CEC ENTERTAINMENT, INC.
FRANCHISE AGREEMENT
[CITY, STATE]
4441 West Airport Freeway
Irving, TX 75062
<PAGE>
TABLE OF CONTENTS
RECITALS.......................................................................1
1.
DEFINITIONS...............................................................1
2. GRANT OF
RIGHTS...........................................................5
2.1
Grant............................................................5
2.2
Exclusivity......................................................5
2.3 Limitation
of Rights.............................................6
3. FEES AND
CONTRIBUTIONS....................................................7
3.1 Franchise
Fee....................................................7
3.2 Royalty
Fees.....................................................7
3.3 System
Fund......................................................7
3.4 Payments
and Taxes...............................................7
3.5 Overdue
Payments.................................................8
3.6
Franchisor's
Lien................................................8
3.7
Contribution
Increases...........................................8
4. SITE
SELECTION............................................................8
4.1 Criteria
for Site Approval.......................................8
4.2 Approval
by Franchisor...........................................9
4.3 Costs of
On-Site Evaluation......................................9
4.4 Executed
Lease or Purchase Agreement.............................9
4.5
Extensions.......................................................9
4.6
Relocation.......................................................9
5. CONSTRUCTION AND
REFURBISHMENT...........................................10
5.1
Pre-Construction/Refurbishment Approval
Criteria................10
5.2
Pre-Construction/Refurbishment
Approval.........................11
5.3
Commencement of Construction/Refurbishment and
Extensions.......11
5.4
Construction/Refurbishment......................................11
5.5 Opening
Assistance..............................................12
5.6
Inspection......................................................12
5.7 Continuing
Statements...........................................12
5.8
Installation of Animated
Entertainment..........................12
5.9 Approval
for Opening............................................12
<PAGE>
6.
TRAINING.................................................................13
6.1 Minimum
Training................................................13
6.2 Location
and Expenses...........................................13
6.3 Additional
Training.............................................13
7.
OPERATION................................................................13
7.1 General
Manager and Technician..................................13
7.2
Operational
Policies............................................13
7.3
Suppliers.......................................................15
7.4 General
Maintenance.............................................15
7.5
Maintenance of Animated
Entertainment...........................15
7.6 Scheduled
Refurbishment.........................................16
7.7
Inspection......................................................16
7.7.1
Testing................................................16
7.7.2
Recommendations........................................16
7.7.3
Failure to Correct Deficiencies........................17
7.8 Accounting
and Records..........................................17
7.8.1
General Accounting Principles..........................17
7.8.2
Accounting Statements..................................17
7.8.3
Inspection of Accounting and Records...................17
7.8.4
Records of Ownership Interests in Franchisee...........18
7.8.5
Sales Records..........................................18
7.9
Internet........................................................18
7.10
Intranet........................................................19
8.
ADVERTISING..............................................................20
8.1 General
Requirements............................................20
8.2
Pre-Approved
Advertising........................................20
8.3 New
Advertising.................................................20
8.4 Minimum
Advertising Expenditures................................20
8.5 System
Fund.....................................................21
8.6
Advertising
Cooperative.........................................22
9. REPRESENTATIONS AND
WARRANTIES...........................................23
9.1
Representations, Warranties and Covenants of
Franchisee.........23
9.1.1 Due
Incorporation......................................23
9.1.2
Authorization..........................................23
9.1.3
Exclusivity............................................23
9.1.4
Execution and Performance..............................23
9.1.5
Corporate Documents....................................23
9.1.6
Ownership Interests....................................23
9.1.7 Stop
Transfer Instructions.............................24
9.2 Financial
Statements............................................24
<PAGE>
9.3
Franchisee's
Principals.........................................24
9.4
Guarantee.......................................................24
9.5
Non-Competition During Term of
Agreement........................25
9.6
Non-Competition after Termination or Non-Renewal of
Agreement...25
9.7
Independent
Covenants...........................................25
9.8 Additional
Covenants............................................26
9.9
Guaranty........................................................26
9.10
Rights and Limitations to use Animated
Entertainment............26
9.11
Non-Liability...................................................27
9.12
Performance by
Franchisor.......................................27
9.13
Licensing of Musical
Compositions...............................27
10. PROPRIETARY RIGHTS AND
INFORMATION.......................................27
10.1
Confidential
Information........................................27
10.1.1
Confidentiality Agreements.............................28
10.1.2
Improvements...........................................28
10.2
Proprietary
Marks...............................................28
10.3
Copyrights......................................................29
11. TRANSFER OF
INTEREST.....................................................30
11.1
Transfer by
Franchisor..........................................30
11.2
Transfer by
Franchisee..........................................30
11.2.1 General
Requisites.....................................30
11.2.2 Right of
First Refusal.................................31
11.2.3 Death or
Disability....................................33
11.2.4 Public
Offerings.......................................33
12. INSURANCE AND
INDEMNITY..................................................34
12.1
Insurance.......................................................34
12.2
Indemnities.....................................................35
12.2.1
Indemnification........................................35
12.2.2 Notice
and Counsel.....................................35
12.2.3
Settlement and Remedial Actions........................36
12.2.4
Expenses...............................................36
12.2.5 Third
Party Recovery...................................36
12.2.6
Survival...............................................36
13. TERM, RENEWAL AND
TERMINATION............................................36
13.1
Term............................................................36
13.2
Renewal.........................................................36
13.3
Termination.....................................................37
<PAGE>
13.3.1 Automatic
Termination..................................37
13.3.2
Termination upon Notice................................38
13.3.3
Termination with Ten Day Notice........................40
13.3.4
Termination with Thirty Day Notice.....................40
13.4
Obligations upon Termination or
Expiration......................40
14.
REMEDIES.................................................................44
14.1
Remedies.........................................................44
14.1.1
Cure...................................................44
14.1.2 Specific
Enforcement...................................44
15. DISPUTE
RESOLUTION.......................................................44
15.1
Mediation.......................................................44
15.2
Applicable
Law..................................................44
15.3
Jurisdiction and
Venue..........................................45
15.4
Mutual
Benefit..................................................45
16.
MISCELLANEOUS............................................................45
16.1
Independent
Contractors.........................................45
16.2
Entire
Agreement................................................45
16.3
Judgment;
Discretion............................................46
16.4
No
Waiver.......................................................46
16.5
Severability....................................................46
16.6
Notice..........................................................47
16.7
Counterparts....................................................47
16.8
Headings........................................................47
16.9
Further
Assurances..............................................47
16.10
Compliance
with Laws............................................47
17.
ACKNOWLEDGMENTS..........................................................48
17.1
Independent
Investigation.......................................48
17.2
Opportunity to Assess
Risks.....................................48
17.3
Receipt of Disclosure
Document..................................48
17.4
No
Extraneous Promises..........................................48
17.5
No
Extraneous Inducements.......................................48
17.6
Commercial
Relationship.........................................49
17.7
Compliance with Anti-Corruption and Anti-Money Laundering
Laws..49
17.8
No
Claims.......................................................49
SCHEDULE 1.14 STATEMENT OF OWNERSHIP
INTERESTSAND FRANCHISEE'S PRINCIPALS..52
ATTACHMENT A AGREEMENT AND
GUARANTY OFFRANCHISEE'S PRINCIPALS............A-1
<PAGE>
ATTACHMENT B GENERAL
RELEASE.............................................B-1
ATTACHMENT C LEASE
RIDER.................................................C-1
ATTACHMENT D ADVERTISING
COOPERATIVE AGREEMENT...........................D-1
ATTACHMENT E EMPLOYEE'S
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT....E-1
ATTACHMENT F RENEWAL
AMENDMENT TO FRANCHISE AGREEMENT....................F-1
<PAGE>
CEC ENTERTAINMENT, INC.
FRANCHISE AGREEMENT
This
Franchise Agreement is executed and entered into this ___ of
_________, 20__, by and between CEC
Entertainment,
Inc., a Kansas
corporation
(as Franchisor), and ____________, a
________ corporation (as Franchisee).
RECITALS
1. Franchisor
has developed and is the owner of the System;
2. Franchisor
has developed and is the owner of, or licensee with rights to
sublicense, certain Animated Entertainment and Proprietary Marks which are
utilized in connection with and identify
the System; and
3. Franchisee
desires to obtain from
Franchisor and Franchisor desires to
grant to Franchisee certain rights to use
the System, the Animated Entertainment
and the Proprietary Marks to develop and
establish the Franchised Restaurant at
the Site.
NOW THEREFORE, Franchisor and Franchisee in consideration of the
undertakings and commitments set forth
herein, agree as follows:
1. DEFINITIONS
As used in this
Agreement and the above Recitals, the following capitalized
terms shall have the meanings attributed to
them in this Section:
1.1 "Action"
means any cause of action, suit, proceeding, claim, demand,
investigation or inquiry (whether a formal
proceeding or otherwise) with respect
to which Franchisee's indemnity
applies.
