EXHIBIT 10.4 Franchise Agreement between Kalaha Franchise Corp. and GFY, Inc.
FRANCHISE AGREEMENT
BETWEEN
KAHALA FRANCHISE CORP.
And
---
GFY, INC., AN ILLINOIS CORPORATION
ARTICLE 1. GRANT OF FRANCHISE TERRITORY ......................................2
1.1 FRANCHISE GRANT .....................................................2
1.2 EXCLUSIVE TERRITORY .................................................3
1.3 FRANCHISEE REPRESENTATIONS ..........................................3
1.4 TERM OF AGREEMENT ...................................................4
ARTICLE 2. SITE SELECTION AND FRANCHISE DEVELOPMENT ..........................4
2.1 SITE SELECTION PROCEDURES............................................4
2.2 LEASE AND PURCHASE APPROVAL..........................................4
2.3 CONSTRUCTION.........................................................4
2.4 SIGNAGE..............................................................6
2.5 RELOCATION...........................................................6
2.6 RESTRICTED USE OF RESTAURANT SITE....................................6
ARTICLE 3. OPERATIONS ........................................................6
3.1 COMMENCING OPERATIONS ...............................................6
3.2 SUPPLIES AND PROMOTIONAL MATERIALS; ROLL-OUTS .......................7
3.3 EQUIPMENT ...........................................................7
3.4 INTERNET SITE HOSTING ...............................................7
ARTICLE 4. TRAINING, ASSISTANCE AND START-UP MATERIALS .......................8
4.1 INITIAL TRAINING PROGRAM ............................................8
4.2 EMPLOYEE TRAINING ...................................................8
4.3 ADDITIONAL PROGRAMS; CONTINUING ASSISTANCE ..........................9
4.4 CONFIDENTIAL OPERATIONS MANUALS .....................................9
4.5 COMPUTER SYSTEMS; DEBIT AND CREDIT CARD PROCESSING .................10
ARTICLE 5. FEES AND DEPOSITS ................................................10
5.1 INITIAL FRANCHISE FEE...............................................11
5.2 ROYALTY FEE.........................................................11
5.3 ADVERTISING FEES....................................................11
5.4 DEPOSITORY ACCOUNT..................................................12
5.5 LEASE GUARANTEE FEE.................................................13
5.6 LEASE NEGOTIATION FEE...............................................13
5.7 ADDITIONAL TRAINING FEE.............................................13
5.8 RENEWAL FEE.........................................................13
5.9 TRANSFER FEE .......................................................14
5.10 TRAINING FEE ......................................................14
5.11 LATE REPORT, NON-SUFFICIENT FUNDS AND DEFAULT FEES ................14
5.12 AUDIT FEES ........................................................14
5.13 NO ACCORD OR SATISFACTION .........................................15
ARTICLE 6. PROPRIETARY MARKS ................................................15
6.1 OWNERSHIP AND RIGHT TO USE .........................................15
6.2 COVENANTS OF FRANCHISE OWNERS ......................................15
6.3 LIMITATIONS ON FRANCHISE OWNER'S USE OF PROPRIETARY MARKS ..........16
6.4 NON-EXCLUSIVE LICENSE OF PROPRIETARY MARKS .........................17
6.5 NOTIFICATION OF INFRINGEMENT AND CLAIMS ............................17
ARTICLE 7. TRADE SECRETS AND PROPRIETARY INFORMATION ........................17
7.1 OWNERSHIP AND USE ..................................................17
7.2 CONFIDENTIALITY AGREEMENT ..........................................18
ARTICLE 8. RELATIONSHIP OF THE PARTIES AND INDEMNIFICATION ..................18
8.1 RELATIONSHIP OF THE PARTIES ........................................18
8.2 INDEMNIFICATION OF FRANCHISOR ......................................18
8.3 INDEMNIFICATION OF FRANCHISEE ......................................19
8.4 SURVIVAL ...........................................................19
ARTICLE 9. OPERATING STANDARDS AND DUTIES OF FRANCHISE OWNER ................19
9.1 GENERAL OPERATING STANDARDS AND COMPLIANCE WITH OPERATIONS
MANUALS ..........................................................19
9.2 AUTHORIZED PRODUCTS AND SERVICES ...................................19
9.3 SPECIFICATIONS AND STANDARDS FOR SUPPLIES; APPROVED SUPPLIERS;
ROLL-OUTS ........................................................20
9.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND GOOD BUSINESS PRACTICES .....21
9.5 MAINTENANCE OF INSURANCE ...........................................21
9.6 MANAGEMENT OF THE FRANCHISED BUSINESS ..............................22
9.7 CONFLICTING AND COMPETING INTERESTS ................................22
9.8 INSPECTIONS BY FRANCHISOR ..........................................22
9.9 SHAREHOLDER GUARANTY ...............................................23
9.10 OWNERSHIP REPORTS .................................................23
ARTICLE 10. ADVERTISING AND PROMOTION .......................................23
10.1 ADVERTISING BY FRANCHISOR .........................................23
10.2 ADVERTISING BY FRANCHISEE .........................................24
ARTICLE 11. ACCOUNTING PROCEDURES AND REPORTS ...............................24
11.1 MAINTENANCE OF RECORDS ............................................24
11.2 AUDIT BY FRANCHISOR ...............................................26
11.3 OWNERSHIP INFORMATION .............................................26
ARTICLE 12. ASSIGNMENT, SALE OR TRANSFER ....................................27
12.1 PRIOR CONSENT OF FRANCHISOR TO ASSIGNMENT .........................27
12.2 ADVANCE NOTICE OF PROPOSED TERMS AND RIGHT OF FIRST REFUSAL .......27
12.3 REQUIREMENT FOR CONSENT TO TRANSFER ...............................28
12.4 DEATH OR INCAPACITY OF FRANCHISEE .................................29
12.5 ASSIGNMENT BY FRANCHISOR ..........................................29
12.6 RESTRICTIONS ON SECURITY INTERESTS AND SUBFRANCHISING .............30
ARTICLE 13. RENEWAL OF FRANCHISE ............................................30
ARTICLE 14. DEFAULT AND TERMINATION .........................................32
14.1 DEFAULT; TERMINATION ..............................................32
14.2 OPPORTUNITY TO CURE ...............................................33
14.3 REMEDIES ..........................................................34
14.4 EFFECT OF TERMINATION OR EXPIRATION ...............................35
14.5 CONFIDENTIALITY; COVENANT NOT TO COMPETE ..........................37
14.6 CONTINUING OBLIGATIONS ............................................38
14.7 RIGHT TO USE ......................................................38
14.8 REMEDIES ..........................................................38
ARTICLE 15. NOTICES .........................................................38
ARTICLE 16. CONSTRUCTION AND ENFORCEMENT; MISCELLANEOUS .....................38
16.1 INDEPENDENT CONTRACTORS ...........................................38
16.2 SEVERABILITY AND SUBSTITUTION OF PROVISIONS .......................39
16.3 APPLICABLE LAW AND FORUM; WAIVER OF JURY ..........................39
16.4 NO GUARANTEE OF FRANCHISEE'S SUCCESS ..............................40
16.5 EXISTENCE OF VARIOUS FORMS OF FRANCHISE AGREEMENTS ................40
16.6 FRANCHISE OWNER MAY NOT WITHHOLD PAYMENTS .........................40
16.7 REMEDIES ARE CUMULATIVE............................................40
16.8 INTERPRETATION ....................................................40
16.9 WAIVER.............................................................40
16.10 LITIGATION EXPENSE................................................40
16.11 CROSS DEFAULT.....................................................41
16.12 CROSS TERMINATION.................................................41
16.13 NO THIRD PARTY BENEFICIARIES......................................41
16.14 BINDING EFFECT; MODIFICATION......................................41
16.15 ENTIRE AGREEMENT; NATURE AND SCOPE; CONSTRUCTION..................41
16.16 TERMINOLOGY.......................................................42
16.17 COUNTERPARTS......................................................42
16.18 OFFERINGS.........................................................42
16.19 TIME .............................................................43
16.20 GENDER, NAME AND CAPTIONS.........................................43
16.21 NATURE OF LIABILITY...............................................43
ARTICLE 17. ACKNOWLEDGMENTS AND REPRESENTATIONS OF FRANCHISEE................43
17.1 CERTAIN REPRESENTATIONS AND WARRANTS OF FRANCHISEE ................43
17.2 ADDITIONAL INFORMATION RESPECTING FRANCHISEE.......................45
17.3 ACKNOWLEDGEMENTS OF FRANCHISEE.....................................45
ARTICLE 18. SUBMISSION OF AGREEMENT..........................................46
18.1 NO OFFER BY FRANCHISOR ............................................46
EXHIBITS
--------
EXHIBIT 1 OWNERSHIP INFORMATION SHEET
EXHIBIT 2 REQUIRED LEASE TERMS
EXHIBIT 3 ELECTRONIC FUNDS TRANSFER AUTHORIZATION
EXHIBIT 4 GUARANTY OF CONTRACT FRANCHISE AGREEMENT
EXHIBIT 5 ADDENDUM TO FRANCHISE AGREEMENT AND RELATED FRANCHISE DOCUMENTS FOR
NON-TRADITIONAL LOCATIONS (IF APPLICABLE)
EXHIBIT 6 STATE SPECIFIC ADDENDUM (IF APPLICABLE)
FRULLATI CAFE AND BAKERY
FRANCHISE AGREEMENT
PARTIES:
--------
KAHALA FRANCHISE CORP., ("Franchisor")
a Delaware corporation
0000 Xxxx Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
GFY, Inc. ("Franchisee")
a(n) Illinois
corporation
000 Xxxxxxxxx Xxxxxxx
Xxxxxxx Xxxxx, Xxxxxxxx 00000
STORE NAME AND NO.:
EFFECTIVE DATE:
TRADITIONAL OUTLET (YES OR NO): NO
OUTLET DESCRIPTION IF NON-TRADITIONAL: WITHIN HEALTH CLUB
A Traditional location offers a full menu selection, and a
Non-Traditional location offers a limited menu selection. Non-Traditional
locations consist of an event cart, kiosk, express or co-branded location, or an
outlet located within a health club, travel plaza, or convenience store.
To simplify the language in this Agreement, the terms "we," "us," "our"
and the like may be used to refer to the Franchisor, and the terms "you," "your"
and the like may be used to refer to the Franchisee.
RECITALS:
---------
This Agreement is entered into with reference to the following facts
and circumstances:
A. Franchisor has over a period of time and at considerable expense
developed and established a uniform and unique method of operation, customer
service, advertising, publicity, processes, recipes, techniques and technical
knowledge in connection with the restaurant business, specializing in salads,
sandwiches, soups, fresh baked goods, blended fruit and vegetable drinks,
proprietary nutritional products and supplements, and other beverage and snack
items. These restaurants do business under the trade name "FRULLATI CAFE AND
BAKERY' (sometimes referred to as "outlets" or "restaurant(s)"). Many of these
recipes, techniques, and much of the information, constitute trade secrets. All
of the outlets' knowledge, experience, processes, methods, specifications,
techniques and proprietary marks and information of Franchisor are referred to
in this Agreement as the "System."
1
B. Franchisor owns and has issued franchises to others for the
operation of outlets in the United States of America and in other countries.
Franchisor has registered the trademarks and service marks "FRULLATI CAFE AND
BAKERY' and other related proprietary marks with the United States Patent and
Trademark Office and, if necessary, with offices in other countries serving
similar functions. These proprietary interests, trademarks, service marks,
logos, insignias, copyrights, domain names, trade names and trade dress are
referred to in this Agreement as the "Proprietary Marks."
C. Franchisor is engaged in the business of licensing to
independently-owned businesses the right to use the Proprietary Marks in
connection with the operation and promotion of the System.
D. Franchisee understands and recognizes that: (1) the developments and
properties of Franchisor as recited above are of considerable value; and (2) it
is of importance to Franchisor and all of its franchisees to maintain the
development of the System in a uniform and distinctive manner, allowing
Franchisee and all other franchisees of Franchisor to enjoy a public image and
reputation greatly in excess of that which any single Franchisee could
establish.
E. Franchisee desires to make use of the trademark and service xxxx
"FRULLATI CAFE AND BAKERY' and to enjoy the benefits of that xxxx, the other
Proprietary Marks, and the System; and to establish A "FRULLATI CAFE AND BAKERY'
franchise to be operated in accordance with the methods, practices and
procedures set forth from time to time by Franchisor in its confidential
Operations Manuals, Construction and Design Manuals, and related documents, both
now existing and hereinafter developed (collectively, the "Operations Manuals").
Franchisor is willing to grant Franchisee the right to do so under the terms,
conditions and provisions set forth in the following Agreement. (This Agreement,
along with the Appendices, Addenda, Attachments and Exhibits, attached to it
and/or executed with it constitute the Franchise Agreement, and are referred to
in this Agreement as the "Franchise Agreement" or this "Agreement.")
F. Franchisee recognizes the necessity and desirability of protecting
the reputation, goodwill, trade secrets, and confidential business information
of Franchisor; and that disclosure of trade secrets and confidential business
information, including specifics of the System to any third party, will cause
irreparable damage and harm to Franchisor.
AGREEMENT:
----------
The parties agree as follows:
ARTICLE 1. GRANT OF FRANCHISE TERRITORY
1.1 FRANCHISE GRANT.
Franchisor grants Franchisee A FRULLATI CAFE AND BAKERY Restaurant
Franchise that includes the right to use the System and the Proprietary Marks as
provided in this Agreement, at the following location (the "Franchised
Business"):
2
Enclosed Structure Description: (if applicable)
Street Address: City:
State/Zip Code:
1.2 EXCLUSIVE TERRITORY.
a. For franchises located in shopping malls or within another enclosed
structure (i.e. airport, medical center, office building, health club,
entertainment and sports complex, etc.), as identified under the "Enclosed
Structure Description" in SECTION 1.1 above, Franchisee's exclusive territory is
limited to the identified shopping mall or other enclosed premises. In all other
cases, we will not establish or franchise another "FRULLATI CAFE AND BAKERY'
restaurant within a radius of one (1) mile of the above address, unless the
parties have agreed to a different exclusive territory, as set forth below, due
to the Franchised Business being located in a highly dense area or a highly
remote area, as applicable (as applicable, the "Territory"), unless Franchisee
first gives its written consent, and except for the sale of pre-packaged
FRULLATI CAFE AND BAKERY branded products in grocery stores and other
distribution outlets in the Franchisee's exclusive Territory. You hereby
acknowledge that Franchisor also currently franchises the following quick
service restaurants that may be similar to the Franchised Business: (i) Taco
Time, (ii) Great Steak and Potato, (iii) Rollerz, (iv) Surf City Squeeze, (v)
Samurai Sam's, and (vi) Ranch *1 (collectively, the "Additional Concepts"). You
further acknowledge that Franchisor may sell franchises of its Additional
Concepts to third parties and/or operate one or more locations of its Additional
Concepts as company-owned locations within your exclusive Territory. You may
relocate the Franchised Business within its granted Territory only with our
prior written consent and approval of the relocation site as set for in SECTION
2.5 below.
Different Exclusive Territory:
b. This franchise is granted only for the specific location (the
"Site', or the "Premises") and Territory identified above, and grants no rights
outside that Site and Territory; nor does it include any territorial protection
against competition. We reserve the sole and unlimited right to establish and
operate, or to permit others to operate, FRULLATI CAFE AND BAKERY franchises at,
or grant FRULLATI CAFE AND Bakeryfranchises for, any other locations.
c. There is no minimum sales quota to maintain your Territory.
1.3 FRANCHISEE REPRESENTATIONS.
Franchisee and all shareholders, partners, and members of Franchisee
represent and warrant that each individual is a United States citizen or a
lawful resident alien of the United States; that each corporation or other
business entity that is a party to this Agreement is and shall remain duly
organized and in good standing during the term of this Agreement; and that all
financial and other information that Franchisee has provided to us in connection
with Franchisee's application for this FRULLATI CAFE AND Bakery franchise is
true and accurate.
3
1.4 TERM OF AGREEMENT.
The term of this Agreement will commence on the Effective Date of this
Agreement and will terminate on the earlier of the following: (i) the ten (10)
year anniversary of the date of this Agreement; or (ii) the expiration of the
term of the real estate lease for the Premises of the Franchised Business,
including any renewal options thereto (the "Term"), unless terminated earlier in
accordance with ARTICLE 14 of this Agreement or any other provisions of this
Agreement, or renewed in accordance with ARTICLE 13 of this Agreement.
