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Exhibit 10.14
DEVELOPMENT AGREEMENT
THIS AGREEMENT (herein "Agreement"), made and entered effective on
this __________________________, 1996, by and between WEST COAST FRANCHISING
COMPANY, a Delaware corporation, with its principal offices at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (herein "FRANCHISOR") and HB ASSOCIATES, L.L.C,
with a principal business office at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (herein "DEVELOPER").
BACKGROUND
FRANCHISOR, its predecessors and its affiliates have expended
considerable time, skill, effort and money to originate and develop a unique and
proprietary plan, design, method and system (herein the "WEST COAST SYSTEM") for
offering to the public from distinctive retail facilities the rental and sale of
a wide range of video products, including from time to time, by way of
illustration and not limitation, prerecorded and blank videocassette tapes,
video software products, video, electronic and computer games, laser discs and
related technologically advanced products (herein collectively "Video
Products"). These Video Products are offered to the public in conjunction with
related or complementary accessories, products, supplies and services (herein
collectively "Accessories") and promotional materials, products and supplies
bearing FRANCHISOR's proprietary marks (herein collectively "Proprietary
Supplies"). The distinguishing characteristics of the WEST COAST SYSTEM include,
by way of illustration and not limitation, standards and specifications for
Video Products, Accessories and Proprietary Supplies, inventory and equipment
layout, distinctive design and decor, proprietary software, distinctive formats
and operating procedures, record keeping and reporting, promotion and
advertising, management training, proprietary marks and proprietary information,
all of which may be changed, improved and further developed by FRANCHISOR from
time to time.
FRANCHISOR identifies the WEST COAST SYSTEM by means of certain
proprietary trademarks, service marks, trade names, logos, photographs and other
indicia of origin including, but not limited to, the service ▇▇▇▇ "WEST COAST
VIDEO(R)", and such other indicia of origin as FRANCHISOR may from time to time
designate (herein collectively "Proprietary Marks"). These Proprietary Marks are
designed to identify to the public the source of goods and services offered by
the WEST COAST SYSTEM and to represent to the public high and uniform standards
of quality, service and appearance.
FRANCHISOR grants to certain qualified persons or entities who meet
FRANCHISOR's qualifications, the right to establish and operate a specified
number of retail facilities using the WEST COAST SYSTEM and the Proprietary
Marks (herein "FRANCHISED STORES") with a defined geographic area, subject to
and in accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises herein contained and for other good and valuable
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consideration, acknowledged by each of them to be satisfactory and adequate, and
each of said parties intending to be legally bound hereby, agree as follows:
1. DEVELOPMENT RIGHTS.
1.1 Grant of Development Rights. FRANCHISOR hereby grants to
DEVELOPER and DEVELOPER hereby accepts, the right to establish and operate
twenty (20) FRANCHISED STORES using the WEST COAST SYSTEM, as it may be changed,
improved, modified or further developed from time to time, upon the terms and
subject to the provisions of this Agreement. The location of each FRANCHISED
STORE (herein "Location") shall be approved in advance by FRANCHISOR as provided
in Section 4.1 of this Agreement. Each Franchised Store shall be established and
operated pursuant to FRANCHISOR's Franchise Agreement (herein the "Franchise
Agreement") attached hereto as Exhibit A and incorporated herein by reference
and the addendum with respect to each FRANCHISED STORE (herein the "Addendum"),
as provided in Section 4.2 hereof. This Agreement does not grant to DEVELOPER
any right to use in any manner FRANCHISOR's Proprietary Marks or System.
DEVELOPER shall have no right under this Agreement to license others to use in
any manner the Proprietary Marks or WEST COAST SYSTEM.
1.2 Development Area. DEVELOPER shall establish and operate
its FRANCHISED STORES solely in the geographic area set forth on Exhibit B
attached hereto and incorporated herein by reference (the "Development Area").
DEVELOPER acknowledges and agrees that DEVELOPER is not granted any rights to
develop or operate FRANCHISED STORES outside of the Development Area.
1.3 Development Schedule. Recognizing that TIME IS OF THE
ESSENCE, DEVELOPER hereby acknowledges and agrees that DEVELOPER's rights in and
to the Development Area and the grant of development rights set forth in this
Agreement are expressly conditioned upon the establishment and continuous
operation of a minimum number of FRANCHISED STORES within the Development Area
as set forth on Exhibit C attached hereto and incorporated herein by reference
(the "Development Schedule").
In the event that DEVELOPER fails to meet the specified goals set
forth on Exhibit C attached hereto, in any stated period, all of DEVELOPER's
rights in and to territorial protection in the Development Area permanently
cease and FRANCHISOR may, in its sole discretion, grant other DEVELOPER rights
within the Development Area, otherwise franchise within the Development Area; or
establish and generate (by itself or through affiliates) company-owned video
retail facilities within the Development Area; provided however, in the event
this Agreement is terminated for breach of Section 1.3 hereof, DEVELOPER shall
continue to operate the then-established FRANCHISED STORES in accordance with
the Franchise Agreement and all Addenda thereto, as provided in Section 4.2
hereof, then existing between FRANCHISOR and DEVELOPER.
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1.4 Territorial Rights. Except as otherwise provided in this
Section 1, and provided that DEVELOPER is in full compliance with this Agreement
and the Franchise Agreement including all Addenda thereto, FRANCHISOR shall not,
during the "Term" of this Agreement (as defined in Section 2 hereof), operate
itself or grant others the right to operate FRANCHISED STORES within the
Development Area.
1.5 Best Efforts. DEVELOPER agrees that during the term of
this Agreement, it will continuously exert its best efforts to develop and
establish FRANCHISED STORES within the Development Area.
1.6 Retail Sale and Rental Restrictions. DEVELOPER is
restricted solely to the retail sale or rental of all WEST COAST SYSTEM Video
Products, Accessories and Proprietary Supplies at the FRANCHISED STORES. Without
FRANCHISOR's prior written consent, to be exercised in FRANCHISOR's sole
discretion, DEVELOPER is expressly prohibited from engaging in the wholesale
business or distribution of any such product sold or rented at the FRANCHISED
STORES including Video Products, Accessories and Proprietary Supplies. Further,
the rights herein granted to DEVELOPER are specifically limited to the
FRANCHISED STORES within the Development Area and DEVELOPER agrees that it will
not use any aspect of the WEST COAST SYSTEM, including the Proprietary Marks, at
any other facility or location, either within or outside of the Development
Area. DEVELOPER shall not solicit, promote or advertise for business outside of
its Development Area through the use of any toll free number, the internet or
any site thereon, direct mail or other advertising method.
1.7 Rights Reserved by FRANCHISOR. Except as set forth in
Section 1.4 hereof, DEVELOPER understands and expressly acknowledges and agrees
that, both within and outside of the Development Area, FRANCHISOR (and its
affiliates) reserve at its or their sole option the rights to offer, sell, rent
and distribute all Video Products, Accessories and Proprietary Supplies which
comprise, or may in the future comprise, a part of the WEST COAST SYSTEM and all
other products and services regardless of whether such products or services are
authorized for sale as part of the WEST COAST SYSTEM, under the Proprietary
Marks licensed hereunder, or otherwise. The rights expressly retained by
FRANCHISOR include, without limitation, (i) the right to operate itself or grant
others the right to operate retail facilities offering Video Products,
Accessories and Proprietary Supplies to the public anywhere outside the
Development Area regardless of its proximity to the FRANCHISED STORES and on
such terms and conditions as FRANCHISOR, in its sole discretion, deems
appropriate; (ii) the right, and the right to grant others the right, to
develop, manufacture, market, distribute and/or sell Video Products,
Accessories, and Proprietary Supplies, through any channel of distribution
including mail order catalogs, computerized (such as the internet), telephone or
other electronic ordering systems capable of accepting orders placed from within
or outside the Development Area; and (iii) the right, subject to Section 1.8
hereof, to acquire and operate a business owning and/or operating a retail
facility within the Development Area offering for sale or rental Video Products
and Accessories (herein the "Acquired Video Store").
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1.8 Acquired Video Stores. During the term hereof, in the
event that FRANCHISOR purchases an Acquired Video Store in the Development Area,
FRANCHISOR shall, except as otherwise prohibited by law or contract, offer to
sell the Acquired Video Store to DEVELOPER for the price paid (or as reasonably
allocated in the case of a multi-store purchase) by FRANCHISOR for such Acquired
Video Store. DEVELOPER must own and operate the Acquired Video Store as a
FRANCHISED STORE in accordance with FRANCHISOR's then-current Franchise
Agreement. DEVELOPER shall have a period of thirty (30) days from the date of
receipt of written notice from the FRANCHISOR to accept or reject this offer. In
the event DEVELOPER rejects or fails to timely accept such offer, FRANCHISOR (or
its affiliates) shall have the right to own and operate the Acquired Video Store
in the Development Area and DEVELOPER shall have no rights or claims whatsoever
to the Acquired Video Store; provided, however, that for a period of one (1)
year following acquisition of the Acquired Video Store, FRANCHISOR shall not
utilize the WEST COAST VIDEO(R) service ▇▇▇▇ as the trade name of the Acquired
Video Store.
1.9 Principal Owners Guaranty. An "Owner" for purposes of this
Agreement is defined as each person or entity holding direct or indirect, legal
or beneficial Ownership Interests in DEVELOPER, and each person who has other
direct or indirect property rights in DEVELOPER or this Agreement. "Ownership
Interests" for purposes of this Agreement is defined to mean in relation to (i)
a corporation, the legal or beneficial ownership of shares in the corporation;
(ii) a partnership, the legal or beneficial ownership of a general or limited
partnership interest; (iii) a limited liability company, the legal or beneficial
ownership of units or membership interests in the limited liability company; or
(iv) a trust, the ownership of a beneficial interest of such trust. A "Principal
Owner" for purposes of this Agreement is an owner which
1.9.1 is a general partner in DEVELOPER; or
1.9.2 has a direct or indirect equity interest
in DEVELOPER of five percent (5%) or more (regardless of whether such owner
is entitled to vote therein); or
1.9.3 is designated as a Principal Owner in
Exhibit D of this Agreement.
All Principal Owners of DEVELOPER shall be disclosed on Exhibit D to this
Agreement. DEVELOPER shall cause all Principal Owners and their spouses as of
the date of this Agreement to execute and deliver to FRANCHISOR concurrently
with the execution of this Agreement the form of Guaranty and Assumption of
DEVELOPER's Obligations attached hereto as Exhibit E and incorporated herein by
reference (the "Guaranty"). All persons or entities that become Principal Owners
following the date of this Agreement and their spouses shall promptly execute
and deliver to FRANCHISOR, the Guaranty.
2. TERM.
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Unless sooner terminated in accordance with the terms and
provisions of this Agreement, the term of this Agreement and all rights granted
hereunder shall expire on the earlier of: (1) the last date specified in the
Development Schedule; or (2) the date when DEVELOPER has open and in operation
all of the FRANCHISED STORES required by the Development Schedule set forth at
Exhibit C. Thereafter, FRANCHISOR shall be entitled to establish and operate,
and license others to establish and operate FRANCHISED STORES or FRANCHISOR (or
its affiliates) owned retail video facilities whether or not using the WEST
COAST SYSTEM in the Development Area, except as may otherwise be provided under
the Franchise Agreement and all Addenda thereto, which have been executed
between the FRANCHISOR and DEVELOPER.
3. DEVELOPMENT FEE.
In consideration of the development rights granted herein,
DEVELOPER shall pay to FRANCHISOR, upon execution of this Agreement, a
development fee of One Hundred Thousand Dollars ($100,000.00) (herein the
"Development Fee"), receipt of which is hereby acknowledged by FRANCHISOR. The
Development Fee is hereby deemed fully earned and non-refundable upon execution
of this Agreement in consideration of the administrative and other expenses
incurred by the FRANCHISOR and for the development opportunities lost or
deferred as a result of the rights granted DEVELOPER herein.
4. DUTIES OF DEVELOPER.
4.1 Site Selection and Leases.
4.1.1 Site Selection. DEVELOPER shall comply with
FRANCHISOR's then-current specifications regarding site selection for each of
the Locations of the FRANCHISED STORES. DEVELOPER hereby acknowledges and agrees
that FRANCHISOR's approval of each of the Locations does not constitute an
assurance, representation or warranty of any kind, expressed or implied, as to
the suitability of the Locations for FRANCHISED STORES or for any other purpose.
FRANCHISOR's approval of Locations indicates only that FRANCHISOR believes a
Location complies with acceptable minimum criteria established by FRANCHISOR
solely for its purposes as of the time of evaluation. DEVELOPER and FRANCHISOR
acknowledge that application of criteria that have been effective with respect
to other locations may not be predictive of potential for the FRANCHISED STORES;
and that, subsequent to FRANCHISOR's approval of a Location, demographic and/or
economic factors, such as competition from other similar businesses, included in
or excluded from FRANCHISOR's criteria could change, thereby altering the
potential of a Location. Such factors are unpredictable and are beyond
FRANCHISOR's control. FRANCHISOR shall not be responsible for the failure of a
Location to meet DEVELOPER's expectations as to revenue or operational
performance. DEVELOPER further acknowledges and agrees that its acceptance of a
particular site for the operation of a FRANCHISED STORE at a Location is based
on its own independent investigation of the suitability of the Location.
FRANCHISOR will approve or disapprove sites by delivery of written notice to
DEVELOPER.
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FRANCHISOR agrees to exert its reasonable best efforts to deliver such
notification to DEVELOPER within thirty (30) days following receipt by
FRANCHISOR of complete information with respect to a particular site, as
required by FRANCHISOR.
4.1.2 Leases. Any and all leases, subleases or
other agreements entered into by DEVELOPER to secure the Locations of FRANCHISED
STORES must, at a minimum, meet with FRANCHISOR's prior written approval and any
such lease or purchase document must be conditional upon such approval, which
approval shall not be unreasonably withheld by FRANCHISOR. The following
provisions shall be in DEVELOPER's lease or purchase agreement with respect to
each FRANCHISED STORE:
4.1.2.1 A minimum lease term of five (5)
years, with a minimum renewal term, at lessee's option of an additional five (5)
years.