1.2 "Advertising Cooperative" means a group of two or more System
Restaurants, as determined by Franchisor, for the purpose of funding,
administering and developing regional
advertising and promotion. programs.
1.3 "Agreement"
means this franchise agreement and all attachments.
1.4 "Animated Entertainment" means the computer hardware and software,
artistic designs, scripts and musical scores,
staging and lighting
techniques
and configurations, plans, manuals and specifications,
manufacturing
know-how
and other intellectual property relating to video display, audio or other
entertainment and to computer controlled
three dimensional
animated characters,
including present and future improvements,
patents, trademarks,
copyrights and
other intellectual and artistic
property.
<PAGE>
1.5
"Association" means the International Association of CEC
Entertainment,
Inc. which, as of the date of this
Agreement, serves as Franchisor's designee to
administer the System Fund, in accordance
with the Association's bylaws and this
Agreement and to which Franchisee will have the right to
be a member so long as
Franchisee is in compliance with this
Agreement and the Association's bylaws.
1.6 "Change in Control" means a Transfer of an Equity Interest in
Franchisee which, directly, indirectly, or
combined with prior Transfers, causes
a change in the number of Persons
which can vote more
than fifty percent
(50%)
of the total Equity Interest in
Franchisee.
1.7 "Competing Business" means a business which operates a
restaurant or
food service outlet in combination with
family entertainment,
including without
limitation, live entertainment and entertainment in the form of video
games,
video displays or computer controlled
animated characters.
1.8 "Confidential Information" means the terms of this Agreement and
Attachments and any amendments hereto, the components of the System, the
Animated Entertainment, the Operational Policies,
manuals, written directives
and all drawings, equipment, recipes, and all other information know-how,
techniques, materials and data imparted or made available by Franchisor to
Franchisee which is (I) designated as
confidential, (ii)
known by Franchisee to
be considered confidential by Franchisor,
or (iii) by its nature
inherently or
reasonably to be considered
confidential.
1.9 "Designated Market Area" means the geographic
area which includes the
Protected Territory as defined by Nielson
Media Research,
Inc. or a
successor
organization designated by Franchisor.
1.10 "Equity
Interest" means a direct or indirect ownership interest in the
capital stock of, partnership or membership interest in, or other equity
or
ownership interest in (including the right
to vote) any type of legal entity.
1.11 "Execution
Date" means the date upon which the
Agreement is deemed
duly executed and entered into by
Franchisee and Franchisor, as indicated on the
first page of the Agreement.
1.12 "Force
Majeure" means acts of God (such as tornadoes, hurricanes,
floods, fire or other natural catastrophe); strikes, lockouts or other
industrial disturbances; war, riot, or
other civil disturbance; epidemics; acts
of governments, such as the exercise of eminent
domain rights and
condemnation
(if caused by reasons beyond Franchisee's control); or other forces beyond
Franchisee's reasonable control.
1.13
"Franchisee" means ____________.
<PAGE>
1.14
"Franchisee's
Principals" means Franchisee's spouse, if Franchisee is
an individual, all officers and directors of
Franchisee and all
holders of an
Equity Interest in Franchisee and of any entity directly or indirectly
controlling Franchisee, all as listed on
Schedule 1.14 attached hereto.
1.15 "Franchised
Restaurant"
means the family-oriented pizza restaurant
that is established and operated by Franchisee utilizing the System, the
Proprietary Marks and the Animated
Entertainment
in accordance with the
terms
and conditions of this Agreement.
1.16
"Franchisor"
means CEC Entertainment, Inc. or any person or legal
entity to which CEC Entertainment, Inc. assigns or otherwise transfers its
rights and obligations contained in this
Agreement.
1.17 "Gross
Sales" means the total
of all sales related to or arising from
the operation of the Franchised
Restaurant including,
without limitation,
all
monies and receipts from the sale of all
beverages, food,
merchandise
and the
operation of rides, amusement games and other attractions in the Franchised
Restaurant, as well as all revenue from the
sale of tokens, whether for cash or
credit and regardless of collection,
less applicable sales taxes Franchisee
collects and remits, and valid coupon credits and
employee discounts
deducted
from revenues initially recorded as Gross Sales, but
without deduction of
any
other costs or expenses whatsoever.
1.18
"Indemnitees" means any designee(s) of Franchisor which administer
the
System Fund, Franchisor and its
subsidiaries and affiliates and their respective
directors, officers, employees, shareholders, affiliates, successors and
assigns.
1.19
"Internet"
means
collectively
the myriad of computer and
telecommunications facilities, including equipment and software,
which comprise
the interconnected worldwide network of networks that employ the TCP/IP
(Transmission Control Protocol/Internet Protocol), or any predecessor or
successor protocols to such protocol, to
communicate information of all kinds by
fiber optics, wire, radio, or other methods
of electronic transmission.
1.20 "Intranet"
means an intranet, extranet or other communications network
between and among Franchisor and Franchisee
that its accessed by the Internet.
1.21 "Losses and
Expenses" means all losses, compensatory, exemplary or
punitive damages, fines, penalties, charges, costs, expenses, lost profits,
assessments and fees (including reasonable
attorneys',
experts', accountants'
and consultants' fees); interest,
court costs,
settlement or judgment
amounts,
compensation for damages to Franchisor's
reputation and
goodwill, costs of
or
resulting from delays, financing costs, costs of
advertising material and media
time/space, and costs of changing,
substituting or
replacing the same, and any
and all expenses of recall, refunds, compensation, public notices and other
similar amounts incurred, charged against or suffered by the
Indemnitees in
connection with any Action.
<PAGE>
1.22 "Minority
Interest" means an Equity Interest of less than five percent
(5%) of the capital stock of, partnership
interest in, or other
Equity Interest
in (including the right to vote) any type
of legal entity.
1.23
"Operational," used in reference to the Franchised Restaurant, means
that the Franchised Restaurant is fully
constructed and finished out as approved
by Franchisor and is legally permitted to render its services
to, and is open
to, the general public pursuant to this
Agreement.
1.24
"Operational Policies" means the written standards, procedures,
rules,
regulations, and policies for the operation of
a Franchised Restaurant pursuant
to the System, as issued from time to time by
Franchisor, a copy of
which will
be provided upon the execution of this
Agreement.
1.25 "Person"
means an individual,
corporation, limited liability company,
partnership, association, joint stock company,
trust or trustee thereof, estate
or executor thereof, unincorporated organization or joint venture, court or
governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
1.26
"Proprietary Marks" means the trademarks, trade names, service marks,
logos, emblems and other indicia of
origin as designated
from time to time
by
Franchisor, which may be owned by Franchisor or licensed to Franchisor with
sublicensing rights, including, but not limited to, the
marks "Chuck E. Cheese"
and "Chuck E. Cheese's."
1.27 "Protected
Territory" means the area within a ____ (__) mile radius of
the Franchised Restaurant.
1.28 "Site"
means the location for the establishment and operation of the
Franchised Restaurant which is approved as
per Section 4.2 of this Agreement.
1.29 "Site
Selection Territory" means ________, ________.
1.30
"Sky Tubes" means components configured to create sequences of
group/social and independent play, using tubes, windows, entries, climbs,
crawls, play stations, passageways, and
slides.
<PAGE>
1.31
"System" means the distinctive system developed and owned by
Franchisor for the establishment,
development, and
operation of family-oriented
pizza restaurants, the distinguishing characteristics of which include
without
limitation, Animated Entertainment,
Sky Tubes, separate
areas with a variety of
rides, amusement games and other attractions, characteristic decorations,
furnishings and materials, specially-designed equipment and equipment
layouts,
trade secret food products and other special recipes, menus and food and
beverage designations, food and beverage preparation and
service procedures and
techniques, operating procedures for sanitation and
maintenance,
methods and
techniques for inventory and cost controls, record keeping and reporting,
personnel training and management, and
advertising and promotional programs, and
Operational Policies, all of which may be
changed, improved or further developed
by Franchisor from time to time.
1.32
"System Fund" means collectively, the three (3) funds currently
identified as follows:
(a) the "Advertising
Fund" (for the maintenance, administration,
direction,
preparation,
purchasing and
placement of
advertising for
the
System,
Proprietary Marks and Animated Entertainment),
(b) the "Entertainment
Fund" (for the purchase, lease, shipping and
installation
of software programs and for the costs related to the
production
of show tapes, videos and other audio, video and software
components of
the Animated
Entertainment,
including licensing
rights to
certain music,
and video, and the design, testing and implementation of new
entertainment
concepts which may or may not be
directly related to the
Animated
Entertainment,
as more fully
described in Sections 3.3 and 8.5),
and
(c) the "Media
Fund" (for
purchasing
national network television
advertising),
established for the
purposes described above, as well as any
other objective
which Franchisor
designates in writing
for the purpose of
furthering the
System, the Proprietary Marks, the Animated Entertainment or
the sales of System Restaurants generally, to which Franchisee will
contribute a
stated percentage of Gross Sales on a monthly basis.
