Development Agreement

EXHIBIT 10.4


EINSTEIN/NOAH BAGEL CORP.
AMENDED AND RESTATED
DEVELOPMENT AGREEMENT


EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DEVELOPER


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TABLE OF CONTENTS


SECTION PAGE - ------- ----


1. PREAMBLES.............................................................................................. 1


2. CERTAIN DEFINITIONS.................................................................................... 2


3. DEVELOPMENT RIGHTS AND OBLIGATIONS..................................................................... 10
A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY.................................................................... 10
B. TERRITORIAL RIGHTS............................................................................ 11
C. DEVELOPMENT OBLIGATIONS....................................................................... 11
D. RIGHTS RETAINED BY COMPANY.................................................................... 12
E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES.................................................... 12
F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES............................................... 14
G. POST-TERM DEVELOPMENT......................................................................... 15


4. OTHER DISTRIBUTION METHODS............................................................................. 17
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................................................. 17
B. DELIVERY SERVICE.............................................................................. 17
C. CATERING SERVICE.............................................................................. 18


5. DEVELOPMENT AND OPERATION OF COMMISSARIES.............................................................. 19
A. OBLIGATION TO OPERATE COMMISSARIES............................................................ 19
B. DEVELOPMENT AND OPENING OF COMMISSARIES....................................................... 20
C. TRAINING AND GUIDANCE......................................................................... 20
D. COMMISSARY MANUALS............................................................................ 21
E. OPERATION OF THE COMMISSARY................................................................... 21
F. INSURANCE..................................................................................... 22
G. TRANSFERS..................................................................................... 22
H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS........................................... 23
I. RIGHTS AND OBLIGATIONS OF COMPANY AND DEVELOPER UPON TERMINATION OR
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY................................................... 23


6. GRANT OF LICENSES AND ADVERTISING REQUIREMENT.......................................................... 24
A. SITE REVIEW AND APPROVAL...................................................................... 24
B. LEASE OF APPROVED SITES....................................................................... 25
C. EXECUTION OF LICENSE AGREEMENTS............................................................... 26
D. INITIAL LICENSE AND ROYALTY FEES.............................................................. 26


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SECTION PAGE - ------- ----


6. E. ADVERTISING EXPENDITURES...................................................................... 27


7. INITIAL PAYMENTS....................................................................................... 27
A. DEVELOPMENT FEE............................................................................... 27
B. REAL ESTATE SERVICES FEE...................................................................... 27


8. MARKS.................................................................................................. 27
A. GOODWILL AND RIGHTS TO USE THE MARKS.......................................................... 27
B. LIMITATIONS ON DEVELOPER'S USE OF MARKS....................................................... 28
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 28
D. DISCONTINUANCE OF USE OF MARKS................................................................ 29
E. INDEMNIFICATION OF DEVELOPER.................................................................. 29
F. NON-DENIGRATION............................................................................... 29
G. MARKING REQUIREMENTS.......................................................................... 30


9. COPYRIGHTS............................................................................................. 30
A. OWNERSHIP OF COPYRIGHTED WORKS................................................................ 30
B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS............................................ 31
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 31
D. DISCONTINUANCE OF USE OF ..................................................................... 31


10. COMPUTER SYSTEM AND SOFTWARE........................................................................... 32
A. GRANT OF LICENSE.............................................................................. 32
B. SOFTWARE LICENSE FEE.......................................................................... 34
C. SOFTWARE SUPPORT SERVICE...................................................................... 34
D. SOFTWARE SUPPORT SERVICE FEE.................................................................. 35
E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE............................................................... 35
F. WARRANTIES AND LIMITATION OF LIABILITY........................................................ 36
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES................................................ 36
H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LICENSED PROGRAM SUPPORT/CONTROL PROGRAMS..................................................... 37


11. CONFIDENTIAL INFORMATION............................................................................... 37


12. EXCLUSIVE RELATIONSHIP................................................................................. 40


13. OBLIGATIONS OF DEVELOPER............................................................................... 41
A. FULL-TIME SUPERVISION......................................................................... 41
B. CHIEF OPERATING OFFICER....................................................................... 41


