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Exhibit 10.22
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MONTANA
MIKE'S
STEAKHOUSE
EXHIBIT F
STOCKADE FRANCHISING, LP
FRANCHISE AGREEMENT
BRANSON RESTAURANTS, INC.
Franchisee
Date of Agreement: July 21, 2005
Date of Restaurant Opening: Sept. 2005
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TABLE OF CONTENTS
Section Page
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1. GRANT OF FRANCHISE 2
2. DEVELOPMENT AND OPENING OF THE RESTAURANT 3
3. TRAINING AND GUIDANCE 5
4. PROPRIETARY MARKS 7
5. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION 9
6. FEES 10
7. CONFIDENTIAL INFORMATION 12
8. RESTAURANT IMAGE AND OPERATING STANDARDS 14
9. MARKETING 20
10. ACCOUNTING, REPORTS, AND FINANCIAL STATEMENTS 23
11. ANNUAL REVIEWS, INSPECTIONS, AND AUDITS 24
12. TRANSFER 25
13. RENEWAL OF FRANCHISE 28
14. TERMINATION OF AGREEMENT BY FRANCHISEE OR CESSATION OF
RESTAURANT OPERATION 29
15. TERMINATION OF THE FRANCHISE 31
16. RIGHTS AND OBLIGATIONS OF FRANCHISOR AND FRANCHISEE UPON
TERMINATION OR EXPIRATION OF THE FRANCHISE 34
17. TEMPORARY DE-IDENTIFICATION OF THE RESTAURANT 37
18. CASUALTY LOSS OR CONDEMNATION 37
19. ENFORCEMENT 38
20. NOTICES AND PAYMENTS 41
21. ARBITRATION AND DISPUTE RESOLUTION 42
22. ACKNOWLEDGMENTS 44
Attachments:
Attachment 1 Guaranty and Assumption of Obligations...........Attachment 1-1
Attachment 2 Collateral Assignment of Telephone Numbers,
Telephone Listings, and Internet Addresses.......Attachment 2-1
Attachment 3 Franchisee Questionnaire.........................Attachment 3-1
Attachment 4 State Specific Addenda...........................Attachment 4-1
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STOCKADE FRANCHISING, LP
FRANCHISE AGREEMENT
This Franchise Agreement is made on this 21st day July, 2005, between
Stockade Franchising, LP, a Nevada limited partnership "Franchisor"), and
Branson Restaurants, Inc. ("Franchisee").
WITNESSETH:
WHEREAS, Franchisor owns certain confidential information relating to,
and has designed, instituted, developed and promoted a unique restaurant concept
for which substantial goodwill has been created. Such restaurants consist of
family steak houses and are operated under the trade name "MONTANA MIKE'S
STEAKHOUSE(R)," utilize distinctive recipes, ingredients, and methods of
preparing and serving foods, and are operated with uniform formats, systems,
menus, methods, specifications, standards, and procedures ("System"), all of
which may be improved, further developed, or otherwise modified by Franchisor
from time-to-time. Franchisor uses, promotes, and licenses the proprietary
service mark "MONTANA MIKE'S STEAKHOUSE(R)" (and associated designs) and other
trademarks, service marks, logos, and commercial symbols in connection therewith
("Proprietary Marks"); and
WHEREAS, Franchisor grants to persons who meet Franchisor's
qualifications and are willing to undertake the requisite investment and effort
to establish and develop "MONTANA MIKE'S STEAKHOUSE(R)" restaurants ("Franchised
Restaurants"), franchises to operate Franchised Restaurants offering the food
items authorized and approved by Franchisor and utilizing the System and the
Proprietary Marks; and
WHEREAS, Franchisee acknowledges that he has read this Agreement and
Franchisor's Uniform Franchise Offering Circular and that Franchisee understands
and accepts the terms, conditions and covenants contained in this Agreement as
being reasonably necessary to maintain Franchisor's high standards of quality
and service and the uniformity of those standards at all Franchised Restaurants
in order to protect and preserve the goodwill of the Proprietary Marks; and
WHEREAS, Franchisee acknowledges that other license or franchise
agreements have been or may be granted by Franchisor at different times and in
different situations and further acknowledges that the terms and conditions of
such agreements may vary from those contained in this Agreement; and
WHEREAS, Franchisee acknowledges that he has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that, like any other business, it involves business risks and that
the success of the venture is largely dependent upon the business abilities of
Franchisee; and
WHEREAS, Franchisor expressly disclaims the making of, and Franchisee
acknowledges that it has not received or relied upon, any guaranty, express or
implied, as to the revenues, profits, or success of the business venture
contemplated by this Agreement; and
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WHEREAS, Franchisee acknowledges that he has not received or relied on
any representations about the franchise granted in this Agreement by Franchisor,
or its officers, directors, employees, or agents, that are contrary to the
statements made in Franchisor's Uniform Franchise Offering Circular or to the
terms of this Agreement and that in all of their dealings with Franchisee, the
officers, directors, employees, and agents of the Franchisor act only in a
representative capacity and not in an individual capacity; and
WHEREAS, Franchisee further acknowledges that this Agreement, and all
business dealings between Franchisee and such individuals as a result of this
Agreement, are solely between Franchisee and Franchisor; and
WHEREAS, Franchisee further' represents to the Franchisor, as an
inducement to its entry into this Agreement, that Franchisee has made no
misrepresentations in obtaining the franchise granted herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows.
1. GRANT OF FRANCHISE
1.01 Grant of License. Franchisee has applied for a franchise to own
and operate one (1) Franchised Restaurant at 3215 W. Highway 76, Branson, MO
65616 , ("Premises") and such application has been approved by Franchisor in
reliance upon all of the representations made in this Agreement. Franchisor
hereby grants to Franchisee, subject to all of the terms, provisions, and
conditions contained in this Agreement, a non-exclusive franchise ("Franchise")
to operate a Franchised Restaurant solely at the Premises, and to use the System
and Proprietary Marks in the operation thereof, for a term of fifteen (15) years
commencing on the opening of the Franchised Restaurant (as set forth on the
cover page of this Franchise Agreement) unless sooner terminated, as provided in
Section 15. Termination or expiration of this Agreement shall constitute a
termination or expiration of the Franchise.