1.33 "System
Restaurant" means a
family-oriented pizza
restaurant that is
established and operated utilizing the System, the Proprietary Marks and the
Animated Entertainment either in accordance with the
terms and conditions of a
franchise agreement or by Franchisor.
1.34
"Transfer"
means the sale,
assignment,
conveyance,
pledge, gift,
mortgage or other encumbrance, whether direct or indirect, in
whole or in part,
or in one or a series of related transactions or occurrences, of (i) this
Agreement or of any or all rights or
obligations
of herein, (ii) any Equity
Interest in Franchisee, or (iii) any assets of
Franchisee
beyond transfers
necessary in the ordinary course of
business.
2. GRANT OF RIGHTS
2.1 Grant. Subject to the terms, conditions and limitations of this
Agreement, Franchisor hereby grants to Franchisee
the right,
and Franchisee
undertakes the obligation, to establish and
operate the Franchised Restaurant at
a duly approved Site in the Protected Territory. Franchisee's use of the
Proprietary Marks or any element of the
System in the operation of a business at
any other location or in any other channel
of distribution
without Franchisor's
express written authorization will constitute willful infringement of
Franchisor's rights in the Proprietary
Marks and System.
<PAGE>
2.2 Exclusivity.
For so long as
Franchisee is in full compliance with this
Agreement, Franchisor will not, without Franchisee's prior written consent,
establish or operate, or license anyone other than Franchisee to establish or
operate, a System Restaurant which is physically located in the Protected
Territory during the term of this
Agreement.
2.3 Limitation of Rights. Franchisor retains all rights not expressly
granted hereunder. Franchisor, its affiliates, and
their respective franchisees
and licensees may, among other things,
operate other types of facilities besides
System Restaurants in the Protected
Territory,
including facilities that are
identified by some or all of the
Proprietary Marks. The
license granted by this
Agreement is only for the operation of a single System Restaurant at the
approved Site. Franchisor therefore may (or may authorize a third party to)
conduct, among other things, the following
activities:
(a) Advertise and promote sales of or by System Restaurants, at any
location,
including within the Protected Territory;
(b)
Offer and sell
collateral and
ancillary products and services,
such as
pre-packaged food products, toys, games, clothing, and
memorabilia,
in the Protected
Territory under the
Proprietary Marks,
even though those
products
and services
may be similar to
items offered by the
Franchised
Restaurant;
(c) Offer and sell any products and services (regardless of
similarity
to products and
services sold in the Franchised Restaurant) under any names
and marks other
than the Proprietary
Marks, at any location, including
within the
Protected Territory;
(d) Establish and operate a System Restaurant anywhere outside of the
Protected
Territory,
regardless
of proximity or
financial impact to
the
Franchised
Restaurant;
(e) Establish and operate a non-System Restaurant anywhere inside or
outside of the
Protected Territory, regardless of proximity or
financial
impact to the
Franchised Restaurant; and
(f)
Operate one or more sites on the World
Wide Web portion of the
Internet that
advertise System
Restaurants, allow
customers and potential
customers
to make reservations at System Restaurants (including the
Franchised
Restaurant), sell any
product or service including pre-packaged
food
products, games, toys, clothing or memorabilia, or permit other
activities
(whether or not similar), even though the Web site is
accessible
to or viewable
by persons in the Protected Territory.
Franchisee
shall have no right
under this Agreement to sub-license others
to use or grant any rights in the
Proprietary Marks, the Animated Entertainment
or the System.
<PAGE>
3. FEES AND CONTRIBUTIONS
3.1 Franchise Fee. Prior to or upon the execution of this Agreement,
Franchisee shall deliver to Franchisor a franchise
fee of Fifty
Thousand and
no/100 Dollars ($50,000.00) in readily available
funds ("Franchise
Fee"). The
Franchise Fee will be fully earned by Franchisor and non-refundable upon
receipt, in consideration for, among other
things, Franchisor's
administrative
expenses and lost or deferred opportunities
in entering into this Agreement.
3.2 Royalty
Fees. Beginning the calendar month in which the Franchised
Restaurant is Operational, on or before the fifteenth (15th) day of each
calendar month thereafter, Franchisee
agrees to pay a continuing monthly royalty
fee equal to 3.8% of the Gross Sales for the immediately preceding calendar
month, subject to the immediately
following sentence.
During the term of
this
Agreement, Franchisor shall have the right, at its option, upon ninety (90)
days' prior notice to Franchisee, to increase the royalty fee to an
amount not
to exceed five percent (5%) of the Gross
Sales of the Franchised Restaurant. In
such event, Franchisee shall commence
payment of the
increased royalty fee
in
the month immediately following the
expiration on the ninety (90) day period.
3.3 System
Fund. Beginning the calendar month in which the Franchised
Restaurant is Operational, on or before the fifteenth (15th) day of each
calendar month thereafter, Franchisee agrees to pay to the System Fund a
continuing monthly amount designated by Franchisor,
but in no event more
than
three and one-tenth percent (3.1%) of Gross Sales, except as described in
Section 3.7 and 8.5(f) (amounting to .2% of Gross Sales
currently allocated
to
the Entertainment Fund, .4% of Gross Sales currently allocated to the
Advertising Fund and 2.5% of Gross Sales
currently allocated to the Media Fund).
The portion of the System Fund payment allocated to the Media Fund may be
withdrawn upon (1) the unilateral election of Franchisor or (2) the vote of
System franchisees in good standing under
their respective franchise agreements,
with thirty (30) days advance notice of such vote, one vote per franchised
restaurant location and a simple majority of restaurants voting in favor of
withdrawal; provided however, that if such
vote or election shall be taken on or
before March 1 of any calendar year, it shall first become effective on
September 1 of the same year, and if such
vote or election shall have been taken
after March 1 of any calendar year, it
shall first become effective September 1
of the following calendar year. Not less than six
(6) months following any such
withdrawal, such payment may be reinstated, upon the unilateral election by
Franchisor or by vote in favor of
reinstatement in accordance with the procedure
described in this Section.
<PAGE>
3.4 Payments and Taxes. All franchise and royalty fees shall be paid
directly to Franchisor or its designee.
All payments and
contributions shall be
in United States dollars and will be made
free and clear of any tax, deduction,
offset or withholding of any kind. All taxes and
penalties on any payment made
by Franchisee pursuant to this Agreement now or in the future will be
fully
borne by Franchisee. In the event of any bona fide
dispute as to liability for
taxes assessed or other indebtedness,
Franchisee may contest the validity or the
amount of the tax or indebtedness in accordance with procedures of the taxing
authority or applicable law; however,
in no event shall
Franchisee permit a tax
sale or seizure by levy of execution or
similar writ or warrant, or attachment
by a creditor, to occur against the
premises of the Franchised Restaurant or any
improvements thereon.
3.5 Overdue
Payments. Any payment not actually
received by Franchisor
or
its designee when due shall accrue late charges equal to one and one-half
percent (1.5%) per month or the maximum
rate permitted by law, whichever is
less, from the date it was due until
paid. Such
interest charges will be in
addition to any other remedies that may be
available to Franchisor.
3.6 Franchisor's
Lien. The obligations to make monthly payments required in
this Section 3 shall give rise to and
remain, until paid in full, a lien in
favor of Franchisor against any and all of the
personal property,
machinery,
fixtures, equipment and inventory owned by Franchisee at the Franchised
Restaurant, and against the proceeds and
replacements thereof. Franchisee hereby
irrevocably appoints Franchisor as its attorney-in-fact
(surviving
any
termination or expiration hereof) to execute and file in the
name of Franchisee
as debtor such instruments, including Uniform Commercial Code financing
statements, as may be required by Franchisor
from time to time to evidence such
lien. Franchisee shall, immediately upon Franchisor's
request, execute such
documents as Franchisor may, from time to
time, deem necessary to effectuate the
above.
3.7 Contribution Increases. The monthly contribution to the System
Fund
shall be subject at any time to increase
upon a majority vote cast by all System
franchisees in good standing under their
franchise agreements (e.g., not subject
to a pending default notice from
Franchisor). Each
franchisee shall be provided
thirty (30) days advance notice and
opportunity to vote on the proposed increase
and shall be entitled to one (1) vote per
System Restaurant in operation, and a
majority vote required for any increase
shall be a majority of
all restaurants
represented by the votes cast. Franchisor shall provide written notice to
Franchisee at least sixty (60) days prior
to the effective date
of any increase
so approved by such majority vote.
4. SITE SELECTION
4.1 Criteria for
Site Approval.
Franchisee agrees that
prior to or within
one hundred and twenty (120) days after the
execution of this Agreement, it will
locate and obtain the approval of Franchisor for a Site within the Site
Selection Territory for the establishment and operation of the Franchised
Restaurant.
