SECOND AMENDED AND RESTATED

PROJECT AND

APPROVED SUPPLIER AGREEMENT

 

This amended and restated project and approved supplier agreement (the “Agreement”) is made and entered into as of this 28th day of April, 2002 by and among New World Restaurant Group, Inc., a Delaware corporation (“NWRG”), Einstein and Noah Corp., a Delaware corporation (“ENC”), Manhattan Bagel Company, Inc., a New Jersey corporation (“MBC”), Harlan Bagel Supply Company, LLC, an Indiana limited liability company (the “Supplier”), Harlan Bakeries, Inc., an Indiana corporation (“Harlan”), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan.  The Supplier and Harlan are herein sometimes collectively referred to as the “Harlan Companies”, and Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan are herein sometimes collectively referred to as the “Harlans.”

 

Recitals

 

A.             On May 1, 1998, the Harlan Companies and the Harlans entered into a certain Amended and Restated Project and Approved Supplier Agreement (the “Prior Project Agreement”) with Einstein/Noah Bagel Corp. (“ENBC”).  ENBC subsequently filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code and ENC (a wholly-owned subsidiary of NWRG) acquired the assets of ENBC, including its rights and obligations under the Prior Project Agreement and ancillary documents.  Accordingly, prior to the date hereof, ENC, the Harlan Companies and the Harlans have performed in accordance with the terms of the Prior Project Agreement.

 

B.             NWRG, directly and through its wholly-owned subsidiaries and affiliates, owns and operates retail bagel stores and “quick casual” restaurants.  In addition, NWRG, directly and through its wholly owned subsidiaries and affiliates, has granted or intends to grant franchise and licensing rights to franchisees and licensees that own and operate (or, shall own and operate) retail bagel stores or “quick casual” restaurants using NWRG’s and its subsidiaries’ and affiliates’ respective proprietary operating systems and products, including but not limited to proprietary bagel recipes, formulations and manufacturing processes.  The parties desire to amend and restate the Prior Project Agreement in its entirety, all as hereinafter set forth.

 

Covenants

 

In consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Article 1.0             Definitions

 

1.1           As used herein the following terms shall have the meanings given them below: “Accounting Period” shall mean one of twelve (12) periods of four or five consecutive weeks in each fiscal year of the Supplier during the Term that is designated by the Supplier as an accounting period.

 

 

“Authorized Recipients” shall have the meaning ascribed to it ‘in Section 6.11.

 

“Bagel Lines” shall mean the Original Bagel Line and the Second Bagel Line.

 

“Case” shall mean one hundred twenty bagels.

 

“Category A Products” shall mean all Products produced by Supplier that are intended for resale under any brand name now or hereafter owned by New World, including Products co-branded, and produced using Formulations, Specifications, Procedures, technology (patented or otherwise) or other trade secrets developed or owned by New World.

 

“Category B Products” shall mean all Products produced by Supplier on the Bagel Lines that are not Category A Products.

 

“Encumbrances” shall mean liens, mortgages, pledges, charges, encumbrances, assessments, restrictions, covenants, easements or title defects of any nature whatsoever.

 

“Equipment Financing Documents” shall mean the Equipment Lease, together with all other agreements, instruments and documents executed in connection with the Equipment Lease, true copies of which are annexed hereto as Exhibit A.

 

“Equipment Lease” shall mean that certain amended and restated lease agreement between the Supplier and ENC (as successor in interest to ENBC) dated May 1, 1998, as amended on the date hereof (including any equipment schedule thereto).

 

“Financing Documents” shall mean the Equipment Financing Documents and the Working Capital Financing Documents.

 

“Formulations” shall have the meaning ascribed to it in Section 6.5.

 

“Lease” shall mean that certain Lease Agreement dated August 27, 1996 between Harlan and the Supplier.

 

“Leasehold Premises” shall have the meaning ascribed to it in Section 3.6.

 

“Manhattan Bagels” shall mean Category A Products produced by Supplier in accordance with New World’s specifications therefor and which are to be sold to the public by and through a New World Subsidiary under the trademarks and proprietary rights owned, franchised and/or licensed by MBC.

 

“Materials Cost” shall mean the Supplier’s cost of ingredients and packaging used in manufacturing the Products during each Quarterly Period, determined in the manner set forth in Exhibit B hereto. For this purpose, ingredients shall include corn meal used in manufacturing the Products.

