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EINSTEIN NOAH BAGEL CORP - 8-K - 19971210 - EXHIBIT_10
EXHIBIT 10.2
LIMITED PARTNERSHIP AGREEMENT
OF
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
Dated as of December 5, 1997
TABLE OF CONTENTS
ARTICLE I.........................................................................................................2
Section 1.1 Definitions.........................................................................2
ARTICLE II........................................................................................................9
Section 2.1 Formation of the Partnership........................................................9
Section 2.2 Partnership Name....................................................................9
Section 2.3 Purposes of the Partnership.........................................................9
Section 2.4 Title to Partnership Property......................................................10
Section 2.5 Effective Date.....................................................................10
Section 2.6 Registered Office; Principal Place of Business.....................................10
Section 2.7 Qualifications in Other Jurisdictions..............................................10
ARTICLE III......................................................................................................11
Section 3.1 Term of Partnership................................................................11
ARTICLE IV.......................................................................................................11
Section 4.1 Capital Contributions of the Partners..............................................11
Section 4.2 Withdrawal and Return of Capital...................................................11
Section 4.3 Interest on Capital................................................................11
Section 4.4 Capital Accounts...................................................................11
Section 4.5 Incorporation and Public Offering..................................................12
Section 4.6 Right to Require Termination.......................................................13
Section 4.7 Fund Put Right.....................................................................14
Section 4.8 Registration of ENBC Common Stock..................................................16
Section 4.9 Registration Procedures............................................................18
Section 4.10 Registration Expenses..............................................................22
Section 4.11 Indemnification....................................................................22
Section 4.12 Additional Capital.................................................................24
Section 4.13 Partnership Repurchase Right.......................................................25
Section 4.14 Change in Control..................................................................25
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ARTICLE V........................................................................................................26
Section 5.1 Allocation of Profits and Losses...................................................26
Section 5.2 Special Allocations................................................................26
Section 5.3 Allocation of Tax Credits..........................................................27
Section 5.4 Section 704(c) Allocations.........................................................27
Section 5.5 Certain Other Allocation Rules.....................................................28
Section 5.6 Special Allocation of Recapture....................................................28
Section 5.7 Allocations to the General Partner.................................................28
ARTICLE VI.......................................................................................................29
Section 6.1 Distributions......................................................................29
Section 6.2 Distributions for Tax Purposes.....................................................29
Section 6.3 Restrictions on Distributions......................................................30
Section 6.4 Payment and Withholding of Certain Taxes...........................................30
ARTICLE VII......................................................................................................31
Section 7.1 Rights and Obligations of Limited Partners.........................................31
Section 7.2 Conduct of Other Business Activities by the Partners...............................31
Section 7.3 Assignments by Partners............................................................33
Section 7.4 Admission of Additional Partners...................................................35
Section 7.5 Resignation of Partners Prohibited.................................................35
ARTICLE VIII.....................................................................................................35
Section 8.1 Management of the Partnership......................................................35
Section 8.2 Certain Obligations of General Partner.............................................39
Section 8.3 Liability of General Partner for Certain Acts
or Omissions....................................................................40
Section 8.4 Indemnification....................................................................40
Section 8.5 General Partner as Limited Partner.................................................42
Section 8.6 Tax Matters Partner................................................................43
ARTICLE IX.......................................................................................................43
Section 9.1 Dissolution of Partnership.........................................................43
Section 9.2 Final Accounting...................................................................44
Section 9.3 Liquidation; Distribution..........................................................44
Section 9.4 Termination........................................................................45
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ARTICLE X........................................................................................................45
Section 10.1 Notices............................................................................45
Section 10.2 Governing Law......................................................................45
Section 10.3 Amendments.........................................................................45
Section 10.4 Power of Attorney..................................................................46
Section 10.5 Successors and Assigns.............................................................47
Section 10.6 Counterparts.......................................................................47
Section 10.7 Fiscal Year........................................................................47
Section 10.8 Modifications to be in Writing.....................................................47
Section 10.9 Action for Partition or Distribution in Kind.......................................47
Section 10.10 Captions...........................................................................47
Section 10.11 Pronouns and Plurals...............................................................47
Section 10.12 Validity and Severability..........................................................47
Section 10.13 Statutory References...............................................................48
Section 10.14 Primacy of Certain Agreements......................................................48
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LIMITED PARTNERSHIP AGREEMENT
of
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
This Limited Partnership Agreement (the "Agreement") of
Einstein/Noah Bagel Partners, L.P. (the "Partnership") is made as of December
5, 1997, by and among the persons whose names are set forth on Schedule A
hereto (the "Parties").
Recitals
WHEREAS, the Parties are members of a Delaware limited
liability company known as "Noah's Pacific, L.L.C." (the "Company"). The Members
and Manager of the Company have now determined to convert the Company to a
Delaware limited partnership pursuant to Section 18-216 of the Delaware Limited
Liability Company Act and Section 17-217 of the Delaware Revised Uniform Limited
Partnership Act (the "Act"). Pursuant to Section 17-217, the Members and Manager
of the Company hereby adopt this Limited Partnership Agreement to provide for
the regulation of the affairs of the Partnership.
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of the date hereof, by and among the Company, Colonial Bagels, L.P., Great Lakes
Bagels, L.P., Gulfstream Bagels, L.P. and Sunbelt Bagels, L.L.C. (the "Area
Developers"), each of the Area Developers (other than the Company) will be
merged with and into the Partnership with the Partnership as the surviving
entity; and
WHEREAS, the Parties desire to form the Partnership in order
to conduct the businesses previously conducted by the Area Developers (the
"Business").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein set forth, the Parties hereby agree as follows:
ARTICLE I
Section 1.1 Definitions. When used in this Agreement the
following terms shall have the meanings set forth below:
"Act" means the Delaware Revised Uniform Limited Partnership
Act as in effect from time to time.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with, such Person; for purposes of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or otherwise.
"Agreement" means this Limited Partnership Agreement, as from
time to time amended.
"Area Development Agreement" means the amended and restated
area development agreement dated as of the date hereof between ENBC and the
Partnership, as it may be amended or amended and restated from time to time.
"Assignee" means a person to whom an interest in the
Partnership has been transferred in accordance with the provisions of this
Agreement but who has not been admitted as a substitute or additional Partner.
"Available Cash" means, with respect to any fiscal year, the
sum of (i) all cash receipts of the Partnership during such fiscal year
(excluding for this purpose Capital Contributions, including without limitation
any payments on notes delivered pursuant to Section 4.1), and (ii) all
reductions made by the General Partner during such fiscal year in reserves
established as hereinafter provided, less the sum of (i) all cash operating
expenditures, all cash debt service payments (including payments of principal
and interest and penalties, if any), and all Tax Distributions and (ii) all
additions to reserves during such fiscal year deemed reasonably appropriate by
the General Partner, including reserves for capital expenditures, working
capital and contingent liabilities.
"Bankruptcy" means the occurrence of any event or action
described in Section 17-402A(4) of the Act with respect to the General Partner
or any other Person.
"Capital Account" of a Partner means the Capital Account
established for such Partner under Section 4.4.
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"Capital Contribution" means, with respect to any Partner or
Assignee, the amount of cash and the fair market value of any property other
than cash contributed by the Partner or Assignee (or its predecessor in
interest) to the Partnership.
"Change in Control" shall have the meaning ascribed to it
4.14.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" shall have the meaning ascribed to it in Section
4.8.
"Covered Capacities" shall have the meaning ascribed to it in
Section 8.4.
"Credit Agreement" means ENBC's Credit Agreement with Bank of
America National Trust and Savings Association, LaSalle National Bank and
General Electric Capital Corporation in effect on the date hereof.
"Deferral Period" shall have the meaning ascribed to it in
Section 4.8(c).
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for Federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the Federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis.
"Development Schedule" shall have the meaning ascribed to it
in the Area Development Agreement.
"Dissolution" of a Partner which is not a natural person means
that such Partner has terminated its existence, wound up its affairs and
dissolved.
"Distribution" means, with respect to any Partner, the amount
of cash and the fair market value of any property other than cash distributed by
the Partnership to the Partner.
"ENBC" means Einstein/Noah Bagel Corp., a Delaware
corporation.
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"ENBC Note" means the Note, as defined in the Secured Loan
Agreement, as it may be amended or amended and restated from time to time (and
any other note that may be substituted therefor).
"Einstein/Noah Bagel Partners" means Einstein/Noah Bagel
Partners, L.P., a Delaware limited partnership.
"Einstein/Noah Bagel Partners, Inc." means Einstein/Noah Bagel
Partners, Inc., a wholly owned subsidiary of ENBC.
"Fund" means Bagel Store Development Funding, L.L.C., a
Delaware limited liability company.
"Fund Put Right" shall have the meaning ascribed to it in
Section 4.5.
"General Partner" means, as of any particular time,
Einstein/Noah Bagel Partners, Inc., or such other Person who is at such time a
general partner of the Partnership.
"General Partner Units" means Units in the Partnership held by
the General Partner as a general partner.
"Gross Asset Value" means, with respect to any asset, the
adjusted basis for Federal income tax purposes of such asset, except as follows:
(a) The initial Gross Asset Value
of any asset contributed by a Partner to the Partnership shall be the fair
market value of such asset, as determined by the contributing Partner and the
Partnership.
(b) The Gross Asset Values of all
Partnership assets shall be adjusted to equal their respective fair market
values, as determined by the General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership by any new or existing
Partner in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Partnership to a Partner of more than a de minimis amount of
property as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)
(ii)(g) of the Treasury Regulations; provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners. The Gross Asset Values
of any Partnership assets distributed to any Partner shall be the fair market
value of such asset on the date of distribution; and The Gross Asset Values of
Partnership assets shall be increased (or decreased) to reflect any adjustments
to the adjusted basis of
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such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.074-1(b)(2)(iv)(m) of the Treasury
Regulations and Section 5.2(d). If the Gross Asset Value of an asset has been
determined or adjusted pursuant to clauses (a) or (b), above, such Gross Asset
Value shall thereafter be adjusted in the same manner as would the asset's basis
for federal income tax purposes except that in lieu of regular depreciation, the
Partnership shall take deductions for Depreciation.
"Holders" shall have the meaning ascribed to it in Section
4.8.
"Incorporation" shall have the meaning ascribed to it in
Section 4.5.
"IPO Consent" shall have the meaning ascribed to it in Section
4.5.
"IPO Notice" shall have the meaning ascribed to it in Section
4.5.
"Issue Date" shall have the meaning ascribed to it in Section
4.8.
"License Agreement" means any license agreement between ENBC
and the Partnership.
"License Termination" shall have the meaning ascribed to it
in Section 4.6.
"Limited Partner Units" means Units in the Partnership held by
a partner who is not a general partner.
"Majority Interest" means, with respect to any group of
Partners as of any particular time, Partners in such group whose Units
(including both General Partner Units and Limited Partner Units except as
otherwise specifically provided) at such time exceed one-half of the outstanding
Units of all Partners in such group at such time.
"Newco" shall have the meaning ascribed to it in Section 4.5.
"Notice Holder" shall have the meaning ascribed to it in
Section 4.8(b).
"Nonrecourse Deductions"shall have the meaning ascribed to it
in Section 1.704-2 (b)(1) of the Treasury Regulations.
"Other Business Entity" shall have the meaning ascribed to it
in Section 17-211 of the Act.
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"Partner" means Persons named as partners of the Partnership
on Schedule A hereto and includes Persons admitted as additional Partners or
substitute Partners pursuant to the provisions of this Agreement.
"Partner Nonrecourse Debt" shall have the meaning ascribed to
it in Section 1.704-2(b)(4) of the Treasury Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in
Section 1.704-2(i)(2) of the Treasury Regulations.
"Partnership" means the limited partnership formed hereby.
"Partnership Value" shall have the meaning ascribed to it in
Section 4.7(b).
"Person" means an individual, corporation, partnership,
limited liability partnership, association, trust, joint venture, unincorporated
organization, other entity or group.
"Profits" or "Losses" means, for each fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(i) any income of the Partnership
that is exempt from federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this definition
shall be added to such taxable income or loss;
(ii) any expenditures of the
Partnership described in Code Section 705(a)(2)(B) or treated as
Section 705(a)(2)(B) expenditures pursuant to Section 1.704-
1(b)(2)(iv)(i) of the Treasury Regulations and not otherwise taken into
account in computing Profits or Losses pursuant to this definition
shall be subtracted from such taxable income or loss;
(iii) in the event the Gross Asset
Value of any Partnership asset is adjusted pursuant to clause (ii) or
(iii) of the definition of "Gross Asset Value", the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
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(iv) gain or loss resulting from
any disposition of any property of the Partnership with respect to
which gain or loss is recognized for Federal income tax purposes shall
be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value; and
(v) in lieu of the depreciation,
amortization and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken into
account Depreciation for such fiscal year or other period, computed in
accordance with the definition of "Depreciation."
"Prospectus" shall have the meaning ascribed to it in Section
4.8(b).
"Public Offering" shall have the meaning ascribed to it in
Section 4.5.
"Put Date" shall have the meaning ascribed to it in Section
4.7(b).
"Put Notice" shall have the meaning ascribed to it in Section
4.7.
"Put Price" means the Partnership Value divided by the total
number of outstanding Units at the time of the determination of the Put Price.
"Put Right" shall have the meaning ascribed to it or Section
4.7.
"Registerable Securities" shall have the meaning ascribed to
it in Section 4.8(a).
"Secured Loan Agreement" means the secured loan agreement
originally dated as of the date hereof between ENBC and the Partnership, as it
may be amended or amended and restated from time to time.
"Selling Confirmation" shall have the meaning ascribed to it
in Section 4.8(d).
"Selling Period" shall have the meaning ascribed to it in
Section 4.8(d)(ii).
"Selling Notice" shall have the meaning ascribed to it in
Section 4.8(b).
"Shelf Registration" shall have the meaning ascribed to it in
Section 4.8(a).
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"Shelf Registration Period" shall have the meaning ascribed
to it in Section 4.8(a).
"Shelf Registration Statement" shall have the meaning
ascribed to it in Section 4.8.
"Successors and Assignees" has the meaning ascribed to it in
the Secured Loan Agreement.
"Tax Distributions" shall have the meaning ascribed to it in
Section 6.2(a).
"Tax Matters Partner" shall have the meaning ascribed to it
in Section 8.6.
"Termination Consent" shall have the meaning ascribed to it
in Section 4.6.
"Termination Notice" shall have the meaning ascribed to it in
Section 4.6.
"Transfer" shall have the meaning ascribed to it in Section
7.3(a).
"Treasury Regulations" means the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as such regulations
may be amended from time to time.
"Units" refers to the interest of a Partner or Assignee in the
Profits, Losses, income, deductions and credits of the Partnership and
Distributions by the Partnership and includes both General Partner Units and
Limited Partner Units. The number of Units held by each Person admitted to the
Partnership as a Partner and by each Assignee shall be as set forth on Schedule
A, which shall also indicate whether such Units are General Partner Units or
Limited Partner Units.
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ARTICLE II
Section 2.1 Formation of the Partnership. The parties intend
to convert the Company to a limited partnership pursuant to Section 17-217 of
the Act by (i) adopting this Agreement and (ii) filing promptly a certificate of
conversion to limited partnership and a certificate of limited partnership
("Certificate") of the Partnership with the office of the Secretary of State of
the State of Delaware under the name "Einstein/Noah Bagel Partners, L.P." The
Partners hereby agree that the rights, duties and liabilities of the Partners
and the General Partner shall be as provided in the Act, except as otherwise
expressly provided herein.
Section 2.2 Partnership Name. The business of the
Partnership shall be conducted under the name Einstein/Noah Bagel Partners, L.P.
or under such other name as the General Partner may from time to time determine.
Section 2.3 Purposes of the Partnership.
(a) The Partnership is organized primarily for
the purpose of acquiring, constructing, owning and operating stores under the
name Einstein Bros.(R) Bagels and Noah's New York Bagels(R) stores (the
"Stores") as a franchisee or licensee of ENBC. The Partnership is a party to the
Area Development Agreement, pursuant to which it has the right, on the terms and
subject to the conditions set forth herein, to develop and thereafter own and
operate Stores in the Development Area. The Partnership shall be authorized to
engage in any and all other activities, whether or not related to the foregoing,
which in the judgment of the General Partner may be beneficial or desirable for
the achievement of the purposes of the Partnership.
(b) Subject to the limitations expressly set forth
in this Agreement, the Partnership and the General Partner shall have the power
and authority to do any and all acts and things deemed necessary or desirable by
the General Partner to further the Partnership's purposes and carry on its
business, including, but not limited to, the following:
(i) entering into any kind of
activity and performing contracts of any kind necessary or desirable
for the accomplishment of the purposes of the Partnership;
(ii) acquiring any property, real
or personal, in fee or under lease or license, or any rights therein or
appurtenant thereto, necessary or desirable for the accomplishment of
the purposes of the Partnership;
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(iii) borrowing money and issuing
evidences of indebtedness and securing any such indebtedness by
mortgage or pledge of, or other lien on, the assets of the Partnership;
(iv) entering into any such
instruments and agreements as the General Partner may deem necessary or
desirable for the ownership, management, operation, leasing and sale of
the Partnership's property; and
(v) negotiating and concluding
agreements for the sale, exchange or other disposition of all or
substantially all of the properties of the Partnership, or for the
refinancing of any loan or payment obtained by the Partnership.
Section 2.4 Title to Partnership Property. Title to
Partnership property shall be held in the name of the Partnership or its
nominee.
Section 2.5 Effective Date. This Agreement shall become
effective upon the execution of this Agreement by the Parties.
Section 2.6 Registered Office; Principal Place of Business.
The name of the Partnership's registered agent for service of process is The
Corporation Trust Company, and the address of the Partnership's registered
office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware
19801. The principal place of business of the Partnership shall be at 14123
Denver West Parkway, Golden, CO 80401-4086. The General Partner may change the
Partnership's registered agent or the location of the Partnership's registered
office or principal place of business as the General Partner may from time to
time determine.
Section 2.7 Qualifications in Other Jurisdictions. The
General Partner may cause the Partnership to be qualified, formed or registered
under assumed or fictitious names statutes or similar laws in any jurisdiction
in which the Partnership transacts business. The General Partner may execute,
deliver and file any certificates (and any amendments and/or restatements
thereof) necessary for the Partnership to do business in a jurisdiction in which
the Partnership may wish to conduct such business.
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ARTICLE III
Section 3.1 Term of Partnership. The term of the Partnership
shall continue until December 31, 2022, unless the Partnership is earlier
dissolved in accordance with the provisions of this Agreement or the Act.
ARTICLE IV
Section 4.1 Capital Contributions of the Partners. The
Capital Contributions made by each of the Partners are as set forth on Schedule
A.
Section 4.2 Withdrawal and Return of Capital. No Partner
shall have the right to withdraw or to demand a return of any his Capital
Contribution, except upon dissolution and winding up of the Partnership in
accordance with the terms of Section 10.3. Any return of such Capital
Contribution shall be made solely from the assets of the Partnership (including
the Capital Contributions of the Partners) and only in accordance with the terms
hereof, and no Partner shall have personal liability for the return of any other
Partner's Capital Contribution. Under circumstances requiring a return of any
Capital Contribution, no Partner shall have the right to receive property other
than cash except as may be specifically provided herein, and to the extent any
moneys which any Partner is entitled to receive pursuant to Article VI hereof or
any other provision of this Agreement would constitute a return of capital, each
of the Partners consents to the withdrawal of such capital.
Section 4.3 Interest on Capital. No interest shall accrue
or be paid on any Capital Contribution made to the Partnership.
Section 4.4 Capital Accounts.
(a) The Partnership shall create upon its books and
records a capital account ("Capital Account") for each Partner and Assignee,
which shall be maintained in accordance with the following provisions:
(i) To each Partner's or
Assignee's Capital Account there shall be credited such Partner's or
Assignee's Capital Contributions, such Partner's or Assignee's
distributive share of Profits and any items in the nature of income or
gain which are specially allocated pursuant to Section 5.2 to such
Partner or Assignee, the amount of any Partnership liabilities which
are assumed by such Partner or Assignee or which are secured by any
property distributed
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to such Partner or Assignee and such Partner or Assignee's share of any
increase in Gross Asset Value.
(ii) To each Partner's or
Assignee's Capital Account there shall be debited the amount of cash
and the Gross Asset Value of any property distributed to such Partner
pursuant to any provision of this Agreement, such Partner's or
Assignee's distributive share of Losses and any items in the nature of
deductions or losses which are specially allocated pursuant to Section
5.2 to such Partner or Assignee, the amount of any liabilities of such
Partner or Assignee which are assumed by the Partnership or which are
secured by any property contributed by such Partner or Assignee to the
Partnership and such Partner or Assignee's share of any decrease in
Gross Asset Value.
(iii) In the event all or a portion
of an interest in the Partnership is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
interest.
(iv) In determining the amount of
any liability for purposes of clauses (i) and (ii) above, there shall
be taken into account Section 752(c) of the Code and any other
applicable provisions of the Code and Treasury Regulations.
Section 4.5 Incorporation and Public Offering
(a) At any time after December 5, 1999 (or such
earlier date as a Change in Control occurs) and prior to the end of the 42-
month period commencing on December 5, 1997, the Fund may request by written
notice to the Partnership (the "IPO Notice") that the business and assets of the
Partnership be transferred to a newly organized Delaware corporation (the
"Incorporation") and the Partnership effect a public offering of common stock of
Newco (as defined below) pursuant to a "firm commitment" underwriting (the
"Public Offering"). The right to request the Incorporation and the Public
Offering is personal to the Fund and may not be sold or assigned upon the
Dissolution of the Fund or otherwise. In the event of such a request, the
Incorporation shall be effected on the following terms and in the following
manner:
(i) the parties shall organize a
Delaware corporation ("Newco"), the certificate of incorporation and
the
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bylaws of which shall be in form and substance reasonably satisfactory
to the Fund;
(ii) in the Incorporation the
holders of Units of the Partnership shall receive shares of common
stock of Newco in proportion to the number of Units held by them; and
(iii) the Incorporation shall be
effected pursuant to such agreements, assignments and other instruments
as shall be satisfactory to counsel for the parties, including without
limitation, agreements that include customary representations and
warranties regarding title to any transferred interests.
(b) Upon the Incorporation, Newco will use its
reasonable best efforts, as promptly as practicable, (i) to register the shares
of its common stock held by the Fund under the Securities Act of 1933, as
amended (the "Securities Act"), and all applicable state securities laws, (ii)
to enter into an agreement in customary form for an underwritten "firm
commitment" public offering of such shares with one or more underwriters
selected by Newco and reasonably acceptable to the Fund and (iii) to cause such
offering to be consummated.
(c) Notwithstanding the provisions of Sections
4.5(a) and (b) hereof, the Partnership shall not take any of the steps provided
for in such Sections without the prior written consent of ENBC (the "IPO
Consent").
Section 4.6 Right to Require Termination.
(a) At any time after December 5, 1999 (or such
earlier date as a Change in Control occurs) and prior to the end of the 42-
month period commencing on December 5, 1997, the Fund may request by written
notice to the Partnership (the "Termination Notice") that the Partnership seek
to terminate its obligation to pay royalties (and any obligation of ENBC to
provide services) pursuant to all franchise and license agreements between the
Partnership and ENBC (a "License Termination"). Other than the License
Termination, such franchise and license agreements shall remain in full force
and effect. The right to request the License Termination is personal to the
Fund and may not be sold or assigned upon the Dissolution of the Fund or
otherwise.
(b) Notwithstanding the provisions of Section 4.6(a)
hereof, the parties acknowledge that the Partnership does not and will not have
the right to
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cause the License Termination without the prior written consent of ENBC (the
"Termination Consent").
Section 4.7 Fund Put Right.
(a) In the event that the IPO Consent or the
Termination Consent is not received by the Partnership within 120 days of the
IPO Notice or the Termination Notice, respectively, then the Fund shall have the
right, at any time after such 120 day period and prior to the later of (i) the
end of the 42-month period commencing on December 5, 1997 and (ii) 60 days
after the end of such 120-day period, on the other terms and subject to the
conditions set forth herein (the "Put Right"), to require the Partnership or
ENBC to purchase all but not less than all the Units owned by the Fund at the
Put Price. The Fund may exercise the Put Right by giving written notice to the
Partnership or ENBC of such exercise (the "Put Notice"). The Put Right is
personal to the Fund and may not be sold or assigned upon the Dissolution of
the Fund or otherwise.
(b) The Put Price shall be the Partnership Value (as
herein defined) divided by the total number of Units outstanding as of the date
of the Put Notice (the "Put Date"). The "Partnership Value" means the amount
equal to (i) the income from operations of the Partnership (computed in
accordance with generally accepted accounting principles) before general and
administrative expenses, depreciation and amortization, but after royalties and
marketing expenses (including without limitation contributions to national and
local advertising funds), for the highest of the two fiscal quarters prior to
the quarter in which the Put Date occurs, adjusted by adding back to income from
operations any amounts deducted therefrom representing rental expense with
respect to capital leases and leases that are not classified as capital leases
for financial accounting purposes but that are intended to be treated as secured
borrowings under applicable commercial law and annualized by dividing such
amount by the number of weeks in such quarter and multiplying the result by 52,
multiplied by (ii) 6.5, less (iii) any indebtedness of the Partnership
outstanding on the Put Date, including without limitation the imputed principal
amount of any lease financing (including for this purpose capital leases as well
as leases that are not classified as capital leases for financial accounting
purposes but that are intended to be treated as secured borrowings under
applicable commercial law), plus (iv) any cash balances of the Partnership on
the Put Date.
(c) Upon exercise of the Put Right, the Units owned
by the Fund shall be purchased by the Partnership or ENBC, as selected by the
Partnership, within 60 days of the Put Date. At the election of such purchaser,
the Put Price may be paid in (i) cash, (ii) shares of ENBC common stock, par
value $0.01 per share (the
14
"Common Stock") or (iii) any combination of the foregoing. In the event the Put
Price is paid in whole or in part by the delivery of shares of ENBC Common
Stock, (i) the value of such shares shall be equal to the number of shares
delivered multiplied by an amount per share equal to the average of the closing
sales prices per share of ENBC Common Stock, on the principal stock exchange or
quotation system on which such common stock is traded or quoted, for the twenty
trading days ending with the second Business Day preceding the day on which such
shares are delivered (with such prices to be appropriately adjusted, if
necessary, to reflect any stock splits or similar transactions occurring between
the beginning of such twenty-day trading period and the day of delivery), and
(ii) ENBC will use its reasonable best efforts to cause a registration statement
with respect to the resale of such shares of ENBC Common Stock to be filed and
become effective under the Securities Act pursuant to the provisions of Section
4.8 hereof, on or before the date such shares are delivered pursuant hereto (the
"Issue Date").
(d) In the event that the exercise of the Put Right
or the payment of the Put Price requires any filing with, or obtaining the
approval, consent or authorization of, any governmental or other regulatory
body, including without limitation any filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, the Fund and the Partnership
shall cooperate to make such filing or obtain such approval, consent or
authorization and the time for payment of the Put Price shall be extended until
such filing is made or such approval, consent or authorization is re ceived.
(e) In the event that the payment of the Put Price
in cash is prohibited by the terms of any credit agreement or other financing
arrangement with one or more third-party lenders to which ENBC or the
Partnership is then a party and the issuance of the number of shares of Common
Stock required to satisfy the Put Price in full is prohibited by applicable law
or the rules of any securities exchange or quotation system on which the Common
Stock is then traded without the prior approval of the stockholders of ENBC,
then (i) ENBC will issue to the Fund the maximum number of shares of Common
Stock in satisfaction of the Put Price that it is permitted to issue without
obtaining prior stockholder approval, (ii) the Put Right shall be deemed
exercised only with respect to that portion of the Units held by the Fund equal
to the portion of the aggregate Put Price actually paid by the issuance of such
Common Stock, (iii) ENBC will use reasonable best efforts to obtain, as soon as
reasonably practicable, the approval by its stockholders of the issuance of
additional shares of Common Stock sufficient to permit the payment in full of
the Put Price with respect to all remaining Units held by the Fund as and to the
extent required by applicable law and the applicable rules of any securities
exchange or quotation system and (iv) upon obtaining such stockholder approval
and subject to the
15
other terms hereof, ENBC will issue to the Fund such additional shares of Common
Stock as necessary to satisfy that portion of the Put Price that remains unpaid.
(f) The Fund's exercise of the Put Right together
with the Partnership or ENBC's payment of the Put Price shall constitute a
complete release by the Fund of the Partnership, the General Partner, the
Partners, ENBC and their Affiliates of all claims or rights arising out of, or
on account of, the ownership of Units by the Fund.
Section 4.8 Registration of ENBC Common Stock.
(a) In the event that the Partnership or ENBC
determines to pay the Put Price in shares of ENBC Common Stock, ENBC shall
prepare and file with the Securities and Exchange Commission (the "Commission"),
as soon as practi cable, a registration statement under the Securities Act (the
"Shelf Registration State ment") registering the resale from time to time by
holders thereof of all of the shares of ENBC Common Stock issued in payment of
the Put Price (the "Registerable Securi ties"). The Shelf Registration Statement
shall permit resales of Registerable Securities by holders thereof ("Holders")
in the manner or manners designated by them from time to time, which shall be
set forth in such Shelf Registration Statement. ENBC shall use its reasonable
best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act prior to the Issue Date and, subject to the provisions
contained herein, to keep the Shelf Registration Statement continuously ef
fective under the Securities Act until the earlier of: (i) the second
anniversary of the Issue Date; (ii) the date on which the Registerable
Securities may be sold by non-affiliates of ENBC, as applicable, pursuant to
paragraph (k) of Rule 144 (or any successor provision) promulgated by the
Commission; and (iii) such date as of which all the Registerable Securities have
been sold pursuant to the Shelf Registration Statement (the period ending at
such earlier date, the "Shelf Registration Period").
(b) Each Holder of Registerable Securities agrees
that if such Holder wishes to sell its Registerable Securities pursuant to the
Shelf Registration Statement and the prospectus included in any Shelf
Registration Statement, and all amendments and supplements to such prospectus,
including post-effective amendments (the "Prospectus"), it will do so only in
accordance with this Section 4.8(b). Each Holder of Registerable Securities
agrees to give written notice to ENBC at least three Business Days prior to any
intended resale of Registerable Securities under the Shelf Registration
Statement, which notice shall specify the date on which such Holder in tends to
begin such distribution and such information with respect to such Holder and the
intended distribution as may be reasonably required to amend the Shelf Regis
tration Statement or supplement the Prospectus with respect to
16
such intended distribution (each Holder providing the notice described in this
sentence and with re spect to which the related Selling Period (as defined
herein) is continuing or has been deferred, a "Notice Holder"; each such notice,
a "Selling Notice"). As soon as prac ticable after the date a Selling Notice is
received by ENBC, and in any event within two Business Days after such date,
ENBC shall either:
(i) (A) provide a Selling Confirma
tion (as defined herein) to such Notice Holder or (B) file a supplement
to the Prospectus or a post-effective amendment to the Shelf Regis
tration Statement as required by Section 4.9(a) (and use all reasonable
efforts to cause any such amendment to become effective as soon as
practicable thereafter and immediately thereafter provide a Selling Con
firmation to such Notice Holder); or
(ii) in the event of the happening
of any event of the kind described in Section 4.9(b)(ii)(A),
4.9(b)(ii)(B), 4.9(b)(ii)(C) or 4.9(b)(ii)(D) hereof, ENBC shall
deliver to such Notice Holder the notice required by Section 4.9(b)(ii)
and notify the holder that the consent granted pursuant to Section
4.9(e) is suspended until further notice.
(c) Each such Notice Holder may sell all or any
Registerable Securities pursuant to the Shelf Registration Statement and the
Prospectus only during the Selling Period commencing with the earlier of (x) the
date on which such Notice Holder receives a Selling Confirmation and (y) the
third Business Day after the related Selling Notice has been received by ENBC;
provided that in the event ENBC elects to take the actions permitted by Section
4.8(b)(ii), the commencement of the Selling Period shall be deferred until such
later date as ENBC delivers a Selling Confirmation. A Notice Holder shall not
sell any Registerable Securities pursuant to the Shelf Regis tration Statement
or the Prospectus after the expiration of the applicable Selling Period without
giving a new Selling Notice pursuant to Section 4.8(b) hereof and receiving a
new Selling Confirmation. Notwithstanding the foregoing, the aggregate number of
days during which ENBC shall be entitled to exercise its right under this
paragraph to defer the commencement of a Selling Period or its right under
Section 4.9(b)(ii) to defer existing Selling Periods (any such period of
deferral herein referred to as a "Deferral Period") shall not exceed 60 days
within any twelve-month period; pro vided, however, that each day during any
Deferral Period shall only be counted once in determining the aggregate number
of days in such Deferral Period notwithstanding the occurrence of multiple
concurrent deferrals; and, provided further, if ENBC deems it necessary to file
a post-effective amendment to the Shelf Registration State ment in order to
comply with Section 4.9(a) hereof as a result of any
17
Selling Notice or other information provided by a Holder for inclusion in the
Prospectus, then such period of time from the date of filing such post-effective
amendment until the date on which the Shelf Registration Statement is declared
effective by the Commission shall not be treated as a Deferral Period.
In the event ENBC elects to take the actions described in
Section 4.8(b)(ii), ENBC will, at such time as it is in compliance with Section
4.8(a) and as use of the Prospectus may be resumed, immediately provide Selling
Confirmations to all Notice Holders.
(d) (i) "Selling Confirmation" means, with respect
to a Notice Holder and a Selling Notice given by such Notice Holder, a
written notice given by ENBC to such Notice Holder instructing and
notifying such Notice Holder that the Shelf Registration Statement and
Prospectus may be used during the applicable Selling Period to effect
the transactions described in such Selling Notice, that ENBC is then
currently in compliance with Section 4.9(a) and that ENBC reaffirms the
consent granted pursuant to Section 4.9(e); and
(ii) "Selling Period" means, with respect to a
Notice Holder and a Selling Notice given by such Notice Holder, a
period of forty-five calendar days commencing on the earlier of the
date such Notice Holder receives a Selling Confirmation in respect of
the transactions described in such Selling Notice or the third business
day after such Selling Notice has been received by ENBC; provided, that
ENBC may defer existing Selling Periods in accordance with Section
4.9(b)(ii).
Section 4.9 Registration Procedures.
In connection with any Shelf Registration Statement, the
following provisions, shall apply:
(a) ENBC shall ensure that: (i) any Shelf
Registration State ment and any amendment thereto and any Prospectus forming
part thereof and any amendment or supplement thereto comply in all material
respects with the Act and the rules and regulations thereunder; (ii) any Shelf
Registration Statement and any amend ment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) "any Prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement to such Pro spectus does
not include an untrue statement of a material fact or omit to state a
18
material fact necessary in order to make the statements therein, in light of the
circum stances under which they were made, not misleading; provided that no
representation or agreement is made hereby with respect to information with
respect to any Holder required to be included in any Shelf Registration
Statement or Prospectus pursuant to the Act or the rules and regulations
thereunder or provided by or on behalf of any Holder.
(b) (i) ENBC shall advise the Holders and, if re-
quested by any such Holder, confirm such advice in writing when the
Shelf Registration Statement or any post-effective amendment thereto
has become effective.
(ii) During any Selling Period, during the
deferral of any Selling Period and within two Business Days of receipt
by ENBC of any Selling Notice, ENBC shall notify the Notice Holders
and, if requested by any such Notice Holder, confirm such notification
in writing:
(A) of the issuance by the Commis sion of
any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings
for that purpose;
(B) of the receipt by ENBC of any
notification with respect to the suspension of the qualifi
cation of the Securities included in any Shelf Registra tion
Statement for sale in any jurisdiction or the indi cation or
threat of any proceeding for such purpose;
(C) of the happening of any event that
requires the making of any changes in the Shelf Registration
Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state
a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not
misleading; and
(D) of the determination by ENBC, in its
judgment, that it is advisable to suspend use of the
Prospectus for valid business reasons (not including avoidance
of ENBC's obligations hereunder) including,
19
among other things, the acquisition or divestiture of assets,
public filings with the Commission, pending corporate
developments and similar events; which no tice shall be
accompanied by an instruction to defer the use of the
Prospectus until ENBC delivers a Selling Confirmation
whereupon any existing Selling Period shall be deferred and
shall recommence upon delivery of the aforementioned Selling
Confirmation; provided, that such Selling Period shall be
extended by the num ber of days elapsed during any such period
of deferral.
(c) ENBC shall use all reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of any Shelf
Registration Statement at the earliest possible time, including filing an
amendment to the Shelf Registration Statement in a manner reasonably expected by
ENBC to obtain the withdrawal of such order, or filing an additional Shelf
Registration Statement covering all of the Registerable Securities (whereupon
references herein to the Shelf Regis tration Statement shall be deemed to
include reference to such additional filing).
(d) ENBC shall furnish to each Holder of
Registerable Securities upon their written request, without charge, at least one
copy of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in such writing, all exhibits (including those incorporated by
reference).
(e) ENBC shall, during the Shelf Registration
Period, deliver to each Holder of Registerable Securities, without charge, as
many copies of the Prospectus included in such Shelf Registration Statement and
any amendment or supplement thereto as such Holder may reasonably request; and,
except during such periods as ENBC shall have suspended the use of the
Prospectus pursuant to Section 4.8(b)(ii) or 4.9(b)(ii), ENBC consents to the
use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registerable
Securities covered by the Prospectus or any amendment or supplement thereto.
(f) Prior to any offering of Registerable Securities
pursuant to any Shelf Registration Statement, ENBC shall register or qualify or
cooperate with the Holders of Registerable Securities included therein and their
respective counsel in connection with the registration or qualification of such
Registerable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in writing and do
any and all other acts or things necessary
20
or advisable to enable the offer and sale in such jurisdictions of the
Registerable Securities; provided, however, that ENBC will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process or to taxation in any such jurisdiction where it is not then so subject.
(g) ENBC shall cooperate with the Holder to
facilitate the timely preparation and delivery of certificates representing
Registerable Securities sold pursuant to any Shelf Registration Statement free
of any restrictive legends and in such denominations and registered in such
names as Holders may request.
(h) Upon the occurrence of any event contemplated
by para graph 4.9(b)(ii)(C) above, ENBC shall promptly prepare a
post-effective amendment to any Shelf Registration Statement or an amendment or
supplement to the related Pro spectus or file any other required document so
that, as thereafter delivered (when and as permitted pursuant to Section
4.8(c)) to purchasers of the Registerable Securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(i) ENBC may require each Holder of Registerable
Securi ties to be sold pursuant to any Shelf Registration Statement to furnish
to ENBC such information regarding the Holder and the distribution of the
Registerable Securities as may, from time to time, be required by the Act and
the rules and regulations promulgated thereunder (including the information
specified in Item 507 of Regulation S-K under the Act), and the obligations of
ENBC to any Holder hereunder shall be ex pressly conditioned on the compliance
of such Holder with such request.
(j) ENBC shall, if requested, use its reasonable
efforts to promptly incorporate in a Prospectus supplement or post-effective
amendment to a Shelf Registration Statement such information as a Holder may
provide from time to time to ENBC in writing for inclusion in a Prospectus or
any Shelf Registration Statement concerning such Holder and the distribution of
such Holder's Registerable Securities and shall make all required filings of
such Prospectus supplement or post-effective amendment as soon as practicable
after being notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(k) ENBC shall enter into such agreements and take
all other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Registerable Securities; provided,
however, that ENBC shall not be required to enter into an underwriting agreement
in connection with any such disposition.
21
(l) Each Holder of Registerable Securities agrees
by acqui sition of such Registerable Securities that upon receipt of any notice
from ENBC of the happening of any event of the kind described in Section
4.9(b)(ii)(A), 4.9(b)(ii)(B), 4.9(b)(ii)(C) or 4.9(b)(ii)(D) hereof, such Holder
will forthwith discontinue disposition of such Registerable Securities covered
by such Registration Statement or Prospectus and will not resume disposition of
such Registerable Securities under such Holder's receipt of one or more copies
of a supplemented or amended Prospectus contemplated by Section 4.9(e) hereof,
or until it is advised in writing by ENBC that the use of the applicable
Prospectus may be resumed and has received copies of the Prospectus.
Section 4.10 Registration Expenses. ENBC shall pay all fees
and ex penses incurred by it incident to the performance of or compliance with
this Agreement by ENBC including, without limitation: (i) all Commission, stock
ex change or National Association of Securities Dealers, Inc. registration and
filing fees; (ii) all fees and expenses incurred in connection with compliance
with state securities or Blue Sky laws (including reasonable fees and
disbursements of counsel for any holders in connection with Blue Sky
qualification of any of the Registerable Securi ties); and (iii) all expenses in
preparing or assisting in preparing, printing and distrib uting any Shelf
Registration Statement, any Prospectus, any amendments or sup plements thereto,
and any other documents relating to ENBC's performance of and compliance with
this Agreement
Section 4.11 Indemnification.
(a) In connection with any Shelf Registration
Statement, ENBC agrees to indemnify and hold harmless each Holder of
Registerable Securities, the directors, officers, employees and agents of each
such Holder and each person who controls any such Holder within the meaning of
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may be come subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement as originally filed or in any amendment thereof, or in
any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified
22
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that ENBC will not be liable in any case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon: (A) any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to ENBC by or on behalf of any such Holder;
(B) use of a Shelf Registration Statement or the related Prospectus during a
period when a stop order has been issued in respect of such Shelf Registration
Statement or any proceedings for that purpose have been initiated or use of a
Prospectus when use of such Prospectus has been deferred pursu ant to Section
4.8(c) or 4.9(b)(ii); provided, further, in each case, that ENBC deliv ered
prior notice in accordance with Section 10.1 hereof of such stop order,
initiation of proceedings or deferral; or (C) if the Holder fails to deliver a
Prospectus or the then current Prospectus. This indemnity agreement will be in
addition to any liability which ENBC may otherwise have.