Provided Franchisee is in substantial compliance with this Agreement,
Franchisor shall not operate or grant a franchise for the operation of another
Franchised Restaurant within a three (3) mile radius of the above Premises
("Exclusive Area") nor will Franchisor itself operate or grant a franchise for
the operation of any other family-style steak house restaurant similar to the
type of restaurant used in the System without first offering such restaurants to
Franchisee in a manner comparable to that provided to Franchisor in Section 12
of this Agreement.
1.02 Retention of Certain Rights. Notwithstanding anything to the
contrary, Franchisor (on behalf of itself and its affiliates) retains the right
in its sole discretion to:
(a) establish company-owned stores or grant the rights to
operate Franchised Restaurants providing products or services outside
of the Exclusive Area.
(b) offer and sell food products, including frozen products,
under the Proprietary Marks, or other marks, through retail locations,
including retail food stores, convenience stores, hotel shops, kiosks,
theatres, malls, airports, college campuses, gas stations, and other
retail locations, at special events or through any other channels of
distribution, including other restaurants, mail order, catalogue
sales, or over the Internet, within or outside the Exclusive Area.
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(c) establish or grant the rights to operate restaurants
providing products or services other than under the Proprietary Marks,
including utilizing Franchisor's other marks, specifically licensed to
Franchisee in the Franchise Agreement within or outside the Exclusive
Area.
(d) offer or sell any products or services under any other
marks through any other channels of distribution regardless of
location.
(e) Purchase, or be purchased by, or merge or combine with,
any competing or non-competing business, wherever located.
1.03 Agreement to Operate. Franchisee agrees that it will at all times,
faithfully, honestly and diligently perform its obligations of this Agreement,
that it will continuously exert its best efforts to promote and enhance the
business of the Franchise and that it will not engage in the operation of any
other steak house, restaurant (whether full or limited service) or similar
business or activity that may conflict with its obligations, in Franchisor's
sole discretion, without prior notification and approval by Franchisor in
writing. Notwithstanding the foregoing, the operation of another restaurant
concept by Franchisee as a duly franchised franchisee of Franchisor shall not
constitute a breach of this Section 1.03.
2. DEVELOPMENT AND OPENING OF THE RESTAURANT
2.01 Site Plan Approval; Construction. Franchisee shall not commit to
purchase or lease any real property, and Franchisee shall not commence any
constmction, unless and until the Franchisor has specifically accepted in
writing the site location of the Franchised Restaurant proposed by Franchisee
and the site plan and other plans and specifications in accordance with which
such Franchised Restaurant shall be constructed and equipped. In the event
Franchisee leases any real property for the development of the Franchised
Restaurant, Franchisee shall cause such lease to contain provisions which state
that (1) such lease is assignable to Franchisor without the prior approval of
the lessor, (2) that Franchisor shall be entitled to receive notice of any
Franchisee defaults and the right, but not the obligation, to cure such
defaults; (3) that upon taking assignment from Franchisee, Franchisor shall be
entitled to reassign or sublet the Premises to any affiliate or franchisee of
Franchisor and to be released from any further liability under the Lease in case
of an assignment; and (4) that Franchisor shall be entitled to receive from
Lessor copies of any reports or financial statements submitted to Lessor by
Franchisee. Franchisee shall cause all construction and equipping of the
Franchised Restaurant licensed hereunder to be done in strict compliance with
plans and specifications previously provided and accepted by the Franchisor. No
deviations therefrom shall be made without the express written acceptance of the
Franchisor. The Franchisor shall have the right to supervise and inspect all
construction to ensure its compliance with approved plans and specifications.
After completion of construction, Franchisee shall not alter, add to, eliminate
or modify the interior or exterior of such Franchised Restaurant or any
equipment, furnishings or fixtures therein without the prior approval of the
Franchisor.
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2.02 Architectural Plans. In the event Franchisee causes a
free-standing Franchised Restaurant to be constructed at the Premises,
Franchisor shall furnish standard plans and specifications for a prototype
Franchised Restaurant or applicable copies of blueprints from completed
restaurant conversions reflecting Franchisor's then current requirements for its
design, materials, layout, equipment, fixtures, furniture, furnishings and
decoration. It shall be the sole obligation of Franchisee to modify Franchisor's
standard plans and specifications to the extent necessary to comply with all
applicable ordinances, building codes, permit requirements, lease requirements
and restrictions and market considerations. Franchisee shall bear all expenses
of obtaining all requisite professional certifications required to construct the
Premises. The cost of all modifications shall be at Franchisee's sole expense.
In the event Franchisee remodels an in- line building, or a free-standing
building, it shall be Franchisee's responsibility to obtain plans and
specifications at Franchisee's expense. If plans and specifications are prepared
by Franchisee, or for Franchisee by anyone other than Franchisor, or if plans
and specifications furnished by Franchisor for the Franchised Restaurant are
modified by or for Franchisee by anyone other than Franchisor, Franchisee shall
submit final, detailed plans and specifications to Franchisor for its prior
written consent before any remodeling or construction is commenced. All
construction and remodeling must be in strict accordance with plans and
specifications furnished or approved by Franchisor. Franchisor shall have the
right to supervise and to inspect all construction and renovation to insure its
compliance with approved plans and specifications.
2.03 Franchised Restaurant Development. Franchisee agrees at its
expense to do or cause to be done the following within one (1) year after the
date of this Agreement:
(a) secure all financing required to fully develop the
Franchised Restaurant;
(b) obtain all required building, utility, sign, health,
sanitation, business permits and licenses, and any other required
permits and licenses;
(c) construct all required improvements to the Premises and
decorate the Franchised Restaurant in compliance with plans and
specifications approved by Franchisor;
(d) purchase and install all required fixtures, equipment,
furniture, furnishings and signs required for the Franchised
Restaurant;
(e) purchase an opening inventory of authorized and approved
food and beverage products and other materials and supplies; and
(f) open the Franchised Restaurant for business in accordance
with the provisions of Section 1.03.
