SETTLEMENT AGREEMENT AND RELEASE
SETTLEMENT AGREEMENT AND RELEASE, dated as of June , 1998 (this
"Agreement"), by and among Xxx. Xxxxxx' Original Cookies, Inc., a Delaware
corporation ("Xxx. Xxxxxx"), Capricorn Investors II, L.P., a Delaware limited
partnership ("Capricorn"), Great American Cookie Company, Inc., a Delaware
corporation ("GACC"), Cookies USA, Inc., a Delaware corporation ("Cookies USA"),
The Jordan Company ("Jordan"), ____________ (the "Franchisee"), and
____________, the controlling investor in the Franchisee (the "Franchisee
Principal").
WHEREAS, Xxx. Xxxxxx proposes to enter into an agreement pursuant to which
it would acquire Cookies USA, the parent entity of GACC (the "Proposed GACC
Acquisition");
WHEREAS, Xxx. Xxxxxx, its indirect controlling shareholder Capricorn, GACC
and Jordan are defendants in an action brought by certain franchisees of GACC in
the Superior Court of New Jersey, Law Division, Xxxxxx County, under the caption
Xxxxxx and Xxxxxx Xxxxxxxx, et al, vs. Great American Cookie Company, et al (the
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"Litigation"), in which the plaintiffs in the Litigation have made certain
claims, including claims relating to the Proposed GACC Acquisition;
WHEREAS, Xxx. Xxxxxx, without conceding that there is a legal basis for any
such claims, is prepared to address such claims by making certain undertakings
provided for in Sections 2 and 3 of this Agreement (the "Undertakings") if the
Proposed GACC Acquisition is consummated and as an inducement to franchisees of
GACC and the investors in such franchisees (the "GACC Franchisees") to waive and
release such claims and any other claims that they may have relating to their
status as franchisees of GACC on terms and conditions satisfactory to Xxx.
Xxxxxx (the "Necessary Releases");
WHEREAS, Xxx. Xxxxxx is only willing to complete the Proposed GACC
Acquisition if the Litigation is dismissed with prejudice and the Necessary
Releases are received from all of the GACC Franchisees who are selling stock or
franchises pursuant to or contemporaneously with the Proposed GACC Acquisition
and at least 80% of the other GACC Franchisees;
WHEREAS, Xxx. Xxxxxx is willing to provide the Undertakings upon the terms
and conditions of this Agreement but only to GACC Franchisees that provide the
Necessary Releases; and
WHEREAS, the Franchisee and the Franchisee Principal are willing to provide
the Necessary Releases upon the terms and conditions of this Agreement.
NOW, THEREFORE,
The parties to this Agreement hereby agree as follows:
1. The Release. (a) In consideration of the Undertakings and other good
and valuable consideration and to settle a dispute among the parties, the
receipt and sufficiency of which is hereby acknowledged, the Franchisee and the
Franchisee Principal, on behalf of themselves, any predecessor or other past,
current or future direct or indirect investors in or directors, officers and
employees of the Franchisee and each such person's successors and assigns
(collectively with the Franchisee and
the Franchisee Principal, the "Releasor Group") hereby release any and all
rights, causes and actions, whether or not known or anticipated, that any member
of the Releasor Group may have, directly or indirectly, against Xxx. Xxxxxx,
Capricorn, Cookies USA, GACC or Jordan and any of their respective past, current
or future direct or indirect investors, lenders, affiliates, directors, officers
or employees or any such person's successors and assigns (collectively, the
"Releasees") arising out of or otherwise relating to, directly or indirectly,
the Releasor Group's franchising, lease and supplier relationships with GACC or
the Proposed GACC Acquisition (the "Released Matters"), except for any rights,
causes of action or claims that (i) arise out of the express terms of this
Agreement, (ii) arise out of any failure by GACC to remit to any lessor any
sublease payments received from the Franchisee that were required under the
related lease to be remitted to such lessor, (iii) arise out of product
liability for ingredients or products supplied by GACC to the Franchisee, or
(iv) otherwise arise following the completion of the Proposed GACC Acquisition,
or (y) arise out of inadvertent errors of fact in the ordinary course of
business. The Released Matters include but are not limited to the subject matter
of each and every right, cause of action or claim (A) relating to the offering
and purchase of the GACC franchises owned by the Franchisee, (B) relating to the
proximity of any Xxx. Xxxxxx owned or franchised stores to GACC owned or
franchised stores or (C) otherwise asserted against any of the Releasees by the
plaintiffs in the Litigation or the Association of Great American Cookie
Franchisees (the "GACC Franchisee Association") in a writing addressed to Xxx.
