**Exhibit 10.12**

 

**CALIFORNIA DEVELOPMENT INCENTIVEAGREEMENT**

 

This CALIFORNIA DEVELOPMENT INCENTIVE AGREEMENT(this “Agreement”) is entered this 15 day of March, 2004 but effective as of January 1,2004 (the “Effective Date”), by and among TGI Friday’s Inc. (“Friday’s”), MainSt. California, Inc. (the “Franchisee”),and Main Street and Main Incorporated (the “Principal”).

 

RECITALS

 

A.                                   Friday’s and Franchiseeare parties to a Development Agreement dated March    ,2004 for certain counties in Southern California (the “Development Agreement”)and to the Franchise Agreements for the T.G.I. Friday’s Restaurants located inSouthern California (the “Restaurants”) listed on Exhibit A (collectively,and including any Franchise Agreements entered into during the term of thisAgreement, the “Franchise Agreements”). Unique economic circumstances in Southern California have resulted inincreased development and operating costs for the Restaurants as compared torestaurants in other areas of the country.

 

B.                                     The Principal has anownership interest in or otherwise controls Franchisee, and as such is deemedto be a “Principal” under the applicable Franchise Agreements.

 

C.                                     Friday’s has agreed to provide Franchiseecertain development incentives as specifically described in this Agreementconditioned upon Franchisee’s full and timely compliance with the terms andconditions of this Agreement, the Development Agreement and the FranchiseAgreements.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of good andvaluable consideration, the receipt and sufficiency of which is herebyacknowledged by each of the parties hereto, Friday’s, Franchisee and Principalagree as follows:

 

# 1.                                       **Term****.**  The term of this Agreement shall be from January 1,2004 through December 31, 2009 (the “Term”), unless earlier terminatedpursuant to the terms hereof.

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# 2.                                       **Modificationof Royalty Payment Obligation****.**  Throughout the Term, Franchisee’s obligationto pay Royalty Fees (as that term is defined in the Franchise Agreements) atthe Restaurants shall be as stated in the following Royalty ModificationTables.

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**Royalty Modification Table – Schedule A (2004 only)**

 
| **Annual Gross Sales for  each Restaurant** | ** ** | **Royalty Fee** | ** ** |
|---------------------------------------------|------------|-----------------|------------|
| Under $2 million                            |       | 1.5             | %          |
| $2.0 - $2.5 million                         |       | 2.0             | %          |
| $2.5 - $3.0 million                         |       | 2.5             | %          |
| $3.0 - $3.5 million                         |       | 3.0             | %          |
| $3.5 million and over                       |       | 4.0             | %          |

 

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**Royalty Modification Table – Schedule B (2005 – 2009)**

 
| **Annual Gross Sales for  each Restaurant** | ** ** | **Royalty Fee** | ** ** |
|---------------------------------------------|------------|-----------------|------------|
| Under $ 2 million                      |       | 1.5             | %          |
| $ 2.0 - $ 2.5 million             |       | 2.0             | %          |
| $2.5 - $3.0 million                         |       | 2.5             | %          |
| $3.0 - $4.0 million                         |       | 3.0             | %          |
| $4.0 million and over                       |       | 4.0             | %          |

 

3.                                       **Modification of FranchiseFee**.  Throughout the Term, the Franchise Fee, asthat term is defined in the Development Agreement, for restaurants developedthereunder (“New Restaurants”) shall be reduced from Fifty Thousand dollars($50,000) to Twenty Five Thousand dollars ($25,000).

 

4.                                       **Modification of Royalty for New Restaurants****.** The RoyaltyFee for New Restaurants shall be two percent (2%) for the first twelve months ofoperation, regardless of annual gross sales. Thereafter, for the balance of the Term, the Royalty Fee shall be as setforth in Paragraph 2 above. Following expiration or earlier termination of thisAgreement, the Royalty Fee shall be as set forth in the respective FranchiseAgreements.

