MASTER FRANCHISE AGREEMENT
TABLE OF CONTENTS
Page
1. DEFINITIONS......................................................... 1
1.1. "Affiliate"............................................ 1
1.2. "Business Day"........................................... 1
1.3. "Capitalized Lease".................................... 1
1.4. "Charter System"....................................... 1
1.5. "EBITDA"............................................... 1
1.6. "Fair Market Value of the Franchise"................... 1
1.7. "Franchise Agreement".................................. 2
1.8. "Franchised Business".................................. 2
1.9. "Hospital/RTC Based Behavioral Healthcare Business".... 2
1.10. "Interest"............................................. 2
1.11. "Joint Ventures"....................................... 2
1.12. "Licensed Marks"....................................... 2
1.13. "New Products"......................................... 2
1.14. "OpCo Franchise Agreements"............................ 2
1.15. "OpCo Franchisees"..................................... 2
1.16. "OpCo's Business"...................................... 2
1.17. "Prime Rate"........................................... 2
1.18. "Qualified Appraiser".................................. 2
1.19. "Supermajority Vote of the Board"...................... 3
1.20. "Territory"............................................ 3
1.21. "Transaction Documents"................................ 3
2. GRANT AND ACCEPTANCE OF FRANCHISE................................... 3
2.1. Existing Facilities................................... 3
2.2. New Facilities........................................ 3
2.3. Condition............................................. 4
3. GUARANTY OF FRANCHISEE OBLIGATIONS.................................. 4
3.1. Definition of "Obligations"........................... 4
3.2. Guaranty.............................................. 4
3.3. OpCo's Liability Absolute............................. 5
3.4. Additional Waivers.................................... 5
3.5. Parties Benefitted.................................... 6
3.6. Continuing Effect..................................... 6
3.7. Scope of Guaranty..................................... 6
4. TERM................................................................ 6
4.1. Initial Term.......................................... 6
4.2. Extended Term......................................... 6
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4.3. Determination of Annual Continuing Fee for Extended
Terms................................................. 7
4.4. Appraisal............................................. 7
4.5. New Annual Continuing Fee............................. 9
5. ANNUAL CONTINUING FEES.............................................. 9
5.1. Annual Continuing Fee................................. 9
5.2. Definition of "Contract Year"......................... 10
5.3. Monthly Installments.................................. 10
5.4. Annual Continuing Fee for Short Contract Year......... 10
5.5. Credit for Payments by OpCo Franchisees............... 10
5.6. Payment Following Contract Year End................... 10
5.7. Taxes................................................. 11
5.8. OpCo Gross Revenues................................... 11
5.9. Additional Remedies for Past Due Annual Continuing
Fees.................................................. 12
5.10. Subordination......................................... 12
5.11. Interest.............................................. 13
5.12. Negotiation of Fees................................... 13
6. THE CHARTER SYSTEM.................................................. 13
7. PREFERRED PROVIDER STATUS........................................... 13
8. OPERATION OF CALL CENTER............................................ 14
9. ENHANCEMENT OF THE CHARTER SYSTEM................................... 14
10. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING
AGREEMENTS.......................................................... 14
11. ADVERTISING AND MARKETING........................................... 15
11.1. Annual Expenditures................................... 15
11.2. Approval of Advertising............................... 15
12. STATEMENTS, RECORDS AND FEE PAYMENTS................................ 15
12.1. Maintenance of Records; Audit Rights.................. 15
12.2. Tax Reports........................................... 16
12.3. Reports............................................... 16
12.4. Unaudited Periodic Statements......................... 16
12.5. Audited Annual Statement.............................. 16
13. ADDITIONAL COVENANTS OF OPCO........................................ 16
13.1. Covenant During Term.................................. 16
13.2. Covenant Not to Compete Post-Term..................... 17
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13.3. Acknowledgment of Reasonableness...................... 17
13.4. Confidential Information.............................. 17
13.5. Confidential Agreements with Certain Employees........ 18
13.6. Severability.......................................... 18
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14. FRANCHISOR COVENANT NOT TO COMPETE.................................. 18
15. NEGATIVE COVENANTS OF OPCO.......................................... 18
15.1. Restriction of Indebtedness........................... 18
15.2. Restrictions on Liens................................. 19
15.3. Dividends and Redemptions............................. 19
15.4. Acquisitions and Investments.......................... 19
15.5. Liquidation; Merger; Disposition of Assets............ 19
15.6. Salaries and Other Compensation....................... 19
15.7. Affiliates............................................ 19
15.8. Business Activities................................... 19
15.9. No Bankruptcy......................................... 20
16. TRANSFER AND ASSIGNMENT............................................. 20
16.1. Assignment by Franchisor.............................. 20
16.2. Assignment by OpCo.................................... 20
16.3. Consent Not a Waiver.................................. 20
16.4. Consequences of Permitted Assignment to Crescent...... 20
16.5. Parties Bound and Benefitted.......................... 22
17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT.............................. 22
17.1. Franchisor's Right to Terminate....................... 22
17.2. OpCo's Right to Terminate............................. 22
17.3. Franchisor's Right to Participate in Involuntary
Bankruptcy Petition................................... 22
17.4. Other Remedies........................................ 22
18. INSURANCE........................................................... 23
18.1. Maintenance of Insurance.............................. 23
18.2. Notices of Claims under Insurance Policies............ 23
18.3. Notices of Other Claims/Events........................ 23
19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR.......................... 23
19.1. Indemnification and Hold Harmless..................... 23
19.2. Independent Contractor................................ 23
20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT............................ 24
20.1. Prior Approvals....................................... 24
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20.2. No Waiver............................................. 24
20.3. Written Amendments.................................... 24
21. ENFORCEMENT......................................................... 24
21.1. Inspections........................................... 24
21.2. No Right to Offset.................................... 24
22. REPRESENTATION OF FRANCHISOR........................................ 25
23. ENTIRE AGREEMENT.................................................... 25
24. NOTICES............................................................. 25
25. GOVERNING LAW AND DISPUTE RESOLUTION................................ 27
25.1. Governing Law......................................... 27
25.2. Arbitration/Litigation................................ 27
26. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS........................ 28
26.1. Severability.......................................... 28
26.2. Regulatory Reports.................................... 28
26.3. Counterparts.......................................... 28
26.4. Table of Contents, Headings and Captions.............. 29
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MASTER FRANCHISE AGREEMENT
THIS MASTER FRANCHISE AGREEMENT is made and entered into this _______
day of _______, 1997 by and between Charter Franchise Services, LLC (hereinafter
referred to as the "Franchisor"), with its principal office at
____________________________________, and Charter Behavioral Health Systems,
LLC, a Delaware limited liability company (hereinafter referred to as "OpCo")
whose principal address is ____________________________________.
W I T N E S S E T H :
In consideration of the mutual covenants hereinafter set forth, the parties
agree as follows:
1. DEFINITIONS
In addition to other words and terms defined elsewhere in this Agreement,
the following words and terms shall have the meanings set forth below:
1.1. "Affiliate" shall mean any person, firm or corporation, which,
directly or indirectly, controls, is controlled by, or is under common control
with, OpCo.
1.2. "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which banking institutions in the States of Texas and Georgia are
authorized by law or executive action to close.
1.3. "Capitalized Lease" shall mean any lease which is capitalized on the
books of the lessee, or should be so capitalized under generally accepted
accounting principles.
1.4. "Charter System" shall have the meaning ascribed to it in the recitals
to the Franchise Agreement.
1.5. "EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization of OpCo on a consolidated basis as shown on OpCo's monthly
financial statements regularly prepared by OpCo.
1.6. "Fair Market Value of the Franchise" shall mean, for the purposes of
determining the Annual Continuing Fee (as hereinafter defined) for each Extended
Term (as hereinafter defined), the amount which is the fair market value of the
rights granted to OpCo under and pursuant to this Agreement and the rights
granted to OpCo and OpCo Franchisees under and pursuant to the OpCo Franchise
Agreements, for a one-year period.
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1.7. "Franchise Agreement" shall mean the Charter Franchise Services, LLC
Franchise Agreement attached as Exhibit 1 hereto.
1.8. "Franchised Business" shall have the meaning ascribed to it in the
recitals to the Franchise Agreement.
1.9. "Hospital/RTC Based Behavioral Healthcare Business" shall have the
meaning ascribed to it in the recitals to the Franchise Agreement.
1.10. "Interest" shall have the meaning ascribed to it in the Operating
Agreement (as defined in Section 1.21).
1.11. "Joint Ventures" shall mean the "Existing Joint Ventures" (as listed
on Exhibit 3 hereto) and all other similar arrangements of OpCo for so long as
OpCo is an equity owner in any Joint Venture or so long as OpCo has a services
agreement with an Existing Joint Venture on the terms contemplated in Section
7.9 of the Contribution Agreement.
1.12. "Licensed Marks" shall have the meaning ascribed to it in the
recitals to the Franchise Agreement.
1.13. "New Products" shall have the meaning ascribed to it in Section 1.3
of the Franchise Agreement.
1.14. "OpCo Franchise Agreements" shall mean each and all of the Franchise
Agreements entered into pursuant to Article 2 of this Agreement.
1.15. "OpCo Franchisees" shall mean as of any particular date all of the
entities designated as Franchise Owners under and pursuant to the OpCo Franchise
Agreements except that OpCo Franchisees as of any particular date shall not
include any entity that is not OpCo or in which OpCo does not have voting
control through stock ownership.