In the event Franchisee fails to do or cause to be done any of the
above within the time period specified above, Franchisee shall pay to
Franchisor, as liquidated damages, the amount of Two Hundred Dollars ($200) per
day until such time as Franchisee is in compliance with this Section 2.03 or
until such time as both Franchisor and Franchisee execute mutual releases
whereby each party releases the other party from any obligations arising out of
this Agreement or any other agreement.
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2.04 Franchised Restaurant Opening. Franchisor will prepare a grand
opening advertising and promotional program for Franchised Restaurant which will
contain Franchisor's standard opening activities and publicity, and advice and
guidance with regard to staffmg, decoration, and operation of the Franchised
Restaurant during the grand opening period. Franchisee shall implement such
grand opening advertising and promotional program and spend in a manner approved
by Franchisor not less than Five Thousand Dollars ($5,000) for advertising and
promotional activities during the period commencing with the opening of the
Franchised Restaurant and ending forty-five (45) days thereafter.
2.05 Furnishings, Fixtures, Signs. Equipment and Utensils. Franchisee
agrees to use in the development and operation of the Franchised Restaurant only
those brands, types, or models of equipment, fixtures, furniture, furnishings,
signs, and tableware, flatware, glassware, serving dishes, and table linens
(collectively the "Utensils") that Franchisor has approved as meeting its
specifications and standards for quality, design, appearance, warranties, and
function. The equipment, fixtures, furniture, furnishings, signs, and Utensils
designated by Franchisor from time-to-time, shall be purchased only from
suppliers approved by Franchisor. Franchisee shall not install or have installed
any vending machines (other than for newspaper sales), video games, or similar
devices without the prior written approval of Franchisor.
3. TRAINING AND GUIDANCE
3.01 Store Management. The Franchised Restaurant must at all times be
directly supervised by Franchisee or by a designated restaurant manager
("Restaurant Manager") acceptable to Franchisor in Franchisor's reasonable
discretion. Franchisor shall furnish to Franchisee's Restaurant Manager and up
to two assistant managers a training program of up to eight (8) weeks duration
in the operation of a Franchised Restaurant during such period as Franchisor
designates prior to the commencement of the operation of the Franchised
Restaurant. The training program may be furnished at one (1) or more of
Franchisor's principal offices, another Company-operated restaurant or a
Franchised Restaurant. Franchisee or the Franchised Restaurant's Restaurant
Manager, if other than Franchisee, must successfully complete Franchisor's
training program to the satisfaction of Franchisor. Franchisee, or the
Restaurant Manager, as the case may be, and up to two assistant managers, must
be in training at least ninety (90) days prior to the opening of the Franchised
Restaurant. Any. subsequently hired Restaurant Manager must successfully
complete Franchisor's training program. Franchisee shall bear all personnel
expenses of its trainees during all training programs, including, but not
limited to, salaries, benefits, travel, food and lodging costs.
3.02 Supplemental Management During Start-Up Period. To assist with the
store opening, Franchisor shall provide up to three (3) trainers for up to
fourteen (14) days each to assist with training before and immediately following
the opening of the Franchised Restaurant. Franchisor shall bear all personnel
expenses of such trainers, including, but not limited to, salaries, travel, food
and lodging costs. In addition to the trainers provided by Franchisor,
Franchisee shall also be required to obtain up to twelve (12) additional
individuals ("Supplemental Trainers") to assist with training of Franchisee's
employees during the period before and immediately after the initial opening of
the Franchised Restaurant, for such length of time as Franchisor shall
determine. The identities and qualifications of each Supplemental Trainer shall
be presented in writing to Franchisor not less than thirty (30) days prior to
the proposed opening of the Franchised Restaurant. The number of Supplemental
Trainers engaged and the acceptability of the qualifications of each individual
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Supplemental Trainer shall be at the discretion of Franchisor. Franchisee shall
bear all personnel expenses incurred from the use of Supplemental Trainers,
including, but not limited to, salaries, benefits, travel, food and lodging
costs. It is acknowledged and agreed that while providing such start-up
assistance Franchisor shall only have a duty to utilize its reasonable efforts
and shall not be liable to Franchisee or its owners for any debts, losses, or
obligations incurred by the Franchised Restaurant, or to any creditor of
Franchisee for any food products, materials, equipment, fixtures, furnishings,
Utensils, supplies, or services purchased by the Franchised Restaurant during
the periods of time when the training services are being rendered by
Franchisor's personnel.
3.03 Restaurant Managers - Generally. In addition to the rights
established hereunder, including those in Section 11, Franchisor and its
representatives shall have the right to communicate directly with Franchisee's
Restaurant Manager concerning all matters of an operational nature. Franchisor
may require Franchisee and/or previously trained and experienced Restaurant
Managers to attend periodic refresher courses at locations designated by
Franchisor, and failure of Franchisee or the Restaurant Manager to attend such
refresher courses shall constitute a default of this Agreement. Franchisee shall
be responsible for all personnel salaries, benefits, travel and living expenses
which Franchisee and/or its Restaurant Manager incur in connection with initial
training and any subsequent refresher training programs.
3.04 Interference With Employment Relations. During the term of this
Agreement, neither Franchisor nor Franchisee shall employ or seek to employ,
directly or indirectly, any person serving in a managerial position who is at
the time or was at any time during the prior six (6) months employed by the
other party, its subsidiaries, or by any franchise holder within Franchisor's
franchise system or any other restaurant or retail concept then operated,
licensed, franchised, or under development by Franchisor. This Section shall not
be violated if, at the time Franchisor or Franchisee employ or seek to employ
such person, the then current or former employer, as the case may be, has given
its written consent. The parties acknowledge and agree that in the event this
Section is violated, that notwithstanding Section 15.01, the former employer
shall be entitled to liquidated damages in the amount of Twenty-Five Thousand
Dollars ($25,000) plus reimbursement of all costs and attorney fees incurred.
For purposes of this Section 3.04, "managerial position" includes all employees
at the pay grade of Restaurant Manager or assistant manager and above as that
term is defined in the Manual.