(b) Each Holder of Registerable Securities covered
by a Shelf Registration Statement severally agrees to indemnify and hold
harmless ENBC, its directors, officers, employees and agents and each person who
controls ENBC within the meaning of either the Securities Act or the Exchange
Act to the same extent as the foregoing indemnity from ENBC to each such Holder,
but only with reference to written information relating to such Holder furnished
to ENBC by or on behalf of such Holder. This indemnity agreement will be in
addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 4.11 of notice of the commencement of any action such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 4.11, notify the indemnifying party in
writing of the commencement thereof, but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
4.11(a) or (b) above unless and to the extent it did not otherwise learn of such
action and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph 4.11(a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnifi cation is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemni fied party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
the indemnified party. Notwithstanding the
23
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided further, that the indemnifying party shall
not be responsible for the fees and expenses of more than one separate counsel
(together with appropriate local counsel) representing all the indemnified
parties under paragraph 4.11(a)(i), paragraph 4.11(a)(ii) or paragraph 4.11(b)
above. An indemni fying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(d) The provisions of this Section 4.11 will remain
in full force and effect, regardless of any investigation made by or on behalf
of any Holder or ENBC or any of the officers, directors or controlling persons
referred to in Section 4.11 hereof, and will survive the sale by a Holder of
Securities covered by a Shelf Registration Statement.
Section 4.12 Additional Capital. The Partnership shall be
entitled to sell additional Units at such times, in such amounts, for such
prices and on such terms as may be determined by the General Partner. The
Partners hereby consent to the admission as a Partner of any Person acquiring
Units pursuant to this Section 4.12 who executes this Agreement (if such Person
was not previously a Partner). Notwithstanding anything else in this Agreement,
upon any sale of additional Units, the General Partner agrees to purchase
sufficient additional General Partner Units so that the General Partner shall at
all times own 1% of the outstanding Units.
24
Section 4.13 Partnership Repurchase Right. In the event that
any owner of the Units of the Partnership who is an employee of ENBC or any
subsidiary of ENBC ceases to be an employee of ENBC or any subsidiary of ENBC
(for reasons other than death or permanent disability) at any time, the
Partnership shall have the right, but not the obligation, to repurchase at any
time after such employment termination, all of the Units held by such owner at a
price equal to the original purchase price paid by such owner (the "Repurchase
Price"). If such owner paid for part or all of his Units by delivering a note to
the Partnership, the Repurchase Price shall include any interest paid or accrued
on the note through the date of repurchase. The Partnership may exercise its
rights under this Section 4.13 by giving written notice to such owner at any
time after the date that the owner ceases to be an employee of ENBC or any
subsidiary of ENBC. The Repurchase Price shall be paid by the Partnership within
30 days of the date of such notice and shall be payable first by credit against
any note or other obligation of such owner to the Partnership and then in cash.
Section 4.14 Change in Control. A "Change in Control" shall
be deemed to have occurred if any of the following occurs:
(a) the acquisition by any person or entity,
including any syndicate or group deemed to be a "person" under Section 13(d)(3)
or 14(d)(2) of the Exchange Act, or any successor provision, but excluding BCI
and its successors, or any person or group controlled by such persons (a
"Person"), of beneficial ownership, directly or indirectly, through a purchase,
merger, or other acquisition transaction or series of transactions, of shares of
capital stock of ENBC entitling such Person to exercise more than 50% of the
total voting power of all shares of capital stock of ENBC entitling the holders
thereof to vote generally in elections of directors; or
(b) any consolidation of ENBC with, or merger of
ENBC into, any other Person, any merger of another Person into ENBC, or any
sale, lease, or exchange of all or substantially all of the property and assets
of ENBC to another Person (other than (i) sales or leases of property to
franchisees or licensees of ENBC in the ordinary course of business or (ii) a
merger which (x) does not result in any reclassification, conversion, exchange,
or cancellation of outstanding shares of capital stock of ENBC or (y) is
effected primarily to change the jurisdiction of incorporation of ENBC and
results in reclassification, conversion or exchange of outstanding shares of
ENBC Common Stock solely into shares of ENBC Common Stock of the surviving
entity).
25
ARTICLE V
Section 5.1 Allocation of Profits and Losses. Subject to
Section 5.2 and the other provisions of this Article V, Profits and Losses of
the Partnership for any fiscal year shall be allocated to the Partners and
Assignees in proportion to their Units.
Section 5.2 Special Allocations. Notwithstanding Section
5.1, the following special allocations shall be made in the following order:
(a) Profits and Losses and items thereof shall be
allocated as though this Agreement contained (and there are hereby incorporated
herein by reference):
(i) a minimum gain chargeback
provision that complies with the requirements of Section 1.704-2(f) of
the Treasury Regulations;
(ii) a nonrecourse debt minimum
gain chargeback provision that complies with the requirements of
of Section 1.704-2(i)(4) of the Treasury Regulations; and
(iii) a qualified income offset
provision that complies with the requirements of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(b) Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Partners and Assignees in
proportion to their Units.
(c) Any Partner Nonrecourse Deductions for any
fiscal year or other period shall be specially allocated to the Partner or
Assignee who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Sections 1.704-2(i)(1) and (2) of the Treasury Regulations.
(d) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of
the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury
Regulations, to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases
26
the basis of the asset) or loss (if the adjustment decreases such basis) and
such gain or loss shall be specially allocated to the Partners and Assignees in
a manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
(e) The allocations set forth in this Section 5.2
(the "Regulatory Allocations") are intended to comply with certain provisions of
Sections 1.704-1 and 1.704-2 of the Treasury Regulations. Notwithstanding any
other provisions of this Agreement, the Regulatory Allocations shall be taken
into account in allocating Profits and Losses and other items of income and
deduction among the Partners and Assignees so that, to the extent possible, the
net amount of such allocations of Profits and Losses, other items of income,
gain, loss and deduction, and the Regulatory Allocations to each Partner or
Assignee shall be equal to the net amount that would have been allocated to each
Partner or Assignee if the Regulatory Allocations had not occurred.
Section 5.3 Allocation of Tax Credits. All tax credits
allowed in connection with any depreciable property (and any related adjustments
to the basis of such property) shall be allocated in the same manner as
deductions for Depreciation of such property, and all tax credits allowed in
connection with other expenditures shall be allocated in the same manner as
deductions arising out of such other expenditures.
Section 5.4 Section 704(c) Allocations.
(a) In accordance with Section 704(c) of the Code
and the Treasury Regulations thereunder, income, gain, loss, and deduction with
respect to any property contributed to the capital of the Partnership shall be
allocated among the Partners and Assignees so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial fair market value.
(b) In the event the Gross Asset Value of any asset
is adjusted pursuant to the definition of "Gross Asset Value" in Section 1.1,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and the value at which such asset is
reflected in the Capital Accounts of the Partners and Assignees, to the extent
such variation was not previously taken into account pursuant to Section 5.5(a),
in the same manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder.
27
(c) Allocations pursuant to Sections 5.5(a) and (b)
shall be determined by the General Partner using any permissible method under
Section 704(c) of the Code and the Treasury Regulations thereunder.
(d) Allocations pursuant to Sections 5.5(a) and (b)
are solely for purposes of federal, state, and local income taxes and
notwithstanding any other provision of this Agreement, such allocations shall
not affect, or in any way be taken into account in computing, any Partner's or
Assignee's Capital Account or share of Profits, Losses, other items, or
Distributions pursuant to any provision of this Agreement.
Section 5.5 Certain Other Allocation Rules.
(a) For purposes of determining the Profits,
Losses, or any other items allocable to any period, Profits, Losses, and any
such other items shall be determined on a daily, monthly or other basis, as
determined by the General Partner in its sole discretion using any permissible
method under Section 706 of the Code and the Treasury Regulations thereunder.
(b) Except as otherwise contemplated by Section 5.1
or any other provision of this Agreement, all items of Partnership income, gain,
loss, deduction, and credit, for any fiscal year or other period, and any other
allocations not otherwise provided for shall be divided among the Partners or
Assignees in the same proportions as they share Profits or Losses, as the case
may be, for such year or other period.
Section 5.6 Special Allocation of Recapture. In making
allocations of Profit among the Partners, the ordinary income portion, if any,
of such Profit caused by the recapture of cost recovery or any other deductions
shall be allocated among those Partners who were previously allocated the cost
recovery or any other deductions in proportion to the amount of such deductions
previously allocated to them. It is intended that the Partners, as between
themselves, shall be allocated the proportionate recapture income as a result of
any cost recovery or other deductions which were previously allocated to them,
in proportion to the amount of such deductions which have been allocated to
them, notwithstanding that a Partner's share of Profits, Losses or liabilities
may increase or decrease from time to time. Nothing in this Section 5.6,
however, shall cause the Partners to be allocated more or less gain or profit
than would otherwise be allocated to them pursuant to this Article V.
Section 5.7 Allocations to the General Partner.
Notwithstanding the other provisions of this Article V, if in any instance, by
virtue of the operation of
28
such provisions, less than 1% of any item of income, gain, loss, deduction or
credit would be allocated to the General Partner, then such allocations shall be
modified so that 1% of such item is allocated to the General Partner.
ARTICLE VI
Section 6.1 Distributions.
(a) Except as otherwise provided in Sections
6.1(c), 6.2, 6.4 and 9.3, Distributions shall be made at such times and in
such amounts as may be determined by the General Partner, subject to compliance
with the Act and the covenants set forth in the Secured Loan Agreement.
(b) Except as provided in Sections 6.2, 6.4 and 9.3,
Distributions shall be made to the Partners and Assignees in proportion to their
Units.
(c) The General Partner shall cause the Partnership
to make Distributions of Available Cash not less often than quarterly if but
only if each of the following conditions is satisfied (except that Distributions
pursuant to Sections 6.2, 6.4 and 9.3 shall be made in accordance with such
provisions, without regard to whether the following conditions are satisfied):
(i) the Development Schedule (under each Development Agreement) between the
Partnership and ENBC, as amended from time to time, has been satisfactorily
completed, (ii) the reserves referred to in the definition of the term Available
Cash shall be reasonably adequate to satisfy the Partnership's working capital
needs and to cover foreseeable contingencies, (iii) cash flow during the quarter
is at least equal to Prospective Fixed Charges (as defined in the Secured Loan
Agreement) for the next succeeding quarter and (iv) the Partnership shall be in
compliance with the covenants set forth in the Secured Loan Agreement.
Section 6.2 Distributions for Tax Purposes.
(a) Subject to the provisions of the Act, the
General Partner shall cause the Partnership to make Distributions within 75 days
after the end of any fiscal year of the Partnership, beginning with the fiscal
year ending in December 1998, to each of the Partners and Assignees in an amount
equal to (i) the excess of (A) the total amount of taxable income allocated to
such Partner or Assignee (and any predecessor in interest of such Partner or
Assignee) for such fiscal year, over (B) the amount, if any, by which the sum of
all items of deduction and loss allocated to such Partner or Assignee (and any
predecessor in interest of such Partner or Assignee) for all prior fiscal years
exceeds the sum of all items of taxable income allocated to such Partner or
Assignee for all prior fiscal years, multiplied by (ii) a tax rate reasonably
29
selected by a Majority Interest of the Partners as the highest effective
combined statutory rate of federal and state income tax imposed on taxable
income of the Partnership allocated to the Partners or Assignees (or to the
partners or members of any Partner treated as a partnership for federal income
tax purposes) (the "Tax Distributions"); provided, however, that the Tax
Distributions to each of the Partners for any fiscal year shall not be less than
the withholding or estimated tax liability imposed with respect to or on any
Partner by any State or local government with respect to the amount described in
clause (A) above. In the event that in any fiscal year Tax Distributions
computed as set forth above are not paid, then in any succeeding fiscal year in
which Available Cash exceeds required Tax Distributions with respect to such
year, the Tax Distributions payable under this Section 6.2(a) shall be increased
(but not in excess of Available Cash) until such deficiency has been recouped.
(b) The General Partner may cause the Partnership
to make periodic Distributions to the Partners and Assignees during each
fiscal year based on its reasonable estimate of the amount that will be
required to be distributed pursuant to Section 6.2(a) for such fiscal year in
order to provide funds to the Partners and Assignees for the payment of
estimated taxes by them. In the event any such periodic Distributions are made
for any fiscal year, the amount of the Distribution made after the end of the
fiscal year shall be appropriately adjusted so that the total amount
distributed to each Partner or Assignee (taking into account periodic
Distributions made pursuant to this Section 6.2(b)) is equal to the amount such
Partner or Assignee would have been entitled to receive pursuant to Section
6.2(a) had no such periodic Distributions been made.
Section 6.3 Restrictions on Certain Distributions.
Notwithstanding compliance with the foregoing conditions of Sections 6.1 or 6.2,
or any other provision of this Agreement, no Distributions shall be made in the
event that (i) the Credit Agreement or the Secured Loan Agreements, or any
extension, replacement or refinancing of either of them, is in effect, and (ii)
any such agreements prohibit the making of such Distributions.
Section 6.4 Payment and Withholding of Certain Taxes.
Notwithstanding anything to the contrary herein, to the extent that the
Partnership is required, pursuant to any applicable law, (i) to pay tax
(including estimated tax) on a Partner's or Assignee's allocable share of
Partnership items of income or gain, whether or not distributed, or (ii) to
withhold and pay over to the tax authorities any portion of a Distribution
otherwise distributable to a Partner or Assignee, the Partnership may pay over
such tax or such withheld amount to the tax authorities, and such amount shall
be treated as a Distribution to such Partner or Assignee at the time
30
it is paid to the tax authorities to the extent it would have otherwise been
distributed to the Partner or Assignee. To the extent such amount is not
distributed (or treated as distributed) pro rata to the Partners or Assignees in
proportion to their Units, it shall be treated as a loan, and shall be repayable
to the Partnership without interest out of future Distributions to such Partner
or Assignee. For purposes of this Section 6.4, the Partnership may assume that
any Partner or Assignee who fails to provide to the Partnership satisfactory
evidence of his tax status for United States federal income tax purposes is a
foreign person.
ARTICLE VII
Section 7.1 Rights and Obligations of Limited Partners.
Notwithstanding any other provisions of this Agreement, no Limited Partner shall
be personally liable for any of the debts of the Partnership or any of its
obligations except to the extent of such Partner's Capital Contribution and its
share of undistributed profit, as provided by the Act. No Limited Partner shall
participate in the control of the business of the Partnership within the meaning
of Section 17-303 of the Act. The Limited Partners shall not have either the
obligation or the right to take part, directly or indirectly, in the active
management of the business of the Partnership, and no Limited Partner is
authorized to do or perform any act, thing or deed in the name of, for or on
behalf of either the General Partner or the Partnership. A Limited Partner is
not authorized and shall not be permitted to do any act, deed, or thing which
will cause such Limited Partner to be classified as a general partner of the
Partnership under the Act, unless such Limited Partner is also a General Partner
hereunder.
Section 7.2 Conduct of Other Business Activities by the
Partners.
(a) The Partners may generally engage in any
business or profession or possess an interest in other businesses or professions
of every nature and description, independently or with others, including but not
limited to, all phases of the restaurant business; provided that no Partner
shall engage in any Competitive Business other than a Permitted Competitive
Business (as such terms are defined in the Development Agreement). The
restriction set forth in the foregoing sentence shall not, however, be
applicable to (i) ENBC, its Successors and Assignees and their Affiliates other
than the Partnership, (ii) participation by any Person in the ownership,
management or operation of the Fund or (iii) investment by the Fund in any other
developer or franchisee of ENBC. Neither the Partnership nor its Partners shall,
under the terms of this Agreement or by virtue of the existence of the
Partnership or the relation created among the Partners, have any rights in or to
any independent
31
venture of any other Partner or its Affiliates, or the income or profits
thereof, whether or not any such venture is, or may be deemed to be, competitive
with the Partnership.
(b) In the event that any owner (other than ENBC,
any subsidiary of ENBC or the Fund) of Units in the Partnership ceases to own
Units, whether as a result of a repurchase by the Partnership pursuant to
Section 4.13 hereof, a negotiated sale of such owner's Units to the Partnership
or otherwise, for a period of two years thereafter such owner agrees (i) not to
compete against the Partnership, ENBC or their respective Affiliates (for
purposes of this paragraph 7.2(b), "Affiliates" shall include area developers,
franchisees and joint venturers of the Partnership or ENBC), by directly or
indirectly owning, managing, operating, controlling, being employed by,
participating in, or being connected in any manner with the ownership,
management, operation, or control of (A) any food service establishment that
prepares, serves or sells, and derives more than 5% of its revenues from, bagels
and/or bagel related products (including but not limited to cream cheese and
other spreads, bagel sandwiches and bagel chips) or (B) any food service
establishment, at least 15% of the revenue of which is derived from coffee or
any other product which accounts for at least 15% of the revenue of any food
service establishment owned or operated by the Partnership or ENBC or their
respective Affiliates at the time such owner commences or significantly
increases its ownership, management, or other participation therein, which food
service establishment described in either (A) or (B) above, is located within
five miles of any store owned or operated by the Partnership or ENBC or their
respective Affiliates, or within any standard metropolitan statistical area,
trade area or "area of dominant influence" (as defined by Arbitron Ratings
Company) in which the Partnership, ENBC or their respective Affiliates, as the
case may be, engage, or have developed specific plans to engage, in business and
(ii) not to solicit employees from the Partnership, ENBC or their respective
Affiliates. This paragraph 7.2(b) shall not prevent such owner from
participating as an investor, officer, or director in any restaurant venture not
covered by the foregoing applicable restrictions or prevent such owner from
investing so as to hold less than 2% of the outstanding shares of any company
which is a "reporting company" under the Securities Exchange Act of 1934, as
amended. It is the intention of the parties hereto that this paragraph 7.2(b) be
interpreted so as to be valid under applicable law and, if required for
validity, any court or applicable tribunal may reduce or alter the geographic
scope and duration of this paragraph 7.2(b), by substitution of words or
otherwise, so as to create the broadest permissible protection to the
Partnership and ENBC.
32
Section 7.3 Assignments by Partners.
(a) A Partner or Assignee may not assign, pledge,
mortgage, hypothecate, sell, or otherwise dispose or encumber (hereinafter
referred to as a "Transfer") all or any part of his Units in the Partnership to
any Assignee (and no such Transfer, whether voluntary or involuntary, whether by
operation of law or otherwise and whether or not for value, shall be effective)
unless:
(i) ENBC shall have consented in
writing to such transfer;
(ii) in the case of a Transfer of
Units by any Partner or Assignee other than the General Partner, the
General Partner shall have consented in writing to such Transfer (which
consent may be withheld in the sole and absolute discretion of the
General Partner except for a Transfer of Units pursuant to the
dissolution of the Fund, in which case the General Partner shall
consent) and in the case of a Transfer of Units by the General Partner
(other than Units held by ENBC or its Successors or Assignees), a
Majority Interest of Partners other than the General Partner shall have
consented in writing to such Transfer (which consent may be withheld in
the sole and absolute discretion of such Partners);
(iii) such Transfer shall be made by
means of an assignment in such form as shall be reasonably satisfactory
to the General Partner;
(iv) the Partnership shall have
received advice of counsel satisfactory to the General Partner to the
effect: (a) that the proposed Transfer is permissible under the
Securities Act of 1933, as amended, the rules and regulations of the
Securities and Exchange Commission thereunder and all applicable state
securities laws; and (b) that the proposed Transfer will not adversely
affect the classification of the Partnership as a partnership for
federal income tax purposes;
(v) the Assignee shall have
executed and delivered a counterpart signature page to the Pledge
Agreement, as such term is defined in the Secured Loan Agreement; and
33
(vi) the assignor and Assignee,
and, if deemed necessary by the General Partner, all other Partners,
shall have executed all such certificates and other documents and
performed all such acts as the General Partner reasonably deems
necessary or appropriate to effect a valid transfer of the Units being
transferred, and to preserve the rights, status and existence of the
Partnership.
(b) The Partnership shall, after the effective date
of any Transfer pursuant to the provisions of this Section 7.3, pay all
Distributions on account of the Units so transferred to the Assignee, provided,
however, that if instructed to do so in writing by the assignor and the
Assignee, the General Partner shall cause the Partnership to pay to the assignor
a portion of the Tax Distribution provided for in Section 6.2 that would
otherwise have been payable to the Assignee for the year in which the Transfer
occurs, equal to the amount that would have been payable under Section 6.2 with
respect to the Units transferred if the period beginning on the first day of the
fiscal year in which the Transfer occurred and ending on the effective date of
the Transfer had been a separate fiscal year of the Partnership. Any such
Distribution paid to the assignor shall be treated as if paid to the Assignee
for purposes of determining the Capital Account balance of the Assignee.
(c) Any Partner who Transfers all of his Units in
the Partnership shall, upon the effective date of such Transfer, cease to be a
Partner for all purposes, except that no assignment of all or any portion of his
Units in the Partnership shall relieve the assignor of his obligations under
this Agreement whether arising prior to or subsequent to such Transfer.
(d) An Assignee who has not become a substitute or
additional Partner in the manner provided in this Agreement shall have no rights
whatsoever in respect of the Partnership except the rights specifically accorded
him by the terms of this Agreement. The provisions of this Agreement shall be
binding on all Assignees.
(e) No Assignee of Units shall have the right to
become a substitute or additional Partner unless the conditions set forth in
Section 7.3 (a) (i) through (vi) have been satisfied and:
(i) the General Partner and a
Majority Interest of Partners other than the assignor shall have
consented in writing to the substitution or addition of such Person as
a Partner (which consent of the General Partner or Partners may be
34
withheld in the sole and absolute discretion of the General Partner or
Partners); and
(ii) the Assignee shall have paid
to the Partnership the costs and expenses (including attorneys' fees
and filing costs) incurred in effecting the substitution or addition.
(f) Notwithstanding anything to the contrary
herein, (i) the General Partner and Partners shall not cause or permit Units to
become traded on an established securities market and (ii) the General Partner
and Partners shall withhold their consent to any Transfer that, to the General
Partner's knowledge after reasonable inquiry, would otherwise be accomplished by
a trade on a secondary market (or the substantial equivalent thereof). For
purposes of this subsection the terms "traded on an established securities
market" and "secondary market (or the substantial equivalent thereof)" shall
have the meanings set forth in Sections 469(k)(2) and 7704 of the Code and any
regulations promulgated thereunder that are in effect at the time of the
proposed Transfer.
Section 7.4 Admission of Additional Partners. Persons
acquiring Units for additional capital pursuant to Section 4.12 shall be
admitted to the Partnership as Partners as provided in such Section 4.12.
Section 7.5 Resignation of Partners Prohibited. No Partner
shall have the right to resign or withdraw from the Partnership as a Partner
(except that this restriction shall not prevent any Partner from transferring
its interest in the Partnership to the extent otherwise permitted by Section
7.3).
ARTICLE VIII
Section 8.1 Management of the Partnership.
(a) The business and affairs of the Partnership
shall be managed by the General Partner, subject to the limitations expressly
set forth in this Agreement. The General Partner shall have full authority to
act for the Partnership in all matters in connection with or relating to the
Partnership's Business.
(b) The General Partner of the Partnership shall be
Einstein/Noah Bagel Partners, Inc., a California corporation. The General
Partner may be removed, and a successor General Partner elected, by the vote of
a Majority Interest of the Partners; provided, however, that the General Partner
may only be removed if at the same time a successor General Partner is elected
and the successor
35
General Partner acquires at least 1% of the then outstanding Units in the
Partnership, treating as outstanding for this purpose any Units with respect to
which options have been granted and are outstanding under the Partnership's Unit
Option Plan.
(c) The General Partner shall possess and enjoy all
the rights and powers of a general partner under the Act, except as otherwise
provided for by this Agreement. On behalf of the Partnership and in furtherance
of the business of the Partnership, the General Partner shall have the authority
to perform all acts which the Partnership is authorized to perform, without the
consent of the Partners, including the authority to:
(i) purchase or otherwise acquire,
outright or by lease, at such time or times, for such prices and on
such terms as it deems desirable, real or personal property, tangible
or intangible, of all types for use in the Partnership's business,
which property may be owned at the time of such purchase by the General
Partner or its Affiliates;
(ii) execute and deliver such
documents, instruments or agreements as the General Partner may deem
necessary or desirable for the acquisition, operation and disposition
of the Partnership's business and the investment, management and
maintenance of its assets, or for other Partnership purposes, and
amendments, revisions and substitutions to any of the foregoing,
including, without limitation, the Area Development Agreement, the
License Agreements, the Secured Loan Agreement and all exhibits thereto
and documents contemplated therein, the ENBC Note, and any and all
other documents related to, or in connection with, the formation of the
Partnership and the acquisition of the business and assets of the
Partnership;
(iii) acquire, and make all
decisions relating to, any interests of the Partnership in any
corporation, partnership, limited liability company, joint venture, or
other entity, including, without limitation, decisions relating to: (a)
the execution of subscription, shareholders', partnership, operating,
limited liability company or joint venture agreements, voting
agreements, or the like having such terms as the General Partner, in
its sole discretion, shall determine or consent to; (b) the operation,
financing or acquisition or sale of properties of such entity, and (c)
the sale of the Partnership's interest in the entity;
36
(iv) enter into leases, licenses,
sublicenses, franchises or other agreements with respect to all or any
portion of the Partnership's property, whether or not such leases,
licenses or agreements (including renewal or option terms) shall extend
beyond the date of termination of the Partnership, upon such terms as
it deems proper;
(v) compromise, submit to
arbitration, sue on, or defend all claims in favor of or against the
Partnership;
(vi) do all acts it deems
necessary or appropriate for the protection and preservation of the
Partnership's assets, including insuring the business and assets of the
Partnership in such amounts and against such risks as the General
Partner deems advisable;
(vii) subject to the provisions of
Section 8.1(f), sell or otherwise dispose of any or all of the assets
of the Partnership in one or more transactions at any time;
(viii) finance any assets or
activities of the Partnership or refinance, increase, modify,
consolidate, prepay or extend any debts, mortgages or other security
obligations of the Partnership; borrow money (including borrowings from
the General Partner or any other Partner or their Affiliates, there
being no obligation, however, for the General Partner or any of their
Affiliates to make any such loan) on a secured or unsecured basis and
grant or pledge Partnership assets as security for any such loan and
confess a judgment against the Partnership in connection therewith;
(ix) hold the Partnership assets
in the Partnership name or the name of one or more nominees;
(x) open one or more bank
accounts in the name of the Partnership or in any other name in which
the Partnership's funds are to be held, make deposits therein, draw
funds therefrom and deal in or with the Partnership's funds in such
manner as it may deem appropriate;
37
(xi) make distributions of
Partnership funds or assets to the Partners and Assignees as provided
for by this Agreement; and
(xii) make such income tax
elections as it deems appropriate or desirable, in its sole
discretion exercise all rights, powers and duties as Tax Matters
Partner, as contemplated by the Code and the Regulations, prepare and
file tax returns for the Partnership with federal, state and local
authorities; file amendments to such returns; participate on behalf of
the Partnership in audits of such returns; consent to extensions
relating to such returns; execute on behalf of the Partnership
documents relating to the settlement of tax proceedings involving the
Partnership or its tax returns; participate at the Partnership's
expense in administrative and judicial proceedings, including appeals,
relating to the Partnership's tax returns or its tax liabilities; and
settle issues relating to the Partnership's federal and, to the extent
required, state and local income tax returns even though the Partners
rather than the Partnership shall be subject to tax as so determined.
(d) The General Partner may, on behalf of the
Partnership, employ, engage, retain or deal with any persons, corporations or
other entities (including its Affiliates) to act in such capacities as the
General Partner may determine.
(e) With respect to third parties, the signature of
the General Partner on any agreement, contract, mortgage, deed of trust,
promissory note, instrument or other document shall be sufficient to bind the
Partnership in respect thereof and shall conclusively evidence the authority of
the General Partner with respect thereto, and no Person need look to any other
evidence or require joinder or consent of any other Person.
(f) In the event that the General Partner proposes
a merger or consolidation of the Partnership with or into any Other Business
Entity or a sale of substantially all of the assets of the Partnership, such
merger, consolidation or sale shall require the approval of a Majority Interest
of the Units owned by Partners.
(g) Any approval, consent, vote or other action of
the Partners required or contemplated by this Agreement may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the approval, consent, vote or other action so taken is
signed by Partners holding
38
the requisite number of Units and delivered to the General Partner. Any failure
to give notice of any such approval, consent, vote or other action to the
Partners not executing a consent shall not effect the validity of the approval,
consent, vote or other action.
(h) ENBC shall have the power to elect the board of
directors of the General Partner; provided, that ENBC shall be required to elect
as directors of the General Partner at least two persons who are not officers,
directors or employees of ENBC or Boston Chicken, Inc.
Section 8.2 Certain Obligations of General Partner. The
General Partner shall:
(a) arrange for Partnership records and books of
account to be maintained in which shall be entered fully and accurately all
transactions and other matters relative to the Partnership business;
(b) make available to any Partner, at such
Partner's request, during normal business hours and at the principal place of
business of the Partnership, all books and records of the Partnership required
to be maintained by this Section 8.2, and such other financial information as
shall be reasonably requested by any Partner; provided, that the General
Partner shall not be required to disclose to any Partner information regarding
the Partnership if such information is acquired by the Partnership or the
General Partner under circumstances where the disclosure thereof to a Partner
may be in violation of any fiduciary duty of the Partnership or the General
Partner or in violation of a confidentiality agreement to which the Partnership
or the General Partner is subject;
(c) use its best efforts to provide, or cause to be
provided, to all Partners at least the following reports, within the time period
specified below:
(i) within 90 days after the end
of each fiscal year, a statement of operations for such fiscal year and
a balance sheet as of the end of such fiscal year, which shall be
prepared in accordance with generally accepted accounting principles
and audited by a firm of independent certified public accountants; and
(ii) within 75 days after the end
of each fiscal year, the information necessary for Partners to prepare
so much of their federal and all applicable state income tax returns as
relates to the Partnership; and
39
(iii) as soon as practicable after
the end of each quarter (as determined for federal estimated tax
purposes), such information relating to the Partnership as is
reasonably necessary for each Partner (or its constituent partners or
shareholders) to determine its (or their) quarterly federal and state
estimated tax liability.
(d) cause the Partnership to timely file all
required Partnership federal, state, local and foreign tax and information
returns; and
(e) cause the Partnership to be duly qualified in
each jurisdiction in which it proposes to commence business if such
qualification is necessary to avoid subjecting Partners to additional liability.
Section 8.3 Liability of General Partner for Certain Acts or
Omissions. The doing of any act or the failure to do any act by the General
Partner, the effect of which may cause or result in loss or damage to the
Partnership, shall not subject the General Partner to any liability to the
Partners if the General Partner acted in good faith and in a manner the General
Partner reasonably believed to be in or not opposed to the best interests of the
Partnership.
Section 8.4 Indemnification.
(a) To the fullest extent permitted under the Act,
the Partnership shall indemnify any Person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Partnership) by reason of the
fact that he is or was a General Partner or Partner of the Partnership, or a
director, management committee or advisory member or officer (or Person serving
in any capacity equivalent to any of the foregoing) of the Partnership or a
General Partner, or is or was serving at the request of the Partnership as a
director, management or advisory committee member or officer (or in any capacity
equivalent to any of the foregoing) of another corporation, part nership, joint
venture, trust or other enterprise (all of the foregoing being herein
collectively referred to as "Covered Capacities"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reason ably incurred by him in connection with such action, suit, or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Partnership, and, with respect to any
criminal action or pro ceeding, had no reasonable cause to believe his conduct
was unlawful.
40
(b) The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or pleas of nolo
contendre or its equivalent, shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in and not opposed to the best interests of the Partnership, and with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. To the fullest extent permitted under the Act, the
Partnership shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the Partnership to procure a judgment in its favor by reason of the
fact that he is or was serving in any of the Covered Capacities, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Partnership and except that no indemnification shall be made in respect to
any claim, issue or matter as to which such action or suit alleges misconduct in
the performance of his duty to the Partnership unless and then only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, and in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
(c) Anything in Sections 8.4(a) or (b) to the
contrary notwithstanding, to the extent that any person referred to therein has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to therein or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under Sections 8.4(a) or
(b) (unless ordered by a court) shall be made by the Partnership only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in Sections 8.4(a) or (b). Such determination
shall be made by the General Partner. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Partnership in advance
of the final disposition of such action, suit or proceeding, as authorized by
the General Partner in the specific case upon receipt of any undertaking by or
on behalf of the indemnitee to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Partnership.
41
(e) The indemnification provided by this Section
8.4 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, agreement, or otherwise, and
shall continue as to a person who has ceased to serve in a Covered Capacity and
shall inure to the benefit of his successors in interest, including but not
limited to his trustees, heirs, executors, and administrators.
(f) The Partnership shall have the power to
purchase and maintain insurance on behalf of any person who is or was serving
in any of the Covered Capacities and incurred by him in any such capacity or
arising out of his status as such, whether or not the Partnership would have
the power to indemnify him against such liability under the provisions of this
Section.
(g) Each Person who is or was an employee or agent
of the Partnership or an employee or agent of a General Partner, or who is or
was serving at the request of the Partnership as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise may be
indemnified (or covered by insurance), in the manner and to the extent provided
in this Section 8.4 for persons acting in Covered Capacities, at the discretion
of the General Partner.
(h) The Partnership shall have the right to assume
the defense of any action, suit or proceeding in connection with which any
Person is entitled to indemnification under this Section 8.4 and to select
counsel for such purpose. No Person entitled to indemnification hereunder shall
consent to entry of any judgment or enter into any settlement in connection with
any such action, suit or proceeding without the consent of the Partnership, and
the Partnership shall not, without the consent of each such Person that is
entitled to indemnification, consent to entry of any judgment or enter into any
settlement in connection with such action, suit or proceeding which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Person of a release from all liability in respect to such claim or
litigation.
(i) Indemnification under this Section 8.4 shall
not be available to any Person in the case of any action, suit or proceeding
brought against the Partnership by or on behalf of such Person.
Section 8.5 General Partner as Limited Partner. To the
extent the General Partner has invested in the Partnership as a Limited Partner,
it shall acquire the same rights and obligations as other Limited Partners.
42
Section 8.6 Tax Matters Partner.
(a) The General Partner is hereby appointed the "Tax
Matters Partner" of the Partnership for all purposes pursuant to the Code and
the Treasury Regulations. The General Partner is hereby authorized to designate
another Partner of the Partnership to serve as the Tax Matters Partner. The Tax
Matters Partner will (i) furnish to each Partner or Assignee affected by an
audit of the Partnership income tax returns a copy of each notice or other
communication received from the Internal Revenue Service or applicable state
authority, (ii) keep each such Partner and Assignee informed of any
administrative or judicial proceeding for the adjustment at the partnership
level of any "partnership items," and (iii) allow each such Partner and Assignee
an opportunity to participate in all such administrative and judicial
proceedings.
(b) The Tax Matters Partner shall have the authority
conferred on a Tax Matters Partner by the Code and the Treasury Regulations.
(c) The Partnership is not obligated to pay any
fees or other compensation to the Tax Matters Partner in his capacity as such.
However, the Partnership will reimburse the Tax Matters Partner for any and all
out-of-pocket costs and expenses (including reasonable attorneys and other
professional fees) incurred by him in his capacity as Tax Matters Partner. Each
Partner who elects to participate in administrative tax proceedings will be
responsible for its own expenses incurred in connection with such
participation. In addition, the cost of any adjustments to a Partner and the
cost of any resulting audits or adjustments of a Partner's tax return will be
borne solely by the affected Partner.
(d) The Partnership will indemnify, defend and hold
the Tax Matters Partner harmless from and against any loss, liability, damage,
cost or expense (including reasonable attorneys' and other professional fees)
sustained or incurred as a result of any act or decision concerning Partnership
tax matters and within the scope of his responsibilities as Tax Matters Partner,
so long as such act or decision was not made fraudulently or in bad faith and
did not constitute willful or wanton misconduct or gross negligence.
ARTICLE IX
Section 9.1 Dissolution of Partnership. Upon the Bankruptcy
of any Partner, the Partnership shall be dissolved unless a Majority Interest of
the remaining Partners shall elect, within a period of 90 days from the date of
such occurrence, to
43
continue the Partnership and, if necessary, designate a successor General
Partner. The Partnership shall also be dissolved upon the happening of any of
the following events:
(a) the action of the General Partner, with the
approval of not less than a Majority Interest of the Partners, to dissolve the
Partnership; or
(b) the entry of a decree of judicial dissolution
under Section 17-802 of the Act or as otherwise provided in the Act.
The Partnership shall not be dissolved upon the occurrence of
any other event.
Section 9.2 Final Accounting. Upon dissolution and
termination of the Partnership, an accounting shall be made of the accounts of
each Partner and of the Partnership's assets, liabilities and operations, from
the date of the last previous accounting to the date of such termination.
Section 9.3 Liquidation; Distribution. In the event of the
dissolution of the Partnership, the General Partner (or in the event the
dissolution is caused by the Bankruptcy or Dissolution of the General Partner, a
person selected by a Majority Interest of the Partners) shall act in an orderly
manner as liquidating trustee and, in an orderly manner, shall wind up the
affairs of the Partnership and, after paying all debts and liabilities of the
Partnership, including all costs of dissolution, shall distribute the remaining
assets in the following order of priority:
(a) first, to the establishment of any reserves
which the liqui dating trustee may deem reasonably necessary for any contingent
or unforeseen liabili ties or obligations of the Partnership arising out of or
in connection with the Partnership, which reserves may, at the option of the
liquidating trustee, be paid over by the liquidating trustee to an escrow agent,
to be held by it for the purpose of disbursing such reserves in payment of any
of the aforementioned contingencies, and, at the expiration of such period as
the liquidating trustee shall deem advisable, for distributing the balance
thereafter remaining in the manner hereinafter provided; and
(b) second, to the Partners and Assignees in
accordance with their positive Capital Account balances, after taking into
account all Capital Account adjustments for the taxable year during which the
liquidation occurs, in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2).
44
Section 9.4 Termination. A reasonable time shall be
allowed for the orderly liquidation of the assets of the Partnership and the
discharge of liabilities to creditors so as to enable the General Partner or
liquidating trustee to minimize the normal losses attendant upon a liquidation.
Each of the Partners shall be furnished with a statement prepared by the
Partnership's then certified public accountant, which shall set forth the
assets and liabilities of the Partnership as at the date of complete
liquidation. Upon compliance with the distribution plan set forth in Section
10.3 (including any payment over to any escrowee if there are sufficient funds
therefor), the Partners shall cease to be such, and the General Partner or the
liquidating trustee shall execute, acknowledge, and cause to be filed a
certificate of cancellation of the Partnership. Upon completion of the
dissolution, winding up, liquidation and distribution of the liquidation
proceeds, the Partnership shall terminate.
ARTICLE X
Section 10.1 Notices. Except as otherwise provided herein,
all notices and other written communications required or permitted to be given
under this Agreement shall be in writing and shall be sent by Federal Express or
other reliable courier, transmitted by fax, personally delivered or mailed by
certified or registered mail, return receipt requested. Any notices to be given
to the Partners shall be given or delivered to the addresses set forth on
Schedule A hereto or such other address of which a Partner may notify the
General Partner in writing. Any notices to be given to the Partnership shall be
sent or delivered to the office of the Partnership as specified herein or at
such other address as the General Partner may specify in a notice to all of the
Partners. Each notice given to the Partners or the Partnership shall also be
given to Einstein/Noah Bagel Corp., 14123 Denver West Parkway, Golden, Colorado
80401, Attention: General Counsel or to such other address of which ENBC shall
notify the Partnership in writing. Notices sent for next day delivery by Federal
Express or other reliable courier shall be deemed given the next business day
after sending, notices transmitted by fax or personally delivered shall be
deemed given when so transmitted or delivered, respectively, and notices sent by
certified or registered mail shall be deemed given on the third business day
after sending.
Section 10.2 Governing Law. This Agreement shall be
governed by and construed in accordance with the Act.
Section 10.3 Amendments.
(a) Subject to the provisions of Sections 10.3(b)
|
and (c), this Agreement may be amended only in writing with the written consent
of Persons holding a majority of all outstanding Units.
45
(b) Amendments to this Agreement which are of a
clerical or inconsequential nature or which may be required to comply with the
Act or the terms of this Agreement, and which do not adversely affect the
Partners in any material respect or which are required or contemplated by this
Agreement, including, without limitation, amendments necessary to reflect the
Transfer of Units or the admission, substitution or withdrawal of a Partner that
is otherwise permitted by this Agreement or the change in the name of the
registered agent, the address of the registered office or the address of the
office at which Partnership records are kept, may be made by the General
Partner, without notice to or consent of any Partner, through the exercise of
the power of attorney granted the General Partner by Section 10.4 of this
Agreement.
(c) No amendment shall increase the liability of
any Partner, decrease the Capital Account of any Partner, decrease the number
of Units of any Partner or affect the right of any Partner to receive
Distributions, except in each case with the written consent of the Partner
adversely affected thereby.
Section 10.4 Power of Attorney. Each Partner does irrevocably
constitute and appoint the General Partner, as his true and lawful attorney and
agent (with full power of substitution) with full power and authority in his
name, place and stead to execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (i) all certificates and other
instruments (including counterparts of this Agreement) which the General Partner
deems necessary or appropriate to establish or to qualify or continue the
Partnership as a limited partnership in the State of Delaware and in such other
states as the General Partner may determine; (ii) all instruments which the
General Partner deems necessary or appropriate to effect an amendment to this
Agreement in accordance with the terms of this Agreement; (iii) all conveyances
and other instruments which the General Partner deems necessary or appropriate
to effect the dissolution and termination of the Partnership; and (iv) all
instruments relating to the admission of additional or substitute Partners or
withdrawal of Partners in accordance with the terms of this Agreement. The
foregoing grant of authority: (a) shall survive the death, incompetence or
termination of existence of any or all of the Partners; (b) may be executed by
the General Partner for the Partners by the signature of the General Partner
together with a list of all of the Partners; (c) shall bind any person who
becomes a substitute or additional Partner pursuant to this Agreement; and (d)
shall continue to bind any Partner who assigns the whole or any portion of his
interest, except that where the Assignee thereof has been approved for admission
to the Partnership as a substitute Partner pursuant to this Agreement, then, as
to such assigning Partner this power of attorney shall survive the delivery of
such assignment for the sole purpose of enabling the General Partner to execute,
acknowledge and file
46
any instrument necessary to effect such substitution and file any instrument
necessary to effect such substitution. Upon the request of the General Partner,
the Partners shall execute any certificate or other instrument with respect to
which the General Partner could have invoked this power of attorney.
Section 10.5 Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Partners, the Assignees and their respective legal representatives,
heirs, successors and assigns.
Section 10.6 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be an original, but all of which
shall constitute one instrument.
Section 10.7 Fiscal Year. The fiscal year of the Partnership
shall be the period, if any, specified in the Secured Loan Agreement or, if none
is so specified, the period selected by the General Partner. The Partnership
shall use the accrual method of accounting for tax and financial reporting
purposes.
