to receive and enforce a
temporary restraining order, preliminary injunction, permanent injunction or
other equitable relief, and FRANCHISOR's exercise of any such rights and/or
remedies will not be deemed a waiver of FRANCHISOR's rights to require or use
mediation and/or arbitration.
(6) Notwithstanding any provisions of this Agreement or
otherwise relating to which state or provincial laws this Agreement will be
governed by and construed under, all issues relating to arbitrability and/or the
enforcement of the agreement to arbitrate contained herein will be decided by
the arbitrator (including all claims that this Agreement in general, and/or the
within agreement to arbitrate, was procured by fraud in the inducement or
otherwise) and will be governed by the Federal Arbitration Act (9 U.S.C. Section
1 et seq.) and the federal common law of arbitration. Notwithstanding any
provisions of state law to the contrary, FRANCHISOR intends to fully enforce the
provisions of this franchise agreement and other documents, including all venue,
choice-of-laws and mediation/arbitration provisions, and to rely on federal
preemption under the Federal Arbitration Act (9 U.S.C. Section 1 et seq.)
(7) FRANCHISEE and FRANCHISOR each knowingly waive all
rights to trial by a court or jury, understanding that arbitration may be less
formal than a court or jury trial, may use different rules of procedure and
evidence and that appeal is generally less available, still strongly preferring
(for the reasons set forth in this section and the following one) mediation
and/or arbitration to resolve any disputes, except as provided in Section 18 A.
(5).
B. VENUE, WAIVER OF RIGHTS TO TRIAL BY JURY, LIMITATION OF
DAMAGES, ETC.
Without in any way limiting or otherwise affecting FRANCHISEE's and
FRANCHISOR's obligations regarding mediation/binding arbitration, FRANCHISEE and
FRANCHISOR agree that any litigation between FRANCHISEE and FRANCHISOR (and/or
involving any owner and/or affiliate of FRANCHISEE's or which could be brought
by FRANCHISEE or on FRANCHISEE's behalf and including any matters involving any
of the Franchisor-Related Entities or otherwise), whether to enforce an
arbitration award or involving any litigation, dispute, controversy, claim,
proceeding or otherwise which is not subject to any agreement regarding
mediation/arbitration (or in the event that a court having jurisdiction should
hold that the foregoing agreement
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regarding mediation and/or arbitration is not enforceable) or otherwise, and
bearing in mind FRANCHISEE's and FRANCHISOR's joint interest in having a single
court determine issues in a consistent manner for application throughout the
GLORIA JEAN'S System and not have FRANCHISOR or FRANCHISEE exposed to
inconsistent decisions, will be held exclusively before a court in the most
immediate judicial district encompassing FRANCHISOR's then-current headquarters
and having subject matter jurisdiction or the United States District Court
encompassing our then-current headquarters (where a basis for federal
jurisdiction exists, all filings, proceedings and otherwise will be exclusively
in such Federal court, in preference to State court), FRANCHISOR and FRANCHISEE
consenting to the exclusive jurisdiction of such court(s) and WAIVING ALL RIGHTS
TO TRIAL BY JURY. Any claim, and any litigation, will be conducted and resolved
on an individual basis only and not on a class-wide, multiple plaintiff or
similar basis.
So as to achieve many of the advantages which would normally be
associated with arbitration (such as lower expense, more rapid resolution of
controversies, fewer protracted and complex proceedings, reduced instances of
costly and time-consuming appeal, use of a more sophisticated and experienced
trier of fact and law, etc.) and for FRANCHISEE's and FRANCHISOR's mutual
benefit, FRANCHISEE and FRANCHISOR agree that in any litigation, FRANCHISEE (and
each owner and affiliate of FRANCHISEE's) and FRANCHISOR each knowingly waive
all rights to trial by jury and, in any arbitration, litigation or otherwise,
FRANCHISEE and FRANCHISOR each waive any right to recover, and any rights to
make claims for (whether by claim, counter-claim, offset, way of defense or
otherwise), punitive, exemplary, multiple, pain-and-suffering, mental distress,
incidental, consequential, special, lost income and/or profits (except as
expressly provided below) and/or similar damages under any theory whatsoever,
FRANCHISEE and FRANCHISOR agreeing that such claims are inherently speculative
and subject to abuse, often serving as obstacles to the reasonable resolution or
settlement of a dispute and frequently operating to primarily benefit the
attorneys involved in the claim, provided that , in any event, FRANCHISOR may
recover the then-current value of any initial franchise fees, royalties,
marketing contributions and/or other payments FRANCHISEE is, or would be,
obligated to make, or would normally make, in the absence of a breach or
termination, to FRANCHISOR or any affiliated company, whether under this
Agreement or otherwise, it being FRANCHISEE's and FRANCHISOR's intention that
FRANCHISOR receive the full benefit of FRANCHISOR's bargain with FRANCHISEE. In
any event, FRANCHISOR's maximum liability (combined with the maximum liability
of any of the Franchisor-Related Entities or any of them) shall be
(collectively) limited to the return to FRANCHISEE of the initial franchise fee
actually paid by FRANCHISEE and FRANCHISEE's maximum liability will be
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limited to the present value of the royalties, advertising contributions and
other amounts which normally would have been paid by FRANCHISEE if the franchise
had continued in existence for its full term and any renewals. FRANCHISEE and
FRANCHISOR have agreed on this limitation in recognition of the facts that the
calculation of any actual damages would be exceedingly difficult and subject to
speculation and possible abuse and that the foregoing compromises benefit both
FRANCHISOR and FRANCHISEE. FRANCHISEE agrees that FRANCHISOR will not be
required to post a bond in order to obtain any injunctive or other equitable
relief or otherwise and that FRANCHISEE's only remedy if an injunction or other
equitable relief is entered against FRANCHISEE will be to obtain dissolution of
such injunction, etc.
