MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") dated as of September 1, 1999 by
and between NS ASSOCIATES I, LTD., a Texas limited partnership ("Developer"),
DFW RESTAURANT TRANSFER CORP., a Texas corporation ("Manager"), and
SCHLOTZSKY'S, INC., a Texas corporation ("Guarantor").
WITNESSETH:
WHEREAS, Developer, Manager and Guarantor are parties to that certain
Option Agreement of even date herewith (the "Option Agreement"), which agreement
granted Manager the right to acquire Developer's rights under that certain
Amended and Restated Schlotzsky's Area Developer Agreement dated August 13, 1996
between Developer and Guarantor, as amended (the "ADA");
WHEREAS, the Option Agreement provides that commencing with the date of the
Option Agreement, Manager shall assume and perform all of Developer's duties and
obligations under the ADA;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS. This Agreement is being entered into in connection
with the Option Agreement and except as expressly set forth herein, all
capitalized terms used herein without definition shall have the meanings
assigned to them in the Option Agreement.
2. MANAGER'S DUTIES. Commencing on October 31, 1999 and continuing until
its earlier termination or expiration, Manager shall perform in a timely and
efficient manner all of Developer's duties under the ADA. In connection with
performing its services thereunder, Manager shall have the right, but except as
specified in Section 10 below not the obligation, to hire any of Developer's
employees, provided that any employees of Developer who are hired by Manager
shall not be prevented from returning to work for Developer if Manager does not
exercise the Option, notwithstanding anything to the contrary contained in the
ADA. In discharging its duties under this Agreement, Manager shall act
prudently with due regard for the interests of both Manager and Developer; it
being agreed that Manager shall have been deemed to have performed its duties
and performed its services under this Agreement in a timely and efficient manner
if it completes an average of at least two Quality Service Cleanliness
Compliance inspections (QSCCs) or Key Result Area evaluations (KRAs) (or any
combination
of QSCCs or KRAs) per franchised restaurant per year prior to the occurrence
of Change in Control, as defined in the Option Agreement, and an average of
at least four QSCC inspections or KRA evaluations (or any combination
thereof) per franchised restaurant per year after a Change in Control. In
addition to the general obligations of Manager outlined above, during the
term of this Agreement Guarantor shall provide Developer with monthly written
reports, which reports shall be delivered not later than the 15th day of each
month, as follows: (i) a schedule of the royalties paid by franchisees
within territories covered by the ADA during the preceding month, in the same
format as heretofore provided by Guarantor under the ADA, a copy of which
format is attached hereto as Schedule 1, (ii) a schedule listing all new
franchise agreements executed during the preceding month for the territory
covered by the ADA, (iii) a schedule listing all franchise agreements
terminated during the preceding month, (iv) a schedule listing the stores
within the territories covered by the ADA for which construction was
commenced during the preceding month, (v) a schedule listing the stores
within the territories covered by the ADA which opened for business during
the preceding month (vi) a schedule listing all stores within the territory
covered by the ADA that closed during the preceding month..
3. MANAGER'S COMPENSATION. As compensation for its services hereunder,
Manager shall receive a management fee equal to 100% of the store transfer fees
payable under the ADA and the following:
- During the period commencing on October 31, 1999 and continuing
until August 16, 2001, Manager shall receive a fee equal to 60% of the royalties
and all of the Franchise Fees paid to Developer for such period under the ADA;
- During the period commencing August 17,2001 and continuing until
August 16, 2003, Manager shall receive a fee equal to 50% of the royalties paid
to Developer and all of the Franchise Fees paid to Developer for such period
under the ADA;
- During the period commencing on August 17, 2003 and continuing until
the August 16, 2004, Manager shall receive a fee equal to 25% of the royalties
paid to Developer; and
-During the period commencing on August 17, 2004 and continuing until
the expiration of the ADA, Manager shall receive a fee equal to 20% of the
royalties paid to Developer.
Provided that all such fees shall cease to accrue upon the earlier of the
Closing or the termination of this Agreement pursuant to Section 9 hereof.
Developer
-2-
hereby authorizes Guarantor to pay directly to Manager, Manager's share of
such royalties. Manager shall be responsible for paying its own expenses.
4. LIMITATION ON MANAGER'S AUTHORITY. During the term of this
Agreement, Manager shall have no authority to take any of the following
actions without the prior written consent of Developer, which consent may be
withheld in Developer's sole discretion:
(a) to amend, modify or terminate the ADA;
(b) to compromise, release or settle any claim of or against
Developer arising under the ADA;
(c) to confess any judgments or otherwise admit to any liabilities
binding upon Developer; or
(d) to release any territories covered by the ADA.
