499 Congaree Rd.
Greenville, S.C.
STEAK N
SHAKE OPERATIONS, INC.
SECTION 1.
GRANT OF FRANCHISE
1.02.
Additional Restaurants
1.03.
Franchisee Obligations
1.04.
Operating Manager's
Duties
SECTION 2. TERM
AND RENEWAL
SECTION 3.
RESTAURANT PROPERTY AND EQUIPMENT
3.01.
Transfer of Real and Personal
Property Interest
3.02.
Construction of
Restaurant
3.03.
Installation of Equipment and
Furnishings
3.04.
Maintenance and Renovation of the
Restaurant
Property,
Equipment and Furnishings
3.05.
Purchase of Non Approved Equipment
and Furnishings
SECTION
4. SUPPLIES, FOOD PRODUCTS, RECIPE
ITEMS
4.01.
Use of Food Supplies and Other
Items
4.03.
Suppliers of Food Supplies and
Other Items
SECTION 5.
OPERATING STANDARDS
5.01.
Operational Standards
5.04.
Continuing Services
SECTION 6. FEES
AND ADVERTISING EXPENDITURES
6.01.
Initial Franchise and Royalty
Fee
6.02.
Advertising and Marketing
Expenditures
6.03.
Definition of Gross
Receipts
6.04.
Interest on Late
Payments
6.05.
Credit Cards and Other
6.07.
Fees Non-Refundable
6.08.
Payment By Electronic
Transfer
7.01.
Origination and Approval of
Advertising
SECTION 8.
BOOKS, RECORDS AND CONTROL PROCEDURES
8.03.
Marketing Information
8.04.
Records of Franchisee
8.05.
Inspection of Franchisee's
Records
8.06.
Company Provided Accounting
Services
SECTION 9.
INSURANCE AND INDEMNITY
9.02.
Franchisee's Insurance
9.03.
Evidence of Insurance
SECTION
10. LIMITATION AND USE OF PROPRIETARY
MARKS
10.01.
Proprietary Marks And Trade Secrets
10.02.
Limitation on Franchisee's Use of Marks
10.03.
Notification of Infringements and Claims
10.04.
Indemnification of Franchisee/Discontinuance of Use of
Marks
10.05.
Non-Disclosure of Trade Secrets and Confidential
Information
11.01.
Termination of the Franchise Agreement
11.02.
Effect of Any Termination,
Cancellation or
Expiration of
this Agreement
11.03.
[INTENTIONALLY DELETED]
SECTION 12.
COVENANT NOT TO COMPETE
13.01.
Assignment by the Company
13.02.
Assignment by Franchisee
13.03. The
Company’s Right of First Refusal
SECTION 14.
GENERAL PROVISIONS
14.01.
Improvements to System
14.03.
Franchisee Independent Contractor /Disclosure Thereof
14.04. Section
and Subsection Titles
14.07.
Obligations of Interested Parties
14.08. Written
Approval, Waiver and Non-Waiver
14.10.
Designated Agent of Franchisee
14.11. Specific
Performance
14.12.
Venue/Dispute Resolution
14.13. Costs
and Attorneys' Fees
14.14.
Interference with Employment Relations
14.15.
Acknowledgment of Differing Terms
14.16.
Acknowledgment of No Promises
14.18.
Agreement Location
ATTACHMENT A -
PERSONAL GUARANTY (omitted from filing)
STEAK N
SHAKE
THIS AGREEMENT
is made and entered into this 16th day of December, 2005,
("Effective Date") by and between STEAK N SHAKE OPERATIONS, INC.,
an Indiana corporation, with its principal office at 500 Century
Building, 36 South Pennsylvania Street, Indianapolis, Indiana 46204
(the "Company") and Kelley Operations, Inc. a North Carolina
Corporation with its principal offices at 4020 Waterford Drive,
Charlotte, North Carolina 28226. ("Franchisee").
Recitals
The Company has
created and developed a unique restaurant concept, including
buildings with a distinctive architectural design, decorative color
scheme and trade dress, and has standardized methods of preparing
and serving certain food products and beverages for on-premises and
off-premises consumption in manuals and other materials of the
Company (the "Operating Standards Manual") as issued and revised
from time to time (hereinafter collectively referred to as the
"System"). Such restaurants are operated with uniform formats,
systems, methods, procedures and designs and are known as "STEAK N
SHAKE" Restaurants. The Company believes that the reputation and
goodwill of STEAK N SHAKE Restaurants are based upon, and can be
maintained only by, the sale of distinctive, high quality products
and services.
