Exhibit 10.22
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MONTANA
MIKE'S
STEAKHOUSE
EXHIBIT F
STOCKADE FRANCHISING, LP
FRANCHISE AGREEMENT
BRANSON RESTAURANTS, INC.
Franchisee
Date of Agreement: July 21, 2005
Date of Restaurant Opening: Sept. 2005
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TABLE OF CONTENTS
Section Page
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1. GRANT OF FRANCHISE 2
2. DEVELOPMENT AND OPENING OF THE RESTAURANT 3
3. TRAINING AND GUIDANCE 5
4. PROPRIETARY MARKS 7
5. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION 9
6. FEES 10
7. CONFIDENTIAL INFORMATION 12
8. RESTAURANT IMAGE AND OPERATING STANDARDS 14
9. MARKETING 20
10. ACCOUNTING, REPORTS, AND FINANCIAL STATEMENTS 23
11. ANNUAL REVIEWS, INSPECTIONS, AND AUDITS 24
12. TRANSFER 25
13. RENEWAL OF FRANCHISE 28
14. TERMINATION OF AGREEMENT BY FRANCHISEE OR CESSATION OF
RESTAURANT OPERATION 29
15. TERMINATION OF THE ▇▇▇▇▇▇▇▇▇ ▇▇
▇▇. RIGHTS AND OBLIGATIONS OF FRANCHISOR AND FRANCHISEE UPON
TERMINATION OR EXPIRATION OF THE FRANCHISE 34
17. TEMPORARY DE-IDENTIFICATION OF THE RESTAURANT 37
18. CASUALTY LOSS OR CONDEMNATION 37
19. ENFORCEMENT 38
20. NOTICES AND PAYMENTS 41
21. ARBITRATION AND DISPUTE RESOLUTION 42
22. ACKNOWLEDGMENTS 44
Attachments:
Attachment 1 Guaranty and Assumption of Obligations...........Attachment 1-1
Attachment 2 Collateral Assignment of Telephone Numbers,
Telephone Listings, and Internet Addresses.......Attachment 2-1
Attachment 3 Franchisee Questionnaire.........................Attachment 3-1
Attachment 4 State Specific Addenda...........................Attachment 4-1
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STOCKADE FRANCHISING, LP
FRANCHISE AGREEMENT
This Franchise Agreement is made on this 21st day July, 2005, between
Stockade Franchising, LP, a Nevada limited partnership "Franchisor"), and
Branson Restaurants, Inc. ("Franchisee").
WITNESSETH:
WHEREAS, Franchisor owns certain confidential information relating to,
and has designed, instituted, developed and promoted a unique restaurant concept
for which substantial goodwill has been created. Such restaurants consist of
family steak houses and are operated under the trade name "MONTANA MIKE'S
STEAKHOUSE(R)," utilize distinctive recipes, ingredients, and methods of
preparing and serving foods, and are operated with uniform formats, systems,
menus, methods, specifications, standards, and procedures ("System"), all of
which may be improved, further developed, or otherwise modified by Franchisor
from time-to-time. Franchisor uses, promotes, and licenses the proprietary
service ▇▇▇▇ "MONTANA MIKE'S STEAKHOUSE(R)" (and associated designs) and other
trademarks, service marks, logos, and commercial symbols in connection therewith
("Proprietary Marks"); and
WHEREAS, Franchisor grants to persons who meet Franchisor's
qualifications and are willing to undertake the requisite investment and effort
to establish and develop "MONTANA MIKE'S STEAKHOUSE(R)" restaurants ("Franchised
Restaurants"), franchises to operate Franchised Restaurants offering the food
items authorized and approved by Franchisor and utilizing the System and the
Proprietary Marks; and
WHEREAS, Franchisee acknowledges that he has read this Agreement and
Franchisor's Uniform Franchise Offering Circular and that Franchisee understands
and accepts the terms, conditions and covenants contained in this Agreement as
being reasonably necessary to maintain Franchisor's high standards of quality
and service and the uniformity of those standards at all Franchised Restaurants
in order to protect and preserve the goodwill of the Proprietary Marks; and
WHEREAS, Franchisee acknowledges that other license or franchise
agreements have been or may be granted by Franchisor at different times and in
different situations and further acknowledges that the terms and conditions of
such agreements may vary from those contained in this Agreement; and
WHEREAS, Franchisee acknowledges that he has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that, like any other business, it involves business risks and that
the success of the venture is largely dependent upon the business abilities of
Franchisee; and
WHEREAS, Franchisor expressly disclaims the making of, and Franchisee
acknowledges that it has not received or relied upon, any guaranty, express or
implied, as to the revenues, profits, or success of the business venture
contemplated by this Agreement; and
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WHEREAS, Franchisee acknowledges that he has not received or relied on
any representations about the franchise granted in this Agreement by Franchisor,
or its officers, directors, employees, or agents, that are contrary to the
statements made in Franchisor's Uniform Franchise Offering Circular or to the
terms of this Agreement and that in all of their dealings with Franchisee, the
officers, directors, employees, and agents of the Franchisor act only in a
representative capacity and not in an individual capacity; and
WHEREAS, Franchisee further acknowledges that this Agreement, and all
business dealings between Franchisee and such individuals as a result of this
Agreement, are solely between Franchisee and Franchisor; and
WHEREAS, Franchisee further' represents to the Franchisor, as an
inducement to its entry into this Agreement, that Franchisee has made no
misrepresentations in obtaining the franchise granted herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows.
1. GRANT OF FRANCHISE
1.01 Grant of License. Franchisee has applied for a franchise to own
and operate one (1) Franchised Restaurant at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ , ("Premises") and such application has been approved by Franchisor in
reliance upon all of the representations made in this Agreement. Franchisor
hereby grants to Franchisee, subject to all of the terms, provisions, and
conditions contained in this Agreement, a non-exclusive franchise ("Franchise")
to operate a Franchised Restaurant solely at the Premises, and to use the System
and Proprietary Marks in the operation thereof, for a term of fifteen (15) years
commencing on the opening of the Franchised Restaurant (as set forth on the
cover page of this Franchise Agreement) unless sooner terminated, as provided in
Section 15. Termination or expiration of this Agreement shall constitute a
termination or expiration of the Franchise.
Provided Franchisee is in substantial compliance with this Agreement,
Franchisor shall not operate or grant a franchise for the operation of another
Franchised Restaurant within a three (3) mile radius of the above Premises
("Exclusive Area") nor will Franchisor itself operate or grant a franchise for
the operation of any other family-style steak house restaurant similar to the
type of restaurant used in the System without first offering such restaurants to
Franchisee in a manner comparable to that provided to Franchisor in Section 12
of this Agreement.
1.02 Retention of Certain Rights. Notwithstanding anything to the
contrary, Franchisor (on behalf of itself and its affiliates) retains the right
in its sole discretion to:
(a) establish company-owned stores or grant the rights to
operate Franchised Restaurants providing products or services outside
of the Exclusive Area.
(b) offer and sell food products, including frozen products,
under the Proprietary Marks, or other marks, through retail locations,
including retail food stores, convenience stores, hotel shops, kiosks,
theatres, malls, airports, college campuses, gas stations, and other
retail locations, at special events or through any other channels of
distribution, including other restaurants, mail order, catalogue
sales, or over the Internet, within or outside the Exclusive Area.
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(c) establish or grant the rights to operate restaurants
providing products or services other than under the Proprietary Marks,
including utilizing Franchisor's other marks, specifically licensed to
Franchisee in the Franchise Agreement within or outside the Exclusive
Area.
(d) offer or sell any products or services under any other
marks through any other channels of distribution regardless of
location.
(e) Purchase, or be purchased by, or merge or combine with,
any competing or non-competing business, wherever located.
1.03 Agreement to Operate. Franchisee agrees that it will at all times,
faithfully, honestly and diligently perform its obligations of this Agreement,
that it will continuously exert its best efforts to promote and enhance the
business of the Franchise and that it will not engage in the operation of any
other steak house, restaurant (whether full or limited service) or similar
business or activity that may conflict with its obligations, in Franchisor's
sole discretion, without prior notification and approval by Franchisor in
writing. Notwithstanding the foregoing, the operation of another restaurant
concept by Franchisee as a duly franchised franchisee of Franchisor shall not
constitute a breach of this Section 1.03.
2. DEVELOPMENT AND OPENING OF THE RESTAURANT
2.01 Site Plan Approval; Construction. Franchisee shall not commit to
purchase or lease any real property, and Franchisee shall not commence any
constmction, unless and until the Franchisor has specifically accepted in
writing the site location of the Franchised Restaurant proposed by Franchisee
and the site plan and other plans and specifications in accordance with which
such Franchised Restaurant shall be constructed and equipped. In the event
Franchisee leases any real property for the development of the Franchised
Restaurant, Franchisee shall cause such lease to contain provisions which state
that (1) such lease is assignable to Franchisor without the prior approval of
the lessor, (2) that Franchisor shall be entitled to receive notice of any
Franchisee defaults and the right, but not the obligation, to cure such
defaults; (3) that upon taking assignment from Franchisee, Franchisor shall be
entitled to reassign or sublet the Premises to any affiliate or franchisee of
Franchisor and to be released from any further liability under the Lease in case
of an assignment; and (4) that Franchisor shall be entitled to receive from
Lessor copies of any reports or financial statements submitted to Lessor by
Franchisee. Franchisee shall cause all construction and equipping of the
Franchised Restaurant licensed hereunder to be done in strict compliance with
plans and specifications previously provided and accepted by the Franchisor. No
deviations therefrom shall be made without the express written acceptance of the
Franchisor. The Franchisor shall have the right to supervise and inspect all
construction to ensure its compliance with approved plans and specifications.
After completion of construction, Franchisee shall not alter, add to, eliminate
or modify the interior or exterior of such Franchised Restaurant or any
equipment, furnishings or fixtures therein without the prior approval of the
Franchisor.
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2.02 Architectural Plans. In the event Franchisee causes a
free-standing Franchised Restaurant to be constructed at the Premises,
Franchisor shall furnish standard plans and specifications for a prototype
Franchised Restaurant or applicable copies of blueprints from completed
restaurant conversions reflecting Franchisor's then current requirements for its
design, materials, layout, equipment, fixtures, furniture, furnishings and
decoration. It shall be the sole obligation of Franchisee to modify Franchisor's
standard plans and specifications to the extent necessary to comply with all
applicable ordinances, building codes, permit requirements, lease requirements
and restrictions and market considerations. Franchisee shall bear all expenses
of obtaining all requisite professional certifications required to construct the
Premises. The cost of all modifications shall be at Franchisee's sole expense.
In the event Franchisee remodels an in- line building, or a free-standing
building, it shall be Franchisee's responsibility to obtain plans and
specifications at Franchisee's expense. If plans and specifications are prepared
by Franchisee, or for Franchisee by anyone other than Franchisor, or if plans
and specifications furnished by Franchisor for the Franchised Restaurant are
modified by or for Franchisee by anyone other than Franchisor, Franchisee shall
submit final, detailed plans and specifications to Franchisor for its prior
written consent before any remodeling or construction is commenced. All
construction and remodeling must be in strict accordance with plans and
specifications furnished or approved by Franchisor. Franchisor shall have the
right to supervise and to inspect all construction and renovation to insure its
compliance with approved plans and specifications.
2.03 Franchised Restaurant Development. Franchisee agrees at its
expense to do or cause to be done the following within one (1) year after the
date of this Agreement:
(a) secure all financing required to fully develop the
Franchised Restaurant;
(b) obtain all required building, utility, sign, health,
sanitation, business permits and licenses, and any other required
permits and licenses;
(c) construct all required improvements to the Premises and
decorate the Franchised Restaurant in compliance with plans and
specifications approved by Franchisor;
(d) purchase and install all required fixtures, equipment,
furniture, furnishings and signs required for the Franchised
Restaurant;
(e) purchase an opening inventory of authorized and approved
food and beverage products and other materials and supplies; and
(f) open the Franchised Restaurant for business in accordance
with the provisions of Section 1.03.
In the event Franchisee fails to do or cause to be done any of the
above within the time period specified above, Franchisee shall pay to
Franchisor, as liquidated damages, the amount of Two Hundred Dollars ($200) per
day until such time as Franchisee is in compliance with this Section 2.03 or
until such time as both Franchisor and Franchisee execute mutual releases
whereby each party releases the other party from any obligations arising out of
this Agreement or any other agreement.
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2.04 Franchised Restaurant Opening. Franchisor will prepare a grand
opening advertising and promotional program for Franchised Restaurant which will
contain Franchisor's standard opening activities and publicity, and advice and
guidance with regard to staffmg, decoration, and operation of the Franchised
Restaurant during the grand opening period. Franchisee shall implement such
grand opening advertising and promotional program and spend in a manner approved
by Franchisor not less than Five Thousand Dollars ($5,000) for advertising and
promotional activities during the period commencing with the opening of the
Franchised Restaurant and ending forty-five (45) days thereafter.
2.05 Furnishings, Fixtures, Signs. Equipment and Utensils. Franchisee
agrees to use in the development and operation of the Franchised Restaurant only
those brands, types, or models of equipment, fixtures, furniture, furnishings,
signs, and tableware, flatware, glassware, serving dishes, and table linens
(collectively the "Utensils") that Franchisor has approved as meeting its
specifications and standards for quality, design, appearance, warranties, and
function. The equipment, fixtures, furniture, furnishings, signs, and Utensils
designated by Franchisor from time-to-time, shall be purchased only from
suppliers approved by Franchisor. Franchisee shall not install or have installed
any vending machines (other than for newspaper sales), video games, or similar
devices without the prior written approval of Franchisor.
3. TRAINING AND GUIDANCE
3.01 Store Management. The Franchised Restaurant must at all times be
directly supervised by Franchisee or by a designated restaurant manager
("Restaurant Manager") acceptable to Franchisor in Franchisor's reasonable
discretion. Franchisor shall furnish to Franchisee's Restaurant Manager and up
to two assistant managers a training program of up to eight (8) weeks duration
in the operation of a Franchised Restaurant during such period as Franchisor
designates prior to the commencement of the operation of the Franchised
Restaurant. The training program may be furnished at one (1) or more of
Franchisor's principal offices, another Company-operated restaurant or a
Franchised Restaurant. Franchisee or the Franchised Restaurant's Restaurant
Manager, if other than Franchisee, must successfully complete Franchisor's
training program to the satisfaction of Franchisor. Franchisee, or the
Restaurant Manager, as the case may be, and up to two assistant managers, must
be in training at least ninety (90) days prior to the opening of the Franchised
Restaurant. Any. subsequently hired Restaurant Manager must successfully
complete Franchisor's training program. Franchisee shall bear all personnel
expenses of its trainees during all training programs, including, but not
limited to, salaries, benefits, travel, food and lodging costs.
3.02 Supplemental Management During Start-Up Period. To assist with the
store opening, Franchisor shall provide up to three (3) trainers for up to
fourteen (14) days each to assist with training before and immediately following
the opening of the Franchised Restaurant. Franchisor shall bear all personnel
expenses of such trainers, including, but not limited to, salaries, travel, food
and lodging costs. In addition to the trainers provided by Franchisor,
Franchisee shall also be required to obtain up to twelve (12) additional
individuals ("Supplemental Trainers") to assist with training of Franchisee's
employees during the period before and immediately after the initial opening of
the Franchised Restaurant, for such length of time as Franchisor shall
determine. The identities and qualifications of each Supplemental Trainer shall
be presented in writing to Franchisor not less than thirty (30) days prior to
the proposed opening of the Franchised Restaurant. The number of Supplemental
Trainers engaged and the acceptability of the qualifications of each individual
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Supplemental Trainer shall be at the discretion of Franchisor. Franchisee shall
bear all personnel expenses incurred from the use of Supplemental Trainers,
including, but not limited to, salaries, benefits, travel, food and lodging
costs. It is acknowledged and agreed that while providing such start-up
assistance Franchisor shall only have a duty to utilize its reasonable efforts
and shall not be liable to Franchisee or its owners for any debts, losses, or
obligations incurred by the Franchised Restaurant, or to any creditor of
Franchisee for any food products, materials, equipment, fixtures, furnishings,
Utensils, supplies, or services purchased by the Franchised Restaurant during
the periods of time when the training services are being rendered by
Franchisor's personnel.
3.03 Restaurant Managers - Generally. In addition to the rights
established hereunder, including those in Section 11, Franchisor and its
representatives shall have the right to communicate directly with Franchisee's
Restaurant Manager concerning all matters of an operational nature. Franchisor
may require Franchisee and/or previously trained and experienced Restaurant
Managers to attend periodic refresher courses at locations designated by
Franchisor, and failure of Franchisee or the Restaurant Manager to attend such
refresher courses shall constitute a default of this Agreement. Franchisee shall
be responsible for all personnel salaries, benefits, travel and living expenses
which Franchisee and/or its Restaurant Manager incur in connection with initial
training and any subsequent refresher training programs.
3.04 Interference With Employment Relations. During the term of this
Agreement, neither Franchisor nor Franchisee shall employ or seek to employ,
directly or indirectly, any person serving in a managerial position who is at
the time or was at any time during the prior six (6) months employed by the
other party, its subsidiaries, or by any franchise holder within Franchisor's
franchise system or any other restaurant or retail concept then operated,
licensed, franchised, or under development by Franchisor. This Section shall not
be violated if, at the time Franchisor or Franchisee employ or seek to employ
such person, the then current or former employer, as the case may be, has given
its written consent. The parties acknowledge and agree that in the event this
Section is violated, that notwithstanding Section 15.01, the former employer
shall be entitled to liquidated damages in the amount of Twenty-Five Thousand
Dollars ($25,000) plus reimbursement of all costs and attorney fees incurred.
