SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is made as of this 23rd day of
April, 1997 by and between Ciatti's, Inc. ("Ciatti's"), Big D Bagels, Inc. ("Big
D"), Quality Dining, Inc. ("Quality"), and Bruegger's Franchise Corporation
("Bruegger's").
WHEREAS, Big D and Bruegger's are parties to that certain Shareholder
Development Agreement entered into as of the 1st day of January, 1995 (the
"Shareholder Development Agreement") and to certain Bruegger's Fresh Bagel
Bakery Shareholder Franchise Agreements entered to thereunder (the "Franchise
Agreements"); and
WHEREAS, the parties have disagreed as to the meaning, construction,
application and scope of certain provisions of the Shareholder Development
Agreement and Franchise Agreements, including Section 9 of the Shareholder
Development Agreement and Section 14 of the Franchise Agreements (the "Disputed
Provisions"), and the circumstances under which the Disputed Provisions provide
Bruegger's with any rights, including rights of notice to, approval of, and/or
first refusal to, certain transactions; and
WHEREAS, to resolve that dispute, Ciatti's and Big D commenced a
declaratory judgment lawsuit captioned Ciatti's, Inc. and Big D Bagels, Inc. v.
Quality Dining, Inc. and Bruegger's Franchise Corporation, pending in the United
States District Court for the District of Minnesota, Third Division, Case No. 3-
96-1037, in which Ciatti's and Big D sought declaratory relief relating to the
Disputed Provisions; and
WHEREAS, Quality and Bruegger's have denied each of Ciatti's and Big D's
claims, asserted certain affirmative defenses, and counterclaimed for
declaratory relief; and
WHEREAS, the parties desire to resolve their differences and avoid further
expense and uncertainty; and
WHEREAS, the parties have agreed to settle the issues in dispute between
them;
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
covenants and provisions contained in this Agreement, the parties hereto agree
and declare as follows:
1. Bruegger's agrees that the following transactions are not and shall
not be subject to the provisions in Section 9 of the Shareholder Development
Agreement between Big D and Bruegger's, or to the provisions in Section 14 of
the Franchise Agreements entered into pursuant to the Shareholder Development
Agreement, requiring notice, consent, or first refusal to certain transactions:
a. any issuance of securities by Ciatti's (i) if the issuance does not
result in the acquisition of over 40% of the voting power of any class
of securities of Ciatti's after the completion of the issuance by any
shareholder (other than Xxxxxxx Xxxxxxx or X. X. Xxxxxxx, Jr.) who
previously held less than 40% of the voting power of such securities
and (ii) such issuance does not result in Xxxxxxx Xxxxxxx and X. X.
Xxxxxxx, Jr. collectively owning less than 10% of the voting power of
all classes of securities of Ciatti's.
b. any rights offering by Ciatti's substantially in accordance with the
Registration Statement filed on Form S-3 on October 1, 1996, as
amended by Amendment No. 1, filed October 29, 1996 (the "Registration
Statement"), or any future rights
offering substantially in accordance with the Registration
Statement that complies with Section 1(a)(ii) above
c. any non-convertible non-voting debt of Ciatti's, Inc., including
bank debt.
d. any warrants to purchase common stock of Ciatti's, Inc. granted
to financial institutions or individuals in connection with any
restaurant financing packages in an amount up to 2,000 warrants
per restaurant, or such larger amount as bears the same
proportion to Ciatti's total shares then outstanding as 2,000
bears to 742,819, the number of shares presently outstanding.
e. any issuance of securities under Ciatti's incentive stock option
plan and any issuance of securities to Xxxxxxx Xxxxxxx or X. X.
Xxxxxxx, Jr.
f. any convertible debt by Ciatti's if, assuming all conversion
rights were fully exercised, the criteria specified in Section
1(a) would be satisfied.
2. Ciatti's will print a reasonable disclaimer in substantially the
form attached hereto as Exhibit A in any Registration Statements and associated
Prospectuses relating to these equity offerings.
3. Bruegger's agrees that to the extent the Shareholder Development
Agreement or Franchise Agreements apply to the issuance or trading of any equity
securities of Ciatti's while Ciatti's remains a public company, Bruegger's has
no right of first refusal in such offering, and will exercise in good faith any
right to approve such transaction.
