Pizzeria Regina International Development Agreement - Boston Restaurant Associates Inc. and Regina International Ltd.
PIZZERIA REGINA
INTERNATIONAL DEVELOPMENT AGREEMENT
DATED: January __, 1998
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TABLE OF CONTENTS
1. DEVELOPMENT RIGHTS AND OBLIGATIONS......................................1
2. TERM....................................................................4
3. RIGHT TO BUY-OUT........................................................5
4. MONTHLY DEVELOPMENT FEE.................................................7
5. ROYALTY.................................................................7
6. SITE SELECTION.........................................................10
7. TRAINING OF SYSTEM RESTAURANT EMPLOYEES................................11
8. PROMOTIONAL MATERIALS; OPERATIONS MANUALS..............................11
9. QUALITY ASSURANCE......................................................12
10. START-UP OF SYSTEM RESTAURANTS........................................12
11. COMPLIANCE WITH LAWS..................................................12
12. ENFORCEMENT OF FRANCHISE AGREEMENTS...................................13
13. ADVERTISING AND MARKETING.............................................13
14. CONFIDENTIAL INFORMATION..............................................14
15. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS..........................14
16. TRANSFER OF INTEREST..................................................14
17. DEFAULT AND TERMINATION...............................................16
18. COVENANTS.............................................................17
19. NOTICES...............................................................19
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION............................20
21. APPROVALS AND WAIVERS.................................................21
22. SEVERABILITY AND CONSTRUCTION.........................................21
23. APPLICABLE LAW; REMEDIES..............................................22
24. ARBITRATION OF DISPUTES...............................................23
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25. ENTIRE AGREEMENT......................................................23
26. ACKNOWLEDGMENTS.......................................................23
EXHIBIT A - PROPRIETARY MARKS---------------------------------------25
EXHIBIT B - DEVELOPMENT AREA----------------------------------------26
EXHIBIT C - FRANCHISE AGREEMENT-------------------------------------27
EXHIBIT D - UNIFORM FRANCHISING OFFERING CIRCULAR-------------------28
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PIZZERIA REGINA
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INTERNATIONAL DEVELOPMENT AGREEMENT
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THIS INTERNATIONAL DEVELOPMENT AGREEMENT ("Agreement") is entered into on
January, 1998, between Boston Restaurant Associates, Inc., a Delaware
corporation ("Franchisor"), and Regina International Ltd., a Gibraltar
corporation ("Developer").
WHEREAS, Franchisor and its affiliates have developed a system relating to
the preparation and promotion of high-quality pizza and related products and
services and the establishment and operation of restaurants specializing in the
sale of high-quality pizza and other food and beverage items (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, the sale of brick-oven pizza prepared in accordance with special
recipes and seasonings; distinctive exterior and interior restaurant design,
decor, color scheme and furnishings; standards, specifications and procedures
for operations; procedures for quality control; training and assistance
programs; and advertising and promotional programs; all of which may be changed,
improved, and further developed by Franchisor and its affiliates from time to
time;
WHEREAS, the System is identified by means of certain trade names, service
marks, trademarks, logos, emblems, and indicia of origin, including but not
limited to the mark "Pizzeria Regina(R)", as set forth in Exhibit A to this
Agreement, and such other trade names, service marks, and trademarks as may
hereafter be designated by Franchisor in writing for use in the System (the
"Proprietary Marks");
WHEREAS, Franchisor, through its wholly owned subsidiary, Boston Restaurant
Associates International, Inc., a Delaware corporation ("BRAII"), desires to
introduce the System into new geographic territories through the sale of
franchises for development of restaurants under the System and the Proprietary
Marks;
WHEREAS, Developer wishes to obtain the right to develop restaurants under
the System and the Proprietary Marks ("System Restaurants") by acting as
Franchisor's and BRAII's exclusive representative to market and promote the
System and sell and implement franchises for System Restaurants within the
territory defined in Exhibit B to this Agreement ("Franchises");
NOW, THEREFORE, the parties agree as follows:
1. DEVELOPMENT RIGHTS AND OBLIGATIONS
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1.1. Franchisor hereby grants Developer (provided that Developer or its
Permitted Transferee (as defined in Section 16.2) shall at all times be at least
ten percent (10%) owned by Terrance Smith and Terrance Smith shall at all times
be the largest stockholder of Developer or its Permitted Transferee and shall at
all times serve as the Chief Executive Officer involved in
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the day-to-day operations of Developer or its Permitted Transferee) the
exclusive right, and Developer undertakes the obligation, pursuant to the terms
and conditions of this Agreement, to act as Franchisor's and BRAII's
representative to market and promote the System and sell and implement
franchises for System Restaurants solely within the territory defined in Exhibit
B to this Agreement (the "Development Area"). The System Restaurants shall be
located only at the specific locations approved in writing by Franchisor in
accordance with Section 6 below pursuant to Franchise Agreements (as defined in
Section 1.3 below) between Franchisees and BRAII. Franchises shall be sold for
System Restaurants and developed in accordance with the schedule set forth in
Section 1.4 below.
1.2. Developer shall use its best efforts to market and promote the System
and sell and implement Franchises within the Development Area. In furtherance of
these duties and in accordance with the other terms and conditions of this
Agreement, Developer shall (i) develop a form of franchise agreement in
accordance with Franchisor's requirements and all applicable law; (ii) develop
promotional materials; (iii) identify and negotiate with potential franchisees
for Franchises, subject to the final approval of all Franchises by Franchisor;
(iv) negotiate and enforce franchise agreements and obligations; (v) assist
franchisees in Franchise start-up and provide training of Franchise employees;
(vi) develop and implement ongoing quality assurance programs; (vii) obtain and
maintain proprietary protection for the Proprietary Marks under all applicable
trademark treatise or, if no trademark treaty, in a commercially reasonable
manner; (viii) select System Restaurant site locations; (ix) review unit plans;
(x) select, secure and maintain an office satisfactory to Franchisor in Europe
from which BRAII's operations will be conducted, it being acknowledged that
Developer's current office identified in Section 19 below is satisfactory; and
(xi) perform other duties ancillary to the foregoing or as otherwise specified
herein, in each case in a manner which conforms with the standard practice of
Franchisor as in effect from time to time (as such standard practices shall be
communicated to Developer). Developer agrees to refrain from any business or
advertising practice which may be injurious to the business of Franchisor,
BRAII, the System, the System Restaurants or the good will associated with the
Proprietary Marks.
1.3. Developer shall develop a form of franchise agreement to be used by
BRAII in connection with all Franchises within the Development Area (the
"Franchise Agreement"). The Franchise Agreement shall be subject to the final
approval of Franchisor and shall incorporate the basic terms, obligations,
rights and remedies which are set forth in the form of domestic franchise
agreement used by Franchisor which is attached as Exhibit C to this Agreement,
subject to modifications as required by applicable law or as may otherwise be
approved by Franchisor. Developer shall hire the necessary professionals to
ensure that the form of Franchise Agreement complies with all applicable law and
that any related licenses, certifications and filings which are required to be
obtained or filed in connection with the promotion and sale of Franchises and
the use of the form of Franchise Agreement are so obtained or filed. The form of
Franchise Agreement may be modified from time to time as required by law or as
otherwise required by Franchisor. Developer shall exercise its development
rights hereunder solely by having each potential franchisee execute a Franchise
Agreement. The Franchise Agreement shall be executed by the Franchisee and
Franchisor upon Franchisor's approval and shall provide, among other
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DEVELOPMENT AGREEMENT Page 2
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things, for the following payments, all of which shall be made by wire transfer
of immediately available funds to an account designated by BRAII:
1.3.1. Upon execution, the Franchisee shall pay BRAII a one-time
territory fee in an amount to be determined by Developer based on the number of
System Restaurants Developer estimates Franchisee will open within Franchisee's
defined territory, times $10,000;
1.3.2. Upon opening of each System Restaurant subject to the Franchise
Agreement, Franchisee shall pay BRAII a one-time opening fee of $20,000; and
1.3.3. Franchisee shall pay BRAII a monthly Franchise fee of 5% of
revenues generated by each Franchise.