The dispute avoidance and resolution provisions of this Agreement
(including, but not limited to, this Article 18 and Article 22) shall apply to
any claims, arbitration, litigation or otherwise between FRANCHISEE and
FRANCHISOR, and/or by any owner and/or affiliate of FRANCHISEE's, or which could
be brought by FRANCHISEE or on FRANCHISEE's behalf, whether against FRANCHISOR
and/or any or all of the Franchisor-Related Entities.
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C. PRIOR NOTICE OF CLAIMS BY FRANCHISEE
Prior to FRANCHISEE taking any legal or other action against FRANCHISOR
and/or any of the Franchisor-Related Entities, whether for arbitration, damages,
injunctive, equitable or other relief (including but not limited to recision)
and whether by way of claim, counterclaim, cross-complaint, raised as an
affirmative defense, offset or otherwise, FRANCHISEE will first give FRANCHISOR
sixty (60) days prior written notice and opportunity to cure such alleged act or
omission [or, if such alleged act or omission cannot reasonably be cured within
such sixty (60) day period, and FRANCHISOR is diligently continuing efforts to
attempt to cure such alleged act or omission, such additional time as FRANCHISOR
is continuing such efforts]; provided that any dispute regarding FRANCHISOR's
withholding consent with respect to a proposed transfer by FRANCHISEE may be
immediately submitted to face-to-face meeting, mediation and arbitration as
provided in Section 18 A.
Since FRANCHISEE and FRANCHISOR share a mutual interest in FRANCHISEE's
possible success and each believe that it is important that any possible
business problems be addressed as soon as possible, FRANCHISEE and FRANCHISOR
agree that if FRANCHISEE has any complaint regarding FRANCHISOR's failing to
perform any obligation to FRANCHISEE (including, but not limited to, training,
marketing, operational support, representations by FRANCHISOR or otherwise)
FRANCHISEE will promptly advise FRANCHISOR in writing of such problem within 90
days of the problem arising, so that FRANCHISOR can have an opportunity to
correct the problem. If FRANCHISEE fails to so advise FRANCHISOR, FRANCHISEE
will be forever precluded from taking any legal or other action against
FRANCHISOR and/or any of the Franchisor-Related Entities, whether for
arbitration, damages, injunctive, equitable or other relief (including but not
limited to recision) and whether by way of claim, counterclaim, cross-complaint,
raised as an affirmative defense, offset or otherwise with regard to the
problem.
D. PERIODS IN WHICH TO MAKE CLAIMS
(1) FRANCHISEE and FRANCHISOR agree that, except as provided
below at Section 18 D. (3), no arbitration, action or suit (whether by way of
claim, counterclaim, cross-complaint, raised as an affirmative defense, offset
or otherwise) by either FRANCHISEE or FRANCHISOR will lie or be permitted
against the other (nor by FRANCHISEE against any of the Franchisor-Related
Entities), whether for damages, rescission, injunctive or any other legal and/or
equitable relief, in respect of any alleged breach of this Agreement, or any
other claim of any type, unless such party will have commenced such arbitration
proceeding, action or suit before the expiration of the earlier of:
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(a) One (1) year after the date on which the state of
facts giving rise to the cause of action comes to
the attention of, or should reasonably have come
to the attention of, such party; or
(b) One (1) year after the initial occurrence of any
act or omission giving rise to the cause of
action, whenever discovered.
(2) Notwithstanding the foregoing limitations, where any
federal, state or provincial law provides for a shorter limitation period than
above described, whether on notice or otherwise, such shorter period will
govern.
(3) The foregoing limitations may, where brought into effect
by FRANCHISOR's failure to commence an action within the time periods specified,
operate to exclude FRANCHISOR's right to sue for damages but will in no case,
even on expiration or lapse of the periods specified or referenced above,
operate to prevent FRANCHISOR from terminating FRANCHISEE's rights and
FRANCHISOR's obligations under this Agreement as provided herein and under
applicable law nor prevent FRANCHISOR from obtaining any appropriate court
judgment, order or otherwise which enforces and/or is otherwise consistent with
such termination.
(4) The limitations set forth in subsections (a) and (b)
will not apply to FRANCHISOR's claims arising from or related to: (1)
indemnification by FRANCHISEE; (2) FRANCHISEE's confidentiality, non-competition
or other exclusive relationship obligations; and/or (3) FRANCHISEE's
unauthorized use of the Name and/or Marks.
E. WITHHOLDING CONSENT
In no event will FRANCHISEE make any claim, whether directly, by way of
set-off, counter-claim, defense or otherwise, for money damages or otherwise, by
reason of any withholding or delaying of any consent or approval by FRANCHISOR.
FRANCHISEE's sole remedy for any such claim is to submit it to an executive
meeting, mediation and arbitration as described in this Agreement and, if the
executive meeting and mediation fail to resolve the matter, for the arbitrator
to order FRANCHISOR to grant such consent. Unless expressly provided otherwise
in this Agreement, approvals and consents may be withheld by FRANCHISOR in its
sole and absolute discretion.