 

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“Mortgage” shall mean the existing mortgage loan on the land and buildings owned by Harlan, consisting of the Production Facility and the facility adjacent thereto, made by the Mortgage Holders.

 

“Mortgage Holders” shall mean Bank of America, N.A., LaSalle Bank National Association and KeyBank National Association.

 

“New World” shall mean, collectively, NWRG and all New World Subsidiaries, regardless of whether now existing or hereafter acquired or created.

 

“New World Allocated Charges” shall mean those costs of New World charged to the Supplier as described in Section 7.7.

 

“New World Franchisee” shall mean a franchisee or licensee of NWRG or of a New World Subsidiary.

 

“New World Subsidiary” shall mean a subsidiary of NWRG, including, specifically, without limitation, ENC and MBC.

 

“Occupancy Cost” shall mean building rental expense, real estate taxes, utilities, maintenance and repair and property casualty insurance.

 

“Option Agreement” shall mean that certain amended and restated option agreement dated May 1, 1998 among ENC (as successor in interest to ENBC), the Supplier and the Harlans.

 

“Original Bagel Line” shall mean the first Winkler bagel line owned by ENC (as successor in interest to ENBC) and leased to and operated by the Supplier, together with the other components of the bagel production line installed in the Production Facility, including without limitation mixers, bagel cooking unit, proofer, retarder, blast freezer, and packaging equipment and improvements and additions thereto.

 

“Par Baked Bagels” shall mean bagels which are to be partially baked by Supplier before freezing, as specified and directed by NWRG, ENC or MBC.

 

“Procedures” shall have the meaning ascribed to it in Section 6.5.

 

“Production Facility” shall mean the 75,000 square foot production facility in Avon, Indiana as described in the Lease.

 

“Products” shall mean frozen bagel dough products.

 

“Proprietary Information” shall have the meaning ascribed to it in Article 12.0.

 

“Quarterly Period” shall mean the first three Accounting Periods of the Supplier during each fiscal year of the Supplier during the Term and each subsequent period of three Accounting Periods thereafter during said fiscal year.

 

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“Second Bagel Line” shall mean the second Winkler bagel line owned by ENC (as successor in interest to ENBC) and leased to and operated by the Supplier, together with the other components of such bagel production line installed in the Production Facility, including without limitation, mixers, bagel cooking unit, additional components for the proofer and retarder constituting a portion of the Original Bagel Line, modifications to the blast freezer constituting a portion of the Original Bagel Line and packaging equipment and improvements and additions thereto.

 

“Specifications” shall have the meaning ascribed to it in Section 6.5.

 

“Term” shall mean the period commencing on the date hereof and continuing until the date this Agreement expires or is terminated pursuant to Article 13.0 hereof.

 

“Title Policy” shall mean that certain Leasehold Loan Policy dated August 30, 1996 issued by Chicago Title Insurance Company (Policy No. 15-0140-109-0000001).

 

“Working Capital Financing” shall mean the loan by the Working Capital Lenders to the Supplier.

 

“Working Capital Financing Documents” shall mean the revolving credit agreement between the Working Capital Lenders and the Supplier, as the same may have been amended, together with all other agreements, instruments and documents executed in connection with such agreement.

 

“Working Capital Lenders” shall mean Bank of America, N.A., LaSalle Bank National Association and KeyBank National Association.

 

Article 2.0             Closing of the Agreement

 

2.1           On the date hereof, Supplier and ENC shall enter into an amendment to the Equipment Lease to extend its term and to change the references therein to the Prior Project Agreement to this Agreement. The amended Equipment Lease is attached hereto as Exhibit D.

 

2.2           The parties acknowledge and agree that the recitals to this Agreement are true, accurate, and constitute a portion of their understanding and agreements as set forth herein.

 

Article 3.0             Representations and Warranties of the Harlan Companies

 

In order to induce NWRG, ENC and MBC to enter into this Agreement and to perform their obligations hereunder, the Harlan Companies jointly and severally represent and warrant to NWRG, ENC and MBC that:

 

3.1           Each of the Harlan Companies is duly organized and validly existing under the laws of the jurisdiction of its incorporation or formation, with full corporate or limited liability company power and authority to enter into this Agreement and to carry out the transactions and agreements contemplated hereby. The execution, delivery and performance of this Agreement

 

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and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of each of the Harlan Companies.

