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Royalty Agreement

Royalty Agreement

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 This Royalty Agreement involves

BLOOMIN' BRANDS, INC. | CARRABBA WOODWAY, INC | CARRABBA, INC | CARRABBA'S ITALIAN GRILL, INC | CARRABBA'S WOODWAY, INC | MANGIA BEVE, INC | OUTBACK STEAKHOUSE, INC

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Title: ROYALTY AGREEMENT
Governing Law: Florida     Date: 4/6/2012

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Exhibit 10.6

ROYALTY AGREEMENT

This ROYALTY AGREEMENT (“Agreement”) is made and entered into this 1st day of April, 1995, by and among CARRABBA’S ITALIAN GRILL, INC., a Florida corporation having its principal office located at 550 North Reo Street, Suite 200, Tampa, Florida 33609 (hereinafter “CIGI”), OUTBACK STEAKHOUSE, INC., a Delaware corporation having its principal office located at 550 North Reo Street, Suite 200, Tampa, Florida 33609 (hereinafter “Outback”), MANGIA BEVE, INC., a Texas corporation having its principal office at 3125 Kirby Drive, Houston, Texas 77098 (hereinafter “MBI”), CARRABBA, INC., a Texas corporation having its principal office at 3125 Kirby Drive, Houston, Texas 77098 (“CI”), CARRABBA WOODWAY, INC., a Texas corporation having its principal office at 3125 Kirby Drive, Houston, Texas 77098 (“CWI”), JOHN C. CARRABBA, III, an individual residing in the state of Texas (“Johnny Carrabba”), DAMIAN C. MANDOLA, an individual residing in the state of Texas (“Damian Mandola”) and JOHN C. CARRABBA, JR., an individual residing in the state of Texas (“John C. Carrabba, Jr.”).

W I T N E S S E T H :

WHEREAS , MBI is the sole and exclusive owner of a unique, distinctive system for the establishment of full service restaurants known as “Carrabba’s Italian Grill ® ” which feature a specialized menu of Italian food and full bar service; and

WHEREAS , in consideration for the covenants of CIGI and the payments to be provided for herein, MBI desires to transfer said system to CIGI.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and after good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

For purposes of this Agreement, the following definitions shall apply:

1.1  Affiliate . The term “Affiliate” shall have the same meaning as such term has in the Securities and Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.

1.2  Carrabba Entity(ies) . The term “Carrabba Entity(ies)” shall mean each of MBI, CI, CWI, Johnny Carrabba, Damian Mandola and John Carrabba, Jr., individually and collectively, jointly and severally, and their Affiliates, heirs, administrators, representatives, successors and permitted assigns.


1.3  CI License Agreement . The term “CI License Agreement” shall mean that certain Amended and Restated Carrabba’s Restaurant Licensing Agreement of even date herewith between CIGI, as Licensor, and CI, as Licensee, pursuant to which CI was granted the right to operate one Restaurant located at 3115 Kirby Drive, Houston, Texas 77098.

1.4  CWI License Agreement . The term “CWI License Agreement” shall mean that certain Amended and Restated Carrabba’s Restaurant Licensing Agreement of even date herewith between CIGI, as Licensor, and CWI, as Licensee, pursuant to which CWI was granted the right to operate one Restaurant located at 1399 South Voss, Houston, Texas.

1.5  Florida License Agreement . The term “Florida License Agreement” shall mean that certain License Agreement of even date herewith between MBI as successor to the Joint Venture, as Licensor, and the Florida Partnership, as Licensee, pursuant to which the Florida Partnership was granted the exclusive right to operate an unlimited number of Restaurants in certain counties in the state of Florida.

1.6  Florida Partnership . The term “Florida Partnership” shall mean Carrabba’s of West Florida, Ltd., a Florida limited partnership.

1.7  Joint Ventures . The term “Joint Ventures” shall mean collectively Carrabba/Outback Joint Venture, a Florida general partnership and Carrabba/Texas Joint Venture, a Florida general partnership.

1.8  Joint Venture License Agreements . The term “Joint Venture License Agreements” shall mean those certain Carrabba’s Restaurant Licensing Agreements of even date herewith between MBI, as Licensor, and the Joint Ventures, as Licensees, pursuant to which the Joint Ventures were granted the right to operate an unlimited number of Restaurants in the state of Texas.

1.9  Net Product Sales . The term “Net Product Sales” shall mean all monetary compensation received from the sale of products and services which are not sold at or from a Restaurant, whether for cash or credit and regardless of collection in the case of credit, reduced by (i) discounts, rebates and complimentary food and beverages, (ii) returns and exchanges, (iii) sales and other taxes and surcharges collected for transmittal to taxing authorities and (iv) revenue from catering activities done for charitable, marketing or community involvement purposes.

1.10  Net Restaurant Sales . The term “Net Restaurant Sales” shall mean, with respect to any Restaurant, all monetary compensation received for the sale of all products and services at or from such Restaurant, whether for cash or credit and regardless of collection in the case of credit, including the face value of gift certificates redeemed by customers, reduced by (i) discounts and complimentary food and beverages, (ii) sales and other taxes and surcharges collected for transmittal to taxing authorities, (iii) revenue received from the sale of gift certificates and (iv) revenue from catering activities done for charitable, marketing or community involvement purposes.

 

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1.11  Outback . The term “Outback” shall mean Outback Steakhouse, Inc., a Delaware corporation.

1.12  Outback Entities . The term “Outback Entities” shall mean each of CIGI and Outback, individually and collectively, and their Affiliates, successors and permitted assigns.