1.4. Developer shall sell Franchises for System Restaurants to be developed
and opened in accordance with the following schedule (the "Development
Schedule"):
1.4.1. The Development Schedule is as follows:
Minimum cumulative number of System
Restaurant Developer must have in
Deadline: operation by deadline:
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18 mos. from January 1, 1998 2
12 mos. later 6
12 mos. later 12
12 mos. later 20
12 mos. later 30
1.4.2. Developer shall use its best efforts to sell Franchises
throughout the Development Area.
1.4.3. Developer shall use its best efforts to generate profitable
operations for BRAII under this Agreement and the Franchise Agreements.
1.5. If Developer fails to have in operation the minimum number of System
Restaurants required on the dates specified in the Development Schedule,
Franchisor, at its option, may modify the definition of "Development Area" to
delete any territory in which Developer has not sold a Franchise prior to the
applicable Development Schedule date (the "Modified Development Area") and BRAII
and/or Franchisor shall have the right, directly or indirectly through other
developers, to market, promote and sell franchises in the territories no longer
within the Development Area without any obligation or liability to Developer
hereunder with respect to such franchises, including, without limitation, with
respect to the payment of any Royalties or
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DEVELOPMENT AGREEMENT Page 3
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other amounts which would otherwise have been payable to Developer had the
Development Area not been so modified. In the event of the foregoing, Developer
shall continue to have the rights and obligations provided herein with respect
to the Modified Development Area and any Franchises then existing or thereafter
opened in the Modified Development Area (the "Retained Franchises"); provided
that BRAII's obligation to pay the Monthly Fee shall immediately cease and any
Royalties, expense reimbursements or other amounts payable to Developer
hereunder shall thereafter be calculated based only on the Retained Franchises
and related expenses, and not on any other franchises which may be sold by
BRAII. In that regard any and all definitions and provisions contained herein
shall be automatically amended without further action to reflect the foregoing
and that the Developer's rights hereunder are no longer exclusive, except with
respect to the Modified Development Area.
1.6. BRAII shall serve as the entity through which Franchisor shall offer
Franchises and enter into Franchise Agreements for Franchises in the Development
Area. Developer shall have no right to execute Franchise Agreements or any other
agreements in the name or on behalf of Franchisor or BRAII. All revenues
generated by Developer in connection with the sale and implementation of
Franchises by Developer or BRAII shall be attributed to and paid over to BRAII.
All related expenses incurred directly by BRAII shall be charged to and paid by
BRAII. All expenses incurred by Developer or Franchisor which constitute
International Expenses or Domestic Expenses (as such terms are defined in
Section 5.3.2 and 5.3.3 below) shall be invoiced to BRAII and shall be
reimbursed to Developer and Franchisor out of Revenues (as defined in Section
5.3.1 below) as cash flow permits.
1.7. This Agreement does not grant Developer any right to use the
Proprietary Marks or the System except in connection with the fulfillment of
Developer's express obligations hereunder. Developer acknowledges that it will
have no right under this Agreement to subfranchise any other person or legal
entity to use the Proprietary Marks or the System except to Franchisees in
accordance with the terms of this Agreement and the Franchise Agreements.
2. TERM
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2.1. Unless sooner terminated as provided herein, or extended pursuant to
Section 2.2 below, the initial term of this Agreement shall expire on the last
date set forth in the Development Schedule (the "Initial Term").
2.2. Unless sooner terminated as provided herein, if Developer shall be in
compliance with all of the following, then the rights granted hereunder shall be
extended for additional terms of one (1) year each (each a "Renewal Term" and
collectively with the Initial Term, the "Term").
2.2.1. For the first renewal, Developer shall have successfully
complied with the deadlines set forth in Section 1.4 hereof;
2.2.2. For each subsequent renewal, Developer shall have increased the
total number of System Restaurants in operation pursuant to this Agreement over
the total set forth in the Development Schedule as mutually agreed by Developer
and Franchisor.
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2.3. With respect to each renewal, Developer shall not be in default of any
provision of this Agreement, any amendment hereof, or any other agreement
between Developer and Franchisor, BRAII or their affiliates, and shall have
complied in all material respects with such agreements throughout their
respective terms.
3. RIGHT TO BUY-OUT
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3.1. Either party may elect to renegotiate the terms of this Agreement
pursuant to written notice thereof to the other party at least one hundred
eighty (180) days prior to the end of the Initial Term (a "Renegotiation
Notice"). If the parties are unable to renegotiate this Agreement on mutually
satisfactory terms within one hundred twenty (120) days thereafter (the
"Negotiation Period"), Franchisor shall have the right, and Developer shall have
the right to cause Franchisor (each a "Buy-Out Right"), to pay to Developer a
one-time buy-out fee equal to (i) the aggregate gross Revenues of BRAII for the
five (5) years immediately preceding the buy-out or, if five (5) years has not
elapsed since the date of this Agreement, such shorter period as has elapsed
since the date of this Agreement, less (ii) the aggregate amount of
International Expenses incurred during the five (5) years immediately preceding
the buy-out (the "Buy-Out Fee"). Either party may exercise its Buy-Out Right by
providing notice of such election to the other party within ten (10) days of the
expiration of the Negotiation Period. In the event either party exercises its
Buy-Out Right, this Agreement shall terminate fifty (50) days after receipt by
the other party of the Buy-Out Notice. For purposes of determining the Buy-Out
Fee, the terms "Revenues" and "International Expenses" shall have the meanings
ascribed to them in Section 5 below.
3.2. If the parties are able to successfully renegotiate this Agreement
within the Negotiation Period, the Renegotiation Notice shall automatically
terminate and this Agreement shall renew in accordance with Section 2.2 above,
provided that, during each subsequent Renewal Term, each of the parties shall
have the right to send a Renegotiation Notice at least one hundred eighty (180)
days prior to the expiration of the applicable Renewal Term. If the parties are
unable to renegotiate this Agreement on mutually satisfactory terms during the
Negotiation Period, each of the parties shall have the right to exercise their
Buy-Out Right as provided above. If this Agreement is not successfully
renegotiated and neither party exercises their Buy-Out Right, this Agreement
shall nevertheless terminate at the end of the applicable period.
3.3. The Buy-Out Fee may be paid by Franchisor in cash, common stock of
Franchisor, or a combination of both, at the discretion of Franchisor. In the
event Franchisor elects to pay all or a portion of the Buy-Out Fee in the form
of common stock, the number of shares of common stock subject to the Buy-Out Fee
shall be determined based on the current market price per share of Franchisor's
common stock. The current market price per share, if traded on a national
securities exchange, on any date shall be the average of the closing bid prices
on such exchange (as adjusted for any stock dividend, split, combination or
reclassification that takes effect after the date hereof) for the ten (10)
consecutive days immediately prior to the date the Buy-Out Right is exercised
or, if a weekend or holiday, on the last day the principal national securities
exchange on which the Franchisor's common stock is listed or admitted to trading
was open. If not traded on a national securities exchange, the current market
price per share
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DEVELOPMENT AGREEMENT Page 5
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shall be determined by appraisal paid for equally by Franchisor and Developer.
The Buy-Out Fee shall be paid by Franchisor as provided in Section 3.4 below.
3.4. All calculations pursuant to this Section 3 shall be determined by
Franchisor's nationally recognized, independent certified public accountants
(the "Accountants") in accordance with generally accepted accounting principles
in effect in the United States ("GAAP") within ninety (90) days after the
expiration of the application period. The calculations of Revenues and
International Expenses shall be made by the Accountants with the assistance and
cooperation of Developer. The Buy-Out Fee shall be paid by Franchisor within
forty-five (45) days of the determination by such Accountants of the amount of
the Buy-Out Fee.