 

3.2           This Agreement has been duly executed and delivered by each of the Harlan Companies and is a valid and binding obligation of each of them, enforceable in accordance with its terms. Neither the execution and delivery of this Agreement by the Harlan Companies nor the consummation of the transactions contemplated hereby will: (a) conflict with or violate any provision of its organizational documents, or of any law, ordinance or regulation or any decree or order of any court or administrative or other governmental body which is either applicable to, binding upon or enforceable against either of the Harlan Companies or (b) result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under, any mortgage, contract, agreement, indenture, will, trust or other instrument which is either binding upon or enforceable against either of the Harlan Companies or the assets and properties of either of them, except pursuant to the Working Capital Financing Documents and the Mortgage. No permit, consent, approval or authorization of, or declaration to or filing with, any regulatory or other governmental authority is required in connection with the execution and delivery of this Agreement by the Harlan Companies and the consummation by them of the transactions contemplated hereby.

 

3.3

 

(a)            Schedule 3.3(a) attached hereto accurately and completely sets forth, with respect to each of the Harlan Companies: (i) the number of shares of each class of its capital stock or other units of equity interest which are issued and outstanding and (ii) the name and address of, and the number of shares of each class of capital stock or other units of equity interest owned by, each of its shareholders or other equity owners.

 

(b)            All voting rights in each of the Harlan Companies are vested exclusively in its shares of capital stock, in the case of Harlan, and in units of equity interest, in the case of the Supplier, and other than shareholder agreements or operating agreements which have been provided to NWRG (the “Shareholder Agreements”), there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the capital stock or other units of equity interest of either of the Harlan Companies. A true copy of the Shareholder Agreements is attached hereto as Schedule 3.3(b). Except pursuant to the Shareholder Agreements and the right of first refusal granted to ENC (as successor in interest to ENBC) pursuant to that certain Right of First Refusal Agreement dated as of August 27, 1996 among ENC (as successor in interest to ENBC) and the Harlans, there are no outstanding warrants, options or rights of any kind to acquire from either of the Harlan Companies, or from the shareholders or other equity owners of either of the Harlan Companies, any shares of capital stock or other units of equity interest of either of the Harlan Companies, and neither of the Harlan Companies has any obligation to acquire any of its issued and outstanding shares of capital stock or other units of equity interest from any holder thereof.

 

3.4           Attached to this Agreement as Schedule 3.4 are the following financial statements of the Harlan Companies:

 

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3.4.1        audited balance sheets of (a) Harlan at December 31, 2000 and December 31, 2001; and (b) the Supplier at December 31, 2000, and December 31, 2001; and

 

3.4.2        the related statements of operations and cash flow of (a) Harlan for the years ended December 31, 2000 and December 31, 2001; and (b) the Supplier for the years ended December 31, 2000 and December 31, 2001, in each case, with the audit report of Ernst & Young, LLP thereon.

 

Such financial statements present fairly in all material respects the financial position of each of the Harlan Companies covered thereby at said balance sheet dates and the results of operations and cash flows of each of the Harlan Companies for each of the said periods covered, and they have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The balance sheet of Harlan at December 31, 2001, is herein sometimes referred to as the “Harlan Balance Sheet,” and the balance sheet of the Supplier at December 31, 2001 is herein sometimes referred to as the “Supplier Balance Sheet.”

 

3.5           Neither of the Harlan Companies has any liabilities or obligations, accrued, absolute, contingent or otherwise, except: (a) to the extent reflected or taken into account in determining net worth in the Harlan Balance Sheet or the Supplier Balance Sheet and not heretofore paid or discharged; (b) contractual obligations of the Harlan Companies incurred in the ordinary course of business; (c) liabilities of the Harlan Companies incurred in the ordinary course of business since the date of the Harlan Balance Sheet and the Supplier Balance Sheet; and (d) obligations of the Harlan Companies under this Agreement and the other documents now or hereafter executed in connection therewith.