Section 10.8 Modifications to be in Writing. This Agreement
constitutes the entire understanding of the parties hereto with respect to the
subject matter hereof and no amendment, modification or alteration of the terms
hereof shall be binding unless the same be in writing and adopted in accordance
with the provisions of Section 10.3.
Section 10.9 Action for Partition or Distribution in Kind.
Each of the parties hereto irrevocably waives any right which it may have to
partition Partnership property or maintain an action for distribution of
Partnership property in kind.
Section 10.10 Captions. The captions herein are inserted for
convenience of reference only and shall not affect the construction of this
Agreement.
Section 10.11 Pronouns and Plurals. Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
Section 10.12 Validity and Severability. If any provision
herein shall be held invalid or unenforceable, such decision shall not affect
the validity or enforceability of any other provisions hereof, all of which
other provisions shall, in such case, remain in full force and effect.
47
Section 10.13 Statutory References. Each reference in this
Agreement to a particular statute or regulation, or a provision thereof, shall,
at any particular time, be deemed to be a reference to such statute or
regulation, or provision thereof, or to any similar or superseding statute or
regulation, or provision thereof, as at such time in effect.
Section 10.14 Primacy of Certain Agreements. Notwithstanding
anything to the contrary contained herein, the Partners acknowledge that the
Partnership is currently and may in the future be subject to certain agreements,
including the Secured Loan Agreement, the Area Development Agreement and the
License Agreement, with terms that are or may be inconsistent with the
provisions of this Agreement, and that the provisions of those agreements shall
control in the event of any conflict herewith and may limit or preclude the
Partners' ability to exercise their rights or realize any benefits otherwise
available to them hereunder. The Partners further agree that any distribution
made or compensation paid in violation of the Secured Loan Agreement, the Area
Development Agreement or any License Agreement shall be reimbursed by the
recipient thereof upon demand by the Partnership.
48
This Agreement is accepted and agreed to by:
GENERAL PARTNER:
EINSTEIN/NOAH BAGEL
PARTNERS, INC.
By: /s/ Jeffrey L. Butler
--------------------------
Name: Jeffrey L. Butler
Title: President
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49
SCHEDULE A
GENERAL PARTNER
Name Mailing Address
Einstein/Noah Bagel Partners, Inc. 14123 Denver West Parkway
Golden, CO 80401
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LIMITED PARTNERS
Mailing Capital Number
Name Address Contribution of Units
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EXHIBIT 10.3
LOAN AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DECEMBER 5, 1997
TABLE OF CONTENTS
ARTICLE I
The Loan
Page
----
1.1 The Loan..........................................................................1
1.2 Purposes of the Loan..............................................................2
1.3 The Loan Account..................................................................2
1.4 Interest Rate.....................................................................2
1.5 Payment of Interest...............................................................3
1.6 Repayment of the Loan.............................................................3
1.7 Term of this Agreement............................................................3
1.8 One Obligation....................................................................3
1.9 Credit Resources..................................................................4
1.10 Payment Method....................................................................4
1.11 Authorization to Advance for Limited Purposes.....................................4
ARTICLE II
Security and Collateral
2.1 Security Interest.................................................................4
2.2 Subsidiary Security Documents.....................................................5
2.3 Pledge of Units...................................................................6
2.4 Preservation of Collateral and Perfection
of Security Interests Therein...................................................6
2.5 Alternate Security and Pledge Agreements..........................................7
ARTICLE III
Conditions to Advances
3.1 No Material Adverse Change........................................................7
3.2 No Default........................................................................8
3.3 Representations and Warranties....................................................8
3.4 Other Requirements................................................................8
3.5 Advance Request...................................................................8
3.6 No Default by Company.............................................................8
3.7 Sufficient Credit Available to Company............................................8
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i
ARTICLE IV
Representations and Warranties
4.1 Financial Statements..............................................................8
4.2 Partner Units.....................................................................9
4.3 No Material Adverse Change........................................................9
4.4 No Pending Material Litigation or Proceedings ....................................9
4.5 Valid Organization: Due Authorization;
Valid and Binding Agreement......................................................9
4.6 Conduct of Business..............................................................10
4.7 Absence of Material Liabilities..................................................10
4.8 Tax Matters......................................................................11
4.9 Ownership of Collateral; Security Interest Priority..............................11
4.10 Location of Offices, Records, and Facilities.....................................11
4.11 Location of Inventory, Fixtures, Machinery, and Equipment........................12
4.12 Investment Company Act...........................................................12
4.13 Public Utility Holding Company Act...............................................12
4.14 Subsidiaries.....................................................................12
ARTICLE V
Affirmative Covenants
5.1 Financial Statements.............................................................13
5.2 Inspection.......................................................................14
5.3 Conduct of Business..............................................................14
5.4 Insurance........................................................................15
5.5 Use of Proceeds..................................................................16
5.6 Company Loan Compliance..........................................................16
5.7 Company Loan Agreement Representations...........................................16
5.8 Additional Members...............................................................16
ARTICLE VI
Negative Covenants
6.1 Guarantees; Loans; etc...........................................................17
6.2 Disposal of Property.............................................................17
6.3 Compensation to Members and Others...............................................17
6.4 Distributions and Redemption.....................................................17
6.5 Additional Indebtedness..........................................................18
6.6 Mergers, Consolidations, Acquisitions, etc.......................................18
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ii
6.7 Certificate of Limited Partnership and Limited
Partnership Agreement..........................................................18
6.8 Issuance of Units................................................................18
6.9 Liens............................................................................18
6.10 Transactions with Affiliates.....................................................18
6.11 Subsidiaries.....................................................................19
ARTICLE VII
Conditions of Closing
7.1 Proceedings and Documents........................................................19
7.2 Executed Documents...............................................................19
7.3 No Defaults......................................................................20
7.4 Compliance with Company Credit Agreements........................................20
ARTICLE VIII
Default, Rights and Remedies of the Company
8.1 Default..........................................................................20
8.2 Default; Remedies................................................................23
8.3 No Waiver........................................................................24
ARTICLE IX
Miscellaneous
9.1 No Oral Change...................................................................25
9.2 Assignment.......................................................................25
9.3 Costs and Attorneys' Fees........................................................25
9.4 Communications and Notices.......................................................26
9.5 Governing Law....................................................................26
9.6 Headings.........................................................................27
9.7 Severability.....................................................................27
9.8 Avoidance........................................................................27
9.9 Counterparts.....................................................................27
9.10 Entire Agreement.................................................................27
9.11 General Indemnity................................................................27
9.12 Limitation on Damages............................................................28
9.13 Submission to Jurisdiction.......................................................28
9.14 Waiver of Jury Trial.............................................................29
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iii
EXHIBITS
EXHIBIT A Form of Promissory Note of Einstein/Noah Bagel Partners, L.P.
EXHIBIT B Form of Subsidiary Security Agreement
EXHIBIT C Form of Pledge Agreement
iv
SECURED LOAN AGREEMENT
This Secured Loan Agreement (the "Agreement") is made and entered into
as of the 5th day of December, 1997 between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and Einstein/Noah Bagel Partners, L.P., a
Delaware limited partnership ("DEVELOPER").
RECITALS
The Company and DEVELOPER have entered into an area development
agreement, as amended from time to time (the "Development Agreement"), pursuant
to which DEVELOPER is required to establish and operate Einstein Bros(R) Bagels
and Noah's New York Bagels(R) stores (the "Stores") in the area specified in the
Development Agreement (the "Development Area") in compliance with a development
schedule set forth therein and to enter into individual license agreements (each
a "License Agreement") for such specific Stores; and
The Company has entered into an Amended and Restated Credit Agreement,
dated as of November 24, 1997, with the Bank of America National Trust and
Savings Association ("Bank of America"), LaSalle National Bank and General
Electric Credit Corporation (as it may be amended from time to time, the "Senior
Credit Facility"), the proceeds of which are intended to be used in part to fund
Advances (as defined herein) to the DEVELOPER required hereunder.
COVENANTS
In consideration of the mutual representations, warranties, and
covenants set forth herein, and in consideration of any Advances made hereunder
to or for the benefit of DEVELOPER by Company, the parties hereto agree as
follows:
ARTICLE I
THE LOAN
1.1 THE LOAN. The Company agrees, on the terms and subject to the
conditions set forth herein, including without limitation the conditions to loan
Advances set forth in Article III hereof, to advance at any time and from time
to time during the period commencing on the date hereof and ending on the third
anniversary of the date hereof (the "Draw Termination Date"), amounts requested
by DEVELOPER in an aggregate principal amount not to exceed $70,000,000 (the
"Loan"). Each Advance of the Loan ("Advance") shall be in a minimum amount of
$100,000 and shall be made by wire transfer by or on behalf of the Company to
the account of DEVELOPER or by regular check of or on behalf of the Company
payable to DEVELOPER and forwarded to DEVELOPER by overnight air express to its
address as set forth herein for delivery on the next regular business day. The
Loan shall be evidenced by a promissory note (the "Note") of even date herewith
in the form attached hereto as Exhibit A.
1.2 PURPOSES OF THE LOAN. Proceeds of the Loan shall be used by
DEVELOPER for general corporate purposes, including to pay fees and make
payments to the Company, to fund Store operating costs, to fund general
corporate overhead, to provide general working capital for DEVELOPER, and to
finance the purchase, design, construction and equipment of Stores, commissaries
and production facilities in the Development Area pursuant to and in accordance
with the Development Agreement.
1.3 THE LOAN ACCOUNT. The Company shall maintain a loan account
on its books in which shall be recorded all Advances made by Company to
DEVELOPER pursuant to this Agreement, and all payments made by DEVELOPER with
respect to the Loan; provided, however, that failure to maintain such account or
record any Advances therein shall not relieve DEVELOPER of its obligations to
repay the outstanding principal amount of the Loan, all accrued interest thereon
and any amount payable with respect thereto in accordance with the terms of this
Agreement and the Note.
1.4 INTEREST RATE.
(a) Interest shall accrue daily on the aggregate outstanding
principal balance of the Loan, for the period commencing on the date the Loan is
made until the Loan is paid in full, at a per annum rate equal to the rate of
interest announced by the Bank of America National Trust and Savings Association
or its successor in interest (the "Bank") from time to time at its head office
as its "reference rate," plus 2.5%. The interest rate shall be adjusted, from
time to time, on the same day on which the Bank adjusts its "reference rate." In
addition, the interest rate shall be increased or reduced by an amount
equivalent to any increase or reduction in the interest rate under the Senior
Credit Facility or any extension, replacement or refinancing thereof. Interest
on the outstanding principal amount of the Loan shall be payable in arrears on
the dates set forth herein and at maturity (whether at stated maturity, by
acceleration or otherwise).
2
(b) Interest shall be computed on the basis of a 360-day year
and the actual number of days elapsed.
(c) Any principal payment due under the Note not paid when
due, whether at stated maturity, by notice of repayment, by acceleration or
otherwise, shall, to the extent permitted by applicable law, thereafter bear
interest (compounded monthly and payable upon demand) at a rate which is 2% per
annum in excess of the rate of interest otherwise payable under this Agreement
in respect of such principal amount until such unpaid amount has been paid in
full (whether before or after judgment).
1.5 PAYMENT OF INTEREST. During the Term of the Loan, DEVELOPER
shall pay to the Company interest on the outstanding principal balance of the
Loan on the first day of each of the Company's 13 consecutive four-week
accounting periods used for accounting purposes (each, a "Retail Period").
1.6 REPAYMENT OF THE LOAN. If not earlier paid, or if not
accelerated for payment, the outstanding principal amount of the Loan shall, at
the close of business on the Draw Termination Date, thereafter become an
amortized term loan payable as follows: the principal balance of the Loan shall
be payable to the Company in 65 substantially equal periodic installments of
principal (the amount of which periodic installments of principal shall be
determined at the close of business on the Draw Termination Date based on a
schedule amortizing such outstanding principal balance of the Loan as of such
date in 130 substantially equal periodic installments of principal), plus
accrued but unpaid interest, on the first day of each of the Company's Retail
Periods, commencing on the first day of the first Retail Period in the Company's
fiscal year 2001 and continuing until the first day of the last Retail Period in
the Company's fiscal year 2005, when the entire remaining principal balance of
the Loan and all interest accrued thereon shall be due and payable.
1.7 TERM OF THIS AGREEMENT. This Agreement and all covenants and
agreements of the Company hereunder shall be effective on the date hereof and
shall continue in effect until the last to occur of (i) the date on which there
is no amount (principal or interest) remaining outstanding under the Note and
(ii) the date on which the Company no longer has any obligation to make any
Advances hereunder if DEVELOPER were to make a valid request for an Advance
pursuant to and in accordance with Article 3 hereof.
1.8 ONE OBLIGATION. All Advances made hereunder, and all interest
accrued thereon, shall constitute one obligation of DEVELOPER secured by the
3
security interests granted by this Agreement and by all other security
interests, liens, claims, and encumbrances from time to time hereafter granted
to the Company by DEVELOPER.
1.9 CREDIT RESOURCES. DEVELOPER acknowledges that the Company has
informed it that the Company may not from time to time in the future have cash,
cash equivalents, and credit resources sufficient to permit the Company to make
requested Advances under this Agreement while maintaining sufficient working
capital for the Company's operating needs. DEVELOPER agrees that the Company
shall have no obligation to make any Advances if sufficient funds are not
available to the Company under the Senior Credit Facility to fund the full
amount of the requested Advance.
1.10 PAYMENT METHOD. All payments to be made by DEVELOPER hereunder
shall be made in lawful money of the United States, in immediately available
funds, without set off, counterclaims, deduction or withholding of any type.
1.11 AUTHORIZATION TO ADVANCE FOR LIMITED PURPOSES. So long as funds
are still available to be drawn by DEVELOPER hereunder, and DEVELOPER is not in
Default under this Agreement, DEVELOPER hereby authorizes the Company (a) to
make daily Advances on behalf of DEVELOPER under this Agreement in accordance
with the Company's customary practices and procedures solely to provide funds to
DEVELOPER to cover payables, intercompany charges and other charges previously
approved by DEVELOPER regardless of whether DEVELOPER has specifically requested
such Advance and without waiver of any of the Company's rights hereunder, and
(b) to make Advances under the Loan from time to time solely to pay interest on
the Loan if and only if DEVELOPER does not pay interest when due hereunder.
ARTICLE II
SECURITY AND COLLATERAL
2.1 SECURITY INTEREST. To secure payment and performance of
DEVELOPER's obligations hereunder and under the Note, and any and all other
indebtedness, obligations or liabilities of any kind of DEVELOPER to the
Company, whether now existing or hereafter arising, direct or indirect, absolute
or contingent, joint and/or several, arising by operation of law or otherwise.
DEVELOPER hereby grants to the Company a continuing security interest in and to
the following property
4
and interests in property, whether now owned or hereafter acquired by DEVELOPER
and wheresoever located:
(a) all of DEVELOPER's real estate, accounts, equipment
(including, but not limited to machinery, furniture, fixtures, tools, vehicles,
and other tangible property), inventory, leasehold improvements, contract rights
(including its rights as lessee under all leases of real property), general
intangibles, deposit accounts, tax refunds, chattel paper, instruments, notes,
letters of credit, documents, and documents of title, capital stock, other than
capital stock of the Company, or other ownership interests of all Subsidiaries
(as defined in Section 6.11 hereof);
(b) all insurance proceeds of or relating to any of the
foregoing;
(c) all of DEVELOPER's books, records, and computer programs
and data relating to any of the foregoing; and
(d) all accessories and additions to, substitutions for, and
replacements, products, and proceeds of, any of the foregoing (all of the
foregoing, and all of the security described in Sections 2.2 and 2.3, being
referred to collectively as the "Collateral").
2.2 SUBSIDIARY SECURITY DOCUMENTS. DEVELOPER shall cause each
person or entity becoming a Subsidiary of DEVELOPER from time to time to execute
and deliver to the Company, within five days after such person or entity becomes
a Subsidiary, a security agreement substantially in the form attached hereto as
Exhibit B (a "Subsidiary Security Agreement"), together with all financing
statements and other related documents (including real estate mortgages) as the
Company may request and such closing documents with respect to such Subsidiary
of the type described in Article VII as the Company may request, sufficient to
grant to the Company liens and security interests in all assets of each
Subsidiary of the type described in Section 2.1. DEVELOPER shall from time to
time execute and deliver to the Company, within five days after a person or
entity becomes a Subsidiary of DEVELOPER, a pledge agreement in a form
acceptable to the Company, pursuant to which DEVELOPER shall grant a security
interest in favor of the Company in and to all shares of capital stock (or other
equity interests) of such Subsidiary, together with the stock certificates
evidencing such stock ownership (or other evidence of ownership) and accompanied
by a stock power (or equity assignment) executed in blank. Any such pledge
agreements executed by DEVELOPER and security agreements and other documents
executed by a Subsidiary of DEVELOPER from time to time shall be included in the
term "Security Instruments" used herein and the stock and assets of such
Subsidiary
5
covered by such Security Instruments shall be included in the term "Collateral"
used herein.
2.3 PLEDGE OF UNITS. In addition to the security interest in the
Collateral, DEVELOPER's obligations hereunder and under the Note and all other
obligations of DEVELOPER to Company shall be secured by the security interest
created pursuant to a pledge agreement between the Company and all of the
partners of DEVELOPER, other than the Company and the Fund (the "Partners"),
substantially in the form attached hereto as Exhibit C (the "Pledge Agreement").
2.4 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.
(a) DEVELOPER shall execute and deliver to the Company,
concurrently with the execution of this Agreement, and shall execute and deliver
or cause any Subsidiary of DEVELOPER to execute and deliver to the Company at
any time or times hereafter at the request of the Company or the Agent (as
defined in Section 2.5 below), all financing statements or other documents,
including mortgages on real estate owned by DEVELOPER or its Subsidiaries and
security agreements (the "Security Instruments") (and pay the cost of filing or
recording the same in all public offices deemed necessary by the Company), as
the Company or the Agent may request, in forms satisfactory to the Company, and
take all further action that the Company or the Agent may request, or which may
be reasonably necessary or desirable, to perfect and keep perfected the security
interest in the Collateral granted by DEVELOPER to the Company, to create and
perfect the security interests in the assets of any Subsidiaries of DEVELOPER
provided in Section 2.2 hereof, or otherwise to protect and preserve the
Collateral and the Company's security interest therein. Should DEVELOPER fail to
do so, the Company is authorized to sign any such Security Instruments as
DEVELOPER's agent.
(b) DEVELOPER will furnish to the Company from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Company may
reasonably request, all in reasonable detail.
(c) DEVELOPER shall notify the Company, within five days after
the occurrence thereof, of the acquisition of any property by DEVELOPER that is
not subject to the existing liens and security interests, in favor of the
Company, of any person or entity's becoming a Subsidiary, and of any other event
or condition that
6
may require additional action of any nature in order to create, preserve, or
perfect the liens and security interests of the Company.
(d) DEVELOPER shall, and shall cause each Subsidiary to, cause
all tangible Collateral to be maintained and preserved in the same condition,
repair and working order as when new, ordinary wear and tear excepted, and in
accordance with any manufacturer's manual.
2.5 ALTERNATE SECURITY AND PLEDGE AGREEMENTS. If requested by the
Company in order for the transactions contemplated by this Agreement to comply
with the limitations and restrictions of any applicable agreement between the
Company and its lender or between its lender and its lender's banks and any bank
designated as agent for its lender's banks ("Agent"), as amended from time to
time, or to obtain a waiver therefrom, DEVELOPER hereby agrees that a security
interest as referred to in Section 2.1 hereof, a pledge of Units as referred to
in Section 2.3 hereof and the additional security interests described in
Sections 2.2 and 2.4 hereof may be granted directly to the Company's lender or
to the Agent in lieu of or in addition to such grants to the Company, in which
event appropriate alterations may be made to this Article II and to the forms of
the other Subsidiary Security Agreements, and references herein to such
security, pledges, and deliveries thereof to the Company may be deemed to refer
to the Agent, as appropriate.
ARTICLE III
CONDITIONS TO ADVANCES
Notwithstanding any other provisions contained in this Agreement, the
Company's obligations to make any Advance (including an initial Advance)
provided for in Section 1.l shall be conditioned upon the following:
3.1 NO MATERIAL ADVERSE CHANGE. No material adverse change, as
determined by the Company in its sole discretion, in the financial condition,
results of operations assets, or business of DEVELOPER, shall have occurred at
any time or times subsequent to the date thereof, or, in the event such a
material adverse change shall have occurred, such change shall have been fully
remedied without any material adverse effect on the financial condition, results
of operations, assets or other business of DEVELOPER and its Subsidiaries taken
as a whole to the satisfaction of the Company in its sole discretion.
7
3.2 NO DEFAULT. Neither a Default (as that term is defined in
Article VIII hereof) nor any event which, through the passage of time or the
service of notice or both, would mature into a Default (an "Event of Default")
shall have occurred and be continuing.
3.3 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Article IV hereof, the Pledge Agreement and the other
Security Instruments shall be true and correct on and as of the date such
Advance is made.
3.4 OTHER REQUIREMENTS. The Company shall have received, in form
and substance satisfactory to it, all certificates, consents, affidavits,
schedules, instruments, and other documents which DEVELOPER is obligated to
provide to the Company hereunder or which the Company may at any time reasonably
request.
3.5 ADVANCE REQUEST. Other than the initial Advance, the Company
shall have received, at least five business days prior to the day an Advance is
to be made hereunder, copies of all documents required to be delivered to
Company under Section 5.1 below or otherwise reasonably requested.
3.6 NO DEFAULT BY COMPANY. The Company shall not be in default
under the Senior Credit Facility nor shall any event which, through the passage
of time or the service of notice or both, would mature into a default under the
Senior Credit Agreement, have occurred and be continuing, and the making of an
Advance will not cause the Company to be in default under the Senior Credit
Facility.
3.7 SUFFICIENT CREDIT AVAILABLE TO COMPANY. Sufficient funds shall
be available to the Company under the Senior Credit Facility to fund the full
amount of the requested Advance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
DEVELOPER represents and warrants that:
4.1 FINANCIAL STATEMENTS. The financial statements to be furnished
to the Company or the Agent in accordance with Section 5.1 below will be
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, and will fairly present
the financial condition of
8
DEVELOPER and its Subsidiaries at the dates thereof and its results of
operations for the periods indicated (subject, in the case of financial
statements covering less than one full fiscal year, to normal recurring year-end
adjustments).
4.2 PARTNER UNITS. DEVELOPER has previously furnished to the
Company a true and correct copy of the certificate of limited partnership of
DEVELOPER and the limited partnership agreement of DEVELOPER (the "Limited
Partnership Agreement"), including in each case all amendments thereto through
the date of this Agreement. The holders of record (and beneficial owners, if
any) of Units in DEVELOPER, and the number of Units owned of record by each such
holder and beneficially owned by each such beneficial owner, are set forth on
Exhibit A to the Limited Partnership Agreement, and the number of Units set
forth on such Exhibit A constitute 100% of the issued and outstanding ownership
interests in DEVELOPER. There are no outstanding options, warrants, rights,
contracts or agreements of any kind for the issuance or sale of any Units or for
the issuance or sale of any other partner interests or obligations of DEVELOPER
or for the purchase of any of its partnership interests.
4.3 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there has
been no material adverse change in the financial condition, results of
operations, assets or business of DEVELOPER and its Subsidiaries, taken as a
whole, or, in the event such a material adverse change shall have occurred, such
change shall have been fully remedied without any material adverse effect on the
financial condition, results of operations, assets or other business of
DEVELOPER and its Subsidiaries, taken as a whole, to the satisfaction of the
Company in its sole discretion.
4.4 NO PENDING MATERIAL LITIGATION OR PROCEEDINGS. There are no
actions, suits, investigations or proceedings pending or, to the knowledge of
DEVELOPER or its Subsidiaries, threatened, against or affecting DEVELOPER or its
Subsidiaries or the business or properties of DEVELOPER or its Subsidiaries, in
any court or before or by any governmental department, commission, board, agency
or instrumentality, or any arbitrator. Neither DEVELOPER nor any of its
Subsidiaries is in default with respect to any order, writ, injunction or decree
of any court, arbitrator or governmental agency.
4.5 VALID ORGANIZATION: DUE AUTHORIZATION; VALID AND BINDING
AGREEMENT.
(a) DEVELOPER is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
power
9
and authority to enter into and perform this Agreement and to issue the Note and
incur the indebtedness to be evidenced thereby. DEVELOPER is qualified to do
business and is in good standing in each jurisdiction in which failure to so
qualify could have a material adverse effect on its property, business,
operations or prospects.
(b) This Agreement and the Note have each been duly authorized
by all required action on the part of DEVELOPER, and each of this Agreement and
the Note has been duly executed and delivered by DEVELOPER and constitutes the
legal, valid, and binding obligation of DEVELOPER enforceable in accordance with
its terms.
(c) The execution and delivery of this Agreement and the Note
and the performance by DEVELOPER of its obligations hereunder and thereunder are
not in contravention of any law, rule or regulation, including without
limitation Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System, and will not conflict with or result in any breach of any of the
provisions, or constitute a default under or result in the creation or
imposition of any lien or encumbrance (except as expressly provided herein) upon
any of the property of DEVELOPER pursuant to any of the provisions of the
certificate of limited partnership of DEVELOPER or the Limited Partnership
Agreement or any agreement or instrument to which DEVELOPER is a party or by
which it or its assets is bound.
(d) No consent, authorization, approval, or other action by,
and no notice to or filing with, any governmental authority or regulatory body
or any other person, which has not been obtained or taken, is required for the
execution and delivery of, or the performance by DEVELOPER of its obligations
under, this Agreement or the Note.
4.6 CONDUCT OF BUSINESS. Since their inception, DEVELOPER and each
Subsidiary has conducted its business and operations in a manner consistent with
that of a franchisee of Company and has not engaged in any business other than
the business of establishing, opening, and operating Stores.
4.7 ABSENCE OF MATERIAL LIABILITIES. Neither DEVELOPER nor any
Subsidiary has any material liabilities or obligations, either accrued,
absolute, contingent, or otherwise, except (a) as set forth in its most recent
unaudited balance sheet, (b) normal liabilities and obligations incurred in the
ordinary course of business since the date of its most recent unaudited balance
sheet, and (c) obligations under contracts and agreements entered into in the
ordinary course of business.
10
4.8 TAX MATTERS.
(a) DEVELOPER and its Subsidiaries have filed all federal,
state, and local tax returns which are required to be filed, except for
extensions duly obtained, and has paid, or made provisions for the payment of,
all taxes which have become due pursuant to such returns or pursuant to any
assessment received by DEVELOPER or any Subsidiary, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves have been
provided.
(b) DEVELOPER will be classified for tax purposes as a
partnership with the meaning of Section 7701 (a)(2) of the Internal Revenue
Code of 1986, as amended ("Code"), and DEVELOPER is not a "publicly traded
partnership" within the meaning of Section 7704 of the Code.
4.9 OWNERSHIP OF COLLATERAL; SECURITY INTEREST PRIORITY. At the
time any Collateral becomes subject to a security interest of the Company
hereunder, unless the Company shall otherwise consent, (a) DEVELOPER or a
Subsidiary shall be the lawful owner of such Collateral and have the right and
authority to subject the same to the security interest of the Company, (b) none
of the Collateral shall be subject to any lien or encumbrance other than that in
favor of the Company (and other than federal and state securities law
restrictions on shares of the Company's common stock), and (c) there shall be no
effective financing statement covering any of the Collateral on file in any
public office, other than in favor of the Company. This Agreement creates in
favor of the Company a valid and perfected first-priority security interest in
the Collateral enforceable against DEVELOPER or its Subsidiary, as the case may
be, and all third parties and secures the payment of DEVELOPER's obligations
hereunder and under the Note, and all other obligations of DEVELOPER to the
Company, whether now existing or hereafter arising, and all filings and other
actions necessary or desirable to create, preserve, or perfect such security
interest have been duly taken. Notwithstanding the foregoing provisions of this
Section 4.9, clause (b) and (c) and the immediately preceding sentence of this
Section 4.9 shall not be inaccurate by reason of any purchase money security
interest (including pursuant to a financing lease) in any equipment for
DEVELOPER's Stores.
4.10 LOCATION OF OFFICES, RECORDS, AND FACILITIES. DEVELOPER's chief
executive office and chief place of business and the office where DEVELOPER
keeps its records concerning its accounts, contract rights, chattel papers,
instruments' general intangibles, and other obligations arising out of or in
connection with the operation of its business or otherwise ("Receivables"), and
all originals of all leases and other chattel paper which evidence Receivables,
are located in the State of
11
Colorado, at the address of DEVELOPER set forth in Section 9.4 hereof (as such
address may be changed from time to time in accordance therewith). The federal
tax identification number of DEVELOPER is 36-4019835. The name of DEVELOPER is
"Einstein/Noah Bagel Partners, L.P." and DEVELOPER operates under no other names
than the name Einstein Bros. Bagels, Noah's New York Bagels, Bagel Boulevard,
Baltimore Bagel and Bagel & Bagel on its Stores or such other names authorized
pursuant to and in accordance with any applicable License Agreement with the
Company.
4.11 LOCATION OF INVENTORY, FIXTURES, MACHINERY, AND EQUIPMENT.
(a) All Collateral consisting of inventory, fixtures,
machinery, or equipment is located within the Development Area and at no other
locations without the prior written consent of the Company.
(b) If the Collateral described in clause (a) is kept at
leased locations, DEVELOPER has used its best efforts to obtain appropriate
landlord lien waivers or subordination satisfactory to the Company, unless such
has been waived in writing by the Company for the particular instance.
(c) If the Collateral described in clause (a) is warehoused,
DEVELOPER has sent appropriate warehousemen's notices, each reasonably
satisfactory to the Company, unless such has been waived by the Company for the
particular instance.
4.12 INVESTMENT COMPANY ACT. DEVELOPER is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
4.13 PUBLIC UTILITY HOLDING COMPANY ACT. DEVELOPER is not a "holding
company" or an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company", within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
4.14 SUBSIDIARIES. DEVELOPER has no Subsidiaries as of the date of
this Agreement.
12
ARTICLE V
AFFIRMATIVE COVENANTS
DEVELOPER covenants and agrees that so long as this Agreement remains
in effect:
5.1 FINANCIAL STATEMENTS.
(a) DEVELOPER shall cause to be furnished to the Company and,
at the Company's request, to the Company's lender or to the Agent: (i) as soon
as practicable and in any event within 20 days after the end of each interim
fiscal quarter, statements of income and cash flows of DEVELOPER and its
Subsidiaries for such period and for the period from the beginning of the then
current fiscal year to the end of such quarter and a balance sheet of DEVELOPER
and its Subsidiaries as of the end of such quarter, setting forth in each case,
in comparative form, figures for the corresponding periods in the preceding
fiscal year, certified as accurate by the chief financial officer or treasurer
of the General Partner, subject to changes resulting from normal, returning
year-end adjustments; (ii) as soon as practicable and in any event within 60
days after the end of each fiscal year, statements of income and cash flows of
DEVELOPER and its Subsidiaries for such year, and a balance sheet of DEVELOPER
and its Subsidiaries as of the end of such year, setting forth in each case, in
comparative form, corresponding figures for the preceding fiscal year and as of
the end of the preceding fiscal year, audited by independent certified public
accountants selected by the Company and reasonably satisfactory to DEVELOPER;
and (iii) as soon as practicable (but in any event not more than five business
days after the president or any other officer of the General Partner obtains
knowledge of the occurrence of an event or the existence of a circumstance
giving rise to an Event of Default or a Default), notice of any and all Events
of Default or Defaults hereunder.
(b) All financial statements delivered to the Company, and if
applicable, the Company's lender or the Agent pursuant to the requirements of
Section 5.1(a) shall be prepared in accordance with generally accepted
accounting principles consistently applied. Together with each delivery of
financial statements required by Section 5.1(a), DEVELOPER shall deliver to the
Company an officer's certificate stating that there exists no Default or Event
of Default, or, if any Default or Event of Default exists, specifying the nature
thereof, the period of existence thereof and what action DEVELOPER proposes to
take or have taken with respect thereto. Together with each delivery of
financial statements required by Section 5.1 (a)(ii) above, DEVELOPER shall
deliver to the Company a certificate of the accountants who
13
performed the audit in connection with such statements stating that in making
the audit necessary to the issuance of a report on such financial statements,
they have obtained no knowledge of any Default or Event of Default, or, if such
accountants have obtained knowledge of a Default or Event of Default, specifying
the nature and period of existence thereof. Such accountants shall not be liable
by reason of any failure to obtain knowledge of any Default or Event of Default
which would not be disclosed in the ordinary course of an audit. DEVELOPER
authorizes the Company to discuss the financial condition of DEVELOPER with
DEVELOPER's independent public accountants and agrees that such discussion or
communication shall be without liability to either the Company or DEVELOPER's
independent public accountants.
5.2 INSPECTION. The Company, or any person designated from time to
time by the Company, shall have the right, from time to time hereafter, to call
at DEVELOPER's or its Subsidiaries' place or places of business during ordinary
business hours, and, without hindrance or delay, (a) to inspect, audit, check,
and make copies of and extracts from DEVELOPER's and its Subsidiaries' books,
records, journals, orders, receipts, and any correspondence and other data
relating to the business of DEVELOPER or its Subsidiaries or to any transactions
between the parties hereto, and (b) to discuss the affairs, finances, and
business of DEVELOPER and its Subsidiaries with the officers of DEVELOPER and
its Subsidiaries.
5.3 CONDUCT OF BUSINESS.
(a) DEVELOPER shall, and shall cause each Subsidiary to, (i)
maintain its existence and qualification to do business in good standing in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on the financial condition of DEVELOPER or its Subsidiaries, (ii)
maintain in full force and effect all licenses, bonds, franchises, leases,
patents, contracts, and other rights necessary to the conduct of its business,
and (iii) comply with all applicable laws and regulations of any federal, state,
or local governmental authority, including those relating to environmental
matters, labor and employment laws and employee benefit matters.
(b) DEVELOPER shall, and shall cause its Subsidiaries to, duly
pay and discharge (i) all lawful claims, whether for labor, materials, supplies,
services, or anything else, which might or could, if unpaid, become a lien or
charge upon its property or assets, unless and to the extent only that the
validity thereof is being contested in good faith and by such appropriate
proceedings, (ii) all of its trade bills when due in accordance with customary
practice, and (iii) all taxes, unless and
14
to the extent that the validity thereof is being contested by DEVELOPER in good
faith and by appropriate proceedings.
(c) DEVELOPER shall, and shall cause each Subsidiary to,
conduct its business and operations in a manner consistent with that of a
multi-unit food service establishment, and shall not, and shall not permit any
Subsidiary to, engage in any business other than the business of establishing,
opening, and operating Stores in the Development Area.
5.4 INSURANCE.
(a) DEVELOPER shall keep and maintain, and shall cause its
Subsidiaries to keep and maintain, at their sole cost and expense, (i) insurance
on their assets for at least 80% of the full replacement value (or the full
insurable value) thereof against loss or damage by fire, theft, explosion, and
all other hazards and risks ordinarily insured against by other owners or users
of such properties in similar businesses similarly situated, and (ii) public
liability insurance relating to DEVELOPER's and its Subsidiaries' ownership and
use of their assets.
(b) All such policies of insurance shall be in such form and in
such amounts as is customary in the case of other owners or users of like
properties in similar businesses, with insurers as shall be reasonably
satisfactory to the Company. Upon demand, DEVELOPER shall deliver to the Company
the original (or certified) copy of each policy of insurance, and evidence of
payment of all premiums for each such policy. Such policies of insurance (except
those of public liability) shall contain an endorsement in form and substance
acceptable to the Company, showing the Company as an additional insured. Such
endorsement, or an independent instrument furnished to the Company, shall
provide that all insurance companies will give the Company at least 30 days
prior written notice before any such policy or policies of insurance shall be
altered or canceled. DEVELOPER and each Subsidiary hereby directs all insurers
under such policies of insurance (except those of public liability) to pay all
proceeds payable thereunder for claims in excess of the aggregate amount of
$50,000 directly to the Company, and DEVELOPER irrevocably appoints the Company
(and all officers, employees, or agents designated by the Company), as
DEVELOPER's and the Subsidiaries' true and lawful agent (and attorney-in-fact)
for the purpose of endorsing the name of DEVELOPER or such Subsidiary on any
check, draft, instrument, or other item of payment for such proceeds. Any
proceeds received by the Company shall be applied to DEVELOPER's obligations
hereunder, and any overage shall be paid to DEVELOPER. DEVELOPER and each
Subsidiary irrevocably appoints the Company, from and after a Default or an
Event of Default,
15
as DEVELOPER's and each Subsidiary's true and lawful agent (and
attorney-in-fact) for the purpose of making, settling, and adjusting claims
under such policies of insurance and for making all determinations and decisions
with respect to such policies of insurance. In the event DEVELOPER or any
Subsidiary at any time or times hereafter shall fail to obtain or maintain any
of the policies of insurance required above or to pay any premium in whole or in
part relating thereto, then the Company, without waiving or releasing any
Default or Event of Default hereunder, may at any time or times thereafter (but
shall be under no obligation to do so) obtain and maintain such policies of
insurance and pay such premium and take any other action with respect thereto
which the Company deems advisable. All sums so disbursed by the Company,
including reasonable attorneys' fees, court costs, expenses, and other charges
relating thereto, shall be part of DEVELOPER's obligations hereunder, payable by
DEVELOPER to the Company on demand.
5.5 USE OF PROCEEDS. Except as otherwise authorized in writing by
the Company. DEVELOPER shall use the proceeds of the Loan solely for the
purposes set forth in Article I hereof. DEVELOPER will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any person for
the purpose of purchasing or carrying any such margin stock.
5.6 COMPANY LOAN COMPLIANCE. DEVELOPER agrees that it will not
incur any indebtedness or create any lien or take any other action which would
cause the Company to be in default under, or in violation of, any lending
arrangement or credit agreement to which the Company or its parent company, if
any, is a party.
5.7 COMPANY LOAN AGREEMENT REPRESENTATIONS. DEVELOPER agrees that
it will conduct its business and take such action (or refrain from taking such
action) as to cause to be true and correct at all relevant times the
representations or warranties applicable to a subsidiary contained in any
lending arrangements or credit agreements to which the Company and/or its parent
company, if any, is a party.
5.8 ADDITIONAL MEMBERS. DEVELOPER agrees to cause each person
(other than the Company and the Fund) becoming a Partner from time to time after
the date of the Pledge Agreement to execute and deliver to the Company within
five days after such person becomes a Partner a copy of the Pledge Agreement.
16
ARTICLE VI
NEGATIVE COVENANTS
DEVELOPER covenants and agrees that, so long as this Agreement remains
in effect (unless the Company shall give its prior written consent thereto):
6.1 GUARANTEES; LOANS; ETC. DEVELOPER shall not, and shall not
permit any Subsidiary to (a) guarantee, endorse or otherwise in any way become
or be responsible for obligations of any person other than the Company, whether
by agreement to purchase the indebtedness of any other person or through the
purchase of goods, supplies, or services, or by agreement to maintain net worth,
working capital, or other balance sheet covenants or conditions, or by way of
stock purchase, capital contribution, advance, or loan for the purpose of paying
or discharging any indebtedness or obligation of such other person or otherwise,
except endorsements of negotiable instruments for collection in the ordinary
course of business and (b) make loans or advances to any person.
6.2 DISPOSAL OF PROPERTY. DEVELOPER shall not, and shall not permit
any Subsidiary to, sell, lease, transfer, or otherwise dispose of any of its
properties, assets, and rights (or agree to sell, lease, transfer, or otherwise
dispose of any of its properties, assets, and rights) (including the Collateral)
to any party except in the ordinary course of business.
6.3 COMPENSATION TO MEMBERS AND OTHERS. Other than reasonable
salaries and other normal benefits to be paid to employees of DEVELOPER or the
General Partner, which salaries and benefits must be approved by the Company,
DEVELOPER shall not make any loans to, or pay any compensation, bonuses, fees,
options, or other amounts to any equity holder or to any of the affiliates or
immediate family members of any such equity holder.
6.4 DISTRIBUTIONS AND REDEMPTION.
(a) Subject to the provisions of Section 6.4(b) DEVELOPER shall
not, directly or indirectly, (i) redeem, purchase, or otherwise retire any of
its Units, (ii) make any distributions (in cash or securities) in any fiscal
year or (iii) return capital of DEVELOPER to its partners.
(b) Notwithstanding anything to the contrary contained herein,
DEVELOPER may make cash distributions to its partners to the maximum extent
17
permitted under the laws of the state of its organization, pursuant to and in
accordance with Section 6.2 of the Limited Partnership Agreement.
6.5 ADDITIONAL INDEBTEDNESS. Except for trade payables and real
estate lease obligations for Stores, in each case entered into in the ordinary
course of business, DEVELOPER shall not, and shall not permit any Subsidiary to,
incur addi tional indebtedness in excess of $5,000 as to any one item and
$50,000 in the aggregate without the consent of the Company.
6.6 MERGERS, CONSOLIDATIONS, ACQUISITIONS, ETC. DEVELOPER shall
not, and shall not permit any Subsidiary to: (a) be a party to any
consolidation, reorganization, or merger; (b) sell or otherwise transfer any
part of its assets (except in the ordinary course of business); (c) effect any
change in its capital structure or in any of its business objectives, purposes,
and operations; (d) acquire any capital in or equity ownership of another
limited liability company, corporation, partnership, or other business
organization; (e) engage in any business other than the operation of Stores and
related production and distribution activities; or (f) liquidate or dissolve or
take any action with a view toward liquidation or dissolution.
6.7 CERTIFICATE OF LIMITED PARTNERSHIP AND LIMITED PARTNERSHIP
AGREEMENT. DEVELOPER shall not make any changes in or amendments to its cer
tificate of limited partnership or the Limited Partnership Agreement as they are
in effect as of the date hereof.
6.8 ISSUANCE OF UNITS. DEVELOPER will not issue any additional
units of partnership interests or grant any option, warrant, or similar right to
acquire units of partnership interests.
6.9 LIENS. DEVELOPER shall not, and shall not permit any Subsidiary
to, create, incur or suffer to exist any lien on any of the assets, rights,
revenues or property, real, personal, or mixed, tangible or intangible, whether
now owned or hereafter acquired, of DEVELOPER or any Subsidiary, other than
liens in favor of the Company.