F. SURVIVAL AND CONSTRUCTION
Each provision of this Article 18, together with the provisions of
Article 22, will be deemed to be self-executing and
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continue in full force and effect subsequent to and notwithstanding the
expiration, termination, setting aside, cancellation, recision, unenforceability
or otherwise of this Agreement (or any part of it) for any reason, and will
survive and will govern any claim for recision or otherwise.
Each provision of this Agreement (including but not limited to those
relating to mandatory arbitration, waiver of jury trial, limitation of damages,
prior notice of claims, shortened periods in which to bring claims, costs and
attorney's fees, or otherwise) will be construed as independent of, and
severable from, every other provision and if any provisions are deemed to be
unenforceable in any way, such provisions will be modified or interpreted to the
minimum extent necessary to have them comply with the law (including making such
provision mutual in effect) and the remaining provisions of this Agreement will
remain in full force and effect, the parties agreeing that the unenforceability
of any provisions of this Article 18 (or otherwise) will not affect the
remainder of this Article 18 (or otherwise), notwithstanding any statutory or
decisional law to the contrary.
Each party reserves the right to challenge any law, rule or judicial or
other construction which would have the effect of varying or rendering
ineffective any provision of this Agreement. The benefits and protections of
this Agreement which apply to FRANCHISOR (including, but not limited to, all
provisions relating to indemnification and/or releases) shall also apply to any
past, current and/or future Franchisor-Related Entities as if they were
expressly named beneficiaries of such provisions. In each case where FRANCHISOR
may exercise any option or other right, FRANCHISOR may do so in FRANCHISOR's
sole and absolute discretion, without liability or other obligation. So as to
preserve the flexibility to deal with practical business situations (which
FRANCHISEE and FRANCHISOR agree should benefit FRANCHISOR's and FRANCHISEE's
businesses in the long term), FRANCHISOR may, in FRANCHISOR's sole and absolute
discretion, elect to not enforce (or to selectively enforce) any provision of
this Agreement, or any other agreement, any policy or otherwise, whether with
respect to FRANCHISEE and/or any other franchisee or otherwise, and FRANCHISOR
may apply different policies to any franchisee, all without liability or other
obligation and any such acts or omissions will not limit or otherwise affect
FRANCHISOR's rights, whether to enforce this Agreement or otherwise.
G. COSTS AND ATTORNEYS' FEES
Except as expressly provided otherwise in this Agreement with respect
to appeal of an arbitration award or otherwise, and based on FRANCHISEE'S and
FRANCHISOR'S judgment that attorney's fees provisions often operate to primarily
benefit the attorneys
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involved in any claim and/or to encourage specious claims to the detriment of
everyone involved in a franchise system, the parties will each bear their own
costs of enforcement and/or defense (including but not limited to attorney's
fees) in any claim or dispute between FRANCHISEE and FRANCHISOR (including
FRANCHISEE's and/or FRANCHISOR's affiliates, related persons/entities, etc.) and
will make no claim with regard thereto.
H. VALIDITY AND EXECUTION
This Agreement will become valid only when executed and accepted by
FRANCHISOR at its headquarters.
I. BINDING EFFECT, MODIFICATION AND REPRESENTATIONS
This Agreement is binding on the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and will
not be modified or supplemented except by means of a written agreement signed by
both FRANCHISEE and FRANCHISOR's President or one of FRANCHISOR's Vice
Presidents, provided that changes to the Operating Manual may be made by
FRANCHISOR at any time and will be fully binding on FRANCHISEE notwithstanding
any provisions of this Section or otherwise. No other officer, field
representative, salesperson or other person has the right or authority to sign
on behalf of FRANCHISOR, to make oral or written modifications to this
Agreement, or to make any representations or agreements on behalf of FRANCHISOR,
and any such modifications, representations and/or agreements shall not be
binding on FRANCHISOR. Similarly, other than any of the individual FRANCHISEE(s)
(or any partner or corporate officer of the FRANCHISEE, if the FRANCHISEE is a
partnership or corporation), no person has the right or authority to sign on
behalf of FRANCHISEE, to make oral or written modifications to this Agreement on
behalf of FRANCHISEE, or to make any representations or agreements on behalf of
FRANCHISEE, and any such modifications, representations and/or agreements shall
not be binding on FRANCHISEE. FRANCHISEE expressly acknowledges that no oral
promises, representations or declarations were made to or relied on by
FRANCHISEE and that FRANCHISOR's obligations are confined exclusively to the
terms herein. FRANCHISEE understands and assumes the business risks inherent in
the franchised enterprise.