For purposes of this Section 3.04, "managerial position" includes all employees
at the pay grade of Restaurant Manager or assistant manager and above as that
term is defined in the Manual.
3.05 Guidance. Franchisor shall advise Franchisee from time-to-time of
operating problems of the Franchised Restaurant disclosed by reports submitted
to or inspections made by Franchisor or by independent persons hired by
Franchisor ("Mystery Shoppers") and shall furnish to Franchisee guidance in
connection with:
(a) methods, standards, and operating procedures utilized by
the Franchised Restaurants;
(b) preparation of food products and development of new
products;
(c) purchasing approved equipment, furnishings, fixtures,
furniture, signs, Utensils, food products, beverages, and supplies;
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(d) advertising and promotional programs;
(e) employee training; and
(f) administrative, bookkeeping, accounting, and general
operating and management procedures.
Such guidance shall, in the discretion of Franchisor, be furnished in
the form of the Franchisor's confidential operations manual ("Manual"),
bulletins, other written materials, and/or telephonic consultations or
consultations at the offices of Franchisor or at the Franchised Restaurant. If
requested by Franchisee, Franchisor may, at its election, furnish additional
guidance and assistance at per diem fees based upon Franchisor's actual cost in
providing such guidance and assistance.
3.06 Manual. Franchisor will loan to Franchisee during the term of the
Franchised Restaurant one (1) copy of the Manual. The Manual shall contain
mandatory and suggested specifications, standards, and operating procedures
prescribed from time-to-time by Franchisor for the Franchised Restaurant and
information relative to other obligations of the Franchisee hereunder and in the
operation of Franchised Restaurants. The Manual may be modified from
time-to-time in Franchisor's sole discretion to reflect changes in the image,
decor, design, format, appearance, methods, standards and specifications,
operating procedures, menus and recipes, and food products and beverages
approved and required for the Franchised Restaurants. Franchisee shall keep its
copy of the Manual current and in the event of a dispute relative to the
contents of the Manual, the master copy maintained by Franchisor at its
principal office shall be controlling. Franchisee may not at any time reproduce
any part of the Manual.
4. PROPRIETARY MARKS
4.01 Ownership of Goodwill and Proprietary Marks. Franchisee
acknowledges that Franchisee's right to use the Proprietary Marks is derived
solely from this Agreement and is limited to the conduct of business by
Franchisee pursuant to and in compliance with this Agreement and all applicable
standards, specifications, and operating procedures prescribed by Franchisor
from time-to-time during the term of this Agreement. Any unauthorized use of the
Proprietary Marks by Franchisee shall constitute a breach of this Agreement and
an infringement of the rights of Franchisor in and to the Proprietary Marks.
Further, Franchisee shall not infringe upon, nor otherwise unlawfully
commercially exploit, any other trademarks, service marks, commercial symbols or
tradenanies of any other restaurant concept which Franchisor may now or
hereafter itself operate, or license or franchise to others, without the prior
written consent of Franchisor. Franchisee acknowledges and agrees that all usage
of the Proprietary Marks by Franchisee and any goodwill established thereby
shall inure to the exclusive benefit of Franchisor and that this Agreement does
not confer any goodwill or other interests in the Proprietary Marks upon
Franchisee other than the right to operate a Franchised Restaurant in compliance
with this Agreement. All provisions of this Agreement applicable to the
Proprietary Marks shall apply to any additional proprietary, trade and service
marks, and commercial symbols hereafter authorized for use by and licensed to
Franchisee by Franchisor.
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4.02 Limitations on Franchisee's Use of Proprietary Marks. Franchisee
agrees to use the Proprietary Marks as the sole identification of the Franchised
Restaurant, provided that Franchisee shall identify itself as the independent
owner thereof in the manner prescribed by Franchisor. Franchisee shall not use
any Proprietary ▇▇▇▇ as part of any corporate or trade name or with any prefix,
suffix, or other modifying words, terms, designs, or symbols (other than logos
licensed to Franchisee hereunder), or in any modified form (including, utilizing
Franchisor's trademarks or registered name for posting, or for use in, a webpage
on the Internet, registering an Internet domain name, or in an electronic mail
[e-mail] address), nor may Franchisee use any Proprietary ▇▇▇▇ in connection
with the performance or sale of any unauthorized services or products or in any
other manner not expressly authorized in writing by Franchisor. Franchisee
agrees to prominently display the Proprietary Marks at the Franchised
Restaurant, on menus, supplies, or packaging materials designated by Franchisor,
and in connection with advertising and marketing materials. All Proprietary
Marks shall be displayed in the manner prescribed by Franchisor. Franchisee
agrees to give such notices of trade and service ▇▇▇▇ registrations as
Franchisor specifies and to obtain such fictitious or assumed name registrations
as may be required under applicable law.
4.03 Infringement. Franchisee shall notify Franchisor in writing within
three (3) days of the date Franchisee learns about any apparent infringement of,
or challenge to Franchisee's use of any Proprietary ▇▇▇▇, or claim by any person
of any rights in any Proprietary ▇▇▇▇ or similar trade name, trademark, or
service ▇▇▇▇ of which Franchisee becomes aware. Franchisee shall not communicate
with any person other than Franchisor, its counsel or Franchisee's counsel in
connection with any such infringement, challenge, or claim. Franchisor shall
have sole discretion to take such action as it deems appropriate and the right
to exclusively control any litigation, U.S. Patent and Trademark Office
proceeding or other administrative proceeding arising out of any such
infringement, challenge, or claim or otherwise relating to any Proprietary ▇▇▇▇
or the System. If Franchisor elects, in its sole discretion, to defend the
infringement allegation, Franchisor shall, at Franchisor's own cost and expense,
vigorously defend Franchisee to the Court of first determination against any
challenge to Franchisee's use of any Proprietary ▇▇▇▇ or right to use the
System, or part thereof, or any claim by any person of any rights in any
Proprietary ▇▇▇▇ or similar trade name, trademark, service ▇▇▇▇ or trade dress
used in connection with the System or the business contemplated hereby except
for proprietary rights in trade names, trademarks, or service marks arising
under the cOmmon law and Franchisor shall indemnify Franchisee from any and all
loss or damage Franchisee may suffer, whether by a judgment against Franchisee
or by a settlement consented to by Franchisor arising from such challenge or
claim. Franchisee shall make no claim against Franchisor and shall hold
Franchisor harmless from any and all direct or indirect, costs, damages,
demands, expenses, losses or liabilities suffered by Franchisee as a result of
any modification of the System necessitated by such claim or challenge,
including the costs of altering the Franchised Restaurant, or any reduction in
sales revenues or profits, or increased capital expenditures or operating costs
resulting from such modification and occasioned by any litigation arising out of
any such claim or challenge relating to Franchisee's use of any Proprietary ▇▇▇▇
or right to use the System. Further, Franchisee shall waive any and all past,
present or future claims, demands, or actions it may have against Franchisor
arising from such litigation except as provided in the foregoing provisions of
this Section 4.03. Franchisee agrees to and shall execute any and all
instruments and documents, render such assistance and do such acts and things as
may, in the opinion of Franchisor's counsel, be necessary or advisable to
protect and maintain the interests of Franchisor in any such litigation, U.S.
Patent and Trademark Office proceeding, other administrative proceeding, or to
otherwise protect and maintain the interests of Franchisor in the Proprietary
Marks.
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4.04 Discontinuance of Use of Proprietary Marks. If it becomes
advisable at any time in Franchisor's sole discretion for Franchisor and/or
Franchisee to modify or discontinue use of any Proprietary Marks, and/or to use
one (1) or more additional or substitute trade or service marks, Franchisee
agrees to and shall comply with Franchisor's direction to supplement, modify or
otherwise discontinue, at Franchisee's own expense the use of such Proprietary
Marks within a reasonable time after notice thereof by Franchisor.
5. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
5.01 Independent Status. It is understood and agreed by the parties
hereto that this Agreement does not create a fiduciary relationship between
them, that Franchisor and Franchisee shall be independent contractors, and that
nothing in this Agreement is intended to make either party a general or special
agent, joint venturer, partner, or employee of the other for any purpose.
Franchisee shall conspicuously identify himself in all dealings with customers,
suppliers, public officials, and others as the owner of the Franchised
Restaurant under a franchise with Franchisor and shall place such other notices
of independent ownership on such forms, guest checks, business cards, comment
cards, stationery, advertising, and other materials as Franchisor may require
from time-to-time.
5.02 Additional Limitations on Franchisee's Use of Proprietary Marks.
Franchisor has not authorized or empowered Franchisee to use the Proprietary
Marks except as provided by this Agreement and Franchisee shall not employ any
of the Proprietary Marks in signing any contract, check, purchase agreement,
negotiable instrument, or legal obligation, application for any license or
permit, or in a manner that may result in liability of Franchisor for any
indebtedness or obligation of Franchisee. Except as expressly authorized by this
Agreement, neither Franchisor nor Franchisee shall make any express or implied
agreements, warranties, guarantees or representations, or incur any debt, in the
name of or on behalf of the other or represent that their relationship is other
than franchisor and franchisee.
5.03 Limitations on Liability. Neither Franchisor nor Franchisee shall
be obligated by or have any liability under any agreements or representations
made by the other that are not expressly authorized hereunder, nor shall
Franchisor be obligated for any damages to any person or property directly or
indirectly arising out of the operation of the Franchised Restaurant, or
Franchisee's business authorized by or conducted pursuant to the Franchise,
whether caused by Franchisee's negligent or willful action or failure to act to
the relative extent such damages do not arise out of Franchisor's negligence,
wrongful act or improper failure to act. Franchisor shall have no liability for
any sales, use, occupation, excise, gross receipts, income, property or other
taxes, whether levied upon Franchisee, the Franchised Restaurant, or
Franchisee's property, or upon Franchisor, in connection with the sales made or
business conducted by Franchisee or payments to Franchisor pursuant hereto.
5.04 Indemnification. Franchisee shall indemnify and hold harmless
Franchisor, its shareholders, directors, officers, employees, agents, and
assignees against any liability for any claims, including those specified in
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Section 5.03, arising out of the operation of the Franchised Restaurant. For
purposes of this indemnification, "claims" shall mean and include all
obligations, actual and consequential damages, taxes, and costs reasonably
incurred by Franchisor in the defense of any claim against Franchisor or in any
action in which Franchisor is named as a party, including without limitation
reasonable accountants', attorneys' and expert witness fees, costs of
investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses. Franchisor shall have the right to defend any such
claim against it by employing reasonable counsel of its choice, subject to full
reimbursement of all legal fees by Franchisee. Franchisor shall use its
reasonable efforts to cooperate with Franchisee in any litigation or judicial or
administrative proceeding to avoid duplication of time, effort or expenditure to
the greatest extent possible without compromising Franchisor's interest in such
matter. This indemnity shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement.
6. FEES
6.01 Initial Franchise Fees. Franchisee shall pay to the Franchisor an
initial franchise fee ("Initial Franchise Fee") in the amount of Twenty Thousand
Dollars ($20,000), which is due and payable at the time Franchisee submits this
Agreement to Franchisor for execution by Franchisor. The parties agree that the
Initial Franchise Fee is fully earned by Franchisor upon receipt of payment by
Franchisee and Franchisee shall not be entitled to a refund of the Initial
Franchise Fee for any reason.
6.02 Royalty and Service Fee. Franchisee shall pay to Franchisor during
the term of this Agreement on or before the tenth (10th) day of each calendar
month a royalty and service fee in the amount of three percent (3%) of the Net
Sales (as defined in Section 6.03) derived from the operation of the Franchised
Restaurant for the then preceding calendar month ("Continuing Royalties"). If
there is hereafter assessed any nature of sales tax or use tax or other tax on
Continuing Royalties or other sums previously or hereafter received by
Franchisor under this Agreement ("Sales Tax"), then in addition to all
Continuing Royalties and other payments to be made by Franchisee as provided in
this Agreement, Franchisee shall also pay Franchisor or the taxing authority, if
required by law, a sum equal to the amount of such Sales Tax. The term "Sales
Tax" shall not include any income taxes applicable to Franchisor. Any Sales Tax
paid to Franchisor shall be paid when due to the taxing authority.
6.03 Definition of "Net Sales". As used in this Agreement, the term
"Net Sales" shall mean the total aggregate of all monies and receipts received
by Franchisee and derived from (i) all products prepared and services performed
at the Franchised Restaurant licensed hereunder, (ii) all sales and orders made,
solicited or received at such location, and (iii) all other business whatsoever
conducted or transacted at or from such Franchised Restaurant, and whether such
Net Sales are evidenced by cash, credit, check, gift certificates, services,
property or other means of exchange and whether such Net Sales are derived from
the sale of food, beverages, liquor, other goods (other than restaurant
equipment), supplies or catering services. Net Sales shall also be deemed to
mean the total aggregate of all monies and receipts received by Franchisee from
any other business (including but not limited to, any approved vending or game
machine receipts other than those received from newspaper vending machines, coin
telephones or jukeboxes) operated upon the Premises. However, there shall be
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excluded from Net Sales (i) all Sales Taxes imposed by governmental authorities
directly on sales and actually collected from customers, provided such taxes are
added to the selling price and accounted for separately on all sales receipts
and are, in fact, paid by Franchisee to the appropriate governmental authority,
(ii) promotional or discount sales or coupons to the extent Franchisee realizes
no revenue therefrom through issuance, redemption or otherwise, and (iii)
amounts received directly by Franchisee's employees from customers as gratuities
or tips for services rendered. Net Sales shall be deemed to be realized by
Franchisee at the time of the sale or delivery of the products, merchandise, or
services, irrespective of the time when Franchisee actually received payment.
Net Sales consisting of property or services shall be valued at their fair
market value at the time such property or services were received by or for the
account of Franchisee. In the event of the occurrence of a casualty loss, the
definition of Net Sales shall be an amount equal to the lost revenues utilized
by Franchisee's insurance company in calculating the amount of revenues
recoverable under any business interruption policy.
6.04 Interest on Late Payments. All Continuing Royalties and marketing
contributions due hereunder, amounts due for purchases by Franchisee from
Franchisor or its affiliates, and other amounts which Franchisee owes to
Franchisor or its affiliates shall be paid punctually, without the necessity for
invoice by Franchisor, and shall bear interest after the due date at the highest
applicable legal rate for open account business credit, not to exceed two
percent (2%) per month. Franchisee acknowledges that this Section shall not
constitute Franchisor's agreement to accept such payments after such payments
are due or a commitment by Franchisor to extend credit to, or otherwise fmance
Franchisee's operation of the Franchised Restaurant. Further, Franchisee
acknowledges that its failure to pay all amounts when due shall constitute
grounds for termination of this Agreement, as provided in Section 15,
notwithstanding the provisions of this Section.
6.05 Application of Payments. Notwithstanding any designation by
Franchisee, Franchisor shall have sole discretion to apply any payments by
Franchisee or any rebate or other third party payment received by Franchisor on
behalf of Franchisee, if any, to any past due indebtedness of Franchisee for
Continuing Royalties or marketing contributions due Franchisor, purchases from
Franchisor or its affiliates, interest or any other indebtedness.
6.06 Retention of Fees by the Franchisor. Franchisee acknowledges and
agrees that in the event of the termination of the license granted under this
Agreement for any reason whatsoever, the Franchisor shall be entitled to retain
for its own account any and all Initial Franchise Fee and Royalty and Service
Fee payments previously made by Franchisee, and Franchisee agrees that such
payments shall be fully earned by the Franchisor as of the date of such
payments, and whether or not the Franchised Restaurant licensed under this
Agreement is ever opened for business by Franchisee in the Exclusive Area.
6.07 Concept Transfer Fee: Franchisee shall pay a concept transfer fee
("Concept Transfer Fee") in the amount of One Thousand Dollars ($1,000) if
Franchisee requests to change from one franchise concept to another within
Franchisor's System. The Concept Franchise Fee shall be paid at the time
Franchisee signs a Franchise Agreement for the new concept after Franchisor has
approved, in writing, Franchisee's requested change. Franchisor reserves the
right to grant or deny Franchisee's request in Franchisor's sole discretion.
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7. CONFIDENTIAL INFORMATION
Franchisor possesses certain types of confidential information,
including but not limited to, menu items and new test menu items, ingredients,
recipes, formulas, and methods of preparation and presentation of food products
sold at Franchised Restaurants, as well as the methods, techniques, formats,
specifications, procedures, information, systems, computer software, and
knowledge of and experience in the operation and franchising of Franchised
Restaurants, and further including, without limitation, any and all of the
foregoing that may arise by reason of Franchisor's franchise of, and
Franchisee's operation of, the Franchised Restaurant during the term of this
Agreement ("Confidential Information").
Franchisor will disclose the Confidential Information to Franchisee
when rendering guidance and assistance to Franchisee under the terms of this
Agreement, including by way of example, furnishing the Manual.
7.01 Limitation on Interest in Confidential Information. Franchisee
acknowledges and agrees that, although Franchisee has the right to use the
Confidential Information, Franchisee will not acquire any interest in the
Confidential Information, other than the right to utilize it in the operation of
the Franchised Restaurant (and other Franchised Restaurants, if any, developed
under other agreements with Franchisor) during the term of this Agreement, and
that the use or duplication of the Confidential Information in the operation of
any other family-style steak house or other business which, in Franchisor's sole
discretion, would constitute an unfair method of competition.