4. Ciatti's and Big D will sign an agreement in substantially the
form attached hereto as Exhibit B granting them permission to use Bruegger's
registered marks, and will use those marks only in a descriptive sense in the
Registration Statements and associated Prospectuses.
5. Ciatti's and Big D agree to indemnify Bruegger's from liability
arising from the equity offerings described herein under terms in substantially
the form of Section 2 of the Indemnification Agreement, attached hereto as
Exhibit X. Xxxxxx'x and Big D shall provide Bruegger's with a copy of any
opinion letter provided to Ciatti's and Big D or to any third party by Ciatti's
or Big D's securities counsel in connection with any offering described herein.
Bruegger's agrees that it will not be entitled to rely upon any opinion
expressed in any such opinion letter.
6. Ciatti's and Big D agree that it will constitute an event of
default under the Shareholder Development Agreement and related Franchise
Agreements warranting immediate termination of those agreements if Ciatti's or
Big D engages in a business competitive to Bruegger's, as defined in Section 11
of the Shareholder Development Agreement.
7. Big D designates Xxxx Xxxxxxx as its Managing Officer who has, and
shall have throughout the term of the Shareholder Development Agreement and the
Franchise Agreements entered into thereunder, the authority to bind Big D in any
dealings with Bruegger's and its affiliates, and to direct any action necessary
to ensure compliance with the Shareholder Development Agreement and any other
agreements relating to the franchised bakeries operated thereunder. No change in
the Managing Officer may be made without the prior written consent of
Bruegger's, which consent shall not unreasonably be withheld. If Big D desires
to change its Managing Officer for any reason, Big D shall first notify
Bruegger's in writing of the proposed new Managing Officer and his or her
relevant qualifications. However, Big D shall have 60 days to propose a new
Managing Officer in the event the current Managing Officer resigns, dies, or
becomes disabled or incapacitated. In any event, Bruegger's shall have 30 days
after receipt of
notice of the proposed Managing Officer to approve or disapprove the proposed
Managing Officer. If Bruegger's disapproves the proposed Managing Officer, Big D
shall have the right, exercised by sending a written demand for arbitration to
Bruegger's, to immediately submit the issue of the fitness of the proposed
Managing Officer for the position to arbitration, before such arbitrator as the
parties agree upon. If the parties can not agree upon an arbitrator within 10
days after the demand for arbitration is made, each party shall select an third
party arbitrator, and the arbitrators so selected shall select a third
arbitrator, and the panel so selected shall decide the issue by majority vote.
If the arbitrators so selected are unable to agree upon the third arbitrator
within ten days after their appointment, either party may petition the United
States District Court for the District of Minnesota to appoint the third
arbitrator. The decision of the arbitrator(s) shall be binding on both parties.
The arbitration shall take place in Minneapolis, and shall be conducted in
accordance with the then-current Commercial Arbitration Rules of the American
Arbitration Association. The cost of the arbitration shall be shared equally by
the parties. Failure to maintain an approved Managing Officer pursuant to the
terms of this Agreement shall constitute an event of default under the
Shareholder Development Agreement and the Franchise Agreements entered into
thereunder.
8. Bruegger's will provide reasonable assistance to Ciatti's/Big D in
obtaining financing for the leasehold, construction and equipment financing of
new bakeries. This assistance will not require Bruegger's to incur expense nor
to provide guarantees or other credit enhancements. It is contemplated that such
assistance would include, but not be limited to introducing Ciatti's/Big D to
any viable potential financing sources known to Bruegger's and making
appropriate representatives of Bruegger's available to answer questions and
attend
meetings with prospective lenders or financing sources to Ciatti's/Big D. The
parties acknowledge and agree that Ciatti's/Big D shall also be entitled to
participate in any future credit programs that Bruegger's generally offers to
all of its other franchisees on the same terms and conditions as such programs
are offered to such other franchisees.