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SECTION PAGE - ------- ----


13. C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS................................................. 42
D. TRAINING DIRECTOR............................................................................. 42
E. MARKETING DIRECTOR............................................................................ 43
F. MANAGEMENT PERSONNEL AND TRAINING............................................................. 44
G. BUDGETS AND FINANCING PLANS................................................................... 45
H. INSURANCE..................................................................................... 45
I. RECORDS AND REPORTS........................................................................... 46
J. DEVELOPMENT MANUAL, COMMISSARY MANUALS
AND STORE MANUALS............................................................................. 48
K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.............................................. 48
L. HUMAN RESOURCES............................................................................... 49
M. SPECIFICATIONS, STANDARDS AND PROCEDURES...................................................... 49


14. TRANSFER............................................................................................... 51
A. BY COMPANY.................................................................................... 51
B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER............................................... 51
C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.............................................................. 52
D. COMPANY'S RIGHT TO APPROVE TRANSFERS.......................................................... 52
E. PUBLIC OR PRIVATE OFFERINGS................................................................... 55
F. EFFECT OF CONSENT TO TRANSFER................................................................. 56
G. COMPANY'S RIGHT OF FIRST REFUSAL.............................................................. 57
H. OWNERSHIP STRUCTURE........................................................................... 58
I. DELEGATION BY COMPANY......................................................................... 58
J. PERMITTED TRANSFERS........................................................................... 58


15. TERMINATION OF AGREEMENT............................................................................... 58
A. BY DEVELOPER.................................................................................. 58
B. BY COMPANY.................................................................................... 59
C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.......................................................... 61


16. RIGHTS AND OBLIGATIONS OF COMPANY AND
DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM.......................................................... 62
A. PAYMENT OF AMOUNTS OWED TO COMPANY............................................................ 62
B. MARKS AND COPYRIGHTED WORKS................................................................... 62
C. CONFIDENTIAL INFORMATION...................................................................... 63
D. COVENANT NOT TO COMPETE....................................................................... 64
E. EFFECT ON COMMISSARIES........................................................................ 65


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SECTION PAGE - ------- ----


16. F. CONTINUING OBLIGATIONS........................................................................ 65


17. INDEPENDENT CONTRACTORS/INDEMNIFICATION................................................................ 65


18. ENFORCEMENT............................................................................................ 66
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............................................. 66
B. WAIVER OF OBLIGATIONS......................................................................... 67
C. INJUNCTIVE RELIEF............................................................................. 68
D. RIGHTS OF PARTIES ARE CUMULATIVE.............................................................. 69
E. COSTS AND LEGAL FEES.......................................................................... 69
F. GOVERNING LAW................................................................................. 69
G. CONSENT TO JURISDICTION/CHOICE OF FORUM....................................................... 69
H. LIMITATIONS OF CLAIMS......................................................................... 70
I. WAIVER OF PUNITIVE DAMAGES.................................................................... 70
J. WAIVER OF JURY TRIAL.......................................................................... 70
K. BINDING EFFECT................................................................................ 70
L. CONSTRUCTION.................................................................................. 70
M. REASONABLENESS; APPROVALS..................................................................... 71


19. NOTICES AND PAYMENTS................................................................................... 71


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EXHIBITS AND ATTACHMENTS


EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - DEVELOPMENT FEE
EXHIBIT D - DEVELOPMENT AREA(S)
EXHIBIT E - DEVELOPMENT SCHEDULE
EXHIBIT F - FORM LICENSE AGREEMENT
EXHIBIT G - PRINCIPAL OWNERS, OTHER OWNERS, KEY
MANAGERS, PERMITTED COMPETITIVE
BUSINESSES, AND INITIAL CAPITALIZATION
EXHIBIT H - DEVELOPER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT I - GUARANTY AND ASSUMPTION OF DEVELOPER'S
OBLIGATIONS
EXHIBIT J - CONFIDENTIALITY AND NONCOMPETE AGREEMENT
EXHIBIT K - PRINCIPAL MARKS TO BE USED BY DEVELOPER


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EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT


THIS AGREEMENT is made and entered into this 5th day of December, 1997 (the "EFFECTIVE Date"), by and between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation ("COMPANY"), and DEVELOPER (defined below).


"DEVELOPER": EINSTEIN/NOAH BAGEL PARTNERS, L.P.
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a DELAWARE LIMITED PARTNERSHIP
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Principal Address: 14123 DENVER WEST PARKWAY
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GOLDEN, CO 80401
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1. PREAMBLES.