7.02 Use of Confidential Information. Franchisee acknowledges and
agrees that the Confidential Information is proprietary, involves trade secrets
of Franchisor, and is disclosed to Franchisee solely on the express condition
that Franchisee agrees, and Franchisee does hereby agree, that Franchisee:
(a) shall not use the Confidential Information in the
operation of any other restaurant, or other business, including any
other restaurant engaged in the sale or preparation of steak or a
combination of steak andlor other food items or services;
(b) shall maintain the absolute confidentiality of the
Confidential Information during and after the term of this Agreement;
(c) shall not make any unauthorized copy, duplicate, record,
or otherwise reproduce all or any portion of the Confidential
Information disclosed in written form;
(d) shall never contest the validity of Franchisor's exclusive
ownership of and rights to the System or the Confidential Information;
and
(e) shall adopt and implement all reasonable procedures
prescribed from time- to-time by Franchisor to prevent unauthorized use
or disclosure of the Confidential Information, including without
limitation, restrictions on disclosure to employees, officers, and
directors of the Franchisee and the use of non-disclosure and
noncompetition clauses as prescribed by Franchisor in employment
agreements with any of Franchisee's employees who have access to the
Confidential Information.
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Notwithstanding the foregoing, the operation of another restaurant
concept by Franchisee as a duly franchised franchisee of Franchisor shall not
constitute a breach of this Section 7.02.
7.03 Exception to Restrictions on Confidential Information.
Notwithstanding anything to the contrary contained in this Agreement, the
restrictions on Franchisee's disclosure and use of the Confidential Information
shall not apply to the following:
(a) information, processes, or techniques which are or become
generally known and used in the family-style steak house restaurant
industry, other than through disclosure (whether deliberate or
inadvertent) by Franchisee;
(b) disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that Franchisee is legally
compelled to disclose such information, provided Franchisee shall have
used its best efforts, and shall have afforded Franchisor the
opportunity to obtain an appropriate protective order, or other
assurance satisfactory to Franchisor, of confidential treatment for the
information required to be so disclosed; and
(c) disclosure to Franchisee's employees to the extent
necessary for the proper operation of the Franchised Restaurant.
7.04 Non-Competition Covenant. Franchisee acknowledges and agrees that
Franchisor would be unable to protect the Confidential Information against
unauthorized use or disclosure and Franchisor would also be unable to encourage
a free exchange of ideas and information among operators of Franchised
Restaurants if franchised owners of Franchised Restaurants were permitted to
hold interests in any competitive businesses, as described in this Agreement.
Franchisee also acknowledges that Franchisor has granted the franchise rights to
Franchisee in part in consideration of, and in reliance upon, Franchisee's
agreement to deal exclusively with Franchisor. Accordingly, Franchisee, any
shareholder or partner (in the event Franchisee is a corporation or
partnership), or any spouse or unemancipated child of Franchisee or any
shareholder or partner of Franchisee, shall not have any interest as an owner,
investor, partner, lender, lessor, director, officer, manager, employee,
consultant, representative, or agent, or in any other capacity shall not
directly or indirectly enter into the employ, or work in concert with or serve
as consultant for, any person, partnership, corporation, association,
organization or other entity engaged in the operation of a steak house
restaurant or any other restaurant engaged in the sale or preparation of steak,
or a combination of steak and/or other food items or services (for example, the
use of buffets) similar to the principal food items or services then approved by
Franchisor for use in the Franchised Restaurants then in operation in the System
and located (i) anywhere during the term of this Agreement and any extension
thereof or (ii) following expiration or termination of this Agreement within the
Exclusive Area or within a radius of fifty (50) miles from any Franchisor-owned
or affiliate-owned restaurant or any franchise concept owned, operated, licensed
or franchised by Franchisor, or any concept which, in Franchisor's sole
discretion, is similar to any franchise concept owned, operated, licensed, or
franchised by Franchisor, wherever situated and operated by whomsoever, then
open or under construction or under lease or purchase commitment, for a period
of three (3) years after such expiration or termination. Neither the ownership
of a class of securities listed on a stock exchange or traded on the
over-the-counter market that represents five percent (5%) or less of the number
of shares of such class of securities then issued and outstanding, nor the
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operation of another restaurant concept by Franchisee as a duly franchised
franchisee of Franchisor, shall constitute a violation of this Section 7.04.
Franchisor and Franchisee agree that the Non-Compete Covenant shall not apply to
any business or restaurant owned by Franchisee prior to Franchisee's entry into
this Agreement.
7.05 Improper Disclosure. In the event Franchisee discovers that any of
its current or former officers, directors, partners, Restaurant Managers,
shareholders or related parties thereto are violating, have violated, or are
commencing to violate the prohibitions on disclosure or reproduction of
Confidential Information provided for in this Agreement, Franchisee shall
immediately notif~' Franchisor of such violation. Franchisor shall seek such
legal and equitable relief, including seeking monetary damages, as it deems
necessary in its sole discretion. Any and all damages recovered by Franchisor
pursuant to any such cause of action shall be the exclusive property of
Franchisor. In the event it is determined that any of such damages have been
caused by the willful or negligent behavior of Franchisee or due to the failure
of Franchisee to properly supervise the actions of the individual found to be in
violation of this Agreement, Franchisor shall be reimbursed by Franchisee for
all costs and expenses, including attorneys' fees, that were incurred by
Franchisor in pursuing such cause of action, whether or not such action results
in a favorable judgment to Franchisor.
7.06 Ownership of Business Records. Franchisee acknowledges and agrees
that the Franchisor shall at all times have unrestricted access to all business
records ("Business Records") with respect to customers, employees, and other
service professionals of, and/or related to, the Franchised Restaurant
including, without limitation, all databases (whether in print, electronic or
other form), including all names, addresses, phone numbers, e-mail addresses,
customer purchase records, and all other records contained in the database, and
all other Business Records created and maintained by Franchisee, and that at the
expiration or earlier termination of this Franchise Agreement, all Business
Records shall become the sole property of Franchisor. Franchisee further
acknowledges and agrees that, at all times during and after the termination,
expiration or cancellation of this Agreement, Franchisor may access such
Business Records, and may utilize, transfer, or analyze such Business Records as
Franchisor determines to be in the best interest of the System, in Franchisor's
sole discretion.
8. RESTAURANT IMAGE AND OPERATING STANDARDS
8.01 Condition and Appearance of the Franchised Restaurant. Franchisee
shall:
(a) not use the Franchised Restaurant or the Premises for any
purpose other than the operation of a Franchised Restaurant operated in
compliance with this Agreement;
(b) maintain the condition and appearance of the Franchised
Restaurant and the Premises in accordance with the standards of
Franchisor and consistent with the image of a Franchised Restaurant as
a clean, sanitary, attractive, and efficiently operated restaurant
offering high quality food and beverages and courteous and helpful
service;
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(c) affect such maintenance of the Franchised Restaurant and
the Premises as is required by Franchisor from time-to-time to maintam
the condition, appearance and efficient operation thereof, including
without limitation:
(i) continuous and thorough cleaning and sanitation
of the interior and exterior of the Premises;
(ii) continuous and workmanlike interior and exterior
repair of the Premises;
(iii) maintenance of equipment at peak efficiency;
(iv) replacement of worn out or obsolete
improvements, fixtures, furniture, furnishings, equipment,
signs and Utensils, with duly approved improvements, fixtures,
furniture, furnishings, equipment, signs, and Utensils; and
(v) periodic painting and redecorating.
(d) upgrade and/or remodel the Franchised Restaurant at its
sole cost and expense, which may not be limited in any way, provided
Franchisee will have a reasonable time period remaining under the term
of this Agreement to amortize the costs of such improvements, at
reasonable intervals determined by Franchisor to reflect changes in the
image, design, format, or operation of Franchised Restaurants
introduced by Franchisor, and required of new Franchised Restaurant
franchisees, subject to approval by the Franchisor of detailed plans
and specifications for all construction, repair, or refixturing in
connection with such upgrading or remodeling; and
(e) place or display at the Premises (interior or exterior)
only such signs, emblems, lettering, logos, and display any advertising
materials that are from time-to- time approved in writing by
Franchisor.
8.02 Alterations to the Premises by Franchisor. In the event Franchisee
does not maintain the condition and appearance of the Franchised Restaurant and
Premises as required under the terms of this Agreement, Franchisor may, upon not
less than twenty (20) days written notice to Franchisee:
(a) arrange for the necessary cleaning or sanitation, repair,
remodeling, upgrading, painting, or decorating; and
(b) replace the necessary leasehold improvements, fixtures,
equipment, and signs.
Franchisee shall reimburse Franchisor for the entire costs incurred by
Franchisor to make such alternations to the Premises as determined by Franchisor
in Franchisor's reasonable discretion, upon demand by Franchisor.
8.03 Alterations to the Premises by Franchisee. Franchisee shall not
make any material replacements of or alterations to the Premises, improvements,
layout, fixtures, furniture and furnishings, signs, equipment, Utensils, or
15
appearance of the Franchised Restaurant as originally developed without prior
written approval by Franchisor. Franchisee shall not install or have installed
any vending machines (other than for newspaper sales), video games, or similar
devices without the prior written approval of Franchisor.
8.04 Approved Products. Distributors and Suppliers. The reputation and
goodwill of Franchised Restaurants is based upon, and can be maintained only by,
the sale of distinctive, high quality food products and beverages and the
presentation and packaging of such products in an attractive manner. Franchisee
therefore will conform the Franchised Restaurant to Franchisor's specifications
and quality standards and shall only purchase from distributors and suppliers
approved by Franchisor, all food products, beverages, ingredients, flavorings,
and garnishes used in the preparation of food products and beverages; menus,
containers, cartons, bags, boxes, napkins, other paper and plastic goods,
packaging supplies, and other materials and Utensils.
In approving distributors and suppliers for the Franchised Restaurant,
Franchisor may take into consideration such factors as price of products or
supplies and reliability of the proposed distributor or other supplier.
Franchisor may concentrate purchases with one (1) or more distributor and/or
other supplier to obtain the lowest prices and/or the best advertising support
and/or services for any group of Company-operated restaurants or Franchised
Restaurants. Approval of a distributor or supplier may be conditioned on
requirements relating to the frequency of delivery, standards of service,
including prompt attention to complaints, and concentration of purchases, as set
forth above, and may be temporary, pending a further evaluation of such
distributor or other supplier by Franchisor.
If Franchisee proposes to sell any food product or beverage, or use any
ingredients, flavorings, garnishes, or containers, cartons, bags, boxes, paper
or plastic goods, packaging supplies or other materials, or Utensils of any
type, or to purchase such items from a distributor or other supplier who has not
been previously approved by Franchisor, Franchisee shall first notify Franchisor
and submit to Franchisor such information, specifications, and samples as
Franchisor requests. Franchisor shall within a reasonable time determine whether
such item meets its specifications and quality standards and/or whether
Franchisor approves such distributor or other supplier and shall notify
Franchisee whether the Franchised Restaurant is authorized to utilize or sell
such item and/or purchase from such distributor or other supplier.
Franchisee acknowledges and agrees that Franchisor may derive revenue
from the sale of certain proprietary food products or receive rebates or
commissions from Franchisee's purchases, and Franchisor shall be entitled to
utilize this revenue for any purpose in its sole discretion.
8.05 Franchised Restaurant Menu. Franchisee shall continuously offer
all food items and beverages listed in the menu approved by Franchisor and shall
comply with all menu cycle procedures prescribed by Franchisor. If Franchisee
desires to add items to or delete items from the Franchised Restaurant's menu,
it must first obtain the prior written approval of Franchisor. Franchisee
acknowledges that Franchisor requires such approval of new items to assure
itself that such items are of the type and quality approved for Franchised
Restaurants and are consistent with the image and format of the Franchised
Restaurants. Franchisee agrees that it will not, without the prior written
16
approval of Franchisor, offer any food products or beverages or any services
that are not then authorized by Franchisor for Franchised Restaurants.
8.06 Specifications, Standards and Procedures. Franchisee acknowledges
that each and every detail of the appearance, layout, decor, food products,
beverages, Utensils, materials, and supplies utilized, services offered, and
operation of the Franchised Restaurant is important to Franchisor's and other
franchisees' Franchised Restaurants. Franchisor shall endeavor to maintain the
high standards of quality and service by all Franchised Restaurants franchised
or operated by Franchisee. To this end, Franchisee shall cooperate with
Franchisor by maintaining these high standards in the operation of the
Franchised Restaurant. Franchisor shall have the nglit to rely on responses of
independent Mystery Shoppers in evaluating Franchisee's performance under this
Agreement. Franchisee agrees to comply with all mandatory specifications,
standards and operating procedures relating to:
(a) type, quality, purity, taste, portions, weight and/or
dimensions, ingredients, uniformity, and manner of preparation and sale
of food products and beverages sold by the Franchised Restaurant;
(b) appearance and dress of employees;
(c) appearance, cleanliness, sanitation, standards of service,
and operation of the Franchised Restaurant;
(d) submission of requests for approval of food products,
beverages, Utensils, materials, supplies, distributors and suppliers;
(e) hours and days during which the Franchised Restaurant will
be open for business; and
(f) customer evaluation forms.
Further, all mandatory specifications, standards, and operating
procedures prescribed from time-to-time by Franchisor in the Manual, or
otherwise communicated to Franchisee in writing, shall constitute provisions of
this Agreement as if fully set forth herein. Accordingly, all references in this
Agreement to Franchisee's obligations under this Agreement shall include all
such mandatory specifications, standards, and operating procedures. Franchisor
reserves the right to contact any or all of Franchisee's customers, employees,
suppliers, distributors, and other service professionals for quality control,
market research, and such other purposes as Franchisor deems appropriate, in
Franchisor's sole discretion.
8.07 Hours and Days of Business. Unless otherwise agreed upon by
Franchisor and Franchisee, Franchisee agrees to operate the Franchised
Restaurant for a minimum of three hundred sixty (360) days each calendar year,
except such days as the location is closed for bad weather, civil disorders,
acts of God, repairs and casualty loss or loss by eminent domain, as provided in
Section 18. Each day the Franchised Restaurant is open for business, Franchisee
shall conduct business and serve food and beverage during such hours as may be
specified by Franchisor from time-to-time, which shall be no less than ten (10)
hours each day, during the term hereof, subject to the limitations of applicable
local law.
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8.08 Compliance with Laws and Good Business Practices. Franchisee shall
secure and maintain, in force in its name all required liquor and business
licenses, permits, and certificates relating to the operation of the Franchised
Restaurant. Franchisee shall operate the Franchised Restaurant in full
compliance with all applicable laws, ordinances, and regulations, including,
without limitation, all government regulations relating to zoning, access,
variances, occupational hazards, health and safety, sign and fire requirements,
liquor liability, workers' compensation insurance, unemployment insurance and
the withholding and payment of federal and state income taxes, social security
taxes and sales taxes. All marketing by Franchisee shall be completely factual,
in good taste as determined in the sole judgment of Franchisor, and shall
conform to the highest standards of ethical advertising. Franchisee shall in all
dealings with its customers, suppliers, Franchisor and the public adhere to the
highest standards of honesty, integrity, fair dealing, and ethical conduct.
Franchisee agrees to refrain from any business or advertising practice which may
be injurious to the business of Franchisor and the goodwill associated with the
Proprietary Marks and other company-owned and franchisee-owned restaurants.
Franchisee shall notify Franchisor in writing within five (5) days of the
commencement of any action, suit or proceeding, and of the issuance of any
order, writ, injunction, award or decree of any court, agency, or other
governmental instrumentality, which may adversely affect the operation or
fmancial condition of Franchisee or the Franchised Restaurant or of any notice
of violation of any law, ordinance, or regulation relating to health,
sanitation, or the possession or sale of alcoholic beverages at the Franchised
Restaurant.
8.09 Hiring, Training and Appearance of Employees. Franchisee shall
hire all employees of the Franchised Restaurant, be exclusively responsible for
the terms of their employment and compensation and, except as set forth in
Section 3, for the proper training of such employees in the operation of the
Franchised Restaurant. Franchisee shall require all employees to maintain a neat
and clean appearance and to conform to the standards of dress and uniforms
specified by Franchisor from time-to-time for the Franchised Restaurants.
8.10 Insurance. During the term of the Franchised Restaurant,
Franchisee shall maintain in force under policies of insurance issued by
carriers approved by Franchisor:
(a) comprehensive public and product liability insurance,
including liquor and dram shop liability insurance, against claims for
bodily and personal injury, death, and property damage caused by or
occurring in conjunction with the operation of the Franchised
Restaurant or otherwise in conjunction with the conduct of business by
Franchisee pursuant to the Franchise;
(b) broad form fire and extended coverage, vandalism, and
malicious mischief insurance on the Franchised Restaurant and its
contents, including business interruption coverage which provides for
payment of lost royalties to Franchisor;
(c) workers' compensation and employer's liability insurance
as well as such other insurance as may be required by statute or rule
of the state or locality in which the Premises are located; and
(d) automobile liability insurance, where applicable.
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Such insurance coverage shall be maintained in such amounts as
Franchisor determines periodically to be necessary in its sole discretion.