9. The deadline contained in Section 1.3 of the Shareholder
Development Agreement specifying the minimum cumulative number of Bakeries
required to be in operation by July 1, 1997 is extended to January 1, 1998, and
the deadline for opening new bakeries by July 1, 1998 is extended to October 1,
1998. All other deadlines in the Shareholder Development Agreement shall remain
in effect.
10. The lawsuit will be dismissed with prejudice, and the parties
shall instruct their respective counsel to file an appropriate stipulation
accomplishing that dismissal; provided, however, that nothing in the stipulation
of dismissal, this Agreement, or in the release contained in paragraph 11 below
shall be construed, with respect to future transactions or occurrences, to limit
or reduce Ciatti's or Big D's rights as they existed prior to this Agreement,
and prior to the Dismissal, under Section 9 of the Shareholder Development
Agreement, or Section 14 of the Franchise Agreements entered into thereunder, or
limit the right of either party to bring an action relating to the construction,
breach, operation, or enforcement of those agreements with respect to future
transactions or occurrences. This Agreement is not an admission by any party of
any liability, right or obligation other than those specifically set forth
herein. The provisions in Section 1 of this Agreement excepting certain
transactions from the notice, approval, and first refusal requirements of
Section 9 of the Shareholder Development Agreement and Section 14 of the related
Franchise Agreements are intended only to identify specific "safe harbor"
transactions
that the parties agree will not be subject to those requirements if carried out
in accordance with Sections 2, 4, and 5 of this Agreement.
11. Ciatti's and Big D, and their respective officers, directors,
affiliates, successors and assigns, hereby release and discharge all claims or
causes of action they have against Quality Dining and/or Brueggers, their
respective officers, directors, affiliates, successors and assigns arising out
of the subject matter of the Complaint filed by Ciatti's and Big D. Quality and
Brueggers, and their respective officers, directors, affiliates, successors and
assigns, hereby release and discharge all claims or causes of action they have
against Ciatti's and Big D, and their respective officers, directors,
affiliates, successors and assigns, arising out of the subject matter of Quality
and Brueggers'counterclaim.
12. The parties will issue a joint press release in the form attached
hereto as Exhibit X.
XXXXXX'X, INC. BIG D BAGELS, INC.
---------------------------- -----------------------------------
By /s/ Xxxxxx X. Xxxxx By /s/ Xxxxxx X. Xxxxx
Its Vice President Its Vice President
QUALITY DINING, INC. BRUEGGER'S FRANCHISE CORPORATION
---------------------------- -----------------------------------
By /s/ Xxxx X. Xxxxx By /s/ Xxxx X. Xxxxx
Its Senior Vice President and Its Senior Vice President and
General Counsel General Counsel
Exhibit A
Disclaimer with Respect to Bruegger's to be Added to Ciatti's, Inc. Prospectus
To be placed in the section entitled "Additional Information."
Neither Brueggers Franchise Corporation ("Brueggers") nor any of its
parents, subsidiaries, affiliates, officers, directors, agents, employees,
accountants or attorneys are in any way participating in, approving or endorsing
this offering of securities by the Company, any of the offering or accounting
procedures used in the Prospectus, or any representations made in connection
with the offering. The grant by Bruegger's of any franchise or other rights to
Ciatti's or Big D is not intended as, and should not be interpreted as, an
express or implied approval, endorsement or adoption of any statement regarding
financial or other performance which may be contained in this Prospectus. Any
review by Bruegger's of this Prospectus or the information included in this
Prospectus has been conducted solely for the benefit of Bruegger's to determine
conformance with Bruegger's internal policies, and not to benefit or protect any
other person. No investor should interpret any such review by Bruegger's or the
use and display of any of Bruegger's logos, trademarks or service marks herein
as approval, endorsement, acceptance or adoption of any representation, warranty
or covenant contained in the materials reviewed. The enforcement or waiver of
any obligation of Ciatti's or Big D under any agreement between Ciatti's or Big
D and Bruegger's or any of Bruegger's affiliates is a matter of the Bruegger's
or its affiliates' sole discretion. No investor should rely on any
representation, assumption or belief that Bruegger's or its affiliates will
enforce or waive particular obligations of Ciatti's or Big D under such
agreements.
