EXHIBIT F
STANDARD FORM
▇▇▇▇▇▇▇▇'▇ NEIGHBORHOOD GRILL & BAR
FRANCHISE AGREEMENT
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(Location Address)
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(Franchisee Name)
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(Date)
2004 F-1
TABLE OF CONTENTS
RECITALS.................................................................. F-3
1. FRANCHISE GRANT AND TERM......................................... F-4
2. UNIFORM STANDARDS................................................ F-5
3. COMPLIANCE WITH THE SYSTEM....................................... F-6
4. GENERAL SERVICES OF FRANCHISOR................................... F-6
5. RESTAURANT SYSTEM AND PROCEDURES................................. F-7
6. TRAINING......................................................... F-10
7. RESTAURANT MAINTENANCE........................................... F-10
8. ADVERTISING...................................................... F-11
9. FEES............................................................. F-13
10. RECORD KEEPING................................................... F-15
11. FRANCHISEE ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND SHAREHOLDERS............................. F-15
12. TRANSFER......................................................... F-18
13. CONFIDENTIALITY; RESTRICTIONS.................................... F-22
14. INSPECTIONS...................................................... F-23
15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION...................... F-25
16. INSURANCE........................................................ F-27
17. DEBTS AND TAXES.................................................. F-28
18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS........................ F-28
19. EXPIRATION AND TERMINATION; OPTION TO
PURCHASE RESTAURANT; ATTORNEYS' FEES............................. F-30
20. NO WAIVER OF DEFAULT............................................. F-35
21. CONSTRUCTION, SEVERABILITY,
GOVERNING LAW AND JURISDICTION................................... F-36
22. INTERFERENCE WITH EMPLOYMENT RELATIONS........................... F-37
23. LIQUOR LICENSE................................................... F-37
24. FORCE MAJEURE.................................................... F-37
25. MISCELLANEOUS.................................................... F-38
26. ACKNOWLEDGMENTS.................................................. F-40
EXHIBIT 1: ROYALTY FEE................................................. F-42
APPENDIX A: STATEMENT OF OWNERSHIP INTERESTS............................ F-43
APPENDIX B: REVIEW AND CONSENT WITH
RESPECT TO TRANSFERS........................................ F-44
APPENDIX C: CONFIDENTIALITY AGREEMENT................................... F-45
2004 F-2
▇▇▇▇▇▇▇▇'▇ NEIGHBORHOOD GRILL & BAR
FRANCHISE AGREEMENT
This Agreement is made this ________ day of _____________________, 20______, by
and between ▇▇▇▇▇▇▇▇'▇ INTERNATIONAL, INC., a Delaware corporation
("FRANCHISOR"), _____________________________________________, a
(_______________ corporation, sole proprietorship, _______________ partnership,
_______________ limited partnership [strike inappropriate language])
("FRANCHISEE") and ______________________________________
______________________________ (collectively, the "PRINCIPAL SHAREHOLDERS" and,
individually, a "PRINCIPAL SHAREHOLDER" of Franchisee if a corporation or
general partner if Franchisee is a limited partnership having as its general
partner a corporation) and
________________________________________________________________________________
("GENERAL PARTNER" of Franchisee if Franchisee is a limited partnership).*
* (If Franchisee is not a corporation or a sole proprietorship, or if
Franchisee is a limited liability company, the parties hereto hereby agree that
an Addendum shall be attached to this Agreement so as properly to reflect the
responsibilities of the partners of any general partnership, the general partner
of any limited partnership and the shareholders of any corporate general partner
of any partnership, or the members of any limited liability company.)
WITNESSETH:
RECITALS
A. Franchisor owns the rights to develop and operate a unique system of
restaurants which specialize in the sale of high quality, moderately priced food
and alcoholic beverages in an attractive, casual setting, which includes
proprietary rights in certain valuable trade names, service marks and
trademarks, including the service ▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar and
variations of such ▇▇▇▇, designs, decor and color schemes for restaurant
premises, signs, equipment, procedures and formulae for preparing food and
beverage products, specifications for certain food and beverage products,
inventory methods, operating methods, financial control concepts, training
facilities and teaching techniques ("the System").
B. Franchisor established, through its own development and operation, and
through the granting of franchises, a chain of ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill &
Bar restaurants which are distinctive; which are similar in appearance, design
and decor; and which are uniform in operation and product consistency.
C. The value of Franchisor's trade names, service marks and trademarks is
based upon: (1) the maintenance of uniform high quality standards in connection
with the preparation and sale of Franchisor-approved food and beverage products,
(2) the uniform high standards of appearance of the individual restaurant units
in the System, (3) the use of distinctive trademarks, service marks, building
designs and advertising signs representing a uniformly high quality of product
and services, and (4) the assumption by Franchisor and its franchisees of the
obligation to maintain and enhance the goodwill and public acceptance of the
System (and of Franchisor's
2004 F-3
trade names, service marks and trademarks) by strict adherence to the high
standards required by Franchisor.
D. Franchisor, Franchisee and the Principal Shareholders have entered
into a Development Agreement dated __________________, 20____ ("Development
Agreement"), relating to the development by Franchisee of ▇▇▇▇▇▇▇▇'▇
Neighborhood Grill & Bar restaurants.
E. Franchisee desires to use the System in connection with the operation
of an ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar restaurant at the location which is
specified in Subsection 1.1 of this Agreement, pursuant to the terms, conditions
and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual obligations contained herein, it
is hereby agreed as follows:
1. FRANCHISE GRANT AND TERM
1.1 Franchisor grants Franchisee, for the term stated below, the right,
license and privilege:
(a) to use the System incident to the operation of an ▇▇▇▇▇▇▇▇'▇
Neighborhood Grill & Bar restaurant at ____________________________________
(the "Restaurant");
(b) to use the trade names, service marks and trademarks which
Franchisor shall from time to time designate as part of the System, but
only in connection with the sale at the Restaurant of those products which
Franchisor has designated and approved; and
(c) to hold itself out to the public as a Franchisee of Franchisor.
1.2 The term of the franchise shall commence as of the Commencement Date,
as hereinafter defined, and shall end twenty (20) years thereafter, unless this
Agreement is terminated prior to that date in accordance with its provisions.
"Commencement Date," as used herein, shall mean the date upon which the
Restaurant opens for business. The parties agree to affix to this Agreement an
addendum expressly setting forth the Commencement Date, which, when so affixed,
shall become a part of this Agreement.
1.3 At the expiration of the term hereof, Franchisee shall have an option
to operate the Restaurant for four (4) successive terms of five (5) years
(unless the franchise agreement with respect to that additional term is sooner
terminated in accordance with its provisions), provided that immediately prior
to each such five (5) year term (a) Franchisee satisfies the requirements which
Franchisor then-imposes on its new franchisees, (b) all other restaurant units
within the System which Franchisee then-operates substantially comply, in the
opinion of Franchisor, with Franchisor's then-current standards, specifications,
requirements and instructions, and (c) Franchisee executes the form of franchise
agreement which Franchisor is then
2004 F-4
using with respect to new restaurants within the System, with the amount of
royalty and advertising fees payable at the rates then-prevailing under the
franchise agreements which Franchisor is then using for new restaurants within
the System, and Franchisee pays to Franchisor for each of said five (5) year
periods a franchise fee equal to ten percent (10%) of the prevailing franchise
fee paid by new franchisees at that time. Any franchise agreement which
Franchisee executes for such additional term will also contain options to obtain
an assignment of Franchisee's lease with a third party and/or to purchase
certain property or to purchase or lease the Restaurant premises exercisable by
Franchisor upon termination thereof and an option to purchase or lease the
Restaurant premises exercisable by Franchisor upon expiration of the renewal
term (subject to any then-existing renewal rights of Franchisee). Such options
will contain provisions substantially similar to the provisions of Franchisor's
options described in Subsection 19.4 hereof. Franchisee shall give Franchisor
written notice of its desire to exercise its option to operate the Restaurant
for an additional term no earlier than twelve (12) months, and no later than
seven (7) months, prior to expiration of the initial term. If Franchisee gives
that notice, Franchisor, in its sole discretion, reasonably exercised, shall
determine whether Franchisee has satisfied the foregoing requirements. Within
forty-five (45) days of receiving the notice described above, Franchisor shall
notify Franchisee in writing whether or not Franchisee is eligible to exercise
the option described in this Subsection.
1.4 During the period from the date of this Agreement to the expiration or
earlier termination of this Agreement, Franchisor shall not establish a
restaurant unit utilizing the System, or license another franchisee to establish
a restaurant unit utilizing the System, at any location within the lesser of a
three (3) mile radius of the Restaurant or a radius from the Restaurant which
includes either a daytime or residential population of forty thousand (40,000)
or more people. Notwithstanding the foregoing, Franchisor may establish a
restaurant unit or may license a restaurant unit to a third party within the
geographic area set forth in the preceding sentence, provided that (i) such
restaurant is located within an airport (serviced by one or more public or
charter carrier), arena, stadium, state or national park, or military fort, post
or base, (ii) is located across an international border, or (iii) does not
utilize the System or utilize the ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar service
▇▇▇▇.
1.5 Franchisee, in consideration of the benefits and privileges provided to
it by this Agreement, agrees to operate the Restaurant and perform as required
hereunder for the full term of this Agreement.
1.6 This Agreement is entered into pursuant to and subject to the terms and
conditions which are set forth in the Development Agreement.
2. UNIFORM STANDARDS
2.1 The System is a comprehensive restaurant system for the retailing of
certain uniform and quality food and beverage products (including alcoholic
beverages), emphasizing a varied menu of high quality, moderately priced food
products (including appetizers, creative sandwiches, dinner entrees and
desserts), a selection of alcoholic and other beverages, and prompt and
courteous service in a clean, wholesome, casual atmosphere. The foundation of
the System is the establishment and maintenance of a reputation among the public
for the operation of high quality restaurant units. A fundamental requirement of
the System, this Franchise Agreement and franchises which Franchisor will grant
to others is adherence by all franchisees to
2004 F-5
Franchisor's standards and policies providing for the uniform operation of all
restaurant units within the System, including, but not limited to, (a) selling
only those products which Franchisor has designated and approved, (b) using only
Franchisor's prescribed building layout and designs, equipment, signs, interior
and exterior decor items, fixtures and furnishings, (c) adhering strictly to
Franchisor's standards and specifications relating to the selection, purchase,
storage, preparation, packaging, service and sale of all food and beverage
products being sold at the Restaurant, and (d) satisfying all of Franchisor's
prescribed standards of quality, service and cleanliness. Compliance by all
franchisees with the foregoing standards and policies in conjunction with the
use of Franchisor's trade names, service marks and trademarks provides the basis
for the wide public acceptance of the System and its valuable goodwill.
Accordingly, strict adherence by all franchisees to all aspects of the System is
required at all times.
2.2 The provisions of the Agreement shall be interpreted to give effect to
the intent of the parties stated in this Section 2 to assure that Franchisee
shall operate the Restaurant in conformity with the System, through strict
adherence to Franchisor's standards and policies as they now exist and as they
may be modified from time to time.
3. COMPLIANCE WITH THE SYSTEM
Franchisee acknowledges that every component of the System is important to
Franchisor, to all franchisees and to the operation of the Restaurant, including
the requirements (a) that only those products designated and approved by the
Franchisor are sold at the Restaurant, and (b) that there is uniformity of food
and beverage specifications, preparation methods, quality, appearance, building
and interior design, color and decor, landscaping, facilities and service among
all restaurant units in the System. Accordingly, Franchisee agrees to and shall
comply with all aspects of the System (as it now exists and as it may be
modified from time to time). Franchisee recognizes and agrees that Franchisor
may prohibit the use of the System and its trade names, notwithstanding the
granting of this Agreement, if Franchisee fails to design, construct, equip or
furnish its Restaurant in compliance with the specifications designated by
Franchisor, unless prior written approval has been received from Franchisor.
4. GENERAL SERVICES OF FRANCHISOR
4.1 Franchisor shall advise and consult with Franchisee periodically in
connection with the operation of the Restaurant, and at other reasonable times
upon Franchisee's request. Franchisor will provide to Franchisee such of its
know-how, new developments, techniques and improvements in areas of restaurant
design, management, food and beverage preparation, sales promotion and service
concepts as may be pertinent to the construction and operation of the Restaurant
under the System. Franchisor may provide the foregoing information (a) by
sending representatives to visit the Restaurant, (b) by providing written or
other material, (c) at meetings or seminars, and (d) at training sessions at
Franchisor's training facility and/or such other locations as may be selected by
Franchisor from time to time. Franchisor also shall make available to Franchisee
all additional services, facilities, rights and privileges which Franchisor
makes available from time to time to its franchisees of the System generally.
2004 F-6
4.2 For approximately eight (8) days prior to the opening of the Restaurant
and the first six (6) days that the Restaurant is open for business, Franchisor
shall provide Franchisee, at Franchisor's expense, with the services of up to a
maximum of six (6) of Franchisor's training personnel to facilitate proper
operation of the kitchen, bar and dining room areas during that period and to
assist in correcting any operational problems which may arise. Franchisee shall
reimburse Franchisor for any additional training support required or requested.
4.3 From time to time during the term of this Agreement, Franchisor will
develop and test new menu items. The menu consists of approved national food and
beverage selections. Franchisee shall comply with all menu changes which
generally occur every six (6) months. The menu may be modified to reflect food
and beverage items peculiar to Franchisee's local area, subject to Franchisor's
testing and approval.
5. RESTAURANT SYSTEM AND PROCEDURES
5.1 Franchisor shall furnish Franchisee with advice and assistance in
managing and operating the Restaurant, and Franchisor's representatives will
visit the Restaurant periodically. Franchisor will assist Franchisee in
coordinating the Restaurant's pre-opening activities, and as noted more
particularly in Subsection 4.2 hereof, shall provide Franchisee with the
services of certain of Franchisor's personnel to facilitate proper operation of
the Restaurant when it opens for business.
5.2 Franchisee shall designate an employee who will supervise the
Restaurant, and devote his or her full time, best efforts and constant personal
attention to the day-to-day operation of the Restaurant (the "General Manager").
Franchisee also shall designate an employee who will supervise the Restaurant
kitchen, and devote his or her full time, best efforts and constant personal
attention to the day-to-day operation of the Restaurant kitchen (the "Kitchen
Manager").