ARTICLE 2. SITE SELECTION AND FRANCHISE DEVELOPMENT
2.1 SITE SELECTION PROCEDURES.
You must select a Site approved by us in writing, for the FRULLATI CAFE
AND BAKERY restaurant within one hundred and eighty (180) days after the date of
this Agreement. If you cannot secure an acceptable Site for your restaurant in
your Territory within one hundred and eighty (180) days after the date of this
Agreement, then we may terminate this Agreement by giving you written notice to
that effect. We will have no obligation to refund to you all or any part of your
Initial Franchise Fee (as defined in SECTION 5.1 of this Agreement) in the event
of such a termination, as the retention of the Initial Franchise Fee by us will
be deemed liquidated damages.
2.2 LEASE AND PURCHASE APPROVAL.
If you intend to lease the Site for your FRULLATI CAFE AND BAKERY
restaurant, the lease will be subject to our prior approval, and you must
provide us with a copy of the lease and details relating to square footage,
rental per square foot, the term of the lease, and such other terms as we
reasonable require at least ten (10) days prior to executing the lease. Each
such lease must contain the provisions set forth in EXHIBIT 2 attached to this
Agreement, and must specifically state that we are a third party beneficiary of
the lease. If we cure any default by you under the lease, any amounts that we
pay to cure the default will be payable by you to us on demand, together with
interest thereon, at the rate of one and one-half percent (11/2%) per month from
the date we make such payment; or, if less, at the maximum rate that does not
violate applicable state usury laws (the "Default Rate").
If you intend to purchase the Site for your FRULLATI CAFE AND BAKERY
restaurant, the terms of such purchase shall be subject to our prior approval,
and you must provide us with a copy of the purchase agreement and details
relating to square footage, price per square foot and such other terms as we
reasonably require, at least ten (10) days prior to executing the purchase
agreement.
You acknowledge and understand that our approval of any specific
location, lease or purchase agreement does not in any way guarantee or ensure
its success or profitability, or its conformity to applicable laws, and such
approvals are only for our own benefit.
2.3 CONSTRUCTION.
a. You must, at your own cost and expense, construct, furnish and equip
the FRULLATI CAFE AND BAKERY restaurant at the Site selected by you and approved
by us, in accordance with plans and specifications approved by us and/or our
third party approved architect. You must, at your own cost and expense, use our
designated and approved third party architect and project
4
management firm (the "Firm") as set forth in the Operations Manuals. You or the
Firm must provide us with one (1) set of detailed plans and specifications,
including landscaping and parking space, if applicable, (the "Plans") for your
Franchised Business within fifteen (15) days after selection of the Site. We
will have fifteen (15) days thereafter to approve or disapprove of the Plans
(the "Review Period"). If we do not advise you or the Firm of our disapproval in
writing prior to the end of the Review Period, the Plans will be deemed to have
been approved by us. If we disapprove of the Plans, we will so advise you or the
Firm in writing prior to the end of the Review Period and specify the reasons
for our disapproval. In this event, we will meet with you or the Firm and
attempt in good faith to agree upon acceptable Plans.
b. If such an agreement is not reached within ten (10) days after the
expiration of the Review Period, we may terminate this Agreement by giving you
written notice to that effect. We will have no obligation to refund to you all
or any part of the Initial Franchise Fee in the event of such a termination. If
such an agreement is reached, you or the Firm will, as soon as practical,
provide to us at your expense, a revised set of Plans reflecting the agreed-upon
changes.
C. Any material modifications to the approved Plans must be submitted
to us for approval, and you will not undertake any construction until such
modifications have been approved by us. Any modifications to approved Plans
thereto are for our benefit only and not for your benefit or that of any third
party. Such modifications do not constitute any representation by us that the
Plans comply with applicable zoning laws, building codes or other laws.
d. You will be responsible for the cost of obtaining all necessary
governmental construction permits and licenses, and you, with the assistance of
the Firm, must, at your expense, comply with all laws, zoning ordinances, rules
and regulations of any governmental agencies that may govern the construction of
the FRULLATI CAFE AND BAKERY restaurant in accordance with the approved Plans.
We will have the right, but are not required, to meet with the Firm and/or
inspect the construction during its course (for our sole benefit and not for
your benefit or the benefit of any third party) in order to assure that the
provisions of this SECTION 2.3 are being observed; and you agree to allow our
authorized representatives, at any and all times while construction is in
progress, to meet with the Firm and enter onto the Site for this purpose. If we
determine in good faith that the provisions of this SECTION 2.3 are not being
observed, you will, at your expense, immediately take all necessary corrective
action.
e. You acknowledge that the design and appearance of the FRULLATI CAFE
AND BAKERY restaurant is part of the System, and that uniformity is essential to
the success of the System. Therefore, you agree that after the restaurant has
been constructed, you will not make any material changes to the building plan or
design or its appearance without our prior written consent, and you will, at
your expense, maintain the interior and exterior decor of the restaurant in a
first class condition and in such manner as we may reasonably prescribe from
time to time. In addition to any remodeling required by us upon the renewal of
this Agreement and upon the assignment of the Franchised Business, as set forth
in SECTIONS 13 and 14, respectively, you will, upon thirty (30) days written
notice from us, and at your sole cost and expense, remodel and make all
improvements and alterations in and to your FRULLATI CAFE AND BAKERY restaurant
as reasonably determined by us to reflect the then-current FRULLATI CAFE AND
BAKERY specifications, standards, format, image and appearance.
5
2.4 SIGNAGE.
You will acquire signs for advertising and identifying the Franchised
Business as a FRULLATI CAFE AND BAKERY restaurant. All signs must be in
accordance with the standards and specifications of Franchisor and any local
governing body (i.e. city, county, etc.). You acknowledge that quality control
is essential to protect and promote our Proprietary Marks, standards, and
uniform image; and you shall acquire all signs only from approved suppliers
specified in the Operations Manuals or approved by us in writing. In addition,
you shall prominently display on all forms, advertising, literature and business
cards, and in a sign easily visible to consumers at the Franchised Business, the
following words: "Each Frullati Cafe and Bakery Restaurant is Independently
Owned and Operated."
2.5 RELOCATION.
If you desire to relocate the Franchised Business in the Territory, you
may request our consent upon the following conditions:
a. Not less than 60 days prior to the desired date of
relocation (unless prior notice is impractical because of a required
relocation in which event notice shall be made as soon as possible),
you must make a written request for consent to relocate, describing the
reasons for the relocation and providing details respecting any
proposed new location.
b. Within 21 days after receiving your written request, we
shall either approve or disapprove in writing such closure or
relocation in our sole discretion. In the event of disapproval of a
relocation, you may request an alternative proposed new location
pursuant to the provisions of this SECTION 2.5.
2.6 RESTRICTED USE OF RESTAURANT SITE
You shall not wholly or partially sublet the Site without our prior
written consent. The Site may be used only for the operation of a FRULLATI CAFE
AND BAKERY restaurant in compliance with this Agreement and the Operations
Manuals. Franchisee shall not conduct other businesses or activities on the Site
without our prior written consent.
ARTICLE 3. OPERATIONS
3.1 COMMENCING OPERATIONS.
You agree to start operating your FRULLATI CAFE AND BAKERY restaurant
at the approved Site within twelve (12) months after the date of this Agreement.
You acknowledge that before starting operations you must, at your own expense,
do the following (in addition to any other requirements set forth in this
Agreement):
a. Complete, at your cost, the SERV SAFE national
certification course available through your local county health
department. You must provide us with a copy of your Certificate of
Completion prior to opening the FRULLATI CAFE AND BAKERY restaurant
covered by this Agreement;
b. Complete the Initial Training Program described in SECTION
4.1 of this Agreement;
6
c. Purchase, lease or otherwise acquire all the signage, supplies,
equipment, fixtures, inventory and all other items necessary to operate the
FRULLATI CAFE AND BAKERY Franchised Business from approved sources as described
in the Operations Manuals or in this Agreement; and
d. Obtain liability insurance in accordance with the requirements
described in SECTION 9.5 of this Agreement and provide to us evidence that such
insurance has been obtained.
Prior to opening the Franchised Business, you must notify us that you
have satisfied all requirements to begin operations, and provide us with such
documents as we may reasonably request that show your compliance with all such
requirements. Upon receipt of our acknowledgment that such requirements have
been satisfied, you will have five (5) days to begin operations of your FRULLATI
CAFE AND BAKERY restaurant. If you do not begin operations of your restaurant at
the approved Site before the expiration of the twelve (12) month period, then we
may terminate this Agreement by giving you written notice to that effect. We
will have no obligation to refund to you all or any part of the Initial
Franchise Fee (as defined in SECTION 5.1 of this Agreement) in the event of such
a termination, as the retention of the Initial Franchise Fee by us will be
deemed liquidated damages.
3.2 SUPPLIES AND PROMOTIONAL MATERIALS; ROLL-OUTS.
You agree to sell only those menu items, products and services
authorized under the terms of this Agreement and as specified in the Operations
Manuals, and you shall use only supplies and ingredients in making those menu
items that are in compliance with the standards as set forth in the Operations
Manuals or other documents provided by, or approved by, us as they presently
exist or exist in the future. You shall purchase all such supplies and
ingredients only from approved vendors and utilize approved distributor(s) as
specified in the Operations Manuals, or other documents provided by, or approved
by, us as they presently exist or exist in the future. You must purchase
supplies containing the Proprietary Marks only, including stationery, business
cards, promotional and advertising materials and similar items, from suppliers
approved by us, except that we must first approve all such promotional and
advertising materials before you use them, and all such printed materials
containing any of the Proprietary Marks shall be accompanied by the words
"INDEPENDENTLY OWNED AND OPERATED." Additionally, during the term of this
Agreement, Franchisee agrees to participate in any Roll-Out of new products
and/or suppliers, as detailed in SECTION 9.3 of this Agreement.
3.3 EQUIPMENT
Unless otherwise approved by us in writing, you will (1) acquire
equipment to be used in the operation of the FRULLATI CAFE AND BAKERY Franchised
Business that is in accordance with the standards and specifications set forth
by us in the Operations Manuals or other documents provided by, or approved by,
us as they presently exist or exist in the future; and (2) procure the equipment
from suppliers or vendors previously approved in writing by us.
3.4 INTERNET SITE HOSTING.
You may not maintain a World Wide Web site or otherwise maintain a
presence or advertise on the Internet or any other public computer network in
connection with the Franchised Business without our prior written approval,
which we may withhold for any reason or no reason. If we grant you written
approval, you agree to submit to us for approval before
7
use true and correct printouts of all Web site pages you propose to use in your
Web site in connection with the Franchised Business. You understand and agree
that our right of approval of all such Web materials is necessitated by the fact
that such Web materials will include and be inextricably linked with our
Proprietary Marks. You may only use material that we have approved. Your Web
site must conform to all of our Web site requirements, whether set forth in the
Operations Manuals or otherwise. You agree to provide all hyperlinks or other
links that we require. If we grant approval for a Web site, you may not use any
of the Proprietary Marks on the site except as we expressly permit. You may not
post any of our proprietary, confidential or copyrighted material or information
on the Web site without our prior written permission. If you wish to modify your
approved site, all proposed modifications must also receive our prior written
approval. You explicitly understand that you may not post on a Web site any
material which a third-party has any direct or indirect ownership interest in
(including, without limitation, video clips, photographs, sound bites,
copyrighted text, trademarks or service marks, or any other text or image which
any third-party may claim intellectual property rights in). If we grant
approval, you agree to list on the Web site any Web site maintained by us, and
any other information we require in the manner we dictate. You agree to obtain
our prior written approval for any Internet domain name and/or home page
address. The requirement for our prior approval set forth in this SECTION 3.4
will apply to all activities on the Internet or other communications network to
be conducted by you, except that you may maintain one or more e-mail addresses
and may conduct individual e-mail communications without our prior written
approval. You agree to obtain our prior approval as provided above if you
propose to send advertising to multiple addressees via e-mail.
ARTICLE 4. TRAINING, ASSISTANCE AND START-UP MATERIALS
4.1 INITIAL TRAINING PROGRAM.
We will provide you and one (1) of your employees (i.e., two natural
persons), with an Initial Training Program designed to inform the participants
as to the fundamentals of operating the Franchised Business, prior to your
opening of the Franchised Business. All personnel attending the Initial Training
Program must have a demonstrable relationship to the management and operation of
the Franchised Business. The Initial Training Program and all requisite
materials will be provided for you and one (1) of your employees for no
additional fee. If you will employ an on-Site supervisor, that individual must
complete the Initial Training Program, and must read and write English fluently.
If you desire to have more than two (2) people attend the Initial Training
Program, you must pay an additional Training Fee of Five Hundred Dollars
($500.00) for each such person. You will be responsible for your transportation
costs, food, lodging and other personal expenses and those of your employees in
connection with the Initial Training Program. The Initial Training Program will
generally last about nine (9) days, and will be conducted in the Phoenix,
Arizona metropolitan area, and/or at such other location as we may designate at
our sole discretion. You acknowledge that adequate knowledge regarding the
operation of the Franchised Business is essential to the success of your
franchise and to the promotion of the System. You shall have an option to obtain
additional training and promotional services at $300 per person per day of
additional training. Based upon your prior experience in the food service
industry and subject to our approval, you may waive all or a portion of the
Initial Training Program.
4.2 EMPLOYEE TRAINING.
You acknowledge that the employees of your FRULLATI CAFE AND BAKERY
Franchised Business are an integral and important part of the Franchised
Business, as they will have
8
substantial contact with customers. You are responsible for the hiring, terms of
employment and compensation of your employees, and for their compliance with the
policies and procedures set forth in the Operations Manuals. You agree to
appropriately train new employees as they are hired. You must insure that your
employees are able to read and write English fluently and any other language
that may be required to adequately meet the public needs in your Franchised
Business. You must purchase any videotaped training programs that we may make
available from time to time, and you must provide a VCR in your Franchised
Business for employees to view such tapes.
4.3 ADDITIONAL PROGRAMS; CONTINUING ASSISTANCE.
We will provide one (1) of our representatives to come to your
restaurant during opening week for up to five (5) days, at our expense, to work
with you or your manager on your grand opening, and on operating and marketing
your restaurant. We may, in the future, request that you and your executive
personnel participate in refresher or additional training programs. We may also
hold an annual conference to introduce new products, discuss sales and marketing
techniques, personnel training, advertising programs, merchandising procedures
and other appropriate subjects. You may be charged a nominal registration fee
for these programs, and you must also bear the cost of transportation, food,
lodging and other personal expenses of your attendance and those of your
executive personnel at any such program. Attendance at these additional training
programs and conferences is mandatory. They will be held in the metropolitan
Phoenix, Arizona area, or at other locations in the United States chosen by us,
at our sole discretion.
In addition to the initial training available under SECTION 4.1 of this
Agreement, we shall provide such periodic supervision and assistance as we deem
appropriate, utilizing our field representatives who may visit the Franchised
Business from time to time. The frequency and duration of such visits to a
Franchised Business by our representatives shall be in our sole discretion. In
addition, we will be available on an ongoing basis at our offices for
consultation and guidance with respect to the operation and management of the
Franchised Business. In addition to the Operations Manuals, we may, but are not
required to, from time to time provide you with additional materials relating to
the Franchised Business.
4.4 CONFIDENTIAL OPERATIONS MANUALS.
To protect the reputation and goodwill of the System and to maintain
the uniform standards of operation under the Proprietary Marks, you must conduct
your business in accordance with our Operations Manuals (as defined in the
Recitals above), which may be revised, amended, restated or supplemented by us
from time to time. All equipment, decor, fixtures, leasehold improvements,
supplies and inventory used by you in the operation of the Franchised Business
must conform to our specifications and quality standards and be purchased from
approved sources, all as set forth in the Operations Manuals.
The Operations Manuals will be provided to you at the Initial Training
Program referred to in SECTION 4.1 above.
So that you may benefit from new knowledge gained by us as to improved
techniques in the operation of the Franchised Business, we may from time to time
revise, amend, restate or supplement the content of the Operations Manuals.