The Company is
duly licensed to use and promote certain proprietary trademarks,
service marks, trade dress and other commercial symbols, including
"STEAK N SHAKE", the "WINGED LOGO", "TAKHOMASAK", "IN SIGHT IT MUST
BE RIGHT", "FAMOUS FOR STEAKBURGERS", and related logos (the
"Marks"). The Company has experience and Know-How (as defined
herein) in the operation of STEAK N SHAKE Restaurants and can
provide assistance and guidance in connection therewith.
The Company
grants franchises to own and operate STEAK N SHAKE Restaurants to
persons who meet the Company's qualifications and are willing to
undertake the investment and effort to establish and develop a
STEAK N SHAKE Restaurant in accordance with the System.
Franchisee
acknowledges that he has conducted an independent investigation of
the business contemplated by this Agreement and recognizes that it
involves business risks which make the success of the venture
largely dependent upon the business abilities of
Franchisee.
Franchisee has
applied for a franchise to own and assume operations at an existing
STEAK N SHAKE Restaurant at the location identified or to be
identified in Section 1.01 hereof and such application has been
approved by the Company in reliance upon all of the representations
made by the Franchisee.
Company and
Franchisee hereby agree as follows:
SECTION
1. GRANT OF FRANCHISE
1.01.
Exclusive Grant . This franchise (hereinafter sometimes
referred to as the "Franchise") is being granted based on the
application, financial statements and other documents submitted by
Franchisee to the Company prior to the execution hereof, and
Franchisee represents and warrants:
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(a)
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the accuracy
and completeness of such submissions as of the respective dates of
the documents and the date hereof; and
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(b)
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that such
submissions do not omit the statement of any material fact
necessary to make them not misleading.
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Subject to the
conditions of this Agreement and the continuing faithful
performance by Franchisee hereunder, the Company grants to
Franchisee, for and during the term hereof, the right, license and
privilege: (1) to operate the following STEAK N SHAKE Restaurant:
499 Congaree Road, Greenville, S.C. (the "Restaurant"); (2) to use
the Marks licensed to the Company as are now or may hereafter be
specifically designated by the Company in writing for use only with
the System; (3) to offer for sale all of the (and only the) food
and beverage products designated by the Company and sold therein
(as they may be changed, improved, and further developed from time
to time); and (4) to indicate to the public that Franchisee's
Restaurant is operated as a part of the System. During the term of
this Agreement, the Company shall not own or operate a STEAK N
SHAKE Restaurant, and shall not grant to any third party a
franchise to operate a Steak n Shake restaurant at any location
within the geographical area described or to be determined and
described in Schedule 1 (the "Exclusive Territory"). Nothing
contained herein shall limit the right of the Company to sell
directly or through third parties any products, provided that the
items sold by the Company are either packaged or bottled and sold
for preparation and/or consumption off the selling
premises.
1.02.
Additional Restaurants . Franchisee understands that the
Company and its affiliated corporations currently operate and/or
franchise, and may in the future operate and/or franchise,
restaurants and food establishments other than STEAK N SHAKE
Restaurants, and Franchisee agrees that the Company and/or any
related entity may do so within the Exclusive Territory, provided
that such restaurants and food establishments do not feature ground
beef sandwiches as a primary product and do not utilize the
following or similar names or trade names: "STEAK N SHAKE",
"TAKHOMASAK, "IN SIGHT IT MUST BE RIGHT", and "FAMOUS FOR
STEAKBURGERS". Franchisee further agrees that this franchise
relates solely to and is limited to the single Restaurant location
described herein, and affords Franchisee no right, title or
interest in additional franchises to be operated at any other
location (subject to relocation of the Restaurant as permitted
under Section 3.01 ).
Neither this
Agreement nor the franchise issued hereunder obligates the Company
in any way to seek, issue, or allow the purchase of any additional
franchises by Franchisee or others.
1.03.
Franchisee Obligations . Franchisee agrees to diligently use
its best efforts to develop and operate the business franchised
herein and to promote the interest of the System for the term of
this Agreement and any renewal thereof. Franchisee accepts the
grant of this franchise and agrees to maintain and operate the
Restaurant only at the location in Schedule 1 hereof in
accordance with the Company's plans, specifications and procedures
as set forth in the Operating Standards Manual and other applicable
publications of the Company, as revised from time to time, and the
terms of this Agreement. Franchisee agrees to use the franchised
facility only for the purpose designated in this Franchise
Agreement.