Exhibit B
LICENSE AGREEMENT
THIS AGREEMENT, entered into as of this day of May 1997 between Big D
Bagels, Inc., a Minnesota corporation (hereinafter referred to as "Big D"),
Ciatti's Inc., a Minnesota corporation (herein after referred to "Ciatti's"),
and Brueggers Franchise Corporation, a Delaware corporation (hereinafter
referred to as "Bruegger's). Ciatti's and Big D are herein referred to
collectively as "Licensees."
WITNESSETH:
WHEREAS, Bruegger's has rights in various names, characters, symbols,
designs and likenesses, including but not limited to the trademarks and/or
service marks listed in Schedule A of the Shareholder Development Agreement
dated as of January 1, 1995 between Bruegger's and Big D (hereinafter referred
to as "LICENSED XXXX"), which LICENSED XXXX has been used in commerce and
extensively advertised and promoted by various means. The LICENSED XXXX is well
known and recognized by the general public, which high reputation and goodwill
has been and continues to be a unique benefit to Bruegger's and its franchisees;
WHEREAS, Ciatti's has filed registration statements with the United States
Securities and Exchange Commission with respect to the offering of its equity
securities and debt securities and such Registration Statements describe the
business of the Company and of Big D, including a description of the LICENSED
XXXX; and
WHEREAS, Licensees recognize that benefits will be derived from utilizing
the LICENSED XXXX and desires to utilize said LICENSED XXXX in the manner
described above,
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. GRANT OF LICENSE
----------------
(a) Licensed Products - Upon the terms and conditions set forth in this
Agreement, Bruegger's grants to Licensees the right, license and privilege to
utilize the LICENSED XXXX and in connection with such registration statements
and future offerings by Ciatti's filed with the Securities and Exchange
Commission (the "Registration Statements"). Use of the LICENSED XXXX in the
Registration Statements and related Prospectuses shall be in a form approved by
Bruegger's as detailed on Schedule A to the Shareholder Development Agreement or
in such manner as Ciatti's, Big D and Bruegger's may otherwise agree. The
following language (or substantially similar language acceptable to Bruegger's )
must appear prominently above or below the first use of the LICENSED XXXX, or in
a location near the LICENSED XXXX acceptable to Bruegger's:
The [trademark/service xxxx] ["LICENSED XXXX"] is a [registered]
[trademark/service xxxx] of Bruegger's Franchise Corporation. Neither
Bruegger's Franchise Corporation nor any of its subsidiaries or
affiliates has endorsed or approved the Offering or is in any way
participating in it. Please see additional Information on page ____ for
a more detailed disclaimer of Bruegger's Franchise Corporation's
involvement.
(b) Term - The term of the license granted herein shall be effective on the
day of May 1997 and shall continue during the term of the Shareholder
Development Agreement between Big D and Bruegger's unless sooner terminated in
accordance with the provisions herein.
2. TERMS OF PAYMENT
----------------
(a) Fee - Licensees agree to pay to Bruegger's as royalty a sum equal to
one hundred dollars ($100) due and payable on the date of execution of this
Agreement.
3. GOODWILL, ETC.
--------------
Licensees recognize the great value of the goodwill associated with the
LICENSED XXXX and acknowledge that the LICENSED XXXX and all rights therein and
goodwill pertaining thereto belong exclusively to Bruegger's and that the
LICENSED XXXX has a secondary meaning in the minds of the public.
Licensees agrees that they will not, attack the title or any rights of
Bruegger's in and to the LICENSED XXXX or attack the validity of this license,
or do anything either by an act of omission or commission which might impair,
violate or infringe the LICENSED XXXX and which will not claim adversely to
Bruegger's or anyone claiming through Bruegger's any right, title or interest in
or to said LICENSED XXXX and will not misuse or harm or bring the LICENSED XXXX
into public disrepute and that they have not and will not for their benefit,
directly or indirectly, register(ed) or apply(ied) for registration of the
LICENSED XXXX or any xxxx which is, in Bruegger's reasonable opinion, the same
as or confusingly similar to the LICENSED XXXX. Bruegger's agrees to assume the
defense of any third-party action challenging Licensees's right to use the
LICENSED XXXX.