3.5. If more than sixty percent (60%) of the Buy-Out Fee is to be paid in
the form of the Franchisor's common stock, at Developer's request, at any time
after payment of the Buy-Out Fee and prior to the time Developer is required to
pay taxes on account of receipt of the Buy-Out Fee, Franchisor shall register
that number of shares of Franchisor's common stock, on a registration statement
on Form S-3 if available to Franchisor, paid to Developer as part of the Buy-Out
Fee having an aggregate current market price (as determined pursuant to Section
3.3 above) which, when combined with the amount of cash paid to Developer as
part of the Buy-Out Fee, equals forty percent (40%) of the total Buy-Out Fee;
provided that Franchisor shall only be obligated to keep such registration
effective for a period of sixty (60) days and further provided that Franchisor
shall have no obligation to register any such shares to the extent Developer is
permitted to sell such shares under Rule 144, as promulgated under the
Securities Act of 1933, as amended (the "Act"). Any shares of Franchisor's
common stock paid as part of the Buy-Out Fee to Tumbleweed International, LLC
("Tumbleweed") shall be deposited by Tumbleweed into a voting trust pursuant to
which a voting trustee acceptable to Franchisor, in its sole and absolute
discretion, shall be granted the irrevocable right to vote all of such shares in
such voting trustee's discretion. Any shares shall automatically be released
from the voting trust on the earlier to occur of (i) the fifth anniversary of
the deposit of such shares into the voting trust or (ii) as and when such shares
are sold by Tumbleweed in the public market.
3.6. In the event Developer receives any Buy-Out Shares and Franchisor
subsequently determines to register any shares of its common stock under the Act
and, in connection therewith, Franchisor may lawfully register any of the
Buy-Out Shares, (other than pursuant to a registration statement on Form S-4,
S-8 or any comparable form or filed in connection with an exchange offering of
securities solely to Franchisor's existing shareholders) Franchisor will
promptly give written notice thereof to Developer. Upon the written request of
Developer within thirty (30) days after receipt of any such notice from
Franchisor, Franchisor will, except as herein provided, cause all of the Buy-Out
Shares which Developer has requested to be registered to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition of the Buy-Out Shares. However, nothing herein shall prevent
Franchisor from at any time abandoning or delaying any registration. If any
Shares registered pursuant to this Section 3.6 shall be included in an
underwritten public offering in whole or in part, Franchisor may require that
the Buy-Out Shares requested for inclusion hereunder be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters are being sold. If and in the event that the
managing underwriter of such public offering shall be of the opinion that
inclusion of all of the Buy-Out Shares would adversely affect the marketing of
the
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securities to be sold by the Franchisor therein, then the number of Buy-Out
Shares otherwise to be included in the underwritten public offering may be
reduced on a pro rata basis with the shares proposed to be included in such
offering by any other selling shareholder (exclusive of Franchisor). Anything
herein to the contrary notwithstanding, Franchisor shall not be obligated to
provide the foregoing so-called "piggyback" registration rights on more than
four (4) occasions.
3.7. Franchisor may accelerate its Buy-Out Right in the event of the death
or Disability (as defined in Section 17.1 below) of Terrance Smith or in the
event Terrance Smith ceases to own at lease ten percent (10%) or ceases at any
time to be the largest stockholder of Developer or its Permitted Transferee or
chief executive officer of Developer or its Permitted Transferee. Developer may
accelerate its Buy-Out Right in the event George Chapdelaine ceases to be the
chief executive officer of Franchisor. In the event of such acceleration, the
Buy-Out Fee shall be determined as of the end of the most recent year of the
Term based on the immediately preceding five (5) years or, if five (5) years has
not elapsed since the date of this Agreement, such shorter period as has elapsed
since the date of this Agreement. In the event this Agreement is terminated by
Franchisor pursuant to Section 17 below (other than due to the death or
Disability of Terrance Smith), the Buy-Out Fee otherwise payable to Developer in
connection with such termination shall be deposited into escrow or paid into
court by Franchisor until such time as all damages (including reasonable
attorney's fees and expenses) related to such termination have been finally
determined (collectively, "Damages"). Following final determination of Damages,
Franchisor shall pay to Developer the amount of the Buy-Out Fee deposited in
escrow or court less the amount of the Damages, either in cash or common stock
as provided above.
4. MONTHLY DEVELOPMENT FEE
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In consideration of Developer's performance of its obligations hereunder,
BRAII will pay Developer a monthly fee of Seven Thousand Dollars ($7,000);
provided, however, such fee shall accrue only and not be paid until the first
day of the month immediately following the first month in which BRAII's positive
cash flow equals or exceeds $7,000 after payment of all accrued but unpaid
International Expenses and Domestic Expenses and then and thereafter only to the
extent there continues to be positive cash flow of BRAII (the "Monthly
Development Fee"). The Monthly Development Fee shall continue for a period of
sixty (60) months, provided this Agreement has not been earlier terminated.
5. ROYALTY
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Commencing with the first quarter after BRAII experiences positive cash
flow and continuing every quarter thereafter during which BRAII has a positive
cash flow during the Term thereafter, BRAII shall pay to Developer a royalty
(the "Royalty") equal to 40% (which percentage shall be subject to adjustment
pursuant to Section 5.1.1.1) of (i) the aggregate gross Revenues generated by
BRAII during the immediately preceding three (3) month period less (ii) the
aggregate amount of International Expenses incurred during that same period. The
remaining 60% (which percentage shall be subject to adjustment pursuant to
Sections 5.1.1 below) of the Formula Amount shall be paid by BRAII to
Franchisor.
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5.1.1. The percentages of the Formula Amount to which Developer and
Franchisor shall be entitled for any applicable period shall be adjusted as
follows:
5.1.1.1. If International Expenses equal or exceed 50% of
Revenues for the applicable period, the percentage of the Formula Amount to
which Developer and Franchisor shall be entitled for that period shall be
adjusted as follows:
o If International Expenses are between 50% and 51% of
Revenues, no adjustments;
o If International Expenses are between 51% and 52% of
Revenues, the applicable percentages shall be Developer 39%
and Franchisor 61%;
o If International Expenses are between 52% and 53% of
Revenues, the applicable percentages shall be Developer 38%
and Franchisor 62%;
o If International Expenses are between 53% and 54% of
Revenues, the applicable percentages shall be Developer 37%
and Franchisor 63%;
o If International Expenses are between 54% and 55% of
Revenues, the applicable percentages shall be Developer 36%
and Franchisor 64%;
o If International Expenses are greater than or equal to 55%
or Revenues, the applicable percentages shall be Developer
35% and Franchisor 65%.
5.1.1.2. If International Expenses are less than 50% of Revenues
for the applicable period, the percentage of the Formula Amount to which
Developer and Franchisor shall be entitled for that period shall be adjusted as
follows:
o If International Expenses are between 49% and 50% of
Revenues, no adjustments;
o If International Expenses are between 48% and 49% of
Revenues, the applicable percentages shall be Developer 41%
and Franchisor 59%;
o If International Expenses are between 47% and 48% of
Revenues, the applicable percentages shall be Developer 42%
and Franchisor 58%;
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o If International Expenses are between 46% and 47% of
Revenues, the applicable percentages shall be Developer 43%
and Franchisor 57%;
o If International Expenses are between 45% and 46% of
Revenues, the applicable percentages shall be Developer 44%
and Franchisor 56%;
o If International Expenses are less than 45% of Revenues, the
applicable percentages shall be Developer 45% and Franchisor
55%.
5.2. [INTENTIONALLY DELETED]
5.3. For purposes of this Agreement, including the determination of the
foregoing amounts, the terms "Revenues", "International Expenses" and "Domestic
Expenses" shall have the following meanings, in each case as determined by the
Accountants in accordance with GAAP and, with respect to Revenues and
International Expenses, with the assistance and cooperation of Developer:
5.3.1. "Revenues" shall mean all amounts actually collected by and/or
paid to BRAII as a result of Developer's activities pursuant to this Agreement.