 

# 5.                                       **Performanceof Development Obligations****.**

#  

# (a)                                  Franchisee acknowledges therequirement of Franchisee’s full and timely compliance with both thePreliminary Site Consent dates and the Open and Operating dates contained inthe Development Schedule in Section 3.A. of the DevelopmentAgreement.  A reasonable denial of siteconsent by Friday’s, in accordance with the site approval procedures set forthin the Development Agreement, shall not be deemed to be an excuse of performanceby Franchisee.  Time is of the essencewith respect to each of the development obligations specified in theDevelopment Agreement.

#  

# (b)                                 In the event that Franchiseefails to comply with any date set forth in the Development Schedule, thenautomatically commencing the month following such noncompliance, the RoyaltyFees for the Restaurants and New Restaurants shall be as set forth in therespective Franchise Agreements (the “Original Royalty Fee”).  The Original Royalty Fees for all Restaurantsand New Restaurants shall be paid by Franchisee until the first day of themonth following the date on which Franchisee returns to full compliance withthe Development Schedule, at which time the modified Royalty Fees as set forthin this Agreement shall be due and payable.

#  

(c)                                  If at any time during the term of thisAgreement Franchisee is not in compliance with the Development Schedule formore than three (3) restaurants, then automatically commencing the monthfollowing the noncompliance for the fourth restaurant the Original Royalty Feesfor the Restaurants and New Restaurants as set forth in the respectiveFranchise Agreements shall be retroactively reinstated to January 1, 2004(or the later applicable Commencement Date for New Restaurants) and any unpaidRoyalty Fees (the “Unpaid Royalty Fees”) shall be immediately due and payableas set forth in Paragraph 8 below.  ThisAgreement shall automatically terminate upon the occurrence of such event.

 

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# 6.                                       **SalesReporting Obligation****.**  No later than forty-five (45) days after December 31stof each year, Franchisee shall provide to Friday’s true and complete salesinformation for the Restaurants for the immediately preceding twelve monthperiod.

#  

7.                                       **Default and Early Termination****.**  IfFranchisee defaults under Section 10.01.A. of the Development Agreement orunder Section 10.01.A. of the Development Agreement between Friday’s andCornerstone Productions, Inc. (the “S.W. Development Agreement”), then uponnotification by Friday’s the Original Royalty Fees for the Restaurants and NewRestaurants as set forth in the respective Franchise Agreements shall beretroactively reinstated to January 1, 2004 (or the later applicableCommencement Date for New Restaurants) and any Unpaid Royalty Fees shall beimmediately due and payable as set forth in Paragraph 8 below.  This Agreement shall automatically terminateupon such default.

 

8.                                       **Repayment of Royalties UponDefault or Noncompliance With Development Schedule****. **In the event of a termination of this Agreement pursuant to Paragraphs 5(c) or 7, the Unpaid RoyaltyFees for each Restaurant and New Restaurant shall be paid to Friday’s in equalmonthly payments over the same period of time in which the modified Royalty Feeapplied. By way of illustration only, if the modified Royalty Fee applied for36 months for a Restaurant, the Unpaid Royalty Fees would be payable to Friday’sin 36 equal monthly payments with the first monthly payment being due with thepayment of Royalty Fees in the second month following (a) noncompliance withthe Development Schedule as described in Paragraph 5(c), or (b)notification by Friday’s of a default and termination, in the case of Paragraph7.  Failure to make a payment of UnpaidRoyalty Fees shall be deemed a nonpayment of Royalty Fees under the respectiveFranchise Agreements and entitle Friday’s to exercise such rights and remediesas may be available under such Franchise Agreements.

 

9.                                       **Repayment of ReducedFranchise Fee****.** In the event of a default and termination ofthis Agreement, the Franchise Fee under the Development Agreement shall beretroactively reinstated to Fifty Thousand Dollars ($50,000) and the sum ofTwenty Five Thousand Dollars ($25,000) shall be immediately due and payable foreach New Restaurant opened during the Term as a repayment of the discountedportion of the reduced Franchise Fee.

