Master License and Distribution Agreement - Friendly's International Inc. and Hansung Enterprise Co. Ltd.
================================================================================
MASTER LICENSE
AND
DISTRIBUTION AGREEMENT
FOR THE TERRITORY OF KOREA
Effective Date: October 12, 1996
among
FRIENDLY'S INTERNATIONAL, INC.
as Company
and
HANSUNG ENTERPRISE CO., LTD.
as Master Licensee
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article Page
1. CERTAIN DEFINITIONS ..................................................... 2
2.LICENSE, MASTER LICENSE AND DISTRIBUTION RIGHTS ........................... 4
2.1 Grant of License, Master License and Distribution Rights ....... 4
2.2 Government Approval ............................................ 5
2.3 Effective Date ................................................. 6
2.4 Exclusive Relationship ......................................... 6
2.5 Term ........................................................... 6
2.6 Representations and Warranties of Master Licensee .............. 7
2.7 Representations and Warranties of Company ...................... 7
3. DEVELOPMENT OBLIGATIONS ................................................. 9
3.1 Sales Targets and Development Schedules ........................ 9
3.2 Development Obligations in North Korea ......................... 10
3.3 Company Shoppes and Restaurants ................................ 10
3.4 Company Business Presence ...................................... 11
3.5 Company Approved Licensees ..................................... 11
4. PURCHASE OF PRODUCTS .................................................... 11
4.1 Purchase Obligations ........................................... 11
4.2 Approved Products Suppliers .................................... 11
4.3 Purchase Procedures ............................................ 12
4.4 Prices and Payment ............................................. 13
4.5 Warranty ....................................................... 13
5. MASTER LICENSEE-OWNED SHOPPES ........................................... 14
5.1 Condition Appearance And Operation Of Shoppes .................. 14
5.2 Shoppe Menu .................................................... 15
5.3 Procedures For Shoppes ......................................... 15
5.4 Compliance With Laws And Good Business Practices ............... 15
5.5 Management And Personnel ....................................... 16
6. SERVICES AND OBLIGATIONS ................................................ 16
6.1 Initial Services of Company .................................... 16
6.2 Initial and Continuing Training ................................ 17
6.3 Master Licensee Training Center ................................ 17
6.4 Continuing Services of Company ................................. 18
6.5 Certification Inspection of Shoppes ............................ 18
6.6 Marketing Programs ............................................. 19
6.7 Annual Sales Forecast and Development Plan ..................... 19
6.8 License Marketing and Services ................................. 19
6.9 Additions and Modifications to the Friendly's System ........... 20
6.10 Items Used by Shoppes .......................................... 20
7. LICENSEES AND LICENSE AGREEMENTS ........................................ 20
7.1 Licensees and License Agreements Utilized by Master Licensee ... 20
7.2 Termination/Expiration of Licenses ............................. 21
7.3 Enforcement, Inspection and Assistance by Master Licensee ...... 21
7.4 License Services ............................................... 22
i
<PAGE>
8. FEES AND OTHER PAYMENTS ................................................. 22
8.1 Development Fee ................................................ 22
8.2 Royalty Fees ................................................... 22
8.3 Payment for Base Support Services .............................. 22
8.4 Manner of Payment .............................................. 23
8.5 Interest on Late Payments ...................................... 23
8.6 Withholding Taxes .............................................. 23
8.7 Currency and Place of Payment .................................. 23
8.8 Payment Approvals .............................................. 23
9. SYSTEM STANDARDS/MANUALS ................................................ 25
9.1 System Standards and Development of Territory System
Standards Manual ............................................. 25
9.2 Modification of the Territory System Standards Manual .......... 26
10. MARKS .................................................................. 26
10.1 Grant License .................................................. 26
10.2 Ownership of the Marks ......................................... 27
10.3 Registration ................................................... 27
10.4 Licensing of Licensees ......................................... 27
10.5 Registration of Authorized User Instruments .................... 27
10.6 Infringements .................................................. 28
10.7 Use of the Marks ............................................... 28
11. INSURANCE .............................................................. 28
12. CONFIDENTIAL INFORMATION ............................................... 29
13. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION ............................ 30
13.1 Independent Contractors ........................................ 30
13.2 Master Licensee's Indemnification of Company and the
Marks Owner .................................................. 30
13.3 Company's Indemnification of Master Licensee ................... 30
14. REPORTS ................................................................ 31
15. INSPECTIONS AND AUDITS ................................................. 31
16. ASSIGNMENTS ............................................................ 32
16.1 Assignment by Company .......................................... 32
16.2 Assignment by Master Licensee .................................. 32
16.3 Assignment to an Affiliate ..................................... 32
17. TERMINATION ............................................................ 32
17.1 By Company ..................................................... 32
17.2 By Master Licensee ............................................. 33
17.3 By Either Party ................................................ 33
17.4 Status of Products after Termination ........................... 33
18. RIGHTS AND OBLIGATIONS UPON TERMINATION OR
EXPIRATION ............................................................ 34
18.1 Payment of Amounts Due to Company .............................. 34
18.2 Change of Identification ....................................... 34
ii
<PAGE>
18.3 Discontinuance of Use of Friendly's System ..................... 35
18.4 Covenant Not To Compete ........................................ 35
18.5 Rights Upon Termination or Expiration .......................... 36
18.6 Closing ........................................................ 37
18.7 Price for Assignment of Licenses ............................... 37
18.8 Continuing Obligations ......................................... 37
19. GENERAL PROVISIONS ..................................................... 37
19.1 Severability ................................................... 37
19.2 Substitution of Valid Provision ................................ 37
19.3 Force Majeure .................................................. 38
19.4 Cumulative Remedies ............................................ 38
19.5 Attorneys' Fees ................................................ 38
19.6 Governing Law .................................................. 38
19.7 Interpretation ................................................. 38
19.8 Informal Dispute Resolution .................................... 39
19.9 Arbitration .................................................... 39
19.10 Delivery of Notices and Payments ............................... 39
19.11 Waiver ......................................................... 40
19.12 U.S. Government Regulations .................................... 40
SCHEDULES
1 OWNERSHIP SCHEDULE
2 LICENSING SCHEDULE
3 DISTRIBUTION SCHEDULE
EXHIBITS ATTACHED:
A-1 LIST OF PROPRIETARY PRODUCTS
A-2 LIST OF NON-PROPRIETARY PRODUCTS
B LIST OF MARKS
EXHIBIT TO BE ATTACHED:
C LICENSE AGREEMENT FORM
iii
<PAGE>
MASTER LICENSE AND DISTRIBUTION AGREEMENT FOR THE TERRITORY
OF KOREA
-----------------------
This MASTER LICENSE AND DISTRIBUTION AGREEMENT (the "Agreement") is made
and entered into as of the 12th day of October, 1996 (the "Effective Date"), by
and between FRIENDLY'S INTERNATIONAL, INC., a corporation organized under the
laws of the State of Delaware, U.S.A., with its office at 1855 Boston Road,
Wilbraham, Massachusetts, U.S.A. 01095 ("Company"), and HANSUNG ENTERPRISE CO.,
LTD., a corporation organized under the laws of the Republic of Korea, with its
principal office at Hansung Bldg., 88, Samsung-Dong, Kangnam-Ku, Seoul, the
Republic of Korea ("Master Licensee").
W I T N E S S E T H:
WHEREAS, Company has developed a system for establishing, operating and
licensing distinctive, high quality ice cream shoppes ("Shoppes" and as more
particularly defined below) serving the public under the name "Friendly's Great
American Ice Cream" and Company licenses the operation of Shoppes
internationally in accordance with such system, which is referred to as the
Friendly's System (as more particularly defined below); and
WHEREAS, Company desires to expand through the development of Shoppes
operated under the Friendly's System and the Marks (as hereinafter defined) in
the Territory (as hereinafter defined); and
WHEREAS, Master Licensee recognizes the distinctiveness and value of the
Friendly's System, the advantages which may be obtained by using the Friendly's
System in, and, if necessary, by adapting it to, the Territory, and desires to
acquire (i) a license to use and, if necessary, to adapt the Friendly's System
and the Marks for the purpose of owning and operating Shoppes in the Territory
and (ii) a master license to use and, if necessary, to adapt the Friendly's
System and the Marks for the purpose of sub-licensing Shoppes in the Territory;
and
WHEREAS, Company has extensive experience in the manufacture and
production and supply of various products (as hereinafter defined) and is
willing to grant to Master Licensee the right and license to distribute and sell
the Products in the Territory; and
WHEREAS, Master Licensee desires to obtain the right and license from
Company to distribute and sell the Products in the Territory; and
WHEREAS, Master Licensee and Company are to enter into this Agreement for
the Territory pursuant to which Master Licensee will pay fees as described
herein; and
NOW, THEREFORE, in consideration of the premises, covenants and agreements
contained herein and other good and valuable consideration, the parties agree as
follows:
<PAGE>
ARTICLE 1. CERTAIN DEFINITIONS
Unless defined below, terms used in this Agreement are defined and
construed in the context in which they appear. As used in this Agreement, the
following terms shall have the meanings defined in this Article 1 unless a
different meaning is plainly required by the context:
1.1 "Affiliates" shall mean and include partnerships, corporations and
other legal entities that directly or indirectly control, are controlled by or
are under common control with either of the parties hereto. To the extent
obligations are imposed on Affiliates in this Agreement, each party hereto shall
cause its Affiliates to perform such obligations as described herein.
1.2 "Agreement Year" shall mean the twelve month period commencing on
January 1 of each calendar year, except that the first Agreement Year shall
commence on the Effective Date and conclude on the second December 31st
following the Effective Date.
1.3 "Base Support Services" shall mean: (a) providing operating manuals,
(b) providing standard plans and specifications for Shoppes, (c) providing
initial training in the United States for Master Licensee's certified trainers,
and (d) providing samples of promotional materials, media, point of purchase
materials and other marketing and advertising samples used by Company in the
United States.
1.4 "Development Fee" shall mean the non-refundable development and
service fee Master Licensee shall pay to Company pursuant to Paragraph 8.1 as
consideration for Company's grant of the Ownership Rights, the Licensing Rights
and the Distribution Rights to Master Licensee for the Territory and the
services Company shall provide to Master Licensee.
1.5 "Development Period" shall have the meaning set forth in Paragraph
3.1.
1.6 "Development Schedules" shall have the meaning set forth in Paragraph
3.1.
1.7 "Distribution Rights" shall have the meaning set forth in Paragraph
2.1.
1.8 "Dollars" or "$" shall mean the legal currency of the United States.
1.9 "Friendly's System" shall mean Shoppes established pursuant to
Company's plans and specifications for construction, remodeling, decorating,
equipment and layout, and operated in accordance with Company's distinctive
business formats, construction plans, inspection and consultation programs,
signs, equipment, layouts, methods, specifications, standards, recipes
(including ice cream and other frozen dessert and related toppings recipes),
menus, confidential information, trade secrets, operating procedures, training
programs and materials, guidance, policy statements and related materials,
designs, advertising, publicity, and marketing programs and other materials
(which Company may modify from time to time).
2
<PAGE>
1.10 "Gross Sales and Revenues" shall mean, subject to Paragraph 8.2(b),
all gross sales and revenues, whether for cash or credit, that Master Licensee
derives from any activity authorized or right granted pursuant to this
Agreement, including, without limitation, gross sales and revenues from Master
Licensee's (i) operation of its own Shoppes, (ii) granting of Friendly's System
sub-licenses to Licensees, and (iii) sale and distribution of Proprietary
Products in connection with the Distribution Rights granted hereunder.
1.11 "Legal Requirements" shall mean all laws, ordinances, regulations,
rules, administrative orders, decrees and policies of any Territory government,
governmental agency or department.
1.12 "LIBOR" shall mean, in respect of any relevant sum or any relevant
period, the rate shown on page "3750" (or any equivalent successor page thereto)
on the Telerate Monitor Screen as being the rate per annum at which Dollar
deposits are offered for one month at or about 11:00 a.m. (London time) on the
day before the first day of such period.
1.13 "License Agreement" shall mean each license agreement to be entered
into and used by Master Licensee to grant licenses to Licensees as approved by
Company pursuant to Paragraph 7.1 hereof.
1.14 "Licensee" shall mean the party authorized by a License Agreement to
operate a Shoppe.
1.15 "Licensing Rights" shall have the meaning set forth in Paragraph 2.1.
1.16 "Marks" shall mean the trademarks, logos, slogans and commercial
symbols listed on Exhibit B attached hereto (whether any such Marks are
registered or not) including "Friendly's" and "Friendly's Great American Ice
Cream", as the same may be amended from time to time, and such other trademarks,
logos, slogans, trade dress, and commercial symbols as Company may authorize for
use from time to time to identify Shoppes and the services and products
offered, sold or used therein.
1.17 "Marks Owner" shall mean Company or its successors and assigns as
owner of the Marks in the Territory.
1.18 "Non-Proprietary Products" shall mean the approved food, beverage and
other products served and sold by Shoppes, as listed on Exhibit A-2 attached
hereto.
1.19 "North Korea" shall mean the Democratic People's Republic of Korea.
1.20 "Ownership Rights" shall have the meaning set forth in Paragraph 2.1.
1.21 "Proprietary Products" shall mean the approved food, beverage and
other products served and sold by Shoppes, as listed on Exhibit A-1 attached
hereto.
1.22 "Products" shall mean, collectively, Proprietary Products and
Non-Proprietary Products.
3
<PAGE>
1.23 "Rights" shall have the meaning set forth in Paragraph 2.1.
1.24 "Royalty Fee" shall mean the fees Master Licensee shall pay to
Company pursuant to Paragraph 8.2 as consideration for the license of the Marks
to Master Licensee.
1.25 "Shoppe" shall mean a Friendly's Ice Cream Shoppe consisting of all
structures, facilities, appurtenances, grounds, landscaping, signs, furniture,
fixtures, equipment and entry, exit, parking and other areas, as well as, the
approved food, beverage and other products served and sold by Friendly's Ice
Cream Shoppes for consumer consumption and not for resale which are prepared in
accordance with Friendly's standards, specifications and secret recipes.
1.26 "South Korea" shall mean the Republic of Korea.
1.27 "System Standards" shall mean the standards specified in writing from
time to time by Company as the same may be amended, modified, supplemented or
deleted from time to time.
1.28 "Territory" shall mean (i) South Korea and (ii) subject always to
Paragraph 3.2, North Korea.
1.29 "Territory System Standards" shall mean the System Standards, as
adapted to the Legal Requirements and local customs of, or appropriate to
promote the commercial success of Shoppes in, the Territory by Master Licensee
and approved by Company in accordance with the procedure described in Paragraph
9.1 hereof.
