EXHIBIT 10.2
STANDARD FORM
APPLEBEE'S NEIGHBORHOOD GRILL & BAR
FRANCHISE AGREEMENT
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(Location Address)
-----------------------------------
(Franchisee Name)
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(Date)
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TABLE OF CONTENTS
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RECITALS
..........................................................................................
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1. FRANCHISE
GRANT AND
TERM..................................................................
F-4
2. UNIFORM
STANDARDS.........................................................................
F-5
3. COMPLIANCE
WITH THE
SYSTEM................................................................
F-6
4. GENERAL
SERVICES OF
FRANCHISOR............................................................
F-6
5. RESTAURANT
SYSTEM AND
PROCEDURES..........................................................
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6.
TRAINING..................................................................................
F-10
7. RESTAURANT
MAINTENANCE....................................................................
F-10
8.
ADVERTISING...............................................................................
F-11
9.
FEES......................................................................................
F-13
10. RECORD
KEEPING...........................................................................
F-15
11. FRANCHISEE
ORGANIZATION, AUTHORITY,
FINANCIAL CONDITION AND
SHAREHOLDERS......................................................
F-15
12.
TRANSFER..................................................................................
F-18
13.
CONFIDENTIALITY;
RESTRICTIONS.............................................................
F-22
14.
INSPECTIONS...............................................................................
F-23
15. RELATIONSHIP
OF PARTIES AND
INDEMNIFICATION...............................................
F-25
16.
INSURANCE.................................................................................
F-27
17. DEBTS AND
TAXES...........................................................................
F-28
18. TRADE NAMES,
SERVICE MARKS AND
TRADEMARKS.................................................
F-28
19. EXPIRATION
AND TERMINATION; OPTION TO
PURCHASE RESTAURANT; ATTORNEYS'
FEES......................................................
F-30
20. NO WAIVER OF
DEFAULT......................................................................
F-35
21.
CONSTRUCTION, SEVERABILITY,
GOVERNING LAW AND
JURISDICTION............................................................
F-36
22. INTERFERENCE
WITH EMPLOYMENT
RELATIONS....................................................
F-37
23. LIQUOR
LICENSE............................................................................
F-37
24. FORCE
MAJEURE.............................................................................
F-37
25.
MISCELLANEOUS.............................................................................
F-38
26.
ACKNOWLEDGMENTS...........................................................................
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EXHIBIT 1:
ROYALTY
FEE.....................................................................
F-41
APPENDIX A:
STATEMENT OF OWNERSHIP
INTERESTS................................................
F-42
APPENDIX B:
REVIEW AND CONSENT WITH
RESPECT TO
TRANSFERS............................................................
F-43
APPENDIX C:
CONFIDENTIALITY
AGREEMENT.......................................................
F-44
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APPLEBEE'S NEIGHBORHOOD GRILL & BAR
FRANCHISE AGREEMENT
This Agreement is made this ________ day of _____________________,
20______, by
and between
APPLEBEE'S
INTERNATIONAL,
INC.,
a Delaware corporation
("FRANCHISOR"),
_____________________________________________,
a
(_______________ corporation, sole proprietorship, _______________ partnership,
_______________ limited partnership [strike inappropriate language])
("FRANCHISEE")
and
______________________________________
______________________________ (collectively, the "PRINCIPAL
SHAREHOLDERS" and,
individually, a
"PRINCIPAL
SHAREHOLDER" of
Franchisee
if a corporation or
general partner if
Franchisee is a
limited partnership
having as its
general
partner
a
corporation)
and
______________________________________________________________________________
("GENERAL PARTNER" of Franchisee if Franchisee is a limited
partnership).*
*
(If
Franchisee is not a
corporation or a sole
proprietorship,
or if
Franchisee is a limited liability company, the parties hereto hereby agree
that
an Addendum shall be
attached to this
Agreement so as
properly to reflect the
responsibilities of the partners of any general partnership, the
general partner
of any limited partnership and the shareholders of any corporate
general partner
of any partnership, or the members of any limited liability
company.)
WITNESSETH:
RECITALS
A.
Franchisor owns
the rights to develop
and operate a unique
system of
restaurants which specialize in the sale of high quality,
moderately priced food
and alcoholic
beverages in an attractive, casual setting, which includes
proprietary
rights in certain valuable trade names, service marks and
trademarks, including
the service mark Applebee's Neighborhood Grill & Bar
and
variations of such
mark, designs, decor and color schemes for restaurant
premises, signs,
equipment,
procedures
and formulae for
preparing food and
beverage products,
specifications
for certain food and beverage products,
inventory methods,
operating methods, financial control concepts, training
facilities and teaching techniques ("the System").
B.
Franchisor
established, through its own development and operation,
and
through the granting of franchises, a chain of Applebee's Neighborhood Grill &
Bar restaurants which are distinctive; which are similar in appearance,
design
and decor; and which are uniform in operation and product
consistency.
C.
The value of
Franchisor's trade names, service marks and trademarks
is
based upon: (1) the maintenance of uniform high quality
standards in
connection
with the preparation and sale of Franchisor-approved food and
beverage products,
(2) the uniform high standards of appearance of the individual
restaurant units
in the System, (3) the use of distinctive trademarks, service marks, building
designs and advertising signs representing a uniformly high
quality of product
and services, and (4)
the assumption by Franchisor and its franchisees of the
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obligation to maintain
and enhance the goodwill and public acceptance of the
System (and of Franchisor's trade names, service marks and
trademarks) by strict
adherence to the high standards required by Franchisor.
D.
Franchisor,
Franchisee and the Principal Shareholders have entered into
a Development Agreement dated __________________,
20____
("Development
Agreement"),
relating to
the development by Franchisee of Applebee's
Neighborhood Grill & Bar restaurants.
E.
Franchisee
desires to use the
System in connection
with the operation
of an Applebee's Neighborhood Grill & Bar restaurant at the location which is
specified in Subsection 1.1 of this Agreement, pursuant to the
terms, conditions
and provisions hereinafter set forth.