4.1.2.2 In the event of the unauthorized
transfer, expiration or termination of the Franchise Agreement and Addendum
thereto with respect to a FRANCHISED STORE, for any reason, FRANCHISOR shall
have the option for thirty (30) days to assume the obligations under said lease,
and at any time thereafter to reassign the lease to another franchisee (which
lessor, sublessor or renter shall reasonably approve);
4.1.2.3 The lessor, sublessor or renter
will furnish to FRANCHISOR written notice specifying any default and the method
of curing any such default (except that if default is in the nature of
nonpayment of rent, FRANCHISOR shall have but thirty (30) days from receipt of
such notice to cure said default) and succeed to DEVELOPER's interest in such
lease;
4.1.2.4 The lessor, sublessor or renter
will accept FRANCHISOR or its designee (which lessor, sublessor or renter shall
reasonably approve) as a substitute tenant under the terms and provisions of the
lease upon notice from FRANCHISOR that it is exercising its right to succeed to
the interest of DEVELOPER in such lease;
4.1.2.5 Any lease entered into by
DEVELOPER shall provide that it may not be modified or amended without
FRANCHISOR's prior written consent which shall not be unreasonably withheld, and
that FRANCHISOR shall be promptly provided with copies of all such proposed
modifications or amendments and, when executed, true and correct copies of such
executed modifications or amendments; and
4.1.2.6 All of the foregoing constitute
rights but not obligations on the part of FRANCHISOR to assume the rights and
responsibilities of DEVELOPER under any lease, sublease or other rental
arrangement.
4.2 Execution of Addendum to Franchise Agreement. Upon
approval of a site by FRANCHISOR for the Location of a FRANCHISED STORE,
FRANCHISOR shall send to DEVELOPER
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the Addendum to Franchise Agreement in the form of Exhibit F, attached hereto
and incorporated herein by reference, any supporting agreements in form for
execution by DEVELOPER and a copy of the FRANCHISOR's then-current Offering
Circular. The Addendum to Franchise Agreement shall provide that all of the
terms and provisions of the Franchise Agreement attached as Exhibit A to this
Agreement govern the relationship of FRANCHISOR and DEVELOPER with respect to
the FRANCHISED STORE. DEVELOPER shall execute and return to FRANCHISOR, within
twenty (20) days following FRANCHISOR's delivery thereof, a fully executed
Addendum to Franchise Agreement, any supporting agreements, together with a
fully executed receipt for the Offering Circular and the fees required to be
paid upon execution of the Addendum to Franchise Agreement. In no event may a
FRANCHISED STORE be opened for business prior to FRANCHISOR's receipt of the
fully executed Addendum to Franchise Agreement, all supporting agreements, the
Offering Circular receipt and all required payments.
4.3 Store Design Specifications. FRANCHISOR shall furnish to
DEVELOPER specifications of FRANCHISOR's then-current requirements for
construction, design, decoration and layout for FRANCHISED STORES (herein the
"Store Design Specifications"). DEVELOPER acknowledges and agrees that the Store
Design Specifications are an integral part of the WEST COAST SYSTEM and form a
part of the trade dress of the WEST COAST SYSTEM and that, therefore, the
FRANCHISED STORES will be developed, constructed and designed in accordance with
the then-current Store Design Specifications. With respect to each of the
FRANCHISED STORES, DEVELOPER shall (i) submit to FRANCHISOR detailed
construction plans and specifications and space plans for each of the FRANCHISED
STORES that comply with the Store Design Specifications and all applicable
ordinances, building codes, permit requirements, and lease requirements and
restrictions; (ii) obtain all required zoning changes, planning consents,
building, utility, sign, health, sanitation and business permits, licenses and
approvals and any other required permits and licenses; (iii) construct all
required improvements in compliance with construction plans and specifications
approved by FRANCHISOR; and (iv) decorate and layout the FRANCHISED STORES in
compliance with Store Design Specifications and plans and specifications
approved by FRANCHISOR. DEVELOPER shall at its own expense obtain and be
responsible for qualified architectural and engineering services as may be
required to adapt FRANCHISOR's Store Design Specifications to the FRANCHISED
STORES and to applicable local or state laws, regulations or ordinances.
DEVELOPER shall also bear the cost of preparing, for FRANCHISOR's approval, any
plans containing material deviations or modifications from the Store Design
Specifications. In that event, DEVELOPER shall be charged an hourly
architectural fee for FRANCHISOR's designated architect to review such plans.
4.4 Opening Inventory. In connection with the opening of each
of the FRANCHISED STORES, DEVELOPER shall purchase an opening inventory of Video
Products, Accessories and Proprietary Supplies only from approved suppliers and
in accordance with FRANCHISOR's inventory specifications (herein the "Opening
Inventory") for the FRANCHISED STORES.
4.5 Training.
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4.5.1 Prior to opening of the first FRANCHISED
STORE, DEVELOPER and DEVELOPER's manager shall attend and complete to
FRANCHISOR's satisfaction an initial training program conducted by FRANCHISOR.
In the event that DEVELOPER designates itself as a manager, then DEVELOPER shall
also designate one other employee as an assistant manager who shall also attend
and complete to FRANCHISOR's satisfaction the initial training program.
Thereafter, with respect to each FRANCHISED STORE, DEVELOPER must designate a
manager who shall attend and complete to FRANCHISOR's satisfaction an initial
training program conducted by FRANCHISOR;
4.5.2 DEVELOPER shall be solely responsible for all
costs and expenses incurred on its own behalf and by its employees in
connection with the training programs;
4.5.3 At FRANCHISOR's request, any person employed
by DEVELOPER as a manager or assistant manager subsequent to the opening of each
of the FRANCHISED STORES shall be required to attend FRANCHISOR's initial
training program. DEVELOPER shall pay to FRANCHISOR a training fee at the
then-current rate imposed by FRANCHISOR for the initial training of such
managers or assistant manager subsequently employed by DEVELOPER. Such training
fee shall be in addition to any other training costs to be borne by DEVELOPER as
provided herein;
4.5.4 DEVELOPER shall employ sufficient qualified
personnel to operate the FRANCHISED STORES. All employees shall wear the
then-current WEST COAST uniform, as designated by FRANCHISOR. DEVELOPER agrees
to maintain, and assure that all of its employees maintain, the highest quality
standards of professionalism and integrity in the operation of the FRANCHISED
STORES. DEVELOPER agrees to screen carefully all of its employees prior to
employment and to employ only those who have sufficient work experience or
training and who meet such other requirements as may be reasonably prescribed by
FRANCHISOR; and
4.5.5 DEVELOPER and other employees reasonably
designated by FRANCHISOR shall attend such courses, seminars and other training
and re-training or refresher programs as FRANCHISOR may from time to time
reasonably require and DEVELOPER and its other employees shall meet all
reasonable performance standards in connection with such programs as established
from time to time by FRANCHISOR.
4.6 Operations Manual. At the commencement of the initial
training program as set forth in Section 4.5 hereof, FRANCHISOR shall provide on
loan to DEVELOPER one copy of its proprietary operations manual (herein the
"Operations Manual") for each of the FRANCHISED STORES. DEVELOPER shall operate
the FRANCHISED STORE in conformity with the standards, specifications,
techniques and procedures as FRANCHISOR may from time to time reasonably
prescribe in the Operations Manual, or as otherwise directed in writing by
FRANCHISOR to DEVELOPER. The Operations Manual shall at all times
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remain FRANCHISOR's property. FRANCHISOR may, from time to time, revise the
content of said Operations Manual and DEVELOPER expressly agrees to comply with
each changed requirement after notice thereof from FRANCHISOR.
4.7 Operations of the FRANCHISED STORES.
4.7.1 Compliance with Applicable Laws. DEVELOPER
shall obtain all required government licenses and permits for the establishment
and operation of the FRANCHISED STORES and maintain such licenses and permits in
full force and effect throughout the term of this Agreement. DEVELOPER shall
operate the FRANCHISED STORES in compliance with all applicable local, state and
federal statutes, rules, ordinances and regulations and shall take prompt and
immediate action to correct any violation set forth in any notice issued by any
governmental or municipal authority, with respect to the establishment and/or
operation of the FRANCHISED STORES.
4.7.2 Video Products, Accessories and Proprietary
Supplies. DEVELOPER shall offer for retail sale or rental at all times only such
Video Products, Accessories and Proprietary Supplies as conform with
FRANCHISOR's standards and specifications, and not deviate by offering
non-conforming products of any kind at the FRANCHISED STORES without
FRANCHISOR's prior written consent.
4.8 Approved Suppliers. DEVELOPER shall purchase or lease all
products, supplies, services and equipment required for the operation of the
FRANCHISED STORES (including Video Products, Accessories and Proprietary
Supplies) solely from suppliers who demonstrate to the continuing reasonable
satisfaction of FRANCHISOR, the ability to meet FRANCHISOR's reasonable
standards and specifications; who possess adequate quality controls and capacity
to supply DEVELOPER's needs promptly and reliably; and who have been approved in
writing by FRANCHISOR and not thereafter disapproved. FRANCHISOR shall furnish
to DEVELOPER a list of approved suppliers. If DEVELOPER desires to purchase or
lease any unapproved product, supplies, service or equipment or purchase or
lease any approved product, supplies, service or equipment from an unapproved
supplier, DEVELOPER shall notify FRANCHISOR in writing and request approval.
FRANCHISOR shall have the right to require that its representatives be permitted
to inspect the proposed supplier's facilities and test or evaluate the proposed
supplier's product, supplies, service or equipment. FRANCHISOR shall have the
right to request that samples be delivered to it or to an independent testing
facility chosen by FRANCHISOR. A charge not to exceed the reasonable cost of the
inspection and the actual cost of the test shall be paid by DEVELOPER or the
supplier. FRANCHISOR will, within thirty (30) days of its receipt of a completed
request and completion of the evaluation and testing, notify DEVELOPER in
writing of its approval or disapproval of the supplier and/or the proposed
product, supplies, service or equipment. FRANCHISOR reserves the right, at its
option, to reinspect the facilities of any such approved supplier and to re-test
or re-evaluate any previously approved products, supplies, service or equipment
and to revoke its approval
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upon the supplier's failure to continue to meet any of FRANCHISOR's
then-existing supplier, product, equipment or service criteria, or as otherwise
reasonably determined by FRANCHISOR.
4.9 Insurance.
DEVELOPER agrees to secure, prior to the opening of
each of the FRANCHISED STORE and to maintain in full force and effect during the
term of this Agreement, at DEVELOPER's expense, insurance policies protecting
DEVELOPER, FRANCHISOR as an additional insured, and their respective officers,
directors, shareholders and employees, against any loss, liability, personal
injury, death, property damage or expense whatsoever arising or occurring in
connection with this Agreement and the operations of each of the FRANCHISED
STORES, as well as such other insurance as FRANCHISOR may reasonably require.
5. FEES.
5.1 Initial Franchise Fees. DEVELOPER shall pay to FRANCHISOR
an Initial Franchise Fee of One Thousand ($ 1,000.00) Dollars, for each of the
FRANCHISED STORES granted pursuant to this Agreement, payable upon execution of
each Addendum to Franchise Agreement, as set forth in Section 4.2 hereof.
5.2 Continuing Royalty Fees. DEVELOPER shall pay to FRANCHISOR
continuing monthly royalty fees, continuing monthly national marketing fund
payments and such other payments for each of the FRANCHISED STORES in accordance
with FRANCHISOR's payment requirements as set forth in the Franchise Agreement.
6. PROPRIETARY MARKS.
6.1 DEVELOPER shall use only the Proprietary Marks designated
by FRANCHISOR and shall use them only in the manner authorized and permitted
pursuant to the Franchise Agreement and by FRANCHISOR.
6.2 DEVELOPER shall use the Proprietary Marks only in
conjunction with the operation of the FRANCHISED STORES and in accordance with
the Operations Manual.
6.3 DEVELOPER's right to use the Proprietary Marks is limited
to such uses as are authorized under the Franchise Agreement, and any
unauthorized use thereof shall constitute an infringement of FRANCHISOR's
rights.
6.4 DEVELOPER shall not make use of the Proprietary Marks,
including the ▇▇▇▇, WEST COAST or any part thereof, in its corporate name or in
any other business or legal entity.
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6.5 In the event that litigation by a third party involving
the Proprietary Marks is instituted or threatened against DEVELOPER, DEVELOPER
shall promptly notify FRANCHISOR and shall cooperate fully in defending or
settling such litigation. In the event FRANCHISOR undertakes the defense or
prosecution of any litigation pertaining to the Proprietary Marks, DEVELOPER
agrees to execute any and all documents and do such acts and things as may, in
the opinion of FRANCHISOR's counsel, be necessary or appropriate in the
litigation. FRANCHISOR shall have the sole right and discretion to take such
action as it deems appropriate. Provided DEVELOPER is in compliance with this
Agreement, FRANCHISOR will defend DEVELOPER, at FRANCHISOR's expense, against
any third party claim, suit or demand involving the Proprietary Marks and
arising out of DEVELOPER's authorized use thereof.
6.6 DEVELOPER expressly acknowledges and agrees that:
6.6.1 FRANCHISOR has the sole and exclusive rights
and interest in and to the Proprietary Marks and the goodwill associated
thereto.
6.6.2 DEVELOPER will not, directly or indirectly,
contest the validity or the ownership of the Proprietary Marks.
6.6.3 DEVELOPER acquires no right, title or interest
in the Proprietary Marks, except for the non-exclusive license to use the
Proprietary Marks pursuant to the Franchise Agreement and all Addenda thereto.
6.6.4 Any and all goodwill arising from DEVELOPER's
use of the Proprietary Marks pursuant to the Franchise Agreement and all Addenda
thereto shall inure solely and exclusively to the benefit of FRANCHISOR. Upon
expiration or termination of this Agreement, no monetary amount shall be
assigned, for any reason and for any purpose whatsoever, to any goodwill in
connection with DEVELOPER's use of the Proprietary Marks pursuant to the
Franchise Agreement.