5.3 Franchisee shall require that the General Manager, the Kitchen Manager
and each of Franchisee's employees who serve as Restaurant managers to maintain
his or her principal personal residence within a usual driving time of not more
than approximately one (1) hour from the Restaurant. Franchisor reserves the
right to require that, as a condition of his or her employment, the General
Manager must successfully complete Franchisor's interview process and a
psychological profile test in a manner which satisfies a uniform standard
established by Franchisor. The test shall be administered by Franchisor, or by a
testing agency designated by Franchisor, at Franchisee's expense.
5.4 Unless Franchisor shall have given its prior written approval,
Franchisee shall keep the Restaurant open for business only during the hours
which are specified by Franchisor in the Franchise Operations Manual or in such
other materials or manuals provided or made available by Franchisor to
Franchisee (collectively the "Manuals"), provided that such hours do not
conflict with state laws or local ordinances relating to the sale of alcoholic
beverages or governing the hours during which restaurant establishments may be
open for business. In addition, Franchisee expressly agrees to:
2004 F-7
(a) operate the Restaurant in a clean, safe and orderly manner,
providing courteous, first-class service to the public;
(b) diligently promote and make every reasonable effort to increase
the business of the Restaurant;
(c) advertise the business of the Restaurant by the use of the
Franchisor's trade names, service marks and trademarks and such other
insignia, slogans, emblems, symbols, designs and other identifying
characteristics as may be developed or established from time to time by
Franchisor and included in the Manuals, subject to the limitations of
Subsections 8.4 and 8.5 hereof;
(d) prohibit and, to the best of Franchisee's ability, prevent the use
of the Restaurant for any immoral or illegal purpose, or for any other
purpose, business activity, use of function which is not expressly
authorized hereunder or in the Manuals; and
(e) comply fully with all applicable laws and regulations, including,
but not limited to, those relating to building construction, maintenance
and safety, environmental, fire prevention, food safety, public access and
the sale of alcoholic beverages.
5.5 Franchisee hereby acknowledges receipt and loan of a copy of the
Manuals heretofore or hereinafter furnished to Franchisee, and agrees to
faithfully, completely and continuously perform, fulfill, observe and follow all
instructions, requirements, standards, specifications, systems and procedures
contained therein, including (a) those relating to the construction, design,
decor, building and equipping of the Restaurant, (b) those relating to the
selection, purchase, storage, preparation, packaging, service and sale of all
products being sold at the Restaurant, (c) those relating to the maintenance and
repair of Restaurant building, grounds, equipment, signs, interior and exterior
decor items, fixtures and furnishings, and (d) those relating to employee
uniforms and dress, accounting, bookkeeping, record retention, and other
business systems, procedures and operations. The Manuals are incorporated herein
by reference and hereby made part of this Agreement. Franchisee acknowledges and
agrees that the materials contained in the Manuals are integral, necessary and
material elements of the System.
5.6 Franchisee understands, acknowledges and agrees that strict conformity
with the System, including the standards, specifications, systems, procedures,
requirements and instructions contained in this Agreement and in the Manuals, is
vitally important, not only to the success of Franchisor, but to the collective
success of all of Franchisor's other franchisees, by reason of the benefits
which Franchisor and all of its franchisees will derive from uniformity in
products sold, identity, quality, appearance, facilities and service among all
restaurant units which are part of the System. Without limiting the generality
of the foregoing provisions, Franchisee agrees to adhere strictly to the
requirements in the Manuals relating (a) to the construction, design, decor,
building and equipping of the Restaurant, (b) to the maximum permissible ratio
of sales of alcoholic beverages to sales of food at the Restaurant, and (c) to
the limitations on the number of video games or similar devices which may be
placed on the Restaurant premises. Any failure to adhere to the standards,
specifications, systems, requirements or instructions contained in this
Agreement or in the Manuals shall constitute a material breach of this
Agreement.
2004 F-8
5.7 Franchisor shall have the right, at any time and from time to time, in
the good faith exercise of its reasonable business judgment, consistent with the
overall best interests of the System generally, having due regard for the
financial burden which may be placed upon its franchisees, to revise, amend,
delete from and add to the System and the material contained in the Manuals.
Franchisee expressly agrees to comply with all such revisions, amendments,
deletions and additions.
5.8 Franchisee shall offer for sale from the Restaurant, at all times when
the Restaurant is open for business, only the products which are expressly
designated in the Manuals, except, as noted more particularly in Subsection 4.3,
to the extent that Franchisee has obtained Franchisor's prior written consent to
a modification of that requirement. No product shall be offered or sold at or
from the Restaurant under, or in connection with, any trademark or service ▇▇▇▇
other than Franchisor's designated trademarks and service marks without
Franchisor's prior written consent.
5.9 Franchisee shall obtain all food and beverage products, equipments,
signs, interior and exterior decor items, fixtures, furnishings, supplies, and
other products and materials required for the operation of or sold at the
Restaurant solely from suppliers (including manufacturers, distributors and
other sources) who demonstrate, to Franchisor's continuing reasonable
satisfaction, the ability to meet Franchisor's then-current standards and
specifications for such items; who possess adequate quality controls and
capacity to supply Franchisee's needs promptly and reliably; and who have been
approved in writing by Franchisor and not thereafter disapproved. The Manuals
contain a list of approved suppliers. If Franchisee desires to purchase any
items from an unapproved supplier, Franchisee shall submit to Franchisor a
written request for such approval, which approval shall not be unreasonably
withheld, or shall request the supplier itself to do so. Franchisor shall have
the right to inspect the supplier's facilities, and to require that samples from
the supplier be delivered, at Franchisor's option, either to Franchisor or to an
independent, certified laboratory designated by Franchisor for testing.
Franchisee or the supplier shall pay the costs of any such test. Franchisor
shall notify Franchisee in writing within sixty (60) days of receiving any such
request whether it disapproves the supplier. Failure by Franchisor to so notify
Franchisee within that period shall be deemed to constitute Franchisor's
approval of such supplier. Franchisor reserves the right, at its option, to
reinspect the facilities and retest products of any such approved supplier at
any time and to revoke its approval upon the supplier's failure to continue to
meet any of Franchisor's criteria. Notwithstanding the foregoing, any supplier
of goods having any trademark, trade name, service ▇▇▇▇, logo or symbol owned by
Franchisor shall not be approved to supply Franchisee such goods until such
supplier has entered a written agreement with Franchisor regarding the
production, use and sale of such goods.
5.10 No food or beverage product, interior or exterior decor item, sign,
item of equipment, fixtures, furnishings or supplies, or other product or
material required for the operation of the Restaurant, which bears any of
Franchisor's trade names, service marks or trademarks, shall be used or sold in
or upon the Restaurant premises unless the same shall have been first submitted
to and approved in writing by Franchisor.
5.11 The Manuals and all related material furnished to Franchisee hereunder
are and shall remain the property of Franchisor, and must be returned to
Franchisor, along with any copies
2004 F-9
made thereof, immediately upon request or upon the expiration or earlier
termination of this Agreement.
6. TRAINING
6.1 Franchisor shall make its operations training course available to the
General Manager, the Kitchen Manager, and Franchisee's Assistant Managers and
other Restaurant managers.
6.2 Before the Restaurant opens for business, and thereafter as replacement
personnel are employed by Franchisee, the General Manager, the Kitchen Manager
and each Assistant Manager shall attend Franchisor's operations training
facility for such period of time as Franchisor shall deem reasonably necessary,
and shall successfully complete that course to Franchisor's reasonable
satisfaction. If the General Manager, Kitchen Manager or an Assistant Manager
fails to successfully complete Franchisor's operations training course,
Franchisor may require designation of a new General Manager, Kitchen Manager or
Assistant Manager, as the case may be, and Franchisee shall designate a new
General Manager, Kitchen Manager or Assistant Manager, who shall be required to
successfully complete such training course.
6.3 The General Manager, the Kitchen Manager and each Assistant Manager
shall, from time to time as reasonably required by Franchisor, attend and
successfully complete to Franchisor's reasonable satisfaction a
Franchisor-provided refresher course in restaurant operations.
6.4 Franchisee shall be responsible for the Restaurant's compliance with
the operating standards, methods, techniques and material taught at Franchisor's
operations training course, and shall cause the employees of the Restaurant to
be trained in such standards, methods and techniques as are relevant to the
performance of their respective duties.
6.5 Attendance of the General Manager, the Kitchen Manager and each
Assistant Manager at any of Franchisor's training courses shall be tuition-free.
Franchisee shall pay all other costs and expenses relating to the attendance of
Franchisee's personnel at any of Franchisor's training courses, including,
without limitation, the cost of travel, lodging, meals, and other related and
incidental expenses.
7. RESTAURANT MAINTENANCE
7.1 Franchisee shall, at Franchisee's sole cost and expense, maintain the
Restaurant in conformity with the standards, specifications and requirements of
the System, as the same may be designated by Franchisor from time to time.
Franchisee specifically agrees to repair or replace, at Franchisee's cost and
expense, equipment, signs, interior and exterior decor items, fixtures,
furnishings, supplies, and other products and materials required for the
operation of the Restaurant as necessary or desirable, and to obtain, at
Franchisee's cost and expense, any new or additional equipment, signs, interior
and exterior decor items, fixtures, furnishings, supplies, and other products
and materials which may be reasonably required by Franchisor for new products or
procedures. Except as may be expressly provided in the Manuals, no alterations
or
2004 F-10
improvements, or changes of any kind in design, equipment, signs, interior or
exterior decor items, fixtures or furnishings shall be made in or about the
Restaurant or Restaurant premises without the prior written approval of
Franchisor in each instance.
7.2 In order to assure the continued success of the Restaurant, Franchisee
shall, at any time from time to time after ________________, _________, (i.e.,
six [6] years after the date of this Agreement) as reasonably required by
Franchisor (taking into consideration the cost and then-remaining term of this
Agreement), modernize the Restaurant premises, equipment, signs, interior and
exterior decor items, fixtures, furnishings, supplies, and other products and
materials required for the operation of the Restaurant, to Franchisor's
then-current standards and specifications, provided that at the time Franchisor
requires Franchisee to so modernize the Restaurant premises at least twenty-five
percent (25%) of Franchisor-owned and operated Restaurants meet such standards
and specifications. Franchisee's obligations under this Subsection are in
addition to, and shall not relieve Franchisee from, any of its other obligations
under this Agreement, including those contained in the Manuals.
7.3 If Franchisee is or becomes a lessee of the Restaurant premises,
Franchisee shall have included in the lease provisions expressly permitting both
Franchisee and Franchisor to take all actions and make all alterations referred
to under Subsections 7.1 and 7.2 hereof, requiring the lessor thereunder to give
Franchisor reasonable notice of any contemplated termination, and providing that
Franchisee has the unrestricted right to assign the lease to Franchisor without
the lessor having any right to impose conditions on such assignment or to obtain
any payment in connection therewith. Franchisee shall not, without the prior
written consent of Franchisor, execute any lease or other agreement which
imposes, or purports to impose, any limitations on the ability of Franchisee
and/or of Franchisor to operate additional restaurants at any particular
location beyond the geographic limitation set forth in Section 1.4 hereof, or
any lease the term of which is shorter than the term of this Agreement.
8. ADVERTISING
8.1 Franchisor shall develop and administer advertising, public relations
and sales promotion programs designed to promote and enhance the collective
success of all restaurant units in the System. It is expressly understood,
acknowledged and agreed that in all phases of such advertising and promotion,
including, without limitation, type, quantity, timing, placement and choice of
media and medium, market areas, advertising agencies and public relations firms,
Franchisor's decisions shall be final and binding. Franchisee shall have the
right to participate actively in all such advertising, public relations and
sales promotion programs, but only in full and complete accordance with such
terms and conditions as may be established by Franchisor for each such program.
8.2 Franchisee shall pay Franchisor, in the manner described in Section 9
hereof, a minimum dollar amount equal to two and twenty-five hundredths percent
(2.25%) of Franchisee's gross sales, as defined in Subsection 9.3 hereof. Such
funds shall become the sole and absolute property of Franchisor, to be allocated
to a separate "advertising account" established by Franchisor. Franchisor shall
use such funds for market studies, advertising and marketing studies or
services, production of commercials, advertising copy and layouts, traffic
costs, agency fees, marketing personnel, or any other costs associated with the
development, marketing and testing
2004 F-11
of advertising, and for the purchase of advertising time, space or materials in
national, regional or other advertising media, in a manner determined by
Franchisor in its sole discretion. Within six (6) months following the end of
Franchisor's fiscal year, Franchisor shall provide all franchisees with an
accounting of all amounts received from them and expended by Franchisor for the
matters set forth above. In addition, Franchisee shall expend a minimum dollar
amount equal to one and one-half percent (1.5%) of Franchisee's gross sales, for
local promotional activities, subject to the provisions of Subsections 8.4 and
8.5 hereof. Franchisor shall have the right at all times to review Franchisee's
books and records, and to require Franchisee to produce evidence of its gross
sales and local promotional activities, to ensure Franchisee's compliance with
this Section. Any amount determined by said audit to be due Franchisor as part
of the advertising fee will be paid to Franchisor by Franchisee within ten (10)
days thereafter. At any time after execution of this Agreement, Franchisor may
in its sole discretion increase, to a maximum of four percent (4%) of gross
sales, the percentage of gross sales which Franchisee shall be required to pay
to Franchisor for allocation to a separate advertising account pursuant to this
Subsection 8.2. Franchisor shall use the funds paid pursuant to that increased
percentage requirement solely for the purchase of advertising time, space or
materials in national, regional or other advertising media, in a manner
determined by Franchisor in its sole discretion, provided that in each calendar
year (or other twelve [12] month period established by Franchisor) in which
Franchisor makes expenditures for advertising from such an advertising account,
so long as Franchisee is in compliance with its obligations hereunder,
Franchisor's expenditures for advertising in the Territory encompassed by the
Development Agreement (including expenditures for national or regional
advertising in media which reach that Territory) shall be on a basis which is
roughly proportional to Franchisee's contribution to that advertising account
during that calendar year or other twelve (12) month period. Franchisor also may
increase the percentage of gross sales which Franchisee shall be required to
spend for local promotional activities, provided however, that in no event shall
Franchisee be required to make payments pursuant to this Subsection 8.2 in a
dollar amount in excess of five percent (5%) of gross sales.