However, no revision, amendment, restatement or supplementation will alter your
fundamental status under this Agreement. All revisions amendments, restatements
and supplementations will be in writing and will be
9
deemed to be received by you as provided in the notice provisions of ARTICLE 15
of this Agreement. You will at all times ensure that your copy of the Operations
Manuals is kept current and up to date. In the event of a dispute regarding the
content of the Operations Manuals, the master copy maintained by us at our
corporate office will be controlling. You agree to incorporate and implement any
improvements to the System as reasonably required by us, which improvements will
be reflected in amendments to the Operations Manuals.
4.5 COMPUTER SYSTEMS; DEBIT AND CREDIT CARD PROCESSING.
a. Prior to the opening of your restaurant, you will be
required to acquire and to exclusively use an approved cash
register/computer system during the operation of the Franchised
Business. The components and specifications of this system are
specifically identified in the Operations Manuals, including approved
vendors for such systems (the "POS System"). You and your employees
must complete training for the POS System as we require, and you will
be required to use the POS System to produce sales reports, keep
inventory control and post sales tax, refunds, credits and allowances
and submit that information to us immediately upon our request. The POS
System may be configured so that we will have remote access to the
information and data stored in it. This access will allow us to
download sales and other information on such bases as we will
communicate to you from time to time. You will be required to maintain
the POS System in good working order at all times, and to upgrade or
update the POS System during the term of this Agreement as we may
require from time to time. It will be your responsibility to enter into
contracts for the maintenance, support, upgrades and updates to the POS
System with an approved supplier of such services identified in either
the Operations Manuals or other notification to you from us advising of
suppliers for your market area. In addition, you shall, within 30 days
of receipt of written notice from Franchisor, obtain and purchase, at
the sole expense of Franchisee, a cash register system or computerized
point of sale system acceptable to us to permit store sales to be
polled from the corporate offices of Franchisor. You shall also be
required to own a personal computer or similar device that allows you
to send and receive a-mails with us, and a fax machine to allow
communication with us. In addition to email with Franchisor, the
computer equipment will be used for providing reports to Franchisor,
for communications with Franchisor, and for communications between
third parties and Franchisee. We may provide specifications that you
must follow for the hardware, software, and Internet provider for such
computer equipment. We may require you to upgrade the hardware and
software as reasonably necessary to provide reports and information
required by us. We may require you to allow us to have independent
electronic access to your POS System and the data relating to the
Franchised Business.
b. You are required to accept debit and credit cards from
consumers at the Franchised Business. Prior to the opening of your
restaurant, you will be required to acquire an approved debit and
credit card processing system to use during the operation of the
Franchised Business. The components and specifications of this system
are specifically identified in the Operations Manuals, including
approved vendor(s) for such items. Additionally, you must utilize
Franchisor's approved third party debit and credit card processor, as
identified in the Operations Manuals, for processing all such debit and
credit card transactions.
ARTICLE 5. FEES AND DEPOSITS
You agree to pay each of the following amounts to us in accordance with
the following provisions:
10
5.1 INITIAL FRANCHISE FEE.
The Initial Franchise Fee is Thirty Thousand Dollars ($30,000.00) (the
"Initial Franchise Fee"). The Initial Franchise Fee will be due and payable by
you to us by cashier's check, wire transfer or other form of immediately
available funds acceptable to us, upon your execution of this Agreement. You and
we agree that our grant of the franchise and your payment of the Initial
Franchise Fee provided for in this SECTION 5.1 does not give you any rights with
respect to other franchises, if any, as we in our sole discretion may elect to
make available in the future. No portion of the Initial Franchise Fee is
refundable.
5.2 ROYALTY FEE.
For the period of time commencing on the date that you sign this
Agreement, and for the duration of the Term of this Agreement, you must pay to
us a weekly royalty fee equal to the greater of the following: (i) six percent
(6%) of total Gross Sales (as defined below); or (ii) $400.00 for the Term of
this Agreement (the "Royalty Fee"). In the event of a unilateral termination of
this Agreement by you, we shall be entitled to the average of the prior 6-month
(or if less than 6 months, the Term) royalties multiplied by the remaining
number of months on the initial Term of this Agreement, or any extension
thereof, less a discount of eight percent (8%).
The Royalty Fee shall be due and payable no later than Thursday of each
week, which week shall end on the preceding Sunday in which applicable Gross
Sales were earned from the Franchised Business. The weekly Royalty Fee shall be
paid by electronic funds transfer, as detailed below.
You are required to report Gross Sales to our designated accounting
office via facsimile or other approved electronic communication medium, as set
forth in the Operations Manuals, by the close of business on each Monday for the
week ending the preceding Sunday, commencing on the Effective Date and
continuing through the Term of the Franchise Agreement. You shall be required to
establish a Depository Account at the time you execute this Agreement as set
forth in SECTION 5.4 below. Payment of Royalty Fees, Advertising Fees (as
defined in this ARTICLE 5), and all other fees due under this Agreement to us
shall be made via electronic transfer of funds from the Depository Account
described in SECTION 5.4 below. To accomplish this electronic transfer of funds
from the Depository Account, you must complete, sign and deliver to us a current
Electronic Funds Transfer Authorization in the form attached to this Agreement
as EXHIBIT 3.
As used in this Agreement, "Gross Sales" means all sales, money or
things of value, received or receivable, directly or indirectly, by Franchisee
on account of the Franchised Business, less applicable sales taxes and any
documented refunds, credits and allowances given by you to customers in
accordance with the Operations Manuals, but without deducting any of
Franchisee's costs and expenses.
5.3 ADVERTISING FEES.
a. Unless your Franchised Business is located in an enclosed shopping
mall or other enclosed structure identified in SECTION 1.1 above, and in
addition to the Advertising Fees under SECTION 5.3(B) below, you shall spend on
advertising and on promotion at least Five Thousand Dollars ($5,000.00) within
the first six (6) months following opening of the Franchised Business.
11
b. You shall pay to us or directly into a national advertising fund
designated by us, and/or, at our sole discretion, to a designated
Franchisor-approved regional advertising fund (any such funds are referred to
below as "Advertising Fund(s)") a total amount of up to four percent (4%) of
Franchisee's weekly Gross Sales as defined in SECTION 5.2above, as applicable
(the "Advertising Fee"). The Advertising Fee currently being collected by
Franchisor that is applicable to this Agreement is immediately set forth below
this subsection. The Advertising Fee shall be due and payable with the Royalty
Fee under SECTION 5.2 above. Advertising Fees are the property of the Franchisor
and may be deposited by Franchisor into its general operating account. Upon
thirty (30) days notice by Franchisor to Franchisee, Franchisor may unilaterally
increase the Advertising Fee from it's current level up to four percent (4%),
but the Advertising Fee may not exceed four percent (4%) of Franchisee's weekly
Gross Sales.
Applicable Advertising Fee payable by Franchisee under this Agreement:
c. The Advertising Funds will be used for marketing, advertising,
production and media expenses to promote the FRULLATI CAFE AND BAKERY name,
System, products and services. Franchisor is entitled to receive the following
from the Advertising Fund: reimbursement of expenses, overhead, and employee
salaries for services provided; and rent for office space provided to the
Advertising Fund. We have no fiduciary obligation to you in connection with the
operation of any Advertising Fund. The fee required to be paid to any designated
Franchisor-approved regional Advertising Fund will be determined by us at our
sole discretion; provided however, that the total monthly advertising obligation
required by this Section will not exceed four percent (4%) of Franchisee's
weekly Gross Sales. No interest on unexpended Advertising Fees shall be imputed
for the benefit of, or payable to, Franchisee, and no interest on Franchisor's
expenditures in excess of Advertising Fees collected shall be imputed for the
benefit of, or payable to, Franchisor.
d. You understand and acknowledge that the products currently offered
by the Franchised Business are an impulse purchase, not a destination product.
As such, Franchisee's own local marketing and advertising should be developed to
maximize your particular customer base. You should not rely upon a marketing
program or plan by the Franchisor in the success or failure of your own
Franchised Business.
5.4 DEPOSITORY ACCOUNT
You are required to establish, at the time you execute this Agreement,
and maintain a depository account (the "Depository Account") at a bank or other
federally insured financial institution (the "Depository"). You will initially
deposit $3,000 into the Depository Account and are required to maintain a
balance of $3,000 in the Depository Account at all times by replenishing the
Depository Account to $3,000 after Franchisor makes withdrawals. On Monday of
each week, you must submit a report to us regarding the weekly period which
ended on the preceding Sunday, including details on Gross Sales and other
statistical data as specified from time to time by us or the Operations Manuals.
We will withdraw funds electronically on Thursday of each week from the
Depository Account. The withdrawals are based upon the figures Franchisee
reports and constitute Royalty Fees and Advertising Fees as described in
SECTIONS 5.2 and 5.3 of this Agreement. If you do not submit a report on any
Monday, we may estimate the Royalty Fee and Advertising Fee based upon prior
reports and withdraw the estimated amounts up to the entire $3,000. We will
return any overage within 30 days of our receipt of your report(s). We shall not
be responsible to you for any interest charges for any
12
overage collected due to your failure to timely report your sales. Additionally,
we shall not be responsible for any bank service charges incurred by you which
result in the withdrawal of funds from your Depository Account. You shall
instruct the Depository to disburse each week to our designated bank, via
electronic funds transfer by the close of business on Thursday of each week (or
preceding banking business day, if Thursday is a bank holiday), the weekly
Royalty Fee and Advertising Fee and other fees due for that week, which week
shall end on the preceding Sunday. Under no circumstances shall such access to
the Depository Account be deemed control or joint control of the Depository
Account by Franchisor. You shall pay us Fifty Dollars ($50.00) for each
electronic funds transfer attempted from your Depository Account pursuant to
this SECTION 5.4 that is returned for non-sufficient funds. You shall also
reimburse us for all extraordinary costs incurred by us in collecting or
attempting to collect funds due Franchisor from the Depository Account (for
example, without limitation, charges for non-sufficient funds, uncollected funds
or other discrepancies in deposits or maintenance of the Depository Account
balance in accordance with the terms hereof). The Depository Account shall be
established and maintained solely for the purposes set forth in this SECTION 5.4
and the Operations Manuals.
5.5 LEASE GUARANTEE FEE.
If, in order to obtain the lease agreement for the Site of your
FRULLATI CAFE AND BAKERY restaurant, the landlord requires you to obtain a lease
guarantee, and Franchisor or one of its affiliates agrees to serve as such
guarantor (with such determination to be made in Franchisor's sole discretion),
you will pay Franchisor a fee in the amount of ten percent (10%) of the total
amount of the rental obligations being guaranteed under the lease during its
term ("Lease Guarantee Fee".) The Lease Guarantee Fee will be due and payable to
Franchisor upon Franchisor's (or any affiliate of Franchisor) execution of the
applicable lease guarantee agreement with the landlord. Neither Franchisor nor
any of its affiliates is required to serve as a guarantor of your lease for the
Site of your restaurant; rather, the decision of whether to serve as a guarantor
shall be made in Franchisor's sole and absolute discretion.
5.6 LEASE NEGOTIATION FEE.
If Franchisee requests and obtains assistance from Franchisor's real
estate department in negotiating a term sheet to secure a lease or negotiating
terms of the actual lease with the landlord or broker/agent for the landlord for
the Site of the Franchised Business, a Two Thousand Five Hundred Dollar
($2,500.00) lease negotiation fee ("Lease Negotiation Fee") will be payable to
us by the Franchisee. The final approval and execution of the term sheet and/or
lease and the provisions therein remain the sole responsibility of the
Franchisee.
5.7 ADDITIONAL TRAINING FEE.
We will train two (2) persons free of charge; thereafter, you will pay
us Five Hundred Dollars ($500.00) per person for initial training (see SECTION
4.1 of this Agreement).
5.8 RENEWAL FEE.
A Five Thousand Dollar ($5,000.00) renewal fee is payable to us when
you renew your Franchise Agreement (see SECTION 13(H) of this Agreement).
13
5.9 TRANSFER FEE.
A transfer fee of either Seven Thousand Five Hundred Dollars
($7,500.00) or Twenty Thousand Dollars ($20,000.00) is payable to us when you
sell your Franchised Business (see SECTION 12.3(F) of this Agreement).
5.10 TRAINING FEE.
In addition to the Transfer Fee in SECTION 5.9 above, Franchisee shall
pay to Franchisor a non-refundable Training Fee of Two Thousand Five Hundred
Dollars ($2,500.00) to cover the Franchisor's costs and expenses in providing
the necessary training for the transferee of Franchisee.
5.11 LATE REPORT, NON-SUFF ICIENT FUNDS AND DEFAULT FEES.
If you fail to submit to us any financial statements, forms, reports or
records required to be provided under this Agreement by its due date, including
your weekly Gross Sales report for calculating your Royalty and Advertising
Fees, you must pay to us a Late Report Charge of One Hundred Dollars ($100.00)
per report.
If any fees or assessments due under this Agreement, including Royalty
Fees and Advertising Fees, are not paid when due, interest shall accrue on the
late payment (from the date payment is due until the date it is paid) at the
Default Rate of one and one-half percent (11/2%) per month, or the maximum legal
interest rate (whichever is higher)(the "Default Rate"), which amount, plus a
Fifty Dollar ($50.00) late fee, shall be added to each late payment. For any
payments made by Franchisee to Franchisor under this Agreement which are
returned for non-sufficient funds of a processed check, Franchisee shall be
charged a non-sufficient funds fee of Twenty-Five Dollars ($25.00) per
occurrence. Pursuant to SECTION 5.4 of this Agreement, for each electronic funds
transfer that is attempted from the Depository Account but returned for
non-sufficient funds, Franchisee shall be charged a Fifty Dollar ($50.00)
non-sufficient funds fee per occurrence.
If, as a result of your failure to remit payments required under any
provision of this Agreement, we retain an attorney or a collection agency to
collect such payments, you must pay all collection costs, including reasonable
attorneys' fees, whether or not legal proceedings are initiated. Our rights
under this SECTION 5.11 are in addition to any other rights or remedies that we
may have as a result of your default under this Agreement.
5.12 AUDIT FEES.
For the purpose of this SECTION 5.12, we will have the right, at any
time during business hours, and with or without prior notice to you, to inspect
and audit, or cause to be inspected and audited, the business records, cash
control devices, bookkeeping and accounting records, sales and income tax
records and returns and other records of the Franchised Business and your
corporate, partnership or limited liability company books and records (if you
are a corporation, partnership or limited liability company).
You agree that we may have access to any computers utilized by you for
such purposes and will have the ability at all times via modem to obtain daily
and weekly sales reports and other financial records that the POS System
provides. You will fully cooperate with our representatives and independent
accountants hired by us to conduct any such inspection or
14
audit. In the event any such inspection or audit discloses an understatement of
your Gross Sales for any period in question, you will pay to us, immediately
after receipt of the inspection or audit report, any additional Royalty Fees
and/or Advertising Fees as a result of any such understatement, plus interest at
the Default Rate from the date originally due until the date of payment.
In addition, in the event such inspection or audit is made necessary by
your failure to furnish reports, supporting records or other information, as
required herein, or to furnish such reports, records or information on a timely
basis, or if an understatement of Royalty Fees or Advertising Fees for the
period of any audit (which shall not be for less than one month) is determined
by any such audit or inspection to be five percent (5%) or greater, you must
reimburse us for such audit or inspection, including the charges of any
independent accountants, and the travel expenses, room, board and compensation
of such accountants and our employees.
The remedies in this SECTION 5.12 will be in addition to all our other
remedies and rights under this Agreement or under applicable law.
5.13 NO ACCORD OR SATISFACTION.
If you pay, or we otherwise receive, a lesser amount than the full
amount provided for under this Agreement for any payment due hereunder, such
payment or receipt shall be applied against the earliest amount due us. We may
accept any check or other payment in any amount without prejudice to our right
to recover the entire balance of the amount due or to pursue any other right or
remedy. No endorsement or statement by you on any check or payment or in any
letter accompanying any check or payment or elsewhere shall constitute or be
construed as an accord or satisfaction.