Xxxxxx, Cookies USA, GACC, Capricorn or Jordan.
(1) The members of the Releasor Group understand and agree that this
is a full and final release applicable to all unknown and unanticipated claims,
as well as those known or disclosed, and in consideration of and as an
inducement for the Undertakings, the members of the Releasor Group hereby
expressly waive all rights or benefits which they now have or may in the future
have against any of the Releasees under the provisions of Section 1542 of the
California Civil Code, which section provides that "a general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known to him must have
materially affected his settlement with the debtor", or of provisions of similar
import under the laws of other jurisdictions.
(2) The Franchisee and the Franchisee Principal hereby represent and
warrant that (i) this Agreement has been approved by all necessary action
required to make it a valid and binding obligation of the Franchisee, the
Franchisee Principal and all the other members of the Releasor Group, as the
case may be, and
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(ii) this Agreement is the valid, binding and legal obligation of the
Franchisee, the Franchisee Principal and all other members of the Releasor
Group.
(3) Xxx. Xxxxxx, Capricorn, GACC, Jordan and their respective
successors and assigns, in consideration of the benefits afforded to them in
consequence of the execution of this Agreement, do hereby release and waive,
irrevocably, any and all rights, causes of actions, whether or not known or
anticipated, that they or any of them has or may have, directly or indirectly,
against the Franchisee, or the Franchisee Principal, or against the GACC
Franchisee Association and its officers, agents and directors (said Association
and its officers, agents and directors being intended beneficiaries of this
provision), arising out of or otherwise relating to, directly or indirectly the
assertion of claims in the Litigation or the Proposed GACC Acquisition; but
excluding claims arising out of or in relation to the execution and performance
of this Agreement.
2. Tag-Along Rights. (a) If following the consummation of the Proposed
GACC Acquisition (i) Xxx. Xxxxxx, its parent company Xxx. Xxxxxx' Holding
Company, Inc. or any parent company thereof of Xxx. Xxxxxx ("MFH") or GACC
proposes to sell, in a single transaction or a series of related transactions,
to an unaffiliated party substantially all of its rights as owner of the GACC
brand or as the franchisor of GACC (the "Franchise Sale"), (ii) Xxx. Xxxxxx or
MFH proposes to make a public offering of its common stock (the first such
public offering, the "Qualifying Public Offering") or (iii) Xxx. Xxxxxx or MFH
proposes to enter into a transaction that is not a Franchise Sale or a
Qualifying Public Offering but would effect a transfer of control of Xxx. Xxxxxx
or of MFH to an unaffiliated party (a "Change of Control" and, together with a
Franchise Sale or a Qualified Public Offering, the "Transaction"), Xxx. Xxxxxx
shall notify the Franchisee of the proposed Franchise Sale, the proposed
Qualifying Public Offering or the proposed Change of Control if at the time of
the notice the Franchisee is the franchisee of one or more stores franchising
the GACC, Xxx. Xxxxxx or Pretzel Time brands or any other brand or concept then
franchised by MFH or a subsidiary thereof (the "Stores"). In the case of the
proposed Franchise Sale or Change of Control, Xxx. Xxxxxx shall give 60 days'
written notice prior to the consummation of the proposed Franchise Sale, and, in
the case of the proposed Qualifying Public Offering, Xxx. Xxxxxx shall give not
less than 120 days' notice before the filing of the initial registration
statement prepared in connection with the proposed Qualifying Public Offering.
(1) If upon its receipt of a notice pursuant to Section 2(a) the
Franchisee is not a Qualifying Franchisee (as defined in Section 2(c)), it shall
have
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the right, subject to the completion of such proposed Franchise Sale, Qualifying
Public Offering or Change of Control and to the Franchisee then being in
compliance with its obligations under its franchising arrangements with GACC,
Xxx. Xxxxxx, Pretzel Time and any other subsidiary of MFH, upon notice to Xxx.
Xxxxxx within thirty (30) days of the right of sending of the notice by Xxx.