1.16. "OpCo's Business" shall mean and include the business of OpCo and all
OpCo Franchisees on a consolidated basis.
1.17. "Prime Rate" shall mean the prime rate of interest published from
time to time by the Wall Street Journal.
1.18. "Qualified Appraiser" shall mean an appraiser who is not in control
of, controlled by or under common control with either OpCo or Franchisor and has
not been an employee of OpCo or Franchisor or any affiliate with respect to
either of OpCo or Franchisor at any time, who is qualified to appraise the Fair
Market Value of the Franchise, and has been actively engaged in the appraisal of
assets, rights, businesses and, to the extent reasonably practicable to locate
such an appraiser, an appraiser who has been actively engaged in the appraisal
of franchises, for a
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period of not less than five (5) years, immediately preceding his or her
appointment hereunder.
1.19. "Supermajority Vote of the Board" shall mean a vote of not less than
80% of the members of the entire Board of Directors of OpCo.
1.20. "Territory" shall have the meaning ascribed to it in Section 1.1 of
the Franchise Agreement.
1.21. "Transaction Documents" shall mean this Agreement, the OpCo Franchise
Agreements, the Master Lease Agreement dated _______________, 1997 by and
between Crescent Real Estate Equities Limited Partnership ("Crescent"), as
Landlord, and OpCo and each of the Facility Subsidiaries listed on Exhibit C
thereto, as Tenant (the "Facilities Lease"); the Operating Agreement of OpCo
dated __________, 1997 (the "Operating Agreement") by and between Franchisor and
Crescent Opportunity Corp., a Delaware corporation ("Crescent Opportunity"); the
Warrant Purchase Agreement dated __________, 1997 between Franchisor, Crescent
and Crescent Opportunity; the Warrant Purchase Agreement dated ______________,
1997 by and between Crescent Opportunity and Franchisor, the Real Estate
Purchase and Sale Agreement dated __________, 1997 by and between Franchisor and
Crescent; the Contribution Agreement dated __________, 1997 by and between
Franchisor and Crescent Opportunity, the Subordination Agreement dated
___________, 1997 between Franchisor, Crescent and OpCo, and the Bridge Loan
Agreement dated ___________, 1997 by and between OpCo and Franchisor.
2. GRANT AND ACCEPTANCE OF FRANCHISE
2.1. Existing Facilities. Subject to the terms and conditions hereof,
immediately following the execution of this Agreement, Franchisor shall enter
into a franchise agreement for each facility listed on Exhibit 2 hereto with the
subsidiary of OpCo which leases such facility, and OpCo agrees to cause each
subsidiary which operates a facility listed on Exhibit 2 to enter into a
franchise agreement with Franchisor. Each franchise agreement shall be in the
form of the Franchise Agreement, completed with the name of the Franchisee, the
name of the business, the Territory and the fees to be inserted in Section 4.2
thereof; all in accordance with Exhibit 4 hereto.
2.2. New Facilities. In the event that OpCo or a subsidiary of OpCo shall
during the term hereof develop, acquire or lease any additional Hospital/RTC
Based Behavioral Healthcare Business(es), Franchisor agrees to enter into a
franchise agreement with OpCo or with the subsidiary of OpCo developing,
acquiring or leasing each such Hospital/RTC Based Behavioral Healthcare
Business, subject to such Hospital/RTC Based Behavioral Healthcare Business's
meeting, and each facility at which such Hospital/RTC Based Behavioral
Healthcare Business is conducted meeting, Franchisor's reasonable standards and
requirements (which shall be consistent with, and not more onerous than, the
existing standards for OpCo Franchisees) and subject to such Hospital/RTC Based
Behavioral Healthcare Business's not having any of its facilities in the
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Hospital/RTC Based Behavioral Healthcare Business (i) in the Territory of any
other franchisee of Franchisor (subject to the franchisee affected thereby
either, at such franchisee's option, waiving the prohibition or agreeing to
amend such franchisee's franchise agreement to eliminate the conflict) or (ii)
in a geographic area wherein Franchisor is prohibited from granting a franchise
to operate a Hospital/RTC Based Behavioral Healthcare Business pursuant to any
judgment, order or decree or pursuant to any contractual provision existing
prior to the date of such development, acquisition or leasing. Each franchise
agreement entered into pursuant to this Section 2.2 shall be in the form of the
Franchise Agreement, completed with the name of the OpCo Franchisee, the name of
the business, the Territory, as reasonably specified by Franchisor utilizing the
guidelines set forth in Exhibit 5 hereto and the fees inserted in Section 4.2
(such fees to be as reasonably specified by Franchisor); it being understood
that for so long as such franchisee is an OpCo Franchisee, no additional fees
(other than such as result from increases in OpCo Gross Revenues) will be due to
Franchisor from OpCo.
2.3. Condition. Franchisor's obligation to enter into any Franchise
Agreement pursuant to Sections 2.1 and 2.2 hereof shall be subject to
Franchisor's having complied with all federal and state laws, rules and
regulations applicable to the execution and delivery of such Franchise
Agreement. OpCo agrees to cooperate with Franchisor, and Franchisor and OpCo
agree to use commercially reasonable best efforts to comply with all such laws,
rules and regulations.
3. GUARANTY OF FRANCHISEE OBLIGATIONS
3.1. Definition of "Obligations". The term "Obligations", as used in this
Article 3, shall refer to any and all debts, obligations, and liabilities of
each and every of the present and future OpCo Franchisees to Franchisor arising
out of or relating to the OpCo Franchisees' respective Franchise Agreements with
Franchisor, whether such Franchise Agreements and/or such debts, obligations and
liabilities are heretofore, now, or hereafter made, incurred, or created,
whether such debts, obligations and liabilities are voluntary or involuntary,
liquidated or unliquidated, secured or unsecured, and including but not limited
to contingent debts, obligations and liabilities, and including both principal
and interest on such debts, obligations or liabilities, and whether or not any
or all such debts, obligations and liabilities are or become unenforceable
against OpCo Franchisees as a result of the operation of bankruptcy or
insolvency laws.
3.2. Guaranty. OpCo hereby (a) unconditionally guarantees the full and
prompt payment and performance of the Obligations when due, whether by
acceleration or otherwise, (b) agrees to pay all costs, expenses and reasonable
attorneys' fees incurred by Franchisor in enforcing this guaranty and the
Obligations and realizing on any collateral therefor, and (c) agrees to pay to
Franchisor the amount of any payments which were made to Franchisor or another
in full or partial satisfaction of the Obligations and which are recovered from
Franchisor by a trustee, receiver, creditor or other party pursuant to
applicable law. This is a guarantee of payment, and not of collection.
Franchisor shall not be obligated to: (i) take any steps whatsoever to collect
from, or to file any claim of any kind against any OpCo Franchisee, any
guarantor, or any other person or entity liable for payment or performance of
any of the
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Obligations, or (ii) take any steps whatsoever to protect, accept, obtain,
enforce, take possession of, perfect its interest in, foreclose or realize on
collateral or security, if any, for the payment or performance of any of the
Obligations or any guarantee of any of the Obligations, or (iii) in any other
respect exercise any diligence whatever in collecting or attempting to collect
any of the Obligations by any means.
3.3. OpCo's Liability Absolute. OpCo shall have the right to assert any
defenses to enforcement of the Obligations that would be available to OpCo
Franchisees, other than defenses based on bankruptcy or insolvency laws.
However, except for the preceding sentence, OpCo's liability for payment and
performance of the Obligations shall be absolute and unconditional. OpCo
unconditionally and irrevocably waives each and every defense which, under
principles of guarantee or suretyship law, would otherwise operate to impair or
diminish such liability; and nothing whatever except actual full payment and
performance to Franchisor of the Obligations shall operate to discharge OpCo's
liability under this Article 3. Without limiting the generality of the
foregoing, Franchisor shall have the exclusive right, which may be exercised
from time to time without diminishing or impairing the liability of OpCo in any
respect, and without notice of any kind to OpCo, to: (a) in connection with the
relationship between Franchisor and any OpCo Franchisee under a Franchise
Agreement, extend any credit to any OpCo Franchisee, (b) accept any collateral,
security or guarantee for any Obligations or any other credit, (c) determine
how, when and what application of payments, credits and collections, if any,
shall be made on the Obligations and any other credit and accept partial
payments, (d) determine what, if anything, shall at any time be done with
respect to any collateral or security, (e) subordinate, sell, transfer,
surrender, release or otherwise dispose of all or any of such collateral or
security, and purchase or otherwise acquire any such collateral or security at
foreclosure or otherwise, and (f) with or without consideration grant, permit or
enter into any waiver, amendment, extension, modification, refinancing,
indulgence, compromise, settlement, subordination, discharge or release of: (i)
any of the Obligations and any agreement relating to any of the Obligations,
(ii) any obligations of any guarantor or other person or entity liable for
payment or performance of any of the Obligations, and any agreement relating to
such obligations and (iii) any collateral or security or agreement relating to
collateral or security for any of the foregoing, provided that, with respect to
(c) and (d) relating to collateral or security, Franchisor must deal with any
such collateral or security in a commercially reasonable manner.