Franchisee
acknowledges that maintaining uniformity in every component of the
operation of the System is essential to the success of the entire
chain of STEAK N SHAKE Restaurants, including a designated menu;
uniformity of food and beverage specifications, preparation
methods, quality and appearance; and uniformity of facilities and
service. Franchisee agrees to comply with the entire System, as
revised from time to time by the Company.
1.04.
Operating Manager's Duties . At all times during this
Agreement, Franchisee's manager in charge of operations for the
Restaurant will have attended and successfully completed the
prescribed manager training program of Company and all subsequent
manager training, refresher and retraining programs offered from
time to time by Company pursuant to Section 5.03 of this
Agreement. The manager will be a full-time manager on the premises
or with reasonable availability to the premises at all times to
carry out the manager's day-to-day responsibilities. The manager
will refrain from operational or management commitments in other
businesses (except other STEAK N SHAKE Restaurants operated under
franchises granted by the Company) which would in any way affect
the management duties required hereunder.
1.05. Company Services . The Company
agrees to provide to Franchisee the following materials, benefits
and services, all as hereinafter more fully set forth:
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(a)
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Written
guidelines for site selection (if applicable) upon
request;
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(b)
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As-Built Survey
site plans, construction plans, drawings and specifications for the
Restaurant and related facilities;
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(c)
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Layouts and
specifications for fixtures, furnishings, interior design and
decor, signs and equipment required as elements of the
System;
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(d)
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Such training
at such locations and for such periods as may be designated by the
Company from time to time in the Operating Standards Manual or
otherwise in writing, subject to Section 5.03 of this
Agreement;
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(e)
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Such assistance
as the Company may determine is required in connection with the
Restaurant operation by Franchisee;
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(f)
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One (1) copy
each of the Company's Operating Standards Manual and other
applicable manuals, publications or materials issued by the
Company, copies of which are, concurrently with the execution
hereof, delivered and loaned to Franchisee for the term hereof. Any
additions and modifications thereto as the Company may issue from
time to time, in its discretion, to incorporate new developments or
other changes in System standards, specifications, procedures, and
techniques will be provided to the Franchisee. Franchisee must pay
then-current replacement fee as established by the Company for
replacing copies of the Operating Standards Manual or other
materials;
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(g)
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A sample of the
Company's standardized chart of accounts, statement of earnings,
balance sheet and other report formats to be used by Franchisee for
purposes of reporting to the Company;
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(h)
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The Company's
regular and continuing consulting services and periodic inspections
and evaluations of Franchisee's operations pursuant to Section
5.04 ; and
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(i)
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The STEAK N
SHAKE advertising/marketing program(s) as developed and issued from
time to time by the Company under Sections 6.02 and 7.01.
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SECTION
2. TERM AND RENEWAL
2.01.
Term . Unless sooner terminated as hereinafter provided,
this Franchise Agreement shall extend for a term commencing one
hundred (100) days from the date of this Agreement, ("Franchise
Date") and ending on the twentieth (20th) anniversary of such date.
If the premises of the Restaurant are leased by Franchisee, the
term of the agreement shall be co-extensive with the shorter of (i)
the initial term of the lease or (ii) the term as hereinabove set
forth.
2.02.
Renewal . If all of the following criteria are satisfied,
Franchisee may renew this Franchise to use the System and Marks at
the Restaurant for one additional term equal to the term in the
Company's standard form of Unit Franchise Agreement as it exists on
the renewal date:
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(a)
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Franchisee
gives the Company written notice of its intention to renew this
Franchise not less than six (6) months, nor more than twelve (12)
months, prior to the end of the then-current term.
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(b)
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Franchisee is
not, when notice is given and when the franchise is renewed, in
material default of any provision of this Agreement, any amendment
hereof or successor hereto, or any other Unit Franchise Agreement,
and has complied with all such agreements during the term of this
Agreement.
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(c)
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All monetary
obligations owed by Franchisee to the Company are current and have
been paid throughout the initial and all prior renewal terms of
this Agreement in a timely manner.
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(d)
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Franchisee
executes the Company's then-current form of standard Unit Franchise
Agreement, which agreement shall supercede this Agreement in all
respects, and the terms of which may differ from the terms of this
Agreement, including without limitation a higher percentage royalty
fee, a different term or higher national and local advertising and
marketing expenditure requirements (or new methods of computing
same), if any.
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(e)
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Franchisee, its
managers and any other employee of the Franchisee attend and
satisfactorily complete such retraining or refresher training
program as the Company may require, in its sole discretion, at such
time and place as the Company may reasonably designate.