1.13  Proprietary Marks . The term “Proprietary Marks” shall mean, collectively and individually, Federal Trademark/Service Mark Reg. No. 1,795,108 for Carrabba’s with design; Federal Trademark/Service Mark Reg. No. 1,804,367 for Carrabba’s with Pizza Chef Design; Federal Trademark/Service Mark Reg. No. 1,843,015 for Pizza Chef Design; Federal Trademark/Service Mark Reg. No. 1,865,848 for Carrabba’s Italian Grill (stylized); and all other copyrights, trademarks, trade names, service marks, logos, emblems and other indicia of origin used to identify the System; together with all goodwill associated with all of the foregoing.

1.14  Restaurant . The term “Restaurant” shall mean a restaurant utilizing the System, whether owned by CIGI, its Affiliates or by its licensees/franchisees.

1.15  System . The term “System” shall mean the Carrabba’s Italian Grill ® restaurant concept and system and all elements, characteristics and properties thereof, including, without limitation, recipes and menu items; motif, design, decor and furnishings; trade dress and the Propriety Marks, trade secrets, know-how and other intellectual property; uniform standards, specifications and procedures for operations, quality and uniformity of products and services offered; procedures for inventory and management control; training and assistance; employee testing programs; marketing, advertising and promotional programs; together with all goodwill associated therewith.

ARTICLE II

TRANSFER OF SYSTEM

2.1  Transfer of System . MBI hereby assigns, transfers and conveys outright and absolutely to CIGI all ownership, right, title and interest in and to the System and the Proprietary Marks and all elements, characteristics and property thereof, and all goodwill associated therewith, free and clear of any lien, claim, encumbrance or retained interest whatsoever, subject to and except only the following:

(a) CI’s rights to operate one Restaurant pursuant to the CI License Agreement.

 

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(b) CWI’s rights to operate one Restaurant pursuant to the CWI License Agreement.

(c) The Florida Partnership’s rights to operate Restaurants as licensees pursuant to the Florida License Agreement.

(d) The Joint Ventures’ rights to operate Restaurants as a licensee pursuant to the Joint Venture License Agreements.

(e) MBI’s contingent right of reversion specified in Section 8.5 hereof.

2.2  Transfer of Rights as Licensor . MBI hereby transfers, assigns and conveys to CIGI all right, title and interest of MBI as Licensor under the CI License Agreement, the CWI License Agreement, the Florida License Agreement and the Joint Venture License Agreement. CIGI hereby accepts such assignment and agrees to be bound by, and hereby assumes the obligations of Licensor under the CI License Agreement, the CWI License Agreement, the Florida License Agreement and the Joint Venture License Agreement.

2.3  Limitation . Notwithstanding the foregoing, CIGI shall not use the Proprietary Marks in connection with any product or service other than restaurant and catering services, food products, beverages, clothing and promotional items ancillary to the foregoing, except with the prior consent of MBI, which consent shall not be unreasonably withheld, delayed or conditioned. Nothing contained in this Section 2.3 shall be construed as a retention by MBI of any right to use the Proprietary Marks nor as a grant of any right to use the Proprietary Marks.

ARTICLE III

ROYALTIES

3.1  Restaurant Royalties . For each Restaurant owned by CIGI or a franchisee/licensee of CIGI (other than the Joint Venture, CI or CWI) which Restaurant first opens to the public after January 1, 1995, CIGI shall pay to MBI an annual royalty fee during the term of this Agreement as follows:

(a) For Restaurants whose annual Net Restaurant Sales are Two Million Seven Hundred Thousand Dollars ($2,700,000) or less, a royalty fee of one percent (1%) of Net Restaurant Sales;

(b) For Restaurants whose annual Net Restaurant Sales exceed Two Million Seven Hundred Thousand Dollars ($2,700,000) but are less than Three Million Dollars ($3,000,000), a royalty fee of one and one quarter percent (1  1 / 4 %) of Net Restaurant Sales;

 

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(c) For Restaurants whose annual Net Restaurant Sales exceed Three Million Dollars ($3,000,000), a royalty fee of one and one half percent (1  1 / 2 %) of Net Restaurant Sales.

3.2  Payment . For each Restaurant CIGI shall pay to MBI a monthly royalty fee at the rate of one percent (1%) of Net Restaurant Sales for each of the first six months of such Restaurant’s operation. After the first six months of operation, such Restaurant’s Net Restaurant Sales shall be annualized and the royalty fee shall be paid for the remainder of the calendar year based on annualized Net Restaurant Sales for the calendar year ending on the first December 31 after the Restaurant has completed its first six months of operation (“Initial Calendar Year”). For each calendar year after the Initial Calendar Year, such Restaurant shall pay a monthly royalty fee based on the Net Restaurant Sales of the preceding calendar year (annualized for Restaurants open less than twelve months in the previous calendar year). Within thirty (30) days of the end of each calendar year, each Restaurant’s actual Net Restaurant Sales for such calendar year shall be determined and CIGI shall pay to MBI, or MBI shall refund to CIGI, as the case may be, any amounts necessary so that the actual royalty paid for such calendar year is as provided in Section 3.1. No royalty shall be paid on Net Restaurant Sales which occur after expiration or termination of this Agreement.

3.3  Product Royalties . For each calendar year during the term of this Agreement (beginning with 1995) CIGI shall pay to MBI a monthly royalty fee of one percent (1%) of Net Product Sales, payable as provided in Section 3.4. No royalty shall be paid on Net Product Sales which occur after expiration or termination of this Agreement.

3.4  Payments and Reports . All monthly payments to MBI required by this Article III shall be paid by the tenth (10th) day of each month in respect of operations during the preceding calendar month, and shall be submitted, together with any reports or statements required under Section 4.5 hereof, to MBI at the address provided in Section 10.4 hereof. Any payment or report not actually received by MBI on or before such date shall be deemed overdue. If any payment is overdue, CIGI shall pay MBI, in addition to the overdue amount, interest on such amount from the date it was due until payment is received by MBI at the rate of eighteen percent (18%) per annum, or the maximum rate permitted by law, whichever is less.

