<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X[ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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 No. 33-94724
JERRY'S FAMOUS DELI, INC.
(Exact name of registrant as specified in its charter)
California 95-3302338
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12711 Ventura Boulevard, Suite 400, Studio City, California 91604
-----------------------------------------------------------------
(Address of Principal Executive Offices)
(818) 766-8311
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of October 15, 1999,
outstanding common shares totaled 14,019,202.
<PAGE> 2
JERRY'S FAMOUS DELI, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998.................. 2
Consolidated Statements of Operations for the Three Months and Nine Months Ended
September 30, 1999 and September 30, 1998................................................... 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and September 30, 1998................................................... 4
Notes to Consolidated Financial Statements.................................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General..................................................................................... 7
Results of Operations....................................................................... 8
Liquidity and Capital Resources............................................................. 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 10
PART II - OTHER INFORMATION
Items 1. through 6................................................................................... 10
Signatures.................................................................................. 11
</TABLE>
1
<PAGE> 3
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,035,871 $ 985,382
Accounts receivable, net 283,020 424,400
Inventory 1,401,527 1,394,899
Prepaid expenses 562,882 449,737
Deferred income taxes 269,327 269,327
Prepaid income taxes 83,601 267,321
----------- -----------
Total current assets 3,636,228 3,791,066
Property and equipment, net 29,649,230 33,534,787
Deferred income taxes 629,801 629,801
Goodwill and covenants not to compete 9,315,101 9,701,723
Other assets 1,256,373 1,335,331
----------- -----------
Total assets $44,486,733 $48,992,708
=========== ===========
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 2,042,088 $ 3,099,839
Accrued expenses 1,557,320 1,411,457
Sales tax payable 322,019 421,897
Deferred income 22,542 --
Current portion of long-term debt 1,700,955 1,279,371
----------- -----------
Total current liabilities 5,644,924 6,212,564
Long-term debt 12,197,173 15,908,582
Deferred rent 456,963 457,525
----------- -----------
Total liabilities 18,299,060 22,578,671
Minority interest 612,389 554,899
Equity
Preferred stock Series A, no par, 5,000,000 shares authorized,
no shares issued or outstanding at September 30, 1999 or
at December 31, 1998 -- --
Common stock, no par value, 60,000,000 shares authorized,
14,019,202 and 14,508,902 issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 24,575,522 25,271,737
Equity 999,762 587,401
----------- -----------
Total equity 25,575,284 25,859,138
----------- -----------
Total liabilities and equity $44,486,733 $48,992,708
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 15,578,675 $ 17,200,722 $ 51,926,970 $ 47,560,238
Cost of sales 5,366,261 5,820,944 18,017,146 15,544,925
------------ ------------ ------------ ------------
Gross profit 10,212,414 11,379,778 33,909,824 32,015,313
Operating expenses
Labor 5,597,900 6,177,878 18,756,866 16,945,603
Occupancy and other 2,111,905 2,272,206 6,767,057 6,427,029
Occupancy - related party 279,014 253,000 816,129 670,053
General and administrative expenses 1,091,055 1,307,821 3,482,093 3,537,253
Depreciation 654,714 600,435 2,027,991 2,374,040
Amortization 169,179 392,732 511,581 704,629
------------ ------------ ------------ ------------
Total expenses 9,903,767 11,004,072 32,361,717 30,658,607
------------ ------------ ------------ ------------
Income from operations 308,647 375,706 1,548,107 1,356,706
Other income (expense)
Interest income 3,455 649 15,999 36,435
Interest expense (274,797) (361,904) (940,840) (924,632)
Other income (expense), net 8,500 -- 5,952 --
------------ ------------ ------------ ------------
Income before provision (benefit) for
income taxes and minority interest 45,805 14,451 629,218 468,509
Provision (benefit) for income taxes (25,180) (37,373) 85,720 71,101
Minority interest 38,430 41,994 131,137 94,296
------------ ------------ ------------ ------------
Income before cumulative effect of
change in accounting principle 32,555 9,830 412,361 303,112
Cumulative effect of change in accounting
principle, net of tax benefit of $65,162 -- -- -- (132,299)
------------ ------------ ------------ ------------
Net income $ 32,555 $ 9,830 $ 412,361 $ 170,813
============ ============ ============ ============
Net income per share before cumulative
effect of change in accounting principle
applicable to common stock - Basic and
Diluted $ 0.00 $ 0.00 $ 0.03 $ 0.02
Cumulative effect of change in accounting
principle - Basic and Diluted -- -- -- (0.01)
------------ ------------ ------------ ------------
Net income per share applicable to
common stock - Basic and Diluted $ 0.00 $ 0.00 $ 0.03 $ 0.01
============ ============ ============ ============
Weighted average shares
outstanding - Basic 14,048,702 15,127,064 14,204,030 14,827,294
============ ============ ============ ============
Weighted average shares
outstanding - Diluted 14,056,684 15,148,326 14,212,012 14,901,989
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
JERRY'S FAMOUS DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 412,361 $ 170,813
----------- ------------
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisitions:
Cumulative effect of change in accounting principle -- 132,299
Depreciation 2,027,991 2,374,040
Amortization 511,581 704,629
Gain on sale of assets (8,500) --
Minority interest 131,137 94,296
Deferred income taxes -- --
Deferred income 21,980 --
Changes in assets and liabilities:
Accounts receivable 141,380 (134,132)
Inventory (6,628) (390,259)
Prepaid expenses (113,145) 1,016,456
Prepaid income taxes 183,720 (146,416)
Preopening costs -- (624,800)
Other assets (67,616) (769,879)
Accounts payable (1,057,751) 1,399,157
Accrued expenses 145,863 177,637
Sales tax payable (99,878) (43,415)
----------- ------------
Total adjustments 1,810,134 3,789,613
----------- ------------
Net cash provided by operating activities 2,222,495 3,960,426
----------- ------------
Cash flows from investing activities:
Purchase of Epicure Market -- (8,518,674)
Acquisition of restaurant -- (1,760,000)
Net proceeds from sale of facility 3,913,244 --
Additions to equipment (940,734) (1,421,313)
Additions to improvements - land, building and leasehold (1,250,472) (1,244,751)
Deductions to construction-in-progress 153,532 149,518
Proceeds from sale of fixed assets 8,500 --
----------- ------------
Net cash provided by (used in) investing activities 1,884,070 (12,795,220)
----------- ------------
Cash flows from financing activities:
Borrowings on credit facilities 2,178,988 15,965,000
Payments on long-term debt (5,468,813) (8,155,738)
Dividends paid to minority shareholders (70,036) (69,555)
Purchase of Company's common stock (696,215) (22,478)
----------- ------------
Net cash (used in) provided by financing activities (4,056,076) 7,717,229
----------- ------------
Net increase (decrease) in cash and cash equivalents 50,489 (1,117,565)
Cash and cash equivalents, beginning of period 985,382 2,264,308
----------- ------------
Cash and cash equivalents, end of period $ 1,035,871 $ 1,146,743
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
JERRY'S FAMOUS DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION:
Basis of Presentation
The accompanying consolidated financial statements of Jerry's Famous
Deli, Incorporated and its subsidiaries ("the Company") for the three and nine
months ended September 30, 1999 and September 30, 1998 have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. These financial
statements have not been audited by independent accountants, but include all
adjustments (consisting of normal recurring adjustments) which are, in
Management's opinion, necessary for a fair presentation of the financial
condition, results of operations and cash flows for such periods. However, these
results are not necessarily indicative of results for any other interim period
or for the full year. The December 31, 1998 consolidated balance sheet is
derived from the audited consolidated financial statements included in the
Company's December 31, 1998 Form 10-K.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting principles
have been omitted pursuant to requirements of the Securities and Exchange
Commission. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make the
information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the preceding fiscal year.
Organization
The accompanying consolidated financial statements consist of Jerry's
Famous Deli, Incorporated ("JFD--Inc."), a California corporation, JFD--Encino
("JFD--Encino"), a California limited partnership and National Deli Corporation,
("NDC"), a Florida corporation and wholly-owned subsidiary of JFD--Inc.
JFD--Inc. and JFD--Encino operate family oriented, full-service restaurants. NDC
operates The Epicure Market ("Epicure"), a specialty gourmet food store located
in Miami Beach, Florida. These entities are collectively referred to as "Jerry's
Famous Deli, Inc." or the "Company."
JFD--Inc. and JFD--Encino include the operations of the Southern
California restaurants located in Studio City, Encino, Marina del Rey, West
Hollywood, Pasadena, Westwood, Sherman Oaks, Woodland Hills, and Costa Mesa.
JFD--Inc. also includes the two Rascal House restaurants located in Miami Beach
and Boca Raton, Florida.
Reclassification
Certain amounts in the previously presented financial statements have
been reclassified to conform to the current period presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
1999 1998
---- ----
<S> <C> <C>
Supplemental cash flow information:
Cash paid for:
Interest ......................................................... $809,000 $ 900,000
Income taxes ..................................................... $ 2,000 $ 311,000
Supplemental information on noncash investing and financing activities:
Common Stock issued in purchase of Epicure ....................... $ -- $2,395,147
</TABLE>
5
<PAGE> 7
JERRY'S FAMOUS DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. NET INCOME PER SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share," basic net income per share is computed by
dividing the net income attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted net
income per common share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common and common share
equivalents outstanding during the period. Common share equivalents included in
the diluted computation represent shares issuable upon assumed exercise of stock
options using the treasury stock method.
4. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5 entitled "Reporting on the
Costs of Start-Up Activities." SOP 98-5 requires entities to expense as incurred
all start-up and preopening costs that are not otherwise capitalizable as
long-lived assets. Restatement of the previously issued financial statements is
not permitted by SOP 98-5, and entities are not required to report the pro forma
effects of the retroactive application of the new accounting standard. The
Company's early adoption of this new accounting principle in 1998 resulted in
the recognition of the cumulative effect of the change in accounting principle
as a one-time charge against earnings of $132,299, net of related income tax
benefit of $65,162, recorded as of January 1, 1998. Thus, the Consolidated
Statement of Operations and the Consolidated Statement of Cash Flows for the
nine months ended September 30, 1998 have been restated to reflect the change.
