OPTION AGREEMENT
This Option Agreement (the "Agreement") dated as of September 1, 1999, by
and between DFW RESTAURANT TRANSFER CORP., a Texas corporation ("Holder"), NS
ASSOCIATES I, LTD., a Texas limited partnership ("Grantor"), and SCHLOTZSKY'S,
INC., a Texas corporation ("Guarantor").
WITNESSETH:
WHEREAS, Holder desires to obtain an option to purchase Grantor's rights
under that certain Amended and Restated Schlotzsky's Area Developer Agreement
dated August 13, 1996 between Grantor and Guarantor, as amended (the "ADA"); and
WHEREAS, Grantor has agreed to xxxxx Xxxxxx an option to acquire its right,
title and interest in the Area Developer Agreement pursuant to the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. GRANT OF OPTION. In consideration of the payment by Holder of the sum
of Three Million Dollars ($3,000,000) (the "Option Price") Two Million Five
Hundred Thousand Dollars ($2,500,000) of which shall be payable in cash to
Grantor contemporaneous with the execution hereof, and the remaining Five
Hundred Thousand Dollars ($500,000) of which shall be payable in cash on January
25, 2000, Grantor hereby grants to Holder the option (the "Option") to acquire
all of Grantor's right, title and interest in and to the ADA at any time during
the Option Period (as hereinafter defined) for the Exercise Price (as
hereinafter defined). Further, the Option shall terminate, at Grantor's
election, upon the failure by Holder to pay any of the sums described in the
preceding sentence or upon any default by Holder in the performance of any of
its obligations under that certain Consulting Agreement of even date herewith
between Holder and Grantor which is not cured within thirty (30) days after
written notice of such default is given to Holder by Grantor. Grantor agrees
that at the time that Grantor receives the Option Price from Holder, it will
discharge the indebtedness to Guarantor described in SCHEDULE 1 hereto and that
upon receipt of the Exercise Price or other amounts payable under this
Agreement, it will, at Holder's request, discharge any other indebtedness of
Grantor to Holder or Guarantor or any of their respective affiliates to the
extent of the funds received.
2. OPTION. Holder shall be entitled to exercise the Option in accordance
with the provisions of paragraph 4 during the period commencing on the date of
this Agreement and continuing until 5:00 p.m., Dallas, Texas time on February
16, 2012 (such period being the "Option Period"). If the Option is not
exercised prior to the termination of the Option Period, the Option shall
automatically terminate and Grantor shall have the right to retain the Option
Price and any other amounts paid to Grantor hereunder.
3. EXERCISE PRICE. Upon the exercise of the Option, Holder shall be
entitled to purchase Grantor's rights under the ADA by delivering to Grantor, at
the Closing (as hereinafter defined), a cash payment in the amount set forth
below (the "Exercise Price"). The Exercise Price shall be determined as
follows:
- If the Closing occurs on or before August 16, 2004, the Exercise
Price shall equal the sum of Twenty-Eight Million Dollars ($28,000,000);
- If the Closing occurs at any time from August 17, 2004 and through
August 16, 2005, the Exercise Price shall equal the sum of Twenty-Nine Million
One Hundred Twenty Thousand Dollars ($29,120,000);
- If the Closing occurs at any time from August 17, 2005 through
August 16, 2006, the Exercise Price shall equal the sum of Thirty Million Two
Hundred Eighty-Four Thousand Dollars ($30,284,000);
- If the Closing occurs at any time from August 17, 2006 through
August 16, 2007, the Exercise Price shall equal the sum of Thirty-One Million
Four Hundred Ninety-Six Thousand One Hundred Ninety-Two Dollars ($31,496,192);
- If the Closing occurs at any time from August 17, 2007 through
August 16, 2008, the Exercise Price shall equal the sum of Thirty-Two Million
Seven Hundred Fifty-Six Thousand Thirty-Nine Dollars ($32,756,039)
- If the Closing occurs at any time from August 17, 2008 through
August 16, 2009, the Exercise Price shall equal the sum of Thirty-Four Million
Sixty-Six Thousand Two Hundred Eighty Dollars ($34,066,280);
- If the Closing occurs at any time from August 17, 2009 through
August 16, 2010, the Exercise Price shall equal the sum of Thirty-Five Million
Four Hundred Twenty-Eight Thousand Nine Hundred Thirty-One Dollars
($35,428,931);
- If the Closing occurs at any time from August 17, 2010 through
August 16, 2011, the Exercise Price shall equal the sum of Thirty-Six Million
Eight Hundred Forty-Six Thousand Eighty-Eight Dollars ($36,846,088); and
- If the Closing occurs at any time from August 17, 2011 through the
expiration of the Option, the Exercise Price shall equal the sum of Thirty-Eight
Million Three Hundred Nineteen Thousand Nine Hundred Thirty-One Dollars
($38,319,931).