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(f)
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Franchisee
performs such remodeling, repairs, replacements and redecoration as
the Company may require to cause the Restaurant, equipment,
electronic point of sale systems, computer systems, fixtures,
furnishings and furniture to conform to the plans and
specifications being used for new or remodeled STEAK N SHAKE
Restaurants on the renewal date.
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(g)
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Franchisee pays
to Company a renewal fee equal to fifty percent (50%) of the
Initial Franchise Fee payable by franchisees prevailing at the
renewal date, payable at least thirty (30) days prior to the
renewal date.
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(h)
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Franchisee
executes an agreement with the Company agreeing to release any
claims, known or unknown, Franchisee may have against the Company
at the time of the renewal.
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SECTION
3. RESTAURANT PROPERTY AND EQUIPMENT
3.01.
Transfer of Personal and Real Property Interests .
Franchisee desires to assume operation of the Restaurant and the
Company agrees to transfer its interest in the Restaurants on the
Franchise Date as follows:
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All of the
Company’s right, title and interest in and to the Restaurant
shall be conveyed pursuant to that Contract for Purchase and Sale
of Real Estate of even date herewith, attached hereto as Exhibit A,
and incorporated herein by this reference (the "Contract"). It
being acknowledged and agreed by the parties that if the Contract
is terminated for any reason, this Agreement shall terminate
immediately and the parties shall have no further obligations to
each other hereunder; and
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(b).
All of the Company’s right,
title and interest in and to the good will, inventory, equipment,
furniture and fixture located at the Restaurants as of the date
hereof shall be conveyed pursuant to that Personal Property Sales
Agreement of even date herewith and attached hereto as Exhibit B.
It being acknowledged and agreed that if the Personal Property
Sales Agreement is terminated for any reason, this Agreement shall
terminate immediately and the parties shall have no further
obligation to each other hereunder.
In the event
the Restaurant is damaged or rendered totally or partially
untenantable by fire or other casualty, Franchisee shall, within
thirty (30) days, initiate repairs to the Restaurant property and
diligently pursue the completion of such repairs in order to
restore the Restaurant property to its former condition prior to
the casualty within a reasonable time, not to exceed six (6) months
after the date of the fire or casualty, which time period may be
extended for delays resulting from acts of God, force majeure and
other causes beyond the reasonable control of Franchisee, provided
Franchisee continues to diligently pursue the completion of such
repairs. If, in the Company's reasonable judgment, the damage or
destruction is so extensive that substantial cost and effort will
be expended in restoring the Restaurant property, the Company may
require Franchisee, by giving written notice thereof, to restore
the Restaurant property in conformance with the then standard STEAK
N SHAKE Restaurant decor specifications. Notwithstanding anything
herein to the contrary, Franchisee shall not be required to repair
or restore the Restaurant property if such damage occurs during the
final year of the Franchise unless the Company agrees to extend the
Franchise pursuant to Section 2.02 . Franchisee shall be
solely responsible for the cost associated with restoring the
Restaurant property.
3.03. Use of
Equipment and Furnishings . Franchisee shall:
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(a)
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install and use
in and about the Restaurant only such equipment (including, but not
limited to, food and beverage preparation equipment, fixtures,
furnishings, point of sale equipment, computer hardware and
software, interior and/or exterior signage and air handling
equipment) and other personal property which strictly conforms to
the appearance, uniform standards, specifications and procedures of
the Company and the System. Such equipment is sometimes referred to
herein collectively as "Equipment and Furnishings." Franchisee
shall purchase and install all Equipment and Furnishings listed on
the equipment and furnishings list, and not currently installed in
the Restaurants, in the New Store Construction Manual from approved
suppliers. The Company shall have the right to inspect and approve
all Equipment and Furnishings and their installation to ensure
Franchisee's compliance with the Company's standards and
specifications; and
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(b)
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install no
vending machine on or about the Restaurant property, in addition to
any vending machine currently installed, other than pay telephones
and newspaper vending machines, without the Company's prior written
consent.
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3.04.
Maintenance and Renovation of the Restaurant Property, Equipment
and Furnishings .
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(a)
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Franchisee
agrees to maintain the condition and appearance of the Restaurant
in compliance with the Company's prescribed standards of quality,
service and cleanliness. If at any time, in the Company's
reasonable judgment, the general state of repair, appearance or
cleanliness of the Restaurant property or its Equipment and
Furnishings do not meet the Company's standards, the Company will
so notify the Franchisee in writing, specifying the action to be
taken by the Franchisee to correct such deficiency, and the
Franchisee will promptly comply with the Company's
requirements.