5. SALE OF PASADENA PROPERTY
The Company closed escrow on the sale of its Pasadena facility at the
close of business on May 2, 1999. The gross proceeds from the sale were
$4,120,000 which resulted in no significant gain or loss. Of these proceeds,
approximately $3,750,000 was used to reduce the Company's debt and the remaining
proceeds were applied to other related costs of the sale.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following table presents for the three and nine months ending
September 30, 1999 and 1998, the Consolidated Statements of Operations of the
Company expressed as percentages of total revenue. The results of operations for
the first nine months of 1999 are not necessarily indicative of the results to
be expected for the full year ending December 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
---------------------------
THREE MONTHS ENDED, NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 34.4 33.8 34.7 32.7
----- ----- ----- -----
Gross profit 65.6 66.2 65.3 67.3
Operating expenses
Labor 35.9 35.9 36.1 35.6
Occupancy and other 15.4 14.7 14.6 14.9
----- ----- ----- -----
Total operating expenses 51.3 50.6 50.7 50.5
General and administrative expenses 7.0 7.6 6.7 7.4
Depreciation and amortization expense 5.3 5.8 4.9 6.5
----- ----- ----- -----
Total expenses 63.6 64.0 62.3 64.4
----- ----- ----- -----
Income from operations 2.0 2.2 3.0 2.9
Interest income 0.0 0.0 0.0 0.1
Interest expense (1.8) (2.1) (1.8) (2.0)
Other income, net 0.1 0.0 0.0 0.0
----- ----- ----- -----
Income before provision for income
taxes and minority interest 0.3 0.1 1.2 1.0
Provision (benefit) for income taxes (0.2) (0.2) 0.2 0.2
Minority interest 0.3 0.2 0.2 0.2
----- ----- ----- -----
Income before cumulative effect of
change in accounting principle 0.2 0.1 0.8 0.6
Cumulative effect of change in accounting
principle -- -- -- (0.3)
----- ----- ----- -----
Net income 0.2% 0.1% 0.8% 0.3%
===== ===== ===== =====
</TABLE>
7
<PAGE> 9
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues for the three months ended September 30, 1999 decreased
approximately $1,622,000, or 9.4%, to approximately $15,579,000 for the 1999
quarter from approximately $17,201,000 for the 1998 quarter. This decrease was
primarily due to: a decrease in sales of approximately $990,000 for the two
Rascal House restaurants in Florida; a decrease in sales of approximately
$689,000 related to the sale of the Pasadena restaurant, which was sold on May
2, 1999; and, a decrease in revenues of approximately $74,000 for The Epicure
Market. Management attributes the decrease in sales in the Florida area
primarily due to the temporary closure of the Miami restaurant in the month of
September 1999 for remodeling, which contributed approximately $473,000 to the
decrease, coupled with increased competition in both the Miami and Boca Raton
areas. In addition, the combined decrease was partially offset by an overall
increase in same store sales for the eight Southern California stores in
operation since July 1, 1998 of approximately $120,000, or 1.2% for the 1999
period. To address the above decreases, the Company believes that the Rascal
House remodeling and continued marketing of its restaurants and specific
products, consistent with other casual dining and fast food restaurants, will
have a positive effect on store sales.
Cost of sales, which consists primarily of food costs, increased 0.6
percentage points, as a percentage of revenues, to 34.4% for the 1999 quarter
from 33.8% for the 1998 quarter.
Operating expenses, which include all restaurant level operating costs,
including, but not limited to, labor, rent, laundry, maintenance, utilities and
repairs, as a percentage of revenues, increased 0.7 percentage points to 51.3%
for the 1999 quarter from 50.6% for the 1998 quarter. This increase is primarily
attributable to occupancy and other, which increased 0.7 percentage points, as a
percentage of revenues, to 15.4% for the 1999 quarter from 14.7% for the 1998
quarter. Labor, as a percentage of revenues, remained unchanged at 35.9% for the
1999 quarter as compared to the same period for 1998. Management is taking
several steps to control such costs, including the implementation of an
incentive program for restaurant managers which is based on a reduction of food
and labor costs.
General and administrative expenses decreased approximately $217,000 or
0.6 percentage points as a percentage of revenues to 7.0% for the 1999 quarter
from 7.6% in the 1998 quarter. This decrease is partly the result of a reduction
in personnel employed at the Company's corporate headquarters and partly a
reduction of corporate overhead expenses.
Depreciation and amortization expense, as a percentage of revenue,
decreased 0.5 percentage points to 5.3% for 1999 from 5.8% for the 1998 quarter.
Depreciation expense increased approximately $54,000 for the 1999 quarter as
compared to the 1998 quarter. Amortization expense decreased approximately
$224,000 for the 1999 quarter as compared to the 1998 quarter primarily due to
the change in accounting principle related to preopening costs.
The decrease in interest expense of approximately $87,000 to
approximately $275,000 for the 1999 third quarter from approximately $362,000
for the same 1998 period, resulted from the overall decrease in debt associated
with the sale of the Pasadena store.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues increased approximately $4,367,000, or 9.2%, to approximately
$51,927,000 for the 1999 nine-month period from approximately $47,560,000 for
the 1998 nine-month period. Epicure, acquired on April 1, 1998, contributed
increased revenues of approximately $3,667,000 in 1999. The Boca restaurant,
which opened in July 1, 1998, contributed revenues of approximately $2,235,000
to the 1999 period. Revenues for the same eight Southern California restaurants
operated during both nine-month periods increased approximately $497,000, or
1.6%. The overall increase was partially offset by the sale of the Pasadena
facility, which contributed to a decrease in revenue of approximately
$1,185,000. In addition, The Rascal House restaurant in Miami Beach, Florida had
decreased revenues of approximately $885,000 for the 1999 period, which is
mostly due to the opening of the Boca store and increased competition, coupled
with the restaurant being temporarily closed for remodeling for most of
September 1999.
8
<PAGE> 10
Cost of sales, as a percentage of revenues, increased 2.0 percentage
points, to 34.7% for the 1999 period from 32.7% for the 1998 period. This
increase is primarily related to The Rascal House restaurants operating with a
higher food cost percentage than the stores in California.
Labor expense, as a percentage of revenues, increased 0.5 percentage
point, to 36.1% in 1999 from 35.6% for 1998. Occupancy and other, as a
percentage of revenues, decreased 0.3 percentage point, to 14.6% in 1999 from
14.9% for the 1998 period.
General and administrative expenses, as a percentage of revenues,
decreased 0.7 percentage point to 6.7% for 1999 from 7.4% for 1998 due to the
reasons discussed above in the quarter-to-quarter analysis.
Depreciation and amortization expense, as a percentage of revenues,
decreased 1.6 percentage points to 4.9% in 1999 from 6.5% in the 1998 period.
Depreciation expense decreased approximately $346,000 for the 1999 period as
compared to the 1998 period primarily due to the change in life of certain
furniture and fixtures from a five-year useful life to an eight-year useful
life, effective July 1, 1998. Amortization expense decreased approximately
$193,000 for the 1999 period as compared to the 1998 period primarily due to the
change in accounting principle related to preopening costs.
Interest expense increased approximately $16,000, mostly due to the
increase in expense on the credit facility as a result of the purchase of
Epicure. This increase was partially offset by the decrease in debt from the
proceeds of the sale of the Pasadena restaurant.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the development,
construction and equipping of new restaurants. Generally, the Company leases the
property and extensively remodels the existing building. The cost of renovation
will depend upon the style of restaurant being converted. Renovation of Jerry's
Famous Deli restaurants have cost between $2 million and $3 million per
location, or $267 to $400 per square foot. In addition, the Company spent
approximately $696,000 pursuant to the Company's stock repurchase program.
In September 1998, the Company entered into a $15,000,000 credit
facility with BankBoston, N.A. in the form of a $9,000,000 term loan and
$6,000,000 revolving line of credit. In conjunction with the agreement, the
Company repaid certain existing debt with the proceeds from the term loan. The
term loan and the revolver mature five years from inception and bear interest at
the Eurodollar rate plus a variable percentage margin totaling approximately
7.5% at September 30, 1999. The debt is collateralized by assets of the Company
and includes certain financial covenants. In September 1999, the Company and
BankBoston, N.A. amended the credit agreement for certain financial covenants
and scheduled repayments of the term loans. The Company utilized approximately
$560,000 of the credit line in conjunction with the repurchase of approximately
$696,000 of its Common Stock during the nine month period ended September 30,
1999. In addition, approximately $3,750,000 from the proceeds of the sale of the
Pasadena facility was used to reduce the Company's debt.
Management believes that cash on hand, including cash drawn on the line
of credit, proceeds from the sale of the Pasadena facility and cash flows from
operations will be sufficient for operation of the Company's existing
restaurants and market. Future anticipated capital needs, primarily for
development or acquisition of new restaurants, cannot be projected with
certainty. Additional capital expenditures will be required as new locations are
added. The Company generally intends to seek leased locations.
Statements made herein that are not historical facts are forward
looking statements and are subject to a number of risk factors, including the
public's acceptance of the Jerry's Famous Deli format in each new location,
consumer trends in the restaurant industry, competition from other restaurants,
the costs and delays experienced in the course of remodeling or building new
restaurants, the amount and rate of growth of administrative expenses associated
with building the infrastructure needed for future growth, the availability,
amount, type and cost of financing for the Company and general economic
conditions and other factors. Further information on these and other factors is
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and its other reports filed with the Securities and Exchange
Commission.
9
<PAGE> 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
PART II - OTHER INFORMATION
Items 1. through 4. Not applicable.
Item 5. Other Information.
In September 1999, the Company entered into a Quick Food License
Agreement ("Agreement") with Universal Studios CityWalk Hollywood ("Universal")
to provide consulting and technical services to Universal in connection with the
planning, development, construction, furnishing and equipping of a "Jerry's
Famous Deli" type restaurant, located in Universal City. The Agreement has a
term of approximately 10 years from the restaurant's opening date, which is
currently scheduled for the second quarter of 2000, with certain provisions for
options to extend. The Company will earn from Universal a license fee at a
specified amount for the first two years of restaurant operations, with an
additional fee payable to the Company if certain excess requirements are met. In
addition, during all subsequent years the Company will earn an amount equal to a
specified percentage of defined "gross sales" of the restaurant. In conjunction
with the Agreement, the Company will provide consulting services for a one-time
"consulting fee" to be earned and paid by Universal over a period including six
full months of continuous operation of the restaurant.
Items 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.45 Quick Food License Agreement, dated as of September 3, 1999,
by and between Universal Studios CityWalk Hollywood, a
division of Universal Studios, Inc. and Jerry's Famous Deli,
Inc.
10.46 Fourth Amendment to Credit Agreement, dated as of September
30, 1999, by and among Jerry's Famous Deli, Inc. and
BankBoston, N.A.
</TABLE>
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JERRY'S FAMOUS DELI, INC.
Date: November 12, 1999 By: /s/ Isaac Starkman
------------------------------------
Isaac Starkman
Chief Executive Officer and Chairman
of the Board of Directors
By: /s/ Christina Sterling
------------------------------------
Christina Sterling
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 10.45
QUICK FOOD LICENSE AGREEMENT
This Quick Food License Agreement ("Agreement") is made and entered as of
this 3rd day of September, 1999, by and between UNIVERSAL STUDIOS CITYWALK
HOLLYWOOD, a division of Universal Studios, Inc. ("Universal"), and JERRY'S
FAMOUS DELI, INC., a California corporation, ("JFD") with reference to the
following:
A. Universal represents that it owns the following described property,
located in Universal City, California: Space number V201 in the food-court area
("Food Court") of the CityWalk project ("CityWalk") as shown on the plan
attached hereto as Exhibit A and incorporated fully herein by this reference
("Premises"), upon which Universal intends to develop, construct, operate,
manage and own a quick food restaurant to be known during the Term (defined
below) of this Agreement as "Jerry's Famous Deli" ("Restaurant"). The Premises
contains approximately 1,300 square feet of gross leasable space and is located
on the second floor of CityWalk.
