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EXHIBIT 10.03
MANAGEMENT AGREEMENT
BETWEEN
CELLO MANAGEMENT CORP.
AND
WENDCELLO CORP.
MANAGEMENT AGREEMENT made this 2nd day of July 1990, by and between
CELLO MANAGEMENT CORP., a New York corporation having an office at 11 North Main
Street, Cortland, New York (hereafter, "Management Corp.") and WENDCELLO
CORP., a New York corporation having an office c/o Programming and Systems,
Inc., 269 West 40th Street, New York, N.Y. 10018 (hereafter, "Wendcello").
RECITALS
WHEREAS, Wendcello purchased and presently owns the six (6) Wendy's
Old Fashioned Hamburgers Restaurants in the geographic area in proximity to
Monticello, New York as set forth on Exhibit A attached hereto and made a part
hereof (the "Restaurants"); and
WHEREAS, the Restaurants are to be managed and operated in
accordance with the terms of those certain franchise agreements dated of even
date herewith in which Wendcello is the Franchisee and Wendy's International,
Inc. is the Franchisor, (the "Franchise Agreements"); and
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WHEREAS, Wendcello desires to enter into this Agreement so that
Management Corp. will provide the management and supervision of the Restaurants'
day-to-day operations of the business upon the terms and subject to the
conditions hereinafter set forth; for the purposes of this Agreement, the term
"Business" shall mean all operations now or hereafter conducted by or on behalf
of Wendcello with respect to the Restaurants and all related activities; and
WHEREAS, throughout the term of this Agreement, Wendcello desires to
continue to be the Franchisee of the Restaurants pursuant to the Franchise
Agreements, and to own or lease the assets associated with the Restaurants and
leasehold estates for the Restaurants;
NOW, THEREFORE, in consideration of the mutual agreements and
obligations set forth herein, the parties hereto agree as follows:
ARTICLE I
ENGAGEMENT
1.1 Commencing on the date of this Agreement and subject to the
terms and conditions set forth herein, Wendcello hereby engages Management Corp.
to direct, conduct, manage and supervise the day-to-day operation of the Busi-
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ness as set forth in this Agreement, and Management Corp. hereby accepts such
engagement.
1.2 Management Corp. hereby agrees to manage and supervise the
day-to-day operation of the Business so that the Restaurants are operated and
maintained in a manner which complies with (i) the policies, standards and
procedures set by the Franchisor from time to time in the operation of all
Wendy's Old Fashioned Hamburgers Restaurants, (ii) the standards and
requirements for the reputation and operation of the Restaurants as prescribed
by the Franchise Agreements and (iii) all of the other terms of the Franchise
Agreements.
1.3 The term of this Agreement shall commence on the date of this
Agreement (the "Effective Date") and, subject to the provisions of Article 5.3,
below, shall continue so long as Wendcello remains in the Business.
ARTICLE II
SERVICES TO BE PROVIDED BY MANAGEMENT CORP.
2.1 Management Corp. shall provide, or cause to be provided, all
necessary management, operational and consulting services with respect to the
operation of the Restaurants. The Restaurants will be operated in Wendcello's
name, the employees shall be employees of Wendcello, pur-
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chases shall be made in Wendcello's name and all the activities shall be carried
on by the Management Corp. in Wendcello's name.
2.2 Management Corp. shall maintain, or provide for the maintenance
of, all records pertaining to the day-to-day operation of the Business
(including all reports to Wendcello and the Franchisor and all payroll and tax
returns of every kind except income tax returns which shall be prepared and
filed by Wendcello's parent corporation) at its principal office at 11 N. Main
Street, Cortland, New York, all of which shall be available for inspection,
examination, and copying at all times by one or more duly authorized
representatives or agents of Wendcello.
2.3 Management Corp. shall not conduct any business other than the
Business.
ARTICLE III
CORPORATE COMPENSATION
3.1 A corporate officer, or director or third party may be employed
in various corporate capacities by Wendcello or Management Corp. at salaries or
such other compensation as shall be determined annually by resolution of the
Board of Directors of Wendcello based upon agreement or business practice. The
compensation of Management
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Corp.'s President, Harry Strang, shall be determined by Management Corp.