NOW, THEREFORE, in
consideration of the mutual obligations contained herein, it
is hereby agreed as follows:
1. FRANCHISE GRANT AND
TERM
1.1
Franchisor
grants Franchisee, for the term stated below,
the right,
license and privilege:
(a) to use the
System incident to the operation of an Applebee's
Neighborhood Grill & Bar restaurant at
____________________________________
(the
"Restaurant");
(b) to use
the trade names, service marks and trademarks which
Franchisor
shall from time to time designate as part of the System, but
only
in
connection
with the sale at the
Restaurant
of those products which
Franchisor
has designated and approved; and
(c) to hold itself out
to the public as a Franchisee of Franchisor.
1.2
The term of the
franchise shall
commence as of the
Commencement Date,
as hereinafter defined, and shall end twenty (20) years thereafter,
unless this
Agreement is terminated prior to that date in accordance
with its provisions.
"Commencement Date,"
as used herein, shall mean the date upon which the
Restaurant opens for
business. The parties
agree to affix to this Agreement an
addendum expressly
setting forth the Commencement Date, which, when so affixed,
shall become a part of this Agreement.
1.3
At the expiration of the term hereof, Franchisee shall have
an option
to operate the
Restaurant for four
(4) successive
terms of five (5) years
(unless the franchise agreement with respect to that additional
term is sooner
terminated in accordance with its provisions), provided that immediately
prior
to each such five (5) year term (a) Franchisee satisfies the requirements
which
Franchisor
then-imposes on its new franchisees, (b) all other restaurant units
within the System which Franchisee then-operates substantially comply, in the
opinion of Franchisor, with Franchisor's then-current standards,
specifications,
requirements and instructions, and (c) Franchisee executes the form
of franchise
agreement which Franchisor is then using with respect to new
restaurants within
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the System, with the amount of royalty and advertising fees payable
at the rates
then-prevailing under
the franchise
agreements which
Franchisor is then using
for new restaurants
within the System,
and Franchisee
pays to Franchisor
for
each of said five (5) year periods a franchise fee equal to ten
percent (10%) of
the prevailing franchise fee paid by new franchisees at that time.
Any franchise
agreement which
Franchisee executes
for such additional term will also contain
options to obtain an assignment of Franchisee's lease with a third party
and/or
to purchase certain
property or to
purchase or lease the
Restaurant
premises
exercisable by Franchisor upon termination thereof and an option to purchase
or
lease the Restaurant
premises exercisable
by Franchisor upon expiration of the
renewal term (subject to any then-existing renewal rights of Franchisee).
Such
options will contain
provisions
substantially
similar to the
provisions
of
Franchisor's options described in Subsection 19.4 hereof.
Franchisee shall
give
Franchisor written
notice of its desire
to exercise its option
to operate the
Restaurant for an
additional
term no earlier than
twelve (12) months,
and no
later than seven (7)
months, prior to expiration of the initial term. If
Franchisee gives that notice, Franchisor, in its sole discretion, reasonably
exercised, shall
determine whether Franchisee has satisfied the foregoing
requirements. Within
forty-five
(45) days of receiving
the notice
described
above, Franchisor
shall notify
Franchisee in writing whether or not Franchisee
is eligible to exercise the option described in this
Subsection.
1.4
During the period from
the date of this Agreement to the expiration or
earlier termination
of this Agreement, Franchisor shall not establish a
restaurant unit utilizing the System, or license another franchisee
to establish
a restaurant unit
utilizing the System,
at any location within the lesser of a
three (3) mile radius of the Restaurant or a radius from the
Restaurant
which
includes either a daytime or residential population of forty thousand
(40,000)
or more people.
Notwithstanding
the foregoing, Franchisor may establish a
restaurant unit or may
license a restaurant
unit to a third party
within the
geographic area set
forth in the preceding
sentence, provided that (i) such
restaurant is located
within an airport (serviced by one or more public or
charter carrier), arena, stadium, state or national park, or
military fort, post
or base, (ii) is
located across an international border, or (iii) does not
utilize the System or utilize the Applebee's Neighborhood Grill & Bar service
mark.
1.5
Franchisee, in
consideration of the benefits and privileges provided to
it by this Agreement,
agrees to operate the
Restaurant and perform as required
hereunder for the full term of this Agreement.
1.6
This Agreement is
entered into pursuant to and subject to the terms and
conditions which are set forth in the Development Agreement.
2. UNIFORM
STANDARDS
2.1
The System is a
comprehensive
restaurant system for
the retailing of
certain uniform and
quality food and
beverage products
(including
alcoholic
beverages),
emphasizing a varied menu of high quality, moderately priced food
products (including
appetizers,
creative
sandwiches,
dinner
entrees and
desserts), a
selection of alcoholic and other beverages, and prompt and
courteous service in a clean, wholesome, casual atmosphere. The foundation of
the System is the establishment and maintenance of a reputation
among the public
for the operation of high quality restaurant units. A fundamental
requirement of
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the System, this
Franchise Agreement and franchises which Franchisor will grant
to others is adherence by all franchisees to Franchisor's standards
and policies
providing for the uniform operation of all restaurant
units within the
System,
including, but not
limited to, (a) selling only those products which Franchisor
has designated and approved, (b) using only Franchisor's prescribed building
layout and designs,
equipment,
signs, interior and exterior decor items,
fixtures and furnishings, (c) adhering strictly to Franchisor's
standards and
specifications
relating to
the selection, purchase, storage, preparation,
packaging, service and
sale of all food and beverage products being sold at the
Restaurant, and (d)
satisfying
all of Franchisor's prescribed standards of
quality, service
and cleanliness. Compliance by all franchisees with the
foregoing standards
and policies in
conjunction with the
use of
Franchisor's
trade names, service marks and trademarks provides the basis for
the wide public
acceptance of
the System and its valuable goodwill. Accordingly, strict
adherence by all
franchisees
to all aspects of the System is required
at all
times.
2.2
The provisions of the
Agreement shall be
interpreted to give effect to
the intent of the parties stated in this Section 2 to assure that Franchisee
shall operate the
Restaurant
in conformity
with the System,
through strict
adherence to
Franchisor's standards
and policies as they now exist and as they
may be modified from time to time.
