EXHIBIT 10.7
PROJECT AGREEMENT
This Agreement ("Agreement"), made as of February 6, 1998 is entered into
by and between FUJI PHOTO FILM U.S.A., INC. ("Fuji"), a New York corporation
with offices at 000 Xxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx and Moto Photo, Inc. ("Moto
Photo"), a Delaware corporation with offices at 0000 Xxxx Xxxxxx Xxxxx, Xxxxxx,
Xxxx 00000.
WITNESSTH:
WHEREAS, Fuji currently sells minilab photo processing equipment as more
fully described in Schedule 1 ("Fuji Equipment") to certain financial
institutions for resale to Moto Photo's own stores and its franchisees (each
company-owned store and franchisee being collectively called a "Lessee" and
together the "Lessees"); and
WHEREAS, Fuji also currently sells color photographic paper, photographic
chemicals and various other related products to Moto Photo for resale to the
Lessees;
WHEREAS, Fuji and Moto Photo desire to provide, through this Agreement, for
a special lease financing program to lease Equipment and other items to the
Lessees.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereby covenant and agree as follows:
1.MASTER LEASE FINANCING AGREEMENT: As soon as possible after the date
hereof, Fuji and Moto Photo will arrange a master lease financing
agreement ("Lease Financing Agreement") with a financial institution
("Lessor") mutually acceptable to Fuji and Moto Photo pursuant to which
Fuji will sell Fuji Equipment to the Lessor. Pursuant to separate
leases (each a "Lease" and together the "Leases") between the Lessor and
each of the Lessees participating in this program, Lessor will lease to
a Lessee the Fuji Equipment. Lessor will also provide to the Lessees
and will add to the principal balance of the Lease, up to $60,000 per
Lease to enable the Lessee to purchase certain leasehold improvements
(``Leaseholds'') and certain third party equipment ("Other Equipment").
In addition, beginning with the first anniversary of a Lease, at the
beginning of each year of such Lease, an amount equal to an annual
equipment maintenance fee of $3,800 ("Maintenance Fee") will be added to
the principal balance of such Lease. The amount of the Maintenance Fee
will be set forth in the Lease. Fuji will guarantee to the Lessor the
monthly Rent (as defined herein) payments to be made by a Lessee under a
Lease. The general terms of the Leases are more fully described below.
0.XXXXX AGREEMENTS: Lessor shall lease to Lessee, and Lessee shall lease
from Lessor, the Fuji Equipment, Leaseholds and Other Equipment
described in the Lease. Each Lease must incorporate the relevant terms
and conditions of this Agreement. Notwithstanding termination of this
Agreement as permitted herein, each Lease shall continue to remain in
full force and effect and subject to and governed by the terms and
conditions of such Lease for the term of such Lease.
0.XXXXX TERMS:
a. Term of Leases. The term of each Lease shall be eight years. Leases
may only be terminated as expressly provided therein.
b. Calculation of Rent. For the lease of the Fuji Equipment, Leaseholds
and Other Equipment and the amortization of the Maintenance Fee,
Lessee shall pay to Lessor weekly payments ("Rent") equal to (i) a
percentage of such Lessee's net sales of photofinishing services, (ii)
a percentage of such Lessee's net sales of portrait products and
services and (iii) a percentage of such Lessee's net sales of other
merchandise and services (together the "Percentage of Sales"). The
Percentage of Sales will be determined by Moto Photo using a standard
store model to calculate, on a best efforts basis, the Percentage of
Sales required to fully amortize the principal balance of a Lease over
its eight year term. The Percentage of Sales at the commencement of
this Agreement is set forth in Schedule 1. The Percentage of Sales
may be adjusted from time to time for Leases not yet entered into upon
the mutual agreement of Fuji and Moto Photo. Notwithstanding the
forgoing, during the first three-year period of any Lease, weekly Rent
payments must be equal to or greater than the amounts set forth in
Exhibit 3(b) attached hereto.
c. Title to Equipment; Purchase Option. (i) During the term of a Lease,
title to the Fuji Equipment and Other Equipment (collectively, the
``quipment'') will remain with the Lessor and the Lessee shall not
receive any right, title or interest in the Equipment. Title to
Leaseholds shall be held by the Lessee, which will xxxxx Xxxxxx a
first priority security interest in the Leaseholds.