J. CONSTRUCTION, ETC.
Except as expressly provided otherwise, nothing in this Agreement is
intended, nor will be deemed, to confer any rights or remedies on any person or
legal entity not a party hereto. Except where this Agreement expressly provides
otherwise, FRANCHISOR has the right to condition, withhold and/or refuse, in
FRANCHISOR's sole and absolute discretion, any request by
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FRANCHISEE and FRANCHISOR's approval of, or consent to, any action or omission
by FRANCHISEE. The headings of the several Articles and Sections hereof are for
convenience only and do not define, limit, or construe the contents of such
Articles or Sections. The term "attorneys' fees" will include, without
limitation, legal fees, whether incurred prior to, in preparation for or in
contemplation of the filing of any written demand or claim, action, hearing or
proceeding to enforce the obligations of this Agreement. References to a
"controlling interest" in the Franchisee will mean fifty percent (50%) or more
of the voting control of the Franchisee if the Franchisee is a corporation, and
any general partnership interest if the Franchisee is a partnership. The term
"FRANCHISEE" as used herein is applicable to one or more persons, a corporation
or a partnership, as the case may be. The singular usage includes the plural and
the masculine and neuter usages include the other and the feminine. If two or
more persons are at any time the Franchisee hereunder, whether or not as
partners or joint venturers, their obligations and liabilities to FRANCHISOR
will be joint and several. This Agreement will be executed in multiple copies,
each of which will be deemed an original. Each of the provisions of this
Agreement (including Articles 18 and 22) apply to any claim brought (or which
could be brought) by any owner and/or affiliate of FRANCHISEE's or by or on
FRANCHISEE's behalf. If any limitation on FRANCHISEE's rights (including, but
not limited to, any limitation on damages, waiver of jury trial, shortened
period in which to make any claim or otherwise) is held unenforceable with
respect to FRANCHISEE, then such limitation will not apply to FRANCHISOR.
FRANCHISOR shall have the sole right to enforce the obligations of this (or any
other) Franchise (or other) Agreement and neither FRANCHISEE nor any other
franchisee of FRANCHISOR's shall be deemed a third party beneficiary with
respect to this or any other agreement.
FRANCHISEE and FRANCHISOR, each believing that (1) having written
documents as the only basis for their legal relationship benefits each equally
and reduces the risk of uncertainty in what should be a long-term business
relationship and (2) this Agreement should be strictly interpreted according to
its express terms, and each having a concern with (among other things) an
approach whereby a court or arbitrator might impose (or limit or expand) duties
on either that were not expressly agreed to in writing by FRANCHISEE and
FRANCHISOR, agree that FRANCHISEE and FRANCHISOR mutually waive any "implied
covenant of good faith and fair dealing" and that no such (or similar) doctrine,
rule of interpretation or otherwise will have any application to FRANCHISEE's
and FRANCHISOR's relationship, this Agreement or any other agreement between
FRANCHISEE and FRANCHISOR (or any affiliate or the Franchisor-Related Entities)
nor will affect FRANCHISOR's ability to make binding changes to the GLORIA
JEAN'S System, the Manual(s) or otherwise. Neither FRANCHISEE nor
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FRANCHISOR have any expectation that FRANCHISEE's or FRANCHISOR's rights and
obligations will be otherwise than as expressly set forth in this Agreement or
that where any contractual provision allows FRANCHISEE or FRANCHISOR any
discretion in action or otherwise, the exercise of that discretion will be
limited in any way. FRANCHISEE agrees that FRANCHISOR will not be liable for any
act or omission, whether with respect to the Marketing Fund or otherwise, which
is consistent with this Agreement or other information provided to FRANCHISEE,
or which is done in subjective good faith. No course of dealing between
FRANCHISEE and FRANCHISOR, nor any course of dealing or agreement between
FRANCHISOR and anyone else, past, present or future, will affect FRANCHISEE's or
FRANCHISOR's rights under this Agreement or otherwise.
If any applicable and binding law or rule of any jurisdiction requires
a greater prior notice of the termination of, or refusal to renew, this
Agreement than is required hereunder, or the taking of some other action not
required hereunder, or if under any applicable and binding law or rule of any
jurisdiction, any provision of this Agreement or any specification, standard or
operating procedure prescribed by FRANCHISOR is invalid or unenforceable, the
prior notice and/or other action required by such law or rule shall be
substituted for the comparable provisions hereof, and FRANCHISOR will have the
right, in FRANCHISOR's sole and absolute discretion, to modify such invalid or
unenforceable provision, specification, standard, or operating procedure to the
extent required to be valid and enforceable. 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 striking
from any of the provisions hereof, or any specification, standard or operating
procedure prescribed by FRANCHISOR, any portion or portions which a court may
hold to be unenforceable in a final decision to which FRANCHISOR are a party, or
from reducing the scope of any promise or covenant to the extent required to
comply with such a court order. Such modifications to this Agreement shall be
effective only in such jurisdiction, unless FRANCHISOR elects to give them
greater applicability, and shall be enforced as originally made and entered into
in all other jurisdictions.
FRANCHISEE will have no right to enforce any obligation of FRANCHISOR's
or any other person/entity (including, but not limited to, any other GLORIA
JEAN'S Franchisee) under, and FRANCHISEE will not be deemed a third party
beneficiary of, any other Franchise Agreement, other agreement or otherwise.
K. NON-RETENTION OF FUNDS
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FRANCHISEE does not have the right to offset or withhold payments owed
to FRANCHISOR (and/or any affiliate) for amounts purportedly due FRANCHISEE (or
any affiliate of FRANCHISEE's) from FRANCHISOR, the Franchisor-Related Entities
and/or any affiliate as a result of any dispute of any nature or otherwise, but
will pay such amounts to FRANCHISOR (or FRANCHISOR's affiliate) and only
thereafter seek reimbursement in accordance with the provisions of Article 18.