ARTICLE 6. PROPRIETARY MARKS
6.1 OWNERSHIP AND RIGHT TO USE.
We warrant to you that:
a. We are the owner of all right, title and interest in and to the
Proprietary Marks;
b. We have granted to you the non-exclusive right to use the
Proprietary Marks in connection with the operation of your FRULLATI CAFE AND
BAKERY Franchised Business;
c. We have taken and will take all steps reasonably necessary to
preserve and protect our rights in the Proprietary Marks; and
d. We will only use and permit you and other persons to use the
Proprietary Marks in accordance with the System and its standards and
specifications.
6.2 COVENANTS OF FRANCHISE OWNERS.
a. You acknowledge the ownership of the Proprietary Marks by us, and
you agree that during the term of this Agreement and after its expiration or
termination, you will not directly or indirectly contest, or aid in contesting,
the validity of the Proprietary Marks or the ownership of the Proprietary Marks
by us, nor will you take any action which might impair or prejudice the
15
ownership of the Proprietary Marks by us. You shall not, directly or indirectly,
apply to register, register or otherwise seek to use or control or in any way
use "FRULLATI CAFE AND BAKERY', or any other of the Proprietary Marks, or any
confusingly similar form or variation, in any place or jurisdiction either
within or outside the United States; nor will you assist any others to do so.
b. You agree that the license granted pursuant to this Agreement
authorizes you to use the Proprietary Marks solely in connection with the
Franchised Business only at the location identified in this Agreement, and for
no other purpose. You have no right to license or sublicense Franchisor's trade
names, any aspect of the System or the Operations Manuals, or any of the
Proprietary Marks.
C. You agree to use the Proprietary Marks only in the manner and to the
extent specifically licensed by this Agreement. You further agree that any
unauthorized use or continued use of the Proprietary Marks after the termination
or expiration of this Agreement will constitute irreparable harm subject to
injunctive relief.
d. The license granted by this Agreement includes no other Proprietary
Marks of ours now existing or to be developed by us that are not referred to
herein or otherwise included in the Operations Manuals. You agree that any and
all goodwill associated with and identified by your use of the Proprietary Marks
will inure directly and exclusively to the benefit of us, and that, on the
expiration or termination of this Agreement, no monetary amount will be payable
to you as a result of any goodwill associated with your ownership or operation
of the Franchised Business.
6.3 LIMITATIONS ON FRANCHISE OWNER'S USE OF PROPRIETARY MARKS.
To develop and maintain high and uniform standards of quality and
service and thereby protect our reputation and goodwill and that of the System,
you agree to:
a. Operate and advertise the Franchised Business only under
the Proprietary Marks authorized by us and as specified in the Manuals;
b. Maintain and display signs reflecting the current image of
the System; and
c. Adopt and use the Proprietary Marks licensed by this
Agreement solely in the manner prescribed by us.
You agree that your corporate, partnership or other entity name will
not include any of the Proprietary Marks or phrases similar thereto as a part
thereof. You further agree that any communications, documents or writings
(including advertising) sent or utilized by you in connection with the
Franchised Business will state that your restaurant is independently owned and
operated.
You agree to submit all advertising promotional materials and all
printed matter, including stationery and business cards, Web page(s), and any
materials to be used on a Web page or on the Internet to us for our written
approval before you may use any of these items.
You acknowledge that certain portions of the Premises' decor and design
constitute unique and protectable images to the consumer, which are identified
with Franchisor and that are part of the goodwill associated with FRULLATI CAFE
AND BAKERY and the System. This "trade dress" is exclusively owned by
Franchisor, and this Agreement does not grant any ownership or
16
other interests in the trade dress to Franchisee. Usage of the trade dress by
Franchisee, and any goodwill established by that usage, inures to the exclusive
benefit of Franchisor.
You agree that we may from time to time change or modify the System,
including, without limitation, modifying existing Proprietary Marks or adopting
new marks. You agree, at your own expense, to adopt, use and display any such
new or modified Proprietary Marks within ninety (90) days of notification from
us to you as if they were specifically identified herein as Proprietary Marks at
the time of the execution of this Agreement.
Upon termination or expiration of this Agreement, you must immediately
cease to use, in any manner whatsoever, any of the Proprietary Marks or any
other marks which may be confusingly similar to any of the Proprietary Marks.
6.4 NON-EXCLUSIVE LICENSE OF PROPRIETARY MARKS.
You understand and agree that your license to use the Proprietary Marks
is non-exclusive; that we, in our sole discretion, can grant to other
franchisees the right to use the Proprietary Marks and obtain the benefits of
the System, in addition to the licenses and rights granted to you under this
Agreement; and that we may develop and license other Proprietary Marks in
conjunction with systems other than the System (including the system(s) for the
Additional Concepts), on any terms and conditions we deem advisable. You will
have no right or interest in any such other licenses, Proprietary Marks or
systems.
6.5 NOTIFICATION OF INFRINGEMENT AND CLAIMS.
You agree that you will notify us immediately of any apparent
infringement of, or challenge to your use of any of the Proprietary Marks, or
any claim by any person of any rights in any of the Proprietary Marks. You agree
that you will not communicate with any person other than us and our legal
counsel in connection with any such infringement, challenge or claim. We will
have the sole discretion to take such action as we may deem appropriate to
protect the Proprietary Marks and the exclusive right to control any litigation,
Patent and Trademark Office proceeding, or other proceeding arising out of any
such infringement, challenge, claim or otherwise relating to any Proprietary
Marks. You agree to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of our counsel,
be necessary or advisable to protect and maintain our interests in connection
with any such litigation or proceeding, or to otherwise protect and maintain our
interests in the Proprietary Marks.
ARTICLE 7. TRADE SECRETS AND PROPRIETARY INFORMATION
7.1 OWNERSHIP AND USE.
In connection with the operation of the Franchised Business, you will
from time to time become acquainted with certain information and materials that
are proprietary to us. You and any person signing this Agreement under the
heading "Acceptance of SECTIONS 7.1, 9.7, 14.5 and 14.7 agree that you will keep
confidential (except as reasonably necessary to operate the Franchised
Business), and will not use for your own purposes (except in the operation of
the Franchised Business), nor supply or divulge to any person, firm, association
or corporation, any of our trade secrets or proprietary information as defined
herein.
17
This requirement will remain in full force and effect during the Term
of this Agreement and after its termination or expiration. Our trade secrets and
proprietary information (hereinafter referred to collectively as "Proprietary
Information" or "Confidential Information") include the following:
a. The Operations Manuals and any amendments thereto;
b. Information which relates in any manner to our business or the
System, whether oral or reduced to writing, and which is not generally known to,
or readily ascertainable by, other persons who might derive economic benefit
from its disclosure or use; and
c. Any other information which may be imparted to you from time to time
and designated by us as confidential.
You and any person signing this Agreement under the heading "Acceptance
of SECTIONS 7.1, 9.7, 14.5 and 14.7" acknowledge and agree that the Proprietary
Information and any business goodwill of the Franchised Business is our sole and
exclusive property, and that you will preserve the confidentiality thereof. Upon
termination or expiration of this Agreement, all items, records or documentation
recording or incorporating any Proprietary Information will be immediately
turned over by you to us or to our authorized representative.
7.2 CONFIDENTIALITY AGREEMENT.
You agree to adopt and implement all reasonable procedures prescribed
by us from time to time to prevent the unauthorized use or disclosure of any of
the Proprietary Information. We require that all of your officers, agents,
directors, shareholders, trustees, beneficiaries, partners and on-site managers
who may or are likely to obtain knowledge concerning the Proprietary Information
(and who do not sign this Agreement under the heading "Acceptance of SECTIONS
7.1, 9.7. 14.5 AND 14.7) execute an agreement in the form set forth in our
Operations Manuals and incorporated herein by reference, binding such person to
preserve the confidentiality of the Proprietary Information ("Confidentiality
Agreement") as part of the terms and conditions of such person's employment or
association with you. You must obtain a Confidentiality Agreement signed by any
such person prior to or at the same time that you begin employment of or
association with that person. You must file a duplicate original of each
Confidentiality Agreement with us.
ARTICLE 8. RELATIONSHIP OF THE PARTIES AND INDEMNIFICATION
8.1 RELATIONSHIP OF THE PARTIES.
You and we agree that this Agreement does not create a fiduciary
relationship between you and us, that you are an independent contractor, and
that nothing in this Agreement is intended to make either you or us a general or
special agent, legal representative, subsidiary, joint venture, partner,
employee or servant of the other for any purpose.
8.2 INDEMNIFICATION OF FRANCHISOR.
You agree to indemnify and hold us and our affiliates (including our
parent and subsidiary companies), and our stockholders, directors, officers,
attorneys, employees, agents, successors and assignees harmless for, from and
against any and all claims, liabilities, causes of action, demands, obligations,
costs and expenses, including reasonable attorneys' fees,
18
arising out of or relating to your construction, ownership, management or
operation of the Franchised Business ("Claims"), except for Claims successfully
alleged to have resulted solely from our negligence or willful misconduct.
Notwithstanding the foregoing, we will have the right, at our option, to defend
any such claim, but you must reimburse us upon demand for the costs of such
defense.
8.3 INDEMNIFICATION OF FRANCHISEE.
We agree to indemnify and hold you and your affiliates, and their
stockholders, directors, officers, employees, agents, successors and assignees
harmless for, from and against any and all claims, liabilities, causes of
action, demands, obligations, costs and expenses, including reasonable
attorneys' fees, arising out of any claim of infringement or unfair competition
in connection with your use of the Proprietary Marks, provided that such use is
in accordance with the provisions of this Agreement.
8.4 SURVIVAL.
The indemnities and obligations set forth in this ARTICLE 8 will
continue in full force and effect subsequent to, and notwithstanding, the
expiration or termination of this Agreement.
ARTICLE 9. OPERATING STANDARDS AND DUTIES OF FRANCHISE OWNER
9.1 GENERAL OPERATING STANDARDS AND COMPLIANCE WITH OPERATIONS MANUALS.
You understand and acknowledge that every detail of the operation of
the Franchised Business is important to us in order to develop and maintain high
and uniform standards of quality, cleanliness, appearance, service, facilities
and techniques, to increase the demand for the System, and to protect our
reputation and goodwill and that of other FRULLATI CAFE AND BAKERY franchise
owners. You also acknowledge that the actual operation of the Franchised
Business will remain your sole responsibility (except as otherwise expressly
provided herein), and that we have no responsibility to obtain customers for
you. Mandatory services, specifications, standards and operating procedures
prescribed from time to time by us in the Manuals will constitute provisions of
this Agreement as is fully set forth herein. All references to this Agreement
will be deemed to include all such mandatory services, specifications, standards
and operating procedures set forth in the Operations Manuals.
9.2 AUTHORIZED PRODUCTS AND SERVICES.
a. You must limit your business at the Premises of your FRULLATI CAFE
AND BAKERY restaurant as specified in the Operations Manuals, and agree that you
will not, without our prior written approval, offer any menu items, beverages,
products or services that are not authorized by us for FRULLATI CAFE AND BAKERY
franchise owners, as set forth in the Operations Manuals. Any related or
unrelated business not provided for in the Operations Manuals must have our
prior written approval.
b. You have complete discretion in establishing the minimum price you
charge for your products. Although we may suggest pricing strategy, you will
have the final pricing decision.
c. We may conduct periodic promotional campaign during which a
specified product or products are promoted at a specified price. During the
promotional period, you may not
19
charge your customers more than the specified promotional price although you may
charge less than the promotional price.
d. We may conduct new marketing, research and development, branding
and/or operational program tests, which will generally be conducted with
experienced, existing franchisees and may include incentives and other rights
that are not available to all franchisees. We reserve the right to sell some of
the products associated with the FRULLATI CAFE AND BAKERY brand and Proprietary
Marks to different retail outlets such as grocery chains or membership-based
retailers, even if such retail outlets are located within your exclusive
Territory set forth in SECTION 1.2 above.
e. You are required to accept debit and credit cards from consumers at
the Franchised Business. Prior to the opening of your restaurant, you will be
required to acquire an approved debit and credit card processing system to use
during the operation of the Franchised Business. The components and
specifications of this system are specifically identified in the Operations
Manuals, including approved vendor(s) for such items. Additionally, you must
utilize Franchisor's approved third party debit and credit card processor, as
identified in the Operations Manuals, for processing all such debit and credit
card transactions.
9.3 SPECIFICATIONS AND STANDARDS FOR SUPPLIES; APPROVED SUPPLIERS;
ROLL-OUTS
a. You must purchase certain required equipment and supplies utilized
in the Franchised Business only from our designated approved suppliers as set
forth in the Operations Manuals. If, during the term of this Agreement, we
change designated approved suppliers for any of the required equipment and
supplies utilized in the Franchised Business, you shall change to the new
designated approved supplier within sixty (60) days of written notification of
such change from us.
b. If you desire to purchase or lease any equipment, supplies or
inventory items required in the Operations Manuals but not previously approved
by us or from sources not previously approved by us, you must submit to us
sufficient specifications, photographs, drawings, and/or other information and
samples sufficient to allow us to determine whether such equipment, supplies or
inventory items meet our specifications. We may require that our representatives
be allowed to inspect the facilities of the proposed supplier and revoke its
approval upon the supplier's failure to meet any of our then current minimum
standards and specifications. We may also require that samples from the proposed
supplier be delivered, at no charge to us, either to us or to our designee for
testing. A charge not to exceed the reasonable cost of the inspection and the
actual cost of the test must be paid to us either by you or by the proposed
supplier. We will notify you in writing within sixty (60) days of your request
of our approval or disapproval of the proposed product or supplier, with such
determination to be made is our sole and absolute discretion. You acknowledge
and agree that our approval of any item or supplier of equipment, supplies or
inventory not previously approved by us will not, in and of itself, make the
supplier of that item an approved supplier for other FRULLATI CAFE AND BAKERY
franchise owners in the System. We may, at our option, re-inspect the facilities
and products of any approved supplier
20
c. We will provide to you a list of all recommended and required items
of equipment, fixtures, supplies, smallwares and interior decor. This list will
be included in the Operations Manuals. Credit-worthy applicants may lease many
of these items from third-party lenders. These items must be obtained only from
designated approved suppliers as set forth in the Operations Manuals.
d. At any time or from time to time, Franchisor may at its sole option
engage in new product roll-outs to add to or change the menu items offered for
sale in the Franchised Business and/or the ingredients or supplier of
ingredients utilized in the preparation of the menu items sold in the Franchised
Business (the "Roll-Out"). If Franchisor engages in a Roll-Out, Franchisee shall
participate in the changes that are the subject of such Roll-Out, including, but
not limited to, offering the new menu items, changing the menu items, changing
to the new supplier of the ingredients utilized in the preparation of the menu
items, and/or changing to the new ingredients utilized in the preparation of the
menu items. If Franchisor engages in a Roll-Out, it will notify Franchisee in
writing of the details of the Roll-Out and provide Franchisee sixty (60) days
from said written notification to take the applicable actions required by the
Roll-Out.
9.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND GOOD BUSINESS PRACTICES.
You must, at your sole expense, operate the Franchised Business in full
compliance with all applicable laws, ordinances and regulations. You must pay
all costs and expenses incurred by, and in the conduct of, the Franchised
Business, including but not limited to, all rent, salaries, taxes,
disbursements, license or permit fees, traveling expenses and any other business
expenses. You must notify us in writing within three (3) days of the
commencement of any action, suit or proceeding, or of the issuance of any order,
writ, injunction, award or decree of any court, agency or other governmental
instrumentality, which may adversely affect your ability to operate, or your
financial condition or that of the Franchised Business. Any such notice must be
accompanied by a copy of the complaint, order, writ, injunction, award, decree
or other similar document. You must, in all dealings with your customers,
suppliers, the public, and us adhere to the highest standards of honesty,
integrity, fair dealing and ethical conduct. You agree to refrain from any
business practice that may be injurious to the System or the goodwill associated
with the Proprietary Marks.
9.5 MAINTENANCE OF INSURANCE.
At all times during the term of this Agreement, you must maintain in
full force and effect comprehensive public liability insurance against claims
for bodily and personal injury, death and property damage caused by or occurring
in connection with the construction, ownership, operation or conduct of the
Franchised Business. The insurance must also include coverage for product
liability and fire claims.