3.05 Guidance. Franchisor shall advise Franchisee from time-to-time of
operating problems of the Franchised Restaurant disclosed by reports submitted
to or inspections made by Franchisor or by independent persons hired by
Franchisor ("Mystery Shoppers") and shall furnish to Franchisee guidance in
connection with:
(a) methods, standards, and operating procedures utilized by
the Franchised Restaurants;
(b) preparation of food products and development of new
products;
(c) purchasing approved equipment, furnishings, fixtures,
furniture, signs, Utensils, food products, beverages, and supplies;
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(d) advertising and promotional programs;
(e) employee training; and
(f) administrative, bookkeeping, accounting, and general
operating and management procedures.
Such guidance shall, in the discretion of Franchisor, be furnished in
the form of the Franchisor's confidential operations manual ("Manual"),
bulletins, other written materials, and/or telephonic consultations or
consultations at the offices of Franchisor or at the Franchised Restaurant. If
requested by Franchisee, Franchisor may, at its election, furnish additional
guidance and assistance at per diem fees based upon Franchisor's actual cost in
providing such guidance and assistance.
3.06 Manual. Franchisor will loan to Franchisee during the term of the
Franchised Restaurant one (1) copy of the Manual. The Manual shall contain
mandatory and suggested specifications, standards, and operating procedures
prescribed from time-to-time by Franchisor for the Franchised Restaurant and
information relative to other obligations of the Franchisee hereunder and in the
operation of Franchised Restaurants. The Manual may be modified from
time-to-time in Franchisor's sole discretion to reflect changes in the image,
decor, design, format, appearance, methods, standards and specifications,
operating procedures, menus and recipes, and food products and beverages
approved and required for the Franchised Restaurants. Franchisee shall keep its
copy of the Manual current and in the event of a dispute relative to the
contents of the Manual, the master copy maintained by Franchisor at its
principal office shall be controlling. Franchisee may not at any time reproduce
any part of the Manual.
4. PROPRIETARY MARKS
4.01 Ownership of Goodwill and Proprietary Marks. Franchisee
acknowledges that Franchisee's right to use the Proprietary Marks is derived
solely from this Agreement and is limited to the conduct of business by
Franchisee pursuant to and in compliance with this Agreement and all applicable
standards, specifications, and operating procedures prescribed by Franchisor
from time-to-time during the term of this Agreement. Any unauthorized use of the
Proprietary Marks by Franchisee shall constitute a breach of this Agreement and
an infringement of the rights of Franchisor in and to the Proprietary Marks.
Further, Franchisee shall not infringe upon, nor otherwise unlawfully
commercially exploit, any other trademarks, service marks, commercial symbols or
tradenanies of any other restaurant concept which Franchisor may now or
hereafter itself operate, or license or franchise to others, without the prior
written consent of Franchisor. Franchisee acknowledges and agrees that all usage
of the Proprietary Marks by Franchisee and any goodwill established thereby
shall inure to the exclusive benefit of Franchisor and that this Agreement does
not confer any goodwill or other interests in the Proprietary Marks upon
Franchisee other than the right to operate a Franchised Restaurant in compliance
with this Agreement. All provisions of this Agreement applicable to the
Proprietary Marks shall apply to any additional proprietary, trade and service
marks, and commercial symbols hereafter authorized for use by and licensed to
Franchisee by Franchisor.
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4.02 Limitations on Franchisee's Use of Proprietary Marks. Franchisee
agrees to use the Proprietary Marks as the sole identification of the Franchised
Restaurant, provided that Franchisee shall identify itself as the independent
owner thereof in the manner prescribed by Franchisor. Franchisee shall not use
any Proprietary Mark as part of any corporate or trade name or with any prefix,
suffix, or other modifying words, terms, designs, or symbols (other than logos
licensed to Franchisee hereunder), or in any modified form (including, utilizing
Franchisor's trademarks or registered name for posting, or for use in, a webpage
on the Internet, registering an Internet domain name, or in an electronic mail
[e-mail] address), nor may Franchisee use any Proprietary Mark in connection
with the performance or sale of any unauthorized services or products or in any
other manner not expressly authorized in writing by Franchisor. Franchisee
agrees to prominently display the Proprietary Marks at the Franchised
Restaurant, on menus, supplies, or packaging materials designated by Franchisor,
and in connection with advertising and marketing materials. All Proprietary
Marks shall be displayed in the manner prescribed by Franchisor. Franchisee
agrees to give such notices of trade and service mark registrations as
Franchisor specifies and to obtain such fictitious or assumed name registrations
as may be required under applicable law.
4.03 Infringement. Franchisee shall notify Franchisor in writing within
three (3) days of the date Franchisee learns about any apparent infringement of,
or challenge to Franchisee's use of any Proprietary Mark, or claim by any person
of any rights in any Proprietary Mark or similar trade name, trademark, or
service mark of which Franchisee becomes aware. Franchisee shall not communicate
with any person other than Franchisor, its counsel or Franchisee's counsel in
connection with any such infringement, challenge, or claim. Franchisor shall
have sole discretion to take such action as it deems appropriate and the right
to exclusively control any litigation, U.S. Patent and Trademark Office
proceeding or other administrative proceeding arising out of any such
infringement, challenge, or claim or otherwise relating to any Proprietary Mark
or the System. If Franchisor elects, in its sole discretion, to defend the
infringement allegation, Franchisor shall, at Franchisor's own cost and expense,
vigorously defend Franchisee to the Court of first determination against any
challenge to Franchisee's use of any Proprietary Mark or right to use the
System, or part thereof, or any claim by any person of any rights in any
Proprietary Mark or similar trade name, trademark, service mark or trade dress
used in connection with the System or the business contemplated hereby except
for proprietary rights in trade names, trademarks, or service marks arising
under the cOmmon law and Franchisor shall indemnify Franchisee from any and all
loss or damage Franchisee may suffer, whether by a judgment against Franchisee
or by a settlement consented to by Franchisor arising from such challenge or
claim. Franchisee shall make no claim against Franchisor and shall hold
Franchisor harmless from any and all direct or indirect, costs, damages,
demands, expenses, losses or liabilities suffered by Franchisee as a result of
any modification of the System necessitated by such claim or challenge,
including the costs of altering the Franchised Restaurant, or any reduction in
sales revenues or profits, or increased capital expenditures or operating costs
resulting from such modification and occasioned by any litigation arising out of
any such claim or challenge relating to Franchisee's use of any Proprietary Mark
or right to use the System. Further, Franchisee shall waive any and all past,
present or future claims, demands, or actions it may have against Franchisor
arising from such litigation except as provided in the foregoing provisions of
this Section 4.03. Franchisee agrees to and shall execute any and all
instruments and documents, render such assistance and do such acts and things as
may, in the opinion of Franchisor's counsel, be necessary or advisable to
protect and maintain the interests of Franchisor in any such litigation, U.S.