8.3 Franchisee shall submit to Franchisor, for Franchisor's approval, an
advertising campaign plan relating to the promotion of the opening of the
Restaurant which is sufficient to meet the needs of the market. The Manuals
contain a Press Release kit to assist Franchisee in this regard. Franchisee
shall conduct the approved advertising campaign and make all expenditures for
advertising to promote the opening of the Restaurant no later than sixty (60)
days after the Restaurant opens for business. Franchisor will reimburse fifty
percent (50%) of Franchisee's out-of-pocket opening advertising expenditures up
to a maximum of two thousand five hundred dollars ($2,500), if Franchisee meets
the following criteria:
(a) Franchisee's opening advertising expenditures are made within
sixty (60) days after the opening of the Restaurant;
(b) Franchisee submits to Franchisor within one hundred twenty (120)
days after the opening of the Restaurant documentation for the opening
advertising expenditures, such as paid invoices from suppliers of goods or
services evidencing expenditure on the opening advertising promotion; and
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(c) Franchisee's opening advertising expenditures are made pursuant to
the approved advertising campaign plan and in accordance with the Grand
Opening Reimbursement Program Policy Guidelines set forth in the Manuals.
8.4 Nothing in the foregoing Subsections shall be deemed to prohibit
Franchisee from making additional expenditures for local promotional activities.
All of the Franchisee's local promotional activities shall utilize approved
advertising media. "Approved advertising media" are limited to the following:
(a) Newspapers, magazines and other such periodicals;
(b) Radio and television;
(c) Outdoor advertising by signs displayed on billboards or buildings;
and
(d) Handbills, flyers, door-hangers and direct mail.
In the event Franchisee wants to use a form of advertising medium not set forth
above, Franchisee shall submit a description of such medium and advertising to
Franchisor. Franchisor shall notify Franchisee whether it approves the use of
such medium within thirty (30) days of Franchisee's request. Failure by
Franchisor to so notify Franchisee within that period shall be deemed to
constitute Franchisor's approval of such request. Guidelines for local
promotional activities are contained in the Manuals, including Franchisee's
required participation in any co-operative marketing program.
8.5 All advertising copy and other materials employed by Franchisee in
local promotional activities shall be in strict accordance and conformity with
the standards, formats and specimens contained in the Manuals and shall receive
the prior approval of Franchisor. In the event Franchisee wishes to deviate from
the materials contained in the Manuals, Franchisee shall submit, in each
instance, the proposed advertising copy and materials to Franchisor for approval
in advance of publication. Franchisor shall notify Franchisee in writing, within
fifteen (15) days of such submission, whether Franchisor disapproves such
advertising copy and materials. Failure by Franchisor to so notify Franchisee
within that period shall be deemed to constitute Franchisor's approval of such
advertising copy and materials. In no event shall Franchisee's advertising
contain any statement or material which may be considered (a) in bad taste or
offensive to the public or to any group of persons, (b) defamatory of any person
or an attack on any competitor, (c) to infringe upon the use, without
permission, of any other persons' trade name, trademark, service ▇▇▇▇ or
identification, or (d) inconsistent with the public image of Franchisor or of
the System.
9. FEES
9.1 As partial consideration for the rights granted hereunder, Franchisee
shall pay Franchisor:
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(a) an initial franchise fee of _____________________ dollars
($__________), to be paid in the manner prescribed in Subsection 4.l of the
Development Agreement as payment for the grant of the franchise;
(b) a monthly royalty fee as determined by Franchisor, not to exceed
five percent (5%) of each calendar month's gross sales, as provided in
Subsection 4.3 of the Development Agreement, as payment for Franchisee's
continuing right to operate the Restaurant as part of the System (see
Exhibit 1); and
(c) a monthly advertising fee equal to such percentage of each
calendar month's gross sales as Franchisor may require pursuant to
Subsection 8.2 hereof.
9.2 The fees referred to in Subsections 9.l(b) and (c) (the "Fees") shall
be paid by check mailed and postmarked on or before the twelfth day of the next
full month immediately following the month to which the Fees relate. Any Fees,
including the initial franchise fee, which are not paid when due shall bear
interest from and after the due dates thereof at the rate of eighteen percent
(18%) per annum or the highest rate permitted by applicable law, whichever is
less.
9.3 (a) Except for the sale of a gift certificate (on which royalty shall
be due and payable upon redemption of the gift certificate and as provided in
Subsection 9.3(b) hereof, the term "gross sales," as used in this Agreement,
shall mean all receipts (cash, cash equivalents or credit) or revenues from
sales from all business conducted upon or from the Restaurant premises, whether
evidenced by check, cash, credit, charge account, exchange or otherwise,
including, but not limited to, amounts received from the sale of goods, wares
and merchandise (including sales of food beverages and tangible property of
every kind and nature, promotional or otherwise), from all services performed
from or at the Restaurant premises, and from all orders taken or received at the
Restaurant premises, regardless of where such orders are filled. Gross sales
shall not be reduced by any deductions for cash shortages incurred in connection
with the transaction of business with customers, credit card company charges or
theft which is reimbursed by insurance or is not reported to the appropriate
police authorities. Each charge or sale upon installment or credit shall be
treated as a sale for the full price in the month during which such charge or
sale shall be first made, irrespective of the time when Franchisee shall receive
payment (whether full or partial) therefor.
(b) Gross sales shall not include: (i) the sale of merchandise for
which cash has been refunded or, except as provided in the second sentence of
Subsection 9.3(a), not received, or allowances made for merchandise, if the
sales of any such returned or exchanged merchandise shall have been previously
included in gross sales, (ii) the amount of any sales tax imposed by any
federal, state, municipal or other governmental authority directly on sales and
intended to be collected from customers, provided that the amount thereof is
added to the selling price and actually paid by the Franchisee to such
governmental authority, (iii) the sale of merchandise for which a gift
certificate is redeemed, if the initial sale of the gift certificate shall have
been previously included in gross sales, (iv) the sale of waste products of the
Restaurant, (v) telephone, game and vending machine revenues, (vi) the sale of
non-food items or beverages at a discount in connection with a promotional
campaign, (vii) one-time sale of furniture, fixtures or equipment, and (viii)
theft which is not covered by insurance and is reported to the appropriate
police authorities. In addition, Franchisor may, from time to time, in writing,
permit or allow
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certain other items to be excluded from gross sales. Any such permission or
allowance may be revoked or withdrawn at Franchisor's discretion.
10. RECORD KEEPING
10.1 Franchisee shall employ a point of sale system approved by Franchisor,
without modification, in connection with the business of the Restaurant.
Franchisee shall use such bookkeeping and record keeping forms as shall be
prescribed in the Manuals.
10.2 Franchisee shall complete and submit to Franchisor, on a regular,
continuous basis, each of the following reports, in the form specified in the
Manuals:
(a) monthly Restaurant reports, on or before the twelfth day of each
calendar month following the month to which the report relates;
(b) annual Restaurant reports, on or before the fifteenth day of April
of each year; and
(c) weekly gross sales reports, on or before the Tuesday following the
calendar week to which the report relates.
10.3 The annual Restaurant reports referred to above shall include a
balance sheet dated as of the end of Franchisee's fiscal year or calendar year
and a profit and loss statement for such year, together with such additional
financial information as Franchisor may reasonably request. Such balance sheet
and profit and loss statement shall be prepared in accordance with generally
accepted accounting principles, certified as correct and complete by
Franchisee's chief executive officer, president, chief financial officer or
controller and reported on and reviewed by an independent state-licensed
certified public accountant. If Franchisee fails to provide Franchisor with such
balance sheet and profit and loss statement, Franchisor shall have the right to
have an independent audit made of Franchisee's books and records, and Franchisee
shall promptly reimburse Franchisor for the cost thereof.
10.4 Each of the reports referred to in this Section 10 shall be completed
by Franchisee or its accountant in the respective specimen forms, and in
accordance with the instructions, contained in the Manuals. Subsection 10.3
notwithstanding, time is of the essence with respect to the completion and
submission of each such report.
11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND SHAREHOLDERS
11.1 Franchisee and each Principal Shareholder represent and warrant that:
(a) Franchisee is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of its incorporation; (b) Franchisee is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each jurisdiction in which its business activities or the
nature of the properties owned by it requires such qualification; (c) the
execution and delivery of this Agreement and the transaction contemplated hereby
are within Franchisee's corporate
2004 F-15
power; (d) the execution and delivery of this Agreement has been duly authorized
by the Franchisee; (e) the articles of incorporation and by-laws of Franchisee
delivered to Franchisor are true, complete and correct, and there have been no
changes therein since the date thereof; (f) the certified copies of the minutes
electing the officers of Franchisee and authorizing the execution and delivery
of this Agreement are true, correct and complete, and there have been no changes
therein since the date(s) thereof; (g) the specimen stock certificate delivered
to Franchisor is a true specimen of Franchisee's stock certificate; (h) the
balance sheet of Franchisee as of ____________________, ________ ("Balance
Sheet") and the balance sheets of its Principal Shareholders as of
____________________, ________, heretofore delivered to Franchisor, are true,
complete and correct, and fairly present the financial positions of Franchisee
and each Principal Shareholder, respectively, as of the dates thereof; (i) the
Balance Sheet and each such balance sheet have been prepared in accordance with
generally accepted accounting principles; and (j) there have been no materially
adverse changes in the condition, assets or liabilities of Franchisee or
Principal Shareholders since the date or dates thereof.
11.2 Franchisee and each Principal Shareholder covenant that during the
term of this Agreement: (a) Franchisee shall do or cause to be done all things
necessary to preserve and keep in full force its corporate existence and shall
be in good standing as a foreign corporation in each jurisdiction in which its
business activities or the nature of the properties owned by it requires such
qualification; (b) Franchisee shall have the corporate authority to carry out
the terms of this Agreement; and (c) Franchisee shall print, in a conspicuous
fashion on all certificates representing shares of its stock when issued, a
legend referring to this Agreement and the restrictions on and obligations of
Franchisee and Principal Shareholders hereunder, including the restrictions on
transfer of Franchisee's shares.
11.3 In addition to the financial information which Franchisee is required
to provide to Franchisor under Subsections 10.2 and 11.1 hereof, Franchisee and
Principal Shareholders shall provide Franchisor with such other financial
information as Franchisor may reasonably request from time to time, including,
on an annual basis, copies of the then-most current financial statements of
Franchisee and each Principal Shareholder, dated as of the end of the last
preceding fiscal year of the Franchisee or Principal Shareholder, said
statements to be delivered to Franchisor no later than April 15 of each year,
which financial statements shall conform to the standards set forth in
Subsection 11.1 hereof.
11.4 Franchisee and each Principal Shareholder represent, warrant and
covenant that all Interests (as defined in Subsection 12.4 hereto) in Franchisee
are owned as set forth on Appendix A hereto, that no Interest has been pledged
or hypothecated (except in accordance with Section 12 of this Agreement), and
that no change will be made in the ownership of any such Interest other than as
permitted by this Agreement, or otherwise consented to in writing by Franchisor.
Franchisee and Principal Shareholders agree to furnish Franchisor with such
evidence as Franchisor may request, from time to time, for the purpose of
assuring Franchisor that the Interests of Franchisee and Principal Shareholders
remain as represented herein.
11.5 Each Principal Shareholder, jointly and severally, hereby personally
and unconditionally guarantees each of Franchisee's financial obligations to
Franchisor (including, but not limited to, all obligations relating to the
payment of fees by Franchisee to Franchisor). Each Principal Shareholder agrees
that Franchisor may resort to such Principal Shareholder (or
2004 F-16
any of them) for payment of any such financial obligation, whether or not
Franchisor shall have proceeded against Franchisee, any other Principal
Shareholder or any other obligor primarily or secondarily obligated to
Franchisor with respect to such financial obligation. Each Principal Shareholder
hereby expressly waives presentment, demand, notice of dishonor, protest, and
all other notices whatsoever with respect to Franchisor's enforcement of this
guaranty. In addition, each Principal Shareholder agrees that if the performance
or observance by Franchisee of any term or provision hereof is waived or the
time of performance thereof extended by Franchisor, or payment of any such
financial obligation is accelerated in accordance with any agreement between
Franchisor and any party liable in respect thereto or extended or renewed, in
whole or in part, all as Franchisor may determine, whether or not notice to or
consent by any Principal Shareholder or any other party liable in respect to
such financial obligations is given or obtained, such actions shall not affect
or alter the guaranty of each Principal Shareholder described in this
Subsection.
11.6 Franchisee and each Principal Shareholder represent and warrant to
Franchisor that:
(a) Neither Franchisee nor any Principal Shareholder or any other
person with a direct or indirect ownership interest in Franchisee is
identified, either by name or an alias, pseudonym or nickname, on the
list of "Specially Designated Nationals and Blocked Persons"
maintained by the U.S. Treasury Department's Office of Foreign Assets
Control (texts available at ▇▇▇.▇▇▇▇▇.▇▇▇/▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇▇/▇▇▇▇/).
Further, Franchisee and its Principal Shareholders represent and
warrant that neither has violated and agree that neither will violate
any law (in effect now or which may become effective in the future)
prohibiting corrupt business practices, money laundering or the aid or
support of persons or entities who conspire to commit acts of terror
against any person or government, including acts prohibited by the
U.S. Patriot Act (text available at
▇▇▇▇://▇▇▇.▇▇▇▇.▇▇▇/▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇.▇▇▇▇), U.S. Executive
Order 13244 (text available at
▇▇▇▇://▇▇▇▇▇.▇▇▇/▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇▇/▇▇▇▇/▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇.▇▇▇▇),
or similar law;
(b) Franchisee has not made, nor has any Principal Shareholder made,
any expenditures other than for lawful purposes or directly or
indirectly offered, gave, promised to give or authorized the payment
or the gift of any money, or anything of value, to any person or
entity, while knowing or having reason to know that all or a portion
of such money or thing of value would be given or promised, directly
or indirectly, to any government official, official of an
international organization, officer or employee of a foreign
government or anyone acting in an official capacity for a foreign
government, for the purpose of (1) influencing any action, inaction or
decision of such official in a manner contrary to his or her position
or creating an improper advantage; or (2) inducing such official to
influence any government or instrumentality thereof to effect or
influence any act or decision of such government or instrumentality.