3.4. Additional Waivers. OpCo hereby unconditionally waives (a)
presentment, notice of dishonor, protest, demand for payment and all notices of
any kind, including without limitation: notice of acceptance hereof, notice of
the creation of any of the Obligations (except as otherwise expressly required
in this Agreement), notice of nonpayment, nonperformance or other default on any
of the Obligations, and notice of any action taken to collect upon or enforce
any of the Obligations against any Franchise Owner (as defined in the preamble
to the Franchise Agreement), (b) any claim for contribution against any
co-guarantor, until the Obligations have been paid or performed in full and such
payments are not subject to any right of recovery, and (c) any setoffs against
Franchisor which would otherwise impair Franchisor's rights against OpCo
hereunder.
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3.5. Parties Benefitted. Subject to Section 16.1 below, the rights of
Franchisor under this Article 3 shall inure to the benefit of Franchisor and its
successors and assigns, including every holder or owner of any of the
Obligations, and shall be binding upon OpCo and OpCo's successors and assigns.
3.6. Continuing Effect. This is a continuing guarantee and shall continue
in effect as to those of the Obligations arising out of or relating to each OpCo
Franchise Agreement until Franchisor shall have received written notice of
termination of that OpCo Franchise Agreement (hereinafter, a "Terminated
Agreement") in accordance with its terms; provided that this guarantee shall
continue in effect thereafter with respect to all Obligations which arise out of
or are related to all OpCo Franchise Agreements of which such notice shall not
have been received, and with respect to all Obligations which were incurred
under a Terminated Agreement prior to Franchisor's receipt of such notice of
termination.
3.7. Scope of Guaranty. Nothing contained in this Article 3 shall cause the
cumulative liability of OpCo and any OpCo Franchisee for any particular
Obligation to exceed the amount of such Obligation; and the payment by OpCo, an
OpCo Franchisee or another person (other than Franchisor) in full or partial
satisfaction of any particular Obligation shall correspondingly reduce the
liability of OpCo and the particular OpCo Franchisee for such Obligation,
subject to subsection 3.2(c) above.
4. TERM
4.1. Initial Term. Unless sooner terminated pursuant to Article 16 hereof,
this Agreement shall extend for an initial term (the "Initial Term") ending on
the day prior to the anniversary date that is twelve (12) years from the date
hereof, provided that if the date hereof is not the first day of a calendar
month, then the Initial Term shall end on the last day of the calendar month in
which occurs the date which would otherwise be the last day of the Initial Term.
4.2. Extended Term. Provided that OpCo shall be in compliance with the
terms and conditions hereof, and this Agreement shall be in full force and
effect, OpCo shall, subject to Section 4.4 below, have the right to extend the
term of this Agreement, for each of four (4) consecutive five (5)-five year
renewal terms (collectively, the "Extended Terms").
Each Extended Term shall commence on the day succeeding the expiration of
the Initial Term or the preceding Extended Term, as the case may be. All of the
terms, covenants and provisions of this Agreement shall apply to each such
Extended Term, except that (x) the Annual Continuing Fee for each Extended Term
shall be the Fair Market Value of the Franchise as determined for such Extended
Term and shall be determined pursuant to Section 4.4 below and (y) OpCo shall
have no right to extend the Term beyond the expiration of the Extended Terms. If
OpCo shall elect to exercise any of the aforesaid options, it shall do so by
giving Franchisor notice thereof not later than one (1) year prior to the
scheduled expiration of the then current term
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of this Agreement (Initial Term or Extended Term, as the case may be), it being
understood and agreed that time shall be of the essence with respect to the
giving of such notice. OpCo may not exercise its option for more than one such
Extended Term at a time. If OpCo shall fail to give any such notice, this
Agreement shall automatically terminate at the end of the term then in effect
and OpCo shall have no further option to extend the term of this Agreement. If
OpCo shall give such notice, the extension of this Agreement shall be
automatically effected without the execution of any additional documents; it
being understood and agreed, however, that OpCo and Franchisor shall execute
such documents and agreements as either party shall reasonably require to
evidence the same. Notwithstanding the provisions of the previous sentence, if,
subsequent to the giving of notice of its election to exercise its right to
extend the term of this agreement OpCo shall cease to be in compliance with the
terms and conditions hereof and such non-compliance shall be continuing, unless
Franchisor shall otherwise consent in writing, the extension of this agreement
shall automatically terminate at the end of the Initial Term or Extended Term
then in effect, and OpCo shall have no further option to extend the term of this
Agreement.
4.3. Determination of Annual Continuing Fee for Extended Terms. The Annual
Continuing Fee for each Extended Term shall be determined by the mutual
agreement of OpCo and Franchisor within thirty (30) days after Franchisor
receives OpCo's notice exercising its option to extend with respect to such
Extended Term, but in no event earlier than twelve (12) months prior to the
commencement of the applicable Extended Term. In the event OpCo and Franchisor
are unable to agree on the Annual Continuing Fee for such Extended Term within
such period, such Annual Continuing Fee shall be determined pursuant to
appraisal in accordance with Section 4.4 below.
4.4. Appraisal. In the event that it becomes necessary to determine the
Fair Market Value of the Franchise and the parties cannot agree thereon, such
Fair Market Value of the Franchise shall be determined upon the written demand
of either party in accordance with the following procedure.
The party requesting an appraisal, by notice given to the other, shall
propose and unilaterally approve a Qualified Appraiser. The other party, by
notice given within fifteen (15) days after receipt of such notice appointing
the first Qualified Appraiser, may appoint a second Qualified Appraiser. If the
other party fails to appoint the second Qualified Appraiser within such fifteen
(15)-day period, such party shall have waived its right to appoint a Qualified
Appraiser, the first Qualified Appraiser shall appoint a second Qualified
Appraiser within fifteen (15) days thereafter, and the Fair Market Value of the
Franchise shall be determined by the Qualified Appraisers as set forth below.
The two Qualified Appraisers shall thereupon endeavor to agree upon the
Fair Market Value of the Franchise. If the two Qualified Appraisers so named
cannot agree upon such value within thirty (30) days after the designation of
the second such appraiser, each such appraiser shall, within five (5) days after
the expiration of such thirty (30)-day period, submit his appraisal of the Fair
Market Value of the Franchise to the other appraiser in writing, and if the fair
market
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values set forth in such appraisals vary by five percent (5%) or less of the
greater value, the Fair Market Value of the Franchise shall be determined by
calculating the average of the two fair market values determined by the two
appraisers.
If the fair market values set forth in the two appraisals vary by more than
five percent (5%) of the greater value, the two Qualified Appraisers shall
select a third Qualified Appraiser within an additional fifteen (15) days
following the expiration of the aforesaid five (5)-day period. If the two
appraisers are unable to agree upon the appointment of a third appraiser within
such fifteen (15)-day period, either party may, upon written notice to the
other, request that such appointment be made by any state court of competent
jurisdiction for the State of Delaware.
In the event that all three of the appraisers cannot agree upon the Fair
Market Value of the Franchise within twenty (20) days following the selection of
the third appraiser, each appraiser shall, within ten (10) days thereafter,
submit his appraisal of the Fair Market Value of the Franchise to the other two
appraisers in writing, and the Fair Market Value of the Franchise shall be
determined by calculating the average of the two numerically closest values (or,
if the values are equidistant, the average of all three values) determined by
the three appraisers.
In the event that any appraiser appointed hereunder does not or is unable
to perform his or her obligation hereunder, then the party or the appraisers
appointing such appraiser shall have the right to propose and approve
unilaterally a substitute Qualified Appraiser, but if the party or the
appraisers who have the right to appoint a substitute Qualified Appraiser fail
to do so within ten (10) days after written notice from the other party (or
either party in the event such appraiser was appointed by the other appraisers),
either party may, upon written notice to the party having the right to appoint a
substitute Qualified Appraiser, request that such appointment be made by such
court of competent jurisdiction as described above; provided, however, that a
party who has the right to appoint an appraiser or a substitute appraiser shall
have the right to make such appointment only up until the time such appointment
is made by such court.
The parties agree that the Annual Continuing Fee for the Initial Term
provided for in Section 5.1 shall not be evidence of the Fair Market Value of
the Franchise for any Extended Term.
In connection with the appraisal process, OpCo shall and shall cause OpCo
Franchisees to provide the appraisers full access during normal business hours
to examine the books, records, files and facilities of OpCo and all OpCo
Franchisees.
The costs of each such appraisal shall be borne equally by the parties.
Upon determining such value, the appraisers shall promptly notify OpCo and
Franchisor in writing of such determination. The determination of the Qualified
Appraisers made in accordance with the foregoing provisions shall be final and
binding upon the parties, such
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determination may be entered as an award in arbitration in a court of competent
jurisdiction, and judgment thereon may be entered.
Notwithstanding anything in this Agreement to the contrary, if the Annual
Continuing Fee for any Extended Term as determined by appraisal pursuant to this
Section 4.4 is not satisfactory to Franchisor in Franchisor's sole discretion,
or if Crescent elects to void OpCo's extension of the Facilities Lease with
respect to such Extended Term pursuant to Article 19 of the Facilities Lease,
then Franchisor shall have the right to render void OpCo's election to extend
the term with respect to such Extended Term upon notice given to OpCo no later
than thirty (30) days following the later of the determination of the Annual
Continuing Fee pursuant to this Section 4.4, or Crescent's election to render
void the extension of the Facilities Lease pursuant to the Facilities Lease, in
which event this Agreement shall expire on the last day of the Initial Term or
the then current Extended Term, as applicable.
4.5. New Annual Continuing Fee. The Fair Market Value of the Franchise, as
agreed by the parties or as determined by the Qualified Appraisers shall be the
Annual Continuing Fee provided for in Section 5.1 below, for the succeeding
Extended Term.