Franchisor may periodically increase the amounts of coverage required under such
insurance policies and require different or additional kinds of insurance at any
time, including excess liability insurance, to reflect inflation, identification
of new risks, changes in law or standards of liability, higher damage awards, or
other relevant changes in circumstances. Such insurance policies shall insure
Franchisee and Franchisor and shall provide for thirty (30) days prior written
notice to Franchisor of any material modification, cancellation, or expiration
of a policy. In the event Franchisee fails to procure and maintain business
interruption coverage and a casualty loss occurs which requires the closing of
the Franchised Restaurant, then Franchisee shall pay as liquidated damages for
each month commencing with the month when the casualty occurs and continuing
until the Franchised Restaurant reopens, a sum equal to the average monthly
Continuing Royalty and Service Fee payable by Franchisee for the twelve (12)
months immediately preceding the occurrence of such casualty; it being
understood that if the Franchised Restaurant has been open for business for less
than twelve (12) months, then the average shall be based upon the actual number
of months that the Franchised Restaurant has been open prior to the occurrence
of the casualty. It is acknowledged and agreed that damages in such event would
be difficult or impossible to ascertain, though great and irreparable, and that
the provisions contained in this Section 8.10 constitute a reasonable compromise
between the parties for purposes of compensating Franchisor for its loss.
In connection with any construction, renovation, refurbishing, or
remodeling of the Franchised Restaurant, Franchisee shall cause the general
contractor to maintain with a reputable insurer (i) comprehensive general
liability insurance (with comprehensive automobile liability coverage for
vehicles used by the franchised business for both owned and non-owned vehicles,
builder's risk, product liability, completed operations and independent
contractors coverage) in such amounts as Franchisor determines periodically to
be necessary and with Franchisor named as an additional insured, (ii) workers'
compensation insurance, (iii) employer's liability insurance, as well as (iv)
such other insurance as may be required by law.
If Franchisee fails or refuses to maintain any required insurance
coverage, or to furnish satisfactory evidence thereof, Franchisor, at its option
and in addition to its other rights and remedies hereunder, may obtain such
insurance coverage on behalf of Franchisee and Franchisee shall fully cooperate
with Franchisor in its efforts to obtain and maintain such insurance policies,
promptly execute all forms or instruments required to obtain any such insurance,
allow any inspections of the Franchised Restaurant which are required to obtain
or maintain such insurance and pay to Franchisor, on demand, any costs and
premiums incurred by Franchisor therefor.
Franchisee's obligations to maintain insurance coverage as described in
this Agreement shall not be affected in any manner by reason of any separate
insurance maintained by Franchisor, nor shall the maintenance of such insurance
relieve Franchisee of any obligations under Section 5 of this Agreement.
8.11 Franchisee Modifications or Additions. Notwithstanding anything in
this Agreement to the contrary, any and all modifications or additions to the
Franchised Restaurant concept developed by Franchisee, Franchisor or other
franchisees, during the term of this Agreement, which would constitute trade
dress or Confidential Information shall be and become the sole and absolute
property of Franchisor, and Franchisor may incorporate the same into the System
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or any other restaurant concept. Following the expiration or termination of the
term of this Agreement, Franchisor shall have the sole and exclusive right to
use and to copyright, register and protect such modifications or additions in
Franchisor's own name to the exclusion of Franchisee. Franchisee's rights and
obligations toward the use of such modifications or additions shall be limited
to its rights and obligations regarding Confidential Information as provided for
in Section 7 of this Agreement.
8.12 Computerized Point-of-Sale System. The Franchisee must purchase
and maintain the computer hardware required by the Franchisor for operation of
the Franchised Restaurant, including computer(s), modem(s), cash drawer(s),
receipt printer and report printer. In addition, the Franchisee shall purchase
from Franchisor's required source the Franchisor's proprietary computer software
for operation of the point of sale system. The Franchisor shall have unlimited
access to the data generated by the Franchisee's computerized point of sale
system and will poll via modem all of its franchisees' computer systems in order
to compile sales data, consumer trends, food and labor costs, and other such
financial and marketing information as it may deem appropriate. The Franchisor
may distribute this data on a confidential basis to its franchisees, and
Franchisor has the right to utilize such information in summary form for
purposes of preparing earnings claims or for any other reasonable purpose in
support of the System. The Franchisee must purchase and pay for upgrades or new
software as required by the Franchisor from time to time in Franchisor's sole
discretion, and Franchisee acknowledges and agrees that the costs and expenses
for such upgrades and software will not be limited or subsidized by Franchisor
in any way.
9. MARKETING
9.01 By Franchisor. Recognizing the value of marketing to the goodwill
and public image of the Franchised Restaurants, Franchisor agrees to maintain
and administer a marketing fund ("Marketing Fund") for such marketing (including
advertising, promotion, public relations and other marketing programs) as
Franchisor may deem necessary or appropriate, in its sole discretion. Franchisee
shall contribute to the Marketing Fund an amount designated by Franchisor from
time-to-time, but not exceeding one percent (1%) of the Net Sales of the
Franchised Restaurant, which shall be payable monthly at the same time
Franchisee pays the Continuing Royalties due hereunder. Franchised Restaurants
owned by Franchisor and its affiliates shall contribute to the Marketing Fund on
the same basis as Franchisee. Franchisor shall have the right at any time, upon
ninety (90) days written notice to Franchisee, to increase or decrease the
amount of such marketing contribution payable by Franchisee, provided that
Franchisee's contributions to the Marketing Fund provided hereunder will not,
during any calendar year occurring during the term of this Agreement, or any
extension thereof, exceed one percent (1%) of the Net Sales of the Franchised
Restaurant. All of such funds, but in no event more than one-half of one percent
(.5%) of the Net Sales of the Franchised Restaurant contributed to the Marketing
Fund, shall be applied by Franchisor to the payment of the direct and indirect
costs of preparing and producing video, audio and written marketing materials
("Production Costs"). In the event that such contributions received by the
Marketing Fund exceed the Production Costs, incurred or to be incurred for a
particular period, Franchisor may, at its option, refund a portion thereof to
Franchisee, hold such surplus for use in subsequent periods, or expend such
surplus on advertising expenses other than Production Costs.
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Franchisor shall direct all marketing programs financed by the
Marketing Fund. While Franchisor may from time-to-time solicit the input of
ideas from franchisees, Franchisor shall nevertheless retain sole discretion
over the creative concepts, materials, and endorsements used therein, and the
geographic, market, and media placement and allocation thereof, including the
use of the Marketing Fund for marketing efforts in Mexico or other markets
outside of the United States. Franchisee agrees that the Marketing Fund may be
used to pay the costs of conducting marketing surveys and research; employing
public relations firms; preparing and producing video, audio, and written
marketing materials; administering multi-regional marketing programs, including,
without limitation, purchasing television, radio, magazine, billboard,
newspaper, and other media advertising, and employing advertising agencies to
assist therewith; and providing marketing materials to System franchisees. In
determining the distribution of the benefits of the Marketing Fund, Franchisor
shall use its reasonable efforts to balance its interest in promoting the System
with each Franchised Restaurant's proportionate contribution to the Marketing
Fund, whether Franchisor or franchisee-owned. The Marketing Fund shall furnish
Franchisee with approved marketing materials on the same terms and conditions as
such materials are furnished to other System franchisees.
The Marketing Fund shall be accounted for separately from the other
funds of Franchisor. Franchisor shall not 'use any Marketing Fund monies to
defray any of Franchisor's general operating expenses, except for such
reasonable salaries, administrative costs, and overhead as Franchisor may incur
in activities reasonably related to the administration of the Marketing Fund and
its marketing programs (including, without limitation, preparing marketing
materials and collecting and accounting for contributions to the Marketing
Fund). Franchisor may spend in any fiscal year an amount greater or less than
the aggregate contribution of all Franchised Restaurants to the Marketing Fund
in that year and the Marketing Fund may borrow from Franchisor or others to
cover temporary deficits in the Marketing Fund or cause the Marketing Fund to
invest any surplus for future use by the Marketing Fund. All interest earned on
monies contributed to the Marketing Fund will be used to pay marketing costs of
the Marketing Fund before other assets of the Marketing Fund are expended. A
statement of monies collected and expenditures made by the Marketing Fund shall
be prepared annually by Franchisor and shall be made available to the marketing
committee and to Franchisee upon request.
Franchisee understands and acknowledges that the Marketing Fund is
intended to maximize general public recognition of the Proprietary Marks and
patronage of Franchised Restaurants for the benefit of all Franchised
Restaurants. Franchisor undertakes no obligation to ensure that expenditures by
the Marketing Fund in or affecting any geographic area are proportionate or
equivalent to contributions to the Marketing Fund by Franchised Restaurants
operating in any geographic area or that any Franchised Restaurant will benefit
directly, in proportion to its contribution to the Marketing Fund, or at all,
from the conduct of marketing programs or the placement of advertising. Except
as expressly provided in this Section 9.01, Franchisor assumes no direct or
indirect liability or obligation to Franchisee with respect to the maintenance,
direction or administration of the Marketing Fund.
9.02 By Franchisee. Franchisee agrees to spend annually for local media
marketing of the Franchised Restaurant such amounts as Franchisor requires
provided that the aggregate of required local marketing expenditures for the
Franchised Restaurant and Franchisee's Marketing Fund contribution will not
exceed three percent (3%) of the Franchised Restaurant's Net Sales for any
respective calendar year. Franchisee shall submit annually, in form satisfactory
to Franchisor, verification of its local marketing expenditures.
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Prior to their use by Franchisee, samples of all local marketing
materials (including any materials that are to be posted on a web page) not
prepared or previously approved by Franchisor shall be submitted to Franchisor
for approval. If written disapproval is not received by Franchisee within
fifteen (15) days from the date of receipt by Franchisor of such materials,
Franchisor shall be deemed to have disapproved the materials. Franchisee shall
not use any marketing materials that Franchisor has disapproved. Franchisee, at
Franchisee's sole expense, which shall not count toward Franchisee's local
marketing obligation, shall list the Franchised Restaurant in the classified
section of the telephone directories distributed within the trade area of the
Franchised Restaurant in such category or categories as Franchisor may designate
from time to time.
Franchisee acknowledges that restaurants operated by Franchisor and
other franchisees may be located outside of the Exclusive Area but within
Metropolitan Statistical Areas ("MSA"), as that term is defined by the United
States Office of Management and Budget, or other identifiable marketing areas
which include all or a portion of the Exclusive Area in which the Franchised
Restaurant is located. In such instances, Franchisee shall use its best efforts
to cooperate and coordinate with Franchisor or other franchisees, as the case
may be, to maximize the effectiveness of their respective marketing efforts.
9.03 Advertising Cooperative. In the event Franchisee has in operation
a Franchised Restaurant in a Metropolitan Statistical Area ("MSA"), as that term
is defined by the United States Office of Management and Budget, which also has
located in it either another franchisee- owned restaurant or a company-owned
restaurant, Franchisee upon the sole direction of Franchisor shall join an
advertising cooperative ("Co-op") which shall include such other franchisee(s)
and/or Franchisor-operated restaurants, as the case may be. The Co-op shall be
governed and operated in accordance with standards established by Franchisor.
Franchisee shall contribute to the treasurer of the Co-op such amounts
designated by Franchisor from time-to- time, but not exceeding two percent (2%)
of the Net Sales of the Franchised Restaurant, which shall be payable monthly.
In no event shall required contributions to the Co-op. required Marketing Fund
expenditures, and required local marketing expenditures in the aggregate made by
Franchisee exceed three percent (3%) of the Net Sales of the Franchised
Restaurant during any calendar year. All advertising materials prepared by the
Co-op shall be approved by the Franchisor prior to any use by the Co-op.
The actions of the Co-op shall be controlled by the terms and
conditions of the applicable Franchise Agreement(s) and Area Development
Agreement(s) but shall be otherwise governed by the majority vote of the members
of the Co-op. Each member shall be entitled to cast one (1) vote for each
restaurant located within the respective MSA. No member shall have more than
fifty percent (50%) of the Co-op's voting power (e.g., if franchisee A owned ten
restaurants and franchisee B owned five, then franchisees A and B would be
entitled to five votes each). If a voting deadlock should occur on any matter
properly before any Co-op. then the Franchisor shall have the right to cast the
deciding vote. Franchisor shall have the sole right to create, dissolve or merge
advertising cooperatives.
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Franchisee understands and acknowledges that the Co-op is intended to
maximize general public recognition of the Proprietary Marks and patronage of
restaurants for the benefit of all restaurants. Franchisor assumes no direct or
indirect liability or obligation to Franchisee with respect to the maintenance,
direction or administration of the Co-op.
10. ACCOUNTING, REPORTS, AND FINANCIAL STATEMENTS
Franchisee shall establish and maintain at its own expense a
bookkeeping, accounting, and record keeping system conforming to the
requirements prescribed by Franchisor from time- to-time, including, without
limitation, the preparation and retention of books and records and the use of
cash registers and a computerized accounting systems capable of transmitting
data by Franchisee to Franchisor or systems capable of being electronically
audited or polled by Franchisor (and Franchisee hereby expressly grants
Franchisor the right to electronically audit or poll same). With respect to the
operation and financial condition of the Franchised Restaurant, Franchisee shall
furnish to Franchisor in the form and media prescribed by Franchisor the
following:
10.01 Net Sales. By the tenth (10th) day following each of Franchisee's
monthly accounting periods, a report of the gross and Net Sales of the
Franchised Restaurant for the preceding accounting period;
10.02 Monthly Profit and Loss Statement and Balance Sheet. By the last
day of each month, a profit and loss statement for the preceding calendar month
and a year to date profit and loss statement and balance sheet;
10.03 Annual Profit and Loss Statement and Balance Sheet. Within one
hundred twenty (120) days after the end of Franchisee's fiscal year, a balance
sheet and an annual profit and loss statement reflecting all year-end
adjustments for the Franchised Restaurant;
10.04 State Sales Tax Returns. Within thirty (30) days of their filing,
exact copies of all state sales tax returns, and state financial reports;
10.05 Federal and State Income Tax Returns. Upon request, such portions
of Franchisee's federal and state income tax returns which reflect the operation
of the Franchised Restaurant; and
10.06 Other Information. Such other data, information, and supporting
records as and when Franchisor from time-to-time requires.
Each such report and financial statement shall be verified and signed
by Franchisee in the manner prescribed by Franchisor. Franchisor reserves the
right to require Franchisee to have annual financial statements prepared or
reviewed by certified public accountants reasonably acceptable to Franchisor.
The Franchisor may distribute this financial data, as detailed in this Section
10, on a confidential basis to its franchisees, and Franchisor has the right to
utilize such information in summary form for purposes of preparing earnings
claims or for any other reasonable purpose in support of the System.
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11. ANNUAL REVIEWS, INSPECTIONS, AND AUDITS
11.01 Annual Review. At the discretion of Franchisor, once each
calendar year, at a time designated by Franchisor, Franchisee and its Restaurant
Managers shall be obligated to meet with representatives of Franchisor at a
location specified by Franchisee, for the purpose of discussing and reviewing
the Franchised Restaurant's operations, status, and financial performance.
11.02 Franchisor's Right to Inspect the Franchised Restaurant. To
determine whether Franchisee and the Franchised Restaurant are complying with
this Agreement, and with all specifications, standards, and operating procedures
prescribed by Franchisor for the operation of the Franchised Restaurant,
Franchisor or its designated agents shall have the right at any reasonable time
and without prior notice to Franchisee to:
(a) inspect the Premises;
(b) observe Franchisee, the Restaurant Managers and other
employees of the Franchised Restaurant;
(c) interview the Restaurant Managers and other employees of
the Franchised Restaurant; and
(d) interview customers of the Franchised Restaurant.
Franchisee shall present to its customers such customer evaluation
forms as are periodically prescribed by Franchisor and shall
participate and/or request that its customers participate in all
marketing surveys performed by or on behalf of Franchisor.
11.03 Franchisor's Right to Audit. Franchisor shall, in addition to the
right to electronically audit or poii Franchisee's cash registers, and
bookkeeping, accounting and record keeping systems as provided under Section 10,
have the right at any time during business hours, and without prior notice to
Franchisee, to inspect and audit or cause to be inspected and audited and to
copy, the Business Records, bookkeeping and accounting records, sales and income
tax records and returns which relate to the operation of the Franchised
Restaurapt, and other records of the Franchised Restaurant and the books and
records of any corporation or partnership which holds the Franchised Restaurant.
Franchisee shall fully cooperate with representatives of Franchisor and
independent accountants hired by Franchisor to conduct any such inspection or
audit. In the event any such inspection or audit shall disclose an
understatement of the Net Sales of the Franchised Restaurant, Franchisee shall
pay to Franchisor within fifteen (15) days after receipt of the inspection or
audit report, the Continuing Royalties and/or marketing contributions due on the
amount of such understatement, plus interest, at the rate and on the terms
provided in Sections 6.03 and 6.04, from the date originally due until the date
of payment. Further, in the event such inspection or audit is made necessary by
the failure of Franchisee to furnish reports, supporting records or other
information, as required in this Agreement, or to furnish such reports, records
or information on a timely basis, or if an understatement of Net Sales for the
period of any audit, which shall not be for less than four (4) weeks, is
determined by any such audit or inspection to be greater than two percent (2%),
Franchisee shall reimburse Franchisor for the cost of such audit or inspection,
including, without limitation, the charges of any independent accountants and
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the travel expenses, room and board and compensation of employees and/or agents
of Franchisor. The foregoing remedies shall be in addition to and not in lieu of
all other remedies and rights of Franchisor hereunder or under applicable law.
12. TRANSFER
12.01 By Franchisor. This Agreement and the Franchise are fully
transferable by Franchisor, shall inure to the benefit of any transferee or
other legal successor to the interest of Franchisor, and Franchisor shall be
released from any further liability to Franchisee under this Agreement upon
completion of such transfer.