ARTICLE 2. LICENSE, MASTER LICENSE AND DISTRIBUTION RIGHTS
2.1 Grant of License, Master License and Distribution Rights. (a) Subject
to all of the terms and conditions hereof, Company grants to Master Licensee,
for and during the Term (as defined in Paragraph 2.5 below) of this Agreement,
and within the Territory: (i) the exclusive right and license to own and operate
Shoppe's ("the "Ownership Rights"); (ii) the exclusive right and master license
to grant Friendly's System sub-licenses to Licensees (the "Licensing Rights");
and (iii) the exclusive right to sell and distribute Friendly's ice cream and
related Products (the "Distribution Rights") (the Ownership Rights, the
Licensing Rights and the Distribution Rights being hereinafter collectively
referred to as the "Rights").
(b) Master Licensee's right to exercise the Licensing Rights is subject to
(i) the establishment of the training center and Licensee support program in
accordance with Paragraph 6.3 and (ii) the execution by each Licensee of a
legally binding acknowledgment (in the form annexed hereto or as contained in a
License Agreement) stating that, if the rights of Master Licensee under the
License Agreement become vested in Company, Company is entitled to exercise all
of such rights of Master Licensee (including any rights of termination) in
accordance with the License Agreement and may enforce same against Licensee
without the consent of or reference to Master Licensee.
4
<PAGE>
(c) The Rights herein granted are limited to the Territory and confer no
rights upon Master Licensee to use or license the use of the Friendly's System
or the Marks outside the Territory, or to operate or license others to operate
Shoppes outside the Territory or to sell or license the sale of Products outside
the Territory. Master Licensee shall use the Friendly's System only in the
Territory in connection with the Ownership Rights and the Licensing Rights.
Master Licensee will not, directly or indirectly: use any part of the Friendly's
System outside the Territory (except for advertising outside the Territory in
accordance with the terms hereof); communicate any part of the Friendly's System
to any other natural or legal person except Master Licensee's employees and
Licensees for use inside or outside the Territory; or seek to establish or
obtain proprietary rights, registration of any of the Marks or other evidence of
Friendly's System ownership anywhere in the world except as expressly authorized
by Company in writing in advance. Master Licensee shall use its best efforts to
cause its Affiliates and Licensees to strictly comply with the restrictions
described in the foregoing sentence.
(d) Company and Master Licensee acknowledge a mutual interest in future
discussions on potential business interests in other market areas, including,
without limitation, Russia and South East Asia, and upon Master Licensee's
request, Company will enter into good faith discussions with Master Licensee as
soon as practicable towards evaluating Master Licensee's proposal for business
in such other markets.
2.2 Government Approval. Master Licensee shall, if required pursuant to
the Legal Requirements, at its cost and expense, take any and all steps to
obtain Korean government approvals of this Agreement, and any material amendment
hereto or modification hereof (if required or agreed to by the parties)
("Amendment") including approval from the Korean Fair Trade Commission ("FTC")
and the foreign exchange bank remittance authorization. Master Licensee agrees
to obtain all necessary approvals of this Agreement in its current form, and any
Amendment, including but not limited to meeting personally with appropriate
governmental officials and providing the FTC or other applicable governmental
authority with any documents or other written evidence necessary to obtain such
approvals. If the FTC or other applicable governmental authority refuses to
approve this Agreement in its current form, or any Amendment in the form agreed
to by the parties, then the parties hereto agree to negotiate with the FTC or
other applicable governmental authority to obtain approval of this Agreement or
any Amendment without substantive change. If the FTC or other applicable
governmental authority does not approve this Agreement or any Amendment after
such negotiation, the parties agree to negotiate with one another for a
reasonable period of time, but not to exceed six (6) months, to reach an
agreement that will permit such approval of this Agreement or any Amendment. If
the parties hereto are unable to reach an agreement which would permit all such
approvals within such time period, then this Agreement shall terminate
immediately upon notice thereof from either party hereto to the other. Master
Licensee shall have the right to petition or submit materials to the FTC or any
other governmental authority to obtain any approval or authorization relating to
this Agreement or any Amendment; provided, however, that Master Licensee shall
make such petition or submission jointly with Company upon Company's request.
Master Licensee agrees not to submit any information to any governmental
authority in the Territory in respect of an approval or authorization without
Company's prior written consent.
5
<PAGE>
2.3 Effective Date. (a) Unless otherwise specifically provided for in this
Agreement, this Agreement shall be effective upon its execution by both parties
hereto.
(b) For the purpose of enforcement of any Paragraph of this Agreement
which is specifically provided to be effective on execution of this Agreement,
any other provisions of this Agreement relating to enforcement of the rights and
obligations of the parties under such Paragraphs, or any one of them, shall be
effective to enforce such Paragraph.
2.4 Exclusive Relationship. Except as otherwise provided herein,
including, without limitation, Paragraphs 3.3 and 3.5 hereof, and provided that
Master Licensee is in compliance with this Agreement, Company and its
Affiliates, and their direct and indirect subsidiaries shall not develop, manage
or locate, or grant a license or franchise for, any Friendly's System in the
Territory and shall not sell the Products to any party other than Master
Licensee in the Territory or to any party that Company reasonably believes will
resell the Products in the Territory; provided, however, Company and other
Friendly's System licensees and franchisees having Shoppes located outside the
Territory may advertise within the Territory.
2.5 Term. (a) The initial term of this Agreement shall commence on the
Effective Date and expire twenty (20) years following the Effective Date (the
"Initial Term"). Upon expiration of the Initial Term, Master Licensee shall have
the right to renew the Rights granted hereunder for (a) a period of ten (10)
years, upon expiration of which Master Licensee shall have the right to renew
the Rights for an additional ten (10) years, or (b) for a single period of
twenty (20) years as may be agreed between the parties (each a "Renewal Term")
subject to obtaining all required governmental approvals, if any, and the
requirements of this Paragraph 2.5. The Initial Term and any Renewal Term are
collectively referred to herein as the "Term".
(b) No later than six (6) months prior to expiration of the third
Development Period of the Initial Term the parties must commence good faith
negotiations of the terms and conditions of a Renewal Term. Such negotiations
may be held and renewal may occur only if (a) Master Licensee has substantially
complied with all of the terms and conditions of this Agreement during the
Initial Term including without limitation the Development Schedules, and (b)
such Renewal Term is authorized under the Legal Requirements then in effect or,
as applicable, at the beginning of the Renewal Term. If such negotiations are
commenced, the parties shall at that time prepare suggested Development
Schedules for the first Development Period of the Renewal Term.
(c) If all of the conditions of Paragraph 2.5(b) have been met,
twenty-four (24) months prior to the expiration of the Initial Term the parties
shall commence discussion of the final terms and conditions of the Renewal Term
including without limitation the Development Schedules to be in effect for the
first Development Period of the Renewal Term. If the parties have not agreed on
such terms and conditions by the date eighteen (18) months prior to the
expiration of the Initial Term, this Agreement shall expire at the end of the
Initial Term in accordance with its terms. Any default by Master Licensee under
this Agreement occurring subsequent to the day on which the terms and conditions
of renewal are agreed must be cured prior to the expiration of the Initial Term
or no renewal shall occur.
6
<PAGE>
2.6 Representations and Warranties of Master Licensee. Master Licensee
hereby represents and warrants to Company as follows:
(a) Master Licensee is duly organized and validly existing under the laws
of South Korea, has all necessary power and authority to enter into and perform
its obligations under this Agreement and all documents executed in connection
herewith, and to carry on its business and to own and lease its properties, as
presently conducted, owned and leased.
(b) There are no proceedings pending seeking to dissolve or to liquidate
Master Licensee, and no action has been taken by the Board of Directors or the
shareholders of Master Licensee authorizing any such proceedings.
(c) The persons executing this Agreement and all other documents executed
in connection herewith on behalf of Master Licensee have been duly authorized to
perform such actions on behalf of Master Licensee. This Agreement and all other
documents executed in connection herewith constitute the valid, legal and
binding obligations of Master Licensee and are enforceable in accordance with
their respective terms, subject to applicable bankruptcy laws and general
principles of equity.
(d) Neither the execution, delivery or performance of this Agreement or
any other document executed in connection herewith, nor the consummation of the
transactions contemplated therein, will violate Master Licensee's Articles of
Incorporation, or constitute or create a violation of or default under, with the
giving of notice, the passage of time or both, or result in the creation or
imposition of any lien, security interest or encumbrance under, any contract,
agreement, loan, note, mortgage, security agreement, deed to secure debt,
guarantee, lease (capital or operating) or any other document or instrument, or
any law, rule, regulation, ordinance, or any judicial or administrative decree,
rule or order to which Master Licensee is a party or by which it or its
properties is or may be bound.
(e) There is no arbitration, litigation or administrative proceeding
pending, or to the knowledge of Master Licensee, threatened, in which Master
Licensee is or may be a party, or which may affect Master Licensee or its
property, which would materially adversely affect the ability of Master Licensee
to enter into or perform its obligations under this Agreement or any other
document executed in connection herewith, or have a material adverse effect on
the business, prospects or finances of Master Licensee if determined adversely
to Master Licensee. Master Licensee is not the subject of any pending
bankruptcy, insolvency, receivership or similar proceeding, and is not a party
to, subject to, or in default in any material respect with, any writ,
injunction, decree, judgment, award, determination, direction or demand of any
arbitrator, court or governmental agency or instrumentality that would adversely
affect the ability of Master Licensee to enter into or perform its obligations
under this Agreement.
(f) All information provided to Company regarding Master Licensee, its
directors, shareholders and officers is true and correct.
2.7 Representations and Warranties of Company. Company hereby represents
and warrants to Master Licensee as follows:
7
<PAGE>
(a) Company is duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all necessary power and authority to
enter into and perform its obligations under this Agreement and all other
documents executed in connection herewith and to carry on its business and to
own and lease its properties, as presently conducted, owned and leased.
(b) There are no proceedings pending seeking to dissolve or to liquidate
Company, and no action has been taken by the Board of Directors or the
shareholders of Company authorizing any such proceedings.
(c) The persons executing this Agreement and all other documents executed
in connection herewith on behalf of Company have been duly authorized to perform
such actions on behalf of Company. This Agreement and all other documents
executed in connection herewith constitutes the valid, legal and binding
obligations of Company and, to the best knowledge of Company, are enforceable in
accordance with their respective terms, subject to applicable bankruptcy laws
and general principles of equity.
(d) Neither the execution, delivery or performance of this Agreement or
any document executed in connection herewith, nor the consummation of the
transactions contemplated therein, will violate Company's Articles of
Incorporation or By-laws, or constitute or create a violation of or default
under, with the giving of notice, the passage of time or both, or result in the
creation or imposition of any lien, security interest or encumbrance under, any
contract, agreement, loan, note, mortgage, security agreement, deed to secure
debt, guarantee, lease (capital or operating) or any other document or
instrument, or any law, rule, regulation, ordinance, or any judicial or
administrative decree, rule or order to which Company is a party or by which it
or its properties is or may be bound.
(e) There is no arbitration, litigation or administrative proceeding
pending, or to the knowledge of Company, threatened, in which Company is or may
be a party, or which may affect Company or its property, which would materially
adversely affect the ability of Company to enter into or perform its obligations
under this Agreement or any other document executed in connection herewith, or
have a material adverse effect on the business, prospects or finances of Company
if determined adversely to Company. Company is not the subject of any pending
bankruptcy, insolvency, receivership or similar proceeding, and is not a party
to, subject to, or in default in any material respect with, any writ,
injunction, decree, judgment, award, determination, direction or demand of any
arbitrator, court or governmental agency or instrumentality that would adversely
affect the ability of Company to enter into or perform its obligations under
this Agreement.
(f) All information provided to Master Licensee regarding Company, its
directors, officers and shareholders is true and correct.
(g) To the best of its knowledge, Company owns all rights in and to the
Marks and Friendly's System and it may grant to Master Licensee the Rights and
it may do so without the approval or consent of anyone and the grant of such
rights to Master Licensee does not materially violate any agreement binding upon
or any obligation of Company.
8
<PAGE>
(h) To the best of Company's knowledge, the Friendly's System does not
violate or infringe any patent, copyright, or other proprietary rights of any
third party.
ARTICLE 3. DEVELOPMENT OBLIGATIONS
3.1 Sales Targets and Development Schedules. (a) Master Licensee covenants
and agrees to comply with all sales targets and development schedules referred
to below (collectively referred to herein as the "Development Schedules"):
(i) the development schedules for the operation of Shoppes owned by
Master Licensee (each an "Ownership Schedule");
(ii) the development schedules for the licensing of Shoppes by
Master Licensee to Licensees (each a "License Schedule"); and
(iii) the development schedules for the sale and distribution of
Products (each a "Distribution Schedule").
The parties acknowledge the difficulty in fixing Development Schedules for the
entire Initial Term. Accordingly, the Initial Term shall be divided into four
successive periods of five (5) years (each a "Development Period") and the
parties shall agree on Development Schedules to be in effect during each
Development Period. The Ownership Schedule, License Schedule and Distribution
Schedule to be in effect during the first Development Period are attached to
this Agreement as Schedules 1, 2, and 3, respectively.
(b) No later than eighteen (18) months prior to the expiration of each
Development Period (except the last Development Period), the parties shall agree
on the Development Schedules to be in effect during the next Development Period.
If the parties cannot agree on any Development Schedule to be in effect during
any Development Period, or if Master Licensee fails to comply with any
Development Schedule, Company shall be entitled to take any or all of the
following actions:
(i) terminate the Ownership Rights for Shoppes not already in
operation at the time of such termination, except for any such
Shoppe developed after such termination which is specifically
approved in writing by Company;
(ii) terminate the Licensing Rights for Shoppes not already in
operation at the time of such termination; and
(iii) convert the Distribution Rights to non-exclusive status, and
thereafter Company shall have the option to grant additional parties
the right to sell and distribute Products within the Territory.
Notwithstanding the foregoing, Company shall not have the right to terminate or
modify any of the Rights for Master Licensee's failure to comply with any
Development Schedule during the first three years of the Initial Term, provided
that Master Licensee has paid in full and when due the minimum Royalty Fees for
such three years pursuant to Paragraph 18.2(a).
9
<PAGE>
For the avoidance of doubt, if the parties cannot agree on the Development
Schedules for any Development Period, neither party shall have the right to
terminate this Agreement.
3.2 Development Obligations in North Korea. Master Licensee shall commence
sales, operations, and development in North Korea within five (5) years of the
Effective Date in accordance with a development schedule to be mutually agreed
by the parties hereto. If Master Licensee fails to develop the territory of
North Korea within such period in accordance with such schedule, Company shall
have the right to terminate all of Master Licensee's Rights with respect to
North Korea.