If FRANCHISEE believes that FRANCHISOR or any other person/entity has violated
any legal duty to FRANCHISEE, FRANCHISEE will, notwithstanding such dispute, pay
as designated all sums specified under this Agreement or any other agreement,
whether to be paid to FRANCHISOR or any affiliate (including royalties, any
unpaid portion of the initial franchise fee and any marketing contributions
and/or amounts payable to franchisee councils and/or cooperatives) and will not
withhold any payments until and unless such dispute has been finally determined
in FRANCHISEE's favor.
L. SEVERABILITY; SUBSTITUTION OF VALID PROVISIONS
Except as otherwise stated in this Agreement, each provision of this
Agreement, and any portion of any provision, is severable (including, but not
limited to, any provision affecting any rights to recovery for breach of any
legal obligation, including but not limited to waiver of statutory benefits such
as rights to jury trial, exemplary or punitive damages, recovery of attorney's
fees and/or shortening of statutes of limitations), and the remainder of this
Agreement will continue in full force and effect. To the extent that any
provision restricting FRANCHISEE's competitive activities is deemed
unenforceable, FRANCHISEE and FRANCHISOR agree that such provisions will be
enforced to the fullest extent permissible under governing law. This Agreement
will be deemed automatically modified to comply with governing law if such law
requires: (a) a greater time period for notice of the termination of, or refusal
to renew, this Agreement; or (b) the taking of some other action not described
in this Agreement. FRANCHISOR may modify any invalid or unenforceable provision
to the extent required to be valid and enforceable and FRANCHISEE will be bound
by the modified provisions.
M. WAIVERS
FRANCHISOR's waiver of any breach(es) under this or any other agreement
[whether by failure to exercise a power or right available to FRANCHISOR,
failure to insist on strict compliance with the terms, obligations or conditions
of any agreement, development of a custom or practice between FRANCHISEE and
FRANCHISOR (or others) which is at variance with the terms of any agreement,
acceptance of partial or other payments or otherwise], whether with respect to
FRANCHISEE or others, will not affect
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FRANCHISOR's rights with regard to any breach by FRANCHISEE or anyone else or
constitute a waiver of FRANCHISOR's right to demand exact compliance by
FRANCHISEE with the terms of this Agreement or otherwise. Subsequent or other
acceptance by FRANCHISOR of any payments or performance by FRANCHISEE will not
be deemed a waiver of any preceding or other breach by FRANCHISEE of this
Agreement or otherwise. The rights and remedies provided in this Agreement are
cumulative and FRANCHISOR will not be prohibited from exercising any rights or
remedies provided under this Agreement or permitted under law or equity.
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N. CHOICE OF LAWS
Except with respect to the applicability of the Federal Arbitration
Act, 9 U.S.C. Section 1 et seq. and the effect of federal pre-emption of state
law by such Act and except to the extent governed by the United States Trademark
Act and other federal laws, or as provided elsewhere in this Agreement,
FRANCHISEE and FRANCHISOR agree that this Agreement (including any claims,
counter-claims or otherwise by FRANCHISEE) and all other matters concerning
FRANCHISEE and FRANCHISOR (or FRANCHISEE and any of the Franchisor-Related
Entities), including FRANCHISEE's and FRANCHISOR's/their respective rights and
obligations, will be governed by, and construed and enforced in accordance with,
the laws of the state where FRANCHISEE's GJC STORE is, or will be, located,
without regard to the laws of such state relating to conflicts of laws or choice
of law; except that the provisions of any law of that state regarding franchises
(including, without limitation, registration, disclosure, or relationship, and
the regulations thereunder) shall not apply unless such state's jurisdictional,
definitional and other requirements are met independently of, and without
reference to, this Section.
O. ADVICE OF LAWYERS, ALTERNATIVE INVESTMENT OPPORTUNITIES, ETC.
FRANCHISEE acknowledges that it has had the opportunity (and FRANCHISOR
has strongly advised FRANCHISEE) to have this Agreement and all other documents
reviewed by FRANCHISEE's own attorney and that FRANCHISEE has read, understood,
had an opportunity to discuss with FRANCHISOR and agreed to each provision of
this Agreement. FRANCHISEE agrees that it has been under no compulsion to sign
this Agreement, that it has carefully reviewed and carefully thought about each
provision of this Agreement, that it has considered other franchise
opportunities as well as the possibility of FRANCHISEE entering FRANCHISOR's
industry as a non-franchised participant and that, therefore, this Agreement
will be deemed to have been drafted by FRANCHISEE and FRANCHISOR in equal parts
and that no presumptions or inferences concerning this Agreement's terms,
interpretation or otherwise will result by reason of the fact that FRANCHISOR
prepared this Agreement or may be unwilling (in the interest of consistency of
system administration) to change its terms.