5.3.2. "International Expenses" shall mean all direct out-of-pocket
costs and expenses incurred by Developer or BRAII in connection with the
marketing and promotion of the System and the sale and implementation of
Franchises for System Restaurants in the Development Area, including, but not
limited to, costs and expenses for or related to all legal and franchise law
compliance and other licensing and legal compliance matters; the protection and
enforcement of the Proprietary Marks, including trademark registration and
enforcement provided that Developer shall be required to take only commercially
reasonable actions in connection with such enforcement and in no event shall
Developer be required to incur more than USD $100,000 in any single enforcement
action, and further provided that Franchisor shall advance fifty percent (50%)
of all related costs; the development of a model franchise agreement including
related professional fees; the marketing and selling of Franchises, including
related printing and advertising costs as well as any related travel or other
out-of-pocket expenses; the training of Franchise employees; the development and
implementation of ongoing quality assurance programs; development fees, current
and accrued; the enforcement of Franchisor's and BRAII's rights against any
Franchise operator or under any applicable Franchise Agreement; and any
accounting or audit matters, including as required by this Agreement. Such costs
and expenses which are jointly incurred with Developer's existing "Chi-Chi"
operations or any other operations of Developer shall be prorated appropriately.
5.3.3. "Domestic Expenses" shall mean all direct out-of-pocket costs
and expenses incurred by Franchisor in connection with the marketing and
promotion of the System and the sale and implementation of Franchises for System
Restaurants in the Development Area
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DEVELOPMENT AGREEMENT Page 9
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including, but not limited to, costs and expenses for or related to legal,
accounting and audit matters; the development and printing of Franchise
material; and travel, telephone and postage.
5.4. The Accountants shall conduct an annual audit in accordance with GAAP
of BRAII's Revenues and of the International Expenses and Domestic Expenses,
within one-hundred twenty (120) days of the end of the each year of the Initial
Term. The Accountants shall focus the audit of the International Expenses on the
allocation of such expenses between BRAII and Developer's "Chi-Chi" or other
operations. A synopsis of such allocation shall be provided annually by
Developer to the Accountants.
5.5. [INTENTIONALLY DELETED]
5.6. [INTENTIONALLY DELETED]
5.7. Developer and Franchisor shall bear the International Expenses and
Domestic Expenses, respectively, subject to reimbursement by BRAII from Revenues
as cash flow permits. The International Expenses and Domestic Expenses shall
accrue and be payable by BRAII at such time as sufficient Revenues are generated
by international operations to cover such accrued expenses, prior to the payment
of any Monthly Development Fee. At least sixty (60) days but no more than ninety
(90) days prior to the commencement of each year during the Term, Developer and
Franchisor shall prepare and submit to each other an annual budget for the
projected International Expenses and Domestic Expenses, and Developer shall also
prepare a projected Revenue budget (the "Annual Budget"). Franchisor and
Developer shall have forty-five (45) days thereafter to review and either agree
to the Annual Budget or provide comments thereon. The parties shall use their
best good faith efforts to finalize a mutually acceptable Annual Budget prior to
commencement of the applicable year of the Term.
6. SITE SELECTION
--------------
6.1. Developer shall approve Franchisee's site for each System Restaurant
to be developed hereunder subject to standards approved by Franchisor. Before
committing to a site or allowing a Franchisee to commit to a site, Developer
shall submit to Franchisor such information and materials as Franchisor may
reasonably request to evaluate the site. After receipt of such information and
materials, Franchisor, in its sole discretion, shall approve or refuse to
approve the proposed site. Should Franchisor refuse the proposed site Franchisor
will state the reasons in writing for the refusal. Franchisor shall either
approve or reject a proposed site not later than ten (10) days after receipt of
all information and materials requested pursuant to this Section 6.1. No site
shall be deemed to have received Franchisor's approval unless it has been
approved in writing by Franchisor. The site approved in writing by Franchisor
shall be the "Approved Location" referred to in the applicable Franchise
Agreement.
6.2. Franchisor shall furnish to Developer the following:
6.2.1. Site selection guidelines and criteria, and such site selection
counseling and assistance as Franchisor and/or Developer may deem advisable;
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DEVELOPMENT AGREEMENT Page 10
<PAGE>
6.2.2. Such on-site evaluations, if any, as Franchisor may deem
advisable in response to Developer's request for Franchisor's approval of a
proposed site; and
6.2.3. Franchisor will provide preliminary plans and specifications
for construction of a System Restaurant, including exterior and interior design
and layout plans. Such plans shall not be architectural drawings.
6.3. If a Franchisee will occupy the premises of a System Restaurant under
a lease, Developer shall cause the Franchisee, prior to the execution of the
lease, to submit an English summary of the material terms of the lease signed by
Franchisee to Franchisor for its written approval. No lease shall be executed
unless previously approved by Franchisor in its reasonable discretion.
7. TRAINING OF SYSTEM RESTAURANT EMPLOYEES
--------------------------------------
Developer shall fulfill Franchisor's responsibility under each Franchise
Agreement to conduct training for each manager, assistant manager, and chef of a
System Restaurant. The content and administration of Developer's training
program shall be at least equal to those of Franchisor's training program, shall
be approved in advance by Franchisor, and shall include ongoing quality
assurance in accordance with Section 9 below, for the duration of each
Franchise. Franchisor shall have the right to review Developer's training
program periodically to ensure its quality and to verify that managers,
assistant managers, and chefs are being trained in a timely and satisfactory
manner. Franchisor shall notify Developer of any deficiencies in the training
program. If Developer fails to cure such deficiencies within a reasonable time,
Franchisor may revoke its approval of the training program and require all
System Restaurant managers, assistant managers, and chefs to attend training
conducted by Franchisor at a cost to Developer of USD $500 per trainee (which
expense shall be excluded from the definition of International Expenses for
reimbursement purposes), until such time as Developer has conformed its training
program to comply with Franchisor's standards.
8. PROMOTIONAL MATERIALS; OPERATIONS MANUALS
-----------------------------------------
Franchisor shall provide to Developer, on loan, for furnishing to each
Franchisee, one set of Franchisor's confidential Operations Manuals, as they
exist from time to time (the "Manuals"). The Manuals shall remain the sole
property of Franchisor and Developer shall advise each Franchisee of the
confidential and proprietary nature of the Manual and that any Manuals which are
transmitted by e-mail shall be accessible only by approved personnel, and
Franchisee shall take all reasonable measures to maintain the security and
confidentiality of the Manuals. With respect to any hard copies of Manuals which
are provided to Franchisees, Developer shall advise Franchisee to keep the
Manuals in a secure place at all times and Developer shall advise Franchisee
that it shall not photocopy, duplicate, record, or otherwise reproduce the
Manuals or any of their contents without the prior written consent of
Franchisor.
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<PAGE>
9. QUALITY ASSURANCE
-----------------
Developer shall use Franchisor's program of ongoing quality assurance for
each of the System Restaurants for the duration of each Franchise. Developer
ohall communicate such standards in writing to each Franchisee and shall make
regular and periodic on-site visits to ensure compliance by each Franchisee of
the quality assurance program.
10. START-UP OF SYSTEM RESTAURANTS
-------------------------------
Subject to the terms and conditions of this Agreement, Developer shall act
on Franchisor's behalf and in cooperation with Franchisor to fulfill
Franchisor's responsibility under each Franchise Agreement to assist each
Franchisee in starting up a System Restaurant. Such assistance shall include
designating exclusive territories; assisting in site selection; assisting in
lease negotiations or site purchases; assisting with written specifications for
store construction and/or remodeling; designating uniforms to be worn by
employees; training Franchisees in start-up methods, operations standards, pizza
production and customer service; providing general advice and assistance;
advising of additions or deletions in approved products; advising on the use of
the Proprietary Marks and the Manuals; advising of any changes to the Manuals;
merchandising products; implementing employee selection criteria, motivation and
loyalty programs; assisting in interpretation of operations standards;
undertaking periodic inspections of each System Restaurant and taking corrective
action based on the results of such inspections; and performing any other
responsibilities of Franchisor other than those obligations which relate to the
development, addition or deletion of products and methods. Developer shall
perform Franchisor's responsibilities in a professional manner in accordance
with the guidelines and standards established herein or hereinafter by
Franchisor from time to time.