(c) Franchisee nor any Principal Shareholder or any other person or
entity who has any direct or indirect ownership interest is or will
become directly or indirectly owned or controlled by governmental
authorities of any country that is subject to a United States embargo;
and
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Franchisee understands and its Principal Shareholders understand and have
been advised by legal counsel on the requirements of the United States Foreign
Corrupt Practices Act (currently located at
▇▇▇.▇▇▇▇▇.▇▇▇/▇▇▇▇▇▇▇▇/▇▇▇▇▇/▇▇▇▇.▇▇▇▇, any local foreign corrupt practices laws
and the Patriot Act (currently located at
▇▇▇.▇▇▇▇.▇▇▇/▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇/▇▇▇▇▇▇.▇▇▇▇, acknowledge the importance to
Franchisor and the Restaurants and the parties' relationship of their respective
compliance with the requirements of these laws, including any applicable
auditing requirements and any requirement to report or provide access to
information to Franchisor or any government, that is made part of any applicable
law, and agree to take all steps required by their consultants, agents and
employees to comply with such laws prior to engaging or employing any such
individuals or entities.
12. TRANSFER
12.1 There shall be no Transfer of any Interest of Franchisee, or of a
Principal Shareholder in Franchisee, in whole or in part (whether voluntarily or
by operation of law), directly, indirectly or contingently, except in accordance
with the provisions of this Section 12. "Transfer" and "Interest" are defined in
Subsections 12.2, 12.3 and 12.4. Any proposed Transfer also shall be subject to
the provisions of the Development Agreement, which are incorporated herein by
reference.
12.2 Except as provided in Subsection 12.3, "Transfer" shall mean any
assignment, sale, pledge, hypothecation, gift or any other event which would
change ownership of or change or create a new Interest, including, but not
limited to:
(a) any change in the ownership of or rights in or to any shares of
stock or other equity interest in Franchisee which would result from the
act of any shareholder of Franchisee ("Shareholder"), such as a sale,
exchange, pledge or hypothecation of shares, or any interest in or rights
to any of Franchisee's profits, revenues or assets, or any such change
which would result by operation of law; and
(b) any change in the percentage interest owned by any Shareholder in
the shares of stock of Franchisee, or interests in its profits, revenues or
assets which would result from any act of Franchisee such as a sale, pledge
or hypothecation of any Restaurant assets (other than a pledge of assets to
secure bona fide loans made or credit extended in connection with
acquisition of the assets pledged, provided that immediately before and
after such transaction the net worth of Franchisee shall not be less than
the amount which is reflected on the Balance Sheet referred to in
Subsection 11.1 of this Agreement); any sale or issuance of any shares of
Franchisee's stock; the retirement or redemption of any shares of
Franchisee's stock; or any sale or grant to any person of any right to
participate in or otherwise to share or become entitled to any part of
Franchisee's profits, revenues, assets or equity.
12.3 "Transfer" shall not include (a) a change in the ownership of or
rights to any shares or other equity interest in Franchisee pursuant to a public
offering of Franchisee's securities registered under the Securities Act of 1933,
or (b) a change in the ownership of or rights to any securities or other equity
interest in Franchisee pursuant to a private offering of Franchisee's securities
exempted from registration under such Act, provided that Franchisee provides
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Franchisor with a copy of its prospectus and/or offering memorandum ten (10)
days prior to its filing with the Securities and Exchange Commission or
circulation to third parties so that Franchisor may comment and, if necessary,
correct any information concerning Franchisor and/or the System, and further
provided that after giving effect to such public or private offering, the
Principal Shareholders, or any of them, "control" Franchisee. For purposes of
this Section 12, "control" means either (1) owning legal and equitable title to
fifty-one percent (51%) or more of the outstanding voting securities of
Franchisee, which are not subject to a proxy granted to or contract with any
other person or party granting that party the right to vote part or all of such
securities, or (2) having and continually exercising the contractual power
presently to designate a majority of the directors of Franchisee.
12.4 "Interest" shall mean: when referring to interests or rights in
Franchisee, any shares of Franchisee's stock and any other equitable or legal
right in or to any of Franchisee's stock, revenues, profits or assets; when
referring to rights or assets of Franchisee, Franchisee's rights under and
interest in this Agreement, the Restaurant and its revenues, profits and assets.
12.5 (a) The Interest of a Principal Shareholder may be transferred to such
Principal Shareholder's spouse or children or to a person designated in such
Principal Shareholder's will or trust (individually and collectively referred to
as a "Successor"), upon such Principal Shareholder's death or permanent
incapacity, without Franchisor's approval, provided that such Successor shall
agree to be bound by the restrictions contained in this Section 12, and the
other agreements and covenants of the Principal Shareholders contained in this
Agreement.
(b) The Interest of a Principal Shareholder may not be transferred to
another Principal Shareholder without Franchisor's approval, which approval
shall not be unreasonably withheld.
(c) The Interest of a Successor may only be transferred in accordance
with Subsection 12.5(b), 12.6, 12.7 or 12.8, regardless of whether such Transfer
is for consideration or by gift or will or other device.
12.6 If at any time any of the Principal Shareholders desires to dispose of
all or substantially all of the Interests of the Principal Shareholder(s) in
Franchisee, or any of the Principal Shareholders (or Franchisee) desires to
dispose of all or substantially all of Franchisee's Interest in this Agreement
or in the assets which Franchisee has acquired as a result of this Agreement,
the Principal Shareholder(s) or Franchisee, as the case may be, shall notify
Franchisor of that desire, in writing, thirty (30) days before announcing that
fact publicly or engaging the services of a broker or sales agent.
12.7 (a) If at any time any of the Principal Shareholders or Franchisee, as
the case may be, obtains from a third party or third parties a bona fide offer
(the "Offer") in writing for the purchase of all or substantially all of the
Interests of the Principal Shareholders in Franchisee, or of Franchisee's
Interest in this Agreement or in the assets which Franchisee has acquired as a
result of this Agreement, the Principal Shareholders or Franchisee shall give
notice (the "Selling Notice") to Franchisor stating that the Principal
Shareholders or Franchisee, as the case may be, have received the Offer,
identifying the prospective purchaser by name and address, specifying
2004 F-19
the proposed purchase price and attaching a true and complete copy of the Offer,
including all relevant materials required for approval by Franchisor.
(b) Franchisor shall have an option to purchase (the "Option"),
exercisable within a period of forty-five (45) days after receipt of the Selling
Notice (the "Option Period"), such Interests at the price and on the conditions
set forth in the Offer, except that Franchisor shall not be obligated to pay any
finder's or broker's fee, and if the Offer provides for payment of consideration
other than cash, or if the Offer involves certain intangible benefits,
Franchisor may elect to purchase such Interests by offering a reasonable dollar
value substitute including, at Franchisor's option, cash or the common stock or
other securities of the Franchisor or any combination thereof for the
non-cash/intangible benefits part of the Offer.
(c) The Option shall be exercisable by Franchisor delivering to the
Principal Shareholders or Franchisee, as the case may be, within the Option
Period, a notice (i) stating that the Option is being exercised, and (ii)
specifying the time, date and place at which such purchase and sale will take
place, which date shall be within forty-five (45) days after Franchisor delivers
such notice. Franchisee shall provide Franchisor access to and copies of such
information and documentation Franchisor shall request regarding the purchase.
The forty-five (45) day limitation described at the end of the preceding
sentence shall not apply if at the end of said forty-five (45) day period the
only issue which prevents completion of the purchase and sale is the need to
effect transfers of the applicable liquor licenses. In the event of such a
delay, the purchase and sale shall take place within seven (7) business days
after those liquor licenses have been transferred.
(d) If the Option is not exercised, the Principal Shareholders or
Franchisee, as the case may be, may sell the Interests in or of Franchisee to
the third party which made the Offer, on conditions no more favorable to the
third-party offerer than those set forth in the Offer, provided that Franchisor
approves the proposed transferee in accordance with the criteria set forth in
Appendix B and provided further that such sale takes place within ninety (90)
days after the expiration of the Option Period. The ninety (90) day limitation
described in the preceding sentence shall not apply if at the end of said ninety
(90) day period the issue which prevents completion of the purchase and sale is
either the need to effect transfers of the applicable liquor licenses or consent
or approval of the transaction by a state or federal regulatory agency. In the
event of such a delay, the purchase and sale shall take place within seven (7)
business days after those issues have been resolved or waived by Franchisor.
(e) If the Option is not exercised, the Principal Shareholders or
Franchisee, as the case may be, shall immediately notify Franchisor in writing
of any change in the terms of an Offer. Any change in the terms of an Offer
shall cause it to be deemed a new Offer, conferring upon Franchisor a new Option
pursuant to this Subsection 12.7; the Option Period with respect to the new
Option shall be deemed to commence on the day on which Franchisor receives
written notice of a change in the terms of the original Offer. Provided however,
in such an instance, Franchisor shall provide Franchisee its response within
fifteen (15) days after Franchisor's receipt of all of the modified terms,
unless such changes are deemed material by Franchisor and in such an event,
Franchisor shall have a forty-five (45) day period within which to review said
changes.
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12.8 (a) Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Franchisee and that Franchisor has
entered into this Agreement in reliance on the business skill and financial
capability of Franchisee, and the business skill, financial capability and
personal character of each Principal Shareholder. Except as otherwise provided
in this Section 12, the Principal Shareholders shall at all times retain control
of Franchisee. Except as otherwise provided in this Section 12, no Transfer of
any part of Franchisee's Interest in this Agreement or in the Restaurant, and no
Transfer of any Interest of any Principal Shareholder, shall be completed except
in accordance with this Subsection 12.8. In the event of such a proposed
Transfer of any part of Franchisee's Interest in this Agreement or in the
Restaurant, or of any Interest of any Principal Shareholder, the party or
parties desiring to effect such Transfer shall give Franchisor notice in writing
of the proposed Transfer, which notice shall set forth the name and address of
the proposed transferee, its financial condition, including a copy of its
financial statement dated not more than ninety (90) days prior to the date of
said notice, and all the terms and conditions of the proposed Transfer. Upon
receiving such notice, Franchisor may (i) approve the Transfer, or (ii) withhold
its consent to the Transfer. Franchisor shall, within forty-five (45) days of
receiving such notice and all of the information required therein, advise the
party or parties desiring to effect the Transfer whether it (1) approves the
Transfer, or (2) withholds its consent to the Transfer, giving the reasons for
such disapproval. Failure of Franchisor to so advise said party or parties
within that forty-five (45) day period shall be deemed to be an approval of the
proposed Transfer. Appendix B sets forth the criteria for obtaining Franchisor's
consent to a proposed Transfer.
(b) In the event that Franchisor approves the Transfer, and the
Transfer is not completed within ninety (90) days of the later of (i) expiration
of the forty-five (45) day notice period, or (ii) delivery of notice of
Franchisor's approval of the proposed Transfer, Franchisor's approval of the
proposed Transfer shall automatically be revoked. The ninety (90) day limitation
described in the preceding sentence shall not apply if at the end of said ninety
(90) day period the only issue which prevents completion of the Transfer is the
need to effect transfers of the applicable liquor licenses. In the event of such
a delay, the Transfer shall take place within seven (7) business days after
those liquor licenses have been transferred. Any subsequent proposal to complete
the proposed Transfer shall be subject to Franchisor's right of approval as
provided herein. The party which desires to effect the proposed Transfer shall
immediately notify Franchisor in writing of any change in the terms of a
Transfer. Any change in the terms of a Transfer prior to closing shall cause it
to be deemed a new Transfer, revoking any approval previously given by
Franchisor and conferring upon Franchisor a new right to approve such Transfer,
which shall be deemed to commence on the day on which Franchisor receives
written notice of such changes in terms.
12.9 In connection with any request for Franchisor's approval of a proposed
Transfer pursuant to this Section 12, the parties to the proposed Transfer shall
pay Franchisor a nonaccountable fee to defray the actual cost of review and the
administrative and professional expenses related to the proposed Transfer and
the preparation and execution of documents and agreements, up to a maximum of
two thousand five hundred dollars ($2,500).
2004 F-21
13. CONFIDENTIALITY; RESTRICTIONS
13.1 Franchisee and its Principal Shareholders acknowledge that over the
term of this Agreement they are to receive proprietary information which
Franchisor has developed over time at great expense, including, but not limited
to, information regarding the System, methods of site selection, marketing and
public relations methods, product analysis and selection, and service methods
and skills relating to the development and operation of restaurants. They
further acknowledge that this information, which includes, but is not
necessarily limited to, that contained in the Manuals, is not generally known in
the industry and is beyond their own present skills and experience, and that to
develop it themselves would be expensive, time consuming and difficult.
Franchisee and its Principal Shareholders further acknowledge that the
Franchisor's information provides a competitive advantage and will be valuable
to them in the development of their business, and that gaining access to it is
therefore a primary reason why they are entering into this Agreement.
Accordingly, Franchisee and its Principal Shareholders agree that Franchisor's
information, as described above, which may or may not be "trade secrets" under
prevailing judicial interpretations or statutes, is private and valuable, and
constitutes trade secrets belonging to Franchisor. Accordingly, in consideration
of Franchisor's confidential disclosure to them of these trade secrets,
Franchisee and Principal Shareholders agree as follows (subject to the
provisions of the Development Agreement and any other franchise agreement
between Franchisor and Franchisee):
(a) During the term of this Agreement, neither Franchisee nor any
Principal Shareholder, for so long as such Principal Shareholder owns an
Interest in Franchisee, may, without the prior written consent of
Franchisor, directly or indirectly engage in, or acquire any financial or
beneficial interest (including any interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures) in, advise, help,
guarantee loans or make loans to, any restaurant business whose menu or
method of operation is similar to that employed by restaurant units within
the System which is either (i) located in the Territory, as defined in the
Development Agreement, (ii) located in the Area of Dominant Influence (as
defined and established from time to time by Arbitron Ratings Company) of
any restaurant developed pursuant to the Development Agreement, (iii)
located within a five (5) mile radius of any restaurant unit within the
System, or (iv) determined by Franchisor, exercising reasonable good faith
judgment, to be a direct competitor of the System.