 

10.                                 **Penalty for Noncompliance with Development Obligations****.** Following expiration or earlier termination of this Agreement,Franchisee shall pay Friday’s the sum of $250,000 for each of the first three(3) restaurants Franchisee has failed to construct pursuant to the terms of theDevelopment Agreement (the “Penalty”). In the event that Franchisee is obligated to pay the Penalty, Friday’sagrees that Franchisee will not be required to pay any Unpaid Royalty Fees asset forth in Paragraph 8 or the reduced Franchise Fee as set forth in Paragraph9, if such amounts may otherwise be applicable. The Penalty shall be paid by Franchisee to Friday’s over the course ofone (1) year from the date of the expiration or termination of this Agreement,in equal monthly installments. Franchisee’s failure to comply with the Development Schedule shallnot incur the Penalty in the event and to the extent that Franchisee’s noncomplianceresults from acts of God or other causes (other than financial inabilityor insolvency) beyond Franchisee’s reasonable control.  In no event shall the totalPenalty due by Franchisee to Friday’s exceed the sum of Unpaid Royalty Fees anddiscounted Franchise Fees.  Failure ofFranchisee to pay the Penalty shall be deemed a material breach of theFranchise Agreements and entitle Friday’s to exercise such rights and remediesas may be available under such Franchise Agreements.  Notwithstanding the foregoing, in the eventthat following expiration or earlier termination of this Agreement it isdetermined that Franchisee has failed to construct four (4) or more restaurantsin accordance with the terms of the Development Agreement, the Penalty shall notapply and the provisions of Paragraphs 5(c), 8 and 9 of this Agreement shallcontrol.

 

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# 11.                                 **General Release by Franchisee****. **Franchisee hereby releasesFriday’s, its successors, predecessors, counsel, insurers, assigns, officers,directors, employees, representatives’ agents, parent company, affiliates andsubsidiaries, past and present, of and from any and all claims, demands andcauses of action whatsoever, however claimed to arise, which Franchisee has ormay have by reason of any matter, cause or thing whatsoever arising out of orin connection with any Development Agreement, any Franchise Agreement,relationships or a course of dealing with Friday’s as a franchisor, theoperation of any Restaurant or for any other cause or circumstance whichexisted prior to the date of this Agreement.

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12.                                 **Release by Friday’s****. **Friday’s hereby releases Franchisee, its successors, predecessors,counsel, insurers, assigns, officers, directors, employees, representatives’ agents,parent company, affiliates and subsidiaries, past and present, of and from anyand all claims, demands and causes of action whatsoever, however claimed toarise, which Friday’s has or may have by reason of any matter, cause or thingwhatsoever arising out of or in connection with any Development Agreement, anyFranchise Agreement, relationships or a course of dealing with Franchisee as afranchisee, the operation of any Restaurant or for any other cause orcircumstance which existed prior to the date of this Agreement, except thatthis release shall not apply to any unpaid amounts due to Friday’s byFranchisee or its affiliates, including but not limited to royalty fees,trades, advertising contributions, purchasing fees and help desk support fees.

 

13.                                 **Confidentiality****. **The terms of this Agreement are confidential except to the extentdisclosure is required by law.  No pressrelease or other disclosure of this Agreement, or the terms and conditionshereof, shall be made without prior written consent of Friday’s.

 

14.                                 **Cross Default of Agreements****.**  Adefault by Franchisee under this Agreement, the Development Agreement or theS.W. Development Agreement (including, for example, but not by way oflimitation, the failure of Franchisee to submit to Friday’s the required salesinformation, the failure to make any payment when due or the failure ofFranchisee to strictly comply with the terms of the Development Agreement),shall constitute a material default by Franchisee of this Agreement and theDevelopment Agreement entitling Friday’s to terminate this Agreement, as wellas exercise such rights and remedies as may be available to Friday’s under suchDevelopment Agreement.

 

# 15.                                 **Miscellaneous Terms****.**

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(a)                                  Paragraphs 8, 9, 10, 11, 12 and 14 shallsurvive the termination of this Agreement.