19. INDEPENDENT CONTRACTORS AND INDEMNIFICATION
The FRANCHISOR and the FRANCHISEE are independent contractors. The
FRANCHISEE shall conspicuously identify the FRANCHISEE at the premises of the
STORE and in all dealings with suppliers, as the owner of the STORE. Neither the
FRANCHISOR nor the FRANCHISEE shall make any agreements or representations in
the name of or on behalf of the other or that their relationship
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is other than franchisor and franchisee and neither the FRANCHISOR nor the
FRANCHISEE shall be obligated by or have any liability under any agreements or
representations made by the other that are not expressly authorized hereunder,
nor shall the FRANCHISOR be obligated for any damages to any person or property
directly or indirectly arising out of the operation of the STORE or the
FRANCHISEE's business conducted pursuant to the FRANCHISE, whether caused by the
FRANCHISEE's negligent or willful action or failure to act, The FRANCHISOR shall
have no liability for any sales, use, excise, income, property or other taxes
levied upon the STORE or its assets or in connection with the sales made or
business conducted by the STORE. The FRANCHISEE agrees to indemnity the
FRANCHISOR against and to reimburse the FRANCHISOR for all such obligations,
damages and taxes for which it is held liable and for all costs reasonably
incurred by the FRANCHISOR in the defense of any such claim brought against it
or in any act on in which it is named as a party. The FRANCHISOR shall have the
right to defend any such claim against it. The FRANCHISOR agrees to indemnify
the FRANCHISEE against and to reimburse the FRANCHISEE for any obligations or
liability for damages attributable to agreements or representations made by the
FRANCHISOR not expressly authorized hereunder, and for costs (as hereinabove
described) reasonably incurred by the FRANCHISEE in the defense of any such
claim brought against him or the STORE or in any action in which he is named as
a party; provided that the FRANCHISOR shall have the right to participate in,
and to the extent the FRANCHISOR deems necessary, to control, any litigation or
proceeding which might result in liability of or expense to the FRANCHISEE
subject to such indemnification. The indemnities and assumptions of liabilities
and obligations herein shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement.
20. NOTICES
All written notices permitted or required to be delivered by the
provisions of this Agreement or of the OPERATING MANUAL, shall be deemed so
delivered on the date when hand delivered; one (1) day after sending by
telegraph or after the date of deposit, if deposited with a commercial delivery
service which guarantees next day delivery; or three (3) days after placed in
the mail by Registered or Certified Mail, Return Receipt Requested, postage
prepaid and addressed to the party to be notified at its most-current principal
business address of which the notifying party has been notified.
21. EFFECTIVE DATE OF AGREEMENT
This Agreement shall take effect upon the date of the FRANCHISOR's
execution and delivery of this Agreement to the FRANCHISEE.
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22. ACKNOWLEDGMENTS AND REPRESENTATIONS, ENTIRE AGREEMENT,
NO FIDUCIARY RELATIONSHIP, ETC.
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BE SURE YOU READ THE FOLLOWING SECTIONS CAREFULLY! THEY'RE IMPORTANT AND ARE IN
THIS AGREEMENT TO MAKE SURE THAT NEITHER YOU NOR WE HAVE ANY MISUNDERSTANDINGS
OR INAPPROPRIATE EXPECTATIONS.
- --------------------------------------------------------------------------------
You and we agree that there does not exist any fiduciary, trust or
similar special relationship between you and us, that the relationship between
you and us is an ordinary commercial relationship between independent
businesspeople intended for mutual but independent economic benefit and is not
in any sense, nor is intended to be, a fiduciary, trust or similar special
relationship, that each party has dealt with each other at arm's length and as
businesspersons with equivalent bargaining power, notwithstanding the
relationship of Franchisor and Franchisee, and that you have alternative
business opportunities (some of which are franchised) which you have
investigated and in which you can invest.
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YOUR INITIALS: __________ / __________
- ---------------------------------------
You acknowledge that you [and each of your owners (if you are a
corporation or partnership) and investors] has read this Agreement and our
Uniform Franchise Offering Circular and all exhibits and that you and they
understand and accept the terms, conditions, and covenants contained in this
Agreement as being necessary to maintain our high standards of quality and
service and the uniformity of those standards at all GJC STORES and thereby to
protect and preserve the goodwill of the Marks and the System.
- ---------------------------------------
YOUR INITIALS: __________ / __________
- ---------------------------------------
You and we, each agreeing on the critical practical business importance
of our relationship being governed solely by written documents signed by you and
us (including any concurrently executed written personal guarantees, Statement
of Prospective Franchisee and/or exhibits - schedules - addenda - promissory
note(s) security agreement(s) or other written documents signed by the party to
be bound thereby, all of which will be deemed to be part of this Agreement for
the purposes of this Section 21) and not wishing to create misunderstandings,
confusion and possible conflict through reference to any alleged prior and/or
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contemporaneous oral and/or written representations, understandings, agreements
or otherwise, or any legal doctrines such as :"good faith and fair dealing" or
otherwise which might introduce an element of uncertainty into our relationship,
jointly intend, represent, warrant and agree that (1) this Agreement contains
the final, complete and exclusive expression of the terms of your and our
agreement, and the final, complete and exclusive expression of your and our
intent, and entirely supersedes and replaces any and all prior and/or concurrent
understandings, agreements, inducements, prior course(s) of dealing,
representations (financial or otherwise), promises, options, rights-of-first
refusal, guarantees, warranties (express or implied) or otherwise (whether oral
or written) between you and us, (2) there are no prior and/or concurrent
understandings, agreements, inducements, course(s) of dealing, representations
(financial or otherwise), promises, options, rights-of-first refusal,
guarantees, warranties (express or implied) or otherwise (whether oral or
written) which are not fully expressed in this Agreement and (3) no prior and/or
concurrent understandings, agreements, inducements, course(s) of dealing,
representations (financial or otherwise), promises, options, rights-of-first
refusal, guarantees, warranties (express or implied) or otherwise (whether oral
or written) of any kind or nature whatsoever have been made by us or anyone
else, nor have been relied on by you nor will have any force or effect;
excepting only the written representations made by you in connection with its
application for this franchise. You and we each expressly disclaim any
understandings, agreements, inducements, course(s) of dealing, representations
(financial or otherwise), promises, options, rights-of-first refusal,
guarantees, warranties (express or implied) or otherwise (whether oral or
written) which are not fully expressed in writing in this Agreement. This is
equally important to you, as well as us, since, just as we do not wish to deal
with allegations that we may have made or entered into understandings,
representations, etc. not fully expressed in writing in this Agreement (such as
alleged earnings claims), you do not wish to deal with allegations that you made
or entered into understandings, representations, etc. (such as promises to
achieve particular sales or royalty payment levels, would open a particular
number of units, etc.) which are not fully expressed in writing in this
Agreement.