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(b)
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If the Company
changes the design, decor, layout or other elements of the System,
the Franchisee agrees to remodel its Restaurant, at Franchisee's
expense, to conform with the Company's new standards. Such changes
will be made by Franchisee by the time the Company completes such
changes to substantially all of the Company Restaurants.
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(c)
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If the Company
changes or modifies its electronic point of sale system or computer
system used in the Company Restaurants, the Franchisee agrees to
change or modify its electronic point of sale system or computer
system to conform with the Company's new standards. Such changes
and modifications will be made by the Franchisee, at the
Franchisee's expense, by the time the Company completes such
changes and modifications to substantially all of the Company
Restaurants.
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(d)
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If the Company
changes or modifies any item or items of equipment used in the
Company Restaurants, the Franchisee agrees to change or modify such
item or items of equipment in the franchised Restaurant to conform
with the Company's new standards. Such changes and modifications
will be made by the Franchisee, at the Franchisee's expense, by the
time the Company completes such changes and modifications to
substantially all of the Company Restaurants.
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3.05.
Purchase of Non Approved Equipment and Furnishings . If
Franchisee desires to purchase or install any item that has not
been specifically approved by the Company, or to purchase an item
of equipment manufactured to the Company’s specifications
from a supplier that has not been pre-approved by the Company,
Franchisee shall submit to the Company a written request for
approval of such item or supplier. The Company shall have the right
to require, among other things, that a sample of the item to be
delivered or manufactured be made available in a manner acceptable
to the Company or to an independent certified laboratory designated
by the Company for testing prior to acting on the request for
approval. All costs and expenses related to such testing and
evaluation shall be paid to the Company by Franchisee. The Company
shall not be liable for any damage to sample items which may result
from the testing process. The Company reserves the right to retest
any items previously approved by it and may revoke any prior
approval if the item fails to continue to meet the Company's
standards and specifications. If the Company revokes the approval
of any item or any supplier in writing or in the New Store
Construction Manual, Franchisee shall not thereafter purchase such
item from the supplier or use such item in connection with the
operation of the Restaurant.
3.06.
Eminent Domain . If during the term of this Agreement, the
Restaurant property shall be taken for any public use by an
exercise of eminent domain, condemnation or by purchase under the
threat of such power (hereinafter referred to the "Proceeding"),
either party to this Agreement may elect to continue the Franchise
under the terms of this Agreement at a new Restaurant location.
However, such new Restaurant location must be approved by the
Company within six (6) months of the "completion of" the
Proceeding, and the location set out in a new Schedule 1 ,
to be attached hereto and made a part hereof. Approval of the
location for the new Restaurant is within the sole discretion of
the Company, which shall not be unreasonably withheld.
The right to
elect to continue the Franchise at a new Restaurant location may be
exercised by either party only if there is a total taking of the
Restaurant property or a Material Partial Taking of the Restaurant
property. For purposes of this Agreement, "Material Partial Taking"
is the taking of any portion of the restaurant building, the loss
of twenty percent (20%) or more of the parking area or number of
parking spaces on the Restaurant property or the loss of drive-thru
facilities on the Restaurant property. Regardless of the provisions
set forth above, if any Proceeding occurs after the tenth (10th)
anniversary of this Agreement, then both parties must agree in
writing to continue the Franchise and the terms of this Agreement.
In the event the Proceeding results in less than a total or
Material Partial Taking, Franchisee agrees to repair or restore any
damage to the Restaurant property in the manner set forth for fire
and casualty losses in Section 3.02 herein.
SECTION
4. SUPPLIES, FOOD PRODUCTS, RECIPE ITEMS AND
UNIFORMS
4.01. Use of
Food Supplies and Other Items . Franchisee agrees:
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(a)
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to serve, sell
or offer for sale all of the (and only the) food and beverage
products that: (i) are listed in the then-current standard menu or
menus specified by the Company, (ii) meet the Company's uniform
standards of quality and portions, and (iii) have been prepared in
accordance with the recipes and food handling and preparation
methods and procedures designated from time to time in the
Operating Standards Manual or otherwise in writing;
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(b)
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to maintain in
sufficient supply all of the food, beverage and other items
served;
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(c)
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not to deviate
from the Company's standards, specifications and procedures for
serving or selling the same without the Company's prior written
consent; and
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(d)
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to discontinue
serving, selling or offering for sale any such items as the Company
may, in its discretion, disapprove in writing at any
time.
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4.02.