ARTICLE IV

COVENANTS OF OUTBACK ENTITIES

The Outback Entities covenant and agree with the Carrabba Entities as follows:

4.1  Development of Restaurants . CIGI shall use its best reasonable efforts to successfully promote and develop the System and to establish and operate, by itself and through licensees and franchisees, as many Restaurants as CIGI deems prudent, in its sole discretion.

 

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4.2  Payments of Royalties . CIGI shall use its best reasonable efforts to maximize the Net Sales of each Restaurant and shall promptly pay or cause to be paid to MBI the royalties provided for in Article III.

4.3  Improvement of System . CIGI shall use its best reasonable efforts to modify and improve the System and to protect and defend the Proprietary Marks; provided, however, nothing contained herein shall be construed as obligating CIGI to initiate any legal action against any particular infringer of any Proprietary Mark. All improvements, modifications and changes to the System or any element thereof shall be the sole and exclusive property of CIGI.

4.4  Obligations as Licensor . CIGI shall fully perform all obligations of CIGI as Licensor under the CI License Agreement, the CWI License Agreement, the Florida License Agreement and the Joint Venture License Agreements, and CIGI will comply with all terms thereof and CIGI shall hold the Carrabba Entities harmless from all obligations of Licensor to licensees and franchisees and all other obligations of Licensor.

4.5  Accounting and Records .

(a)  Monthly Reporting . CIGI shall maintain during the term of this Agreement, and shall preserve for at least five (5) years from the dates of their preparation, full, complete, and accurate books, records, and accounts prepared in accordance with generally accepted accounting principles and in sufficient detail to document the calculation of royalties hereunder.

(b)  Monthly Reports . CIGI shall submit to MBI no later than the tenth (10th) day of each month during the term of this Agreement, a remittance report accurately reflecting all Net Restaurant Sales and Net Product Sales during the preceding calendar month and such other data or information as MBI may reasonably request. In addition, and without limiting the foregoing, CIGI shall submit a monthly and fiscal year-to-date profit and loss statement (which may be unaudited) for CIGI and the Restaurants, and shall submit copies of all state sales tax returns for CIGI and the Restaurants.

(c)  Quarterly Reports . CIGI shall submit to MBI a quarterly balance sheet (which may be unaudited) within thirty (30) days after the end of each quarter of the fiscal year of the CIGI. Each such statement shall be signed by CIGI or by CIGI’s treasurer or chief financial officer attesting that it is true and correct.

(d)  Annual Reports . CIGI shall submit to MBI complete audited annual financial statements of CIGI prepared by an independent certified public accountant satisfactory to MBI, within ninety (90) days after the end of each fiscal year of CIGI, showing the results of operations of CIGI and the Restaurant during said fiscal year. Such statements shall include, at a minimum, a balance sheet, profit and loss statement and statement of sources and uses of funds.

 

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(e)  Additional Reports . CIGI shall submit to MBI, for review or auditing, such other forms, reports, records, information, and data as MBI may reasonably request in order to verify the calculation of royalties payable pursuant to this Agreement.

(f)  Inspection Rights . MBI or its designated agents shall have the right at all reasonable times to examine and copy, at MBI’s expense, the books, records, and tax returns of CIGI. MBI shall also have the right, at any time, to have an independent audit made of the books of CIGI. If an inspection should reveal that any payments have been understated in any report to MBI, then CIGI shall immediately pay to MBI the amount understated upon demand, in addition to interest from the date such amount was due until paid, at the rate of ten percent (10%) per annum, or the maximum rate permitted by law, whichever is less. If an inspection discloses an understatement in any report of five percent (5%) or more, CIGI shall pay interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less, and in addition, shall reimburse MBI for any and all costs and expenses connected with the inspection (including, without limitation, travel, lodging and wages expenses and reasonable accounting and legal costs). The foregoing remedies shall be in addition to any other remedies MBI may have.

(g)  Expenses . All reports, forms and other information required by this Section 4.5 shall be prepared at CIGI’s expense and shall be submitted to MBI at the address indicated in Section 10.4 hereof.

(h)  Other Users of System . CIGI will cause all franchisees, licensees and other users of the System to maintain and provide records of the type necessary to support and document the reports to be provided hereunder.

4.6  Non-Competition . Each Outback Entity covenants to MBI that, except as otherwise approved in writing by MBI, it shall not, during the term of this Agreement, directly or indirectly, for itself or through, on behalf of, or in conjunction with any person, persons, partnership, limited liability company, corporation or any other entity, own, maintain, operate, engage in, license, franchise, be employed by or have any interest in, any Italian food restaurant utilizing any material proprietary component, element or property of the System other than Restaurants licensed to use the System and for which royalties are paid hereunder. Without limiting the generality of the foregoing, the parties further agree that for any such Italian food restaurant utilizing one or more material proprietary components, elements or properties of the System, CIGI shall remain obligated to pay royalties on sales of such restaurant to the same extent as if such restaurant were a licensee or a franchisee of CIGI and utilizing the System.

4.7  Right of First Refusal .

(a)  Restriction . The Outback Entities hereby covenant and agree that no Outback Entity shall, directly or indirectly, in any manner whatsoever, transfer or offer to transfer the System (hereinafter referred to as a “Transfer”), except in accordance with the provisions of this Section 4.7. Any purported Transfer, no matter how effected, which does not

 

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comply with the terms, conditions and procedures of this Section 4.7 shall be null and void and shall transfer no interest in the System. This Section 4.7 shall not apply to the grant in the ordinary course of business of licenses and franchises to use the System.