7. CONFIDENTIAL OPERATIONS MANUAL, CONFIDENTIAL INFORMATION AND
NON-DISCLOSURE.
7.1 Confidential Manuals.
7.1.1 DEVELOPER shall at all times treat the
Operations Manual and other manuals created for or approved for use in the
establishment and operation of the FRANCHISED STORES, and the information
contained therein as confidential, and shall use all reasonable efforts to
maintain such information as secret and confidential (herein collectively the
"Confidential Manuals"). DEVELOPER shall not, at any time, without FRANCHISOR's
prior written consent, copy, duplicate, record or otherwise reproduce the
Confidential Manuals, in whole or in part, nor otherwise make the same available
to any unauthorized person.
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7.1.2 DEVELOPER shall conduct the operation of the
FRANCHISED STORE in accordance with FRANCHISOR's methods and procedures as
prescribed from time to time in the Confidential Manuals and in all supplemental
bulletins and notices, which shall be deemed a part thereof.
7.1.3 The Confidential Manuals may be modified from
time to time to reflect changes in the image, decor, design, format, appearance,
methods, standards and specifications and operating procedures approved or
required for FRANCHISED STORES, and all such modifications shall be binding upon
DEVELOPER upon being mailed or otherwise delivered to it, as if originally set
forth therein; provided, however, that such modifications shall not impose any
obligations that are materially more onerous or costly than those imposed by the
Franchise Agreement.
7.1.4 DEVELOPER will maintain the Confidential
Manuals strictly confidential and will not at any time copy any part of the
Confidential Manuals, disclose any information contained in the Confidential
Manuals to others (except to the extent such information is otherwise lawfully
publicly known or available) or permit others access to the Confidential
Manuals, except as may be required to DEVELOPER's employees, provided that such
employees have signed FRANCHISOR's form of non-disclosure and non-competition
agreement, as set forth in an exhibit to the Franchise Agreement.
7.1.5 The Confidential Manuals shall at all times
remain FRANCHISOR's exclusive property and shall be returned to FRANCHISOR
promptly upon termination or expiration of this Agreement for any reason
whatsoever. DEVELOPER understands and agrees that it is of substantial value and
importance to FRANCHISOR and other franchisees, as well as to the DEVELOPER,
that the WEST COAST SYSTEM developed by FRANCHISOR establish and maintain a
common identity. DEVELOPER agrees and acknowledges that compliance with the WEST
COAST SYSTEM and the Confidential Manuals are essential to preserve, maintain
and enhance the reputation, trade demand and goodwill built up by the WEST COAST
SYSTEM, and the Proprietary Marks used in connection therewith; and that failure
of DEVELOPER to operate the FRANCHISED STORES in accordance with the WEST COAST
SYSTEM and the Confidential Manuals will cause irreparable damage to FRANCHISOR
and its other franchisees, as well as to DEVELOPER.
7.2 Confidential Information.
DEVELOPER, for itself and all of its agents and
employees, shall not, during the term of this Agreement or at any time
thereafter, communicate, divulge or use for the benefit of any other person,
persons, partnership, association or corporation, any confidential information,
knowledge, or know-how concerning the methods of operation of the WEST COAST
SYSTEM which may be communicated to DEVELOPER, or of which DEVELOPER may be
apprised, pursuant to the terms of this Agreement or the Franchise Agreement.
DEVELOPER shall divulge such confidential
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information only to such of its employees as must have access to it in order to
operate the FRANCHISED STORES.
7.3. Nondisclosure.
DEVELOPER shall not, at any time, either during or
after the term of this Agreement, copy or duplicate, or permit the copying or
duplication, nor publish, disclose or in any manner reveal, or permit the
publication, disclosure or revelation in any manner, to any person or entity,
except employees of DEVELOPER any portion of the Confidential Manuals,
supplements, addenda or amendments thereto, or any other information or material
supplied by FRANCHISOR to DEVELOPER and designated as confidential information.
DEVELOPER hereby recognizes and agrees that these materials and information are
proprietary trade secrets of FRANCHISOR and will be disclosed to DEVELOPER in
strict confidence solely for use in the development and operation of the
FRANCHISED STORES during the term of this Agreement and on the condition that
DEVELOPER will not use these trade secrets in any other business or capacity.
DEVELOPER acknowledges and agrees that it will not acquire any interest in the
trade secrets, other than the right to utilize them in the operation of the
FRANCHISED STORES during the term hereof and that DEVELOPER will maintain the
confidentiality of these trade secrets during and after the term of this
Agreement.
7.4 Confidentiality Agreements.
All persons affiliated with DEVELOPER, including
Owners, Principal Owners, directors, officers, partners, shareholders and
managers, and other key employees who have access to the Confidential Manuals,
shall execute the Confidentiality and Restrictive Covenant Agreement set forth
as Exhibit "G" hereto and incorporated herein by reference.
8. RECORD KEEPING, MODEM REPORTING AND REPORTING
8.1 Record Keeping. During the term of this Agreement,
DEVELOPER shall maintain and preserve, for at least six (6) years from the date
of their preparation, full, complete and accurate books, records and accounts
with respect to DEVELOPER. DEVELOPER shall establish and maintain in accordance
with good business practices, complete books of account and records from which
Gross Revenues of the FRANCHISED STORES may be determined as of the close of
business of each month during the term of this Agreement. DEVELOPER shall send
FRANCHISOR monthly, along with its payment of the Royalty Fees, a written report
showing the Gross Revenues of the FRANCHISED STORES during the preceding month
and such other information as requested by FRANCHISOR on a report form
prescribed by FRANCHISOR. Such report shall include such forms, reports,
records, software information and other data as FRANCHISOR may reasonably
require.
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8.2 FRANCHISOR Access by Modem. FRANCHISOR shall have the
right, at all times, to access its proprietary software through a modem, or
otherwise for purposes of ensuring DEVELOPER's compliance with this Agreement
and for reporting of information required to be submitted to FRANCHISOR with
respect to each of the FRANCHISED STORES.
8.3 Annual Reports. DEVELOPER shall submit to FRANCHISOR
annually, within ninety (90) days after the end of each fiscal year of
DEVELOPER, financial statements covering the previous twelve (12) month's
operation of DEVELOPER and each of the FRANCHISED STORES certified as true and
correct by an executive officer of DEVELOPER, prepared on a review basis by a
certified public accountant reasonably acceptable to FRANCHISOR in accordance
with generally accepted accounting principles, applied on a consistent basis and
in accordance with customary industry practices and in sufficient detail to
provide accurate and complete information covering each of the FRANCHISED
STORES, during such fiscal year. In addition, such information shall be on both
a combined basis and on a per FRANCHISED STORE basis in a format determined by
FRANCHISOR.
8.4 Inspection of Records. FRANCHISOR or its designated agents
shall have the right at all reasonable times and on reasonable notice to
examine, at its expense, the books, records, and tax returns of DEVELOPER with
respect to each of the FRANCHISED STORES including all documents in the care,
custody, possession or control of DEVELOPER in connection with the operations of
each of the FRANCHISED STORES. FRANCHISOR shall also have the right, at any
time, and at its own expense, to have an audit made of the books of DEVELOPER.
If FRANCHISOR's accountants indicate that there has been an understatement of
Gross Revenues in any given period with respect to any of the FRANCHISED STORES,
then DEVELOPER shall immediately pay to FRANCHISOR the amount understated in
addition to interest from the date such amount was due until paid at a rate
equal to eighteen (18%) percent per annum, or, if less, at the maximum rate
permitted by law. If any understatement of Gross Revenues is in the amount of
three (3%) percent or more, or if FRANCHISOR's audit reveals any material or
willful violation of this Agreement, the Franchise Agreement, or any Addenda
thereto, DEVELOPER shall, in addition, reimburse FRANCHISOR for any and all
costs and expenses connected with the inspection (including, without limitation,
travel expenses, compensation to FRANCHISOR's representatives and reasonable
accounting fees). The foregoing remedies shall be in addition to any other
remedies FRANCHISOR may have, including the right to terminate this Agreement,
of the Franchise Agreement and Addenda thereto.
9. CONDITIONS OF TRANSFER OF INTEREST.
9.1 Transfer by DEVELOPER.
Developer understands and acknowledges that the
rights and duties set forth in this Agreement are unique to DEVELOPER, and are
granted in
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reliance upon the business skill, financial capacity and personal character of
DEVELOPER and each of its Principal Owners. Therefore, neither DEVELOPER nor any
immediate or remote successor to any part of DEVELOPER'S interest in this
Agreement, nor any individual, partnership, corporation or other legal entity
which directly or indirectly controls DEVELOPER, shall sell, assign, transfer,
convey, sublease, pledge, mortgage or otherwise encumber the following without
the prior written consent of FRANCHISOR:
9.1.1 any right or interest created by this
Agreement, the Franchise Agreement or any Addenda thereto;
9.1.2 any of the FRANCHISED STORES, including any
portion of the assets therein;
9.1.3 any of the ownership interests in DEVELOPER; or
9.1.4 this Agreement.
9.2 Requirements of Transfer. FRANCHISOR shall not
unreasonably withhold its consent to a transfer of any ownership interests in
DEVELOPER provided that DEVELOPER shall have been in full compliance with this
Agreement, the Franchise Agreement and Addenda thereto, and that all of the
following conditions are met prior to the time of the proposed transfer:
9.2.1 All of DEVELOPER's accrued monetary
obligations to FRANCHISOR, shall have been satisfied including all such
obligations arising under the Franchise Agreement and Addenda thereto;
9.2.2 The transferor shall have first offered to
sell such interest to FRANCHISOR pursuant to Section 9.4 hereof.
9.2.3 The transferor's right to receive compensation
will be subordinated and secondary to obligations owed to FRANCHISOR or other
outstanding obligations due to FRANCHISOR from the transferor, or DEVELOPER;
9.2.4 The transferor shall have executed a general
release, in a form satisfactory to FRANCHISOR, of any and all claims against
FRANCHISOR, and its officers, directors, shareholders, affiliates,
representatives, agents and employees, in their corporate and individual
capacities;
9.2.5 The transferee shall enter into a written
assignment, in a form satisfactory to FRANCHISOR, assuming and agreeing to
discharge all of DEVELOPER's obligations under this Agreement;
9.2.6 The transferee shall demonstrate to
FRANCHISOR's satisfaction that it meets FRANCHISOR's educational, managerial and
business standards, possesses a good aptitude, moral character, business
reputation and ability
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as may be evidenced by prior related business experience or otherwise; has
adequate financial resources and capital to fulfill the obligations of
DEVELOPER. DEVELOPER shall provide FRANCHISOR with such information as
FRANCHISOR may require in its then-current franchise application form, in order
to make such determination concerning each such proposed transferee, including
by way of illustration and not limitation, a ten (10) year employment history,
financial statements and tax returns for the most recent three (3) year period
and three (3) references, one of which must be a bank reference. FRANCHISOR may
reasonably object to a proposed transferee if the proposed transfer would harm
the WEST COAST SYSTEM or place FRANCHISOR at a competitive disadvantage with
respect to its proprietary information and the WEST COAST SYSTEM;
9.2.6 DEVELOPER shall pay FRANCHISOR a transfer fee
which shall be Twenty-Five Thousand ($25,000.00) Dollars to cover administrative
and other expenses, in connection with the transfer.
9.3 Securities Offerings. All materials required for any offer
or sale of securities of DEVELOPER by federal or state law shall be submitted to
FRANCHISOR for review, approval, and consent prior to their being filed with any
government agency; and any materials to be used in any exempt offering shall be
submitted to the FRANCHISOR for review, approval and consent prior to their use.
No DEVELOPER offering shall imply (by use of the Proprietary Marks or otherwise)
that FRANCHISOR is participating as an underwriter, issuer, or offeror of
DEVELOPER's or FRANCHISOR's securities; and the FRANCHISOR's review of any
offering shall be limited solely to the subject of the relationship between
DEVELOPER and FRANCHISOR. DEVELOPER and the other participants in the offering
must fully indemnify FRANCHISOR in connection with the offering (subject to such
limitations which are customary in offerings of this nature). For each proposed
offering, DEVELOPER shall pay to FRANCHISOR a non-refundable fee of Five
Thousand Dollars ($5,000.00), or such greater amount necessary to reimburse
FRANCHISOR for its reasonable costs and expenses associated with reviewing the
propose offering, including, without limitation, legal and accounting fees. If
the documentation with respect to any such offer or sale is significantly less
than what would normally be required in the case of such an offering, then the
fee DEVELOPER shall pay to FRANCHISOR for its costs and expenses shall be
adjusted downward in order to reflect the amount of time actually expended in
connection with such review. DEVELOPER shall give FRANCHISOR written notice at
least ninety (90) days prior to the date of commencement of any such offering.
Any such offering shall be subject to FRANCHISOR's right of first refusal, as
set forth in Section 9.4 hereof.
9.4 Right of First Refusal. If any party holding any interest
in DEVELOPER, in this Agreement, in the DEVELOPER's business, or in
substantially of the DEVELOPER's assets (the transfer of which interest would
have the effect of transferring this Agreement, a controlling interest in
DEVELOPER, DEVELOPER's business, or in substantially all of DEVELOPER's assets),
or if DEVELOPER desires to accept any bona fide offer from a third party to
purchase such interest, the seller shall notify FRANCHISOR in writing of the
terms of
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such offer, and shall provide such information and documentation relating to the
offer as FRANCHISOR may require; and FRANCHISOR shall have the right and option,
exercisable within thirty (30) days after receipt of such written notification,
to send written notice to the seller that FRANCHISOR intends to purchase the
seller's interest on the same terms and conditions offered by the third party.