(b) Neither Franchisee, for two (2) years following the termination of
this Agreement, nor any Principal Shareholder, for two (2) years following
the termination of all of his or her Interest in Franchisee or the
termination of this Agreement, whichever occurs first, may directly or
indirectly engage in, or acquire any financial or beneficial interest
(including any interest in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, advise, help, guarantee
loans or make loans to, any restaurant business whose menu or method of
operation is similar to that employed by restaurant units within the System
which is located either (i) in the Territory, as defined in the Development
Agreement, (ii) in the Area of Dominant Influence (as defined and
established from time to time by Arbitron Ratings Company) of any
restaurant developed pursuant to the Development Agreement, (iii) within a
five (5) mile radius of any restaurant unit within the System, or (iv)
within any area for which an active, currently binding
2004 F-22
development agreement has been granted by Franchisor to another franchisee
as of the date of the termination.
(c) Neither Franchisee nor any Shareholder shall at any time (i)
appropriate or use the trade secrets incorporated in the System, or any
portion thereof, in any restaurant business which is not within the System,
(ii) disclose or reveal any portion of the System to any person, other than
to Franchisee's Restaurant employees as an incident of their training,
(iii) acquire any right to use any name, ▇▇▇▇ or other intellectual
property right which is or may be granted by this Agreement, except in
connection with the operation of the Restaurant, or (iv) communicate,
divulge or use for the benefit of any other person or entity any
confidential information, knowledge or know-how concerning the methods of
development or operation of a restaurant utilizing the System, which may be
communicated by Franchisor in connection with the franchise granted
hereunder.
13.2 Franchisee and Principal Shareholders agree that the provisions of
this Section 13 are and have been a primary inducement to Franchisor to enter
into this Agreement, and that in the event of breach thereof Franchisor would be
irreparably injured and would be without adequate remedy at law. Therefore, in
the event of a breach, or a threatened or attempted breach, of any of such
provisions Franchisor shall be entitled, in addition to any other remedies which
it may have hereunder or at law or in equity (including the right to terminate
this Agreement), to a preliminary and/or permanent injunction and a decree for
specific performance of the terms hereof without the necessity of showing actual
or threatened damage, and without being required to furnish a bond or other
security.
13.3 The restrictions contained in Subsection 13.1(a) and (b) above shall
not apply to ownership of less than two percent (2%) of the shares of a company
whose shares are listed and traded on a national securities exchange if such
shares are owned for investment only, and are not owned by an officer, director,
employee, or consultant of such publicly traded company.
13.4 If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Section 13 determines that it would be
invalid or unenforceable as written, then the provisions hereof shall be deemed
to be modified or limited to such extent or in such manner as necessary for such
provisions to be valid and enforceable to the greatest extent possible.
13.5 Franchisee shall require the General Manager, the Kitchen Manager and
each of its Restaurant managers to execute a confidentiality agreement in the
form attached hereto as Appendix C. Franchisee shall be responsible for
compliance of its employees with the agreements identified in this Subsection.
14. INSPECTIONS
14.1 Franchisor shall have the right at any time, and from time to time, to
have its representatives enter the Restaurant premises without notice for the
purpose of inspecting the condition thereof and the operation of the Restaurant
in order to determine whether Franchisee is in compliance with the standards,
specifications, requirements and instructions contained in this
2004 F-23
Agreement and in the Manuals, and for any other reasonable purpose connected
with the operation of the Restaurant.
14.2 Without limiting the generality of Subsection 14.1, a representative
of Franchisor shall be present in the Restaurant to consult with Franchisee or
its General Manager once each calendar quarter and, at least semi-annually, a
representative shall conduct an inspection/ consultation at the Restaurant
(which may be conducted with or without notice). During such inspection,
Franchisor's representative will inspect the condition of the Restaurant and
observe procedures and operations at the Restaurant. Also during the
inspection/consultation, Franchisor's representative will meet with the General
Manager and such other Restaurant employees as Franchisor's representative may
designate, for the purpose of evaluating the condition and operation of the
Restaurant and seeking to maintain or achieve compliance with the standards,
specifications, requirements and instructions contained in this Agreement and in
the Manuals.
14.3 Without limiting the generality of Subsection 14.1, Franchisor's
representatives shall have the right at all times during normal business hours
to confer with Restaurant employees and customers, and to inspect Franchisee's
books, records and tax returns, or such portions thereof as pertain to the
operation of the Restaurant. All such books, records and tax returns shall be
kept and maintained at the principal executive offices of Franchisee or such
other place as may be agreed upon by the parties in writing. If any inspection
reveals that the gross sales reported in any report or statement are less than
the actual gross sales ascertained by such inspection, then the Franchisee shall
immediately pay Franchisor the additional amount of fees owing by reason of the
understatement of gross sales previously reported, together with interest as
provided in Subsection 9.2. In the event that any report or statement
understates gross sales by more than three percent (3%) of the actual gross
sales ascertained by Franchisor's inspection, Franchisee shall, in addition to
making the payment provided for in the immediately preceding sentence, pay and
reimburse Franchisor for any and all expenses incurred in connection with its
inspection, including, but not limited to, reasonable accounting and legal fees.
Such payments shall be without prejudice to any other rights or remedies which
Franchisor may have under this Agreement or otherwise. If any inspection reveals
that the gross sales reported in any report or statement are greater than the
actual gross sales ascertained by such inspection, and that Franchisee thereby
has made an overpayment of fees, the amount of the overpayment (without
interest) shall be offset against future fees owing by Franchisee to Franchisor.
14.4 Franchisee shall maintain an accurate stock register. In the event
that the beneficial ownership of Franchisee's stock differs in any respect from
record ownership, Franchisee also shall maintain a list of the names, addresses
and interests of all beneficial owners of its stock. Franchisee shall produce
its stock register, and any list of beneficial owners certified by the
corporation's secretary to be correct, at its principal executive offices upon
ten (10) days prior written request by Franchisor. Franchisor's representatives
shall have the right to examine the stock register and any list of beneficial
owners, and to reproduce all or any part thereof. Further, upon ten (10) days
written notice, Franchisor may request a copy of the list of stockholders and
owners of beneficial interests to be forwarded to it at Franchisor's principal
office.
2004 F-24
15. RELATIONSHIP OF PARTIES AND INDEMNIFICATION
15.1 Franchisee is not, and shall not represent or hold itself out as, an
agent, legal representative, joint venturer, partner, employee or servant of
Franchisor for any purpose whatsoever and, where permitted by law to do so,
shall file a business certificate to such effect with the proper recording
authorities. Franchisee is an independent contractor and is not authorized to
make any contract, agreement, warranty or representation on behalf of
Franchisor, or to create any obligation, express or implied, on behalf of
Franchisor. Franchisee agrees that Franchisor does not have any fiduciary
obligation to Franchisee. Franchisee shall not use the name ▇▇▇▇▇▇▇▇'▇
Neighborhood Grill & Bar (other than in connection with the operation of the
Restaurant), or ▇▇▇▇▇▇▇▇'▇ International, Inc., or any similar words as part of
or in association with any trade name of any business entity which is, directly
or indirectly, associated with Franchisee.
15.2 Franchisee shall indemnify and hold harmless Franchisor and its
officers, directors, employees, agents, affiliates, successors and assigns from
and against (a) any and all claims based upon, arising out of, or in any way
related to the operation or condition of any part of the Restaurant or
Restaurant premises, the conduct of business thereat, the ownership or
possession of real or personal property, and any negligent act, misfeasance or
nonfeasance by Franchisee or any of its agents, contractors, servants, employees
or licensees (including, without limitation, the performance by Franchisee of
any act required by, or performed pursuant to, any provision of this Agreement),
and (b) any and all fees (including reasonable attorneys' fees), costs and other
expenses incurred by or on behalf of Franchisor in the investigation of or
defense against any and all such claims.
15.3 In addition to, and not in limitation of, any subsection hereof,
Franchisee specifically covenants, represents and warrants that Franchisee is in
compliance in all material respects with all federal, state, municipal and local
laws governing the generation, use or disposal of hazardous waste or hazardous
materials, and any and all other laws designed to protect the environment and
that:
(a) There have been no past, and there are no current or anticipated,
releases or substantial threats of a release of a hazardous substance,
pollutant or contaminant from or onto the Restaurant or real property upon
which the Restaurant is located and referred to in this Agreement
("Premises") which is or may be subject to regulation under the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. 9601, et seq.) or other laws designed to protect the environment;
(b) The Premises have not previously been used, are not now being used
and are not contemplated to be used for the treatment, collection, storage
or disposal of any refuse or objectionable waste so as to require a permit
or approval from the Environmental Protection Agency pursuant to the
Hazardous and Solid Waste Amendments of 1984 (96 Stat. 3221) or any other
federal, state, county or municipal agency charged with the responsibility
of protecting the environment;
2004 F-25
(c) The Premises have not previously been used, are not now being
used, and are not contemplated to be used, for the generation,
transportation, treatment, storage or disposal of any hazardous waste;
(d) No portion of the Premises are located on or over a "sanitary
landfill" or an "open dump" within the meaning of the Resource Conservation
and Recovery Act (42 U.S.C. 6941 et seq.), as amended by the Hazardous and
Solid Waste Amendments of 1984 (96 Stat. 3221);
(e) No asbestos fibers or materials or polychlorinated biphenyls
(PCB's) are on or in the Premises;
(f) There have not been, nor are there presently pending, any federal
or state enforcement actions against the Premises, nor is the Franchisee or
its Landlord, if any, subject to any outstanding administrative orders
which require ongoing compliance efforts in connection with compliance with
laws designed to protect the environment;
(g) The Franchisee has not entered into any consent decrees or
administrative consent orders with any agency charged with the
responsibility of protecting the environment;
(h) There have not been any notices of violation sent to the
Franchisee under the Citizens Suit Provisions of any statute;
(i) The Franchisee has not received any request for information,
notice or demand letters for administrative inquiries from any governmental
entity with regard to its environmental practices;
(j) The Franchisee has maintained all required records under each and
every applicable environmental statute and is in full compliance with all
environmental permits issued to it by any governmental or regulatory
agency;
(k) The Franchisee maintains all insurance policies as may be required
by any applicable law governing the environment;
(l) The Franchisee has no reason to believe that any operation of
equipment on or at the Premises may be the cause of a future spill or
release of a pollutant;
(m) The Franchisee has not in the past, nor is it presently,
generating, transporting or disposing of a hazardous substance as defined
by Section 9601(12) of CERCLA; and
(n) The Franchisor shall have the right, at Franchisee's expense, to
require an environmental audit of the Premises from a company or companies
satisfactory to Franchisor.
2004 F-26
16. INSURANCE
16.1 Franchisee shall procure before the commencement of Restaurant
operations, and shall maintain in full force and effect during the entire term
of this Agreement, at its sole cost and expense, an insurance policy or policies
protecting Franchisee and Franchisor and their respective officers, directors
and employees against any and all claims, loss, liability or expense whatsoever,
arising out of or in connection with the condition, operation, use or occupancy
of the Restaurant or Restaurant Premises. Franchisee shall procure workers'
compensation coverage for each of its employees no later than the first date of
such employee's employment. Franchisee shall also insure the Restaurant building
and other improvements, equipment, signs, interior and exterior decor items,
furnishings and fixtures, and any additions thereto, in accordance with standard
fire and extended coverage insurance policies then in effect for similar
businesses. Franchisor shall be named as an additional insured in all such
policies, workers' compensation excepted, and the certificate or certificates of
insurance shall state that the policy or policies shall not be subject to
cancellation or alteration without at least thirty (30) days prior written
notice to Franchisor. Such policy or policies shall be written by a responsible
insurance company or companies satisfactory to Franchisor, and shall be in such
form and contain such limits of liability as shall be satisfactory to Franchisor
from time to time. In any event, such policy or policies shall include at least
the following:
KIND OF INSURANCE MINIMUM LIMITS OF LIABILITY
Workers' Compensation Statutory
Employer's Liability $500,000 bodily injury by accident
$500,000 bodily injury by disease
General Public Liability, $1,000,000 each person,
including Product Liability, $1,000,000 each incident
Injury and Liquor Liability $2,000,000 aggregate
Fire and Extended Coverage Full replacement value
Umbrella Liability Insurance $35,000,000
Franchisee shall, upon request, exhibit certificates of such insurance to
Franchisor. The insurance afforded by the policy or policies respecting public
liability shall not be limited in any way by reason of any insurance which may
be maintained by Franchisor.
16.2 Within sixty (60) days after the execution of this Agreement, but in
no event later than the day before the Restaurant opens for business, Franchisee
shall submit to Franchisor for approval certificates of insurance showing
compliance with the requirements of Subsection 16.1. Notwithstanding the
foregoing, Franchisee shall submit to Franchisor for approval certificates of
insurance showing compliance with the worker's compensation requirements set
forth in Subsection 16.1 prior to the training of any Franchisee employee at a
Restaurant operated by Franchisor. Maintenance of such insurance and the
performance by Franchisee of its obligations
2004 F-27
under this Section 16 shall not relieve Franchisee of liability under the
indemnity provisions of this Agreement, and shall not limit such liability.
16.3 Should Franchisee, for any reason, fail to procure or maintain the
insurance coverage required by this Section, then Franchisor shall have the
right and authority to immediately procure such insurance coverage and to charge
the cost thereof to Franchisee, which amounts shall be paid immediately upon
notice and shall be subject to charges for late payments in the manner set forth
in Subsection 9.2.
16.4 No later than thirty (30) days following Franchisee's receipt of same,
Franchisee shall submit to Franchisor a copy of any written report relating to
the condition of the Restaurant premises, or any aspect thereof, prepared by an
insurer or prospective insurer or by a representative of a federal, state or
local government agency, provided that if any such report contains comments or
information which could materially and detrimentally affect the Restaurant, such
report shall be submitted to Franchisor within three (3) days following
Franchisee's receipt thereof.
17. DEBTS AND TAXES
Franchisee shall pay or cause to be paid promptly when due all obligations
incurred, directly or indirectly, in connection with the Restaurant and its
operation, including, without limitation, (a) all taxes and assessments that may
be assessed against the Restaurant land, building and other improvements,
equipment, fixtures, signs, furnishings, and other property; (b) all liens and
encumbrances of every kind and character created or placed upon or against any
of said property, and; (c) all accounts and other indebtedness of every kind and
character incurred by or on behalf of Franchisee in the conduct of the
Restaurant business. Notwithstanding the foregoing, Franchisee will not be in
default of this Agreement as a result of a non-payment or non-performance of the
foregoing so long as it disputes said debt or lien and is, in the sole opinion
of Franchisor, validly and in good faith pursuing a resolution of said claim or
lien and has reserved sufficient sums to pay the debt/claim as is agreed to by
Franchisor.