3.3 Company Shoppes and Restaurants. Notwithstanding the Rights granted to
Master Licensee under this Agreement, Company, its Affiliates and their direct
and indirect subsidiaries shall have the exclusive right, anywhere in the
Territory, to own, develop, manage, lease, license or operate the Friendly's
full-menu restaurant concept known as "Friendly's Restaurants" and similar to
the "Friendly's Restaurants" concept operated in the United States except as
modified to accommodate local tastes and customs. If Company desires to exercise
any such rights, or if Company is contacted by a third party in the Territory
seeking a relationship with Company in respect of such rights, Company shall
first contact Master Licensee to discuss in good faith whether and the terms
upon which Master Licensee may be interested in purchasing the rights to develop
the "Friendly's Restaurants" business in the Territory and Master Licensee shall
inform Company of its interest within forty-five (45) days of being contacted by
Company; provided, however, that Company shall have no obligation to reach an
agreement with Master Licensee on the exercise of Company's rights with respect
to Friendly's Restaurants. In the event that Master Licensee is not involved in
the "Friendly's Restaurants" business in the Territory, and so long as the
Rights granted hereunder remain exclusive, Company shall ensure that the
operator of each "Friendly's Restaurant" procures all of its Proprietary
Products from Master Licensee. Company, its Affiliates and their direct and
indirect subsidiaries shall not have the right to own, develop, manage, lease or
operate Shoppes in the Territory.
[Intentionally Left Blank]
10
<PAGE>
3.4 Company Business Presence. If Company intends to establish a business
presence in the Territory for the purpose of operating any of its businesses in
the Territory, Company shall discuss with Master Licensee in good faith whether
and the terms upon which Master Licensee may be interested in participating in
such business presence or businesses in the Territory and Master Licensee shall
inform Company of its interest within forty-five (45) days of being contacted by
Company and if there is such interest Master Licensee shall thereafter engage in
continuous good faith negotiations in this regard; provided, however, that
Company shall have no obligation to reach an agreement with Master Licensee in
this regard.
3.5 Company Approved Licensees. Notwithstanding any Rights granted to
Master Licensee under this Agreement, Company shall have the right to request
Master Licensee to enter into a License Agreement with any person or entity that
Company specifies in writing; provided that such proposed Licensee meets the
qualifications and standards for Licensees, if any, established by Master
Licensee and approved by Company prior thereto; and provided, further, that
Company shall first obtain Master Licensee's prior written approval for such
Company-specified Licensee, which approval shall not be unreasonably withheld,
delayed or conditioned. Master Licensee, in granting any such License Agreement
to a Company-specified Licensee, will not unreasonably withhold, delay or
condition its consent to any variations from the terms of Master Licensee's then
current form of License Agreement. Any such facilities will be credited toward
satisfaction of the obligations of Master Licensee under the Licensing Schedule.
ARTICLE 4. PURCHASE OF PRODUCTS
4.1 Purchase Obligations. Master Licensee agrees and undertakes to
diligently and conscientiously use all reasonable efforts to promote and expand
the sale of the Products in the Territory in accordance with the Distribution
Schedule, including but not limited to regularly and at its own expense
distributing promotional literature and carrying out market surveys.
Company agrees and undertakes to make every reasonable effort to fill the orders
of Master Licensee with all reasonable dispatch.
4.2 Approved Products and Suppliers. (a) The reputation and goodwill of
Shoppes is based upon, and can be maintained only by, the sale of distinctive,
high quality food products and beverages and the presentation, packaging,
service and delivery of such products in an efficient and appealing manner.
Company has developed Proprietary Products which are prepared by or for the
Company according to its proprietary and secret recipes and formulas. Company
has developed standards and specifications for Products, including, without
limitation, food products, ingredients, seasonings, mixes, beverages, materials
and supplies incorporated in or used in the preparation, cooking, serving,
packaging and delivery of prepared food products authorized for sale at Shoppes.
Company has and will periodically approve suppliers and distributors of the
Products that meet Company standards and requirements, including, without
limitation, standards and requirements relating to product quality, prices,
consistency, reliability, financial capability, labor relations and customer
relations. Master Licensee agrees that it shall, and it shall cause Licensees,
in satisfaction of the Rights granted under this Agreement to:
11
<PAGE>
(1) purchase the Proprietary Products listed in Exhibit A-1 and
other Proprietary Products developed by Company from time to time pursuant
to secret recipes or formulas, only from Company or a third party licensed
by Company to prepare and sell such Proprietary Products; and
(2) purchase all Non-Proprietary Products listed in Exhibit A-2 that
meet Company standards and specifications from suppliers Company has
approved.
(b) Master Licensee shall ensure that adequate inventory of Products are
maintained by it in the Territory so as to be able at all times to meet without
delay the reasonably anticipated demand for Products during the ensuing thirty
(30) day period.
(c) Company may approve a single distributor or other supplier for any
Product and may approve a distributor or other supplier only as to certain of
the Products. Company may concentrate purchases with one or more distributors or
suppliers to obtain lower prices and/or the best advertising support and/or
services for any group of Shoppes. Approval of a distributor or other supplier
may be conditioned on requirements relating to the frequency of delivery,
standards of service, including prompt attention to complaints or other
criteria, and concentration of purchases, as set forth above, and may be
temporary, pending Company further evaluation of such distributor or other
supplier.
(d) Notwithstanding the above, Master Licensee has the right to request
Company approval of alternative suppliers or distributors of Non-Proprietary
Products and Company is willing to consider alternative suppliers and
distributors. All costs associated with evaluating the products and/or services
of the first ten (10) prospective suppliers and/or distributors proposed by
Master Licensee to Company in any calendar year shall be paid by Company. Master
Licensee shall pay all such costs for any additional prospective suppliers
and/or distributors proposed by Master Licensee to Company in any calendar year.
Master Licensee agrees to notify Company and submit to Company all information,
specifications and samples, at Master Licensee's expense, that Company
reasonably requests if Master Licensee proposes to purchase any Non-Proprietary
Product from a distributor or other supplier who has not been previously
approved by Company. Company will notify Master Licensee within a reasonable
time whether Master Licensee is authorized to purchase such Non-Proprietary
Product from such distributor or other supplier.
(e) Company may, from time to time, conduct market research and testing to
determine consumer trends and the marketability of new food products and
services. Master Licensee agrees to cooperate and assist Company by
participating in Company customer surveys and market research programs, test
marketing new food products and services in any Shoppe and providing Company
with timely reports and other relevant information regarding such customer
surveys and market research.
4.3 Purchase Procedures. (a) Orders for Products shall be in writing and
in such form as Company notifies Master Licensee, addressed to Company as set
forth in Article 19 hereof.
(b) Within five (5) business days of receipt of an order, Company shall
indicate its acceptance, in whole or part, or rejection of such order in writing
to Master Licensee. The
12
<PAGE>
failure of Company to indicate its rejection or acceptance within the said five
(5) business days of receipt of an order shall be deemed to constitute
acceptance.
(c) Accepted orders will be shipped EXW Friendly's Factory, Wilbraham,
Massachusetts, U.S.A. Delivery at such factory shall constitute delivery to
Master Licensee and risk of loss shall pass at that time. Title shall not pass
until payment for such Products has been made in full by Master Licensee to
Company. Accepted orders shall be shipped by appropriate carriage and packing
shall be adequate under normal overseas transport conditions to prevent damage
or deterioration.
(d) Master Licensee shall take all reasonable steps to ensure that the
Products are properly transported, handled and stored so as to prevent any
damage thereto. Upon Master Licensee's request, Company shall render reasonable
assistance to Master Licensee in the transport, handling, and storage of the
Products in the U.S.A. Upon receipt of appropriate supporting documentation,
Master Licensee shall reimburse Company forthwith for all costs and expenses, if
any, incurred by Company in connection with such assistance.
(e) Unless required pursuant to the Legal Requirements, Master Licensee
shall not alter or add to the packaging, brand names, trade names, trademarks or
other markings affixed by Company to the Products without the prior written
consent of Company.
4.4 Prices and Payment. (a) The prices to be paid for Products by Master
Licensee to Company shall be in accordance with Paragraph 4.3(c) and with a
price list to be supplied by Company to Master Licensee. The first price list
shall be submitted by Company to Master Licensee on the Effective Date, and
Company shall have the right to submit a revised price list at any time and from
time to time. Any price changes shall become effective thirty (30) days after
Master Licensee's receipt thereof. Price changes shall not apply to Products
already ordered but for which Company has not yet been paid.
(b) Payment for Products shall be made within thirty (30) days after
Master Licensee receives the relevant invoice and evidence that Company has
shipped the relevant Products. The payment provisions set out in Paragraphs 8.5,
8.6, 8.7, 8.8, and 8.9 shall also apply to payments for Products.
Notwithstanding any provision in this Agreement to the contrary, Company shall
have the right, at any time during the Term and exercisable upon thirty (30)
days prior written notice, to compel Master Licensee to make all payments for
Products hereunder through an irrevocable letter of credit.
4.5 Warranty. Company specifically and expressly warrants that the
Products manufactured or sold by Company shall be safe, of good quality, and
comply with descriptions, specifications and specimens of such Products. MASTER
LICENSEE EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT SHALL BE SOLELY RESPONSIBLE
FOR DETERMINING AND ADVISING COMPANY WHETHER EACH PRODUCT COMPLIES WITH THE
LEGAL REQUIREMENTS, AND IF NOT, THE ACTION TO BE TAKEN BY COMPANY TO EFFECT
COMPLIANCE. ALL COSTS OF COMPLIANCE SHALL BE FOR THE ACCOUNT OF AND BE PAID BY
MASTER LICENSEE. Company shall indemnify and hold harmless Master Licensee
and/or any Licensee from any loss, damage, cost and expense (including without
limitation, reasonable
13
<PAGE>
legal fees) suffered by Master Licensee and/or a Licensee as a result of any
breach of the foregoing warranty.
ARTICLE 5. MASTER LICENSEE-OWNED SHOPPES
5.1 Condition, Appearance And Operation Of Shoppes. Master Licensee agrees
that:
(1) none of the Shoppes it owns and operates will be used for any
purpose other than the operation of a Shoppe in compliance with this
Agreement;
(2) Master Licensee will maintain the condition and appearance of
its Shoppes, its equipment, furniture, furnishings, signs and the premises
in accordance with Company specifications and standards as in effect from
time to time and consistent with the image of a Shoppe as an efficiently
operated business offering high quality food service and observing the
highest standards of cleanliness and sanitation;
(3) Master Licensee will perform all periodic maintenance with
respect to the decor, equipment, furniture, furnishings and signs of each
of its Shoppes and the premises that is required from time to time to
maintain such condition, appearance and efficient operation, including,
without limitation:
(a) thorough cleaning, repainting and redecorating of the
interior and exterior of each such Shoppe at reasonable intervals;
(b) interior and exterior repair of each such Shoppe; and
(c) repair or replacement of damaged, worn out or obsolete
equipment, furniture, furnishings, and signs.
(4) Master Licensee will not make any material alterations to any of
its Shoppes, or to the appearance of any of its Shoppes as originally
developed, without Company prior written approval;
(5) Company has the right to require that Master Licensee remodel,
redecorate, reequip, modernize and refurnish each of its Shoppes to
reflect any changes in Shoppes that Company prescribes as Company's
then-current standards and specifications. Company shall inform Master
Licensee immediately of such changes as well as what action Master
Licensee should take to reflect such changes. Company and Master Licensee
shall in good faith discuss the manner in which any remodeling,
redecorating, reequiping, modernizing or refurnishing shall be implemented
taking into account current market conditions. Company has the right to
approve the layouts, designs, and new equipment, furniture and furnishings
Master Licensee uses in any remodeling, redecorating and reequipping; and
14
<PAGE>
(6) Master Licensee will place or display at each of its Shoppes
(interior and exterior) only such signs, emblems, lettering, logos and
display and advertising materials that Company from time to time approves.
5.2 Shoppe Menu. (a) Master Licensee agrees that each of its Shoppes will
offer for sale all food and beverage products and services that Company from
time to time requires. Company shall inform Master Licensee immediately of such
changes in the Shoppe menu and Company and Master Licensee shall in good faith
discuss the manner in which any such change shall be implemented taking into
account current market conditions. Master Licensee agrees that each such Shoppe
will sell only Products that Company has approved. No Shoppe owned by Master
Licensee may offer for sale or sell at the premises of such Shoppe or any other
location any unapproved products, or use the premises of such Shoppe for any
purposes other than the operation of the Shoppe.
(b) Company has the right to approve any Shoppe's offering of Products or
services on a test basis, which approval Company may condition in any reasonable
manner. Company will have the right to stop the test at any time after its
commencement.
5.3 Procedures For Shoppes. Master Licensee agrees that each Shoppe will
conduct business in the ordinary course seven days a week (excluding holidays
Company or Master Licensee specifies, if any) during business hours for like
businesses in similar locations, except as Company may otherwise authorize in
writing. Master Licensee acknowledges that approved Shoppe hours may vary from
one location to another depending on conditions in the market where the Shoppe
is located.
5.4 Compliance With Laws And Good Business Practices (a) Master Licensee
agrees to secure and maintain in force in Master Licensee's name all required
licenses, permits and certificates relating to the operation of each of its
Shoppes. Master Licensee further agrees to operate each Shoppe in full
compliance with all applicable Legal Requirements including, without limitation,
all government regulations relating to health and sanitation, insurance, and
withholding and payment of national, provincial and local income taxes, and
sales taxes. All of Master Licensee's advertising must be completely factual, be
in good taste in Company judgment and conform to the highest standards of
ethical advertising. Master Licensee agrees that in all dealings with Company,
Master Licensee's customers, Licensees, suppliers and public officials, Master
Licensee will adhere to the highest standards of honesty, integrity, fair
dealing and ethical conduct. Master Licensee agrees to refrain from any business
or advertising practice which may be injurious to Company business or to the
goodwill associated with the Marks and other Shoppes.
(b) Master Licensee agrees to notify Company, by telephone within
forty-eight (48) hours, excluding hours falling on weekends or holidays,
followed within five (5) days by written notification, including copies of any
shop or process received of: (i) the commencement of any action, suit or
proceeding relative to any Shoppe; (ii) 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 any Shoppe; and (iii) any notice of violation of any law, ordinance or
regulation relating to health or safety. Master Licensee agrees that Master
Licensee will not accept service of process for Company and on Company's behalf.