Such insurance coverage must be maintained under one or more policies
of insurance (each of which shall be primary coverage and shall not be
contributory or secondary to any other coverage) containing minimum liability
limits of One Million Dollars ($1,000,000.00), combined single limit (or greater
if applicable state laws or regulations require) for each occurrence. Such
insurance policy or policies must be "occurrence" policies and not "claims made"
policies; must not provide for a deductible greater than One Thousand Dollars
($1,000.00) in the aggregate and must provide that no act or omission of ours or
of any officer, director or employee of ours or any affiliate of ours shall
invalidate or diminish any coverage thereunder.
Such insurance policies must be issued by insurance carriers rated AA
or above. All liability insurance policies required by this Agreement must name
us, our affiliates, and our respective officers, directors, and employees as
additional insureds; must contain a waiver by the insurance carrier of all
subrogation rights against us and our affiliates, and our affiliates' respective
officers, directors and employees; and, must provide that we will receive thirty
(30) days prior written notice of termination, expiration, cancellation or
modification of any such
21
policy. Upon thirty (30) days notice to you, we may require you to increase the
minimum coverage of the insurance referred to above as of the next renewal date
of any policy, and require different or additional kinds of insurance at any
time, including excess liability (umbrella) insurance, to reflect inflation,
identification of special risks, changes in law or standards of liability,
higher damage awards or other relevant changes in circumstances.
You must furnish to us annually a copy of the certificate of insurance
or other evidence thereof. We, at our option and in addition to our other rights
and remedies under this Agreement, may, but will not be required to, obtain such
insurance coverage on your behalf, and you must promptly execute any
applications or other forms or instruments required to obtain any such insurance
and pay to us, on demand, any costs and premiums incurred by us. Your obligation
to obtain and maintain the insurance described above will not be limited in any
way by reason of any insurance maintained by us, nor will your performance of
such obligations relieve you of any obligations under SECTION 8.2 of this
Agreement.
9.6 MANAGEMENT OF THE FRANCHISED BUSINESS.
You are directly responsible for all aspects of operating the
Franchised Business, and you agree that you will at all times use your best
efforts to enhance the business of your FRULLATI CAFE AND BAKERY restaurant and
the System. The Franchised Business must be personally managed and directly
operated by either you or another partner, shareholder or member of your
business organization, or a manager, who must have successfully completed the
Initial Training Program referred to in SECTION 4.1 above.
If any manager leaves your employment or if your principal owner
desires to later delegate control over the operation of the Franchised Business,
a replacement manager must be designated by you and must complete the Initial
Training Program referred to in SECTION 4.1 above to our satisfaction. You must
immediately notify us of any change in management or supervisory personnel.
9.7 CONFLICTING AND COMPETING INTERESTS.
You agree that during the term of this Agreement, neither you, nor your
officers, directors and holders of more than ten percent (10%) of your stock (if
you are a corporation), nor your partners (if you are a partnership), nor your
members who have a ten percent (10%) or greater interest (if you are a limited
liability company), nor your designated manager will, directly or indirectly,
maintain, engage in, have a controlling interest in, lend money to, consult with
or otherwise assist any business that is engaged in the business of selling
salads, sandwiches, soups, fresh baked goods blended fruit and vegetable drinks,
and nutritional products and supplements. If any of the persons named above do
not sign this Agreement under the heading "Acceptance of SECTIONS 7.1, 9.7, 14.5
and 14.7, then you agree to use your best efforts to obtain the execution by
such person of a written agreement setting forth the foregoing in a form
acceptable to us. You have a continuing obligation to obtain the execution of
such written agreement.
9.8 INSPECTIONS BY FRANCHISOR.
For the purpose of this SECTION 9.8, you must make available to us, or
our agents, such financial and other information concerning the Franchised
Business at such locations as we may reasonably request (including our office
and including via your POS System), and you must permit us, or our agents, to
have full and free access to such information at your FRULLATI CAFE
22
AND BAKERY restaurant during regular business hours without notice. Our agents
and we will have the right to communicate freely with your employees, and make
extracts from, and copies of, all such information. A representative of ours may
make announced or unannounced inspections of your FRULLATI CAFE AND BAKERY
restaurant to ensure compliance with all the requirements of this Agreement. You
will permit our representative to inspect any part of the Franchised Business,
including all books and financial accounts, at any time during normal business
hours.
9.9 SHAREHOLDER GUARANTY.
If you are a corporation or a limited liability company, each of your
shareholders or members holding ten percent (10%) or more of any class of your
stock or interests (and their respective spouses, if married) at the same time
that you sign this Agreement, and as a condition to the legitimacy of this
Agreement, must execute and deliver to us a Guaranty of Contract in the form of
EXHIBIT 4 attached to this Agreement and incorporated by reference.
In the event any person who has not previously signed a Guaranty of
Contract becomes the holder of ten percent (10%) or more of any class of your
stock or ownership interests at any time after the execution of this Agreement,
you must cause that person to immediately execute and deliver a Guaranty of
Contract to us.
9.10 OWNERSHIP REPORTS.
If you are a corporation, you must, upon execution of this Agreement,
provide us with acceptable evidence that all certificates evidencing shares of
your issued and outstanding capital stock bear the following legend (or such
similar legend as we may designate in order to be in compliance with applicable
law), reflecting or referring to such restrictions:
TRANSFER OF THIS CERTIFICIATE IS LIMITED BY THE TERMS AND
CONDITIONS OF THE FRANCHISE AGREEMENT DATED BETWEEN KAHALA
FRANCHISE CORP., A DELAWARE CORPORATION, AND
If you issue additional shares of your capital stock in the future, all
certificates evidencing such shares must bear a like legend. If you are a
partnership, a limited liability company or other entity, you must provide us
with acceptable evidence that your partnership agreement or other organizational
documents contain provisions acceptable to us prohibiting transfer of any
partnership or other ownership interest in your entity, except in compliance
with the terms of this Agreement. You must not cause or permit any such
provision to be deleted or modified.
ARTICLE 10. ADVERTISING AND PROMOTION
10.1 ADVERTISING BY FRANCHISOR.
We (or at our election a third party which may be an affiliate of ours)
will administer an Advertising Fund that will include your Advertising Fees and
those of other franchise owners in the System. If an affiliate of ours
administers the Advertising Fund or places advertising in connection with the
System, such affiliate may be paid a fee that will not exceed the fee that would
be payable to unrelated third parties for comparable services. Unless required
by applicable law, we will have no obligation to create a trust account, escrow
account or other special account for the Advertising Fund, and the monies
comprising the Advertising Fund may
23
be placed in our general account(s) if we desire. We may also reserve
Advertising Fees for use in a subsequent year.
We or our designee will direct all advertising and promotional
programs. We will have sole discretion over all creative concepts, materials and
media used in such programs and the placement and allocation of such programs.
The Advertising Funds will be used for marketing, advertising, production and
media expenses to promote the FRULLATI CAFE AND BAKERY name, System, products
and services. We are entitled to receive the following from the Advertising
Fund: reimbursement of expenses, overhead, and employee salaries for services
provided; and rent for office space provided to the fund. We are not required to
use any specific amounts from the Advertising Fund in your market. However, we
will use all amounts contributed by you to any Franchisor-approved regional
advertising funds, if any (see SECTION 5.3) in the same geographic area in which
your restaurant is located.
10.2 ADVERTISING BY FRANCHISEE.
In addition to your Advertising Fees, if applicable, and your grand
opening promotional advertising program required under SECTION 5.3 ABOVE, and
unless your FRULLATI CAFE AND BAKERY restaurant is located in an enclosed
shopping mall or other enclosed structure identified in SECTION 1.1 above, you
agree to pay for a regular (white pages) and classified (Yellow Pages) telephone
directory advertisement in the main directory distributed within your Territory,
in such directory categories as we specify, utilizing forms of listing and
classified directory advertisements approved by us. We also recommend that, in
addition to your Advertising Fee, you spend at least two percent (2%) of your
monthly gross sales on local advertising.
You understand and acknowledge that the products currently offered by
the Franchised Business are an impulse purchase, not a destination product. As
such, your own local marketing and advertising should be developed to maximize
your particular customer base. You should not rely upon a marketing program or
plan by the Franchisor in the success or failure of your own Franchised
Business.
You must submit to us for our prior approval samples of all local
advertising and promotional materials not prepared or previously approved by us.
If written disapproval is not received by you within fifteen (15) days from the
date of receipt by us of such materials, we will be deemed to have given the
required approval.
Under no circumstances may you use the name of a public figure in
connection with the Proprietary Marks or the Franchised Business without our
prior written consent. We retain the sole and exclusive right to use the name,
services or likeness of any public figure or character in advertising, endorsing
or recommending the System. However, with our prior written approval, you may
use the name of a public figure in a bona fide endorsement or recommendation of
the Franchised Business, but in such event, you will be solely responsible for
the cost of such usage.
ARTICLE 11. ACCOUNTING PROCEDURES AND REPORTS
11.1 MAINTENANCE OF RECORDS.
You shall keep full, complete, and accurate books and accounts in
accordance with generally accepted accounting principles, and in the form and
manner prescribed below or as
24
from time to time further prescribed by us. You agree to submit reports and data
to us electronically if we advise you to do so. Franchisee agrees:
a. to submit to us on a Franchisor-approved form, on or before the
close of business Monday of each week, a signed statement of weekly Gross Sales
for the seven (7) day period ending at the close of business on the preceding
Sunday;
b. to submit to us, on or before the thirtieth (30th) day of each
month, on a Franchisor-approved form, a profit and loss statement of the
Franchised Business for the preceding calendar month prepared in accordance with
generally accepted accounting principles;
c. to submit to us, within ninety (90) days after the end of each
calendar year, commencing with the opening of the FRULLATI CAFE AND BAKERY
restaurant, on a Franchisor-approved form, a profit and loss statement for the
year and a balance sheet (including a statement of retained earnings or
partnership account) as of the end of the period;
d. to submit to us, at the times required, such other periodic forms,
reports and information as may from time to be time be prescribed by us;
e. to preserve, in the English language and for the time periods set
forth below, all accounting records and supporting documents relating to the
Franchisee's operation of the FRULLATI CAFE AND BAKERY restaurant under this
Agreement (referred to below as the "Records"), including:
1. daily cash reports;
2. cash receipts journal and general ledger;
3. cash disbursements journal and weekly payroll register;
4. monthly bank statements, and daily deposit slips and canceled
checks;
5. all tax returns, including personal returns of Franchisee, its
officers, shareholders, partners and members;
6. suppliers invoices (paid and unpaid);
7. dated cash register tapes (detailed and summary);
8. semi-annual balance sheets and monthly profit and loss
statements;
9. daily production, throwaway and finishing records and weekly
inventories;
10. records of promotion and coupon redemptions;
11. records of all outside sales; and
12. such other records as we may from time to time request.
f. to record all sales on cash registers approved by us, as specified
in the Operations Manuals;
25
g. to file all federal and state tax returns of Franchisee on a timely
basis and to provide copies of them to Franchisor. We may, where applicable,
require that tax returns from all shareholders, members or partners of
Franchisee be provided to us, if Franchisee is other than an individual;
h. During the term of this Agreement, you shall preserve the Records
for at least its current fiscal year and for the three (3) immediately preceding
fiscal years. For three (3) years after the date of any transfer of an interest
in this Agreement, the transferor of such interest will preserve the Records for
its last three (3) fiscal years of operation under this Agreement. For three (3)
years after the expiration of the term of this Agreement (or after any earlier
termination), you shall preserve the Records for its last three (3) fiscal years
of operation under this Agreement; and
i. We will have the right to use (without identifying you except as
required by law) any financial statements, sales reports, profit and loss
statements or balance sheets provided by you in connection with our efforts to
attract additional franchise owners to the System and, in connection therewith,
you authorize us to disclose any information contained on such financial reports
as may be required by any federal or state registration or disclosure law.
11.2 AUDIT BY FRANCHISOR.
We will have the right, at any time during business hours, and with or
without prior notice to you, to inspect and audit, or cause to be inspected and
audited, the business records, cash control devices, bookkeeping and accounting
records, sales and income tax records and returns and other records of the
Franchised Business, and your corporate, partnership or limited liability
company books and records (if you are a corporation, partnership or limited
liability company).
You agree that we may have access to any computers utilized by you for
such purposes. You will fully cooperate with our representatives and independent
accountants hired by us to conduct any such inspection or audit. In the event
any such inspection or audit discloses an understatement of your Gross Sales for
any period in question, you will pay to us, immediately after receipt of the
inspection or audit report, any additional Royalty Fees or Advertising Fees due
as a result of any such understatement, plus interest at the Default Rate from
the date originally due until the date of payment.
In addition, in the event such inspection or audit is made necessary by
your failure to furnish reports, supporting records or other information, as
required herein, or to furnish such reports, records or information on a timely
basis, or if an understatement of Royalty Fees or Advertising Fees for the
period of any audit (which shall not be for less than one month) is determined
by any such audit or inspection to be five percent (5%) or greater, you must
reimburse us for such audit or inspection, including the charges of any
independent accountants and/or attorneys and the travel expenses, room, board
and compensation of such accountants and/or attorneys, and our employees.
The remedies in this SECTION 11.2 will be in addition to all our other
remedies and rights under this Agreement or under applicable law.
11.3 OWNERSHIP INFORMATION.
You must provide us with a list of the name, address, phone number,
social security number, and ownership information of each officer, director,
shareholder, partner, member (and of each officer, director and shareholder of a
corporate partner) or any other person directly or
26
indirectly holding an ownership interest in you on the Ownership Information
Sheet attached to this Agreement as EXHIBIT 1. You must advise us in writing of
any changes in such information within five (5) days after such change is
effective.
ARTICLE 12. ASSIGNMENT, SALE OR TRANSFER
SECTIONS 12.1 through 12.4 apply to all transfers, except transfers by
Franchisor, which are described in SECTION 12.5.
12.1 PRIOR CONSENT OF FRANCHISOR TO ASSIGNMENT
a. For the purpose of this Agreement, "transfer" is defined as any act
or circumstance by which ownership or control is shifted in whole or in part
from any individual or entity to another; including, if Franchisee is a
corporation, any changes in the present ownership of the stock of Franchisee (as
of the Effective Date of this Agreement) or the issuance of additional stock of
Franchisee and, if Franchisee is a partnership, limited liability company, or
limited liability partnership, any change in or addition of partners or members.
b. We are entering into this Agreement based upon our knowledge of and
faith in the ability of Franchisee. Therefore, this Agreement and all the rights
granted by it are personal to Franchisee and may not be assigned or transferred
by Franchisee without the prior written consent of Franchisor. Any attempt to
assign or transfer any right under this Agreement, or any interest in any entity
holding an interest in this Agreement, without the prior written consent of
Franchisor, will be null and void; and will give us the right to terminate this
Agreement and your rights under it, in addition to any remedies which we may
have for the breach of this covenant by reason of an attempted assignment or
transfer.
c. We shall not unreasonably withhold our consent to an assignment or
transfer, so long as it is shown to the satisfaction of Franchisor that the
proposed transferee can perform a franchisee's obligations under this Agreement,
or the current form of agreement then required of new franchisees (the choice of
which form of agreement applies will be made by Franchisor in its sole
discretion), and the conditions of this Agreement or the current form of
agreement then required of new franchisees are complied with.
12.2 ADVANCE NOTICE OF PROPOSED TERMS AND RIGHT OF FIRST REFUSAL
a. If you, or any shareholder, member or partner of Franchisee, has
received and desires to accept a signed bona fide written offer from a third
party to purchase Franchisee's rights under this Agreement, or any part it, and
before making any binding commitment regarding such transfer, you shall notify
us and provide us with a complete copy of the offer which must include for every
proposed transferee: (1) Name, address and telephone number; (2) business
experience and present occupation; and (3) credit rating and financial status.
Franchisee must also include information as to the identity of all who will own
an interest in this Agreement or in the Franchised Business after the completion
of the transfer, their respective interests, and the proposed terms and
conditions of sale and payment.
b. Franchisor shall have the right and option, exercisable within
thirty (30) days after the date Franchisor receives its copy of the offer, to
purchase the interest proposed to be transferred, at the price and upon the same
terms and conditions specified in the notice.