Xxxxxx, to receive, at Xxx. Xxxxxx' election, either the greater of $3,500 in
cash or $2,000 per store for each such Store (the "Payment Amount") or, if the
proposed Qualifying Public Offering is completed, shares of common stock of Xxx.
Xxxxxx or MFH (the "Shares") issued therein with a value not less than the
Payment Amount based on the initial offering price of such stock in such
Qualifying Public Offering, subject to such reasonable transfer restrictions as
Xxx. Xxxxxx determines to be advisable to ensure successful completion of such
Qualifying Public Offering. For purposes of Sections 2 and 3, the Franchisee
shall be deemed to be in compliance with its obligations under its various
franchising agreements if there are no uncured notices of material defaults by
the Franchisee during the period from the date by which a Qualifying Franchisee
must give a notice pursuant to Section 2(c) to exercise its rights through the
Payment Date (as defined in Section 2(e)). The delivery of the Franchisees
notice to Xxx. Xxxxxx pursuant to this Section 2(b) shall obligate Xxx. Xxxxxx,
within thirty (30) days after the completion of the Transaction, either (i) to
pay the Payment Amount to the Franchisee, or (ii) to deliver the Shares to the
Franchisee.
(2) If upon its receipt of a notice of election pursuant to this
Section 2(c) the Franchisee is the franchisee of five or more Qualifying Stores
or within 30 days after the date of the sending of such notice enters into a
binding agreement to acquire additional stores bringing its number to five or
more Qualifying Stores (as defined below) (a "Qualifying Franchisee"), and
wishes to exercise its rights under this Section 2 in connection with such
proposed Franchise Sale, Qualified Public Offering or Change of Control, it must
do so by providing written notice to Xxx. Xxxxxx within 30 days of the date of
the sending by Xxx. Xxxxxx of such notice. If the Franchisee is a Qualifying
Franchisee and fails to so notify Xxx. Xxxxxx within such 30 day period, it will
be deemed to have waived its rights hereunder. If the Franchisee is a Qualifying
Franchisee, provides such notice within such period and is in material
compliance with its obligations under its franchising arrangements with GACC,
Xxx. Xxxxxx, Pretzel Time and any other subsidiary of MFH, or for any other
concept franchised by GACC, Xxx. Xxxxxx, or MFH or any of their affiliates, the
Franchisee shall have the right to sell, at the Purchase Price (as defined
below), subject to the terms and conditions hereof, all, but not less than all,
of the Franchisee's Qualifying Stores to Xxx. Xxxxxx or a subsidiary thereof.
For purposes of this Section 2, a "Qualifying Store" is deemed to be a Store
which has had cash flow
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in the aggregate for the twelve fiscal months (or such fewer number of fiscal
months as it has been operating) most recently completed for which financial
information is available as of the date of the sending of the notice pursuant to
Section 2(a) that is both positive in the aggregate for such period and sales
not more than twenty (20%) percent below the twelve (12) fiscal month period
immediately preceding such period. The delivery of the Franchisee' notice to
Xxx. Xxxxxx pursuant to the provisions of this Section 2(c) shall create an
agreement between the Franchisee and Xxx. Xxxxxx whereby Xxx. Xxxxxx shall
purchase from the Franchisee, and the Franchisee shall sell to Xxx. Xxxxxx, the
Franchisee's Qualifying Stores for the Purchase Price and upon the other terms
and conditions contained in this Section 2.
(3) The aggregate purchase price (the "Purchase Price") for all of
the Qualifying Stores of a Qualifying Franchisee shall be (i) in the case of
Stores which have had at least twelve fiscal months of completed operations, 5 x
EBITDA (as defined below) for all such Stores for the twelve fiscal months most
recently completed for which financial information is available as of the date
of the sending of the notice pursuant to Section 2(a) attributable to such
Stores as of the end of the latest such fiscal month and (ii) in the case of
Stores which have had less than twelve fiscal months of completed operations,
the greater of the amount determined pursuant to clause (i) and the documented
development costs of the Franchisee with respect to such Store. "EBITDA" shall
mean, for any period of twelve fiscal months (or such fewer number of fiscal
months as it has been operating), the aggregate earnings before depreciation,
amortization, interest, income taxes and other income (expense) during such
period attributable to the Stores as to which the determination is being made,
as adjusted to reflect any increased annual lease payments necessitated by
reason of the sale of the Qualifying Stores. Xxx. Xxxxxx and the Franchisee
agree that the Purchase Price will be allocated to the assets acquired at their
book value with any residual amount allocated to goodwill.