18. TRADE NAMES, SERVICE MARKS AND TRADEMARKS
18.1 Franchisee acknowledges the sole and exclusive right of Franchisor
(except for rights granted under existing and future franchise agreements) to
use Franchisor's trade names, service marks and trademarks in connection with
the products and services to which they are or may be applied by Franchisor, and
represents, warrants and agrees that Franchisee shall not, either during the
term of this Agreement, or after the expiration or other termination hereof,
directly or indirectly, contest or aid in contesting the validity, ownership or
use thereof by Franchisor, or take any action whatsoever in derogation of the
rights claimed herein by Franchisor.
18.2 The right granted to Franchisee under this Agreement to use
Franchisor's trade names, service marks and trademarks is nonexclusive, and
Franchisor, in its sole discretion, subject only to the limitations contained in
Subsection 1.4 of this Agreement, has the right to grant other rights in, to and
under those names and marks in addition to those rights already granted, and to
2004 F-28
develop and grant rights in other names and marks on any such terms and
conditions as Franchisor deems appropriate. The rights granted under this
Agreement do not include any right or authority of any kind whatsoever to
pre-package or sell pre-packaged food products, under any of Franchisor's names
or marks, or any menu items approved for sale at the Restaurant, whether at the
Restaurant, on the Internet, or at any other location, including grocery stores.
18.3 Franchisee understands and acknowledges and agrees that Franchisor has
the unrestricted right, subject only to the limitations contained in Subsection
1.4 of this Agreement, to engage, directly and indirectly, through its
employees, representatives, licenses, assigns, agents, affiliates, subsidiaries
and others, at wholesale, retail, and otherwise, in (a) the production,
distribution and sale of products under the names and marks licensed hereunder
or other names or marks, (b) the use, in connection with such production,
distribution and sale, of any and all trademarks, trade names, service marks,
logos, insignia, slogans, emblems, symbols, designs and other identifying
characteristics as may be developed or used, from time to time, by Franchisor
with respect to the System or otherwise, and (c) the production, distribution
and sale of products through another restaurant or restaurants which do not
utilize the System or the ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar service ▇▇▇▇ and
which otherwise compete or might compete with the Restaurant. Further,
Franchisee agrees that ownership of any service marks or other insignia,
symbols, designs or slogans used in development and promotion of any products or
menu items, including any general promotion or concept not tied to a specific
product, and all recipes and copyrighted material, whether such development was
instituted at the request or suggestion of Franchisee or Franchisor, and whether
such development was done in collaboration with Franchisor or done independently
by Franchisee, shall be the sole and exclusive property of Franchisor. Any
goodwill engendered by the marks, insignia, symbols, designs or slogans used
shall inure to the benefit of Franchisor whose ownership shall be sole and
exclusive.
18.4 Nothing contained in this Agreement shall be construed to vest in
Franchisee any right, title or interest in or to any of Franchisor's names or
marks, the goodwill now or hereafter associated therewith, or any right in the
design of any restaurant building or premises, or the decor or trade-dress of
the Restaurant, other than the rights and license expressly granted herein for
the term hereof. Any and all goodwill associated with or identified by any of
Franchisor's names or marks shall inure directly and exclusively to the benefit
of Franchisor, including, without limitation, any goodwill resulting from
operation and promotion of the Restaurant, provided that this Subsection shall
not be construed to entitle Franchisor to receive any portion of the
consideration paid to Franchisee and/or any Principal Shareholder as a result of
a Transfer of an Interest pursuant to Section 12 hereof.
18.5 Franchisee shall adopt and use Franchisor's names and marks only in a
manner expressly approved by Franchisor, and shall not use any of Franchisor's
names or marks in connection with any statement or material which may, in the
judgment of Franchisor, be in bad taste or inconsistent with Franchisor's public
image, or tend to bring disparagement, ridicule or scorn upon Franchisor, any of
Franchisor's names or marks, or the goodwill associated therewith. Franchisee
shall not adopt, use or register as its corporate name (by filling a certificate
or articles of incorporation or otherwise) any trade or business name, style or
design which includes, or is similar to, any of Franchisor's trademarks, service
marks, trade names, logos, insignia, slogans, emblems, symbols, designs or other
identifying characteristics.
2004 F-29
18.6 Franchisor shall have the right, at any time and from time to time,
upon notice to Franchisee, to make additions to, deletions from and changes in
any of Franchisor's names or marks, or all of them, all of which additions,
deletions and changes shall be made in good faith, on a reasonable basis and
with a view toward the overall best interests of the System. Franchisor will use
its best efforts to protect and preserve the integrity and validity of
Franchisor's names and marks, including the taking of actions deemed by
Franchisor to be appropriate in the event of any apparent infringement of any of
Franchisor's names or marks.
18.7 (a) Franchisor shall hold Franchisee harmless from any liability or
expense (but excluding consequential damages) resulting from infringement of a
third party's service ▇▇▇▇, trade name or trademark by Franchisor's service
▇▇▇▇, ▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar, or by any other service ▇▇▇▇,
trademark or trade name of Franchisor which Franchisor shall designate as part
of the System. This hold-harmless indemnity shall not apply to any unauthorized
use by Franchisee of any such service ▇▇▇▇, trade name or trademark.
(b) Franchisee agrees to notify Franchisor promptly in writing of any
suit or claim for infringement which is within the scope of the hold-harmless
indemnity set forth in this Subsection 18.7. Subject to the terms and conditions
of this Subsection 18.7, Franchisor shall have the sole right to defend or
settle any such suit or claim of infringement at Franchisor's expense.
Franchisee, at Franchisee's expense, shall have the right to be represented by
counsel. Franchisor shall, however, retain control of any negotiations with
respect to such claim or of any litigation involving such suit. Franchisee
agrees to cooperate with Franchisor and to assist Franchisor whenever reasonably
requested by Franchisor, at Franchisor's expense, in the defense of any such
infringement suit or claim. Franchisee shall not enter into any settlement of
any such claim or suit or conduct any settlement negotiations relative thereto
without the prior approval of Franchisor in writing and, if Franchisee does so,
the hold-harmless indemnity set forth in this Subsection 18.7 shall be deemed to
have been waived and released in all respects.
18.8 Franchisor represents that it is the sole owner of the service ▇▇▇▇
▇▇▇▇▇▇▇▇'▇ Neighborhood Grill & Bar. In the event that Franchisee is precluded
from operating the Restaurant because Franchisor determines that a third person
has acquired rights under the law of any state in such ▇▇▇▇, which so precludes
Franchisee, Franchisor agrees (a) to repay to Franchisee the initial franchise
fee paid by Franchisee with respect to the Restaurant, and (b) to assist
Franchisee, at Franchisee's request, in locating an alternative site for the
Restaurant.
19. EXPIRATION AND TERMINATION; OPTION TO PURCHASE RESTAURANT; ATTORNEYS' FEES
19.1 Franchisor shall have the right to terminate this Agreement
immediately upon written notice to Franchisee stating the reason for such
termination:
(a) in the event of any breach or default of any of the provisions of
Subsection 9.1, Sections 12 or 13, Subsection 14.1 or Section 23;
(b) if a petition in bankruptcy, an arrangement for the benefit of
creditors, or a petition for reorganization is filed by Franchisee, or is
filed against Franchisee and not
2004 F-30
dismissed within ninety (90) days from the filing thereof, or if Franchisee
shall make any assignment for the benefit of creditors, or if a receiver or
trustee is appointed for Franchisee and is not dismissed within ninety (90)
days of such appointment;
(c) if Franchisee ceases to operate the Restaurant without the prior
written consent of Franchisor or loses its right to possession of the
Restaurant premises; provided however, this provision will not apply if
Franchisee ceases to operate the Restaurant or loses its right to
possession of the Restaurant premises by reason of Force Majeure and
Franchisee complies with the requirements of Section 24 of this Agreement;
(d) if Franchisor discovers that Franchisee has made any material
misrepresentation or omitted any material fact in the information which was
furnished to Franchisor in connection with this Agreement;
(e) if any part of this Agreement relating to the payment of fees to
Franchisor, or the preservation of any of Franchisor's trade names, service
marks, trademarks, trade secrets or secret formulae licensed or disclosed
hereunder is, for any reason, declared invalid or unenforceable; or
(f) if Franchisee or any Principal Shareholder is convicted of or
pleads nolo contendere to a felony or any crime involving moral turpitude.
If Franchisee defaults in the performance or observance of any of its other
obligations hereunder, and such default continues for a period of sixty (60)
days after written notice to Franchisee specifying such default, Franchisor
shall have the right to terminate this Agreement upon thirty (30) days written
notice to Franchisee. If Franchisee defaults in the performance or observance of
the same obligation two (2) or more times within a twelve (12) month period,
Franchisor shall have the right to terminate this Agreement immediately upon
commission of the second act of default, upon thirty (30) days written notice to
Franchisee stating the reason for such termination, without allowance for any
curative period.
The foregoing provisions of this Subsection 19.1 are subject to the
provisions of any local statutes or regulations which limit the grounds upon
which Franchisor may terminate this Agreement, or which require that Franchisor
give Franchisee additional prior written notice of termination and opportunity
to cure any default.
In the event of termination by reason of Franchisee's failure after a good
faith effort to obtain the necessary state or local liquor licenses (as required
in Section 23), Franchisor shall refund to Franchisee, without interest, the
franchise fee payment referred to in Subsection 9.1(a), less any expenses
incurred and damages sustained by Franchisor in connection with its performance
hereunder prior to the date of such termination. Franchisor shall also repay the
initial franchise fee in the circumstances described in Subsection 18.8 hereof.
In the event of termination for any other reason, Franchisor shall have no
obligation to refund any amount previously paid by Franchisee, and Franchisee
shall be obligated to promptly pay all sums which are then due Franchisor.
2004 F-31
19.2 Upon the termination of this Agreement by Franchisor, Franchisee may
not remove any property from the Restaurant premises for thirty (30) days after
the termination. Upon the expiration or earlier termination of this Agreement
for any reason:
(a) Franchisee shall immediately discontinue its use of the System and
its use of Franchisor's trade names, service marks, trademarks, logos,
insignia, slogans, emblems, symbols, designs and other identifying
characteristics;
(b) if the Restaurant premises are owned by Franchisee or leased from
a third party, Franchisee shall, upon demand by Franchisor, remove (at
Franchisee's expense) Franchisor's trade names, service marks, trademarks,
logos, insignia, slogans, sign facia, emblems, symbols, designs and other
identifying characteristics from all premises, and paint all premises and
other improvements maintained pursuant to this Agreement a design and color
which is basically different from Franchisor's authorized design and color.
If Franchisee shall fail to make or cause to be made any such removal or
repainting within thirty (30) days after written notice, then Franchisor
shall have the right to enter upon the Restaurant premises, without being
deemed guilty of trespass or any tort (or Franchisee shall cause Franchisor
to be permitted on the premises as necessary), and make or cause to be made
such removal, alterations and repainting at the reasonable expense of
Franchisee, which expense Franchisee shall pay to Franchisor immediately
upon demand; and
(c) Franchisee shall not thereafter use any trademark, trade name,
service ▇▇▇▇, logo, insignia, slogan, emblem, symbol, design or other
identifying characteristic that is in any way associated with Franchisor or
similar to those associated with Franchisor, or use any food or proprietary
menu item, recipe or method of food preparation or operate or do business
under any name or in any manner that might tend to give the public the
impression that Franchisee is or was a licensee or franchisee of, or
otherwise associated with, Franchisor.
19.3 In the event that any party to this Agreement initiates any legal
proceeding to construe or enforce any of the terms, conditions and/or provisions
of this Agreement, including, but not limited to, its termination provisions and
its provisions requiring Franchisee to make certain payments to Franchisor
incident to the operation of the Restaurant, or to obtain damages or other
relief to which any such party may be entitled by virtue of this Agreement, the
prevailing party or parties shall be paid its reasonable attorneys' fees and
expenses by the other party or parties. If Franchisee fails to comply with a
written notice of termination sent by Franchisor and a court later upholds such
termination of this Agreement, Franchisee's operation of the Restaurant, from
and after the date of termination stated in such notice, shall constitute
willful trademark infringement and unfair competition by Franchisee, and
Franchisee shall be liable to Franchisor for damages resulting from such
infringement in addition to any fees paid or payable hereunder, including,
without limitation, any profits which Franchisee derived from such
post-termination operation of the Restaurant.
19.4 (a) With respect to Restaurant premises owned by Franchisee, in the
event of termination of this Agreement, Franchisor shall have, for thirty (30)
days after the termination is effective, an option, exercisable upon written
notice to Franchisee within such thirty (30) day
2004 F-32
period, to elect to purchase the Restaurant premises from Franchisee for the
fair market value of the land and buildings, furnishings and equipment located
therein.
(b) In addition to the option described above, Franchisor shall have
an option, exercisable upon written notice to Franchisee, to elect to purchase
the Restaurant premises from Franchisee upon expiration of this Agreement for
the fair market value of the land and buildings, furnishings, and equipment
located therein subject to Franchisee's option to operate the Restaurant for an
additional term under Subsection 1.3 hereof. If Franchisee does not notify
Franchisor, pursuant to Subsection 1.3 hereof, of a desire to operate the
Restaurant for an additional term, then Franchisor shall provide the written
notice described in the preceding sentence within thirty (30) days after the
latest date by which Franchisee is required by Subsection 1.3 to advise
Franchisor of such a desire; if Franchisee does notify Franchisor of a desire to
operate the Restaurant for an additional term and Franchisor determines that
Franchisee is not eligible to do so, Franchisor shall provide the written notice
described in the preceding sentence within thirty (30) days of its written
notice to Franchisee that Franchisee is not eligible to operate the Restaurant
for such additional term. With respect to the option to purchase upon expiration
of this Agreement, this option shall not apply if prior to thirty (30) days
before said expiration, Franchisee enters into an agreement to sell such
Restaurant premises to a third party upon the expiration of the Franchise
Agreement, provided that Franchisee's agreement with the purchaser includes a
covenant by the purchaser, which is expressly enforceable by Franchisor as a
third-party beneficiary thereof, pursuant to which the purchaser agrees that,
for a period of twelve (12) months after the expiration of this Agreement, the
purchaser shall not use such premises for the operation of a restaurant business
whose menu or method of operation is similar to that employed by restaurant
units within the System.