12.02 Franchisee May Not Transfer Without Approval of Franchisor.
Franchisee understands and acknowledges that the rights and duties created by
this Agreement are personal to Franchisee or its owner and that Franchisor has
granted development rights to Franchisee in reliance upon the individual or
collective character, skill, aptitude, attitude, business ability, and financial
capacity of Franchisee or its owner. Any Franchised Restaurant (or any interest
therein) developed pursuant to this Agreement, or any Franchised Restaurant (or
any interest therein) granted pursuant to this Agreement, may not be transferred
without the prior written approval of Franchisor, and any such transfer without
such approval shall constitute a breach hereof and convey no rights to or
interests in this Agreement, Franchisee, the Franchise, or the Franchised
Restaurant.
12.03 Definition of "Transfer". As used in this Agreement, the term
"transfer" shall mean and include the voluntary, involuntary, direct or indirect
assignment, sale or other transfer by Franchisee or its owner of any interest in
this Agreement, any part or all of the ownership of Franchisee, any Franchised
Restaurant or any interest in any Franchised Restaurant developed pursuant to
this Agreement, or the Franchise or any interest therein granted pursuant to
this Agreement, including, without limitation: (i) the transfer of ownership of
capital stock or partnership or limited liability company membership interest;
(ii) merger or consolidation, or issuance of additional securities representing
an ownership interest in Franchisee; (iii) sale of common stock or other
securities of Franchisee sold pursuant to a private placement or registered
public offering; (iv) transfer of interest in Franchisee, the Franchise granted
pursuant hereto, or the Franchised Restaurant operated pursuant hereto, in a
divorce proceeding or otherwise by operation of law; or (v) transfer of an
interest in Franchisee, the Franchise granted pursuant hereto, or the Franchised
Restaurant operated pursuant hereto, in the event of the death of Franchisee or
an owner of Franchisee by will, declaration of or transfer in trust, or under
the laws of intestate succession.
12.04 Conditions for Approval of Transfer. If Franchisee and its owners
are in full compliance with this Agreement, Franchisor shall not unreasonably
withhold its approval of a transfer that meets all the applicable requirements
of this Section 12.04. The proposed transferee or its owner must be an
individual of good moral character and otherwise meet Franchisor's then
applicable standards for franchisees. A transfer of ownership in the Franchise
may only be made in conjunction with a transfer of this Agreement. If the
transfer is of a controlling interest in Franchisee, or is one of a series of
transfers which in the aggregate constitute the transfer of a controlling
interest in Franchisee, as a bare minimum, and without in any way limiting its
discretion, Franchisor may require prior to its consent that all of the
following conditions must be met prior to, or concurrently with, the effective
25
date of the transfer: (i) the transferee must have sufficient business
experience, aptitude, and fmancial resources to develop the Premises and operate
the Franchised Restaurant in Franchisor's reasonable judgment; (ii) Franchisee
must pay such Continuing Royalties, Sales Tax, Marketing Fund contributions and
other marketing obligations, termination payments, amounts owed for purchases by
Franchisee from Franchisor and its affiliates, and any other amounts of whatever
nature owed to Franchisor or its affiliates which are then due and unpaid; (iii)
the transferee or its designated operations managers and all new Restaurant
Managers as specified in Section 3 of this Agreement must have successfully
completed Franchisor' s training program; (iv) the lessor of the Premises must
have consented in writing to the assignment or sublease of the Premises to the
transferee; (v) the assignee shall execute and be bound to the terms and
conditions of Franchisor's franchise agreement then being offered to prospective
franchisees of Franchisor (except that the assignee shall not be obligated to
pay the Initial Franchise Fee and the remaining term of this Agreement shall
expire on the stated expiration date of this Agreement); (vi) Franchisee or the
transferee shall pay the transfer fee ("Transfer Fee") of Two Thousand Dollars
($2,000); (vii) Franchisee and its owner must execute a general release, in form
satisfactory to Franchisor, of any and all claims against Franchisor, its
officers, directors, employees and agents; (viii) Franchisor must approve the
material terms and conditions of such transfer, including, without limitation, a
determination in Franchisor's reasonable discretion that the price and terms of
payment are not so burdensome as to adversely affect the future development and
operations of the Premises by the transferee; (ix) Franchisee and its
transferring owner must execute a non-competition covenant in favor of
Franchisor and the transferee agreeing that for a period of not less than three
(3) years, commencing on the effective date of the transfer, it and they in
accordance with the provisions of Section 7.04 shall not have any interest as an
owner, investor, lender, partner, director, officer, manager, employee,
consultant, representative, or agent, or in any other capacity, in any
family-style steak house restaurant or any other restaurant engaged in the sale
or preparation of steak and/or a combination of steak and/or other food items or
services (for example, the use of buffets) similar to the principal food items
or services then approved for use in the restaurants then in operation in the
System, provided that the operation of another restaurant concept by Franchisee
as a duly franchised franchisee of Franchisor shall not constitute a breach of
this Section 12.04; and (x) Franchisee and its owner must enter into an
agreement with Franchisor providing that all obligations of the transferee to
make installment payments of the purchase price or interest thereon to
Franchisee or its owner shall be subordinate to the obligations of the
transferee to pay Continuing Royalties, Marketing Fund contributions, other
marketing obligations, termination payments and obligations for purchases from
Franchisor or its affiliates.
12.05 Excepted Transfers. If the proposed transfer is to or among
owners of Franchisee or to or among the spouse or children of Franchisee, or an
owner of Franchisee, Sub-Section '(vii) of Section 12.04 shall not apply and
Sub-Section (ix) of Section 12.04 shall not apply to transfers by gift, bequest,
or inheritance. If the proposed transfer is to or among owners of Franchisee or
to or among the spouse or children of Franchisee, or an owner of Franchisee,
then Sub-Section (v) of Section 12.04 shall not apply if all obligations of
Franchisee and its owner incurred in connection with this Agreement are assumed
by such transferee(s).
12.06 Death or Disability of Franchisee. Upon the death or permanent
disability of Franchisee or, if Franchisee is a corporation or partnership, the
owner of a controlling interest in Franchisee, the executor, administrator,
conservator, or other personal representative of such person shall transfer its
interest in this Agreement or such interest in Franchisee to a third party
26
approved by Franchisor. Such disposition of this Agreement or such interest in
Franchisee (including, without limitation, transfer by bequest or inheritance)
shall be completed within a reasonable time, not to exceed twelve (12) months
from the date of death or permanent disability and shall be subject to all the
terms and conditions applicable to transfers contained in Section 12.04. Failure
to so dispose of this Agreement or such interest in Franchisee within said
period of time shall constitute a breach of this Agreement.
12.07 Effect of Consent to Transfer. Franchisor's consent to a transfer
of this Agreement or any interest in Franchisee subject to the restrictions of
this Section 12 shall not constitute a waiver of any claims Franchisor may have
against Franchisee, nor shall it be deemed a waiver of Franchisor's rights to
demand exact compliance with any of the terms or conditions of this Agreement by
the transferee.
12.08 Franchisor's Right of First Refusal. During the term of this
Agreement or for a period of one (1) year after its termination or if Franchisee
has closed the Franchised Restaurant, whether with or without the consent of
Franchisor, if Franchisee or its owner shall at any time detennine to sell an
interest in this Agreement or any part or all of the ownership of Franchisee,
any interest in the Franchise, or the Franchised Restaurant, or its owner shall
obtain a bona fide, executed written offer from a responsible and fully
disclosed purchaser, then Franchisee shall submit an exact copy of such offer to
Franchisor. Franchisor shall have the right, exercisable by written notice
delivered to Franchisee or its owner within thirty (30) days from the date of
delivery of an exact copy of such offer to Franchisor, to purchase such interest
for the price and on the terms and conditions contained in such offer. In the
event all or any part of the consideration offered to Franchisee for such
interest shall consist of common or preferred stock or debt securities of any
tendering entity, and in the event Franchisor is either a "public company" or a
"public reporting company" as those terms are defined under the federal
securities laws, Franchisor shall be deemed to have matched any such offer by
offering its own common or preferred stock or debt securities with a market
value equivalent to the market value of the securities of the entity making such
offer to Franchisee or cash in an amount equal to the market value of the
securities making such offer to Franchisee. In the event Franchisor is privately
owned, Franchisor may substitute cash for any form of payment proposed in such
offer. In the event all or any portion of the consideration offered Franchisee
consists of unique assets, Franchisor shall be deemed to have matched such offer
by offering cash in an amount equivalent to the market value of the unique
assets tendered by the entity making such offer to Franchisee. Further,
Franchisor's creditworthiness shall be deemed equal to the credit rating of any
proposed purchaser. Franchisor shall have not less than sixty (60) days to
prepare for closing and shall be entitled to all customary representations and
warranties as set forth in Exhibits D and E of the applicable Area Development
Agreement previously or contemporaneously entered into between Franchisor and
Franchisee, or if Franchisee executed a single Franchise Agreement, as included
as an Exhibit to the Area Development Agreement included in the Uniform
Franchise Offering Circular given to Franchisee prior to Franchisee's execution
of this Franchise Agreement. If Franchisor does not exercise its right of first
refusal, Franchisee or its owner may complete the sale to the proposed purchaser
pursuant to and on the terms of such offer, subject to the Franchisor's approval
of the purchaser as provided in Sections 12.02 and 12.04. If the sale to such
purchaser is not completed within sixty (60) days after delivery of such offer
to Franchisor, or there is a material change in the terms and conditions of the
sale, Franchisor shall then again have the right of first refusal provided under
the terms of this Agreement.
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12.09 Public or Private Offerings. In the event Franchisee shall
attempt to raise or secure funds by the sale of securities (including, without
limitation, common or preferred capital stock, bonds, debentures, or partnership
interests), Franchisee, recognizing that the literature used with respect
thereto may reflect upon Franchisor, agrees to submit all such literature or
prospectuses to Franchisor and to obtain the written approval of Franchisor of
the method of financing prior to any offering or sale of said securities.
Each prospectus, circular, or other literature utilized in any such
offering shall, at Franchisor's discretion, contain the following language in
bold-face type on the first textual page:
"Stockade Franchising, LP has not passed upon the accuracy or
adequacy of the statements made herein nor is it nor will it
be responsible for the inaccuracy or inadequacy of such
statements. Stockade Franchising, LP will not share in any of
the proceeds of this offering and makes no recommendation
respecting the advisability of purchasing the investment
contemplated by this offering."
Franchisee agrees to indemnify and hold Franchisor, its officers,
directors, employees and agents harmless from any and all claims, demands or
liabilities arising from the offer or sale of such securities, whether asserted
by a purchaser of any of such securities or by a governmental agency. Franchisor
shall have the right to defend any such claims.
13. RENEWAL OF FRANCHISE
13.01 Franchisee's Right to Renew. Upon expiration of the initial term
of this Agreement, if:
(a) Franchisor elects to continue to maintain a Franchised
Restaurant at the Premises;
(b) Franchisee maintains possession of and agrees to refurbish
and decorate the Premises, replace fixtures, furnishings, furniture,
equipment, and signs and otherwise modify the Franchised Restaurant in
compliance with all specifications and standards then applicable under
new or renewal franchises for Franchised Restaurants; or Franchisee is
unable to maintain possession of the Premises, or in the judgment of
Franchisor the Franchised Restaurant should be relocated, and
Franchisee secures substitute premises approved by Franchisor and
agrees to develop such substitute premises in compliance with all
specifications and standards then applicable under new or renewal
franchises for Franchised Restaurants; and
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(c) Franchisee has been in substantial compliance with all of
the terms and conditions of this Agreement during the initial term and
continues to be in substantial compliance up to the expiration hereof,
Franchisee shall have the right to renew this Agreement for three (3)
terms of five (5) years each or for such other period as may be agreed
to by Franchisor and Franchisee. Such renewal shall be without payment
of an Initial Franchise Fee or renewal franchise fee, except that
Franchisor shall have the right to charge Franchisee reasonable charges
for services it renders to Franchisee or expenses it incurs in
conjunction with such renewal.
13.02 Renewal Agreements/Releases. To renew the Franchise, Franchisor,
Franchisee and its owner 'shall execute the then standard form of Franchise
Agreement and any ancillary agreements then customarily offered by Franchisor to
prospective franchisees in the granting of franchises for the operation of
Franchised Restaurants with appropriate modifications to reflect the fact that
the agreement relates to the grant of a renewal franchise. Franchisee and its
owners shall also execute a general release, in form satisfactory to Franchisor,
of any and all claims against Franchisor, its officers, directors, employees,
and agents. Failure by Franchisee and its owner to sign such agreements and
releases within ninety (90) days after delivery thereof to Franchisee shall be
deemed an election by Franchisee not to renew this Agreement.
14. TERMINATION OF AGREEMENT BY FRANCHISEE OR CESSATION OF RESTAURANT
OPERATION
Franchisee understands and acknowledges that a material inducement to
the Franchisor for entering into this Agreement is Franchisee's representation
that it will diligently develop the Premises and the Franchised Restaurant
thereon for the full term of this Agreement and Franchisee agrees that this
Agreement shall not be terminated by Franchisee without good cause. For the
purposes hereof, "terminated by Franchisee" shall mean (i) the discontinuance of
business at the Franchised Restaurant operated by Franchisee, (ii) changing or
threatening to change the Franchised Restaurant operated by Franchisee to a
different name, format, style, or use, (iii) willful disregard by Franchisee of
the terms and provisions of this Agreement, or (iv) transferring or threatening
to transfer any of Franchisee's rights under this Agreement or to the Franchised
Restaurant licensed by this Agreement and operated by Franchisee, to a person or
entity not approved by the Franchisor in accordance with the provisions of
Section 12.
14.01 Termination for Good Cause. Nothing in this Agreement shall be
construed to prevent Franchisee from terminating this Agreement for good cause.
For purposes hereof, "good cause" shall be deemed to mean a material breach of
this Agreement by the Franchisor which is not cured within thirty (30) days
after the Franchisor actually receives written notice required by this Agreement
from Franchisee, or in the event such default cannot be cured within such thirty
(30) day period, the Franchisor shall not have commenced to cure such default
within thirty (30) days and diligently continued thereafter to attempt to cure
such default. If such material breach consists of the failure by the Franchisor
to provide any services or training assistance required by this Agreement, then
such breach shall be deemed fully cured upon the tendering of performance by the
Franchisor of such services or assistance, as Franchisor reasonably determines
to be necessary in Franchisor's reasonable discretion, within thirty (30) days
after receiving notice thereof, but the Franchisor shall not be under any
obligation to compensate Franchisee for any lack of or deficiency in past
services or assistance.
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14.02 Economic-Out Provision. In the event that Franchisee determines,
with the concurrence of such determination by the Franchisor and which
determination shall not be unreasonably withheld, that the Franchised Restaurant
licensed by this Agreement has been, for not less than two (2) consecutive
twelve (12) month periods, operated at a net cash operating loss, then
Franchisee may, at its option, terminate this Agreement. In the event the
Franchised Restaurant has been determined to be operating at a net cash
operating loss in accordance with this Section 14.02, and the Franchisor has
consented to the cessation of its operation, Franchisee shall immediately comply
with the provisions of Section 16 hereof and, for a period of twenty- four (24)
months thereafter, the Premises may not be utilized by Franchisee or any
business entity, organization, or venture in which Franchisee has any direct or
indirect interest who shall operate such location and facility as a restaurant
engaged in the sale or preparation of steak and/or other food items or services
similar to the principal food items or services then approved by Franchisor for
use in Franchised Restaurants or the food items or services of any other
restaurant concept then operated, licensed or under development by the
Franchisor. Subject to the foregoing, Franchisee may thereafter operate such
location and facility as a restaurant of any type. The subsequent sale, transfer
or assignment of such location or closed restaurant facility shall be subject to
the terms and conditions set forth in Section 12.08 for a period of one (1) year
commencing with the last day when the restaurant facility is operated as a
Franchised Restaurant. Notwithstanding the foregoing, the operation of another
restaurant concept by Franchisee as a duly franchised franchisee of Franchisor
shall not constitute a breach of this Section 14.02. Any detennination of
whether a net cash operating loss has occurred under this Section 14.02 shall be
made in accordance with generally accepted accounting principles applied in a
consistent manner and the following conventions shall be observed:
(a) Whether a net cash operating loss has occurred shall be
based upon the net cash flow determined at the individual Franchised
Restaurant level and before depreciation, amortization, and other
non-cash expenses;
(b) Only the following expenses directly applicable to store
operations may be taken into account in determining net cash operating
loss: cost of sales (i.e., food costs, supplies and paper costs,
including any duties or tariffs applicable to the same); payroll
salaries, bonuses, and employee benefits of Franchised Restaurant
employees; cash shortages/overages discovered; bad debts; office
supplies; postage and freight; bank and credit card charges; utilities;
small wares; laundry and uniforms; telephone; maintenance and repair at
the Premises; equipment rentals; marketing and franchise fees; actual
advertising expenses; permissible management fees; permissible rents;
personal and real estate taxes applicable to the Premises; license and
permit fees; insurance premium and coverages required by Franchisor
under this Agreement; and other usual and customary operating expenses,
to the extent determined by Franchisor in its discretion to be
consistent with the purposes of this Section 14.02;
(c) Actual rent payments (real estate or equipment only)
payable to a third party lessor and not to Franchisee, or any affiliate
of Franchisee, shall be deductible;
(d) If the building and land is owned by Franchisee, then
Franchisee shall be allowed to impute a fair rental rate based upon
local fair market rates charged in arms length transactions between
unrelated parties, such rate to be subject to the approval of
Franchisor in its sole discretion;
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(e) Only principal and interest paid to a third-party lender
or creditor (excluding end of term balloon payments, buyout payments,
etc.) and, then, only if accruing from indebtedness (i) related to the
repair, or renovation obligations of Franchisee by this Agreement or
(ii) arising from the Franchised Restaurant's operations or (iii)
related to the initial acquisition of equipment shall be deductible;
(f) No consulting fees nor any salaries payable to anyone
whose position is senior to the Restaurant Manager shall be deductible,
except as expressly provided in Section 14.02(g) below;
(g) General and administrative costs (i.e., accounting and tax
return preparation fees, legal costs and fees, and all personnel costs
incurred by anyone who is senior to the Restaurant Manager, including
any management fees charged by Franchisee, or any affiliate of
Franchisee, except for amounts specifically allowed in accordance with
Section 14.02(j) below), shall be limited to the lesser of actual costs
incurred by Franchisee or an amount equal to four percent (4%) of Net
Sales realized during the corresponding period;
(h) All rebates, incentive payments, cost reimbursements and
similar payments or credits received by Franchisee, or credited toward
any obligation otherwise owing by Franchisee, from suppliers or vendors
servicing the Franchised Restaurant shall be included in net cash flow;
(i) Any operating expense that is to be deducted in
determining whether the Franchised Restaurant has operated at a net
cash operating loss shall be limited to only those expenses directly
related to the Franchised Restaurant's operations (for example, health
insurance premiums or key man life insurance premiums on the life of an
owner would not be deductible); and
(j) Inclusion of the expenses incurred by the Franchised
Restaurant of any payments (for example, wages) made to persons who are
involved in the daily restaurant operations and who are subject to the
restrictions on competitive activity as set forth in Section 7.04 shall
be limited to such amounts as are the same or reasonably equivalent to
the local market rates and terms that would otherwise be charged by
third parties dealing in arms-length transactions of a same or similar
type or nature with or for the benefit of the Franchised Restaurant in
particular, or the restaurant service industry in general.