15
<PAGE>
5.5 Management And Personnel. Master Licensee agrees that at all times
Master Licensee will, in respect of each Shoppe owned by Master Licensee, (i)
employ on terms reasonably satisfactory to Company a general manager who shall
have principal operational responsibility for such Shoppe and who shall have
such qualifications and experience as Company shall reasonably require and who
shall have completed Company's or Master Licensee's approved training program,
and (ii) employ on a full-time basis a manager and an assistant manager, each of
whom has completed the Company training program (collectively, the general
manager, manager and assistant manager are referred to as "Friendly's Shoppe
Managers"). Each Shoppe shall at all times be under the direct on-premises
supervision of a Friendly's Shoppe Manager. Master Licensee agrees to hire all
employees of its Shoppes and be exclusively responsible for the terms of their
employment and compensation and for the proper training of Master Licensee's
employees in the operation of each of its Shoppes. Master Licensee agrees to
require all employees to maintain a neat and clean appearance and to conform to
the standards of dress and/or uniforms that Company specifies from time to time
for any Shoppe. Master Licensee agrees not to recruit or hire any of Company's
employees or any employees of any Friendly's Restaurant operated by Company or
by a Shoppe licensee without obtaining the Company's prior written permission or
the prior written permission of the other licensee unless six months have
expired since such employee's termination of employment with the Company or the
licensee. Company agrees not to recruit or hire any of Master Licensee's
employees or any employees of a Shoppe operated by Master Licensee or a Licensee
without obtaining Master Licensee's or, as the case may be, such Licensee's
prior written permission unless six months have expired since such employee's
termination of employment with Master Licensee or such Licensee.
ARTICLE 6. SERVICES AND OBLIGATIONS
6.1 Initial Services of Company. (a) Company shall instruct and consult
with Master Licensee's personnel on adaptation of the Friendly's System to the
operation of Shoppes in the Territory and the development, operation and
franchising of Shoppes. In connection with such services, Company shall furnish
written and other materials and various of its personnel to communicate the
Friendly's System to Master Licensee. Written and other materials and
instruction and consultation furnished by Company personnel will relate to: (1)
preparation, packaging, sale and delivery of products authorized for sale at
Shoppes; (2) development, preparation and packaging of new products Company
develops for sale at Shoppes; (3) specifications, standards and operating
procedures utilized by Shoppes, and any modifications thereof; (4) approved
equipment, furniture, furnishing, signs, food products, operating materials and
supplies; (5) development and implementation of local advertising and
promotional programs, and (6) general operating and management procedures of
Shoppes.
(b) Company shall furnish such assistance in the form of Company's
confidential operations manual, bulletins, written reports and recommendations,
electronic mail or other written or electronic materials (all of which are
hereinafter referred to as the "Operations Manual").
16
<PAGE>
(c) Instruction and consultation by Company personnel shall be provided
solely in the U.S. (other than in connection with initial certification
inspections of new Shoppes) through the initial training program described in
Paragraph 6.2 and by telephone, facsimile transmission, telex and
correspondence.
6.2 Initial and Continuing Training. (a) Within thirty (30) days after the
Effective Date, Master Licensee shall designate and notify Company in writing of
at least two (2) trainees, up to a limit of seven (7) trainees, to attend an
initial training program devised by Company. The first trainee Master Licensee
sends to attend Company's initial training program must commence training within
ninety (90) days after the Effective Date, provided that Company shall have at
least thirty (30) days' prior written notice of the date Master Licensee desires
its first trainee to commence training. The training program will include
classroom instruction and field training and will be furnished at Company's
training facility and/or at a Shoppe or a Friendly's Restaurant, and will last
for such duration as Company determines to be necessary. At least two (2) of
Master Licensee's trainees must complete the training program to Company's
satisfaction. If Company, in its sole discretion, determines that any of such
persons are unable to complete the training program satisfactorily, upon
Company's request Master Licensee agrees to hire, as soon as practicable, a
replacement who must complete Company's training program to Company's
satisfaction. Company may also offer such refresher or supplemental training
programs to Master Licensee at such places as Company designates. By giving
Master Licensee at least thirty (30) days prior written notice, Company has the
right to require attendance at any refresher or supplemental training program by
Master Licensee or any of its designated trainees, the total number of which
shall not exceed two (2) employees in any given year. No tuition charge will be
made for required initial training programs. Master Licensee will be responsible
for the travel, local transportation, lodging and meal expenses, and
compensation of Master Licensee's trainees incurred while attending the training
program and any refresher or supplemental training programs the Company offers
to Master Licensee or requires Master Licensee or its designated trainees to
attend. Reasonable charges may be made by the Company for training materials and
the Company may require Master Licensee to purchase certain equipment to be used
in such training.
(b) The training program shall cover, among other things, the subjects
described in Paragraph 6.1 hereof. Upon completion of the instruction of Master
Licensee's trainees, Company shall determine, in its sole discretion, which of
such trainees have successfully completed the instruction program and shall
issue to Master Licensee certificates of completion for such trainees
("Certified Employees") as of that date. Master Licensee will employ at least
two (2) Certified Employees throughout the Term; provided, however, that there
may be less than two (2) Certified Employees for a reasonable period of time in
the event that one or more of the Certified Employees terminates his employment
with Master Licensee without adequate notice or is summarily terminated by
Master Licensee and no Company training programs for his or their replacement
are immediately available.
6.3 Master Licensee Training Center. No later than the execution of the
first License Agreement by Master Licensee, Master Licensee shall establish a
training center in Seoul, South Korea and Certified Employees shall be
responsible for implementing mandatory training programs for Shoppe personnel in
accordance with training standards and procedures prescribed by Company from
time to time. Upon the implementation of such
17
<PAGE>
training programs by such Certified Employee(s) to Company's satisfaction,
Company shall not object to certification by a Certified Employee of Shoppe
personnel who successfully complete such training programs. Master Licensee
shall also implement a license services program under which Master Licensee
shall be required to provide services to Licensees comparable to the initial and
continuing services and training provided by Company to Master Licensee under
this Agreement.
6.4 Continuing Services of Company. To the extent relevant to the
Territory, Company shall periodically furnish to Master Licensee the results of
any research, development and testing programs undertaken in the U.S. (and, to
the extent deemed relevant by Company, in other countries) relating to one or
more of: (a) new product or service development; (b) Shoppe design, layout,
fixtures, equipment, lighting and construction; (c) Shoppe image, decor, logo
design and trademarks; (d) pricing strategies; (e) advertising and marketing
concepts and programs; (f) Shoppe operations; (g) services to Licensees; and (h)
Licensee and employee training. Company personnel shall be available for
periodic consultation with personnel of Master Licensee. The parties agree that,
to the extent possible, such consultation shall be by telephone, facsimile
transmission, telex and correspondence. Company shall have the right, but no
obligation, to conduct at any time, through employees, agents or consultants,
visits to the Territory, which may include a quality assurance and operational
inspection of each Shoppe in existence or under development at such time,
consultation with Master Licensee on development, operations, marketing, and
other matters of mutual interest, and review of the annual budget and
development plan then in effect or proposed under Paragraph 6.7. Such visits
shall be scheduled by Company and Master Licensee shall cooperate with Company's
requested schedule. Master Licensee shall not be obligated to reimburse Company
for any expenses relating to any visit to the Territory by Company's employees,
agents or consultants not at the request of Master Licensee. If Master Licensee
requests that Company personnel travel to the Territory, Master Licensee shall
pay all travel, meal and lodging expenses of such personnel and a per diem fee
established by Company from time to time.
6.5 Certification Inspection of Shoppes. Company may, at its option,
inspect each Shoppe for the purpose of certifying that it meets all Territory
System Standards. Master Licensee shall provide at least sixty (60) days prior
written notice to Company of the proposed opening of a Shoppe operated by Master
Licensee and at least thirty (30) days prior written notice of the proposed
opening of a Shoppe operated by a Licensee; provided, however, that Master
Licensee shall give Company more notice if required to accommodate travel
arrangements, work schedules or governmental travel authorization. Master
Licensee shall use its reasonable efforts to obtain all governmental visas,
permits, licenses and travel authorizations of all appropriate governmental
agencies to allow Company's inspectors to visit and inspect Shoppes within the
Territory. If Company cannot obtain travel arrangements or authorization, or
Company elects not to perform the opening inspection, Master Licensee shall
assign two (2) Certified Employees to inspect the Shoppes in consultation with
Company to certify that it complies with Territory System Standards and has been
constructed in accordance with plans approved by Company. Company or Master
Licensee shall make its inspection prior to opening and, if the inspecting party
certifies the Shoppe for opening, it shall open no later than fifteen (15) days
after such inspection. If the Shoppe is not certified for opening, the
inspecting party shall prepare and deliver to this Agreement's other party and
the relevant Licensee a list of items to be completed before or
18
<PAGE>
after opening and Master Licensee shall take, or shall cause such Licensee to
take, all reasonably necessary action to timely cure the deficiencies specified
by Company on such list. Master Licensee shall not permit the opening of any
Shoppe until certified for opening by Company or Master Licensee's Certified
Employees, or until all items specified by the inspecting party to be completed
prior to opening have been completed. The parties envision that Master Licensee
will be certified by Company to open Master Licensee operated Shoppes or assist
Licensees in opening Shoppes without the assistance of Company on or before the
initial ten (10) Shoppes are opened in the Territory. Until such time that
Master Licensee is certified to open Shoppes, which certification shall not
unreasonably be withheld, Master Licensee shall reimburse Company for the
travel, meal, lodging and incidental expenses of Company's personnel conducting
such certification inspection. After Master Licensee is certified to open
Shoppes, Company shall pay all of its expenses associated with certification
inspections except such inspections conducted by Company upon Master Licensee's
request.
6.6 Marketing Programs. Master Licensee shall be responsible for
developing and implementing local and national marketing programs and Company
shall provide advice and consultation, and samples for adaptation for local
usage, for such programs. To the extent feasible, Master Licensee will cooperate
with other Friendly's System master licensees in developing and implementing
joint marketing programs as Company directs. "Marketing programs" shall include,
without limitation, all forms of advertising, publicity, promotion, market
research and public relations activities. Company may require submission of
samples of all major marketing programs and related materials developed by
Master Licensee for approval prior to implementation and use. Company shall give
Master Licensee written notice of approval, disapproval or modifications within
thirty (30) days after receipt thereof. If Master Licensee receives no notice
from Company, after confirming Company's receipt of such materials, then such
materials shall be deemed approved. All samples submitted to Company shall
include a true and accurate English language translation. Master Licensee agrees
to spend an amount of at least three percent (3%) of Gross Sales and Revenues
for marketing programs and advertising purposes in the Territory. Master
Licensee shall require each Licensee in the Territory to spend an amount of at
least three percent (3%) of its gross revenues for marketing and advertising
purposes.
6.7 Annual Sales Forecast and Development Plan. Prior to the commencement
of each Agreement Year, Master Licensee shall furnish to Company a sales
forecast and development plan (the "Annual Plan") for such Agreement Year in a
summary format developed by Master Licensee setting forth a plan in respect to
annual sales by distribution channel and planned development. The Annual Plan
shall be for informational purposes only, and shall have no effect on the
Development Schedules, and Company shall provide Master Licensee advice and
consultation about the Annual Plan. Within twenty (20) days after the end of
each quarter during each Agreement Year, Master Licensee shall submit to Company
a summary update on the Annual Plan showing whether targets have been met and
any adjustments proposed by Master Licensee to the Annual Plan.
6.8 License Marketing and Services. Within one hundred twenty (120) days
after the Effective Date, Master Licensee shall formulate and implement a
license marketing strategy, which will include, among other things, preparation
of offering materials for dissemination to prospective Licensees, procedures for
responding promptly to requests for information from prospective Licensees,
evaluation and qualification of prospective
19
<PAGE>
Licensees, and proper documentation of the grant of licenses consistent with
Paragraph 7.1 hereof.
6.9 Additions and Modifications to the Friendly's System. Company reserves
the right, from time to time, by adoption or amendment of System Standards, to
add, amend, modify, delete or enhance any portion of the Friendly's System
(including any of the Marks and System Standards) as may be necessary in the
judgment of Company to change, maintain, or enhance the Marks or the reputation,
efficiency, competitiveness and/or quality of the Friendly's System; or to adapt
to it new conditions, materials or technology, or to better serve the public.
Company will disclose to Master Licensee, to the extent relevant to the
Territory, additions and modifications to the Friendly's System made anywhere in
the world and which have been developed by or are otherwise available to
Company. Master Licensee shall, if requested by Company, use any such additions
and modifications which Company has approved for use in the operation and
franchising of Shoppes. Master Licensee shall disclose to Company all ideas,
concepts, methods, improvements, services, techniques and products relating to
the operation of Shoppes conceived by Master Licensee and Licensees during the
Term and Company shall have a non-exclusive, royalty-free and world-wide right
to incorporate same in the Friendly's System for use in all Shoppes or
Friendly's Restaurants operated by Company and its licensees and franchisees
world-wide.
6.10 Items Used by Shoppes. Master Licensee shall be responsible for
purchasing or procuring sources for all items other than Products necessary for
use by Shoppes, including, without limitation, fixtures, furniture, equipment,
amenities, supplies and materials ("General Items"). Company may, to the extent
feasible, assist Master Licensee in purchasing or procuring General Items
appropriate for use in the Territory from sources of supply located in the U.S.
Master Licensee shall be allowed to participate in Company's purchasing programs
for General Items in the U.S. on the same terms as Company or its vendors make
available to other Friendly's franchisees in the U.S., subject to any additional
costs or Legal Requirements that may apply to such purchasing programs. Company
may prescribe minimum product standards for General Items for use in the
Territory. Company shall consider local factors and conditions in prescribing
such standards. Master Licensee shall recommend reputable suppliers (which may
include Company, Master Licensee or Affiliates) for General Items to Licensees.
ARTICLE 7. LICENSEES AND LICENSE AGREEMENTS
7.1 Licensees and License Agreements Utilized by Master Licensee. (a)
Prior to entering into each License Agreement, Master Licensee shall provide to
the Company such information as is reasonably requested by the Company regarding
the financial condition, reputation and other matters in respect of maintaining
the high standards of licensees of the Friendly's System. Company shall have the
right to approve all potential Licensees, which approval shall not be
unreasonably withheld or delayed and shall be based solely on the foregoing
factors.