(c) If Franchisee receives approval to operate the Restaurant premises
for an additional term in accordance with Subsection 1.3 hereof, Franchisee will
be required to execute the then-existing form of franchise agreement, which
shall contain an option to obtain assignment of Franchisee's lease with a third
party and/or to purchase certain property, exercisable by Franchisor upon
termination thereof, and an option to purchase the Restaurant premises,
exercisable by Franchisor upon expiration of the additional term (subject to any
then-existing rights to renew of Franchisee). Such options shall be
substantially similar to the provisions described in this Subsection 19.4.
(d) If the parties cannot agree on the purchase price or other terms
of purchase within thirty (30) days following Franchisor's exercise of its
option pursuant to Subsection 19.4(a) and (b), the price or disputed terms of
purchase shall be determined by three (3) appraisers, with each party selecting
one (1) appraiser and the two (2) appraisers, so chosen, selecting the third
appraiser. In the event of such an appraisal, each party shall bear its own
legal and other costs and shall split equally the appraisal fees. The
appraisers' determination of the price and other disputed terms of purchase
shall be final and binding.
(e) If Franchisor elects to exercise its option to purchase upon
termination of this Agreement, the purchase price shall be paid within thirty
(30) days of the determination of the purchase price and other terms of
purchase. If Franchisor elects to exercise its option to purchase upon
expiration of this Agreement, the purchase price shall be paid within thirty
(30) days of the later of (a) the determination of the purchase price and other
terms of purchase, or (b) expiration
2004 F-33
of this Agreement. If the Franchisor does not elect to exercise its option to
purchase the Restaurant premises, the Franchisee may sell such premises to a
third party, provided that Franchisee's agreement with the purchaser includes a
covenant by the purchaser, which is expressly enforceable by Franchisor as a
third-party beneficiary thereof, pursuant to which the purchaser agrees that it
shall not use such premises for the operation of a restaurant business whose
menu or method of operation is similar to that employed by restaurant units
within the System for a period of twelve (12) months after the termination or
expiration of this Agreement.
(f) If the Restaurant premises are leased by Franchisee from a third
party, such lease must allow Franchisee to assign the lease to Franchisor. Upon
termination of this Agreement for any reason, Franchisor has the right,
exercisable upon written notice to Franchisee within thirty (30) days after
termination is effective, to require Franchisee to assign all Franchisee's
rights and obligations under the lease to Franchisor and to immediately
surrender possession of the premises, including all fixtures and leasehold
improvements, to Franchisor. The lessor may not impose any assignment fee or
other similar charge on Franchisor in connection with such assignment. If
Franchisor exercises that right, it has an additional right, to be exercised
within thirty (30) days after taking possession of the premises, to purchase all
of Franchisee's equipment, signs, decor items, furnishings, supplies and other
products and materials at their then-fair market value. If the parties cannot
agree on the price, the price will be determined in the manner set forth in
connection with Franchisee-owned Restaurant premises. If Franchisor elects not
to purchase the items mentioned above, Franchisee shall, at Franchisee's own
expense and under Franchisor's supervision remove those items from the premises
within ten (10) days after such final election, or ten (10) days after
expiration of the option period, whichever is earlier. If Franchisee fails to
remove all such property from the premises within such period, Franchisor shall
be entitled to do so, or to authorize a third party to do so, all at
Franchisee's expense.
19.5 In addition to the provisions contained in Subsection 19.4 hereof:
(a) With respect to Restaurant premises owned by Franchisee, in the
event of termination of this Agreement and Franchisor's exercise of its
option to purchase the Restaurant premises pursuant to Subsection 19.4(a)
hereof, Franchisee shall have, for ten (10) days after its receipt of
written notice of Franchisor's election to purchase, an option, exercisable
upon written notice to Franchisor, to lease said premises to Franchisor,
pursuant to a lease which provides for rental at a rate not in excess of
six percent (6%) of gross sales and triple net terms. Said lease shall
provide for a lease term of at least ten (10) years with two (2) five
(5)-year options to renew, and for primary annual rent of not in excess of
the number derived from multiplying six percent (6%) times the gross sales
reported by Franchisee to Franchisor for which Franchisee has paid a
royalty fee for the next preceding calendar year times eighty percent
(80%).
(b) In addition to the option described above, Franchisee shall have
an option, exercisable upon written notice to Franchisor, to elect to lease
the Restaurant premises to Franchisor upon expiration of this Agreement and
Franchisor's exercise of its option to purchase the Restaurant premises
pursuant to Subsection 19.4(b) hereof, pursuant to the same terms set forth
in Subsection 19.5(a) above, subject to Franchisee's option to operate the
Restaurant for an additional term under Subsection 1.3 hereof. If (i)
Franchisee does
2004 F-34
not notify Franchisor, pursuant to Subsection 1.3 hereof, of a desire to
operate the Restaurant for an additional term, or (ii) Franchisee does
notify Franchisor of a desire to operate the Restaurant for an additional
term and Franchisor determines that Franchisee is not eligible to do so,
and Franchisor exercises its option to purchase the Restaurant premises,
then Franchisee shall provide the written notice described in the preceding
sentence within ten (10) days after its receipt of written notice of
Franchisor's election to purchase. With respect to the option to lease upon
expiration of this Agreement, this option shall not apply if prior to
thirty (30) days before said expiration, Franchisee enters into an
agreement to sell such Restaurant premises to a third party upon the
expiration of the Franchise Agreement, provided that Franchisee's agreement
with the purchaser includes a covenant by the purchaser, which is expressly
enforceable by Franchisor as a third-party beneficiary thereof, pursuant to
which the purchaser agrees, at Franchisor's option, either to lease said
premises to Franchisor upon the terms set forth in Subsection 19.5(a), or
that for a period of twelve (12) months after the expiration of this
Agreement, the purchaser shall not use such premises for the operation of a
restaurant business whose menu or method of operation is similar to that
employed by restaurant units within the System.
(c) If Franchisee receives approval to operate the Restaurant premises
for an additional term in accordance with Subsection 1.3 hereof, Franchisee
will be required to execute the then-existing form of franchise agreement
which shall contain an option to obtain assignment of Franchisee's lease
with a third party and/or to lease certain property, exercisable by
Franchisor upon termination thereof, and an option to lease the Restaurant
premises, exercisable by Franchisor upon expiration of the additional term
(subject to any then-existing rights to renew of Franchisee). Such options
shall be substantially similar to the provisions described in this
Subsection 19.5.
20. NO WAIVER OF DEFAULT
20.1 The waiver by any party to this Agreement of any breach or default, or
series of breaches or defaults, of any term, covenant or condition herein, or of
any same or similar term, covenant or condition contained in any other agreement
between Franchisor and any franchisee, shall not be deemed a waiver of any
subsequent or continuing breach or default of the same or any other term,
covenant or condition contained in this Agreement, or in any other agreement
between Franchisor and any franchisee.
20.2 All rights and remedies of the parties hereto shall be cumulative and
not alternative, in addition to and not exclusive of any other rights or
remedies which are provided for herein or which may be available at law or in
equity in case of any breach, failure or default or threatened breach, failure
or default of any term, provision or condition of this Agreement. The rights and
remedies of the parties hereto shall be continuing and shall not be exhausted by
any one (1) or more uses thereof, and may be exercised at any time or from time
to time as often as may be expedient; and any option or election to enforce any
such right or remedy may be exercised or taken at any time and from time to
time. The expiration or earlier termination of this Agreement shall not
discharge or release Franchisee or any Principal Shareholder from any liability
or obligation then accrued, or any liability or obligation continuing beyond, or
arising out of, the expiration or earlier termination of the Agreement.
2004 F-35
21. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION
21.1 If any part of this Agreement shall for any reason be declared
invalid, unenforceable or impaired in any way, the validity of the remaining
portions shall remain in full force and effect as if the Agreement had been
executed with such invalid portion eliminated, and it is hereby declared the
intention of the parties that they would have executed the remaining portion of
this Agreement without including therein any such portions which might be
declared invalid; provided however, that in the event any part hereof relating
to the payment of fees to Franchisor, or the preservation of any of Franchisor's
trade names, service marks, trademarks, trade secrets or secret formulae
licensed or disclosed hereunder is for any reason declared invalid or
unenforceable, then Franchisor shall have the right to terminate this Agreement
upon written notice to Franchisee. If any clause or provision herein would be
deemed invalid or unenforceable as written, it shall be deemed modified or
limited to such extent or in such manner as may be necessary to render the
clause or provision valid and enforceable to the greatest extent possible in
light of the interest of the parties expressed in that clause or provision,
subject to the provisions of the preceding sentence.
21.2 FRANCHISEE AND PRINCIPAL SHAREHOLDERS ACKNOWLEDGE THAT FRANCHISOR MAY
GRANT NUMEROUS FRANCHISES THROUGHOUT THE UNITED STATES ON TERMS AND CONDITIONS
SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF MUTUAL BENEFIT
TO FRANCHISEE AND PRINCIPAL SHAREHOLDERS AND TO FRANCHISOR THAT THESE TERMS AND
CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES AGREE THAT TO THE
EXTENT THAT THE LAW OF THE STATE OF KANSAS DOES NOT CONFLICT WITH LOCAL
FRANCHISE STATUTES, RULES AND REGULATIONS, KANSAS LAW SHALL APPLY TO THE
CONSTRUCTION OF THIS AGREEMENT AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH
REFERENCE HERETO; PROVIDED HOWEVER, THAT PROVISIONS OF KANSAS LAW REGARDING
CONFLICTS OF LAW SHALL NOT APPLY HERETO.
21.3 THE PARTIES AGREE THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE THEREOF WHICH CANNOT BE
AMICABLY SETTLED, EXCEPT AS OTHERWISE PROVIDED HEREIN, MAY, AT THE OPTION OF THE
CLAIMANT, BE RESOLVED BY A PROCEEDING IN A COURT IN ▇▇▇▇▇▇▇ COUNTY, KANSAS, AND
FRANCHISEE AND PRINCIPAL SHAREHOLDERS EACH IRREVOCABLY ACCEPT THE JURISDICTION
OF THE COURTS OF THE STATE OF KANSAS AND THE FEDERAL COURTS SERVING ▇▇▇▇▇▇▇
COUNTY, KANSAS FOR SUCH CLAIMS, CONTROVERSIES OR DISPUTES.
The parties agree that service of process in any proceeding arising out of
or relating to this Agreement or the performance thereof may be made as to
Franchisee and any Principal Shareholder by serving a person of suitable age and
discretion (such as the person in charge of the office) at the address of
Franchisee specified in this Agreement and as to Franchisor by
2004 F-36
serving the president or a vice-president of Franchisor at the address of
Franchisor or by serving Franchisor's registered agent.
22. INTERFERENCE WITH EMPLOYMENT RELATIONS
During the term of this Agreement, neither Franchisor nor Franchisee shall
employ or seek to employ in a managerial position (i.e., in a position at a pay
grade at or above that of Assistant Restaurant Manager or Kitchen Manager),
directly or indirectly, any person who is at the time or was at any time during
the prior six (6) months employed by the other party or any of its subsidiaries
or affiliates, or by any franchisee in the System. This section shall not be
violated if, at the time Franchisor or Franchisee employs or seeks to employ
such person, such former employer has given its written consent. Notwithstanding
any other provision of this Agreement, the parties hereto acknowledge that if
this Section is violated, such former employer shall be entitled to liquidated
damages equal to three (3) times the annual salary of the employee involved,
plus reimbursement of all costs and attorneys' fees incurred. In addition to the
rights granted to the parties hereto, the parties acknowledge and agree that any
franchisee from which an employee was hired by either party to this Agreement in
violation of the terms of this Section shall be deemed to be a third-party
beneficiary of this provision and may ▇▇▇ and recover against the offending
party the liquidated damages herein set forth; provided however, the failure by
Franchisee to enforce this Section shall not be deemed to be a violation of this
Section.
23. LIQUOR LICENSE
The grant of the rights which are the subject of this Agreement is
expressly conditioned upon the ability of the Franchisee to obtain and maintain
any and all required state and/or local licenses permitting the sale of liquor
by the drink on the Restaurant premises, and Franchisee agrees to use its best
efforts to obtain such licenses. In the event Franchisee fails, after a good
faith effort, to obtain any and all such required liquor licenses prior to the
date on which the Restaurant is otherwise ready to open for business, then, at
the option of the Franchisor, this Agreement may be terminated forthwith by
Franchisor upon written notice to Franchisee, in which event, Franchisor shall
refund to Franchisee, without interest, the initial franchise fee payment
referred to in Subsection 9.1, less any expenses incurred and damages sustained
by Franchisor in connection with its performance hereunder prior to the date of
such termination. After obtaining the necessary state or local liquor licenses,
Franchisee shall thereafter comply with all applicable laws and regulations
relating to the sale of liquor on the Restaurant premises. If, during any twelve
(12) month period during the term of this Agreement, Franchisee is prohibited
for any reason from selling liquor on the Restaurant premises for more than
thirty (30) days because of a violation or violations of state or local liquor
laws, then at the option of Franchisor this Agreement may be terminated
forthwith by Franchisor upon written notice to Franchisee.
24. FORCE MAJEURE
24.1 As used in this Agreement, the term "Force Majeure" shall mean any act
of God, strike, lock-out or other industrial disturbance, war (declared or
undeclared), riot, epidemic, fire or other catastrophe, act of any government
and any other similar cause not within the control of the party affected
thereby.
2004 F-37
24.2 If the performance of any obligation by any party under this Agreement
is prevented or delayed by reason of Force Majeure, which cannot be overcome by
use of normal commercial measures, the parties shall be relieved of their
respective obligations to the extent the parties are respectively necessarily
prevented or delayed in such performance during the period of such Force
Majeure. The party whose performance is affected by an event of Force Majeure
shall give prompt notice of such Force Majeure event to the other party by
facsimile, telephone or telegram (in each case to be confirmed in writing),
setting forth the nature thereof and an estimate as to its duration, and shall
be liable for failure to give such timely notice only to the extent of damage
actually caused.