In the event that FRANCHISOR elects to purchase the seller's interest, no
material change in any offer and no other offers by a third party for such
interest shall be considered with respect to FRANCHISOR's right of first
refusal. In the event that FRANCHISOR elects to purchase the seller's interest,
closing on such purchase must occur within ninety (90) days from the date of
notice to the seller of the election to purchase by FRANCHISOR. In the event
that FRANCHISOR has elected not to purchase the seller's interest, any material
change in the terms of any offer prior to closing by any third party shall
constitute a new offer subject to the same rights of first refusal by FRANCHISOR
to exercise the option afforded by this Section 9.4 shall not constitute a
waiver of any other provision of this Agreement, including all of the
requirements of this Section 9.4 with respect to a proposed transfer. In the
event the consideration, terms, and/or conditions offered by a third party are
such that FRANCHISOR may not reasonably be required to furnish the same
consideration, terms, and/or conditions, then FRANCHISOR may purchase the
interest in the DEVELOPER's business proposed to be sold for the reasonable
equivalent in cash. If the parties cannot agree within a reasonable time on the
reasonable equivalent in cash of the consideration, terms, and/or conditions
offered by the third party, an independent appraiser shall be designated by
mutual agreement of FRANCHISOR and DEVELOPER, and his determination shall be
binding. If FRANCHISOR and DEVELOPER cannot agree upon the selection of a single
appraiser, then each party shall designate one (1) such appraiser and the two
(2) designated appraisers, in turn, shall designate a third party appraiser and
the determination of the three (3) appraisers shall be binding.
9.5 Death, Disability or Incompetency.
Upon the death, disability or mental incompetency of
any person with a controlling interest in this Agreement or in DEVELOPER, the
transfer of which requires the consent of the FRANCHISOR as provided in Section
9.2 hereof, the executor, administrator, personal representative, guardian, or
conservator of such person shall transfer such interest within six (6) months
after such death, disability or mental incompetency to a third party approved by
FRANCHISOR. Such transfers, including, without limitation, transfers by devise
or inheritance, shall be subject to the same conditions as any inter vivos
transfer. However, in the case of transfer by devise or inheritance, if the
heirs or beneficiaries of any such person are unable to meet the conditions of
this Section 9, the personal representative of the deceased person shall have a
reasonable time to dispose of the deceased's interest, which disposition shall
be subject to all the terms and conditions for transfers contained in this
Agreement. If the interest is not disposed of within a reasonable time not to
exceed nine (9) months, FRANCHISOR may terminate this Agreement.
9.6 Written Consent of FRANCHISOR.
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Any purported assignment, transfer, conveyance or encumbrance of any right or
interest created herein, any ownership interests in DEVELOPER, or this
Agreement, without the prior written consent of FRANCHISOR, shall be null and
void, and shall result in termination of this Agreement, as set forth below in
Section 10.2.9 hereof.
9.7 Non-Waiver by FRANCHISOR. FRANCHISOR's consent to a
transfer of any interest granted herein shall not constitute a waiver of any
claims FRANCHISOR may have against the transferring party, nor shall it be
deemed a waiver of FRANCHISOR's rights to demand exact compliance with any of
the terms of this Agreement by the transferee.
9.8 Intra-Corporate Non-Controlling Transfer. The principals
of DEVELOPER including the Principal Owners of DEVELOPER may agree among
themselves as to the purchase of a principal's interest in DEVELOPER. A transfer
of a minority interest in DEVELOPER (whether voting stock, securities
convertible thereto, partnership or proprietary interests) pursuant to such an
agreement will not be subject to the terms and conditions applicable to an
inter-vivos transfer set forth in this Section 9; provided, however, that the
interest of the transferring principal of DEVELOPER is not to be transferred to
a party not owning an interest in DEVELOPER immediately prior to the transfer.
9.9 Transfer by FRANCHISOR.
FRANCHISOR shall have the right to transfer or
assign this Agreement, including all or any part of its rights and obligations
herein to any person or legal entity.
10. DEFAULT AND TERMINATION.
10.1 No Cure Period. Except as otherwise provided by
applicable law, DEVELOPER shall be deemed to be in default under this Agreement,
and this Agreement and all rights granted herein shall automatically terminate
without opportunity to cure and without notice by FRANCHISOR to DEVELOPER, in
the event that DEVELOPER files any petition in bankruptcy, voluntary or
involuntary.
10.2 Optional Cure Period. Except as otherwise provided by
applicable law, DEVELOPER shall be deemed in default under this Agreement and
FRANCHISOR may, at its option, terminate this Agreement and all rights granted
herein without affording DEVELOPER any opportunity to cure the default, with
such termination to be effective immediately upon the sending of the notice of
termination to DEVELOPER as set forth in the notice provisions of Section 14
hereof, or, FRANCHISOR may, at its option, suspend all FRANCHISOR support of
DEVELOPER pursuant to this Agreement, or otherwise, upon the occurrence of any
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of the following events:
10.2.1 DEVELOPER becomes insolvent;
10.2.2 DEVELOPER makes an assignment for the benefit
of its creditors;
10.2.3 DEVELOPER admits in writing its inability to
pay its debts generally as they become due;
10.2.4 DEVELOPER suffers temporary or permanently
appointed receivership;
10.2.5 DEVELOPER has against it a final judgment
which remains unsatisfied for thirty days or longer;
10.2.6 A suit is brought against DEVELOPER to
foreclose any lien or mortgage against any of the FRANCHISED STORES or against
any products in connection with the FRANCHISED STORES, and such suit is not
dismissed within thirty days;
10.2.7 DEVELOPER ceases to operate any of the
FRANCHISED STORES or otherwise abandons said business for five (5) or more
consecutive days;
10.2.8 DEVELOPER is convicted of a felony or any
other crime or offense that is reasonably likely, in the sole opinion of
FRANCHISOR, to adversely effect FRANCHISOR, the Proprietary Marks, or the
goodwill associated with the Proprietary Marks;
10.2.9 DEVELOPER attempts to, or purports to,
transfer any rights or obligations under this Agreement, or otherwise, to any
third party, contrary to the terms and provisions of Section 10 hereof;
10.2.10 DEVELOPER fails to comply with the covenants
set forth in Section 12 hereof;
10.2.11 DEVELOPER fails to comply with the
Development Schedule set forth at Exhibit C hereof.
10.3 Cure Period and Termination. Except as set forth in
Sections 10.1 and 10.2 hereof, and except as otherwise provided by applicable
law, DEVELOPER shall have thirty (30) days after its receipt in any manner set
forth in Section 14 hereof from FRANCHISOR of a written notice of default within
which to remedy a default of any of the terms of this Agreement, as set forth in
such written notice of default, and provide written evidence thereof to the
satisfaction of FRANCHISOR.
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If any such default is not cured within said thirty (30) day
period (or such longer period as applicable law may otherwise require),
FRANCHISOR may, at its option, terminate this Agreement and all rights granted
herein without affording DEVELOPER any further opportunity to cure the default,
with such termination to be effective immediately upon the sending of the notice
of termination to DEVELOPER in any manner set forth in Section 14 hereof, or,
FRANCHISOR may, at its option, suspend all FRANCHISOR support of DEVELOPER
pursuant to this Agreement, or otherwise.
10.4 Cross-Default. Any default by DEVELOPER under the terms
and conditions of this Agreement or any other agreement between FRANCHISOR and
DEVELOPER, including the Franchise Agreement, and any Addenda thereto, shall be
deemed to be a default of each and every agreement between FRANCHISOR and
DEVELOPER. Furthermore, in the event of termination, for any cause, of this
Agreement or any other such agreement between the parties hereto, FRANCHISOR
may, at its option, terminate any or all other agreements.
11. OBLIGATIONS UPON TERMINATION.
11.1 DEVELOPER Obligations. Upon the termination of this
Agreement by either DEVELOPER or FRANCHISOR, by operation of law, or upon
expiration of this Agreement because of lapse of time, this Agreement and all
rights granted herein to DEVELOPER shall automatically terminate; provided,
however, that the obligations of DEVELOPER as set forth in this Section 11 and
in Sections 12 and 13 hereof shall survive the termination of this Agreement.
11.2 DEVELOPER shall promptly pay all sums owing to
FRANCHISOR. FRANCHISOR shall have the right to set off any or all amounts due to
DEVELOPER under this Agreement. DEVELOPER shall also pay all damages, costs and
expenses, incurred by FRANCHISOR as a result of a default by DEVELOPER which
resulted in termination of this Agreement, including all fees and costs and
reasonable attorney's fees in obtaining injunctive or other relief for the
enforcement of DEVELOPER's obligations in this Section 11 and in Section 12
hereof. DEVELOPER does hereby irrevocably authorize and empower FRANCHISOR or
any officer of FRANCHISOR to execute, as DEVELOPER's attorney-in-fact, coupled
with an interest, all documents or orders as may be necessary for completion of
the post-termination obligations set forth in this Section 11.
11.3 DEVELOPER must continue to comply with the continuing
obligations set forth in this Agreement, including the post-termination
obligations set forth in Sections 11 and 12 hereof.
11.4 The covenants contained in this Section 11 shall be
construed as independent of any other provision of this Agreement and the
existence of any claim or cause of action of DEVELOPER against FRANCHISOR,
whether
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predicated upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by FRANCHISOR of the covenants set forth in this Section 11 or
in Section 12 hereof.
12. NON-COMPETITION.
12.1 Covenants Not to Compete.
12.1.1 In consideration of FRANCHISOR's execution of
this Agreement and the confidential disclosure by FRANCHISOR of unique valuable
information to DEVELOPER, DEVELOPER and each of its Principal Owners shall not
(other than as provided in this Agreement), during the term of this Agreement
and for two years after its termination, expiration, transfer, assignment, sale
or nonrenewal:
12.1.2.1 Divert or attempt to divert any
business or customer from any of the FRANCHISED STORES to any competitor, by
direct or indirect inducement or otherwise, or do or perform, directly or
indirectly, any other act injurious or prejudicial to the WEST COAST SYSTEM or
the goodwill associated with the Proprietary Marks; or
12.1.2.2 Have any interest, directly or
indirectly, in any business competitive with the business of the FRANCHISED
STORES; or
12.1.2.3 Own, maintain, engage in, or
have any interest in, either directly or indirectly (including through a member
of the immediate family of any of the Principal Owners of DEVELOPER), as a
proprietor, partner, investor, lender, guarantor, shareholder, director,
officer, employee, principal, agent, advisor, independent contractor, or
consultant to, any business which specializes in whole or in part in the
development, establishment or operation of any retail facilities which sell or
rent video movies and related products, in the Development Area or within five
(5) miles of any retail video store operating under the WEST COAST SYSTEM
(whether company-owned, franchised or otherwise established); or
12.1.2.4 Employ or seek to employ any
person who is at that time currently employed by FRANCHISOR (or its affiliates),
or directly or indirectly induce such person to leave his or her employment
without the prior written consent of FRANCHISOR.
12.2 Effect of Unenforceability of Covenants. The parties
hereto agree that the foregoing covenants shall be construed as independent of
any other covenants or provisions of this Agreement and the existence of any
claim or cause of action of DEVELOPER against FRANCHISOR, shall not constitute a
defense to the enforcement by FRANCHISOR of such covenants. In the event that
all or any portion of any provisions set forth in this Section 12 are held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
an unappealed final decision to which FRANCHISOR is a party,
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DEVELOPER expressly agrees to be bound by any lessor covenants subsumed within
the terms of such covenant that imposes the maximum duty permitted by law, as if
the resulting covenant were separately stated in and made a part of this Section
12, or as otherwise amended by the court or agency.
12.3 Injunctive Relief. DEVELOPER acknowledges that FRANCHISOR
would be irreparably injured and without an adequate remedy at law in the event
DEVELOPER violates any provision of this Section 12 and that in such event
FRANCHISOR will therefore be entitled to a temporary restraining order,
preliminary injunction and/or permanent injunction without need to show monetary
damages or to post a bond or other security, as well as actual costs and
attorneys' fees incurred in enforcing the restrictive covenants set forth in
Section 12 hereof.
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION.
13.1 Independent Contractor. It is understood and agreed by
the parties hereto that this Agreement does not create a fiduciary relationship
between or among them, that DEVELOPER shall be an independent contractor, and
that nothing in this Agreement is intended to constitute or construe DEVELOPER
as an agent, legal representative, subsidiary, joint venturer, partner,
affiliate, employee or servant of FRANCHISOR for any purpose whatsoever. It is
understood and agreed that nothing in this Agreement authorizes DEVELOPER to
make any contract, agreement, warranty or representation on FRANCHISOR's behalf,
or to incur any debt or other obligation in FRANCHISOR's name, and that
FRANCHISOR shall in no event assume liability for, or be deemed liable
hereunder, as a result of, any such action, or by reason of any act or omission
of DEVELOPER, its employees or agents, in its conduct pursuant to this Agreement
or of the FRANCHISED STORES.
13.2 DEVELOPER Indemnification. DEVELOPER agrees to indemnify
FRANCHISOR, including its officers, directors, employees and stockholders and
save and hold FRANCHISOR harmless from, against, for and in respect of any and
all damages, losses, obligations, liabilities, claims, deficiencies, costs and
expenses, including, without limitation, reasonable attorney's fees and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding (herein referred to as "FRANCHISOR's Losses") suffered, sustained,
incurred or required to be paid by FRANCHISOR, by reason of any representation,
act, commission or omission of DEVELOPER, its agents, servants, employees, with
respect to, or in connection with, DEVELOPER's obligations the establishment and
operation of each of the FRANCHISED STORES, including any injury to, or loss of
property of, any customer or employee of any of the FRANCHISED STORES, or any
failure by DEVELOPER to observe or perform its covenants and obligations as set
forth in this Agreement; provided, however, that this indemnification obligation
shall not arise to the extent FRANCHISOR's losses result from FRANCHISOR's
(including its agents' or employees') negligent or wrongful act or failure
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to act. All of FRANCHISOR's Losses shall be satisfied by cash payments from
DEVELOPER to FRANCHISOR. DEVELOPER shall, in writing, notify FRANCHISOR
immediately as to any suit, action, investigation, claim or proceeding for which
indemnification might be claimed by FRANCHISOR. Upon receipt of any notice of
suit, action, investigation, claim or proceeding for which indemnification might
be claimed by FRANCHISOR, FRANCHISOR shall be entitled promptly to defend,
prosecute, settle, contest or otherwise protect itself, by counsel of its own
choosing, at DEVELOPER's sole cost and expense. DEVELOPER shall have the right
to select its own counsel, provided, that attorneys' fees and costs for such
counsel are paid by DEVELOPER. FRANCHISOR shall be entitled to control the
defense or prosecution thereof, unless FRANCHISOR has consented in writing to
allow DEVELOPER to control the litigation.