(b)  Termination of Restrictions . Notwithstanding any contrary provision hereof, the restrictions on Transfer and rights of first refusal contained in this Section 4.7 shall terminate and thereafter be forever null and void if at any time on or before January 1, 2000 there are fifty (50) or more Restaurants open for business.

(c)  Right of First Refusal . In the event any Outback Entity (“Transferor”) desires to Transfer the System (and any Restaurants owned by CIGI or its Affiliates) or a majority of the vote or value of the capital stock of CIGI, to any person or entity, the Transferor shall, prior to any such Transfer, give MBI written notice of such desire (“Notice of Transfer”), which notice shall specify the property to be transferred (“Property”), the identity of the proposed transferee, and the purchase price, including payment terms and the treatment of liabilities related to the Property (“Purchase Price”). Any purported Notice of Transfer that does not comply with the requirements of this subsection (c) shall be null and void and of no effect hereunder. Upon receipt of a proper Notice of Transfer, MBI shall thereupon have the right to acquire all, but not less than all, of the Property specified in the Notice of Transfer on terms identical to the Purchase Price. In the event the Purchase Price contains terms which MBI cannot reasonably duplicate, MBI shall have the right to substitute the reasonable cash equivalent thereof.

MBI shall exercise the right of first refusal contained herein by giving written notice thereof (“Notice of Election”) to the Transferor within thirty-five (35) days of the date of the Notice of Transfer. In the event MBI fails to give a Notice of Election to the Transferor within the thirty-five (35) day period, the purchase option contained herein shall lapse, and, if so requested by the Transferor, MBI shall give an affirmative written statement of non-exercise of the right of first refusal within five (5) days of request by the Transferor.

The closing for any purchase hereunder shall be consummated and closed in CIGI’s principal office on a date and at a time designated by MBI in a notice to the Transferor, provided such consummation and closing date shall occur within ninety (90) days from the date of the Notice of Election. At such closing the Transferor shall execute and deliver all documents and instruments as are necessary and appropriate, in the opinion of counsel for MBI, to effectuate the transfer of the Property to MBI in accordance with the terms of the Notice of Transfer, and MBI shall deliver the Purchase Price.

(d)  Limitation . The right of first refusal contained in subsection (c) shall not apply to transfers to Outback or any Affiliate of Outback.

(e)  Transfer Permitted After Failure to Elect . In the event MBI does not elect pursuant to subsection (c) to exercise the purchase option specified therein, or in the event the closing for any purchase pursuant to subsection (c) does not occur within the time

 

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limits specified therein, then the Transferor shall be free to transfer the Property as was specified in the Notice of Transfer to the person or entity identified in the Notice of Transfer in exchange for the exact Purchase Price as was specified in the Notice of Transfer; provided , however , that the closing and consummation of such transfer shall occur on or before the earlier of (i) sixty (60) days from the date of the Notice of Transfer if no Notice of Election was given; or (ii) one hundred twenty (120) days from the date of the Notice of Election; and provided further that such transfer must comply with all other requirements of this Section 4.7. In the event such transfer is not so closed and consummated within such period, the purchase option granted to MBI in subsection (c) shall again be exercisable and the Transferor shall make no Transfer of the Property, or any right, title or interest therein, until he has again complied with all terms and provisions of this Section 4.7. In the event MBI does not elect pursuant to Section 4.7 to exercise the purchase option contained therein and the Transferor makes a permitted Transfer in compliance with the terms and provisions of this Section 4.7, then the person or entity to whom such Property is transferred shall, as a condition to such transfer, agree in writing to be bound by all terms and provisions of this Agreement.

(f)  Effect of Transfer . Notwithstanding any Transfer of the System or any portion thereof, unless MBI (or any Permitted Successor entitled to royalties hereunder at the time of such transfer) otherwise agrees in writing, no Transfer shall relieve Outback, CIGI or any other transferring person or entity from any liability to pay royalties hereunder, which liabilities and obligations shall be joint and several as to such parties; and, unless otherwise so agreed by MBI or its Permitted Successor, all transferees of the System shall be and remain jointly and severally liable for the payment of such royalties and the performance of such liabilities and obligations hereunder.

ARTICLE V

COVENANTS OF CARRABBA ENTITIES

5.1  Non-Disclosure; Non-Solicitation . Except as required by law or as necessary to protect its interests in legal proceedings involving the parties to this Agreement or thired parties, at no time during the term of this Agreement, or at any time thereafter, shall any Carrabba Entity, individually or jointly with others, for the benefit of any Carrabba Entity or any third party, publish, disclose, use, or authorize anyone else to publish, disclose, or use, any secret or confidential material or information relating to any aspect of the business or operations of CIGI, the System or the Restaurants, including, without limitation, any secret or confidential information relating to the business, customers, trade or industrial practices, trade secrets, technology, recipes or know-how of CIGI, its Affiliates or the System. Moreover, during the term of this Agreement and for a period of two (2) years thereafter, no Carrabba Entity shall offer employment to any then-current employee of any of CIGI, its Affiliates or licensees (other than a Carrabba Entity), or otherwise solicit or induce any employee of any of CIGI, its Affiliates or licensees to terminate their employment, nor shall any Carrabba Entity act as an officer, director, employee, partner, independent contractor, consultant, principal, agent, proprietor, owner or part owner, or in any other capacity, for any person or entity which solicits or otherwise induces any employee of any of CIGI, its Affiliates or licensees (other than a Carrabba Entity) to terminate their employment.