The Exercise Price shall be reduced at the Closing by the Option Price paid to
Grantor concurrently with the execution of this Agreement and any amounts paid
pursuant Section 9 of this Agreement.
4. EXERCISE OF THE OPTION. Holder shall be entitled to exercise the
Option during the Option Period by delivering to Grantor at the address set
forth in Section 12 hereof by courier or by certified mail, postage prepaid,
return receipt requested notice of Holder's exercise of the Option; and the
Closing shall be held ten (10) business days thereafter provided, however, that
in no event shall the Closing occur prior to January 1, 2000 or later than
ninety (90) days following February 16, 2012. The parties agree that the
confidentiality, non-compete and other post-termination provisions of the ADA
will continue to be binding on Grantor notwithstanding the execution of this
Agreement or the exercise of the Option.
5. CLOSING.
(a) At the closing (the "Closing) of the assignment of the ADA
contemplated hereby, Holder shall deliver to Grantor the following:
(i) The Exercise Price (reduced by the Option Price and, if
paid by Holder, the amount specified in paragraph 9) in immediately available
funds;
(ii) a mutual release of claims executed by Guarantor and
Grantor, through which each party releases the other party and its principals
from any obligations under the ADA (other than those specifically intended to
survive the termination of the ADA), the form of which release is attached as
EXHIBIT A hereto (the "Mutual Release of Claims");
(iii) a certificate executed by the President or a Vice President
of Holder and the President or a Vice President of Guarantor, respectively,
confirming that the representations and warranties of Grantor and Guarantor set
forth in this Agreement are true and correct at and as of the Closing;
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(b) At the Closing, Grantor shall deliver to Holder the following:
(i) an assignment of the ADA;
(ii) the Mutual Release of Claims; and
(iii) a certificate executed by the President or a Vice President
of Grantor's general partner confirming that the representations and warranties
set forth in this Agreement are true and correct at and as of the Closing.
6. REPRESENTATIONS AND WARRANTIES OF GRANTOR. Grantor hereby represents
and warrants to Holder as follows:
(a) Grantor is a limited partnership duly organized and validly
existing under the laws of the State of Texas. Grantor has full power and
authority to enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized by all partnership action required on
the part of Grantor.
(b) Grantor is the owner and holder of the developer's rights under
the ADA free and clear of any liens, claims or encumbrances. Grantor has not
pledged, assigned or hypothecated any of its rights under the ADA. Grantor has
no knowledge of the occurrence of any defaults under the ADA or any events
which, with notice or the passage of time could constitute a default under the
ADA.
(c) There are no actions, suits, proceedings or investigations
pending, or to the best knowledge of Grantor, threatened before any court,
governmental agency or instrumentality against, by or affecting Grantor or any
of its properties or assets that would prevent the Closing or any of the
transactions contemplated hereby.
(d) The execution and delivery of this Agreement and the assignments
to be delivered by Grantor at the Closing, and the consummation of the
transactions contemplated hereby, will not violate any provision of, or result
in the breach of or permit the acceleration of, or give rise to any liability or
obligation under, any applicable law, rule or regulation of any governmental
body, the limited partnership agreement of Grantor or any contract, indenture or
agreement to which Grantor is a party.
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7. REPRESENTATIONS AND WARRANTIES OF HOLDER AND GUARANTOR. Holder and
Guarantor hereby jointly and severally represent and warrant to Grantor as
follows:
(a) Holder is a corporation duly organized, validly existing and
in good standing under the laws of the state of Texas. Holder has full power
and authority to enter into this Agreement and to perform its obligations
hereunder. This Agreement has been duly authorized by all corporate action
necessary on the part of Holder.
(b) There are no actions, suits, proceedings or investigations
pending, or to the best knowledge of Holder, threatened before any court,
governmental agency or instrumentality against, by or affecting Holder or any
of its properties or assets that would prevent the Closing or any of the
transactions contemplated hereby.
(c) The execution and delivery of this Agreement and the
performance by Holder of its obligations hereunder will not violate any
provision of, or result in the breach of or permit the acceleration of, or
give rise to any liability or obligation under any applicable law, rule or
regulation of any governmental body, the articles of incorporation or bylaws
of Holder or any contract, indenture or agreement to which Holder is a party.
(d) Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas. Guarantor has
full power and authority to enter into this Agreement and to perform its
obligations hereunder. This Agreement has been duly authorized by all
corporate action required on the part of Guarantor.
(e) Other than litigation matters referred to in Guarantor's
Annual Report on Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 1998, any one of which could have a material
adverse effect on the results of operations or financial condition of
Guarantor if a decision adverse to Guarantor is reached, there are no
actions, suits, proceedings or investigations pending, or to the best
knowledge of Guarantor, threatened before any court, governmental agency or
instrumentality against, by or affecting Guarantor or any of its property or
assets that would prevent the Closing or any of the transactions contemplated
hereby.