Franchisee must
submit to Franchisor:
(a) a completed site review form designated by Franchisor,
which will
include, among other things, demographic information, a site plan, and
traffic-related
information;
(b) if the premises for the proposed Site are to be leased,
satisfactory
evidence
that
the lessor will agree to the minimum
requirements
contained
in the Lease Rider to be executed between
Franchisor,
Franchisee and the lessor attached hereto as Attachment C; and
<PAGE>
(c) any other
information
or materials as Franchisor reasonably
requires,
such as a letter
of intent or other document which confirms
Franchisee's
favorable prospects for obtaining the proposed Site.
4.2 Approval by
Franchisor. Upon
receipt of all requested documentation as
required in Section 4.1, Franchisor will notify Franchisee of its approval or
disapproval in writing within a period of
thirty (30) days. Franchisor shall act
in a commercially reasonable manner when approving
or disapproving any proposed
Site. However, Franchisee agrees that Franchisor
will have absolute discretion
in approving any proposed Site and Franchisee agrees to accept any of
Franchisor's decisions as final.
Franchisee hereby
acknowledges and agrees that
Franchisor's approval of a site does not
constitute an assurance, representation
or warranty of any kind, express or implied, as to the suitability of the
Site
for the Franchised Restaurant or for any other purpose or of the financial
success of operating the Franchised
Restaurant at such Site.
4.3 Costs of
On-Site Evaluation. If Franchisor deems necessary, Franchisor
will undertake one (1) on-site evaluation
of a proposed Site free of charge. For
all subsequent on-site evaluations requested by Franchisee or required by
Franchisor, Franchisee agrees to reimburse Franchisor for its reasonable
expenses, including, without limitation,
travel expenses, and a per diem charge
for room and board.
4.4 Executed
Lease or Purchase Agreement. Franchisee shall execute a
lease
for the premises, or shall enter into a binding
commitment
to purchase
such
premises, within sixty (60) days after
receipt of site approval from Franchisor.
Franchisee will provide Franchisor with a fully executed copy of the
lease or
purchase agreement with respect to the
approved Site within ten (10) days after
execution thereof.
4.5 Extensions.
Upon Franchisee's written request, Franchisor, at its sole
discretion and without obligation, may grant a written extension or
extensions
to the period for approval of a proposed
Site. In the event
Franchisor
grants
such extension, Franchisee agrees to pay the Franchisor a non-refundable
extension fee of Two-thousand Five Hundred and no/100 Dollars
($2,500.00) for
every thirty (30) day period of the agreed
extension.
<PAGE>
4.6 Relocation. Once the Franchised Restaurant is established at the
proposed Site in accordance with this
Agreement, Franchisee
shall not relocate
the Franchise Restaurant without the prior written consent of Franchisor.
Franchisor will not unreasonably withhold
its consent of such relocation and may
require, among other things, that: (i) Franchisee has provided
Franchisor with
at least ninety (90) days prior written
notice of its intent
to relocate; (ii)
Franchisee is not in default under this Agreement and all of Franchisee's
accrued monetary obligations to Franchisor
have been satisfied; (iii) Franchisee
has paid a relocation fee in an amount
equal to fifty (50%) of the then-current
initial Franchise Fee for a new franchisee;
(iv) the new location
is within the
Protected Territory; (v) Franchisee agrees to execute
the then-current form of
franchise agreement, which agreement may
contain materially different terms from
this Agreement, including, without limitation, higher royalty fees,
contributions, System assessments and a different
Protected Territory, for a
term equal to the unexpired portion of the initial term, and all unexpired
renewal terms hereunder and any other
ancillary agreements as Franchisor
may
require; provided, however, that Franchisee shall not be required to pay
the
initial franchise fee contained in
Franchisor's
then-current form of franchise
agreement; and (vi) Franchisee has made
provisions acceptable to Franchisor for
the removal of all signs and other
materials containing
Proprietary Marks
from
the existing site. Franchisee will receive written
notification of Franchisor's
decision regarding relocation of the Franchised
Restaurant.
Upon approval by
Franchisor, Franchisee must relocate the Franchised Restaurant within one
hundred and eighty (180) days.
5. CONSTRUCTION AND
REFURBISHMENT
5.1 Pre-Construction/Refurbishment
Approval Criteria.
Prior to commencing
any construction/refurbishment
on the Site,
Franchisee, at its own cost, shall
submit to Franchisor for its prior written
approval:
(a) Complete plans and specifications for the Franchised Restaurant
in
accordance with
local or state laws,
regulations or ordinances, and which
conform to
Franchisor's general design and specifications. Once approved
by
Franchisor
pursuant to Section 5.2 below, such plans and specifications
shall not be
modified without the prior written consent of Franchisor;
(b) A statement in the form prescribed by Franchisor and signed by
Franchisee,
certifying that Franchisee has:
i. complied
with all local or state laws, regulations or
ordinances in preparing its plans and specifications;
ii. employed a
qualified architect or engineer, approved by
Franchisor, to
prepare construction/refurbishment
documents
and
supervise the
construction/refurbishment of the Franchised Restaurant
and completion of all improvements (such statement shall also
identify
the architect or
engineer and describe his or her qualifications in
detail);
iii. obtained all such
permits and
certifications
required for
lawful
construction/refurbishment and operation of the Franchised
Restaurant, including,
without limitation,
zoning, access, sign
and
fire requirements; and
iv. obtained required
licenses to sell beer
and/or wine, unless
otherwise prohibited by law, and to operate rides, amusement games
and
other attractions as required herein.
(c) A construction/refurbishment schedule acceptable to
Franchisor.
<PAGE>
5.2 Pre-Construction/Refurbishment
Approval. Upon receipt of the above
documents, Franchisor will notify
Franchisee of its
approval or disapproval in
writing within a period of twenty-one (21) days. Given that the
construction/refurbishment and appearance of the Franchised Restaurant is
critical to the continued success and
viability of the System, Franchisee agrees
that Franchisor will have absolute discretion in making such decision and
Franchisee agrees to accept any of
Franchisor's decisions as final.
5.3 Commencement of Construction/Refurbishment
and Extensions.
Once the
pre-construction/refurbishment approval has
been obtained and, for construction;
within six (6) months after the date of
execution of this Agreement, Franchisee
will commence construction and provide Franchisor with written notice of
such
commencement within ten (10) days of such commencement
of
construction/refurbishment.
Upon
Franchisee's written request, Franchisor, at its sole discretion and
without obligation, may grant to Franchisee written extensions of this six
(6)-month period for construction and not
refurbishment, with
the understanding
that, if granted, Franchisee shall pay to Franchisor
a non-refundable extension
fee of Two-Thousand Five Hundred and no/100
Dollars ($2,500.00)
for each thirty
(30) day period of extension.
5.4
Construction/Refurbishment. Franchisee
shall complete
construction/refurbishment, including, as applicable, all
exterior and interior
carpentry, electrical, painting and finishing
work, and installation of all
fixtures, equipment and signs, in accordance
with the plans and
specifications
for the approved Site within:
(a) six (6) months after commencement of construction/refurbishment,
for
refurbishment and
construction, if
construction is a space conversion
of existing
premises, or
(b) nine (9) months after commencement of construction, if the
construction is
the erection of a free-standing building.
Franchisor
may, at its sole discretion, provide up to two (2) on-site
construction/ refurbishment visits to verify compliance with its standards.
Franchisee shall fully cooperate with
Franchisor and provide
Franchisor and its
representatives with full access to the
Site in connection therewith.
Upon
Franchisee's written request, Franchisor, at its sole discretion and
without obligation, may grant to Franchisee written extensions of the
above-described periods for construction and not refurbishment, with the
understanding that, if granted, Franchisee shall pay to Franchisor a
non-refundable extension fee of Two-Thousand Five Hundred and no/100
Dollars
($2,500.00) for each thirty (30) day period
of extension.
<PAGE>
5.5 Opening
Assistance. Franchisor
shall provide one (1) representative to
provide such on-site opening assistance and supervision as Franchisor deems
necessary for a period of seven (7) to ten (10) days, at no charge to
Franchisee. If Franchisor determines,
in its sole
discretion, that
Franchisee
requires any additional opening assistance or if Franchisee requests such
assistance, Franchisor reserves the right to charge an
additional fee for such
assistance, in addition to obtaining
reimbursement for related travel, meals and
lodging expenses.
5.6 Inspection.
Franchisee agrees that Franchisor and its agents shall
have the right to inspect the
construction/refurbishment at all reasonable
times. Franchisee shall cooperate fully
with Franchisor and provide Franchisor
and its representatives with full access to
the Site in connection therewith.
5.7 Continuing Statements. Beginning with the calendar month after the
pre-construction/refurbishment approval issued by Franchisor and each
calendar
month thereafter
until
one
(1)
calendar
month
after
the
construction/refurbishment is completed,
Franchisee shall provide Franchisor, on
or before the first Monday of each such month, with a statement in the form
prescribed by Franchisor and signed by Franchisee, certifying Franchisee's
continued compliance with and maintenance of the requirements of Section 5.1
(b).