(ii) At the end of the full term of a Lease, the Lessee may elect to
purchase the Equipment based on the then market value of the Equipment
and any outstanding Lease payments and maintenance charges as of such
termination date (`Lessee Purchase Price''). If the Lessee elects to
purchase the Equipment at the end of the Lease and the Lessee Purchase
Price is less than the balance in the Lease Account (as defined in the
Lease Financing Agreement) (`Residual Value''), Fuji will pay the
Lessor the difference between the Residual Value and the Lessee
Purchase Price. Should the Lessee choose not to exercise its purchase
option, Fuji will repurchase the Equipment from the Lessor at a price
equal to the Residual Value. Fuji will then endeavor to resell the
Equipment to a third party at a negotiated price. Moto Photo will use
its best efforts to assist Fuji in any such resale of Equipment. If
the Lessee Purchase Price or the negotiated price of any such resale
of Equipment less all expenses of sale incurred by Fuji and Moto Photo
(the "Net Resale Price") is greater than the Residual Value such
excess shall be considered the "Resale Gain." Conversely, if the
Lessee Purchase Price or the Net Resale Price of any such resale of
Equipment is less than the Residual Value, such shortfall shall be
considered the "Resale Loss.'' If a Lessee's monthly Rent payments
amortize the Residual Value prior to the end of such Lease, the
aggregate of subsequent monthly Rent will be considered an "Inherent
Gain." At the end of such Lease, the Lessor will be required to remit
the Inherent Gain to Fuji.
d. Guarantee by Fuji. In order to induce the Lessor to enter into the
Leases with the Lessees, Fuji will guarantee the Rent payments.
Should a Lessee default under the payment terms of its Lease, Fuji
will pay the Lessor the guarantee amount due pursuant to the terms of
such Lease. Upon such payment by Fuji, the Lessor must assign all of
its rights in the Equipment and the Leaseholds to Fuji, at which point
Fuji may elect to recover such Equipment and Leaseholds from the
Lessee and resell them to a third party. If the net proceeds received
by Fuji from any such resale are greater than the amount it was
required to pay under the associated guarantee, such excess will be
considered the "Foreclosure Gain." If the net proceeds received by
Fuji from any such resale are less than the amount it was required to
pay under the associated guarantee, such shortfall will be considered
the "Foreclosure Loss." In the alternative, Fuji and Moto Photo may
agree that either Fuji or Moto Photo shall retain certain Equipment
and Other Items which it acquires pursuant to a default by a Lessee,
in which case Fuji and Moto Photo shall agree upon the value of such
retained Equipment and Other Items (the "Settlement Amount"). The
difference between any such Settlement Amount and associated amount
Fuji was required to pay to the Lessor under a guarantee will also be
considered a Foreclosure Gain or Foreclosure Loss, as the case may be.
To assist Lessor in the maintenance of records pursuant to Section 4
(a) below, Fuji and Moto Photo will report to Lessor the Net Resale
Price or the Settlement Amount from the sale or retention, as the case
may be, of any Equipment and Other Items.
4.ALLOCATION OF LOSSES OR GAINS ON LEASES:
a. Allocation Between Fuji and Moto Photo During the term of this
Agreement, Fuji and Moto Photo shall share equally in all Resale
Gains, Resale Losses, Foreclosure Gains, Foreclosure Losses and
Inherent Gains (collectively, the "Net Gains" or "Net Losses").
During the term of this Agreement, Lessor will maintain accurate
records of all such gains or losses incurred during each calendar
year. Within 15 days of the end of each calendar year during the term
of this Agreement, Lessor shall be required to provide Fuji and Moto
Photo an accounting of the Net Gains and Net Losses during such
calendar year. If neither party to this Agreement objects to such
accounting of such Net Gains and Net Losses within 30 days thereafter,
then settlement of the aggregate Net Gain or aggregate Net Loss, as
the case may be, shall occur immediately as follows: (i) if there is
an aggregate Net Gain for the calendar year (after subtracting any
payments to Pool Leases pursuant to Section 4(b) below), Fuji will
remit to Moto Photo an amount equal to 50% of such aggregate Net Gain,
and (ii) if there is an aggregate Net Loss for the calendar year Moto
Photo will remit to Fuji an amount equal to 50% of such aggregate Net
Loss.