14. NOTICES.
Any and all notices required or permitted under this Agreement
shall be in writing and shall be (a) personally delivered (and deemed received
when delivered and acknowledgment of receipt is given), or (b) mailed by
certified or registered mail, return receipt requested (and deemed received
three (3) days after delivery to the U.S. Postal Service, whether or not
accepted by addressee), or (c) by telecopy (and deemed received when sent and
confirmation of receipt is made), or (d) by Federal Express or other recognized
overnight courier service guaranteeing delivery within twenty four (24) hours
(and deemed received on the scheduled date of delivery), and addressed to the
respective parties at the following addresses unless and until a different
address has been designated by written notice to the other party:
Notices to FRANCHISOR:
West Coast Franchising Company
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Office of the President
Notices to DEVELOPER:
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
HB Associates, L.L.C.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
15. ENTIRE AGREEMENT.
This Agreement, the documents referred to herein, and the
Exhibits hereto, constitute the entire, full and complete Agreement between
FRANCHISOR and DEVELOPER concerning the subject matter hereof, and supersede all
prior agreements. There are no representations, inducements, promises,
agreements, arrangements or undertakings, oral or written, between the parties
other than those set forth in this Agreement. No amendment, change or variance
from this Agreement shall be binding on either party unless mutually agreed to
in writing by the parties and
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24
executed by their authorized officers or agents in writing.
16. SEVERABILITY AND CONSTRUCTION; WAIVER; MISCELLANEOUS.
16.1 Severability. Except as expressly provided to the
contrary herein, each section, part, term and/or provision of this Agreement
shall be considered severable; and if, for any reason, any section, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation by a court or agency
having valid jurisdiction, such shall not impair the operation of, or have any
other effect upon, such other portions, sections, parts, terms and/or provisions
of this Agreement as may remain otherwise intelligible, and the latter shall
continue to be given full force and effect and bind the parties hereto; and said
invalid sections, parts, terms and/or provisions shall be deemed not to be a
part of this Agreement.
16.2 No Third Party Benefits. Except as otherwise set forth in
this Agreement, nothing in this Agreement is intended, nor shall be deemed, to
confer upon any person or legal entity other than the parties hereto, and such
of their respective successors and assigns as permitted herein, any rights or
remedies under or by reason of this Agreement.
16.3 Captions. All captions in this Agreement are intended
solely for the convenience of the parties, and none shall be deemed to affect
the meaning or construction of any provisions hereof.
16.4 Gender References. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, where applicable.
16.5 Execution of Agreement. This Agreement may be executed in
duplicate, and each copy so executed shall be deemed an original.
16.6 Absence of Warranties. Except as otherwise provided
herein, FRANCHISOR does not make any warranties or guarantees upon which
DEVELOPER may rely, and assumes no liability or obligation to DEVELOPER, by
providing any waiver, approval, consent or suggestion to DEVELOPER in connection
with this Agreement, or by reason of any neglect, delay or denial or any request
therefor.
16.7 Anti-Waiver. No delay, waiver, omission or forbearance on
the part of FRANCHISOR, to exercise any right, option, duty or power arising out
of any breach or default by DEVELOPER or by any other WEST COAST developer, of
any of the terms, provisions or covenants hereof, shall constitute a waiver by
such party to enforce any such right, option or power as against DEVELOPER or as
-24-
25
to subsequent breach or default by DEVELOPER. Subsequent acceptance by
FRANCHISOR of any payments due to it hereunder shall not be deemed to be a
waiver of any preceding breach by DEVELOPER of any terms, covenants or
conditions of this Agreement.
16.8 Force ▇▇▇▇▇▇. Except for the obligations of DEVELOPER to
pay any fees or other payments hereunder, neither party will be liable to the
other party for failure to perform under this Agreement, in whole or in part,
when such failure is due to governmental restrictions, failure of utilities,
strikes, labor troubles, riots, storms, fires, explosions, floods, wars,
embargoes, blockades, legal restrictions, insurrections, acts of God or any
other cause similar thereto which is beyond the reasonable control of the
parties. In the event of such delay, the time for performance will be extended
by a period of time equal to such delay if such extension is reasonably needed.
17. APPLICABLE LAW; JURISDICTION AND VENUE; LIMITATION OF . CLAIMS;
INJUNCTIVE RELIEF; WAIVERS
17.1 Effect. This Agreement takes effect upon acceptance and
signing by FRANCHISOR in Philadelphia, Pennsylvania.
17.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
THE PARTIES HERETO AGREE THAT ANY ACTION BROUGHT BY ANY ONE OF THEM, WHETHER
FEDERAL OR STATE, OR ANY ARBITRATION PROCEEDING, SHALL BE BROUGHT WITHIN THE
COMMONWEALTH OF PENNSYLVANIA. DEVELOPER WAIVES ANY OBJECTIONS TO PERSONAL
JURISDICTION, FORUM NON CONVENIENS, AND VENUE WITH RESPECT TO ANY ACTION OR
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
17.3 Limitations of Claims. EXCEPT WITH REGARD TO DEVELOPER'S
OBLIGATIONS TO MAKE PAYMENTS TO FRANCHISOR PURSUANT TO THIS AGREEMENT, ANY AND
ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF
DEVELOPER AND FRANCHISOR IN CONNECTION WITH DEVELOPER'S OPERATION OF ANY OF THE
FRANCHISED STORES SHALL BE BARRED UNLESS AN ACTION OR PROCEEDING IS COMMENCED
WITHIN ONE (1) YEAR FROM THE DATE ON WHICH DEVELOPER OR FRANCHISOR KNEW OR
SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING
RISE TO SUCH CLAIMS.
17.4 Waiver of Punitive Damages and Jury Trial. FRANCHISOR AND
DEVELOPER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR
CLAIM FOR
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26
ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT
OF A DISPUTE BETWEEN THEM, EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE
LIMITED TO THE RECOVERY OF ACTUAL DAMAGES SUSTAINED BY IT. FRANCHISOR AND
DEVELOPER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY ON ANY ACTION, PROCEEDING OR
COUNTERCLAIM, WHETHER AT LAW OR EQUITY, BROUGHT BY EITHER OF THEM.
17.5 Injunctive Relief. Nothing in this Agreement shall bar
FRANCHISOR's right to seek specific performance of the provisions of this
Agreement and injunctive relief against threatened conduct that will cause it
loss or damages under customary equity rules, including applicable rules for
obtaining restraining orders and preliminary injunctions. DEVELOPER agrees that
FRANCHISOR may obtain such injunctive relief in addition to such further or
other relief as may be available at equity or law for (i) any dispute involving
the Proprietary Marks; (ii) termination of this Agreement; (iii) any dispute
involving enforcement of the confidentiality provisions set forth in this
Agreement; and (iv) any dispute involving enforcement of the covenants not to
compete set forth in Section 12 of this Agreement. DEVELOPER agrees that
FRANCHISOR will not be required to post a bond to obtain any injunctive relief
and that DEVELOPER's only remedy if an injunction is entered against DEVELOPER
will be the dissolution of that injunction, if warranted, upon due hearing (all
claims for damages by reason of the wrongful issuance of such injunction being
expressly waived hereby).
18. ACKNOWLEDGEMENTS.
18.1 DEVELOPER ACKNOWLEDGES THAT IT HAS CONDUCTED AN
INDEPENDENT INVESTIGATION OF FRANCHISOR, AND THE STATUS AND REPUTATION OF WEST
COAST VIDEO FRANCHISES, GENERALLY, AND RECOGNIZES THAT THE BUSINESS VENTURE
CONTEMPLATED BY THIS AGREEMENT INVOLVES BUSINESS RISKS AND THAT ITS SUCCESS IS
PRIMARILY DEPENDENT UPON THE ABILITY OF DEVELOPER AS AN INDEPENDENT
BUSINESSPERSON AND NOT UPON FRANCHISOR. FRANCHISOR EXPRESSLY DISCLAIMS THE
MAKING OF, AND DEVELOPER ACKNOWLEDGES THAT IT HAS NOT RECEIVED, ANY WARRANTY OR
GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS OR SUCCESS OF
THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT. FURTHER, DEVELOPER
ACKNOWLEDGES, WARRANTS AND REPRESENTS TO FRANCHISOR THAT NO REPRESENTATION HAS
BEEN MADE BY FRANCHISOR, OR ANY EMPLOYEE, AGENT OR SALES PERSON OF FRANCHISOR,
AND RELIED UPON BY DEVELOPER AS TO THE FUTURE OR PAST INCOME, EXPENSES, SALES
VOLUME OR POTENTIAL PROFITABILITY, EARNINGS OR INCOME OF THE FRANCHISED STORES .
18.2 DEVELOPER ACKNOWLEDGES THAT IT RECEIVED A COPY OF THIS
AGREEMENT AND ALL EXHIBITS THERETO AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE
DATE ON WHICH THIS AGREEMENT WAS
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27
EXECUTED, OR AS OTHERWISE PROVIDED BY APPLICABLE STATE LAW. DEVELOPER FURTHER
ACKNOWLEDGES THAT IT HAS RECEIVED THE DISCLOSURE DOCUMENT REQUIRED BY THE TRADE
REGULATION RULE OF THE FEDERAL TRADE COMMISSION ENTITLED "DISCLOSURE
REQUIREMENTS AND PROHIBITIONS CONCERNING FRANCHISING AND BUSINESS OPPORTUNITY
VENTURES," OR AS OTHER APPLICABLE LAW MAY REQUIRE, AT LEAST TEN (10) BUSINESS
DAYS PRIOR TO THE DATE ON WHICH THIS AGREEMENT WAS EXECUTED.
18.3 DEVELOPER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD
THIS AGREEMENT, THE ATTACHMENTS HERETO, IF ANY, AND AGREEMENTS RELATING THERETO,
IF ANY, AND THAT FRANCHISOR HAS ACCORDED DEVELOPER AMPLE TIME AND OPPORTUNITY TO
CONSULT WITH ADVISORS OF ITS OWN CHOOSING ABOUT THE POTENTIAL BENEFITS AND RISKS
OF ENTERING INTO THIS AGREEMENT.
19. MEDIATION. Except as set forth in Section 17.5 of this
Agreement, the parties agree that if any dispute between them, or any claim by
one or more of them, concerning this Agreement, any related agreement, including
the Franchise Agreement and any Addendum thereto, or any of the FRANCHISED
STORES, cannot be settled through negotiation, after diligent effort, they will
first attempt in good faith to settle the dispute or claim by submitting the
matter to private and confidential mediation pursuant to the CPR Procedure for
Resolution of Franchise Disputes, a copy of which is attached hereto as Exhibit
H and incorporated herein by reference.
20. ARBITRATION.
20.1 Except as set forth in Sections 17.5 and 19 of this
Agreement, any controversy, claim, cause of action or dispute arising out of, or
relating to any of the FRANCHISED STORES or this Agreement including, but not
limited to (i) any claim by DEVELOPER, or any person in privity with or claiming
through, on behalf of or in the right of DEVELOPER, concerning the entry into,
performance under, or termination of, this Agreement or any other agreement
entered into by FRANCHISOR, or its subsidiaries or affiliates, and DEVELOPER,
(ii) any claim against a past or present employee, officer, director or agent of
FRANCHISOR, (iii) any claim of breach of this Agreement, and (iv) any claims
arising under state or federal laws, shall be submitted to final and binding
arbitration as the sole and exclusive remedy for any such controversy or
dispute. Unless prohibited by applicable law, any claim shall be made by filing
a written demand for arbitration within one (1) year following the conduct, act
or other event or occurrence first giving rise to the claim; otherwise, the
right to any remedy shall be deemed forever waived and lost. Persons in privity
with or claiming through, on behalf of or in the right of DEVELOPER include, but
are not limited to, spouses and other family members, heirs, executors,
representatives, successors and assigns.
20.2 The right and duty of the parties to this Agreement to
resolve any disputes by arbitration shall be governed exclusively by the Federal
Arbitration Act,
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as amended, and arbitration shall be conducted pursuant to the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association (herein
"AAA"). The arbitration shall be held at the office of the AAA closest to
FRANCHISOR's principal place of business. Any dispute as to the arbitration of
any controversy, claim, cause of action or dispute shall also be determined by
arbitration.
20.3 Three arbitrator(s) shall be selected from a panel of
neutral arbitrators provided by the AAA and shall be chosen by the striking
method. The parties each shall bear all of their own costs (including attorney's
fees) of arbitration; however, the fees of the arbitrators shall be divided
equally between the parties. The arbitrators shall have no authority to amend or
modify the terms of this Agreement.
20.4 Each party further agrees that, unless such a limitation
is prohibited by applicable law, the other party shall not be liable for
punitive or exemplary damages and the arbitrators shall have no authority to
award the same. The award or decision by a majority of the arbitrators shall be
final and binding on the parties without right of appeal and may be enforced by
judgment or order of a court having subject matter jurisdiction in the state
where the arbitration took place. The arbitration panel shall have absolutely no
authority to award punitive or exemplary damages to any party.