 

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5.2  Competition . Each Carrabba Entity covenants to CIGI that, except for the Restaurants owned by the Joint Ventures, CI and CWI, and except as otherwise approved in writing by CIGI, each Carrabba Entity shall not, during the term of this Agreement and for a continuous uninterrupted period commencing upon the expiration or termination of this Agreement, and continuing for two (2) years thereafter, directly or indirectly, for themselves, or through, on behalf of, or in conjunction with any person, persons, partnership or corporation, own, maintain, operate, engage in, be employed by, or have any interest in, or lend any assistance to, any business which owns or operates one or more full service Italian food restaurants and which is, or is intended to be, located within thirty (30) miles of an existing or proposed Restaurant utilizing the System, whether owned by CIGI, its Affiliates or a licensee/franchisee of CIGI; provided , however , that during the term of this Agreement the foregoing geographic limitation shall not apply and, except for the Restaurants owned by the Joint Venture, CI and CWI, each Carrabba Entity shall be prohibited from such ownership and/or activity regardless of whether such other business is within or without of the thirty-mile radius; and provided further , that this Section 5.2 shall not apply to any Permitted Transferee who by the terms of Section 6.4(c) is entitled to own or operate not more than five restaurants. The term “proposed Restaurant” shall mean all locations for which CIGI (or its successor in interest as owner or the System), any Affiliate of CIGI, or any franchisee is conducting active, bona fide negotiations to secure a fee or leasehold interest with the intention of establishing thereon a restaurant utilizing the System.

This section shall not apply to ownership by a Carrabba Entity of less than one percent (1%) beneficial interest in the outstanding equity securities of any corporation required to file periodic reports under the Securities Exchange Act of 1934, as amended.

5.3  Independent Covenants . The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Article V is held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which CIGI is a party, each Carrabba Entity expressly agrees to be bound by any lesser covenant subsumed within the terms of such covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Article V.

5.4  Modification . Each Carrabba Entity understands and acknowledges that CIGI shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in Sections 5.1 and 5.2 of this Agreement, or any portion thereof, effective immediately upon receipt of written notice thereof; and each Carrabba Entity agrees that it shall comply forthwith with any covenant as so modified, which shall be fully enforceable against such Carrabba Entity.

5.5  Claims Not a Defense . Each Carrabba Entity expressly agrees that the existence of any claims they may have against any Outback Entity, whether or not arising from

 

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this Agreement, shall not constitute a defense to the enforcement by CIGI of the covenants in this Article V. Each Carrabba Entity agrees to pay all costs and expenses (including reasonable attorneys’ fees) incurred by CIGI in connection with any legal proceedings brought by CIGI to construe, interpret or enforce this Article V.

5.6  Reasonableness of Restrictions; Reformation; Enforcement . Each Carrabba Entity recognizes and acknowledges that the geographical and time limitations contained in this Article V are reasonable and properly required for the adequate protection of CIGI and the System. It is agreed by each Carrabba Entity that if any portion of the restrictions contained in this Article V be unreasonable, arbitrary or against public policy, then the restrictions shall be considered divisible, both as to the time and to the geographical area, with each month of the specified period being deemed a separate period of time and each radius mile of the restricted territory being deemed a separate geographical area, so that the lesser period of time or geographical area shall remain effective so long as the same is not unreasonable, arbitrary or against public policy. The parties hereto agree that in the event any court of competent jurisdiction determines the specified period or the specified geographical area of the restricted territory to be unreasonable, arbitrary, or against public policy, a lesser time period or geographical area which is determined to be reasonable, nonarbitrary, and not against public policy may be enforced against each Carrabba Entity. If any Carrabba Entity shall violate any of the covenants contained herein and if any court action is instituted by CIGI to prevent or enjoin such violation, then the period of time during which the covenants of this Article V shall apply, as provided in this Agreement, shall be lengthened by a period of time equal to the period between the date of the breach of the terms or covenants contained in this Agreement and the date on which the decree of the court disposing of the issues upon the merits shall become final and not subject to further appeal.

5.7  Specific Performance . Each Carrabba Entity agrees that a breach of any of the covenants contained in this Article V will cause irreparable injury to CIGI for which the remedy at law will be inadequate and would be difficult to ascertain and therefore, in the event of the breach or threatened breach of any such covenants, CIGI shall be entitled, in addition to any other rights and remedies it may have at law or in equity, to obtain an injunction to restrain such Carrabba Entity from any threatened or actual activities in violation of any such covenants. Each Carrabba Entity hereby consents and agrees that temporary and permanent injunctive relief may be granted in any proceedings which might be brought to enforce any such covenants without the necessity of proof of actual damages, and in the event CIGI does apply for such an injunction, the Carrabba Entities shall not raise as a defense thereto that CIGI has an adequate remedy at law.

5.8  Personnel . Each of CI, CWI and MBI shall require and obtain execution of covenants similar to those set forth in this Article V (including covenants applicable during the term of a person’s relationship with them and for two years after termination of such relationship) from any or all of the following persons: (a) all managers, kitchen managers and assistant kitchen managers of MBI, CI or CWI; (b) all officers, directors and holders of a beneficial interest of one percent (1%) or more of the securities of MBI, CI or CWI. Every

 

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covenant required by this Section 5.8 shall be in a form reasonably satisfactory to CIGI, including, without limitation, specific identification of CIGI as a third-party beneficiary of such covenants with the independent right to enforce them. Failure by MBI, CI or CWI to obtain execution of a covenant required by this Section 5.8 shall constitute a default under this Agreement. Nothing contained in this Section 5.8 shall be construed as a guarantee by MBI of the enforceability of such covenants of such personnel.

5.9  Ownership of Improvements . Each Carrabba Entity acknowledges and agrees that any and all improvements, modifications or additions to the System developed by any Carrabba Entity (or their employees) shall constitute part of the System and shall be the sole and exclusive property of CIGI.