b. Allocation Between Fuji and Moto Photo and the Lessees. At December
31 of each calendar year commencing December 31, 2006, the Lessor will
determine the Net Gains, if any, for all Leases which commenced during
the calendar year ending eight years before the date such
determination is made (the ``ool Leases''). If the Net Gains of the
Pool Leases for the year in question exceed the Threshold Amount (as
defined below) multiplied by the number of such Pool Leases (the
``ool Gains''), then 33.3% of the Pool Gains shall be paid pro rata
to those Pool Leases which never defaulted (``ualifying Lease''),
based on the amount of Rent paid on each Qualifying Lease and the
total Rent paid on all Qualifying Leases which commenced during that
year. The `Threshold Amount'' means the additional amount the Lessee
would pay under a Lease if, assuming consistently uniform average
sales over the period, the Lessee's gross sales of photofinishing
services, portrait products and services, and other merchandise and
services equal 110% rather than 100% of such sales under Moto Photo's
standard store model. As of the commencement of this Agreement, the
Threshold Amount is $86,100.
Example:
In 1999 - 11 Pool Leases
At December 21, 2007, the aggregate Net Gains for the 11 Pool
Leases is $1,000,000
11 x $86,100 (`Threshold Amount'') = $947,100
$1,000,000 - $947,100 = $52,900 (`Pool Gains'')
33.3% of $52,900 = $17,616.
One Lease defaulted. Therefore 10 Qualifying
Pro rata share for each Qualifying Lease = 10% of $ 17,616 or $1,762
(assuming each Qualifying Lease paid the same rent)
c. Representations to Lessees on Fuji's sharing of Net Gains or Losses.
Moto Photo shall not, except as required in its franchise, SEC or
other government filings, reveal to Lessees the sharing by Fuji in
Net Gains or Net Losses pursuant to this Agreement.
5.ADDITIONAL PROVISIONS: During the term of this Agreement, Moto Photo
will:
a. require all Lessees who lease Equipment under this program to agree to
purchase from Moto Photo or Fuji the following Fuji products:
(i) photographic film and one time use cameras, in sufficient
quantities as to maintain such products in at least 50% of the display
space for such products in each participating Lessee's store; provided
such Fuji products are competitive with other brands of the same or
similar products; and
(ii) all of such participating Lessee's requirements for color
photographic paper, photographic chemicals, and minilab and electronic
imaging equipment and related parts and accessories; provided such
Fuji products are competitive with other brands of the same or similar
products.
b. cause each participating Lessee to use its best efforts to increase
purchases of Fuji electronic products, cameras, video and audio tapes
and floppy disks for resale; provided such Fuji products are
competitive with other brands of the same or similar products.
c. cause each participating Lessee to prominently display Fuji's name and
marks in such Lessee's store; provided that such use of Fuji's name
must be approved by Fuji; and
d. cause each participating Lessee to enter into a service agreement with
Fuji or an affiliate of Fuji in the form attached hereto as Exhibit
5(d) for the maintenance of the associated Equipment during the term
of the Lease, with the annual fee for such maintenance agreement to be
added to the principal balance of the Lease as proscribed above.
6.TERM OF THIS AGREEMENT: This Agreement will commence on the day first
written above and will terminate upon the end of the term of the last
Lease to expire or to be terminated, provided, however, that at any time
after the first fifty Leases are entered into with Lessees under this
program, the parties to this Agreement will meet to evaluate the
effectiveness of this program. After the first fifty Leases are entered
into, Fuji may, at its sole discretion, elect to discontinue the program
for all or a portion of future Leases to Lessees, in which case this
Agreement shall terminate upon the end of the term of the last Lease to
expire or be terminated.