 

3.6           The premises covered by the Lease (the “Leasehold Premises”): (a) have direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the reasonably anticipated transportation requirements of the Supplier’s business to be conducted at the Leasehold Premises; and (b) are served by all utilities, including but not limited to water, electricity, natural gas, sewer and telephone, in such quantity and quality as are sufficient to satisfy the reasonably anticipated production levels and business activities of the Supplier’s business to be conducted at the Leasehold Premises. Neither of the Harlan Companies has received notice of: (a) any condemnation proceeding with respect to any portion of the Leasehold Premises, and, to the best of their knowledge, no such proceeding is contemplated by any governmental authority; or (b) any special assessment which may affect the Leasehold Premises and to the best of their knowledge, no such special assessment is contemplated by any governmental authority. All of the buildings or structures leased by the Harlan Companies are in good repair and operating condition, subject to normal wear and tear, and are adequate and suitable for their present use and purposes.

 

3.7           The Supplier has good and marketable title to all of its assets and properties, free and clear of all Encumbrances, except as set forth in the Financing Documents or the Title Policy or on Schedule 3.7 attached hereto.

 

3.8           Each of the Harlan Companies possesses all licenses and other required governmental or official approvals, permits or authorizations, the failure to possess which would,

 

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individually or in the aggregate, have a material adverse effect on its business, assets, financial condition or results of operations. All such licenses, approvals, permits and authorizations are in full force and effect, each of the Harlan Companies is in material compliance with its requirements, and no proceeding is pending or to the best of the knowledge of the Harlan Companies, threatened to revoke or amend any of them. Schedule 3.8 attached hereto contains an accurate and complete list of all such licenses, approvals, permits and authorizations. None of such licenses, approvals, permits and authorizations are or will be impaired or in any way affected by the execution and delivery of this Agreement or the Equipment Lease or the consummation of the transactions contemplated hereby.

 

3.9           [Intentionally omitted.]

 

3.10         Except as set forth on Schedule 3.10 attached hereto, there are no actions, suits, claims, governmental investigations or arbitration proceedings (“Actions”) pending or, to the best of the knowledge of the Harlan Companies, threatened against or affecting either of the Harlan Companies or any of their respective assets or properties and, to the best of the knowledge of the Harlan Companies, there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which either of the Harlan Companies is or was a party.

 

3.11         Each of the Harlan Companies is in material compliance with all laws, regulations and orders applicable to it, its assets, properties and business. Except as set forth on Schedule 3.11 attached hereto, neither of the Harlan Companies has received notification of any asserted past or present failure to comply with any laws, and to the best of their knowledge, no proceeding with respect to any such violation is contemplated.

 

3.12

 

3.12.1      Except as set forth on Schedule 3.12 attached hereto, neither of the Harlan Companies has transported, stored, treated or disposed, nor has either of them allowed or arranged for any third parties to transport, store, treat or dispose of Hazardous Substances or other waste to or at any location other than a site lawfully permitted to receive such Hazardous Substances or other waste for such purposes, nor has either of them performed, arranged for or allowed by any method or procedure such transportation, storage, treatment or disposal in contravention of any laws or regulations. Neither of the Harlan Companies has disposed, or allowed or arranged for any third parties to dispose, of Hazardous Substances or other waste upon the Leasehold Premises, except as permitted by law. For purposes of this Section 3.12, the term “Hazardous Substances” shall have the meaning given it in the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Sections 9601, et seq.), as amended, and the regulations promulgated pursuant thereto (“CERCLA”), or any similar state law.

 

3.12.2      Except as set forth on Schedule 3.12 attached hereto, since the acquisition of the Leasehold Premises, Harlan has not permitted to occur, nor is there presently occurring, a Release of any Hazardous Substance on, into or beneath the surface of the Leasehold Premises,

 

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except that the parties acknowledge that Harlan discharges wastewater into the sewage treatment plant of the West Central Conservancy District. For purposes of this Section 3.12.2, the term “Release” shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping.

 

3.12.3      Neither of the Harlan Companies has transported or disposed, nor has it allowed or arranged for any third parties to transport or dispose, any Hazardous Substance or other waste to or at a site which, pursuant to CERCLA or any similar state law: (a) has been placed on the National Priorities List or its state equivalent, or (b) the Environmental Protection Agency or the relevant state agency has proposed or is proposing to place on the National Priorities List or its state equivalent. Neither of the Harlan Companies has received notice, or has any knowledge of any facts which could give rise to any notice, that either of the Harlan Companies is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA or any other applicable law or regulation. Neither of the Harlan Companies has submitted nor was either of them required to submit any notice pursuant to Section 103(c) of CERCLA with respect to the real estate that is covered by the Lease. Neither of the Harlan Companies has received any written or oral request for information in connection with any federal or state environmental cleanup site. Neither of the Harlan Companies has undertaken (or been requested to undertake) any response or remedial actions or clean-up action of any kind at the request of any federal, state or local governmental entity, or at the request of any other person or entity.