Patent and Trademark Office proceeding, other administrative proceeding, or to
otherwise protect and maintain the interests of Franchisor in the Proprietary
Marks.
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4.04 Discontinuance of Use of Proprietary Marks. If it becomes
advisable at any time in Franchisor's sole discretion for Franchisor and/or
Franchisee to modify or discontinue use of any Proprietary Marks, and/or to use
one (1) or more additional or substitute trade or service marks, Franchisee
agrees to and shall comply with Franchisor's direction to supplement, modify or
otherwise discontinue, at Franchisee's own expense the use of such Proprietary
Marks within a reasonable time after notice thereof by Franchisor.
5. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
5.01 Independent Status. It is understood and agreed by the parties
hereto that this Agreement does not create a fiduciary relationship between
them, that Franchisor and Franchisee shall be independent contractors, and that
nothing in this Agreement is intended to make either party a general or special
agent, joint venturer, partner, or employee of the other for any purpose.
Franchisee shall conspicuously identify himself in all dealings with customers,
suppliers, public officials, and others as the owner of the Franchised
Restaurant under a franchise with Franchisor and shall place such other notices
of independent ownership on such forms, guest checks, business cards, comment
cards, stationery, advertising, and other materials as Franchisor may require
from time-to-time.
5.02 Additional Limitations on Franchisee's Use of Proprietary Marks.
Franchisor has not authorized or empowered Franchisee to use the Proprietary
Marks except as provided by this Agreement and Franchisee shall not employ any
of the Proprietary Marks in signing any contract, check, purchase agreement,
negotiable instrument, or legal obligation, application for any license or
permit, or in a manner that may result in liability of Franchisor for any
indebtedness or obligation of Franchisee. Except as expressly authorized by this
Agreement, neither Franchisor nor Franchisee shall make any express or implied
agreements, warranties, guarantees or representations, or incur any debt, in the
name of or on behalf of the other or represent that their relationship is other
than franchisor and franchisee.
5.03 Limitations on Liability. Neither Franchisor nor Franchisee shall
be obligated by or have any liability under any agreements or representations
made by the other that are not expressly authorized hereunder, nor shall
Franchisor be obligated for any damages to any person or property directly or
indirectly arising out of the operation of the Franchised Restaurant, or
Franchisee's business authorized by or conducted pursuant to the Franchise,
whether caused by Franchisee's negligent or willful action or failure to act to
the relative extent such damages do not arise out of Franchisor's negligence,
wrongful act or improper failure to act. Franchisor shall have no liability for
any sales, use, occupation, excise, gross receipts, income, property or other
taxes, whether levied upon Franchisee, the Franchised Restaurant, or
Franchisee's property, or upon Franchisor, in connection with the sales made or
business conducted by Franchisee or payments to Franchisor pursuant hereto.
5.04 Indemnification. Franchisee shall indemnify and hold harmless
Franchisor, its shareholders, directors, officers, employees, agents, and
assignees against any liability for any claims, including those specified in
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Section 5.03, arising out of the operation of the Franchised Restaurant. For
purposes of this indemnification, "claims" shall mean and include all
obligations, actual and consequential damages, taxes, and costs reasonably
incurred by Franchisor in the defense of any claim against Franchisor or in any
action in which Franchisor is named as a party, including without limitation
reasonable accountants', attorneys' and expert witness fees, costs of
investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses. Franchisor shall have the right to defend any such
claim against it by employing reasonable counsel of its choice, subject to full
reimbursement of all legal fees by Franchisee. Franchisor shall use its
reasonable efforts to cooperate with Franchisee in any litigation or judicial or
administrative proceeding to avoid duplication of time, effort or expenditure to
the greatest extent possible without compromising Franchisor's interest in such
matter. This indemnity shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement.
6. FEES
6.01 Initial Franchise Fees. Franchisee shall pay to the Franchisor an
initial franchise fee ("Initial Franchise Fee") in the amount of Twenty Thousand
Dollars ($20,000), which is due and payable at the time Franchisee submits this
Agreement to Franchisor for execution by Franchisor. The parties agree that the
Initial Franchise Fee is fully earned by Franchisor upon receipt of payment by
Franchisee and Franchisee shall not be entitled to a refund of the Initial
Franchise Fee for any reason.
6.02 Royalty and Service Fee. Franchisee shall pay to Franchisor during
the term of this Agreement on or before the tenth (10th) day of each calendar
month a royalty and service fee in the amount of three percent (3%) of the Net
Sales (as defined in Section 6.03) derived from the operation of the Franchised
Restaurant for the then preceding calendar month ("Continuing Royalties"). If
there is hereafter assessed any nature of sales tax or use tax or other tax on
Continuing Royalties or other sums previously or hereafter received by
Franchisor under this Agreement ("Sales Tax"), then in addition to all
Continuing Royalties and other payments to be made by Franchisee as provided in
this Agreement, Franchisee shall also pay Franchisor or the taxing authority, if
required by law, a sum equal to the amount of such Sales Tax. The term "Sales
Tax" shall not include any income taxes applicable to Franchisor. Any Sales Tax
paid to Franchisor shall be paid when due to the taxing authority.