15. TERMINATION OF THE FRANCHISE
15.01 Grounds for Termination. This Agreement shall automatically
terminate upon delivery of notice of termination to Franchisee, if Franchisee or
its owner (or any shareholder or partner, if Franchisee is a corporation or
partnership):
(a) abandons or fails to actively operate the Franchised
Restaurant;
(b) surrenders or transfers control of the operation of the
Franchised Restaurant with the advanced written consent of Franchisor;
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(c) has made any material misrepresentation or omission in its
application for the Franchise;
(d) is convicted of or pleads no contest to a felony or other
crime or offense that is likely to adversely affect the System, the
Proprietary Marks, the goodwill associated therewith, Franchisor's
interest therein, or the reputation of Franchisee or the Franchised
Restaurant (or any shareholder or partner, if Franchisee is a
corporation or partnership and if Franchisee fails to terminate such
shareholder's or partner's interest in Franchisee within 90 days
thereof);
(e) makes a general assignment for the benefit of its
creditors, applies for or consents to the appointment of a receiver,
trustee, or liquidator of all or a substantial part of its assets,
files a voluntary petition in bankruptcy, has an involuntary petition
in bankruptcy filed against it (which is not released within 90 days),
or failsto pay its debts and obligations as they mature in accordance
with normal business practices;
(f) makes an unauthorized assignment or transfer of this
Agreement, the Franchised Restaurant, the Premises, the Franchise,. or
an ownership interest in Franchisee;
(g) is a party to any other Area Development Agreement,
Franchise Agreement, or license agreement with Franchisor, of any
restaurant concept which Franchisor may itself operate, or license or
franchise to others, from time-to-time, for which Franchisor has
delivered to Franchisee a notice of termination in accordance with its
terms and conditions for cause (except for a termination of the Area
Development Agreement based upon a failure to satisfy a Minimum
Development Quota);
(h) makes any unauthorized use of the Proprietary Marks or
unauthorized use or disclosure of the Confidential Information or any
portion thereof or otherwise violates the provisions of Section 4;
(i) fails or refuses to comply with any mandatory
specification, standard, or operating procedure prescribed by
Franchisor relating to the cleanliness or sanitation of the Franchised
Restaurant, violates any health, safety, or sanitation law, ordinance,
or regulation and does not correct such failure or refusal within
seventy-two (72) hours after written notice thereof is delivered to
Franchisee or fails to notify Franchisor in writing within five (5)
days of the commencement of any action, suit or proceeding, and of the
issuance of any order, writ, injunction, award or decree of any court,
agency, or other governmental instrumentality, which may adversely
affect the operation or financial condition of Franchisee or the
Franchised Restaurant or of any notice of violation of any law,
ordinance, or regulation relating to health, sanitation, or the
possession or sale of alcoholic beverages at the Franchised Restaurant;
(j) employs or attempts to employ, either directly or
indirectly, any person who Franchisee knows or should have known was
employed or at such time is employed by Franchisor or any other
franchisee of Franchisor without first obtaining the written consent of
Franchisor or such franchisee of Franchisor; or
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(k) fails on three (3) or more separate occasions within any
period of twelve (12) consecutive months to submit when due reports or
other data, information or supporting records; to pay when due the
Continuing Royalties, Marketing Fund or Co-op contributions, or other
payments due by this Agreement to Franchisor or its affiliates; or
otherwise fails to comply with this Agreement, whether or not such
failures to comply are corrected after notice thereof is delivered to
Franchisee.
This Agreement shall terminate without further action by Franchisor or
notice to Franchisee, if Franchisee or its owner:
(a) fails to accurately report the Net Sales of the Franchised
Restaurant or fails to remit payments of any amounts due Franchisor for
Continuing Royalties, Marketing Fund or Co-op contributions, or any
other amounts due to Franchisor or its affiliates by this Agreement,
and does not correct such failure within ten (10) days after written
notice of such failure is delivered to Franchisee; or
(b) fails to comply with any other provision of this Agreement
or mandatory specification, standard, or operating procedure prescribed
by Franchisor and does not:
(i) correct such failure within thirty (30) days
after written notice of such failure to comply is delivered to
Franchisee; or
(ii) if such failure cannot reasonably be corrected
within thirty (30) days after written notice of such failure
to comply is delivered to Franchisee, undertake efforts to
bring the Franchised Restaurant into full compliance, and
furnish proof acceptable to Franchisor of such efforts and the
date of their expected completion, within ten (10) days after
written notice is delivered to Franchisee.
15.02 Efforts to Resolve Termination Disputes Other Than by
Termination. Acts of Franchisor undertaken in the course of efforts to resolve a
termination dispute, or a dispute for which termination is a possible remedy,
shall be deemed to have been undertaken without prejudice to the rights asserted
by Franchisor and shall not constitute a waiver or relinquishment of those
rights. In the event Franchisee continues to engage in franchised operations
while a dispute is pending, that fact, and/or the receipt of monthly payments
and the furnishing by Franchisor of information and service essential to such
operations, shall not constitute a waiver or relinquishment of Franchisor's
rights. Franchisor may, at its option and without waiving its right to
terminate, seek any form of relief or remedy available to it under common law or
statute for any breach of this Agreement including, but not limited to, the
right to damages, injunctive relief, declaratory orders or specific performance.
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16. RIGHTS AND OBLIGATIONS OF FRANCHISOR AND FRANCHISEE UPON TERMINATION OR
EXPIRATION OF THE FRANCHISE
16.01 Payment of Amounts Owed to Franchisor. Franchisee shall pay to
Franchisor within fifteen (15) days after the effective date of termination or
expiration of this Agreement, or such later date that the amounts due to
Franchisor are determined, such Continuing Royalties, Marketing Fund and Co-op
contributions, amounts owed for purchases by Franchisee from Franchisor or its
affiliates, interest due on any of the foregoing and all other amounts owed to
Franchisor or its affiliates which are then unpaid.
16.02 Proprietary Marks. After the termination or expiration of this
Agreement, Franchisee shall:
(a) not directly or indirectly at any time or in any manner
identify itself or any business as a current or former Franchised
Restaurant operator, or as a franchisee or licensee of or as otherwise
associated with Franchisor (other than under other franchise agreements
with Franchisor), or use any Proprietary Marks, any colorable imitation
thereof, or other indicia of a Franchise in any manner or for any
purpose, or utilize for any purpose any trade name, trade or service
▇▇▇▇ or other commercial symbol that suggests or indicates a connection
or association with Franchisor;
(b) remove all signs, sign faces, and return to Franchisor or
destroy all marketing materials, menus, and other materials containing
any Proprietary Marks or otherwise identifying or relating to a
Franchise;
(c) remove all Proprietary Marks affixed to uniforms;
(d) take such action as may be required to cancel all
fictitious or assumed name or equivalent registrations relating to
Franchisee's use of any of the Proprietary Marks;
(e) within five (5) days of termination or expiration of this
Agreement, notify the telephone company, all listing agencies, and all
Internet service providers of the termination or expiration of
Franchisee's right to use any telephone number and any regular,
classified or other telephone directory listings associated with any of
the Proprietary Marks and authorize transfer of same to the Franchisor
or any new Franchisee as may be directed by the Franchisor. Franchisee
acknowledges that as between Franchisor and Franchisee, Franchisor has
the sole right to and interest in all telephone numbers, directory
listings, and web addresses used to promote the Franchised Restaurant
and/or associated with any of the Proprietary Marks. Franchisee
authorizes Franchisor, and hereby irrevocably appoints Franchisor and
any officer of Franchisor, with full power of substitution, as its true
and lawful attorney-in-fact, which appointment is coupled with an
interest, should Franchisee fail or refuse to do so, to execute such
directions and authorizations as may be necessary or productive to
accomplish the foregoing. Such appointment is evidenced by Attachment
2; and
(f) furnish to Franchisor, within thirty (30) days after the
effective date of termination or expiration, evidence satisfactory to
Franchisor of Franchisee's compliance with the foregoing obligations.
16.03 Modification of Franchised Restaurant Design and Decor. Upon
expiration of this Agreement without renewal, Franchisee shall modify the
design, decor, and color scheme of the Franchised Restaurant in a manner
acceptable to Franchisor so that it no longer suggests or indicates a connection
with the System or any rights and privileges granted by this Agreement.
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16.04 Cessation of Use of Confidential Information. Upon termination or
expiration of this Agreement, Franchisee will immediately cease to use any
Confidential Information disclosed to Franchisee pursuant to this Agreement in
the operation of the Franchised Restaurant, any family-style steak house or
other restaurant engaged in the sale or preparation of steak or a combination of
steak and/or other food items or services similar to the principal food items or
services approved by Franchisor from time-to-time for use in Franchised
Restaurants, and shall continue to be obligated to refrain from disclosing or
using any of the same in any restaurant or other similar business, or capacity
and shall return to Franchisor all copies of the Manual and any other
confidential materials which have been loaned to Franchisee by Franchisor.
16.05 Franchisor's Right to Purchase the Franchised Restaurant. In
addition to the rights provided to Franchisor under Section 12.08 or upon
termination of this Agreement under Section 14 or Section 15, Franchisor shall
have the option, but not the obligation, exercisable by giving written notice
thereof within thirty (30) days from the date of such termination, to purchase
from Franchisee all the assets of the Franchised Restaurant operated pursuant to
this Agreement. Assets shall include, without limitation, real property,
inventories of saleable merchandise, Utensils, materials, supplies, leasehold
improvements, fixtures, furniture, furnishings, equipment, signs, and
Franchisee's lease for the Premises. Franchisor shall have the option to
purchase the capital stock, partnership or membership interests of Franchisee,.
as the case may be, instead of the assets of the Franchised Restaurant. In the
event Franchisee owns the Premises, Franchisee in lieu of selling the same, at
the election of Franchisor shall grant to Franchisor or its assignee standard
commercial leases at fair market rental for, initial terms of ten (10) years
each with not less than one (1) ten (10) year renewal option. Franchisor shall
have the unrestricted right to assign its option to purchase to any third party
of its choosing. Franchisor or its assignee shall be entitled to all customary
warranties and representations in connection with its asset or stock purchase as
set forth in Exhibits D and E of the applicable Area Development Agreement
previously or contemporaneously entered into between Franchisor and Franchisee,
or if Franchisee executed a single Franchise Agreement, as included as an
Exhibit to the Area Development Agreement included in the Uniform Franchise
Offering Circular given to Franchisee prior to Franchisee's execution of this
Franchise Agreement. The purchase price for the assets of the Franchised
Restaurant (or the capital stock of the Franchisee) shall be determined as
follows:
(a) Franchisor shall appoint one (1) qualified individual as
an appraiser and Franchisee shall appoint one (1) qualified individual
as an appraiser. The appraisers so appointed shall determine the fair
market value of the assets of the Franchised Restaurant or the capital
stock of Franchisee, as the case may be. In the event these two (2)
appraisers are unable to agree upon the fair market value of such
assets or capital stock, as the case may be, within thirty (30) days
after their appointment, they shall select and designate one (1)
additional appraiser for this purpose whose appointment and
determination shall be binding upon all parties. In the event any
appraiser should become unable or unwilling to serve, a substitute
shall be appointed by the party originally selecting him. In the event
that the two (2) appraisers first appointed shall be unable to agree
upon a third appraiser, such appraiser shall be appointed by the most
senior federal judge presiding at the federal district court located in
Wichita, Kansas.
35
(b) The purchase price may be paid, at the option of
Franchisor, in cash, by delivery of a note, if the Franchisor is
"publicly-owned" also by delivery of Franchisor's stock, or by any
combination of cash, notes, and capital stock. Franchisee acknowledges
and agrees that any capital stock delivered by Franchisor in partial or
complete payment of the purchase price may not be freely transferable
by Franchisee without registration of said stock, the obtaining of an
exemption from registration, and/or the rendering of an opinion of
counsel satisfactory to Franchisor's counsel that said stock may
subsequently be transferred without registration. Accordingly, any
capital stock issued in full or partial payment of the purchase price
shall bear a legend so stating.
(c) The closing shall take place no later than ninety (90)
days after receipt by Franchisee of Franchisor's notice of exercise of
this option to purchase, at which time Franchisee shall deliver
instruments transferring to Franchisor or its assignee:
(i) good and merchantable title to the assets
purchased, free and clear of all liens and encumbrances (other
than liens and security interests acceptable to Franchisor or
its assignee), with all sales and other transfer taxes paid by
Franchisee; and
(ii) all licenses for the Franchised Restaurant, or
permits which may validly be assigned or transferred.
In the event that Franchisee cannot deliver clear title to all of such
purchased assets, or in the event there shall be other unresolved issues, the
closing of the sale shall be accomplished by means of an escrow. Further,
Franchisee and Franchisor shall, prior to closing, comply with the applicable
Bulk Sales provisions of the Uniform Commercial Code of the state where the
Franchised Restaurant is located. Franchisor shall have the right to set off
against and reduce the purchase price by any and all amounts owed by Franchisee
to Franchisor. If Franchisor exercises its option to purchase, then pending the
closing of such purchase as hereinabove provided, Franchisor shall have the
right to appoint Restaurant Managers to maintain the operation of such purchased
Franchised Restaurant. Alternatively, Franchisor may require Franchisee to close
the Franchised Restaurant during such time period without removing therefrom any
assets.
16.06 Continuing Obligations. All obligations of Franchisor and
Franchisee which expressly or by their nature survive the expiration or
termination of this Agreement (for example, the non-competition covenant
provided for in Section 7.04) shall continue in full force and effect subsequent
to and notwithstanding this Agreement's expiration or termination and until they
are satisfied in full or by their nature expire.
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17. TEMPORARY DE-IDENTIFICATION OF THE RESTAURANT
In lieu of immediately exercising its rights to terminate this
Agreement, as set forth in Section 15, and in Franchisor's sole discretion,
Franchisor may execute an agreement with Franchisee calling for the temporary
de-identification of the Franchised Restaurant ("De- identification Agreement").
The De-identification Agreement shall be in a form prescribed by Franchisor,
shall set forth all required repair, replacement, refurbishing, and/or
remodeling which must be completed by Franchisee and shall prescribe a timetable
in which Franchisee must cure all defaults under this Agreement, and complete
such repair, replacement, refurbishing, and/or remodeling.
During the term of the De-identification Agreement, the Franchisee
shall:
17.01 Signage. Cover all of the Franchised Restaurant's signs
containing the Proprietary Marks located on the exterior or in the interior of
the Premises of the Franchised Restaurant;
17.02 Marketing. Cease all marketing of the Franchised Restaurant using
the Proprietary Marks;
17.03 Public Relations. Cease all representations to the public and its
customers that the Franchised Restaurant is authorized to operate under the
Proprietary Marks and is affiliated with the System in any way; and
17.04 Advisory Signs. Prominently display signs and notices in the
Franchised Restaurant in such manner and in a form as is prescribed by
Franchisor indicating that the Franchised Restaurant is temporarily not
affiliated with any restaurants operated or franchised by Franchisor while it is
undertaking improvements to bring it into tompliance with the standards and
specifications required of all Franchised Restaurants. During the term of the
De-identification Agreement, Franchisee shall discontinue use of all menus and
expendable supplies containing the Proprietary Marks.
During the term of the De-identification Agreement, Franchisee shall
not be required to make Continuing Royalty payments and marketing contributions
required by this Agreement, except for any amounts due at the time of execution
of the Dc-identification Agreement. The term of this Agreement shall continue to
run during, and shall not be extended by, the term of the Dc-identification
Agreement. In the event Franchisee fails to comply with all of the terms and
conditions of the Dc-identification Agreement, or if upon expiration of the
Dc-identification Agreement, if Franchisee has not completed all required
repairs, replacement, refurbishing, and/or remodeling, Franchisor may proceed to
terminate this Agreement as set forth in Section 15.