COMPANY and its Affiliates (as defined below) have developed and are continuing to develop and refine methods of operating a number of branded retail food service businesses, each with its own concept and operated under its own system and marks which are referred to in this Agreement as "UNITS" (defined below), which feature Products (defined below) for on-premises dining and carry-out. In addition to on-premises dining and carry-out, COMPANY may, in its sole discretion, offer to an owner of a UNIT the right (a) to offer Delivery Service (defined below) and/or (b) to offer Catering Service (defined below) and/or (c) to operate Special Distribution Arrangements (defined below). Each UNIT utilizes the Marks (defined below) and operates at a location that features distinctive food service formats and trade dress and utilizes distinctive business formats, specifications, employee selection and training programs, signs, equipment, layouts, systems, recipes, methods, procedures, software, designs and marketing and advertising standards and formats, all of which COMPANY is continuing to develop and refine and may modify from time to time in its sole discretion, and all of which may have one or more variations approved or specified by COMPANY from time to time (the "SYSTEM"). COMPANY operates, and grants franchises and licenses to certain qualified parties to own and operate UNITS using the Marks and the System associated with the Principal Marks (defined below) authorized by COMPANY.


COMPANY grants to certain qualified persons or entities who meet COMPANY's qualifications and who are willing to undertake the investment and effort, the right to develop a specified number of UNITS within a defined geographic area. This Agreement governs the right and obligation of DEVELOPER to enter into License Agreements (defined below) which grant the right to develop UNITS which use the branded concept, the Principal Marks, the other Marks associated with the Principal Marks and those elements of the System associated with the


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Principal Marks ("DEVELOPER Stores", as further defined below) within the Development Area (defined below) in accordance with the Development Schedule (defined below). The operation of each DEVELOPER Store will be governed by a Franchise Agreement (defined below) or a License Agreement.


COMPANY and DEVELOPER have previously entered into a Development Agreement dated as of June 17, 1996 (the "Original Development Agreement") pursuant to which DEVELOPER was granted the right and undertook the obligation to develop a specified number of UNITS within a defined geographic territory.


COMPANY has also entered into various development agreements with Colonial Bagels, L.P., Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., and Sunbelt Bagels, L.L.C. (collectively referred to as the "Area Developers" ) pursuant to which the Area Developers were granted the right and undertook the obligation to develop a specified number of UNITS within defined geographic territories (the "Other Development Agreements").


As of the date hereof, the Area Developers will merge with, and into, DEVELOPER. As a result of said merger, (a) DEVELOPER will own and operate 555 UNITS pursuant to Franchise Agreements previously executed by DEVELOPER and the Area Developers (the "Franchise Agreements") and (b) DEVELOPER desires to undertake the remaining development obligations of the Area Developers under the Other Development Agreements, all of which have been terminated by COMPANY and the Area Developers as of the date hereof. In order to facilitate the foregoing and the development of the UNITS and to amend, restate, replace and substitute in full the obligations of COMPANY and DEVELOPER under the Original Development Agreement, COMPANY and DEVELOPER desire to enter into this Agreement, upon the terms and subject to the conditions set forth herein and as an amendment, restatement, replacement and substitute for the Original Development Agreement.


2. CERTAIN DEFINITIONS.


For purposes of this Agreement, the terms listed below have the meanings that follow them. Other terms used in this Agreement are defined in the context in which they occur.


"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive weeks in each fiscal year of COMPANY that is designated by COMPANY as an accounting period of COMPANY.


"AFFILIATE" - Any person or legal entity that directly or indirectly owns or controls COMPANY, that is directly or indirectly owned or controlled by COMPANY, or that is under common control with COMPANY. For purposes of this definition, "CONTROL" means the power to direct or cause the direction of the management and policies of an entity.


"AGREEMENT TERM" - The period commencing upon the Effective Date and ending upon


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the expiration or termination of the last to expire or terminate of the Franchises or Licenses (defined below) and successor Franchises or Licenses granted to DEVELOPER pursuant to this Agreement, unless terminated sooner in accordance with the provisions of this Agreement.