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YOUR INITIALS: __________ / __________
- ---------------------------------------
In particular, you have not been promised, nor have we or anyone else
made any promises, representations and/or warranties, nor have you received or
relied on any promises, representations or warranties, that (1) any payments by
you are refundable at
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your option, (2) we will repurchase any rights granted hereunder (or any
associated business) or be will able to assist you in any resale, (3) you will
succeed in the franchised business, (4) you will achieve any particular sales,
income or other levels of performance, (5) you will have any exclusive rights of
any type other than as specifically set forth herein, (6) you will receive any
level of advertising (television or otherwise), marketing assistance, site
location, development or other services, operational assistance or otherwise
other than as expressly set forth in this Agreement, (7) you will not be
required to obtain any licenses in order to operate your GJC STORE, (8) any
location will be successful, (9) it will be anyone's responsibility other than
yours to obtain all licenses necessary in order to establish and operate your
GJC STORE or (10) that you will be awarded additional or further franchises or
other rights, except as expressly set forth in a written document signed by a
corporate officer of FRANCHISOR. No contingency, condition, prerequisite, prior
requirement, or otherwise (including but not limited to obtaining financing,
obtaining a site or otherwise) exists with respect to you fully performing any
or all of your obligations under this Agreement.
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YOUR INITIALS: __________ / __________
- ---------------------------------------
You have not received or relied on (nor have we or anyone else
provided) any oral or written: sales, income or other projections of any kind or
nature or any statements, representations, data, charts, tables, spreadsheets or
mathematical calculations or otherwise which stated or suggested any level or
range of actual or potential sales, costs, income, expenses, profits, cash flow,
tax effects or otherwise and neither we nor anyone else has made, nor have you
relied on, any promises, representations or warranties as to any profits you may
realize in the operation of a GJC STORE, nor have you received or relied on any
representations regarding any working capital or other funds necessary to reach
any "breakeven" or any other financial level. We are unable, and do not attempt,
to predict, forecast or project future performance, revenues, profits or
otherwise of any GJC STORE. If any such information, promises, representations
and/or warranties has been provided to you, it should not be relied on, we will
not be bound by it, and, if you do rely on such information, promises,
representations and/or warranties, you do so at your own risk.
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YOUR INITIALS: __________ / __________
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You acknowledge and agree that the success of the business venture
contemplated to be undertaken by you is speculative, is and will be dependent on
your personal efforts, that while we can provide you with systems, methods,
procedures, techniques and other "tools," including the GLORIA JEAN'S System and
otherwise, your success ultimately depends on your efforts, including your
proactive, diligent and thorough knowledge and application of the GLORIA JEAN'S
System, that entry into any business enterprise is always associated with risk
and that no assurance of success has been or can be given to you. You
acknowledge and represent that you have entered into this Agreement and made an
investment only after (1) making an independent investigation of the
opportunity, including having received a list, in connection with the
presentation of our Uniform Franchise Offering Circular, of (and having spoken
with) other franchisees currently operating or who have operated GJC STORES, (2)
having had an opportunity to have this transaction and all related documents
reviewed by an attorney and a financial advisor of your choosing, such review
having been strongly recommended by us and (3) having independently researched
all applicable licensing and other requirements related to the operation of your
GJC STORE. You acknowledge that you and each person signing as Franchisee
(and/or having any investment and/or interest in your GJC STORE) has received,
reviewed, understood and fully read, and all questions have been answered
regarding, (1) a copy of our Uniform Franchise Offering Circular with all
exhibits at least ten (10) business days prior to the earlier of your and/or any
such person (a) signing any binding documents or (b) paying any sums and (2) a
copy of this Agreement and all other agreements complete and in form ready to
sign at least five (5) business days prior to the earlier of you and/or any such
person (a) signing any binding documents or (b) paying any sums.
- ---------------------------------------
YOUR INITIALS: __________ / __________
- ---------------------------------------
You understand that we are relying on you to bring forward in writing
at this time any matters inconsistent with any of the matters set forth in this
Section 22 or otherwise so that we can correct any misunderstandings or
inappropriate expectations and you agree that if any of the statements or
matters set forth in this Section 22 or otherwise are not true, correct and
complete you will make a written statement regarding such next to your signature
below so that we may address and resolve any such issue(s) at this time and
before either you or we go forward.
- ---------------------------------------
YOUR INITIALS: __________ / __________
- ---------------------------------------
70
<PAGE> 71
You acknowledge and agree that in all of your dealings with the
Franchisor, the officers, directors, employees, and agents of the Franchisor act
only in a representative capacity and not in an individual capacity. You further
acknowledge that this Agreement, and all business dealings between you and such
Individuals as a result of this Agreement, are solely between you and the
Franchisor. You further represent to the Franchisor, as an Inducement to the
Franchisor's entry into this Agreement, that you have made no misrepresentations
in obtaining the Franchise.