B. JFD represents that JFD and the personnel of JFD possess skills,
knowledge and expertise in the planning and development of restaurant
operations of a type and nature characteristic of a sit-down version of the
Restaurant.
C. Universal is desirous of engaging JFD to provide consulting and
technical services to Universal in connection with the planning, development,
construction, furnishing and equipping of the Restaurant, and JFD is desirous
of being so engaged.
D. JFD represents that it possesses the rights necessary to license: (i)
the name "Jerry's Famous Deli"; (ii) the name "Jerry's Famous Deli," with
type-face, logo, and coloring, all as such is attached hereto on Exhibit B and
incorporated fully herein by this reference (the "JFD Logo"); and (iii) any of
the current JFD related trade dress to be utilized in the operations of and in
connection with the Restaurant. The name "Jerry's Famous Deli," the JFD Logo
and the trade dress utilized in the operations of and in connection with the
Restaurant shall collectively referred to hereinafter as the "Intangible
Properties."
E. Universal represents that it is has the skill, knowledge and
expertise in restaurant operations of the type required for operation of a
quick food restaurant.
F. Universal desires to use the Intangible Properties to advertise,
operate and merchandise the Restaurant, and JFD desires to license to Universal
the use of the Intangible Properties in advertising, operations and
merchandising of the Restaurant, under the terms and conditions set forth
herein.
<PAGE> 2
G. Universal represents that it has had, within the seven years before
the date of this Agreement, at least twenty-four (24) months experience being
responsible for the financial and operational aspects of one or more
restaurants.
NOW, THEREFORE, in reliance upon and in consideration of the above facts
and the terms and conditions set forth below, the parties agree as follows:
ARTICLE 1
DEVELOPMENT AND CONSTRUCTION
A. Development/Construction. Universal will develop, design and construct
the Restaurant. Universal shall make all improvements to the Premises so that
it is a fully operational restaurant facility, including without limitation,
the design, construction, installation of the storefronts, signage, interior
finishes, furnishings and equipment (the "Improvements").
1. Design Firm. A design firm ("Design Firm") to oversee all
aspects of the Improvements shall be selected by Universal.
2. Schematic Design. JFD shall consult and work with Universal and
the Design Firm in developing an approved final schematic design for the
Restaurant based on the Budget (defined below), which will be approved by
Universal.
B. Universal's Sole Cost. The Improvements and all other costs to make
the Restaurant fully operational shall be at the sole cost and expense of
Universal. Universal shall establish an all-in budget for the Improvements (the
"Budget"), and in this regard Universal intends such Budget to be approximately
but no more than $350,000. JFD shall exercise all of its approvals and render
its consulting services in a manner generally consistent with the Budget.
C. Opening Date. The "Opening Date" is the date the Restaurant opens to
the public. Subject to the provisions of Article 4, B, below, Universal shall
endeavor to cause the Opening Date to occur on or about February 1, 2000,
subject to extension for Force Majeure Events (defined below).
ARTICLE 2
JFD'S CONSULTING SERVICES
Upon and subject to the terms and conditions hereinafter set forth,
Universal does hereby engage and retain JFD, and JFD does hereby agree to be
engaged
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and retained by Universal, to provide the consulting services hereafter
described. JFD will assist Universal in the development of the Restaurant,
including, without limitation, using its best professional efforts to help
develop the Restaurant profitably in full compliance with all applicable laws,
codes, ordinances and regulations imposed by governmental authorities and in a
manner consistent with the Budget; provided, however, JFD shall not be required
to engage in any activity requiring a professional license or registration.
During the planning, construction, development and pre-opening of the
Restaurant (i.e. from the date of execution of this Agreement by JFD until the
Opening Date), JFD shall consult with Universal's management team in the
following areas:
1. JFD will diligently assist Universal in the design of the
Restaurant so that Universal will have the benefit of JFD's expertise in
planning, designing and laying out the Restaurant, from an operational point of
view and in a manner consistent with other Jerry's Famous Deli restaurants.
2. JFD will cooperate in advising and assisting Universal in
developing budgets for furniture, fixtures and equipment, kitchen equipment,
telephone and communications equipment and other individual categories of
furniture, fixtures and equipment, and advise and assist Universal and the
Architect in developing an overall budget for the Restaurant project for both
prior to the Opening Date and thereafter.
3. JFD will assist Universal in conducting such inspections and
reviews from time to time as may be reasonably necessary to perform JFD's
duties hereunder and as Universal may request with regard to such matters as
Universal reasonably determines may be useful to Universal in Universal's
overall supervision of the Restaurant project. JFD is not, however, an expert
in building codes, or technical matters, such as electrical or mechanical
matters.
4. JFD will assist Universal in selecting and establishing menus,
pricing, uniforms and similar items and matters so as to ensure conformity with
other Jerry's Famous Deli restaurants. Menu and pricing restrictions are
further addressed in Article 5, B, 2.
5. JFD will consult with Universal regarding establishing staffing
needs, employment timetables, hiring and training guidelines for employees and
other programs relating to staffing of the Restaurant.
6. JFD will consult with Universal on all pre-opening activities.
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7. JFD shall meet in person with Universal weekly or more frequently
as reasonably requested by Universal in order to discuss all matters relating to
the planning, construction, development and pre-opening of the Restaurant,
including without limitation, the ongoing design, operation and/or management of
the Restaurant. In general, JFD, to the best of JFD's professional ability, will
consult with Universal in all activities necessary or reasonably required to
open the Restaurant for business and to see that there is in place, prior to
opening, a coordinated program for drawing customers to the Restaurant and, with
Universal's cooperation, to ensure creative and operational conformity with
other Jerry's Famous Deli restaurants.
ARTICLE 3
LICENSE OF INTANGIBLE PROPERTIES
A. License. JFD hereby grants to Universal the non-exclusive right,
license and privilege to use the Intangible Properties in connection with
Universal's operation of the Restaurant, pursuant to the terms hereof. JFD
expressly reserves the unqualified right to use, license, sublicense or
otherwise exploit, in any manner whatsoever and at all times, the Intangible
Properties or any variation or combination thereof, except as otherwise
provided in this Agreement. This license of Intangible Properties to Universal
includes not only elements which existed on the effective date of this
Agreement but also additional elements created, developed or acquired or
licensed in the future to the extent such additional elements are made
accessible to all other Jerry's Famous Deli restaurants and to the extent such
elements are the property of JFD to license. JFD also grants to Universal the
right to use any other materials that JFD uses in connection with its
restaurants to the extent JFD believes it has the rights to allow Universal to
use such materials.
B. Permitted Use. Universal shall have the right to utilize the
Intangible Properties in connection with the Restaurant, including without
limitation, the marketing thereof, in a manner consistent with the Quality
Standards (defined below). It is understood that all products, merchandise and
services utilizing or bearing the Intangible Properties shall be sold at the
Premises in accordance with the terms hereof, it being understood that
Universal shall have the right to sell products, merchandise and services
utilizing or bearing the Intangible Properties from the Premises to anywhere on
the property now or hereafter owned or controlled Universal and its Affiliates
generally known as Universal City, California. Universal shall have the right
to modify the JFD Logo, subject to JFD's consent; provided that JFD shall own
all right, title and interest to such JFD Logo.
C. Scope of License. Universal acknowledges that all rights, title and
interest in and to the Intangible Properties are and shall remain vested solely
in JFD and that all use of the Intangible Properties by Universal shall inure
to the benefit of JFD. Universal disclaims any right or interest therein or the
good will derived therefrom.
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D. Quality Controls and Approvals.
1. Quality Control. The term "Quality Standards" shall mean those
quality standards established by JFD with respect to the operation of other
Jerry's Famous Deli restaurants as of the date of this Agreement, as adjusted
to reflect the fact that there are differences between a full service, broad
menu, mid-market, sit-down restaurant and a typical, self-serve fast food
operation.
Universal shall use commercially reasonable efforts to comply with
the Quality Standards in connection with the use of the Intangible Properties
and the operation of the Restaurant and complying with such obligation in a
material way is necessary to the image and success of the Restaurant. JFD shall
have the right to inspect and examine the Restaurant, it being understood that
such rights of inspection and examination shall be continuing throughout the
term of the Agreement and may be undertaken at any times mutually agreed to by
the parties, provided they shall be conducted so as not to interfere
unreasonably with Universal's business operations. JFD may, however, make spot
visits ("Spot Visits") unilaterally once per quarter at any convenient time
during business hours with reasonable advance notice, provided such Spot Visits
shall be conducted so as not to interfere unreasonably with Universal's
business operations and provided further that Spot Visits in any part of the
"back of the house" will only be performed between the hours of 1:30 p.m. and
5:30 p.m. If during a Spot Visit it is determined that Universal has not
complied with its material obligations pursuant to the first sentence of this
grammatical paragraph, JFD may conduct more than one Spot Visit per quarter
until it is determined that Universal has complied with such obligations in a
material way. Universal shall use commercially reasonable efforts to ensure
that all food products, merchandise or services bearing or utilizing the
Intangible Properties offered or sold is of a high standard for a quick food
restaurant and in no way reflects adversely upon the Intangible Properties.
JFD agrees to use its commercially reasonable efforts to cause all
other Jerry's Famous Deli restaurants to be operated and to ensure that all
food products, merchandise or services bearing or utilizing the Intangible
Properties offered or sold is of the highest standard and in no way reflects
adversely upon the Intangible Properties.
If the quality standards with respect to all other sit-down Jerry's
Famous Deli restaurants and any new sit-down restaurants do not maintain at
least the same quality standards as exist as of the date of this Agreement, and
with respect to any new quick food restaurants, the Quality Standards (i.e. the
standard applicable to the Restaurant) are not maintained, Universal shall have
the right (but not the obligation) to terminate this Agreement effective on
ninety (90) days notice; provided however if Universal terminates this Agreement
pursuant to this grammatical paragraph, Universal shall not be able to obtain
damages.
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Notwithstanding anything to the contrary contained in this Article
3,D,1 if the operator or licensee of any JFD restaurant is treated more
favorably (from its standpoint) with respect to any matter and/or restriction
specified in this Article 3,D,1 then the matter and/or restriction specified in
this Article 3,D,1 shall be modified so that Universal is treated in the same
manner.
E. Materials.
1. JFD shall make available to Universal at JFD's expense all
photographic material and artwork with respect to the Intangible Properties
including any logo which JFD has available and which Universal may require to
fulfill its obligations hereunder.
2. Unless Universal (in its sole and absolute discretion) requests
otherwise, no materials used by Universal in connection with the Restaurant
shall make any reference to any other restaurant operated or licensed by JFD.
3. JFD shall be permitted to include the Restaurant in lists and
menus where other JFD restaurants are listed as "Jerry's Famous Deli at
Universal CityWalk." All other advertising, marketing or promotion of the
Restaurant shall be subject to Universal's approval.
ARTICLE 4
TERM OF AGREEMENT
A. Term. This Agreement shall have a term ("Term") which shall commence
immediately upon the date of this Agreement ("Commencement Date") and shall
terminate (unless extended pursuant to Article 4,A,1 and Article 4,A,2 below)
upon the last day of the 120th month following the last day of the calendar
month in which the Opening Date occurred, unless the Opening Date is the first
day of a calendar month in which case this 120 month period shall run from the
last day of the previous calendar month.