3.2 In connection with any such employment by Wendcello or
Management Corp., such person shall, within a reasonable time after the
commencement of the Business, devote such time as may be reasonably necessary to
promote and profitably operate the Business.
3.3 In furtherance of the foregoing, the President of Wendcello and
Management Corp., Harry Strang, shall devote his full time and effort to the
Business and shall be compensated in a manner directly related to the
corporation's financial results and in a manner acceptable under normal business
standards, however, such compensation shall not be less than Seventy-Two
Thousand ($72,000) Dollars per annum, which shall be paid entirely by Wendcello
as an expense under Article IV hereof.
ARTICLE IV
ALLOCATION OF EXPENSES
4.1 All expenses relating to the operation, use, repair, management,
ordinary and extraordinary costs associated with the operations of the
Restaurants, as contemplated herein, shall be borne entirely by Wendcello.
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4.2 All expenses in connection with the personnel of each
Restaurant, including salaries and other labor costs of all persons working in
each Restaurant, shall be expenses of Wendcello.
4.3 All ordinary and extraordinary expenses which are directly or
indirectly related to the Restaurants or their operation, maintenance, repair,
expansion or upkeep, shall be expenses of Wendcello, including, without
limitation, the costs and expenses which Management Corp. is expressly
authorized by this Agreement to incur on behalf of Wendcello.
4.4 All costs, expenses and future obligations incurred and arising
in connection with, among others, the acquisition of the leases, equipment,
furnishings and franchise rights of the Restaurants shall be exclusively those
of Wendcello. In addition, should Wendcello and Management Corp. jointly agree
to exercise the Option to Purchase or the Right of First Refusal pertaining to
the Restaurant sites, the parties shall agree before such exercise as to the
manner in which the purchase costs, expenses and other disbursements involved in
such purchases shall be arranged and the relative costs, risks and benefits of
the parties participating in the exercise of such purchases. If Wendcello does
not have sufficient funds for the exercise, and if institutional or private
financing is insufficient to
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cover such cost, the necessary additional funds shall be contributed by
Wendcello's parent corporation, PSI Food Services Corp. (hereafter "PSIFSC") and
Management Corp. to Wendcello in the ratio of 70 - 30, respectively.
4.5 Further, Wendcello shall:
(a) retain the services of Lewis E. Topper and Jeffrey J.
Coghlan in connection with certain consulting services to be rendered to
it in accordance with the Consultation Agreement of even date herewith;
and
(b) pay to Programming and Systems, Inc. ("PSI"), on a
quarterly basis, an annual fee (the "Guarantee Fee") equal to one and
one-half (1.5%) percent per annum of the corporate guarantee in the amount
of $500,000 furnished by PSI to S & R Restaurants, Inc. as set forth in
the Purchase and Sale Agreement between S & R Restaurants, Inc., as Seller
and Wendcello Corp., as Buyer, relating to the purchase of the assets and
leasehold estates for the Restaurants and which Agreement required the
corporate guarantee of PSI. The annual Guarantee Fee shall be paid on a
quarterly basis (25% of 1-1/2% of the lesser of $500,000 or the
outstanding principal balance during such quarter of the loan guaranteed)
beginning the date
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hereof and continuing for so long as the Guarantee is outstanding.
4.6 In February of each year, the parties hereto shall comply with
the reasonable directions of Alvin Lipoff or such other person designated by
Wendcello's shareholder(s) as to the timing of the payment of all expenses of
Wendcello, which in the reasonable judgment of such person may be prepaid or
deferred, including without limitation the prepayment of expenses which might
otherwise be paid after February 28th and/or the reasonable deferral of expenses
until after February 28th which might otherwise be paid in the month of
February.