6.10 TRANSACTIONS WITH AFFILIATES. DEVELOPER shall not, and shall
not permit any Subsidiary to, become a party to, or become liable in respect of,
any contract or undertaking with any Affiliate (as defined in Section 9.2
hereof) except in the ordinary course of business and on terms not less
favorable to DEVELOPER or such Subsidiary than those which could be obtained if
such contract or undertaking was an arm's-length transaction with a person other
than an affiliate.
18
6.11 SUBSIDIARIES. DEVELOPER shall not, and shall not permit any
Subsidiary to, create or otherwise invest in any corporation, partnership, or
other entity unless DEVELOPER or such Subsidiary owns directly 100% of the
issued and outstanding equity interests therein (such 100% owned entity to be
referred to herein as a "Subsidiary").
ARTICLE VII
CONDITIONS OF CLOSING
The Company's obligations hereunder shall be subject to (a) the
performance by DEVELOPER prior to or on the date hereof of all of its covenants
theretofore to be performed under this Agreement, (b) the accuracy of
DEVELOPER's representations and warranties contained in this Agreement on the
date hereof, and (c) the satisfaction, prior to or on the date hereof, of the
following further conditions:
7.1 PROCEEDINGS AND DOCUMENTS. All proceedings to be taken in
connection with the transaction contemplated by this Agreement and all documents
incident to such transaction shall be satisfactory in form and substance to the
Company and its counsel, and the Company shall have received all documents or
other evidence which it and its counsel may reasonably have requested in
connection with such transaction, including copies of records of all proceedings
in connection with such transaction and compliance with the conditions set forth
in this Article VII, in form and substance satisfactory to the Company and its
counsel.
7.2 EXECUTED DOCUMENTS. DEVELOPER and its Subsidiaries, and to the
extent applicable, the partners and their respective spouses, shall have each
duly executed the following documents to which they are parties, and shall have
delivered to the Company the following:
(a) this Agreement;
(b) the Note;
(c) the Pledge Agreement;
(d) the Subsidiary Security Agreement, where applicable; and
19
(e) such financing statements or other documents for filing
with public officials with respect to the Security Instruments as the Company
may reasonably request, including without limitation financing statements
executed by each Partner.
7.3 NO DEFAULTS. There shall exist no Event of Default or Default.
7.4 COMPLIANCE WITH COMPANY CREDIT AGREEMENTS. The Company's
performance of its obligations hereunder shall comply with all applicable
restrictions or limitations under any lending arrangements or credit agreements
to which the Company is a party.
ARTICLE VIII
DEFAULT, RIGHTS AND REMEDIES OF THE COMPANY
8.1 DEFAULT. The occurrence of any of the following events or acts
shall constitute a default ("Default"):
(a) Default in the payment when due of any portion of the
principal on the Note and the continuance of such default for a period of three
days;
(b) Default in the payment when due of any portion of the
interest on the outstanding principal of the Note and the continuance of such
default for a period of 10 days;
(c) any representation or warranty now or hereafter made in
this Agreement, the Note, the Pledge Agreement, the Subsidiary Security
Agreement, any other Security Instrument, or any certificate hereunder or
thereunder shall not be true, or any certificate, statement, report, financial
data, or notice furnished at any time by DEVELOPER to the Company shall be
materially inaccurate;
(d) any breach of, or failure to perform or observe, any
covenant, condition, or agreement contained in the Pledge Agreement, the
Subsidiary Security Agreement or in any other Security Instrument;
(e) the breach of, or failure to perform or observe, any
covenant, condition, or agreement contained in Sections 5.5, 6.1, 6.2, 6.4, 6.6,
6.7, 6.8, 6.10 or 6.11 of this Agreement;
20
(f) any breach of, or failure to perform or observe, any other
covenant, condition, or agreement contained in this Agreement or the Note which
shall continue unremedied for a period of 10 calendar days following notice
thereof from the Company, provided that such grace period shall not apply, and
DEVELOPER shall be in Default immediately upon such breach, if, in the Company's
judgment, such breach may not reasonably be cured by DEVELOPER during such cure
period;
(g) DEVELOPER's default under, or breach of any provision of
the Development Agreement (other than a default which constitutes a default
under Section 8.1(o) hereof);
(h) DEVELOPER or any Subsidiary shall (i) generally not, or
shall be unable to, or shall admit in writing its inability to pay its debts as
such debts become due, (ii) make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian receiver,
or trustee for it or a substantial part of its assets, (iii) commence any
proceeding under any bankruptcy, reorganization, arrangements, readjustment of
debt, dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect, (iv) have any such petition or application filed or
any such proceeding commenced against it in which an order for relief is entered
or adjudication or appointment is made and which remains undismissed for a
period of 60 days or more, (v) by any act or omission, indicate its consent to,
approval of, or knowing acquiescence in any such petition, application, or
proceeding, or order for relief, or the appointment of a custodian, receiver, or
trustee for all or any substantial part of its properties, or (vi) suffer any
such custodianship, receivership, or trusteeship to continue undischarged for a
period of 60 days or more;
(i) termination of the lesser of (a) 50% or (b) three of the
franchise or license agreements to which DEVELOPER and the Company are parties;
(j) dissolution or liquidation of the Company;
(k) there occurs a material adverse change in the financial
condition, results of operations, assets, or business of DEVELOPER and its
Subsidiaries taken as a whole, or, in the event such a material adverse change
shall have occurred, such change shall not have been fully remedied without any
material adverse effect on the financial condition, results of operations,
assets or other business
21
of DEVELOPER and its Subsidiaries taken as a whole to the satisfaction of the
Company in its sole discretion;
(l) DEVELOPER or any Subsidiary shall (a) fail to pay any
indebtedness for borrowed money (other than the Note) of DEVELOPER or such
Subsidiary, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and any
applicable grace periods shall have expired, or (b) fail to perform or observe
any term, covenant, or condition on its part to be performed or observed under
any agreement or instrument relating to any such indebtedness, when required to
be performed or observed, if the effect of such failure to perform or observe is
to accelerate, or to permit the acceleration, after the giving of notice, of the
maturity of such indebtedness, or (c) default in the performance or observance
of any obligations under leases of real property if the effect of such default
is to permit the termination of such lease and any applicable cure period
therein has expired;
(m) one or more judgments, decrees or orders for the payment of
money in excess of $100,000 in the aggregate and not otherwise fully covered by
insurance shall be rendered against DEVELOPER or any of its Subsidiaries, and
such judgments, decrees, or orders shall continue unsatisfied and in effect for
a period of 20 consecutive days without being vacated, discharged, satisfied,
escorted, stayed, or bonded pending appeal;
(n) the Pledge Agreement, the Subsidiary Security Agreement,
any other Security Instrument, or the security interests created under this
Agreement shall be terminated, invalidated, or set aside or be declared
ineffective or inoperative or in any way cease to give or provide to the Company
the benefits purported to be created thereby; or
(o) DEVELOPER fails to satisfy its development obligations for
the Development Area or any Sub-Area (as defined in the Development Agreement)
as set forth in the Development Agreement, so long as during the 180-day period
immediately preceding the event giving rise to the default under this Section
8.1 (o), both (i) the Company has not failed to make an Advance requested
hereunder as a result of unavailability to the Company of funds under the Senior
Credit Facility and not as a result of any failure of DEVELOPER to satisfy the
conditions precedent to Advances or of the occurrence of a Default or Event of
Default, and (ii) DEVELOPER has had (A) access to capital, either equity or
debt, either directly or through sources provided by the Company, on
commercially reasonable terms for a
22
similarly situated restaurant business, or (B) income from operations,
sufficient in either case to complete its development obligations.
8.2 DEFAULT; REMEDIES.
(a) In the event a Default shall exist or occur the Company
may:
(i) terminate its obligations under this Agreement and
cease to make any further advances under Section 1.1, and shall have
the right to declare the Note due and payable in full, without
demand, presentment, or notice of any kind;
(ii) in its sole and absolute discretion, exercise any one
or more of the rights and remedies accruing to a secured party under
the Uniform Commercial Code with respect to the Collateral and any
other applicable law upon default by a debtor;
(iii) exercise its rights under the Pledge Agreement and/or
the other Security Instruments;
provided, however, that in the case of any event or condition described in
Section 8.1(h) with respect to DEVELOPER or any Subsidiary, the Company's
obligations under this Agreement shall automatically terminate forthwith and all
amounts owed by DEVELOPER hereunder and under the Note shall automatically
become immediately due and payable without notice, demand, presentment, protest,
diligence, notice of dishonor, or other formality, all of which are hereby
expressly waived.
(b) In connection with the exercise of the Company's rights and
remedies provided in Section 8.2(a)(ii), DEVELOPER hereby agrees to assemble the
Collateral and make it available to the Company at a place to be designated by
the Company which is reasonably convenient to both parties, authorizes the
Company to take possession of the Collateral with or without demand and with or
without process of law and to sell and dispose of the same at public or private
sale and to apply the proceeds of such sale to the costs and expenses thereof
(including reasonable attorneys' fees and disbursements incurred by the Company)
and then to the payment and satisfaction of the Loan. Any requirement of
reasonable notice shall be met if the Company sends such notice to DEVELOPER, by
registered or certified mail, at least five days prior to the date of sale,
disposition, or other event giving rise to a required notice. The Company may be
the purchaser at any such sale. DEVELOPER expressly authorizes such sale or
sales of the Collateral in advance of and to the
23
exclusion of any sale or sales of or other realization upon any other collateral
securing the Loan. The Company shall have no obligation to preserve rights
against prior parties. DEVELOPER hereby waives as to the Company any right of
subrogation or marshaling of such Collateral and any other collateral for the
Loan. To this end, DEVELOPER hereby expressly agrees that any such collateral or
other security of DEVELOPER or any other party which the Company may hold, or
which may come to any of them or any of their possession, may be dealt with in
all respects and particulars as though this Agreement were not in existence. The
parties hereto further agree that public sale of the Collateral by auction
conducted in any county in which any Collateral is located or in which the
Company or DEVELOPER does business after advertisement of the time and place
thereof shall, among other manners of public and private sale, be deemed to be a
commercially reasonable disposition of the Collateral. DEVELOPER shall be liable
for any deficiency remaining after disposition of the Collateral.
(c) All of the Company's rights and remedies under this
Agreement are cumulative and nonexclusive. Any conversion of, or exercise of the
Option with respect to, less than all of the principal balance outstanding under
the Note shall not affect the Company's rights and remedies with respect to any
portion not so converted or exercised.
8.3 NO WAIVER. The Company's failure, at any time or times
hereafter, to require DEVELOPER's strict compliance with or performance of any
provision of this Agreement shall not waive, affect, or diminish any right of
the Company thereafter to demand such strict compliance or performance
therewith. Any suspension or waiver by the Company of a Default or an Event of
Default by the Company under this Agreement or the Note shall not suspend,
waive, or affect any other Default or Event of Default by DEVELOPER under this
Agreement or the Note, whether the same is prior or subsequent thereto and
whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants, and representations of
DEVELOPER contained in this Agreement or the Note and no Default or Event of
Default by DEVELOPER under this Agreement or the Note shall be deemed to have
been suspended or waived by the Company.
24
ARTICLE IX
MISCELLANEOUS
9.1 NO ORAL CHANGE. This Agreement may not be changed orally, but
only by an agreement in writing and signed by the party against whom enforcement
of any waiver, change, modification, or discharge is sought.
9.2 ASSIGNMENT. DEVELOPER may not assign any of its rights or
delegate any of its obligations under this Agreement without the Company's
written consent, which consent may be withheld in the Company's sole discretion.
The Company may assign any of its rights or delegate any of its obligations
under this Agreement (including assignment of this Agreement, the Note, the
Pledge Agreement and the Security Instruments), (a) without notice to DEVELOPER,
(i) to any Affiliate of the Company, other than DEVELOPER, or (ii) in connection
with any pledge of its assets under the Company's credit agreements and (b) with
notice, but without any requirement of consent or approval, to any other person,
other than DEVELOPER. Any such assignment shall vest in the assignee all of the
benefits under the documents so assigned. For purposes of this Agreement, the
term "Affiliate" of a specified person shall mean any person or entity which
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
9.3 COSTS AND ATTORNEYS' FEES.
(a) Except as provided in Section 2.4 hereof and subsection
(b) or (c) of this Section 9.3, each of the parties hereto shall pay its own
expenses (including accounting fees) incident to the negotiation and execution
of this Agreement and to the consummation of the transactions contemplated
hereby.
(b) DEVELOPER shall pay all reasonable attorneys' fees and any
costs and charges relating to or arising out of (i) the negotiation and drafting
of this Agreement and all related documents and (ii) the enforcement by the
Company of its rights to collect any portion of the Loan.
(c) In any action not founded solely on grounds covered by
subsection (b) of this Section 9.3, the party to the action who does not prevail
shall pay to the prevailing party the court costs and reasonable attorneys' fees
and other expenses (including, but not limited to, fees and expenses of expert
witnesses or
25
consulting experts) incurred directly or indirectly by the prevailing party in
connection with its prosecution or defense of the action, as the case may be.
9.4 COMMUNICATIONS AND NOTICES. All communications and notices
provided for in this Agreement or under the Note shall be in writing and shall
be deemed to have been duly given if delivered personally to the party to whose
attention the notice is directed or sent by overnight express, facsimile
transmission, express mail delivery service, or registered or certified mail,
return receipt requested, postage prepaid, and properly addressed as follows:
If to DEVELOPER:
Einstein/Noah Bagel Partners, L.P.
c/o Einstein/Noah Bagel Corp
14123 Denver West Parkway
Golden, CO 80401
Attention: General Partner
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: Chief Financial Officer
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall be
deemed to have been given on the earlier of the date it is actually received or
one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been, given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
9.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO
26
BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
9.6 HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
9.7 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, and
the provisions of this Agreement shall be severable in any such instance.
9.8 AVOIDANCE. To the extent that the Company receives any
payment on account of DEVELOPER's obligations hereunder, and any such payment(s)
and/or proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated, and/or required to be
repaid to a trustee, receiver, or any other party under any bankruptcy law,
state or federal law, common law, or equitable cause, then, to the extent of
such payment(s) or proceeds received, DEVELOPER's obligations hereunder, or part
thereof intended to be satisfied, shall be revived and continue in full force
and effect, as if such payment(s) and/or proceeds had not been received by the
Company.
9.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
9.10 ENTIRE AGREEMENT. This Agreement, the Note, the Pledge
Agreement, the Security Instruments and the exhibits to each of the foregoing
contain the entire agreement of the parties hereto with respect to the
transactions contemplated herein, and collectively supersede all prior
understandings and agreements of the parties with respect to the subject matter
hereof.
9.11 GENERAL INDEMNITY. In addition to the payments pursuant to
Section 9.3, DEVELOPER agrees to indemnify, pay, and hold the Company and any
holder of the Note, and the officers, directors, employees, agents, and
Affiliates of the Company and any such holder (collectively, the "Indemnitees"),
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses, and
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel for any of such Indemnitees in
connection with any investigative,
27
administrative, or judicial proceeding commenced or threatened, whether or not
any of such Indemnitees shall be designated a party thereto) that may be imposed
on, incurred by, or asserted against any Indemnity, in any manner relating to or
arising out of this Agreement, the Note, the Pledge Agreement, the Subsidiary
Security Agreement, the Security Instruments and the exhibits or any other
agreements or document executed and delivered by DEVELOPER in connection
therewith, DEVELOPER's use and operation of the Stores, including any damage to
public or worker health and safety or the environment, the Company's agreement
to make the Loan hereunder, or the use or intended use of the proceeds of the
Loan (the "indemnified liabilities"); provided that DEVELOPER shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Indemnitee. To
the extent that the undertaking to indemnify, pay, and hold harmless set forth
in the preceding sentence may be unenforceable because it violates any law or
public policy, DEVELOPER shall contribute the maximum portion that it is
permitted to pay under applicable law to the payment and satisfaction of all
indemnified liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 9.11
shall survive satisfaction and payment of DEVELOPER's obligations hereunder and
termination of this Agreement.
9.12 LIMITATION ON DAMAGES. Notwithstanding anything to the contrary
herein no party hereto shall be liable for consequential, indirect, incidental,
special, speculative, or punitive damages for any matters arising under this
Agreement (including, but not limited to, loss of revenue or profit) whether
such claim alleges breach of contract, tortious conduct including, but not
limited to, negligence, or any other theory.
9.13 SUBMISSION TO JURISDICTION. DEVELOPER agrees that any legal
action or proceeding with respect to this Agreement, the Note, the Pledge
Agreement, the Subsidiary Security Agreement, the Services Agreement or any
Security Instrument or the transactions contemplated hereby may be brought in
any court of the State of Colorado, or in any court of the United States of
America sitting in Colorado, and DEVELOPER hereby submits to and accepts
generally and unconditionally the jurisdiction of those courts with respect to
their respective person and property, and irrevocably consents to the service of
process in connection with any such action or proceeding by personal delivery to
DEVELOPER or by the mailing thereof by registered or certified mail, postage
prepaid to DEVELOPER at the address for DEVELOPER set forth in Section 9.4.
Nothing in this paragraph shall affect the right of the Company to serve process
in any other manner permitted by law or limit the rights of the Company to bring
any such action or proceeding against DEVELOPER
28
or property in the courts of any other jurisdiction. DEVELOPER hereby
irrevocably waives any objection to the laying of venue of any such suit or
proceeding in the above described courts.
9.14 WAIVER OF JURY TRIAL. No party to this instrument, which
includes any assignee, successor, heir or personal representative of a party,
shall seek a jury trial in any lawsuit, proceeding, counterclaim, or any other
litigation procedure based upon, or arising out of this Agreement, the Note, the
Pledge Agreement, the Subsidiary Security Agreement, the Services Agreement, any
Security Instrument, any related instrument, or the dealings or the relationship
between the parties. No party will seek to consolidate any such action, in which
a jury has been waived, with any other action in which a jury trial cannot or
has not been waived.
THE PROVISIONS OF THIS SECTION 9.14 HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY
HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS
OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS AGREEMENT.
29
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as
of the date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
--------------------------
Name: Paul A. Strasen
Title: Senior Vice President
|
EINSTEIN/NOAH BAGEL
PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By: /s/ Jeffrey L. Butler
---------------------------
Name: Jeffrey L. Butler
Title: President
|
30
PROMISSORY NOTE
$70,000,000 Golden, Colorado
as of December 5, 1997
FOR VALUE RECEIVED, EINSTEIN/NOAH BAGEL PARTNERS, L.P., a Delaware
limited partnership (the "DEVELOPER"), promises to pay to the order of
Einstein/Noah Bagel Corp., a Delaware corporation (the "Company"), pursuant to
the Loan Agreement (as hereinafter defined) at such place as the Company may
from time to time designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of seventy million
dollars ($70,000,000) and any interest thereon, or, if less, the aggregate
unpaid amount of the Loan made pursuant to Section 1.1 of the Loan Agreement and
any interest thereon.
This Promissory Note dated as of December 5, 1997 (the "Note")
evidences the Loan made under, and is referred to in and is executed and
delivered pursuant to, a Loan Agreement of even date herewith between the
DEVELOPER and the Company (the "Loan Agreement"), to which reference is hereby
made for a statement of the terms and conditions under which this Note may be
repaid and accelerated and for a description of the collateral and security
securing this Note. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Loan Agreement.
Interest shall accrue daily on the aggregate outstanding principal
balance of the Loan for the period commencing on the date the Loan is made until
the Loan is paid in full, at a per annum rate equal to the rate designated and
announced by Bank of America National Trust and Savings Association or its
successor in interest (the "Bank") from time to time at its head office as its
"reference rate," plus 2.5%. The interest rate shall be adjusted, from time to
time, on the same day on which the Bank adjusts its "reference rate." In
addition, the interest rate shall be increased or reduced by an amount
equivalent to any increase or reduction in the interest rate under the Senior
Credit Facility or any extension, replacement or refinancing thereof. Interest
on the outstanding principal amount of the Loan shall be payable in arrears as
provided in the Loan Agreement.
Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
Any principal payment due under this Note not paid when due, whether at
stated maturity, by notice of repayment, by acceleration or otherwise, shall, to
the extent permitted by applicable law, thereafter bear interest (compounded
monthly and payable upon demand) at a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Note in respect of such
principal amount until such unpaid amount has been paid in full (whether before
or after judgment).
Except as otherwise provided in the Loan Agreement, and unless
accelerated, the outstanding principal amount of the Loan shall be payable to
the Company in 65 substantially equal periodic installments of principal (the
amount of which periodic installments of principal shall be determined at the
close of business on the Draw Termination Date based on a schedule amortizing
such outstanding principal balance of the Loan as of such date in 130
substantially equal periodic installments of principal), plus accrued but unpaid
interest, on the first day of each of the Company's Retail Periods, commencing
on the first day of the first Retail Period in the Company's fiscal year 2001
and continuing until the first day of the last Retail Period in the Company's
fiscal year 2005, when the entire principal balance of the Loan and all interest
accrued thereon shall be due and payable.
This Note may be prepaid at any time without payment of penalty or
premium. All payments made hereunder shall be applied first to interest and then
to outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday, under the laws of the State of Colorado, the due date thereof
shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any
other formality are hereby expressly waived by the DEVELOPER and any endorser or
guarantor.
ARTICLE I
ADVANCES
I.1 Advances may be made from time to time by the Company to the
DEVELOPER in the manner and on the terms and subject to the conditions set forth
in the Loan Agreement. Upon granting each loan advance, the Company shall record
the making and amount of such Advance on its books in a separate loan account,
and shall also record in the loan account all payments made by the DEVELOPER
with respect to the Loan. The aggregate amount of all Advances, less the amounts
of payment of principal made by the DEVELOPER, shall be the principal amount
2
outstanding under this Note. The loan account shall be prima facie evidence of
the unpaid amount of principal outstanding under this Note; provided, however,
that failure to maintain such account or record any Advances therein shall not
relieve the DEVELOPER of its obligations to repay the outstanding principal
amount of the Loan, all accrued interest thereon, and any amount payable with
respect thereto in accordance with the terms of the Loan Agreement and this
Note.
ARTICLE II
DEFAULT, RIGHTS AND REMEDIES OF HOLDER
II.1 The occurrence of a Default shall be a default under this Note.
Upon any default under this Note, the holder of this Note may declare this Note
due and payable in full without demand, presentment or notice of any kind and
exercise such other rights and remedies as are available to the holder under the
Loan Agreement or applicable law.
II.2 If there is any default under this Note, and this Note is placed
in the hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the DEVELOPER promises to pay to the order of
the holder hereof such holder's reasonable attorneys' fees and court costs
incurred in collecting or attempting to collect or securing or attempting to
secure this Note or enforcing the holder's rights with respect to the
Collateral, to the extent allowed by the laws of the State of Colorado or any
state in which any Collateral is situated.
ARTICLE III
MISCELLANEOUS
III.1 THIS NOTE HAS BEEN DELIVERED IN, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF, THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
III.2 The holder of this Note may with or without notice to any party,
and without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Note: (i) extend the time for
payment of either principal or interest from time to time; (ii) release or
discharge any one or more parties liable on this Note; (iii) suspend the right
to enforce this Note with respect to any persons; (iv) change, exchange, or
release any property in which the
3
holder has any interest securing this Note; (v) justifiably or otherwise, impair
any of the Collateral or suspend the right to enforce against any such
Collateral; and (vi) at any time it deems it necessary or proper, call for and,
should it be made available, accept, as additional security, the signature or
signatures of additional parties or a security interest in property of any kind
or description or both.
III.3 Any provision herein, or in the Loan Agreement, or any other
document executed or delivered in connection herewith or therewith, or in any
other agreement or commitment, whether written or oral, expressed or implied, to
the contrary notwithstanding, neither the Company nor any holder hereof shall
in any event be entitled to receive or collect, nor shall any amounts received
hereunder be credited, so that the Company or any holder hereof shall be paid,
as interest, a sum greater than the maximum amount permitted by applicable law
to be charged to the person primarily obligated to pay this Note at the time in
question. If any construction of this Note or the Loan Agreement, or any and all
other papers, agreements or commitments, indicate a different right given to the
Company or any holder hereof to ask for, demand, or receive any larger sum as
interest, such is a mistake in calculation or wording which this clause shall
override and control, it being the intention of the parties that this Note, the
Loan Agreement, and all other documents executed or delivered in connection
herewith shall in all ways comply with applicable law and proper adjustments
shall automatically be made accordingly. In the event that the Company or any
holder hereof ever receives, collects, or applies as interest, any sum in excess
of the maximum amount permitted by applicable law, if any, such excess amount
shall be applied to the reduction of the unpaid principal balance of this Note,
and if this Note is paid in full, any remaining excess shall be paid to the
DEVELOPER. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the maximum amount permitted by applicable law, if
any, the DEVELOPER and any holder hereof shall, to the maximum extent permitted
under applicable law: (a) characterize any non-principal payment as an expense
or fee rather than as interest; and (b) "spread" the total amount of interest
throughout the entire term of this Note.
IN WITNESS WHEREOF, the DEVELOPER has caused this Note to be executed
in its corporate name by the undersigned officer, hereunto duly authorized.
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By:
Name: Jeffrey L. Butler
Title: President
4
FORM OF SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT, dated as of __________ 199__ (this
"Security Agreement"), is made by __________, a __________ corporation (the
"Subsidiary"), in favor of Einstein/Noah Bagel Corp., a Delaware corporation
(the "Company").
WITNESSETH:
WHEREAS Einstein/Noah Bagel Partners, L.P., a Delaware limited
partnership (the "Borrower"), has entered into a loan agreement dated as of
December ___, 1997 (the "Loan Agreement"), with the Company pursuant to which
the Company has agreed on the terms and conditions therein, to make the Loan (as
defined in the Loan Agreement) to the Borrower; and
WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Borrower;
WHEREAS, as a condition to the effectiveness of the Company's
obligations under the Loan Agreement, the Subsidiary has agreed, among other
things, to grant to the Company a security interest in and to the Collateral
hereinafter described;
NOW, THEREFORE, to secure (a) the payment of the principal sum of
___________ Dollars ($___________), together with interest thereon, in
accordance with the terms of a promissory note dated December __, 1997, issued
by the Borrower pursuant to the Loan Agreement (the "Note"), (b) the performance
of the covenants herein contained and any monies expended by the Company in
connection therewith, (c) the payment of all obligations and performance of all
covenants of the Borrower under the Loan Agreement, the Pledge Agreement and all
other Security Instruments (as defined in the Loan Agreement) and any other
documents, agreements or instruments between the Borrower or the Subsidiary and
the Company given in connection therewith, and (d) any and all other
indebtedness, obligations and liabilities of any kind of the Borrower and/or the
Subsidiary to the Company now or hereafter existing, direct or indirect,
absolute or contingent, joint and/or several, secured or unsecured, arising by
operation of law or otherwise, and whether incurred by the Subsidiary as
principal, surety, endorser, guarantor, accommodation party or otherwise (all of
the aforesaid indebtedness, obligations and liabilities of the
Borrower and/or the Subsidiary being herein called the "Secured Obligations",
and all of the documents, agreements and instruments between the Subsidiary and
the Company evidencing or securing the repayment of, or otherwise pertaining to
the Secured Obligations being herein collectively called the "Operative
Documents"), for value received and pursuant to the Loan Agreement, the
Subsidiary hereby grants, assigns and transfers to the Company a security
interest in and to the following described property whether now owned or
existing or hereafter acquired or arising and wherever located (all of which is
herein collectively called the "Collateral"):
(a) all of the Subsidiary's real estate, accounts,
equipment (including, but nor limited to machinery, furniture, fixtures, tools,
vehicles, and other tangible property), inventory, leasehold improvements,
contract rights (including its rights as lessee under all leases of real
property), general intangibles, deposit accounts, tax refunds, chattel paper,
instruments, notes, letters of credit, documents, and documents of title;
(b) all insurance proceeds of or relating to any of the
foregoing;
(c) all of the Subsidiary's books, records, and computer
programs and data relating to any of the foregoing; and
(d) all accessories and additions to, and substitutions
for, and replacements, products and proceeds of, any of the foregoing.
1. Representations, Warranties, Covenants and Agreements. The
Subsidiary further represents, warrants, covenants, and agrees with the Company
as follows:
(a) Ownership of Collateral; Security Interest Priority.
At the time any Collateral becomes subject to a security interest of the Company
hereunder, unless the Company shall otherwise consent, the Subsidiary shall be
deemed to have represented and warranted that (i) the Subsidiary is the lawful
owner of such Collateral and has the right and authority to subject the same to
the security interest of the Company; (ii) none of the Collateral is subject to
any lien other than that in favor of the Company and there is no effective
financing statement covering any of the Collateral on file in any public office,
other than in favor of the Company. This Security Agreement creates in favor of
the Company a valid and perfected security interest in the Collateral
enforceable against the Subsidiary and all third parties and securing the
payment of the Secured Obligations and all filings and other actions
2
necessary or desirable to create, preserve or perfect such security interests
have been duly taken.
(b) Location of Offices, Records and Facilities. The
Subsidiary's chief executive office and chief place of business and the office
where the Subsidiary keeps its records concerning its accounts, contract rights,
chattel papers, instruments, general intangibles and other obligations arising
out of or in connection with the sale or lease of goods or the rendering of
services or otherwise ("Receivables"), and all originals of all leases and other
chattel paper which evidence Receivables, are located in the State of
__________, County of __________ at __________________________. The Subsidiary
will provide the Company with prior written notice of any proposed change in the
location of its chief executive office and will not change the location of its
chief executive office without the prior written consent of the Company. The
federal tax identification number of the Subsidiary is __________. The name of
the Subsidiary is ____________________ , and the Subsidiary operates under no
other names [except for "____________________"]. The Subsidiary shall not change
its name without the prior written consent of the Company.
(c) Location of Inventory, Fixtures, Machinery and Equipment.
All Collateral consisting of inventory, fixtures, machinery or equipment is, and
will be, located within the Development Area, and at no other locations without
the prior written consent of the Company. If the Collateral described in this
paragraph l(c) is kept at leased locations or warehoused, the Subsidiary has
obtained appropriate landlord's lien waivers or appropriate warehousemen's
notices have been sent, each satisfactory to the Company, unless waived by the
Company.
(d) Liens, Etc. The Subsidiary will keep the Collateral free
at all times from any and all liens, security interests or encumbrances other
than those described in paragraph l(a)(ii) hereof and those consented to in
writing by the Company. The Subsidiary will not, without the prior written
consent of the Company, sell or lease, or permit or suffer to be sold or leased,
any of the Collateral except inventory which is sold or, subject to the
Company's security interest therein, is leased in the ordinary course of the
Subsidiary's business, and tangible Collateral which is disposed of in the
ordinary course of the Subsidiary's business as being obsolete. The Company or
its attorneys may at any and all reasonable times inspect the Collateral and for
such purpose may enter upon any and all premises where the Collateral is or
might be kept or located.
3
(e) Insurance. The Subsidiary shall keep the tangible
Collateral insured at all times against loss by theft, fire and other casualties
and shall otherwise comply with the insurance provisions set forth in Section
5.4 of the Loan Agreement.
(f) Taxes, Etc. The Subsidiary will pay promptly, and within
the time that they can be paid without interest or penalty, any taxes,
assessments and similar imposts and charges, not being contested in good faith,
which are now or hereafter may become a lien, charge or encumbrance upon any of
the Collateral. If the Subsidiary fails to pay any such taxes, assessments or
other imposts or charges in accordance with this Section, the Company shall have
the option to do so and the Subsidiary agrees to repay forthwith all amounts so
expended by the Company with interest at the default rate set forth in the Loan
Agreement.
(g) Further Assurances. The Subsidiary will do all acts and
things and will execute all financing statements and writings requested by the
Company to establish, maintain and continue a perfected and valid security
interest of the Company in the Collateral, and will promptly on demand pay all
reasonable costs and expenses of filing and recording all instruments, including
the costs of any searches deemed necessary by the Company to establish and
determine the validity and the priority of the Company's security interests. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral shall be sufficient as a financing
statement.
(h) Maintenance of Tangible Collateral. The Subsidiary will
cause the tangible Collateral to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall forthwith,
or, in the case of any loss or damage to any of the tangible Collateral as
quickly as practicable after the occurrence thereof, make or cause to be made
all repairs, replacements, and other improvements made in connection therewith
which are necessary or desirable to such end. The Subsidiary shall promptly
furnish to the Company a statement respecting any loss or damage to any of the
tangible Collateral.
(i) Maintenance of Intangible Collateral. The Subsidiary shall
preserve and maintain all rights of the Subsidiary and the Company in the
intangible Collateral, including without limitation the payment of all
maintenance fees and the taking of appropriate action at the Subsidiary's
expense to halt the infringement of any of the intangible Collateral.
4
(j) Special Rights Regarding Accounts Receivable. The Company
or any of its agents may, at any time and from time to time in its sole
discretion and irrespective of the existence of any event of default under this
Security Agreement, verify directly with the Subsidiary's account debtors the
accounts pledged hereunder in any manner. The Company or any of its agents may,
at any time from time to time in its sole discretion, notify the Subsidiary's
account debtors of the security interest of the Company in the Collateral and/or
direct such account debtors that all payments in connection with such
obligations and the Collateral be made directly to the Company in the Company's
name. If the Company or any of its agents shall collect such obligations
directly from the Subsidiary's account debtors, the Company or any of its agents
shall have the right to resolve any disputes relating to returned goods directly
with the Subsidiary's account debtors in such manner and on such terms as the
Company or any of its agents shall deem appropriate. The Subsidiary directs and
authorizes any and all of its present and future account debtors to comply with
requests for information from the Company, the Company's designees and agents
and/or auditors, relating to any and all business transactions between the
Subsidiary and the Subsidiary's account debtors. The Subsidiary further directs
and authorizes all of its account debtors upon receiving a notice or request
sent by the Company or the Company's agents or designees to pay directly to the
Company any and all sums of money or proceeds now or hereafter owing by the
Subsidiary's account debtors to the Subsidiary, and any such payment shall act
as a discharge of any debt of such account debtor to the Subsidiary in the same
manner as if such payment had been made directly to the Subsidiary. The
Subsidiary agrees to take any and all action as the Company may request to
assist the Company in exercising the rights described in this Section.
2. Events of Default. The occurrence of any Event of Default specified
in the Loan Agreement shall be deemed an event of default under this Security
Agreement.
3. Remedies. Upon the occurrence of any such event of default, the
Company shall have and may exercise any one or more of the rights and remedies
provided to it under this Security Agreement or any of the other Operative
Documents or provided by law, including but not limited to all of the rights and
remedies of a secured party under the Uniform Commercial Code, and the
Subsidiary hereby agrees to assemble the Collateral and make it available to the
Company at a place to be designated by the Company which is reasonably
convenient to both parties, authorizes the Company to take possession of the
Collateral with or without demand and with or without process of law and to sell
and dispose of the same at public or private sale and to apply the proceeds of
such sale to the costs and expenses thereof
5
(including reasonable attorneys' fees and disbursements, incurred by the
Company) and then to the payment of the indebtedness and satisfaction of other
Secured Obligations. Any requirement of reasonable notice shall be met if the
Company sends such notice to the Subsidiary, by registered or certified mail, at
least five days prior to the date of sale, disposition or other event giving
rise to a required notice. The Company may be the purchaser at any such sale.
The Subsidiary expressly authorizes such sale or sales of the Collateral in
advance of and to the exclusion of any sale or sales of or other realization
upon any other collateral securing the Secured Obligations. The Company shall
have no obligation to preserve rights against prior parties. The Subsidiary
hereby waives as to the Company any right of subrogation or marshaling of such
Collateral and any other collateral for the Secured Obligations. To this end,
the Subsidiary hereby expressly agrees that any such collateral or other
security of the Subsidiary or any other party which the Company may hold, or
which may come to any of them or any of their possession, may be dealt with in
all respects and particulars as though this Security Agreement were not in
existence. The parties hereto further agree that public sale of the Collateral
by auction conducted in any county in which any Collateral is located or in
which the Company or the Subsidiary does business after advertisement of the
time and place thereof shall, among other manners of public and private sale, be
deemed to be a commercially reasonable disposition of the Collateral. The
Subsidiary shall be liable for any deficiency remaining after disposition of the
Collateral.
4. Remedies Cumulative. No right or remedy conferred upon or reserved
to the Company under any Operative Document is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy of the Company under
any Operative Document or under applicable law may be exercised from time to
time and as is often as may be deemed expedient by the Company. To the extent
that it lawfully may, the Subsidiary agrees that it will not at any time insist
upon, plead, or in any manner whatever claim or take any benefit or advantage of
any applicable present or future stay, extension or moratorium law, which may
effect observance or performance of any provisions of any Operative Document;
nor will it claim, take or insist upon any benefit or advantage of any present
or future law providing for the valuation or appraisal of any security for its
obligations under any Operative Document prior to any sale or sales thereof
which may be made under or by virtue of any instrument governing the same; nor
will it, after any such sale or sales, claim or exercise any right, under any
applicable law to redeem any portion of such security so sold.
6
5. Conduct No Waiver. No waiver of default shall be effective unless in
writing executed by the Company and waiver of any default or forbearance on the
part of the Company in enforcing any of its rights under this Security Agreement
shall not operate as a waiver of any other default or of the same default on a
future occasion or of such right.
6. Governing Law; Definitions. This Security Agreement is a contract
made under and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with, the laws of the State of Colorado
applicable to contracts made and to be performed entirely within such State.
Terms used but not defined herein shall have the respective meaning ascribed
thereto in the Loan Agreement. Unless otherwise defined herein or in the Loan
Agreement, terms used in Article 9 of the Uniform Commercial Code in the State
of Colorado are used herein as therein defined on the date hereof. The headings
of the various subdivisions hereof are for convenience of reference only and
shall in no way modify any of the terms or provisions hereof.
7. Notices. All notices, demands, requests, consents and other
communications hereunder shall be delivered and shall be effective in the
manner specified in Section 9.4 of the Loan Agreement.
8. Rights Not Construed as Duties. The Company neither assumes nor
shall it have any duty of performance or other responsibility under any
contracts in which the Company has or obtains a security interest hereunder. If
the Subsidiary fails to perform any agreement contained herein, the Company may
but is in no way obligated to itself perform, or cause performance of, such
agreement, and the expenses of the Company incurred in connection therewith
shall be payable by the Subsidiary under paragraph 11.
9. Amendments. None of the terms and provisions of this Security
Agreement may be modified or amended in any way except by an instrument in
writing executed by each of the parties hereto.
10. Severability. If any one or more provisions of this Security
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforce ability of the remaining provisions contained
herein shall not in any way be affected, impaired or prejudiced thereby.
11. Expenses. The Subsidiary agrees to indemnify the Company from and
against any and all claims losses and liabilities growing out of or resulting
from this
7
Security Agreement (including, without limitation, enforcement of this Security
Agreement), except claims, losses or liabilities resulting from the Company's
gross negligence or willful misconduct.
12. Successors and Assigns; Termination. This Security Agreement shall
create a continuing security interest in the Collateral and shall (a) remain in
full force and effect until full payment and performance of the Secured
Obligations (b) be binding upon the Subsidiary, its successors and assigns and
(c) inure, together with the rights and remedies of the Company hereunder, to
the benefit of the Company and its successors, transferees and assigns. Upon the
full payment and performance of the Secured Obligations the security interests
granted hereby shall terminate and all rights to the Collateral shall revert to
the Subsidiary. Upon any such termination, the Company will, at the Subsidiary's
expense, execute and deliver to the Subsidiary such documents as the Subsidiary
shall reasonably request to evidence such termination.
13. Submission to Jurisdiction. The Subsidiary agrees that any legal
action or proceeding with respect to this Security Agreement or the transactions
contemplated hereby may be brought in any court of the State of Colorado, or in
any court of the United States of America sitting in Colorado, and the
Subsidiary hereby submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to their respective person and
property, and irrevocably consents to the service of process in connection with
any such action or proceeding by personal delivery to the Subsidiary or by the
mailing thereof by registered or certified mail, postage prepaid addressed to
the Subsidiary at the address for notices as provided in Section 7 hereof.
Nothing in this paragraph shall affect the right of the Company to serve process
in any other manner permitted by law or limit the right of the Company to bring
any such action or proceeding against the Subsidiary or property in the courts
of any other jurisdiction. The Subsidiary hereby irrevocably waives any
objection to the laying of venue of any such suit or proceeding in the above
described courts.
14. Waiver of Jury Trial. No party to this instrument, which includes
any assignee, successor, heir or personal representative of a party, shall seek
a jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of this Agreement, any related instrument,
or the dealings or the relationship between the parties. If the subject matter
of any such litigation is one in which the waiver of a jury trial is prohibited,
if at all, under the controlling law of the applicable jurisdiction, by
constitutional or statutory provision, no party hereto will present as a defense
or counterclaim in such litigation any claim which would reduce
8
or offset any amount or right claimed under the provisions of this Agreement. No
party will seek to consolidate any such action, in which a jury has been waived,
with any other action in which a jury trial cannot or has not been waived.
THE PROVISIONS OF THIS SECTION 14 HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY
HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS
OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS AGREEMENT.
9
IN WITNESS WHEREOF, the Subsidiary has caused this Security Agreement
to be duly executed as of the day and year first set forth above.
[NAME OF SUBSIDIARY]
By:
Its:
10
PLEDGE AGREEMENT
This Pledge Agreement ("Pledge Agreement") dated as of December __,
1997, is made and entered into by and between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and all of the holders of Units in
Einstein/Noah Bagel Partners, L.P., a Delaware limited partnership (the
"DEVELOPER"), and their spouses listed on the signature pages hereof and any
other persons (other than the Company and Bagel Store Development Funding,
L.L.C., referred to herein as the "Fund") who, after the date of this Pledge
Agreement, become holders of Units in the DEVELOPER, and their spouses
(collectively, the "Partners").
RECITALS
1. The Partners own certain of the issued and outstanding Units in the
DEVELOPER, in the amounts set forth on Schedule A hereto.
2. As an inducement to the Company to enter into the loan agreement
with DEVELOPER, dated December ___, 1997 (the "Loan Agreement") the Partners
agreed, among other things, to pledge to the Company, and grant a security
interest to the Company, in and to, 100% of the issued and outstanding Units in
the DEVELOPER (excluding any such Units held by the Fund or the Company).
NOW, THEREFORE, the Company and the Partners have agreed as follows:
1. CERTAIN DEFINITIONS. The capitalized terms and phrases not otherwise
defined herein, shall have the meanings given them in the Loan Agreement, and
the following terms or phrases shall have the following meanings:
"Affiliate" shall mean, with respect to a specified person, any other
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with the person specified.