20.5 No arbitration under this Agreement shall include, by
consolidation, joinder or in any other manner, any person other than the
DEVELOPER and FRANCHISOR and any person in privity with or claiming through, in
the right of or on behalf of DEVELOPER or FRANCHISOR, unless both parties
consent in writing. To the extent permitted by applicable law, no issue of fact
or law shall be given preclusive or collateral estoppel effect in any
arbitration hereunder, except to the extent such issue may have been determined
in another proceeding between FRANCHISOR and DEVELOPER or any person in privity
with or claiming through, in the right of or on behalf of DEVELOPER or
FRANCHISOR.
20.6 Except as and to the extent expressly provided to the
contrary by law, FRANCHISOR and DEVELOPER shall maintain all aspects of the
arbitration proceeding in confidence, and shall not disclose any information
about the proceeding to any third party other than legal counsel who shall be
required to maintain the confidentiality hereof.
29
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed
and delivered this Agreement in duplicate on the day and year first above
written.
WEST COAST FRANCHISING COMPANY
By:________________________________
Title:________________________________
HB ASSOCIATES, L.L.C
By:________________________________
Title:_________________________________
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EXHIBIT "A"
TO DEVELOPMENT AGREEMENT
FORM OF FRANCHISE AGREEMENT
Attached hereto is the current form of Franchise Agreement used by
FRANCHISOR in the offer and grant of franchises for the ownership and
operation of WEST COAST VIDEO FRANCHISED STORES. This Franchise Agreement
shall govern all FRANCHISED STORES.
WEST COAST FRANCHISING COMPANY HB ASSOCIATES, L.L.C
By:_______________________________
By:__________________________
Title:____________________________ Title:_______________________
[EXHIBIT C-1 TO OFFERING CIRCULAR]
31
EXHIBIT "B"
TO DEVELOPMENT AGREEMENT
DEVELOPMENT AREA
That portion of the State of Massachusetts North of ▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇
▇▇▇▇▇ ▇, including Beverly, Massachusetts and the States of New Hampshire and
Maine, excluding Watertown, Massachusetts and excluding all existing units owned
or franchised by Franchisor or its affiliates, including its parent, West Coast
Entertainment Corp. as set forth below:
(1) Videosmith (2) West Coast Video #1057
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(3) West Coast Video #1128 (4) West Coast Video #1320
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(5) West Coast Video #1636 (6) West Coast Video #1647
▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Danvers, MA 01923 ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(7) Video Headquarters
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
32
[EXHIBIT C-2 TO OFFERING CIRCULAR]
33
EXHIBIT "C"
TO DEVELOPMENT AGREEMENT
DEVELOPMENT SCHEDULE
Cumulative Total of
FRANCHISED STORES to
be opened and in
By (Date) DEVELOPER's FRANCHISED STORES Continuous Operation
--------- ----------------------------- --------------------
______________, 1997 6 Franchised Stores 6
______________, 1998 6 Additional Franchised Stores 12
______________, 1999 6 Additional Franchised Stores 18
______________, 2000 2 Additional Franchised Stores 20
[EXHIBIT C-3 TO OFFERING CIRCULAR]
34
EXHIBIT "D"
TO DEVELOPMENT AGREEMENT
PRINCIPAL OWNERS AND OTHER OWNERS
L. PRINCIPAL OWNERS: Listed below are the full name and mailing address of
each person or entity who is a Principal Owner of DEVELOPER, and a description
of the nature of such Principal Owner's direct or indirect equity or voting
interest in DEVELOPER:
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: _____________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
[EXHIBIT C-4 TO OFFERING CIRCULAR]
35
2. OTHER OWNERS: Listed below are the full name and mailing address of
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity or voting interest in DEVELOPER and a description of
the nature of the interest (attach additional sheet if required):
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
Name:_________________________ Number of Shares Owned: ________
Address: _____________________ % of Total Shares: _____________
______________________________ Number of Shares Owner is
______________________________ Entitled to Vote: ______________
______________________________ Other Interest (Describe) ______
______________________________ ________________________________
HB ASSOCIATES, L.L.C
By: ____________________________
Title: _________________________
36
EXHIBIT "E"
TO DEVELOPMENT AGREEMENT
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS is given this
____________________________, 1996, by the undersigned.
DEVELOPER: HB ASSOCIATES, L.L.C
DATE OF DEVELOPMENT AGREEMENT: __________________________, 1996
In consideration of, and as an inducement to, the execution of the
above-mentioned West Coast Development Agreement (the "Agreement") by West Coast
Franchising Company ("FRANCHISOR"), each of the undersigned and any other
parties who sign counterparts of this guaranty (referred to herein individually
as a "Guarantor" and collectively as "Guarantors") hereby personally and
unconditionally: (a) guarantees to FRANCHISOR, and its successors and assigns,
for the term of the Agreement and thereafter as provided in the Agreement, that
DEVELOPER shall punctually pay and perform each and every undertaking, agreement
and covenant set forth in the Agreement; and (b) agrees to be personally bound
by, and personally liable for the breach of, each and every provision in the
Agreement, both monetary obligations and other obligations, including without
limitation, the obligation to pay costs and legal fees as provided in the
Agreement and the obligation to take or refrain from taking specific actions or
to engage or refrain from engaging in specific activities, including without
limitation the provisions of the Agreement relating to competitive activities.
Each Guarantor waives:
1. acceptance and notice of acceptance by FRANCHISOR of the
foregoing undertakings; and
2. notice of demand for payment of any indebtedness or
nonperformance of any obligations hereby guaranteed; and
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
[EXHIBIT C-5 TO OFFERING CIRCULAR]
37
4. any right he may have to require that an action be brought
against DEVELOPER or any other person as a condition of liability; and
5. until such time as FRANCHISOR is paid in full, all rights to
payments and claims for reimbursement or subrogation which he may have against
DEVELOPER arising as a result of his execution of and performance under this
guaranty by the undersigned (including by way of counterparts); and
Each Guarantor consents and agrees that:
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with DEVELOPER, but also among the Guarantors; and
(B) he shall render any payment or performance required under the
Agreement upon demand if DEVELOPER fails or refuses punctually to do so; and
(C) such liability shall not be contingent or conditioned upon
pursuit by FRANCHISOR of any remedies against DEVELOPER or any other person; and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Agreement or by any
extension of time, credit or other indulgence which FRANCHISOR may from time to
time grant to DEVELOPER or to any other person, including, without limitation,
the acceptance of any partial payment or performance, or the compromise or
release of any claims, none of which shall in any way modify or amend this
guaranty, which shall be continuing and irrevocable throughout the term of the
Agreement and for so long thereafter as there are any monies or obligations
owing by DEVELOPER to FRANCHISOR under the Agreement; and
(E) the written acknowledgment of DEVELOPER, accepted in writing by
FRANCHISOR, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from DEVELOPER shall be conclusive and
binding on the undersigned as guarantors.
If FRANCHISOR is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
38
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Agreement was executed.
GUARANTOR(S)
------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
------------------------------
------------------------------
39
EXHIBIT "F"
TO DEVELOPMENT AGREEMENT
ADDENDUM TO FRANCHISE AGREEMENT
This Addendum Agreement is made and entered into this __________ day of
________________ 19___, by and between WEST COAST FRANCHISING COMPANY, a
Delaware corporation ("FRANCHISOR") and HB ASSOCIATES, L.L.C. (DEVELOPER").
BACKGROUND OF AGREEMENT
FRANCHISOR and DEVELOPER are parties to a Development Agreement dated
_____________________, 19_____ (the "Development Agreement") in which DEVELOPER
was granted the right to establish and operate "FRANCHISED STORES" in the
"DEVELOPMENT AREA" (as such quoted terms are defined in the Development
Agreement). Each of the FRANCHISED STORES must be established and operated
pursuant to the Franchise Agreement attached as Exhibit A to the Development
Agreement. DEVELOPER has requested and FRANCHISOR has approved a site for a
FRANCHISED STORE to be established and operated by DEVELOPER at
__________________________ ___________________________ (the
"_____________________ FRANCHISED STORE"). FRANCHISOR and DEVELOPER intend to
set forth herein their agreement with respect to the establishment and operation
of the ______________________ FRANCHISED STORE.
NOW THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises herein contained, and for other good and valuable
consideration, acknowledged by each of them to be satisfactory and adequate, and
each of said parties intending to be legally bound hereby, agree as follows:
1. FRANCHISOR hereby approves the establishment and operation of the
_____________ FRANCHISED STORE pursuant to the terms and conditions of the
Franchise Agreement. DEVELOPER hereby accepts and acknowledges that the
________________ FRANCHISED STORE shall be established and operated pursuant to
the terms and conditions of the Franchise Agreement.
2. The Designated Territory of the __________________ FRANCHISED
STORE, as provided for in Section 1.3 of the Franchise Agreement, shall be:
________________________________________________________________________________
_____________.
[EXHIBIT C-6 TO OFFERING CIRCULAR]
40
3. All terms and conditions of the Franchise Agreement are
incorporated herein by reference as if fully set forth. The relationship of
FRANCHISOR and DEVELOPER with respect to the _____________________ FRANCHISED
STORE shall be governed by the Franchise Agreement.
IN WITNESS WHEREOF, the duly authorized representatives of the
parties hereto have executed this Addendum to Franchise Agreement on the day and
year first mentioned above.
WEST COAST FRANCHISING COMPANY
By: __________________________
Title: _______________________
HB ASSOCIATES, L.L.C
By: __________________________
Title: _______________________
41
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: ____________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
42
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now
43
or hereafter operated.
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
44
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: ___________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
45
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now or hereafter operated.
46
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
47
EXHIBIT "G"
TO DEVELOPMENT AGREEMENT
CONFIDENTIALITY AND RESTRICTIVE
COVENANT AGREEMENT
NAME: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
HOME ADDRESS: ___________________________________________
___________________________________________
HOME TELEPHONE: _________________________________________
CLASSIFICATION: Principal
(PRINCIPAL, OWNER, SHAREHOLDER, PARTNER,
OFFICER, DIRECTOR, MANAGER, EMPLOYEE
OF DEVELOPER)
* * * *
THIS AGREEMENT is made this _____ day of ______________, 19___, by
and between HB Associates, L.L.C. (the "DEVELOPER") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the
person whose name, address, telephone number and affiliation with the DEVELOPER
are set forth above.
BACKGROUND
DEVELOPER has been granted certain development rights from WEST
COAST FRANCHISING COMPANY ("FRANCHISOR"). DEVELOPER's development rights are
within the following area: that portion of the State of Massachusetts North of
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇, including Beverly and the States of New Hampshire
and Maine (the "Development Area"). As a result of DEVELOPER'S agreement with
FRANCHISOR, DEVELOPER is in possession of certain proprietary information,
knowledge and know-how about FRANCHISOR's unique and proprietary plan, design,
method and system (the "WEST COAST SYSTEM") for offering to the public the
rental and sale of a wide range of video products and related accessories and
supplies.
DEVELOPER, for itself and all of its agents and employees, is
required by FRANCHISOR to keep confidential and not communicate, divulge or use
for the benefit of any other person or entity, any of the confidential
information concerning the WEST COAST SYSTEM. To evidence its compliance with
its obligations to FRANCHISOR to keep such proprietary information confidential
and not to allow for unauthorized use of such information, DEVELOPER is required
to execute and to have certain others execute this Agreement.
[EXHIBIT C-7 TO OFFERING CIRCULAR]
48
NOW, THEREFORE, in consideration of the grant of development rights
by FRANCHISOR to DEVELOPER and/or my employment or continued employment by
DEVELOPER, and for other good and valuable consideration, receipt of which is
acknowledged, and intending to be legally bound, DEVELOPER and I make the
following agreement:
I do hereby agree that during the term of my ownership in,
employment by, association with or service to DEVELOPER, or at any time
thereafter, I shall not communicate, divulge or use for the benefit of any other
person, persons, partnership, association, corporation or entity any
confidential information, knowledge or know-how concerning the WEST COAST
SYSTEM, including but not limited to, systems or methods of operations, pricing,
suppliers, promotions and marketing, purchasing, or methods which may be
communicated to me, nor shall I divert any business to competitors of DEVELOPER
and/or FRANCHISOR.
Any and all information, knowledge, know-how, techniques and
customer information which DEVELOPER or FRANCHISOR or their officers designate
as confidential shall be deemed confidential for the purposes of this Agreement
except information which I can demonstrate came to my attention prior to
disclosure thereof or which had become or becomes a part of the public domain
through publication or communication by others.
I specifically understand that the following has been deemed to
constitute confidential information: the proprietary information with respect to
systems or methods of operation, pricing, suppliers, promotions and marketing;
purchasing; any and all written materials containing such proprietary
information; training materials; promotional brochures; business forms; general
operations materials; personnel materials; revenue reports; customer lists;
payroll procedures; training and accounting materials; advertising formats;
additions to, deletions from, and modifications and variations of the components
constituting the systems and methods of operations which are, or may in the
future be employed by DEVELOPER or FRANCHISOR. This listing of confidential
information is illustrative only, and does not include all matters considered
confidential by FRANCHISOR.
I shall not at any time copy, duplicate, record or otherwise
reproduce any of the foregoing materials, in whole or in part, nor otherwise
make the same available to any unauthorized person. Upon the expiration or other
termination for any reason of my employment, association, or service, I shall
return all materials, books, brochures, forms, reports, records, customer and/or
supplier lists and manuals in my possession.
I agree that during the term of my ownership in, employment by,
service to, or affiliation with, DEVELOPER and for a period of two (2) years
thereafter, I will not, either directly or indirectly (including through an
immediate family member), own, maintain, engage in, or have any interest in,
either as a proprietor, partner, investor, lender, guarantor, shareholder,
director, officer, employee, principal, agent, advisor, independent contractor
or consultant, in any business which specializes, in whole or in part, in the
sale or rental of video movies and related products, and such business is
located within:
(a) the "Development Area"; or
(b) five (5) miles of any retail video store operating under
the WEST COAST SYSTEM (whether Company-owned, franchised or otherwise
established) either now or hereafter operated.