ARTICLE V
JOINT BUSINESS DECISION
5.1 Wendcello (by resolution of its Board of Directors) and
Management Corp. shall jointly determine and be required to agree upon all
decisions which are not in the ordinary course of the Business including, but
not limited to, the following:
(a) any proposed sale, assignment or sublease of any
Restaurant lease or site, or the proposed sale of all or substantially all
of the assets of any Restaurant; or
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(b) any proposed purchase of any fee interest or leasehold
estate in real property whether related or unrelated to the present
Restaurants; or
(c) any proposed purchase of fixed assets or the making of any
capitalized improvement to any real property owned or leased by Wendcello;
or
(d) any proposed participation by Wendcello in the purchase of
any interest in real property, whether in joint venture, partnership or
other interparty association, including the exercise of the Purchase
Option or Right of First Refusal with respect to or contained in any lease
for any Restaurant site in connection with the purchase of a fee interest
in any property upon which any of the Restaurants are located; or
(e) any proposed borrowing by Wendcello, including any
financing for non-working capital purposes or for the purchase of any fee
interest in any property upon which any of the Restaurants are located.
5.2 Prior to the time that Wendcello's sole shareholder, PSIFSC,
incurs any expenses or liability on behalf of Wendcello, other than its initial
capitalization
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of $790,000, Management Corp. must approve of such expenditure, obligation or
liability; the parties hereto expressly recognize Management Corp.'s right in
this regard to the extent that any such expenditure, obligation and/or liability
might reduce the Management Fees described in Article VI hereof.
5.3 The parties recognize that PSIFSC and Management Corp. shall be
obligated to fund Wendcello's pre-tax operating expenses on a monthly basis in
the following ratio: 70 by PSIFSC and 30 by Management Corp.; the failure by
either party to supply the monies required by Wendcello shall be deemed a breach
of this Agreement. Upon the breach of the terms hereof by Management Corp.,
PSIFSC, on behalf of Wendcello, shall have the right to terminate this Agreement
upon thirty (30) days prior written notice and upon indemnifying Management
Corp., its officers, directors, principals and shareholders against any of their
financial obligations hereunder. Upon the breach of the terms hereof by PSIFSC,
Management Corp. shall have the right to buy-out PSIFSC's interest in Wendcello
for a sum equal to its initial capitalization of Wendcello plus any additional
sums contributed or guaranteed by it or PSI pursuant to the terms of this
Agreement.
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ARTICLE VI
MANAGEMENT FEES AND DISTRIBUTIONS TO PSIFSC
6.1 Wendcello agrees to pay to Management Corp. the following fees
in connection with the services rendered pursuant to the provisions of this
Agreement:
(a) an annual Basic Management Fee (the "Basic Management
Fee") equal to thirty (30%) percent of the pre-tax cash flow generated
from the operations of the Restaurants, said fee shall be estimated and
paid quarterly 30 days after the close of each quarter beginning September
30, 1990 for the quarter ended August 31, 1990, and shall be adjusted for
the fiscal year as set forth in ss.7.2 hereof; and
(b) an Incentive Management Fee (the "Incentive Management
Fee") equal to thirty (30%) percent of any pre-tax net proceeds resulting
from the sale or refinance of those assets presently owned by Wendcello
relating to the Restaurants or other non-Restaurant related assets which
may be acquired during the term of this Agreement, such fee to be payable
thirty (30) days after any such event occurs; and
(c) at such time as Wendcello pays the Basic Management Fee
and the Incentive Management Fee,
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Wendcello shall pay to its sole shareholder, PSIFSC, as a compensatory fee
and/or dividend distribution an amount equal to 233.33% of the amount
payable to Management Corp. and if, for any reason, both payments cannot
be made in full, then each payment shall be reduced pro rata to permit
both payments to be made in proportion to the 70 - 30 ratio herein set
forth. Any such fees earned but not paid may be deferred to a later date
at the discretion of Management Corp.
6.2 In the event that the quarterly payments of the Basic Management
Fee, which are estimated for each of Wendcello's fiscal quarters, are greater or
less than the annual fee computed for the entire fiscal year, as set forth in
ss.6.1(a), above, the parties shall adjust the estimated payments to the actual
annual fee based upon the audit report prepared pursuant to ss.9.1 within thirty
(30) days after the rendition of said report.