 

3.12.4      Neither of the Harlan Companies uses, or has used, any Underground Storage Tanks, and, except as set forth in Schedule 3.12 attached hereto, the Harlan Companies are not aware of any Underground Storage Tanks previously or currently on or under the Leasehold Premises. For purposes of this Section 3.12.4, the term “Underground Storage Tanks” shall have the meaning given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.).

 

Article 4.0             Representations and Warranties of NWRG

 

In order to induce the Harlan Companies to enter into this Agreement and to perform their obligations hereunder, NWRG, ENC and MBC jointly and severally represent and warrant to the Harlan Companies that:

 

4.1           They are each duly organized and legally existing under the laws of their incorporation, with full corporate power and authority to enter into this Agreement and to carry out the transactions and agreements contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action.

 

4.2           This Agreement has been duly executed and delivered by NWRG, ENC and MBC and is a valid and binding obligation of each corporation, enforceable in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (a) conflict with or violate any provision of the certificate of incorporation of bylaws of NWRG, ENC or MBC or of any decree or order of any court or

 

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administrative or other governmental body which is either applicable to, binding upon or enforceable against NWRG, ENC or MBC; or (b) result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under, any mortgage, contract, agreement, indenture or other instrument which is either binding upon or enforceable against NWRG, ENC or MBC, except for any conflicts, breaches, terminations or defaults that would not, individually or in the aggregate have a material adverse affect on the financial condition, business or assets of NWRG, ENC or MBC. No permit, consent, approval or authorization of, or declaration to or filing with, any regulatory or other government authority is required in connection with the execution and delivery of this Agreement by NWRG, ENC or MBC and the consummation of the transactions contemplated hereby.

 

4.3           Except as disclosed in NWRG’s annual report on Form 10-K for the year ending January 1, 2002, in NWRG’s quarterly report on Form 10-Q for the quarter ended April 2, 2002 or on Schedule 4.3 attached hereto, there are no Actions pending or, to the best of the knowledge of NWRG, ENC or MBC, threatened against or affecting New World or any of its assets or properties which if adversely determined could, individually or in the aggregate have a material adverse effect on New World’s financial condition, business or assets or NWRG’s, ENC’s or MBC’s obligations hereunder. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which New World is or was a party which could, individually or in the aggregate, have a material adverse effect on New World’s financial condition, assets or business or NWRG’s, ENC’s or MBC’s obligations under this Agreement.

 

4.4           NWRG, ENC and MBC are in material compliance with all laws, regulations and orders applicable to their performance under this Agreement, and they have received no notification of any asserted past or present failure to comply with any such laws, and to the best of their knowledge, no proceeding with respect to any such violation is contemplated.

 

4.5           NWRG has delivered to the Harlan Companies true and complete copies of the following financial statements, all of which are complete and correct, have been prepared from the books and records of NWRG in accordance with generally accepted accounting principles, consistently applied, which statements fairly present the financial condition of NWRG as at their respective dates and the results of its operations for the periods covered thereby:

 

(a)            The audited balance sheets and statements of income, cash flow and shareholders’ equity contained within NWRG’s Form 10-K for the fiscal year ended January 1, 2002; and

 

(b)            The unaudited balance sheets and statements of income, cash flow and shareholders’ equity contained within NWRG’s Form 10-Q for the fiscal quarter ended April 2, 2002.