"Collateral" shall mean the Pledged Units and any other property in
which the Company acquires a security interest pursuant to this Pledge Agreement
to secure any indebtedness or other obligation of the DEVELOPER to the Company.
"Default" shall have the meaning given it in Section 10 of this Pledge
Agreement.
"Pledged Units" shall mean all the issued and outstanding Units in the
DEVELOPER now or hereafter owned by the Partners.
"Secured Obligations" shall mean the obligations secured by this Pledge
Agreement described in Section 3 of this Pledge Agreement.
"Units" shall have the meaning ascribed thereto in the limited
partnership agreement of the DEVELOPER dated December __, 1996 (the "Limited
Partnership Agreement"), as it may be amended from time to time.
2. GRANT OF SECURITY INTEREST.
(a) The Partners hereby grant to the Company a security
interest in all of their respective right, title and interest in and to the
Pledged Units whether now owned or hereafter acquired. The Partners further
grant to the Company a security interest in any rights to subscribe, liquidating
distributions, distributions paid in units of ownership interest, new
securities, or any other property to which the Partners are or may hereafter
become entitled to receive whether on account of the Pledged Units or otherwise,
other than cash distributions permitted pursuant to the provisions of Section
6.4 of the Loan Agreement. If the Partners receive additional property of such
nature, they shall immediately deliver such property to the Company to be held
by the Company in the same manner as the property held pursuant to this Pledge
Agreement.
(b) The Partners grant a further security interest to the
Company in the proceeds or products of any sale or other disposition of the
Pledged Units.
3. OBLIGATIONS SECURED. The security interest created hereby secures
payment and performance of (a) the indebtedness evidenced by the Note and all
obligations contained in the Note, (b) all of the other obligations, agreements,
covenants and representations of the DEVELOPER under the Loan Agreement whether
or not, either on the date of this Pledge Agreement or thereafter, evidenced by
any note, instrument, or other writing, and (c) any and all other indebtedness,
obligation, or liability of the DEVELOPER to the Company, however evidenced,
whether existing on the date of this Pledge Agreement or arising thereafter,
direct or indirect, absolute or contingent, joint and/or several.
2
4. REPRESENTATIONS AND WARRANTIES. To induce the Company to enter into
this Pledge Agreement, each of the Partners represents and warrants for himself
as follows:
(a) The Partners has full right, power, and capacity to enter
into and perform this Pledge Agreement; and this Pledge Agreement has been duly
authorized, executed and delivered and constitutes a legal, valid, and binding
obligation of the Partner enforceable in accordance with its terms.
(b) The Partner has good and marketable title to the Pledged
Units owned by him, and such Pledged Units are not subject to any lien, charge,
pledge, encumbrance, claim, or security interest other than the security
interest created by this Pledge Agreement.
(c) The Pledged Units owned by him constitute one hundred
percent (100%) of the issued and outstanding equity interest of the DEVELOPER
owned by him.
(d) The Pledged Units owned by him are fully paid and
nonassessable.
(e) Other than the Limited Partnership Agreement, the Partner
has not entered into any restriction or purchase agreement with respect to the
Pledged Units which would in any way restrict the sale, pledge or other transfer
of the Pledged Units or of any interest in or to the Pledged Units.
5. DURATION OF SECURITY INTEREST. The Company and its successors and
assigns shall hold the Pledged Units and security interest created hereby upon
the terms of this Pledge Agreement, and this security interest shall continue
until all the Secured Obligations have been paid in full.
6. MAINTAINING FREEDOM FROM LIENS. The Partners shall keep the Pledged
Units and other Collateral free and clear of liens, other than the lien granted
hereunder and shall pay all amounts, including taxes, assessments, or charges,
which might result in a lien against the Pledged Units or other Collateral if
left unpaid. If any such lien, assessment, claim or charge shall nevertheless
exist, and the Partners fail to pay such amounts promptly, the Company may, but
is not obligated to, pay such amounts and such payment shall be conclusive
evidence of the legality or validity thereof. The Partners shall promptly
reimburse the Company for any such
3
payments and until reimbursement, such payments shall be a part of the Secured
Obligations.
7. CERTAIN RIGHTS RESPECTING PLEDGED UNITS.
(a) The Partners shall continue to be the owners of the
Pledged Units and other Collateral so long as no Default has occurred and is
continuing and may collect and retain all cash distributions now or hereafter
payable on or on account of the Pledged Units and other Collateral which are
permitted under the Loan Agreement, and, so long as no Default has occurred, may
exercise voting rights with respect to the Pledged Units and other Collateral.
(b) The Partners shall not sell, transfer, or attempt to sell
or transfer the Pledged Units or other Collateral, or any part thereof or
interest therein, without the prior express written consent of the Company. Any
such consent of the Company shall not constitute the release by the Company of
its interest in the Pledged Units or other Collateral and any such sale or
transfer consented to shall transfer the Pledged Units or other Collateral
subject to the security interest of the Company. Any such transfer shall be
subject to the transferee's agreement to be bound by the terms and subject to
the conditions of this Pledge Agreement, such agreement to be evidenced by the
transferee's execution of this Pledge Agreement.
(c) The Company, at its option upon any Default, may exercise
all voting rights and privileges whatsoever with respect to the Pledged Units
and other Collateral, including, without limitation, the right to receive
distributions, and to that end, the Partners hereby constitute any officer of
the Company as their proxy and attorney-in-fact for all purposes of voting the
Pledged Units and other Collateral after any Default at any annual regular or
special meeting of the DEVELOPER, and this appointment shall be deemed coupled
with an interest and is and shall be irrevocable until all of the Secured
Obligations have been fully paid and terminated, and all persons whatsoever
shall be conclusively entitled to rely upon any oral or written certification of
the Company that it is entitled to vote the Pledged Units and other Collateral
hereunder. The Partners shall execute and deliver to the Company any additional
proxies and powers of attorney that the Company may desire in its own name in
order to exercise the rights expressly granted to the Company under this Section
7(c). In addition to any other voting rights, the Company may, upon any Default,
vote the Pledged Units and other Collateral to remove the general partner of the
DEVELOPER, or any of them, and to elect new general partners of the DEVELOPER,
who may thereafter manage the affairs of the DEVELOPER, operate its properties
and carry on its business and otherwise take any action with respect
4
thereto as it shall deem necessary and appropriate, and may also liquidate its
business, and may authorize the borrowing of money in the name of the DEVELOPER,
and the pledge of its assets to secure such borrowing.
8. DELIVERY OF CERTIFICATES AND TRANSFER DOCUMENTS; PLEDGE OF
ADDITIONAL UNITS. If the Pledged Units are at any time represented by
certificates, the Partners shall deliver to the Company such certificates in
form suitable for transfer together with executed blank assignment or transfer
documents and the Company shall hold the certificates as bailee for DEVELOPER.
If for any reason any of the Partners acquires any interest in any additional
partnership units of the DEVELOPER such Partner shall immediately deliver
certificates representing those units in form suitable for transfer and blank
assignment or transfer documents to the Company to be held by the Company in the
same manner as the Pledged Units, and such units shall be pledged under this
Pledge Agreement and constitute a part of the Collateral. With respect to any
additional units acquired by any of the Partners, the Company will hold
certificates representing those units as bailee for DEVELOPER.
9. DEFAULT. At the option of the Company, the occurrence of any
Default under the Loan Agreement shall constitute a default under this Pledge
Agreement.
10. REMEDIES.
(a) Upon the occurrence of any Default, the Company shall have
all of the rights and remedies provided by law and/or by this Pledge Agreement,
including but not limited to all of the rights and remedies of a secured party
under the Uniform Commercial Code, and the Partners hereby authorize the Company
to hold such Pledged Units or to sell all or any part of the Pledged Units at
public or private sale and to apply the proceeds of such sale to the costs and
expenses thereof (including the reasonable attorneys' fees and disbursements
incurred by the Company) and then to the payment of the other Secured
Obligations. The Company may be the purchaser at any such sale. The Partners
expressly authorize such sale or sales of the Pledged Units in advance of and to
the exclusion of any sale or sales of or other realization upon any other
collateral securing indebtedness or other obligations owed to the Company. The
Company shall be under no obligation to preserve rights against prior parties.
(b) The Partners agree and acknowledge that because there may
be no public market for the Pledged Units and because of applicable securities
laws, a public sale of the Pledged Units may not be possible or advisable and
sales at a
5
private sale may be on terms less favorable than if such Pledged Units were sold
at a public sale and may be at a price less favorable than a public sale. The
Partners agree that all such private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
11. EXERCISE OF REMEDIES. The rights and remedies of the Company shall
be deemed to be cumulative, and any exercise of any right or remedy shall not be
deemed to be an election of that right or remedy to the exclusion of any other
right or remedy. Notwithstanding the foregoing, the Company shall be entitled to
recover by the cumulative exercise of all remedies no more than the sum of (a)
the Secured Obligations remaining outstanding at the time of the exercise of
remedies, plus (b) the costs, fees, and expenses the Company is otherwise
entitled to recover.
12. RETURN OF COLLATERAL. If certificates representing the Pledged
Units shall at any time have been delivered to the Company hereunder, the
Company may at any time deliver the Pledged Units or other Collateral, or any
part thereof, to the Partners. The receipt by the Partners of the Pledged Units
or other Collateral, or any part thereof, shall be a complete and full discharge
of the Company, and the Company shall be discharged from any liability or
responsibility with respect thereto.
13. COMMUNICATIONS AND NOTICES.
(a) Any requirement of the Uniform Commercial Code of
reasonable notice shall be met if such notice is given at least five business
days before the time of sale, disposition, or other event or thing giving rise
to the requirement of notice.
(b) All communications and notices shall be in writing and
shall be deemed to have been duly given if delivered personally to the party to
whose attention the notice is directed or sent by overnight express, facsimile
transmission, express mail delivery service, or registered or certified mail,
return receipt requested, postage prepaid, and properly addressed as follows:
If to the Partners:
To the particular Partner at his or her last known
address
6
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall be
deemed to have been given on the earlier of the date it is actually received or
one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
14. FURTHER ASSURANCES. The Partners shall sign any such other
documents or instruments, including UCC financing statements, and take such
other action, as the Company may request to more fully create and maintain, or
to verify, ratify, or perfect the security interest intended to be created by
this Pledge Agreement.
15. MULTIPLE COUNTERPARTS. This Pledge Agreement may be executed in two
or more counterparts each of which shall be deemed an original, and it shall not
be necessary in making proof of this Pledge Agreement or the terms thereof to
produce or account for more than one such counterpart.
16. MISCELLANEOUS.
(a) Failure by the Company to exercise any right shall not be
deemed a waiver of that right, and any single or partial exercise of any right
shall not preclude the further exercise of that right. Every right of the
Company shall continue in full force and effect until such right is specifically
waived in a writing signed by the Company.
(b) If any provision of this Pledge Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Pledge Agreement and the application of
such provision to other persons or
7
circumstances shall not be affected thereby, and the provisions of this Pledge
Agreement shall be severable in any such instance.
(c) The headings of the sections of this Pledge Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Pledge Agreement.
(d) This Pledge Agreement shall benefit the Company and its
successors and assigns, and all obligations of the Partners shall bind their
successors and assigns. The Partners acknowledge that the Company may assign or
otherwise transfer (in whole or in part) the Note, the Loan Agreement or this
Pledge Agreement to any other person, and such other person shall thereupon
become vested with all of the benefits in respect thereof granted to the Company
thereunder (including the benefits under this Pledge Agreement).
(e) THIS PLEDGE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PER FORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS THEREOF.
(f) This Pledge Agreement and the Loan Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede all prior understandings with respect to the subject matter
hereof. No change modification, addition, or termination of this Pledge
Agreement shall be enforceable unless in writing and signed by the party against
whom enforcement is sought.
(g) To the extent any spouse of a Partner is deemed, under
applicable law or otherwise to have an interest in the Collateral, such spouse
hereby waives, relinquishes, and forever releases such interest in such
Collateral and agrees that such Collateral is subject to all of the terms and
provisions of this Pledge Agreement, especially, without limitation, Sections 9
and 10 hereof, and further agrees to be bound by the terms and provisions hereof
and to execute, acknowledge, and deliver such further assignments, transfers,
conveyances, powers of attorney, and assurances as may be required to sell the
Pledged Units as provided in Section 10 hereof, and as may be otherwise
appropriate to carry out the transactions contemplated by this Pledge Agreement.
(h) Each of the Partners agrees that any legal action or
proceeding with respect to this Pledge Agreement or the transactions
contemplated hereby may
8
be brought in any court of the State of Colorado, or in any court of the United
States of America sitting in Colorado, and each of the Partners hereby submits
to and accepts generally and unconditionally the jurisdiction of those courts
with respect to its person and property, and irrevocably consents to the service
of process in connection with any such action or proceeding by personal delivery
to each of the Partners or by the mailing thereof by registered or certified
mail, postage prepaid addressed to each of the Partners at the address for
notices as provided in Section 13 hereof. Nothing in this paragraph shall affect
the right of the Company to serve process in any other manner permitted by law
or limit the right of the Company to bring any such action or proceeding against
the Partners or property in the courts of any other jurisdiction. Each of the
Partners hereby irrevocably waives any objection to the laying of venue of any
such suit or proceeding in the above described courts.
17. WAIVER OF JURY TRIAL. No party to this instrument, which includes
any assignee, successor, heir or personal representative of a party, shall seek
a jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of this Agreement, any related instrument,
or the dealings or the relationship between the parties. If the subject matter
of any such litigation is one in which the waiver of a jury trial is prohibited,
if at all, under the controlling law of the applicable jurisdiction, or by
constitutional or statutory provision, no party hereto will present as a defense
or counterclaim in such litigation any claim which would reduce or offset any
amount or right claimed under the provisions of this Pledge Agreement. No party
will seek to consolidate any such action, in which a jury has been waived, with
any other action in which a jury trial cannot or has not been waived.
THE PROVISIONS OF THIS SECTION 18 HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY
HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS
OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS AGREEMENT.
9
IN WITNESS WHEREOF, the parties hereto executed this Pledge Agreement
to be effective as of the date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By:
Name: Paul A. Strasen
Title: Senior Vice President
The DEVELOPER hereby executes this Pledge Agreement for purposes of
acknowledging and consenting to its execution by the DEVELOPER's Partners and
agrees that its security interest in and to the Pledged Units is junior to the
security interest in and to the Pledged Units granted to the Company hereunder.
EINSTEIN/NOAH BAGEL
PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By:
Name: Jeffrey L. Butler
Title: President
10
Schedule A
To
Pledge Agreement
Pledged Units at December __, 1997
No. of Units Issued To
============ =========
------------ ---------
------------ ---------
------------ ---------
|
EXHIBIT 10.4
EINSTEIN/NOAH BAGEL CORP.
AMENDED AND RESTATED
DEVELOPMENT AGREEMENT
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DEVELOPER
TABLE OF CONTENTS
SECTION PAGE
------- ----
1. PREAMBLES.............................................................................................. 1
2. CERTAIN DEFINITIONS.................................................................................... 2
3. DEVELOPMENT RIGHTS AND OBLIGATIONS..................................................................... 10
A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY.................................................................... 10
B. TERRITORIAL RIGHTS............................................................................ 11
C. DEVELOPMENT OBLIGATIONS....................................................................... 11
D. RIGHTS RETAINED BY COMPANY.................................................................... 12
E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES.................................................... 12
F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES............................................... 14
G. POST-TERM DEVELOPMENT......................................................................... 15
4. OTHER DISTRIBUTION METHODS............................................................................. 17
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................................................. 17
B. DELIVERY SERVICE.............................................................................. 17
C. CATERING SERVICE.............................................................................. 18
5. DEVELOPMENT AND OPERATION OF COMMISSARIES.............................................................. 19
A. OBLIGATION TO OPERATE COMMISSARIES............................................................ 19
B. DEVELOPMENT AND OPENING OF COMMISSARIES....................................................... 20
C. TRAINING AND GUIDANCE......................................................................... 20
D. COMMISSARY MANUALS............................................................................ 21
E. OPERATION OF THE COMMISSARY................................................................... 21
F. INSURANCE..................................................................................... 22
G. TRANSFERS..................................................................................... 22
H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS........................................... 23
I. RIGHTS AND OBLIGATIONS OF COMPANY AND DEVELOPER UPON TERMINATION OR
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY................................................... 23
6. GRANT OF LICENSES AND ADVERTISING REQUIREMENT.......................................................... 24
A. SITE REVIEW AND APPROVAL...................................................................... 24
B. LEASE OF APPROVED SITES....................................................................... 25
C. EXECUTION OF LICENSE AGREEMENTS............................................................... 26
D. INITIAL LICENSE AND ROYALTY FEES.............................................................. 26
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i
SECTION PAGE
------- ----
6. E. ADVERTISING EXPENDITURES...................................................................... 27
7. INITIAL PAYMENTS....................................................................................... 27
A. DEVELOPMENT FEE............................................................................... 27
B. REAL ESTATE SERVICES FEE...................................................................... 27
8. MARKS.................................................................................................. 27
A. GOODWILL AND RIGHTS TO USE THE MARKS.......................................................... 27
B. LIMITATIONS ON DEVELOPER'S USE OF MARKS....................................................... 28
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 28
D. DISCONTINUANCE OF USE OF MARKS................................................................ 29
E. INDEMNIFICATION OF DEVELOPER.................................................................. 29
F. NON-DENIGRATION............................................................................... 29
G. MARKING REQUIREMENTS.......................................................................... 30
9. COPYRIGHTS............................................................................................. 30
A. OWNERSHIP OF COPYRIGHTED WORKS................................................................ 30
B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS............................................ 31
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 31
D. DISCONTINUANCE OF USE OF ..................................................................... 31
10. COMPUTER SYSTEM AND SOFTWARE........................................................................... 32
A. GRANT OF LICENSE.............................................................................. 32
B. SOFTWARE LICENSE FEE.......................................................................... 34
C. SOFTWARE SUPPORT SERVICE...................................................................... 34
D. SOFTWARE SUPPORT SERVICE FEE.................................................................. 35
E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE............................................................... 35
F. WARRANTIES AND LIMITATION OF LIABILITY........................................................ 36
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES................................................ 36
H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LICENSED PROGRAM SUPPORT/CONTROL PROGRAMS..................................................... 37
11. CONFIDENTIAL INFORMATION............................................................................... 37
12. EXCLUSIVE RELATIONSHIP................................................................................. 40
13. OBLIGATIONS OF DEVELOPER............................................................................... 41
A. FULL-TIME SUPERVISION......................................................................... 41
B. CHIEF OPERATING OFFICER....................................................................... 41
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ii
SECTION PAGE
------- ----
13. C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS................................................. 42
D. TRAINING DIRECTOR............................................................................. 42
E. MARKETING DIRECTOR............................................................................ 43
F. MANAGEMENT PERSONNEL AND TRAINING............................................................. 44
G. BUDGETS AND FINANCING PLANS................................................................... 45
H. INSURANCE..................................................................................... 45
I. RECORDS AND REPORTS........................................................................... 46
J. DEVELOPMENT MANUAL, COMMISSARY MANUALS
AND STORE MANUALS............................................................................. 48
K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.............................................. 48
L. HUMAN RESOURCES............................................................................... 49
M. SPECIFICATIONS, STANDARDS AND PROCEDURES...................................................... 49
14. TRANSFER............................................................................................... 51
A. BY COMPANY.................................................................................... 51
B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER............................................... 51
C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.............................................................. 52
D. COMPANY'S RIGHT TO APPROVE TRANSFERS.......................................................... 52
E. PUBLIC OR PRIVATE OFFERINGS................................................................... 55
F. EFFECT OF CONSENT TO TRANSFER................................................................. 56
G. COMPANY'S RIGHT OF FIRST REFUSAL.............................................................. 57
H. OWNERSHIP STRUCTURE........................................................................... 58
I. DELEGATION BY COMPANY......................................................................... 58
J. PERMITTED TRANSFERS........................................................................... 58
15. TERMINATION OF AGREEMENT............................................................................... 58
A. BY DEVELOPER.................................................................................. 58
B. BY COMPANY.................................................................................... 59
C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.......................................................... 61
16. RIGHTS AND OBLIGATIONS OF COMPANY AND
DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM.......................................................... 62
A. PAYMENT OF AMOUNTS OWED TO COMPANY............................................................ 62
B. MARKS AND COPYRIGHTED WORKS................................................................... 62
C. CONFIDENTIAL INFORMATION...................................................................... 63
D. COVENANT NOT TO COMPETE....................................................................... 64
E. EFFECT ON COMMISSARIES........................................................................ 65
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iii
SECTION PAGE
------- ----
16. F. CONTINUING OBLIGATIONS........................................................................ 65
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION................................................................ 65
18. ENFORCEMENT............................................................................................ 66
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............................................. 66
B. WAIVER OF OBLIGATIONS......................................................................... 67
C. INJUNCTIVE RELIEF............................................................................. 68
D. RIGHTS OF PARTIES ARE CUMULATIVE.............................................................. 69
E. COSTS AND LEGAL FEES.......................................................................... 69
F. GOVERNING LAW................................................................................. 69
G. CONSENT TO JURISDICTION/CHOICE OF FORUM....................................................... 69
H. LIMITATIONS OF CLAIMS......................................................................... 70
I. WAIVER OF PUNITIVE DAMAGES.................................................................... 70
J. WAIVER OF JURY TRIAL.......................................................................... 70
K. BINDING EFFECT................................................................................ 70
L. CONSTRUCTION.................................................................................. 70
M. REASONABLENESS; APPROVALS..................................................................... 71
19. NOTICES AND PAYMENTS................................................................................... 71
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EXHIBITS AND ATTACHMENTS
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - DEVELOPMENT FEE
EXHIBIT D - DEVELOPMENT AREA(S)
EXHIBIT E - DEVELOPMENT SCHEDULE
EXHIBIT F - FORM LICENSE AGREEMENT
EXHIBIT G - PRINCIPAL OWNERS, OTHER OWNERS, KEY
MANAGERS, PERMITTED COMPETITIVE
BUSINESSES, AND INITIAL CAPITALIZATION
EXHIBIT H - DEVELOPER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT I - GUARANTY AND ASSUMPTION OF DEVELOPER'S
OBLIGATIONS
EXHIBIT J - CONFIDENTIALITY AND NONCOMPETE AGREEMENT
EXHIBIT K - PRINCIPAL MARKS TO BE USED BY DEVELOPER
|
v
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
THIS AGREEMENT is made and entered into this 5th day of December, 1997
(the "EFFECTIVE Date"), by and between EINSTEIN/NOAH BAGEL CORP., a Delaware
corporation ("COMPANY"), and DEVELOPER (defined below).
"DEVELOPER": EINSTEIN/NOAH BAGEL PARTNERS, L.P.
----------------------------------
a DELAWARE LIMITED PARTNERSHIP
----------------------------------
Principal Address: 14123 DENVER WEST PARKWAY
----------------------------------
GOLDEN, CO 80401
----------------------------------
----------------------------------
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1. PREAMBLES.
COMPANY and its Affiliates (as defined below) have developed and are
continuing to develop and refine methods of operating a number of branded
retail food service businesses, each with its own concept and operated under
its own system and marks which are referred to in this Agreement as "UNITS"
(defined below), which feature Products (defined below) for on-premises dining
and carry-out. In addition to on-premises dining and carry-out, COMPANY may, in
its sole discretion, offer to an owner of a UNIT the right (a) to offer
Delivery Service (defined below) and/or (b) to offer Catering Service (defined
below) and/or (c) to operate Special Distribution Arrangements (defined below).
Each UNIT utilizes the Marks (defined below) and operates at a location that
features distinctive food service formats and trade dress and utilizes
distinctive business formats, specifications, employee selection and training
programs, signs, equipment, layouts, systems, recipes, methods, procedures,
software, designs and marketing and advertising standards and formats, all of
which COMPANY is continuing to develop and refine and may modify from time to
time in its sole discretion, and all of which may have one or more variations
approved or specified by COMPANY from time to time (the "SYSTEM"). COMPANY
operates, and grants franchises and licenses to certain qualified parties to
own and operate UNITS using the Marks and the System associated with the
Principal Marks (defined below) authorized by COMPANY.
COMPANY grants to certain qualified persons or entities who meet
COMPANY's qualifications and who are willing to undertake the investment and
effort, the right to develop a specified number of UNITS within a defined
geographic area. This Agreement governs the right and obligation of DEVELOPER
to enter into License Agreements (defined below) which grant the right to
develop UNITS which use the branded concept, the Principal Marks, the other
Marks associated with the Principal Marks and those elements of the System
associated with the
Principal Marks ("DEVELOPER Stores", as further defined below) within the
Development Area (defined below) in accordance with the Development Schedule
(defined below). The operation of each DEVELOPER Store will be governed by a
Franchise Agreement (defined below) or a License Agreement.
COMPANY and DEVELOPER have previously entered into a
Development Agreement dated as of June 17, 1996 (the "Original Development
Agreement") pursuant to which DEVELOPER was granted the right and undertook the
obligation to develop a specified number of UNITS within a defined geographic
territory.
COMPANY has also entered into various development agreements with
Colonial Bagels, L.P., Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., and
Sunbelt Bagels, L.L.C. (collectively referred to as the "Area Developers" )
pursuant to which the Area Developers were granted the right and undertook the
obligation to develop a specified number of UNITS within defined geographic
territories (the "Other Development Agreements").
As of the date hereof, the Area Developers will merge with, and into,
DEVELOPER. As a result of said merger, (a) DEVELOPER will own and operate 555
UNITS pursuant to Franchise Agreements previously executed by DEVELOPER and the
Area Developers (the "Franchise Agreements") and (b) DEVELOPER desires to
undertake the remaining development obligations of the Area Developers under
the Other Development Agreements, all of which have been terminated by COMPANY
and the Area Developers as of the date hereof. In order to facilitate the
foregoing and the development of the UNITS and to amend, restate, replace and
substitute in full the obligations of COMPANY and DEVELOPER under the Original
Development Agreement, COMPANY and DEVELOPER desire to enter into this
Agreement, upon the terms and subject to the conditions set forth herein and as
an amendment, restatement, replacement and substitute for the Original
Development Agreement.
2. CERTAIN DEFINITIONS.
For purposes of this Agreement, the terms listed below have the
meanings that follow them. Other terms used in this Agreement are defined in
the context in which they occur.
"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive
weeks in each fiscal year of COMPANY that is designated by COMPANY as an
accounting period of COMPANY.
"AFFILIATE" - Any person or legal entity that directly or indirectly
owns or controls COMPANY, that is directly or indirectly owned or controlled by
COMPANY, or that is under common control with COMPANY. For purposes of this
definition, "CONTROL" means the power to direct or cause the direction of the
management and policies of an entity.
"AGREEMENT TERM" - The period commencing upon the Effective Date and
ending upon
2
the expiration or termination of the last to expire or terminate of the
Franchises or Licenses (defined below) and successor Franchises or Licenses
granted to DEVELOPER pursuant to this Agreement, unless terminated sooner in
accordance with the provisions of this Agreement.
"ALBERT EINSTEIN PUBLICITY SYMBOLS" - The full name Albert Einstein
and the likeness, image, caricature, photographs and signature of Albert
Einstein and up to two sayings or slogans originated by Albert Einstein and to
be selected by COMPANY from among his sayings and slogans.
"ALBERT EINSTEIN INDICIA" - All indicia of Albert Einstein (other than
the name Albert Einstein, sayings or slogans originated by Albert Einstein or
the likeness, image, caricature, photographs or signature of Albert Einstein),
including but not limited to references to (i) genius and human intelligence
(e.g., references to IQ), (ii) scientific formulas and mathematical equations
(e.g. E=MC2), (iii) scientific and mathematical theories (e.g., the theory of
relativity), and (iv) drawings or symbols of the atom or atomic particles.
"APPROVED SITE" - A site which COMPANY has approved as meeting its
minimum criteria for the development and operation of a DEVELOPER Store.
"BAGEL STORE" - A food service business, including a UNIT, which
derives a significant portion of its revenue from the sale of bagels and/or
bagel-related products or from any other product or service which is or
hereafter becomes a source of a significant portion of the revenue of a UNIT.
"CATERING AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes the owner of a Franchise or License (a "FRANCHISE OR
LICENSE OWNER") to provide Catering Service pursuant to a Catering Rider, which
area may be the same as, smaller than, larger than or different from the
Territory (defined in the Franchise Agreement) of a UNIT.
"CATERING RIDER" - The form of rider to this Agreement or to a
Franchise Agreement or License Agreement used by COMPANY from time to time to
authorize in its sole discretion a Franchise or License Owner to offer Catering
Service (defined below) within the applicable Catering Area. The current form
of COMPANY's Catering Rider is attached hereto as Exhibit A.
"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a
separate facility approved by COMPANY in writing (such approved facility is
referred to herein as a "CATERING FACILITY") to customers in the Catering Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fifteen (15) or more
persons, or
3
(2) in addition to the delivery of Products, DEVELOPER provides
ancillary services to a customer at such location within the Catering
Area, including, by way of example and without limitation, the
setting up for serving or distribution of Products.
"COMMISSARY" - A food preparation facility operated by DEVELOPER
pursuant to this Agreement that:
(1) procures and receives those Products, ingredients and
materials used in the preparation and packaging of Products, and
other materials and supplies used in the operation of Stores as
COMPANY may specify from time to time;
(2) prepares and packages Products in accordance with recipes,
methods, procedures, standards and specifications established by
COMPANY, in its sole discretion, from time to time; and
(3) distributes to DEVELOPER Stores Products and other materials
and supplies used in the operation of Stores.
"COMPETITIVE BUSINESS" - A business or enterprise, other than a UNIT
or Commissary, that:
(1) offers food and/or beverage products at wholesale or retail,
which are the same as or similar to the Products, through:
(a) on-premises dining;
(b) carry-out;
(c) delivery service;
(d) catering service; or
(e) other distribution channels similar to those used by
COMPANY; or
(2) grants or has granted franchises or licenses or establishes
or has established joint ventures, for the development and/or
operation of one or more businesses or enterprises described in the
foregoing clause (1); provided, however, that the term "Competitive
Business" shall not include:
(a) any Boston Market restaurant operated pursuant to a
valid franchise or license agreement with Boston
Chicken, Inc. or its successors; or
4
(b) any business or enterprise that derives less than 10%
of its revenue from the sale of (i) bagels and/or
bagel related products (including but not limited to
cream cheese and other spreads, bagel sandwiches and
bagel chips) or (ii) any other product which accounts
for 15% or more of the revenue of any UNIT owned or
operated by COMPANY or a franchisee of COMPANY.
"COMPUTER SYSTEM" - Those brands, types, makes, and/or models of
communications and computer systems and hardware specified or required by
COMPANY for use by, between, or among the Stores and/or DEVELOPER including,
but not limited to:
(1) back office and point of sale systems, data, audio, video,
and voice storage, retrieval, and transmission systems for use at the
Stores and/or at DEVELOPER's office, between or among the Stores and
DEVELOPER and between or among Stores and/or DEVELOPER and COMPANY;
(2) security systems;
(3) printers; and
(4) archival and back-up systems.
"CONTROLLING INTEREST" - If DEVELOPER is a:
(1) corporation, such number of the voting shares of DEVELOPER
or such other rights as (a) shall permit voting control of DEVELOPER
on any issue and (b) shall prevent any other person, group,
combination, or entity from blocking voting control on any issue or
exercising any veto power; and
(2) general partnership, a managing partnership interest, such
percentage of the general partnership interests in DEVELOPER or such
other rights as (a) shall permit determination of the outcome on any
issue and (b) shall prevent any other person, group, combination, or
entity from blocking voting control on any issue or exercising any
veto power;
(3) limited partnership, general partnership interest, such
percentage of limited partnership interests or such other rights as
shall permit the replacement or removal of any general partner; and
(4) limited liability company, such percentage of the membership
interests of
5
DEVELOPER or such other rights as (a) shall permit voting control of
DEVELOPER on any issue, and (b) shall prevent any other person,
group, combination, or entity from blocking voting control on any
issue or exercising any veto power.
"DELIVERY AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes a franchise owner to provide Delivery Service (defined
below) pursuant to a Delivery Rider (defined below), which area may be the same
as, smaller than, larger than or different from the Territory of a UNIT.
"DELIVERY RIDER" - The form of rider to this Agreement or to a
Franchise Agreement or License Agreement used by COMPANY from time to time to
authorize or require in its sole discretion a Franchise or License Owner of a
Store to offer Delivery Service within the applicable Delivery Area. The
current form of COMPANY's Delivery Rider is attached hereto as Exhibit B.
"DELIVERY SERVICE" - The delivery of Products prepared at a UNIT or a
separate delivery facility approved by COMPANY (such approved facility is
referred to herein as a "DELIVERY FACILITY") to customers in the Delivery Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fewer than fifteen (15)
persons, and
(2) such service involves the provision of no services other
than the delivery of Products to a customer at a location within the
Delivery Area.
"DEVELOPER STORES" - The UNITS developed, owned and operated by
DEVELOPER pursuant to this Agreement and/or Franchise Agreements or License
Agreements that operate using the Principal Marks, the other Marks associated
with the Principal Marks and the elements of the System associated with the
Principal Marks and pursuant to COMPANY's operational requirements associated
with such Principal Marks as in effect from time to time.
"DEVELOPMENT AREA" - The aggregate of the geographic areas described
in Exhibit D to this Agreement.
"DEVELOPMENT SCHEDULE" - The schedule of the number of DEVELOPER
Stores required to be open and operational at specified dates in each Sub-Area
(defined below) and the required opening dates for each of them set forth in
Exhibit E to this Agreement.
"DEVELOPMENT TERM" - The period during which DEVELOPER is authorized
and required to develop Developer Stores pursuant to this Agreement, which will
commence on the Effective Date and will expire, unless terminated earlier in
accordance with the terms of this
6
Agreement, on the earlier to occur of (i) the last opening date set forth in
the Development Schedule; or (ii) the first date on which the number of
Developer Stores for which a Franchise Agreement (other than Franchise
Agreements in effect as of the date hereof) or License Agreement has been
executed and delivered for a location in the Development Area is equal to the
Total Development Quota (as defined in the Development Schedule set forth in
Exhibit E to this Agreement).
"EINSTEIN ALONE" - The name EINSTEIN in combination with no other
word, with or without a logo, and the name EINSTEIN in combination with another
word that is a generic or immediately descriptive reference to a product or
service or location (e.g. RESTAURANT, BAGELS or CREAM CHEESE).
"ENBC PROMOTIONAL ITEMS" - Goods intended to promote COMPANY's
restaurant services or food products, including and specifically limited to
magnets; pins; playing cards; flags; banners; umbrellas; name badges; key
chains; cups; glasses; bagel slicers; toasters; mugs; can cooler sleeves; golf
towels; clothing, namely, shirts, blouses, t-shirts, jackets, hats, caps,
visors, sweaters and sweatshirts; golf bags, flying discs and balls.
"FRANCHISE OR LICENSE " - The right to operate a UNIT at a particular
location and to use one or more of the Marks and the System in the operation
thereof.
"LICENSE AGREEMENT" - at COMPANY's option, either:
(1) the form of license agreement (including exhibits, riders,
addenda and attachments thereto) attached hereto as Exhibit F; or
(2) the form of license agreement (including all exhibits,
riders, guarantees and other agreements used in connection therewith)
used by COMPANY from time to time in the offering and granting of
Licenses in the United States of America,
in either instance revised by COMPANY in good faith to the extent necessary to
have the License Agreement reflect the substantive changes contained in
Addendum No. 1 to the License Agreement attached hereto as part of Exhibit F.
"IMMEDIATE FAMILY" - (1) The spouse of a person; and (2) the natural
and adoptive parents and natural and adopted children and siblings of such
person and their spouses; and (3) the natural and adoptive parents and natural
and adopted children and siblings of the spouse of such person; and (4) any
other member of the household of such person; provided, in the case of natural
and adopted children and siblings and their spouses and the parents, children
and siblings of spouses, that such person received or had access to
Confidential Information, including as an employee, supplier, officer,
director, stockholder or agent of DEVELOPER or any other operator of a UNIT.
7
"LICENSED PROGRAM" - The retail store-level computer software programs
(other than the Support/Control Program, as defined below) developed by or for
COMPANY and designated by COMPANY from time to time as specified or required in
connection with utilization of the Computer System, which may include, without
limitation, COMPANY's required point-of-sale, bookkeeping, inventory, training,
marketing, employee selection, operations and financial information, collection
and retrieval systems (including COMPANY's general ledger system utilizing the
standard chart of accounts prescribed by COMPANY from time to time) for use in
connection with the operation of UNITS or franchise owners', license owners'
and developers' businesses, including any updates, supplements, modifications
or enhancements thereto made from time to time, all related documentation, the
tangible media upon which such programs are recorded, and the database file
structure thereof, but excluding any data or databases owned or compiled by
COMPANY or its Affiliates or their licensors for use with the Licensed Program
or otherwise or any data generated by the use of the Licensed Program. The
Licensed Program includes, but is not limited to, programs utilized by UNITS
for point-of-sale and cash management, customer feedback kiosks, inventory
management, order processing, employee feedback, production scheduling, labor
scheduling, ideal food costs, store operations and smart form reporting.
"MARKS" - The trademarks, service marks, logos and other commercial
symbols which COMPANY uses and authorizes developers, franchise owners and
license owners to use to identify, the services and/or products offered by
Stores, and the "TRADE DRESS" (defined in the License Agreement); provided that
such trademarks, service marks, logos, other commercial symbols, and the Trade
Dress are subject to modification and discontinuance at COMPANY's sole
discretion and may include additional or substitute trademarks, service marks,
logos, commercial symbols and trade dress as provided in this Agreement. The
Marks include the Principal Marks DEVELOPER is authorized to use in the
operation of the DEVELOPER Stores.
"OWNER" - Each person or entity holding direct or indirect, record or
beneficial Ownership Interests in DEVELOPER, and each person who has other
direct or indirect property rights in DEVELOPER or this Agreement.
"OWNERSHIP INTERESTS" - In relation to a: (i) corporation, the record
or beneficial ownership of one or more shares in the corporation; (ii)
partnership, the record or beneficial ownership of a general or limited
partnership interest; (iii) limited liability company, the record or beneficial
ownership of a membership interest in the limited liability company; or (iv)
trust, the ownership of a beneficial interest of such trust.
"PERMITTED COMPETITIVE BUSINESS" - A business which constitutes a
Competitive Business on the date of this Agreement and is disclosed in Exhibit
G to this Agreement, provided that such business (1) is not on the date of this
Agreement and does not at any time thereafter become a Bagel Store, and (2)
does not offer bagels or bagel-related products on its menu,
8
provided that if such business is a franchised or licensed business of a
franchisor or licensor which, pursuant to an agreement executed prior to the
date of this Agreement and under which, after the date of this Agreement, the
franchisor or licensor specifies that such business offer bagels or
bagel-related products as a required menu item, it shall continue to be deemed
a Permitted Competitive Business so long as it does not become a Bagel Store.
"PRINCIPAL MARKS" - The Marks COMPANY authorizes DEVELOPER to use to
identify DEVELOPER Stores. The Principal Marks as of the date of this Agreement
are described in Exhibit K to this Agreement.
"PRINCIPAL OWNER" - Each Owner which:
(1) is a general partner in DEVELOPER; or
(2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a)
DEVELOPER or (b) any UNIT or (c) any developer and/or franchise owner
of UNITS other than DEVELOPER; provided, however, that a reduction in
a Principal Owner's equity interest below 10% shall not affect
his/her/its status as a Principal Owner unless such reduction is the
result of the transfer of all his/her/its equity interests in
DEVELOPER, a UNIT or such developer and/or franchise owner of UNITS;
or
(3) is designated as a Principal Owner in Section 2 of Exhibit G
to this Agreement.
"PRODUCTS" - Products approved or required by COMPANY from time to
time, in its sole discretion, for sale at or from UNITS, including, without
limitation, bagels, bagel-related products, cream cheese and other spreads,
sandwiches, soups, salads, baked goods, breakfast items, an assortment of hot
and cold beverages, teas (leaves, bags, dry mixes and related forms), coffees
(beans, ground and related forms) and other food products and merchandise,
provided that the foregoing products are subject to modification or
discontinuance in COMPANY's sole discretion, from time to time, and may include
additional or substitute products.
"REQUIRED TELEVISION ADVERTISING" - Television advertising in the
Designated Market Area ("DMA") (as defined by A.C. Nielsen Co. from time to
time) in which the Development Area is located at a minimum of 200 gross
ratings points for a minimum of 36 weeks per calendar year, provided that
COMPANY may, in its sole discretion, from time to time use a market designation
comparable to, but different from, the DMA for purposes of this definition.
"SPECIAL DISTRIBUTION AGREEMENT" - A separate agreement whereby
COMPANY authorizes a Franchise owner or License owner to operate a Special
Distribution Arrangement (defined below) at a Special Distribution Location (as
defined below) designated by COMPANY.
9
"SPECIAL DISTRIBUTION ARRANGEMENT" - The sale of all or some of the
Products, as designated by COMPANY, at or from a Special Distribution Location
(defined below), whether or not by or through on-premises food service
facilities or concessions, pursuant to COMPANY's standards and specifications
for such sales, which COMPANY may change from time to time in its sole
discretion.
"SPECIAL DISTRIBUTION LOCATION" - A facility or location, including by
way of example and without limitation, a grocery store, convenience store,
supermarket, school, hospital, office, work site, military facility,
entertainment or sporting facility or event, airport, bus or train station,
park, toll road or limited access highway facility, or other similar facility,
at or from which COMPANY, in its sole discretion, authorizes the operation of a
Special Distribution Arrangement pursuant to a Special Distribution Agreement,
which facility may be located within or outside the Development Area or any
Sub-Area.
"SPECIFIED SOFTWARE" - Such software (other than the Licensed Program
and Support/Control Programs), programming, and services which COMPANY from
time to time specifies or requires in connection with utilization of the
Computer System, the Licensed Program and the Support/Control Programs.
"STORES" - UNITS that operate using the Principal Marks, the other
Marks associated with the Principal Marks and the elements of the System
associated with the Principal Marks and pursuant to COMPANY's operational
requirements associated with such Principal Marks as in effect from time to
time.
"SUB-AREAS" - The geographic areas designated as Sub-Areas in Exhibit
D to this Agreement which, taken together, make up the Development Area.