"ALBERT EINSTEIN PUBLICITY SYMBOLS" - The full name Albert Einstein and the likeness, image, caricature, photographs and signature of Albert Einstein and up to two sayings or slogans originated by Albert Einstein and to be selected by COMPANY from among his sayings and slogans.


"ALBERT EINSTEIN INDICIA" - All indicia of Albert Einstein (other than the name Albert Einstein, sayings or slogans originated by Albert Einstein or the likeness, image, caricature, photographs or signature of Albert Einstein), including but not limited to references to (i) genius and human intelligence (e.g., references to IQ), (ii) scientific formulas and mathematical equations (e.g. E=MC2), (iii) scientific and mathematical theories (e.g., the theory of relativity), and (iv) drawings or symbols of the atom or atomic particles.


"APPROVED SITE" - A site which COMPANY has approved as meeting its minimum criteria for the development and operation of a DEVELOPER Store.


"BAGEL STORE" - A food service business, including a UNIT, which derives a significant portion of its revenue from the sale of bagels and/or bagel-related products or from any other product or service which is or hereafter becomes a source of a significant portion of the revenue of a UNIT.


"CATERING AREA" - The geographic area in which COMPANY, in its sole discretion, authorizes the owner of a Franchise or License (a "FRANCHISE OR LICENSE OWNER") to provide Catering Service pursuant to a Catering Rider, which area may be the same as, smaller than, larger than or different from the Territory (defined in the Franchise Agreement) of a UNIT.


"CATERING RIDER" - The form of rider to this Agreement or to a Franchise Agreement or License Agreement used by COMPANY from time to time to authorize in its sole discretion a Franchise or License Owner to offer Catering Service (defined below) within the applicable Catering Area. The current form of COMPANY's Catering Rider is attached hereto as Exhibit A.


"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a separate facility approved by COMPANY in writing (such approved facility is referred to herein as a "CATERING FACILITY") to customers in the Catering Area pursuant to COMPANY's standards and specifications for the provision of such service, which COMPANY may change from time to time in its sole discretion, where


(1) such Products are intended to serve fifteen (15) or more
persons, or


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(2) in addition to the delivery of Products, DEVELOPER provides
ancillary services to a customer at such location within the Catering
Area, including, by way of example and without limitation, the
setting up for serving or distribution of Products.


"COMMISSARY" - A food preparation facility operated by DEVELOPER pursuant to this Agreement that:


(1) procures and receives those Products, ingredients and
materials used in the preparation and packaging of Products, and
other materials and supplies used in the operation of Stores as
COMPANY may specify from time to time;


(2) prepares and packages Products in accordance with recipes,
methods, procedures, standards and specifications established by
COMPANY, in its sole discretion, from time to time; and


(3) distributes to DEVELOPER Stores Products and other materials
and supplies used in the operation of Stores.


"COMPETITIVE BUSINESS" - A business or enterprise, other than a UNIT or Commissary, that:


(1) offers food and/or beverage products at wholesale or retail,
which are the same as or similar to the Products, through:


(a) on-premises dining;


(b) carry-out;


(c) delivery service;


(d) catering service; or


(e) other distribution channels similar to those used by
COMPANY; or


(2) grants or has granted franchises or licenses or establishes
or has established joint ventures, for the development and/or
operation of one or more businesses or enterprises described in the
foregoing clause (1); provided, however, that the term "Competitive
Business" shall not include:


(a) any Boston Market restaurant operated pursuant to a
valid franchise or license agreement with Boston
Chicken, Inc. or its successors; or


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(b) any business or enterprise that derives less than 10%
of its revenue from the sale of (i) bagels and/or
bagel related products (including but not limited to
cream cheese and other spreads, bagel sandwiches and
bagel chips) or (ii) any other product which accounts
for 15% or more of the revenue of any UNIT owned or
operated by COMPANY or a franchisee of COMPANY.


"COMPUTER SYSTEM" - Those brands, types, makes, and/or models of communications and computer systems and hardware specified or required by COMPANY for use by, between, or among the Stores and/or DEVELOPER including, but not limited to:


(1) back office and point of sale systems, data, audio, video,
and voice storage, retrieval, and transmission systems for use at the
Stores and/or at DEVELOPER's office, between or among the Stores and
DEVELOPER and between or among Stores and/or DEVELOPER and COMPANY;


(2) security systems;


(3) printers; and


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