27
c. If Franchisor does not exercise this option, and the terms of the
unaccepted offer are altered, we must, in each such instance, be notified by
Franchisee of the changed offer; and we will again have thirty (30) days to
exercise our right to purchase on the altered terms. If Franchisor does not
exercise its option, then the transfer may take place on the terms and price set
forth in the notice; provided (1) Franchisor gives its written consent, (2) the
transfer takes place no later than six (6) months from receipt of Franchisor's
written refusal to exercise its option to purchase, and (3) all the conditions
set forth in SECTION 12.3 below are satisfied.
12.3 REQUIREMENT FOR CONSENT TO TRANSFER
If a transfer of all or a partial interest in this Agreement or in the
Franchised Business is proposed and Franchisor does not exercise its right to
purchase pursuant to the preceding Section, then Franchisor will consent to the
transfer provided that:
a. Each transferee is financially acceptable, not associated with a
competitor of Franchisor, is of good moral character and reputation, and meets
Franchisor's criteria, which includes: work experience and aptitude; ability to
devote time and best efforts to the Franchised Business; residence in the
locality where the Franchised Business is located; equity interest in the
Franchised Business; literacy and fluency in the English language sufficient in
the opinion of Franchisor to communicate with employees, customers and suppliers
and to satisfactorily complete Franchisor's training; no conflicting interests;
and other criteria and conditions that Franchisor applies to new franchisees;
b. Following an analysis of the terms and conditions of the proposed
transfer (the "Terms"), Franchisor, in its sole discretion, concludes that the
Terms will not interfere with the financial feasibility of the future operation
of the Franchised Business;
c. Each transferee shall have completed the Initial Training Program
required under SECTION 4.1 of this Agreement;
d. Each transferee enters into all current forms of agreements then
being required of new franchisees with Franchisor. Unless a longer period is
agreed upon between Franchisor and the transferee, the term of the transferee's
franchise agreement shall be for the unexpired term of this Agreement; and
unless a longer term is agreed upon by Franchisor, the transferee will not pay
an Initial Franchise Fee as provided in SECTION 5.1 of this Agreement;
e. All obligations of Franchisee under this Agreement are fully paid
and satisfied, Franchisee is not in default under any provisions of this
Agreement or any other agreement with Franchisor; and Franchisee and transferee
enter into a written Assignment of Franchise Agreement with Franchisor,
including (except where prohibited by law) a general release by Franchisee of
all claims against Franchisor;
28
f. You or the transferee shall have paid to us a non-refundable
Transfer Fee in the amount of (i) Twenty Thousand Dollars ($20,000.00) if the
assignment or sale is consummated prior to the expiration of 24 months from the
Effective Date of this Agreement, or (ii) Seven Thousand Five Hundred Dollars
($7,500.00) if the assignment or sale is consummated after 24 months from the
Effective Date of this Agreement;
g. In addition to the Transfer Fee in SECTION 12.3(F) above, Franchisee
shall pay to Franchisor a non-refundable Training Fee of Two Thousand Five
Hundred Dollars ($2,500.00) to cover the Franchisor's costs and expenses in
providing the necessary training for the transferee of Franchisee;
h. The transferee agrees to complete all remodeling and improvements as
required by us, within the time period specified by us; and
i. Franchisee and any transferee agree not to assert any security
interest, lien, claim or right now or in the future in this franchise, or the
franchise granted to the transferee. Any security interest, lien, claim or right
asserted with respect to any personal property at the Site identified in SECTION
1.1 must not include any after-acquired property and must be subject, junior and
subordinate to any security interest, lien, claim or right now or in the future
asserted by Franchisor, its successors or assigns.
12.4 DEATH OR INCAPACITY OF FRANCHISEE
a. In the event of the death or incapacity of an individual Franchisee,
or of any shareholder, partner, or member in a franchise which is a business
entity, the legal representative of the individual Franchisee, or of the
surviving shareholders, partners, or members in case of a business entity, may
for a period of ninety (90) days from the date of death or incapacitation
continue to operate the Franchised Business, provided that the operation is
conducted in accordance with the terms of this Agreement and any other
agreements with Franchisor.
b. If a representative of Franchisee desires to continue the operation
of the Franchised Business beyond the ninety (90) day period, then prior to the
expiration of this period, the legal representative of the individual Franchisee
or the shareholder, partner, or member of Franchisee must apply jointly with all
surviving shareholders, partners, or members in writing, for the right to
transfer the Franchised Business (or the interest of the deceased or
incapacitated shareholder, partner, or member in the Franchised Business in the
case of a business entity), to the person or persons (whether spouse, heir,
devisee, purchaser, surviving shareholder, partner, member, corporation, or any
other person), as the legal representative and the surviving shareholders,
partners, or members may specify. The application for transfer will be treated
in the same manner as any other proposed transfer under this Agreement.
c. If the legal representative and all surviving shareholders, partners
or members (if any) do not comply with the provisions of the preceding
paragraph, or do not propose a transferee acceptable to us under the standards
set forth in this Agreement, all rights licensed to Franchisee under this
Agreement will terminate immediately and automatically revert to Franchisor.
Franchisor shall have the right and option, in its sole discretion, exercisable
upon such termination, to purchase all removable furniture, fixtures, signs,
29
equipment and other chattels, but not leasehold improvements, at a price to be
agreed upon by the parties or, if no agreement as to price is reached by the
parties, at such price as may be determined by a qualified appraiser, approved
by both parties, such approval not to be unreasonably withheld. Franchisor shall
give notice of its intent to exercise the option no later than twenty-one (21)
days prior to termination.
12.5 ASSIGNMENT BY FRANCHISOR.
You agree and affirm that we may, without your prior consent, sell
ourselves, our assets, our Proprietary Marks and/or our System to a third-party;
may go public; may engage in private placement of some or all of our securities;
may merge, acquire other corporations, or be acquired by another corporation;
and/or may undertake a refinancing, recapitalization, leveraged buyout or other
economic or financial restructuring. You further agree and affirm that we have
the right, now or in the future, without your prior consent, to purchase, merge,
acquire or affiliate with an existing competitive or non-competitive franchise
network, chain or any other business regardless of the location of that chain's
or business' facilities, and to operate, franchise or license those businesses
and/or facilities as FRULLATI CAFE AND BAKERY restaurants operating under the
Proprietary Marks or any other marks following our purchase, merger, acquisition
or affiliation, regardless of the location of these facilities, which you
acknowledge may be proximate to your Franchised Business, but not within your
exclusive Territory identified in SECTION 1.1 above. With regard to any of the
above sales, assignments and dispositions, you expressly and specifically waive
any claims, demands or damages arising from or related to the loss of our name,
Proprietary Marks (or any variation thereof) and System and/or the loss of
association with or identification of Kahala Franchise Corp. (dba FRULLATI CAFE
AND BAKERY) as us under this Agreement.
This Agreement will inure to the benefit of the successors and assigns
of Franchisor. In conjunction with one or more of the transactions contemplated
above or as otherwise determined by us, we have the right to assign our rights
and obligations under this Agreement to any person or entity, without your prior
consent. Upon such assignment, we will be relieved of all obligations or
liabilities then existing or thereafter able to be asserted under this
Agreement.
12.6 RESTRICTIONS ON SECURITY INTERESTS AND SUBFRANCHISING.
Except as otherwise set forth below, you shall not in any event have
the right to pledge, encumber, hypothecate or otherwise give any third party a
security interest in this Agreement in any manner whatsoever, nor subfranchise
or otherwise Transfer, or attempt to subfranchise or otherwise Transfer the
Franchised Business so long as it is operated as the Franchised Business, or to
Transfer or subfranchise a portion, but not all, of your rights hereunder
without the express prior written permission of Franchisor, which permission may
be withheld for any reason whatsoever in Franchisor's sole discretion.
Notwithstanding anything contained herein to the contrary, you shall have the
right to pledge your accounts receivable, net of royalties and rent, without our
prior written consent for the sole purpose of obtaining financing for the
operation of the Franchised Business provided you are in full compliance with
all of the terms and conditions of this Agreement, and any other agreement,
arrangement or understanding with us.
ARTICLE 13. RENEWAL OF FRANCHISE
Subject to the terms and conditions described below, you will have the
right to renew your license to operate the Franchised Business for the shorter
of the following: (i) ten (10) years; or (ii) the term of the new lease for the
Premises of the Franchised Business, including any renewal options thereto. In
the event you desire to renew your license, you must give us written notice to
that effect at least one hundred twenty (120) days prior to the expiration date
of the Term. In addition to giving the written notice of renewal referred to
above in a timely manner, in order to have the right to renew the license to
operate the Franchised Business for an additional term, you must also meet each
of the following requirements:
30
a. You must not then be in default under this Agreement, and no event
shall have occurred that, with the giving of notice, the passage of time, or
both, would constitute a default under this Agreement;
b. You must be in complete compliance with the terms of this Agreement
and the then-current Operations Manuals;
c. You must not have received more than three (3) written notices of
default or breach of this Agreement during its term, nor more than two (2) such
notices during the five years immediately preceding the Effective Date of the
proposed renewal;
d. You must have the existing right to maintain possession of the
Premises of your FRULLATI CAFE AND BAKERY restaurant for a term co-extensive
with the term of the renewal, or you must have secured and developed suitable
substitute premises approved by us;
e. You and we must execute a renewal franchise agreement (which will be
in the form of the franchise agreement then customarily used by us in the
granting of franchises in connection with the System) and all other agreements,
legal instruments, and documents then customarily used by us in the granting of
franchises in connection with the System. The renewal franchise agreement will
not provide for the payment of an Initial Franchise Fee, and its terms may
differ from the terms of this Agreement. The renewal franchise agreement will
supersede this Agreement, but will not terminate your liability to perform any
obligations which you have not yet performed under this Agreement, or which
survive the termination of this Agreement; nor will the renewal franchise
agreement terminate or supersede any Guaranty of Contract or Confidentiality
Agreement executed pursuant to this Agreement;
f. The equipment, fixtures and signage used in connection with the
operation of the Franchised Business must either meet our then-existing
specifications and standards, or you must agree to replace or refurbish such
items, and otherwise modify the methods of operation of the Franchised Business
at your cost, in order to comply with our specifications and standards then
applicable to new franchise owners;
g. You must be current on all financial obligations to us;
h. You shall have paid to us a Renewal Fee in the amount of Five
Thousand Dollars ($5,000.00);
i. You must, except where prohibited by law, release all past and
present claims against us; and
j. You must sign the current form of Franchise Agreement and other
agreements then being required of new franchisees, and return these agreements,
properly executed, before the expiration of this Agreement.
If you do not meet any of the requirements for renewal, we will give
you a written notice to that effect which will specify the requirements not met.
The written notice will be given to you within sixty (60) days after you deliver
to us your written notice of intent to renew.
31
ARTICLE 14. DEFAULT AND TERMINATION 14.1 DEFAULT; TERMINATION.
Franchisee will be in default under this Agreement:
a. If Franchisee becomes insolvent or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by Franchisee, or
if such a petition is filed against and consented to by Franchisee, or is not
dismissed within thirty (30) days; or if Franchisee is adjudicated bankrupt; or
if a xxxx in equity or other proceeding for the appointment of a receiver of
Franchisee or other custodian for Franchisee's business or assets is filed and
is consented to by Franchisee or is not dismissed within thirty (30) days; or if
a receiver or other custodian is appointed; or if proceedings for composition
with creditors under any state or federal law is instituted by or against
Franchisee; or if the real or personal property of the Franchised Business is
sold at levy thereupon by any sheriff, Xxxxxxxx or constable;
b. If Franchisee fails to pay, perform, observe or comply with any of
Franchisee's duties and obligations under this Agreement, including failure to
pay any sum due Franchisor under this Agreement (including, but not limited to,
Royalty Fees and Advertising Fees); or if Franchisee fails to carry out in all
respects its obligations under any lease, sublease, mortgage, equipment
agreement, promissory note, vender account, conditional sales contract or other
contract materially affecting the Franchised Business, to which the Franchisee
is a party or by which Franchisee is bound, whether or not we are a party
thereto;
c. If Franchisee's lease or sublease for the Premises of the Franchised
Business is terminated for reason of default by Franchisee;
d. If you fail within thirty (30) days of the entry of a final judgment
against Franchisee in an amount exceeding Two Thousand Dollars ($2,000) to
discharge, vacate or reverse the judgment or to stay its execution pending
appeal, or to discharge any judgment which is not vacated or reversed within
thirty (30) days after expiration of the stay of execution;
e. If we determine that a serious health or safety problem exists at
the Franchised Business, in which case, we may require you to immediately
correct the problem or cease operating until the problem is corrected;
f. If you are convicted of a felony, a crime involving moral turpitude,
or any other crime or offense that is reasonably likely to adversely affect the
System, the Proprietary Marks, the goodwill associated therewith, or our
interest therein;
g. If you abandon the Franchised Business;
h. If you close or relocate the Franchised Business, without the
express advance written consent of Franchisor;
If you fail to maintain an independent contractor relationship with
Franchisor;
32
j. If you have negligently or knowingly either inaccurately reported or
failed to report any information as part of your application or qualification as
a Franchisee;
k. If Franchisee or any of its principals commit an act, or permit an
act to be committed, which violates any federal, state or local law which
adversely impacts the Franchised Business;
l. If you fail to participate in any Roll-Out detailed in SECTION 9.3
of this Agreement after 60 days elapses from the date we notify you of the
Roll-Out;
m. If Franchisee violates any of the provisions of SECTIONS 2.3, 3.2,
9.2, OR 9.3 including, but not limited to, selling only those products and
services authorized by Franchisor, purchasing such authorized products only from
suppliers who are approved in writing by Franchisor, and utilizing and/or
switching to any of Franchisor's designated approved and/or exclusive suppliers,
including a supplier who has entered into a national or regional master supplier
agreement with Franchisor; or
n. If you Transfer or attempt to Transfer any rights or obligations
under this Agreement to any third party in violation of the provisions of
ARTICLE 12 of this Agreement.
14.2 OPPORTUNITY TO CURE.
THIRTY DAY CURE PERIOD - Except as otherwise provided in this SECTION
14.2, you will have the right to cure your default under this Agreement within
thirty (30) days after written notice of default from us is received or refused,
as the case may be. Notwithstanding the foregoing, the following lesser periods
will apply under the circumstances described:
a. SEVEN DAY CURE PERIOD - A seven (7) day cure period will apply if
you fail, refuse, or neglect to pay when due to us any monies owing to us
(including, but not limited to, Royalty Fees and Advertising Fees), or to any
Advertising Fund, or if you fail to maintain the insurance coverage set forth in
this Agreement;
b. 24 HOUR CURE PERIOD - A twenty-four (24) hour cure period will apply
to the violation by you of any law, regulation, order or our standards relating
to health, sanitation or safety; or if you cease to operate the Franchised
Business for a period of forty-eight (48) hours without the prior written
consent of Franchisor; provided, however, that if the Franchised Business is
abandoned, no cure period will apply.
c. NO CURE PERIOD - No cure will be available (1) if Franchisee is in
default under or breaches its covenants or obligations under SECTIONS 9.7,
14.1(A), 14.1(C), 14.1(F), 14.1(G), OR 14.1(H), or (2) if Franchisee
intentionally underreports weekly Gross Sales, falsifies financial data, fails
to promptly provide upon Franchisor's request financial data and records
specified in this Agreement, or otherwise commits an act of fraud with respect
to its rights or obligations under this Agreement; or (3) if Franchisee is in
default under or breaches its covenant against competition set forth in SECTION
14.5 of this Agreement; or (4) if Franchisee is in default under or breaches its
covenant to observe and obey all applicable laws, rules, ordinances and
regulations set forth in SECTION 9.4, or (5) if Franchisee repeatedly fails to
comply with the provisions of this Agreement, whether or not subsequently cured;
or (6) if Franchisee, having
33
twice previously cured a default or breach of this Agreement, commits the same
breach or default again.
STATUTORY CURE PERIOD - If a statute in the state in which the
Franchised Business is located requires application of that state's law, and
that state's statute requires a cure period for the applicable default which is
longer than any cure period specified in this ARTICLE 14, the statutory cure
period will apply.