ARTICLE VI

RESTRICTIONS ON TRANSFER

6.1  Restriction Against Transfer . The Carrabba Entities hereby covenant and agree that no Carrabba Entity shall, directly or indirectly, in any manner whatsoever, transfer or encumber, or offer to transfer or encumber (hereinafter referred to as “Transfer”) any of its interest in the royalties provided for in Article III hereof, or any right, title or interest therein, whether now owned or hereafter acquired (“Royalty Interest”), except in accordance with the provisions of this Article VI.

Any purported Transfer, no matter how effected, which does not comply with the terms, conditions and procedures of this Agreement shall be null and void and shall transfer no interest in the Royalty Interest, but such non-complying purported Transfer shall not relieve CIGI of any of its obligations under this Agreement.

For purposes of this Agreement, a Transfer of a Royalty Interest shall include any issuance, disposition or encumbrance, of any shares of any class of capital stock of MBI or other ownership or voting interest in MBI, and all provisions of this Article VI shall apply to any such disposition or encumbrance.

6.2  Transferees Bound . Any permitted transferee or assignee to whom a Royalty Interest (or capital stock or other ownership or voting interest in MBI or any successor to MBI) may be transferred under the terms of this Agreement who is not at the time of such transfer a party to this Agreement shall take such Royalty Interest subject to all of the terms and conditions of this Agreement and shall not be considered to have title to such Royalty Interest until the transferee or assignee shall have accepted and assumed the terms and conditions of this Agreement by a written agreement to that effect.

6.3  Transfers Subject to Rights of First Refusal . In the event MBI, or any shareholder of MBI, (“Transferor”) desires to Transfer all or any part of its Royalty Interest or (i) in the case of MBI, issue additional shares of capital stock, or (ii) in the case of a shareholder

 

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of MBI, Transfer capital stock or other ownership or voting interest in MBI] to any person or entity, the Transferor shall, prior to any such Transfer, give CIGI written notice of such desire (“Notice of Transfer”), which notice shall specify the Royalty Interest (or capital stock in MBI) to be transferred or issued, the identity of the proposed transferee, the purchase price for the Royalty Interest (or capital stock of MBI, as the case may be), and the terms for payment of the purchase price, (“Purchase Price”). Any purported Notice of Transfer that does not comply with the requirements of this Section shall be null and void and of no effect hereunder. Upon receipt of a proper Notice of Transfer, CIGI shall thereupon have the right to acquire the Transferor’s entire Royalty Interest (or entire capital stock in MBI, as the case may be), or such portion thereof as is specified in the Notice of Transfer, on terms identical to the Purchase Price or proportionately identical if CIGI elects to purchase the entire Royalty Interest (or entire capital stock, as the case may be) of the Transferor. In the event the Purchase Price contains terms which CIGI cannot reasonably duplicate, CIGI shall have the right to substitute the reasonable cash equivalent thereof.

CIGI shall exercise the right of first refusal contained herein by giving written notice thereof (“Notice of Election”) to the Transferor within thirty-five (35) days of the date of the Notice of Transfer. The Notice of Election shall specify whether CIGI elects to purchase the entire Royalty Interest (or entire capital stock, as the case may be) of the Transferor, or, if less, the portion thereof specified in the Notice of Transfer. In the event CIGI fails to give a Notice of Election to the Transferor within the thirty-five (35) day period, the purchase option contained herein shall lapse, and, if so requested by the Transferor, CIGI shall give an affirmative written statement of non-exercise of the right of first refusal within five (5) days of request by the Transferor.

The closing for any purchase hereunder shall be consummated and closed in CIGI’s principal office on a date and at a time designated by CIGI in a notice to the Transferor, provided such consummation and closing date shall occur within ninety (90) days from the date of the Notice of Election. At such closing the Transferor shall execute and deliver all documents and instruments as are necessary and appropriate, in the opinion of counsel for CIGI, to effectuate the transfer of the Transferor’s Royalty Interest (or capital stock of MBI, as the case may be) to CIGI in accordance with the terms of the Notice of Transfer and CIGI shall deliver the Purchase Price.

6.4  Limitation . Notwithstanding any other provision of this Agreement, shares of stock of MBI or interests in royalty payments hereunder may be transferred or assigned under the following circumstances, without giving rise to any right of first refusal under Section 6.3:

(a) MBI may transfer or assign its interest in royalty payments hereunder, or any portion thereof, to any organization, association or other entity (a “Successor”), so long as the capital stock of or other equity interests in such Successor are held only by or for the account of any one or more of the Carrabba Entities, or any other person or entity that would be permitted to own stock of or equity interests in MBI or a Permitted Successor pursuant to clauses (b) and (c) below, or any combination of the foregoing persons (all such Successors

 

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referred to collectively as “Permitted Successors”), provided that in each case the transferee of such interest shall be subject to the same restrictions on further transfer as are contained in this Article VI including exceptions from such restrictions pursuant to this Section 6.4), and provided, further, that for a period of five (5) years from the date of this Agreement following each such transfer, Johnny Carrabba or Damian Mandola, if both are then alive, shall have the exclusive right to vote a number of shares of stock of MBI and any Permitted Successor sufficient to elect their entire Board of Directors and to exclusively determine all matters submitted to shareholder vote;

(b) In addition to transfers permitted by sections (a) or (c), shares of stock of, or other equity interests in, MBI or any Permitted Successor or any interest therein may be transferred to the spouse, children, grandchildren, nephews and nieces of Johnny Carrabba, Damian Mandola or John Carrabba, Jr., or to any trust for the benefit of one or more such persons (the foregoing collectively referred to as “Permitted Transferees”), provided that in each case the transferee of such shares or equity interests shall be subject to the same restrictions on further transfer as are contained in this Article VI; (including exceptions from such restrictions pursuant to this Section 6.4), and provided, further, that for a period of five (5) years from the date of this Agreement following each such transfer, Johnny Carrabba and Damian Mandola, if both are then alive, shall have the exclusive right to vote a number of shares of stock of MBI and any Permitted Successor sufficient to elect their entire Board of Directors and to exclusively determine all matters submitted to shareholder vote; and