49
It is the intention of this provision to preclude not only direct
competition but also all forms of indirect competition, such as consultation for
any competitive businesses, service as an independent contractor for such
competitive business, or any assistance or transmission of information of any
kind or nature whatsoever which would be of any material assistance to a
competitor. Nothing herein shall prevent me from owning for investment purposes
up to an aggregate of five (5%) percent of the capital stock of any publicly
held corporation.
If all or any portion of this covenant not to compete is held
unreasonable, void, vague or illegal by any court or agency having valid
jurisdiction in an unappealed final decision to which DEVELOPER is a party, the
court or agency shall be empowered to revise and/or construe said covenant so as
to fall within permissible legal limits and shall not by necessity invalidate
the entire covenant. I expressly agree to be bound by any lesser covenant
subsumed within the terms of this Agreement as if the resulting covenant were
separately stated in and made a part hereof.
I understand that FRANCHISOR is also relying on this Agreement and
acknowledge that FRANCHISOR is intended to be a third party beneficiary of this
Agreement and shall have the right to enforce this Agreement against me as if it
were a party to the same. This Agreement shall be enforced and construed under
the laws of the State in which DEVELOPER's principal place of business is
located.
I ACKNOWLEDGE THAT I HAVE THOROUGHLY READ AND UNDERSTAND THIS
AGREEMENT AND THAT I HAVE RECEIVED A COPY OF SAME. I FURTHER ACKNOWLEDGE AND
UNDERSTAND THAT BREACH OF THIS AGREEMENT BY ME SHALL ENTITLE DEVELOPER AND/OR
FRANCHISOR TO SEEK A COURT INJUNCTION PROHIBITING ANY SUCH VIOLATIONS AS WELL AS
ANY FUTURE VIOLATIONS AND TO RECOVER ATTORNEYS FEES AND COSTS.
Witnessed by:
_________________________________ By:______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Accepted by:
HB ASSOCIATES, L.L.C.
_________________________________
Name
_________________________________
Title
50
AMENDMENT TO DEVELOPMENT AGREEMENT
1. Section 5.2 is hereby amended to provide that Developer shall not
be required to make monthly royalty payments and monthly national marketing fund
payments for the period covering the first four (4) months of operation of each
of the FRANCHISED STORES.
WEST COAST FRANCHISING COMPANY
By:________________________________
Title:________________________________
HB ASSOCIATES, L.L.C
By:________________________________
Title:_________________________________
51
TABLE OF CONTENTS
SECTION PAGE
1. DEVELOPMENT RIGHTS......................................................... 2
1.1 Grant of Development Rights........................................... 2
1.2 Development Area...................................................... 2
1.3 Development Schedule.................................................. 2
1.4 Territorial Rights.................................................... 2
1.5 Best Efforts.......................................................... 3
1.6 Retail Sale and Rental Restrictions................................... 3
1.7 Rights Reserved by FRANCHISOR......................................... 3
1.8 Acquired Video Stores................................................. 3
1.9 Principal Owners Guaranty............................................. 4
2. TERM....................................................................... 4
3. DEVELOPMENT FEE............................................................ 5
4. DUTIES OF DEVELOPER........................................................ 5
4.1 Site Selection and Leases............................................. 5
4.1.1 Site Selection................................................ 5
4.1.2 Leases........................................................ 5
4.2 Execution of Addendum to Franchise Agreement.......................... 6
4.3 Store Design Specifications........................................... 7
4.4 Opening Inventory..................................................... 7
4.5 Training.............................................................. 7
4.6 Operations Manual..................................................... 8
4.7 Operations of the FRANCHISED STORES................................... 8
4.7.1 Compliance with Applicable Laws............................... 8
4.7.2 Video Products, Accessories and Proprietary Supplies.......... 9
4.8 Approved Suppliers.................................................... 9
4.9 Insurance............................................................. 9
5. FEES....................................................................... 10
5.1 Initial Franchise Fees................................................ 10
5.2 Continuing Royalty Fees............................................... 10
6. PROPRIETARY MARKS.......................................................... 10
7. CONFIDENTIAL OPERATIONS MANUAL, CONFIDENTIAL INFORMATION AND
NON-DISCLOSURE............................................................. 11
7.1 Confidential Manuals.................................................. 11
7.2 Confidential Information.............................................. 12
7.3 Nondisclosure......................................................... 12
7.4 Confidentiality Agreements............................................ 13
52
TABLE OF CONTENTS
SECTION PAGE
8. RECORD KEEPING, MODEM REPORTING AND REPORTING.............................. 13
8.1 Record Keeping........................................................ 13
8.2 FRANCHISOR Access by Modem............................................ 13
8.3 Annual Reports........................................................ 13
8.4 Inspection of Records................................................. 13
9. CONDITIONS OF TRANSFER OF INTEREST......................................... 14
9.1 Transfer by DEVELOPER................................................. 14
9.2 Requirements of Transfer.............................................. 14
9.3 Securities Offerings.................................................. 15
9.4 Right of First Refusal................................................ 16
9.5 Death, Disability or Incompetency..................................... 17
9.6 Written Consent of FRANCHISOR......................................... 17
9.7 Non-Waiver by FRANCHISOR.............................................. 17
9.8 Intra-Corporate Non-Controlling Transfer.............................. 17
9.9 Transfer by FRANCHISOR................................................ 17
10. DEFAULT AND TERMINATION.................................................... 18
10.1 No Cure Period....................................................... 18
10.2 Optional Cure Period................................................. 18
10.3 Cure Period and Termination.......................................... 19
10.4 Cross-Default........................................................ 19
11. OBLIGATIONS UPON TERMINATION............................................... 19
12. NON-COMPETITION............................................................ 20
12.1 Covenants Not to Compete............................................. 20
12.2 Effect of Unenforceability of Covenants.............................. 21
12.3 Injunctive Relief.................................................... 21
13. INDEPENDENT CONTRACTOR AND INDEMNIFICATION................................. 21
13.1 Independent Contractor............................................... 21
13.2 DEVELOPER Indemnification............................................ 21
14. NOTICES.................................................................... 22
15. ENTIRE AGREEMENT........................................................... 23
16. SEVERABILITY AND CONSTRUCTION; WAIVER; MISCELLANEOUS.............. 23
16.1 Severability......................................................... 23
16.2 No Third Party Benefits.............................................. 23
16.3 Captions............................................................. 23
16.4 Gender References.................................................... 23
16.5 Execution of Agreement............................................... 23
53
TABLE OF CONTENTS
SECTION PAGE
16.6 Absence of Warranties................................................ 23
16.7 Anti-Waiver.......................................................... 24
16.8 Force ▇▇▇▇▇▇......................................................... 24
17. APPLICABLE LAW; JURISDICTION AND VENUE; LIMITATION OF CLAIMS;
INJUNCTIVE RELIEF; WAIVERS................................................. 24
17.1 Effect............................................................... 24
17.2 Governing Law........................................................ 24
17.3 Limitations of Claims................................................ 24
17.4 Waiver of Punitive Damages and Jury Trial............................ 25
17.5 Injunctive Relief.................................................... 25
18. ACKNOWLEDGEMENTS........................................................... 25
19. MEDIATION.................................................................. 26
20. ARBITRATION................................................................ 26
EXHIBITS
A - FRANCHISE AGREEMENT WITH ATTACHMENTS
B - DEVELOPMENT AREA
C - DEVELOPMENT SCHEDULE
D - PRINCIPAL OWNERS AND OTHER OWNERS
E - GUARANTY AND ASSUMPTION AGREEMENT
F - ADDENDUM TO FRANCHISE AGREEMENT
G - CONFIDENTIALITY AND RESTRICTIVE COVENANT AGREEMENT
H - CPR PROCEDURE FOR RESOLUTION OF FRANCHISE DISPUTE
54
AMENDMENT TO DEVELOPMENT AGREEMENT
Franchisor has delivered to Developer its Uniform Franchise Offering
Circular, dated August 15, 1996 (the "UFOC") containing Franchisor's standard
form franchise documents, including, without limitation, the Franchise Agreement
and the Development Agreement (collectively, the "Franchise Documents").
Franchisor and Developer, in consideration of the promises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, do hereby agree to modify the
Franchise Documents as provided herein. The Franchised Documents for each
FRANCHISED STORE developed or operated by Developer shall be operated pursuant
to the Franchise Documents, modified as provided by this Amendment. In the event
of any conflict, inconsistency or issue of interpretation between any of the
terms and conditions of this Amendment and any of the terms and conditions of
the Franchise Documents, the terms and conditions of this Amendment shall
govern. Without limiting the foregoing, it is agreed that any action or omission
by DEVELOPER which constitutes compliance with, or a permissible action or
omission by DEVELOPER under either the Franchise Agreement or the Development
Agreement, shall be deemed permissible under, or in compliance with, the other.
The modifications to the Franchise Documents are as follows:
1. Section 1.4 of the Development Agreement is revised to add the
words "in all material respects" in the second line prior to the words "full
compliance". In addition, following the word "FRANCHISOR" in the third line, the
words "and affiliates" shall be inserted.
2. Section 1.5 of the Development Agreement is revised to add the
following words to the end of the sentence "as provided in Exhibit C attached
hereto". In addition, Sections 1.3 and 1.5 of the Development Agreement are
revised to provide that (a) DEVELOPER's obligations are excused in the event
FRANCHISOR is declared or adjudicated bankrupt, (b) in the event of a
combination by merger or otherwise of Movie Gallery, Inc. (or its successor)
with FRANCHISOR's parent, West Coast Entertainment Corporation ("WCEC")(or its
successor), DEVELOPER shall have the option for a period of one hundred twenty
(120) days from the date of closing of such transaction to exercise the right to
be excused from further development obligations of FRANCHISED STORES under the
Development Agreement and, (c) in the event of a commencement of a bankruptcy
proceeding by or against FRANCHISOR (or its successor), which is not discharged
or otherwise resolved within six (6) months, DEVELOPER's further development
obligations under Sections 1.3 and 1.5 are delayed until such time as either a
plan of reorganization is approved or as otherwise directed by the bankruptcy
court.
3. The following additional language shall be added at the end of
Section 1.6: "Notwithstanding the foregoing, Section 1.6 of the Development
Agreement and Section 1.4 of the Franchise Agreement are revised to permit
DEVELOPER to wholesale at the FRANCHISED STORES Video Products for purposes of
removing used Video Products (such as those Video Products purchased in bulk by
acquisition of inventory) in the ordinary course of its business. Such sales
would be subject to the Continuing Royalty Fees and National Marketing Fund
payments as set forth in the Development Agreement and the
55
Franchise Agreement. In addition, promotional activities, including group or
cooperative advertising may be broadcast outside the Development Area with the
prior consent of FRANCHISOR, which consent shall not unreasonably withheld.
4. Section 1.8 of the Development Agreement is revised to include
proposed purchases of Acquired Video Stores by FRANCHISOR or its affiliates,
including, WCEC. In addition, Section 1.8 shall provide that in the event the
DEVELOPER exercises its right to purchase the Acquired Video Store, then such
FRANCHISED STORE shall be governed by the Franchise Agreement attached as an
exhibit to the Development Agreement as modified by the Amendment, as opposed to
the then-current Franchise Agreement. Further, Section 1.8 is revised to provide
that in the event FRANCHISOR or its affiliates proposes to purchase an Acquired
Video Store for the stock of WCEC, in whole or in part, such stock shall be
valued for purposes of Section 1.8 as of the closing date of the acquisition of
the Acquired Video Store.
5. Section 1.9.2 of the Development Agreement and Section 1.7 of the
Franchise Agreement are revised to delete "five percent (5%)" and insert therein
"twenty percent (20%)". In addition, the following sentence shall be added at
the end of Section 1.9: "Notwithstanding the foregoing, passive institutional
investors shall be excluded from the requirements of this Section 1.9."
Additionally, Section 1.9 of the Development Agreement and Section 1.7 of the
Franchise Agreement are revised to delete to any reference to spouses, as well
as applicable Exhibits.
6. Section 2 of the Development Agreement is revised to provide the
following: Three months prior to the expiration of the Term, as provided herein,
FRANCHISOR and DEVELOPER shall negotiate in good faith with respect to any
additional Development Agreement. In the event that no subsequent Development
Agreement is entered into during this period, then DEVELOPER shall have right of
first refusal through May 31, 2000 with respect to any Development deals (that
is, multi-unit FRANCHISED STORES agreements) proposed to be entered into by
FRANCHISOR and a third party within the Development Area.
7. Section 3.1.1 of the Franchise Agreement is deleted.
8. Section 4.1 of the Development Agreement and Section 3.1 of the
Franchise Agreement are revised to provide as follows:
(a) FRANCHISOR'S approval process with respect to site
selection shall be conducted in a reasonable manner;
(b) With respect to Leases of FRANCHISED STORES, DEVELOPER
shall be required only to use its best efforts to obtain the required lease
provisions set forth in Section 4.1.2 of the Development Agreement and Section
3.1.2 of the Franchise Agreement, such provisions being subject to the lessor's
reasonable approval.
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(c) Section 4.1.2.5 shall be revised to provide that
FRANCHISOR shall not unreasonably reject any modifications or amendments to the
lease, which do not materially affect FRANCHISOR'S rights. FRANCHISOR shall also
respond to any request for consents to modifications or amendments within thirty
(30) days of the receipt of such request.
9. Section 4.8 of the Development Agreement and Section 3.10 of the
Franchise Agreement with respect to Approved Suppliers (and Section 3.8 of the
Franchise Agreement with respect to Grand Opening) are revised to provide as
follows: "Approved Suppliers, as set forth in these referenced sections shall be
applicable to Proprietary Supplies, and equipment, fixtures, furnishings and
signs with respect to buildouts of FRANCHISED STORES that conform with
FRANCHISOR'S then-current buildout package. With respect to Video Products and
Accessories, DEVELOPER does not need to seek prior approval from FRANCHISOR with
respect to its suppliers, but FRANCHISOR expressly reserves the right to inquire
as to all of DEVELOPER's suppliers and to reasonably object to any of
DEVELOPER's suppliers, if such suppliers fail to meet FRANCHISOR'S reasonable
specifications.