5.8 Installation
of Animated Entertainment. No later than one hundred fifty
(150) days prior to the anticipated
date
of completion
of
construction/refurbishment of the Franchised Restaurant, Franchisee shall, if
applicable, order the Animated
Entertainment and related components specified by
Franchisor from the supplier or suppliers
designated by
Franchisor
and shall
provide to Franchisor such evidence thereof
as Franchisor requests. All payment
terms for the Animated Entertainment shall be agreed to between
Franchisee and
respective suppliers.
Franchisor
shall not have any
liability to Franchisee for delivery or the
condition of the Animated Entertainment ordered from the supplier or
suppliers
designated by Franchisor.
After
delivery of the Animated Entertainment and preparation for
installation of the Animated Entertainment by Franchisee, Franchisor will
provide a technician to install the
Animated Entertainment. If the technician is
required for more than five (5) working days, then for such time period in
excess of five (5) working days
(excluding
travel), the Franchisee will pay
Franchisor a fee of Three Hundred and
no/100 Dollars ($300.00) per day and shall
reimburse Franchisor for additional
actual air travel
expenses and a per
diem
charge for room and board. Franchisor and Franchisee shall
agree upon the dates
for installation; provided, however, Franchisee shall request the
services of
the technician in writing, to Franchisor,
at least sixty (60) days in advance of
the requested installation dates.
5.9 Approval for
Opening. Once
construction/refurbishment is completed and
within five (5) days after obtaining Franchisor's written approval for
opening/reopening, Franchisee shall
open/reopen the Franchised Restaurant to the
public. Franchisee shall not open/reopen
the Franchised Restaurant to the public
unless Franchisor has granted its written
approval to do so.
<PAGE>
6. TRAINING
6.1 Minimum
Training. Prior to rendering their services
to the Franchised
Restaurant, both the general manager and
technician described in Section 7.1 and
any replacements or successors thereto shall attend and complete, to
Franchisor's satisfaction, initial training conducted by
Franchisor. As part of
this initial training, Franchisor shall provide
Franchisee with a copy
of the
Operational Policies, which must be returned to
Franchisor upon termination of
this Agreement.
6.2 Location and
Expenses. Franchisor
will not charge
Franchisee any fee
for the training of Franchisee's first general manager and technician.
Franchisor reserves the right to charge a
reasonable fee to
Franchisee for any
additional required or optional training and training for
subsequent
general
managers, managers and technicians. All training shall be provided at such
location as Franchisor may designate and Franchisee
shall be responsible for
Franchisee's employees' travel expenses and room,
board and wages during
such
training.
6.3 Additional
Training. Franchisor may periodically make
other mandatory
or optional training available to Franchisee's employees as well as other
programs, seminars and materials, and Franchisee shall ensure that all
employees, as Franchisor may direct, satisfactorily complete any required
training within the time specified.
7. OPERATION
7.1 General
Manager and Technician. Franchisee shall at all times employ at
least one fully-trained general manager and
one fully-trained technician for the
maintenance of the Animated Entertainment for the Franchised Restaurant, who
shall devote their full time to the
Franchised Restaurant.
7.2 Operational
Policies. The Operational Policies shall at
all times (i)
be kept in a secure place on the premises
of the Franchised Restaurant, and (ii)
remain the sole property of Franchisor.
Franchisee and
Franchisee's
Principals
shall at all times ensure that Franchisee's
copy of the Operational Policies is
kept current and up-to-date, and in the event of any dispute as
to the contents
of the Operational Policies, the terms of the version of the Operational
Policies maintained by Franchisor at Franchisor's home office shall be
controlling. Franchisee acknowledges that every detail of the Franchised
Restaurant is important to Franchisee,
Franchisor and other franchisees in order
to develop and maintain the high
standards and public image of the System,
to
increase the demand for the products and services sold by all System
Restaurants, and to protect Franchisor's reputation and goodwill. As such,
Franchisee agrees to:
(a) Operate
the Franchised Restaurant in accordance with the
Operational
Policies to ensure that the highest degree of quality and
service is
uniformly maintained. If amended or modified
by Franchisor,
Franchisee
agrees that it will fully implement Franchisor's amended
Operational
Policies, within a period of time prescribed by Franchisor, but
in no event to
exceed three (3)
months after receipt of notice of such
amendment or
modification;
<PAGE>
(b) Devote
the requisite time, energy and best efforts to the
management and
operation of the Franchised Restaurant;
(c) Use, prepare, maintain in sufficient supply and offer for sale
all
and only such
products, materials, ingredients, supplies and paper goods as
conform with
Franchisor's standards and specifications;
(d) Sell or offer for sale all and only such services, products and
menu items as
meet Franchisor's
uniform standards of quality and quantity,
as have been
expressly approved for
sale in writing by Franchisor, and as
have been
prepared in accordance with Franchisor's methods and techniques.
You must refrain
from any deviation
from our standards and
specifications
for serving or
selling the above without our prior written consent and must
discontinue
selling and
offering for sale any
such items as we may in our
sole discretion,
disapprove at any time;
(e) Use at the
Franchised Restaurant
only such menus and animated
character
costumes which comply with the style, pattern and design
prescribed by
Franchisor;
(f) Purchase and
install, at
Franchisee's
expense, all fixtures,
furnishings,
signs, and equipment
(including,
without limitation,
video
display
software which must be updated from time to time, point-of-sale
computer
hardware and software
control systems, and a
telephone modem) as
Franchisor
may reasonably direct from time to time in the Operational
Policies or
otherwise in writing;
(g) Employ security
officers, if
necessary, for secure
operation of
the Franchised
Restaurant;
(h) Employ at least the minimum number of other employees as may be
prescribed by
Franchisor and to comply with all applicable federal, state
and local laws,
rules and regulations with respect to such employees;
(i) Cause all
employees to wear
uniforms of the color, style and
design
prescribed by Franchisor;
(j) Make daily and regular use of a Chuck E. Cheese walk-around
character
costume and all other animated character costumes designated by
Franchisor and
to maintain such costumes in good condition, as provided in
the Operational
Policies;
(k) Use the Site only for the operation of the Franchised Restaurant
as well as keep
and maintain the Franchised Restaurant open and Operational
for the
minimum number of hours and days as reasonably required by
Franchisor;
<PAGE>
(l) Meet and maintain the highest governmental standards and ratings
applicable to
the operation of the Franchised Restaurant (including health,
alcohol and
gaming) and
immediately advise
Franchisor
in writing of any
operational
license (including health, alcohol and gaming) standard
violations
applicable to the operation of the Franchised Restaurant; and
(m) Purchase or lease
and maintain
the minimum number and type of
rides,
amusement games and
other attractions required by Franchisor, with
the understanding that Franchisee is prohibited
from leasing any of
the
foregoing on a
"shared revenue" or
"coin sharing" basis.
Franchisee shall
obtain
Franchisor's written
approval prior to installing any ride, game or
other attraction
at the Franchised Restaurant which has not been previously
approved in
writing by Franchisor. If any of the rides, amusement games and
other
attractions to be installed at the Franchised Restaurant are leased,
the lease shall
permit Franchisee to substitute rides, amusement games and
other
attractions
subject to the lease,
and will provide for Franchisee's
control over the
maintenance
and operation
and the collection of monies
from the rides,
amusement games and
other attractions that
are subject to
the proposed
lease.
7.3 Suppliers.
Franchisee shall
purchase all equipment, supplies and other
products and materials (including animated character costumes) used in the
operation of the Franchised Restaurant
solely from suppliers approved in writing
by Franchisor. To qualify for approval, such
suppliers must (i) demonstrate the
ability to meet Franchisor's reasonable standards and specifications for such
items, and (ii) possess adequate quality controls and capacity to supply
Franchisee's needs promptly and reliably.
Franchisor
shall not be
responsible
for the delivery or the condition of goods
ordered from any
vendor. Franchisor
shall have the right to require that its
representatives be permitted to inspect
the supplier's facilities and 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. A charge not to exceed the
reasonable cost of the inspection and the
actual cost of the test shall be paid
by Franchisee or the supplier to
Franchisor. Franchisor
reserves the right,
at
its option, to re-inspect the facilities and products of any such
approved
supplier and to revoke its approval upon
the supplier's
failure to continue
to
meet, in Franchisor's discretion, any of
Franchisor's criteria.
7.4 General Maintenance. Franchisee shall at all times maintain the
Franchised Restaurant in the highest degree
of sanitation, repair and condition.
Within three (3) months after receipt of notice from
Franchisor,
Franchisee
agrees to make any additions, alterations repairs and replacements that
Franchisor reasonably requires, including, without limitation, such periodic
repainting, equipment repairs and replacement
of obsolete signs,
games, rides,
equipment and floor coverings (including carpet and tile) as Franchisor may
reasonably direct.