6.03 Definition of "Net Sales". As used in this Agreement, the term
"Net Sales" shall mean the total aggregate of all monies and receipts received
by Franchisee and derived from (i) all products prepared and services performed
at the Franchised Restaurant licensed hereunder, (ii) all sales and orders made,
solicited or received at such location, and (iii) all other business whatsoever
conducted or transacted at or from such Franchised Restaurant, and whether such
Net Sales are evidenced by cash, credit, check, gift certificates, services,
property or other means of exchange and whether such Net Sales are derived from
the sale of food, beverages, liquor, other goods (other than restaurant
equipment), supplies or catering services. Net Sales shall also be deemed to
mean the total aggregate of all monies and receipts received by Franchisee from
any other business (including but not limited to, any approved vending or game
machine receipts other than those received from newspaper vending machines, coin
telephones or jukeboxes) operated upon the Premises. However, there shall be
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excluded from Net Sales (i) all Sales Taxes imposed by governmental authorities
directly on sales and actually collected from customers, provided such taxes are
added to the selling price and accounted for separately on all sales receipts
and are, in fact, paid by Franchisee to the appropriate governmental authority,
(ii) promotional or discount sales or coupons to the extent Franchisee realizes
no revenue therefrom through issuance, redemption or otherwise, and (iii)
amounts received directly by Franchisee's employees from customers as gratuities
or tips for services rendered. Net Sales shall be deemed to be realized by
Franchisee at the time of the sale or delivery of the products, merchandise, or
services, irrespective of the time when Franchisee actually received payment.
Net Sales consisting of property or services shall be valued at their fair
market value at the time such property or services were received by or for the
account of Franchisee. In the event of the occurrence of a casualty loss, the
definition of Net Sales shall be an amount equal to the lost revenues utilized
by Franchisee's insurance company in calculating the amount of revenues
recoverable under any business interruption policy.
6.04 Interest on Late Payments. All Continuing Royalties and marketing
contributions due hereunder, amounts due for purchases by Franchisee from
Franchisor or its affiliates, and other amounts which Franchisee owes to
Franchisor or its affiliates shall be paid punctually, without the necessity for
invoice by Franchisor, and shall bear interest after the due date at the highest
applicable legal rate for open account business credit, not to exceed two
percent (2%) per month. Franchisee acknowledges that this Section shall not
constitute Franchisor's agreement to accept such payments after such payments
are due or a commitment by Franchisor to extend credit to, or otherwise fmance
Franchisee's operation of the Franchised Restaurant. Further, Franchisee
acknowledges that its failure to pay all amounts when due shall constitute
grounds for termination of this Agreement, as provided in Section 15,
notwithstanding the provisions of this Section.
6.05 Application of Payments. Notwithstanding any designation by
Franchisee, Franchisor shall have sole discretion to apply any payments by
Franchisee or any rebate or other third party payment received by Franchisor on
behalf of Franchisee, if any, to any past due indebtedness of Franchisee for
Continuing Royalties or marketing contributions due Franchisor, purchases from
Franchisor or its affiliates, interest or any other indebtedness.
6.06 Retention of Fees by the Franchisor. Franchisee acknowledges and
agrees that in the event of the termination of the license granted under this
Agreement for any reason whatsoever, the Franchisor shall be entitled to retain
for its own account any and all Initial Franchise Fee and Royalty and Service
Fee payments previously made by Franchisee, and Franchisee agrees that such
payments shall be fully earned by the Franchisor as of the date of such
payments, and whether or not the Franchised Restaurant licensed under this
Agreement is ever opened for business by Franchisee in the Exclusive Area.
6.07 Concept Transfer Fee: Franchisee shall pay a concept transfer fee
("Concept Transfer Fee") in the amount of One Thousand Dollars ($1,000) if
Franchisee requests to change from one franchise concept to another within
Franchisor's System. The Concept Franchise Fee shall be paid at the time
Franchisee signs a Franchise Agreement for the new concept after Franchisor has
approved, in writing, Franchisee's requested change. Franchisor reserves the
right to grant or deny Franchisee's request in Franchisor's sole discretion.
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7. CONFIDENTIAL INFORMATION
Franchisor possesses certain types of confidential information,
including but not limited to, menu items and new test menu items, ingredients,
recipes, formulas, and methods of preparation and presentation of food products
sold at Franchised Restaurants, as well as the methods, techniques, formats,
specifications, procedures, information, systems, computer software, and
knowledge of and experience in the operation and franchising of Franchised
Restaurants, and further including, without limitation, any and all of the
foregoing that may arise by reason of Franchisor's franchise of, and
Franchisee's operation of, the Franchised Restaurant during the term of this
Agreement ("Confidential Information").
Franchisor will disclose the Confidential Information to Franchisee
when rendering guidance and assistance to Franchisee under the terms of this
Agreement, including by way of example, furnishing the Manual.
7.01 Limitation on Interest in Confidential Information. Franchisee
acknowledges and agrees that, although Franchisee has the right to use the
Confidential Information, Franchisee will not acquire any interest in the
Confidential Information, other than the right to utilize it in the operation of
the Franchised Restaurant (and other Franchised Restaurants, if any, developed
under other agreements with Franchisor) during the term of this Agreement, and
that the use or duplication of the Confidential Information in the operation of
any other family-style steak house or other business which, in Franchisor's sole
discretion, would constitute an unfair method of competition.
7.02 Use of Confidential Information. Franchisee acknowledges and
agrees that the Confidential Information is proprietary, involves trade secrets
of Franchisor, and is disclosed to Franchisee solely on the express condition
that Franchisee agrees, and Franchisee does hereby agree, that Franchisee:
(a) shall not use the Confidential Information in the
operation of any other restaurant, or other business, including any
other restaurant engaged in the sale or preparation of steak or a
combination of steak andlor other food items or services;
(b) shall maintain the absolute confidentiality of the
Confidential Information during and after the term of this Agreement;
(c) shall not make any unauthorized copy, duplicate, record,
or otherwise reproduce all or any portion of the Confidential
Information disclosed in written form;
(d) shall never contest the validity of Franchisor's exclusive
ownership of and rights to the System or the Confidential Information;
and
(e) shall adopt and implement all reasonable procedures
prescribed from time- to-time by Franchisor to prevent unauthorized use
or disclosure of the Confidential Information, including without
limitation, restrictions on disclosure to employees, officers, and
directors of the Franchisee and the use of non-disclosure and
noncompetition clauses as prescribed by Franchisor in employment
agreements with any of Franchisee's employees who have access to the
Confidential Information.