(c) Shares of stock of, or other equity interest in, MBI or any Permitted Successor or any interest therein may be transferred to any person if, and only if (i) the transfer is a bona fide gift by the transferor for which no monetary or property consideration or other thing of value whatsoever is received, or a testamentary transfer or transfer by intestate succession or other transfer upon the transferor’s death, and (ii) the donee is not in any manner, directly or indirectly, through ownership in other entities or otherwise, engaged in the operation or ownership of restaurants; provided, however, that if the donee is a family member of Johnny Carrabba, Damian Mandola or John Carrabba, Jr. such donee may be involved in the ownership or operation of not more than five (5) restaurants; provided, however, in the case of bona fide, recognized charitable organizations, ownership of stock in publicly traded corporations shall be allowed and in the case of all other donees, ownership of less than one percent (1%) of the outstanding shares of any class of securities of a publicly traded corporation shall be allowed (the foregoing also collectively referred to as “Permitted Transferees”). The parties further agree that any donee permitted to own or operate not more than five restaurants hereunder shall continue to be permitted to do so, notwithstanding any term or provision to the contrary in any other agreement between or among any of the Outback Entities and any of the Carrabba entities.

6.5  Transfer Permitted After Failure to Elect . In the event CIGI does not elect pursuant to Section 6.3 to exercise the purchase option specified therein, or in the event the closing for any purchase pursuant to Section 6.3 does not occur within the time limits specified therein, then the Transferor shall be free to transfer the exact portion of its Royalty Interest (or capital stock of MBI, as the case may be) as was specified in the Notice of Transfer to the

 

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person or entity identified in the Notice of Transfer in exchange for the exact Purchase Price as was specified in the Notice of Transfer; provided , however , that the closing and consummation of such transfer shall occur on or before the earlier of (i) sixty (60) days from the date of the Notice of Transfer if no Notice of Election was given; or (ii) one hundred twenty (120) days from the date of the Notice of Election; and provided further that such transfer must comply with all other requirements of this Article VI. In the event such transfer is not so closed and consummated within such period, the purchase option granted to CIGI in Section 6.3 shall again be exercisable and the Transferor shall make no Transfer of any portion of its Royalty Interest (or capital stock in MBI), or any right, title or interest therein, until he has again complied with all terms and provisions of this Article. In the event CIGI does not elect pursuant to Section 6.3 to exercise the purchase option contained therein and the Transferor makes a permitted Transfer in compliance with the terms and provisions of this Article, then the person or entity to whom such Royalty Interest (or capital stock of MBI) is transferred shall nevertheless acquire such Royalty Interest (or capital stock) subject to the restrictions imposed on such Royalty Interest (or capital stock) under this Article VI as to further transfers of such Royalty Interest (or capital stock), and provided further that as a condition to such transfer any such transferee shall agree in writing to be bound by all terms and provisions of this Agreement.

6.6  Purchase Option on Bankruptcy of John C. Carrabba, III Damian C. Mandola and John C. Carrabba, Jr.

(a) For purposes of this Agreement, the term “Bankrupt” or “Bankruptcy” means, with respect to any person, a situation in which (i) such person shall file a voluntary petition in bankruptcy or shall be adjudicated as bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under the present or future applicable Federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of such person or of all or any substantial part of its properties or its rights under this Agreement (the term “acquiesce”, as used in this definition, includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within twenty (20) days after entry of such order, judgment or decree); (ii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against such person seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future Federal Bankruptcy Act, or any other present or future applicable Federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, and such person shall acquiesce in the entry of such order, judgment or decree or such order, judgment or decree shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of such person or of all or any substantial part of its property or its rights under this Agreement shall be appointed without the consent or acquiescence of such person and such appointment shall remain unvacated and unstayed for an aggregate of thirty (30) days (whether or not consecutive); (iii) such person shall admit in writing its inability to pay its debts as they mature; (iv) such person shall give notice to any governmental body of insolvency or pending insolvency, or suspension or pending suspension of operations; or (v) such person shall make an assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors.

 

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(b)  Options .

(i) Upon the Bankruptcy of John C. Carrabba, III (“Johnny Carrabba”), Damian C. Mandola (“Damian Mandola”), or John C. Carrabba, Jr. (“John Carrabba, Jr.”) CIGI shall have an option to purchase all of the shares of capital stock of MBI (and any Successor) the bankrupt at his Bankruptcy (the “Bankrupt”), and if such option is exercised, the Bankrupt’s estate (or legal representative, as the case may be), shall be obligated to sell to CIGI all of the shares of capital stock of MBI (and any Successor) owned by the Bankrupt (the “Shares”).

(ii) In the event the Bankruptcy of both Johnny Carrabba and Damian Mandola occurs within one hundred twenty (120) days of each other, CIGI shall have an option to purchase the entire Royalty Interest owned by MBI, and if such option is exercised, the Bankrupts’ estate (or legal representative, as the case may be), shall be obligated to cause MBI to sell to CIGI all of the Royalty Interest owned by MBI.