(b) The form of License Agreements used by Master Licensee to grant
licenses to Licensees for the operation of Shoppes shall be substantially in the
form of Exhibit C to be attached hereto. Company shall supply the U.S. standard
form license agreement as amended
20
<PAGE>
from time to time to Master Licensee and Master Licensee shall modify such
agreement to be consistent with the changes from the U.S. standard form included
in the original form of License Agreement annexed hereto, and to conform to
Legal Requirements and other commercially necessary requirements. Master
Licensee may translate into Korean the form License Agreement to be attached as
Exhibit C and use such Korean-language form as the License Agreement to be
entered into with Licensees; provided, however, that any such translation shall
be approved by Company prior to entering into the first License Agreement and
provided, further, that Master Licensee shall modify the Korean-language form
from time to time as required above. Master Licensee shall report to Company all
fees, payments, compensation or other consideration paid by Licensees. Master
Licensee may enter into a License Agreement without the prior approval of
Company as long as such License Agreement does not materially deviate from the
License Agreement attached hereto as Exhibit C or the Korean-language License
Agreement approved by Company. For any material deviations, Master Licensee
shall obtain the prior written approval of Company, which such approval shall
not be unreasonably withheld or delayed. A copy of each executed License
Agreement and any ancillary documents between Master Licensee and its Licensees
and Affiliates shall be provided to Company within thirty (30) days after
execution of the License Agreement.
7.2 Termination/Expiration of Licenses. Master Licensee shall ensure that
the term of all License Agreements do not extend beyond the Term of this
Agreement. Upon the termination or expiration of a license for the operation of
a Shoppe, Master Licensee shall require the Licensee, to promptly and
expeditiously: (1) either vacate the premises or modify the premises and
operation of the Shoppe operated by the former Licensee to remove its
identification as a Shoppe and refrain from any use, in any manner or for any
purpose, of the Marks or the Friendly's System; (2) deliver to Master Licensee
all copies of the Territory System Standards Manual and all other materials
relating to the Friendly's System which Master Licensee or Company have
designated Confidential Information; and (3) deliver to Master Licensee or
provide evidence of complete destruction of all signs, advertising materials,
forms and other materials containing the Marks or otherwise identifying or
relating to Shoppes.
7.3 Enforcement, Inspection and Assistance by Master Licensee. Master
Licensee shall strictly enforce each and every License Agreement for a Shoppe
and shall require that Licensees strictly comply with all of the terms and
conditions of such License Agreements. Master Licensee shall demand Licensee
compliance with all Territory System Standards and shall diligently and
continuously supervise and monitor the operation of all Shoppes operated by
Licensees, including, without limitation, periodically inspecting Shoppes for
compliance with Territory System Standards, preparing quality assurance
inspection reports, furnishing assistance to Licensees and Friendly's Shoppe
Managers to correct deficiencies in operations or capital items, conducting
follow-up inspections, diligently enforcing Licensee reporting and payment
obligations, auditing Licensees to assure proper record-keeping and Gross Sales
and Revenue reporting and, when necessary, terminating licenses and enforcing
termination and post-termination rights against non-complying Licensees. Master
Licensee's enforcement obligations under each License Agreement may include the
pursuit of legal remedies available under local law and cooperation with Company
if Company seeks enforcement of any License Agreement on behalf of Company or
Master Licensee.
21
<PAGE>
7.4 License Services. All services and assistance provided to Licensees in
connection with the development and operation of Shoppes shall be provided by
Master Licensee.
ARTICLE 8. FEES AND OTHER PAYMENTS
8.1 Development Fee. Master Licensee shall pay to Company the Development
Fee in the amount of Three Hundred and Fifty Thousand Dollars ($350,000) within
fourteen (14) days after the Effective Date.
8.2 Royalty Fees. (a) Master Licensee shall pay to Company a continuing
royalty fee in an amount equal to two and one-half percent (2.5%) of Master
Licensee's Gross Sales and Revenues (the "Royalty Fee"). The minimum Royalty Fee
to be paid by Master Licensee in the calendar years 1997, 1998 and 1999 shall be
$117,000, $235,000 and $355,000, respectively, and during each of these three
years, the aggregate Royalty Fee to be paid at the end of the second quarter
shall be in an amount which is at least fifty percent (50%) of the minimum
Royalty Fee due and payable that year.
(b) Master Licensee shall submit to Company a quarterly statement by the
20th day of the calendar month following the end of each calendar quarter,
setting forth a break-down in reasonable detail of Master Licensee's Gross Sales
and Revenues during such quarter and the Royalty Fee due thereon. Value added
taxes collected from customers and paid to the appropriate taxing authority,
customs duties imposed on Products listed in any price schedule delivered
pursuant to Paragraph 4.4, and the discounted portion of employee meals, and
sales of cigars, cigarettes and newspapers shall not be included in Gross Sales
and Revenues. Discounts on prices whether by way of coupons, promotions or
otherwise shall not be deducted from Gross Sales and Revenues.
(c) Within thirty (30) days after the submission of such quarterly
statement, Master Licensee shall pay the actual Royalty Fee due on Gross Sales
and Revenues except that payment may be, in relevant part, based upon an
estimate of the Royalty Fee due on Gross Sales and Revenues attributable to
sales of Products to Shoppes operated by Licensees. Master Licensee shall pay
any shortfall between the estimated Royalty Fee and the actual Royalty Fee at
the time the next payment of Royalty Fees is due. In the event of any
overpayment, Company shall credit such overpayment towards the next quarter's
Royalty Fee. The initial statement under this Agreement shall cover the period
beginning on the Effective Date and terminating at the end of the first full
quarter of the calendar year following such date. The final Royalty Fee payment
shall fall due on the date twenty (20) days after the expiration or termination
of this Agreement. Company shall have the right to audit all reports and royalty
payments on its own behalf or through an auditor appointed by Company. All
expenses of such audit shall be paid by Company, but if the result thereof shows
a shortfall of greater than 5 % between what was reported to Company and the
figures obtained by the audit, all expenses of the audit shall be paid by Master
Licensee.
8.3 Payment for Base Support Services. During the calendar years 1996 and
1997 Company shall be responsible for all of its expenses incurred for Base
Support Services and provided to Master Licensee. If during that time Company
incurs costs for services
22
<PAGE>
which are not Base Support Services which exceed $50,000, Master Licensee shall
reimburse Company in the amount of fifty percent (50%) of all amounts above
$50,000 up to a maximum of $25,000 in any given year.
8.4 Manner of Payment. Subject to Paragraph 4.4(b), all fees and other
payments to be made by Master Licensee to Company under this Agreement shall be
made by telegraphic transfer in immediately available funds to such bank as
Company may from time to time designate.
8.5 Interest on Late Payments. All fees and other payments due under this
Agreement shall bear interest from and after the due date at an annual rate of
four percent (4%) over LIBOR calculated as of such due date. Any withholding
taxes on such interest shall be paid in accordance with Paragraph 8.6.
8.6 Withholding Taxes. If payments due under this Agreement are subject to
withholding or other income taxes under applicable Legal Requirements or U.S.
laws, the withholding party shall withhold and pay such taxes to the appropriate
tax authority and promptly deliver to the other party receipts of tax
authorities for all taxes paid or withheld. Master Licensee acknowledges and
agrees not to withhold any value-added taxes from any payment due to Company
under this Agreement. Master Licensee shall also pay in a timely manner any and
all customs duties and fees in connection with the importation of Products.
Master Licensee shall provide all reasonable assistance to enable Company to
obtain any tax credit, exemptions or refunds which may be due to Company with
respect to any withholding or other taxes.
8.7 Currency and Place of Payment. All payments payable by Master Licensee
to Company under this Agreement shall be paid in Dollars, unless Company, at its
option, permits or directs payment in another currency at the exchange rate
required to purchase Dollars or such other currency prevailing on the date of
remittance to Company at a bank of recognized international standing specified
by Company (the "Exchange Rate"). Master Licensee shall use its best efforts to
assure that Company will be paid in Dollars. If Company directs payment in
another currency, the costs of exchange from the currency of the Territory to
the other currency in excess of the costs to convert Territory currency to
Dollars may be deducted from the payment, provided that reasonable supporting
documentation of such costs are provided to Company with the payment. If for any
reason an amount is received in a currency other than Dollars without Company's
direction or consent, Master Licensee's obligations under this Agreement shall
be discharged only to the extent that Company may purchase Dollars with such
other currency in accordance with normal banking procedures upon receipt of such
amount. If the amount in Dollars which may be so purchased, after deducting any
costs of exchange and any other related costs, is less than the relevant sum
payable under this Agreement, Master Licensee shall immediately pay Company the
shortfall.
8.8 Payment Approvals. Master Licensee undertakes to use its best efforts
to obtain and maintain in full force and effect all governmental authorizations
and approvals and to obtain or effect any new or additional governmental
authorizations or approvals, as may be required or advisable in respect of
Master Licensee's obligation to make payments in Dollars as required hereunder.
In the event Master Licensee cannot make any payment in Dollars because any such
authorization or approval is not available under applicable Legal
23
<PAGE>
Requirements or has been withdrawn for reasons other than the misconduct of
Master Licensee, Company shall have the right in its sole discretion to: (i)
require Master Licensee to pay Dollar amounts due through account(s) maintained
by Master Licensee in a country from which Dollar payments may be made; or (ii)
allow Master Licensee to suspend performance of its obligation to make payment
in Dollars hereunder until such authorization or approval becomes available or
is reinstated; provided, however, that during such suspension period (X) Master
Licensee shall pay all amounts due and owing to Company under this Agreement in
local currency to an account maintained by Company in the Territory and (Y)
Master Licensee may propose to Company countertrade transactions in respect of
such local currency, which Company may accept or reject. As soon as possible
after such authorization or approval becomes available or is reinstated Master
Licensee shall resume making payments in Dollars hereunder. Notwithstanding the
foregoing, if the suspension period referred to herein remains in effect for
more than three (3) years, Company shall have the right, in its sole discretion,
to terminate this Agreement upon ninety (90) days written notice to Master
Licensee without penalty or the obligation to purchase any License Agreement.
24
<PAGE>
ARTICLE 9. SYSTEM STANDARDS/MANUALS
9.1 System Standards and Development of Territory System Standards Manual.
(a) Master Licensee covenants that it shall comply with all System Standards
applicable to master licensees of Company, and all Territory System Standards.
As soon as practicable after execution of this Agreement, Company shall furnish
to Master Licensee a copy of the Friendly's U.S. System Standards Operations
Manual and other materials which are typically furnished to U.S. Friendly's
System franchisees to familiarize such franchisees with the Friendly's System.
Company will loan to Master Licensee during the Term the Operations Manual which
may consist of multiple parts and/or volumes. The Operations Manual will contain
mandatory and suggested specifications, standards and operating procedures that
Company will prescribe from time to time for Shoppes and information relative to
Master Licensee's obligations under this Agreement and in the operation of a
Shoppe. Company may modify the Operations Manual from time to time to reflect
changes in the specifications, standards and operating procedures of Shoppes, to
disclose information concerning new Products and services which Company may
develop for sale at Shoppes, to specify types, brands, and models of equipment
which Master Licensee must utilize to produce and sell such new Products and
services, and to specify changes in the decor, format, image, products, services
and operation of a Shoppe. Master Licensee must keep its copy of the Operations
Manual current by immediately inserting all modified pages Company furnished to
Master Licensee and destroying the then obsolete pages. In the event of a
dispute relative to the contents of the Operations Manual, the master copies
Company maintains at Company's principal office will be controlling. Except for
disclosure to Licensees, Master Licensee may not at any time copy any part of
the Operations Manual, disclose any part of it to employees or others not having
a need to know its contents for purposes of operating any Shoppe, or permit its
removal from any Shoppe without Company's prior approval. In the event a new
version of the Operations Manual is provided to Master Licensee, Master Licensee
must immediately return the then obsolete version to Company. To the extent the
Operations Manual contains any specification, standard or operating procedure
concerning the operation of Shoppes, such provision shall be deemed to be
incorporated into this Agreement so long as such provisions satisfy the Legal
Requirements. All references to this Agreement include all such specifications,
standards and operating procedures. The Operations Manual provided by Company to
Master Licensee shall be in the English language. All translations shall be at
the sole cost and expense of Master Licensee. All copyrights in any such
translated materials shall be assigned by Master Licensee to Company upon
Company's request.
(b) At least ninety (90) days prior to the execution of the first License
Agreement for a Shoppe or thirty (30) days prior to the opening of any Master
Licensee-owned Shoppe, Master Licensee shall submit proposed Territory System
Standards, if any, for review and approval by Company. Master Licensee shall
also submit simultaneously therewith for Company's review and approval a written
quality assurance and enforcement program. Company will notify Master Licensee
in writing of Company's acceptance or rejection of such proposed Territory
System Standards and programs, specifying the reasons for any rejections within
30 days after receipt. Master Licensee shall make such changes as reasonably
specified by Company and resubmit the proposed Territory System Standards and
programs until approved in good faith by Company. If despite its exercise of
reasonable
25
<PAGE>
commercial judgment, Company is unable to approve the proposed Territory System
Standards within six (6) months of submission, then either party may terminate
this Agreement under Paragraph 17.3. The Friendly's System, modified as
hereinabove provided, shall be reflected in a development and operations manual
(which may consist of one or more volumes) for the Territory containing
Territory System Standards for the development and operation of Shoppes (the
"Territory System Standards Manual"). To the extent that Company modifies or
enhances the System Standards, as it deems appropriate from time to time, Master
Licensee shall modify the Territory System Standards and the Territory System
Standards Manual to conform to such modifications and enhancements. Company from
time to time may establish minimum standards for Shoppes based on the System
Standards and such other standards as Company deems appropriate for the
commercial success of Shoppes. These minimum standards may be enhanced by Master
Licensee and Master Licensee shall develop and specify its own standards,
provided that such standards shall be subject to Company's review and approval.
9.2 Modification of the Territory System Standards Manual. Company, in its
reasonable judgment, may periodically deem it necessary or advisable to modify
the Territory System Standards Manual to comply with Company's minimum standards
for Shoppes and Master Licensee will implement such modifications as soon as
practicable after written notification from Company. Company and Master Licensee
shall in good faith discuss the manner in which any modifications shall be
implemented taking into account current market conditions. If despite their
exercise of reasonable commercial judgment, Company and Master Licensee are
unable to agree on how such modifications shall be implemented within six (6)
months of notification, then either party may terminate this Agreement under
Paragraph 17.3. In the event of a dispute relative to the contents or meaning of
the Territory System Standards Manual, the version maintained by Company at its
principal offices shall be controlling. Master Licensee will reserve such rights
as are necessary to implement modifications to the Friendly's System and
Territory System Standards Manual, as herein contemplated, to cause Licensees to
comply therewith, and to preserve the confidentiality of the Confidential
Information in all License Agreements that it executes for the operation of
Shoppes.
ARTICLE 10. MARKS
10.1 Grant of License. Subject to earlier termination in accordance with
the terms hereof, Company hereby grants to Master Licensee during the Term
(subject to renewal on the terms described herein), the exclusive license to use
the Marks in connection with owning, operating and licensing Shoppes and selling
Products in the Territory and to license the Marks to Licensees in connection
with the operation of Shoppes in the Territory. Except as otherwise provided
herein and provided that Master Licensee is in compliance with this Agreement,
Company shall not grant a license for use of the Marks for owning, operating or
licensing Shoppes or for the sale of Products in the Territory during the Term.