3. COMPLIANCE WITH THE
SYSTEM
Franchisee
acknowledges
that every component
of the System is important to
Franchisor, to all franchisees and to the operation of the
Restaurant, including
the requirements
(a) that only those
products designated and approved by the
Franchisor are sold at the Restaurant, and (b) that there is uniformity
of food
and beverage specifications, preparation methods, quality,
appearance, building
and interior design, color and decor, landscaping, facilities and service among
all restaurant units in the System. Accordingly, Franchisee agrees to and shall
comply with
all aspects of the System (as it now exists and as it may be
modified from time to time). Franchisee recognizes and agrees that
Franchisor
may prohibit
the use of the System
and its trade names,
notwithstanding
the
granting of this Agreement, if Franchisee fails to design,
construct,
equip or
furnish its Restaurant
in compliance with the specifications designated by
Franchisor, unless prior written approval has been received from
Franchisor.
4. GENERAL SERVICES OF
FRANCHISOR
4.1
Franchisor
shall advise and
consult with
Franchisee
periodically in
connection with the operation of the Restaurant, and at other reasonable times
upon Franchisee's
request. Franchisor will provide to Franchisee such of
its
know-how, new
developments,
techniques and improvements in areas of restaurant
design, management,
food and beverage preparation, sales promotion and service
concepts as may be pertinent to the construction and operation of
the Restaurant
under the System.
Franchisor
may provide the foregoing information (a) by
sending
representatives to
visit the Restaurant,
(b) by providing
written or
other material,
(c) at meetings or
seminars, and (d) at
training sessions
at
Franchisor's training facility and/or such other locations as may
be selected by
Franchisor from time to time. Franchisor also shall make available
to Franchisee
all additional
services, facilities,
rights and privileges
which Franchisor
makes available from time to time to its franchisees of the System
generally.
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4.2
For approximately
eight (8) days prior to the opening of the Restaurant
and the first six (6) days that the Restaurant is open for
business,
Franchisor
shall provide Franchisee, at Franchisor's expense, with the
services of up to a
maximum of six (6) of
Franchisor's training
personnel to facilitate proper
operation of the
kitchen, bar and dining room areas during
that period and to
assist in correcting any operational problems which may arise.
Franchisee shall
reimburse Franchisor for any additional training support required
or requested.
4.3
From time to time
during the term of this Agreement, Franchisor will
develop and test new menu items. The menu consists of approved
national food and
beverage selections.
Franchisee
shall comply with all menu changes which
generally occur every
six (6) months. The
menu may be modified to reflect food
and beverage items peculiar to Franchisee's local area, subject to
Franchisor's
testing and approval.
5. RESTAURANT SYSTEM
AND PROCEDURES
5.1
Franchisor
shall furnish Franchisee with advice and assistance in
managing and operating the Restaurant, and Franchisor's representatives will
visit the Restaurant periodically. Franchisor will assist Franchisee in
coordinating the
Restaurant's
pre-opening
activities,
and as noted more
particularly in
Subsection
4.2 hereof, shall provide Franchisee with the
services of certain of Franchisor's personnel to facilitate proper
operation of
the Restaurant when it opens for business.
5.2
Franchisee
shall
designate
an employee who will supervise the
Restaurant, and devote
his or her full time, best efforts and constant personal
attention to the day-to-day operation of the Restaurant (the
"General Manager").
Franchisee also shall
designate an employee
who will supervise the
Restaurant
kitchen, and devote
his or her full time,
best efforts and
constant personal
attention to the day-to-day operation of the Restaurant kitchen (the "Kitchen
Manager").
5.3
Franchisee shall
require that the General Manager, the Kitchen Manager
and each of Franchisee's employees who serve as Restaurant
managers to maintain
his or her principal
personal residence within a usual driving time of not more
than approximately
one (1) hour from the
Restaurant. Franchisor
reserves the
right to require that,
as a condition
of his or her
employment,
the General
Manager must
successfully
complete Franchisor's interview process and a
psychological profile
test in a manner
which satisfies a uniform standard
established by Franchisor. The test shall be administered by
Franchisor, or by a
testing agency designated by Franchisor, at Franchisee's
expense.
5.4
Unless Franchisor shall have given its prior written approval,
Franchisee shall keep
the Restaurant
open for business
only during the
hours
which are specified by Franchisor in the Franchise Operations Manual or in such
other materials
or manuals provided or made available by Franchisor to
Franchisee
(collectively the
"Manuals"),
provided that such hours do not
conflict with state laws or local ordinances relating to the sale of
alcoholic
beverages or governing the hours during which restaurant
establishments
may be
open for business. In addition, Franchisee expressly agrees to:
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(a) operate
the Restaurant in a clean, safe and orderly manner,
providing
courteous, first-class service to the public;
(b) diligently
promote and
make every
reasonable effort to
increase
the
business of the Restaurant;
(c) advertise
the business of the Restaurant by the use of the
Franchisor's trade
names, service marks and trademarks and such other
insignia,
slogans,
emblems,
symbols,
designs and other identifying
characteristics as may
be developed
or established from time to time by
Franchisor
and included in the Manuals, subject to the limitations of
Subsections 8.4 and 8.5 hereof;
(d) prohibit and, to
the best of Franchisee's ability, prevent the use
of the
Restaurant
for any immoral or illegal purpose, or for any other
purpose,
business
activity, use of function which is not expressly
authorized
hereunder or in the Manuals; and
(e) comply fully with
all applicable laws and regulations, including,
but not
limited to, those relating to building construction, maintenance
and
safety,
environmental,
fire prevention, food
safety, public access and the
sale of
alcoholic beverages.
5.5
Franchisee
hereby acknowledges receipt and loan of a copy of the
Manuals heretofore
or hereinafter furnished to Franchisee, and agrees to
faithfully, completely and continuously perform, fulfill, observe
and follow all
instructions,
requirements,
standards, specifications, systems and procedures
contained therein,
including (a) those
relating to the
construction,
design,
decor, building and
equipping of the Restaurant, (b) those relating to the
selection, purchase,
storage, preparation,
packaging, service and
sale of all
products being sold at the Restaurant, (c) those relating to the
maintenance and
repair of Restaurant building, grounds, equipment, signs,
interior and exterior
decor items,
fixtures and furnishings, and (d) those relating to employee
uniforms and
dress, accounting, bookkeeping, record retention, and other
business systems, procedures and operations. The Manuals are
incorporated herein
by reference and hereby made part of this Agreement. Franchisee
acknowledges and
agrees that the materials contained in the Manuals are
integral, necessary
and
material elements of the System.