6.3 Notwithstanding the foregoing, upon the sale or refinance of
those assets presently or hereafter acquired by Wendcello and relating to the
Business, PSIFSC shall be entitled to receive the first proceeds of such sale or
refinance in the sum of Seven Hundred Fifty-One Thousand Five Hundred
($751,500.00) Dollars prior to the payment of any Incentive Management Fee to
Management Corp. Thereafter, payment of the Incentive Management Fee to
Management
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Corp. and payments to PSIFSC resulting therefrom shall continue in proportion to
the 70 - 30 ratio set forth above.
ARTICLE VII
MANAGEMENT
7.1 Subject to the right of PSIFSC and Wendcello's Board of
Directors to make changes as provided, from time to time, in its By-Laws,
Wendcello shall have the following officers and directors:
Harry Strang, President and Director
Alvin Lipoff, Executive Vice President,
Treasurer, Asst. Secretary and Director
Leonard Weiss, Vice President, Asst. Secretary and
Director
Jeffrey J. Coghlan, Asst. Secretary and Director
Kelly Grimes, Director
ARTICLE VIII
NO JOINT VENTURE
8.1 Nothing contained in this Agreement shall constitute, or shall
be deemed to constitute, a partnership, agency, joint venture or other similar
relationship as between Wendcello and Management Corp., and Management Corp.
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shall be deemed to be an independent contractor for purposes of this Agreement.
ARTICLE IX
FISCAL YEAR AND FINANCIAL RECORDS
9.1 Promptly after the end of each fiscal year, Wendcello shall
cause the books and records of the Restaurants to be audited by an independent
certified public accountant ("CPA") selected by its Board of Directors. Said CPA
shall prepare and render his audit opinion with respect to the year-end balance
sheet, profit and loss statement, statement of cash flows, and such related
statements as Wendcello deems necessary. In addition, Management Corp. shall
provide for Wendcello, no later than 30 days after the close of each quarter,
quarterly unaudited financial statements for the three quarter annual periods
ending May 31, August 30 and November 30, which will be used by PSI for its
quarterly filings with the Securities and Exchange Commission.
9.2 Wendcello's fiscal year shall end on February 28.
ARTICLE X
PRE-TAX CASH FLOW; NET PROCEEDS
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10.1 The term "Pre-tax cash flow generated from the operations of
the Restaurants" as used herein shall mean the difference between all of the
cash receipts of Wendcello (except receipts included in ss. 10.2 hereof) after
deducting all of the cash expenditures of Wendcello whether or not expressly
provided for herein (except for expenses included in ss. 10.2 hereof or income
taxes paid by Wendcello). Franchise taxes or minimum taxes which are payable
irrespective of the income of Wendcello shall not be included in the term
"income taxes". Management fees of Management Corp. and compensation or
distributions to PSIFSC under ss. 6.1 shall not be deducted as cash expenditures
in determining pre-tax cash flow.
10.2 The term "Pre-tax net proceeds resulting from the sale or
refinancing of . . . assets" as used herein shall mean the difference between
all cash receipts of Wendcello from such sale or refinancing less any such
proceeds which are used to purchase similar or replacement assets or used to pay
off obligations so refinanced as well as any expenses or costs incurred in
connection with such sale or refinancing (except income taxes as defined in
ss. 10.1 and the Management Fees or payments to PSI described in ss. 6.1).
10.3 In the event of any dispute over the computation of the amounts
defined in this Article X the parties
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shall use their best efforts to resolve the dispute in accordance with the terms
and intent of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 Bankruptcy. Wendcello and Management Corp. acknowledge and
agree that in the event of a material adverse change in the value of the
Restaurants, including, but not limited to, the filing by Wendcello or
Management Corp., or either of them, of a petition under Chapters 7 or 11 of the
U.S. Bankruptcy Code, the corporation so filing, upon such filing, shall be
excused from further performance under this Agreement, unless Wendcello and
Management Corp. specifically agree in writing to a continued operation as set
forth in such new agreement, and such continued operation of the Restaurants and
Business is in accordance with the Franchise Agreements and all applicable
local, state and federal laws.