5. ACCESS BY DEVELOPER. Developer and its agents or designees shall
have the right, during normal business hours following reasonable notice to
Manager, to examine all sales reports from franchisees, royalty reports from
Guarantor, QSCCs, or any reports issued as a replacement for QSCCs, KRAs or
any replacement for KRAs and any store transfer files for store transfers
occurring during the preceding twelve (12) months which are in the possession
of Manager or Guarantor.
6. INDEMNIFICATION BY MANAGER. Manager shall indemnify, hold harmless
and defend Developer, its partners, and the directors, officers and
shareholders of its corporate general partner, from and against any and all
losses, claims, damages, liabilities, judgments and expenses (including
reasonable attorneys' fees and other expenses incurred by any of them in
connection with defending, settling or investigating any action or claim),
directly or indirectly arising out of or relating to the acts or omissions of
Manager or any person employed, engaged or supervised by Manager in
connection with the performance of its duties under this Agreement. Further,
Guarantor shall name Developer as an additional named insured under its
general comprehensive liability insurance policies. The provisions contained
in this Section 6 shall survive the Closing under the Option Agreement or the
termination of this Agreement, for any reason, including the Closing under
the Option Agreement.
7. EXTENSION OF AGREEMENT. If Manager terminates the Option or the
Option expires without being exercised by Manager, Developer shall have the
right, but not the obligation, to extend this Agreement for the remaining
term of
-3-
the ADA upon written notice to Manager. If this Agreement is extended by
Developer, all of the terms and conditions set forth herein shall remain
unchanged.
8. DEFAULT; REMEDIES FOLLOWING A DEFAULT.
(a) Each of the following shall constitute a default ("Default")
under this Agreement:
(i) Manager shall fail in any material respect to perform any
obligation under this Agreement (other than the payment of money), following
thirty (30) days' notice thereof to Manager and Guarantor and the opportunity to
cure such default; and
(ii) Either Manager or Guarantor shall seek, consent to or
acquiesce in the filing of any proceeding under any bankruptcy, insolvency,
reorganization or other law providing for the relief of debtors or an
involuntary proceeding shall be brought against Manager or Guarantor and such
proceeding shall not be dismissed within sixty (60) days.
(b) Following the occurrence of a Default, Developer shall have
the right, at its election, to pursue one or more of the following remedies:
(i) to require Guarantor's performance of the defaulted
obligation;
(ii) to recover damages for the Default; and/or
(iii) to terminate this Agreement.
9. TERMINATION. This Agreement shall terminate upon the first to occur
of the following:
(a) On the Closing of the assignment of the ADA to Guarantor under
the Option Agreement;
(b) On written notice from Developer (which may be tendered at
Developer's option) upon the expiration or termination of the Option Period, as
set forth in the Option Agreement, if the Option has not been exercised prior to
that time; or
(c) On written notice from Developer (given at Developer's election)
following the occurrence of a Default and the expiration of any applicable cure
periods.
-4-
10. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided that Developer is relying on the unique skills and experience of
Manager and its personnel. Accordingly, this Agreement shall not be assignable
or delegable by Manager except to Guarantor without the prior written consent of
Developer. Any purported assignment or delegation of this Agreement by Manager
contrary to the terms hereof shall be void.
11. EMPLOYEES. Manager agrees that upon execution of this Agreement it
will hire the employees of Developer who are identified on Annex 1 attached
hereto at their present compensation and on the same terms and conditions as are
applicable to other non-executive employees of Manager; provided, however, that
the terms of employment of Xxxxxx Still and Xxxxx Xxxxxxx will be modified to
provide that they will be employed pursuant to one (1) year employment contracts
with Manager.
12. NOTICES. Any notice or other communication to be given by any party
hereunder shall be in writing and shall be deemed sufficient if delivered by
courier or by certified mail, postage prepaid, addressed as set forth in Section
12 of the Option Agreement.
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. 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.
-5-
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
MANAGER:
DFW RESTAURANT TRANSFER CORP.
By: /s/ Xxxx X. Xxxxxx
--------------------------------
Name: Xxxx X. Xxxxxx
------------------------------
Title: President
-----------------------------
DEVELOPER:
NS ASSOCIATES I, LTD.
By: NS Associates, Inc.,
Its: General Partner
By: /s/ Xxxxxx Xxxxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxxxx
------------------------------
Title: President
-----------------------------
The undersigned, Schlotzsky's, Inc., the sole shareholder of Manager,
acknowledges that it will receive substantial direct and indirect benefits as a
result of Manager entering into this Agreement with Developer. Therefore, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and to induce
-6-
Developer to enter into this Agreement, the undersigned, intending to be
legally bound hereby unconditionally and irrevocably guaranties to Developer
the full and timely performance of Manager's obligations under this
Agreement.
SCHLOTZSKY'S, INC.
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxx
-----------------------------------
Title: President
----------------------------------
-7-