5.6
Franchisee
understands,
acknowledges and agrees that strict conformity
with the System, including the standards, specifications, systems, procedures,
requirements and instructions contained in this Agreement and in
the Manuals, is
vitally important, not only to the success of Franchisor,
but to the
collective
success of all of
Franchisor's other
franchisees,
by reason of the
benefits
which Franchisor
and all of its
franchisees
will derive from
uniformity
in
products sold, identity, quality, appearance, facilities and service among
all
restaurant units which
are part of the System. Without limiting the
generality
of the foregoing
provisions,
Franchisee
agrees to adhere strictly to the
requirements in the Manuals relating (a) to the construction, design, decor,
building and equipping of the Restaurant, (b) to the maximum permissible ratio
of sales of alcoholic
beverages to sales of food at the Restaurant, and (c) to
the limitations
on the number of video
games or similar
devices which may
be
placed on the
Restaurant premises.
Any failure to adhere to the standards,
specifications,
systems,
requirements or
instructions
contained in this
Agreement or in
the Manuals shall constitute a material breach of this
Agreement.
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5.7
Franchisor shall have
the right, at any time
and from time to time, in
the good faith exercise of its reasonable business judgment,
consistent with the
overall best
interests of the System generally, having due regard for the
financial burden which
may be placed upon its
franchisees, to
revise, amend,
delete from and add to the System and the material contained in the Manuals.
Franchisee expressly
agrees to comply with all such revisions, amendments,
deletions and additions.
5.8
Franchisee shall offer
for sale from the Restaurant, at all times when
the Restaurant
is open for
business, only the products which are expressly
designated in the Manuals, except, as noted more particularly in
Subsection 4.3,
to the extent that Franchisee has obtained Franchisor's prior
written consent to
a modification of that
requirement.
No product shall be
offered or sold at or
from the Restaurant
under, or in connection with, any trademark or service mark
other than
Franchisor's
designated
trademarks
and service marks without
Franchisor's prior written consent.
5.9
Franchisee
shall obtain all food and beverage
products, equipments,
signs, interior and exterior decor items, fixtures, furnishings, supplies, and
other products
and materials required for the operation of or sold at the
Restaurant solely from
suppliers (including
manufacturers,
distributors
and
other sources)
who demonstrate, to Franchisor's continuing reasonable
satisfaction, the
ability to meet Franchisor's then-current standards and
specifications for
such items;
who possess adequate quality controls and
capacity to supply
Franchisee's needs promptly and reliably; and who have been
approved in writing by Franchisor and not thereafter disapproved. The Manuals
contain a list of approved suppliers. If Franchisee desires to purchase any
items from an
unapproved supplier,
Franchisee
shall submit to Franchisor a
written request for
such approval, which
approval shall not be unreasonably
withheld, or shall
request the supplier itself to do so. Franchisor shall have
the right to inspect the supplier's facilities, and to require that
samples from
the supplier be delivered, at Franchisor's option, either to
Franchisor or to an
independent,
certified laboratory
designated
by Franchisor for testing.
Franchisee or the
supplier shall pay the costs of any such
test. Franchisor
shall notify
Franchisee in writing within sixty (60) days of receiving any
such
request whether it disapproves the supplier. Failure by Franchisor to so
notify
Franchisee within
that period shall be deemed to constitute Franchisor's
approval of such
supplier. Franchisor
reserves the right,
at its option,
to
reinspect the
facilities and retest
products of any such approved supplier at
any time and to revoke its approval upon the supplier's failure to continue to
meet any of Franchisor's criteria. Notwithstanding the foregoing,
any supplier
of goods having any trademark, trade name, service mark, logo or
symbol owned by
Franchisor shall not
be approved
to supply Franchisee such goods until such
supplier has
entered a written agreement with Franchisor regarding the
production, use and sale of such goods.
5.10 No
food or beverage
product, interior or
exterior decor item,
sign,
item of equipment,
fixtures, furnishings or supplies, or other product or
material required
for the operation of the Restaurant, which bears any of
Franchisor's trade names, service marks or trademarks, shall be used or sold in
or upon the Restaurant
premises unless the same shall have been first submitted
to and approved in writing by Franchisor.
5.11 The
Manuals and all related material furnished to Franchisee
hereunder
are and shall remain
the property of Franchisor, and must be returned to
Franchisor, along with any copies made thereof, immediately upon
request or upon
the expiration or earlier termination of this Agreement.
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6. TRAINING
6.1
Franchisor shall make
its operations
training course
available to the
General Manager, the
Kitchen Manager, and
Franchisee's Assistant
Managers and
other Restaurant managers.
6.2
Before the Restaurant
opens for business, and thereafter as replacement
personnel are employed by Franchisee, the General Manager, the Kitchen Manager
and each Assistant Manager shall attend Franchisor's operations training
facility for such period of time as Franchisor shall deem
reasonably
necessary,
and shall successfully complete that course to Franchisor's reasonable
satisfaction. If the
General Manager,
Kitchen Manager or an Assistant Manager
fails to successfully complete Franchisor's operations training course,
Franchisor may require designation of a new General Manager,
Kitchen Manager or
Assistant Manager,
as the case may be,
and Franchisee
shall designate a new
General Manager,
Kitchen Manager or Assistant Manager, who shall be required to
successfully complete such training course.
6.3
The General Manager,
the Kitchen
Manager and each
Assistant Manager
shall, from time to
time as reasonably
required by Franchisor, attend and
successfully complete to Franchisor's
reasonable
satisfaction a
Franchisor-provided refresher course in restaurant operations.
6.4
Franchisee
shall be responsible
for the Restaurant's compliance with
the operating standards, methods, techniques and material taught at
Franchisor's
operations training
course, and shall
cause the employees of the Restaurant to
be trained in such
standards, methods and
techniques
as are relevant to the
performance of their respective duties.