"SUB-AREA TERM" - The period during which DEVELOPER is authorized and
required to develop DEVELOPER Stores in a given Sub-Area pursuant to this
Agreement, which will commence on the Effective Date and will expire, unless
terminated earlier in accordance with the terms of this Agreement, on the
earlier to occur of: (i) the last opening date set forth in Exhibit D to this
Agreement for that Sub-Area; or (ii) the first date on which the number of
Stores in the Sub-Area for which a License Agreement has been executed and
delivered is equal to the Sub-Area Quota (as set forth in Exhibit E ) for that
Sub-Area.
"SUPPORT/CONTROL PROGRAMS" - The computer software programs developed
by or for COMPANY and designated from time to time as specified or required in
connection with real estate services and other functions performed by COMPANY
pursuant to this Agreement or in connection with support, supervision,
reporting or control of UNITS and in connection with analysis, tracking,
maintenance, feedback and communication functions related thereto or to the
employees thereof, including but not limited to, Notes Databases, structured
reporting and related software.
10
"UNIT" - A branded retail store that:
(1) offers Products for consumer consumption through on-premises
dining and carry-out, provided that COMPANY may, in its sole
discretion, authorize and/or require such business to offer Delivery
Service pursuant to a Delivery Rider and/or approve the Franchise
owner of such business to offer Catering Service pursuant to a
Catering Rider or to operate Special Distribution Arrangements
pursuant to a Special Distribution Agreement (defined below); and
(2) operates using the System and the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant
to a valid franchise or license from COMPANY.
3. DEVELOPMENT RIGHTS AND OBLIGATIONS.
3.A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY.
DEVELOPER has requested that COMPANY grant to DEVELOPER the right to
develop, own and operate, strictly in accordance with the Sub-Area Development
Quotas and the Total Development Quota, Stores in the Development Area.
DEVELOPER's request, with respect to the Principal Marks, the other Marks
associated with the Principal Marks and those elements of the System associated
with the Principal Marks and concepts associated therewith (as listed on
Exhibit K attached hereto), has been approved by COMPANY in reliance upon all
of the representations made by DEVELOPER and its Owners in any submitted
application and/or during the application process and in the Developer
Acknowledgements and Representations Statement, a copy of which is attached to
this Agreement as Exhibit H and which shall be executed by DEVELOPER
concurrently with this Agreement. Within sixty (60) days of execution of this
Agreement, DEVELOPER agrees to prepare and submit to COMPANY for COMPANY's
review, amendment, and approval a real estate development plan for developing
DEVELOPER Stores in the Development Area (the "MARKET REAL ESTATE DEVELOPMENT
PLAN") (which shall utilize, among other sources, information from the
Demographic Detail Report (defined below in Section 6.A.) which DEVELOPER
purchases from COMPANY). Provided that DEVELOPER is in full compliance with all
of the terms and conditions of this Agreement, including, without limitation,
the development obligations contained in Section 3.C. hereof, and DEVELOPER is
in full compliance with all of their obligations under all License Agreements
executed pursuant hereto and the Franchise Agreements, COMPANY will grant to
DEVELOPER during the Development Term and in accordance with Section 6 hereof,
the right to develop and operate the number of Stores in each Sub-Area of the
Development Area as
11
specified on Exhibit D to this Agreement. DEVELOPER acknowledges and agrees
that DEVELOPER's rights under this Agreement are limited to the designated
number of Stores for each Sub-Area and the schedule and timing of the opening
of Stores in each Sub-Area during the respective Sub-Area Terms as set forth on
Exhibit D to this Agreement. DEVELOPER is not granted any rights to develop or
operate, and DEVELOPER will not develop or operate, UNITS outside the
Sub-Areas, except pursuant to rights granted to DEVELOPER under other
agreements entered into with COMPANY.
DEVELOPER expressly acknowledges and agrees that it has no right to
renew its rights under this Agreement upon the expiration or termination of the
Agreement Term or the Development Term. DEVELOPER acknowledges and agrees that
the execution and delivery of this Agreement shall constitute notice to
DEVELOPER of non-renewal for purposes of fulfilling the requirements of any
applicable state or federal law governing the non-renewal of franchise or
development rights.
DEVELOPER shall cause all Principal Owners and their spouses as of the
Effective Date to execute and deliver to COMPANY concurrently with the
execution of this Agreement and all persons or entities that become Principal
Owners after the Effective Date and their spouses to promptly thereafter
execute and deliver to COMPANY, the form of Guaranty and Assumption of
Developer's Obligations ("GUARANTY") attached hereto as Exhibit I.
Notwithstanding the foregoing:
(a) DEVELOPER shall not be required to cause the execution
and delivery of the Guaranties referred to in this Section if, and for
such period of time as, DEVELOPER does not pay dividends,
distributions or unreasonable compensation to any Owner at any time
that the Owners' equity in DEVELOPER is either less than $5,000,000 or
would be reduced to below that amount by reason of such payment; and
(b) spouses of guarantors shall not be required to execute
any Guaranties referred to in this Section unless, under applicable
law (including, without limitation, the law of the state in which such
guarantors and/or their spouses reside), their failure to execute
would render the Guaranties null and void.
3.B. TERRITORIAL RIGHTS.
Except as otherwise provided in this Agreement (including, without
limitation, Section 4 and Sections 3.E. and 3.F.), and provided that DEVELOPER
is in full compliance with this Agreement and with all License Agreements and
Franchise Agreements, COMPANY and its Affiliates will not during the Sub-Area
Term for each Sub-Area operate or grant franchises or licenses for the
operation of Stores within such Sub-Area.
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3.C. DEVELOPMENT OBLIGATIONS.
DEVELOPER agrees that during the Development Term, it will
continuously exert its best efforts to promote and enhance the development of
Stores within the Development Area. Without limiting the foregoing obligation,
DEVELOPER agrees to have open and in operation in each Sub-Area the number of
Stores set forth as the respective Sub-Area Quota in Exhibit E attached hereto
by the opening dates specified therein, exclusive of Stores operating pursuant
to the Franchise Agreements. DEVELOPER and COMPANY acknowledge and agree that a
DEVELOPER Store that closes for more than five (5) days (not counting
COMPANY-approved holidays) during any period of 12 months shall not be counted
as open and in operation as of the next store opening date after such closing
for purposes of determining DEVELOPER's compliance with the Development
Schedule for the Sub-Area in which the DEVELOPER Store is located unless such
closing is due to circumstances listed in the last paragraph of Section 18.B of
this Agreement, in which case, the provisions of Section 18.B shall apply.
DEVELOPER also agrees that it will at all times faithfully, honestly and
diligently perform its obligations under this Agreement and that it will update
the Market Real Estate Development Plan as COMPANY requires from time to time.
DEVELOPER acknowledges that COMPANY makes no representations or warranties that
the Development Area or the Sub-Areas can support, or that there are sufficient
sites for, the number of Stores specified in the Development Schedule.
DEVELOPER acknowledges and agrees that its failure to open and operate Stores
pursuant to this Agreement shall be a material breach of this Agreement
entitling COMPANY to all remedies available to it pursuant to this Agreement
and applicable law.
3.D. RIGHTS RETAINED BY COMPANY.
COMPANY (on behalf of itself, its Affiliates and its designees)
retains all rights with respect to UNITS, the Marks, the Copyrighted Works, and
the sale of Products and any other products and services, anywhere in the
world, including, without limitation:
(1) the right to operate or grant others (including any person
or entity related to any manner whatsoever to COMPANY) the right to
operate food service businesses, including, without limitation, UNITS
and/or Bagel Stores, using the Principal Marks, any of the other
Marks or any other marks and using the System or any other system at
such locations within and/or outside the Development Area and each
Sub-Area, both during and upon expiration or termination of the
Development Term or Agreement Term, and on such terms and conditions
as COMPANY, in its sole discretion, deems appropriate (subject to the
rights expressly granted to DEVELOPER in Section 3.B. of this
Agreement); and
(2) subject to any rights of DEVELOPER under Section 4 of this
Agreement, the right, and the right to grant others (including any
person or entity related in any manner whatsoever to COMPANY) the
right, to develop, manufacture, market, distribute
13
and/or sell Products and/or any other product or service within
and/or outside the Development Area and each Sub-Area through any
channel of distribution whatsoever, whether wholesale, retail or
otherwise, including, without limitation, through Special
Distribution Arrangements, Delivery Service, Catering Service and
BOSTON MARKET outlets under or in association with the Marks or any
other trademarks and/or to own or operate any other business under
the Marks or any other trademarks; and
(3) subject to Sections 3.E. and 3.F. below, the right to
develop Target Sites (defined below) and to acquire, operate and
convert to a UNIT using the Principal Marks or any of the other Marks
any business, including, without limitation, a business operating one
or more Bagel Stores (other than UNITS) or other food service
businesses located or operating within and/or outside the Development
Area and any Sub-Area.
3.E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES.
Notwithstanding anything to the contrary in this Agreement, if during
the Sub-Area Term of a particular Sub-Area COMPANY locates a site within such
Sub-Area at which a Bagel Store is not then operated but which, in COMPANY's
judgment, is suitable for a UNIT (a "TARGET SITE"), COMPANY shall, as soon as
is practicable after the site is identified (taking into consideration any
applicable contractual or legal prohibitions or limitations), notify DEVELOPER
in writing of such Target Site if COMPANY intends that such Target Site be
developed and operated as a Store. Within ten (10) days after DEVELOPER's
receipt of COMPANY's notice regarding such Target Site (including any relevant
site-related materials in COMPANY'S possession), DEVELOPER shall notify COMPANY
if DEVELOPER desires to develop and operate a Store at such Target Site as
described in the notice.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires
to develop and operate a Store at such Target Site and COMPANY has fully
negotiated a lease or purchase agreement for such Target Site, then DEVELOPER
shall (1) obtain the consent of the landlord to execute and shall execute such
lease or an assignment and assumption of lease, if applicable, or (2) obtain
the consent of the seller to execute and shall execute a purchase agreement or
an assignment and assumption of purchase agreement, if applicable, and (3)
execute a License Agreement and such ancillary documents as are then
customarily used by COMPANY in the grant of licenses for Stores (collectively,
the "License Documents") as modified for use in connection with the Target
Site, as necessary, and (4) pay COMPANY a site location and negotiation fee
(the "SITE LOCATION AND NEGOTIATION FEE") equal to Twenty Thousand Dollars
($20,000.00) plus COMPANY's reasonable out-of-pocket expenses incurred in
locating such Target Site and negotiating the lease or purchase agreement, all
within ten (10) business days after COMPANY's delivery to DEVELOPER of the
lease or purchase agreement, as the case may be, and the License Documents. The
Site Location and Negotiation Fee is paid to compensate COMPANY for the
internal costs of the site location services it provides. COMPANY shall fully
cooperate with DEVELOPER in obtaining the landlord's consent to
14
DEVELOPER's execution of such lease or the seller's consent to DEVELOPER's
execution of such purchase agreement or assignment of purchase agreement as the
case may be.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires
to develop and operate a Store at such Target Site and COMPANY has not fully
negotiated a lease or purchase agreement for such Target Site, then DEVELOPER
will have thirty (30) days in which to negotiate and deliver to COMPANY a lease
or purchase agreement for such Target Site in form for execution. If COMPANY
disapproves the lease or purchase agreement for failure to meet COMPANY's
requirements, DEVELOPER will have ten (10) business days within which to
negotiate and deliver to COMPANY a revised lease or purchase agreement for such
Target Site in form for execution. If COMPANY approves the lease or the
purchase agreement for such Target Site, then DEVELOPER will (1) execute such
lease or purchase agreement, as applicable, and (2) execute the Franchise
Documents, and (3) pay to COMPANY a site location fee (the "SITE LOCATION FEE")
equal to Ten Thousand Dollars ($10,000.00), plus COMPANY's reasonable
out-of-pocket expenses in locating such Target Site and, to the extent
applicable, partially negotiating the lease or purchase agreement, all within
ten business (10) days after COMPANY's delivery of the License Documents to
DEVELOPER.
If DEVELOPER (a) declines the option to develop a Target Site, (b)
fails to timely notify COMPANY of its election to develop a Target Site or (c)
fails to timely execute the approved lease or purchase agreement and License
Documents for a Target Site and pay the applicable fee as provided herein, then
COMPANY or its designee may develop and operate a Store at such Target Site.
Any Target Site for which DEVELOPER executes the License Documents and
develops and opens a UNIT will count toward the Sub-Area Quota for the Sub-Area
in which such Target Site is located. COMPANY will not be required to give
notice to DEVELOPER or offer to DEVELOPER a license to develop a Store with
regard to any suitable Target Site or Conversion Site (defined below) in a
Sub-Area that COMPANY desires to develop and operate as a Store after the total
number of sites for which DEVELOPER has executed a License Agreement and
accepted as Target Sites or Conversion Sites for that Sub-Area equals the
Sub-Area Quota.
3.F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES.
If, during the applicable Sub-Area Term for a particular Sub-Area,
COMPANY acquires the shares or assets (which may include, by way of
illustration and not by way of limitation, furniture, fixtures, equipment,
leasehold improvements and/or leasehold interests) of any business operating a
Bagel Store at one or more sites located within such Sub-Area which meet
COMPANY's specifications and standards as in effect from time to time for
conversion to UNITS (the "CONVERSION SITES"), and COMPANY determines in its
sole discretion to convert such Conversion Sites to Stores, COMPANY agrees to
offer to sell such Conversion Sites to DEVELOPER for the price paid therefor by
COMPANY. Such price will include that portion
15
of the direct and indirect costs and liabilities incurred or assumed by COMPANY
in making such acquisition and allocated to such Conversion Site whether paid
or owed to the seller of such Conversion Sites, an Affiliate or third parties
and other expenses allocated or otherwise related to such Conversion Sites
(including losses, whether from continuing operations or closing acquired
units) plus interest at the COMPANY's cost of money on the balance of such
amounts from time to time, provided that:
(1) such sale will not, in the COMPANY's judgment, conflict with
any existing legal obligation of COMPANY or the business being
acquired; and
(2) such sale will not, in the COMPANY's judgment, preclude the
completion of the acquisition on the terms agreed to by COMPANY; and
(3) such sale will not, in COMPANY's judgment, interfere with
any other legal agreement, arrangement or combination or affect
federal or state income tax consequences arising from the acquisition
in a manner adverse to any of the parties thereto; and
(4) such sale may, at COMPANY's option, include (at a price
determined on the same basis as for Conversion Sites) certain
acquired stores which fall within the Development Area or any
Sub-Area but which do not meet COMPANY's criteria for conversion to
UNITS and which may have to be closed or sold to a third party
subsequent to DEVELOPER's acquisition; and
(5) DEVELOPER agrees to (a) execute, concurrently with
DEVELOPER's purchase, the License Documents, as modified for use in
connection with a Conversion Site as necessary, for each and every
such Conversion Site, (b) convert each such Conversion Site to a
Store as soon as practicable thereafter (but in no event later than
the date specified by COMPANY) in accordance with COMPANY's standards
and specifications and (c) close or sell, within the reasonable time
period specified by COMPANY, any acquired sites which are not
suitable for conversion.
DEVELOPER shall have thirty (30) days after receipt of COMPANY's offer in which
to accept or reject such offer by written notice to COMPANY. If accepted,
DEVELOPER shall have thirty (30) days from the date of acceptance within which
to complete the acquisition.
In the event DEVELOPER rejects or fails to timely accept COMPANY's
offer to sell such Conversion Sites or COMPANY is unable to extend such offer
for any of the aforementioned reasons, COMPANY agrees that, provided DEVELOPER
is in full compliance with this Agreement and all License Agreements and
Franchise Agreements to which they are parties, it will not utilize or license
the use of the Principal Marks at such Conversion Sites for one (1) year
following COMPANY's acquisition thereof; provided, however, that COMPANY
16
may operate, alter, modify, refurbish, remodel, promote and market any such
Conversion Sites and use the Licensed Program and Computer System in the
operation thereof during such one (1) year period. For purposes of this Section
3.F., all references to COMPANY shall be deemed to include its Affiliates.
Any Conversion Site for which DEVELOPER executes the License Documents
and develops and opens a Store shall count toward the Sub-Area Quota for the
Sub-Area in which such Conversion Site is located as of the date of conversion.
COMPANY agrees to use reasonable efforts to obtain input (including
market and competitive information) from DEVELOPER in connection with the due
diligence process undertaken by COMPANY in any potential acquisition of
Conversion Sites in a particular Sub-Area during the applicable Sub-Area Term.
3.G. POST-TERM DEVELOPMENT.
(1) Notwithstanding anything contained in this Section 3 to the
contrary, if, at any time during the period commencing 18 months
prior to expiration of the Development Term for each Sub-Area
(including any Sub-Areas added pursuant to Section 3.G) and ending 24
months following the expiration of the Development Term for such
Sub-Area (the "Post-Development Period"), either (a) COMPANY or its
Affiliates or (b) DEVELOPER determines that such Sub-Area may
accommodate additional Stores beyond those which are required under
the Agreement (the "Post-Development Stores") and desires to conduct
such additional development following the expiration of the
Development Term for such Sub-Area, the party desiring to conduct
such development shall provide the other with notice thereof
("Development Plan Notice"). Such notice shall contain any
demographic, competitive or market analysis on which the notifying
party based its determination and the development plan and schedule
proposed for such additional development.
(2) The parties shall, as soon as practicable following issuance
and receipt of a Development Plan Notice and for a period of 45 days
thereafter, engage in good faith negotiations for the execution of a
new development agreement (the "Post-Development Agreement") in the
form of development agreement then being used by COMPANY, which may
contain different terms and/or higher fees than the Agreement, for
the right to develop and acquire the license to operate the
agreed-upon number of Stores.
(3) If COMPANY and DEVELOPER timely agree on the terms of the
Post-Development Agreement within the period specified in paragraph
(2) above, COMPANY shall provide DEVELOPER with execution forms of
the Post-Development Agreement, and DEVELOPER shall execute and
return the Post-Development Agreement to COMPANY within 15 days of
its receipt thereof and pay all fees due upon the execution thereof.
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(4) As to any particular Sub-Area, COMPANY shall have no
obligation to negotiate with DEVELOPER pursuant hereto and may
develop in such Sub-Area the Post-Development Stores itself, through
its Affiliates or other franchisees or licensees if:
(a) DEVELOPER fails to commence good faith negotiations
within seven (7) days of its receipt of a Development Plan
Notice from COMPANY; or
(b) DEVELOPER and COMPANY have engaged in good faith
negotiations as required hereunder but are unable to agree upon
a final development schedule or form of Post-Development
Agreement during the 45-day negotiation period; or
(c) DEVELOPER fails to execute the Post-Development
Agreement and pay all fees required thereunder within the
periods specified in subparagraph (3) below; or
(d) the Agreement is terminated, either in whole or with
respect to the applicable Sub-Area, prior to its expiration
date; or
(e) DEVELOPER or any of its Principal Owners receives a
notice to cure, termination or default from COMPANY with respect
to a breach or default of any provision of the Agreement, any
Franchise Agreement, License Agreement, or any other agreement
with COMPANY and which, if curable, has not been cured within
any applicable cure period; or
(f) the Post-Development Period expires without either
party issuing a Development Plan Notice.
4. OTHER DISTRIBUTION METHODS.
4.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted,
and COMPANY has no obligation to offer to DEVELOPER, any rights to operate
Special Distribution Arrangements within or outside the Development Area or the
Sub-Areas pursuant to this Agreement; and (2) the right to operate or grant to
others the right to operate Special Distribution Arrangements is specifically
reserved to COMPANY or its designees. If COMPANY, at any time and in its sole
discretion, determines to offer DEVELOPER the right to operate a Special
Distribution Arrangement at a Special Distribution Location designated by
COMPANY, COMPANY will so notify DEVELOPER by delivering to DEVELOPER a form
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of Special Distribution Agreement. DEVELOPER will have fifteen (15)days after
its receipt thereof to execute and deliver to COMPANY such executed Special
Distribution Agreement. If DEVELOPER fails to execute and deliver to COMPANY
the executed Special Distribution Agreement within such fifteen (15) day period
or commence such Special Distribution Arrangement within the period specified
therein, then DEVELOPER shall have no right to operate such Special
Distribution Arrangement thereafter. COMPANY reserves the right under the
Special Distribution Agreement, at any time and in its sole discretion with or
without cause and regardless of the investment made by DEVELOPER in
establishing or operating the Special Distribution Arrangement or the length of
time the Special Distribution Arrangement has been in effect, to suspend or
terminate DEVELOPER's right to operate the Special Distribution Arrangement,
effective ninety (90) days after COMPANY's written notice to DEVELOPER.
Notwithstanding the foregoing, COMPANY agrees that, if during the Development
Term it intends to engage in a Special Distribution Arrangement at or from (a)
a military facility, (b) an entertainment or sporting facility or event, (c) an
airport, bus or train station, (d) a toll road or limited access highway
facility, or (e) any specialty kiosk located in or adjacent to any similar
facilities, located within the Development Area, COMPANY will offer DEVELOPER a
Special Distribution Agreement, the execution of which shall be governed by
this Section 4.A.
4.B. DELIVERY SERVICE.
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted,
and COMPANY has no obligation to offer to DEVELOPER, any rights within or
outside the Development Area or the Sub-Areas to offer Delivery Service from
any of the DEVELOPER Stores or otherwise pursuant to this Agreement; and (2)
the right to provide Delivery Service is specifically reserved to COMPANY or
its designees. If COMPANY, at any time and in its sole discretion, determines
to offer Delivery Service in a designated Delivery Area in which a DEVELOPER
Store is located, COMPANY will offer DEVELOPER the right to offer Delivery
Service by delivering to DEVELOPER a form of Delivery Rider to this Agreement
(or to the applicable Franchise Agreement or License Agreement). DEVELOPER will
have fifteen (15) days after its receipt thereof to execute and deliver to
COMPANY such executed Delivery Rider. A Delivery Facility will not be counted
as a separate DEVELOPER Store for purposes of the Sub-Area Quotas or the Total
Development Quota set forth in the Development Schedule. If DEVELOPER fails to
execute and deliver to COMPANY such executed Delivery Rider within such fifteen
(15) day period or commence Delivery Service within the specified period, then
DEVELOPER shall have no right to provide Delivery Service at such Store
thereafter.
If COMPANY determines in its sole discretion that all franchise owners
and license owners of Stores in the trade area where a DEVELOPER Store is
located, as such trade area is determined by COMPANY in its sole discretion and
which in no event shall exceed the Marketing Area (as defined in the License
Agreement), shall offer Delivery Service, COMPANY will notify DEVELOPER and
will deliver to DEVELOPER a Delivery Rider to this Agreement (or to the
applicable Franchise Agreement or License Agreement) which
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DEVELOPER shall execute and return to COMPANY within fifteen (15) days after
its receipt.
COMPANY reserves the right under the Delivery Rider, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by DEVELOPER in establishing and conducting Delivery Service or the length
of time DEVELOPER has offered Delivery Service: (1) to reduce, modify or expand
the Delivery Area, effective upon COMPANY's written notice to DEVELOPER,
provided, however, that if a reduction or modification of the Delivery Area
amounts to a termination of substantially all of DEVELOPER's rights to provide
such services (except in the case of the exercise by COMPANY of its remedies
under Section 15.C of this Agreement), such reduction or modification shall not
be effective until 90 days after COMPANY's written notice to DEVELOPER; or (2)
to suspend or terminate DEVELOPER's right to offer Delivery Service, effective
ninety (90) days after COMPANY's written notice to DEVELOPER; and COMPANY may
otherwise terminate DEVELOPER's right to offer Delivery Service on the terms of
the Delivery Rider. In the event that COMPANY suspends or terminates
DEVELOPER's right to offer Delivery Service, COMPANY reserves the right to
require DEVELOPER to reinstate Delivery Service upon fifteen (15) days' prior
written notice to DEVELOPER.
4.C. CATERING SERVICE.
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted,
and COMPANY has no obligation to offer to DEVELOPER, any rights within or
outside the Development Area or the Sub-Areas to offer Catering Service from
any of the DEVELOPER Stores or otherwise pursuant to this Agreement; and (2)
the right to provide Catering Service is specifically reserved to COMPANY or
its designees. If COMPANY, at any time and in its sole discretion, determines
to offer Catering Service in a designated Catering Area in which a DEVELOPER
Store is located, COMPANY will offer DEVELOPER the right to offer Catering
Service by delivering to DEVELOPER a form of Catering Rider to this Agreement
(or to the applicable Franchise Agreement or License Agreement). DEVELOPER will
have fifteen (15) days after its receipt thereof to execute and deliver to
COMPANY such executed Catering Rider. A Catering Facility will not be counted
as a separate DEVELOPER Store for purposes of the Sub-Area Quotas or the Total
Development Quota set forth in the Development Schedule. If DEVELOPER fails to
execute and deliver to COMPANY such executed Catering Rider within such fifteen
(15) day period or commence Catering Service within the specified period, then
DEVELOPER shall have no right to provide Catering Service within the designated
Catering Area thereafter.
If COMPANY determines in its sole discretion that all franchise owners
and license owners of Stores in the trade area where a DEVELOPER Store is
located, as such trade area is determined by COMPANY in its sole discretion and
which in no event shall exceed the Marketing Area (as defined in the License
Agreement), shall offer Catering Service, COMPANY will notify DEVELOPER and
will deliver to DEVELOPER a Catering Rider to this Agreement
20
(or to the applicable Franchise Agreement or License Agreement) which DEVELOPER
shall execute and return to COMPANY within fifteen (15) days after its receipt.
COMPANY reserves the right under the Catering Rider, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by DEVELOPER in establishing and conducting Catering Service or the length
of time DEVELOPER has offered Catering Service: (1) to reduce, modify or expand
the Catering Area, effective upon COMPANY's written notice to DEVELOPER,
provided, however, that if a reduction or modification of the Catering Area
amounts to a termination of substantially all of DEVELOPER's rights to provide
such services (except in the case of the exercise by COMPANY of its remedies
under Section 15.C of this Agreement), such reduction or modification shall not
be effective until 90 days after COMPANY's written notice to DEVELOPER; or (2)
to suspend or terminate DEVELOPER's right to offer Catering Service, effective
ninety (90) days after COMPANY's written notice to DEVELOPER (in which case,
DEVELOPER will not fill any orders for Catering Service after the expiration of
such ninety (90) day period); and COMPANY may otherwise terminate DEVELOPER's
right to offer Catering Service pursuant to the terms of the Catering Rider. In
the event that COMPANY terminates or suspends DEVELOPER's right to offer
Catering Service, COMPANY reserves the right to require DEVELOPER to reinstate
Catering Service upon fifteen (15) days' prior written notice to DEVELOPER.
5. DEVELOPMENT AND OPERATION OF COMMISSARIES.
5.A. OBLIGATION TO OPERATE COMMISSARIES.
DEVELOPER acknowledges and agrees that in order to meet COMPANY's
standards and specifications for Products (including, without limitation, the
preparation and packaging of Products) and to maintain appropriate quality
controls as required by this Agreement and the Franchise Agreements and License
Agreements entered into by DEVELOPER, it will be necessary for DEVELOPER to
establish one or more Commissaries in the Development Area. DEVELOPER agrees
that, subject to this Agreement and such Franchise Agreements and License
Agreements, it will establish and operate the number of Commissaries reasonably
determined by COMPANY from time to time to be sufficient to supply the
DEVELOPER Stores.
DEVELOPER agrees that each Commissary (and, where the Commissary is
operated under the same roof as a DEVELOPER Store or other approved retail
establishment, that part of such facility which functions as the Commissary):
(1) will not under any circumstances offer for sale or sell to the general
public any products or services; (2) will procure, prepare and distribute to
DEVELOPER Stores only those Products and other materials and supplies specified
by COMPANY; and (3) will not use a Commissary or its premises for any purpose
other than the operation of the Commissary on the terms of this Agreement.
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5.B. DEVELOPMENT AND OPENING OF COMMISSARIES.
The location of any Commissary established by DEVELOPER pursuant to
this Agreement shall be subject to COMPANY's approval in the manner described
in Section 6.A. of this Agreement, and Section 6.B. of this Agreement shall
apply to the lease for the Commissary. Each Commissary shall be developed,
constructed and equipped in the manner described in Sections 4.B., 4.C. and 4.D
of the Franchise Agreements and License Agreement. Section 4.F. of the
Franchise Agreements and License Agreement shall apply to the opening and
commencement of operation of the Commissary and Sections 4.H. and 4.I. of the
Franchise Agreements and License Agreement shall apply to the relocation and
financing of the Commissary, respectively. Notwithstanding the foregoing,
DEVELOPER shall not be required to utilize the Trade Dress at a Commissary and
DEVELOPER shall not be obligated to commence operation of a Commissary until
180 days after receipt of written notice that COMPANY requires DEVELOPER to
develop a Commissary to supply the DEVELOPER Stores specified in such notice.
5.C. TRAINING AND GUIDANCE.
DEVELOPER shall employ and maintain at all times at each Commissary
throughout its operation at least one (1) Commissary Manager and one (1)
Additional Commissary Manager. The Commissary Manager shall be the full time
manager of the Commissary and the Additional Commissary Manager shall perform
on a full-time basis such other operations for DEVELOPER as COMPANY may
reasonably specify from time to time and both must successfully complete to
COMPANY's satisfaction a COMPANY-certified management training program for the
operation of the Commissary. DEVELOPER shall also employ the number of
assistant managers and other personnel required for adequate staffing of each
Commissary, and shall at all times keep COMPANY advised of the identities of
the Commissary Manager, the Additional Commissary Manager and the assistant
managers of each Commissary. Each Commissary at all times shall be under the
direct, on-site supervision of a Commissary Manager, an Additional Commissary
Manager or an assistant manager who has completed a training program conducted
by COMPANY or DEVELOPER (if applicable) and who has been certified under the
terms of the Development Agreement. DEVELOPER shall hire all employees of each
Commissary and shall be exclusively responsible for the terms of their
employment and compensation and for the proper training of such employees in
the operation of a Commissary.
In the event the certified Commissary Manager and/or the certified
Additional Commissary Manager ceases to hold such position at the Commissary,
DEVELOPER shall have thirty (30) days in which to appoint a substitute or
replacement Commissary Manager and/or Additional Commissary Manager, who must
attend and complete to COMPANY's satisfaction the initial management training
program as specified above promptly after appointment. If COMPANY in its sole
discretion determines that the Commissary Manager or Additional
22
Commissary Manager or any subsequently appointed Manager or Additional
Commissary Manager has failed to satisfactorily complete the initial management
training program or any additional or refresher training program, DEVELOPER
shall immediately hire a substitute Commissary Manager or Additional Commissary
Manager and promptly arrange for such person to complete the initial management
training program to the satisfaction of COMPANY.
5.D. COMMISSARY MANUALS.
COMPANY shall loan to DEVELOPER, for its sole use, one (1) copy of a
set of COMPANY's confidential manuals relating to the development and operation
of Commissaries (collectively the "Commissary Manuals"). The Commissary Manuals
shall be furnished in the same manner and on the same terms as set out in
Section 5.C. of the Franchise Agreements and License Agreement with respect to
the Store Manuals.
5.E. OPERATION OF THE COMMISSARY.
DEVELOPER shall operate each Commissary in accordance with the
standards, specifications and procedures which the COMPANY prescribes, and
which COMPANY may change, in its sole discretion, from time to time, as set
forth in the Commissary Manuals or otherwise in writing. Such standards,
specifications and procedures may include, without limitation, requirements
for: (1) Product preparation; (2) delivery drivers and delivery vehicles
(whether or not owned by DEVELOPER); (3) management of the Commissary; (4)
training of Commissary personnel involved in Product preparation and delivery;
(5) Commissary design, layout, equipment, fixtures and signage; (6) Product
packaging; and (7) materials and supplies used in the operation of the
Commissary.
Without limiting the foregoing, DEVELOPER agrees to:
(1) require all Commissary delivery drivers to strictly comply
with all regulations, laws and ordinances applicable to the operation
of motor vehicles and to use due care, taking into consideration road
conditions, when operating motor vehicles in connection with
Commissary operations;
(2) require all Commissary delivery drivers to maintain adequate
motor vehicle liability insurance that complies with all applicable
laws and regulations and that extends to the operation of a motor
vehicle used for commercial delivery;
(3) maintain all Commissary motor vehicles in good and safe
operating condition in full compliance with all applicable laws and
regulations;
(4) conduct initial and periodic (at least once every six (6)
months) driving records checks on all Commissary delivery drivers;
23
(5) require all Commissary delivery drivers to possess and
maintain a valid driver's license;
(6) suspend or, where appropriate under COMPANY's specifications
and standards as in effect from time to time, terminate any
Commissary delivery driver who does not conform to COMPANY's
applicable standards and specifications for Commissary operations;
(7) ensure that each Commissary is adequately stocked at all
times with food and beverage products, ingredients and other items
necessary to prepare and supply to the Stores serviced by the
Commissary sufficient Products and other materials and supplies to
ensure the optimum performance of those Stores;
(8) ensure that each Commissary and its facilities are kept
clean and are operated in a first class, sanitary, attractive and
efficient manner and in accordance with COMPANY's standards and
specifications;
(9) ensure that the food preparation personnel at each
Commissary are properly trained in the preparation of Products and
that they prepare Products at all times in accordance with COMPANY's
standards and specifications; and
(10) use the Commissary, the premises of the Commissary and the
motor vehicles used in the operation of the Commissary solely for the
purposes contemplated by this Agreement.
DEVELOPER agrees that COMPANY may conduct quality, service,
cleanliness and other inspections of any Commissary from time to time and
without notice in order to determine compliance with this Agreement and
with the standards and specifications applied by COMPANY from time to
time.
COMPANY and DEVELOPER acknowledge and agree that the term "Royalty
Base Revenue" (as defined in the License Agreement) shall not include
revenue, if any, derived from DEVELOPER's or a Commissary's sale of
products or other materials and supplies to Stores for resale to the
public at such Stores.
5.F. INSURANCE.
During the operation of each Commissary, DEVELOPER shall maintain in
force policies of insurance for the Commissary in the same manner as is
required for the DEVELOPER Stores pursuant to Section 12.G. of the Franchise
Agreements and License Agreement.
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5.G. TRANSFERS.
DEVELOPER agrees that no obligations, rights or interests of DEVELOPER
in (a) A Commissary, (b) the lease for the premises of a Commissary or (c) the
assets of a Commissary may be transferred without the prior written consent of
COMPANY. Any purported transfer in violation of this Section shall constitute a
breach of this Agreement and shall convey to the transferee no rights or
interests in the foregoing.
As used in this Section, the term "transfer" shall have the meaning
ascribed to it in the License Agreement. In addition to the foregoing, a
transfer will require the prior written consent of COMPANY where such transfer
occurs by reason of: (a) divorce; (b) insolvency; (c) dissolution of a
corporation, partnership or limited liability company; (d) will; (e) intestate
succession; or (f) declaration of or transfer in trust.
No transfer restricted by this Section may be effected unless a
transfer of the DEVELOPER Stores which are serviced by the Commissary is made
simultaneously to the same transferee.
In granting its approval of a proposed transfer, COMPANY may also
impose reasonable conditions upon its consent, including, without limitation,
those conditions provided for in the License Agreement. Furthermore, any
proposed transfer under this Section shall be subject to a right of first
refusal of COMPANY on the terms set forth in Section 16.H. of the Franchise
Agreements and the License Agreement.
5.H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS.
COMPANY may require DEVELOPER to cease operation of a Commissary in
the event that DEVELOPER does not comply with this Agreement with respect to
such Commissary. Unless earlier terminated as provided herein, DEVELOPER's
right and obligation to operate a Commissary shall expire when the Franchise
Agreement or License Agreement for the last Store serviced by the Commissary
has been terminated or has expired without renewal. Furthermore, DEVELOPER
agrees that, notwithstanding any other provision of this Agreement to the
contrary, COMPANY may, at any time and in its sole discretion with or without
cause and regardless of the investment made by DEVELOPER in establishing a
Commissary or the length of time DEVELOPER has operated the Commissary, require
DEVELOPER to cease operation of the Commissary, effective upon 90 days written
notice from COMPANY (except in the case of the exercise by COMPANY of its
remedies under Section 15.C of this Agreement, in which case, the obligation to
cease such operations shall be effective immediately upon written notice from
COMPANY).
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5.I. RIGHTS AND OBLIGATIONS OF COMPANY
AND DEVELOPER UPON TERMINATION OR
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY.
Upon the expiration or termination of DEVELOPER's right to operate a
Commissary, DEVELOPER shall immediately remove the Marks from all vehicles used
in the operation of the Commissary and shall return to COMPANY all copies of
the Commissary Manuals.
Furthermore, COMPANY shall have the right to purchase the assets of
the Commissary on the same terms as set forth in Section 19.F. of the Franchise
Agreements and License Agreement, including the ancillary rights set forth in
Section 19.F.
6. GRANT OF LICENSES AND ADVERTISING REQUIREMENT.
6.A. SITE REVIEW AND APPROVAL.
Annually throughout the Development Term, DEVELOPER shall purchase
from COMPANY market plans on the demographics of each Sub-Area ("MARKET PLANS")
in which DEVELOPER retains the right to develop DEVELOPER Stores. Such Market
Plan shall be available to DEVELOPER at COMPANY's or its designee's
then-current charges. At DEVELOPER's request, COMPANY or its designee may
provide other demographic services at COMPANY's or its designee's then-current
charges. Those charges will vary with the type of service requested.
At DEVELOPER's request, COMPANY will provide to DEVELOPER, at
COMPANY's or its designee's then-current charges, a report and grid map
containing certain demographic information concerning a proposed site and
surrounding area, which report and grid map may be prepared by COMPANY, its
designee or by an independent demographic statistics service at COMPANY's
direction.
DEVELOPER shall comply with COMPANY's specifications and requirements
regarding site selection, development and construction, including, without
limitation, those concerning relations with and use of approved general
contractors, subcontractors, real estate developers and lessors and, if
requested by COMPANY, real estate broker(s). DEVELOPER shall submit to COMPANY
a complete site approval request package and location feasibility analysis (a
"SITE PACKAGE") on COMPANY's specified forms (containing such demographic,
commercial, and other information and photographs as COMPANY may require from
time to time) for each site at which DEVELOPER proposes and intends in good
faith to establish and operate a Store and which DEVELOPER reasonably believes
to conform to certain minimum site selection criteria established by COMPANY
from time to time in its sole discretion. Each such Site Package shall include
a designation of the type of UNIT DEVELOPER intends to develop at the site. In
approving or disapproving any proposed site, COMPANY may consider such
26
matters as it deems material from time to time, which factors may (but are not
required to) include, without limitation, the type of UNIT proposed,
demographic characteristics, traffic patterns, parking, visibility, allowed
signage, the predominant character of the neighborhood, competition from other
businesses providing similar services within the area (including other UNITS),
the proximity to other businesses, the exclusivity granted to other franchise
owners, license owners, or developers of UNITS, the nature of other businesses
in proximity to the site, and other commercial characteristics (including the
purchase price or rental obligations and other lease terms for the proposed
site) and the size, appearance, and other physical characteristics of the
proposed site. DEVELOPER acknowledges and agrees that COMPANY may alter the
criteria or impose additional criteria for acceptable sites for UNITS at any
time or from time to time in its sole discretion, that DEVELOPER shall abide by
such site criteria as they exist from time to time and comply with its
development obligations hereunder (including, but not limited to, Exhibit F
hereof) and that no extension or alteration of the Opening Date (as set forth
in Exhibit E) of any UNIT shall arise by reason of such altered or additional
site criteria).
DEVELOPER further acknowledges that each such proposed site will be
evaluated based on the information provided in the Site Package and on the
circumstances existing at the time of such evaluation. Consequently, a proposed
site might be rejected when submitted, but if later re-submitted, approved for
development by DEVELOPER, another developer, license owner, or franchise owner
or by COMPANY or its Affiliates, subject to DEVELOPER's rights to exclusivity
under this Agreement.
COMPANY will approve or disapprove sites by delivery of written notice
to DEVELOPER. (A site which COMPANY has approved pursuant hereto is referred to
as an "APPROVED SITE.") COMPANY agrees to exert its reasonable best efforts to
deliver such notification to DEVELOPER within thirty (30) days after receipt by
COMPANY of a complete Site Package and such other materials requested by
COMPANY from time to time, containing all information required by COMPANY.
COMPANY shall have the right in its sole discretion to approve or disapprove a
site, and DEVELOPER acknowledges and agrees that COMPANY shall have no
liability therefor. Notwithstanding any other provision of this Agreement,
COMPANY's failure to provide DEVELOPER with notice of its approval or
disapproval of one or more proposed sites shall in no event constitute a waiver
of COMPANY's right to approve or disapprove such sites or cause any extension
of the applicable Development Schedule.
6.B. LEASE OF APPROVED SITES.
DEVELOPER acknowledges that COMPANY has developed a standard form
lease (the "FORM STORE LEASE") for Stores. COMPANY will furnish DEVELOPER with
a copy of the current forms of Form Store Lease and DEVELOPER acknowledges that
COMPANY may modify such forms from time to time in its sole discretion.
DEVELOPER shall present the Form Store Lease to the lessor of an Approved Site,
as applicable, and use its best efforts to cause the lessor or seller of such
Approved Site to execute the Form Store Lease as the lease,
27
sublease or assignment of lease (referred to herein as the "SITE AGREEMENT"),
as applicable, for such Approved Site. If DEVELOPER fails to obtain the
lessor's agreement to use the Form Store Lease as the Site Agreement, DEVELOPER
shall cause lessor to include in the Site Agreement such standard lease terms
as COMPANY may require or otherwise specifically approve in writing from time
to time in its sole discretion.
After receiving a copy of a proposed Site Agreement in form for
execution, COMPANY shall have the right, in its sole discretion, to approve,
approve with modification or disapprove such proposed Site Agreement, and
DEVELOPER acknowledges and agrees that COMPANY shall have no liability
therefor. COMPANY agrees to exert its best efforts to deliver such notification
to DEVELOPER within twenty (20) days after receipt by COMPANY of the proposed
Site Agreement. DEVELOPER agrees that it will not execute a Site Agreement
without the prior written approval of COMPANY, and any such Site Agreement
shall contain the express condition precedent of COMPANY's prior written
approval thereof. DEVELOPER shall deliver to COMPANY a copy of the fully signed
Site Agreement as previously approved within fifteen (15) days after its full
execution. DEVELOPER further agrees that it will not execute or agree to any
modification of the Site Agreement which would affect COMPANY's rights without
the prior written approval of COMPANY.
If DEVELOPER fails to obtain lawful possession of an Approved Site
(through lease, sublease or assignment) within sixty (60) days after delivery
of COMPANY's approval of the Approved Site, COMPANY may, in its sole
discretion, withdraw approval of such site at any time.