Samples . Franchisee further agrees to permit the Company or
its agents, at any reasonable time, to remove from the Restaurant
certain samples of any inventory items, without payment therefor,
in amounts reasonably necessary for testing by the Company or an
independent certified laboratory to determine whether the samples
meet the Company's then-current standards and
specifications.
4.03.
Suppliers of Food Supplies and Other Items . Franchisee will
purchase approved food products and other items only from sources
approved by the Company (which may include the Company and/or its
affiliates). The Company may from time to time modify the list of
approved items, brands and suppliers, and Franchisee shall not,
after receipt in writing of such modification, reorder any item or
brand or reorder from any supplier which is no longer approved. If
Franchisee proposes to use or serve any food or beverage item or
other ingredient or proposes to use any item, brand or supplier
which is not approved at that time, it shall first notify the
Company and submit sufficient information, specifications and
samples concerning such item, brand or supplier for a determination
by the Company whether such item or brand complies with the
Company's specifications and standards and whether such supplier
meets the Company's approved supplier criteria. The Company shall,
within a reasonable time, notify Franchisee whether or not such
proposed item, brand or supplier is approved. The Company shall
approve such proposed item, brand or supplier, if in the Company's
sole judgment and discretion, it is satisfied that the proposed
item, brand or supplier meets the Company's specifications,
standards and requirements. The Franchisee will reimburse the
Company for the costs and expenses relating to the testing,
research and investigation of proposed items, brands or suppliers.
Notwithstanding the above, the Company shall not be obligated to
approve more than a reasonable number of suppliers or products used
or served by the Restaurant.
4.04.
Uniforms . Franchisee shall purchase and use uniforms and
costumes for its employees which conform strictly to the
specifications, design and style of the Company existing from time
to time, as required in the Operating Standards Manual or
other-wise in writing.
SECTION
5. OPERATING STANDARDS .
5.01. Operational Standards .
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(a)
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The Company
will loan to Franchisee during the term of the Franchise one copy
each of the Operating Standards Manual, and other applicable
manuals and publications of the Company for STEAK N SHAKE
Restaurants, containing mandatory and suggested specifications,
standards and operating procedures prescribed from time to time by
the Company for STEAK N SHAKE Restaurants and information relative
to other obligations of Franchisee hereunder for the operation of a
STEAK N SHAKE Restaurant. The Company shall have the right to
modify the Operating Standards Manual and other manuals and
publications from time to time to reflect changes in authorized
products and services, standards of product quality and services
for the operation of a STEAK N SHAKE Restaurant.
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(b)
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Franchisee
shall keep current all copies of the Operating Standards Manual and
other manuals. The master copies maintained by the Company at its
principal office shall control in the event of a dispute relative
to the contents thereof.
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(c)
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Franchisee
shall comply with all federal, state and local laws, rules and
regulations and shall timely obtain any and all permits,
certificates or licenses necessary for the full and proper conduct
of the business franchised under this Agreement, including, without
limitation, building and other required construction and occupancy
permits, licenses to do business, fictitious name registration,
sales tax permits, health and sanitation permits and ratings and
fire code clearances. Copies of all inspection reports, warnings,
certificates and ratings issued by any governmental entity during
the term of this Agreement in connection with the conduct of the
franchised business which cites or indicates Franchisee's failure
to meet or maintain the highest governmental standards or failure
to fully comply with any applicable law, rule or regulation, shall
be forwarded to the Company within five (5) days of Franchisee's
receipt thereof. Franchisee shall remedy such failure within the
required time period as specified in the respective citation,
report or other notices, or within ten (10) days if no time period
is so specified.
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5.02.
Operating Hours . During the term of this Agreement,
Franchisee shall be open and in normal operation for twenty-four
hours per day, seven days per week, or such other minimum hours and
days as the Company may from time to time reasonably prescribe in
writing.
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(a)
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All of the
Franchisee's managerial employees are required to successfully
complete the management training program (Phase I) prescribed by
the Company at such place and time as the Company may designate,
but prior to performing duties in or related to the Restaurant.
Additionally, any general managers or multi-unit managers must
complete Phase II training provided by the Company. At the
Company's option, such training may take place at a STEAK N SHAKE
Restaurant(s) operated by Franchisee and may be conducted by
properly trained Franchisee personnel. Franchisee shall be solely
responsible for the compensation of trainees and their travel,
lodging and living expenses incurred in connection with the
attendance at such programs.
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(b)
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In addition to
the required management training, all other employees of Franchisee
must undergo such on-the-job and instructional training as the
Company may from time to time require.