<PAGE>
7.5 Maintenance
of Animated
Entertainment.
Franchisee shall at
all times
maintain the Animated Entertainment and its components in good repair
and full
working order. Franchisee shall immediately,
at its own expense,
also install
all retrofits and replacements to the Animated
Entertainment
components which
are required by Franchisor from
time-to-time.
Franchisee shall, at Franchisor's
option, either destroy or relinquish and deliver
to Franchisor or its designee
title and possession of any existing
trademarked
or proprietary elements or
components of the Animated Entertainment,
immediately upon their
replacement or
obsolescence and all such elements or
components
shall become the
property of
Franchisor.
7.6 Scheduled
Refurbishment. Commencing on January 1 of the second calendar
year following the opening of the Franchised Restaurant and each January 1
thereafter during the term hereof,
Franchisee, at its own expense, shall upgrade
and refurbish the Franchised Restaurant, in conformity with Section 5 hereof.
Such upgrades and refurbishment include,
without limitation,
those necessary to
conform to the building decor, floor plan, trade dress, exterior signage and
decor, color schemes, rides, amusement games and other
attractions,
food and
beverage service, and presentation of trademarks and
service marks consistent
with the public image then prevailing in the latest of upgraded System
restaurants operated by Franchisor.
The amount
expended for each such
upgrade
and/or refurbishment shall be at least the
lesser of:
(a) Fifty Thousand and no/100 Dollars ($50,000.00); or
(b) Four percent (4%) of the Gross Sales of the Franchised
Restaurant
during the prior
calendar year.
Each such
upgrade and refurbishment shall be completed by Franchisee
on or
before June 30 of each respective year.
Franchisee shall
provide to Franchisor,
on or before June 30 of each such year,
such reports, records, receipts and
other information as Franchisor may request
evidencing
Franchisee's
compliance
with this requirement.
7.7 Inspection. Franchisor will provide such continuing advisory
assistance, as it deems advisable, in the operation of the Franchised
Restaurant. Franchisee agrees to permit Franchisor or its agents, at any
reasonable time, access to the Franchised
Restaurant to conduct
inspections to
ensure compliance with Franchisor's
then-current standards and specifications.
7.7.1 Testing. In conducting its inspections, Franchisor will have
the
right to obtain samples of any inventory
items without
payment therefor, in
amounts reasonably necessary for testing by Franchisor or an independent
certified laboratory to determine whether said samples meet Franchisor's
then-current standards and specifications.
Franchisor may require
Franchisee to
bear the cost of such testing if the item or supplier of the item has not
previously been approved by Franchisor or if the sample fails to conform to
Franchisor's specifications.
7.7.2 Recommendations.
Franchisee acknowledges that Franchisor or its
agents will have the authority to make
immediate recommendations and resolutions
to correct any deficiencies detected during
such inspections
(including ceasing
of the use of the non-conforming equipment,
advertising materials,
products or
supplies).
<PAGE>
7.7.3 Failure to Correct Deficiencies. In the event Franchisee fails
or refuses to implement recommendations
or resolutions,
Franchisor shall
have
the right, but not the obligation,
to enter upon the Franchised Restaurant
premises for the purpose of making or
causing to be made such corrections as may
be required, with all costs to be paid by
Franchisee. The failure to correct any
such deficiencies shall be a material
default under Section 13.3.4.
7.8 Accounting
and Records.
7.8.1 General Accounting Principles. Franchisee shall maintain for
at
least five (5) years from the dates of
preparation, full,
complete and accurate
books, records and accounts in accordance with generally-accepted accounting
principles in the United States and in the form and manner prescribed by
Franchisor from time to time in the Operational Policies or otherwise in
writing.
7.8.2 Accounting
Statements.
In addition to
the general accounting
requirements, at Franchisee's cost,
Franchisee shall submit to Franchisor:
(a) Unaudited
quarterly profit and
loss statements (in the form
prescribed by Franchisor and showing the sources of all income and
the
amount
expended each month during the period on local advertising) and
balance sheet within
forty-five
(45) days of the end
of each fiscal
quarter during the term hereof;
(b) Unaudited annual statements, as well as a schedule of
capital
expenditures and a schedule of advertising expenditures, within
ninety
(90) days of the end of each fiscal year during the term
hereof;
(c) Copies of Franchisee's quarterly state sales tax returns;
and
(d) Such other
financial statements, reports and records as
Franchisor prescribes.
7.8.3 Inspection
of Accounting and Records. Franchisor or its
representatives (including independent
auditors, attorneys or agents) shall have
the right at all reasonable times to
examine, copy (and to remove and return the
materials to be copied from the premises on which they are located), at
Franchisor's expense, the books, records
and tax returns of Franchisee.
If an inspection should reveal that payments have been understated in
any report to Franchisor, then Franchisee shall immediately pay to Franchisor
the amount understated upon demand, in
addition to interest
from the date such
amount was due until paid, at one and
one-half percent
(1.5%) per month or
the
maximum rate permitted by law, whichever is
less.
<PAGE>
Notwithstanding the
foregoing,
if an inspection discloses an
understatement in any report of two percent (2%) or more, Franchisee shall
reimburse Franchisor for any and all costs and expenses
connected with the
inspection (including, without limitation,
reasonable accounting
and attorneys'
fees). The foregoing remedies shall be in addition to any other remedies
Franchisor may have, including, without
limitation, the remedies for default.
7.8.4 Records
of Ownership
Interests in
Franchisee. In
addition to
the terms and conditions of Section 11 hereof, if there is a change in
the Franchisee's Principal's listed
in Schedule 1.14
during the term of this
Agreement, Franchisee shall immediately
provide Franchisor a list of all Persons
owning an Equity Interest in Franchisee;
provided, however, that if Franchisee's
shares are publicly traded on a nationally
recognized stock
exchange, the list
of shareholders required shall include only those owning
five percent (5%) or
more of the shares outstanding.
7.8.5 Sales Records.
Franchisee shall record all food, beverage and
token sales and all other sales by, at, from or through the Franchised
Restaurant (excluding only sales from
pay telephones and
vending machines,
if
approved by the Franchisor) on cash registers or other machines approved by
Franchisor, which shall contain
devices or systems
that will record accumulated
sales and provide such other information and reports as Franchisor may
prescribe. Franchisee must report Gross Sales for royalty and assessment
reporting requirements on the same
accounting calendar used by the Franchisor.
Within six (6) months
after receipt
of written notification from
Franchisor, Franchisee shall install at the
Franchised Restaurant as designated
by Franchisor, such point-of-sale computer
hardware and software control systems
and telephone modems as reasonably prescribed by Franchisor.
Franchisee
will
enter into software license agreements as designated by Franchisor
for such
purposes.
Franchisee shall
permit
Franchisor
to access such systems by
telephone, modem, or such other means
designated by Franchisor at all reasonable
times for the purpose of inspecting, monitoring and retrieving information
concerning the operation of the
Franchised
Restaurant.
Franchisor
shall have
access as provided herein at such times,
and in such manner as
Franchisor shall
from time to time specify.
7.9 Internet.
During the term of
this Agreement,
Franchisor may establish
and maintain an Internet Web site that
provides information about the System and
the products and services that System
Restaurants
offer. The Web site
may also
offer reservations or similar services at System Restaurants (including the
Franchised Restaurant) or sales of items
identified by the
Proprietary Marks,
including clothing, memorabilia, and
pre-packaged food items.
<PAGE>
(a) Franchisor
will have sole
discretion
and control
over the Web
site's design
and contents.
Franchisor will have no obligation to maintain
the Web site
indefinitely,
but may discontinue it at any time without
liability to
Franchisee.
Furthermore,
Franchisor has no
control over the
stability or
maintenance
of the Internet generally, Franchisor is not
responsible
for damage or loss caused by errors of the Internet. The
Franchisor
is not liable for any
direct, indirect,
special, incidental,
exemplary or
consequential
damages arising out of
the use of the Internet
or the inability
to use the Internet including loss of profits, goodwill or
savings,
downtime, damage to or replacement of
programs and data, whether
based in
contract or tort, product liability or otherwise.
(b) Franchisor
may use part of the System Fund contributions
designated for
advertising to maintain and further develop the Web site.
(c) If Franchisee
fails to pay
when due any fees or other amounts
payable to
Franchisor under this
Agreement,
Franchisor
may temporarily
remove or
disable information
or functionality relating to Franchisee,
until Franchisee
pays its outstanding obligations in full.
(d) Franchisee
may not use any of the Proprietary Marks on or in
connection with
the Internet, except as permitted by this Section 7.9.
7.10 Intranet.
Franchisor may, at its option, establish and maintain either
a series of "private" pages on the Internet
Web site, described in
Section 7.9,
or a so-called Intranet, through either of which
Franchisor, its
franchisees,
and their respective employees may
communicate with each other and through which
Franchisor may disseminate updates to the Operational Policies and other
confidential information.