11. COMPLIANCE WITH LAWS
--------------------
11.1. Developer shall use its best efforts to secure, maintain, enforce and
comply in all material respects with all applicable laws and all required
licenses, permits, franchises and certificates relating to the marketing,
promotion, sale and implementation of each Franchise by Franchisor, BRAII or
Developer, including, without limitation, all government regulations relating to
food service businesses, franchising, licensing, withholding of income taxes,
social security taxes, sales taxes, value added taxes, other taxes and the
protection of the Proprietary Marks. Developer shall use its best efforts to
assure that the Franchise Agreements comply in all material respects with all
applicable laws and, subject to Section 5.3.2, shall use its best efforts to
enforce the Franchise Agreements against any Franchisee who operates a System
restaurant in violation of any of the foregoing.
11.2. Developer shall make all necessary applications to obtain proprietary
protection for all of the Proprietary Marks under applicable trademark treatise
or, if no such treatise is in effect, under all applicable laws within the
Development Area, to the extent such protection is available. Developer
acknowledges that Franchisor is the owner of all of the Proprietary Marks
licensed to Developer by this Agreement and that Developer's right to use the
Proprietary Marks is derived solely from this Agreement and is limited to the
marketing and promotion of the System and the sale and implementation of the
Franchises in compliance with this Agreement in the Development Area and by all
applicable standards, specifications and operating procedures prescribed by
Franchisor from time to time during the Term. Developer agrees that all usage of
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DEVELOPMENT AGREEMENT Page 12
<PAGE>
the Proprietary Marks by Developer and any good will established thereby shall
inure to the exclusive benefit of Franchisor and BRAII. Developer shall
immediately notify Franchisor of any impairment or infringement of, or challenge
to, Franchisor's, BRAII's, Developer's, or any Franchisee's use of any of the
Proprietary Marks, or any claim by any person of any rights in any Proprietary
Mark, in each case upon Developer's immediately becoming aware of such
impairment, infringement, challenge or claim. Developer shall not communicate
with any person other than Franchisor, BRAII and their counsel in connection
with any such infringement, challenge or claim. Developer and Franchisor, acting
reasonably, shall mutually agree as to the action, if any, to be taken in
connection with such infringement, challenge or claim. Subject to the foregoing,
Developer shall take all commercially reasonable actions to the extent provided
in Section 5.3.2 to enforce and protect the Proprietary Marks. At the direction
of Franchisor, Developer shall take action on behalf of Franchisor in connection
with such claim, provided that ultimate control of any litigation or other
administrative proceeding arising out of any such impairment, infringement,
challenge or claim, or otherwise relating to any Proprietary Mark, shall remain
with Franchisor. The cost of all action taken at the direction of Franchisor by
Developer will constitute Domestic Expenses unless such action is occasioned by
Developer's failure to materially comply with any of its obligations hereunder.
12. ENFORCEMENT OF FRANCHISE AGREEMENTS
-----------------------------------
12.1. With the prior approval and input of Franchisor, Developer shall take
such actions as are necessary to enforce Franchisor's rights and remedies under
each of the Franchise Agreements including, without limitation, retaining
counsel to initiate legal action against a Franchisee. Developer shall notify
Franchisor and BRAII of any breach of any Franchise Agreement promptly upon
Developer's becoming aware of such breach, together with Developer's recommended
course of action. Following such notice, Franchisor shall advise Developer of
how to proceed with respect to such breach. Developer shall keep Franchisor
informed of any enforcement action, however, Franchisor shall have the right to
control or instruct Developer in connection with any such action. The cost of
all action taken at the direction of Franchisor by Developer will constitute
Domestic Expenses unless such action is occasioned by Developer's failure to
materially comply with any of its obligations hereunder.
13. ADVERTISING AND MARKETING
-------------------------
13.1. Developer and Franchisor shall together develop marketing and
promotional materials for use by Developer in the marketing and promotion of the
System and the sale of Franchises. All advertising and promotion by Developer
shall be completely factual and shall conform to the commercially acceptable
standards of ethical advertising. Developer will not incur any liability on
behalf of Franchisor or BRAII nor make any claims, warranties or representations
with respect to the System, the System Restaurants or the Franchises, except for
those which have been previously approved in writing by Franchisor or as
permitted under this Agreement. All advertising of the Franchises and the System
by Developer will be in accordance with the highest standards of advertising and
ethics. If Franchisor disapproves of any such advertising or promotion,
Developer shall cease use of such advertising.
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DEVELOPMENT AGREEMENT Page 13
<PAGE>
13.2. Developer will furnish to each Franchisee ad formats and point of
sale and media advertising materials produced by Franchisor for System
Restaurants.
14. CONFIDENTIAL INFORMATION
------------------------
14.1. Developer shall not, during the term of this Agreement or at any time
thereafter, communicate, divulge, or use for the benefit of itself or any other
person or entity any confidential information, knowledge, criteria analysis and
systems, trade secrets, proprietary technology or know-how of BRAII or
Franchisor which may be communicated to Developer or of which Developer may be
apprised by virtue of Developer's activities under this Agreement. Developer may
divulge such confidential information only: (i) to employees of Developer on a
need-to-know basis; and (ii) to prospective Franchisees (who shall be subject to
the confidentiality provisions contained in or required by the Franchise
Agreement). All information, knowledge, trade secrets, know-how, techniques, and
other data which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, except information which Developer
can demonstrate came to its attention by lawful means prior to disclosure
thereof by Franchisor, or which, at or after the time of disclosure by
Franchisor to Developer, had become or later becomes a part of the public
domain, through publication or communication by others.
14.2. At Franchisor's request, Developer shall require its employees,
prospective or existing Franchisees, and any other person to whom Developer
wishes to disclose any confidential information of Franchisor to execute
covenants that they will maintain the confidentiality of such information. Such
covenants shall be in a form satisfactory to Franchisor, including, without
limitation, specific identification of Franchisor as a third-party beneficiary
with the independent right to enforce the covenants.
15. CORPORATE REQUIREMENTS; FINANCIAL STATEMENTS
--------------------------------------------
If Developer is a corporation, limited liability company or partnership
during the term of this Agreement, Developer shall furnish Franchisor with a
copy of its charter documents, memoranda of association, Bylaws, and any other
corporate governing documents.
16. TRANSFER OF INTEREST
--------------------
16.1. Franchisor shall have the right to transfer or assign its rights
under this Agreement solely to the extent provided below.