Licensees agree to cooperate fully and in good faith with Bruegger's for
the purpose of securing and preserving Bruegger's 's rights in and to the
LICENSED XXXX.
Bruegger's, if it so desires, may commence or prosecute any claims or suits
in its own name or in the name of Licensees or join Licensees as a party
thereto. Should Bruegger's choose to bring an action in the name of Licensees or
join Licensees as a party thereto, Bruegger's agrees to bear the legal expenses
and costs incurred by Licensees's personal legal counsel. Licensees shall notify
Bruegger's in writing of any infringements or imitations by others of the
LICENSED XXXX on documents similar to those covered by this Agreement which may
come
to the Licensees's attention, and Bruegger's shall have the sole right to
determine whether or not any action shall be taken on account of any such
infringements of the LICENSED XXXX. Licensees shall not institute any suit or
take any action on account of any such infringement or imitation without first
obtaining the written consent of Bruegger's to do so.
Licensees expressly recognize that the LICENSED XXXX possesses special
unique and extraordinary character which makes difficult the assessment of
monetary damages which Bruegger's would sustain by unauthorized use. Licensees
expressly recognize and agree that an irreparable injury would be caused to
Bruegger's by unauthorized use and agrees that preliminary and permanent
injunctive and other equitable relief would be appropriate in the event of a
breach of this Agreement by Licensees, provided that such remedy shall not be
exclusive of legal remedies otherwise available.
4. INDEMNIFICATION AND INSURANCE
-----------------------------
Licensees hereby agree to indemnify Bruegger's, its affiliates and their
directors, officers, agents and employees and to hold each of them harmless in
all respects including attorneys' fees from and against any claims, demands,
suits, or causes of actions and resulting settlements, awards or judgements
arising out of any act or alleged activity of Licensees in connection with this
license.
5. RIGHT OF TERMINATION
--------------------
Without prejudice to any other rights that Bruegger's may have, Bruegger's
shall have the right to terminate this Agreement upon five (5) days' written
notice sent by registered or certified mail:
(a) If Licensees shall be unable to pay their liabilities when due or shall
become subject to any bankruptcy, insolvency or receivership proceeding of any
nature or if their business is placed in the hands of a receiver or trustee.
(b) If Licensees assign this Agreement or any of their rights hereunder
without Bruegger's prior written consent.
(c) If Licensees shall fail to perform any of their obligations hereunder,
including without limitation, use of the LICENSED XXXX in the manner provided on
Schedule A to the Shareholder Development Agreement.
6. EFFECT OF TERMINATION
---------------------
(a) Cessation of Rights - Upon the expiration or termination of this
License, all rights granted to Licensees hereunder shall cease and Licensees
will refrain from further use of the LICENSED XXXX or anything reasonably deemed
by Bruegger's to be confusingly similar to the LICENSED XXXX, except as
expressly permitted under other licenses of agreements between the parties
hereto. In the event of disagreement as to whether a xxxx is confusingly
similar, Bruegger's decision shall control.
(b) Bruegger's Remedies - Licensees acknowledge that their use of the
LICENSED XXXX on the Prospectus in a manner other than as provided herein will
result in immediate and irreparable damage to Bruegger's and to the rights of
any subsequent Licensees. Licensees acknowledge and admits that there is not
adequate remedy at law for such misuse, and Licensees agree that in the event of
such misuse Bruegger's shall be entitled to equitable relief by way of temporary
and permanent injunctions and such other further relief as any court with
jurisdiction may deem just and proper. Resort to any remedies referred to herein
shall not be construed as a waiver of any other rights and remedies to which
Bruegger's is entitled under this Agreement or otherwise.
7. NOTICES
-------
All notices, requests, approvals, disapprovals, consents and statements to
be given and all payments to be made hereunder shall be given or made at the
respective addresses of Bruegger's and Licensees set forth below unless
notification of a change of address is given in writing. Such notices, requests,
approvals, disapprovals and consents shall be deemed to have been duly given if
delivered personally or sent by certified mail, return receipt requested, with
postage prepaid or sent by prepaid telegram.