1. Initial Option to Extend. Except if Universal is in default and
has not cured such default (as more fully described in Article 11), if the
annual average "Gross Sales" (as defined below) for the last 24 months prior to
the notice next mentioned is equal to or greater than $1,000,000 (subject to an
equitable reduction for Events of Force Majeure, defined below), Universal
shall have the option ("Initial Option") to renew this Agreement for an
additional five (5) years ("Initial Option Term") by giving JFD notice of at
least 180 days before the expiration of the Term, provided that Universal pays
JFD $40,000 ("Initial Option Payment") upon the commencement of
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the Initial Option Term, which Initial Option Payment shall be applicable
against any future License Fees accruing and owing to JFD.
2. Second Option To Extend. Except if Universal is in default and
has not cured such default (as more fully described in Article 11), if the
annual average "Gross Sales" (as defined below) for the last 24 months prior to
the notice next mentioned is equal to or greater than $1,000,000 (subject to
an equitable reduction for Events of Force Majeure, defined below), Universal
shall have a second option ("Second Option") to renew this Agreement for
another five (5) years ("Second Option Term") by giving JFD notice of at least
180 days before the expiration of the Initial Option Term, provided that
Universal pays JFD $40,000 ("Second Option Payment") upon the commencement of
the Second Option Term, which Second Option Payment shall be applicable against
any future License Fees accruing and owing to JFD.
Except for a default by JFD, JFD shall not forfeit any portion of the
Initial Option Payment and/or Second Option Payment as a result of an early
termination of this Agreement by Universal.
B. Right to Terminate.
1. If construction of the Restaurant has not commenced by June 1,
2000 (subject to extension for Events of Force Majeure, defined below) or,
despite the parties acting in good faith, if the Restaurant's Opening Date is
not before December 31, 2000, then either party shall have the sole remedy of
terminating this Agreement effective on notice to the other party given within
twelve (12) days therewith.
2. Except if Universal is in default and has not cured such default
(as more fully described in Article 11), Universal shall have the right (but
not the obligation) to terminate this Agreement effective upon ninety (90) days
notice to JFD given within one (1) year following the 12-month period next
mentioned, if during any consecutive 12-month period during the Term, one of
the following criteria is met: (i) Gross Sales (as defined below) fall below
the sum of $750,000 (as adjusted for each calendar year per CPI/LA), or (ii)
the Restaurant's EBITDA (as defined below) is negative. Except if JFD is in
default and has not cured such default (as more fully described in Article 11),
if the Agreement is terminated by Universal pursuant to this Article 4.B.2
within twenty four (24) months following the Opening Date, Universal shall
guarantee that JFD receives the Fixed License Fee (defined below) for the first
two years of the Term. If Universal has the right to terminate under this
Article 4, B, 2 and also has the right to terminate under Article 4, B, 3
below, the provisions of this Article 4, B, 2 shall apply.
3. Except if Universal is in default and has not cured such default
(as more fully described in Article 11), Universal shall have the right to
terminate this
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Agreement for any reason effective on notice to JFD any time following forty
eight (48) months from the Opening Date, provided that Universal does not within
24 months of such notice to terminate (i) replace the Restaurant with an
alternative quick food "Deli-Restaurant" (defined below) or (ii) permit the
operation of a sit-down "Deli-Restaurant" in CityWalk. Except if JFD is in
default and has not cured such default (as more fully described in Article 11),
and except if a termination under Article 4, B, 2 is applicable, if the
Agreement is terminated by Universal pursuant to this Article 4, B, 3 (as
distinguished from Article 4, B, 2), then Universal's notice of termination of
JFD shall be accompanied by a termination fee ("Termination Fee") in an amount
equal to four percent (4%) of the average annual "Gross Sales" (defined below)
during the 24 months prior to such notice to terminate, which Termination Fee
shall be no less than $50,000 and no greater than $100,000.
4. If any third party is successful after appeals are exhausted or
if JFD fails to fully defend, indemnify and hold harmless Universal pursuant to
Article 12,A in connection with a claim against Universal and/or its Affiliates
regarding Universal's use of the Intangible Properties in connection with the
Restaurant pursuant to the terms of this Agreement, Universal shall have the
right (but not the obligation) to terminate this Agreement effective on notice
to JFD. Notwithstanding any such termination, and in the event of the filing of
such court action, JFD shall indemnify Universal pursuant to Article 12, A.
Furthermore, if Universal is precluded from using the "Jerry's Famous Deli" name
in connection with the Restaurant, JFD will reimburse Universal for either of
the following, as determined by Universal in its sole discretion: (i) the
unamortized, original cost of the Improvements (i.e. complying with Article 1,
A); or (ii) the costs (other than license fees or similar fees, such as
franchise fees) incurred in connection with removing any Intangible Properties
and replacing such with new other names, trade dress, logos and similar type
intellectual property for use in connection with a new restaurant or store, the
installation costs of which shall be generally consistent (with appropriate
CPI/LA adjustment) with the costs of installing the Intangible Properties under
this Agreement.
5. Universal or JFD shall have the right to terminate this Agreement
as expressly provided elsewhere in the Agreement.
C. Upon Termination/Expiration. Upon termination or expiration of this
Agreement: (i) the provisions of Article 11, A, 5 shall govern; and (ii)
Universal shall not use any mark or design which is the same or confusingly
similar to the Intangible Properties. Notwithstanding anything to the contrary
contained in this Agreement, Universal is not and shall not waive any rights
that it would have in the absence of this Agreement as a member of the public.
ARTICLE 5
OWNERSHIP AND OPERATION OF RESTAURANT
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A. Ownership. Universal shall own all assets of any kind in and to the
Restaurant and all Improvements, including without limitation, signage, except
only the name "Jerry's Famous Deli," the Restaurant design concept and the
Intangible Properties; however, Universal shall have the right to use the name
"Jerry's Famous Deli," the Restaurant design and the Intangible Properties (all
of which are exclusively owned by JFD) as expressly provided in this Agreement.
JFD shall own and is hereby assigned the Restaurant's trade-dress and the
design of the Restaurant's store-front ("Design Concept") which Universal
develops with respect to the Restaurant and JFD will have the right to use such
Design Concept at any time in any other location (subject to the restrictions
contained in Article 7). If JFD and Universal enter into future license deals on
other project(s) owned, operated or licensed by Universal and/or its Affiliates
and if JFD and Universal agree to use the same or substantially similar Design
Concept created by Universal pursuant to this Agreement, JFD shall not directly
or indirectly charge any design fees for the same or substantially similar
Design Concept to be used at such other project(s). Notwithstanding anything to
the contrary contained herein, Universal is not and shall not waive any rights
that it would have in the absence of this Agreement as a member of the public.
Furthermore and notwithstanding anything to the contrary contained herein,
Universal shall have the right to use the Design Concept (except for the name
"Jerry's Famous Deli," JFD Logo, any photographs provided to Universal by JFD
for use in connection with the Restaurant, or the distinctive JFD design
enhancements to the menu board structure) in connection with any other store or
restaurant on the Premises. For example, if the Agreement is terminated or
expires, Universal shall have the right to use the Design Concept (except for
the name "Jerry's Famous Deli," JFD Logo, any photographs provided to Universal
by JFD for use in connection with the Restaurant, or the distinctive JFD design
enhancements to the menu board structure) in connection with another restaurant
or store on the Premises.
B. Operation. Universal shall be solely responsible for the management
and operation of the Restaurant and, except as provided elsewhere in this
Agreement, shall have approval over all aspects thereof. JFD shall neither have
nor exercise any control over Universal's method of operating the Restaurant,
and Universal is under no obligation to adhere to any specified scheme or plan
for operating the Restaurant, except that Universal shall use commercially
reasonable efforts to operate the Restaurant in a manner consistent with the
Quality Standards, all as more fully set forth in Article 2, D.
The following obligations shall also apply during Universal's operation of
the Restaurant:
1. Signage. Universal shall install signage for the Restaurant
(i) on the facade of the Restaurant; and (ii) in the common area of the CityWalk
so that such
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signage is within reasonable proximity to the Food Court and is visible from the
area by the main entrance to the motion picture cinemas on the first floor of
CityWalk.
2. Menu and Pricing. Universal and JFD have pre-approved the
initial menu for such menu items in the manner set forth in Exhibit C, attached
hereto and incorporated herein by this reference, with designations referred to
as primary products (items that must at all times be offered by the Restaurant)
("Primary Products") and secondary products (all other items offered by the
Restaurant) ("Secondary Products"). Notwithstanding the foregoing (and except
with respect to beverage and snack food items for which Universal has absolute
flexibility in adding or deleting from the menu without JFD's approval, provided
such items are generally consistent with the initial concept of the Restaurant
as a "Deli-Restaurant," as such term is defined in Article 7), Universal shall
be permitted flexibility in adding or deleting Secondary Products to the menu
without JFD's approval provided the following criteria are satisfied with
respect to newly added items: (i) the menu item appears on the sit-down
restaurant menu at the Jerry's Famous Deli in Studio City, California or at
JFD's highest grossing Jerry's Famous Deli restaurant if the Jerry Famous Deli
in Studio City, California is no longer operating ("Reference Restaurant"); (ii)
Universal uses commercially reasonable efforts to comply with the Quality
Standards; and (iii) the initial concept of the Restaurant as a "Deli
Restaurant" (as such is defined in Article 7 below) is not materially affected
by the addition of the menu item. Universal shall have the right (in its sole
and absolute discretion) to delete Secondary Products from the menu without
JFD's approval. Universal shall also be permitted flexibility in making changes
to the price of any menu item without JFD's approval, provided the following
criteria are satisfied with respect to price changes for Primary Products: (i)
the price for such item cannot be higher than the price for such item at the
Reference Restaurant; and (ii) the price change is not for the purpose of
offering promotional pricing. Furthermore, notwithstanding anything to the
contrary contained herein, the parties can mutually agree on any price or menu
modifications.
Notwithstanding anything to the contrary contained in this Article 5, B,
2, if the operator or licensee of any JFD restaurant is treated more favorably
(from its standpoint) with respect to any matter and/or restriction specified in
Article 5, B, 2 then the matter and/or restriction specified in this Article 5,
B, 2 shall be modified so that Universal is treated in the same manner.
3. Products. It is expressly understood that Universal will
buy food products directly from suppliers, none of which shall be JFD. Unless
otherwise agreed to by the parties, Universal shall utilize recipes and
suppliers from JFD only for the specified items listed on Exhibit D, attached
hereto and incorporated herein by this reference; provided that Universal
obtains the specified items from such supplier at the same price (including
without limitation rebates) that JFD pays for such items. All other recipes and
suppliers (except as specified in the last sentence of this grammatical
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paragraph) shall be determined by Universal in its sole and absolute discretion,
provided Universal maintains the Quality Standards. Any newly added menu item
which is not on the initial menu, attached hereto as Exhibit C and incorporated
herein, shall have the following restrictions: (i) if such newly added item is
created entirely at the Reference Restaurant, then Universal shall use the same
recipe used by JFD at such restaurant for such newly added item; and (ii) to the
extent such newly added item contains any ingredient listed on Exhibit D,
Universal shall utilize the supplier that JFD uses for such ingredient. Unless
otherwise agreed to by the parties: (i) Universal shall use round rye bread
which is supplied from the same supplier that JFD uses, from Brown's or as
otherwise mutually agreed to by the parties; (ii) the mustard and soup base
shall be supplied by the same supplier that JFD uses; and (iii) Universal shall
use a supplier for pre-cooked turkey which is subject to JFD's and Universal's
approval.