(c)  Limitation . Notwithstanding any contrary provision of this Section 6.6, the purchase options granted to CIGI pursuant to this Section 6.6 shall not apply if, and to the extent, upon the death or Bankruptcy of Johnny Carrabba, Damian Mandola or John Carrabba, Jr., such Bankrupt person’s Shares are devised or transferred to one or more persons, all of whom are Permitted Transferees as defined in Sections 6.4(b) and 6.4(c). If either of Johnny Carrabba or Damian Mandola shall become Bankrupt, then within the 120-day period described in Section 6.6(d), the one of Johnny Carrabba or Damian Mandola who is not bankrupt (or if such person is deceased the largest single transferee of his interest) shall have the right to purchase the shares of MBI owned by the Bankrupt and upon such purchase, CIGI shall not have any option to purchase such shares from the Bankrupt or his estate.

(d)  Exercise . The purchase options granted in this Section 6.6 are exercisable at any time within one hundred twenty (120) days from the date of qualification of the executor, administrator, trustee, personal representative or other legal representative (“Representative”) of the Bankrupt’s estate (the “Exercise Period”), and if not exercised within such time period shall lapse. CIGI shall exercise the options by written notice to the Representative of its election to exercise.

(e)  Purchase Price . The purchase price to be paid for the Bankrupt’s Shares or MBI’s Royalty Interest, as the case may be, shall be the Value thereof, determined as provided in Section 6.7 hereof. The purchase price to be paid by CIGI for the Royalty Interest or Shares purchased pursuant to this Section 6.6 shall be paid in cash or immediately available funds at Closing.

 

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(f)  Documentation . At the Closing of any purchase pursuant to this Section 6.6, the Representative or MBI, as the case may be, shall execute and deliver to CIGI such documents, affidavits and instruments of conveyance and warranty as are reasonably necessary, in the opinion of counsel for CIGI, to transfer, convey and validly vest in CIGI good, marketable and absolute title to the Royalty Interest or Shares being purchased, free and clear of any lien, claim, pledge, security interest, or other encumbrance of any kind or character whatsoever.

(g)  Closing . The Closing for any purchase pursuant to this Section 6.6 shall be held at the principal office of CIGI at a date and time mutually acceptable to CIGI and the Representative, provided that if they are unable to agree on a mutually acceptable date, the Closing shall be held sixty (60) days following final determination of Value pursuant to Section 6.7.

6.7  Value . For purposes of this Article VI only, the term “Value” shall mean the fair market value ( i.e. , the value at which a willing purchaser and a willing seller would, under normal circumstances, purchase and sell, both cognizant of all relevant factors, and neither being under a compulsion to buy or sell) of the Property in question, as of the date of the notice exercising any right to purchase or sell under this Agreement, determined in the following manner:

(a)  Agreement . In the event a determination of Value is required, such determination shall be made by agreement in writing of MBI or the Representative of a Bankrupt, as the case may be, (the “Seller”), on the one hand, and by CIGI (the “Purchaser”), on the other hand.

(b)  Procedure . If the persons specified in paragraph (a) of this Section 6.7 fail to agree in writing upon the Value of the property in question within thirty (30) days of the date of any notice given exercising any right to purchase (the “Agreement Period”), then the Value of such property shall be determined as follows, which determination shall be final, binding, and conclusive upon all persons affected by such determination:

(i) The Seller and the Purchaser shall agree upon a mutually acceptable appraiser within ten (10) days following the end of the Agreement Period, or, in the event such persons fail to so agree, two (2) appraisers shall be appointed within fifteen (15) days following the end of the Agreement Period, one by the Seller, and a second by the Purchaser. If the Seller, on the one hand, or the Purchaser, on the other hand, fail to appoint an appraiser within the fifteen (15) day time period specified herein, the sole appraiser appointed within such fifteen (15) day time period shall be the sole appraiser of the Value of the property in question. Each of the Seller and the Purchaser shall promptly provide notice of the name of the appraiser so appointed by such parties, respectively, to the other. A third appraiser, if the initial two appraisers are appointed, shall be appointed by the mutual agreement of the first two appraisers so appointed, or, if such first two appraisers fail to agree upon a third appraiser within twenty (20) days following the end of the Agreement Period, either the Seller or the Purchaser may

 

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demand that appointment of an appraiser be made by the then Director of the Regional Office of the American Arbitration Association located nearest to Tampa, Florida, in which event the appraiser appointed thereby shall be the third appraiser. Each of the three appraisers shall submit to each of the Seller and the Purchaser, within thirty (30) days after all appraisers have been appointed (the “Appraisal Period”), a written appraisal of the Value of the property in question.

(ii) In connection with any appraisal conducted pursuant to this Agreement, the parties hereto agree that any appraiser appointed hereunder shall be given full access during normal business hours to all books, records and files of the parties relevant to a valuation of the property in question.

(iii) If three appraisers are appointed, the Value of the property in question shall be equal to the numerical average of the three appraised determinations; provided, however, that if the difference between any two appraisals is not more than ten percent (10%) of the lower of the two, and the third appraisal differs by more than ten percent (10%) of the lower of the other two appraisals, the numerical average of such two appraisals shall be determinative.

(c)  Qualifications . Any appraiser, to be qualified to conduct an appraisal hereunder, shall be an independent appraiser ( i.e. , not affiliated with the Seller or the Purchaser), who shall be reasonably competent as an expert to appraise the value of the property in question. If any appraiser initially appointed under this Agreement shall, for any reason, be unable to serve, a successor appraiser shall be promptly appointed in accordance with the procedures pursuant to which the predecessor appraiser was appointed.

(d)  Time . Notwithstanding the foregoing, if the determination of the Value of the property in question by appraisal is not completed and all appraisal reports delivered as provided for herein within the Appraisal Period, then all closing, payment, and similar dates subsequent thereto shall be automatically extended one (1) day for each day delivery of the appraisal reports is delayed beyond the end of the Appraisal Period.

(e)  Costs . The costs of the appraiser appointed by the Seller shall be borne by the Seller. The costs of the appraiser ap


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