As to Bruegger's: Bruegger's Franchise Corporation
0000 Xxxxxx Xxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxx 00000
ATTENTION: General Counsel
As to Licensees: Ciatti, Inc
Big D Bagels, Inc.
0000 Xxxx 00xx Xxxxxx
Xxxxx, XX 00000
8. NO JOINT VENTURE
----------------
Nothing herein contained shall be construed to place Bruegger's and
Licensees in the relationship of partners or join venturers and neither shall
have any power to obligate or bind the other in any manner whatsoever.
9. NO ASSIGNMENT
-------------
This Agreement and any rights granted herein shall not be assigned,
mortgaged or otherwise encumbered by Licensees without written consent of
Bruegger's. No transfer by operation of law shall be effective against
Bruegger's.
10. NO WAIVER: MODIFICATION: SEVERABILITY
-------------------------------------
None of the terms of this Agreement can be waived or modified except
expressly in writing signed by both parties. The failure of either party to
insist on compliance with any provision hereof shall not constitute a waiver or
modification of such provision or any other provision. If any provision hereof
is held to be invalid or unenforceable by any court of competent jurisdiction or
any other authority vested with jurisdiction, such holdings shall not affect the
validity or enforceability of any other provision hereto.
11. WHOLE AGREEMENT: CONSTRUCTION
-----------------------------
Upon execution, this Agreement includes the entire understanding between
the parties, and there are no representations, promises, warranties, covenants
or undertakings other than those contained herein. This Agreement shall be
construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
Ciatti's, Inc. Bruegger's Franchise Corporation
By: By:
----------------------------- -------------------------------
Attest: Attest:
------------------------- ---------------------------
Big D Bagels, Inc.
By:
-----------------------------
Attest:
-------------------------
Exhibit C
Indemnification Agreement
Ciatti's and Big D jointly and severally agree to protect, indemnify,
hold harmless and defend Bruegger's from and against any and all losses, claims,
damages, liability or expenses arising directly or indirectly out of or related
in any way to any public offering of securities made by Ciatti's, including,
without limitation, any violation or claimed violation of federal, state or
other securities laws, rules or regulations, Securities and Exchange Commission
liability, shareholder derivative or other shareholder claims. Upon notice from
Bruegger's to Big D of any claim hereunder, Ciatti's and Big D shall immediately
undertake at their sole cost and expense, including attorney's fees and costs,
Bruegger's defense of such claim with legal counsel mutually agreeable to
Bruegger's, Ciatti's and Big D. Such mutually agreeable legal counsel shall be
separate and independent of Ciatti's counsel if Bruegger's reasonably determines
that its interests may conflict. If no conflict of interest exists, and
Bruegger's wishes to retain independent counsel of its own choosing, then
Bruegger's shall be responsible for any such independent counsel fees. Any and
all material decisions with respect to the management of Bruegger's defense
hereunder shall occur only with Bruegger's prior consent and direction, which
will not be unreasonably withheld or delayed. Ciatti's shall have sole authority
to settle any claim under any terms acceptable to Ciatti's so long as no adverse
judgment is entered against Bruegger's pursuant to the settlement and Bruegger's
receives a complete release as part of such settlement.
Exhibit D
CIATTI'S, INC. AND BRUEGGER'S AGREE TO SETTLEMENT OF LAWSUIT
Ciatti's, Inc. and its subsidiary Big D Bagels, Inc. and Quality
Dining, Inc. and its subsidiary Bruegger's Franchise Corporation announced today
that they have entered into a Settlement Agreement resolving the pending
litigation between the companies. In connection with the execution of the
Settlement Agreement, the parties have agreed to dismiss the lawsuit and all
respective counterclaims. The companies have also agreed on certain matters
relating to Ciatti's offerings of securities to the public in the future.
Ciatti's owns and operates ten full-service restaurants in Minnesota
and Wisconsin. Big D Bagels currently operates six Xxxxxxxx'x Bagel Bakery
restaurants in the Dallas - Fort Worth area under franchise agreements with
Bruegger's. Bid D Bagels, Inc. has signed leases for an additional six
Xxxxxxxx'x Bagel Bakery restaurants that its expects to open by December 31,
1997.