5. ANNUAL CONTINUING FEES
5.1. Annual Continuing Fee. For each "Contract Year" (as hereinafter
defined) during the Initial Term, OpCo shall pay to Franchisor, subject to the
terms of Section 5.4 below, an annual continuing fee (the "Annual Continuing
Fee") in the amount of the greater of:
(a) Eighty-one Million Dollars ($81,000,000) plus an amount calculated
by multiplying Eighty-one Million Dollars ($81,000,000) by the percentage
increase in the Consumer Price Index, United States City Average for All
Urban Consumers for All items (as published by the U.S. Department of
Labor, Bureau of Labor Statistics) (the "CPI") between the end of the
latest period for which said index has been published prior to the date of
this Agreement and the end of the latest period for which said index has
been published prior to the first day of said Contract Year (the "Minimum
Annual Continuing Fee"), except that no adjustment to the Minimum Annual
Continuing Fee shall be made for the second Contract Year (Contract Year
beginning October 1, 1997); it being understood that the adjustment made
for the third Contract Year (Contract Year beginning October 1, 1998) shall
take into consideration the change in the CPI between the end of the latest
period for which said index has been published prior to the date of this
Agreement and the end of the latest period for which said index has been
published prior to the first day of the third Contract Year; or
(b) Eighty-one Million Dollars ($81,000,000) plus (i) 3% of OpCo Gross
Revenues above One Billion Dollars ($1,000,000,000) and up to and including
One Billion, Two Hundred Million Dollars ($1,200,000,000) during said
Contract Year, and
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(ii) 5% of OpCo Gross Revenues above One Billion, Two Hundred Million
Dollars ($1,200,000,000) during said Contract Year.
5.2. Definition of "Contract Year". As used in this Article 5, the term
"Contract Year" shall refer to any period which begins on the date of this
Agreement or any succeeding October 1 and ends on the earlier of the following
September 30 or the effective date of expiration or termination of this
Agreement.
5.3. Monthly Installments. During each Contract Year, OpCo shall make
monthly installments against the Annual Continuing Fee for said Contract Year.
During the first and second Contract Years, each such monthly installment shall
be equal to 1/12th of the Minimum Annual Continuing Fee for said Contract Year.
During each subsequent Contract Year, each such monthly installment shall be
equal to 1/12th of the greater of (a) the Minimum Annual Continuing Fee for said
Contract Year or (b) the Annual Continuing Fee for the preceding Contract Year.
The first monthly installment shall be paid on the date of this Agreement; and
subsequent installments shall be paid on or before the first day of each
subsequent calendar month during the Initial Term and each Extended Term of this
Agreement.
5.4. Annual Continuing Fee for Short Contract Year. If the term of this
Agreement includes any Contract Year of less than 365 days (i.e., because the
date of this Agreement or the effective date of expiration or termination of
this Agreement is in the middle of a Contract Year), the Annual Continuing Fee
for such Contract Year shall be the greater of:
(a) the product of the Minimum Annual Continuing Fee for said Contract
Year times a fraction the numerator of which is the number of days that
this Agreement was in effect during said Contract Year (the "Effective
Days") and the denominator of which is 365, or
(b) the product of the amount calculated pursuant to subsection 5.1(b)
above (provided, however, that for purposes of said calculation the "OpCo
Gross Revenues" for said Contract Year shall be "OpCo Gross Revenues" as
defined in Section 5.8 below for said Contract Year times a fraction the
numerator of which is 365 and the denominator of which is the Effective
Days), times a fraction the numerator of which is the Effective Days and
the denominator of which is 365.
5.5. Credit for Payments by OpCo Franchisees. Amounts paid by OpCo
Franchisees to Franchisor, if any, pursuant to Article 4 of the respective
Franchise Agreements shall reduce dollar for dollar OpCo's obligation pursuant
to Sections 5.1, 5.3 and 5.4 above.
5.6. Payment Following Contract Year End. If the aggregate dollar amount of
payments delivered by OpCo to Franchisor in payment of the Annual Continuing Fee
in respect of any Contract Year pursuant to Section 5.3 above is different than
the Annual Continuing Fee for said
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Contract Year, a payment in the amount of such overpayment or underpayment shall
be made by the appropriate party within seventy-five (75) days after the end of
said Contract Year.
5.7. Taxes. OpCo shall pay to Franchisor the amount of all sales taxes, use
taxes, and similar taxes imposed upon or required to be collected on account of
the Annual Continuing Fee and of goods or services furnished to OpCo and OpCo
Franchisees by Franchisor, whether such goods or services are furnished by sale,
lease or otherwise.
5.8. OpCo Gross Revenues. "OpCo Gross Revenues" shall mean the sum of:
(a) the Gross Revenues (as defined in the Franchise Agreement) of all
OpCo Franchisees.
Plus,
(b) unless otherwise agreed by Franchisor and OpCo pursuant to Article
10 for any Joint Venture or Managed Business (as defined below), the gross
revenues ("Business Gross Revenues") of all the businesses which are the
subject of Joint Ventures (the "Joint Venture Businesses") and the
businesses which are the subject of management agreements and other
agreements and arrangements of OpCo pursuant to which OpCo provides
management, consulting or other services for so long as any such agreements
or arrangements are in effect (the "Managed Businesses"). "Business Gross
Revenues" shall mean the aggregate gross patient charges from each of the
Joint Venture Businesses and each of the Managed Businesses at established
billing rates less provision for contractual adjustments and provision for
denied claims (where collection is not pursued directly from the patient),
determined in accordance with generally accepted accounting principles, and
the gross amount of all other revenues from whatever source derived
(whether in form of cash, credit, agreements to pay, or other
consideration, and whether or not payment is received at the time of the
sale or provisions of services) which arise from or are derived by each of
the Joint Venture Businesses and each of the Managed Businesses, or any
other person affiliated with such business, directly or indirectly from
products or services sold or provided directly or indirectly by each of the
Joint Venture Businesses and each of the Managed Businesses or from the
sale of products or services associated with the use of the Licensed Marks.
Business Gross Revenues shall not include amounts not actually collected
(bad debts) to the extent that such have been included in Business Gross
Revenues reported to Franchisor for prior periods.
Plus,
(c) the gross amounts of all OpCo's revenues from whatever source
derived (whether in the form of cash, credit, agreements to pay, or other
consideration, and whether or not payment is received at the time of the
sale or provision of services), which arise from or are derived by OpCo, or
any person affiliated with OpCo, directly or indirectly from
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products or services sold or provided directly or indirectly by OpCo or
from the sale of services or products associated with the use of the
Licensed Marks, excluding any amounts received by OpCo from any OpCo
Franchisee the Gross Revenues of which are included in OpCo Gross Revenues
pursuant to (a) above, and excluding any amounts received by OpCo from
Joint Venture Businesses and Managed Businesses, the Business Gross
Revenues of which are included in OpCo Gross Revenues pursuant to (b)
above.
5.9. Additional Remedies for Past Due Annual Continuing Fees. In
addition to all other rights and remedies provided for herein and at law or
in equity, subject to the Subordination Agreement in the event that there
are Annual Continuing Fees past due from OpCo to Franchisor, Franchisor
shall have the rights, exercisable upon written notice to OpCo, set forth
in the table below opposite the amount past due:
RIGHTS OF FRANCHISOR/
AMOUNT IN ARREARS PROHIBITED ACTIONS BY OPCO
===================== =========================================================
$ 6,000,000 or more 1. Right to prohibit any incentive compensation to
OpCo management.
2. Right to prohibit any vesting of OpCo
management equity.
$18,000,000 or more 1. Right to prohibit any salary increases for key
personnel of OpCo.
2. Right to prohibit any additional hiring by OpCo.
3. Right to prohibit any new hospital
acquisitions/joint ventures directly or indirectly.
Above $24,000,000 1. Right to require five percent (5%) cutback on
budgeted expenses under the then current
approved OpCo annual budget.
2. Right to require monthly approval of
expenditures of the OpCo Business by
Franchisor, including capital and operating
expenditures.
3. Right to require transfer of control and
management of OpCo and of Franchised
Businesses of OpCo Franchisees to Franchisor.
===================== =========================================================
Rights are cumulative. OpCo agrees that, upon the exercise of any such right by
Franchisor, OpCo will cease taking any prohibited action and will take the
action required by Franchisor and will otherwise cooperate with Franchisor in
carrying out the purpose and intent of this Section.
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5.10. Subordination. Franchisor's right to receive the payments required to
be made by OpCo pursuant to this Article 5 is subject to the Subordination
Agreement.
5.11. Interest. OpCo shall pay to Franchisor interest on any amounts which
are past due at the lower of the maximum rate permitted by law or the Prime
Rate, plus six percent (6%) per annum; provided however that interest shall not
accrue on past due amounts (i) to the extent Franchisor does not receive such
payments as a result of the operation of the Subordination Agreement and (ii) to
the extent OpCo fails to achieve EBITDA sufficient to pay such amounts, subject
to OpCo's having during such period operated in accordance with OpCo's
then-current annual budget approved by OpCo's Board of Directors.
5.12. Negotiation of Fees. Each party hereby acknowledges that: (a) the
Annual Continuing Fee payable pursuant to this Article 5 was established during
the course of extensive, good faith, arms-length negotiations between the
parties, in which each party was represented by counsel and advised by
accountants, which professionals are familiar with the healthcare industry and
franchising, and (b) it is fully satisfied that the Annual Continuing Fee
payable pursuant to this Article 5 represents the present, and (as applicable)
reasonably anticipated during the Initial Term, Fair Market Value of the
Franchise.