Notwithstanding anything to the contrary contained in this Article 5, B,
3 if the operator or licensee of any JFD restaurant is treated more favorably
(from its standpoint) with respect to any matter and/or restriction specified in
Article 5, B, 3 then the matter and/or restriction specified in this Article 5,
B, 3 shall be modified so that Universal is treated in the same manner.
4. Seating. Throughout the Term, Universal shall provide a
seating area in the Food Court for customers purchasing items from all
restaurants in the Food Court, it being agreed that Universal shall use
commercially reasonable efforts to ensure a minimum of approximately 6 seats per
100 square feet of leasable Food Court restaurant space.
5. Health Standards. Universal shall use its commercially
reasonable efforts to rectify any condition which causes the Restaurant to
receive a County of Los Angeles, Department of Health Services Environmental
Health Grade of less than "A."
Notwithstanding anything to the contrary contained in this Article 5, B,
5 if the operator or licensee of any JFD restaurant is treated more favorably
(from its standpoint) with respect to any matter and/or restriction specified in
Article 5, B, 5 then the matter and/or restriction specified in this Article 5,
B, 5 shall be modified so that Universal is treated in the same manner.
C. JFD's Obligations.
1. It is the express understanding that this is the first
quick food unit to be operated under the JFD name. As such the Quality Standards
and profitability of the Restaurant will be different than with respect to other
Jerry's Famous Deli sit-down restaurants. Based on the performance of the
Restaurant, JFD may open other quick food units elsewhere ("Expansion Sites"),
subject to Article 7. With respect to such Expansion Sites, JFD shall provide
Universal on a quarterly basis, without charge, a written summary of any and all
material innovations and/or operational information
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which JFD derives from any such Expansion Sites and which may have some
conceivable value to Universal ("Expansion Innovations/Information") so that
the operation and financial results of the Restaurant may be improved.
Universal shall have the following remedies if JFD fails to provide Expansion
Innovations/Information to Universal and JFD has not cured such default (as
more fully described in Article 11): (i) if such failure is intentional and has
a material adverse impact on the Restaurant's EBITBA, then Universal shall be
entitled to all available remedies under this Agreement, including without
limitation, damages and termination of this Agreement; (ii) if such failure is
not intentional and has a material adverse impact on the Restaurant's EBITBA,
Universal may only seek damages and may not terminate this Agreement; and (iii)
if such failure does not fall under items (i) or (ii) above, then JFD shall
prospectively cure such breach and provide Universal with the Expansion
Innovations/Information.
D. Expenses of JFD. Except for its own expenses, costs and overhead in
rendering its inspection and consulting services as set forth in Article 2,
providing materials as set forth in Article 3 and costs and expenses incurred
without Universal's consent, JFD shall bear no expense in connection with
Universal's operation of the Restaurant. If Universal requests that JFD render
services beyond the scope set forth herein or incur any out-of-pocket expenses
beyond the scope set forth herein, Universal shall promptly pay JFD reasonable
fees for such services and reimburse JFD for any such expenses; provided
however, JFD shall notify Universal of reasonable estimates of any such costs
and expenses prior to incurring any costs or expenses so that Universal may
elect not to have JFD incur such costs and/or expenses.
ARTICLE 6
FEES
A. Consulting Fee. In consideration of the consulting services provided
by JFD, and provided further that JFD is not in default hereunder, JFD shall be
entitled to a one-time fee (the "Consulting Fee") from Universal to be earned
and payable as follows:
1. Ten Thousand Dollars ($10,000) shall be earned if this Agreement
is signed and delivered to Universal within ten (10) business days following
September 13, 1999, provided however, if and to the extent the delay in signing
this Agreement would not have occurred but for some action or inaction on
Universal's part and which does not solely arise out of or is not caused by any
action or inaction on JFD's part, then JFD shall be entitled to an additional
day for each such day of delay in signing by JFD of this Agreement;
2. Twenty Thousand Dollars ($20,000) shall be earned upon the
issuance of a building permit to commence construction of the Improvements; and
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3. Twenty Thousand Dollars ($20,000) shall be earned on the Opening
Date.
The Consulting Fee shall be paid by Universal to JFD on the first day of
the first month following six (6) full calendar months of continuous operation
of the Restaurant.
B. License Fee. For licensing the Intangible Properties hereunder, and
provided JFD is not in default hereunder, JFD shall earn from Universal a
license fee (the "License Fee") as follows:
1. During First Two Years After Opening Date. During the first two
years following the Opening Date only (and not for any subsequent years), Ten
Thousand Dollars ($10,000) at the conclusion of each three month period
following the Opening Date ("Fixed License Fee"), for a total Fixed License Fee
of $80,000. In addition to the foregoing Fixed License Fee, if four percent
(4%) of the "Gross Sales" (as defined below) exceeds the sum of $40,000 during
either one or both of the first two years following the Opening Date, JFD shall
be entitled to an additional fee equal to such excess for each such year in
which such excess occurs.
2. During All Subsequent Years. During the third and all subsequent
years following the Opening Date (and not for the first two years following the
Opening Date), an amount equal to the four percent (4%) of the "Gross Sales"
(as defined below) of the Restaurant.
C. Payments. The License Fee (other than the Fixed License Fee) shall be
earned by JFD on a quarterly basis within 45 days after the end of Universal's
fiscal quarter, and calculated for such preceding quarter; provided that any
earned portion of the License Fee and Fixed License Fee payment shall not be
paid until the first day of the first month following six (6) full calendar
months of continuous operation of the Restaurant and all payments shall be made
as earned thereafter. All payments shall be made payable to JFD at the address
set forth in Article 15, or to such persons and at such addresses as JFD may
designate in writing from time to time. If Universal shall fail to make any
payment required hereunder on the date when the same is due and Universal has
been notified of such failure, and such payment is not made to JFD within ten
(10) days following such notice, Universal shall pay interest on any such
overdue amount at a rate equal to the Prime Rate plus two hundred basis points.
If Universal shall fail to make any payment required hereunder on the date when
the same is due more than two times during any calendar year, then Universal
shall also be assessed a late fee of $150 for each such further late payment
within the same calendar year (i.e. the late fee shall be charged on all late
payments after the first two late payments). The term "Prime Rate" shall mean
the monthly rate of interest publicly announced from time to time by Bank of
America, National Trust and Savings Association in San Francisco.
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California (or such other bank as Universal may from time to time specify) as
its "reference rate" or its "prime rate" unless such rate exceeds the maximum
lawful rate under usury or similar law in the state of California, in which
case it shall be deemed to mean the maximum lawful rate.
D. Gross Sales Definition. The term "Gross Sales" as used in this
Agreement is defined to be the gross selling price of all merchandise or
services sold in or from, and any other gross sales (including cover charges
and fees paid by third parties for sponsorships or celebrity appearances or
other promotional considerations) generated on or from, the Premises by
Universal, whether for cash, credit or barter; provided, however, that with
respect to any vending or other machines, telephones or other third party
equipment or businesses on the Premises, only the net receipts received by
Universal from such activity shall be included in Gross Sales. Gross Sales
shall be adjusted only by excluding or deducting the following:
1. The selling price of all merchandise returned by customers and
accepted for full credit or the amount of discounts and allowances made thereon;
2. Goods returned to sources or transferred to another store or
warehouse owned by or affiliated with Universal;
3. Sums and credits received in the settlement of claims for loss
of or damage to merchandise;
4. The price allowed on all merchandise traded in by customers for
credit to the extent the credit given is in excess of the value of the
merchandise traded in;
5. Cash refunds made to customers in the ordinary course of
business;
6. Receipts from any public telephones, stamp machines or public
toilet locks installed with Universal's approval in areas not open to the
public;
7. Sales taxes, so-called luxury taxes, consumers' excise taxes,
gross receipts taxes and other similar taxes now or hereafter imposed upon the
sale of merchandise or services;
8. Sales of fixtures, equipment or property which are not
Universal's stock in trade;
9. Sales cancelled, but only to the extent of the purchase price
not retained by Universal;
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10. Interest, service or sales carrying charges paid by customers
for extension of credit on sales, and where not included in the merchandise
sales price;
11. Bad debts and bad checks;
12. The discounted portion of employee discount sales or free food
given to employees (collectively, "Employee Discounts") to the extent the
Employee Discounts shall have been given in accordance with the policy on
Employee Discounts established by the Restaurant in accordance with the
provisions of this Agreement, provided that in no event shall Employee Discounts
exceed five percent (5%) of Gross Sales without JFD's consent;
13. Tips received from customers of the Restaurant for the benefit
of employees and for which the Restaurant accounts to such employees;
14. The sale price of any capital assets;
15. Capital contributions to Universal by shareholders;
16. Loans of any type to or on behalf of Universal;
17. Any costs and fees incurred in connection with credit card
charges, including, without limitation, commissions to selling agents; and
18. Income generated from insurance proceeds, condemnation
proceeds and transactions not in the ordinary course of business.
The accounting for pre-sold tickets, coupons, gift certificates and like
vouchers (collectively, "Pre-sales") and for merchandise and/or services
exchanged for such Pre-sales will be handled and accounted for as part of Gross
Sales in such manner as Universal may from time to time specify from one of the
two following options: (i) the selling price of any Pre-sales sold in or from
the Premises shall be included in Gross Sales and the redemption of Pre-sales at
the Premises shall be excluded form Gross Sales; or (ii) the redemption of
Pre-sales at the Premises shall in be included in Gross Sales and the selling
price of any Pre-sales sold in or from the Premises shall be excluded from Gross
Sales. Unless and until Universal notifies JFD otherwise, item (i) shall apply
and shall continue to apply until a subsequent notification of a change.
All sales originating at the Premises or orders secured or received at the
Premises (whether by mail, telephone, facsimile transmission, telegraph or
otherwise) shall be considered as made and completed therein, even though
bookkeeping, payment or collection of the account may take place elsewhere, and
even though actual filling of the
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sale or service order and actual delivery of the merchandise may be made from a
place other than the Premises. Each sale upon installments or credit shall be
treated as a sale for the full cash price at the time of sale.
The term "merchandise" as used in this Agreement is defined as any goods
and commodities, including without limitation food and beverages and novelty
items (i.e., coffee mugs, t-shirts and hats), sold or offered for sale, unless
the context of the use of such term requires a different meaning.
ARTICLE 7
NON-COMPETITION
A. During the Term, neither JFD nor any Affiliate (defined below) shall
own, operate, manage, license or otherwise directly or indirectly engage in the
operation of any quick food Deli- Restaurant (as defined below) within any of
the following: (i) the "Hollywood and Highland" project, as set forth in
Exhibit E attached hereto and incorporated herein by this reference; or (ii)
the "Media Center Area" in Burbank as set forth in Exhibit F attached hereto
and incorporated herein by this reference.