6.5
Attendance
of the General Manager, the Kitchen Manager and each
Assistant Manager at any of Franchisor's training courses shall be
tuition-free.
Franchisee shall pay all other costs and expenses relating to the attendance of
Franchisee's personnel
at any of Franchisor's training courses, including,
without limitation,
the cost of travel,
lodging, meals, and
other related and
incidental expenses.
7. RESTAURANT
MAINTENANCE
7.1
Franchisee
shall, at Franchisee's
sole cost and expense,
maintain the
Restaurant in conformity with the standards, specifications and requirements
of
the System,
as the same may be
designated
by Franchisor from time to time.
Franchisee
specifically agrees to
repair or replace, at
Franchisee's cost and
expense,
equipment, signs,
interior and exterior decor items, fixtures,
furnishings, supplies,
and other products and materials required for the
operation of the
Restaurant
as necessary or desirable, and to obtain, at
Franchisee's cost and expense, any new or additional equipment,
signs, interior
and exterior decor items, fixtures, furnishings, supplies, and other products
F-10
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and materials which may be reasonably required by Franchisor for
new products or
procedures. Except as
may be expressly provided in the Manuals, no alterations
or improvements, or changes of any kind in design, equipment,
signs, interior or
exterior decor
items, fixtures or furnishings shall be made in or about the
Restaurant or
Restaurant
premises without the prior written approval of
Franchisor in each instance.
7.2
In order to assure the
continued success of
the Restaurant, Franchisee
shall, at any time from time to time after ________________,
_________,
(i.e.,
six [6] years after
the date of this
Agreement)
as reasonably required by
Franchisor (taking into consideration the cost and
then-remaining term of
this
Agreement), modernize
the Restaurant premises, equipment, signs, interior and
exterior decor items,
fixtures, furnishings,
supplies, and other
products and
materials required
for the operation of the Restaurant, to Franchisor's
then-current standards and specifications, provided that at the time
Franchisor
requires Franchisee to so modernize the Restaurant premises at
least twenty-five
percent (25%) of Franchisor-owned and operated Restaurants meet such
standards
and specifications.
Franchisee's
obligations
under this Subsection are in
addition to, and shall not relieve Franchisee from, any of its
other obligations
under this Agreement, including those contained in the Manuals.
7.3
If Franchisee
is or becomes a lessee of the Restaurant premises,
Franchisee shall have included in the lease provisions expressly
permitting both
Franchisee and Franchisor to take all actions and make all
alterations
referred
to under Subsections 7.1 and 7.2 hereof, requiring the lessor
thereunder to give
Franchisor reasonable notice of any contemplated termination, and
providing that
Franchisee has the unrestricted right to assign the lease to
Franchisor without
the lessor having any right to impose conditions on such assignment
or to obtain
any payment in connection therewith. Franchisee shall not, without the prior
written consent
of Franchisor, execute any lease or other agreement which
imposes, or purports
to impose, any
limitations
on the ability of
Franchisee
and/or of Franchisor to operate additional restaurants at any particular
location beyond the
geographic limitation
set forth in Section 1.4 hereof, or
any lease the term of which is shorter than the term of this
Agreement.
8. ADVERTISING
8.1
Franchisor shall
develop and administer
advertising, public
relations
and sales promotion
programs designed to promote and enhance the collective
success of all
restaurant units in
the System.
It is expressly understood,
acknowledged and
agreed that in all phases of such advertising and promotion,
including, without
limitation, type,
quantity, timing, placement and choice of
media and medium, market areas, advertising agencies and public
relations firms,
Franchisor's decisions
shall be final and
binding. Franchisee
shall have the
right to participate
actively in all such
advertising,
public relations and
sales promotion
programs, but only in full and complete
accordance with
such
terms and conditions as may be established by Franchisor for each
such program.
8.2
Franchisee shall pay
Franchisor, in the
manner described in Section 9
hereof, a minimum dollar amount equal to two and seventy-five
hundredths percent
(2.75%) of Franchisee's gross sales, as defined in
Subsection 9.3 hereof.
Such
funds shall become the sole and absolute property of Franchisor, to
be allocated
to a separate "advertising account" established by Franchisor.
Franchisor shall
use such funds
for market studies, advertising and marketing studies or
services, production of commercials, advertising copy and layouts,
traffic
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<PAGE>
costs, agency fees, marketing personnel, or any other costs
associated with
the development,
marketing and testing of advertising, and for the purchase of
advertising time, space or materials in national, regional or other advertising
media, in a manner
determined by Franchisor in its sole discretion. Within six
(6) months following
the end of
Franchisor's
fiscal year,
Franchisor
shall
provide all franchisees with an accounting of all amounts received
from them and
expended by Franchisor for the matters set forth above. In
addition,
Franchisee
shall expend a minimum
dollar amount equal to one and one percent
(1.0%) of
Franchisee's gross
sales, for local promotional activities, subject to the
provisions of Subsections 8.4 and 8.5 hereof. Franchisor shall have
the right at
all times to review Franchisee's books and records, and to require
Franchisee to
produce evidence of its gross sales and local promotional
activities, to
ensure
Franchisee's
compliance with this Section. Any amount determined by said
audit
to be due Franchisor as part of the advertising fee will be paid to Franchisor
by Franchisee within
ten (10) days
thereafter. At any
time after execution of
this Agreement,
Franchisor may in its sole discretion increase, to a maximum of
four percent (4%) of gross sales, the percentage of gross sales
which Franchisee
shall be required to pay to Franchisor for allocation to a separate
advertising
account pursuant to
this Subsection 8.2.
Franchisor
shall use the funds
paid
pursuant to that
increased percentage
requirement
solely for the
purchase of
advertising time, space or materials in national, regional or other advertising
media, in a manner
determined by
Franchisor in its sole
discretion,
provided
that in each calendar
year (or other twelve
[12] month period
established by
Franchisor) in which Franchisor makes expenditures for advertising from
such an
advertising account, so long as Franchisee is in compliance with
its obligations
hereunder,
Franchisor's
expenditures for
advertising
in the Territory
encompassed by the Development Agreement (including expenditures
for national or
regional advertising
in media which reach that Territory) shall be on a basis
which is roughly
proportional to Franchisee's contribution to that
advertising
account during that calendar year or other twelve (12) month
period. Franchisor
also may increase
the percentage of gross sales which Franchisee shall be
required to spend for local promotional activities, provided
however, that in no
event shall Franchisee be required to make payments pursuant to this Subsection
8.2 in a dollar amount in excess of five percent (5%) of gross
sales.