Subject to Paragraph 3.3, Company shall, however, have the exclusive right to
use the Marks for owning, operating or licensing Friendly's Restaurants in the
Territory during the Term. The license granted herein is limited to the
Territory and confers no rights upon Master Licensee or its Licensees to use the
Marks outside of the Territory, or to sell Products outside of the Territory,
except for advertising purposes approved by Company or its Licensees.
26
<PAGE>
10.2 Ownership of the Marks. The Company warrants that, to the best of its
knowledge, it is the current owner of all rights in and to the Marks in the
Territory. Master License acknowledges that neither Master Licensee, its
Affiliates or Licensees have any, nor will they acquire any, proprietary
interest whatsoever in the Marks and that the rights of Master Licensee and
Licensees to use the Marks are derived solely from this Agreement and are
limited to the exercise of the Rights granted pursuant to and in compliance with
this Agreement and applicable Territory System Standards prescribed in the
Territory System Standards Manual. Unauthorized use of the Marks by Master
Licensee or Licensees shall constitute a breach hereof and an infringement of
the rights of the Marks Owner in and to the Marks. All usage of the Marks by
Master Licensee and Licensees, and any goodwill established thereby, shall inure
to the exclusive benefit of the Marks Owner. This Agreement does not confer any
goodwill or ownership interests in the Marks upon Master Licensee or Licensees.
Master Licensee will take all commercially reasonable steps to preserve the
goodwill and prestige of the Marks. Master Licensee acknowledges that upon
expiration or termination of this Agreement, no monetary value shall be
attributable to any goodwill associated with the use of the Marks by Master
Licensee or Licensees.
10.3 Registration. (a) As permitted by applicable Legal Requirements, the
Marks Owner has registered or applied for registration of certain of the Marks,
as indicated in Exhibit B (the "Principal Marks") with the appropriate
governmental agencies in the Territory and will bear the cost thereof. Neither
Company nor the Marks Owner represent or warrant that the Marks are registerable
in the Territory. The Marks Owner shall pay for all costs associated with
registration and renewal of the Marks in the Territory. Master Licensee will
cooperate with the Marks Owner in obtaining Marks registrations. Company shall
have the right to designate a supplemental or substitute trademark or trademarks
to identify Shoppes as part of a worldwide System Standards change and such
supplemental or substitute trademarks shall be included in the definition of
Marks.
(b) Master Licensee may request Company to register additional trademarks
or servicemarks which would benefit the development of Shoppes and distribution
of Products in the Territory. Such request shall be accompanied by a written
proposal containing complete information regarding the additional trademark or
servicemark. Company may, in its sole discretion, register such trademarks or
servicemarks, but shall have no obligation to do so. If Company elects to
register such trademarks or servicemarks it shall be the sole owner thereof.
Master Licensee shall not use, or authorize any usage of any such additional
trademarks or servicemarks without Company's prior written consent.
10.4 Licensing of Licensees. If and to the extent that Company determines
that sublicensing of the Marks presents risks of diminution or loss of rights to
the Marks under the Legal Requirements, the Marks owner shall have the right and
obligation to enter into a direct trademark license agreement with each Licensee
that operates a Shoppe or, pursuant to a power of attorney in form and substance
acceptable to Company, authorize Master Licensee to enter into such agreement on
Company's behalf. Master Licensee shall amend License Agreements that it enters
into with Licensees accordingly to incorporate such trademark license agreement
and to provide for cross default provisions in both agreements.
10.5 Registration of Authorized User Instruments. As permitted by
applicable Legal Requirements, Company shall cause the Marks Owner to execute
separate instruments
27
<PAGE>
to enable Master Licensee to register with appropriate government agencies and
departments the rights of Master Licensee to use the Marks and the rights of
Licensees as authorized users of the Marks, and Master Licensee will exercise
its best efforts to cause such instruments to be registered with such government
agencies and departments.
10.6 Infringements. Master Licensee shall notify Company immediately of
any infringement of or challenge to the use of any Mark within the Territory, or
any claim of any rights in any Mark, or any confusingly similar trademark,
within the Territory, of which Master Licensee becomes aware. Master Licensee
shall exercise its best efforts to protect the Marks within the Territory and,
upon written direction from and at the expense of the Marks Owner, take such
action as shall be necessary or advisable to protect and maintain the Marks.
Company shall have the right in its sole discretion to take such action as it
deems appropriate in connection with any infringement, challenge or claim and
the right to exclusively control any settlement, litigation or proceeding
arising out of the alleged infringement, challenge or claim or otherwise
relating to any Mark. Company hereby represents and warrants that to the best of
its knowledge the Marks do not violate or infringe any copyright, trademark,
service mark or other proprietary rights of any third party. Company shall
indemnify and hold harmless Master Licensee from any loss, damage, cost and
expense (including without limitation reasonable legal fees) suffered by Master
Licensee as a result of any breach of the foregoing representation and warranty.
10.7 Use of the Marks. Master Licensee shall cause Licensees to use only
the Marks to identify their Shoppes. Master Licensee and Licensees shall not
incorporate any Mark as part of any corporate or trade name or with any prefix,
suffix or other modifying trademarks, logos, words, terms, designs or symbols,
or in any modified form, or use any Mark in connection with the sale of any
unauthorized product or service or in any other manner not expressly authorized
under this Agreement or License Agreements approved by Company, and shall
display the Marks and give notices of trademark registrations in the manner
prescribed in the Territory System Standards Manual and obtain such licenses,
permits and authorizations relating thereto as may be necessary or advisable
under applicable Legal Requirements.
ARTICLE 11. INSURANCE
At all times during the Term, Master Licensee shall maintain in effect, at
its expense, and shall procure that all Licensees maintain, such insurance as is
maintained by prudent businesses in accordance with standard industry practice
in South Korea. If in accordance with standard industry practice in Korea, all
such insurance policies shall name Company and the Marks Owner as additional
insureds. If Master Licensee names Company as an additional insured then,
subject to applicable Legal Requirements, Company shall name Master Licensee as
an additional insured on policies of insurance maintained by Company in respect
of the business contemplated hereunder. If Master Licensee fails or refuses to
maintain required insurance coverage, Company, at its option and in addition to
its other rights and remedies hereunder, may obtain such insurance coverage on
behalf of Master Licensee and Master Licensee shall fully cooperate with Company
in its effort to obtain such insurance policies, promptly execute all forms or
instruments required to obtain or maintain any such insurance, allow any
inspections of any Shoppes which are required to obtain or
28
<PAGE>
maintain such insurance and pay to Company, on demand, any costs and premiums
incurred by Company in this regard. Master Licensee's obligation to obtain and
maintain the insurance described herein shall not be limited in any way by
reason of any insurance maintained by Company.
ARTICLE 12. CONFIDENTIAL INFORMATION
Company possesses confidential information which shall be furnished to
Master Licensee and designated at or before the time of disclosure as
confidential (hereinafter referred to as the "Confidential Information"). The
Confidential Information includes, but is not limited to, the following: (1)
methods and procedures relating to the development and operation of Shoppes
whether contained in the Operation Manual or otherwise; (2) secret recipes of
ice cream and other frozen desserts and related topping, menu analysis and
methods of preparation of Products and services offered in Shoppes; (3) methods,
procedures and techniques for preparing, packaging, marketing, selling and
delivering Products and services offered in Shoppes; (4) knowledge of test
programs, concepts and results relating to the planning, development and testing
of the Friendly's System and Products and services offered in Shoppes; (5)
sources for purchase of food, beverages and other ingredients used by Shoppes;
(6) marketing programs and image; and (7) methods, techniques, specifications,
procedures, information, systems and knowledge of and experience in the
development, licensing and operation of Shoppes. Company and Master Licensee
agree that the Confidential Information shall be used by Master Licensee only in
the exercise of the Rights granted under this Agreement and shall not be
disclosed to others, provided that disclosure of Confidential Information by
Master Licensee to its Licensees in the Territory shall be deemed authorized
disclosure. Master Licensee shall: (a) not use the Confidential Information in
any other business or capacity; (b) maintain the confidentiality of the
Confidential Information during and after the Term and shall not disclose the
Confidential Information to its shareholders or any natural or legal person that
is not (1) an employee of Master Licensee or of an Affiliate; or (2) a party to
or bound by this Agreement or a License Agreement which is issued pursuant to
this Agreement; (c) not make unauthorized copies of any portion of the
Confidential Information disclosed in written, videotape or other form; and (d)
adopt and implement all reasonable procedures prescribed from time to time by
Company to prevent unauthorized use or disclosure of the Confidential
Information. Notwithstanding anything to the contrary contained in this
Agreement, the restrictions on Master Licensee's disclosure and use of the
Confidential Information shall not apply to the following: (x) information,
concepts, methods, procedures or techniques which are or become generally known
in the restaurant business in the Territory, or known to Master Licensee, other
than through disclosure (whether deliberate or inadvertent) by Master Licensee;
(y) the disclosure of the Confidential Information in judicial or administrative
proceedings to the extent that Master Licensee is legally compelled to disclose
such information, provided Master Licensee shall have used its best endeavors to
obtain, and shall have afforded Company the opportunity to obtain an assurance
satisfactory to Company of confidential treatment for the information required
to be so disclosed; and (z) Master Licensee's consultants, advisors and
professionals reviewing such information who are subject to appropriate
confidentiality and disclosure restrictions or who agree to maintain the
confidentiality of such information in accordance with the terms hereof. Master
Licensee will require its directors, officers, employees, agents and Licensees
to maintain the confidentiality of all Confidential
29
<PAGE>
Information of the Friendly's System and to agree not to use Confidential
Information in any business or commercial activity other than the operation of
Shoppes pursuant to this Agreement. Company shall regard information disclosed
by Master Licensee identified as confidential at the time of disclosure as
subject to the same obligations (and exclusions) of confidentiality as imposed
on Master Licensee with respect to Confidential Information.
ARTICLE 13. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
13.1 Independent Contractors. Company and Master Licensee are and shall be
independent contractors and nothing herein is intended to make either party a
general or special agent, legal representative, subsidiary, joint venturer,
partner, fiduciary, employee or servant of the other for any purpose. Master
Licensee will indicate its status as an independent contractor. Neither Company
nor Master Licensee shall make any express or implied agreements, guaranties or
representations, or incur any debt, in the name of or on behalf of the other or
represent that their relationship is other than a license relationship, and
neither Company nor Master Licensee shall be obligated by or have any liability
under any agreements or representations made by the other, nor shall Company be
obligated for any damages to any person or property directly or indirectly
arising out of the operation of a Shoppe, including that which is caused by the
negligent or willful action or failure to act of Master Licensee, its Affiliates
or Licensees.
13.2 Master Licensee's Indemnification of Company and the Marks Owner.
Master Licensee will indemnify and hold Company and the Marks Owner harmless
against, and reimburse Company and the Marks Owner, and their respective
officers, directors, employees, agents and affiliates (collectively the
"Indemnitees") for any loss, liability or damages (actual or consequential) or
taxes (other than income and withholding taxes imposed on amounts paid by Master
Licensee to Company), and all reasonable costs and expenses of defending any
claim brought or tax levied against any one or more of the Indemnitees in any
judicial, administrative or arbitration proceeding in which any one or more of
the Indemnitees is named as a party, which any Indemnitee may suffer, sustain or
incur by reason of, arising from or in connection with the ownership,
development, operation or licensing of Shoppes by Master Licensee or Licensees,
except to the extent any such claim arises out of the negligent, reckless or
intentional acts or omissions of the Company or the affected Indemnitee. Company
will give Master Licensee prompt written notice of any such claim made against
any Indemnitee and to offer Master Licensee a reasonable opportunity to assume
the defense thereof. The indemnities and assumptions of liabilities and
obligations herein shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement, provided that
the cause of action accrues during the Term or in connection with
post-termination obligations of Master Licensee.
13.3 Company's Indemnification of Master Licensee. Company will indemnify
and hold Master Licensee harmless against, and reimburse Master Licensee, for
any loss, liability or damages (actual or consequential) or taxes (other than
income and withholding taxes imposed on amounts paid by Company to Master
Licensee), and all reasonable costs and expenses of defending any claim brought
or tax levied against Master Licensee in any judicial, administrative or
arbitration proceeding in which Master Licensee is named as a party, which
Master Licensee may suffer, sustain or incur by reason of, arising from or in
30
<PAGE>
connection with the active negligence of any officer, employee, agent of
Company, or Company. This indemnity shall exclude any claim arising from
allegations of negligent specification of System Standards by Company or the
negligent training of Master Licensee or any of its personnel by Company. The
indemnities and assumptions of liabilities and obligations herein shall continue
in full force and effect subsequent to and notwithstanding the expiration or
termination of this Agreement, provided that the cause of action accrues during
the Term.
ARTICLE 14. REPORTS
Master Licensee shall furnish to Company:
(a) within thirty (30) days after the end of each calendar
month a report reflecting the estimated Gross Sales and Revenues of Master
Licensee for such prior calendar month and Licensees with sufficient detail to
determine the source thereof and calculation of Royalty Fees; and (2) within
thirty (30) days after the end of each quarter, a current list of all Licensees
by location and all Shoppes under development, opened, closed and transferred to
a different Licensee during the month; and
(b) such other reports and information relating to the
operation of Shoppes by Licensees, payments made by Licensees to Master
Licensee, and the calculation of amounts due and payable by Master Licensee to
Company, in such form and for such periods and at such times, as Company from
time to time reasonably prescribes. Master Licensee will reserve sufficient
rights, and shall exercise reasonable diligence to obtain, all statements,
reports and information from Licensees which are required to comply with this
Agreement.
ARTICLE 15. INSPECTIONS AND AUDITS
Company and its agents shall have the right at any time during regular
business hours upon seven (7) days prior written notice to inspect Master
Licensee's Friendly's ice cream division and any Shoppe operated by Master
Licensee or any Licensee and to audit the books and records of any such Shoppe
and relevant books and records of Master Licensee, its Affiliates and Licensees.
Master Licensee hereby authorizes entry by Company and its agents to Master
Licensee's headquarters and any Shoppe under its direct or indirect control.
Master Licensee and its Affiliates shall cooperate fully, and Master Licensee
shall cause each License Agreement to include a provision which obligates
Licensees to cooperate fully, with representatives and agents of Company making
any such inspections and audits and shall permit representatives and agents of
Company to take photographs, movies or videotapes of such Shoppes, to interview
employees thereof and to make copies of such books and records at Company's
expense.