 

(b)                                 The provisions, representations, terms,conditions, covenants and agreements of the Franchise Agreements, as modifiedhereby, shall remain in full force and effect, enforceable in accordance withtheir terms.  This Agreement shall bebinding upon the heirs, legal representatives, successors and assigns of theparties hereto, but shall constitute an amendment of the Franchise Agreements,Development Agreement and S.W. Development Agreement only for so long as thisAgreement continues to be in effect.

 

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IN WITNESS WHEREOF, the parties have executed thisAgreement as of the day and year first above mentioned.

 
|   | **FRIDAY’S****:**                |
|--------|---------------------------------------|
|   |                                  |
|   | **TGI FRIDAY’S INC.**            |
|   |                                  |   |   |
|   | By:                                   |  /s/ Leslie Sharman |   |
|   | Name:                                 | Leslie Sharman |   |
|   | Title:                                | Sr. Vice President-General Counsel |   |
|   |                                  |   |   |
|   |                                  |   |   |
|   | **FRANCHISEE****:**                   |
|   |                                  |   |   |
|   | **MAIN ST. CALIFORNIA, INC.**         |
|   |                                  |   |   |
|   | By:                                   |  /s/ William G. Shrader |   |
|   | Name:                                 | William G. Shrader |   |
|   | Title:                                | President & CEO |   |
|   |                                  |   |   |
|   | **PRINCIPAL****:**                    |
|   |                                  |   |   |
|   | **MAIN STREET AND MAIN INCORPORATED** |
|   |                                  |   |   |
|   | By:                                   |  /s/ William G. Shrader |   |
|   | Name:                                 | William G. Shrader |   |
|   | Title:                                | President & CEO |   |
|        |                                       |  |  |  |  |  |  |  |  |  |  |

 

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EXHIBIT A

 

Restaurant#1116; Long Beach.  Franchise Agreementdated August 22, 2000.

Restaurant#1902; San Diego.  Franchise Agreementdated December 22, 1993.

Restaurant#1903; Costa Mesa.  Franchise Agreementdated December 28, 1993.

Restaurant#1906; Santa Clarita.  FranchiseAgreement dated December 28, 1993.

Restaurant#1907; Torrance.  Franchise Agreementdated December 28, 1993.

Restaurant#1908; La Jolla.  Franchise Agreementdated December 18, 1996.

Restaurant#1909; Palm Desert.  Franchise Agreementdated December 28, 1993.

Restaurant#1911; West Covina.  Franchise Agreementdated December 28, 1993.

Restaurant#1912; Orange.  Franchise Agreement datedDecember 28, 1993.

Restaurant#1913; Ontario.  Franchise Agreementdated December 28, 1993.

Restaurant#1915; Laguna Niguel.  FranchiseAgreement dated December 28, 1993.

Restaurant#1917; San Bernardino.  FranchiseAgreement dated December 28, 1993.

Restaurant#1918; Brea.  Franchise Agreement dated December 28,1993.

Restaurant#1919; Riverside.  Franchise Agreementdated December 28, 1993.

Restaurant#1920; Rancho San Diego.  FranchiseAgreement dated February 9, 1999.

Restaurant#1921; City of Industry.  FranchiseAgreement dated February 9, 1999.

Restaurant#1940; San Diego.  Franchise Agreementdated December 28, 1993.

Restaurant#1941; Oxnard.  Franchise Agreement datedDecember 28, 1993.

Restaurant#1942; Rancho Santa Margarita.  FranchiseAgreement dated December 20, 1995.

Restaurant#1943; Northridge.  Franchise Agreementdated November 6, 2001.

Restaurant#1945; Cerritos.  Franchise Agreementdated September 4, 1996.

Restaurant#1947; Temecula.  Franchise Agreementdated December 9, 1999.

Restaurant#1948; Yorba Linda.  Franchise Agreementdated November 16, 1999.

Restaurant#1949; Thousand Oaks.  FranchiseAgreement dated March 13, 2000.

Restaurant#1950; San Diego.  Franchise Agreement datedOctober 8, 1998.

Restaurant#1951; Simi Valley.  Franchise Agreementdated September 17, 1999.

Restaurant#1952; Carlsbad.  Franchise Agreementdated November 1, 1999.

 

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