10. Section 4.5 of the Development Agreement and Section 3.4 of the
Franchise Agreement are revised to provide that DEVELOPER's existing FRANCHISED
STORES managers need not attend the FRANCHISOR'S Initial Training Program. All
new managers, however, shall be required to attend such Program as provided in
these referenced sections. In addition, in the event that there are material
system changes with respect to FRANCHISOR'S System, then DEVELOPER and each of
its key managers shall attend and complete to FRANCHISOR'S satisfaction a
training program with respect to such System changes. With respect to training,
the maximum that shall be charged by FRANCHISOR as a training fee to DEVELOPER
shall be $200.00 per day, with a five (5) day maximum at $1,000.00 per person.
11. Section 4.6 of the Development Agreement and Section 3.5 of the
Franchise Agreement shall be revised to insert the word "material" before the
word "conformity".
12. Section 3.6.2 of the Franchise Agreement is revised to provide
that any upgrading requirement shall not occur more than once every three years.
13. Section 3.6.3 of the Franchise Agreement is revised to state as
follows: "Notwithstanding the foregoing, FRANCHISEE may use UBS Software with
respect to operation of the FRANCHISED STORE. It is understood and agreed by and
between FRANCHISOR and DEVELOPER that this revision to the Franchise Agreement
shall apply to all FRANCHISED STORES. Moreover, in the event that DEVELOPER
wishes to utilize any other software, other than UBS, such software must be
approved by FRANCHISOR prior to use in any of the FRANCHISED STORES.
14. Section 3.6.4 of the Franchise Agreement is revised to add the
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following sentence after the first full sentence: "The requirement with respect
to implementation of the system shall be imposed reasonably by FRANCHISOR, both
with respect to expense and with respect to the frequency of the request."
15. Section 3.9.1 of the Franchise Agreement is revised to add the
word "material" before the word "compliance" in the fifth line of this section.
16. Section 3.9.2 of the Franchise Agreement is revised to add the
word "reasonably" before the word "prescribe".
17. Section 3.9.3 of the Franchise Agreement is revised to add the
following: "Provided that FRANCHISED STORE has been reasonably maintained as
provided herein, such changes as requested by FRANCHISOR, as provided in this
Section 3.9.3 shall not be over and above $10,000.00 per FRANCHISED STORE in any
year during the Term of the Franchise Agreement.
18. Section 3.9.4.3 of the Franchise Agreement is revised to add the
following language at the end of such section: "(other than a reasonable time to
liquidate such items);".
19. Section 3.9.4.6 of the Franchise Agreement is revised to add the
following language at the end of the section: "(other than a reasonable time to
liquidate such items);".
20. Section 3.9.4.7 of the Franchise Agreement is revised to add the
following language at the beginning of the section: "Offer for sale or".
21. Section 4.9 of the Development Agreement and Section 3.13 of the
Franchise Agreement are revised to delete the following: "and their respective
officers, directors, shareholders and employees" and to add "as an additional
insured FRANCHISOR'S parent, West Coast Entertainment Corporation". In addition,
such sections shall be revised to add the following: "Notwithstanding the
foregoing, such insurance policies shall be those that are reasonably
commercially available to DEVELOPER with respect to the FRANCHISED STORES, as
required under the Franchise Agreement.
22. Section 5.1 of the Franchise Agreement is revised to provide
that the Initial Franchise Fee shall be $1,000.00.
23. Section 5.2 of the Development Agreement and Sections 5.3 and
7.3 of the Franchise Agreement are revised to provide the DEVELOPER's continuing
monthly National Marketing Fund payments with respect to each of the FRANCHISED
STORES shall be one (1%) percent of "Gross Revenues" with respect to each of the
FRANCHISED STORES, not two (2%) percent.
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24. Section 5.4 of the Franchise Agreement is revised to add the
following provision: Accrued late fees for tape rentals shall not be considered
sales on credit, but rather "Gross Revenue" upon receipt by FRANCHISEE.
25. Section 5.5 of the Franchise Agreement is revised to provide
that the interest on overdue amounts shall be "the lesser of either the rate of
twelve (12%) percent per annum or the maximum rate permitted by law".
26. Section 6.4 of the Development Agreement and Section 6.4 of the
Franchise Agreement are revised to provide that FRANCHISEE may, however, utilize
the Proprietary ▇▇▇▇, West Coast Video(R) for purposes of a d/b/a, pursuant to
local law.
27. Section 6.5 of the Development Agreement is revised to provide
that FRANCHISOR'S obligation to defend will be so long as DEVELOPER is in
compliance with the Franchise Agreement and Addenda thereto. Assuming such
compliance, FRANCHISEE'S cooperation with respect to the litigation will be at
FRANCHISOR'S expense.
28. The following language shall be added to the beginning of
Section 6.7.4 of the Franchise Agreement: "Except as may be otherwise agreed
between FRANCHISOR and FRANCHISEE with respect to the sale of the FRANCHISED
STORE,".
29. Section 7.1 of the Franchise Agreement, in the second line,
shall be revised to delete the reference to "forty-five (45) days" and to insert
therein "twenty (20) days". In addition, FRANCHISOR'S restrictions of use of the
Proprietary Marks in any advertising medium shall be conducted in a reasonable
manner.
30. Section 7.2 of the Franchise Agreement with respect to
FRANCHISEE'S cooperation in securing photographs shall be "at FRANCHISOR'S
expense" and FRANCHISEE'S efforts to obtain consent shall be "best efforts".
31. Section 7.4 of the Franchise Agreement is revised to add the
following: "FRANCHISOR and DEVELOPER agree that DEVELOPER's FRANCHISED STORES in
New Hampshire and Maine shall not be required to join a Cooperative in
Massachusetts or outside of the Development Area and that DEVELOPER's stores in
Massachusetts shall be included in any Cooperative reasonably requested by
FRANCHISOR."
32. Section 8.1.3 of the Franchise Agreement shall be revised to add
the words "which are sent to FRANCHISEE" following the word "notices".
33. Section 8.1.6 of the Franchise Agreement, at page 24, on the
third line, shall be revised to add the word "material" prior to the word
"accordance".
34. Section 8.2 of the Franchise Agreement is revised to insert the
word "confidential" prior to the word "knowledge" and the words "know how".
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35. Section 8.3 of the Franchise Agreement is revised at the end of
the first sentence to add the following: "(which is not publicly known or
available)". In addition, in the second sentence of Section 8.3, the word
"confidential" shall be inserted prior to the word "information".
36. Section 8.4 of the Franchise Agreement is revised to provide
that passive institutional investors need not sign Confidentiality Agreements.
37. Section 8.4 of the Development Agreement is revised to provide
that DEVELOPER is not required to pay FRANCHISOR'S inspection or audit expenses,
if DEVELOPER's violation of the Franchise Agreement is unrelated to DEVELOPER's
payment obligations and such violation is not willful and material. In addition,
DEVELOPER's reimbursement obligations in Section 8.4 are limited to FRANCHISOR's
reasonable costs and expenses.
38. Section 9.1 of the Franchise Agreement is revised to add the
following words at the end of such section: "in accordance with this Agreement".
39. Section 10.2.7 of the Franchise Agreement is deleted.
40. Section 9 of the Development Agreement and, to the extent if
applicable, Section 10 of the Franchise Agreement are revised as follows:
(a) Section 9.1.2 of the Development Agreement is revised to
insert the word "substantial" prior to the word "portion";
(b) Section 9.2.3 of the Development Agreement is revised to
add the word "then" prior to the word "owed";
(c) Section 9.2.4 of the Development Agreement is revised to
add the words "upon reasonable terms" following the word "release";
(d) Section 9.3 of the Development Agreement is revised to
provide that FRANCHISOR'S review, approval and consent of any offering by
DEVELOPER shall be limited solely to the subject of the relationship between
DEVELOPER and FRANCHISOR. Moreover, the indemnification requirement set forth in
Section 9.3 shall be limited to DEVELOPER. In addition, Section 9.3 is revised
to provide that DEVELOPER shall pay to FRANCHISOR its reasonable cost and
expenses associated with reviewing the proposed offering, including, without
limitation, legal and accounting fees. Finally, Section 9.3 is revised to
provide that DEVELOPER shall give FRANCHISOR written notice of at least "thirty
(30)" and not "ninety (90)" days written notice with respect to the proposed
commencement of any offering.
(e) Section 9.5 of the Development Agreement is revised to
delete
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the words "not to exceed nine (9) months".
(f) Section 9.6 of the Development Agreement is revised to add
the words "to the extent required hereunder" after the word "FRANCHISOR".
(g) Section 9.8 of the Development Agreement is revised to
provide that permitted intra-corporate transfers of will not be limited to
inter-vivos transfers, but will also include any transfers among the Principal
Owners of DEVELOPER which occur by reason of the death or disability of one of
the Principal Owners and transfers upon the death of a Principal Owner to his
estate or a trust for the benefit of his immediate family provided that the
interests, when transferred, are without voting rights except as required by
applicable law, or pursuant to any buy/sell agreements between the Principal
Owners of DEVELOPER, or as otherwise agreed between them. Section 9.8 shall
supercede the provisions of Section 9.5, in the event of any inconsistencies
between such sections.
(h) There shall be a new Section 9.10 of the Development
Agreement which shall state as follows:
"Notwithstanding anything herein to the contrary in
Section 9, DEVELOPER may transfer, up to thirty (30%) percent of the Ownership
Interests in DEVELOPER (as such term is defined in Section 1.9 of the
Development Agreement) to outside investors or other entities (such as passive
institutional investors) and pledge, collateralize, mortgage or otherwise
encumber the assets of DEVELOPER in the ordinary course of obtaining financing
from banks or other institutional lenders, without triggering the terms and
conditions applicable to transfers set forth in Section 9 of the Development
Agreement; provided that such transfers will not be made to either competitors
of FRANCHISOR or any of its affiliates or to unacceptable parties, who for
business reasons, as reasonably determined by the Board of Directors of
FRANCHISOR, are not acceptable to FRANCHISOR as transferees. In addition, any
such transfer shall not operate to transfer a controlling interest in DEVELOPER
to any person who is currently not a member of DEVELOPER with respect to
DEVELOPER. "Controlling Interest" is defined as such percentage of the
membership interests of DEVELOPER as shall permit determination of the outcome
on any issue or shall grant any person, group, combination or entity (that is,
other than a member of DEVELOPER as of the date hereof) from blocking voting
control on any issue or exercising any veto power.
41. Section 11 of the Franchise Agreement with respect to rights of
first refusal is superseded by the Option Agreement to be executed between
DEVELOPER and FRANCHISOR'S parent, West Coast Entertainment Corporation.
42. Section 10.2.5 of the Development Agreement is revised to insert
the word "material" before the word "judgement".
43. Section 10.2.6 of the Development Agreement is revised to insert
the word "material" before the word "suit", the first time such word appears.
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44. Section 10.2.7 of the Development Agreement is revised by adding
the following words as the beginning of such section: "Except as provided in
Section 16.8,".
45. Section 12.2.12 of the Franchise Agreement is revised to delete
the words: "or to submit required reports on the specified due dates", to add
the words "within ten (10) days of the due date" following the words "timely
payments" and to add the word "intentionally" after the word "underreports".
46. Section 12.2.6 of the Franchise Agreement is revised to add the
word "material" before the word "mortgage".
47. Section 12.2.13 of the Franchise Agreement is revised to add the
words "without fault or delay on the part of FRANCHISOR" following the word
"fails".
48. Section 10.4 of the Development Agreement is revised to provide
that a failure to comply with Exhibit C of the Development Agreement will not
trigger FRANCHISOR'S right to terminate the Franchise Agreement and any Addenda
thereto with respect to each of the FRANCHISED STORES.
49. Section 11.2 of the Development Agreement is revised to delete
the payment of FRANCHISOR'S attorneys' fees.
50. Section 13.1.6 of the Franchise Agreement is revised to add the
following words at the end of the Section: "and FRANCHISOR should assume all
prospective obligations to the telephone company when such number is
transferred".
51. Section 13.2 of the Franchise Agreement is deleted.
52. Section 12 of the Development Agreement and Section 14 of the
Franchise Agreement are revised to delete any references to DEVELOPER or
FRANCHISEE having no prior experience in the retail video industry. In addition,
passive institutional investors need not sign the non-competition provisions in
either the Development Agreement or Franchise Agreement. It is understood and
agreed between DEVELOPER and FRANCHISOR, however, that ▇▇▇▇▇▇, ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ will execute the Confidentiality and Restrictive Covenant
Agreement set forth as Exhibit G to the Development Agreement.
53. Section 14.1.2.3 of the Franchise Agreement is revised to add
the word "knowingly" at the start of such Section.
54. There shall be added a new Section 12.4 of the Development
Agreement and Section 14.4 of the Franchise Agreement which shall state as
follows:
"Notwithstanding anything herein to the contrary, the
non-competition
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provisions set forth in this Agreement shall not be applicable in the event that
FRANCHISOR has been adjudged by a court having competent jurisdiction over the
matter, after all periods of appeal have expired, to have unlawfully terminated
the Development Agreement.
55. The following sentence should be added to Section 13.2 of the
Development Agreement: "FRANCHISOR'S losses as referred to in here are those
which derive from DEVELOPER's indemnification obligations hereunder.
56. Section 17.5 of the Development Agreement is revised to delete
subsection "(ii)" and to delete all words following "injunctive relief" in the
last sentence of Section 17.5.
57. Section 15.2 of the Franchise Agreement is revised to provide
that indemnification shall not include any "lost profits" of the FRANCHISOR in
the absence of negligence or gross or willful misconduct on the part of the
DEVELOPER. In addition, any settlement to be entered into by FRANCHISOR shall be
with FRANCHISEE'S consent, which shall not be unreasonably withheld.
HB ASSOCIATES, L.L.C
By: __________________________
Name: _________________________
Title: ________________________
WEST COAST FRANCHISING COMPANY
By: __________________________
Name: _________________________
Title: ________________________
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