If DEVELOPER owns an Approved Site, DEVELOPER will, at the request of
COMPANY, enter into a lease with COMPANY under COMPANY's then-current form of
lease for a term equal to the term of the Franchise and for a rental equal to
the Approved Site's fair market rental value, and will sublease the Approved
Site from COMPANY on the same terms as the prime lease. If DEVELOPER and
COMPANY cannot agree on the fair market rental value of such an Approved Site,
then such rental value shall be determined by an independent appraiser selected
by COMPANY and DEVELOPER, and if they are unable to agree on an independent
appraiser, COMPANY and DEVELOPER shall each select an independent appraiser,
who shall select a third independent appraiser, and the fair market rental
value shall be deemed to be the average of the three (3) independent appraisals
made by such appraisers.
6.C. EXECUTION OF LICENSE AGREEMENTS.
Provided that (1) DEVELOPER is then in full compliance with all of the
terms and conditions of this Agreement, (2) DEVELOPER is in full compliance
with all Franchise Agreements and License Agreements it has entered into, and
(3) DEVELOPER has obtained legal possession of an Approved Site, COMPANY agrees
to offer to DEVELOPER a License to operate a Store at such Approved Site by
delivering to DEVELOPER a License Agreement in
28
form for execution by DEVELOPER and its Principal Owners. Such License
Agreement shall be executed and returned to COMPANY at the earlier of fifteen
(15) days after COMPANY's delivery thereof, or prior to the opening of the
Store, together with the fees required to be paid upon execution thereof.
COMPANY may withdraw its offer to grant a License for a Store at such Approved
Site and withdraw its approval of such site at any time prior to COMPANY's
receipt of all applicable payments and COMPANY's execution of the License
Agreement. In no event may a DEVELOPER Store developed hereunder be opened for
business prior to DEVELOPER's receipt of written notice from COMPANY
authorizing the opening of such Store.
6.D. INITIAL LICENSE AND ROYALTY FEES.
For each License granted pursuant to this Agreement during the
Development Term or the applicable Sub-Area Term, the fees shall be as provided
in the then-current form of License Agreement, except that the Initial License
Fee (defined in the License Agreement) shall be Thirty-Five Thousand Dollars
($35,000.00), and the Royalty Fee (as defined in the License Agreement) shall
be an amount equal to eight percent (8%) of the Store's Royalty Base Revenue
(as defined in the License Agreement).
6.E. ADVERTISING EXPENDITURES.
DEVELOPER shall cause each DEVELOPER Store to contribute to the Local
Ad Fund (as defined in the License Agreement) for such DEVELOPER Store an
amount equal to the standard Local Ad Fund contribution required pursuant to
the applicable License Agreement; provided, however, that, on notice from
COMPANY, DEVELOPER shall also cause each such DEVELOPER Store to contribute to
the standard Local Ad Fund such additional amounts which, when aggregated with
the Local Ad Fund contributions of the other DEVELOPER Stores, will be
sufficient to enable DEVELOPER, through the Local Ad Fund, to commence Required
Television Advertising within one year of the opening of the first Store and to
continue Required Television Advertising thereafter throughout the Agreement
Term.
7. INITIAL PAYMENTS.
7.A. DEVELOPMENT FEE.
Concurrently with the execution of this Agreement, DEVELOPER shall pay
to COMPANY the sum set forth on Exhibit C hereof as a nonrefundable development
fee (the "DEVELOPMENT FEE") which shall be deemed fully earned by COMPANY upon
execution of this Agreement. The Development Fee shall equal the sum derived by
multiplying the number of Stores to be developed under this Agreement, as set
forth on Exhibit E, by Five Thousand Dollars ($5,000.00). The Development Fee
is paid to compensate COMPANY for its services in connection with this
Agreement, including but not limited to providing assistance in the
29
development of DEVELOPER's Market Real Estate Development Plan and providing
initial orientation training programs.
7.B. REAL ESTATE SERVICES FEE.
Concurrently with the execution of this Agreement, DEVELOPER shall pay
to COMPANY a nonrefundable real estate services fee (the "Real Estate Services
Fee"), which fee shall be deemed fully earned by COMPANY upon execution of this
Agreement. The Real Estate Services Fee shall equal the total derived by
multiplying the number of Stores to be developed under this Agreement, as set
forth on Exhibit E, by Five Thousand Dollars ($5,000.00). The Real Estate
Services Fee is paid to compensate COMPANY for its services in connection with
this Agreement, including but not limited to providing certain advisory
services regarding demographic analysis and cannibalization studies for trade
areas related to proposed and established UNITS, maintenance of lease files and
compliance with reporting requirements thereunder, and general advisory
services regarding other real estate matters.
8. MARKS.
8.A. GOODWILL AND RIGHTS TO USE THE MARKS.
DEVELOPER acknowledges that DEVELOPER right to use the Marks, as
described in this Agreement and which include the Principal Marks set forth in
Exhibit K hereto, is derived solely from this Agreement and is limited to the
development of Stores by DEVELOPER pursuant to and in compliance with this
Agreement and all applicable standards, specifications, and procedures
prescribed by COMPANY from time to time during the Agreement Term. Developer
further acknowledges that COMPANY'S right to use and sublicense the use of
certain of the Marks may derive from agreements between COMPANY and third-party
licensors. Any unauthorized use of the Marks by DEVELOPER shall constitute a
breach of this Agreement and an infringement of the rights of COMPANY in and to
the Marks and may constitute a breach by COMPANY of its license agreement(s)
with its licensor(s). DEVELOPER acknowledges and agrees that all usage of the
Marks by DEVELOPER and any goodwill established thereby shall inure to the
exclusive benefit of COMPANY or its licensor(s), as applicable, and that this
Agreement does not confer any goodwill or other interests in the Marks upon
DEVELOPER, other than the right to use the Principal Marks and the other Marks
associated with the Principal Marks in the development of the DEVELOPER Stores
in compliance with this Agreement. All provisions of this Agreement applicable
to the Marks shall apply to any other trademarks, service marks, commercial
symbols and trade dress hereafter authorized, in writing (including by
inclusion in any trademark usage or similar guide or manual issued to franchise
owners and license owners by COMPANY), for use by and licensed to DEVELOPER by
COMPANY.
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8.B. LIMITATIONS ON DEVELOPER'S USE OF MARKS.
Except with the written consent of COMPANY, DEVELOPER shall not use
any Mark as part of any corporate name or other name of DEVELOPER or with any
prefix, suffix, or other modifying words, terms, designs, or symbols, or in any
modified form, nor may DEVELOPER use any Mark in connection with the
performance or sale of any unauthorized services or products or in any other
manner not expressly authorized in writing by COMPANY. DEVELOPER agrees to
clearly identify itself as an independent operator/developer and licensee of
COMPANY and to display the Marks prominently in the manner prescribed by
COMPANY. DEVELOPER agrees to give such notices of trademark and service mark
registrations as COMPANY specifies and to obtain such business name
registrations as may be required under applicable law.
8.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
DEVELOPER shall immediately notify COMPANY of any apparent
infringement of or challenge to DEVELOPER's use of any Mark, or claim by any
person of any rights in any Mark. DEVELOPER shall not communicate with any
person other than COMPANY and its counsel and, if applicable, COMPANY'S
licensor and its counsel, with respect to any such infringement, challenge or
claim. COMPANY (and its licensor, if applicable) shall have sole discretion to
take such action as it deems appropriate in connection with the foregoing, and
the right to control exclusively any settlement, litigation, arbitration or
Patent and Trademark Office or other proceeding arising out of any such alleged
infringement, challenge or claim or otherwise relating to any Mark. DEVELOPER
agrees to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of COMPANY's
counsel, be necessary or advisable to protect and maintain the interests of
COMPANY in any litigation or other proceeding or to otherwise protect and
maintain the interests of COMPANY in the Marks. COMPANY will reimburse
DEVELOPER for the reasonable out-of-pocket expenses incurred and paid by
DEVELOPER in complying with the requirements imposed by this Section; provided,
however, that if any action taken by COMPANY results in any monetary recovery
for DEVELOPER (by way of counterclaim or otherwise) which exceeds DEVELOPER's
costs, then DEVELOPER must pay its own costs and share pro rata in COMPANY's
costs therefor up to the amount of DEVELOPER's share of such recovery.
8.D. DISCONTINUANCE OF USE OF MARKS.
If it becomes advisable at any time in COMPANY's sole judgment, or
pursuant to any agreement between COMPANY and a licensor of any of the Marks,
for DEVELOPER to modify or discontinue use of any Mark and/or for DEVELOPER to
use one or more additional or substitute trademarks or service marks or an
additional or substitute type of trade dress, DEVELOPER agrees to immediately
comply with COMPANY's directions to modify or otherwise discontinue the use of
such Mark, and/or to use one or more additional or substitute
31
trademarks, service marks, logos or commercial symbols or additional or
substitute trade dress after notice thereof by COMPANY. Neither COMPANY nor its
Affiliates shall have any obligation to reimburse DEVELOPER for any
expenditures made by DEVELOPER to modify or discontinue the use of a Mark or to
adopt additional or substitute marks for discontinued Marks, including, without
limitation, any expenditures relating to advertising or promotional materials
or to compensate DEVELOPER for any goodwill related to the discontinued Mark.
8.E. INDEMNIFICATION OF DEVELOPER.
COMPANY agrees to indemnify DEVELOPER against and to reimburse
DEVELOPER for all damages for which DEVELOPER is held liable in any claim,
action or proceeding brought by any person or entity claiming to have trademark
or other rights to any of the Marks licensed hereunder or any name or trademark
similar thereto arising out of DEVELOPER's authorized use of the Marks,
pursuant to and in compliance with this Agreement, and for all costs reasonably
incurred by DEVELOPER in the defense of any such claim brought against
DEVELOPER or in any proceeding in which DEVELOPER is named as a party, provided
that DEVELOPER has timely notified COMPANY of such claim or proceeding, has
given COMPANY sole control of the defense and settlement of any such claim, has
otherwise complied with the requirements of this Agreement regarding use of the
Marks, and this Agreement is in full force and effect, and provided further,
that the indemnification provided by this Section 8.E shall not extend to any
claim, action or proceeding brought by any person or entity alleging any prior
common law trademark rights.
8.F. NON-DENIGRATION.
If COMPANY authorizes DEVELOPER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, DEVELOPER
agrees not to use the Albert Einstein Indicia, the Albert Einstein Publicity
Symbols or any name that includes the name "EINSTEIN" in any manner that
denigrates, disparages, defames or otherwise reflects poorly on the character
of Albert Einstein.
8.G. MARKING REQUIREMENTS.
If COMPANY authorizes DEVELOPER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, DEVELOPER
agrees that it will use such marks in a manner that is consistent with good
trademark practice, and shall affix onto substantially all written advertising
material, written promotional material, and the ENBC Promotional Items, to the
extent practicable as to size and being readily visible, a legend indicating
that such marks are being used under license from the Hebrew University of
Jerusalem. The following is an example of a satisfactory legend or words:
"Intellectual Property of Albert Einstein is used under license from Hebrew
University represented by The Roger Richman Agency of Beverly Hills." In the
event DEVELOPER uses the Albert Einstein
32
Indicia, the word EINSTEIN Alone or the Albert Einstein Publicity Symbols
hereunder in connection with a television or radio advertisement, DEVELOPER
shall cause such legend or words to appear on the leader.
9. COPYRIGHTS.
9.A. OWNERSHIP OF COPYRIGHTED WORKS.
DEVELOPER and COMPANY acknowledge and agree (1) that COMPANY may
authorize DEVELOPER to use certain copyrighted or copyrightable works (the
"Copyrighted Works"), (2) that the Copyrighted Works are the valuable property
of COMPANY or its Affiliates or, as applicable, their licensors and (3) that
the DEVELOPER's rights to use the Copyrighted Works are granted to DEVELOPER
solely on the condition that DEVELOPER complies with the terms of this Section.
DEVELOPER acknowledges and agrees that COMPANY owns or is the licensee of the
owner of the Copyrighted Works and may further create, acquire or obtain
licenses for certain copyrights in various works of authorship used in
connection with the operation of UNITS, including, but not limited to, all
categories of works eligible for protection under the United States copyright
laws, all of which shall be deemed to be Copyrighted Works under this
Agreement. Such Copyrighted Works include, but are not limited to, the
Development Manual, advertisements, promotional materials, labels, menus,
posters, coupons, gift certificates, signs and store designs, plans and
specifications and may include all or part of the Marks, Trade Dress (defined
in the License Agreement), Licensed Program and other portions of the System.
DEVELOPER acknowledges that this Agreement does not confer any interest in the
Copyrighted Works upon DEVELOPER, other than the right to use them in
connection with the development of the Stores in compliance with this
Agreement. If COMPANY authorizes DEVELOPER to prepare any adaptation,
translation or work derived from the Copyrighted Works, or if DEVELOPER
prepares any Copyrighted Works such as menus, advertisements, posters or
promotional materials, DEVELOPER hereby agrees that such adaptation,
translation, derivative work or Copyrighted Work shall be the property of
COMPANY and DEVELOPER hereby assigns all its right, title and interest therein
to COMPANY (or such other person identified by COMPANY). DEVELOPER agrees to
execute any documents, in recordable form, which COMPANY determines are
necessary to reflect such ownership. DEVELOPER shall submit all such
adaptations, translations, derivative works and Copyrighted Works to COMPANY
for approval prior to use.
9.B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS.
DEVELOPER acknowledges that DEVELOPER's right to use the Copyrighted
Works, as described in this Agreement, is derived solely from this Agreement
and is limited solely to uses directly connected with the development of Stores
by DEVELOPER during the Development Term pursuant to and in compliance with
this Agreement and all applicable standards, specifications, and operating
procedures prescribed by COMPANY from time to time.
33
DEVELOPER shall ensure that all Copyrighted Works used hereunder shall bear an
appropriate copyright notice under the Universal Copyright Convention or other
copyright laws prescribed by COMPANY specifying that COMPANY or an Affiliate of
COMPANY is the owner of the copyright therein. Any unauthorized use,
adaptation, publication, reproduction, preparation of derivative works,
distribution of copies (whether by sale or other transfer of ownership, or by
rental, lease or lending), or attempts to recreate all or a portion of such
Copyrighted Works shall constitute a breach of this Agreement and an
infringement of the rights of COMPANY in and to the Copyrighted Works.
9.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
DEVELOPER shall immediately notify COMPANY of any actual or apparent
infringement of or challenge to any of the Copyrighted Works, or claim by any
person of any rights in the Copyrighted Works. DEVELOPER shall not communicate
with any person other than COMPANY and its counsel in connection with any such
infringement, challenge or claims. COMPANY shall have the sole discretion to
take such action as it deems appropriate in connection with the foregoing, and
the right to control exclusively any settlement, litigation, arbitration or
administrative proceeding arising out of any such alleged infringement,
challenge or claim or otherwise relating to the Copyrighted Works. DEVELOPER
agrees to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of COMPANY's
counsel, be necessary or advisable to protect and maintain the interests of
COMPANY in any litigation or other proceeding or to otherwise protect and
maintain the interests of COMPANY in the Copyrighted Works. COMPANY will
reimburse DEVELOPER for the reasonable out-of-pocket expenses incurred and paid
by DEVELOPER in complying with the requirements imposed by this Section;
provided, however, that if any action taken by COMPANY results in any monetary
recovery for DEVELOPER (by way of counterclaim or otherwise) which exceeds
DEVELOPER's costs, then DEVELOPER must pay its own costs and share pro rata in
COMPANY's costs therefor up to the amount of DEVELOPER's share of such
recovery.
9.D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS.
If it becomes advisable at any time in COMPANY's sole judgment for
DEVELOPER to modify or discontinue use of any of the Copyrighted Works and/or
for DEVELOPER to use one or more additional or substitute copyrighted or
copyrightable items, DEVELOPER agrees to immediately comply with COMPANY's
directions to modify or otherwise discontinue the use of the Copyrighted Works
and/or to use one or more substitute materials. Neither COMPANY nor its
Affiliates shall have any obligation to reimburse DEVELOPER for any
expenditures made by DEVELOPER to modify or discontinue the use of any
Copyrighted Work or to adopt additional or substitute copyrighted or
copyrightable items.
34
10. COMPUTER SYSTEM AND SOFTWARE.
10.A. GRANT OF LICENSE.
COMPANY hereby grants to DEVELOPER a nonexclusive, nontransferable,
nonassignable license to use the Licensed Program and Support/Control Programs,
subject to the following terms and conditions:
(1) The Licensed Program and Support/Control Programs shall be
installed and tested on the Computer System at DEVELOPER's
principal office by COMPANY or its designee. If DEVELOPER does
not purchase the Computer System from COMPANY, DEVELOPER must
pay COMPANY or its designee a reasonable installation and
testing fee upon completion of COMPANY's or its designee's
installation and testing of the operation of the Licensed
Program and Support/Control Programs with the Computer System.
DEVELOPER acknowledges and agrees that COMPANY's current
installation and testing fee of $5,000 is reasonable. COMPANY
agrees that the installation and testing fee applicable to any
License Agreement executed pursuant to this Agreement will not
exceed $5,000.
(2) Except with the prior written consent of COMPANY, the Licensed
Program and Support/Control Programs shall not be operated by
persons other than DEVELOPER and employees of DEVELOPER, shall
not be operated on equipment other than the Computer System,
shall not be used in conjunction with any other computer
applications program, and shall not be operated at locations
other than DEVELOPER's principal office; provided, however, that
with prior notice to COMPANY, DEVELOPER may operate the Licensed
Program and Support/Control Programs on equipment other than the
Computer System and at a location other than DEVELOPER's
principal office to the extent required due to malfunction of
the Computer System or other cause beyond the reasonable control
of DEVELOPER, but not for any period longer than seven (7)
consecutive days unless otherwise agreed in writing by COMPANY.
(3) The Licensed Program and Support/Control Programs shall be used
in DEVELOPER's development and supervision of the DEVELOPER
Stores and shall not be used for any other purpose.
(4) Without limiting the foregoing, DEVELOPER shall not, and shall
not allow its employees or agents to: (a) sell, assign, lease,
sublicense, pledge, grant a security interest with respect to,
market or commercially exploit, in any way, the Licensed Program
or Support/Control Programs or any component thereof, or any
data generated by the use of the Licensed Program or
Support/Control
35
Programs or any component thereof; (b) disclose or grant access
to the Licensed Program or Support/Control Programs, or any data
generated by the use thereof or any component thereof, to any
third party other than one to whom COMPANY has consented in
writing and who has agreed in writing with COMPANY to keep them
confidential; (c) copy or reproduce the Licensed Program or
Support/Control Programs, or any data generated by the use
thereof or any component thereof, in any manner, except to the
extent necessary for normal back-up and operating thereof; or
(d) alter, modify or adapt the Licensed Program or
Support/Control Programs, any documentation relating thereto or
any component thereof, including, but not limited to, by
translating, decompiling, reverse engineering or disassembling
them.
(5) DEVELOPER acknowledges and agrees that the Licensed Program and
Support/Control Programs and any data generated by their use are
the valuable, proprietary property and trade secret of COMPANY
or, as applicable, of COMPANY's licensor, and DEVELOPER agrees
to use the utmost care to safeguard the Licensed Program and
Support/Control Programs and any data generated by their use and
to maintain the copyright protection and the secrecy and
confidentiality thereof. DEVELOPER shall not undertake to
patent, copyright or otherwise assert proprietary rights to the
Licensed Program or Support/Control Programs or any data
generated by their use or any portion thereof. DEVELOPER
recognizes that all or part of the Licensed Program and
Support/Control Programs and any data generated by their use may
be copyrighted and agrees that this shall not be construed as
causing the copyrighted material to be public information.
DEVELOPER will ensure that all copies of the Licensed Program
and Support/Control Programs and any data generated by their use
or any components thereof in its possession contain an
appropriate copyright notice under the Universal Copyright
Convention or other notice of proprietary rights specified by
COMPANY.
(6) DEVELOPER shall promptly disclose to COMPANY all ideas and
suggestions for modifications or enhancements of the Licensed
Program and/or Support/Control Programs conceived or developed
by or for DEVELOPER, and COMPANY and its Affiliates shall have
the right to use and license such ideas and suggestions. All
modifications and enhancements made to the Licensed Program or
Support/Control Programs together with the copyright therein
shall be the property of COMPANY or its licensor, as applicable,
without regard to the source of the modification or enhancement,
and DEVELOPER hereby assigns all of its right, title, and
interest in any ideas, modifications, and enhancements to
COMPANY (or such other persons designated by COMPANY). DEVELOPER
agrees to execute any document, in recordable form, which
COMPANY determines is necessary to reflect such ownership.
36
(7) COMPANY or its designee shall have the right at all times to
access the Licensed Program and Support/Control Programs and to
retrieve, analyze and use all data in the files of DEVELOPER
related thereto.
(8) COMPANY or its designee shall provide to DEVELOPER all upgrades,
modifications, improvements, enhancements, extensions and other
changes to the Licensed Program and Support/Control Programs
approved by COMPANY for use in connection with the operation of
Stores, and DEVELOPER shall promptly implement their use.
(9) Upon expiration or termination of this Agreement, DEVELOPER
shall allow COMPANY's or its designee's employees or agents to
remove the Licensed Program and Support/Control Programs from
the Computer System, shall immediately return the Licensed
Program and Support/Control Programs, each component thereof,
and any data generated by their use to COMPANY or its designee,
and shall immediately destroy any and all back-up or other
copies of the Licensed Program, the Support/Control Programs,
any parts thereof, documentation for the Licensed Program and
Support/Control Programs and any data generated by their use,
and other materials or information which relate to or reveal the
Licensed Program and Support/Control Programs, their operation
or any data generated by their use.
10.B. SOFTWARE LICENSE FEE.
DEVELOPER agrees to pay to COMPANY or its designee(s) upon
installation of the Licensed Program on DEVELOPER's Computer System, a software
license fee (the "Software License Fee") in the amount of Sixteen Thousand
Dollars ($16,000.00). The Software License Fee shall be fully earned by COMPANY
or its designee upon installation of the Licensed Program on the Computer
System and is non-refundable in whole or in part.
10.C. SOFTWARE SUPPORT SERVICE.
During the Agreement Term and, provided that DEVELOPER is in
compliance with the terms of this Agreement, COMPANY or its designee shall
provide to DEVELOPER such support services as COMPANY deems reasonably
necessary to cause the Licensed Program and Support/Control Programs to perform
on the Computer System in accordance with the standards therefor as specified
from time to time by COMPANY. Such support services shall not extend to (a)
error corrections, operational support and assistance resulting from
DEVELOPER's use or operation of software which is not authorized by COMPANY for
use on the Computer System, (b) software training or (c) hardware maintenance.
Such support service shall include non-procedural Help Desk calls. All
procedural Help Desk calls will be handled by COMPANY for an additional fee of
$25 per call.
37
10.D. SOFTWARE SUPPORT SERVICE FEE.
For the software support service with respect to the Licensed Program
provided to DEVELOPER, as described above, DEVELOPER agrees to pay to COMPANY
or its designee a periodic software support service fee ("Software Support
Fee") in the amount of Four Hundred Dollars ($400.00). Such fee shall be
payable in advance for each Accounting Period on or before the eighth (8th) day
prior to commencement of such period commencing on the installation of the
Licensed Program on the Computer System. The Software Support Fee may be
increased by COMPANY from time to time, at its sole option, upon written notice
to DEVELOPER, subject to any limitation set forth in the License Agreement.
For the software support service relating to the Support/Control
Programs provided to DEVELOPER by COMPANY, no additional fee will be charged.
In the event DEVELOPER requests, and COMPANY, in its sole discretion,
determines to perform, other support services (e.g., software training,
hardware maintenance) not provided for in this Agreement, COMPANY will charge
DEVELOPER an additional fee at COMPANY's then-current hourly rate, plus
expenses for such support services. DEVELOPER acknowledges that COMPANY's
current rate for such services is $75 per hour and agrees that such rate is
reasonable.
10.E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE.
DEVELOPER acknowledges that COMPANY may, during the term of this
Agreement, require DEVELOPER to modify, enhance and/or replace all or any part
of the Computer System, the Licensed Program, the Support/Control Programs
and/or the Specified Software at DEVELOPER's expense, and agrees, within sixty
(60) days of receipt of notice from COMPANY, to acquire, or acquire the right
to use for the remainder of the term of this Agreement and implement, the
modified, enhanced or replacement version of the Computer System, the Licensed
Program, the Support/Control Programs and/or Specified Software as specified by
COMPANY and to take any and all other actions as may be necessary to enable
them to operate as specified by COMPANY. Any such modifications, enhancements,
and replacements may require DEVELOPER to incur additional costs to purchase,
lease and/or license new or modified computer hardware and/or software or other
equipment and to obtain different and/or additional service and support
services during the term of this Agreement. DEVELOPER acknowledges that COMPANY
cannot estimate the costs of future enhancements, modifications, and
replacements to the Computer System, the Licensed Program, the Support/Control
Programs and/or Specified Software, and that the cost to DEVELOPER of obtaining
such enhancements, modifications, and replacements, may not be fully
amortizable over the remainder of the Development Term or the Agreement Term.
Nonetheless, DEVELOPER agrees to incur such costs in connection therewith,
provided that the COMPANY
38
is then currently specifying the same enhancements, modifications, and
replacements for use in COMPANY-operated Stores.
10.F. WARRANTIES AND LIMITATION OF LIABILITY.
COMPANY represents and warrants to DEVELOPER that: (1) COMPANY has the
right to license the Licensed Program and Support/Control Programs to
DEVELOPER, as set forth in this Agreement; and (2) to the best of COMPANY's
knowledge, the Licensed Program and Support/Control Programs do not, and as a
result of any enhancements, improvements or modifications provided by COMPANY,
will not infringe upon any United States patent, copyright or other proprietary
right of any third party. In the event DEVELOPER's use of the Licensed Program
or Support/Control Programs or any portion thereof, as provided by COMPANY, is
enjoined as a result of a claim by a third party of patent or copyright
infringement or violation of proprietary rights, COMPANY shall, in its sole
discretion, either (i) procure for DEVELOPER the right to continue use of the
Licensed Program or Support/Control Programs as contemplated hereunder, or (ii)
replace the Licensed Program or Support/Control Programs or modify it such that
there is no infringement of the third party's rights. Such action by COMPANY
shall be DEVELOPER's sole and exclusive remedy against COMPANY in such event.
Neither COMPANY nor its designee represents or warrants to DEVELOPER,
and expressly disclaims any warranty, that the Licensed Program or
Support/Control Programs are error-free or that their operation and use by
DEVELOPER will be uninterrupted or error-free. Neither COMPANY nor its designee
shall have any obligation or liability for any expense or loss incurred by
DEVELOPER arising from use of the Licensed Program or Support/Control Programs
in conjunction with any other computer program.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, COMPANY AND/OR ITS
DESIGNEE MAKE NO WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT
TO THE LICENSED PROGRAM, SUPPORT/CONTROL PROGRAMS, PROGRAM DOCUMENTATION, OR
ANY OTHER MATERIAL FURNISHED HEREUNDER, OR ANY COMPONENT THEREOF AND THERE ARE
EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT THERETO.
10.G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES.
DEVELOPER acknowledges that the Licensed Program and Support/Control
Programs contain third-party components and subcomponents which COMPANY has the
authority to license to DEVELOPER as part of the Licensed Program and
Support/Control Programs pursuant to and in accordance with software license
agreements with third-party vendors
39
(collectively, the "Component Licenses"). In addition, DEVELOPER acknowledges
that acquisitions by DEVELOPER of all or portions of the Computer System and
the Specified Software from or through the COMPANY are governed by license or
other agreements by and between third-party vendors and COMPANY, which
agreements specifically permit COMPANY to sell and/or sublicense all or
portions of the Computer System and the Specified Software to DEVELOPER or
specifically require DEVELOPER to agree to be bound by the terms thereof
(either type of license hereinafter referred to as the "Third Party Licenses").
DEVELOPER therefore hereby agrees to be bound by the terms of each Component
License and, to the extent DEVELOPER purchases all or portions of the Specified
Software or the Computer System from or through COMPANY, each relevant Third
Party License, in each case as if DEVELOPER was a party thereto, and agrees
that the vendors and licensors of all or portions of the Specified Software and
the Computer System and the licensors of all or portions of the Licensed
Program (collectively, the "Vendors") are third-party beneficiaries of this
Agreement with full rights to enforce this Agreement as it pertains to the
purchased items and the Licensed Program and Support/Control Programs.
DEVELOPER further agrees to indemnify and hold harmless COMPANY and each of the
Vendors from and against all costs, expenses, and damages arising out of or
based upon any breach or claim of a breach of this Agreement, the Third Party
Licenses or Component Licenses by DEVELOPER, its directors, officers,
employees, agents and owners.
10.H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LICENSED PROGRAM SUPPORT/CONTROL PROGRAMS.
DEVELOPER acknowledges that operating non-Specified Software on the
Computer System with the Specified Software and/or the License Program and
Support/Control Programs may cause errors or other interruptions to or problems
with the Specified Software, Licensed Program and/or Support/Control Programs.
Therefore, DEVELOPER hereby agrees to operate only Specified Software, the
Licensed Program and the Support/Control Programs on the Computer System.
11. CONFIDENTIAL INFORMATION.
COMPANY or its licensors, as applicable, possess and may further
develop and acquire certain confidential and proprietary information and trade
secrets, including, but not limited to, the following categories of
information, methods, techniques, procedures and knowledge developed or to be
developed by COMPANY or its Affiliates or their consultants, contractors or
designees, and/or franchise owners, license owners, and developers (the
"CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications, as defined in the License Agreement), standards, policies,
procedures, information, concepts and systems relating to and knowledge of
and experience in the
40
development, operation, franchising and licensing of UNITS and the
development and operation of Commissaries; and
(2) marketing and promotional programs for UNITS; and
(3) knowledge concerning the logic, structure and operation of
computer software programs which COMPANY authorizes for use in connection
with the operation of UNITS (including, without limitation, the Licensed
Program), and all additions, modifications and enhancements thereof, and
all data generated from use of such programs and the logic, structure and
operation of database file structures containing such data and all
additions, modifications and enhancements thereof; and
(4) sales data and information concerning consumer preferences and
inventory requirements for Products, materials and supplies, and
specifications for and suppliers of certain materials, equipment and
fixtures for UNITS (including, without limitation, the Stores) and for
Commissaries; and
(5) ingredients, formulas, mixes, spices, seasonings, recipes for and
methods of preparation, baking, cooking, freezing, serving, packaging,
catering and delivery of, Products and other items sold at UNITS; and
(6) information concerning Product sales, operating results,
financial performance and other financial data of UNITS (including,
without limitation, the Stores); and
(7) the Development Manual (defined in Section 13.J. of this
Agreement), the Commissary Manuals (defined in Section 5.D of this
Agreement) and the Store Manuals (defined in the License Agreement); and
(8) customer lists and Product sales of the DEVELOPER Stores; and
(9) employee selection procedures, training and staffing levels.
COMPANY will disclose to DEVELOPER such parts of the Confidential
Information as COMPANY deems necessary or advisable from time to time in its
sole discretion for the development of Stores and Commissaries in providing
training and in guidance and assistance furnished to DEVELOPER under this
Agreement. DEVELOPER may also learn or otherwise obtain from COMPANY and its
Affiliates and other licensors of components or elements of the System
additional Confidential Information during the Agreement Term. DEVELOPER
acknowledges and agrees that neither DEVELOPER nor any other person or entity
will acquire by or through DEVELOPER any interest in or right to use the
Confidential Information, other than the right to use it in the development of
Stores and Commissaries pursuant to this
41
Agreement, and that the use or duplication of the Confidential Information in
any other business would constitute an unfair method of competition with
COMPANY and with other UNIT developers, franchise owners and license owners.
DEVELOPER agrees to disclose the Confidential Information to Owners and to its
employees only to the extent reasonably necessary for the development of Stores
pursuant to this Agreement and only if such individuals have agreed to maintain
such information in confidence in an agreement enforceable by COMPANY.
DEVELOPER acknowledges and agrees that the Confidential Information is
confidential to and a valuable asset of COMPANY or its licensors, as
applicable, is proprietary, includes trade secrets of COMPANY and is disclosed
to DEVELOPER solely on the condition that DEVELOPER, its Owners and employees
who have access to the Confidential Information agree, and DEVELOPER does
hereby agree that, during and after the Agreement Term, DEVELOPER, its Owners
and such employees:
(a) will not use the Confidential Information in any other business
or capacity (unless, in the case of the Licensed Program, separately
licensed by the owner thereof); and
(b) will maintain the absolute confidentiality of the Confidential
Information; and
(c) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written or other tangible form; and
(d) will adopt and implement all reasonable procedures prescribed
from time to time by COMPANY to prevent unauthorized use or disclosure of
the Confidential Information, including, without limitation, requiring
employees and Owners who will have access to such information to execute
non-competition and confidentiality agreements in the form attached hereto
as Exhibit J (the "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT").
DEVELOPER shall provide COMPANY, at its request, executed originals of
each such Confidentiality and Non-Competition Agreement.
Nothing contained in this Agreement shall be construed to prohibit
DEVELOPER from using the Confidential Information in connection with the
operation of any Store pursuant to a Franchise Agreement, License Agreement, or
pursuant to another development agreement between COMPANY and DEVELOPER.
Notwithstanding anything to the contrary contained in this Agreement and
provided DEVELOPER shall have obtained COMPANY's prior written consent, the
restrictions on DEVELOPER's disclosure and use of the Confidential Information
shall not apply to the following:
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(i) information, methods, procedures, techniques and knowledge which
are or become generally known in the food service business within the
Development Area, other than through disclosure (whether deliberate or
inadvertent) by DEVELOPER or any other party having an obligation of
confidentiality to COMPANY; and
(ii) the disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that DEVELOPER is legally
compelled to disclose such information, provided DEVELOPER has notified
COMPANY prior to disclosure and shall have used its best efforts to
obtain, and shall have afforded COMPANY the opportunity to obtain an
appropriate protective order or other assurance satisfactory to COMPANY of
confidential treatment for the information required to be so disclosed.
DEVELOPER agrees to disclose to COMPANY all ideas, concepts, methods,
techniques and products conceived or developed by DEVELOPER, Owners, affiliates
or employees thereof during the Agreement Term relating to the development and
operation of UNITS and Commissaries, provided that the aforementioned parties
will not be obligated to make such disclosures if doing so would violate any
contractual obligations of DEVELOPER which:
(A) arose prior to DEVELOPER's execution of this Agreement; and
(B) DEVELOPER disclosed to COMPANY in writing prior to the Effective
Date.
DEVELOPER hereby assigns to COMPANY and agrees to procure from its Owners,
affiliates and employees assignment of any such ideas, concepts, methods,
techniques and products which DEVELOPER is required to disclose to COMPANY
hereunder. COMPANY shall have no obligation to make any lump sum or on-going
payments to DEVELOPER or its Owners, affiliates or employees with respect to
any such idea, concept, method, technique or product. DEVELOPER agrees that
DEVELOPER will not use nor will it allow any other person or entity to use any
such concept, method, technique or product without obtaining COMPANY's prior
written approval.
12. EXCLUSIVE RELATIONSHIP.
DEVELOPER acknowledges and agrees that COMPANY would be unable to
protect the Confidential Information against unauthorized use or disclosure and
would be unable to encourage a free exchange of ideas and information among
franchise owners, license owners, and developers of UNITS, if developers,
franchise owners, license owners and their Principal Owners (and members of
their Immediate Families) were permitted to engage in, hold interests in or
perform services for Competitive Businesses. DEVELOPER further acknowledges and
agrees that the restrictions contained in this Section will not hinder its
activities or the activities of its Principal Owners (or members of their
Immediate Families) under this Agreement or in
43
general. COMPANY has entered into this Agreement with DEVELOPER on the express
condition that, with respect to the development and operation of food service
businesses that sell Products, DEVELOPER and its Principal Owners and members
of their respective Immediate Families will deal exclusively with COMPANY.
DEVELOPER therefore agrees that, during the Agreement Term, neither DEVELOPER
nor any Principal Owner of DEVELOPER, nor any member of the Immediate Family of
DEVELOPER or of a Principal Owner of DEVELOPER, shall directly or indirectly:
(a) have any interest as a record or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market and quoted by a national
inter-dealer quotation system that represent less than three percent (3%)
of the number of shares of that class of securities issued and
outstanding); or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business.
DEVELOPER further agrees that, during the Agreement Term, neither DEVELOPER nor
any Principal Owner of DEVELOPER, nor any member of the Immediate Family of
DEVELOPER or a Principal Owner of DEVELOPER shall directly or indirectly employ
or seek to employ any person who is employed by COMPANY, its Affiliates or by
any other developer, franchise owner or license owner of UNITS, nor induce nor
attempt to induce any such person to leave said employment without the prior
written consent of such person's employer.
Furthermore, if DEVELOPER is a corporation, limited liability company
or partnership, it will not engage in any business or other activity, directly
or indirectly, other than the development and operation of Stores.
DEVELOPER acknowledges and agrees that the failure of any person or
entity restricted pursuant to this Section to comply with the restrictions of
this Section (regardless of whether that person or entity actually has executed
this Agreement or a Confidentiality and Non-Competition Agreement) shall
constitute a breach of this Agreement.
The restrictions of this Section shall not be construed to prohibit
DEVELOPER, any Principal Owner of DEVELOPER, or any member of the Immediate
Family of DEVELOPER or its Principal Owners from having a direct or indirect
Ownership Interest in any UNITS, development agreements, franchise agreements
or license agreements for the development or operation of UNITS, or any entity
owning, controlling or operating UNITS, or from providing services to any such
UNITS pursuant to other agreements with COMPANY. Furthermore, the
44
restrictions of this Section shall not prohibit DEVELOPER, any Principal Owner
or any member of the Immediate Family of DEVELOPER or a Principal Owner (to the
extent such person is an individual) from performing services for or having an
Ownership Interest in a Permitted Competitive Business, or from conducting
customary promotion and advertising of a Permitted Competitive Business. Such
person(s) and business(es), if any, are identified on Exhibit G attached
hereto.
13. OBLIGATIONS OF DEVELOPER.
13.A. FULL-TIME SUPERVISION.
DEVELOPER (or the Principal Owner(s) designated in Exhibit G of this
Agreement and approved by COMPANY) and the Chief Operating Officer (as defined
below) shall exert full-time efforts to fulfill the obligations of DEVELOPER
under this Agreement and shall not engage in any other business or other
activity, directly or indirectly, that requires any significant management
responsibility or time commitments, or that may otherwise conflict with
DEVELOPER's obligations under this Agreement.
13.B. CHIEF OPERATING OFFICER.
Prior to or concurrently with the execution of this Agreement,
DEVELOPER has designated the person identified on Exhibit G to this Agreement
to act as the Chief Operating Officer of the business conducted by DEVELOPER
pursuant to this Agreement (the "CHIEF OPERATING OFFICER"). DEVELOPER
represents that the Chief Operating Officer holds and will continue to hold a
significant, direct equity interest in DEVELOPER at all times during the
Agreement Term. If the relationship of the Chief Operating Officer with
DEVELOPER terminates or if he is unable to satisfactorily complete COMPANY's
management training program, DEVELOPER agrees to promptly designate a
replacement Chief Operating Officer acceptable to COMPANY, in its sole
discretion, who shall at DEVELOPER's expense and subject to COMPANY's
then-current training charges, satisfactorily complete the management training
program.
13.C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.
Upon COMPANY's written request, DEVELOPER shall designate a person
(other than the persons serving as the Chief Operating Officer, the Training
Director and the Marketing Director ) acceptable to COMPANY to act as the
Development Director of DEVELOPER (the "DEVELOPMENT DIRECTOR") during the
Development Term. If the relationship of the Development Director with
DEVELOPER terminates, DEVELOPER agrees to promptly designate a replacement
Development Director acceptable to COMPANY.
The Development Director's duties will include, without limitation:
45
(1) preparing and implementing a development plan for the
Development Area in form satisfactory to COMPANY; and
(2) consulting with COMPANY concerning the adaptation of
COMPANY's existing site criteria and lease (or purchase) requirements
for the Development Area; and
(3) directing and coordinating the site evaluation efforts of
DEVELOPER; and
(4) negotiating leases or purchase agreements for proposed
DEVELOPER Store sites; and
(5) developing Stores in the Development Area.
DEVELOPER shall also hire and maintain the number of real estate
managers meeting COMPANY's qualifications as COMPANY shall specify.
13.D. TRAINING DIRECTOR.
Upon COMPANY's written request, DEVELOPER shall designate a person
(other than the persons serving as the Chief Operating Officer, the Development
Director or the Marketing Director) acceptable to COMPANY to act as the
Training Director of DEVELOPER (the "TRAINING DIRECTOR") who must
satisfactorily complete COMPANY's management training program. If the proposed
Training Director completes the management training program to COMPANY's
satisfaction, COMPANY will certify him to fulfill the duties of the Training
Director. Thereafter, DEVELOPER agrees to send the Training Director, from time
to time as determined by COMPANY, to one or more locations which COMPANY
designates for a period to be determined by COMPANY in order for COMPANY to
re-certify the Training Director. So long as the Training Director's
certification is current, the Training Director shall be responsible for
training the employees of each DEVELOPER Store and each Commissary at
DEVELOPER's training facility, provided that (i) DEVELOPER has been authorized
in writing by COMPANY to operate such a facility and (ii) such facility meets,
and has been approved by COMPANY, in writing, as meeting, the specifications
COMPANY prescribes for training facilities from time to time. If the Training
Director ceases to be an employee of DEVELOPER or if the proposed Training
Director is unable to satisfactorily complete the management training program
or any subsequent training program, DEVELOPER agrees to promptly designate a
replacement Training Director acceptable to COMPANY, who must, at DEVELOPER's
expense and subject to COMPANY's then-current standard charges, satisfactorily
complete COMPANY's management training program and be certified by COMPANY as
provided above. COMPANY may, in its sole discretion as it deems necessary,
require the Training Director to attend or to participate in, at DEVELOPER's
expense, additional or refresher training programs
46
at locations designated by COMPANY during the term of this Agreement.
The Training Director's duties will include, without limitation:
(1) training and supervising Store and Commissary personnel; and
(2) furnishing on-site assistance to the personnel of Stores and
Commissaries in connection with Store and Commissary openings; and
(3) ongoing consultation with COMPANY and Store and Commissary
management personnel concerning training matters; and
(4) periodic reporting to COMPANY concerning DEVELOPER's
training programs established and operated by DEVELOPER.