16.2. Developer understands and acknowledges that the rights and duties set
forth in this Agreement are granted in reliance on the business skill, financial
capacity, and personal character of Terrance Smith. Accordingly, neither
Developer nor any immediate or remote successor to any part of Developer's
interest in this Agreement, nor any individual, partnership, corporation, or
other legal entity which directly or indirectly owns any interest in Developer,
shall sell, assign, transfer, convey, or give away (each a "Transfer") any
direct or indirect interest in Developer or in this Agreement without the prior
written consent of Franchisor, which consent may be withheld by Franchisor in
its sole and absolute discretion, except that (i) Developer may issue up
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DEVELOPMENT AGREEMENT Page 14
<PAGE>
to ten percent (10%) of its capital stock outstanding from time to time to
employees of Developer provided Terrance Smith at all time remains the largest
stockholder of Developer and holds at least a ten percent (10%) ownership
interest in Developer and (ii) Developer and its current stockholders may
effectuate a Transfer of their respective interests in this Agreement or in
Developer itself (whether by sale of stock or assets or by merger) to Tumbleweed
or a wholly owned subsidiary of either such entity without the consent of
Franchisor; provided that after any such Transfer (including a transfer to
Tumbleweed), Terrance Smith shall be the chief executive officer involved in the
day-to-day business of Tumbleweed, Developer or other assignee or
successor-in-interest of Developer or Tumbleweed (whichever person holds the
rights under this Agreement) and further provided that Terrance Smith shall hold
at least a ten percent (10%) ownership interest in Tumbleweed, Developer or such
other assignee or such successor-in-interest of Developer or Tumbleweed. In the
event Tumbleweed is merged or otherwise rolled into Tumbleweed, LLC, or a
successor entity of Tumbleweed formed, and into which it and Tumbleweed, LLC's
operations may be transferred, for the purpose of effectuating an underwritten
public offering of the stock of such combined entities after Tumbleweed becomes
the Developer hereunder, prior to such merger or roll-up, Franchisor's Buy-Out
Right shall be accelerated and Franchisor shall have fifty (50) days after
receipt of written notice of Developer's intention to roll-up into Tumbleweed,
LLC to elect to effectuate such Buy-Out Right in accordance with Section 3
hereof, or, in Franchisor's sole discretion, to consent to such roll-up;
provided that, notwithstanding anything to the contrary contained elsewhere
herein, Franchisor's consent shall be in any event conditioned upon Terrance
Smith at all times thereafter remaining responsible for and integrally involved
in the day-do-day business and operations of Developer or its successor in
connection with this Agreement and, to the extent the entity into which
Tumbleweed is rolled up is a subsidiary of Tumbleweed, LLC (or its successor),
Terrance Smith shall also act as the chief executive officer of such subsidiary,
and further provided that, in the event Terrance Smith does not at any time have
the foregoing responsibilities, Franchisor may elect to exercise its Buy-Out
Right in accordance with Section 3 hereof. Any person to whom a Transfer is made
in accordance with this Section 16.2 (including Tumbleweed) shall be a
"Permitted Transferee" for purposes of this Agreement and shall be responsible
for the performance of all of the obligations of Developer contained herein. In
addition, if the Permitted Transferee is Tumbleweed, Tumbleweed, each of its
executive management (above unit levels, including area managers) and officers
shall each execute a noncompetition and proprietary information agreement in
favor of Franchisor and BRAII as set forth in Section 18 hereof. If the
Permitted Transferee is not Tumbleweed, than only such Permitted Transferee, its
executive management and its officers shall be required to execute such an
agreement. Developer shall notify Franchisor in writing of any proposed transfer
at least thirty (30) days before such transfer is to take place, and shall
provide such information and documentation relating to the proposed transfer as
Franchisor may reasonably request. Furthermore, Developer acknowledges and
agrees that a condition essential to this Agreement is that the services to be
provided hereunder are to be performed exclusively by Developer and Developer
shall not delegate or sub-broker any of its rights or obligations hereunder,
without the prior written permission of Franchisor. Any purported assignment,
transfer, delegation or sub-brokerage not having the written consent of
Franchisor required by this Section 16.2 shall be null and void and shall
constitute a material breach of this Agreement, for which Franchisor may
immediately terminate this Agreement without opportunity to cure pursuant to
Section 17.2 of this Agreement.
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DEVELOPMENT AGREEMENT Page 15
<PAGE>
16.3. Developer further agrees that:
16.3.1. Developer shall not pledge or otherwise encumber this
Agreement or any interest of Developer herein as security for any loan or other
obligation; and
16.3.2. Neither Developer nor any individual, partnership,
corporation, or other legal entity which directly or indirectly owns any
interest in Developer shall: (i) pledge or otherwise encumber any ownership
interest in Developer; or (ii) offer or sell securities of Developer by public
offering.
16.4. Developer shall pay a transfer fee of Twenty-Five Hundred Dollars
($2,500) plus Franchisor's actual and reasonable expenses for outside services
associated with reviewing the application to transfer, including, but not
limited to, reasonable attorneys' fees.
16.5. The executor or personal representative of a person with an interest
in Developer shall transfer such person's interest to a third party approved by
Franchisor, approval not to be unreasonably withheld within a reasonable time
after the date of such person's death or declaration of such person's mental
incapacity. In the case of transfer by bequest, if the beneficiaries are unable
to meet the conditions of this Section 16, the executor shall transfer the
deceased's interest to another party approved by Franchisor within a reasonable
time, subject to all the terms and conditions for transfers contained in this
Section 16. If the interest is not disposed of within two (2) years from the
date of death or appointment of a personal representative, Franchisor may
terminate this Agreement by written notice.
16.6. Franchisor's consent to a transfer shall not constitute a waiver of
any claims Franchisor may have against the transferring party, nor shall it be
deemed a waiver of Franchisor's right to demand exact compliance with any of the
terms of this Agreement by the transferor or transferee.
17. DEFAULT AND TERMINATION
17.1. Developer shall be in default under this Agreement, and all rights
granted herein shall automatically terminate without notice to Developer, if
Developer becomes insolvent or makes a general assignment for the benefit of
creditors; if a petition in bankruptcy is filed by Developer or such a petition
is filed against Developer and not opposed by Developer; if Developer is
adjudicated as bankrupt or insolvent; if a bill in equity or other proceeding
for the appointment of a receiver of Developer or other custodian for
Developer's business or assets is filed and consented to by Developer; if a
receiver or other custodian (permanent or temporary) of Developer's assets or
property, or any part thereof, is appointed by any court of competent
jurisdiction; if proceedings for a composition with creditors under any state or
federal law is instituted by or against Developer; if a final judgment remains
unsatisfied or of record for thirty (30) days or longer (unless a bond is
filed); if Developer is dissolved; if execution is levied against Developer's
business or property; or if Terrance Smith ceases to own ten percent (10%) of
Developer or any Permitted Transferee or ceases at any time to be the largest
stockholder of Developer or its Permitted Transferee or cease to be the chief
executive officer actively and integrally involved in the fulfillment of
Developer's or any Permitted Transferee's obligations
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DEVELOPMENT AGREEMENT Page 16
<PAGE>
hereunder for any reason, including the death or Disability of Terrance Smith.
For purposes hereof, "Disability" shall mean the inability of Terrance Smith to
perform the obligations and responsibilities of Developer hereunder for an
aggregate of one hundred twenty (120) days or sixty (60) consecutive days during
any three hundred sixty-five (365) day period.
17.2. Franchisor shall have the right to terminate this Agreement,
effective immediately upon the receipt of written notice by Developer, if any of
the following events occurs:
17.2.1. In the event of any transfer of an interest in Developer or in
this Agreement which does not comply with Section 16 of this Agreement, or any
transfer of an interest in Developer by intestate succession to an heir who is
unable to meet the conditions of Section 16.5; or
17.3. If Developer fails to cure any material default of any material
provision of this Agreement within fifteen (15) days after receiving written
notice of default from Franchisor, this Agreement shall terminate at the end of
such fifteen (15) day period without further notice from Franchisor (provided
that Developer shall not have any opportunity to cure any breach that by its
nature is not susceptible to cure and further provided that Developer shall be
given reasonable additional time to cure should Developer be diligently pursuing
the cure and should such additional cure period not materially affect Franchisor
or BRAII).
17.4. Upon termination of this Agreement, Developer shall have no right to
market or promote the System or sell or implement Franchises, and Franchisor
shall be entitled to establish, and to franchise others to establish, System
Restaurants at any location in the Development Area.
17.5. No right or remedy herein conferred upon or reserved to Franchisor is
exclusive of any other right or remedy provided or permitted by law or in
equity.