8.3
Franchisee
shall submit to
Franchisor, for Franchisor's approval, an
advertising campaign
plan relating to the promotion of the opening of the
Restaurant which is
sufficient
to meet the needs of
the market.
The Manuals
contain a Press
Release kit to assist
Franchisee in this
regard. Franchisee
shall conduct the approved advertising campaign and make all expenditures for
advertising to promote
the opening of the
Restaurant no later
than sixty (60)
days after the Restaurant opens for business. Franchisor will reimburse fifty
percent (50%) of Franchisee's out-of-pocket opening advertising
expenditures up
to a maximum of two thousand five hundred dollars ($2,500),
if Franchisee
meets
the following criteria:
(a) Franchisee's
opening advertising expenditures are made within
sixty (60)
days after the opening of the Restaurant;
(b) Franchisee
submits to Franchisor
within one hundred
twenty (120)
days
after the opening of the Restaurant documentation for the opening
advertising
expenditures, such as
paid invoices from suppliers of goods or
services
evidencing expenditure on the opening advertising promotion;
and
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<PAGE>
(c) Franchisee's
opening advertising expenditures are made pursuant to
the
approved advertising
campaign plan and in accordance with the Grand
Opening
Reimbursement Program Policy Guidelines set forth in the
Manuals.
8.4
Nothing in the foregoing Subsections shall be deemed to prohibit
Franchisee from making additional expenditures for local
promotional activities.
All of the
Franchisee's local
promotional
activities
shall utilize
approved
advertising media. "Approved advertising media" are limited to the
following:
(a) Newspapers,
magazines and other such periodicals;
(b) Radio and
television;
(c) Outdoor
advertising by signs displayed on billboards or buildings;
and
(d) Handbills, flyers,
door-hangers and direct mail.
In the event Franchisee wants to use a form of advertising
medium not set
forth
above, Franchisee
shall submit a
description of such medium and advertising to
Franchisor. Franchisor
shall notify
Franchisee whether it
approves the use of
such medium
within thirty (30) days of Franchisee's request. Failure by
Franchisor to so
notify Franchisee within that period shall be deemed to
constitute
Franchisor's approval
of such request. Guidelines for local
promotional activities
are contained in the Manuals,
including Franchisee's
required participation in any co-operative marketing program.
8.5
All advertising copy and other materials employed by Franchisee in
local promotional
activities shall be in strict accordance and conformity
with
the standards, formats
and specimens contained in the Manuals and shall receive
the prior approval of Franchisor. In the event Franchisee wishes to
deviate from
the materials
contained in the
Manuals, Franchisee shall submit, in each
instance, the proposed advertising copy and materials to Franchisor
for approval
in advance of publication. Franchisor shall notify Franchisee in
writing, within
fifteen (15)
days of such
submission,
whether Franchisor disapproves such
advertising copy and
materials. Failure by
Franchisor to so notify Franchisee
within that period shall be deemed to constitute Franchisor's approval of such
advertising copy and
materials.
In no event
shall Franchisee's advertising
contain any statement or material which may be considered (a) in bad taste or
offensive to the public or to any group of persons, (b) defamatory
of any person
or an attack
on any competitor, (c) to infringe upon the use, without
permission, of any
other persons' trade name, trademark, service mark or
identification, or (d)
inconsistent
with the public image
of Franchisor or of
the System.
9. FEES
9.1
As partial
consideration for the rights granted hereunder, Franchisee
shall pay Franchisor:
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<PAGE>
(a) an initial franchise fee of _____________________
dollars
($__________), to be
paid in the manner prescribed in Subsection 4.l of the
Development Agreement as payment for the grant of the
franchise;
(b) a monthly royalty
fee as determined by
Franchisor, not to
exceed
five
percent (5%) of each
calendar month's gross sales, as provided in
Subsection
4.3 of the Development
Agreement,
as payment for
Franchisee's
continuing
right to operate the Restaurant as part of the System (see
Exhibit
1); and
(c) a monthly advertising fee equal to such percentage of each
calendar
month's gross sales as Franchisor may require pursuant to
Subsection
8.2 hereof.
9.2
The fees referred to in Subsections 9.l(b) and (c) (the "Fees")
shall
be paid by check on or before the twelfth day of the next full
month immediately
following the month to
which the Fees relate.
Any Fees, including
the initial
franchise fee,
which are not paid
when due shall bear
interest from and after
the due dates thereof
at the rate of
eighteen percent
(18%) per annum or
the
highest rate permitted by applicable law, whichever is less.
9.3
(a) Except for the sale of a gift card (on which royalty shall be due
and payable upon
redemption
of the gift card and
as provided
in Subsection
9.3(b) hereof, the term "gross sales," as used in this Agreement,
shall mean all
receipts (cash,
cash equivalents or credit) or revenues
from sales from
all
business conducted
upon or from the Restaurant premises, whether evidenced by
check, cash, credit, charge account, exchange or otherwise,
including, but not
limited to,
amounts received from the sale of goods,
wares and merchandise
(including sales of
food beverages
and tangible property of every kind and
nature, promotional or
otherwise), from all
services performed
from or at the
Restaurant premises,
and from all orders
taken or received at
the Restaurant
premises, regardless
of where such orders
are filled (including
any payments
received from the sale of meals to employees). Gross sales shall not be
reduced
by any deductions for cash shortages incurred in connection with
the transaction
of business
with customers, credit card company charges or theft which is
reimbursed by
insurance or is not reported to the appropriate police
authorities. Each
charge or sale upon installment or credit shall be treated as
a sale for the full price in the month during which such charge or
sale shall be
first made,
irrespective of the
time when Franchisee
shall receive payment
(whether full or partial) therefor.