31
<PAGE>
ARTICLE 16. ASSIGNMENTS
16.1 Assignment by Company. Company may assign this Agreement without
restriction provided that the assignee succeeds to all of the rights and
obligations of Company hereunder. Company shall give Master Licensee thirty (30)
days prior written notice of any assignment hereunder.
16.2 Assignment by Master Licensee. Master Licensee acknowledges that the
rights and duties created by this Agreement are personal to Master Licensee and
that Company has entered into this Agreement on the basis of the collective
character, business ability and financial capacity of Master Licensee and its
management. Neither this Agreement (or any interest in it), nor any material
assets of Master Licensee or material portion thereof, nor all or any portion or
an interest representing voting control or majority ownership in Master Licensee
may be voluntarily or involuntarily, directly or indirectly, sold, assigned or
otherwise transferred by Master Licensee or its owners, without the prior
written approval of Company whether by merger, consolidation, reorganization,
issuance or redemption of capital stock or other corporate action. Any sale,
assignment or transfer without such approval shall constitute a breach hereof
and convey no rights to or interest in this Agreement; provided, however, if
Master Licensee is a public company, then Master Licensee shall require
Company's prior written approval only for the sale, assignment or other transfer
of this Agreement, all or a material portion of the assets of Master Licensee or
one-half (1/2) or more of the equity of Master Licensee with the consent of
Master Licensee's Board of Directors.
16.3 Assignment to an Affiliate. Master Licensee shall have the right to
assign its rights and obligations under this Agreement to an Affiliate, which
assignment shall be permitted upon delivery of written notice to Company. Such
assignment shall also be conditioned upon: (a) the execution and delivery to
Company of a written instrument of assignment acceptable to Company, which
acceptance shall not be unreasonably withheld, delayed or conditioned; (b) the
assignee's execution and delivery to Company of a written certificate that it
has, as of five (5) days prior to the assignment, and will maintain during the
Term, the insurance coverage specified in Article 11 hereof ; and (c) the
assignee's execution and delivery to Company of an officers' certificate within
thirty (30) days prior to the date of transfer identical to the officers'
certificate Master Licensee shall execute and deliver upon signing of this
Agreement, except that the assignee's officers' certificate shall provide
additional information concerning any and all lines of business conducted by the
assignee and its affiliates.
ARTICLE 17. TERMINATION
17.1 By Company. Without prejudice to any other rights and remedies it may
have, Company may terminate this Agreement effective upon delivery of written
notice of termination to Master Licensee in the event that: (a) within ten (10)
business days of Master Licensee's failure to pay, when due, any amount payable
to Company; (b) Master Licensee violates Paragraph 16.2 by making an assignment
without Company's approval; (c) Master Licensee suffers any bankruptcy,
examinership, receivership, liquidation, dissolution, insolvency, or experiences
an inability to pay debts as they become due or winding up of
32
<PAGE>
Master Licensee; (d) Master Licensee or any of its principal owners (defined as
an owner of twenty-five percent (25%) or more of the equity of Master Licensee)
are indicted or convicted of a felony; (e) the material assets of Master
Licensee or any Affiliate are condemned, expropriated or otherwise taken over by
a governmental authority; (f) an audit performed by or on behalf of Company
reveals an intentional misrepresentation by Master Licensee of any material
accounting or financial information, or information regarding quality assurance
or marketing programs; (g) Master Licensee has made any material
misrepresentation or omission to Company in its application to become a Master
Licensee; or (h) Master Licensee or any Affiliate challenges the validity of the
Marks or Company's or the Marks Owner's rights to or ownership of the Marks and
does not take steps to withdraw such challenge within thirty (30) days after
written notice is delivered to Master Licensee.
Effective upon delivery of written notice of termination to Master Licensee and
without diminishing any of Company's rights under Paragraph 17.1(a)-(h), in the
event that Master Licensee breaches any other provision of this Agreement or of
the exhibits or schedules attached hereto, and such breach is curable, and
Master Licensee fails to take reasonable steps to cure such breach within thirty
(30) days after written notice of such breach is delivered to Master Licensee,
or fails to cure such breach within ninety (90) days after such notice is
delivered to Master Licensee.
17.2 By Master Licensee. Without prejudice to any other rights and
remedies it may have, Master Licensee shall have the right to terminate this
Agreement if (a) Company breaches any provision of this Agreement and does not
cure such breach or furnish evidence of diligent and continuing action
undertaken by Company to cure such breach, within ninety (90) days after written
notice of such breach is delivered to Company; (b) Company has made any material
misrepresentation or omission to Master Licensee upon which Master Licensee
materially relied in making its decision to enter into this Agreement; and (c)
Company suffers any bankruptcy, examinership, receivership, liquidation,
dissolution, insolvency, or experiences an inability to pay debts as they become
due or winding up of Company.
17.3 By Either Party. If the parties are unable to agree on (i) Territory
System Standards within the time frame described in Paragraphs 9.1 or 9.2, or
(ii) changes to this Agreement permitting government approvals to be obtained as
described in Paragraph 2.2, then either party may terminate this Agreement by
written notice to the other. If this Agreement is terminated under this
Paragraph 17.3, Master Licensee will receive no refund of the Development Fee.
17.4 Status of Products after Termination Upon the termination of this
Agreement, Company shall have the right to purchase back from Master Licensee
all or any part of the unsold stock of the Products then in the control or
possession of Master Licensee. The repurchase price shall be the sum of the
price and related costs paid by Master Licensee to purchase the Products in
question and have them delivered to a designated warehouse in the Territory.
Company's failure to notify Master Licensee within fifteen (15) days of the
termination hereof of its intention to repurchase such Products shall deprive
Company of the right to exercise this repurchase option. Master Licensee shall
be permitted to continue to sell and distribute the Products purchased from
Company or its Affiliates, unless otherwise
33
<PAGE>
repurchased pursuant to this paragraph for three (3) months after the
termination of this Agreement.
17.5 In the Event of War. If war is declared by any government in the
Territory or armed hostilities exist which render all or a substantial part of
the Territory uninhabitable or unsafe for travel: (i) so long as all sums
payable to Company pursuant to this Agreement are paid as and when they come
due, this Agreement shall continue in full force and effect; (ii) if as a
result of such war or armed hostilities any sum due Company hereunder is not
paid when due, either party (the "suspending party") may, upon giving the other
party at least ninety (90) days written notice, suspend performance of its
obligations hereunder until such war or hostilities have ceased; provided,
however, that Master Licensee shall remain liable for the amount of any payment
it failed to make prior to the date on which suspension takes effect; and (iii)
within ninety (90) days after such war or hostilities have ceased, the
suspending party shall give the other party notice of its intention to either
resume performance of its obligations hereunder or terminate this Agreement,
whereupon the suspending party shall resume its performance or this Agreement
shall terminate. During the suspension period, Master Licensee shall use
diligent efforts to discontinue use and display of the Marks by itself and
Licensees.
ARTICLE 18. RIGHTS AND OBLIGATIONS UPON TERMINATION OR EXPIRATION
18.1 Payment of Amounts Due to Company. Upon termination or expiration of
this Agreement, Master Licensee will pay to Company all Royalty Fees and any
other amounts due Company at the date of such termination or expiration which
are unpaid. Such payments shall be made within thirty (30) days after the
amounts due Company are determined in accordance herewith. Master Licensee shall
contemporaneously with such payments furnish a complete accounting of all
Royalty Fees and any other amounts due Company.
18.2 Change of Identification. After the expiration of this Agreement or
its termination pursuant to Paragraph 17.1 above, if Company so directs, Master
Licensee shall promptly and expeditiously undertake, and cause Licensees to
promptly and expeditiously undertake (including without limitation the
commencement and diligent prosecution of judicial and arbitration proceedings
against Licensees), all reasonable efforts to promptly and expeditiously: (a)
cease all use of the Marks at all Shoppes, and thereafter refrain from
identifying any restaurant as a current or former Shoppe or licensee of, or
otherwise associated with, Company, and refrain from any other use of the Marks,
or any colorable imitation thereof, in any manner or for any purpose; (b) remove
all signs and sign faces bearing Marks from both the interior and exterior of
all Shoppes; (c) deliver to Company all copies in the possession of Master
Licensee and Licensees of the Territory System Standards Manual, the Operations
Manual and all other manuals and materials relating to the Friendly's System and
all advertising materials, forms, and other materials containing the Marks or
otherwise identifying or relating to a Shoppe; (d) cease using supplies, printed
materials and other items bearing the Marks; (e) take such action as may be
required to change its legal name to another name not using the word
"Friendly's" or equivalent words or otherwise confusingly similar to
"Friendly's", and shall cancel all fictitious name or equivalent
34
<PAGE>
authorizations relating to use by Master Licensee and Licensees of the Marks and
file with the appropriate government agencies and departments instruments
terminating registered user rights of Master Licensee and Licensees; and (f)
furnish to Company, within ninety (90) days after the effective date of
termination or expiration, evidence reasonably satisfactory to Company of
compliance by Master Licensee and Licensees with the foregoing obligations.
Notwithstanding the foregoing, clauses (a), (b), (c), (d), (e) and (f) of this
Paragraph 18.2 shall not apply to Licensees with respect to whose License
Agreements Company exercises its option pursuant to Paragraph 18.5 hereof. If
upon termination of this Agreement under Paragraph 17.2, Master Licensee fully
complies with its post-termination obligations under Paragraph 18.2, the
provisions of Paragraph 18.4 shall not apply to Master Licensee or its
Affiliates. If this Agreement is terminated in accordance with Paragraph 17.2
above, Master Licensee and its Affiliates may continue to use the Marks and the
Territory System Standards in effect at the time of termination and the Rights
on an exclusive basis until the earlier to occur of two (2) years thereafter or
thirty (30) days after Master Licensee's written notice of discontinuance of use
thereof without any obligation to pay Company any Royalty Fees during such
period. If during such period Master Licensee ceases to actively utilize any of
the Rights, any such non-utilized Right shall cease.
18.3 Discontinuance of Use of Friendly's System. Upon termination or
expiration of this Agreement, except as noted above in Paragraph 18.2, Master
Licensee and Affiliates shall immediately cease to use in any business or
otherwise any portion of the Friendly's System, including the Confidential
Information of Company, and Company shall immediately cease to use Confidential
Information of Master Licensee.
18.4 Covenant Not To Compete. Master Licensee acknowledges and agrees that
Company has invested a substantial amount of time and money in developing the
Friendly's System, the Marks, and the Confidential Information and that Company
would be unable to protect the Friendly's System, the Marks, Confidential
Information and trade secrets against unauthorized use or disclosure and would
be unable to encourage a free exchange of ideas and information among Company
and licensees if prospective licensees or licensees were permitted to hold
interests in or perform services for any competing business and that the
following restrictions are reasonably required in order to protect Company
information, marketing strategies, operating policies and other elements of the
System from unauthorized appropriation. Therefore, Master Licensee agrees that
during the term of this Agreement, neither Master Licensee, Master Licensee's
Managers nor any of Master Licensee's officers, directors, stockholders,
partners or any member of Master Licensee's or their immediate family or
families will: (a) have any direct or indirect or beneficial interest or perform
services as an officer, director, manager, employee or develop restaurants or
shops which are the same as or similar to that of Friendly's Restaurants or
Shoppes which otherwise competes with Friendly's Restaurants or Shoppes
(provided that Master Licensee may develop restaurants where sales of ice cream
products and frozen desert products do not constitute more than 2% of gross
sales) or, (b) not, directly or indirectly, distribute or sell any products or
items which might reasonably be expected to compete with or otherwise hinder the
distribution and sale of the Products in the Territory. Master Licensee
understands and acknowledges that the determination of any similarity to or
competition with Friendly's Restaurants or Shoppes is dependent on many factors,
including but not limited to, marketing strategies; menu; size, configuration,
decor and "trade dress"; operating methods and policies; and hours of service.
Master Licensee further understands that because
35
<PAGE>
of the possibility of changes in the Friendly's System and the emergence of new
unforeseen competing Friendly's Restaurant and Shoppe concepts, determining
whether or not any restaurant business is the same or similar to, or competes
with, Friendly's Restaurant or Shoppes will depend on the facts and
circumstances existing at the time such determination is made. Master Licensee
further agrees that, subject to Paragraphs 18.2 and 2.5, for a period of two (2)
years after the termination of this Agreement, Master Licensee and all of such
persons will be subject to the same restriction on competing activities within
the Territory (provided that Master Licensee may develop restaurants where sales
of ice cream products and frozen desert products do not constitute more than 2%
of gross sales). Notwithstanding the foregoing, upon expiration of the Term and
Master Licensee's satisfaction of the post-termination obligations under
Paragraphs 18.1 and 18.2, the parties agree that Master Licensee shall not be
subject to the provisions of Paragraph 18.4. For purposes hereof, an indirect
interest will be presumed to exist if such interest is that of the spouse or of
a parent or child of another person, in addition to other forms of indirect or
beneficial interests. If any of the persons to whom the foregoing restrictions
apply are not parties to this Agreement and have access to Confidential
Information, Master Licensee agrees to cause all such persons to execute and
deliver to Master Licensee and the Company an agreement containing the foregoing
restrictions.
18.5 Rights Upon Termination or Expiration. The parties acknowledge that
the interests of Licensees are of utmost importance in the event of early
termination of this Agreement. Accordingly, the parties agree to use reasonable
efforts to minimize the disruption of the respective businesses of Licensees. In
addition to and not in lieu of the parties' rights and obligations under
Paragraphs 18.1, 18.2, 18.3 and 18.4 hereof, upon early termination of this
Agreement, or upon events giving rise to early termination this Agreement, at
the option of Company, exercised by giving written notice to Master Licensee
prior to early termination in the case of (a) below and within 10 days after
early termination in the case of (b) below:
(a) Master Licensee shall assign to Company or its designee(s) all
of its rights under this Agreement, including the Rights, and any approval,
registration, authorization or filing with any governmental authority which is
required for the operation of Shoppes in the Territory and held or made in the
name of Master Licensee whereupon Company (or such designee) shall expressly
assume the obligations of Master Licensee under this Agreement and in respect of
the government filings referred to above; and
(b) in consideration of the payment provided in Paragraph 18.7
hereof, Master Licensee shall assign to Company or its designees all of its
rights under the License Agreements for Shoppes operated by Licensees whereupon
Company shall expressly assume the obligations of Master Licensee under such
License Agreements.
Upon the early termination of this Agreement, if Company does not exercise its
option to assume Master Licensee's obligations in respect of any License
Agreement, Master Licensee and Company agree to meet and enter into good faith
negotiations to determine the terms and conditions for servicing any then
existing Licensees for the remainder of the relevant License Agreement. If the
parties are unable to agree on such terms and conditions, the servicing of such
Licensees shall be determined by informal dispute resolution in accordance with
Paragraph 18.8 and failing that, by arbitration in accordance with Paragraph
19.9.