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Notwithstanding the foregoing, the operation of another restaurant
concept by Franchisee as a duly franchised franchisee of Franchisor shall not
constitute a breach of this Section 7.02.
7.03 Exception to Restrictions on Confidential Information.
Notwithstanding anything to the contrary contained in this Agreement, the
restrictions on Franchisee's disclosure and use of the Confidential Information
shall not apply to the following:
(a) information, processes, or techniques which are or become
generally known and used in the family-style steak house restaurant
industry, other than through disclosure (whether deliberate or
inadvertent) by Franchisee;
(b) disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that Franchisee is legally
compelled to disclose such information, provided Franchisee shall have
used its best efforts, and shall have afforded Franchisor the
opportunity to obtain an appropriate protective order, or other
assurance satisfactory to Franchisor, of confidential treatment for the
information required to be so disclosed; and
(c) disclosure to Franchisee's employees to the extent
necessary for the proper operation of the Franchised Restaurant.
7.04 Non-Competition Covenant. Franchisee acknowledges and agrees that
Franchisor would be unable to protect the Confidential Information against
unauthorized use or disclosure and Franchisor would also be unable to encourage
a free exchange of ideas and information among operators of Franchised
Restaurants if franchised owners of Franchised Restaurants were permitted to
hold interests in any competitive businesses, as described in this Agreement.
Franchisee also acknowledges that Franchisor has granted the franchise rights to
Franchisee in part in consideration of, and in reliance upon, Franchisee's
agreement to deal exclusively with Franchisor. Accordingly, Franchisee, any
shareholder or partner (in the event Franchisee is a corporation or
partnership), or any spouse or unemancipated child of Franchisee or any
shareholder or partner of Franchisee, shall not have any interest as an owner,
investor, partner, lender, lessor, director, officer, manager, employee,
consultant, representative, or agent, or in any other capacity shall not
directly or indirectly enter into the employ, or work in concert with or serve
as consultant for, any person, partnership, corporation, association,
organization or other entity engaged in the operation of a steak house
restaurant or any other restaurant engaged in the sale or preparation of steak,
or a combination of steak and/or other food items or services (for example, the
use of buffets) similar to the principal food items or services then approved by
Franchisor for use in the Franchised Restaurants then in operation in the System
and located (i) anywhere during the term of this Agreement and any extension
thereof or (ii) following expiration or termination of this Agreement within the
Exclusive Area or within a radius of fifty (50) miles from any Franchisor-owned
or affiliate-owned restaurant or any franchise concept owned, operated, licensed
or franchised by Franchisor, or any concept which, in Franchisor's sole
discretion, is similar to any franchise concept owned, operated, licensed, or
franchised by Franchisor, wherever situated and operated by whomsoever, then
open or under construction or under lease or purchase commitment, for a period
of three (3) years after such expiration or termination. Neither the ownership
of a class of securities listed on a stock exchange or traded on the
over-the-counter market that represents five percent (5%) or less of the number
of shares of such class of securities then issued and outstanding, nor the
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operation of another restaurant concept by Franchisee as a duly franchised
franchisee of Franchisor, shall constitute a violation of this Section 7.04.
Franchisor and Franchisee agree that the Non-Compete Covenant shall not apply to
any business or restaurant owned by Franchisee prior to Franchisee's entry into
this Agreement.
7.05 Improper Disclosure. In the event Franchisee discovers that any of
its current or former officers, directors, partners, Restaurant Managers,
shareholders or related parties thereto are violating, have violated, or are
commencing to violate the prohibitions on disclosure or reproduction of
Confidential Information provided for in this Agreement, Franchisee shall
immediately notif~' Franchisor of such violation. Franchisor shall seek such
legal and equitable relief, including seeking monetary damages, as it deems
necessary in its sole discretion. Any and all damages recovered by Franchisor
pursuant to any such cause of action shall be the exclusive property of
Franchisor. In the event it is determined that any of such damages have been
caused by the willful or negligent behavior of Franchisee or due to the failure
of Franchisee to properly supervise the actions of the individual found to be in
violation of this Agreement, Franchisor shall be reimbursed by Franchisee for
all costs and expenses, including attorneys' fees, that were incurred by
Franchisor in pursuing such cause of action, whether or not such action results
in a favorable judgment to Franchisor.
7.06 Ownership of Business Records. Franchisee acknowledges and agrees
that the Franchisor shall at all times have unrestricted access to all business
records ("Business Records") with respect to customers, employees, and other
service professionals of, and/or related to, the Franchised Restaurant
including, without limitation, all databases (whether in print, electronic or
other form), including all names, addresses, phone numbers, e-mail addresses,
customer purchase records, and all other records contained in the database, and
all other Business Records created and maintained by Franchisee, and that at the
expiration or earlier termination of this Franchise Agreement, all Business
Records shall become the sole property of Franchisor. Franchisee further
acknowledges and agrees that, at all times during and after the termination,
expiration or cancellation of this Agreement, Franchisor may access such
Business Records, and may utilize, transfer, or analyze such Business Records as
Franchisor determines to be in the best interest of the System, in Franchisor's
sole discretion.
8. RESTAURANT IMAGE AND OPERATING STANDARDS
8.01 Condition and Appearance of the Franchised Restaurant. Franchisee
shall:
(a) not use the Franchised Restaurant or the Premises for any
purpose other than the operation of a Franchised Restaurant operated in
compliance with this Agreement;
(b) maintain the condition and appearance of the Franchised
Restaurant and the Premises in accordance with the standards of
Franchisor and consistent with the image of a Franchised Restaurant as
a clean, sanitary, attractive, and efficiently operated restaurant
offering high quality food and beverages and courteous and helpful
service;
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(c) affect such maintenance of the Franchised Restaurant and
the Premises as is required by Franchisor from time-to-time to maintam
the condition, appearance and efficient operation thereof, including
without limitation:
(i) continuous and thorough cleaning and sanitation
of the interior and exterior of the Premises;
(ii) continuous and workmanlike interior and exterior
repair of the Premises;
(iii) maintenance of equipment at peak efficiency;
(iv) replacement of worn out or obsolete
improvements, fixtures, furniture, furnishings, equipment,
signs and Utensils, with duly approved improvements, fixtures,
furniture, furnishings, equipment, signs, and Utensils; and
(v) periodic painting and redecorating.