6. THE CHARTER SYSTEM
Franchisor hereby grants to OpCo the right and license to utilize the
Charter System in connection with the management and administration of the
businesses franchised by Franchisor pursuant to Article 2 hereof, the management
and administration of the businesses of the Existing Joint Ventures, the
existing Managed Businesses and all New Arrangements pursuant to Article 10. In
connection with the use of the Charter System in connection with the management
and administration of such businesses, OpCo shall conform and comply with all
covenants, rules, regulations, terms, conditions and procedures which are and
may hereafter be reasonably required by Franchisor as applicable to the use by
OpCo Franchisees of the Charter System under and pursuant to the OpCo Franchise
Agreements, as applicable to OpCo's management and administration of such
businesses. Upon expiration or termination of this Agreement OpCo shall conform
and comply with all covenants, rules, regulations, terms, conditions and
procedures which are or may hereafter be applicable to the discontinuance by
OpCo Franchisees of the use of the Charter System under and pursuant to the OpCo
Franchise Agreement (including under Article 13 of the OpCo Franchise
Agreements), as applicable to OpCo's business under and pursuant to the Charter
System and the discontinuance thereof.
7. PREFERRED PROVIDER STATUS
Franchisor shall use commercially reasonable best efforts, subject to
applicable law, to cause OpCo Franchisees to have "preferred provider" status in
connection with Franchisor's managed behavioral healthcare business on a basis
substantially consistent with existing covenants, terms and conditions, unless
the customer directs otherwise.
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8. OPERATION OF CALL CENTER
Franchisor agrees to continue to operate or will provide a toll free "800"
telephone number and related call center (the "800 Call Center"), to provide
substantially the same services to OpCo Franchisees as those provided by the 800
Call Center operating immediately prior to the execution of this Agreement,
subject to such modifications as Franchisor deems advisable from time to time to
comply with applicable law or subject to such restructuring as OpCo and
Franchisor shall agree. Each party agrees to use commercially reasonable best
efforts to negotiate any such restructuring to comply with applicable law. OpCo
shall have the right to and agrees to cause OpCo Franchisees to advertise the
"800" telephone number and otherwise cooperate with Franchisor to use the 800
Call Center as a means of assisting customers to locate the places of business
of franchisees of Franchisor.
9. ENHANCEMENT OF THE CHARTER SYSTEM
Franchisor and OpCo agree to cooperate in the creation, enhancement and
updating of written manuals and materials setting forth the treatment,
financial, legal and other protocols, programs and procedures, quality
standards, quality assessment methods, performance improvement and monitoring
programs and other matters comprising the Charter System. Such manuals and other
materials (together "Charter System Materials") shall be prepared in a manner
suitable for use by Franchisor in franchising others to use the Charter System.
No changes shall be made by OpCo or OpCo Franchisees to the Charter System or
the Charter System Materials without the express written consent of Franchisor,
which consent shall not be unreasonably withheld. All protocols, programs,
procedures, standards and methods, and all Charter System Materials shall be
owned by Franchisor and used by OpCo and OpCo Franchisees only under and
pursuant to this Agreement and the OpCo Franchise Agreements.
10. MANAGEMENT CONTRACTS/JOINT VENTURES/CONSULTING AGREEMENTS
OpCo agrees during the continuance of this Agreement that it will not enter
into any new management agreements, joint ventures or consulting or other
agreements relating to a Hospital/RTC Based Behavioral Healthcare Business ("New
Arrangements") except (i) in the event a Franchise Agreement is entered into by
Franchisor with respect to such business, or (ii) with the written consent of
Franchisor in each instance, and in each instance in which Franchisor shall have
provided such written consent, Franchisor and OpCo, prior thereto, shall have
agreed (i) to the payment to Franchisor, in addition to all other amounts
payable pursuant to this Agreement, of a percentage of OpCo's gross receipts
from such New Arrangement agreeable to OpCo and Franchisor or (ii) to the
inclusion in OpCo Gross Revenues of the Business Gross Revenues of any such
Joint Venture or Managed Business.
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11. ADVERTISING AND MARKETING
11.1. Annual Expenditures. OpCo agrees that, in each year during the
continuance of this Agreement, OpCo and OpCo Franchisees will expend such amount
on advertising and marketing the Charter System and the OpCo Franchisees'
businesses as is at least equal to the amount budgeted by OpCo in good faith
pursuant to its then-current annual budget for such expenditures. If Franchisor
determines that the amount so budgeted by OpCo in its approved annual budget for
any year is significantly higher or lower than advisable, OpCo will establish a
budget for such expenditures by Supermajority Vote of the Board. OpCo shall from
time to time at the request of Franchisor upon reasonable prior notice provide
to Franchisor reports of OpCo of such expenditures.
11.2. Approval of Advertising. All advertising by OpCo and OpCo Franchisees
shall be in such media, and of such type and format as Franchisor may reasonably
approve; shall be conducted in a dignified manner and shall conform to such
standards and requirements as Franchisor may reasonably specify. Advertising
approved by Franchisor as meeting the requirements of the preceding sentence
shall continue to be deemed approved unless and until Franchisor shall notify
OpCo otherwise. OpCo and OpCo Franchisees shall not use any advertising or
promotional plans or materials not prepared by Franchisor unless and until OpCo
and OpCo Franchisees have received written approval from Franchisor following
the submission of samples thereof to Franchisor. If written approval is not
received by OpCo and OpCo Franchisees from Franchisor or its designee within
fifteen (15) days of the date of receipt by Franchisor of such samples,
Franchisor shall be deemed to have disapproved such samples.
12. STATEMENTS, RECORDS AND FEE PAYMENTS
12.1. Maintenance of Records; Audit Rights. OpCo shall, in a manner
reasonably satisfactory to Franchisor, maintain original, full and complete
records, accounts, books, data, licenses, contracts and invoices which shall
accurately reflect all particulars relating to OpCo's Business and such
statistical and other information or records as Franchisor may require and shall
keep all such information for not less than three (3) years, even if this
Agreement is no longer in effect. OpCo shall compile and provide to Franchisor
any statistical or financial information regarding the operation of OpCo's
Business, the services and products sold by it, or data of a similar nature as
Franchisor may reasonably request. Franchisor and its designated agents shall
have the right to examine and audit such records, accounts, books and data at
all reasonable times to insure that OpCo is complying with the terms of this
Agreement. In connection with any such examination or audit, Franchisor shall
not be entitled to any adjustment to the extent that OpCo Gross Revenues have
been computed in accordance with Section 5.8 and in accordance with generally
accepted accounting principles consistently applied. If such inspection
discloses, and it is ultimately determined, that the OpCo Gross Revenues during
any scheduled reporting period actually exceeded the amount reported by OpCo as
OpCo Gross Revenues by an amount equal to two percent (2%) or more of the OpCo
Gross Revenues originally reported to Franchisor, OpCo shall bear the cost of
such inspection and audit (not including any premium or contingent fee
arrangement) and shall pay any such deficiency with interest from the date due,
until paid, at the lesser of the highest rate
15
permitted by applicable law or the Prime Rate, plus six percent (6%) per annum,
immediately upon the request of Franchisor.
12.2. Tax Reports. Upon Franchisor's request, OpCo shall furnish Franchisor
with a copy of each of OpCo's and OpCo Franchisee's reports and returns of
sales, use and gross receipt taxes and complete copies of any state or federal
income tax returns covering the operation of the OpCo Business.
12.3. Reports. Upon Franchisor's request, OpCo shall furnish Franchisor
with a copy of each of OpCo's and all OpCo Franchisees' reports required under
applicable federal and state laws, rules and regulations, including but not
limited to such reports required under "Medicare" and "Medicaid" laws, rules and
regulations.
12.4. Unaudited Periodic Statements. OpCo shall prepare and deliver to
Franchisor on a quarterly basis, no later than twenty-five (25) days following
the close of each fiscal quarter of OpCo, an unaudited profit and loss statement
in a form reasonably satisfactory to Franchisor covering OpCo's Business for the
prior fiscal quarter and fiscal year to date and showing OpCo Gross Revenues for
the prior fiscal quarter and fiscal year to date, all of which shall be
certified by OpCo to present fairly in all material respects such matters. OpCo
shall also submit to Franchisor no later than twenty-five (25) days following
the close of each fiscal quarter of OpCo during the term of this Agreement, an
unaudited balance sheet reflecting the financial position of the OpCo's Business
as of the preceding fiscal quarter end.
12.5. Audited Annual Statement. In addition to the foregoing unaudited
statements, within 75 days after the close of each fiscal year of OpCo, OpCo
shall furnish to Franchisor, at OpCo's expense, an audited statement of income
and retained earnings of OpCo's Business for such fiscal year and an audited
balance sheet of OpCo's Business as of the end of such fiscal year, all prepared
in accordance with generally accepted accounting principles and certified to by
a certified public accountant. Such financial statements shall be accompanied by
a certificate of such certified public accountant certifying OpCo Gross Revenues
for the prior year.