Notwithstanding the foregoing, if the Gross Sales fail to reach $350,000.00
for any consecutive 12-month period during the Term (excluding from such period,
any time when the Restaurant operation is closed or significantly curtailed
because of Events of Force Majeure (defined below)), the restriction set forth
in this Article 7, A will be void and of no force and effect.
B. During the Term, Universal shall not permit the operation of any
"Deli-Restaurant" in CityWalk. The term "Deli-Restaurant" shall mean a
Jewish-style delicatessen restaurant which features corned beef and pastrami
sandwiches and chicken noodle soup; examples of such restaurants in the Los
Angeles area include Jerry's Famous Deli, Nate n' Al, Factors, Juniors,
Canters, Art's, The Stage, Wall Street Deli, Brent's Deli and Langers.
Without intending to expand the foregoing prohibition, during the Term,
Universal shall be permitted to operate a bagel shop, such as Manhattan Bagel
or Noah's Bagels, in CityWalk without JFD's consent; provided such bagel shop
does not offer for sale the Primary Products (except for cheesecake and soup).
ARTICLE 8
PROTECTION OF INTANGIBLE PROPERTIES
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A. Universal shall notify JFD promptly of: (i) any use of tradenames,
trademarks or other intellectual property which Universal believes infringes on
Universal's right to use the Intangible Properties or which Universal believes
is confusingly similar to the Intangible Properties; or (ii) any claims made by
third parties that such third party has the right to use the Intangible
Properties or the right to use items confusingly similar to the Intangible
Properties. (If a claim is made against Universal, the rights and obligations of
the parties shall be governed by Articles 4, B, 4 and 12 below). If JFD decides
that action should be taken against any third party, it may take such action in
its own name, in which case all expenses shall be borne by it and all damages
which may be recovered shall be for the account of JFD. Alternatively, if JFD
does not initiate such action, without limiting Universal's other remedies,
Universal shall have the right to initiate and prosecute such action in its name
and, in such event, in which case all expenses shall be borne by it and all
damages which may be recovered shall be for the account of Universal. In either
event, the parties agree to fully cooperate with each other in any proceeding
against a third party infringer of the Intangible Properties; provided however
the party whose cooperation is sought (i.e. the party not bringing the action
against the third party) shall not be required to incur any expenses in the
course of providing such cooperation.
Furthermore, JFD shall take all steps reasonably required to prevent any
third party's use of the name "Jerry's Famous Deli" within the "Hollywood and
Highland" project and/or the "Media Center Area" which are confusingly similar
to the Intangible Properties, including without limitation, bringing and
pursuing at least through the trial court level a proceeding seeking injunctive
relief. Without limiting Universal's other remedies under this Agreement, if JFD
fails to take such action Universal shall have the right (but not the
obligation): (i) to initiate and prosecute such action in its name and Universal
shall be permitted to off-set its costs and expenses incurred in such action
against money owed to JFD pursuant to this Agreement; and/or (ii) terminate the
Agreement effective on notice to JFD and recover from JFD one of the following,
as determined by Universal in its sole discretion: (aa) the unamortized,
original cost of the Improvements (i.e. complying with Article 1, A); or (bb)
the costs (other than license fees or similar fees, such as franchise fees)
incurred in connection with removing any Intangible Properties and replacing
such with other names, trade dress, logos and similar type intellectual property
for use in connection with a new restaurant or store, the installation costs of
which shall be generally consistent (with appropriate CPI/LA adjustment) with
the costs of installing the Intangible Properties under this Agreement. If JFD
or Universal loses any action referenced in this grammatical paragraph,
Universal shall have the right (but not the obligation) to terminate the
Agreement effective on notice to JFD and recover from JFD either of the amounts
specified in (aa) or (bb), as set forth in the prior grammatical sentence, as
determined by Universal in its sole discretion.
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B. Each party agrees at the request of the other party to execute any
and all documents reasonably necessary to put this Agreement into effect or to
implement same.
C. Universal shall cause to be imprinted on all advertising and other
material such legends, markings and notices as may be necessary or required in
order to give appropriate notice of any trademark, trade name or other rights
therein or pertaining thereto, and/or the appropriate copyright notice.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
A. JFD's Representations. JFD represents, warrants and covenants to the
following: (i) JFD has the rights necessary to license the Intangible Properties
for use at the Restaurant; (ii) neither the Intangible Properties nor the
exercise by Universal of the rights granted herein with respect to the
Intangible Properties does or will infringe upon the rights of any third party
under (aa) any contract or agreement, or (bb) any rights of or laws governing
copyrights, trademarks, privacy, libel or slander, or (cc) any other literary,
artistic or property right; (iii) the Intangible Properties and all rights,
licenses and privileges granted to Universal hereunder are free and clear of all
liens, charges or encumbrances of any kind (except JFD's blanket pledge to one
bank lender - BankBoston, N.A.); (iv) JFD has the right and power to enter into
this Agreement and grant all of the rights, services, licenses and privileges
granted to Universal hereunder; (v) to the best of JFD's knowledge, there are no
litigation proceedings or claims pending or threatened against JFD, JFD's
predecessors-in-interest or any other party which may adversely affect the
rights, licenses and privileges granted to Universal hereunder; (vi) neither JFD
nor its predecessors-in-interest has done anything heretofore, nor will any such
party do anything hereafter, that is inconsistent with or in derogation of the
obligations of JFD hereunder or any of the rights, services, licenses and
privileges granted to Universal hereunder; (vii) recitals B and D are true and
accurate; and (viii) JFD is a corporation duly organized, validly existing, in
good standing under the laws of California.
B. Universal's Representations. Universal represents, warrants and
covenants to the following: (i) it shall use commercially reasonable efforts to
operate the Restaurant during the term of this Agreement in compliance with the
Quality Standards; (ii) it shall not use the Intangible Properties, other than
pursuant to and in accordance with the terms of this Agreement or as otherwise
agreed to in writing by the parties; (iii) Universal has the right and power to
enter into this Agreement; (iv) Universal is a corporation duly organized,
validly existing, in good standing under the laws of the state of Delaware; and
(v) recitals A, E and G are true and accurate.
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ARTICLE 10
RECORD KEEPING AND ACCOUNTING
Universal shall maintain and preserve accurate books and records for the
Restaurant. No later than the twentieth day following each calendar month during
the Term, Universal shall furnish to JFD complete and accurate statement showing
the Gross Receipts for the Restaurant during the preceding calendar month
("Monthly Statements"). At any time upon 15 days prior notice, JFD may request
that Universal furnish to JFD a detailed statement for the preceding twelve (12)
months, certified by an independent certified public accountant chosen by JFD,
showing in sufficient detail the elements included in the calculation of Gross
Receipts (the "Gross Receipts Statement"), provided, however, if there is no
Material Discrepancy (defined below) found in the prior audit, JFD may not
exercise the foregoing audit rights more frequently than once annually. The
expenses attributable to the preparation and certification of such Gross
Receipts Statement shall be borne by JFD, unless the reported total Gross
Receipts for any period shown on such Gross Receipts Statement vary, in the
aggregate, by five percent (5%) or more from the total Gross Receipts reported
to JFD in the Monthly Statements for such period ("Material Discrepancy"). In
the event of a Material Discrepancy, all expenses attributable to the
preparation and certification of the Gross Receipts Statement shall be borne by
Universal. Any underpayment disclosed by either an audit and examination or the
Gross Receipts Statement shall be paid (with interest at the Prime Rate plus two
hundred basis points) within thirty (30) days of presentment of the audit report
or Gross Receipts Statement. Any overpayment disclosed by such an audit shall be
credited to subsequent License Fees due to JFD hereunder or, if this Agreement
has then expired or been terminated, shall be paid in cash (with interest at the
Prime Rate) within thirty (30) days following presentment of audit report.
ARTICLE 11
DEFAULT
A. Either party ("Terminating Party") may terminate this Agreement at
any time upon thirty (30) days notice to the other party ("Non-Terminating
Party") upon the occurrence of any of the following:
1. If the Non-Terminating Party breaches any term or condition of
this Agreement and, except as provided in Article 11, A, 4 below, such breach is
not cured within the foregoing thirty (30) day notice period; provided, however,
that if the nature of such breach is curable but cannot be cured within said
time period, the Non-Terminating Party shall be deemed to have cured such breach
if the Non-Terminating Party commences cure of the breach within said time
period, and thereafter diligently and in good faith continues with and actually
completes said cure.
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2. If at any time the Non-Terminating Party shall generally not pay
the Non-Terminating Party's debts as they become due or shall admit in writing
the Non-Terminating Party's inability to pay the Non-Terminating Party's debts,
or shall make a general assignment for the benefit of creditors; or
3. If the Non-Terminating Party shall commence any case, proceeding
or other actions seeking to have an order to relief entered on the
Non-Terminating Party's behalf as debtor or to adjudicate the Non-Terminating
party as bankrupt or insolvent, or seeking the reorganization, arrangement,
adjustment, liquidation, dissolution, or composition of the Non-Terminating
Party or the Non-Terminating Party's debts under any law relating to
bankruptcy, insolvency, reorganization, or relief of debtors or seeking
appointment of a receiver, trustee, custodian, or other similar official for
the Non-Terminating party, and such case, proceeding, or other action (aa)
results in the entry of an order for relief against the Non-Terminating Party
which is not fully stayed within thirty (30) business days after entry thereof,
or (bb) shall remain undismissed for a period of ninety (90) calendar days.
4. JFD, in JFD's sole discretion, may terminate this Agreement at
any time upon any default by Universal in the payment of any amounts owing JFD
under this Agreement, if such payment default is not cured within the ten (10)
day period following the date on which JFD gives notice to Universal of its
delinquency; provided, however, if Universal in good faith disputes JFD's claim
that money is owed, this ten (10) day period shall toll until ten (10) days
after final resolution of the amount owed.
5. Upon the expiration or termination of this Agreement, Universal
shall immediately discontinue the use of the Intangible Properties, which
actions shall include, without limitation, removal of all signs and other items
displaying the Intangible Properties and the discontinuance of all use of the
Intangible Properties in all advertising, promotional and marketing materials
and activities. Notwithstanding the foregoing, Universal shall be entitled to
continue to use supplies then on hand displaying the Intangible Properties for
"in house" corporate purposes only for a period not to exceed sixty (60) days
after the date of expiration or termination of this Agreement, but shall not
order new quantities of such supplies after such expiration or termination.
6. Termination of this Agreement by either party shall not act as a
waiver of any prior breaches of this Agreement and shall not act as a release
of either party from any liability for prior breaches of this Agreement.