(4) The Purchase Price shall be paid by wire transfer to an account
designated by written notice from the Franchisee at least three business days
before payment is due on the third business day after Xxx. Xxxxxx or MFH
receives the proceeds from the Franchise Sale or the Qualifying Public Offering,
as the case may be (the "Payment Date").
(5) Xxx. Xxxxxx' obligation to pay the Purchase Price shall be
subject to (i) completion of the Franchise Sale, the Qualifying Public Offering
or the Change of Control and the receipt by Xxx. Xxxxxx or MFH of the proceeds
therefrom, (ii) each Store being purchased having customary equipment, inventory
and
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smallwares as of the closing, (iii) any required consent to the assignment of
the leases relating to the Stores having been obtained and delivered to Xxx.
Xxxxxx in form and substance reasonably satisfactory to Xxx. Xxxxxx not later
than 30 days following the giving of the notice of exercise by the Franchisee
pursuant to Section 2(c), and (iv) the Qualifying Franchisee executing and
delivering to Xxx. Xxxxxx an asset purchase agreement contemplating a sale of
all the assets and, to the extent indicated below, the ordinary course
liabilities attributable to the Stores to be transferred and containing
representations and warranties, covenants, conditions and indemnification
arrangements as are customary to the purchases of stores from franchisees by
Xxx. Xxxxxx, and exemplified in an agreement in the form of the Asset Purchase
Agreement attached hereto. The asset purchase agreement will provide that Xxx.
Xxxxxx will assume and indemnify the Qualifying Franchisee against post-closing
leasehold obligations and liabilities and obtain the release of any related
personal guaranties and that the Qualifying Franchisee will retain
responsibility for and indemnify Xxx. Xxxxxx against all pre-closing leasehold
obligations and liabilities, all pre-closing taxes, all debt and all other pre-
closing fixed or contingent liabilities (including litigation). Unless otherwise
agreed to by Xxx. Xxxxxx in its sole discretion, any employment agreements or
other agreements or arrangements with the Franchisee Principal or affiliates
thereof that relate to the Stores purchased will be terminated on or prior to
the closing without liability or cost to the Store or Xxx. Xxxxxx.
3. Other Undertakings. As further consideration for the members of the
Releasor Group providing the release pursuant to Section 1, Xxx. Xxxxxx hereby
agrees for the benefit of the Franchisee as follows, each such undertaking to be
subject to the consummation of the Proposed GACC Acquisition and to the
Franchisee then being in compliance with its obligations under its franchising
arrangements with GACC, Xxx. Xxxxxx, Pretzel Time and any other subsidiary of
MFH:
(1) The margin that is presently in effect for batter that is
provided to the Franchisee by GACC for use in the Franchisee's Stores will not
be changed for at least three years following completion of the Proposed GACC
Acquisition. For purposes of the foregoing, it is agreed that (i) costs taken
into account shall consist only of ingredients, utilities and labor and other
direct or indirect costs (as defined by Xxxxxx Xxxxxxxx) and (ii) any and all
increases or decreases in ingredient prices or shipping costs (without respect
to inefficiencies brought about by lower volumes) will be passed through on a
dollar for dollar basis except to the extent that an increase is reasonably
determined by Xxx. Xxxxxx to have been caused primarily by
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actions of Xxx. Xxxxxx and that Xxx. Xxxxxx' compliance with this undertaking
will be subject to verification by Xxx. Xxxxxx' independent auditors in
connection with their annual audit of Xxx. Xxxxxx' financial statements.
(2) At the time that the license agreement relating to any of the
Stores owned by the Franchisee as of the date of this Agreement is next up for
renewal, the Franchisee will be permitted to extend its franchise relating to
such Store for a renewal period equal to the new term of its lease and otherwise
on the terms and conditions as are now applicable under the 1998 version of
GACC's license agreement.
(3) The Franchisee may elect to convert some or all of the Stores
owned by the Franchisee (if there is not an existing MFOC cookie store in the
mall) to Xxx. Xxxxxx franchises, subject to the Franchisee entering into Xxx.
Xxxxxx' standard form of franchising agreement as then in effect, paying the
difference, if any, between the initial franchise fee it originally paid and the
then current fee required under the new franchise agreement and paying the cost
of conversion in accordance with Xxx. Xxxxxx' current store design.