- ---------------------------------------
YOUR INITIALS: __________ / __________
- ---------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date stated below.
FRANCHISOR: FRANCHISEE(S) (INDIVIDUAL):
GLORIA JEAN'S GOURMET ------------------------------------
COFFEES FRANCHISING CORP. Name
------------------------------------
Signature
By: _________________________________ ------------------------------------
Signature Name
- ------------------------------------ ------------------------------------
Name Signature
- ------------------------------------
Title
Date: _______________________________
FRANCHISEE (CORP., LLC OR PARTNERSHIP)
------------------------------------
Name
a/an ___________________ corporation
71
<PAGE> 72
a/an ___________________ partnership
a/an ___________________ limited
liability
company
By:
---------------------------------
Signature
---------------------------------
Name and Title
72
<PAGE> 73
GUARANTY AND ASSUMPTION OF OBLIGATIONS
In consideration of, and as an inducement to, the execution of the
above Franchise Agreement and any Addenda thereto (individually or collectively
the "Agreement") by GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP.
("FRANCHISOR"), each of the undersigned ("GUARANTORS") hereby personally and
unconditionally (1) guarantees to the FRANCHISOR and its successors and assigns,
for the term of the Agreement and thereafter as provided in the Agreement,
that__________________________________________ ("FRANCHISEE") shall punctually
pay and perform each and every undertaking, agreement and covenant set forth in
the Agreement and (2) agrees to be personally bound by, and personally liable
for the breach of, each and every provision in the Agreement. Each of the
undersigned waives:
1. acceptance and notice of acceptance by the FRANCHISOR of the foregoing
undertakings;
2. notice of demand for payment of any indebtedness or nonperformance of
any obligations hereby guaranteed;
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed;
4. any right he may have to require that an action be brought against the
FRANCHISEE or any other person as a condition of liability; and
5. all rights to payments and claims for reimbursement or subrogation
which any of the GUARANTORS may have against the FRANCHISEE arising as
a result of the GUARANTORS' execution of and performance under this
guaranty.
6. Each of the undersigned consents and agrees that:
7. his direct and immediate liability under this guaranty shall be joint
and several;
8. he shall render any payment or performance required under the Agreement
upon demand if the FRANCHISEE fails or refuses punctually to do so;
9. such liability shall not be contingent upon or conditioned upon pursuit
by the FRANCHISOR of any remedies against the FRANCHISEE or any other
person; and
10. such liability shall not be diminished, relieved or otherwise affected
by any extension of time, credit or the
73
<PAGE> 74
indulgence which the FRANCHISOR may from time to time grant to the
FRANCHISEE or to any other person, including, without limitation, the
acceptance of any partial payment or performance, or the compromise or
release of any claims, none of which shall in any way modify or amend
this guaranty, which shall be continuing and irrevocable during the
term of the Agreement.
If the FRANCHISOR is required to enforce this Guaranty and Assumption
of Obligations in any judicial or arbitration proceeding or appeal thereof, the
GUARANTORS shall reimburse the FRANCHISOR for its costs and expenses, including
but not limited to, reasonable accountants', attorneys', attorney assistants',
arbitrators' and expert witness fees, costs of investigation and proof of facts,
court costs, other litigation expenses and travel and living expenses, whether
incurred prior to, in preparation for or in contemplation of the filing of any
written demand, claim, action, hearing or proceeding to enforce this Guaranty
and Assumption of Obligations.
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the same day and year as the Agreement was executed.
WITNESS GUARANTORS
- ------------------------------------ -----------------------------------
Name
-----------------------------------
Signature
- ------------------------------------ -----------------------------------
Name
-----------------------------------
Signature
74
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-52887, 333-18931 and 333-14531) of Coffee
People, Inc. of our report dated August 16, 1996 appearing in the Coffee People,
Inc. Annual Report on Form 10-K for the fiscal year ended June 27, 1998. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS
Toronto, Ontario
September 25, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-52887, 333-18931 and 333-14531) of Coffee
People, Inc. of our report dated August 26, 1998 appearing in the Coffee People,
Inc. Annual Report on Form 10-K for the fiscal year ended June 27, 1998. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
September 25, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COFFEE
PEOPLE, INC. ANNUAL FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> JUN-27-1998
<EXCHANGE RATE> 1
<CASH> 2,822
<SECURITIES> 0
<RECEIVABLES> 4,418
<ALLOWANCES> 1,156
<INVENTORY> 4,052
<CURRENT-ASSETS> 13,470
<PP&E> 15,637
<DEPRECIATION> 2,926
<TOTAL-ASSETS> 55,695
<CURRENT-LIABILITIES> 8,193
<BONDS> 0
0
0
<COMMON> 44,630
<OTHER-SE> (338)
<TOTAL-LIABILITY-AND-EQUITY> 55,695
<SALES> 29,016
<TOTAL-REVENUES> 35,051
<CGS> 19,296
<TOTAL-COSTS> 19,296
<OTHER-EXPENSES> 14,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 1,466
<INCOME-TAX> 728
<INCOME-CONTINUING> 738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738
<EPS-PRIMARY> .09
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