14.3 REMEDIES
a. INTEREST AND COSTS - If you fail to remit when due any payments
required under this Agreement, you agree to pay, in addition to the unpaid
amounts, all collection costs, reasonable attorneys' fees, and interest on the
unpaid amounts at eighteen percent (18%) per annum or the highest permissible
rate. If you fail to cure a default, following notice, within the applicable
time period set forth in SECTION 14.2, or if this Agreement is terminated as a
result of your default, you shall pay to us all damages, costs and expenses,
including, without limitation, interest at eighteen percent (18%) per annum, or
the highest permissible rate, and reasonable attorneys' fees and costs, incurred
by us as a result of any such default or termination; and the interest and all
damages, costs and expenses, including reasonable attorneys' fees, may be
included in and form part of the judgment awarded to us in any proceedings
brought by us against you.
b. WAIVER OF PUNITIVE DAMAGES - Both Franchisor and Franchisee waive to
the full extent permitted by law, any right they otherwise may have had to
claim, pursue, demand or receive any exemplary or punitive damages arising out
of or related in any way to the business relationship created by this Agreement
and its addenda, appendices, exhibits and attachments.
c. If you breach or default in any of the terms of this Agreement, we
may enforce it by injunction, specific performance, or any other remedy
available under this Agreement, at law or in equity, including termination.
These remedies are not exclusive and we may use any other remedy available. In
addition, we may elect to terminate this Agreement and all Franchisee's rights
under it as set forth in SECTION 14.4. If we become aware of a serious health or
safety problem in the Franchised Business, we may require you to immediately
take corrective action and/or cease operations until the problem is remedied. We
may terminate this Agreement immediately upon notice if you fail to cease
operations as required, or fail to completely correct the problem within
twenty-four (24) hours after receipt of notification from us; or if you refuse
to accept or pick up the notification, then after delivery (as defined in
SECTION 15) of notification from us.
d. If you breach or default in any of the terms of this Agreement, we
have the right to have a receiver appointed to take possession, manage and
control the assets of the Franchised Business, collect the profits, and pay the
net income for the operation of the Franchised Business as ordered by a court of
competent jurisdiction. The right to appoint a receiver will be available
regardless of whether waste or danger of loss or destruction of the assets
exists, and without the necessity of notice to Franchisee.
34
14.4 EFFECT OF TERMINATION OR EXPIRATION.
If you fail to cure any default to our satisfaction, within the
applicable period following notice from us, we may, in addition to all other
remedies at law or in equity or as otherwise set forth in this Agreement,
immediately terminate this Agreement. This termination will be effective
immediately upon receipt (or delivery, as defined below, if you refuse or fail
to pick up the notice) of a written notice of termination from us.
Notwithstanding the foregoing, this Agreement will immediately
terminate upon the occurrence of any event set forth in SECTIONS 9.7, 14.1(A),
14.1(C), 14.1(G) OR 14.1(H), without notice or opportunity to cure or notice of
termination. Upon termination or expiration of this Agreement, we can advise all
suppliers of FRULLATI CAFE AND BAKERY proprietary food items and other supplies
bearing any of the Proprietary Marks or service marks to cease delivering the
items and products to you.
Upon any termination of this Agreement (whether pursuant to SECTIONS
14.1, 14.2 or 14.3 above or otherwise), or upon expiration of the Term, you must
immediately cease to hold yourself out to the public as a franchise owner of the
System, and you must comply with the following:
a. Immediately pay to us or any affiliate of ours all sums owing from
you to us or such affiliate, including the monthly Royalty Fees and Advertising
Fees, for any period prior to the date of termination, and all amounts owed for
services and/or supplies or other items purchased by you from us or any
affiliate of ours, or that were financed by us or any affiliate of ours, or
which we or any affiliate of ours loaned to you, together with any interest or
late fees accrued thereon;
b. Immediately cease to use, by advertising or in any manner
whatsoever, the Proprietary Marks, any trade secrets, any confidential
information, any benefits of the System or any part thereof, any methods
associated with the Proprietary Marks or the System, any forms, Operations
Manuals, slogans, signs, sign posts, marks, symbols, or devices used in
connection with the operation of the Franchised Business, or any Proprietary
Information; and you must deliver all such materials to us within ten (10) days
of the termination date;
c. Immediately turn over to us in good condition, without charge to us,
the Operations Manuals and all copies or reproductions thereof, all advertising
materials, stationery and printed forms of the Franchised Business, and all
other Proprietary Information relating to the operation or business goodwill of
the Franchised Business. If we do not recover any such items, such items shall
be valued at their then-current replacement cost, for purposes of determining
the damages owing by you to us for failure to return such items, if we pursue a
damage claim as a result thereof;
d. Immediately discontinue all advertising as a franchise owner of the
System, and thereafter refrain from any advertising that would indicate that you
are or ever were a franchise owner or licensee of ours, or otherwise were
affiliated with us or the System;
e. Immediately take such steps as may be necessary or appropriate to:
35
(i) delete your listing in the yellow pages or any
other directory, if applicable, and terminate any other
listings which might indicate that you are or were a
franchisee or licensee of ours, or otherwise were affiliated
with us or the System; and
(ii) transfer to our designee or us any telephone
numbers used by you in connection with the Franchised
Business. You acknowledge that between you and us, we have the
sole right to the interest in all telephone numbers and
directory listings associated with any Proprietary Marks, and
you authorize us and appoint us and any officer or agent of
ours, as your attorney-in-fact, to direct the telephone
company and all listings agencies to accept such direction, or
this Agreement, as conclusive evidence of our exclusive rights
in such telephone numbers and directory listings and its
authority to direct their transfer;
f. Immediately take such action as may be required to cancel all
fictitious or assumed names or equivalent registrations relating to your use of
any Proprietary Xxxx. You acknowledge that between you and us, we have the sole
right to the interest in all such fictitious or assumed names or equivalent
registration, and you authorize us and appoint us and any officer or agent of
ours as your attorney-in-fact, to effect the termination or cancellation of such
fictitious or assumed names or equivalent registrations should you fail or
refuse to do so, and the appropriate federal, state, and local agencies may
accept your direction or this Agreement as conclusive evidence of our exclusive
rights in such fictitious or assumed names or equivalent registrations, and its
authority to direct their termination or cancellation.;
g. Comply with the confidentiality requirements and the covenant
against competition in this Agreement for the specified period. Franchisee
acknowledges that he/she, or (if an entity) its, authorized representative has
carefully reviewed the confidentiality requirements and the covenant against
competition in this Agreement; and that Franchisee has agreed to be bound by all
the requirements and covenants;
h. Maintain at a place made known to us all books, records and reports
required under this Agreement for a period of not less than three (3) years
after the date of termination or expiration of this Agreement, to allow us to
make a final inspection of your books and records for the purpose of verifying
that all amounts owing have been paid; and
i. Furnish to us, within thirty (30) days after the effective date of
termination or expiration of this Agreement, evidence satisfactory to us
regarding your compliance with the foregoing obligations.
If you fail to do any of the foregoing, we may pursue against you
and/or any guarantor of your obligations under this Agreement any remedy
available at law or in equity.
We have the right, but not the obligation, to purchase from you any
assets or property (but not leasehold improvements) used in the operation of the
Franchised Business that we may specify, at fair market value as of the time of
termination, exclusive of personalized materials with no value to us, and
inventory and supplies not reasonably required in the operation of the
Franchised Business. If Franchisee and Franchisor cannot agree upon a purchase
price, then the purchase price will be the average of three independent
appraisals of the Franchised Business. Franchisor and Franchisee shall each
select an appraiser qualified to evaluate a business of this kind and the third
appraiser will be one agreed upon by the other two appraisers. If a price cannot
be arrived at within sixty (60) days after the termination of this Agreement,
then Franchisor may withdraw its election to exercise its option under this
SECTION 14.4.
36
14.5 CONFIDENTIALITY; COVENANT NOT TO COMPETE.
a. You acknowledge that much of the information imparted to you by us
is confidential, constitutes trade secrets and remains the sole exclusive
property of Franchisor. Confidential Information includes: (1) ingredients,
recipes, and methods of preparation of food products; (2) methods of operation
of FRULLATI CAFE AND BAKERY restaurants; (3) information about products,
services, or procedures before they become public knowledge; and (4) other
information disclosed to you through confidential notifications and the
confidential Operations Manuals. You further acknowledge that our Confidential
Information and trade secrets are unique and novel to Franchisee. You shall not
disclose any such information, except as authorized by us. You shall return all
materials such as manuals (including the Operations Manuals), recipes, menus,
brochures and the like, and other materials received from us, to us upon the
termination of this Agreement for any cause.
b. Before disclosing Confidential Information or trade secrets to its
employees or other representatives, Franchisee shall require those people to
sign confidentiality agreements in a form supplied by, or approved by,
Franchisor, binding those people not to disclose the information except as may
be authorized in the agreement. You agree you will take all steps necessary at
your own expense, to protect the Confidential Information and trade secrets
mentioned in this Agreement. Neither Franchisee nor any employee of Franchisee
will divulge this information to anyone without our prior written consent.
c. During the term of this Agreement and for a period of two (2) years
after its termination for any cause, Franchisee shall not engage in any business
in competition with any FRULLATI CAFE AND BAKERY restaurant. The provisions of
this Agreement bind Franchisee in any capacity, including as a franchisee, sole
proprietor, partner, limited partner, member, employer, franchisor, stockholder,
officer, director or employee. For purposes of this paragraph, "competition"
means the franchising, ownership, or operation of a restaurant similar to a
FRULLATI CAFE AND BAKERY outlet at the location identified in SECTION 1.1 of
this Agreement, or within a geographical area consisting of: (1) during the term
of this Agreement, anywhere else; and (2) after termination of this Agreement, a
ten (10) mile radius from the location of any FRULLATI CAFE AND BAKERY
restaurant of Franchisor, its third party licensees or its third party
franchisees, including the restaurant licensed by this Agreement. The terms
"FRULLATI CAFE AND BAKERY restaurant" and "FRULLATI CAFE AND BAKERY outlet"
include not only the restaurants and outlets now in existence, but also those
established at a later date. The term of this covenant will be extended by any
time consumed in litigation to enforce it in both trial and appellate courts. If
a court of competent jurisdiction determines that the restrictions in this
paragraph are excessive in time, geographic scope, or otherwise, the court may
reduce the restriction to the level that provides the maximum restriction
allowed by law.
d. During the Term of this Agreement, and for a period of two (2) years
after its expiration or termination for any cause, you shall not divert or
attempt to divert any business, customers, or potential customers of the
FRULLATI CAFE AND BAKERY System to any competitor, by direct or indirect
inducement or otherwise. In addition, you shall not at any time do or perform
any act, directly or indirectly, which xxxxx the goodwill or reputation of
Franchisor or the System.
e. If you, any of your officers, directors or shareholders (if you are
a corporation), or any of your members or managers (if you are a limited
liability company), or any partner of yours (if you are a partnership),
("Restricted Person(s)") have not signed this Agreement under the heading
"Acceptance of SECTIONS 7.1, 9.7, 14.5, and 14.7 or is not a party to this
37
Agreement, you agree that you will use your best efforts to cause such
Restricted Persons to execute an agreement in a form and substance acceptable to
us, which incorporates the provisions set forth in this SECTION 14.5 and in
SECTIONS 7.1, 9.7, and 14.7 of this Agreement. This will be a continuing
obligation on your part, and will apply to any person who becomes a Restricted
Person at any time during the Term of this Agreement.
14.6 CONTINUING OBLIGATIONS.
All our obligations that expressly survive the expiration or
termination of this Agreement, or by the implicit nature thereof require
performance after the expiration or termination of this Agreement, will continue
in full force and effect (subsequent to, and notwithstanding, the expiration of
the Term or termination of this Agreement), until they are satisfied in full or
by their nature expire.
14.7 RIGHT TO USE.
Upon any expiration of the Term or termination of this Agreement, we
will have the exclusive right to use and incorporate in the System, for the
benefit of ourselves and other franchise owners in the System, any
modifications, changes and improvements developed or discovered by you or any
Restricted Person in connection with the Franchised Business, without liability
or obligation to the developer thereof.
14.8 REMEDIES.
Upon violation of any of the covenants contained in this ARTICLE 14, it
may be difficult to determine the resulting damages to us, and therefore, in
addition to any other remedies we may have, we will have the right to make
application in a court of competent jurisdiction for temporary and permanent
injunctive relief, without the necessity of proving actual damages.
ARTICLE 15. NOTICES
All notices specified by this Agreement or required by law must be in
writing and given by personal delivery or sent by certified mail, return receipt
requested to the address(es) set forth at the beginning of this Agreement or to
such other address(es) as the parties may designate in writing prior to the
giving of any notice. Notices to Franchisee may also be given at the location of
the Franchised Business or any franchised restaurant/outlet of Franchisee; or at
the residence of Franchisee (if an individual), or at the residence of the
principal shareholder(s), partner(s), or member(s) of Franchisee (if a business
entity). Notices will be deemed to be "delivered" when actually left in the
custody of an adult agent, employee or resident at a place of business or
residence if given by personal delivery; or if given by certified mail, when
deposited with the U.S. Postal Service with proper address and postage paid.
ARTICLE 16. CONSTRUCTION AND ENFORCEMENT; MISCELLANEOUS
16.1 INDEPENDENT CONTRACTORS.
The relationship between Franchisor and Franchisee is that of
independent contractors. Franchisee is in no way to be deemed a partner, joint
venturer, agent, employee, or servant of Franchisor. You have no authority to
bind Franchisor to any contractual obligation or incur any liability for or on
behalf of Franchisor. You shall install a sign within the Franchised Business,
at a location and in a form designated by us, indicating that you are an
independent contractor and are
38
the owner of the Franchised Business. You shall identify yourself as an
independent owner of the Franchised Business in all dealings with customers,
lessors, contractors, suppliers, public officials, employees, and others. You
shall put notices of this independent ownership on signs, forms, stationery,
advertising, and other materials as we may at any time require.
16.2 SEVERABILITY AND SUBSTITUTION OF PROVISIONS.
Except as provided to the contrary in this Agreement, each Article,
Section, subsection, term and provision of this Agreement, and any portion
thereof, will be considered severable, and if, for any reason, any such portion
of this Agreement is held to be invalid, contrary to, or in conflict with any
applicable present or future law or regulation in a final, non-appealable ruling
issued by any court, agency or tribunal with competent jurisdiction in a
proceeding to which we are a party, that ruling will not impair the operation
of, or have any other effect upon, such other portions of this Agreement as may
otherwise remain valid, and such other portions will continue to be given full
force and effect and bind the parties to this Agreement.
If any applicable and binding law or rule of any jurisdiction requires
a greater prior notice of the termination of, or refusal to renew, this
Agreement than is required under this Agreement, or the taking of some other
action not required under this Agreement, or if under any applicable and binding
law or rule of any jurisdiction, any provision of this Agreement or any
specification, standard or operating procedure prescribed by us is invalid or
unenforceable, the prior notice and/or other action required by such law or rule
will be substituted for the comparable provisions of this Agreement, and we will
have the right, in our sole discretion, to modify such invalid or unenforceable
provision, specification, standard or operating procedure to the extent required
to be valid and enforceable. You agree to be bound by any promise or covenant
imposing the maximum duty permitted by law which is subsumed within the terms of
any provision of this Agreement, as though it were separately stated in and made
a part of this Agreement, that may result from striking from any portion or
portions which a court may hold to be unreasonable and unenforceable in a final
decision to which we are a party, or from reducing the scope of any promise or
covenant to the extent required to comply with such a court order. Such
modifications to this Agreement shall be effective only in such jurisdiction,
unless we elect to give them greater applicability, and otherwise shall be
enforced as originally made and entered into in all other jurisdictions.
16.3 APPLICABLE LAW AND FORUM; WAIVER OF JURY
Except to the extent that the United States Trademark Act of 1946, as
amended (15 U.S.C., ss. 1051 et seq.) or the franchising laws of any state that
may be applicable, the laws of the State of Arizona govern all rights and
obligations of the parties under this Agreement. Franchisor and Franchisee agree
that any appropriate state or federal court located in Maricopa County, Phoenix,
Arizona has exclusive jurisdiction over any case or controversy arising under or
in connection with this Agreement and is the proper forum in which to adjudicate
the case or controversy. The parties hereto irrevocably submit to the
jurisdiction of any such court. THE PARTIES AGREE THAT ALL DISPUTES ADMITTED TO
THE COURT PURSUANT TO THIS SECTION SHALL BE TRIED TO THE COURT SITTING WITHOUT A
JURY, NOTWITHSTANDING ANY STATE OR FEDERAL CONSTITUTIONAL OR STATUTORY RIGHTS OR
PROVISIONS.