13. ADDITIONAL COVENANTS OF OPCO
13.1. Covenant During Term. During the Term of this Agreement, OpCo
covenants not to engage directly or indirectly as an owner, operator, in any
managerial capacity, or otherwise in any business (i) other than as a franchisee
of the Charter System pursuant to a Franchise Agreement; (ii) other than
pursuant to an agreement with Franchisor with regard to one or more New
Products; (iii) other than pursuant to New Arrangements; (iv) other than OpCo's
business of the management and administration of the businesses franchised by
Franchisor pursuant to Article 2 hereof or pursuant to the Joint Ventures, or
businesses conducted by OpCo Franchisees with regard to one or more New
Products.
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13.2. Covenant Not to Compete Post-Term. Following the termination or
expiration of this Agreement and for a period expiring on the earlier of three
(3) years following the expiration or termination of this Agreement or the
thirty-second anniversary of the date of this Agreement, OpCo covenants not
directly or indirectly to engage as an owner, operator, or in any managerial
capacity (i) in any Hospital/RTC Based Behavioral Healthcare Business, or (ii)
in any business with respect to a New Product, other than pursuant to a written
agreement with Franchisor; provided, however, that OpCo shall not be prohibited
hereby from owning equity securities of any such businesses whose shares are
traded on a stock exchange or on the over-the-counter market so long as the
ownership interest represents five percent (5%) or less of the total number of
outstanding shares of such business. The geographic area of the restrictions
provided for in this Section 13.2 shall be limited to (i) the Territories of the
OpCo Franchisees at the date of the termination or expiration of this Agreement
and during the two years prior thereto, which Territories shall, from time to
time, be included in Exhibit 3 hereto; (ii) the geographic areas within a ten
(10) mile radius of any Joint Venture Business and Managed Business in existence
at the date of the expiration or termination of this Agreement, which shall from
time to time be included as a part of Exhibit 3 hereto, and (iii) and the
geographic areas within a ten (10) mile radius of any place of business of OpCo
at the date of the expiration or termination of this Agreement.
13.3. Acknowledgment of Reasonableness. The parties hereto acknowledge that
the provisions of Sections 13.1 and 13.2 have been negotiated fully and fairly
by the parties, each being represented and advised by counsel. OpCo acknowledges
that it is willingly and freely agreeing to the provisions of Section 13.1 and
13.2 as reasonable and necessary under the circumstances. One of the
acknowledged reasonable business purposes of Franchisor is to protect
Franchisor's goodwill and proprietary rights. OpCo further acknowledges that
Franchisor would not enter into this Agreement without the covenants of Sections
13.1 and 13.2 and that it is fair and reasonable to OpCo that OpCo be subject to
such covenants.
13.4. Confidential Information. During the Term of this Agreement and
following the expiration or termination of the Agreement, OpCo covenants not to
communicate directly or indirectly, nor to divulge to or use for its benefit or
the benefit of any other person or legal entity, any trade secrets which are
proprietary to Franchisor or any information, knowledge or know-how deemed
confidential by Franchisor pursuant to Section 10.4 of the Franchise Agreement,
except as permitted by Franchisor. Notwithstanding the foregoing, this
obligation shall not apply to information: (a) which at the time of disclosure
is readily available to the trade or public; (b) which after disclosure becomes
readily available to the trade or public, other than through breach of this
Agreement; (c) which is subsequently lawfully and in good faith obtained by such
party from an independent third party without breach of this Agreement; (d)
which was in possession of such party prior to the date of disclosure; or (e)
which is disclosed to others in accordance with the terms of a prior written
authorization between the parties to this Agreement. In the event of any
termination, expiration or non-renewal of this Agreement, OpCo agrees that it
will never use Franchisor's confidential information, trade secrets, methods of
operation or any proprietary components of the Charter System in the design,
development or operation of any behavioral healthcare business, including,
without limitation, any Hospital/RTC Based Behavioral Healthcare Business. The
17
protection granted hereunder shall be in addition to and not in lieu of all
other protections for such trade secrets and confidential information as may
otherwise be afforded in law or in equity.
13.5. Confidential Agreements with Certain Employees. Consistent with
Franchisor's existing policies with respect to employee non-disclosure
agreements, OpCo agrees to maintain and cause new employees of OpCo to execute
employee non-disclosure agreements, in the form employed by Franchisor as of the
date hereof (or such other form as reasonably requested by Franchisor), which
shall prohibit disclosure by such parties to any other person or legal entity of
any trade secrets or any other information, knowledge or know-how deemed
confidential by Franchisor concerning the operation of the Charter System.
Franchisor shall be a third party beneficiary of such agreements and OpCo shall
not amend, modify or terminate any such agreement without Franchisor's prior
written consent.
13.6. Severability. The parties agree that each of the foregoing covenants
shall be construed as independent of any other covenant or provision of this
Agreement. Should any part of one or more of these restrictions be found to be
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and should such part be capable of being made
enforceable by reduction of any or all thereof, OpCo and Franchisor agree that
the same shall be enforced to the fullest extent permissible under the law. In
addition, Franchisor may, unilaterally, at any time, in its sole discretion,
revise any of the covenants in this Section 13 so as to reduce the obligations
of OpCo hereunder. The running of any period of time specified in this Section
13 shall be tolled and suspended for any period of time in which OpCo is found
by a court of competent jurisdiction to have been in violation of any
restrictive covenant. OpCo further expressly agrees that the existence of any
claim it may have against Franchisor whether or not arising from this Agreement,
shall not constitute a defense to the enforcement by Franchisor of the covenants
in this Article 13.
14. FRANCHISOR COVENANT NOT TO COMPETE
Franchisor agrees that OpCo shall be a third-party beneficiary of the
covenants set forth in Section 1 of each of the OpCo Franchise Agreements as and
to the extent such restrict Franchisor from engaging in certain businesses and
as such shall have full rights to enforce such covenants.
15. NEGATIVE COVENANTS OF OPCO
In the event that pursuant to Section 15 of the Operating Agreement
Franchisor sells its entire Interest in OpCo, from and after the close of the
sale of Franchisor's entire Interest (a "Buy/Sell Event"), OpCo shall not do any
of the following, without the prior written consent of Franchisor:
15.1. Restriction of Indebtedness. Create, incur or assume any indebtedness
for borrowed money or the deferred purchase price of any asset (including
obligations under Capitalized Leases), except indebtedness subordinated to all
debts, obligations and liabilities of OpCo to Franchisor pursuant to a
subordination agreement on terms and conditions acceptable to Franchisor;
18
15.2. Restrictions on Liens. Create or permit to be created any mortgage,
pledge, encumbrance or other lien or security interest in any property or
assets, except for any such that individually or in the aggregate are immaterial
to OpCo.
15.3. Dividends and Redemptions. Make any distribution on account of any
Interest, or redeem, purchase or otherwise acquire directly or indirectly, any
Interest, except that OpCo shall have the right to make cash distributions so
long as no default has occurred and is continuing in the payment of any amount
due from OpCo to Franchisor pursuant to this Agreement and so long as, after
giving effect to the payment of the distribution sufficient working capital is
available for the payment of Annual Continuing Fees as provided in Article 5
hereof and budgeted operating expenses for the three full calendar months
following the date of payment of such distribution.
15.4. Acquisitions and Investments. Acquire any material assets or any
other business or make any material loan, advance or extension of credit to, or
investment in, any other person, corporation or other entity, including
investments acquired in exchange for stock or other securities or obligations of
any nature (other than to subsidiaries or in connection with cash management
functions in the ordinary course of business), or create or participate in the
creation of any subsidiary or joint venture.
15.5. Liquidation; Merger; Disposition of Assets. Liquidate or dissolve; or
merger with or into or consolidate with or into any corporation or other entity;
or sell, lease, transfer or otherwise dispose of all or any substantial part of
its property, assets or business (other than sales made in the ordinary course
of business).
15.6. Salaries and Other Compensation. Modify salaries, bonuses,
profit-sharing payments or any other compensation from that set forth in the
Annual Budget in effect at the time of the Buy/Sell Event to any officers,
directors, and other employees receiving in excess of $150,000 in annual
compensation and benefits (including without limitation, severance payments).
15.7. Affiliates. Amend the Facilities Lease to increase the amount or
accelerate the payment of the Rent (as defined in the Facilities Lease) or any
installment thereof or engage in any material transaction with (i) any
Affiliate, (ii) Crescent or (iii) an Affiliate of Crescent, other than pursuant
to contracts or ongoing arrangements existing at the time of the Buy/Sell Event,
including amending in any material respect any such contracts or other ongoing
arrangements existing at the time of such Buy/Sell Event.
15.8. Business Activities. Fail to carry on its business activities in
substantially the manner such activities are conducted on the date of the close
of the sale of Franchisor's Interest or make any material change in the nature
of its business or enter into any material contract that is not in the ordinary
course of OpCo's business.
15.9. No Bankruptcy. (i) Dissolve or liquidate, in whole or in part, or
institute proceedings to be adjudicated bankrupt or insolvent, (ii) consent to
the institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consent to reorganization or relief under any
19
applicable federal or state law relating to bankruptcy, (iv) consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of OpCo or a substantial part of its property, (v) make a
general assignment for the benefit of creditors, (vi) admit in writing its
inability to pay its debts generally as they become due, or (vii) take any
corporate or other action to authorize any of the actions set forth in clauses
(i) through (vi) of this paragraph.