36
<PAGE>
18.6 Closing. Company shall have at least ninety (90) days to prepare for
closing the transaction referred to in Paragraph 18.5, and all License
Agreements must be transferred free and clear of any liens, charges and
encumbrances. Master Licensee shall take any and all actions as may be required
by the Legal Requirements, and shall use its best efforts to obtain any
governmental authorizations or approvals, to ensure the effectiveness of any
assignment made hereunder, as between Master Licensee and Company and as against
all third parties, including without limitation, Licensees.
18.7 Price for Assignment of Licenses. As consideration for the
assignments provided for in Paragraph 18.5(b) hereof, Company shall pay Master
Licensee a sum to be mutually agreed between the parties. In the event the
parties cannot agree on such amount within thirty (30) days after early
termination of this Agreement, the price shall be determined by arbitration in
accordance with Paragraph 19.9. If Master Licensee terminates this Agreement
other than in accordance with Paragraph 17.2, Company shall not be required to
make any payment to Master Licensee under this Paragraph 18.7. If Master
Licensee terminates this Agreement in accordance with Paragraph 17.2, the amount
of the payment to be made by Company under Paragraph 18.5(b) shall be determined
by an independent certified public accountant with an internationally recognized
accounting firm with offices in the Territory chosen by Company. Such amount
shall be binding on the parties.
18.8 Continuing Obligations. All obligations of Company and Master
Licensee which expressly or by their nature survive the expiration or
termination of this Agreement shall continue in full force and effect subsequent
to and notwithstanding its expiration or termination and until they are
satisfied or by their nature expire.
ARTICLE 19. GENERAL PROVISIONS
19.1 Severability. Except as expressly provided to the contrary herein,
each section, paragraph, term and condition of this Agreement shall be
considered severable and if, for any reason, any provision of this Agreement is
held to be invalid, contrary to, or in conflict with any applicable present or
future law or regulation in a final, unappealable ruling issued by any court,
arbitrator, agency or tribunal with competent jurisdiction in a proceeding to
which Company is a party, that ruling shall apply only to the jurisdiction of
such court, arbitrator, agency or tribunal and shall not impair the operation
of, or have any other effect upon, such other terms and conditions of this
Agreement as may remain otherwise intelligible, which shall continue to be given
full force and effect and bind the parties hereto, although any provision held
to be invalid shall be deemed not to be a part of this Agreement in such
jurisdiction from the earlier of the date on which the time for appeal expires
or receipt by Company or Master Licensee of a notice of non-enforcement thereof.
Notwithstanding the foregoing, either party may terminate this Agreement if a
provision is held invalid or unenforceable that materially and adversely affects
the rights or obligations of the party, or substantially diminishes the
fundamental benefits of this Agreement for the party.
19.2 Substitution of Valid Provision. If, under any applicable and binding
law or rule, any provision of this Agreement is invalid or unenforceable, the
parties shall modify such invalid or unenforceable provision to the extent
required to be valid and enforceable.
37
<PAGE>
The parties agree to be bound by any promise or covenant imposing the maximum
duty permitted by law which is subsumed within the terms of any provision
hereof, as though it were separately articulated in and made a part of this
Agreement, that may result from striking from any of the provisions hereof any
portion or portions which are held to be unenforceable in a final, unappealable
ruling, or from reducing the scope of any promise or covenant to the extent
required to comply with such ruling.
19.3 Force Majeure. Neither Company nor Master Licensee shall be liable
for loss or damage or deemed to be in breach of this Agreement if its failure to
perform its obligations results from: (a) windstorms, rains, floods,
earthquakes, typhoons, mudslides or other similar natural causes; (b) fires,
strikes, embargoes or riot; (c) legal restrictions; or (d) any other similar
event or cause beyond the control of the party affected. Any delay resulting
from any of such causes shall extend performance accordingly or excuse
performance, in whole or in part, as may be reasonable, except that no such
cause other than a governmental or judicial order shall excuse payment of
amounts owed at the time of such occurrence or payment of the Development Fee,
Royalty Fees and other amounts due to Company subsequent to such occurrence.
19.4 Cumulative Remedies. The rights of Company and Master Licensee
hereunder are cumulative and no exercise or enforcement by Company or Master
Licensee of any right or remedy hereunder shall preclude the exercise or
enforcement by Company or Master Licensee of any other right or remedy hereunder
or which Company or Master Licensee is entitled by law to enforce.
19.5 Attorneys' Fees. If a claim for amounts owed by Master Licensee to
Company is asserted in any proceeding before a court of competent jurisdiction
or arbitrator, or if Company or Master Licensee is required to enforce this
Agreement in a judicial or arbitration proceeding, the party prevailing in such
proceeding shall be entitled, subject to applicable Legal Requirements, to
reimbursement of its expenses, including reasonable accounting and legal fees.
19.6 Governing Law. This Agreement and the validity, performance,
construction and effect of this Agreement shall be governed by the laws of the
State of New York, except to the extent that the laws of the Territory may
preempt New York law.
19.7 Interpretation. The preambles to this Agreement are a part of this
Agreement, which constitutes the entire agreement of the parties (all prior
representations, negotiations and agreements being merged into this Agreement),
and there are no other oral or written understandings or agreements between
Company and Master Licensee relating to the subject matter of this Agreement.
Except as otherwise expressly provided herein, nothing in this Agreement is
intended, nor shall be deemed, to confer any rights or remedies upon any person
or legal entity not a party hereto. References to statutory provisions shall be
construed as references to those provisions as replaced, amended, modified or
re-enacted from time to time. The headings of the several sections and
paragraphs hereof are for convenience only and do not define, limit or construe
the contents of such sections or paragraphs. This Agreement shall be executed in
two (2) counterparts, each of which shall be deemed an original.
38
<PAGE>
19.8 Informal Dispute Resolution. Prior to filing any arbitration
proceeding pursuant to Paragraph 19.9, the party intending to file such a
proceeding shall be required to notify the other party in writing of the
existence and the nature of any dispute. Company and Master Licensee each agree
that within fifteen (15) business days of the other party's receipt of such
notice, the Chief Executive Officer or other senior executive officer of both
Company and Master Licensee shall meet in Honolulu, Hawaii, in order to attempt
to resolve the dispute amicably. If such informal dispute resolution attempts
prove to be unsuccessful, the notifying party may initiate an arbitration
proceeding as described in Paragraph 19.9.
19.9 Arbitration. All controversies, disputes or claims arising in
connection with, from or with respect to this Agreement which are not resolved
within fifteen (15) days after either party shall notify the other in writing of
such controversy, dispute or claim, may be submitted for arbitration.
Arbitration proceedings shall be conducted in accordance with and shall be
subject to the then current Rules of Conciliation and Arbitration of the
International Chamber of Commerce in effect from time to time and the
arbitration proceedings shall be conducted in Seoul if Company is the claimant
and in Boston, Massachusetts if Master Licensee is the claimant. Within 25 days
after receipt of the notice referred to above, each party shall select one
arbitrator. The two arbitrators shall promptly select a third arbitrator who
shall have been an owner or an operator in a management or executive capacity of
a food service company that offers and sells its products or services to
consumers internationally through franchises or, if no such person can be found,
a person who has served as an arbitrator or mediator in disputes involving
businesses which offer and sell products and services to consumers
internationally. The arbitrators shall have the right to award or include in
their award any relief which is deemed proper under the circumstances, including
without limitation, money damages (with interest on unpaid amounts from date
due), specific performance and injunctive relief. The arbitrators shall issue a
written opinion explaining the reasons for the decision and award. The award and
decision of the arbitrators shall be conclusive and binding upon all parties
hereto and judgment upon the award may be entered in any court of competent
jurisdiction. The parties acknowledge and agree that any arbitration award may
be enforced against either or both of them in a court of competent jurisdiction
and each waives any right to contest the validity or enforceability of such
award. The parties further agree to be bound by the provisions of any statute of
limitations which would be otherwise applicable to the controversy, dispute or
claim which is the subject of any arbitration proceeding initiated hereunder.
Without limiting the foregoing, the parties shall be entitled in any such
arbitration proceeding to the entry of an order by a court of competent
jurisdiction pursuant to an opinion of the arbitrators for specific performance
of any of the requirements of this Agreement. In any arbitration proceedings,
the prevailing party shall be entitled to be reimbursed for all costs and
expenses of the arbitration, including travel costs and reasonable attorney's
fees. This provision shall continue in full force and effect subsequent to and
notwithstanding expiration or termination of this Agreement. Notwithstanding any
provision hereof to the contrary, either party may also seek injunctive and/or
any other form of equitable or preliminary relief from any court of competent
jurisdiction.
19.10 Delivery of Notices and Payments. All notices, reports and other
information and supporting records permitted or required to be delivered by the
provisions of this Agreement shall be delivered to:
39
<PAGE>
Company: Friendly's International, Inc.
1855 Boston Road,
Wilbraham, Massachusetts 01095
Tel: 413-543-2400
Fax: 413-543-3186
Attn: Larry W. Browne
Master Licensee: Hansung Enterprises Co., Ltd.
Hansung Building 88, Samsung-dong
Kangnam-gu, Seoul, Korea
Tel: 822-511-7887
Fax: 822-511-0701
Attn: Jong-Kwan Lim,
Managing Director, Overseas Business Department
The address of each party for notice may be modified from time to time by notice
to the other party. Company shall not be obligated to give any notice to any
Affiliate or Licensee, and notice to Master Licensee shall constitute sufficient
notice to each Affiliate and Licensee of Master Licensee to which such notice is
applicable. Notices shall be deemed so delivered at the time delivered
personally by the party giving same to the other party, one (1) business day
after sending by telex, cable or comparable electronic system and three (3)
business days after sending by air courier service.
19.11 Waiver. Company and Master Licensee may, by written instrument,
unilaterally waive or reduce any obligation of or restriction upon the other
under this Agreement, effective upon delivery of written notice thereof to the
other or such other effective date stated in the notice of waiver. Any waiver
granted by either party shall be without prejudice to any other rights the party
have, will be subject to continuing review by the granting party, and may be
revoked, in the granting party's sole discretion, at any time and for any
reason, effective upon delivery to the other party of ten (10) days' prior
written notice. Company and Master Licensee shall not be deemed to have waived
or impaired any right, power or option reserved by this Agreement (including,
without limitation, the right to demand exact compliance with every term,
condition and covenant herein, or to declare any breach thereof to be a default
and to terminate this Agreement prior to the expiration of its term), by virtue
of any custom or practice of the parties at variance with the terms hereof; any
failure, refusal or neglect of Company or Master Licensee to exercise any right
under this Agreement or to insist upon exact compliance by the other with its
obligations hereunder, including, without limitation, any mandatory
specification, standard or operating procedure; any waiver, forbearance, delay,
failure or omission by either party to exercise any right, power or option,
whether of the same, similar or different nature, with respect to any other
Shoppe; or the acceptance by Company of any payments from Master Licensee after
any breach by Master Licensee of this Agreement.
19.12 U.S. Government Regulations. (a) Master Licensee shall not, without
the prior written consent of Company, disclose, sublicense or sell any of the
information or rights it receives from Company under this Agreement to any
person, or any government agency of any nation, if such disclosure, sublicense
or sale would be regarded by any
40
<PAGE>
governmental agency or department of the U.S. as a breach of the Foreign Assets
Control Regulations, 31 C.F.R. Section 500 et seq. (1988), or the Transaction
Control Regulations, 31 C.F.R. Section 505 et seq. (1988). Master Licensee shall
obtain a similar commitment from each of its Licensees.
(b) Master Licensee shall refrain from making any payments to third
parties which would cause Company to be in violation of the U.S. Foreign Corrupt
Practices Act, 15 U.S.C. Sections 78dd-1, 78dd-2 (1988).
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement in two (2) counterparts on the Effective Date.
Company:
FRIENDLY'S INTERNATIONAL, INC., a
corporation organized under the laws
of the State of Delaware U.S.A.
By: /s/ Larry W. Browne
------------------------------------
Title: President and Managing Director
Master Licensee:
HANSUNG ENTERPRISE CO.,
LTD., a corporation organized under the
laws of Korea
By: /s/ [Illegible]
------------------------------------
Title: President
41
<PAGE>
SCHEDULE 1
OWNERSHIP SCHEDULE
The Ownership Schedule for Shoppes described in Paragraph 3.1 shall be as
follows:
Master Licensee shall cause the number of Shoppes listed below to be open and
operating by the corresponding deadline.
Total Number of Shoppes
Open as of Deadline Date Deadline
------------------------ --------
Year 1: 4 December 31, 1997
Year 2: 5 December 31, 1998
Year 3: 7 December 31, 1999
Year 4: 9 December 31, 2000
Year 5: 11 December 31, 2001
<PAGE>
SCHEDULE 2
LICENSING SCHEDULE
The Licensing Schedule for Shoppes described in Paragraph 3.1 shall be as
follows:
Master Licensee shall cause Licensees to open the number of licensed Shoppes
listed below to be open and operating by the corresponding deadline:
Total number of Shoppes
opened of deadline date Deadline
----------------------- --------
Year 1: 48 December 31, 1997
Year 2: 96 December 31, 1998
Year 3: 142 December 31, 1999
Year 4: 188 December 31, 2000
Year 5: 234 December 31, 2001
<PAGE>
SCHEDULE 3
DISTRIBUTION SCHEDULE
Calendar Year Sales Volume (US$)
------------- ------------------
Year 1: 1997 1,163,000
Year 2: 1998 1,575,000
Year 3: 1999 2,250,000
Year 4: 2000 2,340,000
Year 5: 2001 2,430,000
<PAGE>
EXHIBIT A-1
LIST OF PROPRIETARY PRODUCTS
Ice cream, frozen yogurt and other frozen desserts and related toppings, muffin
and other mixes and batters manufactured by Company from time to time.
<PAGE>
EXHIBIT A-2
LIST OF NON-PROPRIETARY PRODUCTS
Food products, ingredients, seasonings, mixes, beverages, materials and supplies
used in the preparation of Products; menus, paper, glassware, china and plastic
products; packaging or other materials, utensils and uniforms.
<PAGE>
EXHIBIT B
LIST OF MARKS
REPUBLIC OF KOREA
Registrations attached.
<PAGE>
[Registration of Friendly's (in Korean) omitted]
<PAGE>
[Registration of Friendly's (in Korean) omitted]
<PAGE>
EXHIBIT C
FORM OF LICENSE AGREEMENT
to be attached