18. COVENANTS
---------
18.1. Developer acknowledges that, pursuant to this Agreement, Developer
will receive valuable confidential information, including, without limitation,
information regarding the site selection, marketing, and food preparation
techniques of Franchisor and the System. Developer covenants that, during the
term of this Agreement, Developer shall not, either directly or indirectly, for
itself, or through, on behalf of, or in conjunction with any person or legal
entity:
18.1.1. Divert or attempt to divert any present or prospective
franchisor or customer of a System Restaurant to any competitor, by direct or
indirect inducement or otherwise, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with the
Proprietary Marks and the System;
18.1.2. Own, manage, operate, engage in, be employed by, provide any
assistance to, or have any interest in (as owner or otherwise) any other
business whose sales of pizza and related products (other than Mexican/South
Western pizza or products, provided that Developer shall not use brick ovens in
connection therewith, including without limitation, the proprietary
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DEVELOPMENT AGREEMENT Page 17
<PAGE>
ovens of BRAII or Franchisor or any derivations thereof), are more than five
percent (5%) of its total sales by annual dollar value.
18.2. In the event of a Buy-Out, Developer covenants that, except as
otherwise approved in writing by Franchisor, Developer shall not, during the
period commencing with the expiration or termination of this Agreement or the
approved transfer of this Agreement to a new developer, and continuing for a
period ending two (2) years after the Buy-Out either directly or indirectly, for
itself or through, on behalf of, or in conjunction with any person or legal
entity, own, maintain, operate, engage in, be employed by, provide assistance
to, or have any interest in any business whose sales of pizza, other than
Mexican/South Western pizza or products, provided that Developer shall not use
brick ovens in connection therewith, including without limitation, the
proprietary ovens of BRAII or Franchisor or any derivations thereof, related
products, and manufacture of brick ovens are more than five percent (5%) of its
total sales by annual dollar volume on a worldwide basis.
18.3. Sections 18.1.2 and 18.2 shall not apply to ownership by Developer of
a less than five percent (5 %) beneficial interest in the outstanding equity
securities of any publicly held corporation.
18.4. Developer understands and acknowledges that Franchisor shall have the
right, in its sole discretion, to reduce the scope of any covenant set forth in
Sections 18.1 and 18.2 of this Agreement, or any portion thereof, without
Developer's consent, effective immediately upon receipt by Developer of written
notice thereof; and Developer agrees that it shall comply forthwith with any
covenant as so modified, which shall be fully enforceable notwithstanding
anything to the contrary contained in this Agreement.
18.5. Developer agrees that the existence of any claims it may have against
Franchisor, whether or not arising from this Agreement, shall not constitute a
defense to the enforcement by Franchisor of the covenants in this Section 18.
Developer agrees to pay all costs and expenses incurred by Franchisor in
enforcing this Section 18, including, but not limited to, reasonable attorneys
fees.
18.6. Developer acknowledges that Developer's violation of the terms of
this Section 18 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Developer accordingly consents to
the issuance of an injunction prohibiting any conduct by Developer in violation
of the terms of this Section 18. Such injunctive relief shall be in addition to
any other remedies Franchisor may have.
18.7. At Franchisor's request, Developer shall obtain and furnish to
Franchisor executed covenants similar in substance to those set forth in this
Section 18 (including covenants applicable upon the termination of an
individual's relationship with Developer) from any or all executive management
(above the unit level including area managers), officers and holders of a direct
or indirect beneficial interest of five percent (5%) or more of the securities
of Developer. Every covenant required by this Section 18.7 shall be in a form
satisfactory to Franchisor, including, without limitation, specific
identification of Franchisor as a third party beneficiary with the independent
right to enforce the covenant.
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DEVELOPMENT AGREEMENT Page 18
<PAGE>
18.8. Developer covenants and agrees that upon termination of this
Agreement for any reason, Developer shall make available to Franchisor and BRAII
for employment or other engagement by Franchisor and/or BRAII, any person who
was, at the time of termination or within the one year period prior to
termination, a full-time employee (other than Terrance Smith), of Developer or
BRAII in connection with this Agreement, the Franchises or the System
Restaurants; provided that Developer makes no guarantee that any such person
will accept employment with Franchisor or BRAII. In the event that any such
person does not accept employment with Franchisor or BRAII, Developer shall not
employ such person for a period of one (1) year thereafter. For purposes hereof
"full-time" shall mean thirty (30) hours or more. Any non-full-time employees
may be employed by Developer.
18.9. Developer understands, covenants and agrees that the brick ovens used
in the System Restaurants contain proprietary technology which Developer shall
have no right to use, sell or divulge. Developer fully agrees that such brick
ovens will be leased to Franchisees under the Franchise Agreements subject to
payment of an up-front license fee and that the Franchise Agreement will provide
that title to the brick ovens will be returned to Franchisor upon termination of
the applicable Franchise Agreement.
19. NOTICES
All notices pursuant to this Agreement shall be in writing and shall be
personally delivered, sent by registered mail, or delivered or sent by another
method which affords the sender evidence of receipt or attempted delivery, to
the respective parties at the following addresses, unless and until a different
address has been designated by written notice to the other party:
Notices to Franchisor:
Boston Restaurant Associates, Inc.
Stonehill Corporate Center
999 Broadway, Suite 400
Saugus, MA 01906
Attn: Chief Executive Officer
Tel: 617 231-7575
Fax: 617 231-5225
with a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Attn: Gordon R. Penman, Esquire
Tel: 617 856-8200
Fax: 627 856-8201
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DEVELOPMENT AGREEMENT Page 19
<PAGE>
Notices to Developer:
Terrance Smith
Regina International Ltd.
541 Steenweg op Brussel
3090 Overijse
Belgium
Tel: 011 322 657 0555
Fax: 011 322 657 0247
with a copy to:
Michael Fleishman, Esquire
Greenebaum Doll & McDonald PLLC
3300 National City Tower
101 South Fifth Street
Louisville, KY 40202-3197
Tel: 502 587-3530
Fax: 502 587-3695
Any notice sent or delivered which affords the sender evidence of receipt
or attempted delivery shall be deemed to have been given and received at the
date and time of receipt or attempted delivery.
20. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
20.1. It is understood and agreed by the parties that this Agreement does
not create a fiduciary relationship between them; that Developer is an
independent contractor; and that nothing in this Agreement is intended to make
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.
20.2. Developer shall hold itself out to the public to be an independent
contractor operating pursuant to this Agreement. Developer agrees to take such
actions as shall be necessary to that end.
20.3. Nothing in this Agreement authorizes Developer to make any contract,
agreement, warranty, or representation on Franchisor's behalf, or to incur any
debt or other obligation in Franchisor's name. Franchisor shall in no event
assume liability for, or be deemed liable hereunder as a result of, any such
action, nor shall Franchisor be liable by reason of any act or omission of
Developer or any claim or judgment arising therefrom against Developer or
Franchisor. Developer shall hold harmless and indemnify Franchisor, its
affiliates, and their respective officers, directors, shareholders, and
employees against any claim arising directly or indirectly from, as a result of,
or in connection with Developer's activities hereunder, as well as the costs of
defending against any such claim.
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DEVELOPMENT AGREEMENT Page 20
<PAGE>
21. APPROVALS AND WAIVERS
---------------------
21.1. Whenever this Agreement requires the prior approval or consent of
Franchisor, Developer shall make a timely written request to Franchisor
therefor, and, except as may be otherwise expressly provided herein, such
approval or consent must be obtained in writing and signed by an officer of
Franchisor within seven (7) days of being received.
21.2. Franchisor makes no warranties or guarantees upon which Developer may
rely and assumes no liability or obligation to Developer by providing any
waiver, approval, consent, or suggestion to Developer in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
21.3. No failure of Franchisor to exercise any right reserved to it in this
Agreement or to insist upon strict compliance by Developer with any obligation
or condition in this Agreement, and no custom or practice of the parties at
variance with the terms hereof, shall constitute a waiver of Franchisor's right
to exercise such right or to demand exact compliance with any of the terms of
this Agreement. Waiver by Franchisor of any particular default by Developer
shall not affect or impair Franchisor's rights with respect to any subsequent
default of the same, similar, or different nature; nor shall any delay,
forbearance, or omission of Franchisor to exercise any power or right arising
out of any breach or default by Developer of any of the terms, provisions, or
covenants of this Agreement affect or impair Franchisor's right to exercise the
same; nor shall such constitute a waiver by Franchisor of any rights hereunder
or rights to declare any subsequent breach or default and to terminate this
Agreement prior to the expiration of its term.