18. CASUALTY LOSS OR CONDEMNATION
18.01 Casualty Loss. If the Franchised Restaurant licensed by this
Agreement is damaged by fire or other casualty, Franchisee shall, at its cost,
expeditiously repair such damage as soon as possible after the occurrence
thereof. In the event such casualty loss requires the closing of the Franchised
Restaurant for more than three (3) consecutive months, then, unless repair and
reconstruction work has commenced in ▇▇▇▇▇▇▇ within such three (3) month period
and unless the Franchised Restaurant is re-opened in full operation no later
than one (1) year after the date of such casualty loss, this Agreement shall
terminate automatically and without notice to Franchisee. In lieu of
reconstructing and reopening the damaged Franchised Restaurant as required
hereby, Franchisee may construct and open a different Franchised Restaurant
within the trade area of such damaged Franchised Restaurant within one (1) year
after ,the date of such casualty loss. Such substituted Franchised Restaurant
shall be exempt from the Initial Franchise Fee requirement provided for in this
Agreement.
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18.02 Condemnation Proceedings. Franchisee shall give Franchisor
written notice as soon as it receives any knowledge of any condemnation or
exercise of the power of eminent domain, or threat thereof, by any applicable
governmental authority. i~, in the reasonable opinion of Franchisor, a
substantial part of the Franchised Restaurant is to be condemned or taken under
eminent domain and the portion not so taken or condemned could not be operated
practicably and profitably as a Franchised Restaurant, Franchisor shall give
good faith consideration to transferring the Franchised Restaurant granted by
this Agreement to another location reasonably near the condemned Franchised
Restaurant which decision shall be made by Franchisor not more than four (4)
months after Franchisor's determination of condemnation. If such transfer of
Franchised Restaurant is authorized by Franchisor and Franchisee opens for
business at such other location within one (1) year of the closing of the
condemned or taken Franchised Restaurant, the substituted Franchised Restaurant
in such area shall be deemed to be open under this Agreement in the same manner
and for the same term as was the previous Franchised Restaurant. In the event
Franchisee has used its best efforts to vigorously replace such condemned
location but has been unable to do so on account of its failure to obtain the
requisite licenses and permits for such other location, Franchisor may, but
shall not be required to, grant additional time for Franchisee to open such
other location. If such condemnation or eminent domain takes place and no new
location, for any reason whatsoever, .becomes franchised in strict accordance
with this Section, then this Agreement shall terminate automatically without
notice to Franchisee.
19. ENFORCEMENT
19.01 Severability and Substitution of Valid Provisions. Except as
expressly provided to the contrary in this Agreement, each Section, term, and
provision of this Agreement, and any portion thereof, shall be considered
severable and if, for any reason, any such provision of this Agreement is held
to be invalid, contrary to, or in conflict with any applicable present or future
law or regulation in a final ruling issued by any court, agency, or tribunal
with competent jurisdiction in a proceeding to which Franchisor is a party, that
ruling shall not impair the operation of, or have any other effect upon, such
other portions of this Agreement as may remain otherwise intelligible, which
shall continue to be given full force and effect and bind the parties hereto.
Any portion held to be invalid shall be deemed not to be a part of this
Agreement from the date the time for appeal expires, if Franchisee is a party
thereto, or otherwise upon Franchisee's receipt of a notice of non-enforcement
thereof from Franchisor. To the extent that Section 7, or any section, or
portion, or clause thereof, is deemed unenforceable by virtue of its scope in
terms of area, business activity prohibited and/or length of time, but same may
be made enforceable by reducing any or all thereof, Franchisee and Franchisor
agree that same shall be enforced to the fullest extent permissible under the
laws and public policies applied in the jurisdiction in which enforcement is
sought.
If any applicable and binding law or rule of any jurisdiction requires
a greater prior notice 'of the termination of or non-renewal of this Agreement
than is required by this Agreement, or the taking of some other action not
required by this Agreement, or if under any applicable and binding law or rule
of any jurisdiction, any provision of this Agreement or any specification,
standard, or operating procedure prescribed by Franchisor is invalid or
unenforceable, the prior notice and/or other action required by such law or rule
shall be substituted for the comparable provisions hereof, and Franchisor shall
have the right, in its sole discretion, to modify such invalid or unenforceable
provision, specification, standard, or operating procedure to the extent
required to be valid and enforceable. Franchisee agrees to and shall be bound by
any promise or covenant imposing the maximum duty permitted by law which is
38
subsumed within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
from any of the provisions hereof, or any specification, standard or operating
procedure prescribed by Franchisor, any portion or portions which a court may
hold to be unenforceable in a final decision to which Franchisor is a party, or
from reducing the scope of any promise or covenant to the extent required to
comply with such a court order. Such modifications to this Agreement shall be
effective only in such jurisdiction, unless Franchisor elects to give them
greater applicability, and this Agreement shall be enforced as originally made
and entered into in all other jurisdictions.
19.02 Waiver of Obligations. Franchisor or Franchisee may by written
instrument unilaterally waive or reduce any obligation of or restriction upon
the other under this Agreement, effective upon delivery of written notice
thereof to the other or such other effective date stated in the notice of
waiver. Whenever this Agreement requires Franchisor's prior approval or consent,
Franchisee shall make a timely written request to Franchisor, and such approval
shall be obtained in writing. Franchisor makes no warranties or guarantees upon
which Franchisee may rely, and assumes no liability or obligation to Franchisee,
by granting any waiver, approval, or consent to Franchisee or by reason of any
neglect, delay, or denial of any request by Franchisor. Any waiver granted by
Franchisor shall be without prejudice to any other rights Franchisor may have,
will be subject to continuing review by Franchisor, and may be revoked, in
Franchisor's sole discretion, at any time and for any reason, effective upon
delivery to Franchisee of thirty (30) days prior written notice.
Franchisor and Franchisee shall not be deemed to have waived or
impaired any right, power, or option reserved by this Agreement (including,
without limitation, the right to demand exact compliance with every term,
condition, and covenant in this Agreement, or to declare any breach thereof to
be a default and to terminate this Agreement prior to the expiration of its
term), by virtue of any custom or practice of the parties at variance with the
terms hereof; any failure, refusal, or neglect of Franchisor or Franchisee to
exercise any right under this Agreement or to insist upon exact compliance by
the other with its obligations by this Agreement, including, without limitation,
any mandatory specification, standard, or operating procedure; any waiver,
forbearance, delay, failure, or omission by Franchisor to exercise any right,
power or option, whether of the same, similar or different nature, with respect
to the Franchised Restaurant; or the acceptance by Franchisor of any payments
due from Franchisee after any breach of this Agreement.
19.03 Limitations on Liability. Unless stated to the contrary elsewhere
in this Agreement, neither Franchisor nor Franchisee shall be liable for any
loss or damage nor deemed to be in breach of this Agreement if its failure to
perform its obligations results from:
(a) transportation shortages, inadequate supply of equipment,
merchandise, supplies, labor, material, or energy, or the voluntary
foregoing of the right to acquire or use any of the foregoing in order
to accommodate or comply with the orders, requests, regulations,
recommendations, or instructions of any federal, state, or municipal
government or any department or agency thereof;
39
(b) compliance with any law, ruling, order, regulation,
requirement, or instruction of any federal, state, or municipal
government or any department or agency thereof;
(c) acts of God;
(d) acts or omissions of the other party;
(e) fires, strikes, embargoes, war, or riot; or
(f) any other similar event or cause.
Any delay resulting from any of said causes shall extend performance
accordingly or excuse performance, in whole or in part, as may be reasonable,
except that said causes shall not excuse payments of amounts owed at the time of
such occurrence or payment of Continuing Royalty and Service Fees due on any
sales thereafter.
19.04 Specific Performance/Injunctive Relief. Nothing contained in this
Agreement shall bar Franchisor's or Franchisee's right to obtain. specific
performance of the provisions of this Agreement and to obtain injunctive relief
against threatened conduct that will cause it loss or damages, under customary
equity rules, including applicable rules for obtaining restraining orders and
preliminary injunctions. Franchisee agrees that Franchisor may obtain such
injunctive relief, without bond, but upon due notice, in addition to such
further and other relief as may be available at equity or law. Franchisee
further agrees that its sole remedy in the event of the entry of such
injunction, shall be the dissolution of such injunction, if warranted, upon
hearing duly had and all claims for damages by reason of the wrongful issuance
of any such injunction are expressly waived hereby unless against the public
policy of the forum in which the proceeding was brought.
19.05 Rights of Parties are Cumulative. The rights of Franchisor and
Franchisee by this Agreement are cumulative and no exercise nor enforcement by
Franchisor or Franchisee of any right or remedy by this Agreement shall preclude
the exercise or enforcement by Franchisor or Franchisee of any other right or
remedy by this Agreement or which Franchisor or Franchisee is entitled by law or
equity to enforce.
19.06 Governing Law/Consent to Jurisdiction. Except to the extent
governed by the United States Trademark Act of 1946 (▇▇▇▇▇▇ Act, 15 U.S.C.
Sections 1051, et seq.), this Agreement and the Franchise shall be governed by
the laws of the State of Kansas. Except as expressly set forth in Section 21
regarding the duty of the parties to arbitrate disputes arising from their
relationship under this Agreement, Franchisee agrees that Franchisor may
institute any action against Franchisee for injunctive relief or enforcement of
Franchisee's confidentiality and non-competition covenants in any State or
Federal court of general jurisdiction in the State of Kansas and Franchisee
irrevocably submits to the jurisdiction of such courts and waives any objection
it may have to either the jurisdiction or venue of such court.
40
19.07 Binding Effect/Modification. This Agreement is binding upon the
parties hereto and their respective executors, administrators, heirs, assigns
and successors in interest, and shall not be modified except by written
agreement signed by both Franchisee and Franchisor.
19.08 Construction. The preambles and Attachment(s) are a part of this
Agreement which constitutes the entire agreement of the parties, and except for
the terms and conditions of any applicable area development agreement, if any,
there are no other oral or written understandings or agreements between
Franchisor and Franchisee relating to the subject matter of this Agreement.
Nothing in this Agreement is intended, nor shall be deemed, to confer any rights
or remedies upon any person or legal entity not a party hereto.
The headings of the several Sections hereof are for convenience only
and do not define, limit, or construe the contents of such Sections.
The term "affiliate" as used in this Agreement is applicable to any
company directly or indirectly owned by, controlled by, or under common control
with Franchisor that sells products or otherwise transacts business with
Franchisee.
The term "Franchisee" as used in this Agreement is applicable to one or
more persons, a corporation, limited liability company, or a partnership, as the
case may be, and the singular usage includes the plural and the masculine and
neuter usages include the other and the feminine. If two or more persons are at
any time Franchisee hereunder, whether as partners, joint venturers or
otherwise, their obligations and liabilities to Franchisor shall be joint and
several. References to "Franchisee," "owner" and "transferee" which are
applicable to an individual or individuals shall mean, unless expressly made
applicable to all shareholders and partners, the owners of Franchisee or the
transferee (i.e., any person owning of record or beneficially ten percent [10%]
or more of the equity or control of Franchisee) if Franchisee or the transferee
is a corporation, limited liability company or partnership.
19.09 Counterparts. This Agreement may be executed in multiple copies,
each of which shall be deemed an original, but all of which shall constitute one
document.
19.10 Consent. Except where this Agreement expressly obligates
Franchisor to reasonably approve or not unreasonably withhold its approval of
any action or request by Franchisee, Franchisor has the absolute right to refuse
any request by Franchisee or to withhold its approval of any action by
Franchisee for any reason whatsoever.
19.11 Attorneys Fees. Notwithstanding anything in this Agreement to the
contrary, if either party institutes a legal proceeding, including court
proceeding or arbitration, and prevails entirely or in part in any action at law
or in equity against the other party based entirely or in part on the terms of
this Agreement, the prevailing party shall be entitled to recover from the
losing party, in addition to any judgment, reasonable attorneys' fees, court or
arbitrators costs and all of the prevailing party's expenses in connection with
any action at law.
20. NOTICES AND PAYMENTS
All written notices and reports permitted or required to be delivered
by the provisions of this Agreement or of the Manual shall be deemed so
delivered at the time delivered by hand, one (1) business day after transmission
41
by telegraph or comparable electronic system or three (3) business days after
being placed in the United States Mail by Registered or Certified Mail, Return
Receipt Requested, postage prepaid and addressed to the party to be notified at
its most current principal business address of which the notifying party has
been notified. All payments and reports required by this Agreement shall be
directed to Franchisor at the address notified to the Franchisee from
time-to-time, or to such other persons and places as the Franchisor may direct
from time-to-time. Any required payment or report not actually received by
Franchisor during regular business hours on the date due (or postmarked by
postal authorities as of the due date) shall be deemed delinquent.
Any notice, consent, approval, demand or other communication to be
given, made or provided for under this Agreement shall be in writing and deemed
to be fully given by its delivery personally to the person or persons specified
below or by is being sent by registered or certified mail, return receipt
requested, to the following addresses, or to such other address or to the
attention of such other person as any party hereto shall hereafter specify by
prior written notice to the other party:
If to Franchisor: Stockade Franchising, LP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
If to Franchisee: Branson Restaurants, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:___________________________
21. ARBITRATION AND DISPUTE RESOLUTION
21.01 Duty to Arbitrate. Except in the case of any Franchisor-sponsored
dispute resolution program created in accordance with Section 21.04, the parties
agree that any and all controversies, claims and disputes between them arising
out of or related to this Agreement that cannot be amicably settled shall be
finally resolved by submitting such matter to the American Arbitration
Association ("AAA") in either Denver, Colorado or Kansas City, Missouri, in
Franchisor's sole discretion, for binding arbitration under the AAA's Commercial
Arbitration Rules. A single arbitrator shall be selected in accordance with
standard AAA procedure. In accordance with the terms of the Federal Arbitration
Act, the arbitrator shall hear the dispute in either Denver, Colorado or Kansas
City, Missouri, as selected by Franchisor. During the arbitration process, each
party shall bear all of its own costs and attorneys' fees and one-half of the
arbitrator's expenses. The decision of the arbitrator shall be final and binding
and shall include attorneys fees, all arbitration expenses, and other costs in
accordance with Section 19.11. Franchisee knows, understands and agrees that it
is the intent of the parties that any arbitration between Franchisor and
Franchisee or its owners shall be of Franchisee's (or its owner's) individual
claims and that the claims subject to arbitration shall not be arbitrated in
conjunction with the claims of other developers, franchisees or on a class-wide
basis and Franchisee and its owners hereby waive any right it or they may assert
to have its claims arbitrated in conjunction with the claims of other
developers, franchisees or on a class-wide basis.
21.02 Franchisor's Right to Seek Injunctive Relief. Notwithstanding any
provision contained in this Section 21, Franchisor may, at its sole option,
institute an action or actions for temporary or preliminary injunctive relief or
42
seeking any other temporary or permanent equitable relief against Franchisee
that may be necessary to protect its Proprietary Marks or other rights or
property. However, in Franchisor's sole discretion, the final right of
determination of the ultimate controversy, claim or dispute shall be decided by
arbitration as aforesaid and recourse to the courts shall thereafter be limited
to seeking an order to enforce an arbitral award. In no event shall Franchisee
be entitled to make, Franchisee shall not make, and Franchisee hereby waives,
any claim for money damages by way of set-off, counterclaim, defence or
otherwise based upon any claim or assertion by Franchisee that Franchisor has
unreasonably withheld or unreasonably delayed any consent or approval to a
proposed act by the Franchisee under any of the terms of this Agreement. The
Franchisee's sole remedy for any such claim shall be an action or proceeding to
enforce any such provisions, for specific performance or declaratory judgment.
21.03 Location of Agreement. Franchisee, the Franchisee's owners and
Franchisor acknowledge that the execution of this Agreement and acceptance of
the terms by the parties occurred in Hutchinson, Kansas, and further acknowledge
that the performance of certain obligations of Franchisee arising under this
Agreement, including the payment of monies due under this Agreement, shall occur
in Hutchinson, Kansas.
21.04 Franchisor's Right to Develop Alternative Dispute Resolution
Programs. Without limiting any of the foregoing, Franchisor reserves the right,
at any time, to create a dispute resolution program and related specifications,
standards, procedures and rules for the implementation thereof to be
administered by Franchisor or its designees for the benefit of all Developers
and Franchisees conducting business under the System. The standards,
specifications, procedures and rules for such dispute resolution program shall
be made part of the Manual, and Franchisee shall comply with all such standards,
specifications, procedures and rules in seeking resolution of any claims,
controversies or disputes with or involving Franchisor or other Developers or
Franchisees, if applicable under the program. If Franchisor makes such dispute
resolution program mandatory, Franchisee and Franchisor agree to submit any
claims, controversies or disputes arising out of or relating to this Agreement
or the relationship created by this agreement for resolution in accordance with
such dispute resolution program prior to seeking resolution of such claims,
controversies or disputes in the manner described in Sections 21.01 and 21.02
(provided that the provisions of Section 21 concerning Franchisor's right to
seek relief in a court for certain actions including for injunctive or other
extraordinary relief shall not be superseded or affected by this Section 21.04)
or if such claim, controversy or dispute relates to another Developer or
Franchisee, Franchisee agrees to participate in the program and submit any such
claims, controversies or disputes in accordance with the program's standards,
specifications, procedures and rules, prior to seeking resolution of such claim
by any other judicial or legally available means.