(d) upgrade and/or remodel the Franchised Restaurant at its
sole cost and expense, which may not be limited in any way, provided
Franchisee will have a reasonable time period remaining under the term
of this Agreement to amortize the costs of such improvements, at
reasonable intervals determined by Franchisor to reflect changes in the
image, design, format, or operation of Franchised Restaurants
introduced by Franchisor, and required of new Franchised Restaurant
franchisees, subject to approval by the Franchisor of detailed plans
and specifications for all construction, repair, or refixturing in
connection with such upgrading or remodeling; and
(e) place or display at the Premises (interior or exterior)
only such signs, emblems, lettering, logos, and display any advertising
materials that are from time-to- time approved in writing by
Franchisor.
8.02 Alterations to the Premises by Franchisor. In the event Franchisee
does not maintain the condition and appearance of the Franchised Restaurant and
Premises as required under the terms of this Agreement, Franchisor may, upon not
less than twenty (20) days written notice to Franchisee:
(a) arrange for the necessary cleaning or sanitation, repair,
remodeling, upgrading, painting, or decorating; and
(b) replace the necessary leasehold improvements, fixtures,
equipment, and signs.
Franchisee shall reimburse Franchisor for the entire costs incurred by
Franchisor to make such alternations to the Premises as determined by Franchisor
in Franchisor's reasonable discretion, upon demand by Franchisor.
8.03 Alterations to the Premises by Franchisee. Franchisee shall not
make any material replacements of or alterations to the Premises, improvements,
layout, fixtures, furniture and furnishings, signs, equipment, Utensils, or
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appearance of the Franchised Restaurant as originally developed without prior
written approval by Franchisor. Franchisee shall not install or have installed
any vending machines (other than for newspaper sales), video games, or similar
devices without the prior written approval of Franchisor.
8.04 Approved Products. Distributors and Suppliers. The reputation and
goodwill of Franchised Restaurants is based upon, and can be maintained only by,
the sale of distinctive, high quality food products and beverages and the
presentation and packaging of such products in an attractive manner. Franchisee
therefore will conform the Franchised Restaurant to Franchisor's specifications
and quality standards and shall only purchase from distributors and suppliers
approved by Franchisor, all food products, beverages, ingredients, flavorings,
and garnishes used in the preparation of food products and beverages; menus,
containers, cartons, bags, boxes, napkins, other paper and plastic goods,
packaging supplies, and other materials and Utensils.
In approving distributors and suppliers for the Franchised Restaurant,
Franchisor may take into consideration such factors as price of products or
supplies and reliability of the proposed distributor or other supplier.
Franchisor may concentrate purchases with one (1) or more distributor and/or
other supplier to obtain the lowest prices and/or the best advertising support
and/or services for any group of Company-operated restaurants or Franchised
Restaurants. Approval of a distributor or supplier may be conditioned on
requirements relating to the frequency of delivery, standards of service,
including prompt attention to complaints, and concentration of purchases, as set
forth above, and may be temporary, pending a further evaluation of such
distributor or other supplier by Franchisor.
If Franchisee proposes to sell any food product or beverage, or use any
ingredients, flavorings, garnishes, or containers, cartons, bags, boxes, paper
or plastic goods, packaging supplies or other materials, or Utensils of any
type, or to purchase such items from a distributor or other supplier who has not
been previously approved by Franchisor, Franchisee shall first notify Franchisor
and submit to Franchisor such information, specifications, and samples as
Franchisor requests. Franchisor shall within a reasonable time determine whether
such item meets its specifications and quality standards and/or whether
Franchisor approves such distributor or other supplier and shall notify
Franchisee whether the Franchised Restaurant is authorized to utilize or sell
such item and/or purchase from such distributor or other supplier.
Franchisee acknowledges and agrees that Franchisor may derive revenue
from the sale of certain proprietary food products or receive rebates or
commissions from Franchisee's purchases, and Franchisor shall be entitled to
utilize this revenue for any purpose in its sole discretion.
8.05 Franchised Restaurant Menu. Franchisee shall continuously offer
all food items and beverages listed in the menu approved by Franchisor and shall
comply with all menu cycle procedures prescribed by Franchisor. If Franchisee
desires to add items to or delete items from the Franchised Restaurant's menu,
it must first obtain the prior written approval of Franchisor. Franchisee
acknowledges that Franchisor requires such approval of new items to assure
itself that such items are of the type and quality approved for Franchised
Restaurants and are consistent with the image and format of the Franchised
Restaurants. Franchisee agrees that it will not, without the prior written
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approval of Franchisor, offer any food products or beverages or any services
that are not then authorized by Franchisor for Franchised Restaurants.
8.06 Specifications, Standards and Procedures. Franchisee acknowledges
that each and every detail of the appearance, layout, decor, food products,
beverages, Utensils, materials, and supplies utilized, services offered, and
operation of the Franchised Restaurant is important to Franchisor's and other
franchisees' Franchised Restaurants. Franchisor shall endeavor to maintain the
high standards of quality and service by all Franchised Restaurants franchised
or operated by Franchisee. To this end, Franchisee shall cooperate with
Franchisor by maintaining these high standards in the operation of the
Franchised Restaurant. Franchisor shall have the nglit to rely on responses of
independent Mystery Shoppers in evaluating Franchisee's performance under this
Agreement. Franchisee agrees to comply with all mandatory specifications,
standards and operating procedures relating to:
(a) type, quality, purity, taste, portions, weight and/or
dimensions, ingredients, uniformity, and manner of preparation and sale
of food products and beverages sold by the Franchised Restaurant;
(b) appearance and dress of employees;
(c) appearance, cleanliness, sanitation, standards of service,