22. SEVERABILITY AND CONSTRUCTION
-----------------------------
22.1. If, for any reason, any provision of this Agreement is determined to
be invalid and contrary to, or in conflict with, any existing or future law or
regulation by a court or agency having valid jurisdiction, such invalidity shall
only apply in the jurisdiction holding such provision invalid and shall not
impair the operation of, or have any other effect upon, such other provisions of
this Agreement as may remain otherwise intelligible. The latter shall continue
to be given full force and effect and bind the parties hereto, and the invalid
provision(s) shall be deemed not to be a part of this Agreement.
22.2. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Developer, Franchisor, and such of their successors and
assigns as may be contemplated by Section 17 above, any rights or remedies under
or by reason of this Agreement.
22.3. Any provision or covenant of this Agreement which expressly or by
reasonable implication imposes obligations after the expiration or termination
of this Agreement shall survive such expiration or termination.
22.4. Developer agrees to be bound by any promise or covenant imposing the
maximum duty permitted by law which is subsumed within the terms of any
provision of this Agreement, as though it were separately articulated in and
made a part of this Agreement, that may result (i) from striking from any of the
provisions hereof any portion or portions which a court or agency having valid
jurisdiction may hold to be unreasonable and unenforceable in an unappealed
final
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DEVELOPMENT AGREEMENT Page 21
<PAGE>
decision to which Franchisor is a party, or (ii) from reducing the scope of any
promise or covenant to the extent required to comply with such a court or agency
order.
23. APPLICABLE LAW; REMEDIES
------------------------
23.1. Any action (whether or not arising out of this Agreement) brought by
Developer against Franchisor in any court, whether federal or state, shall be
brought, and any action brought by Franchisor against Developer may be brought,
within the judicial district of the City of Boston, Suffolk County, in the
Commonwealth of Massachusetts. The parties hereby waive all questions of
personal jurisdiction or venue for the purpose of carrying out this provision.
23.2. This Agreement shall be executed and accepted on behalf of Franchisor
in the Commonwealth of Massachusetts by a duly authorized officer, only
following signature by a duly authorized representative of Developer, and shall
be governed by the laws of the Commonwealth of Massachusetts. Franchisor and
Developer consent to be bound by the provisions of such laws.
23.3. No right or remedy conferred upon or reserved to Franchisor or
Developer by this Agreement is intended to be, nor shall be deemed, exclusive of
any other right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy.
23.4. Nothing herein contained shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
23.5. Developer and Franchisor irrevocably waive trial by jury in any
action, proceeding, or counterclaim brought by either of them against the other.
Developer and Franchisor hereby waive to the fullest extent permitted by law any
right to, or claim of, any punitive or exemplary damages against the other and
agree that, in the event of a dispute between them, each shall be limited to the
recovery of any actual damages sustained by it.
24. ARBITRATION OF DISPUTES
------------------------
24.1. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, which the parties fail to resolve by agreement,
shall be settled by binding arbitration in the City of Boston, Suffolk County,
in the Commonwealth of Massachusetts, U.S.A. in accordance with the commercial
arbitration rules of the American Arbitration Association, applying the laws of
the Commonwealth of Massachusetts as provided in Section 23 above. If the laws
of the country in which Developer is domiciled do not permit arbitration in the
Commonwealth of Massachusetts, then the arbitration shall take place in England
(United Kingdom) with the rules of the International Chamber of Commerce
applying the laws of the Commonwealth of Massachusetts or, if the application of
such laws shall be prohibited by the country in which the Developer is
domiciled, then applying the laws of England. Notwithstanding the foregoing, if
the application of the laws of England in arbitration proceedings is prohibited
by the country in which Developer is domiciled, then any disputes
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DEVELOPMENT AGREEMENT Page 22
<PAGE>
arising hereunder shall be submitted to the courts of England, to whose
jurisdiction the parties hereby consent, for settlement under the laws of
England.
24.2. Judgment upon any arbitration award so rendered may be entered in any
court having jurisdiction, or application may be made to any such court for
confirmation of such award or additional acceptance of such award, and for an
order of enforcement or other legal remedy, as the case may be. Notwithstanding
the foregoing, Franchisor may elect to forego arbitration and pursue any claim
or dispute relating to its intellectual property rights (including the
Proprietary Marks) in any court of competent jurisdiction.
25. ENTIRE AGREEMENT
----------------
This Agreement, the documents referred to herein, and the Exhibits attached
hereto constitute the entire agreement between Franchisor and Developer
concerning the subject matter hereof and supersede all prior agreements,
negotiations, representations, and correspondence concerning the same subject
matter. Except for those permitted to be made unilaterally by Franchisor
hereunder, no amendment, change, or variance from this Agreement shall be
binding on either party unless agreed to in writing by the parties and executed
by their authorized officers or agents.
26. ACKNOWLEDGMENTS
---------------
26.1. Developer acknowledges that the success of the business venture
contemplated by this Agreement involves substantial business risks and is
largely dependent upon Developer's business skills and financial and other
resources. Franchisor expressly disclaims the making of, and Developer
acknowledges not having received, any warranty or guarantee, express or implied,
as to the potential volume, profits, or success of the business venture
contemplated by this Agreement.
26.2. Developer acknowledges that Developer has received, read, and
understood this Agreement and the attached Exhibits, and that Developer has had
ample time and opportunity to consult with advisors of Developer's own choosing
about the potential benefits and risks of entering into this Agreement.
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DEVELOPMENT AGREEMENT Page 23
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first above written.
BOSTON RESTAURANT ASSOCIATES, INC. DEVELOPER
By: _______________________________ By: _______________________________
Title: ____________________________ Title: ____________________________
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DEVELOPMENT AGREEMENT Page 24
<PAGE>
EXHIBIT A
---------
to
PIZZERIA REGINA
---------------
INTERNATIONAL DEVELOPMENT AGREEMENT
-----------------------------------
PROPRIETARY MARKS
-----------------
Date
Registered Marks Type Registered Registration Number
---------------- ---- ---------- ---------------------
The Pizzeria Regina Crown* SM 9/28/82 1210976.00
Pizzeria Regina** TM 9/28/82 1210976.00
Pizzeria Regina Boston's Brickoven Pizza* TM in use pending*
*Will be registered only where Developer and BRAII mutually agree in their
reasonable discretion.
**To be registered everywhere in the Development Area.
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DEVELOPMENT AGREEMENT Page 25
<PAGE>
EXHIBIT B
---------
to
PIZZERIA REGINA
---------------
INTERNATIONAL DEVELOPMENT AGREEMENT
-----------------------------------
DEVELOPMENT AREA
----------------
The Development Area (see Section 1.1) shall be the following:
Worldwide, except for the continents of North and South America, the
Caribbean and similar outlying or affiliated islands, states and territories
belonging to countries located in North and South America.
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DEVELOPMENT AGREEMENT Page 26
<PAGE>
EXHIBIT C
---------
to
PIZZERIA REGINA
---------------
INTERNATIONAL DEVELOPMENT AGREEMENT
-----------------------------------
FRANCHISE AGREEMENT
-------------------
The attached form of Franchise Agreement shall be used by Developer as
a model from which Developer will develop a final Franchise Agreement
appropriate for the System Restaurants in the Development Area.
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DEVELOPMENT AGREEMENT Page 27
<PAGE>
EXHIBIT D
---------
to
PIZZERIA REGINA
---------------
INTERNATIONAL DEVELOPMENT AGREEMENT
-----------------------------------
UNIFORM FRANCHISING
-------------------
OFFERING CIRCULAR
-----------------
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DEVELOPMENT AGREEMENT Page 28