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(c)
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Franchisee,
and/or such executive, managerial, supervisory and other employees
of Franchisee shall attend and successfully complete all subsequent
training, refresher and retraining programs which the Company may
conduct and require Franchisee and/or designated employees to
attend, in its reasonable discretion.
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(d)
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Upon failure of
Franchisee or any manager or employee of Franchisee to complete
successfully, for any reason, any training, retraining or refresher
program required by the Company, Franchisee shall require some
other trainee to attend and successfully complete the program, and
to operate the franchised business thereafter as its manager or
otherwise perform the functions of the category of employee for
which the training program was offered, if the Company, at its
option, so directs.
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(e)
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There shall be
no tuition charge for the training required by subsections (a),
(b), (c) and (d) of this Section 5.03 , but Franchisee shall
pay all expenses of travel, room, board, training supplies and
materials and salaries or wages of its employees while in
training.
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(f)
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Franchisee
shall replace any manager who the Company determines is not
qualified to manage a Restaurant in accordance with the System and
its standards.
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(g)
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The Company
will provide the initial training materials and supplies, which are
part of the System. Franchisee will purchase any additional or
replacement training materials and supplies, as may be specified by
the Company, to properly conduct such training as is established
and published from time to time in the Operating Standards
Manual.
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5.04.
Continuing Services . The Company will:
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(a)
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furnish to
Franchisee, from time to time, such merchandising and operating
aids and services, bulletins, newsletters, reports and other
printed material in connection therewith, as are generally
furnished to its other STEAK N SHAKE Franchisees.
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(b)
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from time to
time, at its discretion, provide written or verbal consultation and
advice or send representatives to Franchisee's premises to consult
with Franchisee or its management representative relative to the
operation of the Restaurant; and shall periodically inspect the
premises of the Restaurant (with or without prior notice) and the
Equipment and Furnishings thereon and the products served by
Franchisee therein to determine the efficiency and quality of the
operation and the faithfulness of compliance with the
System.
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(c)
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on reasonable
written request by Franchisee as determined by the Company, furnish
services to Franchisee to aid in the solution of specific problems
encountered by Franchisee which are beyond the scope of the
Company's obligations in subsection (b) above. Franchisee
shall reimburse the Company promptly for its actual time and actual
expenses incurred in aiding Franchisee with such
problems.
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SECTION
6. FEES AND ADVERTISING EXPENDITURES .
6.01.
Franchise and Royalty Fees .
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(a)
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On or before
the Franchise Date, Franchisee shall pay to the Company an initial
nonrecurring franchise fee payable on the execution of this
Agreement in the amount of Twenty Thousand Dollars and 00/100
($20,000.00) (the "Initial Fee"). Nothing herein is intended to
represent or guarantee the amount of the Initial Fee for any
Restaurant other than the one franchised by the terms of this
Agreement. The Initial Fee is nonrefundable..
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(b)
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Franchisee
shall pay to the Company as a royalty fee, a sum equal to four
percent (4%) of Franchisee's "Gross Receipts" (as defined in
Section 6.03 hereof) ("Royalty Fee") from the operation of
the Restaurant, provided however that for the first two years
following the Franchise Date, half of this royalty fee shall be
deferred ("Deferred Royalty Fee"). Commencing on the second
anniversary of the Franchise Date the Franchisee shall begin paying
the full amount of the Royalty Fee, plus an additional one percent
(1%) of Gross Receipts, until the Deferred Royalty Fee is paid in
full. The Royalty Fee, and Royalty Fee with Deferred Royalty Fee
reimbursement amounts, shall be paid on or before the seventh (7th)
day after the end of each four week accounting period, or, at the
Company's option, by the seventh (7th) day after the end of each
week for the preceding week's receipts.
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6.02.
Advertising and Marketing Expenditures . Franchisee
understands and hereby acknowledges that advertising, marketing and
promotional activities are essential to the furtherance of the
goodwill and public image of the Company and the success of the
business franchised hereunder, and agrees as follows:
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(a)
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Franchisee will
expend a reasonable amount annually, but in no event less than five
percent (5%) of its Gross Receipts for advertising and marketing.
Price discounts on products will not be included in calculating
compliance with this requirement. Included in the required
advertising and marketing expenditures will be a payment to the
Company of one percent (1%) of Gross Receipts which will be used by
the Company, at its sole discretion, for expenditures reasonably
related to the creation, development, administration and
supervision of marketing and advertising programs and menu
development for all STEAK N SHAKE restaurants.