 

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Article 5.0             Certain Covenants of the Harlan Companies

 

5.1           The Harlan Companies agree that the use of the Bagel Lines for production of any products for persons other than Authorized Recipients shall be subject to ENC’s prior written approval, which shall not be unreasonably withheld. The parties agree that ENC’s approval will be deemed to be unreasonably withheld if all of the following conditions are met: (i) NWRG or ENC has consented to the waiver of its rights under Section 6.2 hereof (which NWRG and ENC may grant or withhold in their sole discretion), (ii) it is demonstrated to NWRG’s satisfaction that Proprietary Information or other intellectual property (including patent rights) of New World will not be subject to a risk of unauthorized use or disclosure by reason of such use of the Bagel Lines, and (iii) it is demonstrated to NWRG’s satisfaction (on behalf of ENC and other New World Subsidiaries) that such use of the Bagel Lines will not interfere with or otherwise adversely effect the use of the Bagel Lines to timely produce and deliver Category A Products under this Agreement, it being understood that ENC may condition its consent to any such production on the terminability of such production, upon not less than six (6) months prior written notice, by ENC, if ENC determines that such termination is required to accommodate the needs of NWRG, New World Subsidiaries, New World Franchisees, and/or Authorized Recipients for Category A Products.

 

5.2           The parties agree to use reasonable efforts to notify each other of opportunities for frozen bagel dough production business available within the geographic markets they are able to service from their existing production capacity (e.g., New World will notify Supplier of-available business east of the eastern boundaries of Montana, Wyoming, Colorado and New Mexico, and Supplier will notify New World of available business west of such boundaries).

 

5.3

 

5.3.1        On the terms and subject to the conditions set forth herein, in the event that Category A Products shipped by Supplier are less than the Contract Minimums (as hereinafter defined) described below during the periods provided below, then, NWRG (or such New World Subsidiaries, New World Franchisees or Authorized Recipients as NWRG shall select) shall make a payment (“Make-Whole Payment”) as hereinafter provided. For these purposes, the “Contract Minimums” are those contract minimums described in the table set forth in Section 5.3.5 below, which shall be more particularly determined in accordance with Section 5.3.5 below.

 

(a)            Category A Products equal to 24.5% of the relevant Contract Minimum during the first Quarterly Period of each year during the term of this Agreement;

 

(b)            Category A Products equal to 25.5% of the relevant Contract Minimum during the second Quarterly Period of each year during the term of this Agreement (such amount to be prorated for the Quarterly Period in calendar year 2002, based on the effectiveness of this provision as of April 28, 2002);

 

(c)            Category A Products equal to 25.5% of the relevant Contract Minimum during the third Quarterly Period of each year thereafter; and

 

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(d)            Category A Products equal to 24.5% of the relevant Contract Minimum for the fourth Quarterly Period of each year thereafter.

 

5.3.2        Notwithstanding the terms of Section 5.3.1, if the minimum volume requirements in Section 5.3.1 are not satisfied for any Quarterly Period (the “Measuring Quarter”), no Make-Whole Payment will be payable by NWRG if the aggregate production of Category A Products and Category B Products for such Measuring Quarter exceeds 10,176,000 dozen bagels in the aggregate.

 

5.3.3        In the event the minimum volume requirements provided for in Section 5.3.1 are not satisfied for any Measuring Quarter, then the Make-Whole Payment shall be equal to the excess of the minimum amounts for the Measuring Quarter over the amounts actually shipped during the Measuring Quarter, multiplied by ***¢ per bagel. Such Make-Whole Payment shall be made within the Quarterly Period following the Measuring Quarter.

 

5.3.4        In the event production of Category A Products for any Measuring Quarter exceeds 7,140,000 dozen bagels, then Supplier shall pay to NWRG (or its designee), within the Quarterly Period following the Measuring Quarter, an amount equal to the excess of the production of Category A Products shipped for the Measuring Quarter over the minimum amounts for the Measuring Quarter, multiplied by ***¢ per bagel.

 

5.3.5        The parties acknowledge that after Contract Year 1, NWRG will select the amount of bagels it (and other Authorized Recipients) will purchase in a given Contract Year (the “Contract Minimum”), which selection will determine the precise amount of bagels to be purchased by Authorized Recipients for purposes of Section 5.3.1 and the amount of the licensing fees to which NWRG (or its designees) will be entitled pursuant to Section 7.5.1 below. The parties agree that for Contract Year 1, the Contract Minimum shall equal 1,512,153 Cases of Category A Products (pro rated calculation based on an assumed annual Contract Minimum of 2,235,258 Cases). For these purposes, Contract Year 1 shall commence on April 28, 2002 and shall end at the end of the fourth Quarterly Period in the year 2002 (“Contract Year 1”). Subsequent Contract Years will commence on the first day of the first Quarterly Period of such subsequent years and end at the end of the fourth Quarterly Period of such subsequent years. The relevant Contract Minimums for Contract Years after Contract Year 1 will be determined by NWRG by December 15 of each calendar year by providing written notice to Supplier of the selected level of Contract Minimums for the following year, which must be one of the five Contract Minimum options set forth in the table below.