ARTICLE 12
INDEMNITY
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A. JFD shall indemnify, hold harmless, protect and defend Universal, its
Affiliates (as such term is defined below), and the officers, directors,
employees and agents of each of them from and against any and all claims,
demands, actions, fines, penalties, liabilities, losses, taxes, damages,
injuries and expenses (including, without limitation, reasonable attorneys' fees
and costs at the pretrial, trial, and appellate levels) (collectively,
"Damages") in any manner related to, arising out of or resulting from the
following: (i) the breach of any of JFD's representations, warranties and
covenants hereunder; (ii) the breach by JFD of any of its other obligations
under this Agreement; (iii) any third party claim or threatened claim that
Universal's use of the Intangible Properties in connection with the Restaurant
violates such third party's rights; and (iv) any third party claim or threatened
claim that Universal's use of any materials provided by JFD to Universal for use
in connection with the Restaurant violates such third party's rights; provided
that such Damages under items (i), (ii), (iii) and (iv) do not arise out of
Universal's gross negligence or willful misconduct or breach of Universal's
representations, warranties or covenants hereunder.
B. Universal shall indemnify, hold harmless, protect and defend JFD and
its officers, directors, employees and agents of each of them from and against
any and all Damages in any manner related to, arising out of or resulting from
the following: (i) the breach of any of Universal's representations, warranties
and covenants hereunder; (ii) the breach by Universal of any of its other
obligations under this Agreement; and (iii) Universal's development and
operation of the Restaurant; provided that such Damages under items (i), (ii)
and (iii) do not arise out of JFD's gross negligence or willful misconduct
and/or breach of JFD's representations, warranties or covenants hereunder and/or
any third party claim or threatened claim that Universal's use of the Intangible
Properties in connection with the Restaurant pursuant to the terms of this
Agreement violates such third party's rights and/or any third party claim or
threatened claim that Universal's use of any materials provided by JFD to
Universal for use in connection with the Restaurant violates such third party's
rights.
C. The rights and obligations of indemnity described in this Article
shall not be exclusive and shall be in addition to such other rights and
obligations as may be otherwise available to either party at law or in equity
and shall survive the expiration, termination or cancellation of this Agreement.
ARTICLE 13
ASSIGNMENT
A. Universal may not assign this Agreement except to any Affiliate
(defined below) without the prior consent of JFD, unless Universal in good
faith determines the assignment transaction meets both of the following tests:
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1. The then-current revenue stream of the Restaurant is less than
20% of the revenue stream of all assets involved in this same transaction; or
the estimated asset value of the Restaurant is less than 20% of the estimated
asset value of all assets involved in this same transaction; or the fairly
allocated price received by Universal for the Restaurant is less than 20% of the
total price received in this same transaction; and
2. Such assignee is a financially responsible party that has, or has
acquired or is acquiring at a time proximately concurrent with such assignment
of this Agreement from Universal, the skill, knowledge and expertise in
restaurant operations of the type required for operation of a quick food
restaurant.
If Universal assigns this Agreement, Universal shall be relieved of any
obligation or liability to JFD in connection with this Agreement for events,
acts or omissions after the effective date of such assignment; provided that the
assignee assumes the obligations of Universal hereunder in writing and such
assignee includes JFD as an additional insured on its comprehensive general
liability insurance and business automobile liability insurance policies in
connection with the Restaurant (subject to the terms and conditions of such
policy); and provided further such insurance policy, if required, is issued by a
company with a Best's Insurance Guide rating of a "A-VI" or greater, the
comprehensive general liability insurance and/or excess umbrella liability has a
combined single limit of not less than $2,000,000 each occurrence and business
automobile liability insurance and/or excess umbrella liability insurance for
all owned, hired, or non-owned vehicles utilized by JFD with a combined single
limit or not less than $1,000,000 each accident. If Universal assigns this
Agreement to a party who is not an Affiliate prior to the Opening Date, JFD
shall have the right to approve the Design Firm, the Schematic Design and the
final construction documents. Notwithstanding the foregoing, the assignee
(unless an Affiliate) may not exercise any previously unexercised option without
JFD's approval.
B. JFD may assign this Agreement without the consent of Universal;
provided that if such assignment is prior to the Opening Date, Universal shall
have the right (but not the obligation) to terminate this Agreement within 120
days of such assignment, effective on ten (10) days notice to JFD, if Universal
determines (in its sole and absolute discretion) that such assignee does not
possess the skills, knowledge and expertise in connection with the planning and
development of restaurant operations of the type and nature characteristic of a
sit-down version of the Restaurant and/or cannot provide the services set forth
in Articles 1 and 2.
ARTICLE 14
DEFINITIONS
A. Affiliates. For purposes of this Agreement, the term "Affiliate(s)"
and "affiliate(s)" shall mean, with respect to any Person (as defined below),
any other Person
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which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person (and, for purposes of this definition, "control"
(including the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise). "Person" shall mean
(i) an individual, corporation, partnership, joint venture, limited liability
company, limited liability partnership, estate, trust, unincorporated,
associated or other entity capable of contracting, (ii) any Federal, State,
County, or municipal government or any bureau, department, political subdivision
or agency thereof and (iii) a fiduciary acting in such capacity on behalf on any
of the foregoing.
B. Force Majeure. The occurrence of any of the following events ("Force
Majeure Events") shall excuse such obligations of Universal or JFD as impossible
or reasonably impracticable for so long as such event continues: lockouts; labor
disputes; acts of God; inability to obtain labor, materials, or reasonable
substitutes therefor; governmental restrictions, regulations or controls;
judicial orders; enemy or hostile governmental action; civil commotion; fire or
other casualty; earthquakes and other causes beyond the reasonable control of
the party to perform.
C. CPI/LA. For purposes of this Agreement, the term "CPI/LA" shall mean
the Consumer Price Index for all Urban Consumers, Los Angeles-Anaheim-Riverside,
California, Sub Group All Groups (1982-84 equals 100). Whenever a particular
dollar amount is stated as being subject to an adjustment for or by CPI/LA,
unless otherwise stated, the base index used in the particular adjustment shall
be the CPI/LA for the month of December 1998, and the comparison index shall be
the CPI/LA for the month of December of the calendar year immediately preceding
the calendar year for which the adjustment is applicable. The adjustment shall
be made by increasing the dollar amount subject to adjustment by the percentage
equal to the percentage increase in the base index when compared to the
comparison index.
D. Business Day. For purposes of this Agreement, the term "business
day(s)" shall mean any day of the week which is not a Saturday, Sunday or
national holiday.
E. EBITDA. For purposes of this Agreement, the term "EBITDA" shall mean
earnings on a generally applied accounting practices ("GAAP") basis before
interest, taxes, depreciation and amortization, provided that (i) rent (which
includes all common area extras) is calculated at a rate of $10 per square foot
of the Premises per month for the first twelve (12) months following the Opening
Date and thereafter at the aforementioned rate as adjusted annually per CPI/LA,
provided that the CPI/LA increase for the months in any given calendar year
shall not exceed 3% of the monthly rent being charged during the calendar year
immediately preceding the year at issue (for clarification, the increase for
months immediately following the first 12 months
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from the Opening Date will affect those months in the calendar year starting
from the anniversary of the Opening Date); and (ii) charges for Universal
supplied and/or prepared food costs shall be at reasonably estimated costs but
not greater than the prevailing charges imposed by Universal at other
restaurants in CityWalk. For example, if the Opening Date were February 1,
2000, then the first CPI/LA adjusted would occur on February 1, 2001 (with
December 31, 2000 being the comparison index) and the next CPI/LA adjusted
would be effective January 1, 2002 (with December 31, 2001 being the comparison
index) and successive adjustments being on January 1 of each successive year.
It is further agreed that for purposes of EBITDA, only costs which are fully
and directly chargeable to the Restaurant shall be included in costs to the
Restaurant. Furthermore, for purposes of EBITDA the following shall apply: (i)
salaries of supervisors and managers of the Restaurant and hourly labor shall
be comparable with the reasonable salaries and hourly rate for such personnel
in the quick food restaurant business in Los Angeles County; and (ii) any cost
to the Restaurant that Universal fully controls and for which Universal is
responsible shall be at a commercially reasonable rate.
ARTICLE 15
MISCELLANEOUS
A. Notices. All notices or other communications required or desired to
be sent to either party hereto shall be in writing and shall be sent by
Registered or Certified Mail, postage prepaid, return receipt requested, or
overnight mail with proof of receipt. All notices, samples, reports and
payments under this Agreement shall be sent as follows:
If to JFD: Jerry's Famous Deli, Inc.
12711 Ventura Blvd., Suite 400
Studio City, CA 91604
Attention: President
With copies to: Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, CA 90067
Attention: Steven J. Insel, Esq.
If to Universal: Universal Studios CityWalk Hollywood
100 Universal City Plaza
Suite 2000
Universal City, California 91608
Attention Legal Affairs
With copies to: Rosenfeld, Meyer and Susman, LLP
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9601 Wilshire Blvd., Fourth Floor
Beverly Hills, CA 90210
Attention: Jeffrey L. Nagin, Esq.
Either party may change such address by notice in writing to the other party.
B. Consents and Approvals: Any consent, request or approval which either
party is requested to make pursuant to this Agreement shall be in writing and,
unless expressly provided herein to the contrary, not be unreasonably withheld,
delayed or conditioned. Such approvals and consents may be signed in
counterparts.
C. Relationship of the Parties. This Agreement does not constitute either
party the agent of the other, or create a partnership or joint venture between
the parties with respect to the subject matter hereof.
D. Governing Law. The laws of the State of California shall govern the
interpretation, validity, performance and enforceability of this Agreement
(without regard to choice of law principles). If any provision of this
Agreement shall be held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby.
E. Mediation/Jurisdiction. With regard to any material disputes which may
arise out of or relate to this Agreement, Universal and JFD agree to the benefit
of each other to work together in good faith to resolve all disputes promptly.
Either party may demand in writing that each party's management representatives
meet at such place as the parties may mutually designate in Los Angeles County
to resolve the dispute. Upon receipt of this demand, each party will promptly
comply and will negotiate in good faith to resolve the dispute. If the parties
do not resolve the dispute within fourteen (14) days of the date of the first
meeting between the management representatives, Universal and JFD agree to
mediate the dispute with a mutually agreed upon mediator. If the parties cannot
agree upon the selection of a mediator, each party will select one mediator and
both such mediators shall, in cooperation with each other, designate one
mediator to resolve the dispute, provide that if the mediators cannot agree upon
the selection of one mediator to resolve the dispute within ten (10) days, then
the mediator will be chosen pursuant to California Civil Procedure Section
1281.6 from a list of retired judges (which contains the names of at least 15
judges) designated by Universal. The Parties agree to share the cost of any
independent mediator engaged to assist the parties in resolving their
differences.
If the claim, dispute or other issue is not resolved through mediation,
either party may institute litigation to resolve the issues. If litigation is
initiated, the parties to this Agreement agree that venue and jurisdiction of
any litigation between them will be vested solely in a court of competent
jurisdiction sitting in Los Angeles County,
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California and agree to accept service of process outside the State of
California in any matter to be submitted to any court pursuant to this
Agreement. The parties expressly agree to waive trial by jury in any such legal
proceeding.
F. Captions. The captions used in connection with the paragraphs and
subparagraphs of this Agreement are inserted only for the purpose of reference.
Such captions shall not be deemed to govern, limit, modify, or in any manner
affect the scope, meaning or intent of the provisions of this Agreement or any
part thereof, nor shall such captions otherwise be given any legal effect.