39
16.4 NO GUARANTEE OF FRANCHISEE'S SUCCESS.
Franchisee has been informed and acknowledges its understanding that
because of the highly competitive nature of the business involved, successful
operation of its FRULLATI CAFE AND BAKERY restaurant in its Territory will
depend in part, upon the best efforts, capabilities, management, and efficient
operation by Franchisee; as well as the general economic trend and other local
marketing conditions.
16.5 EXISTENCE OF VARIOUS FORMS OF FRANCHISE AGREEMENTS.
Franchisee acknowledges that present and future franchisees of
Franchisor and Franchisor's area licensors operate under a number of forms of
franchise agreements and consequently, Franchisor's obligations and rights with
respect to its various franchisees may differ materially in certain instances.
The existence of different forms or versions of the franchise agreement does not
entitle Franchisee to benefit from any such difference; nor does it operate to
alter or amend the agreement of the parties set forth in this Agreement.
16.6 FRANCHISE OWNER MAY NOT WITHHOLD PAYMENTS.
You agree that you will not, on grounds of alleged or actual
nonperformance or breach by us of any of our obligations under this Agreement,
withhold payment of any Royalty Fees, Advertising Fees, amounts due to us or any
of our affiliates for goods and/or services purchased by you, or any other
amounts due us or any of our affiliates.
16.7 REMEDIES ARE CUMULATIVE.
The rights and remedies of the parties to this Agreement are
cumulative, and no exercise or enforcement by either party of any right or
remedy under this Agreement shall preclude the exercise or enforcement by such
party of any other right or remedy under this Agreement to which such party may
be entitled by law to enforce.
16.8 INTERPRETATION.
All the terms and provisions of this Agreement will be binding upon and
inure to the benefit of the successors and assigns of the parties. However,
nothing in this paragraph may be construed as a consent by us to the assignment
or transfer of this Agreement or any rights by you.
16.9 WAIVER.
Failure of Franchisor to insist upon the strict performance of any
term, covenant or condition contained in this Agreement will not constitute or
be construed as a waiver or relinquishment of Franchisor's rights to enforce
thereafter any such term, covenant or condition and it will continue in full
force and effect.
16.10 LITIGATION EXPENSE.
If an action at law or suit in equity is brought to establish, obtain
or enforce any right by either of the parties to this Agreement, the prevailing
party in the suit or action, in the trial and/or appellate courts, will be
entitled to reasonable attorneys fees to be recovered from the other party as
well as that party's costs and disbursements incurred in such suit or action.
40
16.11 CROSS DEFAULT.
A default by Franchisee under this Agreement will be deemed a default
of all Franchise Agreements between Franchisee and Franchisor (and/or any of its
predecessors.) A default by Franchisee under any other Franchise Agreement
between Franchisor (and/or any of its predecessors), and Franchisee will be
deemed a default under this Agreement. A default by the Guarantor(s) of this
Agreement or any other Franchise Agreement Guaranty of Contract (including
Franchisor and/or any of its predecessors), will be deemed a default of this
Agreement.
16.12 CROSS TERMINATION.
If this Agreement is terminated as a result of a default by Franchisee,
Franchisor may, at its option, elect to terminate any or all other franchise
agreements between Franchisee and Franchisor (and/or any of its predecessors.)
If any other franchise agreement between Franchisee and Franchisor (and/or any
of its predecessors), is terminated as a result of a default by Franchisee,
Franchisor may, at its option, elect to terminate this Agreement. It is agreed
that an incurable or uncured default under this Agreement or any other franchise
agreement between Franchisee and Franchisor (and/or any of its predecessors),
will be grounds for termination of this Agreement and/or any and all franchise
agreements between Franchisee and Franchisor (and/or any of its predecessors),
without additional notice or opportunity to cure.
16.13 NO THIRD PARTY BENEFICIARIES.
This Agreement is not intended to benefit any other person or entity
except the named parties hereto and no other person or entity shall be entitled
to any rights hereunder by virtue of so-called "third party beneficiary rights"
or otherwise.
16.14 BINDING EFFECT; MODIFICATION.
This Agreement is binding upon the parties to this Agreement and their
respective executors, administrators, personal representatives, heirs, permitted
assigns and successors in interest. No amendment, change, or modification of
this Agreement shall be binding on any party unless executed in writing by you
and us.
16.15 ENTIRE AGREEMENT; NATURE AND SCOPE; CONSTRUCTION.
THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CHANGED EXCEPT BY A WRITTEN DOCUMENT SIGNED BY BOTH PARTIES. The preambles
and exhibit(s) are part of this Agreement, which constitutes the entire
understanding and agreement of the parties, and there are no other oral or
written understandings or agreements between us and you relating to the subject
matter of this Agreement. Any representation (s) not specifically contained in
this Agreement made prior to entering into this Agreement do not survive
subsequent to the execution of this Agreement. We and you have entered into this
Agreement for the sole purpose of authorizing you to use the intellectual
property rights licensed by this Agreement in the operation of a single business
operation at the designated location during the Term of this Agreement in which
those specific items designated by us for sale and use in such locations are
offered for sale and use in individual, face-to-face transactions with patrons
visiting this fixed location (and equivalent telephone or mail transactions
accepted as a convenience to that customer group). All consideration being
furnished by us to you during the course of performance of this Agreement has
been determined based on the limited rights and other limitations expressed
herein. No
41
other rights have been bargained for or paid for. This provision is intended to
define the nature and extent of the parties' mutual contractual intent, there
being no mutual intent to enter into contract relations, whether by agreement or
by implication, other than as set forth above. The parties further acknowledge
that these limitations are intended to achieve the highest possible degree of
certainty in the definition of the contract being formed, in recognition of the
fact that uncertainty creates economic risks for both parties which, if not
addressed as provided in this Agreement, would affect the economic terms of this
bargain.
Nothing in this Agreement is intended, nor shall be deemed, to confer any rights
or remedies upon any person or legal entity not a party hereto.
16.16 TERMINOLOGY.
In addition to any other definitions or meanings set forth herein, the
following terms shall have the following meanings as used herein and shall be
deemed to include all persons who succeed to the interest of the original:
The term "affiliate" means any person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with any person;
The term "person" means any natural person, corporation, partnership,
trust or other entity or form of organization;
The term "will" and "shall" shall be synonymous, and shall be mandatory
and not discretionary, unless otherwise specifically provided herein;
The use of the terms "includes" and including" in any provision of this
Agreement followed by specific examples used shall not be construed to limit
application of the provision to the specific examples use; and
The term "you" as used herein is applicable to one or more persons, a
corporation or a partnership, as the case may be, and the singular usage
includes the plural and the masculine and neuter usages include the other and
the feminine and the possessive. If two or more persons are at any time
franchisee hereunder, their obligations and liabilities to us shall be joint and
several. References to "you" and "assignee" which are applicable to an
individual or individuals shall mean the principal owner(s) of the equity or
operating control of you or the assignee, if you or the assignee is a
corporation or partnership.
16.17 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, but all such
counterparts shall constitute but one and the same Agreement.
16.18 OFFERINGS.
If you are a corporation, partnership or other entity, and if you
intend to offer securities, partnership interests or other ownership interests
in yourself through any public or private offering, you shall not use any
Proprietary Marks in such public or private offering, except to reflect your
franchise relationship with us; nor shall you misrepresent your relationship
with us by any statement or omission of an essential statement. You shall
indemnify and hold us harmless from any liability in connection with such
offering. Nothing in the foregoing shall modify
42
the provisions of ARTICLE 12 of this Agreement, and no such offering shall be
made without first complying with any applicable provisions of ARTICLE 12 of
this Agreement.
16.19 TIME.
Time is of the essence of each and every provision of this Agreement.
16.20 GENDER, NAME AND CAPTIONS.
Words in the singular number include the plural when the sense requires
(and vice-versa). The Table of Contents and the captions are inserted only for
convenience and are not a part of this Agreement or a limitation of the scope of
the particular paragraph to which each refers.
16.21 NATURE OF LIABILITY.
If Franchisee consists of two (2) or more persons, whatever the form of
business entity through which the persons control Franchisee, then all these
persons will be jointly and severally liable under the provisions of this
Agreement.
ARTICLE 17. ACKNOWLEDGMENTS AND REPRESENTATIONS OF FRANCHISEE
17.1 CERTAIN REPRESENTATIONS AND WARRANTS OF FRANCHISEE.
Franchisee represents and warrants that the following statements are
true and accurate:
a. Franchisee does not seek to obtain the Franchised Business for
speculative or investment purposes and has no present intention to sell or
transfer or attempt to sell or transfer the Franchised Business and/or the
Franchise.
b. Franchisee understands and acknowledges the value to the System of
uniform and ethical standards of quality, appearance and service described in
and required by the Operations Manuals and the necessity of operating the
Franchised Business under the standards set forth in the Operations Manuals.
Franchisee represents that it has the capabilities, professionally, financially
and otherwise, to comply with the standards of Franchisor.
c. If Franchisee is a corporation, Franchisee is duly incorporated and
is qualified to do business in the state and any other applicable jurisdiction
within which the Franchised Business is located.
d. The execution of this Agreement by Franchisee will not constitute or
violate any other agreement or commitment to which Franchisee is a party.
e. Any individual executing this Agreement on behalf of Franchisee is
duly authorized to do so and the Agreement shall constitute a valid and binding
obligation of the Franchisee and, if applicable, all of its partners, members,
or shareholders, if Franchisee is a partnership, limited liability company, or
corporation.
43
f. Franchisee has, or if a partnership, corporation or other entity,
its partners or its principals have, carefully read this Agreement and all other
related documents to be executed by it concurrently or in conjunction with the
execution hereof, that it has obtained, or had the opportunity to obtain, the
advice of counsel in connection with the execution and delivery of this
Agreement, that it understands the nature of this Agreement, and that it intends
to comply herewith and be bound thereby.
g. Franchisee has read and understands the information and disclosures
made in the Uniform Franchise Offering Circular provided to Franchisee as
acknowledged in SECTION 17.3(C). Franchisee understands and acknowledges that
estimates for initial start up expenses are estimates only. Franchisee
understands that there can be and likely will be additional start-up expenses.
Franchisee has had the opportunity to and has consulted with their attorney and
accountant and business advisors before entering into this Agreement.
h. Franchisee acknowledges and understands that Franchisor's past
experience indicates that owner-operated outlets generally perform better than
absentee owners with hired managers. This does not mean that you will operate
your Franchised Business better or that a manager is not going to operate your
Franchised Business successfully. The food business is a personal business and
your success is dependent upon your business skill and judgment. This includes
your choice of employees you hire to serve the public. Your skill in hiring the
right people to work in your Franchised Business is very important in
determining whether people decide to purchase menu items from your Franchised
Business or from another store in the same vicinity.
i. Franchisee understands and acknowledges that ownership of a
franchise and franchised business carries certain risks. These risks include the
loss of your initial investment, other continued financial losses such as rent
payments due under lease obligations and other contractual obligations, the loss
of your time and energy in starting up and running your Franchised Business, and
loss of earnings and investment income from your investment in the Franchised
Business. Franchisee understands and acknowledges that it may make money and may
lose money and is entering this business venture with this express
understanding. Franchisee is not relying upon anything which is not contained
within this Agreement in determining and deciding to become a Franchisee.
j. Notwithstanding the foregoing, you understand and agree that the
System must not remain static if it is to meet (without limitation) presently
unforeseen changes in technology, competitive circumstances, demographics,
populations, consumer trends, social trends and other market place variables,
and if it is to best serve the interests of us, you and all other franchisees.
Accordingly, you expressly understand and agree that we may from time to time
change the components of the System, including, without limitation, altering the
products, programs, services, methods, standards, forms, policies and procedures
of that System; abandoning the System altogether in favor of another system in
connection with a merger, acquisition or other business combination or for other
reasons; adding to, deleting from or modifying those products, programs and
services which your Franchised Business is authorized and required to offer,
modifying or substituting entirely the building, Premises, equipment, signage,
trade dress, decor, color schemes and uniform specifications and all other unit
constructions, design, appearance and operation attributes which you are
required to observe hereunder; and, changing, improving, modifying or
substituting the Proprietary Marks. You expressly agree to comply with any such
modifications, changes, additions, deletions, substitutions and alterations. You
shall accept, use and effectuate any such changes or modifications to, or
substitution of, the System as if they were part of the System at the time that
this Agreement was executed. Except as provided herein, we shall not be liable
to you for any expenses, losses or damages sustained by you as a result of any
of the modifications contemplated hereby.
44
17.2 ADDITIONAL INFORMATION RESPECTING FRANCHISEE.
a. Attached hereto as EXHIBIT 1 is a schedule prepared by Franchisee
which contains complete information respecting the owners, partners, members,
officers and directors, as the case may be, of Franchisee.
b. The address (written notice of any change in this information after
the Effective Date must be delivered to Franchisor pursuant to SECTION 15
hereof) where Franchisee's financial and other records are maintained is:
000 Xxxxxxxxx Xxxxxxx
Xxxxxxx Xxxxx, Xxxxxxxx 00000
c. Franchisee has delivered to Franchisor or will deliver concurrent
herewith, complete and accurate copies of all organizational documents relating
to Franchisee, including without limitation, all partnership agreements,
certificates of partnership, operating agreements, articles or certificates of
incorporation, by-laws and shareholder agreements, including all amendments,
side letters and other items modifying such documents.
d. The initial term (see also SECTION 1.4 hereof) of this Agreement
expires on
17.3 ACKNOWLEDGEMENTS OF FRANCHISEE.
a. Franchisee acknowledges that it has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that the success of this business venture involves substantial
business risks and will largely depend upon the ability of Franchisee.
Franchisor expressly disclaims making, and Franchisee acknowledges that it has
not received or relied on, any warranty or guarantee, express or implied, as to
the potential volume, profits or success of the Franchised Business contemplated
by this Agreement.
Franchisee Initials
b. Franchisee acknowledges that Franchisee has received, read and
understands this Agreement and the related Exhibits, Attachments and agreements
and that Franchisor has afforded Franchisee sufficient time and opportunity to
consult with advisors selected by Franchisee about the potential benefits and
risks of entering into this Agreement.
Franchisee Initials
c. You acknowledge receipt of this Agreement with all blanks completed
and with any amendments and exhibits at least five (5) business days prior to
execution of this Agreement. In addition, you acknowledge receipt of our Uniform
Franchise Offering Circular at the earliest of (i) the first personal meeting
between you and us (or our agent) at which time the sale or possible sale of a
franchise to you was discussed, or (ii) ten (10) business days prior to the
execution of this Agreement or your payment of any monies to us or our agent.
Franchisee Initials
45
d. You acknowledge, as detailed in SECTION 2.3 of this Agreement, that
you must, at your own cost and expense, use only our designated and approved
third party architect and project management firm, as detailed in the Operations
Manuals, for the design and construction oversight of your Franchised Business.
Except for the Firm designated and approved by Franchisor, no other architect or
project management firm may be used by you for the design and construction
oversight of your Franchised Business.
Franchisee Initials
ARTICLE 18. SUBMISSION OF AGREEMENT
18.1 NO OFFER BY FRANCHISOR.
The submission of this Agreement to Franchisee does not constitute an
offer and this Agreement shall become effective only upon the execution thereof
by Franchisor and Franchisee. THIS AGREEMENT SHALL NOT BE BINDING ON FRANCHISOR
UNLESS AND UNTIL IT SHALL HAVE BEEN ACCEPTED AND SIGNED BY THE PRESIDENT OR
OTHER EXECUTIVE OFFICER OF FRANCHISOR. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE
UNTIL AND UNLESS FRANCHISEE SHALL HAVE BEEN FURNISHED BY FRANCHISOR WITH ANY
DISCLOSURE, IN WRITTEN FORM, AS MAY BE REQUIRED UNDER OR PURSUANT TO APPLICABLE
LAW.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
46
IN WITNESS WHEREOF the parties have duly executed and delivered this
Agreement as of the day and year first above written.
FRANCHISEE: GFY, Inc., a Illinois Corporation
----------------------------------------------
By: Ed Schawalb
Its: President
FRANCHISOR: KAHALA FRANCHISE CORP., A
DELAWARE CORPORATION
47