 

Contract Minimum Level Options (in Cases) to be selected by NWRG:

 

2,543,962

2,798,358

3,052,754

3,391,949

4,070,339

 

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In addition, the parties have agreed that Supplier will produce cookies and muffins for sale to Authorized Recipients, which production, Supplier agrees, will result in a credit against the Contract Minimums. In addition, NWRG, ENC and MBC will give Supplier the opportunity to bid on coffee production, which if awarded Supplier agrees will result in a credit against the Contract Minimums. For purposes of meeting the Contract Minimum requirements, every two (2) cookies and/or muffins shipped by Supplier will equate to one Category A Product, and every pound of coffee shipped by Supplier will equate to two and one half (2 ½) Category A Products shipped by Supplier. The credit against the Contract Minimums for cookies, muffins and coffee is based on NWRG’s, ENC’s and MBC’s current understanding of the cookie and muffin formulation and processing and coffee roasting and grinding process and further on the expectation that Supplier will supply cookies at $*** per case (100 cookies per case) and muffins at $*** per case (96 muffins per case). If the actual formulas for cookies and muffins are materially different than Supplier’s assumptions as to the current formulas, then a change in the cost per case of cookies and muffins will be appropriate. To the extent not otherwise specifically addressed in this Section of this Agreement, the provisions of Sections 6.3 through 6.11 shall apply to the supply of cookies and muffins by Supplier to Authorized Recipients, except that Section 6.4 shall not apply. The parties acknowledge that if/when Supplier commences supplying coffee to Authorized Recipients, the pricing will be memorialized in an amendment to this Agreement.

 

Further, if Supplier has commenced producing all of New World’s requirements for Manhattan Bagels by August 26, 2002, Supplier agrees that NWRG will receive a credit against its Contract Minimums pursuant to Section 5.3.1 hereof, in an amount equal to 50% of the production of Manhattan Bagels for up to 90 days, commencing retroactively as of April 28, 2002, which equates to a reduction in Contract Minimums of up to 84,750 Cases.

 

5.4

 

5.4.1        Authorized Recipients shall have the right to purchase Category B Products from Supplier for resale to purchasers of Category B Products for a price per bagel equivalent to that otherwise charged under this Agreement (but with a Toll Charge of ***¢ per bagel adjusted in the manner provided in Section 7.3). Products purchased by Authorized Recipients pursuant to this Section 5.4 shall be purchased pursuant to this Agreement and otherwise subject to its terms as they relate to Products or Category A Products generally, but shall constitute Category B Products.

 

5.4.2        Notwithstanding anything contained herein to the contrary, in allocating available production on the Bagel Lines, the parties acknowledge that, subject to the terms of Section 5.1, production of Category A Products shall take priority, meaning that production of Category B Products shall in no matter hinder, delay or otherwise detrimentally affect production or timeliness of production or delivery of Category A Products. Notwithstanding the terms of Section 5.4.1, production by the Harlan Companies of Category B Products shall take priority over production for Authorized Recipients of Category B Products pursuant to Section 5.4.1.

 

5.5           Commencing on the date hereof, and continuing until the later of any exercise of the option by ENC pursuant to the Option Agreement or the termination or expiration of this

 

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Agreement, the Harlan Companies agree to deliver to ENC at the addresses set forth herein, upon request, all financial statements required to be provided to the Mortgage Holders and Working Capital Lenders under their respective credit agreements with said Mortgage Holders and Working Capital Lenders as in effect on the date hereof (whether or not such credit agreements hereafter remain in effect or are amended or modified), together with any copies of any amendments or modifications to such credit agreements promptly upon their becoming effective.

 

Article 6.0             Designation of the Supplier as an Approved Supplier; Purchase and Sale of the Products

 

6.1           NWRG, ENC and MBC hereby designate the Supplier as an approved supplier of Products, cookies and muffins, but only to Authorized Recipients. On the terms and subject to the conditions set forth herein, and during the Term hereof, the Supplier agrees to sell to Authorized Recipients those Products, cookies and muffins, produced by the Supplier at the Production Facility, in such quantity as they may order from time to time. NWRG, ENC and MBC shall have the right, at any time to direct the Harlan Companies in writing not to sell Products, cookies and/or muffins to any Authorized Recipient. The Harlan Companies agree not to sell Products to any person other than Authorized Recipients as then-currently approved.