G. No Waiver/Right of Action. No waiver by either party of a breach or a
default hereunder shall be deemed a waiver by such party of a subsequent breach
or default of like or similar nature. Unless otherwise stated to the contrary,
whenever either party has a right to take any action or not take action
pursuant to the terms of this Agreement, such party shall not have the
obligation to do so.
H. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
I. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to its subject matter, and no agreement shall
be effective to change, modify or terminate this Agreement, in whole or in
part, unless such agreement is in writing and duly signed by the party against
whom enforcement of such change, modification or termination is sought. Such
modification or amendment may be signed in counterparts. This Agreement shall
not be construed more strictly against one party than against the other merely
by virtue of the fact that this Agreement may have been physically prepared
by one of the parties, or such party's counsel, it being agreed that both
parties and their respective counsel have mutually participated in the
negotiation and preparation of this Agreement.
J. Partial Invalidity. Should any part of this Agreement for any reason
be declared invalid, void or unenforceable by a court or governmental agency of
competent jurisdiction, such decision shall not affect the validity of any
remaining portion hereof and the parties hereby acknowledge and agree that they
would have executed the remaining portion hereof without including the part so
declared invalid, void or unenforceable.
K. Attorney's Fees. If Universal or JFD institutes any action or
proceeding against the other relating to the provisions of this Agreement, the
non-prevailing party in such action or proceeding shall reimburse the
prevailing party for the reasonable
26
<PAGE> 27
expenses of attorney's fees and all costs and disbursements incurred therein by
the prevailing party, including any such fees, costs or disbursements incurred
on any appeal from such action or proceedings. The prevailing party shall also
be entitled to recover from the non-prevailing party reasonable attorney's fees
and costs incurred in enforcing any judgment against the non-prevailing party.
This provision is intended to be severable from all other provisions of this
Agreement, and to survive any judgment against the non-prevailing party and
shall not be deemed merged in any such judgment.
L. Confidentiality. Except and only to the extent as may be required by
law, statute, governmental authority, financial accounting practices of the
parties, appraisals of the Restaurant, or mutual agreement of the parties, JFD
and Universal shall not disclose the terms of this Agreement or any Gross Sales
information relating to the Restaurant to any third party except to the extent
necessary to permit a party (or parties) involved in the planning, development,
construction and operation of the Restaurant to perform its (or their)
responsibilities or as such disclosure may be appropriate in connection with any
mediation, arbitration or litigation between the parties. This confidentiality
provision shall survive termination of the Agreement.
M. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 3rd
day of September, 1999.
JERRY'S FAMOUS DELI, INC. UNIVERSAL STUDIOS
CITYWALK HOLLYWOOD, a division
of Universal Studios, Inc.
By: /s/ [Signature Illegible] By: /s/ [Signature Illegible]
--------------------------------- ---------------------------------
Its: Chairman of the Board Its: VP
Dated: 9-14-99 Dated: 9-14-99
------------------------------ ------------------------------
By: /s/ [Signature Illegible]
---------------------------------
Its: Secretary
Dated: 9-14-99
------------------------------
27
<PAGE> 1
EXHIBIT 10.46
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS AGREEMENT (this "Amendment") is dated as of September 30, 1999 by and
among JERRY'S FAMOUS DELI, INC. (the "Parent"); JFD, INC., a California
corporation, NATIONAL DELI CORPORATION, a Florida corporation, and JERRY'S
FAMOUS DELI L.A., INC., a California corporation (the "Subsidiaries" and,
together with the Parent, the "Borrowers"); BANKBOSTON, N.A., a national banking
association, as a "Lender" under the Credit Agreement referred to below
(together with its successors and assigns as Lenders, the "Lenders"); and
BANKBOSTON, N.A., a national banking association, as agent for the Lenders (the
"Agent").
RECITALS
A. The Borrowers, the Lenders and the Agent are parties to a Credit
Agreement dated as of September 11, 1998 (as the same may be amended, restated,
renewed, replaced, supplemented or otherwise modified from time to time, the
"Credit Agreement"). Capitalized terms used herein without definition have the
meanings assigned to them in the Credit Agreement.
B. The Borrowers have requested an amendment to the amortization schedule
for Term Loans and amendments to certain financial covenant levels.
C. The Agent and the Lenders are willing to agree to the same, subject to
the terms and conditions thereof.
NOW THEREFORE, for good and valuable consideration hereinafter set forth,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A. AMENDMENTS TO CREDIT AGREEMENT.
1. SCHEDULED PAYMENTS OF TERM LOANS. Section 2.2(b) of the Credit
Agreement is revised to read in its entirety as follows:
"(b) Scheduled Repayments of Term Loans. The Borrowers shall pay
jointly and severally to the Agent for the account of the Lenders
principal of the Term Loans in 17 consecutive quarterly installments in
the amounts set forth below, payable on each Quarterly Date falling during
the periods set forth below, commencing on June 30, 1999:
Period Amount
------ ------
June 30, 1999 - September 30, 1999 $585,000
December 31, 1999 - June 30, 2003 $380,000
<PAGE> 2
All remaining principal, interest and other amounts payable in respect
of the Term Loans will, if not sooner paid, become due and payable on the
Term Loan Maturity Date."
2. LEVERAGE RATIO. Section 5.1 of the Credit Agreement is revised to read
in its entirety as follows:
"5.1 MAXIMUM LEVERAGE RATIO. The ratio of Consolidated Funded
Indebtedness at any time through June 30, 1999 to Consolidated EBITDA for
the most recently ended Reference Period to be greater than 3.25:1:00 and
the ratio of Consolidated Funded Indebtedness at any time on or after
September 30, 1999 to Consolidated EBITDA for the most recently ended
Reference Period to be greater than 2.50:1.00."
2. FIXED CHARGE COVERAGE. Section 5.2 of the Credit Agreement is revised
to read in its entirety as follows:
"5.2 MINIMUM FIXED CHARGES COVERAGE RATIO. The ratio of Consolidated
Cash Flow for any Reference Period ending on any Quarterly Date falling
during any period identified in the table below to Consolidated Financial
Obligations for such Reference Period to be less than the ratio specified
below opposite such period:
<TABLE>
<CAPTION>
Minimum Fixed
Period Charges Coverage Ratio
------ ----------------------
<S> <C>
September 30, 1998 - June 30, 1999 1.50:1.00
September 30, 1999 and all Quarterly Dates thereafter 1.05:1.00"
----------
</TABLE>
4. INTEREST COVERAGE. Section 5.3 of the Credit Agreement is revised to
read in its entirety as follows:
"5.3 MINIMUM INTEREST COVERAGE RATIO. The ratio of Consolidated EBITDA
for any Reference Period ending on any Quarterly Date falling during any
period identified in the table below to Consolidated Interest Expense for
such Reference Period to be less than the ratio specified below opposite
such period.
<TABLE>
<CAPTION>
Minimum Interest
Period Coverage Ratio
------ ----------------------
<S> <C>
September 30, 1998 - March 31, 2000 3.75:1.00
June 30, 2000 - September 30, 2000 4.25:1.00
December 31, 2000 and all Quarterly Dates thereafter 4.50:1.00"
</TABLE>
-2-
<PAGE> 3
5. APPLICABLE MARGIN. Notwithstanding Section 2.3(c) of the Credit
Agreement, the Applicable Margin from the date of this Agreement until the next
Interest Adjustment Date (beginning with the financial statements for the fiscal
quarter ending December 31, 1999) for Revolving Loans, Term Loans and the
Commitment Fees shall be based upon the Level IV Applicable Margins set forth in
Section 2.3(c) (subject to a higher default rate during the existence of any
Event of Default as set forth in Section 2.3(d)).
B. NO FURTHER AMENDMENTS. Except as amended hereby and as previously
amended in writing, the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
C. CONFIRMATION OF SECURITY. All Security Documents heretofore executed
by the Borrowers and each of them shall remain in full force and effect and, by
the Borrowers' signature hereto, such Security Documents are hereby ratified and
affirmed in all respects.
D. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The Borrowers hereby
jointly and severally represent and warrant to, and agrees with, the Agent and
the Lenders that:
1. The execution and delivery of, and performance by the Borrowers of
their respective obligations under, this Amendment have been duly authorized by
all requisite corporate and member action and will not violate any provision of
law, any order, judgment or decree of any court or other agency of government,
including without limitation the certificate of formation, operating agreement
of any Borrower that is a limited liability company, the charter documents or
by-laws of any corporate Borrower, or any material indenture, agreement or other
instrument to which any Borrower is a party, or by which any Borrower is bound,
or be in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of any Borrower pursuant to, any such indenture, agreement
or instrument.
2. The Borrowers have delivered to the Agent true and complete copies of
all such corporate, membership and other resolutions as were necessary to
authorize the execution, delivery and performance of this Amendment by the
Borrowers, each certified by the appropriate secretary or other officer. This
Amendment constitutes the valid and binding obligation of the Borrowers,
enforceable against them in accordance with it terms, subject, however to
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally or the application of principles
of equity, whether in any action in law or proceeding in equity, and subject to
the availability of the remedy of specific performance or of any other equitable
remedy or relief to enforce any right under any such agreement.
3. The Borrowers are not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
governmental instrumentality or other agency or any other person or entity in
connection with or as a condition to the execution, delivery or performance of
this Amendment.
-3-
<PAGE> 4
4. As of the date hereof and after giving effect to this Amendment, no
Default has occurred and is continuing.
E. MISCELLANEOUS.
1. As provided in the Credit Agreement and Security Documents, the
Borrowers jointly and severally agree to reimburse the Agent upon demand for
all reasonable fees and disbursements of counsel to the Agent incurred in
connection with the preparation of this Amendment.
2. This Amendment shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
3. This Amendment may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate
counterparts hereof, all of which counterparts together constitute one and the
same agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Agent, the Lenders and the Borrowers have caused
this Amendment to be duly executed as a sealed instrument by their duly
authorized representatives, all as of the day and year first above written.
AGENT: LENDER:
BANKBOSTON, N.A., as Agent BANKBOSTON, N.A.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Title: Title:
BORROWERS:
JERRY'S FAMOUS DELI, INC. NATIONAL DELI CORPORATION
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Title: Title:
JFD, INC. JERRY'S FAMOUS DELI L.A., INC.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Title: Title:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,035,871
<SECURITIES> 0
<RECEIVABLES> 286,363
<ALLOWANCES> 3,343
<INVENTORY> 1,401,527
<CURRENT-ASSETS> 3,636,228
<PP&E> 42,454,079
<DEPRECIATION> 12,804,849
<TOTAL-ASSETS> 44,486,733
<CURRENT-LIABILITIES> 5,644,924
<BONDS> 12,197,173
24,575,522
0
<COMMON> 0
<OTHER-SE> 999,762
<TOTAL-LIABILITY-AND-EQUITY> 25,575,284
<SALES> 51,926,970
<TOTAL-REVENUES> 51,926,970
<CGS> 18,017,146
<TOTAL-COSTS> 18,017,146
<OTHER-EXPENSES> 32,361,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940,840
<INCOME-PRETAX> 498,081
<INCOME-TAX> 85,720
<INCOME-CONTINUING> 412,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412,361
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