16. TRANSFER AND ASSIGNMENT
16.1. Assignment by Franchisor. This Agreement and all rights and duties
hereunder may not be assigned or transferred by Franchisor except (i) with the
prior written consent of OpCo and Crescent, in its capacity as lessor under the
Facilities Lease, which consent shall not be unreasonably withheld, conditioned
or delayed, or (ii) to an entity which simultaneously therewith acquires all or
substantially all of Franchisor's business and assets. Franchisor may grant a
security interest in Franchisor's rights and interest in (but not its
obligations under) this Agreement to any of Franchisor's lenders by means of an
assignment for collateral purposes.
16.2. Assignment by OpCo. This Agreement and all rights and duties
hereunder may not be assigned or transferred by OpCo except (i) with the written
consent of Franchisor, which consent shall not be unreasonably withheld,
conditioned or delayed, (ii) to an entity which simultaneously therewith
acquires all or substantially all of OpCo's business and assets, provided in
each case that such transferee/assignee also acquires or assumes OpCo's rights
and obligations under the Facilities Lease, or (iii) if the Facilities Lease is
terminated prior to the end of the Initial Term or any Extended Term as a result
of an Event of Default under the Facilities Lease, and if Crescent exercises its
election under the Facilities Lease to assume all (and not less than all) of the
obligations of OpCo under this Agreement and all other agreements specified in
the Facilities Lease from the date of such assumption, to Crescent or its
designee.
16.3. Consent Not a Waiver. Franchisor's consent to an assignment by OpCo
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
16.4. Consequences of Permitted Assignment to Crescent. Following
assignment of this Agreement to Crescent pursuant to subsection 16.2(iii) above,
anything to the contrary in Section 17.1 and Section 17.3 below notwithstanding,
Franchisor may (i) terminate this Agreement and all of said assignee's rights
hereunder for "good cause", which shall mean the occurrence of any default
described in (a) through (f) below, effective immediately upon the date
Franchisor gives written notice of termination, upon such other date as may be
set forth in such notice of termination, or in those instances enumerated below
in paragraph (a), automatically upon the occurrence of an event of default. The
occurrence of any one or more of the following events shall constitute an event
of default and grounds for termination of this Agreement by Franchisor:
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(a) Automatically, without notice or action required by Franchisor, if
said assignee becomes insolvent or makes a general assignment for the
benefit of creditors, or, unless otherwise prohibited by law, if a petition
in bankruptcy is filed by said assignee, or such a petition is filed
against and consented to by said assignee or not dismissed within thirty
(30) days, or if a bill in equity or other proceeding for the appointment
of a receiver of said assignee or other custodian for said assignee's
business or assets is filed and consented to by said assignee, or if a
receiver or other custodian (permanent or temporary) of said assignee's
assets or property, or any part thereof, is appointed;
(b) If there is any violation of any transfer and assignment provision
contained in this Article 16 of this Agreement;
(c) If said assignee fails, for a period of fifteen (15) days after
notification of non-compliance by appropriate authority to comply with any
law, rule or regulation applicable to the operation of its business;
provided, however, that if such non-compliance is susceptible to cure but
such cure cannot be accomplished with due diligence within such period of
time, and if, in addition, said assignee commences to cure such
non-compliance within fifteen (15) days after notification of
non-compliance and thereafter prosecutes the curing of such non-compliance
with due diligence, such period of time shall be extended to such period of
time (not to exceed an additional ninety (90) days in the aggregate) as may
be necessary to cure such non-compliance with due diligence and further
provided, that Franchisor may not terminate this Agreement pursuant to this
Section 16.4(c) if such non-compliance is the non-compliance of one or more
Franchised Businesses (and not of OpCo) and Franchisor may as a result
terminate the corresponding Franchise Agreement or Franchise Agreements;
(d) If said assignee, other than in an immaterial respect, violates
any covenant of confidentiality or non-disclosure contained in Section 13.4
or Section 13.5 of this Agreement;
(e) If said assignee fails to perform or breaches any covenant,
obligation, term, condition, warranty or certification herein (other than
those related to the payment of amounts due Franchisor, which are the
subject of [F] below) and fails to cure such non-compliance or deficiency
within thirty (30) days after Franchisor's written notice thereof;
provided, however, that if such non-compliance or deficiency is susceptible
to cure but such cure cannot be accomplished with due diligence within such
period of time, and if, in addition, said assignee commences to cure such
non-compliance or deficiency within thirty (30) days after notification of
non-compliance or deficiency and thereafter prosecutes the curing of such
non-compliance or deficiency with due diligence, such period of time shall
be extended to such period of time (not to exceed an additional one hundred
eighty (180) days in the aggregate) as may be necessary to cure such
non-compliance or deficiency with due diligence;
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(f) If said assignee fails to pay the Annual Continuing Fee owed to
Franchisor under this Agreement when due or within ten (10) days
thereafter, or fails to pay any other amounts owed to Franchisor under this
Agreement within ten (10) days after notice from Franchisor of such
obligation,
or (ii) participate in the filing of an involuntary petition for the entry of an
"order for relief" with respect to said assignee pursuant to Section 303 of the
U.S. Bankruptcy Code, anything to the contrary in Section 17.3 below
notwithstanding.
16.5. Parties Bound and Benefitted. This Agreement shall be binding on the
parties and their respective successors and assigns. This Agreement shall inure
to the benefit of the parties and their respective permitted successors and
assigns.
17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT
17.1. Franchisor's Right to Terminate. Except as otherwise provided in
Section 16.4 above, Franchisor may not terminate this Agreement prior to the
expiration of its term (whether because of OpCo's breach, material or otherwise)
except with the prior written consent of (i) OpCo, which consent shall be
evidenced by a Supermajority Vote of the Board of OpCo, and (ii) the prior
written consent of Crescent, in its capacity as lessor under the Facilities
Lease. The provisions of this Section 17.1 shall not in any way be deemed to
limit or restrict Franchisor's right to terminate any franchise agreement or
other agreement in accordance with its terms.
17.2. OpCo's Right to Terminate. OpCo may not terminate this Agreement
prior to the expiration of its term (whether because of Franchisor's breach,
material or otherwise) except with the prior written consent of Franchisor and
Crescent, in its capacity as lessor under the Facilities Lease. Any decision by
OpCo to terminate this Agreement shall be evidenced by a Supermajority Vote of
the Board.
17.3. Franchisor's Right to Participate in Involuntary Bankruptcy Petition.
Except as otherwise provided in Section 16.4 above, Franchisor shall not
participate in the filing of an involuntary petition for the entry of an "order
for relief" with respect to OpCo pursuant to Section 303 of the U.S. Bankruptcy
Code.
17.4. Other Remedies. Except as otherwise provided in this Article 17 or in
the Subordination Agreement, nothing in this Agreement shall abridge the
remedies available to Franchisor as a result of the breach by OpCo of the terms
of this Agreement, including, but not limited to, seeking any remedy at law or
in equity, including seeking and obtaining judgments and enforcing such
judgments.
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18. INSURANCE
18.1. Maintenance of Insurance. Throughout the term of this Agreement, OpCo
shall maintain in effect at all times a policy or policies of insurance,
designating Franchisor as an additional insured at OpCo's sole cost and expense,
as set forth on Exhibit 6.
18.2. Notices of Claims under Insurance Policies. OpCo shall promptly
notify Franchisor of any and all claims against OpCo, any OpCo Franchisee and/or
Franchisor under said policies of insurance and shall deliver to Franchisor
certificates evidencing that the insurance required by Section 17.1 is in full
force and effect within thirty (30) days after signing this Agreement and each
year thereafter. Such insurance certificates shall contain a statement that the
insurance shall not be cancelled without thirty (30) days' prior written notice
to OpCo and to Franchisor.
18.3. Notices of Other Claims/Events. OpCo shall promptly notify Franchisor
of any and all demands, claims, suits, actions, causes of action, proceedings
and assessments (together "Claims") brought, made or threatened in writing
against OpCo and/or any OpCo Franchisee, and of the occurrence of any events
which might result in such a Claim, in each case within five (5) business days
after OpCo becomes aware thereof, and will provide to Franchisor information
concerning such Claims or events as Franchisor may from time to time reasonably
request.
19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
19.1. Indemnification and Hold Harmless. OpCo agrees to protect, defend,
indemnify, and hold Franchisor, and its respective directors, officers, agents,
attorneys and shareholders, jointly and severally, harmless from and against all
claims, actions, proceedings, damages, costs, expenses and other losses and
liabilities, directly or indirectly incurred (including without limitation
reasonable attorneys' and accountants' fees) as a result of, arising out of, or
connected with the operation of OpCo's Business, except those directly resulting
from Franchisor's willful misconduct or fraud. Franchisor agrees to protect,
defend, indemnify and hold OpCo, and its respective directors, officers, agents,
attorneys and shareholders, jointly and severally, harmless from and against all
claims, actions, proceedings, damages, costs, expenses and other losses and
liabilities, directly or indirectly arising out of or connected with the
operation of the OpCo's Business arising directly from Franchisor's willful
misconduct or fraud.
19.2. Independent Contractor. In all dealings with third parties including,
without limitation, employees, suppliers and patients, OpCo shall disclose in an
appropriate manner reasonably acceptable to Franchisor that it is an independent
entity. Nothing in this Agreement is intended by the parties hereto to create a
fiduciary relationship between them nor to constitute OpCo an agent, legal
representative, subsidiary, joint venturer, partner, employee or servant of
Franchisor for any purpose whatsoever. It is understood and agreed that OpCo is
an independent contractor and is in no way authorized to make any contract,
warranty or representation or to create any obligation on behalf of Franchisor.