(b) Gross sales shall not include: (i) the sale of merchandise for
which cash has been refunded or, except as provided in the second
sentence
of
Subsection 9.3(a), not received, or allowances made for
merchandise, if
the
sales of any such
returned or exchanged
merchandise
shall have been
previously included
in gross sales, (ii) the amount of any sales tax
imposed by any federal, state, municipal or other governmental
authority
directly on sales and intended to be collected from customers, provided
that
the amount thereof is
added to the selling price and actually paid by
the
Franchisee
to such governmental authority, (iii) the sale of
merchandise for which
a gift card is redeemed, if the initial sale of the
gift
card shall have been previously included in gross sales, (iv) the
sale
of
waste products
of the Restaurant, (v) telephone, game and vending
machine revenues,
(vi) the sale of non-food items or beverages at a
discount in connection with a promotional campaign, (vii) one-time sale of
furniture, fixtures or
equipment, and (viii) theft which is not covered by
insurance and
is reported to the appropriate police authorities. In
addition, Franchisor
may, from time to
time, in writing,
permit or allow
certain other items to be excluded from gross sales. Any such
permission or
allowance may be revoked or withdrawn at Franchisor's
discretion.
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<PAGE>
10. RECORD KEEPING
10.1
Franchisee shall
employ a point of sale system approved by Franchisor,
without modification,
in connection with the business of the Restaurant.
Franchisee shall use
such bookkeeping
and record keeping forms as shall be
prescribed in the Manuals.
10.2
Franchisee shall
complete and submit to Franchisor, on a regular,
continuous basis, each
of the following
reports, in the form
specified in the
Manuals:
(a) monthly
Restaurant
reports, on or before
the twelfth day of each
calendar
month following the month to which the report relates;
(b) annual Restaurant
reports, on or before the fifteenth day of April
of each
year; and
(c) weekly gross sales
reports, on or before the Tuesday following the
calendar
week to which the report relates.
10.3 The
annual Restaurant reports referred to above shall include a
balance
sheet dated as of the end of Franchisee's fiscal year or calendar year and a
profit and loss statement for such year, together with such
additional financial
information as Franchisor may reasonably request. Such balance sheet and profit
and loss statement
shall be prepared in
accordance
with generally accepted
accounting principles,
certified as correct
and complete by Franchisee's chief
executive officer, president, chief financial officer or controller
and reported
on and reviewed by an independent state-licensed certified public
accountant. If
Franchisee fails to
provide Franchisor
with such balance
sheet and profit and
loss statement,
Franchisor
shall have the right
to have an independent
audit
made of Franchisee's books and records, and Franchisee shall promptly
reimburse
Franchisor for the cost thereof.
10.4 Each
of the reports
referred to in this
Section 10 shall be completed
by Franchisee
or its accountant in the respective specimen forms, and in
accordance with the
instructions,
contained in the
Manuals. Subsection
10.3
notwithstanding, time
is of the essence
with respect to the completion and
submission of each such report.
11. FRANCHISEE ORGANIZATION, AUTHORITY, FINANCIAL CONDITION AND
SHAREHOLDERS
11.1
Franchisee and each Principal Shareholder represent and warrant that:
(a) Franchisee is a corporation duly incorporated, validly existing and in good
standing under the
laws of the State of its incorporation; (b) Franchisee is
duly qualified
and is authorized to do business and is in good
standing as a
foreign corporation in each jurisdiction in which its business
activities or the
nature of the
properties
owned by it
requires such qualification; (c) the
F-15
<PAGE>
execution and delivery of this Agreement and the transaction
contemplated hereby
are within Franchisee's corporate power; (d) the execution
and delivery of this
Agreement has been
duly authorized
by the Franchisee; (e) the articles of
incorporation and
by-laws of
Franchisee
delivered to Franchisor are true,
complete and
correct, and there have been no changes
therein since the date
thereof; (f) the
certified copies of the minutes electing the officers of
Franchisee and
authorizing
the execution
and delivery of this
Agreement are
true, correct and
complete, and there have been no changes
therein since the
date(s) thereof; (g) the specimen stock certificate delivered to
Franchisor is a
true specimen of
Franchisee's
stock certificate; (h) the balance sheet of
Franchisee as of
____________________,
________ ("Balance Sheet") and the
balance sheets
of its Principal Shareholders as of ____________________,
________, heretofore
delivered to
Franchisor, are true,
complete and correct,
and fairly present the
financial positions of Franchisee
and each Principal
Shareholder,
respectively, as of
the dates thereof; (i)
the Balance Sheet and
each such balance sheet have been prepared in accordance with
generally accepted
accounting principles;
and (j) there have been no materially adverse changes in
the condition, assets
or liabilities
of Franchisee or
Principal
Shareholders
since the date or dates thereof.
11.2
Franchisee and each Principal Shareholder covenant that during the
term
of this Agreement:
(a) Franchisee shall do or cause to be done all things
necessary to preserve and keep in full force its corporate existence and shall
be in good standing as a foreign corporation in each jurisdiction in which its
business activities or
the nature of the
properties owned by it
requires such
qualification; (b)
Franchisee shall have
the corporate
authority to carry out
the terms of this
Agreement; and (c)
Franchisee shall
print, in a conspicuous
fashion on all
certificates
representing shares of
its stock when issued,
a
legend referring to
this Agreement and the
restrictions on and
obligations of
Franchisee and Principal Shareholders hereunder, including the restrictions on
transfer of Franchisee's shares.
11.3 In
addition to the financial information which Franchisee is required
to provide to Franchisor under Subsections 10.2 and 11.1 hereof,
Franchisee and
Principal Shareholders
shall provide Franchisor with such other financial
information as Franchisor may reasonably request from time to time,
including,
on an annual basis,
copies of the
then-most current
financial statements of
Franchisee and
each Principal Shareholder, dated as of the end of the last
preceding fiscal
year of the Franchisee or Principal Shareholder, said
statements to be
delivered to
Franchisor no later
than April 15 of each year,
which financial
statements
shall conform to the standards set forth in
Subsection 11.1 hereof.