(4) The Franchisee will be eligible on an equal footing with existing
franchisees of Xxx. Xxxxxx to acquire new Xxx. Xxxxxx and, subject to then-
existing area development rights, Pretzel Time franchises as and when Xxx.
Xxxxxx determines to offer them to existing franchises in the geographical areas
where the Franchisee currently owns Stores. In any such cases in which Xxx.
Xxxxxx must choose between the Franchisee and other potential franchisees for
the same location, the location will be offered to the best franchisee for the
location that is in good standing, based on criteria that will be developed by
the GACC Franchisee Association (which Xxx. Xxxxxx agrees to recognize) and
approved by Xxx. Xxxxxx. The same procedures shall apply to any brand or concept
franchised by Xxx. Xxxxxx. The procedures set forth in this Section 3(d) shall
not apply to any proposed or potential site in a mall in which a franchisee has
developed or created the opportunity for through his or her own efforts. If a
second GACC franchise is to be developed in a mall where there is an existing
GACC franchised store, the terms of the existing GACC franchise agreement shall
apply.
(5) Xxx. Xxxxxx will maintain product development support and
marketing expense for GACC products at no less than their fiscal year 1997
levels.
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(6) Any material change made to the GACC franchise agreement will be
made with the involvement of the GACC Franchisee Association.
(7) Xxx. Xxxxxx agrees to recognize and discuss with the GACC
Franchisee Association on all material matters directly affecting the GACC
franchisees for so long as the GACC Franchisee Association continues to
represent a majority of the existing GACC franchise stores and its Board of
Directors is elected through democratic procedures.
(8) Unless otherwise agreed to by the GACC Franchisee Association,
Xxx. Xxxxxx agrees to maintain the GACC product and brand indefinitely.
4. Undertakings Not Transferable. The Undertakings of Xxx. Xxxxxx in
Section 2 are specific to the Franchisee and may not be transferred to any other
party without the prior written consent of Xxx. Xxxxxx in its sole and absolute
discretion, but Xxx. Xxxxxx shall allow a GACC franchisee's heirs or other
successors by operation of law to exercise the tag-along rights provided for in
Section 2. The benefits of the Undertakings in Section 3 are transferable to a
successor franchisee in conjunction with an assignment of the GACC franchise
agreement.
5. Miscellaneous. This Agreement may be executed in one or more
counterparts, may not be changed orally and is made and shall be governed by and
construed in all respects in accordance with the laws of the State of Delaware,
without regard to the principles of conflicts of laws thereof which might refer
such interpretation to the laws of a different state or jurisdiction. This
Agreement benefits and binds the parties hereto and, subject to Section 4, their
respective successors and assigns. Notices hereunder shall be in writing and
addressed to the address indicated below or to such other address as the
intended recipient has specified in writing, and (assuming actual receipt) are
deemed given when delivered in person, one business day after being sent by
telecopier or by overnight express mail service, or four business days after
being sent by mail. All disputes arising in connection with the interpretation,
performance and enforcement of this Agreement shall be resolved through binding
arbitration under the Federal Arbitration Act and conducted by the American
Arbitration Association under its rules for commercial arbitration, provided
that the arbitrator may award reasonable fees and costs to the prevailing party.
Arbitration shall take place in the state where the respondent's principal place
of business is located.
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6. Nonseverability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
Xxx. Xxxxxx' Original Cookies, Inc. Capricorn Investors II, L.P.
By:______________________________________________ By:______________________________________________
Name:____________________________________________ Name:____________________________________________
Title:___________________________________________ Title:___________________________________________
Address: 0000 Xxxx Xxxxxxxxxx Xxxxxxx, Xxxxx 000 Address: 00 Xxxx Xxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000 Xxxxxxxxx, Xxxxxxxxxxx 00000
Great American Cookie Company, Inc. The Jordan Company
By:______________________________________________ By:______________________________________________
Name:____________________________________________ Name:____________________________________________
Title:___________________________________________ Title:___________________________________________
Address: 0000 Xxxxxxxxx Xxxxx, XX Address: 0 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Cookies USA, Inc.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: 0 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
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The Franchisee: The Franchisee Principal:
[ ]
By:____________________________________ Name:___________________________________
Name:__________________________________ Address:________________________________
Title:_________________________________
Address:
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