11.2 Modification, Waivers, Agreement. The parties may, by mutual
written agreement, make any modification or amendment of this Agreement. Failure
to exercise any power given any party hereunder or to insist upon strict
compliance by any other party shall not constitute a waiver of any party's right
to demand exact compliance with the terms hereof.
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11.3 Assignment. Neither party shall have the authority to assign
its rights or obligations under this Agreement without the prior written consent
of the other party.
11.4 Burden and Benefit.
(a) This Agreement shall be binding upon and, to the extent
permitted in this Agreement, shall inure to the benefit of, the parties
hereto and their respective successors and assigns.
(b) It is the intent of the parties hereto that no third-party
beneficiary rights be created or deemed to exist in favor of any person
not a party to this Agreement, unless otherwise expressly set forth
herein.
(c) Each of the parties hereby acknowledges that this
Agreement does not intend to bind any shareholder, director, officer,
employee, agent or Affiliate of the other party unless expressly provided,
and each party expressly waives any claim it may have against any of the
foregoing persons based upon any claim arising pursuant to this Agreement
and the transactions contemplated hereby.
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11.5 Expenses. Management Corp. agrees to pay $16,700. of the
expenses incurred by Wendcello in connection with the purchase of the assets
made contemporaneously herewith.
11.6 Entire Agreement. This Agreement and any other documents
referred to herein contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby and supersede all prior
agreements with respect thereto, whether written or oral.
11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
(regardless of the laws of any other jurisdiction the State of New York may
otherwise apply upon application of its conflicts of laws principles).
11.8 Notices. Any notice, request, instruction or other document to
be given hereunder by a party shall be in writing and delivered personally, by
telecopier, or sent by overnight courier, next day delivery, receipt confirmed
(e.g., Federal Express), or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed to the parties at the addresses
herein set forth and as follows:
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If to Wendcello, with a copy to (the receipt of which shall not
constitute notice):
Tanner Propp Fersko & Sterner
99 Park Avenue, 25th Floor
New York, New York 10016
Attn: Lester J. Tanner, Esq.
If to Management Corp. with a copy to (the receipt of which shall
not constitute notice):
Litman & Lehrhaupt
220 Fifth Avenue
Suite 1500
New York, New York 10001
Attn: Wayne R. Lehrhaupt, Esq.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
11.10 Severability of Provisions. Whenever possible, each provision
of this Agreement will be interpreted in such a manner as to be effective and
valid under applicable law. The parties agree that (i) the provisions of this
Agreement shall be severable in the event that any of the provisions hereof are
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, (ii) such invalid, void or otherwise unenforceable provisions
shall be automatically replaced by other provisions which are as similar as
possible in terms to such invalid,
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void or otherwise unenforceable provisions but are valid and enforceable and
(iii) the remaining provisions shall remain enforceable to the fullest extent
permitted by law.
11.11 Headings. The headings of the Articles and Sections of this
Agreement are inserted for convenience of reference only and shall not be deemed
to constitute a part hereof.
11.12 Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law.
11.13 Jurisdiction; Venue; Process; Trial By Jury. The parties to
this Agreement agree that jurisdiction and venue in any action brought by any
party hereto pursuant to this Agreement to enforce this Agreements' terms or
otherwise, shall exclusively lie in any federal or state court located in New
York City, New York. By execution and delivery of this Agreement, the parties
hereto irrevocably submit to the jurisdiction of such courts for itself and in
respect of its property with respect to such action. The parties hereto
irrevocably agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action. The parties further agree that the
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mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without necessity for service by any other means provided
by statute or rule of court. THE PARTIES HERETO EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
WENDCELLO CORP.
By /s/
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Alvin Lipoff,
Executive Vice President
CELLO MANAGEMENT CORP.
By /s/
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Harry Strang, President
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