11.4
Franchisee and
each Principal Shareholder represent, warrant and
covenant that all Interests (as defined in Subsection 12.4 hereto)
in Franchisee
are owned as set forth on Appendix A hereto, that no Interest has been pledged
or hypothecated
(except in accordance with Section 12 of this Agreement), and
that no change will be made in the ownership of any such Interest
other than as
permitted by this Agreement, or otherwise consented to in writing
by Franchisor.
Franchisee and
Principal Shareholders
agree to furnish
Franchisor
with such
evidence as
Franchisor
may request, from time to time, for the purpose of
assuring Franchisor that the Interests of Franchisee and Principal
Shareholders
remain as represented herein.
11.5 Each
Principal Shareholder,
jointly and severally,
hereby personally
and unconditionally
guarantees each of
Franchisee's financial
obligations to
Franchisor (including,
but not limited to, all obligations relating to the
payment of fees by Franchisee to Franchisor). Each Principal Shareholder
agrees
F-16
<PAGE>
that Franchisor may
resort to such Principal Shareholder (or any of them) for
payment of any such financial obligation, whether or not Franchisor shall
have
proceeded against
Franchisee,
any other Principal Shareholder or any other
obligor primarily or
secondarily obligated
to Franchisor with
respect to such
financial obligation.
Each
Principal Shareholder hereby expressly waives
presentment, demand,
notice of dishonor, protest, and all other notices
whatsoever with
respect to Franchisor's enforcement of this guaranty. In
addition, each
Principal Shareholder agrees that if the performance or
observance by
Franchisee of any term or provision hereof is waived or the time
of performance thereof extended by Franchisor, or payment of any such
financial
obligation is accelerated in accordance with any agreement between Franchisor
and any party liable in respect thereto or extended or renewed,
in whole or in
part, all as Franchisor may determine, whether or not notice to or
consent by
any Principal Shareholder or any other party liable in respect to
such financial
obligations is given
or obtained, such
actions shall not affect or alter the
guaranty of each Principal Shareholder described in this
Subsection.
11.6
Franchisee and
each Principal Shareholder represent and warrant to
Franchisor that:
(a) Neither
Franchisee
nor any Principal Shareholder or any other
person with a direct or indirect ownership interest in Franchisee is
identified, either by
name or an alias,
pseudonym or nickname, on the
list of "Specially Designated Nationals and Blocked Persons"
maintained
by the U.S. Treasury
Department's
Office of Foreign
Assets Control
(texts available at www.treas.gov/offices/enforcement/ofac/).
Further,
Franchisee and its
Principal Shareholders
represent and warrant
that
neither has violated
and agree that
neither will violate
any law (in
effect now or which may become effective in the future) prohibiting
corrupt business
practices, money
laundering or the aid or support of
persons or entities who conspire to commit acts of terror
against any
person or government, including acts prohibited by the U.S. Patriot
Act
(text available
at
http://www.epic.org/privacy/terrorism/hr3162.html),
U.S. Executive
Order
13244 (text
available at
http://treas.gov/offices/enforcement/ofac/sanctions/terrorism.html),
or
similar law;
(b) Franchisee has not
made, nor has any Principal Shareholder made,
any expenditures
other than for lawful purposes or directly or
indirectly offered, gave, promised to give or authorized the
payment or
the gift of any money,
or anything of value,
to any person or entity,
while knowing
or having reason to know that all or a
portion of such
money or thing of
value would
be given or promised, directly or
indirectly, to any
government official,
official of an
international
organization, officer
or employee of a
foreign government
or anyone
acting in an
official capacity for a foreign government, for the
purpose of (1)
influencing any
action, inaction or decision of such
official in a manner
contrary to his or her position or creating an
improper advantage;
or (2) inducing
such official to influence any
government or instrumentality thereof to effect or influence any
act or
decision of such government or instrumentality.
(c) Franchisee
nor any Principal
Shareholder
or any other person
or
entity who has any direct or indirect ownership interest is or will
become
directly or
indirectly
owned or controlled by governmental
authorities of any country that is subject to a United States
embargo;
and
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<PAGE>
Franchisee
understands and its
Principal Shareholders
understand and
have
been advised by legal counsel on the requirements of the United States Foreign
Corrupt
Practices
Act
(currently
located
at
www.usdoj.gov/criminal/fraud/fcpa.html, any local foreign corrupt
practices laws
and the
Patriot Act
(currently
located
at
www.epic.org/privacy/terrorism/hr3162.html, acknowledge the importance to
Franchisor and the Restaurants and the parties' relationship of
their respective
compliance with
the requirements of these laws, including any applicable
auditing requirements
and any requirement to report or provide access to
information to Franchisor or any government, that is made part of
any applicable
law, and agree to take
all steps required
by their consultants, agents and
employees to comply
with such laws prior
to engaging
or employing any such
individuals or entities.
12. TRANSFER
12.1 There
shall be no
Transfer of any
Interest of Franchisee, or of a
Principal Shareholder in Franchisee, in whole or in part (whether
voluntarily or
by operation of law), directly, indirectly or contingently, except
in accordance
with the provisions of this Section 12. "Transfer" and "Interest"
are defined in
Subsections 12.2, 12.3
and 12.4. Any proposed Transfer also shall be subject to
the provisions of the Development Agreement, which are incorporated
herein by
reference.
12.2
Except as provided
in Subsection 12.3, "Transfer" shall mean any
assignment, sale,
pledge, hypothecation, gift or any other event which
would
change ownership
of or change or create a new
Interest, including, but not
limited to:
(a) any change in the
ownership of or rights in or to any
shares of
stock or
other equity interest in Franchisee which would result from the
act
of any
shareholder of Franchisee ("Shareholder"), such as a sale, exchange,
pledge or
hypothecation
of shares,
or any interest in or
rights to any of
Franchisee's profits,
revenues or assets,
or any such change
which would
result by
operation of law; and
(b) any change in the
percentage interest owned by any Shareholder in
the shares
of stock of Franchisee, or interests in its profits,
revenues or
assets
which would result from any act of Franchisee such as a sale,
pledge
or
hypothecation of any Restaurant assets (other than a pledge of
assets to
secure
bona fide loans made or credit extended in connection with
acquisition of the
assets pledged,
provided that
immediately
before and
after such
transaction
the net worth of
Franchis