21.05 Waiver of Certain Damages. Franchisee and Franchisee's owners
waive, to the fullest extent permitted by law, any right to or claim of
punitive, exemplary, incidental, indirect, special, consequential or other
damages (including loss of profits) against Franchisor, its affiliates, and
their respective officers, directors, shareholders, partners, agents,
representatives, independent contractors, servants and employees, in their
corporate and individual capacities, arising out of any cause whatsoever
43
(whether such cause be based in contract, negligence, strict liability, other
tort or otherwise) and agrees that in the event of a dispute, Franchisee and
Franchisee's owners shall be limited to the recovery of any actual damages
sustained by it or them. If any other term of this Agreement is found or
determined to be unconscionable or unenforceable for any reason, the foregoing
provisions of waiver by agreement of punitive, exemplary, incidental, indirect,
special, consequential or other damages (including loss of profits) shall
continue in full force and effect.
22. ACKNOWLEDGMENTS
22.01 Franchisee's Investigation. Franchisee acknowledges that it has
conducted an independent investigation of the business venture contemplated by
this Agreement and recognizes that the success of this business venture involves
substantial business risks and will largely depend upon the ability of
Franchisee. Franchisor expressly disclaims making, and Franchisee acknowledges
that it has not received or relied on, any warranty or guarantee, express or
implied, as to the potential volume, profits or success of the business venture
contemplated by this Agreement.
22.02 Receipt of Agreements~ Time to Consider. Franchisee acknowledges
that Franchisee has received, read and understands this Agreement and the
related Attachment and agreements and that Franchisor has afforded Franchisee
sufficient time and opportunity to consult with advisors selected by Franchisee
about the potential benefits and risks of entering into this Agreement.
22.03 Compliance with Franchise Law. Franchisee acknowledges that it
received a complete copy of this Agreement and the related Attachment and
agreements at least five (5) business days prior to the date on which this
Agreement was executed. Franchisee further acknowledges that it has received the
disclosure document required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures" at least ten (10) business days
prior to the date on which this Agreement was executed.
[Signatures on Following Page]
44
IN WITNESS WHEREOF, the parties hereto have executed, sealed and
delivered this Agreement in two or more counterparts on the day and year first
above written.
Franchisor:
STOCKADE FRANCHISING, LP
By: Stockade Franchising Management,
LLC, its General Partner
By: ▇▇▇▇▇ ▇. ▇▇▇▇
Manager and Chairman of the Board
Developer:
If a Corporation or Limited Liability Company:
BRANSON RESTAURANTS, INC.
By: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: CEO
45
ATTACHMENT 1
TO FRANCHISE AGREEMENT
GUARANTY AND ASSUMPTION
OF OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF OBLIGATION is given this 21st day of
July, 2005, by ITEC Attractions, Inc. and ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇
In consideration of, and as inducement to, the execution of that
certain Franchise Agreement of even date herewith ("Agreement") by Stockade
Franchising, LP ("Franchisor"), each of the undersigned hereby personally and
unconditionally (a) guarantees to Franchisor, and its successors and assigns,
for the term of the Agreement and thereafter as provided in the Agreement, that
Branson Restaurants, Inc. ("Franchisee") shall punctually pay and perform each
and every undertaking, agreement and covenant set forth in the Agreement; and
(b) agrees to be personally bound by, and personally liable for the breach of,
each and every provision in the Agreement, both monetary obligations and
obligations to take or refrain from taking specific actions or to engage or
refrain from engaging in~ specific activities, including, without limitation,
the provisions of Section 3.04 and Section 7.04. Notwithstanding clauses (a) and
(b) above, a spouse who is also a guarantor hereunder and who becomes widowed
and who does not have (and will not obtain) an ownership interest in the
Franchisee, the Agreement, or any Franchise Agreement granted thereunder as an
owner, co-owner, investor, member, partner, shareholder or like capacity shall
not thereafter be held responsible for any monetary obligations thereafter
arising out of the terms and conditions of this Guaranty and Assumption of
Obligations unless any such ownership interest is acquired in any manner by the
widowed spouse, or the widowed spouse's or deceased spouse's children.
Notwithstanding any change in ownership resulting from the death of a spouse,
all monetary obligations and liabilities existing at the time of death shall
continue to be an obligation of the surviving spouse until such obligations or
liabilities shall be paid in full by the estate or by the guarantor spouse.
Notwithstanding the limitations set forth above, any and all other non-monetary
obligatiOns of the Agreement, including without limitation the restrictions of
Section 6.04, shall remain an obligation of the surviving spouse.
Each of the undersigned waives: (i) acceptance and notice of acceptance
by Franchisor of the foregoing undertakings; (ii) notice of demand for payment
of any indebtedness or non- performance of any obligations hereby guaranteed;
(iii) protest and/or non-performance of any obligations hereby guaranteed; (iv)
any right it may have to require that an action be brought against Franchisee or
any other person as a condition of liability; and (v) any and all other notices
and legal or equitable defenses to which it may be entitled.
Each of the undersigned consents and agrees that: (i) his/her direct
and immediate liability under this guaranty shall be joint and several; (ii)
he/she shall render any payment or performance required under the Agreement upon
demand if Franchisee fails or refuses punctually to do so; (iii) such liability
shall not be contingent or conditioned upon pursuit by Franchisor of any
remedies against Franchisee or any other person; and (iv) such liability shall
not be diminished, relieved or otherwise affected by any extension of time,
credit, or other indulgence which Franchisor may from time-to-time grant to
Attachment 1 - 1
Franchisee or to any other person, including without limitation the acceptance
of any partial payment or performance, or the compromise or release of any
claims, none of which shall in any way modif~' or amend this guaranty, which
shall be continuing and irrevocable during the term of the Agreement.
Notwithstanding anything to the contrary, Franchisor shall use
reasonable discretion and exercise reasonable efforts to cause Franchisee and
primary guarantor ITEC Attractions, Inc. to perform and render payment as
required by the Agreement. Such reasonable efforts failing, then and only then
shall this Guaranty and Assumption of Obligations become in force or effect.
IN WITNESS WHEREOF, each of the undersigned has hereunto written
his/her signature on the same day and year as the Agreement was executed.
Percentage of
Ownership of
Guarantor(s): Franchisee
ITEC ATTRACTIONS, INC.
By: ▇▇▇▇ ▇. ▇▇▇▇▇ 100% ▇▇▇▇ ▇. ▇▇▇▇▇
Title: CEO
▇▇▇▇ ▇. ▇▇▇▇▇ 0% ▇▇▇▇ ▇. ▇▇▇▇▇
Lourette ▇▇▇ ▇▇▇▇▇ 0% Lourette ▇▇▇ ▇▇▇▇▇
Attachment 1 - 2
ATTACHMENT 2
TO FRANCHISE AGREEMENT
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS,
TELEPHONE LISTINGS, AND INTERNET ADDRESSES
THIS ASSIGNMENT is entered into this 21st day of July, 2005, in
accordance with the terms of that certain Stockade Franchising, LP Franchise
Agreement ("Franchise Agreement") between Branson Restaurants, Inc.
("Franchisee"), and Stockade Franchising, LP, a Nevada limited partnership
("Franchisor"), executed concurrently with this Assignment, under which
Franchisor granted Franchisee the right to own and operate a franchise located
at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇ 6561 f("Franchised Restaurant").
FOR VALUE RECEIVED, Franchisee hereby assigns to Franchisor (1) those
certain telephone numbers and regular, classified or other telephone directory
listings (collectively, the "Telephone Numbers and Listings") and (2) those
certain Internet Website Addresses ("URLs") associated with Franchisor's trade
and service marks and used from time to time in connection with the operation of
the Franchised Restaurants at the address provided above. This Assignment is for
collateral purposes only and, except as specified in this Agreement, Franchisor
shall have no liability or obligation of any kind whatsoever arising from or in
connection with this Assignment, unless Franchisor shall notify the telephone
company and/or the listing agencies with which Franchisee has placed telephone
directory listings (all such entities are collectively referred to as "Telephone
Company") and/or Franchisee's internet service provider ("ISP") to effectuate
the assignment pursuant to the terms hereof.
Upon termination or expiration of the Franchise Agreement (without
renewal or extension), Franchisor shall have the right and is hereby empowered
to effectuate the assignment of the Telephone Numbers, the Listings and the
URLs, and, in such event, Franchisee shall have no further right, title or
interest in the Telephone Numbers, Listings and URLs, and shall remain liable to
the Telephone Company and the ISP for all past due fees owing to the Telephone
Company and the ISP on or before the effective date of the assignment hereunder.
Franchisee agrees and acknowledges that as between Franchisor and
Franchisee, upon termination or expiration of the Franchise Agreement,
Franchisor shall have the sole right to and interest in the Telephone Numbers,
Listings and URLs, and Franchisee irrevocably appoints Franchisor as
Franchisee's true and lawful attorney-in-fact, which appointment is coupled with
an interest, to direct the Telephone Company and the ISP to assign same to
Franchisor, and execute such documents and take such actions as may be necessary
to effectuate the Assignment. Upon such event, Franchisee shall immediately
notify the Telephone Company and the ISP to assign the Telephone Numbers,
Listings and URLs to Franchisor. If Franchisee fails to promptly direct the
Telephone Company and the ISP to assign the Telephone Numbers, Listings and URLs
to Franchisor, Franchisor shall direct the Telephone Company and the ISP to
effectuate the assignment contemplated hereunder to Franchisor. The parties
agree that the Telephone Company and the ISP may accept Franchisor's written
direction, the Franchise Agreement or this Assignment as conclusive proof of
Franchisor's exclusive rights in and to the Telephone Numbers, Listings, and
LJRLs upon such termination or expiration and that such assignment shall be made
Attachment 2 - 1
automatically and effective immediately upon Telephone Company's and ISP's
receipt of such notice from Franchisor or Franchisee. The parties further agree
that if the Telephone Company or the ISP requires that the parties execute the
Telephone Company's or the ISP's assignment forms or other documentation at the
time of termination or expiration of the Franchise Agreement, Franchisor's
execution of such forms or documentation on behalf of Franchisee shall
effectuate Franchisee's consent and agreement to the assignment. The parties
agree that at any time after the date hereof they will perform such acts and
execute and deliver such documents as may be necessary to assist in or
accomplish the assignment described herein upon termination or expiration of the
Franchise Agreement.
ASSIGNEE: ASSIGNOR:
STOCKADE FRANCHISING, LP FRANCHISEE
By: Stockade Franchising Management, LLC, Branson Restaurants, Inc.
its General Partner
By: By:
ACCEPTED AND AGREED TO BY:
(Telephone Company Authorized Representative)
(Name of Telephone Company)
(Internet Service Provider Authorized Representative)
Attachment 2 - 2
ATTACHMENT 3
TO FRANCHISE AGREEMENT
FRANCHISEE QUESTIONNAIRE
As you know, we are about to enter into a Franchise Agreement for the
operation of a Montana Mike's Steakhouse(R) franchised business ("Franchise").
The purpose of this Questionnaire is to determine whether any statements or
promises were made to you that we have not authorized and that may be untrue,
inaccurate or misleading. Please review each of the following questions
carefully and provide honest responses to each question.
QUESTION YES NO
1. Have you received and personally reviewed the Franchisor's X
Uniform Franchise Offering Circular ("Offering Circular")
provided to you?
2. Did you sign a receipt for the Offering Circular indicating X
the date you received it?
3. Do you understand all of the information contained in the X
Offering Circular?
4. Have you received and personally reviewed the Franchise X
Agreement and each exhibit or schedule attached to it?
5. Please insert the date on which you received a copy of
the Franchise Agreement with all material blanks fully
completed: July 7, 2005
6. Do you understand the terms of and your obligations under X
the Franchise Agreement?
7. Have you discussed the benefits and risks of operating X
the Franchise with an attorney, accountant or other
professional advisor?
8. Do you understand the risks associated with operating the
Franchise?
9. Do you understand that the success or failure of the X
Franchise will depend in large part upon your skills and
abilities, competition, interest rates, the economy, inflation,
labor and supply costs, lease terms and the marketplace?
10. Has any employee or other person speaking on our behalf X
made any statement or promise regarding the amount of money
you may earn in operating the Franchise that is contrary to,
or different from, the information contained in the Offering
Circular?
11. Has any employee or other person speaking on our behalf X
made any statement or promise concerning the actual, average
or projected profits or earnings or the likelihood of success
that you should or might expect to achieve from operating the
Franchise that is contrary to, or different from, the
information contained in the Offering Circular?
--------------------------------------------------------------------------------
Attachment 3 - 1
If you answered "Yes" to any of questions 10 or 11, please provide a full
explanation of your answer in the following blank lines. (Attach additional
pages, if necessary, and refer to them below.) If you answered "No" to each of
the foregoing questions, please leave the following lines blank.
You understand that your answers are important to us and that we will rely on
them. By signing this Questionnaire, you are representing that you have
responded truthfully to the above questions.
Branson Restaurants, Inc.
By: ▇▇▇▇ ▇. ▇▇▇▇▇ Lourette ▇▇▇ ▇▇▇▇▇
Franchise Applicant Guarantor
Attachment 3 - 2
ATTACHMENT 4
TO FRANCHISE AGREEMENT
STATE SPECIFIC ADDENDA
Exhibit H to Uniform Franchise Offering Circular
Attachment 4 - 1
ADDENDUM TO
LETTER OF UNDERSTANDING
This ADDENDUM TO LETTER OF UNDERSTANDING is entered into this 21st day
of July 2005,
BY AND BETWEEN STOCKADE FRANCHISING, LP
a Nevada limited partnership,
hereinafter referred to as
"FRANCHISOR,"
AND BRANSON RESTAURANTS, INC.
a Missouri corporation,
hereinafter referred to as
"FRANCHISEE."
WHEREAS, Franchisor and Franchisee have this date contemporaneously
entered into a certain Franchise Agreement (the "Franchise Agreement"), dated
the 21st day of July, 2005, whereby the Franchisee has been granted a
"Franchise"to operate the Restaurant subject to the terms and conditions set
forth therein; and
WHEREAS, the parties desire, by execution of this Addendum, to clarify
and modify the Franchise Agreement regarding certain nights and obligations
contained therein.
NOW, THEREFORE, in consideration for the execution of the Franchise
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties do hereby agree as follows:
1. Section 7.04 of the Franchise Agreement is hereby clarified and
modified as follows:
The parties acknowledge that the parent company of Franchisee, ITEC Attractions,
Inc. currently operates other restaurants and agree that the Non-Compete
Covenant shall not apply to these restaurants or other restaurants they may
operate. Furthermore, the parties agree that ITEC, its officers and majority
shareholders cannot open a restaurant substantially similar in appearance and
menu offering to Montana Mike's.
2. Section 7.06 of the Franchise Agreement is hereby modified as
follows:
"Business Records" shall only have meaning with regard to customers. The terms
"employees and other service professionals" shall be deleted regarding ownership
of records.
3. Section 8.01 (a) of the Franchise Agreement is hereby modified as
follows:
The parties acknowledge that the Franchisee may have a future opportunity for an
additional use of the premises other than exclusively the Franchised Restaurant.
Attachment 4 - 2
An additional non-competitive use of the premises shall be with Franchisor
approval; such approval shall not be unreasonably withheld or delayed. Monies or
receipts derived from such non-competitive use shall not be included in "Net
Sales" as defined in Section 6.03 of the Franchise Agreement.
4. Section 8.07 of the Franchise Agreement is hereby clarified and
modified as follows:
Franchisee shall operate the Franchised Restaurant for a minimum of a 12 month
period in accordance with this Section 8.07, if after such period of time
Franchisee shall determine that such year-round continuous operation is
economically unfeasible, franchisee may request approval from Franchisor to
cease operation for a seasonal period of time; such approval shall not be
unreasonably withheld or delayed.
5. Section 11.03 of the Franchise Agreement is hereby clarified as
follows:
The parties acknowledge that the parent con~any of Franchisee, ITEC Attractions,
Inc. shall not be included in this Right to Audit
6. Section 14.02 of the Franchise Agreement is hereby modified as
follows:
In the event Franchisee elects to terminate the Franchise Agreement in
accordance with this Section 14.02, Franchisor shall give Franchisee the limited
right to operate a restaurant substantially different in appearance and menu
offering than a Montana Mike's and further give a right to operate a ▇▇▇▇▇▇▇▇▇'▇
Restaurant (as currently operated by the parent company of Franchisee) with
substantially the same appearance and same menu as in use in McFarlain's as of
the date of this agreement. The operation of another restaurant, as described in
the foregoing, shall not constitute a breach of this Section 14.02.
7. Section 15.01 (k) of the Franchise Agreement is hereby amended by
deleting the same in its entirety and accordingly Section 15.01 (k) shall be of
no further force, benefit or effect.
8. Section 16.05 (b) of the Franchise Agreement is hereby modified and
amended to read as follows:
(b) The purchase price shall be paid in cash.
9. No additions, modifications or amendments may be made hereto, except
by a writing signed by both parties to this Addendum.
10. This Letter of Understanding ani Addendum thereto may be assigned
or transferred by Franchisee only in conjunction with an assignment or transfer
of the Franchise Agreement and then only with the prior written approval of
Franchisor.
Attachment 4 -3
The parties desire, by execution of this Addendum, to clarify and modify the
Franchise Agreement and except as expressly provided for herein, all other
terms, conditions, rights, powers and responsibilities contained in the
Franchise Agreement shall remain in full force and effect as the same are now
prescribed for and provided by, the terms and conditions of the Franchise
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on
the day and year first above written.
STOCKADE FRANCHISING, LP
By: ▇▇▇▇▇ ▇. ▇▇▇▇
Manager and Chairman of the Board
"Franchisor"
BRANSON RESTAURANTS, INC.
By:▇▇▇▇ ▇▇. ▇▇▇▇▇
CEO
"Franchisee"
Attachment 4 - 4