DEVELOPER agrees, if authorized and required by COMPANY, in its sole
discretion, to develop, operate and maintain throughout the Agreement Term a
training program (including appropriate training facilities) for its employees
in the use of the System in accordance with specifications prescribed by
COMPANY from time to time.
13.E. MARKETING DIRECTOR.
Upon COMPANY's written request, DEVELOPER shall designate a person
(other than the persons serving as the Chief Operating Officer, the Development
Director and the Training Director) acceptable to COMPANY to act as the
Marketing Director of DEVELOPER (the "MARKETING DIRECTOR"). If the relationship
of the Marketing Director with DEVELOPER terminates, DEVELOPER agrees to
promptly designate a replacement Marketing Director acceptable to COMPANY.
The Marketing Director's duties will include, without limitation:
(1) consulting with COMPANY concerning the adaptation of
COMPANY's existing marketing programs and materials for the
Development Area; and
(2) preparing and, subject to COMPANY's approval, implementing
marketing plans for the grand opening of the DEVELOPER Stores; and
(3) preparing and, subject to COMPANY's approval, implementing
local marketing plans and marketing budgets for the DEVELOPER Stores;
and
(4) coordinating the direction and administration of any local
marketing efforts of the DEVELOPER Stores; and
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(5) reporting periodically to COMPANY concerning local marketing
programs of DEVELOPER in the Development Area.
13.F. MANAGEMENT PERSONNEL AND TRAINING.
In addition to hiring, training and maintaining the personnel
described in Paragraphs B. through E. of this Section, DEVELOPER shall hire,
train and maintain the number and level of management personnel required for
the conduct of its business pursuant to this Agreement, including, without
limitation, a full-time Store Manager and a full-time Additional Manager for
each DEVELOPER Store and a full-time Commissary Manager and a full-time
Additional Commissary Manager for each Commissary, in accordance with
guidelines established from time to time by COMPANY. DEVELOPER shall keep
COMPANY advised of the identities of such personnel. DEVELOPER shall be
responsible for ensuring that such personnel are properly trained to perform
their duties. COMPANY will from time to time make available a management
training program for such personnel at times and locations designated by
COMPANY. Such management training program will be made available at no charge
to DEVELOPER's initial Chief Operating Officer, Development Director, Training
Director and Marketing Director and, at DEVELOPER's request and at COMPANY's
then-current standard charges, including, without limitation, travel and
lodging expenses of COMPANY personnel for training not conducted at COMPANY's
principal offices, additional DEVELOPER personnel and any replacement or
substitute Chief Operating Officer, Development Director, Training Director
and/or Marketing Director, subject to space availability in COMPANY's regularly
scheduled management training programs. All management personnel shall be
required to complete to COMPANY's satisfaction either COMPANY's management
training program, a management training program provided by DEVELOPER and
approved by COMPANY or another management training program certified and
accredited by COMPANY.
After COMPANY has certified him pursuant to this Agreement,
DEVELOPER's Training Director shall provide an initial management training
program to the Store Manager and Additional Manager of each DEVELOPER Store and
the Commissary Manager and Additional Commissary Manager of each Commissary at
a training facility (including a facility maintained by DEVELOPER if COMPANY so
requires) certified and accredited by COMPANY in accordance with COMPANY's
requirements therefor. COMPANY will provide DEVELOPER with appropriate training
materials or refresher or updated training materials at COMPANY's then-current
standard charges therefor.
13.G. BUDGETS AND FINANCING PLANS.
DEVELOPER shall maintain sufficient financial resources to fulfill its
obligations under this Agreement and under Franchise Agreements executed
pursuant to this Agreement. Within 30 days after the execution of this
Agreement, DEVELOPER shall submit to COMPANY for its
48
approval, in a format specified by COMPANY, a written plan for the funding of
the development of DEVELOPER Stores pursuant to this Agreement (a "Funding
Plan"), which plan shall be reasonably acceptable to COMPANY and which shall
include details of the sources and terms of such funding and such other
information or documents required by COMPANY. Among other factors, COMPANY may
consider DEVELOPER's proposed debt/equity ratio and amount of indebtedness in
reviewing such plan. Once a Funding Plan is approved by COMPANY, DEVELOPER must
execute and adhere to the plan. The plan shall be subject to periodic review by
COMPANY which may require, in its sole discretion, modifications to meet its
then current minimum standards for developer financing plans.
13.H. INSURANCE.
During the Agreement Term, in addition to insurance required to be
maintained in connection with the development and operation of each Store,
DEVELOPER agrees to maintain under policies of insurance issued by insurers
rated "A-" or better by Alfred M. Best Company, Inc. and approved by Company:
(1) such insurance as is necessary to comply with all legal
requirements concerning insurance coverage (including, without
limitation, workers' compensation requirements and insurance
coverage) for persons attending COMPANY training programs on
behalf of DEVELOPER; and
(2) commercial general liability insurance (including, but
not limited to, coverage for motor vehicles used in the
development of Stores and in the operation of Commissaries
hereunder, whether or not such vehicles are owned by DEVELOPER)
against claims for bodily and personal injury, death and
property damage caused by or occurring in conjunction with the
conduct of business by DEVELOPER pursuant to this Agreement,
under one or more policies of insurance containing minimum
liability coverage prescribed by COMPANY from time to time.
COMPANY may periodically increase the amounts of coverage required under such
insurance policies and require different or additional kinds of insurance at
any time, including excess liability insurance, to reflect inflation,
identification of new risks, changes in law or standards of liability, higher
damage awards or other relevant changes in circumstances. Each insurance policy
shall name COMPANY as an additional named insured, shall contain a waiver of
all subrogation rights against COMPANY, its Affiliates, and their successors
and assigns, and shall provide for thirty (30) days' prior written notice to
COMPANY of any material modification, cancellation, or expiration of such
policy. The maintenance of insurance coverage which meets the minimum
requirements described in this Section and such additional coverages which
DEVELOPER determines are appropriate for its particular circumstance shall be
the responsibility of DEVELOPER.
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Upon execution of this Agreement, DEVELOPER shall provide COMPANY with
evidence of such insurance. Thereafter, prior to the expiration of each
insurance policy, DEVELOPER shall furnish to COMPANY a copy of each renewal or
replacement insurance policy to be maintained by DEVELOPER for the immediately
following term and evidence of the payment of the premium therefor.
DEVELOPER's obligation to maintain insurance coverage as herein
described shall not be affected in any manner by reason of any separate
insurance maintained by COMPANY, nor shall the maintenance of such insurance
relieve DEVELOPER of any indemnification obligations under this Agreement.
13.I. RECORDS AND REPORTS.
DEVELOPER shall maintain and use at its principal office the Computer
System, in such form as is specified by COMPANY from time to time, and shall
transmit information to, or allow the electronic collection of information by,
COMPANY therefrom. DEVELOPER agrees, at its expense, to maintain and preserve
at its principal office, full, complete and accurate records and reports and,
if required by COMPANY, computer diskettes and databases in the form specified
by COMPANY from time to time pertaining to the development and operation of
DEVELOPER Stores and the performance by DEVELOPER of its obligations under this
Agreement, including but not limited to, records and information relating to
the following: site reports, Site Agreements for DEVELOPER Stores, supervisory
reports relating to operation of Stores, records reflecting the financial
condition and performance of DEVELOPER (utilizing COMPANY's bookkeeping,
accounting, recordkeeping and records retention system including, without
limitation, a general ledger system which utilizes a standard chart of accounts
prescribed by COMPANY from time to time and timely entry of information into
data bases of the Computer System and periodic printouts of reports generated
from the Computer System), and information relating to employee turnover. To
determine whether DEVELOPER is complying with this Agreement, COMPANY or its
agents shall have the right at any reasonable time to inspect, audit and copy
any books, records, reports, computer data bases and documents pertaining to
DEVELOPER's obligations hereunder. DEVELOPER agrees to cooperate fully with
COMPANY in connection with any such inspection or audit.
In addition to the reports and information required in connection with
the development and operation of DEVELOPER Stores, DEVELOPER shall adopt a
fiscal year consistent with the fiscal year adopted by COMPANY from time to
time and furnish to COMPANY in the form and format from time to time prescribed
by COMPANY (including, without limitation, via computer diskette and restated
in accordance with COMPANY's financial reporting periods and consistent with
COMPANY's then-current financial reporting periods and accounting practices and
procedures):
(1) weekly reports of sales and Royalty Base Revenue for
DEVELOPER
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Stores each Monday (for the preceding Monday through Sunday period)
and, if requested by COMPANY, daily reports of sales and Royalty Base
Revenue for DEVELOPER Stores, by facsimile or telephone no later than
10:00 a.m. Rocky Mountain time on the following day; and
(2) by the twentieth (20th) day of each Accounting Period, a
report (in such form as COMPANY may request from time to time) on
DEVELOPER's financing plan and DEVELOPER's activities during the
immediately preceding Accounting Period including, but not limited
to, DEVELOPER's activities in locating and developing sites and
monitoring the operation of DEVELOPER Stores, training activities,
employee statistics and violations of health codes and other laws;
and
(3) upon request by COMPANY, such other data, reports,
information and supporting records for such periods as COMPANY may
from time to time prescribe (including, without limitation, daily and
weekly sales reports by means of telephonic, facsimile or other
reporting system).
(4) within sixty (60) days after the end of DEVELOPER's fiscal
year, a fiscal year end balance sheet, an income statement for such
fiscal year reflecting all year-end adjustments and a statement of
changes in cash flow, prepared in accordance with generally accepted
accounting principles consistently applied and in the format
prescribed by COMPANY from time to time; and
(5) at least sixty (60) days prior to each required opening date
on the Development Schedule, an anticipated development program/plan,
in form prescribed by COMPANY from time to time, for the next
succeeding required opening date; and
Each such report and financial statement submitted by DEVELOPER shall
be signed to DEVELOPER and verified as correct in the manner prescribed in
COMPANY.
DEVELOPER agrees to maintain and to furnish to COMPANY upon request
complete copies of all income, sales, value added, use and service tax returns,
and employee withholding, worker's compensation and similar reports filed by
DEVELOPER reflecting DEVELOPER's activities and the activities of the DEVELOPER
Stores.
DEVELOPER shall immediately report to COMPANY any events or
developments which may have a materially adverse impact on the operation of any
of the DEVELOPER Stores, the performance of DEVELOPER under this Agreement, or
the goodwill associated with the Marks and UNITS.
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13.J. DEVELOPMENT MANUAL, COMMISSARY MANUALS AND STORE MANUALS.
COMPANY will loan to DEVELOPER for DEVELOPER's sole use during the
Agreement Term one (1) copy of a confidential manual relating to the
development and operation of Stores and human resources policies and
procedures, which may consist of one or more volumes, handbooks, manuals,
written materials, video or audio cassette tapes, computer diskettes, and other
materials and intangibles, as may be modified, added to, replaced or
supplemented by COMPANY from time to time in its sole discretion (which
modifications, additions or supplements may contain information developed for
COMPANY by DEVELOPER with respect to the type of UNIT developed pursuant to
this Agreement), whether by way of supplements, replacement pages, bulletins,
or other official pronouncements or means (collectively the "DEVELOPMENT
MANUAL"). The Development Manual may be modified from time to time in COMPANY's
sole discretion to reflect changes in the System or specifications, standards,
policies and procedures for Stores or such other changes or additions as
COMPANY deems necessary or advisable. DEVELOPER shall keep its copy of the
Development Manual current by immediately inserting all modified pages or
materials furnished by COMPANY. In the event of a dispute about the contents of
the Development Manual, the master copies maintained by COMPANY at its
principal office shall be controlling. DEVELOPER acknowledges that the
Development Manual is part of the Confidential Information and will be
protected accordingly. DEVELOPER acknowledges and agrees that the content of
the Development Manual and the Commissary Manuals, as modified from time to
time, is incorporated herein by reference and that DEVELOPER will comply with
all procedures, standards, specifications and requirements specified therein as
though each such item were set forth in detail in this Agreement.
COMPANY also will loan to DEVELOPER for its use during the term of
each Franchise Agreement one (1) copy of the Store Manuals for each DEVELOPER
Store developed and opened by DEVELOPER under this Agreement. The Store Manuals
for the first Store to be developed under this Agreement will be made available
to DEVELOPER promptly after execution of this Agreement.
13.K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.
DEVELOPER shall secure and maintain in force in its name all required
licenses, permits, and certificates relating to the conduct of its business
pursuant to this Agreement. DEVELOPER shall comply with all applicable laws,
ordinances and regulations, including, without limitation, laws and
governmental regulations relating to the preparation, purchase and handling of
food products, Delivery Service, Catering Service, Special Distribution
Arrangements and the operation of Commissaries (if applicable), occupational
hazards, health, safety and sanitation, worker's compensation insurance,
unemployment insurance, and withholding and payment of all taxes. All
advertising by DEVELOPER shall be approved by
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COMPANY and be completely factual, in good taste in the judgment of COMPANY,
and conform to high standards of ethical advertising. DEVELOPER shall in all
dealings with its customers, suppliers, COMPANY and public officials adhere to
high standards of honesty, integrity, fair dealing and ethical conduct.
DEVELOPER agrees to refrain from any business or advertising practice which may
be injurious to the business of COMPANY and the goodwill associated with the
Marks and UNITS. DEVELOPER shall notify COMPANY in writing:
(1) within three (3) days after the commencement of any action, suit,
or proceeding, and of the issuance of any order, writ, injunction, award,
or decree of any court, agency, or other governmental instrumentality,
which may adversely affect the operation or financial condition of
DEVELOPER, the DEVELOPER Stores or the Commissaries
(2) immediately after receipt of any notice of violation of any law,
ordinance or regulation relating to health, sanitation or the operation of
the DEVELOPER Stores or the Commissaries.
13.L. HUMAN RESOURCES.
DEVELOPER shall adopt, observe and enforce those human resources policies,
programs and standards which COMPANY includes in the Development Manual, Store
Manuals and Commissary Manuals or otherwise designates in writing as mandatory.
13.M. SPECIFICATIONS, STANDARDS AND PROCEDURES.
DEVELOPER agrees to comply strictly with all of COMPANY's mandatory
specifications, standards and procedures relating to the DEVELOPER Stores and
Commissaries, which specifications, standards and procedures COMPANY may
modify, supplement or replace from time to time. Any failure by DEVELOPER to
adhere to such mandatory specifications, standards and procedures or to pass
COMPANY's periodic quality control inspections shall constitute a breach of
this Agreement. DEVELOPER agrees and acknowledges that COMPANY's mandatory
specifications, standards and operating procedures relating to the appearance,
function, cleanliness, days and hours of operation (days and hours of operation
may vary somewhat among Stores based on COMPANY's reasonable judgment of the
requirements of a Store's trade area and whether COMPANY has approved any
special services to be offered at or from a site), and operation of DEVELOPER
Stores, including, but not limited to:
(1) type, brand, quality, taste, weight, dimensions, ingredients,
uniformity, manner of preparation, preservation and sale of all Products
and Supplies and Materials; and
(2) sales and marketing procedures and customer service; and
53
(3) advertising and promotional programs; and
(4) layout, decor and color scheme of the Store; and
(5) recruitment, selection, training, appearance and dress of
employees, including, without limitation, use of COMPANY's employee
selection and training materials; and
(6) safety, maintenance, appearance, cleanliness, sanitation,
standards of service and operation of Stores; and
(7) submission of requests for approval of brands of food and
packaging products, supplies and suppliers; and
(8) use and illumination of signs, posters, displays, standard
formats and similar items; and
(9) identification of DEVELOPER (and/or the entity executing License
Agreements for Stores pursuant to the Development Agreement) as the owner
of DEVELOPER Stores in the Development Area; and
(10) types of and use of fixtures, furnishings, equipment, computer
hardware and software, vehicles, and signs; and
(11) carry-out, on-premises dining and (if authorized by COMPANY and
agreed to by DEVELOPER) Delivery Service, Catering Service and Special
Distribution Arrangements; and
(12) required and approved menu items; and
(13) general staffing levels for the Stores and number, type and
qualifications of Store personnel; and
(14) participation in market research and test programs required or
approved by COMPANY concerning various aspects of the System, including,
without limitation, procedures, systems, techniques, furnishings,
fixtures, equipment, ingredients, signs, labels, trade dress, logos,
packaging, supplies, marketing materials and strategies, merchandising and
new menu items and services. DEVELOPER agrees, if requested by COMPANY, to
participate in COMPANY's customer surveys and market research programs.
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DEVELOPER acknowledges and agrees that all mandatory specifications, standards
and operating and inspection procedures prescribed from time to time by COMPANY
in the Store Manuals or otherwise communicated to DEVELOPER in writing, shall
constitute binding obligations on the part of DEVELOPER as if fully set forth
herein, and any failure by DEVELOPER to adhere to such mandatory
specifications, standards and operating and inspection procedures or to pass
COMPANY'S periodic quality control inspections shall constitute grounds for
termination of this Agreement by COMPANY, as provided for herein. All
references herein to this Agreement shall include all such mandatory
specifications, standards, and operating procedures.
14. TRANSFER.
14.A. BY COMPANY.
This Agreement is fully transferable by COMPANY and shall inure to the
benefit of any assignee or other legal successor to the interests of COMPANY
herein.
14.B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER.
DEVELOPER understands, acknowledges and agrees (and hereby represents
and warrants that its Owners understand and agree) that the rights and duties
created by this Agreement are personal to DEVELOPER and its Owners and that a
material cause for COMPANY's agreeing to enter into this Agreement is its
reliance on the individual and collective character, skill, aptitude, business
ability, and financial capacity of DEVELOPER and its Owners. Therefore, except
as provided in Section 14.C. below, no Ownership Interest in DEVELOPER, no
obligations of DEVELOPER under this Agreement, and no interest in this
Agreement may be transferred. Any purported transfer in violation of this
Section shall constitute a breach of this Agreement and shall convey to the
transferee no obligations under, rights to or interest in the foregoing.
As used in this Agreement, a "transfer" shall include, without
limitation, the following, whether voluntary, involuntary, direct or indirect,
or conditional:
(1) an assignment, sale, gift or pledge;
(2) the grant of a mortgage, lien or security interest,
including, without limitation, the grant of a collateral assignment;
(3) a merger, consolidation, share exchange or issuance of
additional Ownership Interests or securities representing or
potentially representing Ownership Interests or redemption of
Ownership Interests;
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(4) a sale or exchange of voting interests or securities
convertible to voting interests, or an agreement granting the right to
exercise or control the exercise of voting rights of any holder of
Ownership Interests or to control the operations or affairs of
DEVELOPER; and
(5) except where specifically approved by COMPANY, a
management agreement whereby DEVELOPER delegates (i) any of its
obligations under this Agreement; or (ii) any or all of the management
functions with respect to a DEVELOPER Store or the business to be
conducted by DEVELOPER pursuant to this Agreement.
In addition to the foregoing, a transfer (as defined above) will require the
prior written consent of COMPANY where such transfer occurs by virtue of (a)
divorce; (b) insolvency; (c) dissolution of a corporation, partnership or
limited liability company; (d) will; (e) intestate succession; or (f)
declaration of or transfer in trust.
14.C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.
Subject to (1) COMPANY's rights of first refusal under Section 14.G
and (2) COMPANY's right to approve the proposed purchaser under Section 14.D.,
Ownership Interests (including stock options or other options to acquire
Ownership Interests) may be transferred if:
(1) the proposed transfer is by an Owner who is not a
Principal Owner; and
(2) the proposed transfer does not by itself or in
conjunction with other transfers, result in the transfer of a
Controlling Interest in DEVELOPER or of a change in the composition of
the group holding a Controlling Interest in DEVELOPER; and
(3) the proposed transfer is not to a Competitive Business or
to a direct or indirect owner of interests in a Competitive Business;
and
(4) DEVELOPER and its Owners are in full compliance with this
Agreement.
In addition, an Owner's Ownership Interests in DEVELOPER shall be
transferred to a transferee approved by COMPANY pursuant to Section 14.D within
a reasonable time, not to exceed nine (9) months, after the death, permanent
incapacity or liquidation of the Owner.
14.D. COMPANY'S RIGHT TO APPROVE TRANSFERS.
COMPANY reserves the right to approve the proposed purchaser and
transfer of any
56
Ownership Interests in DEVELOPER which are permitted or mandated under Section
14.C. to be transferred. If any Owner intends to transfer Ownership Interests,
DEVELOPER shall deliver to COMPANY written notice of such proposed transfer at
least thirty (30) days prior to its intended effective date. Such notice shall
describe in detail the proposed transfer (including, without limitation, the
nature of the transfer, the nature and amount of the interests being
transferred, the reason for the transfer, the price and terms of the transfer
and effective date) and identify and provide information regarding the proposed
purchaser. COMPANY shall have thirty (30) days from delivery of such notice
within which to evaluate the proposed transaction and to notify DEVELOPER of
its approval or disapproval (with reasons) of the proposed transfer. If
approved, the transfer must take place as described in the notice (as modified
by any conditions imposed by COMPANY in granting its approval) and within
thirty (30) days of the delivery of notice of COMPANY's approval. In evaluating
whether to grant its approval, COMPANY may evaluate any and all reasonable
factors including, without limitation:
(1) whether the proposed transferee and, if applicable, its owners
are (a) of good moral character, (b) otherwise meet COMPANY's then
applicable standards for developers of UNITS and (c) are in full
compliance with any other franchise agreements or development agreements
between COMPANY and them; and
(2) whether the price and terms of the proposed transfer are not so
burdensome as to adversely affect or have a potentially adverse affect on
COMPANY's rights and interest under this Agreement.
In granting its approval, COMPANY may also impose certain reasonable
conditions, including, without limitation, the following:
(1) that DEVELOPER reimburse COMPANY for any costs and expenses
incurred by COMPANY in evaluating the proposed transfer;
(2) that DEVELOPER, the transferring Owner or the proposed purchaser
pay a transfer fee in the amount of $10,000;
(3) that, if the transferring Owner finances any part of the sale
price, it agrees, in a manner satisfactory to COMPANY, that all
obligations of the purchaser under or pursuant to any promissory notes,
agreements or security interests reserved by the transferring Owner be
subordinate to any obligations of the purchaser to pay amounts due COMPANY
and its Affiliates;
(4) that the purchaser execute any individual undertakings then being
required by COMPANY of other Owners of developers, franchise owners or
license owners of Stores;
57
(5) that DEVELOPER, the transferring Owner and the purchaser (if the
purchaser is then the owner of interests in another developer, franchise
owner or license owner of UNITS) execute a general release and consent
agreement, in form satisfactory to COMPANY, of any and all claims against
COMPANY, its Affiliates, and their respective shareholders, officers,
directors, employees and agents for matters arising on or before the
effective date of the transfer; and
(6) that the transferring Owner execute a noncompetition agreement in
favor of COMPANY and the transferee, providing that the transferring Owner
shall not directly or indirectly (through a member of the Immediate Family
of the transferring Owner of DEVELOPER, or otherwise), for a period of two
(2) years commencing on the effective date of such transfer:
(a) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
(i) within a five (5) mile radius of any UNIT in operation
or under development in the Development Area on the effective
date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
(iv) within the state(s) where the Development Area is
located;
or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive
Business located or operating:
(i) within a five (5) mile radius of any UNIT in operation
or under development in the Development Area on the effective
date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
58
(iv) within the state(s) where the Development Area is
located; or
(c) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business;
or
(d) employ or seek to employ any person who is employed by
COMPANY, its Affiliates or by any other developer, franchise owner or
license owner of COMPANY, nor induce nor attempt to induce any such
person to leave said employment without the prior written consent of
such person's employer.
The rights of Owners to transfer interests in DEVELOPER may be exercised
only by the Owners and shall not be exercisable by a receiver, trustee,
liquidator or other person acting in a comparable capacity with respect
thereto.
The restrictions of subparagraph (6)(a) of this Section 14.D. will not be
applicable to the ownership of shares of a class of securities listed on a
stock exchange or traded on the over-the-counter market and quoted by a
national inter-dealer quotation system that represent less than three percent
(3%) of the number of shares of that class of securities issued and outstanding
nor shall they be construed to prohibit DEVELOPER, any Principal Owner of
Developer or any member of the Immediate Family of DEVELOPER or any Principal
Owner from having a direct or indirect Ownership Interest in any UNIT,
development agreements or franchise agreements for the development or operation
of UNITS, or any entity owning, controlling or operating UNITS, or from
providing services to UNITS pursuant to other agreements with COMPANY.
Furthermore, the restrictions of this Section 14.D shall not prohibit
DEVELOPER, any Owner of DEVELOPER, or (to the extent of such person is an
individual) any member of the Immediate Family of an Owner of DEVELOPER from
performing services for or having an Ownership Interest in a Permitted
Competitive Business, or from conducting customary promotion and advertising of
a Permitted Competitive Business.
14.E. PUBLIC OR PRIVATE OFFERINGS.
DEVELOPER acknowledges and agrees that it is the intent of COMPANY and
DEVELOPER that DEVELOPER not be or become a public company or "reporting
company" (as defined in Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended, or otherwise) including by way of an initial
public offering or a transfer to or merger with an existing public company.
Accordingly, DEVELOPER agrees that securities of DEVELOPER or an entity owning
a direct or indirect equity interest in DEVELOPER or this Agreement, or any
Store, Franchise Agreement or License Agreement may not be offered pursuant to
a public offering. DEVELOPER further agrees that such securities will not be
59
offered pursuant to a private placement without COMPANY's prior written
consent. COMPANY hereby grants its consent to a private placement of securities
by DEVELOPER provided that DEVELOPER ensures that:
(1) such private placement complies with all applicable federal,
state and local laws governing offerings of securities and all applicable
agreements between DEVELOPER and COMPANY or its Affiliates;
(2) such private placement complies with each of the relevant
transfer procedures, requirements and limitations contained herein;
(3) such private placement does not result in any change in operating
control of DEVELOPER or any of DEVELOPER Stores or in the parties owning a
Controlling Interest or in the individual or individuals controlling the
management, policies or decision-making power of DEVELOPER;
(4) each person or entity receiving securities under such private
placement shall be an accredited investor, as defined by applicable law,
and shall have been identified and be reasonably acceptable to COMPANY;
provided, however, that DEVELOPER may allow unaccredited investors to
receive securities if DEVELOPER has complied with applicable law with
respect thereto;
(5) a draft of any offering memorandum or information proposed to be
used in connection with any such private placement is submitted to COMPANY
for review and comment within a reasonable time prior to its use, that the
reasonable comments and suggestions of COMPANY thereto are given due
consideration and that a final version of such memorandum or information
be provided to COMPANY at least five (5) days prior to its distribution to
prospective investors;
(6) any offering memorandum or information used in connection with
any such private placement shall clearly state that it is not an offering
by COMPANY and that COMPANY has not participated in its preparation and
has not supplied any financial information projections, budgets, cost
estimates or similar information contained therein (all of which shall be
the responsibility of DEVELOPER);
(7) each recipient of information relating to such private placement
agrees to maintain it in confidence;
(8) the structure, timing, allocation and nature of such private
placement is reasonably acceptable to COMPANY;
(9) DEVELOPER does not as a result of the private placement, become a
60
"Reporting Company" under Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(10) each person who or entity which becomes an Owner or Principal
Owner as a result of such private placement agrees and undertakes to
become bound by any provisions of this Agreement pertaining to Owners or
Principal Owners, as applicable.
DEVELOPER agrees to indemnify COMPANY for and hold COMPANY harmless
against any and all costs, expenses, claims, actions, judgments and liabilities
(including, but not limited to, costs and expenses related to legal defense)
arising from or relating to any private placement approved by COMPANY pursuant
to this Section. DEVELOPER also agrees to reimburse COMPANY for its reasonable
expenses incurred in connection with any such private placement (including
attorney's fees) and to comply with all requirements of COMPANY in connection
with such offering, including, without limitation, adding appropriate
disclaimers to the offering documents and execution of appropriate
indemnification agreements.
14.F. EFFECT OF CONSENT TO TRANSFER.
COMPANY's consent to a transfer of this Agreement or any interest subject
to the restrictions of this Section shall not constitute a waiver of any claims
it may have against DEVELOPER (or its Owners), nor shall it be deemed a waiver
of COMPANY's right to demand full compliance with any of the terms or
conditions of this Agreement by the transferee. COMPANY's consent to any such
transfer shall not, unless expressly provided in such consent, effect a release
of DEVELOPER (or its Owners, as the case may be) post-transfer.
14.G. COMPANY'S RIGHT OF FIRST REFUSAL.
If DEVELOPER or any of its Owner(s) desire to make a transfer of an
interest that is permitted under this Agreement, DEVELOPER or its Owner(s)
shall obtain a bona fide, arms length executed purchase agreement (and any
proposed ancillary agreements) in complete and definitive form and not subject
to any financing or other material, substantive contingency and an earnest
money deposit (in the amount of ten percent (10%) or more of the purchase
price) from a qualified, responsible, bona fide and fully disclosed purchaser.
A true and complete copy of such purchase agreement (conditioned on COMPANY's
first refusal rights) and any proposed ancillary agreements shall immediately
be submitted to COMPANY by DEVELOPER, such Owner(s), or both. The purchase
agreement must apply only to an interest which is permitted to be transferred
under this Agreement, may not include the purchase of any other property or
rights of DEVELOPER (or such Owner(s)) and the price and terms of purchase
offered to DEVELOPER (or such Owner(s)) in the purchase agreement for the
aforementioned interests will reflect the bona fide price offered therefor and
shall not reflect any value for any other property or rights. If the proposed
purchaser proposes to buy any other property or rights from DEVELOPER (or such
Owner(s)) under a separate, contemporaneous purchase agreement,
61
DEVELOPER shall submit to COMPANY a true and complete copy of a bona fide, arms
length executed purchase agreement (and any proposed ancillary agreements) in
complete and definitive form and not subject to any financing or other
material, substantive contingency. COMPANY shall have the right, exercisable by
written notice delivered to DEVELOPER (or such Owner(s)) within thirty (30)
days from the date of receipt by COMPANY of an exact copy of such purchase
agreement, together with payment of any applicable transfer fee, and a
completed executed application for COMPANY's consent to the transfer, to
purchase such interest for the price and on the terms and conditions contained
in such purchase agreement, provided that COMPANY may substitute cash, a cash
equivalent, or marketable securities of equivalent value for any form of
payment proposed in such purchase agreement, COMPANY's credit shall be deemed
equal to the credit of any proposed purchaser, and COMPANY shall have not less
than sixty (60) days to prepare for closing. Regardless of whether included in
the purchase agreement, COMPANY shall be entitled to all customary
representations and warranties given by the seller of a business, including,
without limitation, representations and warranties as to: (i) ownership,
condition and title to the Ownership Interests and/or assets being purchased;
(ii) absence of liens and encumbrances relating to such Ownership Interests or
assets; (iii) validity of contracts of any legal entity whose Ownership
Interests are purchased and (iv) liabilities, contingent or otherwise, of any
legal entity whose Ownership Interests are purchased. If COMPANY does not
exercise its right of first refusal, DEVELOPER (or such Owner(s)) may complete
the sale to such purchaser pursuant to and on the exact terms of the purchase
agreement, subject to COMPANY's approval of the transfer, as provided for in
this Agreement, provided that if the sale to such purchaser is not completed
within one hundred twenty (120) days after receipt of such purchase agreement
by COMPANY, or there is a change in the terms of the sale, COMPANY shall again
have an additional right of first refusal for thirty (30) days as set forth in
this Agreement on the modified or initial terms and conditions of sale.
14.H. OWNERSHIP STRUCTURE.
DEVELOPER represents and warrants that its Owners are as set forth on
Exhibit G and covenants that DEVELOPER will not permit the identity of such
Owners, or their respective interests in DEVELOPER, to change without complying
with this Agreement.
14.I. DELEGATION BY COMPANY.
DEVELOPER agrees that COMPANY shall have the right, from time to time,
to delegate the performance of any portion or all of its obligations and duties
under this Agreement to designees, whether the same are agents of COMPANY or
independent contractors with which COMPANY has contracted to provide such
services.
14.J. PERMITTED TRANSFERS.
Notwithstanding anything to the contrary contained in this Agreement
and provided
62
(a) DEVELOPER reimburses any costs incurred by COMPANY in connection therewith,
(b) DEVELOPER, its Owners and the transferees comply with the provisions of the
HSR Act, if applicable, prior to such a transfer, (c) DEVELOPER, its Owners and
the transferees comply with all other restrictions of this Agreement applicable
to Owners and ownership interests (including, without limitation, those
restricting an Owner's ownership of interests in a Competitive Business), and
(d) the transfer does not, by itself or in conjunction with other transfers,
result in the transfer of a Controlling Interest in DEVELOPER or of a change in
the composition of the group holding a Controlling Interest in DEVELOPER, the
provisions of this Section 14 (including, without limitation, the requirement
of the payment of transfer fees under Section 14.D(2) and the right of first
refusal granted to COMPANY in Section 14.G) shall not restrict or apply to any
assignment, sale, transfer of an Ownership Interest which:
(1) is pursuant and according to the terms of a written stock or
other equity interest option or stock or other equity interest bonus plan
which benefits employees of DEVELOPER and/or of the Boston Chicken, Inc.
franchise owner which provides management services to DEVELOPER pursuant
to a support services agreement, and has been approved by COMPANY; or
(2) is made for bona fide estate planning purposes (a) to a
corporation, trust, partnership, or other entity controlled by the
transferring Owner or (b) pursuant to an inter vivos or testamentary
document or the laws of descent and distribution.
15. TERMINATION OF AGREEMENT.
15.A. BY DEVELOPER.
If DEVELOPER is in full compliance with this Agreement and with all
Franchise Agreements and License Agreements and COMPANY materially breaches
this Agreement, DEVELOPER may terminate this Agreement effective thirty (30)
days after COMPANY's receipt of written notice of termination if DEVELOPER
gives written notice of such breach to COMPANY and COMPANY does not:
(1) correct such breach within thirty (30) days after COMPANY's
receipt of such notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30) days
after COMPANY's receipt of such notice, undertake within thirty (30) days
after COMPANY's receipt of such notice, and continue until completion,
reasonable efforts to cure such breach.
Any attempt to terminate this Agreement by DEVELOPER other than as provided in
this Section 15.A. shall be a breach by DEVELOPER of this Agreement.
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15.B. BY COMPANY.
COMPANY may terminate this Agreement, effective upon delivery of notice of
termination to DEVELOPER or, where expressly applicable, upon failure to cure
to COMPANY's satisfaction any breach of this Agreement before the expiration of
any period of time within which such breach may be cured in accordance with the
provisions set forth below, if:
(1) DEVELOPER fails to satisfy the development obligations for the
Development Area or any Sub-Area pursuant to this Agreement; or
(2) any person or entity makes an assignment or transfer in violation
of this Agreement; or
(3) DEVELOPER or any Principal Owner of DEVELOPER has made any
material misrepresentation or omission in its application or acquisition
of this Agreement or in connection with any transfer hereunder; or
(4) DEVELOPER or any Owner of DEVELOPER is convicted by a trial court
of, or pleads guilty or no contest to, a felony, or to any other crime or
offense that may adversely affect the reputation of UNITS or Stores or the
goodwill associated with the Marks, or engages in any misconduct which may
adversely affect the reputation of UNITS or Stores or the goodwill
associated with the Marks; or
(5) DEVELOPER or any of its Owners or employees makes any
unauthorized use of the Marks or the Copyrighted Works, makes any
unauthorized use, disclosure or duplication of the Confidential
Information, the Development Manual, the Commissary Manual, any of the
Store Manuals or the Copyrighted Works, or challenges or seeks to
challenge the validity of COMPANY's or its Affiliates' rights in and to
the Marks, the Copyrighted Works or the Confidential Information (unless
the foregoing prohibited act is inadvertent and does not have, or threaten
to have, an adverse effect upon COMPANY, its business concept, its
business operations, the business of any UNIT, any Mark, the Confidential
Information, the Development Manual, or the Copyrighted Works, and
DEVELOPER ceases and desists any such prohibited act promptly upon notice
and reimburses COMPANY for all damages, losses, costs, and expenses
incurred by COMPANY in connection with such prohibited acts); or
(6) DEVELOPER, its Principal Owners, or members of their Immediate
Families (whether or not bound by individual noncompetition undertakings)
or other persons who have executed such individual undertakings violate
the restrictions on the operation of Competitive Businesses during the
Agreement Term set forth in Section 11
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of this Agreement or Owners who have access to the Confidential
Information violate the covenants concerning competition and
confidentiality contained in the form of Confidentiality and
Non-Competition Agreement attached hereto as Exhibit J (regardless of
whether any such party has executed this Agreement or a Confidentiality
and Non-Competition Agreement); or
(7) DEVELOPER fails to deliver or adhere to the Funding Plan approved
by COMPANY as required pursuant to Section 13.G. of this Agreement and
does not correct such failure within ten (10) days after written notice of
such failure is delivered to DEVELOPER; or
(8) DEVELOPER fails to make payments of any amounts due to COMPANY
and does not correct such failure within ten (10) days after written
notice of such failure is delivered to DEVELOPER; or
(9) DEVELOPER fails to timely commence or provide:
(a) Delivery Service pursuant to a Delivery Rider executed by
COMPANY and DEVELOPER; or
(b) Catering Service pursuant to a Catering Rider executed by
COMPANY and DEVELOPER; or
(c) Special Distribution Arrangements pursuant to a Special
Distribution Agreement executed by COMPANY and DEVELOPER,
in accordance with COMPANY's standards, specifications, and procedures,
and does not correct such failure within 10 days after DEVELOPER's receipt
of COMPANY's written notice of such failure to comply; or, if such failure
cannot reasonably be corrected within the aforesaid 10-day period but can
be corrected within a reasonably short time (not to exceed an additional
30 days), undertake within 10 days after DEVELOPER's receipt of COMPANY's
written notice, and continue until completion, best efforts to correct
such failure within such reasonably short time (not to exceed an
additional 30 days) and furnish proof acceptable to COMPANY, upon its
request, of such efforts and the date full compliance will be achieved; or
(10) DEVELOPER fails to operate a Commissary at the time specified by
COMPANY and at the location approved by COMPANY in accordance with
COMPANY's standards, specifications and procedures and does not correct
such failure within 10 days after DEVELOPER's receipt of COMPANY's written
notice of such failure to comply; or, if such failure cannot reasonably be
corrected within the aforesaid 10-day period but can be corrected within a
reasonably short time (not to exceed an
65
additional 30 days), undertake within 10 days after DEVELOPER's receipt of
COMPANY's written notice, and continue until completion, best efforts to
correct such failure within such reasonably short time (not to exceed an
additional 30 days) and furnish proof acceptable to COMPANY, upon its
request, of such efforts and the date full compliance will be achieved; or
(11) DEVELOPER or any of its Owners fail: (a) to comply with any
other provision of this Agreement, and does not correct such failure
within thirty (30) days after DEVELOPER's receipt of COMPANY's written
notice of such failure to comply; or (b) if such failure cannot reasonably
be corrected within the aforesaid thirty (30) day period but can be
corrected within a reasonably short time (not to exceed an additional
thirty (30) days), undertake within ten (10) days after DEVELOPER's
receipt of COMPANY's written notice, and continue until completion, best
efforts to correct such failure within such reasonably short time (not to
exceed an additional thirty (30) days) and furnish proof acceptable to
COMPANY, upon its request, of such efforts and the date full compliance
will be achieved; or
(12) DEVELOPER or any of its Principal Owners fails on three or more
separate occasions within any period of 18 consecutive months to comply
with this Agreement in any material respect; or
(13) COMPANY has delivered a notice of termination of a Franchise
Agreement or License Agreement in accordance with its terms and conditions
or DEVELOPER has attempted to terminate a Franchise Agreement or License
Agreement with COMPANY in breach thereof; or
(14) DEVELOPER becomes insolvent in the sense that it is unable to
pay its bills as they become due; or
(15) DEVELOPER has attempted to terminate this Agreement without
complying with Section 15.A. of this Agreement.
15.C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.
In the event COMPANY is entitled to terminate this Agreement in accordance
with Paragraph B. of this Section, COMPANY, in its sole discretion, shall have
the option to terminate any one or more of the following instead of terminating
this Agreement:
(1) DEVELOPER's right to develop Stores for which no License
Agreement has been executed under Section 3.A.; and
66
(2) DEVELOPER's territorial rights granted pursuant to Section 3.A.
in some or all of the Sub-Areas; and
(3) DEVELOPER's option to develop Stores at Target Sites under
Section 3.E.; and
(4) DEVELOPER's option to purchase, and develop and operate Stores at
Conversion Sites under Section 3.F.; and
(5) any Delivery Rider(s) in effect between COMPANY and DEVELOPER;
and
(6) any Catering Rider(s) in effect between COMPANY and DEVELOPER;
and
(7) any Special Distribution Arrangement(s) in effect between COMPANY
and DEVELOPER, and
(8) require DEVELOPER to cease operation of one or more Commissaries,
effective ten (10) days after delivery of written notice thereof to DEVELOPER.
If any of such rights, options or arrangements are terminated in accordance
with this Paragraph, such termination shall be without prejudice to COMPANY's
right to terminate this Agreement or other such rights, options or arrangements
at any time thereafter for the same default or as a result of any additional
defaults of this Agreement in accordance with Paragraph B. of this Section.
16. RIGHTS AND OBLIGATIONS OF COMPANY AND DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM.
16.A. PAYMENT OF AMOUNTS OWED TO COMPANY.
DEVELOPER shall immediately pay to COMPANY upon termination of this
Agreement or upon expiration of the Agreement Term any amounts owed by
DEVELOPER to COMPANY or its Affiliates which are then unpaid plus interest due
on any of the foregoing.
16.B. MARKS AND COPYRIGHTED WORKS.
Upon the termination of this Agreement or expiration of the Agreement
Term, DEVELOPER shall:
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(1) immediately cease use of all of the Marks and not thereafter
directly or indirectly at any time or in any manner identify itself or any
business as a current or former developer of or as otherwise associated
with COMPANY, or use any Mark, any colorable imitation thereof or use any
mark substantially identical to or deceptively similar to any Mark in any
manner or for any purpose, or utilize for any purpose any trade name,
trademark or service mark or other commercial symbol or trade dress that
suggests or indicates a connection or association with COMPANY and/or its
licensor(s), as applicable; and
(2) immediately remove all signs containing any Mark, and return to
COMPANY or destroy all forms, advertising and promotional materials and
other materials containing any Mark or otherwise identifying or relating
to the Marks; and
(3) imme | 
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