 

6.2           The Harlan Companies and the Harlans jointly and severally agree that during the Term, and for a period of one year thereafter, none of the Harlan Companies or any of the Harlans or any Affiliate of the Harlan Companies or any direct or indirect designee of the Harlans shall, without the prior written consent of ENC, produce any bagels or bagel dough on the Bagel Lines for sale or distribution to any Specialty Retailer (as hereinafter defined). For this purpose, a “Specialty Retailer” shall mean (A) any food service establishment that prepares, serves or sells, and derives more than 30% of its revenues from, bagels and/or bagel-related products (including but not limited to cream cheese and other spreads, bagel sandwiches and bagel chips), other than delicatessens located in supermarkets, convenience stores or grocery stores that do not use a brand name of a Specialty Retailer, or (B) any food service establishment, at least 30% of the revenue of which is derived from coffee and related products (e.g., whole bean coffee and specialty coffee drinks). For purposes of this Section 6.2, an “Affiliate” shall mean any person or entity that controls or is controlled by, or is under common control with, such person, and the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise. Notwithstanding the first sentence of this Section 6.2, in the event any of the Harlan Companies or their Affiliates is producing bagels or bagel dough for a Specialty Retailer at the end of the Term pursuant to a written consent of ENC given prior to such time, the restriction set forth herein shall not apply to continued sales to such Specialty Retailer after the Term hereof. Within 30 days of Supplier’s written request, ENC shall advise Supplier in writing of the identity of the persons ENC considers to constitute Specialty Retailers under this Section 6.2 as of the time of such request; Supplier may rely upon such notification for one (1) year from the date of ENC’s response; provided, however, that Supplier may continue to supply a Specialty Retailer as to which it has established a relationship after non-objection from ENC (by virtue of such Specialty Retailer not appearing on a prior list of ENC designating Specialty Retailers under this Section 6.2 or

 

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otherwise with ENC’s prior written consent), even though such Specialty Retailer is subsequently added to a list provided by ENC to Supplier pursuant to a subsequent request by Supplier.

 

6.3           Notwithstanding any other provision of this Agreement to the contrary:

 

6.3.1        Orders may be placed with the Supplier by Authorized Recipients. Authorized Recipients shall notify the Supplier from time to time of the quantity of Products they wish to purchase from the Supplier by placing purchase orders with the Supplier. Each order shall be filled by the Supplier within Seven (7) days after the Supplier’s receipt of the order.

 

6.3.2        The provisions of this Article 6.0 shall govern the purchase and sale of, and terms of billing and payment on purchase orders for, Products and cookies and muffins.

 

6.3.3        The provisions of Article 7.0 shall govern the pricing of the Products to Authorized Recipients, subject to the provisions of Section 5.4.1 as to Category B Products.

 

6.3.4        The product warranties in Article 9.0, the covenants in Sections 10.1 and 10.2, and the indemnification and insurance provisions in Article 11.0 shall be made for the benefit of NWRG or the New World Subsidiary or New World Franchisee that ultimately purchases the Products, as well as for the benefit of the Authorized Recipient.

 

6.3.5        Supplier may cease the supply of Products to NWRG or any New World Subsidiary (if designated as an Authorized Recipient), New World Franchisee (if designated as an Authorized Recipient) or Authorized Recipient, as the case may be, if any balance owed to the Supplier by such entity is not paid within 30 days after the date of invoice. In the event that the entity which has not paid Supplier in accordance with the prior sentence is NWRG, a New World Subsidiary or a New World Franchisee (if any such New World Franchisee after the date hereof becomes an Authorized Recipient with payment responsibility for the Products), the cessation of supply by Supplier, at Supplier’s sole option, may extend to NWRG, all New World Subsidiaries and all New World Franchisees. Upon payment in full of all amounts due, Supplier shall resume supply to such entity in accordance with the terms of this Agreement. NWRG, ENC and MBC will cooperate with Supplier to seek to resolve any disputes with New World Subsidiaries, New World Franchisees or Authorized Recipients.

 

6.4           During the Term hereof, the Supplier shall sell to Au