(f) The execution and delivery of this Agreement and the
performance by Guarantor of its obligations hereunder will not violate any
provision of, or result in the breach of or permit the acceleration of, or
give rise to any liability or obligation under any applicable law, rule or
regulation of any
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governmental body, or the articles of incorporation or bylaws of Guarantor or
any contract, indenture or agreement to which Guarantor is a party.
8. COVENANTS. The parties hereby covenant and agree as follows:
(a) Contemporaneous with the execution of this Agreement, Holder,
Grantor and Guarantor shall execute a Management Agreement in the form of the
Management Agreement attached hereto as EXHIBIT B (the "Management
Agreement"), pursuant to which Holder shall perform all of Grantor's duties
under the ADA. Guarantor agrees that the appointment of Holder to act on
behalf of Grantor shall not constitute a default under the ADA. Guarantor
further agrees to guarantee the performance by Holder of its obligations
under the Management Agreement.
(b) Guarantor and Grantor agree that contemporaneous with the
execution of this Agreement, they will execute the Amendment to Area
Developer Agreement, the form of which is attached hereto as EXHIBIT C (the
"Amended and ADA"). The Amended ADA shall become effective immediately.
(c) Guarantor agrees that during the term of the Management Agreement
it will not terminate the ADA, as amended.
9. CHANGE IN CONTROL. If there is a Change in Control of Guarantor or
Holder, as hereinafter defined, during the Option Period, unless such Change
in Control constitutes an Excluded Transaction, as hereinafter defined,
Holder shall notify Grantor within ten (10) business days following such
change and such notice shall include an election on the part of Holder to
either terminate the Option or to keep the Option in effect. If no notice is
given or if such notice does not include a statement of Holder's decision to
either terminate the Option or keep the Option in effect, then Holder shall
be deemed to have elected to keep the Option in effect. If Holder elects not
to terminate the Option pursuant to the foregoing provisions, then Holder
shall be obligated to pay to Grantor, within ninety (90) days after the
expiration of Holder's ten (10) business day election period, an amount equal
to ten percent (10%) of the then applicable Exercise Price (as specified in
paragraph 3 hereof). Said amount shall be applicable to the Exercise Price
at the Closing (if the Option is exercised) but shall otherwise be
non-refundable to Holder. If Holder fails to deposit the amount specified
above, the Option shall lapse.
As used herein, the term "Change in Control of Guarantor or Holder"
shall mean any of the following: (i) the sale of all or more than a majority
in book value of the assets of Guarantor or Holder, as applicable, (ii) the
merger of Guarantor or Holder, as applicable, with or into another entity so
that after such merger the
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shareholders of Guarantor or Holder, as applicable, own less than a majority
of the shares of the surviving entity or (iii) the acquisition of beneficial
ownership of more than twenty percent (20%) of Guarantor's or Holder's common
stock for more than sixty (60) days (with such period of sixty (60) days
commencing on the date that Guarantor receives notice that one or more
persons have acquired more than twenty percent (20%) of the common stock of
Guarantor or Holder) by a person or group of persons acting in concert who
did not hold such stock at the time of this Agreement; provided, that if such
person or group of persons reduces their ownership below 20% prior to the
expiration of said sixty (60) days it shall not be considered a change in
control.
Notwithstanding anything to the contrary set forth herein, the following
transactions (the "Excluded Transactions") shall be excluded from the
definition of "Change in Control of Guarantor or Holder", as set forth in the
preceding paragraph: (i) any transaction that falls within the definition of
a "Change in Control of Guarantor or Holder" that is caused by the
acquisition of more than twenty percent (20%) of Guarantor's stock by (A)
Xxxx X. Xxxxxx, (B) Xxxxxxx X. Xxxxxx, (C) Xxxxxx X. Xxxxxxxxx, (D) any
member of the immediate family of either Xxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx or
Xxxxxx X. Xxxxxxxxx, (E) any entity a majority of whose equity interests are
owned by, or a trust formed for the benefit of, any of the persons named in
(A) through (D) above, or (F) a group including anyone identified in
(A) - (E) in a transaction in which Guarantor ceases to be a reporting company
under the Securities Exchange Act of 1934, as amended, (ii) any transaction
that falls within the definition of "Change in Control of Guarantor or
Holder" that is caused by the actions of Grantor or any of its affiliates or
(iii) a Change in Control that results from the issuance prior to August 31,
2000 of shares of Guarantor's common stock (or warrants or options to acquire
Guarantor's common stock, or the exercise thereof at any time before or after
August 31, 2000) in connection with Guarantor's acquisition of at least 100
stores or store sites, at least 20 of which are within the territory covered
by the ADA that are or were formerly part of another chain of fast food
stores.