24.3 Notwithstanding the provisions of this Section 24, if, as a result of
an event of Force Majeure (including condemnation proceedings), the Franchisee
ceases to operate the Restaurant or loses the right to possession of the
Restaurant premises, Franchisee shall apply within thirty (30) days after the
event of Force Majeure for Franchisor's approval to relocate and/or reconstruct
the Restaurant. If relocation is necessary, Franchisor agrees to use its
reasonable efforts to assist Franchisee in locating an alternative site in the
same general area where Franchisee can operate a Restaurant within the System
for the balance of the term of the Franchise Agreement. If Franchisor so assists
Franchisee, Franchisee shall reimburse Franchisor for its reasonable
out-of-pocket expenses incurred as a result thereof. (This provision shall not
be construed to prevent Franchisee from receiving the full amount of any
condemnation award of damages relating to the closing of the Restaurant;
provided however, that if Franchisor or an affiliate is the lessor of the
Restaurant premises, Franchisee specifically waives and releases any claim it
may have for the value of any building, fixtures and other improvements on the
premises, whether or not installed or paid for by the Franchisee, and Franchisee
agrees to subordinate any claim it may have to Franchisor's claim for such
improvements.) Selection of an alternative location will be subject to the site
approval procedures set forth in Section 5 of the Development Agreement. Once
Franchisee has obtained Franchisor's approval to relocate and/or reconstruct the
Restaurant, Franchisee must diligently pursue relocation and/or reconstruction
until the Restaurant is reopened for business.
25. MISCELLANEOUS
25.1 All notices and other communications required or permitted to be given
hereunder shall be deemed given when delivered in person, by overnight courier
service, facsimile transmission or mailed by registered or certified mail
addressed to the recipient at the address set forth below, unless that party
shall have given written notice of change of address to the sending party, in
which event the new address so specified shall be used.
FRANCHISOR: ▇▇▇▇▇▇▇▇'▇ International, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
FRANCHISEE: ___________________________
___________________________
___________________________
2004 F-38
PRINCIPAL SHAREHOLDERS: ___________________________
___________________________
25.2 All terms used in this Agreement, regardless of the number and gender
in which they are used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context or sense of this Agreement may require, the same as if such words
had been written in this Agreement themselves. The headings inserted in this
Agreement are for reference purposes only and shall not affect the construction
of this Agreement or limit the generality of any of its provisions. The term
"business day" means any day other than Saturday, Sunday, or the following
national holidays: New Year's Day, ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving and Christmas.
25.4 Franchisee shall, at its own cost and expense, promptly comply with
all laws, ordinances, orders, rules, regulations and requirements of all
federal, state and municipal governments and appropriate departments,
commissions, boards and offices thereof. Without limiting the generality of the
foregoing, Franchisee shall abide by all applicable rules and regulations of any
public health department.
25.5 In the event that Franchisor has leased the Restaurant premises to
Franchisee pursuant to a written lease agreement (the "Lease"), the Lease is
hereby incorporated in this Agreement by reference, and any failure on the part
of Franchisee (Lessee therein) to perform, fulfill or observe any of the
covenants, conditions or agreements contained in the Lease shall constitute a
material breach of this Agreement. It is expressly understood, acknowledged and
agreed by Franchisee that any termination of the Lease shall result in automatic
and immediate termination of this Agreement without additional notice to
Franchisee.
25.6 This Agreement and the documents referred to herein constitute the
entire agreement between the parties, superseding and canceling any and all
prior and contemporaneous agreements, understandings, representations,
inducements and statements, oral or written, of the parties in connection with
the subject matter hereof. FRANCHISEE EXPRESSLY ACKNOWLEDGES THAT IT HAS ENTERED
INTO THIS FRANCHISE AGREEMENT AS A RESULT OF ITS OWN INDEPENDENT INVESTIGATION
AND AFTER CONSULTATION WITH ITS OWN ATTORNEY, AND NOT AS A RESULT OF ANY
REPRESENTATIONS OF FRANCHISOR, ITS AGENTS, OFFICERS OR EMPLOYEES, EXCEPT AS
CONTAINED HEREIN AND IN FRANCHISOR'S FRANCHISE OFFERING CIRCULAR, HERETOFORE
MADE AVAILABLE TO FRANCHISEE.
25.7 Except as expressly authorized herein, no amendment or modification of
this Agreement shall be binding unless executed in writing both by Franchisor
and by Franchisee and Principal Shareholders.
2004 F-39
26. ACKNOWLEDGMENTS
Franchisee and Principal Shareholders acknowledge that:
(a) Franchisee has received a copy of this Agreement and has had an
opportunity to consult with its attorney with respect thereto at least five
(5) business days prior to execution of this Agreement;
(b) No representation has been made by Franchisor as to the future
profitability of the Restaurant;
(c) Prior to the execution of this Agreement, Franchisee has had ample
opportunity to contact Franchisor's existing franchisees, if any, and to
investigate all statements made by Franchisor relating to the System;
(d) This Agreement establishes the right to construct and operate a
Restaurant only at the location specified in Subsection 1.1 hereof; and
(e) Franchisor is the sole owner of the service marks identified in
this Agreement, and of the goodwill associated therewith, and Franchisee
acquires no right, title or interest in those names and marks other than
the right to use them only in the manner and to the extent prescribed and
approved by Franchisor.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the
date first above written.
FRANCHISOR:
ATTEST: ▇▇▇▇▇▇▇▇'▇ INTERNATIONAL, INC.
By:
---------------------------------- --------------------------------------
Name: Name:
---------------------------- ------------------------------------
Title: Title:
--------------------------- -----------------------------------
FRANCHISEE:
ATTEST:
-----------------------------------------
By:
---------------------------------- --------------------------------------
Name: Name:
---------------------------- ------------------------------------
Title: Title:
--------------------------- -----------------------------------
2004 F-40
PRINCIPAL SHAREHOLDER(S):
---------------------------------- -----------------------------------------
Witness Name:
------------------------------------
---------------------------------- -----------------------------------------
Witness Name:
------------------------------------
---------------------------------- -----------------------------------------
Witness Name:
------------------------------------
2004 F-41
EXHIBIT 1 TO FRANCHISE AGREEMENT
ROYALTY FEE
The monthly royalty fee to be paid by Franchisee shall be four percent (4%)
of each calendar month's gross sales until January 1, 2020. Thereafter, a
monthly royalty fee shall be determined by Franchisor in its sole discretion.
2004 F-42
APPENDIX A TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP INTERESTS
Percent of Issued
and Outstanding
Shareholder Shares of Franchisee
▇▇▇▇ ▇-▇▇
▇▇▇▇▇▇▇▇ ▇ TO FRANCHISE AGREEMENT
REVIEW AND CONSENT WITH RESPECT TO TRANSFERS
In determining whether to grant or to withhold consent to a proposed
Transfer, Franchisor shall consider all of the facts and circumstances which it
views as relevant in the particular instance, including, but not limited to, any
of the following: (i) work experience and aptitude of Proposed New Owner and/or
proposed new management (a proposed transferee of a Principal Shareholder's
Interest and/or a proposed transferee of this Agreement is referred to as
"Proposed New Owner"); (ii) financial background and condition of Proposed New
Owner, and actual and pro forma financial condition of Franchisee; (iii)
character and reputation of Proposed New Owner; (iv) conflicting interests of
Proposed New Owner; (v) the terms and conditions of Proposed New Owner's rights,
if the proposed Transfer is a pledge or hypothecation; (vi) the adequacy of
Franchisee's operation of any Restaurant and compliance with the System and this
Agreement; and (vii) such other criteria and conditions as Franchisor shall then
consider relevant in the case of an application for a new franchise to operate a
restaurant unit within the System by an applicant that is not then currently
doing so. Franchisor's consent also may be conditioned upon execution by
Proposed New Owner of an agreement whereby Proposed New Owner assumes full,
unconditional, joint and several liability for, and agrees to perform from the
date of such Transfer, all obligations, covenants and agreements contained
herein to the same extent as if it had been an original party to this Agreement
and may also require Franchisee and Principal Shareholders, including the
proposed Transferor(s), to execute a general release which releases Franchisor
from any claims they may have had or then have against Franchisor. In the event
Proposed New Owner is a partnership (including, but not limited to, a limited
partnership), Proposed New Owner will also be required to execute an addendum to
the Agreement which amends the references to Franchisee and its Principal
Shareholders to include the partnership approved by Franchisor and Proposed New
Owner's general partner(s) and the principal shareholders of the general
partner(s), if the general partner(s) is a corporation. This addendum will
contain a provision including in the definition of "Transfer" the withdrawal,
removal or voluntary/involuntary dissolution (if applicable) of the general
partner(s) or the substitution or addition of a new general partner. Franchisee
or Principal Shareholders, as the case may be, shall provide Franchisor with
such information as it may require in connection with a request for approval of
a proposed Transfer.
2004 F-44
APPENDIX C TO FRANCHISE AGREEMENT
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this ________ day of ________________, 20_______, by
and between _______________________________________, a _____________ corporation
("Developer"), and __________________________, an individual employed by
Developer ("Employee").
WITNESSETH:
WHEREAS, ▇▇▇▇▇▇▇▇'▇ INTERNATIONAL, INC. ("Applebee's") is the owner of all
rights in and to a unique system for the development and operation of
restaurants (the "System"), which includes proprietary rights in valuable trade
names, service marks and trademarks, including the service ▇▇▇▇ ▇▇▇▇▇▇▇▇'▇
Neighborhood Grill & Bar and variations of such ▇▇▇▇, designs and color schemes
for restaurant premises, signs, equipment, procedures and formulae for preparing
food and beverage products, specifications for certain food and beverage
products, inventory methods, operating methods, financial control concepts, a
training facility and teaching techniques;
WHEREAS, Developer is the owner of the exclusive right to develop
restaurants franchised by Applebee's which utilize the System ("Restaurants")
for the period and in the territory described in the Development Agreement
between Applebee's and Developer (the "Development Agreement"); and
WHEREAS, Developer acknowledges that Applebee's information as described
above was developed over time at great expense, is not generally known in the
industry and is beyond Developer's own present skills and experience, and that
to develop it itself would be expensive, time-consuming and difficult, that it
provides a competitive advantage and will be valuable to Developer in the
development of its business, and that gaining access to it was therefore a
primary reason why Developer entered into the Development Agreement; and
WHEREAS, in consideration of Applebee's confidential disclosure to
Developer of these trade secrets, Developer has agreed to be obligated by the
terms of Development Agreement to execute, with each employee of Developer who
will have supervisory authority over the development or operation of more than
one Restaurant in the Territory described in the Development Agreement, a
written agreement protecting Applebee's trade secrets and confidential
information entrusted to Employee;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, the parties agree as follows:
(1) The parties acknowledge and agree that Employee is or will be employed
in a supervisory or managerial capacity and in such capacity will have access to
information and materials which constitute trade secrets and confidential and
proprietary information. The parties further acknowledge and agree that any
actual or potential direct or indirect competitor of
2004 F-45
Applebee's, or of any of its franchisees, shall not have access to such trade
secrets and confidential information.
(2) The parties acknowledge and agree that the System includes trade
secrets and confidential information which Applebee's has revealed to Developer
in confidence, and that protection of said trade secrets and confidential
information and protection of Applebee's against unfair competition from others
who enjoy or who have had access to said trade secrets and confidential
information are essential for the maintenance of goodwill and special value of
the System.
(3) Employee agrees that he or she shall not at any time (i) appropriate or
use the trade secrets incorporated in the System, or any portion thereof, for
use in any business which is not within the System; (ii) disclose or reveal any
portion of the System to any person, other than to Developer's employees as an
incident of their training; (iii) acquire any right to use, or to license or
franchise the use of any name, ▇▇▇▇ or other intellectual property right which
is or may be granted by any franchise agreement between Applebee's and
Developer; or (iv) communicate, divulge or use for the benefit of any other
person or entity any confidential information, knowledge or know-how concerning
the methods of development or operation of a Restaurant which may be
communicated to Employee or of which Employee may be apprised by virtue of
Employee's employment by Developer. Employee shall divulge such confidential
information only to such of Developer's other employees as must have access to
that information in order to operate a Restaurant or to develop a prospective
site for a Restaurant. Any and information, knowledge and know-how, including,
without limitation, drawings, materials, equipment, specifications, techniques
and other data, which Applebee's designates as confidential, shall be deemed
confidential for purposes of this Agreement.
(4) Employee further acknowledges and agrees that the Franchise Operations
Manual and any other materials or manuals provided or made available to
Developer by Applebee's (collectively, the "Manuals"), described in Section 5 of
the applicable franchise agreement between Applebee's and Developer, are loaned
by Applebee's to Developer for limited purposes only, remain the property of
Applebee's, and may not be reproduced, in whole or in part, without the written
consent of Applebee's.
(5) Employee agrees to surrender to Developer or to Applebee's each and
every copy of the Manuals and any other information or material in his or her
possession or control upon request, upon termination of employment or upon
completion of the use for which said Manuals or other information or material
may have been furnished to Employee.
(6) The parties agree that in the event of a breach of this Agreement,
Applebee's would be irreparably injured and would be without an adequate remedy
at law. Therefore, in the event of a breach or a threatened or attempted breach
of any of the provisions hereof, Applebee's shall be entitled to enforce the
provisions of this Agreement as a third-party beneficiary hereof and shall be
entitled, in addition to any other remedies which it may have hereunder at law
or in equity (including the right to terminate the Development Agreement), to a
temporary and/or permanent injunction and a decree for specific performance of
the terms hereof without the necessity of showing actual or threatened damage,
and without being required to furnish a bond or other security.
2004 F-46
(7) If any court or other tribunal having jurisdiction to determine the
validity or enforceability of this Agreement determines that it would be invalid
or unenforceable as written, the provisions hereof shall be deemed to be
modified or limited to such extent or in such manner necessary for such
provisions to be valid and enforceable to the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date first above written.
DEVELOPER EMPLOYEE
By: By:
------------------------------ --------------------------------------
Name: Name:
---------------------------- ------------------------------------
Title:
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2004 F-47