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(b)
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At the
Company's option, Franchisee will pay to the Company or its
designee five percent (5%) of Franchisee's Gross Receipts from the
operation of the franchised business to be credited to an
advertising account for Franchisee payable by the seventh (7th) day
after the end of each four week accounting period, or, at the
Company's option, by the seventh (7th) day after the end of each
week for the preceding week's receipts. The monies in the
advertising account will be used by the Company, at its sole
discretion, for the implementation of local and/or regional and/or
national marketing and advertising programs intended to increase
general public recognition and acceptance of STEAK N SHAKE
Restaurants in the Franchisee’s Market area, with one percent
(1%) of the account being used by the Company for creation and
development of marketing as set forth in subsection (a) above.
These marketing and advertising expenditures will be credited
toward the advertising and marketing expenditure requirements
described in subparagraph (a) of this Section. The Company will
administer the advertising account, which will not be subject to
audit by the Franchisee. The Company will create a periodic
statement of monies collected and costs incurred for the
implementation portion of the advertising account, and will provide
such periodic statement to Franchisee not less frequently than
semi-annually. No monies in such advertising account are refundable
upon the termination or expiration of this Agreement, as such
monies are to be used by the Company to further the goodwill and
public image of the Marks and the STEAK N SHAKE brand.
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6.03.
Definition of Gross Receipts . "Gross Receipts" for purposes
herein shall mean and include the total actual gross charges for
all food, beverages, services (including service charges in lieu of
gratuities) and other products and services sold to customers of
the Restaurant, for cash or credit, regardless of whether or not
such sales are made from the premises of the Restaurant or any
other location. Excluded from Gross Receipts are sales, use,
service or excise taxes collected from customers and paid to the
appropriate taxing authority, customer refunds, discounts and
adjustments, employee discounts and proceeds from vending machine
sales for newspapers and pay telephones.
6.04.
Interest on Late Payments . All royalty fees, service fees,
advertising contributions, amounts due for purchases from the
Company or its affiliates and other amounts which Franchisee owes
to the Company or its affiliates shall bear interest after the due
date at the lesser of the highest legal rate permissible or 18
percent (18%) per annum. Franchisee acknowledges that this
Section 6.04 shall not constitute the Company's agreement to
accept such payments after same are due or a commitment by the
Company to extend credit to, or otherwise finance, Franchisee's
operation of the 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 11
, notwithstanding the provisions of this Section 6.04
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6.05. Credit
Cards and Other Methods of Payment . Franchisee shall make
arrangements with the suppliers or sponsors of such credit cards,
check verification services or electronic funds transfer systems
for such services as the Company may designate from time to time in
order that the Restaurant may accept customers’ credit cards,
checks, gift cards or other methods of payment.
6.06.
Vending Machines . No vending machines, video games,
jukeboxes, gum or candy machines, pinball machines, rides or other
mechanical devices (other than pay telephones and newspaper vending
machines), in addition to those (if any) already installed in the
Restaurant, shall be installed or operated on the Restaurant
property without the Company's prior written consent.
6.07. Fees
Non-Refundable . All fees and other amounts payable to the
Company under this Agreement are non-refundable.
6.08.
Payment By Electronic Transfer . The Company reserves the
right to require Franchisee to pay amounts due to the Company under
this Section 6 via electronic transfer.
7.01.
Origination and Approval of Advertising .
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(a)
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Recognizing the
value of advertising and the importance of the standardization of
advertising to the furtherance of the goodwill and public image of
the STEAK N SHAKE System, Franchisee agrees that the Company or its
designee shall have the right to conduct, determine, maintain and
administer all national, regional, local and other advertising and
marketing as may be instituted by the Company from time to time,
and to direct all such advertising and marketing with sole
discretion over the concepts, materials, form, copy, layout and
content used therein.
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(b)
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Franchisee
understands and acknowledges that advertising expenditures are
intended to maximize general public recognition and acceptance of
all STEAK N SHAKE Restaurants, and the Company and its designee(s)
make no representation or warranty that any particular STEAK N
SHAKE Restaurant, including the Restaurant operated under this
Agreement, will benefit directly or pro rata from such
advertising.
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(c)
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Franchisee
shall be free to conduct, at its separate expense, supplemental
advertising in addition to the advertising received for the
expenditures specified in Section 6.02 herein, to promote
and increase the demand for the products and services of its own
STEAK N SHAKE Restaurant. All such supplemental advertising shall
either have been prepared or previously approved in writing by the
Company.
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7.02.
Advertising Agency . The Company shall have the right to
delegate its responsibilities and duties hereunder to an
advertising agency or any designee(
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