10. ABSENCE OF CLAIMS.
(a) Guarantor hereby acknowledges that except for Grantor's future
obligations under the ADA, and Guarantor's right to seek indemnification from
Grantor pursuant to the terms of the ADA, neither Guarantor nor its
affiliates has any rights, claims or causes of action, whether absolute or
contingent, against Grantor or any of its principals or affiliates, under
the ADA or otherwise. Further, except for Guarantor's right to seek
indemnification from Grantor under the ADA to the extent set forth therein,
Guarantor hereby releases Grantor, its principals and affiliates from any
claims, demands, liabilities or causes of action, absolute or contingent,
known or unknown, that accrued prior to the date of this
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Agreement. Additionally, Guarantor agrees that contemporaneously with the
execution of this Agreement, it shall execute the Mutual Release of Claims in
favor of X. X. Xxxxxxxxx Corp., the form of which is attached hereto as
EXHIBIT D.
(b) Grantor hereby acknowledges that, except for accrued payments due
under the ADA, Guarantor's future obligations under the ADA, Holder's future
obligations under the Management Agreement, the Consulting Agreement and
Grantor's right to seek indemnification from Guarantor pursuant to the terms
of the ADA, Grantor has no rights, claims or causes of action, whether
absolute or contingent, against Guarantor under ADA or otherwise. Further
except for Grantor's right to receive accrued payments under the ADA,
Guarantor's future obligations under the ADA, the obligations of Holder and
Guarantor under the Management Agreement and the Consulting Agreement,
Guarantor's future obligations under this Agreement and Grantor's right to
seek indemnification from Guarantor under the ADA to the extent set forth
therein, Grantor hereby releases Guarantor and Holder and each of them form
any claims, demands, liabilities or causes of action, absolute or contingent
known or unknown.
11. NOTIFICATION OF TERMINATION. Holder agrees that if, at any time
prior to February 16, 2012 it determines that it does not wish to exercise
the Option, Holder will give Grantor written notice of that fact, and the
Option shall terminate ninety (90) days after the date of such notice.
Further, notwithstanding anything to the contrary contained elsewhere herein,
if Holder does not deliver written notice of its exercise of the Option on or
before November 17, 2011, then the Option shall automatically terminate at
the end of the Option Period.
12. NOTICES. Unless otherwise specifically provided herein, any notice
required or permitted to be given hereunder shall be in writing and shall be
deemed delivered when delivered by courier or upon deposit in the United
States mail, postage prepaid, certified mail, return receipt requested to the
following addresses or to such other address as may be specified by notice:
If to Grantor: NS Associates I, Ltd.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
With a copy to: Xxxxxx X. Xxxx, Esq.
Xxxxxx, Sweet & Xxxxxxx, L.L.P.
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
If to Holder: DFW Restaurant Transfer Corp.
000 Xxxxxxxx Xxxxxx
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Xxxxxx, Xxxxx 00000
If to Guarantor: Schlotzsky's, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the entire
agreement of the parties with regard to the subject matter hereof, supersedes
all other agreements and understandings, if any, relating to the subject
matter hereof and may be amended or supplemented only by an instrument in
writing executed all of the parties hereto.
14. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision shall be fully severable
and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never been a part hereof.
Furthermore, the remaining provisions of this agreement shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from
this Agreement and there shall, in lieu of such provision, be added a
provision as similar in terms and intent to such illegal, invalid or
unenforceable provision as may be legal, valid or enforceable, as the case
may be.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding the foregoing, no party shall assign any of its
rights or delegate any of its duties or obligations hereunder without the
express written consent of the other parties, which consent may be withheld
for any or no reason. Any purported assignment of this Agreement contrary to
the terms hereof shall be void.
16. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regard to conflicts
of laws principles.
17. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, provided that all of
which taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
GRANTOR:
NS ASSOCIATES I, LTD.
By: NS Associates, Inc.
Its: General Partner
By: /s/ Xxxxxx Xxxxxxxxx
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Name: Xxxxxx Xxxxxxxxx
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Title: President
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HOLDER:
DFW RESTAURANT TRANSFER CORP.
By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx
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Title: President
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The undersigned, Schlotzsky's, Inc., the sole shareholder of Holder,
acknowledges that it will receive substantial direct and indirect benefits as a
result of Holder entering into this Agreement with Grantor. Therefore, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and to induce Grantor
to enter into this Agreement, the undersigned, intending to be legally bound
hereby unconditionally irrevocably guaranties to Grantor the full and timely
performance of Holder's obligations under this Agreement.
GUARANTOR:
SCHLOTZSKY'S, INC.
By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx
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Title: President
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