(a) Franchisor
will have no
obligation
to maintain the Intranet
indefinitely,
but may discontinue it at any time without liability to
Franchisee.
(b) Franchisor
will establish policies and procedures for the
Intranet's
use. These policies, procedures and other terms of use will
address issues
such as (i) restrictions on the use of abusive, slanderous,
or otherwise offensive language in electronic communications; (ii)
restrictions on
communications between or among franchisees that endorse or
encourage breach
of any franchisee's
franchise agreement
with Franchisor;
(iii)
confidential treatment of materials that Franchisor transmits via
the
Intranet;
(iv) password
protocols and other security precautions; (v)
grounds and
procedures for Franchisor's suspension or revocation of
access
to the
Intranet by Franchisee and others; and (vi) a privacy policy
governing
Franchisor's access to and use of electronic communications that
franchisees and
others post on the Intranet. Notwithstanding clause (vi),
above,
Franchisee
acknowledges
that, as administrator of the Intranet,
Franchisor
can technically access and view any communication that any
person posts on
the Intranet.
Franchisee
further acknowledges that the
Intranet
facility and all communications that are posted to it will
become
Franchisor's
property, free of any claims of privacy
or privilege that
Franchisee or
any other person may assert.
<PAGE>
(c) Upon receipt of
notice from
Franchisor
that the Intranet has
become
functional, Franchisee
agrees to purchase and install all necessary
additions to the
Franchised
Restaurant's computer
system at
Franchisee's
cost and to
establish and continually maintain electronic connection with
the Intranet that allows Franchisor to send messages to and receive
messages from
Franchisee.
Franchisee's
obligation to maintain
connection
with the
Intranet will continue until this Agreement's expiration or
termination (or,
if earlier, until
Franchisor
discontinues the Intranet).
Franchisee's
failure to comply with
this Section
7.10 will constitute a
material
breach of this
Agreement on account of which Franchisor may
terminate
this Agreement in accordance with Section 13.3.3, unless
Franchisee cures
the breach within 10 days after notice from Franchisor.
(d) If Franchisee
fails to comply with any policy or procedure
governing the
Intranet, Franchisor
may temporarily
suspend Franchisee's
access to all or
any aspect of the Intranet (such as a chat room, bulletin
board,
list serve, or similar
feature) until
Franchisee
fully cures the
breach.
8. ADVERTISING
8.1 General
Requirements. Recognizing the importance of the standardization
of advertising programs to the furtherance of the goodwill and
public image of
the System, Franchisor and Franchisee
agree that all
advertising by Franchisee
shall be conducted in a commercially
acceptable manner and shall conform to such
standards and requirements as Franchisor may specify from time to time in
writing.
8.2 Pre-Approved Advertising. Franchisor may offer from time to time to
provide, upon Franchisee's request and at
Franchisee's expense,
approved local
advertising and promotional plans and
materials, including,
without limitation,
newspaper slicks, promotional leaflets and coupons. All such
advertising shall
be placed in or distributed through such media or channel of
communication
as
approved by Franchisor.
8.3 New
Advertising.
Samples of all planned
advertising,
not previously
approved by Franchisor, must be submitted to Franchisor (through the mail,
return receipt requested), for Franchisor's
prior approval. Upon receipt of such
planned advertising, Franchisor will notify Franchisee no later than
fifteen
(15) days after receipt of the proposed
advertising whether such advertising has
been approved, with no response being understood
as approval.
Franchisee shall
not utilize any advertising which has not
been approved by Franchisor, or which
has been subsequently disapproved by Franchisor.
All such advertising
shall be
placed in or distributed through such media or channel of communication as
approved by Franchisor.
8.4 Minimum
Advertising
Expenditures.
Franchisee shall spend
during each
calendar quarter a minimum of three percent (3%) of the Gross Sales of the
Franchised Restaurant for local advertising and promotion in Franchisee's
Designated Market Area at least two-thirds
(2/3) of which amount shall be spent
for television advertising or advertising in some
other form of media approved
by Franchisor. Franchisee shall attempt to spend
such amount equally throughout
each month of the calendar quarter.
<PAGE>
During the term
of this Agreement,
Franchisor
may, upon ninety (90)
days
prior notice to Franchisee, increase the
minimum expenditure amount to an amount
not to exceed five percent (5%) of the
Gross Sales of the Franchised Restaurant.
The minimum expenditure amount will be reduced by an amount equal to
Franchisee's contributions to: (i) an Advertising Cooperative, and (ii) the
System Fund while the System Fund remains
in effect.
8.5 System Fund. Franchisor may, at any time during the term of this
Agreement, establish and/or administer the System Fund. If Franchisor
establishes or has established the System Fund, Franchisee will contribute an
amount described in Section 3.3.
Contributions to the
System Fund will be paid
at the time and in the manner as
described in Section 3.3, and subject to the
late payment charges described in Section 3.5.
Franchisor will give
Franchisee
at least thirty (30) days' written notice of the establishment of new or
modified System Fund.
Once
established,
the System Fund will
be maintained and
administered by
Franchisor or its designee as follows:
(a) The System Fund is intended to maximize general public
recognition
and acceptance
of the Proprietary
Marks, to enhance the collective success
of all System
Restaurants and to
further develop and maintain the Animated
Entertainment.
Franchisor and/or its
designees will direct all advertising
and other
programs produced using the System Fund, and will have sole
discretion to
approve or disapprove the creative concepts, materials, and
media used in
those programs,
the placement of advertisements, and the
allocation
of the money in the
System Fund to
production, placement,
or
other costs. In
administering the System Fund, Franchisor and its designees
undertake no
obligation
to make expenditures for Franchisee which are
equivalent or
proportionate to Franchisee's contribution, or to ensure that
Franchisee or
any particular System
Restaurant
benefits directly or pro
rata from the
placement of
advertising of the
expenditure of System
Fund
monies.
<PAGE>
(b) The System
Fund may be used to satisfy any and all costs of
maintaining,
administering,
directing,
preparing purchasing and placing
advertising
(including
the cost of preparing
and conducting
television,
radio,
magazine, and newspaper advertising campaigns; direct mail and
outdoor
billboard advertising;
public relations activities; and employing
advertising
agencies to assist in those activities), for purchasing,
leasing shipping
and installing software programs, for the costs related to
producing show
tapes, videos and other audio, video and software components
of the
Animated Entertainment, including licensing rights to music and
videos,
and for designing, testing and implementing new entertainment
concepts which
may not be directly related to Animated Entertainment. All
sums paid by
Franchisee to the System Fund will be maintained in a separate
account or
accounts by Franchisor
and/or its designees
and may be used to
defray any of
Franchisor's
reasonable
operating costs and overhead that
Franchisor
incurs in activities reasonably related to the administration
or
direction of the
System Fund and
advertising programs
for franchisees and
the System.
The System Fund and
its earnings will not
otherwise inure to
the benefit of
Franchisor. The System
Fund is operated solely as a conduit
for collecting and expending the System Fund fees as outlined above.
Franchisor and
its designees have no
fiduciary duty to Franchisee, or any
other
franchisees, or their
respective principals,
including Franchisee's
Principals
with regard to the
operation or
administration
of the System
Fund.
(c) Franchisor will,
with respect to System
Restaurants operated
by
Franchisor or
any affiliate, contribute to the System Fund generally on the
same basis as
Franchisee.
(d) A statement of the
operations of the System Fund will be prepared
annually and
will be made available to Franchisee upon written request.
(e) Although the System Fund is intended to be of perpetual
duration,
Franchisor
may terminate the System Fund. The System Fund will not be
terminated,
however, until all monies in the System Fund have been expended
or returned to contributing System Restaurants (whether franchised or
operated by
Franchisor or its affiliates), without interest, on the basis
of their
respective contributions.
(f) Franchisor
reserves the right to structure the System Fund's
organization
and administration in ways that, in Franchisor's
judgment,
most effectively
and efficiently
accomplish the System Fund's objectives.
Franchisor
may therefore organize or reorganize the System Fund as a
separate
non-profit
corporation or other
appropriate entity and
transfer
the System
Fund's assets to the entity to administer the System Fund.
Franchisee
agrees to become a
member of the entity and, in that regard, to
sign a participation agreement and take such other steps as Franchisor
reasonably
specifies.
(g) In the event
Franchisor's designee
maintains or
administers the
System Fund,
neither Franchisor nor its officers, directors, employees, or
agents
shall be liable to Franchisee for any act, error or omission
committed by
such designee or in connection with the designation of such
designee(s).