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20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT
20.1. Prior Approvals. Whenever this Agreement requires Franchisor's prior
approval, OpCo shall make a timely written request. Unless a different time
period is specified in this Agreement, Franchisor shall respond with its
approval or disapproval within fifteen (15) days of receipt of such request. If
Franchisor has not specifically approved a request within such fifteen (15) day
period, such failure to respond shall be deemed disapproval of any such request.
20.2. No Waiver. No failure of Franchisor to exercise any power reserved to
it by this Agreement and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Franchisor's right to demand exact
compliance with any of the terms herein. No waiver or approval by Franchisor of
any particular breach or default by OpCo, nor any delay, forbearance or omission
by Franchisor to act or give notice of default or to exercise any power or right
arising by reason of such default hereunder, nor acceptance by Franchisor of any
payments due hereunder shall be considered a waiver or approval by Franchisor of
any preceding or subsequent breach or default by OpCo of any term, covenant or
condition of this Agreement.
20.3. Written Amendments. Except as otherwise specifically provided in this
Agreement, no amendment, change or variance from this Agreement shall be binding
upon either Franchisor or OpCo except by mutual written agreement or in
accordance with Section 3.10 of the Subordination Agreement.
21. ENFORCEMENT
21.1. Inspections. In order to ensure compliance with this Agreement and to
enable Franchisor to carry out its obligation under this Agreement, OpCo agrees
that Franchisor and its designated agents shall be permitted, with or without
notice, full and complete access during business hours to inspect all premises
at which OpCo's Business is conducted and all records thereof, including, but
not limited to, records relating to OpCo's and OpCo's Franchisees' patients,
suppliers, employees and agents. OpCo shall cooperate fully with Franchisor and
its designated agents requesting such access.
21.2. No Right to Offset. OpCo will not, for any reason, withhold payment
of any monthly payment, fee or any other fees or payments due to the Franchisor
under this Agreement or pursuant to any other contract, agreement or obligation
to the Franchisor. OpCo shall not have the right to "offset" any liquidated or
unliquidated amounts, damages or other funds allegedly due to OpCo from the
Franchisor against any monthly payment, fee or any other fees or payments due to
the Franchisor under this Agreement or otherwise.
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22. REPRESENTATION OF FRANCHISOR
Franchisor has delivered to OpCo a draft dated __________________ ("Proxy
Statement") of its proxy statement to shareholders for its Annual Meeting of
Shareholders at which, among other matters, shareholders of Franchisor will
consider and vote on the transactions which are the subject of the Transaction
Documents. Except as described in the Proxy Statement, or in documents filed
with the Securities Exchange Commission pursuant to applicable law, Franchisor
is not aware of any material risk that Franchisor is, in the conduct of the
Business (as defined in the Contribution Agreement) prior to the closing of the
transaction contemplated by the Transaction Documents, or that OpCo will be, in
the conduct of the Business after the closing of the transaction contemplated by
the Transaction Documents, in violation of applicable federal law specifically
designed to regulate the healthcare industry, which violation will have a
material adverse effect on Franchisor or OpCo. [Franchisor will, without the
requirement that it waive any privilege, provide Crescent and OpCo with access
to its counsel Sanford Teplitzky to discuss issues relating to Franchisor's
business and the performance by the parties of the Transaction Documents under
applicable federal law specifically designed to regulate the healthcare
industry.]
23. ENTIRE AGREEMENT
This Agreement and the Transaction Documents contain the entire
agreement of the parties. No other agreements, written or oral, shall be deemed
to exist, and all prior agreements and understandings are superseded hereby.
There are no conditions to this agreement which are not expressed herein or in
the Transaction Documents.
24. NOTICES
Any and all notices, demands, consents, approvals, offers, elections and
other communications required or permitted under this Agreement shall be deemed
adequately given if in writing and the same shall be delivered either in hand,
by telecopier with written acknowledgement of receipt, or by mail or Federal
Express or similar expedited commercial carrier, addressed to the recipient of
the notice, postpaid and registered or certified with return receipt requested
(if by mail), or with all freight charges prepaid (if by Federal Express or
similar carrier).
All notices required or permitted to be sent hereunder shall be deemed to
have been given for all purposes of this Agreement upon the date of acknowledged
receipt, in the case of a notice by telecopier, and, in all other cases, upon
the date of receipt or refusal, except that whenever under this agreement a
notice is either received on a day which is not a Business Day or is required to
be delivered on or before a specific day which is not a Business Day, the day of
receipt or required delivery shall automatically be extended to the next
Business Day.
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All such notices shall be addressed:
If to OpCo, to:
______________________________________
______________________________________
Facsimile: ___________________________
with copies to:
David M. Dean
Senior Vice President, Law
Crescent Real Estate Equities, Ltd.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
and
Wendelin A. White
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Facsimile: (202) 663-8007
If to Franchisor, to:
Steve J. Davis
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with copies to:
Robert W. Miller
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
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Facsimile: (404) 572-5100
and
Benn S. DiPasquale
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile: (414) 297-4998
By notice given as herein provided, the parties hereto and their respective
successor and assigns shall have the right from time to time and at any time
during the term of this Agreement to change their respective addresses effective
upon receipt by the other parties of such notice and each shall have the right
to specify as its address any other address within the United States of America.
25. GOVERNING LAW AND DISPUTE RESOLUTION
25.1. Governing Law. This Agreement shall be interpreted, construed,
applied and enforced in accordance with the laws of the State of Delaware
applicable to contacts among residents of Delaware which are to be performed
entirely within Delaware, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required to be made;
or (iii) where any breach of any provision of this Agreement occurs, or any
cause of action otherwise accrues; or (iv) where any action or other proceeding
is instituted or pending; or (v) the nationality, citizenship, domicile,
principal place of business or jurisdiction of organization or domestication of
any party; or (vi) whether the laws of the forum jurisdiction otherwise would
apply the laws of a jurisdiction other than the State of Delaware; or (vii) any
combination of the foregoing.
Subject to Section 25.2 below, to the maximum extent permitted by
applicable law, any action to enforce, arising out of, or relating in any way
to, any of the provisions of this Agreement may be brought and prosecuted in
such court or courts located in the State of Delaware as is provided by law; and
the parties consent to the jurisdiction of said court or courts located in the
State of Delaware and to service of process by registered mail, return receipt
requested, or by any other manner provided by law.
25.2. Arbitration/Litigation.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any contract or agreement entered into pursuant hereto or
the performance by the parties of its or their terms shall be settled by
binding arbitration held in Wilmington, Delaware, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
in effect. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having in personam and subject matter jurisdiction.
The parties hereby submit to the
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in personam jurisdiction of the federal and state courts in Delaware, for
the purpose of confirming any such award and entering judgment thereon.
(b) Notwithstanding the foregoing, Franchisor may, in its discretion,
apply to a court of competent jurisdiction for equitable relief from any
violation or threatened violation of the covenants of OpCo in this
Agreement. OpCo acknowledges that its violation or threatened violation of
the provisions of Article 13 would cause Franchisor irreparable injury and,
in addition to any other remedies to which Franchisor may be entitled, that
Franchisor shall be entitled to injunctive relief.
26. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS
26.1. Severability. Should any provision of this Agreement be for any
reason held invalid, illegal or unenforceable by a court of competent
jurisdiction, such provision shall be deemed restricted in application to the
extent required to render it valid; and the remainder of this Agreement shall in
no way be affected and shall remain valid and enforceable for all purposes. In
the event that any provision of this Agreement should be for any reason held
invalid, illegal or unenforceable by a court of competent jurisdiction, or in
the event the performance or compliance by any party with any provision of this
Agreement shall result in such party being in violation of any law, rule or
regulation of any governmental authority, then in any of such events the parties
agree to use commercially reasonable best efforts to amend in a manner
reasonably consistent with each parties' economic interests the obligations of
the parties under and pursuant to the Agreement so as to cause the parties
obligations hereunder to be enforceable and not in violation of any law, rule or
regulation of any governmental authority. In the event such total or partial
invalidity or unenforceability of any provision of this Agreement exists only
with respect to the laws of a particular jurisdiction, this paragraph shall
operate upon such provision only to the extent that the laws of such
jurisdiction are applicable to such provision. Each party agrees to execute and
deliver to the other any further documents which may be reasonably required to
effectuate fully the provisions hereof. OpCo understands and acknowledges that
Franchisor shall have the right, in its sole discretion, on a temporary or
permanent basis, to reduce the scope of any covenant or provision of this
Agreement binding upon OpCo, or any portion hereof, without OpCo's consent,
effective immediately upon receipt by OpCo of written notice thereof, and OpCo
agrees that it will comply forthwith with any covenant as so modified, which
shall be fully enforceable.
26.2. Regulatory Reports. Each party agrees to reasonably cooperate with
the other in providing on a timely basis all documents and information in its
possession or reasonably available to it, reasonably required by the other for
reports or filings required by any governmental or other regulatory authority.
26.3. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute one and the same
instrument.
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26.4. Table of Contents, Headings and Captions. The table of contents,
headings and captions contained herein are for the purposes of convenience and
reference only and are not to be construed as a part of this Agreement. All
terms and words used herein shall be construed to include the number and gender
as the context of this Agreement may require. The parties agree that each
section of this Agreement shall be construed independently of any other section
or provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal on the date first written above.
FRANCHISOR:
--------------------------------------
By:___________________________________
Title: _______________________________
(Affix Corporate Seal)
OPCO:
By:___________________________________
Title:________________________________
(Affix Corporate Seal)
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