7.INDEMNIFICATION:
a. Moto Photo assumes liability for, and hereby agrees to indemnify,
protect and hold harmless, Fuji and its agents, employees, officers,
directors, partners, shareholders, successors and assigns from and
against all liabilities, obligations, losses, damages, injuries,
claims, demands, penalties, actions, costs and expenses, including,
without limitation, reasonable attorneys' fees and costs of
investigation, of whatever kind and nature, whether in contract or in
tort or otherwise arising out of or claimed to arise out of Moto
Photo's failure to perform or comply with any conditions or covenants
of this Agreement.
b. Fuji assumes liability for, and hereby agrees to indemnify, protect
and hold harmless, Moto Photo and its agents, employees, officers,
directors, partners, shareholders, successors and assigns from and
against all liabilities, obligations, losses, damages, injuries,
claims, demands, penalties, actions, costs and expenses, including,
without limitation, reasonable attorneys' fees and costs of
investigation, of whatever kind and nature, whether in contract or in
tort or otherwise arising out of or claimed to arise out of Fuji's
failure to perform or comply with any conditions covenants of this
Agreement.
c. Such indemnities and assumptions of liabilities and obligations shall
continue in full force and effect notwithstanding the expiration or
other termination of this Agreement.
8. MISCELLANEOUS:
a. No Partnership. Nothing contained in or relating to this Agreement,
or any Lease or associated guarantee, shall constitute or be deemed to
constitute a partnership or joint venture between the parties hereto
or between Fuji and any Lessee.
b. No Agency. Neither party has or shall have or hold itself out as
having any authority or agency to act on behalf of the other.
c. Entire Agreement. This Agreement and the Lease Financing Agreement
constitute the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements and
understandings, oral and written, between the parties with respect to
the subject matter hereof.
d. Amendments. No amendment to this Agreement shall be effective unless
in writing and executed by Fuji and Moto Photo.
e. Benefit of Parties. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
f. Severability. If any one or more of the provisions contained in this
Agreement or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or
impaired; provided, however, that in such case the parties oblige
themselves to use their best efforts to achieve the purpose of the
invalid provision by a new legally valid stipulation.
g. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and (unless
otherwise specifically provided herein) shall be deemed to have been
given at the time when mailed in any general or branch office of the
United States Postal Service, enclosed in a registered or certified
postpaid envelope and addressed to the address of the parties shown
below or to such changed address as such party may have fixed by
notice, or when sent by facsimile transmission and acknowledged by an
appropriate telephonic or facsimile receipt:
To Fuji: Fuji Photo Film U.S.A., Inc.
000 Xxxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: President
Telecopier: (000) 000-0000
- copy to -
Fuji Photo Film U.S.A., Inc.
000 Xxxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxxx X. File, Esq.
Telecopier: (000)000-0000
To Moto Photo: Moto Photo, Inc.
0000 Xxxx Xxxxxx Xxxxx
Xxxxxx, Xxxx 00000
Attention: Xxxxx Xxxxx
Telecopier: (000) 000-0000
- copy to -
Xxxxx X. Xxxxx, Esq.
Xxxxx & Xxxxxx Co., LPA
00 X. Xxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopier: (000) 000-0000
provided, that (a) any notice of change of address shall be effective only when
received and (b) a copy of any notice given other than by mail shall be given by
mail as aforesaid.
h.Counterparts. This Agreement may be executed simultaneously in
separate counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
i. Construction. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without
reference to choice-of-law rules. The titles of the sections of
this Agreement are for convenience only and shall not define or
limit any of the terms or provisions hereof. Plural terms herein
shall include the singular and "and" shall include "or", and vice
versa, unless the context requires otherwise.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement on the date first above written.
FUJI PHOTO FILM U.S.A., INC.
Date
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By
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Title
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MOTO PHOTO, INC.
Date
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By
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Title
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Schedule 1 Equipment and Percentage of Sales
Exhibit 3(b) Minimum Monthly Rent Payments
Exhibit 5(d) Form of Service Agreement
Schedule 1
Equipment: Model 278A - Full List
Percentage of Sales for Stores with Portrait Studios
(i) of Lessee's net sales of photofinishing services
(ii)of Lessee's net sales of portrait products and services
(iii)of Lessee's net sales of other merchandise and services
Percentage of Sales for Stores without Portrait Studios
(i) of Lessee's net sales of photofinishing services
(ii)of Lessee's net sales of the other merchandise and services.
(iii)
(iv)
EXHIBIT 3(B)
MINIMUM MONTHLY RENT PAYMENTS
Average of $1,500 per month in the First 12 Months
Average of $2,000 per month in the Second 12 Months
Average of $2,500 per month in the Third 12 months