8.6 Advertising Cooperative. Franchisor shall have the right, in its
discretion, to designate any geographic
area (e.g., a Designated Market Area) as
a region for purposes of establishing an Advertising Cooperative to which
Franchisee shall be a member. Such Cooperative will be
established and operated
in accordance with an advertising
cooperative agreement which is attached hereto
as Attachment D. If, on the date of this
Agreement an
Advertising
Cooperative
has already been established for a geographic area that encompasses the
Franchised Restaurant, or if any Advertising Cooperative for that
geographic
area is established during the term of this Agreement, Franchisee will
(immediately upon request of Franchisor) execute Attachment D hereof and any
other documents required by Franchisor
to become a member of
the Advertising
Cooperative. If the Franchised Restaurant is
within the geographic area of more
than one (1) Advertising Cooperative, Franchisee must be a member of
only one
(1) Advertising Cooperative as Franchisor
designates.
<PAGE>
9. REPRESENTATIONS AND
WARRANTIES
9.1
Representations,
Warranties and Covenants of Franchisee. If Franchisee
is not an individual, then Franchisee and each of Franchisee's Principals
represent, warrant and covenant to
Franchisor that:
9.1.1 Due Incorporation. If Franchisee is a corporation, limited
liability company, general or limited partnership or other form of
business
entity, it is duly formed and organized,
validly existing and
in good standing
under the laws of the jurisdiction of its
organization with all
requisite power
and authority to enter into this Agreement
and perform the obligations contained
herein.
9.1.2 Authorization. The execution, delivery and performance by
Franchisee of this Agreement and all other
agreements
contemplated
herein has
been duly authorized by all requisite actions on the
part of Franchisee and
no
further actions are necessary to make this Agreement
or such other
agreements
valid and binding upon it and enforceable against it in accordance with their
respective terms.
9.1.3 Exclusivity. Franchisee's
corporate
charter,
written
partnership, limited liability company
agreement, membership
agreement or other
governing documents will at all times
provide that
Franchisee's
activities are
confined exclusively to the operation of the Franchised Restaurant unless
otherwise consented to in writing by
Franchisor.
9.1.4 Execution
and Performance. Neither the execution, delivery
nor performance by Franchisee of this Agreement or any other agreements
contemplated hereby will conflict with, or result in a breach of any term or
provision of Franchisee's charter, by-laws, articles of organization, or
partnership agreement and/or other governing documents and any amendments
thereto, any indenture, mortgage, deed of trust or other material
contract or
agreement to which Franchisee is a party or
by which it or any of its assets are
bound, or breach any order, writ, injunction or decree of any court,
administrative agency or governmental
body.
9.1.5 Corporate
Documents.
Certified
copies
of Franchisee's
charter by-laws, articles of organization, partnership agreement, membership
agreement and/or other governing documents
and any amendments thereto, including
board of director's or partner's
resolutions
authorizing this
Agreement have
been delivered to Franchisor. Any amendments or changes to such governing or
charter documents subsequent to the date of this Agreement shall not be
undertaken without Franchisor's prior
written consent.
9.1.6 Ownership
Interests.
All Equity
Interests in Franchisee are
accurately and completely described in Schedule 1.13.
Franchisee will
maintain
at all times a current list of all owners
of record and all beneficial owners of
Equity Interests in Franchisee.
Franchisee will make
such list of available to
Franchisor upon request;
<PAGE>
9.1.7 Stop Transfer
Instructions. If
Franchisee is a
corporation,
Franchisee will maintain stop-transfer instructions against the transfer on
Franchisee's records of any of its equity
securities and each stock certificate
will have conspicuously endorsed upon it a statement in a
form satisfactory to
Franchisor that it is held subject to all
restrictions imposed
upon assignments
by this Agreement; but the requirements of this
Section 9.1.7 will not apply to
the transfer of equity securities of a
publicly-held corporation. If Franchisee
is a partnership or limited liability company, its written partnership or
limited liability company agreement will provide
that ownership of an interest
in the partnership or limited liability company is held subject to all
restrictions imposed upon assignments by
this Agreement.
If Franchisee is an
individual, then
Franchisee represents, warrants
and covenants that neither the execution,
delivery nor performance by Franchisee
of this Agreement or any other agreements
contemplated hereby conflicts with, or
results in a breach of any contract or
agreement to which
Franchisee is a party
or a breach of any order, writ, injunction or decree of any court,
administrative agency or governmental
body.
9.2 Financial
Statements. Franchisee
and, at Franchisor's request, each of
Franchisee's Principals have provided Franchisor with their most recent
financial statements in the form and for the time periods specified by
Franchisor. The financial statements (i)
present fairly Franchisee's financial
position and the financial position of each of Franchisee's Principals, as
applicable, at the dates indicated therein
and, with respect to Franchisee, the
results of its operations and cash flow for the periods
then ended;
(ii) are
certified as true and correct by the
Franchisee's
Chief Financial Officer or
President, as applicable; and (iii) have been prepared in conformity with
generally accepted accounting principles in the United
States, applied on a
consistent basis. No material liabilities, adverse claims, commitments or
obligations of any nature, whether accrued,
unliquidated,
absolute,
contingent
or otherwise, exist as of the date of this
Agreement which are not reflected as
liabilities on Franchisee's financial statements or those of Franchisee's
Principals.
9.3 Franchisee's
Principals.
Franchisee will notify
Franchisor within ten
(10) days following the date that any person previously identified as
Franchisee's Principal ceases to qualify as
such or that any new person succeeds
to or otherwise comes to occupy a position
which would
qualify such person
as
one of Franchisee's Principals. That person will immediately execute all
documents and instruments (including, as
applicable, this Agreement) required by
Franchisor to be executed by others in a
comparable position;
but if there is
any conflict between this provision and the
transfer provisions of
Section 11,
the provisions of Section 11 will
control.
9.4 Guarantee. Franchisee's Principals will, jointly and severally,
guarantee the performance of Franchisee's
obligations, covenants
and agreements
under this Agreement pursuant to the terms and conditions of the guaranty
attached to this Agreement, and will otherwise bind themselves
to the terms of
this Agreement as stated herein.
<PAGE>
9.5 Non-Competition During Term of Agreement. In consideration of the
training described herein and disclosure to Franchisee of the System and
the
Confidential Information, during the term of this
Agreement,
Franchisee
and
Franchisee's Principals shall not, directly
or indirectly:
(a) Divert or attempt to divert business of any System
Restaurant to
any competitor,
or do or perform any
other act injurious or prejudicial to
the goodwill
associated with
Franchisor's
Proprietary Marks, the Animated
Entertainment or the
System;
(b) Employ or seek to employ any person who is employed by
Franchisor
or by any other
franchisee of
Franchisor,
or induce such person
to leave
such employment;
and
(c) Except as provided for herein, own, maintain, engage in, or have
an Equity
Interest in a
Competing Business;
provided that this
provision
shall not apply
to any Minority Interest collectively held by Franchisee or
Franchisee's
Principals
in any publicly-held corporation listed on a
national stock
exchange.
9.6 Non-Competition after Termination or Non-Renewal of Agreement. In
consideration of the training described herein and disclosure to
Franchisee of
the System and the Confidential Information, for a period of three (3)
years
after the expiration and non-renewal or termination of this
Agreement or after
the approved Transfer by Franchisee and/or
Franchisee's
Principals,
Franchisee
and Franchisee's Principals (as applicable)
shall not, directly or indirectly:
(a) Divert or attempt to divert business of any System
Restaurant to
any competitor,
or do or perform any
other act injurious or prejudicial to
the goodwill
associated with
Franchisor's
Proprietary Marks, the Animated
Entertainment or
the System;
(b) Employ or seek to employ any person who is employed by
Franchisor
or by any other
franchisee of
Franchisor,
or induce such person
to leave
such employment;
and
(c) Except as
provided for herein,
own, maintain, engage
in, or have
any interest in
a Competing Business
which is located within the Protected
Territory
or within a twenty-five (25) mile radius of the Protected
Territory;
provided that this provision shall not apply to any
Minority
Interest
collectively held by Franchisee or Franchisee's Principals in any
publicly-held
corporation listed on a national stock exchange.
9.7 Independent Covenants. Each of the covenants in Sections
9.5 and 9.6
will be construed as independent of any other covenant or provision of this
Agreement.
<PAGE>
(a) Franchisee
and each of
Franchisee's
Principals
understand and
acknowledge that
Franchisor will have the right, in its sole discretion, to
reduce the scope
of any covenant set
forth in Sections 9.5 and 9.6, or any
portion thereof,
without their consent,
effective immediately
upon notice
to Franchisee;
and Franchisee and
Franchisee's
Principals agree that they
will
comply with any covenant as so modified, which will be fully
enforceable
notwithstanding the provisions of Section 17.5 hereof.
(b) Franchisee and each of Franchisee's Principals expressly agree
that the
existence of any claims they may have against Franchisor,
whether
or not arising
from this Agreement,
will not constitute a defense to the
enforcement by
Franchisor of the covenants in Sections 9.5 and 9.6.
(c) Franchisee and
each of Franchisee's
Principals acknowledge
that
the covenants not to compete contained in Sections 9.5 and 9.6 are
reasonable and
necessary to protect the business and goodwill of the System
and to avoid
misappropriation
or other unauthori
